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

Excellent. Thank you guys for joining us. Pleasure to have Jeff Simmons from Elanco join us. There's a ton to talk about here. But before we do, let me first turn it over to Jeff for some opening remarks, and we'll jump right into it.

Great. Thanks, Umer. Yes, I'm excited to be part of the Evercore conference and visit with a lot of investors today. Look, I think Elanco, as I highlighted at the end of earnings, I would really focus on, it's really 2 key words: the controllables and the strategy. A lot of proof points in the third quarter, highlighting what we're focused on is working, offset by really a challenging worsening environment. So as I look at the controllables and real point to things you can highlight in Q3. You continue to see the center of the income statement gets stronger and stronger relative to margins and operating expenses continuing to come down, seeing actually EBITDA growth. So the whole -- all the productivity initiatives over the last few years really starting to come together and play out well. We saw that in Q3. We saw a price actually significantly jumped, almost double where we're seeing 3% in farm animal; 4%, pet health; we expect to be 2% for the year. But again, seeing -- price continue to see that as we go into 2023. The pipeline. I think this is the big one, Umer, we spent a lot of time talking about it, but a path to 5 blockbusters starting with Experior now parvovirus globally and then 3 quite large assets in Pet Health a path on through to the first half of 2024. Ellen highlighting a lot of that in the quarter. And then just market shares overall, we see -- we're taking market share in U.S. Farm Animal. Our Farm Animal franchise globally is extremely competitive. A lot of in-line spaces like pain, where we're actually picking up share more than Galliprant. That's only about 50% of our pain portfolio. Debt, we worked hard to bring cash home to pay down debt. We'll be in a $500 million or so range of taking and reducing debt this year. Our systems. We announced our systems and our stand up finally. We got off the Lilly Systems a little over a year ago. Now the Bayer systems that we set over on Tata is going to actually be completed around April of next year and then continuing to see a lot of proof points around Seresto and other things where we've got sustainable wins. Feeling very good about the Bayer acquisition and the synergies and things we've captured. All of that offset by some environmental factors that have worsened. The European situation for us. We've got a large European business. The pet retail, we see pet retail a little bit more reactive to economic pressures where people will trade down, have less apt to go to a retailer and buy a collar or a topical than the vet clinic business. Those 2 areas specifically, of course, the FX situation as well. So environment offset, but the durability of the strategy, the durability of what we've done with the Elanco plus Bayer, the independent company sets us up nicely productivity is in front of us and done and really working forward, pipeline is the key thing that's coming next. So that sets up Elanco and I look forward to getting into some of these topics a little bit more specifically, Umer.

Absolutely. So Jeff, maybe just to kick things off, I feel like the big question that I get at the outset of any Elanco meeting with any investor, there's 2 or 3 of them. The very first one they often ask is, they're like, you know what, we've seen Animal Health sales go down in prior recessionary environment. And there's concern for that right now. So I guess that's my first question to you, Jeff. Can you remind us when we've seen those sales drops in the 2000, 2002 and then the 2008 time frame, for some of your competitors as well as perhaps even within your own portfolio, what specific line items were most sensitive to a recessionary environment? And if you could break that down for livestock versus companion?

