Elanco at Morgan Stanley Conference: Strategic Growth Insights

On Tuesday, 09 September 2025, Elanco Animal Health (NYSE:ELAN) presented at the Morgan Stanley 23rd Annual Global Healthcare Conference, outlining its growth strategy. The company, led by CEO Jeff Simmons and CFO Bob van Himburgen, highlighted its focus on innovation, operational efficiencies, and market expansion. While the company celebrates eight consecutive quarters of growth, challenges remain in maintaining margins and reducing debt.

Key Takeaways

• Elanco has achieved consistent growth through innovation in the pet and farm animal sectors.
• Credelio Quattro and Experior have reached blockbuster status, driving market success.
• The new CFO, Bob van Himburgen, prioritizes margin enhancement and cash flow management.
• The company targets reducing debt leverage below 3x by 2027.
• Elanco is investing in R&D and direct-to-consumer initiatives for sustained growth.

Financial Results

• Innovation Revenue: Elanco has raised its 2025 innovation guidance to $600-$700 million, achieving $420 million in the first half of the year.
• Debt Reduction: The company has reduced debt by "a turn and a half" over the last six quarters, with a target of leverage below 3x by 2027.
• Farm Animal Business: Despite lower gross margins, the farm animal sector boasts strong EBITDA margins and cash flow.
• Growth and Investment: Aiming for 5% to 6% top-line growth this year, Elanco has added $10 million to OpEx to support growth, particularly in DTC for Credelio Quattro.
• Margin Improvement: Elanco Ascend is driving opportunities in manufacturing and procurement, with gross and EBITDA margins expected to improve significantly.

Operational Updates

• Innovation Pipeline: Six out of the "big seven" innovations are in the market, with Credelio Quattro achieving blockbuster status. Approval of the IL-31 monoclonal antibody is expected by year-end.
• Manufacturing Enhancements: Investments in AI and automation are being made to optimize costs, alongside expanding the global manufacturing footprint.
• Commercial Strategy: Elanco is increasing DTC investments and focusing on advocacy to support top-line growth. Efforts are being made to improve the U.S. label for Zenralia by removing certain disease indications.

Future Outlook

• Innovation Focus: Elanco plans to commercialize the IL-31 monoclonal antibody in early 2026, with a focus on parasiticides, dermatology, and farm animal markets.
• Financial Goals: The company aims for continued growth, margin enhancement, and robust cash generation, with a focus on reducing debt leverage.
• Growth Strategy: Elanco is committed to achieving eight more consecutive quarters of growth through strategic investments in R&D and DTC initiatives.

Q&A Highlights

• Innovation Guidance: The innovation guide has been raised by $100 million following the acquisition of Kindred.
• Credelio Quattro Success: The product is capturing 70% of its market share from competitors.
• Regulatory Engagement: Elanco is actively engaging with the FDA’s Center for Veterinary Medicine to refine product labels and enhance marketability.

In conclusion, Elanco’s strategic focus on innovation and operational efficiency positions it for sustained growth. For more details, please refer to the full conference call transcript below.

Full transcript - Morgan Stanley 23rd Annual Global Healthcare Conference:

Erin Wright, Healthcare Services Analyst, Morgan Stanley: Hi, good morning everyone. I’m Erin Wright, Healthcare Services Analyst at Morgan Stanley. Happy to have Elanco Animal Health with us here today at the Morgan Stanley Global Healthcare Conference. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, from Elanco Animal Health, we’re happy to have CEO Jeff Simmons, as well as the newer CFO, Bob van Himburgen. Excited to have you both here. I’m going to hand it over to Jeff for some intro remarks, and then we’ll get going on the fireside chat. Thank you.

Jeff Simmons, CEO, Elanco Animal Health: Thanks, Erin. Thanks for Morgan Stanley and the opportunity. Good Animal Health Conference here, and all the great work you do. Yeah, thank you for the opportunity. We enjoyed yesterday and today with the engagement with the different investors. Look, I think Elanco just simply, we’ve been working to get to this state for a long time. We’ve emphasized to all of you, as well as internally, growth innovation CAS has been our priority from really probably the last three to four years. You’ve seen eight consecutive quarters of growth from us. The growth we’ll talk about in the discussion, I think the quality of that growth between our core and our innovation, our price, all four quadrants of our business, as it demonstrated last quarter, are showing good growth. Innovation, we’re not about one innovation. We’ve got, we’ve said about the big seven. Six are in the market.

