Since taking over as CEO of Eli Lilly in January 2017, Dave Ricks has undertaken quite a few changes, the latest being the announcement that Lilly will spin-off it’s Elanco division as a separate company through an IPO (initial public offering). Lilly considered three options for Elanco: holding it, selling it or the IPO.
Good for families, good for the community
The IPO is good news for Elanco employees and their families. It’s good news for Greenfield, Indianapolis, Elanco and Eli Lilly. Companies answer to their shareholders, but Lilly has always been and continues to be, a great partner of the community. Lilly chose the IPO because it maximizes value for shareholders. But it’s also great for the local community and Elanco employees and their families. A sale would have left employees worrying about keeping their jobs. It also could have meant a buyer may have moved the company from Greenfield. With the IPO, I would think, for the most part, those concerns are off the table.
Good for Lilly and Lilly shareholders
The pharmaceutical industry faces many challenges but also has many opportunities. The global population is increasing and aging at the same time, which will lead to more demand for medicines. Lilly expects to launch 11 new drugs by 2023*. They’ve said they intend to grow revenue through new products and volume and they are showing that they can do it. The spin-off of Elanco will allow Lilly to focus on the human pharmaceutical business and will provide cash that can be used for, among other things, potential acquisitions, as Lilly has said they plan to source one-third of their pipeline through collaboration or acquisition*.
So far, just the announcement of the IPO has benefited owners of Lilly stock. July 23rd, the day before the IPO announcement, the stock closed at $88.88. The IPO was announced July 24th and the stock closed at $93.34 a share. As I write this on August 9, the stock is at $102.19. It hasn’t been in this territory since 2000.
Good for Elanco
Elanco will go from being a small part of a large pharmaceutical company to becoming a separate and distinct company that will be able to establish its own priorities. The animal-health market overall is growing, as pet ownership is rising, pets are living longer and there is growing demand for meat and dairy products as the world’s population grows. And Elanco is a global leader in this growing industry, ranking 4th by revenue among animal health companies in 2017. Their sale by Eli Lilly will give them independence to focus more clearly on their business and facilitate their future growth.
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*https://www.lilly.com/jpm-2018-partnerships-pipeline
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***Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met.
****Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results.