SmileDirectClub Collapse Explained

View Comments (104)
SmileDirectClub Collapse Explained

How a $9 billion orthodontic disruptor crashed into biology, regulation, and bad unit economics

SmileDirectClub was founded in 2014 in Nashville by Jordan Katzman and Alex Fenkell, widely described as childhood friends, and from Day One, it sold a story that was almost irresistible in the smartphone age. Orthodontics, the company argued, was too expensive, too inconvenient, too dependent on repeated office visits, and too full of friction. SmileDirectClub’s answer was to strip that friction out. Patients could take impressions at home or get a digital scan at a SmileShop, a remote dentist or orthodontist would review the case, and a series of clear aligners would arrive in the mail. It was marketed as a lower-cost, more convenient alternative to braces or Invisalign, and for a lot of adults with mild cosmetic goals, that pitch hit a nerve.

That is the part too many critics still miss. SmileDirectClub was not solving a fake problem. It had identified a real market failure. Traditional orthodontics could be expensive, time-consuming, and intimidating for adults who wanted straighter front teeth but did not want the full specialist experience. SmileDirectClub was directionally right about distribution. It was right that consumers wanted simpler intake, more transparent pricing, fewer visits, and a more retail-like front end. In that sense, it helped drag orthodontics toward a more digital, consumer-friendly future.

But here is where the company confused inconvenience with inefficiency, and that distinction turned out to be fatal. Moving teeth is not the same thing as shipping razors or eyeglasses. Teeth move through bone. Occlusion is unforgiving. Compliance is variable. Case selection is everything. A lot of what a startup calls friction in healthcare is actually quality control wearing an ugly sweater.

Investors loved the early story anyway. In July 2016, Align Technology, maker of Invisalign, agreed to become SmileDirectClub’s exclusive third-party supplier of clear aligners in North America and also took a minority ownership stake with a board seat. For SmileDirectClub, that was like getting drafted and endorsed by the very giant it claimed it might someday outmaneuver. In October 2018, SmileDirectClub raised $380 million in a private equity round that valued the company at about $3.2 billion. Clayton, Dubilier & Rice led the round, with participation from firms including Kleiner Perkins and Spark Capital. By then the company was talking like a healthcare platform, not a dental company, which is always a fun sentence right before reality shows up with a shovel.

In April 2019, SmileDirectClub teamed up with CVS Health to place hundreds of SmileShops inside CVS pharmacies. That move made the concept feel mainstream. Now you could imagine straightening your teeth in the same building where you bought shampoo and picked up a prescription. The company also gained insurance traction and national brand visibility. This was peak optimism. The model looked scalable, retail-friendly, and very easy to explain in a pitch deck.

Then came the IPO. On September 12, 2019, SmileDirectClub began trading on the Nasdaq at $23 per share, implying a valuation around $8.9 billion. Instead of a victory lap, it face-planted. The stock fell about 28% on its first day, one of the worst debuts for a billion-dollar U.S. IPO since the financial crisis. Public market investors were sending a message that private investors had mostly ignored: This was not a high-margin software company. It was a medical-device-and-marketing machine operating in a regulated field, with heavy acquisition costs, legal risk, and no easy path to durable profitability.

That was the business side. The clinical and regulatory side was getting hotter too. Organized orthodontics and dental groups had been warning for years that remote aligner treatment without in-person exams and radiographs could miss gum disease, bone loss, cavities, and other contraindications. California became the clearest example of this pushback. In 2019, the state passed Assembly Bill 1519, signed by Governor Gavin Newsom and effective January 1, 2020. The law required that tele-orthodontic treatment meet the same standard of care as office-based care, including review of appropriate X-rays before prescribing tooth movement. It also required disclosure of the treating dentist’s name and license number and preserved patients’ rights to complain to the Dental Board of California even if they had signed arbitration or nondisclosure agreements. Supporters called it the first major patient-protection law of its kind aimed at direct-to-consumer orthodontics. Critics saw it as regulatory drag. Both were partly right.