Yesterday we announced the second one reached blockbuster status in Credelio Quattro. So Experior and Credelio Quattro at blockbuster status. The seventh of the big seven, we still expect for an approval, our IL-31 monoclonal antibody at the end of the year. We’ll have Bob share a little bit more. The whole area of CAS and the balance sheet, we’ve taken a turn and a half out of debt in the last six quarters, and that continues to be our priority. Growth innovation CAS is the right value proposition for our employees and demonstrates value to customers, but also for you. We’re trying to keep that simple. I want to just also highlight Bob. I was intentional myself. I drove this decision that after seven years in our current CFO, stability and expertise and leadership matters a lot to me. I think we’ve got the most tenured executive team.

I’ve got 10 at my table and 100 kind of in the senior management as a whole. Of that 10, I really believe, hey, deep expertise. When I look at the commercial side, the manufacturing side, and even the G&A functions, we’ve had a lot of stability. I made a proactive decision to say, hey, let’s bring on somebody with a fresh perspective that can really look at margins and CAS, maybe even from a different industry. I interviewed a lot of candidates over the course of six, eight months, and I made a decision as the last couple of months. Bob’s now been with us for two months and a great cultural fit and a great fresh perspective. Maybe just to kick off, just maybe Bob a little bit what your agenda is, and then we’ll dig into the Q&A if that’s okay, Erin.

Unidentified speaker: Sounds good.

Bob van Himburgen, CFO, Elanco Animal Health: Yeah, absolutely. Thanks, Jeff, and good morning. Some initial impressions of the company, Jeff, as Jeff mentioned, I’ve been at the company about two months. I’m extremely impressed with the talent level of Jeff’s leadership team, that top 100, as well as the finance team and IT team that I support. As far as my agenda, really I have two priorities over the next several quarters and years. The first one’s going to be margin enhancement. We are going to have a natural benefit from the basket of innovation, the launches that we’ve had here this year naturally help our margin. With Elanco Ascend that we’ve announced with our last earnings call, I’m going to be working with the team to provide some other opportunities to improve margins. As Jeff mentioned, I do come from a manufacturing background. Tier one automotive suppliers is where I spent a lot of time.

If you’re not familiar with that industry, generally speaking, those companies operate in very tight EBITDA margins, like low to mid single digits. What that forced us to do is be operationally excellent within the four walls of manufacturing facilities, as well as the G&A line item. That’s the agenda I’m going to be focused on. I’m really impressed with the team being receptive to some of my ideas. As I think about the gross margin line, again, I’m going to be supporting the team with opportunities, being more efficient from the four walls of our facilities, as well as supply chain and procurement. I’m also going to be really focused on G&A. I’m specific with G&A versus SG&A. On the S side, I want to make sure we continue to make that team efficient and effective and supporting them so they’re spending more time in the field.

When I look at G&A, there’s a different set of tools that the team’s been really receptive to what I’ve been bringing to identify opportunities to be more efficient there and make choices with the G&A spend, some of which I expect is going to drop to the bottom line, some of which we expect to reinvest in the business, whether it’s in R&D or DTC, which I know we’ll talk about later this morning. I am a cash flow person. It’s extremely important to me. I’m also going to focus on interest expense as well as taxes. It’s great to have an effective tax rate that’s low, but people forget often what the cash tax rate is, and that’s something I’ll be highly focused on. That really leads me to the second priority. The first one’s margin enhancement, both gross margins and EBITDA margins.

