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HOUSTON, US: The flag-bearer for at-home clear aligner therapy has filed for Chapter 11 bankruptcy protection in the US, signalling a potential shake-up in the market for remote orthodontic therapy. Plagued by a litany of lawsuits and economic setbacks, SmileDirectClub (SDC) will cease its operations if it cannot secure a financial lifeline by 23 November.
The voluntary filing, announced on 29 September, allows SDC to remain in control of its business operations while seeking capital reorganisation under the oversight of the US Bankruptcy Court for the Southern District of Texas. At the time of the filing, SDC owed creditors nearly US$900 million (€854 million) and had just US$5 million in cash. A loan of US$20 million from the company founders was approved during the first bankruptcy hearing, and SDC said in a statement that up to US$60 million of additional capital could be injected into the company if the court proceedings reach a favourable conclusion within the given time frame.
Chapter 11 filings can help debt-laden companies to find buyers owing to the favourable terms available to debtors and creditors, including relief from old debts and the possibility of forgiving debts in return for ownership of all or parts of a business. Bloomberg reported that SDC’s chief financial officer, Troy Crawford, confirmed to the court that the company will shut down and liquidate if no buyer is found. Some US$130 million of SDC’s debt is currently secured by its receivables and intellectual property, which could be of interest to other dental companies. In 2020, for example, SDC was granted a patent relating to certain concepts and processes that make it possible to run a tele-orthodontics business through retail locations.
Lawyers acting for SDC confirmed to UK publisher Dentistry that the bankruptcy filing only affects its US business and that its UK and “other international affiliated entities have not sought any bankruptcy protection”.
SmileDirectClub delisted from NASDAQ
Since its founding in 2014, SDC has been entangled in lawsuits and complaints and levied with hefty fines. The company even fell victim to a substantial and costly cyber-attack and had an active employee run amok at its Nashville manufacturing facility, resulting in three workers being injured and the gunman being fatally shot by police. However, ongoing net losses and a lack of profitability have been the more serious of SDC’s troubles.
The company has not turned a profit since its September 2019 initial public offering (IPO) on the NASDAQ, owing partly to significant investments in manufacturing and marketing, and those made to expand its services beyond the US—by early 2020, the company was aligning teeth in Australia, Canada, Hong Kong, Ireland, New Zealand, the US and the UK. The SARS-CoV-2 pandemic hit the company particularly hard, however, owing to its disproportionate financial impact on the lower-middle-income households that comprise SDC’s core US demographic. The company shipped 122,751 unique clear aligner orders in the first quarter of 2020 and just 57,136 in the second quarter. Volumes subsequently climbed to meet pent-up demand, but the company struggled to regain its pre-IPO momentum owing to rising inflation and the onset of a recession in the US.
The SARS-CoV-2 pandemic hit the company particularly hard.
Clear aligner shipments in the first two quarters of 2022 were already shy of the company’s expectations—at 76,254 and 62,705, respectively—and those from the corresponding quarters of this year have been even lower, at 59,645 and 46,774, respectively.
SDC shares were initially priced at US$23, but they never reached that value, falling to below US$9 within months of the IPO. Four years later, the stock dipped to US$0.083 after SDC’s bankruptcy filing, and the company was delisted from the NASDAQ on 4 October this year.
The company signalled a major change to its business model in 2022, when it announced the launch of a premium treatment offering that would challenge the market-leading brand Invisalign and provide SDC with access to more affluent households. Despite progressing well with the roll-out of this offering and having developed and launched its own software to visualise treatment results, SDC appears to be running out of time to secure the funding needed to continue its mission as a disrupter in orthodontics.
The company sees it differently, stating that the Chapter 11 filing marks the beginning of a “comprehensive recapitalisation transaction” that aims to help it thrive as a market leader “for many years to come”. It added: “During this restructuring process, SmileDirectClub intends to continue to provide affordable and accessible oral care to its customers without disruption.”