22 July 2019 Americas/United States Equity Research Life Science Tools and Diagnostics

Dental Update Research Analysts CHANNEL CHECK Erin Wilson Wright 212 538 4080 [email protected] Survey Says: Dental Demand Builds Katie Tryhane 212 325 2713 ■ 2Q Dental practice volume, revenue growth better than 1Q trend: [email protected] According to our proprietary survey of 75 US dental practitioners, 63% of George Engroff practices experienced positive revenue growth in 2Q, rising 1.4% (weighted 212 325 2289 [email protected] avg.), a nice improvement from our 1Q survey (+0.7%). New patient traffic (+1.3%) was the most meaningful driver of practice revenues, followed by

orthodontics (+0.9%), routine visits (+0.9%), and bridges and implants (+0.8%). Respondents remain optimistic on NTM trends with 72% expecting improving practice volume (vs. 65% in 1Q). While the trends indicate no meaningful turnaround in dental demand, we are modestly encouraged by the stability, providing a barometer for performance across our dental coverage universe. Noting key caveats, (1) this is our fourth quarterly survey, where we expect increasingly relevant takeaways with greater historical context and (2) our survey was slightly more skewed toward orthodontists in the latest quarter relative to prior mix experiences. ■ Equipment–Digital dentistry drivers in innovation: While respondents were seemingly sequentially more upbeat on equipment purchasing over the next twelve months, with particular focus on intraoral scanners, we note that some practitioners may still remain wary of larger cash outlays in light of macro concerns as well as noted reimbursement pressures. We maintain our positive thesis on Dentsply Sirona (XRAY) amidst a longer term turnaround story as innovation is seemingly materializing with its new Primescan offerings and SureSmile clear aligner system software. That said, traction for Primescan is admittedly in early days, with only 1% of respondents currently utilizing the system and with 1% expecting to imminently purchase the system (8% awaiting an upgrade cycle), acknowledging an element of pent up demand. XRAY’s SureSmile broadly experienced positive reviews, and we await further commentary on XRAY’s opportunity in the market. For Align Technology (ALGN), we were similarly encouraged, where traction for its iTero offering remains strong, albeit potentially driven by notably higher promotional activity, survey mix. ■ Supply chain, Direct Dist., Amazon update: Henry Schein (HSIC, Neutral) and Patterson Companies (PDCO, Outperform) were named as primary distributors by 28% and 20% of respondents, respectively. The vast majority (75%) is satisfied with its primary distributor, and 83% do not work with GPOs, an unsurprising dynamic (differs meaningfully from the Animal Health market). While only 9% of standard medical consumables (e.g., gloves, cotton balls) are purchased through Amazon today, respondents expect purchases through Amazon could grow to 17% in 3-5 years. In terms of direct distribution, respondents currently purchase only 11% of consumables (14% of equipment) direct from manufacturers, with 20% and 15% of respondents expecting to purchase more consumables and equipment, respectively directly over the next twelve months, a trend that may continue as dental manufacturers further invest in their internal sales efforts (e.g., Dentsply Sirona). DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

22 July 2019 ■ Clear aligners remain in focus—Align dominates: The majority (63%) of clear aligner users expect demand to rise over the NTM, largely driven by marketing efforts from major companies, with volume also supported by a rising base of trained practitioners. Align’s Invisalign remains the clear market leader, with 68% of our cohort currently utilizing the offering (81% of clear aligner users) offering Invisalign, with 65% of cases treated with ALGN’s more comprehensive Invisalign Full offering, though we continue to await traction in Invisalign Go for GPs and Mandibular Advancement. While ALGN remains well ahead in terms of innovation, some practitioners are seemingly worried about DTC concepts gaining traction in the marketplace, while others view greater marketing efforts around clear aligner solutions may drive acceptance of the solution more broadly, thereby benefitting the doctor-directed market, as well. While concerns over competition, DTC concepts, and ASPs will remain overhangs, we view there is room for several players in a highly underpenetrated clear aligner market. ALGN is well ahead in terms of innovation, and we await further traction in recently launched products.

Dental Update 2 22 July 2019

Dental Survey Takeaways We commissioned a survey of 75 practicing dentists dispersed across 20 states in the U.S., with the highest number of responses in New York (12), California (11), Pennsylvania (10), and Texas (7). Our respondents range across a number of specialties including general dentist (46), orthodontist (28), and periodontist (1), with an average tenure of 22 years. About half of our respondents work as sole practitioners (33), while most other participants work with multiple other dentists at a single practice owned by dentists (25). Of note, 6 respondents work for a DSO or dental management organization affiliated group practices. On average, our respondents see 158 patients/week. 1Q Snapshot: Relevant company-specific highlights

■ Dentsply Sirona (XRAY, Outperform) – Earnings Date 8/2: We are forecasting 2Q19 revenues to fall 0.2%, driven by 2.0% organic consumables growth and +5.5% organic growth in Equipment, reflecting a y/y benefit from $23 million of destocking in 2Q18, partially offset by a 2.6% FX headwind. We remain optimistic on XRAY’s salesforce execution push, where 15% of respondents currently purchase consumables directly from the company, with 20% and 15% expecting to purchase more consumables and equipment, respectively directly from manufacturers over the next twelve months. We also remain encouraged by XRAY’s execution on restructuring initiatives, particularly as it relates to its newer focused innovation strategy, where results have already seemingly started to materialize with the launch of Primescan and the introduction of new SureSmile software. As it relates to Primescan, adoption is clearly still in early innings with only 1% of respondents currently utilizing the technology and only 1% of respondents planning to purchase the product NT (17% remain unaware of the product; 8% awaiting an upgrade cycle). Meanwhile, its SureSmile clear aligner system appears relatively well received, with respondents praising its effectiveness, speed, and cost effectiveness. Importantly, while most of our respondents view XRAY’s equipment pricing as unchanged, net/net our cohort views pricing is slightly more aggressive. Focus on its earnings call will be on end-market fundamentals, equipment trends, salesforce dynamics, and efficiency initiatives.

■ Distributors – Patterson Companies (PDCO, Outperform), Henry Schein (HSIC, Neutral): On balance, while expectations for distributors remain relatively low, we are cautiously optimistic on prospects for the respective dental businesses of Patterson Companies and Henry Schein based on the incrementally positive NTM outlook on dental demand trends amongst our cohort. We also highlight positive commentary as it relates to Patterson, where respondents who utilize it as a primary distributor are more satisfied with its on-time delivery, customer service, and salesforce knowledge, on average, relative to competitors, signaling potentially building traction for turnaround initiatives. That said, we remain cautious around increasing momentum as it relates to dental service organizations (DSOs), where 11% of respondents have disclosed some manner of affiliation with corporate players, and with 75% of respondents noting their expanding presence in the dental market. These larger corporate players may leverage their scale to achieve better pricing from distributor partners and generally maintain greater capacity to purchase directly from the manufacturer. That said, while we continue to monitor these dynamics, we acknowledge DSO presence currently remains relatively low and that direct from manufacturer purchasing is also relatively underpenetrated, accounting for only 11% and 14% of consumables and equipment, respectively. Moreover, Amazon’s penetration remains low, only currently accounting for 5% and 4% of dental-specific consumables products and equipment, respectively.

■ Align Technology (ALGN, Outperform)—Earnings Date 7/24: While news of several new entrants into the clear aligner space has pressured ALGN’s shares along with

Dental Update 3 22 July 2019

recent pricing degradation that is expected to persist into 2019, we deemphasize the competitive threat, with a view that the highly underpenetrated clear aligner market is large enough for several players. Importantly, while several respondents have pointed to potential headwinds from direct to consumer (DTC) aligner solutions, others have also noted that increased marketing continues to drive awareness for the solutions, which has also supported doctor-directed clear aligner growth, as well as a longer term positive as unsuccessful DTC cases seek professional treatment to better achieve desired results. Currently, ALGN’s Invisalign is utilized by 81% of our cohort of dentists, where our respondents also expect demand to grow +2.2% over the next twelve months, with volume growth likely incrementally supported by a growing base of trained dental professionals. Of note, practitioners characterized pricing across ALGN equipment (iTero) as relatively more aggressive in the most recent quarter, a dynamic that can help to drive Invisalign sales longer term. All in, we forecast +15.8% EPS growth fueled by +22.4% topline growth, on +19.2% clear aligner growth and +47.0% iTero growth, offset by 138 bps EBITDA margin contraction in 2Q on incremental sales force. Investor focus will be on 2019 commentary and quarterly guidance, with folks looking for evidence of continuing robust volume growth to offset aforementioned ASP pressure, which we view as well documented. State of the Industry Despite what should be favorable demographic and macro dynamics, dental consumable trends have not experienced a meaningful, sustained pick-up in demand since the 2008 recessionary timeframe, likely driven by rising out-of-pocket healthcare spend, representing a growing percentage of total discretionary income for consumers, share shifts to specialty, among other potential factors. While dental trends were broadly mixed in 1Q reports across manufacturers and distributors (see Dental Update: Drilling into 1Q Earnings), we were generally encouraged by industry commentary, which pointed to a potential stabilization in the N. American end markets. That said, we remain cautious in suggesting a broader stabilization or pick-up in demand in 2Q, particularly in light of several company specific Dynamics.

