Elanco Animal Health, Inc. (ELAN) Presents at Evercore ISI HealthCONx Broker Conference Call - (Transcript)
Elanco Animal Health, Inc. (NYSE:ELAN) Evercore ISI HealthCONx Conference December 1, 2020 1:00 PM ET
Company Participants
Jeffrey Simmons - President, CEO & Director
Conference Call Participants
Michael DiFiore - Evercore ISI
Umer Raffat - Evercore ISI
Umer Raffat
Listen, guys, thank you all for joining us. It's a pleasure to have Elanco management with us today. Jeff, really good to see you.
Jeffrey Simmons
Great to see you, Umer. Thank you for the opportunity. Thanks to Evercore for the conference.
Umer Raffat
Absolutely. Jeff, just before we kick things off, I thought it will be a great idea to perhaps turn it over to you for some opening comments, but really to hear from you the top priorities, what's on top of your mind as we enter new year?
Jeffrey Simmons
Yes. So thank you. It's a timely opportunity with this conference just to share a few thoughts. First of all, I would say, Elanco is in heavy execution mode as we close the year. A lot of things that are happening right now. We feel very good about the fundamentals of the business, the marketplace, as we've talked about. We're making a lot of progress. And just to note a few things, I think, first, we announced today our investor conference, which will occur on December 15, 10 a.m., virtual event.
And Umer, I think we'll get into a lot of questions where I'm going to point to that conference. Our intention is to really go through our IPP strategy a little more detail, and transparency on the pipeline. Innovation is a key part of our growth. Our portfolio, our joint portfolio with Bayer. And then, of course, our productivity story around margin expansion. And we'll highlight there also just the fundamentals of how we move from sales to EBITDA to EPS to cash flow to delevering. So we also will give Q4 outlook and 2021 guidance, and we plan to do a clear pro forma so there'll be good transparency and clarity of the new company and the comparisons as we go into 2021. So I'll point to that.
I think just a couple of quick comments, I would say. We are working diligently to: number one, bring these companies together, as you know, we closed on August 1, had our first quarter of reporting in the third quarter. We restructured about 7 weeks in, with a heavy focus on the sales and marketing organizations so that we can create stability on the front line to keep a nice, strong top line that will equate that restructuring to about $100 million of synergies that we've talked about. And you'll start to see the realization of that in the second half of 2021. We went ahead and paid down $100 million of debt on our term loan as well.
And then as you saw yesterday, just continuing to keep the momentum and the progress on these key milestones is, Bayer made the decision, and we worked with them on a marketed deal yesterday, and we exited about 62 million, approximately, of the 73 million shares of Bayer ownership. That was their intent. They were not planning to be a long-term owner. So we're excited about welcoming new owners and expanded and increased owners of Elanco.
So again, I think we're at an inflection point. We're very clear and understand we've been in a pretty challenging environment with COVID and African swine fever and then the Bayer deal on top of it, but we do see ourselves, and we'll talk about this on December 15. The inflection point that we see of value creation, one of the best we think value propositions in our industry, and we're excited about that as we go into this investor conference here in a couple of weeks. So looking forward to just having a great dialogue here today. And let's begin.
Question-and-Answer Session
Q - Umer Raffat
Absolutely. Absolutely. Jeff, when I think value inflection from an Elanco perspective, the first word that comes to my mind is pipeline. Especially also because it's very clear you guys have been working on it, investing in it and sort of strategically not disclosing much of it for competitive reasons, for other reasons, et cetera, so when I hear value inflection, I always wonder, are we -- should we be bracing ourselves for a bit more of a pipeline disclosure on this upcoming Analyst Day than we've been in the past?
Jeffrey Simmons
Yes. So I think, first of all, there's high sensitivity, and we've been listening to investors very clearly. And my goal at this investor conference is to take a lot of feedback with a lot of dialogue that we've had over the last year plus with investors and really address a lot of the questions, and that's a top one, Umer, which is, "Hey, where are we at with pipeline transparency." So there is a balance of competitiveness, but we will communicate more and share more transparency on December 15. It is the lead contributor, as you know, to long-term sustainable growth in our company, in this industry, it will be. We'll reiterate and put a little more color to the at least 5 launches between now and the end of 2021. And as we've noted, the 25 new products, those included by 2024.
