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`ANTHONY MORGAN,
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`Plaintiff,
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`v.
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`UNITED STATES DISTRICT COURT
`DISTRICT OF DELAWARE
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`Case No. _____________
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`COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`JURY TRIAL DEMANDED
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`
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`KINDRED BIOSCIENCES, INC., LYNDON
`LIEN, NANXI LIU, HERBERT D.
`MONTGOMERY, RAYMOND TOWNSEND,
`ERVIN VESZPREMI, DENISE M. BEVERS,
`RICHARD CHIN, and JOSEPH S.
`MCCRACKEN,
`
`
`Defendants.
`
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`Plaintiff Anthony Morgan (“Plaintiff”), by and through his undersigned counsel, for his
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`
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`
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`complaint against defendants, alleges upon personal knowledge with respect to himself, and upon
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`information and belief based upon, inter alia, the investigation of counsel as to all other allegations
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`herein, as follows:
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`NATURE THE ACTION
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`1.
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`Plaintiff brings this action against Kindred Biosciences, Inc. (“Kindred” or the
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`“Company”) and its corporate directors for violating Sections 14(a) and 20(a) of the Securities
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`Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78n(a), 78t(a), and U.S. Securities and
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`Exchange Commission (“SEC”) Rule 14a-9, 17 C.F.R. § 240.14a-9. By the action, Plaintiff seeks to
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`enjoin the vote on a proposed transaction pursuant to which Kindred will merge with Elanco Animal
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`Health Incorporated (“Elanco”) through Elanco’s subsidiary Knight Merger Sub, Inc. (“Merger Sub”)
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`(the “Proposed Transaction”).1
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`1 Non-party Elanco is an Indiana corporation with its principal executive offices located at 2500
`Innovation Way, Greenfield, IN 46140. Elanco’s common shares trade on the New York Stock
`Exchange under the symbol “ELAN.” Non-party Merger Sub is a Delaware corporation and wholly
`owned subsidiary of Elanco.
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`
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`Case 1:21-cv-01159-UNA Document 1 Filed 08/10/21 Page 2 of 12 PageID #: 2
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`2.
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`On June 16, 2021, Kindred and Elanco jointly announced their entry into an
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`Agreement and Plan of Merger dated June 15, 2021 (the “Merger Agreement”) to sell Kindred to
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`Elanco. Under the terms of the Merger Agreement, each Kindred stockholder will receive $9.25 in
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`cash for each share of Kindred common stock they own (the “Merger Consideration”).2
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`3.
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`On July 21, 2021, Kindred filed a Schedule 14A Definitive Proxy Statement (the
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`“Proxy Statement”) with the SEC. The Proxy Statement, which recommends that Kindred
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`stockholders vote in favor of the Proposed Transaction, omits or misrepresents material information
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`necessary and essential to that decision. The failure to adequately disclose such material information
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`violates Sections 14(a) and 20(a) of the Exchange Act as Kindred stockholders need such information
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`to make a fully informed decision whether to approve the Proposed Transaction.
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`4.
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`It is imperative that the material information omitted from the Proxy Statement is
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`disclosed to the Company’s stockholders prior to the forthcoming stockholder vote so that they can
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`properly exercise their corporate suffrage rights.
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`5.
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`For these reasons, and as set forth in detail herein, Plaintiff seeks to enjoin Defendants
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`from taking any steps to consummate the Proposed Transaction unless and until the material
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`information discussed below is disclosed to the Company’s stockholders or, in the event the Proposed
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`Transaction is consummated.
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`JURISDICTION AND VENUE
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`6.
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`This Court has jurisdiction over the claims asserted herein for violations of Sections
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`14(a) and 20(a) of the Exchange Act and SEC Rule 14a-9 promulgated thereunder pursuant to Section
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`27 of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1331 (federal question jurisdiction).
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`7.
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`This Court has jurisdiction over the defendants because each defendant is either a
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`2 The approximate value of the Proposed Transaction is $440 million.
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`2
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`corporation that conducts business in and maintains operations within this District or is an individual
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`with sufficient minimum contacts with this District so as to make the exercise of jurisdiction by this
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`Court permissible under traditional notions of fair play and substantial justice.
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`8.
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`Venue is proper in this District pursuant to 28 U.S.C. § 1391 because defendants are
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`found or are inhabitants or transact business in this District.
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`THE PARTIES
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`9.
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`Plaintiff is, and has been at all times relevant hereto, a continuous stockholder of
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`Kindred.
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`10.
