Elanco Animal Health (ELAN) inked a deal to acquire Kindred Biosciences (KIN), a biopharmaceutical company that develops novel pet therapeutics based on validated human targets, at $9.25 per share for a total consideration of $440 million.
Shares of both companies soared following the announcement of the acquisition. Shares of ELAN gained 3.4% to close at $35.98, while shares of KIN leaped 45.6% to close around the offer price at $9.23 on June 16.
Elanco Animal Health is a global leader in animal health that produces medicines and vaccinations for pets and livestock. (See ELAN stock chart on TipRanks)
The deal price represents a 52% premium to KIN’s 30-day average share price.
With the addition of KindredBio, Elanco will speed up its expansion plans in the lucrative pet health space, especially in the burgeoning billion-dollar dermatology category.
Notably, KindredBio has an innovative pipeline, with three potential blockbuster dermatology products expected to launch by 2025. Combined with Elanco’s existing pipeline and strategic initiatives, Elanco will gain superior expertise in product launches and gain additional market share in the dermatology market.
Elanco expects the deal to add an incremental $100 million to the previous innovation revenue guidance range of $500 million to $600 million by 2025, while also offering attractive opportunities thereafter.
Furthermore, the deal will unlock upside to its long-term growth with margin expansion, as the company expects to add full a percentage point of consistent annual revenue growth, beginning in 2024. However, related costs are expected to be slightly dilutive to Elanco’s EPS in 2021 and 2022.
Elanco reiterated its second-quarter 2021 revenue guidance range of $1,225 million to $1,255 million, and full-year 2021 revenue guidance of $4,670 – $4,710 million.
Elanco CEO Jeff Simmons commented, “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.”
Simmons added, “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 is expected to close during the third quarter of 2021, subject to certain regulatory approvals.
Kindred will fund the deal with pre-payable debt. This will increase its leverage objective of below 3x net leverage to Adjusted EBITDA by three months, from the end of 2023 to the end of the first quarter of 2024.
Following the acquisition announcement, J.P. Morgan analyst Chris Schott increased the target price on ELAN from $40 to $42 (16.7% upside potential) and maintained a Buy rating.
Overall, the stock has a Moderate Buy consensus rating based on 4 Buys and 3 Holds. The ELAN average analyst price target of $37.50 implies 4.2% upside potential from current levels.
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