Hi, good afternoon, everyone. I'm Navann Ty. I cover animal health at BNP Paribas Exane. Thank you for joining our second BNP Animal Health Day. We had two previous sessions with IDEXX and FIBRO, and now I'm very happy to have Jeff Simmons, President and CEO. Maybe before your opening comments, I just want to mention that you can, investors, you can ask live questions at any time, so you can ID me the easiest way, or you can also use the open exchange system, and I will receive your question as well, and make sure to include your questions in our roster. Jeff, thank you very much again, and thank you for attending our Animal Health Day. I'll let you do some opening comments, and then we'll go through questions.
Great. Thank you, Navann. Thank you to BNP and the opportunity here to engage with investors and the interest in Elanco. Of course, we have the disclaimers that we normally do any time we interact on forward-looking statements. Let me just open by saying 2025 is a year we've been looking forward to for quite some time. It is here. We turned in Q1, which was probably one of the most high-quality, robust quarters that we've turned in in a long time. It was the seventh quarter of consecutive growth quarters. Growth is accelerating, as we've seen coming out of late 2023 through 2024. We had 4% cost and currency revenue growth. We beat our guidance ranges on both the revenue adjusted EBITDA as well as the adjusted EPS lines.
As you know, Navann, we have really kept a heavy focus, the whole organization inside, on the things that are going to drive the value on the outside: growth, innovation, cash. Again, growth accelerating. We raised our revenue guidance on the FX assumptions that we saw. We saw good quality growth really across farm animal pet health, both price and volume. I would also say one thing that I would just call out we can talk more about is the core is doing well because of the innovation coming into some of those different portfolios. Innovation is helping the core business, and a strong core is allowing the innovation to actually be accretive. That is key and very important. On the innovation side, that is growth at a high level. On the innovation side, we raised guidance again up to the $660-$740 range.
That's that basket of innovation that we started in 2021. The big contributor, of course, is the basket of six products. There's been a lot of focus on one or two. What I would emphasize is, as I look at Adtab in Europe, Experior in North America cattle to now Quattro and Zenrelia in the U.S. and Zenrelia International, the growth is diverse, and Bovaer is starting to contribute as well more and more as we go through this year. Again, the basket is overall contributing. I would point out three that really do matter a lot and are really contributors in Q1 and to our guidance confidence on this innovation, and that is Quattro, no question. Experior, we define that as now a $350 million potential market in North America, and Adtab. Those are key contributors.
Watch Zenrelia Global as we continue to see these less restrictive labels really having a big play here for Zenrelia. Cash, we announced on earnings week actually monetizing our royalties on the Lottolander asset, bringing in just shy of $300 million that will go to delivering. We now have a clear path, good operating results, more EBITDA, free cash flow conversion instead of just saying $150 million or so going to debt pay down. We are now saying that could be $450-$500 million, which gives us that path to the low four, high three leverage ratio. Growth, innovation, cash. The last real material thing is tariffs. We were very clear, and we showed slides, and I think we have gotten a lot of feedback from investors. Extreme transparency.
We believe that we are covering the $16-$20 million today, as well as the scenarios going forward, even a pharma exemption if we were impacted by that. We have that covered by our intervention plans, our favorable FX, and our favorable Q1. We have really taken tariffs off the table at the highest level, really under most any scenario we see, and we will continue to monitor and update everybody as we head into Q2 earnings. With that, look forward to taking your questions, Navann.
Thank you for that helpful introduction and opening comments. Maybe on the tariff side, a follow-up on the $16 million, $20 million, and definitely appreciate the transparency there. You said it was almost entirely driven by tariffs between the U.S. and China. Can you discuss maybe the updated impact if China and the U.S. maintain that temporary tariff reduction that was announced on May 12?
Yeah, just to reiterate your point, the $16-$20 million that we highlighted on our slide, and I would reference back to the tariff slide that we had in our deck. That's really kind of that first column, which really just highlights overall the $16-$20 million was primarily the U.S.-China back and forth and the impact on our farm animal products primarily going in and some active ingredient coming out of China. And that was the $16-$20 million. Yes, we're monitoring, no question, the situation. We will take advantage of every opportunity we can from a supply chain standpoint, readying our supply chain to move product appropriately when those windows open. In addition, we've got an intervention plan that we talked about that is not just supply chain, any adjustments we can make to footprint and safety stock levels.
