Elanco Animal Health, Inc. Aktie

My name is Brandon Vazquez. Thank you for joining us. I cover medical devices and animal health here for William Blair. I am required to inform you that if you want a complete list of disclosures or potential conflicts of interest, please visit our website at williamblair.com.

I'm excited to have Elanco with us here. We have Jeff Simmons, CEO; and Bobby Modi, the U.S. Pet Health VP. And I'm going to hand it over to them. They're going to give us a corporate presentation, and then we are going to breakout room Adler after, and I'll remind you at the end again, but thanks.

Thanks, Brandon. All right. Good afternoon. I look forward to Bobby and I sharing a lot about our company. And I'll point also to December 9, we had an investor conference. We'll show a few of those highlights as well, but really laid out the next 3 years. I think the best place to start for the company is to really this slide, which -- it's our 71st year as a company. We're a spinout of Eli Lilly. I think we're in a very compelling durable industry of animal health. I'll put a little case for that together. We're in the midst of 3 years of growth and just finished Q1, which we've said is really the best quarter we've had since our IPO in 2018.

And this just sets up a little bit of some of the algorithm that we put out from now for the next 3 years, which is really looking at a mid-single-digit company at the top line, driven by innovation. We've seen, and I'll show you, we've got a basket of blockbuster innovations in the biggest markets, both Pet and Farm. And right now, we're expecting about $1.2 billion. We've raised that guidance in Q1 from the basket of innovation, with a pipeline of $2 billion, 15 candidates in our pipeline, with another 5 to 6 blockbuster products coming as well. And then leverage that will come on our bottom line of high single-digit EBITDA, low double-digit EPS and generating about $1 billion of cash flow over the next 3 years.

So we're a different company. Since the IPO, we're in the position of strength that we've been targeting, 3 years of high-quality growth. And again, consistent, durable, we think most compelling value proposition in Elanco inside of a very durable Animal Health business. I'll just kind of follow a couple of the kind of key what we think pillars around how and why Elanco will win.

I start with the industry itself. This being a growth conference at a time that's quite dynamic in our world I've been 37 years in animal health inside of Lilly and then as a spinout. And I would say in this slide, we try to capture this $42 billion industry that we think in the next decade is headed to $60 billion. And here's what I think is the best of some of the industries that we come from.

First, it is pharma-like. We are regulated, FDA, EPA, high bars, high cost of capital to get into manufacturing and R&D. Sourcing the R&D. There's really 4 major players in the industry. But different than pharma, I was said as an Executive Officer of Lilly for 10 years is what's different is we also are CPG-like. There's brand loyalty, pet owners, farmers and veterinarians are very loyal to their brands. So we've got brands like Advantage on the Pet side or Rumensin on the Farm side that are 40, 50 years old, still growing, with life cycle management because of that loyalty of our customer base. And then lastly is it's very value-oriented. Vet clinics, pet owners and even farmers, you need to have that interface with the customer, and you need to be able to have the sophistication and the services to be able to reach. And that's why we're in over 90 countries both on the Farm and the Pet side.

So that kind of creates this durable $42 billion industry that's going to grow close to $20 billion. What I would tell you is we play in the big markets. This is where the markets are when you start to look at the projections for 2030. The good news about Elanco even relative to maybe competition is we are under-indexed in some of the biggest markets with very compelling differentiated innovation. So on the Pet side, you've got a market in parasiticides today, $6 billion to $7 billion headed to $10 billion. You've got a derm market, $2 billion, the itching dog headed to $3 billion. And then you go down through biologicals is also important pain as well. And this is where our pipeline is geared right now. So we don't need to create markets or going into markets that are very large today, and differentiated.

On the Farm side, in the U.S., we're #1 in cattle, poultry and pigs. We're the #2 farm animal player. And you can see these markets, again, protein, I'll talk about here in a minute, is actually experiencing a revolution. And actually, they're expecting this year alone, U.S. protein production will grow 5% alone, just in animal numbers and size.

So this is a little bit of the trends. I kind of say the 2 Ps that drive our markets are pets and protein. On Pet, you see the humanization of pets. And right now, about 7 out of 10 homes have a pet in America. But when you look at Brazil and China and others, it's only 2 or 3 out of 10. 70% of new puppies today are international. So this market is globalizing.

But underneath it, and Bobby is going to double down on pets because there's been a lot of discussion about the opportunities and maybe even the dynamics of this, but convenience drives compliance. Today, we're seeing a high percentage as we say 40% of pet care today is delivered to a door or on a subscription and spending goes up when that happens. And that convenience we like is 12 pills a year. Typically, our industry has been 6 or 7 a year. That compliance is a great market growth opportunity. Willingness to spend continues to be very high, and I'll leave that to Bobby to talk a lot about, and again, the globalization of this industry.

On the protein side, I stood in front of a lot of groups 5 years ago, and they said, boy, the impossible burger and meatless Mondays are we going to have meat? It has truly been a cycle that has totally changed. From GLP use today, we're seeing 30% to 50% more protein being consumed by GLP users to the changed dietary guidelines to even an aging population. At the end of this decade, we'll have 25% more people over 60 and that muscle retention is really driving protein use. And we're seeing dairy win, poultry win, even with a shortage of beef, the international markets, grass-fed beef and pigs are growing as well.

So we're set up well. This is what's going to drive this industry's $20 million of growth -- $20 billion of growth. And we kind of -- we're in a very purposeful industry. We say, hey, we touch every life every day driven by, hey, in Elanco, we believe in making animals' lives better, makes life better. And that's driven, we think, a durability of an industry, 30 years in a row, this industry has grown consistently mid-single digit, a nice blend between volume and price.

Elanco has been very intentional since becoming an IPO to build a durable business. I would really focus to the far right. We've really worked really hard with the Bayer acquisition and Kindred and others to be able to say this is exactly where we want to be, and we're a little different than our competition. We like the mix half-and-half, protein and pets. And international and U.S. And that's really set us up well, we believe, for the rest of the decade to really grow our leadership. We're in the countries we need to be in, and again, well positioned. We're #1 in pet retail, that's 1/3 of the pet owners that actually go OTC. We're in most 1 or 2 in farm animal, and we're the leaders right now in vet clinics with innovation and innovation growth.

This has been our journey since the IPO. One was the standup, the separation and then the acquisition of Bayer, which took money. It did lever us up but it allowed us to get the mix that I just showed you on the last chart and the scale, our R&D budgets went from $210 million, $220 million to now we're nearing $400 million revenue, so -- or excuse me, R&D spend, which has really given us the leverage to be able to bring the innovation to the market that I'll show.

We then really double down a little bit like Lilly, a page out of their playbook to really focus on innovation. Here's a company in 70 years, had 6, 7 blockbusters and we got 6 more in the last 3 years with a lot of runway for growth. And those blockbusters have great margin opportunity. So you've heard earnings calls from us the last 3 years, it's been very simple. Our entire organization is focused on 3 things: growth, high-quality, industry-leading growth, which is we're achieving, innovation, record innovation that will drive that growth and cash.

And I'll just to kind of double down on that. This strategy, IPP, I would really focus on the biggest one that is driving the multiples in this industry, a consistent flow of high-impact innovation, not having an air pocket. You want to have that consistent flow and it doesn't need to be in one market. We like to see it between Farm and Pet, and international and U.S., and I'll show just briefly that.

And then your portfolio is consistently every portfolio getting a little better, a little stronger as we go. And then we brought in a new CFO, Bob, that's here with us today and will be part of the Q&A where we really doubled down to say we also want a productivity agenda and we've launched Elanco Ascend.

So let me just hit each 1 of these 3 priorities quickly, and I'll turn it over to Bobby. So first is just our growth rates. And you can see that we've focused heavily on just kind of a very increased focus of quality of growth. We hit 10% in Q1 and we increased our mid-single-digit kind of 4% to 6%. We're now projecting 5% to 7% for the rest of this year. So the quality of growth is increasing.

And it's driven really by innovation. These are the big 6 products that we have talked about relative to the size of them. And really, you can see our innovation growth is a nice blend, but we've increased that substantially. We came into this year at about $300 million of growth. We've raised that guidance. And I'll just -- Bobby will talk some about Credelio Quattro, that's our parasiticide in a $1.5 billion market, Zenrelia in a $2 billion derm market, and we're launching a second derm product, Befrena. Those are going to be the big drivers.

But even in the cattle market, where the cattle numbers you've heard about are slowing, we have a product Experior that's now exceeded $200 million with a $350 million runway that's really created a market to where you can actually get quality of meat, the size of the growth of numbers of days to actually get more protein on less head and also reduce ammonia. So we've the first FDA product that had an environmental claim, which still matters a lot to the meat and milk companies.

So we see, if you look at, all right, how do we sustain growth through the rest of the algorithm 2028 and into the rest of the decade, we've committed these blockbusters will double the big 6, between now and 2028, and we're well on that track and have a lot of momentum here in 2026. And then I'll share a little bit the next wave of innovation, 15 key products in the pipeline, and we're committing to another 5 to 6 in the next 5 years. And a base business that last quarter grew, but we're kind of saying we'll be stable, plus or minus low single digit on the base business.

This is what excites me the most. In 37 years of animal health and even other companies in the past that have created a lot of value, it's a lot about the pipeline. Ellen de Brabander has got, I think, the best team in the industry, a lot of stability, and we've really created an engine that is creating a lot of innovation. So we've got the 6 innovations I just talked about, $1 billion of value. We have another $2 billion in the 15 candidates, and we are committing to 5 to 6 more in this window of '26 to '31, and then the next, next wave.

And we've shared in our Investor Day a lot of detail about these. What I would say is, they're accretive to margin. They only stay in our pipeline if we believe they're best-in-class or first-in-class. And we do believe that most all of these are in already created markets. We don't need to go out and create a new obesity market or a CKD, not that we're not chasing those, but we see these as real opportunities to drive quality growth.

The third priority is cash and we've delevered 2 full turns in the last 2 years. We're very focused on this. We've committed that we will be under the 3x levered by 2027. We're well on that track, and we actually improved our guide by committing to 3.1 to 3.0 by the end of this year.

And then this is just the initiative that Bob, our CFO, has really committed, and we're working across the company on Elanco Ascend is company-wide productivity from AI to procurement, to gross to net, to 5,000 projects across the company where everyone is incented to drive productivity at the same time we're driving record growth.

This is my last slide, which is really just highlighting Q1 and the durability of our business. And I would -- why I want to really segue now to Bobby is there's been questions about, hey, how durable is this market? Is that pet owner being hit a little bit with the sensitivity of the marketplace and the economy. And we want to be very clear today and spend a little time doubling down on this because I think our Q1 results exceeding expectations on revenue, EBITDA and EPS, raising our innovation, improving our cash flow. But probably most importantly is our guidance for the rest of the year highlights that U.S. Pet Health, especially, the marketing question, is actually going to grow high single digit, low double digit and the durability, we believe, of the industry and our business is well suited.

So I thought because this has probably been the most highest question in our industry in quite some time. I wanted to just spend a little time and have Bobby Modi. Bobby has come from the CPG industry and has really led our U.S. Pet business for quite some time now to just take a double-click on U.S. Pet Health. Bobby?

Thanks, Jeff. Good afternoon. I'm Bobby Modi. I have the privilege of leading our U.S. Pet Health business. And I'm going to talk a little bit about Elanco's U.S. Pet Health business. I'm going to talk about the drivers of growth. And then I'm going to address a little bit of the market dynamics that we see [ playing on ] in the U.S. Pet Health market.

So first, we're about $1.3 billion market. We represent just around 30% of Elanco sales. And much like total Elanco, we have a very diversified business. Our channel diversity, for example, allows us to reach over 1/3 of pet parents that don't visit the veterinarian on a regular basis. And second, different than many of our competitors we play in all 4 of the major medical spaces in animal health. And in the last 4 years, we have launched differentiated innovation in all of these spaces.

With the upcoming launch of our IL-31 monoclonal antibody, Befrena, we'll be one of two animal health companies with a comprehensive portfolio to address the needs of veterinarians and pet parents. And this makes us very attractive to vet clinics, but specifically makes us attractive to corporate clinics. And in 2025, we grew with 90% of our corporate partners compare that to only growing with 13% of our corporate partners in 2024. And in Q1 of 2026, our corporate business grew by 12% over 2x the average of our U.S. Pet Health growth rate going forward. And we expect this trend to continue to accelerate.

Now let me talk to you a little bit about the growth drivers on our Pet Health business. First is Credelio Quattro. And we are incredibly pleased with the performance of Credelio Quattro. It's defying all archetypes of a third-to-market launch, and it's actually behaving like best medicine. And we believe it's behaving like best medicine because there are 4 degrees of differentiation. The first degree is broadest coverage. The second degree of differentiation is speed of kill with ticks, which is especially important as you think about disease transmission. The third degree of differentiation is heartworm coverage after 1 month versus some other competitors that require 6 months. And the fourth degree of differentiation is palatability, which we know is important when you're trying to switch pet parents from one product to another product.

And although Credelio Quattro was Elanco's fastest blockbuster in the company's history, we still believe there's plenty of upside. Three reasons why we believe there's upside. First, we're participating in a growing market. The broad-spectrum endecto market is $1.5 billion and grew 25% in 2025. And we look at 2026, it continues to grow, and we're poised to capitalize on that growth. Second, we have a significant opportunity to drive clinic penetration. We're only in 40% of the clinics in the U.S. today. And although I'm really pleased that we added 7 percentage points of penetration since our December Investor Day, we still have ample opportunity to get best medicine in all of the clinics in the U.S. And the third vector is share within the clinics. We grew our share within the clinics by 17 points from our December communication to Q1. And that's really driven by our direct-to-consumer advertising campaigns as well as our Puppy Index, which puts more -- which shows that we're putting more puppies on this product that will ultimately stay on it as adults. So although we're pleased with Credelio Quattro, we still think there's plenty of gas in the tank.

Now let me talk about the second big parasiticide category, which is differentiated for Elanco. We have a leading share position in the OTC parasiticides category, which is over $1.1 billion. We've broken that category down into two segments: the premium space, which is roughly $750 million, which are leading brands like Seresto and K9 II and Advantage II play in. We have a clear market leadership position in that category, and we've continued to expand our share in that category over the last 3 years, driven by smart direct-to-consumer advertising, optimized pricing and new customer expansion, we recently brought on Costco in Q1 of 2026.

But what I'm really excited about is the growth that we see in the value channel, which is almost a $400 million segment, which was a segment that Bayer Animal Health didn't play in at all. And over the last 3 years, we've added almost 4.5 share points of growth, and we continue to see that expand. And that growth has really been driven by taking premium brands and applying them to value formulas and bringing new products to Bayer to meet the needs of value consumers where those value consumers ultimately shop. And I was really pleased that in Q1 of 2026, we launched our first-ever value Collar for Dogs under the Advantage brand, and this innovation allowed us to bring on a top 8 retailer for us, Dollar General that really caters to the value consumer. Given our share position in the segment, we still see plenty of opportunity for growth and expansion in the OTC space.

And then lastly, let me talk to you about the second largest space in U.S. Pet Health, which is the derm space. The derm market is $1.3 billion with strong growth. 90% of this market is actually broken down into two segments: JAK inhibitors and IL-31 monoclonal antibodies. Elanco launched its JAK inhibitor, Zenrelia in September of 2024 in the U.S. Since then, we've continued to see rapid sort of adoption and market share growth. We're actually in 50% -- over 50% of the clinics in the U.S., and we added 5,300 clinics since our September label update. We also grew our double-digit JAK share by 5 share points from Q4 to Q1. And we've also been pleased with the globalization of Zenrelia, where the label is different from the U.S., and we're seeing market leadership positions in countries like Brazil and expanding market share in Japan. And in Q1 of 2026, we were pleased to announce that Zenrelia reached global blockbuster status on a trailing 4-quarter basis.

Now I want to shift your attention to the other 40% of the market, which is the IL-31 monoclonal antibody market. As I said earlier, we have just recently launched our IL-31 mAb, Befrena, appropriately named because it stops your dog's itch and allows it to be your friend again. We're launching it in a staged approach, and we've recently given it to veterinarians in our early experience program and the feedback has been overwhelmingly positive and very similar to Zenrelia, Befrena will be differentiated on efficacy, convenience and value. And based on the results of Zenrelia, we know that this is a winning formula for success. We look forward to continuing to scale the Befrena launch as supply improves over the back half of 2026.

So I think you know that Elanco is poised to succeed and continue to take market share, largely based on our differentiated innovation assets but also because of our broad comprehensive portfolio. But now I want to take a moment and address a few sort of questions that we've been getting recently.

The first question that people have been asking is, is the industry or the U.S. pet health market is still growing? And the short answer is yes. The U.S. pet health market grew 5% in 2025, and it grew high single digits in the broad-spectrum parasiticide market and the derm market, double digits in the broad-spectrum parasiticide market and high single digits in the derm market. And yes, Q1 in 2026 was off to a sluggish start, largely driven by weather-related events in January and February that shut down clinics in various parts of the country. But we've seen March and April rebound. And we've seen year-to-date dispensed to consumers, both the derm market and the parasiticide market showing positive growth. We continue to expect this market to grow low single digits to mid-single digits this year and long term return back to mid-single digits.

Now let's talk a little bit about the second question we often get is, given the macroeconomic uncertainty, is the pet owner still resilient? And the answer is absolutely yes. Most pet owners now think of pets as part of the family. In fact, almost half of pet owners said, they spend more on their pet's care than they do their own care. And if we look at recent survey data, almost 90% of pet parents said, they are not going to spend less on their pets care going forward. What we are seeing is how pet parents spend their money is changing and different. And we're actually seeing more pet parents shop omnichannel multiple channels, not just the vet clinic and moving that spend to subscription-based spending. And Elanco's omnichannel capabilities and our diversified portfolio allow us to meet that pet parent where he or she wants to shop.

The third question I want to tackle is, is there a price race to the bottom? I know that's been a fear lately based on Elanco taking lots of market share in growing spaces. And the short answer is no. And let me explain a couple of things. First, both consumers and veterinarians have always proven that they are willing to pay for differentiated innovation that addresses unmet needs. And we've actually seen that play out in the marketplace. Second, as we've studied the industry, over the last 20 years, there's never been a major blockbuster product that's actually taken a price decrease in the marketplace. Third, Elanco actually took the largest price increase it has ever taken in the veterinary channel in January of 2026. Based on the differentiation of our Credelio Quattro brand and the differentiation of Zenrelia. And lastly, we've committed to price realization to accelerate in 2026 versus 2025.

So what I want you to take away. Simple. First, the U.S. market is strong and the pet parent is resilient. And second, Elanco is poised to win. Our differentiated portfolio and our differentiated innovation assets plus a stable pipeline give us the ability to take market share and expand already growing marketplaces. In fact, in our Q1 earnings, we shared this slide, which where we committed to growth accelerating in the back half of the year based on continued innovation expansion, new launches and corporate account growth. We now see our U.S. Pet Health business delivering a full year revenue growth rate of high single digits.

So I'll end where Jeff started. 2026 marks a new era for Elanco with a new financial algorithm. Organic revenue growth in the mid-single digits, adjusted EBITDA growth in the high single digits, adjusted EPS growth in low double digits, free cash flow over the next 3 years of over $1 billion in excess and a leverage ratio under 3x by 2027. I've never been more confident in our ability to reliably deliver growth in a consistent manner because we have the right plans, the right products and the right team to do so. Thank you for your time. We look forward to taking questions.

Okay. Thanks, everybody. We'll head up to the Adler room for the breakout...

Good morning, Jon Block at Stifel, and welcome to 2026 Jaws & Paws. We've got a great day. We've got 14 total sessions. Overall, we have a solid 2 days plan. We've got 22 companies, 4 physician panels, 1 animal health industry discussion across the next 2 days. So we'll be busy up here. We're going to kick things off with Elanco Animal Health with their CEO, Jeff Simmons -- President and CEO, Jeff Simmons; and CFO, Bob Robert VanHimbergen. Guys, good to have Elanco here again this year. Appreciate it, and I appreciate you guys kicking off the conference.

Jeff, a really good first quarter, and then I think some questions followed after a competitor printed their quarter. I figured that's a good place to just start off. Let's go back in time, walk us through 1Q, the good things and then maybe what's followed shortly thereafter.

Yes. I'll have Bob maybe build on the first quarter. But -- thank you, Jon and Stifel and the opportunity here. We need to get this Jaws, Paws and Hooves. We got to get the farm animal in here too.

We'll figure out a way.

So hey, just at a high level, yes, a great Q1, a lot of momentum coming out of 2025. We've had 3 years of growth. The growth and the quality of the growth continues to improve. I've said pretty openly, and I think the organization believes inside Elanco, this is the best quarter since the IPO since 2018. Just the quality of growth, farm, pet innovation, our base business grew. So back to the algorithm in December that we laid out for the next 3 years, we're more confident than even December on delivering on that algorithm. And Bob and I can build on that here going forward. So a nice strong 10% quarter and growth and a beat and raise on all accounts. And I think the big one that everyone is watching is the innovation, which we will unpack. But we've got some special innovation in major markets that are growing.

But I want to come to your point. I think there's 3 questions that came out of earnings season in animal health. And we spent a lot of time since then really trying to -- with data and facts and was on CNBC this morning, et cetera, just really trying to articulate these points. Question one is just stepping back, is animal health the market growing? And the answer is yes, it's growing, and it's growing in a durable way. And the fundamentals underneath this market are strong. The market grew 7% last year, 10% farm, 5% pet. You're seeing it on the retail side growing farm animal and pet and you're seeing it in the international markets, both in farm and pet as well. I think most importantly is I think the January, February cool weather that maybe hampered a little bit of growth in Q1. As we've said, we've seen a really strong rebound.

I think that's probably what's been over-indexed to say, oh, is there a problem here? We saw derm grow 10% last year. We saw broad-spectrum para grow 27%, and we see a lot of those trends just continuing. So is the animal health market still growing? The answer is yes. And I think January, February weather, the rebound we've seen in March, April and even into May is showing that, that durability continues. I think the second one that everyone is saying is, there is some consumer worry out there. There's pressure on the consumer. But what we've seen in our market research and seen in our business, especially on the pet side, is the consumer is prioritizing pet care even over priorities like entertainment, eating out for themselves.

And I want to emphasize some omnichannel retailers are saying, well, they've seen some pullback. I think that's a lot on durable goods, hard goods, not as much on pet care itself. So on pet care, derm, para, where we're playing, the spend continues to be resilient. The pet consumer continues to be resilient, and we've seen that. And then you add on top the globalization of pets and you add on the increased compliance. And then something Elanco has and nobody else does is from the standpoint of the retail business, 1/3 of pet owners that maybe are a little more price sensitive, we've seen really strong growth with that Bayer portfolio. So that's -- and then the third question is pricing, which has been -- well boy, is pricing being used? Is pricing going to be used? Listen, I've been in animal health 37 years. I said last night in the dinner, show me anything back from the frontline days in the '90s to now where price has been used in pet health to capture share.

It is not one of the incentives. It doesn't drive consumer behavior in pet, and I don't see that happening. We started this year with record high pricing as an industry. Those prices have held. We saw that a strong pet pricing in the first half. I can talk, we're guiding the second half for strong pricing. So pricing is not being used as a lever, and we haven't seen it be used as a lever. This is a market that responds to value and differentiation, and that's where we're leaning in. I think the biggest change I've seen in the last 6 months is more spend to get and hold share, but it is not with pricing. So animal health is growing. The pet consumer is as durable as I've seen. I mean it's on animal health. And three is pricing continues to remain constant and strong, and we see pricing being strong throughout the whole year, both in pet and farm for Elanco.

That's a great place to start. And I'll bounce around, Bob, maybe I'll just jump over to you to Jeff's comments of pricing being strong. Maybe talk about that price in 1Q, where it landed and then why the conviction you should sort of have an increasing contribution from price throughout the balance of the year?

Yes. No, that's great. Yes, thanks for the question. Yes. So price in the quarter was 2%. That was right in line with our expectations. And we've been clear that we expect price to be an accelerator in 2026 versus 2025. And why we have conviction around that? We did take the highest pricing out of the vet clinics. It's been the highest in 5 years. And then number two, I would say, because we have pricing now on our launches from last year, Zenrelia and Quattro, we continue to price to value. and we're seeing price come through on some of those products.

And listen, the industry right now, Jeff talked a bit about this just now, right, is we're not seeing pricing being a lever right now. What we're seeing is increased spend in DTC and really trying -- competitors trying to maintain share. And we've been using some data to really determine how and where and how much we spend on DTC. We've been using data for quite a long time. It's been extremely successful. That's where we're seeing the competitors respond is really an investment in that area versus price right now.

Okay. Fair enough. I am going to bounce over to U.S. Pet Health, right? That was a focus in the quarter. You guys mentioned improving trends exiting the quarter. March was up 8%. April was even better. And then I think you earlier alluded to May being pretty solid as well. But in that very helpful slide that Elanco had in its earnings deck, you did talk about U.S. Pet Health up high single digits to low double digits in the back part of the year. Jeff, just talk about the conviction there and maybe as best you can detail the drivers that would sort of accelerate the growth to those levels in the back part.

Yes. And I'll let Bob build on this. But I think the big thing here is, again, first is the new products. We continue to see Quattro and Zenrelia and the significance. These are big markets. We've got -- we've said Zenrelia coming out, same trailing 12 months. So we've got blockbuster status. The Quattro differentiation continues to really continue to really resonate with pet owners and veterinarians. So we're going to be lapping really a second half that's much smaller. So that's going to be a key growth driver.

Two is the Befrena launch. We're now with the KOLs. We're launching this product by the end of the second quarter. It will be a phased step-up monoclonal antibody launch. So Befrena will play pricing, will also play, and Bob can get into that. Those will be the key drivers. And then the continued retail business, we continue to see being stronger than last year, more share than last year, and that will be another factor.

And, I would maybe add on just our corporate account growth. We saw 12% growth in Q1. That's been an area where we've seen some continued progress here over the last, call it, 3 to 4 quarters, just now as we have a broader portfolio, and we're seeing that certainly that pull Jon come through. So yes, we're very confident in the second half. That is why we provided that clarity, not only from the topics we talked about, but also Elanco Ascend as we've launched that 5, 6 months ago.

We're starting to see in early days still, but we're going to start seeing some of the operational improvement come through on that phase as well. And the other thing I would tell you is like, listen, our guide, we've been clear on guide. We're going to be on the right side of it. We're going to give balanced prudent guidance. Our guidance does not assume a recovery in vet clinic volumes, and that's because of our omnichannel approach.

Doesn't assume recovery in vet visit volumes, didn't assume Zenrelia label improvement either. And does assume some competitive -- I don't want to say headwinds, but I guess just to maybe close the loop there, Bob, what it assumes around competition has anything deviated from that of late?

Yes. So nothing has deviated from our expectations in the last several quarters, but we're conscious of different things that could happen. And listen, that's why we give balanced, prudent guidance and we think about the puts and takes, and we said we'd be transparent on that, and I think we have, and we'll continue that going forward.

Okay. Fantastic. Zenrelia, maybe let's go over there. So really good quarter. Jeff, you were very bulled up, I thought on the earnings call, you mentioned again the trailing 12-month blockbuster status. Let's talk about the initiative here in the U.S. You're going to -- you're running the additional trial. You expect to submit by the end of the year and hear back from the agency mid-'27, but I'll throw it to you.

Yes. I think I'll just start with Zenrelia. We've got over half the clinics in the U.S. on. That's higher than our first phase of Credelio. I mean, before we got Quattro. So I mean, this is one of -- we don't have many products we can say we've had over 50% of the clinics on. And then just looking at the momentum of the product relative to just its efficacy profile and the number of users that are moving from second line to first-line treatment, picking up 5 share points, the number of clinics that we're adding. The U.S. has a lot of momentum with Zenrelia. And I would also say we'll get into the global side of this, moving to 24/7 manufacturing gives you an idea that we see future year demand happening now.

So -- and then we expect seeing some of the early data that this is going to be a pretty robust derm season given weather trends and things that we've seen. So I mean, that kind of leans in. Relative to the label, as we've said, we had a multipronged approach. First was the PCR data we submitted. We got the change, the fatally induced taken off. Second is we had the booster study that we ran and published more for public awareness of how the product performs. That's turned out really well for us relative to the use of that data.

And we submitted that data to the FDA upon response from them with hopes of potentially a change. And then lastly, I think importantly is given their response, we've made a decision to go ahead and run a trial to actually work, and we've got concurrence on that trial to actually would remove the box. That study has started. We expect to have that study completed and data submitted by the end of the year. That would put us into '27 for a decision. So -- but I think relative to how the product is performing globally and in the U.S. and 24/7 manufacturing, we see this as a nice opportunity later, but is not needed now.

Yes. And Jon , the way I think about the time line, too, right, is you figure a mid-2027 approval and a clean label at that time just provides some nice year-over-year growth in '27 versus '26.

And even '28 potentially, you might have color...

Exactly. And in the meantime, we're at 24/7 manufacturing. We're in a good spot.

Okay. And Jeff, to push a little bit, you mentioned a clean label. I was thinking when we thought you were going to hear last around maybe 3 outcomes, status quo, clean label or middle ground. Is this more with the additional data that you're going to submit, more of a binary event where either it's a clean label or status quo? Just your thoughts there.

Yes. I think like pharmaceutical standards, we've got concurrence on a protocol that will create an endpoint. The endpoint will create a change. And that's where we are, and that's what we believe will be the outcome. Again, there's always nuances when you're running studies like this. But yes, that is our belief.

Again, I would just say the expectations of where we were even at our Investor Day to now, the Zenrelia success, we're in 44 countries, the international momentum, that high teens, 30% share in Europe, even with a third competitor, the head-to-head study, we're the only one share in a head-to-head study that is playing out in the field. The efficacy of Zenrelia, this is a special product that is taking unusually amount of share. I point to Brazil that just came through the Southern Hemisphere derm season, and we've just taken over the majority of share over Apoquel within a year. So that, I think, demonstrates what kind of product we got here.

So you stole a little bit of my thunder because I was going to go down that road. But I'll follow up. So I actually think there was a precursor that a lot of people missed for Zoetis in 1Q, and it came out in the fourth quarter when you guys really started talking about your share for Zenrelia internationally, the share was too high for just to be new adopters. In other words, you had to be winning switchers to get to that share level, right, because the market is just not growing that quick. So just talk about this, is the head-to-head data that's sort of catapulting those shares OUS? And are you seeing anything from Merck's Numelvi as they've now been over there for a couple of quarters?

Yes. I think, look, if there's one category where there's obvious pet owner and vet, obvious quick observation of differentiation product, it's derm. It's an itching dog. It's the #1 reason they go to the clinic, but it's also probably the #1 way to observe products. And you look at some of these labels, as I've said, some of these labels say, hey, only 65% of dogs respond. That puts you already in the fray. And I do think starting out where we did with Zenrelia put us in some of the worst cases. which then I think gave us a higher bar and that actually gave us a chance to show what kind of efficacy we have.

Look, it will -- time will tell with other entries into the marketplace. The early -- I think it's a little early with the new entrant, but what we have seen is the data is playing out. We have taken more share earlier. The European team knows how to execute well. You've seen it with Adtab. Now you're seeing it with Zenrelia and they're getting ready to launch Quattro. So I think we've got a good product. And derm grew 10%. So we're not only taking share, but we're rising with the tide that's rising as well from a market standpoint.

Fair enough. So let's use that sort of as a good segue to Befrena. Anything to share from, I'll call it, the early, early experience launch? And let's start there.

Yes. You share a little bit. You've dug in on this product a little bit extra.

Yes. Listen, so obviously extremely excited for Befrena. We had several hundred vets, probably 300 vets in our office here a couple of weeks ago. And the buzz was around Befrena and Zenrelia. And so I think there's certainly a need. And listen, we've surveyed outside of that survey 400 vets on Befrena showed them a label and over 83% of them expect to bring Befrena into the clinic.

So I think there's a lot and a need for a differentiated product. And I think the impact that Zenrelia is having is certainly going to be pulling in certainly Befrena into their clinics. Now Befrena, the launch, I mean, we just issued a press release last week. And if you haven't seen it, I urge you to take a look at it, but there's pictures of a dog pre-Befrena and then post Befrena just 3 weeks, and it's life-changing is what you can see. So I think there's some great commentary in there, but it's another special product we have and just builds out our overall portfolio, which again helps us with clinic penetration and corporate accounts.

That's helpful. And maybe for both of you guys, is there an analog to think about of second player to market with a clean label, some level of differentiation when we think about duration, and we'll have to find out about price, but where we can sort of maybe benchmark to when we think -- we know the Cytopoint numbers. We know it for the U.S., we know it globally. Again, an analog on where we might land with share after 12 to 24 months.

I mean there's been data out there showing second to market can be 30%, 40%. I want to be careful here because I think the derm market is growing. I think the good news is, I think, with more efficacy and more options, look for the derm market globally to grow. Second is I do think, yes, there's analogs, but there's also the JAK mAb category that I think is playing out as well. There's also a lot more being scripted online. which I think is going to drive better compliance, which is going to grow the market. So we really like where the derm market is headed. And I think that's important.

And then to Bob's point, look, the label has 6 to 8 weeks. The incumbent has 4 to 8. So it's like, hey, we see a little bit of a longer efficacy line there. But the other one, what the buzz was at that day is, hey, we had to have 300 dogs, which was a significantly higher hurdle. That's why we had to wait a year for Befrena because they raised the bar. So we actually had a higher bar going in with dogs, and I think that's made people lean in. So the KOL support is matching the same support we saw with Zenrelia.

Okay. Very helpful. Maybe last one on Befrena monoclonals. It can be tricky from a manufacturing standpoint. How do you feel now, Jeff? And how do we think about where you might be maybe exiting '26 from a capacity standpoint?

Yes. So we're right in line with our launch expectations. Product has been in KOLs here for a little bit now, and we have orders in hand and expect to certainly start shipping here this quarter. Production continues to ramp. There hasn't been any hiccups on that standpoint. But we'll continue to launch and ramp here throughout the rest of the year. And it's going to be, I'd say, a modest impact to 2026, but certainly exiting '26 with some strong growth and '27 will be a nice strong year-over-year impact versus '26.

Okay. Very helpful. Sometimes I have my head down, guys. If you have any questions, please throw up your hand or just shout out and I'll get to you. I'm going to continue to work my way through innovation. I'll go to Credelio, Quattro. Zoetis talked about on their call, their share for Trio being down year-over-year, but actually alluded to it stabilizing Q-over-Q. You guys mentioned share up 3 points since 4Q '25. How do we reconcile those comments if we can? Or should we start thinking about NexGard Plus and maybe they've been a little bit more vulnerable as of late?

Yes, there's multiple players. So I do think that. I do think that look at the data that I think 40% of the clinics and then I think the most material piece of data we shared is inside those clinics, we have 53% share. So that, again, there's multiple products, right, but the 2 other big incumbents. What that is saying is typically, when you go into a clinic, there's going to be maybe we'll carry 2, not 3. And so I think what Quattro has done is placed itself into one of those 2, and now it's taken and moving to first line. With Quattro with the 4 points of differentiation. We're hearing a lot about fast tick kill and that data and tick bites up more than we've seen in Q1 with CDC and two, I think the palatability.

So Jon , I think that, yes, I think it's both of the incumbent products. I also say, hey, we grew 27% last year. I still see the January, February was slow, but I think you're going to see a really robust broad-spectrum endecto market growth. And Bobby in the Investor Day said, hey, we need more clinics. We've picked up a bunch now that we're at 40%. We've got to grow share within those clinics and become first line, and we're doing that with the 53%. Puppy starts now for 3 quarters in a row. That is -- we're getting the new puppies faster than anybody else. And now we're globalizing. We're in Australia. We launched last Wednesday in Japan, look for us to globalize with Quattro in a pretty robust way.

So just to maybe put a bow on that, market still has robust growth. The 40% of practices can go higher. The 53% share within practices can go higher. And then you have the CQ International, which is just arguably the first thing.

In a $1.5 billion market. And I just got to put a pin in Befrena, Quattro, Zenrelia, when you look at the aggregate of our pet products, I want everyone to know this. We're at parity to premium on pricing. That's really important that we are pricing to value. We got value, we got differentiation, and we're doing that. So some people out saying, well, there's some discounting. That is not the case. And you'll see that even as we go the rest of this year.

That's helpful. I want to talk about the next wave of innovation and certainly, Bob going a little bit into the P&L. But on that next wave, look, the air pocket, and I'm saying this to be clear, tripped up one of your primary competitors. I still think there's a lot of incrementals with what you have in your portfolio today. We just alluded to CQ International, Zenrelia traction, maybe the improved Zenrelia label. Befrena is almost all incremental in '27. But it does seem like 2028 could be in need of incremental dollars. So let's go back to your Investor Day. You talked about 5 to 6 potential blockbuster approvals through 2031. How about a little bit more about the cadence of these products? And could we actually see one of these surface in 2028?

Yes. And I'm going to jump over to the farm animal and retail as well. But I think, first of all, these are major markets and Elanco is very under-indexed on share. I mean we were not in derm 18 months ago, and this is a $2 billion market that's growing double digit. Para's, this broad-spectrum injectable market is the fastest growing and now watch it globalize, that's going to surpass $2 billion, and we're very under-indexed there and you're seeing these shares. So I think you can model those 2 alone and say derm and para, the growth overall. So I think that's important.

And then watch for this life cycle management. I mean, Ellen is dropping in a vaccine approval every 6 months to a year, and that $10 billion bio market continues to grow naturally, and we continue to have innovation. I jump over and say, Experior continues to have a lot of growth. The portfolio effect of Farm Animal, throw in our NutriQuest acquisition, now AHV, you're going to see really nice -- in the U.S., I highlighted on [indiscernible] this morning, I mean, the protein demand is going to grow. The market is going to grow 5%.

First time in 30 years, Farm Animal outgrew pet health 2x, 10% versus 5%. So I think we're going to see as leaders in Farm Animal, we're going to see natural organic growth. And then on pet retail, we're #1 there. Pet retail has, I think, surprised a lot of people with double-digit growth. So I think those are all the things. But Bob can get to it, too. I mean innovation continues to be our priority. We've got the most stable R&D team in animal health, and we're very focused. We've got 15 candidates in our pipeline. We haven't had any fallout since our Investor Day. And look, I mean, we say that word, I think you've taken that for me, that air pocket thing. We will not have air pockets. We want a consistent flow of high-impact innovation. And we've said 5% to 6% in the next 5 years. So you should start to expect some of that in that window as well.

Okay. Very helpful. I will follow up on livestock, and then I will get to gross margins. You alluded to livestock maybe up 5% from a market perspective. You guys have had some really impactful products, but Experior is coming back down to earth and Bovaer might be taking a little bit longer to take flight. When we think about that market growth, can Elanco be a net share gainer within that rate of growth for livestock?

Yes. So absolutely, right? The industry is great. And you think about our -- we know our success, if you think about just Q1, we grew 13% and 15% in the U.S. And obviously, Experior is a major product in that category. We're on 55% of the cattle in the U.S. right now. And that's after -- think about last year, Experior grew 80% in 2025. But we still see opportunity for Experior to continue to grow above the market, really on a couple of levers. One, it's going to be continued, I'd say, adoption. So we've hit the larger farms and now we're moving on to the, I'd say, the next tier of farms. And so it takes a little bit longer to get there.

We've added some resources to get there as well. add in geographical expansion. So that's going to be the opportunity to get on more farms. I'd say price is going to be the second lever. And then the third is going to be just days on use. And so we're still in the early stages of what days on use are. It's about 42 days, and we believe you can get up to about 56 days, right? So there's really 3 levers that's going to show growth. And so listen, we're coming down to a more normalized off an 80% last year, but certainly, Experior is going to be one of those products that's going to grow above the market.

Okay. Bovaer still believe in it, just might take a little bit longer to get there.

Bovaer is, I think, a great classic example of the combination of CPG value, productivity, sustainability, how do you package a portfolio over time? How do you put life cycle management behind it? And we're doing that. We did it with Experior, Bovaer look at something very similar. And for the dairy market is probably one that's a little underestimated right now. It is growing. It's probably winning the protein boom, especially in Europe and U.S. And the AHV acquisition will more than double our share of voice on farm and dairy. And we're leaning in, as we said, ruminants and poultry, we see as our 2 big bets on the Farm Animal side where we can win.

We've got maybe about 4 minutes left. Let's dig a little bit into the P&L. And Bob, if I look at the 1Q '26 gross margin and the 2Q '26 guidance for GM, it implies a solid year-over-year lift into the back part of the year, call it, 2H26 lift for gross margins. Talk to, please, the drivers of that. I think you've alluded to it a bit. And then maybe as importantly or more importantly, does that momentum or run rate continue as we think about into '27?

Yes. Great. So great question. Yes. So I think about the first quarter, margins were right in line with our expectations, and we did reiterate 40 basis points of gross margin improvement in '26 versus 2025. And a couple of levers, Jon . One, we are flushing through some higher cost inventory. You saw some of that come in Q4, some in Q1 as expected, there's going to be some of that in Q2, all right? But then that's going to be flushed through. We're going to start seeing gross margin improvement in the second half.

We've got some of the other contributors is going to be the basket innovation continuing to grow. The margins on that basket are higher than the corporate average. And so as that momentum continues, we'll see that natural pull-through. We'll see some fixed cost leverage as well. And so we've got some great operational performance in the 4 walls. So we're seeing the normal continuous improvement benefit. We're also leveraging the existing cost base. We'll get some absorption there. And then the last thing, still early days, but as I think about the second half of '26 and even beyond and more importantly beyond, Elanco Ascend. And Elanco Ascend is going to provide $200 million to $250 million of net EBITDA improvement through 2030.

That's net of inflation, net of investment. But 75% of that value is going to come through the gross margin line, 25% through OpEx. Now I think about 2026, we're a little bit more weighted towards the G&A save because of the restructuring charge we took in December, and the team has done a great job of executing that. But overall, it's going to be 75%, 25% gross margin to G&A, and we'll see that over the next several years.

Okay. So that sort of answers the question around gross margin trajectory into 2027. Can you get OpEx leverage as well when we think going forward? Or do we have to take into consideration, look, as you mentioned earlier, the response from competitors has not been to cut price, but it's been maybe to spend a little bit more behind their products such as DTC. So just curious, if we move down to the OpEx leverage, if you see that surfacing as well.

Yes. We do, Jon . And listen, we're going to give balanced guidance, but our balanced guide assumes we're going to have some of the levers we talked about as well as Elanco Ascend. And that Elanco Ascend is going to fund the need for DTC and I'd say more importantly, fund continued R&D investment and continuing that basket of that next wave and next, next wave. And we see nice improvement there as we continue to move those products in the pipeline. But absolutely, our algorithm is going to be to deliver what we did in Investor Day, but also continue to think through the investments needed to fund the business near term as well as long term.

I'll end with one last question. Jeff, it's funny. In the past years, I'd have you up here, and it was like capital allocation, pay down debt, pay down debt, pay down debt. But it's still largely that. You're doing a great job of delevering, but you do have more flexibility, right? And so you've executed some tuck-ins. Maybe just talk about your appetite for ongoing tuck-ins. What's the optimal leverage for the company? Is it 2, 2.5? And how you sort of balance that going forward now that you are in a better position there?

Yes. I think still the top priority is at 2, 2.5. We've said that's where we're headed to, and we're well on track, a little bit ahead maybe at this point in time. So I think then as you start to look, we're going to look at shareholder value. What is the optimal thing? And I think without question, we're committed to that algorithm. And I think, Jon I end there. I mean we want to be a consistent deliver on the right side of expectations. We've got a 3-year algorithm out there right now that we're very committed to, a mid-single digit. We're ahead right now in that on the revenue side, high single-digit EBITDA. We can do that confidently. We've got a lot of levers.

Ascend gives us some extra levers, low double digit on the EPS side and creating $1 billion of cash. And yes, look for us to do some tuck-ins, starting probably with Ellen, if there's molecules that we think that we can continue to grow her capacity and bring more molecules in that are differentiated. And then secondly is looking at things like AHV that makes sense. But they will have to be accretive to our algorithm. They will have to be strategic, and they won't be that sizable. They won't take us off our debt track.

So I think that's -- and again, I'd just emphasize our priorities still remain growth, innovation, cash. We're a very disciplined company. We're not going to get ahead of ourselves. We're keeping our feet on the ground. We definitely know it's a dynamic marketplace, but I really want to emphasize this market is growing. Prices are strong. The pet owner for animal health products is strong and durable, and we're set up really well here for not just 2026, but the next 3 years.

Fantastic. Guys, we got to conclude there, but really appreciate your time.

Good day, and welcome to the Elanco Animal Health Q1 2026 Earnings Call. [Operator Instructions] Please note, this call is being recorded. I would now like to turn the call over to Tiffany Kanaga, Vice President of Investor Relations and ESG. Please go ahead.

Good morning. Thank you for joining us for Elanco Animal Health's First Quarter 2026 Earnings Call. I'm Tiffany Kanaga, Vice President of Investor Relations and ESG. Joining me on today's call are Jeff Simmons, our President and Chief Executive Officer; Bob VanHimbergen, our Chief Financial Officer; and Beth Haney 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 statements.

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. References to organic performance excludes certain royalty and milestone rights that were sold to a third party in May 2025.

After our prepared remarks, we will be happy to take your questions. I will now turn the call over to Jeff.

Thanks, Tiffany. Good morning, everyone. Elanco's first quarter represents growing strength, momentum and value. The company's solid first quarter results and raised full year guidance demonstrate continued progress on our priorities of growth, innovation and cash. As highlighted on Slide 4, we delivered 10% organic constant currency revenue growth in the quarter, outperforming the high end of guidance for revenue, adjusted EBITDA and adjusted EPS. This high-quality performance was driven by both price and volume, with growth across all major geographies and all species. Thank you to the entire Elanco team for the execution for high levels of engagement and unified approach that have created a sustained, consistent delivery across the company.

Elanco is in a position of strength with a base business that grew in Q1 and a basket of significant innovation, all within a durable animal health industry. Our momentum in each of our 4 businesses is evident in market share gains across our global portfolio. We drove share gains across all of our U.S. pet health major categories: parasiticides, osteoarthritis pain, dermatology and vaccines. Elanco's leading share growth in the largest categories, Para and derm, with accelerating gains for Zenrelia and Credelio Quattro. Internationally, both Zenrelia rely and AdTab continued their growth trajectories and captured market share. We also bolster our leadership in U.S. farm animal and achieved strong growth in international farm animal, particularly in poultry and ruminants. Our diverse basket of significant innovation is a key driver for this global momentum. After delivering $287 million of first quarter revenue from our innovation products, we are raising our full year innovation target to $1.2 billion. Our big 6 products are performing extremely well, and they are providing portfolio benefits that supported our base business growth in Q1.

Robust top line and adjusted EBITDA growth combined to enable continued deleveraging in the quarter. We are improving our net leverage target for year-end to 3.0 to 3.2x from the previous guidance of 3.1x to 3.3x.

With our solid start to the year and accelerating trends into March and April, we are well positioned to raise our top and bottom line outlook. For the full year, we now expect organic constant currency growth of 5% to 7%. Adjusted EBITDA of $975 million to $1.005 billion, representing 10% at the midpoint, and adjusted EPS of $1.03 to $1.09, representing 13% growth at the midpoint. This guidance continues our prudent, balanced approach in a dynamic macro environment.

Our confidence comes from the consistent outperformance of our diverse basket of innovation, a growing base business in Q1 and the mega trends supporting durable growth in today's global animal health industry.

Looking more closely at the first quarter revenue performance on Slide 5, we break down the 10% underlying organic constant currency revenue growth. U.S. Pet Health achieved 6% growth despite winter storms impacting January and February in the vet clinic. We saw a sharp recovery in March to 8% growth with April even better. Both months were ahead of expectations and demonstrate our underlying strength. Zenrelia posted its best quarter yet, leading our Q1 growth in the clinic and far exceeding our plans. Also robust Credelio Quattro demand with accelerating market share gains more than offset the anticipated headwind from last year's typical launch dynamics of initial stocking. Both brands exited the quarter with strong momentum in March and extending into April. We are well positioned for active derm and parasiticides seasons with tik bites sending Americans to the emergency room at the highest rate in nearly a decade, according to April CDC data. We expect one of the most robust parasiticide seasons in a long time.

In our U.S. retail OTC business, Q1 saw high single-digit consumption growth in a low growth market, reflecting strong trends for our products and Costco and Dollar General as new customers. These 2 new retailers were meaningful additions to our business as flagged at the December Investor Day and should also contribute to growth in upcoming quarters after initial stocking. Both Seresto and the Advantage family saw double-digit dispensing growth at our top retailers. Additionally, Zenrelia and Quattro are growing nicely at retail. We continue to expand our retail market leadership and competitive advantage with what we believe is the broadest access to pet owners in the industry.

Overall, our U.S. pet health business is demonstrating solid fundamentals with our basket of innovation driving industry-leading growth. We are confident in an expected acceleration for the business to high single-digit to low double-digit growth in the back half of the year as our new products continue to gain share.

Moving to international pet health. We delivered 9% organic constant currency revenue growth, driven by Zenrelia, Adtab and Credelio. Zenrelia is rapidly capturing share in the $800 million international derm market with accelerating gains in key markets. U.S. Farm Animal was up 15% with good growth across all species and product categories. Our results demonstrate the power of innovation and a diverse portfolio and a favorable macroeconomic backdrop.

Finally, international Farm Animal was up 13% in organic constant currency, also achieving growth across all species. The quarter benefited from customer-driven accelerated shipments primarily to the Middle East contributing 1 percentage point of growth for the total company.

Turning now to Slide 6. We delivered $287 million of innovation revenue in the first quarter. With a strong sales trajectory of the Big 6 driven by our no regress launch approach, we are again raising our innovation guidance for 2026 by $50 million to $1.2 billion. The Big 6 are well positioned to drive sustainable growth over the coming years as we continue to expect this group to double in revenue from 2025 to 2028 on top of a stable base.

Let's further discuss the progress of our major innovation products on Slide 7, starting with Zenrelia, the single largest brand driving Elanco's 10% growth. Zenrelia reached blockbuster status on a trailing 4-quarter basis with a growth trajectory well exceeding our expectations even since the late February earnings call. We are in a stronger position with momentum accelerating in the U.S. and in our international business and growing recognition of the strong efficacy profile. We see potential for Zenrelia to be a blockbuster in both the U.S. and international as we grow the $2.1 billion global dermatology market and continue to take share.

As we enter the derm season, we see Zenrelia as the leading derm market share taker with demonstrated strong efficacy in the JAK1 category. March was Zenrelia's largest month yet with U.S. vet clinic sell-in 30% larger than any other month to date. We're now at over 16,000 U.S. vet clinics or over 50% of the total, and the reorder rate is over 80%. We've added 4,300 new purchasers since the September label improvement and veterinarians are moving it to first-line treatment as they gain experience and see how this special product just works. We expect continued momentum entering the allergy season with those cases representing about 1/3 of the patient population.

On the U.S. label, we continue to have constructive dialogue with the FDA regarding our previously submitted data. The FDA has requested additional data and a new study is already underway. Given Zenrelia's success to date that is well beyond our plans, we now have greater expectations for the potential of this product with additional label improvement in the U.S. representing only further possible upside. Our guidance has always conservatively assumed no incremental change to the U.S. label.

