Palomar Medical Technologies, Inc.

views updated

Palomar Medical Technologies, Inc.

60 Cherry Hill Drive
Beverly, Massachusetts 01915
U.S.A.
(508) 921-9300
Fax: (508) 921-5801
Web site: http://www.palmed.com

Public Company
Incorporated: 1991
Employees: 550
Sales: $70.09 million (1996)
Stock Exchanges: NASDAQ
SICs: 3672 Printed Circuit Boards; 3845 Electromedical Apparatus; 6719 Holding Companies, Not Elsewhere Classified

Palomar Medical Technologies, Inc., an international cosmetic laser company, is one of the most promising firms in the United States. The company is one of the leading providers of proprietary laser systems for cosmetic and dermatological laser treatments such as hair removal, age spots, scars, tattoos, leg veins, and skin resurfacing and wrinkle treatment. The company sells its Ruby laser for hair removal, Diode laser for leg vein removal and pediatric tonsillectomy, CO2 laser for wrinkle treatment, and copper vapor laser for tattoo removal. With the aging of the baby boomer generation, Palomar Medical expects to take advantage of an estimated $2.5 billion annual market at the turn of the next century. In fact, the company is already well on its way. Revenues for 1996 totaled $70 million, a phenomenal increase of 220 percent over the previous year’s figure of $21 million. Much of the company’s success is due to management’s ability to arrange strategic partnerships to develop new technologies. One of the most successful of these partnerships is with Massachusetts General Hospital, which has licensed its innovative hair-removal system to Palomar. As the company’s revenues continue to increase, management is implementing a strategic plan that includes the acquisition of complementary firms and the expansion of its marketing network into Europe.

Early History

Palomar Medical Technologies, Inc. is a relatively recently formed company that has taken advantage of the burgeoning cosmetic and medical laser system technology. Initially incorporated in 1987 as Dymed Corporation, the firm was established by a group of investors interested in the growing market for high-technology laser applications. At first, the strategy was to arrange partnerships with medical centers or research facilities that worked at the forefront of developing laser systems for medical applications in the fields of cardiology and dermatology. The investment group correctly predicted that all the demographic data, market trends, and forecasts pointed toward the fact that people were willing to pay for services that enabled an individual to improve his or her physical appearance and that cosmetic laser surgery was a more acceptable alternative to the older, more traditional and invasive cosmetic procedures.

Within a few years, the projected market growth was borne out by numerous statistical surveys, one of the most important being a 1992 survey conducted by the American Society of Plastic and Reconstructive Surgeons (ASPRS). The ASPRS survey indicated that most of the cosmetic laser surgery procedures during that year were performed on patients in the 35-50 age range. Patients in the 19-34 age range came in second, and those patients in the 51-64 age range ranked third. Since the largest percentage of the American population was the baby boomers, ranging in age from 27 to 46, the conclusion drawn from the survey was that the baby boomer segment of the population was the age group most inclined to have cosmetic laser surgery. A further demographic breakdown of the survey revealed that approximately 80 percent of the patients undergoing cosmetic laser surgery were women and that those individuals were concerned for the most part with maintaining a youthful appearance; consequently, the removal of facial hair, age spots, and eye and neck wrinkles were high on the list of desired makeovers.

Even though everything seemed to be in place and the market was growing faster than ever, management at the company did not respond quickly enough to consumer demand. Slowly, albeit methodically, the company invested large sums of money into research and development. Unfortunately, the cosmetic laser surgery market was highly competitive, and Dymed Corporation could not find its own niche. As a result, revenues began to decrease as debts mounted, and management was forced to borrow large sums of money to keep the operation afloat.

The Early 1990s

In spite of its potential for growth, the company remained a rather small operation during the early 1990s. Although revenues increased at a steady but slow rate, debt remained high. Realizing the need for a comprehensive change in the way the company conducted its business, management decided to change its name in 1991 to Palomar Medical Technologies, Inc. to portray a more sophisticated and medically-oriented operation. The name change and remaking of the company’s image undoubtedly attracted a larger customer base to the services provided by Palomar Medical Technologies.

Yet management at the company was still not able to take advantage of the demographic statistics indicating a billion dollar industry on the horizon. Debt remained high and revenues were sluggish. To compensate for its slow growth, management decided to diversify into the electronics industry. It was thought that manufacturing and marketing electronic products would complement the company’s attempt to design and market high-technology laser systems for cosmetic, dermato-logical, and cardiology purposes. Its first acquisition in this new field was Dynaco Corporation, located in Tempe, Arizona. Dynaco Corporation fabricated flexible circuitry and also assembled flex circuits, cable harnesses, and printed circuit boards. With this purchase, Palomar Medical found itself an electronic contract manufacturer of interconnect packaging products.

Shortly after the acquisition of Dynaco Corporation, management decided to form Dynamem Corporation as a subsidiary to Dynaco. Dynamem was established to manufacture and distribute a patented high-density memory packaging technology for either the network server, workstation, or high-memory motherboard segments of the industry. At approximately the same time, management at Palomar Medical Technologies also decided to form Nexar Technologies, Inc., to develop, manufacture, market, and sell high performance personal computers with rather unique circuit board designs that enabled end-users to upgrade and replace the microprocessor, memory, and hard drive components quickly and easily, without professional assistance. Marketing its system worldwide through resellers, distributors, original equipment manufacturers, independent dealers, and computer superstores, the company targeted those consumers, commercial clients, and government agencies that benefited most from eliminating computer obsolescence. Along with Dynamem and Nexar, management added CD Titles, Inc., a CD ROM publishing company that distributed a wide variety of material and information on CD ROM through personal computer wholesale channels across the United States.

