SEC Charges Indiana-Based Animal Health Products Company With Antifraud Violations

ADMINISTRATIVE PROCEEDING
File No. 3-22309

November 12, 2024 – The Securities and Exchange Commission today announced antifraud charges against Elanco Animal Health Inc. for misleading investors when it made statements about its revenue growth and end-user demand without also disclosing its reliance on certain quarter-end sales incentives that were necessary to achieve that revenue and caused its distributors to purchase goods in excess of existing end-user demand.  Elanco has agreed to pay $15 million to settle the charges. 

According to the SEC’s Order, from the first quarter of 2019 through the first quarter of 2020, Elanco used discounts, rebates, and extended payment terms to entice its distributors to purchase product above then-existing end-user demand.  These incentives allowed Elanco to meet internal revenue targets, but led to internal concerns that relying on these sales could negatively impact distributor inventory levels, and consequently future revenue.  Despite these concerns, Elanco misleadingly attributed its revenue growth to strong end-user demand and did not disclose the risk that its sales practices might negatively impact future revenue.  When Elanco decided to stop offering these incentivized sales in the first quarter of 2020, causing a $160 million decline in revenue, it cited the uncertainty of the COVID-19 pandemic as one of the causes for the revenue decline even though the decision to end the sales incentives had been made before the pandemic began. 

The SEC’s Order finds that Elanco violated Sections 17(a)(2) and (3) of the Securities Act of 1933 as well as Section 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-11, 13a-13, and 13a-15(a) thereunder.  Without admitting to or denying the SEC’s findings, Elanco consented to the entry of an Order that it cease and desist from committing or causing any violations and any future violations of these provisions of the federal securities laws and to pay a $15 million penalty.

The SEC’s investigation was conducted by Christina McGill and Drew Grossman and supervised by George Bagnall, Kevin Guerrero, Peter Rosario, and Stacy Bogert, with assistance by Ken Donnelly and David Nasse.