Although Israel has been a global leader in the aesthetic medicine market since the 1990s, with companies such as Lumenis, Syneron, InMode, and Alma Lasers, all of which were floated or sold at valuations in the hundreds of millions of dollars, none of this success has come the way of the local stock market.
For many years, no aesthetic medicine company has listed on the Tel Aviv Stock Exchange (TASE). In the past, the sector was a source of grief for local investors. PhotoMedex, which dual listed in 2012, collapsed noisily a few years later, while Endymed (TASE: ENDY), which was floated in 2008, now has a market cap of just NIS 48 million, after losing about 80% of its value since the flotation.
This year, a new aesthetic medicine company was listed on the TASE, led by none other than Shimon Eckhouse, a pioneer in the field and considered the father of the industry. Eckhouse founded two of its most success companies, Lumenis and Syneron.
The company is SofWave Medical (TASE: SOFW). Eckhouse is a founding partner and chairperson of the company, and holds a 25% stake in it.
SofWave Medical was founded in 2015. It has developed an anti-ageing product for tightening the skin using new ultrasound technology. It began selling its products last year.
Despite the challenging timing of the product launch, in the midst of the coronavirus pandemic, market penetration appears to have been successful. In the first half of 2021, SofWave's revenue totaled $10.2 million, with a gross margin in line with the aesthetic medicine market in general: 73.8% (following 61.2% in 2020). The company made a loss in the first half of this year of $2.3 million, which compares with a loss of $7.6 million in the first half of 2020.
SofWave was floated in May 2021, one of many recent flotations of technology companies on the TASE. It raised NIS 160 million at a valuation of NIS 800 million. The current share price is close to the issue price, but 25% below the level it reached when the stock began to be traded.
Talking to "Globes", Eckhouse sounds completely confident that the company will prove itself, despite the tepid performance so far. "SofWave was founded when an engineer came to me with an ultrasound-based cardiology product, and I immediately said that it would be possible to do interesting and profitable things with it in aesthetic medicine, things that even if they can't be called 'important' are important to the people who buy it," he says.
"The idea is to use ultrasound to heat the inner layer of the skin, the dermis, while strongly cooling the outer layer, the epidermis, so as not to damage it. Any damage to the skin's inner layer stimulates a regeneration process that leads to the skin appearing younger."
The company carried out tests on pigs and then on people, to demonstrate effectiveness and safety, and its product has been approved by the US Food and Drug Administration. Eckhouse, who as mentioned has led companies in this field for many years, had no difficulty is recruiting a professional management team for the company. "AS CEO, we hired Louis Scafuri, who has worked with me since the early days of Lumenis.
"I hired him again for Syneron, and again he did excellent work, and now for the third time, for him to build SofWave with us. He has already started building an impressive distribution network, in the familiar format of direct sales in the US, and, initially, sales via distributors in the rest of the world.
"We started selling in late 2019, but we entered the market in a serious way only in 2020. The pandemic fell on us, and froze the entire aesthetic medicine market, but, like many companies, we recovered, and started to sell on a small scale. When we saw that the rate of growth was starting to be reminiscent of we had known in previous companies, we said to ourselves: The stock market is interested in rapidly growing companies with big potential, and we're convinced that we are one of those.
"In the IPO, we raised NIS 160 million, which, as far as financial clout is concerned,, has put the company in a completely different place. It is enabling us to build the marketing channels and our pipeline of future products, which needs several million dollars for development."
"Demand is high, they're banging on our doors"
Eckhouse is satisfied with the company's financials, which show 50% sales growth from quarter to quarter. "The demand for the product in the market is high, they're banging on our doors. The success is thanks to our team, which amounts to ten people at the moment will be expanded, and thanks to our product, which is the new generation of aesthetic medicine devices.
"The skin regeneration products that currently exist on the market are invasive and non-invasive. The non-invasive products transfer energy and heat the inner layer. Their effectiveness is limited and they require repeated treatments over time before results are seen.
"As for the invasive products, almost twenty years ago several companies, among them those I led, started to examine solutions for reaching the dermis, such as needles introduced into the skin that transmit energy into the inner layer.
