Syneron Medical's CEO Hosts Investor Meeting Conference (Transcript)

May.22.12 | About: Syneron Medical (ELOS)

Syneron Medical Ltd. (NASDAQ:ELOS)

Investor Meeting Conference Call

May 22, 2012 10:30 am ET


Louis P. Scafuri – Chief Executive Officer

Alan Gold – Plastic Surgeon, Great Neck

Shimon Eckhouse – Chairman

Christopher Inglefield – Medical Director and Owner, London Bridge Plastic Surgery & Aesthetic Clinic

Arie Benchetrit – Cosmedica Plastic Surgery Clinic

Fabian Tenenbaum – Chief Executive Officer, Syneron Beauty

Zoe Diana Draelos – Dermatologist, High Point

Louis P. Scafuri

Good morning, my name is Louis Scafuri, I’m the Chief Executive Officer of Syneron. On behalf of our company I would like to welcome everyone to our investor presentation today. Joining me today from Syneron management is our Chairman and Founder Dr. Shimon Eckhouse, also our Chief Financial Officer Mr. Asaf Alperovitz. As well as we are joined by Mr. Fabian Tenenbaum who is the Chief Executive Officer of Syneron Beauty and Assaf Korner, who is the CFO. So we have during our breakout session of various intervals today we have the ability to talk and interact with people if you have any specific questions related to the company.

We plan on an interactive meeting today. We have some guest speakers that have traveled some distance to get here. And we will in our presentation today contain some forward-looking statements as well. As far as today’s agenda we are going to try to keep things on schedule. I will start with a basic overview of the company, followed by our guest speakers. And I would like to introduce our guest speakers briefly today.

First is Dr. Alan Gold, Dr. Alan Gold is a practicing plastic surgeon. He is the former half President of the American Society of Aesthetic and Plastic Surgeons. He is well published. He has great experience with Syneron Technology and other technologies and will talk about emerging trends in the field of aesthetic. We also have Dr. Chris Inglefield joining us today from the UK. Dr. Inglefield has been an investigator with UltraShape for a number of years. He worked in their initial clinical trials as well as currently uses the product on a day-to-day basis in his clinic. He is an expert in the latest series of the devise the UltraShape version 3 with VDF and he has published numerous studies related to body contouring.

We are also joined today from Montreal by Dr. Arie Benchetrit who also is a plastic surgeon; he specializes in cosmetic as well as injectables. He was the first surgeon, plastic surgeon in Canada to use the UltraShape device. He has many years experience and he is also very well published in the field of body contouring. Joining us telephonically by phone will be Dr. Zoe Draelos, who is a practicing Dermatologist board certified and she will be talking this afternoon after our lunch break on our elure skin lightening products.

We are trying to keep everything on time today I will just briefly give the latest update on the company. Syneron is the market leader; we are the global leader in aesthetic devices with over 35% market share of the publicly traded companies. We have a platform aesthetic company besides just the aesthetic devices. We believe that we have products that fits the needs for plastic surgeons, dermatologists and other aesthetic providers across various segments for both face and body. We have a very comprehensive products as well as the ability to service our customers on the global basis. We sell in over 90 countries and we service as well in all of those countries and we have some very strong partnerships.

If we look at the segments of our business we have the professional aesthetic devices, which is as people know Syneron historically it’s a major segment of our business, approximately 90% of our revenues as well as the emerging business units and we will have time this afternoon to spend some time on Syneron Beauty and on elure, which is a very exciting opportunity. It’s a $2 billion at least just the smallest segment alone is a $2 billion opportunity and when Fabian speaks he is going to talk about the multiple sub segments that exists. And we see this is a major growth engine to the company.

On the trailing 12 months our revenue is $241 million, 31% of this is occurring on a recurring basis. We have $142 million in cash a very strong balance sheet and we have significant tax advantage being headquartered in Israel. As I mentioned just previously, we look at our business in two segments professional aesthetic devices where we have established brands, proven efficacy, we have an install base of close to 20,000 users of our products. We are running on seven consecutive quarters of double-digit revenue growth in professional aesthetic devices. And last quarter we’ve had a 21% year-over-year sales growth with an 8% operating margin in this segment.

A very exciting emerging business unit represented approximately 10% of our revenue last quarter. The numbers are staggering, I used just one segment picking a $2 billion but it’s an extremely fast growing market, we look at both the consumer devices, the tropical devices and other sub sections. Major area of growth and interest for the company Syneron Beauty has had an exceptional revenue growth over the last four quarters since we formed it where quarter-over-quarter and year-over-year were up significant percentages. This technology and the technologies we have there leverage the expertise the professional relationships and the know how that we have in the pad and last quarter we reached close to $900,000 in our elure skin lightening products and Luminaze products.

As far as technologies, we have significant breadths and depths in our technologies. We surely can offer one stop shopping. The company was founded with the invention of ELOS technology, which is very novel and very unique in the sense that it’s a combination of bi-polar radio frequency and optical energy whether it be laser or light, which offers a very unique safety profile as well as controllable depth and penetration and it also has an optimal profile for home use. In the early years, Syneron’s major growth was fueled by this invention and then we enabled many practitioners to get into aesthetic practice as a result of this innovation.

In 2010, we acquired Candela Laser; Candela Laser for many years was the market leader in premium solid-state laser products to 40 years of innovation recognized to be best-in-class. We also have additional core competencies both in-house organic fees that we’ve created but through some notable acquisitions. Most recently in February of this year we announced the acquisition of UltraShape, so we now have ultrasound as a core competency as well as fractional RF where then we have our own technologies in the eMatrix the e2 and the other E-series products as well as CO2. We also acquired TransPharma at the beginning of this year, which had a very unique transdermal RF technology that we see great opportunity in the future.

In the area of skin whitening we have elure, which we will talk about later this afternoon and also we have expertise in the area of teeth whitening as through our relationship with a company called Fluorinex. Our products were all clinically validated I thought it was important rather than having the CEO talk on the podium and the usual investor presentation as we talk about the opportunity in the area of body contouring and as well as when we talk about the credibility of the company to bring some actually users here and then to have interaction between some of the top notch physicians in the world as well as our investor base. Because we work very hard to scientifically validate our products, we have unique IP positions and several years ago we started with the monstrous Syneron equal science and growing so rapidly as we did in the years 2000 to 2008. It was very important for us to come back work with the core doctors, publish scientific studies and to make sure that the time on the podium in terms of the references and the validity of our science will have the credibility of working with the top people and we’ve done that.

The other thing that we’ve worked very hard to do is make sure our value proposition for the customer is competitive has significant competitive advantage. We looked at key customer demands, we have customer panels all the time we are first to market in many different categories. We believe in terms of cost of acquisition, cost of ownership, value after sale, the ability to support a product that we clear as it’s clear from our revenue results we are clearly the market leader.

Is the market growing? We have some of our analysts in the room here today and they have their own channels we have significant domain expertise in the field of aesthetics. So I can tell you from our perspective, from the company’s perspective, we think the market is better than it was clearly in 2011 we see continued signs of improvement around the economy. North America I believe the economy is back on track certainly we have gone at Syneron we’ve exploited the global market and if we look at our revenue growth outside the U.S. we’ve out paced the competition and if you look at the acceptance of cosmetic procedures the whole notion around non-invasive procedures today, I believe Dr. Gold and Dr. Benchetrit are going to be talking about some of that as Dr. Inglefield today just what the trends are in the practice.

Demand is there, we see certain markets that are clearly overheated like Brazil, and China people ask about Europe I can tell you we had record revenues last quarter in Europe. We are cautious about the macro but the business is good as far as the social media, the social media enables all this and we see a younger patient answering entering into the world of aesthetics and we see from the standpoint of growth again a very exciting year ahead of us in 2012 as well as we look forward.

Some of our brands are extremely well recognized in the area of skin rejuvenation we have multiple offerings with our E-series of products. In the field of body contouring we were the pioneers with the introduction of VelaShape, we’ve sold over 7,000 VelaShape units since it was introduced. As well as we’ve done several million treatments, we have significant expertise in that area it’s well thought threw in terms of the product roadmap and our ability to remain in a leadership position. Dr. Eckhouse is going to be speaking specifically on VelaShape the other Syneron body contouring area debentures as well as UltraShape and the like and as we move over to the area of skin rejuvenation and skin tightening, vascular lesions, pigmented lesions and the like and hair removal with the Candela brand such as Vbeam and GentleLASE. We are usually the company that most dermatologists and plastic surgeons things of first.

What really makes a difference in our company is our ability to go where the business is we sell direct in 13 markets including North America and in the major Western European countries as well as in Japan, most recently in Australia and China as well. As well as the fact that we have some of the strongest partners in the aesthetic industry in our distribution channel. If one is following our numbers and sees our quarterly growth we’ve had an unparalleled record of revenue growth in these markets and it has to do with the fact that we pay a lot of attention to it. We had with a willful mindset when we saw the North American economy slowdown we actually went out and we deployed resources in the markets, we made sure that we had the mind share of our distributors as well as the training done so that we could sell as money products across the breadths and depths in our product line to the customers as possible.

If we look at the high growth opportunities body contouring is very exciting. We will talk about that in great detail today but we have an area in the EDU three segments, which are particularly exciting, one is the home use devices and I believe Fabian has brought some devices here with him today so he can do a bit of show and tell. They are available at some of the major retailers right here in Manhattan as they are throughout North America as well as in the UK and certain other international markets. It’s a rapidly growing marketplace, there are numbers around this market the numbers range approximately $350 million today growing at a compounded growth rate of over 25% that’s because people want the treatments.

The social media is driving it, I think people who go to a professional wants maintenance at home. They want treatments for acme, wrinkle reduction, hair removal and the like and we will get through our offering and our unique position in the marketplace later today, teeth whitening and other blockbuster opportunity, we’ve recently introduced this last quarter. the Tanda Pearl is to compete head-to-head with other home-based, other devices and whitening solutions.

It also offers potentially a treatment almost as good, if not as good, as a professional treatment, and we’ll be talking about that later today. and skin lightening, we’ve talked about elure before, we have a significant activity underway, which we’ll talk about this afternoon both in the areas of scientific research as well as expanding our distribution channel and gaining regulatory approvals, because this marketplace is explosive, this marketplace in North America is over $1 billion, it’s about $300 million of just a professional, professionally dispense skin lightening products.

But outside the U.S., it’s everywhere, outside the U.S., the estimates run as high as $14 billion. From the standpoint of financial strength, we have the strongest balance sheet of the industry with over $142 million in cash and cash equivalents. We’re expanding our recurring revenue; our recurring revenue right now is approximately 31% of our total revenues. we’re working diligently to improve our margins both from the standpoint of cost of goods reduction and operational efficiencies. and we are the clear market leader, if we look at publicly traded companies; we have 35% of the total available market.

Looking at the first quarter, we are coming off the significant first quarter, very successful from the standpoint, the year-over-year revenue growth. Our revenues were a record, record for the industry, record for Syneron of $62.7 million up 26% year-over-year. and please keep in mind, we’re the largest company, so the percentages are very, very meaningful and also we’re coming from some very significant numbers in 2011. So we continue to grow, we continue to outperform the competition, our international revenue was up 24% and Syneron North American revenue was up 30%, both very good signs for the company’s performance, we have significant cross-selling revenues or cross-training since the acquisition of Candela and some of the other acquisitions that we’ve done has really starting to gain some traction and the other number that I think is very, very meaningful as we look to improve our operating margin is the recurring revenue, which last quarter was 31%.

Our gross margins are basically flat at 53.5% down slightly from year-over-year. our operating profit of the aesthetic unit this business has been profitable for the last five quarters. It was 4.6% or 8%, and we continue to invest in the EDU, a very exciting opportunity for growth again with many more details that will follow this afternoon. And the emerging business units again had a record quarter, where 10% of our revenues up 111% year-over-year, $6.1 million were contributed by the EDU primarily by Syneron Beauty in the segment. Our net income was $0.6 million, $0.02 per share versus basically the same last year at $0.01, slightly over the previous year at $0.01 per share.

So as I summarized the brief overview, I know many of the people here in the room, we have frequent discussions. I think today we use the day to be as interactive as possible, ask questions that you’ve had on your mind related to the company’s growth, different segments of the business that are new, I think when we acquired UltraShape, we made the announcement, we saw some major interests, but the actual impact and the growth opportunity for the company.

Today I think we’re going to clearly outline to you, how we believe this, by this time next year. we will be the clear leader in non-invasive body contouring. we have all the elements in place to execute on this plan as well as the fact that our performance continues to improve and we continue to outpace the competition.

The EDU today will spend time discussing the many baskets of the EDU and the significant growth opportunity that it represents. And I would like to say that I expect by the end of the day today to have our most of the questions answered, and to have some new thinking around the growth prospects of Syneron and how I believe that we’re tremendously undervalued and probably the company to invest in our space.

So, I would like to introduce Dr. Alan Gold for his presentation on the current deal of aesthetic practices, Dr. Gold?

Alan Gold

Good morning, I’m going to present a little bit of a different perspective, if you notice there isn’t anything in my presentation as of listed that’s going to be scientifically based. When I spoke with Lou about the Investor Meeting coming up, I thought that it might be of interest to be able to present from a different point of view. How I look at Syneron and you’ve seen some of the credential before, this is not tough for you, I just want to give you an idea of what my understanding of the market is based up on. I’ve been President of the most of the National Plastic Surgery societies over the years. I’m Chairman now of the Industry Relations Task Force of the American Society for Aesthetic Plastic Surgery. Why is that important? It’s important because it allows me to understand the working of some of our major industry partners amongst them Syneron and Candela.

I’ll get into that in a little bit in a moment. I’m a clinical researcher for both Syneron and Candela. I’m Director of Gold Laser Academy. This industry I feel is just about to explode beyond what we’ve seen before. Beyond what we’ve seen in the last several years and training was woefully inadequate. Training of the personnel, all of these devices that are provided to us as practioners by the company are merely tools, and if they are not used properly they don’t reach the potential for the device. You wind up with unhappy, disappointed patients and unhappy consumers. Consumers meaning the people that purchase the devices, and so we thought a school will be really critical and I am pleased that we’ve been able to partner with informally partner with and utilize only Syneron and Candela devices in our instruction.

But, I can tell you that I have every device that Candela and Syneron manufacture with the exception of this device, which is not FDA approved here. So I do have a pretty broad experience. I’ve also been asked to organize a medical advisory board composed of just plastic surgeons for Syneron and Candela, which is again very important in the industry potential for growth. We’ll get to in a minute. But, I’m a consultant, I’m not a Syneron employee, Syneron or Candela employee, I’m not a shareholder, so hopefully there is no conflict of interest here.

So what are the questions that you want to look at as investor advisors or investors? Can I clarify what cosmetic surgery is versus cosmetic medicine and why is that important? Is there a market for all these devices that we’re going to hear about today, and what’s the potential for market growth as Lou outlined just a few moments ago? Who and what is the real consumer market in this business? What is Syneron and Candela’s market advantage and why Syneron and Candela from a user’s perspective?

About numbers you are number oriented, Lou gave you a whole bunch of numbers, you make your living everyday by numbers. So I’m going to give you some numbers and not just broad strokes of my impression. In 2008-2009, when I was President of the American Society for Aesthetic Plastic Surgery, we commissioned a study a market study to see what was going on with this new aesthetic marketplace. The non-surgical aesthetic marketplace. So we commissioned Penshaw & Berlin Associates, Ryan, Gold & Associates and we came up with an extraordinarily game changing statistic. And that’s this, if you as a patient were to pick a practitioner to go to today for your surgical procedure. A cosmetic surgical procedure 93% of the people surveyed would chose a plastic surgeon and there are otolaryngology and dermatologist and other types of medical practitioner perform them, but only 7% of the people will go to them.

Now if they went to a practitioner and had a good result from a non-surgical aesthetic procedure, an injection, a laser treatment, light-base therapy whatever it is, how many of them would then decide to stay with that practitioner, not necessarily a plastic surgeon to have a surgical cosmetic procedure, 47%. So we turned that to 747 effect, it meant that well right now you’re keeping only 7% of the people that would be going for a cosmetic treatment would be going elsewhere.

If they have a good experience elsewhere, then 47% of them, you won’t see back a very, very rude awakening for plastic surgeons, who considered in those years maybe it’s not such a good idea to get involved, not only with injectables, but although light-based therapies. This was a game changer, and although it’s been slow to have its effect in our specialty, it has really made a big difference.

So is there a market for aesthetic based technologies? Yes, amongst the public it’s the fastest growing segment of the appearance enhancement industry, saloons and day spas, and I’ll give you some statistics on that. But it’s also the fastest growing segment of private pay, non-insurance compensable medicine, medi spas non-invasive, minimally invasive, moderately invasive, technologies, well which we’re going to speak a little bit about today.

So the latest statistics, 2011 of the U.S. Spa Industry from the International Spa Association, if you look down at what’s highlighted, this is a big industry, 330,000 employees, revenues of $12 billion sort of flat 2009, 2010. But it hasn’t fallen off much in this economy, very telling statistics.