We'll talk about some of the market spaces that are actually -- that are big ones that are -- that we have innovation in. Everyone talks about pet health, parasiticides, derm and pain, some of the specialty therapy areas as well. As well as we think about being a retail leader in collars and topicals, et cetera. And then back over on the Farm Animal, some of the bigger spaces that we're looking at. So yes, we're going to put more color to what we have, markets that we're going into, and disclose more details. There won't be full disclosure like a human pharmaceutical company, but there will be increased exposure. And we'll incorporate how will innovation contribute to this algorithm of growth that you want to hear and clearly understand as investors that will come from Elanco.
Umer Raffat
Sure. Jeff, it's my sense that as much as there is a perception that Suarez and Merck Animal Health have so much higher growth; Elanco, not so much. But when I think back to the actual contribution to some of the growth numbers that your competitors have been putting up, it often ties back to 2 or 3 key drugs, which are really driving a lot of that year-over-year increase. So it's the presence or absence of that, which is actually the explanation behind what the growth profiles look like. And I guess my question to you is, do you see Elanco having the potential to have at least one or maybe more than one of -- launches of that order which really just is transformational, which like goes from 0 to 500 in 3 years kind of thing, which just changes like a top line growth. Do we have that over the next 24 months?
Jeffrey Simmons
Yes, I'm not going to speak specifically to a compound of a certain size, but I would say that I think what you're asking for and what we believe is most important in animal health, as you don't see many blockbusters come along. We've seen a few recently. We've had them in the day as well with the Trifexis and others. I think what's more critical is a flow of substantial differentiated innovations in market spaces that are big, that are growing, that we can assure ourselves whether it's 1 drug or it's 5 drugs of a certain contribution on an annual basis of new organic growth from the pipeline. And that's what we're going to try to put some clarity to, Umer, as we go forward in the investor conference is that assurance. Because I think everyone in this business, and I've been in it 3 decades, if you look back and you point to, will that be the $200 million, $300 million. There's not that many. We can count them almost on 1 hand, the drugs greater than $200 million, $250 million.
So yes, we all want them. Do we believe we have them? Yes, we do. I'm not going to note when and what they are. But I think what's more important to our investors is organic growth contribution coming from our pipeline on an annual basis. And that's what we're going to try increase the transparency on and demonstrate against as well.
Umer Raffat
So Jeff, just so we don't miss that expectations on this topic. The sense I get is, investors should brace for a sustained portfolio approach to pipeline to contribute the revenue expectations they have, not necessarily be thinking that one Trulicity, that's going to happen all of a sudden?
Jeffrey Simmons
That's correct. And we're not seeing the absence of, we're saying we need to be reliant on and our innovation model. When you look at a percentage of sales, our IRR and our new inorganic growth is critical, then bringing the marketing of Bayer plus Elanco to launch stronger and more consistently, that's key. And I would look to our past and say, "Hey, those 14, 15 products that we've noted and we've shown at every quarterly earnings have been big contributors to our growth." We got runway in those focused brands. We've got new capabilities like digital, pricing, more geographic spans both on the pet and farm animal side, combine these focused brands with a pipeline. I think the other thing we got to keep our eyes on is, we all have brands that we need to defend that are declining, slowing the decline of key other brands. Trifexis, we've talked about Advantage, Rumensin, that's the algorithm of growth that I just highlighted right there. So yes, your point is correct. It's a portfolio approach to innovation.
Umer Raffat
Let me turn it over to my colleague, Mike here for a second. And Mike?
Michael DiFiore
Jeff, pleasure to have you. That's a great synopsis. I just want to drill down a little bit into the specific revenue segments. On pet health, and I know there's much more to come on this at your December conference. But how should we think about the, I guess, the underlying growth rates of just legacy Elanco and Bayer right now? I remember in previous investor conferences, even on your 3Q earnings call, you said that the underlying growth for Bayer was around 4%. I believe it's about the same as legacy Elanco. I just kind of want to level set before we kind of go into the conference in that respect?
Jeffrey Simmons
Yes. Great, great reference, Michael. So let me start with the legacy Elanco pet health business. So again, when you look across both the pet therapy side as well as pet prevention that includes our vaccines as well as our parasiticides. We've seen pretty consistent mid single-digit growth. And again, this is driven by -- we've really worked hard to reference Kinetick data coming out of that clinics and EDI data that's going into clinic. So some kind of third-party data driven by brands like Credelio, Galliprant, the paring of Credelio and Interceptor Plus. So we've seen this, and we believe that our offering, that our global expansion, things like Credelio moving into cats and other geographies. Galliprant getting globalized, moving to more first-line treatment. These are all elements that we think are going to be drivers to growth. So that, I would say.
