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Investing in Medical Lasers

Written By Briton Ryle

Posted July 23, 2014

Ever since the first lasers were developed, the medical field has been incorporating them into an increasing number of procedures. Advancements in the manufacture of lasers has allowed medical laser developers to introduce equipment tailored to highly specialized uses ranging from non-invasive skin treatment to delicate brain surgery.

Yet as pervasive as the use of laser technology in medicine may be, it may surprise many that the medical laser manufacturing space is not exactly a healthy industry. Of four leading medical laser manufacturers, only one has managed to perform as well as the broader stock market over the past two years.

Yet there may be a beam of hope for the future, as the medical industry’s reliance and even dependence on lasers keeps growing.

Lasers Have Revolutionized Medical Treatment

The world of medicine – along with just about every other industry – changed forever when scientists learned how to focus light into a fine beam.

Visible light is simply a small band of radiation that our eyes can detect within the broader spectrum of radiation that includes ultra-violet, infrared, x-rays, gamma rays and others which are invisible to us.

Like all types of radiation, visible light will disperse outward, growing ever fainter as it “radiates” from its source. The breakthrough behind laser technology was the ability to focus light into a beam that does not disperse nor lose its intensity over distance.

This is accomplished through “Light Amplification by Stimulated Emission of Radiation” (LASER), which funnels light’s multiple wavelengths into just one specific wavelength, the length of which can be customized according to the specific use for which it is intended. The narrower the laser beam’s wavelength, the more intense and penetrative it is, being able to cut through tissue, bone, even metal in such industrial applications as welding.

In fact, a laser’s wavelength can be narrowed to such a fine point that it can be used to cut incisions thinner than the finest metal scalpel, and can even target individual cells without damaging its surroundings.

This makes the laser ideal for extremely delicate medical procedures as outlined by the Food and Drug

Administration which governs the use of laser technology:

• cosmetic surgery (to remove tattoos, scars, stretch marks, sunspots, wrinkles, birthmarks, spider veins or hair)

• refractive eye surgery (to reshape the cornea in order to correct or improve vision as in LASIK or PRK)

• dental procedures (such as endodontic/periodontic procedures, tooth whitening, and oral surgery)

• and general surgery (such as tumor removal, cataract removal, breast surgery, plastic surgery and most other surgical procedures).

The advantage of using such a finely tuned sculpting device as a laser beam is that it allows the surgeon “to accomplish more complex tasks, reduce blood loss, decrease post-operative discomfort, reduce the chance of wound infection, and achieve better wound healing,” explains the FDA.

Yet as with any type of surgery, lasers do pose some potential risks, which can include “incomplete treatment of the problem, pain, infection, bleeding, scarring, and skin color changes”.

Even so, the use of lasers in medicine has vastly improved the safety of many medical procedures, and has even introduced new treatments that were previously impossible using conventional medical instruments.

Cutting a Niche for Themselves Using Lasers

Investors looking for a seat on the cutting-edge of medical laser technology might consider some of the following four companies. Though most have been trailing the S&P 500 broader market, the future of medicine is forever expanding, and companies with highly technical prowess will forever remain in demand.

As per the two graphs appearing at the bottom, these companies’ one-year performances are quite different from their five-year histories. Investors need to keep in mind that a technology company’s place among its peers is always in flux, much like the world of technology is itself.

• Cynosure, Inc. (NASDAQ: CYNO): This $462.85 million small cap founded in 1991 and headquartered in Westford, Massachusetts, manufactures a range of medical products incorporating laser and other light-based energy sources for hair removal, treatment of facial and leg veins, the removal of unwanted fat, the temporary reduction in the appearance of cellulite, anti-aging applications including treatments for wrinkles, skin texture, skin discoloration, and skin tightening, the treatment of vascular lesions and tattoo removal. The company sells its products in North America, France, Spain, the United Kingdom, Germany, Korea, China, Japan, Australia, and Mexico, as well as through independent distributors in approximately 120 other countries.

Publicly traded since the end of 2005, the company’s quarterly revenue growth year-over-year is currently an outstanding +52.4%; yet its quarterly earnings growth over the same period is a confounding -44.4%. With modest revenues of $247.3 million equalling a decent 53.4% of its market cap, its EBIDTA over the trailing 12 months of $41.94 million was a strong 9.06% of its market cap.

• Syneron Medical Ltd. (NASDAQ: ELOS): This $368.7 million small cap founded in 2000 and headquartered in Yokneam, Israel, manufactures aesthetic medical products based on its proprietary Electro-Optical Synergy (ELOS) technology to target a range of non-invasive aesthetic medical procedures, including: hair removal, wrinkle reduction, treating superficial and benign vascular and pigmented lesions, acne treatment, treatment of leg veins, the temporary reduction in the appearance of cellulite, ablation and resurfacing of the skin, laser-assisted lipolysis, topical skin brightening products, fat cell destruction and body sculpting, and a handheld device for the transdermal delivery of biologic drug-products via skin patch.

Publicly traded since mid-2004, the company’s quarterly revenue growth year-over-year is currently a regressive -7.2%, though the company has zero debt and generated annual revenues of $252.52 million equalling some 68.5% of its market cap. Even so, its EBIDTA ttm of $851,000 is a disappointing 0.23% of its market cap.

• Lumenis Ltd. (NASDAQ: LMNS): This $292.0 million small cap founded in 1991 and headquartered in Yokneam, Israel, manufactures energy-based medical systems and surgical laser systems for the treatment of retinal conditions and glaucoma/secondary cataract applications, and for skin treatment and hair removal. It also manufactures laser links, slit lamp microscopes, laser indirect ophthalmoscopes, physician eye safety filters, and surgical laser probes, with distributors in the Americas, Japan, Asia Pacific, Europe, the Middle East, and Africa.
Publicly traded only since late February of this year, the company’s quarterly revenue growth is a respectable 9.50%., with revenues of $271.05 million equalling an impressive 92.8% of its market cap, while its EBITDA of $25.6 million is a fair 8.7% of its market cap.

• Cutera, Inc. (NASDAQ: CUTR): This $141.2 million micro cap founded in 1998 and headquartered in Brisbane, California, manufactures laser and other energy based aesthetics systems for the removal of unwanted hair, treatment of vascular lesions, skin rejuvenation by treating discoloration, improving texture, reducing pore size, and treating fine lines, and for non-invasive body contouring.

Publicly traded since early 2004, the company’s revenues of $74.82 million are a fair 53.0% of its market cap, while its quarterly revenue growth is a flattish 1.4%. Though it has zero debt, its EBITDA of -$5.08 million gives it a negative return on assets of -3.62% and on equity of -7.02%.

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Source: Own

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Joseph Cafariello