Elanco Provides Update on Contract Manufacturing Partner

Rhea-AI Summary

Elanco Animal Health (NYSE: ELAN) has provided an update on its contract manufacturing partner, TriRx Speke , which has entered into trading administration in the UK. Elanco has a long-term supply agreement with TriRx for select farm animal products. The company is working with administrators to ensure business continuity and explore options. Elanco expects minimal supply disruption in 2024 and is underwriting operational costs to maintain production and employee payments in the interim.

Despite an anticipated reduction of $5 million to $10 million in adjusted EBITDA for 2024 due to the TriRx situation, Elanco maintains its full-year adjusted EBITDA guidance of $900 million to $940 million.

Positive

• Elanco expects minimal supply disruption in 2024
• Company maintains full-year adjusted EBITDA guidance of $900 million to $940 million
• Elanco is working to ensure business continuity and employee payments

Negative

• Contract manufacturing partner TriRx Speke has entered into trading administration
• Anticipated reduction of $5 million to $10 million in adjusted EBITDA for 2024
• Elanco is underwriting operational costs, potentially increasing short-term expenses

Financial Analyst

The TriRx insolvency presents a minor financial setback for Elanco, with an expected $5-10 million reduction in adjusted EBITDA for 2024. However, this impact is relatively small compared to Elanco's projected adjusted EBITDA of $900-940 million for the year. The company's ability to maintain its guidance despite this challenge demonstrates financial resilience.

Elanco's proactive approach in working with administrators and underwriting operational costs shows strong supply chain management. This strategy should help mitigate potential disruptions and protect shareholder value. Investors should monitor the situation closely, as any prolonged issues with the Speke site could lead to increased costs or supply chain risks in the long term.

Supply Chain Expert

Elanco's swift action to engage with TriRx's administrators demonstrates exemplary crisis management in supply chain operations. By underwriting operational costs and ensuring employee payment, Elanco is safeguarding its supply continuity in the short term. This approach is important for maintaining product availability and customer relationships.

However, the situation highlights the risks of outsourcing critical manufacturing. Elanco may need to reevaluate its contract manufacturing strategy and consider options such as diversifying suppliers or bringing production in-house for key products. The minimal expected disruption in 2024 is positive, but investors should watch for any signs of longer-term supply chain restructuring, which could impact costs and operational efficiency.

GREENFIELD, Ind., Sept. 13, 2024 /PRNewswire/ -- Elanco Animal Health Incorporated (NYSE: ELAN) today provided an update on its relationship with contract manufacturing supplier, TriRx Speke Ltd (TriRx). TriRx today entered into trading administration, a formal insolvency process in the United Kingdom designed to help companies facing severe financial challenges regain stability. Administrators from FTI Consulting LLP have been appointed.

Elanco has a long-term supply agreement with TriRx to manufacture select farm animal products at the Speke site. Elanco is working constructively with the Administrators to support business continuity in the interim and explore possible options in the best interest of all stakeholders. In the short term, Elanco is working with the Administrators to underwrite the operational costs to ensure work in progress at the site continues and that employees will be paid during the interim. As a result of this engagement, Elanco expects minimal supply disruption in 2024.

Elanco expects a reduction of approximately $5 million to $10 million of adjusted EBITDA in 2024 related to the TriRx situation. Despite this headwind, Elanco continues to expect to deliver its full year adjusted EBITDA guidance of $900 million to $940 million.

