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Law360 (July 21, 2020, 3:36 PM EDT) -- An investor suing animal supply company Elanco Animal Health Inc. for allegedly hiding anticipated revenue drops due to inventory backlogs asked an Indiana federal judge Monday to name Glancy Prongay & Murray LLP lead counsel for the proposed class.
Along with the lead counsel motion, investor Sandra Hunter asked to be named lead plaintiff and for Katz Korin Cunningham PC to be named liaison counsel for the proposed class of people who purchased Elanco securities between Jan. 10, 2020 — when it announced its financial guidance for the year — and May 6, 2020.
Hunter filed the proposed class action in May, alleging the company that manufactures and sells products for pets and farm animals warned investors that the COVID-19 pandemic could cause a loss of revenue but kept silent about inventory backlogs caused by a distributor consolidation.
On May 7, 2020, the company announced $657.7 million from first quarter 2020 revenue, about $60 million less in channel inventory due to distributor performance, among other things, and stated that the company planned "to tighten [its] approach across many facets of [its] distributor relationships."
On this news, the company's share price fell $3.05, or more than 13%, to close at $19.88 per share on May 7, 2020.
Hunter alleged the company didn't tell investors that after consolidating its distributors from eight to four earlier in the year, the company increased the amount of inventory held by each distributor and that there wasn't enough demand with those distributors to sell all the inventory.
She claims the company knew its revenue was reasonably likely to decline as a result and that Elanco would have to reduce its pet products channel inventory, according to the complaint.
In February, Elanco's 2019 annual report said the market share for its line of pet products could be hindered by "changes within existing distribution channels," announcing on March 24 it would withdraw its previous guidance in light of the COVID-19 pandemic, Hunter said.
But the company didn't mention that the distributor consolidation led it to increase the amount of inventory each held, according to the complaint.
By not disclosing that a lack of demand for the increased pet products at the four distributors would likely lead to a revenue decline and necessitate a reduction in channel inventory, the company misled investors, the suit alleges.
Hunter is the only investor seeking lead plaintiff status and said she's the most adequate plaintiff to be lead plaintiff because she has the largest financial interest at $344.67.
Elanco President and CEO Jeffrey M. Simmons and Executive Vice President and Chief Financial Officer Todd S. Young are also named in the suit.
Counsel for the parties didn't immediately respond to requests for comment Tuesday.
Hunter is represented by Robert V. Prongay, Charles H. Linehan and Pavithra Rajesh of Glancy Prongay & Murray LLP; Offer Korin of Katz Korin Cunningham PC; and Frank R. Cruz of the Law Offices of Frank R. Cruz.
Elanco, Simmons and Young are represented by Paul A. Wolfla, Emanuel L. McMiller and Wendy J. Wildung of Faegre Drinker Biddle and Reath LLP and Gena Gonzales, Stacy Nettleton, John A. Neuwirth and Greg Silbert of Weil Gotshal & Manges LLP.
The case is Hunter v. Elanco Animal Health Inc. et al., case number 1:20-cv-01460, in the U.S. District Court for the Southern District of Indiana.
--Additional reporting by Dean Seal. Editing by Alyssa Miller.
For a reprint of this article, please contact reprints@law360.com.
