Elanco Animal Health Inc (ELAN) September 22, 2026 Conference Transcript

Good afternoon, everyone. Welcome to the day one of Bank of America Healthcare Conference in London. My name is Lu, and I am part of the U.S. Life Science Tools. And we are very fortunate to have Jeff Simmons with Lungo Animal Health, President and CEO. And I guess maybe Jeff has some statements to begin with, and then we can go from there.

Yeah, well, obviously note the disclaimers that we normally do in a conference like this, thanks to Bank of America. It's been great to be in Europe with a lot of our customers and traveling to a lot of our operations here and to have the opportunity here with investors. So thanks for the interest. You know, I would just make a couple comments. I mean, we noted our eighth year anniversary as an independent company coming out of Lilly on Friday. It's been a very intentional journey as we've stood up, as we've acquired Bayer, as we've built an omni-channel, built a pipeline. We've been very focused the last three years, especially, on growth innovation cash. We just finished a great quarter where we delivered 10% reported growth that came from FarmPet for a 50-50 split. U.S. International, 50-50 price volume. So we really had high quality growth that came from the quarter. I think that the second priority is all around innovation. We've got a basket of six innovations, six blockbuster products that are in big markets where we're in early days, but we have a clear differentiation. We believe medical differentiation that's taking really great share. Sanrelli, Quattro, Xperia, across a lot of markets. And now, as I'm out here traveling, we're just starting to globalize those innovations. And then third is cash. We've de-levered the company. After acquiring Bayer, we were six to seven times levered. We will be at approximately three times by the end of the year, headed into the two times next year. We know that will unlock even more investors. And then in December, we had an investor day to talk about the next three years. We've been a steady beat raise per quarter the last three years. The next three years, we have an algorithm where we've committed to mid-single-digit revenue, high-single-digit EBITDA, low-double-digit EPS, a billion dollars of cash created between now and 2028, margin expansion to occur year upon year, and the delevering that will get us into the two. So, and then a pipeline. Today, we have a pipeline, you know, a basket of six innovations we're launching, but we have 15 projects in clinical development now that are blockbuster potential products. We've had no attrition since December, and we're committing to five to six coming through that pipeline of those 15 between now and 2030. So that's a little bit of a summary. Growth, innovation, cash, last three years, next three years, durable. We've seen good response from the market, and we're in a really good place. I think Animal Health is a $40 billion industry, had to do a $60 billion industry. So we're not only going to get market share growth, but we really like the market growth.

Great. That's a great starting. So you put out a press release last week. Some mentioned the price gain, quarter two today versus Q2. Maybe we can start from that there, given that the pricing has been a big topic for the quarter. Can you maybe just talk a little bit about that, and how do you think about the pricing dynamic in the market right now? What do you see in the market, especially from the competitor actions?

I think we've got to stick with facts here, right, and what's happened. So first of all, Animal Health last year grew 7%, 10% in farm, 5% in pet. First semester this year, first six months, we grew 2% in price and growing high single digit overall in the business driven by innovation. 10 of the 12 companies in animal health grew in the first semester. Most all the major markets globally grew. So Derm, Para, Pet, Farm, all grew. And so I start with just that growth overall. When you look at specifically price, price is definitely correlated to value in our business. So what we're seeing is we announced in that release that in July and August, our price is actually accelerating. And we're seeing that because of the medical differentiation we have in markets that matter to pet owners. And pet owners today, we surveyed at the end of May, 1,400 pet owners in the U.S., and 86% said we will spend the same or more for health. There is a backing down on food, supplements, hard goods, but not for health. So if you've got medical differentiation, we're proving that we can take price. We're seeing that. We see a responsible market. There's no price war going on. There's always targeted promotions, probably more with corporates than general practices. With differentiated innovation, you can take price and take share.

That's great. I guess you talk about the channel between the corporate and general. Do you expect to change in the next, like, maybe several quarters, given that contract doesn't be new, or at the same time, you're probably going to see a little bit more dynamics in the future? Yeah.

