Dentistry is not exactly a growing business. Some have suggested that a boomlet ought to occur after some time from 2008 passed and all the fired workers who have postponed teeth-fixing eventually, and perhaps with a new job, correct their mouth.
An industry insider tells that such boomlet, a small one, has occurred, and dentistry is for sure no longer sinking.
Yet the business of teeth fixing remains notoriously splintered, with thousands of independent, ego-driven dentists, who love their independence and consider their work immaculate, so much so that when, say a crown does not fit well in the patients’ mouth, it is anybody’s fault but of the dentist.
American labs, equally small, scattered and independent had to deal with the inflated dentist egos as much as with their tantrums as to how to fix what went no good on their end.
…and customize they did for the dentists, until DentSPLY International (XRAY) came along and told the dentists that they no longer have to deal with America’s faulty dental laboratories, that they could sidestep them and get a fake tooth for less then what would cost them to fill up their SUVs.
For $30 per crown, dentists signed up to get XRAY-shipped fake tooth and bypass America’s US dental labs who charged about $150.
To the suddenly uncompetitive US labs, slammed additionally by rising metals prices, XRAY sold machines, metal and zirconium and then stood on the side because their real weapon is to sidestep these uncompetitive labs altogether and consolidate this splintered business all for themselves.
Things, however, begun to change several years into this business model. After a prolonged accumulation of angered egos and worries that they may lose their practice over a Chinese made crown, dentists begun shipping their impressions back to the local US labs.
The problem was that the $30 Chinese made crown was as-is and dentists could not have it customized. After having to do 2 or 3 more impressions, the cost advantage against the US labs quickly gets eroded. Sure that XRAY stood to make the money on the retakes, but all of that wounded dentists ego already loaded with grievances.
The patients also begun to worry as to what exactly are these dentists sticking up their mouths. Chinese-made crowns left many dentists wondering what metal, or chemical was used to produce the oft faulty fake and the dentists, who care about their practice as much as the ego, were looking for alternatives.
Sirona (SIRO), I was told this weekend by the industry insider who uses Sirona products, seems to understand the fractal nature of the US dentistry. By selling digital imaging technology to the dentists, the impressions these dentists make no longer depend on a a slimy substance dentists stick in the patient’s mouth. By eliminating human error, Sirona, the industry insider tells me, assures greater degree of accuracy in what dentists do. Moreover, the impressions, being digital, eliminate delivery time to the local lab, which even if it makes a mistake, can eventually, unlike the Chinese, customize the fake tooth to the dentist’ liking.
On laboratory end, Sirona makes money by selling the software and grinder that makes the fake tooth and gets a small cut of every order dentist makes.
Laboratories themselves, free from cheap Chinese competition, can now eliminate the entire modeling departments and take the subjective artistry out of the production line. A result for them is a way quicker turn-around: a dental case that can drag for 3 days could be done in as little as 15 minutes.
Well, the juicy part of this dinner-story is that dentists and laboratories are said to be dumping XRAY in escalating numbers and signing up with Sirona.
These insiders say that they are fed up with XRAYs conniving business model that wants to undermine US laboratory business while frustrating the hell-outta dentists. Dentists, I was told, like Sirona’s model because the precision, customization and turn-over is better and faster while laboratories say that they can cut costs and have a better product.
As for the financials, some have expressed worries that Sirona’s prospects should be monitored because of rising inventories, and the industry insider confirms that dentists are absolutely not interested in re-equiping their bricks and mortars, like chairs and drills, but that dentists are keen on having a better service where the upfront cost is less. Sirona’s forward PE of 16 might reflect some of these concerns.
Technicals on both stocks are inconclusive with both needing to break above previous tops, but it is worth watching both to see whether price validates these interesting dentistry insights.