Elanco at BNP Paribas Animal Health Day: Strategic Growth and Innovation

On Thursday, 22 May 2025, Elanco Animal Health (NYSE:ELAN) presented at the BNP Paribas 2nd Annual Animal Health Day, showcasing a robust Q1 2025 performance. The company exceeded financial expectations and emphasized its commitment to growth, innovation, and cash generation. While Elanco raised its revenue guidance, it also addressed challenges such as tariffs and regulatory hurdles.

Key Takeaways

• Elanco surpassed Q1 2025 financial targets, highlighting strong revenue and adjusted EBITDA growth.
• The company raised its revenue guidance due to favorable foreign exchange rates and strong performance in farm and pet health segments.
• Elanco is focusing on expanding its innovative product portfolio, including Quattro, Experior, and ZENRELIA.
• Strategic debt reduction plans aim to decrease leverage with a $450 million to $500 million pay down target.
• The company is actively working to mitigate tariff impacts and expand ZENRELIA’s market reach through label changes.

Financial Results

• Q1 2025 saw a 4% revenue growth in constant currency.
• Revenue guidance increased due to favorable FX assumptions.
• Innovation revenue is projected to be between $660 million and $740 million.
• Elanco monetized royalties on the Lotta Lanner asset for approximately $300 million to aid deleveraging.
• The debt pay down target is set at $450 million to $500 million, aiming for a leverage ratio in the low four to high three range.
• Successfully covered a $16 million to $20 million tariff impact through strategic interventions and favorable FX.

Operational Updates

• Innovation Basket:

- Key products like Quattro, Experior, and ad tab drive innovation growth.

- Experior is positioned as a $350 million market opportunity in North America.

- ZENRELIA’s international growth is promising, with plans to expand in Europe and Australia.

• Tariff Mitigation:

- Elanco is monitoring the US-China tariff situation and optimizing its supply chain.

- The company is renegotiating vendor contracts and managing inventory to mitigate tariff impacts.

• ZENRELIA Progress:

- Adopted in 11,000 clinics, with 8,000 on formulary and 3,000 in sampling programs.

- Focus remains on expanding ZENRELIA as a first-line treatment.

Future Outlook

• Innovation Pipeline:

- IL-31 approval expected in Q4 2025, with commercialization in H1 2026.

- Seven major products, including IL-31, are anticipated to drive global growth.

• Farm Animal Business:

- Anticipated cattle supply shortage supports strong demand and pricing for Elanco products.

- Poultry market expects steady growth in global numbers.

Q&A Highlights

• Tariff Discussions:

- Elanco is engaged with the administration and congress to address tariff concerns.

- The industry seeks an animal health exception due to differences from pharmaceuticals.

• ZENRELIA Strategy:

- Aims to achieve language changes for broader market reach in the second half of the year.

- Expanding distribution points to enhance product availability.

• Credelio Quattro Impact:

- Strong start with 10% vet acceptance, expanding Elanco’s product reach in 500 clinics.

• Market Growth:

- Elanco leverages long-term relationships with Amazon and Chewy to boost sales.

For a detailed understanding, readers are encouraged to refer to the full conference call transcript.

Full transcript - BNP Paribas 2nd Annual Animal Health Day:

Davante, Analyst, BNP Paribas: Hi. Good afternoon, everyone. I’m Davante. I cover animal health at BNP Paribas exam. Thank you for joining our second BNP animal health day.

We had two previous session with IDEXX and Fibro, and now I’m very happy to have Jeff Simons, president and CEO. Maybe before your opening comments, I just wanna mention that you can investors, you can ask live questions at any time. So you can ID me easiest way, or you can also use the OpenExchange system, and I will receive your question as well and and make sure to include your questions in in our roster. So, Jeff, thank you very much again, and thank you for attending our animal health day. And I’ll let you do some opening comments, and then we’ll go through questions.

Jeff Simons, President and CEO, Elanco: Great. Thank you, Nguyen. Thank you to BNP and the opportunity here to engage with investors and the interest in Elanco. And of course, we have the disclaimers that we normally do on any time we interact on forward looking statements. But let me just open by saying 2025 is a year we’ve been looking forward to for quite some time.

It is here. We turned in Q1, which is probably one of the most high quality, robust quarters that we’ve turned in, in a long time. It was the seventh quarter of consecutive growth quarters. Growth is accelerating as we’ve seen coming out of late twenty twenty three through 2024. We had four percent constant currency revenue growth.

We beat our guidance ranges on both the revenue adjusted EBITDA as well as the adjusted EPS lines. And as you know, Navan, we have really kept a heavy focus, the whole organization inside on the things that are going to drive the value on the outside, growth, innovation, cash. Again, accelerating. We raised our revenue guidance on the FX assumptions that we saw. We saw good quality growth really across farm animal pet health, both price and volume.

I would also say one thing that I would just call out, we can talk more about is the core is doing well because of the innovation coming into some of those different portfolios. So innovation is helping the core business and a strong core is allowing the innovation to actually be accretive and that’s key and very important. On the innovation side, that’s growth at a high level. On the innovation side, we raised guidance again up to the $660,000,000 to $740,000,000 range. That’s that basket of innovation that we started in 2021.

