General Overview
Young Innovations, Inc. and its subsidiaries (“the Company”) develop, manufacture, and market supplies and equipment used to facilitate the practice of dentistry and to promote oral health. The Company’s product offerings include disposable and metal prophylaxis (“prophy”) angles, prophy cups and brushes, prophy pastes, microapplicators, panoramic X-ray machines, dental handpieces (drills) and related components, home care kits, orthodontic and children’s toothbrushes, flavored examination gloves, infection control products, ultrasonic cleaning systems, ultrasonic scaling and endodontic systems, and obturation systems used in endodontic surgery (root canal procedures). These products are primarily marketed to dental professionals, principally dentists, endodontists, orthodontists, dental hygienists and dental assistants.
The Company’s manufacturing and distribution facilities are located in Missouri, California, Indiana, Tennessee, Texas, Canada, Wisconsin and Ireland.
The Company markets its products primarily in the U.S. The Company also markets its products in several international markets, including Canada, Europe, South America, Central America and the Pacific Rim. International sales represented less than 10% of the Company’s total net sales in 2006.
The Company is a Missouri corporation with its principal executive office located at 13705 Shoreline Court East, Earth City, Missouri 63045, in the St. Louis, Missouri metropolitan area; its telephone number is (314) 344-0010.
Background
The Company was founded as Young Dental in the early 1900s. As one of many small suppliers to the dental profession, Young Dental’s strength was manufacturing consistently reliable dental products. As dentistry evolved, Young Dental employees worked with practicing dentists and academics to identify clinical problems. Young Dental staff used their engineering and manufacturing expertise to create solutions to those problems. Young Dental established a strong reputation and leading market position in disposable and metal prophy angles, the core products utilized by the dentist in the typical biannual teeth cleaning.
In 1995, following the acquisition of The Lorvic Corporation, the Company incorporated as Young Innovations, Inc. in the state of Missouri. Since then, Young has acquired a number of complementary businesses, and introduced a variety of new products. Through these acquisitions and new product introductions, the Company has expanded its preventive and infection control product offerings, and entered a number of new product areas, including dental diagnostic imaging, handpieces, home care products, and endodontics. The Company believes its continued commitment to providing innovative products to meet the evolving needs of dental professionals has earned it a reputation for quality, reliability and value.
Business Strategy
The key elements of the Company’s strategy are:
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Developing New Products. Product development has been a core element of the Company’s growth strategy, and continues to play a role in the pursuit of internal growth. The evolution of the Company’s product offering is driven by the needs of clinicians and patients, which often require modifications to existing products rather than new designs. The Company maintains an active dialogue with practicing clinicians to identify product improvements that enhance patient comfort and improve patient care, and/or improve practice productivity.
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Improving Operating Efficiency. The Company strives to reduce costs and rationalize expenses across its operations in an effort to maximize profitability. In order to improve operating efficiency, the Company seeks cost savings through manufacturing and process improvements, administrative and marketing synergies, and facility consolidation, where appropriate.
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Acquiring Complementary Products and Businesses. The Company is experienced in acquiring and integrating complementary products and businesses. The Company continuously evaluates acquisition opportunities, and pursues opportunities that increase the breadth of its product and service offerings and provide opportunities to enhance the growth prospects and profitability of the overall business through manufacturing and marketing synergies. The following table provides a summary of our acquisition history.
Select Acquisitions
|
Company Name |
Acquisition Year |
Key Product Additions |
|
The Lorvic Corporation |
1995 |
Infection control products. |
|
Denticator International, Inc. |
1996 |
Popular-priced disposable prophy angles. |
|
Panoramic Corporation |
1998 |
Panoramic X-ray equipment and supplies. |
|
Athena Technology, Inc. |
1999 |
Dental handpieces and related components. |
|
Plak Smacker, Inc. |
2000 |
Home care products and flavored gloves. |
|
Biotrol and Challenge (subsidiaries of Pro-Dex, Inc.) |
2001 |
Infection control products, prophy pastes and other preventive products. |
|
Obtura Corporation & Earth City Technologies, Inc.
D&N Microproducts, Inc.
Microbrush, Inc. and Microbrush International Ltd. |
2003
2006 2006 |
Endodontic products.
