Biolase Investment

[jeffwcpa]

Hi, Guys,
Whew, it’s getting hot in here! As a new Waterlase owner, I thought you might be interested in my little story, since I can understand both sides of the argument.
The first thing I’d like to state is that I don’t care if HK is real or fantasy-I just care if the thing works. Well, it does. I checked out both machines(DElight and Waterlase), used them both on extracted teeth, pig’s jaws, etc. I had almost decided upon the DElight, because I do agree that it’s lighter, easier to move around, and has a thinner, more comfortable to use fiber. None of my reasons are clinical, because, unlike some of you, I really think they both do the job. It’s a personal preference thing. I eventually went with Biolase because their customer support, at least in my area, blows away anything Hoya does. Also, they offer significantly more marketing help and continuing ed. Least importantly, but a slight factor nonetheless, it’s an American company. I’ve only had my machine for 3 working days, and I’m already wondering how I ever practiced without it. I don’t care which one you have, congrats to all of us for using this amazing technology to help our patients and ourselves!!!

[Glenn van As]

Hi Jeff:  As I mentioned to you when you emailed me……congrats on your laser purchase and welcome to the wonderful world of lasers.

One of the things that I like most here is the element of sharing that goes on without concern for which Er laser is doing the cutting.  I think the stuff I have learned here from the two ronnies, Andrew, Al, Mark, Kenneth to name but a few of the top of my head is phenomenal.  I am learning every day (anesthesia techniques being the latest from DT).

Having said all the above , many want to know in this day of evidence based dentistry, how certain statements are backed up by science.

Patents arent research based as I have seen, and its interesting that Ray mentions much of what was released in this patent isnt new but from 1997.  If this is the case and subsequent research has placed the idea of HK in doubt then I suspect that the reason for providing a patent now is not research. bit perhaps financially oriented.

I know a little bit about dentistry, nothing about Rays area of expertise (financial investment), but am always interested in learning the truth about something.

Many people have mentioned that they dont care how a product works but care that it works.

My feeling has always been that they all work, probably by the exact same etiology with very little differences in cutting of hard or soft tissue (especially from the results I have seen here) and that the reasons for purchasing a product should be individually based on some of the  things that sold you.  

I congratulate you for trying both, seeing that the both work , and then choosing the product that you felt most comfortable with.  Thats an educated buyers decision in my books.

I hope that if I have done one thing with my all to frequent rants and photos is to increase the awareness that the Delight is a good alternative to other products out there and that the laser can be used in a very similar fashion to other products that others are using.

If I have done this little bit to educate others about something that I know a little bit about , laser dentistry, than I feel like my wishes have succeeded.

All the best and welcome again to the wonderful world of lasers.

Glenn

[Alan Cady]

What is a pubic company? ;o)
Alan

Patents are more important to a pubic company, a sale of stock strategy, and the audience they really cater to–Wall Street, than they mean to clinicians–even as all but the most sophisticated of clinician investors.

[Robert Gregg DDS]

Hey Ray,

Let’s try to take this discussion into a different direction.

What do you think of the Barron’s article that appeared this week?  What significance, if any, do you place on the timing of the article as Biolase tries to issue a public (not pubic) offering?

MONDAY, SEPTEMBER 1, 2003    

Tooth Fairy

Biolase promises no-pain dentistry — but the stock could cause some groans

By CHRISTOPHER C. WILLIAMS

IS IT ANY WONDER THAT ONE of the most chilling scenes in American film involves a dentist? In the 1976 thriller Marathon Man, a sadistic Nazi dentist played by Laurence Olivier tries to get information from a Dustin Hoffman character by drilling into his teeth and hissing, “Is it safe?”

The scene strikes a nerve with just about anyone who has ever reclined in a dentist’s chair. That experience can be singularly unsettling — especially when the whining sound of the drill starts up.