SmileDirectClub did not just accept that pressure quietly. It fought back hard. It sued members of the California Dental Board, alleging anticompetitive conduct and arguing that practicing dentists and orthodontists on the board were using regulatory power to protect themselves from competition. A lower court threw that case out, but in March 2022 the Ninth Circuit revived part of SmileDirectClub’s antitrust claims, allowing the company to move forward against certain board members. That did not prove SmileDirectClub was right on the facts, but it did show the conflict was not simply cartoon-villain startup versus saintly regulator. There were real economic incentives on both sides.

At the same time, the company’s chief clinical officer, Jeffrey Sulitzer, faced disciplinary action in California in 2020 after a long investigation into whether SmileDirectClub’s tele-dentistry model met the state’s standard of care. Reuters reported that nearly 60 complaints had been filed with regulators and the FDA alleging problems ranging from bite changes to pain and loose teeth. SmileDirectClub insisted its model was safe and that licensed dentists reviewed and monitored every case. Regulators and organized dentistry were not reassured.

Meanwhile, the company’s once-friendly relationship with Align Technology had turned into a blood feud. In March 2019, SmileDirectClub won an arbitration ruling requiring Align to close its Invisalign retail stores for violating restrictive covenants tied to the companies’ 2016 agreements. Align had to shut down its direct-to-consumer storefronts and unwind its ownership stake in SmileDirectClub. But the revenge tour did not end there. In March 2021, another arbitration largely favored Align, with the arbitrator ordering SDC Financial and related entities to pay an additional $45.5 million, bringing one total award to about $99.7 million more than the value of Align’s ownership interest. Then in 2023, SmileDirectClub was hit with another major blow when an arbitrator ordered it to pay about $63 million in damages to Align over a supply agreement dispute. SmileDirectClub said it would appeal. The important point is simple: These two companies spent years beating each other with legal baseball bats while SmileDirectClub was already bleeding cash.

Then came the reputation problems. In 2020, “NBC Nightly News” aired a critical report featuring patients who said they had experienced pain, bite problems, and poor outcomes. SmileDirectClub responded the way a calm, secure company obviously would not: It sued NBCUniversal for roughly $2.85 billion, claiming defamatory reporting and major financial harm. Around the same period, scrutiny intensified over the company’s refund practices. By late 2022, the District of Columbia attorney general sued SmileDirectClub, alleging the company required some dissatisfied customers to sign restrictive nondisclosure agreements in order to receive promised refunds. In June 2023, the company settled, agreed to release more than 17,000 consumers nationwide from those NDAs, changed its refund policies, and paid $500,000 to the district.

That legal pressure mattered because SmileDirectClub’s core economic problem never really went away. The company could generate demand, but it did so by spending heavily on marketing and expansion. Revenue grew, reaching about $750 million in 2019, but so did the costs. The model depended on continuously acquiring new customers, and that is a brutal treadmill when your product sits in a regulated health category, your remediation risk is real, and you are paying lawyers enough money to fund a small moon landing.

Then operations got uglier. In 2021, the company disclosed a cyberattack that began on April 14 and forced it to isolate systems and shut down manufacturing-related operations. That slowed order processing and product shipment. Not ideal when your business already depends on high volume, smooth logistics, and customers who expect the next aligner tray on time.

By 2022, the macro environment turned against the company too. Consumers were more cautious, capital was tighter, and Wall Street had lost patience with the “growth first, profits later” religion. SmileDirectClub had entered the market selling a fantasy that orthodontics could be scaled like software. By this point, the public markets had politely replied, “No, it can’t.”

One of the most revealing moments came in January 2020, when SmileDirectClub announced it would start selling aligners to dentists and orthodontists. That was a major strategic pivot because the original disruption narrative was all about bypassing the traditional channel. Now the company was inching back toward the very professionals it had built its identity around bypassing. That move was both practical and symbolic. Practical because it opened another sales channel. Symbolic because it suggested the remote-only, direct-to-consumer story was not strong enough to carry the whole business by itself.