And the big contributor of course is the basket of six products. There’s been a lot of focus on one or two. What I would emphasize is as I look at ad tab in Europe, the Experior in North America cattle to now Quattro and ZENRELIA in The U. S. And ZENRELIA International, the growth is diverse and Beauvaire is starting to contribute as well more and more as we go through this year.

So, again, the basket is overall contributing. I would point out three that really do matter a lot and are really contributors in q one and to our guidance confidence on this innovation, and that is Quattro. No question. Experior, we define that as now a $350,000,000 potential market in North America and ad tab. Those are key contributors and watch ZENRELIA global as we continue to see these less restrictive labels really having a big play here for ZENRELIA.

And then cash, we announced on earnings week, actually monetizing our royalties on the Lotta Lanner asset, bringing in just shy of $300,000,000 that will go to delevering. We now have a clear path, good operating results, more EBITDA, free cash flow conversion instead of just saying 150,000,000 or so going to debt pay down, we’re now saying that could be $450,000,000 to 500,000,000, which gives us that path to the low four, high three leverage ratio. So growth, innovation, cash. And the last real material thing is tariffs. We were very clear and we showed slides and I think we’ve gotten a lot of feedback from investors.

Extreme transparency. We believe that we are covering 16,000,000 to $20,000,000 today as well as the scenarios going forward, even a pharma exemption if we were impacted by that. We have that covered by our intervention plans, our favorable FX and our favorable Q1. So we’ve really taken tariffs off the table at the highest level really under most any scenario we see, and we’ll continue to monitor and update everybody as we head into q two, earnings. So with that, look forward to taking your questions, Yvonne.

Davante, Analyst, BNP Paribas: Thank you for that, helpful, introduction and opening comments. Maybe on the tariff side, a follow-up with the on the $1,620,000,000, and definitely appreciate the the transparency there. So you said it was almost entirely driven by tariffs between The US and and China. So can you discuss maybe the updated impact if China and The US maintain that tariff reduction, temporary tariff reduction that was announced on May 12?

Jeff Simons, President and CEO, Elanco: Yes. Just to to reiterate your point, the 16,000,000 to 20,000,000 that we highlighted on our slide, and I would I would reference back to the tariff slide that we had in our deck, that’s really kind of that first column, which really just highlights overall the 16,000,000 to $20,000,000 was primarily The U. S, China back and forth and the impact on our farm animal products primarily going in and some active ingredient coming out of China, and those were that was the 16 to 20,000,000. Yes. We’re monitoring, no question on the situation.

We will take advantage of every opportunity we can from a supply chain standpoint, readying our supply chain to move product, appropriately when those windows open. In addition, we’ve got an intervention plan that we talked about that is not just supply chain, any adjustments we can make to footprint and safety stock levels. Also, we’re looking at pricing as well, targeted pricing in the right areas. So all of those things are favorable. I think the one thing that people maybe missed too was that, you know, it was there there were some exceptions, within, those tariffs back and forth.

Some of these are critical products that maybe are getting exempted from some of these. And also, you know, with the tariffs created a weaker dollar and that weaker dollar had a really strong impact for Elanco as it has probably other American companies. And that also is a factor that’s given us more of a balanced approach to this tariff situation.

Davante, Analyst, BNP Paribas: Thank you. And can we discuss also the assumption of the corporate affairs team, of Elanco behind the the five to 25% tariff range, if the pharma exemption is revoked?

Jeff Simons, President and CEO, Elanco: Yeah. This is really based on, again, industry discussions. We’re having good conversations with the administration and congress. I’ve been to Washington even since the earnings call. We do believe, you know, and we appreciate what what, you know, Washington is doing in the economics around this, and the customers we serve.

And what I would just simply say is, you know, we we’re we’re confident that that there is a constructive approach taken and our prudent approach taken with tariffs will be balanced appropriately. I don’t think we see anything different from earnings call that would create more of a surprise negatively. There are some favorable scenarios that are out there being discussed, but things aren’t final and official in any material way that we would report on since our earnings. But again, I would say our prudent approach, our intervention plan, favorable FX and a good strong Q1 puts us in a, we believe, a really good position for all scenarios forward.

Davante, Analyst, BNP Paribas: Thank you. That’s that’s very helpful to hear about your discussion in in DC. And I know that there’s, I think, a working group with the the industry to ask for an animal health exception. Would you say that the arguments of Elanco and the industry as well, are they focused on the farm animal business or maybe the animal health exception overall?

Jeff Simons, President and CEO, Elanco: Yes, won’t get into all the details, but yes, we had an industry meeting last week as a whole industry in Washington. We’re all aligned, and that’s both on tariffs and the difference between our industry other industries, pharmaceuticals primarily. We also spent a lot of time on regulatory reform, both with the FDA and the USDA and the opportunity actually, we have a very unified approach to say, hey, we believe with the efficiency the administration is trying to go forward with regulatory reform, we have a recommendation that can actually streamline and create more predictable regulatory, make The U. S. More competitive.

And so that was really one dimension. The second was tariffs. And yes, what I would say is we’re a very different industry. As you know, we are a cash, not a payer industry. We run on different margins.