Yes. I think on livestock and we've seen -- I would still say a pretty resilient industry, durable industry. I don't know if you would say recession proof, but it is a resilient durable industry compared to others. I still think that's why this is a valuable industry right now even to be investing in, and we believe that. But when you look at the Farm Animal side, even with higher feed costs today than back in 2008 and went through that period. Now what we're seeing is, one, we're seeing much more different than 2008, supply demand more in check than ever before. So I think we have more sophisticated systems of understanding demand signals around the world at the different protein groups. So you're not seeing the swings of oversupply. The only area I see that today right now is actually in China, where we've come through African swine fever. There's a cyclical move. There was an over population. There was an oversupply and you've seen that. We're not seeing that globally across beef, poultry and pigs as much. So what you got to look at is, one, the continued demand. There may be a trade down in some of the SKUs, stake to hamburger and chicken, et cetera. But I think you go to watch overall demand, profitability of the packers and exports. And if those things continue to hold, we continue to see protein demand being quite elastic, a lot of demand. We continue to see growth over last year in protein numbers that will be important. Elanco well positioned as we're one of the key leaders globally in poultry, leaders in salmon. And again, our products helping convert high-cost feed into efficient low-cost protein. That's our business. So I think different than 2008, protein is set up pretty strong. On the pet side, we got to look at one thing that's most important, and that is really looking at spend per visit. And inside the vet clinic, vet clinics have been under a lot of pressure, but we continue to see that inside the vet clinic, spend continue to be quite resilient. There's variations by segment, as I said, in the omnichannel and retail side, maybe that's a little bit more hit by economic downturns. But inside vet clinic, we continue to see, I think, more portfolios easier for consumers than 2008 to actually reach. Yes, we're going to have some headwinds, I think, with increased economic pressures. But I think as a whole, we're going to see, I think, resilience hold through and probably COVID prepared us because today, a pet owner can get a lot more convenience, can buy more at home, can be connected to its vet virtually. And all of that sets up, I think, us to be a little bit more resilient during economic downturns.

But Jeff, wouldn't there be like pet spending impact just if there's job losses or anything along those lines? It sounds like livestock less so pet, a little more so. Would you agree with that in general?

In general, yes, I would. But I would say that with increased compliance and increased convenience comes a lot more increase in elasticity and resilience and the use. So the more connected vets are with their pet owners the more apt to say, hey, a $25 a month purchase that I've already signed up and have delivered or ongoing, then that's not an issue. Where we have seen it and it's impacted Elanco some is when I have to actually get my car and go somewhere and actually purchase something, people -- and there's still -- remember, 1/3 of pet owners in the United States not going to the vet clinic, which still very good about our omnichannel leadership and being in that pet retail, there will be some, I think, a little bit more reaction to that non-vet user compared to the vet clinic.

Got it. But if there were to be a real recession, can we see pet go down 5% to 10%? Is that the type of thing investors generally brace for?

Yes, I'm not going to predict. I think it will be a lot of category specific, and it will be relative to also...

The extent of recession and all that. Yes. That makes sense. Now that makes a lot of sense. The other thing I was going to ask, and then this is something Mike was running this exercise on was taking your 2017 revenue base, Jeff, 2017, 2018 revenue base, adding in whatever Bayer should be doing and comparing it versus now and trying to bake out what has been on a 5-year CAGR basis, organic growth? And it's hard to do, obviously, because some of the things we don't have visibility on. And I think, in general, the number we were getting to was something along the lines of a couple of percent, which sounds more akin to the type of pricing that came in, so less volume, but I realized there were different multiple moving parts within that. Is that generally consistent with sort of how you understand it? And the reason I ask is more because I want to use that as a base to then project off what the pipeline can do. And is 5% this token number that applies? Or does it not really apply?

Yes. So I'm not getting into and don't have all the specifics relative to the anchoring year that you start. But what I would say is here are some of the pushes and pulls that we've seen against the business and back to the algorithm that we launched when we had the Bayer and Elanco in December 2020. What I would share is, yes, we have seen pretty steady price at 2%. And -- we have seen, as we look at the categories against the algorithm, we've seen the steadiness and we've been highlighting the 2 to 3 new products a year and the innovation growth in that 1% to 2%. And actually then I'll jump all the way over to the defend category, we've actually seen Rumensin, Advantage and others actually do a little better than expected. Where we've seen some decline is more legacy Elanco in the core around the medicated feed additive business. We have seen some decline. And actually, probably our overall mix of Elanco has strengthened a lot over the last 3 years as we've seen some of the challenged mix of Medicated Feed Additives, especially when you look at a Tylosin or Denagard in pigs, we've seen some of those decline more rapidly that has been more of a pull against that algorithm. Otherwise, we believe the algorithm is holding up. You see a Galliprant, a Credelio, some of our focus brands do quite well up to this last year, Seresto doing quite well. Focus brands doing well, defend doing better than expected. Core a little worse than expected mostly on legacy Elanco medicated feed additives. So again, we come back, the algorithm is working, and we believe that innovation will be the biggest driver going forward, which we can talk about.