The second element is tying into Bayer and looking at the retail segment. We're now leaders -- global leaders in tick, flea, heartworm retail. You've seen, Michael, those dispensing levels being nice, strong double-digit growth rates. We're leading in those segments, that will be, we believe, a continued driver of our growth. On the Bayer side, Bayer had strong kind of double-digit, coming into COVID, growth rates, driven by just the uptake of retail and kind of a little bit of a COVID impact. We're seeing that consistent 4% to 5% growth led by Seresto. Advantage has actually grown, that's not what we expected in our Bayer business case, but we're seeing nice growth with those brands led by retail. So that's a little bit of the level set coming in. We know we've got some competitive pressure with a backdrop of our omnichannel leverage and some innovation. So that's a little bit of a level set going into the investor conference.
Michael DiFiore
Got you. That's very helpful, Jeff. And just to kind of drill down on that a little bit. I'm sorry, Umer, I didn't let you guys up to add...
Umer Raffat
No, I was going to ask to the point you mentioned, Jeff, around underlying growth. This sort of segues into one of the big themes of 2020, which was inventory. I know this topic has come up in the past as well, but internally, I'm not even talking externally, but internally from for your sake, for your management and Board sake, just to understand how much is Elanco's underlying volume growing? How are you guys doing that analysis, especially given the inventory confounder that existed? Because even a lot of these third-party tracking services can't really tease that out depending on what goes into the channel or out of the channel.
Jeffrey Simmons
Yes. Underlying growth is just what I had shared, and it's pretty consistent. And it links. I think it's important when you look at EDI and you look at the Kinetick data, it's very consistent, and we've started and ended there as absolutely critical that we point to that. Let me be very clear on the inventory, and I think it's really important that, as we highlighted, Q3 was aligned with Q2. Legacy Elanco inventory, we changed and made a change that was initiated and really catalyzed by COVID and some of our distributors from a buy-sell that had higher levels of inventory to today the inventory levels are, again, consistent through out of the channel.
We're at the same levels in Q3 that we ended Q2 with. So inventory is behind us. And right now, with the 4 distributors we have remaining, I'm talking mainly U.S. pet health but it's similar globally, just enough to service customers. And I think I point to the real data, which is demand and market share, EDI, Kinetick data, day sale outstanding. And our overall, when you look at kind of the terms that we have. We're bringing more to the bottom line, the demand is there. So that's clear.
And then just for clarity on Bayer, different model, not a buy-sell, an agency direct to retailers primarily. So they carry just the inventory they need to service the big retailers. They increased inventory for 2 reasons: One, they saw dispensing going up, like most retailers did during the spring and the summer; and then secondly, they saw a cutover with Bayer and Elanco. That cutover is coming out and will be done as we go through Q4, and we'll start 2021 with inventory being direct to retailers with Bayer, a little higher, about $25 million more because of the increased dispensing. And Elanco level. And you can be assured that if there's any change in inventory levels, other than that, you'll hear about it directly from us immediately.
Michael DiFiore
And Jeff, just to hone in on that $25 million inventory on the Bayer side. How much of that is actually due to just increased demand versus how much of that is due to buying ahead because of the anticipation of the cutover, if you can? Or is it...
Jeffrey Simmons
Yes. The cutover is coming out and will come out the remainder here in Q4. and the $25 million will be what they're going to keep in inventory compared to the past. So that will be the difference, and they're keeping that because of the increased dispensing levels.
Michael DiFiore
I see.
Jeffrey Simmons
We'll give you a little more color on this to ensure clarity and level setting as we get into the investor conference. But I feel very good about our distributor relationships; them doing what they need to; the underlying demand, Umer, being exactly what we highlighted here through real demand and outtake coming out of the clinics to the pet owners and feel that the model is working very well. And I think our results in Q3 demonstrated that.
Umer Raffat
Got it. And Jeff, not to spend too much time on this, but just so we have a better clarity on this. It was our map on the U.S. inventory side for the Legacy Elanco that even after the work down, and now it's no longer changing, but the Q2, Q3 level may still be somewhere between 60 and 90 days of inventory out there. Maybe that's typical for animal health, but could you speak to that?
