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

Great. Thanks for joining us for our next session. My name is Michael Ryskin, I'm on the Bank of America Life Science Tools and Diagnostics team. And I also have the pleasure of covering Animal Health. And for our next session, we're joined with Jeff Simmons from Elanco. Jeff, thanks so much for taking the time and I appreciate having you here with us.

Great. Great to be here, Michael. Thank you for the opportunity.

Great. And for everyone on the line, similar to other sessions, if you've got questions for us, feel free to send them over via Bloomer chat or e-mail or there is the conference portal where you can submit questions through that -- through the conference link, and we'll work them in during the call. Jeff, I think to start, just given your reported results this very morning, and it's kind of a busy morning for everyone. There's a lot of things going on in the market. Maybe give us just a quick overview sort of the key points that you thought were most notable about the 4Q results and the details you provided on the '22 guide.

Yes. Thank you, Michael. So real quick, we reported our full year, historical year for Elanco, 46% kind of reported actual results of growth because it being the first year of Bayer plus Elanco. When you kind of back that out, just real quick on the results side, we grew 7% on -- and against the pro forma 5% constant currency, saw 10% growth in Pet Health, 6% in Farm Animal. So Michael, starting to see that durable diverse growth coming through -- grew in all 3 regions and grew in 5 of our 6 species groups overall. And nice, nice price and volume growth together. I also think that we also highlighted is we're talking about delivery. This is our fifth quarter since Bayer, 5 quarters of delivery compared to that midpoint of guidance. So we're really starting to see since our Investor Day last December, the consistency of what we talked about the long-term growth algorithm and delivering growth as well as double-digit EBITDA. And again, even in the midst of this environment of inflation, supply chain challenges, we stay to our long-term commitments of 31% EBITDA by 2024 and 60% gross margin by 2023. We also highlighted a few things on innovation. I'll just note very quickly. Our pipeline is progressing nicely. We had Dr. Ellen De Brabander on the call as well, and she highlighted 8 approvals last year. They delivered $72 million. Those 8 approvals as well as 7 new products this year, we'll deliver -- will double in that $120 million to $160 million range of revenue. So nice, nice progression headed to that $600 million to $700 million, concentrated focus on our late-stage pipeline with those Pet blockbusters and looking at 5 to 7 submissions going into this year. So again, overall, I would say it's working, Michael. Bayer plus Elanco is the largest industry acquisition. It's bringing just what we wanted. We're building a leader, we're delivering, and we're strengthening the company. The Kindred assets also that we acquired last year are also creating a nice robust pipeline. So we can jump in.

Great. Jeff. Appreciate that. I guess maybe to start just on that innovation point because we have gotten a lot of questions on that, and I kind of asked this on the call, but I want to make sure we dig a little bit deeper. The $72 million last year and the $120 million to $160 million guide, I mean you had indicated in the past that 2022 was going to be -- in terms of revenue contribution, maybe a slightly smaller year for new innovation launches, right? It wasn't going to be any major blockbusters launched this year. But when we think about that range and where you ended last year, I guess, we would have thought that it would more than double this year given you've got the products from last year continuing to ramp plus the new introductions. So what's the -- I mean, to get from $72 million to $120 million, it just seems like almost like a slam dunk, given how you ended the year. What are the puts and pulls of that? Is it really tied to the timing of the new product launches in '22? Is it Experior, how it comes in or it doesn't come in, sort of why isn't close to $140 million, $180 million or $160 million, $200 million?

Well, I anchor back to the algorithm we've said was 1% to 2%. So a little shy of that last year, mostly because of the ZoaShield more supply situation, as we talked about. As we come into this year, it's going to be the biggest contributors to this year will be last year's innovation. And as we've said, Credelio Plus, Experior and ZoaShield will be the 3 leading products driving that growth. They set some really nice foundations at the end of last year. So I'll just highlight, I'd point to Credelio Plus international market, that's our broad spectrum that can compete with any broad-spectrum product out there today. And it's doing extremely well in Japan and in Europe and being launched here last year in Australia. So that will be a big driver. ZoaShield doing well in the raised without antibiotic market here in The U.S. We saw some seasonality strength in that coming into the fourth quarter that you noted, Michael, as well, and that will be a driver. But it's really Experior. Experior, we can spend some time on, if you'd like. But Experior is our next farm animal blockbuster. We've seen increased packer acceptance since our November call. We've seen a significant uptake in producer demand, 100% return use and expanded use. So cattle have doubled every month since November. And you know as you start to move into cattle feeding regimens, we're seeing that, that will be a trajectory change as we head into the second quarter, that will be a driver. And then you step back on innovation, Michael, those products, nice portfolio, $120 million to $160 million of innovation. And I believe we've got a nice diverse portfolio that can contribute to that. The one I would point to this year is probably Advantage XD. We're bringing a spinosad family type compound in from Elanco using the Advantage brand that we found in diligence to be very well known by pet retailers, e-commerce and pet owners, and we will leverage that 8-week flea treatment for canine and feline and we'll be getting that launched later this year.

