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Beauty treatments take an ugly turn during recession

Universal Press Syndicate

The Food and Drug Administration recently approved Allergan’s (NYSE: AGN) Latisse, a treatment for hypotrichosis (sparseness) of eyelashes.

Small eyelashes are far from a small market – the global market is around $3.7 billion. But Allergan is going to have a hard time capturing much of that market in this economy, considering the drug will run $120 a month. Beauty treatments are often among the first things to be cut when paychecks are in jeopardy.

But the economy will eventually rebound, and Allergan could ultimately hit its target of $500 million per year in sales once vainness returns. By comparison, Allergan is expecting nearly $1.3 billion in sales from Botox this year.

Ironically, Latisse was originally designed to treat glaucoma and is sold under the brand name Lumigan, but the longer eyelashes were discovered as a side effect. It’s not uncommon to have the same active ingredient sold under two brand names. For instance, Viagra is also sold as Revatio, a treatment for pulmonary arterial hypertension.

Being dependent on discretionary spending, Allergan is likely to continue to tread water until the economy improves. But investors thinking about the long term don’t really need to worry about their mascara running – they can ride the waves without crying.

Ask the Fool

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My dumbest investment

In January 2001, I was relatively new to investing. I bought into Koala Corp., which makes those baby changing stations you see in restrooms. I re-upped twice as it fell, thinking the stock kept looking cheaper. My total investment: $1,300. The company was operating at a loss, but a lot of companies were at the time. Management sounded optimistic, and I was hopeful. The price kept falling until I sold on the day it declared bankruptcy, ending up with just $42. Of course, after such a costly lesson, I tried to dissect the company and figure out what went wrong. I was amazed how bad its balance sheet looked, with skyrocketing inventory, ballooning debt and little cash. I now take management’s words lightly, especially if they sound too optimistic. Trust but verify. And I pay attention to debt. Cash flow problems can eat you alive if you’re highly leveraged. – T.D., online

The Fool responds: The tuition was costly, but you learned a lot! Be especially careful with unprofitable companies. Koala trades for less than a penny per share now.

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