Good morning, everyone. My name is Steven 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. Bob, maybe just to kick things off, you guys saw some really strong growth in some of your key products to close out the fourth quarter with Zenrelia and Credelio Quattro. Maybe just talk about some of the metrics that you saw to close out the year.
Hey, good morning, Steve. Hey, thanks for the question. Yeah, you're absolutely right. You know, we continue to see some strong momentum in the business and particularly with our basket of innovation. We did end the year with revenues of $892 million from that basket of innovation, and we exceeded our expectations and our guide of $840 million-$880 million throughout the year. 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.
A couple weeks ago with our 2026 guide, we did raise that to $1.15 billion, again, on the momentum that we saw through December. You're right, it's the Quattros and Zenrelias, but also on the farm side, our Experior. Just a couple data points. You know, Quattro we firmly believe is best medicine in the fastest growing animal health market in parasiticides. Broad spectrum is about a $1 billion market, growing at 30% and that represents about 40% of the U.S. para market. Quattro right now is in a third of our vet clinics. We have the highest puppy index.
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 regard to Zenrelia, again, we believe this is a special best product as well. We did reach double-digit share in the U.S. and that's with the current label, and then certainly there are some opportunities to improve that label that we're working through the FDA. 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 as perfectly clean a label that we hope to get, but certainly when we took the fatality-inducing language off, we saw some clinics really lean into what we think is best medicine. Overseas with Zenrelia, we've got double-digit share in many countries. Several countries in Europe, France, Italy, Spain. In Brazil, I'm sorry, we have a 40% market share, and then in Japan a 30% share. Strong on the pet side. 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. 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. Feel really great about the overall basket that we have right now.
That's awesome. Before we get more into the 2026 guide, I just wanna 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? Just to maybe build off that a little bit, if this goes on for another few months, you know, prolonged conflict and we see oil prices remain high, just what does that mean for Elanco?
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 more short term is just obviously disruptions with supply chain, but again, we think that's pretty material and you know, just could be some minor timing within the quarter right now. Certainly as you know, as time progresses, if this war should extend, you know, something that we'll certainly keep an eye on and certainly provide updates. As of now, it's really not a material impact.
Okay. Awesome. Yeah, so on the 2026 guide, just wanna touch on the different considerations for the low end versus the high end. You're guiding to 4%-6% organic constant currency, 8% adjusted EBITDA growth, and then 10% adjusted EPS growth. Just kind of touch on, you know, low end versus high end if you could.
Yeah, no, that's great. Listen, like we feel great about the guide. It's right in line with what we shared at Investor Day back in December. We've been successful in launching our products here over the last year and a half and continue the momentum on that basket of innovation. With that being said, obviously, you know, we do think about different puts and takes as we give guide and think of various scenarios. If I think about, you know, what would we need to do to get to that high end, it'd be a couple things.
One, it'd be the continued strength in that basket of innovation, and so we've seen momentum obviously this last several quarters and, you know, if we continue to see that momentum, that'd be an opportunity for us to get at that higher end. The other thing I would say is just the farm business continues to perform extremely well. That'd be another, you know, if that macro trend continues, which we expect it will, you know, that'd be another lever to get us to that high end. Now obviously, you know, there's things that could bring us to the lower end and again, it's things we contemplate. One would be the overall macro environment. Two, I would say would be just competitive response to the success that we've had.
It's something that, you know, we're certainly thinking through what that could look like. I'd say more recently, you know, foreign exchange rates could be an impact, more so obviously on the reported number as we've seen the strengthening of the dollar, but certainly wouldn't impact our organic growth.
Okay. Perfect. You kinda talked about trying to avoid air pockets with your innovative product launches. Just as we move beyond 2026, you've had tremendous success with Credelio Quattro and Zenrelia, and hopefully with the Bavencio coming up later this year. Just, you know, how do we think about your cadence of product launches as we get into 2027, 2028?
Yeah. Great question, and it's something that we're extremely excited about internally. In 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. Although we're expanding some of the areas that we're looking at, derm and para is really gonna be the biggest markets and areas that we see tremendous growth. We're a company that, you know, we don't need to go create new markets. Our expectation is we're gonna have best medicine and grow share within those markets.
I tell you, I firmly believe we're well positioned to win in these large markets. 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 gonna 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 kinda put them in two buckets, Steve.
The first being the next wave, which we highlighted, we expect five to six potential blockbusters to come to the market by 2031 with an unrealized sales opportunity of about $2 billion, which is twice the value that we see here today on the current Big Six. Then we've got this next wave, which would be another five plus opportunities, you know, beyond 2031. 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. I think it's, you know, now that you have Quattro, you have Zenrelia, you'll have Bavencio, you have this more complete suite of products, you know, than you did before. You know, how's that helping you grow with vet clinics and add new clinics?
Yeah, 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? We're seeing this natural lift really just from this basket of innovation. You go back to 2025 Q1, our base business deteriorated a little bit more than what we would have liked. 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.
