Elanco Animal Health Incorporated (ELAN) Earnings Call Transcript & Summary

Good morning, everybody. I'm Chris Schott from JPMorgan and very pleased to be introducing Elanco today. From Elanco, we have the company's CEO, Jeff Simmons. If we think back to last year, the company presented shortly after its IPO. We had a very busy 2019, including the Bayer transaction announced over the summer, so very much looking forward to Jeff's comments and as we think about Elanco heading into 2020.

Thanks, Chris. Look forward to the opportunity to share a little bit of the exciting year we had in 2019 and looking forward in 2020. Of course, I'll make the disclaimer of forward-looking comments. Here's what I'd like to do today. No question an exciting time in our history as a company. I'd like to cover 3 areas today. First, back to some of the compelling fundamentals of the industry that we're in, a little different than pharmaceuticals that is represented here today, Animal Health, and our core plan and the plan that we had coming out of the IPO. So I'll start there and then talk about the Bayer transaction. The progress we're making, the rationale that we had and then what do we have on the other side of that. We're planning to close midyear this year. So when we look at our 2020 guidance as core Elanco but then the company that we're creating, we'll enter in and share a little bit of that as well. So just to start, Elanco, as a whole, we are an industry leader in a very attractive, durable industry of animal health. We believe we've got the most significant value proposition within this industry. We've had a vision for over 2 decades of food and companionship enriching life. We say that even though that we serve veterinarians and farmers and treat animals that we're in the people business and the 2 fundamentals of our industry of animal-based protein, meat, milk, eggs as well as the significance of pet to society today, we really actually enrich the lives of people. When you look at our company, we were established in 1954 underneath Eli Lilly and Company. We IPO-ed, as Chris said, in 2018. We stood up and are standing up a dedicated Animal Health company, fit for purpose driving, I think, a faster, more agile company, which I'll talk about. We're a dedicated animal health company, which I think there's competitive advantage in that. And I emphasize, we're a product company. There's a lot of space. What are we really good at? Developing products, approving them, putting them in winning portfolios and representing them and creating value to farmers, veterinarians and pet owners. We've got a portfolio of durable brands that, I would say, we're more of a portfolio company, not dependent on one product by any means. And then we've got innovation, a very strong pipeline with Bayer, we'll talk about it here in a minute, 50 development projects of late-stage development, but more importantly, over a dozen products that are in launch mode driving the majority of our growth. We're an execution story. We're not waiting for one piece of science, one card to turn over to happen. This is a lot about executing to drive pipeline, top line as well as margin expansion. So creating the #2 industry company in this $34 billion industry. I shared this slide last year, but I'd like to just kind of build on, and I've elaborated a little bit with some of the dynamics in the industry. If you look at our industry, if I had to simplify it, it's compelling. It's durable. I would emphasize, this is a cash business, not a payer business. So value creation, share of voice, being able to reach and create value to farms on the livestock side and pet owners and veterinarians on the pet side, very important. It's a $34 billion industry that's been growing in the mid-single-digit. I would say what connects both livestocks and pet is this society's real focus on probably, never more than today, even more than a year ago, is the care and the well-being of animals matters, both on the livestock side as well as on the pet side. And that's the connection between the 2. If I highlight just a few trends, as we think about the medium and long-term things to watch, here's a few things to watch on the pet side. I believe that, yes, increasing pet ownership and spend matters, and it's growing. Secondly, though, watch emerging markets. Emerging market, pet ownership is growing exponentially. We talk a lot about dogs, but I'm going to predict that, hey, watch the feline side, the cat side, will continue to emerge as a key growth area. Compliance is key right now in our industry. Being able to have a dog or a cat take something monthly for 12 months is very hard. Improving that pet-owner experience, like other consumer products that they have and being able to improve that is going to be key to increasing compliance as well as just the overall experience with our products. I think the omnichannel between us and a pet owner, there's many ways to get there. It starts and ends at the vet clinic. The veterinarian is still in the center, absolutely critical, but there's other channels as well. And look for that kind of omnichannel approach, and that was key rationale for our deal with Bayer. And e-commerce continues to be extremely important as well. So those are things to watch on the pet side. Over on the livestock side. I want to emphasize that even though there's a lot of discussion about alternative proteins, animal-based proteins continue to grow. In the United States, we've consumed more beef in 2019 than any time in the history of recording it, and it's projected to continue for the next 5 years. We're consuming 20 pounds more of poultry per person in America than we did 5 years ago. And a lot of this is driven about the diet change that significantly changed over the last decade, where carbs and sugar are down and animal-based protein is up. So I see, candidly, alternative protein is only increasing the overall protein size of the market as we go forward. We'll keep an eye on that as we go forward. A year ago, we stood here and we highlighted that we needed to keep an eye on African swine fever, a virus that was in China at the time. Since that time, 1 year later, we have seen probably the biggest, I know in my 31 years in this industry, a health epidemic. We've lost the equivalent of 3 U.S. pork industries in China, 300 million pigs. It's made the average Chinese 14 pounds short of pork per person. We're turning the corner, but we haven't totally turned the corner. But what's come from this is overall demand for protein with the trend I opened with and this epidemic, is you're going to see poultry and fish win, you're going to see pork continue to rise and pretty strong economics globally overall. And then I think trade -- equal or better trade, will only enable, we believe, stronger protein economics and good food animal business. The last thing I would say is what's noted in the green in the bottom, really important. 