We serve customers like farmers and the importance of farmers and competitiveness of our products is critical. We we can be the difference between a farmer making money or not making money. And for the livelihood and competitiveness of American farmers, we have to, you know, definitely be competitive. The other is actually, you know, just the size of our industry, you know, we’re much smaller. So we work on a very different, basis for margins from a gross margin line, a profit line and just our blockbusters are $100,000,000 versus $1,000,000,000 So all of that, I think merits we are different than the pharmaceutical industry and need to be viewed in that way.

And we do believe we are getting the right people to hear that message. And we’re hopeful, but nothing again has materialized yet.

Davante, Analyst, BNP Paribas: Thank you. Thanks for that color. And I know you touched base on that on the earnings call, but maybe more details on the progress on mitigating actions so far. So you mentioned supply chain optimization, inventory management, tactical pricing. Any progress, like a more detailed progress on on that?

Jeff Simons, President and CEO, Elanco: Yeah, Nivan. We’ve got a dedicated team, very active. I’m very confident in the execution of this team. It gave me the confidence coming into the earnings call, and I’m confident that it is a multifaceted approach with the backdrop of favorable FX in the Q1. I do and I do think that some of the favorable trends we’re seeing hopefully in Washington, but what is truly in our control is everything from the supply chain optimization, securing secondary sources, bringing as much manufacturing.

We’ve got over 75% of key manufacturing coming or based around The US. Yes, we have acquired a few European companies, so we do have some European footprint, but that actually gives us some diversity as well. We don’t want it all just U. S. There is some European manufacturing footprint.

We are renegotiating where we can, vendor contracts. We’re managing inventory and we’re changing maybe safety stock levels lower so we can put more product into certain countries. And then yes, we are taking a tactical pricing approach that’s already started in areas where we believe we’ve got the right elasticity to take pricing. And then we are always looking at strategic API sourcing and making sure it’s in the right place. So very active, lot of actions been taken even since our earnings call that give me continued increased confidence.

Davante, Analyst, BNP Paribas: Thank you. And maybe if we can switch to Zanrelia, you can discuss the latest progress with education of VethGPs specifically. We feel like that there’s already convinced that the VethGPs as you’re as you’re ramping up adoption of ZENRELIA in The US.

Jeff Simons, President and CEO, Elanco: Yes. So ZENRELIA continues to progress nicely. If we look at 8,000 clinics that we talked about in Q4 through Q1, ’11 thousand clinics that’s made up of that 11,000 clinics of 8,000 that have actually put it on their formulary. They’re carrying it as one of the products, and we’ve got about 3,000 clinics in a sampling program where they brought product in. They’re putting dogs on, and so what I would say is clinic adoption continues to grow.

I just just sat back and look at 11,000 clinics, that’s more than some of our parasiticide products like Credelio. So there is no question there is a need for a secondary derm portfolio and that’s what Elanco is bringing. And we’re bringing IL-thirty one as another product that will compete against the product in that class as well. We will be the second major derm player with a broad portfolio and we’re excited about that. And the derm market, as you know, Nivon, continues to grow at $1,900,000,000 I believe it’ll eclipse $2,000,000,000 this year.

It’s growing double digit. So we’re getting some of that just natural organic growth and ZENRELIA is helping expand the market and increase the size and increase the awareness of derm. The biggest news I think out in the marketplace is the efficacy profile of ZENRELIA. It is the most consistent probably in my thirty five years of bringing products to market that this product works. It’s been put in some of the toughest conditions and one of the toughest animal health needs.

Atopic dermatitis and itching dog has been we know there’s labels that are you know that respond to sixty five percent of the dogs. You know there’s going to be a need out there in the marketplace. Zanreli has been thrown right in that need and it has done extremely well. KOLs, even competitive KOLs, veterinarians across the country unanimously are coming across saying, hey, this product is we think some of the one of the best products in the class. The label has restricted some of the market.

If you say the remaining 60% of the market is considering it, is looking at it, 26% of that remaining market is saying, do intend to script SENRELIA and our focus with this sampling program and tech to tech discussions is to increase more of that 20,000 clinics that are not using the product. But we’re very happy. It’s exceeded our expectations on the number of clinics, the reorder rates, the challenges we need more clinics to take this on as first line treatment and that’s our focus. And the two ways we’re doing that is to tech to tech selling and the sampling program. And then I would point to and just want to continue to call out, because I think it’s really important for the brand is in the international markets, the three markets we’re in now, Brazil, Canada and Japan with less restrictive labels, We’re we’re, you know, very happy with the adoption rates, which are, you know, greater and and faster ramp rates.

And we’re looking now for the next three major markets in the 6 to $700,000,000 derm market, EU, Australia, and The UK coming here in the second half.

Davante, Analyst, BNP Paribas: Thank you. Yeah. Maybe the the early use is it seems like the early use is focused on on severe cases and maybe the APOQUA non responders, maybe. So I don’t know if you can maybe have a like, what is the DTC focus to move to frontline?

Jeff Simons, President and CEO, Elanco: Yeah. So we we are in frontline in some of these clinics. I mean, you know, again, we get 11,000 of the 30,000 clinics. We’re, you know, happy about that, and 8,000 are bringing it in as part of their normal movement. But I think I think all of this, we we do see a real nice opportunity as we now enter, you know, we’ve we’ve launched this product in the lowest four months of derm out of the 12.

