Eli Lilly mulls sale of Elanco

Last county facility specializes in products for livestock, pets; slowing sales prompt review

GREENFIELD -Eli Lilly and Co. is weighing the sale of its last Hancock County facility.

Eli Lilly and Co. says it is reviewing whether to sell or spin off its Elanco animal-health business, a move that could start a dramatic new chapter for the 64-year-old unit that employs 6,500 people, including 800 at its Greenfield headquarters in Progress Park just north of Interstate 70 and west of State Road 9.

Lilly sold its main laboratory on U.S. 40 West in Greenfield to Covance in 2008 for $50 million.

The news, announced Tuesday morning, comes as sales have slowed in recent quarters at Elanco, which makes a vast array of vaccines, antibiotics, feed additives and other health products for livestock and pets.

Lilly said Elanco’s sales have fallen 1 percent in the first nine months of 2017, to $2.29 billion, although sales for the third quarter edged up 5 percent, to $740.6 million.

Indianapolis-based Lilly said a strategic review of Elanco could result in “an initial public offering, merger, sale, or retention of the business.” The drugmaker said it will make a decision no later than mid-2018.

“Elanco has developed into a premier animal health company and has been an important growth-driver and source of revenue diversification for Lilly,” Lilly CEO Dave Ricks said in a written statement. “Through acquisitions and organic growth, we’ve grown Elanco to a size and scale that now allows us to consider a variety of options to maximize future value.”

IBJ reported in September that Lilly was not ruling out spinning off Elanco, a departure from its strategy under former CEO John Lechleiter, who retired at the end of last year.

“I’ve been very clear, we like having that animal health business as part of Lilly,” Lechleiter told Bloomberg TV in October. “Not so long ago, it was about 5 or 6 percent of our revenue. Today, it’s about 15 percent. I think that’s a meaningful (form) of diversification that comes with a business that we know a lot about.”

Hancock Economic Development Corporation executive director Skip Kuker said the corporation has not had conversations regarding the sale of the animal health business. He said HEDC would be willing to work with the business to keep its leaders happy and located in Greenfield.

For years, Lilly could count on Elanco as a steady growth engine that could help it cope with declining sales caused by human-drug patent expirations.

But recently, the unit has struggled, as competitors including Zoetis and Bayer have taken market share. The downturn came just as Lilly was expecting a big boost in sales and profit, helped by its $5.4 billion purchase of Novartis’ animal health division in 2015.

Lilly launched the unit in 1953 to produce antibiotics for livestock and over the years expanded it to a wide variety of health products for companion animals and food animals.

A Lilly spokeswoman this fall said the setbacks were due to stiffer competition, aggressive pricing by rivals and other factors.

In a July conference call, Elanco President Jeff Simmons said the company was shifting into high-growth product areas, such as a salmonella vaccine for poultry and a parasite killer for farmed fish. He added Elanco had received approval in the European Union for a flea-tick combination product for pets.

The global market for animal health is valued at $34.6 billion and is expected to grow more than 5 percent a year through 2025, according to Grand View Research, a business consulting firm based in San Francisco.

As a stand-alone company, Elanco would be the 12th-largest public company in Indiana, with 2016 revenue of $3.16 billion. That would put it ahead of Vectren Corp., Allison Transmission, Finish Line, Republic Airways and Duke Realty Corp.

Lilly disclosed it was reviewing options for Elanco in its third quarter earnings press release, announced Tuesday morning.

The Daily Reporter contributed to this report.