S-1 1 a2236167zs-1.htm S-1

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As filed with the Securities and Exchange Commission on August 2, 2018

Registration No. 333-              


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Elanco Animal Health Incorporated
(Exact name of registrant as specified in its charter)

Indiana
(State or Other Jurisdiction of
Incorporation or Organization)
  2834
(Primary Standard Industrial
Classification Code Number)
  82-5497352
(I.R.S. Employer
Identification Number)



2500 Innovation Way
Greenfield, Indiana
46140
(877) 352-6261

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)



Michael-Bryant Hicks, Esq.
2500 Innovation Way
Greenfield, Indiana
46140
(877) 352-6261

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)




Corey R. Chivers, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
(212) 310-8000 (Phone)
(212) 310-8007 (Fax)

 

Patrick O'Brien
Paul Kinsella
Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston, Massachusetts 02199
(617) 951-7000 (Phone)



Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

            If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

            If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

            If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

            If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

            Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý   Smaller reporting company o

Emerging growth company o

            If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.    o

CALCULATION OF REGISTRATION FEE

       
 

Title of Each Class of Securities
to be Registered

  Proposed Maximum
Aggregate Offering
Price(1)(2)
  Amount of
Registration Fee
 

Common stock, no par value

  $100,000,000   $12,450.00

 

(1)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) promulgated under the Securities Act of 1933, as amended.

(2)
Includes shares of common stock that may be issuable upon exercise of an option to purchase additional shares granted to the underwriters. See "Underwriting."

            The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

   



Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, Dated August 2, 2018

Shares

LOGO

Elanco Animal Health Incorporated

Common Stock

          This is an initial public offering of shares of common stock of Elanco Animal Health Incorporated. We are offering             shares of our common stock in this offering.

          Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $              and $             . We intend to apply to have our common stock listed on the New York Stock Exchange ("NYSE") under the symbol "ELAN."

          Following this offering, we will be a "controlled company" within the meaning of the corporate governance rules of the NYSE. See "Management — Director Independence and Controlled Company Exemption."

          See "Risk Factors" beginning on page 20 to read about factors you should consider before buying shares of our common stock.



          Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.



  Per Share   Total
 

Initial public offering price

  $          $         

Underwriting discount(1)

  $          $         

Proceeds, before expenses, to Elanco

  $          $         

(1)
We have agreed to reimburse the underwriters for certain expenses in connection with this offering. We refer you to "Underwriting," beginning on page 184 of this prospectus, for additional information regarding total underwriter compensation.

          To the extent that the underwriters sell more than             shares of common stock, the underwriters have the option to purchase up to an additional             shares from us at the initial price to the public less the underwriting discount.



          The underwriters expect to deliver the shares to investors against payment in New York, New York on                      , 2018.



Goldman Sachs & Co. LLC   J.P. Morgan   Morgan Stanley

   

Prospectus dated                      ,         


TABLE OF CONTENTS

Prospectus

    Page
 

PROSPECTUS SUMMARY

    1  

RISK FACTORS

    20  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

    52  

USE OF PROCEEDS

    53  

DIVIDEND POLICY

    54  

CAPITALIZATION

    55  

DILUTION

    56  

SELECTED HISTORICAL COMBINED FINANCIAL DATA

    58  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

    60  

THE SEPARATION AND DISTRIBUTION TRANSACTIONS

    67  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    69  

INDUSTRY

    91  

BUSINESS

    95  

MANAGEMENT

    120  

EXECUTIVE AND DIRECTOR COMPENSATION

    126  

PRINCIPAL SHAREHOLDER

    159  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

    160  

DESCRIPTION OF MATERIAL INDEBTEDNESS

    171  

DESCRIPTION OF CAPITAL STOCK

    172  

SHARES ELIGIBLE FOR FUTURE SALE

    178  

MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

    180  

UNDERWRITING

    184  

LEGAL MATTERS

    189  

EXPERTS

    189  

WHERE YOU CAN FIND MORE INFORMATION

    189  

INDEX TO FINANCIAL STATEMENTS

    F-1  



          Through and including                           , 2018 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.



          You should rely only on the information contained in this prospectus or in any free writing prospectus we may specifically authorize to be delivered or made available to you. Neither we nor the underwriters (nor any of our or their respective affiliates) have authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we nor the underwriters (nor any of our or their respective affiliates) take any responsibility for, and neither we nor they provide any assurance as to the reliability of, any other information that others may give you. Neither we nor the underwriters (nor any of our or their respective affiliates) are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or any free writing prospectus is only accurate as of its date, regardless of its time of delivery or the time of any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

i


          Unless the context requires otherwise: (a) references to "Elanco," our "company," "we," "us" or "our" refer to Elanco Animal Health Incorporated, an Indiana corporation, and its subsidiaries after giving effect to the transactions described under "The Separation and Distribution Transactions — The Separation" or for periods prior to such transactions, the combined businesses operating within Lilly's Elanco animal health division that have been or will be contributed to Elanco as part of such transactions, and (b) references to "Lilly" refer to Eli Lilly and Company, an Indiana corporation, and its subsidiaries other than Elanco.

Market and Industry Information

          Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market share, is based on information from third-party sources and management estimates. Certain statements, where indicated, are based on information published by Vetnosis Limited ("Vetnosis"), a research and consulting firm specializing in global animal health and veterinary medicine, and management estimates. Our management estimates are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be reasonable. Our management estimates have not been verified by any independent source. In addition, assumptions and estimates of our and our industry's future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors." These and other factors could cause future performance to differ materially from our assumptions and estimates. See "Cautionary Note Regarding Forward-Looking Statements."

Trademarks and Trade Names

          The name and mark, Elanco, and other trademarks, trade names and service marks of Elanco appearing in this prospectus are the property of Elanco or, as applicable, licensed to Elanco, or, as applicable, prior to the completion of this offering, are the property of Lilly. The name and mark, Eli Lilly and Company, and other trademarks, trade names and service marks of Lilly appearing in this prospectus are the property of Lilly. This prospectus also contains additional trade names, trademarks and service marks belonging to other companies. We do not intend our use or display of other parties' trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

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PROSPECTUS SUMMARY

          This summary highlights information included elsewhere in this prospectus and does not contain all of the information you should consider in making an investment decision. You should read this entire prospectus carefully, including the sections entitled "Risk Factors," "Cautionary Note Regarding Forward-Looking Statements," "Selected Historical Combined Financial Data," "Unaudited Pro Forma Condensed Combined Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our combined financial statements and the notes thereto before making an investment decision regarding our common stock.

Overview

          Founded in 1954 as part of Eli Lilly and Company, Elanco is a premier animal health company that innovates, develops, manufactures and markets products for companion and food animals. Headquartered in Greenfield, Indiana, we are the fourth largest animal health company in the world, with revenue of $2.9 billion for the year ended December 31, 2017. Globally, we are #1 in medicinal feed additives, #2 in poultry and #3 in cattle, measured by 2017 revenue, according to Vetnosis. We also have one of the broadest portfolios of pet parasiticides in the companion animal sector. We offer a diverse portfolio of more than 125 brands that make us a trusted partner to veterinarians and food animal producers in more than 90 countries.

          Our vision is to enrich the lives of people through food — making protein more accessible and affordable — and through pet companionship — helping pets live longer, healthier lives. We advance our vision by offering products in four primary categories:

    Companion Animal Disease Prevention ("CA Disease Prevention"):  We have one of the broadest parasiticide portfolios in the companion animal sector based on indications, species and formulations, with products that protect pets from worms, fleas and ticks. Combining our parasiticide portfolio with our vaccines presence, we are a leader in the U.S. in the disease prevention category based on share of revenue.

    Companion Animal Therapeutics ("CA Therapeutics"):  We have a broad pain and osteoarthritis portfolio across species, modes of action, indications and disease stages. Pet owners are increasingly treating osteoarthritis in their pets, and our Galliprant product is one of the fastest growing osteoarthritis treatments in the U.S. We also have treatments for otitis (ear infections), as well as cardiovascular and dermatology indications.

    Food Animal Future Protein & Health ("FA Future Protein & Health"):  Our portfolio in this category, which includes vaccines, nutritional enzymes and animal-only antibiotics, serves the growing demand for protein and includes innovative products in poultry and aquaculture production, where demand for animal health products is outpacing overall industry growth. We are focused on developing functional nutritional health products that promote food animal health, including enzymes, probiotics and prebiotics. We are a leader in providing vaccines as alternatives to antibiotics to promote animal health based on share of revenue.

    Food Animal Ruminants & Swine ("FA Ruminants & Swine"):  We have developed a range of food animal products used extensively in ruminant (e.g., cattle, sheep and goats) and swine production. We also deliver value to producers beyond our products through our technical expertise and support.

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          We have a top four presence in all four key industry geographic regions: North America ("NA"); Europe, the Middle East and Africa ("EMEA"); Latin America ("LATAM"); and Asia-Pacific ("APAC"), as measured by 2017 revenue, according to Vetnosis. The following graphs demonstrate our revenue for the year ended December 31, 2017 by product category, geography and our highest revenue products:


Percentage of 2017 Revenue
By Product Category(1)

GRAPHIC


(1)
Certain percentages may reflect rounding adjustments.

(2)
Strategic Exits includes revenue from third-party manufacturing, distribution and other contractual arrangements, as well as an equine product not core to our business, which we have either exited or made the decision to exit.
 
   
Percentage of 2017 Revenue
By Region(1)
  Percentage of 2017 Revenue
By Highest Revenue Products(1)

GRAPHIC

 

GRAPHIC

(1)
Certain percentages may reflect rounding adjustments.

(2)
LATAM includes aquaculture in all regions.

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          Through our global sales force of approximately 1,530 sales representatives, our veterinary consultants and our key distributors, we seek to build strong customer relationships and fulfill demand for our food animal products primarily with food animal producers, veterinarians and nutritionists, and for our companion animal products primarily with veterinarians and, in some markets, pet owners. We are also expanding into retail channels in order to meet pet owners where they want to purchase.

          Our inclusive approach to sourcing innovation helps us identify, attract, fund and develop new ideas that enhance our pipeline and reduce risk as compared to an in-house only approach. Through this process, we launched nine products from 2015 to 2017 that delivered $143.8 million of revenue in 2017 and $136.6 million of revenue in the first half of 2018.

          We believe we have an experienced leadership team that fosters an adaptive, purpose-driven culture among approximately 5,880 employees worldwide as of June 30, 2018 and that our employees share a deep conviction for achieving our vision of food and companionship, enriching life.

          For the six months ended June 30, 2018 and 2017, our revenue was $1.5 billion and $1.4 billion, respectively, and for each of the years ended December 31, 2017, 2016 and 2015, our revenue was $2.9 billion. For the six months ended June 30, 2018 and 2017, our net income (loss) was $9.9 million and $(128.5) million, respectively, our adjusted EBITDA was $306.2 million and $278.4 million, respectively, and our adjusted net income was $219.0 million and $156.4 million, respectively. For the years ended December 31, 2017, 2016 and 2015, our net income (loss) was $(310.7) million, $(47.9) million and $(210.8) million, respectively, our adjusted EBITDA was $498.9 million, $540.4 million and $393.7 million, respectively, and our adjusted net income was $250.5 million, $332.6 million and $208.7 million, respectively. For a reconciliation of adjusted EBITDA and adjusted net income to net income (loss), see "— Summary Historical and Unaudited Pro Forma Combined Financial Data."

Industry

Animal Health Industry Overview

          Global animal health industry revenue is projected to grow nominally at a compound annual growth rate ("CAGR") of 5% from 2017 to 2023, according to Vetnosis. Importantly, this growing industry, which includes both food and companion animals, benefits billions of people worldwide. The food animal sector focuses on species raised to provide animal protein, such as cattle, other ruminants (e.g., sheep and goats), swine, poultry and aqua. The companion animal — or pet — sector focuses primarily on dogs and cats.

          Animal health medicines, vaccines and functional nutritionals represent an estimated global market of $34.3 billion, based on 2017 revenue, according to industry sources. Medicines and vaccines represent a global market of $32.0 billion, based on 2017 revenue, and grew at a CAGR of 4% from 2007 to 2017, according to Vetnosis. Management expects this trend to continue through at least 2023 based on industry projections. Functional nutritionals (specifically enzymes, probiotics and prebiotics) used in food animal production represent a global market of $2.3 billion, according to industry sources. Based on industry projections, management expects functional nutritionals to grow faster than the medicines and vaccines market.

          Food Animal.    Food animal medicines and vaccines, including aquaculture, represented $21.2 billion of revenue in 2017 and grew at a CAGR of 4% from 2007 to 2017, according to Vetnosis.

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          Factors influencing growth in demand for food animal medicines and vaccines include:

    one in three people needs improved nutrition;

    increased global demand for protein, particularly poultry and aquaculture;

    natural resource constraints, such as scarcity of arable land, fresh water and increased competition for cultivated land, driving the need for more efficient food production;

    loss of productivity due to food animal disease and death;

    increased focus on food safety and food security; and

    human population growth, increased standards of living, particularly in many emerging markets, and increased urbanization.

          Functional nutritionals used in food animal production represent an additional market estimated at $2.3 billion. Growth in functional nutritionals is influenced, among other factors, by demand for antibiotic alternatives that can promote animal health and increase productivity.

          Companion Animal.    Companion animal medicines and vaccines represented $10.8 billion of revenue in 2017 and grew at a CAGR of 4% from 2007 to 2017, according to Vetnosis.

          Factors influencing growth in demand for companion animal medicines and vaccines include:

    increased pet ownership globally;

    pets living longer; and

    increased pet spending as pets are viewed as members of the family by owners.

Key Structural Characteristics of the Animal Health Industry

    Brands often have long, sustainable value.  Branded animal health products often retain significant, and occasionally increased, market share after many years on the market, even after the loss of patent protection. As an example, five of our top 10 products, based on 2017 revenue, have been on the market for over 25 years. In the food animal sector, the level of competition is influenced by macro-economic factors, brand loyalty, distribution models and the absence of governmental or third-party payer systems. In the companion animal sector, competition is influenced by brand loyalty, new innovation, relationships with veterinarians, channel expansion and the overall growth in pet ownership.

