BRISBANE, CA - Shares of Cutera, a developer and manufacturer of aesthetic-laser systems, have risen more than 70% in the last two months. A year ago, the company’s stock stood at about $12/share; after reaching a high of $44/share in early December, the stock closed at around $30/share on December 14, following news that a Massachusetts court had denied Cutera’s request to dismiss a patent-infringement case brought against the company by Palomar Medical Technologies (Burlington, MA). In fact, Palomar saw its stock rise more than $2/share to close at $37.81 the same day-and this is after the stock has already gone up more than 40% in recent months.
Palomar and General Hospital Corporation allege that Cutera’s CoolGlide line of skin ablation and hair removal lasers (Cutera’s flagship product, combining a Nd:YAG laser with flashlamp and infrared technologies) violates their patent, “Hair Removal Using Optical Pulses.” Cutera claims that technical information predating that patent makes the patent invalid. Should Palomar win the trial, however-which is expected to begin early next year-Cutera would be liable for millions in damages for past sales and ordered to stop selling products that infringed the patent. The company could also be liable for triple damages for selling a patent infringing product. Palomar said it has no intention of licensing technology to Cutera should it win. In April, Palomar and General also sued Cutera over its ProWave 770 product for infringing the same patent along with an additional patent.
Patent lawsuits aside, the stock prices are pretty heady numbers for a couple of mid-sized laser companies, especially medical-laser companies. And they are not alone; several other publicly-traded aesthetic-laser manufacturers are finding themselves in Wall Street’s favor these days. Shares of Candela (Wayland, MA) are up 56% since October, while Syneron (Yokneam, Israel) shares are up 32% in the same period. Candela’s stock closed at $15/share on December 14; Syneron closed at $41/share the same day. And fellow competitor Cynosure (Westford, MA) just completed a public offering, selling 5 million shares at $15/share.
What is driving these stocks to seldom-seen heights? In a word (or two): the consumer. As has been the case for the last several years, the medical-laser market is closely tied to those applications paid for out-of-pocket by the consumer. This has translated into primarily aesthetic procedures involving skin resurfacing/rejuvenation and vision correction. However, the American Society of Plastic Surgeons reports that the number of these procedures being performed annually has actually dropped in recent years; for example, laser skin resurfacing procedures declined 4% between 2001 and 2004 while laser hair removal procedures fell 22%.
These numbers fly in the face of industry reports that sales of both these types of laser systems are on the rise. One theory has it that doctors are still buying the systems even if they are not using them as often. Another-and likely more accurate-theory is that the end-user market for these systems-that is, the practitioners buying the systems-is broadening.
“We believe this market is barely penetrated and is expanding out from the traditional dermatologists and plastic surgeons to include general practitioners, OB/GYNs, and skin-care clinics,” said Ron Santilli, CFO of Cutera. “And we see no indication of a slowdown at this time.”
-Kathy Kincade