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

Ladies and gentlemen, the program is about to begin. At this time, it is my pleasure to turn the program over to your host, Michael Ryskin. You may begin.

Great. Thanks, everyone, for joining us. My name is Mike Ryskin, Bank of America Life Science Tools and Diagnostics Analyst and also covering animal health space. Excited for our next session with the Elanco Animal Health. We're joined by Jeff Simmons, President and CEO; and Bob V., Executive VP and CFO. Jeff, Bob, thanks so much.

Great to be here. Thank you.

We'll do the same as prior sessions. It will be fireside chat for the duration. Investors, you can certainly feel free to send me question, either via the Veracast portal or Bloomberg chat, email, text, fax machine. You know how to get in touch with me. Maybe just kick things off, you guys reported 4Q results and gave us your initial fiscal '26 guide just a couple of days ago, so still fresh in everyone's mind. But maybe you could talk through sort of the key points of how the year played out relative to expectations, meaning last year, sort of the key points you want to focus on as you're moving into 2026.

Yes, maybe -- and Bob, you can touch on the guidance. Thank you, Michael, and the opportunity to be here with Bank of America. We appreciate you guys a lot, and what you do for the industry. Love where the animal health industry is right now in pets and protein trends, and where Elanco is. So as you know, Michael, we've been very intentional in the last 3 to 5 years in building what we have, and where we're going, and we're excited about our investor conference we had in December on the rest of the decade. But our focus has been on three things: Growth, innovation, cash. We've been a pretty consistent story. Our strategy is all around an innovation portfolio, productivity flywheel. And we ended the year delivering above expectations on, I think, adjusted EBITDA, revenue and EPS, a real strong quarter, I would say, on the growth side, probably the best quality year and quarter that we've had relative to all four quadrants, growing on international, U.S., Pet Farm, price volume, all underpinned with innovation. Innovation exceeded our expectations every quarter. I think our storyline, if you remember, kind of a headline on Elanco, it is a basket of innovation that is performing like best medicine in double-digit growing markets. We don't need to go in and create markets. We're still even lower indexed in the big markets like para, derm and cattle. So -- and then Bob can talk about the balance sheet is strengthening every quarter. And that just sets us up well. And then we lean into the algorithm of commitments we've made, and we're keeping our priorities the same. We want to be a consistent, reliable deliverer of growth, innovation, cash. We want to invest appropriately, and we want to make sure that we're on the right side of expectations. So we're going to be balanced, disciplined, very prudent, and that's -- we had a long track record of that for many, many years. We did hit a little air pocket, and Ellen is making sure we won't ever do that again. So I don't know, Bob, on that guidance...

Yes, maybe just add a little bit of color. Yes, Jeff summarized it well, but our guide that we gave a couple of days ago was right in line with the targets we gave at Investor Day. Growing mid-single-digit top line growth, high single-digit EBITDA growth, low double-digit EPS growth, and we expect to delever and get in the low 3s by the end of the year. And I'd say, if you kind of double-click into that, we did raise our innovation revenue target. We were $1.1 billion at Innovation Day. We raised that to $1.150 billion. We're seeing just a lot of momentum there. And I would say the algorithm within the algorithm, how we're focused on internally is to ensure we hit the guidance that we've given out. But internally within the P&L, it's ensuring that we're continuing to our no-regrets launch approach on our products, continuing to fund the pipeline with R&D, and that's where Elanco Ascend is coming in to make sure that we are being operationally excellent. So we can continue to fund not only the short-term growth opportunities, but also the longer term with the pipeline. So a lot of momentum, and we're being balanced with the competitive response, what that could look like and the overall macro. But again, a lot of momentum entering into 2026. And obviously given the guide that we feel great about right in line with what we laid out a couple of months earlier in December.