Our view of stable base, our definition, if you will, is up or down low single digits. And that'll shift by quarter and by geography. 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. That's the importance of innovation.
It's not only stabilizing base, but then, you know, something we're obviously super focused on just because the margin profile of the basket of innovation is also higher than our corporate average. We're seeing a lot of benefits just from this basket continuing to improve.
Okay. Got it. You know, 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, what you gave on your last update. You know, if you get a full black box removal that you're trying to go for this year, I'm just trying to gauge, you know, what that could mean for that product. You know, what's the potential magnitude of that complete removal?
Great question. You're right, Steven. We did previously we had said 2,500 clinics a couple of weeks ago, and now that's up to 3,500 clinics through you know the last couple of days. We continue to see momentum on Zenrelia. Really what's triggered that is just a little bit of the label cleanup we saw in September, where we took the fatality-induced language off that label. We've been actively working with the FDA over the course of the last year and obviously got that update in September. We're actively working with the FDA now on further improvement in the label. We did submit data to them back in October.
There is not a formal timeline when we expect a response, but I would tell you we are having active discussions with, well, with the FDA. 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 on the market here for over a year now. 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. We were coming in as another option, and it's worked tremendously. What we're seeing is that work in the market. 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 kinda three 10,000-clinic buckets. The first 10,000 clinics were really using Zenrelia right away. They believed in the efficacy of the product.
There's 10,000 on the other end of the spectrum that, because of the label and the risk aversion, they weren't gonna use Zenrelia. There's 10,000 in the middle that were kind of in this wait-and-see mode. 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 buckets. Listen, right now our guidance assumes the label as is, and that's not only for 2026, but also for the next three years. 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. This kinda leads into my next question, which I had here, which is the guidance doesn't include Zenrelia, which you know, clearly some upside there potentially, if you get the label changed. Just wanna touch on Befrena. I get it's, you know, it's not probably launching till midyear, but you know, is that being included in the guidance for 2026 at all? If so, to what degree?
Yeah. It is in our guide. It is not a meaningful impact to 2026, but it is a special product, right? As we think about the second half of 2026 and into 2027, because of the value of Bafrena, and the dosing intervals being a major differentiator, moving from four-to-eight- weeks, which is currently in the market, but Bafrena providing a six-to-eight-week s coverage is important. We did survey over 350 vets, and 83% of them expect to bring Bafrena into their clinics. As far as the launch, we're right in line with our expectations. We did get approval in Q4 of 2025. We've been ramping up production.
We do expect to commercialize Befrena here in the second quarter, but it's gonna be a phased launch throughout Q3 and Q4. 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 revenue as well as profitability.
Okay. 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.
Yeah. No, that's great. Yeah, so yeah, we did get approval in Australia, which is important. That's our first overseas market. The overseas markets about $700 million. We do have submissions in Canada, the E.U., U.K., Japan, as well. We do expect to get those approvals here throughout 2026. With that being said, we don't expect that to be a material impact to 2026. That's gonna be more in 2027 and beyond. Certainly, the globalization of Quattro is certainly a key driver to our longer- term growth profile.
Okay. Yeah. That was actually gonna be my next question how much of international growth with Quattro was being included in the guide, but it sounds like it's kind of.
Yeah.
Minimal amount.
Yep.
Okay. You know, Jeff has talked about overindexing the vet visits as an industry, and that we should be looking at other metrics that are more important. Just, you know, what are those metrics you're referring to and what are those telling us?
Yeah, that's so great. Great question. A couple things I'd highlight. One, you know, the willingness to spend on pet health right now has never been higher and continues to grow. The younger population, the Millennials and Gen Z, they expect higher expectations of care for their pet. One-third of pet owners right now, Steven, 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. 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 omni-channel shoppers, they spend 30% more than single-channel users. Then another data point, subscription sales represent 40% of pet health sales. As you think about, you know, in your own world, when you're shopping with Amazon, right? A lot of people have shipments coming, you know, once a week. If you're in my household, they're probably coming every day with what we do, but a lot of that's on subscription, right? The pet market has certainly shifted towards that as well.
The other thing I would highlight is just the globalization of pet care, what we're seeing in the U.S. is expanding globally as well. Then comprehensive portfolios matter, so as we get more decision-making to the pet owner and the convenience of shopping online, having the complete portfolio for pet owners is critical.
Okay. I think one of the impressive things about your 2025 growth is that, you know, you grew 7%, organic constant currency, and that was with only, 2% price increase.
Mm-hmm
Now this year you're taking a price by the highest in five years. Can you dive into what's allowing you to take price up by that much versus that 2% increase from last year?
Yeah. No, great. You're absolutely right. We did see 2% pricing in 2025. We do expect that to accelerate in 2026, and a couple 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 five years, but really what we're doing is pricing to value and we believe we've got best medicine across our entire portfolio. 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 Credelio Quattro, we're now lapping those, right? Those are the opportunities to take pricing.
