Elanco
ELAN:US US28414H1032
Key Information
HQ:
United States
Market Cap:
$13.43bn
Primary Market:
North America
Animal Pharmaceuticals Engagement
Analysis Breakdown
Sales and Marketing Practices
Strategy, risk and reporting on antibiotics
A.1.1. Elanco recognises increased regulation of antibiotics, increased competition and increasing market demand for products raised using fewer antibiotics as material risks to its business. For example, the company mentions in its 2022 Annual Report that the regulation banning the prophylactic and routine use of antibiotics in animals introduced in the European Union (EU) in January 2022 will have an impact on the company’s revenue once implemented by member states. Elanco does not disclose whether it has quantified the potential financial impacts of regulation and shifting consumer demand.
The next step for Elanco would be to recognise AMR as a material risk for its business. Overuse and misuse of antibiotics in animals increases AMR and will lead to the reduced efficacy of the antibiotics Elanco sells, in addition to the negative impacts for animal protein producers who will find it more costly to keep animals healthy, putting future revenue at risk. Currently, Elanco has recognised antibiotic stewardship as being important to the company and stakeholders (following a materiality assessment in 2021). However, FAIRR did not find evidence that Elanco has completed a risk assessment to understand the potential financial impacts of AMR for its business.
A.1.2. Positively, Elanco is taking steps to mitigate the risks it currently acknowledges due to its exposure to antibiotics. In its 2022 Annual Report, the company continues to discuss how it is intentionally shifting away from shared-class antimicrobials to focus on alternatives to antibiotics and animal-only antibiotics. The focus will be on prevention and early detection to reduce the need for antibiotic use. Antibiotics also form part of Elanco’s sustainability strategy, governed by the 2030 Healthy Purpose commitments, established in 2020. As part of these commitments, the company has a qualitative commitment to be "a leading advocate for the responsible use of antimicrobials in animal health." The company does not disclose how it tracks progress towards this commitment and only provides high-level details of the actions it is taking, but the key focus areas are to promote the responsible use of antibiotics and to develop and expand the availability of products that can replace the need for shared-class antibiotics (i.e., alternatives). This indicates that Elanco is beginning to strategically address its exposure to antibiotics and is looking to diversify its product offering for food-producing animals, although this not an explicit part of the commitment.
Concerningly, Elanco’s ‘Guiding Principles’ which outline the company’s definition of responsible antibiotic use for its key stakeholders classifies prophylaxis as a responsible use practice. Prophylaxis is widely viewed as an unnecessary use of antibiotics and a driver of antibiotic overuse on farms. For this reason, in January 2022, the EU banned the prophylactic use of antibiotics on farms instead requiring farmers to improve animal husbandry and welfare so that prophylactic use of antibiotics is not required to keep animals healthy. For these reasons, Elanco has been assessed as partial.
Additionally, some notable gaps remain in Elanco’s strategy, particularly its approach to ionophores. There is no mention of animal-only antibiotics within the ‘Healthy Purpose’ commitments. This is a concern because animal-only antibiotics may one day be used in human medicine, as happened with colistin, and their use in animals contributes to the global AMR burden. Additionally, there is no mention of improving the manufacturing of antibiotics to limit the spread of AMR in the environment.
A.1.3. Since 2015, antibiotics have become a much smaller part of the overall business. With a meaningful change following Elanco’s acquisition of Bayer Animal Health which was completed in 2021, and significantly increased the share of the company’s revenue from companion animal products. Elanco reports revenue for shared-class, animal-only antibiotics and ionophores providing the best disclosure in the animal health industry. From 2015 to 2022 Elanco’s exposure to shared-class antibiotics fell from 16% to 8%. Exposure to animal-only antibiotics and ionophores also declined from 23% to 15% over the same period, although Elanco notes this was “primarily a result of” the Bayer acquisition.