Figure 1: Recent quarterly Dental demand trends as reported by industry constituents

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 Consumables +LSD +LSD +LSD -- Negative Negative -MSD -L-MSD -LDD + Slightly -MSD +LSD +LSD -LSD Danaher Equipment -LSD +MSD +MSD -- Positive +LSD +LSD -MSD -HSD + Slightly -MSD ~Flat +LSD/+MSD -LSD Consumables 3.3% 0.9% -2.5% -2.8% -4.3% -3.6% -4.4% -7.4% -6.7% -5.2% -2.2% -1.9% -0.9% Patterson Equipment -6.9% 5.4% 4.2% -1.0% -16.9% -15.1% -17.7% -10.6% -20.2% 5.4% -0.9% 5.6% 13.1% Consumables 4.6% 1.8% 1.8% 1.9% 2.5% 0.8% 1.3% 1.9% 2.7% 4.7% 4.3% 2.5% 2.5% HSIC N.A. Equipment 13.5% 2.7% 13.3% 2.7% -5.5% 14.8% -0.7% 18.1% 4.4% 6.2% 5.9% -4.3% 3.3% Consumables 1.6% 4.5% 2.7% 2.5% 8.0% 1.4% 3.4% -2.6% 2.4% 3.0% 3.5% 3.4% 5.5% HSIC Int'l Equipment 4.3% 3.1% 4.2% -3.9% 3.1% 3.6% 2.6% 7.7% 3.1% 4.7% -4.2% 1.3% -1.2% Consumables 4.5% 3.8% -0.3% 3.5% 2.4% 2.0% 4.3% 3.9% -1.3% 3.3% -3.0% 5.4% -0.6% Dentsply Sirona Technologies 6.8% 0.8% 0.2% 0.0% -12.7% -10.0% -1.1% 5.9% -1.6% -1.1% -9.3% -4.2% 7.9%

3M Oral Care 5.0% 3.0% 0.0% -1.0% 5.0% 0.0% 3.0% 3.0% 0.0% 3.0% 2.0% 4.0% +LSD Coltene Consumables 1.0% 3.3% 1.8% 2.8% 4.2% 2.7% Source: Company data Patient volume & practice revenues According to our survey, 63% of respondents experienced 0% to +5%+ growth in patient visits in 2Q19 (vs. 47% in 1Q and 4Q18), with total volume increasing 1.3% on a weighted average basis, a meaningful increase from the previous quarter’s experience (+0.5%). Almost a quarter of respondents (23%) reported ~flat patient volume growth over the past three months. Notably, only 15% of respondents reported declines in patient visits during 2Q (vs. 27% in 1Q and 23% in 4Q18).

Dental Update 4 22 July 2019

Figure 2: Dental practice volume (Y/Y growth) – Figure 3: Dental practice volume (Y/Y growth) – Respondent distribution +1.3% weighted avg., vs. +0.5% in 1Q

63% of respondents have experienced 1.5% +1% to 5%+ in patient visits during 2Q19 43% 1.3%

38% 1.3%

35% 32%

33% 31%

1.1% 27%

28% 27%

25% 23%

23% 0.9%

20% 19%

18% 15%

15% 0.7%

13%

13% 13%

13% 10% 0.5% 0.5%

9%

9%

9%

8% 8%

7% 0.5%

7%

5% 5%

8% 5%

4%

3% 3% 3% 0.3% 0.2% -2% < -5% or -3% to - -1% to - Flat +1% to +3% to > +5% or more 4% 2% +2% +4% more 0.1%

3Q18 4Q18 1Q19 2Q19 -0.1% 3Q18 4Q18 1Q19 2Q19

Source: Credit Suisse, n=75 Source: Credit Suisse, n=75

Practice revenues increased 1.4% on a weighted average basis in 2Q19, a sequentially better trend (vs. +0.7% in 1Q and +0.5% in 4Q18). Practice revenues were driven by new patient traffic (+1.3%), orthodontic (+0.9%), routine visit (+0.9%), and bridges and implants (+0.8%). As a caveat, this is our fourth dental survey, and we expect more meaningful takeaways to our dental coverage with greater historical context in future surveys.

Figure 4: Dental practice revenues (Y/Y) – Figure 5: Dental practice revenues (Y/Y) – +1.4% Respondent distribution weighted avg., vs. +0.7% in 1Q

63% of respondents have experienced +1% 1.5% 1.4% 40% to 5%+ practice revenues during 2Q19

35% 33% 1.3% 29% 30% 29%

1.1%

25% 25%

25%

21%

21% 19% 19% 0.9%

20%

17% 17%

15% 13% 0.7%

12% 12%

12% 0.7%

11%

9%

9%

9%

9% 8% 9% 0.5% 0.5%

10% 8%

7% 7%

5% 0.5%

5% 3% 1% 0% 0.3% < -5% or -3% to - -1% to - Flat +1% to +3% to > +5% or more 4% 2% +2% +4% more 0.1% 3Q18 4Q18 1Q19 2Q19 -0.1% 3Q18 4Q18 1Q19 2Q19

Source: Credit Suisse, n=75 Source: Credit Suisse, n=75

Dental Update 5 22 July 2019

Figure 6: Factors impacting practice revenues – New patient traffic, acute care remain prominent drivers

Endodontic 0.1% Least notable driver 0.1% 0.3% Cosmetic 0.2% Acute Visits 0.4% 0.2% Preventative 0.5% 0.4% Existing Patient Traffic 0.7% 0.4% Pricing 0.7% 0.9% 0.8% Bridges and Implants 3% 0.9% Routine Visits 0.2% 0.9% Most meaningful driver Orthodontic 0.5% 1.3% New Patient Traffic 0.7% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 2Q19 1Q19

Source: Credit Suisse, n=75 NTM Outlook: Strengthening fundamentals Sentiment from respondents was optimistic for the next 12 months with 72% of dentists expecting stronger results in patient traffic in the coming months (vs. 65% in 1Q and 71% in 4Q), a modestly positive read-through for dental manufacturers and distributors. On a weighted average basis, respondents expect patient visits to rise 1.9% over the next 12 months, compared to 1.4% in 1Q and 1.9% in 4Q. Only 9% of dentists in our survey expect declines in patient visits, a slightly more optimistic view sequentially (from 16% in 1Q).

Figure 7: Clinic volume outlook NTM – Respondent Figure 8: Clinic volume outlook NTM –+1.9% distribution weighted avg. vs. +1.4% in 1Q

72% of respondents expect +1% to 2.0% 5%+ growth in patient visits over NTM 1.9% 1.9% (vs. 65% in 1Q) 45%

1.6% 39% 40% 37%

36% 1.5% 1.4% 35% 34%

30%

25% 23%

21% 21% 20%

19% 1.0%

19% 19%

20% 19%

15% 12%

15% 12%

12% 9%

10% 8%

6% 5%

4% 0.5%

5% 3%

1% 1% 1% 1%

1% 0% 0% < -5% or -3% to - -1% to - Flat +1% to +3% to > +5% or more 4% 2% +2% +4% more 0.0% 3Q18 4Q18 1Q19 2Q19 3Q18 4Q18 1Q19 2Q19

Source: Credit Suisse, n=75 Source: Credit Suisse, n=75

Dentists also remain optimistic regarding practice revenues, expecting a weighted average increase of 2.0% over the next 12 months. The majority of respondents broadly expect strengthening overall demand as compared to the current experience, consistent with our view of stabilizing dental fundamentals.

Dental Update 6 22 July 2019

Figure 9: Practice revenue outlook NTM – Figure 10: Practice revenue outlook NTM +2.0% Respondent distribution weighted avg. vs. +1.6% in 1Q

71% of respondents expect +1% to 2.5% 5%+ in practice revenue growth over NTM (vs. 71% in 1Q) 45% 2.2% 2.0% 40%

36% 2.0%

35% 32% 29%

29% 1.6% 1.6% 30%

24% 1.5% 23%

25% 23%

20% 20%

19% 19%

20% 19%

16% 16%

15% 12% 1.0%

11% 11%

9% 9%

10% 8%

7% 4%

5% 3%

1% 1%

0% 0% 0% 0.5% 0% < -5% or -3% to - -1% to - Flat +1% to +3% to > +5% or more 4% 2% +2% +4% more

3Q18 4Q18 1Q19 2Q19 0.0% 3Q18 4Q18 1Q19 2Q19

Source: Credit Suisse, n=75 Source: Credit Suisse, n=75 Dental Supply Chain Based on our survey, Henry Schein and Patterson are the most commonly used distributors, with 64% and 47% of our respondents utilizing their services, respectively. Importantly, well over a third (39%) of respondents purchase some supplies from the manufacturer directly. We also ask our cohort what percentage of purchases they make through each source, where results were unsurprisingly concentrated in the top two US dental distributors. In terms of consumables, our respondents purchase 28% and 21% of consumables through Henry Schein and Patterson, respectively (vs. 31% and 28% in 1Q, respectively), as well as 32% and 26% of equipment through Henry Schein and Patterson, respectively (vs. 36% and 20% in 1Q, respectively). As a reminder, the ~$20 billion North American dental distribution market is highly concentrated with the top three players, Henry Schein, Patterson, and Benco Dental Supply, representing ~85% of the market. Henry Schein continues to dominate with ~35- 40% share according to our estimates, with Patterson representing ~23%, based on our analysis of recently reported company results.

Dental Update 7 22 July 2019

Figure 11: Which of the following distributors have you used in the past 12 months?

64% Henry Schein 64% 47% Patterson 45% 47% Amazon 45% 39% Direct from Manufacturer 36% 23% Other 21% 15% Benco 20% 7% Darby Dental 11% 5% Burkhart Dental Supply 7% 1% Supply Clinic 3% 0% 10% 20% 30% 40% 50% 60% 70%

2Q19 1Q19

Source: Credit Suisse, n=75

Figure 12: What percentage of Consumables are Figure 13: What percentage of Equipment are purchased through each respective channel? purchased through each respective channel?