Okay. All right. Since you touched on Experior, I mean, I'll just follow up there. You touched on blockbuster, but that's got a very broad range to it, right, anything over $100 million. So there's a big difference between $100 million, $200 million and $300 million. So not that we want to pin you down to anything, but could you give us a sense of scale, how this could compare to some of the other assets you had like Rumensin in the past? And any thoughts on adoption outside of The United States or maybe additional opportunities around Experior in that market?

Let me answer your question directly, then span out a little bit into the marketplace that I think it's going to go into that could be a contributor. So first of all, this is a feedyard product. So it will be North America. Canada, we've got an approval. So right now, as you know, there are similar companies in both The U.S. and Canada, potentially some opportunity in Australia as well. So that's the marketplace, beef, not dairy. And so what's going to take place here as packers widen their acceptance, the producer demand is there. And we'll start with obviously certain segments of the marketplace and then expand from that on. This does have the potential to be a very significant product for us, where we're targeting blockbuster, which we say is $100 million as a place to start. But again, a few factors that I think play into this is this is about reducing the footprint. It's got a compelling proposition to cattle operators. And as we look at that proposition, we are looking at really shaping the space wider. We believe the next big farm animal market, new market is going to be helping producers, all producers, beef, dairy and even swine producers reduce their footprint. So that's why we've launched UpLook, which actually benchmarks the actual footprint of every operation. And then we put seed money into Athian which is helping a company independently aggregate and certify and monetize the value. By doing that, producers have the value, and that's going to allow Experior to become bigger. It's also going to allow new products that we're going to bring into this space to be what we believe could be one of the next big farm animal markets.

Okay. And then sticking on the new products and some of the growth drivers. If we take a look on Advantage and Seresto for where they ended 2021 sort of your expectations going forward. A solid year for both. But I guess if we were to take a step back to when you announced the Bayer deal, I probably would have had Seresto growth a little bit better. And honestly, Advantage growth a little bit worse. If you add the 2 together, it's probably where we expected. But is there anything to read into there? I know the comps dynamic from 2020 plays a big role there. But could you give us updated expectations on Seresto growth rate going forward, Advantage growth rate going forward?

Let me start with a couple of things they have in common. Then I would separate them because there are two different stories. What they've got in common is those brands are well-known, strong brands, OTC products and channels that are growing. I think that's critical. The other is probably opportunities to target investment more quickly that Elanco could do that maybe Bayer corporate could not do. Now I would separate them. What we saw with Advantage is it was coming out of the clinics when we did the diligence and becoming much more of a retail play. So what we've done is a big driver is China. We have put Advocate in the A family with targeted investment, more share of voice, e-commerce expertise into China and really leverage that investment as well as actually targeted investment overall, even in The U.S. and other international markets, followed by life cycle management with an Advantage XD that's following it. So a retailer in The U.S. or e-commerce has not had a new Advantage product in quite some time. So that's Advantage. And so a Defend brand approach but candidly, more globalization, more targeted resources, market expansion, really out of the vet clinic much more focused to that pet owner that doesn't go to the vet clinic. The second is Seresto. Seresto what we would say is, no, we see that product that met our expectations in 2021. We compare to a very abnormal year in 2020, which we know. So we looked at 2019, it grew 21% compared to 2019. And in the fourth quarter, Michael, I think this is important, 19% in the fourth quarter. So loyalty is up, return use and leaning in from the retailers on the promotions. And then I just will note, we are putting the most probably effort behind Seresto in many years and expanding channels in North America. Lowe's is an example, a higher-end retail, so more and more places for more pet owners. We're also taking it into The U.S. vet clinics with a buy-sell arrangement because there's still a lot of pet owners that go into vet clinics wanting Seresto and then internationally continued expansion. So a lot more efforts, but 2 different stories, and we see growth in Seresto nicely coming in as a focus brand and Advantage has continued opportunity.