31 years in animal health. I have not seen what our R&D and BT team has seen is the ecosystem of innovation is evolving exponentially. We're behind human pharma in terms of funding, partnering and sourcing innovation, but there's more sources of innovation today coming from human pharma and ag chem and others into this industry like we've not seen. So a large global leader in animal health with this ecosystem of innovation creates even more of a tailwind relative to our pipeline and innovation overall. Just quickly, we've used this very simple strategy. We launched the IPO on it. In the center, 3 key customers for Elanco, farmers, veterinarians, pet owners. They're the ultimate people that experience our products and use our products. We have a 3-pillar strategy on innovation. It's a sustainable flow. We have 14 products in launch mode right now. It takes 5 to 7 years at a minimum to get to peak sales in our industry. So that's driving a lot of our growth with a full late-stage pipeline. We've got on our portfolio, we don't sell one blockbuster, we sell portfolios to handle Salmonella in poultry, pain in dogs, et cetera. And within that, we've got 3 growth categories that are actually now over 60% of our business, great fundamentals in those markets. And then lastly is we really launched our IPO on because we are a margin expansion story. So over the last few years, we've improved margin expansion 700 basis points. We're very clear the core Elanco business has another 1,000 basis points to go from 21% EBITDA to 31%. And that's a steady linear line as we go forward. So a company that's got multiple levers, a clear strategy, it's working. So now we announced in August the acquisition of Bayer. We intend to close that middle of this year. I'd like to give you a little bit of an update relative to that acquisition. First, what do we create here? #4, Elanco; with #5, Bayer; creating a #2 using 2018 sales, a good mix between companion animal and food animal. What makes a great livestock business? And our business is a good Companion Animal business and a global Companion Animal business. So we have a nice mix there. That diversity creates durability that we've seen in our industry. The other is, I would say, 2 companies that have been around a long time that are well-known brands, that have product brands. Elanco, 66 years in the industry. And in 2019, Bayer Animal Health celebrated 100 years. So these are known companies, but they also are uncoupling out of big pharma, and that uncoupling and creating one fit-for-purpose company creates the margin opportunity. If you look at a little bit of revisiting the rationale of the deal on the left, the big driver here is we diversify our portfolio. We create a portfolio mix between therapeutic classes, the pets, the livestock and international that is ready to win. We double our Companion Animal business in international markets, in some markets up to tripling it. We increase and enhance our emerging markets. We accelerate our productivity. As you can imagine, by bringing these 2 companies together and standing them up together, we will accelerate our margin expansion and open the door to do even more. And then on pipeline, we bring new capabilities, new platforms like injectables, collars, repellency and other things, both in manufacturing and R&D as well as we add to that late-stage pipeline with 8 late-stage compounds in development. And then, of course, the leadership. What this calculates on the right side of numbers, as we see ourselves evolving to a mid-single-digit top line, double-digit bottom line, it will be driven by -- we're not waiting for one technology. When you put our 2 companies together, we'll have 17 products mixed across the different segments we're in that will be in launch mode. And a dedicated animal health company can put the resources necessary to optimize those launches. That's what will drive the mid-single-digit growth as we come together. And we will grow up into that as well in Elanco. The innovation engine will have 50 development projects, 30% to 40% probability, 1 to 4 or 1 to 5 years from market. So we'll have a continuous stream of innovation. We've been launching about 3 products a year, and this will continue that flow. And then, I guess, strong profitability is obvious, but this 1,000 basis points of margin expansion, we're not walking away from that double-digit bottom line growth. And with the mix as well as the fit-for-purpose stand-up, we see the durability of doing that and the ability to do more. We'll be creating by year 2 about $1 billion of free cash flow that will enable rapid delevering of this deal. If you look at the transaction summary, I won't spend much time here, nothing has changed here. We'll continue to move forward as the capital markets are ready relative to moving further on this transaction and as we move closer on the antitrust. I shared at the guidance call on Friday, the headline really with Bayer is we're feeling that this deal is trending more positive than even we had noted back in August. Why? This is a holistic perspective. First is business performance. Bayer Animal Health's business performance is tracking toward diligence findings, where the growth is coming from, the channel, the emerging markets, the new product growth. In addition, I would say, in this first column, also, the omnichannel, the alternative channels around the vet clinic continue with the trends that we're seeing to continue to drive a lot of growth. There's still 1/3 of