Seeking options to overcome a drought in its core pharmaceutical business, Eli Lilly (NYSE:LLY) is beefing up its animal health offerings. Over the weekend, the company made an irrevocable, unconditional offer to buy the animal health business of Johnson & Johnson’s (NYSE:JNJ) Janssen Pharmaceutical unit.
The move would give Lilly’s Elanco unit one of the biggest animal health businesses in Europe, the primary market for these products. As recently as 2008, the global market for animal health products was estimated at nearly $20 billion, with Western Europe accounting for about one-third of sales. It is estimated to grow at a 5% clip during the next several years
Increased spending is being driven by driven by the number of households with pets, increased animal-human bonding, more focus on animal health, advancements in animal pharmaceuticals and diagnostics, and expanding marketing programs by pharmaceutical and nutrition companies.
Under the deal, Lilly’s animal health unit, Elanco, would inherit 50 marketed animal health products. Elanco already operates in 40 countries. The acquisition would enable the Lilly unit to diversify its portfolio with new swine and poultry products.
Lilly’s Elanco unit already accounts for more than 20% of Lilly’s annual sales of $22 billion. That percentage could increase with the Janssen purchase and an anticipated decline in Lilly human pharmaceutical sales due to the loss of patent protection on two of its best-selling drugs.
Lilly has hit the animal health acquisition trail in a huge way. Last year, the company agreed to buy the European rights to Pfizer’s (NYSE:PFE) animal health products unit. In addition, Lilly CEO John Lechleiter has made it clear the company is looking for other acquisitions in the animal health field.
Will these stopgap measures be enough for Lilly to satisfy shareholders disappointed in the company’s tepid stock performance and ward off a potential takeover of the company by another Big Pharma suitor? Only time will tell. But we are likely to get an idea about the way shareholders are leaning when the vote next month to repeal the company’s supermajority requirement for any takeover of the Indianapolis-based company.
At the time of publication, Barry Cohen owned shares of Lilly.
