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XRAY’s New Distribution Will Increase Sales and Adoption of Digital Dentistry (XRAY)

Research Question: Will Dentsply Sirona’s new North American distribution agreements accelerate digital dentistry adoption and reverse the company’s recent sales decline?

Companies: ALGN, HSIC, IART, MMM, PDCO, SWX:NOBN, SWX:STMN, XRAY, ZBH


By: David Franklin

Click here to download report (.pdf)

 

Summary of Findings

  • Dentsply Sirona Inc.’s (XRAY) new distribution agreements with Henry Schein Inc. (HSIC) and Patterson Cos. Inc. (PDCO), the two leading dental suppliers, are expected to accelerate the adoption of digital dentistry and improve the former’s sales.
  • Twelve of 16 sources said digital dentistry is becoming the new treatment standard and that the distribution partnerships will raise awareness, provide more solutions, create more competition and reduce pricing. Eleven also expect Dentsply Sirona to grow sales.
  • As in Blueshift Research’s 15, 2016, report, most sources praised Dentsply Sirona’s digital CEREC dentistry system. The closed operating system recently was addressed with CEREC SW 4.5, but many sources were not yet aware of this new feature, which allows the system’s data to be exported in STL format for use with other digital dentistry equipment.
  • Dentsply Sirona must reconsider CEREC’s high price ($100,000 to $170,000) as well as hire a higher-quality sales team that focuses on developing customer relationships.
  • It also must address its management shakeup, which occurred during our Three of six sources who commented on the transition do not think it will affect sales, one said new leadership could help the company, and two said the move was suspicious.
  • The dental equipment and supply industry is highly competitive. Sources named 17 companies in the digital dentistry segment, and said additional pressure stems from Asia. Dentsply Sirona’s key competitors are 3Shape A/S and Ivoclar Vivadent Inc.

 

Silo Summaries

1) Dentists and Dental Practice Professionals

All five sources, including four CEREC users, think XRAY’s new distribution agreements with HSIC and PDCO will accelerate the adoption of digital dentistry, which is moving toward becoming the standard of care. Four of the five also think XRAY will experience increased sales as a result of the expanded distribution. One source who beta-tested XRAY’s CEREC SW 4.5 said it is a quality product that will allow for interaction with other systems. The expanded distribution of XRAY products is expected to benefit the industry by providing additional competition and more product/supply options for dentists. The dental market was described as improving by one source and as already strong and growing by two others.

2) Dental Laboratory Professionals

Two of these three sources think XRAY’s expanded distribution agreements will lead to a sales turnaround for the company as well as faster adoption of digital dentistry. The third said the distribution agreement is a positive for the industry. However, he said the closed CEREC system has slowed XRAY’s sales; the source was unaware of CEREC SW 4.5, which is an open system launched in March. Digital dentistry is not yet the standard of care but will continue to grow as costs for purchase and usage decline. Two sources think the dental market is healthy and growing, while the third thinks it will improve but will undergo some consolidation of practices and labs.

3) Dental Equipment and Supply Sales Channel

All four sources think XRAY’s distribution agreement with HSIC will increase the former’s sales, and two think it will accelerate adoption of digital dentistry. One source expects increased sales volume for XRAY but possibly at the expense of margins. Two sources said HSIC is superior to PDCO because of it strong customer relationships and its ample sales force. One source reported significant competition in the milling of teeth, but said CEREC is the product to beat. The dental market is mostly healthy and growing.

4 ) Industry Specialists

Three of four sources think the new strategy could accelerate the adoption rate of digital dentistry and be an overall positive for the dental industry. One thinks the market for digital imagery is becoming saturated and that the opportunity is in the milling and printing equipment. The four sources were generally positive about the health of the dental market.

 

Background

Sources for Blueshift Research’s Sept. 15, 2016, and Nov. 1, 2016, reports expected Dentsply Sirona’s CEREC system to be steadily adopted in a fluctuating but improving dental market. Digital and chairside dentistry overall would post slow growth as older dentists are replaced by younger, more tech-savvy colleagues and as the systems become cheaper and easier to use.

Dentsply Sirona posted a second-quarter loss of $1.05 billion on a sales decline of 2.9% compared with a profit in the same quarter last year. Adjusted EPS of $0.65 missed Wall Street’s expectation of $0.66, while revenue of $992.7 million also fell shot analysts’ forecast of $1 billion. Management attributed the poor quarter to transitional challenges at Patterson, Dentsply Sirona’s formerly exclusive distributor.

In a growth initiative designed to accelerate adoption of digital dentistry and to drive growth, Dentsply Sirona has entered into a three-year distribution agreement with Henry Schein in North America. As the two largest dental supply distributors in the United States, Schein and Patterson now have access to all of Dentsply Sirona’s products. Dentsply Sirona anticipates that this new strategy will speed the adoption of digital dentistry and lead to 13% to 21% growth in the third and fourth quarters, resulting in 5% to 7% full-year growth.

Still, Dentsply Sirona faces aggressive and low-cost competition, even in its specialty product segment where margins are high; the continued commodification of dental supplies and choppy macroeconomic trends; and the risk of its new distribution process leading to price deterioration. In the middle of Blueshift conducting interviews for this report, Dentsply Sirona experienced a management shakeup. The company’s chairperson, COO and CEO all resigned, possibly because the Dentsply Sirona merger has led to poor company performance.

 

 

Current Research

Blueshift Research assessed whether Dentsply Sirona’s new distribution agreements would reverse its recent sales decline and accelerate the adoption of digital dentistry. We employed our pattern mining approach to establish six independent silos, comprising 16 primary sources (including six repeat sources) and three secondary sources focused on the economic state of the dental industry, dentists’ optimism for industry growth, and five dental schools’ recent establishment of a pilot curriculum for digital dentistry. Interviews were conducted Sept. 25 through Oct. 6.

  • Dentists and dental practice professionals (5)
  • Dental laboratory professionals (3)
  • Dental equipment and supply sales channel (4)
  • Industry specialists (4)
  • Secondary sources (3)

 

 

Next Steps

Blueshift Research will research how Dentsply Sirona’s top management shakeup affects the company’s efforts to implement its new distribution agreements. We also will determine if the expanded distribution improves sales and adoption of CEREC. Finally, we will assess whether CEREC’s new 4.5 open software will silence the critics of the past closed versions.

 

 

Silos

1) Dentists and Dental Practice Professionals

All five sources, including four CEREC users and one non-CEREC user, think Dentsply Sirona’s new distribution agreements with Henry Schein and Patterson will accelerate the adoption of digital dentistry, which is moving toward becoming the standard of care. Four of the five also think Dentsply Sirona will experience increased sales as a result of the expanded distribution. One source who beta-tested Dentsply’s CEREC SW 4.5 said it is a quality product that will allow for interaction with other systems. The expanded distribution of Dentsply Sirona products is expected to benefit the industry by providing additional competition and more product/supply options for dentists. The dental market was described as improving by one source and as already strong and growing by two others. Competition includes 3Shape’s Trios and Ivoclar Vivadent’s digital solutions, which are lower-cost alternatives. One source named Benco Dental Supply Co. and Goetze Dental as significant supply and equipment suppliers. Three sources commented on Dentsply Sirona’s management shakeup; two said it will not affect dentists, but one said it indicates risk for the company.

 

Key Silo Findings

Digital Dentistry Adoption

–    All 5 said the expanded distribution agreement with Henry Schein will accelerate the adoption of digital dentistry.

–    Digital dentistry is becoming the standard of care, especially in urban areas.

Dentsply Sirona’s Sales

–    4 said the new Schein distribution agreement will improve sales for Dentsply Sirona.

  • 1 said the past decline in Dentsply Sirona sales was due to poor implementation of the merged companies.

–    1 was unsure because with the Dentsply/Sirona merger shifted company focus from relationships to money.

New Distribution Agreements

–    The distribution agreement is a positive for the industry, and will create more competition and additional solutions.

–    Sales staff quality, customer support and strong relationships will still be required to be successful.

Market Conditions and Competitive Landscape

–    1 described the dental market as improving.

–    2 said the market is strong and seeing increased spending.

Dentsply Sirona’s Management Shakeup

–    2 said the recent management shakeup will not affect dentists.

–    1 said the shakeup indicates a company at high risk.

1) Dentist in a private, Pacific Northwestern clinic who has used three generations of CEREC software; repeat source

The new distribution agreements will create more awareness of digital dentistry and offer more choices for dentists who previously only purchased equipment from Schein. Company sales should increase. Dentsply Sirona’s primary focus is the patients’ best interest. Exemplary customer service keeps her business running smoothly and is more of a motivator than lower pricing. Schein offers lower discounts on supplies, but both distributors likely offer similar equipment pricing. Dentsply Sirona continues to perform well, and the executive shakeup will not dramatically affect dentists’ positive response to the company’s products.

Nov. 1, 2016, summary: This practice had to add more staff, and had grown at a 30% annual clip for the last several years. The source expected 2016 to be more of the same.