For the American Society for Aesthetic Plastic Surgery cosmetic procedures, there are many things that are available now, such as all of this industry we’re going to talk about that were not involved in 1997, when we first began gathering these statistics.

But the surgical numbers are impressive, 1.6 million procedure done in 2010, and about the same, little bit up in 2011, those are surgical procedures. But look at the non-surgical procedures tremendously have outpaced the surgical procedures. Look at 1997 that industry wasn’t there. We had a couple of injectables. We had injectable collagen that was it. There was not then else being done there. We hadn’t on the light based industry.

The top five non-surgical procedures in 2011 are here for you. Of those, two are related to Syneron/Candela, and this industry, laser hair removal and IPL laser treatment. So, two of the top five procedures non-cosmetically are done through this kind of technology.

If you look at skin rejuvenation specifically, and fraction resurfacing IPL laser treatment, laser skin resurfacing, non-invasive tightening, laser hair removal that’s what we’re talking about here today. This is not an industry that’s going away. This is an industry that is growing, and I as a practicing plastic surgeon and the others that you will hear from today have realized that we have to embrace this in order to serve our patients.

So what’s the market for – for market for potential market growth, (inaudible) and it’s interesting because we’re going to overlap in lot of these things we didn’t try to coordinate any of these presentations ahead of time. But all the things that Lou has just had spoken off before.

But for me as the surgeon, what does my patient want? They want the best. They want the newest, they want the most cutting-edge technology. They want the most publicized the sexiest if you will technology that they hear about.

And what do they want? They want more. They want more of it. They want more visible results, more long-lasting results and more options, but at the same time, they want less. They want less downtime. They want less aggressive treatment, less risk, less pain, less expense that’s where this deal really feels to build for them.

There are two different customers that I want you to think about. One is the direct-to-consumer marketing that we see, and that’s directing the public to come to our offices to receive these treatments. But those aren’t necessarily the people that these companies are selling to Syneron/Candela sells to me, sells to the end-user, and what they’re selling is a device or devices that are probably significantly more expensive or at least as expensive as all the automobiles driven by the people in this room, okay? So you’re not talking about small investments.

So what is Syneron and Candela’s market advantage in this? As Lou alluded to earlier, they have the widest array of products, there are companies out there in this marketplace that have one device, two devices. Okay, this company has an array of devices that is unmatched, I can tell you that one of the things that we do is that we are fortunate to be able to do at the laser school that we have is that, we do serve as a site for training of Syneron and Candela employees for cross-training of personnel from Syneron to Candela and vice versa of the sales personnel all the new sales hires, and the trainers that go out and actually train people when they buy these devices.

So I have a pretty intimate knowledge of the philosophy of the company, the ethics of the company and so on. But in the widest array of product availability, no other company is even close. The kind of things that they can treat and a salesman can go into an office like mine and offer me all these things here, it’s not just freezing fat in a localized area of the body. Okay, it’s not one device that make a lot of press this week, and not be there next month. But it’s all of these things that are available.

So the widest array of products, the widest array of treatments consumer loyalty. If you’ve had a good experience buying from a company that has these devices, you buy one device, it’s a really good chance that understanding their ethics, their reliability, the science behind the products that they produced, you’re going to buy another product from that same company rather than look to that from another company.

The sale force is larger than any of the sales force, the company has the greatest market share, but in the U.S. even though you have 35% of the International or Global market. In the U.S. it’s only about 35% of the market as well. But they haven’t even begun to penetrate into plastic surgeries market, this whole industry not just in Syneron/Candela, which has the largest segment anyway. But only about 10% of United Stated plastic surgeons have both these devices so far.

Initially, this industry was something like the Wild West, and some of its still it. A lot of inflated claims and advertising hype, direct-to-consumer advertising, which carried over to the hype and direct-to physician advertising of many of the companies. And one of the reasons that I aligned myself with Syneron/Candela was my meeting with Louis Scafuri.

Prior to Lou taking over this company, the whole industry was fraught with that kind of approach. Lou came in and brought credibility, a commitment to evidenced based medicine and their promotions, difference tendered to the way this was being marketed and discussed with physicians, such that after he joined the company, he and his philosophy, as well as the company was embarrassed by the plastic surgery society and he has actually been asked to sit on a number of industry relation boards for plastic surgery to try to establish ethics in this business sphere. Some of the other companies are quite there yet, and hopefully with Lou Scafuri, we’ll be able to bring them along.

So I think that that is carried over into the way that sales force approaches us, and the customer support that therefore able to provide is really second to none in the industry. I think that what you have in summary, you have name brand recognition, it is the largest of the companies, it is the most securely days financially of the companies which we look at when we’re buying a product, it’s a corporate culture and corporate ethics that now drives this company that if you’re familiar with Johnson & Johnson’s credo, this is pretty much the same thing, it’s very refreshing to see this in this kind of industry.

Its commitment to science and evident-based medicine to research and development I think, one of the statistics I heard was that Syneron spend on its research and development budget more than the profit of its next nearest competitor in this industry. I think they have, and I’ve seen all of the technology, they have real technology with real results that my patients can be happy with. Its truth in advertising, its consumer credibility and they don’t over promise what they can’t deliver. It’s a commitment to training, as I said, I see that in the school and the way that they teach their employees there.

Customer support and financial stability are really critical. If you go out, and you buy a car for $150,000. Okay, and all of a sudden all the dealers close up and there’s no one to service your car, there is no one for support, think of that, and if I am buying a device for $150,000, and I don’t know if the company that I am buying from that now has all this real direct- to-consumer advertising hype is going to be there next year.

I think that physicians have come to realize that the financial stability of Syneron/Candela enables them to be there for all of their products long-term. And for me it would be a significant issue, if I am looking to purchase a device. So what I try to do is, give you from my perspective, how we look at a company.

Hopefully, that’s helpful if there are any questions, certainly I would be happy to answer them later. But it’s my pleasure to introduce Dr. Eckhouse, who is Chairman of Syneron/Candela.

Shimon Eckhouse

Thank you, Dr. Gold, and thank you everybody for joining us this busy rainy morning in New York City. What I’d like to do in my presentation is, actually give you a little bit of an overview of the area of what we call body contouring or body shaping both from the perspective of technology of how it can be done in a non-invasive way. As well as other aspects, the real aspects associated with it, which really go beyond the aesthetic part of this problem.

So what I’ll do is, I’ll talk a little bit about obesity and body shaping, try and define it a little bit better. And then go to some depth onto what I call basic technologies in this area, what we call our Vela technology or basically a technology based on the use of heat in the tissue. Then talk about UltraShape technology, which is based on the use of focused ultrasound and then try and give you a little bit of a perspective of where I believe this whole field is going.

Now, we are all familiar with what’s called the obesity landscape in the western world. The U.S. tends to be quite a strong leader in this area, and I am not going to go into all the statistics on this slide. But all of them is, or two of them are very interesting. If you go to bullet number four, it’s actually a very large study that was published in 2006, six years ago, in the New England Journal of Medicine, which included more than half a million patients in the study, and really talked about the health risks that are involved in any kind of – no these things almost by intrusion or by habit. But we’re not always aware of the exact numbers, and all the weight people have a chance of 20% to 40% higher than good weight people or normal weight people to die and obese people, their number grow by a factor of two to three.

So again it’s something we know. We recognize, we talk a lot about, but we don’t really understand the real medical or health implication of it. The other bullet, which I want to and it’s actually old statistic, but it’s still interesting, is that the size of the weight control market in the U.S., and this goes back to ’06 or something like $50 billion. So it is a huge market opportunity, and it’s a huge health problem.

When you kind of look around the world, and I’m sure you cannot read the names of the countries that are there on the bottom of the horizontal axis, but when you look on the world of what’s called overweight and obese people, which is defined by what we call, the BMI, the body mass index which is the division of the weight of the people in kilograms by the square of the height in meters. What you find out is the region, which are little bit better than others. For example, East Asia if you look on the column there to the right both on men and women, it’s not as bad in obese, but it’s quite bad in overweight. But the rest of the world, you see that the percentage of overweight on enormous universal basis, anywhere in the world in which we’re in a global basis is in the range of between 20% to 40% in men, between 20% to 30% in women.

So if you connect this to the previous slide, we have not only a huge aesthetic problem, we have a huge health problem that we are really dealing with. And then this is another study, which is kind of almost surprising because when you talk about BMI, you say okay, when a person is taller and you divide the weight of the person by the square of the height, you kind of compensate for the size of the body. This is a study there – all they did is look on the abdominal circumference and the rate of occurrence of two very difficult disease, actually the most important causes of death in the western world, which is cardiovascular disease and diabetes. And what they show here in this study, again a very large study, its 168,000 patients, what they show here in this study is the probability of having this radical problem as a function of your weight, not taking into account any other factor.

And again it’s an amazing fact when you look at it. So actually again as I said we are all very much sensitive to our weight because the part of the body shaping if you want a trend, if you are also sensitive to, but it is much more than that. Just if you look on the probability of having cardiovascular disease or diabetes as a function of body of weight, size there is a very close correlation, which is quite surprising.

So all in all as I said, we are dealing with a very significant health problem, but we are also dealing with a very significant aesthetic problem or perception problem of people among themselves. And again there are some statistics here on who is looking for any kind of reduction of weight and the numbers are mind-boggling, it’s about half of the U.S. population among women and about a quarter among men everybody is engaged with diet, with exercise, the things to do to really try and improve the situation.

So let me jump from this directly into what we call non-invasive body shaping and kind of give you a perspective which is a little bit border than just saying we are going to reduce the circumferential, the abdominal circumference or reduce cellulite. And I try to do it here, it’s a somewhat simplified manner. But actually when you talk about body shaping, you deal with what we call loose skin tightening any situation, which is on the body it can be of course also another part on the face as well where you have loose skin, it is something that we are unhappy within our body.

Cellulite of course is a big market that I spend a few minutes on that. Circumferential reduction again, if we go back to what I just said and kind of recognize the significance of that and like the last one and not least of course is fat lipolysis where we treat fat directly. What I’m going to do first is talk about the first three and connect them to what we call our Vela technology and then talk about fat lipolysis and connect it to UltraShape.

I’ll take you very quickly through to some real old history. People have known that massaging is a good thing for cellulite as well as other condition for like thousands and thousands of years. It really goes back, this is actually a quote from the American Skincare and Cellulite Expert Association, this is quite old, this is like 10 years oldest quote that I have here.

And another thing that we have known for thousands of years, which is cupping; I’m sure you all heard of cupping, many you might have tired it, which is really taking some kind of very simple-minded device and applying vacuum to your skin. And what you do when you apply vacuum to your skin like the first and simplest effect to think about is that you dilate blood vessel because suddenly you take out the air, you reduce the pressure on the skin. So everything inside will try and expand including blood vessel.

So this is a very simple-minded way that we have been doing as human being for thousands of years to really increase circulation to make it easier for our blood to flow close to the surface of the skin.

Approximately 25 years ago or so, a French company called LPG, took these two concepts of massaging and cupping and combine them into a single device and came up with a new name that they call Endermologie. I’m not sure if you are all familiar with it, but this is a company that over the last 25 or 30 years probably sold something like 30,000 devices to do this thing that are extremely simple-minded. They combined vacuum and massaging at the same time applied to the body. And actually we are the very first ones to get FDA clearance for treatment of cellulite in the United States some times if I’m not mistaken in 1999 or year 2000.

So in a way they were doing something which is very simple-minded because we have know it for thousands of years, but we are real pioneers in saying this thing can be combined into a machine that can be helpful for patients. It requires a large number of sessions and treatments. It works very well by the way for aesthetician and cosmetologists because they like their clients to come in once in every two weeks forever actually, that’s very good for their business. But they were really pioneers in saying these simple things can really help in treatments of cellulite.

A word about cellulite and why women, unfortunately are inferior to men only in this area and nothing else actually. They have a different what’s called facial or interface structure between the soft tissue that is underneath the skin, which is mainly connective tissue and fat in the skin itself. And this different structure really translates itself into a situation where the fibers that compose the structure are perpendicular to the skin. In women, this is an over simplification, but gives you quite a good idea of it and are parallel to the structure of the skin in men.

As a result of that, for women, it really creates a situation that this structure turns itself to have fat penetrate through this interface, this mechanical interface that has to separate between the soft whatever is out there to the outer layer, which is the skin. It enables fat to penetrate and create what we call cellulite. And this is the reason it’s really common among women and much less common among men, but don’t worry we have many other problem that we shouldn’t be that proud about.

So to a large extent, if you think about it and this is something that we sometimes miss, cellulite more than anything else is a problem of connective tissue. It is connective tissue that really keeps our body together on the skeleton side of course in a very different way, but everything that has to do with the softer tissue is kept together by what we call collagen, elastin actually polymeric structures that keep everything together in the shape that we want to see. And when something is wrong there, something is wrong with the connective structure.

So actually when you look on the third bullet there, to try and treat cellulite you need to do something with connective tissue, you need to repair it, you need to rejuvenate it. But not only that whenever you see a problem of cellulite or many times when you see a problem of cellulite there is much more to it and I draw this picture to kind of give you a feel for what it is that many of women that say they have cellulite are really suffering from. They are suffering from a combination of this bad looking skin because of the interface between the skin and the subdermal layer. But they also have high concentration of fluids there; they have very low blood perfusion.

And when you really want to treat this problem, you have to have a combination that enables you to do collagen structure rejuvenation as well as the other factors, which is to remove some of the fluids, enhance blood flow, helping this whole structured to be rejuvenated. What LPG has done is really treated the two lower problems by the messaging and the vacuum that they applied, but there was really very little bit could done through rejuvenate the connective tissue when they did it.

Now what we have learned over the last 20 or so years since we started using energy-based devices, originated lasers then IPL and then RF and many other sources of energy is the best way or one of the easiest ways of doing this thing noninvasively is actually creating an injury. You injure the skin, you injure the dermis, you create an injury in the healing process of the injury, you can rejuvenate the connective tissue.

And that’s something that it took us a while to learn, it started out, what was called selective photothermolysis where we said we can only treat things that we have a contrast for the optical energy. But what we did learn over the years and mainly in the last 20 years is that when you do this injury in a controlled manner, what it does is it reduces growth of new collagen, growth of elastin and actually enables you to rejuvenate this connective tissue.

So in a way it’s kind of natural to say here we have this thousands of years experience in vacuum and massaging, here we have this 20 years of experience of using heat to create injury that when it heals really brings back the connective tissue so it is much better than before the treatment. You combine all three of them this is really what we have done with Vela technology.

Now when you look on what is the best way to apply energy into the skin and what is the – I would call it the simplest and deepest penetrating force of energy, RF in a way is very unique in this sense, and this is the reason, when we started, when we started using RF energy together with life for many applications. RF, as you may or may not know is done either unipolarity, bipolarity. I’m not going to go a lot into this.

But really one thing that you can do, when you use bipolar energy which again was integrated into Vela technology is the fact that you can, when you combine vacuum with electrodes that flow current and you do it in a proper manner, you cannot only have a very good source of energy that puts energy into the skin, heats it up, damages it and as a result of that creates a healing process, which corrects connective tissue. You also create something, which is much more interesting than that. You actually define the volume that you are going to treat and in that sense again Vela technology was quite unique and that’s still unique today and much of our IP lies around this way of doing things, which is rather than putting energy into the tissue. What we do is, we bring tissue to the energy source, so we put it into an controlled volume of tissue that we have.

So all of that is really combined into what we call our Vela technology, where we have rollers that are the electrode that supply the RF current that heats up the tissue. We apply vacuum at the same time, which creates a fold into tissue, which defines the volume that we heat up. We combine together with that what we call NIR or near-infrared light, which helps us in heating up the more superficial layers of the tissue and the combined structure is really a structure that supplies heat to the tissue, creates an injury a very controlled one, when the injury healed and when you add to this the effect of dilation of blood vessels then hence flow the temperature would gives you better diffusion of oxygen, all of this together is really the basic idea of the Vela. And this really what’s folks then realize, if you can see on the top right hand side, the roller, the near-infrared towards the rollers themselves are really the context mechanism that puts energy into the skin.

So this is like a summary of everything that I’ve just told you. And as you can understand the principle are very simple, easy to use. But when you start using it on patients, you ask yourself some very basic question, such as – yes, you want to really injure the tissue to create this beneficial effect of creating new collagen and elastin and it’s very easy to injure tissue, heat it up to 80 degree centigrade, you will definitely create an injury.

But this is not only painful, it’s really dangerous. You cannot just do it. It’s much more than that. The heat you that or the temperature that you generate when you combine it with how long you exposed tissue to this temperature becomes an extremely important parameter. You can use lasers to do heating up of let say hair follicle, where you heat them up to 80 degree centigrade and you know you remove the hair and nothing really happens to the skin.

