Healthcare Weekly: ALGN’s Teeny Problem (+ CVS, IDXX, and SYNH)

Align Technology (ALGN) has been an expert call transcript trend here at Stream by AlphaSense for a while. What’s interesting to me this week are new sentiments regarding ALGN’s recent marketing towards a younger demographic and an  orthodontist’s opinion on iTero scanners.

The top healthcare transcripts of last week highlight topics in CVS Health Corp (CVS), IDEXX Laboratories Inc (IDXX), and Syneos Health Consulting (SYNH). Stream experts provide more insight on the Signify Health (SGFY) acquisition by CVS, leadership at IDXX, and a plateau in the contract research organization (CRO) industry .

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ALGN Faces a Teeny Problem with Teen Demographic

I’ve been emphasizing that the clear aligner product gap has been closing for a while, and this Orthodontist of 25 years puts 3M (MMM) right up next to Invisalign along with in-house printed aligners. ALGN can’t rely on their legacy in the field forever as orthodontists seek out more cost efficient solutions. This expert call transcript on ALGN’s recent efforts in marketing to the teen demographic pretty much says it all. 

“Again, that’s part of my speech to parents is, ‘I’m happy to utilize whatever product you want. Align, 3M, braces, whatever, my aligners, whatever you want. Compliance is a big part of any aligner scenario, whether it’s mine or someone else’s, any aligners you’ve got to wear them. If you don’t, you’re throwing your money away.’ When parents hear that, they tend to steer the other way.

But when I saw that they were marketing to the youngsters now. I was like, ‘Boy, they’re really trying to expand their footprint.’ I don’t think that’s a footprint that is practical in the reality sense of the word. They’re trying.

They’re going to find some doctors that’ll do it. The Invisalign only practice, I think, is not going to be Invisalign only by themselves. They’re going to eventually want to do their own stuff unless the margins are significant, which they can be fairly significant…”

– Orthodontist, Private Practice (25 years)

While I’m bearish on the longevity of Invisalign, it doesn’t matter what clear aligner product you use if patients aren’t compliant with wearing them routinely. And young whippersnappers would rather snap them off than on.

During the ALGN Q2 2022 Earnings Call, in response to a question about the teen market being down 2.1% year-over-year in Q2, the CEO said, 

“On the teen side, it’s hard to pull a lot of the second quarter because it really starts in the third quarter. But I felt overall good about it, but again, not surprised because we’ve always felt that teens have a certain window of time from a treatment standpoint. And so it’s not necessarily an emotional purchase in a way, it’s usually planned for and anticipated. And what we saw between the second quarter and beginning of the third quarter, it really bears that out…

On the teen side, we kind of lost — or we had a muted signal on the teen side…The other thing on teen too is there’s always competitive concern with other clear aligner whatever. But basically, this is a wires and brackets competition with us.”

– CEO, ALGN

Will ALGN meet their Q3 number or is it time for investors to short sell?

Conflicting Sentiments of iTero Scanners

Switching gears a little bit, I want to unpack this expert orthodontist’s experience with iTero scanners and in-house printing. I was surprised to find an expert ortho that didn’t have bearish sentiments on iTeros like last week’s expert ortho and to even claim they “love it” and use it for digital records. If I lived in a sitcom this is where the audience would gasp, if you’re reading this please gasp.

“I use the iTero scanner for basically a lot of stuff, not just for aligners. I use them for digital records. If you come into my office, you’re going to get a start process where I scan you at the beginning. You’re going to get a digital record of the scan, and we’re going to scan you at the end for retainers. Now, I’ve used you twice in the sense of every time you use them, you have to use the scanner sleeve. I have the iTero 2, which is just two years old now.

Anyway, I know the scanner sleeves are more expensive, they have a little bit of margin on them. We get these one every time you see a patient. They’ve got a recurring process of besides them being relatively expensive. They’re not an inexpensive tool. It is a good tool. I love it. 

I have a 3D printer, so I end up getting a scanner and then a 3D printer which allowed me to print my models, which allowed me to then branch off into doing my own aligners, potentially. I’m making retainers and things like that. My laboratory costs, my lab bills have gone down, because I now fabricate a lot of my own retainers and things like that, as well as my own wires.

I still use Invisalign. I have four offices I work out of. Two of my own private practice, and then two, I’m the orthodontist in their private practices, for general dental private practices I work. I’m the orthodontist there. In those offices I exclusively address Invisalign, because that’s the standard and it’s easy for us to use.”