So now as we enter now through, you know, September, October, it is derm season. So there will be increased seasonal and acute cases. There’ll be, you know, some of these non responders from the incumbent products. We have the opportunity. We’re pulling not just from the JAK market, but also the IL-thirty one and the steroid market.

So we we believe that, you know, we have an opportunity to actually in this season, it plays very well with the efficacy profile that we’re seeing with ZENRELIA. And we’ve seen some of that even with the Southern Hemisphere in Brazil and some of the success we’ve seen at the latter part of the deep season there. So and again, I think the sampling is what makes people come out of the product as they put samples onto opportunities of dogs, they get comfortable with the use of the product. So that’s our focus, Nivan, and I’m very hopeful, that we’ll continue to see this product ramp globally as well as with the regulatory strategy that we have behind it as well.

Davante, Analyst, BNP Paribas: Mhmm. Thank you. Can you also discuss the the dialogue with the FDA since the January warning letter? And also on the other hand, what kind of near term label wording changes are you hoping to to achieve with the the data that is currently under under review?

Jeff Simons, President and CEO, Elanco: Yeah. The the key points that I think everyone, and I just wanna really continue to emphasize this, is there’s really two paths that we’re taking with the FDA, and the dialogue has been constructive, been consistent even with all the regulatory changes. We’ve been active in the dialogue. We don’t see any change with with the right administration and the key reviewers. They’re all in place.

So at this point in time, things are all tracking. There is a label and a language path. On the label, that’s longer term. We’ve set up trials. We’re looking at, hey, continuing to create the data to create a long term, maybe more significant label change.

The other one is with the research that we have, we’ve already submitted and that’s more of a language to the current label. And what that would do is we’re in good dialogue, that would be something that we would see as an outcome. We don’t know the outcome yet, but the outcome would be the second half of this year. And we’re hopeful we can make a language change and then that’s followed by a longer term label change. And again, dialogue has been constructive, data has been submitted, everything’s progressing, no change to the current key people on both sides that are working on this and more to come here in the second half.

Davante, Analyst, BNP Paribas: Great. And then just in terms of XENRETA, so we do have some market models that we’re keeping updated. So we’re estimating around 40,000,000 of 2,025 revenue. So that’s assuming a 2.5% share of the derm market. Is that reasonable?

And does it align with your 35% US vet clinic penetration?

Jeff Simons, President and CEO, Elanco: Nivan, we won’t guide by products. The great luxury we have is we’ve got six, soon to be seven products that are coming in that have got blockbuster potential in big markets. We’ll continue share the progress we’re making on our total innovation basket. We won’t get into specific product by country. I think the trends we’re giving you in these lead indicators are showing the viability of ZENRELIA.

I would point to the continued increase movement to first line treatment, the continued adoption of more clinics and the efficacy and the season. And then I would point also to the global approvals. Those three additional regions for approvals combined with the others entering that six to seven hundred million. All of those will be contributing to more and more clinics every month coming on ZENRELIA globally. And again, won’t highlight the assumptions or your modeling there, but I think we’re given enough information to help on the overall innovation.

Davante, Analyst, BNP Paribas: Thank you. And on the launches, the international launches Yes. What were the key points of feedback from, Brazil, Canada, and Japan?

Jeff Simons, President and CEO, Elanco: Yeah. Again, smaller markets in The US, a few different dynamics, but I would say without question, the efficacy continues to be what people are talking about. That’s exactly what we want them talking about is, hey, we are able to do this. I think also the safety of the product and the label represents that. So I think there’s a lot less discussion about, you know, the label, the constraints of the label, the safety of the product is clear and how the international bodies looked at this product and looked at that data package.

In, you know, Europe, there’s some information out there and head to head with the incumbent. And that also is being looked at. It’s it’s, you know, public information and that’s being able to be looked at as, hey, this is a differentiated product and that’s also been a key driver in efficacy proven by research data as well. That’s been a key driver. And, and then lastly, as we’ve talked about the convenience factor, the one pill versus two, the the less risk of rebounding, and and again, value.

We continue to price this as a value option to what’s on the marketplace. So all of that is playing out, and I’m very excited about this and a very big European market and a UK market, to to follow the three markets we’re in now. They’re they’re the biggest international markets to come.

Davante, Analyst, BNP Paribas: Mhmm. So Brazil, Canada, Japan are smaller markets than Europe, UK, Australia as I understand.

Jeff Simons, President and CEO, Elanco: Yes. As I look at EU as a whole market as a whole, of course, it’s made up of a lot of countries, but the approval will be for that whole region. That’s the the biggest market outside of The US, and, you know, we’re we have intentions to launch if everything progresses as well in the second half.

Davante, Analyst, BNP Paribas: Okay. And the approvals for Europe, U. K. And Australia, is that Q3, Q4? And do you also anticipate less restrictive labels than in The U.

S. As well?

Jeff Simons, President and CEO, Elanco: Yes. We’ve said second half. Again, lots of good dialogue and things are tracking to our expectations. I’ll just say that. And again, our expectations is we would have less restrictive labels like we have in all the other international countries.

So that is our intention. Again, you don’t know for sure until you have the final label, that right now is everything we have. We intend and believe that to be the case.

Davante, Analyst, BNP Paribas: Mhmm. Okay. I also wanted to discuss competition. So if you can you discuss what are your expectations for timing and differentiation for Merck, new derm product versus XENRETA and Apoquel. We spoke to one expert who said that second generation may result in a higher rate of nonresponders.