You know, I'm meeting with some corporates here, and Europe is here as well. I think the corporate market in the U.S. and U.K. are the primary corporate markets. So today, about a third, a little less than a third of the clinics. There's 30,000 clinics in the U.S., a little less than a third are corporate or conglomerate group purchasing, and the U.K. is probably a little higher than that. But what I would tell you is we are very under-indexed with corporates, and so I think the big message on Elango is corporates are an area of opportunity, but it's not a market that we need to drive growth over the next few years. So I think that corporates, just like other practices, they want differentiated medicine. They want the itching dog to stop itching. They want the ticks to be taken care of. And that's where we're spending a lot of time is medical differentiation and building brands with pet owners. When pet owners want their brands, and today they're walking into a vet clinic, is more aware and have more information than they've ever had. That puts us in a good position. So I would back up though. I think what's more important is we acquired Bayer six years ago to do something that is now playing out really well. We bought Bayer because they had OTC products and pet health. One third of pet owners don't go to the vet. And they buy OTC. That market continues to grow really nicely. Elanco is one of the only companies in that market. And so Chewy, Amazon, Walmart have become, you know, we are the number one animal health company to them. And that's probably the more price sensitive. So we can offer more pet owners, more products at more price points than any other company. So we're able to address even parts of the market that might be a little more price sensitive.

Okay, that's very helpful. So let's move on to more the product category-specific pair. Quattro has been pretty strong performance so far. I'm wondering, what is really driving the growth, and then how do you see that going?

I have to stop on Quattro and just say, because I know there's a lot of, you know, investors that spent a lot of time in pharma. I was an officer for Lilly. I was inside of Lilly running animal health, but for 10 years as inside of Lilly. And so I had an opportunity to have a front row seat as the GLP ones were being developed and everything, but to contrast human and animal health. But there is one common barrier, one common thread, and it's not only is it regulated and science-based, but medical differentiation matters. And people will pay for medical differentiation, whether it's for their animals or for themselves. And that really matters. So what's happening today, and I will say 30 years of growth in animal health, we've grown for 30 years in a row, 5% to 6%, 2% price. This is one of the most durable industries that exists today. I think it's really important, Lou, to emphasize when someone enters a market with something differentiated, it takes share. And Quadro is taking share. With mostly just in the U.S. business right now, we've picked up more than 50% of the clinics. So it's the fastest blockbuster we've ever created in 71 years. And it's because it has four dimensions of differentiation. It's the only pill you can give a dog for parasites that has four active ingredients. It covers the broadest coverage with tapeworm. It has the fastest tick kill. Compared to another competitor, it controls heartworms on month one, not through month six. And it's palatable. People best want the dog to be able to take it, not roll it up in bologna or peanut butter. Five dimensions of differentiation that we see, we believe we've got best medicine. We've captured half the clinics in the U.S., and it's moving to first-line treatment. This will be Elanco's biggest drug we've ever created in 70 million years. It's in a $6 billion paramarket, $2 billion oral. Now, that $2 billion, we believe that now we're in early innings. We've said we're over $100 million, but we're really early with what we think of investments. Yes. And it'll be, if people have asked me about international today, we'll start to roll it out internationally. We hope to bring it here to the UK and Europe next year. So it will be a growth driver in 2027 as we take it internationally.

I guess, like, sticking to that point, there were so many different individual markets in Europe. You've recently been to Brazil as well. So maybe just talk a little bit about what is your international strategy? How do you, like, attack, kind of, like, each of the markets?

You know, Bayer gave us scale, and R&B gave us scale in all the affiliates. So we're in all the major countries. We would say today, we have the right, let me say SG&A, we've got the right S, we've got the right sales organization. We really don't need to. We've been building it for other innovations over the last five years. So we've got the right sales force in all the major countries. Thank you. Europe, Japan, Australia, U.S., Canada are the big ones. The emerging markets like Brazil and others, East Europe are growing. So we've got the right sales. It will be the promotional activity. Where our spend will come will be more in marketing promotion. So, but no, we've got the right infrastructure. We're rolling it out. Zenreli is a great success. We have brought Zenreli as fast as any product to the other 40-some countries, and it's doing extremely well.

