Elanco (ELAN) is being spun off from Eli Lilly (LLY 106.66, -0.22, -0.21%) in an IPO this week, so we wanted to provide a little color on it. Elanco is an animal health company that makes health products for companion and food animals. Elanco is the fourth largest animal health company in the world, with revenue of $2.9 bln last year.
Globally, Elanco is #1 in medicinal feed additives, #2 in poultry, and #3 in cattle. It also has one of the broadest portfolios of pet parasiticides in the companion animal sector. Elanco offers a diverse portfolio of more than 125 brands. Its vision is to enrich the lives of people through food (making protein more accessible and affordable) and through pet companionship (helping pets live longer, healthier lives).
The food animal sector focuses on species raised to provide animal protein, such as cattle, other ruminants (sheep and goats), swine, poultry and aqua. The companion animal (pet) sector focuses primarily on dogs and cats. Elance offers products in four primary categories:
- Companion Animal Disease Prevention (CA Disease Prevention): Elanco has one of the broadest parasiticide portfolios in the companion animal sector, with products that protect pets from worms, fleas and ticks. Combining its parasiticide portfolio with its vaccines presence, Elanco is a leader in the US in the disease prevention category.
- Companion Animal Therapeutics (CA Therapeutics): Elanco has a broad pain and osteoarthritis portfolio across species, modes of action, indications and disease stages. Pet owners are increasingly treating osteoarthritis in their pets, and Elanco's Galliprant product is one of the fastest growing osteoarthritis treatments in the US. Elanco also has treatments for otitis (ear infections), as well as cardiovascular and dermatology indications.
- Food Animal Future Protein & Health (FA Future Protein & Health): This includes vaccines, nutritional enzymes and animal-only antibiotics. It serves the growing demand for protein and includes innovative products in poultry and aquaculture production, where demand for animal health products is outpacing overall industry growth. Elanco develops nutritional health products that promote food animal health, including enzymes, probiotics and prebiotics.
- Food Animal Ruminants & Swine (FA Ruminants & Swine): Elanco has developed a range of food animal products used extensively in ruminant (e.g., cattle, sheep and goats) and swine production. The company also provides technical expertise and support. Elanco has well-established brands in this category such as Rumensin, a cattle feed additive that's been around for 40+ years to improve feed efficiency and control coccidiosis.
Over the past 10 years, Elanco has transformed itself from a food animal focused company into a diversified global company. In addition to its FA Ruminants & Swine category, Elanco now has established positions in three targeted growth categories: CA Disease Prevention, CA Therapeutics and FA Future Protein & Health. Recent acquisitions include the animal health business of Janssen Pharmaceutica (a subsidiary of J&J), ChemGen, Lohmann, the animal health business of Novartis AG and the US feline and canine vaccines portfolio of BI Vetmedica. As a result of these acquisitions as well as organic growth, Elanco has grown its companion animal categories, from a minimal presence in 2007 to more than $900 mln in revenue in 2017.
Turning to the financials, the company is profitable on a non-GAAP basis. However, revenue growth is pretty modest. In 2017, pro forma revenue declined 1% to $2.89 bln. In 1H18, revenue grew 4.8% year/year to $1.51 bln. Adjusted EBITDA on a pro forma basis was $498.9 mln in 2017. In 1H18, adjusted EBITDA rose 10% year/year to $306.2 mln. Elanco plans to pay a small quarterly dividend of $0.06/sh.
In sum, this IPO is set to start trading later this week. It's a fairly large size deal as Elanco is offering 62.9 mln shares at an expected price of $20-23 per share. It's the largest offering this week. It has quality underwriters, led by Goldman, JP Morgan and Morgan Stanley. It will be interesting to see where it prices and where it opens. Since it's a large deal, it probably will not be as volatile as some others.