Elanco Animal Health (NYSE: NYSE:ELAN) has reported a strong financial performance for the second quarter of 2024, with key metrics such as revenue, adjusted EBITDA, and adjusted EPS exceeding expectations. The company has shown four consecutive quarters of underlying revenue growth and is making strides in its strategic outcomes, including revenue growth, improved cash flow, and innovation. Elanco is preparing for the launch of new products Zenrelia and Credelio Quattro, which are expected to contribute to the company's growth in the lucrative global markets for canine dermatology and parasiticides. Additionally, Elanco has made progress in its sustainability efforts, as highlighted in its 2023 ESG report.
Key Takeaways
- Elanco's financial performance in Q2 2024 surpassed expectations with significant revenue, adjusted EBITDA, and adjusted EPS growth.
- The company is preparing for the launches of Zenrelia and Credelio Quattro, targeting the global canine dermatology and parasiticide markets.
- Elanco has maintained its full-year outlook, projecting organic constant currency revenue growth of 3% to 4%.
- The company expects to reduce net leverage to mid-4x by year-end and has showcased progress in its sustainability initiatives in the 2023 ESG report.
- Zenrelia is anticipated to be a blockbuster in the canine dermatology market, with final FDA approval expected in late September.
- Elanco is strategically investing in product launches, which impacts guidance for the second half of the year.
Company Outlook
- Full-year revenue forecast between $4.41 billion and $4.46 billion, with organic constant currency growth of 3% to 4%.
- Organic adjusted EBITDA guidance maintained at $900 million to $940 million for the full year.
- Q3 revenue expected to be between $1.02 billion and $1.05 billion, with adjusted EBITDA between $140 million and $170 million.
- Confidence expressed in Q4 performance, anticipating organic adjusted EBITDA and EPS growth.
Bearish Highlights
- Initial adoption curve for Zenrelia in the US expected to be slow due to vaccine response study box warning.
- Increased manufacturing losses and investments in product launches are impacting financial guidance for H2 2024.
- Gross margin for Bovaer is below corporate average due to high manufacturing costs.
Bullish Highlights
- Strong growth in the U.S. Farm Animal segment, with a diverse portfolio and new products in development.
- Positive outlook for the cattle and poultry segments, supported by sustainable protein demand and food safety initiatives.
- Zenrelia and Credelio Quattro expected to significantly enhance growth in their respective markets.
Misses
- No specific safety or label details for Zenrelia provided until after FDA approval.
- Revenue from Credelio Quattro not expected in 2024 due to pending final approval.
Q&A Highlights
- CEO Jeffrey Simmons emphasized Galliprant's performance in the Pain market despite competitive pressures.
- Elanco's portfolio positioned for sustained growth in poultry, dairy, and beef sectors.
- Potential for blockbuster success with Zenrelia and IL-31 in the dermatology market.
- Elanco has other assets in development, including a long-acting product from Kindred.
Elanco's second quarter of 2024 has set a positive tone for its future endeavors, with the company not only meeting but also exceeding financial expectations. The anticipation of new product launches, such as Zenrelia and Credelio Quattro, positions Elanco to tap into billion-dollar markets, offering promising avenues for growth. The company's strategic investments and focus on innovation, as well as its commitment to sustainability, are poised to keep Elanco on the trajectory of success in the dynamic animal health sector.
InvestingPro Insights
Elanco Animal Health's (NYSE: ELAN) recent financial performance paints a picture of a company on the move, with its sights set on tapping into new markets and driving innovation. InvestingPro data and tips provide additional context to this narrative, offering investors a deeper look into the company's financial health and prospects.
InvestingPro Data indicates that Elanco currently holds a market capitalization of $6.4 billion. The company's Price to Earnings (P/E) ratio stands at -4.91, reflecting investor sentiment about its future profitability. Despite a slight revenue decline of 1.73% over the last twelve months as of Q1 2024, Elanco boasts a robust gross profit margin of 55.33%, underscoring its ability to maintain profitability at the operational level.
Two InvestingPro Tips that are particularly relevant to Elanco's current situation include the expectation of net income growth this year, which aligns with the company's positive outlook and strategic initiatives. Additionally, the fact that Elanco's liquid assets exceed its short-term obligations suggests a solid financial footing, which could reassure investors of the company's ability to manage its finances amidst its ambitious product launches and growth plans.
For those seeking more comprehensive analysis and advice, InvestingPro offers additional tips on Elanco. There are six more tips available, ranging from earnings revisions by analysts to the company's valuation multiples and dividend policies, which can be found at https://www.investing.com/pro/ELAN. These insights can help investors make more informed decisions based on the latest data and expert analysis.
Elanco's strategic direction, highlighted by the upcoming launches of Zenrelia and Credelio Quattro, and its financial metrics, suggest a company that is navigating its challenges while setting the stage for potential growth. With the additional context provided by InvestingPro, stakeholders can better assess how these factors might influence Elanco's trajectory in the competitive animal health sector.
Full transcript - Elanco Animal Health (ELAN) Q2 2024:
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Elanco's Animal Health Second Quarter 2024 Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Katy Grissom, Head of Investor Relations. Katy, you may begin.
Katy Grissom: Good morning. Thank you for joining us for Elanco Animal Health's second quarter 2024 earnings call. I'm Katy Grissom, Head of Investor Relations and ESG. Joining me on today's call are Jeff Simmons, our President and Chief Executive Officer; Todd Young, our Chief Financial Officer; and Scott Purucker from Investor Relations. The slides referenced during this call are available on the Investor Relations section of elanco.com. Today's discussion will include forward-looking statements. These statements are based on our current assumptions and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from our forecast. For more information, see the risk factors discussed in today's earnings press release as well as in our latest Form 10-K and 10-Q filed with the SEC. We do not undertake any duty to update any forward-looking statement. Our remarks today will focus on our non-GAAP financial measures. Reconciliations of these non-GAAP measures are included in the appendix of today's slides and in the earnings press release. After our prepared remarks, we'll be happy to take your questions. I will now turn the call over to Jeff.