The second priority is going to be cash. With capital allocation, I have no recommendation to change what our priorities are. It’s going to be paying down debt, what, four times the levered now. We’re going to continue to focus on the fundamentals around trade working capital. We’ve had a great team already in place for the last 18 months or so focused on DPO, DSO, and inventory levels. I’m going to further support that team and what they’re already doing. That trade working capital efficiency, CapEx efficiency, I’ll be supporting the team to ensure that we continue to pay down debt and really targeting getting leverage below 3x. That’s certainly going to provide us some more optionality when we get to that level. That won’t be in 2026, but I would expect in sometime in 2027 we’re at those levels. Those are the two priorities I have here.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: Okay. Thanks, Bob.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: I want to start with innovation if I can. I mean, that’s just a key thing for you right now in terms of you’re really executing against the pipeline. You recently raised your 2025 innovation guide. Can you help us try to understand kind of the cadence of some of these key drivers and the impetus of the raise, growth versus net expectations? Can you remind us of the contributions that we should anticipate both this year and into next year? What products are you kind of most excited about in terms of the innovation contributions?

Jeff Simmons, CEO, Elanco Animal Health: Maybe share a little bit on innovation and maybe the investment behind it because we’re taking the no regrets approach. I think the biggest message is, yep, we’ve raised guide for the last three quarters on innovation. It really started, it was kind of our one external metric back in December of 2020 when it was a $500 to $600 million with this basket of innovation. We raised it $100 million when we bought Kindred. It was $600 to $700. We did $420 million in the first half. Again, it’s all about a portfolio. I’d say the lead products are Experior in cattle, continuing to do well. A product that has been growing significantly in a market that we see at about $350 million. That hit blockbuster last year and it’s growing really nicely with a shortage of cattle.

Cattlemen are making a lot of money right now and Experior is contributing to that. We’ll continue to globally expand that product. As you look across, there’s no question Credelio Quattro, we announced yesterday in a press release, that has reached blockbuster status. We’ll get into that in more detail, but it’s a lot around efficacy. I leave here and head to Spain to the global Durham conference. We’re leaning in heavily on Zenralia also in the release yesterday as we are shipping product into the second largest Durham market in Europe. That’s off and going really well. I’m looking forward to being with the launch team tomorrow. I would say across all four quadrants, we’ve got innovation. I think also, Erin, as we’ll talk, that’s making our core business and our core portfolio stronger as a whole.

Maybe just to pivot, we are leaning in a little bit even on our guide in the second half. We’re taking a no regrets approach. These big seven innovations are in big markets that are accretive to us, that are accretive to margins. We want to make them as big as possible and get to that peak, and make that peak and that ramp as steep as possible. There’s going to be a pretty heavy investment and that continues even in the second half. I don’t know, Bob, your thoughts on that as we’re spending a lot of time looking at those metrics.

Bob van Himburgen, CFO, Elanco Animal Health: Yeah, a couple of things I would add. One, it’s another reason why Elanco Ascend is so important to be efficient on the G&A aspect because we are going to continue to invest in R&D and in DTC and continue to support the top-line growth of these products. Jeff and I spent a lot of time with our commercial teams. As Jeff highlighted, we did add $10 million to our OpEx for the second half of the year, really to continue to support that top-line growth. A little of which would be R&D related, which will continue to be longer-term investment and support. A lot of it is DTC specifically to continue to accelerate what we’ve already seen tremendous success on Credelio Quattro, but continue to accelerate that. It’s a data-driven decision.

Jeff and I will continue to meet with the commercial teams on a monthly basis and we’ll continue to lean in on this no regrets approach. If it gets to the point where we don’t see the ROI on that investment, then we’ll start scaling it back. Right now, we’re going to continue to lean in and we’ll continue to be operationally effective in the other areas to fund that top-line support.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: As we think about other upcoming blockbuster launches, you mentioned, for instance, the IL-31 approval this year. Can you talk a little bit more about what else is in the pipeline? We’re always going to ask about what’s next.

Jeff Simmons, CEO, Elanco Animal Health: Yeah, absolutely. I have seven innovations you still want. Do you want to know what else? Yeah, I think it’s a great opportunity to segue. I mean, we do expect the IL-31 monoclonal antibody to be differentiated. It’ll be our second dermatology product. I think we’re one of the few companies that has monoclonal antibodies. We’ve made investment CapEx in our Elwood facility. We expect everything is tracking and feel confident on an approval by the end of the year. We don’t have an ADUFA process at USDA, so there’s always that dynamic, but we’re hopeful that we have an approval and we’ll commercialize in the first half. It will be a differentiated asset, and I think it’ll help Zenralia as well as we look at building out a dermatology portfolio. I would just take a couple moments here real quick. I think, you know, Ellen came onto the team.

