Elanco Animal Health Inc. has agreed to pay a US$15 million civil fine to settle U.S. Securities and Exchange Commission (SEC) antifraud charges.
The SEC said Elanco misled 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.
According to the SEC, 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 US$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.
Elanco did not admit to or deny SEC’s findings, and 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 US$15 million penalty.