Sept. 15, 2016, summary: This source was on her third generation of CEREC technology, employing two Omnicam units to achieve single-visit solutions in most patient cases. Adoption of CEREC was high in her market, with some 30 practices in the surrounding area on board. Digital dentistry was central to controlling costs, improving efficiency and appealing to new customers. CEREC’s integration of chairside zirconia was just the latest piece of evidence that the company was committed to improving its technology. It buttressed the company’s effort to position CEREC as a solution for growing implant and bridge work, not just simple single-crown solutions. Meanwhile, CEREC was poised to get a further boost as the merged companies integrate. The source expected Dentsply to move away from its exclusive contract with Patterson and to cultivate its own CEREC specialists to complement any new distribution arrangement.

Digital Dentistry Adoption

  • “Absolutely [adoption will be faster]. There will be more awareness, more choices, and for those doctors who will only purchase equipment from the Henry Schein rep, the option is now there.”

Dentsply Sirona’s Sales

  • “I’ll be curious to see if [the new distribution jumpstarts company sales]. My assumption would be yes.”
  • “Overall, Dentsply Sirona continues to keep pushing the lines of what is possible, and their primary focus is about the patient. What is the best and healthiest for the patient. I witnessed this firsthand at their annual meeting. Is everything perfect the first update that goes around? No. It’s a computer and software program, and there will always be glitches. But when they find problems, they take it very seriously and fix it very quickly. They are committed to being the best, and I appreciate that and witness that daily.”

New Distribution Agreements

  • “It’s like having a Lowe’s and a Home Depot next door to each other. Competition will better the industry and give more options. Picking your dental supply company typically comes down to relationships. If you have a great relationship with your Patterson rep, then you will be loyal to that company, unless there is a huge discrepancy in price. I would assume there will not be. Customer service will become more important. This only helps the industry.”
  • “The new agreements will not impact my own equipment or supply spending. The impact I could see happening is if a Henry Schein rep came in and offered a significant discount on supplies, which I have heard of happening in other offices. For me personally, I have an incredible relationship with my Patterson rep. The only reason I would leave the company is if she did. I am very well taken care of if I have a problem.”
  • “Money is not a motivator for me personally in these situations. The customer service is, especially when we are a high technology office. If we have something down and it can’t be fixed for days, then we obviously have a huge problem. … Because of my rep, this never happens to me, which I appreciate.”

Market Conditions and Competitive Landscape

  • “Just coming from [the Dental Supply World Conference], I know they had great sales on capital expenditures. People are building so that is great news. I only see [spending] increasing for the majority of dentists.”
  • “Sales were slow [earlier this year because of] the change in what the major manufacturers are able to sell. Patterson chose not to keep the exclusivity of selling CEREC, and Henry Schein is now able to [sell the products] as of 1. It also changed that Patterson sells all CAD/CAM systems instead of one. The technology availability increased. My guess is people were waiting to see what was going to happen.”
  • “Summer was a little slow in office visits, but that is normal. We are trending to keep our growth and staying busy.”
  • “The most profound competition will be 3Shape and the Ivoclar mill. The major advantage is cost.”

Dentsply Sirona’s Management Shakeup

  • “Both [distribution] companies are fantastic but with very different cultures. I’m not really surprised that [the leadership shakeup] happened because new leadership typically emerges in any large merge like this, but I didn’t expect it all at once. Dentsply Sirona is still performing well, and I don’t think it will effect that dramatically. You always hope in situations like this the leaders leaving just have different opportunities best suited for them and those coming in have fresh eyes to make the company stronger. What is the typical length of good leadership? Five to seven years before a fresh view is needed. I would be curious to know how long those that left were in their current positions. It could be as simple as their window of time was coming to a close.”

2) Dentist in a private Midwestern clinic who is CEREC beta tester

Schein has the bigger share of dental office sales, so the new agreement will boost digital dentistry and Dentsply’s sales. Patterson reaches out to office groups such as the Pacific Dental Services consortium, which specializes in digital dentistry and enables this and 600 other offices to get the latest technology and dental supplies at a discount. CEREC and the related equipment are very expensive, but the investment can start paying off after three crowns per month. CEREC is a closed system, but the premium 4.5 edition did well in beta testing.

Digital Dentistry Adoption

  • “Patterson was already handling CEREC, but Schein has the bigger market share of dental offices, so that may increase digital adoption and sales for the company. And if they sell to an umbrella company, it will certainly have that increased effect.”
  • “The advertisement of ‘same-day’ crown is not gimmicky, but it depends on the provider. We now routinely do crowns in 60 to 70 minutes, and an upgraded crown may take just 90 minutes. We do run into some situations that take a bit longer, like people who come in late in the day, but not usually. Some docs do not take out the time to be trained, and they overbook themselves. They look horrible and give us all a bad rap.”
  • “Digital dentistry will save time and money, and eventually it will become the standard of care, especially as new dentists who are trained in digital enter the field.”

Dentsply Sirona’s Sales

  • “I expect Dentsply Sirona’s sales to continue to grow.”
  • “The benefits of a closed system depends on the doctor. A lot of us do CEREC 3D imaging, but the Dentsply Sirona products are not so open. However, the new CEREC software, the 4.5 premium edition, allows for more flexibility. The 4.5 will allow the user to get around the locked-down system. The software can be exported and imported into a variety of 3D imaging and printing units. We beta-tested this, and it worked just fine. It will be a few months before they roll it out.”
  • “Dentsply Sirona looks forward far enough to see the challenges. I compare them to Apple’s system, which was closed, and everyone tried to beat them out. But in the end Apple was always better because the quality was better.”

New Distribution Agreements

  • “I don’t know much about the new agreement, but they have been working with Patterson since the late 1980s.”
  • “As part of Pacific Dental Services, we do not pick and choose the sales reps. They handle that.”

Market Conditions and Competitive Landscape

  • “Our Dentsply equipment has been working fine for 3.5 years. A new advanced system will be coming out right around the corner. We will jump on it quickly to be a beta tester; they will send out a few for testing.”
  • “I like to be an early adapter, but our current system works well. I may trade in for the new system. Why not jump in? It is a lot of money up front, but you see a cost savings after just three crowns a month. The more crowns you do, the cheaper it costs.”
  • “Benco Dental sells supplies and CAD/CAM, and Goetze Dental is a big player.”

Dentsply Sirona’s Management Shakeup

  • Interviewed prior to the shakeup announcement.

3) General dentist who uses the CEREC system

Whether the new distribution agreements restart Dentsply Sirona’s sales growth and accelerate digital dentistry adoption largely hinges on sales efforts. The source said the expanded partnerships could affect his practice’s spending but added that this is unlikely. This group practice’s revenues have increased about 10% per year. Marketwide, supply costs are rising about 5% annually. The overall dental industry’s fiscal health is quite strong.

Digital Dentistry Adoption

  • “The more sales channels you can have, typically the better. The only downside that I can see is if they don’t have the same sales force and support that Patterson did because that was always really, really good and strong.”
  • “Remember, the primary advantage of digital dentistry is same-day dentistry. So the lab component for myself and most other dentists that use it is very small, because the idea of CEREC is a patient comes in, you prepare the tooth for the crown, scan it, and make them the crown right then and there without sending it to the lab.”
  • “I’ve done digital dentistry [for several years]. People just love getting the crown in one day. They will go on their phones, check their emails [while they are waiting].”
  • “The marketplace for dental services is competitive. So in order to try to separate yourself from everyone else, you have to be able to offer the top-line services, and that’s actually one people really love. As more and more people adopt it, it will become the standard of care.”

Dentsply Sirona’s Sales

  • “[My spending on Dentsply Sirona] will be the same [over the next 12 months] because once you buy [the CEREC] system … your biggest recurring cost is the blocks, which is what the actual crown is made of. Most dentists like myself will be using [Ivoclar Vivadent’s] max, which is not a Dentsply Sirona product, so [the dentist’s] ongoing supply costs with CEREC are primarily from another manufacturer.”

New Distribution Agreements

  • “The new distribution agreements should [jumpstart Dentsply Sirona sales and return the company to growth]. The biggest thing [determining that] is how well the sales force is put together.”

Market Conditions and Competitive Landscape

  • “The [overall health] of the dental industry is very strong. In terms of spending on dentistry, the American Dental Association does a lot of statistics on the overall spending on dentistry and updates it every year.”
  • “There’s a lot of changes in terms of much more consolidation and a trend toward group practices individual practices. I actually think that is favorable for the digital dentistry market because if you are a single doctor working by yourself, it’s harder for you to spend $170,000 to buy this [CEREC] digital dentistry machine. But if you are in a group practice with five dentists, now your revenues are higher and you have a bigger budget for technology, and you can more easily afford it.”
  • “[Supply spending] is up for sure. Despite more competition in the marketplace overall, the cost of supplies has been going up significantly to the tune of like 5% a year, if not more. And what happens is usually even if there is a competitive supplier that comes into the marketplace … [its lower prices] start to increase after a while. That happened with us. [A supplier] ended up raising the supply costs every year until it became the same as the big ones, Patterson and Henry Schein.”
  • “Generally, year over year [our office visits are] increasing. Office visits are hard to track because someone could come in for a filling or implants; both are office visits, but one affects the revenue much more significantly. We track overall revenue. That’s really the best gauge, and that is typically increasing about 10% a year [in our practice].”
  • “At this point, there’s really not [any competitive offering that challenges the Dentsply Sirona] system. … It’s such a polished system that’s been around for a long time. It has a very strong support network, and everybody that tries to catch up with them up just can’t.”