Jeffrey Simmons: Thanks, Katy. Good morning, everyone. Elanco continued to deliver in the second quarter, exceeding the top end of our guidance range on our key metrics: revenue; adjusted EBITDA; and adjusted EPS. With 4 consecutive quarters of underlying revenue growth behind us, we continue to make significant progress on our 3 strategic outcomes: growing revenue; improving cash flow; and notably delivering innovation. Beginning on Slide 4. Since our last earnings call, we delivered consistent operational results and achieved key milestones in advancing our innovation, portfolio and productivity strategy. Elanco delivered our fourth consecutive quarter of underlying revenue growth, driven by strength in U.S. farm animal, international pet health and added contributions from new products. On innovation, commercial activities are underway for Bovaer after the FDA completed its review in May. Zenrelia and Credelio Quattro continue to track in line with our late June update and we continue to expect to launch a potential blockbuster in each of the next 3 quarters. For Zenrelia, the final 60-day administrative window is underway with approval expected in late September. Credelio Quattro remains on track for final approval in the fourth quarter. With improved operating cash flow and the proceeds from the sale of our Aqua business, we have repaid $1.3 billion of debt in 2024. And expect net leverage to be in the mid-4x level by the end of the year. Looking forward, we remain confident in our full year outlook. We now expect organic constant currency revenue growth to be 3% to 4% for the full year. This reflects the removal of the Aqua business, maintained expectations for the base business in the second half and the expected increase in innovation contribution shared in June. Excluding Aqua, we are maintaining expectations for adjusted EBITDA with improved sales, offsetting increased investments in strategic launches in the second half. We are also maintaining our adjusted EPS guidance with lower interest and tax expense offsetting the removal of Aqua. Finally, we issued our 2023 ESG report demonstrating progress on Elanco's Healthy Purpose sustainability efforts in our internal operations, customer collaborations and beyond. Moving to Slide 5. We provide year-over-year revenue growth for the first half of the year. This view excludes the quarterly phasing created by last year's ERP integration. In the first half of 2024, we delivered constant currency revenue growth of 4%, building on the mid-single-digit growth in the back half of 2023. Looking deeper at our four business areas, starting with U.S. Pet Health. Our consistent strategic enablers drove improved execution over the last 18 months. Despite a competitive environment, -- this allows us to maintain a high level of optimism for the future of U.S. Pet Health as we bring Zenrelia and Credelio Quattro to the market over the next 2 quarters. In the first half of the year, U.S. Pet Health revenue declined 3%. On the retail side, the underlying business is strong as dispensing growth, a key indicator of product demand, accelerated significantly in May and June this year and continued into July. This growth was driven by increased share of voice from targeted investments in our flagship brands, expanded physical availability with more than 10,000 new points of distribution as well as capitalizing on the elasticity of Seresto. However, retailer purchasing patterns created variability in our reported results, impacting net sales growth in the quarter. Todd will provide more details later but we anticipate this dynamic to normalize in the back half of the year when retailers are expected to begin to order more in line with dispensing trends. On the vet clinic side, improved vaccine supply and innovation drove stabilization across the business through the first 6 months of the year. The launch of our canine parvovirus monoclonal antibody or CPMA, is progressing nicely. We have placed the product in 1/3 of our target clinics and continue to strategically invest to drive penetration. However, competition in the U.S. vet clinic, particularly in parasiticides and pain continues to pressure our business. Strategic investments to expand the sales force and increase opportunities with corporate clinics are laying the groundwork for improved performance as we look towards enhancing our portfolio with the addition of Zenrelia in the fourth quarter of this year and Credelio Quattro in the first quarter of next. Next, revenue for our International Pet Health business grew 11% [ph] in constant currency in the first half. Our retail parasiticide leadership and share of voice continues to strengthen as we invest to drive the growth of key brands like Seresto and AdTab. We are encouraged by the performance of the Credelio family globally, led by Credelio Plus now 3 years into the market. Our International Pet Health business growth exemplifies the benefits of a strong diverse portfolio, contributions from innovation and a concentrated focus on major markets, all part of a well-executed strategy by Dr. Ramiro Cabral and his team. Moving to Farm Animal. Revenue for our international business was flat on a constant currency basis compared to the first half of last year. Excluding the Aqua business decline, constant currency revenue growth was 2% in the first half of the year, driven by the strength in poultry, particularly offset by continued pressure in Asia swine. Poultry and cattle represent nearly 3/4 of our International Farm Animal business and our momentum is strong in both areas. We have confidence in our relative market position and ability to continue to grow the business in these key areas of strength. Finally, strong delivery from the U.S. Farm Animal business continued with 17% revenue growth in the first half of the year, driven by cattle and poultry. Strength in cattle was driven by continued Experior adoption, Rumensin growth in both beef and dairy and improved vaccine supply. This outsized growth is the outcome of both our strategy playing out and positive market factors. Our portfolio benefited from strong demand driving higher values for both poultry and cattle. As cattle on feed remain low. On the other hand, swine, the smallest business for us is faring less favorably with pork supply outpacing demand, pressuring producer profitability. Overall, our U.S. Farm Animal portfolio is well positioned in the market with scale and value that differentiates us from competitors. Dr. Jose Semas and his team are leveraging our innovation to strengthen our portfolio and increase our value proposition for customers. This along with our differentiated data services is helping to stabilize and in some cases, like Rumensin, grow our base business. We expect continued growth from innovation with the incremental opportunity [indiscernible] and the launch of Bovaer which I'll touch on more in a moment. Moving now to Slide 6. Let's look at the strategic drivers for our innovation, portfolio and productivity strategy. Starting with portfolio. Our base business continues to stabilize as we amplify our message through our increased sales force and digital engagement with veterinarians and farmers globally as well as increased pricing capabilities. We've seen the portfolio strengthen even more in places where we've introduced new innovation. We see this with Credelio Plus and AdTab and International Pet, Experior in U.S. cattle and in poultry globally. We remain confident that the launch of Zenrelia and Credelio Quattro will provide a similar catalyst for our U.S. Pet Health business. Regarding productivity, we are delivering improved operating cash flow and debt pay down. We've taken a cross-functional approach to successfully diagnose evaluate and deliver solutions to improve processes and reduce balance sheet inventory. In addition, we have transitioned from using cash from operations to fund necessary stand-up and integration costs to utilizing that cash for debt pay down. As I said earlier, with the combined proceeds from the close of our Aqua sale and improved year-to-date operating cash flow of $286 million we have repaid $1.3 billion of debt in 2024 and expect net leverage to be in the mid-4x level by the end of 2024. Now let's get to innovation on Slide 7. Innovation sales contributed $109 million in the quarter with $209 million in the first half of 2024. In June, we increased innovation sales expectations to $400 million to $450 million for the full year. The just over $30 million improvement at the midpoint is driven by the strong ongoing performance of Experior and AdTab and the inclusion of Bovaer and Zenrelia in the 2024 expectations. We remain on track to deliver $600 million to $700 million in sales from our innovation portfolio by the end of 2025. On Slide 8, we reflect progress on our late-stage innovation time line as we continue to advance our ambition of delivering consistent high-impact innovation. On Slide 9, let's review further details on our 3 late-stage potential blockbusters with one expected to launch in each of the next 3 quarters. First, on Bovaer. We continue to make good progress on the steps necessary to successfully commercialize. To date, we have approximately 500,000 dairy cows activated in our uplook database which tracks methane reduction based on approved protocols and it enables farmers to monetize carbon. The majority of state registrations are complete. However, we're still awaiting California, a key dairy state. Athian is negotiating contracts with several consumer goods companies to purchase carbon based on the feeding of Bovaer and Rumensin to dairy cows. While the overall process is complex we believe this creates a sustained competitive advantage for Elanco and will enable our next era of Farm Animal growth from innovation. Overall, we are encouraged by the progress and high interest across the value chain, while we expect producers to begin feeding Bovaer to dairy cows in the coming months. Next on Zenrelia. Before the end of June, we received confirmation from the FDA that all major technical sections effectiveness, safety and CMC were complete. We're pleased to share that the final 60-day administrative review period is underway in the U.S. We expect the final FDA approval in late September with a nearly immediate launch in the U.S. in early October. We're also excited to begin globalizing the product with launch in Brazil expected in the fourth quarter as well. We're very encouraged about the opportunity for Elanco to enter the more than $1.5 billion global canine dermatology market and for the blockbuster potential of Zenrelia. We continue to expect that Zenrelia will be positively differentiated from the current JAK inhibitor on the market with regards to effectiveness and convenience. Our view is informed by our expected U.S. label and the head-to-head data submitted as part of the EU data package. As shared in June, the expected U.S. label will include a box warning related to our vaccine response study. We expect this label language will slow the initial product adoption curve in the U.S. as we believe it will require focused veterinary education on the product. Our expectations for treatment days being limited by approximately 25% is based on expected language in the box warning related to vaccine usage. We have done extensive and broad market research that concludes efficacy and value matter most to veterinarians. And even with the expected label, there is strong interest in Zenrelia as a treatment option for canine dermatology. Bobby Modi and the U.S. Pet Health commercial organization have an extensive launch plan and are eager to bring this product to customers. The sales force is being trained on the product, marketing materials are in final development and we are lining up key opinion leaders. Upon approval, the team will activate a vet-focused engagement plan that leverages robust technical data that we are confident will allow the merits of the product to drive clinic adoption. Within days of approval, we intend to host a conference call for the investment community to provide clarity on the label, our differentiation and our sales and marketing approach to help underwrite the opportunity we see for Zenrelia to contribute meaningful accretive sales and EBITDA for Elanco. We look forward to providing more details in the coming months. Finally, on Credelio Quattro. As previously shared, 2 of the 3 major technical sections' effectiveness and safety are complete. We expect the final administrative review to begin later this quarter with the final approval expected in the fourth quarter of this year. In addition to the regulatory process, we are finalizing the manufacturing scale-up to optimize launch which is targeted for the first quarter of 2025. We are very excited to bring this differentiated potential blockbuster to the largest and one of the fastest-growing market segments in our business. We estimate the U.S. parasiticide market had approximately $3.8 billion with the broad spectrum products now making up nearly 25% of the market, demonstrating the massive gains since their introduction just 3 years ago. We expect the addition of Credelio Quattro to our portfolio of U.S. prescription parasiticides which represents about $300 million of sales in 2023, to significantly enhance the growth of our U.S. Pet Health business in 2025 and beyond. We expect these pet health innovations to position Elanco very competitively in the U.S. vet clinic. As just the second company to bring a comprehensive product offering to veterinarians with broad-spectrum parasiticides, dermatology, vaccines and therapeutics. We are encouraged by the progress by our R&D and regulatory colleagues, the diligence by our manufacturing teams to prepare product supply, the creativity of the marketing team to prepare for competitive launches and the engagement and sheer excitement of our commercial colleagues as we enter this important era for Elanco. Now, I'll pass it to Todd to provide more on our second quarter results and financial guidance.
Todd Young: Thank you, Jeff and good morning, everyone. Today, I will focus my comments on our second quarter adjusted measures, so please refer to today's earnings press release for a detailed description of the year-over-year changes in our reported results. Starting on Slide 11. In the second quarter, we delivered $1.184 billion of revenue, an increase of 12% or 13%, excluding the unfavorable impact of foreign exchange rates. Price contributed 4% in the quarter. The ERP system blackout that occurred in 2023 impacts our year-over-year comparison to the second quarter. Last year, we estimated sales of $90 million to $110 million shifted from the second quarter into the first quarter, reflecting a 9 to 10 percentage point benefit to growth in the second quarter of this year. We estimate the underlying business grew 3% to 4%, slightly ahead of our expectations. The estimated impacts are noted on Slide 13 for each business area. For Pet Health, second quarter constant currency revenue growth was 13% and with an estimated benefit to year-over-year growth of 13 to 14 percentage points from the ERP blackout. In the U.S., Pet Health revenue grew 1% in the second quarter, including a benefit to year-over-year growth of approximately 10 percentage points from the ERP blackout. In the Vet Clinic, the underlying decline was driven by competitive innovation pressure on legacy products. This pressure was partially offset by our recently launched products, specifically CPMA. On the retail side of the business, lower second quarter revenue in 2024 was primarily attributable to changes in purchasing patterns and more conservative inventory management at several large retailers. Over the course of the first half of the year, our top retail customers built significantly less inventory compared to the same time period last year as a result of our ERP cutover and purchasing timing ahead of discount days. However, as we focus on dispensing, we are encouraged by the positive momentum we see in the end market demand. In May and June, dispensing for our OTC products in our top 6 retailers grew approximately 13% and compared to a mid-single-digit decline in the first 4 months of the year. In July, dispensing growth for Elanco