And with Seresto, obviously, you've also had a lot of news in the past year with the congressional probe and all the hubbub there, realizing that there hasn't been a lot of updates there because it's sort of stuck in limbo. Are you expecting any news in the coming months or quarters? Is there any visibility? Or are we at a point where we can put this kind of behind us and move on?

Yes. Our focus is on, one, the belief and we stand by the safety of this product. This product serves a significant market. And without this product, the risk of parasites to pet owners and pets is much higher, and that's where we're going to stand by and be the voice of. I think it's to be expected in some of the pet retail business to have some of these issues. We have this issues management capability and we're addressing concerns whether they come from government and NGO or a regulator. And most importantly, we're working with the EPA very closely on the reregistration of the products. So no, nothing new to report. And again, the product continues to be a very important growth driver for us going forward.

Okay. And you touched on -- when you're talking about Advantage and Seresto, you touched on your retail exposure in The United States and those are both well positioned for the retail channel. Could you give us an update on what is that exposure across companion animal now that you've integrated Bayer and across the entire portfolio? Is it fair to say that the retail market overall and for Elanco continues to outgrow the broader companion animal market and just sort of walk us through your strategy there because that's been a major growth opportunity?

Yes. It is a nice growth opportunity. I think coming out of COVID, there's been some rebalancing a little bit between retail and the vet clinic. Of course, innovation always drives growth in those different segments. And I think the geographies, there's a lot of variation between retail and the vet clinic. But what we would say is we want to be an omnichannel leader. Absolutely, retail is critical. But I think just as importantly, it always starts and ends with a veterinarian. I said that the day we announced the Bayer deal, and we believe that strongly today. And an example of that is putting Seresto into the clinic, allowing the veterinarian to have these brands as well and then work with them to make sure that once they're scripted that even if it's auto ship, they're able to stay in the center of the solution. So to us, it isn't as much as retail that e-commerce specialty, it is omnichannel with the vet in the center of that omnichannel.

Okay. And when we think about both Advantage and Seresto, we're talking about the parasiticide market. Obviously, the other big news in that market has been Simparica Trio over the past 2 years. You've talked extensively about the impact on your portfolio. And you provided some additional color today on Trifexis and sort of how that's done and where that sits today. Could you give us an update on Trio impact across the entire portfolio of what you saw in '21? What you expect to see in '22? Is it fair to say that Seresto and Advantage are essentially unaffected by that? And it is still just the older products that are facing the headwinds?

Yes. I think without question, you've got a big market, right, Michael, $5 billion, probably headed to $6 billion. Innovation has made the market grow. There's still we know a lot of pet owners that are either not going to a veterinarian or even not treating their dog for tick, flea and worms. So there's still a lot of opportunity globally for increased market expansion and getting to all pet owners. I think that's the most important with some type of product. And our goal is to meet pet owners where they want to shop with an alternative solution at the right price point for them. That's ultimately what we want to do globally. And I would start wide open here and then come down to the competitive intensity you talked about. I think when we look at globally, we've got one of the largest, if not the largest parasiticide offering globally now when you put Bayer and Elanco together. Internationally, inside that vet clinic, we've got Credelio Plus. Again, a key growth driver, will continue to be, can compete with any product in the marketplace, scripted in a vet clinic. And then growing Advantage family and Seresto, we saw good growth with Advantage in China. We saw great growth with Seresto in Southern Europe as an example. You come into The U.S. market, yes, retail, well positioned and bringing innovation to retail, building capabilities and investing significantly. Biggest thing there is more channels with also expanded portfolio. Inside the vet clinic, like we've emphasized is Elanco today with Credelio and Interceptor Plus offer the most competitive 2 product offering with the broadest coverage, and we're going to play off from that significantly going forward. And we believe that the broad worm coverage is critical. And partnerships with IDEXX will continue to be important as we lean into that going forward. And then, yes, the legacy brands. Last year, we noted about $75 million of expected erosion, mostly from Trifexis and Comfortis. We expect those same brands to be the lead ones, and we noted today about a $60 million erosion. So we're putting context to the risk overall. And again, we believe parasiticides is still a very important space. They'll drive a great business for us going forward with brands like Seresto growing, Credelio, Interceptor Plus. With innovation coming, as we've said, one parasiticide innovation every year that's still expected. Comfortis -- excuse me, Credelio Plus last year, Advantage XD this year. And as we've highlighted, we'll be continuing to move the pipeline in that space as well.

