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

Good morning, everyone. Welcome to Elanco's 2025 Investor Day. Thank you all for being here with us today in New York and also online. First, a bit of housekeeping. Today's discussion will include forward-looking statements. These statements are based on our current assumptions and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from our forecast. For more information, see the risk factors discussed in today's press release as well as in our Form 10-K and 10-Q filed with the SEC. We do not undertake any duty to update any forward-looking statement. Our remarks today will focus on our non-GAAP financial measures. References to organic performance exclude the estimated impact of the aqua business which was divested July 9, 2024, and certain royalty and milestone rights that were sold to a third party in May 2025. Today's agenda will feature 8 of Elanco's senior leaders defining our new era of sustainable, reliable growth. We'll hear from Jeff, Tim and 3 of our business leads with a Q&A for them. After a short break, we'll have Ellen, Bob and Grace and another Q&A for that group also moderated by Jeff. Please note that we'll post the full set of presentations when we're done with this morning. With that, it's my pleasure to introduce our President and CEO, Jeff Simmons.

Thanks, Tiffany. Good morning, everybody, and we are excited about the next couple of hours. Thank you for the time that you're investing here in the room as well as many online. We know December brings a lot of commitments, and we're excited and believe this will be a highly valuable time. So look, 5 years ago, we had our last Investor Day, we are quite a different company and I really believe that the words on this slide are really important. This is all about a sustainable growth company. You're going to hear from 10 very vested leaders that your investments behind and one of my big jobs here today is to allow you to get to know them a lot better. I also -- there's 4 Board members here that hopefully, you'll have an opportunity. Those that are here to interact with at the break. We've got our Chairman, [ Lawrence Kurzius ] here; the Head of the Finance Committee, [ Paul Herendeen ]; the Head of the Innovation Committee, Dr. Debbie Kochevar; as well as the head of Governance, Mike Harrington. They're here and look forward to engaging with you throughout the breaks today. So let's get in, and I want to start with -- we did a survey ahead of time and talk to all of you and have been out on the road with a lot of investor conferences, Bob and I, and we heard clearly these are the things you want to hear about. The underpinning of our strategy IPP, what drives it, the details behind it. With that also getting into the pipeline and Ellen is going to go deeper, not just on our current innovation, but the engine that's driving it and the next wave and the next, next wave of innovation and we'll open and share that as well. And then how that links to just the overall financial outlook. At the bottom of this slide is pretty important to us, and it's really our investor charge. And I want to be really clear to say that we want to be a company that not just delivers but that we're reliable, that were consistent that we do what we say. That we are very transparent. Hopefully, a proof point of that is the detailed press release from this morning. We want there to be great clarity, whether there's good things happening or challenging things happening, we want transparency, and we want to also be very accessible. Bob, later in the day, will talk a little bit about the philosophy behind guidance. And as we start to go forward, we're going to talk about 3-year commitments today, but also a 5-year window of just how we see the business and this is important. So that's our investor charge that I think is really important, and we look forward to some individual dialogue. A lot of what we're going to share today is a backdrop for the next 3 years of dialogue with you as investors. And so look at this slide deck is something that we want to be a little bit timeless for the next 3 years. Okay. I want to get started. So I'd like to kind of say, let's start with what we're going to talk about the rest of the day. I'm kind of the opening act for everybody else. But let me just share the press release and a little bit of a summary of what's in it. And the first is just the headline of say, hey, we want consistent growth. We've demonstrated that over the last 9 quarters, especially over the last 4 quarters as a mid-single-digit company. And what's coming behind that is a steady flow of a pipeline of new products and then a stronger financial profile. So let me just kind of give you kind of each of these pillars underneath this that you're going to hear about some of the expectations that we're outlining today. First is consistent, predictable growth where our expectations are in our algorithm, a mid-single-digit constant currency revenue growth. This will be driven heavily by stronger portfolios as well as more competitive commercial capabilities and innovation going into those portfolios on a regular basis. And I think you've seen already a proof point of 9 consecutive quarters of growth. The second is what I think really sets us apart and will for a couple more years coming, and that is the basket of innovation that is globalizing right now. Folks, we are in major markets with major differentiated products. Those markets are growing, our products are taking share and I'm not seeing anything in Animal Health where there's a lot of industries that have 1 product and 1 market dependency we've got this basket. And we are today committing to $1.1 billion next year of innovation from these and the Big 6 to double between now and 2028. So that's the basket of innovation that is hitting the market, the Big 6, which we'll get into a great detail with Tim here next. And then the next wave. What you haven't seen a lot is what Ellen has been doing. We talk a lot about these Big 6. But what I've really challenged, Ellen, is to come here and say, "Hey, in the 4.5 years, what's changed in R&D? What's the engine, what's the capability? What's the next wave? And what's the next next wave?" We know as investors in Animal Health what has been the challenge is the air pockets of innovation where they don't come. And our goal today is to show you and demonstrate the capability and the leadership behind an innovation engine that's going to take 10 major projects in development. We got the center of our pipeline is full, and it's movie. Today, we're committing to 5 to 6 potential blockbusters in major markets between 2026 and 2031. That's a pretty material kind of step out that we're highlighting. Number 1 question, Bob and I gotten over the last 3 months has been, hey, when is the EBITDA growth coming? It's going to start coming in 2026. The other part of our algorithm is a high single-digit adjusted EBITDA, constant currency revenue growth. This is going to be driven really twofold. One is going to be around, yes, stronger portfolios, innovation, better mix. At the same time, it's going to also come from Elanco Ascend. Today was an example of we are performing, we are investing, no regrets on launches and yes, we announced today a restructuring. We are going to perform and transform. And Bob is going to bring an energy to that and Grace, you're going to hear from today around this. High single-digit EBITDA growth starts next year. And then lastly is just a stronger balance sheet, stronger cash flows. We're committing to $1 billion of cash flow creation over the next 3 years. And that's going to come also from that EBITDA expansion that you see earlier. And yes, delevering matters where we expect to be under 3x by 2027. And we've heard clearly from you we're going to continue that path Paul, the finance committee kind of holds us accountable very clearly to take this down to the 2, 2.5x as we go longer term. That is the backdrop of what we're now going to take the next 2.5 hours and give you the underpinning of these outcomes and expectations. Now what I'd like to do is just take a couple of minutes and give you Elanco's perspective, we put some time into these next 3 slides. It's a volatile dynamic capital market, and you're needing to pick the markets you're in and the investments you're in. We think we're a compelling value proposition. We also think we're in the most compelling space. I was on Fox business this morning, and I spent a few minutes talking about a $40 billion industry headed to $60 billion and why. The next 3 slides, I want to just highlight from you as a 10-year executive officer in Lilly moving over what we've seen and a lot of data that supports these next 3 slides. Animal Health is an attractive market. It is durable and it has 3 fundamentals that don't get talked about enough collectively. And I think it's really important. And we'll then follow this up and what it means. For $42 billion industry, we believe that in the next 10 years, this industry goes close to $20 billion. And there's no reason why Elanco can be one of the leaders in that $20 billion of growth. Here's the uniqueness. One, we're a science-based industry. We are pharma like. We have high regulatory bars. Shoot in the U.S., we have 3 regulatory bodies that we serve. That brings complexity in a high barrier of entry. At the same time, we've never seen in Elanco. Tim will talk some about this, the revolution of innovation that's coming from biotech, pharma, plant health, there's a lot of innovation outside that's happening. And Elanco is a good testament, innovation gets rewarded if you bring it to the market. At the same time, we also think independence matters we've seen coming out of Lilly, being able to own and have access to innovation is probably better as an independent. That's the science pharma-like corner. The next that really drives our multiple up in this industry is where CPG like. We are very brand-driven. Listen, pet owners more than ever, Bobby will highlight this, love their brands, but so the veterinarians. And that brand loyalty gives a durability that's different. So do protein companies, when we sit in the boardrooms of major protein companies, they want reliable brands they can trust, they don't want to put their brands in the quality assurance at risk. That also then leads to kind of limited patent cliffs and Ellen has a dimension of life cycle management that's really key. If you have life cycle management, you get that piece into it. The third is it's a very value-driven. And I'll tell you the next 5 years, we see the need to be economically driven is really important. We serve low-margin people and customer bases, you have to have a holistic value proposition. I think the vet clinics are going to be more under pressure here. Pet owners were seeing it, protein companies as well. It's a cash market, not a payer market. You got to be value-oriented. You got to have customer interface. You've got to have the size and the scale to be able to reach these markets, and it's highly complex. Bayer has given us a size and a scale that's very different than 5 years ago at our investor conference to be able to do this. These are 3 fundamentals that I believe create a multiple in a market that is very durable in a pretty volatile time. Now what we want to do is highlight the 5 trends in each of the 2 species that we think are most important that will drive strategy and drive who will win the next 10 years. So Pet, $17 billion market projected to grow mid-single digit to high single digit. We hear a lot about vet visits. Yes, that's important as maybe an early indicator, short term but you, as investors, the next 5 to 10 years, here's the 5 that we think matter. The pet owner willingness to spend is still resilient. Fewer kids, more pets, the next generation has a willingness to spend if the innovation is there. If there's innovation, there's a willingness to spend. And we see if we can continue to bring this, the willingness will be there. The second trend is not talked about enough but I assure you it will play out big in the next 10 years, and that is the pet owner's decision-making power is growing. Yes, vets are important. But the power of the pet owner really matters. So you've got to have CRM data, you've got to have accessibility to that pet owner because that pet owner is going to continue to take on more and more influence and Bobby will talk some about how we're working on the channel efficiency there. The third is the omnichannel approach. One of the big reasons why the Board and us decided to go after Bayer, reach more pet owners and where they want to shop at the price points they want to shop at that creates convenience, convenience drives compliance, and this is one of the big underpinning growth drivers that we're already seeing in our business with products like Quattro and Zenrelia, but even Advantage and Seresto. The comprehensive portfolios matter, as we've talked about, we've seen derm come in, watch for pain to come in next, more portfolio creates more leverage, more leverage is critical as we up the index on corporate clinics. And lastly is the globalization is happening rapidly. You're going to hear this from [ Romero ] that the EU and the U.S. were always the pet markets but watch out. I'm going to use 1 example. Brazil used to be a developing country in pets. I would say Romero would probably say it's a developed country. And we're seeing that today with our Zenrelia launch. These are the 5 trends we think that will drive the $17 billion industry up quite significantly. Farm Animal. Bob will talk about being underappreciated his perspective. It's probably under indexed and I think it will be one of the big drivers, especially in the next 5 years. Of that $20 billion of growth, I think it's going to get more of that share than people realize. Here's a few things that I think are important. It will grow slower, probably a little bit less price we'll talk about how it flows through the P&L today and why we are really bullish on this market. One is animal protein, 5 years ago when I stood at the investor conference, there was meatless Mondays, there were impossible burgers, there was a lot of worry where is the future? Today, it has totally shifted. Why? Taste/cost nutrition. [ Fairlife shake ] is a good example of that. And the healthy food movement, protein is the fastest-growing segment, animal protein is the fastest-growing segment. Just [ Robo Bank ], I was at a conference 2 weeks ago, GLP users. If you're on a GLP, you're consuming close to 60% more poultry, 40% more beef. So you've got all these developed country trends and then Romero will continue to show GDP growth continues to drive this. So low single-digit growth, but durable growth. The second is we're pointing to ruminants in poultry, 75% of farm animal, why are we really, really focused on these 2 segments. They're durable. They got great opportunity. They got a bigger problem set, they're accessible, and we see this is where the great opportunity is, where swine would be a little bit more regional, probably a little more volatile and a little more opportunistic. Seeing swine is not part of our strategy, but here's where our energy is, ruminants and poultry, where actually we've got leadership. The third is livestock needs go into the boardroom, go into cattle, poultry veterinarians, food safety is one, disease prevention is two. Tim will talk a little bit. Vaccine growth is where this industry is really growing the most because of disease prevention. And then this $1.5 billion market we've been talking about is really sustainability and productivity are converging. And what that means is really that second bullet is sustainability really when you get to the farm and Jose's team is leading this is all around got to have economic sustainability for farmers. If you can't sell value to farmers you can't even start in this business. And then you combine what we're seeing is new is CPG value. They got to get to the farm to strengthen their brands and money is flowing. Tens and 20 millions of dollars we're seeing flow to the farm, and we're enabling that and then the environmental backdrop around that, that still matters to consumers. And then these next 2 kind of combine and Bob will talk about the dynamic of these with bigger portfolios, and we're adding to our Farm Animal portfolio, if you can get to a Farm Animal customer more efficiently, and you've got the right reach and the markets are consolidating a little bit in the countries, you can run your P&L on a 9% to 10% OpEx, which concludes to say we've got a strong of EBITDA line in Farm Animal as we do in Pet Health. This is something I think Elanco is mastered and you're going to hear from 2 commercial leaders that know how to do this as well as I believe anybody. So these are the trends that we want to talk more about over the next couple of years with you, and we believe this is what's going to create $20 billion of value. And inside of that, we think we're well positioned. So look, I just kind of say this, too. We've had never more relevance as an industry. I speak a lot in industry events. We've never been more relevant, but with relevance comes responsibility. And if you can tap into that responsibility, you can bring out more value than ever. We have [ Dave Kinard ], Head of HR here. And our goal here is, if this vision with more purpose of touching every life every day with food and companionship what do we do? We're seeing it right now recruiting AI talent. We punch bigger than our size because of the significance of what we do to society for this next generation. I think watch our talent, our engagement. And if we can unlock that, it's my challenge to Dave and the team, we get another level of performance. Let's move quickly to this next section on just the new Elanco that's been built, especially with kind of a 5-year contrast. Look, we're a bigger company today. We see this [ 4.7 ], you do the math. We had towards a $6 billion company by the end of the decade. We've got the reach, the mix, the geography split. You're going to hear it in detail by the leaders. We have more blockbusters which, as you all know, because you asked about margin profile compared to our other competitors. We have a lot more leverage to be able to do this with better higher-margin blockbusters. It's a more efficient Elanco as Grace would say, running manufacturing to get the next $10 million than it was 5 years ago. And look, we look at it in 3 categories, and we've got leadership in farm, leadership in pet retail, we may be 3 or 4 ranked in pet vet, but probably have the highest ceiling of potential with the most innovation. So we see the greatest runway there. So we're set up well. But this would be what I would say the Board's chart that the Elanco Board and the Elanco Executive Committee has been very intentional, a little bit of an iceberg effect to say we're starting to arrive, but we've been very intentional since our independence in 2018. We built a foundation. We wanted an independent company that could reach the world's animals, and that's what we've done. And boy, it took money and it took time. We had to build an SAP system, a supply chain, regulatory. It was hard. But today, I think we're 1 of 2 companies that can reach the world's animals independently. Second is we scale for global reach. We made 2 acquisitions that were hard and challenging, but they truly got us what we want. Bayer has given us a big R&D budget and an engine that Ellen is utilizing to bring forward the innovation we need. We've got the size, the scale. We've got enough by country the strength to out and compete with any of the major players. Kindred brought us mAbs. Today, we are 1 of 2 companies leading with -- growing our lead with monoclonal antibodies and we'll share some more news on that throughout the day. That's been very -- those acquisitions have been critical. And then Alan came 4.5 years ago, and we knew we had to double down and create an engine to create consistent flow. We also had to get our pipeline, those 6 products out and that's been successful to really set us up now to be the sustainable durable company. You're going to continue to hear the 3 outcomes for me, from IPP, growth, innovation, cash and how important those are going forward. So this has been the charge of the Board and the committees of the Board as well as the executive team, and we're excited about this new era that we're entering. The strategy has been the same for 8 years. This is our flywheel. It's durable. It's starting to pick up some momentum using the good to great kind of concept. And it's all about consistency. Ellen's charge is a consistent flow of high-impact innovation, and that leads to consistently strengthening portfolios for more value to take more share. And that leads to, at the same time, also driving consistent productivity and being able to do both, grow and transform. And this strategy is going to continue and it's going to deliver the 3 outcomes that have been consistent. IPP delivers growth, innovation and cash. And that delivers total shareholder return metrics that you're interested in. So I will just assure you, 9,500 people across Elanco have their objectives tied to these outcomes. And you're going to hear it first from the 10 leaders that -- 9 leaders today. And look, the proof points you'll hear today is the quality of growth continues. The durability of that growth continues. This is the one chart that is pretty consistent from 5 years ago. We've built a basket of innovation. 5 years ago, we said $500 million to $600 million of innovation, that $500 million to $600 million, grew to $600 million to $700 million with Kindred. Today, we've got a metric for this year of $840 million to $880 million, and we're committing next year to $1.1 billion. The basket of innovation is our greatest differential to our competitors today. We're durable or diverse and what Ellen is bringing in the next 2 waves of innovation will strengthen this diversity, but will keep us in big markets. We're not a company, a very important point here, dependent on creating markets. We're going to go in the big markets that are already growing to take share. Yes, we'll be opportunistic, but the next 5 years of Elanco is really on growing big markets that already exist. Always get challenged. And definitely, over the last 3 years, Jeff, aren't you an innovation follower? Maybe we were 5 years ago, but I think it's starting to change. I think we're definitely leaning in and creating an innovation, as Ellen says, powerhouse that actually can start to create first, the first FDA product with 4 active ingredients. The first anti-infective in Farm Animal in more than 10 years, next-generation. First [ SGLT2 ] ever approved in Animal Health here in the U.S. and a few emergency use products as well and the first derm competitor. I know some would say we're late, but we're bringing a portfolio coming here next. And I would just challenge to say, I think you're going to start to see Elanco move into much more of a leadership position. I know that's Ellen's vision. And then on cash, you'll hear from Bob we know delevering is important, free cash flow is important, and we'll continue to stay on this charge. Today, we made an announcement, a pretty detailed, I think, 3-page press release I shared some of the news this morning. And I want you to just see this as a proof point that Elanco is performing. We're in a position of strength, but we're going to great companies are disciplined and decisive in a position of strength, and that's what today's announcement is about. We've restructured impacting some jobs. And Bob will get into the details of the financials, I won't do that now. But what you want to see is this is something to where we are increasing investment where we can get more capacity and efficiency. And I'll use an example, we are shutting down a German Bayer R&D facility, we signed a global deal with a CRO, [ Clin Global ], to increase significantly our capacity with a lot fewer dollars to create a lot more flow in our pipeline. That's 1 example. Also did some regulatory changes, gone to some lower-cost countries, all of this to create more cash flow. I got asked last week at an investor conference, can you get us EBITDA growth? And can you keep investing no regrets and win in the big markets? This is an example, an enablement of how we're doing that. Also, we've had a lot of good dialogue on the R&D front. Today's announcement also said that we've been very great constructive dialogue with the USDA specifically been on the phone even as much as yesterday with them. And I will just say that they've done a lot since the government shut down, and we're confident. You'll hear about the brand name [ Befree ] from Bobby. It's our IL-31. We have all technical sections complete. We have label alignment, we believe we'll have differentiation, and Bobby will talk about that, and we're still cautiously optimistic for an approval by the end of the year, but mostly for an H1 launch. We've also confirmed an accelerated pathway with the USDA as well on a potential first-in-class immunotherapeutic in a major pet health market where they've granted us conditional pathway to move, to be able to bring what we think could be a major pet product in the next 2 to 3 years. And that's probably all we're going to talk about that in terms of the details. And then we've got good clarity on '26 tariffs which really with that and the teams put an incremental price increase in place, that will really take tariffs for us, we believe, will be immaterial in 2026. More details will come from Bob on those announcements. But hopefully, you see that as a company on the move, a company moving in a position of strength. So why will we win? I think we've got a proven strategy, a consistent strategy at over 97% of all the employees in Elanco know their role in that strategy. We've got a stronger, more stabilized portfolio. You're going to hear about it and the owners here in a minute. We've rebuilt an innovation engine that is moving and we've got -- we're pivoting to a much stronger financial profile. Let me conclude as I turn it over to the team on also the foundation of the team and the culture. Why do I do this with investors? I think an Investor Day once every 5 years, need to hear a little bit of how we run the company, and that's the next 2 slides. This is the team. These are the 10 individuals that are most vested for your investment success. This is the most, I believe, experienced, stable Animal Health executive team in the industry, and they bring a lot of experience. We're aligned. We spend a lot of time together. We have a meal once a month together. We have a lot of fun and we're unified, but we are extremely committed to win and succeed. We haven't come this far to not fully deliver in the next 5 to 10 years. So let me just highlight a little bit. It all starts with Ellen. Ellen has got 35 years in Animal Health. She's led BI. She's allowed the makeups of [ Intervet ], that's now Merck, [ DSM ], PepsiCo. Ellen as a drug developer, driving pipelines, very disciplined. The first day she showed up, it's all about consistent flow, Jeff. It's about refilling as much as delivering and she's done that. Tim brings executive leadership from all the different major companies. Tim is all about growth, and that growth is very targeted very much on the major markets of where we can win and building the portfolio for Ellen from the outside and building the portfolios inside with the commercial leaders. The 3 commercial leaders very quickly, we run the U.S. differently than most companies. We split Farm Animal and Pet Health. On the Farm Animal side, [ Jose Semis ] leads the Farm Animal, 35 years, leading Farm Animal businesses, a nutritionist. Nobody probably knows the mix between science and economics and he's put us in a #1 position in beef, in poultry and in swine. Bobby came in with pet experience, CPG experience. It's all about brands, building brands, launches and omnichannel and that expertise has turned into a competitive advantage for us as we've gone forward. Romero is a veterinarian. He's a globalist. He's very disciplined and has one of the strongest leadership teams we have and runs the world in clusters, 52% of Elanco's business and probably been the most consistent deliver that we've had over the last 5 years. Bob's come in, I've shared a lot with you a low-margin industry background to really help us drive margin across the company. Two words with Bob is cash and margins. And today, we announced internally he will lead Elanco Ascend, our 5-year company-wide productivity agenda. And he will work in partnership, and you'll hear from both of them today . Grace is leading manufacturing. She's led our global supply chain. She's come out of Lilly. She's run plants, and it's all about reliable supply and the science of the next wave, and she works very closely with Ellen in that regard. She is all about keeping us agile, competitive, but in control and managing the risk and Dave Kennard, how we foster our employee value proposition to create another level of engagement beyond our competitors. And everyone is here today and looks forward to engaging with you, and I want you to hear from them directly. And look, what's the unique? If you walked around traveled with me through the labs and the manufacturing plants with the people I think behind the blue slash, you would see, one, the longest-standing brand. There's pride in the legacy market research we just completed with our global customer base said, hey, Elanco is about value. And so we hire people appropriately. Industry passionate people, purposeful people and people that have the acumen and the expertise we need in the mastery in those areas. The culture is maybe a little bit Midwest, maybe a little bit from our Lilly roots, but it's, say, 1 Elanco and these 4 behaviors are how people are measured. We're a company quietly I've kind of shared this with a few of you, but we've had 5-year plans, 5 different times. We're just completing after 25 years, our fifth 5-year plan. That puts a mark for everybody that's really important, all the way down to we have a weekly accountability rhythm that drives these outcomes. And then lastly, our measures are all linked to growth innovation cash through performance management and a reminder that our bonuses are driven on Elanco cash earnings. That is EBITDA has got to beat last year and cash has to beat the cost of capital. And everybody knows that if we don't do that, then bonuses, no matter how the stock performs or how growth performs, it doesn't matter. And that lines up with the TSR that you're interested in. We've also matured the governance as we've matured the company. This has been important to the Board, and we've taken a series of steps every year as we mature as a company to align with a stronger, more independent governance as we've gone forward. I will end here by saying you're going to hear this financial profile and expectations as we go forward from a lot of the leaders as we link to this, and Bob will close with this with more detail. Look forward to engaging with all of you in the Q&A. I want to turn it over now to Tim to dig into the portfolio. Tim?