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`Defendant Kindred is a Delaware corporation, with its principal executive offices
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`located at 1555 Bayshore Highway, Suite 200, Burlingame, California 94010. The Company is a
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`biopharmaceutical company focused on developing novel pet therapeutics. Kindred’s common stock
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`trades on The Nasdaq Global Select Market under the ticker symbol “KIN.”
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`11.
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`Defendant Lyndon Lien (“Lien”) has been a director of the Company since February
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`5, 2021.
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`12.
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`Defendant Nanxi Liu (“Liu”) has been a director of the Company since February 5,
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`2021.
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`13.
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`Defendant Herbert D. Montgomery (“Montgomery”) has been a director of the
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`Company since April 15, 2016.
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`14.
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`Defendant Raymond Townsend (“Townsend”) has been a director of the Company
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`since November 11, 2013.
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`15.
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`Defendant Ervin Veszprémi (“Veszprémi”) has been a director of the Company since
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`February 15, 2013.
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`16.
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`Defendant Denise M. Bevers (“Bevers”) is a co-founder of the Company and has been
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`a director since October 19, 2018. Defendant Bevers previously served as the Company’s Chief
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`3
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`Case 1:21-cv-01159-UNA Document 1 Filed 08/10/21 Page 4 of 12 PageID #: 4
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`Operating Officer (“COO”) from October 2012 to July 31, 2020, Secretary from November 2013 to
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`July 31, 2020, and President from October 19, 2018 to July 31, 2020.
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`17.
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`Defendant Richard Chin (“Chin”) is a co-founder of the Company, has been Chief
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`Executive Officer (“CEO”) since October 2012, President from October 2012 to October 2018, and
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`since July 31, 2020, and is and has been a director of the Company at all relevant times.
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`18.
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`Defendant Joseph S. McCracken (“McCracken”) has been a director of the Company
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`since April 20, 2018.
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`19.
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`Defendants identified in paragraphs 11-18 are referred to herein as the “Board” or the
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`“Individual Defendants.”
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`The Proposed Transaction
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`SUBSTANTIVE ALLEGATIONS
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`20.
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`On August 5, 2020, Kindred and Elanco jointly announced, in relevant part:
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`GREENFIELD, Ind. and SAN FRANCISCO (June 16, 2021) – Elanco Animal Health
`Incorporated (NYSE: ELAN) and Kindred Biosciences, Inc. (KindredBio, NASDAQ:
`KIN) today announced the parties have entered into a definitive agreement for Elanco
`to acquire KindredBio, a biopharmaceutical company focused on developing novel pet
`therapeutics based on validated human targets. The acquisition further accelerates
`Elanco’s expansion in the attractive pet health market, particularly advancing Elanco’s
`presence in the fast-growing billion-dollar dermatology category.
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`KindredBio brings three potential dermatology blockbusters expected to launch
`through 2025, as well as a number of additional R&D programs for other chronic
`disorders and unmet needs, including canine parvovirus. KindredBio’s innovative
`pipeline – added to Elanco’s own organic efforts – meaningfully augments Elanco’s
`ability to launch products, gain share, and grow in the dermatology market through
`fully accretive revenue dollars. Elanco anticipates the combination will add
`approximately $100 million to its previously stated innovation revenue expectation of
`$500 million to $600 million by 2025, with significant opportunity beyond the period.
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`“This highly complementary combination is focused in one of the most exciting spaces
`in pet health, and one where we see a strategic imperative to build a differentiated
`competitive offering,” said Jeff Simmons, president and CEO of Elanco. “It further
`accelerates our mix shift into pet health and advances our IPP strategy. Ultimately,
`we believe the combination positions Elanco to bring innovative solutions to
`veterinarians and pet owners in areas of unmet or under-served medical needs, fueling
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`4
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`continued growth in the exciting pet therapeutic category and creating sustainable
`long-term value for shareholders.”
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`The acquisition agreement builds on Elanco’s existing relationship with KindredBio,
`which began with licensing the global commercial rights of KindredBio’s late-stage
`treatment for canine parvovirus, and continues Elanco’s proven approach as an
`innovation partner of choice.
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`“From the beginning, we have been focused at KindredBio on bringing the best
`medicines to our animal family members. With this transaction with Elanco, a widely
`respected leader in veterinary medicine with global reach, we will maximize the
`impact our innovative pipeline will have on improving the lives of pets,” said Richard
`Chin, CEO and co-founder of KindredBio.
`
`“This announcement is validation of KindredBio’s achievements as one of the world’s
`first veterinary biopharmaceutical companies, recognizing our track record in drug
`development and remarkably talented team,” added Denise Bevers, Board director and
`co-founder of KindredBio. “KindredBio looks forward to continuing our mission to
`transform veterinary medicine as part of the Elanco family.”
