Align-Ortho Caps Lawsuit Continues

In response to Ortho Caps GmbH’s statement released on January 18, 2012 challenging Align Technology’s (ALGN - Analyst Report) allegation of patent infringement, Align recently announced that it is confident about its claim.

Earlier in December, Align accused Ortho Caps of infringing five of Align’s patents. Consequently, Align had initiated legal action against the German dental product company and its managing directors Dr. Wajeeh Khan and Ms. Jocelyne Khan.

Align claimed that Ortho Caps had breached Align patents, namely EP 2263599, EP 2263598, EP 0989828, EP 1369091, and EP 1143872 by manufacturing, offering and selling its clear aligner therapy systems. Align is presently looking for a declaratory judgment regarding monetary damages.

However, Ortho Caps in response to the lawsuit, challenged the validity of Align’s European patents EP 2263599B1, EP 2263598B1 and EP 1143872B1. If Ortho Caps wins the challenge, these patents of Align will be cancelled by the European Patent Office (EPO) in all 27 European countries. Ortho Caps also plans to initiate invalidity lawsuits against two other European patents of Align EP 1369091B1 and EP 989828B1.

Currently, Align boasts of a wide-ranging portfolio of 245 U.S. and 171 international patents with 273 pending patents across the world. Banking on its core product, Invisalign, Align has established itself as a strong player. The Invisalign system significantly reduces the limitations of conventional orthodontic treatment (braces) with respect to aesthetic issues and oral hygiene.

The company has also expanded its portfolio to cater to a broad base of patients. The company’s Invisalign G3 is working successfully for its class II and class III patients. In the third quarter of 2011, the company successfully launched its Invisalign G3 in the international market including Europe, Asia Pacific, China and Japan.

More recently, riding on the success of G3, Align launched Invisalign G4, its next generation product. Over the long term, we expect G4 and similar other innovations to act as major growth catalysts for Align in new as well as existing markets.

Our Recommendation

Considering the strong untapped potential of the malocclusion market, we are optimistic about the prospects of the company, which 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).

We currently have a Neutral recommendation on the company in the long term.