Elanco Sells Royalty and Milestone Rights for Lotilaner in Human Health to Blackstone; Accelerates Debt Paydown

Rhea-AI Summary

Elanco Animal Health (NYSE: ELAN) has announced the sale of royalty and milestone rights for XDEMVY® (lotilaner ophthalmic solution) to Blackstone for $295 million in cash. The deal covers U.S. sales royalties from April 2025 through August 2033. The proceeds will be used to accelerate debt reduction, with Elanco expecting to achieve a net leverage ratio of 3.9x to 4.3x adjusted EBITDA by end-2025. The company will repay portions of outstanding term loans, reducing interest expense by approximately $10 million, offset by the sale of $10 million in royalties. XDEMVY, developed through Elanco's 2019 licensing agreement with Tarsus Pharmaceuticals, is the first FDA-approved medicine for Demodex blepharitis treatment. Elanco retains rights to non-U.S. royalties and future human applications of lotilaner beyond ophthalmic solutions.

Positive

• Cash infusion of $295 million to reduce debt and improve leverage ratio
• Expected reduction in net leverage ratio to 3.9x-4.3x by end of 2025
• Interest expense reduction of approximately $10 million
• Retention of rights to non-U.S. royalties and future lotilaner applications

Negative

• Loss of U.S. royalty stream from XDEMVY through 2033
• Sale of approximately $10 million in royalties based on 2025 guidance

Insights

Financial Restructuring Specialist

Elanco's $295M royalty sale to Blackstone accelerates deleveraging with minimal impact on earnings, strategically improving balance sheet flexibility.

Elanco's $295 million royalty monetization transaction represents a strategic financial restructuring focused on accelerating debt reduction without sacrificing near-term operational performance. By selling the future U.S. rights to XDEMVY royalties, Elanco executes a zero-sum financial maneuver in the immediate term – the transaction creates roughly $10 million in interest expense savings while surrendering approximately $10 million in 2025 royalty revenue.

What makes this transaction particularly advantageous is the acceleration of Elanco's deleveraging timeline. The company now projects reaching a net leverage ratio of 3.9x to 4.3x adjusted EBITDA by year-end 2025, positioning them in the high 3x range sooner than previously anticipated. For a company that has historically carried significant debt, this improvement in financial flexibility creates substantial value.

The selective nature of this deal reveals sophisticated financial engineering – Elanco maintains optionality by retaining international royalty rights and future applications beyond ophthalmic solutions. This transaction transforms an uncertain, time-distributed revenue stream into immediate liquidity that strengthens the balance sheet. With rising interest rates increasing debt servicing costs across all sectors, companies with cleaner balance sheets typically command higher valuation multiples, suggesting this move could enhance Elanco's equity value beyond the pure mathematics of the transaction.

Pharmaceutical Business Development Expert

The Elanco-Blackstone deal showcases a textbook case of value extraction from non-core assets in the pharmaceutical sector. Elanco's original development of lotilaner for animal health applications, followed by licensing to Tarsus for human applications, demonstrates the underappreciated synergies between animal and human health research platforms.

The structure of this transaction is particularly noteworthy for what Elanco chose to retain versus monetize. By selling only the U.S. rights through August 2033, Elanco maintains significant optionality through: 1) all international market royalties, which typically represent 40-60% of global pharmaceutical revenues; and 2) any future human applications of lotilaner beyond ophthalmic solutions, preserving substantial upside potential.

XDEMVY's market performance likely strengthened Elanco's negotiating position. As the first FDA-approved medicine for Demodex blepharitis, affecting millions of Americans, the product enjoys first-mover advantage in an underserved market. Blackstone's willingness to pay $295 million upfront signals strong confidence in the commercial trajectory of XDEMVY, especially given their deep expertise in healthcare investments.

This transaction highlights how companies can strategically partition intellectual property rights across geographic regions and applications to optimize financial outcomes while maintaining valuable long-term optionality. For Elanco, this deal allows management to refocus on their core animal health portfolio while still benefiting from their scientific innovation in adjacent markets.

GREENFIELD, Ind., May 5, 2025 /PRNewswire/ -- Elanco Animal Health Incorporated (NYSE: ELAN) today announced the sale of certain future tiered royalties and commercial milestones associated with XDEMVY® (lotilaner ophthalmic solution) 0.25%, for the human health application of lotilaner, to funds affiliated with Blackstone Life Sciences and Blackstone Credit & Insurance for $295 million in cash. Monetization of this non-core asset will be used to accelerate debt reduction, positioning Elanco to achieve an expected net leverage ratio of 3.9x to 4.3x adjusted EBITDA by the end of 2025. Elanco will repay portions of its outstanding term loans on a pro-rata basis, which is expected to reduce interest expense by approximately $10 million, offset by the sale of approximately $10 million of royalties based on Elanco's initial 2025 guidance.