That's a good way to pivot to Darm. So, the first line uses has actually increased from, like, below 20%, and then right now from, like, more than 40% of the users, just in one year. Um, so how do you, so what is really driving the shift to prescribing behavior and how much one way that you expect that to continue?

So you've got, let's just back up, back to the, hey, our market's growing, what's happening in animal health. This is one of the most attractive markets in all of animal health. An itching dog is the number one reason people go to the vet. But it's, I kind of say, the only way the animal can, the one thing an animal can self-diagnose, but it is what vets have to do. If you think about an itching dog walking into a clinic, and I've had it with my family, it's like, get that dog to stop itching. So efficacy prevails. If the dog keeps itching, what it'll say is, hey, they will change vet after the second visit. If the dog doesn't stop itching, they will try something else. So this market is two and a half billion. Internationally, it grew 9% in the first half. So it's an unsatisfied market. And so Zanrelia has come in and very quickly taken share. And the reason so, I've never seen, like I was in Brazil, we were over 50% market share in 18 months after two incumbent products have been there over a decade. So why? Because if you stop itch, in our press release that we put out last week, we also, and I shared on the news this morning, this hotter weather in Europe, tall and up, itching has actually, the season has gone from three or four months to five, six, seven months. So the season's expanded with the weather change. The itching dog matters, and Zanrelia has become a product that has high efficacy. It started as maybe second-line treatment. It is now in over half the clinics in the U.S. 40% of those are using their first line, and we see those numbers climbing. I mean, we're picking up 400 to 500 clinics a month from usage, and that's been a big part. We're in 44 countries outside the U.S. Here in Europe, there's another competitor that's come in. We launched at the same time, and we announced in that press release, we picked up 10 points more of market share in the first half here in Europe, while the new competitors picked up two. So we like our efficacy, and now we're coming with another product of Brenna in the U.S., which will be two products at this point.

How do you expect those two products to kind of work together?

You've seen about a 60-40, 70-30 split of the JAK product, the pill you take home, to the, what we kind of say, you know, the allergy shot that lasts four to ten weeks. But Frenna has some differentiation to the product that's in the market today. So it's a monoclonal antibody, and the label in the U.S. is six to eight weeks of control compared to the incumbent, which is four to eight weeks. So surveying the U.S. veterinarians, 85% said they want that product. The demand is far surpassed supply, so we're ramping the monoclonal antibody supply to have full supply first half of next year. So, it'll be a big growth driver in the U.S. next year. So, if you think about a $2.5 billion market, 30% to 40% of the market is fast. The other is the Zen Raleigh, the Jack market.

Is that the manufacturing capacity, though, like slower than you expected or just in line? Or like, how should we think about that? Like, are you worried about you're not going to have enough capacity or like vice versa?

Yeah, it's a good problem because, you know, right now we're 24-7 manufacturing for Zanrelia, and we're ramping against a bigger demand line. We're a year out forecasted demand now. There's a lot of people that want Bafrena right now. And remember, the other two major competitors in animal health don't have the monoclonal antibodies yet. So we're the second company that's come and we've got them differentiated. So, manufacturing is common with maps to scale the bioreactors. So, we've gone from the 200 liter to 2,000. We're scaling to the 5,000. Things are tracking nicely. It's just more of a demand problem than supply.

Back to Sanverio, I think you have an FDA submission plan. There was a potentially label update. Maybe just talk a little bit about that, and then what will become the impact on it?