pet owners in the United States that never go to a vet clinic. And this enables that with Bayer's had a 10-year history of being in the alternative channel from the vet clinic, and that will enable this. The integration focus, we've got a dedicated team. Elanco has acquired 10 and integrated 10 companies successfully, 12 actually since the IPO. This dedicated team, led by Sarena Lin, our head of -- my executive team. What I would tell you is now that we're into the next tier of integration and separation with Bayer, the synergies and the value elements are intact. Antitrust is advancing. China has cleared this deal earlier this month. We announced yesterday morning the second asset that we intend to sell as part of the overlap. We now have 2 assets that we've announced over the last couple of weeks, and we've shared that the combined company would have approximately $120 million to $140 million of revenue that we'd be exiting when we bring these companies together. And we announced yesterday that the 2 assets we've sold is about half that. So look for the rest of the assets to be more regional and even a couple of assets to be from the Bayer portfolio. And then I think the transaction key events continue to evolve as well. The deal remains in diligence, and the plan is to close in mid-2020. So as we look forward, what do we have as a company? And I'll start, first of all, too, with the guidance that we shared on Friday. What I would say is we have a very balanced plan. We have a company that the state of growth continues. And as we look at kind of to the right side of this slide, what's going to drive our guidance is, one, revenue growth. It's expected between 1% and 3%, even in the midst of some environment events coming from 2019 and competitive events in 2020. It will come from new products and these key growth categories. Also, watch poultry and aqua. They are actually benefiting from some of the African swine fever and the pork shortage. The continued profitability improvement and margin expansion does not slow. With the Bayer deal, we'll continue to move with our 1,000 basis point margin expansion journey as we move forward in 2019. Of course, we'll give more after the close of the deal of what the pro forma total company would look like. I think if you look at 2020 in a balance sheet, it's part of our business, the pushes and pulls. The good thing about an animal health business is you do have pushes and pulls, and that creates the durability even in the midst. The headwinds are some competitive events we noted at the launch of the IPO. On the right, I would note that we see momentum in these areas that will drive in the neighborhood of 3% to 4% additional growth to create the balance to the plan of the guidance that we gave. Continued new product growth will be the leader. We'll continue to see our specialty vet portfolio with Aratana that we acquired be a growth driver. We're increasing significantly our salmon manufacturing capacity in one of our key products, and again, we've resolved a contract manufacturing issue that was a negative in 2019. So we feel a balanced plan, and I would end with just a couple of concluding slides. I think the state of Elanco is strong, and we're moving with Bayer to a position of further leadership. As I go down through each one of these, the state of Elanco, I will say, as the president since 2008 -- since 2018, spinning out of Lilly, we are a faster, more agile, able to make more trade-offs and make faster decisions and actually build a cost structure that's more fit for a cash-type business than a payer-type business. And we're significantly improving profitability, and our pipeline is advancing. The state of growth is important, top line growth, the durability, the resilience of growth, where the growth is coming from, primarily new products in key growth categories, we feel very good about the quality of the growth. We've had some environmental and competitive effects, but when you normalize that, we have a mid-single-digit top line business as we get to Bayer and beyond as well. When you look at the state of the Bayer deal, again, holistically, we feel as good, if not better, than we did when we announced the deal. And the marketplace seems to even be more ready for this as we move forward, as we build this global leader in the business. And lastly, it's just a journey. We were a key business unit inside of Lilly. Of those that are not aware, in 2008, we were part of building a business that helped compensate for patent expiries. And so when you look at our journey overall, we created a global leader inside of Lilly in a key business unit. But then between '15 and '18, we actually transformed ourselves and readied ourselves for independence and IPO-ed this company. 2019 was one of executing a plan for a pure animal health play, systems and creating cost structures and creating decision-making and governance and a Board that was able to be competitive as one of the top leading companies in this industry. 2020 will be one of first. We're not going to slow down our pipeline. We're going to continue to grow this business. We're going to continue to have the margin expansion road map that we're on, and then we're going to integrate at the same time. And we've done this with the integrations that we've had in the past. Combining these companies enables us to open up the next era of leadership, of growth and of durability of this company in what I believe is one of the most compelling industries today in public capital markets. So that's, in summary, where we are. And I would close by saying that I believe that I would note and thank, first, I think, very importantly, our customer base. We've got a long history, and Bayer Animal Health does, too, of farmers and veterinarians, and they will continue to be in the center of everything we do. The 5,800 employees of Elanco are very dedicated to believe that, hey, we're standing up what we believe is a global leader in animal health with the most potential to add value to: first, our customers; second to society, this trend of protein and pets has never had a bigger impact on the humans and lives than today; and lastly, shareholders. Thank you for the time. Thank you, Chris.