Building on this success outside the U.S., Zenrelia has posted an excellent quarter across key geographies. A great potential leading indicator example is the first market for Zenrelia, Brazil. Zenrelia has reached over 50% JAK market share in Brazil, becoming the market leader after just 1 year and achieving this coming through the Southern Hemisphere derm season. In Japan, it's over 35%. Traction continues to rapidly build also in Europe with JAK market share in the high teens to over 30% in key European markets, again outperforming the competitive entrant.

Our EU head-to-head study has resonated well with veterinarians, and we're the only player providing this competitive data. With the recent launches, Zenrelia is now in 45 countries and our international labels are all without restrictions. Zenrelia's efficacy is a clear differentiator and game changer, addressing the top reason dogs go to the vet and satisfying an unmet need for pet owners. Over 2 million dogs have now been treated with Zenrelia, and we're just getting started. We are increasing manufacturing capacity and move production now to 24/7 to keep up with a sharply rising global demand and going into what we expect to be a robust derm season.

Moving to our second derm product, Befrena. Our phased launch approach is on track with product already shipped to early experience influencers and in use. We expect to officially launch Befrena this quarter and have orders in hand as vets are eager for this new solution. Remember that a phase launch is very typical for a monoclonal antibody or MAB products as we scale our bioreactors with anticipated manufacturing ramp-up. We're excited for Befrena as a potential blockbuster with positive differentiation on convenience, value and efficacy. It's recommended at a dosing interval of 6 to 8 weeks post treatment versus 4 to 8 weeks for the current market competitor.

When we shared a close proxy of the label to over 350 veterinarians, 83% responded they're likely to use Befrena, especially in seasonal cases. And importantly, Befrena is complementary to our broader portfolio, creating a more comprehensive offering to veterinarians. Last week, we hosted over 300 veterinarians at our headquarters as part of the North American Veterinary Dermatology Forum. Anecdotal feedback from early experienced KOLs was positive on the efficacy of Befrena.

Next, on Credelio Quattro. We are very pleased by our accelerating pace of dollar share gains in broad spectrum dispensing sales from U.S. clinics. Quattro's market share is up 3 points since Q4 and exceeding our expectations. Most importantly, in the clinics that carry Quattro, which is now over 40% of the U.S. clinic base today, our share increased 13 points in Q1, reaching 53%. Simply put, the clinics carrying Quattro are using it more than half of the time for any broad spectrum application. These accelerating gains 1 year after launch demonstrates strong demand and growing interest from veterinarians and pet owners who increasingly agree that Quattro is best medicine with its 4 dimensions of differentiation.

The product's success also reflects our strategic DTC investments, enhanced sales team and distribution partnerships, which combine to fuel a growth trajectory more like a first-to-market product. We will continue to fund our data-driven high ROI investments in the brand. Like Zenrelia, sales for Quattro accelerated during the quarter. March has been the product's largest month ever, creating strong momentum into the parasiticide season. We've added over 2,500 new clinics year-to-date through April and counting. And yet there remains ample room for Quattro to continue to grow and take share in the $1.5 billion U.S. broad-spectrum parasiticide market. An important leading indicator is Kinetics Puppy Index, where Quattro ranks highest versus other broad-spectrum andectose and grew versus Q4.

Outside the U.S., Quattro has made its debut in the $750 million international market, which is growing double digits. In April, the product launched in Australia and gained approval in Canada. The EU, the U.K. and Japan are next as we look to rapidly globalize sales. We expect the global Credelio family to eventually become the largest product family in Elanco's history.

Finally, our OTC parasiticide Adtab has continued its robust growth trajectory with sales once again up more than 50%. Adtab is the fastest-growing brand in the $600 million OTC acto category in Europe, further strengthening its market leadership in Q1.

Moving to Farm Animal. 55% of U.S. Catalon feed are now using Experior. Overall, we expect Experior to continue to grow and drive meaningful portfolio benefits including geo expansion as another long-term growth driver with recent expansion into Mexico. But we expect a moderating trajectory for this blockbuster with more challenging comparisons ahead.

Lastly, on Bovaer, we continue to see demand from CPG companies supporting relatively consistent count numbers. We're investing in long-term initiatives to enhance the product value and demonstrate user flexibility. More near term, we expect growth at a measured pace as we build on Bovaer's value proposition.

Moving to Slide 8. we provide recent highlights across the 3 parts of our consistent IPP strategy: innovation, portfolio and productivity. Our innovation engine continues to make great progress with further globalization of our Big 6 innovations resulting in recent approvals for Zenrelia in LatAm countries in Eastern Europe, Credelio Quattro in Canada and Australia and new submissions, including Befrena Dossier in Canada. The next wave of innovation portfolio further expanded and progressed in line with our plans, and we are clearly tracking towards 5 to 6 blockbuster potential approvals expected through 2031.

Finally, Ellen and her team have further strengthened the innovation pipeline with new additions coming from our internal discovery teams while advancing key clinical programs, enabling us to clearly see our vision of a consistent flow of high-impact product innovations. Today, the Big 6 are driving broad-based growth across our portfolio and share gains across all quadrants. These launches are powering growth in U.S. corporate accounts, up 12% in Q1 versus the same quarter last year. They've enabled growth for our base business in the quarter, and we are seeing gains from pricing up 2% in Q1 and on track for full year acceleration from 2025.

We implemented our largest price increase in 5 years to U.S. fat clinics, reflecting our latest innovation and the value of our portfolio of customers.

Finally, we continue to pay down debt and strengthen our balance sheet. At 3.5x net leverage in Q1, we have a clear path to the under 3x landmark in 2027. Our December strategic restructuring has further streamlined our organization with expansion of R&D in our Indianapolis headquarters, and as Bob will detail momentarily, our company-wide productivity initiative, Elanco Ascend, is on track to drive meaningful efficiencies and margin enhancement starting in 2026.

With that, I'll pass it to Bob to provide more on our first quarter results and financial guidance.

Thank you, Jeff, and good morning, everyone. Today, I will focus my comments on our first 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 10. We delivered $1.371 billion of revenue, representing an increase of 15% on a reported basis. Organic constant currency growth was 10% compared to the first quarter of 2025, with 2% from price and 8% from volume.

Slide 11 provides revenue by the 4 quadrants of our business. Total Pet Health revenue increased 7% in constant currency. In the U.S., we achieved 6% growth with broad-based strength across all channels. Key drivers were Zenrelia, Credelio Quattro and our over-the-counter retail parasiticides business.

Outside the U.S., our Pet Health business grew 9% in constant currency, driven by sales momentum of our innovation portfolio, including Zenrelia, Adtab and Credelio family products. Globally, our Farm Annual business achieved 13% growth in organic constant currency growing across all species. The U.S. Farm Anima business delivered 15% growth with contributions across all product categories, driven by cattle and poultry. While we are extremely pleased with the outsized performance in the quarter, we do expect growth to normalize to levels consistent with our long-term algorithm.

Outside the U.S., our Farm Animal business contributed 13% in organic constant currency growth with poultry and ruminants the major contributors. We estimate that the favorable timing of customer purchases in the Middle East this year contributed 1 percentage point of growth for the total company.

Continuing down the income statement on Slide 12. Adjusted gross margin was 57%, a decrease of 40 basis points. As a reminder, we anticipated a year-over-year decline in the quarter due to pressures from inflation and the flow-through of inventory costs.

Gross margin performance was also impacted by product mix, with strong Farm Animal growth, partly offset by benefits from both price and volume. Looking ahead, we continue to expect meaningful gross margin expansion in the second half of the year as we move past inventory cost headwinds and and with mix benefits from expected acceleration in our U.S. Pet Health business.

Operating expenses increased 6% year-over-year in constant currency, driven by planned investments supporting our product launches, continued R&D investments and compensation expense.

Interest expense for the quarter totaled $43 million, in line with our expectations.

On Slide 13, you'll see an adjusted EBITDA year-over-year comparison for the quarter. Adjusted EBITDA was $334 million, an increase of $58 million or 21%. Adjusted EPS was $0.40, an 8% increase year-over-year. As a reminder, adjusted EPS was impacted by lapping favorable onetime tax benefits in the prior year.

On Slide 14, we provide an update on our cash and debt balances. We ended the quarter with net debt of $3.3 billion and a net leverage ratio of 3.5x. Debt paydown remains our primary use of free cash flow with a long-term target ratio of 2 to 2.5x. We expect to reach below 3x next year, giving us greater capital allocation flexibility. In the meantime, we continue to evaluate disciplined bolt-on M&A. I'd like to recognize the closing of our AHV International acquisition on April 30, and welcome our new colleagues. AHV expands our share of voice and dairy, and we are excited about this platform for farm animal innovation.

Now let's move to our financial guidance, starting on Slide 16. Our first quarter overperformance allows us to raise our full year expectations and continue to invest in our innovation products. We now expect to deliver organic constant currency revenue growth of 5% to 7% versus our previous outlook of 4% to 6%. We are increasing our expected reported revenue range to be between $5.01 billion and $5.085 billion. This includes an expected $60 million year-over-year tailwind from the favorable impact of foreign exchange rates, majority of which was captured in our first quarter results.

Slide 17 provides year-over-year bridges for 2026 adjusted EBITDA and adjusted EPS, and Slide 24 in the appendix provides additional assumptions to help support your modeling efforts. We are raising adjusted EBITDA guidance by $20 million. The increase reflects our $34 million outperformance in Q1, partly offset by approximately $9 million of incremental investment in our innovative launches and previously mentioned timing of international farm animal sales.

For adjusted EPS, we are raising our guidance by $0.03, bringing the new range to $1.03 to $1.09. We have also updated our cash and balance sheet expectations for 2026 and now anticipate end of year net leverage of 3x to 3.2x. We continue to take a balanced and prudent approach to our guidance, considering a number of potential scenarios. On Slide 18, we list drivers that could influence our results within the guided ranges.

We remain disciplined in monitoring external headwinds, specifically, heightened competitive pressures, including generics, and consumer level economic shifts. These could move results toward the lower end of our expectations. We also continue to invest incremental dollars to support the launch of our innovation products, driving our market share gains and sustainable growth. Alternatively, the continued acceleration in our innovation pipeline, underlying strength from a growing base business and our ability to leverage our diverse portfolio could drive results towards the high end of our expectations. A favorable macro environment and rapid progress in Elanco Ascend could provide important tailwinds.

In conclusion, we see a stronger set of opportunities and momentum in the business, outweighing potential headwinds, resulting in the balanced guidance raise.

Now let me take a moment to offer an update on Elanco Ascend. We are seeing significant engagement across the organization as we execute initiatives to optimize our cost structure and drive operational efficiencies. We continue to expect the projected Ascends savings detailed during our December Investor Day. As a reminder, 75% of our benefit from Ascend will be in gross margin, but the near-term benefits are more in G&A, driven by our previously announced restructuring. With more than 5,000 projects logged to date from large-scale transformations to smaller localized improvements, Ascend is becoming deeply embedded in our operational discipline.

Additionally, Elanco Ascend is integrating automation and AI across our entire value chain to accelerate our innovation pipeline, enhance manufacturing quality and drive sales through deeper data-driven customer insights. Our comprehensive AI agenda also includes leveraging AI-driven automation to transform legacy processes as part of Ascend. For example, we recently implemented an automated sales order tool that modernizes the order-to-cash process. This initiative enhances fulfillment accuracy and accelerates order cycles leading to improved cash flow visibility and lower operational costs. When you combine our focus on operational excellence and productivity with the continued scaling of our margin-accretive innovation portfolio, we see a clear path for sustainable margin expansion over the long term.

Now moving to our second quarter guidance presented on Slide 19. On a reported basis, we expect $1.3 billion to $1.325 billion in revenue, representing organic constant currency revenue growth of 4% to 6%. Growth is impacted by lapping Q2 2025 pretariff buying primarily in China, by accelerated shipments to the Middle East in Q1 of this year and by Farm Animal normalization against more challenging comparisons. The year-over-year increase in operating expenses, primarily related to launch investments, is expected to be approximately 8% in constant currency. As a result, we anticipate adjusted EBITDA of $240 million to $260 million, and adjusted EPS of $0.25 to $0.28.

Finally, on Slide 20, we outline our expectations for a meaningful acceleration in our U.S. Pet Health business in the second half of the year. As Jeff highlighted, we saw a sharp recovery in March to 8% growth and even better April, demonstrating our underlying strength. We are confident in our expectations for high single-digit to low double-digit growth in the back half of the year, reflecting continued momentum for Zenrelia and Credelio Quattro and contributions from our Befrena launch.

Additionally, our comprehensive portfolio is driving significant corporate account growth. I'd also highlight, our assumptions are not contingent on improvement in vet visit volumes. For the full year, we expect the U.S. Pet Health business to achieve at least high single-digit revenue growth, once again meeting the industry.

Now I'll hand it back to Jeff for closing comments.

Thanks, Bob. As we accelerate into 2026, our innovation, portfolio and productivity strategy is working. Elanco is a different company today, well positioned to lead growth in animal health through consistent execution of our strategic priorities: growth, innovation and cash. The base business grew this quarter, while the launch of our Big 6 innovation portfolio builds momentum. Elanco will stay disciplined and focused while anchored on the belief that we are about delivering that promising.

We are now advancing our next wave pipeline, targeting 5 to 6 new blockbusters by 2031 and unlocking more than $2 billion in unproblized peak sales potential. Through Elanco Ascend, we expect to drive meaningful margin expansion and operational efficiency beginning this year, aiming to deliver more than $1 billion in free cash flow through 2028 and reduce net leverage below 3x by 2027, all of this on top of sustainable megatrends in pets and protein that make animal health a durable, resilient industry and one of the most compelling long-term growth sectors.

Elanco is confident in the animal health industry in both 2026 and into the longer-term future. These tailwinds are expected to extend animal health's mid-single-digit growth, adding an estimated $20 billion in industry value over the next decade. Last quarter, I highlighted the robust protein trends for our Farm Animal segment. Specific to pets, I would point to my recent shared table podcast episode with Jay Mazelsky from IDEXX and J. Price from Mission Pet Health. The pet opportunity is significant. Diagnostics are completed on just 20% of pets today. We see only the surface of the true disease spectrum that exists. And as we expand what we detect, AI accelerates what we can learn and a generation of middle-aged pandemic pets enter their highest care years, the pie is growing. The leaders who focus on delivering value to the pet, the owner and the veterinarian to meet this increasing expectation of care will be the ones who grow with it and beyond.

I especially want to thank the Elanco team for their commitment to serving customers and continuing to push boundaries to exceed their expectations. Today, strong results and raised outlook for 2026 were made possible through our team's dedication building on more than 70 years of transforming animal health to create long-term value for customers, communities and our shareholders.

With that, I'll turn it over to Tiffany to moderate the Q&A.

Thanks, Jeff. We'd like to take questions from as many callers as possible, so we ask that you limit yourself to 1 question and 1 follow-up. Operator, please provide the instructions for the Q&A session, and then we'll take the first caller.

[Operator Instructions] Our first question comes from John Block with Stifel.

I'll start the U.S. Pet Health result in the quarter was up 6%. I'm guessing it was probably a bit lower if we normalize for advantage sales, call it into the new doors. So Jeff, can you talk about what held back the U.S. Pet Health in the earlier part of the quarter, and more importantly, the main drivers to the accelerating assumption? I know there's some good color on Page 20, which I think is very helpful. But any additional feedback would be great. I think that is a focal point for investors here in the near term.

Yes. Thank you, John. Look, we had, I think, like the whole industry, January and February, that was cooler, but we saw a really nice rebound and all the lead indicators on our new products were extremely strong. So an 8% jump back in March, even stronger in April. And as we look at the forecast with Bobby and his team for the rest of the year, and as highlighted on that slide, we see Zenrelia, what a quarter for Zenrelia. I mean it was #1 brand for our company and growth driver, and we'll talk more about that, but Zenrelia was a major contributor as well as Quattro. And then we've got the Befrena launch, we've got a step-up in price, and all of this, we believe, on the existing kind of industry backdrop.

You mentioned on retail. Retail had an extremely strong quarter. And the strategy is working. If you look at retail, it was Adtab internationally, but in the U.S., it's bringing an advantaged collar, adding distribution points with a value store in Dollar General all the way to a box store. And today, we've got -- we're taking share. We're adding double-digit growth to these major key retailers. So the omnichannel is working. We see a nice step up the rest of the year. That's why we wanted to be clear and it comes with a lot of confidence with a March and in April trajectory change.

That's great color. And then the second question, it seems like you're talking more openly about these corporate accounts, and it seems like that also has a role in the acceleration. So I'm just curious, are these commitments from corporates, call it, for a first time? Are they competitive wins? And also, when we think about these corporate deals, is it broad-based? In other words, are we talking CQ, Zenrelia, Befrena upon launch. Maybe you can provide some details there.

Yes. Thank you. Yes, corporate accounts, we were very under-indexed [indiscernible]. We shared in the last quarter how the number of corporate accounts were growing that weren't growing last year. We saw a 12% step-up, so double the growth rate in corporate accounts. It all comes back, John, you know this, to a winning portfolio. When you start to see the uptake, when you got over half the clinics in the U.S. using Zenrelia, you see 40% with Quattro and you look at best medicine with Quattro demand for Zenrelia, if you're a corporate account, you don't have this and you've got clients coming and asking, there is more of a pull than a push that's happening with corporate accounts.

I think Bobby and his team, Chris Bertelle and Matt, Hudson Piller and the team has done a very nice job of making sure though it is value-based. We are not going places where price would be impacted negatively with corporate accounts. So we're taking very value-based approach to these corporate accounts and it's working.

Our next question comes from Michael Ryskin with Bank of America.

Great. I'll ask 1 big 1 on Zenrelia and then maybe a quick follow-up. So on the one hand, you're doing, I think, much, much better than any of us had anticipated given the label restrictions. You touched on blockbuster trailing 12 months. We're kind of backing the something like $40 million for the quarter, so continues to ramp very, very nicely despite the label. On the other hand, the FDA label update, I think, is less than what people were expecting. So I just wonder if you could talk about why you're having such success despite the label restrictions? And if you could give an update on -- you called out the additional trials, the data generation, just any thoughts on timing when we could get either more updates or see that label change? And then I have a quick follow-up.

Yes. Yes, Michael. I think I start with the derm market, continuing to grow double digit, truly an amazing quarter. We got a special product here in Zenrelia. We've got future year demands coming into this this year. So we see the potential of this product much greater than we saw it even last quarter. We've got just greater expectations and we're seeing it globally, and you know this and we've talked about this, it's all back to efficacy. And the product just simply works. Relative to the label, I would say no. I think it's a little bit of a line relative to our strategy. We had constructive dialogue, as I mentioned, with the FDA regarding the data. They've requested a little bit more research. I stepped back on this multipronged approach we took, which is, hey, first, we submitted the PCR data. We got a positive improvement in the label. They requested the published booster data. That's what we submitted, and we knew this was a potential expectation. They requested this additional data, and we've already started the trials along the way. We've got good concurrence on the study, and we'll be submitting it by the end of the year, Michael. But given Zenrelia's success that's well beyond our plans, we now have greater expectations for the potential of this product, with additional label improvement in the U.S. really representing just further possible upside.

So our guidance has always been, as I said, conservatively assumed with no incremental change to the label. With all of this, I come back to the most important thing. We're taking share. We're in over 50% of the clinics in the U.S. Our expectations are growing. We have moved to 24/7 manufacturing because we see the future forecast for this product growing, especially as we head into derm season. And again, we got now 2 million dogs, 2 years of use, great PV data, 44 countries internationally now with all labels without restrictions. So we're in a really good place.

And Michael, and Jeff highlighted it, right? But just as a reminder, our 2026 guidance and our Investor Day guidance we gave back in December, assumes that the label is as is. It did not assume a label change here in 2026. And so where we are today, right, with the current status and time line, that provides potential upside to growth potentially starting in 2027 with the clean label.

Okay. Okay. And if I could squeeze in a quick follow-up on price. I think you saw a 2% price in the quarter. But you also, in your prepared remarks, talked about implementing a significant price increase as you mentioned in the past. Could you just talk about prices, how big that was price assumptions for the rest of the year? Any specific on that would be helpful.

Sure, sure. Yes. Thanks for the question. So price in the quarter is right aligned and right with our expectations for the quarter and for the year. So price in the quarter, as I highlighted, was 2% across the board. That's both on the pet side and the farm side. I'd remind you that pricing can be influenced by customer and product mix for any quarter. But we do expect 2026 pricing to accelerate from where it was in 2025. And that, quite honestly, just reflects the enhanced value that our best and innovation is bringing and the comprehensive portfolio we're bringing to customers. And I'd remind you that in U.S. Pet Health side, we did bring the highest pricing to vet clinics this year. It's been the highest in 5 years as we continue to price to value. And listen, I think you'll see price accelerate as we see continued ramps in Zenrelia and Quattro throughout throughout 2026.

I think Bob and I and Bobby and other, I think an observation we made, Michael, is prices in the industry are holding up strong. Even in U.S. pet very nicely, even in corporates. I think what the change has been is there's just an increased need to spend to hold and capture share. So -- and I think that's a positive. As everyone is selling value, and we don't see price impact, we see spend maybe impact, and we got good measures on seeing the return on our spend, and that's why we're leaning in on it.

Our next question comes from Umer Raffat with Evercore.

I thought I would focus a bit today on the noninnovation side for a second. And specifically, what I'm seeing is, while there's all this focus on some of the new launches, your cattle business might have hit an all-time high, if I'm not mistaken. And poultry is also at near the best numbers you've ever put up. So could you speak to the broader dynamic in farm business? I realize herd count is part of it, but I don't think that's all of it. And I'm just trying to understand what the underlying drivers are on both sides, but also how sustainable they are as herd counts come back, et cetera, over time?

Yes, very insightful question, Umer, and I agree with you. I don't think people realize that last year in 2025, our industry grew 7% and Farm Animal grew 10%, Pet Health is 5%. Farm Animal has got durable undertones. I saw -- we spoke at the SEMAFO conference out with some of the major, major CEOs the last 4 months, and there is a protein revolution going on, and it's playing through in the numbers. You see Tyson's results yesterday with the chicken business. What you've got here is you've got -- we're expecting a 5% growth in the U.S. on the protein side. We've seen meat sales up 100% the last 5 years, and it's coming back to this shift back to protein.

Now as you look at the different species, yes, there's a shortage in the beef market, but you're seeing the benefit carry over to international beef and poultry. And actually, producers are making a lot of money, packers are not so -- and we serve producers. So that dynamic in beef is positive. Probably the quiet species nobody is talking about is dairy, and dairy could be second to poultry and benefiting from this protein revolution. The guys just got more SKUs when you look at the shakes and the yogurts and the things that are going on. So I think there's a big investment in dairy. That's where HV acquisition plays nicely. And then yes, poultry, 3% growth the last 3 consecutive years, and we don't see that slowing at all.

So I think the carryover of protein, there's been a little bit of an over-indexing on the cattle herd size and that may be a little longer. I actually think that benefits us and benefits producers as the rebuild comes a little stronger, the prices will hold up. So Farm Animal business, we look like we're in a very strong position. We're in a leadership position the medicated feed ads, vaccines and across all the other additives, and we're adding to that portfolio with the HV acquisition.

Our next question comes from Brandon Vazquez with William Blair.

Congrats on a nice quarter here. There's not too much to pick on on a nice quarter, but I did want to go back to the question that John was asking just about the U.S. Pet Health number, and I can appreciate there was a little bit of noise, maybe in end markets, things like that. But I'm kind of curious, is there anything else we should be thinking about on a year-over-year basis as you think of that number, trying to think of the ramp, why would a business that if you think about Quattro was a pretty low base in Q1 '25? Why would the monthly be changing so much? I think that's part of what a lot of us are trying to understand as we think about the ramp through the rest of the year.

Yes, so maybe I'll give you some color, Brandon. Thanks for the question. So a reminder, last year in we did have the initial launch of Credelio Quattro, and so we did have a tough compare. But even in light of that, we still outgrew Quattro versus last year. So that's kind of 1 point of interest. But we did highlight it, Jeff touched a bit about it, and it's certainly on a slide I presented, but maybe just to give you a little bit more color on the second half, which gives us a high degree of confidence in the second half of the year. I mean we continue to see strong momentum in Quattro and Zenrelia. And you think about the clinics and the data we gave about new purchasers, that's going to continue to ramp throughout the year as we see order rates holding strong. And we are investing more in DTC behind these brands. Befrena continues to be on pace with our launch expectations and there's a high degree of of excitement from that, particularly on our entire derm portfolio.

Bobby did have a group of vein last week, and the buzz was about both Zenrelia and Befrena. And then corporate accounts, you talked a bit about this on the call. But listen, those contracts will continue to ramp throughout the year. And so again, we're confident in the second half of '26 here with the U.S. pet side. And again, our guidance does not assume an improvement in vet visits for the year here.

Okay. And then as a follow-up here on the guidance, there was a comment about generics in the investor deck. And just in general, competition, you guys have talked about this that it's the competitive space. How do you guys think about competition when you're putting together guidance? I think you're in a unique position now where you're -- you have a lot of innovative products out there. So this is something to think about on a go-forward basis. How do you bake that in? Are these transient headwinds? Are they price? Are they volume? Any details you can give on what's baked into the guidance from competition in generics would be helpful.

Yes. We assess it market by market, Brandon, and do this in our quarterly forecasting. We've got good read, good data from a competitive standpoint and a good competitive intel group. And I believe, as Bob has highlighted, we've taken a balanced approach. So no change. We're in our third year of growth and delivery, and that same philosophy is carried forward as we look at the rest of the year for U.S. Pet Health or look at the rest of the year for any one of our businesses, generics included in competition. So feel very good about our assumptions as we look at the rest of this year.

Our next question comes from Daniel Clark with Leerink.

Just wanted to ask about how we should think about the progression of clinic penetration for both Zenrelia and Quattro and the share within those clinics as we go through the rest of 2026, especially just given the ramp you had for U.S. Pet?

Yes, maybe because we haven't talked much about Quattro, I'd just point to a couple of statistics we highlighted. It's off to a really great start. And the momentum we have with this product, we do see everything relative to best medicine here. Bobby highlighted 4 key metrics that were critical at the Investor Day, more clinics, increased share within these clinics, puppy starts and growing market. I would keep anchoring back to these, Daniel, as we look going forward. We picked up 2,500 new purchasers year-to-date through April. We've got -- I think, the biggest metric that I would point to is we're in 40% of the U.S. clinics with Quattro. That will continue to grow, but most importantly, as we picked up 13 points of share, now we're at 53% of share within those clinics. So we are truly moving to first-line treatment, and we're the #1 growth company and market share growth.

So I think that's the statistic to watch as it's really demonstrating best medicine. And now this is the third quarter in a row that we're winning the puppy index and Q1 was greater than Q4 And the market grew 27% last year. So I think when you put all that together, maybe a weather challenge in January, February, we see a lot of resiliency, tick bites being up, we see potentially one of the biggest parasiticide season.

And then on derm, it's just continuing not only to get more clinics, but we're seeing a major shift now to first-line treatment and watch the international markets especially within Zenrelia given the market shares that we've seen. Those would be the key areas to watch. And again, it's all back to market share and market growth. We're getting market share growth and market growth while a base business in Q1 grew.

Got it. Super helpful. Actually I wanted to ask on the international dynamics for Zenrelia. What are you seeing in terms of competitive or promotional intensity from other manufacturers that have [indiscernible] on the market? Any change there? And then can you just size the market growth you're seeing in derm ex U.S.?

Yes, it's an $800 million market internationally, and that's growing double digit, growing even faster than the U.S. Again, remember, 70% of puppy starts are actually outside the U.S. So a lot of positive trends. And then, yes, we again, see that with the head-to-head study playing out in field and a lot of KOL support you're seeing these market shares, I mean taking over market leadership after 1 year in Brazil coming through a Southern Hemisphere derm season, I think, is a great proof point of how strong this product is. And even with a new competitive market entrant, the head-to-head study is showing, and we're winning share even there with high teens to 30% European markets. So -- and we'll continue to globalize. But again, we're in 44 international countries. Now it's all about more share and moving to first-line treatment.

Our next question comes from Christopher Schott with JPMorgan.

Congrats on the progress. Just first one for me is the no regrets launch approach has clearly paid off. And I guess my question is if this outperformance continues, how should we think about Elanco thinking about reinvestment of potential upside back into the business? I mean should we think about this still as you got to keep putting money back in for promotions? Or do we reach a point where we think about more of the top line upside maybe falling to the bottom line?

And then my second question was just on the type of pets moving on to Zenrelia given the share gains you've been seeing. Can you just elaborate a little bit more of what you're seeing there in terms of new starts versus those who maybe failed Apoquel in terms of just the type of animals going on the drug?

Chris, I'll take the first one here. Thanks for the question. Yes. So as I sit here today, like I'm really pleased with take Q1, for instance. I mean this is the exact profile that I'd love to have where we exceed our expectations and we continue to reinvest in these innovative products. And so we're using data to determine how much we invest, and we see high ROI on these investments, and we'll continue to use that data to keep the pressure on and keep the pedal to the metal, if you will, on growing these top line numbers with these brands. And so we're going to keep doing that.

But Elanco Ascend is so important to this process because what it allows us to do is continue to beat expectations, drive value to the bottom line while also reinvesting in the business. And I would say that investment is really in 2 spots. It's not only in the near-term DTC, if you will, for the brands, but it's also continued to fund more in R&D for that next wave and that next next wave.

I'd pick up, Chris. We just hosted last week there was a major vet conference here in Indianapolis and dermatology experts had over 300 of them here at the headquarters. And I would say the buzz is the Zenrelia efficacy, the movement to first-line treatment. And really, as you know, we started out with acute and seasonal cases and the shift going more to chronic, which is 2/3 actually of patients are acute and seasonal. But the volume, of course, is in the chronic side. So I would just say that we're starting to see that shift and, of course, the global momentum of the product.

I think I got to highlight also Befrena. I mean here we come with -- this quarter, we're launching. We've got the product in the hands of all the major influencers and KOLs. A lot of buzz at the conference about that product being differentiated to with a 6- to 8-week claim. And I think it's going to do really well, Even as new innovations come, with the 2/3 of derm patients being acute and seasonal, that plays really nicely with Befrena. And really, Elanco now becomes a very competitive derm player with 2 differentiated assets with a lot of momentum in a marketplace that wants new products, in a derm market that's growing double digits. So the news here in this quarter has to be pointed to Zenrelia and the momentum and the increased momentum and then here comes Befrena and our derm competitiveness and Quattro will help derm as well.

Our next question comes from Steven Dechert with KeyBanc.

Just wanted to touch on your expectations for visit volumes. It sounded like in March saw a big improvement and then in April, that continued. I guess just how are you thinking about the rest of the year with what might be a more constrained consumer budget? I understand you're not baking any of this into your guidance, but just wondering to get your outlook.

Yes. Thank you. We believe that vet visits are something we keep our eyes on. non-wellness visits went up. I know people have pointed to that. We really look at -- we think they're over-indexed for Elanco. They will not play a factor and be a determinant of our success in 2016, and we don't see this even as a short term or a long-term factor. I think the ones we point to are expectations of care are driving a willingness to spend. So you got to have innovation and portfolios, and we do. Convenience matters and we are the leader in omnichannel. We can reach more pets where they want to shop at the price points they want to shop at and you got to be globalized. And I think that's under-indexed as well. all of that run by a really good team and a great ground game. And 1 thing I would call out is our relationship with distribution is giving us a share of voice advantage.

So all of these things matter so much more and the trends that we think are more important than vet visits, and there will be some we monitor, but we don't see it being a determinant of our success.

Great. I just want to ask one more on Befrena. Just any key milestones we should be looking for over the next few quarters? And then just any more color you can provide on the feedback that you've received to date?

Yes. I'll remind everybody, it's a ramp launch that will come into H2, which is common with monoclonal antibodies will be into the marketplace. We're in it now with KOLs and the key influencers. We'll start to move into the marketplace here this quarter, and then it will ramp in a staged way into the second half and be a contributor to the U.S. Pet Health growth. We've also got a submission into Canada as well. And then it will be a major player of growth as we go into 2027.

Our next question comes from Navann Ty with BNP Paribas.

One on Befrena, if you can maybe expand on your strategy, especially as competitor is launching a long-acting likely in early 2027. So interested to hear if you take a similar approach that you did with Zenrelia? And in Farm Animal, you touched base on herd regrowth. Can you discuss your outlook for MFAs in particular?

Yes, great question. Again, I would step back and say we've got our second derm product coming with a lot of momentum with Zenrelia, differentiation on efficacy, convenience and value across the board with Befrena coming in. I would point to we start with a big market that we already have with 2/3 of derm patients being acute and seasonal. And so that's less than 3 months of use window. So that plays very nicely. We're a very big market for Befrena. And yes, we've got in our pipeline, next-generation derm, including long-acting as well. So we're well suited to grow our leadership in derm, the rest of the decade globally.

And then on the MFA question, durable trends. MFAs continue to grow nicely. We point to our portfolio of Experior, Rumensin even our [indiscernible] and poultry, we are the MFA market leader, and we continue to hold and grow share there across the globe.

And our last question comes from Daniel Grosslight with Citi.

Congrats on the quarter here. I did want to ask about capital deployment priorities now that it seems like you're going to hit that leverage target earlier than anticipated. I'm curious how you're thinking about M&A. You obviously had a nice tuck-in this quarter. But going forward, does this open up the aperture for larger M&A deals? And if so, what are some areas you'd be looking at there? And also, I guess a similar question on share repurchases. When would you feel comfortable turning on share repurchases as your leverage comes under that 3x target?

Right, Daniel, thanks for the question. Yes. So as I think about capital allocation, really no change to the strategy that we've laid out here for a while here. So organically investing in the business and paying down debt is still going to be our #1 priority. We will continue to look at M&A, but I would tell you, these are going to be small tuck-under opportunities. It's not going to derail us from our deleveraging time line of getting into that now 3 to 3.2x at the end of this year and getting below 3 in 2027. And what we said as we get below 3 in 2027, that certainly gives us some flexibility with capital deployment and shareholder return. And so we haven't been explicit on what that looks like yet. We'll continue to obviously work with our Board of Directors on what that strategy is. And we'll certainly be transparent with the Street as we have more clarity around that.

Maybe just to -- sorry go ahead.

Yes, I was actually going to I was going to ask another question on just the ramp-up given the new deals with Costco in Dollar General on the retail side. How should we think about the revenue and the margin impact of these new partnerships as they ramp in '26 and then kind of scale in '27 and beyond?

Yes, maybe I'll give just color on what I would call normal buying patterns of these sort of customers and particularly with the Advantage brand is where we saw strength here and launches with Costco and Dollar General. But these are more seasonal buys here, and what you'll see is really a first half of the year purchasing dynamic with reorder rates kind of throughout the first half.

And then because it's a seasonal, you'll actually see inventory deplete here over these customers here in the second half. But we'd expect reorders again in 2027. So think of this as a seasonal first half opportunity for us as we move forward.

Just maybe close -- thank you for your time, everybody, this morning and continued interest in Elanco. The best quarter that we probably had as an independent company since being an IPO, high-quality growth. The base business that grew in Q1. The basket of significant innovation is building momentum, all on the backdrop of what I believe is a very durable animal health industry. And our momentum, I hope is evident in the market share gains that we highlighted today across our portfolio. The IPP strategy is working. The level of engagement in Elanco is very high. We're a different company today well positioned to really be a leader in the animal health business. We'll keep our focus on growth, innovation and cash. And we appreciate all of the interest in Elanco. We'll remain focused. I promise you on delivering value for you, customers and greater society as well. Thank you for your time today. We look forward to engaging with you all through the quarter. Have a great day.

Thank you. This concludes the program. You may now disconnect.

Good morning, everyone. My name is Steve Dechert. I'm with KeyBanc Capital Markets on the Healthcare Tech team. This morning, we have the pleasure of CFO, Bob VanHimbergen joining us from Elanco Animal Health.

Before we get started, if anyone would like to ask a question, you can do so through the webcast on the chat. But Bob, maybe just to kick things off. You guys saw some really strong growth in some of your key products to close out fourth quarter with Zenrelia and Credelio Quattro. Maybe just talk about some of the metrics that you saw to close out the year.

Steve, thanks for the question. Yes, you're absolutely right. We continue to see some strong momentum in the business and particularly with our basket of innovation. We did land the year with revenues of $892 million from that basket of innovation. And we exceeded our expectations and our guide of $840 to $880 million throughout the year, and that actually enabled us to continue to, I'd say, accelerate and increase our guide on that basket for 2026. Back in December, our Investor Day, we did highlight we expected $1.1 billion of revenue coming from that basket. And a couple of weeks ago with our 2026 guide, we did raise that to be $1.150 billion, again, on the momentum that we saw through December.

And you're right, it's the Quattros and Zenrelias but also on the farm side, our Experior, but just a couple of data points. Quattro, we firmly believe is best medicine in the fastest-growing animal health market in parasiticides. Broad spectrum is about a $1.4 billion market growing at 30%, and that represents about 40% of the U.S. para market. Quattro right now is in 1/3 of our vet clinics. We have the highest Puppy Index. And just recently, we announced that we did get approval in Australia. And so you'll start seeing us launching and getting approval in further countries overseas. In regards to Zenrelia, again, we believe this is a special best product as well. We did reach a double-digit share in the U.S., and that's with the current label. And then certainly, there is some opportunity to improve that label working through the FDA.

But even with the label cleanup we saw in September, now Zenrelia, we've added 3,500 clinics since that September language update. It's still not a perfectly clean label that we hope to get. But certainly, we took the fatally induced language off, we saw some clinics really lean into again, what we think is best medicine. And then overseas with Zenrelia, we've got double-digit share in many countries several countries in Europe, France, Italy, Spain. In Brazil, we have a 30% market -- I'm sorry, a 40% market share and then in Japan a 30% share. So strong on the pet side. And then on the farm side, Experior, those revenues are north of $200 million that we saw in 2025. It grew 80% in a TAM now that's $350 million between the U.S. and Canada. And listen, we see growth in 2026 with the extended use of that product. And continued adoption. And then over time, we expect to see just the globalization of that product. So I feel really great about the overall basket that we have right now.

That's awesome. And before we get more into '26 guide, I just wanted to touch on the conflict in Iran. We've got sustained oil prices around $100 a barrel now. We're in the third week of the war. What impact are you seeing maybe to the logistical side of your business, any inputs to your manufacturing process? And then just to maybe build off that a little bit. If this goes on for another few months, prolonged conflict and you see oil prices remain high. What does that mean for Elanco?

Yes. I mean it's something that we're certainly paying attention to. I'd say right now, Steve, it's not a material impact to us. Fuel prices, certainly, those are escalated, but that's not a significant piece to our cost base. What we're seeing short term is just obviously disruptions with supply chain. But again, we think that's pretty immaterial and there's going to be some minor timing within the quarter right now. But certainly, as time progresses, if this war should extend something that we'll certainly keep an eye on and certainly provide updates. But as of now, it's really not a material impact.

Okay. Awesome. Yes. So on the '26 guide, I just want to touch on the different considerations to the low end versus high. You're guiding to 4% to 6% organic constant currency, 8% adjusted EBITDA growth and then 10% adjusted EPS growth. So just kind of touch on low end versus high end, if you could.

Yes. No, that's great. So listen, we feel great about the guide. It's right in line with what we shared at Investor Day back in December. But we've been successful in launching our products here over the last 1.5 years and continue the momentum on that basket of innovation. But with that being said, obviously, we do think about different puts and takes as we give guide and I think of various scenarios. And if I think about what would we need to do to get to that high end, it'd be a couple of things. One, it'd be the continued strength in that basket of innovation. And so we've seen momentum, obviously, the last several quarters. And if we continue to see that momentum that would be an opportunity for us to get to that higher end.

The only thing I would say is just the foreign business continues to perform extremely well. And so that would be another -- that macro trend continues, which we expect it will, that would be another lever to get us to that high end. Now obviously, there's things that could bring us to the lower end. And again, things we contemplate. But one would be the overall macro environment. Two, I would say would be just competitive response to the success that we've had. And so it's something that we're certainly thinking through what that could look like. And I'd say more recently, I'd say foreign exchange rates could be an impact, more so obviously, on the reported number as we've seen strengthening of the dollar, but certainly wouldn't impact our organic growth.

Perfect. You kind of talked about trying to avoid air pockets with your innovative product launches. Just as we move beyond 2026, you've had tremendous success with Quattro, Zenrelia. And hopefully, with Befrena coming up later this year. Just how do we think about your cadence of product launches as we get into '27, '28?

Yes. So great question, and it's something that we're extremely excited about internally. So at Investor Day, we did highlight that we're adding mAbs and immunotherapy technology as additional areas that we're focused on and investing. But right now, we're focused on maximizing capacity and throughput and really focused on the larger markets, particularly derm and para. So although we're expanding some of the areas that we're looking at, derm and para is really going to be the biggest markets and areas that we see tremendous growth. And we're a company that we don't need to go create new markets. Our expectation is we're going to have best medicine and grow share within those markets.

And I'd tell you, I firmly believe we're well positioned to win in these large markets. And really, a lot of credit goes to our R&D team that's ensured that we don't have these big air pockets. We're going to go several years without a major innovation coming to the front line. We really have a good approach to continue to fill the pipeline. At our Investor Day, we did highlight we have over 10 products we think could be blockbusters over the next decade, and we kind of put them in 2 buckets, Steve. The first being the next wave, which we highlighted, we expect 5 to 6 potential blockbusters to come to the market by 2031 with an unprobabilized sales opportunity of about $2 billion, which is twice the value that we see here today on the current big six. And then we've got this next wave, which would be another 5-plus opportunities beyond 2031. So internally, we're heavily focused on continuing to fund the R&D team, continuing to fund opportunities and again ensure we don't have an air pocket where we go several years without a major product coming to the market.

Got it. Just now that you have Quattro, you have Zenrelia, you have this more big suite of products than before. How is that helping you grow with vet clinics and add new clinics?

Yes. I mean -- so it's helping tremendously on a couple of fronts, Steve. The first one I'd say was just the portfolio lift that we're seeing from Quattro. There's thousands of clinics that have brought in Quattro that have also made first-time purchases of other Elanco products, including Zenrelia and vaccines, all right? So we're seeing this natural lift really just from this basket of innovation. And you go back to 2025. Q1, our base business deteriorated a little bit more than what we would have liked. But once we saw our launches coming through, particularly in Q2 with Quattro and Zenrelia and starting to see that ramp, we actually saw a much more stabilizing base. And our view of stable base, our definition, if you will, is up or down low single digits. And that will shift by quarter and by geography.

But starting in Q2 because of the innovation, we saw the stabilizing base because of this halo impact from really the broader portfolio that we're bringing. The other thing I would say is just the progress we're making with corporate accounts, where having a broad portfolio is important and critical. In 2025, if you look at our corporate accounts, 90% of them grew. When you compare that to 2024 when we didn't have the innovation, only 13% grew, all right? So that's the importance of innovation. It's not only stabilized in base, but then something we're obviously super focused on just because the margin profile of the basket of innovation is also higher than our corporate average. So we're seeing a lot of benefits just from this basket to improve.

Okay. Got it. I wanted to touch on Zenrelia. You mentioned a label change in September. You've added 3,500 clinics as a result of that. I believe that's up from 2,500 to what you gave on your last update. If you get a full black box removal that you're trying to go for this year, I'm just trying to gauge what that could mean for that product? How -- what's the potential magnitude of that complete removal?

Yes. So a great question. And you're right, Steve. We did -- previously, we had said 2,500 clinics at a couple of weeks ago, and now that's up to 3,500 clinics through the last couple of days. And so we continue to see momentum on Zenrelia. And really what's triggered that is just a little bit of the label cleanup we saw in September, where we took the fatally induced language off that label. And so we've been actively working with the FDA over the course of the last year and obviously got that update in September. But we're actively working with the FDA now on further improvements in the label. We did submit data to them back in October. There is not a formal time line when we expect a response. But I would tell you we are having active discussions with the FDA. And I think the FDA certainly recognizes and part of our submission back to them was the fact that we do have a clean label in 40 countries.

There's now over 1 million dogs that have been treated with Zenrelia and it's been in the market here for over a year now. And so we're seeing, obviously, good adoption of that. But listen, like what the upside could be. We expect Zenrelia to be a blockbuster in the U.S., but also a blockbuster overseas. So again, we think it's a special project. We've been -- it might have been a blessing in disguise, Steve, that with the label, and here's why. Zenrelia is being used as a second line of defense, where puppies and dogs were not getting the treatment or the relief from other products in the market. And so we were coming in as another option, and it's worked tremendously. And so what we're seeing is that work in the market and so if you step back and think about just the clinics within the U.S., there's 30,000 clinics or so.

I'll put them in kind of 3, 10,000 clinic buckets. The first 10,000 clinics are -- were really using Zenrelia right away. They believed in the efficacy of the product. Then there's 10,000 on the other end of the spectrum, that because of the label and the risk aversion, they weren't going to use Zenrelia. And then there's 10,000 in the middle that were kind of in this wait-and-see mode. And because of the label update and because of how well it's working in the market, we saw them really start to convert, and that's that 3,500 bucket. So listen, right now, our guidance assumes the label as is, and that's not only for '26, but also for the next 3 years. But certainly, a label update, I think, would move Zenrelia to that first-line use and certainly would be a major differentiator for what our trajectory could be.

Okay. Perfect. Yes. So this kind of leads into my next question, which I had here, which is the guidance doesn't include Zenrelia, which clearly some upside there potentially, if you get the label change. But just wanted to touch on Befrena. I get it's not probably launched until midyear, but is there any -- is that being included in the guidance of '26 at all, and if so, to what degree?

Yes. So it is in our guide. It's not a meaningful impact to 2026, but it's a special product, right? So as we think about the second half of '26 and into '27 because of the value of Befrena and the dosing intervals being a major differentiator moving from 4 to 8 weeks, which is currently in the market. But Befrena providing a 6- to 8-week coverage is important. We did survey over 350 vets and 83% of them expect to bring Befrena into their clinics. But as far as the launch, we're right in line with our expectations. So we did get approval in Q4 of '25. We've been ramping up production. We do expect to commercialize Befrena here in the second quarter, but it's going to be a phase launch throughout Q3 and Q4. And so it is in our guide. It's not a meaningful impact to revenues and earnings. But as we get scale throughout the second half and into 2027, it'll be a more meaningful impact to both revenues as well as profitability.

Got it. You mentioned the Quattro approval in Australia. You guys, I believe, are expecting more geographic approvals this year. What can you tell us about those maybe what regions are you potentially expecting how many? Just any color you can give would be great.

Yes. No, that's great. Yes. So yes, we did get approval in Australia, which is important. That's our first overseas market. The overseas market is about $700 million. We do have submissions in Canada, the EU, U.K., Japan as well. We do expect to get those approvals here throughout 2026. But with that being said, we don't expect that to be a material impact to 2026. That's going to be more in 2027 and beyond. But certainly, the globalization of Quattro is certainly a key driver to our longer-term growth profile.

Okay. Yes, that's actually going to be my next question. It was how much of international growth at Quattro was being put into guide, but it sounds like it's kind of...

Yes.

Okay. And then Jeff has talked about over-indexing the vet visits as an industry and that we should be looking at other metrics that are more important. Just what are those metrics you're referring to? And what are those telling us?

Yes. So that's a great question. So a couple of things I'd highlight. One, the willingness to spend on pet health right now has never been higher and continues to grow. The younger population, the millennials and Gen Zs, they expect higher expectations of care for their pet. 1/3 of pet owners right now, Steve, spend more money on their pet's health than their own. Then you couple that with the decision-making power shifting more towards the pet owner and that connection to the pet owner is really critical. And so you think about just the OTC opportunities and our leadership position within retail puts us really in a position of strength. The omni-channel approach and capabilities is key. It ensures that pet owners can shop what's most convenient for them. And obviously, convenience is probably the most important factor right now.

As you look at omnichannel shoppers, they spend 30% more than single channel users. And then another data point subscription sales represent 40% of pet health sales. So as you think about in your own world, when you're shopping with Amazon, right? A lot of people have shipments coming once a week. And if you're in my household, they're probably coming every day with what we do. But a lot of that is on subscription, right? And so the pet market has certainly shifted towards that as well. The one thing I would highlight is just the globalization of pet care. What we're seeing in the U.S. is expanding globally as well. And then comprehensive portfolios matter. So as we get more decision-making to the pet owner and the convenience of shopping online, having a complete portfolio for pet owners is critical.

Okay. So I think one of the impressive things about your 2025 growth is that you grew 7% organic constant currency, and that was with only a 2% price increase. And now this year, you're taking a price by the highest in 5 years. So could you dive into what's allowing you to take price up by that much versus that 2% increase from last year?

Yes. No, great. So yes, you're absolutely right. So we did see 2% price in 2025. We do expect that to accelerate in 2026 and a couple of factors. One, as you mentioned, in the U.S. pet side, we did take pricing to the clinics. It's the highest pricing we've taken in 5 years. But really, what we're doing is pricing to value. And we believe we've got best medicine across our entire portfolio. And so we'll continue to lean in to that strategy. The thing I would tell you as well is last year with the launches of Zenrelia and Quattro, we're now lapping those, right? And so those are the opportunities to take pricing. So that gives us confidence that we'll see some price acceleration in '26 versus 2025.

You talked about doing some tuck-in acquisitions on the R&D side. Can you provide more color on where Elanco could strengthen its R&D capabilities through these acquisitions?

Yes. So yes, so we'll continue to have M&A as part of our mid- and long-term growth strategy. It's going to be the areas where we can expand R&D and be more efficient with an M&A transaction versus with our own spend or M&A could be aligned with where there's a good product in the market, and we can provide significant value with our distribution model, much like with the AHV acquisition we announced a couple of weeks ago. So that's going to be really where the strategy is going to be, Steve. But financially, a couple of things I would highlight. My focus, and we've been clear on this, we're not going to let any M&A transaction derail us from our deleveraging time line. And so we still expect to get in the low 3s by the end of this year. and we'll expect to get below 3 in 2027 as far as leverage.

Then a couple of other financial metrics I'd highlight. At Investor Day, as you -- as we've talked about, we did highlight mid-single-digit top line growth, high single-digit EBITDA growth and low double-digit EPS growth. And the M&A transactions need to be accretive to that model. Now they won't be necessary in the first year. But as you get into year 2 and year 3, that's my expectation. And then the last thing that's really critical for me particularly is ROIC. I do want to make sure ROIC exceeds our weighted average cost of capital within 3 to 5 years and it might be near that 5-year time horizon depending on launches of products. But if I think about the AHV acquisition we announced a couple of weeks ago, that's going to be on the shorter end of that time frame. Then the last thing I would say is what's super critical is that we're not going to let any M&A really derail us and distract us from the big 6 products that we've launched internally here as far as innovation goes.

Got it. Okay. Here at KeyBanc, we cover a handful of AI drug discovery companies on the human health side that really speed up the discovery stage of drug discovery. I'm just curious, is that something that there's room to be implemented on the animal health side? Is it already being implemented? How is Elanco looking at that? Just anything you can provide there?

Yes. Listen, so with Elanco Ascend, that is a -- that's really our program over the next 5 years, where we expect to get cost savings through just being more efficient within our P&L. But also how we adopt AI and lean into AI and automation a little bit differently. And so we're seeing AI be applied really across every function within the business. And so if I think about the commercial teams, AI is going to enable them with better real-life data, real-time data to our frontline sales team so they can be more effective. Within the 4 walls or manufacturing facilities, predictive maintenance and our procurement team using data to understand cost opportunities. And then G&A opportunities in the back office we're using AI and we've implemented many already, including the finance organization, where we're seeing hard save already because of some of the efficiencies.

