Elanco Animal Health Inc Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Jonathan David Block - Stifel - Analyst : Thanks, guys. Good morning, I'll start on Zenrelia. And Jeff, can you just provide the timing of the head-to-head study will that be available for the launch, call it, launch, ramp here in the fourth quarter of 2024. And then one more on Zenrelia and I know you'll have the earnings call but any high-level comments you can provide on the vax response study that seemed to trigger the warning label? How do we think about that? In other words, was it more a function of euthanasias, non-responders to the vax. Maybe if you could help us out a little bit there. And then I'll have a follow-up?

Question: Jonathan David Block - Stifel - Analyst : That was great. I think just as a quick follow-up. Todd, this one might be for you. For 2025, I think the prior, call it, high-level messaging was that these new blockbusters would be, obviously, gross profit dollar-accretive in 2025 but likely gross margin-dilutive due to some investments associated with the new products. Now we believe Zenrelia's price is going to be lower, maybe you need to make more investments to explain the label. When we think about these new blockbusters, do we still think gross profit dollar-accretive in 2025 or more neutral. Maybe you can just flush that out a bit.

Question: Michael Leonidovich Ryskin - BofA Securities - Analyst : Thanks for taking the question.Great. I want to pick up right where you left off on Zenrelia. Jeff, you keep highlighting value efficacy and value as a differentiator. And the way you talked about pricing in the past. Obviously, there's a value component of it to the vet in this and there's the price component to the vet. But just to be clear, how has your launch plan on Zenrelia changed following the Black Box warning development? You talked about more vet education and the spend that goes in that. But in terms of how it's positioned to the vets just how willing are you to use the price lever to gain share in that market?

Question: Michael Leonidovich Ryskin - BofA Securities - Analyst : Okay. And again, Jeff, you actually just took it to the second part to my second question on the breadth of the portfolio. You talked about Para-derm therapeutic vaccines. So breadth of portfolio comes up all the time when we talk about in terms of how they make their purchase decision which longer they prioritize. Now you jumped from early '23 to early '24, adding a lot of products to the companion portfolio. You're going to have arguably the first or tied for first broadest portfolio to the vet. How does that change the value proposition for the rest of the business in terms of the uplift of the other products beyond the blockbusters, beyond the new launches? Is that coming up in conversations already? Is that part of your plan, in some of these distributors and large consolidator groups as you approach 2025?

Question: Umer Raffat - Evercore ISI - Analyst : Hi, guys. Thanks for taking my question. It's good to hear all the constructive language on Zenrelia. So let me just pressure test that a little more. As I dig into it, I know the Apoquel study, the vaccine response study had two out of eight dogs that were euthanized and the dose was [3 times human. I'm assuming the 3 times] human dose is probably more standard than not. So it sounds to me like considering you're getting a black box, your euthanizations were more than 2two out of eight. Could you give us some more color on that? And then also, was the timing of these euthanizations, or whatever the safety finding is, more pronounced towards the back end of the study? I'm trying to understand why the cap on duration. And then finally on Credelio, my sense is the CMC stuff is probably much more trivial and it's just information like sourcing packaging. Could you confirm that it was just a straightforward trivial request?

Question: Umer Raffat - Evercore ISI - Analyst : Thank you, Jeff, if I may, I feel like we're putting less of an emphasis on black box than we should be. Am I hearing because I know you're very confident in the launch profile and everything else. But ultimately, the incumbent has been on the market for a while and they don't have a black box. So I'm just trying to put that into perspective on what you're hearing and why you're so confident in the black box is not as important.

Question: Chris Schott - JPMorgan - Analyst : Great. Thanks so much. Just to for me. Maybe just another one on Zenrelia. Can you just talk about the duration of this education process? And I'm trying to get my hands around how long you think it's going to take post launch to get vets into a place where they'll understand the label and we can expect a normalized uptake? And is this a matter of this quarter? Is it something longer than that? I'm just trying to get some sense there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 12:00PM, ELAN.N - Q2 2024 Elanco Animal Health Inc Earnings Call My second question was just on the guidance update and the flow-through of the sales upside to EBITDA. I think you mentioned higher manufacturing losses and then some of this increased investment in the product launches. I guess what's the mix between how much of its investment versus manufacturing and what's happening on that manufacturing side?

