PhotoMedex selling growth engine to pay debt

The company will sell its XTRAC division for $42.5 million.

PhotoMedex Inc. (Nasdaq: PHMD; TASE: PHMD), which deals with medical esthetics and has a $40.6 million market cap, has sold its XTRAC division for products for treatment of vitiligo and psoriasis for $42.5 million. The buyer is Mela Sciences.

The proceeds will enable PhotoMedex to fully repay the debt it accumulated from its unsuccessful acquisition of the LCA ophthalmological clinics at the beginning of last year. After PhotoMedex failed to meet the financial criteria set by the banks in mid-2014, it had to sell LCA in early 2015, but was left with a $40.1 million debt. The company will even have a little left over from the current sale after paying its debt. The company also had $6.2 million in cash at the end of the first quarter of 2015. At the same time, the sale will cost the company one of its main growth engines.

XTRAC generated only $5.4 million in revenue in the first quarter of 2015, compared with the company's main hair removal business, in which sales of products totaled $18.1 million, but XTRAC's business grew 22%, while revenue from hair removal business was down 55%. Now that it no longer staggers under its debt burden, PhotoMedex may be able to stabilize its hair removal business. The main reasons for the decline in its hair removal business were the entry of competitors, the termination of its work with a distributor in Japan (a new agreement in Japan was signed already in April), a lack of money for investment in marketing, and a decline in the effectiveness of the company's usual marketing channels. PhotoMedex has said in the past that entry into geographically new markets was likely to enhance its hair removal business.

PhotoMedex has other products, of which the leading ones are a product for treatment of back pain named Kyrobak and a line of cosmetics, Neova, sold through dermatologists. Neova products posted $1.6 million in revenue in the first quarter, 16% less than in the corresponding quarter last year, apparently due to a lack of funds for marketing.

PhotoMedex, led by CEO Dolev Rafaeli, saw its share lose 85% of its value over the past year.

Published by Globes [online], Israel business news - www.globes-online.com - on June 23, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

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