Case 1:20-cv-01460-SEB-MG Document 34 Filed 11/09/20 Page 1 of 119 PageID #: 173
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF INDIANA
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`
` Case No. 1:20-cv-01460-SEB-DML
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`FIRST AMENDED CLASS ACTION
`COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`JURY TRIAL DEMANDED
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`Plaintiff,
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`Defendants.
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`SANDRA HUNTER, Individually and On
`Behalf of All Others Similarly Situated,
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`ELANCO ANIMAL HEALTH
`INCORPORATED, JEFFREY N.
`SIMMONS, and TODD S. YOUNG,
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`I. 
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`II. 
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`III. 
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`IV. 
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`V. 
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`VI. 
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`TABLE OF CONTENTS
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`  NATURE OF THE ACTION AND OVERVIEW ............................................................. 1 
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` 
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`JURISDICTION AND VENUE ......................................................................................... 5 
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`  PARTIES ............................................................................................................................ 6 
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`A. 
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`B. 
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`C. 
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`D. 
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`Plaintiffs .................................................................................................................. 6 
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`Corporate Defendant ............................................................................................... 6 
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`Individual Defendants ............................................................................................. 7 
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`Securities Act Defendants ....................................................................................... 8 
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`  CONFIDENTIAL WITNESS (“CW”) FOUNDATION ALLEGATIONS ..................... 10 
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`  SUBSTANTIVE ALLEGATIONS .................................................................................. 12 
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`A. 
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`Background of Elanco’s Business: Its Products, Distributors, and the Aratana
`Merger ................................................................................................................... 12 
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`B. 
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`C. 
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`D. 
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`E. 
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`F. 
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`G. 
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`Elanco’s Shifting Strategies to First “Clean Up” Its Inventory Channels and then
`Boost the Appearance of Sales and Growth Prior to the IPO ............................... 16 
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`Elanco Continued to Rely On Concealed Channel Stuffing to Show Growth
`During the Class Period, Obscuring the Risks Posed By Increasing Channel
`Inventory ............................................................................................................... 18 
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`Further Undisclosed Distributor Changes and Channel Stuffing in 4Q 2019 Pose
`Additional Concealed Risks To Elanco’s Operations and Results ....................... 21 
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`Subtle Changes to Elanco’s SEC Filings in 3Q 2019 Suggest that Defendants
`Understood—But Did Not Disclose to the Market—the Risks of Increasing
`Channel Inventory and Elanco’s 4Q 2019 Distributor Changes ........................... 23 
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`The Undisclosed Risks Materialize With Disappointing First Quarter 2020
`Results Announced on May 7, 2020 ..................................................................... 25 
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`After the Class Period, Defendants’ Concealed and Misleading Channel Stuffing
`Is Exposed and Defendants Announce Further “Channel Inventory Reduction”
`for 2Q 2020 ........................................................................................................... 27 
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`  DEFENDANTS’ VIOLATIONS OF THE EXCHANGE ACT ....................................... 29 
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`FIRST AMENDED CLASS ACTION COMPLAINT
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`A. 
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`B. 
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`C. 
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`D. 
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`The IPO Registration Statement ............................................................... 29 
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`3Q 2018 Financial Results and Earnings Call .......................................... 34 
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`2019 Financial Guidance .......................................................................... 39 
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`4Q and Full Year 2018 Financial Results and Earnings Call ................... 42 
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`1Q 2019 Financial Results and Earnings Call .......................................... 49 
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`Aratana Merger Registration Statement .................................................... 55 
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`Defendants’ Materially False and Misleading Statements and Omissions In
`Violation of the Exchange Act .............................................................................. 29 
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`1. 
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`2. 
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`3. 
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`4. 
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`5. 
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`6. 
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`7. 
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`8. 
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`9. 
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`10. 
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`11. 
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`12. 
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`13. 
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`2Q 2019 Financial Results and Earnings Call .......................................... 60 
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`September 11, 2019 Morgan Stanley Global Healthcare Conference ...... 67 
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`3Q 2019 Financial Results and Earnings Call .......................................... 67 
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`2020 Financial Guidance .......................................................................... 76 
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`January 14, 2020 JP Morgan Healthcare Conference ............................... 80 
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`4Q and Full Year 2019 Financial Results and Earnings Call ................... 81 
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`Defendants’ Statement on COVID-19 ...................................................... 87 
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`Individual Defendants’ Knowledge of and Access to Information .......... 89 
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`Additional Allegations Regarding Defendants’ Scienter ...................................... 89 
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`1. 