Now in particular to R&D, let's say, a couple of areas where we expect AI to provide some value. One is going to be just with regulatory filings and accelerating that, but also AI to help us, I'll say, fail fast as we think about how molecules work together. And so that will create the opportunity for our R&D team to really focus in areas where we see some success. And so ultimately, we do expect to see products come to the market a little bit quicker because of the help of what AI can do for us. Then the last thing I'd say is more kind of macro opportunity. With the new headquarters we've built here at Indianapolis, we are building what we call a One Health innovation district, which really provides researchers the opportunity to bring their innovation to concept. And that's something that Elanco is acting as really a catalyst to bring products to the market. And so we're really attacking innovation from many different angles there, Steve.

Okay. I should have asked this earlier, but just we had some M&A activity on the distributor side earlier this year. Just how does that impact Elanco to build on that, you guys have talked about how you guys are adding value to the distributors, and they're adding value to Elanco. Just how is that relationship? Or just talk about that more, I guess, yes.

Yes. So great question. So listen, as we sit here today, we don't see an impact in 2026. And TBD, if there's an impact beyond, but I'd say our relationship is very good with both MWI and Covetrus where there was that announced potential merger. But our President of our U.S. pet business, he's got a great relationship with both and probably talks to them on a weekly basis. So listen, we don't see an impact. Again, great relationship with them. We are doing better with them and they're doing better with us. And these distributors are very good at launching product, and you've seen that here in 2025. We expect the same with Befrena in 2026. But listen, if that model changes and we see not the same value, I mean, obviously, we'll pivot where we need to. But right now, a great partnership with both.

Okay. Great. We do have a question in the queue. As Credelio Quattro, Zenrelia and Befrena scale, how much of current growth is coming from structural share gains versus launch-based tailwinds? And when should we expect growth to normalize?

Yes. I mean -- so listen, I'm going to -- I'll pivot back to our algorithm that we gave at Investor Day. I mean with our basket of innovation, we see stabilization of our base and so we're still committed to that mid-single-digit top line growth and high single-digit EBITDA growth. But you'll see us continue to fund the pipeline with R&D and continue to grow that basket of innovation. And listen, internally, it's very important to us that basket of innovation because, one, we see growth, we see the market expanding and we see margin enhancement from that basket because the margins are higher than our corporate average.

Maybe just one on Befrena as you're launching later this year. You guys have that great head-to-head study with Zenrelia, Apoquel incumbent. Any additional head-to-head studies you guys have planned, maybe even one with Quattro versus Trio, just anything in the pipeline on that front?

Yes. I mean I think there's various head-to-heads that we're investing in. Again, we feel we have best medicine. And so we're really leaning into that opportunity. And I'd say that's really more across the front on Zenrelia right now. But again, Quattro, again, we believe it was best medicine. So head-to-head studies are something that we're certainly leaning into.

Okay. I think we can close it out there, Bob. I mean, I guess, maybe before we go, why don't we just -- the 3-year outlook from Investor Day. Maybe just kind of walk us through the expectations there, where the savings are coming from on the gross margin side versus the OpEx side. Yes, that would be great maybe to end.

Yes. No, that's great. Yes. So Elanco Ascend is a big contributor to margin enhancement. But maybe we'll put that to the side first and just talk about the natural tailwinds we expect. The first, the basket of innovation continuing to grow that basket again carries higher margins than our corporate average, right? And so that grows, you'll see margins grow. I'd say volume leverage and so leveraging our existing cost base will also be a tailwind to margins. And then we get to Elanco Ascend. And Elanco Ascend, we expect $200 million to $250 million of net EBITDA improvement by 2030. That's going to be net of inflation and net of investment. And 75% of that save is going to be in the gross margin areas.

And so think of that as really focused on the commercial areas, again, using AI to help our frontline sales team think through how they can be more effective with better data. And then we're going to see some improvement within the 4 walls of our manufacturing facilities. And then procurement. Procurement has already done a fantastic job of locking in lower raw material prices than what we've had in the past. And so we'll see that natural benefit come through. And then 25% of the benefit from Elanco Ascend is going to be in OpEx. And a lot of that comes from the restructuring program that we did announce on December. And I'm really pleased really across the board on how the Elanco global team has initiated and actively gone after, I'd say, every opportunity that we have.

But we're well in line with the restructuring, for instance. We expect $25 million to save this year. We expect that to happen and really all activities to be completed here this year. So we'll see that $60 million benefit come through in 2027. But overall, we highlighted we expect 30% of the Elanco Ascend benefit to come through in 2026. And again, we're right in line with that expectation.

Okay. Awesome. Bob, thank you so much for joining us. It's been a pleasure speaking with you. And hope we'll speak again soon.

Great. Thanks, Steve. Appreciate it.

All right. Great. Thank you, everybody, for joining Day 3 of the Leerink Global Healthcare Conference. I'm joined by Elanco's CFO, Bob VanHimbergen; Head of the U.S. business, Bobby Modi. We've got Tiffany Kanaga from IR in the audience; and Eric Seremet from finance in the audience. Very happy to have you all here. And Bob, you want to kick us off with some opening remarks.

Yes. No, great. I appreciate it. Thanks for having us. So listen, as I think about Elanco and where we are, we continue to operate with just a tremendous amount of momentum. We ended Q4 on a strong note and really beat our guide really across the board on revenue, earnings, EPS. Cash flow came in much stronger. So we were able to delever even a little bit lower than what we anticipated. And it's really driven a lot from our basket of innovation. We ended the year with $892 million of revenue from that basket, which is above what we had guided as well. And because of that momentum, we were able to actually increase our expectations for that same basket in 2026, raising that to $1.150 billion.

And so you think about the guide we gave just a couple of weeks ago for 2026, really right in line with what we highlighted at Investor Day in December with a mid-single-digit top line growth, high single-digit EBITDA growth and a low double-digit EPS growth and then continued performance on trade working capital and cash flow. And so we do expect to get leverage in the low 3s this year and then getting below 3 in 2027. And that certainly gives us some flexibility and optionality with shareholder returns. So a lot of momentum, and I'm really looking forward to the discussion here today.

Great. I wanted to dig in a little bit more into innovation revenue. So starting with Quattro, really strong second half performance doing well in the Kinetic Puppy Index. You increased your kind of your index output there. How are you thinking about Quattro's positioning in 2026 for puppies? And if we think about like the primary growth drivers of Quattro, has that primarily been puppies?

Yes. I think the way to think about the growth for Credelio Quattro is really twofold. First is continued clinic occupancy. So we're only in about 1/3 of the clinics in the U.S. And so we have ample opportunity to expand that. And the second is our market share within the clinic. So our market share as of December on average was about 40% of the endecto space, which is relatively low. And so we see continued penetration opportunity going forward. Obviously, getting new puppies on Quattro will continue to help grow the brand as puppies that start on the drug tend to stay on the drug. And roughly 35% of the volume on Quattro is essentially new starts. So either new puppies or new adults, and we see that continuing to fuel sort of momentum throughout the growth of the product.

Got you. And when we think about sort of the ground game to grow clinic penetration, increase kind of patient starts, whether puppies or non-puppies, like what are the main levers you're pulling? And where have you found particular success?

Yes. I think driving clinic penetration starts with the product itself and it starts with the degree of differentiation with the product and Credelio Quattro really differentiated in 4 vectors. We would say broadest coverage as you think about tape on coverage, speed of kill on tick. So we've got head-to-head study against the competitive products in the marketplace. Heartworm efficacy in month 1. And then palatability, which has been a nice surprise as people have tried the product to market or fed it to their dogs. And palatability is really important because it enables switching, like switching a dog off of an existing product if it's highly palatable, makes it a lot easier.

And I think the other big vector as we think about sort of driving occupancy is our direct-to-consumer campaign and the investment we've put behind those launches and really driving consumer demand to ask for the product by name and create sort of pull at the clinic level going forward. So this combination of what we believe is best medicine plus sort of driving consumer pull and medical education is sort of the strategy as we think about occupancy going forward.

Great. Jumping to Zenrelia here, your oral derm product. How are you thinking about the longer-term market opportunity in the U.S., just sort of based on the current label and then the broader competitive landscape?

Yes. We're really pleased with the momentum that we're seeing on Zenrelia, and it's really ramped up in Q3 and Q4 of 2025, and we see that momentum continuing in 2026. You'll know that we updated the label in October of last year. And since updating that label, we've got 3,500 clinics to sign on to Zenrelia. We are now in over half of the clinics in the U.S., so just over 50%. And we continue to add roughly 600 to 700 new clinics each and every month from an ordering perspective.

So it's great that Q4 was one of our strongest quarters ever, and we were exiting sort of peak derm season, right? We were in off-season time period. So we see upside with the current label and continued market share growth driven by, again, same factors as Quattro, continued expansion of clinics as well as share within the clinics. And then concurrently, we're also working with the FDA to sort of update the label even further, and we're cautiously optimistic that we'll hear something in the near future regarding that.

Great. And then if you do get a cleaner label, how should we think about your sales and marketing playbook if that does play out? Would there be any change in tactics or strategy?

Yes. I think you could think about -- I mean, we're going to continue to drive medical education. We feel like sampling is a great tool because people -- what sets Zenrelia apart from maybe other players in the market is its efficacy and how well it performs. And certainly, the head-to-head data that we have indicates that. I think -- but beyond that, I think a cleaner label may give us the opportunity to go direct to the consumer and drive a little bit more consumer demand on the product.

Yes. On the topic of having a cleaner label, obviously, internationally, Zenrelia does have that and it has performed quite well. So it sounds like you just touched on some of the learnings from those markets. Like are there any others that you found particularly useful that you can kind of leverage in the U.S.?

I think we actually have more experience with the launch in the U.S. They probably have more experience with a cleaner label. So I think the rules in terms of how you can talk about products is different internationally versus in the U.S. So the places that we're all leaning in sort of very similarly is on the medical education, utilizing KOLs and sampling, and we'll continue to do that. We may -- in the markets that we're allowed, we may start some direct-to-consumer campaigns OUS, so they may get some experience with what we think is a nice global campaign on Zenrelia.

Got you. I mean you've got, as you mentioned, the head-to-head data on the label over there. It seems like it's going well. Can you talk about sort of where Zenrelia wins relative to others in oral JAK space, whether it's the incumbent or the newcomer out there?

Yes. I mean we talk about Zenrelia being differentiated in 3 vectors: convenience, efficacy and value, and that's sort of the positioning that we like sort of in the marketplace. So on the convenience front, which also plays into the value front, it's one pill all the time versus this notion of a loading dose that sort of the incumbent in the marketplace has.

And then on the efficacy side, there's obviously real-world experience. And actually, there's great real-world experience in the U.S. because of our label. We were originally sort of -- we started as more of a second-line treatment, and we got handed the toughest cases and the product performed extremely well. But we also have the head-to-head data, which supports the efficacy of the product.

Moving to Befrena. How are you thinking about the longer-term opportunity in the IL-31 mAb space given what is differentiated label versus the current market on product and then any future launches in the space?

Yes. We're really excited about the Befrena launch. And we said it will be a 2-stage launch this year. And I think our excitement for the launch is anchored in a couple of things. First, when we did market research on the label, 83% of veterinarians said they would adopt the product that indicates sort of high demand for the product. The second thing is really the portfolio effect on derm. So we'll be 1 of 2 manufacturers that really has a comprehensive solution kit.

And we actually have some additional products like Atopica in the derm space. So really giving us the broadest sort of portfolio in dermatology. And then lastly, we're in 15,000-plus Zenrelia clinics. So those will be great sort of adopters for the Befrena product. So I think this ramp rate should be faster than what we've historically seen on Zenrelia.

So I'll circle back on the portfolio effect in a minute, but I know you don't guide by product, but if we had to think about a bigger market opportunity, should we be more excited for Zenrelia or Befrena?

We love all our children equally. I actually think there are reasons to bet on each of those products. And that's why we've always talked about the basket of innovation. Like certainly, Credelio Quattro is in the biggest, fastest-growing space, and you believe as operating at best medicine, there's opportunity there. Obviously, Zenrelia is the most incremental to our portfolio and with a clean label, it could do even more.

And then you look at Befrena, which already has a clean label and is differentiated in terms of its efficacy on the label and being 1 of 2 only manufacturers in that space, obviously, you'll see a lot of potential with that and also highly incremental to the portfolio. So -- I don't know, depending on the day, you could pick one or the other in terms of your lead horse, but we're excited about the full basket and the potential that it brings.

Great. Yes. I had to ask. Jumping back to the portfolio commentary. You've talked about the potential for improved sales into corporate practices, both U.S. and overseas. How are you thinking about the opportunity, maybe the pacing of potential corporate wins and just really the cadence of RFPs as those come up?

Yes. I think it's important to note that all the corporates are in different stages. Some have multiyear agreements with other vendors. Some are probably not in a stage where they want to be switching the medicine in their clinics because they're focused on other priorities as they think about what they're overall trying to achieve. So I think what you can expect from Elanco, which has historically been underdeveloped in the corporate space is a gradual build in business over the next coming, call it, 1 to 4 years as we bring on more corporate partners and see more growth.

And the relevancy of our portfolio allows us to do that, I think, better than almost anyone else sort of in the animal health industry. And I'll give you one stat. In 2025, we grew net sales with 90% of our corporate partners. And in 2024, we were only doing that with 13% of our corporate partners.

I guess to pull on that thread a little bit, where is the growth coming from? Is it specific products you're placing better, more volumes in specific areas? What's driving that?

The growth in U.S. pet health, specifically?

In the corporate practices where you're seeing more of an uptick.

Yes. I think what you're seeing is new products and then the portfolio effect of those new products bringing the portfolio along. So -- and I'd just say in aggregate, we grew market share in every major category in 2025. So vaccines, parasiticides Rx, parasiticides, OT, OA pain and dermatology. And so you certainly -- yes, we love the growth we're getting from Zenrelia and Quattro, but we also love the halo effect we're getting on the rest of the portfolio.

Got you. Shifting to farm here, we should certainly touch on that. Experior has been a real standout since launch, now north of $200 million in annual revenue. You've talked about a total market of around $350 million and pulling a couple of levers to achieve that, whether it's [indiscernible] use, price, continued adoption. How should we think about the importance of each of those 3 in order to continue to drive what's been strong Experior growth?

Yes. I mean, so you highlighted that Experior for us is a blockbuster, $200 million in sales, operating in a $350 million TAM between U.S. and Canada. And listen, it's going to be -- that's 80% growth just in 2025, but still runway left. And really, it's probably all 3 levers, Dan. I think there's going to be continued adoption with the product as we get to that next level of producer size.

Price, we did take price out in 2026. We'll continue to price to value. And then I'd say a longer term, tailwind would just be geographic expansion even beyond U.S. and Canada. But right now, we've got a very strong customer retention. It's north of 90%. And so as you think about this moving forward, a gradual herd size improvement is going to be just a longer-term tailwind for Experior.

Great. On a higher level, can you kind of remind us of where conditions sit in the cattle market? It seems like they're favorable producer economics. So like how do we think about the duration of that?

Yes. Yes. So just to look at Q4 for us, we grew 17% in the U.S. farm business and it's really driven really on Experior and to a lesser extent, Pradalex, but just a good portfolio mix there. But the herd -- I mean, right now, we're obviously at historically low herd size in the U.S., and we've got high demand for beef. And so what that equates to is high beef prices and favorable economics for the producer and therefore, for Experior.

So as I think about kind of what we see going forward, I think the liquidation of the herd size is flat right now or it's kind of ceased and the growth is stagnated. So really a relatively flat herd size here as we move into certainly the next era. But for us -- I mean, that's good news. Again, gradual herd size and favorable economics for the producer should continue to strengthen the business.

But if you take a step back and look at the overall macro environment of proteins and a couple of things I'd point to. First is just the new dietary guidelines in the U.S., where we want to move from 1.2 to 1.6 grams of protein per kilogram of weight. You've got just the increased use of GLP. And so our belief is when we get to 2035, over 20% of the population in the U.S. will be on GLPs, and we know that population is using -- or eating more protein to a point of like 40% to 50%.

And then the aging population will be the third lever, I would say, is the last macro trend that's going to support the farm business where by 2030, we expect the population of those 60 years old and older to improve by 25%, right? And so the need for that population to have more protein to sustain muscle mass is critical. So I think there's just a lot of great macro drivers for the farm business.

Got you. And we were talking about this earlier. But just on the topic of macro, I haven't checked oil prices in the past 15 minutes, but they're elevated where they've been historically. How are you sort of thinking of the impact that hit both the pet and livestock business?

Yes. I mean -- so listen, obviously, if something is more prolonged, my answer would change. But as we sit here today, it's really not a meaningful impact. It's really material to where we are today and what we see for 2026. But obviously, if this war goes on a lot longer, things could change.

That makes sense. I guess moving to the cost structure here. Bob, you've come in, you moved pretty quickly. You launched Ascend to drive additional G&A savings. How would you characterize the program having gone thus far in line with expectations ahead? Just what are you thinking at this point?

Yes. No. So I'm extremely excited and enthused about the actions that we've taken. And just to remind you, I mean, we're going to see a couple of natural margin improvements just with the basket of innovation continuing to grow. Those margins have a higher margin than our corporate average. And then just with volumes improving, we're going to see some fixed cost leverage as we leverage our existing cost base, right?

So Elanco Ascend comes along, and that's us taking a proactive approach to margins beyond just the 2 natural levers, if you will. But it also has another pillar of really leaning into AI and automation to a new level to bring efficiencies. But Elanco Ascend, I'd tell you, across the entire P&L, the manufacturing team has already done some great work. I sat in a workshop with them last week on their ideas, and they're executing a bunch of things to improve what they're doing in the 4 walls of their facilities.

Procurement is already locked in some favorable pricing what we had in the past with leveraging their global supply base, and so we'll see that benefit coming through. There's some AI and automation that's supporting some pricing and some gross to net promotional stuff and better visibility to our frontline salespeople. And so we're going to see that.

And then on the restructuring charge that we announced as well in December, very quick action on that. And so we do expect $25 million of save from that restructuring action in 2026. And then all the actions will be actually completed here in the year. And so we'll see the full run rate benefit of $60 million starting in 2027.

But we're right where we want to be. And over the entire Elanco Ascend program, we expect $250 million -- $200 million to $250 million of EBITDA improvement, net of inflation and investment. And so listen, I think the team is actioning very quickly. We feel really good about what we've laid out so far.

Great. Just circling back to your commentary on kind of gross margins. I believe you've guided to kind of back half weighted growth in 2026. Like how should we think about, given you mentioned improving innovation mix, incremental benefits from scale, like how should we think about the ramp of gross margins throughout your LRP term?

Yes. Yes. So great. Yes. So you're right about 2026. We'll see some natural improvement in margins really in the second half. We do expect pricing to be an accelerator to what we had in 2025. So we had 2% price in 2025. We expect that to be a little bit stronger in '26, but also improve throughout the second half of this year, but even a contributor over the next 3 years.

And so we do have -- we expect we've guided 40 basis points of gross margin improvement throughout 2026. But if I think about the next several years, with not only the -- again, the natural mix benefit and the cost leverage with Elanco Ascend, we do see between 200 and 350 basis points of EBITDA margin enhancement by 2028.

Got you. Just wanted to ask you philosophically, Bob, how you think about if the business does overperform, how much of that do you -- again, it probably varies case by case, but how do you think about reinvesting versus letting it flow through to the bottom line?

Yes. So first off, we're highly committed to the 3-year algorithm of mid-single-digit top line growth, high single-digit EBITDA growth and low double-digit EPS growth, all right? So highly committed to that as a team. But we will continue our no-regrets approach to launches. We are absolutely using data at least monthly with Bobby, myself, the finance team, the commercial team and recognize and understanding the ROI on the investment we're making in DTC.

We're also funding R&D to ensure we don't have air pockets within the innovation pipeline. But Elanco Ascend comes in, and that's why it's so important. It allows us to ensure we're dropping through the right level of profitability to the bottom line, but also funding top line growth as well as innovation. So my short answer is we're using data to make the decisions, number one; and number two, highly committed to the algorithm that we've given.

I guess to kind of follow this train thought, you've had a very, I would say, it seems like the promotional strategy you've taken has gone well given where product penetration sits in the clinic on the pet side. What is the data telling you in terms of continuing to spend on promotional activity here?

Yes. We're -- the largest spend for our business is direct-to-consumer advertising and primarily TV or digital in that form. And today, other than our OTC brands, the lion's share of that spend exists on Credelio Quattro. And what we are seeing is we're still on the steep part of the curve in terms of return on investment. We were really pleased with the ROI that we saw last year, and we measured the return in a couple of different ways, market mix modeling, A/B testing.

And we've got the same sort of approach going into this year, and we actually increased the budget for Credelio Quattro from a spend perspective this year. And as Bob said, we talk every month on how the business is trending and where we think we are on the curve. But we think we have more opportunity to continue to spend.

Makes sense. I guess shifting gears to the pipeline. You've got a lot in the works. You highlighted that at your Analyst Day in December. of wave 1, wave 2, I forget you call that next wave.

Not very original. The finance guy came up with that one.

I believe it. How do you sort of think about the indications that in either of those waves or both that are sort of the most exciting here today?

Yes. I mean listen -- so yes, you're right. So at Investor Day, we laid out kind of the next wave, which we would define as, call it, 5 to 6 potential blockbusters by 2031. And then we've got like that next, next wave, which we think is another 5-plus that could be blockbusters. But listen, we kind of highlighted we have over 15 products across that mix. And we did add 2 new areas in the investment areas, if you will, being mAbs and immunotherapy.

But listen, our focus is going to continue to be on the bigger markets, the derm and parasiticide markets. We don't think we need to go create a new market. Our plan is going to be to participate in these markets and bring differentiated product and be first to the market.

And it's really a tribute really our R&D team and Ellen with how she's changed the model, and we collaborate a lot differently within the R&D team to ensure that, one, we're not going to have an air pocket with a lack of innovation coming through; but two, globalizing the products that we have and not only some of the products we've recently launched over the last, call it, 18 months, but also the plans moving forward. So feel really great about what that team has done and what we see over the next 10 years.

And when we think about sort of the -- again, every indication is different, but thinking in broad strokes, when we think about the commercialization strategy for these upcoming launches, you've had 2 recent ones go well. How do you sort of apply the learnings from Quattro and Zenrelia to create a playbook for these future launches?

Yes. Look, I think it starts with best medicine. So our innovation philosophy is either first-in-class, best-in-class or highly differentiated. And so that's what you should expect us to bring to market with future innovation. And then when you have best medicine, you want to anchor that best medicine on medical education. And then I think one of the key components of success is share of voice. And so what you've seen us do is expand our physical sales force, not just in the U.S. but globally as well.

You've seen us bring new capabilities to bear like inside sales and digital to really increase our share of voice by over 100% on a touch point basis. And then the other vector of where we're driving share of voice is really leaning in with our distributor partners and taking their 400 reps that are in the field and using them to amplify sort of the noise about our products or the equity about our products going forward. And we'll take that same approach as we think about future innovation.

Great. Actually, shifting gears to distributors, been some movement in the space. You've got MWI and Covetrus merging. How do you think about the potential impact to your business given that like you just mentioned, you sort of partner with them to empower sales message?

Yes. I think in the short term, it's business as usual. I think they've got to go through their regulatory process, which I think in this case, may take a little bit longer than maybe some other deals that have gone through. We have a great relationship with Covetrus and a great relationship with MWI. And so if the 2 companies come together, we don't really see any change in our business or any material impact in terms of how we would operate.

And we're going to continue to lean in on the share of voice comment. And my conversations with both partners is their intent is not to scale back sort of their representation in the field. They feel like there's other ways they can create growth synergies, and we think we would be a benefactor of those growth synergies.

Great. We should probably touch on tariffs as well. I know it's still sort of a fluid situation. But can you just remind us what's embedded in your guidance at this point? And I can't remember where tariffs are at the time, but what are you thinking about the latest developments there?

Yes. I mean a couple of things. So first off, listen, tariffs, it is really material to us. The recent noise we saw really at the end of February was embedded into our guide. That was not much different from what we -- the clarity we had at the end of the year. And so listen, tariffs as of now, it's really immaterial nonissue for us. But listen, we -- I feel good about really the proactive approach we've taken over the last, call it, 6, 7 months.

We've got great visibility with the finance team. I mean, like just about real-time information from the team to Jeff and me on what the impact is. But two, because of that data, we've been able to think through mitigating strategies, whether it's pricing, supply base manufacturing. So as of now, not an issue for us, but certainly, it is dynamic, and we'll stay on top of it. But again, I feel great about how quickly we're getting visibility to data so we can shift if we need to.

And then just how are you thinking about capital deployment from here? You've talked about you're getting close to your target leverage. Once you get there, what are you thinking in terms of where that excess capital could go?

Yes. So a great question. So really no change in really what we've said historically. Our first priority is going to continue to be invest in the business organically and pay down debt. And you've seen us do that here over the last couple of years. We've brought down leverage 2 turns. We had a couple of onetime items to do that, but I think you'd also see the trade working capital improvement we've made to continue to improve and pay down debt. And so we did get to 3.6x at the end of the year. We do expect to get in the low 3s here at the end of '26 and get below 3 in 2027.

I'd highlight, I'd say, small tuck-under M&A will be a component of our growth strategy, but it's not going to derail us from the deleveraging time line. That is still a top priority for us. But listen, we get below 3, I'd say that's going to open up the optionality to shareholder return. And then so I think there's going to be a component of that shareholder return kicking off as well as continue to pay down debt. We do expect leverage to get to that 2 to 2.5x, and it's going to be twofold. It's going to be the growth in EBITDA to get us there as well as just being efficient on trade capital to pay down debt.

When you talk about tuck-under M&A, are there any commonalities between targets that look particularly interesting to link up?

Yes. I mean it's going to be -- think about areas that could really unlock R&D capabilities or it's a great product, and we can leverage our size and distribution network to really expand the product. But I'd say from a financial lens, a couple of the bars that I'm holding. One, don't derail our deleveraging in the next couple of years. Two, I want to be accretive to the 3-year algorithm we gave at Investor Day. And so what that means if we gave MSD sales growth, high single-digit EBITDA growth, low double-digit EPS growth, I want these acquisitions to be accretive to that, right?

Now we did announce a small acquisition at the day of earnings. 2026 is not going to be a material impact. But 2027, I expect to start being accretive to that. So that will be good news. And then the last thing that I highly focus on the most important metric for me with M&A is when does ROIC exceed WACC? And I generally want that in this industry between 3 and 5 years. But I'd tell you, the AHV acquisition we made is on the shorter end of that time frame. So I feel great about, quite honestly, that Jeff and the entire leadership team really focused on the priorities around capital and the discipline around M&A. And so I feel great again about the overall strategy here over the next several years.

Great. I think last question for both of you, two-parter. What are you most excited about for the Elanco story over the next 12 months? And what do you think investors are missing that most right now?

Yes. I mean, I'll just give you my thoughts. I think the farm business is still underappreciated. Although gross margins are lower in that business, the EBITDA margins are on par with the pet side. So it's incredibly efficient with OpEx to run the business. It's a good cash business. And again, those big macro tailwinds will, I think, continue to move that business forward. So to me, that's the most underappreciated piece of the story.

Yes. And I think it goes without saying, I'm most excited about the basket of innovation, not that we just have in the U.S., but what we have globally across farm and pet and what that means for the growth across all 4 quadrants of our business. And -- even though I'm the pet guy, I would just say that the farm business is the most underappreciated thing about Elanco from investors.

All right. Great. We can wrap it there. Bob, Bobby, thanks for the time.

Thanks.

Thanks, Dan.

Okay. Great. All right. Well, why don't we get started? Thanks, and good morning, everyone. Thanks for joining us. We're obviously very excited to have Elanco here with us today, and representing the company is Bob VanHimbergen, who's the Chief Financial Officer of the company; and to his left, Bobby Modi, who is Head of U.S. Pet Health and the Global Digital Transformation.

I think I know many of you, but for those of you who don't, I'm Glen Santangelo, and I cover Elanco for Barclays amongst a bunch of other things. So we're very excited you all came down here to Miami and spend time with us. Both Bob and Bobby, thank you guys for sort of joining us. Great to have you.

Thank you. Glad to be here, Glen.

And I should mention, Tiffany Kanaga is in the front row. She heads the Investor Relations for the company that I think most of you know as well.

So maybe a good place to start, I think, would be helpful just to sort of level set the conversation. You came off a very strong quarter, gave very, very strong initial fiscal '26 guidance. Maybe that's a good place to start just to sort of bring people up to speed on some of those positive developments that culminated in 4Q '25 and provided the foundation for that 2026 guidance, and then we can sort of dig in after that.

Yes. No, sounds great. Thanks for the question.So listen, at Elanco, we've been focused on growth, innovation and cash. And we're just operating from a tremendous amount of strength, and we've got just a tremendous amount of momentum. We did beat our guidance in our fourth quarter really across the board on revenue, earnings and cash flow. Growth in the quarter was 9% organically. Bobby's business grew 10% and our U.S. Farm business grew 17%. And really all 4 quadrants, including the international business performed well. Internationally, we had 9 of our countries grew and really our top 5 franchises grew. So it's just a high quality of business growth there.

And then on cash, right? I mean -- so listen, we continue to have good fundamentals around trade working capital and aligned on paying down debt. So we delevered to 3.6x, a little bit below what we had guided. And that momentum is continuing into 2026. And so we've guided 2026 right in line with what we did -- what we said at Investor Day with a mid-single-digit top line growth, high single-digit EBITDA growth, low double-digit EPS and then continue to delever. We expect to get below 3 in 2027, and that certainly unlocks the opportunity for shareholder return. So we're extremely excited about what we've seen across the board.

And the last thing I'd highlight is a lot of this is enabled by our basket of innovation, where we've got some special products, but the entire basket performs well. And because of the strength coming out of Q4, we were able to, again, increase the guide for 2026 up to $1.15 billion on that basket.

Yes. Okay. Thank you for that. Bobby, Bob talked about some of the growth in U.S. Pet Health, right? Maybe that stole the show, right, in 4Q '25, and we get obviously a lot of questions on that. And if you look at sort of where we were in the first half of the year relative to the second half of the year, we saw some very nice acceleration and particularly night and day versus 2024. And I sort of feel like Quattro and Zenrelia, they suck all the oxygen out of the room, and that's what people want to talk about. But it feels like there's a lot more beneath the surface there as well. So maybe you can just sort of comment on those trends throughout sort of 2025 in your business with so many success stories to sort of talk about.

Yes, Glen, thanks for the question. So what I would remind you is that we grew share in every major category. So pain, vaccines, derm, OTC parasiticides and Rx parasiticides. So the total business is healthy. And yes, Quattro and Zenrelia get a lot of the sunshine, but we launched 12 differentiated assets across our OTC and Rx portfolio in the last 3 years, and all of them are contributing meaningfully to growth.

And then the third thing I would say is yes, we are -- we have launched differentiated assets in large growing spaces that have allowed us to extend the growth of those spaces and also capture market share. But those new assets have strengthened our portfolio, which has allowed us to reach new clinics. For example, we are now in 2,600 clinics that never bought an Elanco product before because we have -- because they were interested in Credelio or Quattro, and that's been a really nice tailwind for our business overall.

That's excellent. One of the things that if I think back to the middle of last year, one of the concerns people had with sort of the innovation outlook and expectations was on the pricing side, right? And what strategies Elanco would sort of take. Could you sort of talk about the volume versus pricing dynamic as 2025 sort of played itself out? And we're going to segue soon and talk about 2026, where I think you guys are excited about sort of the pricing side of the story in 2026 based on the demand that you're seeing. But if you could just touch on '25 first and then segue.

Yes. Yes, sure. So maybe I'll take that, and then Bobby can answer or add anything else. But listen, pricing in 2025 was 2%, volume 5%. And we're seeing a good balance between the volume with this basket of innovation, not only growing, but also stabilizing our base business. And so we saw 2% of price. So we're seeing good volume, 2% price in 2025. We expect that to accelerate in 2026 as we continue to price to value. And so we have that mentality. Bobby's business, we took the highest list pricing out to vet clinics this year. It's the highest that we had in 5 years.

And so listen, we're going to continue to price to value, and we do see acceleration in 2026 versus 2025 on price, and we also expect it to accelerate throughout the year versus Q1, Q2, if you will.

Okay. So much focus on U.S. Pet Health, obviously, right? But you participate in a lot of other things, right? I mean, outside the U.S., obviously, is big. You got Farm both in the U.S. and outside the U.S. When you think about those 4 quadrants, if we exclude U.S. Pet Health for a second, let's talk about some of those other quadrants. Let's talk about Farm in the U.S. and your international business and maybe some of the drivers there because I think there's a lot more to the story than just Zenrelia and Quattro as we were just sort of talking about.

Yes, great. So listen, I'm happy to do it. I'm extremely excited to talk about the Farm business. So the Farm business grew 17% in the fourth quarter, really led by cattle and poultry, and cattle, particularly led by the strength in our Experior product. And so right now, Elanco is benefiting from just a small herd size. And we believe the liquidation in the U.S. cow herd has stopped. The growth is -- or the rebuilding, if you will, has been stagnant. So we kind of expect a flattish year for herd size. But that low supply and high demand for proteins and beef is leading to higher beef prices. And Experior wins in that sort of environment.

And so Experior, we crossed $200 million in revenue in 2025, operating in a TAM of $350 million in the U.S. and Canada. And we're seeing continued adoption of the product. We're seeing a high retention rate of the product. We have the ability now to take price and then we expect the geographic expansion to be a longer-term driver of Experior. So strong growth on the U.S. Farm side.

Now as we move to international, the Pet business grew 8% in the quarter, really strength from our Credelio family, Adtab, as well as Zenrelia. And we've got a clean label with Zenrelia and some great market shares already in Brazil. We've got a 40% market share of the derm JAK market. In Japan, it's 30%. Internationally, in Europe, several countries, we've got double-digit shares already. And so some really good performance on Zenrelia. And then international Farm grew 4%. That's really led by, I'd say, ruminants as well as poultry and just that global demand for proteins.

So when you put all that together, right, when you talk about Adtab, Experior and some of the other growth drivers, you keep exceeding your expectations on your innovation bucket, and that's added, I think, over $400 million on a year-over-year basis. And the expectation is for something maybe less than that in this upcoming year. But can you talk about the continuation of those trends and what gives you the confidence to continue to guide that sort of innovation expectation higher?

Yes. I mean it's a great question. So listen, what's unique about Elanco is we have this entire basket. We don't have -- historically, there might have been -- or company may have one product in one sort of area of the business and we lean in heavily. But we've got this entire basket now, just really bearing the fruits of a lot of the investment over several years. And so the entire basket continues to perform well, which is incredibly important for us for two reasons. One, the margins in this innovation basket are higher than our corporate average. And two, what we're seeing is it's stabilizing our base business. And you look last year in Q1, our base business had a little bit deeper drop. But then as Quattro and Zenrelia launched, we saw a stable base in Q2, 3 and 4.

So listen, we're going to continue our no-regrets approach to launching these products. We think they are best medicine. And maybe even more importantly, because of just the focus on R&D, we continue to fund the pipeline, and we've got more products coming to the market here over the next 5 and even 10 years. I know that's something we'll probably touch on later.

One of the things I also wanted to talk about and you touched on it in your prepared remarks is maybe the leverage that this innovation basket is sort of giving you in other areas of your business now that you're in the clinics in some of these new therapeutic areas, but it's maybe strengthening some of your portfolio in other areas, and that may be underappreciated by investors to an extent. Bobby, I don't know if you want to touch on sort of that leverage multiplier effect that you maybe get from penetrating these clinics in ways that are new versus just a couple of years ago.

Yes. I think I spoke about this a little bit earlier, but I think the real opportunity is Elanco has historically been underdeveloped with corporate clinics in the U.S. and having a full portfolio of products now gives us -- and differentiated assets, which they really want and which consumers are asking for, it gives us a sort of meaningful presence with corporate clinics and allows us to drive further penetration, not just of the differentiated assets, but our entire portfolio. And we will be sort of 1 of 2 animal health companies with monoclonal antibodies. We'll be 1 of 2 animal health companies with a full comprehensive derm portfolio, and we've got a differentiated sort of broad spectrum endecto. And then the nice thing from just an overall leverage perspective, Bob talked a little bit about sort of investing from a no-regrets perspective, but we expect our investment to ramp less than the overall sales ramp that we get on innovation. And so that will fuel sort of EBITDA growth to the bottom line.

Okay. I think it's obvious to say you've been very pleased so far with the launch of Quattro and you sort of characterized it on the most recent call as a first-to-market product where you're third to market, obviously. So could you maybe talk about the product and maybe what differentiates it and maybe what you're doing a little bit different on the commercial side that's driving these strong results?

Yes. So Quattro is differentiated in 4 areas. The first area, I would say, broadest coverage, we're the only broad spectrum that gets tape forms. The second area that is differentiated is speed to kill, specifically with ticks, which is important as you think about disease transmission. And so we've run head-to-head studies versus the competitive products in the marketplace. The third area of differentiation is heartworm efficacy in 1 month. So you don't have to wait to get that.

And then the fourth area of efficacy, which we -- or differentiation, which we saw play out in the marketplace is palatability. And Alan and her team have done a phenomenal job making the product taste great, which allows vets to switch dogs from existing products to a new product much easier.

And then our focus on how we continue to accelerate sort of the growth of Credelio, Quattro is twofold. We're just in 1/3 of clinics in the U.S. And so we have an opportunity to increase clinic penetration, and we're adding roughly about 500 clinics each and every month to the portfolio. And the second is, as of last year, our share in the clinics we were in was only about 40%. And so we have our opportunity to increase our endecto share in the clinics we're in over time as we drive more dispensing via consumer demand or DTC going forward.

As a category, right, these combo products are growing very fast, right, 30%. So there's clearly a rising tide lift all boats. Could you maybe talk about the durability of this growth that we've seen? And do you feel like it's coming from new puppies? It's just sort of just people sort of trading up from the legacy products. Like how should we think about the durability of the growth that we've seen in this combo market?

Yes. I think it's a great question. I think overall, what's driving the growth of the combo segment is consumers' demand for convenience, right? The ability to get an all-in-one and one pill versus having to take two pills or look at different modes of treatment has really helped. But I think a really good indication of where the market is growing is what's happening with puppies because typically, what you start a puppy on is what they ultimately stay on in their adult life. And 2/3 of puppies now are starting on a combo product, which sort of alludes to the fact that you've got a -- in the U.S., you've got a $1.4 billion business that's been growing at 30%. But the fact that 2/3 of puppies are on it indicates that you will sustain that growth sort of going forward.

Okay. All right. Maybe why don't we shift gears a little over to derm. You launched Zenrelia at the end of 2024. You're earlier in Europe. Could you talk about maybe the differences in the launch trajectory you've seen outside the U.S. versus inside the U.S. with the label differences between the two geographies?

Yes. We've seen a faster acceleration of market share outside the U.S. So we've gotten in the countries we've been in the market, OUS with a clean label, which is every country that we've been there for at least a year, we've seen sizable share advantage. We were public with a 40% share in Brazil, a 30% share in Japan, and we've now seen double-digit share sort of in Europe as we think about that launch.

In the U.S., the ramp was a little bit slower. We exited December with double-digit share of the JAK market. Q4 was our best quarter yet when we got an updated label in the U.S. in October. Since then, we've added 3,500 new clinics to Zenrelia. We're now in over half the clinics in the U.S., and we're seeing that momentum sort of carry through in Q1. So we think the U.S. will get there. It will just take us a little longer.

I'm sorry, since the positive label update in October, could you give us that stat again?

Yes. Since the positive label update in October, we've had 3,500 clinics come on to Zenrelia and Q4 was our best performing quarter, which was -- is not peak derm season as many know.

And the timing on the potential FDA decision related to the boxed warning?

Yes. We haven't sort of given specific timing, but we feel really optimistic about sort of the data package we submitted as well as the confluence of data, the pharmacovigilance data we've had for the product being in the market for over a year, plus 40 countries with a clean label and over 1 million dogs on Zenrelia globally. And we'll continue to have constructive dialogue with the FDA.

Can we talk more broadly about the success of Zenrelia? I mean I know the company is going to increase its investment towards the product and maybe what's sort of driving the attractiveness of that investment? Do you think it's sort of having better head-to-head data? I mean, do you feel like pricing is differential or a combination of a bunch of different factors?

I think Zenrelia is a special product and what makes it special is the efficacy in market. And a little bit of a blessing in disguise is with the warning label that we originally had on the U.S. label, we got pigeonholed to maybe second-line treatment. So we were being used on the toughest cases where pet parents couldn't get relief for their pets and Zenrelia was working. And as vets saw this, they really started to believe in the efficacy. And so I think first differentiated on efficacy, but continues to be differentiated on convenience and value. And I think that's really driving the momentum of the product.

Do you think the market share shifts at all with a third competitor? I mean, I think people know that Merck has launched a product. And how do you think the competitive dynamics in the market may shift yet again?

Yes. I think we have experience with how Zenrelia is doing with a third competitor in Europe. And I'd say Zenrelia is doing extremely well. And I think what will continue to drive Zenrelia is the efficacy that it brings to pets and ultimately, what vets seeing those results in the marketplace.

Okay. All right. Can we talk about the pain market a little bit? I think you've disclosed that you view that as having a $2 billion TAM by 2030. Where do you stand today? And how we should think about sort of further penetrating that TAM over the coming years?

Yes. We're really excited about the pain market. We sort of were public in our Investor Day about a number of assets that we are pursuing in the pain market. So not only are we excited about the future assets that could come to market, but we're also excited about our portfolio today. We actually have a very sizable portfolio. We have a great product in Galliprant, which is the #1 branded NSAID for OA relief. And we have seen Galliprant continue to grow this last year, and we expect growth sort of going forward as more vets are shifting back to traditional OA treatment.

Obviously, a lot of scrutiny on that category. Does that factor into your thought process or your conversations at all?

I think the scrutiny on the category helps a product like Galliprant, which is known in the industry for efficacy and safety. And I think that's why we saw the return to growth in 2025. And I think as we think about our innovation going forward, we're really cognizant as to what vets and pet parents are looking for.

Last year, you gave that 3-year guidance, right? So people now have a framework to think about the growth algorithm, but we also have talked about -- or the company has talked about its pipeline and all the opportunities that you have, and we've talked about some of them here today. Help us think about sort of the launch cadence coming up in the next sort of several years and sort of layer that into the conversation around that sort of mid-single-digit revenue growth number that you provided the Street back 3 months ago, whenever it was.

Yes. Yes, so great. So at Investor Day, we laid out, obviously, our current portfolio, but then we talked about, call it, the next wave and then I'll say the next-next wave. And so listen, we're heavily focused on ensuring we don't have an air pocket without some innovative products coming to market. And we've got a fantastic R&D team led by Ellen that's just making sure that the team is functioning well and sharing knowledge and making sure we don't have those air pockets. But listen, what we see is by 2031, we expect to launch another 5 to 6 potential blockbusters in the market. And beyond that, there's probably another 5 to 6 in that category beyond that. But listen, the next 5 to 6, we have an unprobilized sales peak of $2 billion, which is twice what we had here in 2025. So I feel great about kind of the pipeline and also great about just the focus of the global team ensuring that.

Any specific therapeutic areas in that next wave that you want to sort of call out?

Yes. I mean we're going to focus on -- I mean, we don't have to go create a new market. And so we're going to really focus our attention on the bigger markets, the derms and the paras and have a differentiated product, Glen.

Okay. All right. Could we maybe talk about the 2026 guidance? We got a couple of minutes left. So I just want to touch on this because last year, you sort of raised prices 2% and you sort of talked about this year, I think that the pricing was even -- maybe even a little bit better this year versus last year, which would imply something greater than 2%. And when we look at the volumes that the company sort of generated in the second half of '25, and I kind of put all that in the mixing bowl versus your sort of 4% to 6% revenue guidance, it doesn't necessarily all add up. And so how do you bridge that sort of disconnect? Or how should we think about maybe some embedded conservatism or just not wanting to get ahead of yourself? Like how do I think about that revenue guidance in the context of the individual pieces that all seem like they're doing better than the guidance might imply?

Yes. I mean -- yes, first off, I mean, I think we feel great about the guidance we gave. It's right in line with the algorithm that we showed at Investor Day. We absolutely have a tremendous amount of momentum really across all 4 quadrants. I'd highlight we are lapping some bigger growth numbers we had from this basket of innovations. We grew that basket $400 million in 2025, and we're expecting to grow that another $250 million on top of that here in 2026. But listen, we said we're going to be grounded with guidance, and we're just being cognizant of the macro trends that we see as well as competitive response to the success that we've had. But again, we feel great about the guide that we gave that mid-single-digit growth.

Yes. Maybe let's just go down the income statement a little bit. Obviously, the adjusted EBITDA, sort of that high single-digit growth outlook kind of implies some modest margin expansion. Talk about sort of the margin trends in the business as this innovation bucket continues to grow faster than your overall total and maybe layering in some new product launches over the next couple of years as well. Just sort of talk about the general margin trends and some of the some of the tailwinds maybe to that margin trend to drive that faster EBITDA growth?

Sure. Yes. I'll highlight really three things. First is this basket of innovation growing. Again, these margins carry a margin profile higher than our corporate average, so that will be accretive. Number two, I'd say we're going to continue to leverage our existing cost base. And so as volumes accelerate, we're going to see some fixed cost leverage. And then the third lever is going to be Elanco Ascend, which is our proactive approach to improving margins really across the P&L, where we expect $200 million to $250 million of net EBITDA improvement by 2030. 75% of that is going to be through gross margin, 25% through OpEx.

And listen, this covers the work we're doing within the 4 walls of our manufacturing facilities. It incorporates the procurement team. It's already done a fantastic job of locking in some better pricing, leveraging AI and automation to really improve efficiency across the P&L. And then we also announced a restructuring charge at the end of December, and we're well on path to executing those commitments, and we expect $25 million of save coming through in 2026 from that program. We expect to conclude all of those actions and get a $60 million run rate benefit in 2027.

Okay. Listen, we're out of time, but I want to give you all the last word to figure out how we can sort of tie all this together. I mean, obviously, a lot of trends are going in the company's favor now with the innovation basket. It feels like there's still opportunities in the pipeline. You're able to sort of take pricing. But even the strength is even beyond just U.S. Pet Health, right? It feels like a little bit more of a diversified strength if you sort of will -- if you will. I mean we've been recommending the stock for a couple of years now. 2024 could have gone a little bit better for us personally and yourselves, and that all sort of worked itself out and then some in 2025. But as we sort of sit here maybe with a more bullish outlook, is there something that you think that you want to leave investors with that you think maybe they should spend more time on, may not be fully appreciating, maybe we didn't spend time on it here today. Let me give you the last word to sort of close it out on what you want to leave, the message you want to leave the investors with.

Yes, great. So great. Thanks for loving to do that. So one, I think the industry is fantastic. We expect the industry to grow by $20 billion over the next decade. And that's going to be a mix between the Pet side as well as the Farm. I think we talked a bit about Farm and the financial profile of that business. But listen, there's some macro dynamics behind it that supports it, but also just the profitability of that business is unrecognized. Although it's got lower gross margins than the pet side, the EBITDA performance is -- and the margins are in line with the overall business, including Pet. So that's an underappreciated aspect of the business.

And again, we talk a lot about vet clinics being down. But I would tell you, there's never been a more willingness to spend from the end consumer and take care of their pets. We have an omnichannel approach, which ensures that we can be and provide product to the consumer where they want to shop. And listen, I think our basket of innovation is going to continue to grow and the globalization opportunity we have with these products and then continued strengthening of the balance sheet just makes us someone that's going to participate and continue to lead in this animal health industry.

Okay. Bob and Bobby, thank you very much for joining us today.

Thanks, Glen. Appreciate it.

Well, good afternoon, and welcome back to TD Cowen's 46th Annual Healthcare Conference. We're delighted to be hosting Elanco Animal Health. From the company, we have Corporate CFO, Bob VanHimbergen; CFO of the U.S. Pet Health in the U.S. Farm Animal business, Luke Smith; and from Investor Relations and ES -- IR, we have Tiffany Kanaga.

To start off, Bob, what are the most important takeaways from Q4 results? And how should investors think about 2026 in the context of the midterm outlook laid out at Elanco's December 2026 Investor Day?

Yes. So thanks, Chris, and thanks for the question. So listen, Elanco has really started off on a great foot in 2026, really leveraging the momentum that we came out of Q4 2025. And so we did have 9% growth in the quarter. Our basket of innovation continues to outperform from our expectations, landing at $892 million in the year. And so we saw four quadrants of our business performed well. We saw the basket of innovation performed well. Cash came in better than we had expected as well on just good fundamentals of the business. And so we're able to pay down debt even a little bit more than we had projected. And so we landed leverage at 3.6x. So we ended the year with a lot of momentum and then kicking off 2026 with that continued momentum. We did give guidance for the year last week and really right in line with our Investor Day targets that we gave out back in December, where we expect mid-single-digit top line growth, high single digit EBITDA growth and low double-digit EPS growth and a plan to continue to delever and bring leverage down into the low 3s. And so like we're really pleased with the performance, the momentum we're seeing across all four quadrants.

Maybe going back to 2026 guidance. What are the biggest areas of uncertainty, and what scenarios or outcomes could allow Elanco to exceed the top end of guidance?

Yes. So listen, like we do give a wide range of guidance, reflecting a couple of different things. If I think about the momentum of the business, obviously, that's certainly some upside. And the globalization of our products. So we've got some fantastic products with Zenrelia and Quattro and so the continued globalization of those products. So if you see the macro improve, if we see those products and the ramp of that basket of innovation improve, certainly, that's going to help us get to that top end of guide. But listen, like we're also cognizant of the competitive environment. And the industry is growing great, but competition certainly is bringing products to the market as well. And so we think we're balanced with our guide, but certainly pleased with the momentum we're seeing and certainly, the high end of the guide could -- we could get there just with continued success in the products that we've launched.

And are there any specific data points you'll be watching for near term that we could have updates on by Q1 results?

Yes. I mean maybe not so much on Q1 results, and I probably won't put a time line on this. But listen, with our Zenrelia label, certainly, that's something that's what's baked into our guidance is the label as is. Now with that being said, the FDA has asked for data from us back in October. So we have provided data at their request on our label. And listen, like we're in active conversations with them and good robust discussions on really what the label could and in our view what should be. But listen, we've got 1 million dogs that have been on Zenrelia. We're in 40 countries with a clean label, and it's been in the market for close to 1.5 years now. And so those are some data points that could get us to a clean label. But listen, we're not putting a time line on that. It's our hope and expectation we'll get that eventually. But listen, when we hear from the FDA, obviously, we'll assess where we are and continue our no-regrets approach to continue success with Zenrelia.

So one area that was updated in Elanco's 10-K guidance was an update on U.S. Seresto generic. Can you update us on what percent of Seresto sales are in the U.S., and your expected time lines for generic impact in the U.S. and ex-U.S.?