Jeffrey Simmons
Yes. We're not going to speak today specifically. There's a lot of variation by country, by species, by distributor. But what I will say is the premises inventory is lower than -- the 2016 are lower levels. They are not going to be determined on the old formula of 90 days past. It's going to be enough and only enough to service customers and the demand. And that varies by distributor and their capabilities and the size. But what I would say is, again, historically low levels. And it's out of the equation relative to any relationship that we have with distributors. It's only about service levels to customers.
Umer Raffat
Excellent. Okay. Mike, shall we move on from this topic?
Michael DiFiore
Sure.
Umer Raffat
Okay. Go ahead, Mike.
Michael DiFiore
Okay. Actually, I just wanted to have -- I have one lingering question on legacy Elanco's 4 key distributor partners. Clearly, you exited Q3 at optimal levels of inventory as was planned for. But could you remind us what Elanco is doing differently to incentivize these 4 key distributor partners versus the past? I mean, I know you kind of spoke to how each one has its own specific expertise and value proposition, but if -- what's being done differently now to incentivize them, if you could say?
Jeffrey Simmons
Yes. I would say, first of all, they've changed a lot themselves, right? So if you just look at the last couple of years, I mean, there's been acquisitions and services that have been built into some of the key major distributors. And what I would say is, one, they're critical. Let me really emphasize these distributors are critical to our future demand creation model. We've spent a lot of time with them and looking at similar metrics, similar scorecards of what we want to measure. What I would say, Michael, is it's a lot more targeted. It's a lot more outcome-based relative to the compensation and the [Technical Difficulty] that they get paid for. But I would say, first, it starts with really, really good logistics through the vet clinic and even helping appropriately at retail, where we think that they can help us there as well.
Two, then I think it's very much of a supplementing campaigns and supplementing services that we may want to offer. So whether it's something that's drop shipped or retail or a campaign that we're doing, that would be another. And then I think, as we've said in the past, long tail products, geographies that we don't have the attention and the voice that we think they're better, better economically of reaching that may play a role. Moving from those 8 distributors down to 4, those 8 really -- those 4 regional ones really did not play a significant role and didn't have the service levels that a Covetrus or an MWI that has really worked hard to upgrade their services offer. So again, more campaign, more variable based and a lot more tailored to them and what they do best compared to a blanket deal across. But all of them buy/sell for us, all of them critical to our demand creation model going forward.
Michael DiFiore
Got you. Got you. That's great. And just on the product-specific side, you had mentioned, I think, on your 3Q call that every time an Interceptor plus is sold, it's paired with Credelio, 49% of the time. What are you hearing out in the field? And how often are vets reaching for that combo versus Simparica Trio? Is it still too early to tell yet? Or what's being set out there?
Jeffrey Simmons
Yes. I mean there's a lot of competitive dynamics. I remind everybody, this is a $5 billion market. This is a market that continues to grow. It continues to be very attractive. There continues to be more pet owners that are getting more compliant, COVID helped that. So that's one of the great growth opportunities. So I start by looking at the global marketplace, canine-feline, all market, globally, in and outside of the vet clinic, in and outside of the pet. So what we laid out is a thesis for the Bayer acquisition, I think, played out very clearly. And you see that even with our assets that we had to divest, I think the marketplace was looked at very clearly, and say, this is a holistic market that has very different segments. So I start there. And I say all of those are playing out, Michael, quite clearly in the marketplace. We like our portfolio of Credelio plus, plus Interceptor Plus that offers the widest, broadest coverage today to a pet owner, so that pairing is key.
We've worked with IDEXX on a study to show that pet owners, and that's gotten clear understanding and receptivity from the veterinary community that having broad worm coverage matters. But I think secondarily, brands matter. So the ability to use digital to be able to use a connection to the pet owner, to be able to leverage what Bayer has and that capability is also critical. So that's -- that, I would say, is inside the vet clinic. Outside of the vet clinic, it continues to grow our retail business to be able to play off from the Seresto, Advantage brand names and the relationships that Bayer has and then to be able to bridge the veterinarian into that equation as well. So I would say a lot of segments, a lot of different channels and a lot of competition in there, but we feel very good about our portfolio, our capabilities and now our expanded approach to this $5 billion market with Bayer as well.
Michael DiFiore
Got it. Got it.
