- Teladoc is facing a class-action lawsuit alleging the virtual care company knowingly and willfully misled investors regarding its business, operations and future prospects, resulting in "significant losses and damages" for stakeholders.
- The suit was filed Monday in a New York district court on behalf of parties that purchased Teladoc shares between October and April. It accuses Teladoc, along with CEO Jason Gorevic and CFO Mala Murphy, of downplaying competition in the sector that stifled growth for mental health and chronic care businesses, along with issuing "unrealistic" financial expectations for 2022.
- "The Company’s public statements were materially false and misleading at all relevant times," the lawsuit, which requests a trial by jury, alleges. "As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages."
Teladoc provides virtual care services in the U.S. and internationally to a variety of businesses including payers and employers, as well as selling directly to consumers. The vendor's services include on-demand urgent care, mental health treatment through its BetterHelp product, and chronic condition management, which it acquired in its $18.5 billion buy of Livongo two years ago.
Despite increasing competition in the telehealth sector as COVID-19 spurred an unprecedented uptick in demand for virtual care, Teladoc — the largest telehealth company in the U.S. by revenue — pointed to its whole-person offerings and large customer base as key differentiators, while management has largely maintained that market rivals aren't a concern.
"Despite recent market concerns over new entrants to the telehealth field, such as Amazon and Walmart, the Company has continued to assure investors of the Company's dominant market position in the industry," the lawsuit reads.
However, Teladoc’s stock price has slumped since its peak in February of last year amid market volatility and investor misgivings about the long-term future of virtual care.
In first quarter results released in April, Teladoc missed Wall Street expectations for revenue, along with recording a $6.6 billion impairment charge on its Livongo buy.
The vendor also lowered its full-year revenue guidance to between $2.4 billion and $2.5 billion, down from its prior estimate of between $2.55 billion and $2.65 billion.
Gorevic said the decrease reflected higher advertising costs in direct-to-consumer mental health markets — previously cited as a key growth driver for the vendor — due to smaller private competitors pursuing market share, along with a longer sales cycle in the chronic condition market.
On this news, Teladoc’s stock price fell $22.48 per share, or more than 40%, to close at $33.51 per share on April 28.
The lawsuit, brought by plaintiff Jeremy Schneider, alleges Teladoc violated federal securities laws, and requests the two-decade-old vendor pay damages to its stockholders.
The complaint cites a number of calls with investors, filings with the SEC and public remarks in which it alleges that Teladoc management overhyped the company's advantages, especially the future performance of its chronic care and mental health businesses.
As a result, investors acquired Teladoc's stock at "artificially inflated prices" over the past year, and subsequently saw huge losses when Teladoc's stock plummeted following April's financial disclosure, the lawsuit says.
In a statement, a Teladoc spokesperson slammed the lawsuit as having "no factual basis," adding: "Unfortunately this type of frivolous litigation has become commonplace for public companies today."
Editor's note: Healthcare Dive has reached out to the plaintiffs for additional comment.