Elanco to sell 2 manufacturing sites, close another

Elanco to sell 2 manufacturing sites, close another

Jonathan Weiss | Bigstock.com

TriRx Pharmaceuticals will purchase sites in Kansas, UK; Brazil site will be shuttered

Elanco Animal Health Inc. will sell two manufacturing sites and shutter a third as part of its efforts to improve efficiency and reliable, quality supply for customers.

Connecticut-based TriRx Pharmaceuticals will purchase the company’s sites in Shawnee, Kansas, and Speke, United Kingdom. Meanwhile, Elanco will cease operations at its manufacturing site in Belford Roxo, Brazil, and transfer its operations to its site in Santa Clara, Mexico, and a contract manufacturer in Brazil. The sale of the sites includes the physical assets at both locations along with the transfer of approximately 600 employees, subject to local regulations. The companies have also entered into a long-term supply agreement for the facilities to continue to manufacture existing Elanco products.

“We are excited for the opportunity to enter into a long-term partnership with Elanco and welcome the employees at both Speke and Shawnee into our organization,” said Tim Tyson, chairman and CEO at TriRx. “We have been impressed with the high-caliber people and capabilities at both sites and we look forward to partnering to drive increased utilization and long-term success.”

The sale of the Shawnee facility is expected to close in the second half of 2021, while Elanco expects closing on the sale of the Speke facility by early 2022. Financial terms were not disclosed; however, the company anticipates an impairment charge of US$245 million to US$305 million to be taken in the second quarter of 2021 related to these events, as the assets associated with these facilities will be classified as held for sale at quarter-end. The sale of the Shawnee facility is expected to reduce full year 2021 revenue by US$10 million to US$20 million as a result of exiting third-party contract manufacturing operations.

“Completing this evaluation and taking decisive action to streamline our footprint less than a year after closing our acquisition of Bayer Animal Health was critical to accelerate and strengthen our margin expansion efforts and increase our agility and optionality, while enhancing our value creation opportunity and long-term competitiveness,” said Jeff Simmons, president and CEO at Elanco Animal Health. “It is clear that pursuing avenues for full capacity is best for the future of the Shawnee and Speke plants and the teams based there. TriRx is well positioned to improve site utilization and create opportunity for the employees, while becoming an important long-term manufacturing partner for Elanco.”

The Belford Roxo site, which supplies six smaller, regional products, is expected to be decommissioned in early 2022. Elanco said it will work through this transition to support customers’ product supply needs.

“These are always difficult decisions we must make after an acquisition to continue our margin expansion journey, allowing us to streamline operations, reduce complexity, enhance efficiency, and better position us for long-term competitiveness. The moves are expected to improve our cash conversion by decreasing annual capital spend and increasing working capital,” said David Urbanek, executive vice president, manufacturing and quality at Elanco. “We are excited to transition these plants to a partner that has the capability to increase plant utilization, creating a stronger and more secure future for the team.”

In May, Elanco said stabilization in U.S. swine and cattle and a strong recovery in China’s swine herd from African swine fever (ASF) contributed to its strong financial results for the first quarter of 2021, with revenue of US$1.2 million.