Eli Lilly to manufacture human and animal drugs in separate facilities

Eli Lilly ($LLY) has initiated a program to begin manufacturing human and animal drugs in separate facilities in a move that has sparked talk that a spinoff of its Elanco animal health division would become much easier in the future.

Still, company officials said at an investor meeting earlier this week that Elanco should remain within the corporate fold, as there are a number of advantages that include access to experimental human drugs that could be developed for animals, Bloomberg reported.

"We couldn't have been more clear today on the value and the synergy we see as being part of Lilly," Elanco spokeswoman Colleen Parr Dekker told the news agency. The separation of manufacturing, she said, was driven by differing requirements for producing drugs for humans versus those for animals.

The process to split the manufacturing operations began in January, Steve Jenison, Elanco's head of manufacturing, told Bloomberg at the investor conference. He added that he now reports directly to Elanco's president instead of Lilly's general head of manufacturing.

The move for separate manufacturing followed on the heels of Lilly's $5.4 billion acquisition of Novartis' ($NVS) animal health division that had 17 manufacturing sites.

Talk of a spinoff began to circulate in late spring in the wake of an analyst question about such plans that caused Lilly shares to jump 5.4%. Lilly tried to put the talk to rest by saying in June it had no plans to divest Elanco. Such spinoffs have been in vogue following Pfizer's ($PFE) wildly successful spinoff of its animal health division, Zoetis ($ZTS), in 2013.

Animal health companies are seen as very attractive to investors because they are less reliant on pressure to develop new blockbuster drugs, tending to piggy-back off of drugs originally developed for human use without as much regulatory process.

- check out the Bloomberg story