Would you agree with that? And any expectation for timing and differentiation on the or no differentiation?

Jeff Simons, President and CEO, Elanco: I think the simple factor that I’d want all of the investors to know is we’ve done our diligence and our competitive intel work, the science that we have on compounds and in our guidance is the assumption for competition in this space that you mentioned. So that is inside the guidance that we’ve casted. We are in the midst of the season right now. And again, we really like the profile of what we have here with elunicitinib and ZENRELIA. So that’s what I would highlight, and we’ll continue to monitor and share more as we know more as you do.

Davante, Analyst, BNP Paribas: Okay. Thank you. And on the IL-thirty one, can you discuss the next steps for for Elanco? So between the q four twenty five expected approval and commercialization in H1?

Jeff Simons, President and CEO, Elanco: Yes. No change at this point in time. And if there is any, we would let you know. But again, we have a path to an approval for Q4. We’ve said we would commercialize the product, launch the product, that’s our intention in the first half of twenty twenty six.

We continue to believe it is a differentiated IL-thirty one from the IL-thirty one that’s on the market today. We have increased our CapEx on our manufacturing. It will be made in the same plant that our parvovirus monoclonal antibody is, and that’s progressing nicely, and we’re confident that we’ll have product supply when we’re ready to launch. We’ll continue to monitor the USDA changes. This is USDA, I’ll emphasize.

So the USDA is different than the FDA or the the CVM. The CVB does not have a DUFA. So, you know, we’re we’re in good constructive dialogue and and and have a path, but we don’t have the mile markers and and and the follow, you know, up through an ADUFA type process at USDA. So we’ll keep you updated as we’re updated, but no change at this time.

Davante, Analyst, BNP Paribas: Thank you. And investors, please feel free to continue to send your question. Maybe I’ll go to Creditio. So can we have market model for that? And wanted to discuss your dollar 10 percent share of broad spectrum in US Vet clinics.

And does that is that reasonable to assume a two and a half percent share of the oral parasiticide category? Maybe you can tell us more about that.

Jeff Simons, President and CEO, Elanco: Yes. Maybe I’ll broaden the question to Credelio Quattro. There’s no question. This should be one of the first questions probably when you look at the impact, the potential, the materiality to us, to our industry. I’ll start and I won’t get into specifics by product again by quarter or anything like that, but I will give you some notes.

This is the fastest growing most material market I have seen in thirty five years in animal health. You’ve got a $6,000,000,000 market in The US around 4 and you’ve got a billion and a half, a billion 2 headed to a billion and a half of broad spectrum in Dekto products. And when you look at the numbers vary almost by month here as they’re growing, but over 70% of puppies are now on a broad spectrum. We’re the third product into this category. The category is growing overall parasiticides.

And what I would just say is, we believe we’re best medicine. So and and we also shared that the majority of our starts are coming from the competitors and new starts, in the category. So, best medicine getting new starts in the category, people that are moving over to the category. We’ve got really four dimensions of differentiation with four active ingredients. We’ve talked about the tapeworms still differentiated there.

One month heart control, the fast tick kill is actually something that we’re getting more and more calls about get us that published data, a lot of tech to tech meetings going on. And the fourth dimension that’s emerged really unsolicited back to us is the palatability and the acceptance by dogs has truly been something that, you know, there’s videos out there showing the acceptance. With that praziquantel, it gives that worm control. That’s been a problem in the past on bitterness, and that’s not been the case So we believe we’ve got best medicine in this fast growing market. The market continues to show a lot of future runway of growth and we’ve got a lot of potential and to come in and immediately have vets.

The vet acceptance, Nivon, has been very strong with 10% out of the gate just a couple months in to actually bring in. Now we will spend the money to really, really have that pet owner pull through that’s happening here in the second quarter. So definitely exceeding our expectations out of the gate. We’ve got to execute well. We’ve got to create a real strong brand with pet owners.

That’s why our EBITDA in Q2 is a little down given the increased OpEx. But, I am, confident the team. I’ve been in the field quite a bit with the team, and we’re executing well on the field, and that 25% increased sales force is definitely going to play well here. And ZENRELIA is helping Quattro and Quattro is helping our portfolio. 500 clinics are now buying Elanco other products that they’ve never bought before.

Davante, Analyst, BNP Paribas: Sure.

Jeff Simons, President and CEO, Elanco: This this is this is one of the key drivers, no question, to our increased guidance on our on our innovation.

Davante, Analyst, BNP Paribas: Thank you. And, yes, it is a very strong start. And how do you explain the low cannibalization on on Credelio and Interceptor Plus? And do you expect that to continue?

Jeff Simons, President and CEO, Elanco: Do you say globalization? Or

Davante, Analyst, BNP Paribas: I’m Cannibalization.

Jeff Simons, President and CEO, Elanco: Cannibalization. Yeah. That’s what I thought. Yeah. Yeah.

So, you know, we we’ve seen less cannibalization out of the gate. We still expect cannibalization to occur. We would rather it be us than somebody else if we’re going to cannibalize or we’re going to lose share to some of the legacy products. But there is still a lot of brand loyalty. I run into somebody almost every month or couple of weeks where someone is like, no, I like my Credelio and my Interceptor Plus together or even some Trifexis users out there.

