Elanco's stock heads for 18-month high as company sells aqua business to Merck for $1.3 billion in cash

By Ciara Linnane

Elanco's aqua business makes products such as salmon vaccines

Elanco Animal Health Inc.'s stock was headed for an 18-month high on Monday after the company said it has agreed to sell its aqua business to Merck Animal Health for $1.3 billion in cash, in a move aimed at helping the company focus on promising pipeline products.

Greenfield, Ind.-based Elanco (ELAN), which makes products to protect the health of farm animals and pets, said the sum is equal to about 7.4 times the estimated 2023 revenue of the Elanco aqua business, which includes products, such as salmon vaccines, for both warm-water and cold-water species.

The deal "allows us to prioritize our investments in larger markets with greater earnings potential over the medium and long term, while creating balance sheet flexibility," Jeff Simmons, president and chief executive of Elanco Animal Health, said in a statement.

The aqua business had about $175 million in revenue in 2023. The divestiture includes currently marketed brands; aquatic research and development projects; manufacturing sites in Prince Edward Island, Canada, and Dong Nai, Vietnam; and about 280 commercial and manufacturing employees.

Elanco will use the proceeds of the deal to pay down debt and reduce its interest costs by about $65 million a year, or 11 cents of per-share earnings.

The deal is expected to close around midyear.

Elanco has six potential blockbuster products expected in the U.S. market by 2025. It expects approvals for Credelio Quattro, Zenrelia and Bovaer in the first half of 2024. Credelio Quattro is a parasiticide for dogs, Zenrelia is a skin treatment for dogs and Bovaer is a methane-reducing product for cattle.

"Additionally, the company is opportunistically pursuing platform-aligned targets, such as monoclonal antibodies, and other major emerging spaces of high unmet need," the statement said.

Elanco will provide further details of the deal when it releases fourth-quarter earnings on Feb. 26.

Analysts are mostly bullish on Elanco's stock, with six out of 10 analysts on FactSet rating the stock a buy or equivalent and four rating it a hold. The average stock-price target is $21.60, or 39% above its current price.

Elanco's stock has gained 12% in the last 12 months through Friday's close, while the S&P 500 has gained 19%.

-Ciara Linnane

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02-05-24 1108ET

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