Excellent, Jeff. I just want to drill down on something you had said previously, just on supply chain issues. Obviously, the paper and packaging issues that were present and one have been rectified On your 3Q call, you kept noting that supply chain issues have stabilized, along with inflation. And one of your competitors recently said that they're taking a more cautious view, just given increasing uncertainty around supply. So I guess my question is, can you just please remind us what Elanco's specific supply issues are, chain issues are, and what gives you confidence in your Q4 guidance?

Yes. Great reference, Mike. So yes, early in the year, we had some paper packaging issues around brands like Advantage. They've been resolved. I can even note today, we've got 3 to 4 paper suppliers. And so that is not any longer a headwind. We did note a $30 million to $35 million supply challenge as we were coming out of the second quarter. And in the third quarter, we highlighted we don't see that worsening. We still see some of that $30 million to $35 million headwind and that's inside our guidance. And that's really ingredients. These are, as you know, a lot of SKUs in Animal Health a lot of active ingredient suppliers that actually make up these products, both on the Elanco and the legacy Bayer side. So what the key message here is we believe we've taken a prudent approach. There will always be pushes and pulls on supply quarter-to-quarter and compare differences. But as a whole, we see no difference in our guide in that $30 million to $35 million that we've pointed out. And I believe our supply chain team has got a good handle on this, and we're in a good place. I think on inflation, I just would highlight, we've noted a $140 million inflation impact. I think important as we think about going from '22 to '23, the inflationary cost and impact on ingredients in '22 carries through in the COGS in '23. And I think that's important to be noted that we see some of that impact that we'll be carrying forward.

Sorry about that. I've been having some zoom issues. So since we're sort of touching up on 2023, Jeff, could you also then -- is it in general? And I know there's consensus expectations at a fairly sort of 1% to 2% type growth and probably coming in a little bit. In general, is it fair to assume that the underlying portfolio is a low single-digit type increase, and it's really about the pipeline contribution is the right way to model it? Because I feel like one of the challenges in investor modeling and sell-side modeling around Elanco could have possibly been not appreciating that this is not a sort of headline 5% growth across the board. And as you have to think about when pipeline contribution kicks in, which should start in '24, but maybe not necessarily in '23.

Yes. So let me highlight, Umer. We're not -- we'll continue to talk about '23 as we head into our February call and put more color to it. But as I mentioned in Q3, let me just put a little bit detail around the pushes and pulls as we look at '23. I think from a tailwind positive perspective, there's no question, innovation and new launches. When you look at Experior, you look at we're expecting the first SGLT2 product called Bexacat coming to the market, Parvovirus, which we think globally over time, has the potential to be a blockbuster. We're looking at Advantage XD and up to 2 to 3 more OTC products. So innovation from this year and new innovation next year will be a driver of growth and critical to grow, price will also -- we still continue. We've added a lot of capabilities on price. We're going to have a lapping effect from some of the price increases we took this year in the first half of next year, and price will be another driver. We also see some favorable compares and improvements in China and in supply. So I think those are all things that continue, to a lesser extent, but will continue as well. This is all going to be offset by a few things that I think is really important as we think about the total income statement going into '23. And again, we're not giving guidance today, but I think the things to watch that will be very important between now and February as we start to put color to this, is looking at the economic situations in both the U.S. and Europe and specifically Pet Health and Pet Retail in the U.S. And those are going to be things, as we mentioned, worsened for us in the second half. What will happen in '23, we're still assessing. I think the lockdown situation in China and the whole China situation, we are well positioned across really all 4 species, pigs, poultry, pet and aqua and we're set up with a Chinese leadership team. And you know we're a little bit over-indexed on China for growth. That will be a factor. We see it as a positive compare. Will it be a bigger contributor? We don't know yet. That will be another factor. I think from the -- looking at deeper in the income statement, as Todd has highlighted in the past, we don't expect OpEx to be as favorable of a contributor and continue to decline and be the big EBITDA driver that it has been in '22 and '23. We also have 1/3 of our debt floating, and we see interest costs being higher next year than they are this year. And as I mentioned, the COGS situation will also be. So again, not giving guide, but that's the push and pulls. Again, the durable factors, the strategy, the things we can control, we're set up well. Our eyes and our assessment over the next 60 to 90 days will be on these environmental factors.

