Notable Calls

SunTrust's Jonathan Block is out with some very interesting comments on Align Technology (NASDAQ:ALGN) saying that late yesterday, they began hearing chatter that Dentsply’s pending clear aligner product (MTM) suffered a regulatory setback. Last night, their checks confirmed it. Dentsply's clear aligner has been delayed. They no longer expect the product to be approved in 2010. Firm's best guess now calls for mid-2011. Obviously, this is a positive for ALGN.

Note that Align is no stranger to Notable Calls (make sure you read the humorous comments!)

The details:

What We Know. Dentsply reps were scheduled to have a training session later this week. The training program was going to address the company’s No Trace product (lingual treatment) as well as the new MTM clear aligner. Due to the delayed regulatory approval for the MTM aligners, the training session has been cancelled.

Still Some Unknowns. From what we have gleaned, Dentsply believed it could essentially piggyback off the benchmark studies Invisalign used to obtain its second (most recent) 510k approval in December 2008. The FDA apparently will not accept this. Dentsply now likely has to submit additional clinical data. While details are murky, if true, this could set Dentsply’s product back by approximately one year, in our opinion.

Takeaway. Clearly, Dentsply’s setback would be a positive for ALGN. Some of the noise about Dentsply's MTM capturing significant share in 2H10 should now go away. For us, our diligence (Doc Survey: The Real Story on Competition) has shown that Dentsply's product would not be a significant competitor to Invisalign Full. That said, this does remove an overhang on ALGN shares and should mitigate fear about the near-term impact to Invisalign Express. In addition, it tells us that Danaher's (Ormco) next generation aligner, which we believe will largely be an upgrade to Simpli5, may have a longer approval process than some expect. Reiterate Buy on ALGN.

Notablecalls: Dentsply’s clear aligner product was expected to compete with Align's product, which promted the wonderful & gutsy downgrade from Northcoast Research back in April when the stock was trading around $20.

The stock traded as low as $13 couple of months later.

While ALGN has bounced a bit off its recent lows I would not be surprised to see the stock trade up nicely over the next few days.

Well done SunTrust! This is what I call research!