Enter Biolase Technology, a small outfit in San Clemente, Calif., that manufactures what it claims is a nearly painless variation on the dentistry drill. The Waterlase cuts teeth and gums with a rapid stream of water and a laser beam. It looks much like a traditional drill but is practically silent and, according to the company, so easy on the patient that no anesthesia is needed 94% of the time.

The stock market is clearly intrigued. Shares of Biolase have rocketed 146% over the past year, to around 11 recently. The stock is flying so high, in fact, that it prompts Sir Laurence’s question: Is it safe?
 
As it turns out, the stock calls for real caution. Despite a recent turn to profitability, Biolase still faces a formidable array of technological, marketing and financial challenges.

Even if Waterlase works as advertised — and some dentists say it doesn’t — the device is extremely expensive.  It sells for about &#3650,000, versus &#361,000 for a traditional drill, making it a budget buster for many dentists.  Some have been charging patients extra fees for Waterlase procedures, but insurers typically don’t cover those charges, restricting its mass-market potential.

Although Biolase is the clear leader in the field, having sold some 1,800 Waterlase devices since 1998, fewer than 2% of U.S. dentists have started using laser-related drills of any kind, according to industry observers.  “The only way [laser] grows is if the price comes down,” says Robert Convissar, director of laser dentistry at New York Hospital Medical Center and a consultant to an Israel-based rival of Biolase, Lumenis. Some say it could take a decade or more for laser dentistry to truly take hold.

Meanwhile, Biolase’s efforts to beef up its balance sheet with a secondary stock offering were recently put on hold when its auditors raised questions about its revenue-booking practices.  Biolase has been recording revenue when it receives purchase orders from customers or ships products, but might now book sales upon receipt of payment.  The company says the move could reduce revenues and earnings from past quarters but boost third-quarter results.

Biolase, which hopes to proceed with the stock sale after it receives guidance on the accounting issue from the Securities and Exchange Commission, declined to comment, citing the “quiet period” surrounding the offering.

Biolase’s shares, much like its product, are rather pricey. It trades at 44 times estimated earnings for this year — well above the 31.5 multiple of medical-technology companies in general and the 19 multiple of the Standard & Poor’s 500 index.

Bulls argue that the valuation is deserved because of the company’s earnings prospects.  After losing &#3638 million over nine years, the company last year reported its first profit, &#362.6 million, as an aggressive marketing campaign helped boost sales to &#3629 million.

Alexander Arrow, an analyst at Lazard Freres, figures earnings this year will grow to &#365.9 million, or 26 cents a share — and at an average of 80% over the next three years as the technology gains acceptance. Waterlase, he contends, “could become the next mainstream dental ‘workhorse’.” Lazard sometimes performs investment banking services for Biolase.

Los Angeles money manager Owen Thomas Barry became an unabashed Biolase enthusiast after undergoing Waterlase treatment himself.  “There was no sound, no pain and it healed immediately,” he says. His Bjurman Barry & Associates is now one of Biolase’s biggest investors, with 400,000 shares, or 2% of the total.

The pitch to dentists is that Waterlase can let them perform procedures more quickly, and thus see more patients in a given month.  “In the first year, my bottom line shot up dramatically,” says New York City dentist Jean Furuyama.

But there are plenty of skeptics. Albuquerque, N.M., dentist Gary McCabe Ross says Waterlase failed to meet his expectations for painlessness and efficiency when he leased two of the devices in 2001.  “The cost-versus-benefit ratio just isn’t there,” he tells Barron’s. Ross filed suit in New Mexico state court against Biolase and the leasing company, National Technology Leasing, charging that the devices didn’t perform as promised and that the companies wouldn’t take them back.  He reached a settlement with undisclosed terms; National Technology Leasing disputed the charges, and Biolase says it stands by its products.

Biolase “is not ready to take over dentists’ practices — it has to get much cheaper and more user- friendly,” adds Peter Milgrom, a professor of dental- public-health sciences at the University of Washington and author of the textbook Treating Fearful Dental Patients.  Among other things, he says, laser technology doesn’t work for replacing old metal fillings or preparing teeth for crowns, the most lucrative procedures for many dentists.

