JP Morgan Healthcare Conference January 14, 2020 - Jeffrey Simmons, CEO
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JP Morgan Healthcare Conference
January 14, 2020
Jeffrey Simmons, CEO
Disclaimer
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.
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco 2
Today’s Agenda
2020 & Beyond
Animal Health
Advancing Our Progress Toward Confident,
Strategy in a Building a Balanced
Compelling Industry Global Leader Outlook
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco 3
Industry Leader with Significant Value Proposition
Our Vision: Food and Companionship Enriching Life
Dedicated
Established in
Innovation
1954 Animal Portfolio of An
to Drive
Health Durable Execution
Targeted
IPO in
Product Brands Story
2018 Growth
Company
Acquisition Expected to Create the #2 Leader in a Highly
©2019 Elanco and its affiliates.
Attractive $34B Industry
1 Based on 2017 revenue.
4
Animal Health: Compelling, Durable Industry Fundamentals
$34B CORE TRENDS
EMERGING COMPANION ANIMAL TRENDS
~4%
Animal
Well-being Pet owners making more pet care decisions … while vet
relationships remain central to pet health
Growing middle
class worldwide
~15% e-commerce growth in U.S. … omnichannel
2018-2023 Companion Food presence will be a differentiator
Growth1 Animal Animal
High Revenue growth in emerging markets … global and
1 in 3
local leadership imperative
pet
ANIMAL
Increasing
ownership get wrong nutrition Increasing compliance and medicalization rates globally
Pets living up to
HEALTH ~ 75%
Increase in
EMERGING FOOD ANIMAL TRENDS
20% longer protein demand
Emerging markets driving protein growth
Growing
Overusing
pet spend resources Growth from nutritional alternatives
40% 20%
Increasing focus on bioprotection
of U.S. pet medications lost to death and Trade dynamics uncertain
purchased outside disease, focus on
the clinic productivity
Significant innovation ecosystem evolution
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco 5
1 Global animal health industry revenue is expected to grow nominally at a CAGR of 4.2% from 2018-2023, according to Vetnosis.
Advancing our IPP Strategy: Progress and Proof
Sustainable Flow of Innovation Driving Portfolio Growth
• Portfolio of 14 newly launched or acquired
• Targeted Growth Categories
products since 2015 driving growth
growing double digits; now >60%
• Novozymes and AgBiome R&D collaborations of total revenue
• Integration of Aratana and Prevtec pipelines • Geographic and molecule
• Focus on 6 key platforms, aligned with targeted expansions extend brands
growth categories THE
CUSTOMER • Acquisition of Aratana; launch of
specialty sales force
• Acquisition of Prevtec,
strengthening antibiotic
Unlocking Value alternatives portfolio for swine
• 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
Multiple levers to deliver value in a dynamic industry
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
6
©2020 Elanco
Animal Health
Transaction announced August 20, 2019
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco 7Acquisition Expected to Create the #2 Player in Animal Health
Food Animal Sales Companion Animal Sales
$5.8
$4.7
$4.7
$2.6 $4.2
$2.2
$2.1 $1.6
$3.11
$1.1
$1.7
$3.2
$2.5 $2.6 $2.6
$1.1
$1.9
$0.6
Explorer
Note: Leading animal health players by 2018 reported sales. $ in billions. Bayer & BI sales converted to USD
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates based on 2018 average EUR-USD exchange rate of 1.18. Numbers may not add due to rounding.
©2020 Elanco Combined 2018 full-year revenues for Elanco and Bayer Animal Health include revenues for products that may 8
be divested in connection with the acquisition, including both Osurnia & Capstar.
