Align Strengthens Portfolio

Align Technology (ALGN - Analyst Report) has upgraded its iTero 3D scanning system, which is used for several dental procedures, to serve its customers better. The software upgrade includes full interoperability with Invisalign, the company’s flagship product.  The upgrade also includes enhancements to bite registration scanning, guidance, the eraser tool, real-time modeling and other features that help in delivering accurate 3D impressions of the patient's dentition.

With this upgrade, customers can submit 3D digital scans instead of physical impressions for Invisalign treatment. Customers who are currently using the iTero scanning system will be upgraded to the new version through a phased rollout over the next several weeks. Earlier this year, Align announced Invisalign interoperability with its iOC scanning system, used primarily by orthodontic practices.

Products such as iTero and iOC scanners were incorporated into Align’s portfolio with the acquisition of privately held Cadent Holdings in April 2011. Cadent was considered as one of the emerging powerhouses in the fast growing intra-oral scanning market.

Align believes that intra-oral scanning will become an important part of normal dental practice. At present doctors submit PVS impressions of the patient's dentition to Align to start a new Invisalign case. However, through intra-oral scanning, doctors will be able to submit fully digital intra-oral scans of the dentition instead of a physical impression, an option that is more user-friendly for the doctor as well as more comfortable for the patient.

Banking on Invisalign, Align has established itself as a strong player in the malocclusion market that has yielded higher sales in the past few quarters. The company has also widened its portfolio to cater to a wider base of patients. The company’s Invisalign G3 is working successfully for its class II and class III patients. More recently, following the success of G3, Align launched Invisalign G4, its next generation product. Considering the strong untapped potential of the malocclusion market, we are optimistic about the prospects of the company ahead. The stock retains a Zacks #2 Rank (Buy) in the short term.

However, the current economic uncertainty continues to cast a negative impact on dental procedures because of its elective nature. Moreover, the company faces significant competition from players such as 3M (MMM - Analyst Report), Danaher Corporation (DHR - Analyst Report) and Dentsply International (XRAY - Analyst Report). Besides, margins are under pressure due to Align’s strategic investments in the international market, portfolio expansion, purchase of new manufacturing facility in Juarez, Mexico and higher operating costs associated with the acquisition of Cadent.

We have a Neutral recommendation for the company in the long term.

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