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UPDATE 2-Lilly mulls sale, IPO of animal health business, hikes FY forecast

* Animal health business facing increased competition

* Mulls sale of Posilac supplement, takes charge on sales

* To resubmit baricitinib NDA by end of Jan. 2018

* Raises full year non-GAAP profit and revenue forecast

* Q3 revenue growth driven by higher volume, price hikes (Adds shares, context, FY forecast, baricitinib update, reason for revenue growth)

Oct 24 (Reuters) - Eli Lilly and Co, one of the world's top insulin-makers, said it was reviewing options including a sale or an initial public offering for its Elanco animal health business, which is facing increased competition.

Lilly also said it also exploring options, including a sale, of Posilac, a supplement to boost dairy cow productivity. The supplement is part of the animal health business, which accounted for 13 percent of total sales in the latest quarter.

The drugmaker, which has warned it expects competition to eat into sales at its animal health division through the end of 2017, said it took a $406.5 million charge in its latest quarter, partly due to an expected drop in sales of Posilac.

Still, Lilly's third-quarter adjusted profit and total sales beat analysts estimates and the company raised its full-year adjusted profit and revenue forecasts due to healthy demand for its new treatments.

Shares of the Indianapolis-based drugmaker were about 2 percent in premarket trading.

Lilly, which has faced serious setbacks to its drug development pipeline over the past year, has embarked on a cost-cutting drive, laid off thousands of employees and hired a new chief financial officer in recent months.

Lilly also said it would resubmit a marketing application with new safety and efficacy data for its rheumatoid arthritis drug, baricitinib, before the end of January.

In July, the drugmaker had warned of a multi-year delay for baricitinib after U.S. health regulators rejected the drug and asked for an additional clinical study.

Lilly raised its full-year adjusted profit forecast to $4.15-$4.25 per share from $4.10-$4.20, and its revenue forecast to $22.4 billion-$22.7 billion from $22.0 billion-$22.5 billion.

The company said it would provide an update on its plans for Elanco no later than the middle of 2018.

Net income fell 28.5 percent to $555.6 million, or 53 cents per share, in the quarter ended Sep. 30. That included the $406.5 million charge related to Posilac.

Excluding items, Lilly earned $1.05 per share.

Revenue rose nearly 9 percent to $5.66 billion, driven by a 7 percent jump due to volume and a 2 percent increase due to higher realized prices, Lilly said.

The animal health business brought in $740.6 million in sales.

Analysts on average were expecting a profit of $1.03 per share, on revenue of $5.52 billion, according to Thomson Reuters I/B/E/S. (Reporting by Tamara Mathias in Bengaluru; Editing by Savio D'Souza)