She has created a matrix versus a team structure. Been very intentional. She’s had, you know, over three decades of leading global R&D teams. I think her track record has shown with, you know, four or five approvals last year. We continue to get approvals. We got a four-month collar. We got our flu vaccine for canine. Good progress on labels. What we’ve done is we’ve really established a team that we believe is very experienced on the clinical side. Over the last three years, she’s been really focused in three areas, to tie your question, refilling the pipeline, the center, the next big seven or so products, and we’ll talk more about those as we go forward. Really, really prioritizing on the big markets.

We’re saying, "Hey, we’re going to go after the opportunistic markets, but at parasiticides at $6 billion, dermatology at $2 billion, growing double digit, you know, pain and next generation pain." Our farm animal franchise is continuing to do really, really well. How do we get that productivity, health, and sustainability in a portfolio? That’s really working well in food safety. Those are her targets. I would say she’s built out a team. She’s brought in a lot of talent, even from some of the competition. She’s built out the internal monoclonal antibody capability. I’ll be after Spain, we’ll head to India. She’s built out shared service centers. Our capacity has gone up while our cost has really remained flat. That’s really given us an opportunity. I’m excited about the center of the pipeline progressing.

Her mantra is very clear to her entire team, a consistent flow of high-impact innovation in major markets, differentiated. We can’t afford small little products. Erin, to answer your question, look for para, Durham, pain, farm animal, really all in our core spaces, big products. Our goal is to drive this peak as high as we can. We’ve got seven great innovations. On the other side of that, we’ll be talking more about the flow of innovation that will come afterwards. Ellen is creating, I think, a capability to create that consistent flow.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: Okay, that’s great. Let’s talk a little bit about underlying kind of base business trends. You talked a little bit, I thought it was interesting what you said earlier in terms of all of this is to help support kind of also the lower end leverage, kind of, you know, there can be bundling capabilities. There can be, you know, corporate relationships that you can establish, all that kind of stuff in terms of bundling the broader offering. Can you talk a little bit about that, but also what you’re seeing in base business fundamentals from a vet office visit standpoint? Also, on the farm animal side, I think we’re at, you know, maybe an inflection point in terms of the cattle cycle. Hopefully that’s something that you can play into as well.

Jeff Simmons, CEO, Elanco Animal Health: Yeah, maybe some base, and then I’ll give you a little bit of your first inflection or an idea or first reflection. Look, I think our base business, we’ve said all along, hey, this is a value-based market. It’s not a payer market. It’s a cash market. You got to add value. On the farm, the pet side, we’ve been very intentional to say, hey, our value has to grow. On IPP, we just talked about innovations, a consistent flow on portfolio. It’s a consistent increase of value. When we go by our four quadrants that really matter when you think ruminants, cattle, poultry, pets especially, each portfolio, international, U.S., how do we expand it? I think we’re the only animal health company that in the U.S., we have reporting to me, pet and farm animal. They’re very different businesses with very different portfolios.

We focus heavy on the value beyond product. We have more sophisticated pricing relative to the value. Pricing is really critical. How do we offer portfolios? Xperia is helping a ruminant. AdTab is helping Seresto in Europe. We can go one by one. Even when we look at Preface in our vaccine and swine, it’s helping the overall swine portfolio. Our core business is stabilized. We don’t see any big air pockets of challenge. It’s always going to be up and down, but as a whole. Maybe just a moment on farm animal. I’ll just turn. Bob came into my office about a week into the job and said, "Hey, I got a question." Maybe you can share that because I think it was an interesting reflection that we missed sometimes the obvious.

Bob van Himburgen, CFO, Elanco Animal Health: Yeah, yeah. What really stood out to me, Erin, and Jeff mentioned, you know, these conferences, investor meetings, 98% of the discussion is on pet. If we have a minute left, there’s a question on farm. I couldn’t understand that.

Jeff Simmons, CEO, Elanco Animal Health: You do better than that.