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`2. 
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`3. 
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`Corporate Scienter and Respondeat Superior ........................................... 93 
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`Executive Bonus Payments Based on Inflated Performance .................... 93 
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`Loss Causation ...................................................................................................... 97 
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`Applicability of the Presumption of Reliance (Fraud-on-the-Market Doctrine) .. 99 
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`VII.    VIOLATIONS OF THE SECURITIES ACT ................................................................. 101 
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`VIII.   CLASS ACTION ALLEGATIONS ............................................................................... 104 
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`IX. 
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`  NO SAFE HARBOR ...................................................................................................... 105 
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`FIRST AMENDED CLASS ACTION COMPLAINT
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`X. 
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`XI. 
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`  CLAIMS FOR RELIEF .................................................................................................. 106 
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`  PRAYER FOR RELIEF ................................................................................................. 113 
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`FIRST AMENDED CLASS ACTION COMPLAINT
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`Lead Plaintiff Sandra Hunter and plaintiff Marla Strappe (“Plaintiffs”), individually and
`on behalf of all others similarly situated, by and through their attorneys, allege the following
`upon information and belief, except as to those allegations concerning Plaintiffs, which are
`alleged upon personal knowledge. Plaintiffs’ information and belief is based upon, among other
`things, their counsel’s investigation, which includes without limitation: (a) review and analysis
`of regulatory filings made by Elanco Animal Health Incorporated (“Elanco” or the “Company”)
`with the United States (“U.S.”) Securities and Exchange Commission (“SEC”); (b) review and
`analysis of press releases and media reports issued by and disseminated by Elanco; (c) interviews
`of former Elanco employees and other witnesses; (d) review of reports issued by industry and
`securities analysts; and (e) review of other publicly available information concerning Elanco.
`I.
`NATURE OF THE ACTION AND OVERVIEW
`
`1.
`This is a class action on behalf of persons and entities that purchased or otherwise
`acquired Elanco securities between September 20, 2018 and May 6, 2020, inclusive (the “Class
`Period”), including persons or entities that acquired Elanco common stock pursuant to the
`Company’s merger with Aratana Therapeutics (“Aratana”) on or about July 18, 2019 (the
`“Aratana Merger”), and were damaged thereby. Plaintiffs pursue claims under the Securities Act
`of 1933 (the “Securities Act”) and Securities Exchange Act of 1934 (the “Exchange Act”).
`2.
`Elanco was formed as a public company in a spin-off from Eli Lilly and Company
`(“Eli Lilly”) in September 2018 (the “IPO”). Elanco’s initial Form S-1 registration statement
`was filed with the SEC on August 2, 2018 (as amended on August 28, 2018 and September 6,
`2018), and its final Form 424(b)(4) prospectus, incorporated by reference into the registration
`statement, was dated September 19, 2018 (collectively, the “IPO Registration Statement”). The
`IPO Registration Statement was declared effective on September 19, 2018 and Elanco shares
`began trading on September 20, 2018. The IPO offered 62.9 million shares of common stock
`priced at $24 per share, and the net proceeds to Elanco were approximately $1.7 billion.
`3.
`Elanco develops, manufactures, and markets health products for companion and
`food animals. Its four primary product categories are: Companion Animal Disease Prevention
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`FIRST AMENDED CLASS ACTION COMPLAINT
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`(“CA Disease Prevention”), which offers parasiticides for worms, fleas and ticks; Companion
`Animal Therapeutics (“CA Therapeutics”), offering
`treatments for pain, osteoarthritis,
`cardiovascular, and dermatology indications; Food Animal Future Protein & Health (“FA Future
`Protein & Health”), which includes vaccines, nutritional enzymes, and antibiotics; and Food
`Animal Ruminants & Swine (“FA Ruminants & Swine”), offering food animal products used in
`ruminant and swine production. In general, the Companion Animal sector generates higher
`profit margins than Food Animal. During the Class Period, Defendants sought to grow the
`Company’s profitability and identified CA Disease Prevention, CA Therapeutics and FA Future
`Protein & Health as Elanco’s primary “growth categories.” But still, at the time of the IPO and
`during the Class Period, Elanco was heavily reliant on the lower-margin Food Animal sector,
`with its top product Rumensin, a feed additive for cattle, constituting 11% of the Company’s
`total revenue in 2018 and 10% in 2019.
