jp morgan healthcare conference january 14, 2020s1.q4cdn.com/.../elanco_jpm_presentation-vf.pdf ·...

JP Morgan Healthcare ConferenceJanuary 14, 2020

Jeffrey Simmons, CEO

Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates

©2020 Elanco


©2020 Elanco

Disclaimer

2

This presentation is for your information only and is not intended to be distributed to or reviewed by anyone other than you. This presentation does not constitute an offer to sell or

a solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the

registration or qualification of such securities under the securities law of any such jurisdiction. Securities may not be offered or sold in the United States absent registration with the

Securities and Exchange Commission or an exemption from such registration.

Under no circumstances is this presentation or the information contained herein to be construed as a prospectus, offering memorandum or advertisement, and neither any part of

this written or oral presentation nor any information or statement contained herein or therein shall form the basis of or be relied upon in connection with any contract or commitment

whatsoever.

In making any future investment decision, you must rely on your own examination of the company, including the merits and risks involved. This presentation should not be

construed as financial, legal, tax, accounting, investment or other advice or a recommendation with respect to any potential investment. You should consult your own advisors as

needed to make an investment decision and determine whether it is legally permitted to make an investment under applicable legal investment, securities or similar laws or

regulations.

This presentation contains forward-looking statements that are based on management’s current expectations, but actual results may differ materially due to various factors. The

company’s results may be affected by factors including, but not limited to, heightened competition, including from innovation or generics; the impact of disruptive innovations and

advances in veterinary medical practices, animal health technologies and alternatives to animal-derived protein; changes in regulatory restrictions on the use of antibiotics in food

animals; our ability to implement our business strategies or achieve targeted cost efficiencies and gross margin improvements; consolidation of our customers and distributors; an

outbreak of infectious disease carried by food animals; the success of our R&D and licensing efforts; our ability to complete acquisitions and successfully integrate the businesses

we acquire, including the animal health business of Bayer AG (Bayer); our ability to obtain financing for the acquisition of Bayer animal health business on favorable terms; misuse,

off-label or counterfeiting use of our products; unanticipated safety, quality, or efficacy concerns associated with our products; the impact of weather conditions and the availability

of natural resources; disruption in our supply chain due to manufacturing issues experienced by our contract manufacturers; the impact of increased or decreased sales to our

channel distributors resulting in higher or lower inventory levels held by them in advance of or trailing actual customer demand, which could lead to variations in quarterly revenue

results; risks related to our presence in emerging markets; changes in U.S. foreign trade policy, imposition of tariffs or trade disputes; the impact of global macroeconomic

conditions; and the effect on our business resulting from our separation from Eli Lilly & Company (Lilly), including the various costs associated with transition to a standalone entity.

For additional information about the factors that could cause actual results to differ materially from forward-looking statements, please see the company’s latest Form 10-K and

subsequent Forms 10-Q filed with the Securities and Exchange Commission.

The company shall have no liability, contingent or otherwise, to the recipient hereof or to any third party, or any responsibility whatsoever, for the accuracy, correctness, timeliness,

reliability or completeness of the data or formulae provided herein or for the performance of or any other aspect of the projects and strategies presented herein. The company

expressly disclaims any fiduciary duty to you in connection with the subject of this document.

The company does not provide legal, regulatory, business, accounting or tax advice. You should consult your own counsel, accountant and other advisors as to legal, tax,

business, financial and other matters related to the contents of this document.


©2020 Elanco


©2020 Elanco

Today’s Agenda

3

Progress Toward

Building a

Global Leader

Advancing Our

Strategy in a

Compelling Industry

2020 & Beyond

Confident,

Balanced

Outlook

Animal Health

©2019 Elanco and its affiliates.©2019 Elanco and its affiliates.

Portfolio of

Durable

Brands

Established in

1954 An

Execution

Story

Industry Leader with Significant Value Proposition

1 Based on 2017 revenue.

IPO in

2018

Dedicated

Animal

Health

Product

Company

Acquisition Expected to Create the #2 Leader in a Highly Attractive $34B Industry

Innovation

to Drive

Targeted

Growth

Our Vision: Food and Companionship Enriching Life

4


©2020 Elanco


©2020 Elanco

Animal Health: Compelling, Durable Industry Fundamentals

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Pet owners making more pet care decisions … while vet

relationships remain central to pet health

~15% e-commerce growth in U.S. … omnichannel

presence will be a differentiator

High Revenue growth in emerging markets … global and

local leadership imperative

Increasing compliance and medicalization rates globally

Significant innovation ecosystem evolution

ANIMAL

HEALTH

Animal

Well-being

Increasing pet

ownership

Pets living up to

20% longer

pet spend

Growing

Companion

Animal

Growing middle class worldwide

20% lost to death and disease, focus on productivity

Overusing resources

get wrong nutrition

1in3

Increase in protein demand

~75%

Food

Animal

40% of U.S. pet medications

purchased outsidethe clinic

CORE TRENDS

EMERGING FOOD ANIMAL TRENDS

~4%

$34B

2018-2023

Growth1

1 Global animal health industry revenue is expected to grow nominally at a CAGR of 4.2% from 2018-2023, according to Vetnosis.