Dentsply Sirona’s Management Shakeup

  • “I still think that given that the market penetration for Sirona is still low, there is a lot more sales of digital dentistry for them to generate. I think the decline in sales is due to the poor implementation of the distribution agreement.”
  • “In regards to the resignation of the Sirona officers, it is highly unusual for three top executives to resign, especially in the dental field, which tends to have fairly stable executive leadership and not much turnover. My take is that there is definitely something going on—most likely some sort of conflict between the executives and the board. This can either be positive (if the company gets a better vision that has buy-in both from executives and the board) or negative. In any case, there is certainly appears to be significant risk here, especially with the declining sales of the company.”

4) Dentist in a private West Coast clinic who does not use CEREC

Dentsply Sirona’s sales will increase with the addition of Schein. Both distributors are comparable in customer service. Digital dentistry is already popular in affluent urban areas. The source noted a constant need for good handwork and small labs that make quality natural products. Dentists are not concerned about Dentsply Sirona’s executive shakeup.

Digital Dentistry Adoption

  • “Digital dentistry is popular now, and it will be mainstream in just a few years. Most dental labs now use partly digital. But handwork is still very important [to get high quality].”

Dentsply Sirona’s Sales

  • “Adding another large distributor will increase company sales.”
  • “Doctors who enjoy lab work may be willing to invest in their own milling and 3D. But sometimes there is not enough time to do it all. I like a trained dental technician who has an eye for cosmetics and making teeth look natural.”

New Distribution Agreements

  • “Patterson and Henry Schein are comparable when it comes to customer service. The rep is important.”

Market Conditions and Competitive Landscape

  • “Possibly up to a total of 25% of dentists in affluent urban areas, like ours, may use digital. But this includes all brands, not just CEREC. The percentage is less in smaller cities.”
  • “Dentists of all ages are adopting digital, not just those newly out of school.”
  • “I don’t think small labs will be going out of business because of digital adaptation. There is a need for small labs that make good quality products that look natural against the teeth.”

Dentsply Sirona’s Management Shakeup

  • “I’m not concerned about the executive shakeup at Dentsply Sirona, and I don’t think other dentists are either.”

5) Dentist in the South who uses the CEREC system

Digital dentistry is the standard of care. The new distribution agreements will provide some competition and should reduce pricing somewhat. Schein offered this source lower prices, but he is staying with Patterson because of the representative. Prior to the merger, Sirona was focused more on customer relationships; now Dentsply Sirona is “all about the money.” 3Shape’s Trios solution is superior to CEREC.

Digital Dentistry Adoption

  • “Digital [dentistry] is a good thing. … I think Trios 3Shape came out with a better solution [than CEREC].”
  • “Digital has been the standard.”

Dentsply Sirona’s Sales

  • “I don’t know [if the new distribution program will jumpstart sales and return Dentsply Sirona to growth].”
  • “I feel like ever since Dentsply engulfed Sirona, things have changed. It happened maybe like two years ago. I think Sirona being a privately held [company] was more prone to keep the relationship and nurture the relationship with the doctors. With Dentsply, it’s all about the money. I don’t think I’m the only one who feels that way. I think more people are starting to feel like they aren’t being taken care of—that everything is about the money. And I think that is going to have an impact on their sales.”

New Distribution Agreements

  • “Up to a month ago, the only company that sold CEREC was Patterson. The distribution was only held by one company. I think … that there will be some competition [now] and the prices should drop a little bit, and more people are going to be prone to buy [CEREC].”
  • “All my relationship is with Patterson right now, but I was contacted by a rep at Henry Schein. … I have a good relationship with my Patterson rep. [Henry Schein] gave me better prices. I’m not going to move just because I like my rep. I want to be loyal to my rep. He’s been good to me.”

Market Conditions and Competitive Landscape

  • “The [dental marketplace] has been increasing for, I think, the last five years.”
  • “My office visits are about the same [over the past year]. They are pretty stable. September has been really slow because of the hurricane. I personally stopped working for two weeks. But I think that my next month is going to start picking up, and it’s going to get better.”

Dentsply Sirona’s Management Shakeup

  • Interviewed prior to the shakeup announcement.

 

 

2) Dental Laboratory Professionals

Two of these three sources think Dentsply Sirona’s expanded distribution agreements will lead to a sales turnaround for the company as well as faster adoption of digital dentistry. The third said the distribution agreement is a positive for the industry. However, he said the closed CEREC system has slowed Dentsply Sirona’s sales; the source was unaware of CEREC SW 4.5, which is an open system launched in March. Digital dentistry is not yet the standard of care but will continue to grow as costs for purchase and usage decline. Two sources think the dental market is healthy and growing, while the third thinks it will improve but will undergo some consolidation of practices and labs. CEREC’s primary competition comes from Align Technology Inc. (ALGN), Integra LifeSciences Holdings Corp. (IART), Zimmer Biomet Holdings Inc. (ZBH) and Ivoclar Vivadent.

 

Key Silo Findings

Digital Dentistry Adoption

–    2 of 3 said Dentsply Sirona’s new distribution agreements will accelerate the adoption of digital dentistry.

–    1 said the new distribution agreements will not increase the digital dentistry rate.

Dentsply Sirona’s Sales

–    2 said the new distribution agreements will increase Dentsply Sirona’s sales.

–    1 was unaware of CEREC SW 4.5 and said Dentsply Sirona has to offer an open system to increase sales.

New Distribution Agreements

–    All 3 said the distribution agreements are good for the dental industry and should promote competition, better pricing and broader product selection.

Market Conditions and Competitive Landscape

–    2 said the dental market is healthy.

o    1 said his lab business is up 4% to 6% YY.

–    1 expects the market to improve despite some consolidation of dental practices and labs.

1) Advocate at a large Midwestern dental lab specializing in digital processing

Expanding distribution is a positive. Competition will make for better pricing, and insurance billing will be faster. Digital dentistry adoption and Dentsply Sirona’s sales will depend on the training and talent of its sales team. Dentistry is very healthy, and technology plays a major role. Although it faces pressure from major U.S. and new Asian suppliers, Dentsply Sirona’s closed system reduces failure points. Also, CEREC can work with other systems as needed.

Digital Dentistry Adoption

  • “If the suppliers have talented sales people worth their weight in gold, certainly [there will be faster adoption]. Much of Americans’ buying isn’t dependent on the purchaser or the equipment, but the seller. Now there are more sellers than ever before pitching Sirona’s equipment. It will lead to faster adoption.”
  • “Eventually, digital will be the standard care because it will save everyone time and money. And it allows us to give the dentists a much faster response. It makes sense.”

Dentsply Sirona’s Sales

  • “How could the new distribution not jumpstart sales? There will be more reps selling. If Dentsply Sirona is smart—and they are—they will incent the distribution sales channels to actively promote their equipment. As a sales team actively promotes a product above the competition, sales will happen. Whichever manufacturers win the distribution channels sales team wins the game. Sirona does a great job in this area.”

New Distribution Agreements

  • “Opening up distribution was a smart move.”
  • “Most smart doctors recognize the value of shopping. With more channels, there will be more opportunity for better pricing. They will shop around, and in some cases, it will make justifying their purchase easier.”
  • “The agreements will impact our lab as more dentists go digital. How will it impact a dental office in our opinion? Digital impressions, performed by accurately trained dentists, lead to faster turnaround, easier preps, and they set better. Plus, they allow billing insurance companies faster, so faster cash turnaround.”

Market Conditions and Competitive Landscape

  • “The dental industry is incredibly healthy. Today there are more dentists than ever before, but there are more reoccurring patients than ever before as well. Not to mention, there are more proven treatments than ever before. Technology plays a huge role in dentistry today, ensuring greater success across the board. Certainly it may seem saturated in a few larger cities, but there are still plenty of patients for a dentist to make an above adequate living.”
  • “Supply spending will always continue to grow, or the office will simply go out of business. Growth in any business is king, and you need supplies to run your business. It is a must. Offices need to be aggressive marketers and grow their practices. The real question is, where will offices be buying those supplies? It is global market, and there are hundreds of supply manufacturers for blocks and pucks. Most dental offices seek to reduce cost in their supply acquisition. Yet others will find satisfaction with holding on the proven block and towing the line.”
  • “As a lab, we see cyclical trends based on the work we provide. From October through February, the work ramps up and peaks. From March, April, May, it is steady, and in May, June, July, August, and September, it is consistently slow. This trend is consistent with patients’ lives, school, summer breaks, and year-end new year insurance.”
  • “Office visits for dentists will always rise, or they will be out of business. They will rise in accordance to the cyclical trend.”
  • “There are the same major three competitors [Align Technology, Integra LifeSciences and Zimmer], plus now the various Asian groups who continue to push new technologies. Advantage is not based on equipment; advantage is based on talented and knowledgeable sales representatives.”
  • “The closed system is a benefit to Sirona, a lab and a dental office. The more independent systems, the more opportunity for failure. In fabricating digital prosthetics, who wants to work through independent systems and failure points? Closed systems are closed primarily for service and support reason. Who wants to support their software on every independent mill? Good luck. Generally speaking, closed systems reduce failure points. Not to mention, CEREC is very capable of working with other mills if required, so it is like the best of both worlds.”

