07 Jan 2003
Increasing competition and tough economic conditions hit sales of medical laser systems in 2002. Yacha Sutton, chief executive of Lumenis, tells Jacqueline Hewett that tapping new application areas is the key to restoring growth to the market.
From Opto & Laser Europe January 2003
Aside from corrective eye surgery (LASIK), market acceptance is proving a struggle, for a number of reasons. The cost of equipment is high; the systems themselves can be cumbersome; and there is a barrage of regulatory barriers to clear. And when this is done, the new devices still have to prove themselves as viable alternatives to traditional surgical methods.
One company that is on course to crack the market this year is Lumenis. Formerly ESC Medical Systems, the firm acquired Coherent's Medical Group in April 2001 and changed its name. Having recently received US Food and Drug Administration (FDA) clearance for a range of new systems (see box), Lumenis boasts an impressive repertoire of products for the aesthetic, ophthalmic, surgical and dental markets. With the groundwork done, 2003 could be the year when the laser finally finds its feet in the field of medicine.
Entry barriers So why has laser technology struggled to make it into general medical practice?
Yacha Sutton, chief executive officer of Lumenis, explains that a combination of factors is slowing things down. "First off, lasers are relatively new when compared with other technologies," he said. "And in many instances the cost of the equipment is still too high for it to be used in practice."
According to Sutton, an extensive marketing campaign is required to convince surgeons and clinicians of the benefits of laser technology. "The decision [to use laser-based equipment] in hospitals is influenced by several decision makers, which makes it a long process."
To help penetrate the medical laser market, Lumenis has invested $28 m (€27.4 m) on research and development this year alone to develop various new products and applications. As part of its R&D efforts it is also making technical improvements to its systems. "We are focusing on cost reductions and miniaturization as well as flexible delivery systems," explained Sutton.
He also points out that because commercial lasers already cover a broad spectrum of wavelengths, Lumenis is not concentrating its efforts in this area. With smaller and cheaper systems seen as the key to gaining market acceptance, Lumenis is looking for laser devices that are as compact and efficient as possible.
"One of our major products in ophthalmology was based on gas [laser] technology," said Sutton. "However, now we have come up with a solid-state system that makes it significantly less expensive to manufacture. It's the kind of laser and the efficiency of the product that can drive the price down significantly."
Emerging markets In Sutton's opinion, ophthalmology is one of Lumenis's fastest growing markets in the short term. "I think that we will see growth because we have some unique technology and we have a number of new products in this area," Sutton told Opto & Laser Europe. "We have just introduced a system to treat glaucoma and this is gaining momentum."
Although this sounds like an exciting proposition, it's only for one particular application. Sutton is quick to add that the only way to grow the medical laser market as a whole is to fuel it with new applications. "The medical laser market is currently worth $1.3 bn," he said. "But the dental portion of this is only worth $45 m. There is the potential to grow this significantly because there are many new applications [within dentistry]."
One up-and-coming use of lasers is as an alternative to the conventional dentist's drill. Here a pulsed fibre-coupled laser drills a hole for fillings or root-canal treatment. "The advantage is that you don't need an anaesthetic," said Sutton. "There is no noise or vibration from the drill. People don't even feel the treatment."
But again, at the moment costs are hampering penetration. "A laser for drilling costs between $40000 and $50000 and that's expensive for a dental practice," explained Sutton. "I believe that in two to three years these lasers will be sold for between $10000 and $15000. The level of acceptance will then be huge. In the longer term I think that every dental practice will possess a laser."
Despite positioning itself for growth, Lumenis's annual sales for 2002 are likely to come in at $360 m, on par with the 2001 figure. "We are selling about 6000 systems per year for a variety of applications," said Sutton. "This year  we will pretty much break even, which is not good for a company that is selling so much and has a gross margin in excess of 50%."
Sutton explains that part of the reason is that Lumenis built a cost infrastructure for revenues of around $420 m, which did not materialize. "We are now right-sizing the organization and cutting operating expenses significantly," he said. "It has also taken us longer than anticipated to integrate with Coherent and this has had an impact on our 2002 results."
As part of its cost-cutting measures, Lumenis will cut 200 people from its workforce leaving a total of 1300. Sutton says that this should be enough to give Lumenis a profitable year in 2003 without the need for further cost reductions.
Patent infringement Another threat to the company's sales figures is its competitors. Lumenis is currently suing Syneron, another Israeli firm that makes lasers for aesthetic treatments, such as hair removal and skin rejuvenation. Sutton explains the reason behind this dispute: "These are ex-Lumenis employees who are infringing on our intellectual property. They are creating unfair competition by using the knowledge base that they accumulated at Lumenis."
Sutton admits that competition is good and leads to a healthy market, but there are limits. "Sometimes you've got to draw the line and make sure that the competition does not cross it. You want competitors to play the game fairly. Unfortunately, that's not the case with Syneron."
So with a string of new applications, technologies, patent disputes and lawsuits on the cards for 2003, Lumenis and the medical laser market look set to have an exciting year ahead.