Great. And that was going to be my very next question. Was the -- the incremental innovation there coming and some of the disclosures you provided today. Obviously, I don't think we're going to get into too many specifics on timing on those, but -- unless you want to, feel free. But just in general, a question about how we should think about the regulatory process there? So once the submission happens, let's say, a year window, 1.5 years window, we've seen a little bit of divergence from the FDA and the USDA in terms of approval time lines for some of these products. So what are your -- how are your conversations with regulatory agencies happening? What type of time delay from regulatory submission to approval to on-market are you seeing? And especially for the companion animal products, would you try to time the launch to coincide with a particular flea and tick season or companion animal season? Or is this one of those where when it's ready, it's ready and you're going to launch?

Yes. I'll reemphasize and then maybe just put a little bit of a commentary to it. I mean, what I hope you heard from Ellen and why we wanted Ellen has been over here for 2.5 weeks, our new Head of R&D, her message very clear with her team with a lot of work really moving from Aaron Schacht to Ellen is progressing, strengthening, increasing the probability, increasing the capabilities of more scientific know-how and project management. Today's message was one of increased progress, increased probability of that pipeline. We have taken Kindred and Bayer and Elanco together, we've increased scale, and we've concentrated investment in that late-stage pipeline. Now what I'd say is up to 2 pet blockbuster submissions, derm, para, differentiated, very important. We're going to come into these markets in a differentiated way. They're significant markets, and we'll be competitive in that. We're not really going to comment -- good dialogue with the regulatory bodies. As you know, complex, each regulatory body is different. Each submission is different. And the approach to the submission is different. So we're talking about submissions today as a signal of progress, not really going to get into approvals.

Okay. Okay. And then I think that's most of the quick questions we wanted to roll through as far as tying off loose ends from this call. But again, I want to remind investors if there's questions you have, feel free to submit them through the portal or through chat. So I want to move to a little bit of some of the other high-level things that are on our mind. One is just sort of what you're seeing in the livestock markets, right? Even after the Bayer deal significantly shifted you toward companion, you still have a pretty heavy exposure to farm animal, about almost 50% of revenues. So what are your expectations now that we're 2 years post-COVID? There's been a lot of turbulence in the system, supply chain shocks, cost input shocks. So across the species and across geographies, could you give us an overview of livestock expectations for '22 and beyond? Is this a positive growth end market now?

Yes, it was in 2021 for us, we grew 6% again on the pro forma, a durable business for us. And it really comes back to a broad portfolio value beyond product, adding innovation like Experior, ZoaShield. We brought 5 new products into Farm Animal last year. So when you kind of step back, we are going to pull Cosabody out of that, but the 4 major products. So I would tell you, we see this business as opportune because of the diversity in the portfolios that we have. We also have a performance slanted portfolio in a few markets that will help. So maybe to comment specifically about a couple of the segments, Michael, cattle, U.S. cattle, very important market for overall the industry and us specifically. We've seen supplies tighten. So this year, we see cattle on feed continuing to be stable to growing, all of it stemmed back to increased exports. And then African Swine Fever really started to shift some diets more to beef, and that's driven exports significantly and that keeps prices up. So even with increased commodities, the importance of converting higher-cost feed into protein plays well to Elanco. So that's U.S. beef. I think poultry and aqua, what we've seen with pandemic coming down, restaurants opening up, some stabilizing of the international aqua and poultry markets. And again, we're well positioned in CEC, yes, post-COVID, stabilizing occurring there. Pigs are really varied by geography, good business, I think, for us here in The U.S., pretty stable. In Asia, especially China, African Swine Fever we can talk about, but we've seen that phase to become less of an issue, but it's really the aftermath economic impact on the value chain that's had the effect. We see headwinds in the first half, stabilizing, we believe, in the second half for swine.