So we know there’s still a stickiness to brands and so we will go ahead and continue to we’re targeting really non legacy users, but if there’s a legacy change, we’ll have the right incentives to make sure they move to us. And when you look at overall margin profiles and things, we see this being something that will not be negative but positive overall over time.

Davante, Analyst, BNP Paribas: Great. Follow-up on Simparica Trio, they added a tapeworm claim. How does that compare to sim Simparica Trio protection? And you mentioned the bitterness. Is that also another area of differentiation?

Jeff Simons, President and CEO, Elanco: Yeah. What I would emphasize is our differentiation remains. I mean, there’s many species of tapeworms beyond the flea tapeworm. That’s one, and we get those. The ones that are deadly to humans, we protect against.

The preventions of fleas does not necessarily help the dogs that have tapes. So that’s it’s not a treatment on the other side competitively, and ours can. So prevention of tapes requires, you know, perfect flea control and ours does not because we have that treatment aspect. So, you know, when you step back and look at that, we we continue when you have compliance only at forty to sixty percent, there’s still that that, that lack of coverage. And so we continue to see nice differentiation in this space.

And we appreciate companies like IDEXX that are bringing increased diagnostics and the ability to just say, hey, pet owners don’t need to worry about this with a product like Quattro, that’s our intent. It’s more convenient than having to supplement with some other treatment.

Davante, Analyst, BNP Paribas: Thank you. Maybe how is the 2025 parasiticide season shaping up for Elanco generally?

Jeff Simons, President and CEO, Elanco: Yes. As we mentioned, we saw a cooler January and February than normal. That probably impacted our retail business, our OTC business more than the others. At this point in time, we’ve seen a nice uptake and no real change to what would be kind of normal weather trends on a relative basis to our assumptions as we’ve gone kind of from March, April and into May seems to be pretty consistent with what our expectations were overall. A note to Nivan just to build a common question is around visits and the trends in the industry.

And there’s no question we’re monitoring all those trends. But I think you see Elaine goes in a little different spot than most companies, especially on the diagnostic side, but even on the animal health side. One, we’ve got this basket of innovation and innovation is driving growth and innovation is, you know, far more important than one or 2% movement in visits. That’s one. Two is with the Bayer acquisition and being the leader in retail, we cover that one third of pet owners that don’t go to the vet that still want that.

We’re seeing nice performance still out of our retail business. You’ve got Amazon coming in. We’ve been a long term Amazon customer. We’ve been in this OTC business in a long time. We’ve seen a nice recovery in March and April in our retail market.

So between omnichannel and innovation, we are really a lot less susceptible to a visit change. Our portfolio is durable. The best example too is Bobby’s U. S. Pet health business took share in all four categories last quarter from para, derm, on the therapy side and the pain side.

Davante, Analyst, BNP Paribas: That’s great. Thank you. And maybe on the farm animal side and other innovations. So we understand that Experian and you said that as well with along with that, really, I was a significant contributor to the higher innovation target. And I remember covering Elanco previously, and Experian had a had a slow ramp up initially, I remember.

So can you discuss what accelerated the uptake recently?

Jeff Simons, President and CEO, Elanco: Yes. Great great reflection, Yvonne. It has been on the market a while and we’ve got seventy years we’ve been in the farm animal business. I think we’re the longest standing brand in front of farmers and livestock veterinarians and protein companies. And we love this business.

We’re number one right now in The U. S. In beef and swine and poultry, and we’re leaning in on this. You saw the 17% growth. We I’m not saying we’re gonna sustain those kind of growth rates, but remember, this is a you know, this $40,000,000,000 industry, 25,000,000,000 just about is farm animal.

And we had $104,000,000,000 of protein in The U. S. Last year, more protein consumed animal protein and making America healthy again. I’m very bullish as I’m working closely with the other CEOs of protein companies that there’s a real opportunity here, as we see the protein animal protein alternatives down 20%. So I just I lean in to say, we like this business.

We like being leaders and take share in this business. And Experia is a great example that when you get a product, it takes some time, but when it gets into the feeding regimes, it’s sticky. There’s not a lot of changing in farm animal. When you become part of the nutrition and part of the feeding programs and you really become some of the modeling even when cattlemen are now buying cattle, they’re buying it also on the benefit that they’re getting from Experior. So it becomes really integrated into the economics of their organization.

And to me, it’s it’s easier to prove value sometimes in farm animal than it is in pet health. Experiars ramps, heifer clearances, which is 40% of all the beef cattle in The US and Canada, that opened up 40% of the market and more because a lot of operations said, hey, I’m not gonna go on my steers until I get heifers because I have co mixing. And so that opened up even more opportunity and and and we continue to see every week, every month, continued ramping. And as we’ve defined, we see a 350,000,000 and greater market here in North America, in, confined beef cattle, from this. And Experior is helping.

If you’re on Experior, there’s the rest of the Elanco portfolio that comes with that, and that’s benefited products like Rumensin as well as others.

Davante, Analyst, BNP Paribas: Thank you. Also wanted to ask, the Trump administration, R. K. Jr, Maha, views on livestock sustainability. We know that we’re looking at food production and food ingredients.

Any views on on that?