Okay, okay. That's a great place to start. I want to follow up on a lot of that. Obviously, we've spent a lot of time talking about the innovation basket. I think that's a big part of the story. I think that's been -- if I could drill down what's been the key factor between IBEX stock -- sorry, Elanco stock. I'm still in the last session. Elanco stock re-rating over the last year, it's been the innovation basket, really delivering, really hitting on that, and how well that's done in recent quarters. So maybe just to pick on one of them. Let's start with Zenrelia. I think you've had better and better performance as the year has gone on, despite the label as it came out originally. You've had constructive dialogue with the FDA in getting changes already, and there's potential catalyst around the midyear. What would you say a year -- and have been your learnings on it, both in terms of, you've got an incumbent, that's got a 10-year head start, how do you position around that. How do you position or how do go to market around the label? How do you discuss about the label change? Sort of -- what have been your takeaways over the past year? And how do you think about that opportunity going forward?

Yes. Great momentum. We're 1.5 years in really since we've brought the product in, and we're looking at the whole decade. We got a pipeline. So we just got Befrena approved, Michael, as you know. So derm for us is, boy, what we see between now and the end of the decade for derm as Elanco is going to be a leader in this category, and we like the marketplace. It is a marketplace that rewards efficacy. It is the most visible pet issue, an itching dog is not only why people go to the vet, but it's also one that you can quickly determine efficacy better than you can in para and even pain. So I just kind of say the headline is the product's got to work. It's got to work really well. And if so, even with Zenrelia, where it came into the U.S. with some limitations on the label. That may have been a gift because it put us into the toughest cases, and we're rising right now in a really strong way. So -- and the international launch is exceeding our expectations. And every story from Brazil, we just had a webcast with Brazil this morning. I mean 40% market share and climbing and the shortness of a market, Japan 30%, already double digit in Europe in the key European markets, half the clinics now in the U.S. I mean this uptake is climbing at a exceeding rate. And the reason for that, I think, is we're not even in derm season yet. I think a lot of that is efficacy, Michael. So -- and that's what the KOLs are seeing and highlighting. And then we're going to be adding, especially here to the U.S. with the Befrena product that we also think has differentiation. So look, I think we'll continue to work hard on globalizing the product. Bob can talk. We're going to lean in. We're probably increasing some investment around Zenrelia now given what we've seen. We've got good manufacturing plans to take on this increasing demand, and we're going to continue to -- we're the only company out there with head-to-head data, and we're going to demonstrate it scientifically. We're going to demonstrate it with KOLs. And maybe the biggest proof point is the acceptance by corporates, to have every European corporate sign on to Zenrelia and see 90% growth in corporates in the U.S. last year compared to 13 is, I think, a real symbol of proof points around Zenrelia. And we'll work with -- we can talk some about the label in the U.S., but we made a submission of the booster data after the PCR change to the label. That label change helped us a lot. We picked up 2,500 clinics. We continue to pick up more, and we're in a constructive dialogue. We hope to hear from them soon. But our case is quite compelling. We believe to move that label closer to the other 40 countries. And Bob -- we'll continue to invest. Bob has spent a lot of time with Bobby and Ramiro on the data to make sure we're not going to slow down on the ramp rate here.

Okay. On the upcoming label discussion or update from the FDA, there's been a lot of focus for investors. You've talked about a number of times. Could you sort of lay out the scenarios as you see, and what the outcome for that would be. Remind us the timing, we're kind of expecting way 2Q maybe summer, if you've got any more clarity on timing? And just any way you could hedge the scenarios, any way you could give us a likelihood of which outcome it would be. Just I think that could be a pretty meaningful further positive catalyst.

Yes. I start with the current momentum. I mean there's a lot of momentum in the product. So we're not -- nothing is in our guide on a new label. The current scenario we're going to lean into and the momentum is increasing. So we're going to stay focused on what we have right now. And -- but I would just say if I just start with the facts, we've got 1.5 years of good data, the efficacy. We've got 40 countries with clean labels. We've got PV, pharmacovigilance data for over a year [Audio gap] million dogs. So -- and what we've done, we've got the PCR data, where they changed the label. And now we've made a submission of the published booster data, which was done in a constructive way that actually they desired and wanted. So a submission has been made. That was made in the fall. It's a little unusual, so I don't want to say it's like a new drug ADUFA, Michael. But I do think we're hoping to hear from them soon, and we believe our case is pretty legitimate for continued label improvements. And I would just say, hey, the FDA is doing a lot on reform, great leadership under Dr. Shell, good constructive dialogue with the team. And I'll leave it there and just say that we're hopeful. But again, it is not something that is in our current guidance.

