Lilly’s Elanco spinoff expected to raise up to $1.45 billion in IPO

Eli Lilly and Co.’s Elanco animal health business expects to raise up to $1.45 billion in its initial public offering, the company estimates, as executives gear up for a roadshow to pitch the spinoff to prospective investors.

The IPO details, announced September 7, mark the latest steps toward independence for Elanco as it prepares to split off from Lilly after 65 years. Lilly has said it expects to complete the IPO process by the end of 2018.

But Elanco has been struggling, ringing up losses of more than a half-billion dollars in the past three years, much of it connected to restructuring and other special charges. The new management's first challenge will be to stabilize the company, launch new products and win back market share it has been losing to competitors.

Lilly announced the spinoff in July, saying it would allow Elanco to “efficiently deploy its resources to the growth opportunities that best serve its customers.” Lilly added that by setting Elanco on its own, the Indianapolis-based drugmaker would be able to focus solely on human pharmaceuticals, which make up the bulk of its revenues.

For years, Lilly could count on Elanco as a steady growth engine that could help it cope with declining sales following human-drug patent expirations.

But recently, the unit has struggled, as competitors including Zoetis and Bayer have taken market share. The downturn came just as Lilly was expecting a big boost in sales and profit, helped by Elanco's $5.4 billion purchase of Novartis’ animal health division in 2015.

Elanco is offering 62.9 million shares of its common stock in the IPO, and said it expects to price shares in the range of $20 to $23. Elanco also expects to list its common stock on the New York Stork Exchange under the ticker symbol “ELAN.”

Lilly launched the unit in 1953 to produce antibiotics for livestock, and over the years expanded it to a wide variety of health products for companion animals and food animals.

Lilly has said Elanco's headquarters will remain in Greenfield following the spinoff and that no job reductions are planned.

The animal health unit employs about 6,500 people, including about 775 at its headquarters in Progress Park, a business and life sciences park about three miles north of downtown Greenfield. Elanco has been based there since 2010, spread out in five buildings over 20 acres in a location highly visible from Interstate 70. Before that, it was about five miles away, near U.S. 40 and Meridian Road.

Following the IPO, Lilly is expected to hold about 80 percent of Elanco stock, and has said it expects to divest the remainder as early as 2019.

The net proceeds of the IPO, minus an unspecified amount to be retained by Elanco, are expected to be paid to Lilly.

Goldman Sachs & Co. LLC, J.P. Morgan and Morgan Stanley are joint lead book-running managers for the offering.

In 2017, Elanco generated revenue of $3.09 billion, 13 percent of Lilly's total. That was a 2 percent decline from the prior year. Through the first half of 2018, Elanco's revenue was $1.55 billion, flat from the same period a year earlier.

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