Teladoc Health is facing a class action lawsuit alleging the virtual care company misled investors about its business and financial prospects.

The suit, filed yesterday in the Southern District of New York on behalf of defendants who purchased Teladoc shares between October and April, names the company as well as CEO Jason Gorevic and CFO Mala Murthy.

It alleges they made misleading statements or failed to disclose that increased competition in the space was affecting Teladoc's BetterHelp mental health segment and its chronic care business, and that their growth was not sustainable. 

"Despite recent market concerns over new entrants to the telehealth field, such Amazon.com, Inc. and Walmart Inc., the company has continued to assure investors of the company’s dominant market position in the industry," the lawsuit said. 

As a result, the class action alleges Teladoc's revenue and adjusted earnings before interest, taxes, depreciation and amortization projections for fiscal year 2022 were unrealistic, and the company would have to pay a $6.6 billion non-cash goodwill impairment charge related to its 2020 Livongo acquisition. 

"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," the suit said. 

THE LARGER TREND

In late April, Teladoc posted disappointing first quarter results, reporting a $6.7 billion loss. The company said the loss, a significant jump compared with the approximately $200 million loss from Q1 last year, was driven by the non-cash goodwill impairment charge.

Teladoc revised its guidance for the year, expecting between $2.4 and $2.5 billion in revenue, while adjusted EBITDA was revised down to between $240 and $265 million.

"We hold ourselves to a high standard, and there's no question we're disappointed with our revised outlook today," Gorevic said during an earnings call. "However, as I mentioned earlier, we remain highly confident that our whole-person, integrated approach is the right one."

Digital health companies have struggled on the public markets lately, though the decline is particularly severe for more newly public companies and those that merged with a special purpose acquisition company, according to a report by Rock Health. 

In January, teletherapy company Talkspace was hit with a class action lawsuit alleging it had misled investors in the run-up to the SPAC merger that took it public. The company reported a net loss of $20 million during Q1 as it shifted its focus to a B2B model.

ON THE RECORD

"Unfortunately, lawsuits like this one have become commonplace for public companies. There is no factual basis to the suit whatsoever, but we otherwise can’t comment further on pending litigation," a Teladoc Health spokesperson told MobiHealthNews.