35% 40% 36% 31% 30% 28% 35% 32% 30% 25% 26% 21% 19% 19% 25% 20% 18% 20% 20% 15% 12% 14% 14% 10% 10% 11% 15% 12% 10% 8% 9% 9% 7% 10% 7% 8% 5% 5% 2%3% 5% 2%3% 0%1% 0%1% 0% 0%

1Q19 2Q19 1Q19 2Q19

Source: Credit Suisse, n=75 Source: Credit Suisse, n=75

Based on our survey, Henry Schein and Patterson Companies were the most common primary distributors, representing 28% and 20% share of the cohort, respectively. Only 8% of survey participants reported Amazon as their primary distributor. Notably, in 2Q19, respondents reportedly purchased 76% of consumables and 69% of equipment through their respective primary distributor.

Dental Update 8 22 July 2019

Figure 15: Mix of purchases through primary Figure 14: Primary dental distributor mix distributor by product type Burkhart Dental Benco, 9% Supply, 4% 78% 77%

76% 76% Amazon, 8% 74% 74% Patterson, 20%

Direct from 72% Manufacturer, 8% 70% Supply Clinic, 69% 1% 68%

66% Other, 16%

64% Henry Schein, 28% Consumables Equipment 1Q19 2Q19

Source: Credit Suisse, n=75 Source: Credit Suisse, n=75

We asked participants how satisfied they are with their primary distributors. According to our survey, 75% of respondents are satisfied, with only 4% of respondents not satisfied with their current primary distributor. Of note, of those who use HSIC and PDCO, 62% and 73% of respondents were satisfied, respectively. We were pleasantly surprised by the positive response for Patterson, given its more volatile sales force efforts of late, but we view consistently positive survey commentary over the past three surveys as encouraging, seemingly pointing to traction with its turnaround initiatives.

Figure 16: How satisfied are you with your current primary distributor? Figure 17: Satisfaction Mix

80% 73% Satisfied, 75% 70% 62% 60%

50%

40%

30% 24% 20% 20%

10% 10% 7%

0% Indifferent, 20% Satisfied Not satisfied Indifferent

HSIC PDCO Not satisfied, 4%

Source: Credit Suisse, n=75 Source: Credit Suisse, HSIC n-28, PDCO n=14

According to our survey, respondents are on average most satisfied with on-time delivery and customer service, and most dissatisfied with equipment maintenance services and

Dental Update 9 22 July 2019

associated practice management software. Of those who utilize Henry Schein as their primary distributor, respondents were satisfied with on-time delivery and salesforce knowledge, with the most dissatisfaction stemming from pricing. As it relates to Patterson, respondents ranked its on-time delivery and customer service as most satisfactory, though its practice management software remains a key source of dissatisfaction. Of note, PDCO ranked at least on par with HSIC on every metric, excluding practice management software.

Figure 18: HSIC: How would you rate the following Figure 19: PDCO: How would you rate the following as it relates to your primary distributor? (On a scale as it relates to your primary distributor? (On a scale of 1-10, with 10 being the best response) of 1-10, with 10 being the best response)

On-time delivery 8.9 On-time delivery 8.9 8.3 8.4

Salesforce knowledge 8.3 Customer service 8.7 7.7 8.3 8.6 Customer service 8.1 Salesforce knowledge 7.9 8.3 7.9 Practice management software 7.9 Other ancillary services 7.6 7.8 7.6 Equipment maintenance 7.7 Other ancillary services 7.5 services N/A

Equipment maintenance 7.2 Pricing 7.3 services N/A 6.2

6.5 Pricing 7.0 Practice management software 6.4 7.1

- 5.0 10.0 - 5.0 10.0 2Q19 1Q19 2Q19 1Q19

Source: Credit Suisse, n=28 Source: Credit Suisse, n=14

Among surveyed participants, 5 respondents plan to switch primary distributors over the next 12 months. Of note, two of these respondents plan to switch from Henry Schein, predicated on the value associated with its services and customer support. Meanwhile, one respondent plans to switch from Patterson due to pricing.

Dental Update 10 22 July 2019

Figure 20: Are you considering changing your Figure 21: Commentary from dentists that plan to primary distributor in the next 12 months? switch primary distributors over the NTM Plan to To Rationale switch from HSIC Internet Based Value HSIC Benco Support PDCO Darby Less Expensive Benco Atlanta Dental New Entrant; Better Pricing No, 81% Direct Amazon Better Price; Customer Service

Yes, 7%

Not sure, 12%

Source: Credit Suisse, n=75 Source: Credit Suisse

In addition, we asked dentists about their participation in group purchasing organizations. Only 17% of dentists reported using GPOs, with 16% using one GPO, 1% using two GPOs, and none using more than three GPOs. As a reminder, GPOs remain relatively nonexistent in Dental, in contrast to their prevalence in Animal Health, representing only 17% share in our cohort, as compared to the Animal Health distribution market where GPOs represent 51% share (according to our 2Q Veterinary Survey). Many complaints have risen against the larger dental distributors, including Benco Dental Supply (private), Henry Schein, and Patterson Companies, alleging that these distributors are somehow preventing GPOs from successfully entering the market. Additionally, in February 2017, the Federal Trade Commission (FTC) filed a complaint against the leading dental distributors (representing ~85% of the market) alleging that these companies colluded in refusing to provide discounts or services to certain Dental Service Organizations (DSOs). According to the complaint, Benco and Henry Schein entered the pact first, with Patterson joining later, and it also alleges that Benco invited Burkhart Dental Supply to participate in the coalition on multiple occasions. The FTC trial commenced on October 16th and after three months of trial, the FTC Complaint Counsel finished its presentation of the evidence on December 19, 2018. At that time, Patterson moved to dismiss the case against the company in its entirety, indicating that the Complaint Counsel had failed to prove that Patterson had colluded with the other two named distributors. Of note, the judge denied Patterson’s motion on February, 22, 2019. We await further updates in the upcoming months.

Dental Update 11 22 July 2019

Figure 22: Do you work with a GPO?

Yes, two GPOs, 1%

No, 83% Yes, one GPO, 16%

Source: Credit Suisse, n=75

As it relates to orders made to constituents outside of GPOs and more traditional distributors, respondents currently purchase 11% and 14% of consumables and equipment direct from manufacturers on average. As manufacturers expand the breadth of their offerings, drive innovation and further invest in their in-house salesforce footprints, we view purchases direct from manufacturers may increase as a percentage of total purchases.

Figure 23: What percentage of your purchases are direct from the manufacturer?

16% 14% 14%

12% 11% 10% 9% 8% 8%

6%

4%

2%

0% Consumables Equipment

1Q19 2Q19

Source: Credit Suisse, n=75

Based on our survey, roughly 15% cohort purchases consumables directly from Dentsply Sirona, while 9% purchase consumables directly from 3M. Importantly, we view Dentsply Sirona’s restructuring initiatives could drive greater sales direct from the manufacturer as opposed as through third-party distribution, where recent updates have been encouraging. We view a reinvigorated salesforce will drive incremental cross-selling, a primary pillar and rationale behind the 2015 merger between legacy Dentsply (consumables) and Sirona (equipment) platforms, where previous management efforts have admittedly fallen short. As an example, XRAY’s blocks are only used in 10%

Dental Update 12 22 July 2019

of cases on XRAY’s milling units today, a metric we view should expand as a more cohesive sales strategy, only in embryonic stages, matures.

■ As of its 4Q EPS report, XRAY noted it has consolidated its 11 SBUs into five key product groups (vs. prior units by end-markets and technology offerings). It also created a single integrated supply chain with the help of Dan Key, the new Chief Supply Chain Officer, which should help support gross margin improvement near term. Moreover, management announced a 6-8% reduction in headcount (16,300 employees previously), which is progressing ahead of plan, driving lower SG&A spend longer term. Lastly, XRAY pointed to its Salesforce Execution program where it has created a comprehensive segmentation strategy, moved to a common CRM platform, and implemented a new incentive structure to better motivate sales leads, likely including a larger variable compensation component (vs. prior 80% fixed; 20% variable), an important move in our view. While a more streamlined salesforce structure is expected to help reinvigorate growth at XRAY, the restructuring may also cause some disruption (i.e., salesforce defections). However, management remains less concerned with potentially higher turnover noting that the restructuring will likely only drive out underperforming salespeople, especially as outperformers benefit from the aforementioned compensation changes. Of note, it is about halfway through a 5-year salesforce.com contract, which is broadly underutilized.

Figure 24: Which manufacturers do you purchase Figure 25: Which manufacturers do you purchase CONSUMABLES directly from? EQUIPMENT directly from?

9% 15% Other Dentsply consumables 7% 16%

5% Sirona equipment 12% 3% Other 11% 5% 3M equipment 4% 9% 3M consumables 8% 3% 3Shape 1%

1% 1% Young Innovations Planmeca Equipment N/A 0%

0% 5% 10% 15% 20% 0% 5% 10%

2Q19 1Q19 2Q19 1Q19

Source: Credit Suisse, n=75; Other includes: Ivoclar, Straumman, Mercantile, Henry Schein, Source: Credit Suisse, n=75; Other includes: Vatech, Align Technology, Myotronics, Belmont Tokuyama, Kettenbach, TDSC, Denmat

We also asked our cohort of dentists what types of products or equipment they typically purchase directly from the manufacturer. Products purchased from Dentsply are wide- spread and diverse, including impression materials endodontic products, restorative materials, braces, among others. Meanwhile, purchases from 3M were largely related to orthodontics and implants.