Thanks, Jeff. For those who don't know me, my name is [ Tim Beddington ]. I'm here today to dig into the portfolio a little bit for you, and then I'll be handing over to Bobby, Jose, Ramiro and Ellen to dig one level deeper so you get to make sure that we get a good perspective. I'm going to cover a little bit in my view of where Elanco is at today and just a little background on myself, just to get to that point. I've just clicked over 30 years in the Animal Health industry. I've been fortunate enough to work for some great companies, most recently Zoetis, [ Spurring Ingleheim ], I've been able to work with 9 of the top 10 brands in the Animal Health industry, and I've sat at the executive table of 3 of the big 4 Animal Health companies. So I have somewhat of a unique perspective to be able to share with you today. These are the topics that I'll be covering today. But most importantly, let me dive into the 2 big markets that everybody is interested in, first one being the pet market. From our view, and I say our view, and I'll keep the narrative of our view. We see the market growing to $24 billion by 2030, driven by the parasiticide space, the ever-resilient parasiticide space, this includes both the OTC and the Rx parasiticide space. We have a leading position in the OTC parasiticide space. The Rx space, we are not as big as some of our competitors in, but that creates a great opportunity for us. We see derm vaccines and pain as key pillars. We see a lot of new entrants coming in, but we see them as the key pillars for growth for the industry and the material drivers. Let me just touch on Farm Animal. We see it growing to $27 billion Farm Animal is a space that you don't hear as much about. It's a very nice business. We like the Farm Animal business a lot. It's a nice growth business for us. It generates a lot of revenue for us, and it's something that is probably a little easier for us to grow in just because not everyone is looking at this the same way we are, and this is a key area for us. We see cattle and poultry as the big drivers of this space, predominantly poultry is the biggest driver, and vaccines will be the biggest driver for this. We have a leading position in the U.S. in the Farm Animal space. We have the opportunity to grow that geographically around the world, which gives us a nice platform to continue to grow the Farm Animal space over time. One thing that I think the company is very proud of and should be very proud of is those of you who have been following us for a period of time would understand the base. The base business for Elanco over the last few years wasn't always delivering at the same rate as the rest of the innovation. The base business is now flat, plus or minus 1%. Without a flat, stable base, it's very difficult to continue to grow because you have to play catch up, you have to play catch up. We're now at a point we're at a very stable base of the business. This has been done through cross-selling across the innovation with the existing portfolio and geographic and channel expansion. But the innovation has been the big driver for enabling this base to stabilize. Then as we look forward, let's talk a little bit about what we call the Big 6. Jeff referred to the Big 6 earlier, what is the Big 6, Credelio Quattro, Zenrelia, Adtab, [ Befrena ], Bovaer and Experior. You'll see here we have in 2026, $1 billion of growth from the Big 6. You'll also see the rest of the innovation we have outside the Big 6 also continues to grow, but we see the Big 6 driving a large portion of our growth moving forward. And then as we think about beyond 2026, let me give you a slight view into 2028. We see stable base, critical. Without the stable base, it's hard to get the growth we need. Big 6 doubling in size by 2028, and we start to see the impact of Ellen's next wave, which we'll dig deeper into as we move forward. Stable base, Big 6 doubling start to see the next wave already in 2028. How do we expect to do that? Is one of the questions I'm sure many of you are thinking about. This is a view of the Big 6 and where we're at today, where it's been launched, where it's headed. And I'll pick on 2 examples for you. First one being Credelio Quattro. Credelio Quattro is going incredibly well for Elanco but it's only launched in the U.S. We see great opportunities in the major pet markets, Japan, Australia, Canada, Europe, Mexico and Brazil, and so great geographic expansion opportunity for Credelio Quattro. If I pick on Zenrelia, already launched in the major pet market. So different phases. It's more immediate value because, obviously, just launch in some of these countries, label improvements in some countries. So we expect it to go quite quickly. Quattro go over time. So it's not just all these things hitting at the same time. Many of these products will grow at different times in different phases. And just one quick point on the Big 6. What I showed you up until 2028 wasn't peak sales. It was just the sales as of what we expect in 2028. Those products will continue to grow beyond 2028. And then I think one unique thing about where we're at and the perspective I'd like to give you today about why I think Elanco will win. I've been in many Animal Health companies over a long period of time. I've never worked in an organization with a portfolio of this much innovation all at the same time. It's a very unique challenge and a great challenge to have, and I think the launch execution you've seen in many products, Adtab, Zenrelia, Quattro, set the example and the tone for what we expect moving forward. But this is why I think Elanco is well positioned to win. We're going to be in large growing markets, which is where we need to be to generate the value. We have a diverse global portfolio that's very durable, which is key. And we have sustainable growth through the Big 6 and also following closely behind at the next wave. So we're in the right markets. We have a global portfolio, and we have a nice flow of innovation. That's why I think Elanco is set up well for success moving forward. I'll turn it over to Bobby to dig a little deeper.