Jeff Simons, President and CEO, Elanco: Yeah. Our views, I think there’s a lot of alignment. There’s a lot more that I think our customers are aligned on and that is one is we’re about the greatest thing with sustainability is profitability. And I come back to say without economic sustainability and profitability of American farmers, then, you know, food security is national security and and it’s a key economic engine for us to be competitive globally. There may not be any industry.

We are more competitive in quality and cost than actually animal protein. And I’ll stand with our customers around that because it really is a key key differential. So, so one is we will lean in to make American farmers, livestock farmers more and poultry farmers more competitive economically. Second is the value of protein to the diet is going to drive increased demand, and it’s already predicted that animal protein will continue to climb as processed food and processed protein alternatives all decline, carbs decline, there’s an opportunity. We’re gonna continue to keep science in the middle.

One of our key things as an industry is the rigor of science matters. And so we will continue to ask that, you know, we take a a lens of science as well in the middle of animal health. You’ve gotta give consumers what they want, but at the same time, what they need, And you can’t break those apart. There’s an interdependency on if you don’t keep healthy animals healthy, you have food safety and productivity and economic sustainability issues. On the environmental, we believe it’s really linked closely to productivity.

And with productivity can come environmental sustainability. And what we’re seeing is CPG companies, for their brand, this matters. The alpha generation and the Gen Zs want a product that doesn’t have an impact on the animal and and doesn’t have an impact on the environment. So it’s it’s probably more of a CPG brand need on the environmental side.

Davante, Analyst, BNP Paribas: Thank you. And on Beauver specifically, so are you pivoting to a productivity label while you’re also working on the government incentives? We heard that you said that government incentives have not yet been released.

Jeff Simons, President and CEO, Elanco: Great question, Novan. We will we as always, we’ve had a lot of years in feed additive, nobody probably longer than us on feed additives, and we love what BeauVair, the profile of BeauVair, the optionality that BeauVair brings. And we believe that we will continue to look with our scientists and with our customers as the dairy industry now, more and more dairy farmers are coming on. We have really robust dairy farmer demand and we have robust CPG demand. CPG because they’re consumer product good companies.

The dairy industry, I think you’ve heard me say, a $10,000,000,000 infusion of capital in this industry because of the demand behind the products here this year. And so all these companies that have brands, they wanna make sure the next generation moves from all the, you know, milk alternatives back to milk, and we’re seeing that. BeauVair helps nicely with that targeted segment, and farmers see there’s value. We’ll we’ll look at the increased value beyond carbon, but we have farmers today getting a second check, a protein check and a CPG brand check that’s linked a little bit to carbon. So Beauvaire will be a little bit of a slower ramp, like we’ve said, very similar to Xperior, but we see we’re creating a new $2,000,000,000 market globally, we believe, in this space.

Davante, Analyst, BNP Paribas: Thank you. And I know it’s early, but and you had already early success with the innovation this innovation wave. But can you maybe give us a preview of the next innovation wave for Elanco? And I was lucky to meet Elen DeBravender recently, head of r and d. And she had an innovation target of one high impact innovation per year.

Can you discuss that too?

Jeff Simons, President and CEO, Elanco: Yeah. Ellen and her team, I’ve spent a lot of time with them the last few weeks and just continues to amaze me. I mean, they the level of discipline, the level of rigor. We just had our board in, our innovation committee on our board, with some great scientists. We just had Stacy Ma come from Gilead into our board.

And if we just look at the systematic approach we’re taking, the pipeline is not refilling, it’s refilled and filling as we talk. The number of pipeline entries that we’re going to have coming in here in the next couple of years. And, you know, the spaces are the big spaces and the emerging spaces. We’re talking more about the existing spaces and we’ll talk more over time about the emerging spaces. At the same time, we’ve added to Ellen’s group external innovation a new enhanced way and a really market outlook group.

We have some really good between AI, some of our deep expertise looking around the corner of what else is coming. Where are the Blue Ocean opportunities? We had Bill Doyle, cancer expert on human medicine and drug development expert, leave our board, set up a new pet development company that we have an arrangement with to actually go into a new space like life extension and CKD. So I like what I see over the next ten years in the Elanco pipeline, and we’ll share more about that as we go forward. Right now, we’ve got seven big products with the IL-thirty one coming, the six we have in our hands that when we globalize those, that will drive a lot of growth for us, accretive growth for us over the next few years.

Davante, Analyst, BNP Paribas: Thank you. And I remember you had from the Kindred acquisition, you got also some monoclonal antibody capacity. So do you expect that to turn into a competitive advantage versus versus peers and how and why?

Jeff Simons, President and CEO, Elanco: Yeah. I mean, we we no question. As you see what monoclonal antibodies have done, they say twenty five, thirty percent of human medicines linked in some way to the monoclonal antibody platform. We not only have taken the Kindred assets, but we’ve taken some of the capabilities. We’ve recruited from the outside.

We’ve built a nice monoclonal antibody capability. We’ve got manufacturing, I think only one of two companies in animal health with manufacturing and the full value stream already in play. So we’ve got that as well as regulatory expertise. And so we really are excited about the next generation of monoclonal antibodies, yes, including the IL-thirty one long acting and some of the other assets that came with Kindred, but we’re developing beyond that. And, and again, what Ellen has done with her team is really building that expertise.