    Diversified product portfolios.  Animal health companies often derive their revenue from dozens, if not hundreds, of products and are frequently not dependent on a select few flagship products. For example, our top 10 products accounted for only 41% of revenue in 2017. We believe companies with diversified global companion and food animal product portfolios can be more resilient to changing market dynamics and are structured to better balance potential geographic, product and species volatility.

    Deep customer relationships.  Direct customer models allow animal health sales representatives and veterinary consultants to develop a deep understanding of customer needs, which often facilitate strong and impactful relationships. Representatives and consultants frequently partner with customers through product support and analytics, driving additional value for the customer.

    Fast and efficient R&D model.  Product approvals typically require a limited number of targeted studies in animals, which moderates research expenses. The approval process is generally predictable given the number of studies required, leading to average timelines

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      from initiation of development to approval of three to seven years at a cost of $50 to $100 million.

    Self-pay market.  Food animal producers, pet owners and veterinarians typically pay for products out of pocket, making them the primary decision makers. This results in manufacturers being able to price products based primarily on the end customer's realized value.

Our Competitive Strengths

          We believe the following strengths create sustainable competitive advantages that will enable us to continue to grow as a leader in the animal health industry.

    Established leader with a global presence and diversified product portfolio.  We are the fourth largest animal health company in the world, with revenue of $2.9 billion for the year ended December 31, 2017. Globally, we are #1 in medicinal feed additives, #2 in poultry and #3 in cattle, as measured by 2017 revenue, according to Vetnosis. We also have one of the broadest portfolios of pet parasiticides in the companion animal sector, based on indications, species and formulations. We have a top four presence in all four key geographic regions (NA, EMEA, LATAM and APAC), as measured by 2017 revenue, according to Vetnosis, including a strong presence in the emerging markets of Brazil, Thailand, China and Mexico. We have a comprehensive and diversified product portfolio, with more than 125 brands sold in more than 90 countries. In 2017, our top 10 products accounted for 41% of our revenue, with our top selling product accounting for approximately 10% of our revenue. Our global footprint includes a direct commercial presence in 62 countries, which we have plans to reduce to fewer than 50 countries, and third-party distribution relationships serving other relevant markets. Of our approximately 1,530 sales representatives as of June 30, 2018, two-thirds were based outside of North America.

    Strategically positioned to drive innovation and growth in our three targeted growth categories. Over the past 10 years, we have intentionally transformed Elanco from a food animal focused company into a diversified global company. In addition to our FA Ruminants & Swine category, we now have established positions in our three targeted growth categories: CA Disease Prevention, CA Therapeutics and FA Future Protein & Health. To achieve this, among other steps, we have made strategic acquisitions to expand our product portfolio, increase our sales presence globally and obtain R&D and manufacturing capabilities in these categories. Recent acquisitions include the animal health business of Janssen Pharmaceutica NV, a subsidiary of Johnson and Johnson Company ("Janssen Animal Health"), ChemGen Corp. ("ChemGen"), Lohmann SE ("Lohmann Animal Health"), the animal health business of Novartis AG ("Novartis Animal Health") and the U.S. feline and canine vaccines portfolio of Boehringer Ingelheim Vetmedica, Inc. (the "BI Vetmedica U.S. vaccines portfolio"). See "Business — Company History." As a result of these acquisitions as well as organic growth, we have grown our companion animal categories, from a minimal presence in 2007 to more than $900 million in revenue in 2017. We believe that as a result of establishing a strong presence in our targeted growth categories, which feature favorable industry dynamics, we are strategically positioned to grow our revenue and increase profitability.

    Strength of brands and relationships in our FA Ruminants & Swine category.  We provide a range of products for use in ruminant and swine production that we believe have created strong, long-standing customer relationships and provide an important revenue source for our business and for investment capital to support future growth. We have well-established Elanco brands in this category such as Rumensin, a leading cattle feed additive that has

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      been used for more than 40 years to improve feed efficiency and control coccidiosis. In addition, our technical expertise and analytics help us deliver value to our customers beyond our products. Our analytics help producers analyze large amounts of health and production data, turning that data into actionable information that helps them improve the health of their animals and, as a result, their productivity and profitability. We believe our brands and additional customer support have helped us create broad name recognition and a high level of trust among target customers, which is important to the success of our food animal products. We expect to continue to be a leader in FA Ruminants & Swine.

    Proven track record of innovation and product launches.  We have developed in-house R&D capabilities in the chemical sciences and life sciences, which enable us to discover and develop vaccines and small and large molecules in our targeted areas. We also have an R&D platform that enables us to discover, develop and evaluate future nutritional health opportunities in enzymes, probiotics and prebiotics. Beyond our strong in-house R&D, we also access ideas and innovation from a broad array of sources. This inclusive approach to innovation allows us to identify, attract, fund and develop new ideas in a manner that enhances our pipeline while, we believe, reducing the risk associated with an in-house only innovation model. As a result, we launched nine products from 2015 to 2017 that delivered revenue of $24.7 million in 2015, $97.9 million in 2016, $143.8 million in 2017 and $136.6 million in the first half of 2018. We believe our new products will be an important source of future revenue.


New Launches by Quarter

GRAPHIC


(1)
We suspended commercialization of Imrestor in the second quarter of 2018 and plan to pursue additional indications. Revenues from Imrestor were $6.5 million for the year ended December 31, 2017 and $1.0 million for the six months ended June 30, 2018.

Three of these products were developed following the traditional in-house model, while the other products were obtained through an acquisition or venture capital investment. These launches are evidence of our ability to identify innovation from diverse sources and develop them into distinctive products in our targeted categories. They include: Credelio, for the treatment and elimination of fleas and ticks in dogs and puppies; Interceptor Plus, for the prevention of heartworm disease and treatment and control of other endoparasite infections

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    in dogs and puppies; Galliprant, for the treatment of canine osteoarthritis pain and inflammation; Osurnia, for the treatment of otitis externa in dogs; Clynav, for the immunization of Atlantic salmon against pancreas disease; Imvixa, for the prevention and control of sea lice; Inteprity, for the prevention of mortality caused by necrotic enteritis in broiler chickens; Kavault, for the reduction of diarrhea in weaned pigs; and Imrestor, which we suspended commercialization of in the second quarter of 2018, for the reduction of incidence of clinical mastitis in periparturient dairy cows. In 2017, Clynav and Galliprant were named best food animal and companion animal products, respectively, by Animal Pharm. We currently have R&D projects relating to 36 potential new product innovations (which we define as new chemical entities, new combinations or significant line extensions), which we are investigating as candidates for potential new product launches through 2023. We believe our approach to innovation will enable us to create and maintain an attractive pipeline of novel products.

    Expertise in driving cost efficiencies and productivity.  In the last 10 years, we have successfully integrated 10 businesses, including businesses acquired within the last four years with an aggregate of 4,500 full-time employees, 12 manufacturing sites and eight R&D sites. These acquisitions had a negative impact on operating margins and over the last three years, we have identified and executed a number of initiatives which improved our operational efficiency and positively impacted our operating margins. Through the reduction of manufacturing and R&D sites, headcount rationalization, focused procurement initiatives, sales force organizational design and the establishment of an integration center of excellence, we estimate that we delivered more than $500 million in annualized cost savings from the beginning of 2015 through the end of 2017. Since 2015, in manufacturing we have closed three sites, reduced headcount from approximately 3,500 to approximately 2,330 employees and eliminated over 2,600 stock keeping units, or SKUs (we currently supply approximately 4,400 SKUs). Drawing on these experiences, we are currently executing additional productivity initiatives throughout the organization that we believe will materially strengthen the margin profile of our business over time.

    Experienced management team and dedicated employees.  Our executive management team is comprised of a group of leaders with diverse backgrounds and extensive experience across global animal health and related industries. We believe their experience has provided organizational capabilities to support our targeted growth strategies and helped us create a legacy of growth and transformation in a dynamic industry. Our executives have taken an active role in important initiatives shaping the animal health industry. We also believe we have a loyal, highly engaged, customer-focused and cause-oriented professional workforce. We have recently strengthened our management team by adding executive officers with extensive public company experience.

Our Targeted Value-Generating Strategies

          We intend to continue to grow our business and create value for our shareholders through a targeted value-generating strategy with three key pillars: a Portfolio Strategy for our marketed

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products, an Innovation Strategy for our R&D pipeline and a Productivity Strategy for our margin expansion initiatives.

GRAPHIC

Portfolio Strategy

    Invest in categories with the greatest potential for growth.  We are focusing the majority of our resources, including more than 75% of our R&D funding, on our three targeted growth categories: CA Disease Prevention, CA Therapeutics and FA Future Protein & Health, where we believe we are well positioned to grow faster than the market. These categories represented 54% of our revenue in 2017.

    CA Disease Prevention — Parasiticides and vaccines are fundamental to preventing disease in companion animals. We have a strong vaccines portfolio as well as products that protect pets from a broad spectrum of parasites, such as fleas, ticks, heartworms, roundworms, hookworms, whipworms and tapeworms. We believe we are well positioned to drive additional growth through continued product innovation and sales channel expansion.

    CA Therapeutics — Pets are living longer and owners increasingly seek treatments for chronic diseases in their pets. To capitalize on these trends, we are focused on driving growth in our CA Therapeutics category by building on our broad base of pain and osteoarthritis products.

    FA Future Protein & Health — We expect to drive revenue growth through our poultry and aquaculture portfolios. Poultry and aquaculture are expected to be among the fastest growing animal health protein sources over the next 10 years. We also are focused on nutritional health products and antibiotic stewardship that address market trends in this category.

    Reinforce our strong presence in our FA Ruminants & Swine category.  We plan to continue fortifying our long-standing FA Ruminants & Swine category to meet our customers' needs through targeted product investment and by continuing to strengthen our deep business-to-business relationships through sales force excellence and leadership in industry coalitions. We also plan to continue to utilize analytics, social media and other support to provide value to our customers beyond our products.

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Innovation Strategy

    Maximize opportunities to innovate within targeted platforms.  Our R&D efforts focus on six areas across our companion and food animal categories where science and our capabilities best match market opportunities and meet customer needs.

    Companion Animal — We are targeting therapeutics, vaccines and parasiticides.

    Therapeutics — We are focused on continuing to discover and develop products in areas where we currently compete such as dermatology, otitis and pain. We are also pursuing novel targets to address unmet needs for chronic conditions in dogs and cats.

    Vaccines — We have a competitive line of core canine, feline and rabies vaccines that we are developing for expansion into geographies outside the U.S. We are also developing novel delivery technologies for companion animal vaccines, building on the success of the formulation innovation of our current product line.

    Parasiticides — We leverage proprietary active ingredients to develop and commercialize novel products with endoparasite and ectoparasite efficacy through combinations and novel formulations. We are also actively pursuing products with novel mechanisms of action to introduce innovation in this category.

    Food Animal — We are targeting pharmaceuticals, vaccines and the emerging nutritional health space.

    Pharmaceuticals — We focus efforts in discovery and development of novel pharmaceutical and biopharmaceutical products that could be effective alternatives to antibiotics or address other health challenges encountered in livestock production.

    Vaccines — We have active vaccine R&D programs to discover and develop products to address bacterial and viral threats in poultry, swine, cattle and fish.

    Nutritional Health — Building on our enzyme product platform and the success of Hemicell, we are targeting R&D efforts in nutritional health to deliver new products that improve gut health and performance in livestock. We focus on the role and composition of the microbiome on the health and digestive performance of the animal and look to introduce new products that are enzymes, probiotics or prebiotics.

    Inclusive approach to sourcing innovation.  We have a build, buy or ally strategy to identify, attract and develop new ideas in our six R&D focus areas in a manner intended to reduce risk and sustain our pipeline. In addition to traditional corporate R&D, we pursue in-licensing and partnering activities, actively and selectively engaging in funding models that include venture capital, project financing and crowdsourced innovation. This strategy gives us access to a wider range of novel ideas and increases our ability to bring innovative products to market compared to an in-house only model.

Productivity Strategy

    Leverage our productivity capabilities to improve operating margins.  We estimate that from the beginning of 2015 through the end of 2017, we generated more than $500 million in annualized cost savings through our productivity initiatives, including the integration of three major acquisitions. Leveraging this track record of productivity improvements and cost

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      savings, we aim to significantly increase our operating margins over time through our initiatives in manufacturing and SG&A. Our productivity strategies include:

      Manufacturing efficiency and cost savings. We plan to continue to execute on initiatives we have identified to improve manufacturing processes, reduce our manufacturing footprint, advance lean initiatives, consolidate our contract manufacturing organization ("CMO") network, strategically insource projects and pursue cost savings opportunities for raw materials through a new procurement process. We also plan to leverage our extensive integration experience to continue identifying cost-savings and delivering on our margin expansion objectives.

      SG&A excellence. Our sales strategy is focused on achieving growth in our targeted product categories while increasing productivity within our sales force. We plan to utilize both our sales force's strong customer relationships and our strategic distributor partnerships to efficiently grow demand for our products. We also have a targeted procurement initiative and are in the process of implementing a G&A steady state organizational design to reduce overhead costs and simplify infrastructure following the termination of our transitional service agreement with Lilly.

Risks Associated with Investing in Our Common Stock

          Investing in our common stock involves a number of risks. These risks include, but are not limited to, challenges related to the Separation (as defined below in "—The Separation"), the successful implementation of our strategy and the ability to grow our business. Some of these risks are:

Risks Related to the Separation

    We will incur significant charges in connection with this offering and the Separation and incremental costs as a standalone public company, including due to replicating or replacing certain functions, systems and infrastructure to which we will no longer have the same access after this offering. When we begin to operate these functions separately, if we do not have our own adequate systems and business functions in place, or are unable to obtain them from other providers, we may not be able to operate our business effectively or at comparable costs to the costs of services received under our transitional services agreement with Lilly. See "Certain Relationships and Related Party Transactions — Transitional Services Agreement."

    Our historical combined financial data is not necessarily representative of the results we would have achieved as a standalone company and may not be a reliable indicator of our future results. For example, our historical combined financial data reflects expense allocations for certain support functions that are provided on a centralized basis within Lilly, such as expenses for executive oversight, treasury, legal, finance, human resources, tax, internal audit, financial reporting, information technology and investor relations that may be higher or lower than the comparable expenses we would have actually incurred, or will incur in the future, as a standalone company.