ABOUT ELANCO

Elanco Animal Health Incorporated (NYSE: ELAN) is a global leader in animal health dedicated to innovating and delivering products and services to prevent and treat disease in farm animals and pets, creating value for farmers, pet owners, veterinarians, stakeholders and society as a whole. With nearly 70 years of animal health heritage, we are committed to helping our customers improve the health of animals in their care, while also making a meaningful impact on our local and global communities. At Elanco, we are driven by our vision of Food and Companionship Enriching Life and our Elanco Healthy Purpose™ sustainability pillars – all to advance the health of animals, people, the planet and our enterprise. Learn more at www.elanco.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements concerning the impact of TriRx Speke entering trading administration and our 2024 full year adjusted EBITDA guidance.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important risk factors that could cause actual results to differ materially from those in the forward-looking statements include our ability to manage inventory and continue production at Speke, uncertainty in the trading administration process  and the business and financial impact of any disruption during this period, as well as regional, national or global political, economic, business, competitive, market and regulatory conditions, including but not limited to operating in a highly competitive industry; the success of our research and development (R&D) and licensing efforts; the impact of disruptive innovations; competition from generic products; an outbreak of infectious disease carried by farm animals; risks related to the evaluation of animals; consolidation of our customers and distributors; the impact of increased or decreased sales into our distribution channels; our dependence on the success of our top products; our ability to complete acquisitions and divestitures and successfully integrate the businesses we acquire; our ability to implement our business strategies or achieve targeted cost efficiencies and gross margin improvements; manufacturing problems and capacity imbalances; fluctuations in inventory levels in our distribution channels; the impact of weather conditions, including those related to climate change, and the availability of natural resources; the effects of a human disease outbreak, epidemic, pandemic or other widespread public health concern; the loss of key personnel or highly skilled employees; adverse effects of labor disputes, strikes and/or work stoppages; the effect of our substantial indebtedness on our business; changes in interest rates; risks related to the write-down of goodwill or identifiable intangible assets; the lack of availability or significant increases in the cost of raw materials; risks related to our presence in foreign markets; risks related to currency rate fluctuations; risks related to underfunded pension plan liabilities; the potential impact that actions by activist shareholders could have on the pursuit of our business strategies; actions by regulatory bodies, including as a result of their interpretation of studies on product safety; the possible slowing or cessation of acceptance and/or adoption of our farm animal sustainability initiatives; the impact of increased regulation or decreased governmental financial support related to the raising, processing or consumption of farm animals; the impact of litigation, regulatory investigations, and other legal matters, including the risk to our reputation; challenges to our intellectual property rights or our alleged violation of rights of others; misuse, off-label or counterfeiting use of our products; unanticipated safety, quality or efficacy concerns and the impact of identified concerns associated with our products; insufficient insurance coverage against hazards and claims; compliance with privacy laws and security of information; and risks related to environmental, health and safety laws and regulation. 

For additional information about the factors that could cause actual results to differ materially from forward-looking statements, please see the company's latest Form 10-K and Form 10-Qs filed with the Securities and Exchange Commission. Although we have attempted to identify important risk factors, there may be other risk factors not presently known to us or that we presently believe are not material that could cause actual results and developments to differ materially from those made in or suggested by the forward-looking statements contained in this press release. If any of these risks materialize, or if any of the above assumptions underlying forward-looking statements prove incorrect, actual results and developments may differ materially from those made in or suggested by the forward-looking statements contained in this press release. We caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this press release. Any forward-looking statement made by us in this press release speaks only as of the date thereof. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should be viewed as historical data.

Reconciliation of 2024 full year reported net loss to 2024 adjusted EBITDA guidance is as follows:

$ millions	Full Year 2024 Guidance
Reported net income	$314	to	$352
Net interest expense	Approx. $245
Income tax benefit	$179	to	$201
Depreciation and amortization	Approx. $655
EBITDA	$1,390	to	$1,449
Non-GAAP adjustments
Asset impairment, restructuring and other special charges	Approx. $150
Gain on divestiture	Approx. $(650)
Other income, net	Approx. $3
Adjusted EBITDA	$900	to	$940

Investor Contact: Katy Grissom (317) 273-9284 kathryn.grissom@elancoah.com
Media Contact: Colleen Dekker (317) 989-7011 colleen.dekker@elancoah.com

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SOURCE Elanco Animal Health

FAQ

What happened to Elanco's contract manufacturing partner TriRx Speke ?

TriRx Speke , Elanco's contract manufacturing partner, entered into trading administration, a formal insolvency process in the United Kingdom, on September 13, 2024.

How will the TriRx situation affect Elanco's (ELAN) supply chain in 2024?

Elanco expects minimal supply disruption in 2024 despite the TriRx situation. The company is working with administrators to ensure business continuity and maintain production.

What is the financial impact of the TriRx situation on Elanco's (ELAN) 2024 outlook?

Elanco anticipates a reduction of approximately $5 million to $10 million in adjusted EBITDA for 2024 due to the TriRx situation. However, the company maintains its full-year adjusted EBITDA guidance of $900 million to $940 million.

What actions is Elanco (ELAN) taking to address the TriRx administration?

Elanco is working with administrators to support business continuity, underwrite operational costs to ensure continued production, and guarantee employee payments during the interim period.