Okay. And when you think about higher prices in terms of feed input costs and supply chain risks and all that, I mean, the feedback we consistently get is that as long as the end price of the protein remains elevated, that the producers are happy and they're going to keep coming along. Are you seeing any sensitivity to that at all? Any worries about the sustainability of the elevated price environment?

We haven't. I think the water level has gone up. And as the prices have gone up, actually the value's come back through the chain. And I would just say, when you look at protein demand overall, I mean, we've seen record protein demand coming across The U.S., Asia, across the board. COVID drove that up, but it sustained quite nicely. So -- and inflation has not really had a significant impact on demand at this stage.

Okay. And then I had a question from a couple of clients in terms of the price versus volume mix in the portfolio going forward. You took a decent amount of price in 4Q. And obviously, we've been talking about price for a while now. But if you look at the '22 guide, if you sort of back out the price assumptions, it kind of implies that volumes are flat or down year-over-year. Is that just -- again, is that just a factor of the comps and some specific products and some of the headwinds you're seeing with Trio? Or is there anything deeper we should be thinking about in terms of volume price ratio and how that should be going forward?

I really think it's -- as we've talked, it's a lot about this durable kind of growth algorithm that we have. So if you look at the balance sheet of growth next year for us, yes, price will be above historical levels. We'll see our focused and innovation brands driving growth, and we'll see price playing a role in that as well. And then China playing a role in that. On the negative side, we've got -- and I think it's important to note, we've got a CMO business sales that are really an offset. We're not going to have those. That's going to drive some growth down, more of an event-driven situation. We've got FX that we've talked about being around $90 million, and then we've got this $60 million of para. So if you look at the pushes and pulls, we are going to get share growth in the market so we need to get share growth in. It's really those other events that I think are going to cause the offset to that growth.

Yes. And I'm glad you brought up the Contract Manufacturing because that's one that we've had some questions on this morning. That was kind of snuck into the slides and wasn't -- didn't get a ton of attention on the call. But it seems like that part of the business is phasing down a little bit faster than we had anticipated? You talked about it throughout 2021, especially when you divested some of those sites and closed some of those facilities. But is that expected to continue to just fade out to 0 over time? Or is there any part of that business that we should keep in our models for '23 and '24?

No, this should take the majority of it out. It's $40 million that came out of our Bayer Shawnee facility that we sold to TriRx. And -- so that's the number we've pointed to, and I don't believe there's any really material CMO business. Yes, there may be like $30 to $40 million left that we've talked about, that's still remaining across the globe. But yes...

Okay. All right. And I had another question from a client come in. Where does the team see the biggest opportunity for parasiticide innovation? It seems like everyone's chasing a triple to compete with Simparica Trio, but what innovation outside of a triple combo could be brought to the market that we may not appreciate?

Yes. I think there's 3 areas of differentiation. I'll just stay at this level that I think as we look at every product, we want to look at is efficacy first, of course. Is there better efficacy, different efficacy out there. Parasites are definitely something that keeps rising the bar on that, the label itself, so whether that gets to safety or any other application of the product and then convenience to the pet owner. So I think whether it's in parasiticides, derm or pain, I think these things are all critical, layered on top of what your commercial differentiation is in terms of how you approach the market, what channels and the way that you actually bring the product to market. Those are the factors that I believe as you enter a very large parasiticide market or a derm market even where there's very few products, there's lots of opportunity to differentiate.

Okay. That's helpful. And then another question from an investor, it's been over a year, and it's been a couple of quarters since you closed the Aratana and the Kindred deals, respectively. With Aratana, obviously, we're closely paying attention to Galliprant. But between those 2, anything you can point to in terms of portfolio contribution -- pipeline contribution, are any of the imminent products from those pipelines? Or is that further behind?