    We may not be able to replace the services provided by Lilly under the transitional services agreement or enter into appropriate third-party agreements on terms and conditions, including cost, comparable to those that we will receive from Lilly under our transitional services agreement. Additionally, after the transitional services agreement terminates, we may be unable to sustain the services at the same levels or obtain the same benefits as when we were receiving such services and benefits from Lilly. Due to the scope and complexity of the underlying projects relative to these efforts, the amount of total costs

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      could be materially higher than our estimate, and the timing of the incurrence of these costs is subject to change.

    As a result of the Separation, we will lose Lilly's brand, reputation, capital base and other resources, and may experience difficulty operating as a standalone company. The loss of Lilly's scale, capital base and financial strength may prompt suppliers to reprice, modify or terminate their relationships with us, and Lilly's reduction of its ownership of our company could potentially cause some of our existing agreements and licenses to be terminated.

    We may not be able to achieve the full strategic and financial benefits expected to result from the Separation.

Risks Related to Our Relationship with Lilly

    Following the completion of the offering, Lilly will continue to have significant control over us for a period of time, which could continue indefinitely, preventing you and other shareholders from influencing significant decisions. For so long as Lilly controls the majority of the voting power of our outstanding common stock, it will determine the outcome of all corporate actions requiring shareholder approval.

    Lilly's interests may differ from our interests and the interests of our public shareholders, and therefore actions Lilly takes with respect to us, as a controlling or significant shareholder, including under the master separation agreement, may not be favorable to us or our public shareholders.

    For so long as Lilly controls a majority of the voting power of our outstanding common stock, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to shareholders of companies that are subject to such requirements. For example, we may not have a majority of independent directors or corporate governance and compensation committees consisting entirely of independent directors.

Risks Related to Our Business and Industry

    The animal health industry is highly competitive. Our competitors include standalone animal health businesses, the animal health businesses of large pharmaceutical companies, specialty animal health businesses and companies that mainly produce generic products. These competitors may have access to greater financial, marketing, technical and other resources. As a result, they may be able to devote more resources to developing, manufacturing, marketing and selling their products, initiating or withstanding substantial price competition or more readily taking advantage of acquisitions or other opportunities.

    Disruptive innovations and advances in veterinary medical practices, animal health technologies and alternatives to animal-derived protein, could negatively affect the market for our products. For example, the market for our companion animal therapeutics has been particularly affected by innovation in new molecules and delivery formulations in recent years.

    Regulatory restrictions and bans on the use of antibiotics and productivity products in food animals, as well as changing market demand, may continue to negatively affect demand for certain of our food animal products. For example, in certain markets, including the U.S., sales of certain of our food animal products have been negatively affected by an increase in consumer sentiment for "clean" proteins and dairy products (i.e., proteins and dairy products produced without the use of antibiotics or other products intended to increase animal production).

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    Generic products may be viewed as more cost-effective than our products. Generic competitors are becoming more aggressive in terms of launching products before patent rights expire, and, because of attractive pricing, sales of generic products are an increasing percentage of overall animal health sales in certain regions.

    We may not successfully implement our business strategies or achieve targeted cost efficiencies and gross margin improvements. Realizing the anticipated benefits from our strategic initiatives, if any benefits are achieved at all, may take several years. Additionally, we may have insufficient access to capital to fund investments in strategic initiatives, or our business strategy may change from time to time, which could delay our ability to implement initiatives that we believe are important to our business.

    Consolidation of our customers and distributors could negatively affect the pricing of our products. In recent years, there has been a trend towards the concentration of veterinarians in large clinics and hospitals. In addition, food animal producers, particularly swine and poultry producers, and our distributors have seen recent consolidation in their industries. Furthermore, we have seen the expansion of larger cross border corporate customers and an increase in the consolidation of buying groups (cooperatives of veterinary practices that leverage volume to pursue discounts from manufacturers). If these trends towards consolidation continue, our customers could attempt to improve their profitability by leveraging their buying power to obtain favorable pricing.

    An outbreak of infectious disease carried by food animals could negatively affect the demand for, and sale and production of, our food animal products. In recent years, outbreaks of various diseases, including avian influenza, foot and mouth disease, bovine spongiform encephalopathy (otherwise known as BSE or "mad cow" disease) and porcine epidemic diarrhea virus (otherwise known as PEDV), have negatively impacted sales of our animal health products.

    Our R&D, acquisition and licensing efforts may fail to generate new products or expand the use of our existing products. We may be unable to determine with accuracy when or whether any of our products now under development will be approved or launched, or we may be unable to develop, license or otherwise acquire product candidates or products. In addition, we cannot predict whether any products, once launched, will be commercially successful or will achieve sales and revenue that are consistent with our expectations.

    We had losses on an as-reported basis for the last three years, and we expect to continue to incur substantial expenditures to develop, manufacture and market our products and implement our business strategies.

          The foregoing is only a summary of some of our risks. For a more detailed discussion of these and other risks you should consider before making an investment in our common stock, see "Risk Factors."

The Separation

          Prior to the completion of this offering, we are a wholly-owned subsidiary of Lilly, and all of our outstanding shares of common stock are owned by Lilly.

          In connection with the completion of this offering, through a series of equity and other transactions, Lilly will transfer to us substantially all of its animal health businesses that will form our business going forward. In exchange, we will pay to Lilly as consideration (i) all of the net proceeds we will receive from the sale of our common stock in this offering, including any net proceeds we receive as a result of any exercise of the underwriters' overallotment option, (ii) all of the net proceeds ($              million) we received in the Debt Transactions (as defined below) and

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(iii)                   newly issued shares of our common stock; provided, to the extent the unrestricted cash held by us immediately prior to the completion of this offering is less than $              million, we will retain a portion of the net proceeds so that the unrestricted cash held by us for working capital and other general corporate purposes upon completion of this offering is $              million. In addition, a portion of the consideration to be paid to Lilly will be temporarily retained by us as restricted cash in connection with the transfer to us from Lilly of certain animal health assets in certain jurisdictions that will occur following the completion of the offering. We refer to these separation transactions, as described in "The Separation and Distribution Transactions—The Separation," as the "Separation."

          In addition, immediately prior to the completion of this offering, we and Lilly intend to enter into, or have entered into, certain agreements that will provide a framework for our ongoing relationship with Lilly. For a description of these agreements, see "Certain Relationships and Related Party Transactions — Relationship with Lilly."

Debt Transactions

          On                    , 2018, we issued $          million aggregate principal amount of senior notes (the "Senior Notes") in a private placement (the "Senior Notes Offering"). The Senior Notes were issued in multiple tranches.

          On                    , 2018, we entered into credit facilities (the "Credit Facilities") in an aggregate principal amount of $          million. We refer to the entry into the Credit Facilities and the Senior Notes Offering together as the "Debt Transactions." We refer to the Separation and the Debt Transactions together as the "Transactions."

The Distribution

          Lilly has informed us that, as of the date of this prospectus, it intends, following this offering, to make a distribution to its shareholders of all or a portion of its equity interest in us, which may include one or more distributions effected as a dividend to all Lilly shareholders, one or more offers to Lilly shareholders to exchange their Lilly shares for shares of our common stock, or any combination thereof. We refer to any such potential distribution as the "Distribution."

          While, as of the date of this prospectus, Lilly intends to effect the Distribution, Lilly has no obligation to pursue or consummate any further dispositions of its ownership interest in us, including through the Distribution, by any specified date or at all. If pursued, the Distribution may be subject to various conditions, including receipt of any necessary regulatory or other approvals, the existence of satisfactory market conditions and the receipt of an opinion of counsel to the effect that the Separation, together with such Distribution, would be tax-free to Lilly and its shareholders for U.S. federal income tax purposes. The conditions to the Distribution may not be satisfied, Lilly may decide not to consummate the Distribution even if the conditions are satisfied or Lilly may decide to waive one or more of these conditions and consummate the Distribution even if all of the conditions are not satisfied.

          The Distribution is not being effected pursuant to this prospectus, and the underwriters of this offering are not acting as underwriters for the Distribution.

Corporate Information

          Elanco Animal Health Incorporated was incorporated in Indiana on May 3, 2018. Our principal executive offices are located at 2500 Innovation Way, Greenfield, Indiana 46140, and our telephone number is (877) 352-6261. Our corporate website address is www.elanco.com. Our website and the information contained on, or that can be accessed through, our website is not deemed to be incorporated by reference in, and is not considered part of, this prospectus. You should not rely on any such information in making your decision whether to purchase our common stock.

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The Offering

Issuer

  Elanco Animal Health Incorporated

Common stock offered by us

 

             shares of common stock (or             shares of common stock if the underwriters exercise their option to purchase additional shares in full).

Common stock to be held by Lilly immediately after this offering

 

             shares of common stock.

Common stock to be outstanding immediately after this offering

 

             shares of common stock (or             shares of common stock if the underwriters exercise their option to purchase additional shares in full).

Option to purchase additional shares of common stock

 

The underwriters have an option to purchase an             additional             shares of common stock from us. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.

Use of proceeds

 

We estimate that the net proceeds from the sale of our common stock in this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $             million ($             million if the underwriters exercise their option to purchase additional shares in full) based on an assumed initial public offering price of $             per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus).

 

We intend to pay to Lilly as consideration for the portion of its animal health businesses Lilly is contributing to us in connection with the Separation all of the net proceeds we will receive from the sale of our common stock in this offering, including any net proceeds we receive as a result of any exercise of the underwriters' overallotment option, together with the net proceeds we received from the Debt Transactions; provided, to the extent the unrestricted cash held by us immediately prior to the completion of this offering is less than $              million, we will retain a portion of the net proceeds so that the unrestricted cash held by us for working capital and other general corporate purposes upon completion of the offering is $              million. In addition, a portion of the consideration to be paid to Lilly will be temporarily retained by us as restricted cash in connection with the transfer to us from Lilly of certain animal health assets in certain jurisdictions that will occur following the completion of the offering. See "Use of Proceeds."

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Dividend policy

 

We initially expect to pay quarterly cash dividends to holders of our common stock of $           per share, subject to the discretion of our board of directors. Our ability to pay dividends is subject to certain limitations and we may change our dividend policy at any time. See "Risk Factors — Risks Related to Our Indebtedness," "Risk Factors — Risks Related to Our Initial Public Offering and Ownership of Our Common Stock — While we currently intend to pay a quarterly cash dividend to our common shareholders, we may change our dividend policy at any time" and "Dividend Policy."

Risk Factors

 

Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 20 and the other information included in this prospectus for a discussion of factors you should carefully consider before investing in our common stock.

Principal Shareholders

 

Upon completion of this offering, Lilly will continue to own a controlling interest in us. Accordingly, we intend to avail ourselves of the "controlled company" exemption under the corporate governance rules of the NYSE. See "Management — Director Independence and Controlled Company Exemption" and "Principal Shareholder."

Listing

 

We intend to apply to have our common stock listed on the NYSE under the symbol "ELAN."

          Except as otherwise indicated, the number of shares of our common stock outstanding after this offering and the other information presented in this prospectus:

    gives effect to the transactions described under "The Separation and Distribution Transactions — The Separation;"

    assumes no exercise of the underwriters' option to purchase additional shares;

    assumes an initial public offering price of $             per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus);

    excludes an aggregate of             shares of our common stock that will be available for future equity awards under our equity incentive plan, including shares of our common stock issuable upon vesting of the Founders' Awards we intend to issue following the completion of this offering, as further described in "Executive and Director Compensation — Anticipated Compensation Program Following This Offering — Founders' Awards;" and

    gives effect to our amended and restated certificate of incorporation and our amended and restated bylaws, which will be in effect prior to the completion of this offering.

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Summary Historical and Unaudited Pro Forma Combined Financial Data

          We report our financial results in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The summary historical combined statement of operations data for the six months ended June 30, 2018 and 2017 and the summary historical combined balance sheet data as of June 30, 2018 presented below have been derived from our unaudited combined financial statements included elsewhere in this prospectus. The summary historical combined statement of operations data for the years ended December 31, 2017, 2016 and 2015 and the combined balance sheet data as of December 31, 2017 and 2016 presented below have been derived from our audited combined financial statements included elsewhere in this prospectus.

          Our combined financial statements include the attribution of certain assets and liabilities that have historically been held at the Lilly corporate level but which are specifically identifiable or attributable to us. Our combined financial statements also include expense allocations related to certain Lilly corporate functions, including executive oversight, treasury, legal, finance, human resources, tax, internal audit, financial reporting, information technology and investor relations. These expenses have been allocated to us based on direct usage or benefit where specifically identifiable, with the remainder allocated primarily on a pro rata basis of revenue, headcount or other measures. We believe that this expense methodology, and the results thereof, is reasonable for all periods presented. However, the allocations may not be indicative of the actual expense that would have been incurred if we would have operated as an independent, publicly traded company for the periods presented. It is impractical to estimate what our standalone costs would have been for the historical periods presented.

          The summary unaudited pro forma condensed combined statement of operations data for the six months ended June 30, 2018 and the year ended December 31, 2017 and summary unaudited pro forma condensed combined balance sheet data as of June 30, 2018 presented below have been derived from our unaudited pro forma condensed combined financial statements included elsewhere in this prospectus. The unaudited pro forma information set forth below reflects our historical combined financial information, as adjusted to give effect to the Transactions as if they had occurred as of January 1, 2017, in the case of statement of operations data, and June 30, 2018, in the case of balance sheet data. The unaudited pro forma information is illustrative and not intended to represent what our results of operations or financial position would have been had the Transactions occurred on the dates indicated or to project our results of operations or financial position for any future period. For an understanding of the pro forma financial statements that give pro forma effect to the Transactions, see "Unaudited Pro Forma Condensed Combined Financial Statements" included elsewhere in this prospectus.

          The financial statements included in this prospectus may not be indicative of our future performance and do not necessarily reflect what our financial position and results of operations would have been had we operated as an independent, publicly traded company for the periods presented, including changes that will occur in our operations and capital structure as a result of this offering and the Separation.