In 2019, Elanco exclusively licensed lotilaner to Tarsus Pharmaceuticals, Inc. (NASDAQ: TARS) for exploration as a solution to several unmet human health needs. In 2023, XDEMVY became the first lotilaner-based product approved for human use and the only FDA-approved medicine for treatment of Demodex blepharitis (DB), a common eyelid disease in humans caused by Demodex mites.

"Elanco's team of scientific experts is focused on identifying and developing molecules to generate high-impact innovation, not just in our own portfolio, but in adjacent industries to create broader value," said Jeff Simmons, Elanco President and CEO. "As we continue to focus on launching our recent innovation and accelerating our core business sales growth in 2025, this transaction delivers incremental cash that advances our deleveraging goals making high 3x net leverage a real possibility by the end of 2025. We appreciate Blackstone's collaborative investment to further Elanco's goals and their recognition of the positive potential impact of XDEMVY on millions of DB patients in the U.S."

"Elanco's innovation served as the basis for XDEMVY's strong efficacy and safety profile, and Tarsus' executional strength has led to its rapid adoption and commercial success. We are pleased to partner with both leading pharmaceutical companies and back this first-in-class treatment that addresses a pervasive and damaging eyelid disease," said Craig Shepherd and Kiran Reddy, MD, Senior Managing Directors, Blackstone Life Sciences.

The agreement applies to certain tiered royalties associated with the U.S. net sales of XDEMVY from April 2025 through August 2033 and certain commercial milestones. Elanco retains the rights to all royalty payments on net sales outside the U.S. as well as any future human applications of lotilaner beyond ophthalmic solutions.   

Morgan Stanley & Co. LLC acted as the sole structuring agent.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements concerning the expected financial impacts of the royalty sale on our financial results, plans for using the cash we receive in the sale, and expected financial results for 2025.  Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important risk factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions, including our ability to recognize the expected financial and cash generation benefits of the transaction and additional factors that could cause actual results to differ materially from forward-looking statements described in the company's latest Form 10-K and Form 10-Qs filed with the Securities and Exchange Commission. We caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this press release. Any forward-looking statement made by us in this press release speaks only as of the date thereof. We undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

ABOUT ELANCO
Elanco Animal Health Incorporated (NYSE: ELAN) is a global leader in animal health dedicated to innovating and delivering products and services to prevent and treat disease in farm animals and pets, creating value for farmers, pet owners, veterinarians, stakeholders and society as a whole. With 70 years of animal health heritage, we are committed to breaking boundaries and going beyond to help our customers improve the health of animals in their care, while also making a meaningful impact on our local and global communities. At Elanco, we are driven by our vision of Food and Companionship Enriching Life and our Elanco Healthy Purpose™ sustainability pillars – all to advance the health of animals, people, the planet and our enterprise. Learn more at www.elanco.com.

About Blackstone Life Sciences
Blackstone Life Sciences (BXLS) is an industry-leading private investment platform with capabilities to invest across the life cycle of companies and products within the key life science sectors. By combining scale investments and hands-on operational leadership, BXLS helps bring to market promising new medicines and medical technologies that improve patients' lives and currently has $12 billion in assets under management.

About Blackstone Credit & Insurance
Blackstone Credit & Insurance ("BXCI") is one of the world's leading credit investors. Our investments span the credit markets, including private investment grade, asset-based lending, public investment grade and high yield, sustainable resources, infrastructure debt, collateralized loan obligations, direct lending and opportunistic credit. We seek to generate attractive risk-adjusted returns for institutional and individual investors by offering companies capital needed to strengthen and grow their businesses. BXCI is also a leading provider of investment management services for insurers, helping those companies better deliver for policyholders through our world-class capabilities in investment grade private credit.

Investor Contact: Tiffany Kanaga (765) 740-0314 tiffany.kanaga@elancoah.com
Media Contact: Colleen Dekker (317) 989-7011 colleen.dekker@elancoah.com    

View original content to download multimedia:https://www.prnewswire.com/news-releases/elanco-sells-royalty-and-milestone-rights-for-lotilaner-in-human-health-to-blackstone-accelerates-debt-paydown-302445704.html

SOURCE Elanco Animal Health

FAQ

What is the value of Elanco's (ELAN) royalty rights sale to Blackstone?

Elanco sold the royalty and milestone rights for XDEMVY to Blackstone for $295 million in cash.

How will the ELAN royalty sale impact the company's debt?

The sale will help reduce Elanco's debt, targeting a net leverage ratio of 3.9x to 4.3x adjusted EBITDA by end-2025, with approximately $10 million reduction in interest expense.

What rights did Elanco (ELAN) retain in the Blackstone deal?

Elanco retained rights to all royalty payments on net sales outside the U.S. and any future human applications of lotilaner beyond ophthalmic solutions.

What is the duration of the XDEMVY royalty rights sold by ELAN?

The agreement covers U.S. sales royalties from April 2025 through August 2033.

What is XDEMVY and what is it used for?

XDEMVY is the first FDA-approved medicine containing lotilaner for treating Demodex blepharitis, a common eyelid disease caused by Demodex mites.