James,
It would certainly be something if Palomar "turned it around", but I strongly
doubt that will happen - certainly not from laser hair removal or skin
resurfacing. To see what is in store for Palomar investors, take a look at
recent results of its competitors.
Thermolase has been into laser hair removal for nearly two years, and is losing
money hand over fist. I posted a fairly detailed breakout of their hair removal
business in the TLZ thread at:
techstocks.com
Note the very low utilization of the 200 lasers TLZ has deployed, despite a very
large/expensive advertising and news media propaganda blitz. Lately their stock
has rebounded, but that certainly is not based on value. Their parent has been
buying up the stock, and it is being hyped by their investment bankers, to support
a large convertible debenture, required because they ran out of money by about
July.
Yesterday, MEHL/Biophile's FY'96 10K showed up on EDGAR. Again, not a pretty
picture, as this quote shows:
"The Company intends to significantly expand its development, manufacturing and
deployment of laser systems throughout the world. The Company, either directly
or through its subsidiaries, intends to continue distributing its products
through licensing arrangements with physicians, clinics and hospitals which will
provide ongoing revenues to the Company and the opportunity to provide new
technology developed by SLS to its licensees. As of May 31, 1997 MGMI had 31
lasers under licensing agreements worldwide. These lasers generated $816,000 of
total revenue during the fourth quarter of 1997, of which MGMI's portion was
$228,000. As of August 7, 1997, MGMI had placed an additional 32 lasers under
licensing agreements, including 18 lasers in the United States. In addition, as
of August 7, 1997 MGMI had a backlog of 27 lasers to place under signed
licensing agreements with installation scheduled upon completion of appropriate
training sessions, including 24 lasers for installation in the United States. As
of August 7, 1997, the Company had in excess of 2,000 applications for potential
licensing agreements." - 10K, filed 11 Sep 97
Based on MEHL's prior press-releases, 20 of the 31 lasers operating in the fourth
quarter (ended 31 May) were installed prior to 5 Dec 96, and all of them should have
been installed by 31 Dec 96, moreover, MEHL claimed, "each system, once placed, and
after ninety days, will generate a minimum of $15,000 per month in revenue to the
Company.
By the start of Q4, most of the lasers had been in service for 90 days, so MEHL
should have seen revenue of $1.4 million, but only saw $228,000, a shortfall of
84 percent!
MEHL has boasted in a press release that its revenue-sharing partners would each
receive $1 million over 5 years in laser upgrades, maintenance and advertising
support. At their recent rate of revenue sharing, they would receive only $147,000
per laser over those 5 years. Clearly, they have a long way to go to breakeven.
Consider Candela Corp., which has been dabbling in cosmetic laser centres over the
past year. Their share price took quite a beating recently when they admitted that
the startup costs were much greater than they anticipated. It is a drag on their
profitability.
Last month, Palomar opened its first three Columbia/HCA revenue-sharing clinics
in Denver. Can you guess how many laser hair removal competitors were waiting for
them in Denver? There were six of them! If Thermolase pulled in only meagre revenue
when it had the market to itself, how are these recent entrants going to do better?
And there may be even more competition, now that Thermolase is going to license
existing ND-YAG lasers to use its carbon lotion to sell SoftLight treatments.
As I pointed out months ago in this discussion group, all of the hair removal
lasers perform poorly - not much better than waxing - for 10 to 20 times the
treatment cost. So there is no reason to expect any of them to succeed. I expect
several laser manufacturers will each sell/place a few hundred lasers in the
market. Apparently there are still some doctors who are stupid/unscrupulous
enough to try to sell over-priced ineffective treatments. They will not be profitable
Palomar used to tout skin-resurfacing, but that has been a big bust. Several months
ago I posted my analysis which showed that Tru-Pulse revenue never came close to
projections:
techstocks.com
techstocks.com
Finally, in the 30 July 97 investor conference call, PMTI claimed that the
world-wide market for CO2 skin-resurfacing lasers was depressed, stating that people
do not want to have their skin peeled as often as they did two years ago. So they
can't sell their lasers, and apparently won't have much of a treatment market either.
Instead, they appear to have switched to distributing an ND-YAG laser made by a
subsidiary of New Star Lasers:
www2.newstarlasers.com
I believe PMTI is distributing the model NS 130. The above web page, last updated
31 July 97, claims that this laser is "under an IDE (Investigational Device
Exemption) for the Non-Ablative Treatment of Wrinkles." (It was previously cleared
to maket by FDA in March, presumably for conventional ND-YAG applications.)
As I understand it, the goal is to shrink collagen by heating the skin, thereby
achieving the same effect as CO2 and Erbium lasers, without burning off (ablating)
the epidermis.
Palomar appears to be counting on this new laser and application to replace or
augment its skin resurfacing lasers. Of course that will depend on the success
of the clinical trials, and in obtaining FDA-clearance. It seems rather speculative
at this time. It also points a significant weakness, in that Palomar appears not to
have the ability to develop innovative new products of its own. Consider:
The Epilaser is a modification of Spectrum's RD-1200 ruby laser, which I have
traced back to the late 1980's, and which they appear to have acquired as a result
of an exclusive distributership for a company which subsequently went bankrupt.
PMTI paid over $30 million in stock to buy Tissue Technologies, for its CO2 laser,
which, as I have shown, is selling very poorly, about $1 million per quarter.
Here is another example of PMTI having to purchase lasers from other companies:
"On December 19, 1996 the Company signed a price quotation with a vascular
laser manufacturer for the purchase of up to 120 vascular lasers. The price
quotation requires the Company to place a deposit of $1,200,000 for the purchase
of 120 vascular lasers. After a minimum of 40 units are purchased at a per unit
average price of $147,250, the remaining down-payment will be refunded if no
additional purchases are made. The Company also paid $400,000 for tooling and
other costs to ensure the vascular laser is manufactured with the Palomar name.
The Company plans to use this vascular laser in the CTI sites in order to
provide a full suite of lasers." - 10K, filed 11 April 1997.
In conclusion, I do not see any basis to believe Palomar will turn its business
around based on their cosmetic laser business.
Ted Molczan |
