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Dental Supply Distribution Idea Proposal (HSIC, AMZN, PDCO)

Dental Supply Distribution Idea Proposal (HSIC, AMZN, PDCO)
 

Will Henry Schein’s latest company redesign be enough to generate growth and stay ahead of Amazon and other competitors?

Report Available: January 8, 2019

 

Blueshift’s ongoing research found the dental supply market expanding with new competitors challenging for share. In response, HSIC is reshaping the company to better serve and grow its relationships in the dental health community and stave off competition from AMZN. Earlier this year, HSIC announced the spinoff of its animal health business to focus on growing its dental and medical supply business. HSIC also entered into a joint venture where its dental software will be augmented by Internet Brands’ capabilities, including big data and artificial intelligence, and in September HSIC boosted its position in the lucrative dental implant business by acquiring three companies.

Observations

  1. Rising incidences of oral health problems and dental disorders, aging population, technological advancements in computer-aided design (CAD) and computer-aided manufacturing (CAM) in dentistry, and increasing healthcare expenditures worldwide are driving the rise of the global dental equipment and consumables market. The industry is expected to grow at a 6.9% CAGR between 2018 and 2024 to $48.1 billion, according to a reportby Zion Market Research. HSIC, which distributes healthcare products and services to office-based dental practitioners, dental laboratories, schools, and other institutions is among the leading players in this market—along with PDCO, XRAY, and Benco Dental—and is well placed to benefit from its growth.
  2. HSIC reported mixed Q3 results, with a revenue miss of 2.1% and an earnings beat of 2%. EPS was up 18% and top-line revenue grew approximately 5% year to year. HSIC’s Dental sales contributed 2.4% growth and Worldwide Medical revenues were up 4.5%. Technology and Value-added Services grew 32%. HSIC reaffirmed 2018 full-year EPS guidance of 13% to 15% year-to-year growth and indicated plans to focus on higher-margin products and services in the dental and medical supply business segments.
  3. HSIC is spinning off its $3.5 billion animal health supplies business, Henry Schein Animal Health (HSAH), and combining it with Vets First Choice to form an independent public company. The transaction will allow HSIC to enhance its focus on the growing dental and medical supply market. The deal is expected to close by the end of 2018. HSIC shareholders and HSAH-related parties are expected to own approximately 63% of Vets First Corp. common stock.
  4. HSIC and Internet Brands, a leading provider of web presence solutions for health professionals, formed a joint venture, Henry Schein One, that will blend each company’s dental technology focused on improving practice management, marketing, and patient communication. The joint venture combines HSIC’s Practice Solutions products including Dentrix, Dentrix Ascend, Easy Dental, and TechCentral and its international dental practice management systems including its Software of Excellence, Logiciel Julie, InfoMed, Exan, and Labnet. Internet Brands will supply its dental business, including web-based Demandforce, Sesame Communications, Officite, and DentalPlans.com. HSIC will maintain 70%+ ownership.
  5. In September 2018, HSIC made three acquisitions to grow its existing implant-based tooth replacement solutions line and strengthen its international presence. These acquisitions include: U.S. based Intra-Lock, known for its OSSEAN surface structure engineered to increase host-to-implant biocompatibility and biomechanical response; a majority interest in Germany-based dental implant manufacturer Medentis Medical; and consolidation of a bulk stake in Pro-Cam Implants B.V., CAMLOG’s exclusive distributor in the Netherlands.
  6. The entry of AMZN into the medical and dental supplies market poses a key risk to HSIC. In September, AMZN reported that its Amazon Business segment, which includes medical and dental supply sales, reached a $10 billion annual sales run rate. Amazon Business provides supplies to more than half of the 100 biggest hospital systems in the U.S.
  7. Blueshift’s May 23 report revealed that HSIC was taking share from PDCO as the latter suffered from poor service issues and sales representatives leaving for other suppliers. Sources said the industry has become a race to the bottom regarding pricing and all three top distributors are cutting margins to buy and preserve market share. Millennial dentists and their staff are contributing to the disruption of the dental distributor sales transaction. Loyalty to a specific company is waning, and the relationship sales process is not valued as highly as it once was as the desire to shop online for the lowest price becomes the norm. This follows Blueshift’s Feb. 22 report that said AMZN was on the verge of disrupting the dental supply distribution market as it adds a broader line of products and offers low pricing. Blueshift’s most recent Sept. 13 report said AMZN’s healthcare initiative and joint venture with BRK and JPM are viewed as real disruptions in the healthcare market, including in dental supplies.

 

Will HSIC’s new focus drive continued growth? Is the new HSIC poised to defend and grow its market share in the dental and medical supply industry? How effective will the redesigned HSIC be in competing with AMZN Business? How will the new HSIC impact traditional competitors PDCO, XRAY and Benco? What headwinds and roadblocks besides AMZN could challenge HSIC’s growth? What role will big data and artificial intelligence play in HSIC’s growth? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Dental and medical practices, the Dental and Medical sales channel, the Dental and Medical supply channel, and Industry specialists.

 

Companies: Amazon.com Inc. (AMZN), Dentsply Sirona Inc. (XRAY), Henry Schein Inc. (HSIC), Patterson Companies (PDCO)

 

Research Begins: December 10, 2018

 

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