`4.
`In its IPO Registration Statement, Elanco explained that a “key element of our
`targeted value creation strategy is to drive growth through portfolio development and product
`innovation, primarily in our three targeted growth categories.” Throughout the Class Period,
`Defendants sold Elanco to the market as a “growth” story, consistently touting Elanco’s year-
`over-year and quarterly growth, and assuring the market that the Company’s growth was
`“tracking” to expectations and that market fundamentals and underlying demand were strong.
`For example, on December 18, 2018, during the Company’s 2019 guidance call, Elanco’s CEO,
`Defendant Simmons, stated that “we expect to grow 2019 earnings at a double-digit pace” and
`insisted that “[t]he fundamentals of our industry are strong, and our strategy sets us up to grow
`revenue” and “expand margins” in 2019. On May 9, 2019, during the 1Q 2019 earnings call,
`Simmons assured that “the fundamentals of our business are strong and we are tracking to our
`goals” and emphasized that “[t]he leading indicators of demand at the vet clinic are consistent
`with” Elanco’s “longer term sales trajectory.” And during the Company’s 3Q 2019 earnings call
`on November 6, 2019, Defendant Simmons specifically assured the market that “all 3 of our
`growth categories is tracking to our expectations. Underlying demand coming out of the clinics,
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`FIRST AMENDED CLASS ACTION COMPLAINT
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`and the fundamentals in the market, it's tracking to our expectations.” Elanco’s CFO, Defendant
`Young, added that Defendants were “confident in the underlying growth of our core business.”
`5.
`But rather than the steady growth reflective of strong market fundamentals and
`increasing underlying demand as represented to the market, Defendants were actually
`excessively stuffing distribution sales channels far in excess of end-user demand, and then
`concealing the increasing and highly unsustainable inventory levels at distributors—and the risks
`relating thereto—from the market.1 Former insiders detail the lengths to which Defendants went
`to convince the market that Elanco was attaining its sales and growth targets. From deep
`discounts, increased rebates, and extended payment terms—to Elanco’s most important
`distributor parking excess inventory in extra warehouse space and tractor-trailers in Amarillo,
`Texas—Elanco took extraordinary steps to induce excess inventory purchases in order to meet
`targets. During the Class Period, Defendants were well-aware of the risks of the ever-increasing
`and unsustainable distributor inventory levels. According to former employees, by September
`2019, Elanco’s three largest distributors were “bursting” with inventory—making Elanco
`increasingly vulnerable to even the slightest changes in economic or competitive pressures.
`6.
`Then, in or around November 2019, Defendants Simmons and Young, along with
`other members of Elanco’s U.S. management team, decided to decrease the number of Elanco’s
`major distributors from eight to four, with the apparent assumption that the remaining four would
`purchase more inventory to make up for the lost sales. Defendants misrepresented and failed to
`disclose the material risks relating to this important distributor change, including that both the
`eliminated and remaining distributors were sitting on significant amounts of excess inventory by
`4Q 2019 that would need to be worked down before the remaining distributors could begin to
`make up the sales slack. At the same time, Defendants concealed additional changes to its
`distributor sales model for its remaining distributors, including reduced distributor incentives,
`
`1 “Channel stuffing” refers to the practice of selling substantially more product than the customer
`can reasonably use, or levels of inventory that substantially exceed end-user demand.
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`FIRST AMENDED CLASS ACTION COMPLAINT
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`that Defendants knew or reasonably should have known would have a material negative impact
`on the Company’s sales and results of operations going forward.
`7.