Could this be flat year-over-year on an EPS basis?

I'm not getting into the details by any means at this stage on guide or not wanting to lead anyone to believe in any direction. I think these are the pushes and pulls, and we'll put more color to this in February, Umer.

And then also, as we sort of think beyond 2023, some of the other things I want to touch up on also, Jeff, are maybe -- can we go back to some of the questions that have percolated over the past few quarters, for example, inventory? I recall you said there's been no changes in distribution strategy. Can you remind us if the amount of inventory in channel for you, what is that now? Is that 60 to 75 days in that ballpark?

It varies across the globe by species, by area. As Umer, we've talked. What I would really want to highlight is there has been no change in inventory levels since changing our distribution strategy back some time ago, been no significant change in distribution strategy and distributors or terms. And so that's consistent and has been consistent and that strategy is working very well.

And would you look to expand the number of distributors ever again, Jeff, especially as you add into your pipeline launches? Or you're comfortable with the current?

We're comfortable today with where we are. We're building increased capabilities as a company. We will, of course, be assessing very closely our launch readiness of some of these major blockbusters, you can be assured we will be launch ready. We will be competitive. Bayer has given us a lot more size and scale and especially the international markets and the omnichannel, which will be set up very nicely. But no change is expected right now in our distribution strategy.

Got it. And Jeff, in terms of days sales outstanding, it did drive up a little bit since the beginning of the year. It's almost approaching where it was in 3Q at around 81 days last year in 3Q. Now it's around 77 days. Should this be concerning? And are you still holding your distributor to 60-day payment terms?

Yes. No concern or no change on the 77 days of sales outstanding. It's pretty much aligned in industry standards. Remember, we've got a lot of sales in the first half of the year. This is seasonal relative to when we can even compare to historical levels. It's a seasonal change in terms. No concern at all on DSOs.

Got it. Got it. Got it. Jeff, maybe sort of another topic that has continued to get investor question. People just want to make sure there's nothing of concern. On the Seresto collar side, I recall there was an EPA meeting where they were talking about -- there was some petition submitted to revisit the status of Seresto -- the approval status of Seresto Is there any pending review of Seresto at EPA currently?

No. We are -- well, we're in a proactive engagement right now with the EPA. And I would say, as I mentioned on the call, very collaborative. We are engaging in a proactive way, really around 2 areas: brand stewardship and oversight. Things that we endorse and I think both us and the EPA endorse, and we're continuing to look at how we can continue. Remember, EPA, we're a leader in retail. Seresto is one of the most major products. And again, can elaborate in detail other than to say that collaboration is occurring, and we will announce and share any outcomes that come from that. I would just say from all of that collaboration, from the data we see, from the confident retailers, our e-com and the vet community. And I even think the social media, when we look at impressions positive versus negative, much more positive, we stand here today as confident as we've ever been in the safety and the contributions we see from Seresto in the medium and long term going forward. So our confidence is high. That engagement is occurring, and we'll update you as we go forward.

Got it. But Jeff, just so I'm clear, I think at one recent conference venue, Todd mentioned EPO is reviewing the active ingredients of Seresto. Whereas in one of the EPA meetings, they mentioned that since there's a petition to revoke marketing status, they're thinking through that. So I guess which one is it? Is it EPA reviewing the petition to revoke marketing and/or are they looking at active ingredients specifically? Just so I understand what is it that they're about to rule on.