1 Total Elanco revenue includes revenue from strategic exits.Building a Leading Animal Health Company
Sustained Top-Line Growth
Diversifies Portfolio Mid-single Digit Growth1 Elanco + Bayer 5-year CAGR
Expected to double companion animal business,
balance mix, enhance emerging markets 17 Growth Portfolio Products2
Strengthened omnichannel leadership
Accelerates Productivity Expanded Innovation Engine
Reaching our goals earlier, creating room for more
50+ Development products + LCM opportunities
Scale, new platforms and capabilities
Expands Innovation
Robust pipeline; increased scale, platforms and
capabilities Strong Profitability, Room for More
1,000bps of Adj. EBITDA margin expansion (~21% to
31%) from 2018-2022 – one year earlier, additional
Leader in attractive global market opportunity beyond 2022
Two dedicated AH product companies; one
infrastructure Double digit Adj. EBITDA Growth1
Adj. EPS3 accretive in Yr 1; increases annually
~$1B of Operating Cash Flow by Yr 2 to enable rapid
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates delevering
©2020 Elanco 9
1Compounded 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.Transaction Financial Summary
• Transaction enterprise value of $7.6 billion1
Purchase Price • 70% cash and 30% equity to Bayer
• Committed financing for the cash consideration
• Purchase price financed by:
Financing Structure • $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
• Run-rate cost synergies of $275mm to $300mm by 2025,
Expected Synergies coupled with one-time costs to achieve
• Mid-single digit % expected in first full fiscal year post-close
EPS Accretion • High single / low double-digit % expected in 2022
Anticipated Closing • Transaction expected to close in mid-20204
1Based on $5.32bn cash consideration and $2.28bn stock consideration, each subject to adjustments as
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates set forth in the purchase agreement. 2 Elanco’s volume weighted average share price for the 30 trading
©2020 Elanco days ended 06-Aug-2019. 3 Subject to customary purchase price adjustments. 4 Subject to customary
10
conditions and receipt of regulatory clearance.Deal Trending In-line or Better Than Expectations
Animal Health
Business Integration Antitrust Transaction
Performing Focus Advancing Key Events
• Q3 YTD results in line • Dedicated and • Received clearance from • Financing bridge
with robust diligence experienced internal China competition commitment secured
and external team authority on Jan 9. ’20
• Received U.S. FTC • On track to access
• Synergy expectations Second Request Dec ‘19 capital markets
remain intact
• Announced intended • Plan to optimize
• Focus on future state disposition of Osurnia & financing mix based on
design and successful Capstar; total divestiture market
Day 1 revenue expected to be
between $120-140 million
Deal remains aligned with diligence; Closing on track for mid-2020
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco 11What to Expect:
- 2020 Guidance
- Long-term Outlook
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco 12What to Expect: 2020 Guidance
Full Year
Guidance 2020 Guidance Reflects:
Total Revenue $3.05 - $3.11 bn • Revenue growth of 1% to 3%* for Core
Elanco, despite anticipated competitive and
external events
Core Revenue $3.00 - $3.06 bn
• Momentum from new products and targeted
Strategic Exits Approx. $0.05 bn growth categories, particularly aqua and poultry
• Continued profitability improvement
EPS (GAAP) $0.04 - $0.16
• GAAP EPS includes investments supporting
EPS (non-GAAP) $1.09 - $1.16 stand up and integration, amortization of
intangibles
Will update guidance for combined company after Bayer AH close
*Represents constant currency growth for Core revenue, which excludes revenue from Strategic Exits.
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
NOTE: All guidance elements reflect stand-alone Elanco and do not include any revenues or expenses from Bayer Animal Health.
©2020 Elanco
Includes full-year revenues from Elanco assets that may be divested. EPS does not include additional shares issued as part of Bayer
13
purchase. No other Bayer-related financing actions included (such as incremental interest expense from new debt)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
African Swine Fever
($60M - $90M) $90M - $130M
~2% - ~3% Growth Headwind ~3% - ~4% Growth Opportunity
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco 14
NOTE: All guidance elements reflect stand-alone Elanco and do not include any revenues or expenses from Bayer Animal Health.Moving from Strength to Becoming a Leader
• Moving with speed and agility, making tradeoff and key investments
State of Elanco • Advancing innovation that is robust, novel and valuable
Speed, Agility and Execution
• Significantly improving our profitability
• Driven by new products, attractive segments and positive industry fundamentals
State of Growth • Positive Revenue growth every quarter since IPO
Durable and Resilient
• Resilient in the face of environmental and competitive challenges
• Antitrust advancing ahead of expectations – clearance received from Chinese
State of Bayer AH Deal competition authority on January 9, 2020
In-line or Better Than Expected • Integration planning and business case is solid
• Business performance and transaction activities on track
• History of transforming, innovating and growing
State of Our Journey • Performing now as an independent company
Building for Long Term Leadership
• Building an industry leader for long-term value creation
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco 15Building for the Next Era of Growth
2015-2018 2019 2020 Beyond
Transforming to Executing Pure Building for the Targeting Next Era
Independence Play AH Model Future of Growth
• Top 4 AH company, 2% • Standing up fit-for-purpose • Target margin improvement & • MSD top-line in line with
topline growth organization persistent pipeline flow durable industry
• Strategic portfolio • Productivity initiatives & • Growth expected from recently • Omnichannel pioneer with
diversification restructuring actions launched products to counter key retail capabilities
headwinds
• Multiple innovation launches • Transformative M&A and • Innovation launches in key
each year complementary BD • Bayer AH deal closure & opportunity spaces
integration
• Adj. EBITDA expansion from • Forward looking actions to • Target 31% EBITDA margin
14% to 21% enable the next era • Combined company takes and path for more
shape
Integrating Strategic Business Development
Current period of investment and action with a goal to solidify Elanco’s
positions as a global leader with a balanced portfolio
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco 16©2019 Elanco or its affiliates
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