Dentsply Sirona’s Management Shakeup

  • Interviewed prior to the shakeup announcement.

2) Dental lab owner; repeat source

The new distribution agreements will hasten the uptake of digital dentistry, stimulate Dentsply Sirona’s sales, and restart the company’s growth. Digital is not yet the standard of care as dentists do not know how to market the same-day crown or set their practice up to accommodate it. Dentsply has always been friendly and responsive to dental labs. 3Shape’s Trios poses the greatest challenge for Dentsply Sirona.

Sept. 15, 2016, summary: This source had mixed views on CEREC and thought 3Shape had a better machine. The Dentsply/Sirona merger might lead to investments that would improve CEREC, but Ivoclar Vivadent could provide game-changing competition. Dental labs throughout the country reported that business was dismal in July 2016, which might have been due to consumers’ increased summer travel.

Digital Dentistry Adoption

  • “Digital dentistry is not [the standard of care] because there are still a lot of dentists out there who are older and who are not buying into it. They may be on the verge of retirement and don’t want to upgrade their practice. It’s like some laboratories still in business that won’t be in it much longer are not upgrading either, so they still don’t understand the technology.”
  • “If I were a dentist and had the opportunity to have an intraoral scan, I’d market it like crazy.”
  • “The general dentists want to keep waiting until the [cost of the] technology comes down—and it’s getting there—to a reasonable amount that they can afford.”
  • “[Digital] has really made a lot of changes [for our lab]. Not only do we have less labor, which means we have less labor costs, but it’s changed the way we do business every single day. The material is better, the product is better—and the patients don’t even know that.”

Dentsply Sirona’s Sales

  • “[Dentsply] has been around and knew what they were doing when they went in with Sirona, because Sirona has been around for a long time.”
  • “Once Dentsply joined forces with Sirona, that made them a bigger company. And then they became part of the intraoral scan. Sirona has always been in marketing and big in the things they do. This just gave Dentsply another avenue to get in touch with laboratories, as well as the dentist.”
  • “What we always say to our doctors when they are looking at intraoral scanners: ‘Pick someone who is going to be around and has been around.’… [You] can get gray-market intraoral scanners out there, but is that company going to be around a year or two years from now when that machine breaks and you have no backing?”

New Distribution Agreements

  • “In the past, Patterson Dental was part of the Sirona group, and Patterson wasn’t always laboratory-friendly. Now with Henry Schein coming on board, they can distribute and support it, and that’s better for the market.”
  • “Dentsply was really a lot more on the lab side. Now they have crossed that line where they can work with the dentist when it comes to the CEREC or Sirona.”
  • “[The distribution agreements] will give us better pricing, better options; it will make the competition better. And once again, because Patterson Dental had such a market on that side of the industry, it’s really going to open things up.”
  • “The other amazing side that we find as lab technicians is the [dentists] will put those [crowns] in the patient’s mouth but if we were to make that crown and bring it to them as a finished case, they would reject it. So they are skipping a few steps or hurrying up steps.”
  • “We will get more business [because of the new distribution agreements]. … We will be able to educate the dentist on the different intraoral scans; what the true cost of an intraoral scan is; what the true turnaround times are—all of these things that we couldn’t do before. And when Henry Schein gets on board, because they do sell different intraoral scanners, the doctors will be able to do hands on and actually get true numbers on what the costs of the intraoral scans are.”

Market Conditions and Competitive Landscape

  • “[The health of the dental marketplace] is probably going to get better, but there’s so much right now going on with corporations buying dental practices.”
  • “Corporate dentistry is taking over, and that hurts us, because for a laboratory, a price is a price. It still costs me X amount to make a crown. I feel sorry for those labs out there that haven’t done their numbers to figure out what it is, and if they think they are going to get a big corporate account with five or six offices, No. 1 be prepared for them to not pay you on time because they never do; and No. 2, be prepared to lower your price.”
  • “In the laboratory industry [there were] around 10,000 labs, and now we are down to about 7,000 labs in the U.S. … On the dentures and partial side of it, the average technician is 65 years old. Some of [the loss of labs] was retirement; some of it has been labs being bought out. Big conglomerates have come in and bought two or three labs and put them together. So you’ve got that. Once that also levels off, then I think the [labs] that are left in the pond will be good. I’ll be one that’s left. I won’t sell out.”
  • “[CEREC’s] biggest challenge is Trios … Sixty percent of the laboratories have 3Shape.”
  • “Sirona backs its mill. Its mill is good, especially for the dentist because they are not milling as much as we are.”

Dentsply Sirona’s Management Shakeup

  • Interviewed prior to the shakeup announcement.

3) Dental laboratory executive; repeat source

The source was unsure how Dentsply Sirona’s expanded distribution system would affect the company’s growth, but said its closed CEREC system was “hamstringing” sales. Once the company opens up the system, sales will take off. Less than 10% of dentists who could use intraoral scanning systems do so. The dental industry is healthy.

Nov. 1, 2016, summary: Orders from dentists unexpectedly surged this past summer, breaking a string of years in which business tended to slow during that period. Meanwhile, late summer and early fall business was basically tracking that of 2015, though an early October falloff this year still was unexpected. End-of-year orders would have to start picking up to match 2015’s surge, which also was atypical. The fluctuating business and departure from established seasonal patterns had become the norm. Predicting business flows had become complicated by structural changes in the industry.

Sept. 15, 2016, summary: The conversion to digital dentistry was a work in progress, and it remained unclear what effect the company merger would have on firming up the field of legitimate players or quickening the pace of technology adoption. For all its success with making CEREC the leading scanning system, the company must figure out its strategy for working with dental labs. To achieve a breakthrough in market penetration, Dentsply Sirona and marketers of CEREC-like technologies must refine technology, better acquaint dental professionals with their true capabilities and capacities, and ensure that labs remain part of the full-service equation.

Digital Dentistry Adoption

  • “I don’t think [the distribution agreements] are going to affect [adoption of digital dentistry] at all.”
  • “[Digital dentistry is] not even close to being the standard of care because of the market penetration. You have less than 10% of the dentists who can use an intraoral scanning system owning one. In other words, you are not going to get an endodontist or a periodontist to use one and in very rare instances an oral surgeon; for the most part, it’s restorative dentists and orthodontists.”
  • “[Digital] has changed the way we do things [in the lab] substantially as far as our manufacturing process. Although the dentists aren’t using intraoral scanning systems that greatly, I’d say 95% of the crowns and the bridges we do are through a digital workflow in our business. We’re scanning physical models or impressions, then we are designing the crowns and the cap environment, and then we are milling or printing.”

Dentsply Sirona’s Sales

  • “When [Dentsply Sirona] opens up that system, I think that is going to pop the genie out of the bottle [for them]. It’s not that their scanning system is bad or inaccurate—it’s pricey, but there are ones just as costly out there. As soon as they open up the system and allow the files to go back and forth between different mills, different labs and everything else, they will see a lot of growth. Right now they are hamstringing themselves.”

New Distribution Agreements

  • “The distribution agreement that Dentsply Sirona has with Henry Schein now is going to be far better than Patterson, only because it’s a better company and they are not as arrogant as Patterson personnel. That’s No.1.”
  • “I do not think it will help increase digital acceptance of intraoral scanning in the dental practice. We have yet to reach that tipping point. I think [due to] the very fact that Henry Schein is selling Sirona and they are also selling their bunch of other digital intraoral scanning systems, dentists are going to buy the other alternative and not the Dentsply system, simply because Dentsply is still one of the only closed systems. You cannot import and export files.”
  • “Our lab quit using Dentsply Sirona 1) because of Patterson and 2) the majority of the dentists that we work with are using non-Sirona scanning systems.”

Market Conditions and Competitive Landscape

  • “This has been the best year we have had since 2008. … I have met with many groups of colleagues from different areas of the country, and everyone pretty much said the same thing.”
  • “Our sales have been trending up. I think they are going to be up the last quarter, and I think it’s going to be up in 2018 throughout the year over 2017—probably between 4% and 6%, and that’s without raising prices.”
  • “I’d say office visits are trending up because we are getting more work. I think that generally the dentists are busier this year than they have been in the previous few years.”
  • “Every other open scanning system out there [can challenge Dentsply Sirona’s CEREC system]. Until Dentsply Sirona becomes an open system, they should be looking over their shoulder very carefully. … That scanning system is one of the weakest points in the chain.”
  • “[Align Technology’s] iTero has been around for over 10 years. And their system has been redesigned several times, and it’s a great system. It’s very, very accurate, it’s easy to use. A number of our dentists use it.”
  • “Ivoclar has come out with several mills, and they are coming out with a whole new line of mills. … But these are all open mills that you cannot connect with a CEREC without [paying for] special software and special licensing.”

