Treasure hunting for lost tombs in Egypt continues to this day. A popular fantasy is to discover a mummy elaborately decorated in gold and jewels. An unlikely part of this fantasy is to consider the archaeological significance of what lies inside the mummy’s mouth. If that was your concern, there would be occasions when you would find metal bands wrapped around individual teeth — some of the earliest documented evidence of orthodontic prac­tice. Archaeologists speculate that malocclusion (crooked teeth) were at that time corrected using cat gut in a similar way that metal wires are used today.

Common day metal wires and brackets have been the stan­dard of care for many years, but their omnipresence is now being challenged by a new generation of transparent, mouth guard-like aligners. Align Technology, Inc. (NASDAQ: ALGN) gave birth to this market and continues to reap rewards from branding which has achieved Kleenex level recognition in the malocclusion world. The Invisalign treatment is fairly simple. Patients are fitted for transparent retainers which are worn for 20 to 22 hours per day (the retainers are easily removable). At the end of a multi-week cycle the patient is given a new set of align­ers which apply pressure to teeth in a similar way to traditional monthly orthodontist adjustments. After many stages of pro­gression (and new retainers) the teeth assume the desired posi­tion. The cost of treatment is comparable to traditional braces.

Orthodontic and dental practitioners tend to be conserva­tive in adopting new technologies; normal adoption rates range from four to eight percent growth per year. We believe that the substantially higher growth rate of Invisalign adoption (and sta­ble pricing) reinforces the value added. Clear aligners currently represent 6% of a $2.6B addressable market. Of that 6% ALGN holds the lion’s share with 85% of unit volume or 96% of sales. The remaining 94% of the market is served by standard orth­odontic treatment. Further supporting ALGN’s competitive po­sitioning is an impressive patent portfolio, which has received public acclaim and, more importantly, been upheld in court.

Perhaps the most important part of this story is that ALGN knows how to sell. They understand their target markets and employ a creative push and pull marketing strategy. We are most interested in ALGN’s go to market strategy targeting general practitioners; general dentists dabble in the aesthetic market with teeth whitening and veneers but have historically referred most elective malocclusion cases to orthodontists. Why? ALGN believes that general practitioners feel out of their comfort zone, fear an unfavorable clinical outcome, and are not accustomed to selling an expensive elective procedure. To address these con­cerns, ALGN provides sales training, advanced imaging tech­nology, clinical support, and third party financing assistance. Furthermore, Invisalign research and development is ongoing in order to expand its application to more complex cases. In re­cent memory we cannot recall a better revenue opportunity for general dentists. We also believe that the practice of orthodon­tics among general dentists will eventually cause orthodontists to adopt Invisalign as a defensive competitive measure.

The desire for a pretty smile is a growing global trend and ALGN is expanding internationally to meet this demand, in­cluding complex case studies currently taking place among China’s leading Orthodontists. We continue to see evidence of wealthier developing nations adopting western aesthetic trends and believe that ALGN‘s products are well positioned to benefit from this tailwind.

Lee Wolf, Co-Portfolio Manager,
Wanger Investment Management, Inc.