Panoramic X-ray equipment. Dental microapplicators. |
Products
The Company’s $90,805 in sales for 2006 were derived from the manufacture and sale of the products described below. The Company has grouped these products by core function within the dental office.
Preventive. The Company believes it is a leading supplier of preventive products to the U.S. professional dental market. Preventive products include:
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Prophy Angles . The Company offers a broad line of prophy products. The prophy angle, in combination with prophy paste, is used in the typically biannual “teeth cleaning treatment” that helps remove plaque and polishes teeth. The Company offers a variety of pre-assembled Classic and Contra disposable prophy angles with cups or brushes attached under both the Young Dental (premium-priced) and Denticator (popular-priced) brand names, as well as through private-label relationships. The Company believes it is the market leader in disposable prophy angles, with its extensive line of prophy products that suit the wide variety of customer needs and desires.
The Company also offers metal prophy angles, which are sealed to help prevent damage to the internal components of the angle and help it withstand repeated sterilizations. The metal prophy angles are marketed together with an assortment of cups and brushes specifically designed to work together, which encourages recurring purchases of these products.
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Prophy pastes . D-Lish, Festival and ProCare are some of the brand names of the Company’s prophy pastes. Most pastes are available in a variety of textures (grits) and flavors, and some are sold in powder form. Important functional features of prophy paste include stain removal, flavor and splatter control.
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Fluorides . The Company has a variety of flavors of fluorides in gel formulation. Fluorides are used to help prevent tooth decay.
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Handpieces and components . Under the Athena Champion brand name, the Company manufactures and markets low- and high-speed dental handpieces. Handpieces are used for teeth-cleaning and during restorative procedures, including removing decay during cavity preparation procedures. The Company also provides repair and maintenance services for handpieces.
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Microapplicators . The Company manufactures a variety of disposable microapplicators and bristle brush applicators designed specifically for fast application of minute amounts of material in areas of limited access. The products are used in dental procedures such as the application of tooth whitening products, sealants, disclosing products, orthodontic brackets, topical analgesics, bonding agents and other restorative materials.
Infection Control. The Company markets a broad line of infection control products to the dental practice. Infection control products include:
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Surface disinfectants . BIREX is one of the leading liquid surface disinfectants in the U.S. Surface disinfectants are used to clean surfaces in the dental operatory, such as a dental chair or countertop that may be contaminated with bioburden. BIREX is a concentrated solution that is diluted with water prior to use, which makes it easier to ship and store.
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Evacuation system cleaners . The evacuation system is designed to remove debris from the patient’s mouth during a dental procedure. Vacusol and NeutraVac, the Company’s evacuation system cleaners, remove debris that collects in the evacuation line. When used with the Company’s atomizer, the solution is mixed with room air and flows through the evacuation lines. Due to the unique air/liquid solution, the stress on the vacuum pump used in the evacuation system is minimized, which helps to extend pump life.
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Gloves and masks . The Company offers many types of gloves, including latex, non-latex and powder-free gloves for dental professionals. Flavored gloves, including bubble gum and grape, are often used by pediatric dentists to help provide a more positive, enjoyable experience for their younger patients. Masks are used as a barrier by dental professionals.
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Ultrasonic cleaning systems . The Company, under the Healthsonics brand name, manufactures and markets a line of ultrasonic cleaning systems primarily used to clean and disinfect dental hand instruments. The Company also sells a line of solutions and accessories that are used in connection with these systems.
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Instrument disinfectants . The Company offers a full line of solutions designed for disinfecting dental instruments, including Multicide Ultra and Biozyme LT. Certain of these cleaners may also be used with ultrasonic cleaners.
Diagnostic. The Company believes it is a leading provider of panoramic dental X-ray systems and supplies in the U.S., marketed under the Panoramic brand name. The Company’s diagnostic products include:
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Panoramic PC-1000 System. The PC-1000 is a fully equipped panoramic X-ray machine which produces a high-quality image of the entire dental arch. All teeth, the entire lower jaw, joints and a portion of the sinuses are seen on one resulting X-ray film. A single exposure from the PC-1000 lasts only 12 seconds, resulting in far less radiation exposure when compared to a set of bite-wings or a full mouth series taken with traditional intraoral X-ray machines. The PC-1000 is shipped essentially fully assembled and is freestanding. As a result, this machine requires only a few hours to install, which is much less than most competitive products.
