In recent years, companies that arose completely independently, without any money from venture capital funds or investment companies, have made Israel a power in dental implants. A major exit by MIS Implants Technology, sold this year to Dentsply Sirona for $375 million, came on top of the successful exit of Alpha Bio Tec, sold to Nobel Biocare for $95 million in 2008, and caused growing interest in this market.
The Poalim Capital Markets group has mapped this market over the past year, after having advised MIS in its merger with Dentsply. Poalim Capital Markets is the Israeli partner of the William Blair investment house, which was recruited for the deal by the TA fund, the controlling shareholder in MIS before the acquisition. Poalim Capital Markets advised MIS in Israel several years before the deal.
"In the past year, we have been comprehensively mapping the market," says Poalim Capital Markets managing director and head of investment banking Eran Zack. "We identified three major companies and an entire ecosystem of smaller companies. The large companies are MIS, of course, which still operates independently in the Galilee, Adin Dental Implant Systems, and Ashdod-based AB Dental, which is a little smaller than Adin."
Each of the companies is trying to differentiate itself. While MIS works in high-end implants, meaning the best and most innovative, Adin works in the value segment - a good product at an affordable price. What is special about them is the service they provide beyond the implant itself, which is now becoming the norm among the other companies. Both companies have a unique scanner for photographing the mouth. Adin's implant has an anti-bacterial coating for preventing infections. Without a coating, 20% of implants develop inflammation, and there is no way of predicting to whom it will happen. When an inflammation develops, the implant has failed. MIS is trying to develop something similar, while Israeli company PolyPid is developing a special delayed release antibiotic within bones.
AB Dental is a smaller company. It is also developing a scanner and an option for 3D printing of the implant, based on defense technology. The printing is used to create a perforated implant that enables the bone to grow not only around the implant, but even within it, thereby strengthening its anchoring and encouraging the growth of stronger bone. "This is a unique development," Zack says.
Global leading companies
Poalim Capital Markets investment banker Maayan Golan, who is responsible for healthcare, among other things, notes that the Israeli companies are regarded as global leaders in innovation.
A fourth company cited by the team, Cortex Dental Implants Industries, is a little smaller than the others mentioned. What is special about this company is its marketing setup, more than its product. "They encourage dentists to use their products utilizing unique marketing methods, customer clubs, and methods that have not yet reached the dental industry," Golan says.
The Israeli dental market is not confined to implants. The Fusion Laser company, for example, does 3D printing of dental crowns. Currently, crowns are produced by hand. "This is an established company, but a small one. They still have to break through the barriers to implementing their technology in laboratories where crowns are produced," says Golan.
"Globes": How did Israel become a leading player in dental implants?
Golan: "It's not so easy to disseminate innovation in this sphere. The surgeon is constantly swamped with a lot of new systems, but he or she is used to working with a certain implant and certain tools, and you can't introduce something new every time; it's not so modular. The challenge in this area is therefore commercialization and integration of different products and technologies. That's why it's very logical for Israel companies to be acquired at this stage."
Why haven't most of the companies in the market raised money from venture capital funds?
Zack: "This is a field in which you can found a basic business for producing basic implants relatively quickly, and unlike other medical markets, there's not necessarily any need for difficult regulatory approval in order to become a player in the market. Formerly, after companies got their foot in the market's door with an initial product, they began innovating and creating distinctive elements. At a later stage, expertise was accumulated that enabled people leaving the original companies to found their own companies.
"Over the years, there were no strong buyers in this field, and that forced the companies to develop independently, instead of looking for an exit. These companies were founded as a family or collective business, and selling the business was very much based on the personal situation - whether there was a second generation and so forth."
Golan: "This is a market with real distributors who are much more partners than distributors. It seems to be very difficult for classic medical device companies to work with their distributors and promote their products within the agenda of distributors, who are also selling their own older and independent products, do not usually give or ask for exclusivity, and compete with large integrative medical device companies. In the dental sector, up until recently, it wasn't like that."
Zack: "Insurance is the key word. In the dental market, the patients themselves pay for a significant proportion of the cost, so this is an obstacle that does not have to be overcome in order to create a sustainable business."
Golan: "We said that bringing a first product to the dental market would encounter fewer entry barriers than in medical devices, but it is important to note that the significant companies in the sector survived because they were able to innovate and bring very well-developed products to market. There isn't much generics in this area; every implant is a world in itself, so profit margins are very high."
"An investment banker's dream"
Are some of these companies suitable for an IPO on the Tel Aviv Stock Exchange (TASE) or Nasdaq?
"The international market is currently undergoing consolidation, so acquisition is a more logical step for an Israeli dental implant company than an IPO. We may see IPOs in this market, but not by Israeli companies."
Zack: "What's interesting in dental mergers and acquisitions is that we have seen both strategic parties and financial parties, because the companies are generating cash flow. The buyers come from all over the world: the US, China, and Europe. This process is an investment banker's dream."
The leading buyers identified by the team in the process of selling MIS who could be relevant to other companies are Zimmer, Lifco Dental, Straumann, Danaher Corporation, Osstem Implant, Henry Schein, Biomet, Tecomet, Fuson Pharma, and Dentsply Sirona, which eventually acquired MIS.
Zack says that he joined Poalim Capital Markets four years ago, after a long time at leading Wall Street companies. "I want to develop the Israeli technology sector on Wall Street, and I did a deep probe of the market. We were partners in 12-13 technology offerings, several mergers and acquisitions I can't specify, and we recently also earmarked the medical field as a leading area, led by Maayan (Golan)."
Golan: "We'll focus on medical devices, mainly on companies that already have revenue, a few in digital health, and less in pharma right now. The medical market in Israel has to grow up a little, as the technology sector matured from a collection of startups into real leading companies. This is also happening in the medical market, and we want to help."
Published by Globes [online], Israel Business News - www.globes-online.com - on February 16, 2017
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