Dental Update 13 22 July 2019

Figure 26: Please list the type of products you purchase directly from the manufacturers? Dentsply consumables Dentsply consumables Adhesives; Impression material Braces Impression materials Orthodontic brackets, bands, and wires Materials for occlusal guard Wires Endodontic products, implant products/parts Plastic material for clear aligners Endodontic supplies, resotrative materials Numerous different types of consumables Bonding materials

3M consumables 3M consumables Ortho wires Crown, cement Orthodontic supplies, dental adhesives Composite, bond Braces Cements, hand scrub Etchant, primer, adhesive Kerr consumables (Danaher)

3M equipment Imaging Orthodontic brackets and wires; Pliers Digital scanner

Sirona equipment Kavo Equipment (Danaher) X-ray Equipment Endo rotary files; Composite matrix and wedges Cerec Pan/Ceph machine Other Other Prophy heads and supplies; Rubber dam (Young Innovations) Office Equipment (Planmeca) Cbct (Danaher Equipment Source: Credit Suisse, n=75

Based on our survey, 20% of respondents expect to increase purchases of consumables direct from manufacturers over the next twelve months, while 12% expect to purchase less consumables direct from the manufacturer, incrementally more positive for manufacturers. In terms of equipment, 15% expect to purchase more directly from the manufacturer, while 13% expect to purchase less, essentially a wash. Importantly, an increase of purchases direct from the manufacturer would be broadly negative for distributors, a trend we closely monitor, but it doesn’t seem to be a meaningful net dynamic today.

Figure 27: Do you expect to source a greater Figure 28: Do you expect to source a greater percentage of CONSUMABLES direct from percentage of EQUIPMENT direct from manufacturers over the next twelve months? manufacturers over the next twelve months?

60% 56%56% 70% 63% 59% 50% 60%

50% 40% 40% 30% 30% 20% 20% 17% 13% 13% 20% 12% 12% 13%15% 13% 15%13% 9% 10% 10%

0% 0% More Less Unchanged N/A / Not sure More Less Unchanged N/A / Not sure

1Q19 2Q19 1Q19 2Q19

Source: Credit Suisse, n=75 Source: Credit Suisse, n=75

Dental Update 14 22 July 2019

Amazon We also asked participants about purchases they may make for their dental practices from Amazon. According to our survey, our cohort of dentists make very limited purchases via Amazon, mainly pertaining to miscellaneous office supplies, such as office ledgers, desk supplies, and other small maintenance items. Unsurprisingly, respondents expect to increase their office supplies purchases through Amazon over the next 3-5 years, as well as standard medical products including cotton balls, bibs, gloves, etc. Respondents expect to purchase only 12% and 9% of their dental-specific consumables products and equipment through Amazon over the next three to five years, respectively. As a reminder, Amazon has launched a dental distribution channel as part of its Amazon Business platform, where customers have a choice of products from numerous dental suppliers and manufacturers. Channels like Amazon may offer continued pressure for distributors including Henry Schein and Patterson Companies, though we view investors have become rather fatigued by Amazon headlines over the past several months. Amazon will likely also provide further transparency into dental supplies and equipment pricing, an area which has long been opaque to smaller dental practices.

Figure 29: Percentage of purchases through Figure 30: Percentage of purchases through Amazon currently Amazon expected in the next 3-5 years

35% 45% 42% 32% 40% 30% 35% 25% 30% 25% 33% 30% 20% 25% 28% 20% 19% 15% 18% 20% 17% 10% 13% 14% 15% 12% 10% 6% 9% 12% 10% 9% 7% 4% 7% 9% 5% 3% 5% 5% 8% 3% 5% 7% 4% 2% 5% 0% 2% 0% 3Q18 4Q18 1Q19 2Q19 3Q18 4Q18 1Q19 2Q19 Office supplies Standard medical products Office supplies Standard medical products Dental-specific consumable products Equipment Dental-specific consumable products Equipment

Source: Credit Suisse, n=75 Source: Credit Suisse, n=75 Practice Management Software We also polled our cohort on practice management software utilization, an important driver for some of our companies, including HSIC (~18% of operating income). The leading practice management software among our cohort was Henry Schein’s Dentrix Enterprise, used by 21% of dentists, followed by Carestream (13%). As shown in Figure 31, other practice management systems include Patterson’s EagleSoft (8%) and Easy Dental (7%). According to our survey, 81% of respondents are satisfied with their current practice management software, while only 14% are dissatisfied, an inherently sticky offering, in our view. As a reminder, Henry Schein has established a joint venture, Henry Schein One, with Internet Brands, a provider of web presence and online marketing software, in order to create a more comprehensive and cohesive suite of dental technology programs and services, which could potentially drive their share of the practice management software

Dental Update 15 22 July 2019

market higher and potentially compelling recurring revenue stream. The joint venture includes all of HSIC’s dental software solutions, including Henry Schein Practice Solutions and HSIC’s international dental practice management systems, as well as Internet Brands’ dental business, including DentalPlans.com, Officite, Demandforce, and Sesame Communications. While financial disclosure was limited, Henry Schein will maintain a majority interest, with senior management from both parent companies serving on the board. We forecast 2018 sales of the combined entity to be ~$408 million, which will be consolidated within HSIC’s Technology/Value-Added Services Segment, growing at a healthy clip with an accompanying higher margin profile. Moreover, the company expects to realize ~$20-30 million in annual synergies within three years, mostly comprised of revenue synergies associated with offering a more cohesive Dental IT platform.

Figure 31: What practice management software Figure 32: Are you satisfied with your current offering do you currently use? practice management software?

45% Other 25% Yes, I am satisfied, 81% Dentrix Enterprise (HSIC) 21% 25% 13% Carestream 15%

EagleSoft (Patterson) 8% 16% Easy Dental 7% 8% I do not use practice 4% management software 3% Dentrix Ascend (HSIC) 1% 11% 0% ACE Dental 3% 0% Dentisoft 3% 0% Denticon (Planet DDS) 1%

Curve Dental 0% 1% No, I am 0% 10% 20% 30% 40% 50% dissatisfied, I am indifferent, 14% 2Q19 1Q19 6%

Source: Credit Suisse, n=75 Source: Credit Suisse, n=75 Other includes: Cloud9 Ortho; Open Dental; Dolphin; PracticeWorks; Dentech; Live DDM Dental Service Organizations (DSOs) We asked our respondents about their affiliation with dental service organizations (DSOs) given their rising presence in the dental market. Of our respondents, 59% are not currently affiliated with an DSOs, while 11% of respondents are currently affiliated with a DSO in one form or another. Meanwhile, 16% of our respondents have been approached by DSOs who want to acquire their practices, with only 5% interested in selling out or becoming affiliated. We also not that 51% of our respondents view the presence of DSOs is expanding moderately, with another 24% of respondents viewing the presence of DSOs is accelerating rapidly. As a reminder, DSOs have been in greater focus of late across the dental market as they begin to gain broader traction across the industry. While DSOs typically bring more pricing and negotiating power with scale, a potential negative for manufacturers and distributors alike, they also generally adopt new and advanced technology at an accelerated pace relative to smaller practices, with a focus on driving efficiency while also improving care, which may actually benefit manufacturers.

Dental Update 16 22 July 2019

Figure 33: How would you characterize your Figure 34: To what extent are you seeing Dental affiliation with a DSO? Service Organizations (DSOs) expanding? Have been No change, affiliated with a 21% DSO for less DSO presence than 12 months, declining, 1% 3% Have been I do not see affiliated with a DSOs in the DSO for longer marketplace, than 12 months, 3% 8%

I’ve been approached by a DSO and plan to sell my practice / become affiliated, 5%

I’ve been approached by DSO presence a DSO and do is accelerating Not affiliated, not plan to sell DSO presence rapidly, 24% 69% my practice / is expanding become moderately, affiliated, 11% 51% Other (please Prior assocation specify):, 1% with a DSO, 3%

Source: Credit Suisse, n=75 Source: Credit Suisse, n=75 Equipment – Purchasing Trends While equipment purchases are lumpier given inherently longer replacement cycles, we view recent purchases (over past three months) on a relative basis may offer insight into quarterly reports, as well as the dentists’ view of the broader health of the Dental market. According to our survey, respondents have increased their purchases of smaller equipment pieces, including drills, handpieces, etc., (40%), intraoral scanners (19%), as well as traditional imaging offerings (13%) over the past three months, a sequential step up across all top product categories relative to 1Q expectations. On the other hand, only 5% of our respondents report reduced purchases as it relates to intraoral scanners over the past three months.

Figure 35: Types of equipment dentists are Figure 36: Types of equipment dentists are purchasing MORE of in 2Q purchasing LESS of in 2Q

12% 45% 40% 11% 40% 10% 35% 8% 30% 27% 25% 6% 5% 5% 19% 4% 4% 20% 16% 13% 4% 3% 3% 3% 15% 12% 9% 11% 1%1% 1% 1% 1% 10% 7% 8%8% 2% 4% 0% 5% 1% 3% 0% 0%

1Q19 2Q19

1Q19 2Q19

Source: Credit Suisse, n=75 Source: Credit Suisse, n=75

Dental Update 17 22 July 2019

We also asked our respondents about their outlook on equipment spend over the next twelve months relative to the prior year. Our participants expect to purchase more small equipment pieces (33%) and intraoral scanners (23%), while 3% expect to purchase less small equipment pieces and traditional imagining offerings.