Milgrom has taken his thinking beyond the walls of academia:  He is among the investors who have sold short some eight million Biolase shares, or a high 38% of shares outstanding, betting the price will decline. Some short sellers maintain that the stock should fall to less than half its current price, based on what they see as the limited appeal of lasers.

Biolase is hardly the first company to attempt to take the pain out of dentistry.  Early civilizations used plants to numb the tooth. In 1844, a Connecticut dentist became the first to use laughing gas.  More recently, dentists have tried everything from acupuncture and hypnosis to air-abrasion (blasting air or sand-like particles against a tooth) and computer-controlled anesthesia injectors (designed to increase precision).

“For certain procedures, lasers have the greatest possibility of reducing the need for shots to numb you,” says Michael Colvard, a dental-laser researcher at the University of Illinois at Chicago.  Nonetheless, he maintains that more studies are needed to see whether Biolase and other laser products are living up to the promise.

Convissar of New York Hospital Medical Center and other observers say that laser drilling may never spread to more than 5% to 8% of the U.S. market, or about 7,000 to 11,000 dentists, mainly because of the costs.

What’s more, Biolase will have to share that market with increasingly active rivals, including the Hoya ConBio unit of Japan’s Hoya and the top maker of conventional drills, Germany’s Kavo Dental.

For the millions of Americans who dread visiting the dentist, no-pain technology is clearly something to smile about.  But unless it takes hold, betting on Biolase could be just as painful as an old-fashioned root canal.

http://online.wsj.com/barrons….body%29

[Glenn van As]

Wow fascinating reading, its interesting to see how varied the viewpoints on lasers acceptance in the mainstream dental market is.

Will we look back and laugh in 5 years and say why didnt we have Biolase stock??

I dont know but its interesting to read these articles.

THanks Bob,

Great stuff.

Glenn

[lagunabb]

Bob,

Thanks for the call yesterday and I agree whole heartedly that we need to move beyond HK.  Let me ago head and clarify my earlier post before moving on to the topic of Barrons.  

I reread my post and I need to clarify for everyone that Bob Gregg was very diplomatic when it came to his use of words about competitors including Biolase.  He would often use the word “misrepresentation”,  “tight shirts” other PG rated language to describe other’s marketing approach.  I consider his concern for the long term health of the dental laser industry as genuine.  The words sleazy, unethical, fradulent are my interpretations of his concerns.  I also assumed that Bob knew and read about the other Biolase patent and Kodak patent.  Apparently, he had not read those patents my paraphrase of  “very useful” was not meaningful to him.  Also, he did not realize that the sister patent had a long section about why the “HK” (boy I am starting hate that acronym) effect is not specific to ANY wavelength.  For those that have the inclination to pursue the scientific claims of various manufacturers, reading the patents in their entirety is recommended.  I believe there is sufficient experimental results between Fried et al and the Japanese work to form at least an understanding whether “HK” exist.  Additional data will have to come from Biolase or others to confirm or refute various aspects of the claims.

On to Barrons:

I believe the author presented the downside of laser dentistry fairly.  The issues that he raised are a subset of the ones that we have discussed here and on dental town since the beginning.  Although he did talk to a happy user in NYC, he offers no additional data nor analysis on the positive side.    I think there is insufficient data to forecast penetration and the 5-8% penetration quoted in the article assumes that a significant number of dentists are not finding the purchases profitable.  If that is the case, there should be a noticable slowing in sales growth by now so there may be a disconnect between risk perception and reality.  The dispute with Dr. Ross of NM was well followed on Dental Town since 2001 and puts an exclamation point on the need for improved training.  Have changes for the better occurred
since 2001 – I hope so and I hope potential purchasers demand it.

Since the risks are known, at least to me and many other investors, I don’t see the article as adding any new information.

Disclosure: I currently own Biolase stock.

(Edited by lagunabb at 1:04 pm on Sep. 3, 2003)

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