EMERGING COMPANION ANIMAL TRENDS

Emerging markets driving protein growth

Growth from nutritional alternatives

Increasing focus on bioprotection

Trade dynamics uncertain


©2020 Elanco


©2020 Elanco

Advancing our IPP Strategy: Progress and Proof

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Driving Portfolio Growth

• Targeted Growth Categories

growing double digits; now >60%

of total revenue

• Geographic and molecule

expansions extend brands

• Acquisition of Aratana; launch of

specialty sales force

• Acquisition of Prevtec,

strengthening antibiotic

alternatives portfolio for swineUnlocking Value

• 100% of productivity initiatives underway to deliver

cost savings through 2020

• Executing restructuring efforts aligned with margin

expansion journey

• Independent company stand-up and TSA exits on

track; ERP implementation remains

Sustainable Flow of Innovation

• Portfolio of 14 newly launched or acquired

products since 2015 driving growth

• Novozymes and AgBiome R&D collaborations

• Integration of Aratana and Prevtec pipelines

• Focus on 6 key platforms, aligned with targeted

growth categories THE

CUSTOMER

Multiple levers to deliver value in a dynamic industry


©2020 Elanco


©2020 Elanco

Animal Health

Transaction announced August 20, 2019

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©2020 Elanco


©2020 Elanco

Acquisition Expected to Create the #2 Player in Animal Health

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Note: Leading animal health players by 2018 reported sales. $ in billions. Bayer & BI sales converted to USD

based on 2018 average EUR-USD exchange rate of 1.18. Numbers may not add due to rounding.

Combined 2018 full-year revenues for Elanco and Bayer Animal Health include revenues for products that may

be divested in connection with the acquisition, including both Osurnia & Capstar.1 Total Elanco revenue includes revenue from strategic exits.

$3.2

$2.5 $2.6 $2.6

$1.9

$0.6

$2.6

$2.2$2.1 $1.6

$1.1

$1.1

$5.8

$4.7$4.7

$4.2

$3.11

$1.7

Explorer

Food Animal Sales Companion Animal Sales


©2020 Elanco


©2020 Elanco

Building a Leading Animal Health Company

9

Expanded Innovation Engine

Sustained Top-Line Growth

Mid-single Digit Growth1 Elanco + Bayer 5-year CAGR

17 Growth Portfolio Products2

Strengthened omnichannel leadership

Strong Profitability, Room for More

1,000bps of Adj. EBITDA margin expansion (~21% to

31%) from 2018-2022 – one year earlier, additional

opportunity beyond 2022

Double digit Adj. EBITDA Growth1

Adj. EPS3 accretive in Yr 1; increases annually

~$1B of Operating Cash Flow by Yr 2 to enable rapid

delevering

1 Compounded annual growth first five years after close. 2 16 products when excluding Osurnia, which

Elanco announced will be divested for antitrust reasons.3 Based on non-GAAP results.

50+ Development products + LCM opportunities

Scale, new platforms and capabilities

Accelerates Productivity Reaching our goals earlier, creating room for more

Expands InnovationRobust pipeline; increased scale, platforms and

capabilities

Diversifies PortfolioExpected to double companion animal business, balance mix, enhance emerging markets

Leader in attractive global marketTwo dedicated AH product companies; one infrastructure


©2020 Elanco


©2020 Elanco 10

Transaction Financial Summary

1 Based on $5.32bn cash consideration and $2.28bn stock consideration, each subject to adjustments as

set forth in the purchase agreement. 2 Elanco’s volume weighted average share price for the 30 trading

days ended 06-Aug-2019. 3 Subject to customary purchase price adjustments. 4 Subject to customary

conditions and receipt of regulatory clearance.

