EU green-lights Novartis sale of its animal health business to Eli Lilly

European Union regulators approved the sale of Novartis' ($NVS) animal health business to Eli Lilly ($LLY) in a deal worth $5.4 billion that is expected to propel the U.S. drugmaker closer to the front of the veterinary products line.

The combined company, which includes Lilly's Elanco division, will create the second-biggest animal health company in the world behind Zoetis ($ZTS), which was spun off from Pfizer ($PFE) last year. The transaction bumps Merck Animal Health to third.

In its decision, which was issued without conditions, the European Commission said it was satisfied the sale would not thwart competition in the animal health industry. The regulators added that the takeover would create some overlaps between the two drug companies in parasiticides and antimicrobials, but more competitors were likely to enter the market and keep prices in check.

"In some markets, Eli Lilly and NAH [Novartis Animal Health] would have no incentive to increase prices in relation to the treatment of particular species, as the products are used for several species," the commission said in a press release.

The animal health industry, which runs to $22 billion a year for animal drugs and vaccines and is expected to grow at a 5.7% compound annual rate, is pacing faster than the market for human medicines. That growth has fueled a number of huge deals in the past couple of years, and given the current M&A atmosphere, there is a good chance that another player could be spun off, or sold, changing the landscape yet again.

Recently, there's been speculation that Bayer, which lost the bidding war for Novartis, may make a run at Zoetis with proceeds from the sale of its plastics unit.

- see the EU release
- read Reuterstake

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