Lilly quashes rumors of Elanco spinoff as stock soars

Courtesy of Elanco

Eli Lilly's ($LLY) stock was on a tear June 9, advancing more than any other stock in the Standard & Poor's 500 Index, after investors surmised the company might be planning to spin off its animal health unit, Elanco. The rumor--which Lilly quickly tried to quiet--originally started spreading after Elanco's president, Jeffrey Simmons, spoke at a Goldman Sachs investment conference.

When asked during the conference if Lilly might consider spinning off Elanco and taking it public, Simmons wryly answered, "We'll see, but we are very intentional about a business model that we think works," according to Bloomberg. He added that company executives have an ongoing dialogue about whether Elanco would be better off as a fully owned subsidiary or an independent company.

That was enough to send Lilly's shares up 5.4% to $82.77--its biggest advance since March 2009, according to Bloomberg. The company's stock continued to advance June 10, closing at $83.18.

In reality, however, Lilly has "no intention" of divesting Elanco, a spokeswoman told Bloomberg. "We continue to believe Lilly's model for running Elanco is the best one for creating strong business performance and shareholder value," she said. "Furthermore, we expect Elanco to be an important driver of growth for Lilly in the coming years."

Indeed, Lilly has bet much of its future growth on animal health. In the first quarter, the company beat analysts earnings estimates--a feat it attributed largely to its acquisition of Novartis ($NVS) Animal Health for $5.4 billion earlier this year. The deal created the second-largest animal health company behind Zoetis ($ZTS) and helped Lilly balance out its portfolio of products for both food and companion animals.

Still, the integration of the Novartis unit hasn't been an entirely smooth one for Elanco. Included in the deal was a 78,198-square-foot manufacturing facility in Vacaville, CA that had been subject to a Justice Department investigation and other troubles. Lilly confirmed in April that it's selling the facility. Then, in May, the company got in trouble with the FDA over marketing language used on the former Novartis product Denagard (tiamulin hydrogen fumarate) plus CTC (chlortetracycline hydrochloride), an antibiotics-infused feed product for swine. Lilly is now scrambling to revise marketing materials that improperly suggest the product can be used to fatten up pigs.

As for Lilly's stock price, it was still advancing in early trading on June 11, thanks to some good news on the human health side of the business: The company announced that two pivotal late-stage trials of its experimental drug ixekizumab met their endpoints in patients with psoriasis.

- here's the Bloomberg story