More implants for less: China rocks first-quarter results with volume-based procurement

Jeremy Booth, Dental Tribune International

Fri. 19. May 2023

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LEIPZIG, Germany: The first quarter of 2023 delivered mixed results for the largest dental companies. Consumers around the world continued to rationalise their spending during the three-month period, owing to the financial impacts of Russia’s invasion of Ukraine; however, it was China’s implementation of volume-based procurement (VBP) for dental implants that rocked the boat and offset gains made in other regions.

Dental Tribune International (DTI) reported earlier this year that China had adopted VBP for dental implants, leveraging its colossal buying power to secure low prices. Dental manufacturers have two choices: exit the Chinese dental implants market or join the bidding for bulk orders. As a leading manufacturer of dental implants, Straumann Group opted for the latter.

Straumann’s results showed that gains in European dental markets were offset by a significant and rare decline in the Asia Pacific (AP) region, where COVID-19 and VBP constricted earnings. The company posted AP sales of CHF 80 million (€80 million), and this represented a year-on-year drop of 28.9%. CEO Guillaume Daniellot explained to analysts in early May that markets in the region had largely performed well—particularly Japan, Australia, Thailand and India. “However, due to the expected strong headwind coming from China, which hampered the region’s results, the Asia Pacific region recorded negative organic growth of 23.5%,” Daniellot said.

COVID-19 infections and restrictions severely disrupted patient flow in China until mid-February, and the country’s VBP programme nearly halved unit prices of Straumann implants. Daniellot told analysts that VBP pricing was swiftly implemented in both public and private dental settings during the period. He said that the VBP programme already covered around 80% of the country’s dental implants market and was expected to apply to nearly all dental implant sales by the end of June. Daniellot said that Straumann earned 40% to 45% less for each dental implant that it sold in China and that the total volume of implant sales in the country was up by 25%.

Straumann performed better in other regions. Sales in the Europe, Middle East and Africa region totalled CHF 287 million—up 7.2% year on year—and sales in North America increased by 7.0% year on year to reach CHF 182 million. In Latin America, a region that Daniellot labelled a “continuous highlight”, sales grew by 20.1% year on year to reach CHF 47 million. Straumann’s total revenue in the first quarter was CHF 596 million, up by 1.1% year on year, and organic growth was 3.4%.

Restructuring at Dentsply Sirona leads to net loss

Dentsply Sirona’s US sales increased by nearly 15% in the period; those in European markets increased marginally, and sales outside of these two key markets were flattened by persistent headwinds from China.

Glenn Coleman, chief financial officer at Dentsply Sirona, told analysts that sales in China decreased by 30% during the period. “The good news is we’re seeing a really nice recovery as we exit [the first quarter] and even stronger recovery in the month of April relative to our implants business in China,” Coleman said.

VBP aims to cut the cost of dental implant treatment at public hospitals, and Dentsply Sirona’s Chinese implants business mainly serves private dental settings; Coleman confirmed that unit prices have dropped by up to 40%, nonetheless. “[That] is, in fact, what has happened,” he said.

“I expect China to be flat on a full-year basis despite being down 30% in the first quarter”—Glenn Coleman, chief financial officer, Dentsply Sirona

Dentsply Sirona expects to sell a greater number of dental implants in China this year and that revenues from these sales will remain flat. Coleman explained: “I think once we get to the end of this year, the volume should offset the price reduction. And I previously made a comment [during the] last call that I expect China to be flat on a full-year basis despite being down 30% in the first quarter. I think my view right now is China should be growing this year, given what I am seeing right now in the last couple of months. So, we are more bullish on China, but still cautious.”

At US$978 million (€900 million), first-quarter net sales at Dentsply Sirona increased by nearly 1.0% and by 5.1% on an organic basis. Sales of dental consumables increased by 6.4% to reach US$430 million, and sales of technologies and equipment dropped by 3.0% to settle at US$548 million. The dental heavyweight incurred restructuring costs of US$71 million and posted a net loss of US$ 19 million for the quarter.

Envista’s orthodontic business grew by 12% during the first quarter and its Spark clear aligners business recorded 70% sequential sales growth. (Image: Nomadneshot/Shutterstock)

Mixed performance at Envista Holdings

First-quarter sales of US$627 million represented a year-on-year decrease of 0.7% for Envista, and core sales at the company declined by 2.4%—a drop that Envista had anticipated, according to CEO Amir Aghdaei.

Strong growth in specialty products and technologies business during the quarter was offset by challenges that the company faced in the Chinese and Russian markets and by a general weakness in the company’s capital equipment business. According to Aghdaei, high interest rates and lingering economic uncertainties are still having an impact on major dental equipment purchases.

Envista’s orthodontic business grew by 12% during the quarter, helped along by the establishment of the premium Ultima bracket system and sales of Spark clear aligners, which recorded 70% sequential sales growth. Global sales of dental implants declined by low single digits, owing to significant declines in China and Russia.

“Geographically, as anticipated, we declined substantially, overall, in both Russia and China. The decline in Russia was primarily due to unusually strong performance in the first quarter of 2022 as clinicians pre-purchased inventory at the start of the conflict in Ukraine,” Chief Financial Officer Howard Yu explained to analysts.

Early in the quarter, the impact of COVID-19 in China resulted in disruptions to Envista’s operations. “At one point, 75% of our own people had COVID, and we had asked them not to come to work and stay home and take care of their well-being,” Aghdaei commented.

Envista’s dental implant business in China is worth around US$1 million, and Aghdaei said that developments in the market related to VBP are playing out as the company had expected. “We have seen significant reduction in prices in the public sector as well as the anticipated spillover into the private market. While it is too soon to be sure, the early indication is that demand for our implant should increase as we pick up additional share in the public sector and the VBP programme positively impacts long-term patient demand,” he said.

A degree of volatility

Dental patient volumes in most markets were stable at or near pre-pandemic levels, according to Henry Schein CEO Stanley M. Bergman; however, a degree of volatility persists. Commenting on the current shape of the dental business, Daniellot emphasised that uncertainties remain and that geopolitical tensions had not eased during the first quarter.

Aghdaei said: “While the dental community remains confident in the long term, they also are mindful of the short-term uncertainty driven by higher interest rates, the lingering risk of a recession and the various geopolitical risks occurring around the world. This uncertainty is expected to create a degree of volatility as we move throughout 2023.”

The impact of VBP on dental manufacturers is expected to ease as volume increases lessen the effects of lower unit prices. China has implemented VBP programmes for a slew of pharmaceutical and medical product categories. This is good news for the country’s ageing population, which is already enjoying the benefits of substantial savings at pharmacies, hospitals and dental clinics.

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