But if you try and apply 80 degree centigrade for 10 seconds, you’ll create the third degree burn. I mean it’s really dangerous to the patients. So there are lots of parameters here that you have to really work out to do it in a proper manner and I’m not going to bother you with all of it just to give you one graph, which we like very much because we’ve done lots of work with Vela technology to really find out how much – what kind of temperature we can reach to what kind of level at what that’s in the skin in order to optimize the treatment to really combine between all these forms of energy that we are using at a same time to create the desired effect.

All this really translated into lots of clinical work. This is actually the first clearance that anybody got that was a Syneron clearance that we got in year 2005 for using Vela technology for circumferential reduction. The way we have done this study was to do it on size. So we use the same – one of the sizes that control to the treated size and this is like the outcome of the study itself in terms of the circumferential reduction of size that where treated compared to non-treated size. And this was kind of a breakthrough in this whole industry, because since 2005 everybody is kind of looking at this, I would call it our quantitative parameter of circumference, because when you talk about cellulite, when you talk about these things is not always easy to tell what the end result is when you look. But this is a very quantitative number.

Just to give you a feel for it and this goes back only to 2009; we have done a lot of that since in those years between when we started doing Vela, bring Vela to the market until 2009, we have done altogether about 34 or 35 clinical studies with various of this device, and we learned a lot along this year because, it became – it’s a very versatile device on the one hand, but to use it in the proper manner you really need to understand what the interaction with certain patient is and what’s the best way of doing it.

And now I’m going to and I’ll do it very quickly just show you a few pictures, this is very recent, this is a study that was done here in New York City by Dr. Roy Geronemus. We are using now lots of tools, which are not easy, which weren’t really available like five or ten years ago to do three dimensional imaging to make sure that when we talk about body shaping, we have a quantitative measure of it, so we do it by circumference, but we know how to do it with three dimensional photography.

The typical results that we see of these kinds, these are very nice results, nothing very dramatic, but very important to the person being treated, but what Vela does, which is really unique is really this kind of results were – there is almost no other way of doing tightening of very loose skin, without the use of this controlled way of injury drive that underneath the skin in order to get these kind of results, which as you can see a very dramatic and this is quite serious. This is a result of 10, 12 treatments of Vela that have been done over an extended period of time.

You can use it of course on other parts of the body, and this is very simple, but very, very dramatic, and this is a very beneficial result from the point of view of the patients. And you can do even things like that and this is extremely dramatic, I mean you look on a picture like that, I hope you can see it in the bag, this is like taking off 20 years of age from this patient that was treated and she doesn’t really have cellulite and she doesn’t really have, she is not overweight and she doesn’t – I mean everything is great. But still you know she looked very old on the left hand side, you can do a lot to make her look much better on the lower right hand side.

And one last slide on the Vela part, which I want to leave you with, which for us is something we learned unfortunately the hard way, when we launched the Vela in 2004 after getting our first of the experience for cellulite. Since it was the first device for energy base that got clearance for cellulite and had demonstrated the results, it was excellent. The only problem was that we found out that in order to get good enough results, this is the protocol that we worked out, what you needed to do something like eight to 16 treatment.

This really didn’t fit any business model of a doctor in the U.S. it fits very nicely by the way business model of physicians in Asia, in Europe or in other country because for them as I said at the beginning, it’s very good that a women comes in every two weeks for the whole year because once she has this opportunity, she tell to this patients you know many other things and she charges a $100 per treatment and everybody is happy. This didn’t work in the U.S. model, so over the last I would say six, seven years we have done quite a dramatic step in reducing number of treatments needed all the way from the 16 range to something like two to three treatments that we are doing today and we are even improving on that.

So this is really not just a clinical outcome, the safety, the efficacy of the device, it’s really fitting it to the business model of the doctor of the U.S. that are buying this kind of device. So this is like one part of the story that has to do mostly with fixing connective tissue. This is what I tried to tell you about on the Vela side. The part that really got us exited about UltraShape and the reason we ended up acquiring UltraShape was the fact that although all these are wonderful things and really tightening the abdominal area and tightening other loose area of skin on the body and reducing circumference and treating cellulite are very exiting from an anesthetic point of view, and a business point of view.

At the end of the day, the Holy Grail if you want is, if you can either promise or really say something about fat hydrolysis, doing something to fat. And in that sense we view UltraShape technology or focused ultrasound technology is a very unique technology in this area. Really second to none because as far as I can see there is nothing other that really can fulfill this very unique promise.

Again I’m not going to spend much time of it, but we kind of think about fat is one thing, fat is a very complex organ, it has different forms of expressing it, the part that is being treated by either invasive procedures such as liposuction or non-invasive procedure such as what UltraShape is doing is really what’s called the subcutaneous fat to fat, which is underneath the skin.

The other pockets of fat that are much deeper in the body in a way they’re regarded as playing a very important role as a metabolic organism and very significant in the whole health issue, that I just mentioned in the beginning. By the way what we do see or what is quite clear is that, as I said, you really can treat only the subcutaneous fat, you cannot really do much especially non-invasively to anything that goes beyond that.

but as I say here, the third bullet there are some recent studies, actually some very recent papers that were published in conferences over the last six months or so that showed that actually removal of subcutaneous fat, and I’ll show you what I mean by that, removal of subcutaneous fat actually has an impact on the metabolic status of patients. this is a study that was presented by – at ACEP’s meeting in 2011 by Dr. Eric Swanson, where he says that he actually followed our patients that underwent liposuction, and kind of also some of them, most of them were Liposuction, some of them also did Tummy Tuck. But the real important factor is what I have been read, which is patient that head to high levels of triglycerides after undergoing Liposuction have shown over time significant reduction 43% on an average of about 300 patients in the level of triglyceride, which I believe by the way, is an overlook issue, but actually a huge potential, which goes beyond the aesthetic part of what you can do, while you do a fat lipolysis.

The other part, which is very important to understand and we miss many times is that, if you do diet and exercise, the most important impact that you see at least not to see go for fasting for two weeks, but if you do it, the way we’ll prefer to do it, the most important part of weight loss or fat loss is really in the visceral fat, the deeper layers of fat, not in the subcutaneous fat.

So in a way, even if you do all of these things, you want to give a tool to patients or a tool to doctors, the three dose patients that enables to treat a subcutaneous fat, which is the one we see everyday in the mirror, and the one we touch every time, we touch our own body.

So I’ll jump very quickly, and I’ll make this part short, because I’m sure that both Dr. Benchetrit and Dr. Inglefield will expand on that, on what the basic idea of UltraShape is. the basic idea is a very simple one, and that is that when you look on the structure of fat cells, what you have is actually a blob, which is kind of hollow that has mostly 30 fluids in it, and has a very thin membrane, and has actually an aspect ratio of five, which is much larger than most of the cells or most of the micro organs that you have in the body.

As a result of that actually fat has the highest degree of sensitivity to mechanical pressure, and it’s not the fat itself, you don’t breakup the fatty fluid by using mechanical pressure, but you breakup the membrane, you breakup the thin layer that holds this balloon, if you want together by using mechanical energy. And it’s really – this is essentially in very simple terms what UltraShape is doing.

What we do actually is create a pressure field inside the tissue by applying pressure to the upper layer of the skin and focusing it to such an extent that, when you are deep in the fat layer, which is about 15, 20 to 25 millimeters underneath the surface of the skin, you have the high enough pressure that can breakup the membranes of fat cell, but when you are on the skin, you have a too low pressure to grow any kind of adverse effect to the skin itself. So actually it’s a device that focuses the energy in the right place and deal with it in such a way that is very selective to fat cells because of the very large size that they have, the membranes that are very thin and very fragile mechanically.

Now we are not alone in this field of people that say we use ultrasound for body shaping. The only thing is that, you need this basic technology that enables you to focus energy to high enough pressure level, or to high enough power density level to get this kind of effect that is associated with something called mechanical index, which is a physical concept that I’m not going to bother you too much with. But it is really only UltraShape that is able to achieve this.

The result of this is what I’m showing here, and I’m sure the two doctors will show you much more of this. Essentially what we are doing is, we are going to adapt the membrane of the fat cells using just mechanical energy, and we end up with a blob effect, this blob effect has no license, I mean once the membrane of the fat cell is broken, this fat cell cannot survive anymore.

The other part of it is really the fact that, in the subcutaneous fat layer, the most sensitive organs are the fat cells, blood vessels whether the arteries or even veins, connective tissue are much less resistant, are much more resistant to any kind of mechanical stress or mechanical pressure. So as a result of that, you can achieve this desired effect of doing lipolysis without really damaging other parts of the subcutaneous tissue. You can see this in clinical studies, this is part of a study that was done in Mexico; I think in year 2010, where you can see the significant reduction in subcutaneous fat as a result of UltraShape treatment using here, I believe it was a CT scan. And then, I’m not going to spend too much time on that, because I’m sure both Dr. Inglefield, and Dr. Benchetrit will be happy to tell you a lot about that.

So just to summarize all of this, why are these things so similar, but so different? And what do we have in each of them that we don’t have in the other one? So with UltraShape technology, probably the most important part is that, it targets fat selectively. It’s a form of energy, which has a much higher degree of sensitivity of factors than any other form of tissue. More than that you can generate almost immediate results, because the result doesn’t depend on a healing process of the tissue, and you don’t do – you do injury, but you do injury only two fat cells or mostly two fat cells.

Vela technology on the other hand is really dealing with another problem. It’s really targets multi-connective tissue, which as I said is definitely an important part of body shaping. It’s very effective for cellulite, because cellulite as I said at the beginning is mostly a problem of connective tissue, but it all depends on a healing process. You have to create an injury in order to get this.

So actually these two technologies, as the way we see it are the optimal and really best way of dealing with all the problems that have to do with body shaping, because it’s only the combination of skin that needs to be tightened, connective tissue that needs to be repaired, fat that needs to be lipolyze and removed. And when you have all these tools in your hand, there is really lots of good things that you can do.

So just to summarize very quickly, the area of body shaping as we know it, and I think almost everyone knows it, is a very important both aesthetic and clinical problem. It’s a market that’s growing extremely fast, and actually I think that we are just seeing the very early stages of it. We invest heavily in R&D in this area, in clinical studies both on the UltraShape side and on the Vela side.

We are not there yet in terms of having everything, I mean there are significant challenges in understanding, which patients will respond how to which treatment, predictability is a very big thing for a practitioner, because at the end of the day, if you have 1 out of 10 that you don’t treat nothing wrong, but if you treat the one that you shouldn’t treat very, very bad news. So giving doctors or giving the users a better degree of predictability in our mind is like the most important thing that we can do. And what I showed you on the number of treatments of Vela is real statistics of what we have done just in this specific area, because it really makes the whole situation much, much simpler.

Reducing our procedure time, in number of sessions, I already mentioned that’s extremely important. And all of that ties up, of course with the market opportunity on the one hand and really giving our customers, the doctors, the professionals to choose our equipment and better business model.

So I’d like to invite Dr. Inglefield, I think is the first, if I’m not mistaken to the stage.

Christopher J. Inglefield

Thank you very much, Shimon. We’ve had a lot put to you already, and hopefully I’ll try to make this as exciting.

From the above, body contouring is, answering some very fundamental questions, why should we thinking about non-invasive body contouring, what’s available in the non-invasive sector, what is the evidence that we have at the moment for UltraShape and the economics, and where do I see the future?

As Dr. Gold kind of pointed about, a little bit about the evidence here, we should have a pointer. But because there is a huge increase in non-surgical procedures, and despite the fact that liposuction is the most common procedure performed, the growth rate from the non-invasive market far outstrips the provision of liposuction by all practitioners around the world.

Why is this? Because most patients do not want surgery for whatever reasons, and there are multiple reasons that patients will tell us, a lot of it because they were afraid of the risks from the downtime of surgery, so one of the big motivating factors. So what do they want? And I think Dr. Gold put very nicely about they want the best, they want the most and they want the least, because they want the most, the safest procedure possible, that’s most effective, they want comfortable treatments, they want no downtime in the busy competitive working environment now, patients can’t afford to take two weeks off to recover. They need to get back to work. So they are looking for quick recovery or no recovery.

And this comes onto this very nice analogy to the iceberg, that despite the fact that there are 325,000 patients, who underwent liposuction in 2011 in U.S. There is a far greater population that don’t want liposuction. They want to improve their body shape, but they will never have liposuction. And this is where we as – I think plastic surgeons have been slow to take this upon, that if we don’t look after that market, we will lose the market completely. The projected growth for non-invasive body contouring is upwards of 69%, which in 2010, 2015. And this is again just indicates the massive increase in the demand for non-invasive technology, this is a medical insight.

So if we go back a little bit of history, as everything in life, if we don’t understand the history of where we came from, we really don’t kind of visualize where we are going to be, but the early liposuction techniques introduced by ELOS in France was all about fat debulking of cannulas and techniques developed, it became more about body sculpturing and contouring, and to the present day, ultrasound – ultrasonic assisted liposuction introduced in the 1990s revolutionize, what can be achieved with liposuction alone. And today these are high-definition liposuction is considered the goal standard in body countering, so you get the patients going from – looking into this kind of highly refined body shaping, and this is what we need to look at.

It’s no point comparing pre-1990s body liposuction to what we’re trying to achieve with non-invasive technology. The non-invasive technology should be about body sculpting and not just about fat debulking. Yes, there are instances where fat debulking is necessary, but that’s where the focus should be. But again, we need to look at what we are achieving with current standards in liposuction, with a small area of liposuction in my hands, and I’m not a world expert in liposuction, I’m an average plastic surgeon doing liposuction.

Most of these treatments should be painless. They should have minimal recovery, do a small area of liposuction under local anesthetic whether with or without sedation. The patient should be able to go back to work in two or three days. It should be a very safe procedure, small area liposuction should carry minimal risks, and it should certainly be effective. So if we’re talking about a non-invasive technology, then we have to meet the same standards. It’s no point taking about a non-invasive technology, that is painful, but has downtime may be safe, but may be effective.

We need to meet in my practice, I need to meet those four criteria, if I’m talking about non-invasive technology. Because the non-invasive technology must be better than what I can achieve with standard liposuction. So there are lot of devices on the market – on the market we’ve seen an explosion, I was involved in UltraShape since 2005. And since when UltraShape was the only non-invasive body contouring device on the market, there has been an explosion in investment and development of new technology.

And everything from thermal devices which is in the U.S., Liposonix device, we also have in Europe – in U.S. as well just recently [VelaShape], which is using a thermal effect from Cryolipolysis, which is Zeltiq device, photo modulation in the form of the Zerona device and ultrasonic cavitation, which is really about UltraShape, and then devices use a combination of these things.

And what’s the important aspect of this? Well, on the top right hand corner there we have UltraShape, HIFU and Cryolipolysis. What was this? Well, they’re non-invasive devices and they can target moderate amount of deep fat. As we go to the left hand side of that chart, liposuction and laser lipolysis and lipolytic injections and all the other devices are able to target fat. But they’re more and more invasive. So where we want to be in this scenario, is we want to be in the top right hand corner, which is non-invasive and targeting good amount of deep fat is that’s where our target is. So we have lots of these devices and I’ll get rid of some of the ones that we riding on interested in, and really the UltraShape device, which you see here the VelaShape II device, then the Liposonix just really going to get rid of that for the moment. But again, let’s go back in history.

The first medical application of ultrasound waves was in the 1980s so nothing new. The Dornier HM-3 lithotripter introduced in 1983 in the U.S. revolutionize the management of kidney stones, renal calculi. Okay, this was focused ultrasound, it was non-thermal high intensity ultrasound, which was able to breakdown fat cells, again it revolutionize surgical practices and surgeons who were surgeons, who like to use cold Sheffield of steel, so this is complete rubbish, it would never take off, it would never be successful, and boy, they have to hang up their Sheffield of steel, because this non-invasive technology completely wipes out the need for most surgery in renal calculi.

So is it a massive leap of faith to go from breaking kidney stones to breaking fat cells? I don’t think it is. Why can we break fat cells with sound waves? Well, we have evolved in an environment of one atmospheric pressure, most of us, some of us living in high altitude may have a little bit less. We have therefore evolved a system within the human body to protect our vital structures. What are our vital structures? Vital structures are our blood vessels, carry our circulation and nerves within the tissues. Every neurovascular structure, nerve and blood vessel structure is wrapped in a small amount of fat.

Why is that curiosity, we (inaudible) surgeons, the reason is, that the fat absorbs atmospheric pressure, and it’s not transmitted to the nerves and blood vessels. Even with that, any one time all of us, 20% of our blood vessels are shutdown by atmospheric pressure, any one time, okay. So fat cells are able to withstand pressure, what they’re not able to withstand is rapid expansion. So when you apply sound waves to fat cells, they withstand the pressure of the sound waves, but when that sound wave is fluctuating, on and off, because it’s a sound wave they don’t withstand, the membrane does not withstand the release of pressure, and that’s what fractures the cell membrane, okay.

