Elanco Animal Health (ELAN) risk factors, FY2024 10-K

Risks Related to the Animal Health Industry

1. 01The animal health industry is highly competitive
2. 02Our R&D, acquisition and licensing efforts may fail to generate commercially successful new products or to expand the use of our existing products
3. 03Disruptive innovation and advances in veterinary medical practices, animal health technologies and alternatives to animal-derived protein could negatively affect the markets for our products
4. 04Generic products may be viewed as more cost-effective than our products
5. 05Regulatory restrictions and bans on the use of antibiotics and productivity products in farm animals, as well as changing market demand, may continue to negatively affect demand for certain of our farm animal products
6. 06An outbreak of infectious disease carried by farm animals could negatively affect the demand for, and sale and production of, our farm animal products
7. 07Our R&D relies on evaluations of animals, which may become subject to bans, additional restrictive regulations or increased attention from activism movements
8. 08Consolidation of our customers and distributors could negatively affect the pricing of our products
9. 09For our pet health products, increased use of alternative distribution channels, or changes within existing distribution channels, could negatively impact our market share, margins and distribution of our products

Strategic and Operational Risks

1. 10Our results of operations are dependent upon the success of our top products
2. 11We may not be able to successfully complete favorable transactions or successfully integrate acquired businesses when we pursue acquisitions, divestitures, joint ventures or other significant transactions
3. 12We may not be able to successfully implement future restructuring activities or other significant organizational changes
4. 13Manufacturing problems and capacity imbalances, including at our contract manufacturers, have caused, and may in the future cause, product launch delays, inventory shortages, recalls and/or unanticipated costs
5. 14Increased or decreased inventory levels in our distribution channels can lead to fluctuations in our revenues and levels of inventory on-hand
6. 15We use machine learning and artificial intelligence (AI) in our business, and challenges with properly managing its use could result in operational, competitive or reputational harm and legal liability
7. 16We depend on sophisticated information technology (IT) and infrastructure
8. 17Our business may be negatively affected by weather conditions and the availability of natural resources
9. 18We could experience demand, supply and operational challenges associated with the effects of a human disease outbreak, epidemic, pandemic or other widespread public health concern
10. 19A loss of key personnel or highly skilled employees could disrupt our operations
11. 20Our business could be materially adversely affected by labor disputes, strikes or work stoppages
12. 21We have substantial indebtedness
13. 22receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness
14. 23Our debt agreements contain restrictions that will limit our flexibility in operating our business
15. 24Changes in our credit ratings could increase our interest expense and restrict our access to, and negatively impact the terms of, current or future financings or trade credit
16. 25Changes in interest rates may adversely affect our earnings and/or cash flows
17. 26We may be required to write down goodwill or identifiable intangible assets
18. 27We rely on third parties to provide us with products and materials and are subject to increased material costs and potential disruptions in supply
19. 28Our operations are subject to the economic, political, legal and business environments of the countries in which we do business
20. 29Our results of operations may be adversely affected by foreign currency exchange rate fluctuations
21. 30We have underfunded pension plan liabilities. We will require current and future operating cash flows to fund these shortfalls, reducing the cash available for other uses
22. 31We do not anticipate paying dividends on our common stock in the foreseeable future
23. 32We could be negatively impacted by being a target of shareholder activism, causing us to incur significant expense and hinder or disrupt the execution of our business strategy
24. 33We may incur additional tax expense or become subject to additional tax exposure
25. 34Two did not have a material impact to income taxes in 2024, to the extent additional changes take place in the countries in which we operate, it is possible these legislative changes may have an adverse impact on our effective tax rates and the amount of income tax we are required to pay

Legal and Regulatory Compliance Risks

1. 35Our business is subject to substantial regulation
2. 36If the acceptance and/or adoption of our farm animal sustainability initiatives do not continue, our future results may be materially impacted
3. 37Increased regulation or decreased governmental financial support relating to the raising, processing or consumption of farm animals could reduce demand for our farm animal products
4. 38Tariffs, trade protection measures or other modifications of foreign trade policy may harm us or our customers
5. 39We may incur substantial costs and receive adverse outcomes in litigation, regulatory investigations and other legal matters
6. 40The actual or purported intellectual property rights of third parties may negatively affect our business
7. 41If our intellectual property rights are challenged or circumvented, competitors may be able to take advantage of our R&D efforts or harm the value of our brands
8. 42The illegal distribution and sale by third parties of counterfeit or illegally compounded versions of our products or of stolen, diverted or relabeled products could have a negative impact on our reputation and business
9. 43The misuse or off-label use of our products may harm our reputation or result in financial or other damages
10. 44Unanticipated safety, quality or efficacy concerns or identified concerns associated with our products may harm our reputation and have an adverse impact on our performance
11. 45Our insurance policies may be insufficient to protect against all potential hazards or litigation claims
12. 46Breaches of our IT systems or improper disclosure of confidential company or personal data, or a failure to comply with privacy laws, regulations and our contractual obligations concerning data privacy or the security of certain information, could have a material adverse effect on our reputation and operations
13. 47We are subject to complex EHS laws and regulations
14. 48We may be unable to achieve our goals and aspirations set forth in our ESG report(s), particularly with respect to the reduction of greenhouse gas (GHG) emissions, or otherwise meet the expectations of our stakeholders with respect to ESG matters