The walls in the room of Doron Gerstel, CEO of Yokneam-based aesthetic device company Syneron Medical Ltd. (Nasdaq: ELOS) are still bare. Even the new wooden bookshelf unit stands empty. The only thing breathing life into the modest room is the view from the window of the surrounding hills. "Yes, I haven't yet got round to tidying it up," says Gerstel, who has been in the job for fifteen months, apologetically.
To be perfectly frank, considering what the sector Syneron operates in has been going through recently, Gerstel could be forgiven for not taking time out to choose some pictures for the walls of his office. All the more so, given that he only just returned to Israel a month ago, after four years in Silicon Valley.
Syneron, which develops devices for cosmetic skin treatments, was founded eight years ago by serial entrepreneur, Dr. Shimon Eckhouse. Syneron is not a healthcare company and its devices are intended solely for cosmetic procedures such as permanent hair removal, skin rejuvenation, wrinkle reduction, treatment of acne, and removal of pigmented lesions. In short, treatments that are supposed to make us feel younger and more good looking, even they do cost a tidy sum.
Syneron's devices are based on a single technology, the acronym of which is also the company's symbol on Nasdaq - ELOS, which in full is electro-optical synergy.
But even our basic desire to look better has not made Syneron and its competitors immune to the credit crisis now gripping markets everywhere, and the intense rivalry in the sector that has been eroding profit margins. The financials for the first quarter of the year from Syneron and US rivals such as Candela Corp. (Nasdaq: CLZR), Palomar Medical Technologies Inc. (Nasdaq: PMTI), and Cutera Inc. (Nasdaq: CUTR) show a marked slowdown - and even a decline in some cases - in US activity. These factors caused Syneron to lose 35% of its value over the past year, a result Gerstel has difficulty coming to terms with. "For me, this is something new. Managing a public company means you are being rated every day, every hour, and every other second," he says in an exclusive interview with "Globes" to mark his first year as CEO. Syneron currently has a market cap of $447.2 million.
Coming home
Gerstel may not have gotten used to the relationship between company and investors, but he is clearly beginning to acknowledge its existence. A year ago, he declared in an interview with "Globes" that "there is no difference between serving as CEO of a privately-held company and serving as a CEO of a public company." His views have changed somewhat since then. "Every quarter, I get a certificate," he says today. "As soon as I have ended a quarter, I have five weeks during which I live on the publication of the results, and then I have seven weeks left in which to prepare the next quarter. It's as if the capital market has a biological clock."
Gerstel, as mentioned earlier, returned with his family to Israel a month ago, and settled in Zichron Yaakov, close to where he works. "It's very important to me. I want my kids to grow up with the Israeli experience," he says. Gerstel has two daughters, one who has just completed her army service and the other who is still serving, and two sons in their early teens. "Leaving Silicon Valley wasn't easy. It’s the laboratory of the good life," he says.
Globes: Do you see yourself staying in your present job in the long-term?
Gerstel:"Yes, absolutely, I'm really enjoying it. For me, Syneron is three or four companies which compete in parallel fields. First, we offer facial treatments. Second, we also offer body shaping treatments. Third, we offer, in partnership with Procter & Gamble, a device for treatments at home, and in addition we offer, through a partnership with Israeli start-ups Rakuto Bio Technologies, and Light Instruments, skin and teeth whitening treatments. In other words, Syneron is a very big aesthetic umbrella."
And you have no ambition to expand to the healthcare field as well?
"No. I don't want to approach ear, nose and throat doctors and offer them laser treatments for correcting auditory canals in the ears of children, or offer eye doctors treatments for cataracts."
Gerstel knows what he is talking about. The aesthetic treatments market in which Syneron operates has annual turnover of billions of dollars, and according to forecasts, it will continue to grow at the same rate as it has until now. In the final analysis, we will always want to look better, even at a time of recession. "I think that when there are economic question marks such as those we have today, our strategy is the right one. We are spread throughout the world, and across different fields as well," says Gerstel.
