Eli Lilly Exploring Spinoff of Elanco Animal-Health Business -- Update

By Peter Loftus and Cara Lombardo Features Dow Jones Newswires

Eli Lilly & Co. said Tuesday it could spin off or sell its animal health business, a segment that contributed 15% of the pharmaceutical company's revenue last year but has been pressured in recent years by competition.

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Lilly's Elanco Animal Health Business sells treatments and vaccines for pets and livestock. The unit brought in $740.6 million of revenue in the third quarter, up 5% from a year ago. Overall, the company's third-quarter revenue was $5.66 billion.

The unit could fetch $14 billion to $16 billion in a sale, J.P. Morgan estimates, assuming it commands an earnings multiple on par with market leader Zoetis Inc.

In an interview, Lilly Chief Executive Dave Ricks said the company decided to review options for Elanco now because it has mostly integrated some acquisitions that helped boost sales globally, notably the 2015 purchase of Novartis AG's animal-drug business for $5 billion. Also, Lilly relied more on the animal business as a steady revenue source several years ago when patent expirations were hurting sales of its core human-drug business. That core business is on a better footing now, he said.

"It's a question we get from investors: 'Does this make sense inside the company?'" he said. He expects to give an answer by mid-2018.

The company said it could settle on an initial public offering, merger or sale, options that would mark a pivot for Lilly, which for several years has swatted down questions over whether it would spin off the business. Lilly also said it could decide to keep Elanco after the review.

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Shares in Eli Lilly, up 16% this year, slid 1.9% in morning trading.

Revenue from livestock animal treatments decreased 6% in the latest quarter from a year ago, partly due to competitive pressures in the U.S. cattle industry, the company said. Revenue from companion animals such as dogs and cats increased 35%, mainly due to an acquisition of Boehringer Ingelheim Vetmedica's U.S. feline, canine and rabies vaccine portfolio and increases in wholesale purchases. Still, increased competition and lower realized prices hurt Elanco's pet business too.

Lilly reported per-share earnings of 53 cents in the third quarter, down from 73 cents a year ago. Adjusted earnings per share, which excludes special charges and other one-time items, was $1.05, up from 88 cents a year ago. Revenue grew 9% from a year ago, mainly due to new pharmaceutical products including Trulicity, Basaglar and others.

The company lowered its per-share earnings guidance this year as a result of restructuring charges to a range of $1.73 to $1.83, down from $2.51 to $2.61. It increased its adjusted earnings outlook to $4.15 to $4.25, up from $4.10 to $4.20.

Write to Peter Loftus at peter.loftus@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

October 24, 2017 10:42 ET (14:42 GMT)