A pretty simple concept, but a lot of physicians don’t understand. So we get on to a fat cell the structure and we saw a little bit of this. What is the difference between your gynecological ultrasound, which is on the right-hand side, which is a non-focused ultrasound technology and focused ultrasound? What you see immediately is a dark lines representing the energy level, the energy level at the skin, and your ultrasound for your six week or your 12 week baby scan is maximum energy at the skin surface and the energy dissipates as you go down.

With focused ultrasound the maximum energy is at the focal point. Therefore there is insufficient energy as Shimon just pointed out to cause any damage in the superficial level, in the skin level. And this was very, very nicely characterized by (inaudible) in the publication of Plastic and Reconstructive Surgery and it shows the pressure waves as again we’ve seen recently, but looking at the VDF multi-focus what we’re able to do is target a high level.

Now a lot of people look at these scans, look at these images and think heat because red equals hot stuff. This is not heat. This is acoustic pressure wave measurement. So there’s no heat in this, it’s the amount of pressure that’s focused on below the surface and this is also nicely demonstrated in [Phantom Jaw]. So the chances is at the top, is sitting on the surface of the jaw and these are the acoustic pressure pulses within the jaw. This is also seen in a porcine model with the heart breakdown. Then the histology shows with a single focus and with a new VDF mode there is a larger volume of heart broken down. And we’ve seen this above the safety.

As I said, the fat cells are not able to withstand the expansion from the variation of the pulse of the wave and therefore they fracture leaving intact the blood vessels and things we can skip off very quickly. So (inaudible) were able to demonstrate a fat cell slices does occur in a safe manner. They also validated the non-invasive focused ultrasound energy and this is being confirmed with subsequent studies looking at scanning electron microscopy showing on the right-hand side. The disruption of fat cells with the connective tissue left intact. So this is very, very nice, very high-powered evidence.

Also interesting to look at what other devices are showing. Here we have on the top, non-thermal selective focused ultrasound at acute, which means immediately after treatment two weeks, four weeks there is no inflammation in any of the histology looking at HIFU, which is the Liposonix device. At four weeks there is a huge amount of inflammation. Whereas looking at Cryolipolysis, which is the Zeltiq device looking at two weeks and four weeks of inflammation. Why is that important, because inflammation means that there is a healing response, means that there is downtime, means that you cannot retreat that patient until that inflammation has gone away. So it limits how quickly you can retreat patients, anyone who has ever experienced Liposonix treatment or experienced a Zeltiq treatment will tell you that there is downtime. It’s not a no downtime procedure.

What is the evidence and Shimon has also alluded to some of this, the multi-centered randomized study was published in the Plastic and Reconstructive Surgery, in 2007. Now with 164 patients and single treatments and looking at end points of circumferential reduction as wells as fat thickness reduction. Looking at safety, and they also use they’re internal control group. This clearly demonstrates a significant reduction in fat up to 84 days post treatment. Was this related to weight loss? Well there was no significant change in the control compared to the experimental group indicating that this was due to the treatment and not due to any another outside factor. So 82% responded with a measurable reduction. There was no safety issues and patient experience was very good.

Dr. Moreno-Moraga in Madrid also published his series of patients and lasers in surgery. And 30 patients, three treatments of 30 days abdomen flank size pseudogynecomastia unfortunately they included too many variables in different size, which I think dilutes the evidence a little bit, but the endpoints same things safety looking at controls. Then 100% response rate main reduction is 2.28 centimeter, circumference reduction of 3.95 centimeters, no weight changes, well tolerated and multiple treatments were shown to have an improving benefit.

As Dr. Asaf then published his series of patients with a enhanced treatment regime using a 14 day interval, just looking at the abdomen, and same kind of safety and controls, got a circumference reduction of 3.58, which was statistically significant, no change in weight or size circumference, well tolerated 85.4% positive change in body shape. And (inaudible), just mentioned earlier, working in Mexico, he has published book chapter in this procedures and cosmetic dermatology, talking all about the procedure on the safety side.

So overall we’ve had a number of studies presented, published on various things, over 600 patients have been studied in a clinical study environments with average reductions from 3.5 to 6.3 centimeters, average response rate 83% to 100% well tolerated, no serious adjustment, establishing a very, very safe treatment, can be seen in the slide before, but this gets for the first time that MRI was used to demonstrate a reduction in fat thickness. So the American Society of Physicians set up this very, very good system of level of evidence, and why is this important because all of us are encouraged now to look at technology from a level of evidence that’s available so the different recommendations determined by the qualifying evidence.

Well, the evidence for UltraShape lies somewhere between one and two. There is lots of 3s, lots of 4s k-series, I think but somewhere between 1 and 2. What does this mean? One and two was even a two level of evidence is a great de-recommendation, great de-recommendations that clinicians should follow a recommendation, but should remain alert to new information on sensitive patients. So this is pretty, but clearly establishes UltraShape as a genuinely effective treatment that says what it supposed to do – does what it supposed to do and its a safe treatment and it on my side of the Atlantic, it boggles my mind that FDA have not approved this device when they’ve approved a lot of other quite dodgy devices in the last five years in this arena. So that’s outside of my control.

We use a three treatment protocol generally some patients only need two treatment, some patients we treated, we have up to five, six treatments. They require no anesthesia, no downtime. We are aiming for reduction in localized fat deposit body circumference reduction in these areas. This is some of the results that we’ve seen pretty average reductions, large, large reductions in different patients and combining with UltraShape and VelaShape, so I got my first VelaShape in 2005 as well and was very excited about the results we’ve achieved and this is one of the early patients we treated in combination treatment protocol.

This is from again [Dr. Leo] said, it was a single treatment using RF as well. So kind of summarizing all of this, we have a safe and effective targeted fat reduction the new VDF system allows us for a much more targeted fat reduction, it’s a comfortable treatment the tracking data system again customizes treatment no bruising, swelling or downtime, which our patients want.

What are the economies, we are trying to extrapolate it over to the U.S. side, was a very conservative treatments of just 20 treatments per month. The return on investment is pretty easy to achieve. We do on average three to five treatments a week so very easily meet those targets. Is there a market for this treatment? Well, from our experience over on the other side of the pond, we’ve had articles in the Financial Times magazine as well as the Sunday Times Style magazines as well Daily Mail online. And after one such article on the weekend, we had 300 phone calls on the Monday morning, which completely flooded my clinic. And we have had peaks of treatments where we would doing four to five treatments per day, five days a week just on UltraShape alone without any other technology.

So there is a huge pent up market and just having been in Vancouver recently at the ASF meeting talking to some of the other device people the take up of things like Zeltiq and Zerona has been huge in the U.S. again demonstrating the various a huge demand for effective non-invasive technology.

The emerging trends in body contouring, is it the future? I think it is. I think non-invasive body sculpturing will replace liposuction and liposculpting in the future. It all depends on how quickly Syneron drop the ball and start running with it. I think that the future looks very positive to me, having been involved in Ultrashape for a long-time. Because more and more of our patients come in like this requesting body shaping and we think of traditional body fat reduction because we want to get rid of some of his tummy. But actually what he is thinking about is this, he wants real refined contouring, not just simply fat reduction. And the concept that we have at the moment is what I call a 360 body sculpting combining sculpting with UltraShape and shaping and tightening with VelaShape.

So we’re looking at trying to achieve these kind of results where a patient wants much more refined athletic appearance not just getting rid of belly fat or a young woman who wants to look very much more athletic, she looks amazing already, but she wants to look much more athletic. And what we have to remember at the end of the day is that if we’re talking about non-invasive technology, it has to meet these criteria being painless, no downtime, safe and effective. Thank you very much.

And it’s my great pleasure to now introduce my colleague, Arie Benchetrit, who is from Montreal, who has a lot of experience with body contouring treatments as well, and he will give us his perspective.

Arie Benchetrit

Thank you very much Chris, and thanks to all of you. So I’m going to give you the Canadian perspective on UltraShape. I’m a plastic surgeon in Montreal and my focus is cosmetic surgery and non-invasive cosmetic procedures and I have been a user of the UltraShape device since 2007. This is my disclaimer, I do sit on an advisory board and I’m speaker for several companies, but I’m not a shareholder and I have no financial interest in sales.

So quickly, this is what we are targeting. We are targeting the overweight in normal patients here. We’ve talked about the obesity epidemic in the world, but this non-invasive device and I would argue the surgical approach to body contouring is not for the morbidly obsessive. It really is for the normal weight or moderately overweight patients who want to lose bulges of fat and achieve a nicer body contour, but that does represent about two thirds of the world’s population.

You’ve seen this slide already, it really is a tip of the iceberg in terms of what we offer with surgery, there is far more patients again who want the non-surgical and as Dr. Ingelfield has pointed out, there is a huge shift towards non-surgical procedures in general and a very high projected growth rate for non-invasive body contouring over the next five years.

This slide had been shown already. And basically, in my practice, which was a very surgical practice ten years ago, we weren’t offering any non-invasive procedures; I can now see the two thirds of my practice is non-invasive, only one-third of my revenue comes from surgery and that’s because of that shift towards the non-invasive procedures. And I think this is going to be more and more common in plastic surgery practices across North America.

Driven of course by patient demand, patients want results, but they don’t want downtime, they don’t want to miss work, they want to go to the gym, they don’t want to miss social events, and they want to minimal pain, minimal invasiveness; they want it all essentially, but they do want a good and measurable result.

So this is where UltraShape comes in. And at a glance this is today still the only non-invasive technology that is scientifically validated to provide immediate selective and permanent fat destruction. And those three terms are very important because while as Dr. Inglefield pointed out there are some competing technologies in the space, none yet can achieve those three things with their current devices.

It’s a clinically proven and safe procedure. It’s been shown to be very effective in reducing excess fat at the abdomen, flank and thigh regions. It is not pinocytosis, it is a science that has been looked after very carefully and has been the subject of several peer reviewed articles and book chapters; the science behind UltraShape is really excellent.

It received its CE mark in Europe in 2005, and it was approved by Health Canada in 2007, and as mentioned it is in process now for FDA approval. It’s been in use in more than 50 countries over a quarter of a million patients around the world have received an UltraShape treatment, and the safety profile has been excellent. There is yet to be a series adverse event reported.

The exciting news has been the introduction of the new V3 platform, which you see here, this was introduced in 2010. And what I think is really exciting is the new software the VDF or Vertical Dynamic Focus software, which Dr. Inglefield mentioned, which was introduced in 2011.

This is the same slide Dr. Inglefield showed. We also use a three treatment protocol two weeks apart, again there is no anesthesia, there is no medication involved. So there is zero downtime. Patients literally come off of that treatment table and go right back to work, back to the gym, back to the mall, whatever activity they choose to have. The end result is localized fat deposits are reduced, body contour is improved and patients see it quickly compared to other technologies.

I’m a plastic surgeon and I will never stand up here and tell you that a non-invasive procedure is better than liposuction. This does not replace liposuction at its current state. Liposuction is still a gold standard today for removal of excess fat, however, as talked about before, there is a huge amount of the population that will not even consider liposuction or any form of surgery and this represents in my mind the best viable alternative.

This is a typical result from the European experience in Spain, a five centimeter reduction at the lateral thigh region, showing a very nice improvement. So, briefly Dr. Eckhouse touched on, how it works. It’s basically like a magnifying glass that we use to hold when we use to burn holes in leaves with the sun; we hold a magnifying glass and the sun will hit the magnifying glass and focus down to the leaf and pierce a little hole.

It's basically the same principle. We're focusing ultrasound sound down to a focal point, which where the old device was standard at 15 millimeters below the skin, and we would literally cavitate or destroy the fat not with heat, but as Dr. Inglefield pointed out with a very rapid vibration, which will basically breaks up the membrane or the shell of the cell and destroys it.

This is what it looks like schematically. So that’s the transducer going over the skin, the ultrasound waves are past to a focal point 15 millimeters below the skin. You can see the fat cells being destroyed. This is the pulse wave that creates cavitation, high vibration of a cell and the cell literally pops almost like bubble wrap where you can pop each cell at the same sort of principle. There is no heat generated, so this is not achieved by cooking or heating the fat. And as a result, there are no side effects, there is no pain, there is no bruising, there is no nerve injury, and so you're selectively destroying the fat cells and leaving the important structures, the nerves and vessels intact and that really differentiates it from some of the other technologies.

This is what it looks like in the pig fat model. That’s a controlled slice of pig fat and the one on the right is the one that’s been treated with focused ultrasound and you can see that Swiss cheese effect indicating destruction of the fat cells at a controlled level. This is what it looks like when you get under the microscope intact fat and destroyed fat and again the nerves and vessels are left intact.

What impressed me about UltraShape before I got the device in 2007 was the science behind it where as plastic surgeons constantly confronted with a lot of technology, a lot of new devices, a lot of new products, but most of them don’t pan out and very few of them have any kind of solid science behind them. UltraShape did their studies, have been published in very prestigious peer review journals and the science really is solid as Dr. Inglefield pointed out.

This is a summary of some of the clinical studies that have been published and unpublished including my own down at the bottom. I presented on my first 109 patients in 2009 in a meeting in Asia and we had very consistent results with an average reduction of 4.5 centimeters. The most important statistic there though is patient satisfaction. As you can see most of them are in the 85% to 95% range and that is excellent for a non-invasive device.

The rule of thumb really in cosmetic medicine is if the device can achieve at least 75% patient satisfaction is worth looking at; anything less than that and you’re going to have a waiting room full of unhappy patients; anything above that and you can mange patient expectations to the point where it becomes a viable product in your office. And I think 86% in our office has worked very well.

This is a summary of the previous studies. This was the device I bought five years ago, the original Contour 1 device. And you can see, it’s a very bulky machine, it took an entire room, which was a negative because you would have to dedicate a full treatment room just to UltraShape, which in some clinics doesn’t work. So although it was very effective, it did logistically present some problems. These are some of the European results that we looked at before buying the machine.

So after first hearing about UltraShape in 2005, following some of the European experience, looking at the science, I decided in 2007 to buy the machine, I was the first plastic surgeon in Canada to obtain an UltraShape. And the reason I bought one was, we had a very high patient demand and I knew that anecdotally just from the fact that I do a lot of liposuction and tummy tucks in my practice and many of my patients who came in for the consult, after hearing about some of the risk, some of the side effects, some of the recovery time opted not to have surgery. And I always felt if I could offer these patients a non-surgical alternative, I would not be turning away so many patients.

And anecdotally, we did a seminar, patient seminar, we had over 300 patients show up and we presented UltraShape before it was approved. And out of the 300 patients that showed up, after just hearing about the device and what it could do, 100 of them actually booked a consultation and 30 of them were willing to leave a deposit for machine that didn’t even exists yet in Canada. So that showed us what kind of pent-up demand we had. So it was a very easy decision to buy one once it actually became available in the fall of 2007.

So again we got it because it was a clinically proven device and the first one to actually destroy the fat cell. There has been devices before that like the Endermologie device that Dr. Eckhouse talked about, which massage the fat, manipulated the fact, but none of them yet had been proven to actually destroy the fat cell like liposuction does, this was the first and that’s why in my mind as a plastic surgeon, I wanted a machine that I can tell to patient it will destroy your fat cells permanently.

And as a plastic surgeon like every other plastic surgeon my limitation is I have one pair of hands, I can only operate on one patient at a time. So the only way to grow my practice is to incorporate technology that I can delegate, that really is the only way to grow a practice, a cosmetic medicine practice. And so this was an easy one to incorporate, it’s a very safe device, very easy to delegate, and again it attracted a whole new set of patients that were surgery adverse.

So these are some of my early results with the first machine, very nice reduction in upper and lower abdomen. This patient was my first UltraShape addict, she started with one zone got a nice result, went to a second zone got a nice result, went to a third zone. She was literally in my office every week for about four months and I thought she was a new employee, but turned out, she was just a patient.

So another nice result of the lower abdomen. This is a patient who – and every plastic surgeon will tell you needs a tummy tuck. And when she came to see me, I told her she needed a tummy tuck, there is a lot of loose skin aside from excess fat; she refused surgery and wanted to try the UltraShape.

I told her that she really was not the ideal candidate, but turned out she had a pretty good result, she was very happy with the result. She still needs a tummy tuck, she still refuses a tummy tuck, but she was very happy with what she got. And so this is the kind of patients that I would have to turn away six years ago, but I don’t have to turn away anymore. This is the more ideal and typical UltraShape patient, who is in relatively good shape, has just a small amount of excess fat in lower abdomen and has a nice contour result.

So in 2010, I was very pleased to be part of the launch of the new V3 device, which was a major upgrade and the device is right here. It was launched in Paris at the IMCAS meeting in 2010. It has many improvements, one of which is an improved tracking and guidance software and this to me sets UltraShape apart from the competition.

The software is almost idiot-proof. At the top you see the area marked out to be treated by the technician and the second picture you see that little yellow dot that’s the computer telling the technician where to line up the transducer and only when she lines it up where the green dot on the transducer matches the yellow dot, the dot then turns blue and only then can she actually fire the ultrasound, she cannot do so until she lines it up and once the pulse has been fired you get a red dot, which you see at the bottom.