Also, we're looking at pricing as well, targeted pricing in the right areas. All of those things are favorable. I think the one thing that people maybe missed too was that there were some exceptions within those tariffs back and forth. Some of these are critical products that maybe are getting exempted from some of these. Also, with the tariffs created a weaker dollar, and that weaker dollar had a really strong impact for Elanco as it has probably other American companies. That also is a factor that's given us more of a balanced approach to this tariff situation.
Thank you. Can we discuss also the assumption of the corporate affairs team of Elanco behind the 5-25% tariff range if the pharma exemption is revoked?
Yeah, this is really based on, again, industry discussions. We're having good conversations with the administration and Congress. I've been to Washington even since the earnings call. We do believe, and we appreciate what Washington is doing in the economics around this and the customers we serve. What I would just simply say is we're confident that there is a constructive approach taken, and our prudent approach taken with tariffs will be balanced appropriately. I don't think we see anything different from earnings call that would create more of a surprise negatively. There are some favorable scenarios that are out there being discussed, but things aren't final and official in any material way that we would report on since our earnings.
I would say our prudent approach, our intervention plan, favorable FX, and a good strong Q1 puts us in a, we believe, a really good position for all scenarios forward.
Thank you. That's very helpful to hear about your discussion in D.C. I know that there's, I think, a working group with the industry to ask for an animal health exception. Would you say that the arguments of Elanco and the industry as well, are they focused on the farm animal business or maybe the animal health exception overall?
Yeah, I won't get into all the details, but yes, we had an industry meeting last week as a whole industry in Washington. We're all aligned, and that's both on tariffs and the difference between our industry and other industries, pharmaceuticals primarily. We also spent a lot of time on regulatory reform, both with the FDA and the USDA, and the opportunity, actually, we have a very unified approach to say, hey, we believe with the efficiency the administration's trying to go forward with regulatory reform, we have a recommendation that can actually streamline and create more predictable regulatory, make the U.S. more competitive. That was really one dimension. The second was tariffs. Yes, what I would say is we're a very different industry, as you know. We are a cash, not a payer industry. We run on different margins.
We serve customers like farmers, and the importance of farmers and competitiveness of our products is critical. We can be the difference between a farmer making money or not making money. For the livelihood and competitiveness of American farmers, we have to definitely be competitive. The other is actually just the size of our industry. We are much smaller, so we work on a very different basis for margins from a gross margin line, a profit line, and just our blockbusters are $100 million versus a billion dollars. All of that, I think, merits we are different than the pharmaceutical industry and need to be viewed in that way. We do believe we are getting the right people to hear that message, and we are hopeful, but nothing, again, has materialized yet.
Thank you. Thanks for that color. I know you touched base on that, on the earnings call, but maybe more details on the progress on mitigating actions so far. You mentioned supply chain optimization, inventory management, tactical pricing. Any progress, like a more detailed progress on that?
Yeah, Navann, we've got a dedicated team, very active. I'm very confident in the execution of this team. It gave me the confidence coming into the earnings call, and I'm confident that it is a multifaceted approach with the backdrop of favorable FX in the Q1. I do think that some of the favorable trends we're seeing, hopefully in Washington, but what is truly in our control is everything from the supply chain optimization, securing secondary sources, bringing as much manufacturing. We've got over 75% of key manufacturing coming or based around the US. Yes, we have acquired a few European companies, so we do have some European footprint, but that actually gives us some diversity as well. We don't want it all just US. There is some European manufacturing footprint. We are renegotiating where we can vendor contracts.
We're managing inventory, and we're changing maybe safety stock levels lower so we can put more product into certain countries. Yes, we are taking a tactical pricing approach that's already started in areas where we believe we've got the right elasticity to take pricing. We are always looking at strategic API sourcing and making sure it's in the right place. Very active, a lot of action's been taken even since our earnings call. They've given me continued increased confidence.
Thank you. Maybe we can switch to Zenrelia. If you can discuss the latest progress with education of VetGP specifically. You feel like that there's already convinced that the VetGPs as you're ramping up adoption of Zenrelia in the U.S.?