No, I think there's a great milestone that was -- we talked about this morning actually that Galliprant reaching $100 million, expected to grow double digit next year -- or this year, excuse me, in 2022, absolutely a key product. And I spoke at a major innovation conference yesterday to highlight that, that was a product that was invented by a small company, built into a company, partnered with us, and we took it globally to make it a major brand. I do believe that that's an example of a model, not the only model, but a model of innovation and a really key milestone to note for the small upstart kind of animal health companies and capital that's coming into this market, Michael. I think it's really important. But I would point to products like Elura and Entyce continue to be part of our specialty business unit. Even our Oncology pipeline that came from another smaller company that we've done are all playing a very nice role. We still have that specialty sales force in place. And look, Kindred is 4 major assets in our late-stage pipeline. We've got concentrated money against right now and probability is in play. We expect them to play out between now and 2025. So things -- capability, manufacturing, assets have come from those companies and made Elanco stronger.

Okay. I appreciate that. I think a couple of questions back on innovation side of things. I think one I want to ask was, obviously, at the Analyst Day you hosted over a year ago, you provided obviously a great deal of color in terms of pipeline and timing and trajectory of those launches. That was relatively surprising look deep, deep into the pipeline that you don't normally get on animal health. So obviously, the question since then is how regularly we will get updates? So you've provided updates on project launches in 2021. You gave us the 7 in '22 and the 2 submissions. But are we going to get every 3 or 4 years sort of a big look behind the scenes? Or should we think of what we got at the last Analyst Day as more of a onetime event? I guess, just trying to think through visibility into the future pipeline beyond what we see in the near term.

We think, Michael, that increasing transparency is key to the investor community. So we attempted to do that at really industry breaking ways, historical ways in December of 2020. As you can see, since then, we've continued to do that as we added Kindred, we paused and we talked about what that portfolio meant. Even today, we spent some time with Ellen talking about the progress, the numbers of where we are. What I would tell you is as we continue to progress the pipeline and we continue to make bets as we spin out the microbiome platform and concentrate investments on the inside, we'll continue to give updates. I think what's most important is for all of you looking at this is being able to balance the competitiveness in the marketplace with fewer and concentrated market competitiveness with also through transparency. But hopefully, you're getting that transparency to show that, hey, we've got $600 million to $700 million of innovation. It's more probable, it's progressing, and it's playing a role in today's sales, and it's going to continue to grow in a very significant way here over the next couple of years and be a key driver to our growth. And also a question that came this morning, it's going to be a key driver to our margin expansion because every new product that comes in, it's coming into big markets where there's more margin and most all of our new products are accretive to our margin as we go forward.

Yes. Yes. That's absolutely true. In terms of other moving pieces in the model, I mean, I think you've provided a lot of color on Simparica Trio impact as a headwind. We've talked about Rumensin generics headwind in the past. Are there any other sort of red flags we should keep an eye out for? Are there other generic launches that you could see any other major products rolling off patent protection? Or sort of what are you expecting from competitors in the next year or 2 that could be a factor to the model?

There will be competition and because of the lack of transparency, that's always something to watch for. But we believe we've got a very strong competitive intel. We've assumed a lot into our model, Michael. And I would say that nothing that we would see materially, especially against the durable portfolio that we don't have any one area that's overexposed, we believe. And that really puts us in a pretty strong position. A lot of levers to get growth. And to offset some of the others. Maybe I would note it was mentioned this morning is everything we've done on the synergy and cost side has really put us in a position of strength. And we have offset some questions we've had on inflation. Between $80 million and $85 million of inflation is in our models on manufacturing, $30 million to $35 million on the sales and operations side. So that is in our models. I think it's showing that we're -- we have that planned for going into this year and are prepared for that.

Okay. And then another question from an investor on the innovation side of things, very specific. In terms of derm, you were targeting 2022 for initial technical section submission for ilunocitinib. And also the pivotal study for tirnovetmab. Is that still the case for both?

We're not going to get into all the details. We're going to kind of stop at what we said today in terms of up to 1 submission for a major blockbuster in derm that's differentiated and leave it at that at this stage. So -- and again, we'll continue to give more color as we progress things forward.

Okay. Fair enough. I have a couple of questions on sort of the margin profile and the trajectory here. We talked with Todd on the call in terms of the puts and takes in the gross margin gains, '21 to '22 and then '22 to '23. What about the adjusted EBITDA side of things? You reiterated the 31% adjusted EBITDA target for 2024, but it's obviously not a linear path there, right? And this year is going to be a little bit less than that, implies a lot more in the 2 years that follow that. So is that more linear over the next 2 years? Is it more back-end loaded to '24, sort of what are the other drivers there beyond the gross margin line in terms of getting the EBITDA up to 31%?