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`The deal will expand Elanco’s omnichannel leadership complementing the company’s
`e-commerce and retail position by increasing its veterinary clinic presence in a leading
`therapeutic category and keeping the veterinarian at the center. This continues
`Elanco’s work to be a conduit for pet owners to the veterinarian. Dermatologic
`symptoms such as scratching and allergies are the number one reason pet owners visit
`the veterinarian today.
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`Transaction Details
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`Under the terms of the agreement, Elanco will acquire all outstanding stock of Kindred
`Biosciences at a price of $9.25 per share, or approximately $440 million, a premium
`of 52% based on the 30-day average. Elanco intends to fund the acquisition with pre-
`payable debt. Elanco expects to extend its leverage objective of under three times net
`leverage to Adjusted EBITDA by three months, from the end of 2023 to the end of the
`first quarter of 2024.
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`Elanco expects to unlock upside to its long-term growth algorithm, with the potential
`to add a full percentage point of consistent annual revenue growth, starting in 2024,
`and further expand the company’s margin potential over time. Transaction and
`operating costs will be slightly dilutive to Elanco’s reported and adjusted earnings per
`share in 2021, with the impact expected to be concentrated in the fourth quarter, and
`also slightly dilutive to the full year 2022.
`
`“Kindred Biosciences’ monoclonal antibody pipeline and capabilities are additive and
`complementary to what we’ve built within Elanco,” said Aaron Schacht, executive
`vice president Innovation, Regulatory and Business Development at Elanco. “This
`combination will bolster our opportunity for leadership in atopic dermatitis and allow
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`5
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`us to deliver innovation of novel biologic therapeutics to treat other unmet disease
`challenges in pets.”
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`Elanco expects the transaction to close in the third quarter of 2021, subject to
`customary closing conditions, including approval by KindredBio’s shareholders and
`clearance under the Hart-Scott-Rodino Antitrust Improvements Act. KindredBio’s
`Board approved the proposed acquisition.
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`Elanco also reaffirmed second quarter 2021 revenue guidance of $1,225 million to
`$1,255 million, and full year 2021 revenue guidance of $4,670 million to $4,710
`million.
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`Goldman Sachs is acting as financial advisors to Elanco and Covington & Burling LLP
`is acting as legal counsel. Barclays is acting as financial advisor to KindredBio and
`Morrison & Foerster LLP is acting as legal counsel.
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`The Proxy Statement Contains Material Misstatements and Omissions
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`21.
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`The defendants filed a materially incomplete and misleading Proxy Statement with the
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`SEC and disseminated it to Kindred’s stockholders. The Proxy Statement misrepresents or omits
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`material information that is necessary for the Company’s stockholders to make an informed decision
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`whether to vote their shares in favor of the Proposed Transaction.
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`22.
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`Specifically, as set forth below, the Proxy Statement fails to provide Company
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`stockholders with material information or provides them with materially misleading information
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`concerning: (a) Kindred’s financial forecasts; (b) the financial analyses performed by Kindred’s
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`financial advisor, Barclays Capital Inc. (“Barclays”), in connection with its fairness opinion; (c)
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`potential conflicts of interest involving Company management; and (d) the background of the
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`Proposed Transaction.
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`Material Omissions Concerning Kindred’s Financial Forecasts
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`23.
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`The Proxy Statement omits material information concerning Kindred management’s
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`financial forecasts, including: (a) all line items underlying (i) Total Revenue, (ii) EBIT, and (iii)
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`Unlevered Free Cash Flow; and (b) the Company’s net income projections.
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`24.
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`This information is material as it provides the Company’s shareholders with a basis
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`6
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`upon which to project the future financial performance of the Company whose stock they are being
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`asked to surrender in connection with the Proposed Transaction.
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`25.
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`The above-referenced omitted information, if disclosed, would significantly alter
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`the total mix of information available to the Company’s shareholders.
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`Material Omissions Concerning Barclays’ Financial Analyses
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`26.
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`The Proxy Statement also describes Barclays’ fairness opinion and the various
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`valuation analyses performed in support of their opinions. That description, however, fails to include
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`key inputs and assumptions underlying these analyses. Without this information, as described below,
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`Kindred’s public stockholders are unable to fully understand these analyses and, thus, are unable to
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`determine what weight, if any, to place on Barclays’ fairness opinions in determining whether to vote
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`in favor of the Proposed Transaction. This omitted information, if disclosed, would significantly alter
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`the total mix of information available to Kindred’s stockholders.
