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Nobel Biocare Has Gotten Its Teeth Kicked In

By January 11, 2013 January 2nd, 2020 No Comments

How unpopular is Swiss dental device company Nobel Biocare? The stock was down 30% in 2012 and is down 75% over the past three years, but the stock still carries an overwhelming number of “Sell” recommendations. While Nobel has seen some significant negative developments in its core dental implants market, it’s still worth asking whether this stock may not carry some value for risk-tolerant deep-value turnaround investors.

Focused On Better Smiles

While Nobel Biocare does offer a wide array of products including prosthetics like crowns and bridges and the NobelProcera CAD/CAM system, the business is very much built around its dental implants. As the name might suggest, dental implants are basically implantable products that are drilled/anchored into the jaw and replace lost teeth.

This makes Nobel Biocare (and its fellow Swiss implant rival Straumann) relatively focused plays in the larger dental industry. While companies like Danaher.. and Dentsply (XRAY) do have some involvement in the implant business, they sell a much wider variety of tools and equipment into the dental care marketplace. In comparison 3M (MMM) is not very active in implants, while other implant players like Biomet and Zimmer (ZMH) do not compete in the wider dental equipment/supplies market.

For Nobel, this focus has come with a cost. Dental implants were once a hot, hot space – orthopedics companies were hungry for new avenues of growth, and analysts dutifully built models pointing to aging populations in North America and Western Europe, plus rising healthcare spending in emerging markets, as major drivers for the space…

Other markets have their own challenges. Europe’s national payer systems have led to much higher dental implant penetration rates (2x in Germany relative to the U.S., 3-4x in countries like Spain), but also smaller available patient populations, while countries like China and Brazil are more concerned with providing better levels of basic care as opposed to expensive restorative procedures. Add to this, too, that European healthcare systems are facing shrinking budgets, and value-priced competitors are gaining on Nobel.

Trying To Rebuild From A Solid Base

From a peak of EUR 666 million in revenue in 2007, Nobel has seen steady erosion down to about EUR 570 million, with basically flat revenue from 2009 up to present. At the same time, the operating margin has plunged from more than 32% to about 13% and returns on invested capital are about one-third of their former levels.

For all of that badness, it’s worth noting that analysts believe Nobel still holds approximately 24% share of the U.S. implant market. Straumann is second with 18%, Dentsply third with 14% (after its AstraTech deal with AstraZeneca (AZN)), and Zimmer fourth. On a global basis, Straumann claims the top spot (19% versus 18% for Nobel), with the other shares broadly similar to the U.S. market.

It’s also worth noting that missing teeth don’t grow back; business that Nobel lost due to the recession and subsequent changes in consumer credit is still potentially available. Dentures and bridges don’t feel natural, and while I don’t want to overstate the benefits of dental implants, most people who have a choice seem to choose the implants. The dental implant business has very definitely stagnated in the U.S. (apart, at least, from value-priced entrants), but the long-term growth rate still looks as though it could fall in the 4%-5% range…

Could Nobel Be Somebody Else’s Prize?

As a modestly-sized company (roughly $1B in market cap) with a focused product line-up, Nobel would be a logical acquisition target. To that end, deal rumors (including LBOs and private equity) have dogged Nobel throughout the shares’ prolonged decline.

A deal could make sense, but the number of bidders may be relatively limited outside of private buyers. I don’t believe Danaher wants to get any bigger in healthcare right now, and I don’t think the premium dental implant space is where it would go. Dentsply likely doesn’t have the balance sheet flexibility, assuming that regulators would okay the deal. What’s more, I don’t see Zimmer or Biomet as likely buyers, particularly with Biomet considering a spin-out of its 3i dental business…read more

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This article was brought to you by the Smile Clinic in London West End is  general and cosmetic dentistry London with specialist in best dental implants London, cosmetic veneers, smile makeover, cosmetic dental bridge and cosmetic denture and dental implants dentures.

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