Yes. I think, first of all, there's no question that the trajectory we're on is going to continue to be a driver. So we've shared today, we're going to continue to increase on synergy and a synergy capture. That's going to be a driver. We also highlighted that, yes, we're making some investments to accelerate that last integration of the Bayer IT system in, and that will contribute another $50 million to $60 million out there in the long term. Without question, price, we believe, over time as well as adding innovation that will be accretive to margin will also play. And as you know, Michael, going into some of these pet blockbuster markets that are bigger, that will be a key contributor. But listen, I even come back to our company-wide productivity agenda is active, and there's still lots of levers from procurement to changing the cost of active ingredients, to even some of the restructuring in areas where we're saying, "Hey, we're going to do things differently." We're going to combine some capabilities and be more efficient. So I see plenty of opportunity and plenty of levers even in today's environment to hit those targets. And what you need to see from today is progress. We're doing what we said. We're on that trajectory, and we hold to our commitments of 60% next year in gross margin and in 2024, hitting 31% EBITDA.

Okay. And not to get too far ahead of ourselves, but sort of the path beyond that, right? I think this is one of the broader questions we get in Animal Health is -- because there is a long history of stand-alone public companies where you see sort of what the financial profile should be. Everyone's reference, for the most part, really is Zoetis because they've been around the longest. And Zoetis gross margins keep going up, their EBITDA margins keep going up. How do you think about -- maybe without even giving specifics, but just how do you think about the gross margin potential of the business longer term, the EBITDA margin potential of the business longer term? Is there a ceiling? What's the ceiling? What are the key puts and takes to get there? Is it more from innovation? Is it more from cost optimization on COGS or SG&A, sort of -- if you could paint us the longer-term road map if one was to exist?

Yes. The most important thing that I think was needed to be understood when Elanco came out is we were a feed additive company quite long ago, and the product mix was the most important thing to change. And as we did Novartis, as we've done Bayer, as we built this company, now that we have a 50-50 mix, we've got the mix right. Now this algorithm of growth and double-digit EBITDA is playing out, Michael. So the simple answer is there is no ceiling. I see the trajectory continuing. Pipeline is most critical and having that existing foundation of the right mix. I would say we have created a culture in Elanco where company-wide productivity and driving for growth even with existing brands is absolutely essential. We announced we're bringing in Bobby Modi that's going to run our U.S. Pet Health and join the executive team. One of the key criteria was a history of growth and driving growth from existing brands while driving productivity and integration. And I think that's part of our culture. So no ceiling. We see this trajectory continuing beyond that. But we've got a job to do starting in 2022.

Okay. That's really helpful.

One quarter at a time.

No, I understand. I understand. As soon as you give us '22 and '23, we'll ask about '24 and '25. That's what we're here for. I guess we just have maybe 1 or 2 minutes left. I guess just last concluding question from me. Any key points we didn't touch on, anything that you're thinking about that we're not, sort of what questions are we not asking you or are you not getting from investors that you think is worth calling out and addressing?

Yes. I cannot come back enough to emphasize the simple story in Elanco is we're building a company that has to deliver and is delivering 5 quarters in a row, and we're strengthening while we're doing that. So building, delivering and strengthening. And on the building side, one note I would make is, look, this is going to be -- we're building a company that, with partners, we can reach the world's animals. That's going to bring stem partnerships, innovation, but it's going to bring us a capability that we can build on and create that ceiling to rise in terms of potential. I think on delivery, we believe that it's absolutely critical we consistently continue to deliver, especially the revenue, EBITDA and EPS and stay to our commitments. But at the same time, on delivery is building durable growth. Growth is our obsession right now and driving growth. I'll highlight our Farm Animal business and Experior and the sustainability market that we're opening up as an example, and we continue to see that. And then look, we're going to continue to make Elanco stronger and stronger each quarter by the capabilities as well as by the growth in profit profiles that we're working on. So thank you. Great year in 2021 and excited about 2022.

Great. Yes. I mean I think that wraps it up. We're essentially out of time. So thanks so much for joining us. Jeff, always a pleasure to have you. Investors, everyone, thanks for dialing in, and hope you enjoy the rest of the session, the rest of the presentations. Thanks again.

Great. Thank you, Michael.