Yeah, so Zenrelia continues to progress nicely. If we look at 8,000 clinics that we talked about in Q4 through Q1, 11,000 clinics. That's made up of that 11,000 clinics of 8,000 that have actually put it on their formulary. They're carrying it as one of the products. And we've got about 3,000 clinics in a sampling program where they've brought product in. They're putting dogs on. And so what I would say is clinic adoption continues to grow. I just sat back and looked at 11,000 clinics. That's more than some of our parasiticide products like Credelio. So there is no question there is a need for a secondary derm portfolio, and that's what Elanco's bringing. And we're bringing IL-31 as another product that will compete against the product in that class as well.
We will be the second major derm player with a broad portfolio, and we're excited about that. The derm market, as you know, Navann, continues to grow. $1.9 billion. I believe it'll eclipse $2 billion this year. It's growing double digit. We are getting some of that just natural organic growth, and Zenrelia is helping expand the market and increase the size and increase the awareness of derm. The biggest news, I think, out in the marketplace is the efficacy profile of Zenrelia. It is the most consistent, probably my 35 years of bringing products to market, that this product works. It's been put in some of the toughest conditions and one of the toughest animal health needs. Atopic dermatitis and itching dog has been, we know there's labels that will respond to 65% of the dogs.
You know there's going to be a need out there in the marketplace. Zenrelia has been thrown right in that need, and it has done extremely well. KOLs, even competitive KOLs, veterinarians across the country unanimously are coming across saying, "Hey, this product is, we think, one of the best products in the class." The label has restricted some of the market. If you say the remaining 60% of the market is considering it, is looking at it, 26% of that remaining market is saying, "I do intend to script Zenrelia." Our focus with this sampling program and tech-to-tech discussions is to increase more of that 20,000 clinics that are not using the product. We are very happy. It's exceeded our expectations on the number of clinics, the reorder rates, the challenges. We need more clinics to take this on as first-line treatment, and that's our focus.
The two ways we're doing that is through tech-to-tech selling and the sampling program. I would point to, and just want to continue to call out because I think it's really important for the brand, in the international markets, the three markets we're in now, Brazil, Canada, and Japan, with less restrictive labels, we're very happy with the adoption rates, which are greater and faster ramp rates. We're looking now for the next three major markets in the $600 million-$700 million derm market: E.U., Australia, and the U.K. coming here in the second half.
Thank you. Yeah, maybe the early use, it seems like the early use is focused on severe cases and maybe the apocalyptic non-responders, maybe. I do not know if you can maybe have a, what is the DTC focus to move to frontline?
Yeah, so we are in frontline in some of these clinics. I mean, again, we get 11,000 of the 30,000 clinics. We're happy about that, and 8,000 are bringing it in as part of their normal movement. I think all of this, we do see a real nice opportunity as we now enter. We've launched this product in the lowest four months of derm out of the 12. Now as we enter now through September, October, it is derm season. There will be increased seasonal and acute cases. There'll be some of these non-responders from the incumbent products. We have the opportunity. We're pulling not just from the JAK market, but also the IL-31 and the steroid market. We believe that we have an opportunity to actually, in this season, it plays very well with the efficacy profile that we're seeing with Zenrelia.
We have seen some of that even with the southern hemisphere in Brazil and some of the success we have seen at the latter part of the deep season there. I think the sampling is what makes people come on to the product. As they put samples onto opportunities of dogs, they get comfortable with the use of the product. That is our focus, Navann, and I am very hopeful that we will continue to see this product ramp globally as well as with the regulatory strategy that we have behind it as well.
Thank you. Can you also discuss the dialogue with the FDA since the January warning letter? Also, on the other hand, what kind of near-term label wording changes are you hoping to achieve with the data that is currently under review?
Yeah, the key points that I think everyone, and I just want to really continue to emphasize this, is there's really two paths that we're taking with the FDA, and the dialogue has been constructive, been consistent, even with all the regulatory changes. We've been active in the dialogue. We don't see any change with the right administration and the key reviewers. They're all in place. At this point in time, things are all tracking. There is a label and a language path. On the label, that's longer term. We've set up trials. We're looking at, hey, continuing to create the data to create a long-term, maybe more significant label change. The other one is with the research that we have, we've already submitted, and that's more of a language to the current label. What that would do is we're in good dialogue.
