April 22, 2014 / 3:08 PM / 4 years ago

Lilly eyes emerging markets in Novartis animal-health deal

PARIS (Reuters) - The purchase of Novartis’ NOVN.VX animal-health business will strengthen Eli Lilly’s (LLY.N) hand in emerging markets, tapping into growing demand there for protein-rich diets and household treatments for pets, a senior executive at the U.S. group said.

A Novartis logo is pictured on its headquarters building in Mumbai February 6, 2014. REUTERS/Danish Siddiqui

As part of a multi-billion dollar revamp announced earlier on Tuesday, Swiss drugmaker Novartis said it would sell its animal-health arm to Lilly for about $5.4 billion, while also swapping assets with GlaxoSmithKline (GSK.L).

Lilly said the deal would turn its Elanco unit from the world’s No. 4 animal-health group by revenue to the global No. 2 in a sector that supplies medicines, vaccines and feed additives for farm and domestic animals. The sector’s biggest firm is Zoetis (ZTS.N), spun off by Pfizer (PFE.N) last year.

“This deal really allows us to get a significant increase in our footprint in emerging markets and in our protein business on the food animal side this will be very important for us,” Jeff Simmons, Eli Lilly’s senior vice president and president of Elanco, told Reuters.

Elanco’s products include treatments such as its Elector PSP to kill flies and beetles in cattle sheds, and the Rumensin feed supplement to boost productivity of dairy and beef cows.

It is now targeting the dairy, fish and egg sectors, seeing them as products emerging market consumers turn to for protein before shifting towards meat, Simmons said.

“I believe these emerging markets and these emerging diets - eggs, fish, dairy - are key.”

Novartis’ assets would bring Elanco into the fish farm sector for the first time, after it expanded its presence in eggs earlier this year through the acquisition of Germany’s Lohmann Animal Health, Simmons said.

Elanco has been seeing “high single-digit” growth rates in emerging markets and the Novartis deal would make it the No. 3 player in these countries versus No. 5 currently, he added.

The Novartis deal crowns a period of fast expansion for Elanco since 2007, which has seen it double sales and raise its EBIT (earnings before interest and tax) operating margin from 17 percent to 26 percent last year.

Emerging market demand in animal health also reflected a growing trend for keeping pets, Simmons said, noting this had helped make its flea and heartworm range one of the biggest growth drivers at Elanco.

“What we’re seeing is cities like Sao Paulo and Hong Kong are becoming more of a pet opportunity and that will continue to grow and expand,” he said.

Pets represent about 40 percent of the global animal-health market, versus around 60 percent for farm animals, and Elanco would become the No. 3 player in the pet health segment following the Novartis acquisition, he said.

Elanco posted sales of $2.15 billion in 2013, up 6 percent on the year, compared with about $1.1 billion for Novartis’ animal-health activities. Eli Lilly’s total sales were $23.1 billion.

Additional reporting by Natalie Huet; Editing by Andrew Callus and Mark Potter

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