Eli Lilly to buy Novartis Animal Health, merge assets with Elanco

A $5.4 billion deal with Swiss pharmaceutical company Novartis International AG is set to make Eli Lilly and Co. the owner of Novartis Animal Health. The all-cash agreement, which combines Novartis assets with Lilly’s existing animal health business, Elanco, will create the second-largest animal health company in the world, executives say.

“This deal creates a global animal health leader able to deliver even more innovation and value to our customers,” says Jeff Simmons, Lilly senior vice president and president of Elanco Animal Health. “Combining these two great companies will enable us to provide more diversified brands, reach more market segments, expand our global footprint, and strengthen our pipeline, capabilities and expertise.”

The deal gives Lilly Novartis Animal Health’s nine manufacturing sites, six dedicated research and development facilities, a portfolio of approximately 600 products, and 40 more projects in development. It also transfers more than 3,000 employees from Novartis Animal Health, which spans 40 countries and last year had revenue of approximately $1.1 billion, to Elanco.

John C. Lechleiter, PhD, Lilly’s chairman, president and CEO, says in a company release that Elanco is a key component of the parent company’s future. “We intend to keep Elanco and to take advantage of the substantial synergies between our animal health and human health businesses,” Lechleiter says. “Significant investments in our animal health business in recent years have enabled Elanco to double its revenue since 2008, leading the industry in growth.”

Notably, last June Elanco Animal Health entered a deal with Heska Corp., a provider of veterinary diagnostic and specialty products, to buy certain noncore assets useful for the production of bovine and feline vaccines. In the summer of 2011 Elanco acquired Janssen Pharmaceutica, a Johnson & Johnson company, to diversify its food animal portfolio and complement its companion animal business in Europe.

“Global trends suggest continued sustained demand for animal health products in the years ahead,” Lechleiter continues. “Through this acquisition, which moves Elanco to top-tier in the industry, we intend to create value for our shareholders by adding to our promising pipeline of innovative animal health assets, increasing sales through a larger commercial footprint, and improving efficiencies and lowering costs.”

Specifically, the acquisition will create a greater commercial presence in the companion animal and swine markets for Elanco while also expanding the company’s presence in the equine and vaccines areas, even creating entry into the aquaculture market.

Lilly plans to fund the acquisition with approximately $3.4 billion of cash on hand and $2 billion in debt to be issued. The company expects improved efficiencies and reduced costs across both Elanco and Novartis Animal Health to save approximately $200 million per year within three years of deal closing—more than 10 percent of operating expenses from the combined businesses. The transaction is expected to close by the end of the first quarter of 2015, subject to antitrust clearance in the United States and other countries.