That would be something that we would see as an outcome. Do not know the outcome yet, but the outcome would be the second half of this year. We are hopeful we can make a language change, and then that is followed by a longer-term label change. Again, dialogue has been constructive. Data has been submitted. Everything is progressing. No change to the current key people on both sides that are working on this, and more to come here in the second half.
Great. In terms of Zenrelia, we do have some market models that we're keeping updated. We're estimating around $40 million of 2025 revenue. That's assuming a 2.5% share of the derm market. Is that reasonable? Does it align with your 35% U.S. vet clinic penetration?
Navann, we won't guide by products. The great luxury we have is we've got six, soon to be seven products that are coming in that have got blockbuster potential in big markets. We'll continue to share the progress we're making on our total innovation basket. We won't get into specific product by country. I think the trends we're giving you and these lead indicators are showing the viability of Zenrelia. I would point to the continued increase movement to first-line treatment, the continued adoption of more clinics, and the efficacy and the season. I would point also to the global approvals. Those three additional regions for approvals combined with the others entering that $600 million-$700 million. All of those will be contributing to more and more clinics every month coming on Zenrelia globally.
Again, won't highlight the assumptions or your modeling there, but I think we're given enough information to help on the overall innovation.
Thank you. On the launches, the international launches, what were the key points of feedback from Brazil, Canada, and Japan?
Yeah, again, smaller markets in the U.S., a few different dynamics, but I would say without question, the efficacy continues to be what people are talking about. That's exactly what we want them talking about is, "Hey, we are able to do this." I think also the safety of the product and the label represents that. I think there's a lot less discussion about the label, the constraints of the label, the safety of the product is clear and how the international bodies looked at this product and looked at that data package. In Europe, there's some information out there on head-to-head with the incumbent, and that also is being looked at. It's public information, and that's being able to be looked at as, "Hey, this is a differentiated product." That's also been a key driver and efficacy proven by research data as well.
That's been a key driver. Lastly, as we've talked about, the convenience factor, the one pill versus two, the less risk of rebounding, and again, value. We continue to price this as a value option to what's on the marketplace. All of that is playing out, and I'm very excited about this and a very big European market and a U.K. market to follow the three markets we're in now. They're the biggest international markets to come.
Brazil, Canada, Japan are smaller markets than Europe, U.K., Australia, as we understand.
Yes, as I look at E.U. as a whole market as a whole, of course, it's made up of a lot of countries, but the approval will be for that whole region. That's the biggest market outside of the US, and we have intentions to launch if everything progresses as well in the second half.
Okay. And the approvals for Europe, U.K., and Australia, is that Q3, Q4? And do you also anticipate less restrictive labels than in the U.S. as well?
Yeah, we've said second half. Again, lots of good dialogue and things are tracking to our expectations. I'll just say that. Our expectation is we would have less restrictive labels like we have in all the other international countries. That is our intention. You do not know for sure until you have the final label, but that right now is everything we have. We intend and believe that to be the case.
Okay. I also wanted to discuss competition. Can you discuss what are your expectations for timing and differentiation for Merck new derm product versus Zenrelia and Apocoal? We spoke to one expert who said that second generation may result in a higher rate of non-responders. Would you agree with that? Any expectation for timing and differentiation on the differentiation?
I think the simple factor that I'd want all of the investors to know is we've done our diligence and our competitive intel work. The science that we have on compounds and in our guidance is the assumption for competition in this space that you mentioned. That is inside the guidance that we've casted. We are in the midst of the season right now. Again, we really like the profile of what we have here with Alunacitinib and Zenrelia. That is what I would highlight, and we'll continue to monitor and share more as we know more as you do.
Okay. Thank you. And on the IL-31, can you discuss the next steps for Elanco? So between the Q4 2025 expected approval and commercialization H1?
Yeah, no change at this point in time. If there is any, we would let you know. Again, we have a path to an approval for Q4. We've said we would commercialize the product and launch the product. That's our intention in the first half of 2026. We continue to believe it is a differentiated IL-31 from the IL-31 that's on the market today. We have increased our CapEx on our manufacturing. It will be made in the same plant that our parvovirus monoclonal antibody is. That's progressing nicely, and we're confident that we'll have product supply when we're ready to launch. We'll continue to monitor the USDA changes. This is USDA, I'll emphasize. The USDA is different than the FDA or the CVB. The CVB does not have ADUFA.
