Elanco/Bayer animal health
Deal value: $7.6 billion
Date announced: Aug. 20, 2019
Exiting animal health is the last and largest piece of adjustment in Bayer’s organizational shake-up launched in November 2018. After weeks of rumor, Bayer finally confirmed on Aug. 20 that it’s selling the franchise to Eli Lilly spinoff Elanco for $7.6 billion.
But Bayer won’t be able to completely cut ties with the business once and for all, as 30% of the amount, or $2.3 billion, will be paid in Elanco stock. Still, the German company said it “intends to exit its stake in Elanco over time.”
The whole overhaul started after Bayer’s $63 billion Monsanto purchase weighed on its market value, triggering concerns that the company won’t have enough power to replenish the pharmaceutical business. For now, Bayer’s top pharma earners—Johnson & Johnson-partnered anticoagulant Xarelto and Regeneron-partnered eye drug Eylea—are doing fine, but both face patent cliffs around 2024. And the pipeline makes it “hard to get excited,” Bernstein analysts previously said.
Growing lawsuits that claim Monsanto’s Roundup weedkiller caused cancer only make the problem look more serious. The number of plaintiffs against the agrichemical giant reached 42,700 as of Oct. 11. To alleviate investor concerns, Bayer CEO Werner Baumann initiated the restructuring, which is aimed at allocating investment resources to its “core life science businesses.”
“These adjustments will lead to considerable improvement of our cost structure and enhance the competitiveness of Bayer as a whole,” Baumann said back then. “We’re convinced that a leaner organization will help us become more responsive to changing markets and increase our agility.”
As part of the cost-cutting plan, Bayer is slashing 12,000 jobs, or about 10% of its total workforce, as of November 2018. It has sold the Coppertone sunscreen brand to Beiersdorf for about $550 million and divested its Dr. Scholl’s foot care products for $585 million. It just transferred its 60% stake in Germany-based site services provider Currenta to an Australian firm at the base purchase price of about €1.2 billion ($1.3 billion).
With the Elanco deal, Bayer could complete the series of portfolio changes ahead of schedule. The merger will create the world’s second-largest animal health player, which is expected to deliver mid-single-digit revenue growth, Elanco has said.
However, that kind of scale raised antitrust red flags. The U.S. Federal Trade Commission hit pause on the deal with a second request for more information, Elanco unveiled in December. Elanco insisted the extra scrutiny “was anticipated as part of the regulatory process” and that it still expects to wrap the deal in mid-2020 as originally announced.
Many Big Pharma companies have distanced themselves from animal health. Besides Elanco, Pfizer split off Zoetis into an independent company in 2013. In an asset swap, Sanofi traded its animal health business, Merial, for Boehringer Ingelheim’s consumer health business. But Merck & Co. is still holding on to its own veterinary franchise, despite repeated investor pressure for the opposite.