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From Product to Platform in Dentistry
The transition from analog to digital entails a shift in the basis of competition.
For nearly 20 years, Align Technology — the maker of Invisalign — operated a virtual monopoly in clear aligners by fiercely protecting patents for its computer-aided design (CAD) and manufacturing (CAM) systems. CAD/CAM technology ensures each clear aligner fits the precise specifications of each unique patient at each stage of treatment. Without it, the type of mass customization required for clinically viable clear aligner treatment is impossible (or at the very least meaningfully inferior and extremely difficult to deliver at scale).
In 2017, these CAD/CAM patents expired, opening the doors to competition. One narrative prophesied new entrants would commoditize the market, compress margins, and cast Invisalign aside. That didn’t happen — and likely won’t — but the competitive landscape still looks vastly different now.
For most of Align’s history, the challenge was proving the clinical viability of clear aligners as a treatment for malocclusion (misaligned teeth). Today, clear aligners are a widely accepted alternative to metal braces, but the challenge is driving adoption (among both doctors and patients) and differentiation in a crowded marketplace.
The technology and processes required to produce a competent clear aligner offering takes time to develop, so real competition didn’t emerge overnight. But now, more than five years later, several firms have developed noteworthy solutions and are pursuing various strategies of differentiation.
On the direct-to-consumer side, Smile Direct Club, Candid, Byte (owned by Dentsply Sirona), Dr. Smile (owned by Straumann) and several others have joined the marketplace. I won’t spend too much time on this segment because I’m skeptical of the business model (it requires inordinate marketing expense to drive patient traffic), the application is generally limited to low acuity cases, and a truly viable competitor has yet to emerge.
DTC treatment also doesn’t use an intra-oral scan, which can result in overcorrection, poor bite formation, and other issues related to roots. Regardless of the business model challenges, the clinical efficacy is questionable.
Candid exited the DTC business in January 2022 (perhaps after recognizing this) to focus on CandidPro, which integrates its technology into practices. This may be a better strategy, but it remains nascent with only ~23,000 patients to date.
Invisalign’s direct competitors sell to orthodontic and dental practices. These include SureSmile (owned by Dentsply Sirona), Spark (owned by Envista), ClearCorrect (owned by Straumann), and Angel Aligner (in China).
Invisalign has competed with Angel Aligner in China for over a decade now. The two dominate the Chinese market and account for ~40% market share apiece.
Straumann (a dental implant provider) has pursued a somewhat conflicted strategy by operating a doctor-directed brand (ClearCorrect) while also acquiring a DTC brand (Dr. Smile). It’s growing, but slower than comparable companies and lacks a clear differentiating factor.
Dentsply Sirona (a dental equipment and consumables provider) firmly committed to clear aligners as its future by divesting its analog orthodontic business in 2020. Like Straumann, however, it pursues a conflicted DTC and doctor-directed strategy. It’s the largest competitor to Invisalign with run-rate revenue of ~$300 million (a little over half of which is Byte, so if looking exclusively at the doctor-directed channel, it’s around the same size as Spark).
Notably, Dentsply Sirona converted Aspen Dental, one of the largest dental service organizations (DSOs), to a white-label aligner (called Motto) in 2021. This must be monitored as it seems to be the first major abandonment of Invisalign. That said, I don’t expect it to become common — few organizations have the scale to make it worthwhile, and Aspen seems to focus on lower acuity cases. Align continues a relationship with the other leading DSO, Heartland.
Spark — owned by Envista, a leading supplier of wires and brackets — has also emerged as a formidable competitor. It has developed a proprietary aligner material, TruGen, that is clearer and stains less than Invisalign’s SmartTrack. The company also benefits from selling into practices who are established customers of its wire and brackets business (an advantage shared by Straumann and Dentsply Sirona, albeit with varying product lines).