`Still, Defendants continued to assure the market that Elanco’s fundamentals were
`strong and the growth was reflective of actual strong demand into 1Q 2020. During the
`Company’s 2020 guidance call on January 10, 2020, Defendant Simmons emphasized that “[o]ur
`growth is durable and resilient” and “we are confident in our growth because of the fundamentals
`driving this growth.” As late as Elanco’s 4Q and full-year 2019 earnings call on February 19,
`2020, Defendant Simmons assured investors that “Elanco is well positioned on all fronts,”
`reiterated that “[o]ur growth is durable and resilient,” and concluded that based on “what we're
`doing with the channel, we believe our position has never been stronger holistically when you
`compare ourselves to our position in 2018 or 2017.” During the same call, Defendant Young,
`Elanco’s CFO, reiterated that the Company’s top Companion Animal products “continue to
`perform well with strong underlying demand at the clinic level.” Credit Suisse thus echoed
`Defendants’ confidence on the fundamentals in its February 19, 2020 analyst report noting “Core
`growth guidance of +1-3% in 2020 reflects positive underlying fundamentals.”
`8.
`Thus, investors were stunned on May 7, 2020, when Elanco announced its 1Q
`2020 financial results, reporting revenue of $657.7 million and earnings per share of -$0.12,
`reflecting “a reduction of approximately $60 million in channel inventory.” Defendant Simmons
`blamed the disappointing results on “distributor performance,” among other things, and stated
`that Elanco planned “to tighten [its] approach across many facets of [its] distributor
`relationships.” Simmons admitted that “[t]he decrease in channel inventory [was] a structural
`change with [Elanco’s] distribution partners” and further cited the COVID-19 pandemic as a
`cause of the poor “distributor performance,” claiming that the pandemic “created significant
`working capital and liquidity pressures and uncertainty on near-term end customer demand for
`[Elanco’s] distributors, prompting reductions in the amount of inventory they hold.”
`9.
`On this news, the Company’s share price fell $3.05, over 13%, to close at $19.88
`per share on May 7, 2020, on unusually heavy trading volume.
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`10.
`But rather than the distributor liquidity crisis cited by Defendants, the financials
`of the major distributors paints a different picture. In fact, each appears to have had a healthy
`cash balance during 4Q 2019 and 1Q 2020, which even continued into 2Q 2020. After the Class
`Period, Evercore ISI analyst Umer Raffat, who covered Elanco since its IPO, conducted a “deep
`dive” into Elanco’s inventory issues and examined Defendants’ May 7, 2020 statements as to the
`cause of the 1Q 2020 miss. Among other things, Mr. Raffat concluded: “I do think that Elanco
`worked their inventories up to more than what was appreciated by the street and that's what
`weighed in on their free cash flows, that theoretically weighed in on a bunch of different aspects
`of the company, including what the underlying growth looks like. Because the growth they’ve
`been reporting on volume does not mimic what the end user demand was.”
`11.
`Throughout the Class Period, Defendants made materially false and/or misleading
`statements, as well as failed to disclose material adverse facts about the Company’s business,
`operations, and prospects. Specifically, Defendants failed to disclose to investors: (1) that,
`before consolidating its distributors from eight to four, Elanco increased the amount of
`inventory, including companion animal products, held by each distributor in order to meet
`market expectations and project a façade of growth; (2) that Elanco’s distributors were not
`experiencing sufficient end-user demand to sell through the inventory during the Class Period;
`(3) that, as a result, the Company’s sales and revenue were reasonably likely to decline; (4) that,
`as a result of the foregoing, Elanco would reduce its channel inventory; and (5) that, as a result of
`the foregoing, Defendants’ positive statements about Elanco’s business, operations, and
`prospects, were materially misleading and/or lacked a reasonable basis.
`12.
`As a result of Defendants’ wrongful acts and omissions, and the precipitous
`decline in the market value of the Company’s securities, Plaintiffs and other Class members have
`suffered significant losses and damages.
`II.
`JURISDICTION AND VENUE
`
`13.
`The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
`Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17
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`C.F.R. § 240.10b-5), as well as Sections 11, 12(a)(2), and 15 of the Securities Act (15 U.S.C. §§
`77k, 77l, and 77o).
`14.
`This Court has jurisdiction over the subject matter of this action pursuant to 28
`U.S.C. § 1331 and Section 27 of the Exchange Act (15 U.S.C. § 78aa).
`15.