It is also important to note that reductions in the percentage of revenue have not translated to significant and consistent decreases in sales. Despite its commitment to the responsible use of shared-class antibiotics, revenues from shared-class antibiotics have increased by nearly $100 million in the past two years (although since 2015 baseline sales have decreased by 9%). Revenues from animal-only antibiotics have remained steady. This is a concern as it suggests Elanco is selling a similar or only slightly lower volume of antibiotics than it was in 2015 and is therefore not addressing the core issue – the development of AMR. This raises questions over the effectiveness of Elanco's approach to antibiotic stewardship.
A.1. Recommendation: To improve its score, we would ask Elanco to:
(i) recognise AMR as a material risk to the business;
(ii) set a quantitative timebound commitment to reduce exposure to the sales of antibiotics for non-therapeutic purposes; and
(iii) report more granular breakdown of revenue from antibiotics.
If the company does this, then it would be scored as ‘Good’.
Partial
Applying a consistent sales and marketing approach in line with best practice operating market
A.2.1. Elanco does not have a responsible sale and marketing policy explicitly outlining how antibiotics should be marketed and sold. Elanco's Healthy Purpose antibiotic commitment includes two goals related to the marketing and sale of antibiotics (i) to “promote responsible use of antibiotics across our product portfolio and customers” and (ii) to “educate veterinarians and stakeholders about alternative treatments to reduce the need for shared-class antibiotics.” In its ‘Elanco Values Antibiotic Stewardship’ document the company only explicitly prohibits use for medically important antibiotics (MIAs) for growth promotion. It is unclear how the company tracks progress towards these commitments and how they influence the company’s actions.
A.2.2. To date, Elanco has been focused on ensuring the responsible sale and use of shared-class antibiotics. The company demonstrated decisive action by removing growth promotion claims from its shared-class antibiotics globally and requiring veterinary oversight in the US and other markets, following the US regulation in 2017. It is unclear if this means the company still sells any shared-class antibiotics for growth promotion globally. Veterinary-only antibiotics, which includes ionophores, are excluded from this work.
The company also removed permissions for over-the-counter use of 67 product labels to require veterinary oversight in countries where over-the-counter use was still allowed. In 2021 this action was followed by changing preventative claims to treatment/control claims for two macrolide products in Vietnam and also transitioning three shared-class antibiotics from over-the-counter to prescription only in the US. These changes in labelling of antibiotics are very positive, and important to support responsible use of antibiotics. However, it is unclear whether these actions were motivated by incoming regulations and whether Elanco has plans to remove growth promotion from the labels of animal-only antibiotics as well as its shared-class antibiotic portfolio.
A.2.3. The Nominating and Corporate Governance Committee provide oversight for Elanco’s sustainability program, which includes Elanco’s Healthy Purpose commitments. The sustainability program is led by the Global Head of ESG & Sustainability with oversight from the Healthy Purpose Steering Committee. Elanco also states in its Business Partner Code of Conduct that third parties must only use Elanco-approved promotional materials, although it is unclear how this is enforced.
A.2.4. There is no disclosure on sales incentives associated with the sale of antibiotics.
A.2. Recommendation: To achieve ‘Partial’ for this KPI, Elanco would need to set a time-bound commitment to remove indications for growth promotion from all antibiotics globally, not just shared-class.
Low
Manufacturing and Production
Demonstrating effective management of antibiotic residues in manufacturing and production
B.1.1. Elanco does not disclose how it ensures that antibiotics are being manufactured in a responsible way within its own operations and throughout its supply chain to minimise the risk of antibiotic residues being discharged directly into the environment.
Elanco states that the company takes all necessary steps to ensure alignment with national laws and regulations. The Global Quality Assurance Team tracks violations of current Good Manufacturing Practice (cGMP) standards, as outlined by the World Health Organisation (WHO), and the notices from regulatory bodies. Relating to waste management and disposal, the company’s Health, Safety and Environment (HSE) function is responsible for managing environment-related risks. The HSE has oversight of all the manufacture of pharmaceutical products, therefore covering antibiotics.