Question: Chris Schott - JPMorgan - Analyst : Chris, thanks for the question on the back half guidance. Very pleased with the Q2 beat that was primarily driven by underlying strength of sales in the business. There was some timing of OpEx between Q2 and Q3. But primarily, as we go into the back half, there is some additional headwinds in manufacturing with some additional losses on some of our vaccine supply that's hitting us. The other element really becomes investing behind these launches. We're going to continue to invest in Zenrelia. We're also going to be investing in Credelio Quattro but now given our update in June, we won't have any revenue from Credelio Quattro in 2024. The other thing to remind folks of is we're really excited for Bovaer. We've got that set up. We've got 500,000 dairy cows on uplook which is the critical element to be able to measure the methane. But as we've noted before, gross margin for that product is well below the corporate average because of a high-cost manufacturing process required. And because we brought this product to the US two years earlier than expected, the use of a different manufacturing process that significantly reduces cops won't come into play. So those are the things that are driving it. But fundamentally, the base business continuing to perform well as innovations driving portfolios across the world.

Question: Erin Wright - Morgan Stanley. - Analyst : On Zenrelia and apologies for another Zenrelia question here But just in terms of the safety warning, presumably, you do have to time it around the administration or trying the administration around vaccines. I guess how much of the chronic market can you capture with that in mind? And just how do you ensure stickiness, loyalty kind of for the product if you couldn't use it year round, for instance? And is it geared more towards seasonal, chronic, how do you think about the omnichannel approach? You can definitely leverage your experience there but there's also auto ship with online pharmacies and that kind of stuff that there may be some caveats there. And then could you clarify for us that the label and other geographies will it have a similar safety caveat involved? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 12:00PM, ELAN.N - Q2 2024 Elanco Animal Health Inc Earnings Call

Question: Erin Wright - Morgan Stanley. - Analyst : Okay. And then my follow-up's on the retail channel, just how tightly are you keeping an eye on inventory levels there? It sounds like you feel comfortable that things normalize here in the second half? And just given your exposure to over-the-counter products, what are you seeing in terms of the consumer in terms of trade down or any sort of consumer softness at retail.

Question: Brandon Vazquez - William Blair - Analyst : Hello, and thanks for taking the question. Maybe I'll switch. We haven't talked about Farm Animal yet and US Farm Animal was actually really strong. Can you just give us a little bit more detail what was going on there? Were there any one-times in there? I think there was a comment in the press release about resupplying of vaccines. So basically, just trying to get at what's the strength and how durable is at level of US Farm Animal as we go through the rest of the year in '25. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 12:00PM, ELAN.N - Q2 2024 Elanco Animal Health Inc Earnings Call

Question: Brandon Vazquez - William Blair - Analyst : Great. And then maybe I'll take a shot and see if there's any other pipeline updates that you guys are willing to give beyond Zenrelia and Quattro at this point. On the IL-31, any updates on your discussions with the FDA thinking as we're getting closer to 25 years, is there like a first half, second half kind of approval that you're timing for? And then if there's any other segments within the R&D pipeline that you guys would be willing to discuss that would be helpful.

Question: Balaji V. Prasad - Barclays Bank PLC - Analyst : A couple of questions from me. Firstly, on the competitive dynamics side. I think you called out compaction and parasiticides on pain. Could you quantify the market share loss, if any, for each of these segments? And how have the brands been impacted example, is Galliprant just losing market share alone? Or are you seeing a decline in absolute number, that's one. Two, maybe stepping up a bit more on the Farm Animal side, considering the strength that we have seen in it, I'm curious to see how macroenvironment is impacting inflation rates how are they influencing distributor behavior? And how is this different from the retailer behavior that you're seeing. Thank you.

Question: David Michael Westenberg - Piper Sandler - Analyst : Hi, thanks for taking the question. We're up at the hour, so I'll just ask one here. Can you talk about the IL-31 product in light of the different label than expected with the JAK just at least in my research, we do suggest that new patient starts tend to be on Cytopoint rather than Apoquel, at least in the US So does the different label change your strategy versus before when it comes to the IL-31 product marketing, et cetera. And then in terms of differentiation, I know Kindred used to really focus on half-life extension technology. Any other thoughts on what that could be? I realize you probably don't want to get too far ahead on that but I'm going to at least try.