That's the hedge, Michael, right? Our guidance assumes label as is. And so that's really our hedge against potential outcomes for the rest of the year.

Okay. And in terms of what those outcomes could be, I think it's -- as you said, you already had a label update or improvement in the fall or last year, last summer. It could be similar to that where there is a minor update that's option 1. Option 2 is completely remove the black box, or my understanding is option 3, the FDA could come back and say, "Okay, we need even more data. Let's go back and do more trials." Those are the three outcomes.

Yes, yes. I think you're right. Yes, I do believe so.

Okay, okay. And then the -- just some fresh news overnight or last night, yesterday Merck's NUMELVI was approved nin the U.S. Obviously, a product we've known about for a while. A lot of the focus when we think about Zenrelia ramp in the U.S. is sort of positioning Zenrelia relative to Apoquel, the major incumbent, but now you do have a third player. I think you guys had some really interesting commentary during the call on Tuesday about how Zenrelia has done in Europe, where NUMELVI is already on the market. Could you expand on that a little bit as just sort of what you see as the pros and cons of Zenrelia relative to NUMELVI from the label perspective?

Yes. Again, Bob can highlight. We assumed this in the guidance. We assumed a competitive entry in the U.S., and we had it in Europe. So that's all assumed probably the news last night is it's probably for us, a little bit more favorable relative to the label that came out, so probably positive relative to that. But I mean, let's see. Look, I think the commentary always comes back. I think I would keep it real simple. Let's not overcomplicate this. It's efficacy. And efficacy will be proven out in the field, and it will be visible to pet owners. And I think duration, breaking that bond with a pet owner because of an itch is what needs to be corrected. And the duration and the quality of efficacy is seen in living rooms and homes all over the world. And that's where we're getting the testimonies. And what I will say is, we'll start with head-to-head, which we demonstrated against the market incumbent in Europe. And I believe that now that head-to-head data is proven out even against the new market entry in Europe, and we will execute accordingly the same way in the U.S., I think, and it will be determined by efficacy. And I think that I don't want to get into all the details of the label right now. Everybody can see there are definitely differences, and we're going to focus on what we have. And at the same time, we're one quarter away from launch in Befrena. So I think we've got a portfolio approach. We've got a head-to-head approach. We've got 1 million dogs. And we've got a very strong label in 40 countries, and we have an improving label in the U.S. And I think we've got one of the largest teams and Michael, I would even call out, we've got a distribution advantage right now. We believe, where distributors are getting a lot of value from us with Quattro plus Zenrelia, and they will with Befrena, and they probably will get even more value from Befrena, and vet clinics will as well. So that's where we're set up, and I don't know if I can elaborate more...

Yes, just to make sure that we all understand, as Jeff mentioned, like this was assumed in our guide that this would be coming out. So it's not a surprise to us with what we -- the commitments we've made a couple of days ago.

Yes. And like you said, you've already gone head-to-head against them in Europe and other markets, and that's...

Yes. And we are -- as I said, just to be clear, I didn't answer that, but we are outperforming them. And I think that's a combination of product KOLs, corporates, I think our ground game is very strong. We've got the largest sales force we've had in Europe and the U.S. in pet health ever, and we're leveraging our partners as well.