continued in those key retailers. As Jeff mentioned, the execution of our strategy is expected to drive continued dispensing growth throughout the back half of the year and we will benefit from retailer purchases expected to be more in line with dispensing compared to the second half of last year. International Pet Health grew 34% in constant currency, including a benefit to year-over-year growth of approximately 21 percentage points from the ERP blackout. Excluding the blackout impact, the underlying business growth was driven primarily by new products, led by AdTab and Credelio Plus and the rebound in the Spain retail business, offset by continued weakness in the China pet market. Moving to Farm Animal. Our global business grew 14% in constant currency, with an estimated benefit to year-over-year growth of 5 percentage points from the ERP blackout. The underlying business growth was driven by strength in U.S. cattle with continued Experior adoption and cattle vaccine resupply. Additionally, in the U.S., timing of poultry rotations provided a tailwind compared to the second quarter of last year. We expect these trends to continue in the third quarter but will face a difficult compare in the fourth quarter, lapping last year's initial resupply of cattle vaccines and positive poultry rotations. Outside of the U.S., growth was driven by continued strength in poultry and increased demand for cattle products in Latin America, partially offset by reduced sales of Kexxtone. Continuing down the income statement on Slide 14. The decline in gross margin was in line with our expectations of slowing the manufacturing plants created an approximate 190 basis point headwind in the quarter. We continue to expect this impact to be neutral in the third quarter and to flip to a positive in the fourth quarter as we lap the impact of our plant slowdowns starting in the back half of last year. Product mix was a headwind to margin in the quarter, partially offset by positive price. Operating expenses increased 2% driven by employee-related expenses and investment in our European pet business, timing of R&D spend partially offset by productivity benefits of being on one operating system. On Slide 15, we have provided walks to illustrate our year-over-year performance in adjusted EBITDA and adjusted EPS. Adjusted EBITDA was $275 million in the quarter. The year-over-year comparison includes a benefit of approximately $70 million to $90 million from the ERP blackout in the second quarter of last year. For the underlying business, the decline of $16 million to $36 million was driven by lower gross margin from slowing manufacturing output to reduce balance sheet inventory as well as negative product mix. Adjusted EPS was $0.30 in the quarter. The year-over-year comparison includes a benefit of approximately $0.11 to $0.14 from the ERP blackout in the second quarter of last year. Both interest expense and our tax rate were lower in 2024 than in 2023. Next, let me operate a few words on our cash, working capital and debt on Slide 16. The Cash provided by operations was $200 million in the quarter or an increase of $139 million compared to the second quarter of last year. This increase reflects lower project expenses and our strategic efforts to reduce balance sheet inventory. Our strategy and focused execution are paying off to deliver improved cash generation. We ended the quarter with net debt of $5.3 billion, a reduction of $163 million in the quarter. Subsequently, in July, we paid down $1.2 billion of debt with proceeds from the sale of our Aqua business. Importantly, a significant portion of our taxes related to the transaction will be paid out in 2025. This allowed us to pay down more debt than initially expected in 2024, resulting in interest expense savings but requires a cash tax increase next year of approximately $150 million related to the transaction. We have updated Slides 28 and 29 in the appendix to reflect our key debt information and factors impacting cash flow and leverage after this additional paydown. At the end of June, our net leverage ratio was 5.6x, down from 6.1x at the end of the first quarter. We expect year-end net leverage in the mid-4x range and in 2025, expect this ratio to move lower to the low 4x to high 3x range. Now let's move to our financial guidance, starting on Slide 17. We Today, we are introducing organic growth, a measure we intend to use over the next 12 months that excludes the impact of the Aqua divestiture across the full P&L. As Jeff said, we are maintaining guidance for the base business while increasing our organic growth expectations to include increased contribution from innovation, including Zenrelia and Bovaer. For the full year, we now expect revenue to be between $4.41 billion and $4.46 billion, representing organic constant currency growth of approximately 3% to 4%. This is a slight increase over our May guidance, driven by innovation sales expectations, increasing to $400 million to $450 million. Slides 19 and 20 provide walks from our May to August guidance including removing the expected contribution of Aqua. We are maintaining our organic adjusted EBITDA guidance which is now $900 million to $940 million for the full year after removing approximately $60 million of adjusted EBITDA attributable to Aqua. Second quarter overperformance in U.S. Farm Animal and International Pet Health is expected to be offset by incremental headwinds on gross margin and increased investments in launches in the second half of the year. For adjusted EPS, we are maintaining our range of $0.88 to $0.96 for the full year. We were able to fully offset the reduced adjusted EBITDA flow-through from the Aqua business with approximately $40 million of interest savings associated with the debt reduction and lower tax expense. On a GAAP basis, we now expect EPS between $0.63 and $0.71 for the full year. This step-up compared to our previous guidance includes a pre-tax gain of $1.31 on the sale of our Aqua business. On Slide 21, we are introducing financial guidance for the third quarter. We expect revenue of $1.02 billion to $1.05 billion, representing organic constant currency growth of 1% to 4%. We expect adjusted EBITDA between $140 million and $170 million and adjusted EPS of $0.10 to $0.14. Finally, moving to Slide 23. Our implied fourth quarter guidance represents a return to organic adjusted EBITDA and EPS growth. We are confident in the sequential trajectory change with gross margin headwinds expected to subside as we lap slowing down our manufacturing output and the detriment from last year's devaluation of the Argentinian peso. Now, I'll hand it back to Jeff for closing comments.
Jeffrey Simmons: Thanks, Todd. Momentum continued in Q2, marking the fourth consecutive quarter of mid-single-digit constant currency revenue growth in the underlying business. With a stabilizing base business and increased contributions from innovation, our raised 3% to 4% expected organic constant currency revenue growth in 2024 demonstrates marked improvement over the past several years. We continue to execute on improving our leverage profile with the completion of the Aqua transaction and quick debt paydown. Importantly, our major innovation window is now upon us. With 3 potential blockbuster product launches imminent in each of the next 3 quarters. We have differentiated assets and we intend to invest strategically with no regrets to maximize the potential launch curve and peak sales trajectory. We have been preparing for these launches for some time, including recruiting top industry talent and conducting extensive market research to support our launch efforts. We look forward to hosting a conference call upon Zenrelia approval to provide more specifics on our expected differentiation as well as more details on the label and our go-to-market strategies. With that, I'll turn it over to Katy to moderate the Q&A.
Katy Grissom: Thanks, Jeff. We'd like to take questions from as many callers as possible. So we ask that you limit yourself to one question and one follow-up. Operator, please provide the instructions for the Q&A session and then we'll take the first caller.