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          You should read the information set forth below together with "Selected Historical Combined Financial Data," "Unaudited Pro Forma Condensed Combined Financial Statements," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Capitalization," and our combined financial statements and the related notes thereto included elsewhere in this prospectus.

    Six Months Ended
June 30,
    Year Ended December 31,
 

          Historical           Historical
 

    Pro Forma
2018
    2018     2017     Pro Forma
2017
    2017     2016     2015
 

    (Dollars in millions)  

Statement of Operations Data:

                                           

Revenue

  $     $ 1,506.4   $ 1,437.6   $     $ 2,889.0   $ 2,913.5   $ 2,909.1  

Costs, expenses and other:

                                           

Cost of sales

          791.5     712.7           1,493.9     1,409.0     1,533.7  

Research and development

          126.6     127.9           251.7     265.8     291.0  

Marketing, selling and administrative

          371.1     388.4           779.8     784.8     916.0  

Amortization of intangible assets

          98.6     109.4           221.2     170.7     163.0  

Asset impairment, restructuring and other special charges

          70.4     165.6           375.1     308.4     263.3  

Other — net, (income) expense

          10.7     1.6           (0.1 )   (2.8 )   1.6  

Income (loss) before income taxes

  $     $ 37.5   $ (68.0 ) $     $ (232.6 ) $ (22.4 ) $ (259.5 )

Income tax expense (benefit)

          27.6     60.5           78.1     25.5     (48.7 )

Net income (loss)

  $     $ 9.9   $ (128.5 ) $     $ (310.7 ) $ (47.9 ) $ (210.8 )

Net income (loss) as a percent of revenue

          1 %   (9 )%         (11 )%   (2 )%   (7 )%

Pro forma net income (loss) per share:

                                           

Basic

  $                 $                      

Diluted

  $                 $                      

Pro forma weighted average shares outstanding:

                                           

Basic

                                           

Diluted

                                           

Statement of Cash Flow Data:

                                           

Net cash provided by (used in):

                                           

Operating activities

  $     $ 183.9   $ 90.6   $     $ 173.8   $ 155.9   $ 6.6  

Investing activities

          (57.5 )   (903.8 )         (964.6 )   (182.1 )   (4,995.4 )

Financing activities

          (123.7 )   811.9           847.5     (149.6 )   5,353.2  

Other Data (non-GAAP):

                                           

Adjusted EBITDA(1)

  $     $ 306.2   $ 278.4   $     $ 498.9   $ 540.4   $ 393.7  

Adjusted net income(1)

  $     $ 219.0   $ 156.4   $     $ 250.5   $ 332.6   $ 208.7  

 

                As of December 31,
 

    As of June 30, 2018     Historical
 

    Pro Forma     Historical     2017     2016
 

    (Dollars in millions)  

Balance Sheet Data:

                         

Current assets

  $     $ 2,056.9   $ 2,123.7   $ 1,947.4  

Current liabilities

          558.4     632.6     618.9  

Property and equipment, net

          877.7     920.3     741.8  

Total assets

          8,577.4     8,940.3     8,099.7  

Total liabilities

          990.80     1,149.5     1,071.8  

Long-term debt

                   

Total equity

          7,586.6     7,790.8     7,027.9  

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(1)
Non-GAAP Financial Measures

Adjusted EBITDA

We define adjusted EBITDA as net income (loss) adjusted for interest expense, income tax expense (benefit) and depreciation and amortization, further adjusted to exclude purchase accounting adjustments to inventory, integration costs of acquisitions, severance, asset impairment, gain on sale of assets, facility exit costs and other specified significant items, such as unusual or non-recurring items that are unrelated to our long-term operations. For the periods presented, we have not made adjustments for all items that may be considered unrelated to our long-term operations. We believe adjusted EBITDA, when used in conjunction with our results presented in accordance with U.S. GAAP and its reconciliation to net income (loss), enhances investors' understanding of our performance, valuation and prospects for the future. We also believe adjusted EBITDA is a measure used in the animal health industry by analysts as a valuable performance metric for investors.

The following is a reconciliation of adjusted EBITDA to net income (loss), as reported under U.S. GAAP for the six months ended June 30, 2018 and 2017 and the years ended December 31, 2017, 2016 and 2015:

Six Months Ended
June 30,
Year Ended December 31,  

Pro Forma Historical Pro Forma Historical  

2018 2018 2017 2017 2017 2016 2015  

(Dollars in millions)  

Reported Net Income (Loss)

$   $ 9.9 $ (128.5 ) $   $ (310.7 ) $ (47.9 ) $ (210.8 )  

Interest expense

     

Income tax expense (benefit)

  27.6 60.5   78.1 25.5 (48.7 )  

Depreciation and amortization

  149.6 156.1   318.4 254.4 236.9  

EBITDA

  187.1 88.1   85.8 232.0 (22.6 )  

Purchase accounting adjustments to inventory(a)

  26.5   42.7 153.0  

Integration costs of acquisitions(b)

  5.6 68.7   90.3 154.8 140.8  

Severance(b)

  (2.6 ) 56.3   162.0 42.1 59.5  

Asset impairment(b)

  57.7 43.8   110.6 98.3 57.5  

Gain on sale of assets(b)

  (16.0 )   (19.6 )  

Facility exit costs(b)

  9.7 12.8   31.8 13.2 5.5  

Contingent consideration(c)

  8.5 (1.8 )   (4.7 )  

Inventory write-off(d)

  40.2    

Adjusted EBITDA

$   $ 306.2 $ 278.4 $   $ 498.9 $ 540.4 $ 393.7  

(a)
See Note 4: Acquisitions to our audited combined financial statements.

(b)
See Note 4: Asset Impairment, Restructuring and Other Special Charges to our unaudited interim combined financial statements and Note 5: Asset Impairment, Restructuring and Other Special Charges to our audited combined financial statements.

(c)
See Note 6: Financial Instruments to our unaudited interim combined financial statements.

(d)
See Note 5: Inventories to our unaudited interim combined financial statements.

    Adjusted Net Income

    We define adjusted net income as net income (loss) excluding amortization of intangible assets, purchase accounting adjustments to inventory, integration costs of acquisitions, severance, asset impairment, gain on sale of assets, facility exit costs and other specified significant items, such as unusual or non-recurring items that are unrelated to our long-term operations. For the periods presented, the only other specified significant item included is the exclusion in 2017 of the benefit related to the recently enacted U.S. tax reform legislation. Adjusted net income is an alternative view of performance used by management to evaluate the results of our operations and the discovery, development, manufacture and commercialization of our products, prior to considering certain income statement elements. Specifically, management intends to use adjusted net income for the purpose of analyzing performance results and setting compensation targets. We believe adjusted net income, when used in conjunction with our results presented in accordance with U.S. GAAP and its reconciliation to net income (loss), enhances investors' understanding of our performance, valuation and prospects for the future. We also believe adjusted net income is a measure used in the animal health industry by analysts as a valuable performance metric for investors.

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    The following is a reconciliation of adjusted net income to net income (loss), as reported under U.S. GAAP for the six months ended June 30, 2018 and 2017 and the years ended December 31, 2017, 2016 and 2015:

Six Months Ended
June 30,
Year Ended December 31,  

Pro Forma Historical Pro Forma Historical  

2018 2018 2017 2017 2017 2016 2015  

(Dollars in millions)  

Reported Net Income (Loss)

$   $ 9.9 $ (128.5 ) $   $ (310.7 ) $ (47.9 ) $ (210.8 )  

Purchase Accounting Adjustments:

               

Amortization of intangible assets

  98.6 109.4   221.2 170.7 163.0  

Purchase accounting adjustments to inventory(a)

  26.5   42.7 153.0  

Integration costs of acquisitions(b)

  5.6 68.7   90.3 154.8 140.8  

Severance(b)

  (2.6 ) 56.3   162.0 42.1 59.5  

Asset impairment(b)

  57.7 43.8   110.6 98.3 57.5  

Gain on sale of assets(b)

  (16.0 )   (19.6 )  

Facility exit costs(b)

  9.7 12.8   31.8 13.2 5.5  

Contingent consideration(c)

  8.5 (1.8 )   (4.7 )  

Inventory write-off(d)

  40.2    

Other:

               

U.S tax reform(e)

    (33.1 )  

Tax effect of adjustments(f)

  (8.6 ) (14.8 )   (40.0 ) (98.5 ) (159.8 )  

Adjusted Net Income

$   $ 219.0 $ 156.4 $   $ 250.5 $ 332.6 $ 208.7  

(a)
See Note 4: Acquisitions to our audited combined financial statements.

(b)
See Note 4: Asset Impairment, Restructuring and Other Special Charges to our unaudited interim combined financial statements and Note 5: Asset Impairment, Restructuring and Other Special Charges to our audited combined financial statements.

(c)
See Note 6: Financial Instruments to our unaudited interim combined financial statements.

(d)
See Note 5: Inventories to our unaudited interim combined financial statements.

(e)
See Note 11: Income Taxes to our audited combined financial statements.

(f)
The tax effect of the adjustments is calculated by applying the applicable tax rate to each adjustment in each relevant jurisdiction. In jurisdictions where we had recorded deferred tax assets related to net operating losses that were offset with valuation allowances, we applied the applicable tax rate to each adjustment and further adjusted for the tax effect of the beneficial reversal of the valuation allowances.

    Limitations of Adjusted EBITDA and Adjusted Net Income

    The primary material limitations associated with the use of adjusted EBITDA and adjusted net income as compared to U.S. GAAP results include the following: (i) they may not be comparable to similarly titled measures used by other companies, including those in our industry, (ii) they exclude financial information and events, such as the effects of an acquisition or amortization of intangible assets, that some may consider important in evaluating our performance, value or prospects for the future, (iii) they exclude items or types of items that may continue to occur from period to period in the future and (iv) they may not exclude all unusual or non-recurring items, which could increase or decrease these measures, which investors may consider to be unrelated to our long-term operations, such as Strategic Exits. These non-GAAP measures are not, and should not be viewed as, substitutes for U.S. GAAP reported net income (loss). We encourage investors to review our combined financial statements in their entirety and caution investors to use U.S. GAAP measures as the primary means of evaluating our performance, value and prospects for the future, and adjusted EBITDA and adjusted net income as supplemental measures.

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RISK FACTORS

          Investing in our common stock involves a high degree of risk. You should consider carefully the following risks, together with all the other information in this prospectus, including our combined financial statements and notes thereto, before you invest in our common stock. If any of the following risks actually materializes, our business, financial condition and results of operations could be materially adversely affected. As a result, the trading price of our common stock could decline and you could lose part or all of your investment.

Risks Related to Our Business and Industry

The animal health industry is highly competitive.

          The animal health industry is highly competitive. Our competitors include standalone animal health businesses, the animal health businesses of large pharmaceutical companies, specialty animal health businesses and companies that mainly produce generic products. We believe many of our competitors are conducting R&D activities in areas served by our products and in areas in which we are developing products. There are also several new start-up companies competing in the animal health industry. We also face competition from manufacturers of drugs globally, as well as producers of nutritional health products. These competitors may have access to greater financial, marketing, technical and other resources. As a result, they may be able to devote more resources to developing, manufacturing, marketing and selling their products, initiating or withstanding substantial price competition or more readily taking advantage of acquisitions or other opportunities. Further, consolidation in the animal health industry could result in existing competitors realizing additional efficiencies or improving portfolio bundling opportunities, thereby potentially increasing their market share and pricing power, which could lead to a decrease in our revenue and profitability and an increase in competition. For example, many of our competitors have relationships with key distributors and, because of their size, the ability to offer attractive pricing incentives, which may negatively impact or hinder our relationships with these distributors. In addition to competition from established market participants, new entrants to the animal health medicines and vaccines industry could substantially reduce our market share, render our products obsolete or disrupt our business model.

          To the extent that any of our competitors are more successful with respect to any key competitive factor, or we are forced to reduce, or are unable to raise, the price of any of our products in order to remain competitive, our business, financial condition and results of operations could be materially adversely affected. Competitive pressure could arise from, among other things, more favorable safety and efficacy product profiles, limited demand growth or a significant number of additional competitive products being introduced into a particular market, price reductions by competitors, the ability of competitors to capitalize on their economies of scale, the ability of competitors to produce or otherwise procure animal health products at lower costs than us and the ability of competitors to access more or newer technology than us.

Disruptive innovations and advances in veterinary medical practices, animal health technologies and alternatives to animal-derived protein, could negatively affect the market for our products.

          The markets for our products are regularly impacted by the introduction and/or broad market acceptance of newly-developed or alternative products that address the diseases and conditions for which we sell products, including "green" or "holistic" health products, specially bred disease-resistant animals or replacements for meat, milk, eggs or fish from alternative natural or synthetic sources. For example, the market for our companion animal therapeutics has been particularly affected by innovation in new molecules and delivery formulations in recent years. Technological breakthroughs by others may render obsolete our products and reduce or eliminate the market for

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our products. Introduction or acceptance of competing animal health products and innovation or disruptive protein alternatives could materially adversely affect our business, financial condition and results of operations.

Regulatory restrictions and bans on the use of antibiotics and productivity products in food animals, as well as changing market demand, may continue to negatively affect demand for certain of our food animal products.

          Over the past few years, our operational results have been, and will continue to be, affected by regulations and changing market demand. In certain markets, including the U.S., sales of certain of our food animal products have been negatively affected by an increase in consumer sentiment for "clean" proteins and dairy products (i.e., proteins and dairy products produced without the use of antibiotics or other products intended to increase animal production).

          There are two classes of antibiotics used in animal health: shared-class, or medically important, antibiotics, which are used to treat infectious disease caused by pathogens that occur in both humans and animals; and animal-only antibiotics, which are used to treat infectious disease caused by pathogens that occur in animals only. See "Business — Products — Antibiotics." Concerns that the use of antibiotics in food animal production may lead to increased antibiotic resistance of human pathogens have resulted in increased regulation and changing market demand. In December 2013, the U.S. Food & Drug Administration (the "FDA") announced final guidance establishing procedures for the voluntary phase-out in the U.S. over a three-year period of the use of shared-class antibiotics in animal feed for growth promotion in food animal production. The guidance allows for continued use of shared-class antibiotics in food-producing animals under the supervision of a veterinarian for treatment, control and, under certain circumstances, for prevention of disease. The FDA indicated that it took this action to help preserve the efficacy of shared-class antibiotics to treat infections in humans. As part of those efforts, stricter guidelines governing the administration of shared-class antibiotics have recently come into effect. As of January 1, 2017, under the FDA guidance and the related rule known as the Veterinary Feed Directive, the use of shared-class antibiotics in the water or feed of food-producing animals requires written authorization by a licensed veterinarian. In addition, other countries in which we sell or plan to sell our products, such as France and Vietnam, have passed restrictions or bans on antibiotic use. Other countries have placed restrictions or bans on the use of specific antibiotics in certain food-producing animals, regardless of the route of administration (in feed or injectable).

