Eli Lilly Splitting Off Manufacturing of Animal Health Drugs

  • Management says animal unit still fits within larger company
  • Elanco should grow faster than 4%-5% industry average by 2017

Eli Lilly & Co. is in the process of separating the manufacturing of its animal health drugs from the facilities used to make its traditional pharmaceuticals, a move that potentially could make it easier to spin off the division one day.

The company’s management has insisted that its animal health division, Elanco, belongs inside the larger pharmaceutical giant, saying Tuesday at an investor conference that the relationship gave it a number of advantages, including access to experimental human drugs that could be developed for animals.

“We couldn’t have been more clear today on the value and the synergy we see as being part of Lilly,” Colleen Parr Dekker, an Elanco spokeswoman, said by phone. She said the split was motivated by the fact that drugs for animals and humans have different manufacturing requirements.

Elanco’s drugs for livestock and pets generated sales of $2.35 billion last year, or 12 percent of Lilly’s total. Executives said Tuesday that by 2017 Elanco would grow faster than the industry average of 4 percent to 5 percent.

The Indianapolis-based company had said in June that it had no plans to divest the animal health unit. That comment came after Lilly stock jumped 5.4 percent following an analyst question about potential spinoff plans. Other big pharmaceutical companies have spun off their animal health units or put them under review.

Yearlong Split

Lilly began splitting off Elanco’s manufacturing in January, said Steve Jenison, the unit’s head of manufacturing, in an interview Tuesday at an investor conference in Boston. He said he now reports directly to Elanco’s president, Jeffrey Simmons, rather than to Lilly’s general head of manufacturing. 

It made sense to separate the manufacturing divisions, Jenison said, because animal health makes more products than the human drug division. The January split came after Lilly completed its $5.4 billion acquisition of Novartis AG’s animal health unit, which included 17 manufacturing sites.

Pfizer Inc. split off its animal health unit, Zoetis Inc., in January 2013. The move can be attractive for investors, because animal health businesses are driven more by general economic conditions than by the development of new blockbuster drugs. Zoetis has soared 77 percent since its initial public offering at $26 a share. Pfizer shares are up 19 percent in the same period.

Sanofi Chief Executive Officer Olivier Brandicourt put the company’s animal health unit under review as part of a wide-reaching plan to slim down the French drugmaker. Merial, Sanofi’s animal health unit, posted sales of 2.11 billion euros ($2.3 billion) last year.

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