We're in good constructive dialogue and have a path, but we don't have the mile markers and the follow-up through an ADUFA-type process at USDA. We'll keep you updated as we're updated, but no change at this time.
Thank you. Investors, please feel free to continue to send your questions. Maybe I'll go to Credelio Quattro. Again, we have market model for that. I wanted to discuss your $10% share of broad spectrum in U.S. vet clinics. Is that reasonable to assume a 2.5% share of the oral parasiticide category? Maybe you can tell us more about that.
Yeah, maybe I'll broaden the question to Credelio Quattro. There's no question. This should be one of the first questions probably when you look at the impact, the potential, the materiality to us, to our industry. I'll start, and I won't get into specifics by product again, by quarter or anything like that, but I will give you some notes. This is the fastest growing, most material market I have seen in 35 years in animal health. You've got a $6 billion market in the US, around $4 billion, and you've got $1.5 billion, $1.2 billion, headed to $1.5 billion of broad spectrum in DECTO products. And when you look at the numbers, vary almost by month here as they're growing, but over 70% of puppies are now on a broad spectrum. We're the third product into this category.
The category is growing overall parasiticides. What I would just say is we believe we're best medicine. We also shared that the majority of our starts are coming from the competitors and new starts in the category. Best medicine getting new starts in the category, people that are moving over to the category. We've got really four dimensions of differentiation with four active ingredients. We've talked about the tapeworm, still differentiated there, one-month heart control. The fast tick kill is actually something that we're getting more and more calls about. Get us that published data. A lot of tech-to-tech meetings going on. The fourth dimension that's emerged, really unsolicited back to us, is the palatability and the acceptance by dogs has truly been something that there's videos out there showing the acceptance. With that Proseconto, it gives that worm control.
That's been a problem in the past on bitterness, and that's not been the case here. We believe we've got best medicine in this fast-growing market. The market continues to show a lot of future runway of growth, and we've got a lot of potential. To come in and immediately have vets, the vet acceptance, Navann, has been very strong with 10% out of the gate just a couple of months in to actually bring in. Now we will spend the money to really, really have that pet owner pull through that's happening here in the second quarter. Definitely exceeding our expectations out of the gate. We've got to execute well. We've got to create a real strong brand with pet owners. That's why our EBITDA in Q2 is a little down given the increased OpEx. I am confident in the team.
I've been in the field quite a bit with the team, and we're executing well on the field. That 25% increased sales force is definitely going to play well here. Zenrelia is helping Quattro, and Quattro is helping our portfolio. 500 clinics are now buying Elanco other products that they've never bought before. This is one of the key drivers, no question, to our increased guidance on our innovation.
Thank you. Yes, it is a very strong start. How do you explain the low cannibalization on Credelio Quattro and Interceptor Plus? Do you expect that to continue?
Did you say globalization or?
Cannibalization.
Cannibalization, yeah, that's what I thought, yeah.
Cannibalization.
Yeah, so we've seen less cannibalization out of the gate. We still expect cannibalization to occur. We would rather it be us than somebody else if we're going to cannibalize or we're going to lose share to some of the legacy products. There is still a lot of brand loyalty. I run into somebody almost every month or a couple of weeks where someone is like, "No, I like my Credelio and my Interceptor Plus together," or even some Trifexis users out there. We know there's still a stickiness to brands. We will go ahead and continue to, we're targeting really non-legacy users, but if there's a legacy change, we'll have the right incentives to make sure they move to us.
When you look at overall margin profiles and things, we see this being something that will not be negative but positive overall over time.
Great. And follow up on Simparica Trio, they added the tapeworm claim. How does that compare to Simparica Trio protection? And you mentioned the bitterness. Is that also another area of differentiation?
Yeah, what I would emphasize is our differentiation remains. I mean, there's many species of tapeworms beyond the flea tapeworm. That's one, and we get those. The ones that are deadly to humans, we protect against. The preventions of fleas do not necessarily help the dogs that have tapes. It's not a treatment on the other side competitively, and ours can. Prevention of tapes requires perfect flea control, and ours does not because we have that treatment aspect. When you step back and look at that, we continue. When you have compliance only at 40-60%, there's still that lack of coverage. We continue to see nice differentiation in this space.