– Orthodontist, Private Practice (25 years)

This favorable sentiment intrigues me and I’ll tell you why. I distinctly remember a previous expert call transcript I read from my Binding Effect of ALGN’s iTero Scanners post where the expert ortho did claim that iTero’s digital record was a redeeming factor but it just wasn’t worth the cost. Take a look:

“Yes. The improved efficiency is definitely a selling point, I think is pretty useful. Also for me, it depends on where the practice is in its lifecycle…

Overall, it’s not really saving too much because I can still get every patient that wants to get in and that doesn’t change the number of patients I see in a day because I’m not totally booked. There are some different things that I can do with an iTero like scan every patient for initial records which would definitely be helpful and scan every patient with final or scan people for retainers, different things.

For me and where I am right now, it just doesn’t seem worth the cost. Also, again, there’s an incremental cost of storage and things that I just don’t have right now. It would add some overhead. Even if it does add a little bit of efficiency, that’s not the barrier in the practice right now.”

– Orthodontist, Private Practice (25 years)

It’s good to know that there are validations for the patient recording system of iTero, but that doesn’t change the overall sentiment that the scanners are costly and orthodontists are looking for other solutions. I’m still bearish on them based on the overall sentiments I’ve read from expert orthodontists in our expert call transcripts.

Top 10 Expert Call Transcripts – Health Care Equipment & Services

1. IDXX (IDEXX Laboratories Inc) – Former General Manager Sees Structurally Lower Growth for IDXX
2. COO (Cooper Companies Inc) – Former President of APAC Believes COO’s CooperVision Will End up Being the Number One Contact Lens Player
3. EW (Edwards Lifesciences Corp) – Vascular Surgeon Is Optimistic About EW’s Capability to Continue Its Leadership in Device Manufacturing
4. STMN (Straumann Holding Ltd) – Former Territory Manager Is Bearish on STMN-SE and Sees a Significant Slowdown Coming
5. MDT (Medtronic PLC) – Competitor Thinks AXNX Has Forced MDT to Step Up Its Game
6. CVS (CVS Health Corp) – Former Competitor Believes More Health Insurance Companies Will Look to Prioritize Risk Adjustment
7. COH (Cochlear Ltd) – Former Marketing Manager Believes CHEOY Has Multiple Competitive Advantages  a Dominant Position in the Market  and Long Runway for Growth
8. ISRG (Intuitive Surgical Inc) – Surgeon Is Bullish on Robotics Adoption and Very Satisfied With DaVinci
9. MDT (Medtronic PLC) – Former Commercial Marketing Manager Believes MDT Could Capture ~20% Share in Robotics
10. RMD (Resmed Inc) – Former Project Manager Believes Propeller is Better Positioned as Part of RMD

Former Senior Manager at Blue Cross and Blue Shield (BCBS) believes more consolidation of risk adjustment functions will occur, such as the recent acquisition of SGFY by CVS and expects more health insurance companies will add in-home risk-adjustment functions to save money.

“Analyst: What do you think ultimately for a company like CVS, what will the benefit be of being in the home?

Expert: It reduces barriers to care and access to care. It brings the provider to the member as opposed to the member going to the provider… CVS now can send out a Signify provider, a licensed provider to the member’s home to address gaps in care and address the member’s conditions right in the comfort of the member’s home.

It helps reduce readmission rates and helps that whole cost. The huge reason they spent $8 billion on Signify is they want to focus more on health at-home care. Like I said, what better way to do it than buy the biggest company in the country that does that work…”

– Senior Manager, BCBS (Prior)

From the perspective of the investors, you may usually hear that it’s the therapeutics slice of the pie that is causing all the headaches. From this expert’s perspective, there are opportunities to reduce costs outside of therapeutics in drug prices.

“In drug prices, you hear our politicians talk about it all the time too, but it is a major factor. Insurance plans today sometimes don’t cover 50% of the cost, especially if you have a Medicare plan. Given Medicare Part D, as in delta, which covers drugs, you have to meet your deductible. Until you get into what’s called catastrophic coverage, you’re basically paying, I can’t give you the percentage because all plans differ, but X percent of the cost of a drug that costs $6,000.

The member, the patient, the consumer, they’re paying a large amount of money until something is fixed. Health care’s free in Canada. I believe it’s free or very cheap in Europe. Until there is an overhaul, I think you’re going to see some price reduction, hopefully, not only through cost savings but also through, I don’t want to say enforcement, if that’s even legal. I think it’s going to continue to be an issue until somebody finally put the cap on it.”

– Senior Manager, BCBS (Prior)

The former Associate Director of IDXX is bearish on IDXX and believes that the company needs new leadership focused on disruptive innovation. The expert sees IDXX hurting from a lack of innovation and losing share to Zoetis Inc (ZTS) and Henry Schein (HSIC).

