Lilly contemplates future of animal health unit

Eli Lilly & Co. is mulling the future of its Elanco animal health unit, which is on track to have sales this year of roughly $3 billion. Stock analysts think the unit, which could be spun off, sold, or kept by Lilly, is worth between $12 billion and $15 billion. Lilly will decide the unit’s fate by mid-2018.

The animal health business played a critical role in buttressing Lilly’s bottom line during a rocky few years of patent losses on many of its best-selling pharmaceutical products. But the unit has recently faced challenges at a time when the human health business is improving. In the third quarter, new medicines accounted for nearly all Lilly’s revenue growth.

In a call with analysts to discuss Lilly’s third-quarter earnings, Lilly’s CEO, David Ricks, acknowledged that investors have for years questioned whether the animal health unit should stand alone. He said the timing is finally right to contemplate a spin-off or sale because the unit has since 2015 digested two key acquisitions: the $5.4 billion purchase of Novartis’s animal health business and the $885 million acquisition of Boehringer Ingelheim’s pet vaccines unit, Vetmedica. With those additions, “we now have a global business that is highly competitive,” Ricks said, noting that Elanco is among the top five global animal health companies.

The review of the animal health unit is the latest shake-up at Lilly, which has been revamping its business since Ricks took over as CEO in January. Last month, Lilly announced job cuts and plans to shut down two research sites and an animal health drug plant. And over the summer, its oncology unit underwent a mini-overhaul: Ten clinical-stage cancer treatments were earmarked for out-licensing or partnering.