We appreciate companies like IDEXX that are bringing increased diagnostics and the ability to just say, "Hey, pet owners don't need to worry about this with a product like Quattro." That's our intent. It's more convenient than having to supplement with some other treatment.
Thank you. And maybe how we see 2025 parasiticide season shaping up for Elanco generally.
Yeah, as we mentioned, we saw a cooler January and February than normal. That probably impacted our retail business, our OTC business more than the others. At this point in time, we've seen a nice uptake and no real change to what would be kind of normal weather trends on a relative basis to our assumptions as we've gone kind of from March, April, and into May seems to be pretty consistent with what our expectations were overall. Maybe a note too, Navann, just to build a common question is around visits and the trends in the industry. There's no question we're monitoring all those trends, but I think you see Elanco's in a little different spot than most companies, especially on the diagnostic side, but even on the animal health side.
One, we've got this basket of innovation, and innovation is driving growth, and innovation is far more important than 1 or 2% movement in visits. That's one. Two is with the Bayer acquisition and being the leader in retail, we cover that one-third of pet owners that do not go to the vet that still want that. We are seeing nice performance still out of our retail business. You've got Amazon coming in. We've been a long-term Amazon customer. We've been in this OTC business a long time. We've seen a nice recovery in March and April in our retail market. Between omnichannel and innovation, we are really a lot less susceptible to a visit change. Our portfolio is durable. The best example too is Bobby's US Pet Health business took share in all four categories last quarter from para, derm, on the therapy side and the pain side.
That's great. Thank you. Maybe on the farm animal side and other innovations. We understand that Experior, as well as Zenrelia, were the significant contributor to the higher innovation target. I remember covering Elanco previously, and Experior had a slow ramp-up initially, I remember. Can you discuss what accelerated the uptake recently?
Yes, great reflection, Navann. It has been on the market a while. We have 70 years we have been in the farm animal business. I think we are the longest-standing brand in front of farmers and livestock veterinarians and protein companies. We love this business. We are number one right now in the U.S. in beef and swine and poultry. We are leaning in on this. You saw the 17% growth. I am not saying we are going to sustain those kind of growth rates, but remember, this $40 billion industry, $25 billion just about is farm animal. We had $104 billion of protein in the U.S. last year, more protein consumed, animal protein, and making America healthy again. I am very bullish as I am working closely with the other CEOs of protein companies that there is a real opportunity here as we see the protein animal protein alternatives down 20%.
I lean in to say we like this business. We like being leaders and take share in this business. Experior is a great example that when you get a product, it takes some time, but when it gets into the feeding regimes, it's sticky. There's not a lot of changing in farm animal when you become part of the nutrition and part of the feeding programs, and you really become some of the modeling even when cattlemen are now buying cattle, they're buying it also on the benefit that they're getting from Experior. It becomes really integrated into the economics of their organization. To me, it's easier to prove value sometimes in farm animal than it is in pet health.
Experior's ramps, heifer clearances, which is 40% of all the beef cattle in the U.S. and Canada, that opened up 40% of the market and more because a lot of operations said, "Hey, I'm not going to go on my steers until I get heifers because I have co-mixing." That opened up even more opportunity. We continue to see every week, every month, a continued ramping. As we've defined, we see a $350 million and greater market here in North America in confined beef cattle from this. Experior is helping. If you're on Experior, there's the rest of the Elanco portfolio that comes with that, and that's benefited products like Rumensin as well as others.
Thank you. I also wanted to ask the Trump administration, RFK Jr., Ma, views on livestock sustainability. We know that they were looking at food production and food ingredients. Any views on that?
Yeah, our views, I think there's a lot of alignment. There's a lot more that I think our customers are aligned on. That is, one is we're about the greatest thing with sustainability is profitability. I come back to say without economic sustainability and profitability of American farmers, then food security is national security, and it's a key economic engine for us to be competitive globally. There may not be any industry we are more competitive in quality and cost than actually animal protein. I'll stand with our customers around that because it really is a key, key differential. One is we will lean in to make American farmers, livestock farmers, and poultry farmers more competitive economically. Second is the value of protein to the diet is going to drive increased demand.