Yes. So Seresto is a global brand with sales composition roughly 50% U.S., 50% OUS. And as you mentioned, we've seen some recent competitive entrants into the market, but we've shared that we've been planning for this for some time now and feel like the brand is well positioned to perform going forward. I maybe just begin by first acknowledging that we believe strongly in our intellectual property, and we'll continue to defend through the duration of the patent, which extends here in the U.S. through Q3 of 2027. But with that stated, we feel like the brand is well positioned to compete given a variety of factors. We have a leadership position in the retail channel. We have broad points of distribution, which gives us access to customers, and we also have incredibly high brand awareness and loyalty with Seresto. So at this point in time, we expect limited impact from the generic. We factored that into our guidance for the year. And we perhaps point to our experience with the topical category as a helpful analog, where the advantage family of products remains the market leader despite being off patent now for a number of years. And so maybe I'd also just offer that we continue to bring innovation and life cycle management to the category, including our recently approved four-month collar, that we'll be selling under the Advantage Family brand name. So again, I feel like Seresto is in a great position to compete and excited about the performance that the brand has.

And maybe longer term, kind of where do you see this brand in 2030?

Yes. I mean we think that the OTC business will continue to be relatively stable, kind of plus or minus low single digits, and we think Seresto will continue to perform. We'll have the basket of innovation -- not basket of innovation, but the basket of the portfolio that we have here to really sustain that performance.

Maybe going back to some of the potential headwinds, tailwinds in 2026. Can you maybe talk about the U.S. vet landscape? How are vet visits and consumer spending on pets trending? And are there any specific factors like tariffs that might be driving this pressure?

Yes. So we've been really pleased with the robust consumer response to our portfolio, both on the pet side of the business and on the farm side of the business. As Bob mentioned, we saw 9% constant currency growth here in Q4, 7% for the full year with great fundamentals across the business, price and volume, all four businesses of the business -- or quadrants of the business growing and continued accelerating contribution from our innovation portfolio. We also remain very bullish on the animal health industry in general and see continued runway for expansion here as well as an opportunity for Elanco to play a leadership role going forward. Maybe specifically on the pet side of the business, we believe that vet visits continue to be an important metric to track, but would also point to the shift in consumer behavior where access, convenience and willingness to spend are becoming more and more meaningful. Today, roughly 40% of sales in the pet market are subscription-based. And omnichannel shoppers, on average, are spending 30% more annually than we see from single channel shoppers. So our focus on the pet side of the business will continue to be meeting that mono pet owner where, when and how they choose to engage.

On the farm side of the business, we continued to capitalize on the accelerating global animal protein consumption trends, which in the U.S. is now projected to grow annually about a 5% clip. And this is driven by a variety of factors. 70% of U.S. consumers have indicated that they plan to increase their protein intake, given changing dietary guidelines, giving the aging population where protein will become more important due to muscle retention as well as the emerging trends of GLP. So we remain very bullish on the animal health industry in general and believe that our strategy and our portfolio is well positioned to capitalize on some of this evolving macro backdrop.

And amidst these macro pressures, have you made any changes to your business pricing strategy to -- at this point?

Yes. I mean, on pricing, I mean, we continue to price to value. Listen, we believe we've got best medicine, and we'll price accordingly. Just think about pricing overall to the company. We did have 2% pricing in 2025. We expect that to accelerate in 2026. In Luke's business in the U.S., we did take the highest pricing out to the vet clinics. It's the highest we've had in 5 years. And so listen, we'll continue to price to value. We expect in 2026, an acceleration, not only from 2025, but also accelerating throughout the year. And I'd remind you that we're lapping key launches we had in 2025 with Zenrelia and Quattro. So it will be a good driver to margin improvement.

You mentioned some potential competitive headwinds to be aware of. How do you approach modeling competition as you think about midterm and full year guidance?

Yes. I mean -- so listen, we do consider competition in our guide. I mean if you take a step back and just look at the industry, we expect the industry, the animal health industry, to grow by $20 billion over the next decade or so. But listen, it's a robust industry. But listen, competition is here as well. And listen, right now, we feel like we've got a lot of momentum with the best medicine or the best products. We've got an omnichannel approach that helps us reach customers where they want to shop. We have a full portfolio now with Zenrelia and Befrena will certainly just continue to enable that. And that's helping us make inroads with corporate accounts in 2025 specifically. We grew 90% of our corporates, and that's compared to 13% last year. And that's just showing the value of the broader portfolio. But listen, like we saw, obviously, Merck launched there or had approval of their derm product last week. And our view is with Zenrelia, we've got best medicine, and we'll continue to lean into a no-regrets approach to launching that product. But you think overseas, we've highlighted some key market share profiles last week at our earnings call. But listen, in Brazil, we've got a 40% share. In Japan, it's 30%. And in several countries across Europe, we have double -- low double digits, and in U.S., low double digits. And so listen, we believe that the efficacy of the product is important, and we're running right now based on the efficacy of the product and not price. And so listen, we know competition is going to be there, and that's embedded to our guide. But listen, we're going to lean in to what we have.

Since you mentioned the Merck product, I think their label lapped a claim for treatment of chronic dermatitis. Any thoughts on that label, any thoughts about positioning in the U.S. versus expectations?

Yes. I mean -- yes, so obviously, we saw the label last week. Not a surprise to us with the announcement that was embedded into our guidance that we expected Merck's product to come to the market. But our view is, listen, we believe Zenrelia to be best in the market. We've done a head-to-head study with the incumbent, and that's a great tool for our commercial teams as we go out to the market. And then I'd highlight -- listen, we've launched Zenrelia overseas around the same time that Merck had their product come to the market, and we've seen extreme success because of the efficacy. And again, I'd point to those margins that those market shares that I just referenced.

And then maybe taking a step back, you have 6 big products launching over the next couple of years. What percent of innovation revenue was from the Big 6 in 2025? And where do you see that going over the next 2 to 3 years?

Yes. So we don't talk about each individual product within the basket of innovation, but we did have $892 million of revenue from that basket in 2025. We saw continued momentum near the end of the year. And so at Investor Day, we did say we'd expect about $1.1 billion of revenue coming from that basket in 2026. And because of the momentum that we saw here at the end of the year, we raised that to $1.150 billion for 2026. But no surprise that basket is led by Quattro, Zenrelia, Experior on the farm side, Adtab in Europe. And listen, like we're going to continue to see the globalization of these products as we move forward in 2026 and beyond, which is important for us because the margin profile of this basket of innovation is higher than our corporate average, right? So we'll see a higher degree of profitability flow through with growth.

And from a growth contribution standpoint, is it fair to view Quattro as kind of the leading contributor to growth to your midterm outlook, or how should we think about that composition?

Yes. I mean -- so think about -- I mean, so Quattro was the -- it acted like the first to market, right? It was third to the market, hit blockbuster status in late summer for us. We continue to see strength there. We see that the value of Quattro and Zenrelia really stabilizing our base portfolio with a halo effect of getting into clinics and the broader portfolio, really bringing up base -- our base business. You go back to Q1 last year, our base was down a little bit more than you saw in Q2, 3 and 4 of 2025. And again, it's because of the halo effect of these new products coming in. And so as we look forward, we expect the base to continue to be stable, and we view stable as up or down low single digits. And I'd tell you that can shift by quarter and by region, but certainly see the benefit of these products coming through.

You touched on the gross profit margin profile of the Big 6. Is 60% gross profit margin a good way of thinking about this, or how should we think about this in modeling out the company?

Yes. So listen, like -- so I know historically, we've put out a 60% gross margin target. Is that achievable? Yes, right? We're not putting a time frame on that, but I would -- I'd give you just a couple of points of interest for modeling purposes. Our basket of innovation does carry a higher margin profile than our corporate average. We've also have Elanco Ascend that's coming in, and we've started to execute that program. And Elanco Ascend is about not only really addressing costs within our P&L. And I'd say that's really across all levels of the P&L. But it's also about enabling and leveraging some new capabilities with automation and AI. And we expect $200 million to $250 million of EBITDA improvement from Ascend by 2030. 75% of that, we expect to get gross margin and 25% on OpEx. And so we'll see not only the natural gross margin benefits from the basket of innovation that mix profile, the natural benefits of just volume leverage, but also Elanco Ascend and really improving margins. So 60% achievable, absolutely yes, we're just not putting a time frame on that.

Makes total sense. Maybe diving into some of these specific products, what percent of U.S. dogs today are on broad spectrum products. And what do you see as the biggest contributor to Quattro growth in 2026 and over the next 2 years? Is it price, share gains, growth of the class overall or ex U.S. launches?

Yes. So the U.S. parasiticide market is roughly $4 billion in size. Broad spectrum constitutes roughly $1.4 billion of this. And perhaps equally important, has been growing at a 30% annual clip here recently. As we think about our performance with Credelio Quattro in the first year, we've been incredibly pleased, as Bob mentioned. We've seen the product reach blockbuster status in just 8 months on the market, which is the fastest pet health product to achieve that status in the history of Elanco. And it's been really define the typical third market archetype that we see with products. We believe that's because it's best medicine that offers four separate degrees of differentiation. It's broadest coverage. It's speed to kill of ticks. It's heartworm efficacy in just the first month, and it's also exceptional palatability, which has really been a pleasant surprise as we've seen how the product has performed in the market. As we think about vectors of growth going forward, I'd perhaps point to three separate areas. The first is share. So we're in roughly 1/3 of the vet clinics here in the U.S. today, and we continue to see that number steadily increasing each and every month. We are growing our partnership with corporate accounts, but we've also been leveraging that key relationship with distribution, which we feel is really critical to launching the product with success. But furthermore, we see an opportunity to grow share in the clinics that we already have penetrated in as our portion of the business here is still relatively low. And our confidence here is driven by the recent kinetic puppy index metric, which Quattro was ranked highest in Q4 relative to all other broad spectrum products and grew sequentially relative to Q3 2025. So share will continue to be one of the key vectors for growth.

The second will be price. So we believe that this is best medicine, and we'll continue to price to value and want to ensure that, that value is reflected in how the product is positioned in the market. And then third is globalization. So the international broad-spectrum market is roughly $700 million in size. And we've already initiated our global rollout, including the recent approval in Australia as well as submissions in Canada, the EU, the U.K. and Japan. So again, multiple vectors of growth for us going forward. Really pleased with the performance in its first year and excited about the runway that's in front of us.

Could you maybe talk a little bit more about your ambitions long term? It seems like Quattro has a best-in-class or potential best-in-class profile. Why wouldn't it have the largest market share of the broad-spectrum class in 2030?

Yes. So I think we've been very intentional about balancing our ambition for the product with the current market reality. So we anticipate that this will continue to be a highly competitive space and one that will continue to breed innovation. But again, we feel that Quattro is well positioned to compete in this space. We were the only animal health manufacturer to grow share in the U.S. vet clinic parasiticide prescription market in 2025. We think that this is largely due to Credelio Quattro, not only because of the individual performance of the brand itself, but also for the positive halo effect it has on the rest of our portfolio.

And are there any risk factors investors should be aware of thinking about the outlook for Quattro? Do you expect the generic isoxazoline before 2031? And anything else to be aware of?

No, I mean nothing specific to call out here. I would just kind of acknowledge that we can take -- we continue to take a very analytical data-driven approach to how we're launching the brand and investing behind it. Bob and I meet regularly with our commercial leaders to measure the ROI of the media investments that we have, and we will continue to follow this approach as long as we're on the positive slope of the curve. So again, we feel like we're in early innings here, and why we expect that this will remain a competitive space, we're pleased with how the product has been performing in its first year.

Maybe moving to Zenrelia. What's the likelihood of the vaccine washout period being removed from the U.S. label within the next 12 months?

Yes. So we're not going to outline a specific time frame, but we just would acknowledge that we continue to expect that Zenrelia will reach blockbuster status in both the U.S. and international markets, respectively. And I'll just acknowledge that we think we have a really special product here, one that offers differentiation across the dimensions of efficacy, of convenience and value. And we've already seen some really exciting proof points. So we're in roughly half of the U.S. vet clinics currently and are seeing reorder rates north of 80%. And then in the international cohorts of launches that we've had, specifically Canada, Brazil and Japan, we're already seeing year 3 or year 4 analog share gained in the first year on the market. Regarding the label update, we remain committed to making the U.S. label consistent with what we see in the 40 other markets that we've launched, where we've received approval without restriction. And we have a multipronged strategy for accomplishing this goal. I'll just offer a quick reminder that the first step here was submitting existing data to the regulators, which resulted in the fatally induced disease language being removed from the label back in September of last year. And since that point in time, we've already seen 2,500 new clinics purchasing the product. And then we've also submitted additional booster study to the FDA and continue to have very constructive dialogue with the agency. And we remain steadfast in our belief that this data, combined with the evidence at hand, as Bob mentioned, 40 markets using the product, over 1 million dogs worldwide, a strong pharmacovigilance profile continues to support label enhancements, and I'll just remind you that our guidance for 2026 assumes the label as is. So any improvement to this profile just creates a tailwind for the business.

And what has your market research shown on willingness to use Zenrelia with versus without the vaccine washout period?

I don't think we have anything specific to add at this point in time. But again, really pleased with the performance. We've seen it be used moving more towards that first-line treatment, and we continue to expect that as we see label enhancements that will only improve going forward.

And just to clarify on Zenrelia region blockbuster status, did you have a time line?

No specific timeline at this point.

Great. Maybe moving to Elanco's P&L. Can you quantify the impact of inflation on the P&L, both gross profit margin and OpEx?

Yes. I mean so think of inflation for us in our guide. It's largely aligned with CPI. I mean as I mentioned last week in our prepared remarks for our '26 guide. We do have some higher cost inventory flowing though the P&L. We saw some of that in Q4 and expect a little bit more in Q1, Q2, but with that flowing through, we'll expect pricing and margins to improve certainly 40 basis points in the year and probably a little bit more heavier weighted in the second half of the year.

And you touched upon Elanco Ascend, how is that implementation progressing? And are there any opportunities to accelerate those cost savings?

So listen, like I'm extremely excited for Elanco Ascend. Really Elanco Ascend for us is, again, taking a proactive approach to the P&L and cost save on top of just the natural benefits we'll get through mix and volume and then also leaning into the benefits of AI. And so listen, our procurement team has already done a nice job of locking in some favorable pricing compared to what we've had in the past. And so we'll see those benefits flow through. Our manufacturing and quality teams have identified several opportunities and continuing to improve what they're doing within the four walls and their manufacturing facilities every day. And then on the restructuring charge that we took in December, very quick action from the global teams to initiate those activities. We're well on our way to achieve the $25 million of restructuring save this year. Those will all be completed this year, and so we do expect about $60 million of benefit from that on a run rate basis starting in 2027. So listen, the team has done a nice job of executing. We've got a great governance model in place that's tracking these initiatives at a detailed level, and listen, high degree of confidence for execution there.

And you've laid out a long-term leverage target of 2.0x to 2.5x. How should we think about capital allocation as Elanco moves beyond that or toward that target?

Yes. So really no change in what we've communicated in the past. So listen, we're going to continue to invest organically and paying down debt as a priority. And we do expect to get leverage in the low 3s by the end of this year and get below 3 in 2027. I've been clear that we do expect M&A to be a part of our growth strategy, and I would tell you in the near term here those are going to be smaller opportunities, primarily around R&D. But with that being said, it's not going to derail us from our deleveraging time line. With the financial algorithm that we gave at Investor Day, I expect our acquisitions are going to be accretive to that model, right? So if we laid it out mid-single digit, high single digit, low double-digit growth on revenue, EBITDA and EPS, these acquisitions will be accretive to that model. And so in 2026, we did announce a smaller acquisition last week. Now 2026, we're not going to see a significant opportunity. But as we get into 2027 and 2028, it's going to check those boxes. And then the other thing I personally look at is ROIC, and how quickly are we going to exceed our WACC. And generally speaking, I want to see that in 3 to 5 years. And reflecting that it could be closer to that 5 years based on the nature of the launch of a product. But with the HP acquisition and the announcement last week, we expect that ROIC to achieve WACC on a shorter time frame of that time horizon. So we'll continue to focus on paying down debt. We're going to get to that 2x to 2.5x. And I'd say, once we get below 3 in that 2027 time frame, that unlocks the opportunity for returning to shareholders. And so that will be the plan and certainly more to come as we work through the timing of that deleveraging.

And is it fair to say most of your potential acquisitions will focus on therapeutics. Some of your peers have looked at diagnostics a little bit for the field or too early to say?

Yes, I think it's probably early to say. I'd tell you, though, it's going to be across both of our businesses. And so when I say both of our businesses, that needs going to be both on the pet side and farm animal side and to make sure it's going to be something that's within our longer-term strategy.

You also touched on AI. What areas of the P&L might see the most tangible benefit from AI over the next 5 and the next 10 years?

Yes. So great question. So if I think about just the near term, I mean where you'll see the benefits of AI for Elanco in the near term. It's really going to be on the cost side and specifically G&A. And I can give you several examples where we've already launched AI within the organization in our shared service center. And so we're seeing benefits, hard savings of benefit already through procurement and finance. But then as you kind of think about the next several years, we're going to use AI for manufacturing as we think about predictive maintenance and supply chain, and how do we get more effective with supply chain. On the commercial side, getting real-time data to our frontline sales team, so we understand the impacts of marketing and promotional discounts and touch points with customers. And then as I think more midterm, we also expect AI to enhance our R&D capabilities. And so not only regulatory filings and celebrating some of that, but also how do we use AI to test the molecular capabilities, and how to molecules work together, and so we can think about failing faster which will enable us to bring products to the market a little bit quicker.

Before we move to my final question, if we have any questions in the room or from Steve?

Actually, I did want to follow up on one. On Zenrelia, you said the reorder rate was north of 80%. It's hard for us or at least me to put that into context. So tell us why that's a great number, like what compare it to something else?

Yes. So we think it shows just the vets willingness to continue to use the product. As Bob mentioned, we're more so in secondary line treatment right now, but we see that continue to move into first-line treatment. So really pleased with the responsiveness that we're seeing there.

I got that, but I'm wondering, compared to another product, what's the reorder rate for another product? What is it for another recent launch from Elanco?

I don't think we've shared that formation in the past. I don't know if we're in a position to do that right now.

Okay. But suffice it to say this is above what are those...

Yes. I'm pleased with the performance, correct.

Last question is what could be the biggest surprise or change at Elanco over the next 10 years?

Yes. I mean as I think about just Elanco, I mean, we're a different company today than we were a couple of years ago, right? You just think about the profile of Elanco. We spun out from Lilly in 2018. And so the first couple of years were about separation and standing up ourselves. And then we acquired Bayer. There's a lot of integration work to be had. And now we're really entering this next area of growth. And so we're seeing now the fruits of the investments on the innovation front. And so as we sit here today, like, listen, we're entering this next area of growth. And we have a strong growth company today with a lot of short-term potential with our basket of innovation. We continue to fund the pipeline. And there's a high priority high at us -- high priority for us to continue to fund that pipeline. We do expect another 5 to 6 potential blockbusters to hit the market by 2031. And so -- the last thing I would tell you is just the balance sheet and continued strengthening of the balance sheet, paying down debt and providing the opportunity to return cash to shareholders, right? So I think we're really entering a fun area for Elanco and investors.

Great, Bob. Well, with that, I think we're out of time, but thank you for joining us today.

Yes. Thank you.

Thanks, guys.

Ladies and gentlemen, the program is about to begin. At this time, it is my pleasure to turn the program over to your host, Michael Ryskin. You may begin.

Great. Thanks, everyone, for joining us. My name is Mike Ryskin, Bank of America Life Science Tools and Diagnostics Analyst and also covering animal health space. Excited for our next session with the Elanco Animal Health. We're joined by Jeff Simmons, President and CEO; and Bob V., Executive VP and CFO. Jeff, Bob, thanks so much.

Great to be here. Thank you.

We'll do the same as prior sessions. It will be fireside chat for the duration. Investors, you can certainly feel free to send me question, either via the Veracast portal or Bloomberg chat, email, text, fax machine. You know how to get in touch with me.

Maybe just kick things off, you guys reported 4Q results and gave us your initial fiscal '26 guide just a couple of days ago, so still fresh in everyone's mind. But maybe you could talk through sort of the key points of how the year played out relative to expectations, meaning last year, sort of the key points you want to focus on as you're moving into 2026.

Yes, maybe -- and Bob, you can touch on the guidance. Thank you, Michael, and the opportunity to be here with Bank of America. We appreciate you guys a lot, and what you do for the industry. Love where the animal health industry is right now in pets and protein trends, and where Elanco is. So as you know, Michael, we've been very intentional in the last 3 to 5 years in building what we have, and where we're going, and we're excited about our investor conference we had in December on the rest of the decade.

But our focus has been on three things: Growth, innovation, cash. We've been a pretty consistent story. Our strategy is all around an innovation portfolio, productivity flywheel. And we ended the year delivering above expectations on, I think, adjusted EBITDA, revenue and EPS, a real strong quarter, I would say, on the growth side, probably the best quality year and quarter that we've had relative to all four quadrants, growing on international, U.S., Pet Farm, price volume, all underpinned with innovation. Innovation exceeded our expectations every quarter.

I think our storyline, if you remember, kind of a headline on Elanco, it is a basket of innovation that is performing like best medicine in double-digit growing markets. We don't need to go in and create markets. We're still even lower indexed in the big markets like para, derm and cattle. So -- and then Bob can talk about the balance sheet is strengthening every quarter. And that just sets us up well.

And then we lean into the algorithm of commitments we've made, and we're keeping our priorities the same. We want to be a consistent, reliable deliverer of growth, innovation, cash. We want to invest appropriately, and we want to make sure that we're on the right side of expectations. So we're going to be balanced, disciplined, very prudent, and that's -- we had a long track record of that for many, many years. We did hit a little air pocket, and Ellen is making sure we won't ever do that again. So I don't know, Bob, on that guidance...

Yes, maybe just add a little bit of color. Yes, Jeff summarized it well, but our guide that we gave a couple of days ago was right in line with the targets we gave at Investor Day. Growing mid-single-digit top line growth, high single-digit EBITDA growth, low double-digit EPS growth, and we expect to delever and get in the low 3s by the end of the year. And I'd say, if you kind of double-click into that, we did raise our innovation revenue target. We were $1.1 billion at Innovation Day. We raised that to $1.150 billion. We're seeing just a lot of momentum there.

And I would say the algorithm within the algorithm, how we're focused on internally is to ensure we hit the guidance that we've given out. But internally within the P&L, it's ensuring that we're continuing to our no-regrets launch approach on our products, continuing to fund the pipeline with R&D, and that's where Elanco Ascend is coming in to make sure that we are being operationally excellent.

So we can continue to fund not only the short-term growth opportunities, but also the longer term with the pipeline. So a lot of momentum, and we're being balanced with the competitive response, what that could look like and the overall macro. But again, a lot of momentum entering into 2026. And obviously given the guide that we feel great about right in line with what we laid out a couple of months earlier in December.

Okay, okay. That's a great place to start. I want to follow up on a lot of that. Obviously, we've spent a lot of time talking about the innovation basket. I think that's a big part of the story. I think that's been -- if I could drill down what's been the key factor between IBEX stock -- sorry, Elanco stock. I'm still in the last session. Elanco stock re-rating over the last year, it's been the innovation basket, really delivering, really hitting on that, and how well that's done in recent quarters. So maybe just to pick on one of them.

Let's start with Zenrelia. I think you've had better and better performance as the year has gone on, despite the label as it came out originally. You've had constructive dialogue with the FDA in getting changes already, and there's potential catalyst around the midyear. What would you say a year -- and have been your learnings on it, both in terms of, you've got an incumbent, that's got a 10-year head start, how do you position around that. How do you position or how do go to market around the label? How do you discuss about the label change? Sort of -- what have been your takeaways over the past year? And how do you think about that opportunity going forward?

Yes. Great momentum. We're 1.5 years in really since we've brought the product in, and we're looking at the whole decade. We got a pipeline. So we just got Befrena approved, Michael, as you know. So derm for us is, boy, what we see between now and the end of the decade for derm as Elanco is going to be a leader in this category, and we like the marketplace. It is a marketplace that rewards efficacy. It is the most visible pet issue, an itching dog is not only why people go to the vet, but it's also one that you can quickly determine efficacy better than you can in para and even pain.

So I just kind of say the headline is the product's got to work. It's got to work really well. And if so, even with Zenrelia, where it came into the U.S. with some limitations on the label. That may have been a gift because it put us into the toughest cases, and we're rising right now in a really strong way. So -- and the international launch is exceeding our expectations.

And every story from Brazil, we just had a webcast with Brazil this morning. I mean 40% market share and climbing and the shortness of a market, Japan 30%, already double digit in Europe in the key European markets, half the clinics now in the U.S. I mean this uptake is climbing at a exceeding rate. And the reason for that, I think, is we're not even in derm season yet. I think a lot of that is efficacy, Michael.

So -- and that's what the KOLs are seeing and highlighting. And then we're going to be adding, especially here to the U.S. with the Befrena product that we also think has differentiation. So look, I think we'll continue to work hard on globalizing the product. Bob can talk. We're going to lean in. We're probably increasing some investment around Zenrelia now given what we've seen. We've got good manufacturing plans to take on this increasing demand, and we're going to continue to -- we're the only company out there with head-to-head data, and we're going to demonstrate it scientifically. We're going to demonstrate it with KOLs.

And maybe the biggest proof point is the acceptance by corporates, to have every European corporate sign on to Zenrelia and see 90% growth in corporates in the U.S. last year compared to 13 is, I think, a real symbol of proof points around Zenrelia. And we'll work with -- we can talk some about the label in the U.S., but we made a submission of the booster data after the PCR change to the label. That label change helped us a lot. We picked up 2,500 clinics.

We continue to pick up more, and we're in a constructive dialogue. We hope to hear from them soon. But our case is quite compelling. We believe to move that label closer to the other 40 countries. And Bob -- we'll continue to invest. Bob has spent a lot of time with Bobby and Ramiro on the data to make sure we're not going to slow down on the ramp rate here.

Okay. On the upcoming label discussion or update from the FDA, there's been a lot of focus for investors. You've talked about a number of times. Could you sort of lay out the scenarios as you see, and what the outcome for that would be. Remind us the timing, we're kind of expecting way 2Q maybe summer, if you've got any more clarity on timing?

And just any way you could hedge the scenarios, any way you could give us a likelihood of which outcome it would be. Just I think that could be a pretty meaningful further positive catalyst.

Yes. I start with the current momentum. I mean there's a lot of momentum in the product. So we're not -- nothing is in our guide on a new label. The current scenario we're going to lean into and the momentum is increasing. So we're going to stay focused on what we have right now. And -- but I would just say if I just start with the facts, we've got 1.5 years of good data, the efficacy. We've got 40 countries with clean labels.

We've got PV, pharmacovigilance data for over a year [Audio gap] million dogs. So -- and what we've done, we've got the PCR data, where they changed the label. And now we've made a submission of the published booster data, which was done in a constructive way that actually they desired and wanted. So a submission has been made. That was made in the fall. It's a little unusual, so I don't want to say it's like a new drug ADUFA, Michael.

But I do think we're hoping to hear from them soon, and we believe our case is pretty legitimate for continued label improvements. And I would just say, hey, the FDA is doing a lot on reform, great leadership under Dr. Shell, good constructive dialogue with the team. And I'll leave it there and just say that we're hopeful. But again, it is not something that is in our current guidance.

That's the hedge, Michael, right? Our guidance assumes label as is. And so that's really our hedge against potential outcomes for the rest of the year.

Okay. And in terms of what those outcomes could be, I think it's -- as you said, you already had a label update or improvement in the fall or last year, last summer. It could be similar to that where there is a minor update that's option 1. Option 2 is completely remove the black box, or my understanding is option 3, the FDA could come back and say, "Okay, we need even more data. Let's go back and do more trials." Those are the three outcomes.

Yes, yes. I think you're right. Yes, I do believe so.

Okay, okay. And then the -- just some fresh news overnight or last night, yesterday Merck's NUMELVI was approved nin the U.S. Obviously, a product we've known about for a while. A lot of the focus when we think about Zenrelia ramp in the U.S. is sort of positioning Zenrelia relative to Apoquel, the major incumbent, but now you do have a third player. I think you guys had some really interesting commentary during the call on Tuesday about how Zenrelia has done in Europe, where NUMELVI is already on the market. Could you expand on that a little bit as just sort of what you see as the pros and cons of Zenrelia relative to NUMELVI from the label perspective?

Yes. Again, Bob can highlight. We assumed this in the guidance. We assumed a competitive entry in the U.S., and we had it in Europe. So that's all assumed probably the news last night is it's probably for us, a little bit more favorable relative to the label that came out, so probably positive relative to that. But I mean, let's see.

Look, I think the commentary always comes back. I think I would keep it real simple. Let's not overcomplicate this. It's efficacy. And efficacy will be proven out in the field, and it will be visible to pet owners. And I think duration, breaking that bond with a pet owner because of an itch is what needs to be corrected. And the duration and the quality of efficacy is seen in living rooms and homes all over the world.

And that's where we're getting the testimonies. And what I will say is, we'll start with head-to-head, which we demonstrated against the market incumbent in Europe. And I believe that now that head-to-head data is proven out even against the new market entry in Europe, and we will execute accordingly the same way in the U.S., I think, and it will be determined by efficacy.

And I think that I don't want to get into all the details of the label right now. Everybody can see there are definitely differences, and we're going to focus on what we have. And at the same time, we're one quarter away from launch in Befrena. So I think we've got a portfolio approach. We've got a head-to-head approach. We've got 1 million dogs. And we've got a very strong label in 40 countries, and we have an improving label in the U.S.

And I think we've got one of the largest teams and Michael, I would even call out, we've got a distribution advantage right now. We believe, where distributors are getting a lot of value from us with Quattro plus Zenrelia, and they will with Befrena, and they probably will get even more value from Befrena, and vet clinics will as well. So that's where we're set up, and I don't know if I can elaborate more...

Yes, just to make sure that we all understand, as Jeff mentioned, like this was assumed in our guide that this would be coming out. So it's not a surprise to us with what we -- the commitments we've made a couple of days ago.

Yes. And like you said, you've already gone head-to-head against them in Europe and other markets, and that's...

Yes. And we are -- as I said, just to be clear, I didn't answer that, but we are outperforming them. And I think that's a combination of product KOLs, corporates, I think our ground game is very strong. We've got the largest sales force we've had in Europe and the U.S. in pet health ever, and we're leveraging our partners as well.

Okay, okay. Yes, the way we'll definitely have some interesting tidbits in there in terms of allergic derm versus atopic derm, needing to be administered with food, things like that. So there's a lot of things to dig in there. The strength you've seen with Zenrelia in the international markets, I mean, I fully recognize that every market is going to be distinct. There's different dynamics in terms of how your competitors are positioned, what type of go-to-market strategy you can or can in terms of advertising.

But the strength you're seeing in Brazil, the strength you're seeing in other markets, is that I mean assuming that you can get a similar label in the U.S., like would that be -- is that an aspirational goal to achieve that what's Zenrelia in the U.S.? Sort of like what makes -- what should we carry over from that because that is the biggest market, that is where a lot of the focus is going to be.

Yes. Well, look, I think why we're spending a lot of time looking at the analytics to make sure that we invest. These assets are bigger than we realized, and we've got a whole portfolio of them now. As you know, Michael, so it's very unusual to see we're in major markets, and now we've got best medicine. And this is a best case kind of scenario. So we're going to make sure we're not going to let up.

We will use Ascend and other productivity initiatives to ensure that we can give you that high single-digit EBITDA. At the same time, we will keep increasing investment, if that's what it takes to get the share, we will do that. So these markets come -- share comes at an expense to get it, but we believe we've got the assets to get it, and we're going to do that. And we're -- look, we've got the most experienced, most stable team in animal health. Our ground game is proven.

The other thing that I think is underappreciated is we've got an omnichannel approach, 40% of pet care dollars are under some type of subscription, and we like that because that brings compliance. And so all that aspect of our ground game is really important, and that's where we put a lot of energy in Europe and U.S. in these other markets. So -- and you got to -- if you've got the products that are working, make sure you've got the assets and the commercial engine to get behind them, and I think we do, right now.

Yes. And as far as aspirations, I mean, listen, we firmly believe Zenrelia is a blockbuster. And I would say it's a blockbuster in the U.S., and we expect to be a blockbuster overseas. So we're going to lean into exactly how Jeff spoke about, but we're pretty excited about the efficacy of the product, and what it can mean for us.

Okay, okay. Certainly, look forward to there. While we're on this topic, I definitely want to bridge to Befrena as well then, you talked about a 2Q phased launch, that's something -- that's going to be really exciting if that happens at the same time as a potential label update to Zenrelia. But even if it doesn't, I mean, that's still a really important incremental contributor. So similar to how you talked about Zenrelia and framing the opportunity there, what gets you most excited about Befrena?

I mean I think that obviously, we know the -- it seems like the dosing is going to be a little bit more favorable in terms of a slightly longer period relative to the incumbent there. I don't believe we have the full label out yet in terms of the USDA has now released it. Correct me if that's wrong. But just sort of how do you see Befrena entering that market and the opportunity -- and also the opportunity between having both Befrena and Zenrelia rally hand-in-hand?

Yes. I think you've got it framed very nicely, yes. So we kind of talk about where do we go on differentiation. We think we've got the three dimensions of convenience, value, efficacy. Yes, that efficacy picking up at 6 to 8 weeks. As you know, it also came with a higher bar. It's been 10 years since the last one in this space. So we had to take on a lot more dogs in the trial. So it really creates validity to this study, and that's we took a lot of that and this label to 350 veterinarians.

And as I shared 82%, 83% came back saying, "Hey, we will use this product and especially in seasonal conditions." So -- and then, yes, there will be a portfolio effect with Elanco now coming in, there'll be no real portfolio differences between para and derm with Elanco. We've got the four kind of legs to the stool now with the portfolio that we have and Befrena further differentiates us from even the new market incumbent coming into the U.S.

So all of that plays well. More to come, know the label is not out. We do plan to launch in Q2. It will be a phased launch like other monoclonal antibodies. And I get asked a lot of questions about manufacturing. Manufacturing is tracking really well. Part of the Kindred acquisition, it's in the plant, that's making the parvo. We've been working on this thing for a couple of years, and everything is tracking very nicely for a Q2 launch and probably more of a second half impact.

Yes. Okay, okay. I think that's going to meaningfully change the portfolio setup as you can position with the -- with your customers. I want to touch on one more basket of the -- one more part of the innovation basket in depth before we move on. And that's Quattro, obviously. Really, really impressive 2025. I think -- I mean, it's been a product that was anticipated for a while. It's a market that's really well known. I mean I think the para market is probably the best studied and best understood market in animal health and relatively saturated market in a sense that there already are a lot of products, a lot of alternatives.

Still really, really impressive results. There are multiple factors to the differentiation there in what you bring with Quattro versus what Trio has or NexGard PLUS has. But still if you could distill it for us, do you think like what really drove the success you saw in 2025? You referred to it a number of times as sort of not second in line or third in line, but first in line. What was behind that?

Yes. So maybe I'll just provide a couple of comments here on Quattro. So it's our fastest growing product that we've had. It's not acting like a third to market, it's acting like a first to market. And the differentiation is the speed of tick kill, it's tapeworm coverage, it's heartworm coverage from month 1, but I'd say one of the biggest differentiators is a palatability. And the fact that it's easy for a dog to take is something that certainly, I think is making us see the success where we are.

One of the leading indicators, I'd highlight, Michael, is the puppy index, and we continue to see that rise. And we believe, with Quattro, honestly, once your dog goes on Quattro, and the success we're seeing, we expect that to continue throughout the life of the puppy and the dog. And we're seeing transition from other dogs and existing clinics move over to Quattro. And listen, if you think about just market share, I think we were the only animal health business to see market share grow in para in the clinics this year.

And it's because of the differentiation we've talked about. So Jeff talked about how we're continuing to look at DTC spend, and I meet with the team, and Jeff meets with the team on the ROI on that, and we'll continue to lean in with this no-regrets approach. We've done that all year, and we'll continue to do that, and we're seeing that success.

Yes. In the appendix of your deck, you guys always have really helpful stats revenue performance for select products. So that was really informative. I mean you've given us updates on how Quattro was tracking year-to-date. I think it was early September, you had a press release of it had blockbuster status. So we have pretty good sense for how it was going, but still really, really impressive to see the full year number for that entire line, the Credelio line at -- with $350 million plus $358 million, something like that.

So really strong results. Any way you could characterize how much of that has been share gains from competitors? How much has been market expansion versus -- I'm sure there was some cannibalization of stand-alone Credelio that's to be expected. But it seems like that was relatively modest. We were kind of estimating that to be like 20%, 30%, not more than that. Just any way you can talk about the...

Yes, it's tracking favorable to that, I believe so. And I think you're going to see continued -- I mean, Quattro's got a lot of room to grow, where I think both, I think another key storyline here even with derm competition as you know, is we're small on a relative basis. When we started Quattro, we said we're $300 million in this big $3 billion, $4 billion market. So we're small on a relative basis. Now we've got best medicine, and we've got this omnichannel approach.

The Bayer OTC being able to say, "Hey, we've got some leading capabilities on subscriptions, drop shipping in and outside the vet clinic that's going to leverage us too." So portfolio plus capability is going to give us, I think, leverage there to take more share. I think that's important. I would call out also on that Credelio franchise two other things. Credelio Cat, as I'm traveling around the world right now, meeting with all the affiliates and customers. Credelio Cat is very uniquely positioned. It's got great share growth around the world, and there's a lot of runway. I mean, we've got some unique and only capabilities there.

So -- and then I think Credelio Plus has really got a good foothold, but here we come with Credelio Quattro internationally. And we may have some cannibalization there, Michael, but I believe the Credelio brand awareness is higher in a lot of international markets, which is going to ebb very well for Quattro because its awareness is stronger than the U.S. So we come in and saying, "Hey, we got something better than plus. We'll cannibalize ourselves, but we're going to take more share, we believe that." So it's good. But again, we weren't thinking international is going to be that opportunistic. But given the best medicine aspects of Quattro, international probably has a little better runway.

Okay. And just taking maybe a step back from that innovation ask, especially those three that we talked about Zenrelia, Befrena, Quattro. 2025 was sort of your first year really hitting the market with those. When I think forward to 2026, in some ways, one of the things we wonder is like what the response will be, right? Like now that Zoetis has seen -- your go-to-market has seen your market positioning and the success you had with these products, how will they respond?

Now you've got NUMELVI coming in, how will Merck respond? And what will BI do? What are you -- what have you seen from your competitors sort of like a punch counterpunch? What are you anticipating from them? And sort of how do you see that dynamic playing out?

Maybe, I'll give -- continue with the -- yes, go ahead.

Maybe I'll just give a couple of comments here, Michael. So listen, like you think about the guide we gave, right? And so we've put various scenarios in our guide. That's why we give ranges, right, and competitive response is certainly one of them. But I would tell you, we firmly believe we have best medicine. And so if there's a punch we take, I think that's going to be short-lived, and we'll win the long game. But listen, I think there's -- the market is growing tremendously.

We expect the overall animal market to grow by $20 billion over the next decade, right? And so we see the market growing. We think about us, we believe we got best medicine. We're also investing in innovation, right? And so we see us as a long-term win in this space in a dynamic environment. So short term, there could be something. That's again, why we have it in our wide range. But listen, I think our best medicine is going to win at the end of the day.

And historical relationships. I mean this distribution relationship. Let's talk about the changes and stuff. But hey, there's -- we had a long legacy of staying in a buy/sell, that's major share of voice. And we've been working on the digital and been launching some of these smaller products before these bigger products. So to Bob's point, it's best medicine, it's our offering, and we do not believe it's a price game. It's a value game and the vets want that, the pet owners want that, and we do too.

So that's why -- and then you've got this rising tide right now as an industry. So I'm not a believer that I think we're way over indexed on vet visits as an industry, and I think there's these other metrics I've talked about that I think are much more important.

Okay. That's helpful. A couple -- we've got about 5, 10 minutes left. There's much more topics I want to hit on. One is price. We've had a lot of questions, a lot of debate on this. You guys -- you talked about price accelerating into 2026, which makes sense. I think both from an arithmetic perspective and a model perspective and a portfolio perspective. Any way you can help us frame accelerating by how much? What's the right price level to take in '26? How do you balance, "Hey, we've got a better portfolio of new products, baskets doing well" versus counteracting what I talked about in terms of competition and some of the risks there?

Yes. So I'll give you just a couple of thoughts here. So if you think about, again, our algorithm we gave on growing mid-single digits. Obviously, price is a component of that. We did have price of 2% in 2025. In 2026, we're going to be lapping the Quattros and Zenrelias, and so we're going to get some price uplift on those products. But listen, I want to highlight, we've taken the highest pricing in our U.S. vet clinics this year. It's the highest we've taken in 5 years, okay? Now obviously, we're conscious of what a competitive response would be. But we're going to continue to price to value. And I'd leave you with -- like we are winning share, not because of price, we are winning share because of efficacy.

Yes. Is there a way for you to sort of think about price? And we had this conversation a couple of days ago on the earnings call, of what the price is from the legacy portfolio, apples-to-apples versus how much of the price is the fact that you're lapping the new product launches, and now they're factoring into the arithmetic whereas they weren't before. Is there like an apples-to-apples price metric you could give us?

There's really not. I mean -- again, we will continue to price the value. And I think as a basket of all of our products, I would assume that there is pricing taken in that, and obviously, we balance the volumes and gross to net opportunities. But net-net, we expect price to accelerate from '25, and we expect price to accelerate throughout each quarter within '26.

Okay, okay. All right. Something you alluded to earlier, Jeff, was sort of the distribution relationship, and how that could be a tailwind for you this coming year. I want to talk about that. Obviously, there's been a lot of news in recent weeks with Covetrus and MWI. It's been anticipated and talked about for several weeks, several months, but it finally did come through.

Can you just talk to us about your relationship with the major distributors. I don't know if you want to talk about those two in particular or maybe the major ones as a basket. How you see Elanco as potentially being better positioned to win from that or to benefit from that? And also over what time frame? Is this say, hey, this -- a change of that happens, and we can see immediate tailwinds or is -- this will take years to play out?

Yes. I think today, we've -- we're tied to a long history. We haven't been in and out with them and changing things. We've added the Bayer portfolio in. We've been buy/sell, which is the most optimal for them, where they buy the product. We create demand together. They can make some nice margin with us and value because they're creating value. We've got better metrics than we've ever had with the distribution channel, and that's allowed us to make sure we're spending money in the right area, getting the right value from them.

This year, we come in probably leaving the best year we've had with distribution in '25 in a long time. We're the only company I believe that sells pretty much all of its portfolio by sell, not selected pieces and parts. And it will continue to do that as long as they deliver the value. They're good at launching products. And so they're going to get a lot of value, I think, from Elanco, which is positive, right, for us as we go forward. Any scenario looking forward, we'll do what we've always done, which is we will be close and constructive with them, Bob and their CFOs, and Bobby and the team, and we'll look at it through a lens of value creation.

And Bob, you touched earlier on -- I think the word you used was we're going to invest appropriately in 2026. And you talked about no-regrets launch at the same time. So some pushes and pulls there, right? You can argue what invest appropriately means, you can argue what no-regret launch means, so what's the right level? How are you balancing that?

I guess, maybe put it in other ways, how much of that is a lever that you're willing to toggle, or you have a buffer to toggle, to say, "Hey, like we're seeing really good traction here. We're going to really push harder on Befrena, harder on Zenrelia or maybe we're going to go for a little bit more EBITDA this year." How do you balance those two in your mind?

Yes. So it's a great question. So first off, I would reiterate, we're going to hit our guidance that we give on that high single-digit EBITDA. So that's first and foremost, but a big lever in this, Michael, is Ascend, all right? So we firmly believe we are going to continue on no-regrets approach. And we are going to -- if we see, again, the ROI on the investment dollars in DTC, we continue to see that data supporting that top line growth. We will continue to lean into that. And obviously, when you get the sales, obviously, you're going to get the EBITDA, right?

So I'm somewhat -- at some point, starts funding itself, right? But then Ascend comes in, and it's ensuring that we are doing the right things across the P&L to be more efficient, which again, funds DTC and funds the long-term R&D growth. And listen, I've said this before and maybe not to you, but one of the great aspects and the success factors to Elanco is we don't have silos within the organization. And what that means is the entire leadership team, the organization is aligned that, "Hey, listen, we need to do two things as priorities, grow the top line with -- and that could mean more funding DTC and continue to fund the pipeline with R&D." And all the rest of us may have good ideas, but we're all aligned on the priorities. And that's the success that we're bringing right now.

Okay. And then maybe, again, we're almost out of time. Maybe I'll expand it into sort of a bigger picture question or a longer-term question. Right now, you're heavy in launch mode, you're heavy in a ramp mode for the innovation basket as you should be. As we think about those ramping over time. How do we think about that operating leverage framework as these products get bigger, both on a gross margin basis as the revenue base gets bigger, but also on an OpEx basis as maybe you've already done that initial investment. Should that -- should lever open up more and more in future years?

Absolutely. And think about Investor Day, some of the messages that we gave. Certainly, with volume leverage, we're going to see margin enhancement, that's going to be on the gross margin and EBITDA lines. We're going to get the natural mix benefits associated with the basket of innovation carrying higher margin levels. And then you're going to see the EBITDA -- overall EBITDA performance coming from Ascend. And so we do see EBITDA margins improving 200 to 350 basis points by 2028.

And then Elanco Ascend to frame it for you, 75% of that benefit is going to be gross margin, 25% OpEx. And again, that's a 5-year period, where we expect $200 million to $250 million of net EBITDA improvement after investment, after inflation. So you'll see a mix of both coming through, Michael.

Okay. That's super helpful. That's great. All right. Well, unfortunately, we're out of time. I want to thank you, Jeff and Bob, for joining us. This is a really great session. Always a pleasure. Thanks, everyone, for listening in and...

Thank you, Michael.

Thank you.

Thank you, everybody.

Congrats again.

Ladies and gentlemen, thank you for standing by. Welcome to Elanco Animal Health Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I'd now like to hand the call over to Tiffany Kanaga, Vice President of Investor Relations. You may begin.

Good morning. Thank you for joining us for Elanco Animal Health's Fourth Quarter 2025 Earnings Call. I'm Tiffany Kanaga, Vice President of Investor Relations and ESG. Joining me on today's call are Jeff Simmons, our President and Chief Executive Officer; Bob VanHimbergen, our Chief Financial Officer; and [ Beth Haney ] 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 statements.

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. References to organic performance exclude the estimated impact of the Aqua business, which was divested July 9, 2024, and certain royalty and milestone rights that were sold to a third party in May 2025. After our prepared remarks, we will be happy to take your questions. I will now turn the call over to Jeff.

Thanks, Tiffany. Good morning, everyone. 2025 was a year of significant delivery for Elanco across all three of our priorities: growth, innovation and cash. As highlighted on Slide 4, Elanco delivered a strong fourth quarter with 9% organic constant currency revenue growth. We outperformed the high end of guidance for revenue, adjusted EBITDA and adjusted EPS. Growth was led by U.S. farm animal up 17% and U.S. pet health, up 10%. This now marks 10 consecutive quarters of underlying total growth.

Revenue from innovation exceeded expectations in 2025 at $892 million for the year as the fourth quarter was our largest quarter for innovation to date. We are raising our 2026 outlook for innovation to $1.15 billion, reflecting contributions across a broad set of geographies, species and products. Our continued focus on cash, combined with strong results, improved our net leverage ratio faster than planned to 3.6x at year-end. We now expect to finish 2026 at 3.1x to 3.3x.

With our consistent execution, we are well positioned to introduce 2026 guidance in line with our longer-term algorithm. We expect full year organic constant currency revenue growth of 4% to 6%, adjusted EBITDA of $955 million to $985 million, representing growth of 8% at the midpoint and adjusted EPS of $1 to $1.06, representing growth of 10% at the midpoint. This guidance continues our prudent, balanced approach in a dynamic macro environment.

On Slide 5, let me ground today's discussion and accountability and transparency by sharing a checklist for the year in review. Elanco delivered across our full set of 2025 commitments to our customers and our shareholders. We have entered our new era of growth with a track record of consistent execution. Innovation revenue cleared a bar that was raised each quarter in 2025.

We brought the entire [ big six ] across the finish line with [ Befrena's ] December approval. This is a real testament to the optimized innovation engine that [ Ellen's ] team has built over the past few years.

Organic constant currency revenue growth reached 7% for the full year. with balanced contributions across species and geographies as well as between volume and price. 2025 revenue, adjusted EBITDA and adjusted EPS all exceeded last February's expectations with steady outperformance throughout the year. And we delevered about 0.5 turn faster than expected, while also refinancing our Term Loan B ahead of schedule.

Team Elanco, I want to extend my gratitude for an incredible year. Your level of engagement and execution has never been higher while you're unwavering dedication to transforming animal care has truly shown.

Looking more closely at the fourth quarter revenue performance on Slide 6, and we break down the 9% underlying organic constant currency revenue growth. This chart demonstrates strength across our global business with all four quadrants growing nicely.

U.S. Pet Health had a robust quarter, up 10%. Credelio Quattro and Zenrelia led solid growth in the vet clinic and also drove broader portfolio benefits with positive trends for Galliprant. Retail likewise grew in Q4 and dispensing trends were healthy across our OTC parasiticides, including Seresto and the Advantage family.

Importantly, our strong end of the year for U.S. Pet Health led us to gain share in every major category for the full year 2025. Prescription parasiticides osteoarthritis pain, dermatology and vaccines.

Moving to international pet health. We achieved 8% organic constant currency revenue growth, driven by Zenrelia, Credelio and Adtab. Zenrelia is exceeding expectations in the $700 million plus international market with double-digit share in several key markets and strong early traction in Europe, the U.K. and Australia.

U.S. Farm Animal delivered an excellent quarter, up 17% on top of 6% last year, building on our market leadership. Cattle led the way with strong growth for Experior and Pradalex with positive contributions from poultry as well.

And finally, international farm animal was up 4% in organic constant currency with growth coming from ruminants, swine and poultry.

Looking at Slide 7. We delivered $892 million of innovation revenue in 2025, outperforming across a diverse basket led by Credelio Quattro, Experior, Zenrelia and Adtab. We are now committing to at least another $250 million of growth in 2026 to $1.15 billion. This target is led by our [ big six ] gaining traction in the global marketplace with our no-regret launch approach. We are driving sustainable growth as we expect the [ big six ] to double in revenue from 2025 to 2028, and on top of a stabilizing base. And we've refilled the pipeline to deliver a consistent flow of high-impact innovation.

Let's further discuss the progress of our [ big six ] major innovation products on Slide 8. And starting with Credelio Quattro. This groundbreaking parasiticide, the first FDA-approved product with four active ingredients is the fastest blockbuster in our history and we believe has the potential to become our biggest product class ever.

We see Quattro as best medicine with its four dimensions of differentiation, fueling a growth trajectory more like a first-to-market product. In the fourth quarter, Quattro continued to gain dollars share of U.S. broad spectrum sales and was the only one to gain share in the quarter in vet clinics, demonstrating continued strong momentum almost a year after its launch. Credelio Quattro enters 2026 with the most momentum and the $1.4 billion U.S. broad-spectrum parasiticide market.

We have significant runway ahead, with approximately 1/3 of clinics penetrated today and plenty of room to grow share within those clinics. A good leading indicator is Kinetics Puppy Index, where Quattro ranked highest in Q4 versus other broad spectrum [ anddectose ] and grew versus Q3. Quattro is gaining share and also expanding what is the fastest-growing animal health market today. the U.S. broad spectrum [ anddectose ] market up 30% year-over-year.

We expect Quattro to lead that growth through its profitability for the clinic and its differentiated offering for the pet owner, aided by our DTC investments, expanded sales teams and distribution partners.

Importantly, Quattro has boosted our broader Elanco portfolio in clinics. Its momentum and portfolio benefits drove Elanco to be the only major animal health player to see share gains for the total parasiticide prescription portfolio in U.S. vet clinics in 2025.

