Adapted from a press release:
Elanco Animal Health Incorporated executives agreed to acquire Kindred Biosciences, a biopharmaceutical company focused on developing novel pet therapeutics based on validated human targets. The acquisition further accelerates Elanco’s expansion in the pet health market, particularly advancing Elanco’s presence in the dermatology category.
- Elanco will acquire all outstanding stock of Kindred Biosciences at a price of US$9.25 per share, or approximately US$440 million, a premium of 52% based on the 30-day average.
- Transaction brings three potential blockbusters in the development phase, complements existing pipeline, and augments monoclonal antibody R&D capabilities.
- Increasing Investor Day revenue from innovation expectation by US$100 million, to US$600 million to US$700 million by 2025, with significant opportunity beyond the period.
- Differentiated, disruptive portfolio in atopic dermatitis and other chronic unmet needs expected to unlock upside to Elanco’s long-term growth algorithm, with the potential to add a full percentage point of consistent annual revenue growth, starting in 2024, and expand the company’s margin over time.
- Transaction and operating costs slightly dilutive to Elanco's reported and adjusted earnings per share in 2021 and 2022; net leverage goal below 3x extended three months to the end of the first quarter of 2024.
KindredBio brings three potential dermatology products expected to launch through 2025, as well as a number of additional R&D programs for other chronic disorders and unmet needs, including canine parvovirus. KindredBio’s pipeline, added to Elanco’s own organic efforts, augments Elanco’s ability to launch products, gain share, and grow in the dermatology market through fully accretive revenue dollars. Elanco anticipates the combination will add approximately US$100 million to its previously stated innovation revenue expectation of US$500 million to US$600 million by 2025, with significant opportunity beyond the period.
“This highly complementary combination is focused in one of the most exciting spaces in pet health, and one where we see a strategic imperative to build a differentiated competitive offering,” said Jeff Simmons, president and CEO of Elanco, in a press release. “It further accelerates our mix shift into pet health and advances our IPP strategy. Ultimately, we believe the combination positions Elanco to bring innovative solutions to veterinarians and pet owners in areas of unmet or under-served medical needs, fueling continued growth in the exciting pet therapeutic category and creating sustainable long-term value for shareholders.”
The acquisition agreement builds on Elanco’s existing relationship with KindredBio, which began with licensing the global commercial rights of KindredBio’s late-stage treatment for canine parvovirus, and continues Elanco’s approach.
“From the beginning, we have been focused at KindredBio on bringing the best medicines to our animal family members. With this transaction with Elanco, a widely respected leader in veterinary medicine with global reach, we will maximize the impact our innovative pipeline will have on improving the lives of pets,” said Richard Chin, CEO and co-founder of KindredBio, in a press release.
“This announcement is validation of KindredBio’s achievements as one of the world’s first veterinary biopharmaceutical companies, recognizing our track record in drug development and remarkably talented team,” added Denise Bevers, Board director and co-founder of KindredBio. “KindredBio looks forward to continuing our mission to transform veterinary medicine as part of the Elanco family.”
The deal will expand Elanco’s omnichannel presence, complementing the company’s e-commerce and retail position by increasing its veterinary clinic presence in a leading therapeutic category and keeping the veterinarian at the center.
Elanco expects to unlock upside to its long-term growth algorithm, with the potential to add a full percentage point of consistent annual revenue growth, starting in 2024, and further expand the company’s margin potential over time. Transaction and operating costs will be slightly dilutive to Elanco's reported and adjusted earnings per share in 2021, with the impact expected to be concentrated in the fourth quarter, and also slightly dilutive to the full year 2022.
“Kindred Biosciences’ monoclonal antibody pipeline and capabilities are additive and complementary to what we’ve built within Elanco,” said Aaron Schacht, executive vice president Innovation, Regulatory and Business Development at Elanco. “This combination will bolster our opportunity for leadership in atopic dermatitis and allow us to deliver innovation of novel biologic therapeutics to treat other unmet disease challenges in pets.”
Elanco expects the transaction to close in the third quarter of 2021, subject to customary closing conditions, including approval by KindredBio’s shareholders and clearance under the Hart-Scott-Rodino Antitrust Improvements Act. KindredBio’s Board has approved the proposed acquisition.
Elanco also reaffirmed second quarter 2021 revenue guidance of US$1,225 million to US$1,255 million, and full year 2021 revenue guidance of $4,670 million to $4,710 million.
Goldman Sachs is acting as financial advisors to Elanco and Covington & Burling LLP is acting as legal counsel. Barclays is acting as financial advisor to KindredBio and Morrison & Foerster LLP is acting as legal counsel.