It is already predicted that animal protein will continue to climb as processed food and processed protein alternatives all decline, carbs decline, there is an opportunity. We are going to continue to keep science in the middle. One of our key things as an industry is the rigor of science matters. We will continue to ask that we take a lens of science as well in the middle of animal health. You have got to give consumers what they want, but at the same time, animals what they need. You cannot break those apart. There is an interdependency on if you do not keep healthy animals healthy, you have food safety and productivity and economic sustainability issues. On the environmental, we believe it is really linked closely to productivity. With productivity can come environmental sustainability. What we are seeing is CPG companies for their brand, this matters.
The Alpha generation and the Gen Zs want a product that doesn't have an impact on the animal and doesn't have an impact on the environment. It's probably more of a CPG brand need on the environmental side.
Thank you. On Bovaer specifically, are you pivoting to a productivity label while you're also working on the government incentives? We've heard that you said that government incentives have not yet been released.
Great question, Navann. As always, we've had a lot of years in feed additive, nobody probably longer than us on feed additives. We love what Bovaer, the profile of Bovaer, the optionality that Bovaer brings. We believe that we will continue to look with our scientists and with our customers as the dairy industry now, more and more dairy farmers are coming on. We have really robust dairy farmer demand, and we have robust CPG demand. CPG because they're consumer product good companies. The dairy industry, I think you've heard me say a $10 billion infusion of capital in this industry because of the demand behind the products here this year. All these companies that have brands, they want to make sure the next generation moves from all the milk alternatives back to milk. We're seeing that. Bovaer helps nicely with that targeted segment.
Farmers see there is value. We will look at the increased value beyond carbon, but we have farmers today getting a second check, a protein check, and a CPG brand check that is linked a little bit to carbon. Bovaer will be a little bit of a slower ramp, like we have said, very similar to Experior, but we see we are creating a new $2 billion market globally, we believe, in this space.
Thank you. I know it's early, and you had already early success with the innovation, this innovation wave. Can you maybe give us a preview of the next innovation wave for Elanco? I was lucky to meet Ellen de Brabander recently, head of R&D, and she had an innovation target of one high-impact innovation per year. Can you discuss that too?
Yeah, Ellen and her team, I've spent a lot of time with them the last few weeks and just continues to amaze me. I mean, the level of discipline, the level of rigor. We just had our board in, our innovation committee on our board with some great scientists. We just had Stacy Ma come from Gilead into our board. If we just look at the systematic approach we're taking, the pipeline is not refilling, it's refilled and filling as we talk. The number of pipeline entries that we're going to have coming in here in the next couple of years. The spaces are the big spaces and the emerging spaces. We're talking more about the existing spaces, and we'll talk more over time about the emerging spaces.
At the same time, we've added to Ellen's group external innovation in a new enhanced way and a really market outlook group. We have some really good between AI, some of our deep expertise looking around the corner of what else is coming. Where are the blue ocean opportunities? We had Bill Doyle, cancer expert on human medicine and drug development expert, leave our board, set up a new pet development company that we have an arrangement with to actually go into a new space like life extension and CKD. I like what I see over the next 10 years in the Elanco pipeline. We'll share more about that as we go forward.
Right now, we've got seven big products with the IL-31 coming to six we have in our hands that when we globalize those, that will drive a lot of growth for us, accretive growth for us over the next few years.
Thank you. I remember you had from the Kindred acquisition, you got also some monoclonal antibody capacity. Do you expect that to turn into a competitive advantage versus peers and how and why?
Yeah, I mean, no question as you see what monoclonal antibodies have done. They say 25%-30% of human medicines linked in some way to the monoclonal antibody platform. We not only have taken the Kindred assets, but we've taken some of the capabilities. We've recruited from the outside. We've built a nice monoclonal antibody capability. We've got manufacturing, I think only one of two companies in animal health with manufacturing and the full value stream already in play. We have that as well as regulatory expertise. We really are excited about the next generation of monoclonal antibodies, yes, including the IL-31 long-acting and some of the other assets that came with Kindred, but we're developing beyond that. What Ellen has done with her team is really build in that expertise.
Thank you. I did ask on the earnings call about the distribution points, and thanks for that answer. Can you expand on the strategy and progress of expanding those distribution points? I remember that Todd had mentioned dollar stores in addition to the big channels.
