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 Company
Profile:
www.cynosure.com
Cynosure, Inc. develops and markets
aesthetic treatment systems that are used by physicians and other
practitioners to perform non-invasive and minimally invasive procedures to
remove hair, treat vascular and pigmented lesions, rejuvenate the skin,
liquefy and remove unwanted fat through laser lipolysis, reduce the
appearance of cellulite and treat Onychomycosis.
Cynosure’s products
include a broad range of laser and other light-based energy sources,
including Alexandrite, pulse dye, Q-switched, Nd:YAG and diode lasers, as
well as intense pulsed light. Cynosure was founded in 1991.
 Michael
R. Davin
President, Chief Executive Officer and Chairman
Michael Davin has been
Cynosure’s President and Chief Executive Officer and a Director since
September 2003. Mr. Davin became Chairman of the Board of Directors in
October 2004 and has more than 20 years of experience in the light-based
technology field. From 1998 to 2003, Mr. Davin served as Co-founder and Vice
President of Worldwide Sales and Strategic Development at Cutera, Inc., a
provider of laser and other light-based aesthetic treatment systems. Prior
to co-founding Cutera, Mr. Davin spent 11 years in sales at Coherent
Medical, Inc., a manufacturer of laser, optics and related equipment.
Interview
conducted by: Lynn Fosse, Senior Editor
CEOCFO Magazine, Published – April 6, 2012 |
Healthcare
Med
(CYNO-NASDAQ)
Cynosure, Inc.
5 Carlisle Road
Westford, MA 01886
Phone: 978-256-6556
www.cynosure.com
CYNO-Print Version
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CEOCFO:
Mr. Davin, Cynosure is about transformation,
what do you do?
Mr. Davin:
Cynosure is a global organization that develops and markets aesthetic
treatment systems that are used by physicians and other practitioners to
perform non-invasive and minimally invasive procedures to remove unwanted
hair, rejuvenate the skin through the treatment of vascular and pigmented
lesions, remove multi-colored tattoos, liquefy and remove unwanted fat
through laser lipolysis, reduce cellulite and treat onychomycosis. We are
also developing with Unilever Ltd., (Unilever) a laser treatment system for
the home use market. We offer multiple technologies and system alternatives
at a variety of price points depending primarily on the number and type of
energy sources included in the system. As the aesthetic treatment market
evolves to include new customers, such as additional physician specialties,
we believe that our broad technology base and tailored solutions will
provide us with a competitive advantage.
CEOCFO: How does it all work?
Mr.
Davin:
While we address a wide range of clinical indications with our broad base of
technology, there are four key areas that we have focused on over the past
couple of years: the removal of unwanted hair; the minimally invasive
removal of unwanted fat and body sculpting; the treatment of cellulite and
skin rejuvenation.
There continues to be a significant worldwide demand for the removal of
unwanted hair with a treatment that can deliver a long lasting clinical
result. Lasers are well suited to address this indication. By utilizing
light-based technology as opposed to a razor or even some of the topical
products on the market, which offer a temporary removal of hair, we are able
to use a wavelength of light-based energy that is specific to the
chromophore melanin. We are also very concerned with a patient’s skin type.
Two-thirds of the world’s population is dark skinned. We have to be very
sensitive about how we deliver the light-based energy to treat dark skin, to
avoid any adverse reactions to the skin such as hypo or hyper pigmentation.
Our goal is to penetrate deeply into the hair follicle with a laser source
and a wavelength selected specifically to protect the patient’s skin while
delivering the optimal clinical benefit. Our systems allow us to deliver
highly concentrated light energy to the hair follicle destroying it in a way
that the hair is not able to regenerate. The treatment regimen varies from
three to five treatments in order to destroy the hair follicle. The
treatments are separated by about a month, ultimately eliminating the
patient’s need to shave to remove their unwanted hair. The areas that are
most commonly treated include the underarms, the legs, the back, the chest,
and the bikini areas. Hair removal remains the largest indication that we
treat. There continues to be a worldwide demand for the treatment of
removing unwanted hair with a long-lasting clinical result. Our lasers
satisfy that demand.
