We’ve predicted this for quite some time and have recently seen evidence that our forecasts are coming to fruition. Private equity groups, investor groups, market research firms and orthodontic vendors are actively examining investment opportunities in the orthodontic space and this, combined with other recent events, makes us all but certain that major change is around the corner. We feel more strongly than ever that several of the major and most of the mid-level bracket & wire companies are actively seeking outside investment in an attempt to cash out before going under or becoming substantially less profitable. With the exponential growth and profitability in the aligner market as demonstrated by the spectacular rise in stock prices and new players entering the space, investing in dentistry and orthodontics would appear to be a sound decision. We believe quite the contrary, that taking a position in bracket & wire companies is a terrible idea fraught with high risk.
Brackets companies are a dime a dozen. Customer loyalty to their vendors is a thing of the past. The name of the game in orthodontics today is overhead control and price will almost always trump branding when it comes to metals. While we can foresee a segment of the orthodontic community continuing to pay more for actual or perceived clinical efficiency and effectiveness of some higher priced products, the vast majority of orthodontists will elect to purchase brackets from price competitive vendors. A company that makes pre-coated brackets and a bracket company that makes buying their braces cool because of the community they have created are a couple possible exceptions to the compression and lack of loyalty rules.
It doesn’t take a prophet to make this call. Compression of the bracket market is an obvious side effect of downward pressure on the price of orthodontic treatment, increasing overhead in the average orthodontic office and the widespread availability of very inexpensive brackets, wires and auxiliaries from overseas. As reported in February, Opal Orthodontics dropped their bracket business and we don’t think this will be an isolated incident over the next few years. We believe Opal was wise to cut the dead weight but we know that most vendors will not have the intestinal fortitude to amputate the gangrenous limb to save the body. Product lines that were formerly cash cows are now dogs in the Boston Consulting Group matrix (see below).
So what does this mean? How do companies who previously made a very strong profit from brackets and wires make money in the new reality? Simple. They need to offer services that address THE SINGLE MOST IMPORTANT ISSUE IN ORTHODONTIC PRACTICE RIGHT NOW – bringing new patients in the door! These services that attract new patients along with services that help orthodontists run a profitable business will be highly valued and sought after by market savvy orthodontists. You only need read through the articles posted here on OrthoPundit to have a very strong idea what those services might be!