LifeMD, a direct-to-patient telehealth company, is facing a class-action lawsuit after allegedly overvaluing its assets, partaking in malpractice, and using unethical business strategies. The recent allegations are not stopping the company from reporting “record revenue” in its recent Q1 forecast, however. The quarterly report highlights a 320% year-over-year growth — with its subscription services expected to make up 92% of its total monthly revenue.
As LifeMD attributes nearly all of its predicted Q1 $18.2M earnings to recurring revenue streams, the legality of the company’s practices is being called into question. Now, numerous law firms are representing investors who purchased LifeMD stock (NASDAQ: LFMD) between January 19 and April 13. The case was initially sparked by Culper Research’s investigative report, which included LifeMD allegations ranging from company fraud to spreading misinformation.
Read on to understand the lawsuit, LifeMD’s official response to these allegations, and the importance of ethical business behaviors in the subscription industry.
What’s Included in the Class-Action Lawsuit Against LifeMD?
LifeMD allegedly violates various federal consumer protection laws, according to the Culper Research report. “LifeMD calls itself a ‘a telehealth leader’; we think it’s a direct marketing cash pit,” the group states
Culper Research Accuses LifeMD of (per Business Wire and Culper Research):
- Having auto-shipping and billing mechanisms reach unwilling customers.
- Using abusive telemarketing practices
- Inflating recurring revenue data.
- Touting a recurring revenue model when most of its transactions appear to be one-time purchases.
- Claiming to be in a major growth phase when its web traffic data is on a steady decline.
- Intentionally making subscription cancellations difficult for users.
- Using unlicensed employees to dispense over-the-counter medications, when it claims to have licensed RX — which stands for medical prescription — professionals in all 50 states.
- Employing doctors with faulty licenses.
LifeMD is denying the claims and plans on taking legal actions to dismiss them as its stock plunged nearly 25% after Culper Research’s report was released. At the time of this article’s publication, LifeMD’s stock is trading at $8.74 a share.
“We pursue this mission with transparency and integrity, so it is troubling that an anonymous short-seller would make reckless allegations about our company seemingly with the sole intent of causing a drop in our share price for his or her own personal gain,” states LifeMD’s CEO Justin Schreiber.
Schreiber adds, “the author of this report is utterly lacking in credibility, as its numerous errors, distortions and half-truths show.”
LifeMD’s Role in the Subscription Space
LifeMD’s success in subscription models spiked in 2018 after 35,000 customers signed up for the company’s Shapiro MD — a hair restoration service. This success led the company to develop more subscription products and services — like Rex MD for men’s telehealth and Nava MD for teledermatology.
Earlier this year, the company pivoted to adopt additional subscription-based primary care and concierge services. In an effort to provide more virtual, on-demand healthcare, the newly named LifeMD researched and adopted more ways to increase revenue and consumer lifetime value.
“In bridging the gap between technology and healthcare, we are also driving innovation, as evidenced by our patients actively choosing to enroll in our subscription-based offerings,” says LifeMD’s CEO Justin Schreiber.
In its recent company forecast, LifeMD predicted to have 110,000 total subscribers across all services, with 70,000 users added last year (nearly 200% in annual growth). By connecting patients with online consultations, prescriptions, and products, LifeMD looked to continue its growth as a leader in the telehealth industry. However, the company’s recent legal troubles for allegedly making misleading statements and spreading false information — among other wrongdoings — could drastically slow LifeMD’s growth in the telehealth industry.
The Importance of Ethical Business Behaviors in the Subscription Space
Alongside other subscription companies, LifeMD is competing to capture a piece of the healthcare market. By 2027, the telehealth industry is projected to reach close to $560 billion at an annual 25% growth rate. Online appointments were used in 30% of all medical visits throughout the pandemic in 2020, and over 90% of patients would use telemedicine to monitor their prescriptions in the future.
As subscription companies seek to grow in their respective segments, a focus on ethical business practices is incredibly important to ensure consumer satisfaction and well-being alongside the company’s ability to truly succeed.
Netflix is an example of a subscription doing a great job at this, as it has a separate board of directors to provide checks and balances to its management sector. This way, the company can make informed decisions and keep all constituencies informed.
On the other hand, Noom, the weight-loss subscription service, received over 2,400 complaints and a $100 million class-action lawsuit for its misleading renewal policy. After losing trust from its consumers and receiving low accreditation from the Better Business Bureau, the company sought to improve its transparency and cancellation processes. These improvement techniques have allowed the subscription company to continue growing its community and regain consumer trust.
“We take feedback from each and every Noom customer seriously,” stated Noom CEO Saeju Jeong, “we are committed to continually improving. To start, we’re significantly expanding the size of our customer support team and expanding the number of support channels where customers can reach us.”
Partaking in the subscription industry means assuming the responsibility of developing an authentic, reliable experience around your brand. Research shows that 70% of millennials consider a company’s values when buying their product, which means that maintaining an ethical business model is incredibly important for customer retention and acquisition. Subscriptions go beyond one-off transactions, as recurring revenue models are built on creating trusting, long-lasting relationships with the users they serve. A lack of transparency or questionable decisions could cost a subscription company a lot more than a higher-than-usual churn rate.
What’s Next for LifeMD?
In the case of LifeMD, the company is predicting nearly $20 million in monthly revenue amidst the ongoing accusations. It did include a cautionary statement in its recent report: “While we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions.”
Among other law companies involved in LifeMD’s class-action lawsuit are Glancy Prongay & Murray LLP, Thorton Law Firm, and Bragar Eagel & Squire. The case’s motion deadline is June 15, 2021, and plaintiffs are urged to contact these law offices in the meantime.
Key Takeaways:
- LifeMD was hit with a class-action lawsuit after allegedly overvaluing its assets, partaking in malpractice, and using unethical business strategies.
- Culper Research filed a report accusing LifeMD of numerous malpractice claims.
- Investors who purchased LFMD stock between January 19 and April 13 of this year are constituents of the case.
- As subscription companies dominate their respective industries, a focus on ethical business practices is incredibly important to ensure consumer satisfaction and well-being.