Elanco’s Planet Pledge addresses pharmaceutical effluent specifically, and efforts to improve responsible resource management are governed by the Planet Pledge working group and HSE leadership track. There is evidence the company is looking to better manage waste containing active pharmaceutical ingredients (APIs). At its manufacturing site in Shawnee, Kansas, Elanco has installed an on-site wastewater treatment system to virtually eliminate discharge of APIs. It would be useful to understand if this plant manufactures antibiotics and whether Elanco applies any specific requirements for their manufacture.
B.1.2. Key contract manufacturing organisations (CMOs) and third-party suppliers are required to comply with the Pharmaceutical Supply Chain Initiative (PSCI) principles for responsible supply chain management in their facilities. This is a comprehensive list of requirements for companies; however, antibiotics are not explicitly included. Suppliers are also subject to Elanco’s Business Partner Code of Conduct and the company assesses compliance at regular intervals, although the frequency is not defined. Issues that are identified during audits are addressed and required actions are tracked to completion. In 2020, Elanco led two PSCI technical committees to build audit capability in India and China.
B.1.3. All business areas are expected to comply with Elanco’s HSE policy and associated standards. The Manufacturing Policy Lead team and Audit Committee of the Board are notified where instances of non-compliance with standards are found.
CMOs are managed by an external manufacturing network who provide oversight and ensure compliance with quality standards. For CMOs and third-party suppliers, the company does not mention whether corrective action plans are established to ensure the correct actions are being taken or what happens in cases of non-compliance.
Cases of non-compliance are not reported in annual reporting for own operations or within the company’s supply chain.
B.1.4. Currently, Elanco discloses that it has 20 owned manufacturing sites and 140 CMOs globally. In addition, the company should disclose where its largest suppliers are located, or the proportion of antibiotics that are produced in-house versus by suppliers.
B.1. Recommendation: To improve its score Elanco would need to disclose details on:
(i) the standards it has in place to ensure wastewater discharged into the environment contains safe levels of antibiotic residues with best practice being to set PNECs
(ii) how this applies to its CMOs and to third party suppliers
(iii) how standards are enforced, and
(iv) disclose where the company’s largest third-party manufacturers and suppliers of antibiotics are located.
If Elanco disclosed detail relating to antibiotics specifically, the company would be scored as ‘Partial’ or even ‘Good’.
Low
Research and Development
Defining alternatives to antibiotics
C.1.1. In a first for the industry, in its 2021 Annual Report, Elanco provides a definition for alternatives to antibiotics from the European Medicines Agency (EMA): “a veterinary medicinal product the use of which provides an alternative treatment approach to the use of antimicrobials in animals or that reduces the need for the use of antimicrobials by preventing or controlling infectious disease.” However, it is unclear if this definition is used by the company when classifying products and if the company is tracking internally the proportion of its products that would qualify as alternatives under this definition. Tracking this information would allow the company to estimate the amount of antibiotic use ‘saved’ by these products.
C.1.2. & C.1.3. Elanco clearly has alternatives to antibiotics in its portfolio such as vaccines and nutritional health products. The company stated that it has seen a growth in demand for nutritional health products in part influenced by demand for alternatives to antibiotics that can “promote animal health and increase productivity.” However, as the company does not provide any detail around portfolio or revenue breakdown it is not possible to calculate how exposure to alternatives is changing year-on-year and whether it is growing. The company only shares some detail about recent product approvals and product registrations.
C.1.2. From disclosures, it is also not clear how, or if, Elanco is assessing the efficacy of products it advertises as alternatives to antibiotics. Particularly for nutritional products, providing evidence of efficacy where it is not required by regulatory bodies is important for building confidence with farmers and facilitating greater uptake.
C.1. Recommendation: To improve its score, Elanco should disclose the percentage of its portfolio or revenue for food-producing animals that is made up by alternatives to antibiotics.
Low
Increasing availability and use of alternatives to antibiotics
C.2.1. Elanco is investing in alternatives to antibiotics and has committed to future spending. In 2020, Elanco committed to investing $3.5 billion by 2030 into innovation, covering products to reduce the need for shared-class antibiotics. It is unclear exactly how much will be spent directly on R&D into alternatives.