Operator: We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Jon Block from Stifel.
Jon Block: I'll start on Zenrelia. And Jeff, can you just provide the timing of the head-to-head study -- will that be available for the launch, call it, launch/ramp here in the fourth quarter of 2024. And then one more on Zenrelia -- and I know you'll have the earnings call -- but any high-level comments you can provide on the vax response study that seemed to trigger the warning label? How do we think about that? In other words, was it more a function of euthanasias, non-responders to the vax. Maybe if you could help us out a little bit there. And then I'll have a follow-up.
Jeffrey Simmons: Yes. Thank you, Jon and I appreciate all the work you've done on this and appreciate the questions. We do intend -- I'll just answer one of your questions directly, then I want to add a little bit of broader context because this is the first time we've spoken since the June release. But we do intend to have the head-to-head study that was done against the market incumbent that was part of the European submission package, it is our intention to have that as part of the initial day 1 launch materials. So -- but let me just share, I'd like to share just a couple of messages, just relative to Zenrelia and the greatest context that I think can help everybody as there's continued interest in this product. First, we're excited about Zenrelia. We're excited about entering the derm market, as you know, a fast-growing market, continues to grow double digit in the U.S. and globally, millions of dogs that are still untreated. We're bringing Zenrelia. We're going to follow that with IL-31 and a pipeline that Ellen has in derm. So -- and it's weeks away and we're excited about it. A couple of points just in context, we're going to respect the FDA process. We will limit specific comments on the label and data packages until full approval of the product, Jon. Currently, in the 60-day administrative review that has started, we're in that and that puts us on track for that late September approval. And as I made a comment there at the end of the earnings -- we will days after the approval, we anticipate holding a comprehensive investor call where Jon will share this study, other studies and label details and I'm a little limited to do that now as well as our go-to-market and we look to have even outside experts, vets and derm. But here are some points that I think are important to take a look at how we're looking at this. First, we do not expect anything in the package of the label of Zenrelia will prevent the product from being widely adopted across all types of vet clinics. We do, as we've said, expect Zenrelia to be positively differentiated and efficacy with that head-to-head study with the market incumbent as well as positive differentiation on convenience and value. Then the market research that we have done and others, indicate that's our most interested in two things; better efficacy and value. These are the top 2 derm needs we see for vets. It's very clear, it's very compelling. Additionally, 70% of vets surveyed here recently want more derm options. And we think that will likely lead to them carrying another product on their shelves. And that will be a key objective we have. Another point that I think is important since the release that we think is very important is Zenrelia applicability can be for all itchy dogs over 12 months, chronic or acute or seasonal, there are no dogs that should be excluded from the initial target population for Zenrelia, very important. And our expectations back on the days initially being limited to 25% is solely related to the timing of the vaccine administration which maybe I can bridge then, Jon, to this question and just highlight this vaccine response study is all around JAKs as a class. They're immune modulators, they modify the immune system, their potential to suppress the immune system is common in this class. And as part of any data package, even a 10-year incumbent 10 years ago, we completed what is called a vaccine response study. And as it sounds, it studies and assesses the dog's response to the vaccine while receiving 3x the label dose of Zenrelia. And again, we believe very clearly that we've got confidence that data supports our value proposition and look forward to educating vets directly.
Jon Block: That was great. I think just as a quick follow-up. Todd, this one might be for you. For 2025, I think the prior, call it, high-level messaging was that these new blockbusters would be, obviously, gross profit dollar-accretive in 2025 but likely gross margin-dilutive due to some investments associated with the new products. Now we believe Zenrelia's price is going to be lower, maybe you need to make more investments to explain the label. When we think about these new blockbusters, do we still think gross profit dollar-accretive in 2025 or more neutral. Maybe you can just flush that out a bit.
Todd Young: Sure, Jon. I appreciate the question and all the work you and your team have been doing over the last few months. Certainly, we're excited to bring Credelio Quattro, Zenrelia and Bovaer to the marketplace, two of those coming this year. And we're making investments behind those here in the second half where those will be not accretive to EBITDA in the second half given the investments, including investments for Credelio Quattro. We do expect that to flip in 2025, where they will be both gross margin-accretive but also that they're going to be accretive to EBITDA. We're not going to get into 2025 guidance today. That will be early next year. But as Jeff said, we're very excited for these products and excited to get Zenrelia in the hands of vets here in the fourth quarter.
Operator: Your next question comes from the line of Michael Ryskin.
Michael Ryskin: Great. I want to pick up right where you left off on Zenrelia. Jeff, you keep highlighting value -- efficacy and value as a differentiator. And the way you talked about pricing in the past. Obviously, there's a value component of it to the vet in this and there's the price component to the vet. But -- just to be clear, how has your launch plan on Zenrelia changed following the Black Box (NYSE:BOX) warning development? You talked about more vet education and the spend that goes in that. But in terms of how it's positioned to the vets -- just how willing are you to use the price lever to gain share in that market?
Jeffrey Simmons: Yes. Thanks, Mike, for the question. Let me start by the first thing that we know will happen is we're going to increase share of voice. We're going to have a lot more marketing and attention. This is going to be one of the most expansive launches ever and being second to the market. The first thing we're going to do is increase the size of the market; there's millions of dogs that are still untreated. And any new innovation -- when you see even the existing growth that's even occurred so far in the first half of this year in derm, we expect the market size to grow. And so that will be the value driver number one, as we see this market growing and we see it not just in the U.S. but globally and I'll say, in parallel, we'll be in Brazil and we'll follow with other launches behind it. From a price perspective, we will do what we always do and that is take a value-based approach. We will look at it holistically and we will look at all aspects of the value and we do believe that we overlay upon approval -- we overlay our positive differentiation against what vets want most and that is better efficacy as well as we believe value and that comes with convenience as well as other aspects. We will -- we have 2 objectives as we think about the launch plan is, one is we will work closely with vets so they understand the label, the science, the data. We want a vet-to-vet understanding. So one way we've shifted is we're going to take a very vet-focused launch effort initially utilizing data and we will do that with a lot of intensity and preparedness. And then that's going to move us to want to have experience. We're going to want this product in more clinics hands quickly, so it can get into pet owners' hands, so we can demonstrate the differentiation of this product. And we will use appropriate programs to ensure and encourage the use of this product quickly upon adoption. But again, those are the things that we've done to adjust it. It will be one of the most expansive launches ever. We will use a multifaceted approach. And we've already started, as you know, with more share of voice, larger sales force, next-generation capabilities. It will be much more of a digital omnichannel approach initially -- and also a forward dimensional offer, we believe, will help having pair therapeutics and vaccines as well. So -- and we'll share more details of this again right after the approval on the call that we'll have.
