Investor's Business Daily, March 9th, 2007
It seems hardly an hour of prime-time TV viewing goes by without some ad pitching a miracle cure for wrinkles.
As baby boomers age, more people are searching for the fountain of youth. All types of companies -- from drug and cosmetics firms to makers of laser gear -- are coming up with products to feed their vanity.
Cynosure CYNO is one company that's tapping into this trend. Cynosure develops and markets laser and pulsed-light systems that doctors and other practitioners use for cosmetic procedures. Its products are used to remove unwanted hair, reduce scars, treat veins, reduce cellulite and tighten skin.
Cynosure, based in Westford, Mass., went public Dec. 9, 2005. Business has been growing at a rapid clip ever since. In 2006, sales leapt 39% from the prior year. Earnings per share grew 17%.
The company had some special issues in the fourth quarter. Earnings actually fell to 13 cents a share from 29 cents a year ago. The decline was due to a one-time deferred tax benefit of $827,000 in the fourth quarter of 2005 compared with a $1.6 million income tax expense in the 2006 fourth quarter, says Chief Financial Officer Timothy Baker.
New Products
Still, revenue climbed 52% to $24.6 million. Ninety-eight percent of sales came from products introduced in the past 2 1/2 years, says Chief Executive Michael Davin.
Cynosure's biggest seller is the Elite Aesthetic Workstation. The product, which began shipping in March 2004, uses a unique approach: It combines two different laser wavelengths in one system, so that doctors can use it for a range of procedures. They include removal of unwanted hair and brown spots and treating leg and facial veins.
"By putting these two energy sources in one box, it allows the doctor to treat a broader range of patients and cosmetic conditions using one system vs. buying two or three," said Davin.
Last October, it started shipping another product that also combines wavelengths of light sources to address a range of conditions. Called the Affirm Anti-Aging workstation, the product has three different wavelengths to treat wrinkles, tighten loose skin and treat skin discoloration.
It was launched in North America and overseas. Cynosure got 42% of 2006 sales from overseas, where it distributes in countries such as France, Spain and Japan.
"A competitor would have to sell maybe two or three lasers to do what the Affirm workstation does by itself," said Davin.
Doctors can buy the system in stages. They can buy the workstation with just one energy source to, say, treat wrinkles, and then add modules to make it a complete workstation.
The product launch comes at a time when the so-called skin rejuvenation market is booming.
In 2006, 1.8 million skin rejuvenation procedures were performed in the U.S. using aesthetic lasers, according to Millennium Research Group. That number is expected to top 4 million by 2010.
Getting treated with Affirm isn't cheap. It can cost as much as about $8,000 to get all treatments.
"We believe management has undertaken the correct strategy," said analyst Anthony Vendetti of the Maxim Group. "They decided the growth in the market is going to be anti-aging. They decided to invest in a high-growth product."
Though it's still early, from what Vendetti has heard the product is selling very well. He says initial adoption of Affirm was ahead of plan and helped lift fourth-quarter sales.
In 2007, Affirm could contribute between $9 million and $10 million in sales and between 7 and 8 cents a share, Vendetti says.
"It's gotten tremendous reception both in the U.S. and internationally," said analyst Mark Richter of Jefferies & Co.
He views the product as an "upside" for 2007 and beyond.
Davin is optimistic about Affirm's prospects: "We believe the product has legs for a long time," he said. "We believe it has strong global appeal."
Cynosure started shipping another promising new tool in January called the Smartlipo system. This system performs laser-assisted lipolysis. This procedure is said to disrupt fat cells and cause coagulation of the tissue leading to skin tightening.
The product was developed by El.En, Cynosure's largest shareholder with a 35% stake. El.En is an Italian maker of laser sources and systems and owned 78% of Cynosure's common stock prior to its public offering. Cynosure now owns the product and has exclusive distribution rights for Smartlipo in North America and other countries.
"We are the first company to get (Food and Drug Administration) clearance for a laser to remove unwanted fat," said Davin.
Smartlipo is a minimally invasive procedure for destroying and eliminating fat cells. It requires a smaller incision and less recovery time than traditional liposuction.
With Smartlipo, a laser fiber is introduced through a small cannula, delivering energy directly to fat cells under the skin causing them to rupture. The emitted energy also coagulates tissue and induces tissue tightening.
Smartlipo is used to remove fat from areas such as under the arms or a double chin.
The product isn't a replacement for traditional liposuction, says Davin. But it's more like body sculpting.
Sales Team
"This is unique from any other product by any laser company," said analyst Vendetti.
Early indications are very positive, he says.
Cynosure is hiring a separate sales team to sell Smartlipo. Davin hopes to have between eight and 10 members by the end of June. The firm has a 50-person team selling its other products.
Analyst Richter sees a lot of potential in Smartlipo. In 2006 there were 500,000 liposuction procedures in the U.S., he says.
"We think they'll get at least some sub-segment of that market, which would be a huge addressable opportunity," he said.
Analysts polled by Thomson Financial are upbeat about Cynosure. They expect 2007 earnings to rise 41% to 89 cents share, then another 33% in 2008.
"Affirm and Smartlipo will add significant upside to 2007 and beyond," said Richter.
Copyright 2007 Investor's Business Daily, Inc.