Dentsply Sirona’s Management Shakeup

  • Interviewed prior to the shakeup announcement.

 

 

3) Dental Equipment and Supply Sales Channel

All four sources think Dentsply Sirona’s distribution agreement with Schein will increase the former’s sales, and two think it will accelerate adoption of digital dentistry. One source expects increased sales volume for Dentsply Sirona but possibly at the expense of margins. Two sources said Schein is superior to Patterson because of it strong customer relationships and its ample sales force. One source reported significant competition in the milling of teeth, but said CEREC is the product to beat. He discussed 3Shape, 3DBioCad and Dental Wings Inc. Another source highlighted Planmeca OY as a strong imaging system and 3M Co. (MMM) and IOS Technologies Inc. as formidable in milling. A third source said Nobel Biocare Services AG (SWX:NOBN) and Straumann Holding AG (SWX:STMN) are powerful threats. The dental market is mostly healthy and growing.

 

Key Silo Findings

Digital Dentistry Adoption

–    2 of 4 said the new distribution with Schein will accelerate adoption of digital dentistry.

–    2 said adoption is well underway and will not be affected by the new distribution agreement.

Dentsply Sirona’s Sales

–    All 4 said Dentsply Sirona sales will increase as a result of the new agreement with Schein.

o    Still, 1 said Dentsply Sirona may experience lower margins as a result of the distribution agreement.

New Distribution Agreements

–    2 said Schein is a superior company to Patterson.

–    1 said Dentsply Sirona should have opened up distribution to additional distributors.

Market Conditions and Competitive Landscape

–    All 4 said the dental market is healthy and will grow further.

o    1 source’s sales were down possibly due to competition from in-practice milling and/or offshore implants.

–    Competition is strong from 3M, IOS Technologies, 3Shape, 3DBioCad, Dental Wings, Nobel Biocare and Straumann.

Dentsply Sirona’s Management Shakeup

–    1 said the management change could help Dentsply Sirona.

1) CAD/CAM sales specialist on the West Coast

The new agreements will increase digital dentistry and boost sales for Dentsply Sirona. Digital dentistry also is growing via word of mouth. Both distributors will target two key markets: new doctors’ offices and doctors with older machines. Schein will have to quickly educate its reps to compete with Patterson. The mill industry is full of players, but Dentsply Sirona is the company to beat as it is constantly educating doctors and making better products.

Digital Dentistry Adoption

  • “The new agreements will absolutely increase digital dentistry. Exclusivity is not always best.”
  • “Dental labs will need to offer digital or they will go away, because a lot of digital will be done in the dental office. In our area, we have more than 900 CEREC offices alone.”
  • “Our sales are doing very well with the digital. We have some amazing products, and we’ve been working for Sirona for 30 years.”

Dentsply Sirona’s Sales

  • “There is a lot of loyalty. If you are a good rep and make good agreements, that will help sales. It will absolutely open up business to more doctors. For the people who only buy from Henry Schein, this will open up Dentsply Sirona’s business.”
  • “Patterson projections were always higher than the actual sales. Sirona counted on their projections, but that screwed up a lot of things.”

New Distribution Agreements

  • “It will take a while for the new distributors to be up and running, to gain the knowledge base that they will need. There is so much setup needed. They will need to adjust infrastructure and increase training.”
  • “To compete with each other, both Henry Schein and Peterson will try to capture the low-hanging fruit. They will switch to new doctors’ offices to sell small items and gain their trust. They may also go after doctors with older machines. In this way, Dentsply Sirona’s products will be sold on a more widespread basis. If the companies want repeat business and to build upon that, they will need to offer good customer service.”
  • “Equipment and software prices between Patterson and Henry Schein are going to be absolutely the same. They each know what that price will be, and they are not allowed to waiver more than very small amounts. They have all made a big agreement.”
  • “If a doctor has a good relationship with Henry Schein, they may switch from Patterson to Schein for CEREC products. Schein will need to get up to par on their knowledge base. I can see doctors’ offices continuing to buy small products from Schein and CEREC from Patterson.”
  • “Henry Schein usually sells small little things like cotton rolls, cement, because they are all lower-priced items. CEREC may be a slower seller for Schein. Patterson is more about technology and service.”
  • “I don’t think we’ll be affected much by the distribution unless digital keeps growing.”

Market Conditions and Competitive Landscape

  • “Dentistry is always a healthy field. It has its ups and downs, but you don’t hear complaints about business being slow.”
  • “At the end of the year, doctors tend to buy equipment for tax purposes. There is a big push in quarter four. We see an increase in December or the beginning of 2018.”
  • “Digital dentistry is growing by word of mouth. Doctors need to know how to market their business, but if they have a good reputation, word spreads, and people tell their family and friends. The CEREC community is flourishing. Some people are averse to technology, and they will just go elsewhere. But others will embrace the related value of time.”
  • “Milling is a big competition. You have 3Shape, 3DBioCAD, Dental Wings. Competitors use a combination of software, and they offer both open and closed systems. But CEREC is the one to beat. Dentsply Sirona is constantly educating the doctors.”

Dentsply Sirona’s Management Shakeup

  • Interviewed prior to the shakeup announcement.

2) Implant specialist for a distributor in the South

Dentsply Sirona sales will increase through its partnership with Schein, which has a stronger foundation than Patterson and will do a better job of selling CEREC. However, Dentsply should have opened its products up to other distributors. Digital dentistry is gaining traction. Younger dentists embrace and understand the advantages of new technology; they are asking for CEREC and are willing to do their own milling and 3D printing. The market will grow in the next few years. Executive changes may only help Dentsply Sirona.

Digital Dentistry Adoption

  • “The distribution changes may not lead to faster digital adoption because digital dentistry is not the future—it is now. The younger dentists were raised on iPhones and tech, and they want the latest. They understand the benefits that tech gives you—the time and cost savings and the accuracy. Digital dentistry is on an upswing right now. We are at the end of the early adapters, and in two to three years, the market will have grown.”

Dentsply Sirona’s Sales

  • “The distribution changes will absolutely increase sales for the company. I just did a survey of dentists in our area, and out of 22, more than one-third of them have CEREC or are interested in CEREC. All over our area, they are hearing the scuttle about CEREC.”

New Distribution Agreements

  • “Patterson has had problems and been in upheaval for a while. I’m not sure what happened, but they had problems with their CEO, and last year, they let go of a large part of their workforce. So opening up distribution and adding Henry Schein absolutely helps. It’s like a whole market opening up.”
  • “Henry Schein has a stronger foundation overall and will do a better job of selling.”
  • “Our company is definitely impacted by the distribution changes. Schein will sell more products now that it has the CEREC name, which has a huge following. I can’t sell CEREC, and I think the company should have opened CEREC up to other distributors. This only makes sense to me.”

Market Conditions and Competitive Landscape

  • “The dental market is healthy. It is changing and growing. Our sales continue to do well.”
  • “The younger guys want to do their own mill and 3D. They are embracing this technology.”
  • “The older dentists may not want to invest in the equipment, especially if they are close to retirement. And for others, there is some hesitancy with the high price tag, but the dentists need to look at the whole picture.”
  • “We sell lots of supplies, and we have not experienced a slowdown. Supply sales are good and will continue to grow.”
  • “There is a problem being a closed system. If you have an open system, you can use any data or cone beam. But Dentsply Sirona has been in this business longer than anyone, with hardly a software competitor in sight, and people know this.”
  • “There are good competitive products out there. Planmeca makes a great imaging software, but it doesn’t sell against CEREC. 3M Unitek makes the Lava Restorative. There are two very good mills that are not yet streamlined: True Definition scanner by 3M and TS150 mill by IOS Technologies.”

Dentsply Sirona’s Management Shakeup

  • “I haven’t heard about the executive change yet, but it will help the company. The company realized that with their distribution changes; they needed new blood.”

3) Implant sales specialist for a competitor in the Midwest

The Schein agreement will increase volume sales for Dentsply Sirona but may slightly dilute revenue stream. Digital dentistry is growing on its own without the distribution agreements. It is becoming the standard of care, enabling dentists to do guided surgery. Digital equipment eventually will become less expensive. General dental sales have slowed, possibly because offices are doing their own milling or the work is being sent offshore. Dentists complain that the CEREC equipment breaks down, and the tooth quality is not up to par. They use CEREC teeth for the posterior mouth, and top quality mom-and-pop lab teeth are used in the front.