          From 2015 to 2017, our revenue from shared-class antibiotics declined at a CAGR of 7%, excluding the impact of foreign exchange, driven primarily by changing regulations in many markets, including the Veterinary Feed Directive, as well as changing market demand. Globally, during the first half of 2018, our revenue from shared-class antibiotics was flat, excluding the impact of foreign exchange, and represented 12% (4% from sales in North America and 8% from sales outside of North America) of our total revenue, down from 16% in the first half of 2015. From 2015 to 2017, our revenue from animal-only antibiotics grew at a CAGR of 4%, excluding the impact of foreign exchange, driven by sales outside North America, which offset a slight decline in North America. Globally, during the first half of 2018, our revenue from animal-only antibiotics grew 9%, excluding the impact of foreign exchange, and represented 24% of our total revenue, up from 21% in the first half of 2015. During 2017, as well as the first half of 2018, 86% of our revenue from animal-only antibiotics resulted from the sale of ionophores. Ionophores are a special class of animal-only antibiotics, and because of their animal-only designation, mode of action and spectrum of activity, their use has not to date been impacted by regulations or changing market demand in many markets outside of North America.

          The impact of changes in regulations and market preferences regarding the use of antibiotics in food animals could have a material adverse effect on our business, financial condition and results

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of operations. If there is an increased public perception that consumption of food derived from animals that utilize our products poses a risk to human health, there may be a further decline in the production of those food products and, in turn, demand for our products. In addition, antibiotic resistance concerns will likely result in additional restrictions or bans, expanded regulations or public pressure to further reduce the use of antibiotics in food animals, increased demand for antibiotic-free protein, or changes in the market acceptance or regulatory treatment of ionophores, any of which could materially adversely affect our business, financial condition and results of operations.

          In addition, our revenue has also been impacted by regulatory changes in China and other markets restricting the use of productivity products, such as those containing ractopamine, in food animals. This has resulted in many U.S. food producers who access such markets to eliminate their use of ractopamine. Our FA Ruminants & Swine products Optaflexx and Paylean contain ractopamine. If more producers decide to access such markets or additional markets restrict the use of ractopamine or other productivity products, our business, financial condition and results of operations could be materially adversely affected.

Generic products may be viewed as more cost-effective than our products.

          We face competition from products produced by other companies, including generic alternatives to our products. We depend on patents and regulatory data exclusivity periods to provide us with exclusive marketing rights for some of our products. Patents for individual products expire at different times based on the date of the patent filing (or sometimes the date of patent grant) and the legal term of patents in the jurisdictions where such patents are obtained. The extent of protection afforded by our patents varies from jurisdiction to jurisdiction and is limited by the scope of the claimed subject matter of our patents, the term of the patent and the availability and enforcement of legal remedies in the applicable jurisdiction. In 2017, approximately 75% of our revenue was from products that did not have patent protection, including revenue from some of our top products such as Rumensin, Maxiban, Denagard and Tylan Premix. Other products are protected by patents that expire over the next several years. For example, certain patents related to Trifexis expire as early as 2020 in the U.S., 2021 in Japan and 2025 in European territories. As the patents for a brand name product expire, competitors may begin to introduce generic or other alternatives, and as a result, we may face competition from lower-priced alternatives to many of our products. For example, we have experienced significant competitive headwinds from generic ractopamine in the U.S. In the third quarter of 2013, a large established animal health company received U.S. approval for generic ractopamine. U.S. revenue from Optaflexx, our ractopamine beef product, has declined at a CAGR of 28% from 2015 to 2017 as a result of generic competition and international regulatory restrictions. We may face similar competition in the future for existing products that do not benefit from exclusivity, including Rumensin, which has not benefitted from patent protection in the U.S. for over 20 years, or for existing products with material patents expiring in the future. See "Business — Intellectual Property."

          Generic competitors are becoming more aggressive in terms of launching products before patent rights expire, and, because of attractive pricing, sales of generic products are an increasing percentage of overall animal health sales in certain regions. Although the impact of generic competition in the animal health industry to date has not typically mirrored that seen in human health, product pricing and the impact of generic competition in the future may more closely mirror human health as a result of changes in industry dynamics, such as channel expansion, consolidation, an increase in the availability and use of pet insurance and the potential for generic competition by established animal health businesses. If animal health customers increase their use of new or existing generic products, our business, financial condition and results of operations could be materially adversely affected.

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We may not successfully implement our business strategies or achieve targeted cost efficiencies and gross margin improvements.

          We are pursuing strategic initiatives that management considers critical to our long-term success, including, but not limited to: improving manufacturing processes, reducing our manufacturing footprint, achieving lean initiatives, consolidating our CMO network, strategically insourcing projects, pursuing cost savings opportunities with respect to raw materials through a new procurement process and improving the productivity of our sales force. We may pursue additional strategic initiatives in the future to improve gross margins and achieve our targeted cost efficiencies. We also have acquired or partnered with a number of smaller animal health businesses, and we intend to continue to do so in the future. There are significant risks involved with the execution of these initiatives, including significant business, economic and competitive uncertainties, many of which are outside of our control. Accordingly, we may not succeed in implementing these strategic initiatives. Realizing the anticipated benefits from these initiatives, if any benefits are achieved at all, may take several years. We may be unable to achieve our targeted cost efficiencies and gross margin improvements. Additionally, we may have insufficient access to capital to fund investments in strategic initiatives, or our business strategy may change from time to time, which could delay our ability to implement initiatives that we believe are important to our business.

Consolidation of our customers and distributors could negatively affect the pricing of our products.

          Third-party distributors, veterinarians and food animal producers are our primary customers. In recent years, there has been a trend towards the concentration of veterinarians in large clinics and hospitals. In addition, food animal producers, particularly swine and poultry producers, and our distributors have seen recent consolidation in their industries. Furthermore, we have seen the expansion of larger cross-border corporate customers and an increase in the consolidation of buying groups (cooperatives of veterinary practices that leverage volume to pursue discounts from manufacturers). The pace of consolidation and structure of markets varies greatly across geographies. If these trends towards consolidation continue, our customers could attempt to improve their profitability by leveraging their buying power to obtain favorable pricing. The resulting decrease in our prices could have a material adverse effect on our business, financial condition and results of operations.

An outbreak of infectious disease carried by food animals could negatively affect the demand for, and sale and production of, our food animal products.

          Sales of our food animal products could be materially adversely affected by the outbreak of disease carried by food animals, which could lead to the widespread death or precautionary destruction of food animals as well as the reduced consumption and demand for animal protein. In addition, outbreaks of disease carried by food animals may reduce regional or global sales of particular animal-derived food products or result in reduced exports of such products, either due to heightened export restrictions or import prohibitions, which may reduce demand for our food animal products due to reduced herd or flock sizes.

          In recent years, outbreaks of various diseases, including avian influenza, foot-and-mouth disease, bovine spongiform encephalopathy (otherwise known as BSE or "mad cow" disease) and porcine epidemic diarrhea virus (otherwise known as PEDV), have negatively impacted sales of our animal health products. The discovery of additional cases of any of these, or new, diseases may result in additional restrictions on animal protein, reduced herd or flock sizes, or reduced demand for animal protein, any of which may have a material adverse effect on our business, financial condition and results of operations. In addition, the outbreak of any highly contagious disease near our main production sites could require us to immediately halt production of our products at such sites or force us to incur substantial expenses in procuring raw materials or products elsewhere.

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Our R&D, acquisition and licensing efforts may fail to generate new products or expand the use of our existing products.

          Our future success depends on both our existing product portfolio and our pipeline of new products, including new products that we may develop through joint ventures and products that we are able to obtain through license or acquisition. We commit substantial effort, funds and other resources to R&D, both through our own dedicated resources and through collaborations with third parties.

          We may be unable to determine with accuracy when or whether any of our products now under development will be approved or launched, or we may be unable to develop, license or otherwise acquire product candidates or products. In addition, we cannot predict whether any products, once launched, will be commercially successful or will achieve sales and revenue that are consistent with our expectations. The animal health industry is subject to regional and local trends and regulations and, as a result, products that are successful in some markets may not achieve similar success when introduced into other markets. Furthermore, the timing and cost of our R&D may increase, and our R&D may become less predictable as, among other things, regulations applicable to our industry may make it more time-consuming and/or costly to research, develop and register products. If we are unable to generate new products or expand the use of our existing products, our business, financial condition and results of operations will be materially adversely affected. For example, between 2015 and 2017, prior to our February 2018 launch of Credelio in the U.S., we experienced an innovation lag in the companion animal parasiticide space. In the absence of a competitive combined oral flea and tick product, our U.S. companion animal parasiticide portfolio revenue declined 15% in 2017, excluding the impact on revenue resulting from a reduction in inventory levels within our distribution channel.

          In addition, some of our growth has occurred through Lilly's acquisitions, including Novartis Animal Health, Lohmann Animal Health, Janssen Animal Health and the BI Vetmedica U.S. vaccines portfolio. However, following the Separation, we will no longer benefit from Lilly's scale, capital base and financial strength.

We had losses on an as-reported basis for the last three years.

          Historically, we have incurred net losses, as reported on a combined basis, including a net income (loss) for each of the years ended December 31, 2017, 2016 and 2015 of $(310.7) million, $(47.9) million and $(210.8) million, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." We could continue to incur asset impairment, restructuring and other special charges and could report losses in the future. We also expect to continue to incur substantial expenditures to develop, manufacture and market our products and implement our business strategies. We may encounter unforeseen expenses, difficulties, complications, delays, adverse events and other unknown factors that may materially adversely affect our business.

The misuse or off-label use of our products may harm our reputation or result in financial or other damages.

          Our products have been approved for use under specific circumstances for the treatment of certain diseases and conditions in specific species. There may be increased risk of product liability claims if veterinarians, food animal producers, pet owners or others attempt to use our products off-label, including the use of our products in species (including humans) for which they have not been approved. Furthermore, the use of our products for indications other than those for which our products have been approved may not be effective, which could harm our reputation and lead to an increased risk of litigation. If we are deemed by a governmental or regulatory agency to have engaged in the promotion of any of our products for off-label use, such agency could request that we modify our training or promotional materials and practices, and we could be subject to

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significant fines and penalties, and the imposition of these sanctions could also affect our reputation and position within the industry. Any of these events could materially adversely affect our business, financial condition and results of operations.

Animal health products are subject to unanticipated safety, quality or efficacy concerns, which may harm our reputation.

          Unanticipated safety, quality or efficacy concerns arise from time to time with respect to animal health products, whether or not scientifically or clinically supported, leading to product recalls, withdrawals or suspended or declining sales, as well as product liability and other claims.

          Regulatory actions based on these types of safety, quality or efficacy concerns could impact all, or a significant portion, of a product's sales and could, depending on the circumstances, materially adversely affect our results of operations.

          In addition, since we depend on positive perceptions of the safety, quality and efficacy of our products, and animal health products generally, by food producers, veterinarians and pet owners, any concern as to the safety, quality or efficacy of our products, whether actual or perceived, may harm our reputation. These concerns and the related harm to our reputation could materially adversely affect our business, financial condition and results of operations, regardless of whether such reports are accurate.

Our business may be negatively affected by weather conditions and the availability of natural resources.

          The animal health industry and demand for many of our products in a particular region are affected by weather conditions, varying weather patterns and weather-related pressures from pests, such as ticks. As a result, we may experience regional and seasonal fluctuations in our results of operations.

          Food animal producers depend on the availability of natural resources, including large supplies of fresh water. Their animals' health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth or floods, droughts or other weather conditions. In the event of adverse weather conditions or a shortage of fresh water, veterinarians or food animal producers may purchase less of our products.

          Further, heat waves may cause stress in animals and lead to increased vulnerability to disease, reduced fertility rates and reduced milk production. Droughts may threaten pasture and feed supplies by reducing the quality and amount of forage available to grazing livestock, while climate change may increase the prevalence of parasites and diseases that affect food animals. Adverse weather conditions may also have a material impact on the aquaculture business. Changes in water temperatures could affect the timing of reproduction and growth of various fish species, as well as trigger the outbreak of certain water borne diseases.

          In addition, veterinary hospitals and practitioners depend on visits from, and access to, the animals under their care. Veterinarians' patient volume and ability to operate could be adversely affected if they experience prolonged snow, ice or other severe weather conditions, particularly in regions not accustomed to sustained inclement weather.

We may not be able to realize the expected benefits of our investments in emerging markets and are subject to certain risks due to our presence in emerging markets, including political or economic instability and failure to adequately comply with legal and regulatory requirements.

          We have taken steps to increase our presence in select emerging markets, including by expanding our sales organization and product offerings in these markets. Failure to continue to

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maintain and expand our business in emerging markets could materially adversely affect our business, financial condition and results of operations.

          In addition, certain emerging markets have legal systems that are less developed. Other jurisdictions in which we conduct business may have legal and regulatory regimes that differ materially from U.S. laws and regulations, are continuously evolving or do not include sufficient judicial or administrative guidance to interpret such laws and regulations. Compliance with diverse legal requirements is costly and time-consuming and requires significant resources. Violations or possible violations of applicable laws or regulations by our employees may result in investigation costs, potential penalties and other related costs which in turn could negatively affect our reputation and our results of operations.

          Some countries within emerging markets may be especially vulnerable to periods of local, regional or global economic, political or social instability or crisis. For example, our sales in certain emerging markets have suffered from extended periods of disruption due to natural disasters. Furthermore, we have also experienced lower than expected sales in certain emerging markets due to local, regional and global restrictions on banking and commercial activities in those countries. In addition, certain emerging markets have currencies that fluctuate substantially, which may impact our financial performance. For these reasons, among others, doing business within emerging markets carries significant risks.