Yeah, so we're in, you know, let's keep adding countries. We're in around 45, 46 countries today. We have a clean label in all international countries, including Canada. U.S. had a box label on it where trials were required to be at three times the dose with vaccine-naive dogs, and the titer reaction was the question. So we ran a booster study that's been helpful to a lot of veterinarians. We've gotten rid of fatally induced with PCR data. Now we're running a trial to continue to improve. We should finish that trial at the end of this year, which would put us on pace for a six-month review. Middle of 27, we could see further, you know, changes to the label, potentially, middle of next year. But I step back and say we're 24-7 manufacturing. It's probably the fastest growing product we've ever had in seven decades as a company, and it's a market that is growing. So people, I think what's probably misunderstood about Elanco is even with all the questions about animal health is we're early innings here. We're, you know, $100 million in on a $2.5 billion market growing at 9% with two differentiated assets. And the same with Quattro, a $2 billion broad spectrum in Decto market still growing globally. And we're $150 million in with what we believe is best medicine. So we're set up well, and we'll scale the manufacturing and continue to support the products.

Maybe stepping back, I think in the U.S., there are lots of concerns on the web visit, utilization trend, that kind of stuff. Are you worried about dog versus cat dynamics? Maybe just talk about what is the long-term market growth for this market.

Yeah, so pet is 40% of the animal health market. Farm animals still 60%. The rest of this decade, farm animals will still be bigger than pet health. Protein, you know, revolution that's going on with everyone wanting more animal protein that continues. I start there. Then in pet, you know, one third of the pet market is pet retail. We play there, most of our competitors do not. Now we're down to 20-25% of animal health, which is pet-fed. We've seen flat dog numbers. We've seen cat numbers in the U.S. We've seen 70% of new puppies outside the U.S., and actually dog and cat numbers are growing outside the U.S. The vet visit, we believe, is more of a change of behavior of the pet owner. Pet owners are not going to the clinic to purchase as much as they're going online. They're still going to the vet. The vet's important. But, you know, growth of online ordering is two times the growth of inside the clinic. So we see purchase visits down, but non-wellness visits, an itching dog, a dog with pain, a dog needing surgery, visits are actually on.

What would be your pricing strategy on different channels, like one on the ads and then the other online? Are you going to do it differently?

Yeah, it's all product related. So if we have a topical product that's only for treatment or is in a dollar store in the U.S., that will be priced according to that value proposition. Compared to, say, a quattro, new innovation, most differentiated inside a vet clinic. So it'll all be priced relative to the product and the channel, but it's more product-driven than it is channel-driven.

Let's switch into farm, because I feel like that is really not getting the attention that they should be. I mean, it's 50% of business. I wonder, maybe just like, same question, high-level, what is the driver? Everyone wants protein, beef, or like any other kind of like meat that you think will be kind of like a bigger market or whatever. Yeah.

So look, I think that it all starts with an underlying demand for animal protein. I spoke in London five years ago, and all the questions were on Impossible Burger, Meatless Mondays, veganism, animal protein is coming to the end. It has absolutely flipped. Totally the other way. Why? Why? Taste, cost, nutrition. The plant proteins didn't win in the taste category, the cost category, or the nutrition category. There's been a wellness movement the last five years, and it is attributed to the first time, this data point's an important one, the first time in 30 years that farm animal outgrew pet health. Farm animal grew 10% last year. I'm talking the industry. And that grew five. So chicken, Rob O'Bank will say chicken numbers are up 3%. Chicken is winning. Dairy is winning. Dairy cow numbers are up 4%. You might say it's a little different in Europe, but it is. And there is a beef shortage. And then I would say pork got some religious barriers, but I would say it's more regional, Europe, U.S., and China. There's three trends. Now that they've won the taste, cost, nutrition, and they've innovated. There's meat sticks, there's yogurts, there's milkshakes. Everyone needs their 150 grams of protein a day. There's three things. Wellness. Over 80% of consumers, Europe, U.S., want more protein than they did three years ago. Two is there's an aging population. The new disease, talk about even at this conference, is muscle retention. There will be 25% more people who are 60 years of age after this decade is done, and muscle retention is the big problem. The third is GLP use. GLP use has created 30 to 50% more animal protein consumption with a GLP user than not. So believe it or not, our parent company that we spun out of, Eli Lilly, their big focus is, hey, working with protein companies as well to make sure that, hey, the diet is right for muscle tension. Those three trends are driving animal numbers to be up. And so to animal health, a healthy animal as a more productive animal. We want to give consumers what they want, animals more health. Right now, there's a 20% mortality morbidity challenge with farm animal, so that people want to solve that so they can create more protein. The beef shortage is something a little different. There's a cattle problem in the U.S., but Brazil, Argentina, grass-fed cattle in Australia will make up some of that shortage globally.