Davante, Analyst, BNP Paribas: Thank you. And, I I did ask on the earnings call about the distribution points, and thanks for that answer. So can you expand on the strategy and progress of expanding those, distribution points? I remember that Todd had mentioned dollar stores, in addition to the big channels.

Jeff Simons, President and CEO, Elanco: Yeah. It is part of our strategies we’ve said is all around, hey. We gotta innovate in this space. We’ve gotta increase physical availability, and we’ve gotta, you know, do a do a good job on pricing promotion. And what I would say is our retail strategy is working.

We’re largest, I think, animal health company and Amazon, Chewy, as well as some of the brick and mortar stores as well. And you’re exactly right. We’re increasing the number of channels. We start with OTC products. We bring the scripting capability in where appropriate.

That’s also part of the retail capabilities. We’ve probably added over a half a dozen talents. Blair Cornish has come in as leading that group. And I feel very good about the portfolio, the capability, and yes, the distribution points are growing. They sometimes can be big numbers initially, but they take a while to actually get the turn, you know, the turnover in those distribution points is what really drives the sales.

That’s where we’re putting our energy right now is more distribution points, but more pull through, and that’s that’s really key. Bobby’s done a nice job across the board on that.

Davante, Analyst, BNP Paribas: And got a question on the farm on the farm animal segment, if you can discuss the short term, long term outlook by species.

Jeff Simons, President and CEO, Elanco: On excuse me. On

Davante, Analyst, BNP Paribas: On the the short term and long term outlook by by species in the farm animal segment? So poultry. Yep.

Jeff Simons, President and CEO, Elanco: Great. Great question. What we would say is you take the big for us, the biggest ones, would say on cattle, on the beef side, you continue to see a shortage. We’re still in this really low cycle on cattle numbers, the cow calf cattle numbers. I think I’ve heard a few of the major processors say we’re starting to see an uptick, it’s really slow.

So with that actually for Elanco, high demand, strong pricing, low feed grain costs, which is all set up well for the P and Ls of the cattlemen and really sets well for a Experion or Rumensin. On the poultry side, it’s a global industry, it’s the most global species. It’s probably least dependent on trade compared to where it was ten years ago just because people are raising chickens now in a lot of places and, the grain is less, the footprint is less, there’s less religious constraints. And so we see a durable couple percentage point growth in overall poultry numbers globally and Elanco is well positioned portfolio wise and geography wise. And then dairy, as I said, point to US Dairy and European dairy, they’ve kind of got a we’re in a window of a little bit of a dairy revolution now, it shakes, whether it’s cottage cheese, whether it is cheese, the amount of plants, dry powder plant that’s being built right now in California, all of this is I would say they’re in a good strong sense.

We got to watch exports and tariffs probably in dairy more than any for Elanco. And then lastly is pigs and the pig industry has probably been hurt the worst, probably got a little bit of a tougher 2025. For us, it’s really two geographies that really matter, US and China. And what we’re seeing here is, you know, okay, a little better than the past, but still not as good as we want. But for us, it’s the really least of the four major species.

Davante, Analyst, BNP Paribas: Thank you. And is there anything else? And it’s been very insightful, but is there anything else that we haven’t discussed that you would like to mention?

Jeff Simons, President and CEO, Elanco: You know, I I I think not missing the obvious, and I think a couple of the obvious things that, you know, maybe when we look at questions, maybe get missed some is I think the core is stable because of innovation and probably a lot of what we’ve done, and we don’t see the big air pockets of things that could fall out. So one, a stable core is making innovation contribute nicely to our growth. And our success is heavily dependent on the launches and they’re off to good starts overall. Two, on innovation, it’s the basket of innovation, it’s not one. Some people are worried about a one product and one market segment.

What I would say overall, the basket is performing at or better than our expectations. Three is growth. Growth is accelerating. It’s been consistent. It will accelerate our guide of 4% to 6%.

We stand with our guide that we put out a couple weeks ago. And again, that growth accelerating is what we see as we head forward with Elanco. And our balance sheet, we continue to look at as we’ve now moved to $450,000,000 to $500,000,000 of cash debt pay down. We’re in a very strong position and free cash flow conversion will continue to grow and delevering again, getting a path to the threes is really important for me and it will be our number one priority use of cash. And all employees are incented on the Elanco cash earnings, which is TSR type metrics, EVO like metrics on EBITDA and the use of cash.

So set up well and the lead indicator on the inside, what I see every day at a real big multicultural summit and a lot of big major meetings in Elanco this week is engagement globally has not been this high in five years. The employees are excited about what I think investors will start to see here over the next next few quarters.

Davante, Analyst, BNP Paribas: Thank you very much for all those insights. Learned a lot as well. So thank you very, very much for that. And investors, we’ll take a break at 1PM ET time. We’ll have Zoetis CFO.

But in the meantime, thank you again, Jeff. Thank you very much for for participating to our animal health day, and thank you for answering my investor’s questions as well.

Jeff Simons, President and CEO, Elanco: Thank you. Thank you, Nouvan. Thank you to BMP.

Davante, Analyst, BNP Paribas: Feel free to send us

Jeff Simons, President and CEO, Elanco: Great. Thank you. Thanks for the opportunity.

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