Since Invisalign were launched by Align Technologies in 1997, the whole clear aligner or ‘invisible braces’ profession has been changing rapidly due to evolving technology. Metal braces can pretty much be eliminated – which is huge. After 22 years, Align Technology continues to be at the forefront of innovation, in terms of what is possible for orthodontists and dentists to use to get teeth straight and fix bites. In recent years, however, there has been a very sizeable, though untraceable, underground movement in terms of dentists white labeling clear aligners. Will this white labeling movement have adverse effects on Align Technology?
In 2017, orthodontists prescribed Invisalign trays to 931,000 people, at a cost to the consumer of $3,000 to $8,000 each, helping Align Technology to generate profits of $231 million on sales of $1.47 billion. Clear aligners account for just 15% of the existing orthodontic appliances market and Align currently holds an estimated 10%. Up until now, there has been little competition; yet in October 2017, approximately 40 patents expired, allowing competitors to make products for as little as half the price. SmileDirectClub is one of these competitors, launched in 2014, which awoke interest that it was possible to provide a simpler, more average case of treating patients without such a sophisticated, expensive system as provided by Align Technology.
Align has started to lose trust with dentists throughout the US, however, which is often put down to three major strikes. The first one was when the product launched in 2004, it was touted as an orthodontist-only product, though the lawsuits that followed forced them to open to supplying dentists as well. The second major strike was when Align Technology purchased a share of SmileDirectClub in 2016 and then promised that 70% of cases would be put back to dentists as a referral from an Invisalign orthodontist – though not a single person ended up receiving a referral. Strike three was when they went on to build their Invisalign stores, supposedly providing referrals to help dentists, but it ended up feeding their own direct-to-consumer version of their Invisalign signature and Invisalign signature plus. Dentists were locked into a low fee package plan yet were still having to pay the full lab fee, meaning there was extremely little money to be made. Once dentists lost faith in Align Technology, this paved the way for diversification and the beginning of the white label movement.
Dentists also have a problem with Align’s pricing structure. Dentists get billed the full amount upfront, yet they cannot pass on that full price direct to the patient because this price tag is out-of-reach to the average American. The cash flow problem due to Align’s pricing structure imposes a huge barrier on regular dentists, and it is a big reason as to why they are looking elsewhere for similar products.
Quality control is another area Align is weak on. As our expert on the call made it clear, almost nothing comes back right the first time, yet when using white label companies, dentists very rarely must make modifications. Turnaround times with competitors can take as little as 24 hours as opposed to 7-10 days with Align. In addition, some experts are under the impression that Align tiers their training personnel, so the higher-level doctors with bigger volumes receive the best quality while the bottom levels get very little.
Because of the pricing and quality control issues described above, dentists have turned to performing some of the processes either in-house or outsourcing them. By not buying the full product outright, dentists can achieve discounts between 50-75% from white labeling. This involves a four-step process covering:
1. The use of an intra-oral scanner to capture the dentition, of which a vast majority of dentists in the US already have in their possession.
2. The design of the product (considered the hardest step) can either be outsourced or software can be purchased for approximately $20-30 thousand.
3. The manufacturing process can either be performed in-house with a 3D printer or outsourced to US-based labs.
4. The thermo-formed trimming, bagging and labeling can also all be performed in-house or outsourced.
Align Technology still maintains a few positive attributes in its favor, including the growth trend of the overall market, and possesses the most advanced technology centered mostly around their MA (Mandibular Advancement) feature and their expansion feature due to be released in 2020. Invisalign is also the only one to have proprietary software to be able to work around baby teeth, and teeth coming in and out for children as young as ages six and seven. Align has a great dashboard that provides an array of administrative levels useful for a big group practice, as well as providing a 38% volume discount for larger practices. Regardless, due to technology advancements, it is now also possible for dentists to combine cheaper white labeled aligners with more traditional MA and expansion techniques. One of the best ways Align can counter this tendency would be to alter their upfront billing policies.
This call was hosted on August 23, 2019, under the title: “(ALGN, XRAY, MMM, HSIC) – SmileDirectClub Former Exec on Clear Aligner Industry Post Q2 Earnings & SDC’s Upcoming IPO.”
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