Inotiv faces shareholder lawsuit over stock drop – Indianapolis Business Journal


Inotiv Inc., a West Lafayette-based pharmaceutical testing company, saw its stock price soar — then plunge — after announcing plans last fall to acquire Indianapolis-based Envigo RMS LLC, which raises and sells animals used in laboratory tests.

Now, Inotiv is the target of a shareholder lawsuit alleging the company failed to promptly disclose information about animal welfare issues at an Envigo dog farm in Cumberland, Va. — information that, after its publication, were followed by further declines in Inotiv’s share price.

Inotiv’s share price had traded in the mid-$30s in September. The stock hit an all-time high of $60.66 on Nov. 19, just two weeks after completing its previously announced acquisition of Envigo. Since then, the stock price has fallen sharply and its closing price remained below $15 last month.

The lawsuit was filed June 23 in U.S. District Court for the Northern District of Indiana. New York-based law firm The Rosen Law Firm PA is listed as lead counsel for plaintiff Sergio Grobler, an Inotiv shareholder whose location is unidentified.

Robert Recreation

Defendants in the shareholder lawsuit include Inotiv; its President and CEO, Robert Leisure; and its chief financial officer, Beth Taylor.

Neither Leasure nor Taylor responded to IBJ’s emails, and IBJ was unable to reach them by phone. IBJ also failed in its attempt to reach a company spokesperson. On Tuesday, the case file did not identify who is representing each of the three defendants.

Plaintiff asks the court to grant class action status to the case on behalf of individuals who purchased shares of Inotiv from September 21, 2021 to June 13. The first date is when Inotiv announced its intention to acquire Envigo, an announcement that sends Inotiv’s stock price skyrocketing. This latest date is when Inotiv announced plans to close the dog breeding facility and a separate rodent breeding facility elsewhere in Virginia. Inotiv’s share price fell again after this announcement.

The lawsuit accuses the company of acting ‘with a reckless disregard for the truth’ in failing to promptly disclose animal welfare issues in dog breeding – issues that arose months before Inotiv’s announcement of its acquisition plans.

“Had Plaintiff and other Class Members been aware that the market price of Inotiv’s securities had been artificially and falsely inflated by Defendants’ misleading statements and material adverse information which Defendants failed to disclose, they would not have purchased the company’s securities at the artificially inflated prices they did, or at all,” the lawsuit alleges.

Marc Maddox

Mark Maddox, securities attorney and founder of the law firm Fishers Maddox Hargett & Caruso PC, said it’s not uncommon for a drop in a stock’s price to trigger shareholder lawsuits. Maddox is not involved in the Inotiv lawsuit.

But based on the outline of this case, he believes the shareholder appears to have a valid point. “If I was going to bet, I’d bet on the side that plaintiffs are going to win this thing.”

Often, Maddox said, that victory comes in the form of a settlement. “Usually these kinds of cases are settled if they are good cases and the company has the ability to pay the money.”

Stock up

Inotiv’s stock, which had been trading for decades below $10 per share, had seen its price climb to the average of $30 last September.

On September 21, the day it announced its intention to acquire Envigo in a $545 million cash and stock deal, Inotiv’s stock price closed at a record high 49. $.93, down from $36.81 the previous day.

The spike only lasted one day, but the price then rallied throughout the fall. On November 5, the day Inotiv announced the completion of the acquisition, the company’s stock price closed at $54.72. Inotiv’s stock price remained high for two weeks, hitting a new all-time high closing price of $57.88 in mid-November.

Inotiv’s share price fell sharply in the months that followed. During this period, the company announced several other business acquisitions, disclosed that it was recalculating its earnings for its previous three quarters because it had incorrectly accounted for taxes related to a previous acquisition, and released several earnings reports. None of these other events are mentioned in the lawsuit.

Inotiv, which has approximately 2,100 employees, operated as Bioanalytical Systems Inc. until it changed its name in March 2021. Founded in 1974, the company went public in 1997 and has gone through difficult times in over the years.

For the fiscal year ended September 30, 2021, Inotiv reported earnings of $10.9 million on revenue of $89.6 million. But the company posted annual losses for three straight years before, including a loss of $4.7 million on revenue of $60.5 million in 2020. The company defaulted with Huntington Bank on its loans and its credit facilities in 2016, then hired Leasure, a turnaround specialist. — as CEO in 2019.

Animal welfare issues

The problems at the Virginia dog-breeding facility relate to alleged violations of the Animal Welfare Act, a federal law that regulates the treatment of animals in research and testing.

During a routine inspection of the Virginia facility last July, inspectors found 18 animal welfare law violations, including 15 beagles with untreated eye, hearing and skin problems and serious dental conditions. . Other violations were documented during subsequent inspections, according to a US government lawsuit filed against Envigo in federal court in the Western District of Virginia on May 19. Envigo is the licensed operator of the facility, although it is now owned by Inotiv.

“In less than a year, the company has racked up more than 60 citations for non-compliance with the AWA, which have impacted thousands of beagles,” the lawsuit states. The lawsuit also says the federal government seized 145 puppies and dogs from the facility that veterinarians had determined to be “in acute distress.”

The lawsuit also accuses Envigo of employing “a paltry number of employees” at the Virginia plant and of choosing “to euthanize the beagles or allow[ing] beagles to die of malnutrition, treatable and preventable conditions, and injuries resulting from beagles being housed in overcrowded, unsanitary enclosures or enclosures containing incompatible animals.

Last week, the federal government and Envigo informed the court that they had reached an agreement that the Humane Society of the United States would take possession of the facility’s 4,000 beagles. At its own expense, the Humane Society plans to transport the dogs to rescue groups and animal shelters, which will place the animals for adoption. Envigo must pay $100 per dog, or $150 per lactating female plus litter, which will be passed on to these animal shelters to help defray the costs of preparing the dogs for adoption.

The shareholders’ lawsuit alleges that Inotiv failed to do enough to publicly disclose the problems at Envigo’s dog breeding facility in Virginia.

In its 2021 annual financial report, published on December 21, Inotiv revealed that one of Envigo’s US facilities had been inspected by the USDA several times since July, and that the USDA had found “non-compliance of certain USDA laws and regulations”. Inotiv also said it is appealing some of the USDA’s findings and that the USDA plans to conduct a formal investigation that could result in civil and/or criminal penalties, license suspension or revocation, and others. repercussions.

Inotiv included a similar disclosure in its first quarter 2022 financial report, which was released on May 16. In that disclosure, Inotiv added that it had made “multiple fixes and improvements to the facility.”

In its December and May disclosures, Inotiv did not identify the location of the facility, or detail what the USDA reports said.

On May 20, just days after publishing its quarterly report, Inotiv made two public disclosures about the Virginia facility: that investigators raided it on May 18 and that the next day the federal government had filed a civil complaint against Envigo for alleged violations of animal welfare law. By the end of the next trading day, Inotiv’s stock had fallen to $13.14 per share, down 28% from its previous closing price.

On June 13, Inotiv announced that it would be closing the dog breeding facility, along with a separate rodent breeding facility elsewhere in Virginia. The company’s stock price fell 2% the following day, to close at $12.78 per share.

It closed at $10.39 on Tuesday.•


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