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Blockbuster deal: Eli Lilly paying $5.4B for Novartis Animal Health

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Eli Lilly and Co. has agreed to pay $5.4 billion in cash for Novartis Animal Health in the second-largest deal in the company's history. The acquisition from Switzerland-based Novartis is part of a blockbuster three-way drug deal that also includes United Kingdom-based GlaxoSmithKline.

Indianapolis-based Lilly plans to fold the $1.1-billion-in-revenue Novartis Animal Health into its Greenfield-based Elanco division, making it the world's second-largest animal health company by revenue. Novartis Animal Health has more than 3,000 employees, nine manufacturing sites and 600 products, with another 40 in development, Lilly said in an early morning statement announcing the deal.

The deal is the second largest for Lilly, behind the company's $6.5 billion purchase of ImClone Systems in 2008.

The sale is part of a series of transactions announced early Tuesday by Novartis, which agreed to acquire GlaxoSmithKline's oncology products for $14.5 billion while selling GSK its vaccines business for $7.1 billion plus royalties.

Lilly plans to finance its purchase with $3.4 billion in cash on hand and borrowings of $2 billion. The company anticipates $200 million in annual savings and said the acquisition should add to earnings by 2016. Novartis Animal Health is focused on prevention and treatment of disease in pets, farm animals and farmed fish.

"Animal health continues to represent an attractive growth opportunity for Lilly. We intend to keep Elanco and to take advantage of the substantial synergies between our animal health and human health businesses," Eli Lilly CEO John Lechleiter said in a prepared statement.

The deal is scheduled to close by the end of the first quarter of 2015.

Elanco is nearly twice as large as the Novartis animal health unit, with 2013 sales of nearly $2.2 billion. Revenue at Elanco has doubled since 2008.

The company has achieved much of that growth through smaller acquisitions, most notably the 2008 purchase of the controversial bovine growth hormone rbST from St. Louis-based Monsanto Co.

Earlier this year, Elanco agreed to buy Germany-based Lohmann Animal Health for an undisclosed price, which gave it poultry vaccines and manufacturing facilities.

Elanco also has built up a business for pets, including a version of its iconic antidepressant Prozac for dogs. Pets, or companion animal health, is Novartis’ strength, with those products accounting for 49 percent of its revenue.

Lechleiter frequently has cited Elanco as a growth engine that can help offset the loss of revenue stemming from 2011 patent expirations on its $5-billion-a-year antipsychotic Zyprexa and the 2013 and 2014 patent expirations on its $5-billion-a-year antidepressant Cymbalta.

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