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An activist investor group is pushing for a shakeup of Elanco Animal Health Inc.’s board of directors and the removal of CEO Jeff Simmons, saying the Greenfield-based company has underperformed its peers and destroyed billions of dollars of shareholder value.
Ancora Holdings Group LLC, which claims to hold about 3% of Elanco’s shares, said Thursday it wants to replace four of the company’s directors with its own nominees at the company’s upcoming annual meeting. The investor group is also pushing for the retirement of CEO Jeff Simmons next year.
Ancora, based in Cleveland, said Elanco has “delivered poor margins, sluggish drug commercialization, negative shareholder returns and indefensible governance policies for years.”
“Based on extensive analysis and good faith engagement with Elanco, it appears that the biggest barriers to success are the company’s insular board and unaccountable CEO,” the investor group said in a statement.
In response, Elanco said its strategy of “innovation, portfolio and productivity” is working. It said the company has returned to growth and is “progressing a robust and innovative pipeline that will generate further growth.”
“Elanco’s commitment to the continued development of a strong and sustainable innovation pipeline is a multi-year process which is key to the company’s future success,” the company said in a written statement.
Elanco normally holds its shareholder meeting in May but has not yet announced a date or filed a proxy statement. Four of the company’s 12 directors are up for election this year, including Simmons.
The maker of antibiotics, vaccines and other health products for pets and farm animals spun off in 2018 from Indianapolis-based drugmaker Eli Lilly and Co. Elanco shares have fallen 55% from their high in July 2021.
The company, however, pointed out Thursday that its stock is up 39% over the past year, reaching a 52-week high earlier this week.
On Monday, Elanco told analysts it expects to launch three “potential blockbusters” this year, meaning the company expects the products to ring up at least $100 million in annual sales. The products are still under review by federal regulators.
The company said it planned to restructure operations, which would result in the loss of 420 jobs. The company has about 9,000 employees worldwide, according to its website.
Also on Monday, Elanco announced fourth-quarter earnings that appeared to be a mix. Revenue was $1.04 billion, higher than the consensus estimate of $999.7 million and up 5% from a year ago. But adjusted earnings per share were 8 cents, below the consensus estimate of 10 cents a share.
Ancora said it provided Elanco with a detailed analysis of its issues pertaining to corporate governance, finance, operations and product development, along with an “orderly succession” for the CEO position.
“Unfortunately, this framework seemed to be of no interest to the board, which refused to engage in substantive principal-to-principal negotiations and a real two-way discussion regarding changes that would benefit the company,” Ancora’s statement said. “We can only assume that the board feels insulated because of its classified structure and shareholder-unfriendly policies, despite overseeing a more than 50% decline in value since inception.”
The investor group said its candidates for the board possess “necessary experience” in capital allocation, corporate governance, pet health care, supply chain management and succession planning.
But Elanco responded that it has actively engaged with Ancora, but the investor group has refused to allow its Elanco board to meet Ancora’s board candidates.
“Instead, Ancora has demanded that the board agree to add three of Ancora’s candidates, sight unseen, to the Elanco board and to significantly overhaul the leadership of the board and the company. Our interest in meeting with their candidates still stands.”
In January, Elanco announced that David Hoover, its board chairman, would step down this year as chairman but would remain on the board as an independent director. It named Lawrence Kurzius, executive chairman of food giant McCormick & Co. Inc., as its next chairman, effective at the conclusion of this year’s annual meeting.
Elanco has also announced plans begin declassifying the board, providing shareholders the right to amend the bylaws and enabling shareholders, under certain circumstances, to call special meetings.
Ancora’s asset management division, Ancora Alternatives LLC, oversees more than $8.8 billion in client assets and manages nearly $1.5 billion for a diversified group of institutional investors and qualified individual clients.
Elanco is building a 220,000-square-foot, $100 million headquarters along the White River in downtown Indianapolis that is slated for completion in 2025.
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Activist investors can break companies. Especially in biotech & pharma, where failures teach extremely important lessons and advancements take YEARS to turn into profits. (Anybody who has paid attention to Lilly over the last few years can attest to this.) For a business in this space – especially the size of Elanco – patience is necessary. I struggle to see how a 3 year clip of performance says anything significant about the quality of leadership at Elanco.
I’m sure that any replacement board and CEO at Elanco could find some way to make easy profits by selling out on some existing asset, but such short term profits would likely come at the sacrifice of huge gains years down the road.
Unless there is strong evidence of serious, specific, and systemic mismanagement at Elanco, Ancora should back off. Not just for their best interest, but for the best interest of all shareholders.