So it’s impossible for the technician to fire two pulses in the same spot and that almost guarantees an even uniform result with almost no chance of an irregularity or a burn. And that makes this device 100% delegatable and I don’t lose any sleep whatsoever when my UltraShape room is busy with patients, I know that the chance of a complication is almost zero.

So the summary of the key improvements in the V3 device, the more compact and portable aspect, we now don’t have to dedicate a room to, we can move the machine around from room to room. They integrated a new digital pulser, which replace the analog pulser, which is a higher energy device that also allows future technological advancements. But to me, the key improvement is at the bottom, the new software, the VDF software, which delivers higher power, which is great, but more importantly, we can now treat multiple focus points, not just one focal point, but every time we deliver a pulse, we are treating three focal points at once, which of course allows for greater fat destruction with every pulse.

And here you could see schematically with a single focus, you get that 15 millimeter focal point, but now 25% more power delivered there, but more importantly with a multi focus, we now get three different levels at 7, 10 and 14 millimeters; you are literally treating three spot with each pulse and obviously more fat being destroyed each time. It also allows for a more customized treatment. So based on the patients morphology, the technician can now decide if she just want to treat the deeper fat, the middle and deep fat, the superficial middle fat, et cetera. So you can customize the treatment to fit the patient’s fat thickness.

It also allows for what’s now called the double pass or Super-Mode. So we have patients that love the technology, but when they call us, we get a lot of patients ironically from the U.S. because it’s not yet FDA approved, which suites me fine. So we get a lot of calls from American patients and they want to come to Montreal and have their treatment, but they don’t want to make three trips. So we can now offer them the Super-Mode, which is a single treatment, where the computer or the software will design the original treatment zone and then design a second zone of treatment, which will incorporate either 30%, 50% or 80% of the original zone, and get a much more effective treatment.

and anecdotally, this is not published, we get about three centimeters of reduction with one treatment with this Super-Mode, which compares very favorably with Liposonix, which promises about a 2.5 centimeter reduction with a single treatment and we view this on many of our out of town patients with high patient satisfaction.

this is what it looks like schematically. So again, the single-focus shows you the path of disruption. on the left and on the right, you can see a much greater path of disruption with a triple-focus VDF mode. And this is what it looks like in the port model, controlled, single-focus, multi-focus. And these are some of the results in my patients with the new VDF device before and after upper and lower abdomen; upper and lower abdomen again 5 to 5.5 centimeter reduction.

these are some results from my Canadian colleagues, 10 centimeter reduction here, about 5 centimeters upper and lower abdomen, and a very impressive 14 centimeters on the abdomen and flanks. This was one of my early patients with the multi-focus mode on the lateral thigh. You can see a very nice almost liposuction like result on the lateral thighs.

And these are photos from Dr. Leal in Mexico, who was involved in some of the clinical studies with the VDF device as pointed out earlier. Keep an eye on the right handed photo and you’ll see it more fat than before photo, and that’s the after result. And another one again, keep an eye on the right side, and that’s the before photo, and the more – result after treatment. So very, very nice consistent results.

So, how does UltraShape compare to the competition? In my mind, the three competing devices are at least two now are FDA approved, but three certainly in Canada are UltraShape, Zeltiq and Liposonix. Of the three and again just to summarize, Liposonix also uses focused ultrasound, but it uses thermal focused ultrasound. So it’s cooking the fat, it’s destroying the fat by cooking it to 70 degree celsius, which is very high heat. Zeltiq goes exactly the opposite, it freezes the fat cells and they slowly die, what’s called apoptosis or cell death over the ensuing weeks and months.

So of the three, the only one that selectively destroys the fat as you can see in the second row is the UltraShape. The other ones do not select out the fat cell, they also cause damage to surrounding tissues, which is why you have side effects, which you do not have with UltraShape.

The treatment experience of UltraShape is comfortable, some discomfort with Zeltiq, there have been reports of long-term nerve injury. Liposonix is painful, and I know that from talking to patients, and some of my colleagues, who have undergone the Liposonix treatment, many of them would never do it again because of the level of the pain.

The treatment time is shortest with the UltraShape, again there is no bruising, swelling or pain with UltraShape, none at all, whereas there is with the other devices and particularly with Liposonix and that means downtime.

As Dr. Inglefield clearly pointed out, if you’ve got surgery patients expect downtime, when you’re telling them we have a non-invasive device, they don’t expect downtime. So when you treat them with something like Liposonix and they get the bruising and swelling, they would have gotten with surgery. You sort of compromise that promise and in my view Liposonix is not a non-invasive device; you can maybe call it a semi-invasive device.

The time to visible result is another clear advantage of UltraShape. Patients start seeing the results two weeks after treatment compared to several months with the other devices and the clinical results recommended protocol are about 4 centimeters with a three treatment protocol with UltraShape, about 1.5 to 2 with a single treatment of Zeltiq, I’m not aware of multiple treatment data for Zeltiq; and about 2.5 centimeters with a single treatment protocol with Liposonix.

The most important thing on this slide, again are the tracking and guidance system, which is included with the UltraShape, which makes this treatment easily delegatable to a technician. And for the end-user, the bottom fact is very important, the consumable cost about $100 per treatment with UltraShape, which compares very favorably to the other devices.

So this basically summarizes my UltraShape experience in the previous slides, I won’t go over these in too much detail. The most important things again are the fact that there are no side effects with the treatment and no downtime; shortest treatment times and lowest cost per treatment versus the other technologies.

So this is the summary of my personal experience with the UltraShape since 2007, I received my first device in August 2007, we treated about 200 patients with the original device, we had an average circumferential loss of about 3.8 centimeters. We got the upgraded device in 2010, the new V3, we’ve treated over 200 patients with that device, and you can see the circumferential loss went up to 4.5 centimeters on average. These are patients who had the three treatments. And we got the VDF software upgrade in 2011; we’ve treated over 100 patients with that upgrade. And our circumferential loss with three treatments has gone up to 6 centimeters.

Overall, we’ve treated over 500 patients; the treatments have been well tolerated; we’ve yet to have a patient dropout because of discomfort. We’ve had three complications, all of them superficial blisters, all of them have gone on to heal without any consequence and we’ve seen consistent improvement in our results and particularly in our non-responder rate and that is key.

As I mentioned before, if we have a roomful of non-responders, unhappy patients, it will wreck your practice, not to mention your social life. So you want the minimum number of non-responders and to me the upgrades have really shrunk the non-responder rate dramatically, and again, we have a very high satisfaction rate.

Now that’s usually (inaudible) talk and when I am presenting this to doctors at various seminars, but I’ve told that investors are interested in financial numbers, so I’ll talk about those as well. We pay off our first UltraShape in six months and that again is because of our huge pent-up demand we had for a non-invasive device, and it was again a no-brainer for us to buy the machine.

Over three years, we’ve generated about $600,000 in revenue from one machine. My staffs love it because this is a non-seasonal treatment as compared to laser hair removal, intense pulsed light and other energy-based procedures, which are hard to use in the summer because patients want to be outside in the sun. UltraShape is not light sensitive and so you can use it throughout the year and you get a consistent revenue stream 12 months of the year.

The maintenance and consumable costs are very low compared to the competition. We’ve seen a high crossover of patients who come in for the UltraShape, and then crossover to some of the other devices and treatments we offer in my practice. And it is to-date the most lucrative non-invasive device in my practice, I have eight different lasers or energy devices in my practice now and this one generates the most income.

This is the ROI on my experience and you can see my data on the side. We do like Dr. Inglefield, about 20 treatments a month. Our average treatment fee is about $900, and so you can see the numbers. Unfortunately, being an early adopter means you end up paying the highest possible price, so we bought our first machine at a very high price of $157,000. So that sort of shrunk my net profit, while my lease was paid off. But if a buyer today had the same data as I do and paid the current price, which much to my chagrin is about half as much as the original device. This is about the annual net profit they could generate from a single machine.

So like any device you put in your office, you can’t just plug it in a room, and expectations to be tearing down the doors to get to, but you have to invest. And this is to me the stumbling block between a good device and penetrating the plastic surgeons beyond that 10% that Dr. Gold was referring to.

Plastic surgeons particularly have to abide to the idea of investing in their practice on training, infrastructure and marketing, et cetera, because these devices do well if you support them. This was the original ad we use and we launched the UltraShape, it did very well for us, but in hind side it’s a very busy and not very attractive ad.

This is the ad we use now, and this has been the most successful ad we’ve ever used. We run this ad, we usually get 20 or 30 phone calls. And I don’t know right now, the New York rangers are in the playoffs and New York might be a bit hockey crazy, but Montreal is hockey crazy year around, it’s a religion there. And we try to run this ad the day after a hockey game in the sports section and our phones just light up. And what it has done, also it attract a lot of men to the practice, which as you know men represent only 5% to 8% of patients in a plastic surgery practice. But for UltraShape, our men represent about 20% to 30% of our patients and thanks to ad like this.

So UltraShape has been successful in my practice because it has attracted that large base of surgery adverse patients. There’s still of great buzz around the device even though it’s been out for five years in Canada, we’ve had very good response to our marketing campaign. Many patients have gone on to book liposuction or tummy tucks when were deemed unsuitable for UltraShape, and that has helped my bottom line on the surgical side of my practice, which is very important to a plastic surgeon of course. And about 15% of our patients end up adding treatment areas as they go along, which obviously means they are happy with their results.

In conclusion, non-invasive body contouring is here to stay and it will grow at a fast rate than surgery, patients will accept a more moderate outcome of comparative surgery in exchange for no pain, no downtime and no anesthesia. And because of its unique technology, its consistent innovations and its worldwide acceptance, I really feel that UltraShape will remain a leader in this market.

Thank you very much.

Louis P. Scafuri

I’d like to ask all our physician presenters to join us up the front for a question-and-answer session as well as Dr. Eckhouse.

Question-and-Answer Session

Louis P. Scafuri

Well, I’ll start the ball with questions. I didn’t get into this in my presentation, but obviously the most important question or one of the primary questions are what’s the status of the FDA trials and I’d like to turn it over to Dr. Eckhouse for a few comments?

Shimon Eckhouse

Yes, actually as you may know UltraShape attempted to get FDA clearance for the device a few years ago, which didn’t really go through very successfully because of various reasons, the protocol that was used and so on and so forth. We actually completed the process of negotiating with the FDA on the protocol, the number of patients, the way it will be done, their controls and so on and so forth. It was approved and we are very close to starting clinical trails and a multi-site trial in the United States and we are of course very bullish and very optimistic about it.

Unidentified Analyst


Shimon Eckhouse

I believe we should think about something like between 12 to 15 months to complete the process and it’s a 510(k) process.

Unidentified Analyst

Can you just give some detail on the number of patients and more specifics around the trial please?

Shimon Eckhouse

Yeah, the number is around 100, the number of patients. It will be a three-site trial. We have of course all the sites identified. As I said, we got approval by the FDA for the protocol. We are in the process of getting the IRB for these trials. And the trial itself is essentially, simple in concept. It is based on measurement of circumferential reduction and using some populations that will be treated and some populations will not be treated.

Unidentified Analyst


Unidentified Analyst


Christopher Inglefield

We only get a certain number of fat cells, so it’s really essentially like liposuction. But if you overweight, if you stuff more fat into those few remaining fat cells, each one will get bigger, you just don’t replace the fat cells that have been destroyed. So your fat distribution may change, it doesn’t mean that if you do this or liposuction on your belly get lump on your head, but it’s more – it maybe more evenly distributed, but maybe just as difficult for you then to lose afterwards, which means you become patient for UltraShape or liposuction again.

Arie Benchetrit

It’s important to point out that particularly in the study Dr. Inglefield mentioned the (inaudible) study that they looked at weight change and the patient’s average weight barely changed in the ones that were studied. This is not a – we don’t treat patients with UltraShape and say, well, now you’ve got to go to the gym and you’ve got to eat less and all of that, obviously, you would lose fat that way as well. But we tell our patients, it’s to maintain a moderately active lifestyle. In other words if they work out, now continue the same pace, if they eat well, now continue the same thing. The idea is not to gain weight during the treatment cycle, but to maintain their weight. Because as you mentioned, once the fat goes through the lymphatics and the bloodstream to the liver, it uses energy. Of course, if you have a very sedentary lifestyle, and you gain weight, and that fat can be used to be stored elsewhere in the other fat cells, but if you maintain the same sort of, same level of activity, it will be used as energy and be burned off.

Louis P. Scafuri

Next question?

Unidentified Analyst

Yeah, I wanted to ask about the repeat treatment, i.e., I guess, I’ve heard that 44 days was visible results, but I’d like to know, even though the cells are “permanently destroyed”, how often patients feel like they would like to get a treatment, and also what has been your experience with regard to people returning to the practice and shedding up to $2000 that – we’ll ask them – I don’t know years or months or…

Shimon Eckhouse

Most patients will see a visible result within that two week after treatment. And they will see almost stepwise reduction after three treatments or four treatments, whatever they have.

As Dr. Petros pointed out, a lot of these patients having had one area treated, and being very happy with that area will then come back say, well are you able to treat my outer thighs or my love handles also.

So the patients do come back and have repeat treatments. Yes, I’ve never had a problem with them saying; well actually it’s a lot of money, because they would have paid three times a month for liposuction.

Louis P. Scafuri

Just to put things in perspective, because you mentioned the cost of treatment. If you look at the Botox market and see what that market means in terms of non-surgical technologies, the numbers are enormous, and the average treatment depending on the area and the dosage which you give is between $500 to $1,000 per visit. Every perhaps four months, five months, they come back, repeat visit.

The reason I think that – when this is introduced into the States that, this will be a game changer here is that, this is a permanent reduction. It’s not something they’re going to be coming back for repeated treatments every several months, but it’s a game changer in terms of Liposuction, a permanent change for not all that much more than several injections of Stellar or Botox that they’ll have to come back for and repeat.

And in terms of going to other, why this would be acquired by physicians? I think that Arie mentioned, you have a significant crossover to then have other treatments within the practice, which is that 747 effect, where you’re feeding your surgical practice as well as all the other technologies that you have to offer. And that's why, I think Syneron particularly was having such a long list of additional technologies, will be able to attract the physician user to purchase those other technologies as well.

So it's a little bit different, because it's a permanent change, that's why this is so really exciting.

Unidentified Analyst


Louis P. Scafuri

You can tell them that as much as you can for any other [lytic] procedure like Liposuction or anything else. Obviously, if the patient puts on 50 or 100 pounds over the next couple of years, they’re going to get big everywhere, because no procedure removes 100% of the fat cells in any area, including Liposuction. So the remaining fat cells can certainly get bigger if they put on significant weight.

But as with Liposuction, if they put on a small amount of weight, it’s likely that the area that were not treated will gain that weight faster than the area that was treated. So as with Liposuction, it would be very unusual to go back and treat a second time in the area that’s already been treated by UltraShape. In fact, in my practice, I can’t recall ever retreating a patient in the same zone twice.

Unidentified Analyst

Hi. Thanks for taking my questions. I’ve two questions. One is a practical one, and one is a technical one. The practical question is, I think I might have understood this, but I just want to make sure, are you anticipating that the physician him or herself will have to do the entire procedure or is it something that the technician can do? And if it's true that a physician does not have to do it, are you concerned that there is a degree of non-operator dependence such that this could become a commoditized market for your technology; and hence the price might be a risk, and then I have a technical question.

Shimon Eckhouse

Very good point. The procedure delegatible to a therapist, but the initial assessment needs to be done by a doctor. So it’s very important. When I first started doing this, we had some interesting experience with patients with premenstrual pain, who we weren’t smart enough initially on when we – when I first assessed them to delve deeply into their medical histories. And patients who come by saying that they were having increased premenstrual pain following the UltraShape treatment, until we actually started digging into it and realized that they in fact did have bad premenstrual pain before they had Liposuction.

So it’s very important that, in the assessment of these patients of whether they are suitable like for any of the procedure that we do, we do [cutout] a proper concentration and a proper physical examination.

Unidentified Analyst

It surprises me that, that wasn’t listed as one of the differentiating features between you guys and Liposonix as one of the bugaboos, I feel like I’ve heard about Liposonix, is that – it requires the physician to be standing there the entire time. And what I’m hearing is that, that is not the case with yours, and it surprises me if that wasn’t one of your big…

Shimon Eckhouse

Actually, on one of my slides that was pointed out on the comparative slide that I put mark. I mentioned that UltraShape was completely delegatible whereas Liposonix, I think the word there was caution, with caution. In other words, you can delegate Liposonix, but because it is in my mind a semi-invasive procedure, you have to be far more careful who you delegate it to and how it’s done, and how much the physician has to be involved in the treatment.

I can tell you that UltraShape, like Dr. Inglefield, I see the patient, I assess them, and I double check the markings that were made by my technicians to make sure they were appropriate, but once the treatment starts, I’m not in the room, I don’t need to be, because of that very sophisticated software, which makes it almost impossible to mistreat or over treat a zone; whereas you don’t have that with Liposonix, and by nature it’s a painful device, and there’s nothing that prevents you from going over the same zone twice.

