Did you know that at one time Amcor tried to develop a manual phototherapy treatment for acne? If you did not, it is because the attempt did not last long. Amcor was not the only company to try to develop such a treatment and fail, and in any case, the traditional acne treatments were based on creams and pills, not phototherapy. Now CureLight is trying its hand with devices designed to clear the faces of suffering teenage patients, although for now, its products are strictly being applied in clinical trials.
The company was founded by Dr. Yoram Harth, a dermatologist with a deep interest in photobiology (the interaction of light with living organisms), and Avner Korman, a laser electro-optic engineer. The two men began their work at Bar Ilan University. Harth says, "The objective was to apply the concept as fast as possible, not to develop a treatment in 15 years, but to launch a product within 12-18 months. We had a prototype within a year."
CureLight uses high power, focused wavelengths to treat acne. Harth explains, "Lasers emit a single wavelength, say 420 nanometers, in parallel and coherent waves. We use dispersed and incoherent wavelengths of 400-440 nanometers. We can therefore treat the whole face within 15 minutes. If we wanted to use laser treatments, it would take two hours."
No side-effects
The idea is to use narrow-band, 420nm blue wavelength that converts the porphyrins produced by the acne bacteria (p.acne) in the follicular ducts into a toxic compound that actually destroys the bacteria. The treatment dries the acne and prevents it from recurring. The company claims there are no side-effects, unlike other acne treatments, such as pills that can cause depression or liver damage.
This is not earth-shattering, except that the technology can maintain a "borderline damage" wavelength of about 400 nanometers. The ray's focus allows shorter than usual treatments of only 15 minutes, twice a week for a month, instead of the 3-4 months for other phototherapy treatments. Harth says, "We have reduced acne by 60%, compared with 20-25% using existing devices and creams." The treatment requires monitoring and repeat treatments for six months, plus the use of appropriate creams developed and manufactured by the company. "We have a complete treatment package," he added.
CureLight's product already has $4.5 million in sales a year, "based on finalized orders, even before marketing in the US". CureLight is now waiting for US Federal Food and Drug Administration (FDA) approval to market the product, which it expects to receive in early 2002, if all goes as planned.
High-end market
The Oppenheimer investment house published an optimistic report about CureLight, calling the company "a winner." One of the most cautious comments stated, "We're very excited about the market opportunity for this product." Edmond de Rothschild Venture Capital Management senior VP Marcel Lasowsky tries to sound more realistic, "I read Oppenheimer's market forecasts. They're going nuts over there. We have some reservations about everything they say."
CureLight is directing its device to the high-end market - dermatologists. "The emphasis is scientific, unlike for cosmetic devices that have no full scientific basis," Harth explains. Nurses can carry out the treatment, which Harth claims improves his business model. "The current trend is to supply medical devices to clinics, which can provide doctors with an alternative income," he says. The product costs the end user $35,000-40,000, and CureLight has sold 70 devices so far. Revenue is also derived from the devices, based on treatment time and current maintenance. The light source has a limit of a few hundred hours of use, and the bulb must be replaced periodically.
CureLight expects to have 250 orders for its device by the end of the year, and says demand is outstripping supply, since the company's current manufacturing capacity is 40 devices a month. Devices have been marketed through OEMs and installed in Japan, Thailand, France, Spain, Brazil, Argentina, and Israel. The product is marketed under a three-year, OEM (original equipment manufacturer) agreement with Lumenis (formerly ESC Medical Systems (Nasdaq: ESCM)), CureLight’s strategic partner. We'll return to this point later.
Harth is concerned by the jump in magnitude, if and when the US marketing permit is obtained. "We've reached the transition phase from small-scale to large-scale production, and we're about to develop new products. Reaching the right size, not the money, is the problem. The weak point is the balance between production capacity and demand. We don't want to burn relations by making commitments we cannot meet. We expect to sell over 1,000 devices next year, under existing contracts."
Harth continues his work as a dermatologist, in addition to being CureLight president and medical director. Korman was CEO, but turned the job over to Dr. Joshua Degani, formerly COO at Electric Fuel (Nasdaq: EFCX ) and CEO of Laser Industries (which merged with ESC Medical, now called Lumenis).
Psoriasis next in line
What will Korman do? "His abilities are in development," says Lasowsky. "He will continue as VP, and be responsible for developing projects at the company. A person who leads a start-up beyond a certain point is wise if he vacates his position. Korman properly led the first stage, and we then told him, 'Go lead new developments, up to the marketing/product stage."
The most prominent new device is a phototherapy treatment for psoriasis. While the acne treatment market stands at $1 billion a year, the psoriasis treatment market is worth $3 billion a year. The device, using technology that does not currently exist, is scheduled to be launched in 12-18 months. The company is trying to develop a treatment that will eliminate psoriasis in 5-6 visits instead of the current 30-40 visits needed when using current phototherapy treatments. "Other treatments damage healthy skin. We'll treat only the diseased skin in a focused manner," says Harth. The device will be similarly priced to the acne treatment device. Patent applications have been filed for both devices.
Th company will also try to treat eczema, common among children. The condition causes irritation, scratching, and inflammation. The irritation is caused by an over-reaction of the body's immune system, caused by heat, emotional stress, or exposure to certain toxins. Existing treatments are based on cortisone and psychology. CureLight, naturally, plans to place the scratching child under light rays.
Harth asserts that the company is at the operation break-even point, and that its cash burn rate is relatively low, due to modest expenditures. "Until last June, we sat in offices in a plant, with minimal expenses. We moved only after we began selling and there was demand for scores of devices," he says. Nevertheless, CureLight is planning a new, $2-3 million financing round, in which existing shareholders will participate, possibly along with new investors.
Lasowsky says, "The company can now move quickly to increase sales and revenue, even without a financing round. They're holding a round because they believe there's development potential and want to exploit marketing channels for new devices as well." The investors who are maintaining their stakes are Edmond de Rothschild Venture Capital Management, which invested $750,000, and probably Lumenis, which invested $1.5 million in March 2000 in exchange for a 19.9% stake. Electronics companies Elecsyc and Ecklog, which have a combined 20% stake, will also participate.
"Valuation isn't everything"
Harth says, "We're also negotiating with European and US groups that have offered to invest. We're discussing terms and valuation."
Company value for the previous financing round was $7.5 million, before money, and $9.5 million after money. "The company has developed since then," says Lasowsky, estimating the current valuation at $30 million, under normal conditions. The market potential could increase substantially if the FDA approval is received. On the other hand, Lasowsky admits, "We know that valuations are falling these days. The valuation will probably be $20-25 million. In any event, a company that raises money to develop, rather than to stay put, has a better chance."
Besides, says Lasowsky, valuation isn't everything. "What do I care if someone enters at $20 million, $22 million, or $24 million? This is a company with sales; it's healthy."
What's next? Lasowsky says, "There's immense M&A potential. One fine day, the company will simply be bought. An IPO is possible, but the chances of an M&A are greater. We're building a company with a completely independent future in terms of its business model."
In the background, CureLight's strategic partner, Lumenis, may be thinking about an acquisition, making the company’s life easier. Harth says, "Lumenis's great interest in us derives from their strong position in the cosmetics field. They have set up a sub-division to market dermatological phototherapy treatments, and we supply the content. They control 70% of the world market in this field, and we supply the technological innovations at a speed large companies cannot conceive of. We have synergy."
Published by Israel's Business Arena on 13 September 2001