Umer Raffat
Can we switch, Jeff, for a couple of minutes on the financials and perhaps discuss progress on margin expansion because I feel like that's the one element story where progress has continued regardless of how the top line was shaping out, and maybe that will be a good segue also into cash flows as well. But let's start with the margin expansion.
Jeffrey Simmons
Yes. So let me reiterate a couple of things, first of all, that our belief in a business with Elanco plus Bayer to achieve 60% gross margins, 31% EBITDA, we feel very -- continue to feel very confident in achieving. Bayer has further enabled that, as you can imagine, with size, with scale, with products with better mix. We now are a 50% pet, 50% livestock business. We're 50% U.S., 50% international. So that diversity and durability, we believe, is strong, and it positions us very well. So I start to say, our eyes are very clearly on those metrics, and we are -- with the new company that we have clearly positioned to do that. We will give you guidance for 2021 and give you the trajectory and transparency of how we plan to do that in December at the investor conference.
But what I would highlight very clearly is a few things: First of all, restructuring to get the synergies. The $275 million to $300 million of synergies is key to this. The first $100 million, as I mentioned, came from sales and marketing. Now we'll start to look at capabilities, the synergy of R&D, our manufacturing footprint, our G&A and our back office capabilities, the post-COVID environment probably further enables when we look at office cost per employee, et cetera, all of these things further enable it. Second is more pet and more pipeline, drives better mix and that will be another driver. And then closer with brands to pet owners and end users with omnichannel allows us to continue to get the price that we think is critical that we've demonstrated this year, but we see going forward.
So I would say that the message is we still feel very good about the metrics. The starting point, we've been clear to say has changed with COVID, with Bayer, and most importantly, is the distribution change, but we will give you some clarity on as 2020 ends and 2021 guidance, and the pro forma will show you that path. And again, we're very confident still in the 60% gross margin, 31% EBITDA and the ability to go beyond that as the pipeline delivers.
Umer Raffat
Got it.
Michael DiFiore
Along those lines, Jeff, I just -- I feel that there's a lot of cutovers. If you could just remind us like what the various stand up expenses are? I know that there was the IT cutover versus the manufacturing cutover. And the manufacturing cutover I suppose is starting like now, this quarter. I just want to level set to kind of like get everything straight, if you can.
Jeffrey Simmons
So we're months away, and I didn't say this, another key milestone as we're months away. People forgot about the Lilly spinout sometimes, but we are -- the majority of Elanco employees, legacy Elanco employees are starting to make that cutover. And we should, by the end of the first quarter of 2021, be totally separated from Lilly. As we've talked about that IT primarily, Michael, those costs and the stand-up kind of cost from Lilly, we guided somewhere between $240 million to $290 million. We then guided to say that could be somewhere between $280 million and $320 million. So there was an increase. That, again, is the separation from Lilly. What caused that increase was we made a decision deliberately not to cut all of manufacturing over at one time. But because of COVID to face that, that caused what we believe when we get all done, a slight increase and an increase in the overall cost. That's what changed the range.
Bayer legacy people, Michael, actually left Bayer and went into Tata Consulting Services, TCS, and they're on that system. That cost this year is approximately around $70 million, $72 million. Todd will articulate as we start to move into 2021, when you think about the sequential move, we'll start to show how these costs decrease on a comparison and how our free cash flow conversion starts to increase, and that will happen -- start happening as we progress forward. Todd will put more details, our CFO, into that equation as we go forward.
So cutover, wrapping up with Lilly, end of Q1 of next year. And then we will begin then the final cutover, the final phase of synergy will be moving Bayer off from TCS into the Elanco IT system.
Michael DiFiore
I see. Very helpful. Very helpful.
Umer Raffat
Can we catch up on cash flows as well then, while we're at it, Mike, before we move on from financials?
Michael DiFiore
Sure, sure.
Umer Raffat
Jeff, I know this has been a top question that you've probably gotten several times, too. So maybe I'll just turn it over to you. If you could just remind us about the cadence during this past year, but also how you're thinking about it heading into the new year?
Jeffrey Simmons
Yes, I'm going to point that one specifically because there's, again, a lot of moving parts, and I want to be careful here relative to until guidance, talking about free cash flow conversion into our December investor conference. You can be assured we will share where we are on the stand-up costs, the free cash flow conversion and how that converts and our EBITDA in 2021 and how that converts into our continued delevering. That is a top priority and it's something we feel very good about.