Modification of foreign trade policy may harm our food animal product customers.

          Changes in laws, agreements and policies governing foreign trade in the territories and countries where our customers do business could negatively impact such customers' businesses and adversely affect our results of operations. A number of our customers, particularly U.S.-based food animal producers, benefit from free trade agreements, such as the North American Free Trade Agreement ("NAFTA"). The U.S. has initiated negotiations with Canada and Mexico aimed at re-negotiating terms of NAFTA. Efforts by the U.S. to withdraw from or materially modify NAFTA or other international trade agreements to which it is a party, as well as trade disputes or the imposition of tariffs, could harm our customers, and as a result, materially adversely affect our business, financial condition and results of operations.

Our business is subject to risk based on global economic conditions.

          Macroeconomic business and financial disruptions could have a material adverse effect on our business, financial condition and results of operations. Certain of our customers and suppliers could be affected directly by an economic downturn and could face constraints on the availability of credit or decreased cash flow that could give rise to payment delays, increased credit risk, bankruptcies and other financial hardships that could decrease the demand for our products or hinder our ability to collect amounts due from our customers. If one or more of our large customers, including distributors, discontinues or modifies their relationship with us as a result of economic conditions or otherwise, our business, financial condition and results of operations may be materially adversely affected. In addition, economic concerns may cause some pet owners to forgo or defer visits to veterinary practices or could reduce their willingness to treat pet health conditions or to continue to own a pet. Furthermore, our exposure to credit and collectability risk is higher in certain international markets and our ability to mitigate such risks may be limited. Our procedures intended to monitor and limit our exposure to credit and collectability risk may not effectively limit such risk and avoid losses.

Our results of operations are dependent upon the success of our top products.

          If any of our top products experience issues, such as disruptive innovations or the introduction of more effective competitive products, negative publicity, changes to veterinarian or customer preferences, loss of patent protection, material product liability litigation, new or unexpected side

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effects and/or regulatory proceedings, our revenue could be negatively impacted, perhaps significantly. Our top five products, Rumensin, Trifexis, Maxiban, Denagard and Tylan Premix, contributed approximately 29% of our revenue in 2017. Any issues with these top products, particularly Rumensin, which contributed approximately 10% of our revenue in 2017, could have a material adverse effect on our business, financial condition and results of operations.

Our business is subject to risk based on customer exposure to rising costs and reduced customer income.

          Feed, fuel, transportation and other key costs for food animal producers may increase or animal protein prices or sales may decrease. Either of these trends could cause deterioration in the financial condition of our food animal product customers, potentially inhibiting their ability to purchase our products or pay us for products delivered. Our food animal product customers may offset rising costs by reducing spending on our food animal products, including by switching to lower-cost alternatives to our products. In addition, concerns about the financial resources of pet owners could cause veterinarians to alter their treatment recommendations in favor of lower-cost alternatives to our products, which could result in a decrease in sales of our companion animal products, especially in developed countries where there is a higher rate of pet ownership. Rising costs or reduced income for our customers could have a material adverse effect on our business, financial condition and results of operations.

For our companion animal products, increased use of alternative distribution channels, or changes within existing distribution channels, could negatively impact our market share, margins and distribution of our products.

          In most markets, pet owners typically purchase their animal health products directly from veterinarians. However, pet owners increasingly have the option to purchase animal health products from sources other than veterinarians, such as online retailers, "big-box" retail stores or other over-the-counter distribution channels. This trend has been demonstrated by the significant shift away from the veterinarian distribution channel in the sale of flea and tick products in recent years. Pet owners also could decrease their reliance on, and visits to, veterinarians as they rely more on internet-based animal health information. Because we market our companion animal prescription products primarily through the veterinarian distribution channel, any decrease in visits to veterinarians by pet owners could reduce our market share for such products and materially adversely affect our business, financial condition and results of operations. In addition, pet owners may substitute human health products for animal health products if human health products are deemed to be lower-cost alternatives.

          Legislation has also been proposed in the U.S., and may be proposed in the U.S. or abroad in the future, that could impact the distribution channels for our companion animal products. For example, such legislation may require veterinarians to provide pet owners with written prescriptions and disclosure that the pet owner may fill prescriptions through a third party, which may further reduce the number of pet owners who purchase their animal health products directly from veterinarians. Such requirements may lead to increased use of generic alternatives to our products or the increased substitution of our companion animal products with other animal health products or human health products if such other products are deemed to be lower-cost alternatives. Many states already have regulations requiring veterinarians to provide prescriptions to pet owners upon request and the American Veterinary Medical Association has long-standing policies in place to encourage this practice.

          Over time, these and other competitive conditions may increase our use of online retailers, "big-box" retail stores or other over-the-counter distribution channels to sell our companion animal products. We may not be adequately prepared or able to distribute our companion animal products if an increased portion of our sales occurs through these channels. Also, we may realize lower

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margins on sales through these distribution channels than we do on sales through veterinarians. Any of these events could materially adversely affect our business, financial condition and results of operations.

          In addition, if one or more of our companion animal distributors discontinues or modifies their relationship with us, our business, financial condition and results of operations may be materially adversely affected. For example, in 2017, a change in our U.S. inventory management practices resulted in a revenue lag as existing inventory was sold down, which management estimates decreased our revenue by approximately $35 million.

Loss of our executive officers or other key personnel could disrupt our operations.

          We depend on the efforts of our executive officers and other key personnel. Our executive officers and other key personnel are not currently, and are not expected to be, subject to non-compete provisions. In addition, we have not entered into employment agreements with our executive officers or other key personnel. Any unplanned turnover or our failure to develop an adequate succession plan for one or more of our executive officer or other key personnel positions could deplete our institutional knowledge base and erode our competitive advantage. The loss or limited availability of the services of one or more of our executive officers or other key personnel, or our inability to recruit and retain qualified executive officers or other key personnel in the future, could, at least temporarily, have a material adverse effect on our business, financial condition and results of operations.

We may be required to write down goodwill or identifiable intangible assets.

          Under U.S. GAAP, if we determine goodwill or identifiable intangible assets are impaired, we will be required to write down these assets and record a non-cash impairment charge. As of June 30, 2018, we had goodwill of $2.9 billion and identifiable intangible assets, less accumulated amortization, of $2.5 billion. Identifiable intangible assets consist primarily of marketed products acquired or licensed from third parties, licensed platform technologies that have alternative future uses in R&D, manufacturing technologies, and customer relationships from business combinations. We also have indefinite-lived intangible assets, which consist of acquired in-process R&D projects from business combinations that are subject to impairment and non-cash impairment charges.

          Determining whether an impairment exists and the amount of the potential impairment involves quantitative data and qualitative criteria that are based on estimates and assumptions requiring significant management judgment. Future events or new information may change management's valuation of an intangible asset in a short amount of time. The timing and amount of impairment charges recorded in our combined statements of operations and write-downs recorded in our combined balance sheets could vary if management's conclusions change. Any impairment of goodwill or identifiable intangible assets could have a material adverse effect on our business, financial condition and results of operations.

Our R&D relies on evaluations of animals, which may become subject to bans, additional restrictive regulations or increased attention from activism movements.

          As an animal health medicines and vaccines business, the evaluation of our existing and new products in animals is required to register our products. Animal testing in certain industries has been the subject of controversy and adverse publicity. Some organizations and individuals have attempted to ban animal testing or encourage the adoption of new regulations applicable to animal testing. To the extent that the activities of such organizations and individuals are successful, our R&D, and by extension our business, financial condition and results of operations, could be materially adversely affected. In addition, negative publicity about us or our industry could harm our reputation.

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Manufacturing problems and capacity imbalances may cause product launch delays, inventory shortages, recalls or unanticipated costs.

          In order to sell our products, we must be able to produce and ship sufficient quantities to our customers. Following the Separation, we will own and operate 14 internal manufacturing sites located in nine countries. We also employ a network of approximately 120 third-party CMOs. Many of our products involve complex manufacturing processes and are sole-sourced from certain manufacturing sites.

          Minor deviations in our manufacturing or logistical processes, such as temperature excursions or improper package sealing, could result, and have in the past resulted in, delays, inventory shortages, unanticipated costs, product recalls, product liability and/or regulatory action. In addition, a number of factors could cause production interruptions, including:

    the failure of us or any of our vendors or suppliers, including logistical service providers, to comply with applicable regulations and quality assurance guidelines;

    mislabeling;

    construction delays;

    equipment malfunctions;

    shortages of materials;

    labor problems;

    natural disasters;

    power outages;

    criminal and terrorist activities;

    changes in manufacturing production sites and limits to manufacturing capacity due to regulatory requirements, changes in types of products produced, shipping distributions or physical limitations; and

    the outbreak of any highly contagious diseases near our production sites.

          These interruptions could result in launch delays, inventory shortages, recalls, unanticipated costs or issues with our agreements under which we supply third parties, which may materially adversely affect our business, financial condition and results of operations.

          Our manufacturing network may be unable to meet the demand for our products or we may have excess capacity if demand for our products changes. The unpredictability of a product's regulatory or commercial success or failure, the lead time necessary to construct highly technical and complex manufacturing sites and shifting customer demand (including as a result of market conditions or entry of branded or generic competition) increase the potential for capacity imbalances. In addition, construction of sites is expensive, and our ability to recover costs will depend on the market acceptance and success of the products produced at the new sites, which is uncertain.

We rely on third parties to provide us with materials and services and are subject to increased labor and material costs and potential disruptions in supply.

          The materials used to manufacture our products may be subject to availability constraints and price volatility caused by changes in demand, weather conditions, supply conditions, government regulations, economic climate and other factors. In addition, labor costs may be subject to volatility caused by the supply of labor, governmental regulations, economic climate and other factors. Increases in the demand for, availability or the price of, materials used to manufacture our products and increases in labor costs could increase the costs to manufacture our products, result in product delivery delays or shortages, and impact our ability to launch new products on a timely basis or at all. We may not be able to pass all or a material portion of any higher material or labor costs on to our customers, which could materially adversely affect our business, financial condition and results of operations.

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          We may be unable to meet demand for certain of our products if any of our third-party suppliers cease or interrupt operations, fail to renew contracts with us or otherwise fail to meet their obligations to us.

We may incur substantial costs and receive adverse outcomes in litigation and other legal matters.

          Our business, financial condition and results of operations could be materially adversely affected by unfavorable results in pending or future litigation matters. These matters may include, among other things, allegations of violation of U.S. and foreign competition law, labor laws, consumer protection laws and environmental laws and regulations, as well as claims or litigations relating to product liability, intellectual property, securities, breach of contract and tort. In addition, changes in the interpretations of laws and regulations to which we are subject, or in legal standards in one or more of the jurisdictions in which we operate, could increase our exposure to liability. For example, in the U.S., attempts have been made to allow damages for emotional distress and pain and suffering in connection with the loss of, or injury to, a companion animal. If such attempts were successful, our exposure with respect to product liability claims could increase materially.

          Litigation matters, regardless of their merits or their ultimate outcomes, are costly, divert management's attention and may materially adversely affect our reputation and demand for our products. We cannot predict with certainty the eventual outcome of pending or future litigation matters. An adverse outcome of litigation or legal matters could result in our being responsible for significant damages. Any of these negative effects resulting from litigation matters could materially adversely affect our business, financial condition and results of operations.

Our business is subject to substantial regulation.

          As a global company, we are subject to various state, federal and international laws and regulations, including regulations relating to the development, quality assurance, manufacturing, importation, distribution, marketing and sale of our products. Changes in applicable federal, state, local and foreign laws and regulations could have a material adverse effect on our business, financial condition and results of operations. In addition, our manufacturing facilities, including the manufacturing facilities operated by our CMOs, are subject to periodic inspections by regulatory agencies. An inspection may report conditions or practices that indicate possible violations of regulatory requirements. Our failure, or the failure of third parties we rely on, including CMOs, to comply with these regulatory requirements, allegations of such non-compliance or the discovery of previously unknown problems with a product or manufacturer could result in, among other things, inspection observation notices, warning letters or similar regulatory correspondence, fines, a partial or total shutdown of production in one or more of our facilities while an alleged violation is remediated, withdrawals or suspensions of current products from the market, and civil or criminal prosecution, as well as decreased sales as a result of negative publicity and product liability claims. Any one of these consequences could materially adversely affect our business, financial condition and results of operations.

          In addition, we will not be able to market new products unless and until we have obtained all required regulatory approvals in each jurisdiction where we propose to market those products. Even after a product reaches market, it may be subject to re-review and may lose its approvals. Our failure to obtain approvals, delays in the approval process, or our failure to maintain approvals in any jurisdiction, may prevent us from selling products in that jurisdiction until approval or re-approval is obtained, if ever. In regard to Brexit, the European Union ("EU") and the United Kingdom ("UK") negotiators have agreed to a transition period, which is scheduled to last until December 2020. It is unclear if the parties will be able to reach an agreement post-separation.

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The illegal distribution and sale by third parties of counterfeit or illegally compounded versions of our products or of stolen, diverted or relabeled products could have a negative impact on our reputation and business.

          Third parties may illegally distribute and sell counterfeit or illegally compounded versions of our products that do not meet the exacting standards of our development, manufacturing and distribution processes. Counterfeit or illegally compounded medicines pose a significant risk to animal health and safety because of the conditions under which they are manufactured and the lack of regulation of their contents. Counterfeit or illegally compounded products are frequently unsafe or ineffective and can be potentially life-threatening to animals. Our reputation and business could suffer harm as a result of counterfeit or illegally compounded products which are alleged to be equivalent and/or which are sold under our brand name. In addition, products stolen or unlawfully diverted from inventory, warehouses, plants or while in transit, which are not properly stored or which have an expired shelf life and which have been repackaged or relabeled and which are sold through unauthorized channels, could adversely impact animal health and safety, our reputation and our business. Public loss of confidence in the integrity of vaccines and/or pharmaceutical products as a result of counterfeiting, illegal compounding or theft could have a material adverse effect on our business, financial condition and results of operations.

We are subject to complex environmental, health and safety laws and regulations.