Yes. Thank you for the clarity. So let me take the first one. There is a natural reregistration process that occurs on active ingredients. Not on the product Seresto itself. So the 2 active ingredients are under reregistration. Again, that's a typical process that's occurring. That actually will not result in any answers until 2024. But again, that's routine. We have nothing to believe that there's anything that's going to impact pet use at all by those active ingredients. So that's, again, safety data, everything. So that's occurring That will go on into 2024. And nothing that we believe is of any concern at all. Relative to our engagement that, yes, the petition and other things, that engagement with the EPA is between Elanco and the EPA relative to the brands Seresto itself and ways that we can continue to enhance for pet owners going forward. And again, in areas that are very collaborative around stewardship and around oversight.

Got it. So if they are looking at any marketing revoke thing or even at least going through the sort of motion just to show why they're not going to do that, that would not involve Elanco presumably. And perhaps when they look you guys in it to make sure there's enough awareness, kind of like that happens on human drug side where they let the physicians know.

Yes. I think the most important is our engagement with the EPA is how we can continue to better and enhance the pet experience and the brand and assure that there's good oversight in the stewardship, and that's happening in a very collaborative way. And we believe, again, from Elanco's perspective, our confidence has never been higher in this brand. And Seresto globally, again, playing a very significant role in our future in the medium and long term and nothing we see stopping or hindering that at all.

Got it. And Jeff, just to put this to bed. If there were any chance, EPA was heading towards the direction of considering even taking that petition on marketing revoke status, you would have had a sense around where that's going, considering how collaborative these engagements have been?

Yes, we believe we would. And again, I wouldn't be stating these things if it wasn't from the knowledge of the collaboration and the engagement we have with the EPA today.

And you don't expect demand to change based on some of these new things you may add to the physician engagement on this?

No, maybe let me just highlight a little bit of the Seresto situation. One, a global product, again, in 80 countries, a lot of loyalty. We saw this in the diligence when we looked at Bayer early on. There's a lot of loyalty to this product. Even with the noise in the marketplace from this they did, which has lessened a lot in the last year. We're down 1% on a constant currency basis, which we believe is primarily driven by this EU recession and the pet retail impact economically. We continue to see stability in this brand going forward. We'll put more color to this in February. But again, pricing, we've taken and put a lot more sophistication around pricing. A lot more physical availability. We're in more channels on more shelves being held by more retailers globally than when Bayer had the product, and that puts us in a much stronger situation and we're going to continue to innovate around the brand. All these things -- while we're also working on productivity and bringing more margin against this product as well.

So speaking of Innovate, Jeff, I feel like the most significant part of Elanco's story, I feel is finally going to start to unfold in early 2024 and onwards. And at a high level, and I realize this is not to put you on the spot on any specific sales guidance or anything of that sort. But the question investors ask is, could you be in a position where at least 1 or 2 of your products, the high-profile ones, perhaps the Triple, the JAK inhibitor, et cetera, are $500 million-plus type of potential. And we've seen some of that happen out of Zoetis. Do you envision one of those tracking in that type of sales proportion?

Well, I start by saying we've got -- we're coming into our -- see 9th year as a company. And I will tell you that I have never seen in my time the size, the diversity and the opportunity in our pipeline. Now a lot has to happen, but Ellen has brought in a lot of expertise relative to late-stage drug development and to sit here today and say, "Hey, we've got a path to blockbusters in different segments where we have a lot of capability. We have a global footprint now stronger than ever with Bayer. To answer that question, it's driven by a couple of key factors. One is being able to have the strength to launch well, share of voice, number of headcount, and we will have, and we believe we have, and we don't think we have to add a lot of expense here relative to having the strength to take market share and have the alliances to take market share. Two, is have it in a portfolio. When you think about parasiticides and even pet for derm, we've got a portfolio that can bring new products along with it to have strength. Third is differentiation. We've highlighted differentiation comes around efficacy, safety and delivery. We're not going to get into detail on that, but we've got the differentiation, we believe, in the portfolio to bring these assets in. So to me, I believe it's key. I'll point to derm especially. Derm is going to be accretive for us. and derm, we believe, is an area where every sale is going to be an additive growth for us, and we believe we're set up very well with the Kindred assets and Lilly backgrounded assets to really to be competitive.