Figure 37: What best characterizes your purchases Figure 38: What best describes your purchases over over the NTM – Types of equipment dentists are the NTM – Types of equipment dentists are purchasing MORE of over NTM purchasing LESS of over NTM

35% 33%33% 6% 5% 5% 30% 5% 25% 23%23% 4% 4% 4% 20% 15% 3% 3% 3% 3% 15% 12% 12% 9% 9% 11% 8% 2% 10% 7% 1% 1%1% 1% 1% 5% 5% 5% 1% 0% 0% 0% 0%

1Q19 2Q19 1Q19 2Q19

Source: Credit Suisse, n=75 Source: Credit Suisse, n=75 Equipment – Utilization, Product Insights We also asked our cohort their preferences as it relates to particular equipment offerings. Importantly, Henry Schein noted at our 2018 CS Dental Summit (see note) that it generates three digital impression scanners sales per every one more comprehensive chairside system, though it remains optimistic on upselling opportunities for milling units longer term. According to Henry Schein, less than 30% of dental practitioners have a scanner in their offices currently, and it believes more practitioners will eventually have multiple scanners, leaving ample runway to growth. Intraoral Scanners In terms of digital impression offerings, the most popular intraoral scanner offering is Align Technology’s iTero (28 users, 37% of total respondents; 67% of digital impression users vs. 62% in 1Q) where a majority of users highlight their satisfaction noting its results, customer service, and ease of use, with others noting the Invisalign compatibility. XRAY’s Omnicam offering was utilized by only 5% of the population (10% of digital impression users vs. 15% in 4Q), demonstrating still low penetration of XRAY’s most established DI offering, attributable in part to its previous bundling strategy, whereby it would require customers to purchase the full CAD/CAM technology. Meanwhile, XRAY’s Primescan (DI only option) was not used by any constituents in our survey, albeit acknowledging that its low penetration thus far is unsurprising given its February launch, and we await greater evidence of building traction. Going forward, 17 respondents expect to purchase a digital scanning offering over the next year (vs. 29 in 1Q), with several (9) expressing their interest in Align Technology’s new iTero, while others (4) are interested in Dentsply Sirona’s recently launched Primescan offering. That said, ~one-third (37%) are not interested in adding CAD/CAM and/or standalone Digital Impression offerings near term.

Dental Update 18 22 July 2019

Figure 39: Which Digital Scanning offerings do you Figure 40: Which Digital Scanning offerings do you currently utilize or own? expect to purchase over the next twelve months?

Omnicam Trios 3 Basic 14 (Sirona), 9% (3Shape), Trios (3Shape), 2% 12 15% 12 True Definition 10 9 (3M), 2% 8 PlanScan (Planmeca), 6 4% 4 4 4 Planmeca 4 3 Emerald 2 2 (Planmeca), 2 1 1 1 11 2% 0 0 00 - 0 Care Stream, 4%

iTero - All Other, 2% Model (Align Technology), 1Q19 2Q19 60%

Source: Credit Suisse, n=42; Others include: Motionview Source: Credit Suisse, n=17 in 2Q; n=29 in 1Q; Others include: Medit

As a reminder, at the Chicago Midwinter Show in February, ALGN unveiled its new iTero Element 5D System, which is the first integrated intraoral scanning system that records 3D, intra-oral color and near-infrared images simultaneously, in addition to maintaining all the other features and functionality of its prior iteration (iTero Element 2). The integrated technology supports the detection and monitoring of interproximal cavities above the gingiva without the use of radiation (e.g., X-rays) in as little as 60 seconds. Initial feedback on iTero 5D: We asked our respondents whether the iTero Element’s additional proximal carried detection aid capability adds particular value, as compared to other digital impression offerings in the marketplace. The responses were generally mixed, with several dentists commenting that the added component allows the doctor to be better informed, driven a more accurate diagnosis and better overall treatment. That said, other respondents prefer more specialized offerings for detecting caries (e.g., X-ray), with others commenting on the unproven nature of the technology. Importantly, orthodontists generally do not find this technology as valuable, where this technology is likely largely targeted to GPs who regularly utilize caries detection technology during patient check-ups. Of note, the aforementioned comments are generally what we perceive to be first impressions of the new offering, which has only been available in the marketplace for a short time outside of the US, and we await future commentary to better understand the market perception of the technology.

Dental Update 19 22 July 2019

Figure 41: ALGN recently launched its iTero element 5D, which now offers proximal caries detection aid. Do you find the proximal caries capability as particularly valuable? Adds Value Does Not Add Value Yes (x7) No (x8) I would be interested in the product Traditional radiology does an excellent job, so it would not drive me to purchase

No-I mainly detect interproximal caries through bitewing radiographs; While this is a nice feature, it would Yes, if it works. In the past all types of digital caries detection was not even close to being accurate; not be a primary reason for me to purchase an iTero Element 5D The manufacturer always showed various ways of detecting carries but it never was clnicall usable Depends on how well it works No-General dentists might, but not orthodontists Yes, it helps confirm the x-ray diagnosis and can show patients No, at this point I am satisfied with the use of radiographs to detect proximal caries Yes, if it works as promised [it would be a] significant improvement As an orthodontist, not my area (x15) Yes, that would be a great tool for diagnosis and patient education If I already have a caries detector, which I do, I don't need two of them Great benefit No, happy with current technology Yes, if it is more accurate than digital radiographs No, I use the scanner solely for Invisalign not caries Yes, can help with less x-rays for phobic patients No, not clinicall predictable Potentially-Anything we can do to minimize the use of ionizing radiation is a good thing No, I have Cari-Vu (x2) Yes, but not a necessity No, I prefer x-rays Yes-There are incipient caries lesions that are difficult to detect radiographically that could potentially become larger as time progresses for the patients Yes-It is sometimes difficult to see caries in radiographs and there is a growing number of patients not wanting as many radiographs due to radiation exposure Yes-Helps with patient education Yes-It is great for patients that refuse x-rays Would be helpful for patients who do not like digital or any other form of imaging Yes, aid in diagnosis Yes-Anxious to learn more about it Yes, additional tool in diagnosing caries presence Source: Credit Suisse, n=75

Chairside CAD/CAM Offerings In terms of chairside CAD/CAM offerings, adoption stands at only 13% of our cohort (vs. 15% in 1Q), highlighting a relatively underpenetrated market. Dentsply Sirona’s CEREC remains the most popular offering with 80% of our CAD/CAM users utilizing the offering (vs. 64% in 1Q). Of those who utilize CEREC, a majority of respondents (62%) are satisfied with the offering, noting its accuracy, while 25% are indifferent. We also not that only one respondent appears interested in purchasing a full chairside system at this time. Of note, Henry Schein continues to emphasize that chairside CAD/CAM generates the highest ROI for dentists, and it expects it to become more popular as a result. Importantly, newer digital concepts prevalent in dental school curriculum should pave the way for deeper penetration as newer dentists enter the workforce. That said, near term, only three respondents expect to purchase a new chairside CAD/CAM offering over the next twelve months.

Figure 42: Which chairside CAD/CAM offerings do Figure 43: How satisfied are you with XRAY’s you currently utilize or own? CEREC offering?

CEREC, 73% Satisfied 62%

Primescan + Milling Unit (Dentsply Sirona), 9% Ivoclar PrograMill One PlanMill 30 S Indifferent (Planmeca), 9% 25% (3Shape), 1, 9% Source: Credit Suisse, n=10 Source: Credit Suisse, n=8

Dental Update 20 22 July 2019

As a reminder, Denstply Sirona has recently chosen to forego its longstanding steadfast approach to promoting more comprehensive chairside CAD/CAM systems (scanner + mill), and starting in March 2018, it began an initiative geared more toward standalone digital impression, with also a dedicated lab strategy, where it has been lacking. At the Chicago Midwinter Show (Feb 21-23), XRAY launched its Primescan offering, its most meaningful product launch this year. Primescan is an open system that can connect with all labs, an important difference from its legacy Omnicam offering, with which data transfer to labs was a cumbersome process as it predominately promoted chairside systems. While it technically offered Omnicam for standalone digital impression, penetration was extremely low, with its salesforce not aligned with this strategy. However, we view XRAY is meaningfully better positioned to penetrate the digital impression and chairside markets with the Primescan launch, which should also offer the company a fresh approach to the market, more aligned with broader market demand trends. With management’s change in chairside religion, XRAY will have a greater opportunity capture sales from dentists who solely wish to purchase a standalone digital impression component, while creating potential opportunity to upsell, albeit participating in an inherently more competitive market. We await further details on how it will approach this effort from a promotional, pricing strategy. Of note, 1% of respondents expect to imminently purchase XRAY’s Primescan offering (1% digital impression only; 0% full CAD/CAM offering) while 17% of our cohort who currently own digital impression equipment or who are open to purchasing digital impression equipment remain unaware of the new offering, unsurprising as it only launched more recently. Of respondents who do not plan to add or upgrade to Primescan, several noted their satisfaction with their current intraoral scanner while others still view the offering as too expensive.

Figure 44: How likely are you to add or upgrade your current digital impression equipment or chairside system to XRAY’s Primescan offering Figure 45: Reasons why practitioners do NOT over the NTM? expect to purchase Primescan I do not plan Reasons against purchasing Primescan Current system to add or Happy with Planmeca; Don't want closed architecture PlanScan; Plan Mill; Planmeca Emerald Cost Carestream upgrade to Currently content with my intraoral scanner True Definition Primescan, Not necessary in my rural practice CEREC MC Milling Unit I plan to wait 35% No change at this time CEREC MC Milling Unit until Dentsply I work with an oral surgeon what scans for me CEREC MC Milling Unit Sirona Not Needed Omnicam; 3Shape Trios 3 Basic launches an Satisfied with current system; Additional expense 3Shape Trios 3 Basic Not looking to mill in office; Like my Trios 3Shape Trios 3 Basic upgrade No need 3Shape Trios 3 Basic program, 8% Have not heard about it iTero; 3Shape Trios 3 Basic Use iTero iTero I plan to add No need iTero the Primescan Used to own CEREC and didn’t like learning curve iTero digital Don't need it iTero I am unaware I am happy with the iTero scanner we have iTero impression of this product I don't have a use for it iTero offering, 1% launch, 38% I am an orthodontist iTero The iTero is just fine iTero Already own a I am happy with what I have iTero Primescan Happy with scanner I currently have iTero offering, 1% We use our scanner almost exclusively for Invisalign iTero I am unaware of this product launch, 24%

Source: Credit Suisse, n=75 Source: Credit Suisse, n=26

As a reminder, while many dentists embraced single-visit dentistry, utilizing more comprehensive chairside CAD/CAM technology, penetration stands only in the high-teens, not meaningfully changing in recent years, with dentists (potentially influenced by a low- volume environment) not as comfortable with the design and manufacturing components/training.

