Shimon Eckhouse: Entrepreneurship grows out of freedom

Dr. Shimon Eckhouse  credit: Tomer Shalom
Dr. Shimon Eckhouse credit: Tomer Shalom

Aesthetic medicine pioneer Eckhouse and InMode CEO Moshe Mizrahy discuss speaking out on judicial reform, and why they don't fear recession.

"Recently, everyone has been talking about the possibility of investors' money fleeing the country, and I actually wanted to emphasize something else," says medical device entrepreneur and pioneer of the Israeli medical aesthetics industry Dr. Shimon Eckhouse. "Entrepreneurship grows out of a sense of freedom. When people have no freedom of thought, they don't think. It's true, Hungary, Russia and Turkey also have entrepreneurship, but about a thousandth of what there is in Israel, and not by chance."

Eckhouse participated last week in a protest by high-tech companies in Yokne’am against the judicial reforms being advanced by Justice Minister Yariv Levin. Says Eckhouse, "Thirty years ago, when I raised funds for ESC Medical (later Lumenis), about $30 million of venture capital was being invested in Israel. Today - about $100 billion. We’ve all benefitted from this crazy growth to the point of becoming dependent on it. The money came mainly from the US. We built an amazing infrastructure in Israel, and the politicians here act like bulls in a china shop. Any damage to this system can lead to irreversible consequences."

Moshe Mizrahy, CEO of medical aesthetics company InMode, is also concerned: "As a large company, our business is unchanged but we definitely feel a change in atmosphere. Our suppliers are asking us questions and we have no answers. These days, when I attend industry conferences, Israelis are kings of the market. Maybe that will change."

Mizrahy notes that the main investors in the Israeli companies traded on Nasdaq are North American funds, and not the public. "Recently, the Norwegian sovereign wealth fund withdrew its investments in Israel, though that was in protest against the settlements, and not the legal reform. But if American funds adopt the same approach, it could snowball."

Judicial reform is mainly an internal affair. Why should it bother the American investor?

Eckhouse: "Uncertainties about a legal system pose a risk to investment. A legal system is responsible for the inviolability of private property. An independent legal system can prevent nationalization, it can prevent the government from demanding the banks provide information about private accounts.

"And it’s not that our legal system doesn't need some changes, but its independence from the political system is what gives investors their sense of security."

Is it judicial reform that bothers American investors, or is it the public demonstrations?

"They call us 'snitches' [in reference to foreign media reports about the demonstrations -- G.W.], but that's not the problem, it’s the event itself. Investors are very smart; they’re not watching the protests, and they’re not waiting to hear Shimon speak at Yokne’am junction. On the contrary, when they see the protests, they realize that not every change here will pass easily."

Have you thought about moving part of your activity outside of Israel?

Mizrahy: "I won't do it, and I think the talk about it is a bit nonsensical. If I have money abroad, I still have to move it back into Israel anyway, to pay employees. There’s no fear at present of nationalization or an Israeli banking crisis. The major impact is on new companies that are raising capital for the first time."

Eckhouse: "I am careful about statements on moving businesses out of Israel, because those statements are terrible. At the moment it’s irrelevant, and I hope it will continue to be. But the only thing worse than shouting 'fire' in a crowded theater, and dealing with a stampede, is not shouting and seeing everyone burn."

"The slowdown is an opportunity"

As mentioned, the two are legendary entrepreneurs in the aesthetic medicine industry. Eckhouse is the founder of Syneron and Lumenis, which went public on Wall Street, and were sold for huge amounts. In recent years, he has floated two more companies on the TASE: Sofwave, which deals in ultrasound-based medical aesthetics (current market cap is NIS 314 million), and Epitomee Medical, developer of a weight management capsule, and of ingestible devices that deliver drugs along the GI tract.

Mizrahy is also a medical aesthetic devices industry pioneer. In the past, he was one of the first investors in Lumenis, and later served as CEO of Syneron. In 2006, he founded Home Skinovations, which developed medical aesthetics for the home market, and in 2008, he founded InMode, which developed minimally invasive facial aesthetics treatment, and is currently traded on Nasdaq at almost $3 billion market cap.

These days, the companies they manage are having to deal with the slowdown in their main market, the US, while facing price increases for raw materials and transportation. Mizrahy is not worried and views the slowdown as an opportunity for InMode.

"We entered this period with our pockets full," he says. "As of the end of the third quarter, we had $484 million cash. We are not a leveraged company, so the cost of money does not affect us currently. On the other hand, companies acquired by private equity funds that took out loans for this purpose, have to service the loan, which may now have become more expensive. This is probably one of the reasons why we see these companies shrinking. We don't see them investing in their salesforce, in marketing, or R&D."

In its 2022 financials, InMode is expected to beat its own guidance, with revenue of approximately $450 million, expected to grow to $525-530 million in 2023.

Mizrahy admits that InMode is also dealing with a higher cost of sales, "Nonetheless, we have increased our investment in marketing and sales. This may lower profit margins a little, but we can accommodate the decrease, and by doing so, grow in market share. We’ll gain an economy of scale that will bring a return on this investment either immediately, or when the recession ends."

"Even during the Blitz they bought lipstick"

Sofwave, where Eckhouse serves as a founding investor and chairman, is a younger company, still in the fundraising stage. In its reports for the first half of 2022, it recorded revenue of NIS 13 million, a loss of NIS 9 million, and had NIS 36 million cash.

Eckhouse, as a veteran of several market slowdowns, points out that these periods actually have almost no effect on the aesthetic sector. "Even during the Blitz in London, the most coveted products were stockings and lipstick," he notes. "The social class that buys most aesthetic treatments isn’t the one that will have to give them up because of a recession.

"We’re seeing supply chain challenges, but we’re familiar with that and know how to deal with it, and with a gross margin of 75% instead of 85%, which is what I was used to at Syneron. We also raised prices in the US, but it didn’t affect our ability to sell."

However, a slowdown sometimes pushes doctors into a corner; they may find it more difficult or risky to take out a loan to finance the purchase of a device, even if they expect it to return the investment. Mizrahy: "Here too, our advantage as a company with deep pockets is our ability to provide doctors with a finance plan, help with marketing, and once again, increase my market share."

Published by Globes, Israel business news - - on February 5, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Dr. Shimon Eckhouse  credit: Tomer Shalom
Dr. Shimon Eckhouse credit: Tomer Shalom
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