Thanks, Tim. Good morning. For those of you I haven't met, I'm Bobby Modi, and I have the privilege of leading our U.S. Pet Health business. Today, I'm going to talk a little bit about how we've pivoted our business to growth, how our portfolio is allowing us to gain share, the strength of our omnichannel capabilities and parasiticides and our differentiated derm portfolio. First, let's get grounded on the business a little bit. We're roughly a $1.3 billion business and represent roughly 28% of Elanco's total sales. Much like the diversity of total Elanco, our U.S. Pet Health business is also very diversified, and that diversity allows us to reach the consumer wherever he or she is going. One example of that is our channel diversity. We have a large retail business, and we have a leading presence in the OTC business. This allows us to reach more than 1/3 of pet parents that don't visit the veterinarian on a regular basis. The second area of diversity is in the medical space as we play, unlike many of our competitors. Special thanks to Ellen de Brabander her entire team for giving us innovation in each of these spaces over the last 3 years. We are now growing share in all 4 of these major medical segments. It's diversified innovation, coupled with a stable base that's allowed us to lead the industry in growth for 2 straight quarters in spite of a very difficult macro environment. Now there's many things that have transpired since I joined Elanco in 2022 that have allowed us to build a sustainable, competitive business. The first and probably the most important is differentiated innovation. Over the last 3 years, we've launched 12 differentiated assets in our U.S. Pet Health business across the Rx and OTC portfolio. But it's not just innovation. It's actually access to our customers. With the investments we've made, we now have the second largest sales force in the country and the largest retail team in the country. This gives us the ability to reach 30,000 clinics, all the major corporate groups and the 100,000-plus brick-and-mortar stores in the U.S. But it's not just access. It's the scale of our OTC portfolio and the breadth of our Rx portfolio that gives us relevancy with our customers. They want and need the brands that we have to offer. And we're all about building enduring brands and the way we build enduring brands is by expanding our share of voice. And one way we've expanded our share of voice is with the vet community. Since 2022, our share of voice has grown by 110%. That's over 250,000 more contacts today with vets than we had in 2022. But we're not just building share of voice with our customers. We're also building share of voice with our consumers. With award-winning creative and an analytical approach to our direct-to-consumer advertising, we are building novel brands like Credelio Quattro. All of this is underpinned by a very experienced talented leadership team and a highly engaged organization. We've grown our engagement since 2022 by 23 points. We are now 7 points above the external benchmark from an engagement perspective. With the pending approval of our IL-31 monoclonal antibody, we will be one of 2 manufacturers that has a comprehensive portfolio with a complete solution set for veterinarians. This portfolio makes Elanco more attractive to our partners -- as partners for clinics and corporate groups. And let me give you an example of that. In 2024, we were only growing in 40% of our corporate partners. Today, behind a stronger portfolio, we are growing in 82% of our corporate partners. This shift and the growth rate of our corporate partners from '24 to '25 has translated to a 1,200 basis point improvement in our corporate accounts business. Now let's take a deeper dive in a couple of segments of our business. First, Credelio Quattro. We are incredibly pleased with the performance of Credelio Quattro it is defying the typical third-to-market archetype. We believe it's defying that archetype both in sales and ramp rate because it's best medicine based on its differentiation. 4 degrees of differentiation, broadest coverage, speed of kill with ticks, heartworm efficacy in 1 month and recent feedback from the veterinary community, exceptional palatability. And we're really happy that we are Elanco's fastest blockbuster in Pet Health, reaching that status in just 8 months. But we think there's a lot more to come. Here's why. First, we are participating in an incredible market. The broad spectrum and veto market is the largest, fastest-growing market in U.S. Pet Health at $1.4 billion in revenue, growing 30%. We're poised to capitalize on that growth and take our fair share. Second, we're only in 1/3 of clinics today. We believe we can continue to add clinics well into '26 and beyond. And each and every month, we continue to bring more clinics on to Credelio Quattro. Third, our share in the clinics we're in is relatively low. We're only a 36 share of the broad spectrum and [ Decco ] category in the clinics we're in today. We know we will be able to grow our share in the clinics going forward. Why? Our puppy index. We are bringing more puppies on to Credelio Quattro each and every day, and those puppies will stay on Credelio Quattro as they transition to adults. Additionally, we will continue to invest in direct-to-consumer advertising and drive dispensing out of the clinic. So in short, we're pleased with the performance of Credelio Quattro, but we're just getting started. Now let's talk about our OTC parasteticides business. Many of you know, we have a leadership position in the $1.1 billion OTC flea and tick market. The market is actually broken up into 2 distinct segments: a premium segment and a value segment. Elanco has historically played in the premium segment. And in spite of our 64 share leadership position, we've grown our share, 1.4 share points over the last 2 years, driven by share of voice expansion and optimizing our pricing. I believe the momentum will continue in 2026, and I'm pleased to announce that we will bring on a major new retailer in Q1 of 2026 in the premium space. Now let's talk a little bit about the value segment. Prior to 2022, Elanco hadn't played in the value segment. But with great partnership with Grace's manufacturing team and Ellen's R&D team, we were able to take value formula, utilize existing assets and bring new innovation to market in the space for Elanco. Over the last 2 years, we've grown our share of 4.4 points, and we're now a 6 share in a space we didn't even play in, in 2022. Playing in the value segment has allowed us to reach new customers and new consumers, think chain drug, think [indiscernible] channel, think mainstream grocery, but we're just getting started. We're committed to this good, better, best strategy, bringing consumers in, into the value segment and then ultimately trading them up to our premium segment. I'm pleased to announce, in 2026, we will launch our first ever value collar for dogs under the Advantage brand. This innovation has allowed us to bring another major retailer on board in Q1 of 2026. So in short, we have a leadership position in OTC and allows us to reach consumers that don't regularly visit the vet and we have ample opportunity for growth. Now let's talk about the second fastest-growing and largest space in U.S. Pet Health dermatology. The dermatology market is roughly $1.3 billion in revenue, growing at double digits. 90% of the value of the market is in 2 technologies: JAK inhibitors and monoclonal antibodies. We launched our differentiated JAK inhibitor in September of 2024, Zenrelia. We could not be more pleased with Zenrelia, which is differentiated on efficacy, convenience and value. In Q3, our sales only doubled from Q2 and in October, we're already over a 5% patient share. We're in roughly 45% of the clinics in the U.S., and we are adding 2,000 clinics each and every quarter. The FDA recently updated their label in September to remove the words vaccine-induced disease, and the market reacted very favorably to this change, and we brought 1,900 new clinics on to Zenrelia in just 2 months. We remain committed to a clean label on Zenrelia, one that's consistent with the OUS language, and we've recently submitted new data for the FDA to evaluate. Now let's talk about the other 40% of the market, the monoclonal antibody space. I'm pleased to announce pending soon with Frea. [indiscernible] will be our differentiated monoclonal antibody. And very similar to Zenrelia, it will be differentiated on efficacy, convenience and value. And if you've ever had an itchy dog, it may give you a clue as to how we came up with the name, [indiscernible]. We continue to remain optimistic about our Q4 2025 approval, I will remind you that, that approval is not on the critical path for our first half 2026 commercialization, which we are tracking well to. So in summary, Elanco is well positioned to capitalize on growth in the highly attractive dermatology space with 2 differentiated assets. So in closing, we believe we found a recipe for success, a broad portfolio with differentiated innovation, with best-in-class execution all underpinned by a talented and engaged leadership team will provide us growth for many, many years to come and makes our business durable and sustainable. Thank you for your time today. I'm now going to pass it over to my colleague, Jose Simas, to talk about the U.S. Farm Animal business.

Thank you, Bobby. My name is [ Jose Simas ], I lead the U.S. Farm Animal business for Elanco. And today, I'll talk to you about our leadership position in the market, some very strong industry fundamentals that we operate under. I'll talk to you about creating a new market space. And how does that all come together in a unique and differentiated go-to-market or business model. Starting with some descriptors of the U.S. Farm Animal business we represent about 20% of the Elanco global revenue, and we are present in the 4 main species. We lead in 3 out of the 4 in the U.S. We are #1 in beef. We're #1 in poultry. We're #1 in swine. That gives us the industry leadership position. And that leadership is underpinned in very, very strong and iconic brands. I'll give you a couple of examples of those brands. If you look at the top 10 farm animal brands in the U.S., we have the top 2. They're not only the top 2, they're about twice the size of the remaining leading brands. It's -- these 2 brands are in 2 market segments that Elanco has created over the years. Rumensin is a 50-year-old brand, and we've seen some growth even recently for this brand. And Experior is the first blockbuster product in the U.S. market in over 10 years. This has put us in a position to have a breakout growth trajectory here more recently. We have outgrown the industry from a top line standpoint, but we've not only grown double digits here in the past few years. We've done that with growing the bottom line and the top line. We've grown price and volume. We've grown innovation while stabilizing the base and more importantly, we run about a 10% OpEx business that makes it quite an attractive bottom line business in the context of the overall Elanco goals. How are we able to deliver that growth with that quality? It starts with the scale and the breadth of our presence. We are present on farm with significant teams with high, high quality people and the breadth of our solutions across each of the species. So we have health solutions, food safety solutions. We have feed and nutrition solutions in each of those species. So we've got the on-farm presence, the reach with a significant breadth of solutions that address critical animal health and producer economic needs. We've got innovation. We not only have blockbuster innovation. We've got portfolio innovation and we've had some bolt-on rational BD and some alliances that really has helped around our portfolio going back to that strong value and broad value proposition for our producers. And thirdly, our very deep customer partnerships. We have a very significant or a very large data set asset in which we collect data with accounting systems, record-keeping systems, health record keeping system, nutrition systems of producers. Our Elanco knowledge solutions team structures that data cleans, the data that runs it through a variety of digital tools and then our veterinarian and PhDs that are customer facing, they are able to help producers make better business decision and health decisions. That creates very, very strong partnerships with some customers that have lasted for decades. So our scale enrich our innovation in our deep customer partnerships. This growth has also been enabled by very, very strong industry fundamentals. Earlier, we heard GDP drives protein consumption. We see that in the global context, in the U.S., we see from a consumer trend higher, healthier protein diets. So we're seeing global higher protein demand. The U.S. is a very, very relevant and sizable protein player. It is #1 or #2 in several of the species. And not only is a very large industry in the global context, the U.S. is a very large exporter. The third point that is very strong fundamental of this industry, the reason we are in the right industry is that our producer base, they are very quick to adopt valuable and differentiated technology. Higher protein demand, protein demand growth. The U.S. is a significant player, significant exporter in our producer base is quick to adopt differentiated technology, which serves companies such as ourselves innovative very, very well. If I give you the example of Experior, you can see recently the speed of adoption is a highly, highly differentiated product, is the first U.S. -- I apologize. It's the first FDA-approved product with an environmental claim. It's the product in the market with the highest value proposition. It's for reduced ammonia gas emissions and has a very flexible label that gives producers the opportunity to maximize the value of that technology. We can -- we see this market space as a $350 million market opportunity. we see runway ahead for Experior to grow basically driven by our existing customer base. So this is a solution that is in feed and producers use it at the end of the production cycle. We see opportunity for days of use to be extended as producers learn to use and maximize the value proposition of the product. Second, there are still new adopters in new adoption to take place with this technology to increase market share and market penetration and thirdly, price. Duration adoption and price are the key drivers of Experior growth ahead. Let me pivot now how we are pioneering the sustainability marketplace. We see it as a $1.5 billion market space opportunity. We have created market space before, as I mentioned, with managing Experior and we're seeing sustainability not only from an environmental standpoint, which is very important, but it's very critical that sustainability delivers value to the producers and brand value to the CPGs. Because our on-fund presence with that -- with those data assets, we're actually able to create the ecosystem in which producers can intervene, reduce the carbon footprint and exchange carbon for value with CPGs and our data infrastructure in systems has enabled that. Tens of million dollars have been traded already in this industry by producers selling carbon and CPGs buying their carbon enabled by Elanco's infrastructure. How does that come together in this unique value-based model? It starts with a resilient core business, very strong and iconic brands with our reach and scale. We've got innovation blockbuster portfolio and bolt-on BDs with a very strong customer-facing expertise with this data engine. And that together is a virtuous cycle in which our court gets stronger and stronger, and we can drive and accelerate that innovation adoption. In summary, we have and we are expanding our market leadership position based on innovation portfolio and value, supported by very strong industry fundamentals as we're creating our future areas of growth with the new market space. Thank you. With that, I'll pass it on to [ Camero Cabral ].