Having made the commitment to enter the electronics industry, management at Palomar Medical Technologies formed Comtel Electronics, Inc. to complement the products and services provided by Dynaco and Dynamem. Comtel Electronics, a manufacturer of surface mounts and through-hole assembly printed circuit boards, flexible circuitry, and thin-core boards, provided the final ingredient to an interconnected group of firms that supplied its products and services to a diversified customer base of original equipment manufacturers in the computer, communications, automotive, industrial, medical instrumentation, and military portions of the electronics industry.

As the electronics subsidiaries of Palomar Medical Technologies grew and provided a stable source of income, management did not ignore its core business, the development of innovative techniques in the field of cosmetic laser treatments. In collaboration with Massachusetts General Hospital, the company was awarded an exclusive licensing arrangement for a highly innovative hair-removal technology. A four-year research agreement was concluded with Wellman Laboratories, the world’s largest and most prestigious biomedical laser research facility, to develop and continue investigation on laser-based hair removal methods, providing Palomar Medical Technologies with ready access to the most recent and sophisticated developments in the field. And an agreement was also reached with the New England Medical School, an affiliate of Tufts’ School of Medicine, to initiate and conduct clinical trials for a laser-based procedure to remove tonsils painlessly from children.

The Mid-1990s and Beyond

In 1995 Palomar Medical Technologies implemented a far-reaching and comprehensive reorganization strategy to carry them into the next century. One of the first decisions made by management was to form Palomar Electronics Corporation to separate the company’s electronics and computer operations from its medical laser segments. After having successfully completed this part of the reorganization by the end of 1996, management then reached the decision to spin off all of the company’s electronic and computer operations before the year 2000 and concentrate on the development of its cosmetic laser technology.

In 1995, along with the reorganization of its electronics and computer holdings, management consolidated and expanded its medical laser products and services. During 1995 and 1996, the company acquired Spectrum Medical Technologies, Inc., a firm based in Lexington, Massachusetts that was soon manufacturing Palomar Medical laser systems for hair removal and the RD-1200 ruby laser system for the removal of tattoos and age spots; Tissue Technologies, Inc., the privately held Albuquerque, New Mexico company that developed the Tru-Pulse laser system for skin resurfacing and for the treatment of scars, burns, and wrinkles; and Star Medical Technologies, Inc., a California-based company specializing in the development and manufacture of custom diode laser systems for the treatment of leg veins and unwanted hair and other innovative laser systems for use in the treatment of psoriasis, burn diagnosis, and tonsillectomies.

To offer its cosmetic laser technology directly to the public, one of management’s most important moves during this time was to establish a subsidiary known as Cosmetic Technology International, Inc. (CTI). The sole purpose of this new subsidiary was to develop various cosmetic and dermatological centers around the world through partnerships with medical service providers. Within a few months of its founding, in early 1997 CTI signed a letter of intent with the Ambulatory Surgery Division of Columbia/HCA Healthcare Corporation, one of the largest healthcare services providers in the United States. A $20 billion firm that owns and operates more than 350 hospitals, 150 patient surgery centers, and 550 home health care locations in 37 states, Columbia/HCA Healthcare had also established a network of operations in Switzerland and the United Kingdom. Under terms of the agreement, the two companies will develop cosmetic “Centers of Operational Excellence” to offer a full-line laser technology and medical devices and services. CTI will provide the equipment, operational support, service, education, and training, and Columbia/HCA will provide the facility space, clinical personnel, and administrative services at those ambulatory surgery centers where Palomar Medical’s cosmetic laser surgery procedures are most appropriate. The first three centers of this collaboration opened during the summer of 1997 in Denver, Colorado.

In March 1997, Palomar Medical Technologies received the stamp of approval from the U.S. Food and Drug Administration to market and sell its Epilaser system for removing body hair. Only the second such laser system cleared for cosmetic hair removal in the United States, Palomar’s product will compete with the laser system developed by Thermolase Corporation, located in San Diego, California. Both laser systems were seen by industry analysts as a welcome alternative to the painful process of electrolysis that many women undergo to remove facial and bikini-line hair. Palomar immediately began manufacturing approximately 50 Epilaser systems per month and sold them for $120,000 apiece. Management at Palomar Medical estimated the new laser system would bring in $50 million worth of revenues in less than one year and enable the company to take advantage of the growing cosmetic hair-removal market.

In fact, revenues at Palomar Medical Technologies skyrocketed during the mid-1990s, from a mere $470,000 in fiscal 1993, to $21 million in fiscal 1995 and more than $70 million in fiscal 1996. Much of this increase in revenues can be attributed to a management team that is more focused on the development of its core business, namely, cosmetic laser technology, and the ability of the company to take advantage of the burgeoning consumer demand for cosmetic laser services and treatments. Palomar Medical has also benefited from the experience of Louis P. Valente, the company’s president and chief executive hired in May 1997. Valente, the former senior vice-president at EG&G, a Fortune 500 company, provides Palomar Medical with the managerial stability and financial expertise needed for the company to develop into one of the premier firms in the cosmetic laser services and treatment industry.

Principal Subsidiaries

Spectrum Medical Technologies, Inc.; Spectrum Financial Services LLC; Dermascan, Inc.; Tissue Technologies, Inc.; Star Medical Technologies, Inc.; Cosmetic Technology International, Inc.; Palomar Electronics Corporation; Nexar Technologies, Inc.; Dynaco Inc.; Palomar Technologies, Ltd. (England); Dynamen, Inc.; Comtel Electronics, Inc.