JP Morgan Healthcare Conference January 14, 2020s1.q4cdn.com/.../Elanco_JPM_Presentation-vF.pdf ·...
Transcript of 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
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©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.
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©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
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Animal Health: Compelling, Durable Industry Fundamentals
5
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
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Advancing our IPP Strategy: Progress and Proof
6
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
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Animal Health
Transaction announced August 20, 2019
7
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Acquisition Expected to Create the #2 Player in Animal Health
8
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
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©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
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©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
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Deal Trending In-line or Better Than Expectations
11
• 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
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
What to Expect:- 2020 Guidance
- Long-term Outlook
12
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©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)
13
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©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.
14
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©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
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©2020 Elanco
Elanco and the diagonal bar logo are trademarks of Elanco or its affiliates
©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
©2019 Elanco or its affiliates