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SmileDirect Claims California Dentist Conspiracy Harmed Business

John Tozzi and Janet Freund

(Bloomberg) -- SmileDirectClub Inc., which sells clear orthodontic aligners, alleges dentists who serve on a regulatory board in California conspired to hurt the company’s business to protect their own practices.

In a lawsuit filed Wednesday in federal court, SmileDirect alleges the Dental Board of California had an investigator conduct “a series of coordinated raids” on the company’s retail locations, known as SmileShops.

The California Dental Board declined to comment on the lawsuit. A spokeswoman for SmileDirect didn’t have any additional comment on the lawsuit.

Shares of Nashville, Tennessee-based SmileDirect were down 4.6% to $9.54 at 3:01 p.m. in New York, after earlier falling as much as 13%, after a short-seller on Twitter cited the lawsuit and the disclosure about the raids.

SmileDirect offers an alternative to traditional braces, which are installed in an orthodontist office and have to be regularly adjusted. The company instead offers a set of clear plastic aligners that are swapped out gradually to move the teeth into the desired position. The treatment costs $1,895, which the company promotes as far less expensive than traditional braces.

“The direct-to-consumer model supported by SmileDirect represents a serious competitive threat to their ability to continue to generate such fees through their traditional delivery model in the future,” SmileDirect said in the lawsuit.

The technique also requires far fewer in-person visits by patients. The product has turned SmileDirect into a $3.7 billion market-valuation company. Analysts have projected it will bring in more than $1 billion in sales next year, though the company’s shares have struggled since their Sept. 12 initial public offering at $23.

In the lawsuit, SmileDirect claims that California’s dental board, which is made up largely of dentists, doesn’t have jurisdiction over its shops.

Representatives of the board raided SmileDirect’s locations in Oakland, San Francisco and Hollywood in May 2018, according to the lawsuit, which claims the raids disrupted the company’s business.

To contact the reporters on this story: John Tozzi in New York at jtozzi2@bloomberg.net;Janet Freund in New York at jfreund11@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net;Drew Armstrong at darmstrong17@bloomberg.net

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