Got it. But Jeff, is it fair to say you never said no to the possibility of one of these key products being of that type of magnitude, not necessarily pinning it to like 500 or 600 or 400 , but -- are those potential -- that type of number is possible, I guess, is what I'm getting at.

It is possible, and it would be wrong for me to say that there's a ceiling on any of this innovation. I would say the other factor to kind of counter against it is what we're looking at today different than maybe we have in a while. And in this space. We've got 4 large companies that have a lot of innovation, and there's not exposure to these pipelines, maybe as much as ours in the other public companies. So that will be, I think, the counterbalance to this. But you can be assured, we've got innovation that's going to drive the next area of growth for this company, and it's in the final stage of submission and approval.

Makes sense. And the Triple has been filed, correct, Jeff?

So yes, what we've said is because we're pioneering new ground on the exposing of the pipeline is that we're highlighting submissions. They are rolling, they are iterative. The process, as you know, with the ADUFA process, especially with the FDA. It's rolling and it's iterative. But we have highlighted that the key submission is in, and we'll continue to update you as we think about the approval time line. Again, 12 to 18 months with ADUFA, that's what puts us in the first half of 2024.

So once -- okay. So it's a rolling submission. It's not been fully completed, but it's a rolling submission. And once it's fully completed, it's an additional 12 months from there. Is that right?

We're not getting into the details of that, and that's -- I think the most important is that the submission that we've highlighted that's already been made. And as we've highlighted, we now are focusing on the approval window that we see, which is a path to that first half of '24.

Got it. And does that -- a first half '24, Jeff, does that -- remind me the season? Are you well positioned for the season because one of the questions has been, do you miss the season if you launch in first half '24?

Yes. I mean these are -- again, we're talking about complex many, many factors involved. But do we have a path to make the season? We do. And we're doing everything possible to do that. Most importantly is we want to bring a product to the market that's [indiscernible] and strong and able to take share and very viable to pet owners and veterinarians going forward. We'll continue to update you as we progress through this next couple quarters.

And Jeff, given the significance of these programs now, would you, at some point, in some sort of format consider getting a little more granular on -- okay, these are like, let's say, the JAK IL-31 and the Triple. Here's the here's what -- here's the time lines on full submission as well as here's the key studies, the field study and the lab and the field study they've been completed or not. Something a little more granular, so we can start to get a little more sense and touch and feel it all. Because I feel like that's been something that investors are hoping to do ahead of sort of the launch cycle starting up.

Yes. So we've -- each -- since the Investor Day in December 2020, when we exposed the pipeline to the last few calls, and including Ellen in these, we continue to grow the transparency of the progress we're balancing that, Umer, as you can imagine, in a very competitive environment, highlighting what differentiation is, exactly our launch strategy. These are all factors that would impact the ramp rate and the share, and we're going to balance that for both customers and investors in the company. And again, we'll share more as we go forward, but I won't highlight what that will be yet at this stage.

Got it. And my last one, and I'm sorry, Mike, I feel like I've taken up way too much time than I intended to. The JAK, Jeff, I feel like Apoquel has been out for a long time. Where do you see commercially positioning this relative to that product and the size of it? Because I know it's a sizable category, but where do you position?

Yes. I think first of all, just derm overall, the derm market globally continues to grow. It continues to be that in pain, 2 of the fastest-growing markets. I don't think there's any market in any time in animal health, where you've got $1.2 billion had to do $1.5 billion, really with 2 compounds. And so what we're seeing in the research is there is a strong need by veterinarians for alternatives, whether that's just to have an alternative or from an efficacy perspective. As we've highlighted, the JAK product coming is differentiated. We're not going to go in much more greater detail than that. We also have the IL-31 short-acting that came from Kindred shortly behind or with a different time line of the USDA, we could be bringing these products very closely together. Remember, we're leaders in otitis today. So we do know the derm market, but we believe we've got the right share of voice and the right presence in Europe and the U.S. to actually bring these products and take share. So that's what I'll highlight at this point in time, but I think we've got a great opportunity in a very big market, and we will be ready to be very competitive in doing that.

