Magazine

Palomar Medical


Jeannie Rogers was always embarrassed by the sun damage on her face. The longtime lifeguard was scarred with so many red and brown spots that she had to pile on the makeup to even out her skin tone. Then she enrolled in a clinical trial conducted by Palomar Medical Technologies Inc. (PMTI), which makes machines that use light-based technology to erase sun damage. After one 15-minute treatment, Rogers was amazed to discover that most of the discoloration had vanished. ``I don't have to wear any makeup at all,'' says Rogers, a restaurant owner in Newton, Mass. ``It's really excellent.''

EARNINGS

$13

million

SALES

$58.7

million

RANKING

#4

LOCATION

Burlington, Mass.

WHAT'S HOT

Wrinkle-reducing devices and other light-based technologies that physicians and spas use to make aging baby boomers look good.

Many more baby boomers like Rogers are buzzing about newfangled treatments for sun damage, wrinkles, unwanted hair, and other unpleasant trappings of age. And when they go to their dermatologists or plastic surgeons, they're often treated with Palomar gizmos. In the mid-1990s, Palomar was one of the first to win Food & Drug Administration approval for a laser-based hair-removal machine. Now doctors are snapping up the latest iteration of its technology, called the Lux system, which can treat many different cosmetic conditions. In 2004, the Burlington (Mass.) company's sales rose 56.6%, to $54.4 million, and profits more than tripled, to $10 million, helping land Palomar at No.4 on the Hot Growth list.

After 14 years of struggling in a highly competitive industry, Palomar is starting to turn heads. In 2003, Gillette (G) Co. formed a research partnership with Palomar to invent a home hair-removal system. And last fall, Johnson & Johnson Cos. (JNJ) picked Palomar to help it develop home-use devices for treating acne, cellulite, and wrinkles. Those deals have been jet fuel for the stock, which has blasted from $1 a share prior to the Gillette news to a recent $24.

That has been sweet validation for CEO Joseph P. Caruso. In 1997 he urged Palomar's board to divest nearly a dozen unprofitable businesses the company had acquired over the years and focus solely on cosmetic lasers. ``I thought the social and economic drivers would make this a good business,'' recalls Caruso, 46.

PHOTON TORPEDOES

Palomar's machines use a technology called pulsed light. They direct photons -- bundles of energy -- at targets in the skin. Changeable hand pieces that attach to the Lux system use various combinations of wavelengths, pulse durations, and energy levels to achieve different results. Photons fired at melanin in hair shafts, for example, destroy hair. A different combination of light properties interacts with hemoglobin in blood -- providing a quick way to erase unsightly veins.

Palomar's newest system offers a big advantage for doctors. Instead of shelling out $100,000 for a hair-removal laser, another $100,000 for a vein eraser, and so forth, as some rival systems require, they can spend $82,000 on Palomar's base machine, then buy hand pieces for each type of job for $10,000 to $35,000 each. ``We can get more than one laser in one box,'' says Tina S. Alster, director of the Washington (D.C.) Institute of Dermatologic Laser Surgery, which ditched a competing system last year and signed on with Palomar. ``That allows a lot more flexibility.''

Still, competitors are starting to develop Lux copycats, and that worries some Wall Street analysts. Candela Corp. (CLZR) and No. 80 Cutera Inc. (CUTR) are among the rivals trying to invade Palomar's turf. ``The valuation assumes [Palomar] is going to have this market to themselves,'' says Anthony Vendetti, an analyst for Maxim Group LLC in New York. Indeed, Palomar is trading at a pricey 28 times his 2005 earnings estimate.

Caruso is getting ready for the competition with new products and an expanded sales force. At one point, he tested a Palomar lamp himself, to smooth out some blotchiness on his face. ``It was an easy, pleasant experience,'' he reports. And one that he's betting many more age-averse baby boomers will embrace. By Arlene Weintraub in Burlington, Mass.


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