`Venue is proper in this Judicial District pursuant to 28 U.S.C. § 1391(b) and
`Section 27 of the Exchange Act (15 U.S.C. § 78aa(c)). Substantial acts in furtherance of the
`alleged fraud or the effects of the fraud have occurred in this Judicial District. Many of the acts
`charged herein, including the dissemination of materially false and/or misleading information,
`occurred in substantial part in this Judicial District. In addition, the Company’s principal
`executive offices are located in this District.
`16.
`In connection with the acts, transactions, and conduct alleged herein, Defendants
`directly and indirectly used the means and instrumentalities of interstate commerce, including
`interstate telephone communications, and the facilities of a national securities exchange.
`III.
`PARTIES
`
`A.
`
`Plaintiffs
`
`17.
`Lead Plaintiff Sandra Hunter, as set forth in the previously-filed certification,
`incorporated by reference herein, purchased Elanco securities during the Class Period, and
`suffered damages as a result of the federal securities law violations and false and/or misleading
`statements and/or material omissions alleged herein.
`18.
`Plaintiff Marla Strappe as set forth in the concurrently-filed certification,
`incorporated by reference herein, acquired Elanco securities pursuant to the Aratana Merger, and
`suffered damages as a result of the federal securities law violations and false and/or misleading
`statements and/or material omissions alleged herein.
`B.
`Corporate Defendant
`
`19.
`Defendant Elanco is incorporated under the laws of Indiana with its principal
`executive offices located in Greenfield, Indiana. Elanco’s common stock trades on the New York
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`FIRST AMENDED CLASS ACTION COMPLAINT
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`Stock Exchange (“NYSE”) under the symbol “ELAN.”
`C.
`Individual Defendants
`
`20.
`Defendant Jeffrey N. Simmons (“Simmons”) was the Company’s President, Chief
`Executive Officer (“CEO”), and director at all relevant times. Simmons is also a member of
`Elanco’s Finance Committee, which assists the Company’s board of directors with the oversight
`and management of financial policies, plans, and transactions, including mergers and strategic
`partnerships. The Finance Committee also manages matters of balance sheets and financial
`strategy. Prior to the IPO, Simmons served as the President of Elanco Animal Health Division of
`Eli Lilly from 2008 until Elanco’s IPO. Prior to 2008, Simmons held various leadership roles for
`Elanco, including District Sales Manager, International Marketing Manager, Country Director
`for Brazil, Area Director for Western Europe, and Executive Director for U.S. and Global
`Research & Development. Simmons signed the IPO Registration Statement and the Aratana
`Merger Registration Statement. In addition, Simmons signed the following Class Period
`financial statements and the Sarbanes-Oxley Certifications: 3Q 2018 Form 10-Q filed with the
`SEC on November 8, 2018; 2018 Form 10-K filed with the SEC on February 20, 2019; 1Q 2019
`Form 10-Q filed with the SEC on May 14, 2019; 2Q 2019 Form 10-Q filed with the SEC on
`August 13, 2019; 3Q 2019 Form 10-Q filed with the SEC on November 8, 2019; 2019 Form 10-
`K filed with the SEC on February 28, 2020; and 1Q 2020 Form 10-Q filed with the SEC on
`May 7, 2020.
`21.
`Defendant Todd S. Young (“Young”) has served as the Company’s Chief
`Financial Officer (“CFO”) and executive vice president since November 1, 2018. Prior to
`joining Elanco, Young was executive vice president and CFO for ACADIA Pharmaceuticals Inc.
`Young also spent several years in varying financial leadership roles at Baxter International and
`worked on the spin-off of Baxalta. Young signed the Aratana Merger Registration Statement. In
`addition, Young signed the Sarbanes-Oxley Certification on the 3Q 2018 Form 10-Q filed with
`the SEC on November 8, 2018, and signed the following Class Period financial statements and
`Sarbanes-Oxley Certifications: 2018 Form 10-K filed with the SEC on February 20, 2019; 1Q
`
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`FIRST AMENDED CLASS ACTION COMPLAINT
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`2019 Form 10-Q filed with the SEC on May 14, 2019; 2Q 2019 Form 10-Q filed with the SEC
`on August 13, 2019; 3Q 2019 Form 10-Q filed with the SEC on November 8, 2019; 2019 Form
`10-K filed with the SEC on February 28, 2020; and 1Q 2020 Form 10-Q filed with the SEC on
`May 7, 2020.