So there is definitely a much higher risk, but I did point that out. And just dig a little bit further, in my view any of these devices, any energy device especially for a plastic surgeon, I can’t talk for all doctors, but you cannot delegate, that takes you away from what a surgeon does best in most, which is surgery. I don’t think will do very well.

I think the future is definitely in the non-invasive aspect or the non-surgical procedures going down the road. But that implies delegatable non-invasive procedures. Because there is no point otherwise, if you’re not operating, and instead operating a machine and again it’s the one pair of hand issue that I mentioned before. So they have to be delegatable and have to be safely delegatable.

Unidentified Analyst

So my technical question, and a couple of times you presented or a couple of you presented the big picture where it shows the Swiss cheese looking affect, and what’s clear is that – it clearly is destroying the fat cells, but what also seems to be clear is that, it’s also not destroying some of the other fat cells.

So I guess my general question is, the technical one, I suppose is, why is it not destroying all of the fat cells? That might be a patently stupid question, but why does it take multiple treatments to achieve the desired effect. Is it purely a mathematical plus power issue, wherein if you were to ratcheted up even more, that you would then somehow crossover the threshold of being a HIFU, and hence have the commensurate issues with it as well. How should I look at the technical piece of that even as an answerable question?

Louis P. Scafuri

Maybe I’ll try.

Christopher Inglefield

No. I mean, I’m going for it. Like any kind of therapeutic situation, it’s a probabilistic issue, I mean it’s a matter of whatever you do, there is a probability of creating that kind of desired effect that you’re interested in.

If you keep on doing the same thing forever, you know you’ll end up with a very high probability of killing all the sectors if you want. But what you do see is really the areas where there was enough pressure or under pressure if you want to create cavitation to breakup fat cell, it is the reason that you get the structure that you get if you see in these pictures.

Don’t confuse this with HIFU, because what people are doing in HIFU, and I didn’t go into it, and none of us did. But the big difference between the mechanical effect that we do with focused ultrasound in Syneron, in UltraShape; and what is done by people such as like Liposonix, is we use a very low frequency. Liposonix uses a very high frequency. There is a factor of about 10 or more between the frequencies that they use and we use are the threshold to get cavitation or to get a mechanical effect is proportional to one over the square root of the frequency that we use.

So when you have very high frequencies you cannot get the cavitation effect, you cannot get a mechanical effect, and all you get is actually thermal energy or acoustic energy, this is turned into thermal energy, and it is the thermal energy that creates injury that eventually will free the fat.

So we are not HIFU in that sense, and don’t confuse, I mean, no matter how long we’ll keep on treating the same spot, the temperature increase is limited to less than one degree centigrade, simply because of the total power that we put in, and the cooling effect of tissue that convex heat away from the spot.

In Liposonix, they try to do the opposite. They try to put as much peak power as they can to get a thermal effect, but then of course they don’t get a mechanical effect, which is selective to fat cell.

Louis P. Scafuri


Unidentified Analyst

Can you talk a little bit about pricing in the market, in terms of – you may hear a lot when a company like Liposonix launches a box set, they’ll essentially give box away or sell you the box and give you the same amount in terms of that cost, in terms of consumables. And how does the median physician respond to that when you have three essential boxes out there that are aiming to do the similar type of thing, and ROI seems to be very important calculation in all of your presentation. But how conditioned is the median physician or median plastic or derm to those deals that are out there, and once they have a box in place, what’s the burning period before – let’s think about putting another or it is priced such a big component that, that they’re almost indifferent to the different boxes and…

Louis P. Scafuri

I think it varies a lot depending on the physician and their experience to the marketplace. Certainly, the initial course is critical. I think that if you have a technology that is anticipated to stand the test of time reasonably, then your return on investment being spread out over the longer period is okay, and you are less likely to jump into another new technology.

So I don’t think that, that many physicians will buy for the initial quick discount, and then look to flip technology; by and large they don’t. And if they did, then they would look to buy from a company that has other devices, where they may take that back in trade. Well, there maybe another upgrade available, is this particular device upgradable when you buy it, or are you going to look, this won’t work in my practice. I missed both this, what do I do with it? If the company that you’re buying from has a single device, there is no place for you to go within the company.

With a company that has multiple different devices or additional device or additional things added on to a device platform, then you can upgrade, you can switch things around. I think all those things are considered when you purchase. The disposable course is significant.

So one of the reasons that they’re giving away at a lower price point, some of the devices is, it’s $400 or $500 a treatment that they’re getting in disposable of course, that’s significant.

I think that, you have to look at the illusion and – that one of the example that I used before was a lot of these devices are comparable to the price of the cars that you’re driving, some of them are more. So just as you would research what car you’re getting and be wary of the sale item, you got to do the same thing when you’re purchasing medical equipment.

So I think doctors are little bit more, for the most part, a little bit more sophisticated when they go to buy a device. Much of this is being driven by the hype to the public, anyway with direct-to-consumer advertising, but that’s why it’s hard to sell these devices sometimes.

Shimon Eckhouse

If I can add all the points you raised are important, and certainly price and consumable costs and all the things are important. But to me the most important thing is patient satisfaction because there is nothing more expensive than an unhappy patient.

Not only does it take a lot of your time in terms of trying to make that patient happy, but now with the Internet that one unhappy patient can cause a lot of trouble for your practice. And so, you really want to minimize those unhappy patients.

So in my view the process of selecting a device obviously, we look at price, we look at effectiveness, we certainly look at high response rate and minimizing patients that leave with an unhappy or unsatisfactory result.

At the end of the day, most of these devices have consumable costs. In my view, obviously we don’t want a consumable cost that’s so high that we have to price the procedure high, and then make it almost a surgical price. Because even though the patient doesn’t want surgery, they’ll still compare, I don’t get that question, I don’t want Liposuction, but how much of this cost compared to Liposuction?

So you want to keep the price obviously lower than the surgical equivalent, but to me, if I’m spending a lot of money on consumables, I’m doing a lot of treatments, and so to me it’s not a problem.

Louis P. Scafuri

I have one just quick though, if we look at the value proposition, Dr. Eckhouse talked about the business model, we have a business model wherein we have – we’re assuming a good gross margin on the product, competitive pricing on the product as well as a recurring cost in terms of the use per [user] that we believe on the basis of what the physician can deliver value to the patient in terms of the physician chart, starting at the patient cost back to what the cost of acquisition, the cost of ownership is, we think we’re going to be more than competitive both from the standpoint of efficacy. And to your question, if someone buys this year, one of the other devices that are approved by the FDA, I probably could fill the room with physicians who would say, if this device performs the way it’s been reported [and the way it should perform], I’d buy that third device as well.

Unidentified Analyst

And just one question, one follow-up on that is, how likely our physicians to believe that there is kind of full body contouring for any aesthetic device that you’re plugging and that there is kind of one device to roll them all; and that will be the device for many years, rather than let’s see where this technology plays out, let’s get the deal on this one because the ROI is so good, and we know that technology continues to perpetuate until leapfrog itself.

Shimon Eckhouse

Interesting thought. But the situation in the U.S., that haven’t been involved with UltraShape, very early on and speaking to lot of U.S. colleagues, a lot of U.S. practice surgeons, who have bought Zeltiq, Liposonix devices were originally signed up to buy an UltraShape device, pending FDA approval.

They have bought other devices because of a patient need, because there is a patient demand there; and there was no other – UltraShape was not FDA approved. So talking to a lot of colleagues now, they would still buy an UltraShape device, the minute it’s FDA approved, despite the fact that they’ve already invested in another device.

So there is still a pent-up demand from the users’ point of view. I certainly bought my first device at a very premium cost, having been the first buyer puts in clinical practice in 2005 just after they see approval, and I paid top dollar. But I still managed to pay off, pay off the device within five months, as the amount of demand that was there within consumers’ market.

So I think we are certainly looking at a interesting time, with non-invasive devices, and whether UltraShape is the device, I don’t think it’s going to be the single device for non-invasive, as I try to point out in my talk, it’s going to be like a lot of non-invasive technology, whether it’s lasers or anything else, or radio frequency, it’s going to be a combination of devices that gives you the optimum result for individual patients, because everyone is different. Is ultrasound the future? Well, trying to look ahead in ten years time, I think ultrasound technology is definitely one of the future technologies for non-invasive body contouring?

Louis P. Scafuri

I can answer that question with the Canadian experience, Liposonix and UltraShape have been approved in Canada for several years. The last count – this was – I know, I may be off a little bit, there is about 60 UltraShape machines across Canada, and there were eight Liposonix machines in Canada. Most of which have been placed, in other words not purchased, but placed by the company.

And so that gives you an idea of what happens when they go head-to-head. As Dr. Inglefield mentioned, I’ve had several calls from the U.S. based physicians asking me about my UltraShape experience, and chopping it a bit to get into the non-invasive body contouring space, and asked me almost always the same question, should I wait for the UltraShape or should I get something else now?

And of course, it’s a very personal decision, you have to make based on the market share in, and what the patient demand is. But I do know as Dr. Inglefield said, a lot of physicians bought something, else because they just couldn’t get the UltraShape. But in a market where you can get both, it’s clear that UltraShape has far off distance the Liposonix.

Shimon Eckhouse

We just gave you one U.S. perspective as someone who has many of the energy-based devices, I do not have any of the alternative body treatment devices other than VelaShape. And they are available, I can buy them, but I think that we’re looking for more evidence-based medicine to determine what we buy, and more assigned to actually delineate what’s being done before we make that investment. So (inaudible) and I have lots of other devices.

Louis P. Scafuri


Unidentified Analyst

Can you kind of touch on the importance of the multiple [focal] depth, and the impact that has on the patient population, you can reach? Because it appears, of my understanding the HIFU technology on the market now only penetrates the one depth, so it’s limited in the, I guess on the thinner side of patients, and then also if you can kind of give the applicable BMI range of what an ideal patient would be for the product?

Christopher Inglefield

Yeah, a great question again. The great advantage of the VDF software is the ability to treat the thinner patient. We have a lot of male patients in London, who have had UltraShape treatments previously with the early device. And when we sent out a flyer out to all our patients, who have – I’d said previously about the new device. And we’ve had many of those male patients come back, and they were too thin to have any treatment with the previous device. But now with the VDF, the ability to be able to target a more superficial thinner skin envelope, we were able to then treat them. And we’re going to see this more and more, because right now we are looking at a small portion of the market who have big fat bulges, and my focus in my clinic now is, looking at the patients who don't have fat bulges, but who want to have that more athletic appearance. And we can only do that with the VDF technology. We would never have been able to do that with the previous device.

Unidentified Analyst


Louis P. Scafuri

Maybe you can repeat the question?

Unidentified Analyst

Yeah. Question is, if a patient comes in with a waist of 48?

Louis P. Scafuri

Of 40 inches, and I have to think in centimeters and inches now. And they have a treatment and they go down to 39 inches, come they have further treatment and go down to 38 inches. Well, it all depends on the fitness of a subcutaneous fat, because they may have 39 inches, because of this raw fat, which we can’t do anything about.

And I Dr. Eckhouse intimated to this very interesting study that showed, if we break down a critical level of fat, whether it’s with Liposuction or whether it’s with non-invasive technology, we trigger a metabolic response that it affects the entire body, which alters the hormonal balance and stops the metabolic process to break down global fat.

And this is what this study has showed, about 43% reduction, and this has been shown with looking at receptors on the fat cells, in-flim like receptors on the fat cells, which have been terminance as to how fat cells absorb fat.

And there is a metabolic process that happens, if you breakdown a critical level of fat, that actually switches on the receptors and encourages the fat cells to breakdown more fat. So there’s a very positive – the real challenge is the patients who have been treated, but have a significant volume of visceral fat. And at the moment, there is no technology available that will target the visceral fat as they – apart from healthy eating.

And just as to come back to that. One of the things that’s changed in the last ten years is that, everyone, and I think I hope you guys agree, it’s more about a lifestyle change. When patients come in to ask us about body contouring, it’s about a lifestyle change. They want to get rid of their belly, but they want to improve their lifestyle, so they are looking at exercising more, they’re looking at eating healthily, not necessarily dieting, but just eating healthy, and quite also being able to get rid of their troublesome – whether it’s men or women, women with love handles, especially with their inner thighs, with their outer thighs. But the focus really now is about a change in their life style and not just about getting rid of bulges.

Shimon Eckhouse

Well, if there are no further questions, I would just like to conclude with the statement that, we are selling the product today in over 50 countries. Syneron has a significant channel to market capabilities outside the U.S. We are in the process of integrating both from an R&D perspective as well as an operational perspective. UltraShape, we’re ahead of plan in many cases. We see this transaction as being accretive by year-end, and we’re very, very optimistic on the response we’ve seen from both patients that have the treatment as well as physician users.

I’d like to thank out panel for the presentation this morning. They were all quite excellent, and I would like everyone to join us down the hallway here for a quick 25-minute lunch, and we’re going to resume with elure in Syneron Beauty in approximately 25 minutes. Thank you.

[Lunch Break]

Louis P. Scafuri

If I could get everyone’s attention, we’ll now resume the second part of the presentation today with presentations on Syneron Beauty and also on elure. And I’d like to just give a little bit of background. We formed Syneron Beauty one year ago as a subsidiary of Syneron and we dedicated some of our most talented people, both from a business as well as in R&D perspective to go out and to build the position for the company, in the emerging area of home use products.

We had a relationship with P&G for a number of years. We’ve also had a number of innovations that we brought to market. And over the last year, we’ve grown this business again from a very good idea to the point were we have multiple products on the market, that are available at some of the highest prestige retailers in the world. And I’d like to introduce the CEO of Syneron Beauty for his presentation, Fabian Tenenbaum. Fabian?

Fabian Tenenbaum

Thank you everyone. We’ve prepared a few slides for you to give you bit of a better understanding of what we do with Syneron Beauty. As Lou said, we actually started to look into the consumer market and how can we use our expertise with energy-based devices in the professional space and leverage the knowledge that we have in that area, into the consumer space, quite a few years ago. And have started with some initial ideas that we had and an agreement that we put in place with Procter and Gamble, which I’ll tell you bit more about.

And then in March of last year, as some of our products got ready to go to market we decided to establish Syneron Beauty, which is a business unit in Syneron Medical that’s really responsible for all the consumer facing technologies, the technologies that we sell directly to the consumers. And this started because we saw that there would be a fantastic opportunity with the advance of technology to introduce some of the benefits that we do in the professional space directly to consumer and because we thought market opportunity is very compelling.

If you look at the 2011 numbers for the professional side of the business for professional products, it’s about $15 billion in global sales, out of that about $7.68 billion in fees from professional treatments. So this $6.8 billion really relates to what Syneron Medical does and leads in the professional space.

On the other side of the spectrum, you have the North America or the over-the-counter cosmetic skin care market, the overall beauty market, pretty much addressing the same applications, hair removal, anti-aging, acne treatment and that market in the U.S is estimated at about $30 billion.

So when we look at these opportunities, on the one hand we have the types of procedures that we offer through doctors. These are usually very efficacious procedures and they are on the higher end of the costs, we can deliver fantastic results but not every consumer actually have or goes to a dermatologist or plastic surgeon to seek these procedures.

On the other hand of the spectrum we have beauty secrets in general, which represent almost everyone. And they are part of this $30 billion market, much more affordable solution but in general very limited efficacy especially in some applications. So when we look at these two ranges, we feel that, what we do at Syneron Beauty and the way we can leverage the technologies and the know-how, and the experience that we have in Syneron Medical can really create some sort – can take advantage of that gap that exists between what you can offer in a professional setting and what over-the-counter topicals and creams can offer today.

And it’s interesting to the extent of that looking at the third point here, that despite difficult years between 2009 and 2010, the prestige skin care products or the more expensive skin care market still did quite well in North America. So with the recession, with the difficulties, that market continues to grow. So there is definitely demand and demand that seems to prevail over the overall environment.

And these advancements in general, in technology, the heightened awareness that people have about the types of procedure we can offer and physician practices, the media, or advancements in cost advantages have really fueled growth at home, a stud device aesthetic market, and we’ve seen some entrance into the field in the last few years and it’s really been growing very significantly.

The market is estimated to have been $532 million in 2011 with very rapid growth. For 2011 and 2016, we’re expecting to see additional dramatic growth with the market in 2016 expected to be about $1.3 billion, which is really not that far from the overall professional market. So this is expected to continue in growing. Personally I think that some of these numbers here are even on the lower side given what we’re seeing in recent quarters, in the industry.

And on top of selling the devices itself, many of our devices, many of the technologies include consumables whether they are topicals, pretreatment, after treatment, cartridges for the devices, gel, for example for our teeth whitening product that I will tell you a bit in a moment, representing another nice opportunity for the revenue stream post sale.