Michael Ryskin: Okay. And again, Jeff, you actually just took it to the second part -- to my second question on the breadth of the portfolio. You talked about Para-derm therapeutic vaccines. So breadth of portfolio comes up all the time when we talk about in terms of how they make their purchase decision which longer they prioritize. Now you jumped from early '23 to early '24, adding a lot of products to the companion portfolio. You're going to have arguably the first or tied for first broadest portfolio to the vet. How does that change the value proposition for the rest of the business in terms of the uplift of the other products beyond the blockbusters, beyond the new launches? Is that coming up in conversations already? Is that part of your plan, in some of these distributors and large consolidator groups as you approach 2025?
Jeffrey Simmons: Yes, it's a great question. I think the other thing that I would add that's pretty important is we are now in more clinics than we've ever been. I mean I think between the increased sales force and the parvovirus monoclonal antibody, it's put us and given us more access -- even the diabetes product last year, it's given us more access. So that was our goal was when we're about to launch two differentiated products, blockbuster products in the two largest pet markets in the largest pet market here in the U.S. Derm and Para. And so as we look at this, one is access to clinics is one. And then two, no question. As we look at offerings and even purchasing, there is an interest in which products are carried by which companies and we believe Derm allows us to help our Para portfolio as well as even our vaccine portfolio and some of the purchasing plans that are available today. And we've already started that engagement and there's a lot of interest relative to that and we will use appropriate from corporates to distribution to across the board, we will leverage the portfolio. Zenrelia will help Quattro, Quattro will help Zenrelia.
Operator: Your next question comes from the line of Umer Raffat with Evercore ISI.
Umer Raffat: It's good to hear all the constructive language on Zenrelia. So let me just pressure test that a little more. As I dig into it, I know the Apoquel study, the vaccine response study had 2 out of 8 dogs that were euthanized and the dose was 3x human. I'm assuming the 3x human dose is probably more standard than not. So it sounds to me like considering you're getting a black box, your euthanizations were more than 2 out of 8. Could you give us some more color on that? And then also, was the timing of these euthanizations, or whatever the safety finding is, more pronounced towards the back end of the study? I'm trying to understand why the cap on duration. And then finally on Credelio, my sense is the CMC stuff is probably much more trivial and it's just information like sourcing packaging. Could you confirm that it was just a straightforward trivial request?
Jeffrey Simmons: Yes. Thanks, Umer, very much and I appreciate the questions. We will not and just respecting the FDA process, I can't get into the details of studies and label until approval but I can assure you that we will be sharing that very openly with you as investors as well as the vet community upon approval and looking at it holistically. I will point though and you know this well and we when thinking about safety, I think it's important that if you look at the FDA process, once the product is approved by the FDA, it is deemed safe and effective when used according to the label. And then when you look at the label, it's about providing guidance to the veterinarians to assure appropriate use and administrate the product -- or maybe more simply set a label indicates how to use the product safely and that will be our primary focus out of the gate with this is to educate and inform vet community very extensively on this product. And again, that leads us to our confidence relative to we'll meet these standards and the differentiation will add value significantly in the marketplace. Bridging over to Quattro, just to give you a sense, yes, we believe we answered those questions and we believe that, that will move us through and getting this last technical section complete. And that will move us into administrative approval to keep us on track for a fourth quarter approval and a first quarter launch. I will say that following that and independent of the approval, we're still finalizing, as I said in my comments, the manufacturing scale up to optimize the launch on the manufacturing side and it's common with multiple acts of ingredients, the process validation side, there's complexity but we've done this before. And we've got a very experienced team and that's tracking again for the first quarter approval as well.
Umer Raffat: Jeff, if I may, I feel like we're putting less of an emphasis on black box than we should be. Am I hearing -- because I know you're very confident in the launch profile and everything else. But ultimately, the incumbent has been on the market for a while and they don't have a black box. So I'm just trying to put that into perspective on what you're hearing and why you're so confident in the black box is not as important.
Jeffrey Simmons: Yes. Look, box warnings are -- as I said, labels are all about the use and the indication of the product. We're planning to, again, take a an altered approach to our launch strategy which is educating vets and we will make sure that the science and the data and that label is fully understood. And how to use the products accordingly. No question about that. So no, I wouldn't want you to read that at all. I do believe that veterinarians are very opportune and also able to understand labels and understand the science and use the products accordingly and that's common and there's products that have box warnings and are utilized very routinely in the industry and our goal initially is to educate and inform. So, I think that's very important. And then as market research shows, Umer, 70% of vets do want other derm options and they do want better efficacy and value and that's what this product brings. And we won't stand away from the safety of the product. We will educate and inform accordingly. And again, we look forward to sharing more detail, Umer, after the approval of this product with you and others.
Operator: Your next question comes from the line of Chris Schott (ETR:1SXP) with JPMorgan (NYSE:JPM).
Chris Schott: Just 2 for me. Maybe just another one on Zenrelia. Can you just talk about the duration of this education process? And I'm trying to get my hands around how long you think it's going to take post launch to get vets into a place where they'll understand the label and we can expect a normalized uptake? And is this a matter of this quarter? Is it something longer than that? I'm just trying to get some sense there. My second question was just on the guidance update and the flow-through of the sales upside to EBITDA. I think you mentioned higher manufacturing losses and then some of this increased investment in the product launches. I guess what's the mix between how much of its investment versus manufacturing and what's happening on that manufacturing side?
Jeffrey Simmons: Yes, Chris, to take the first one, we will -- and as we've said, we already are in parallel training the sales force, our technical team bringing together key opinion leaders. So it will be a multifaceted approach. It will be probably the most expansive launch we've ever done using these multifaceted approaches. We'll be backing away initially in Phase I of DTC and we'll be increasing the resources. That increase in resources, sales force, the training and the KOLs will bring an accelerated approach to education. And today, we can reach this vet community quite quickly. This will be our top priority. We'll be able to do this before the Quattro launch, so the timing is no question, a Q4 priority will be to educate and to create an experience with the product to as many clinics as we can across the U.S. and that's what we want to do. Educate first, get the experience -- fourth quarter, this will be our key priority.
