Wednesday, December 14, 2005

The Horror, The Horror: Cutera Walloped

Our vanity/aesthetic reconstruction play had it's head chopped off on Tuesday.

After gapping down $15 intraday, Cutera (CUTR) is barely showing signs of life on Wednesday.

Readers will recall that we've recommended Cutera since it was trading at $23.

After hitting $46, Cutera's let's-make-money-off-Baby Boomers-party is over.

The culprit for yesterday's debacle was a legal decision that may leave Cutera coughing up millions of dollars to rival Palomar Tech (PMTI) for a patent infringement.

Palomar said Tuesday that it has no intention of licensing technology to Cutera should it win.

In addition, PMTI has won similar cases, which implies there is a precedent at work.

Most likely PMTI will accept a cash settlement, but that is not to say that other, more pernicious outcomes are out of the picture.

Because PMTI has stated they will not allow CUTR to use their products if PMTI wins, there may be some political bashing that could conceivably bury Cutera for good.

This case may go on for years, not just months.

Depending on the verdict, Cutera may have to halt production of some of its best selling laser products.

We are immediately downgrading Cutera to a sell as we do not forsee much upside for shares until a verdict has been reached.

A la Merck, expect nothing more than a flatline movement from Cutera for the next 6 months.

Today's action is little more than a dead cat bounce whose hangover will be dire.

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