Digital Dentistry Adoption

  • “The agreements are not growing digital dentistry; the market is already growing quickly. It is very available now. With the internet and the educational programs that doctors go to, they are getting digital dentistry forced down their throats.”
  • “The difference now is what are they going to buy and why? We tell people to talk to their labs and see what they recommend.”
  • “Digital dentistry is becoming the standard of care. X-rays are not becoming more complex, with 3D cone beam and also guided surgery.”
  • “In the Midwest, maybe 10% of the doctors use CEREC; that might be a bit high. CEREC is prevalent in the Northeast. Those kinds of things start on the coasts and work their way in. But I am seeing it in more rural, corporate-owned offices such as Aspen Dental or Pacific Dental Services.”
  • “We have a lot of new digital technology in the pipeline, and we have a lot of new digital specialist reps. Big surgical groups are starting to do scanners, and general dentists are now willing to take on 3D and tackle general surgery stuff. Our implant business is growing like crazy.”

Dentsply Sirona’s Sales

  • “Theoretically, you’d have to imagine that the new distribution would help Dentsply Sirona grow sales. The more feet you have on the street should increase your sales. But it all comes down to the quality of your rep and the quality of your product.”
  • “They are a very good company, throughout the United States and the world. There are three big power companies: Dentsply Sirona, Nobel Biocare USA and Straumann USA. This won’t change drastically, but some of the smaller companies may be going by the wayside.”

New Distribution Agreements

  • “I don’t know much about the new distribution agreements. I know they are now working with Henry Schein, but that is about all I know.”
  • “Patterson and Henry Schein cater to the customers differently. I haven’t heard a lot of great things about Patterson. I know a couple of people who used to work there, and most of them have gotten out or laid off. Patterson has a lot of turnover. Henry Schein is a big company, and they have a lot of presence. They are good and will do well. Dentsply will dilute its revenue stream a little bit, but will increase the volume.”
  • “We probably won’t be affected in any way. There are some weird situations where companies will try to package things together to be competitive with us. But for the most part, Dentsply Sirona hasn’t gained a lot of market share, and we are growing pretty rapidly in this regional area.”

Market Conditions and Competitive Landscape

  • “The dental industry is growing like crazy. Products keep evolving and becoming more accessible to patients. Patients are living longer and want to improve their quality of life, and the baby boomers need more dental care.”
  • “I have seen a slowdown in dental sales in Illinois due to their state budget nightmare, but I think this is about over.”
  • “That said, general dentistry sales have been down. Sales are slower than usual right now. It is weird, and I don’t know why. The national lab guys are down too. It might be because people are milling their own in offices or sending milling offshore. Overseas is a cheap option; the quality is not the greatest; and it can take up to a few weeks to get a tooth.”
  • “CEREC offers same-day service, but you get same-day quality. The dentists I know who use CEREC hate the machines. They only use them for posterior teeth that don’t need to look good. The machines break down. But the CEREC teeth hold up because they are made from zirconia, which is a substance stronger than teeth.”
  • “We must be at a tipping point, or it is just around the corner. The digital products are going to get less expensive. Somebody will come along with a machine that is $20,000 to $30,000 less and still has profitability. Some of the bells and whistles the machines have now just aren’t necessary.”
  • “Someone could come out with a novel scanner or a new mill, and a year or so later your company is irrelevant.”

Dentsply Sirona’s Management Shakeup

  • “I have not heard about the Dentsply Sirona executive changes.”

4) Executive with extensive experience in the dental sales field; repeat source

In general, digital dentistry will pick up momentum because of changes and the entrance of companies like Dentsply Sirona. Still, multiple competitors will shrink margins, which could affect customer support and service. Direct-to-end consumer marketing will assist patients in recognizing the health advantages of same-day digital dentistry.

Sept. 15, 2016, summary: CEREC established the industry but was stagnant. Still, the system had a loyal following, and the merger provided more distribution options. The lack of an open architecture put CEREC at a disadvantage. The devices were all quite similar in terms of hardware; the software was the differentiator. CAD/CAM had passed the early adopter phase. In the next five years, as much as 25% of dental clinical might have digital solutions.

Digital Dentistry Adoption

  • “The landscape for digital dentistry will grow as competitors and better products come to market. Marketing to the final customer [patients] will help them see the value of same-day services that benefit the health of the tooth and overall oral environment. This will accelerate the overall health of the dental industry.”

Dentsply Sirona’s Sales

  • No comment.

New Distribution Agreements

  • “The overall growth of digital dentistry will accelerate because of the changes and opening up of companies like Dentsply Sirona. The challenge they face is the degrading margins that will happen through multiple competitors. It will be up to the dealers to maintain the support and overall service, and with declining margins it will be a challenge for dentists and customers to see the same level from dealers.”

Market Conditions and Competitive Landscape

  • “My caution to investors is the pace in which this industry moves. The overall space is rich with potential for growth, but 2018 looks like consolidation will continue for positioning to service the midmarkets that seem to have the attention of dealers.”

Dentsply Sirona’s Management Shakeup

  • Interviewed prior to the shakeup announcement.

 

 

4) Industry Specialists

These four sources had mixed views on the expanded Dentsply Sirona distribution agreements. Three think the new strategy could accelerate the adoption rate of digital dentistry and be an overall positive for the dental industry. One thinks the market for digital imagery is becoming saturated and that the opportunity is in the milling and printing equipment. In terms of its effects on Dentsply Sirona, one source said the agreement will spur sales, one said digital dentistry equipment sales will become more competitive but will not specifically boost Dentsply sales, and one said additional education and DTC promotions are needed to increase sales. The four sources were generally positive about the health of the dental market.

 

Key Silo Findings

Digital Dentistry Adoption

–    3 of 4 said the distribution expansion could accelerate the adoption of digital dentistry and help the dental industry.

–    1 did not comment.

Dentsply Sirona’s Sales

–    1 said the new distribution agreement would spur Dentsply Sirona sales.

–    1 said the distribution will not jumpstart Dentsply Sirona’s sales, but will make the market more competitive.

–    1 said additional education of dentists and patients is needed about the value and advantages of digital dentistry.

–    1 did not comment.

New Distribution Agreements

–    3 think the expanded distribution will create more competition and product options.

Market Conditions and Competitive Landscape

–    All 4 said the dental market is healthy.

  • 1 expects solid capex spending in the third and fourth quarters.
  • 1 said the industry is flat to up, with capex spending on hold until tax season.
  • 1 said the market is thriving and patients are seeking out dental practices that use digital technology.
  • 1 said slow growth is expected, with dental implants being the fastest growth segment.

Dentsply Sirona’s Management Shakeup

–    2 said the departure of 3 Dentsply Sirona executives is suspicious.

  • 1 now looks at the company differently.
  • Still, 1 said the shakeup will not hurt sales.

1) President of a dentist consultancy in the central United States; repeat source

The distribution agreements will benefit Dentsply Sirona and Schein despite competitive pricing pressures. Schein can quickly ramp up sales training, and both distributors offer comparable customer service. In a few years, Dentsply Sirona may cut the distributors loose and sell directly to doctors, which will up its profit margins considerably. Digital dentistry is becoming the standard of care, and growth is customer-driven. CEREC has 20% market penetration, while all the others have 25% to 30%. Equipment sales always ramp up in the third and fourth quarters. More offices will start doing their own milling and 3D printing, and the smaller labs, often run by older people, eventually will close. Dentsply Sirona has been doing well but is not “too big to fail.” The company likely is unsettled following the executive shakeup.

Sept. 15, 2016, summary: The Dentsply Sirona alliance coincided with what was likely to be a period of greater adoption for CAD/CAM dental technologies, setting the stage for the Sirona product line to bolster its market-leading presence. Its transformation into a single supplier of digital imaging technology enhanced its prospects in an evolving market. Opportunities in the dental implant market boded especially well for CEREC as practices looked to streamline procedures and improve results for patients. The merger might encounter some logistical headwinds, but over time it should result in a stronger platform for putting CEREC in more dental practices. And long term, it could even shake up the industry’s entrenched distribution model.

New Distribution Agreements

  • “Dentsply Sirona has made a choice to sell all its products through the large distributors. But I would not be shocked if the company cuts all distribution channels and goes directly to the doctors in the next few years. This would add a massive amount of margins to their profit, and they would also have consumables to sell.”
  • “Patterson will be trying to figure out the future, and Henry Schein’s business should grow tremendously.”
  • “There will be a lot of competitive pricing pressure as a result of the agreement. Patterson typically has a 30-point markup, but now they will need to compete with Henry Schein, and there will be a lot of pricing pressure.”
  • “Patterson’s sales force had a lot of investment in training, so they are ready to keep going. And Schein had training in Europe, so they can ramp up quickly in the United States. A lot will be about customer service, and right now both provide good customer service. I think there is little difference between the two companies.”

Digital Dentistry Adoption

  • “Digital dentistry will soon be the standard of care; there is a rapid acceleration right now. Customers hear about it, and personally, I wouldn’t go to a dentist that didn’t use CEREC.”
  • “CEREC has 20% of market penetration, and all the others have 25% to 30%.”
  • “It is becoming more common to see dentists with their own mills and 3D printers. Doctors are starting to recognize that digital helps with time management. Of course, small practices would have a harder time affording this. And some doctors have no business sense, and they are ignorant in time value.”
  • “Labs have a hard time controlling quality; they just try to cover their butts. There is no oversight on training or how things are done. Labs are a dying breed because doctors are buying the mills and 3D for their offices. The small mom-and-pop labs, their average age is 60 to 65 years, and many of them are dying rapidly of cancer after being exposed to chemicals for so long. The old-school lab is a dying breed. There will be a need for larger labs, which will use CEREC themselves.”

