Biolase Technology, Inc

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Biolase Technology, Inc

INTRODUCTION OF WATERLASE: 1998

DEBUT OF WATERLASE MD: 2004

ORIGINS

As with most pioneering achievements, Biolase’s flagship Waterlase device did not achieve dominance in the dental laser market overnight. The technology that underpinned the company’s financial growth in the early 21st century was the product of years of work, work begun nearly 6,000 miles away from Biolase’s Irvine, California, headquarters and 15 years before Waterlase generated its first stream of revenue. The journey, both in time and distance, represented the evolution of Waterlase and described the link between Biolase and its predecessor, Societe Endo Technic, S.A.

Societe Endo Technic was founded in 1984, starting out as a small, research-and-development firm based in Marseille, France. The company began experimental work on various endodontic (related to root canal therapy) and laser products, eventually developing a semiautomated root canal handpiece known as the “Canal Finder System.” As the development of the Canal Finder System was underway, a move across the Atlantic took place. In 1986, Societe Endo Technic created a Massachusetts-based subsidiary, Endo Technic Corporation, to serve as its sales arm in the United States. The next year, the parent company followed its subsidiary, relocating to the United States after all the assets of Endo Technic Corp. were transferred to a California-based subsidiary, Societe Endo Technic, Inc. Before the year was through, Pamplona Capital Corp., a company created to raise capital and pursue acquisitions, purchased 77 percent of the Societe Endo Technic enterprise, taking control over the Canal Finder System and various other endodontic products. Pamplona Capital changed its name several times during the ensuing years before settling on Biolase Technology, Inc., as its corporate title in 1994, by which time the company had shelved the Canal Finder System as its principal product and had begun moving toward developing the Waterlase.

During its first seven years in business, the company’s signal achievement was the Canal Finder System. For the next seven years, research-and-development efforts picked up pace, at least in terms of the number of new dental lasers that were released, culminating in the debut of the Waterlase. In 1991, the company completed development of “Laser-35,” a 25-watt, Nd:YAG (neodymium: yttrium, aluminum, garnet) dental laser system. Deliveries of Laser-35 commenced in early 1992, quickly followed by the development of the next generation of the company’s dental lasers. In early 1993, development was completed of another Nd:YAG laser, “Nylad,” a system available in various wattages that began shipping in mid-1993. As deliveries of Nylad began, the company completed development of “Elmer,” a six-watt, Er, Cr:YSGG (erbium, chromium: yttrium, scandium, gallium, garnet) dental laser. Elmer’s design incorporated proprietary technology that was applied to the Biolase’s new hydrokinetic, tissue-cutting system, the Millennium, the original name of Waterlase. Design of the Millennium, an Er:YSGG (erbium: yttrium, scandium, gallium, garnet) dental laser, began in 1995 and was concluded in late 1996, giving Biolase what would prove to be its first genuine market success.

INTRODUCTION OF WATERLASE: 1998

The U.S. Food and Drug Administration (FDA) approved Waterlase for the treatment of hard tissue in October 1998, one month before Jeffrey W. Jones was appointed president and chief executive officer of Biolase and given the task of turning the company’s hydrokinetic, tissue-cutting system into a commercial success. Jones joined Biolase after spending a dozen years working for a number of privately held companies, including HGM Medical Laser Systems, a producer of medical lasers used in ophthalmologic, dental, and aesthetic applications. His task at Biolase, though daunting, was made easier by the remarkable advantages of Waterlase when compared to traditional high-speed dental drills. Dental drills, aside from producing unsettling sounds that racked the nerves of any patient, caused pain because of the friction produced from the grinding action of the drill against tooth enamel. Waterlase, by contrast, did not produce any friction, eliminating the need for painkilling shots. The threatening whine and grind of a dental drill was replaced with an innocuous popping sound, a muffled crackling described as similar to the sound of popcorn popping.