Thank you, Jose. Good morning. I will give you an update on progress and strategic direction of the international region. We are building a profitable growth engine for Elanco. We'll cover these 3 topics. And first, a snapshot of the international region. It represents over 52% of revenue for Elanco. We have 2 large segments, a $1 billion Pet Health segment and a $1.4 billion Farm Animal segment. We have a strong presence in all major geographies. The geographical diversity brings resilience to shocks to macro shocks brings durability. Now let's see how we've been performing. We are accelerating. Before, we were a stable base, a durable base. Now we are accelerating growth with quality. We are growing price and volume pets and farm. We are growing Europe, Asia, Latin America, broad-based growth, quality growth. The strategy for that growth is a 3-prong strategy for a faster stronger growth for international. First, growing pet through launches, best-in-class launches. Second, growing farm animals by focusing on poultry and ruminant. Third, improving profitability by shifting the portfolio. I'll discuss pet launches, Farm Animal later. A few comments on that profitability intentionality that sharpening the focus of our portfolio. We have shifted from aqua and we invested into pet, poultry and ruminant. We have downsized and exited low-margin, low-growth segments of international and we invested no regret approach, growth mindset approach and launches and in the core, in a stronger core. We are investing more than 70% of our marketing funds in only 5 strategic brand franchises and a proof point that, that sharpening of the portfolio is working in Q3, the top 15 brands out of a very broad portfolio grew 9% Q3 year-to-date and represented more than 60% of sales. We are improving profitability, and we are making the core stronger. Now a few examples of launches of pet health launches as a source of growth for us. The first one is Zenrelia, and I cannot be more excited about a launch. Zenrelia it's beating expectations for customers. It's beating sales expectations, and Zenrelia is beating market share analogs for a second to market. In the first wave of launches where we have been around 12 months in the market, Zenrelia is already exceeding 20% share of the JAKs is not behaving like a second to market, is behaving the best medicine. It's an analogy to Credelio Quattro in the U.S. Zenrelia is beating customer expectation. The amount of positive feedback from customers that we get around the world is spectacular, is a different product, dogs that have been struggling with all treatments available before Zenrelia. Many, many of those dogs are responding to Zenrelia. And we get that feedback from dermatologists, key opinion leaders, general practitioners, pet parents, employees, Zenrelia is exceeding expectations. It has a long runway for growth because in this $700 million category growing double digit is not behaving as a second to market, it's behaving as best medicine. We are seeing in the field, what we have seen in the head-to-head study that we have shared with the world. Another example of a launch exceeding expectations is Adtab. Adtab validates the platform of Pet Health launches as a growth engine, it validates the platform of maximizing the Credelio franchise. Adtab is a channel expansion into OTC of the Credelio family. And with the Advantage brand name, we are leveraging the OTC commercial strength that we gained when we acquired Bayer. Adtab is competing in the fastest-growing segment in OTC, the oral flea and tick segment. And in only 2 years, it's exceeding 50% market share. We tripled brand awareness from last year to this year and we have still a long way to go. We still have a long ways to grow. And also Adtab is leading share of search, the most predictive leading indicators of future share of market. Adtab is exceeding expectations, Zenrelia is exceeding expectations, and we are ready for Credelio Quattro. Credelio Quattro will be differentiated. We expect same momentum that we see in the U.S. and is in a category of $700 million, growing double digit. Pet Health launches, best-in-class pet launches as a growth engine for us. I will pivot to Farm Animal next. And we are going to grow Farm Animals by focusing on the 2 largest market segments in Farm Animal International, poultry and ruminants. Poultry is the fastest-growing segment in International Animal Health farm animal. We are very strong in poultry. We have a very differentiated value proposition for customers. We focus on food safety and intestinal health. We bring millions of dollars to the bottom line of customers by helping them dealing with these 2 specialty areas. We are very strong in poultry. And poultry is as profitable as pets. Fastest growing, we are strong as profitable as pets. Ruminant is the largest segment in farm animals and is the second in growth. And we are one of the global leaders. Again, with focused strategy. We focus on sustainability, and we focus on retail farm, farm retail on parasiticides. Ruminant encompasses beef, dairy, confined, unconfined, sheep, that is also important in Europe, Australia and New Zealand. And with that, focused portfolio, we have also a new and refreshed growth strategy for ruminant. We have strengthened the core, as I explained before, with that portfolio shift. We are expanding with Ellen with the next wave of innovation is reached in ruminant projects. We have more ruminant projects in the pipeline than ever before. And we have a pool of alliance opportunities with external innovators. So ruminant is the largest. We, a global player and a refreshed new strategy for growth. So to close, we are building a profitable growth engine. We are growing pet with best-in-class launch execution and phenomenal products. We are growing farm animals by focusing on poultry and ruminant and we are improving the profitability of the core portfolio by improving mix, species mix, geography mix and product mix. We are making Elanco International stronger and faster growing. We are building a profitable growth engine and I'm confident that we will contribute to our algorithm. So with that, we are going to move into a Q&A session.

Okay. This is your opportunity, everybody. So we look forward to...

We invite questions from the audience and ask you to introduce yourself too before asking your question.

Chris Schott from JPMorgan. Congrats on all the progress here. I just had 2. Maybe first on Quattro. Can you just elaborate a bit more in terms of the share you're gaining? How much of that is puppies versus conversion from older therapies or even newer triples. And as part of that answer, maybe just how are you envisioning where share can go in the category as you look out over the next few years? . Maybe a second question I was asking is on price. You're obviously bringing a lot of innovation to this space. But as we think about kind of competitive responses, how do you think about price evolving in the next few years? I'm assuming some incumbents may be more aggressive on pricing to sustain share. Is that still going to be a tailwind for the business? Or do you think about a more balanced price environment going forward?

So Bobby, why don't you take Quattro and price in your market, and then we can maybe speak generally, Tim, a little bit on price, how we see it.

Yes. Great question. So we believe that and what we're seeing in the data is that roughly 70% of the sales coming in the Quattro are incremental, and that's split pretty balanced between sort of puppies, new users, meaning new adults and then switchers from sort of existing folks in the category, primarily in [ deck dose ], but a little bit of parasiticides. And we're really happy with that. And if you think about other parasiticide launches in the marketplace, they've shown a much higher degree of cannibalization of their own portfolio. And so we're seeing great sort of incrementality there. And actually, we've seen that improve over time as we've gotten deeper into the launch of Credelio Quattro. And then if I would pivot a little bit and talk about sort of price in the marketplace, we've been public with our 2026 pricing. It went into the market in December 1, and it's in line with our typical price increases a little bit larger on the vet side, a little bit less on the OTC side. And what I would say is we actually have room to price, given how much lower Elanco's products were relative to sort of the competitive portfolio. So that's one tailwind. The other tailwind I would say is we've had this approach of a no-regrets launch strategy. Obviously, you don't continue to launch offers in perpetuity. And so we have the ability to sort of back that down. So we expect price to sort of continue from a U.S. Pet Health perspective. And look, we're in a competitive market. There are 4 major players that make up 80% of the market. Expecting competition and competitive reaction is not new to frankly, this year or where we've been sort of historically.

The portfolio comment that Bobby made have in derm, having Zenrelia, Quattro, [indiscernible] coming. There's no question that counters Chris, some of the challenges too. I see that playing out. Just overall, Tim, in the Animal Health market, we've talked about 2% this year. Going forward, we're lapping innovation, any additional comments on how you see price?

We expect lots of competition. We built that into our plans. Like obviously, we don't launch things in isolation, right? We understand as best we can what our competitors are doing, but we anticipate all the major categories to continue to grow in price. Yes, there'll be lots of competition, but the price will still be a key enabler for growth for many of those. So we've factored that in as we go, and we think everyone will be, yes, competitive, but many of these spaces have had limited competition, very large price increases, I would say that will normalize over time.

Brandon Vazquez from William Blair. Maybe first, and there's a lot of great innovation. We've got good information there. If we can spend a minute on the base business because it is important to understand that you can see the benefits of that innovation come through. Just talk to us a little bit about we didn't get as much on the base business. What is it in the base business that's doing better? And what gives you the confidence that, that should remain a kind of a stable business as we go forward?

Maybe high level, I don't know, Jose, you've got a big business just to start there, and then we'll maybe go to Romero because...

I'll make references all starts with the portfolio. If you see the 2 examples I've shared some of the recent momentum growth is really associated. It's a 50-year-old brand that is still growing associated with that portfolio [ halo ] with Experior.

Yes. I'll give you same example, same answer. Portfolio really matters. And let me just give you 1 example. Credelio Cat has been in the market for 4 years. This year, on the strength of our Credelio portfolio, we added -- we saw 15% growth in the number of clinics we brought on to Credelio Cat, and that brand is growing double digits. So we have pushes and pulls, of course, with our base business, something is getting cannibalized and shrinking and some things like Credelio Cat growing. And so stable for us means plus or minus low single digits.

And maybe from international, our whole farm-animal business is core base, $1.4 billion, growing single digit from poultry growing the fastest, the market growing faster. We're growing the fastest in poultry, but ruminant growing too. So $1.4 billion of base and then impaired have Credelio family, Credelio adult, Credelio Cat, they're still healthy brands and even Seresto.

I think too, Brandon, we've been very intentional getting out of aqua. We saw that as a small market, not a lot of problems. We're going to be opportunistic in swine. But I think you've got a more decisive, disciplined Elanco. We've moved out of a Bangladesh and gone to a distributor market, same with Argentina. So it's -- to me, it's the long tail literally that we're being more decisive on. If you go back 5 years ago, they were the air pockets that caused the problems. The antibiotic medicated feed additives and small markets that cause -- look, it doesn't take much on a quarter to move the materiality. So I think that's we've ridded ourselves at some of that and innovation into every portfolio we got to win in, pets, poultry, ruminants.

Mike Ryskin in Bank of America. Thanks for all the detail provided. Maybe one on the 2026 innovation targets, $1.1 billion. You guys have made really great progress there in 2025 and a lot of what you highlighted was upcoming launches, [indiscernible] Credelio Quattro, OUS. It seems like that target is a little bit conservative. So maybe just can you talk a little bit of, are you leaving any buffer for upside? Or just what are the moving pieces that you factored in there versus where you could see a little bit of upside to that number?

You want to start, Tim, a little bit on that?

Sure. So obviously, there's a lot of things that we take into consideration when we think about the future opportunities in the market and the growth and price and all of these things, competitive activity and I would say, we've been very clear on what innovation we have coming when we do the assessment, obviously, based on market growth, market penetration. So we feel very good about the numbers that we have. It's a great question, but we think the basket of innovation continues to grow and the basket of innovation will deliver that revenue. And there's pushes and pulls in some of it, but we feel very good about where it's at. So yes.

Taking a prudent approach, balanced approach, new in the markets. It's early. These markets are evolving. We love the growth in a broad spectrum in decor international derm, but it's -- we want to look at that in a very balanced way. So do we see opportunities as the markets grow and our competitive set right now? Yes, but we've got to balance that. There a follow-up, yes.

Yes, if I could ask a follow-up kind of along the same line. On Zenrelia, you touched on the label updates that you've seen so far and some of the new data you've submitted. Can you just talk about how important is that the label changes you've seen so far versus the original label, the potential for further label changes what are the various scenarios as that plays out? What's the timing on that? And just sort of how important is that to the growth opportunity for Zenrelia in the U.S.?

Yes. I think there's a couple of ways to sort of think about it, Michael, and it's a great question. I think you got to segment the customer base. So there are people today that are loves Zenrelia, have got great experience in the marketplace and are using it for everything, it's frontline treatment. I'd say that's probably 10% or so of the Zenrelia users. Then there's another huge swath of people, the balance that are using Zenrelia, some frontline, some second line, but are using it in line with the current label guidance, which means they have to have a washout period of at least 28 days before and 28 days after. So cleaning up the label will allow us to capitalize on 2 extra months of usage on those sort of chronic patients. . And then the third segment is there's still roughly 20%, 25% of pets that have said that they don't want to adopt Zenrelia with the current label. And so our ability to get I'm going to say all the clinics because that's my goal on board with Zenrelia is really dependent on sort of the label getting updated. But the one thing I will tell you is we've got an over a year in market, we have a phenomenal safety and efficacy track record as a result of being a year in the market, and that gives veterinarians more confidence. Time with innovation is actually your front.

And I think it's a small industry. So 36 countries with nonrestrictive label, we've been public about the submission we've made. Ellen's got a 3-part strategy. The second part is in, got a white paper and the booster data. So we'll be hearing on that. But again, I think with pharmaco vigilance stated for a year, 36 countries the vet community is pretty tight and that there's no question there's been a bigger boost than we expected from the first label change.

Steve Dechert with KeyBanc Capital Markets. Just on [ Befrina ], just any data you can provide or color you can give on its effectiveness and safety versus incumbents with the Cytopoint specifically?

Yes. Look, I think we're going to share more when we get an approval of the product. I would just echo. I feel very good about the degree of differentiation that we will see with this product as it's -- we've seen the benefit of differentiation on efficacy, convenience and value, and we're going to take that similar approach to the front going forward.

And we think an opportunity on all 3 of those which we didn't say that as much as Zenrelia out of the gate, but I think we see it right on efficacy, safety and convenience. So we do see it on all 3 dimensions.

Yes. And what I love about our derm strategy is we're in 45% of the clinics with Zenrelia today. That's going to be a natural pull for [ BeFrana ] going forward. And then [indiscernible] we think it as a differentiated asset, will also be -- maybe for those vets that are on the fence on Zenrelia, will be a pull that brings Zenrelia on. And so we really see a complement to that portfolio, which is going to be beneficial for our derm business.

