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|Submitted On:||Sept. 16, 2011|
|Stock Price at Underperform Recommendation:||$3.60|
MELA Sciences Profile
|Headquarters||Irvington, New York|
|Market Cap||$84.4 million|
Sources: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and Motley Fool CAPS.
This Week's Pitch
MELA is enjoying a nice double this month, courtesy of receiving a CE Mark designation for MelaFind in Europe. I was too cautious to red thumb then in the heat of enthusiasm last week, but it looks like the market has served me another opportunity. There's no question that the CE Mark is a positive development, but I believe that its significance is being overestimated by those bidding up the price of the stock.
With respect to drug marketing, an EMA approval carries similar weight to an American FDA approval. In this case, a regulatory body has made a specific determination that the benefits of a drug outweigh its risks. Such an approval carries significant weight as an endorsement of efficacy as well as a justification for insurance reimbursement.
On the other hand, the process of device approval differs significantly in the US and in Europe. While American device approvals are regulated by the FDA in a similar manner to drug approvals, the CE Mark is a much looser designation that does not appear to carry any significance regarding the efficacy of the device. The CE Mark indicates that the device is generally safe and functions in a technical way as described in the manufacturer's specifications. There is a substantial difference between this technical functionality and an endorsement of medical efficacy. For example, CE Mark approval of an insulin pump might establish that the pump injects insulin underneath the skin at a certain rate as described in the manager's specifications. However, it would have no bearing on a claim by the manufacturer that the pump provided better control of blood sugar than two daily subcutaneous injections.
The CE Mark is not confined to medical devices. It is required for many different categories of machines and other instruments from hot water boilers to recreational craft. Despite extensive research, I was unable to determine what regulatory authority in Europe is responsible for conferring the CE Mark. I did come across one interesting paragraph that reads as follows:
It is the responsibility of the manufacturer to determine whether or not a product is eligible to be CE marked. After the product has been assessed according to one of the conformity assessment procedures required in the applicable directive(s) and the manufacturer is satisfied the product meets the essential requirements of the directive(s) which apply to the product, the general requirement is that a responsible officer of the manufacturer completes an EC declaration of conformity. The manufacturer can then affix the CE marking to a product.
When translated from bureaucratese this paragraph seems to indicate that a CE Mark is essentially self-awarded according to an honor system, at least for some categories of devices. While the process may be different for medical devices, it seems clear to me that CE marking is more of a bureaucratic stamp than a regulatory step of any significance.
The Motley Fool is investors writing for investors. Dan Dzombak did not have a position in any of the companies mentioned in this article. Pitches must be compelling, made in the past 30 days, and be at least 400 words. Motley Fool newsletter services have recommended buying shares of Intuitive Surgical and MAKO Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.