Bob van Himburgen, CFO, Elanco Animal Health: Because when you look at exactly, you did great. When you look at the fundamentals of the business, the farm business, yes, it has lower gross margins. I think people are just hyper-focused on that. There’s only 10% of OpEx to run that business. When you look at EBITDA margins of the farm business, it’s very, very effective. Cash flow is great. I had the opportunity to spend some time with some farmers. I did a little tour. I underappreciated the science behind making the farm and the farm business successful. I do think the barrier to entry to get into that business is pretty high. It’s an underappreciated asset. It’s something that we’re going to continue to invest in. We’ve got some R&D that we’ll continue to fund, but really excited about that business. It just doesn’t get a lot of visibility.

Jeff Simmons, CEO, Elanco Animal Health: You mentioned, I think right now when you look at poultry globally, it’s probably the global species. We see a durable market doing well. Actually, high beef prices bode well for poultry. People have traded down a little bit. Beef producers, because there’s a shortage of cattle, the rebuilding of the herds is probably going to still take two more years. You’re going to see producer profits up. Packers aren’t quite as happy as producers right now. It really does well. The quiet species out there that’s doing really well and investing a lot is dairy. If you think about this protein movement and the MAHA movement, globally, animal protein is just really, really going well. Who’s innovating the most products? It’s probably dairy. When you think about cottage cheese to yogurt to all the different products, they’re going to invest over $10 billion just here in the U.S.

in that industry. We’ve got Bovaer, Rumensin, vaccines, and we’re really looking at dairy as a real opportunity for us. Remember, ruminants globally is bigger than pets, to the point. We really see a nice opportunity with dairy, beef, and sheep.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: We have some other industry constituents coming in later today to talk about it as well. We’re looking forward to that. Going back to what you just said, what is the delta between kind of farm animal, long-term steady state kind of margin from an operational standpoint and then pet?

Bob van Himburgen, CFO, Elanco Animal Health: Yeah, so on EBITDA margins, it’s much closer. I do see the farm animal business being very, very durable and stable. I do think we’re going to grow at a rate above the market in that business.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: Okay, so let’s talk about pets. On that note, Credelio Quattro, and you came out with a press release this week saying it’s reaching blockbuster status for you. So congrats on that front. You’ve noted that it’s 14% of dollar share. I think that was as of the most recent quarter. If you had the latest data points there, that would be great. You’ve been gaining share and noting that 70% of the share capture is coming from competitive broad spectrum products as well. Can you give us an update on some of these adoption metrics that you’ve given in the share metrics as well in terms of Quattro and success there?

Jeff Simmons, CEO, Elanco Animal Health: Yeah, I would just start by the market overall. I mean, when you look at, you know, what is the fastest growing, you know, segment in all of animal health globally, it is oral broad spectrum endeco products, and it just keeps growing. I think the trailing 12 months has got to be, you know, 35% to 45% depending on when you pick it up. I mean, it continues. Over 70% of puppies are starting on these oral broad spectrum pills, and they’re working and they really provide the value. We’re jumping into a market that is actually growing. That’s why maybe all of us are growing because of the size of that. I would say overall our strategy is value, and we’re hearing it loud and clear that the points of differentiation matter.

As you’ve heard me say, we believe that we’ve got best medicine in the fastest growing largest market in animal health with Credelio Quattro. It’s the only product approved by the FDA with four active ingredients. The praziquantel difference on the broad spectrum is different. Probably the most underappreciated research that we’ve ever published maybe is the speed of tick kill that we have over others, one month heartworm control. Everyone had the question about palatability, and that’s really been a little bit of an unsolicited benefit. We’re leaning in, Erin, right there to say, hey, advocacy. Ellen, again, the machine she’s created. Zenralia was going to be our fastest global approval set. We’re in over 40 countries with Zenralia. We’ve now made all the submissions in the major markets on Quattro. We’ll see that benefit next year as we start to globalize this. We see Credelio as a franchise.

It’s probably the largest franchise potential we have in our seven-year history as a company, so we’re going to invest accordingly. I think the challenge going ahead will be it’s a competitive space, so we’ve got to keep our eyes on that. Look, we have to activate pet owners. It’s an uninvolved category. You don’t say, "I’m going to the vet to change my parasiticide." There are two drivers on uninvolved. One is you got to drive them into the clinic and encourage them to change, and we’re having good success at that. I think that’s important. The other one is just compliance and being able to say, "Hey, we need them taking their pill every month." That’s where two areas that we’ve really got to invest. I don’t know, it ties a little bit to our guide too that we’re not letting up in the second half.