And I want to be clear and really kind of new information is we have had a great constructive dialogue and response from the USDA. I know there's no ADUFA, you've all heard this in the USDA, but they have been very responsive after the government shutdown and the kind of the new information today is we do have technical sections complete. We believe we have label alignment. And now we're in that administrative phase, and Ellen's team is on a daily basis working with the USDA. So a real credit to them and we're in a good position. But the government shutdown was a couple of weeks out of the window of time. So cautiously optimistic by the end of the year.

All right. This is Dave Westenberg at Piper Sandler. So I want to talk about some of the product line extension, specifically in Pet Health. How do you think about overall growth in the in-line portfolio following kind of innovation? And kind of you gave really good details here about what happened with Ruminsin. I wanted you to talk about maybe in the 2026 to 2028 growth targets what could possibly happen in in-line portfolio. Specifically, you talked about corporates and increasing the kind of the packaging. So could you have actually underestimated the in-line portfolio growth due to portfolio sales? And sorry, I know this is long, but can you just remind us how long before you put it from innovation to in-line portfolio?

Yes, Dave. Good to see you again. Great question. I'll start with U.S. Pet Health and then let Ramiro talk about international. Look, there's no question that the portfolio really matters and the portfolio strengthens the base. So I gave you an example of how that worked in Credelio Cat. We're actually seeing the same thing in our vaccine portfolio. And so got this nice balance of -- we've got innovation in all the segments. We've got a more robust portfolio, and that's helping stabilize the base, right? And again, stabilizing the basis plus or minus low single digits, could be up a little bit, could be down a little bit over sort of different quarters for the foreseeable future. But I feel really good about the position that our base is in, and I feel very good about the benefit that the portfolio will offer to the base business.

I think examples like Zenrelia being behaving as best medicine, it opens door to clinics that we didn't have access before. So we see this highly differentiated innovation, bringing the best as well.

Dan Clark with Leerink. Actually, I wanted to follow up on that last point. Are you still finding clinics that are not interested in your portfolio of products? Do you think the approval of the [indiscernible] will open additional doors? And then just a quick follow-up. I apologize if I missed this. Are you planning on launching [indiscernible] in Europe?

The Europe question, do you want to first talk about the portfolio effect?

Yes. Look, I think we have access to 30,000 clinics, which is the broad base of clinics in the U.S. There's no question that the stronger your portfolio gets, the more relevant you've begun with customer sets. And so yes, there are still customers today that are not Elanco clinics, and I believe that [ Befrena ] will help more of those customers become Elanco clinics in the future. We saw that with Zenrelia. We saw that get even better with Credelio Quattro, and we'll see that ultimately with [indiscernible] once it gets approved and once we commercialize it.

And I would just add to that on the first point, and then I'll get to the second point. Notionally, Elanco is relatively smaller in some of these clinics than some of our competitors. So as we launch these products, the turnover gets higher of Elanco products through these clinics. Our value to the clinic becomes more important, enables a deeper conversation than we've had previously. So as that conversation gets deeper, the opportunities present themselves to talk about the whole portfolio differently where you're blocked out before.

It's a gateway.

Yes. So it's a gateway. And just on -- in terms of Europe, our intention is to have a mAb in all around the world for the derm space. And so yes, our intention is to push something out on a global basis.

We have time for 2 more.

Perhaps first on the numbers, if I may. So the innovation basket will grow about $240 million or so year-over-year based on how you're speaking to it right now and EBITDA growth judging by the high single digit you pointed out and netting out the $25 million from restructuring, what that implies to me is innovation is dropping down at a 30% margin. Is that how we should think about innovations in that margin going forward in terms of additional growth? And I have a follow-up.

Yes, Umer, we've talked some about this. I think the framework is right. There's pushes and pulls as we look at this. We've talked about a 200 to 350 basis point improvement in gross margin in the next 3 years in this window of time. We're going to continue to have investment in launches that will always be. I mean when you look at the size of these markets, the one thing we probably haven't talked enough about is just it will be a competitive 3 years, the backdrop we're talking about. We are going to take share and we're to go into major markets and the existing major markets is going to be more competitive than any other time. So what that means it's going to take a little bit more money. So I would say in part of our planning Umer, we've had this offset of yes, with the restructuring today, with Ascend, Bob will dig into it a little bit more numbers to Ascend. We're committing to that 200 to 350 basis points. Yes, new products will be richer Meanwhile, we're going to be needing to invest to offset some of that as well.

Got it. And maybe just before I get to my follow-up, should we not assume 50% to 60% incremental margin for maybe not '26, but for future years because I would have thought that should be a possibility for high-margin pet products.

It will. We've got a Farm Animal business. We've got plays across the board. We're going to play for EBITDA first, gross margin second. I mean both of them are critical but yes, I think the framework is there. And you've asked me, do we have the potential to be a 60% gross margin company over time? The answer is yes. Not committing to that today in the 3-year context, but absolutely, we're set up to do that. And you're thinking about it the right way.

Makes sense. The other one I was just going to quickly touch up on is, so by my math, the Credelio franchise between the Quattro and the dual is something between $300 million and $350 million. Zoetis is doing something close to $2 billion run rate and I saw that graph you put up, which was at launch, month 9 versus month 9, but Zoetis was putting up close to $1 billion run rate off of their third quarter anyway. So my question is, if Zoetis flea tick franchise that brand specifically is about $2 billion. Elanco is about $300 million to $350 million. Can't we reasonably assume Elanco doing something like $700 million to $800 million at least for that franchise at peak?

Do we think the market is going to grow? Yes. Tim, I would ask you to just put a little context to this or Bobby. But I think you -- I don't disagree with the way you're thinking about it. I do think it will be a more competitive space. We don't know the competitive innovation that is coming, and we do know some, but there'll be some competitive innovation. But broad spectrum endecto is the fastest-growing pet health market, and we do think we have best medicine, which sets us up well I think next-generation afterwards will matter a lot, too, and that's something that Ellen's focused on.

But look, it's a huge market. It's a growing market, and we still have relatively low share. So there's opportunity for growth.

Yes, absolutely.

In the portfolio will matter as much as the individual parasiticide products. So as long once the portfolio expands, the opportunities will present themselves.

And we're hopeful that broad spectrum oral will continue to take share from the other sectors as well.

It'll be a step up in value.

All right. With that, we are at time, and we'll head to our break.

We'll be around to answer any additional questions during the break. Thank you, everybody. We'll be -- when we're starting back, Tiffany at what time? 10 minutes. 10-minute break. . [Break]