Looking beyond the U.S., Quattros global rollout begins now with approval in Australia last week, with this approval, we are kicking off our expansion into the $700 million international market, which is growing double digits.

Next, we couldn't be more pleased with Zenrelia's performance in the $2 billion derm market. Every quarter, Zenrelia's efficacy profile becomes more recognized and its success is becoming more global. We have a special product in Zenrelia. The Zenrelia momentum is building with December as our best month yet. Importantly, we exited the month with double-digit share of the U.S. JAK market. This strength is continuing into January. We're now in about half of the clinics in the U.S. and the reorder rate is over 80%.

Trends accelerated after the label update in September, adding 2,500 new purchasers. We remain committed to making the U.S. label consistent with the other 40 countries where it's already approved without restrictions.

Zenrelia's Q4 international results were exceptional. In our first cohort of launches, Brazil, Canada and Japan, we've already achieved year 3 or year 4 analog share in just the first year. Zenrelia's JAK market share in Brazil has reached 40%, and Japan is over 30%. The rapid success and overwhelmingly positive customer feedback are driven by Zenrelia's strong efficacy and support our long-term belief in the product with a clean label.

We're also encouraged by the early traction in Europe, the U.K. and Australia. Zenrelia is outperforming the new competitive entrant in the EU markets. Local sellout data confirms double-digit JAK market share in France, Italy and Spain. We've already contracted with all major EU corporate accounts, helping to drive growth ahead of our expectations. We've also achieved more than 10% share in the U.K.

Our EU head-to-head study results are coming to life in the field, and we're the only player providing that competitive data. Again, efficacy is the differentiator across Europe and around the world with over 1 million dogs treated with Zenrelia globally. Its efficacy is resonating strongly with vets and pet owners alike. Zenrelia works, and it works really well.

Moving now to Befrena, our second monoclonal antibody and our second derm product. We gained USDA approval on December 31, fulfilling our year-end commitment. We expect a launch in the second quarter of 2026 as we progressed through the anticipated manufacturing ramp-up. A phase launch is very typical for monoclonal antibodies or MAB products as we scale our bioreactors. Our expanded facilities in Elwood, Kansas are ready, our manufacturing plans are right on track, and we feel good about our overall MAP capabilities for Befrena and beyond. Befrena offers positive differentiation on convenience, value and efficacy. It's recommended at a dosing interval of 6 to 8 weeks post treatment versus 4 to 8 weeks for the current market competitor. And when we showed a close proxy of the label to approximately 350 veterinarians, 83% responded they are likely to use Befrena especially in seasonal cases.

Finally, our OTC parasiticide Adtab has continued its robust growth trajectory with sales up more than 50%. Adtab is the fastest-growing brand in the $600 million OTC/comarket in Europe, achieving more than 50% oral OTC share to become #1 in less than 2 years on the market.

Moving to farm animal. Experior continues to grow nicely, up 35% in Q4 against a tougher compare. We are benefiting from the historically small U.S. cattle herd size while noting that [ Happer ] retention recently turned positive for the first time since January 2017.

Experia crossed the $200 million mark in 2025, up nearly 80% for the full year with significant runway still ahead for this blockbuster and its portfolio benefits. We see strong opportunity in an estimated potential market of over $350 million in the U.S. and Canada through extending the days of use, continued adoption and price with geo expansion as another longer-term growth driver.

Lastly, regarding Bovaer. We continue to see demand from CPG companies that support sustained interest and consistent count numbers. With farmer retention remaining over 90%. We will continue to invest in Bovaer to achieve its expected potential by enhancing the product's strategic optionality and demonstrating an increased value proposition for farmers and CPG companies.

Long term, we continue to view Bovaer as a blockbuster with near-term growth at a measured pace in a dynamic market backdrop.

Moving to Slide 9. We offer some recent highlights across the three parts of our IPP strategy, innovation portfolio and productivity. [ Ellen ] and her team have built a science-based engine and organizational capability to maximize throughput. With the [ big 6 ] now each approved in the U.S. without attrition, we are focused on the next wave with 5 to 6 blockbuster potential approvals expected through 2031.

Elanco's R&D engine is humming with depth and expertise and a laser focus on the next milestones, all with a vision of creating a consistent flow of high-impact innovation. At the same time, we're optimizing our diverse portfolio to drive near-term growth and to gain share. We experienced broad-based organic constant currency top line growth in 2025 across our top 5 product franchises and in 9 of our top 10 countries. And very importantly, our launch excellence is enabling share gains with accelerating pricing.

As Bob will detail, we achieved 2% price growth in 2025, in line with our expectations, and we anticipate acceleration in 2026, including our largest increase and 5 years to U.S. Fed clinics. Our pricing strategy reflects our latest innovation and the value of our total portfolio to customers.

We've also signed an agreement to acquire [ AHP ] International, a Dutch-based farm animal health innovator focused on a portfolio of products for cattle that improves animal health and optimize efficiency while reducing the need for antibiotics. The deal accelerates Elanco's efforts to expand our leadership in the dairy industry, particularly in North America and Europe, growing both our share of voice and enhancing our portfolio with exciting solutions that supports transition Cal Health, one of the greatest needs in the dairy industry. We're excited about the potential of this opportunity to bring needed solutions to producers and one of the fastest-growing proteins. And we believe one of the greatest market opportunities in animal health.

At the same time, we continue to rapidly pay down debt and strengthen our balance sheet. We improved our net leverage ratio by two turns in just 2 years. with the under 3x landmark expected in 2027. And as Bob will also describe momentarily, our company-wide productivity initiative, Elanco Ascend, is off to a good start. To drive meaningful efficiencies and margin enhancement starting in 2026. With that, I'll pass it to Bob to review our fourth quarter results and financial guidance.

Thank you, Jeff, and good morning, everyone. I will focus my comments on our 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. We delivered $1.14 billion of revenue in the fourth quarter, representing an increase of 12% on a reported basis. Organic constant currency growth was 9%, primarily driven by an increase in volume with price contributing.

Slide 12 provides revenue by the four quadrants of our business. Globally, Pet Health revenue grew 9% in constant currency during the fourth quarter. U.S. performance delivered 10% growth, driven by demand for our key innovation products Credelio Quattro and Zenrelia. Outside the U.S., the pet health business grew 8% in constant currency, led by Zenrelia. On a global basis, our farm animal business achieved 10% organic constant currency growth. The U.S. Farm Animal business grew 17%, driven by the strength of Experior, Pradalex and poultry vaccines. Outside the U.S., our Farm Animal business contributed 4% in organic constant currency driven by broad geographic and species growth led by ruminants in Europe and Latin America, poultry in Europe and the U.S. and swine in the APAC region.

Continuing down the income statement on Slide 13. Adjusted gross margin increased 30 basis points to 51.2%, primarily driven by price, increased sales volumes and mix benefits, partially offset by the flow-through of higher inventory costs. Year-over-year expansion was also impacted by the outperformance of our U.S. farm animal business, which carries lower gross margins, but more comparable EBITDA margins to the Pet Health business.

Our operating expenses grew by 10% in constant currency. This planned increase supports our strategic investment in our global pet health product launches and our R&D pipeline development. As expected, interest expense totaled $47 million in the quarter, a 2% increase compared to the same period last year. As a reminder, we have the expiration of a favorable interest rate swap amortization benefit in the third quarter of 2025, which originated from a 2022 interest rate swap restructuring.

On Slide 14, we include a bridge for fourth quarter results compared to the prior year. Adjusted EBITDA was $189 million, an increase of $12 million or 7%, adjusted EPS was $0.13 in the quarter, a 7% decrease year-over-year driven by an anticipated higher tax rate primarily due to timing of onetime benefits.

On Slide 15, we provide the full year income statement highlights. We generated $4.715 billion in reported revenue, representing 6% growth. Revenue breakdown by key affiliates and products are available on Slides 29 and 30.

Continuing down the P&L, Full year adjusted gross margin of 54.9% was flat compared to 2024. The favorable impacts from price, increased sales volumes and mix benefits were offset by inflationary pressures and higher manufacturing costs. These factors, combined with an increased investment in our strategic growth initiatives resulted in adjusted EBITDA of $901 million for the full year, as shown on Slide 16.

Full year adjusted EPS came in at $0.94 and compared to $0.91 in 2024. The effective tax rate for 2025 was 21.8%, a year-over-year increase of 370 basis points, primarily due to the recognition of nonrecurring tax credits in 2024.

On Slide 17, we provide an update on our balance sheet. Cash generated from operations was $108 million in the quarter compared to $177 million in the prior year. The year-over-year reduction reflects expected cash tax payments related to the 2024 Aqua divestiture, partially offset by continued momentum and working capital improvement.

We ended the quarter with net debt of approximately $3.2 billion, and a net leverage ratio of 3.6x. Looking ahead, we remain disciplined in our capital allocation strategy, prioritizing debt paydown alongside making high-value strategic investments like [ AHV ]. The acquisition is not factored into our guidance, given its size and additive bolt-on nature and expected second quarter close, we anticipate [ AHV ] to provide a modest contribution to revenue and adjusted EBITDA in 2026. The with greater benefit in 2027, and it will not impact our deleveraging time line.

We expect to reduce leverage to 3.1x to 3.3x in 2026 regardless of [ AHV ] and a long-term target range of 2 to 2.5x and with a path to sub-3x leverage in 2027, as previously stated in our December Investor Day.

Now let's move to our guidance starting on Slide 19. Our 2026 full year outlook is consistent with the framework provided at Investor Day. We expect organic constant currency growth of 4% to 6%, which translates to revenue between $4.95 billion and $5.02 billion. This guidance incorporates an accelerating contribution from price versus 2025. And reflecting the enhanced value that our latest innovation and our comprehensive portfolio bring to our customers.

For adjusted EBITDA, we are forecasting $955 million to $985 million, which represents 8% growth at the midpoint. We expect Elanco Ascend to enable adjusted EBITDA margin expansion, while at the same time, we will continue our strategic investment in the global launches of our innovation portfolio and advancement of our R&D pipeline. Gross margin is expected to be up approximately 40 basis points and OpEx up 7%. Finally, adjusted EPS is expected at $1 to $1.06 or up 10% at the midpoint. Slide 31 in the appendix provides a number of additional assumptions to help support your modeling efforts.

Our first quarter guidance presented on Slide 20, includes organic constant currency revenue growth of 4% to 6% and led by our Farm Animal business and good growth anticipated in Pet Health, which translates to $1.28 billion to $1.305 billion in revenue. Adjusted gross margin is expected to decline year-over-year with the timing of inflation and the flow-through of higher inventory costs, particularly in the first half of the year.

We are continuing to invest in our launches, with OpEx up 7% or 4% in constant currency. Adding it all up, we anticipate adjusted EBITDA of $290 million to $310 million, representing 9% growth at the midpoint and adjusted EPS of $0.33 to $0.36.

Turning to Slide 21. We summarized the 2026 headwinds and tailwinds integrated into our guidance. Our outlook anticipates sustainable competitive revenue growth as our innovation portfolio scales globally on top of a stabilizing base. This innovation, combined with strategic pricing helps to insulate us from broader macro pressures. In pet health, we expect to gain incremental share by leveraging our comprehensive portfolio and OTC retail leadership. We are now shipping product to three major new retailers.

We also acknowledge that these tailwinds are balanced against competitive pressures, including generics within the market. On the farm animal side, despite tough U.S. comparisons, we see a clear runway for growth driven by new cattle products, favorable producer economics and accelerating animal protein consumption. We expect to further strengthen our leadership position in both ruminant and poultry.

On the margin front, Elanco Ascend is our company-wide productivity program focused on general and administrative cost savings as well as manufacturing efficiencies. I am pleased with the progress we have achieved so far in 2026. The recently communicated restructuring is on track to generate $25 million in savings this year. These savings are expected to directly contribute to our profitability, reflecting our commitment to operational efficiency and prudent cost management. Additionally, our teams are actively advancing key AI, operational and procurement initiatives, which are expected to result in both P&L and cash flow benefits. Now I'll hand it back to Jeff for closing comments.

Thanks, Bob. Before we move to Q&A, I want to reiterate my deep confidence in Elanco's trajectory. We are not just a company delivering results with significant momentum for also a dedicated team. building a durable long-term foundation for the future of Animal Health.

On Slide 22, you will see that this is more than a story about Elanco's compelling growth proposition. It's about the accelerating opportunity across the broader animal health industry and our ability to lead it. It's about having the best of pharma with science-based innovation, disciplined regulation and high barriers to entry. This, combined with strong customer relationships built on trusted brands and a cash market that responds to growing value propositions from winning portfolios. It's about generational shifts in both pet health and farm animal where pets and protein are increasingly central to culture, care and global demand. And together, it's about the animal health industry at an inflection point, projected to add $20 billion in value as we enter the next decade. With Elanco uniquely positioned to convert momentum across both pet and farm into sustainable, consistent growth. Simply, we will grow from both expanded market share and a growing industry.

Let's take a closer look. In Pet Health on Slide 23, we're seeing a fundamental shift in pet care as owners take a more active role, choosing not only what products to use, but how and where they access care. While vet visit volumes remain a metric to track, the more powerful shift is in the global consumer behavior where access, convenience and willingness to spend are becoming more material and more meaningful.

Today, subscription sales account for 40% of pet care dollars with omnichannel consumers spending 30% more annually than single channel shoppers. The pet owners behavior is changing. Our strategy is built around meeting the modern pet owners where, when and how they choose to engage. This unique omnichannel approach is core to our pet health strategy and is driving our industry-leading growth.

Over on the farm animal side, on Slide 24, we're capitalizing on the accelerating global animal protein consumption, which is projected now to grow at 5% annually in the U.S. alone. There are several key factors driving the real food movement, fueled by consumer focus on health and wellness.

First, 70% of U.S. consumers are actively increasing protein intake. Second, updated dietary guidelines now recommend nearly doubling current average protein use. Also, by 2035, 21% of Americans are projected to use GLP-1 therapies who will consume 40% to 50% more protein, and this trend is now globalizing. Increasing protein intake is a key also for mule retention with an aging population. The number of people over 60 is expected to expand by more than 25% globally by 2030.

And finally, taste still drives 2/3 of protein choices, making animal protein the most accessible, cost-effective preference. Strong demand for high-quality protein presents significant opportunities for Elanco and our customers, both in the near and long term.

To close on Slide 25, our strategic focus on growth, innovation and cash is clearly paying off, demonstrated by our strong performance in 2025 and the robust outlook for 2026 and beyond.

Elanco is a different company today, more agile, more innovative, more capable than ever before. We are building on our 70-year legacy of delivering for our customers, and we come into 2026, entering our new era of growth, well positioned to continue transforming animal care and to create long-term value for our shareholders. Thank you. With that, I'm going to turn it over to Tiffany to moderate the Q&A.

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 Instructions] Your first question today comes from the line of John Block from Stifel.

Is that really an international share gains really stood out to me and implies switching to Zenrelia from the incumbent because you just really can't get that level of share that quickly in this market dynamic without switchers. So maybe, Jeff, just to kick things off, can you elaborate on the ramping internationals and Zenrelia share gains and then what that may mean for the U.S. if the label is altered positively down the road? And then I'll ask my follow-up.

Yes. Thank you, John. Thanks for opening with maybe one of the most exciting things in the quarter. Zenrelia is all about efficacy. As I said in my comments, every quarter, John, Zenrelia efficacy is more and more recognized and that is happening in the international markets. So that was in Japan 3 weeks ago. It's the buzz in the marketplace. We've exceeded 30% share there, acting very much like a differentiated best medicine product. Brazil is a very mature market compared to what people think, and we're a 40% share.

So yes, I would tell you that efficacy and in derm, it is all about stopping the dog's itch, and we're seeing that really resonate. In Europe, interestingly, even with the new competitive entrant we continue to climb and be the leading market share gainer in Europe, as I noted in some of the major markets. And again, it's coming back to clean labels high efficacy profile, and we do see this product with greater expectations and it's far exceeded our expectations in international. So more to come.

And as I step back, I think, to your linkage to the label, I think it's really important to understand that, hey, we now have 1 million dogs on. We've got -- we picked up 2,500 new clinics in the U.S. were nearly 50% in the U.S. 1.5 years of usage, 40 countries with clean labels with good pharmacovigilance data, and we're the only company out there using head-to-head efficacy studies, which I think also is significant. So we are optimistic, and we can talk more about the label. We're optimistic that with our submission into the FDA that we look forward to hearing a good response from the FDA soon.

Yes. And John, maybe I just maybe add on. Our guidance assumes the label as is right now.

Okay. That's helpful, Bob. And maybe I'll zoom out for the second question. Your the first industry leader to maybe be teed up for an earnings call post some of the news on the distributor side. So would love your thoughts on the [ Covetrus ] and [ MWI ] merger and what that may mean for manufacturers. And more specifically, Elanco as I believe you guys have a solid, broad relationship with [ Covetrus ], but it's certainly a lot of share going into the hands of [indiscernible]. So any thoughts would be great.

Yes. Thanks for the question. I have to start with the '25 momentum and '26 early fast start. We've got a great relationship with distributors. We're adding them a lot of value, and they're adding us a lot of value right now. The major distributors. You know they're very good at launching new products. And we're the only one -- today we have competitive advantage, I believe, strongly, and you probably picked us up at [ VMX ], Western last week, there's a lot of momentum in those distributors with the Credelio Quattro, the Zenrelia. We're the only company that really has our total comprehensive portfolio with them in a buy-sell agreement where others have actually retracted.

So we're focused right now on the current state. Of course, as the structure evolves, we'll continue to focus on value and the value they can provide, and that's the lens that we're going to look through. But Bobby and team, I think, have done an amazing job. And when you step back and look at U.S. Pet Health, we gained share in every category this year from derm to para to pain and also vaccines. And I attribute to contribute some of that to the distributors.

Your next question comes from the line of Michael Ryskin from Bank of America.

As on the results. I want to ask first on price. You guys called out accelerating price a number of times looking forward to 2026. I was wondering if you could quantify that a little bit more specifically. Just more broadly. In 2025, I think you had, we'd call it, introductory pricing or sort of initial go-to-market pricing for some of your products. For '26, is this just a matter of that being lifted and going more to a normal price? Are you taking the price more aggressively? Maybe you can just comment on how much of that is coming from the [ big six ] or the new products versus the rest of the portfolio? Then I've got a follow-up.

Sure, Michael. Thanks for the question. So a couple of points. One, I'll point you to Investor Day, right, where we did highlight we expect mid-single-digit growth, which does include price.

As we think about 2026, we do expect price to accelerate from where we were in 2025. 2025 as a reminder, was at 2% and really, that's reflecting the enhanced value we're bringing with innovation and our comprehensive portfolio that we're bringing to customers.

Jeff highlighted in his prepared remarks that in our U.S. Pet Health business here in the U.S., we took the highest price increase to vets in the last 5 years, all right? So we'll continue to price based on the value we're bringing to customers. I mean, the last thing I would highlight is you think about pricing in 2025, we had a lot of launches -- and those launches were not a contributor to price. We'll start lapping those in 2026. And so the Zenrelia and Quattro will have a pricing component in this 2026 year compared to 2025. So I would walk away with the expecting price to accelerate from where we were in the last 12 months.

Okay. And you had some relate comments when you were talking about Quattro in terms of not just the strong results you've seen with that product itself, but sort of the uplift for the rest of the portfolio, the ability to use that to gain share for other products as you bring a more complete portfolio to your customers. Just wondering how you think about that continuing in '26 as Zenrelia ramps, as you got Befrena coming on, maybe kind of tying that back to John Block earlier on distributors. Is it enabling you to become a better competitor as you go in for the big contract renewals, either with distributors or individual vet clinics. Just talk about the broader [indiscernible] you're getting from those.

Yes. Thank you, Michael. Great question. Yes, Quattro had a great quarter, definitely acting like best medicine, only major animal health company gaining U.S. Rx para share, which I think is a real representation and our share continues to climb, as we not only come to the fourth quarter, but even here in the beginning of the year, and we're still seeing more than 75% being new starts.

But I would point to a couple of things, specific number. We've got -- if you think about we're near 1/3 of the clinic, so 10,000-plus clinics, we got 2,600 that have actually by purchasing Quattro are now adding on additional products. So we're seeing that additive portfolio effect, I think, is definitely obvious. And we're seeing that confidence with the puppy index, as I mentioned, is it's climbing. It's the highest of all the major products, and it grew from Q3, and we're in the #1 position on that puppy index. So we see that.

I would also point to corporates. As I mentioned, it's on the slide, but I didn't get into it in my commentary, that we actually saw corporates really move in on this portfolio effect. So 90% of our corporates, which grew significantly in number, all of them grew only 13% grew in 2024. And the European team has done a masterful job. We've got all the corporates on the Zenrelia product as well. So we're seeing it with portfolio. We're seeing it with corporates. We're seeing the confidence from the corporates even in the Puppy index. So yes, we do expect this to be beneficial.

And then when we come with two derm products, right now, then we can say not only do we have as equal of a portfolio, we've got best medicine. We got best medicine in Zenrelia, Quattro, and we believe Befrena has got, again, differentiation. So I think you're onto a very important point.

Your next question comes from the line of Erin Wright from Morgan Stanley.

So can you speak to any stock destocking dynamics in the quarter or as we head into some of the seasonal purchasing from some of the distributors that typically happens in the first quarter. And one of your competitors, a very significant player in parasiticides historically is further deemphasizing, I think you alluded to this earlier, further deemphasizing distribution in 2026. I guess how much does that help your positioning in parasiticides, especially just continuing the conversion to combination parasiticide.

Thanks, Erin. Yes, and I know you've been engaged in some of the major industry shows. I'll just take the second question first, and that is that we see our relationship as good as it's ever been with distribution. They're adding a lot of value. and all the way down to the field force. They're working very much in collaboration with the largest sales force we've ever had in U.S. Pet Health ourselves.

So our share of voice has never been stronger on Elanco with our team and with distribution as well and then the investment we're making in the media.

Look, on stocking, it's real clear to us no change. We've got distributors ordering multiple times per quarter. There's a strong dispensing and you can see it, dispensing demand coming out of the clinics, the multiple orders going in, we don't see stocking having really any effect at all as we head into this spring.

And then can you give us an update specifically on the time line for the label update for Zenrelia in the U.S.? I think before, maybe at [ VMX ], you mentioned 5, 6 months, so now we should hear an update on that front. Is that still the case?

And then -- just where are you matching up? And I think you also alluded to this earlier, but where are you matching up to the existing competitor versus the new entrant in Europe specifically. So we don't have head-to-head data for new [indiscernible], but where are you seeing the vets actually use the different JAKs in Europe?

Yes. Thank you. Look, first of all, on the label, I just want to say, we are in a constructive dialogue with the FDA. They've made one adjustment to the labels. We mentioned we picked up 2,500 new users since then. I step back, Erin, as I just mentioned earlier, you've got 1 million dogs, 1.5 years of use, 40 countries with clean labels, strong pharmacovigilance data. We've submitted the PCR data before to get the first label change.

And then this was a request from the [ CVM ] at the FDA on the booster data and the package that we submitted in the fall. We've not given a date, but we are confident with everything that I just mentioned that we believe with this data, it allows us to get a label that looks a lot more aligned with the other 40 countries, and we do look forward to an FDA response and we'll update you when that happens.

Look, I think the story in Europe is it actually probably has profiled Zenrelia's efficacy in a more differentiated way than any market that we've been in. And not only the head-to-head study, but the head-to-head study is being seen by the KOLs in Europe in a very significant way. We're off to a much faster start than the other market entrant and double digit in the first months is something that does not look like an analog of a second or third to market products.

So where is it being used? I mean it's being used in first line in a lot of these big countries, like I mentioned, like France and Italy and Spain and off to a good start. And look, it's a small world, too. There's a lot of buzz from the Canada, Japan and Brazil markets as well. So more to come. We're coming into derm season as we get into that spring and summer, and that sets up well for Zenrelia.

Your next question comes from the line of Brandon Vazquez from William Blair.

Congrats on a strong end of the year here. I wanted to start for some of the guidance, maybe just push a little bit, just to understand if there's conservatism baked in here, if there's something we're missing because if I think of a price of 2 points in a volume of 5 points that gets you 7% growth in '25. We're talking about meaningfully more price coming through in 2026. And I don't think there's any reason that volume should meaningfully decelerate. So that algorithm already puts you above your initial 2026 guidance, the high end of that range. So again, like the question is, one, am I -- are we simply baking in some conservatism here? I want to make sure that we're not missing any big moving pieces that would meaningfully change that algorithm in the '26 guide.

So thanks for the question, Brandon. So listen, we feel great about the momentum that we've seen exiting 2025. And listen, our guidance is right in line with the framework we gave at Investor Day, so mid-single-digit top line growth, high single-digit EBITDA growth and low double-digit EPS growth. And again, we're going to be focusing on deleveraging and getting to that low 3s by the end of the year.

But listen, we feel great about the basket of innovation. We feel great about Elanco Ascend coming in. But listen, there's -- we're also in an environment where we see higher than normal inflation. We're being responsive and cognizant of competitive response. And as we mentioned at Investor Day, we're going to take a wide range of potential headwinds and tailwinds and be transparent on that. But listen, we feel good about the 2026 guide we gave is also the long-term algorithm we gave as well. And then the last thing I would maybe just highlight when you're looking at just growth trends. Keep in mind, we are lapping some significant growth within that basket of innovation. Our basket of innovation grew $400 million in 2025, and we've -- we're growing that $250 million here with the recent uplift additional $50 million that Jeff highlighted.

Great. And then one maybe follow-up is a little bit of a bigger picture question on the commercial side. I think in the past, we've talked about trying to more meaningfully get into the corporate accounts, you need a broader portfolio of innovation. You certainly had a lot of good products coming out. You have more coming, where are you guys today in terms of maybe what inning are you in getting into those big corporate accounts to draw some of that big volume? Is there are any kind of like portfolio gas left that you need. I think in the past, we've maybe talked about vaccines as being one of those areas. What is the last that you may need to do for the corporates and what's the time lines to start making -- moving that forward a little more?

Yes. Thank you, Brandon. So yes, a great finish to the year, our best corporate year, and I know more than 5 years, we've got a dedicated team. We brought in some additional expertise from industry competitors, and it has been a very big focus point for Bobby and the team and [ Chris ], and so a real credit to them, probably some of the best metrics as we look at lead indicators. So we're seeing growth we're in most all the clinics here in the U.S.

Befrena will be a big addition because you start to now say, "Hey, we've got everything that everyone else has and we believe they're differentiated". When you look at Befrena, having efficacy value and convenience differentiation, it last a minimum of 6 weeks. All of that's going to resonate really well. But I think our offers in our portfolio show that. And again, we see that in the results.

Europe has been tremendous. I mean, to see I'm really surprised by how quickly we got Zenrelia into all the corporates already. So that's been beneficial. But yes, if I had to point to what's next. I think the international pet vaccines will be important. And that's going to take some time. We know that. Vaccines are continued to be a focus point for us. But as a whole, look for a corporate impact to be a really nice growth driver for us in 2026, and it really comes from the team's working really hard on building best in industry teams.

Your next question comes from the line of Daniel Clark from Leerink Partners.

Just wanted to, I guess, first start with Quattro. The further gains via the kinetic index that you saw in the quarter, was that sort of in line with your expectations from a couple of months ago? Or was that incremental upside.

Well, I think it's, as we said, to see the jump we had in third quarter and then exceeded again in the fourth quarter. and being the leader in the puppy index, I always have looked with my many years in this industry, the Puppy Index is definitely where people are leaning in and saying, "Hey, this is this is the opportunity". And if I'm going to put you on a product, I'd like you to start on the best that's available today. And I think that's a real statement about Quattro, four active ingredients, four dimensions of differentiation. We've added palatability, which has really come out as a , we think that the fourth -- now dimension of differentiation.

As I mentioned in my trends earlier, Daniel, I think the to comment around 70% of new puppies are in international markets, getting the Australia approval last week and starting the global approvals of Quattro will also be advantageous. So yes, good trends and a nice opportunity here with Quattro. And hey, this space grew 30% last year.

Great. Just a follow-up. I wanted to ask on your no-regrets policy and sort of leaning into launches that are going well think if they say a lot of your launches are going well at this point. So as we think about the ongoing duration of investing against those, how should we think about that kind of going forward here?

Should we think continued launch support throughout 2026 and into '27 to keep the momentum up? Or like what are the different puts and takes you're thinking about on that front?

Yes, Daniel. So I would consider us applying the same no regrets approach in 2026 that we had in 2025, and that's not only Befrena, but also the launches we had in '25, right? And we're using data to determine, hey, are we getting the ROI on those investments. And so you do see OpEx, we did guide 7% OpEx growth in '26, and that's particularly associated with the no regrets approach to launches as well as funding R&D for the longer-term benefit of the company.

But again, Elanco Ascend is extremely important, right? This is where Elanco Ascend coming in and ensuring that we are operationally excellent across our entire P&L that allows us to get to that high single-digit EBITDA commitment we've made while also funding R&D as well as the no regrets approach that we're taking with our products.

Your next question comes from the line of Umer Raffat from Evercore ISI.

I have two, if I may. Perhaps, first, on gross margin, I thought I should dig into it a little more because if I step back and think about the $400 million plus in innovation growth in '25, I would have thought there would be a gross margin expansion. And the fact that it was flat almost suggests that the underlying business outside innovation deteriorated in gross margin. How do you think about that, especially because your guidance for '26 assumes about flattish on gross margin, best I can tell, even though the top line is akin to your first half '25 annualized, and we know first half '25 was almost 200-plus bps higher on gross margin.

Yes, Umer for the question. So as we think about just Q4 and I'll pivot into 2026 as well. So in Q4, we did see basis points of improvement in margins, and that was driven from price as well as sales volumes and mix benefits. But that's partially offset by inflationary pressures that we're seeing as well as the flow-through of higher cost of inventory that we've built up throughout the year. And so you'll see that, we saw some of that come out in Q4, and you'll see that come out in the first half of 2026.

So as I look at 2026, first off, we're going to make the right decisions for the long-term success of the business, but we do expect gross margin expansion of 40 basis points year-over-year. Price is going to be a component of that. And again, we expect that price to accelerate from 2025. The basket of innovation, as you've highlighted, we do expect that to grow $250 million. That does carry higher margins than our corporate average. And then Elanco Ascend, we're seeing good benefits coming through that's just the progress that the global team is making on that.

Now the one thing -- the one or two things I would look at is, one, we do have inflation that's above historical levels, and two, as I mentioned, we have this higher cost inventory flushing through in the first half of the year. And so you'll see our margins enhancing and accelerating throughout 2026. So the second half will be stronger than the first half. But long term, we feel confident in improving margins with the basket innovation, the volume leverage and then again, Elanco Ascend and proactively enhancing margins over the next 3 to 5 years.

Got it. And then also on the innovation guidance of about $250 million plus growth in considering Credelio franchise alone grew almost $137 million in '25. Is it reasonable to assume that half of '26 growth is Credelio franchise alone?

I think you're definitely seeing that, that was a major contributor, and I know some of the way you're thinking about Credelio Quattro I would build on Umer and say, we definitely are seeing that kind of a trajectory. We're not going to get into guiding by product, but no question, Quattro ends '25 with more momentum than we expected. International Zenrelia. And if we get this label change, there's a lot of opportunity here with Zenrelia, and Befrena comes in differentiated. So all of that, I think we step back and say, "Hey, there's opportunity".

I also think the competitive front has changed some. I don't think the long-acting injectable parasiticides are maybe what were anticipated a year ago. I think that's actually contributing to the bigger growth in the broad spectrum and deco market Umer. So I think the competitive set is different, and that's an advantage as well.

So -- we like it. We are lapping 400 that we mentioned, but we do see really -- what's different about the Elanco story is we got a basket of best medicine in major markets that are growing double digit.

Your next question comes from the line of Navann Ty from BNP Paribas.

Maybe first, if you could discuss your assumptions behind a stabilizing base business in 2026? And my second question is on the livestock business that also drove the Q4 beat. Can you discuss your outlook by species? And in particular, how long do you expect favorable cattle producer economics to last.

Yes. So on the base business, Navann, really right in line with what we committed back at Investor Day. So we're seeing low single digit to high single digit trend really since the last 3 quarters. We expect that as we move forward. It's going to -- it will pivot a bit quarter-by-quarter, but the basket of innovation is working and bringing in some of our base products. So we see this as a stable base as we look in 2026 as well as beyond that time frame.

And Navann, just real quick. I mean, great protein markets, as I mentioned, I think you're seeing U.S. projection 5%. These protein trends are real. Farm Animal is going to be a big contributor, I think, to the animal health growth we see in the next decade. If I break it down, cattle and beef, the low-supply, high-demand profitable markets. There is starting to make that turn on the rebuilding of the herd, but it's going to take some time. But that's advantageous for our portfolio. And then I'd just call out dairy.

Dairy ended at 4.2% growth as an industry in Q4. We're excited about this [ AHV ] acquisition, leaning in. It's going to expand our portfolio and our share of voice. Dairy is the protein to watch. And poultries had 3 years at 3% growth, and they're projecting the same for the fourth year in a row.

Your next question comes from the line of Chris Schott from JPMorgan.

I just want to come back to the derm market, maybe particularly on the international side. Can you just elaborate a little bit more on what you're seeing on market growth prior to your entry in the market? I'm just trying to get my hands around, are we seeing new competition accelerating the overall derm market beyond the share gains? Or is this really, again, more about share. So just any directional color there would be helpful.

And then just my second question was on the 4% to 6% guide for 2026. Just is that -- should we think about that kind of evenly balanced between pet and farm? Or is it skewed one way or the other? I'm just trying to get any directional color there.

Yes, Chris, at a high level, yes, we saw coming into the data for fourth quarter is not in yet, but double-digit growth. what we're seeing in Europe, where there's just a lot more promotion, new starts continue to be anywhere in the 10% to 20%. So -- and then you've got in the international markets, as I just mentioned, 70% of the new puppies globally are in international. So I see a lot of trends and all this increased noise about, hey, solutions to a itching dog. It's a great market backdrop, and it's great for us as well as we come with Zenrelia Globally.

And then on your second one, Chris, generally speaking, I would assume it's balanced across the 4 quarters and generally balanced across Pat and farm throughout 2026. And again, at an Investor Day, we highlighted that farm business is generally mid-single-digit growth and then the pets probably mid-single digit plus.

And we have reached the end of our question-and-answer session. I will now turn the call back over to Jeff Simmons for closing remarks.

Yes. Thank you, everybody, for your interest in Elanco, historical year in 2025, but I want everyone to be assured that Elanco is -- the engagement and the execution has never been higher in the company. We take a balanced and prudent and very disciplined approach serving our customers as we head into 2026, and we're excited to engage with you going forward.

Our priorities remain the same, and that's growth, innovation and cash, and we'll be assured that the continued delivery is our top priority for you as shareholders. Thank you for your interest in Elanco and your investment in Elanco. Look forward to working with you throughout 2026. Have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Good afternoon, everybody. I'm Chris Schott at JPMorgan, and it's my pleasure to be introducing Elanco today. From the company, we have Jeff Simmons, President and CEO. I was going to kick off with the presentation, and we're going to jump over to Q&A from there. Jeff, I know a lot to talk about the progress of the company. So looking forward to the update.

Great. Thanks, Chris. Thanks, JPMorgan and excited to dig in here. I'll point you to our forward statement and disclosure slide before I get started here, but looking forward to jumping in and talking a little bit about Elanco and Animal Health. We had an Investor Day in December. And we focused really on these 4 areas where we focused on our strategy, a really historical pipeline that we're bringing to the marketplace as well as our financial profile and a little bit of the executive team. What I want to do is put Bob and I a little bit of color and context to that today and give you some of the highlights of that. So an exciting time if I had to say, boy, the last time we had an Investor Day was 5 years ago and even compared to even a year ago at JPMorgan, I think the headline on Elanco is that we're a different company. We've got a very solid, consistent flow of growth coming from historical innovation, and I'll get into that in a little bit more detail with a much stronger financial profile and I think if you look here, this is kind of the summary of really our current state of state as a company. We've got a mid-single-digit growth company right now. It's diverse. It's quality. It's been 9 consecutive quarters of growth and it's come in both farm and pet international U.S. volume price.

I think second is, historically, in Animal Health, there's been maybe 1 innovation in 1 quarter or excuse me, in 1 part of the industry -- 1 part of the segments of the industry that everyone is heavily dependent on and Elanco has got a basket of innovation.

So we've launched a flow of innovation. We've got 6 blockbusters. The last 1 came in December. And we started in 2021, tracking our innovation, and we've now got $840 to $880 that we're guiding in 2025, and we're committing to another $250 million of growth of this basket of innovation in 2026 to $1.1 billion.

So $1 billion plus pipeline now unloaded into the marketplace. Second or third comment here is we've refilled the pipeline. We've got a pipeline now worth $2 billion. And in that, we'll talk about it, 8 therapeutic areas we're focused on and committing to 5 to 6 blockbusters the rest of the decade. And then a lot of challenge even a year ago was, hey, when is the EBITDA going to come? We've committed to an algorithm starting in 2026. Bob will talk some about this, but a high single-digit EBITDA growth, low double-digit EPS growth starting this year.

And then I just conclude by creating about $1 billion of cash flow over the next 3 years and delevering under 3x by 2027. So that's just a little bit of the underpinning, and I'll add some color and context to this here over the next couple of minutes. I want to start with Animal Health. We're at the largest health care conference. And I will say almost 4 decades in animal health get asked a lot about why are there high multiples. Why is this a durable industry? Why don't you have patent cliffs. And I would summarize it really in this triangle to say, we got really the best of all 3 dimensions. We got the best of pharmaceuticals. It's regulated. It's science-based. It's a high barrier to entry. There's a lot of complexities. I jokingly say we got 20 species, not one. And all of that creates a barrier to entry. At the same time, we have a very CPG-like brand-driven. Veterinarians and pet owners love their brands. You can get a next-generation product and you'll keep that dog and that pet owner with the old generation because they're so brand loyal. Even with the protein companies, the poultry and beef companies, they're very loyal to their brands because they're small percentages of cost to a high brand value. So all of that really limits patent cliffs and really allows 50-year-old products like a Rumensin and Elanco to still be growing. And then the third is we are not a payer market. We are a cash market. So a value proposition really matters. You need interface with farms. You need interface with the 30,000 vet clinics in the U.S. and doing that, that's why being a global independent company outside of Lilly that can have that interface, you need to sell value. If you've got innovation that has value, be careful, be ready because it will get rewarded.

I think this is what's demanding a $42 billion industry that we think could be as much as $60 billion by the end of the decade. I'm going to just double down just on some trends that matter, kind of we get talked a lot about, hey, I heard this data point. We Elanco believe these 5 trends will drive the value the 50% growth in the industry in the next 5 years. And I'm going to start with the pet business. It's a $17 billion industry, growing faster than farms, high single digit we predict but we hear a lot about vet visits, and we will say, we think you're over-indexed on vet visits. We think these 5 trends matter most.

One is really this pet owners' willingness to spend is a big deal. If there's innovation, is there's convenience, it really matters. Believe it or not, the under-35-year-old is willing to spend more. There is definitely fewer kids but more pets and there's more willingness to spend. And that -- we're seeing that right now today. Even in an economic time where the share of wallet and the pressure is there, we're not seeing that necessarily here. The other is just like on the human side, the pet owner is getting the power.

So CRM systems to be able to influence and know what the pet owner wants. Yes, the veterinarian matters, but the pet owner is taking on more and more power along the way. And I think the next 5 years, that's going to play out a lot in the channel. The third is why we bought -- 1 of the reasons we bought Bayer and that is omnichannel matters, reaching more pet owners where they want to shop at price points they want to shop at, whether that's Sheith's Pet Express, Walmart or in the vet clinic. This really matters. And the doorstep of where your products land is where more and more of the product is landing, is that drop shipping to the pet owner. Having comprehensive portfolios, you need the for the 4 legs to the stool on the pet side.

You need therapy, you need the vaccines, derm and Para. We're now the second company that has all pillars to a portfolio. And then lastly is just the globalization. It used to be 7, 8 out of 10 homes in America and Europe had pets, 2 or 3 in Brazil out of 10, 2 or 3 in China that's accelerating. The humanization of pets outside of the U.S. is accelerating in a big way.

And I think these 5 trends will be what drive a lot more than maybe I think the change in visits is probably being driven a lot more by the convenience of the channel than about the willingness to spend. On the farm animal side, I'd point, it's bigger than pets. Some people don't realize this. It is a big industry. It grows slower, but it's a lot more durable. Here's the 5, I think, trends that matter the most very quickly. First is just this whole global animal protein consumption. Everybody 5 years ago, I stood on the stage and we were talking about impossible burgers and meatless Mondays and it was going this way.

It has come back with a vengeance in a big way. Animal protein matters a lot. Yes, the dietary guidelines is very significant. 1.2 to 1.6 grams per kilogram of body weight is a major step-up and it wasn't necessarily a government guideline. It is being followed.

The U.S. dairy industry invested close to $12 billion last year. There's 4 Fairlife plants being built right now as we speak dairy, poultry and beef are benefiting from this swing. GLP use 30% to 60% more consumption of meat for people that are on GLPs.

And then in the developed world as GDP grows, the UN says there'll be 50% more growth in the next decade with animal protein than there was before. The second is we see ruminant and poultry being where there's the most opportunity. This is where they're the more stable, there's more opportunity. This is broiler chickens. This is dairy, beef and sheep. Pigs have a tendency to be more volatile and a little bit more regional. Livestock health needs continue to be food safety, disease prevention.

The new quiet segment that's growing the fastest is this whole area of sustainability and hold on, it is economic sustainability, productivity, combined with anything you can do to help the CPG brand. The Danon, the Nestles are spending millions to make sure that the next generation comes to their product. And that mix we can talk about is something that's driving up, we think, a $2 billion market. You got to have comprehensive portfolios, and Bob will get into it here in a minute.

This is a more efficient market to reach. We can get low single -- or high single-digit OpEx. So actually, the EBITDA can be very similar to pets because it's an efficient consolidated market. okay? These are the trends we think are critical. So look, we've never been more relevant as a company. We touch almost every life every day, this whole really the 3 Ps of really pets and protein and even plan it are really having an impact as we look as a company. This draws a lot of talent.

We just had to go out and hire 20 AI talents, Bob and I. And this right here is actually the next generation is pretty excited about our industry as well. Real quick, we're just shy of $5 billion. We've got -- really, we're set up just like we want to be a nice mix between U.S. international pet livestock, but the 1 area I would really focus on is we've really said, where can we win? Where can we be #1 or #2? Pet retail, we're #1. That's 1/3 of pet owners don't go to the vet, the OTC business, we're #1 there. Farm animal. We're #1 or #2, and we're #1 in taking share right now. And then on the vet side, we've got the most innovation and got now the leading U.S. pet health growth company in the U.S. side.

So that's we've really, in the last couple of years, really trimmed down to say where can we win? This has really been our story since becoming independent. It's had 4 chapters. It's been intentional. The Board, the executives. It hasn't been an easy ride. We know that, but we have been intentional to get to the point where we are today, which we believe is very sustainable. It was the stand up as an independent company a lot of standup cost, SAP system, we can now reach 90 countries with SAP regulatory supply chain to reach the world's animals. Only a couple of companies can do that.

We had to buy Bar, and we're glad we did. We went from 30% pet to 50. We went from $150 million R&D to over $300 million and that really has given us the strength and the scale to be the company we are today. And Kindred Bio brought us the maps that have really been critical. We're only 2 companies in animal health that have maps in the market today, monoclonal antibodies and then the focus, Ellen and the team develop an R&D engine.

The last 3 steps in R&D and animal health are the hardest the last clinical set of trials, CM&C and regulatory. And I think we've proven, we've taken -- we had 12 approvals in December in major markets. Some of those are moving, but the engine works, 6 blockbusters, we've had 9 and 60-some years. We've had 6 in the last couple of years.

And that's just a sense of our focus here. So a growth innovation cash story. This has been the strategy for 10 years, a real focus here on a consistent flow, trying to avoid the air pockets of innovation, which our industries had challenges with, so a consistent flow, consistently strengthen our portfolio. We've tightened the portfolio of places we want to be in. That's been a big part of stabilizing our core. That's been a big part of why we're getting the the leverage on the innovation growth. And lastly, and Bob will talk about this and bringing Bob in as a new CFO to really focus heavily on a company-wide initiative called Elanco Ascend to drive a consistent productivity across the company. All of this really is -- you've heard me for 2.5, 3 years, say, 3 outcomes matter to you. Three outcomes matter really to our customers and to our employees' incentive plans is growth, innovation and cash.

And just a couple of slides you've all seen in the earnings calls for me, growth has improved, the quality has improved. We become a mid-single-digit company. What I like is we've really got 4 segments or 4 targets we have is farm and pet international, U.S., and we're seeing nice growth in all of those and nice growth volume and price as well. This is a chart we showed in December of 2020 saying we're going to create a basket of innovation. We started in 2021, and we have increased, I think, now for almost 2 years straight, our innovation goal and again, we're guiding to $840 million to $880 million. We'll report our earnings at the end of February.

And our intention here is that we'll be looking at about $1.1 billion of innovation in 2026. What's great about this that's very different from our competitors maybe is that we're not dependent on 1 innovation in 1 market. And all of these innovations are becoming globalized as I speak, which is great as well. This is a really key slide. This is what we're kind of calling. You're going to hear a lot from us over the next 3 years. If you said we got to get 1 thing right. It is globalizing these 6 blockbusters. What I love is they're in major markets.

Everybody, we don't need to create markets to create value for you. We're going into markets where we have small market share. The markets are growing and we believe these are best medicine, and I'll show you some proof points right now to where we believe we can take market share. And that's the exciting piece for us. We have made a commitment that these 6 blockbusters will double between 2026 and 2028 in overall value. So let's just double-click on a few of these, and then we can get into the Q&A with Chris on these Credelio Quattro. My prediction in 70 years, this will be our biggest product in the history of the company, fastest blockbuster that we've ever had from launch to $100 million. It's only in the U.S. right now.

It has 4 dimensions of differentiation. That differentiation is not making it look like third to market. It's making it look like best medicine. And you can see that at the chart to the left. And actually, the trajectory out of the gate it's actually growing faster in the first year than 1 of the market leader. Number 2 is in the middle, the fastest-growing animal health market today is the oral pill, broad spectrum parasiticide and pets in the U.S. to $1.4 billion market that's growing at about 30%. So we are coming in and rising with the tide of a fast-growing market. A lot of predictions that may be long-acting injectables would take the share I think that's not been the case at all. They haven't really performed to the level of maybe expectation that's driving more growth here.

We see a good $2 billion market in the future here that we can be part of, what's exciting for us is we're only in the U.S., we're only in 1/3 of the clinics, and we're only at about 30% market share. And 1 good lead indicator I always look at when I pick the data up, as I look at the puppy index. The puppy index is on a relative basis where you -- we're #1 in the puppy index on a relative basis. And that says 2 things. You get the pop, you usually keep the dog so the future runway. But the second is, it's really a lead indicator of confidence to the veterinarian and whether they want to put puppies on a new product.

So that's Credelio Quattro. That product will be launching internationally throughout this next year throughout 2026 will be another key driver for our growth. Now I move to the $2 billion derm market, #1 reason pet owners take a dog to the vet is a itching dog. It is a market that's been growing double digit. We keep saying it's going to lessen and slow, but I think it's a dissatisfied market. And we're seeing about anywhere from 15% to 20% in every market, new starts. So the market is still -- because of all the promotion from us as companies, there's more and more of an expansion here of new and more dogs coming on, mixed breeds, other things that have driven this. So $1.3 billion of the $2 billion is in the U.S., split between JAKs and monoclonal antibodies, 2 market incumbents, ZenRElIa came into the market in 2024 and we did have a label restriction. We've improved that label. Today, I can say, at the end of the third quarter, we were at 46% of the clinics on.

We more than doubled between Q1 and Q2 share. We nearly doubled again in Q3. And at the end of Q3, we're at about 5% market share. We see the big driver here is efficacy and a strengthening label has been key. The others were now approved in over 40 countries with not a restricted label. And I think that's had a big impact on the loyal 46% of the clinics that are using this. We've moved to first-line treatment in a lot of them. Second is at the end of the year, we got our next blockbuster, our last at the 6 Befrena, our second monoclonal antibody, second derm product. This will compete in the mAb sector and U.S. derm approved by the USDA.

We will launch this in the first half of the year. All I'll say is we're not getting into the details of the label now. It won't be actually public until we launch the product, but we do see positive differentiation in efficacy, value and convenience. And when we showed the label to 350 veterinarians, we had about 83% respond that there's a high likelihood of use -- what's driving that is really the differentiation and probably the dissatisfaction in derm.

So that's a little bit on Befrena, getting your friend back, being a friend after a niching dog situation, and then look, Zenrelli is off to an amazing start. I had to Canada tonight. Zenrelia in the first 3 markets we launched in ahead of the U.S., very important data, I think, here. Brazil, Japan and Canada, where we launched ahead of the U.S. with a nonrestrictive label, we're over 20% market share after a little over a year.

And so we're launching in Europe right now, and I would say the efficacy profile, we're the only company out there with head-to-head data that shows strong performance by ZENRELIA, and that's playing out. So we're excited about the growth of Zenrelia internationally, and we're in about just, as I said, 40 countries without a restriction on the label. So -- and then look, Experior is a cattle product that has been a quiet sleeper that has gone from $100 million, it's nearing $200 million. It's used mainly just in the U.S. and Canada in feed yards. It's got a very unique label and as you all have probably heard the cattle herd size and the rebuilding of the U.S. cattle herd with the beef demand has been a real challenge.

Producers are making a lot of money. Packers are not necessarily making as much money. This is actually benefiting the producers in a really strong way. We see a TAM of about USD 350 million in Canada and the ramp rate to continue. Good timing for this product given what's going on in the marketplace. So really in summary, as I just share a couple of slides on the pipeline. We've got a base business that we're seeing is up and down low single digit. Why? I think it's targeted markets where we can win. Innovations helping us as well. The big 6 innovation and the basket around them will be a big driver. The next 3, 4 years. We do that right. We're not looking for approvals here for the growth in the next 3, 4 years. They also bobble share, have a really good margin profile. And then Alan has built 2 waves of innovation past this.

Our goal is really to have this consistent flow of innovation. So very quickly, 2 slides on innovation. We've got 8 therapeutic areas that we're focused on. We've got 15 projects and of the 15 projects, we're committing to 5 to 6 blockbusters over the next 5 years, the rest of the decade. Really, the big message here is in major markets. All of these markets we're pointing to are $1 billion markets, most of them, they're growing, and we're coming in, we believe, with best medicine.

Allen has also built kind of the next way behind that. And what we've done really everybody is we've moved over $1 billion into the market the last 2 years, and we've got a $2 billion pipeline and what's different, I think, about Elanco than maybe 5 years ago is projects that are in clinical that are differentiated that are in very major markets. All of that, I think, is key.

And this is just a little bit of a picture of that, just kind of showing the commitment that we have is 5 to 6 blockbusters here between now and the end of the decade and then the next wave that's coming behind that. And I would highlight there's really 3 internal platforms we've built kind of coming out of human pharma. Monoclonal antibodies. We're 1 of 2 companies that has monoclonal antibodies. We built manufacturing. We've built an internal new R&D center and new headquarters that we opened in October. Second is all around immunotherapeutics and then small molecule.