Okay, okay. Yes, the way we'll definitely have some interesting tidbits in there in terms of allergic derm versus atopic derm, needing to be administered with food, things like that. So there's a lot of things to dig in there. The strength you've seen with Zenrelia in the international markets, I mean, I fully recognize that every market is going to be distinct. There's different dynamics in terms of how your competitors are positioned, what type of go-to-market strategy you can or can in terms of advertising. But the strength you're seeing in Brazil, the strength you're seeing in other markets, is that I mean assuming that you can get a similar label in the U.S., like would that be -- is that an aspirational goal to achieve that what's Zenrelia in the U.S.? Sort of like what makes -- what should we carry over from that because that is the biggest market, that is where a lot of the focus is going to be.

Yes. Well, look, I think why we're spending a lot of time looking at the analytics to make sure that we invest. These assets are bigger than we realized, and we've got a whole portfolio of them now. As you know, Michael, so it's very unusual to see we're in major markets, and now we've got best medicine. And this is a best case kind of scenario. So we're going to make sure we're not going to let up. We will use Ascend and other productivity initiatives to ensure that we can give you that high single-digit EBITDA. At the same time, we will keep increasing investment, if that's what it takes to get the share, we will do that. So these markets come -- share comes at an expense to get it, but we believe we've got the assets to get it, and we're going to do that. And we're -- look, we've got the most experienced, most stable team in animal health. Our ground game is proven. The other thing that I think is underappreciated is we've got an omnichannel approach, 40% of pet care dollars are under some type of subscription, and we like that because that brings compliance. And so all that aspect of our ground game is really important, and that's where we put a lot of energy in Europe and U.S. in these other markets. So -- and you got to -- if you've got the products that are working, make sure you've got the assets and the commercial engine to get behind them, and I think we do, right now.

Yes. And as far as aspirations, I mean, listen, we firmly believe Zenrelia is a blockbuster. And I would say it's a blockbuster in the U.S., and we expect to be a blockbuster overseas. So we're going to lean into exactly how Jeff spoke about, but we're pretty excited about the efficacy of the product, and what it can mean for us.

Okay, okay. Certainly, look forward to there. While we're on this topic, I definitely want to bridge to Befrena as well then, you talked about a 2Q phased launch, that's something -- that's going to be really exciting if that happens at the same time as a potential label update to Zenrelia. But even if it doesn't, I mean, that's still a really important incremental contributor. So similar to how you talked about Zenrelia and framing the opportunity there, what gets you most excited about Befrena? I mean I think that obviously, we know the -- it seems like the dosing is going to be a little bit more favorable in terms of a slightly longer period relative to the incumbent there. I don't believe we have the full label out yet in terms of the USDA has now released it. Correct me if that's wrong. But just sort of how do you see Befrena entering that market and the opportunity -- and also the opportunity between having both Befrena and Zenrelia rally hand-in-hand?

Yes. I think you've got it framed very nicely, yes. So we kind of talk about where do we go on differentiation. We think we've got the three dimensions of convenience, value, efficacy. Yes, that efficacy picking up at 6 to 8 weeks. As you know, it also came with a higher bar. It's been 10 years since the last one in this space. So we had to take on a lot more dogs in the trial. So it really creates validity to this study, and that's we took a lot of that and this label to 350 veterinarians. And as I shared 82%, 83% came back saying, "Hey, we will use this product and especially in seasonal conditions." So -- and then, yes, there will be a portfolio effect with Elanco now coming in, there'll be no real portfolio differences between para and derm with Elanco. We've got the four kind of legs to the stool now with the portfolio that we have and Befrena further differentiates us from even the new market incumbent coming into the U.S. So all of that plays well. More to come, know the label is not out. We do plan to launch in Q2. It will be a phased launch like other monoclonal antibodies. And I get asked a lot of questions about manufacturing. Manufacturing is tracking really well. Part of the Kindred acquisition, it's in the plant, that's making the parvo. We've been working on this thing for a couple of years, and everything is tracking very nicely for a Q2 launch and probably more of a second half impact.

