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Align Technology and Its SmileDirectClub Partnership

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Mar. 5 2018, Updated 10:30 a.m. ET

SmileDirectClub

Align Technology’s (ALGN) Invisalign aligners are approved for in-office treatments with GP (general practitioner) dentists and Invisalign-trained orthodontists. However, in July 2016, it entered into an agreement with SmileDirectClub (or SDC) to manufacture non-Invisalign clear aligners for SDC, which offers an at-home teeth-straightening program at an affordable cost.

Align Technology invested ~$46.7 million in SDC. In 2017, it invested an additional ~$12.8 million. Align now owns a ~19% stake in SDC.

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SmileDirectClub was founded in 2014 and is a direct-to-consumer solutions provider for teeth straightening. Customers get their teeth scans done at a physical setup after an online appointment. They receive a kit that enables them to make their own teeth molds, which they mail to SDC. SDC then provides solutions to the customers and sends them the custom aligners. SDC is not the only startup in this market. Other companies include Candid, Orthly, and Uniform Teeth. Align Technology could face some competition over the next few years from these startups as well as other dental technology companies, including Dentsply Sirona (XRAY), Zimmer Biomet Holdings (ZBH), and Henry Schein (HSIC).

4Q17 performance

In 4Q17, Align Technology reported a sequential decline in its shipments of non-Invisalign SDC aligners to SDC. According to the company, the decline was expected since SDC has expanded its in-house manufacturing capacity. The partnership enables consumers who can’t get SDC’s at-home service to be connected with a trained Invisalign orthodontist.

According to Align Technology, its partnership with SDC enables the company to advance its focus on expanding the orthodontic treatment market and increasing access to teeth-straightening treatments. However, the American Association of Orthodontists has expressed concerns over self-treatments that companies such as SDC offer. It believes these treatments can be harmful and lead to more costs in the long run.

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