Great. So I think we're ready to kick off the Elanco breakout session. I'm going to throw just a few questions here to kick things off, and then we can open up to the audience from there. Maybe my first question, for Jeff, I know you talked on the guidance call on Friday about the Bayer transaction and being you're more optimistic about that business as we've -- from the time of the announcement until today. Can you just elaborate a little bit more in terms of the underlying trends you're seeing in that business, the divestiture update, et cetera, and how you're thinking about that asset progressing as we're getting closer to the deal closing?

Yes. So I think we have to look at it holistically. I mean, there's a lot of streams of execution and value here. So there's always ups and downs. We are not cleared yet, of course, with antitrust overall. So there's still work to be done. And things can change over time, but as we stand today, as I shared Friday, we're in a better position than we were in August. And if you can just kind of look at all of the aspects, one, Bayer business is performing well. We announced on our earnings a little bit of the Bayer animal health results. We'd say, "Don't get carried away with a double-digit growth or some like-to-like comparisons." But what I looked at is more of the underlying drivers of that growth, emerging market doing well, the Seresto advantage launches in international and what we see in alternative channels versus in the vet clinic. So our diligence lining up with performance continues, and our hope is we'll share more details in February 19 on that as well during our earnings call. I think the other is just watching the omnichannel as well. So looking at the alternative channels of that clinic's still key. That's still very important, will be core to our business, even our combined portfolio. But outside of that clinic, what we've even seen transform and transpire even since, and we've met, of course, with a lot of those players. We have our own retail business. So that growth rate outside of the vet clinic continues to be very strong. When you look at antitrust, we've talked about -- well, let me start about the value teams are together. Bayer has a separation team. Remember, Elanco's the fifth asset recently that Bayer has separated. So they've got a muscle that they've built. We've been integrating companies, feel like we've got a lot of great combined capability there. Of course, we've got a value model that what's going to drive the value, that's intact at this stage. That's going to change over time. But right now, we like what we see because we're at another level than we were at diligence. Antitrust is progressing very nicely. Aaron Schacht that's here, leads our R&D and BD team. Aaron's team has led the divestitures. There's robust demand for the divestitures. First, China's cleared with our hell or high water clause. There were some concerns about that, that, hey, maybe not an overlap, but a political situation. That's behind us. Now it's mainly Europe and U.S. And what we've noted, as I mentioned, was about USD 120 million to USD 140 million of revenue in the combined company, the new company. And with 2 assets now that we've agreed on contracts, we're at about halfway that mark. So a clear agenda. And I think just lastly is just the transaction. The transaction -- the pieces of the transaction are coming together nicely. Capital markets are holding, so we're feeling very good at this stage.