Some people, after the summer, they back off. We’re not backing off on our investment here.

Bob van Himburgen, CFO, Elanco Animal Health: I’m not sure there’s much to add other than we’re jumping in with both feet.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: On the promotional activity that you’re doing there, should we anticipate any sort of stocking dynamics quarter to quarter from a Credelio Quattro perspective? I know you don’t break it out quarter to quarter, but you know your expectations on that quarterly progression. I know one of your competitors was talking about stepped up promotional activity and activity from a competitive standpoint. They were facing presumably maybe a part of that. Can you talk a little bit about the nature of your relationship with distribution on that front and some of the promotional activity?

Jeff Simmons, CEO, Elanco Animal Health: Yeah, a great relationship with distribution. I think right now, you know, they get a lot of value out of us, and they’re getting a lot of value out of us year to date. I think we’ve got the 800-plus reps between the major distributors, really, I think all. We’ve got a front row seat there, relative to the value that they can make and getting good share of voice out of them. Let me be very clear on inventories. I was clear on the earnings call. You know, when you look at into the clinic and out of the clinic, that’s matching nicely. Nothing out of the ordinary in terms of stocking or anything like that.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: Are you seeing any changes in terms of further cannibalization across your legacy business from a parasitic? How is that playing out relative to your expectations?

Jeff Simmons, CEO, Elanco Animal Health: Our IR team’s done a really nice job. Really clear, hey, we’ve got $300 million of legacy business in that $4 billion market in the U.S., so we’ve got a smaller denominator. We’ve seen that erosion over the last three to four years. We’ve got pretty good loyal use. Today with Credelio Quattro, about 70% is coming from new, taking from competitors or new puppy starts, and only about 30% is cannibalization. That’s exceeding our expectations from our original plans.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: How are you making inroads at this point in terms of the larger consolidators with this product? I think last time I was on the phone with you, you were on the phone previously with a large consolidator. How are those contracts progressing?

Jeff Simmons, CEO, Elanco Animal Health: Yeah, I think the large, especially the large clinics, they want the portfolio. Elanco is the second company with the four pillars: so therapy, vaccines, para, and derm. Zenralia is helping us there. We’re definitely, you know, leveraging that. I think the IL-31 short-acting will be a differentiator to us to be able to give us two derm products on that pillar. We’ve said all along we’re under-indexed over the last five years. That is changing. It’s changing nicely, but we do believe that in 2026, that’s going to be a really key objective for us as well.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: Okay, I want to switch gears to Zenralia if we can. You said you’re going to an international Zenralia meeting in Spain, for instance. Can you talk about the global opportunity for Zenralia relative to what you’re seeing in the U.S., how the U.S. market is playing out relative to your original expectations when you kind of saw the black box warning and understand how that’s impacting the adoption rate?

Jeff Simmons, CEO, Elanco Animal Health: Yeah, again, like the para market, I think animal health had a great first half as an industry. I mean, we saw, you know, double digit on Durham. I think it just continues to resonate that there is an undervalued, you know, I think, element of the market growth. Also on Durham, it’s a dissatisfied market. I mean, there’s, you know, I see this market growing nicely, and there’s been a lot of projections of how this market could even double as it globalizes. I see that. I mean, when you have the number of dissatisfied users out there. Look, I think the story on Zenralia globally is we’re now in 40 countries. We’re globalizing this product. We’ve got 39 of the countries or so with a less restricted or really an ideal label. The U.S. label is getting better.

As you look globally, our goal is to really play off from what we’ve seen. We’ve got a half a million dogs, one year of use, and the one simple headline is this product has an efficacy profile that is really compelling. We’re leaning heavily in. We’ve got head-to-head data. We’ve got information. Now we’ve got key KOLs that have had real-life experience. Whether we like it or not, we got thrown into all the trouble cases in the first year, and we got really good pharmacovigilance information to show this product is safe and it’s effective. It works. That’s why we’ve got over 10,000 clinics in the U.S. that are saying, "Hey, we’re moving this thing to first-line treatment." That’s a really nice market out of the 30,000 clinics. We’re going to lean in on that. Globally, we’re going to lean off from our experience with less restrictive labels.