Dentsply Sales

  • “Dentsply Sirona has seen positive growth, and U.S. sales have doubled because they have the ability to put their products into the doctors’ hands.”
  • “The company has been doing very well. It is healthy. All of dentistry is feeling the political unrest, which has an impact on future decisions. But Dentsply Sirona has played their cards very well, and they are not bad from a stock perspective.”

Market Conditions and Competitive Landscape

  • “Dentistry is very healthy and is growing. The market does feel the political unrest, however. Who pays now? Who will pay in the future? This is in flux.”
  • “Equipment sales have been slower, but I think this has to do with politics. Lead time for buying equipment is considerable, maybe three to six months from order to delivery. Buying is always slower in the first quarter, especially following elections, and that drives down profit margins. But then expect a big burst in the fourth quarter while people order equipment for tax purposes. Third- and fourth-quarter sales are usually strong.”
  • “Commodity sales are always good. You need to have this to run a basic office.”
  • “I believe office visits are good too although there was some hesitancy around the elections. But you can’t just hold demand back. At some point you have to go and fix those teeth. Dentistry needs to figure out how to be sexy, like Botox or plastic surgery is. Only 50% of people see there dentists regularly. That is a lower percentage than people who have colonoscopies or women who visit their gynecologist. No one wants to go to the dentist.”
  • A-dec and Planmeca are the two largest equipment companies. A-dec sells chairs, cabinets, and is private. Planmeca sells some technology and is also a private company. Both companies got rid of their distribution exclusivity this year and now sell to the top five or eight distributors. They have branched out.”
  • “CEREC is a closed system, and there is talk about opening the software up.”

Dentsply Sirona’s Management Shakeup

  • “I don’t know why this executive move happened at Dentsply Sirona; it’s very curious, and eventually it will all come out. But the turmoil has me looking at the company differently than I did 24 hours ago. The timing is very interesting, given that Sirona’s exclusivity just expired, and that opened up a lot of doors for them. Sirona should be doing backflips.”
  • “I won’t say that Dentsply Sirona is too big to fail, but they must be feeling some frustration in this upheaval.”

2) Digital dentistry consultant in the Midwest; repeat source

The source predicts that some Schein salespeople will continue to promote the product they have been selling while others will run with CEREC. He also thinks the market is more saturated than it was five years ago. Digital X-rays and digital imaging have already become the standard of care, but so far there has been only “minority adoption” of digital for chairside restorations. The largest potential growth area is lab equipment purchased by dental practices that have the capacity to set up their own in-house labs.

Sept. 15, 2016, summary: How the merger would affect CEREC sales was unclear and depended on how the company managed it. If it was able to create some synergies, that could help sales. CEREC’s main advantages were is its same-day, one-stop shopping and lower lab bills. Still, the source noted little ROI, and said most of his clients selected alternative machines, which he would not name. He had seen no slowdown in his business, and said the summer traditionally was weak for the industry.

Digital Dentistry Adoption

  • “You are seeing digital X-rays and digital imaging, and it’s there—it’s standard of care. You are seeing a minority adoption chairside in the use of digital to fabricate a restoration.”

Dentsply Sirona’s Sales

  • “There are two schools of thought [about CEREC being a closed system]. I think CEREC is a very good system for people who want to be held by the hand and guided and really don’t care necessarily about other choices, other options, other pathways. Sirona has done a very good job of taking users by the hand [and saying], ‘This is how you use this equipment. This equipment is connected to this equipment. You design it here, it comes out there.’ It’s very smooth and well defined. But you are restricted to whatever they say you can use and how you use it.”
  • “The business model of trying to do this one-piece system is tough for anybody to offer and properly support, and that’s why you are seeing the systems sold through the big companies that have their own service and support staff [like Schein and Patterson].”

New Distribution Agreements

  • “There are some conflicting factors or motivation effects taking place [with the distribution agreements]. I think any time there is a new distributor, you have salespeople who are eager about having a new product, so there is some growth that comes from that. … I think that’s a positive factor.”
  • “There’s a certain amount of saturation in the marketplace. I think there is a limit to the number of doctors who want to adopt this technology, who want to change. Not everybody is going to change the way they operate and practice in order to accommodate digital workflows. So I don’t know that you are going to heavily penetrate that market base.”
  • “From a laboratory perspective, there are still systems and scanners being sold, but they are now more repeat purchases of a system that was bought five years ago and is now updated. There isn’t the amount of untapped market that there was five years ago. So it will be interesting. The short answer is I really don’t know what is going to happen because I see two influencing factors in opposite directions or neutralizing directions at play.”
  • “Henry Schein can do a nice comparison between all the systems they offer and direct people to which one may fit their needs better. That’s a nice position for Henry Schein to be in.”

Market Conditions and Competitive Landscape

  • “The people I’m in contact with are flat to up [in their supply and equipment spending]. They are either replacing existing equipment … or they have gotten to the point where their business has grown and they are having to buy another scanner or another mill to keep up with production.”
  • “The dentists I’ve talked to are kind of wait and see on the tax situation and the tax laws [with regards to their capex spending] and what they are going to be able to deduct and what they won’t. That’s a greater influence at least in the circle that I’m running in.”
  • “As for a competitive offering that can challenge CEREC, right now for that particular business model, you basically have the Dentsply Sirona offering and the E4D Planmeca Those are the established brands. I’m not sure that there’s anybody else who is really going to challenge [CEREC] in this one-system product offering where you have scan design and mill supplied by one company.”
  • “I do see a growing opportunity for more laboratory-type equipment ending up in practices that are large enough to support their own internal laboratory. Probably the greatest opportunity for growth is in that market as doctors want to have a little more control. At certain productivity numbers, it’s cheaper to have an in-house technician and some in-house equipment than it is to outsource it and send it to a laboratory.”

Dentsply Sirona’s Management Shakeup

  • “I am aware of [the three executives resigning from Dentsply Sirona recently]. You can hypothesize and guess and wonder [why], but without having facts, it’s really unwise to speculate. It will be interesting to see how that impacts the organization and sales. I don’t know that the buyers of the equipment are necessarily going to think positively or negatively about that or that it will change their decision to buy. What will be a greater influence is whoever replaces these people and the priorities they place in the market and with the products that they are selling.”

3) Consultant with extensive clinical and management experience in the dental field

The new distribution agreements will expedite digital dentistry adoption by fostering an open market and cheaper pricing. The agreements will not improve Dentsply’s sales, however, because the open market will also be more competitive. The source observes that consumers are transferring to dentists who offer quicker technologies such as same-day crowns.

Digital Dentistry Adoption

  • “I wish [digital dentistry was the standard of care], but it still isn’t. I think … it will be when all the baby boomers retire. I don’t think they are opposed to it. It’s my experience that it’s more financial. They are at the end of their careers and … they’d prefer for the younger people to come in and buy [digital] themselves.”
  • “That being said, there are a lot of baby boomers who are [using] digital and are very high-tech, so I don’t mean to be stereotypical by any means. But I think it will be the standard of care when that age group is just gone [from the dental field]. The younger generation doesn’t know any better. Everything is digital to them.”

Dentsply Sirona’s Sales

  • “[The agreements won’t jumpstart Dentsply Sirona’s sales and reverse its sale decline] simply because of the marketplace being open. With Schein being part of the game now too, definitely I know that opens [my clients’] interest because maybe they are loyal to Schein already or the Schein reps are able to give them conversations [about] better pricing.”

New Distribution Agreements

  • “[The distribution agreements will accelerate adoption of digital dentistry] simply because you are opening the marketplace. That will definitely provide more competition from a financial standpoint and open up more interest in going digital because the price will become lower. The only thing that prevents them from going digital now is the financial part of it.”
  • “I hope [expanded distribution] will provide better support. Doctors still want that very much, and I think the companies will have to go back to making relationships a little better than they have recently. So I hope they will provide better support.”

Market Conditions and Competitive Landscape

  • “The dental industry is [thriving]. I think it’s better systems and embracing some of the technologies that are out there. … Everything that’s instant and fast is driving the business right now. So if you can go to a dental practice and have your crown done in one visit, that’s a huge benefit for service. And people are switching dental practices to find somebody who can do that.”
  • “I think the millennials’ and [Gen Xers’] standard of care is to go to the dentist every six months, and they are willing to do treatments because their smile is very important to them. There are more studies … where you have the oral connection with diabetes and heart disease and so many different diseases. Our society is becoming more and more aware of that. The dentist is playing the crucial part to that and driving the public to see them more.”

Dentsply Sirona’s Management Shakeup

  • Interviewed prior to the shakeup announcement.

