On December 19, 2018, a class action legal claim was filed in US District Court for the Eastern District of New York against Dentsply Sirona and various associated corporate officers and directors. The Boynton Beach Employees’ Pension Plan is the initial plaintiff, though other plaintiffs are expected to join the suit.
The plaintiff alleges that Dentsply International, and its successor Dentsply Sirona, violated the Securities and Exchange (SEC) Act of 1934 and other Securities and Exchange Commission rules, which allegedly unlawfully impacted public shareholders.
Dentsply Sirona is the world’s largest dental products manufacturer. In February 2016, Dentsply International completed acquisition of Sirona in a $5.5 billion stock-for-stock deal. This allowed Dentsply a greater presence in the higher-end and higher-profit-margin dental equipment market, including x-ray units, dental chairs, imaging equipment, and CAD/CAM systems. The merger generated a new company name, Dentsply Sirona.
The pleading cites the dominant market presence of Henry Schein, Patterson Companies, and Benco, which combined control 80% to 85% of the dental industry marketplace for dental supplies and equipment. The plaintiff alleges that these three companies “secretly carried out a nationwide conspiracy in which they agreed not to compete on price on dental consumable and equipment products sold in the US. This concerted and successful antitrust scheme reduced competition in the dental supply market and artificially inflated the sales price of dental supplies.”
The pleading also touched upon alleged price fixing and collusion against the Arizona and Texas Dental Associations
According to the pleading, Dentsply Sirona had an exclusive distribution agreement with Patterson until September 2017 for sales of its products and equipment. However, allegedly unknown to investors, “This exclusive distribution agreement required Patterson to regularly make minimum purchases regardless of demand,” the pleading said.
“By late 2015, Patterson had been supplied with so much excess inventory through that exclusive relationship that the inventory could not be sold. Indeed, Patterson had purchased so much excess inventory that it would likely take roughly a year for Patterson to sell down enough of its existing inventory before it would make economic sense to purchase more product,” the pleading continued.
The defendants allegedly either failed to disclose or misrepresented in required SEC disclosure documents and stock prospectuses the alleged anticompetitive agreement with its distributor, Patterson, as well as the massive inventory buildup. Instead, the pleading said the defendants proffered false information to investors.
According to the pleading, Dentsply Sirona claimed its competitive advantage in the US market was driven by innovation, operational improvement efforts, new products, and continued investments in sales and marketing and that the market for its dental products was highly competitive.
Yet the pleading claimed that outsides sales and profit margins generated by the conspiracy between Dentsply Sirona and its three largest distributors—Henry Schein, Patterson Companies, and Benco—inflated Dentsply Sirona’s financial results, making them unsustainable. Also, the pleading claimed that Dentsply Sirona stuffed the channel by selling excess product to Patterson, making its reported sales and financial guidance materially false and misleading.
After these disclosures of fraud, Dentsply Sirona’s stock price dropped by more than 45% from its class period high. The plaintiff claims that Dentsply Sirona knew throughout the class period that it depended on the scheme’s success to meet its promised quarterly financial results.
Dentsply Sirona CEO Jeffrey Slovin, president and COO Christopher Clark, and executive chairman Bret Wise resigned in short order subsequent to the disclosure of an SEC investigation in 2017.
Donald Casey Jr joined Dentsply Sirona as CEO in January 2018. Previously, he was CEO of the medical segment of pharmaceutical distributor Cardinal Health. On December 23, 2016, Cardinal Health announced a $44 million settlement with the Drug Enforcement Agency (DEA) for restitution of registration to distribute controlled substances. In 2008, Cardinal Health paid $34 million to settle DEA allegations that it failed to report suspicious orders of hydrocodone.
From 2014 to 2016, however, the nation’s three largest distributors of pharmaceutical painkillers—McKesson, AmerisourceBergen, and Cardinal Health, which together controlled more than 80% of distribution in the United States—spent $13 million lobbying US House and Senate members.
Enforcement of DEA actions slowed to a snail’s pace during this time, and DEA leadership resigned in frustration over the Justice Department’s inaction on pending cases as the nation’s drug epidemic grew. It seemed like deals were made for a hands-off policy toward Big Pharma, and dedicated and ethical civil servants were subsequently forced from government service.
No one suggests that Casey was responsible for any of these infractions, though it is valuable to understand the history of his former employer Cardinal Health and its interactions with government agencies. The public should not be naive concerning the operation of big business healthcare corporations. Full disclosures benefit the investor community as well as the public welfare.
Dentsply Sirona’s common stock is publicly traded on the NASDAQ Exchange. In addition to the current class action filed against Dentsply Sirona by the law firm of Bernstein Litowitz Berger & Grossman on behalf of the Boynotn Beach Employees Pension Plan, other law firms including Bragar Eagel & Squire, the Rosen Law Firm, Gainey McKenna & Egleston, and the Schall Law Firm are seeking clients for similar and related class actions.
Dr. Davis practices general dentistry in Santa Fe, NM. He assists as an expert witness in dental fraud and malpractice legal cases. He currently chairs the Santa Fe District Dental Society Peer-Review Committee and serves as a state dental association member to its house of delegates. He extensively writes and lectures on related matters. He may be reached at mwdavisdds@comcast.net or smilesofsantafe.com.
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