So you have some double-digit growth number in the quarter. How sustainable is that?

We're not predicting. Let me go back to my algorithm of mid-single-digit revenue growth. Well, probably when we put that on December, we didn't think farm would hold its own. We thought Pat would be a little bit higher and farm. Today, we're saying we see the rest of the decade, the ability, we're number one farm animal business in the U.S. We're leaders in poultry and cattle. We think we're positioned well to say we see farm animal being really strong mid-single-digit revenue. We run it on very low OPEX. So it's got just as good an EBITDA as Pat. Pat has higher operating expenses, bigger sales forces, better gross margin, but the EBITDA has kind of come together at the end.

That's helpful. I guess, like, have you seen any gaps within your farm portfolio where you think you need to put more investment into it, pipeline aspect of it?

Yeah, so look, we've done a nice job of moving out of antibiotics, focusing heavily on giving consumers what they want, proteins, vaccines, enzymes, and been a big part of that movement, and that's helped us grow. Tomorrow, I'm going to see a new acquisition we made up in Holland, AHP. It's a nutritional health company for cattle. Cattle grew 17% last quarter, and we'll continue to have tuck-ins that will help our portfolio. Our gap, though, Lou, to your question, is vaccines. Vaccines are about 60% of farm animal. People want to vaccinate and prevent disease and use genetics and vaccinations. We are under index. Lily didn't have a vaccine, you know, at the time, infectious disease, no bar to spare. So we've had to acquire and do R&D and build that. So we're a little behind the industry on vaccines, which to us is a good runway of opportunity.

Okay. Is that your acquisition, like, interest area, vaccine will be kind of, like, a priority at this point, or, like, you think, compared to, like, U.S. pet hub?

Yeah, we'll be opportunistic. I mean, the farm's probably got a few more opportunities. I think our top acquisition opportunities are actually molecules that we bring into the pipeline, which are embedded in our R&D budget. But let me be clear on our capital deployment. It is, you know, we're going to continue to be debt focused and get it down to two, two and a half times. We've taken a half a turnout in the first six months, had our best first six months since the IPO. And so we're generating more cash today than we have since being an IPO, an independent company. But we'll look at shareholder return avenues. We'll look at CapEx should be pretty consistent, not really a step up. Debt pay down, and then we'll be opportunistic, but no big M&A. We don't see that in our future.

Okay, that's helpful. I guess another aspect of that, like, farmers are cost cautious, right? People worried about rising costs from, like, blade, transportation, anything. Like, how do you think that dynamic will change demand for farming products?

Yeah, a healthy animal converts energy into protein better than an unhealthy animal. And if the cost of the inputs goes up, the return on that conversion is greater. So right now, to most of the farm animal species, our return on investment value proposition is as strong as it's been in a long time. Every, you know, kilogram of protein matters. And so that's the focus right now. So what I would say is we work to prevent disease, and we work to convert protein from feed, and we take care of food safety, salmonella and E. coli. Those are our three big solution sets. And so today, I would say that our farm animal customers, our ROI is as strong as it's been, which has given us a little pricing power as well. I think the new opportunity is the environment. And so Elenco is the first and only company that has the two only FDA-approved products with environmental claims. And what we're doing is we're reducing ammonia and methane out of cattle and converting that also to more productivity. And that's giving consumers what they want, which is less environmental footprint, with also more productivity. That's the next $2 billion to $4 billion market we need to farm in.