`22.
`Defendants Simmons and Young (collectively the “Individual Defendants”),
`because of their positions with the Company, possessed the power and authority to control the
`contents of the Company’s reports to the SEC, press releases and presentations to securities
`analysts, money and portfolio managers and institutional investors, i.e., the market. The
`Individual Defendants were provided with copies of Elanco’s reports and press releases alleged
`herein to be misleading prior to, or shortly after, their issuance and had the ability and
`opportunity to prevent their issuance or cause them to be corrected. Because of their positions
`and access to material non-public information available to them, the Individual Defendants knew
`that the adverse facts specified herein had not been disclosed to, and were being concealed from,
`the public, and that the positive representations which were being made were then materially
`false and/or misleading. The Individual Defendants are liable for the false statements herein.
`D.
`Securities Act Defendants
`
`23.
`Defendant James M. Meer (“Meer”) was, at all relevant times, the Company’s
`executive vice president and Chief Account Officer. Meer signed or authorized the signing of
`the Merger Registration Statement filed with the SEC. Meer was Chief Financial Officer of
`Healthx, Inc. from 2017 until 2018. Meer served as Senior Vice President of Finance at Appirio
`from 2014 to 2017 and as Vice President and Corporate Controller at Sales from 2011 to 2014.
`24.
`Defendant R. David Hoover (“Hoover”) was, at all relevant times, Chairman of
`Elanco’s Board of Directors. Hoover signed or authorized the signing of the Merger Registration
`Statement filed with the SEC. Hoover was Chairman of Ball Corporation from 2002 to 2013,
`Chief Executive Officer from 2010 to 2011, President and Chief Executive Officer from 2001 to
`2010, Chief Operating Officer from 2000 to 2001 and Chief Financial Officer from 1998
`to 2000.
`
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`FIRST AMENDED CLASS ACTION COMPLAINT
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`25.
`Defendant Kapila K. Anand (“Anand”) was, at all relevant times, a director of
`Elanco, and signed or authorized the signing of the Merger Registration Statement filed with the
`SEC. Anand served as a partner at KPMG LLP from 2011 to 2017, Partner in Charge—Public
`Policy Business Initiatives from 2009 to 2013, KMPG LLP Board Member from 2005 to 2010,
` Advisory Leader—Private Equity, Real Estate and Hospitality from 2002 to 2009 and Audit
`Partner—Real Estate and Hospitality from 1989 to 2002.
`26.
`Defendant John P. Bilbrey (“Bilbrey”) was, at all relevant times, a director of
`Elanco, and signed or authorized the signing of the Merger Registration Statement filed with the
`SEC. Bilbrey was Chief Executive Officer and President of The Hershey Company from 2011
`until 2017 and as Chairman of the Board from 2015 until 2018. Bilbrey served as Chief
`Operating Officer and EVP at The Hersey Company from 2010 to 2011 the President of North
`America from 2007 to 2010, the President of International Commercial group from 2005
`to 2007.
`27.
`Defendant Art A. Garcia (“Garcia”) was, at all relevant times, a director of
`Elanco, and signed or authorized the signing of the Merger Registration Statement filed with the
`SEC. Garcia was Executive Vice President and Chief Financial Officer at Ryder Systems, Inc.
`from 2010 until 2019, Senior Vice President and Controller from 2005 to 2010 and Vice
`President and Controller from 2002 to 2005. Mr. Garcia is a certified public accountant.
`28.
`Defendant Michael J. Harrington (“Harrington”) was, at all relevant times, a
`director of Elanco, and signed or authorized the signing of the Merger Registration Statement
`filed with the SEC. Harrington served as Senior Vice President and General Counsel at Eli Lilly
`since 2013. Harrington served as Vice President and Deputy General Counsel of Global
`Pharmaceutical Operations at Eli Lilly from 2010 to 2012 and Vice President and General
`Counsel, Corporate from 2004 to 2010.
`29.