Hi, everyone. I think we have heard a lot about the importance of innovation so far for each of the businesses from international Romero, Bobby's Pet Health business and of course, Joe Farm Animal business. So let's go a little bit deeper there right now and see -- give more context on what we have done and especially also on how we have done that. And of course, on top of mind on your video will be -- what else can we expect? What is in the pipeline, to what extent will our pipeline continue to drive future growth. . My name is Ellen de Brabander. I joined Elanco a little over 4 years ago. I'm leading the R&D and the regulatory and the internal innovation teams. It's actually not my first time in my career that I'm with Animal Health in earlier phases, I also have been leading Merial that right now is part of BI. There, I led the development and approval of the first isoxazoline that you probably know better as NexGard. And I also -- I was also leading the R&D for [ Intervet ] that actually is a major building block of Merck and mAbs. So let's go a little deeper here. And let's actually look at what we have achieved in the last couple of years. So 4 years ago, we had actually a strong development pipeline, as you can see here on the left. We did a 5 projects. A few of them are in the early phase, [indiscernible], Zenrelia and Quattro early development and a couple of them already in the registration phase. We added them Bovaer as an innovation project and fast forward, if you look where we are right now, you see that out of those 6, our famous Big 6 basket, 5 of those are already in the market, 2 of those actually have already achieved blockbuster potential. You have heard the experience story. You have heard Credelio Quattro as the blockbuster story and 3 others are basically on track to become a blockbuster over time at Zenrelia and over time Bovaer as well. And the last one, [indiscernible] is the one that is in the final phases of the regulatory pathway. You have heard we announced today. We have all the technical sections complete. We have clarity on the label, and we do expect the approval and, of course, the launch of [indiscernible] in the year to come. So if you take a step back, this is quite an achievement. You have a basket of 6 innovations and 4 years later, each of those actually have achieved approval. That basically means no attrition. And indeed, it actually confirms one of the attractive features of animal health innovation. We have a high probability of success. And that is linked to the opportunity we have that we can very early on already do a proof-of-concept study in the target animal. So very early on, we identify potential winners for innovation. And once they are in development, and once you have your act together, you actually do have a high probability of success to bring them to the finish line. This is quite unusual to have truly 6 out of 6. But in general, yes, you can expect high percentage of the development portfolio to do to reach the finish line. Apart from those 6, we also did have a couple of other major approvals in the U.S. You've heard the power form monoclonal story. We did get a conditional approval very soon. We all expect the full approval of our power form monoclonal antibody, our first monoclonal antibody. We also did have the approval for Pradalex, the first antibiotic approved by the FDA in more than a decade, and it's used for respiratory diseases for both cattle and swine. And we also did get the approval for [indiscernible], our first pet health vaccine that actually nicely completes the pet house portfolio in Bobby's business. Well, we have done more -- some more deeper analysis on the last couple of years. And we looked at a number of approvals and launches that actually did reach more than $10 million sales in 1 year. And as you can see, we compare 2 periods, the period of 2020, 2025 as well as the previous phase, 2015, 2019. And what you do see is that as Elanco, we more than tripled the number of launches from new innovations that they already did achieve $10 million in 1 year. And of course, as we know, these new products will continue to grow. What's also interesting that for each of our competitors, we did see a decline in the number of innovations that actually did reach $10 million. As you know, we are a global organization in a highly regulated business. And as we heard earlier today, we want to globalize our innovations. But the regulatory agencies are not global. So actually, every agency, they have their own requirements, their own specifics. And then usually, what you see, if you want to globalize an innovation, it takes you a couple of years. Here, we have -- I'd like to share the earlier example because we have implemented a new regulatory strategy. We have built and submitted the dossiers in parallel and that basically does allow us to get approval of the top 8 markets for Zenrelia in less than 18 months. So way faster than we have ever done. And that new strategy will actually continue to use and apply also for Credelio Quattro. I've been asked a lot in the last couple of years. what has changed with Elanco's innovation. So how come because these are major proof points of progress in the innovation space. And the question is, okay, what did you do differently? How have you been able to achieve that? Yes, of course, you need a pipeline. I will get into that. And yes, of course, we need good talent, and I will get to that. But one of the issues that has been usually undervalued, not well understood, but actually does make a huge difference to bring innovation to life is how you get organized. And that's how I would like to go a little deeper in right now. If you look at Animal Health, like a company like Elanco we have an innovation portfolio of over 150 projects. Projects in the early research phase, the development phase, in the [ brandmax ] phase, projects for farm animal for pets, for the different diseases, it is a complex innovation portfolio. Project with different time lines. Some may take as much as 10 years, others just 2 or 3 years. So truly a complex portfolio. And in order to make sure that each of those projects do reach the time line and their objectives, you need to manage those as a project. So we -- and the same thing, what is necessary, if you want to progress these projects, you need broad and deep technical experts. It's truly a science-based industry. You cannot progress these project unless you have very detailed scientific expertise in the clinical field. You need, of course -- you need chemist to manufacture those and build a process for those new innovations, you need regulatory expertise. So you need a lot of detailed deep, broad expertise and unique project leaders to basically make sure that those projects, that complex portfolio actually does progress in line with your own planning. So that's why we kept in mind when we actually -- four years ago decided to build our new organization following the acquisition of Kindred and following the acquisition of Bayer, it was the right moment to build that new organization. And we asked ourselves 3 questions. One is okay, what's the talent that we need? What's the capability we need and how to best organize ourselves? Second, okay, where actually -- we have a complex footprint where actually do we like to have our capabilities, where we should we have our people? What will we do internally? What will we do with partners? And third, equally important, how do we get organized ourselves to make sure that, that complex innovation portfolio does progress in line with the planning. Let me go quickly deeper in each of those 3. First, as I said, because we have to manage that global project portfolio, we have built an organization where we have dedicated, mature, very experienced project leaders. They -- as full-time job, they manage the projects to bring them to the finish line. And in parallel, we have global centers of technical excellence, expertise around the world, fully integrated, so what every project we make available the best expertise. And on top of that, we have a very stable R&D leadership team, truly managing this integrated organization. We have built an organization on the legacy of 6 companies as you see here. So we truly have blends and the best mix of expertise and experience from around the world from those organizations. But as you know, innovation actually is truly teamwork. So it's important to have those experts and those scientists and it's important to have the experience, but it's not enough. In the end, what really counts is that you are able to build a highly engaged organization where people truly work together in a complex environment. And that's not only true for this in R&D. I'd like to stress the point when we talk about innovation, and you probably already did hear that earlier on. Innovation is truly core to every piece and every [ free ] individual in Elanco. So we have as much interaction with Grace, the manufacturing team to very early on define, okay, there. Are you going to manufacture this? Very and, of course, easily, we have the interactions with our commercial teams to really define, okay, what should be our target. So all of that together is an important mix to make sure we focus on the right projects and then we progress those as we are. So indeed, as you can see, we have been able to build a high end case organization where the engagement is 7% higher than what we can see for the benchmark here. Looking at the footprint. Of course, that's an important question, where actually do you want to do the work. This year, we have actually added capacity. We have entered a new R&D state-of-the-art facility next to our headquarters in Indianapolis also part of the new One Health Innovation District that we are building over there. We also have moved in, in a bigger R&D facility in our India -- with our India team where we truly have global centers of excellence supporting the entire organization there. At the same time, we have optimized where -- what are the capabilities we need to have internal and what are the capabilities that actually say, we better partnered because for flexibility or speed. And as you have seen today in the announcement, we have decided to start a partnership to build out our clinical capabilities is [ clean ] global, and that gives us a lot of flexibility and also more scale than we have so far. As I said, also important, it is you can have the team and the talent it's important to manage to basically organize yourself well to manage that complex portfolio. And when you look at our portfolio, what we have done is we have refocused it, we have rebalanced it. So we have added more Farm Animal projects. And we also have made it very clear when we talk about prioritization, what are truly the most important projects. And linked to that, we have allocated our resources and what does it mean? It does that actually does mean that when we have identified the project as high important, we basically give it as many resources as it needs to go as fast as it can. So that's what you have seen us doing. You have seen us progress in the development portfolio very fast because we did give the key projects like Credelio Quattro as many resources as it needed to go as fast as it came. Also, we have implemented global processes, global systems, as you would expect us to do. And actually, they set us up very well to now also benefit in full for all the opportunities we see ahead of us that AI will bring us. So you can see us truly moving in that phase as well. So bringing that all together, we have not only tripled the number of innovations that did reach a finish line. We also have been doing it faster because we truly optimize the engine and we allocated our resources. So if you look at our R&D investments, we have been able -- as I just said, we have been able to build a highly efficient, science-based, people-driven innovation engine. And we are able to do that actually this in a way that we did reduce the budget because we did basically increase the capacity. So we did build a highly efficient engine that does free up capacity that they allow us to actually do more projects despite the fact that we did have a reduction in budget. Going forward, what we will see is we will see an increase in the R&D investment to basically accelerate further the development of the portfolio. So we will increase in line with the potential of the portfolio and also in line with the business side. So bringing it all together, you see here what we have done. We have increased the size of our portfolio. So we have more projects in the portfolio. And within that portfolio, we have more than doubled the number of projects with pipeline, this blockbuster potential. When we look at the individual projects, you see that the blockbusters have a 70% higher peak sales potential than what we did see in the past. We also have tripled, as I just said, the number of the projects, the throughput of the pipeline. So not only tripled to put the output, but also did bring the projects to the finish line faster. And when we look at the investment in innovation, we actually have seen that we have more than tripled the value generated per dollar investment in the projects in the development pipeline. So truly best in place -- best-in-class innovation engine that we have built in the last couple of years. Let's now look at the future. So cause the question on your mind will be, okay, what is the pipeline? We just have delivered our development portfolio to the finish line. We have built a highly efficient innovation engine. Is there still a pipeline actually that can drive the portfolio in the future and innovation growth in the future? And here, this slide is a nice summary of what we have done. Yes, we haven't delivered the Big 6, and they are now in the market as we have said. In parallel, what we also have done is we have refilled and we have rebuilt the innovation pipeline. We have built a new portfolio we have -- we built a portfolio, a new basket of innovation project. We group that as the next wave of innovations. And it's a project -- it's a portfolio of projects with first and best-in-class projects, and they will accelerate our penetration in markets where we already are. they also will allow us to enter a couple of new spaces, and we expect these to become in the market between 2026 and 2031. And on top of that, we also have built what we would call a next wave of innovation. Those are projects still in the research phase but approvable beyond 2032. And this mixture of the Big 6, the next wave and the next next wave, will drive long-term durability and leadership, and they will allow us to continue that innovation-driven growth beyond the end of the decade. Let's go a little deeper here. When you talk about new innovations and refilling the pipeline. We follow an approach that many others also would follow. You look first at the markets that are growing and attractive to us as Elanco. Then we truly spent a lot of time together with Tim's team to understand, okay, what are the unmet needs in those markets. Not everything in that market is of interest. So what are the true unmet needs there? And do we see a way to actually address those unmet needs? And if so, do we then build those capabilities internal or do we partner with third parties to address and build products that address that need. And by doing that, we actually have identified 8 spaces where we focus our innovation. Five of those are actually markets that are already well known. We are playing in those markets. We still see significant unmet needs. We see an opportunity to come up with new innovation there to address those unmet needs. And those markets are the parasiticides, both for pets as well as for farm animals, infectious diseases, as we have heard before, for the prevention part, dermatology, pain, sustainability. Those 5 markets together today are about $20 billion, and we see them grow to about $29 billion in the next 5 years. And for each of those, there's a need for more product-based innovation. On top of this, we have identified 3 more spaces also with significant unmet need. But the market is not yet there. So the market still needs to be developed but we see a pathway to address those unmet needs as well. And these together and we talk here about obesity, for cats and dogs, chronic kidney disease for cats as well as dermatology for cats together, we see a market potential of over $2 billion. Well, let's go deeper on our portfolio, the basket of the portfolio for the next phase the next wave innovation. This is a portfolio, a basket of project with more than 15 projects in each of those 8 spaces that we just mentioned. So at least in each of the spaces, we have 1 project there. Each of those projects are first or best-in-class or at least significantly differentiated. And together, this basket we see a peak sales potential of over $2 billion, nonprobabized and also not taking into account cannibalization there. But what we do expect from this basket of innovation is 5 to 6 new approvals with blockbuster potential between 2026 and 2031. And those 15 projects are mostly from our in-house discovery capabilities that we have built. So a very exciting phase that we see ahead of us here. Let's go a little deeper on how we do that, refilling the pipeline. As said, we have a blended approach. We have the internal approach as well as an external innovation. External innovation, we do especially when we see an opportunity to access new capabilities that are very different from -- and more complementary to what we have in-house. And internally, we very much focus on building specific technical platforms. So we are not so interested in one-off innovations. We want to build technical platforms that will give us the opportunity to give us a range, a number of new innovations. And in the last couple of years, we have developed 2 of those. Let me go in more detail there. One is monoclonal antibodies platform and the second one is a new one immunotherapeutics. You have heard us talk about the monoclonal antibodies earlier today. We have our parvo product in the market. We have very soon our Befreno coming. But in parallel, what we also have done is we have built in-house a monoclonal discovery engine that will allow us to actually come with more monoclonal innovations in the future. And some of them are already part of our our next wave portfolio. Grace is building the manufacturing capability. So this is truly a way to make sure that we fully leverage our internal capabilities. And I think the benefits of monoclonals are very well understood. They have a high specificity. They have an immediate onset and the duration of effect is typically between 1 and 3 months. In parallel, we have developed a new -- really a new platform, new for us and new for the animal health industry. And actually, there's no one else who has yet this product following this platform in the market. This is a platform where what we do is that we inject an antigenic protein into the animal and then the animal produces its antibodies directly in the animal. So in essence, what we do here is we combine the benefits of a monoclonal platform is the benefits of a vaccine platform. So we basically see as a benefit here that you see duration of activity between 6 and 12 months. We also see much lower production cost to get these products in the market and still a very good specificity. As we discussed today in the -- shared today in the press release, we already have a first project that is part of our next wave portfolio, where we have agreed with the USDA that this project is eligible for conditional approval. So both platforms developed in-house, broadly protected with IP, and we are very, very confident and excited about the potential that they can bring to us in the future. So bringing it all together, we have a strong and a balanced pipeline, balanced across phases, balanced across the species, balanced across the regions. We have also built the capability to refill the pipeline. That, in combination with our best-in-class innovation delivery engine as we have built it, basically gives us the confidence that, yes, we are able to consistently deliver high-impact innovations in the years to come. Let's bring it together and look what it means in numbers here. So we have the big 6 in the market, as we know, still growing further, and we expect them to deliver over $1 billion of peak sales in the next couple of years. Then immediately thereafter, we will see the next wave innovation basket. -- and we expect 5 to 6 new approvals with blockbuster potential between 2026 and 2031. And in total, this basket has more than $2 billion peak sales potential. And then immediately thereafter, you will see us come in with the next next wave portfolio. It's more early phase right now, truly best-in-class and first-in-class potential there. And basically, that portfolio will allow us to continue that innovation-driven growth in Elanco beyond 2032. And of course, all of this is still not including any business development opportunities that may come and may add to all of this. So with that, let me conclude. Yes, we truly have come a long way, made a lot of progress, but I am confident more than ever before that the best for us is still to come. And with that, let me hand it over to Bob.

Thank you, Ellen. Good morning, all, and welcome. So you can see the agenda for the next 20, 25 minutes. But listen, here's a theme you're going to hear over the course of the rest of the session. We are executing from a position of strength. We've got a tremendous amount of momentum as we move forward. We've been focused on growth, innovation and cash, and we've built a track record around it. And as I think about Elanco moving forward, we're going to continue to be a durable growth company with improved profitability. And it's really going to be enabled by the basket of innovation that continues to grow. It's going to be supported by Elanco Ascend that's going to improve margins and then our continued disciplined capital allocation priorities. So I talked about growth, innovation and cash. Let's just look at growth first. We are entering the next era of growth from this basket of innovation. You can see we've built a track record now. We do expect the fourth quarter to be our 10th consecutive quarter of constant currency revenue growth. We also expect the fourth quarter to be our fifth consecutive quarter with mid-single-digit growth. And as Jeff highlighted, and I'll end the presentation with our algorithm, but we see mid-single-digit growth as we move forward into 2026 and beyond. As I look at innovation, back in 2020, we had expected $500 million to $600 million of revenue coming from our Basket innovation in 2025. We have consistently raised that bar over the last 5 or 6 quarters. And every quarter, obviously, this year, we do expect $840 million to $880 million of revenue from this basket of innovation. And it's the entire basket, but certainly led by Quattro, Zenrelia and Experior. But as Jeff highlighted, as we move forward, we expect the revenue from innovation in 2026 to be at that $1.1 billion range. And then finally, as we look at cash as our third priority, we have continued to strengthen the balance sheet. 2 years ago, our leverage was at 5.6x. We've now brought that down to 3.7 to 3.8x. And certainly, we've had some onetime opportunities with the Aqua divestiture and the royalty monetization that we had earlier this year. But the continued focus on trade working capital and the fundamentals around collecting cash and paying vendors at the right terms has continued to accelerate and improve margins -- I'm sorry, the net leverage here on this. EBITDA margins and EBITDA overall will continue to improve. That's -- we've seen that in the past. We think about moving forward. We're going to continue to be disciplined with debt paydown. We're going to continue to see growth in EBITDA, and we'll continue to see this leverage decline over the next several years. So as we move on to just Elanco Ascend, I do want to provide a bit of color. But before I do, I do just want to set out what the expectations are for margins over the next 3 years. We have guided and expect to be at this 18.9% to 19.3% range for EBITDA in the current year. We do see 200 to 350 basis points of margin enhancements by the time we get to 2028. And you think about how we're going to get there. All right. So we've moved past some challenges we've had in the last couple of years. One of the key items I'd highlight was the impact on lower volumes and reducing inventory. We've made a conscious decision over the last couple of years to conserve cash and pay down debt. And so as a part of that, inventory volumes have come down. Our factories have been underutilized. And so what we're going to see moving forward is obviously continued volume increases and fixed cost leverage. And so we'll see the benefit of that on EBITDA. The Aqua divestiture, that came with about 100 basis point of margin detriment to what we see today. That's obviously behind us. And then launch investments. Certainly, we're going to have launches as we move forward. But you think about the last 12 or 15 months or so, we've had a higher number of launches than we expect in one period of time, if you will. So if you get past those challenges, you think about the drivers moving forward, 2 key pieces. One, it's going to be the basket of innovation that continues to grow. This basket has higher gross margins than our corporate average, and so we'll see a natural mix benefit. And then we think about Elanco Ascend. And Elanco Ascend is about building capabilities through AI and automation, but it's also about being proactive in reducing costs really across the entire P&L and improving those margins. And so this is why we have confidence in the 200 to 350 basis points of margin enhancement over the next 3 years. So just quickly on Ascend, there are 4 pillars to the program. I would tell you this is across all 4 quadrants of the business. This incorporates the corporate functions and back-office functions. And I want to be very clear about what we see the contribution being from Ascend. We expect EBITDA savings of $200 million to $250 million by 2030. That's going to be after inflation and after reinvestment into the program and think about that reinvestment as AI and automation capabilities. Now let's take a quicker look at just some of the pillars of Ascend. And I'll give you a couple of examples. So you can see the biggest number on the page is going to be in that procurement and operational excellence category. So one of the examples in this bucket is think about the procurement team. They've done a fantastic job over the last year and continue to make progress, identifying suppliers around the globe that's going to continue to be able to provide good quality product and raw materials to us, but at a much lower cost. And so we're going to see that natural benefit through over the next couple of years. I mentioned that the entire organization is supporting Elanco Ascend and is leaning in. So I think about organizational optimization, let me give you an example that's a little bit closer to home. We are investing in technology and finance. That's going to give our finance team global visibility, real-time visibility to the balance sheet and P&L. So our team is going to have visibility to customer data and receivables, inventory levels. On the procurement side, we're going to see when cash is expected to go out the door when we're paying vendors and what are those terms? I'm going to be able to make sure that I'm comfortable with the terms we're paying our suppliers and the discounts. Are we getting the right discounts if we're paying early? That makes sense from a business perspective. And so that's just a couple of examples and a specific example on AI and automation. That's really going to be across all 3 pillars, but it's going to give all of us the opportunity to make better database decisions. So I think about just the cadence of Elanco Ascend coming through the P&L. We do see about 75% of the benefit improving gross margins. We see about the remaining 25% improving OpEx. And you can see the phasing. We expect about 30% of this to benefit 2026 and then the ratable proration of the benefit moving on in the next 4 years after that. But I would tell you, with the restructuring announcement we made today, you're going to see us front-load some of that save as we execute those programs. And so you'll see the SG&A savings really come a little bit sooner than the next couple of years, okay. Now getting into the restructuring charge itself. So listen, number one, this program is part of Ascend. But two, and more importantly, I've been part of several restructuring programs in the past. And I can tell you, most companies take restructuring charges from a position of weakness, where they're responding to an event or responding to a macro environment. This is different. This charge is from a position of strength, and it's improving our competitiveness as a business. So you think about just a couple of the bigger buckets. The first one I'd highlight, Jeff and Ellen touched on this a bit. But with the restructuring charge, we are getting out of some of our higher cost R&D footprint that came with the Bayer acquisition, okay? And we are shifting those resources to the U.S. as well as leveraging an existing third-party relationship that's going to make Ellen and the team more agile, provide a lot more capacity into what the team is doing and move a lot quicker as she thinks about bringing product to the market. On the footprint side, we are certainly investing in facilities that's supporting the innovation and the growth there. But there's also some opportunities where we are reducing scale in some of the product lines that are declining. And then G&A, as I mentioned, the entire team is supporting Ascend through G&A. And so the entire back-office functions and corporate support functions will see opportunity as, again, we support AI and automation and also leverage our shared service center environment. So just some more detail on the charge itself. You can see we will become a more simpler and efficient organization. We do expect about 600 roles to be eliminated as part of the charge itself. There will be about 300 roles that will be rehired in low-cost countries. As I think about the save, we expect about $25 million coming through in 2026 and about $60 million in 2027 and beyond. Now the charge itself is $175 million. That does incorporate about $50 million of noncash charges associated with impairments of the facilities that we're exiting. And so the net cash cost of the charge is about $130 million that you'll see over the next 2 years. Cash payback is about 2.5 years. But again, I would highlight because of the significant fixed costs associated with the R&D facility from the Bayer acquisition. When you exclude that, our payback is closer to 1.4 years, which is obviously just a fantastic metric when you think about restructurings. So with that, I would like to invite Grace to come up and spend just a few minutes talking through the capabilities that she's built in manufacturing and then also how her and the team are leaning into Elanco Ascend.