That's very helpful. I guess the next one, a little bit more operational aspect, the channel investment. So there are channels that you operate right now. Maybe just talk a little bit about your strategy, just in general. Any additional investment that you want to make? Where do you see a gap? How do you improve?

Yeah, I think break it down. I think on the pet side, our strategy starting with the Bayer acquisition and bringing an OTC is we want to be where pet owners want to shop. We want to keep the veterinarian in the center. It's just like any consumer market. People with AI have more information and more awareness. They walk into a vet clinic or get online or call into telemedicine with more awareness than ever before. So our goal is to offer the right SKUs, the right product portfolio, and the channels that are necessary while keeping the vet in the center. I think that's really important. On the farm animal side, it is, you know, more access direct to farm. It's more of a B2B business and the ability to be able to, you know, reach farmers. But I would say that's much more of a direct to the farm approach is kind of the channel. We will use partners, distributors, feed companies where necessary, but today, farms are bigger, and it's much more of a B2B business.

Great. Moving on to kind of like 2027, I know you're ready to guide, but interesting to see what are the moving pieces. You mentioned their growth driver. Quattro is one of them. Maybe just talk a little bit about that. Yeah.

So I stay to our commitment of the algorithm. I think we're out there. We're guiding quarterly. Our goal is to keep the consistency of delivering and doing what we say quarter by quarter. So we'll continue to guide quarterly. We'll continue to outline every quarter kind of what's coming, what's next. So because animal health is maybe covered by a lot of analysts that cover a lot of other industries, we want to be very clear. Putting out the press releases and sharing is really important. But as you look at 27, we would say, hey, start with the algorithm of, hey, mid-single-digit top line, high-single-digit EBITDA, low-double-digit EPS. You know, our goal is to stay on that mantra. What will be drivers? But Frenna coming into the U.S. and some other markets as well. Quattro globalizing, that will be another big driver. Zanralia and Quattro and the markets they're in today, lapping as we're picking up these four or 500 clinics a month, that lapping effect is going to be quite significant, we believe. And then on the farm animal side, I think, yes, there will be some normalization back to maybe mid-single-digit, high-single-digit growth rates. We've got AHV, we've got other innovation that's come in that will be added. And we continue to believe it's a durable market. Just saw accelerating price in July and August. We'll continue to see price we've set in that 2% to 3% range. Yeah.

On the margin, and then you mentioned the pricing. Again, it's a competitive market. How do you think about, like, ability to continue to gain pricing? And then at the same time, if competitors be more gossip, how do you really protect the margin as well?

I kind of say the four things of why we see the next tranche of our stock has done extremely well the last couple of years, what will drive the stock the next couple of years. I'm just taking your question. Without question, the profile of our company is quite different. 50-50 Farm Pat International U.S. is really good. Two is we're in major markets with six innovations. Some of our competitors have one innovation in one market. We've got six. We will double those six innovations over the next three years. That will be the next transfer value. The next five to six are coming. And then margin, to your point, margin in cash. We're just like in the early markets and early share. We're in the early, early innings and the early stages of margin. So what we've committed to is we're mid-50s on gross margin. We are tracking to 60%. I'm giving an exact timeline, but we have a trajectory and a glide path to go from 55% to 60% gross margin, low 20s, headed towards the 30% on EBITDA. What will drive that is 75% will come from gross margin. On the EBITDA side, 25% will be G&A. So we see nice margin expansion in net dollars on EBITDA year upon year going into next year.

Sounds great. We mentioned quite a lot about pipeline innovation. When is the next time we're going to hear updates, details? Yeah.