`Defendant Deborah T. Kochevar (“Kochevar”) was, at all relevant times, a
`director of Elanco, and signed or authorized the signing of the Merger Registration Statement
`filed with the SEC. Kochevar has served as the Provost and Senior Vice President ad interim at
`
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`FIRST AMENDED CLASS ACTION COMPLAINT
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`Tufts University since 2018. Kochevar served as Dean of the Cummings School of Veterinary
`Medicine at Tufts University from 2006 to 2018.
`30.
`Defendant Lawrence E. Kurzius (“Kurzius”) was, at all relevant times, a director
`of Elanco, and signed or authorized the signing of the Merger Registration Statement filed with
`the SEC. Kurzius has served as a director since 2015, Chairman of the Board of Directors since
`2017, Chief Executive Officer since 2016, and President since 2015 at McCormick & Company.
`Kurzius served as Chief Operating Officer at McCormick & Company from 2015 to 2016, Chief
`Administrative Officer from 2013 to 2015, President, International Businesses from 2008 to
`2013, President, Europe, Middle East and Africa from 2007 to 2008 and President, U.S.
`Consumer Foods from 2005 to 2006.
`31.
`Defendant Kirk McDonald (“McDonald”) was, at all relevant times, a director of
`Elanco, and signed or authorized the signing of the Merger Registration Statement filed with the
`SEC. McDonald has served as the Chief Marketing Officer at Xandr since 2017 and President of
`PubMatic since 2011. McDonald served as President of Digital at Time Inc. from 2009 to 2011.
`32.
`Defendant Denise Scots-Knight (“Scots-Knight”) was, at all relevant times, a
`director of Elanco, and signed or authorized the signing of the Merger Registration Statement
`filed with the SEC. Scots-Knight has served as Chief Executive Officer and member of the
`board of Mereo BioPharma Group plc since 2015. Scots-Knight served as Managing Partner of
`Phase4 Partners Ltd. from 2010 to 2015 and Head of Nomura Phase4 Ventures from 2004
`to 2010.
`33.
`Defendants Meer, Hoover, Anand, Bilbrey, Garcia, Harrington, Kochevar, Kurius,
`McDonald, and Scots-Knight, are herein referred to as the “Securities Act Defendants.”
`IV. CONFIDENTIAL WITNESS (“CW”) FOUNDATION ALLEGATIONS
`
`34.
`CW1 was a Corporate Account Manager in Elanco’s large animal division from
`January 2015 to January 2020. CW1 was responsible for managing Elanco’s relationship with
`four distributors—MWI Animal Health (“MWI”), an affiliate of AmerisourceBergen
`Corporation, Midwest Veterinary Supply (“Midwest”), K+K Vet Supply Inc. (“K+K”), and
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`FIRST AMENDED CLASS ACTION COMPLAINT
`10
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`Case 1:20-cv-01460-SEB-MG Document 34 Filed 11/09/20 Page 15 of 119 PageID #: 187
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`Veterinary Service, Inc. (“VSI”). CW1 reported to Director of Food Animal Channel &
`Distribution, Courtney Shriver (“Shriver”). Shriver reported to Senior Director of Channel
`Strategy and Sales Force Excellence for North America, Julia Loew (“Loew”), who reported to
`Vice President, Companion Animal US, Shawn McKee (“McKee”). According to CW1, Shriver
`had a “direct conversation pipeline” to Simmons and that Shriver attended monthly senior
`management meetings with Simmons and Young at the Company’s headquarters in Greenfield,
`Indiana. CW1 attended at least two of these meetings, one in person during the first half of 2018
`and one by video conference in 3Q 2019. At these meetings, CW1 presented sales data for
`CW1’s accounts and noted that the purpose of these meetings was to “go over strategy” for sales
`based on past performance, for example, by tracking “days on hand,” i.e., the amount of
`inventory held by distributors. It was in the days following these senior management meetings
`that CW1 often would receive a phone call from Shriver directing CW1 to push distributors to
`purchase an additional amount of inventory beyond what they were demanding to meet the
`Company’s revenue forecast.
`35.
`CW2 was a Corporate Account Manager in Elanco’s Companion Animal division
`from March 2018 to January 2020. CW2 was responsible for contract negotiations and
`overseeing the day-to-day management of one of Elanco’s key accounts in Companion Animal
`products, distributor MWI, and during that time knew “pretty intimately what inventory levels
`looked like