Val,
It is difficult to say with certainty just how much Palomar is
counting on hair removal. It was mostly hair removal that took them
from $2 per share and a market cap of $30 million to over $16 per
share and a market cap of $430 million. And comparing the
emotional level of the 18 Feb 97 wrinkle-removal press-release
with that of the 10 Mar 97 one for hair-removal, I would say that
they see hair removal as the crown jewel.
On the other hand, in estimating the market, Palomar seems to
value skin resurfacing and hair removal about equally, perhaps
giving a bit of an edge to the latter. In round numbers, Palomar
seems to value both at around $1 billion annually, which, if
accurate, is a good size.
Of course, Palomar is talking about the market for procedures,
not lasers, so any analysis will have to focus on it's ability
to enter that market. I do not intend to do such an analysis, but
here are some questions that I would attempt to answer:
(BTW - chances are, you know more about this stuff than I
do, since you are an investor, and I am not, but I throw these
ideas out for the sake of discussion. I find it helps me to focus
my own thinking.)
- does laser skin resurfacing and wrinkle removal have a future,
or is it just a fad? Consider that FDA does not permit any
claims of permanent or long-term results. (Kinda reminiscent of
laser hair-removal, isn't it?) Does that matter, given that no
competing system is permanent either? Are the procedures truly
safe? Remember that FDA has on occasion changed its mind about
products it initially believed to be safe. Bottom-line - how
keen would I be to undergo such a treatment, should I one
day perceive the need? Would I recommend it to a loved one?
- does Palomar's technology compare favourably with that of
its competitors? This is especially important to the success
of the laser centers, because they most likely will be limited
to using Spectrum/Tissue devices, while most competitors
will be completely free to choose from many suppliers.
- what is the actual size of the market, and how fast is it
growing?
- who is already in the market, and what share do they have?
- is there still room/time for additonal competitors who want to
grab a large share?
- what effect would additional competitors have on profit margins?
- will Palomar's concept of hospital-based laser centers be as
attractive and competitive with private physician's practices
and free-standing day-spas?
- does Palomar have the know-how to succeed in this market, which is
very different from its traditional manufacturing role?
- will Columbia/HCA and Palomar be sufficiently compatible to be
successful. Remember the attempt by IBM and Apple to join forces
a few years ago, to develop a new operating system? One of the
reasons attributed to its failure was the clash between two vastly
different corporate cultures.
Has Columbia participated in other similar revenue-sharing ventures
involving medical treatments? Have they been successful?
Keep in mind, that Columbia has grown from zero to a monster,
in only 10 years, through buying up hundreds of hospitals. Does
Columbia have sufficient influence over this empire to facilitate
its joint venture with Palomar, or is it so loosely organized,
that it will be like dealing with hundreds of separate companies?
- based on Palomar's track record in developing past new products/
ventures, do I have confidence in this latest one? Why?
I could think of more, but that is enough for now. But before you
spend too much time on the above, based on Palomar's SEC filings
over the past few years, are you satisfied with the way the Company
has been operated? Do you trust its directors and officers?
Ted Molczan |
