By Elizabeth Lopatto

Aug. 20 (Bloomberg) -- Eli Lilly & Co. agreed to pay at least $300 million for Monsanto Co.'s Posilac, a synthetic hormone used to boost milk production in cows.

The agreement, announced today by both companies, will expand Lilly's veterinary operations and enable Monsanto, a maker of pesticides and seeds, to focus on genetically modified crops.

Posilac has been on the market since 1994. Lilly, the maker of the antipsychotic drug Zyprexa, gains the U.S. sales force for Posilac and the manufacturing plant in Augusta, Georgia. It also inherits opposition to the hormone from consumer advocates who question its safety and from dairy processors, such as Dean Foods Co., which has labeled its milk as hormone-free.

``You'd assume the controversy is part of the price, so there must be some other reason Lilly wants this asset,'' said Charles Anthony Butler, an analyst for Lehman Brothers in New York, in a telephone interview today. ``Maybe it'll help them sell other products to those farmers. Animal health as a component for all pharma companies is a business they want to grow.''

Monsanto, of St. Louis, the world's biggest seed producer, said earlier this month it planned to sell the dairy hormone business. It doesn't disclose sales or profits from Posilac. Lilly, based in Indianapolis, said Monsanto will receive ``contingent consideration'' in addition to the $300 million. The purchase is expected to be completed this year and won't change the forecast for 2008 earnings, Lilly said.

Monsanto rose $5.22, or 4.6 percent, to $118.08 at 4:05 p.m. in New York Stock Exchange composite trading. Lilly fell 39 cents to $47.41.

10 Pounds a Day

Posilac, known chemically as recombinant bovine somatotropin or rBST, is used on about one-third of U.S. dairy herds, according to Monsanto. It boosts the average cow's milk production by about 10 pounds a day, or about 15 percent.

Though Posilac is not sold in Canada or parts of the European Union, the Food and Agriculture Organization of the United Nations said in 1998 that the hormone is safe.

The Center for Food Safety, an advocacy group, says the drug causes increases in the risks of lameness, udder infections, and infertility in cows and may pose health risks to humans. The group has said it wants the Food and Drug Administration to remove the drug from the market ``through all available legal means.''

Monsanto Chief Executive Officer Hugh Grant is selling smaller, animal-agriculture units amid surging sales of crop products such as Roundup herbicide and engineered corn and soybean seeds. Monsanto in September sold its Choice Genetics unit, which mapped swine genes.

To contact the reporter on this story: Elizabeth Lopatto in New York at elopatto@bloomberg.netLast Updated: August 20, 2008 16:11 EDT

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