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 As part of a multibillion-dollar revamp announced
earlier on Tuesday, Swiss drugmaker Novartis said it would sell its
animal-health arm to Indianapolis-based Lilly for about $5.4
billion, while also swapping assets with GlaxoSmithKline.
Lilly said the deal would turn its Elanco unit from the world's No.
4 animal-health group by revenue to the global No. 2 in a sector
that supplies medicines, vaccines and feed additives for farm and
domestic animals. The sector's biggest operator is Zoetis, spun off
by Pfizer last year.
The Lilly unit posted sales of $2.15 billion in 2013, up 6 percent
on the year, compared with about $1.1 billion for Novartis'
animal-health activities. Eli Lilly's total sales were $23.1
billion.
"Elanco has doubled its sales and tripled its profits between 2007
and today, and this acquisition really brings it into the top tier
of companies," Lilly Chief Executive John Lechtleiter said in an
interview. Other top players include U.S. drugmaker Merck & Co and
France's Sanofi.
Thanks to vaccines and anti-parasite medicines from the Novartis
deal, Lechleiter said Elanco will now be able to provide products
for aquaculture, or fish farms, which he called "a different type of
animal protein that we've wanted to get into."
Elanco is also expanding its presence in eggs, through its planned
acquisition of Germany's Lohmann Animal Health.
"This (Novartis) deal really allows us to get a significant increase
in our footprint in emerging markets and in our protein business on
the food animal side this will be very important for us," Jeff
Simmons, Eli Lilly's senior vice president and president of Elanco,
told Reuters.
Elanco's products include its Elector PSP to kill flies and beetles
in cattle sheds, and the Rumensin feed supplement to boost
productivity of dairy and beef cows. Novartis' products range from
its Atopica treatment for dermatitis in dogs and cats and its
Denagard antibiotic for pigs and poultry.
Lilly sees the dairy, fish and egg sectors as products emerging
market consumers turn to for protein before shifting towards meat,
Simmons said.
"I believe these emerging markets and these emerging diets — eggs,
fish, dairy — are key."
Elanco has been seeing "high single-digit" growth rates in emerging
markets and the Novartis deal would make it the No. 3 player in
these countries versus No. 5 currently, he added.
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The deal could also ease Elanco's economic reliance on the
livestock commodities markets such as cattle and hogs — which have
roiled in recent years amid volatile grain prices, extreme weather
patterns and shrinking herd sizes in the U.S.
"It takes us away from the meat cycles, where every four to five
years, we ride the same (economic) rollercoaster that the meat
producers do," Simmons said.
The Novartis deal crowns a period of fast expansion for Elanco,
whose operating profit margins rose to 26 percent last year — which
Lechleiter said were comparable to margins of human prescription
drugs.
Emerging market demand in animal health also reflected a growing
trend for keeping pets, Simmons said, noting this had helped make
its flea and heartworm brands big growth drivers at Elanco.
"Cities like Sao Paulo and Hong Kong are becoming more of a pet
opportunity and that will continue to grow and expand," Simmons
said.
Pets represent about 40 percent of the global animal-health market,
versus around 60 percent for farm animals, and Elanco would become
the No. 3 player in the pet health segment following the Novartis
acquisition, he said.
(Additional reporting by Natalie Huet; in Paris and PJ Huffstutter
in Chicago; editing by Andrew Callus, Mark Potter and Chizu Nomiyama)
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