Great. And can you just update us as your customers have a little bit of time to digest the move that you're making, I think you talked a lot about this alternative channel, what feedback you're having from vets about your push into that side of the business?

Yes, we spent -- we did this with intentionality, with closeness to vets. So we built our pet business in the U.S. as a very vet-centered, vet-only business. We will continue to have the majority of our business and our pipeline start and go through the vet. I want to be very clear, Elanco's the biggest proponent that livestock and pets, the vet has to be in the center. This care, well-being and the dynamics of animals today, the veterinarian is the steward. But the veterinarians, with their response, Chris, has been they understand. You cannot go into a vet practice and stand at a counter more than 30 minutes with the people that are running that and not popping up on their screen, some online company looking at prices or services. So how does an animal health company like Elanco help them and enable them has been the conversation. There's not been any major pushback. It's been -- enable us, help us, partner us in the U.S. companion animal organization. In addition to the sales force, we have business consultants that actually, we have so many per sales rep that are enabling that clinic to work. So I think it's about enablement. Ultimately, this is about improving the pet-owner experience, the health well-being of their pet, but also meeting them with the services and the purchases the way they want to do it.

Yes, that makes sense. And last one on this alternative channel side of things. Is there products within, and this was something that Elanco had been looking to build out on its own, but are there products either in your portfolio or pipeline that you think would particularly benefit from the capabilities that they're acquiring from Bayer?

What we have, we've been pretty open. We don't count revenue synergies in the value of our deal, but we, no question, I think look more broadly at omnichannel, both pets and livestock. We spent an awful lot of time, probably too much time talking about U.S. Companion Animal when we should be thinking about global Companion Animal and Food Animal. And I think the capabilities of digital, the ability to be able to serve customers, reach end users, pet owners and farmers will help both sides of our business. And I believe it will probably catalyze even more so our international Companion Animal business, which will now triple in size and give us infrastructure and portfolio that we don't have.

Great. Just shifting gears a little bit. I know, I think at this conference last year, you were highlighting African swine fever is something we should be paying attention to. I think we got a lot of questions of why you're mentioning this. And obviously, it's -- yes, there was quite an eventful year there. Help us understand how you're thinking about 2020. And then maybe beyond African swine fever, anything else you're watching as we think about potential headwinds to the business that we should be considering?

Yes. As I've mentioned, this is -- in the course of one year, I don't think anyone in animal health, I don't know if anything has ever rivaled this. And we've had mad cow, foot-and-mouth disease, a lot of different bird flu, but this is something different. This virus is extremely strong. They talked about it staying in the ground 1,000 days. And just, I mean, there's a lot of things that can -- it can persist. So what's happened has been pretty transformational. What I would say, it's still pretty fluid. I believe the traction and where we've turned the corner is actually the commercialized industrialized swine production inside of China. The good news is this was more of a biosecurity issue to where trucks were going farm-to-farm. Those practices are changing, and they're changing in an accelerated way because the larger corporate farms in China will drive the production. That will be good for us. It will be good for animal health. So I think we see ourselves turning the corner there. Watch, though, for additional cases. It's not over. We're still seeing some new cases in the Asian area, other parts of Asia as well as even some in East Europe. Not all of that has been validated. So hopefully, we're turning a corner. I think look for the other protein shortages to be picked up by poultry, the U.S. pork and some other European pork and trade will be key to enable this. I think the underpinning is watch, I think, food animal economics will continue to grow globally, and I think that will help the Food Animal side of our business and some of the fundamentals. And then I think monitoring the future, it's just something I think we don't see anything like that around the corner, but managing and monitoring that is going to be what I think is going to be the agenda for 2020.