          We are subject to various federal, state, local and foreign environmental, health and safety laws and regulations. These laws and regulations govern matters such as the emission and discharge of hazardous materials into the ground, air or water; the generation, use, storage, handling, treatment, packaging, transportation, exposure to and disposal of hazardous and biological materials, including recordkeeping, reporting and registration requirements; and the health and safety of our employees. Due to our operations, these laws and regulations also require us to obtain, and comply with, permits, registrations or other authorizations issued by governmental authorities. These authorities can modify or revoke our permits, registrations or other authorizations and can enforce compliance through fines and injunctions.

          Given the nature of our business, we have incurred, are currently incurring and may in the future incur liabilities for the investigation and remediation of contaminated land under the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or under other federal, state, local and foreign environmental cleanup laws, with respect to our current or former sites, adjacent or nearby third-party sites, or offsite disposal locations. We could be subject to liability for the investigation and remediation of legacy environmental contamination caused by historical industrial activity as sites that we own or on which we operate. The costs associated with future cleanup activities that we may be required to conduct or finance could be material. Additionally, we may become liable to third parties for damages, including personal injury, property damage and natural resource damages, resulting from the disposal or release of hazardous materials into the environment. Such liability could materially adversely affect our business, financial condition and results of operations.

          Furthermore, regulatory agencies are showing increasing concern over the impact of animal health products and food animal operations on the environment. This increased regulatory scrutiny may necessitate that additional time and resources be spent to address these concerns in both new and existing products.

          Our failure to comply with the environmental, health and safety laws and regulations to which we are subject, including any permits issued thereunder, may result in environmental remediation costs, loss of permits, fines, penalties or other adverse governmental or private actions, including regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures,

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installation of pollution control equipment or remedial measures. We could also be held liable for any and all consequences arising out of human exposure to hazardous materials, environmental damage or significant environmental, health and safety issues that might arise at a manufacturing or R&D facility. Environmental laws and regulations are complex, change frequently, have tended to become more stringent and stringently enforced over time and may be subject to new interpretation. It is possible that our costs of complying with current and future environmental, health and safety laws, and our liabilities arising from past or future releases of, or exposure to, hazardous materials could materially adversely affect our business, financial condition and results of operations.

The actual or purported intellectual property rights of third parties may negatively affect our business.

          A third party may sue us, or our distributors or licensors, including Lilly, or otherwise make a claim, alleging infringement or other violation of such third-party's patents, trademarks, trade dress, copyrights, trade secrets, domain names or other intellectual property rights. If we, our distributors or licensors do not prevail in this type of litigation, we may be required to:

    pay monetary damages;

    obtain a license in order to continue manufacturing or marketing the affected products, which may not be available on commercially reasonable terms, or at all; or

    stop activities, including any commercial activities, relating to the affected products, which could include a recall of the affected products and/or a cessation of sales in the future.

          The costs of defending an intellectual property claim could be substantial and could materially adversely affect our business, financial condition and results of operations, even if we successfully defend such claim. Moreover, even if we believe that we do not infringe a validly existing third-party patent, we may choose to license such patent, which would result in associated costs and obligations. We may also incur costs in connection with an obligation to indemnify a distributor, licensor or other third party.

          The intellectual property positions of animal health medicines and vaccines businesses frequently involve complex legal and factual questions, and an issued patent does not guarantee us the right to practice the patented technology or develop, manufacture or commercialize the patented product. For example, while we generally enter into proprietary information agreements with our employees and third parties which assign intellectual property rights to us, these agreements may not be honored or may not effectively assign intellectual property rights to us under the local laws of some countries or jurisdictions. We cannot be certain that a competitor or other third party does not have or will not obtain rights to intellectual property that may prevent us from manufacturing, developing or marketing certain of our products, regardless of whether we believe such intellectual property rights are valid and enforceable or we believe we would otherwise be able to develop a more commercially successful product, which may materially adversely affect our business, financial condition and results of operations.

If our intellectual property rights are challenged or circumvented, competitors may be able to take advantage of our research and development efforts or harm the value of our brands.

          Our long-term success depends on our ability to market innovative, competitive products. We rely and expect to continue to rely on a combination of intellectual property, including patent, trademark, trade dress, copyright, trade secret and domain name protection, as well as confidentiality and license agreements with our employees and others, to protect our intellectual property and proprietary rights. If we fail to obtain and maintain adequate intellectual property

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protection, we may not be able to prevent third parties from using our proprietary technologies or from marketing products that are very similar or identical to ours.

          Our currently pending or future patent applications may not result in issued patents, or be approved on a timely basis, if at all. Similarly, any term extensions that we seek may not be approved on a timely basis, if at all. In addition, our issued patents, or any patents that may issue in the future, may not contain claims sufficiently broad to protect us against third parties with similar technologies or products or provide us with any competitive advantage, including exclusivity in a particular product area.

          The validity and scope of our patent claims also may vary between countries, as individual countries have their own patent laws. For example, some countries only permit the issuance of patents covering a novel chemical compound itself, and its first use, and thus further methods of use for the same compound may not be patentable. The validity, enforceability, scope and effective term of patents can be highly uncertain and often involve complex legal and factual questions and proceedings that vary based on the local law of the relevant jurisdiction. Our ability to enforce our patents also depends on the laws of individual countries and each country's practice with respect to enforcement of intellectual property rights. Patent protection must be obtained on a jurisdiction-by-jurisdiction basis, and we only pursue patent protection in countries where we think it makes commercial sense for the given product. In addition, if we are unable to maintain our existing license agreements or other agreements pursuant to which third parties grant us rights to intellectual property, including because such agreements terminate, our financial condition and results of operations could be materially adversely affected.

          Patent law reform in the U.S. and other countries may also weaken our ability to enforce our patent rights, or make such enforcement financially unattractive. For instance, in September 2011, the U.S. enacted the America Invents Act, which permits enhanced third-party actions for challenging patents and implements a first-to-invent system. These reforms could result in increased costs to protect our intellectual property or limit our ability to obtain and maintain patent protection for our products in these jurisdictions. Additionally, certain foreign governments have indicated that compulsory licenses to patents may be granted in the case of national emergencies, which could diminish or eliminate sales and profits from those regions and materially adversely affect our financial condition and results of operations.

          Our trademarks and brands may provide us with a competitive advantage in the market as they may be known or trusted by consumers. In order to maintain the value of such brands, we must be able to enforce and defend our trademarks. We have pursued and will pursue the registration of trademarks and service marks in the U.S. and internationally; however, enforcing rights against those who knowingly or unknowingly dilute or infringe our brands can be difficult. Effective trademark, service mark, trade dress or related protections may not be available in every country in which our products and services are available. Enforcement is especially difficult in first-to-file countries where "trademark squatters" can prevent us from obtaining adequate protections for our brands. There can be no assurance that the steps we have taken and will take to protect our proprietary rights in our brands and trademarks will be adequate or that third parties will not infringe, dilute or misappropriate our brands, trademarks, trade dress or other similar proprietary rights.

          Many of our products are based on or incorporate proprietary information. We actively seek to protect our proprietary information, including our trade secrets and proprietary know-how, by generally requiring our employees, consultants, other advisors and other third parties to execute proprietary information and confidentiality agreements upon the commencement of their employment, engagement or other relationship. Despite these efforts and precautions, we may be unable to prevent a third party from copying or otherwise obtaining and using our trade secrets or

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our other intellectual property without authorization and legal remedies may not adequately compensate us for the damages caused by such unauthorized use. Further, others may independently and lawfully develop substantially similar or identical products that circumvent our intellectual property by means of alternative designs or processes or otherwise.

We could be subject to changes in our tax rates, the adoption of new U.S. or foreign tax legislation or exposure to additional tax liabilities.

          We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Changes in the relevant tax laws, regulations, administrative practices, principles and interpretations could adversely affect our future effective tax rates. The U.S. recently enacted tax reform legislation significantly revising U.S. tax law, and a number of other countries are actively considering or enacting tax changes. Other organizations, such as the Organisation for Economic Cooperation and Development and the European Commission, are active regarding tax-related matters which could influence international tax policy in countries in which we operate. While outcomes of these initiatives continue to develop and remain uncertain, modifications to key elements of the U.S. or international tax framework could have a material adverse effect on our consolidated results of operations and cash flows.

          In December 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the "2017 Tax Act"). The 2017 Tax Act includes significant changes to the U.S. corporate income tax system, such as the reduction in the corporate income tax rate, transition to a modified territorial tax system, changes to business related exclusions, deductions and credits, and modifications to international tax provisions. U.S. GAAP requires that the income tax accounting effects from a change in tax laws or tax rates be recognized in continuing operations in the reporting period that includes the enactment date of the change. These effects include, among other things, re-measuring deferred tax assets and liabilities, evaluating deferred tax assets for valuation allowances and assessing the impact of certain provisions of the 2017 Tax Act. Pursuant to the Staff Accounting Bulletin No. 118 published by the SEC on December 22, 2017 addressing the challenges in accounting for the effects of the Tax Act in the period of enactment, companies must report provisional amounts for those specific income tax effects of the Tax Act for which the accounting is incomplete but a reasonable estimate can be determined. Those provisional amounts will be subject to adjustment during a measurement period of up to one year from the enactment date.

          In addition, our effective tax rate is subject to potential risks that various taxing authorities may challenge the pricing of our cross-border arrangements and subject us to additional tax, adversely impacting our effective tax rate and our tax liability. We are also subject to the examination of our tax returns and other tax matters by the Internal Revenue Service (the "IRS") and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of these examinations. If our effective tax rates were to increase, particularly in the U.S. or other material foreign jurisdictions, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our business, financial condition and results of operations could be materially adversely affected.

Significant portions of our operations are conducted in foreign jurisdictions, including jurisdictions presenting a high risk of bribery and corruption, and are subject to the economic, political, legal and business environments of the countries in which we do business.

          Our international operations could be limited or disrupted by any of the following:

    volatility in the international financial markets;

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    compliance with governmental controls;

    difficulties enforcing contractual and intellectual property rights;

    parallel trade in our products (importation of our products from EU countries where our products are sold at lower prices into EU countries where the products are sold at higher prices);

    compliance with a wide variety of laws and regulations, such as the U.S. Foreign Corrupt Practices Act (the "FCPA") and similar non-U.S. laws and regulations;

    compliance with foreign labor laws;

    burdens to comply with multiple and potentially conflicting foreign laws and regulations, including those relating to environmental, health and safety requirements;

    changes in laws, regulations, government controls or enforcement practices with respect to our business and the businesses of our customers, including the imposition of limits on our profitability;

    political and social instability, including crime, civil disturbance, terrorist activities and armed conflicts;

    trade restrictions and restrictions on direct investments by foreign entities, including restrictions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury and the EU, in relation to our products or the products of farmers and other customers;

    government limitations on foreign ownership;

    government takeover or nationalization of business;

    changes in tax laws and tariffs;

    imposition of anti-dumping and countervailing duties or other trade-related sanctions;

    costs and difficulties and compliance risks in staffing, managing and monitoring international operations, including in the use of overseas third-party goods and service providers;

    corruption risk inherent in business arrangements and regulatory contacts with foreign government entities;

    longer payment cycles and increased exposure to counterparty risk; and

    additional limitations on transferring personal information between countries or other restrictions on the processing of personal information.

          In addition, international transactions may involve increased financial and legal risks due to differing legal systems and customs. Compliance with these requirements may prohibit the import or export of certain products and technologies or may require us to obtain a license before importing or exporting certain products or technologies. A failure to comply with any of these laws, regulations or requirements could result in civil or criminal legal proceedings, monetary or non-monetary penalties, or both, disruptions to our business, limitations on our ability to import and export products, and damage to our reputation. In addition, variations in the pricing of our products between jurisdictions may result in the unauthorized importation or unauthorized re-importation of our products between jurisdictions and may also result in the imposition of anti-dumping and countervailing duties or other trade-related sanctions. While the impact of these factors is difficult to predict, any of them could materially adversely affect our business, financial condition and results of operations.

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          Further, changes in any of these laws, regulations or requirements, or the political environment in a particular country, may affect our ability to engage in business transactions in certain markets, including investment, procurement and repatriation of earnings. For example, Brexit has created political and economic uncertainty, particularly in the UK and the EU. A withdrawal could significantly disrupt the free movement of goods, services, and people between the UK and the EU, and result in increased legal and regulatory complexities, as well as potential higher costs of conducting business in Europe. The UK's vote to exit the EU could also result in similar referendums or votes in other European countries in which we do business. The uncertainty surrounding the terms of the UK's withdrawal and its consequences could adversely impact consumer and investor confidence, and could affect sales or regulation of our products. Any of these effects, among others, could materially adversely affect our business, financial condition and results of operations.

Foreign exchange rate fluctuations and potential currency controls affect our results of operations, as reported in our financial statements.

          We conduct operations in many areas of the world, involving transactions denominated in a variety of currencies. In 2017, we generated approximately 50% of our revenue in currencies other than the U.S. dollar, principally the euro, British pound, Brazilian real, Australian dollar, Japanese yen, Canadian dollar and Chinese yuan. We are subject to currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn revenue. In addition, because our financial statements are reported in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our results of operations.

          We also face risks arising from currency devaluations and the imposition of cash repatriation restrictions and exchange controls. Currency devaluations result in a diminished value of funds denominated in the currency of the country instituting the devaluation. Cash repatriation restrictions and exchange controls may limit our ability to convert foreign currencies into U.S. dollars or to remit dividends and other payments by our foreign subsidiaries or businesses located in or conducted within a country imposing restrictions or controls. While we currently have no need, and do not intend, to repatriate or convert cash held in countries that have significant restrictions or controls in place, should we need to do so to fund our operations, we may be unable to repatriate or convert such cash, or may be unable to do so without incurring substantial costs.

We depend on sophisticated information technology and infrastructure.

          We rely on various information systems to manage our operations, and we increasingly depend on third parties to operate and support our information technology systems, including by way of virtual and cloud-based operations. These third parties include large established vendors as well as small, privately owned companies. Failure by any provider to adequately service our operations, or a change in control or insolvency of one or more providers, may materially adversely affect our business, financial condition and results of operations. Prior to the Separation, we relied on Lilly to negotiate and manage many of our relationships and contracts with these third parties.