Yeah. Well, please know that first, you know, exploiting the six blockbusters we have that are really small and big growing markets is number one. So you talk about my top priorities on growth, it is launch well, we'll keep spending on these products, because we see them as maybe the biggest products we've ever had. And they will be some of the biggest the industry's ever had. That's what we think of Zenrallia, Quadro, Vefrena, Xperia. Okay, that's that's one. Then I think as you look at the next, what we're saying is we've got 15 projects in clinical development. And, you know, we don't want a near pocket in innovation. And I'm confident more so today than even December when we had our investor day, we've had no attrition. Why have we had no attrition? A stable R&D team, a matrix structure built around capabilities. Ellen DeBravander, what she's done there and her team are amazing. The use of AI on the front and the back of the pipeline. And so we didn't have attrition with the six we launched. We now have 15. I'm committing to five to six by 2031. And they won't all happen in the last couple of years. So you're going to start to see a string of innovation. And they're in the big markets. They're differentiated assets. They're not a, oh, we hope to create a new market. They're going to be in the big markets.

Okay, so you're not worried about like being second or third into the market. Like, how do you pick like the big market versus like you want to be kind of like number one, create that market?

Yeah, so we're looking at that. And look, the big markets are para, derm, pain, productivity and sustainability, infectious disease. Outside of the big six, I would say then, yes, we're chasing CKD. One out of three or four cats gets renal failure. And so we're all chasing chronic kidney disease. We're chasing oncology. We need a broad spectrum, you know, oncology product that's cost-efficient. That's going to be a big market for us coming up. Obesity, yes, impacts will be a big market. And I think this environmental productivity market on the farm animal side, all of those will be future markets that we're chasing and some of our competitors are as well. But because we don't have 70, 80% share in those other big markets, we still have a lot of room to innovate in those big markets.

Okay, that's helpful. I wanted to go back to more of the margin questions, cost savings. Any specific areas that you're targeting? Right now, you have the Ascend program. Um, you were kind of like on chart to 200 to 250, um, even though saving by 2030, uh, any chance that can kind of go beyond what are the areas? Yeah. Upside.

Please know that, uh, Elanco Ascend and I'm bringing in, uh, uh, that came really from, uh, Johnson Controls and Hilton brand, a low margin manufacturing industry into pharmaceuticals. It's all about optimized margins. So while we're We're investing in innovation and launches. The rest of the company is saving. We have 5,000 projects. My top 100 leaders, senior leaders, are paid on two things, beating cost of cash on cash, so tight cash utilization, cash creation, what shareholders want, and beat last year's EBITDA. Those are the two metrics. And so what I would tell you is we're going to get kind of flat to more efficient G&A, shared service centers, use of AI, a lot more productivity. But the big one will be on the cost of our products. Bigger products are going to have higher gross margins that are going to look a lot more like our parent industry, and that's going to be able to drive a lot more margin. So look for 75% of our margin expansion to come from gross margin, which is active ingredient procurement to better plant utilization, the more efficient footprint.

Sounds great. I guess maybe just a final one here. Where do you think the Elanco story being appreciated right now? I know that previously the leverage is one part of it. Anything else that you kind of want to mention?

I think big markets are early. So in a very volatile, maybe capital markets time, animal health is durable. It continues to grow. Elanco is coming in with very differentiated innovation. In an industry that rewards differentiated innovation. And when I'm $100 million into a $2.5 billion market in Durham, I'm $150 million into a $6 billion parasiticide market, we have a lot of runway of growth. The stuff that's already approved, that's globalizing, and the same on the protein side. So I think it's our profile of our company, our early in-ins on innovation, and we're not going to hit an air pocket. I'm very committed that we've got five to six innovations that are coming to continue this trajectory for the next decade. So our commitment to the algorithm, low double-digit EPS growth is good. And then I think, look, we have de-levered the company, so that cash is going to be able to create shareholder value as well. So we're a multi-prong, you know, very compelling, I think, investment story inside the most durable industry on Wall Street today. That's my opinion.

Great. Awesome. Thank you so much for your time. Thank you. Thanks.