Elanco Animal Health Incorporated

Good morning. My name is Rob and I will be your conference operator today. At this time, I'd like to welcome everyone to the Elanco Animal Health's third quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press the star one. Thank you. Katie Grissom, Head of Investor Relations, you may begin your conference.

Good morning. Thank you for joining us for our Lanco Animal Health third quarter 2022 earnings call. I'm Katie Grissom, Head of Investor Relations. Joining me on today's call are Jeff Simmons, our President and Chief Executive Officer, Todd Young, our Chief Financial Officer, Ellen DeBrobender, our Executive Vice President of Innovation and Regulatory Affairs, and Scott Perucker from Investor Relations. The slides referenced during this call are available on the Investor Relations section of elanco.com. Today's discussion will include forward-looking statements. These statements are based on our current assumptions and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from our forecast. For more information, see the risk factors discussed in today's earnings press release, as well as our latest Form 10-K, and 10Q filed with the SEC. We do not undertake any duty to update any forward-looking statement. Our remarks today will focus on our non-GAAP financial measures. Reconciliations of these non-GAAP measures are included in the appendix of today's slides and in the earnings press release. After our prepared remarks, we will be happy to take your questions. I'll now turn the call over to Jeff.

Thanks, Katie. Good morning, everyone. In the third quarter, the Elanco team executed well on the controllable aspects of our business. Starting on slide four, we continued to drive progress on our innovation portfolio and productivity, or IPP, strategy, demonstrated by the momentum in our pipeline and the productivity we delivered. Through relentless execution on our productivity agenda, we delivered 5% growth in adjusted EPS and expanded adjusted EBITDA margin by 120 basis points, despite a 4% constant currency sales decline in the third quarter. Adjusted EPS and adjusted EBITDA were both above the midpoint of our guidance. However, in the quarter, we saw most of the same macro concerns we called out in August worsen compared to our expectations. The U.S. dollar continued to strengthen. China's COVID lockdowns did not improve in the quarter, and the global economic slowdown accelerated impacting Europe and the U.S. pet retail OTC markets. Despite these macro pressures, Elanco progressed the controllable initiatives that will drive our future growth and value. On the R&D front, we initiated a submission to the FDA for our broad spectrum parasiticide. Our finalizing a submission for our JAK inhibitor dermatology product expected before the end of the year and are advancing our IL-31 short-acting monoclonal antibody in dermatology toward a submission in the first half of 2023. With these three products, plus our parvovirus monoclonal antibody and Xperia, we see a path towards having five potential blockbuster products approved in the US by the first half of 2024. Additionally, We expect approval for at least three new OTC pet retail products in 2023. On the debt side, we paid back nearly $170 million of gross debt in the third quarter, with gross debt pay down of $500 to $525 million expected for the full year. Finally, we've accelerated our plans for go live on the Bayer systems integration by one quarter to early Q2 2023. Our pipeline and productivity efforts exceeded expectations this year. Importantly, Elanco's held market share in line with our expectations in certain markets. Pricing increased in the third quarter with 4% growth in pet health and 3% growth in farm animal. And we expect two points of top line growth from price for the full year. We believe price growth and sustained market share are key during challenging environmental conditions, and Elanco is executing on these. Despite our success on the controllable aspects of our business, the worsening economic conditions and less than expected improvement in China has led us to reduce our financial guidance for 2022. You can see the drivers detailed on slide six, and Todd will provide more information later in the call. Before turning the call to Ellen and Todd, I want to address Soresto. Since the initial story about the product was published in USA Today about 18 months ago, Elanco has worked vigorously using a science-based approach to address and defend the safety profile of Seresto. Numerous studies, detailed pharmacovigilance data analysis, and expert evaluations overwhelmingly support the safety of the product. We know the EPA is finalizing their review of data and analysis for Seresto. We look forward to collaborating on brand stewardship and oversight for Seresto as the product provides a safe and affordable solution to protect pets from fleas and ticks, which can transmit diseases to both pets and people. Elanco is in active communication with the EPA on brand stewardship and oversight opportunities. Elanco is as confident as ever in the continued registration of the product. While the routine registration reviews of the active ingredients in Seresto remain ongoing, we do not believe these evaluations will result in any changes in pet product uses. Given the sustained value and efficacy provided, we expect Seresto to stabilize in 2023 and continue to be Elanco's largest individual product. Now let's transition to the driver of Elanco's future growth innovation. Dr. Ellen de Brabander, our Executive Vice President of Innovation and Regulatory Affairs, joins us today. Over the last year, Ellen has leveraged her experience and expertise to integrate and reshape our R&D organization, implementing a disciplined approach to prioritize the portfolio and optimize resource allocation. Today's call further demonstrates proof points. that Elanco is creating a disciplined and reliable innovation capability positioned to deliver consistent innovation that addresses unmet needs in the animal health marketplace. Under Ellen's leadership, this team has delivered remarkable progress on our late-stage development products and advanced new early-stage programs from research into the development phase, which supports the longer-term innovation opportunity. With that, I'll turn it over to Alan.