Thanks, Jeff. and I just want to Bexacat. You said -- mentioned that before as a potential growth driver. That's your SGLT2 for feline diabetes. Is approval still expected later this quarter? And just what's the overall market opportunity for an agent like this, just given the relative under medicalization of cats?

Yes, great question. Mike. So we were quite excited about, first of all, just the overall feline market. We brought Credelio for cats. We've got ZORBIUM, which we've come in with. We've got Advantage XD. I can go on. We've added quite a few products even in the CKD market last year. So our feline portfolio is growing. We're working on a capability. It is an under medicalized market, not just diabetes, but just the overall feline market and getting cat owners to come to the clinic or to be able to work the omnichannel to be able to serve them at home as a challenge the veterinary industry has. I think as I turn to Bexacat, a few things. First of all, I think it's an example of one, our alliance ability to bring in a late-stage asset, help drive it to the market. We do expect this product. It's on target to be approved by the end of this year, early next year, but we have anticipation that by the end of this year. It is the first SGLT2 the significance of this market on the human side. We do see this as the first one coming to the U.S. And really what it's doing is really going into a twice-a-day injectable insulin market. And what we're attempting to do here is to offer a different administration, a more convenient administration for insulin-naive cats. And we'll talk more about this. How big is this market? Again, a lot of this gets to awareness. It's an under diagnosed market. Two is getting feline -- and getting cat owners to get into the vet clinic. And then three is to move them to this new administration approach. All of these things would be the key drivers of how big this market can be. We do see medium and long term for us to be a pretty significant player in the diabetes market, in a market that's going to be quite sizable going forward.

So I know we're approaching time, Jeff, but one of the questions on diabetes that I really was hoping to ask is when do you intend to launch [ Manzaro ]?

We've got a great compound right here with this SGLT2. So we'll take what's in front of us first. So...

Outstanding, outstanding. Okay. So Sorry, Mike, I was -- you were going with better momentum than that.

Just pivoting to canine and parvovirus. Obviously, this is also another very underserved condition. And I think based on your comments in the past, no one else was really working on something like this. I guess my question is why is that? And what would the ramp be to kind of make this drug or drug gear blockbuster?

Yes. So we think that one is just like any compound, it's going to -- and I've highlighted, we're really overcoming the key things to make this a really viable compound. First of all, is again, we've moved because of the need with the USDA to a conditional approval, which can bring that approval much faster, and we're expecting again late this year, early next year. Two is supply chain. It's being able to get this in vet clinics as an antibody and get it -- it's going to be one of these when a dog has parvovirus, we want to be able to be accessible quickly and available and then the manufacturing, which is going to be in our Elwood, Kansas plant that we've got from Kindred, and that's moving that approval process is moving quickly. So the key barriers are there. And Mike, I think to us, it is being able to offer something veterinarians don't have today and be able to reach all of the market as quickly as we can. That's going to be the challenge here and then globalize the product. So again, it is something that if a dog that is diagnosed with -- a puppy diagnosed with parvo today, it does not have an option, and it would -- this is a life-saving option that we're bringing to the market that we think is going to bring a lot of value to every veterinarian, which is also going to be positive for Elanco in our overall portfolio. So more to come. We think we'll need [indiscernible] and globalize this market to achieve a blockbuster status, but we believe we've got the ability to do that.

Got it. Got it. I just want to maybe pivot back to your current product offerings. Galliprant, actually pain remains a bright spot in animal health, as one of the growth drivers along with derm. But for Galliprant, could you provide any color on the European performance, especially in light of monoclonal antibody competition that's already there? And what are veterinarians views on using mAb versus a small molecule drug like Galliprant?