Thanks, Bob, and excited to be here to talk about the manufacturing organization, what our focus is and where we're going on our track record. So Grace McArdle is my name. I'm responsible for the manufacturing and quality organization. And really, our role within manufacturing, it's really -- it's quite direct. It is we need to reliably supply the product. We need to enable growth. We need to offset and work hard to offset inflation, and we need to continue to improve our margins. And with that, let's start with a snapshot of our manufacturing footprint. So balance between internal manufacturing sites and our external manufacturing organization. We're very much well primed to reliably supply to enable the growth that we see coming and also to give us the agility that we need in terms of our launches as well. And with a strong footprint, we have been building an even stronger manufacturing organization. And it's really anchored on 4 key pillars. We've got streamlined processes that are based on our single enterprise-wide systems. We have been making the strategic decisions around our manufacturing footprint, which also then feeds into the key targeted and timed investments that we need to actually enable growth and innovation. And I think we can all say that we've got a unique partnership with Ellen and the research and development team in terms of how do we actually speed up the pipeline and also how do we actually launch with agility as well. You'll often see in this industry, months can go by between the actual approval of a product and actually having the product available for launch. We've got a couple of great examples most recently with Zenrelia, where we actually have product available in the market within days after the actual approval was achieved. So the 4 pillars that we have, they've really helped us and enabled us to deliver very much a demonstrated track record of the productivity improvements, which has yielded about $200 million of savings since 2021. They're anchored on excellence in how we're managing our global technology platform and our systems. They're equally anchored on the processes, the tools, the systems, the visibility and the governance that we've actually put in place so that we are really on top and delivering on the productivity commitments that we are making and will make. And then the final point I'll make is how we uniquely combine our procurement efforts and the science of our business as well. Bobby and Ramiro both mentioned the Credelio family. Since 2017, with the sourcing and the science that we've deployed, we've actually managed to reduce the cost of the active ingredient by 70%, resulting in a 15% improvement in the average gross margin for that product family. Another great example, as Jose was mentioning, the iconic Rumensin brand, 50 years on the market. With the technology, the science and the process improvements that we've done over the last 50 years, if not, we would now require 60 -- or 6, excuse me, duplicate plants to actually support the volume that we have for Rumensin. So what does all this mean? It really means that we are primed with a productivity muscle that is well positioned to develop or to deliver and to accelerate the productivity commitments that we're making as part of Elanco Ascend in the region of $200 million to $300 million for manufacturing and quality. We've got the systems, we've got the tools, we've got the visibility and we've got the processes that give us confidence that we will be able to do this and to also accelerate it as well from the work that we do on active ingredient sourcing and science to our digital agenda that is anchored on the investments that we've already made in our enterprise-wide systems. We operate, as you've heard today and in a highly regulated environment. And many of our programs, they play out over a number of years. Within manufacturing quality, we execute our plans, we're delivering results and are very much primed to deliver and accelerate this over the next number of years. And with that, I'll hand back to Bob.

Thanks, Grace. So before we move on to the next section, I do just want to summarize what Grace and I have highlighted here. So the total Elanco program, including the restructuring charge, we do see $200 million to $300 million of gross margin improvement over the next 5 years, $50 million to $100 million of OpEx save. And some of that is going to be reinvested in the capabilities, again, surrounding AI and automation. And we're going to have inflation. And so that bucket is, call it, $75 million to $125 but we do see $200 million to $250 million of net EBITDA dropping to the bottom line by 2030. So now let's take a look at cash flow and capital allocation. So we do see accelerating free cash flow over the next several years. You look at the left side of the chart, we do expect over $1 billion in free cash flow. And you see 2028, there is a bit of a spike compared to '26 and '27. But I would remind you that incorporates $130 million of restructuring cash. So when you normalize for the restructuring, the ramp seems pretty normal, okay? Now on net leverage, we do expect to end the year at 3.7 to 3.8. We expect to be in the low 3s by end of 2026 and expect to get below 3 in 2027. It's really enabled by 2 things. It's going to continue to be focused and disciplined around paying down debt. And number two, it's going to be the continued growth that we see in EBITDA. So if we just take a snapshot of our capital allocation priorities and summary here, you can see we do expect some flexibility as we get out the next couple of years. Our first priority is going to continue to be investing in the business. And so that's investing in R&D and continue to fund the opportunities that Ellen and the team see. It's going to be supporting Grace to ensure she's got the right capabilities within the manufacturing facilities to bring the best costed product to the market. And then it's going to continue to have this no regrets approach to our launches and supporting the commercial leaders you saw earlier today. Now M&A will be a part of our growth strategy moving forward. I would tell you, as you think about the next several years, these are going to be smaller tuck-under opportunities that's going to enable more innovation and build out our portfolio. But to be clear, these will not derail us from our deleveraging time line of getting below 3 in 2027. And then when we do, that's going to give us the flexibility to return cash to shareholders, all right? And the longer-term target, as Jeff laid out, we do expect our net leverage ratio to be in that 2 to 2.5x on a longer-term basis beyond 2027. So moving on to just the outlook for the business. As I think about the next 3 years and to be clear, including in 2026, we do see mid- to high single-digit growth in the pet side. We expect and forecast mid-single-digit growth on the farm side. That base, we expect to be stable. And so that stable means maybe up, maybe down low single digits. That could shift by quarter. You heard the leaders here today. It could shift by geography. But overall, Elanco, we expect mid-single-digit growth again in 2026 as well as the next 3 years. Now on profitability, I just want to highlight something that was unique to me as I joined the organization. I've been with the team probably about a week, and I walked into Jeff's office, and I asked them, hey, why don't we spend a lot of time talking about the farm business externally? And what was unique to me is that it's half our business. It's very stable. It's a great cash flow business. But when you look at the profitability, it's on par with the pet side. Although gross margins are lower, the OpEx efficiency is significant. In the U.S., for instance, OpEx is 10% of sales. And so what you see is a much deeper drop of profitability to the bottom line. And so as I think about total Elanco, the total profitability is going to improve over the next 3 years, again, by that 200 to 350 basis points. So the overall summary, and Jeff flashed this a bit, but just to reiterate, our algorithm as we think about the next 3 years, and again, in 2026, we expect mid-single-digit growth on the top line. high single-digit growth on EBITDA and low double-digit growth on EPS. Those are all in constant currency growth targets. I'd highlight free cash flow, again, we expect over $1 billion of generation in the next 3 years and then net leverage getting below 3 in 2027, which again opens up flexibility as we think about shareholder return and then the longer-term target of 2 to 2.5x. And so finally, I want to remind you, we are working from and operating from a position of strength with a lot of momentum. firmly believe we are a durable growth business with improved profitability. We see the accelerating cash flow to improve our balance sheet. And we are going to maintain financial discipline and transparency. And that financial discipline means we look with a fine-tooth comb and consider our organic investments as well as our inorganic investments to make sure they have the right returns for shareholders. And then on transparency, I do just want to take a minute and talk about our philosophy around guidance. We will continue to be transparent. We're going to continue to provide quarterly guidance. Now our guidance is going to be balanced. It's going to have a little bit of a wider range. It's going to be incorporating upsides and downsides because of uncertainty. But we will be transparent with the pushes and the pulls, so you have the confidence in the numbers that we commit that we'll deliver them. So with that, I'd love to invite my colleagues for the Q&A session.

We'll take questions again for Bob, Grace, Ellen and Jeff.

Brandon Vazquez from William Blair. Bob, maybe for you to start, I'll be the annoying analyst and ask you the question. You have a lot of momentum going for you. Why is mid-single digits kind of the baseline of growth that we should expect? It feels like with new products, geography expansion, things like that, this could be a high single-digit growth business. What would prevent you from doing higher than mid-single digits?

Yes. I mean -- so thanks for the question, right? So we -- again, we do see the pet side being at that mid- to high single-digit growth, but the Farm business is half of our business, which we see growing at that mid-level, which is above what we believe the market growing at. I would tell you, we're going to continue to be prudent with guidance, right? So we want to be disciplined. We think about the pushes and the pulls. We think about competitive response. And so that's maybe how I would think about it. But again, we've got the momentum. We've got Elanco Ascend continue to improve margins. So again, we feel good about the top line. We feel great about the profitability dropping through. And then the capital allocation discipline, just making sure that we're going to be providing the best results for our investors.

I would also say, Brandon, I mean, we're going to be lapping a lot of launches. There'll be a lot of variation as you come back around the next year on the compares and quarter-to-quarter. So we want assurance that we can deliver this consistently. And I think to Bob's point on guidance, too, we're going to be very transparent even more so on what the pushes and pulls are. And you've met the commercial leaders here, we're going to be able to put a little bit more transparency to that. But we want to be consistent. We want to be reliable.

As a follow-up, Ellen, you spent a lot of time on a lot of the great things coming up in the waves, and it was very helpful to see all of that. How do you think of the current product portfolio? And how much of your time you're spending on life cycle innovation, right? At some point, Quattro will be an old drug. What is left within some of those legacy products that you're still spending time on to ensure that they remain competitive over time?

Yes, great question. And let me be clear, yes, a significant part of our people and our dollars are focused on truly supporting the business that the products already in the market and driving further geographic expansion. So not only for the big 6, but actually for the entire portfolio. So we have a significant number of our people actually focusing on indeed on getting most out of our current product portfolio in the market and making sure it stays compliant because, as you know, the regulatory requirements change. So if you don't do anything, you may even run out of compliance. So yes, absolutely, we focus on that. And that's partially linked to what I said before. We have a very robust resource allocation methodology in place. So some of those actually for us are highest priority projects. So we give it whatever it needs to make sure that even the brand mix actually gets what it needs.

So think about that, and I think something Ellen has done very significantly different than maybe 5 years ago is separating out life cycle management. So you're not competing a vaccine in poultry against a Zenrelia that's coming down the pipeline. I think it's been a masterful approach. And let me just use one example, food safety, poultry, everybody. I mean when you look at salmon and poultry, it's the top concern of our global poultry customers at Romero and Jose have done with Ellen's team is we just continually added strength in life cycle management and claims and manufacturing adjustments to make us #1 in that space. So it will be key to that stable base of plus/minus low single digit. Karim?

Ellen, a question just on -- it sounds like you're moving the model towards more CROs, use of CROs, externalizing the clinical trials. Is that right?

No, I think it's more balanced, Karim. So we very targeted define, okay, what are the capabilities we need in-house and what are the capabilities where we partner. So no, some of the capabilities we actually do bring in-house because we think we can do it better and faster. And in other cases, like this, the clinical announcement we announced today, we said, you know what, actually, given our needs, it's better to partner because this is actually the right partner for us to make sure that we can drive our very strong pipeline where we have a lot of things going on in parallel that we say, let's now partner with this one, Clinglobal to make sure we have the capability. So truly, it is a balanced approach.

But within clinical, it's balanced or within -- for the clinical piece, you are doing more outsourcing?

It is balanced overall for the different areas, technical development or clinical. But even within clinical, it is balanced as well. So we have our own clinical facilities. We do a lot of clinical work in-house at our own farms, and we are even growing that, for example, the one in Australia, -- but indeed, we also partner with others where we think it does make sense because of the capabilities already in place.

And Karim, sorry, I just want to add. I think Tim's point about this is historical. The amount of stuff that's come through and now in clinical, I mean, we're at max capacity. By today, shutting down that German facility and going with Clinglobal, we're 5 to 6x the capacity and cost efficiency. So some of it's just faster capacity with more reliability with a long-term relationship we've had with Clinglobal. You've been close in for a while.

Yes. My concern would just be that we've seen like on the human pharma side, there are definitely limitations to externalizing the clinical trials. And so that you can get extra capacity, but it comes with some issues. So that's kind of where my question is coming from.

No, I think it's well said. So we are very confident this is a partner we know. We know the people. We know the capabilities. We know how to work together. And that's why we are confident to say, let's extend that partnership because indeed, our next wave portfolio truly is in a phase where we need to do a lot of clinical work in the next couple of years to bring them to the finish line and get those approvals between '26 and 2031.