From the Jeffries London Healthcare Conference in November 2022:
… we started with Ormco Damon [metal braces brand] customers. And we started using that by offering a complete solution to them by letting them know that the same company, the same seller resources and capabilities with training, education and the expert in the market can provide the best possible solution. — Amir Aghdaei (CEO of Envista)
The strategy has worked well. Spark was a $70 million business in 2021, is growing at 100%+ in 2022 (the fastest among any competing aligner), and is expected to triple by 2024. I’m skeptical of the longer-term vision, however, as Envista lacks focus and a real incentive to drive clear aligner adoption.
From the Envista Q2 2022 call:
Our long-term view of becoming the leading ortho provider with the combo treatment of a bracket and wire as well as Spark Clear Aligner has not changed at all. — Amir Aghdaei
This product indifference ignores the true value proposition of clear aligners — operating efficiency. Aligners cost a doctor ~3-5x more per case than metal braces (which still hold the lion’s share of the market) but are marked up to around the same price. It may seem like there is little economic incentive for doctors to adopt the treatment method, but it’s not quite so simple.
Clear aligners require fewer patient visits, and therefore fewer doctor labor hours, which means the doctor can treat more patients at the same time. As a result, the practice can generate more profit from volume gains despite a lower gross margin (or so goes the theory). It makes sense, therefore, for a practice to embrace clear aligners as the standard solution for all patient types in order to maximize throughput. But this still tends not to be the case.
Historically, the clinical viability (or lack thereof) was the primary constraint to aligners’ adoption as the standard of care. In 2015, Invisalign could treat just 40% of malocclusion cases — doctors couldn’t fully rely on the method. However, heavy investments in R&D have improved Invisalign to the point where, today, it can treat 90-95% of cases. Competing aligners don’t yet have this breadth.
The Process to Platform
Clear aligners can improve the efficiency and profitability of a practice (when adopted at scale) while providing the patient with a more hygienic, comfortable, and less intrusive experience than metal braces. This points to the future of dentistry — like many other industries — being digital.
The transition from analog to digital isn’t just a change from wire and brackets to clear aligners, though. It involves a change to the practitioner’s workflow, from procurement to treatment planning to monitoring. In treatment planning, for instance, the process can now be largely automated for high-volume doctors.
ClinCheck is Invisalign’s 3D visualization software of a doctor’s treatment plan. Align has automated this process by developing an AI system that automatically generates a treatment plan based on the doctor’s historical preferences (hence why it needs high volume; it needs enough data). Instead of having to prepare the full plan, the doctor can just review the ClinCheck and push it across the finish line in a few minutes with Live Update. Once the ClinCheck is approved, the aligners are automatically manufactured to the specifications and shipped to the practice. That’s the efficiency advantage of a fully digital workflow — what previously took days can now take minutes.
Dentsply Sirona, with dentistry roots dating back to 1899, recognizes this and has acted accordingly. It’s difficult to change the course of a company, however, which forced the company to acquire its way into the space (through the 2018 acquisition of OraMetrix and the 2021 acquisition of Byte).
Similarly, Straumann, founded in 1954, recognizes the impending shift but was forced to acquire its way into the space (with the 2017 acquisition of ClearCorrect and the 2020 acquisition of Dr. Smile).
Envista also recognizes the shift but is beholden to two masters. It can’t exactly ignore metal braces while pushing clear aligners — its core business is married to analog with little incentive to change the standard way of doing business.
Contrast these approaches with Align, who has long held a singular view of transforming the entire treatment process with digital solutions.
From the 2020 Align Investor Day:
Our vision has been very consistent, and we've been investing and working very hard to make it a reality. Number one, make clear aligner therapy the standard of care in orthodontics. Second, lead the transformation to digital dentistry and ultimately build a comprehensive interdisciplinary digital dental platform. — Joe Hogan (CEO)
This vision is supported by the company’s actions over the last two decades, perhaps the most important of which has been its work to expand the number of cases that Invisalign can successfully address.