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Panoramic PC-1000/Laser-1000. This is the Company’s cephalometric offering. Cephalometric radiographs show the exact relationship of various anatomical reference points of the patient’s anterior skull profile. General dentists and orthodontists use these calculations to locate and predict the movement of teeth in order to fit braces and other orthodontia. Oral surgeons use cephalometric X-rays to detect pathology and also to determine bone and teeth alignment before and after surgery.
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Digital. The Company’s PC-1000 and PC-1000/Laser-1000 provide the platform which produces the X-ray image. The Company offers direct digital solutions for its X-ray machines which can be purchased with a new panoramic X-ray machine or added to a dentist’s current panoramic machine.
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Supplies and Service. The Company offers its customers dental X-ray supplies, including film, film cassettes and intensifying screens, processing chemicals, and darkroom supplies. The Company also offers service on all of its systems through a network of more than 200 independent nationwide service technicians.
Panoramic X-ray systems can be a significant investment for a dentist. In addition to outright purchase and traditional financing options, the Company established a rental program whereby dentists pay on a per-use basis for the system (i.e., per X-ray image taken). The system is installed free of charge, and the dentist pays a monthly fee based on usage. Rental customers have the option to purchase their equipment at any time.
Home Care. The Company markets a line of products to dentists, pediatric dentists and orthodontists that are prescribed,
sold or given to patients for use at home. The Company’s home care products include:
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Home care kits . These kits are given to patients to encourage good oral healthcare habits and contain products such as brushes, wax to protect the inside of the cheek from irritation due to brackets, a timer to monitor brushing time and floss.
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Toothbrushes . The Company offers a broad line of toothbrushes for many age groups, including infants, children, teens and adults. The Company also markets an “all-in-one” brush for patients with braces. One end of the brush is a standard toothbrush, while the other end features a conical brush designed for access between brackets.
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Fluorides . The Company sells a variety of flavors of fluorides in a gel formulation. Fluorides are used to help prevent the development of tooth decay.
Endodontic. The Company sells endodontic products under the Obtura and Spartan brand names. Endodontics is the part of dentistry associated with the treatment of tooth root, dental pulp and surrounding tissue. The most common therapy in endodontics is the root canal procedure, which involves removing the organic root canal tissue and subsequently filling the empty canal with gutta percha, a rubber-like filling material. Endodontic procedures are performed by both general dentists and specialists (endodontists). The Company’s endodontic products include:
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Obturation . The Obtura family of endodontic units are gun-type, heat-softened gutta percha delivery systems. This unique dispensing unit allows the dentist to deliver a consistent flow of warm gutta percha directly into the canal, similar to extruding hot glue from a glue gun, facilitating the canal-filling procedure. Additionally, the Obtura systems help practitioners effectively seal the canal, which is an important component of the root canal procedure.
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Ultrasonic systems . Under the Spartan brand name, ultrasonic units and handpieces are marketed together with a variety of tips for different clinical applications. BUC tm tips are used for, among other things, gaining and refining access to the tooth root, while CPR tm tips are more often used in retreatment cases. KiS tm tips, used for microsurgery, offer a rough diamond coating for improved cutting. The Company also offers additional ultrasonic tips for use in periodontal applications.
Sales and Marketing of Professional Products
The Company markets its preventive, infection control and certain home care products to dental professionals worldwide primarily through a network of non-exclusive relationships with dental product distributors. All major distributors of dental products in North America sell the Company's products, including Henry Schein, Inc. and Patterson Companies, Inc., which accounted for 15.0% and 13.2%, respectively, of the Company's sales in 2006. In addition to marketing through distributors in the U.S., the Company sells products directly to dental and dental hygiene schools, Veterans Administration healthcare facilities, and U.S. military bases.
The Company actively supports its distributor relationships with Company sales personnel and independent sales representatives in the U.S. and Canada, independent sales representatives in Mexico, and sales representatives in countries outside of North America. These sales representatives teach the Company’s distributors about the quality, reliability and features of its products. The Company also advertises its products through industry publications. To supplement its other marketing efforts, the Company provides product samples to dental professionals and exhibits its products at industry trade shows. In addition, the Company seeks to generate interest in its products by providing information and marketing materials to influential lecturers and consultants in the dental industry.