Umer Raffat
Okay. Got it. Makes total sense. Sorry, Mike, go ahead.
Michael DiFiore
No, I was going to say, maybe we could just use these last 10 minutes or so to just talk about the livestock side of the business. But just -- it seems like that the COVID-related effects for livestock could persist well into next year. Just can you remind us how to think about the next few quarters on a species level in terms of Rumensin swine, poultry, aqua? And what the, I guess, expected cadence would be or outlook would be for each of those species?
Jeffrey Simmons
Yes. A lot happening, right, Michael. So let me just highlight a few that I would say is, I think beef, as you look and just cattle overall, but beef, I think, sequentially we see Q4 looking a lot like Q3. I think the overall market processing plants are running full. Same on the pork side. I think they're better equipped than they were going into March with companies like Tyson having a medical officer and preparing their employees. So we don't plan and have predicted any change relative to those processing plants. So market pretty stable overall on the beef side. And we see that momentum actually from the cattle run in Q3 into Q4, more cattle on feed and a pretty good market going forward on the cattle side.
Pigs is probably the most dynamic. What you have is overall pig prices pretty high. As you look to the Eastern Asia, the African swine fever recovery has been, I think, a little faster and more positive than expectations. The industrial companies are growing. The pig prices are high. Imports have been pretty strong. Predictions are 20% plus more pigs or growth in that market in -- specifically to China in 2021. So a nice tailwind in 2020. I think more tailwind or the same kind of tailwind as we go into 2021 on the Asia pig side.
On the U.S. side, I think it's going to be processing plants have to remain full, and there's still a little bit of a backlog impact. We've noted that in our Q4 that we see still an overhang on the COVID side in Q4. But we think with imports -- or excuse me, exports and pricing, we feel like the overall pig business in the U.S. smaller for us, but we think that, that's pretty stable.
The two that I would note, which you're mentioning, I don't spend a lot of time on dairy. For us, dairy is pretty small. I would point to the future protein segments. So poultry we believe will recover for us as we get into 2021. But again, the poultry dynamic was these midsized markets where we have high market share: India, Middle East, Caribbean, parts of Latin America, where actually COVID's impact on infrastructure and economics has made people trade down or off protein, and that's impacted the poultry industry in some of these markets. We think that will persist into Q1 recover after that.
And then the last, Michael is salmon, we've seen a salmon industry, as you know, with restaurants closing that's impacted all protein, but that business is -- that industry, salmon has been impacted the most with foodservice and restaurants closing. Haven't been able to get the retail recovery like other proteins. Salmon prices drop 40%. People have come off from the multinational or some of the more premium animal health products we think that, that segment recovers quicker than any other, but it will probably persist until we see this COVID recovery Q2 midyear.
Michael DiFiore
Got you. And I guess this is kind of -- I'm not sure this is a stupid question or not? But I mean, I know you said that Elanco's aqua offering is geared towards more of a premium type of level. Are there any thoughts or any plans in maybe having a more broader offering into the cheaper alternative product offering or no?
Jeffrey Simmons
Yes. We're going to continue to expand our portfolio. I would also say Bayer brings in a warm water segment, primarily Tilapia, white fish, shrimp, that market, mostly in Asia. And we're looking at leveraging our aqua capabilities into that space. That definitely touches a different economic and a different segment, those -- the warm water segment itself. So we still feel very good about our salmon business and see it contributing to our growth in 2021. But it will have this lingering effect, we believe, into the first half.
Michael DiFiore
I see. One thing that I feel hasn't been talked about recently is the whole Imvixa regulatory situation in Norway. Huge fish market, as is Chile, but any updates on that front?
Jeffrey Simmons
No. No specific updates. We're making progress. We're working closely with the regulatory body there. As we've mentioned, we've had to reengage with them and do some additional work, but no, no additional comments other than to say, the product continues to do well and play a key role for salmon producers in Chile and the other key salmon markets.
Umer Raffat
Got it. Maybe as we're approaching the last couple of minutes, Jeff, one question that from our seat is always harder to understand is, as we see 2 different businesses come together, both with a fairly different distribution model, from the past, I got to believe, at least at some level from a synergy perspective, you want to have some of legacy Elanco offering in the Bayer channels and probably some vice versa as well. Should we be expecting that or no? And I think this question sort of became very sensitive because there was an underlying negative connotation to the question that, "Oh, can you be like putting inventory there," which wasn't necessarily the direction I was going, but I was just thinking out loud, wouldn't it just make a lot of sense from a synergy perspective?