And as we go into '21, should we think that can -- everything continues to go as we've seen so far? That this ends up being more of a tailwind for the business as we see a recovery in the Chinese market?

I think our pig business will continue. We've got a couple of products we talked about, Skycis, Prevacent, other things that are kind of new products coming in. As I've shared in the past, the antibiotic policies have changed at the same time this disease came in China and a few others. That's been down, but as you look at '21 and forward, yes, we see a growing swine business in Elanco. We see, candidly, a stronger foundation to build from in our poultry and our aqua business as well.

Okay, great. You mentioned kind of the economics of the protein business being healthy. Can you talk a little bit about price and how much of your growth over time you're expecting to come from pricing?

Do you want to talk...

Sure. Overall, we've been able to capture about 2% price growth annually. That's in line with what the industry has done. As we look forward, we are, as Jeff just mentioned in the presentation, 1,000 basis points of growth on our EBITDA margin, going from 21% in '18 up to 31%. A large part of that will be driven by price in addition to our manufacturing productivity initiatives. About 600 basis points of that coming from the manufacturing, productivity goals, be it reducing the cost of API, reducing our footprint and our headcount through lean manufacturing principles as well as just shortening the number of SKUs that are unprofitable as we look for a fit-for-purpose animal health business. 400 basis points of that, we expect to come from the 2% annual price. So it both drives the sales line as well as the margin expansion. So 1,000 basis points with mix affecting margin in a given year positively or negatively depending on the competitive environment.

And as I think about the 2% price, is that fairly balanced between the livestock part of the business and companion?

Generally, yes, we've seen good price this year on both sides of the business. We clearly highlighted as part of the things since the IPO that we'd be expecting a generic for monensin. That's our #1 product in keeping cattle healthy in a world where competition comes in with generic prices harder to maintain. But certainly, over time, we expect that to be the case.

Great. And maybe one last topic for me before I open it up. Simparica Trio, I think from a competitive standpoint, has -- there's been a lot of attention to the story on that. Just talk about how you're thinking about the impact from that competitive launch as we think about 2020 and what's reflected in the guidance.

You know we've modeled a broader spectrum parasiticide since the IPO. So it's modeled. That's in -- it's in our guidance, as we've talked about. As Chris -- you and I have talked some, I think we need to broaden our perspective here a little bit relative to -- we're talking about a sliver of a pie of over a $5 billion market globally. We need to think about all geographies. When I think about the dynamics of what can be done by us, for instance, in China, in the parasiticide market, what we can do with alternative channels, when we think about all those parasites holistically, where we're focused on 1 or 2 that's been quite traditional. So I think that scope is changing. So I think we need to think of it. And then you add on top of that, improving the pet owner experience in this parasiticide arena. So we're not looking at one product, we're looking at the whole market, and we're looking at ourselves candidly today. I think we're one of the best, if not one of the more exciting stories in parasiticides with a broad spectrum portfolio today that, today, even after what we see coming, will be a very strong portfolio. We have some very strong segmented products like Trifexis that serves a certain segment. And now with our alternative channel opportunities and our global expansion with a new company, we'll have as much going on in this space globally as any company going forward. So I think we need to broaden this out and look at it holistically.

Makes sense. Why don't we open up to the audience for any questions out there?

I think on the guide call last week, you guys called 2020 update's a bigger spend year. I just wondered, maybe could you frame the puts and takes there? I guess, in the context of back in September, you talked about $12 million savings restructuring guidance.

Certainly.

Repeat the question.

Yes. So a question on what's the spend as part of standing up the independent Elanco as well as the Bayer integration on top of the question about did you reflect the $12 million savings in the guidance you gave from the restructuring we announced in late Q3. The answer is, yes, we did take that into account as part of the guidance we gave. As we look at the standing up the independent Elanco, we are still on the Lilly ERP system. We have locked scope for our SAP 4 HANA implementation, and we'll be looking to build that out such that we exit the Lilly system in Q1 of 2021. In addition, the way Bayer has done their dispositions, the last 4 is work with Tata business consulting to set up an independent ERP system for the disposed business. We are working through that with them. It's going very well. And that even as Antitrust goes faster than we may have thought. Initially, will be a gating item on how quick the deal closes, which, again, we expect to be mid-2020. So overall, those things are going very well. But as we cut over to the infrastructure for IT, the systems build. There's an increased spend to get those all off. And then we'll synergize the Tata business into the Elanco ERP system in 2022 to capture more synergies on the later end of the curve from a G&A perspective.

