Irvine-based medical device maker Biolase Inc.’s move to sell noncore assets signals a plan to double down on its main dental laser business.
The company said last week that its board authorized it to hire an investment bank to look at selling some of its assets.
Biolase makes laser devices used for various dental and medical procedures. Its main product, the Waterlase, uses water to precisely cut hard and soft tissue with no heat, vibrations or pressure.
It is looking to sell noncore business lines because it believes “certain of its assets could be worth significantly more than” the company’s total current market value of about $56 million, said Chief Executive Federico Pignatelli. “Biolase has more opportunities than we can pursue on our own. Selling one or more of them could generate the funds that could give us the working capital we needed for our core businesses.”
Pignatelli did leave the door open, however, when analyst Suraj Kalia of Minneapolis-based Northland Securities asked him about a possible sale of the entire company during the company’s third-quarter earnings call.
“We are looking to sell selective assets of the company,” Pignatelli said. “Clearly, it is a fact that … if we would receive an offer for the entire company, we would have to have the board evaluate that offer. But we are right now looking to essentially market certain assets of the company.”
Biolase’s decision generated mixed reaction on Wall Street. Investors sent the company’s shares down 19% on Nov. 12, a day after the announcement about the possible asset sales. Some analysts praised Biolase in the following days.
“The company does appear to be more serious about divesting some of its assets that are outside of the core focus of dentistry,” said Keay Nakae, an analyst who covers Biolase for Newport Beach-based Ascendiant Capital Markets LLC, in a research report issued last week.
Proprietary technology embedded in the company’s Waterlase “has the potential to address several areas in ophthalmology including dry eye, glaucoma and presbyopia,” Nakae said.
He also mentioned other potential applications, such as dermatology, cosmetic surgery, orthopedics, urology and even veterinary health.
Biolase’s news about possible deals came amid the backdrop of disappointing third-quarter results.
The device maker lost $4.1 million in the quarter compared to a net loss of $548,000 in 2012’s third quarter and below consensus estimates of a $1.6 million loss.
Revenue fell 10% to $12.3 million. Analysts expected Biolase to have third-quarter revenue of $16.4 million.
“Simply stated, the company is doing a poor job of executing its U.S. sales strategy,” Nakae wrote in his report.
Biolase has attempted to correct that, Nakae said in his report. He wrote that the company replaced its vice president of sales and promoted “a number of top performers into newly created regional manager positions.”
“We continue to believe that Biolase is well-positioned in the dental laser market. Further, given the current valuation of the company … we do believe that the sum of the parts is worth more,” Nakae said, adding that he also believes that Biolase is “capable of delivering much better results” with better execution.
Nakae also mentioned Biolase’s cash position in his note.
Biolase said it ended the third quarter with $2.1 million in cash and equivalents, compared to $2.5 million at the end of 2012.
Nakae said he viewed “the limited amount of cash as more of a potential hindrance to the execution of the company’s growth objectives.”
He noted that Biolase has filed an offering with the Securities and Exchange Commission to sell $30 million in stock.
Short Seller
Cash was at the center of Biolase’s battle against short sellers, particularly from Richard Pearson, a former investment banker and writer of the Mox Reports blog. Pearson wrote in August on the investor website Seeking Alpha that Biolase was close to being insolvent after the company disclosed in an SEC filing that it was not in compliance with a provision in its bank loan.
Biolase shares fell more than 30% in the wake of that disclosure.
Biolase, Pignatelli Respond
Pignatelli and the company fired back at Pearson, saying his articles contained “several inaccurate and therefore misleading statements” about Biolase’s financial position.
The device maker revised its credit agreement with Dallas-based lender Comerica Bank in September after it fell out of compliance. Comerica did reduce Biolase’s domestic credit line by $2 million, among other things