Yeah, it is part of our strategy as we've said is all around, hey, we got to innovate in this space. We've got to increase physical availability, and we've got to do a good job on pricing and promotion. What I would say is our retail strategy is working. We're the largest, I think, animal health company in Amazon, Chewy, as well as some of the brick and mortar stores as well. You're exactly right. We're increasing the number of channels. We start with OTC products. We bring the scripting capability in where appropriate. That's also part of the retail capabilities. We've probably added over half a dozen talents. Blair Cornish has come in as leading that group. I feel very good about the portfolio, the capability, and yes, the distribution points are growing.
They sometimes can be big numbers initially, but they take a while to actually get the turnover. Those distribution points are what really drive the sales. That's where we're putting our energy right now, more distribution points, but more pull-through. That's really key. Bobby's done a nice job across the board on that.
I got a question on the farm animal segment. If you can discuss the short-term, long-term outlook by species.
Excuse me?
On the short-term and long-term outlook by species in the farm animal segment.
Yeah, so.
Yep.
Great, great question. What we would say is we take the big for us, the biggest ones. I would say on cattle, on the beef side, you continue to see a shortage. We're still in this really low cycle on cattle numbers, on the cow-calf cattle numbers. I think I've heard a few of the major processors say we're starting to see an uptick, but it's really slow. With that, actually for Elanco, high demand, strong pricing, low feed grain costs, which is all set up well for the P&Ls of the cattlemen and really sets well for an Experior and a Rumensin. On the poultry side, it's a global industry. It's the most global species.
It's probably least dependent on trade compared to where it was 10 years ago just because people are raising chickens now in a lot of places and the grain is less, the footprint is less, there's less religious constraints. We see a durable couple percentage point growth in overall poultry numbers globally. Elanco's well positioned portfolio-wise and geography-wise. Dairy, as I said, I point to US dairy and European dairy. They've kind of got a, we're in a window of a little bit of a dairy revolution now, whether it's shakes, whether it's cottage cheese, whether it is cheese. The amount of plants, the dry powder plant that's being built right now in California, all of this is, I would say they're in a good strong sense. We got to watch exports and tariffs probably in dairy more than any for Elanco.
Lastly is pigs. The pig industry has probably been hurt the worst, probably got a little bit of a tougher 2025. For us, it's really two geographies that really matter, U.S. and China. What we're seeing here is okay, a little better than the past, but still not as good as we want. For us, it's the really least of the four major species.
Thank you. Is there anything else, and it has been very insightful, but is there anything else that we have not discussed that you would like to mention?
You know, I think not missing the obvious. I think a couple of the obvious things that maybe when we look at questions, maybe get missed some is I think the core is stable because of innovation and probably a lot of what we've done. We don't see the big air pockets of things that could fall out. One, a stable core is making innovation contribute nicely to our growth. Our success is heavily dependent on the launches, and they're off to good starts overall. Two, on innovation, it's the basket of innovation. It's not one. Some people are worried about a one product and one market segment. What I would say overall, the basket is performing at or better than our expectations. Three is growth. Growth is accelerating. It's been consistent. It will accelerate.
Our guide of 4%-6%, we stand with our guide that we put out a couple of weeks ago. Again, that growth accelerating is what we see as we head forward with Elanco. Our balance sheet, we continue to look at as we've now moved to $450 million-$500 million of cash debt pay down. We're in a very strong position and free cash flow conversion will continue to grow. Delevering again, getting a path to the threes is really important for me, and it will be our number one priority use of cash. All employees are incented on the Elanco cash earnings, which is TSR type metrics, EVO-like metrics on EBITDA and the use of cash. Set up well.
The lead indicator on the inside, what I see every day at a real big multicultural summit and a lot of big major meetings in Elanco this week is engagement globally has not been this high in five years. The employees are excited about what I think investors will start to see here over the next few quarters.
Thank you very much for all those insights. Learned a lot as well. Thank you very much for that. Investors, we'll take a break at 1:00 P.M. ET. We'll have Zoe Lis, CFO. In the meantime, thank you again, Jeff. Thank you very much for participating in our Animal Health Day. Thank you for answering my question and investors' questions as well.
Thank you. Thank you, Navann. Thank you to BNP.
Great. Thank you. Thanks for the opportunity.