Dental Update 21 22 July 2019

According to our survey, 24% of our respondents expect to increase their use of their respective CAD/CAM offering (vs. 20% in 1Q), with only 4% of dentists expecting to decrease their use (vs. 3% in 1Q). Of those who do not currently utilize a CAD/CAM offering, 13% are interested in learning more about the technology (vs. 21% in 1Q).

Figure 46: How would you characterize your use of chairside CAD/CAM technology over the NTM? I am a longer-term user, and plan to maintain my use, 19% I do not use CAD/CAM NA / Not sure, 13% but plan to use it, 1%

I do not use CAD/CAM I am a longer-term but am interested in user, and plan to learning more, 13% increase my use, 17%

I am a new user, and plan to maintain my current use, 1%

I am a new user, and plan to decrease my use, 3%

I am a new user, and I do not use CAD/CAM plan to increase my and do not plan to use use, 7% it, 38%

Source: Credit Suisse, n=75

Despite potential benefits of chairside CAD/CAM utilization including same-day restorations, the CAD/CAM market remains largely underpenetrated. Among our cohort, almost half (39%) view CAD/CAM equipment as too expensive to warrant the investment (vs. 49% in 1Q), while 31% prefer to work with labs (vs. 33% in 1Q).

Figure 47: What are key deterrents of chairside CAD/CAM utilization?

Too expensive 39% 49% Prefer to work with labs 31% 33% No deterrents 25% 20% Other 19% 15% 15% Potential workflow disruption 3% 11% Too complex 17% 7% Don't know how to use 8% 5% Not enough information 9% 0% 10% 20% 30% 40% 50% 60% 4Q18 3Q18

Source: Credit Suisse, n=75

Given respondents often site price as a main deterrent to digital technology adoption, we asked our cohort of dentists at what threshold they would be willing to purchase an intraoral scanner. We found that 13% of respondents would only be willing to spend up to the $30,000-$40,000 range. Of note, this is below the price of XRAY’s new Primescan AC

Dental Update 22 22 July 2019

with Connect Software for $44,995, and well below the price of XRAY’s Primescan AC + CEREC software system at $69,995, with only 11% of respondents willing to spend above $40,000 on the purchase of an intraoral scanner (vs. 8% in 1Q).

Figure 48: At what threshold would you be willing to purchase an intraoral scanner?

19

15 14 13 13

11 11 10 10 9

7

4 4 3 2 2 1 1 1 0

1Q19 2Q19

Source: Credit Suisse, n=75

Importantly, the threshold for purchases my increase as practitioners’ current equipment ages and new technology develops. Over time, as the pace of innovation accelerates, we would expect the average age of relevant equipment to fall, where GPs and orthodontists aim to take advantage of value additive technology. Currently, our survey respondents have indicated that on average their equipment is 3.1 years old. Manufacturer Pricing Insights We asked our cohort of dentist their thoughts on manufacturer pricing dynamics in order to determine whether dental manufacturers are offering discounts in order to achieve better product flow and capture share through various channels. Consumables: In terms of preventative/chairside consumables, our respondents, on average, view manufacturers are being relatively more aggressive in terms of their pricing levels over the past three months. To summarize, respondents view Dentsply consumables and 3M consumables are 7% and 12% net more aggressive, on average, meaning lower prices relative to competitors.

Dental Update 23 22 July 2019

Figure 49: Over the past three months, how has each manufacturer’s Preventative/Chairside Consumables pricing dynamics changed, in your view?

4% 5% Net More Net More 12% Aggressive: 7% 16% Aggressive: 12%

52% 51%

31% 29%

Dentsply consumables 3M consumables

Don't Know Unchanged More Aggressive Less Aggressive

Source: Credit Suisse, n=75

In terms of Equipment, our respondents view, on average, Align Technology scanners as broadly more aggressively priced (lower price increases or potentially higher price decreases relative to competitors). We highlight a notable step up in respondents who view ALGN is being relatively more aggressive in their pricing strategy, with 29% of respondents viewing ALGN scanners are being price more aggressively (net 25%) in 2Q, which compares to 19% of respondents (net 14%) in 1Q.

Figure 50: Over the past three months, how has each manufacturer’s Equipment pricing dynamics changed, in your view?

3% Net More 3% Net More 3% 3% Net More 4% Net More 5% Net More 5% Net More 8% Aggressive: 5% Aggressive: Aggressive: 11% Aggressive: 11% Aggressive: Aggressive: 5% 2% 8% 8% 8% 13% 8% 3% Net More 29% Aggressive: 27% 25% 28% 24% 27% 29% 19%

23%

65% 63% 63% 61% 60% 57% 44%

Sirona CAD/CAM Sirona Treatment Sirona Imaging 3M Equipment Planmeca 3Shape Equipment Align Technology Centers Equipment Equipment Scanners

Don't Know Unchanged More Aggressive Less Aggressive

Source: Credit Suisse, n=75 Are there any recent promotions for equipment that you view as compelling?

■ It has been very slow in that regards, which will likely change in the fourth quarter

■ 3M/Unitek is getting into the aligner therapy and they are discounting their aligners, which I am interested in using to save money

Dental Update 24 22 July 2019

■ Office 3D printers are becoming more affordable

■ CT scanner from Dentsply Sirona

■ Planmeca CALM technology

■ Dentsply and 3M promotions (bundle packaging, etc.)

■ Digital X-rays

■ Primescan has some specials on their new scanner, especially for orthodontists. It is a great scanner and a compelling offer, but much like most technological equipment, I am hoping the pricing will come down in a year from now

■ There was a buy one scanner get a second scanner free with Planmeca I strongly considered

■ iTero ran a trade-in special that we took advantage of

■ iTero had a good deal

■ Align Technology offers trade-in discounts for old scanners when upgrading Clear Aligners Over the year, new competitors have entered the doctor-directed clear aligner space with new offerings, including Henry Schein (HSIC, Outperform), Dentsply Sirona (XRAY, Outperform), and 3M. While the launches have pressured Align’s shares (along with pricing pressure), we deemphasize the threat, viewing that the highly underpenetrated market is large enough for several players. We also highlight Align’s 21-year first mover advantage as a differentiator, and importantly, it doesn’t view new competitor offerings as surprising or meaningful from a technology standpoint.

Figure 51: Doctor-Directed Clear Aligner Offerings

Ortho vs. GP Channel Focus Hybrid* vs. Standlone Available in Parent Company Product Name Announcement Date Stand- Ortho GP Hybrid* the US? alone Henry Schein Reveal Clear Aligners Feb-19 X X Yes Ormco (Danaher) Spark Jun-18 X X No 3M Clarity Aligners May-18 (AAO) X X X Yes Dentsply Sirona SureSmile May-18 (AAO) X X X Yes Henry Schein SLX Clear Aligners May 2018 (AAO) X X Yes Straumann ClearCorrect Acquired Aug -17 X X Yes Ormco (Danaher) Simpli5 Oct-06 X X Yes

Align Technology Invisalign 2000 X X X Yes Source: Company data, Credit Suisse

Importantly, on January 2019, Straumann (STMN) announced it is set to enter the clear aligner market in China, the second largest market for orthodontic clear aligners, by partnering with Tianjin ZhengLi Technology, a company that already has received regulatory approval in China for a clear aligner system. STMN has obtained exclusive distribution rights in China for ZhengLi Technology’s clear aligners. Previously, STMN had commented that it would be seeking a partnership in China in order to accelerate its entry into the market, where it would have otherwise taken 2-3 years to independently achieve required regulatory approvals. Of note, ALGN has doubled its revenues year-over-year in China in each of the past four years, with the market now contributing 8.2% of the company’s total revenues.

Dental Update 25 22 July 2019

US Doctors’ Current and Future Clear Aligner Use According to our survey, 68% of our respondents currently offer Invisalign, representing ~81% of clear aligner users, which is slightly below Align Technology’s estimated 90% share of the clear aligner market. Other popular options include Straumman’s ClearCorrect (23% of total respondents, 27% of clear aligner users) and 3M’s Clarity Clear Aligner (7% of total respondents, 8% of clear aligner users). Meanwhile, 16% of respondents do not offer clear aligners in their practices at all. As caveats, our survey in 2Q is relatively more skewed toward orthodontists, potentially inflating the clear aligner usage trend relative to prior quarters. Also, we highlight that the aforementioned results may not reflect the extent to which each practitioner utilizes each offering, but rather if they use the offering at all, potentially skewing results, as well.

Figure 52: Which clear aligners do you offer, if any?

Invisalign (Align Technology) 68% 59% ClearCorrect (Straumman) 23% 15% SureSmile (Dentsply) 8% 4% Other 7% 4% 7% Clarity Clear (3M) 3% Simpli 5 (Ormco) 3% 5% 0% Reveal (HSIC) 1% 0% SLX (HSIC) 4% 0% 10% 20% 30% 40% 50% 60% 70% 80% 2Q19 1Q19

Source: Credit Suisse, n=75; Others include Orchestrate, Perio Protect

Figure 53: Trend over time – Which clear aligners do you offer, if any?

