Animal health firm Elanco surges on trading debut

Reuters — Eli Lilly unit Elanco Animal Health’s shares jumped as much as 41 per cent on their stock market debut on Thursday, adding to investor enthusiasm for the fast-growing animal healthcare market.

Elanco’s shares opened at $32.25 on the New York Stock Exchange, higher than their IPO price of $24 per share, giving the company a market value of $11.49 billion (all figures US$). As of 11:41 a.m. CT, the shares hit a high of $33.85.

The company raised $1.51 billion from the offering, which it expects to largely pass on to Eli Lilly and Co.

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The U.S. drugmaker is expected to own about 82.3 per cent of Elanco after the IPO, which was announced in July following a nine-month review of Lilly’s businesses which include diabetes and lung cancer drugs.

“We looked at the after-tax value to Lilly’s shareholders during the separation, and that was an important metric during the discussions,” Elanco CEO Jeff Simmons told Reuters.

Simmons emphasized Elanco’s focus would be its core animal health business. “We do not see the need for (mergers and acquisitions) to execute growth plans.”

Elanco has been spending eight per cent of sales on research and development, Simmons told CNBC earlier in the day.

The company sells medicines for both pets and livestock, and its Rumensin cattle feed additive accounts for 10 per cent of its annual sales of about $3 billion.

Elanco sold 62.9 million shares as part of its IPO, and had targeted an offering price between $20 and $23 per share.

Rising demand for its pet healthcare products has driven much of the company’s business in recent years, propelling Elanco to No. 4 globally in the list of animal healthcare groups by revenue.

The pet medicine and vaccine market is largely dominated by Pfizer’s animal health unit Zoetis, which raised $2.2 billion in a 2013 IPO.

Zoetis’ shares have nearly tripled since then and many analysts expect Elanco will replicate that success in an industry projected to grow at five per cent from 2017 to 2023, according to data firm Vetnosis.

Elanco’s listing should deliver more value to Lilly shareholders and help the company as it sharpens focus on cancer treatments and looks beyond the recent failure in trials of its experimental Alzheimer’s drug.

Reporting for Reuters by Aparajita Saxena in Bangalore.

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