We pioneered the minimally invasive removal of fat using laser lipolysis in
2007 with the introduction of our Smartlipo system. Using the Smartlipo
laser, we make a small incision and introduce a fiber under the skin to
deliver the wavelength of thermal energy to liquefy and photo-disrupt the
fat cells. Unlike traditional liposuction, where doctors use a very
aggressive approach of suction, manipulation, grabbing and pulling the fat
out of the body resulting in bruising and a longer recovery period, the
laser uses smaller instrumentation than traditional liposuction cannulas,
resulting in very little bruising and a faster time of recovery. Smartlipo
procedures are performed under local anesthesia as compared to traditional
liposuction where the patients are typically sedated. Our system delivers a
specific energy that targets adipose tissue resulting in significantly less
trauma to the treatment area and a quicker recovery for the patient. An
additional benefit of the thermal properties of the laser that we see is a
tightening of the skin through tissue coagulation. Often when you use
traditional liposuction to remove fat the patient is left with loose or
flaccid skin that would need to be addressed in a second surgical procedure.
Using Smartlipo the laser can be directed into the dermis to coagulate and
stimulate the collagen resulting in a tightening of the skin.
Our
third area of focus is the treatment of cellulite. We are the first company
to the market with a one-time minimally invasive treatment for cellulite. We
recently received FDA clearance for treating cellulite with our minimally
invasive surgical approach utilizing our Cellulaze workstation. Typically
Cellulite has been treated with topical creams, lotions, suction or
mechanical therapy. The limitation of these approaches is that the results
are temporary and the procedure needs to be repeated to maintain the desired
appearance. Cellulaze is the first FDA cleared device to treat cellulite
using a minimally invasive approach that delivers a longer lasting clinical
result. It is estimated that 85% of women over the age of 20 have some form
of cellulite, creating a significant market opportunity.
Skin
rejuvenation is another area of strong interest for us. With an aging global
population, there is a strong demand to address wrinkles, skin texture and
skin toning, such as brown spots, red spots and discoloration of skin. We
offer a variety of technologies to address these specific skin conditions.
We can also target collagen stimulation to enhance skin texture and improve
wrinkles in the skin as well as increase the elasticity of the skin. Once
again, in all of these categories, there is a strong global demand. For
Cynosure, about 56% of our revenues comes from outside of North America
demonstrating that these indications are worldwide.
CEOCFO:
How does it break up between medical professionals and other types of
practitioners that use your products?
Mr. Davin:
99% of our revenues are from products sold for use by physicians or under a
physician’s direction, but there are two major categories of physicians that
make up our market – core and non-core. The core market is comprised of
dermatologists and plastic surgeons. These are physicians or specialists
that went to medical school to learn how to treat a variety of cosmetic
indications and cosmetic skin disorders. Doctors who practice aesthetic
medicine outside of their primary practice are categorized as non-core.
These include OB/GYNs, family practitioners, internal medicine specialists
and ear, nose and throat doctors. There has been a paradigm shift in our
industry. Whereas prior to the early 2000’s 100% of our revenues came from
the core market, about half of our revenues now come from the non-core
physician market. Physicians are looking to incorporate cosmetic procedures
into their practice to offset reductions in insurance paid medicine. Doctors
have seen their healthcare reimbursement go down significantly. As a result,
non-core physicians are looking to bring in other cash pay services that
they can offer their patient base. These can include Botox injections, or
laser hair removal, or skin rejuvenation procedures.
CEOCFO:
Does the medical community understand the difference in quality with
Cynosure procedures and do consumers know the difference as well?
Mr. Davin:
Yes, the core market – dermatologists and plastic surgeons – have been using
light-based technology to address cosmetic indications for decades, and for
the most part they understand the different technologies available in the
marketplace. In the non-core market, however, further education is needed to
help physicians understand the differences in technology, and how these
differences impact clinical outcomes of the cosmetic procedures. It is new
to them and they are very interested in bringing these procedures into their
practice, but, once again, it is not something that they specifically
studied in medical school. Therefore, they need to get educated, not only on
the science, but also on why light-based technology or other cosmetic
procedures are advantageous in treating patients for cosmetic indications.
