A new complaint was filed against Dentsply Sirona, Inc. (XRAY) by the shareholder (plaintiff) North Collier Fire Control and Rescue District Firefighters’ Retirement Plan on November 26, 2024, in the U.S. District Court for the Southern District of New York. The defendants in the complaint are the company, CEO and President Simon D Campion, CFO Glenn Coleman, and Executive VP and Chief Business Officer Andreas Frank.
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The plaintiff alleges that they purchased XRAY stock at artificially inflated prices between December 1, 2022, and November 6, 2024 (the “Class Period”). The plaintiff is now seeking compensation for the financial losses incurred during this period. To learn more about the lawsuit, click here.
Dentsply Sirona is engaged in the development and manufacture of dental care products and technology. The company’s claims about its Byte Aligner products are at the crux of the complaint.
The filed complaint alleges that during the Class Period, the defendants misled XRAY investors in violation of Sections 10(b) and 20(a) of the Securities Exchange Act.
The Plaintiff’s Allegations
According to the complaint, Dentsply Sirona intentionally misrepresented information presented in its financial statements submitted to the U.S. SEC (Securities and Exchange Commission). The plaintiff alleges that the defendants failed to exercise proper oversight and control over the preparation and submission of public financial statements.
In 2020, Dentsply acquired two direct-to-consumer dental aligner businesses, Byte and SureSmile. The company claimed that it had undertaken thorough due diligence before these acquisitions.
Over the following years, the defendants acknowledged the strong year-over-year growth in the aligner segment and the potential revenue opportunity from it. This robust revenue increase continued throughout 2023 and 2024.
For instance, during a Q1 FY23 earnings call, the CFO detailed Dentsply’s strategy to target Byte customers and convert them into sales. He added that there was a solid conversion rate, which helped reduce customer acquisition costs and improve profitability. Similarly, on a November 9, 2023 call, the CBO noted that customer conversions were 20% higher than the prior year.
Unfortunately, Dentsply was selling these Byte aligners to low-income groups with dental issues that were inappropriate for clear aligners, in a bid to boost their sales. Dentsply knowingly sold Byte and SureSmile aligners to patients whose use was contraindicated, which could lead to severe injuries from using clear aligners.
Dentsply Sirona Allegedly Misrepresented Key Information
In contrast to the claims made by XRAY and the defendants, the company had inappropriately inflated the goodwill from both acquisitions. Moreover, they sold the aligners to consumers who were ineligible for such dental treatment to bolster their revenue figures and expectations.
The truth became clear on October 24, 2024, when Dentsply Sirona released an SEC filing stating that it had voluntarily suspended the sales and marketing of Byte aligner products. The company also mentioned that it was conducting an internal safety review of the products. Additionally, the company noted that it expected to report a goodwill impairment charge between $450 million and $550 million due to state regulatory trends related to its aligner business. The company was also in discussions with the U.S. FDA (Food and Drug Administration), it added.
On November 7, 2024, during its Q3FY24 earnings results, Dentsply Sirona reported a $495 million non-cash goodwill impairment charge in the aligner segment and lowered its Fiscal 2024 projections for organic sales. Following the news, XRAY stock collapsed over 28% on the same day.
To conclude, the defendants allegedly misled investors about the growth results and expectations from the sale of its Byte aligner products. Year-to-date, XRAY shares have lost 44.7%, causing substantial damage to shareholder returns.
