Biolase Inc. in Irvine sold $10 million in preferred stock and warrants to its two largest shareholders and others to continue to fund a turnaround effort the company said has had some early success.
Biolase develops and sells lasers and related equipment to dentists.
The private placement of shares and warrants closed on Aug. 8.
Investors that included affiliates of Jack W. Schuler Living Trust and biotech hedge fund Oracle Partners LP bought about 88,500 preferred shares at $113 a share and received warrants to buy about 2 million shares of Biolase common stock.
The preferred shares are convertible to 100 shares of common stock—reflecting the closing price of $1.13 a few days before the sale was announced—and the warrants are exercisable at $2 a share.
Biolase shares traded recently at $1.30 apiece for a $76 million market capitalization.
“We needed some liquidity to help us launch products,” said Chief Financial Officer David Dreyer. He said the $10 million “is enough to get us through product development goals through the end of 2017.”
Cutting Losses
Biolase has an estimated 110 local employees and 220 worldwide.
It posted cumulative losses of about $58 million from 2011 to 2015, including $20.3 million last year.
The company named former president of Zimmer Dental in Carlsbad, Harold Flynn Jr., president and chief executive last July, and he began the turnaround effort, including tightening its purse strings.
The affiliates of the Schuler and Oracle investors pushed for the leadership change.
Year-to-date losses through June were down 37% year-over-year from $12.4 million to $7.8 million. Its operating loss declined 16%, and Biolase burned through 54% less cash in the quarter that ended June 30.
“We’ve done a lot to manage our expenses and our cash,” Dreyer said.
Biolase also curtailed discounting.
“The vast majority of sales were at the end of the quarter,” when rate cutting kicked in, Dreyer said.
He said Biolase began to focus on “what the laser does, giving clinical evidence of better results.”
And it beefed up sales teams.
“Now we have experienced dental reps,” Dreyer said.
U.S. revenue from two key products—the WaterLase and the Epic—grew 32% and 57% year-over-year in Biolase’s most recent quarter, and with less discounting its gross margin grew 1 percentage point to 41%.
Credibility
Flynn said in a news release that the investment represents “confidence in our strategic and operating plans” and recognition of Biolase’s progress.
“There is still significant work to do,” he said.
Biolase board Chairperson Paul Clark said in a news release that “the proceeds raised (are expected) to fuel the Company’s growth and innovation efforts.”
The company has sold 32,000 laser systems in 90 countries and holds or has pending about 350 patents.
Murad Gharibian, a dentist in Orange, paid more for a Biolase product than what competing items cost. “Their products are the best,” he said, but he had to seek it out. “I had to go to them to buy it. That may be changing.”
Dreyer said, “We’re re-establishing our credibility with the dental community.”
Biolase opened a dentist training center in Irvine last year and plans to work on new products with IPG Photonics Corp., an industrial laser maker near Boston with a market cap of about $4.5 billion.
“We’re planning to launch several products toward the end of this year, and one is coming through IPG,” Dreyer said.
Cash Positive
He said credibility and new products will produce the results Biolase needs.
“Once we have quarterly revenue in the $15 million to $16 million range, we’re cash-flow positive,” he said.
Biolase had $50 million in revenue over the past 12 months and working capital of $13.6 million as of June 30.
Dreyer said it’s likely to seek more funding.
“Will we ever do another capital raise? Of course we will.”
Biolase has about 59 million shares outstanding. The private placement could bring that to about 70 million shares.
Dreyer called the 18% dilution in shares low and said part of that went to the largest shareholders.
The affiliates of Schuler and Oracle prior to the placement each owned about 20% to 23% of Biolase shares and had agreed not to exceed 25%, Dreyer said.
Their ownership limits were raised to 30% each as part of the private placement.
