Irvine-based medical device maker Biolase Inc. is facing the prospect of a proxy fight with its largest shareholder.
Oracle Partners, a Greenwich, Conn.-based investment firm that owns 16% of Biolase, is offering a slate of candidates for the company’s board of directors.
Biolase makes lasers used in dentistry and other medical specialties. It ranks No. 63 on this week’s Business Journal list of public companies based in Orange County (see related stories throughout issue, list on page 10) with a recent market value of $89.5 million.
“We have previously expressed our concern regarding the operating and financial performance of Biolase to management, which has fallen on deaf ears,” said Larry Feinberg, the managing member of Oracle’s general partner.
Biolase posted an $11.4 million loss on $56.4 million in revenue last year.
Feinberg’s letter noted that Biolase’s share price had fallen 51% from April 26, 2013, to March 10. Biolase shares are down 13% since the beginning of 2014.
Oracle sued Biolase last month seeking a court to determine the board’s composition and a temporary restraining order. The lawsuit claims Biolase, “at the apparent behest of [Chief Executive] Federico Pignatelli, is now attempting to unlawfully entrench itself and certain [directors], which raises significant corporate governance concerns.”
The investor noted that Biolase announced that company President Alexander Arrow and Dr. Sam Low, a professor at the University of Florida, resigned as directors March 3, and that Jeffrey Nugent and Paul Clark were appointed as independent directors, which brought the board to six members.
Oracle’s suit then noted that Biolase submitted a Securities and Exchange Commission filing three days later mentioning Clark and Nugent’s appointment and “claiming the size of the board had somehow been increased to eight in an effort by the chairman to secure his position” by claiming that Arrow and Low were still on the board.
“Those actions violate Biolase’s own bylaws and Delaware law, which provide director resignations become effective immediately,” Feinberg said. “What seems to be occurring is an unlawful manipulation of the board composition by the chairman to stack the board in a manner favorable to management.”
Clark and Nugent, who Feinberg characterized as “acting with an independent voice in the best interest of all shareholders,” are on Oracle’s slate of directors.
Feinberg said in his letter that Oracle will nominate four directors at Biolase’s annual meeting, and that it is “considering legal action to enforce the rights of shareholders under applicable law.”
Biolase said it would respond to Oracle in court and that the board’s nominating and corporate governance committee would consider Oracle’s nominees.
“Biolase welcomes open communications with its shareholders and values constructive ideas that advance the board’s goal of enhancing value for all shareholders,” the company said in a statement.
The device maker got a court order late last month that set its board at four members—Pignatelli, Norman Nemoy, James Talevich and Frederic Moll, who also is an Oracle nominee—pending the results of Oracle’s lawsuit.
Biolase has not set a date for its shareholder meeting and declined further comment through a spokesperson, citing the lawsuit.
Oracle’s slate is made up of candidates with diversified healthcare experience.
Clark is a strategic advisory board member of Genstar Capital LLC, a San Francisco-based middle-market private equity investor. His career also includes 14 years in various senior management capacities for Chicago-based Abbott Laboratories.
Nugent founded Rhode Island-based PreCision Dermatology Inc., which makes drugs for skin diseases.
Moll, who has been a Biolase director since June 2013, serves as chief executive of Redwood City-based Aurus Surgical Robotics Inc. He also cofounded Intuitive Surgical Inc., a Silicon Valley-based company that developed the DaVinci surgical robotic device.
The fourth Oracle director candidate is Dr. Eric Varma, a partner at the fund. Varma was previously with Boston-based investment bank Leerink Swann LLC, as well as the Food and Drug Administration.