Although, I do think that given the rate of innovation in the field, once we have the opportunity to capture these consumers and let them enjoy the types of technology that we can bring to the market. There is a tremendous opportunity to take advantage of the innovation and really year-after-year, continuing to sell better-and-better devices to the same capital audience.

And specifically for Syneron, I think we have a very unique ses of competitive advantages that position us uniquely in this market. We have a very comprehensive product portfolio. We really are at a position where we have a tremendous background in understanding of the energy (inaudible) interaction, what doctors are offering in their practices, what patients are seeking, what’s successful in addressing those specific applications that are both interesting and we think we can bring to the consumer market. And this includes hair removal, permanent hair removal, anti-aging, wrinkle treatment, anti-acne and even teeth whitening technology.

So there is a strong product pipeline that includes both activities that we do directly and sell directly to the market, and are planning to sell directly to the market and activities that we partnered on, like our join development agreements with Procter & Gamble. We have a very comprehensive IP portfolio that protects our core technology, whether it is our ELOS technology that drives a lot of our product or other technologies that we developed or acquired in the process, like our ionic teeth whitening or the microcurrent technology that we use in our teeth whitening device.

The technology and everything that we do is proven by clinical studies and the lot of work that we do at home. We really aim at delivering to consumers a cost effective, affordable device that is safe and efficacious and delivers the consumers at home, a clinical benefit, a beauty benefit that is above and beyond what they could experience with the OTC market, and really gives them joy and a very tangible benefit in using our products.

We have through the technology a very unique advantage in terms of cost of goods. We spent a little bit of time talking about the ELOS technology, as you know, for example in the products that are driven by our ELOS technology we have the ability to replace some of the optical fluence, the radio frequency fluence, which creates not only very interesting clinical advantages, but also very substantial cost of good advantage, and so we have the possibility to make these devices at a very affordable price point, which is a very, very important element of our plan going forward given the type of investment and marketing that you are expected and you need to do really in the consumer space to be successful. Given the types of retailer margins that you see out there, being able to produce devices at a very attractive cost of good is the key to be successful in our mind.

The other thing that works for us is the range of accessories, I mentioned the consumable stream that in general applies for the space, definitely applies for us as well, whether they are the light or ELOS cartridges that work with our hair removal device, the gel capsules that work with our Teeth Whitening product, so there is a significant opportunity on the consumable side.

And this is a glimpse of our portfolio currently, what exists in the market and what we are working on in very short-term, and I will go into a bit more into each one of these activities. But from the left to right, we have our hair removal product, which is the main that sells outside of the U.S. and I’ll tell you a bit more in a bit. Our Teeth Whitening technology, which we call the Pearl which you can see there below.

Three products that we have grandfathered when we acquired a small Canadian company called Pharos Life under the Tanda brand for acne treatments, those are the Zap and the Clear+, our blue light technologies, and for wrinkle treatment Luxe. And to the far right, you see our skin rejuvenation product that we are developing with Procter & Gamble. So as far as, mē is concerned, this is really the main reason that we started or decided to establish Syneron beauty at the point of time that we did. It was ready to go-to-market and we decided to take it to market directly.

We sold over 64,000 units since we launched the product at the end of the first quarter of 2011. We’ve launched the product in a few key European markets like the UK, Italy, Germany, we launched it recently in Canada, and we’ve launched it in Israel. We’ve achieved leadership position in some of the key markets like in the UK, where we sell-through Boots. And we’re working on regulatory approvals for the mē, so we can introduce it in additional key markets, one of them of course is United States. We’re foreseeing right now a price of $395 for the product once we introduce it here.

And the mē has a fantastic set of competitive advantages. It’s the only product in the market that uses our patented technology, our ELOS technology, which allows us to enjoy a unique cost of goods structure, which allows us to treat the – let us enjoy the widest range of safety margins with our unique technology, which then contributes to our ability to treat the widest range of skin types.

It is also the fastest product in the market right now, pulsing between one and two times a second, which in real terms means that, you can treat a pair of legs. This is a permanent hair reduction, so you treat a pair of legs in about 10 minutes, which is fast even for professional treatment and you can use it in what we call [paint] mode, so instead of holding the device and pulsing, you can really kind of brush or move the applicator on your skin and do the treatment, so very, very fast treatment. It’s the only device that does not require any skin preparations.

You can see below the ELOS cartridge a little epilator over there, that is a cartridge that can be replaced, connect and disconnect to the system where we can have a shaver or an epilator, so this is an accessory that if people want, they can use it together with a ELOS device and so instead of shaving and then removing hair with ELOS or any kind of other energy-based device you can do both at the same time. And we have very flexible cartridge capabilities. Right now our cartridge is about 5400 pulses which is very competitive in the market, but we already looked into the development of very flexible cartridges and are very well-positioned to compete in that and deliver cartridges depending on the business opportunity and the competitive landscape.

And this is a quick comparison for the hair removal device. The competitive table that shows you some of the products that are sold here in the U.S., Silk'n SensEpil, the TRIA Laser and NO NO, and really on almost every parameter that you would check, mē has a unique advantage. We can sell the product at very competitive pricing. We are the only one that can use the ELOS technology, there is no need for skin treatment. We have enough energy to deliver fantastic clinical results and there is a lot of data that we’ve accumulated both outside of the United States in all of our clinical work and now in the United States as part of our FDA work.

It has tremendous flexibility on the number of pulses that the cartridge delivers, so great value to the consumer, a very fast repetition rate, the ability to treat on the phase which is a very, very popular application and the ability to treat the widest range of skin types. If you compare just for a second, for example with the TRIA Laser, the time – I don’t even know how long it would take to do a pair of legs with a TRIA device. It’s a very, very small spot, it pulses slowly, it’s kind of hard to know what areas you’ve covered or not this is a really effective and fast way to do hair removal treatment at home.

Next device is Pearl, which is a product that we’ve essentially developed through our ownership in a company that Lou mentioned called Fluorinex. They have developed an electrochemical reaction for fluorination in teeth and we have expanded that technology into the white, small area (inaudible), and have really delivered a completely different and unique technology in this space that delivers very, very strong advantages over the competition.

With the Pearl we can deliver professional whitening result. So the types of whitening results that you would see if you go to a dentist office, where usually in dentist offices they deliver a peroxide-based treatment using a 25% to 40% peroxide compound, you sit there on the chair for an hour or more and get very strong bleaching of your teeth. It’s a very effective treatment in terms of the level of bleaching that you get, but it has significant drawbacks, it takes – you need to go to the dentist, not a lot of people will view that as a pleasant experience. It is expensive and if you have done and you’ve those professional treatments, you know it’s also tremendously unpleasant. It really dehydrates your teeth and creates lot of sensitivity, which is in mouth – because when I did I felt like somebody is about to stab me in the brain with a dagger. It’s very, very painful. After the treatment you get very sharp pain and I have done it once and I probably would not repeat it.

The other nice thing about the Pearl is, not only does it deliver professional results in five days, but it delivers visible results in five minutes. So these are very short five minute treatment, which are very, very easy therefore to do. And the basic protocol, the basic kit, and we’ve brought one here for you to check out later. You get, in the kit you get a device and gel for 10 treatments, which is total of 50 minute. So one treatment is five minutes that gives you whiter teeth, and if you use the entire kit, which is 10 cycles, ten times five minutes, 50 minutes, you get professional whiter teeth.

And I always recommend carrying one of these in my pocket, in your pocket, which I do. So this is the Tanda Pearl, we’ll pass it along and we have another one. It's really an elegant and easy-to-use device. And I don't know how well you can see it from that far, but we’ll pass it along. The way that it works is that it has a power supply and a mouth piece, a silicon medical grade mouth piece. You turn the device on, which I just did, I don't know you can see but a little orange light turns on, you’ll see.

The device is actually a smart device, it’s looking for the ionic gel, it’s looking for the specially formulated gel in the product. It's not finding it, because it's not in and in at about five seconds it will turn off. But once the ionic gel is in the device, the device will recognize that, it will send a signal through the gel, you’ll see when you look inside, that there are two electrodes in here. And it will send a signal through the gel, make sure that it is the correct gel, and then the light will turn green.

Once the light turns green, the five-minute cycle starts, you double bite it, so you just bite in both sides, and the whitening process starts, you don't really feel anything during the treatment, it whitens your top teeth, bottom, front and back, which is another great advantage, because even with professional treatments you can’t really whiten very much the back of your teeth, you really can’t put – it's very difficult to put 35% peroxide back there, because when we use that kind of product, you need to protect the oral tissues with an [optaderm] or cure gel on it. So it’s very difficult to do that, and so it’s another very nice advantage.

The key to how this product works is that, we essentially have found a very effective way of super activating a peroxide gel. So instead of using a 35% peroxide gel, we can use a very gentle gel that you can actually hold in your mouth, it’s a very low percent peroxide, very, very gentle. And when the signal, when the electricity travels through the gel, we accelerate the rate that the peroxide breaks down and essentially create an environment where the bleaching happens faster.

We’ve launched this in North America in the end of February for $195, that’s the price of the kit. And a booster kit, which is a replenishment kit for $50, which gives you an additional five cycle. We’re selling now through 200 (inaudible) doors in North America, and are looking to expand that. Our initial launch is positive, and we’re seeing some nice feedback from users.

It’s really unique in terms of its competitive advantages comparing to the leading product in the market, that’s the Crest WhiteStrips that own about 75% probably of the consumer whitening space in the United States. It delivers better results than what Strips would deliver in hours of use. So Strips is used about once a day for 14 to 20 days depending – choosing on the SKU, and so that’s over eight hours of use, and that delivers inferior results in terms of whitening to what we can deliver in only 50 minute.

We’re the only ones that use this ionic technology, the technology that activates the gel through microcurrent, and we own this technology. Our claims are, the professional whitening in five days, invisible results in five minutes, which are very difficult to see with any other kind of technology. The basic protocol for us is very easy to use, you don’t need to use it over 20 days, half-an-hour a day, which is exhaustive. You really use it for five minutes. And we know from consumers and we know from focused groups that we’ve done that, that’s easy for almost anyone to use, any busy mother can find those five minutes if she can sit in front of the TV or just schedule somewhere end of day, and do that five minute treatment.

We actually had a little mention in W magazine, the other – actually this month with the editor took a picture of herself sitting in front of her computer whitening her teeth while she is writing an e-mail, it’s really fast.

And from a price perspective, it’s very competitive with a $195 million versus the other prestige-based devices, GLO Science and Go Smile that we have here, more expensive than the Quest product, which is more of a [mouth] pharmacy product, but also tremendously more effective and of course only a fraction of what it will cost you to go to the dentist office. The technology also allows for very compelling cost of goods. So we hope to enjoy very interesting margins both on the kit that we sell, and then on the replenishment of the booster.

And our other products, the Zap, this is – you can see the pink or the cherry version that was originally it’s the far exclusive and our white version, which is our base product, is our acne treating device. We launched it in March of 2011, actually got on the shelves in April 2011. Sold over 90,000 of these little devices since we’ve launched them, have very nice feedback from consumers. Now with a large number of users out there, we can really look at large samples, and overall the responses and the feedback that we’re getting about the device are very positive.

The device sales through Prestige because that’s where our distribution footprint is right now, but certainly has potential to expand into a larger number of doors for example pharmacies, which is a bit, what this product would mean given the price point and given the fact that it is a solution for acne and in a solution type search is the right environment to look for the product.

We started introducing this outside of the U.S. right at the end of last year and we’re planning on continuing and doing so. It’s getting really nice PR coverage and it’s a very affordable at $49. And these two are the devices that we’ve grandfathered through Pharos, our Clear+ and Luxe and they sell for $195 in the Prestige Doors.

Quickly on the P&G partnership, we have joint development and supply agreement with them to bring this product to the market. We’ve conducted a lot of clinical work on this, not quite a 600 of Ultrashape, but half of that 300, which as far as we know is the most comprehensive amount of work done on a home used base products. It’s really an innovative technology, and we essentially completed the design of the products, waiting a regulatory to be able to launch this together with Procter & Gamble.

So just to summarize, Syneron Beauty about one year old, now we launched three new products are Me, Zap and the Pearl in North America, Europe and Israel. We grew revenues very substantially from where we started to 162% year-over-year. We have tremendous COGS saving opportunities due to our technology and the ramp up that we’re seeing in our business.

Strong position within the Prestige space, really with all the top names in the North American market that we’re selling through; we’ve started expanding the global presence of our products. We really not even the tip of the iceberg in terms of what we can do there and there is a lot of work that’s ongoing to expand our presence in multiple markets.

We’re very proud of the manufacturing capabilities that we have established in this year. We are now really manufacturing at mass scale and getting better and better at it everyday, and have a lot of regulatory work in progress. Again a lot of expertise that comes from Syneron Medical, and all the regulatory bodies and we’re expecting to see important approvals come in as months go by this year and we’re expecting to continue and grow very, very quickly in this market. Thank you.

Louis P. Scafuri

We will have questions shortly after Dr. Draelos’s presentation. We’re joined on the line today by Dr. Zoe Draelos, who is a practicing dermatologist in North Carolina. She is very well published, very well respected in the field of topicals and other dermatology clinical investigation. She is a professor at Duke and she is also a President of the American Academy of Dermatology. Dr. Draelos?

Zoe Diana Draelos


Louis P. Scafuri

We’d like to turn it over to you.

Zoe Diana Draelos

Thank you very much. I regret I can’t be there in person today because of our research in the office. But I would like to present to you some of our work specifically on elure, and I wanted to start by giving you a brief introduction of the labs and therapeutics, where they stand and why elure has such unique place in this particular market. I would like to have my second slide. Pigmentation is the huge issue for all individuals. The quest for even pigmentation is probably one of the most important beauty needs of women worldwide.

Next slide, skin color is basically a combination of three types of color modules that we call chromophores in the skin. It includes the brown with melanin, the red with hemoglobin, and the yellow with collagen.

Next slide, so it is the blending of the melanin that hemoglobin and collagen, as you see here and the ability of light to reflect from the skin surface, but also within the skin itself that leads to the appearance of beautiful evenly pigmented skin.

Next slide, it is important to recognize that even the skin is one of the most important factors contributing to perception of age. And it’s interesting to note that there is a strong correlation between melanin distribution and the actual and perceived age of the individual, and that skin tone alone can impact a woman’s perceived age by up to 20 years.

Next slide, pigment is indeed produced in the melanin side, and it is this pigment that enters into the skin itself that leads to this pigmentation, which tended to be melasma, which is overall brownish discoloration of a face, also specific discrete black dots that can appear over the entire face of skin.

Next slide, there are a variety of options for the treatment of discoloration of the face. And in the past, sunscreen hydroquinone as the chemicals has dominated the marketplace and those are the three that we’re going to talk about. Unfortunately sunscreen is not functioning well enough to prevent skin darkening thus there is a huge need for skin lightening agents.

Next slide; now let’s move on to the next slide, which is pigment lightening, sunscreen at the top. Basically, the way sunscreens work, as you can see by the red circles around the side, sunscreens basically interrupt the process that drive pigmentation of the skin. There are a variety of sunscreens in the marketplace that can achieve this. Next slide, but unfortunately none of them prevents pigment darkening a 100%.

Next slide, the top of this slide should show pigment lightening by hydroquinone. Hydroquinone has in the dominant pigment lightening prescription and over the counter product in the marketplace by inhibiting tyrosinase, which is the key enzyme in the production of melanin.

Next slide, but unfortunately, hydroquinone because of its toxicity has been removed from the market in Asia, Europe and there is some concern about removing it in the United States because of the toxic to melanocytes. Next slide, even though this chemistry on this slide may be somewhat confusing basically hydroquinone as soon as is exposed to air oxidizes and when it oxidizes it becomes toxic and kills the pigment cells in the skin. This has then led to a tremendous need to develop other substances that can improve pigment lightening such as the chemical.

The chemical also tried to interrupt the production of pigment through tyrosinase, which is the yellow circle drawn at the bottom of the slide. Next slide, kojic acid is one substance that has been brought for us. Next slide, however, kojic acid also can cause tremendous skin irritation and for a brief period of time with the news from the market in Japan need a safety concern.

Next slide, Licorice extract has also been brought for us as a possible substance. However, Licorice extract is not highly effective. Next slide, there are a variety of slide in a way such as (inaudible) but unfortunately it takes such a high doses of licorice extract that most product cannot afford for this amount of ingredient in the product. [Arbitron] is another substance that is out there as well. Next slide, but unfortunately, Arbitron is not nearly as hydroquinone and none of these substances have compositor in the marketplace.

Next slide, Arbitron is probably the leading contender, but unfortunately it does not adequately like skin, soy has also been brought for us; next slide, as a substance that can indeed light skin. Next slide, but soy ended up itself has to be in the form of fresh soy milk and unfortunately that cannot be put in a product that can be sold in cosmaceutical form.

Next slide, this then leads us to elure. One of the reasons why this new skin lightening technology is so promising, because it does not work by sunscreen or by inhibiting tyrosinase, it works through a totally different mechanism of pigment lightening. Basically of the active ingredient in elure breaks the melanin in the skin using a naturally cream enzyme derived from a tree fungus and then particularly substance that is included in elure that accounts for it’s efficacy is lignin procrastinate abbreviated LIT.

