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What to Expect from Eli Lilly’s Elanco in 4Q16

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Animal health segment

Eli Lilly’s (LLY) animal health company, Elanco, offers products for companion animals, as well as food and other products. This segment acquired Novartis’s (NVS) animal health segment, and it now contributes ~15% of Lilly’s total revenues.

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Revenues for animal health segment

The company’s US animal health revenues are expected to remain nearly constant in 4Q16 due to market access pressures for food products and increased sales of new products in the companion animal product portfolio. For international markets, 4Q16 revenues are expected to grow operationally, but the foreign exchange will have a substantial negative impact on the segment’s international revenues.

Companion animal products

The companion animal products revenues for 4Q16 are expected to increase due to increased sales of new products including Interceptor Plus and Osurnia. However, international sales for companion animal products are expected to fall and substantially offset the growth in US revenues in 4Q16.

Food and other products

The revenues for food and other products are expected to rise in 4Q16 due to the growth in the sales of beef and poultry products in US markets. However, foreign exchange will have a negative impact on revenues from international markets.

Other companies like Zoetis (ZTS), the animal health arm of Pfizer (PFE), Merck and Company (MRK), and Merial, a Sanofi (SNY) company, compete with Lilly on certain product mixes. Investors can consider ETFs like the Healthcare Select Sector SPDR (XLV), which holds ~2.7% of its total assets in Lilly, in order to divest the risk.

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