Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

For some investors, Eli Lilly is the sleepy pharma giant they're just itching to see do something big -- say, for instance, spin off its animal-health business.

In recent years, while some of its peers did mega-mergers and explored big breakups, Lilly stayed the course and largely out of the M&A headlines. That hasn't been such a terrible thing: The $90 billion company's shares produced a 68 percent gain over the past three years, better than its closest peers. 

But Lilly on Wednesday stoked hopes its approach might soon change: It announced a significant addition to its growing animal-health segment, Elanco. The unit is buying a set of animal vaccines and a manufacturing site from Boehringer Ingelheim for $885 million. 

Some observers have called for Lilly to spin off a scaled-up Elanco, akin to Pfizer's successful spinoff a few years ago of its Zoetis animal-health business.

But Lilly may not need to go this route. In fact, all signs are pointing to it keeping Elanco in-house.

Pfizer's animal health spinoff Zoetis has substantially outperformed its parent, prompting calls for Eli Lilly to do the same with Elanco.
Source: Bloomberg

For one thing, Lilly told the world in June 2015 it has no intention of spinning off Elanco, calling it a valuable part of its whole. It reiterated that sentiment in December, after splitting the manufacturing of its animal and human medicines, which some saw as a potential prelude to an Elanco split. What a company says and what it does often aren't reliably correlated, but in this case it’s worth taking Lilly at its word.

The fundamental justification for any spinoff is to unlock hidden value, to let separate parts of a business be appropriately rated by more-focused investors. Lilly is already the most highly valued big pharma company in the U.S. by some measures. If value is hiding, it's doing a rubbish job. 

Unlock What?
Eli Lilly already commands a valuation above that of its closest U.S.-listed rivals, so there may not be much hidden value to unlock in a spinoff of its animal-health business.
Source: Bloomberg

It's easy to assume that bulking up animal health would be a prelude to spinning it off, and Lilly has been doing that aggressively. Since 2007 -- including this vaccine deal -- Lilly has done as many animal-health-related acquisitions as it has human-focused deals, and has spent more on them.  

Man or Beast?
Eli Lilly gets the vast majority of its revenue from drugs for humans, but you wouldn't know it from its M&A spending pattern over the past nine years.
Source: Bloomberg

But it makes just as much sense to do deals to bolster the growth of a successful business. The animal-health unit has become an increasingly large part of Lilly's revenue base over the past couple of years. 

Animal Instinct
Animal health is becoming a bigger revenue driver for Lilly. In the past 12 months, it accounted for almost 16% of revenue, up from less than 10% in early 2014
Source: Bloomberg

And it's one of the reasons Lilly is expected to grow revenue more rapidly than many of its global pharma industry peers going forward.

Growth Looks Good
Eli Lilly's revenue-growth outlook for the next three years is among the highest of its big-pharma peers. Total consensus projected growth:
Source: Bloomberg
Growth measure compares projected revenue for three years from now to revenue over the past 12 months.

Elanco's growth is also steadier (excusing acquisition-related lumpiness) than Lilly's up-and-down human-pharma business -- which is still recovering from patent expirations on blockbuster drugs Zyprexa and Cymbalta that cost it more than $7 billion in sales from 2011 to 2015. 

The Right Track
Eli Lilly's animal health business has been a highly consistent source of growth. 2015's outsize growth was driven by the $5.4 billion acquisition of Novartis' animal focused business.
Source: Bloomberg

Lilly has promising new human drugs, but many are launching in highly competitive disease areas. And it has interesting medicines in its research pipeline, but it's risky for any company to count too much on those. A reliable, growing $3 billion business has extra appeal in that context.  

Overall, this looks to be one of those deals that makes more sense to those hunting for fees than those running the business. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Max Nisen in New York at
Tara Lachapelle in New York at

To contact the editor responsible for this story:
Mark Gongloff at