Biolase shakes things up

Saying it must fundamentally change the way it does business, Biolase Technology Inc. (NSDQ:BLTI) brought a familiar face, Federico Pignatelli, back as its new chairman and interim CEO.

In a conference call today detailing the changes, newly-appointed chairman Federico Pignatelli said shareholders sent a clear message this year when they voted out the entire slate of directors up for re-election, except Pignatelli. Five other board members have since resigned, he said.

"Biolase has to change," Pignatelli said.

The first step in implementing the new business model is to reduce Biolase’s break-even point by about $10 million, he said, to $36 million. Pignatelli wants to shave another $1 million to $2 million from that number by eliminating "anything that is not strictly necessary."

"This is micro-surgery," he said during the conference call.

The changes also entail a shift in Biolase’s distribution model to emphasize its own direct sales and distribution partnerships for North America and the rest of the world. A key portion of the new approach, which the company is still hashing out, is the transformation of an exclusive contract with Henry Schein Inc. (NSDQ:HSIC) to a more traditional business model.

The Irvine, Calif.-based dental laser maker has had a year of more troughs than crests, with regulatory nods outweighed by a dismal financial performance that forced layoffs for more than 13 percent of its workforce.

Biolase also swept its management deck, replacing its CFO and CEO within the last two months, after posting a second-quarter net loss of $4.2 million, or 17 cents per diluted share, on sales of 5.9 million for the three months ended June 30 — a nearly 59 percent top-line slide. The company laid off 20 of its 151 employees in July, showing CFO Brett Scott the door in the process and naming Pignatelli as executive vice chairman. Those moves, which Biolase said would cost $70,000 during the second quarter, are aimed at saving $3 million annually.

The NASDAQ stock exchange warned the company Aug. 18 that it was in danger of running afoul of the market’s $2.5 million minimum stockholders’ equity requirement. As of June 30, Biolase stockholders’ equity was worth negative $1.3 million, according to a press release. The company has until Oct. 4 to submit a plan to turn the ship around or risk a de-listing.

Six days after the NASDAQ warning, Biolase ousted chairman, president, interim CFO and CEO David Mulder and tapped Pignatelli for the top spot in its board.

It’s not Pignatelli’s first time in the main director’s chair or even as interim CEO; his 16-year history with the company includes stints in both roles as well as that of president. He was brought back in November 2007 as interim president and CEO, replacing Jeffrey Jones. Biolase fired Keith Bateman, executive VP of global sales and marketing, and 11 other employees at the same time, according to a regulatory filing.

Mulder, who received $10,400 in gross severance pay plus health and various other insurance benefits for six months, according to a regulatory filing, was amiable on his way out the door.

“We have spent the past two years keeping the company viable and weathering a very rough economy, while laying the groundwork for a completely new commercial strategy," Mulder said in prepared remarks. "Now it is time to execute that strategy with boldness and a single point of leadership to ensure its success."

The changes at Biolase began in earnest in March, when the company accompanied a dismal fourth-quarter and full-year financial statement with the announcement that it would nearly double its North American sales force, tapping Dr. Wayne Harrison as VP of its sales and marketing operation there.

Harrison had his work cut out for him. Sales for the fiscal year ended March 30 were down 32.9 percent, to $43.3 million, and the company posted a net loss of $3.0 million, or 12 cents per share. But he had a new product to work with: Biolase won 510(k) clearance for its iLase personal laser two days before the year-end earnings announcement. The company also won a 510(k) nod late in 2009 for its Waterlase MD device for treating periodontal disease.

In April, a pair of competitors, Discus Dental LLC and Zap Lasers LLC, accused Biolase of patent infringement in a lawsuit filed in the U.S. District Court for Central California. Charges of fraud and some alleging infringement of trademark and infringement and unfair competition were later dropped, but the case is still pending.

Biolase shares were flat at $0.72 in mid-day activity.