COMPANY PERSPECTIVES

Biolase’s products are designed to elevate the worldwide standard of medical and dental care. The company addresses the tissue heating problem of traditional laser systems on hard tissue cutting procedures by developing its innovative Target Tissue CoolingT system (TTCT). This breakthrough should allow for the advanced use of lasers in many medical areas and holds tremendous potential for the dental, orthopedic, cosmetic, dermatological, and neurosurgical markets.

At the heart of Waterlase’s pain-free technology was the use of water, Biolase’s groundbreaking hydrokinetic, tissue-cutting system. The machine emitted a laser beam fired into a stream of water, not the tissue itself. The laser accelerated water molecules to 2,000 miles-per-hour, creating laser-powered particles that removed enamel and dentin for cavity preparation, cleaning, cooling, and washing the targeted area at the same time. “It’s basically a microexplosion,” the company’s head of research and clinical development said in a March 31, 2003, interview with Forbes. The device heralded the beginning of a new era in dentistry, giving Jones a product to target the 140,000 dental offices in the United States, an estimated $1.4 billion market, and the 400,000 dentists practicing worldwide. Aside from educating dentists about the wonders of the new technology, Jones’s greatest challenge in realizing the commercial potential of Waterlase was the machine’s one shortcoming: cost. Waterlase trounced conventional dental drills in all areas except for price point, retailing for more than 30 times the amount of a high-speed drill, which proved to be a barrier to its market penetration during its first few years of availability. Waterlase sold for $50,000, or it could be leased for roughly $1,000 per month, a hefty price compared to the $1,000 to $1,500 fetched by conventional drills.

Armed with a remarkable, potentially revolutionary product, Jones geared Biolase for the release of Waterlase after gaining FDA approval in late 1998. The first few years of the machine’s availability produced both encouraging news and reflected the difficulties of marketing a device that was exponentially more expensive than the devices it intended to supplant. At first, Jones relied primarily on word of mouth within the dental community to promote Waterlase, a marketing effort later augmented by Biolase’s participation in trade shows and sponsorship of seminars. Between 1999 and 2002, as word spread about Biolase’s hydrokinetic, tissue-cutting system, sales more than quadrupled to $29.2 million, making Waterlase the best-selling dental laser in the United States. Swelling revenue totals were offset, however, by substantial annual losses during the period, as the company endured years in the red. Biolase posted a net loss of $10.3 million in 1998, followed by a $4.7 million loss in 1999, a $3.7 million loss in 2000, and a $400,000 loss in 2001. The company’s fortunes improved in 2002, however, when Biolase posted its first annual profit, recording $2.6 million in net income.

With its financial performance improving, Biolase took steps to build on its momentum. By the end of 2002, the company had sold roughly 1,500 Waterlase systems, enough to make it the market leader among dental laser makers, but the total represented only a small fraction of the overall dental market. The company needed greater penetration of the market, and in 2002 several positive developments pointed to a potential increase in business. In January, the FDA cleared Waterlase for root canal procedures. The following month, the regulatory agency cleared Waterlase for bone surgery. One year later, in February 2003, Waterlase gained approval to treat root canal complications. Waterlase’s greater suitability for various dental procedures, the company hoped, would promote sales, but it did not wait for customers to come to it. Biolase adopted a proactive stance, forming the World Clinical Laser Institute in 2002 to educate and train practitioners and researchers in laser dentistry. Further marketing assistance was secured via acquisition, specifically the purchase in mid-2003 of all the laser-related assets of American Medical Technologies. American Medical, which had developed the world’s first dental laser in 1988, sold a portfolio of dental laser patents, intellectual property, products, and customer lists to Biolase in a $5.5 million, cash-and-stock deal. The company’s financial position also was aided by another product, LaserSmile, which originally was developed as a tooth-whitening system, but later gained clearance from the FDA for periodontal procedures. By 2003, LaserSmile accounted for nearly 20 percent of Biolase’s revenue total.

