The sagging economy hasn't spared makers of aesthetic medical equipment -- used in everything from facial rejuvenation to acne treatments -- but the chief executive of Solta Medical Inc. sees it as an opportunity to do more deals.
Solta, formerly Thermage Inc., is unveiling a new name today. Last month, the Hayward, Calif.-based company completed its $65 million purchase of Reliant Technologies Inc. The entire sector is suffering because doctors and spas are reluctant to shell out for the high-priced equipment at a moment when consumers are shying away from treatments often considered to be more luxury than necessity.
Solta CEO Stephen J. Fanning said he expects the downturn to prompt a wave of industry consolidation, and he wants to be a buyer. "We want to do other deals," he said in an interview last week. "We have the ability to go get other money. There are private-equity companies interested in providing capital for companies to consolidate the space."
He said he isn't limiting his search to equipment makers, but is also looking at antiwrinkle facial fillers such as Allergan Inc.'s Juvéderm and Medicis Pharmaceutical Corp.'s Restylane. "Solta Medical isn't a brand; it's a holding company for what I hope would be a house of brands," said Mr. Fanning. The Thermage brand includes equipment for nonsurgical body contouring. Reliant makes the popular Fraxel lasers, used to treat acne scars and smooth out the skin's tone and pigmentation.
There are more than 50 companies in the sector with combined 2008 sales of about $500 million, according to Priyanka Jain, an analyst at Millennium Research Group in Toronto, who said this industry fragmentation makes it ripe for consolidation.
Solta said that despite the downturn, combined sales of Thermage and Reliant were $108 million, up 9% through the first nine months of 2008. Full-year results will be disclosed next month. While he won't discuss fourth-quarter results, Mr. Fanning acknowledged that it's been a challenging time for the business. Stocks for all companies in the sector have plunged.
Few physicians are eager to make big capital investments in equipment that often carries a price tag of more than $100,000. Aesthetic device company Rhytec Inc. of Waltham, Mass., recently closed its doors. Even Solta just cut its work force by about 30% to 270 employees, including a layoff of about 20 sales people.
Mr. Fanning said that Solta's business is more resilient than that of competitors whose sales rely largely on equipment. A big chunk of Solta's revenue comes from consumable "tips" for its machines. "It's like going over a toll bridge; every time you pass through you pay," Mr. Fanning said. On some machines, tips must be replaced after each cosmetic procedure. Each costs about $400.
For the moment, Solta is focused on integrating the operations of Reliant, the maker of Fraxel lasers. Fraxel has taken off in recent years in the wake of a marketing blizzard that has included outdoor billboards and direct mail to consumers offering "luminous skin with minimal downtime."
Thermage machines use radiofrequency energy rather than lasers for nonsurgical skin contouring. The technology's performance was disappointing when it was introduced many years ago, but it has gotten much better, says Vic Narurkar, a San Francisco dermatologist and laser specialist. He uses it on people who have had a facelift that is wearing off and to treat contour irregularities after liposuction surgery.
Solta has "gold-standard technologies," but it remains to be seen if they are a good fit from a business and marketing perspective, said Dr. Narurkar, who has purchased both Thermage and Fraxel equipment for use in his practice.
Thermage's consumer Web site lists physicians in order of their purchasing volume of company products. That means that a consumer searching for a Thermage doctor in his or her zip code will first see the company's best customers. This physician loyalty program is being expanded to include Fraxel.
"Doctors fight" to be at the top of the list, said Mr. Fanning, noting that some will even ask how many more purchases they must make to move ahead of a particular competitor down the street.
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