Yes. Okay, okay. I think that's going to meaningfully change the portfolio setup as you can position with the -- with your customers. I want to touch on one more basket of the -- one more part of the innovation basket in depth before we move on. And that's Quattro, obviously. Really, really impressive 2025. I think -- I mean, it's been a product that was anticipated for a while. It's a market that's really well known. I mean I think the para market is probably the best studied and best understood market in animal health and relatively saturated market in a sense that there already are a lot of products, a lot of alternatives. Still really, really impressive results. There are multiple factors to the differentiation there in what you bring with Quattro versus what Trio has or NexGard PLUS has. But still if you could distill it for us, do you think like what really drove the success you saw in 2025? You referred to it a number of times as sort of not second in line or third in line, but first in line. What was behind that?

Yes. So maybe I'll just provide a couple of comments here on Quattro. So it's our fastest growing product that we've had. It's not acting like a third to market, it's acting like a first to market. And the differentiation is the speed of tick kill, it's tapeworm coverage, it's heartworm coverage from month 1, but I'd say one of the biggest differentiators is a palatability. And the fact that it's easy for a dog to take is something that certainly, I think is making us see the success where we are. One of the leading indicators, I'd highlight, Michael, is the puppy index, and we continue to see that rise. And we believe, with Quattro, honestly, once your dog goes on Quattro, and the success we're seeing, we expect that to continue throughout the life of the puppy and the dog. And we're seeing transition from other dogs and existing clinics move over to Quattro. And listen, if you think about just market share, I think we were the only animal health business to see market share grow in para in the clinics this year. And it's because of the differentiation we've talked about. So Jeff talked about how we're continuing to look at DTC spend, and I meet with the team, and Jeff meets with the team on the ROI on that, and we'll continue to lean in with this no-regrets approach. We've done that all year, and we'll continue to do that, and we're seeing that success.

Yes. In the appendix of your deck, you guys always have really helpful stats revenue performance for select products. So that was really informative. I mean you've given us updates on how Quattro was tracking year-to-date. I think it was early September, you had a press release of it had blockbuster status. So we have pretty good sense for how it was going, but still really, really impressive to see the full year number for that entire line, the Credelio line at -- with $350 million plus $358 million, something like that. So really strong results. Any way you could characterize how much of that has been share gains from competitors? How much has been market expansion versus -- I'm sure there was some cannibalization of stand-alone Credelio that's to be expected. But it seems like that was relatively modest. We were kind of estimating that to be like 20%, 30%, not more than that. Just any way you can talk about the...

Yes, it's tracking favorable to that, I believe so. And I think you're going to see continued -- I mean, Quattro's got a lot of room to grow, where I think both, I think another key storyline here even with derm competition as you know, is we're small on a relative basis. When we started Quattro, we said we're $300 million in this big $3 billion, $4 billion market. So we're small on a relative basis. Now we've got best medicine, and we've got this omnichannel approach. The Bayer OTC being able to say, "Hey, we've got some leading capabilities on subscriptions, drop shipping in and outside the vet clinic that's going to leverage us too." So portfolio plus capability is going to give us, I think, leverage there to take more share. I think that's important. I would call out also on that Credelio franchise two other things. Credelio Cat, as I'm traveling around the world right now, meeting with all the affiliates and customers. Credelio Cat is very uniquely positioned. It's got great share growth around the world, and there's a lot of runway. I mean, we've got some unique and only capabilities there. So -- and then I think Credelio Plus has really got a good foothold, but here we come with Credelio Quattro internationally. And we may have some cannibalization there, Michael, but I believe the Credelio brand awareness is higher in a lot of international markets, which is going to ebb very well for Quattro because its awareness is stronger than the U.S. So we come in and saying, "Hey, we got something better than plus. We'll cannibalize ourselves, but we're going to take more share, we believe that." So it's good. But again, we weren't thinking international is going to be that opportunistic. But given the best medicine aspects of Quattro, international probably has a little better runway.