Biolase entered 2004 controlling 80 percent of the U.S. dental laser market. The company’s market share represented a commanding lead but only a sliver of the overall market, falling considerably short of the expectations of Jones and his management team. “Dentists inflict pain,” Jones said in a January 6, 2004, interview with Investor’s Business Daily. “We’re providing them with a revolutionary product that can change how the dentist is perceived.”

Some within the dental community embraced the new technology with enthusiasm, a zeal reflected in an American Dental Association survey that reported the number of dentists incorporating laser technology into their practices more than doubled from 5.3 percent in 1998 to 11.4 percent in 2002. Further, there were reports nationwide that some dentists were coming out of retirement just to use laser technology, but Biolase primarily was attracting early adopters to the technology, not a massive wave of dentists that would indicate a genuine revolution within the industry. The arrival of the laser age to dentistry, it appeared, would take time, with the cost of the new technology and, to a lesser extent, familiarity with the technology proving to be the barriers to its widespread adoption. In the interim, Biolase led the charge of promoting dental lasers, but time was taking its toll on the company’s financial condition. After posting its first profit in 2002, Biolase registered $19 million in net income in 2003 before recording a net loss in each of the ensuing three years, incurring $45 million in losses during the period.

KEY DATES

1984:: Biolase is founded as Marseille, France-based Societe Endo Technic, S.A.
1987:: Societe Endo Technic moves its headquarters to California.
1994:: Biolase Technology, Inc., name is adopted.
1995:: Development of Waterlase system begins.
1998:: Waterlase gains approval from the U.S. Food and Drug Administration.
2004:: Waterlase MD is released.
2006:: Biolase moves to Irvine, California, and launches Biolase University, a certification training and education program for dentists.

DEBUT OF WATERLASE MD: 2004

Biolase made progress on several fronts midway through the decade. Its most notable achievement was the launch of a new Waterlase system, Waterlase MD. Introduced in October 2004, Waterlase MD upped the ante required to practice laser dentistry, selling for $70,000. The next-generation laser, touted as easier to use and more effective than its predecessor, sold well despite its increased price, securing its 1,000th customer just a year-and-a-half after its debut. The launch of Waterlase MD coincided with the first change in leadership in six years, as Jones took the title of vice-chairman and handed the duties of president and chief executive officer to Biolase’s chief operating officer, Robert Grant. The new alignment of executives, organized “to spread awareness of the advantages of laser dentistry and broaden the use of its enamel-cutting technology in specialties such as orthopedics,” according to the November 29, 2004, issue of Business Week, remained intact for less than two years. Jones took back the titles of president and chief executive officer in May 2006, reprising his role as Biolase’s dominant personality during a busy period for the company.

As Biolase prepared for the future, much of its success depended on its efforts as a proselytizer of laser technology. Dentists, in droves, need to incorporate laser technology into their practices to fuel the company’s financial growth. Toward this end, the company created Biolase University, a certification training and education program for dentists, in May 2006, the same month it moved its corporate headquarters from San Clemente to Irvine. In July 2006, further awareness of the company’s Waterlase systems was ensured when the University of Florida College of Dentistry decided to integrate Waterlase dentistry into its course curriculum. The company also was applying its laser expertise to fields beyond dentistry. In mid-2006, the company received clearance to market Oculase MD, a laser system for general ophthalmic soft tissue surgical indications. In the years ahead, as the company preached the advantages of harnessing laser power and water in dentistry and other disciplines, its financial health hinged on its ability to develop effective devices and to communicate the worth of such devices to its target customers.

Jeffrey L. Covell

PRINCIPAL SUBSIDIARIES

BL Acquisition II, Inc.; BL Acquisition Corp.; Biolase Australia, Pty. Ltd.; Biolase Europe, GmbH (Germany); Biolase (NZ) Limited (New Zealand); Biolase Spain, S. L.; Societe Endo Technic, Inc. (France).