Elanco has made a high-level commitment to expand the availability of vaccines, nutritional health products and diagnostics in underserved markets that rely on shared-class antibiotics. Although it did not provide evidence of how it is doing this or how successful the company’s efforts have been.
C.2.2. The company has also made several acquisitions of companies that have alternatives to antibiotics within their portfolios such as Prevtec, acquired in 2019 for $60 million. Prevtec is a company that specialises in the development of vaccines to treat bacterial diseases in farm animals and Elanco described this as "consistent with our efforts to explore innovative antibiotic alternatives”. In Elanco’s 2022 Annual Report the company makes reference to a bolt-on acquisition in the antibiotic alternative space that the company expects to contribute $20-30 million in revenue by 2023. It is unclear if this is referencing Prevtec.
C.2.3. Elanco does not share detail about marketing spend but do disclose that they are working with veterinarians and stakeholders to communicate about pharmaceuticals, vaccines and nutritional health products that potentially reduce the need for shared-class antibiotics in animals.
C.2. Recommendation: To improve its score Elanco should:
(i) disclose the percentage of R&D spend dedicated to alternatives to antibiotics and
(ii) provide greater insight on marketing spending on alternatives and antibiotics.
Low
Stakeholder Engagement and Lobbying
Stewardship initiatives
D.1.1. Elanco is engaged in a wide range of stewardship initiatives focused on increasing the responsible use of antibiotics globally:
• The East Africa Growth Accelerator (EAGA) program, completed in 2021, was a programme to improve antibiotic stewardship and livelihoods of smallholder farmers. Reportedly reached over 280,000 dairy and poultry smallholder farmers and offered more than 1,000 trainings to teach good animal husbandry practices. Socio-economic impact evaluated as $2.48 for every $1 invested.
• Elanco runs educational seminars. For example, running seminars on the recent EU regulation introducing a ban on routine and prophylactic use of antibiotics from January 2022.
D.1.2. The company also has a number of initiatives focused on improving surveillance of antibiotic use and AMR:
• Elanco is part of Centre for European Studies of Animal Health (CEESA) which is an antibiotic resistance monitoring programme in the EU that has been running since 1999. Elanco also encourages farmers to log antibiotic use on farms.
• Established the Clinical and Laboratory Standards Institute (CLSI) Veterinary Antimicrobial susceptibility subcommittee that is responsible for helping veterinarians select the most appropriate antibiotic to treat sick animals.
D.1. Recommendation: To move from ‘Partial’ to ‘Lead’, Elanco would need to demonstrate how its different stewardship initiatives have resulted in reduced antibiotic use across geographies.
Partial
Lobbying and political expenditure
D.2.1. Elanco only discloses its lobbying spend where legally required. It does not publish this in its annual reporting, instead it provides links on its website to the EU and US disclosures.
Elanco states that each year it makes 'reasonable effort' to obtain information on the amount of its expenditure to industry organisations that goes on lobbying for organisations domiciled in the US. The company did not share information on the key issues lobbied or positions taken.
On political contributions in the US the company states: "Elanco’s political contributions are aligned with the interests and values of our company and our customers – contributions are extended to candidates who support sound policies that are intended to benefit the health of animals and the people that care for them."
D.2. Recommendation: To improve its score, we recommend that Elanco demonstrate alignment between lobbying activities and the company’s stated position on AMR stewardship. One way to do this would be to clearly indicate what industry organisations the company is a member of.
NRD
Company Engagement
Level of company engagement with the coalition
E.1. Elanco did not respond to the investor coalition’s formal letter sent in July 2022 and declined to attend an engagement call with investors. The company also declined to provide feedback on its preliminary company assessment sent in December 2022, or on its final assessment sent in May 2023.
Inactive
Workstream Information
Last Updated:
22 May 2023
2022/23 Resources
Investor Briefing Pack Progress Report Key Findings Report Animal Pharmaceuticals Engagement