Lilly's split of animal and human drug production does not bode a spinoff, execs insist

Eli Lilly ($LLY) has made some changes in its organization, separating out the manufacturing in its animal health unit Elanco from its human pharma biz. But Lilly management doesn't want any misunderstandings about what this bodes. It likes the animal health business and is not prepping it for a spinoff like some other companies have.

Elanco's Steve Jenison

That question came up during an investor conference Tuesday when Steve Jenison, Elanco's head of manufacturing, explained that he now reports to the president of Elanco and not the top manufacturing exec at Lilly, Bloomberg reports.

It made sense to separate the manufacturing divisions, Jenison said, because animal health makes more products than the human drug division. The move to separate the two manufacturing units began in January when Lilly completed its $5.4 billion acquisition of Novartis' ($NVS) animal health business and found itself with 17 more facilities.

In a follow-up interview Tuesday, Elanco spokesperson Colleen Parr Dekker emphasized that the move is not a prelude to a spinoff. "We couldn't have been more clear today on the value and the synergy we see as being part of Lilly," Parr Dekker told Bloomberg. She said the changes in manufacturing made sense because there are different requirements for manufacturing meds for animals and for humans.

Elanco raked in $2.35 billion last year, or 12% of Lilly's total, and Lilly execs expect by 2017 that it will grow faster than the industry average of 4% to 5%. They have also emphasized they like the fact that human drugs can sometimes be repurposed for use in animals, boosting their sales.

But given the recent history of drug companies selling off units, including animal health operations, analysts are ever alert to indications that a business is being prepared for sale. Pfizer ($PFE) started the trend several years back when it packaged its animal health unit into a separate entity, Zoetis ($ZTS), then spun it off in a public offering. Novartis decided to sell its animal health unit as part of several strategic moves to slim down the company. Just last month, Sanofi ($SNY) CEO Olivier Brandicourt said the French drugmaker's Merial animal health unit is one he is looking at selling, also as part of broader effort to trim and focus the company.

Bayer CEO Marijn Dekkers has indicated his company might be in the market to buy some animal health assets, using some money from the sale of its plastics business. Some analysts are saying Zoetis is the place it should look first.

- read the Bloomberg story

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