Over the next few weeks I will be publishing a series of blog posts explaining the rationale behind the investments in the Longbow portfolio. As some of the investments were first made several years ago, I thought that it would be interesting to illustrate the developments and changes which have occurred since investment measured against our intial assessments and the company's own milestones. There is no better place to start than at the beginning, our first investment; CyDen Ltd a developer of light based aesthetic products.
CyDen develops and markets a range of devices for aesthetic and medical treatments based on 'Intense Pulsed Light', or IPL. Rather than use up this post describing this in more detail, check out this brief summary.
So what made us invest in CyDen?
Let's start with a high level view. At the time of investment in 2005, the market for aesthetic procedures had been growing strongly over the previous few years. Technology emerged in the 90s to take advantage of our better understanding of the ageing process, for treatments such as permanent hair removal and wrinkle and cellulite reduction. However such 'professional' treatments performed in spas or doctor's surgeries are expensive. CyDen's technology promised to reduce the cost of professional equipment significantly and thereby reduce the cost to the consumer. We felt that it could drive mass adoption of these procedures. Furthermore, they had a roadmap that promised consumer products.
Even in 2005, an affordable consumer product was considered something of a holy grail. Large companies such as P&G and J&J were partnering with professional aesthetic equipment manufacturers to develop home-use devices. Our view at the time was that if they struggled to make salon equipment more affordable ($10,000s) then they were a long way from making home use equipment affordable (low $100s).
To summarise, CyDen had developed technology that would make products affordable for the mass market when others were struggling to achieve this, while many of the relevant consumer product companies had declared their interest.
As with all early stage investments, we need to believe that we are backing the right team. Cyden was founded in Swansea, which for those that don't know, is a world renowned centre of expertise in the use of lasers and light for medical and aesthetic treatment. The primary reason for this is the presence of the charming and energetic Professor Marc Clement of Swansea University (now Vice Chancellor of the University of Wales). He and a number of his students have pioneered this field and a cluster of businesses sprung up there as a result. Marc joined forces with a talented electrical engineer, the late Jan Simonsen, regulatory expert Mike Kiernan and Kevin Smith.
The plan was to develop a low cost professional product and leverage the income and brand into launching a consumer product. Ron Petersen, a Longbow partner was recruited as CEO to make this happen.
After four years, how did our investment thesis hold up?
There have been successes and disappointments. The disappointments first.
- There were too many vested interests downstream in the supply chain so that it proved too difficult to deliver a substantially cheaper product to the professional end user. Despite a technology advantage, it was therefore coming from behind established competitors without any significant price advantage. Sales grew rapidly to over £2.5m per annum but never scaled much higher. In 2009 CyDen licensed its technology to a competitor in return for a sales royalty. As a consequence, the consumer product was developed more out of investment funds than surplus cash flow.
- Jan Simonsen, the genius behind the iPulse technology sadly died. Although he had already achieved a working home-use product as well as a further pipeline of new technology for successor products, his absence is keenly felt.
Despite these setbacks, our projections of the market potential were correct and CyDen has achieved some significant successes.
- A recent report forecasts that home-use aesthetic devices will grow to a retail value of $1.3bn per annum by 2013.
- Large FMCG companies remain interested in this space. Unilever Ventures saw the potential and invested into CyDen during 2008 and 2009. Those early development deals that I mentioned above are yet to produce anything viable.
- CyDen was the first company to achieve the holy grail of an affordable, effective and safe consumer hair removal device. It was first to market in February 2009, sold exclusively under a Boots brand as 'Smooth Skin' iPulse in the UK. Despite no sales and marketing spend, sales significantly exceeded Boots' expectations.
- The product achieves permanent hair removal after a regime of treatment over 3 to 4 months. Neither Philips nor Remington, who have subsequently launched consumer IPL products, can make that claim as their products require a continuous treatment to suppress hair growth rather than eliminate it.
- iPulse is available in leading retailers in the UK (Boots), Spain (El Corte Ingles), Germany (Schlecker) and Japan
- CyDen is expecting to be ready to launch a new skin rejuvenation product during 2011. The skin rejuvenation market is substantially bigger than the hair removal market.
What is the future for CyDen?
CyDen has recently received further investment to enable it to proactively raise consumer awareness and promote its products. Competition is hotting up with Philips and Remington launching products; albeit at a higher price point. We believe that they are inferior products but we cannot underestimate the power of the brands. As it stands, CyDen is the market leader in the UK as it is ahead in terms of sales through Boots, but there is much more to do.
Marc now heads up the CyDen Institute of Light Technology and has stepped down as Chairman to be replaced by Chris Outram, an experienced executive and founder of OC&C, a leading management consultancy business. These moves reflect the changed nature of the business. It is no longer a company in development, it is a company in a rapid growth phase.
FDA regulatory approval is awaited, which will permit iPulse sales into the vast US market. Mike Kiernan, one of the original founders and highly experienced regulatory clinician, has done an excellent job navigating the FDA and we are certification is expected later this year. With FDA approval, we know that the large global personal care companies will be taking a closer look at CyDen and this is expected to produce a range of exciting opportunities for the Company.
For the next instalment of the 'Why we invested..." Blog series I will be reviewing Ambicare Ltd, a developer of a range of light emitting devices for the treatment of skin conditions such as acne and skin cancer.
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