We’re going to launch with no regrets and probably be our second market to Credelio Quattro in the U.S. in terms of our investment.

Bob van Himburgen, CFO, Elanco Animal Health: Yeah, exactly. With Credelio Quattro, right, we’re leaning into DTC, and we’ll take a similar approach to Zenralia as we look overseas. Yeah.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: As you think about the safety or the label and the potential for changes in the U.S. market, what are the prospects for changes? What is, you know, when will we hear more on that front?

Jeff Simmons, CEO, Elanco Animal Health: To highlight what we shared at the earnings call, we had a great constructive dialogue with the CVM, the Center for Veterinary Medicine at the FDA. They, you know, first of all, really good, really good dialogue, very science-based. We shared information and data we had, as well as all the data we had from it being in the marketplace. That moved them to an agreement and a response to the data we shared to take fatally induced disease off the label. We are in the middle of that 60-day window administrative review where we will have that done. We’re close to having that removed from the label. We will continue more dialogue on language change, as well as, you know, research, if necessary, has already started for the bigger label change. With what we’ve seen with Zenralia, our goal is to make the U.S.

label like the other international labels and, you know, continue to build a Durham portfolio. We see us adding to our Durham portfolio significantly, but Zenralia will always be a key part of it.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: It would be more language change as opposed to elimination of the black box.

Jeff Simmons, CEO, Elanco Animal Health: We’re taking all fronts. It’s a multifaceted strategy, yes.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: How are you thinking about the competitive landscape? In atopic dermatitis, and more broadly, how are you thinking about, for instance, a new competitor coming in, especially in the international market?

Jeff Simmons, CEO, Elanco Animal Health: Yeah, we see dermatology as a long-term play. It is an ideal market. It is a big market, $2 billion. As we said, it’s not showing any slowing of growth, the globalization, the international market, $600 million to $700 million growing faster than the U.S. We’re going to take a portfolio global approach. When you put that with our para and our next-gen dermatology and where we’re headed, we see lots of room for Elanco to grow. We’ll do what we always do, and that’s focus on a differentiated value-based approach to the market.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: Okay. IL-31, where can you be differentiated there? Is it formulation, duration, dosing, safety, scope of the label?

Jeff Simmons, CEO, Elanco Animal Health: We can be in any and all of those, and we’ll share more when we get closer.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: Okay, still on track. Sometime in 2026 is when it will be, you know, more material from a financial perspective for you in terms of the launch.

Jeff Simmons, CEO, Elanco Animal Health: Expect we’re tracking and more confident now than we were three months ago on the approval by the end of the year. Manufacturing is tracking as well, and we’ll commercialize in the first half of 2026.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: Okay, great. Bob, you talked a lot about your operational focus across the company. Can you talk a little bit about some of the key drivers and what you see as kind of the most low-hanging fruit? Where do you see margins going over time, over the longer term across this business based on the mix and evolving mix of the business?

Bob van Himburgen, CFO, Elanco Animal Health: Yeah, as we think about margins longer term and let’s say maybe the rest of the decade, we’re going to have some natural opportunities just with natural mix with our basket of innovation, which generally comes at the higher margins than our base business. Elanco Ascend is going to be attacking and enabling opportunities across the manufacturing facilities, across procurement. It really is in G&A. What I would expect is over the rest of the decade, you’ll see gross margin improvements, but you’ll actually see EBITDA margin enhancements growing at a quicker pace and at a higher level.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: Okay. You call for kind of concurrency-oriented top-line growth of 5 to 6% this year. You recently raised that guidance. I guess, how do we think about the quarterly cadence from here? What gets you to what are some of those key drivers and headwinds and tailwinds that we should also be thinking about as we head into 2026?

Bob van Himburgen, CFO, Elanco Animal Health: Yeah, so I think about 2026. We’ve had eight great quarters already of consistent concurrency growth. We are heavily focused on the next eight. Obviously, we’ve got the acceleration of the basket of innovation that’s going to certainly enable that. We have the IL-31 that Jeff just mentioned that, again, we should have approval here this year with commercialization next year. Really what we’re going to see from that is we should see some top-line growth. We should see some natural margin enhancement coming from those innovative products, accelerating. Elanco Ascend coming in, again with some investment in AI and automation, but certainly some cost opportunities. As you look out over the next several years, I’d expect good solid growth, margin enhancement, and then cash. I don’t want us to forget about the importance of cash and delivering cash and delivering.