Animal Health used usually their parent company for a small molecule. So we built those 3 platforms to drive what I believe is what's got our industry in trouble when we have the air pockets of innovation and our intention is to have this sustainable flow blockbusters as we go forward. The third is just on the cash and the balance sheet. We've turned 2 turns of debt down in 2 years. And again, as I've highlighted, we're going to generate about $1 billion of cash flow between now and 2028 and break under the 3x leverage in 2027.

Bob will share a little bit more on this, but we launched last year, Elanco Ascend. This is a company-wide productivity initiative. This allows us to give high single-digit EBITDA growth, maximize launches and generate cash flow. And this is just really an extension of looking at everything from AI procurement across the board.

So I close by, hey, how do we win? We got growing momentum. We've got a proven strategy. We've got a more stable base and R&D engine that's proven. We've got the most experienced team when you look at years of animal health. We've also established some things. Bob focused on margin, Tim, with all of his experience focused on cash. We're the only animal health company that splits the U.S. between pet and farm animal because they're very different businesses. That also has been beneficial. And Grace bringing a lot of Lilly manufacturing experience as we really are driving a gross margin agenda that's pretty significant.

And this is really the algorithm that I've just talked about, our commitments relative to what we're committing to over the next 3 years that's really going to drive, we think, the next couple of areas of value creation for you as investors. So and look, in 2026, we'll get into some of this, Chris, but I think some of the tailwinds and headwinds, we see a nice balance. We think our guidance that we'll put out in February will be balanced and we'll be on the right side, I think, of expectations.

And again, we see a really nice strong opportunity for us here in 2026. And this was a slide I ended the Investor Day on -- we've got a differentiated company and a durable industry with 3 pillars we're focused on: growth, innovation cash. So -- with that, maybe I'll turn it over to you, Chris.

Great. Great. And Jeff Wabamaybe Bob, would love to just bring you in the conversation. You've been in the seat about 6 months now. Just any thoughts and observations as you've settled into the CFO role.

Yes. Chris, thanks for the question.

So listen, it's been tremendously fun for me and great to really work in this industry, work with a fantastic global Elanco team and Board. And for those that participated and saw our Investor Day, I think you saw that come through. We've got a lot of momentum. We're operating from a position of strength, the algorithm that Jeff just highlighted today and again, back in December of that mid-single-digit top line growth, the high single digit EBITDA growth, low double-digit EPS growth and then continue to delever. There's just a lot of confidence in that algorithm because of, again, the momentum and the strength of the team.

So I think about 2026, right? So we'll obviously provide some more guidance here in February a formal guidance, but that algorithm applies to 2026 as well. Jeff quickly showed what the headwinds and the tailwinds will be. And certainly, we're taking a balanced approach to what we see. And so we're paying attention to vet visits. We're paying attention to the macro, including inflation and competitive response to our success.

But if you look at the tailwinds we have, our innovation growing to $1.1 billion, that continues to scale. And so those margins on that revenue are higher than our corporate average. And so we'll see some profitability come through. We're moving past some launch investments. Obviously, launches are continue to be part of our future. But obviously, the last 12 to 15 months, we've had significant investment there. Elanco Ascend, we talked about that at Investor Day, and Jeff highlighted, but -- this is us being proactive on the cost side to not only drop more earnings to the bottom line but also continue to fund R&D and fund launch investments. We continue to grow that top line. And then the last tailwind I'd really highlight would be pricing.

And that's been a recurring question and theme that's come out of this conference for us. But listen, I just want to be clear, like we are absolutely expecting price in 2026. Our pricing on the U.S. pet side is public. That went out in November, December to distributors. And listen, it's the highest pricing we've taken in the U.S. pet side in the last 5 years. And we have and we'll continue to price based on the value we bring to the market. And I'd tell you the share that we've gained is because of the value that we're bringing to that end customer.

So listen, there's a lot of puts and takes. Lot of momentum, I'm excited and certainly more in February, but certainly committing to that algorithm in 2026.

Great to hear. Maybe jumping to invite products. Pereiro coming off a great 2025. Just remind us market share exiting 4Q kind of overall with Puppies. And then just how do you see this progressing over the next few years? I mean it seems like a drug could have a very long runway of growth ahead of it.

Yes. So I think most importantly, it's just the space itself. I think I don't think 5 years ago, we would have predicted that monthly oral broad spectrum and decto would be headed towards $1.5 billion to $2 billion. And I think -- some of that is stealing from some of the legacy segments. Some of that is stealing from the retail. Some of it is just more compliance quietly. We don't talk enough about this, but when you have 12 monthly pills and you're only averaging 4 to 5 moving it to 9 or 10. Well, how do we do it just like Chewy and everybody else, we drop it off of your door and you become more compliant. There's more companies that are capable of doing that.

So I think the space growth watch out, this is a big market. Two is, could anyone ever put 4 active ingredients in a pill and get the dog to take it has been the monster and we did it. And people wondered with PasiQuanta, would it be bitter. Palatability has maybe been the quiet sleeper of the 4 dimensions of differentiation. So I think it is -- we are putting a lot. We're going to lean in heavy why we need to send to save money is because we're going to spend money because we know you don't take share in these big markets without leaning in.

So the multimedia, what Bobby has built, I think, is really playing out nicely in Romero as well. And then globalization, Chris, you know this. I think we have Credelio Plus international markets. We didn't think -- we now know that Quadro will become a big market. And I expect earnings call, the earnings call to be talking about international markets adding. So yes, we we have a best -- we have something special here, and we need to treat it that way.

Yes, absolutely. ZinReli,, can you just update us on the U.S. business and any trends you've been seeing since the label change and just general feedback you're being in from vets that's played out.

Yes. I would just say that, look, I mean, there was the concern coming out of the gate in the U.S., but here's new data. We have a year of pharmacovigilance data, and it's good. It's strong. It's a safe product. Two is we had a loyal base and that loyal base has grown. We've added about 2,000 clinics per quarter, and that's really come from, I think the label change made the loyalist become more loyal and bring on the middle, there's still a segment that will probably wait until a full label change.

But I think that created a little more exuberance then we've got nearly 40 countries approved all with the clean label. So you put all that data together, I think that's created a -- and then the most important thing, and we're really seeing this now in a competitive market in Europe is the U.S. is just seeing efficacy, Chris. I mean we got thrown into second line, third line treatment situations and this product works. And in derm, you got to work. There's nothing more disturbing than a itching dog, and it's probably the only problem in paths where you can say it's working or it's not working visibly as a pet owner.

So I think that's the energy. And derm is continuing to grow. The new dog starts, I think, surprising us and our competitors. There's just a lot more, I'd say, different breeds of dogs, but the more we promote it, more people say, "Oh, the dog itchy, let's take it in.

Yes. Building on that topic, I mean, the derm category is becoming more competitive. How do you balance what I'm assuming is been more promotion activity, et cetera, with those volume trends that you're seeing. So just like health of the category as a whole, like how should we be thinking about that?

You're saying in terms of the --

Just the overall growth of the category.

Yes, yes. So look, I think that portfolio matters, differentiation matters. I mean to get the response we got on the Befree market research by showing them this, it's they went right to the data shows it is if it's differentiated, veterinarians, what do they want? They want happy pet owners, pet parents, and they don't want them coming back in with a problem. .

So it's got to work, and it's got to take care of a problem. And today, you've got labels out there that are saying x percent respond, but that means quite a bit percent don't respond and vets know that. So if the dog is still lithene after it's been put on something, they're going to get it changed quickly and that doesn't want to change in the clinic. So I think it is a market with real opportunity here. So that's and also people ask me, is the product good or not? Well, we're going to find out by what it does in the marketplace different than the parasiticide market.

Yes. And can you just elaborate a little bit more on that launch, how you're going to approach the market, how aggressively do you go up front? Is this something we should expect could ramp quickly? Or would you give

Thank you for the question. It is a monoclonal antibody. So you've got the bioreactor scale up -- good news is we are in Elwood, Kansas that did the Kindred plant that we purchased -- we do our parvovirus monoclonal. So we can make it. We're scaling and we're scaling it now. But we'll launch in the first half, but it will be a phased in launch.

Definitely, the sales will be more second half driven. Margins will come as you scale as well. We like the margins of maps, but that takes a little while as well, Chris. So it's in our -- it's -- it will be in our guide, but it's definitely something over the next 3 years that will become a major product.

That's helpful. Any more granularity on -- looks like you're targeting $225 million to $250 million of maybe incremental innovation based on the slides. How much of that is coming from Quattro versus Inrelia versus -- it sounds like Prevena maybe a smaller piece of that, but just any directional color you can provide?

Yes. It's a common question we had here. Look, we're going to guide quarterly. We're going to get on the right side of the expectations but we also are not going to - as we've shared, we're not going to guide by product, by market or by quarter. We -- the good news is we've got a really -- we'll get the dynamics of the market and how we're doing in those markets. But -- what I'll tell you is no question, look at Quattro, look at Experior, AdTab quietly is really growing and become quite a product itself. And then Zenrelihas probably got the most momentum that then and Quattro. So -- we feel very good about how the math adds up in the basket of innovation, but we aren't going to get into the specifics. Again, Buren will be more back-end loaded and more 27 driven to lap that growth that we just had but that's kind of.

But the globalization of a lot of these products something is is really going to drive that not only '26 but beyond.

Yes, absolutely. You mentioned price. Just just directionally across the portfolio, like how much price should we be thinking about for Elanco as we go forward?

So think about 2025, we've guided 2% price. We expect -- I would expect more than that in 2026 and beyond. One of the key factors to our price as you think about the lapping of the launches we have this year, the unreliancatro sales are all volume because we don't have the year-over-year comparison.

So we are taking price again, to be value-based pricing because of of the science and the efficacy and the value bringing to the customer. So I would expect pricing to be a little bit better than 2% as we look forward the next several years. But again, more formal guidance in February, but price is actually going to be a tailwind for us.

And I just want to -- because the clarity matters at these conferences is we are pricing to value. We're pricing up. As Bob said, I mean 5% to 8% price increases, there's a gross to net thing that will happen afterwards. But we're not getting share because of price. We are getting share because of efficacy, and that is very clear in the marketplace and Elanco is public. We've taken our prices up because the value is there, full stop. That's really important for everybody to know. .

Great. From a broader perspective, has the string of new approvals in the pet space improved traction with that across the portfolio. So is there some benefit of since you're delivering all these new offerings into the office?

There is. Yes, absolutely. You think about going into a clinic, and they're sitting there saying, "Hey, we don't want to take on more inventory. So which area am I going to move out? So I got 3 broad spectrum andectoes, Okay, if I take on derm, then maybe. So I think there is some replacement and some -- you got to have some switching to occur. I think that's that's 1 dynamic that definitely is there. And then you start going up the chain from the buying groups to the small corporates to the larger corporates. Once you start getting PET demand that's going into these corporate clinics and, I want Quattro, I want Zelia that's given us the leverage we need to take the share as we go up that chain. We haven't gone up that aggressively because it takes some margin to go up that.

And now we've got the demand. We're on the right side, I think, of the demand side now for that.

Excel. Farm Animal has accelerated for Elanco and the broader industry. Just how durable do you see that growth? Like what's the runway look like for this one?

That Yes. I mean listen, so the farm is it's half of our business. And Chris, you may know this, I'm extremely excited for the value that it brings to our portfolio. So we expect that farm business to grow at mid-single digits over the next several years. As I highlighted at Investor Day, the profitability of the farm business is underappreciated.

The EBITDA percent value that it provides is the same as our pet side. And that's because the operational cost to run the business is much lower. In the U.S., for instance, our OpEx as a percent of sales is 10%, all right? So we've seen a lot more drop to the bottom line. And so it's something that -- from a CFO's perspective, it's a great business. It's a great cash generation business going to continue to see the growth. We're going to continue to innovate. But it's an important part of our portfolio, and we think it's, again, a stable business that's going to grow at mid-single digits and provide some good profitability.

Excellent. Shifting over to Elanco Ascend. just starting with where are the cost savings coming from with this program? Like where are you most focused

Yes. So think about, I'll call it, 4 or 5 pillars, right? And so the largest bucket is really going to be on the operations and the procurement of those 2 buckets. So the operations is going to continue to see benefit as we continue to perform better within our 4 walls through Katus improvement opportunities.

On the procurement side, we've got a global supply base. And as volumes are ramping and just negotiations with new suppliers, we're getting raw materials at a fraction of what we paid in the past. And so those are the 2 bigger buckets. But I would also say in our gross to net approach and rebate approach, there are going to be some opportunities there. And so those 3, by the way, will improve gross margins. And then we've got -- we took a restructuring charge, as you know, and that's going to attack some of the G&A cost as well.

And so those are the 4 buckets, enabled by the fifth bucket, which will be AI and automation. And so that's really going to enable really the other 4 buckets. And as you think about where these benefits fall through the P&L? Well, 75% is going to hit gross margin, 25% through G&A. And then the last thing I'd leave you with, Chris, is on that restructuring announcement we made, we very quickly started executing and so as I think about some of the phasing of the overall Lanco Ascend benefits, we're going to see about 30% of that achieved in 2026 and then more ratably as we get beyond.

Okay. So post '26, we're kind of --

pretty flattish.

And then maybe last minute or so here. You're targeting less than 3x leverage by 2027. What does capital allocation look like once you get down to that 3x level?

Yes. So first off, no change to our capital allocation strategy. And you're right. So we guided we'd end at 3.7 to 3.8 at the end of this year. We expect to be in the low 3s by the end of 2026 and then below 3 in 2027. Our capital allocation strategy is going to be consistent. We're going to continue to focus on investing organically in the business. And so that includes the manufacturing facilities to make sure we're bringing the beat the best costed product to the market. We'll continue to obviously have a no regrets approach to launches and fund innovation.

So we'll invest organically as a first priority. Very second close priority is going to be bringing down leverage through paying down debt, all right? And so we'll see that is number two. M&A will be a part of our growth strategy as we think going forward.

But listen, it is going to be small tuck-under opportunities that will not derail us from getting below 3 in 2027. And -- and when we get there, obviously, that opens up optionality to shareholder return. And certainly, as we move closer to that date, we'll give more color. But certainly, we'll have a mix of dividends and share buybacks. But again, more color as we work with our Board and more color as we get closer to that time line.

Great. Well, I think we're just out of time. Thanks so much for the comments today, and congrats on the progress.

Thanks, Chris. Thanks, everybody.

Good morning, everyone. Welcome to Elanco's 2025 Investor Day. Thank you all for being here with us today in New York and also online. First, a bit of housekeeping. 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 press release as well as in our 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. References to organic performance exclude the estimated impact of the aqua business which was divested July 9, 2024, and certain royalty and milestone rights that were sold to a third party in May 2025. Today's agenda will feature 8 of Elanco's senior leaders defining our new era of sustainable, reliable growth. We'll hear from Jeff, Tim and 3 of our business leads with a Q&A for them. After a short break, we'll have Ellen, Bob and Grace and another Q&A for that group also moderated by Jeff. Please note that we'll post the full set of presentations when we're done with this morning.

With that, it's my pleasure to introduce our President and CEO, Jeff Simmons.

Thanks, Tiffany. Good morning, everybody, and we are excited about the next couple of hours. Thank you for the time that you're investing here in the room as well as many online. We know December brings a lot of commitments, and we're excited and believe this will be a highly valuable time. So look, 5 years ago, we had our last Investor Day, we are quite a different company and I really believe that the words on this slide are really important. This is all about a sustainable growth company. You're going to hear from 10 very vested leaders that your investments behind and one of my big jobs here today is to allow you to get to know them a lot better. I also -- there's 4 Board members here that hopefully, you'll have an opportunity. Those that are here to interact with at the break. We've got our Chairman, [ Lawrence Kurzius ] here; the Head of the Finance Committee, [ Paul Herendeen ]; the Head of the Innovation Committee, Dr. Debbie Kochevar; as well as the head of Governance, Mike Harrington. They're here and look forward to engaging with you throughout the breaks today.

So let's get in, and I want to start with -- we did a survey ahead of time and talk to all of you and have been out on the road with a lot of investor conferences, Bob and I, and we heard clearly these are the things you want to hear about. The underpinning of our strategy IPP, what drives it, the details behind it. With that also getting into the pipeline and Ellen is going to go deeper, not just on our current innovation, but the engine that's driving it and the next wave and the next, next wave of innovation and we'll open and share that as well. And then how that links to just the overall financial outlook.

At the bottom of this slide is pretty important to us, and it's really our investor charge. And I want to be really clear to say that we want to be a company that not just delivers but that we're reliable, that were consistent that we do what we say. That we are very transparent. Hopefully, a proof point of that is the detailed press release from this morning. We want there to be great clarity, whether there's good things happening or challenging things happening, we want transparency, and we want to also be very accessible.

Bob, later in the day, will talk a little bit about the philosophy behind guidance. And as we start to go forward, we're going to talk about 3-year commitments today, but also a 5-year window of just how we see the business and this is important. So that's our investor charge that I think is really important, and we look forward to some individual dialogue. A lot of what we're going to share today is a backdrop for the next 3 years of dialogue with you as investors. And so look at this slide deck is something that we want to be a little bit timeless for the next 3 years.

Okay. I want to get started. So I'd like to kind of say, let's start with what we're going to talk about the rest of the day. I'm kind of the opening act for everybody else. But let me just share the press release and a little bit of a summary of what's in it. And the first is just the headline of say, hey, we want consistent growth. We've demonstrated that over the last 9 quarters, especially over the last 4 quarters as a mid-single-digit company. And what's coming behind that is a steady flow of a pipeline of new products and then a stronger financial profile. So let me just kind of give you kind of each of these pillars underneath this that you're going to hear about some of the expectations that we're outlining today.

First is consistent, predictable growth where our expectations are in our algorithm, a mid-single-digit constant currency revenue growth. This will be driven heavily by stronger portfolios as well as more competitive commercial capabilities and innovation going into those portfolios on a regular basis. And I think you've seen already a proof point of 9 consecutive quarters of growth.

The second is what I think really sets us apart and will for a couple more years coming, and that is the basket of innovation that is globalizing right now. Folks, we are in major markets with major differentiated products. Those markets are growing, our products are taking share and I'm not seeing anything in Animal Health where there's a lot of industries that have 1 product and 1 market dependency we've got this basket. And we are today committing to $1.1 billion next year of innovation from these and the Big 6 to double between now and 2028. So that's the basket of innovation that is hitting the market, the Big 6, which we'll get into a great detail with Tim here next.

And then the next wave. What you haven't seen a lot is what Ellen has been doing. We talk a lot about these Big 6. But what I've really challenged, Ellen, is to come here and say, "Hey, in the 4.5 years, what's changed in R&D? What's the engine, what's the capability? What's the next wave? And what's the next next wave?" We know as investors in Animal Health what has been the challenge is the air pockets of innovation where they don't come. And our goal today is to show you and demonstrate the capability and the leadership behind an innovation engine that's going to take 10 major projects in development. We got the center of our pipeline is full, and it's movie. Today, we're committing to 5 to 6 potential blockbusters in major markets between 2026 and 2031. That's a pretty material kind of step out that we're highlighting.

Number 1 question, Bob and I gotten over the last 3 months has been, hey, when is the EBITDA growth coming? It's going to start coming in 2026. The other part of our algorithm is a high single-digit adjusted EBITDA, constant currency revenue growth. This is going to be driven really twofold. One is going to be around, yes, stronger portfolios, innovation, better mix. At the same time, it's going to also come from Elanco Ascend. Today was an example of we are performing, we are investing, no regrets on launches and yes, we announced today a restructuring. We are going to perform and transform. And Bob is going to bring an energy to that and Grace, you're going to hear from today around this. High single-digit EBITDA growth starts next year.

And then lastly is just a stronger balance sheet, stronger cash flows. We're committing to $1 billion of cash flow creation over the next 3 years. And that's going to come also from that EBITDA expansion that you see earlier. And yes, delevering matters where we expect to be under 3x by 2027. And we've heard clearly from you we're going to continue that path Paul, the finance committee kind of holds us accountable very clearly to take this down to the 2, 2.5x as we go longer term. That is the backdrop of what we're now going to take the next 2.5 hours and give you the underpinning of these outcomes and expectations.

Now what I'd like to do is just take a couple of minutes and give you Elanco's perspective, we put some time into these next 3 slides. It's a volatile dynamic capital market, and you're needing to pick the markets you're in and the investments you're in. We think we're a compelling value proposition. We also think we're in the most compelling space. I was on Fox business this morning, and I spent a few minutes talking about a $40 billion industry headed to $60 billion and why. The next 3 slides, I want to just highlight from you as a 10-year executive officer in Lilly moving over what we've seen and a lot of data that supports these next 3 slides.

Animal Health is an attractive market. It is durable and it has 3 fundamentals that don't get talked about enough collectively. And I think it's really important. And we'll then follow this up and what it means. For $42 billion industry, we believe that in the next 10 years, this industry goes close to $20 billion. And there's no reason why Elanco can be one of the leaders in that $20 billion of growth. Here's the uniqueness. One, we're a science-based industry. We are pharma like. We have high regulatory bars. Shoot in the U.S., we have 3 regulatory bodies that we serve. That brings complexity in a high barrier of entry. At the same time, we've never seen in Elanco. Tim will talk some about this, the revolution of innovation that's coming from biotech, pharma, plant health, there's a lot of innovation outside that's happening. And Elanco is a good testament, innovation gets rewarded if you bring it to the market.

At the same time, we also think independence matters we've seen coming out of Lilly, being able to own and have access to innovation is probably better as an independent. That's the science pharma-like corner. The next that really drives our multiple up in this industry is where CPG like. We are very brand-driven. Listen, pet owners more than ever, Bobby will highlight this, love their brands, but so the veterinarians. And that brand loyalty gives a durability that's different. So do protein companies, when we sit in the boardrooms of major protein companies, they want reliable brands they can trust, they don't want to put their brands in the quality assurance at risk. That also then leads to kind of limited patent cliffs and Ellen has a dimension of life cycle management that's really key. If you have life cycle management, you get that piece into it.

The third is it's a very value-driven. And I'll tell you the next 5 years, we see the need to be economically driven is really important. We serve low-margin people and customer bases, you have to have a holistic value proposition. I think the vet clinics are going to be more under pressure here. Pet owners were seeing it, protein companies as well. It's a cash market, not a payer market. You got to be value-oriented. You got to have customer interface. You've got to have the size and the scale to be able to reach these markets, and it's highly complex. Bayer has given us a size and a scale that's very different than 5 years ago at our investor conference to be able to do this. These are 3 fundamentals that I believe create a multiple in a market that is very durable in a pretty volatile time.

Now what we want to do is highlight the 5 trends in each of the 2 species that we think are most important that will drive strategy and drive who will win the next 10 years. So Pet, $17 billion market projected to grow mid-single digit to high single digit. We hear a lot about vet visits. Yes, that's important as maybe an early indicator, short term but you, as investors, the next 5 to 10 years, here's the 5 that we think matter. The pet owner willingness to spend is still resilient. Fewer kids, more pets, the next generation has a willingness to spend if the innovation is there. If there's innovation, there's a willingness to spend. And we see if we can continue to bring this, the willingness will be there.

The second trend is not talked about enough but I assure you it will play out big in the next 10 years, and that is the pet owner's decision-making power is growing. Yes, vets are important. But the power of the pet owner really matters. So you've got to have CRM data, you've got to have accessibility to that pet owner because that pet owner is going to continue to take on more and more influence and Bobby will talk some about how we're working on the channel efficiency there.

The third is the omnichannel approach. One of the big reasons why the Board and us decided to go after Bayer, reach more pet owners and where they want to shop at the price points they want to shop at that creates convenience, convenience drives compliance, and this is one of the big underpinning growth drivers that we're already seeing in our business with products like Quattro and Zenrelia, but even Advantage and Seresto. The comprehensive portfolios matter, as we've talked about, we've seen derm come in, watch for pain to come in next, more portfolio creates more leverage, more leverage is critical as we up the index on corporate clinics.

And lastly is the globalization is happening rapidly. You're going to hear this from [ Romero ] that the EU and the U.S. were always the pet markets but watch out. I'm going to use 1 example. Brazil used to be a developing country in pets. I would say Romero would probably say it's a developed country. And we're seeing that today with our Zenrelia launch. These are the 5 trends we think that will drive the $17 billion industry up quite significantly.

Farm Animal. Bob will talk about being underappreciated his perspective. It's probably under indexed and I think it will be one of the big drivers, especially in the next 5 years. Of that $20 billion of growth, I think it's going to get more of that share than people realize. Here's a few things that I think are important. It will grow slower, probably a little bit less price we'll talk about how it flows through the P&L today and why we are really bullish on this market. One is animal protein, 5 years ago when I stood at the investor conference, there was meatless Mondays, there were impossible burgers, there was a lot of worry where is the future? Today, it has totally shifted. Why? Taste/cost nutrition. [ Fairlife shake ] is a good example of that.

And the healthy food movement, protein is the fastest-growing segment, animal protein is the fastest-growing segment. Just [ Robo Bank ], I was at a conference 2 weeks ago, GLP users. If you're on a GLP, you're consuming close to 60% more poultry, 40% more beef. So you've got all these developed country trends and then Romero will continue to show GDP growth continues to drive this. So low single-digit growth, but durable growth. The second is we're pointing to ruminants in poultry, 75% of farm animal, why are we really, really focused on these 2 segments. They're durable. They got great opportunity. They got a bigger problem set, they're accessible, and we see this is where the great opportunity is, where swine would be a little bit more regional, probably a little more volatile and a little more opportunistic. Seeing swine is not part of our strategy, but here's where our energy is, ruminants and poultry, where actually we've got leadership. The third is livestock needs go into the boardroom, go into cattle, poultry veterinarians, food safety is one, disease prevention is two.

Tim will talk a little bit. Vaccine growth is where this industry is really growing the most because of disease prevention. And then this $1.5 billion market we've been talking about is really sustainability and productivity are converging. And what that means is really that second bullet is sustainability really when you get to the farm and Jose's team is leading this is all around got to have economic sustainability for farmers. If you can't sell value to farmers you can't even start in this business. And then you combine what we're seeing is new is CPG value. They got to get to the farm to strengthen their brands and money is flowing. Tens and 20 millions of dollars we're seeing flow to the farm, and we're enabling that and then the environmental backdrop around that, that still matters to consumers.

And then these next 2 kind of combine and Bob will talk about the dynamic of these with bigger portfolios, and we're adding to our Farm Animal portfolio, if you can get to a Farm Animal customer more efficiently, and you've got the right reach and the markets are consolidating a little bit in the countries, you can run your P&L on a 9% to 10% OpEx, which concludes to say we've got a strong of EBITDA line in Farm Animal as we do in Pet Health. This is something I think Elanco is mastered and you're going to hear from 2 commercial leaders that know how to do this as well as I believe anybody.

So these are the trends that we want to talk more about over the next couple of years with you, and we believe this is what's going to create $20 billion of value. And inside of that, we think we're well positioned. So look, I just kind of say this, too. We've had never more relevance as an industry. I speak a lot in industry events. We've never been more relevant, but with relevance comes responsibility. And if you can tap into that responsibility, you can bring out more value than ever. We have [ Dave Kinard ], Head of HR here. And our goal here is, if this vision with more purpose of touching every life every day with food and companionship what do we do? We're seeing it right now recruiting AI talent. We punch bigger than our size because of the significance of what we do to society for this next generation. I think watch our talent, our engagement. And if we can unlock that, it's my challenge to Dave and the team, we get another level of performance.

Let's move quickly to this next section on just the new Elanco that's been built, especially with kind of a 5-year contrast. Look, we're a bigger company today. We see this [ 4.7 ], you do the math. We had towards a $6 billion company by the end of the decade. We've got the reach, the mix, the geography split. You're going to hear it in detail by the leaders. We have more blockbusters which, as you all know, because you asked about margin profile compared to our other competitors. We have a lot more leverage to be able to do this with better higher-margin blockbusters. It's a more efficient Elanco as Grace would say, running manufacturing to get the next $10 million than it was 5 years ago.

And look, we look at it in 3 categories, and we've got leadership in farm, leadership in pet retail, we may be 3 or 4 ranked in pet vet, but probably have the highest ceiling of potential with the most innovation. So we see the greatest runway there. So we're set up well. But this would be what I would say the Board's chart that the Elanco Board and the Elanco Executive Committee has been very intentional, a little bit of an iceberg effect to say we're starting to arrive, but we've been very intentional since our independence in 2018. We built a foundation. We wanted an independent company that could reach the world's animals, and that's what we've done. And boy, it took money and it took time. We had to build an SAP system, a supply chain, regulatory. It was hard. But today, I think we're 1 of 2 companies that can reach the world's animals independently.

Second is we scale for global reach. We made 2 acquisitions that were hard and challenging, but they truly got us what we want. Bayer has given us a big R&D budget and an engine that Ellen is utilizing to bring forward the innovation we need. We've got the size, the scale. We've got enough by country the strength to out and compete with any of the major players. Kindred brought us mAbs. Today, we are 1 of 2 companies leading with -- growing our lead with monoclonal antibodies and we'll share some more news on that throughout the day. That's been very -- those acquisitions have been critical. And then Alan came 4.5 years ago, and we knew we had to double down and create an engine to create consistent flow. We also had to get our pipeline, those 6 products out and that's been successful to really set us up now to be the sustainable durable company. You're going to continue to hear the 3 outcomes for me, from IPP, growth, innovation, cash and how important those are going forward.

So this has been the charge of the Board and the committees of the Board as well as the executive team, and we're excited about this new era that we're entering. The strategy has been the same for 8 years. This is our flywheel. It's durable. It's starting to pick up some momentum using the good to great kind of concept. And it's all about consistency. Ellen's charge is a consistent flow of high-impact innovation, and that leads to consistently strengthening portfolios for more value to take more share. And that leads to, at the same time, also driving consistent productivity and being able to do both, grow and transform. And this strategy is going to continue and it's going to deliver the 3 outcomes that have been consistent. IPP delivers growth, innovation and cash. And that delivers total shareholder return metrics that you're interested in.

So I will just assure you, 9,500 people across Elanco have their objectives tied to these outcomes. And you're going to hear it first from the 10 leaders that -- 9 leaders today. And look, the proof points you'll hear today is the quality of growth continues. The durability of that growth continues. This is the one chart that is pretty consistent from 5 years ago. We've built a basket of innovation. 5 years ago, we said $500 million to $600 million of innovation, that $500 million to $600 million, grew to $600 million to $700 million with Kindred. Today, we've got a metric for this year of $840 million to $880 million, and we're committing next year to $1.1 billion. The basket of innovation is our greatest differential to our competitors today. We're durable or diverse and what Ellen is bringing in the next 2 waves of innovation will strengthen this diversity, but will keep us in big markets.

We're not a company, a very important point here, dependent on creating markets. We're going to go in the big markets that are already growing to take share. Yes, we'll be opportunistic, but the next 5 years of Elanco is really on growing big markets that already exist. Always get challenged. And definitely, over the last 3 years, Jeff, aren't you an innovation follower? Maybe we were 5 years ago, but I think it's starting to change. I think we're definitely leaning in and creating an innovation, as Ellen says, powerhouse that actually can start to create first, the first FDA product with 4 active ingredients. The first anti-infective in Farm Animal in more than 10 years, next-generation. First [ SGLT2 ] ever approved in Animal Health here in the U.S. and a few emergency use products as well and the first derm competitor. I know some would say we're late, but we're bringing a portfolio coming here next. And I would just challenge to say, I think you're going to start to see Elanco move into much more of a leadership position. I know that's Ellen's vision.

And then on cash, you'll hear from Bob we know delevering is important, free cash flow is important, and we'll continue to stay on this charge. Today, we made an announcement, a pretty detailed, I think, 3-page press release I shared some of the news this morning. And I want you to just see this as a proof point that Elanco is performing. We're in a position of strength, but we're going to great companies are disciplined and decisive in a position of strength, and that's what today's announcement is about. We've restructured impacting some jobs. And Bob will get into the details of the financials, I won't do that now. But what you want to see is this is something to where we are increasing investment where we can get more capacity and efficiency. And I'll use an example, we are shutting down a German Bayer R&D facility, we signed a global deal with a CRO, [ Clin Global ], to increase significantly our capacity with a lot fewer dollars to create a lot more flow in our pipeline. That's 1 example.

Also did some regulatory changes, gone to some lower-cost countries, all of this to create more cash flow. I got asked last week at an investor conference, can you get us EBITDA growth? And can you keep investing no regrets and win in the big markets? This is an example, an enablement of how we're doing that. Also, we've had a lot of good dialogue on the R&D front. Today's announcement also said that we've been very great constructive dialogue with the USDA specifically been on the phone even as much as yesterday with them. And I will just say that they've done a lot since the government shut down, and we're confident. You'll hear about the brand name [ Befree ] from Bobby. It's our IL-31. We have all technical sections complete. We have label alignment, we believe we'll have differentiation, and Bobby will talk about that, and we're still cautiously optimistic for an approval by the end of the year, but mostly for an H1 launch.

We've also confirmed an accelerated pathway with the USDA as well on a potential first-in-class immunotherapeutic in a major pet health market where they've granted us conditional pathway to move, to be able to bring what we think could be a major pet product in the next 2 to 3 years. And that's probably all we're going to talk about that in terms of the details. And then we've got good clarity on '26 tariffs which really with that and the teams put an incremental price increase in place, that will really take tariffs for us, we believe, will be immaterial in 2026. More details will come from Bob on those announcements. But hopefully, you see that as a company on the move, a company moving in a position of strength.

So why will we win? I think we've got a proven strategy, a consistent strategy at over 97% of all the employees in Elanco know their role in that strategy. We've got a stronger, more stabilized portfolio. You're going to hear about it and the owners here in a minute. We've rebuilt an innovation engine that is moving and we've got -- we're pivoting to a much stronger financial profile.

Let me conclude as I turn it over to the team on also the foundation of the team and the culture. Why do I do this with investors? I think an Investor Day once every 5 years, need to hear a little bit of how we run the company, and that's the next 2 slides. This is the team. These are the 10 individuals that are most vested for your investment success. This is the most, I believe, experienced, stable Animal Health executive team in the industry, and they bring a lot of experience. We're aligned. We spend a lot of time together. We have a meal once a month together. We have a lot of fun and we're unified, but we are extremely committed to win and succeed. We haven't come this far to not fully deliver in the next 5 to 10 years.

So let me just highlight a little bit. It all starts with Ellen. Ellen has got 35 years in Animal Health. She's led BI. She's allowed the makeups of [ Intervet ], that's now Merck, [ DSM ], PepsiCo. Ellen as a drug developer, driving pipelines, very disciplined. The first day she showed up, it's all about consistent flow, Jeff. It's about refilling as much as delivering and she's done that.

Tim brings executive leadership from all the different major companies. Tim is all about growth, and that growth is very targeted very much on the major markets of where we can win and building the portfolio for Ellen from the outside and building the portfolios inside with the commercial leaders.

The 3 commercial leaders very quickly, we run the U.S. differently than most companies. We split Farm Animal and Pet Health. On the Farm Animal side, [ Jose Semis ] leads the Farm Animal, 35 years, leading Farm Animal businesses, a nutritionist. Nobody probably knows the mix between science and economics and he's put us in a #1 position in beef, in poultry and in swine. Bobby came in with pet experience, CPG experience. It's all about brands, building brands, launches and omnichannel and that expertise has turned into a competitive advantage for us as we've gone forward. Romero is a veterinarian. He's a globalist. He's very disciplined and has one of the strongest leadership teams we have and runs the world in clusters, 52% of Elanco's business and probably been the most consistent deliver that we've had over the last 5 years. Bob's come in, I've shared a lot with you a low-margin industry background to really help us drive margin across the company. Two words with Bob is cash and margins.

And today, we announced internally he will lead Elanco Ascend, our 5-year company-wide productivity agenda. And he will work in partnership, and you'll hear from both of them today . Grace is leading manufacturing. She's led our global supply chain. She's come out of Lilly. She's run plants, and it's all about reliable supply and the science of the next wave, and she works very closely with Ellen in that regard. She is all about keeping us agile, competitive, but in control and managing the risk and Dave Kennard, how we foster our employee value proposition to create another level of engagement beyond our competitors. And everyone is here today and looks forward to engaging with you, and I want you to hear from them directly.

And look, what's the unique? If you walked around traveled with me through the labs and the manufacturing plants with the people I think behind the blue slash, you would see, one, the longest-standing brand. There's pride in the legacy market research we just completed with our global customer base said, hey, Elanco is about value. And so we hire people appropriately. Industry passionate people, purposeful people and people that have the acumen and the expertise we need in the mastery in those areas. The culture is maybe a little bit Midwest, maybe a little bit from our Lilly roots, but it's, say, 1 Elanco and these 4 behaviors are how people are measured.

We're a company quietly I've kind of shared this with a few of you, but we've had 5-year plans, 5 different times. We're just completing after 25 years, our fifth 5-year plan. That puts a mark for everybody that's really important, all the way down to we have a weekly accountability rhythm that drives these outcomes. And then lastly, our measures are all linked to growth innovation cash through performance management and a reminder that our bonuses are driven on Elanco cash earnings. That is EBITDA has got to beat last year and cash has to beat the cost of capital. And everybody knows that if we don't do that, then bonuses, no matter how the stock performs or how growth performs, it doesn't matter. And that lines up with the TSR that you're interested in. We've also matured the governance as we've matured the company. This has been important to the Board, and we've taken a series of steps every year as we mature as a company to align with a stronger, more independent governance as we've gone forward.

I will end here by saying you're going to hear this financial profile and expectations as we go forward from a lot of the leaders as we link to this, and Bob will close with this with more detail. Look forward to engaging with all of you in the Q&A. I want to turn it over now to Tim to dig into the portfolio. Tim?

Thanks, Jeff. For those who don't know me, my name is [ Tim Beddington ]. I'm here today to dig into the portfolio a little bit for you, and then I'll be handing over to Bobby, Jose, Ramiro and Ellen to dig one level deeper so you get to make sure that we get a good perspective. I'm going to cover a little bit in my view of where Elanco is at today and just a little background on myself, just to get to that point. I've just clicked over 30 years in the Animal Health industry. I've been fortunate enough to work for some great companies, most recently Zoetis, [ Spurring Ingleheim ], I've been able to work with 9 of the top 10 brands in the Animal Health industry, and I've sat at the executive table of 3 of the big 4 Animal Health companies. So I have somewhat of a unique perspective to be able to share with you today.

These are the topics that I'll be covering today. But most importantly, let me dive into the 2 big markets that everybody is interested in, first one being the pet market. From our view, and I say our view, and I'll keep the narrative of our view. We see the market growing to $24 billion by 2030, driven by the parasiticide space, the ever-resilient parasiticide space, this includes both the OTC and the Rx parasiticide space. We have a leading position in the OTC parasiticide space. The Rx space, we are not as big as some of our competitors in, but that creates a great opportunity for us. We see derm vaccines and pain as key pillars. We see a lot of new entrants coming in, but we see them as the key pillars for growth for the industry and the material drivers.

Let me just touch on Farm Animal. We see it growing to $27 billion Farm Animal is a space that you don't hear as much about. It's a very nice business. We like the Farm Animal business a lot. It's a nice growth business for us. It generates a lot of revenue for us, and it's something that is probably a little easier for us to grow in just because not everyone is looking at this the same way we are, and this is a key area for us. We see cattle and poultry as the big drivers of this space, predominantly poultry is the biggest driver, and vaccines will be the biggest driver for this. We have a leading position in the U.S. in the Farm Animal space. We have the opportunity to grow that geographically around the world, which gives us a nice platform to continue to grow the Farm Animal space over time.

One thing that I think the company is very proud of and should be very proud of is those of you who have been following us for a period of time would understand the base. The base business for Elanco over the last few years wasn't always delivering at the same rate as the rest of the innovation. The base business is now flat, plus or minus 1%. Without a flat, stable base, it's very difficult to continue to grow because you have to play catch up, you have to play catch up. We're now at a point we're at a very stable base of the business. This has been done through cross-selling across the innovation with the existing portfolio and geographic and channel expansion. But the innovation has been the big driver for enabling this base to stabilize.

Then as we look forward, let's talk a little bit about what we call the Big 6. Jeff referred to the Big 6 earlier, what is the Big 6, Credelio Quattro, Zenrelia, Adtab, [ Befrena ], Bovaer and Experior. You'll see here we have in 2026, $1 billion of growth from the Big 6. You'll also see the rest of the innovation we have outside the Big 6 also continues to grow, but we see the Big 6 driving a large portion of our growth moving forward.

And then as we think about beyond 2026, let me give you a slight view into 2028. We see stable base, critical. Without the stable base, it's hard to get the growth we need. Big 6 doubling in size by 2028, and we start to see the impact of Ellen's next wave, which we'll dig deeper into as we move forward. Stable base, Big 6 doubling start to see the next wave already in 2028. How do we expect to do that? Is one of the questions I'm sure many of you are thinking about. This is a view of the Big 6 and where we're at today, where it's been launched, where it's headed. And I'll pick on 2 examples for you.

First one being Credelio Quattro. Credelio Quattro is going incredibly well for Elanco but it's only launched in the U.S. We see great opportunities in the major pet markets, Japan, Australia, Canada, Europe, Mexico and Brazil, and so great geographic expansion opportunity for Credelio Quattro. If I pick on Zenrelia, already launched in the major pet market. So different phases. It's more immediate value because, obviously, just launch in some of these countries, label improvements in some countries. So we expect it to go quite quickly. Quattro go over time. So it's not just all these things hitting at the same time. Many of these products will grow at different times in different phases.

And just one quick point on the Big 6. What I showed you up until 2028 wasn't peak sales. It was just the sales as of what we expect in 2028. Those products will continue to grow beyond 2028. And then I think one unique thing about where we're at and the perspective I'd like to give you today about why I think Elanco will win. I've been in many Animal Health companies over a long period of time. I've never worked in an organization with a portfolio of this much innovation all at the same time.

It's a very unique challenge and a great challenge to have, and I think the launch execution you've seen in many products, Adtab, Zenrelia, Quattro, set the example and the tone for what we expect moving forward. But this is why I think Elanco is well positioned to win. We're going to be in large growing markets, which is where we need to be to generate the value. We have a diverse global portfolio that's very durable, which is key. And we have sustainable growth through the Big 6 and also following closely behind at the next wave. So we're in the right markets. We have a global portfolio, and we have a nice flow of innovation. That's why I think Elanco is set up well for success moving forward.

I'll turn it over to Bobby to dig a little deeper.

Thanks, Tim. Good morning. For those of you I haven't met, I'm Bobby Modi, and I have the privilege of leading our U.S. Pet Health business. Today, I'm going to talk a little bit about how we've pivoted our business to growth, how our portfolio is allowing us to gain share, the strength of our omnichannel capabilities and parasiticides and our differentiated derm portfolio.

First, let's get grounded on the business a little bit. We're roughly a $1.3 billion business and represent roughly 28% of Elanco's total sales. Much like the diversity of total Elanco, our U.S. Pet Health business is also very diversified, and that diversity allows us to reach the consumer wherever he or she is going. One example of that is our channel diversity. We have a large retail business, and we have a leading presence in the OTC business. This allows us to reach more than 1/3 of pet parents that don't visit the veterinarian on a regular basis.

The second area of diversity is in the medical space as we play, unlike many of our competitors. Special thanks to Ellen de Brabander her entire team for giving us innovation in each of these spaces over the last 3 years. We are now growing share in all 4 of these major medical segments. It's diversified innovation, coupled with a stable base that's allowed us to lead the industry in growth for 2 straight quarters in spite of a very difficult macro environment. Now there's many things that have transpired since I joined Elanco in 2022 that have allowed us to build a sustainable, competitive business.

The first and probably the most important is differentiated innovation. Over the last 3 years, we've launched 12 differentiated assets in our U.S. Pet Health business across the Rx and OTC portfolio. But it's not just innovation. It's actually access to our customers. With the investments we've made, we now have the second largest sales force in the country and the largest retail team in the country. This gives us the ability to reach 30,000 clinics, all the major corporate groups and the 100,000-plus brick-and-mortar stores in the U.S. But it's not just access. It's the scale of our OTC portfolio and the breadth of our Rx portfolio that gives us relevancy with our customers. They want and need the brands that we have to offer. And we're all about building enduring brands and the way we build enduring brands is by expanding our share of voice.

And one way we've expanded our share of voice is with the vet community. Since 2022, our share of voice has grown by 110%. That's over 250,000 more contacts today with vets than we had in 2022. But we're not just building share of voice with our customers. We're also building share of voice with our consumers. With award-winning creative and an analytical approach to our direct-to-consumer advertising, we are building novel brands like Credelio Quattro. All of this is underpinned by a very experienced talented leadership team and a highly engaged organization. We've grown our engagement since 2022 by 23 points. We are now 7 points above the external benchmark from an engagement perspective. With the pending approval of our IL-31 monoclonal antibody, we will be one of 2 manufacturers that has a comprehensive portfolio with a complete solution set for veterinarians. This portfolio makes Elanco more attractive to our partners -- as partners for clinics and corporate groups. And let me give you an example of that.

In 2024, we were only growing in 40% of our corporate partners. Today, behind a stronger portfolio, we are growing in 82% of our corporate partners. This shift and the growth rate of our corporate partners from '24 to '25 has translated to a 1,200 basis point improvement in our corporate accounts business. Now let's take a deeper dive in a couple of segments of our business. First, Credelio Quattro. We are incredibly pleased with the performance of Credelio Quattro it is defying the typical third-to-market archetype. We believe it's defying that archetype both in sales and ramp rate because it's best medicine based on its differentiation. 4 degrees of differentiation, broadest coverage, speed of kill with ticks, heartworm efficacy in 1 month and recent feedback from the veterinary community, exceptional palatability. And we're really happy that we are Elanco's fastest blockbuster in Pet Health, reaching that status in just 8 months. But we think there's a lot more to come. Here's why.

First, we are participating in an incredible market. The broad spectrum and veto market is the largest, fastest-growing market in U.S. Pet Health at $1.4 billion in revenue, growing 30%. We're poised to capitalize on that growth and take our fair share. Second, we're only in 1/3 of clinics today. We believe we can continue to add clinics well into '26 and beyond. And each and every month, we continue to bring more clinics on to Credelio Quattro. Third, our share in the clinics we're in is relatively low. We're only a 36 share of the broad spectrum and [ Decco ] category in the clinics we're in today. We know we will be able to grow our share in the clinics going forward. Why? Our puppy index. We are bringing more puppies on to Credelio Quattro each and every day, and those puppies will stay on Credelio Quattro as they transition to adults. Additionally, we will continue to invest in direct-to-consumer advertising and drive dispensing out of the clinic. So in short, we're pleased with the performance of Credelio Quattro, but we're just getting started.

Now let's talk about our OTC parasteticides business. Many of you know, we have a leadership position in the $1.1 billion OTC flea and tick market. The market is actually broken up into 2 distinct segments: a premium segment and a value segment. Elanco has historically played in the premium segment. And in spite of our 64 share leadership position, we've grown our share, 1.4 share points over the last 2 years, driven by share of voice expansion and optimizing our pricing. I believe the momentum will continue in 2026, and I'm pleased to announce that we will bring on a major new retailer in Q1 of 2026 in the premium space.

Now let's talk a little bit about the value segment. Prior to 2022, Elanco hadn't played in the value segment. But with great partnership with Grace's manufacturing team and Ellen's R&D team, we were able to take value formula, utilize existing assets and bring new innovation to market in the space for Elanco. Over the last 2 years, we've grown our share of 4.4 points, and we're now a 6 share in a space we didn't even play in, in 2022.

Playing in the value segment has allowed us to reach new customers and new consumers, think chain drug, think [indiscernible] channel, think mainstream grocery, but we're just getting started. We're committed to this good, better, best strategy, bringing consumers in, into the value segment and then ultimately trading them up to our premium segment. I'm pleased to announce, in 2026, we will launch our first ever value collar for dogs under the Advantage brand. This innovation has allowed us to bring another major retailer on board in Q1 of 2026. So in short, we have a leadership position in OTC and allows us to reach consumers that don't regularly visit the vet and we have ample opportunity for growth.

Now let's talk about the second fastest-growing and largest space in U.S. Pet Health dermatology. The dermatology market is roughly $1.3 billion in revenue, growing at double digits. 90% of the value of the market is in 2 technologies: JAK inhibitors and monoclonal antibodies. We launched our differentiated JAK inhibitor in September of 2024, Zenrelia. We could not be more pleased with Zenrelia, which is differentiated on efficacy, convenience and value. In Q3, our sales only doubled from Q2 and in October, we're already over a 5% patient share. We're in roughly 45% of the clinics in the U.S., and we are adding 2,000 clinics each and every quarter. The FDA recently updated their label in September to remove the words vaccine-induced disease, and the market reacted very favorably to this change, and we brought 1,900 new clinics on to Zenrelia in just 2 months. We remain committed to a clean label on Zenrelia, one that's consistent with the OUS language, and we've recently submitted new data for the FDA to evaluate.

Now let's talk about the other 40% of the market, the monoclonal antibody space. I'm pleased to announce pending soon with Frea. [indiscernible] will be our differentiated monoclonal antibody. And very similar to Zenrelia, it will be differentiated on efficacy, convenience and value. And if you've ever had an itchy dog, it may give you a clue as to how we came up with the name, [indiscernible]. We continue to remain optimistic about our Q4 2025 approval, I will remind you that, that approval is not on the critical path for our first half 2026 commercialization, which we are tracking well to.

So in summary, Elanco is well positioned to capitalize on growth in the highly attractive dermatology space with 2 differentiated assets. So in closing, we believe we found a recipe for success, a broad portfolio with differentiated innovation, with best-in-class execution all underpinned by a talented and engaged leadership team will provide us growth for many, many years to come and makes our business durable and sustainable. Thank you for your time today. I'm now going to pass it over to my colleague, Jose Simas, to talk about the U.S. Farm Animal business.

Thank you, Bobby. My name is [ Jose Simas ], I lead the U.S. Farm Animal business for Elanco. And today, I'll talk to you about our leadership position in the market, some very strong industry fundamentals that we operate under. I'll talk to you about creating a new market space. And how does that all come together in a unique and differentiated go-to-market or business model.

Starting with some descriptors of the U.S. Farm Animal business we represent about 20% of the Elanco global revenue, and we are present in the 4 main species. We lead in 3 out of the 4 in the U.S. We are #1 in beef. We're #1 in poultry. We're #1 in swine. That gives us the industry leadership position. And that leadership is underpinned in very, very strong and iconic brands. I'll give you a couple of examples of those brands.

If you look at the top 10 farm animal brands in the U.S., we have the top 2. They're not only the top 2, they're about twice the size of the remaining leading brands. It's -- these 2 brands are in 2 market segments that Elanco has created over the years. Rumensin is a 50-year-old brand, and we've seen some growth even recently for this brand. And Experior is the first blockbuster product in the U.S. market in over 10 years. This has put us in a position to have a breakout growth trajectory here more recently. We have outgrown the industry from a top line standpoint, but we've not only grown double digits here in the past few years. We've done that with growing the bottom line and the top line. We've grown price and volume. We've grown innovation while stabilizing the base and more importantly, we run about a 10% OpEx business that makes it quite an attractive bottom line business in the context of the overall Elanco goals.

How are we able to deliver that growth with that quality? It starts with the scale and the breadth of our presence. We are present on farm with significant teams with high, high quality people and the breadth of our solutions across each of the species. So we have health solutions, food safety solutions. We have feed and nutrition solutions in each of those species. So we've got the on-farm presence, the reach with a significant breadth of solutions that address critical animal health and producer economic needs. We've got innovation. We not only have blockbuster innovation. We've got portfolio innovation and we've had some bolt-on rational BD and some alliances that really has helped around our portfolio going back to that strong value and broad value proposition for our producers.