Chris Schott from JPMorgan. Just can you come back to immunotherapeutics in terms of that platform? Just help us a little bit in terms of how broad of a portfolio should we think about here? And the value proposition, is it frequency of dosing? Is it you can go after different categories? I'm just trying to get a sense a little bit of kind of what drives that kind of the excitement around on that piece. And I have one follow-up.

Yes, great question. Yes, we are very excited about that. At the same time, it is an early phase. So we are truly still defining how broad could it be? What is the scope, what type of indications. But what we have seen so far only confirms our excitement. And that's why, indeed, we have been able to get to progress one of the leading candidates already as part of the next wave portfolio. But if you look at the potential benefits, you can immediately see why we are excited because indeed, if you have the much lower cost versus the traditional monoclonal and still good specificity and a way longer duration. I think of what you can see with vaccines, those are all elements and benefits that you say, yes, that truly opens up a new world of opportunities.

This is kind of a key tipping of exposure here. If you look at our IP protection, the capability we've built, we've got an entirely new platform here in pet health. This also is highlighted today in the announcement. We do have one key asset that is under conditional accelerated pathway with USDA that Ellen's team has opened up, and we see this as a major pet health in an existing market to replace and not really cannibalize what we have. So I just -- I want to share that -- you asked a question in a major new area that we're exposing today.

Yes. In essence, we activate the immune system of the animal, not to attack a microorganism that usually is happening with a bacteria or a virus, but basically to address other therapeutic needs.

And just maybe a financial one. I appreciate all the detail today. Just when we think about that 2028 EBITDA target, can you just put some context how much of the Ascend kind of program is reflected in 2028? I'm just trying to kind of bridge between some of the near-term numbers and that 2025 target.

Yes. So think about -- so good question. So 30% of the Ascend benefit is going to come in 2026, right? It's going to be a little bit heavier weighted to the front end because of the restructuring charge. But think about the gross margin improvement to be a little more ratable over the next 4 years. And that's because a lot of it is procurement. It's going to come through as product is purchased and then sold, obviously. So think about a little bit heavier weighted in 2028 and then more ratable on the back end.

Remember, too, the bringing down of inventory for cash was something that Todd Young, I, others talk about for a few years. Maybe just Grace briefly, do you think about absorption in the plant and the gross margin trajectory what you see at a high level?

Yes. I certainly think we've gone through that phase. We continue to make the footprint decisions that we need to. So we divested our site, for example, in [indiscernible] Earlier on this year. Just today, we announced the closure at the end of 2026 of our Kansas City plant as well. So we're continuing to refine our footprint strategy to ensure that the asset base that we have is well utilized that we're driving the right level of absorption through our plants as well.

Mike Ryskin, BofA. I kind of want to bridge something you discussed on the first part, Jeff, with a lot of your presentation second half and on. Jeff, you kind of talked about a lot of the blockbusters and the launches you've had in the last couple of years, Quattros, Zenrelia. These are going into well-established markets that are proven markets, you're not doing any market building. If I think about some of the things you're talking about in the next wave, in terms of the immunotherapeutics, but also obesity, kidney, these will be relatively new areas where you're building categories. So I just want to ask, that's a different challenge. That's a different tackle because there is market building, market defining. So just talk about your strategy there versus going into something super established like derm or pain. And then maybe as part of the bigger question there is, if we think about the companion animal market over the last 50 years, I see it as dominant 4 categories: para, derm, pain, vaccines, right? That's really been it. Is there room for more? Like how do we gauge the consumers' willingness to spend in these additional categories like obesity, kidney disease, things like that?

Yes. I think a new platform to a pet owner doesn't matter. What matters is the value proposition. Look at Isoox when you and I, I mean 7, 8 years ago, look at how big that category has grown. It's going to be $2 billion. derm 10 years ago, and Tim wasn't there. What I see is the first 4 problem sets in pet are going to stay the same. Pain will emerge and go from 1 to 2, as Tim said, et cetera. So if you look at that, if immune therapeutic comes in, has a better margin profile, has a lot better efficacy and maybe safety profile, you are going to go after and take share from that market and grow that market because it's going to be a better value proposition for the pet owner. And remember my second trend, the pet owner will have more influence and more control. So getting to them with that will be important. So I don't see a new platform. If Ellen brings something, I actually love the solution set on the proposed label she's seeing for these next round of assets. So now look, is there more room? Absolutely. You saw us, we now have 8 targets. So obesity, we believe CKD, I think we all are chasing that. And -- but we've got to -- our criteria is best or first-in-class. I would call out ruminant and poultry. The problem set, the durability, there's breakthrough opportunity here in productivity and disease prevention at another level, done with some of these platforms as well. And there are some synergy here with these platforms in ruminant and cattle and poultry. The area we got to continue to build and grow that we don't have as much relative to the competitors. We've been open about this is the bios, the vaccines. And that will come. Part of the way to win that battle is to bring a new platform.

Dan Clark with Leerink. Just wanted to ask on the philosophy around sales and marketing spend. I appreciate all the color on kind of the rest of the cost structure, but how are you thinking about that growth over the next couple of years? Is there a willingness to like reinvest any incremental gains in that area to drive additional margin expansion? How are you thinking about that?

Yes, Dan, great question. So this is where Ascend is so important. It's giving us the opportunity to think through and make choices about where we're investing. And so Ascend is about being efficient. Jeff mentioned I came from a low-margin industry. And I think the point was because I came from a low-margin industry, I had to focus and make the right choices for where we invest, okay? And that's what Elanco Ascend is going to do. So you're going to see us -- the mix of where we're spending OpEx is going to shift more towards marketing and R&D and less on areas like back-office support because we're going to be leaning into automation and AI. But I would continue to say we are going to continue to use data that's going to drive our decisions under this no regrets approach to launches and using that data to determine when we'll continue to and when we'll stop spending on marketing with these launches. But listen, again, no reg growth approach. We've seen the success here. As I think about moving forward, so next year, you're going to see Ascend -- we're going to continue to spend on marketing, but we're going to see EBITDA growth as well, okay? So Ascend is going to help us with the mix. Ascend going to help us with dropping EBITDA to the bottom line. And then again, finally, like, listen, like we're going to continue to be prudent with our approach and focused on executing the portfolio that we have.

The procurement also is an active ingredient strategy that Grace has. Credelio is a great example, bringing costs down significantly. And that -- we have some of that in, and we have some speculation we could do more. I don't know. That's a big part. It's active ingredient procurement approach? Is that?

No, I think that's very fair. And it's a tried and tested approach that we have been using. And again, to my point, it's a highly regulated industry. So the actual time line in terms of implementation, you need to start early and then it's executed over a number of years as regulatory approvals come through for changes. But absolutely, that's a large part of the foundation that we've built in manufacturing and are going to continue to execute on.

Chris LoBianco here for Steve Scala at TD Securities. What do you think are the major unmet needs in companion animal parasiticides? And do any of your near-term blockbusters in 2026 to '31 address those unmet needs?

Do you want to share that? And maybe, Tim, if you want to have a few comments, too, on this. Do you want to start, Ellen and then...

Yes, sure. So on the parasiticide, the major unmet needs, what we see, of course, we always focus on needs, whether it is safety, efficacy or convenience. 1 of the 3 or a combination of the 3, that is where we look at. So -- and those are still unmet needs and opportunities in the biggest parasiticide market as well. Think of longer duration, think of addressing resistance. So those are the type of focus areas where we say, is there an opportunity for us to actually bring the next generation of parasiticides.

Do you have anything to add, Tim? Or is that?

Yes, I would just add that different pet owners will look for different things. So one product is not going to fit everything. So there'll be lots of opportunities to expand on that and continue to grow the category over time as different generations of pet ownership come into the marketplace and look for different opportunities.

We have seen probably less internationally impact from a long-acting injectable. And we think part of the message there is broad coverage matters. convenience matters. Also long-acting injectables bring some speculation right now from the pet owners. So we've actually seen not the competitive front in Ramiro's markets as maybe was speculated by the market. But more to come. There's more to play out there. But I think people want convenience. They also want to be assured they're going to be okay for their pets.

Yes. I guess a question -- I guess I'll combine the 2. But in terms of your thoughts on the mid-single-digit growth, how much is volume versus price? And then also, there's been caveat by competitors that there's been trialing or free sampling and other things market. And so your level of confidence that, I guess, adoption that you're seeing in the market around parasiticides and dermatology that's actually leading to durable response and, I guess, market share gains.

Yes. We've seen in the industry 2% price pretty consistently over the last 2 decades, and we're guiding to that this year. We are going to lap these new products. So I think that will be beneficial that we haven't seen in price coming back around. Bobby has already highlighted, I mean, publicly, we've taken a very value-based approach with more value, more differentiation. We're pricing up given our value offering, and we'll keep an Elanco value-based approach on price. So I think what you see in mid-single digit is you're going to see probably the trajectory we've been on. There might be ups and downs year-to-year and the remaining will be in volume and volume will come from stronger portfolio, as you heard earlier. I think that's important. No question, Bobby mentioned it, but I know Jose and Romero would say the same. This will be a competitive 3 years. I think we're very well suited. The industry is going to grow $20 billion, we believe, over the next 10 years. And the first -- next 5 is going to get a good share of that. And we believe we're well suited. Back to the slide I showed why in the 3 channels, farm and pet retail, we've got leadership. And we got broad portfolios that can meet most any customer where they want to shop value-wise. And that portfolio is going to give competitive strength over maybe a competitor trying to offer. There's always going to be a short-term deal, but portfolios win in this industry, and they always have. And I think pet vet, we are smaller, but that's a positive. We're notionally smaller. We got a $300 million parasiticide business in the U.S. coming with Quattro, -- you're going to see, I talked at the break, a lot less cannibalization from Elanco. But yes, there will be some quarters that we may report competitive activity but we're confident in the long-term trajectory because of the portfolios.

This is JP for Umer Evercore. With the current corporatization of the vet clinics in America, I think it's very important to understand what is the sales dynamics and strategies you guys will use to better perform in that segment.

You asked me about that last week, JP. I'll turn it to the guy that does it every day here and Bobby, I want to just share a couple of comments relative to the corporate environment.

Yes. I think you got to take a step back and understand the corporate landscape. So there's many corporate clinics in the U.S. They all operate a little bit differently, and they all have different contract cycles with their partners. But roughly 70% of the corporate clinics have 1 or 2 preferred -- 1 of 2 preferred partners, typically 2 partners. And we believe that our portfolio is a strategic and competitive advantage. So our portfolio gives us more relevancy because it can be a one-stop shop for that corporate clinic. It also allows us to sort of bundle our products, so we don't have to get as competitive on a specific category in order for us to compete. And as part of our sales force expansion that we made about 16 to 18 months ago, we expanded our corporate accounts team in anticipation of the broad portfolio, giving us relevancy with that group going forward.

We have time for one more question, if there's one.

Steve Dechert with KeyBanc. I think you guys mentioned earlier in the presentation that the appetite for protein was the highest since 1983. -- while at the same time, we have cattle inventory at low since, I think, around 1950. I guess what needs to happen to see the rebuilding of the herd in your view?

Yes. Jose? Jose talks to me about this every day. Keep it to 2 minutes, not -- this exciting time here.

So the way to think about it is cycles and trends, right? If you think about the last -- there's a lot of numbers out there. But if you think about the last 50 years, let's take 9070 as a reference, the output of protein has continued to increase while the animal numbers has decreased. That's the overall trend. 20% less animals, 20% more meat output and almost twice double the milk output with -- that's the general trend that is driven enabled by technology, genetics and products such as the ones we provide. That's the general trend. Every 10 years, there is a cycle that either weather-related or economics related. cattle herd goes down, and then there's an economic incentive for the cattle herd to be rebuilt. We are that [indiscernible] Bottom. The economic incentive is out there. We're seeing cows slaughter going down and that cycle now reverting and we see the signals of the herd being rebuilt.

You think what you -- everyone has a prediction, but -- and then mentioned producer versus packer, just but you're thinking in the next couple of years.

Yes, it's -- I should have mentioned, these cycles, there are 2-, 3-year cycles. So high level, every 10 years, there is a cycle, is a 2-, 3-year cycle. We are on the rebound of a 2-, 3-year cycle from a producer standpoint. And again, that demand and that signal is out there.

And we serve producers, and it's very profitable for producers right now, not so much for packers, but producers buy Elanco products. Let me close, and then we can have some time at lunch with the rest of the team. I want to thank Tiffany and her team and all the work that they put into this and this executive team very much so -- and we've had a good time putting this together as really a backdrop to be able to work with you for the next couple of 3 years. As Bob said, this is 2016 to 2018. This is our framework, and we understand these are the expectations we've outlined. And I really leave with this final slide. And the message is what we are desiring to be is what we've actually become over the last 2 years, and that's consistent, reliable growth company. We know that mid-single-digit top line will bring leverage to the bottom line, and it's all about these 3 outcomes. And I hope you hear Elanco to be a very consistent, constant message and then we deliver against that. We want to make this straightforward for you as an investor. We want to be the most compelling value stock that you have in the most durable segment. This growth, innovation and cash underneath each one of these, and we'll come back to this with all of you as investors are our expectations. Sure, there will be ebbs and flows. There will be quarter-to-quarter differences, but we really are confident in the next 3 years that these are the expectations. Underpinning this is a very durable industry. This $20 billion of growth, we deserve our share of that. And we believe, hopefully, you saw a team, each one of these teams has 8 to 10 people at their table that would represent a lot of what you saw today. And you can be assured hopefully today that, that $20 billion of growth in animal health will be a great place to put investment money and it will be a great place to put it with Elanco, with the team, the culture and who we have. Thank you again for time that you spend with us. Expect transparency, accountability and accessibility from Elanco. Thank you. Have a good close to your year and a happy holiday, and we look forward to some engagement at lunch. And for those online, we'll look forward to engaging with you in the future. Thank you.