Elanco reins in revenue outlook on African swine fever
The CEO of the animal health company says he hasn’t seen anything like the outbreak in 30 years, which is expected to cut sales by up to $50m
New York — Elanco Animal Health narrowed its sales forecast for the year on Tuesday as a worsening outbreak of a deadly swine flu ravages the pork industry in Asia.
“I haven’t seen something like this in my 30 years working in animal health,” said Elanco CEO Jeff Simmons in a phone interview. He said that swine fever is the most significant headwind the company faces. The disease is expected to cut into Elanco’s sales by $40m to $50m this year, the company said.
The company, which was spun off in 2018 from drug maker Eli Lilly, reined in the higher end of its revenue outlook, saying it now sees 2019 sales of $3.08bn to $3.12bn, compared with the $3.08bn to $3.14bn it had forecast in May.
African swine fever has led to the slaughter of millions of animals in China as officials seek to contain the outbreak and limit the damage to the country’s pork producers. The virulent flu jumped from Africa to Europe and spread quickly in Asia. For companies such as Elanco, the culling of livestock has led to lower demand for medicines and other products.
Elanco is, meanwhile, weighing steps to get bigger. Last week, Bloomberg reported that Elanco is attempting to reach a deal to combine with Bayer’s animal-health unit. CFO Todd Young said on a conference call that Elanco is postponing the initiation of a dividend so the company can use its cash “in the most productive way possible”.
Shares of Elanco gained as much as 2.9% to $30.40 in New York on Tuesday.
Wall Street has been sceptical about Elanco’s bid for the Bayer division. Since July 8, the day before Reuters reported that the companies were in talks, Elanco’s shares are down about 9%.
While Bayer prefers a deal with Elanco, no final agreements have been reached and the talks could drag on or fall apart, people familiar with the matter told Bloomberg. Bayer may proceed with its previous plans for a broader auction process if it can’t agree on terms with Elanco by early September, one of the people said at the time.
Asked repeatedly about the possible combination with Bayer on the call with investors, Simmons said Elanco is always “evaluating vectors of risk and opportunity”. He declined to comment further on the potential deal.
“We believe we have the scale and the global reach we need,” Simmons said. “We’ll continue to expand and accelerate this strategy; we’ll continue to bolt on.”
Elanco’s pet businesses helped offset the sales declines in the farm unit in the most recent quarter, with disease prevention sales increasing 4% from a year earlier to $223.4m and therapeutics sales rising 22% to $83.4m.
Second-quarter adjusted earnings were 28c a share, the company said in a statement, topping an average of analysts’ estimates.