Todd Young: Chris, thanks for the question on the back half guidance. Very pleased with the Q2 beat that was primarily driven by underlying strength of sales in the business. There was some timing of OpEx between Q2 and Q3. But primarily, as we go into the back half, there is some additional headwinds in manufacturing with some additional losses on some of our vaccine supply that's hitting us. The other element really becomes investing behind these launches. We're going to continue to invest in Zenrelia. We're also going to be investing in Credelio Quattro but now given our update in June, we won't have any revenue from Credelio Quattro in 2024. The other thing to remind folks of is we're really excited for Bovaer. We've got that set up. We've got 500,000 dairy cows on uplook which is the critical element to be able to measure the methane. But as we've noted before, gross margin for that product is well below the corporate average because of a high-cost manufacturing process required. And because we brought this product to the U.S. 2 years earlier than expected, the use of a different manufacturing process that significantly reduces cops won't come into play. So those are the things that are driving it. But fundamentally, the base business continuing to perform well as innovations driving portfolios across the world.
Operator: Your next question comes from the line of Erin Wright with Morgan Stanley (NYSE:MS).
Erin Wright: On Zenrelia -- and apologies for another Zenrelia question here -- But just in terms of the safety warning, presumably, you do have to time it around the administration --or trying the administration around vaccines. I guess how much of the chronic market can you capture with that in mind? And just how do you ensure stickiness, loyalty kind of for the product if you couldn't use it year round, for instance? And is it geared more towards seasonal, chronic, how do you think about the omnichannel approach? You can definitely leverage your experience there but there's also auto ship with online pharmacies and that kind of stuff that there may be some caveats there. And then could you clarify for us that the label and other geographies will it have a similar safety caveat involved?
Jeffrey Simmons: Thanks, Erin. On the first one, we will take each country as it is. Brazil, what we will say, has not a warning label on the label and we expect that, that will be the case as we go forward in other international markets. And as we've said, we will work post the approval of this product with the FDA to continue to improve the label and do what's necessary to do that. Relative to your question and why I wanted to really emphasize, we believe strongly that all itching dogs are part of the qualified market, chronic or acute. We believe once vets understand this product and the label, we won't get into the specifics of it now until the product has been approved and we'll go through those details. But we believe we can create stickiness with this and this is really driven by the market research we see, that there is a strong interest in having another option. They are non-responders in the market and there's an interest for better efficacy and value and we believe we can provide those, not just with the convenience but overall, our approach to the marketplace. So we believe we can address top needs of veterinarians in the derm market. and we can create, yes, with our omnichannel and our approach to the marketplace, the ability to be able to use this product with the label that we are going to have initially and that's been represented by the market research that we've already done with that label out there with the market research.
Erin Wright: Okay. And then my follow-up's on the retail channel, just how tightly are you keeping an eye on inventory levels there? It sounds like you feel comfortable that things normalize here in the second half? And just given your exposure to over-the-counter products, what are you seeing in terms of the consumer in terms of trade down or any sort of consumer softness at retail.
Todd Young: Sure, Erin. Thanks for the question on retail. Yes, as we noted, less inventory was built in the second quarter of this year than last year. That was the primary driver of U.S. Pet Health. Sales being down in the quarter, we feel like the retailers have inventory levels that will require them to continue to buy in line with dispensing and our focus is on dispensing. As noted, it continues to grow July, it grew year-to-date in the first half of the year. And we're also transitioning out of the key element of the season. So the consumer is something we do pay a lot of attention to. We have seen some trade down. It has been on pack sizes. We've seen more two-packs purchased versus four-packs. And so that's something that we do continue to focus on. But over the last couple of years, we've expanded points of distribution with bringing back some lower-priced options that have been doing very well primarily in dollar stores as we've added all the 10,000 points of distribution we talked about. So overall, we feel like we're in a good spot as we move forward. Thanks.
Operator: Your next question comes from the line of Brandon Vazquez with William Blair.
Brandon Vazquez: Maybe I'll switch. We haven't talked about Farm Animal yet and U.S. Farm Animal was actually really strong. Can you just give us a little bit more detail what was going on there? Were there any one-times in there? I think there was a comment in the press release about resupplying of vaccines. So basically, just trying to get at what's the strength and how durable is at level of U.S. Farm Animal as we go through the rest of the year in '25.
Jeffrey Simmons: Yes. Thank you, Brandon. Yes, the Farm Animal strategy globally is actually working very well and especially in the U.S., we've got a diverse wide portfolio from medicated feed additives, vaccines, therapeutics, we're adding innovation and that's making every portfolio cattle, both beef, dairy and poultry stronger -- and swine. And we're making -- with our value beyond product and our portfolio, we're making ultimately our customers more money and in low-margin cyclical businesses, this is ultimately where the stickiness comes from with Elanco and why we're leading. We're growing. We're taking share. And Ellen's team is even building continued pipeline, both on life cycle management and new products. So, great execution. We look forward to experiencing more with our effort clearance with Bovaer coming. So 2 nice innovations coming in the second half of the year and we see this as really this next era of livestock sustainability to Todd's point. The interest in Bovaer on the farmer side is extremely high. We've got 500,000 cows on our uplook database headed to $1 million by the end of the year. And so the farmer demand and that extra revenue stream has actually created a lot of interest in the dairy industry and the pharma level and it's other species, poultry and beef are also leaning in as well. So that's a little bit of the fundamentals. I don't know -- Todd, would you like to make a comment relative to the sales question?
Todd Young: Yes, Brian, I think we're really pleased with how the portfolio of innovation adds to the portfolio, be it Experior, be it our Prevacent vaccine for birds and swine, continue to really drive this business. We returned to growth in U.S. Farm in Q3 of last year at 2%, then we put up 28% growth in Q4, 11% growth in Q1 of this year and now 24% growth in Q2. So that team is really leveraging that innovation and growth. We expect that has continued momentum with over coming in to add to the dairy growth and we've seen Experior really pulling Rumensin forward. I'm not going to commit to double-digit growth in U.S. Farm for all the quarters to come. But certainly, given that team and the portfolio it has, we're excited that it will continue to be a nice profitable growth driver for Elanco going forward.