The final collapse came fast. SmileDirectClub filed for Chapter 11 on September 29, 2023, with about $890.6 million in funded debt and more than $1 billion in liabilities. The company said it hoped to restructure while continuing operations. That hope died quickly. On December 8, 2023, SmileDirectClub announced an immediate wind-down of global operations. Treatment stopped. Customer support disappeared. Unshipped aligners were canceled. The Lifetime Smile Guarantee vanished into the same corporate afterlife where broken startup promises go to mingle with Peloton treadmills and Juicero presses.

The human fallout was brutal. The American Association of Orthodontists (AAO) issued guidance telling affected patients to see a licensed orthodontist in person as soon as possible. The AAO stressed that tooth movement is a medical procedure affecting bone, gums, and bite, not just a cosmetic subscription box. Many patients had no records, no continuity of care, no replacement trays, and no idea whether their teeth were mid-treatment in a safe position or headed for a mess.

Then came the ugliest consumer-protection angle of all: The financing outlived the treatment. Healthcare Finance Direct (HFD), which serviced SmilePay installment plans, made clear in its FAQ that the financing agreement was separate from the treatment agreement. In plain English, the aligners stopped, but the bill initially did not. Customers who had financed treatment through SmilePay were told the contract still existed, because HFD handled payment servicing, not dental care. That is where the collapse stopped being just a clinical or business failure and became a structural one. In healthcare, continuity is part of quality. If a company can disappear while the financing machine keeps humming, the business model itself has become a patient-risk factor.

The state of New York stepped in. In late 2024, Attorney General Letitia James announced recovery of about $4.8 million for more than 28,000 consumers nationwide who had been wrongly charged after SmileDirectClub shut down, including more than 2,000 in New York. Eligible consumers could receive refunds, credits, or balance reductions depending on how far they were into treatment and how much they had paid. That settlement did not erase the chaos, but it was a clear legal acknowledgment that you cannot keep charging people for care that no longer exists.

So what was SmileDirectClub, really? Not a pure fraud. Not a pure martyr. It was a brilliant consumer-distribution idea wrapped around a dangerous simplification. It correctly saw that patients hated the front-end friction of orthodontics. It incorrectly acted as if logistics, marketing, and remote review could replace the diagnostic guardrails, continuity, and sustainable economics that healthcare requires. It proved there was real demand for cheaper, simpler, more digital orthodontic entry points. It did not prove that a remote-first mail-order company could safely and profitably replace orthodontists at scale.

The smartest takeaway is not “direct-to-consumer is bad” or “incumbents were scared.” It is that SmileDirectClub found the boundary. The future probably looks less like pure mail-order tooth movement and more like doctor-led hybrid care: digital intake, remote monitoring, clearer pricing, fewer unnecessary visits, and much better triage. SmileDirectClub was right about the distribution problem. It was wrong about how much of orthodontics could be treated like software. In healthcare, the guardrails are often the product. 
What’s your take?

Share your thoughts in the comments below.

Hot Topic articles draw inspiration from active online discussions among orthodontists. Written by the editorial team with the assistance of AI, each piece is thoughtfully developed and refined under full editorial oversight.
Orthotown Magazine
May 2026
Orthotown Magazine May 2026 Read Current Issue Read Archived Issues
Sponsors
Townie® Poll
Historically, which area has the most turnover in your office?
  
Site Menu
Message Boards Magazine Continuing Education Podcasts Pods & Blogs Classifieds News Events Townie® Poll Ebooks Townie Choice Awards
Company Info
Contact Us Advertise With Us Howard Farran DDS, MBA Policies and Agreements
Site Help
The Orthotown Team, Farran Media Support
Phone: +1-480-445-9710
Email: support@orthotown.com
©2026 Orthotown, a division of Farran Media • All Rights Reserved
9633 S. 48th Street Suite 200 • Phoenix, AZ 85044 • Phone:+1-480-598-0001 • Fax:+1-480-598-3450