Next slide, I did a study on elure, we enrolled 30 female acceptance aged 18 to 65 into this split-face design. In this split-face design, we apply the elure product to one half of the face and nothing by a brand moisturizer to the other half of the face. The goal was to see if we could use one side of the control and the other side to see what type of skin lightening was attainable. I then evaluated overall dyspigmentation that’s a degree of discoloration of the face, book for brown spots, book for texture, brightness, clarity, which is basically an overall assessment of skin appearance; radiant, which is an assessment of light reflection from the face and irritation that might results as a result of a use.

Next slide, in addition, the subjects were also asked to make assessments of overall skin color, color of the dark spots, roughness, stinging, burning, itching and overall appearance and to collaborate the investigator and subject observation these two machines to also ultra measure discoloration on the face known as Derma-Spectrophotometer and a calorimeter.

Finally, we use the same scientific score, that known as the MASI score that is used for prescription products, and this is the score that we’ve used to test a variety of hydroquinone containing prescription products. We evaluated the subject that they find with two week expected trial.

Next slide, we analyze the data using (inaudible) statistical analysis and the results reveal that there were no tolerability issues. There was a specifically significant improvement in dyspigmentation that will be a discoloration texture, roughness, clarity, and radiance Acne 12, that there was a dramatic difference between the sides of face that was allergy treated and the side of the face that was treated with brand moisturizer.

Thus this study demonstrated in a statistically significant fashion, the value of [ligament proximates] and improving the appearance of discoloration in Melasma through the most common problems in facial skin. This allows in dyspigmentation as an important dermatologic need. It is unfortunate that the only prescription product hydroquinone that we have available had come into scrutiny because of the safety concerns that I alluded to earlier.

So that dyspigment is a key to treatment success, Sunscreens Pharmaceutical have not provided after treatment, thus many dermatologist and patients are like returning to the cosmeceutical market to look the thing that might improved discoloration of the face. And the rule is certainly tested extremely well, both in terms of the back irritation and tolerability, its ease of use and its efficacy in the study that we conducted.

At present, we are conducting a study where we’re comparing elure to the other half of the face that it is treated with the hydroquinone, that’s point head-to-head with the currently marketed generic description products. The results of this particular study in next slide will be available probably in about four months. But we thought a head-to-head study was also important to conduct as well. So, my research has indicated that elure is a very promising product to improve skin dyspigmentation, which is one of the most important beauty needs of women worldwide.

Thanks very much.

Shimon Eckhouse

Thank you Dr. Draelos for taking time out of your very busy schedule to join us here today via live phone call to New York.

Zoe Diana Draelos

You’re very welcome. And I hope my voice didn’t interrupt the slides.

Shimon Eckhouse

I did my best.

Zoe Diana Draelos

Thank you.

Shimon Eckhouse

Thank you very much. I appreciate it.

Louis P. Scafuri

Okay. At this point in time, we’re going to have the Q&A session on the EBU, and I’d like [Amy] to join us upfront, Asaf Alperovitz to join us front for any financial questions and Dr. Eckhouse to join us in the front of the row.

Question-and-Answer Session

Louis P. Scafuri

I just looked at Rich. I knew you’re going to have a question. Rich? Oh, thank you, Rich. Here we go, Larry. Larry come on?

Unidentified Analyst

So just if I could start off, I think it was one of the, I think it might have been in the teeth whitening product, it sounds like the launch just got underway in the first quarter. And throughout the year, you’re going to be moving into new distribution, I think one of them was a DirecTV consumer advertising campaign. Can you just talk to us about, where the margins are in this product today and as you move into potentially new types of distribution, what impact that might have on the business unit?

Shimon Eckhouse

Oh, yes. We’re planning and saw in the presentation to explore the direct-to-consumer possibilities to market and product in North America, specifically in the United States. We’re already in the process of testing a program, which has just started and we’re hoping to expand that dramatically in the third quarter of the year.

The margins on the product lend themselves very nicely to that kind of program as it is. We’re selling the products, the retail price of the product is $195, and our margins depending on the retailer, but assuming a true retailer transaction is already close to 80%.

And so, on a direct transaction, where some unduly captured $195 versus only about half of that, that increases that obviously a lot. It also gives us the opportunity to capture the customer directly, which provides in an opportunity to sell and resell the booster kit. And so not only that we capture all of this offline, the consumer, and then the ability to have, to retain that that consumer and resell booster kits in the future.

Louis P. Scafuri

Yes, Ron.

Unidentified Analyst

I had a question about elure, Kevin, you said, you sold 900,000 in Q1.

Unidentified Company Representative

I think it was a little bit mentioned by the…

Louis P. Scafuri


Shimon Eckhouse

We sold 900,000 in Q1 of this year.

Unidentified Analyst

And do you have any objective or target for growth rate for elure?

Shimon Eckhouse

Well, we believe the sky is the limit of course.

Unidentified Analyst

Of course.

Shimon Eckhouse

I think it’s realistic for us to have a goal of capturing 10% of the U.S. market as just an example in the next three years. And I think as we look outside the U.S., some of the distributed partners had discussions with them. The numbers are if you noticed that is great disparity between my numbers and [Canadian] numbers is only because these consumer products, the numbers are huge, and certainly once we get outside the position to spend elure in North America and look at some of the consumers based application, which is the larger market, the numbers get staggering.

Unidentified Analyst

And did you say also that the hydroquinones are not sold in Asia? Is that all of Egypt, and can you just give a little background on how long they’ve been…

Shimon Eckhouse

I didn’t say that, but I was talking.

Louis P. Scafuri

Hydroquinone has been banned as a consumer product in most of Asian markets. It is still sold illegally, but the other funny products that are sold such as mercury is also a very good skin lightening agent, but good one to put it on your face, but there are lots of products like that sold in China. And it is also used in professional environments where people go into a clinic to do just a skin lightening procedure, using hydroquinone. But on a large scale, hydroquinone is banned most over Asia and Europe and you cannot say.

Shimon Eckhouse


Unidentified Analyst

It seems that the Asian markets by far the biggest market for elure and you guys are still waiting for approval in key countries like South Korea, China and Japan. Can you tell us what the timing is for your expected approval there?

Louis P. Scafuri

We believe we will be able to have our clearances in Q3 for at least one of the markets and hopefully the second clearance by the end of 2012.

Unidentified Analyst

And once you get approval in these large markets, what’s the game plan in terms of building a business there and going beyond just a couple of million dollars of sales. We can use an example of China or Japan. Once you get approval, what you’re going to do with that?

Louis P. Scafuri

I think I’ll let Mr. Alperovitz have a chance to speak today, has another chance to speak at all.

Asaf Alperovitz

Thank you. So as Lou indicated that in U.S., they were working diligently on getting an approval of this main Asia market, and we’re also working with potential partners, distributor partners in order to ensure that last we’ll get approval in these huge Asian markets, we’ll be ready in terms of the distribution. And so we are working in parallel both on the regulatory side and on the business side to develop this strong distribution partners in each of these markets.

Unidentified Analyst

So where do you envision most Asian consumers actually acquiring the elure product, are they going to be buying it through doctors’ offices or through prestige retail or what other channels are there?

Louis P. Scafuri

I think now we’re in a process of considering the sales both for elure and Luminaze, which is the retail market product. And again, we’re working in parallel on a multiple front. we have strategic discussions and idea and we will be ready for implementation of our plans once we get the approval. And secondly, I want to elaborate more about the recent products.

Asaf Alperovitz

I think as Lou mentioned, there’s no doubt that the direct to consumer market in general in terms of products, and specifically in Asia where you’re asking is a tremendous opportunity. I recently returned from a trip to Japan and when you go to any kind of high-end cosmetic store, skin lightening, skin brightening is really the most popular flavor to the extent that almost 80% of the [shelves] look like. They’re all about skin lightening. So the opportunity is there, there is a lot of work I think that we need to do internally, that we’re doing internally to figure out both of those channels through professional and the consumer. it’s our tremendous opportunity, we have to get it right and we’re working on it.

Unidentified Analyst


Shimon Eckhouse

Maybe I’ll add one little comment. Actually what we found out in the initial market research that we have done in countries such as China is that, there’s a very large market for products that are bought directly by consumers. And you go to China; you look on fashion journals or women’s journals, probably more than 50% of the heads are for topical skin lightening products. So this is a huge market opportunity, but it’s not a trivial one for Syneron to penetrate it. But what we did learn and we are still learning is that there is a very large market in China again is an example of high-end medical spas or cosmetic centers that does just do skin lightening in the clinic and then sell to the patient, the person being treated, the kit to be used at home. It is the first channel we are addressing, because one, it is large enough, it can support a very good price structure, and we also believe, it will establish our presence as the best type of skin lightening products out there and one that is established, it will be much easier for us to address the much larger consumer market.

Unidentified Analyst

I have just two questions, and maybe I’ll start with Lou, on your – can you just give us a sense of what kind of allegiance or consumer allegiance to the existing products or regimens that your typical Asian or Chinese consumer like you’re using currently. Is it something that once they see elure, the brand loyalty isn’t there and they’ll switch and they’ll try or willing to try or is it something that’s going to take an extensive amount of investment and consumer advertising, instore advertising to get the trial going, and then I have a follow-up?

Louis P. Scafuri

I could see to the U.S. market and then I could draw some parallel to the Asia market. First half is better always to work with the thought leaders and it’s better to have a scientific validation. I mean that’s the key real estate and to have all of that there, and then include public awareness around it. That’s also important and we learned in North America, we were able to switch customers from most commonly known product that’s out there, which is a hydroquinone product. Over to our product, because there’s some unique feature advantages, how fast it works, how well it tolerates, the fact that patients could go out in the sun. and I would imagine similar, back to David’s question, how you are going to go valid and to add a little bit further to Shimon’s point.

You’re working with who is who in a given marketplace; the brand equity that you build around the brand creates more options to the future. We’ve had some experience in selling Luminaze through one channel, which is a different concentration of the skin lightening product. and it’s clear we need differentiated products for the different segments of the market, and it’s clear whatever we do with the thought leaders in terms of proving the science and having the support there as well as real results that the patients can benefit from, like being able to go out in the sun, which was a big thing versus hydroquinone based product as well as the quick results, I think will play to our advantage in terms of switching people over. Everyone is always in the area of vanity; there is always more, but money, there’s always more. And so, brand loyalty and the like, we have a product that really works, which we do, which is a bit of [mouth drop] creates a great opportunity for us.

Unidentified Analyst

And just going back to the prior question, I think for all of us, the market opportunity is enormous in Asia for elure and I think we’re all just trying to get a better sense of how quickly can this materialize and what kind of numbers we’re talking about, $14 billion is a big number. but maybe, you can help frame it for us, over the next two years, three years if you had, let’s just say, one of the key Asian territories. What do you think a realistic sale would be? What are you striving for, it’s obviously not going to be $5 billion, that’s a huge number, but more to do, good for you guys, but maybe help give us some perspective on what we should we be thinking about realistically?

Louis P. Scafuri

I can say that there are people sitting in this room, very astute investors and people who know this space who believe that elure alone is worth what our share price is trading for today that the opportunity is there. We see multiple partners. We don’t have to – we want to build in our own, we see multiple areas of distribution. Dr. Draelos talked about lignin peroxidase, talked about the enzyme. We can put this and formulate this in many different form factors and it’s only our ability to execute with partners as well as have a very focused effort on direct, can we really estimate the scale and I’ll let Dr. Eckhouse if anything to add to that.

Shimon Eckhouse

Yeah, actually I mean it's as Lou pointed out, 10% is a good number, extrapolate it to Asia; you’ll get the huge number. but I wouldn't take that too seriously at this point in time, because we don’t know enough. But I'll try and refer to your first question, which was, I would call it a combination of clinical marketing work, if you are doing to establish it in Asia. So that is the first and we have done a very large study in Peking University, was the leading dermatologist in this area in China, which will be published I hope over the next few months, doing it on Chinese population, again using the product. These are the type of activities that you do, we also when we talk with potential, I would call it combination of customers, distributors with each and everyone of them, they want to take sample test the products for about three months before they get back to us and say this is interesting.

The reason I’m mentioning it is that these are quite extended investments that you have to do both in terms of time and money at cost. it doesn't happen overnight. And you cannot, we definitely don’t have the muscle of a large cosmetic company that puts huge amounts of dollars in advertising in Vogue and other magazines and that's really not the way, the way we can grow. The way we can grow is by establishing very strong clinical evidence and Dr. Draelos is just an example of a group of really top-notch dermatologists in the U.S. that we're working with. They’re doing very similar things in Asia for obvious reasons. These processes take time. there are no shortcuts we’re able to say, listen this is such a great product that you have to buy.

We are of course, being a public company want to show financial results as quickly as possible. So in our areas where we try to take some shortcuts to really create both for ourselves as well as our investors, the impression of where this thing can go, but it is a process that takes time and we want to make sure that, that we do a try from the point of view of establishing the clinical support to what we are doing. So we can really exploit the opportunity.

Louis P. Scafuri


Unidentified Analyst

So in terms of how you plan to market it, hydroquinone is about 2%, 4% solution and it's sold by physicians. I think intact to straight of 4% solution has been banned, I don’t know what the follow-up of that, but how do you plan to market elure, and is it going to be all through physicians in certain countries where you’re going to be able to market the OTC and have you even thought about price points, I know there’s a lot of questions in there, but…

Shimon Eckhouse


Louis P. Scafuri

Well, our initial effort in North America was on a direct basis. So the handful of direct sales people, because as Shimon just pointed out, it takes time. It takes time to have the right clinical work. It takes time to have understanding of the market, understanding of the pricing and target the right customer. And our sales force has been successful head-to-head with the hydroquinone product, end markets where again they've resumed selling in Texas, and that we believe that the customer is that we have gained in a marketplace where head-to-head, we’re competing that we will have exceptional customer retention as a result of the patient satisfaction related to the product. It is a differentiated product. It works. We believe it has some superior characteristics in terms of the textures, the luminosity of the skin, like in the speed of actions. and we feel very strong about that from the standpoint that we’re adding more direct sales people this quarter and we’ll continue to build some more in terms of direct distribution in North America.

As far as outside the U.S., we’re not just added, we’re just not going to wait for the approval. I wanted to just point that out that we are doing certain things from a logistic perspective as well as market planning perspective. so we will have impact. We are a dynamic company, we certainly have a global perspective, we try to stay ahead of things and then we’re anticipating particularly in Asia in one or two of the markets to be able to jump start it.

So we like what we see. we are the highest priced product on the market. We have an exceptional gross margin on the product, and we’ve done some initial work with Luminaze, because at the end of the day, we need to keep our physician customers happy, but a differentiated product that’s available on a retail basis is clearly the major market opportunity. and we’re working with some people, and they know some consultants on how to differentiate and how to be successful there, because bigger companies in Syneron that are in this field have tried doing both at the same time. We’ve learned our early lessons. We do plan on marketing both in the future, but to be very different products.

Unidentified Analyst

Okay. When you said higher price product, did you want to share some of that? I like in what kind, how does it compare, is it slightly more than hydroquinone…

Louis P. Scafuri

I guess the best general comment I can make to that point Anthony is we took the conscious decision that it’s a premium product and we priced it accordingly. We priced the entire kit accordingly. we are competitive, but we think the results are comparable. and we have certainly, we always have opportunities to lower prices along the way, but I think differentiating the product, it’s a premium product with top core doctors has been a very significant advantage for us for our first year.

Unidentified Analyst

Just a couple of quick follow-ups, sales force, you said there is direct sales force selling this year in North America, how many people are focused on elure at Syneron right now?

Louis P. Scafuri

Four, four people, it’s very early stage, okay? We plan on expanding and we are looking at other areas of growth as well.

Unidentified Analyst

And just on the actual technical aspects. It is a product that needs repeat application approximately how often to keep the toning and texture?

Shimon Eckhouse

The product is repeat application. You have to use it, which is too for only topical and it’s not a…

Unidentified Analyst


Shimon Eckhouse

One-time deal in and we have no problem with that, right?

Unidentified Analyst

Sure. And the same thing for our competing products like you said. So that’s…

Shimon Eckhouse

Yes, you cannot stop using it and (inaudible) repair the same pigmentation.

Unidentified Analyst

Sure, okay, great. Thanks.

Louis P. Scafuri

If we have no further questions, I would like to thank everyone for taking time out of your day to come and spend several hours with us. It was our intention to talk to you about the growth opportunities within Syneron. As the global leader, we have a great diversity in our products to differentiate it. We’ve shown our ability to execute on a global basis through our growth as well as our results. I would also like to thank our physician presenters for taking time out of their busy clinical schedules for joining us today and adding very important dimension to our discussions.

So thank you very much and we look forward to speaking to you everyone in the room on future on a one-to-one basis sure at our next meeting. Thank you.

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