And thirdly, our very deep customer partnerships. We have a very significant or a very large data set asset in which we collect data with accounting systems, record-keeping systems, health record keeping system, nutrition systems of producers. Our Elanco knowledge solutions team structures that data cleans, the data that runs it through a variety of digital tools and then our veterinarian and PhDs that are customer facing, they are able to help producers make better business decision and health decisions. That creates very, very strong partnerships with some customers that have lasted for decades. So our scale enrich our innovation in our deep customer partnerships. This growth has also been enabled by very, very strong industry fundamentals.

Earlier, we heard GDP drives protein consumption. We see that in the global context, in the U.S., we see from a consumer trend higher, healthier protein diets. So we're seeing global higher protein demand. The U.S. is a very, very relevant and sizable protein player. It is #1 or #2 in several of the species. And not only is a very large industry in the global context, the U.S. is a very large exporter. The third point that is very strong fundamental of this industry, the reason we are in the right industry is that our producer base, they are very quick to adopt valuable and differentiated technology. Higher protein demand, protein demand growth. The U.S. is a significant player, significant exporter in our producer base is quick to adopt differentiated technology, which serves companies such as ourselves innovative very, very well.

If I give you the example of Experior, you can see recently the speed of adoption is a highly, highly differentiated product, is the first U.S. -- I apologize. It's the first FDA-approved product with an environmental claim. It's the product in the market with the highest value proposition. It's for reduced ammonia gas emissions and has a very flexible label that gives producers the opportunity to maximize the value of that technology. We can -- we see this market space as a $350 million market opportunity. we see runway ahead for Experior to grow basically driven by our existing customer base. So this is a solution that is in feed and producers use it at the end of the production cycle. We see opportunity for days of use to be extended as producers learn to use and maximize the value proposition of the product. Second, there are still new adopters in new adoption to take place with this technology to increase market share and market penetration and thirdly, price. Duration adoption and price are the key drivers of Experior growth ahead.

Let me pivot now how we are pioneering the sustainability marketplace. We see it as a $1.5 billion market space opportunity. We have created market space before, as I mentioned, with managing Experior and we're seeing sustainability not only from an environmental standpoint, which is very important, but it's very critical that sustainability delivers value to the producers and brand value to the CPGs. Because our on-fund presence with that -- with those data assets, we're actually able to create the ecosystem in which producers can intervene, reduce the carbon footprint and exchange carbon for value with CPGs and our data infrastructure in systems has enabled that. Tens of million dollars have been traded already in this industry by producers selling carbon and CPGs buying their carbon enabled by Elanco's infrastructure.

How does that come together in this unique value-based model? It starts with a resilient core business, very strong and iconic brands with our reach and scale. We've got innovation blockbuster portfolio and bolt-on BDs with a very strong customer-facing expertise with this data engine. And that together is a virtuous cycle in which our court gets stronger and stronger, and we can drive and accelerate that innovation adoption. In summary, we have and we are expanding our market leadership position based on innovation portfolio and value, supported by very strong industry fundamentals as we're creating our future areas of growth with the new market space.

Thank you. With that, I'll pass it on to [ Camero Cabral ].

Thank you, Jose. Good morning. I will give you an update on progress and strategic direction of the international region. We are building a profitable growth engine for Elanco. We'll cover these 3 topics.

And first, a snapshot of the international region. It represents over 52% of revenue for Elanco. We have 2 large segments, a $1 billion Pet Health segment and a $1.4 billion Farm Animal segment. We have a strong presence in all major geographies. The geographical diversity brings resilience to shocks to macro shocks brings durability.

Now let's see how we've been performing. We are accelerating. Before, we were a stable base, a durable base. Now we are accelerating growth with quality. We are growing price and volume pets and farm. We are growing Europe, Asia, Latin America, broad-based growth, quality growth. The strategy for that growth is a 3-prong strategy for a faster stronger growth for international. First, growing pet through launches, best-in-class launches. Second, growing farm animals by focusing on poultry and ruminant. Third, improving profitability by shifting the portfolio. I'll discuss pet launches, Farm Animal later. A few comments on that profitability intentionality that sharpening the focus of our portfolio.

We have shifted from aqua and we invested into pet, poultry and ruminant. We have downsized and exited low-margin, low-growth segments of international and we invested no regret approach, growth mindset approach and launches and in the core, in a stronger core. We are investing more than 70% of our marketing funds in only 5 strategic brand franchises and a proof point that, that sharpening of the portfolio is working in Q3, the top 15 brands out of a very broad portfolio grew 9% Q3 year-to-date and represented more than 60% of sales. We are improving profitability, and we are making the core stronger.

Now a few examples of launches of pet health launches as a source of growth for us. The first one is Zenrelia, and I cannot be more excited about a launch. Zenrelia it's beating expectations for customers. It's beating sales expectations, and Zenrelia is beating market share analogs for a second to market. In the first wave of launches where we have been around 12 months in the market, Zenrelia is already exceeding 20% share of the JAKs is not behaving like a second to market, is behaving the best medicine. It's an analogy to Credelio Quattro in the U.S. Zenrelia is beating customer expectation. The amount of positive feedback from customers that we get around the world is spectacular, is a different product, dogs that have been struggling with all treatments available before Zenrelia. Many, many of those dogs are responding to Zenrelia. And we get that feedback from dermatologists, key opinion leaders, general practitioners, pet parents, employees, Zenrelia is exceeding expectations.

It has a long runway for growth because in this $700 million category growing double digit is not behaving as a second to market, it's behaving as best medicine. We are seeing in the field, what we have seen in the head-to-head study that we have shared with the world. Another example of a launch exceeding expectations is Adtab. Adtab validates the platform of Pet Health launches as a growth engine, it validates the platform of maximizing the Credelio franchise. Adtab is a channel expansion into OTC of the Credelio family. And with the Advantage brand name, we are leveraging the OTC commercial strength that we gained when we acquired Bayer. Adtab is competing in the fastest-growing segment in OTC, the oral flea and tick segment. And in only 2 years, it's exceeding 50% market share. We tripled brand awareness from last year to this year and we have still a long way to go. We still have a long ways to grow. And also Adtab is leading share of search, the most predictive leading indicators of future share of market.

Adtab is exceeding expectations, Zenrelia is exceeding expectations, and we are ready for Credelio Quattro. Credelio Quattro will be differentiated. We expect same momentum that we see in the U.S. and is in a category of $700 million, growing double digit. Pet Health launches, best-in-class pet launches as a growth engine for us.

I will pivot to Farm Animal next. And we are going to grow Farm Animals by focusing on the 2 largest market segments in Farm Animal International, poultry and ruminants. Poultry is the fastest-growing segment in International Animal Health farm animal. We are very strong in poultry. We have a very differentiated value proposition for customers. We focus on food safety and intestinal health. We bring millions of dollars to the bottom line of customers by helping them dealing with these 2 specialty areas. We are very strong in poultry. And poultry is as profitable as pets. Fastest growing, we are strong as profitable as pets.

Ruminant is the largest segment in farm animals and is the second in growth. And we are one of the global leaders. Again, with focused strategy. We focus on sustainability, and we focus on retail farm, farm retail on parasiticides. Ruminant encompasses beef, dairy, confined, unconfined, sheep, that is also important in Europe, Australia and New Zealand. And with that, focused portfolio, we have also a new and refreshed growth strategy for ruminant. We have strengthened the core, as I explained before, with that portfolio shift. We are expanding with Ellen with the next wave of innovation is reached in ruminant projects. We have more ruminant projects in the pipeline than ever before. And we have a pool of alliance opportunities with external innovators. So ruminant is the largest. We, a global player and a refreshed new strategy for growth.

So to close, we are building a profitable growth engine. We are growing pet with best-in-class launch execution and phenomenal products. We are growing farm animals by focusing on poultry and ruminant and we are improving the profitability of the core portfolio by improving mix, species mix, geography mix and product mix. We are making Elanco International stronger and faster growing. We are building a profitable growth engine and I'm confident that we will contribute to our algorithm.

So with that, we are going to move into a Q&A session.

Okay. This is your opportunity, everybody. So we look forward to...

We invite questions from the audience and ask you to introduce yourself too before asking your question.

Chris Schott from JPMorgan. Congrats on all the progress here. I just had 2. Maybe first on Quattro. Can you just elaborate a bit more in terms of the share you're gaining? How much of that is puppies versus conversion from older therapies or even newer triples. And as part of that answer, maybe just how are you envisioning where share can go in the category as you look out over the next few years? .

Maybe a second question I was asking is on price. You're obviously bringing a lot of innovation to this space. But as we think about kind of competitive responses, how do you think about price evolving in the next few years? I'm assuming some incumbents may be more aggressive on pricing to sustain share. Is that still going to be a tailwind for the business? Or do you think about a more balanced price environment going forward?

So Bobby, why don't you take Quattro and price in your market, and then we can maybe speak generally, Tim, a little bit on price, how we see it.

Yes. Great question. So we believe that and what we're seeing in the data is that roughly 70% of the sales coming in the Quattro are incremental, and that's split pretty balanced between sort of puppies, new users, meaning new adults and then switchers from sort of existing folks in the category, primarily in [ deck dose ], but a little bit of parasiticides. And we're really happy with that. And if you think about other parasiticide launches in the marketplace, they've shown a much higher degree of cannibalization of their own portfolio. And so we're seeing great sort of incrementality there. And actually, we've seen that improve over time as we've gotten deeper into the launch of Credelio Quattro.

And then if I would pivot a little bit and talk about sort of price in the marketplace, we've been public with our 2026 pricing. It went into the market in December 1, and it's in line with our typical price increases a little bit larger on the vet side, a little bit less on the OTC side. And what I would say is we actually have room to price, given how much lower Elanco's products were relative to sort of the competitive portfolio. So that's one tailwind. The other tailwind I would say is we've had this approach of a no-regrets launch strategy. Obviously, you don't continue to launch offers in perpetuity. And so we have the ability to sort of back that down. So we expect price to sort of continue from a U.S. Pet Health perspective. And look, we're in a competitive market. There are 4 major players that make up 80% of the market. Expecting competition and competitive reaction is not new to frankly, this year or where we've been sort of historically.

The portfolio comment that Bobby made have in derm, having Zenrelia, Quattro, [indiscernible] coming. There's no question that counters Chris, some of the challenges too. I see that playing out. Just overall, Tim, in the Animal Health market, we've talked about 2% this year. Going forward, we're lapping innovation, any additional comments on how you see price?

We expect lots of competition. We built that into our plans. Like obviously, we don't launch things in isolation, right? We understand as best we can what our competitors are doing, but we anticipate all the major categories to continue to grow in price. Yes, there'll be lots of competition, but the price will still be a key enabler for growth for many of those. So we've factored that in as we go, and we think everyone will be, yes, competitive, but many of these spaces have had limited competition, very large price increases, I would say that will normalize over time.

Brandon Vazquez from William Blair. Maybe first, and there's a lot of great innovation. We've got good information there. If we can spend a minute on the base business because it is important to understand that you can see the benefits of that innovation come through. Just talk to us a little bit about we didn't get as much on the base business. What is it in the base business that's doing better? And what gives you the confidence that, that should remain a kind of a stable business as we go forward?

Maybe high level, I don't know, Jose, you've got a big business just to start there, and then we'll maybe go to Romero because...

I'll make references all starts with the portfolio. If you see the 2 examples I've shared some of the recent momentum growth is really associated. It's a 50-year-old brand that is still growing associated with that portfolio [ halo ] with Experior.

Yes. I'll give you same example, same answer. Portfolio really matters. And let me just give you 1 example. Credelio Cat has been in the market for 4 years. This year, on the strength of our Credelio portfolio, we added -- we saw 15% growth in the number of clinics we brought on to Credelio Cat, and that brand is growing double digits. So we have pushes and pulls, of course, with our base business, something is getting cannibalized and shrinking and some things like Credelio Cat growing. And so stable for us means plus or minus low single digits.

And maybe from international, our whole farm-animal business is core base, $1.4 billion, growing single digit from poultry growing the fastest, the market growing faster. We're growing the fastest in poultry, but ruminant growing too. So $1.4 billion of base and then impaired have Credelio family, Credelio adult, Credelio Cat, they're still healthy brands and even Seresto.

I think too, Brandon, we've been very intentional getting out of aqua. We saw that as a small market, not a lot of problems. We're going to be opportunistic in swine. But I think you've got a more decisive, disciplined Elanco. We've moved out of a Bangladesh and gone to a distributor market, same with Argentina. So it's -- to me, it's the long tail literally that we're being more decisive on. If you go back 5 years ago, they were the air pockets that caused the problems. The antibiotic medicated feed additives and small markets that cause -- look, it doesn't take much on a quarter to move the materiality. So I think that's we've ridded ourselves at some of that and innovation into every portfolio we got to win in, pets, poultry, ruminants.

Mike Ryskin in Bank of America. Thanks for all the detail provided. Maybe one on the 2026 innovation targets, $1.1 billion. You guys have made really great progress there in 2025 and a lot of what you highlighted was upcoming launches, [indiscernible] Credelio Quattro, OUS. It seems like that target is a little bit conservative. So maybe just can you talk a little bit of, are you leaving any buffer for upside? Or just what are the moving pieces that you factored in there versus where you could see a little bit of upside to that number?

You want to start, Tim, a little bit on that?

Sure. So obviously, there's a lot of things that we take into consideration when we think about the future opportunities in the market and the growth and price and all of these things, competitive activity and I would say, we've been very clear on what innovation we have coming when we do the assessment, obviously, based on market growth, market penetration. So we feel very good about the numbers that we have. It's a great question, but we think the basket of innovation continues to grow and the basket of innovation will deliver that revenue. And there's pushes and pulls in some of it, but we feel very good about where it's at. So yes.

Taking a prudent approach, balanced approach, new in the markets. It's early. These markets are evolving. We love the growth in a broad spectrum in decor international derm, but it's -- we want to look at that in a very balanced way. So do we see opportunities as the markets grow and our competitive set right now? Yes, but we've got to balance that. There a follow-up, yes.

Yes, if I could ask a follow-up kind of along the same line. On Zenrelia, you touched on the label updates that you've seen so far and some of the new data you've submitted. Can you just talk about how important is that the label changes you've seen so far versus the original label, the potential for further label changes what are the various scenarios as that plays out? What's the timing on that? And just sort of how important is that to the growth opportunity for Zenrelia in the U.S.?

Yes. I think there's a couple of ways to sort of think about it, Michael, and it's a great question. I think you got to segment the customer base. So there are people today that are loves Zenrelia, have got great experience in the marketplace and are using it for everything, it's frontline treatment. I'd say that's probably 10% or so of the Zenrelia users. Then there's another huge swath of people, the balance that are using Zenrelia, some frontline, some second line, but are using it in line with the current label guidance, which means they have to have a washout period of at least 28 days before and 28 days after. So cleaning up the label will allow us to capitalize on 2 extra months of usage on those sort of chronic patients. .

And then the third segment is there's still roughly 20%, 25% of pets that have said that they don't want to adopt Zenrelia with the current label. And so our ability to get I'm going to say all the clinics because that's my goal on board with Zenrelia is really dependent on sort of the label getting updated. But the one thing I will tell you is we've got an over a year in market, we have a phenomenal safety and efficacy track record as a result of being a year in the market, and that gives veterinarians more confidence. Time with innovation is actually your front.

And I think it's a small industry. So 36 countries with nonrestrictive label, we've been public about the submission we've made. Ellen's got a 3-part strategy. The second part is in, got a white paper and the booster data. So we'll be hearing on that. But again, I think with pharmaco vigilance stated for a year, 36 countries the vet community is pretty tight and that there's no question there's been a bigger boost than we expected from the first label change.

Steve Dechert with KeyBanc Capital Markets. Just on [ Befrina ], just any data you can provide or color you can give on its effectiveness and safety versus incumbents with the Cytopoint specifically?

Yes. Look, I think we're going to share more when we get an approval of the product. I would just echo. I feel very good about the degree of differentiation that we will see with this product as it's -- we've seen the benefit of differentiation on efficacy, convenience and value, and we're going to take that similar approach to the front going forward.

And we think an opportunity on all 3 of those which we didn't say that as much as Zenrelia out of the gate, but I think we see it right on efficacy, safety and convenience. So we do see it on all 3 dimensions.

Yes. And what I love about our derm strategy is we're in 45% of the clinics with Zenrelia today. That's going to be a natural pull for [ BeFrana ] going forward. And then [indiscernible] we think it as a differentiated asset, will also be -- maybe for those vets that are on the fence on Zenrelia, will be a pull that brings Zenrelia on. And so we really see a complement to that portfolio, which is going to be beneficial for our derm business.

And I want to be clear and really kind of new information is we have had a great constructive dialogue and response from the USDA. I know there's no ADUFA, you've all heard this in the USDA, but they have been very responsive after the government shutdown and the kind of the new information today is we do have technical sections complete. We believe we have label alignment. And now we're in that administrative phase, and Ellen's team is on a daily basis working with the USDA. So a real credit to them and we're in a good position. But the government shutdown was a couple of weeks out of the window of time. So cautiously optimistic by the end of the year.

All right. This is Dave Westenberg at Piper Sandler. So I want to talk about some of the product line extension, specifically in Pet Health. How do you think about overall growth in the in-line portfolio following kind of innovation? And kind of you gave really good details here about what happened with Ruminsin. I wanted you to talk about maybe in the 2026 to 2028 growth targets what could possibly happen in in-line portfolio. Specifically, you talked about corporates and increasing the kind of the packaging. So could you have actually underestimated the in-line portfolio growth due to portfolio sales? And sorry, I know this is long, but can you just remind us how long before you put it from innovation to in-line portfolio?

Yes, Dave. Good to see you again. Great question. I'll start with U.S. Pet Health and then let Ramiro talk about international. Look, there's no question that the portfolio really matters and the portfolio strengthens the base. So I gave you an example of how that worked in Credelio Cat. We're actually seeing the same thing in our vaccine portfolio. And so got this nice balance of -- we've got innovation in all the segments. We've got a more robust portfolio, and that's helping stabilize the base, right? And again, stabilizing the basis plus or minus low single digits, could be up a little bit, could be down a little bit over sort of different quarters for the foreseeable future. But I feel really good about the position that our base is in, and I feel very good about the benefit that the portfolio will offer to the base business.

I think examples like Zenrelia being behaving as best medicine, it opens door to clinics that we didn't have access before. So we see this highly differentiated innovation, bringing the best as well.

Dan Clark with Leerink. Actually, I wanted to follow up on that last point. Are you still finding clinics that are not interested in your portfolio of products? Do you think the approval of the [indiscernible] will open additional doors? And then just a quick follow-up. I apologize if I missed this. Are you planning on launching [indiscernible] in Europe?

The Europe question, do you want to first talk about the portfolio effect?

Yes. Look, I think we have access to 30,000 clinics, which is the broad base of clinics in the U.S. There's no question that the stronger your portfolio gets, the more relevant you've begun with customer sets. And so yes, there are still customers today that are not Elanco clinics, and I believe that [ Befrena ] will help more of those customers become Elanco clinics in the future. We saw that with Zenrelia. We saw that get even better with Credelio Quattro, and we'll see that ultimately with [indiscernible] once it gets approved and once we commercialize it.

And I would just add to that on the first point, and then I'll get to the second point. Notionally, Elanco is relatively smaller in some of these clinics than some of our competitors. So as we launch these products, the turnover gets higher of Elanco products through these clinics. Our value to the clinic becomes more important, enables a deeper conversation than we've had previously. So as that conversation gets deeper, the opportunities present themselves to talk about the whole portfolio differently where you're blocked out before.

It's a gateway.

Yes. So it's a gateway. And just on -- in terms of Europe, our intention is to have a mAb in all around the world for the derm space. And so yes, our intention is to push something out on a global basis.

We have time for 2 more.

Perhaps first on the numbers, if I may. So the innovation basket will grow about $240 million or so year-over-year based on how you're speaking to it right now and EBITDA growth judging by the high single digit you pointed out and netting out the $25 million from restructuring, what that implies to me is innovation is dropping down at a 30% margin. Is that how we should think about innovations in that margin going forward in terms of additional growth? And I have a follow-up.

Yes, Umer, we've talked some about this. I think the framework is right. There's pushes and pulls as we look at this. We've talked about a 200 to 350 basis point improvement in gross margin in the next 3 years in this window of time. We're going to continue to have investment in launches that will always be. I mean when you look at the size of these markets, the one thing we probably haven't talked enough about is just it will be a competitive 3 years, the backdrop we're talking about. We are going to take share and we're to go into major markets and the existing major markets is going to be more competitive than any other time. So what that means it's going to take a little bit more money.

So I would say in part of our planning Umer, we've had this offset of yes, with the restructuring today, with Ascend, Bob will dig into it a little bit more numbers to Ascend. We're committing to that 200 to 350 basis points. Yes, new products will be richer Meanwhile, we're going to be needing to invest to offset some of that as well.

Got it. And maybe just before I get to my follow-up, should we not assume 50% to 60% incremental margin for maybe not '26, but for future years because I would have thought that should be a possibility for high-margin pet products.

It will. We've got a Farm Animal business. We've got plays across the board. We're going to play for EBITDA first, gross margin second. I mean both of them are critical but yes, I think the framework is there. And you've asked me, do we have the potential to be a 60% gross margin company over time? The answer is yes. Not committing to that today in the 3-year context, but absolutely, we're set up to do that. And you're thinking about it the right way.

Makes sense. The other one I was just going to quickly touch up on is, so by my math, the Credelio franchise between the Quattro and the dual is something between $300 million and $350 million. Zoetis is doing something close to $2 billion run rate and I saw that graph you put up, which was at launch, month 9 versus month 9, but Zoetis was putting up close to $1 billion run rate off of their third quarter anyway. So my question is, if Zoetis flea tick franchise that brand specifically is about $2 billion. Elanco is about $300 million to $350 million. Can't we reasonably assume Elanco doing something like $700 million to $800 million at least for that franchise at peak?

Do we think the market is going to grow? Yes. Tim, I would ask you to just put a little context to this or Bobby. But I think you -- I don't disagree with the way you're thinking about it. I do think it will be a more competitive space. We don't know the competitive innovation that is coming, and we do know some, but there'll be some competitive innovation. But broad spectrum endecto is the fastest-growing pet health market, and we do think we have best medicine, which sets us up well I think next-generation afterwards will matter a lot, too, and that's something that Ellen's focused on.

But look, it's a huge market. It's a growing market, and we still have relatively low share. So there's opportunity for growth.

Yes, absolutely.

In the portfolio will matter as much as the individual parasiticide products. So as long once the portfolio expands, the opportunities will present themselves.

And we're hopeful that broad spectrum oral will continue to take share from the other sectors as well.

It'll be a step up in value.

All right. With that, we are at time, and we'll head to our break.

We'll be around to answer any additional questions during the break. Thank you, everybody. We'll be -- when we're starting back, Tiffany at what time? 10 minutes. 10-minute break. .

[Break]

Hi, everyone. I think we have heard a lot about the importance of innovation so far for each of the businesses from international Romero, Bobby's Pet Health business and of course, Joe Farm Animal business. So let's go a little bit deeper there right now and see -- give more context on what we have done and especially also on how we have done that. And of course, on top of mind on your video will be -- what else can we expect? What is in the pipeline, to what extent will our pipeline continue to drive future growth. .

My name is Ellen de Brabander. I joined Elanco a little over 4 years ago. I'm leading the R&D and the regulatory and the internal innovation teams. It's actually not my first time in my career that I'm with Animal Health in earlier phases, I also have been leading Merial that right now is part of BI. There, I led the development and approval of the first isoxazoline that you probably know better as NexGard. And I also -- I was also leading the R&D for [ Intervet ] that actually is a major building block of Merck and mAbs.

So let's go a little deeper here. And let's actually look at what we have achieved in the last couple of years. So 4 years ago, we had actually a strong development pipeline, as you can see here on the left. We did a 5 projects. A few of them are in the early phase, [indiscernible], Zenrelia and Quattro early development and a couple of them already in the registration phase. We added them Bovaer as an innovation project and fast forward, if you look where we are right now, you see that out of those 6, our famous Big 6 basket, 5 of those are already in the market, 2 of those actually have already achieved blockbuster potential. You have heard the experience story. You have heard Credelio Quattro as the blockbuster story and 3 others are basically on track to become a blockbuster over time at Zenrelia and over time Bovaer as well.

And the last one, [indiscernible] is the one that is in the final phases of the regulatory pathway. You have heard we announced today. We have all the technical sections complete. We have clarity on the label, and we do expect the approval and, of course, the launch of [indiscernible] in the year to come. So if you take a step back, this is quite an achievement. You have a basket of 6 innovations and 4 years later, each of those actually have achieved approval. That basically means no attrition. And indeed, it actually confirms one of the attractive features of animal health innovation. We have a high probability of success. And that is linked to the opportunity we have that we can very early on already do a proof-of-concept study in the target animal.

So very early on, we identify potential winners for innovation. And once they are in development, and once you have your act together, you actually do have a high probability of success to bring them to the finish line. This is quite unusual to have truly 6 out of 6. But in general, yes, you can expect high percentage of the development portfolio to do to reach the finish line. Apart from those 6, we also did have a couple of other major approvals in the U.S. You've heard the power form monoclonal story. We did get a conditional approval very soon. We all expect the full approval of our power form monoclonal antibody, our first monoclonal antibody. We also did have the approval for Pradalex, the first antibiotic approved by the FDA in more than a decade, and it's used for respiratory diseases for both cattle and swine.

And we also did get the approval for [indiscernible], our first pet health vaccine that actually nicely completes the pet house portfolio in Bobby's business. Well, we have done more -- some more deeper analysis on the last couple of years. And we looked at a number of approvals and launches that actually did reach more than $10 million sales in 1 year. And as you can see, we compare 2 periods, the period of 2020, 2025 as well as the previous phase, 2015, 2019. And what you do see is that as Elanco, we more than tripled the number of launches from new innovations that they already did achieve $10 million in 1 year. And of course, as we know, these new products will continue to grow. What's also interesting that for each of our competitors, we did see a decline in the number of innovations that actually did reach $10 million.

As you know, we are a global organization in a highly regulated business. And as we heard earlier today, we want to globalize our innovations. But the regulatory agencies are not global. So actually, every agency, they have their own requirements, their own specifics. And then usually, what you see, if you want to globalize an innovation, it takes you a couple of years. Here, we have -- I'd like to share the earlier example because we have implemented a new regulatory strategy. We have built and submitted the dossiers in parallel and that basically does allow us to get approval of the top 8 markets for Zenrelia in less than 18 months. So way faster than we have ever done. And that new strategy will actually continue to use and apply also for Credelio Quattro.

I've been asked a lot in the last couple of years. what has changed with Elanco's innovation. So how come because these are major proof points of progress in the innovation space. And the question is, okay, what did you do differently? How have you been able to achieve that? Yes, of course, you need a pipeline. I will get into that. And yes, of course, we need good talent, and I will get to that. But one of the issues that has been usually undervalued, not well understood, but actually does make a huge difference to bring innovation to life is how you get organized. And that's how I would like to go a little deeper in right now.

If you look at Animal Health, like a company like Elanco we have an innovation portfolio of over 150 projects. Projects in the early research phase, the development phase, in the [ brandmax ] phase, projects for farm animal for pets, for the different diseases, it is a complex innovation portfolio. Project with different time lines. Some may take as much as 10 years, others just 2 or 3 years. So truly a complex portfolio. And in order to make sure that each of those projects do reach the time line and their objectives, you need to manage those as a project. So we -- and the same thing, what is necessary, if you want to progress these projects, you need broad and deep technical experts. It's truly a science-based industry. You cannot progress these project unless you have very detailed scientific expertise in the clinical field.

You need, of course -- you need chemist to manufacture those and build a process for those new innovations, you need regulatory expertise. So you need a lot of detailed deep, broad expertise and unique project leaders to basically make sure that those projects, that complex portfolio actually does progress in line with your own planning. So that's why we kept in mind when we actually -- four years ago decided to build our new organization following the acquisition of Kindred and following the acquisition of Bayer, it was the right moment to build that new organization.

And we asked ourselves 3 questions. One is okay, what's the talent that we need? What's the capability we need and how to best organize ourselves? Second, okay, where actually -- we have a complex footprint where actually do we like to have our capabilities, where we should we have our people? What will we do internally? What will we do with partners? And third, equally important, how do we get organized ourselves to make sure that, that complex innovation portfolio does progress in line with the planning.

Let me go quickly deeper in each of those 3. First, as I said, because we have to manage that global project portfolio, we have built an organization where we have dedicated, mature, very experienced project leaders. They -- as full-time job, they manage the projects to bring them to the finish line. And in parallel, we have global centers of technical excellence, expertise around the world, fully integrated, so what every project we make available the best expertise. And on top of that, we have a very stable R&D leadership team, truly managing this integrated organization. We have built an organization on the legacy of 6 companies as you see here. So we truly have blends and the best mix of expertise and experience from around the world from those organizations.

But as you know, innovation actually is truly teamwork. So it's important to have those experts and those scientists and it's important to have the experience, but it's not enough. In the end, what really counts is that you are able to build a highly engaged organization where people truly work together in a complex environment. And that's not only true for this in R&D. I'd like to stress the point when we talk about innovation, and you probably already did hear that earlier on. Innovation is truly core to every piece and every [ free ] individual in Elanco. So we have as much interaction with Grace, the manufacturing team to very early on define, okay, there. Are you going to manufacture this? Very and, of course, easily, we have the interactions with our commercial teams to really define, okay, what should be our target. So all of that together is an important mix to make sure we focus on the right projects and then we progress those as we are. So indeed, as you can see, we have been able to build a high end case organization where the engagement is 7% higher than what we can see for the benchmark here.

Looking at the footprint. Of course, that's an important question, where actually do you want to do the work. This year, we have actually added capacity. We have entered a new R&D state-of-the-art facility next to our headquarters in Indianapolis also part of the new One Health Innovation District that we are building over there. We also have moved in, in a bigger R&D facility in our India -- with our India team where we truly have global centers of excellence supporting the entire organization there. At the same time, we have optimized where -- what are the capabilities we need to have internal and what are the capabilities that actually say, we better partnered because for flexibility or speed. And as you have seen today in the announcement, we have decided to start a partnership to build out our clinical capabilities is [ clean ] global, and that gives us a lot of flexibility and also more scale than we have so far.

As I said, also important, it is you can have the team and the talent it's important to manage to basically organize yourself well to manage that complex portfolio. And when you look at our portfolio, what we have done is we have refocused it, we have rebalanced it. So we have added more Farm Animal projects. And we also have made it very clear when we talk about prioritization, what are truly the most important projects. And linked to that, we have allocated our resources and what does it mean? It does that actually does mean that when we have identified the project as high important, we basically give it as many resources as it needs to go as fast as it can. So that's what you have seen us doing. You have seen us progress in the development portfolio very fast because we did give the key projects like Credelio Quattro as many resources as it needed to go as fast as it came.

Also, we have implemented global processes, global systems, as you would expect us to do. And actually, they set us up very well to now also benefit in full for all the opportunities we see ahead of us that AI will bring us. So you can see us truly moving in that phase as well. So bringing that all together, we have not only tripled the number of innovations that did reach a finish line. We also have been doing it faster because we truly optimize the engine and we allocated our resources.

So if you look at our R&D investments, we have been able -- as I just said, we have been able to build a highly efficient, science-based, people-driven innovation engine. And we are able to do that actually this in a way that we did reduce the budget because we did basically increase the capacity. So we did build a highly efficient engine that does free up capacity that they allow us to actually do more projects despite the fact that we did have a reduction in budget. Going forward, what we will see is we will see an increase in the R&D investment to basically accelerate further the development of the portfolio. So we will increase in line with the potential of the portfolio and also in line with the business side.

So bringing it all together, you see here what we have done. We have increased the size of our portfolio. So we have more projects in the portfolio. And within that portfolio, we have more than doubled the number of projects with pipeline, this blockbuster potential. When we look at the individual projects, you see that the blockbusters have a 70% higher peak sales potential than what we did see in the past. We also have tripled, as I just said, the number of the projects, the throughput of the pipeline. So not only tripled to put the output, but also did bring the projects to the finish line faster. And when we look at the investment in innovation, we actually have seen that we have more than tripled the value generated per dollar investment in the projects in the development pipeline. So truly best in place -- best-in-class innovation engine that we have built in the last couple of years.

Let's now look at the future. So cause the question on your mind will be, okay, what is the pipeline? We just have delivered our development portfolio to the finish line. We have built a highly efficient innovation engine. Is there still a pipeline actually that can drive the portfolio in the future and innovation growth in the future? And here, this slide is a nice summary of what we have done. Yes, we haven't delivered the Big 6, and they are now in the market as we have said. In parallel, what we also have done is we have refilled and we have rebuilt the innovation pipeline. We have built a new portfolio we have -- we built a portfolio, a new basket of innovation project. We group that as the next wave of innovations.

And it's a project -- it's a portfolio of projects with first and best-in-class projects, and they will accelerate our penetration in markets where we already are. they also will allow us to enter a couple of new spaces, and we expect these to become in the market between 2026 and 2031. And on top of that, we also have built what we would call a next wave of innovation. Those are projects still in the research phase but approvable beyond 2032. And this mixture of the Big 6, the next wave and the next next wave, will drive long-term durability and leadership, and they will allow us to continue that innovation-driven growth beyond the end of the decade.

Let's go a little deeper here. When you talk about new innovations and refilling the pipeline. We follow an approach that many others also would follow. You look first at the markets that are growing and attractive to us as Elanco. Then we truly spent a lot of time together with Tim's team to understand, okay, what are the unmet needs in those markets. Not everything in that market is of interest. So what are the true unmet needs there? And do we see a way to actually address those unmet needs? And if so, do we then build those capabilities internal or do we partner with third parties to address and build products that address that need. And by doing that, we actually have identified 8 spaces where we focus our innovation. Five of those are actually markets that are already well known. We are playing in those markets. We still see significant unmet needs. We see an opportunity to come up with new innovation there to address those unmet needs.

And those markets are the parasiticides, both for pets as well as for farm animals, infectious diseases, as we have heard before, for the prevention part, dermatology, pain, sustainability. Those 5 markets together today are about $20 billion, and we see them grow to about $29 billion in the next 5 years. And for each of those, there's a need for more product-based innovation. On top of this, we have identified 3 more spaces also with significant unmet need. But the market is not yet there. So the market still needs to be developed but we see a pathway to address those unmet needs as well. And these together and we talk here about obesity, for cats and dogs, chronic kidney disease for cats as well as dermatology for cats together, we see a market potential of over $2 billion.

Well, let's go deeper on our portfolio, the basket of the portfolio for the next phase the next wave innovation. This is a portfolio, a basket of project with more than 15 projects in each of those 8 spaces that we just mentioned. So at least in each of the spaces, we have 1 project there. Each of those projects are first or best-in-class or at least significantly differentiated. And together, this basket we see a peak sales potential of over $2 billion, nonprobabized and also not taking into account cannibalization there. But what we do expect from this basket of innovation is 5 to 6 new approvals with blockbuster potential between 2026 and 2031. And those 15 projects are mostly from our in-house discovery capabilities that we have built. So a very exciting phase that we see ahead of us here.

Let's go a little deeper on how we do that, refilling the pipeline. As said, we have a blended approach. We have the internal approach as well as an external innovation. External innovation, we do especially when we see an opportunity to access new capabilities that are very different from -- and more complementary to what we have in-house. And internally, we very much focus on building specific technical platforms. So we are not so interested in one-off innovations. We want to build technical platforms that will give us the opportunity to give us a range, a number of new innovations. And in the last couple of years, we have developed 2 of those.

Let me go in more detail there. One is monoclonal antibodies platform and the second one is a new one immunotherapeutics. You have heard us talk about the monoclonal antibodies earlier today. We have our parvo product in the market. We have very soon our Befreno coming. But in parallel, what we also have done is we have built in-house a monoclonal discovery engine that will allow us to actually come with more monoclonal innovations in the future. And some of them are already part of our our next wave portfolio. Grace is building the manufacturing capability. So this is truly a way to make sure that we fully leverage our internal capabilities. And I think the benefits of monoclonals are very well understood. They have a high specificity. They have an immediate onset and the duration of effect is typically between 1 and 3 months.

In parallel, we have developed a new -- really a new platform, new for us and new for the animal health industry. And actually, there's no one else who has yet this product following this platform in the market. This is a platform where what we do is that we inject an antigenic protein into the animal and then the animal produces its antibodies directly in the animal. So in essence, what we do here is we combine the benefits of a monoclonal platform is the benefits of a vaccine platform. So we basically see as a benefit here that you see duration of activity between 6 and 12 months.

We also see much lower production cost to get these products in the market and still a very good specificity. As we discussed today in the -- shared today in the press release, we already have a first project that is part of our next wave portfolio, where we have agreed with the USDA that this project is eligible for conditional approval. So both platforms developed in-house, broadly protected with IP, and we are very, very confident and excited about the potential that they can bring to us in the future. So bringing it all together, we have a strong and a balanced pipeline, balanced across phases, balanced across the species, balanced across the regions. We have also built the capability to refill the pipeline.

That, in combination with our best-in-class innovation delivery engine as we have built it, basically gives us the confidence that, yes, we are able to consistently deliver high-impact innovations in the years to come. Let's bring it together and look what it means in numbers here. So we have the big 6 in the market, as we know, still growing further, and we expect them to deliver over $1 billion of peak sales in the next couple of years.

Then immediately thereafter, we will see the next wave innovation basket. -- and we expect 5 to 6 new approvals with blockbuster potential between 2026 and 2031. And in total, this basket has more than $2 billion peak sales potential. And then immediately thereafter, you will see us come in with the next next wave portfolio. It's more early phase right now, truly best-in-class and first-in-class potential there. And basically, that portfolio will allow us to continue that innovation-driven growth in Elanco beyond 2032. And of course, all of this is still not including any business development opportunities that may come and may add to all of this. So with that, let me conclude. Yes, we truly have come a long way, made a lot of progress, but I am confident more than ever before that the best for us is still to come.

And with that, let me hand it over to Bob.

Thank you, Ellen. Good morning, all, and welcome. So you can see the agenda for the next 20, 25 minutes. But listen, here's a theme you're going to hear over the course of the rest of the session. We are executing from a position of strength. We've got a tremendous amount of momentum as we move forward. We've been focused on growth, innovation and cash, and we've built a track record around it. And as I think about Elanco moving forward, we're going to continue to be a durable growth company with improved profitability. And it's really going to be enabled by the basket of innovation that continues to grow. It's going to be supported by Elanco Ascend that's going to improve margins and then our continued disciplined capital allocation priorities. So I talked about growth, innovation and cash.

Let's just look at growth first. We are entering the next era of growth from this basket of innovation. You can see we've built a track record now. We do expect the fourth quarter to be our 10th consecutive quarter of constant currency revenue growth. We also expect the fourth quarter to be our fifth consecutive quarter with mid-single-digit growth. And as Jeff highlighted, and I'll end the presentation with our algorithm, but we see mid-single-digit growth as we move forward into 2026 and beyond.

As I look at innovation, back in 2020, we had expected $500 million to $600 million of revenue coming from our Basket innovation in 2025. We have consistently raised that bar over the last 5 or 6 quarters. And every quarter, obviously, this year, we do expect $840 million to $880 million of revenue from this basket of innovation. And it's the entire basket, but certainly led by Quattro, Zenrelia and Experior.

But as Jeff highlighted, as we move forward, we expect the revenue from innovation in 2026 to be at that $1.1 billion range. And then finally, as we look at cash as our third priority, we have continued to strengthen the balance sheet. 2 years ago, our leverage was at 5.6x. We've now brought that down to 3.7 to 3.8x. And certainly, we've had some onetime opportunities with the Aqua divestiture and the royalty monetization that we had earlier this year. But the continued focus on trade working capital and the fundamentals around collecting cash and paying vendors at the right terms has continued to accelerate and improve margins -- I'm sorry, the net leverage here on this.

EBITDA margins and EBITDA overall will continue to improve. That's -- we've seen that in the past. We think about moving forward. We're going to continue to be disciplined with debt paydown. We're going to continue to see growth in EBITDA, and we'll continue to see this leverage decline over the next several years. So as we move on to just Elanco Ascend, I do want to provide a bit of color.

But before I do, I do just want to set out what the expectations are for margins over the next 3 years. We have guided and expect to be at this 18.9% to 19.3% range for EBITDA in the current year. We do see 200 to 350 basis points of margin enhancements by the time we get to 2028. And you think about how we're going to get there.

All right. So we've moved past some challenges we've had in the last couple of years. One of the key items I'd highlight was the impact on lower volumes and reducing inventory. We've made a conscious decision over the last couple of years to conserve cash and pay down debt. And so as a part of that, inventory volumes have come down. Our factories have been underutilized. And so what we're going to see moving forward is obviously continued volume increases and fixed cost leverage. And so we'll see the benefit of that on EBITDA. The Aqua divestiture, that came with about 100 basis point of margin detriment to what we see today. That's obviously behind us. And then launch investments.

Certainly, we're going to have launches as we move forward. But you think about the last 12 or 15 months or so, we've had a higher number of launches than we expect in one period of time, if you will. So if you get past those challenges, you think about the drivers moving forward, 2 key pieces. One, it's going to be the basket of innovation that continues to grow. This basket has higher gross margins than our corporate average, and so we'll see a natural mix benefit. And then we think about Elanco Ascend. And Elanco Ascend is about building capabilities through AI and automation, but it's also about being proactive in reducing costs really across the entire P&L and improving those margins. And so this is why we have confidence in the 200 to 350 basis points of margin enhancement over the next 3 years.

So just quickly on Ascend, there are 4 pillars to the program. I would tell you this is across all 4 quadrants of the business. This incorporates the corporate functions and back-office functions. And I want to be very clear about what we see the contribution being from Ascend. We expect EBITDA savings of $200 million to $250 million by 2030. That's going to be after inflation and after reinvestment into the program and think about that reinvestment as AI and automation capabilities. Now let's take a quicker look at just some of the pillars of Ascend.

And I'll give you a couple of examples. So you can see the biggest number on the page is going to be in that procurement and operational excellence category. So one of the examples in this bucket is think about the procurement team. They've done a fantastic job over the last year and continue to make progress, identifying suppliers around the globe that's going to continue to be able to provide good quality product and raw materials to us, but at a much lower cost. And so we're going to see that natural benefit through over the next couple of years. I mentioned that the entire organization is supporting Elanco Ascend and is leaning in.

So I think about organizational optimization, let me give you an example that's a little bit closer to home. We are investing in technology and finance. That's going to give our finance team global visibility, real-time visibility to the balance sheet and P&L. So our team is going to have visibility to customer data and receivables, inventory levels. On the procurement side, we're going to see when cash is expected to go out the door when we're paying vendors and what are those terms? I'm going to be able to make sure that I'm comfortable with the terms we're paying our suppliers and the discounts. Are we getting the right discounts if we're paying early? That makes sense from a business perspective.

And so that's just a couple of examples and a specific example on AI and automation. That's really going to be across all 3 pillars, but it's going to give all of us the opportunity to make better database decisions. So I think about just the cadence of Elanco Ascend coming through the P&L. We do see about 75% of the benefit improving gross margins. We see about the remaining 25% improving OpEx. And you can see the phasing. We expect about 30% of this to benefit 2026 and then the ratable proration of the benefit moving on in the next 4 years after that.

But I would tell you, with the restructuring announcement we made today, you're going to see us front-load some of that save as we execute those programs. And so you'll see the SG&A savings really come a little bit sooner than the next couple of years, okay. Now getting into the restructuring charge itself. So listen, number one, this program is part of Ascend. But two, and more importantly, I've been part of several restructuring programs in the past. And I can tell you, most companies take restructuring charges from a position of weakness, where they're responding to an event or responding to a macro environment. This is different. This charge is from a position of strength, and it's improving our competitiveness as a business. So you think about just a couple of the bigger buckets.

The first one I'd highlight, Jeff and Ellen touched on this a bit. But with the restructuring charge, we are getting out of some of our higher cost R&D footprint that came with the Bayer acquisition, okay? And we are shifting those resources to the U.S. as well as leveraging an existing third-party relationship that's going to make Ellen and the team more agile, provide a lot more capacity into what the team is doing and move a lot quicker as she thinks about bringing product to the market.

On the footprint side, we are certainly investing in facilities that's supporting the innovation and the growth there. But there's also some opportunities where we are reducing scale in some of the product lines that are declining. And then G&A, as I mentioned, the entire team is supporting Ascend through G&A. And so the entire back-office functions and corporate support functions will see opportunity as, again, we support AI and automation and also leverage our shared service center environment. So just some more detail on the charge itself. You can see we will become a more simpler and efficient organization.

We do expect about 600 roles to be eliminated as part of the charge itself. There will be about 300 roles that will be rehired in low-cost countries. As I think about the save, we expect about $25 million coming through in 2026 and about $60 million in 2027 and beyond. Now the charge itself is $175 million. That does incorporate about $50 million of noncash charges associated with impairments of the facilities that we're exiting. And so the net cash cost of the charge is about $130 million that you'll see over the next 2 years. Cash payback is about 2.5 years.

But again, I would highlight because of the significant fixed costs associated with the R&D facility from the Bayer acquisition. When you exclude that, our payback is closer to 1.4 years, which is obviously just a fantastic metric when you think about restructurings. So with that, I would like to invite Grace to come up and spend just a few minutes talking through the capabilities that she's built in manufacturing and then also how her and the team are leaning into Elanco Ascend.

Thanks, Bob, and excited to be here to talk about the manufacturing organization, what our focus is and where we're going on our track record. So Grace McArdle is my name. I'm responsible for the manufacturing and quality organization. And really, our role within manufacturing, it's really -- it's quite direct. It is we need to reliably supply the product. We need to enable growth. We need to offset and work hard to offset inflation, and we need to continue to improve our margins.

And with that, let's start with a snapshot of our manufacturing footprint. So balance between internal manufacturing sites and our external manufacturing organization. We're very much well primed to reliably supply to enable the growth that we see coming and also to give us the agility that we need in terms of our launches as well. And with a strong footprint, we have been building an even stronger manufacturing organization. And it's really anchored on 4 key pillars. We've got streamlined processes that are based on our single enterprise-wide systems. We have been making the strategic decisions around our manufacturing footprint, which also then feeds into the key targeted and timed investments that we need to actually enable growth and innovation.

And I think we can all say that we've got a unique partnership with Ellen and the research and development team in terms of how do we actually speed up the pipeline and also how do we actually launch with agility as well. You'll often see in this industry, months can go by between the actual approval of a product and actually having the product available for launch. We've got a couple of great examples most recently with Zenrelia, where we actually have product available in the market within days after the actual approval was achieved.

So the 4 pillars that we have, they've really helped us and enabled us to deliver very much a demonstrated track record of the productivity improvements, which has yielded about $200 million of savings since 2021. They're anchored on excellence in how we're managing our global technology platform and our systems. They're equally anchored on the processes, the tools, the systems, the visibility and the governance that we've actually put in place so that we are really on top and delivering on the productivity commitments that we are making and will make. And then the final point I'll make is how we uniquely combine our procurement efforts and the science of our business as well.

Bobby and Ramiro both mentioned the Credelio family. Since 2017, with the sourcing and the science that we've deployed, we've actually managed to reduce the cost of the active ingredient by 70%, resulting in a 15% improvement in the average gross margin for that product family. Another great example, as Jose was mentioning, the iconic Rumensin brand, 50 years on the market. With the technology, the science and the process improvements that we've done over the last 50 years, if not, we would now require 60 -- or 6, excuse me, duplicate plants to actually support the volume that we have for Rumensin.

So what does all this mean? It really means that we are primed with a productivity muscle that is well positioned to develop or to deliver and to accelerate the productivity commitments that we're making as part of Elanco Ascend in the region of $200 million to $300 million for manufacturing and quality. We've got the systems, we've got the tools, we've got the visibility and we've got the processes that give us confidence that we will be able to do this and to also accelerate it as well from the work that we do on active ingredient sourcing and science to our digital agenda that is anchored on the investments that we've already made in our enterprise-wide systems.

We operate, as you've heard today and in a highly regulated environment. And many of our programs, they play out over a number of years. Within manufacturing quality, we execute our plans, we're delivering results and are very much primed to deliver and accelerate this over the next number of years.

And with that, I'll hand back to Bob.

Thanks, Grace. So before we move on to the next section, I do just want to summarize what Grace and I have highlighted here. So the total Elanco program, including the restructuring charge, we do see $200 million to $300 million of gross margin improvement over the next 5 years, $50 million to $100 million of OpEx save. And some of that is going to be reinvested in the capabilities, again, surrounding AI and automation. And we're going to have inflation. And so that bucket is, call it, $75 million to $125 but we do see $200 million to $250 million of net EBITDA dropping to the bottom line by 2030.

So now let's take a look at cash flow and capital allocation. So we do see accelerating free cash flow over the next several years. You look at the left side of the chart, we do expect over $1 billion in free cash flow. And you see 2028, there is a bit of a spike compared to '26 and '27. But I would remind you that incorporates $130 million of restructuring cash. So when you normalize for the restructuring, the ramp seems pretty normal, okay? Now on net leverage, we do expect to end the year at 3.7 to 3.8. We expect to be in the low 3s by end of 2026 and expect to get below 3 in 2027. It's really enabled by 2 things. It's going to continue to be focused and disciplined around paying down debt. And number two, it's going to be the continued growth that we see in EBITDA.

So if we just take a snapshot of our capital allocation priorities and summary here, you can see we do expect some flexibility as we get out the next couple of years. Our first priority is going to continue to be investing in the business. And so that's investing in R&D and continue to fund the opportunities that Ellen and the team see. It's going to be supporting Grace to ensure she's got the right capabilities within the manufacturing facilities to bring the best costed product to the market. And then it's going to continue to have this no regrets approach to our launches and supporting the commercial leaders you saw earlier today. Now M&A will be a part of our growth strategy moving forward.

I would tell you, as you think about the next several years, these are going to be smaller tuck-under opportunities that's going to enable more innovation and build out our portfolio. But to be clear, these will not derail us from our deleveraging time line of getting below 3 in 2027. And then when we do, that's going to give us the flexibility to return cash to shareholders, all right? And the longer-term target, as Jeff laid out, we do expect our net leverage ratio to be in that 2 to 2.5x on a longer-term basis beyond 2027. So moving on to just the outlook for the business.

As I think about the next 3 years and to be clear, including in 2026, we do see mid- to high single-digit growth in the pet side. We expect and forecast mid-single-digit growth on the farm side. That base, we expect to be stable. And so that stable means maybe up, maybe down low single digits. That could shift by quarter. You heard the leaders here today. It could shift by geography. But overall, Elanco, we expect mid-single-digit growth again in 2026 as well as the next 3 years. Now on profitability, I just want to highlight something that was unique to me as I joined the organization. I've been with the team probably about a week, and I walked into Jeff's office, and I asked them, hey, why don't we spend a lot of time talking about the farm business externally? And what was unique to me is that it's half our business. It's very stable. It's a great cash flow business. But when you look at the profitability, it's on par with the pet side. Although gross margins are lower, the OpEx efficiency is significant.

