GREENFIELD — Elanco Animal Health solidified itself Tuesday as the rising star of Eli Lilly and Co.
In what Elanco and Lilly officials called one of the most significant moves in the companies’ histories, Lilly announced a $5.4 billion acquisition that will make its Greenfield-based animal health division a global titan in developing and producing foods and medicine for even more species ranging from canines to cattle to catfish.
Lilly, whose business in Greenfield stretches back a century, said it would acquire Novartis Animal Health. If the deal is approved, it would be the second-largest acquisition in the company’s history and would make Elanco, whose world headquarters are in Progress Park on Greenfield’s north side, the second-largest such enterprise in the world based on annual sales. It already ranks fourth.
Lilly said the acquisition will expand Elanco’s product portfolio; expand its global footprint; and enhance its manufacturing and research and development capacities, according to a company news release.
The acquisition, which company officials hope to close by the end of the first quarter of 2015, will continue to move Elanco forward in the food and companion animal health industry.
“This is the most transformational milestone in our history,” said Elanco President Jeffrey Simmons during a conference call with investors Tuesday.
Though company officials could not comment specifically on what impact the acquisition will have at Elanco’s Greenfield campus in terms of personnel and operations, the unit’s world headquarters will remain here. The company also intends to remain a vital part of the community, said William Weldon, Elanco’s vice president of global research and development.
“This is another example of how Elanco is becoming a more important part of Eli Lilly,” Weldon said. “I think it’s great for the community. Elanco is a strong partner in the community, and we’ve invested here with four or five new buildings. It’s a good sign for Elanco.”
At the Elanco campus Tuesday, spokeswoman Colleen Parr Dekker said the announcement generated a fair amount of buzz within the company.
“There’s a lot of excitement with our employees about the announcement and the future opportunities it brings,” Parr Dekker said.
Those opportunities revolve around the animal health market sector, which continues to grow even as Lilly faces several patent expirations on its human pharmaceutical side, company officials said.
The company has seen its profits slide from patent expirations on its antipsychotic drug Zyprexa and the popular antidepressant Cymbalta.
As patents expire, generic drugmakers can start producing the medicine, gutting the original developer’s market share. Lilly expects to lose billions of dollars in revenue from the loss of patents on those two medicines alone.
That’s where Elanco and its animal health products come in.
“The demand for animal health products continues to be strong,” said Lilly President John Lechleiter during the conference call.
Expanding Elanco’s presence within the company has been a strategic goal, Simmons said, diversifying into the animal health sector “to counter the volatility that comes with this market.”
Lilly said Novartis, based in Basel, Switzerland, had $1.1 billion in 2013 revenue, roughly split between companion animal and food sectors, with two-thirds of that revenue outside North America.
The company has a presence in more than 40 countries with a portfolio of some 600 products and 40 more in the developmental pipeline. Its research and development expertise is in vaccines and parasiticides.
“This was a terrific find for us with a deep pool of talent,” Lechleiter said of Novartis.
The $5.4 billion price tag, which the company said will be paid with $3.4 billion in cash on hand backed with $2 billion of debt to be issued, represents about 4.3 times Novartis’ 2014 expected revenue.
Officials say merging the two companies will save some $200 million in costs from 2015 to 2017 and result in tax benefits amounting to “hundreds of millions of dollars,” said Lilly Chief Financial Officer Derica Rice.
The move also continues moving Elanco toward the “top tier” in the sector, Simmons said.
Since 2007, the company has doubled revenues and tripled profits, becoming the fourth-largest company of its kind globally with 60 percent of its growth coming from in-house product development.
Simmons said he did not anticipate any antitrust issues resulting from melding two global leaders in animal health products.
“We believe the transaction will be very good for competition,” Simmons said. “There is no question there is a process we must go through when you put a number four and a number seven (company) together, but we believe there are no significant issues.”
Skip Kuker, director of the Hancock Economic Development Council, said the acquisition has the potential to pay great public relations dividends for Hancock County.
“We’re very excited to see Lilly and Elanco wanting to invest here as they have, and we’re ready to help them with anything they need,” Kuker said.
“It’s also great to see that it’s headquartered in Greenfield. That press release will come out of here,” he said of any corporate announcements made after the deal goes through. “And there’s nothing better than having ‘Greenfield, Indiana,’ being mentioned worldwide.”
Novartis is the second major acquisition deal Lilly has announced this year.
In February, Elanco entered the global poultry vaccine market with the acquisition of a German-based Lohmann SE.
Lohmann, with roots that go back to 1967 and with headquarters in Cuxhaven, Germany, is a leader in the global supply of poultry vaccines and markets animal feed additives.
Elanco will acquire Lohmann’s catalogue of vaccines and feed additives, its commercial capabilities and the company’s manufacturing sites in Germany and Winslow, Maine.
That deal is expected to close within the next few weeks, Simmons said Tuesday.
The Lohmann and Novartis deals, if closed and approved, will be the latest in a string of mergers and acquisitions by Elanco.
In 2008, the company purchased the rights, U.S. sales force and Augusta, Ga., manufacturing plant for Posilac, a supplement that increases milk production in dairy cows, from Monsanto for $300 million.
The company purchased Janssen Pharmaceuticals, a Johnson & Johnson Co. unit, to complement its companion-animal business in 2011. In 2012, Elanco acquired Terre Haute-based ChemGen, which developed feed additives to help animals digest food more efficiently.
Wall Street took news of the agreement with a certain amount of skepticism Tuesday. Lilly stock closed at $60.03 per share, dropping 1.36 percent off the day’s opening at $60.97, but rallying from a low of $59.97 just before the market closed Tuesday, according to Marketwatch.com. Novartis shares in Zurich were up 2.3 percent, according to The Associated Press.