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Biolase (BIOL) is a medical device company that develops, manufactures and markets laser technology designed to reduce pain during oral procedures. The company also has significant business interests in the fields of 3D imaging technology and ophthalmology. In regards to their core business products, Biolase currently has two categories of laser technology: WaterLase and its diode system. The Waterlase line of products has a large patent portfolio protecting the technology from competition, and is by far the company's best selling group of products. Thus far, the company has produced four versions of their laser systems including WaterLase iPlus (the most advanced WaterLase technology), WaterLase MDX, Waterlase MD Turbo, and the introductory, yet portable iLase.

Despite the rapid growth of its core business in dental lasers, however, Biolase has a problematic history of repeatedly missing quarterly guidance, causing the stock to be highly volatile. As such, shares of BIOL have a negative 22% performance over the last five years. The poor performance of BIOL since the commercial launch of its Waterlase systems in 2006 can be directly attributed to the rocky relationship with Henry Schein, the former exclusive distributor of the Waterlase system. Recently, however, Biolase has moved to a direct selling model for most of these systems, and repurchased the bulk of unsold units from Henry Schein. As a result of this move, Biolase has finally turned the proverbial financial corner, growing revenues in excess of $18 million in the 4th Quarter of 2012. Moreover, the company expects the Waterlase system to become the global standard in dental care within the next 3-5 years, given the high adoption rates of the new technology by dentists. Below is a brief introduction to the Waterlase technology for investors new to this stock.

WATERLASE TECHNOLOGY

According to the company's marketing materials, Waterlase technology is based on "biological dentistry." Specifically, the technology takes advantage of tooth and water chemistry to significantly reduce pain during oral procedures. Basically, water molecules are excited inside a handpiece that emits a spray, and inside the target tissue itself, resulting in an effective micro-ablation of tooth structure. Meanwhile, the atomized spray of water and air keeps the tooth hydrated, whereby reducing heat that, in turn, causes oral discomfort. The company outlines 7 benefits to biological dentistry when marketing its Waterlase products to dental offices and clinics (see figure below).

Why BIOL is a strong value buy

The Company's revenue is rising rapidly. Biolase exceeded guidance in the 4th Quarter of 2012 with over $18 million in revenues, due in large part to stronger sales of its Waterlase and diode systems. Now that the company is free of its former marketing agreement with Henry Schein, Biolase is aggressively moving to bolster its own sales force, and this move is proving to be the right one. CEO Federico Pignatelli recently stated that, "After closing 2012 on a strong note, we are very excited to look ahead to 2013 and beyond as we expect a substantial acceleration in the adoption of lasers, specifically our core WaterLase technology, in dental practices around the world over the next three to five years. We are very confident that all-tissue lasers will become the standard of care in dental practices worldwide. Furthermore, as we move forward in 2013 we do not expect to be troubled with the multitude of extraneous issues that we faced throughout our challenging turnaround, including exiting our exclusive global distribution relationship with Henry Schein, Inc. (NASDAQ: HSIC), and moving to a direct sales model in North America and multi-distributor model internationally."

Moreover, the company announced last August that they had sold the last of the 159 WaterLase MD Turbo laser systems repurchased from their former distributor, showing strong demand for the product from the dental community in general. To my mind, these events are strong evidence that the Waterlase system is indeed becoming the global standard for dental care, and therefore sales of the Waterlase system should remain strong for the foreseeable future.

Even so, Biolase is not a one trick pony, and this is why I truly believe in the future of this company. Bioase recently launched the Occulase website, where it plans on developing the Waterlase sytem for Ophthalmic uses. Given that the technology has already been deemed safe by the FDA, the adaptation of the technology to ocular diseases should be relatively quick. Presently Occulase is performing proof of concept research and clinical studies with the assistance of various ophthalmic specialists under the supervision of Dan Durrie, its Chief Ophthalmology Advisor. Occulase thus gives Biolase another iron in the fire in terms of adding to shareholder value.

In conclusion, Biolase is finally on track to generate positive cash flow from its core business products, and should be able to broadly expand the application of its proprietary laser systems for use in ophthalmology. Even so, the stock has undergone a recent upswing, trading 26% higher than its 200 day moving average. Given that BIOL isn't a well followed stock, and its story is only beginning to leak out to the broader investment community, I recommend waiting for a pullback into the $2.40 range before taking a position. Once the stock dips into the $2.40s or below, I view BIOL as a strong value buy. Indeed, the future looks bright for the Waterlase system, and its developer Biolase.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BIOL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.