I just see us being a consistent, durable growth company with a pretty attractive profile.

Jeff Simmons, CEO, Elanco Animal Health: The polls are, you know, I don’t think they’re changing. I think you’ve got, I think we’ve got a good vision on what the competitive innovation is and the competitive set of innovation. That’s always, it’s not like pharma. You don’t have the transparency. That’s always a factor. I think the second is competitive response. You don’t come in with as much innovation in the major markets and not create a response. We’ll have that dynamic. That’s more quarter to quarter than our worry over, as Bob said, two to four years. I think that we got to keep our eyes on. We’ve got a good handle on a good strategy on tariffs. You’ve got to, when you have a, you know, seven, eight species of animals in over 40 countries, you have a dynamic, as Romero and the team always does, in terms of just the dynamics.

Our cut retail business, I would also highlight because that has a lot of strength one quarter and then maybe economic. It’s probably a little bit more recession sensitive, but we keep adding to our portfolio. We’ve added supplements, we’ve added a short collar, and we’ve added a lot more distribution points, and that’s helpful. Those are, I think those are things that the polls and the headwinds are. What I like is they’re consistently the same and we have a strategy for those.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: Can you remind us in terms of the key products that are subject to tariffs at this point? Where is your level of visibility on that front, and how much is manufactured in Europe that’s sold into the U.S. and other ways?

Jeff Simmons, CEO, Elanco Animal Health: Yeah, nothing’s changed. We’ve minimized our active ingredient out of China. That’s very small. We do have a European manufacturing footprint with the acquisitions we’ve made. That’s all been put into our guide. We don’t see anything other than annualizing some of the numbers we’ve talked about. We’ll be approaching that with supply chain continues to adjust, continuing to negotiate and work different areas. We’re looking at targeted pricing. We have a very good strategy. I think we’ve got it in our 2025 guidance and our eyes are all on it in 2026 planning. I think as an industry, we’ve done a really nice job, I think as an animal health industry, to keep the 232. We believe we are out of scope and we’re having good dialogue on that.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: I know we only have two minutes left and this is a big question. Bob, I hate to push on this so much, but I do think it’s an important part of the story. I remember, in terms of the operational improvements across the business and just back at the IPO and the spin out from Lilly, it was the 1,000 basis points of margin expansion that you were going to see. Obviously, there were things that happened, whether it was the Bayer transaction or otherwise. Where do you see that latent synergy opportunity relative to, you know, cost cutting at the Bayer asset, at other areas? Is it, you know, manufacturing footprint? Where do you actually, or is it some of those CMO relationships that you have or otherwise?

Bob van Himburgen, CFO, Elanco Animal Health: Yeah, I think there’s already been a lot of work done, nice work done by the team prior to me joining. There’s not a silver bullet. I’m just refining a lot of opportunities here that I see, again, kind of throughout the P&L. There are just different tools that I’m bringing from my past into the organization. I’m seeing a great receptivity to the ideas I’m bringing from the team. I think EBITDA margins are going to enhance at a quicker pace than gross margins. We’ll see gross margins and EBITDA margins improve over the rest of the decade.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: Are we going to hear more about the fifth of sort of investor day in terms of long-term prospects across the business? Could you give us?

Jeff Simmons, CEO, Elanco Animal Health: I think what investors want out of us is quarter to quarter. Our heads are down. We need to do what we say. We’ll continue to guide quarterly. We don’t want to create any surprise. We know we’re an execution story. That’s growth, innovation, cash, an execution story. Yes, we just put our Elanco 2030 plans in front of the board and got those approved. We’ll continue to share and expose our investors to that as we go forward when we think it’s the right time.

Erin Wright, Healthcare Services Analyst, Morgan Stanley: Yeah, I think the last time was 2020. Hopefully we’ll hear from you soon. Thank you so much. I appreciate the time today. Always a great discussion.

Jeff Simmons, CEO, Elanco Animal Health: Thanks for what you do for our industry. Thank you.

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