Last year, Syneron Medical was in trouble. The company, which develops and sells laser and other technologies for medical aesthetic applications, admitted that revenues sank to $11.9 million in the first quarter, a fraction of the $34 million posted in the same quarter of 2008.
Its stock has lost 80% of its value in five years, and 19% in the last 12 months. But Syneron hasn't just sat there moaning. It has replaced its CEO and taken an ax to operating costs.
It had an advantage, though. When the global economic crisis hit, Syneron was sitting on a pile of cash built up from 2005 to 2008, enough not only to weather the storm but to buy another giant in aesthetic technology, Candela, for $65 million in a stock swap. In the first quarter of 2010, Syneron's consolidated revenues - including the contribution from Candela - rose to $43 million.
Six months have passed since the merger with Candela. The degree of success surprises even him, professes Syneron chairman Shimon Eckhouse, the man who had been behind ESC Medical, which merged with Lumenis. "Mergers of this kind are complicated," he says. "The fact that Candela is located in Boston makes it even more complicated."
Syneron bought Candela because it had the strongest brand in aesthetic laser technology - and dermatologists engaging in aesthetic medicine is Syneron's stamping ground, Eckhouse says. The brand gave Syneron access to new marketing channels and territories. Syneron, for its part, brought its ability to get products to market quickly.
"Candela is two or three times bigger than Syneron, so the challenge was not trivial," Eckhouse says. "But looking at the merger today, we see it's a success."
Post-merger, Syneron is the biggest company in energy-based aesthetic medicine devices, Eckhouse says: "We have the biggest market share, almost double that of the next company on the list. But mergers of this type take a year or two. We're still in process."
Asked if the company's chiefs had any more acquisitions in mind, Eckhouse acknowledged that they are constantly geared in that direction and have been since 2006. Because of the inherent difficulty in big mergers, they are treading cautiously. In any case, he says, they have the long term in mind. To win, service has to be provided over the long run.
The merger with Candela brought Syneron 10 new geographic areas, he says, and expansion into a new non-core area: the market of "aesthetic" non-specialist doctors, because the devices are so easy to use. "That's an area in which Candela is No. 1," he avers.
A long history in aesthetic devices
Shimon Eckhouse studied physics at university and was the driver behind ESC Medical, which merged with Lumenis. He served as CEO of Lumenis, only to be ousted by a group of shareholders headed by Arie Genger when the company's fortunes declined. In 2004, Lumenis was delisted from the Nasdaq national market after failing to file financial statements for two years. Its stock moved to the pink sheets and was ultimately delisted entirely in a settlement with the U.S. Securities and Exchange Commission.
Eckhouse can also claim credit for the successes of Alma Lasers and UltraShape, in a sense, as people he cultivated at Lumenis are behind the companies.
Could Syneron itself become a target for takeover? That isn't on the agenda, says Eckhouse, and in any case, it addresses a billion-dollar market, which may not be enough to generate interest in potential buyers.
Sans Candela, Syneron sold mainly to the United States, which did it no favors as the economic crisis raged. It missed analyst forecasts for its results. "The recovery isn't V-shaped, that's for sure," Eckhouse says. "Full recovery will take time." But the company feels that its clients are regaining their confidence, albeit slowly.
The entire market for aesthetic medicine suffered badly during the crisis, he says. "The only company that was barely affected was Candela. Our market disappeared to a large degree because doctors were afraid to spend money and credit dried up."
Meanwhile, Syneron's heads decided to take advantage of the times to reorganize, which involved a change of CEOs - and to make acquisitions, which led to Candela. "It isn't that the last CEO wasn't a good person. But we thought we needed people with a little more gray hair," Eckhouse quips.
Rejuvenated, circumferentially reduced and whiter
Which new directions might Syneron take? "Last year we presented a new concept: sublative rejuvenation," Eckhouse says. "It involves rejuvenating the skin using technology that produces visible results while enabling the patient to return to work in a day."
Older technologies involved burning off the outer layers of the skin using lasers, but healing could take two to three weeks, he explains. "The treatment we invented has an effect like laser treatment, but healing is a day or two." Syneron is in the process of introducing its sublative rejuvenation devices to the market.
Meanwhile, claims Eckhouse, Syneron has achieved a leading position in the body-shaping market. The company is the first to receive U.S. Food and Drug Administration approval for its non-invasive "circumferential reduction" device, the VelaShape, he says. It purports to contour the body with the help of infrared light, massage that target and heat the fatty layers under the skin. The technology is not for home use: Treatment is provided by professionals who purchase the device. VelaShape is in its second generation and Eckhouse promises more products to come.
Another area for a new Syneron product is skin lightening, which is an obsession around the world, from Africa to Asia, and in Israel, too. "One of our researchers is a Filipina whose mother wouldn't let her go to the pool when she was a girl because dark skin is a mark of low status in Asian society," he relates.
The market for topical whiteners in Southeast Asia alone is thought to be worth $16 billion a year, says Eckhouse. Syneron's answer to whitening is elure, essentially an enzymatic treatment that decomposes melanin, the pigment responsible for skin color. Other whiteners try to stop melanin production; elure is unique in trying to get rid of existing molecules. Eckhouse sees elure as a great potential growth driver beyond energy-based products.
Syneron stock today trades for just $8.27 per share. Eckhouse declines to speculate on the future of the company's share price, beyond an Israeli platitude. "Everything will be okay."
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