Align (ALGN) Ceases Straumann Distribution Deal, Shares Slip

Shares of Align Technologies, Inc. ALGN dipped 1.73% to close at $305.70 on Friday following the company’s decision to terminate its collaboration agreement with Straumann Group on intraoral scanner. Going by a latest press release, the latter has decided not to explore a potential scanner alliance with Align, which was initiated in March with regard to a certain patent settlement pact.

With the suspension of this agreement, Align failed to settle patent disputes with ClearCorrect, a Straumann subsidiary.

For investors’ knowledge, for several years, Align was engaged in complicated, multi-country (the United States, the United Kingdom and Brazil), multi-court patent litigation with ClearCorrect. With a successful completion of this above-mentioned collaboration agreement, all current and pending litigations with Straumann would have ended. Further, per the terms of the deal, Align would have obtained $35 million in settlement fees from Straumann.

As part of this agreement, Align and Straumann also signed a non-binding letter of intent for a 5-year global development and distribution deal. Under this development, Straumann had to potentially distribute 5,000 iTero Element scanners, which would have been fully integrated into the Straumann/Dental Wings CARES/DWOS workflow. Additionally, the parties considered exploring the possibility of offering the existing iTero users, access to Straumann’s prosthetic and surgical planning workflows.

Needless to say, termination of the entire process has come as a setback for Align, which is currently focusing on expanding its market base for scanners. However, according to Align, Straumann will pay the company an additional $16 million in lieu of the development and distribution agreement.

Align’s iTero in Focus

Per a Research And Markets report, the global 3D dental scanner market is projected to see a CAGR of 10.2% in the 2017-2021 period. These latest developments will help Align cash in on the potential opportunities.

To capitalize on this enormous scope, the company is attempting to extend its customer base within this niche. Although the latest dissolution of the Straumann-deal has been considered a downside for Align, with a series of multiple product developments in the recent times, the company is well-aligned with this strategy.

Strengthening its iTero arm, Align recently introduced an iTero Element Foundation intraoral scanner that will offer dentists digital workflow capabilities to address restorative and patient monitoring intraoral scanning needs.

The company also introduced its first intraoral scanner with near-infrared imaging technology — iTero Element 5D Imaging System. The system has been made commercially available across Canada, European Union countries acknowledging the CE mark (excluding Greece), Switzerland, Norway, Australia, New Zealand, Hong Kong and Thailand. However, the iTero Element 5D Imaging System is currently not available across the United States or Latin America.

Align is also gaining traction from the adoption of its iTero platform by dental service organizations or DSO partners.

We are also upbeat about the company’s widened iTero Element portfolio with the launch of iTero Element 2 and iTero Element Flex scanners in the United States across majority of the European countries including France, Germany, Italy, Spain and the United Kingdom

Share Price Movement

Over the past three months, shares of Align have outperformed its industry. The stock has rallied 20.5% compared with the industry’s 4.1% rise.

Zacks Rank & Other Key Picks

Align currently carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the broader medical space are Cerner Corporation CERN, Penumbra PEN and Bruker Corporation BRKR. While Cerner sports a Zacks Rank #1 (Strong Buy), Penumbra and Bruker carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cerner’s long-term earnings growth rate is expected to be 13.5%.

Penumbra’s long-term earnings growth rate is projected at 21.5%.

Bruker’s long-term earnings growth rate is estimated at 11.7%.

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