Purchase Price• Transaction enterprise value of $7.6 billion1

• 70% cash and 30% equity to Bayer

Financing Structure

• Committed financing for the cash consideration

• Purchase price financed by:

• $2.3bn in Elanco shares issued to Bayer, subject to a 7.5%

symmetrical collar centered on $33.602 (~68 million shares at the

midpoint of the collar)

• $5.3 billion in cash consideration3 funded with debt and equity

Expected Synergies• Run-rate cost synergies of $275mm to $300mm by 2025,

coupled with one-time costs to achieve

EPS Accretion• Mid-single digit % expected in first full fiscal year post-close

• High single / low double-digit % expected in 2022

Anticipated Closing • Transaction expected to close in mid-20204


©2020 Elanco


©2020 Elanco

Deal Trending In-line or Better Than Expectations

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• Q3 YTD results in linewith robust diligence

Business Performing

• Received clearance from China competition authority on Jan 9. ’20

• Received U.S. FTC Second Request Dec ‘19

• Announced intended disposition of Osurnia & Capstar; total divestiture revenue expected to be between $120-140 million

Antitrust Advancing

• Financing bridge commitment secured

• On track to access capital markets

• Plan to optimize financing mix based on market

Transaction Key Events

• Dedicated and experienced internal and external team

• Synergy expectations remain intact

• Focus on future statedesign and successful Day 1

IntegrationFocus

Deal remains aligned with diligence; Closing on track for mid-2020

Animal Health


©2020 Elanco


©2020 Elanco

What to Expect: 2020 Guidance

Guidance

Full Year

2020

Total Revenue $3.05 - $3.11 bn

Core Revenue $3.00 - $3.06 bn

Strategic Exits Approx. $0.05 bn

EPS (GAAP) $0.04 - $0.16

Will update guidance for combined company after Bayer AH close

EPS (non-GAAP) $1.09 - $1.16

Guidance Reflects:

• Revenue growth of 1% to 3%* for Core

Elanco, despite anticipated competitive and

external events

• Momentum from new products and targeted

growth categories, particularly aqua and poultry

• Continued profitability improvement

• GAAP EPS includes investments supporting

stand up and integration, amortization of

intangibles

*Represents constant currency growth for Core revenue, which excludes revenue from Strategic Exits.

NOTE: All guidance elements reflect stand-alone Elanco and do not include any revenues or expenses from Bayer Animal Health.

Includes full-year revenues from Elanco assets that may be divested. EPS does not include additional shares issued as part of Bayer

purchase. No other Bayer-related financing actions included (such as incremental interest expense from new debt)

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©2020 Elanco


©2020 Elanco

2020: Headwinds and Mitigating Opportunities

Headwinds Opportunities

Generic Rumensin in U.S. Continued new product growth

Competitor parasiticide launch Growing and shifting protein demand

Changing antibiotic use in Asia Elanco Aqua capacity expansion

Changing use of Paylean in U.S. Specialty Vet Channel

Resolution of CMO supply disruption

($60M - $90M)

~2% - ~3% Growth Headwind

$90M - $130M

~3% - ~4% Growth Opportunity

African Swine Fever

NOTE: All guidance elements reflect stand-alone Elanco and do not include any revenues or expenses from Bayer Animal Health.

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©2020 Elanco


©2020 Elanco

Moving from Strength to Becoming a Leader

15

State of ElancoSpeed, Agility and Execution

• Moving with speed and agility, making tradeoff and key investments

• Advancing innovation that is robust, novel and valuable

• Significantly improving our profitability

State of GrowthDurable and Resilient

• Driven by new products, attractive segments and positive industry fundamentals

• Positive Revenue growth every quarter since IPO

• Resilient in the face of environmental and competitive challenges

State of Bayer AH DealIn-line or Better Than Expected

• Antitrust advancing ahead of expectations – clearance received from Chinese competition authority on January 9, 2020

• Integration planning and business case is solid

• Business performance and transaction activities on track

State of Our JourneyBuilding for Long Term Leadership

• History of transforming, innovating and growing

• Performing now as an independent company

• Building an industry leader for long-term value creation


©2020 Elanco


©2020 Elanco 16

2015-2018 2019 2020 Beyond

Targeting Next Era

of GrowthBuilding for the

FutureExecuting Pure

Play AH Model

Transforming to

Independence

Current period of investment and action with a goal to solidify Elanco’s positions as a global leader with a balanced portfolio

Building for the Next Era of Growth

• Top 4 AH company, 2%

topline growth

• Strategic portfolio

diversification

• Multiple innovation launches

each year

• Adj. EBITDA expansion from

14% to 21%

• Standing up fit-for-purpose

organization

• Productivity initiatives &

restructuring actions

• Transformative M&A and

complementary BD

• Forward looking actions to

enable the next era

• Target margin improvement &

persistent pipeline flow

• Growth expected from recently

launched products to counter

headwinds

• Bayer AH deal closure &

integration

• Combined company takes

shape

• MSD top-line in line with

durable industry

• Omnichannel pioneer with

key retail capabilities

• Innovation launches in key

opportunity spaces

• Target 31% EBITDA margin

and path for more

Integrating Strategic Business Development

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