Yes. Just a question for Jeff. You've been in involved in Novartis and other integrations throughout the Elanco of this business. So what are some of your key learnings from the past deals that you're applying for the Bayer transactions to ensure that some of those issues that arose in the past will not continue?

Yes. So the question is around what have we learned with other acquisitions, calling out Novartis as an example that we did in 2014? And what can we learn, good or bad from those that we don't repeat? And also how we can build on it? So I would start first, a few things. First is we've truly built a capability here of integration. And we were on an agenda with Eli Lilly to grow. We grew in the mid-teens, for those that are not aware, from 2008 up to 2015, half organically, half inorganically, to help fill a $2 billion-or-so gap, and -- but done and in a very intentional way to create a global leader. That turned out well. So we then went on to independence. But from all of those acquisitions, and Novartis, I'll call out, specifically, it's get a core team that knows how to integrate. We've kept a lot of that team together. And what I would say is that expertise as well as some advisers, the same advisers that have done this before. So I think having the -- knowing exactly how we can capture value. The second is we've kept a very strong disciplined business case. We don't buy something without multiple levers to get the business case to happen. So we were measured by Eli Lilly's finance committee every 6 months after all 10 acquisitions, and the Head of the Finance Committee was Dave Hoover, CEO of Ball, that is now the Chairman of our company, Elanco and off the Board. So that discipline of holding ourselves accountable, we looked at Bayer with many ways to get the value. There wasn't one path. So if there's one shut door, there's many other alternatives. So I think we go in feeling very good about that. I think a couple of things we can learn is with Bayer, it was, hey, a better together. Let's start over and let's open up all the...

Novartis.

With Novartis, excuse me. With Novartis, it was much more of we were a division of Eli Lilly. They wanted the revenue line, so we went slower because the revenue line was key. And it took us a lot of time because it was a, hey, let's start all over. Everybody re-recruit for the jobs. Our message has been very clear with Bayer that we are building a global-leading animal health company. If you like Animal health, you like independence and be dedicated in animal health, then this could be the company for you. And I would say retention and engagement inside of Bayer has been pretty strong, especially with no segment of employees saying that's what I want as they're 3% of Bayer corporate right now. So I think we'll be a lot more quick and decisive moving to this global leadership and not start over back, back away. Those are some things. But I think the value piece is a big one. The discipline of value, we're using that same formula because it's worked on our other 10 deals. Okay. Yes?

The $1 billion of free cash you referenced at the main session, is that for year '21 -- you've got 2 years in and say?

Yes. When we talk about, that's operating cash flow, and that's to the second full year post-close, so it would be a reference to 2022.

'22?

So we talked about building out some aquaculture capacity as one of the priorities for 2020. Does that sort of incorporate expectations from Norway improving in Imvixa? Because I think this program was a little bit delayed in the past year, are you kind of building to make up for that? Or are there any other markets where you see some aquaculture products getting outsized growth?

So aqua is salmon for us. It's Warm Water for Bayer. So to your -- to my comment, it is about salmon. Imvixa's doing extremely well in Chile and the other markets, but, no, we do not, in our guidance, have Imvixa Norway in our guidance for that. We're collaborating with the Norway regulatory authorities. Aaron Schacht's team is here. He's working closely with them, but that is not in the guidance. So the increased capacity is on another part of our portfolio. Yes?

When do you expect decide on the equity issue and potential for the cash portion of the Bayer deal? And what factors are leading to that decision?