First of all, pain overall is something we're right now in the U.S, we're taking market share in pain. Galliprant, we spent a lot of time talking about absolutely a lead compound that is seeing nice double-digit growth this year. I would highlight also the other half of our pain portfolio, products like we've had a great -- one of our fastest launches ever, showing our capabilities around digital and Bobby Modi and what the health team has done, ZORBIUM, that product has done extremely well. We've got Oncor and Nocita as well. One of the Aratana acquisitions. So again, pain portfolio overall growing strengthening, taking share, Galliprant, I would highlight there's some differences, Mike, between the U.S. and Europe. One difference is in the maturity of the market, the actual our capabilities. It has a more restricting label more moderate, mild to moderate claim in Europe to where we have an inflammation a broader claim in the U.S. and the product has a much higher awareness in the U.S. So we believe we're set up well. Our pain portfolio is set up well. And look, I think new innovation is doing what we've seen, which is we're seeing a pain market in Europe grow significantly, mostly because more veterinarians and more pet owners are a lot more aware that pain can be solved and diagnosis and use is as high as it's ever been in Europe. We see that as the thing is going to happen in the U.S.

Got it. Jeff, maybe my last one, and I'll ask you the most loaded question I've ever asked you. And this is not necessarily to get a some sort of guidance, but it's more to get a sense of directionally where we're heading as a company and on the numbers. The way I see it is if the innovation pieces plays out, there's no reason why Elanco ever has a 1% to 2% top line growth here again and should really be mid to high single digits on a more consistent basis from there. And if that's the case, Elanco should very well be on a path towards a $2 EPS in the next few years, maybe 5, 6 years in that time frame. I mean -- and again, I'm not looking for guidance per se, but in general, am I directionally off to the extent the innovation thesis plays out?

I think you're leading with the absolute right factor that will drive the value to the company and that's innovation. Innovation will drive the growth, as you highlighted. It will be over-indexed on our algorithm that this is -- our bet has been on not just incremental 3, 4, 5 portfolio filling innovations every year, but also these blockbusters. So it's essential that we get them to the market, we launch them. We launch them globally with strength and each one of these innovations will be accretive to our margin overall, which will drive that EPS growth. So absolutely. I think the case for Elanco is pipeline, followed by the productivity efforts that are already playing out. Our cost base is as low as it's been so you start putting sales on top of that. We're going to see that play out as well. The standup is completing. So we will be in April independent stand-up Elanco plus Bayer company, and our standup costs are going to come down. That's going to increase cash flow, which is going to decrease the debt, which is going to also be a big driver in this factor. And then I think it's critical we keep our eyes on the in-line products holding share, staying competitive. Our mix, part of this decrease we've seen on growth, Umer, a little bit has been, we've dropped some of those feed additives and others. So our mix is getting more positive, which creates the durability, which allows that growth you're talking about to be on top of it. So absolutely pipeline and the success of the pipeline and that $600 million to $700 million of innovation that's highly dependent on these blockbusters will be what drives the trajectory. And it's to me the case for Elanco today is at over $1 billion EBITDA where we stand today value-wise is why the executives and the Board members have purchased stock and believe that this is a viable, very viable value proposition as we stand today.

Got it. And just as we wrap it up, Jeff, speaking of Board, one question I've never been able to answer for investors has been Sachem had leaving the Board. What did you guys speak to on that topic?

It's very much what was in the release. I think Sachem added a tremendous amount of value to us. They came in they've had the experience across animal health and other factors. We've got 3 Board members at the time when he was on that have Zoetis. We still have Bill Doyle and Paul Herendeen that had Zoetis experience. I think the conclusion is the actions that we are taking are very much in line or even more aggressive in some of their proxies that they've had. And there's mutual -- many other commitments that Sachem had, and they were prioritizing some of those commitments and again, endorsed the productivity plans and the management and what we're doing. And that's where I'd leave it. And again, our Board is extremely aligned, very engaged and very helpful as well.

Outstanding. Well, thank you so much for making time, Jeff. That was really helpful. I really appreciate your time.

Thanks, Mike. Thanks, Umer.

Absolutely.