Oct 1 2007
Biolase Technology Inc. took the ouch out of dentistry, and now it hopes to put a smile on the face of its investors.
The Irvine-based dental laser company is close to completing a major restructuring that includes a new license and distribution agreement, new products and an expansion into medical applications beyond dentistry. Management hopes the three-prong effort will return it to profitability.
It's an unexpected position for Biolase, which was a leader in its field in the 1990s and early 2000s. In 2003, Forbes named Biolase among the Top 10 fastest-growing U.S. technology companies. With experts predicting a boom in sales of dental lasers, which are less invasive than drills and often eliminate the need for numbing, the future seemed bright.
But the sales didn't materialize, in part because dentists have been slow to adopt lasers. Only about 5 percent of the nation's 200,000 dentists use a laser, about the same as five years ago.
Dr. Eric C. Sung, a clinical professor at UCLA's School of Dentistry, who occasionally uses a laser in his work, thinks the big barrier is cost. Biolase's premiere laser, the Waterlase MD, costs upward of $80,000.
In addition, few dental schools taught laser dentistry until recently and dentists tend to stick with what they were taught. For most, says Sung, that's the tried-and-true high-speed drill.
But Biolase also had other problems besides slumping sales. Over a one-year period, it lost its chief executive, faced a shareholder lawsuit and received a U.S. Food and Drug Administration warning letter about its manufacturing practices.
Jeffrey W. Jones, who was CEO from 1999 to 2004, returned to the top job in May 2006 after spending two years as the company's chief technology officer. He launched the restructuring plan last year.
So far the results are mixed. The company posted its first profitable quarter in 2? years when it reported $1 million in net income in the fourth quarter of 2006. It fell back to a $1.7 million net loss in the first three months of this year. That narrowed to a $901,000 net loss in the second quarter.
"I'm anticipating becoming profitable in the fourth quarter," Jones says.
Part of the delay is due to a decision last year to revamp the Biolase sales force. Instead of selling directly to dentists, Biolase signed a license and distribution agreement in August 2006 with Henry Schein Inc., a major health care distributor. Jones hopes to leverage Schein's field sales consultants' medical contacts to boost Biolase sales.
Wall Street analysts like the deal, but expected it to pay off bigger sooner. Second quarter revenue was $18.2 million, up 14 percent from the second quarter of 2006.
"I was taken aback that revenue growth hasn't taken off yet," says Lawrence S. Solow, an analyst with CJS Securitiesin White Plains, N.Y. "I'm on the sidelines waiting."
Jones says he had hoped to show better results sooner, too, even though experts say it typically takes 18 months to fully integrate a distribution deal like the one with Schein.
One complication was that Biolase lost one-third of its sales force in the months after the Schein deal was announced. Jones says it's taken him until now to get the sales staff up to its regular complement of 31 people.
The benefit of the Schein deal isn't expected to be seen this quarter because the third quarter typically is a weak one for sales. Year-over-year comparisons also will suffer because there was a rush of sales in the third quarter of last year in advance of the Schein distribution agreement and a price increase taking effect.
Jones expects the deal to really begin impacting the bottom line by the end of the year.
Besides the Schein deal, Jones hopes to bolster revenue by introducing new products. One of the first, a less expensive, hand-held diode laser called the ezlase, launched in the second quarter.
A sleek iPhone look-alike with a wheel and touch pad design, the ezlase can be used only on gums and other soft tissue. But at $7,200 each, Biolase thinks the ezlase provides a good entry point for dentists who want to use a laser but may balk at the higher cost of the Waterlase MD.
The idea of a lower-priced alternative seems to be working. The company said it sold nearly 400 ezlases in the second quarter, its best quarterly sales performance for any diode laser.
Biolase gets an added bonus with ezlase sales because the laser uses a disposable tip. Jones hopes to sell more of those kinds of consumables in the future to give the company a more consistent revenue flow.
The consumer market also provides opportunities for Biolase. Last year the company entered into a strategic relationship with The Procter & Gamble Co. The deal gives P&G the rights to certain Biolase intellectual property.
P&G paid Biolase an initial $3 million under the agreement and is paying the company $250,000 a quarter until the first product is launched.
Jones could not disclose what products might be forthcoming. Biolase, however, just won a U.S. patent for an electromagnetic toothbrush that uses a cleaning agent. The toothbrush system cleans and whitens teeth.
With more than 100 patents on its products, Jones also wants to see Biolase branch out into other applications for its lasers.
Last year, the FDA approved Biolase's Oculase for use in laser eye surgery. Jones says the company is also working with veterinarians for use of its laser on animal teeth or tusks.