Jeffrey Simmons
Yes. Absolutely. We talk about this a little bit when we launched the Bayer offering and us, our intent to purchase Bayer, and we've seen it since acquiring, and we've got Bayer leadership at all levels. My team, Derek and Joyce, running U.S. and Europe, U.S. [indiscernible] Europe and further down people that are dealing with the retail. But to be very specific, we see a lot of opportunity with the long history that Bayer has had with the retail segment, especially on the pet side. And those capabilities all the way back into customer service, to the interface with them to be able to bring our pet portfolio into that. Now we were already doing this, but now we're part of a bigger portfolio with more capabilities, even that ability to go into the farm animal side in the international markets, on the retail side.
And then absolutely, a product like Claro, the otitis product that we brought into our portfolio that is a vet-scripted product from Bayer, that will fold in to our vet offering as well. So -- and then as the pipeline grows, we now have this omnichannel capability and approach that we will look at it all the way back to innovation as we continue to see topicals, collars and others being key. So absolutely. There's synergy there and we're leveraging it already, and we will more in the future.
Umer Raffat
Got it. Speaking of synergy, Jeff, one of the investor questions that came in was the synergy numbers you guys have mentioned, are they gross or net and our confidence, both on the peak number but also in the cadence?
Jeffrey Simmons
More detail, we're linking those back to EBITDA. We're trying to really be -- as we say, Elanco as made a lot of acquisitions over time. We want to really be scrutinizing on those numbers. So they're net synergy numbers, and we'll talk about that in more detail, where we are on that track. But again, confident in the $275 million to $300 million. And again, 2/3 of that within 3 years, and Todd will give some of those details here in a couple of weeks.
Umer Raffat
Okay. My last one, Jeff. Bayer is a sizable company and they were, for their animal health business, breaking out the sales for their -- 4 key products, which was effectively most of the sales. It's something I've thought about from an Elanco perspective, wouldn't it make sense to have revenue disclosures?
Jeffrey Simmons
Yes. It's a great challenge, Umer, and I will say we take that feedback, and we've heard differing feedback around the same topic, which is actually, "Hey, the more we can create transparency and clarity and maybe even consistency to other metrics in the industry." We want this to be easier for investors because we believe so much in our value proposition that we have for them. So we will take this into account and plan to share a little bit of how we plan to be on this path. Tiffany Kanaga, our Head of IR, has spent a lot of time on this, and we do plan to look at reporting in a way that we can create as much consistency.
Ultimately, let me just share maybe a way to close to, Umer, is look, in September of 2018, we became independent and -- as a company. Over 24, 25 months, we've experienced a couple of pandemics. We've experienced a consolidation of an industry where Bayer may be the last significant deal in the industry team available and even some consolidating and changing distribution lines. We have responded very proactively, and our Board has been very engaged to put us in a position that I believe we're in now, Umer, which is one of an inflection point of even greater value proposition than we had when we rang the bell and came on to Wall Street.
Now the side effect of that has been -- it's been a little noisy. And there's been quarter-to-quarter some differences. It is our intent to move to greater transparency, greater consistency and reporting is part of that. So more to come on that. And again, that anchors back to December 15 at 10 a.m., we'll be able to start to disclose the new Elanco going forward.
Umer Raffat
Got it. Mike, any last minute questions?
Michael DiFiore
No, Jeff, this has been extremely helpful. Thank you so much for making time with us.
Umer Raffat
Jeff, that was really helpful. And Jeff, if there's something you wish should have come up in the conversation, that didn't, please let us know. Otherwise, really looking forward to the Analyst Day.
Jeffrey Simmons
No. I think we've covered this. And again, I really appreciate Evercore and both of you is some of the best students in the industry studying the business. And look forward to -- looking forward to December 15 and beyond that, the continued story and the value creation. We know medium- and long-term value creation is what this is all about, and we believe we've got a great proposition here, and we're going to deliver against it. So thank you.
Umer Raffat
Sounds great. Looking forward. Thank you.
Jeffrey Simmons
Thank you.
Michael DiFiore
Thank you, Jeff. Bye, bye.
