In order to expand and strengthen its animal health business, Eli Lilly (LLY) recently extended an irrevocable and unconditional offer for the animal health business of Janssen Pharmaceutica NV, a Johnson & Johnson (JNJ) company.
While financial terms of the offer were not disclosed, Eli Lilly said that employees solely dedicated to the animal health business at Janssen will be transferred to Elanco, Eli Lilly’s animal health division.
Eli Lilly’s animal health division, Elanco, markets products in more than 75 countries. With this deal, Eli Lilly is looking to strengthen its presence in the animal health market in Europe. Janssen is based in Belgium and focuses primarily on European markets. With the closing of the deal, Eli Lilly’s animal health product portfolio will gain 50 marketed products, including swine and poultry products.
Eli Lilly’s animal health portfolio includes products like Rumensin, Tylan, Posilac, Paylean, and other products for livestock and poultry, Comfortis and other products for companion animals. Eli Lilly’s animal health division posted sales of $1.4 billion in 2010, up 15%, with sales being driven by higher demand for the company’s companion animal and feed additive products. Comfortis, a flea medication for dogs, saw a 69% increase in sales in 2010.
Over the past few quarters, Eli Lilly has been working on strengthening its animal health business. In May 2010, the company acquired the European marketing rights to several animal health product lines divested by Pfizer (PFE). The company also acquired a manufacturing facility in Sligo, Ireland, which is used for the production of animal vaccines.
Neutral on Eli Lilly
We currently have a Neutral recommendation on Eli Lilly, which is supported by a Zacks #3 Rank (short-term “Hold” rating). We expect the top-and bottom-line to remain under pressure from late 2011 as the contraction in Zyprexa sales more than offsets growth in Cymbalta, diabetes and new product sales.
Barring significant cost-cutting efforts or additional revenue catalysts, 2013 will be the beginning of a very challenging period with Cymbalta losing US patent protection during the year.
On the flip side, strong performance of the diabetes business, the ramp of Effient and upside from the ImClone deal should offer some downside support. We are also pleased to see Lilly pursuing small acquisitions and in-licensing deals to boost its pipeline.
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