From the 2021 Align Investor Day (lightly edited for clarity):
Between 1997 and 2012, I would say we were learning the physics of moving teeth … If you look from '13 to '16, you can see that we're really refining those physics with SmartTrack, SmartForce, SmartStage, bite ramp, mandibular but you start to see G-Series come in. You start to see Invisalign Outcome Simulator. You start to see software becoming more and more important in the portfolio. And then start to look at 2017 to 2022, software becomes front and center. We really start to put a lot of time and energy into making it simpler, more predictable. — Joe Hogan
On the hardware side, Align’s 2011 acquisition of Cadent (maker of the iTero scanner) served a few purposes. First, it improved the treatment process (by eliminating uncomfortable PVS impressions) and further integrated Align into the practice. Second, it enhanced the raw material (data) needed to develop the Align digital platform. The latest iTero is 66% more sensitive than X-ray (improved quality and variety of data), and the scanner’s high upfront cost incentivizes the doctor to maximize its use by scanning a patient on every visit (higher volume of data). This data collection mechanism feeds into the development of software to further refine and improve treatment planning.
More recently, the 2020 acquisition of exocad (the leading provider of CAD/CAM software for dental equipment) extends the platform offering to GPs. With exocad software already installed on most general practitioner (GP) scanners, the company can integrate Invisalign into the GP workflow, an area where it has struggled to drive adoption. It can also improve the communication between in-house software and hardware (an advantage for iTero adoption).
From the exocad acquisition conference call:
So what exocad does … it really helps iTero become a more effective tool from a workflow standpoint with labs, inside labs, in their offices but also with the dentist community. And then secondly, it helps us from a standpoint of getting Invisalign inside the workflow for GPs, too. — Joe Hogan
While exocad remains committed to open source (it won’t be exclusive to iTero), the saying goes, “the best software companies make their own hardware” for a reason. The GP experience with the combo of iTero / exocad will almost assuredly be better than any competing scanner / software.
Align’s platform approach further benefits from the general arc of technology. Customers tend not to mix and match different digital solutions — they choose a platform, not a product. While this may not be evident yet in dentistry (clear aligners are still considered a product), the ingredients for Align’s digital platform — covering both orthodontists and GPs — are coming together.
From the Q4 2019 earnings call:
Align is founded on digital — IT, data, artificial intelligence, software, algorithms, digital scanning and 3D printing … In digital, you pick a platform, not a product. You pick a company you believe in for the long term. Digital dentistry is being driven by products like iTero scanners and Invisalign clear aligners, and we believe our digital platform is setting the foundation for the future of dentistry. — Joe Hogan
Align’s platform starts with the brand (mindshare among clear aligners is akin to Google in search engines), continues with the scan and treatment software, and extends to retention products such as retainers and whitening (through a partnership with Ultradent, the leading whitening manufacturer). We can debate product specifications, but there’s no debate when it comes to the platform.
The company’s lead stems from a singular focus on digital, supported by a data advantage compounded over a 20+ year head start. Invisalign has treated over 14 million patients to date, multiples that of the closest competitor. Scale matters in a data-driven technology business. Positive clinical outcomes matter in a medical business. Align leads in both.
There will be competition, to be sure. Align’s monopoly-like market share will almost certainly not continue. But this is a market expansion story at the end of the day. In the words of Align’s CEO: “the pie here is undefinable” (2021 Investor Day) — it’s just Align has been at the table for years and wields a larger fork.
Align estimates 500 million people would benefit from orthodontic treatment, which implies a market opportunity of $500 billion if we assume a $1,000 ASP. Globally, 21 million people visit the orthodontist each year (~75% teen, ~25% adult), a number that has consistently grown over the years. Notwithstanding the current macro dynamics, this number will likely continue to march upwards, and the productivity benefits of digital can act as a catalyst.
More than two decades into Align’s history, clear aligners still represent less than 20% of annual case starts and a tiny amount of the total addressable market. Dentistry remains in the early innings of digital transformation. Secular shifts take time, particularly in a medical field with specialists who have practiced successfully one way for decades. But secular shifts are also waves — they can’t be stopped, and it helps to ride them. In the long run, the basis of competition will shift to the digital platform, not the product.
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