What's going on at Biolase?

Sep 1, 2010

Major changes are afoot at the largest dental laser manufacturer in the world.

On August 27, Biolase announced that its CEO, David Mulder, and five members of the board of directors had resigned and that Federico Pignatelli, Biolase chairman of the board and one its largest shareholders, had been appointed interim CEO.

Just two months ago, on June 10, Pignatelli was fired from his position as president of Biolase and replaced by Mulder. Three weeks later, Pignatelli -- who has a long history with Biolase, having been a board member since 1991 and chairman since 1994 -- was back as chairman. Then in July, Chief Financial Officer Brett Scott resigned, and Biolase reported that it had eliminated 20 positions.

In addition to this internal shuffling, in August Biolase reported one of the worst quarters in its history, received a deficiency letter from Nasdaq indicating that the company was on the verge of being delisted, and announced that its exclusive distribution agreement with Henry Schein was being "renegotiated."

As Pignatelli explained in a conference call with investors on August 27, "The way the company has been managed has to change. At the last shareholder meeting, there was a very strong signal from shareholders that it was time for change, but there was resistance from the board members."

This split ultimately led most of the board, including Mulder, to part ways with Biolase, and Pignatelli to immediately begin implementing a new business strategy. He is now in the process of reducing the company's cost line from $36 million to $32 million and eliminating all discretionary spending.

"This is microsurgery," he said in the August 27 conference call. "In any company, you can find money that you don't really have to spend, and I am quite good at that."

The new nonexclusive distribution relationship with Henry Schein will also open up new opportunities to increase revenues as well, he added. Biolase will now be able to sell more of its dental laser systems directly to customers -- at a lower price -- and is working to expand its sales force from 25 to 30-35 and sign new distribution agreements with other vendors, both in the U.S. and internationally, according to Pignatelli.

"At first we were selling the Waterlase in the $50,000 range," he said. "Then we introduced the Waterlase MD, which sold in the $55,000 range. But after we entered the relationship with Schein, the price jumped to nearly $75,000 because we had to give a margin to the distributor. And that has clearly been a factor in slowing down adoption of the Waterlase."

Even so, he noted, Biolase currently claims to have 7,000 installed laser systems globally -- more than any other company in the world, according to Pignatelli. And with the new suggested retail prices -- $49,995 for the Waterlase MD and $4,995 for the iLase -- sales are likely to pick up.

"Five, six years ago, this company was worth more than $20 per share," he said. "Today, it is inadmissible to have a stock under $1 per share. This company has tremendous value, and my objective right now is to have that value recognized by investors and to start having revenue growth again."

In the meantime, is the company actively seeking a new, permanent CEO?

"I am not going to give up this position until I find someone who is better than me," Pignatelli told investors. "I am very happy to give up the CEO position and stay on as chairman, but only to someone who can do better than me, and that will take time."