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`27. With respect to Barclays’ Discounted Cash Flow Analysis, the Proxy Statement fails
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`to disclose: (a) the present value of Kindred’s projected after-tax unlevered free cash flows for fiscal
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`years 2021 (second half) through 2025; (b) the present value of the “terminal value” of Kindred as of
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`December 31, 2025; (c) The present value of the expected usage of certain federal and state
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`net operating losses carryforwards and federal and state research and development tax credits; (d) the
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`specific inputs and assumptions used to determine the utilized annual perpetuity growth rate range
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`of 3.0% to 5.0%; (e) the specific inputs and assumptions used to determine the utilized discount rate
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`range of 11.0% to 13.0%; (f) Kindred’s weighted average cost of capital; and Kindred’s estimated net
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`cash as of June 30, 2021.
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`28. With respect to Barclays’ Research Analyst Price Targets, the Proxy Statement
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`fails to disclose: (a) the specific equity targets utilized; and (b) the specific identity of the equity
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`research analysts that created the equity targets utilized.
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`7
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`29.
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`The omission of this information renders the statements in the “Opinion of
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`KindredBio’s Financial Advisor” section of the Proxy Statement false and/or materially misleading
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`in contravention of the Exchange Act.
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`Material Omissions Concerning Company Insiders’ Potential Conflicts of Interest
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`30.
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`The Proxy Statement fails to disclose material information concerning the conflicts of
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`interest faced by Company insiders, including the details of any employment and retention-related
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`discussions and negotiations that occurred between Elanco and Kindred executive officers, including
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`who participated in all such communications, when they occurred and their content. The Proxy
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`Statement further fails to disclose whether any of Elanco’s prior proposals or indications of interest
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`mentioned management retention or equity participation in the combined company.
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`31.
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`Communications regarding post-transaction employment and merger-related benefits
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`during the negotiation of the underlying transaction must be disclosed to stockholders. This
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`information is necessary for stockholders to understand potential conflicts of interest of management
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`and the Board, as that information provides illumination concerning motivations that would prevent
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`fiduciaries from acting solely in the best interests of the Company’s stockholders.
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`32.
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`The omission of this information renders the statements in the “Background of the
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`Merger” and “Interests of the Company’s Directors and Executive Officers in the Merger” sections
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`of the Proxy Statement false and/or materially misleading in contravention of the Exchange Act.
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`Material Omissions Concerning the Background of the Proposed Transaction
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`33.
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`The Proxy Statement fails to disclose material information concerning the background
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`process leading to the Proposed Transaction.
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`34.
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`The Proxy fails to disclose whether the Company has received requests for waiver or
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`waived the standstill provisions included in the non-disclosure agreements the Company entered into
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`with potentially interested parties during its exploration of strategic alternatives, or, if they have not,
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`8
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`whether any standstill provisions that are still in effect currently are precluding these parties from
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`making a topping bid for the Company.
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`35.
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`Any reasonable Kindred stockholder would deem the fact that a likely topping bidder
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`for the Company may be precluded from making a topping bid for the Company to significantly alter
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`the total mix of information.
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`36.
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`The omission of this material information renders certain portions of the Proxy
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`materially misleading, including, inter alia, the “Background of the Merger” section.
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`37.
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`The Individual Defendants were aware of their duty to disclose the above-referenced
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`omitted information and acted negligently (if not deliberately) in failing to include this information
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`in the Proxy Statement. Absent disclosure of the foregoing material information prior to the
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`stockholder vote on the Proposed Transaction, Plaintiff and the other stockholders of Kindred will be
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`unable to make a sufficiently informed voting decision in connection with the Proposed Transaction
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`and are thus threatened with irreparable harm warranting the injunctive relief sought herein.
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`CLAIMS FOR RELIEF
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`COUNT I
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`Claims Against All Defendants for Violations of Section 14(a) of the
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`Exchange Act and Rule 14a-9 Promulgated Thereunder
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`Plaintiff repeats all previous allegations as if set forth in full.
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`During the relevant period, defendants disseminated the false and misleading Proxy
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`38.
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`39.
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`Statement specified above, which failed to disclose material facts necessary to make the statements,
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`in light of the circumstances under which they were made, not misleading in violation of Section
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`14(a) of the Exchange Act and SEC Rule 14a-9 promulgated thereunder.
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`40.
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`By virtue of their positions within the Company, the defendants were aware of this
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`information and of their duty to disclose this information in the Proxy Statement. The Proxy
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`9
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`Statement was prepared, reviewed, and/or disseminated by the defendants. It misrepresented and/or
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`omitted material facts, including material information about (a) Kindred’s financial forecasts; (b) the
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`financial analyses performed by Barclays; (c) potential conflicts of interest involving Company
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`management; and (d) the background of the Proposed Transaction. The defendants were at least
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`negligent in filing the Proxy Statement with these materially false and misleading statements.