Among consumers, awareness is still limited. Certainly, consumers are very
aware of lotions, potions and other products that are more cosmeceutical in
nature. This is because companies that offer these products are much larger,
enabling them to market the products directly to the consumer. We do not
have the marketing bandwidth or prowess to be able to directly market to the
consumer. We are not J&J or Procter & Gamble, which can spend millions and
millions of dollars to educate consumers on their products. The positive
here is that a large number of consumers – perhaps 75% or 80% – are not
aware that there are devices out there today, such as ones that we offer,
which can give them a much longer-lasting clinical result than can be
achieved when using some of the cosmeceutical products on the market. The
challenge is how do we get direct-to-consumer awareness. One way to create
consumer awareness is to form alliances with the large consumer products
companies. We have established a relationship with Unilever, a very large
global consumer company. Unilever has the resources as well as the
organizational structure to channel education into the direct consumer
markets as it relates to the benefits light based technology can offer the
consumer in the way of a superior clinical result. We are working with them
to introduce light-based technology to the home-use market in combination
with their topical solutions. As these types of relationships develop, the
consumer will become more educated in the benefits of light-based
technology.
CEOCFO:
What about competitive landscape for laser treatments that doctors are
giving, are there many companies that are offering products, and why are
they choosing the Cynosure products?
Mr. Davin:
Pre-recession, there were quite a few companies competing in the
marketplace. With the downturn in the economy in 2009-2010, we saw a fair
amount of consolidation in the industry. In addition, some companies simply
did not have sufficient funding to navigate through the recession. As we
look at the industry landscape today, four or five major players make up the
majority of the market. Cynosure is really the leader in the industry. Our
laser product and service revenues grew faster than that of our peers in
2011. We pride ourselves on not selling our products based on price. We
position and sell our products as a value proposition illustrating the
potential return on the investment to the doctor. Often times, we can be the
highest priced device that the doctor is evaluating, but we are able to
command a premium price because we offer the doctor the greatest return on
investment. We can offer the doctor the best platform of technology
specifically designed to treat the high volume indication with the best
clinical result and safety profile in the industry.
CEOCFO: Would you tell us about your
actual product and revenue model?
Mr. Davin:
We have three areas in which we generate revenues. The largest is capital
equipment -- the device itself. This accounts for about 75% of our revenues.
The other 25% comes from servicing our installed base through the sale of
parts and service. After our standard one-year warrantee period expires, our
physicians are offered annual service contracts on their systems. We also
have a consumable, or one-time use, component of our revenues. Three of our
laser systems on the market today have a consumable product associated with
their use.
CEOCFO: Where do you see the most
growth?
Mr. Davin:
Now that the economy seems to be getting stronger and particularly in North
America, we see growth in all areas including the minimally invasive market,
where we are the leader in fat removal, body contouring as well as the
treatment of cellulite. We see a strong growth trajectory in these markets
that should be a real catalyst for our company’s growth for the next several
years. Systems sold for hair removal continue to be a strong revenue
contributor and as well skin rejuvenation systems. As the world continues to
age and people live longer, they are looking for ways to keep a youthful
appearance and light-based technology clearly provides a longer lasting
clinical result. We also completed some acquisitions last year. We acquired
ConBio out of Fremont California. ConBio specializes in short pulse
technology for the treatment of tattoos, which is in itself a sizable
market. The ConBio systems also are used for skin toning, which in the Far
East there is a strong demand for treating, toning, and lightening skin. We
believe the ConBio acquisition will deliver continuing growth going forward.
We also acquired Smooth Shapes technologies for the non-invasive temporary
treatment of cellulite as well as circumferential reduction and body
contouring. We think the body contouring market is also a significant
market. In addition, Cynosure has a very strong balance sheet. We have about
$74 million in cash with no debt. We are going to continue to be active on
the merger and acquisition front. We are also very excited about the
home-use market and our opportunity with Unilever. Overall, we believe we
have a number of growth engines to help drive the company forward and
continue our current momentum into 2012.
CEOCFO: Is the international market a
major factor for Cynosure, and are there areas where you would like an
increased presence?
