A class action lawsuit was filed against Elanco Animal Health Inc. (ELAN) by Levi & Korsinsky on October 7, 2024. The plaintiffs (shareholders) alleged that they bought ELAN stock at artificially inflated prices between November 7, 2023, and June 26, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Elanco Animal Health stock during that period can click here to learn about joining the lawsuit.
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Elanco operates as an animal health drug manufacturing company. It researches, develops, and markets medicines and vaccines for pets and livestock. The company’s claims about the timeline and commercial prospects of two of its drugs, Zenrelia and Credelio Quattro, are at the heart of the current complaint.
Zenrelia is marketed as a once-daily oral JAK (Janus kinase) inhibitor for canine dermatology. Meanwhile, Credelio Quattro is designed to serve as a broad-spectrum parasiticide for dogs.
Elanco Animal Health’s Misleading Claims
According to the lawsuit, Elanco and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the company’s ability to meet its own deadlines for the approval and launch of Zenrelia and Credelio Quattro and other issues from SEC filings and related material.
For instance, during the Class Period, Elanco consistently reiterated that its pipeline was on track and that the blockbuster drugs, Zenrelia and Credelio Quattro, were on the path to achieving U.S. approval in the first half of 2024. Additionally, the company was focused on expanding its commercial capabilities to fast-track its current portfolio and potential launches in 2024.
Furthermore, in a press release dated February 26, 2024, the CEO stated that the company was encouraged by the progress of the regulatory review of the three late-stage pipeline products and their potential approval in the first half. The CEO added that these drugs, once approved, would be beneficial for the company’s revenues in the second half of 2024.
Finally, in the annual report for FY23 filed on the same day, Elanco again reiterated the importance of the commercialization of the three late-stage pipeline drugs and the refilling of the early-stage pipeline candidates to keep the innovation flowing.
However, subsequent events (discussed below) revealed that Elanco Animal Health allegedly misled investors about the expected timeline for commercialization of the two drugs, which also led to over-expectations of the company’s financial prospects.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about the extent and scope of commercialization of the two drugs in question.
The information became clear on two events that occurred on June 27, 2024 and August 8, 2024. Firstly, Elanco released a press release stating that it anticipated that the U.S. approval for Zenrelia would include a box warning on its safety, implying that the drug was not as safe as the company led investors to believe. Also, the company noted that the FDA (Food and Drug Administration) approval and the commercial launch of both drugs would be delayed.
Moreover, during the Q2 FY24 earnings call, the CEO informed that Zenrelia’s box warning could potentially hinder the drug’s expected adoption curve in the U.S. since it would require focused veterinary education on the drug. This news further dampened investors’ enthusiasm.
To conclude, Elanco Animal Health allegedly made unrealistic claims about the commercialization prospects of the two drugs, leading to overstated expectations for Fiscal 2024. Year-to-date, ELAN shares have declined 11.9%, causing damage to shareholder returns.