“I haven’t seen anything new come out from IDEXX in some time. They’re maintaining the analyzers and obviously, there’s always software updates that go out, but are they really taking that to the next level with the enhanced options that you can utilize for smaller reference lab-style analyzers in-house? Also, digital imaging. Again, that’s the Zoetis images.

Zoetis is basically leading the pet health care division in imaging and remote imaging to pathologists all over the U.S., all over the world, potentially where IDEXX is not putting forth probably as good of a quality product as Zoetis or potentially some of the other competitors…

Zoetis and Henry Schein both are [leading innovation.] Zoetis, not as much when I was there for the majority of my tenure with IDEXX. Zoetis was a name that we talked about as we always got to keep an eye on. Henry Schein was always in the conversation, and I don’t think that has stopped in the year that I’ve been gone. Just in the ancillary pieces that I’ve seen in news or the publications or anything that I still get, those would be the two that I would identify as being very strong in the market.”

– Associate Director, IDXX (Prior)

Top 10 Expert Call Transcripts – Pharmaceuticals, Biotechnology & Life Sciences

1. DHR (Danaher Corp) – Former Sales Manager Sees Increased Competition Impacting DHR Business in India
2. IQV (IQVIA Holdings Inc) – Former Management Consulting Director Thinks the CRO Industry Is Heading Into a Period of Flat Growth
3. BAYA (Bayer AG) – Obstetrician Sees Mirena as Offering Advantages Over Paragard Despite Only Working ~8 Years Vs ~12 Years
4. LLY (Eli Lilly & Co) – Endocrinologist Is Bullish on Mounjaro and Wegovy and Sees an Important Role for Continuous Glucose Monitors
5. ALNY (Alnylam Pharmaceuticals Inc) – Former Associate Director Is Bullish on ALNY’s Givlaari and Sees Onpattro’s Price as a Barrier to Uptake in Europe
6. LLY (Eli Lilly & Co) – Physician Believes Liraglutide Sematlutide and Tirzepatide Are Promising Weight Management Drugs
7. NVO (Novo Nordisk A/S) – Pediatric Endocrinologist Sees Significant Potential for Once-Weekly Insulins in the Pediatric Population
8. BMY (Bristol-Myers Squibb Co) – Cardiologist Not Optimistic About Milvexian After Phase 2 Results for Stroke
9. AZN (AstraZeneca PLC) – General Allergist-Immunologist Believes That Tezspire Is a Game-Changer Within Respiratory Diseases Particularly for Asthma
10. HZNP (Horizon Therapeutics PLC) – Ophthalmologist Believes HZNP’s TEPEZZA Is a Game Changer

A former Director at SYNH is bearish on the CRO industry and thinks that its heading towards a plateau, but may rump back up in 2024.

“Developing a drug takes years…Once the products that are now in the pipeline start showing positive outcomes, these can be translated as people invested. If you take 2021 as the baseline, I would say that you would start ramping up again in large volumes in 2024, for example.

I don’t think it’s going to be another slowdown. I think it will just be stable like 2022, 2023, it’s going to be the same. People won’t be removing money from there now. I think the success or the critical factors there, for example, in terms of competition, it’s companies trying to get into the decentralized trials. That’s a risk factor for the CROs, but they don’t have a lot. It’s just a small piece that targets the same market.”

– Director Management Consulting, SYNH (Prior)

The expert believes that Thermo Fisher Scientific (TMO), IQV, and Laboratory Corp. (LH) are a headwind for SYNH.

“I know that IQVIA also expanded services above and beyond the CRO. I think the difference is that IQVIA could be better positioned when it comes to data and data management because they actually have claims data. Time will tell if that’s the right strategy because Syneos is data agnostic or database agnostic to be more specific, so we can work with IQVIA data or Symphony or Clarivate, formerly PRG data, so it doesn’t matter but IQVIA generates its own.

PPD, I think they also made some acquisitions like Evidera a couple of years ago. I think it’s working with Thermo Fisher, so adding those companies to the PPD ecosystem. Now, they have way more synergies. They can leverage more infrastructure, especially with the Thermo Fisher partnership. They now have more knowledge and better ways, better capabilities to aid or help pharmaceutical companies…

I think Syneos will also keep growing. Lastly, let me just add one more that I haven’t mentioned like Labcorp. I think they will also have opportunities to grow and IQVIA as I mentioned earlier.”

– Director Management Consulting, SYNH (Prior)

Overall IQV appears to be the standout within the competitive landscape and may even lead to SYNH pairing up with it in the future.

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