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`41.
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`The omissions and false and misleading statements in the Proxy Statement are material
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`in that a reasonable stockholder would consider them important in deciding how to vote on the
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`Proposed Transaction.
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`42.
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`By reason of the foregoing, the defendants have violated Section 14(a) of the Exchange
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`Act and SEC Rule 14a-9(a) promulgated thereunder.
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`43.
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`Because of the false and misleading statements in the Proxy Statement, Plaintiff is
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`threatened with irreparable harm, rendering money damages inadequate. Therefore, injunctive relief
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`is appropriate to ensure defendants’ misconduct is corrected.
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`COUNT II
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`Claims Against the Individual Defendants for Violations
`of Section 20(a) of the Exchange Act
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`Plaintiff repeats all previous allegations as if set forth in full.
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`The Individual Defendants acted as controlling persons of Kindred within the meaning
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`44.
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`45.
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`of Section 20(a) of the Exchange Act as alleged herein. By virtue of their positions as officers and/or
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`directors of Kindred, and participation in and/or awareness of the Company’s operations and/or
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`intimate knowledge of the false statements contained in the Proxy Statement filed with the SEC, they
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`had the power to influence and control and did influence and control, directly or indirectly, the
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`decision-making of the Company, including the content and dissemination of the various statements
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`which Plaintiff contends are false and misleading.
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`10
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`46.
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`Each of the Individual Defendants was provided with or had unlimited access to copies
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`of the Proxy Statement and other statements alleged by Plaintiff to be misleading prior to and/or
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`shortly after these statements were issued and had the ability to prevent the issuance of the statements
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`or cause the statements to be corrected.
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`47.
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`In particular, each of the Individual Defendants had direct and supervisory
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`involvement in the day-to-day operations of the Company, and, therefore, is presumed to have had
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`the power to control or influence the particular transactions giving rise to the securities violations as
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`alleged herein and exercised the same. The Proxy Statement at issue contains the unanimous
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`recommendation of each of the Individual Defendants to approve the Proposed Transaction. They
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`were, thus, directly involved in the making of the Proxy Statement.
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`48.
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`In addition, as the Proxy Statement sets forth at length, and as described herein, the
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`Individual Defendants were each involved in negotiating, reviewing, and approving the Proposed
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`Transaction. The Proxy Statement purports to describe the various issues and information that they
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`reviewed and considered – descriptions into which the Company directors had input.
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`49.
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`By virtue of the foregoing, the Individual Defendants have violated Section 20(a) of
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`the Exchange Act.
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`50.
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`As set forth above, the Individual Defendants had the ability to exercise control over
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`and did control a person or persons who have each violated Section 14(a) and SEC Rule 14a-9,
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`promulgated thereunder, by their acts and omissions as alleged herein. By virtue of their positions as
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`controlling persons, these defendants are liable pursuant to Section 20(a) of the Exchange Act. As a
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`direct and proximate result of defendants’ conduct, Kindred stockholders will be irreparably harmed.
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`PRAYER FOR RELIEF
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`WHEREFORE, Plaintiff demands judgment and preliminary and permanent relief, including
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`injunctive relief, in his favor on behalf of Kindred, and against defendants, as follows:
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`11
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`A.
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`Preliminarily and permanently enjoining defendants and all persons acting in
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`concert with them from proceeding with, consummating, or closing the Proposed Transaction and any
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`vote on the Proposed Transaction, unless and until defendants disclose and disseminate the material
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`information identified above to Kindred stockholders;
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`B.
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`In the event defendants consummate the Proposed Transaction, rescinding it
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`and setting it aside or awarding rescissory damages to Plaintiff;
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`C.
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`Declaring that defendants violated Sections 14(a) and/or 20(a) of the Exchange
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`Act, as well as SEC Rule 14a-9 promulgated thereunder;
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`D.
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`Awarding Plaintiff the costs of this action, including reasonable allowance for
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`Plaintiff’s attorneys’ and experts’ fees; and
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`E.
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`Granting such other and further relief as this Court may deem just and proper.
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`JURY DEMAND
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`Plaintiff demands a trial by jury.
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`Dated: August 10, 2021
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`
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`By:
`
`LONG LAW, LLC
`
`/s/ Brian D. Long
`Brian D. Long (#4347)
`3828 Kennett Pike, Suite 208
`Wilmington, DE 19807
`Telephone: (302) 729-9100
`Email: BDLong@longlawde.com
`
`Attorneys for Plaintiff
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`12
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