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Elanco posts 3% revenue growth in Q4 as stand-alone company

Elanco Animal Health Inc. posted a 3% increase in core revenue growth to $754 million in its fourth quarter as an independent entity, led by new product launches and recent pipeline-expanding deals across the companion animal and livestock categories.

Amid rumors that Elanco is eyeing a purchase of Bayer AG's animal health unit, executives declined to confirm a deal during an Aug. 13 second-quarter earnings call.

Instead, the executives highlighted 9% growth across key business segments, including companion animals, aqua and poultry, which made up 62% of the company's revenue. Eleven newly launched products grew by 45%, making up 14% of revenue for the second quarter.

Elanco, which completed its spinoff from Eli Lilly and Co. in March, narrowed its full-year guidance for revenue and EPS, citing African swine fever-related difficulties.

The Greenfield, Ind.-based company's stock was trading up about 3.1% to $30.59, as of 9:59 a.m. ET on Aug. 13.

Companion animal growth amid livestock issues

The companion animal business was strong in the second quarter, with pet disease prevention up 6% and therapeutics growing by 26%, Elanco CEO Jeffrey Simmons said on the earnings call. Parasiticide products such as Credelio and Interceptor Plus were credited with driving growth, as was osteoarthritis treatment Galliprant.

Galliprant, marketed for dogs, has been forecast to pull in $88 million in revenue in 2022 and could pressure animal health giant Zoetis Inc.'s competing anti-inflammatory chewable Rimadyl, Stifel analyst Jonathan Block said.

Zoetis still holds the lead in parasiticides, even though Elanco has the "broadest solution" to seven main parasites between Credelio and Interceptor Plus, according to Simmons. The analyst acknowledged that Elanco will likely not be first in class as innovation occurs in parasiticides; Zoetis announced a triple-protection single product during its earnings call, for which Elanco does not have an answer.

During the call, an analyst asked about the potential in the feline market, where Zoetis is preparing highly anticipated product launches. Simmons said kidney failure in cats is an area of opportunity for Elanco.

"Our pipeline is lined up and going after those targets," Simmons said.

Livestock, meanwhile, took a more sour note in the second quarter, as Elanco reported a worsening African swine fever situation that has led to decreases in swine production. The disease, a viral infection that causes hemorrhagic fever and high rates of death in domestic pigs, has spread from China to other countries including emerging Eastern European countries.

While increased poultry and beef production, as well as external pork supplies, may somewhat lessen the impact, full relief from the pig disease is not expected in the near term, according to Simmons.

Still, executives pointed to the C$78.5 million acquisition of Prevtec Microbia Inc. announced earlier in August, which centers on developing new pig products, namely antibiotic alternatives like vaccines and nutritional health products.

Analysts questioned the impact of alternative proteins, such as plant-based products. Simmons noted that the alternative meat industry will be valued at approximately $6.5 billion by 2023, compared to an annual growth rate of $10 billion to $20 billion per year in the meat industry for Elanco alone. But the CEO said the larger concern is the increasing population's shifting diet.

As such, Elanco's focus as an animal health company is on the health and well-being of animals and their impact on the environment and the person, Simmons said.

M&A rumors

Multiple analysts pressed for answers on Elanco's supposed potential acquisition of Bayer's animal health unit. Elanco has not officially announced a deal, and Simmons would not comment.

However, Simmons did emphasize Elanco's focus on being in "execution mode," particularly in the company's use of cash. CFO Todd Young pointed out that Elanco paid out $50 million of debt on its term loan during the second quarter, and $60 million of cash was used in the Prevtec acquisition.

"Our focus is on standing up as an independent company," Simmons said.