70%

68% 60% 61% 59% 50% 56%

40%

30% 23% 20% 15% 10% 11% 10%

0% 3Q18 4Q18 1Q19 2Q19 SureSmile (XRAY) ClearCorrect (STMN) SLX (HSIC) Reveal (HSIC)

Clarity Clear (3M) Simpli 5 (Ormco) Invisalign (ALGN) Other

Source: Credit Suisse, n=75

Importantly, 78% of Invisalign users are currently satisfied with the offering given its ease of use, customer support, and predictable outcomes. That said, 7% of users are

Dental Update 26 22 July 2019

dissatisfied with the offering due to pricing, customer service issues, closed system dynamics, and direct to consumer relationships (albeit no longer in play), seemingly in contrast to those respondents who are more positive on the offering. In terms of ClearCorrect, 59% are satisfied with the offering noting cost effectiveness, customer service, and ease of use. Meanwhile, 12% of respondents noted dissatisfaction with ClearCorrect due to unsatisfactory associated treatment design software.

Figure 54: Invisalign – How satisfied are you with Figure 55: ClearCorrect – How satisfied are you with the clear aligners that you currently use? the clear aligners that you currently use?

Satisfied 78% Satisfied 59%

Dissatisfied 12%

Dissatisfied Indifferent 7% Indifferent 16% 29%

Source: Credit Suisse, n=51 Source: Credit Suisse, n=17

Dental Update 27 22 July 2019

Figure 56: Previously you said you were satisfied/dissatisfied with your current clear aligner offering, please explain why Invisalign Positive Negative They are the best (x6) Value Great software; Constantly innovative product More strict with scanner used; Haven't had best customer service recently Have used successfully for 20 years Don't agree with its direct to consumer relationship Good marketing to consumers; Customer service; Easy application; Integration Poor customer service; Greedy company Works well (x3) Good results, but expensive; Good customer service Effective. Expensive, but works nicely They hold new providers hands through the process Ease of use (x4) Good results; Brand recognition; Good customer support (x3) Good reputation; Good customer service Have used for over 15 years and have gotten quality results; Lab bill is expensive I've tried ClearCorrect and found product and customer service inferior to Invisalign Great results; Expensive lab fee Great company Good results with brand awareness in the community I'm comfortable using the system; Familiar (x3) Best software and customer service, extensive advertising Efficient, quality, advanced Simplicity; Single use system Eas of new Go system; Priicng is easy Consistency Good quality; Support; Easy digital interface; Unlimited aligners with top tier product

Dentsply Sirona's SureSmile Positive Negative In the process of getting more experience with it Effective and fast Can do complex cases and also simple cases Cheaper than Invisalign and just as effective; More aesthetic compared to Invisalign Quality

Straumman's Clear Correct Positive Negative Less regulation on which scanner; Can purchase less trays at a lesser cost Clincheck software is bad; Takes a long time to fabricate and ship trays Good price and customer service Not friendly software Good for basic cases; Patients like that they are made in the USA Good customer service Can do complex cases Amazing customer service and salesforce team Easy to use Competitive pricing Pricing is comparable Simple to design cases and use for simple movement to complete restorative cases

3M's Clarity Clear Positive Negative Reasonable value and efficient Flimsy attachment template 3M is just starting out, so I am a beginning; Will have more to say in about a year Price point is a littler higher than Suresmile, but planning software is better than Suresmile Predictable results Source: Credit Suisse, n=63

We also asked our cohort of Invisalign users what types of solutions they typically treat patients with, on average. According to our survey, practitioners utilize Invisalign Full 65% of the time (vs. 63% in 1Q), while Invisalign Teen remains much less penetrated (skewed given our GP-centric cohort). This compares to ALGN’s case shipment mix of 74% adult and 26% teen. Most notably, mandibular advancement and Invisalign First, both launched in 2018, remain largely underpenetrated, and we watch building traction in future surveys.

Dental Update 28 22 July 2019

Figure 57: GP/Other (ex. Ortho): What percentage of Figure 58: Ortho Only: What percentage of the the cases you treat use each of the following cases you treat use each of the following Invisalign Invisalign solutions? solutions?

Invisalign Invisalign Teen, 3% Assist, 6% Invisalign Lite, Invisalign 5% Teen 13%

Invisalign Invisalign Express 10, Assist 13% 0% Invisalign Full 70% Invisalign Lite Invisalign 10% Express 5, 4% Invisalign Full, 61% Invisalign Express 10 4% Invisalign Invisalign Go, Express 5 7% Invisalign Mandibular 1% Other, 0% Invisalign First Advancement 1% 1% Source: Credit Suisse, n=27 Source: Credit Suisse, n=24

Of the 12 dentists who do not currently offer clear aligners, none plan to offer them in the future. Also of note, of those who currently offer clear aligners, 11 respondents who expect to add incremental offerings, where four expect to add 3M’s Clarity Clear, with notable interest also in XRAY’s SureSmile, HSIC’s SLX Clear Aligner System, and STMN’s Clearcorrect. Of note, 83% of current clear aligner users are happy with their current clear aligner offerings.

Figure 60: Respondents that NOT have clear aligner Figure 59: CURRENT USERS: Which clear aligner offerings: Which clear aligner offerings do you plan offerings do you plan to add, if any? to add? Currently Utilizes Plans to Add or Switch to: the Following Offerings: Suresmile; ClearCorrect; Invisalign DIY or Surecure 4 Suresmile; ClearCorrect; Simpli 5 SLX; Clarity Clear Suresmile; Clarity Clear; In-house Aligners Ormco Spark Suresmile; Clarity Clear Simpli 5; Invisalign 3 3 Invisalign ClearCorrect Invisalign Clarity Clear Invisalign Suresmile; ClearCorrect; SLX 2 2 Invisalign Clarity Clear Invisalign Clarity Clear 1 1 1 1 1 Invisalign; In-house Aligners SLX Invisalign Suresmile 0 0 0 0

1Q19 2Q19

Source: Credit Suisse, n=63 Source: Credit Suisse, n=11

Of those who do not currently offer clear aligners, 62% of respondents do not offer any teeth straightening treatment, including brackets and wire treatments. We expect this number to decline over time as manufacturers simplify the clear aligner treatment processes and better penetrate the general dentist market.

Dental Update 29 22 July 2019

Clear Aligner Demand Trends The clear aligner outlook appears unsurprisingly positive, with respondents who currently utilize clear aligners expecting +2.2% weighted average growth over the next twelve months (vs. +2.4% in 4Q). Of note, only 8% expect a decrease in demand for clear aligners.

Figure 61: Over the NTM, how do you expect clear aligner-related visits will trend?

60% 63% of respondents have experienced +1% to 5%+ in clear aligner-related patient visitsduring 2Q19 50% 43% 43% 40% 37% 38% 32% 29% 30% 26% 21% 20% 18%

10% 4% 3% 5% 2% 2% 0% 0% Increase more than 5% Increase less than 5% No change Decrease less than 5% Decrease more than 5%

4Q18 1Q19 2Q19

Source: Credit Suisse, n=63

Importantly, 68% of respondents note that more patients are proactively seeking clear aligner treatment compared to a year ago (vs. 58% in 1Q). According to respondent commentary, a vast majority of practitioners believe advertising and marketing campaigns direct at the consumer by Align Technology and certain direct to consumer companies is driving this increase, while others attribute the increased interest to a focus on cosmetics, convenience, and comfort.

Figure 62: Are more patients proactively seeking clear aligner treatment at your practice compared to a year ago?

No, 17%

Yes, 68%

NA, 15%

Source: Credit Suisse, n=75

Dental Update 30 22 July 2019

Direct to Consumer Clear Aligner Offerings We also asked our cohort how Direct-to-Consumer (DTC) offerings have impacted their clear aligner business. Surprisingly, almost a third (29%) have not seen a negative impact from DTC offerings, while 15% of respondents view these offerings as outright positive for their practices, as they drive further awareness of clear aligner capabilities through advertising campaigns.

Figure 63: Do you view Direct-to-Consumer offerings have an impact on your clear aligner business?

Direct to Consumer Brands Positive Neutral Negative It has brough a lot of questions from existing patients No (x12) Yes, they have a negative and positive impact; Mostly negative Negligible; If anything, it increases awareness for ortho treatment Not sure Yes, they take away a lot of potential patients (x2) Positive Maybe Yes, negative (x8) Positive - When they mess up cases, patients come to see us No impact; Different demographic Would be negative, but haven't seen much impact yet Positive - More consumer awareness around oral health Takes away patients, but also raises awareness -- Net neutral Negative, cutting price Positive because more people are going to come in and get it done right No, I think patients who seek direct to consumer offerings tend to be price I do not agree with it and think it is abuse if overall dental management is not with an actual specialist conscious and our pricing for Invisalign is on the higher end provided. However patients may still opt to do it It's a positive effect driving patients to us after the home products don't No impact, except for those patients who have tried and now come to use to Negative initially, but patients that have followed up had horrendous results so produce the desired result correct their problems LT think it will have little impact Positive-Once treatment plan does not work, they will actively seek No - Cannibalizes the very low end of the market; The complex cases DTC Negative for orthos as patients try to use SDC rather than see a doctor for orthodontic treatment from a reputable source cannot complete come to dentists after to complete the it appropriate care Positive-Limited treatments often lead to comprehensive treatment; SDC I think they should be outlawed, but as I don't offer any clear alingers in my DTC is an affront to dentistry; If a doctor fails due to inappropriate treatment caters to lower income levels practice, I'm ambivalent planning, would lose our license Positive-Seeing more second opinions of patients thinking about DTC or DTC is reaching out to an uninformed, uneducated part of the public. Our Negative because people now THINK that ortho is commodity vs. specialty; have already been treated; As ortho, see more complex cases anyhow; patients are given education which helps them understand the dangers of do- Patients will realize that harmful affects can happen when treatment goes Potential new patients from word of mouth it-yourself dentistry. unsupervised and it will be too late for them. Positive - More people talking about clear aligner therapy No impact currently (x2) Not a good thing; Too many problems for patients potentially Patients are more aware Neutral-More awareness, but also more retreats for unfinished ortho Increased interest in ortho, but gives ortho a bad name Net positive - When don't get results they wanted the patients will come to a No, however I only do a small amount of clear aligner work Negative, pepole can do DIY ortho for cheap and mess up their bites real dentist Will negatively effect pricing, but will drive more patients to my office Negative, unsupervised treatment Neutral-Remain unchanged due to the fact that patients tend to prefer working Negative, DIY dentistry is directing care on the wrong track with a clinician or a provider in terms of aesthetic cases No Impact - my patients follow through with my recommendations; The population going to DTC are young/rarely see dentists regularly No impact, my patients are educated Source: Credit Suisse, n=75; DTC stands for direct to consumer offerings

