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UPDATE 3-Lilly mulls sale, other options for animal health business

(Adds company, analyst comment, updates shares)

Oct 24 (Reuters) - Eli Lilly and Co said on Tuesday it is considering the sale of its Elanco animal health business and expressed optimism that its rejected rheumatoid arthritis drug would pass muster with U.S. regulators when it resubmits its application.

Lilly, which reported third-quarter profit that exceeded analysts' expectations and raised its adjusted full-year earnings forecast by 5 cents per share, promised to provide an update on its plan for Elanco by the middle of 2018.

It said other options include a spinoff or keeping the business that generated global sales of $740.6 million in the quarter, but is facing increased competition.

The Elanco news is not surprising given a trend in the pharmaceutical industry to break off diversified businesses from the parent company, Credit Suisse analyst Vamil Divan said.

Lilly shares, which were up more than 18 percent for the year, fell more than 2 percent, possibly on fears of stiff competition for some of the its important new growth drugs, such as the diabetes treatment Trulicity and psoriasis medicine Taltz.

"Anything that causes concern over those two assets would be reasons why people might consider selling," Suntrust Robinson Humphrey analyst John Boris said.

Novo Nordisk is expected to soon get U.S. approval for a Trulicity rival with a heart safety benefit that the Lilly medicine cannot claim.

Lilly is also girding for biosimilar competition for its top-selling insulin product Humalog.

The company said it was on track to resubmit a U.S. marketing application for its potential blockbuster rheumatoid arthritis drug, baricitinib, before the end of January, with a Food and Drug Administration decision six months later. The FDA initially rejected the medicine, asking for more safety data.

Christi Shaw, Lilly's president for bio-medicines, said the resubmission would include real world data from patients using the drug in Europe, where it is approved and exceeding the company's early sales expectations.

Shaw said she was "very optimistic" about the prospects for U.S. approval, and that the rate of concerning blood clots was no higher than would be expected from the patient population not taking the medicine.

Lilly now expects full-year adjusted profit of $4.15 to 4.25 per share on revenue of $22.4 billion to $22.7 billion.

The company said it had the momentum to achieve its 5 percent compound annual growth rate target through 2020.

Excluding items, Lilly earned $1.05 per share for the quarter, topping analysts' expectations by 2 cents, according to Thomson Reuters I/B/E/S. The results were helped by efforts to cut costs and streamline operations.

Revenue rose 9 percent to $5.66 billion, driven by growth of newer products led by Trulicity with sales of $527.7 million.

Lilly also said its manufacturing sites sustained minimal damage from hurricane Maria, which devastated Puerto Rico last month. It said it sees no product supply risk or other significant financial impact from the storm at this time.

Eli Lilly shares fell $2.22 to $85.24. (Reporting by Bill Berkrot in New York and Tamara Mathias in Bengaluru; Editing by Savio D'Souza and Bill Rigby)