In no rush to go on a shopping spree
One of Syneron's newer customers in the US is cosmetic treatment clinic chain Sono Bello Contouring Centers, to which it will supply its LipoLite and VelaShape devices. The first is a liposuction device which breaks down fat cells through laser beams rather than invasive procedures, in areas where surgical liposuction is difficult to perform, such as the chin and upper arms. The second is a device for body contouring and dissolving cellulite. Sono Bello will open its first clinic in Seattle, Washington later this month, with four more clinics due to open across the US later this year. The chain intends to open a further 30 chains by 2010, all of which will offer treatments with Syneron's devices.
As you see it, how does the crisis in the US differ from that in the rest of the world?
"First, the Americans are more stressed. They're so worried they can't even bring themselves to say the word recession. Instead they say 'the R word.' So they've been putting the brakes on spending more strongly. Syneron is in a line of business that is a want, rather than a need. We offer solutions that are a type of luxury, so for us to be experience a slowdown is perfectly acceptable. In Europe, on the other hand, we're focusing on countries such as Italy, Spain, the UK, Denmark, and also France, where there is an increasing awareness to aesthetics. We're feeling the slowdown less over there."
Syneron makes a point of investing in start-ups to the tune of a few million dollars each, but is in no hurry to acquire rival or complementary companies despite having $220 million in cash and long-term deposits as of June 30. "We're looking at various options for consolidation, but it's not simple," Gerstel explains. "There's nothing clever about making an acquisition. The tricky part is showing investors, the day after you've acquired a company, that it's synergetic. Overall, our products and those of our competitors are similar, so it's not all that easy to turn one and one into more than two. What's more, Syneron has some very nice profit margins, and acquiring another company could ruin them."
Provided, that is, you acquire a company with lower profit margins than yours.
"I'll be frank with you. I could count the competitors with profit margins like ours on two fingers. A consolidation with a company that has lower profit margins than us would require a lot of work on our part, so I would rather hang on to the cash we have and not be in a rush to acquire, even if there are things going cheap."
Getting rid of wrinkles without leaving the house (and no cream)
One dream common to all of us, especially the women, is to be able to repair the ravages of time, without leaving home, without making an appointment with a plastic surgeon, and without cashing out several savings plans to pay for it all. Syneron, in partnership with consumer product giant Procter & Gamble Co. (NYSE: PG), is attempting to turn this dream into reality with a range of products for home use, most of which will be for facial skin treatments. The agreement between Procter & Gamble and Syneron is exclusive and is valid for ten years. Syneron will develop and produce the devices and Procter & Gamble will market and distribute them.
"The cooperation between us is progressing according to plan," says Gerstel. "We’ve filed an application for marketing approval with the US Food and Drug Administration (FDA) for the first device, and we hope to begin marketing it next year."
The device will be used for skin renovation and according to Gerstel, it is designed to replace the various creams, but not the surgical procedures. "The creams market is worth billions of dollars a year. We believe that their effectiveness is highly doubtful, even though they have a positive psychological effect."
Some people might have doubts about the effectiveness of your product as well.
"Maybe, but we are bringing a technology that has been proven to be effective by doctors, into consumers' homes. That is no trivial matter. In addition, we are downsizing the price without compromising on the device's effectiveness, and that takes quite a long time. Procter & Gamble, as a reputable partner, would not have entered this partnership if it didn't feel comfortable with it. It apparently does, and it is now working on the device's design, packaging, user instructions, and even the advertising.
"And in any case, Procter & Gamble scrutinizes any move, including in marketing, thoroughly. People often talk about marketing in terms of intuition, but there's no intuition at Procter & Gamble."
Gerstel says the device will cost around $300, a price which, he believes, is "quite reasonable." Like other consumer products, the device will be sold at the various retail chains.
Published by Globes [online], Israel business news - www.globes-online.com - on August 17, 2008
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