4) Dental consultant and researcher who has developed products in the dental field

This source is an advocate of the CEREC system, describing the newest version as “awesome.” As a closed system, CEREC constrains labs with an open system that cannot receive files from dentists using CEREC. Dentsply Sirona could trigger sales by educating the consumer about the system so they ask dentists for the product by name.

Digital Dentistry Adoption

  • “[The new distribution agreements] have the possibility to [accelerate faster adoption of digital dentistry], but Henry Schein has all this other digital equipment that they have been pushing and selling other than Sirona. Some of that has to be phased out; it has to be sold off. Something has to go away to increase the sales of the Sirona CEREC system. That’s my opinion. You can’t have too many dogs in the fight for the same dollar.”
  • “Digital dentistry should be the optimal [form of care]. Patients don’t know it’s the optimal. The public needs to be educated that these systems are there, and they will provide them the optimal care.”
  • “I see digital dentistry changing things dramatically in the industry, from 3D printing models to milling custom implants. …The accuracy is just beyond compare.”
  • “There needs to be more education on digital systems out there. You have a lot of dental technicians out there who don’t have any formal training and need it because of all these systems coming into play. You have fewer and fewer dental laboratories because bigger labs are buying up the smaller labs. The smaller labs could not afford the equipment, and then a lot of times [their staff] are being trained by people who didn’t even go to dental school.”

Dentsply Sirona’s Sales

  • “The new Sirona system out there now is an awesome system. I refer people to it all the time and tell them that’s the system they need to be using.”
  • “If there’s a way that Dentsply Sirona could educate the consumer … through different means [such as] brochures in a dental office or an ad in a magazine or an ad on TV about toothpaste or toothbrushes …that could be a way to jumpstart sales. You have to let the patient know that you are doing the best for their oral health. And there are so many serious illnesses that show up in the mouth before they are ever serious in other parts of the body.”
  • “If you educate the consumer on what the best is, the consumer walks into the dental office and says, ‘I want a Sirona crown. I want a Sirona bridge.’ That’s the person who is paying the fee.”

New Distribution Agreements

  • “Digitally, [Dentsply Sirona} probably has the best system out there.”
  • “[CEREC being a closed system] limits a lot of people like this one lab that had an older CEREC. They had some problems where Patterson people didn’t service [the CEREC] well. And so they put it on the shelf and they bought a 3M product, and then they couldn’t get their files working with the doctors using CEREC.”

Market Conditions and Competitive Landscape

  • “It’s just slow growth [in the dental industry] at this point. Part of that I think is because the economy is tough; a lot of things are more expensive today than they used to be. … Implants are the fastest growing segment, but a lot of people can’t afford them. And then you have financial systems out there … that will finance you, but they charge an arm and leg in interest.”
  • “Insurance companies need to understand that if they would cover dental care more, they would cut down on a lot of other illnesses. … It’s preventive medicine—not just for oral health but overall health.”
  • “There are a couple of systems out there that could [be a competitor to CEREC], but they don’t have the [financial] wherewithal … and the drive to do it. Dentsply [Sirona] has the best product, but I think there has to be a better way to motivate increased sales [which is educating the public].”

Dentsply Sirona’s Management Shakeup

  • “When you have three jump at one time, it gives people the impression that there is some kind of wrongdoing going on. I really don’t think [it will affect sales] because the people looking for those systems are wanting those systems.”

 

 

Secondary Sources

These three secondary sources focused on the economic state of the dental industry, dentists’ optimism for industry growth, and five dental schools’ recent establishment of a pilot curriculum for digital dentistry.

 

Sept. 7 Dental Economics article

An annual dental economics survey found dentistry in a holding pattern with little growth.

  • “In today’s challenging competitive landscape, dentists continue to hold their ground. That’s the overall message reflected by this year’s survey. The data collected closely mirrors last year’s in nearly all categories, which indicates general dentists experienced another year of slow growth.”
  • “The good news is that doctor production grew 2.4%, although overall practice production remained virtually flat at $1,053,283, slightly below last year’s average of $1,072,998. Unfortunately, a commensurate decline in hygiene production appears to have offset any gains in doctor production.”
  • “‘Dentistry has entered a period of stagnation,’ said Roger Levin, DDS, chairman and CEO of Levin Group Inc., a leading dental consulting firm. ‘Dentists are dealing with a multitude of game changers that have made practice growth more difficult than any time in recent history.’ Those game changers include
  • the expansion of dental service organizations (DSOs) and a growing number of group practices;
  • declining reimbursements from insurance providers and continued uncertainty surrounding health care in general;
  • a greater supply of dentists due to the addition of new dental schools;
  • older dentists delaying retirement; and
  • fewer dental visits by adult patients and millennials.”
  • “‘You’ve got more dentists competing for a smaller pool of patients. It’s not surprising that the profession as a whole is at a standstill,’ said Dr. Levin.”

 

August Inside Dental Technology issue

Two surveys of dentists unveiled forecasts for practice revenue growth in the next two to five years. The increase in practice income is expected to come from investment in equipment, technology, marketing and new associates.

  • “The majority of dentists in the US are excited about the prospect of building practice revenue over the next 5 years, according to data collected from a nationwide survey. Nearly three-quarters of small, privately-held dental practices surveyed by Citizens Bank, with results published in February 2016, found that dental practices are predicting a high level of confidence in being able to grow practice revenues over the next half decade.1 This bullish outlook was corroborated in part by polls conducted at two major East Coast dental trade shows by TD Bank in November 2016 and January 2017, where more than two-thirds of those surveyed expect practice revenue growth over the next 2 years.”
  • “The Citizens Bank survey of the state of the industry for independent medical and dental practices went out to 450 medical and dental practice groups in the US with fewer than 10 doctors or dentists. According to the results, both groups surveyed shared the same business objectives for growth, maximizing revenue, acquiring new patients, and improving operational efficiency and profit margins. Optimism among the dental groups surveyed centered on 92% of respondents, saying ‘there is a high demand for the services my practice offers.’ They also expect that their primary competition will be coming from other independent practices, not corporate practices.”
  • “The TD Bank poll of 290 dentists and dental practice owners was carried out at the Greater New York Dental Meeting and the Yankee Dental Congress. More than two-thirds of those responding to the 2017 Dental Practice Survey expressed confidence on increasing practice revenue over the next 2 years. Strategies to increase practice income focused on investing in new equipment or technology, increasing marketing efforts to grow their patient base, and hiring additional associates.”
  • “More positive projections on the profession came both from the Bureau of Labor Statistics and U.S. News & World Report. The Bureau has forecast that employment for dentists will be faster than the average for all occupations.3 This fast-paced growth is reportedly due to increased demand for dental services as the population ages, increased popularity of cosmetic dental services, and continued growth in access to health insurance. Corroborating these results, U.S. News & World Report’s ranking of best jobs in America placed the dental profession in first, fifth, and ninth places.4 Dentists were ranked as having the best job in America, followed by fifth place for orthodontists, and ninth place for oral and maxillofacial surgeons. The reasons cited for why dentists were ranked number one? ‘A comfortable salary, low unemployment rate, and agreeable work-life balance boost dentists to a top position on [their] list of best jobs.’”

 

Aug. 2 Dentistry Today article

The ACP has launched a pilot digital dentistry curriculum that will be tested at five dental schools.

  • “The American College of Prosthodontists (ACP) has selected 5 dental schools to pilot its Digit al Dentistry Curriculum. According to the ACP, this is the first time that a curriculum has been developed nationally to train future dentists on the uses of digital technologies such as intraoral scanners, CAD/CAM, milling machines, and CBCT.”
  • “According to the ACP, digital dentistry facilitates communication, improves treatment quality, and enhances the patient experience. Also, it directly archives individual data for simple retrieval worldwide at any time. Despite these advantages, there are significant barriers to wider adoption, including costs, regulatory concerns, technical and expert support, security and privacy, existing workflow disruptions, and time.”
  • “The pilot program will include AT Still University-Arizona School of Dentistry and Oral Health, the Rutgers School of Dental Medicine, the Stony Brook University School of Dental Medicine, the UCLA School of Dentistry, and the University of Kentucky College of Dentistry. The ACP also recruited and selected 5 member volunteers who will serve as mentors and train faculty at these schools about the use of these new technologies.”
  • “‘The recent explosion in digital technology, software, scanning, and manufacturing capabilities has resulted in a major paradigm shift in all aspects of dentistry,’ said Ann M. Nasti, DMD, associate dean for clinical education at Stony Brook. She will lead the curriculum. ‘Patients treated with digital solutions benefit from the combination of the most efficient clinical processes, accurate high-strength materials, and appealing aesthetics.’”
  • “‘Training our DMD students in the new digital technology will prepare them for how dentistry will be practiced in the near future,’ said Richard Windhorn, DMD, chief of prosthodontics at the University of Kentucky and a member of the ACP curriculum team. ‘It is paramount that they are equipped with knowledge of the latest practices, techniques, and materials when they graduate. The bottom line is that they will be trained to deliver the best possible dental care for their patients in the most efficient manner.’”

Additional research by Karen Lusky and Renee Euchner.