Medical Device Daily Correspondent

ZICHRON YA'AKOV, Israel – The largest stock sale offering in the past five years by an Israeli company is getting under way by medical aesthetic device maker Syneron Medical (Yokneam, Israel). By the end of this month, Syneron shareholders are expected to offer 7 million shares worth about $250 million, or, on average, one-third of each holder's stake.

Syneron's offer to sell is the third-largest by shareholders in an Israeli company listed on Nasdaq; both the first and second were from Amdocs.

Serial entrepreneur Shimon Eckhouse does not think it is odd that he still answers his own phone even though he would earn some $34 million on this share offer. Eckhouse founded Syneron Medical, which he brought to an initial public offering about half a year ago at a market cap of more than $600 million.

There was some pain in this birth four years ago next month. Eckhouse had been rather ungraciously and very publicly forced out of Lumenis (also Yokneam), the company he had founded as ESC Medical Systems 10 years earlier and brought to a market cap of over $1 billion in 1996.

It could be said that Syneron is the phoenix from the ashes of this power struggle. Eckhouse is chairman and not CEO of Syneron, but he has a healthy interaction with CEO Moshe Mizrahy, and likes to keep a well-focused involvement, more like a grandparent than a parent.

Lumenis has not fully recovered from all of the upheavals. It has been trading on the Pink Sheets for the past 13 months. Some local analysts attribute recent rises in the stock price to nostalgia, harkening back to Eckhouse, but also realizing its still-untapped potential. While Lumenis posted significant operating gains for 2004 as a whole compared to 2003, the U.S. Securities and Exchange Commission (SEC) still is pursuing proceedings against the company for financial reporting irregularities. Lumenis stated that it is fully cooperating with the SEC to bring the matter to an appropriate and timely resolution, and was anticipating filling order backlogs of $22 million.

Former Lumenis executive vice president Alon Maor and Bob Anderson formed Aesthera (Livermore, California), and secured $8.5 million in financing in one year to launch its photo-pneumatic therapy. Private investors include former Lumenis CEO Yacha Sutton and former Lumenis director Thomas Hardy. Pneumatic energy prepares the skin so less light energy is needed, reducing the risk, the pain and the time for aesthetic treatments, especially hair removal, skin rejuvenation and treatment of vascular and pigmented lesions.

Eckhouse told Medical Device Daily: "Israel is amazing, tiny and complicated. There are more entrepreneurs in Israel than in France, [the] UK and Germany combined." He attributes this to a sometime flawed characteristic of Israelis, "who generally think that they can always improve things personally."

Eckhouse is not blind to the existing downsides of the local industry, which is based on human intelligence as well as medical technology. He has been vocally concerned that education in Israel is suffering. The schools that feed the universities are not getting the financial support necessary to maintain academic excellence, especially for high-tech sciences, he says. And in the universities, "The budgets for research are inadequate, there is a lack of research positions – and also not enough recognition is awarded for excellence."

He is worried that these flaws will reveal themselves in another 10 years in medical technologies, in medicine and in all of the knowledge-based industries – sad thoughts coming from someone who is in general an optimist, but also a well-grounded realist who does not believe in self-delusion. "Without research budgets, and no growing infrastructure, there are no researchers to feed future Israeli high-tech," Eckhouse says.

One of his suggestions is to get the Office of the Chief Scientist to put aside a fund for young companies, i.e., start-ups that have yet to prove themselves. The U.S.-Israel Binational Science Foundation did just that for junior academics, based on the realization that young players need to be encouraged. Eckhouse says, "New companies just starting out need to be judged on different criteria from the more-established companies, so that they can reach the stage of realizing their business potential," he said. "They don't have the track record to persuade others to believe in their products, nor the grant-writing machinery of the more veteran players that have been submitting applications to the Chief Scientist for 20 years."

It is a matter creating of "an effective balance where we have limited means," he says.

Despite his own upheavals at Lumenis, Eckhouse, who holds a PhD in physics, says he is proud to have founded the company. In addition to Lumenis and Syneron, he has founded seven high-tech start-ups, four of which are in medical devices:

• CardioDex (Tirat HaCarmel), which has been selling Epiclose, a vascular closure device designed for quickly and fully close punctures in the femoral artery following catheterization procedures for PTCA and invasive radiology, since 2003.
• OrSense (Rehovot), developing a family of medical devices for non-invasive blood-based measurement of glucose, hemoglobin and other blood constituents.
• WideMed (Herzilya and Omer), developing advanced biomedical signal-processing technologies to standardize clinical interpretation. Its first application is the Morpheus, for processing sleep signals in sleep research.
• NanoCyte (Zemach), a hybrid medical device-biotechnology start-up, developing a painless and harmless immediate release transdermal drug delivery platform technology based on the cellular physiology of algae.

Syneron's upcoming stock sale will be run jointly by Lehman Brothers and CIBC World Markets, with Citigroup Global Markets serving as lead manager. Stephens Inc., Thomas Weisel Partners and CE Unterberg, Towbin will act as co-managers.

The shareholders granted the underwriters an option to buy an additional 1.05 million shares within five days from the date of the sale.

Eckhouse and the other company managers, directors and parties at interest own an aggregate 71.9% of Syneron. The second group comprises company employees and advisers, who own options (not shares) exercisable over the next two months.

One venture capital fund – Israel Healthcare Ventures (IHVC) headed by Hadar Ron – is listed as a shareholder in Syneron, with $1.5 million invested in the company. In the offer to sell, the return would be $24 million, plus $37 million if underwriters exercise their over-allotment provision. IHVC has invested in other start-ups that Eckhaus has been involved with or invested in, including CardioDex and OrSense, as well as Medigus (Omer) and XTL Biopharmaceuticals (Rehovot).

In January, Syneron Medical's U.S. subsidiary, Syneron North America, received a $1.5 million order for ELOS (electro-optical synergy) aesthetic devices from American Laser Centers (ALC; Farmington Hills, Michigan) for its U.S. clinics, offering treatments for hair removal and skin rejuvenation.

ALC already has 75 ELOS devices in its 52 centers located in 14 states, offering treatments for hair removal and skin rejuvenation therapies, and has treated more than 23,000 patients with Syneron systems in its ELOS-exclusive centers.