By way of background, beyond doctor-directed teeth-straightening treatment options, consumers may also access direct-to-consumer (DTC) offerings, which we define as products sold either online or in certain retail stores directly from the relevant company or a representative, rather than through a patient’s dentist or orthodontist. As clear aligners become a more popular choice among consumers and expanding to what has been untreated cohorts, DTC companies have proliferated, including SmileLove, Byte, SnapCorrect, Candid Co., among others.

Figure 64: Direct-to-Consumer Clear Aligner Offerings

Impression Kit Cost Access? Access to Virtual Company Total Cost Online Discount Financing Available? Retainers? (if Separate) Online In-Store Doctors SmileLove $1,420 Included 25% X X Included Byte $1,900 $95 X X X Included SnapCorrect $1,749 $49 X X Included Candid Co. $1,900 $95 50% X X X X Included Source: Company data, Credit Suisse estimates Relevant Detailed Commentary Ad hoc commentary was mixed with somewhat more of a negative bias with regards to the general thoughts and outlook on the dental business over the next twelve month, particularly as it relates to DSOs, dental insurance, and direct to consumer offerings. More specific relevant responses are detailed below: Feedback on Primescan: Positive ■ Ease of use

Dental Update 31 22 July 2019

Feedback on CEREC: Positive ■ Does and adequate job of scanning; Milling is great

■ Good quality fits of restorations

■ Easy to use; Good quality

■ It works great Negative ■ Long learning curve for usage; Calibrations are off Feedback on iTero: Positive ■ Ease of use; Portability

■ Quality control

■ Quick; Less mess; Patients are impressed with the technology; More accurate

■ Fills all of our crown, bridge, endodontic, and orthodontic needs

■ We love how quick it is and that it is compatible with Invisalign

■ Fast, efficient, high tech, accurate

■ Very easy to use and very precise

■ Updated often and support within 5 minutes

■ It performs well and interfaces with Align Technology seamlessly

■ More accurate and faster records than traditional impressions

■ Very easy to use and patients love that we do not take analog impressions anymore

■ Compatible with Invisalign

■ Reliable

■ The new iTero Element is an amazing scanner

■ Easy to use; Easy to train; Good quality; Good support

■ Accuracy; Ease of file transfer What do you believe is driving patients to more/less proactively seek clear aligner treatment: More Proactive ■ Increased TV ads (x7)

■ Good economy (x3)

■ Mainstreaming of the concept

■ Familiarity; Ease of use; Cosmetic advantage over full brackets

■ Aesthetics and awareness

Dental Update 32 22 July 2019

■ We are promoting it more

■ Marketing (x8)

■ Consumer awareness from all the DIY at home aligners (x2)

■ We are seeing a lot of people try at home aligners not finish treatment and want it finished with Invisalign in office

■ Public awareness (x3)

■ Cost and aesthetics as compared to traditional orthodontic treatment

■ More knowledge of the product

■ Brand awareness of Invisalign

■ More disposable income

■ Aesthetics (x3)

■ Advertising and word of mouth (x2)

■ Aesthetic and cosmetic concerns for dentition

■ As more younger adults increase in age, I am seeing a lot of patients that have been treated with braces as a teenager and have suffered mild relapse

■ Greater emphasis on aesthetics Less Proactive ■ Saturation

■ Lack of motivation to follow through

■ Market saturation; More providers

■ Cost and results

■ Some falsely believe they can go to DTC companies and get the same results

■ Competition from direct-to-consumer and the fact that Aligner technologies has undercut the profession

■ Mixed results

■ Media

■ Cost

■ Cannot see value Feedback as it relates to optimism on product innovation over the next 12 months: Equipment ■ Improved cutting edge technology

■ Digital impression

■ 3D printing (x7)

■ Caries detection modules

Dental Update 33 22 July 2019

■ 3D printers to make my own aligners

■ Intraoral scanner

■ Soft tissue laser

■ Digital integration CT scan and photos

■ Even more improvement in digital scanners

■ Faster 3D printers with increased capacity

■ Intraoral scanning

■ Intraoral scanning combined with 3D printing

■ Transillumination caries detection with intraoral scanners

■ Digital impression

■ More affordable and easier to use in-office milling

■ Excited to see where 3D technology goes in terms of working with 3D articulators for doing bite studies

■ Caries detection

■ Scanning for caries if in fact it involves no radiation Implants ■ Full arch implant therapy

■ Implants (x2) Clear aligners ■ Mandibular advancement appliance

■ DIY aligners and 3D printing

■ New product from Invisalign

■ I hope the turnaround time for aligners continues to decrease

■ More and more clear aligner companies to choose from

■ Advances being made by Invisalign in treating complex cases

■ Clear aligners declining in price point due to competition

■ Printing aligners faster

■ 3D printers printing faster so in-house aligners can be done more often Other ■ Stem cell technology

■ Endodontic treatment

■ Further development of sleep apnea treatment and multidisciplinary medical treatment

■ Better CRM

■ Perio treatment innovation

Dental Update 34 22 July 2019

■ Seeing an immediate clincheck so we can eliminate clincheck review appointment

■ Adhesive technology; Easier removal with strong bond strength Feedback on greatest worries over the NTM: Patient traffic / Market Saturation ■ Not getting any new patients

■ Declining new patient traffic due to economic/financial hardships

■ Saturation

■ Too many dentists

■ Competition; Not enough money for advertisement; uniformed patients looking for the cheapest quick fix

■ Competition

■ My declining patient base and increased competition and overhead expenses

■ More dentists coming out of school and less retiring

■ Patient loyalty – there are many options these days Dental Service Organizations and larger group practices ■ Increased competition from corporate practices

■ Incursion of DSOs

■ Competition from corporate groups (x2)

■ Growth of corporate dentistry

■ DSO competition (x2)

■ The increasing growth of DSOs that are not focused on comprehensive specialized care

■ Fewer new patients due to DSOs Clear Aligners ■ People are getting deceived by direct to consumer companies into using them and they have signed away their rights as patients with their disclaimer. They cannot get their side effects addressed and then come to me to fix the problems.

■ Patients will get pulled in by the slick marketing of direct to consumer offerings

■ Service cost reduction and less profit for the office from clear aligner treatments due to available direct to consumer systems

■ People being turned off by bad results from direct to consumer companies

■ A significant decrease in aligner pricing as they flood the market and become direct to consumer oriented

■ Do it yourself orthodontics

■ Direct to consumer companies

■ Competition with DIY clear aligner systems

Dental Update 35 22 July 2019

■ Competition from direct to consumer companies

■ Direct to consumer movement taking business away

■ General dentists doing more orthodontics

■ DIY and non-dentist diagnosing Broader economic implications ■ Worried a recession may happen

■ I always worry about the economy; Recession would have an impact on more elective care.

■ Government intervention in the free market

■ The economy (x2)

■ I worry as we get into another political cycle how patients may become anxious financially and slow their spending cycle

■ Vulnerable economy Insurance companies ■ Loss of revenue as patients, especially millennials, seek in-network providers as they feel all dentistry is the same

■ Seem to be racing down to dentistry becoming a commodity. I am especially concerned about a government run healthcare plan taking effect

■ Insurance reimbursements (x2)

■ As insurance companies change fees, it is harder to accept certain plans as a preferred provider. I have had to make changes to accept plans, but fortunately, it doesn’t seem to have affected my practice significantly. I am fearful that other insurance companies will follow a trend to cut fees

■ Insurance and their limitations

■ Insurance driving patients to only want what is covered

■ Decreasing insurance reimbursement

■ More switching to lower reimbursement from dental benefits Other ■ No concerns (x12)

■ People seem less interested in dental implants lately due to cost

■ Going off of ZocDoc due to their extreme change in pricing strategy

■ Poor compliance

■ I am worried about patient satisfaction with wait times; Increased patient numbers have led to longer wait times and more upset patients

■ Lack of patient engagement and less response to marketing

Dental Update 36 22 July 2019

Companies Mentioned (Price as of 19-Jul-2019) 3M (MMM.N, $172.61) Align Technology, Inc. (ALGN.OQ, $281.21) Amazon com Inc. (AMZN.OQ, $1964.52) DENTSPLY-SIRONA (XRAY.OQ, $56.67) Danaher Corporation (DHR.N, $141.61) Henry Schein (HSIC.OQ, $67.5) Patterson Companies (PDCO.OQ, $20.28) Straumann (STMN.S, SFr833.6)

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Dental Update 37 22 July 2019

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Dental Update 38 22 July 2019

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Dental Update 39