So we've been communicating since -- this question being, when do you expect to have the equity side of the Bayer acquisition completed or contemplated? So just to ground folks, we are issuing about 72 million shares of stock to Bayer as part of the consideration for the deal. And in addition to that, within our tax matters agreement with Lilly to maintain the tax-free spend, we can issue approximately 40 million shares to the market as part of the funding of the cash component of the acquisition. We have said since the start, our goal was to provide greater clarity on the antitrust side of things to the market. And once we've done that, we would then look to access the capital markets. So as you've seen, we've continued to get greater clarity on Antitrust. And so we continue to watch the markets closely as we contemplate the next step in the transactions.

Can I just -- when I think about the assets you are acquiring from Bayer, are there specific opportunities that if you had owned those assets, you might be investing differently? And is there an opportunity to maybe redeploy or refocus spend on some of that portfolio?

Yes. I think if you said, "Boy, what are some of the biggest difference being dedicated versus a division?" And we were probably one of the most, as you know, Chris, singled out divisions as we were 1 of Lilly's 5 business units and had a lot of empowerment. But I would say the remarkable change of a dedicated company that can move resources, and I think that's the biggest thing, is the ability -- you've seen us restructure. You've seen us move out of countries. Animal health was always opportunistic. So we were in countries because Lilly was in countries. And other animal health companies still are. When it becomes your own, are you making money? Does this make sense? So our reshifting of priorities from SKU, CMOs, other countries has really allowed us to move from C priorities to A more quickly. So without question, as you look at Bayer, a very, very strong company with great capabilities, 100 years in the animal health industry, brands that are well-known, Advantage, most known brand online or in the companion animal business by consumers. Seresto may be the quietest, fastest-growing product at $300 million. They've got great brands. So without question, as we dig into this next level of integration, we see opportunities. Whether that's in product launches, whether that's even in decisions of trimming that long tail in an area that doesn't necessarily make sense to the pipeline, which we'll have more access to and go, but it's to be able to -- what we learned with Novartis is there were 5 compounds in late-stage development that Aaron's team brought to completion, Imvixa, Clynav, Osurnia, Interceptor Plus, those would be the big areas of opportunity. Pipeline, cleaning up the long tail, investing in launches would be examples, yes.

And I just want to follow up. I get this question of just trying to evaluate pipeline and given that we don't have like a clinicaltrials.gov type of database to track everything you're doing. Help me just understand, when you -- we think about your pipeline and the communication around that, what should we expect in terms of how far ahead of a launch would we hear, for example, for competitive reasons, there's maybe not a rationale to do that? Because I think that is going to be a key value driver at some point is the visibility into those next launches.

Yes. Aaron, do you want to get a mic? You want to join to me at this conference? Let me go ahead. I was going to let Aaron [ out first ]. So listen, we understand this that this is something that our industry is growing up very fast and very independently, and we're the second major public company. So I think there's more scrutiny here relative to this. Just trying to benchmark, we have to constantly balance at a very high level. One is we don't want to from a competitive standpoint because there's not something to lead quickly. Second is we also don't want to lead you to believe one thing or the other relative to something that's coming, the speed of it, the size of it. So I think that's very important. The other is a lot of new technology creates markets. And when you create markets, the adoption curves can vary. So an example is we're launching and talked about a product in IL-10, a [ coasted body ] that will go into poultry this year once we get it from liquid to feed grade. That's over half the chickens in the United States that have enteric problems could actually be using this product, but we've got to create a market. And so the adoption curves can vary. So those are some of the rationale of why it isn't. And it's a cash, not a payer market as well. What I will tell you is we have -- we're going to -- we've moved from not saying a lot to development projects, to targets. We've said we've got parasiticide. We've got the next-generation derm. We've got key areas in salmonella and pain in dogs. So now I think we will move, as we come out as a new company, to go into the next level. And Aaron's team sharing a little more color. And then as we get closer to launches, and we've said there will be a nice stream of innovation between 2021 and 2023, between the companies, we'll put more color to that. So look for more. What I want to end always with is but we are a company in launch mode right now. And when we add Bayer to this, we will have 17 products or so in launch mode, great assets that have a lot more. We don't see the ceiling to their peak sales at this stage. That's the #1 area that will drive growth.

Great. Well, we're out of time. Thank you very much for the comments.

Thank you.

Thank you.

Thanks.