Brandon Vazquez: Great. And then maybe I'll take a shot and see if there's any other pipeline updates that you guys are willing to give beyond Zenrelia and Quattro at this point. On the IL-31, any updates on your discussions with the FDA thinking as we're getting closer to 25 years, is there like a first half, second half kind of approval that you're timing for? And then if there's any other segments within the R&D pipeline that you guys would be willing to discuss that would be helpful.
Jeffrey Simmons: Yes. Ellen is -- and the team continues. There's a lot of momentum and excitement in innovation. First, you've got a blockbuster per quarter the next 3 quarters. That's our intention. That's what we're tracking to. And 2 of those markets are going to be new accretive markets. Derm and Pet is going to be accretive sales and livestock sustainability. And then we're going into Para that's been growing in the broad-spectrum parasiticide market, as I mentioned, now 25% of U.S. Para growing 40%. So one is there's a lot of excitement. There's still work to be done. Yes, the IL-31 will follow Zenrelia in the U.S. and we'll be globalizing that as well. That's coming in '25. We've not talked specifically about the timing. That's with the USDA, not the FDA and so that's tracking. And we've said that's positively differentiated. And then behind that, yes, we continue to look at the big market spaces and others. So Para, Derm, Pain, Monoclonal Antibodies with the second actually in monoclonal antibodies. We're investing behind that and then some of the new spaces. And then I would say the other one is this livestock sustainability. We are building a significant pipeline that we believe will create sustained competitive advantage and the creation of a new market that we see to be $1 billion to $2 billion globally and we already can tell by the interest from the farmer side that, that has a lot of potential. So the next wave of innovation is being developed. And as Ellen said, we want a constant flow of high-impact innovation in major markets. And that's exactly what the charge of that team is doing and never felt better about our R&D team and what they're doing.
Operator: Your next question comes from Balaji Prasad from Barclays (LON:BARC).
Balaji Prasad: A couple of questions from me. Firstly, on the competitive dynamics side. I think you called out compaction and parasiticides on pain. Could you quantify the market share loss, if any, for each of these segments? And how have the brands been impacted example, is Galliprant just losing market share alone? Or are you seeing a decline in absolute number, that's one. Two, maybe stepping up a bit more on the Farm Animal side, considering the strength that we have seen in it, I'm curious to see how macroenvironment is impacting inflation rates how are they influencing distributor behavior? And how is this different from the retailer behavior that you're seeing.
Jeffrey Simmons: Yes, great questions. Again, in the Pain market with innovation, with more share of voice, with more diagnostics, the Pain market continues to grow. Galliprant is meeting our expectations but it's been challenged with some of the competition. But when we look at our pipeline and we look at our current portfolio, we like the prospects of the Pain market. And again, Galliprant, we continue to see a very strong part of our portfolio going forward. And then on just protein economics, what I would just say at the highest level, if I look at our 2 biggest segments which is cattle and poultry, they are the strongest. So when you look at cattle, there's fewer cattle numbers on the confined side which has kept protein economic stronger. So even when fee costs have come down, our portfolio continues to add significant economic value because the protein and meat value is up. So that's been beneficial to Rumensin, Experior in the whole portfolio overall. And we've got these tools that can help even measure that. On the poultry side, globally, probably no more sustainable and more demanded protein in a more significant way. And we've got a leading portfolio. We continue to see consistent growth, as Todd mentioned, quarter-to-quarter globally on poultry and we're bringing innovation there from food safety to non-antibiotic replacements to our Onsior package [ph]. And then, swine -- what I'd say is we look at swine as we've got good leadership in North America and China. China, we saw a little bit of a green shoot with prices getting up over breakeven. In China in pork prices for the first time, first quarter in quite some time, still need to see that play out as we look at multinational portfolios being benefited. But as a whole, as I step back, with our portfolio, whether it's fee conversion advantage, protein economics or even food safety and disease, we are well positioned, especially in poultry, dairy and beef going forward to continue to have sustained growth and sustained competitive advantage.
Operator: Your next question comes from the line of David Westenberg with Piper Sandler.
David Westenberg: We're up at the hour, so I'll just ask 1 here. Can you talk about the IL-31 product in light of the different label than expected with the JAK -- just at least in my research, we do suggest that new patient starts tend to be on Cytopoint rather than Apoquel, at least in the U.S. So does the different label change your strategy versus before when it comes to the IL-31 product marketing, et cetera. And then in terms of differentiation, I know Kindred used to really focus on half-life extension technology. Any other thoughts on what that could be? I realize you probably don't want to get too far ahead on that but I'm going to at least try.
Jeffrey Simmons: Yes. Thanks, David. As you look at the derm market, really, both product forms and categories are growing nicely and they bring different benefits and we continue to see that. So -- and again, we see Zenrelia with its existing label, we'll have blockbuster potential. It will be launched globally and we will follow with IL-31. I won't comment on the differentiation but again, we see really it will be a nice complement and then we'll follow that with other assets as it's known. We've got a long acting that came from Kindred and we've got other forms of new technology in derm. So really excited about that -- see both categories growing and no real change in strategy at this point in time. Maybe I'll close just very briefly and really with just 2 key comments. First of all, thank you for your time. We say inside Elanco that, hey, growth, innovation and cash have been the priorities for investors for the future of this company. And I believe the second quarter represents significantly progress in all these areas. As Todd highlighted, we're growing 4 quarters in a row of mid-single digits. We're seeing a stabilizing base which is critical as we start to move towards launching innovation on top of that. We have strength and leadership and we're seeing share growth in Farm Animal globally at retail. And on the vet side, we're launching two major blockbusters with positive differentiation in the biggest a lot of work by the company around cash flow. We reduced over 20% of our debt since the beginning of the year and we're excited with 3 blockbusters over the next 3 quarters. And that really links to these priorities. So we're laser-focused on our strategy. And as I close, I just personally want to thank global Elanco team. This is one of the strongest quarters, a string of 4 consistent quarters of growth. The Elanco team is excited. I know inside the engagement, the belief and the resolve is high because of the next wave of innovation, what it's actually going to do and the difference it's going to make. There's a belief and a passion and a resolve around making animal's lives better, makes life better. And I'm thankful to everybody and the one-Elanco approach that's been taken. Thank you. We look forward to visiting with you shortly after the Zenrelia launch. And again, thank you for your time and interest in Elanco.
Operator: This concludes today's conference call. Thank you for your participation and you may now disconnect.
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