"The effectiveness of a procedure like this, which is semi-invasive, is higher, but that carries a price. When you carry out a semi-invasive procedure using RF energy, the face is pierced tens of thousands of times. In the healing process, the skin grows new collagen and elastin, and becomes firmer and smooth, with all the good effects, but the patient pays a heavy price, having to stay at home for a week. It's painful and annoying, and there are also side effects, because the skin doesn't like being wounded. For example, there can be pigmentation.
"The technology that Ariel Sverdlik (SofWave's other founding partner - G.W.) proposed to me allows us to do a controlled burn of the dermis without injuring the upper layer, and that's a very big advantage. We obtain the effectiveness of lasers and RF needles, but without putting the patient out of action at all. With us, a facial treatment takes about 40 minutes, and after that the patient goes on his or her way. Even for the doctor the treatment is shorter."
"Do you have competitors in ultrasound for skin tightening?"
"A US company called Ulthera, which was recently acquired for $600 million, developed technology that attempts to concentrate ultrasound waves from several appoints within the skin, to cauterize brain tissue and inner organs without surgery, but in this case the aim was to burn the dermis.
"The problem, however, is that it's very hard to focus energy in the dermis; the treatment can be painful, and burn the tissues. We don’t focus ultrasound on a point, but on the whole tissue, while protecting the epidermis. And so our energy is lower and the product is safer. In other energy transmission methods, such as laser, RF, or IPL, it's impossible to transmit high energy to the dermis, and so the multiple treatments we spoke about earlier are required."
Every doctor is a long-term customer
SofWave's business model, like that of Eckhouse's previous aesthetic medicine companies, is based on selling the device itself at a low price and then collecting a further payment for each treatment. The customer is the doctor. "Every doctor is a long-term customer, who produces repeat revenue for us and who also represents an opportunity for future sales of technological upgrades and new applications."
Eckhouse appears to be implementing a tried and tested model at a company with a new technology. The question, then, is only whether this is really the same market, with the same opportunities as in the past.
"Today's market is much more mature. When I founded Lumenis at the beginning of the 1990s, patients were sometimes ashamed of the fact that they were looking for a treatment like ours, but today they're proud of it, and do before and after pictures. The treatment is much more popular.
"During the coronavirus pandemic, we have all stared at our own image on Zoom. It's true that selfies have been around for years, but the selfie-Zoom reached older people as well. The market is by now three or four times what it was when we founded Syneron, and it's growing at 15% a year. Yes, it's very competitive, and you have to come up with innovation all the time, We learned that right at the start.
"We also understood that you can’t just worry about the technology; you have to deal with the whole value chain. The work with the doctors, the changing face of marketing - today there's a very important element of digital marketing, which to a large extent comes at the expense of public relations, and that's certainly a channel we have invested in with the money we raised."
Why, unlike with your previous companies, did you decide on a flotation in Tel Aviv?
"The Tel Aviv Stock Exchange has very much changed for the better. A decade ago, it was a stock exchange for the old economy, divorced from high tech. It was a little idiotic that Israeli investors couldn’t benefit from the technology boom, and the stock exchange understood this, and made enormous efforts to open up to these areas and attract tech companies. Not all of them come to the stock exchange at the right stage for a flotation, but, in general, we are seeing a much more varied and mature Israeli market.
"We're a little young for Nasdaq, and so we said to ourselves that perhaps in Tel Aviv we would actually receive an attractive valuation, and we did. That of course is not the end of the road. Many companies later choose to dual-list in the US."
Inmode, which was founded by your partner from Lumenis, Moshe Mizrahy, has a market cap on Nasdaq of over $4 billion.
"Inmode is an excellent company. I have been saying that ever since it was floated, and in fact I said it before that, but no-one asked me. I hold the work they have done in high esteem. They chose an excellent technology and area of treatment, and they're doing well. And yes, they are also competitors of ours, and we have significant innovation relative to them as well. In my view, we have a fairly clear path, which doesn't mean that it will be easy. It hasn't been easy for them either."
Published by Globes, Israel business news - en.globes.co.il - on August 24, 2021
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