Firm's success is skin-deep

BURLINGTON -- The ever-increasing emphasis on looking good has Palomar Medical Technologies Inc. of Burlington scrambling to enter the at-home market with its light-based equipment for removing unsightly body hair and skin pigments.

''Aging baby boomers and others with more disposable income" are Palomar's targeted audience, chief executive Joseph P. Caruso said in an interview last week.

In the last two years, Palomar, which has 180 employees, has signed agreements with Gillette and Johnson & Johnson to develop products that can be used in the home for cosmetic purposes. A women's hair-removal product for Gillette is the furthest along in development, said Caruso, 46, a Reading resident. Following US Food and Drug Administration approval, it could be introduced in August 2006, he noted.

No timetable has yet been set, he said, for the unveiling of the Johnson & Johnson products aimed at removing acne and cellulite.

Meanwhile, under an Army contract worth more than $3 million, the company is continuing to design a device for treating razor bumps.

''We now view our overall market as a pyramid, with leading dermatologists and plastic surgeons at the top, doctors of other disciplines in the middle, and consumers wanting home-use devices at the bottom," Caruso said, noting that Palomar has several thousand physicians as customers, most of them in North America.

For now, sales of high-priced laser and flash-lamp products to doctors for a wide range of skin conditions are boosting company sales and earnings. A power supply box, for example, is priced between $42,000 and $82,000, and nine hand-held devices between $10,000 and $45,000 each, said Caruso, who joined Palomar in 1992 after having been chief financial officer for Massachusetts Electrical Manufacturing Co. of Ipswich. He has been Palomar's top executive since May 2002.

Palomar has a number of major competitors, Caruso said. Two of them are in Massachusetts: Cynosure Inc. of Westford and Candela Corp. of Wayland. Cynosure went public on Dec. 9. It cannot go into details about its business, which is similar to Palomar's, because of ''a blackout period" enforced by the US Securities and Exchange Commission, said Timothy W. Baker, executive vice president and chief financial officer.

Heightened industry competitiveness, Caruso said, has resulted in some court battles, notably an ongoing dispute with Cutera Inc., a California firm. Palomar and Massachusetts General Hospital of Boston are suing Cutera over a patent infringement issue.

Jose J. Haresco, who follows Palomar, Cutera, and other industry leaders for the San Francisco investment firm of Merriman Curhan Ford & Co., said ''Palomar's core business is well-positioned. It allows users to upgrade their equipment with handsets." Although the home market ''is in its infancy, it could be very big potentially because vanity sells."

Mass. General and Palomar have had a key relationship since August 1995, when the hospital's Wellman Laboratories of Photomedicine agreed to conduct clinical trials on a laser device for removing hair.

Founded in 1987, Palomar initially conducted research on lasers that ''would break up blood clots," Caruso said. ''This was quite successful, but we could see that there would be competing technologies, which turned out to be [heart] stents. So we shifted our focus to other medical applications using intense pulsed light."

In 1997, after the FDA approved the hair-removal device evolving from the MGH clinical trials, Palomar partnered with Coherent, a Palo Alto, Calif., company, to market and sell the product. ''They're the largest laser maker in the world, the IBM of the industry," Caruso said.

Two years later, Palomar sold the product to Coherent for $70 million and annual royalties of 7 percent on sales, he said, adding, ''We now wanted to come up with multiple-use products."

That research prompted the introduction four years ago of the company's MediLux line of products, which use lamp-light pulses to treat various conditions ranging from vascular lesions and hair reduction to photo-facials.

As a result, Palomar's revenues increased from $25.4 million in 2002 to $54.4 million in 2004. Net income for the same period rose from $39,113 to $10.6 million, or 60 cents a share.

For the first nine months of this year, revenues were $54.5 million, up from $38 million for the same period a year earlier. Net income was $12.1 million, or 64 cents a share, versus $5.3 million, or 30 cents a share, for the first nine months of 2004. Shares are traded on Nasdaq.

''We're now banking on increased consumer awareness" of cosmetic-enhancement products, said Caruso, whose salary last year was $275,000. He also was paid a bonus of $181,500.

''This will make our physician market even bigger and ultimately will drive the at-home market."