That gives us confidence that we'll see some price acceleration in 2026 versus 2025.
Okay. You've talked about doing some tuck-in acquisitions on the R&D side. You know, can you provide more color on where Elanco could strengthen its R&D capabilities through these acquisitions?
Yeah. We'll continue to have M&A as part of our mid and long-term growth strategy. It's gonna be in 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 International a cquisition we announced a couple weeks ago. So, that's gonna be, you know, really where the strategy's gonna be, Steve. But financially, a couple things I would highlight.
You know, my focus, and we've been clear on this, we're not gonna let any M&A transaction derail us from our deleveraging timeline, so we still expect to get in the low threes by the end of this year, and we'll expect to get below three in 2027 as far as leverage. A couple other financial metrics I'd highlight. At Investor Day, 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. 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 two and year three, that's my expectation. The last thing that's really critical for me particularly is ROIC.
I do wanna make sure ROIC exceeds our weighted average cost to capital within three to five years. It might be near that five-year time horizon, depending on launches of products, but if I think about the AHV International acquisition we announced a couple weeks ago, that's gonna be on the shorter end of that timeframe. The last thing I would say is what's super critical is that we're not gonna let any M&A really derail us and distract us from the Big Six products that we've launched internally here as far as innovation goes.
Got it. Okay. You know, 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, you know, curious, is that something that there's room to be implemented on the animal health side? Is it already being implemented? You know, how is Elanco looking at that? Just anything you can provide there.
Listen, with Elanco Ascend, you know, that's really our program over the next five 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. We're seeing AI be applied really across every function within the business. If I think about the commercial teams, AI is gonna enable them with better real-life data, real-time data to our frontline sales team so they can be more effective. Within the four walls of manufacturing facilities, predictive maintenance, and our procurement team using data to understand cost opportunities.
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 savings already because of some of the efficiencies. Now, particular to R&D, I'd say a couple areas where we expect AI to provide some value. One's gonna 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. That'll create the opportunity for our R&D team to really focus in areas where we see some success. 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.
The last thing I'd say is a 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. That's something that Elanco is acting as really a catalyst to bring products to the market. You know, we're really attacking innovation from many different angles there, Steve.
Okay. I should have asked this earlier, but just, you know, we had some M&A activity on the distributor side earlier this year. Just, you know, how does that impact Elanco? And 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, you know, how's that relationship? Or just talk about that more, I guess. Yeah.
Yeah. Sure. Great question. Listen, as we sit here today, you know, we don't see an impact in 2026 and, you know, TBD if there's an impact beyond. I'd say our relationship is very good with both MWI and Covetrus, there was that announced potential merger. 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. 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. These distributors are very good at launching product, and you've seen that here in 2025, and we expect the same with Befrena in 2026.
Listen, it you know, if that model changes and we see, you know, not the same value, I mean, obviously, you know, we'll pivot where we need to, but right now, great partnership with both.
We do have a question in the queue. As Credelio Quattro and Zenrelia and Befrena scale, how much of current growth is coming from structural share gains versus launch phase tailwinds, and when should we expect growth to normalize?
I mean, listen, 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. 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. 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.
Okay. Maybe just one on Befrena as you're launching later this year. You guys have that, you know, great head-to-head study with Zenrelia and 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?
I mean, I think there's various head-to-heads that we're investing in. Again, we feel we have the best medicine, and so we're really leaning into that opportunity, Steve. I'd say that's really more across Befrena and Zenrelia right now. Again, Quattro, we believe is best medicine. 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 three-year outlook from Investor Day, maybe just kind of walk us through, you know, the expectations there or where the savings are coming from on the gross margin side versus the OpEx side. Yeah, that'd be great. Maybe a good end.
Yeah, no, that's great. Yeah. Listen, 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? 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. Then we get into Elanco Ascend. In Elanco Ascend, we expect $200 million-$250 million of net EBIT improvement by 2030. That's gonna be net of inflation and net of investment. 75% of that save is gonna be in the gross margin areas.
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. We're gonna see some improvement within the four walls of our manufacturing facilities. Procurement. Procurement's already done a fantastic job of locking in lower raw material prices than what we've had in the past. We'll see that natural benefit come through. 25% of the benefit from Elanco Ascend's gonna be in OpEx. A lot of that comes from the restructuring program that we did announce on December.
I'm really pleased across the board on how the Elanco global team has initiated and actively gone after, I'd say, every opportunity that we have. We're well in line with the restructuring, for instance. We expect $25 million of savings this year. We expect that to happen and really all activities to be completed here this year. We'll see that $60 million benefit come through in 2027. But overall, you know, we highlighted we expect 30% of the Elanco Ascend benefit to come through in 2026. 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 we'll begin soon. Thank you.
Great. Thanks, Steve. Appreciate it.