K Barker,
Laser hair removal promoters have several big obstacles to overcome.
First and foremost, not one of the manufacturers has been able to
demonstrate that its device can reliably deliver permanent hair removal.
Specifically, the US FDA has not cleared any of them to claim even
long-term hair removal, let alone permanence.
This means that they will have to compete with temporary hair removal
methods such as waxing, for which I estimate treatment cost 10 to 20 times
less than laser hair removal, and capital costs hundreds of times less,
with nearly zero maintenance costs.
Through false and misleading advertising, especially at the clinical
level, laser has been able to induce some consumers to try it. It has been
aided and abetted to a large degree by very superficial mass media
coverage, more akin to infomercials than journalism. I predict that this will
change, once reports of angry, ripped-off consumers begin to be heard.
Here in Canada, where medical device regulation can best be likened to
that of a banana-republic, laser hair removal has been available for
about 9 months, using Epilaser, Softlight, Cynosure LPIR and Epilight
devices, and perhaps others I have yet to run across.
Already, one of the leading consumer affaires TV programs, Marketplace,
has aired an expose (11 Mar 97) on the false and misleading claims of a
clinic offering Epilaser treatments. Also, a consumer activist group that I
have formed has begun to distribute brochures refuting the most common
false and misleading claims of laser hair removal promoters. A similar
response can be expected in the U.S.A.
For those investors who are indifferent to issues of efficacy and
providing value to consumers - those who believe that a sucker is born
every minute - there is the issue of the lack of market exclusivity.
Thermolase took Wall Street by storm with its FDA clearance two years
ago this month. Then, in a single week in March 1997, three additional lasers
were cleared, and more can be expected to be cleared. A consumer fact
sheet I obtained from FDA, dated 18 Mar 97, lists the 4 cleared lasers, and
states:
"Numerous other laser manufacturers are currently carrying out clinical
studies with dermatology lasers to gain marketing clearance for hair
removal."
Since all that is required to obtain FDA clearance is to demonstrate
what amounts to "laser-shaving", I fully expect that all manufacturers
of dermatological lasers will seek and obtain such clearances.
They will do so not because the devices provide value to consumers,
but to maintain their market share, knowing that there are quite a few
unscrupulous doctors who are ready to bilk consumers using any
gimmick they can promote.
As a result, in the near term, I see laser hair removal rapidly becoming
a commodity item - basically one of many check-listed features on
the spec sheet of many dermatological lasers.
I believe that this does not bode well for companies like Palomar,
Thermolase and MEHL/Biophile, which have pinned much of their
future hopes on laser hair removal, and in the case of the first two -
skin resurfacing and/or wrinkle removal.
Thermolase has been slowly rolling out its day spa concept, having
opened 10 of them over the past 18 months, and announced three
more. In its most recent quarter, Thermolase reported revenue
of about $1.4 million, from 4 spas in operation during the full quarter,
and three others that operated during a part of the quarter. Thus far,
revenue growth has been linear, at perhaps $350 - $400 k per
quarter. Physician licensing/revenue sharing yielded another $800 k
in the most recent quarter. Profits seem nowhere in sight. At the present
rate of growth, the day spas would require on the order of 8 years to
reach $50 million in annual revenues, representing a miniscule fraction
of the much touted $1 - 2 billion annual US hair removal market.
Perhaps that is why Thermolase's market capitilization has shrunk
from about $1.5 billion a year ago to less than $500 million today,
with the share price declining fairly steadily at the rate of about $2
per month.
Keeping in mind Thermolase's problems, Palomar investors would
do well to ask themselves how that company can hope to achieve its
announced goal of opening its cosmetic laser centers in 200 U.S.
locations, 100 European locations and 100 Far East locations, all
within 24 to 30 months. To meet that U.S. goal, it will have to open
every 5 weeks, what Thermolase has struggled to open in 18 months.
MEHL is counting on revenue sharing with doctors, which is a secondary
part of the Thermolase and Palomar business plans. How many doctors
will prefer this business option to simply buying/leasing machines from
the many other manufacturers that will soon be in the market?
I fail to see a bright future for laser hair removal unless their efficacy
and cost-effectivenesses can be greatly improved, and the potential
to achieve either has yet to be clearly demonstrated. How do the
niche manufacturers like Palomar, Thermolase and MEHL hope to
survive with their one or two machines, against larger companies
like Coherent, which offer dozens of models across numerous
disciplines, and which can add hair removal as an option with little
effort?
Ted Molczan |