The Company’s diagnostic, certain home care and endodontic products are marketed in the U.S. and Canada directly to the end user, primarily by direct mail, telemarketing, trade shows, and a limited amount of advertising in trade and professional journals. The Company also sponsors seminars hosted by industry thought leaders.
Product Development
The Company’s engineers and chemists are focused on developing innovative professional dental products and are actively involved in improving the Company’s manufacturing processes. Frequently, these products are designed and developed in response to needs articulated to the Company by dental professionals. For example, the Company designed a short prophy cup for its line of prophy angles to allow for easier access to the back of the patient’s mouth. The Company has various patents and trademarks but does not consider its business to be materially dependent upon any individual patent or trademark.
Research and development costs are expensed when incurred and totaled $915, $752, and $715, for 2006, 2005 and 2004, respectively.
Manufacturing and Supply
The Company manufactures most of its products and product components other than certain infection control products, fluorides, children’s home care products, orthodontic kits and related supplies, and examination gloves.
Prophy and Related Products. The Company manufactures prophy and related products in its Earth City, Missouri, and Brownsville, Texas facilities. The primary processes involved in manufacturing the Company's prophy and related products include precision metal turning and milling, rubber molding, plastic injection molding, component parts assembly and finished goods packaging. In these processes, the Company uses a variety of computer numerically controlled (CNC) machining centers, injection molding machines and robotic assembly machines, and continues to invest in new and more efficient equipment and production lines.
Pastes. The Company blends and mixes all of its pastes at the Earth City, Missouri, facility. The Company also owns equipment used to form and die-cut expanded polyethylene foam and extruded plastic into packaging materials, and equipment used to package its products in a variety of container sizes, including prophy paste in unit-dose containers.
Microapplicators. The Company manufactures microapplicators and related products in its Grafton, Wisconsin and Dungarvan, Ireland facilities. The primary processes involved in the manufacture of these products include plastic injection molding, application of adhesive and flocking, and packaging of finished goods. The Company uses injection molding machines and robotic assembly machines in these manufacturing processes.
Handpieces and Components. The Company uses a variety of CNC machines to manufacture a number of the components required to produce its high-speed and low-speed handpieces. Certain other handpiece component parts are sourced from a variety of Original Equipment Manufacturers (OEMs). The Company assembles and provides repair services for its handpieces, and offers repair services for a number of other handpiece brands.
Infection Control Products. The Company manufactures and packages a variety of infection control products, sterilants and cleaners, at the Earth City, Missouri facility. Additionally, certain of the Company’s infection control products are sourced from domestic manufacturers.
X-Ray Equipment. X-ray equipment is manufactured and assembled at the Company’s premises in Fort Wayne, Indiana. The Company also manufactures its own X-ray generators, a critical system component. Prior to January 2006, a contract manufacturer manufactured and assembled the X-ray equipment at the Company’s premises in Fort Wayne, Indiana. In January 2006, the Company acquired the contract manufacturer and began manufacturing and assembling its own X-ray equipment.
Home Care Products. The Company sources most of its home care kit components, toothbrushes, and examination gloves from manufacturers in Asia, principally China, Thailand and Malaysia. Certain other toothbrush and toothpaste products are sourced from domestic manufacturers.
Endodontic Products. Obturation and ultrasonic systems are manufactured at the Company’s facility in Fenton, Missouri. A variety of components and subassemblies are sourced domestically.
Supply. The Company purchases a wide variety of raw materials, including bar steel, brass, rubber and plastic resins from numerous suppliers. The majority of the Company's purchases are commodities readily available at competitive prices. The Company also purchases certain additional miscellaneous products from other manufacturers for resale.
Competition
The Company competes with manufacturers of both branded and private-label dental products. The Company believes it is the market leader in disposable prophy angles and liquid surface disinfectants used in the professional dental market in the U.S. The Company also believes it is a leading provider of panoramic X-ray systems and supplies in the U.S. In addition, the Company believes it is a leader in systems designed for warm, vertical condensation obturation, as well as a leader in the U.S. market for ultrasonic systems and tips used in endodontic surgery and retreatment.