Mr. Davin:
As I mentioned 56% of our revenues last year came from countries outside
North America. We are very strong in Europe as well as the Middle East and
Asia. Where we are not as strong as we would like to be is in South and
Latin America, specifically are countries such as Brazil, Venezuela and
Mexico. We believe we could be doing much better in that part of the world
and we know that the demographics play very nicely for our business a there
is strong demand for cosmetic indications in these regions. It is really
necessary to establish the infrastructure and the local feet on the street
to be successful there. This year we are focused on expanding and growing
that opportunity.
CEOCFO: You mentioned that most people
are not aware of these procedures, which surprises me; why so little
awareness?
Mr. Davin:
Given the comparatively small size of our companies, national
direct-to-consumer advertising, such as monthly full-page ads in Vogue
or regular television commercials, is just not something the industry
can afford to do on a large scale. However, we know that we can prove
clinically that our devices work much better and the clinical result will
last much longer than other treatments.
Take hair removal as an example. Today, probably 90% of all women still
shave their underarms and their legs to remove unwanted hair. Shaving is
something that they really have to do every day. If you look at laser
technology, with three to five treatments, they would not have to shave
again. You ask yourself why are 90% of women probably worldwide still
shaving, versus using a laser and not having to shave again and some might
say because the laser procedure costs a lot more. The cost of these
procedures has come down significantly over the past couple of years. We can
demonstrate that a laser treatment for your underarms for permanent hair
reduction may cost $500 to $1000 for all of your treatments. Treatments are
completed in six months and then you do not ever need to shave or buy a
razor again. Over one’s lifetime, it would be more expensive to continue to
buy razors and shaving cream, not to mention the time-savings achieved by
eliminating the need to shave.
Fortunately, the ubiquity of the Internet has made consumers more
comfortable researching and sharing information online. More and more people
are connected to the Web through smartphones, tablets and laptops, making
social media an extremely effective tool to reach a broad market
efficiently. We are using social media and other strategies to drive
consumer awareness. These tools are far less expensive than national print
ads and TV commercials, but enable us to be highly effective in getting our
message to prospective customers and consumers. We expect to take increasing
advantage of social media in the years ahead.
CEOCFO:
Why should investors pay attention to Cynosure?
Mr. Davin:
When you look at Cynosure, we are a twenty-year old company with a seasoned
management team that has demonstrated that it can manage the business
through periods of rapid growth as well as rapid decline. We have developed
a diversified product platform focused to address the needs of high growth
markets. We are also geographically diversified and generate 56% of our
revenues from outside North America. This allows us to balance the risks
associated with local economies. For example, when the economic downturn hit
specifically hard in the US in the past few years, because we are well
positioned in Europe and Asia, our overall business was not as dramatically
impacted. We feel that we offer clinicians the broadest range of
technologies and aesthetic devices to treat the widest range of cosmetic
applications. This allows a physician to develop a relationship with
Cynosure and know that as their practice grows they can be assured that
Cynosure will be there to support that growth through service support and
new products. We pride ourselves on excellent distribution, and we pride
ourselves on innovation; these are the cornerstone of our company. We
continue to launch exciting new technology every year. In addition, we also
have made some excellent accretive acquisitions. If you look at our
performance in the industry, our laser product and service revenues grew 35%
last year - faster than any of our competitors. We continue to launch new
technology into the market such as Cellulaze and we will continue to
introduce game-changing technology in the future.
We have a strong balance sheet, $74 million in cash and no debt. We are cash
flow positive and do not need to utilize our cash to drive our business.
This allows us to think strategically and to continue to evaluate
acquisition opportunities that we feel will be synergistic to drive
non-organic growth. We also continue to drive organic growth through new
product introductions fueled by our active internal research and
development. We returned to profitability in the fourth quarter of 2011.
This was a turning point in our industry, as no company in our industry had
achieved profitability on a GAAP basis for almost three years — since the
economic downturn in September of 2008. We have a number of catalysts for
growth driven by a variety of technology resources. We also expect to
continue to grow our consumables business and expand our worldwide global
position in new markets through expanded distribution. In addition to our
expected growth in the professional market, we are excited about our
relationship with Unilever and our expansion into the home use market.
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