Shares of Palomar, a developer of light-based cosmetic treatments, dropped $2.85, or 15.2 percent, to close at $15.92 Monday, having fallen as low as $15.83 earlier in the session -- the stock's lowest point since August 2004.

Burlington, Mass.-based Palomar said Friday it's renegotiating a product development agreement with Gillette Co. and in the interim, is extending the companies' current deal to develop an at-home hair removal system for women until Feb. 29. However, there's no guarantee a new agreement will be reached, and if the two parties can't agree, the existing contract could be terminated.

In a note to investors Monday, Craig-Hallum Capital analyst Richard Rinkoff called Friday's event an "unexpected turn." He lowered his rating on Palomar to "Accumulate" from "Buy," with an $18 price target.

Just three weeks before the launch decision on a five-year joint project, Procter & Gamble decided it didn't need market exclusivity to dominate the at-home hair removal market, presuming its Gilette brand is strong enough to win market share even if Palomar allows other companies to use their technology. Therefore, paying Palomar a premium for exclusivity became less attractive.

With the agreement in flux, Palomar could stand to lose the entire $10 million payment expected from P&G, which was anticipated to be recognized as revenue in 2008, Rinkoff said.

"If an agreement is reached, P&G conceivably would pay much less to Palomar but the latter would have the ability to license the technology to other companies," said Rinkoff. "J&J certainly comes to mind."

He lowered his 2008 earnings estimate on Palomar to $1.15 per share from a prior estimate of $1.40.

The Gillette news isn't the only obstacle facing Palomar in 2008. Rinkoff expects another tough year for the company, now that consumers are spending more conservatively on non-essential (read: non-reimbursed) cosmetic procedures. He said it's possible too that doctors have already bought the bulk of their light-based treatment equipment, and future customers will be "harder sells."

He also noted that Palomar is struggling to distinguish itself from other companies that sell similar products at similar prices, such as Cutera Inc., Syneron Medical Ltd. and Cynosure Inc.