The markets for the Company’s products are highly competitive. The Company believes that the principal competitive factors in all of its markets are product features, reliability, name recognition, established distribution network, customer service and, to a lesser extent, price. The relative speed with which the Company can develop, complete testing, obtain
regulatory approval and sell commercial quantities of new products is also an important competitive factor. Some of the Company’s competitors have greater financial, research, manufacturing, and marketing resources than the Company. The Company’s competitors include DENTSPLY International Inc.; Danaher Corporation; Sultan Dental Products; Sultan Chemists, Inc.; Preventive Technologies, Inc.; John O. Butler Company; Instrumentarium; Planmeca OY; StarDental, a division of DentalEZ Group; Proctor and Gamble Co. and Colgate-Palmolive Co.
FDA Regulation
The Company’s products are subject to regulation by, among other governmental entities, the U.S. Food and Drug Administration (FDA). To the extent the products are marketed abroad, they are also subject to government regulation in the various foreign countries in which the products are produced or sold. Some of these regulatory requirements are more stringent than those applicable in the United States. They also vary from country to country.
Medical Device Regulation . Pursuant to the Federal Food, Drug, and Cosmetic Act (“Act”), and the FDA’s implementing regulations, FDA regulates the development, manufacture, sale, and distribution of medical devices, including their introduction into interstate commerce, as well as their testing, labeling, packaging, marketing, distribution, recordkeeping and reporting. In general, if a dental device is subject to FDA regulation, compliance with the FDA requirements constitutes compliance with corresponding state regulations. Medical devices are classified for FDA regulatory purposes as Class I, Class II or Class III, depending on the degree of control necessary to provide a reasonable assurance of safety and effectiveness for the labeled use. The Company’s dental device products are classified as either Class I or Class II devices. Class I devices are subject to "general controls," such as labeling, good manufacturing practices (GMP), and a prohibition against adulteration and misbranding. Class II devices are subject to general and "special controls," including premarket notification (510(k)), and other general and device-specific requirements. All of the Company’s dental device products are subject to ongoing regulatory oversight by the FDA to ensure compliance with, among other things, product labeling, GMP, the quality system regulation (QSR), recordkeeping, and medical device (adverse reaction) reporting requirements. The Company’s facilities are further subject to periodic inspection by the FDA, as well as state and local agencies. Failure to satisfy FDA requirements can result in FDA enforcement actions, including product seizure, injunction and/or criminal or civil proceedings. In the medical device arena, the FDA may also request repair, replacement, or refund of the cost of any medical device manufactured or distributed by the Company.
Drug Regulation . The Company also markets drug products, such as fluorides, which are subject to regulation by the FDA and the counterpart agencies of the foreign countries where the products are sold. The FDA regulates the development, manufacture, sale, and distribution of drugs, including their introduction into interstate commerce as well as their testing, labeling, packaging, marketing, distribution, recordkeeping and reporting. In general, unless a drug product falls within an over-the-counter (OTC) monograph, is generally recognized as safe and effective for the labeled use, or is entitled to grandfather status, the drug must be approved by FDA before it may be legally marketed. Failure to comply with the FDA’s drug regulatory requirements can result in issuance of an FDA Form 483 Inspectional Observations, Warning Letter, or another enforcement action or penalty.
Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)
Certain of our infection prevention products are classified as pesticides and are subject to regulation by the United States Environmental Protection Agency (EPA) under FIFRA, and by various state agencies under the laws of those states. Generally, under FIFRA and state law, no one may sell or distribute a pesticide unless it is registered with the EPA and each state in which the product is sold. Registrations must be renewed annually. Registration includes approval by the EPA of the product’s label, including its claims and directions for use, which must be supported by data. EPA or states may at any time require additional testing to determine whether a pesticide could cause adverse effects on the environment, including people, and whether it is efficacious. The pesticide laws also require registrants to report adverse effects associated with their products to the EPA and the corresponding state agency. Failure to pay annual registration fees or to provide necessary testing data, or new information regarding adverse effects of product, as well as other conduct, could result in fines and/or the cancellation of a pesticide registration.
Environmental, Health and Safety Matters
Our operations involve production processes and the use and handling of materials that are subject to federal, state, and local environmental laws and regulations relating to, among other things, solid and hazardous waste disposal, air emissions, and waste water discharge. We are also required to comply with federal and state laws and regulations relating to occupational health and safety. If violations of any of these laws and regulations occur, or if toxic or hazardous
materials are released into the environment as a result of our operations, the Company could be exposed to significant liability.
The Company believes it is in compliance in all material respects with respect to the laws and regulations applicable to it and its operations.
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