Likely helping its cause is the very impressive performance from larger peer Zoetis (ZTS), which was spun-off in an IPO from Pfizer (PFE) in February 2013. Since the launch of its IPO, ZTS has sky-rocketed by nearly 200% from its opening price. With those astronomical gains in mind, investors might be looking and hoping for a similar performance out of ELAN.
From a growth perspective, though, ELAN's performance has not been overly impressive of late, which we discuss in the financial section below. Also, with a market cap of about $8.5 billion now, the stock isn't necessarily cheap either at about 14x annualized Adjusted EBITDA.
But, the business is relatively stable, it generates plenty of cash flow ($184 million over first six months of 2018), and it does plan to pay a quarterly dividend -- albeit, a modest one at $0.06/share.
As for the deal itself, the underwriters include tier one firms Goldman Sachs, Morgan Stanley, and JP Morgan, which didn't hurt its cause either. The stock is set to open for trading later this morning on the NYSE.
ELAN, which is being spun off from Eli Lilly (LLY), 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.
Over the past 10 years, ELAN has transformed itself from a food animal focused company into a diversified global company. In addition to its FA Ruminants & Swine category, ELAN 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, ELAN has grown its companion animal categories, from a minimal presence in 2007 to more than $900 million 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 billion. In 1H18, revenue grew 4.8% YoY to $1.51 billion. Adjusted EBITDA on a pro forma basis was $498.9 million in 2017. In 1H18, adjusted EBITDA rose 10% YoY to $306.2 million. Elanco also plans to pay a small quarterly dividend of $0.06/share.