Watches may signal time for dental implant recovery
3/11/2010: But as the wealthy begin to splash out again on watches, the recovery in the luxury goods industry may herald a pick up in demand for dental implants.
"In spite of their rather functional nature, implants are similar to luxury goods in the sense that they are expensive, discretionary items," Jefferies analyst Stephan Gasteyger said.
The dental implant market earned a reputation for being recession-proof by maintaining double-digit growth rates in prior downturns, but the exceptionally tight credit markets during the recent crisis killed growth last year.
Implants have proven to be more cyclical than other parts of the medical technology sector as patients usually have to pay for the often expensive treatments themselves and are rarely reimbursed by insurance policies.
"We are talking about a price category that is similar to a nice Swiss watch," Gasteyger said.
Demand for luxury goods, such as pricey Swiss watches, is starting to pick up as shoppers treat themselves again. Swiss watch exports rose in January for the first time in 14 months according to the Federation of the Swiss Watch Industry.
But the implant market is likely to take longer to recover due to its dependence on still shaky U.S. and European markets.
"The key driver for luxury goods is Asia and dental implants don't yet have a grip on this part of the world," said Kepler Capital Markets analyst Jon Cox.
"Maybe Asians are not as vain as Westerners or maybe they would rather show their wealth with a big watch. Dental implants remain more of a developed world phenomenon," he said.
GENERICS TO SLOW GROWTH
Market leaders Nobel Biocare (NOBN.VX) and Straumann (STMN.S) have both hit a cautious note for 2010 and warned consumer confidence was still weak in key markets such as the United States and Spain.
The dental implant market, which traces its roots back to the early 1980s and includes players such as Biomet LVBHAB.UL, Dentsply (XRAY.O) and Zimmer (ZMH.N), shrank by some 7 percent in 2009 -- a far cry from the 15 to 20 percent growth rates seen in previous years.
Nobel and Straumann are now trading at around 18 and 21 times expected 2011 earnings respectively, roughly in line with watchmakers Swatch Group (UHR.VX) and Richemont (CFR.VX), after slipping from price earnings ratios of nearly 40 before the financial crisis.
And the valuations of dental implant makers, which are still more expensive than other medtech groups, such as Synthes (SYST.VX) and Smith & Nephew (SN.L), may face more pressure as competition from generics heats up.
Dentists are feeling more comfortable about using cheaper alternatives after more positive clinical data.
"The premium dental implant market has very high margins and the barriers to entry are pretty low. This will allow value providers to enter the market resulting in price pressures and lower growth rates," said Morgan Stanley analyst Andrew Olanow.
"We are forecasting 3 percent growth this year and I don't think we will ever get back to the 15-20 percent growth rates we saw in the past because of generics," he said.
(Editing by Elaine Hardcastle)
(Reuters) - Dental implant makers lost their shine as a recession-proof investment during the global crisis, which turned fixing smiles into a luxury for consumers who struggled to pay for non-essential work on their mouths.
"In spite of their rather functional nature, implants are similar to luxury goods in the sense that they are expensive, discretionary items," Jefferies analyst Stephan Gasteyger said.
The dental implant market earned a reputation for being recession-proof by maintaining double-digit growth rates in prior downturns, but the exceptionally tight credit markets during the recent crisis killed growth last year.
Implants have proven to be more cyclical than other parts of the medical technology sector as patients usually have to pay for the often expensive treatments themselves and are rarely reimbursed by insurance policies.
"We are talking about a price category that is similar to a nice Swiss watch," Gasteyger said.
Demand for luxury goods, such as pricey Swiss watches, is starting to pick up as shoppers treat themselves again. Swiss watch exports rose in January for the first time in 14 months according to the Federation of the Swiss Watch Industry.
But the implant market is likely to take longer to recover due to its dependence on still shaky U.S. and European markets.
"The key driver for luxury goods is Asia and dental implants don't yet have a grip on this part of the world," said Kepler Capital Markets analyst Jon Cox.
"Maybe Asians are not as vain as Westerners or maybe they would rather show their wealth with a big watch. Dental implants remain more of a developed world phenomenon," he said.
GENERICS TO SLOW GROWTH
Market leaders Nobel Biocare (NOBN.VX) and Straumann (STMN.S) have both hit a cautious note for 2010 and warned consumer confidence was still weak in key markets such as the United States and Spain.
The dental implant market, which traces its roots back to the early 1980s and includes players such as Biomet LVBHAB.UL, Dentsply (XRAY.O) and Zimmer (ZMH.N), shrank by some 7 percent in 2009 -- a far cry from the 15 to 20 percent growth rates seen in previous years.
Nobel and Straumann are now trading at around 18 and 21 times expected 2011 earnings respectively, roughly in line with watchmakers Swatch Group (UHR.VX) and Richemont (CFR.VX), after slipping from price earnings ratios of nearly 40 before the financial crisis.
And the valuations of dental implant makers, which are still more expensive than other medtech groups, such as Synthes (SYST.VX) and Smith & Nephew (SN.L), may face more pressure as competition from generics heats up.
Dentists are feeling more comfortable about using cheaper alternatives after more positive clinical data.
"The premium dental implant market has very high margins and the barriers to entry are pretty low. This will allow value providers to enter the market resulting in price pressures and lower growth rates," said Morgan Stanley analyst Andrew Olanow.
"We are forecasting 3 percent growth this year and I don't think we will ever get back to the 15-20 percent growth rates we saw in the past because of generics," he said.
(Editing by Elaine Hardcastle)
(Reuters) - Dental implant makers lost their shine as a recession-proof investment during the global crisis, which turned fixing smiles into a luxury for consumers who struggled to pay for non-essential work on their mouths.
posted by Zo Heri at 5:34 PM
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