Online Extra: Palomar: Seeing the Light

Cosmetic-laser treatments are booming, and pioneer Palomar is reaping the rewards. CEO Joseph Caruso tells how it got there

Hot Growth entrant No. 4, Palomar Medical Technologies (PMTI ), has tapped into the large and growing market for cosmetic lasers. Palomar's Lux system uses pulsed light to accomplish a variety of procedures, including removing hair, erasing varicose veins, and smoothing wrinkles.

CEO Joseph Caruso has seen the Burlington (Mass.) company through many alterations, including a dramatic downsizing. But the changes are paying off: In 2004, Palomar's sales rose 56.6%, to $54 million, and profits tripled, to $10 million. Caruso recently spoke with BusinessWeek science writer Arlene Weintraub about Palomar's metamorphosis. Following are edited excerpts from their conversation:

Q: How much of a risk were you taking when you decided to focus Palomar's research on cosmetic lasers in the mid 1990s? The company had to divest about a dozen other businesses.


At the time, we had revenues of $80 million and 650 employees. But we had accumulated a lot of businesses through acquisition that were nonmedical, nonlaser. We saw great potential in laser hair removal.

So we took the company down to 50 people. Our revenues went away. We had to build the company from scratch. Palomar became the first company to get FDA approval for a hair-removal laser.

Q: Why did you feel cosmetic lasers would make for a good business?


Aging baby boomers make it a good business. People want to look good, they want to feel good about themselves. Also cosmetic lasers provide a way for physicians to leverage their businesses. Most applications [that are reimbursed by insurance companies] limit how much physicians can earn. But laser procedures are privately paid for [by patients] and have become so easy to use.

Q: In 1998, one year after you launched your first hair-removal device, you sold it for $70 million. Why?


We had so much more technology in the back room. Up to that point, all laser/light procedures had to be done with different devices. For hair removal, you needed one $100,000 box, for vascular lesions you needed another $100,000 device. We thought we could change that. And if one box could do multiple things, that would broaden the market.

So again we went back to having no revenues, again we had losses. But we had a $70 million war chest. In 2001, we launched Lux.

Q: How is the market for laser cosmetic devices changing?


The biggest change is that they're being purchased by nontraditional [buyers], like general practitioners and OB/GYNs. They now understand this technology, they know it's safe, and they're hearing from patients who are interested in it. There are 10 times more physicians in that market than there are in our traditional market.

Q: How much do you estimate this market could grow?


Current estimates say that $8 billion per year is spent on cosmetic light treatments. Yet fewer than 10% of people know anything about them, and fewer than 1% of those people have ever tried them. What happens when consumer awareness goes up? We're still in the very early stages.

Q: In 2003, Gillette (G ) chose Palomar as a partner to develop a home-based laser hair-removal system for women. Procter & Gamble (PG ) has announced its intention to buy Gillette since then. What will the combination of P&G and Gillette mean for any product that comes out of your partnership with Gillette?


Gillette is great at product positioning, awesome at branding, and it has world-class manufacturing. P&G has the best distribution channels. And they understand the female market even better than Gillette.

Q: Some analysts wonder why Gillette would want to develop a product that might compete with its flagship razor business. What do you know of the reasoning behind their decision?


It's true that from a defensive standpoint, if a light-based hair-removal system works and the market shifts from shaving to light, [Gillette's] market could be affected. It happened to Wang when the personal computer was introduced. It happened to Polaroid, which didn't make the shift to digital [photography]. Polaroid had an awesome business. But a disruptive technology came on the scene. When disruptive technologies are on the horizon, companies have to be ready.

Q: What has changed about society's attitudes toward cosmetic procedures?


People are comfortable talking about it now. Ten years ago, if someone had a facelift, they hid [the fact]. Now they say, "Oh, I had this done, and I had this taken off." We might be in the right place at the right time.

Edited by Patricia O'Connell

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