In the U.S., for instance, OpEx is 10% of sales. And so what you see is a much deeper drop of profitability to the bottom line. And so as I think about total Elanco, the total profitability is going to improve over the next 3 years, again, by that 200 to 350 basis points. So the overall summary, and Jeff flashed this a bit, but just to reiterate, our algorithm as we think about the next 3 years, and again, in 2026, we expect mid-single-digit growth on the top line. high single-digit growth on EBITDA and low double-digit growth on EPS. Those are all in constant currency growth targets. I'd highlight free cash flow, again, we expect over $1 billion of generation in the next 3 years and then net leverage getting below 3 in 2027, which again opens up flexibility as we think about shareholder return and then the longer-term target of 2 to 2.5x.

And so finally, I want to remind you, we are working from and operating from a position of strength with a lot of momentum. firmly believe we are a durable growth business with improved profitability. We see the accelerating cash flow to improve our balance sheet. And we are going to maintain financial discipline and transparency. And that financial discipline means we look with a fine-tooth comb and consider our organic investments as well as our inorganic investments to make sure they have the right returns for shareholders.

And then on transparency, I do just want to take a minute and talk about our philosophy around guidance. We will continue to be transparent. We're going to continue to provide quarterly guidance. Now our guidance is going to be balanced. It's going to have a little bit of a wider range. It's going to be incorporating upsides and downsides because of uncertainty. But we will be transparent with the pushes and the pulls, so you have the confidence in the numbers that we commit that we'll deliver them.

So with that, I'd love to invite my colleagues for the Q&A session.

We'll take questions again for Bob, Grace, Ellen and Jeff.

Brandon Vazquez from William Blair. Bob, maybe for you to start, I'll be the annoying analyst and ask you the question. You have a lot of momentum going for you. Why is mid-single digits kind of the baseline of growth that we should expect? It feels like with new products, geography expansion, things like that, this could be a high single-digit growth business. What would prevent you from doing higher than mid-single digits?

Yes. I mean -- so thanks for the question, right? So we -- again, we do see the pet side being at that mid- to high single-digit growth, but the Farm business is half of our business, which we see growing at that mid-level, which is above what we believe the market growing at. I would tell you, we're going to continue to be prudent with guidance, right? So we want to be disciplined. We think about the pushes and the pulls. We think about competitive response. And so that's maybe how I would think about it.

But again, we've got the momentum. We've got Elanco Ascend continue to improve margins. So again, we feel good about the top line. We feel great about the profitability dropping through. And then the capital allocation discipline, just making sure that we're going to be providing the best results for our investors.

I would also say, Brandon, I mean, we're going to be lapping a lot of launches. There'll be a lot of variation as you come back around the next year on the compares and quarter-to-quarter. So we want assurance that we can deliver this consistently. And I think to Bob's point on guidance, too, we're going to be very transparent even more so on what the pushes and pulls are. And you've met the commercial leaders here, we're going to be able to put a little bit more transparency to that. But we want to be consistent. We want to be reliable.

As a follow-up, Ellen, you spent a lot of time on a lot of the great things coming up in the waves, and it was very helpful to see all of that. How do you think of the current product portfolio? And how much of your time you're spending on life cycle innovation, right? At some point, Quattro will be an old drug. What is left within some of those legacy products that you're still spending time on to ensure that they remain competitive over time?

Yes, great question. And let me be clear, yes, a significant part of our people and our dollars are focused on truly supporting the business that the products already in the market and driving further geographic expansion. So not only for the big 6, but actually for the entire portfolio. So we have a significant number of our people actually focusing on indeed on getting most out of our current product portfolio in the market and making sure it stays compliant because, as you know, the regulatory requirements change.

So if you don't do anything, you may even run out of compliance. So yes, absolutely, we focus on that. And that's partially linked to what I said before. We have a very robust resource allocation methodology in place. So some of those actually for us are highest priority projects. So we give it whatever it needs to make sure that even the brand mix actually gets what it needs.

So think about that, and I think something Ellen has done very significantly different than maybe 5 years ago is separating out life cycle management. So you're not competing a vaccine in poultry against a Zenrelia that's coming down the pipeline. I think it's been a masterful approach. And let me just use one example, food safety, poultry, everybody. I mean when you look at salmon and poultry, it's the top concern of our global poultry customers at Romero and Jose have done with Ellen's team is we just continually added strength in life cycle management and claims and manufacturing adjustments to make us #1 in that space. So it will be key to that stable base of plus/minus low single digit. Karim?

Ellen, a question just on -- it sounds like you're moving the model towards more CROs, use of CROs, externalizing the clinical trials. Is that right?

No, I think it's more balanced, Karim. So we very targeted define, okay, what are the capabilities we need in-house and what are the capabilities where we partner. So no, some of the capabilities we actually do bring in-house because we think we can do it better and faster. And in other cases, like this, the clinical announcement we announced today, we said, you know what, actually, given our needs, it's better to partner because this is actually the right partner for us to make sure that we can drive our very strong pipeline where we have a lot of things going on in parallel that we say, let's now partner with this one, Clinglobal to make sure we have the capability. So truly, it is a balanced approach.

But within clinical, it's balanced or within -- for the clinical piece, you are doing more outsourcing?

It is balanced overall for the different areas, technical development or clinical. But even within clinical, it is balanced as well. So we have our own clinical facilities. We do a lot of clinical work in-house at our own farms, and we are even growing that, for example, the one in Australia, -- but indeed, we also partner with others where we think it does make sense because of the capabilities already in place.

And Karim, sorry, I just want to add. I think Tim's point about this is historical. The amount of stuff that's come through and now in clinical, I mean, we're at max capacity. By today, shutting down that German facility and going with Clinglobal, we're 5 to 6x the capacity and cost efficiency. So some of it's just faster capacity with more reliability with a long-term relationship we've had with Clinglobal. You've been close in for a while.

Yes. My concern would just be that we've seen like on the human pharma side, there are definitely limitations to externalizing the clinical trials. And so that you can get extra capacity, but it comes with some issues. So that's kind of where my question is coming from.

No, I think it's well said. So we are very confident this is a partner we know. We know the people. We know the capabilities. We know how to work together. And that's why we are confident to say, let's extend that partnership because indeed, our next wave portfolio truly is in a phase where we need to do a lot of clinical work in the next couple of years to bring them to the finish line and get those approvals between '26 and 2031.

Chris Schott from JPMorgan. Just can you come back to immunotherapeutics in terms of that platform? Just help us a little bit in terms of how broad of a portfolio should we think about here? And the value proposition, is it frequency of dosing? Is it you can go after different categories? I'm just trying to get a sense a little bit of kind of what drives that kind of the excitement around on that piece. And I have one follow-up.

Yes, great question. Yes, we are very excited about that. At the same time, it is an early phase. So we are truly still defining how broad could it be? What is the scope, what type of indications. But what we have seen so far only confirms our excitement. And that's why, indeed, we have been able to get to progress one of the leading candidates already as part of the next wave portfolio.

But if you look at the potential benefits, you can immediately see why we are excited because indeed, if you have the much lower cost versus the traditional monoclonal and still good specificity and a way longer duration. I think of what you can see with vaccines, those are all elements and benefits that you say, yes, that truly opens up a new world of opportunities.

This is kind of a key tipping of exposure here. If you look at our IP protection, the capability we've built, we've got an entirely new platform here in pet health. This also is highlighted today in the announcement. We do have one key asset that is under conditional accelerated pathway with USDA that Ellen's team has opened up, and we see this as a major pet health in an existing market to replace and not really cannibalize what we have. So I just -- I want to share that -- you asked a question in a major new area that we're exposing today.

Yes. In essence, we activate the immune system of the animal, not to attack a microorganism that usually is happening with a bacteria or a virus, but basically to address other therapeutic needs.

And just maybe a financial one. I appreciate all the detail today. Just when we think about that 2028 EBITDA target, can you just put some context how much of the Ascend kind of program is reflected in 2028? I'm just trying to kind of bridge between some of the near-term numbers and that 2025 target.

Yes. So think about -- so good question. So 30% of the Ascend benefit is going to come in 2026, right? It's going to be a little bit heavier weighted to the front end because of the restructuring charge. But think about the gross margin improvement to be a little more ratable over the next 4 years. And that's because a lot of it is procurement. It's going to come through as product is purchased and then sold, obviously. So think about a little bit heavier weighted in 2028 and then more ratable on the back end.

Remember, too, the bringing down of inventory for cash was something that Todd Young, I, others talk about for a few years. Maybe just Grace briefly, do you think about absorption in the plant and the gross margin trajectory what you see at a high level?

Yes. I certainly think we've gone through that phase. We continue to make the footprint decisions that we need to. So we divested our site, for example, in [indiscernible] Earlier on this year. Just today, we announced the closure at the end of 2026 of our Kansas City plant as well. So we're continuing to refine our footprint strategy to ensure that the asset base that we have is well utilized that we're driving the right level of absorption through our plants as well.

Mike Ryskin, BofA. I kind of want to bridge something you discussed on the first part, Jeff, with a lot of your presentation second half and on. Jeff, you kind of talked about a lot of the blockbusters and the launches you've had in the last couple of years, Quattros, Zenrelia. These are going into well-established markets that are proven markets, you're not doing any market building. If I think about some of the things you're talking about in the next wave, in terms of the immunotherapeutics, but also obesity, kidney, these will be relatively new areas where you're building categories.

So I just want to ask, that's a different challenge. That's a different tackle because there is market building, market defining. So just talk about your strategy there versus going into something super established like derm or pain. And then maybe as part of the bigger question there is, if we think about the companion animal market over the last 50 years, I see it as dominant 4 categories: para, derm, pain, vaccines, right? That's really been it. Is there room for more? Like how do we gauge the consumers' willingness to spend in these additional categories like obesity, kidney disease, things like that?

Yes. I think a new platform to a pet owner doesn't matter. What matters is the value proposition. Look at Isoox when you and I, I mean 7, 8 years ago, look at how big that category has grown. It's going to be $2 billion. derm 10 years ago, and Tim wasn't there. What I see is the first 4 problem sets in pet are going to stay the same. Pain will emerge and go from 1 to 2, as Tim said, et cetera.

So if you look at that, if immune therapeutic comes in, has a better margin profile, has a lot better efficacy and maybe safety profile, you are going to go after and take share from that market and grow that market because it's going to be a better value proposition for the pet owner. And remember my second trend, the pet owner will have more influence and more control. So getting to them with that will be important. So I don't see a new platform.

If Ellen brings something, I actually love the solution set on the proposed label she's seeing for these next round of assets. So now look, is there more room? Absolutely. You saw us, we now have 8 targets. So obesity, we believe CKD, I think we all are chasing that. And -- but we've got to -- our criteria is best or first-in-class. I would call out ruminant and poultry. The problem set, the durability, there's breakthrough opportunity here in productivity and disease prevention at another level, done with some of these platforms as well. And there are some synergy here with these platforms in ruminant and cattle and poultry. The area we got to continue to build and grow that we don't have as much relative to the competitors. We've been open about this is the bios, the vaccines. And that will come. Part of the way to win that battle is to bring a new platform.

Dan Clark with Leerink. Just wanted to ask on the philosophy around sales and marketing spend. I appreciate all the color on kind of the rest of the cost structure, but how are you thinking about that growth over the next couple of years? Is there a willingness to like reinvest any incremental gains in that area to drive additional margin expansion? How are you thinking about that?

Yes, Dan, great question. So this is where Ascend is so important. It's giving us the opportunity to think through and make choices about where we're investing. And so Ascend is about being efficient. Jeff mentioned I came from a low-margin industry. And I think the point was because I came from a low-margin industry, I had to focus and make the right choices for where we invest, okay? And that's what Elanco Ascend is going to do.

So you're going to see us -- the mix of where we're spending OpEx is going to shift more towards marketing and R&D and less on areas like back-office support because we're going to be leaning into automation and AI. But I would continue to say we are going to continue to use data that's going to drive our decisions under this no regrets approach to launches and using that data to determine when we'll continue to and when we'll stop spending on marketing with these launches.

But listen, again, no reg growth approach. We've seen the success here. As I think about moving forward, so next year, you're going to see Ascend -- we're going to continue to spend on marketing, but we're going to see EBITDA growth as well, okay? So Ascend is going to help us with the mix. Ascend going to help us with dropping EBITDA to the bottom line. And then again, finally, like, listen, like we're going to continue to be prudent with our approach and focused on executing the portfolio that we have.

The procurement also is an active ingredient strategy that Grace has. Credelio is a great example, bringing costs down significantly. And that -- we have some of that in, and we have some speculation we could do more. I don't know. That's a big part. It's active ingredient procurement approach? Is that?

No, I think that's very fair. And it's a tried and tested approach that we have been using. And again, to my point, it's a highly regulated industry. So the actual time line in terms of implementation, you need to start early and then it's executed over a number of years as regulatory approvals come through for changes. But absolutely, that's a large part of the foundation that we've built in manufacturing and are going to continue to execute on.

Chris LoBianco here for Steve Scala at TD Securities. What do you think are the major unmet needs in companion animal parasiticides? And do any of your near-term blockbusters in 2026 to '31 address those unmet needs?

Do you want to share that? And maybe, Tim, if you want to have a few comments, too, on this. Do you want to start, Ellen and then...

Yes, sure. So on the parasiticide, the major unmet needs, what we see, of course, we always focus on needs, whether it is safety, efficacy or convenience. 1 of the 3 or a combination of the 3, that is where we look at. So -- and those are still unmet needs and opportunities in the biggest parasiticide market as well. Think of longer duration, think of addressing resistance. So those are the type of focus areas where we say, is there an opportunity for us to actually bring the next generation of parasiticides.

Do you have anything to add, Tim? Or is that?

Yes, I would just add that different pet owners will look for different things. So one product is not going to fit everything. So there'll be lots of opportunities to expand on that and continue to grow the category over time as different generations of pet ownership come into the marketplace and look for different opportunities.

We have seen probably less internationally impact from a long-acting injectable. And we think part of the message there is broad coverage matters. convenience matters. Also long-acting injectables bring some speculation right now from the pet owners. So we've actually seen not the competitive front in Ramiro's markets as maybe was speculated by the market. But more to come. There's more to play out there. But I think people want convenience. They also want to be assured they're going to be okay for their pets.

Yes. I guess a question -- I guess I'll combine the 2. But in terms of your thoughts on the mid-single-digit growth, how much is volume versus price? And then also, there's been caveat by competitors that there's been trialing or free sampling and other things market. And so your level of confidence that, I guess, adoption that you're seeing in the market around parasiticides and dermatology that's actually leading to durable response and, I guess, market share gains.

Yes. We've seen in the industry 2% price pretty consistently over the last 2 decades, and we're guiding to that this year. We are going to lap these new products. So I think that will be beneficial that we haven't seen in price coming back around. Bobby has already highlighted, I mean, publicly, we've taken a very value-based approach with more value, more differentiation. We're pricing up given our value offering, and we'll keep an Elanco value-based approach on price. So I think what you see in mid-single digit is you're going to see probably the trajectory we've been on.

There might be ups and downs year-to-year and the remaining will be in volume and volume will come from stronger portfolio, as you heard earlier. I think that's important. No question, Bobby mentioned it, but I know Jose and Romero would say the same. This will be a competitive 3 years. I think we're very well suited. The industry is going to grow $20 billion, we believe, over the next 10 years. And the first -- next 5 is going to get a good share of that. And we believe we're well suited. Back to the slide I showed why in the 3 channels, farm and pet retail, we've got leadership. And we got broad portfolios that can meet most any customer where they want to shop value-wise. And that portfolio is going to give competitive strength over maybe a competitor trying to offer.

There's always going to be a short-term deal, but portfolios win in this industry, and they always have. And I think pet vet, we are smaller, but that's a positive. We're notionally smaller. We got a $300 million parasiticide business in the U.S. coming with Quattro, -- you're going to see, I talked at the break, a lot less cannibalization from Elanco. But yes, there will be some quarters that we may report competitive activity but we're confident in the long-term trajectory because of the portfolios.

This is JP for Umer Evercore. With the current corporatization of the vet clinics in America, I think it's very important to understand what is the sales dynamics and strategies you guys will use to better perform in that segment.

You asked me about that last week, JP. I'll turn it to the guy that does it every day here and Bobby, I want to just share a couple of comments relative to the corporate environment.

Yes. I think you got to take a step back and understand the corporate landscape. So there's many corporate clinics in the U.S. They all operate a little bit differently, and they all have different contract cycles with their partners. But roughly 70% of the corporate clinics have 1 or 2 preferred -- 1 of 2 preferred partners, typically 2 partners. And we believe that our portfolio is a strategic and competitive advantage.

So our portfolio gives us more relevancy because it can be a one-stop shop for that corporate clinic. It also allows us to sort of bundle our products, so we don't have to get as competitive on a specific category in order for us to compete. And as part of our sales force expansion that we made about 16 to 18 months ago, we expanded our corporate accounts team in anticipation of the broad portfolio, giving us relevancy with that group going forward.

We have time for one more question, if there's one.

Steve Dechert with KeyBanc. I think you guys mentioned earlier in the presentation that the appetite for protein was the highest since 1983. -- while at the same time, we have cattle inventory at low since, I think, around 1950. I guess what needs to happen to see the rebuilding of the herd in your view?

Yes. Jose? Jose talks to me about this every day. Keep it to 2 minutes, not -- this exciting time here.

So the way to think about it is cycles and trends, right? If you think about the last -- there's a lot of numbers out there. But if you think about the last 50 years, let's take 9070 as a reference, the output of protein has continued to increase while the animal numbers has decreased. That's the overall trend. 20% less animals, 20% more meat output and almost twice double the milk output with -- that's the general trend that is driven enabled by technology, genetics and products such as the ones we provide.

That's the general trend. Every 10 years, there is a cycle that either weather-related or economics related. cattle herd goes down, and then there's an economic incentive for the cattle herd to be rebuilt. We are that [indiscernible] Bottom. The economic incentive is out there. We're seeing cows slaughter going down and that cycle now reverting and we see the signals of the herd being rebuilt.

You think what you -- everyone has a prediction, but -- and then mentioned producer versus packer, just but you're thinking in the next couple of years.

Yes, it's -- I should have mentioned, these cycles, there are 2-, 3-year cycles. So high level, every 10 years, there is a cycle, is a 2-, 3-year cycle. We are on the rebound of a 2-, 3-year cycle from a producer standpoint. And again, that demand and that signal is out there.

And we serve producers, and it's very profitable for producers right now, not so much for packers, but producers buy Elanco products. Let me close, and then we can have some time at lunch with the rest of the team. I want to thank Tiffany and her team and all the work that they put into this and this executive team very much so -- and we've had a good time putting this together as really a backdrop to be able to work with you for the next couple of 3 years.

As Bob said, this is 2016 to 2018. This is our framework, and we understand these are the expectations we've outlined. And I really leave with this final slide. And the message is what we are desiring to be is what we've actually become over the last 2 years, and that's consistent, reliable growth company. We know that mid-single-digit top line will bring leverage to the bottom line, and it's all about these 3 outcomes.

And I hope you hear Elanco to be a very consistent, constant message and then we deliver against that. We want to make this straightforward for you as an investor. We want to be the most compelling value stock that you have in the most durable segment. This growth, innovation and cash underneath each one of these, and we'll come back to this with all of you as investors are our expectations. Sure, there will be ebbs and flows. There will be quarter-to-quarter differences, but we really are confident in the next 3 years that these are the expectations. Underpinning this is a very durable industry.

This $20 billion of growth, we deserve our share of that. And we believe, hopefully, you saw a team, each one of these teams has 8 to 10 people at their table that would represent a lot of what you saw today. And you can be assured hopefully today that, that $20 billion of growth in animal health will be a great place to put investment money and it will be a great place to put it with Elanco, with the team, the culture and who we have.

Thank you again for time that you spend with us. Expect transparency, accountability and accessibility from Elanco. Thank you. Have a good close to your year and a happy holiday, and we look forward to some engagement at lunch. And for those online, we'll look forward to engaging with you in the future. Thank you.

All right. Good morning, everybody. I'm Dave Westenberg. I cover Animal Health here at Piper. Next up is our fireside chat with Elanco. With us today is Elanco's CFO; Bob VanHimbergen and Bobby Modi, Animal Health, EVP. Thank you for here, and we'll -- thank you for being here, and we'll jump right into Q&A.

Bob, I'll start with you. You have products that can really drive gross margins. What are your thoughts about margin expansion? How can you -- how much can you attribute to gross margins in the coming years, especially since you have all this innovation that's recently came out?

David, thanks for the question. Yes. So as I think about just gross margin over the next several years, we're going to have just a natural enabler with our basket of innovation continuing to grow and accelerate. Just the margins on our innovation basket does come at a higher rate than our corporate average. So we'll see that natural mix benefit. But you may have heard us talk in the last couple of months about Elanco Ascend, and that's where the company is taking a very proactive approach to some cost-related items and some productivity measures and really investing in things like automation and AI that will help us be more proactive towards improving margins, both gross margins when you think about the costs within the 4 walls of our manufacturing facilities with the procurement side of partnering differently with suppliers and then with -- on the G&A line item, which is more EBITDA margins, obviously, where we can make some choices around what we're doing and invest in R&D and marketing to grow that top line. So we're going to have a natural mix and then we're going to be proactive on some cost things.

Can you dive in a little bit further on Elanco Ascend, what we can expect from it?

Yes. So we're going to share a lot of color next week in our Investor Day. But think of Elanco Ascend as a -- we're in the early stages of a company-wide initiative. So this is covering really all 4 quadrants of our business and every corporate function, really, really supporting the program. But this is going to allow us to grow EBITDA in 2026 with, again, some of the cost measures and some automation opportunities. So we're going to be able to grow EBITDA with leveraging some of these opportunities, but then investing in R&D and really marketing to support Bobby's world. But early stages, again, more color next week. But again, this is going to cover the entire business.

Got you. And Bobby, I want to switch to you. The U.S. Pet Health business has been transforming into a growth business. How has that happened?

Yes. Thanks, Dave, and good morning, everyone. I would say what transformed the U.S. Pet Health business has been a lot of things, but anchored in what's driving the change is innovation and really launching differentiated assets in growing spaces. And then secondarily, launching those assets really well. And there's really 2 areas where we focused on in terms of launching those assets well. One is share of voice, and we've drastically increased our share of voice. So how much we're talking to our end customers and how much we're talking to our end consumers with direct-to-consumer advertising with breakthrough creative. And then the second sort of strategy is physical availability. And our sort of purpose is to have our products everywhere if a consumer wants to buy our products. And we've been solely increasing the points of distribution either in clinics, whether that be independent or corporate or retail stores for our OTC portfolio.

Got it. Can you talk about some of the products? I'm going to start with Zenrelia. What's the market potential for Zenrelia in the U.S.? And can you talk -- contrast that a little bit with outside the U.S.?

Yes. Look, the derm market in the U.S. is $1.3 billion, growing double digits. The derm market globally is about $2 billion. I would say we've got about a year of experience under our belt, both OUS and certain markets, think Brazil, Japan and Canada. In those markets, we've already seen double-digit share gains. And then we've got a year of experience in the U.S. with what I would say is a more restrictive label that's getting a little bit better. But the momentum on Zenrelia has been really positive in the U.S. in the last couple of quarters. In Q3 to Q2, our total sales for Zenrelia doubled for the company. We're seeing clinic penetration at close to 45%. We're adding about 2,000 clinics every quarter. And we're seeing more first-line usage of the product as people get more comfortable with the safety and efficacy of the product and see its real-world benefits.

Got you. I want to switch back to Bob, can -- which specific innovation products beyond Quattro, Zenrelia, Experior are expected to be the highest contributors to innovation revenue growth in '26?

Yes. So David, so we really think about innovation as the entire basket of products. You did mention really kind of the big 3 that we've seen perform well in 2025. I'd also highlight Adtab in Europe performed well in the first half of the year, certainly the first half of the year product, and we expect growth in 2026. But maybe I'll just give you a little bit of color on the 3 that you highlighted. So Quattro, we -- this medicine is not acting like a first -- third to the market. I mean the acceleration in growth has been well beyond what we've expected, and that's why we've been heavily investing in marketing to continue to grow that top line.

But more importantly, to think about what Quattro, what it does for us is with the rest of the portfolio we have with ecto, endo and endecto and just a wide variety of solutions for parasiticides, it's helping us really get in front of corporates at a different level, and that's an area where we've been under-indexed. I think about Experior on the Farm Animal side, this is -- we see continued runway for this blockbuster just in Canada and U.S. alone, it's a $350 million market. And so we expect growth there in 2026 and beyond. And then Bobby just talked about Zenrelia. I'd say the one big opportunity for us is the globalization of all of these products as we think about going into 2026. And then as we said in the past, we have IL-31, most likely going to be a first half launch next year. That will be a contributor, but not as big as the other 3 that we just highlighted.

Got it. Maybe we can dive in a little bit more on the farm side. It's been performing really well. The macro in Farm, despite the fact that, of course, the herd size has been smaller, it's been really, really good. What are some of the things that investors might be overlooking about on the Farm business because traditionally, investors do look at the Pet Health business a lot more.

Yes. So this is one of my most exciting things to talk about. So when I first joined the company, it was probably within a week. I went to Jeff and said, hey, Jeff, why aren't we spending any time really talking about the Farm business externally because it's half of our business. The EBITDA margins is what I think people are losing sight of. The EBITDA margins in the business are on par with the pet side. And what that means is if you think about the U.S., for instance, on the Farm business, OpEx is 10% of sales. And so the pull-through to the bottom line is equal -- is much stronger. So our EBITDA margins are equal with the pet side. But it just shows our strategy of innovation, having the right innovative products, have the right portfolio, providing the right solutions to the end customers works. And so what I'm trying to do is make sure people understand the stability of the Farm Animal business, the profitability of it. We're going to continue to grow there.

We see this market growing in a $25 billion market already. I think about Experior, as I mentioned, it's a blockbuster. We expect that to continue to grow in U.S. and Canada and then certainly with the international opportunities as well. And then as I think about Bovaer, the growth has been a little bit muted from what we had anticipated originally just because of the lack of government incentives. But I'd say there's multiple levers we're working to really get the growth within the product. And we still believe this to be a blockbuster. I'd say adoption rates for Bovaer have been great. It's sticky. We have over 95% of customer retention on Bovaer. So we know the market is there. The end customer sees about $20 ahead of additional profitability from Bovaer. So there's just a lot of great exciting opportunities there that I think there's really just not a lot of visibility to, and we're going to try to bring that out a little bit more next week as well in Investor Day.

Got you. And hopefully, I'm not jumping in front of Investor Day when I ask -- so I the margins is, I think, kind of actually unique to you. When I look at competitor portfolios in that Farm Animal business, I don't see necessarily that same kind of good margin relative. And you have a portfolio that has MFAs and some of the others. So what's some of the efficiency that you have in the portfolio that you're able to actually drive that kind of EBITDA or operating margin in that portfolio?

Yes. I mean think about just how we go to the market, we have less of a sales force, right? So the middle of the P&L, we have a lot less cost associated with dispersing across -- really across the nation and even the globe. So I know the P&L is just more efficient naturally just with how we go to market. And again, the customer stickiness is very high, really across all the products.

Got you. Bobby, I want to move to you on the potential of Quattro. Why has the ramp been so good? What strategy do you have to drive broad spectrum parasiticide market in 2026? Obviously, this is still a pretty good growth market, and we're seeing very good transition from single product.

Yes. I'll start with where Bob sort of left off. It's certainly not behaving like a third to market sort of archetype. It's behaving much better and frankly, much faster, as you alluded to, Dave. And we think there's really a couple of reasons for that. And the main reason is the 4 degrees of differentiation, right? So think about broadest coverage, think about speed of pill on ticks, think about heartworm coverage in 1 month. And then what the market has told us is it's got great palatability. If anybody tried to pill their dog and they reject the medicine, you know how difficult that is. And that's a barrier for vets when they are ultimately trying to sort of transition people to new medicine. Why do we think there's still a lot of potential? Well, I think it's simple. The first thing is the endecto market is $1.6 billion, it's growing in double digits.

We're going to get our share of that growth, and we're going to also contribute to that growth. And we expect that to continue because, frankly, it's more convenient for a pet owner to give 1 pill versus 2 pills. Second, we're still only in about 1/3 of clinics in the U.S. today. So every month, we are adding clinics, and we expect that to continue sort of going forward. And the third reason is our market share from an endecto's perspective in the clinics where we have Quattro is still fairly low. And that share will continue to grow really driven by 2 factors. One, as more puppies come onboard, which we over-index in our puppy share index, you'll see our share start to grow. And two, as we continue our dispensing programs like our direct-to-consumer advertising, you would expect share to continue to grow in those clinics. So I would end with all things being equal in the endecto space, why wouldn't a vet or consumer choose Quattro versus the alternatives?

That's really helpful. So Bobby, continuing with you, we talked about the retail business in the hall and how traditionally, I've not necessarily been a big fan of retail business. However, yours might be kind of unique particularly around this time of low veterinary visits. So how should we think about that retail business as kind of a differentiation in your portfolio versus kind of your competitors?

Yes. So I'd say a couple of things. One, we know 1/3 of pet parents don't visit the vet regularly. That's a little bit higher with cat owners versus dog owners, but that's sort of generally the standard. Two, we have market share leadership in a $1.1 billion category, and we've continued to expand that market share for sure. Three, we still believe there's ample white space for growth in that segment. We predominantly played in the premium space of the OTC flea and tick category, and we have now recently started to play in the value space, and we are very underrepresented from a share perspective in the value space, which is still roughly 40% of the dollars in the category.

That's great. Maybe I can switch to both of you in terms of kind of thinking about that same theme. I mean all of us can see what kind of the macro visits have been looking like. Can you talk about leveraging your diverse portfolio across pet and Farm Animal to mitigate the slow visit trends in vet?

Yes. Maybe I'll start. First, one, I still think this is a great industry, and there's a couple of reasons. One, dogs and pets are living longer than they ever have before. And if you think about -- dogs and cats, sorry, are living longer than they ever have before. And if you think about when pets need the most medical care, it's when they're very young, sort of the puppy stage, and it's when they're older and they have chronic illness. I think the second thing we would say is the humanization of pets continues. AKA, people's willingness to spend on their pets is still very high and very strong and continues to grow.

I think a stat I use frequently is 50% of people would rather spend Valentine's Day with their pets and their significant other, which tells you how they feel about it. And then as I think about Elanco's sort of role in how we think about the industry, we've got 2 things helping us. One, we have the OTC portfolio for those folks that don't go to the vet regularly and still want medical care and maybe want a more affordable price point. Two, our strategy in the RF space has been to innovate in growing segments. And so we don't necessarily need that business to grow because we're innovating in the spaces that are already growing and are able to take market share where we don't have a large market share today.

Yes. And then on the farm side, again, half of our business is farm. And that market is very stable. It's a growing market with -- you think about just the components of it with a relatively low herd size, products like Experior are more important for the farmer. And so that's why we've seen such success there. But obviously, as that herd continues to rebound over the next several years, we'll see growth there. Proteins is just a macro demand where we're seeing growth and poultry really globally. So that stability, the cash flows from the farm business is, again, why I'm excited, but that prevents or mitigates some of the, I'd say, the macro of vet visits being done.

Got it. And maybe we can even stick with the same kind of concept and that the affordability in veterinary medicine. We've seen since COVID a 50% cumulative inflation in veterinary. So can you talk about some of the different channels and the balance of the portfolio given that big the veterinary services inflation.

Yes. Look, our strategy is always to go where the consumer is going, and we offer a wide portfolio of products at different sort of standards of care and price spectrum, right? So think about getting a Credelio Quattro with flea and tick coverage for roughly $8 a month versus you could go all the way to something like Credelio Quattro that gives you broader coverage is maybe more convenient because it's easier for you to pill your dog than to sort of put a collar around them for $25, $28 a month. And so depending on where the consumer is in their affordability journey, it's important for us to have sort of price points that meet their need. And we do that across not just parasiticide, but other parts of our portfolio as well.

Got you. A little bit about the -- and this is another one for both of you. Commercialization time lines, market penetration strategy for Zenrelia, particularly in international markets where your label differs. And how does the U.S. box warning impact the global strategy for Zenrelia?

Yes, I'll start. I mean congratulations to Ellen and the regulatory team. It's the fastest globalization we've had of a product in Elanco's history. Zenrelia is now approved in 36 OUS and more are coming. And what we've seen in the countries where we've had the product in the market for the longest time is we've got double-digit share and in some cases, very, very high double-digit share. We're seeing very little impact of the U.S. label on sort of the OUS marketplace. And in fact, what we're seeing is a more positive benefit of the success OUS translating into the U.S. in terms of confidence of the product in terms of safety and efficacy, given all of the other countries around the world have a clean label.

Got you. Okay. Moving on to Bob. You -- after driving a deleveraging strategy, I believe you've reducted 2 turns in 2 years. What's the time line to get below 3x.

Yes. Great. So yes, you're right. The company has done a fantastic job of really being disciplined and focused on deleveraging. We were at 5.6x in 2023. We expect to be at 3.738 by the end of this year. And we did have some onetime items in there. We have the aqua divestiture and then we have the royalty monetization that helped. But I would also highlight the free cash flow conversion. I've been really impressed with a dedicated team we have in-house focused on the fundamentals of trade working capital. And so that -- the trade working capital component has really been a nice accelerator to free cash flow. So as I think about moving forward, we're going to continue to have good free cash flow.

I'd also mentioned 2026. What we're going to have behind us is going to be the tax associated with the Aqua divestiture. So we'll have some natural tailwinds coming from that. So as you just kind of model out where we'll be, I would expect us to be below 3 in 2027. There's going to be some M&A, I'd say, smaller tuck-under M&A as a part of our growth strategy. But I would tell you these are going to be small tuck-under R&D sort of related options for us that would not derail us from being below 3 in 2027. And then I'd say once we get there, we'll talk a little bit more next week as well, but that's going to give us some optionality as far as returning cash to shareholders.

All right. I want to talk about the IL-31 business. For a lot of investors that don't know, I mean, I think the category of monoclonal antibody injectables has been growing a little bit faster than the small molecule version. So what can you talk about expectations around IL-31 and then the timing of it, particularly in light of -- we had maybe some impacts from U.S. government shutdown, maybe not, but I'd love to hear if there was any for me.

Yes. I think we're fairly confident that our approval is imminent, hopefully, Q4. It may get delayed a little bit because of the government shutdown, but we've been in regular contact with the USDA, and we feel like the approval is tracking. As we sort of said before, the approval is actually not our critical path from a time line perspective. Commercialization is and more particularly how we scale up our manufacturing. And so we're still expecting a first half approval for IL-31. As you rightly pointed out, the 90% of the U.S. derm market from a dollar perspective is either JAK inhibitor or IL-31, and it's split roughly equally between those 2. And so us having an IL-31 mAb will give us access to -- we'll be 1 of 2 players with sort of access to that space. And as we've said previously, we're excited about the degree of differentiation we'll add with that product. And what we're also very excited about is having a portfolio effect. And we believe that IL-31 will also help drive Zenrelia and vice versa as we think about sort of the launch and the acceleration of that product.

Yes. I just want to clarify, the first half launch of the product.

Yes, yes. I got you.

You said approvals so it's launch date.

No, no. So can you talk about your go-to-market model? And this is a follow-up on IL-31, but maybe you can talk about some of the other products in terms of go-to-market model.

Yes. As I said, one of the key enablers for success for U.S. Pet Health has been share of voice. And there's really a couple of ways we've driven share of voice. The first way we've driven share of voice is with the capabilities we've built internally. So expanded sales force, new capabilities from a vet engagement digital perspective and then inside sales force going forward. But the other thing that we do maybe a little more differently than some of our competitors is really leaning in with our distribution partners. And what that allows us to do is that allows us to amplify our share of voice by a factor of 2.5, 3x in terms of the number of people talking to customers going forward. And we think that has allowed us to expand our physical availability, AKA, get into more clinics where consumers want to buy our product. And so that approach has served us well for Quattro and Zenrelia, and we expect to apply something similarly to IL-31.

Got you. I want to talk about maybe some of the competitor launches Numelvi, Ecitra, and what impact they could have on Elanco's market share and pricing power in 2025 and 2026. Obviously, I think the products they are going to launch. Competitor products are going to be more impactful next year than this year. But anyway, any way to think about these competitive launches?

Yes. I think the first thing I would say is we thought about these competitive launches, and we factored them into our sort of outlook for the business. I think the second thing I would say is we've had a great opportunity to learn from what's happening OUS, which is happening OUS, both sort of Numelvi and some of the other products you may be thinking about like Bravecto Quantum. And we've sort of seen what those products can do in those markets and how our products stack up and ultimately compete. And what I would ultimately anchor back to is medicine. And we believe in the differentiation that we have on the parasiticide side with Credelio Quattro, we really believe in the differentiation that we have in Zenrelia in terms of value, convenience and efficacy. And we think that will help those 2 products continue to grow in light of competitive threats.

Right. Moving back to Bob on some of the financials. You had a recent refinancing. What changes ahead for capital structure, CapEx expectations?

Yes, that's great set of questions. Yes, so we were extremely successful in refinancing our 2027 tower as we did push out the maturity from 2027 into 2029 and 2032. We incorporated some euro debt, which helped us on the rates. We pick up about 40 basis points of improvement there. So from a debt perspective, our methodology and our allocation is going to be consistent, continue to pay down debt. Our next tower is in 2028. But we're going to continue to be balanced and disciplined. So think about CapEx.

This year in 2025, we did have a bit of spike in investment, particularly with our facilities as we ramp up for not only the launches that we've had, but also for volumes associated with IL-31. I'd expect next year to be more balanced and our CapEx will be in line with historical averages. But ultimately, really no change to the capital allocation strategy. It's going to be focused on paying down debt, investing in the business. M&A will be -- we'll take a critical eye on making sure it's got the right investments, but those won't derail us from deleveraging and again, getting below 3 in 2027, so we can have some flexibility around shareholder return.

Got you. So I'm sorry to get in front of this, but what can we expect to hear at Investor Day? You can give us at a high level to keep expectations? Great, Jack.

So we're extremely excited. So we did talk to some investors about what was important for us to talk about. And so we're going to have the ability to have every leader speak about their ownership. So Bobby and the presidents will talk about their strategy and growth profile. We're going to have Grace speak a bit about the manufacturing capabilities, the success that she's had and also how she's going to be supporting Ascend with opportunities there. Ellen is going to give a nice perspective on innovation and how -- what she sees the next several years, but also how we continue to fund her with more capital to continue to go down that path. And then I'm going to finish the day off with some discussion on Ascend and give some more granularity there. And then we'll end with an outlook over the next 3 years that will give some -- an outline of growth and EBITDA and cash projections.

All right. We're out of time. Thank you very much.

Yes, thanks, Dave.

Thank you.

Fantastic. So everyone's still coming back from lunch. Apparently, the fried chicken was a huge hit is what I kept hearing around the hallway.

So really looking forward to discussing food side of animal health -- chicken is in demand. We're running slightly behind, but let's go and get started. We can go slightly over actually, I think. So Mike, I'll let you -- Jeff, sorry, I'll let you kick things off and we'll jump right in.

Yes. Look, we look forward to a big day. It's been 5 years as you and I've talked Umer since our last Investor Day. We'll be in New York Tuesday. So excited about talking about the rest of the decade for Elanco. My message has been pretty consistent the last 2.5 years, growth, innovation, cash. We're in a very durable space in animal health. We have with the last quarter, delivered 9 quarters of growth. That growth continues to increase in quality and size, innovation. I think the big story for us is we've got a basket of innovation, 6 products that have been approved. We were expecting another one with our IL-31. So big products differentiated in big markets.

And then lastly, with cash as we've taken 2 turns of debt out in 2 years, done a lot of that with EBITDA and a couple of exits with aqua and monetizing of a human asset. So we're in a really good place, and we're looking forward to guiding the rest of the decade a little bit or setting up the rest of the decade as well as getting a little color to '26 as well.

So Jeff, first of all, kudos to the team on a turnaround, which, in our opinion, is still only beginning. Some people think the turnaround is done. So this is it. I think this is just getting started. We want to go through all the aspects of revenue, drop-down EBITDA, all that. But just before that, there's a very basic point which prevents a lot of investors from even being involved. And it's a question we get asked, which is, hey, I didn't realize this is not even investment grade, so we can't own. So could you just start to give us some visibility? Because for those investors, what I find is if they know there's a path to being IG, then they can make the case internally.

Yes. And if you look at the profile of our investors over the last 1.5 years, Umer, as you know, there's been a lot of movement into the stock for some of those. So yes, we are right now at 3.7x. We've been very clear to say that our trajectory is to get to low 3s, high 2s as soon as possible, and it will be our #1 use of cash, and we're going to see some nice EBITDA growth as well, which is going to drive that. And we're going to do it with a combination of better margins with bigger blockbuster products. That's what's going to drive EBITDA. We've also launched a productivity initiative with Elanco Ascend, which is going to -- and you'll hear a lot more about that next week, brought in a new CFO from a low-margin industry background with a real focus on margins and cash. So -- we do have an expectation and our Board is very committed to get into the 2s, which we believe will please those investors that are looking for that.

Got it. Excellent.

Yes. No, it's been a phenomenal year so far, Jeff. So just to maybe start to focus on just the innovation basket of drugs. JPMorgan this year, you guided to initially $600 million to $700 million. Since then, you raised guidance 4x. Now the midpoint is around $860 million. So $110 million delta from your original guidance. So as we think about the future trajectory of revenues from this innovation basket, could we expect the same level of initial conservatism in 2026?

Well, I think what's different about Elanco is you're in major markets, you know this. So we believe we've got best medicine in that oral broad-spectrum parasiticide market that's about $1.4 billion in size, growing at 40%. We've talked about puppy starts, we talked about the share that we've taken. So what I would tell you is best medicine in a major fastest-growing animal health market, and we're going to globalize that's one.

Derm is the second largest market, $2 billion, growing double digits. We're globalizing Zenrelia. We believe we've got an efficacy differentiation. So that's good. Nobody talks about the Farm Animal side enough, I believe, but the cattle side with Experior, we've already surpassed $100 million. We've been growing at 70% on a quarter-to-quarter basis, like-to-like, year-to-year. So what I like is we've got a basket of innovation in major markets that, yes, we see a nice trajectory and runway of continued innovation growth. We will add to that basket. We've said that we're still optimistic to bring our IL-31. So it would be a competitor to the IL-31 in the derm space.

We did have a government shutdown that may have stopped some dialogue, but that dialogue is back and going, and we'll put more color on that next week. So that will add #7 to the basket. So yes, I continue to see that. And next week, we'll put more color to how high we see that innovation going.

And needless to say, as Ellen's bundling capabilities and new product introductions continue to improve, I'm sure this acceleration in innovation basket will continue. My point is it's not short-lived. It will continue well past next year, I imagine.

That's correct. And then Ellen will share in R&D next week. Our big challenge has been a consistent flow of high-impact innovation. We've delivered 6 major innovation, the seventh is coming, and you're going to see that we've replenished that pipeline and we're expecting that innovation pipeline to continue. There's a lot of great spaces in animal health that we see both on the Pet side, the Farm Animal side, the Protein, the movement back to animal protein, the humanization of pets, I was chewy this morning. If we just look at some of the things that are happening across all the channels in pet and the globalization of both of these trends. This is a very durable space. And we believe we're the most compelling investment proposition inside of it right now.

Got it. Excellent. I guess I want to start to go through the top line in a fair amount of detail, Jeff. But just a head of that, one of the questions that people want to make sure is as the next $500 million in revenues comes in from pipeline, can we reasonably expect a meaningful drop down to EBITDA level? Because I realize for the prior stuff, there was a lot of investment still happening. So people want to make sure the top line doesn't get lost in the totality of the franchise.

Top question we're getting at this conference and probably since the Q3 earnings is just that, Umer, which is -- and it's a good question. It's the right question. We've said we know we have to bring EBITDA growth next year and more leverage in that top line down, and that's got to start. So look for us to share an algorithm next week, look for us to talk about how we're going to do that. We are not going to do it singly. At the same time, these innovations are big. The competition is big, and we're taking share. So we are going to have no regrets approach to launch. So that's the tension. But we are going to bring EBITDA growth, and we'll put more color to that in 2026 next week.

The second is we will not do it just with new products. We've launched a 5-year productivity initiative called Elanco Ascend. Think about procurement, manufacturing, gross to net across the board, productivity initiatives, and that's what our new CFO, Bob, brings in experience in and a real double down on. So we will put some numbers to that next week. So it won't be one dimensional, and you can look for us to give both. And we will be bringing leverage down to the bottom of the income statement starting next year.

But Jeff, just so -- and I'm sure you're aware of this. Consensus has $200 million year-over-year in top line growth and $100 million year-over-year EBITDA growth more or less. So like there's a pretty high operating margin on the incremental revenues being modeled by consensus. Now you can't say it's just on those revenues and will be on -- but like you're aware of some of those where the consensus is at as well.

We'll put a lot more context to that. And I think the majority of the analysts are understanding that we've had a year of -- these are bigger products than we realized and the markets continue to grow. I mean you got a market growing 40% parasiticides, double digit in derm and the cattle shortage in beef has created a very nice upside for our cattle portfolio. So we have made a choice to really go after share...

Shortage has created upside. Sorry, you say that again? What shortages?

No, we've put a lot of money behind the launches, and that's why we've highlighted that. So -- but more leverage will come next year. So I think you'll be happy with some of the things we'll share as we get into it next week.

And real quick, just obviously, the mix of products will help grow EBITDA. You said the productivity issues will also kind of help grow EBITDA. That's more of a COGS thing, gross margin thing. But on the OpEx side of things, can we expect any squeeze there or...

Absolutely. No, I would say I wouldn't assume it's all COGS, okay? I think we know EBITDA growth is the driver and especially think about our Farm Animal business, it's about 50%. That doesn't have as strong of gross margin. It's good. It's respectable, but we have 10% OpEx on a Farm Animal business. So our EBITDA quality in Farm Animal is just as good as the EBITDA quality in pet. So look for Elanco Ascend to talk about productivity initiatives that hit all fronts, not just manufacturing.

Got it. Got it. I'm sorry.

Okay. Excellent. So let's start to get a little more -- I feel like we only have little time. So we need to spend more time on some of the things. But Jeff, one of the observations we had was some very large vet practices report not using any of the Elanco stuff, mostly because they have a full portfolio of stuff they're buying from Zoetis right now. I look at that as a very large untapped opportunity right now as you start to gain scale. Do you think sitting here today, you finally do have the range of products needed to start to break into some of those accounts where you have the -- all the Trio offerings, the JAK and the list goes on.

Absolutely. So I'll just highlight a few things. I think let's just take Quattro that we've said, fastest blockbuster we've had in history, one of the fastest in pet health. It's acting more like best medicine than third to market. It has 4 points of differentiation and from the quickest tick kill to the broadest coverage to first and only product from the FDA in this space with 4 active ingredients in the pill. The palatability has been something that's been talked about. And I highlighted in the quarter, puppy starts as a notion is higher for Quattro than the other 2. So we are replacing and 75% is coming from those other products. So we're taking share now, Umer, and I think that trajectory is starting.

On the derm side, in the first 3 markets we launched in, we're already at double-digit market share. So that is acting a lot more like the efficacy differentiation on Zenrelia is significant. So as these globalize and these markets continue to grow, we are picking up new. But Quattro is only in 1/3 of the clinics. So there is a lot more runway, and we will put a lot more detail into that next week. You're going to hear from all 3 of our commercial leaders next week.

Has Zoetis started responding in any way from pricing from what you hear?

There's no question, especially in U.S. pet health, it's competitive. But I would say, if you think about this is a value-based market. It is a market where veterinarians attribute a lot of value to animal health products. So keeping value in that market is really important. And so I think competition really comes back to differentiation in the products.

Right. Excellent. On JAK inhibitor, Jeff, I feel like some investors think it's over. It's like fully done, but my sense is it's still a work in progress. You've gotten an improvement to the label, but the real sort of upside will come when any dosing holiday gets dropped completely from label. So that's still another year plus away, correct?

Yes. Look at the whole market, $2 billion globally, and we doubled between Q1 and Q2. We nearly doubled again to Q3. We are picking up significant number of clinics. And outside of the U.S., it is taking share more like not a second to market, but it's got a differentiation. It's approved in 36 countries with a nonrestrictive label.

In the U.S., the FDA has improved the label with the PCR data. And what I would say in the U.S. is we've got about 12,000 clinics and a lot of those 12,000 clinics are using this and moving to first-line treatment. So I think that concern is really targeted to a limited number of clinics in the U.S. So yes, Zenrelia has had quite a run in the last 2 quarters, and we see nice growth. It's off to a very good start. We're just launching in Europe, and it's off to a very good start in Europe.

Jeff, in the U.S., can you update us on the breakdown between first-line versus switch patients for Zenrelia?

Yes, we haven't gone into that detail, but I would say of the 12,000 clinics, if you think about 30,000 clinics in the U.S., more than 1/3 are on Zenrelia and seeing this as a key product for them. And then yes, there's probably 1/3 of the clinics that are saying, hey, with that box warning, we're not going to utilize. But hey, when you take Credelio and other blockbusters we've had, 10,000, 11,000 clinics is a high number of clinics.

Jeff, one dynamic I want to sort of almost bring up, but also ask you about for next year is I felt like this year, some of the early numbers on innovation came in pretty good in 1Q and 2Q. And they were already annualizing at north of your full year's guidance. I remember it was like around $200 million in 2Q and then the full year guidance was still $720 million to $800 million. So it was looking like there's a real chance this guidance is conservative. That dynamic doesn't exist for next year because I think, a, people know what the run rate is coming off of this year. So how are you going to best prepare the Street where you still continue to show the growth but not set up something where you're not able to raise later. So it's a very fine balance now.

It is. We're going to talk very clearly. We're going to talk the basket of innovation. We have something that other animal health companies don't have, and that is a mix between Farm and Pet, 6, soon to be 7 innovations and they're going to be globalizing. So we're going to talk about the basket because we have many paths to get to those numbers with the basket. And we will -- again, we will talk -- I don't want to keep emphasizing, we will talk a lot more about where we see that trajectory going in 2026. But we won't -- we will not get down to specifics by product, by country, by quarter. There's -- I don't think there's any benefit in that.

Makes sense. Excellent. Maybe in the last minute or a few seconds or so, Merck has a product launch next year as well in the flea and tick space. I think there's some amount of confusion on what exactly that is, how that will be from a competitive landscape perspective? And does that affect your launch performance, if you could just remind us?

Yes. Remember, Elanco, with our OTC business and our overall vet business, we've got the broadest parasiticide portfolio to meet more pet owners where they want to shop at the price point they want to shop at online, inside the vet clinic across the board. So we're very well versed there. And you've seen a very strong OTC business from Elanco because of that. There's still 1/3 of pet owners that don't go to the vet clinic.

But to answer your question is look at the fastest-growing market, and this is not where that competitive entry would be, and that is the broad spectrum oral product market is $1.4 billion growing at 40%. And the majority, over 70% of puppies are going on this category. We believe we've got best medicine there. And our goal here is to just really focus on that segment, globalize that segment and a lot of runway to grow there. So step back, growth, innovation, cash, great trajectory. We've had now 2.5 years of delivery and increasing improvement and look for that to continue. And we're going to keep those 3 pillars and talk more about that next week. No questions -- i think 3 hours next week, you'll have chance to see the entire leadership team and a lot more color to this.

Excellent.

Excellent.

Thank you so much, Jeff, very helpful.

Fantastic, thank you. Jeff. Thank you.