Okay. And just taking maybe a step back from that innovation ask, especially those three that we talked about Zenrelia, Befrena, Quattro. 2025 was sort of your first year really hitting the market with those. When I think forward to 2026, in some ways, one of the things we wonder is like what the response will be, right? Like now that Zoetis has seen -- your go-to-market has seen your market positioning and the success you had with these products, how will they respond? Now you've got NUMELVI coming in, how will Merck respond? And what will BI do? What are you -- what have you seen from your competitors sort of like a punch counterpunch? What are you anticipating from them? And sort of how do you see that dynamic playing out?

Maybe, I'll give -- continue with the -- yes, go ahead.

Maybe I'll just give a couple of comments here, Michael. So listen, like you think about the guide we gave, right? And so we've put various scenarios in our guide. That's why we give ranges, right, and competitive response is certainly one of them. But I would tell you, we firmly believe we have best medicine. And so if there's a punch we take, I think that's going to be short-lived, and we'll win the long game. But listen, I think there's -- the market is growing tremendously. We expect the overall animal market to grow by $20 billion over the next decade, right? And so we see the market growing. We think about us, we believe we got best medicine. We're also investing in innovation, right? And so we see us as a long-term win in this space in a dynamic environment. So short term, there could be something. That's again, why we have it in our wide range. But listen, I think our best medicine is going to win at the end of the day.

And historical relationships. I mean this distribution relationship. Let's talk about the changes and stuff. But hey, there's -- we had a long legacy of staying in a buy/sell, that's major share of voice. And we've been working on the digital and been launching some of these smaller products before these bigger products. So to Bob's point, it's best medicine, it's our offering, and we do not believe it's a price game. It's a value game and the vets want that, the pet owners want that, and we do too. So that's why -- and then you've got this rising tide right now as an industry. So I'm not a believer that I think we're way over indexed on vet visits as an industry, and I think there's these other metrics I've talked about that I think are much more important.

Okay. That's helpful. A couple -- we've got about 5, 10 minutes left. There's much more topics I want to hit on. One is price. We've had a lot of questions, a lot of debate on this. You guys -- you talked about price accelerating into 2026, which makes sense. I think both from an arithmetic perspective and a model perspective and a portfolio perspective. Any way you can help us frame accelerating by how much? What's the right price level to take in '26? How do you balance, "Hey, we've got a better portfolio of new products, baskets doing well" versus counteracting what I talked about in terms of competition and some of the risks there?

Yes. So I'll give you just a couple of thoughts here. So if you think about, again, our algorithm we gave on growing mid-single digits. Obviously, price is a component of that. We did have price of 2% in 2025. In 2026, we're going to be lapping the Quattros and Zenrelias, and so we're going to get some price uplift on those products. But listen, I want to highlight, we've taken the highest pricing in our U.S. vet clinics this year. It's the highest we've taken in 5 years, okay? Now obviously, we're conscious of what a competitive response would be. But we're going to continue to price to value. And I'd leave you with -- like we are winning share, not because of price, we are winning share because of efficacy.

Yes. Is there a way for you to sort of think about price? And we had this conversation a couple of days ago on the earnings call, of what the price is from the legacy portfolio, apples-to-apples versus how much of the price is the fact that you're lapping the new product launches, and now they're factoring into the arithmetic whereas they weren't before. Is there like an apples-to-apples price metric you could give us?

There's really not. I mean -- again, we will continue to price the value. And I think as a basket of all of our products, I would assume that there is pricing taken in that, and obviously, we balance the volumes and gross to net opportunities. But net-net, we expect price to accelerate from '25, and we expect price to accelerate throughout each quarter within '26.

Okay, okay. All right. Something you alluded to earlier, Jeff, was sort of the distribution relationship, and how that could be a tailwind for you this coming year. I want to talk about that. Obviously, there's been a lot of news in recent weeks with Covetrus and MWI. It's been anticipated and talked about for several weeks, several months, but it finally did come through. Can you just talk to us about your relationship with the major distributors. I don't know if you want to talk about those two in particular or maybe the major ones as a basket. How you see Elanco as potentially being better positioned to win from that or to benefit from that? And also over what time frame? Is this say, hey, this -- a change of that happens, and we can see immediate tailwinds or is -- this will take years to play out?

Yes. I think today, we've -- we're tied to a long history. We haven't been in and out with them and changing things. We've added the Bayer portfolio in. We've been buy/sell, which is the most optimal for them, where they buy the product. We create demand together. They can make some nice margin with us and value because they're creating value. We've got better metrics than we've ever had with the distribution channel, and that's allowed us to make sure we're spending money in the right area, getting the right value from them. This year, we come in probably leaving the best year we've had with distribution in '25 in a long time. We're the only company I believe that sells pretty much all of its portfolio by sell, not selected pieces and parts. And it will continue to do that as long as they deliver the value. They're good at launching products. And so they're going to get a lot of value, I think, from Elanco, which is positive, right, for us as we go forward. Any scenario looking forward, we'll do what we've always done, which is we will be close and constructive with them, Bob and their CFOs, and Bobby and the team, and we'll look at it through a lens of value creation.

And Bob, you touched earlier on -- I think the word you used was we're going to invest appropriately in 2026. And you talked about no-regrets launch at the same time. So some pushes and pulls there, right? You can argue what invest appropriately means, you can argue what no-regret launch means, so what's the right level? How are you balancing that? I guess, maybe put it in other ways, how much of that is a lever that you're willing to toggle, or you have a buffer to toggle, to say, "Hey, like we're seeing really good traction here. We're going to really push harder on Befrena, harder on Zenrelia or maybe we're going to go for a little bit more EBITDA this year." How do you balance those two in your mind?

Yes. So it's a great question. So first off, I would reiterate, we're going to hit our guidance that we give on that high single-digit EBITDA. So that's first and foremost, but a big lever in this, Michael, is Ascend, all right? So we firmly believe we are going to continue on no-regrets approach. And we are going to -- if we see, again, the ROI on the investment dollars in DTC, we continue to see that data supporting that top line growth. We will continue to lean into that. And obviously, when you get the sales, obviously, you're going to get the EBITDA, right? So I'm somewhat -- at some point, starts funding itself, right? But then Ascend comes in, and it's ensuring that we are doing the right things across the P&L to be more efficient, which again, funds DTC and funds the long-term R&D growth. And listen, I've said this before and maybe not to you, but one of the great aspects and the success factors to Elanco is we don't have silos within the organization. And what that means is the entire leadership team, the organization is aligned that, "Hey, listen, we need to do two things as priorities, grow the top line with -- and that could mean more funding DTC and continue to fund the pipeline with R&D." And all the rest of us may have good ideas, but we're all aligned on the priorities. And that's the success that we're bringing right now.

Okay. And then maybe, again, we're almost out of time. Maybe I'll expand it into sort of a bigger picture question or a longer-term question. Right now, you're heavy in launch mode, you're heavy in a ramp mode for the innovation basket as you should be. As we think about those ramping over time. How do we think about that operating leverage framework as these products get bigger, both on a gross margin basis as the revenue base gets bigger, but also on an OpEx basis as maybe you've already done that initial investment. Should that -- should lever open up more and more in future years?

Absolutely. And think about Investor Day, some of the messages that we gave. Certainly, with volume leverage, we're going to see margin enhancement, that's going to be on the gross margin and EBITDA lines. We're going to get the natural mix benefits associated with the basket of innovation carrying higher margin levels. And then you're going to see the EBITDA -- overall EBITDA performance coming from Ascend. And so we do see EBITDA margins improving 200 to 350 basis points by 2028. And then Elanco Ascend to frame it for you, 75% of that benefit is going to be gross margin, 25% OpEx. And again, that's a 5-year period, where we expect $200 million to $250 million of net EBITDA improvement after investment, after inflation. So you'll see a mix of both coming through, Michael.

Okay. That's super helpful. That's great. All right. Well, unfortunately, we're out of time. I want to thank you, Jeff and Bob, for joining us. This is a really great session. Always a pleasure. Thanks, everyone, for listening in and...

Thank you, Michael.

Thank you.

Thank you, everybody.

Congrats again.