          Prior to the completion of this offering and in connection with the Separation, we will substantially change a number of our business processes, including changes in our financial reporting and supply chain processes and with respect to where and from whom we obtain information technology systems. In order to support the new business processes under the terms of our transitional services agreement with Lilly, we will make significant configuration, process and data changes within many of the information technology systems we use. If our information technology systems and processes are not sufficient to support our business and financial reporting functions, or if we fail to properly implement our new business processes, our financial reporting

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may be delayed or inaccurate and, as a result, our business, financial condition and results of operations may be materially adversely affected. Even if we are able to successfully configure and change our systems, all technology systems, even with implementation of security measures, are vulnerable to disability, failures or unauthorized access. If our information technology systems were to fail or be breached, this could materially adversely affect our reputation and our ability to perform critical business functions, and sensitive and confidential data could be compromised.

Breaches of our information technology systems or improper disclosure of confidential company or personal data could have a material adverse effect on our reputation and operations, or we may fail to comply with privacy laws, regulations and our contractual obligations.

          We rely on information technology systems to process, transmit and store electronic information in our day-to-day operations, including customer, employee and company data. The secure processing, maintenance and transmission of this information is critical to our operations and the legal environment surrounding information security, storage, use, processing, disclosure and privacy is demanding, with the frequent imposition of new and changing requirements. We also store certain information with third parties. Our information systems and those of our third-party vendors are subjected to computer viruses or other malicious codes, unauthorized access attempts, and cyber- or phishing-attacks and also are vulnerable to an increasing threat of continually evolving cybersecurity risks and external hazards, as well as improper or inadvertent staff behavior, all of which could expose confidential company and personal data systems and information to security breaches. Any such breach could compromise our networks, and the information stored therein could be accessed, publicly disclosed, lost or stolen. Such attacks could result in our intellectual property and other confidential information being lost or stolen, disruption of our operations, and other negative consequences, such as increased costs for security measures or remediation costs, and diversion of management attention. Any actual or perceived access, disclosure or other loss of information or any significant breakdown, intrusion, interruption, cyber-attack or corruption of customer, employee or company data or our failure to comply with federal, state, local and foreign privacy laws or contractual obligations with customers, vendors, payment processors and other third parties, could result in legal claims or proceedings, liability under laws or contracts that protect the privacy of personal information, regulatory penalties, disruption of our operations, and damage to our reputation, all of which could materially adversely affect our business, revenue and competitive position. While we will continue to implement additional protective measures to reduce the risk of and detect cyber-incidents, cyber-attacks are becoming more sophisticated and frequent, and the techniques used in such attacks change rapidly. Our protective measures may not protect us against attacks and such attacks could have a significant impact on our business and reputation. In addition, prior to the Separation we relied on Lilly for certain privacy and compliance functions and personnel and may experience difficulties maintaining and implementing all policies and practices following completion of the Separation.

Increased regulation or decreased governmental financial support relating to the raising, processing or consumption of food animals could reduce demand for our food animal products.

          Companies in the food animal sector are subject to extensive and increasingly stringent regulations. See "Business — Regulatory." If food animal producers are adversely affected by new regulations or changes to existing regulations, they may reduce herd or flock sizes or become less profitable and, as a result, they may reduce their use of our products, which may materially adversely affect our business, financial condition and results of operations. Also, many food animal producers benefit from governmental subsidies, and if such subsidies were to be reduced or eliminated, these companies may become less profitable and, as a result, may reduce their use of

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our food animal products. More stringent regulation of the food animal sector, including regarding the use of food animal products, could have a material adverse effect on our business, financial condition and results of operations.

Our business could be materially adversely affected by labor disputes, strikes or work stoppages.

          Some of our employees are members of unions, works councils, trade associations or are otherwise subject to collective bargaining agreements in certain jurisdictions, including the U.S. As a result, we are subject to the risk of labor disputes, strikes, work stoppages and other labor-relations matters. We may be unable to negotiate new collective bargaining agreements on similar or more favorable terms and may experience work stoppages, higher ongoing labor costs or other labor problems in the future at our sites. We may also experience difficulty or delays in implementing changes to our workforce in certain markets.

          These risks may be increased by the Separation because we will no longer be able to benefit from Lilly's prior relationships and negotiations relating to such agreements. In addition, in France, we anticipate that we will be required to consult with our works council about the Separation prior to entering into a definitive agreement with respect to the French operations. Due to possible delays in the consultation process or resistance from the works council, there is a risk that the separation of the French operations will not be complete by the closing of the offering.

          Further, labor-related issues, including at our suppliers or CMOs, could cause a disruption of our operations, which could have a material adverse effect on our business, financial condition and results of operations, potentially resulting in cancelled orders by customers, unanticipated inventory accumulation or shortages and reduced revenue and net income.

The anticipated benefits of the Separation may not be achieved.

          We may not be able to achieve the full strategic and financial benefits expected to result from the Separation. Further, such benefits, if ultimately achieved, may be delayed. These benefits include the following:

    improving strategic and operational flexibility and streamlining decision-making by providing the flexibility to implement our strategic plan and to respond more effectively to different customer needs and the changing economic and industry environment;

    allowing us to adopt the investment policy and dividend policy best suited to our financial profile and business needs, and allowing us to raise capital as an independent business;

    creating an independent equity structure that makes possible future acquisitions utilizing our common stock as well as compensation arrangements; and

    facilitating incentive compensation arrangements for employees more directly tied to the performance of our business, and enhancing employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives of our business.

          We may not achieve the anticipated benefits of the Separation for a variety of reasons. In addition, the Separation could materially adversely affect our business, financial condition and results of operations.

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We have underfunded pension plan liabilities. We will require current and future operating cash flow to fund these shortfalls reducing the cash available for other uses.

          We have certain defined benefit pension plans, predominantly outside of the U.S., that our employees participate in that are either dedicated to our employees or where the plan assets and liabilities that relate to our employees are legally required to transfer to us at the time of the Separation. The funded status and net periodic pension cost for these plans is materially affected by the discount rate used to measure pension obligations, the longevity and actuarial profile of our workforce, the level of plan assets available to fund those obligations and the actual and expected long-term rate of return on plan assets. Significant changes in investment performance or a change in the portfolio mix of invested assets can result in corresponding increases and decreases in the valuation of plan assets or in a change in the expected rate of return on plan assets. As of December 31, 2017, for pension plans with projected benefit obligations in excess of plan assets, the projected benefit obligation was $251.6 million with plan assets of $121.8 million. Any changes in the discount rate could result in a significant increase or decrease in the valuation of pension obligations, affecting the reported funded status of our pension plans as well as the net periodic pension cost in the following years. Similarly, changes in the expected return on plan assets can result in significant changes in the net periodic pension cost in the following years. The need to make additional cash contributions will divert resources from our operations and may have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Indebtedness

We have substantial indebtedness.

          We have a significant amount of indebtedness, which could materially adversely affect our business, financial condition and results of operations. As of June 30, 2018, pro forma for the Transactions, we had approximately $             million of outstanding indebtedness, consisting of the Senior Notes and the Credit Facilities. See "Description of Material Indebtedness."

          We may incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt could intensify. Specifically, our high level of debt could have important consequences, including:

    making it more difficult for us to satisfy our obligations with respect to our debt;

    limiting our ability to obtain additional financing to fund future working capital, capital expenditures, business development or other general corporate requirements, including dividends;

    increasing our vulnerability to general adverse economic and industry conditions;

    exposing us to the risk of increased interest rates as certain of our borrowings are and may in the future be at variable rates of interest;

    limiting our flexibility in planning for and reacting to changes in the animal health industry;

    impacting our effective tax rate; and

    increasing our cost of borrowing.

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We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

          Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness.

          If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures, or to dispose of material assets or operations, alter our dividend policy, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The instruments that will govern our indebtedness may restrict our ability to dispose of assets and may restrict the use of proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations when due.

          In addition, we conduct our operations through our subsidiaries. Accordingly, repayment of our indebtedness will depend on the generation of cash flow by our subsidiaries, including certain international subsidiaries, and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Our subsidiaries may not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make adequate distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity and, under certain circumstances, legal, tax and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.

          Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, may materially adversely affect our business, financial condition and results of operations and our ability to satisfy our obligations under our indebtedness or pay dividends on our common stock.

Risks Related to Our Relationship with Lilly

Following the completion of the offering, Lilly will continue to have significant control over us for a period of time, which could continue indefinitely, preventing you and other shareholders from influencing significant decisions.

          Immediately following the completion of this offering, Lilly will own         % of our outstanding common stock.

          Lilly has indicated that, following completion of the offering, it intends to divest its interest in us. However, Lilly is under no obligation to do so or to dispose of any of its shares of our common stock, whether pursuant to the Distribution or otherwise. A determination whether to effect the Distribution or other disposal of any our shares of common stock, and the timing thereof, is within Lilly's sole discretion.

          If the Distribution does not occur, or if Lilly does not otherwise dispose of its shares of our common stock, the risks relating to Lilly's control of us will continue to be relevant to our

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shareholders. The liquidity of shares of our common stock in the market may be constrained for as long as Lilly continues to hold a significant position in our common stock. A lack of liquidity in our common stock could depress the price of our common stock.

          For so long as Lilly controls the majority of the voting power of our outstanding common stock, it will determine the outcome of all corporate actions requiring shareholder approval. Even if Lilly were to dispose of certain of its shares of our common stock such that it would control less than a majority of the voting power of our outstanding common stock, it may be able to influence the outcome of corporate actions so long as it retains a significant portion of our common stock. During the period of Lilly's ownership, investors in this offering may not be able to affect the outcome of such corporate actions. For such time as Lilly owns a controlling interest in or a significant portion of our common stock, it generally will be able to control or significantly influence, directly or indirectly and subject to applicable law, all matters affecting us, including:

    the election of directors;

    determinations with respect to our business direction and policies, including the appointment and removal of officers;

    determinations with respect to corporate transactions, such as mergers, business combinations or the acquisition or the disposition of assets;

    our financing and dividend policy;

    determinations with respect to our tax returns; and

    compensation and benefits programs and other human resources policy decisions.

Lilly's interests may differ from our interests and the interests of our public shareholders.

          Lilly's interests may differ from our interests and the interests of our shareholders, and therefore actions Lilly takes with respect to us, as a controlling or significant shareholder, including under the master separation agreement, may not be favorable to us or our public shareholders.

Lilly will have significant rights under the master separation agreement with us.

          Until such time, if any, as Lilly divests all of its shares of our common stock, the master separation agreement will give Lilly certain significant rights. The master separation agreement will provide that, for so long as Lilly and its affiliates beneficially own at least 10% of our voting shares, Lilly will be entitled to designate for nomination the number of representatives on the board of directors that is proportionate to its ownership of our voting shares (rounding up to the nearest whole number of directors). For the avoidance of doubt, so long as Lilly and its affiliates beneficially own at least 80% of our voting shares, Lilly will designate for nomination at least 80% of the members of the board of directors (rounding up to the nearest whole number of directors). In addition, so long as Lilly and its affiliates beneficially own at least a majority of our voting shares, Lilly will be entitled to designate the chairman of the board of directors and a majority of the members of each committee of the board of directors.

          In addition, subject to certain exceptions, so long as Lilly beneficially owns at least a majority of our voting shares, we will be required to obtain Lilly's prior written approval before undertaking (or permitting or authorizing any of our subsidiaries to undertake) various significant corporate actions, including:

    consolidation or merger transactions;

    dissolution, liquidation or winding up;

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    incurrence of any indebtedness (as defined in the master separation agreement), other than pursuant to existing debt obligations or unsecured lines of credit as of the date of completion of the offering;

    altering, amending, terminating, repealing or adopting any provisions inconsistent with our amended and restated articles of incorporation or our amended and restated bylaws (unless required to comply with applicable law); or

    the issuance, purchase, redemption or other acquisition or retirement for value of any of our equity securities (other than deemed repurchases resulting from the exercise of stock options or tax withholdings).

If Lilly sells a controlling interest in our company to a third party in a private transaction, you may not realize any change-of-control premium on shares of our common stock and we may become subject to the control of a presently unknown third party.

          Following the completion of this offering, Lilly will continue to own         % of our outstanding common stock. Subject to the provisions of the lock-up agreement entered into in connection with this offering, Lilly will not be restricted from selling some or all of its shares of our common stock in a privately negotiated transaction or otherwise, and a sale of its shares, if sufficient in size, could result in a change of control of our company.

          The ability of Lilly to privately sell its shares of our common stock, with no requirement for a concurrent offer to be made to acquire all of the shares of our common stock held by our other shareholders, could prevent you from realizing any change-of-control premium on your shares of our common stock that may otherwise accrue to Lilly on its private sale of our common stock. Additionally, if Lilly privately sells its controlling equity interest in our company, we may become subject to the control of a presently unknown third party. Such third party may have conflicts of interest with those of other shareholders. In addition, if Lilly sells a controlling interest in our company to a third party, our indebtedness may be subject to acceleration, and our other commercial agreements and relationships, including any remaining agreements with Lilly, could be impacted, all of which may adversely affect our ability to run our business as described herein and may have a material adverse effect on our business, financial condition and results of operations.

For so long as Lilly controls a majority of the voting power of our outstanding common stock, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to shareholders of companies that are subject to such requirements.

          Upon completion of this offering, we will qualify as a "controlled company" within the meaning of the corporate governance standards of the NYSE because Lilly will control a majority of the voting power of our outstanding common stock entitled to vote in the election of directors. A "controlled company" may elect not to comply with certain corporate governance requirements of the NYSE. Consistent with this, the master separation agreement will provide that, for so long as we are a "controlled company," we will use our reasonable best efforts to take advantage of available "controlled company" exemptions from compliance with certain corporate governance requirements under NYSE rules, including:

    the requirement that a majority of the board of directors consist of independent directors;

    the requirement that our corporate governance committee be composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities;

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    the requirement that our compensation committee be composed entirely of independent directors; and

    the requirement for an annual performance evaluation of our corporate governance and compensation committees.

          While Lilly controls a majority of the voting power of our outstanding common stock, we may not have a majority of independent directors or corporate governance and compensation committees consisting entirely of independent directors and we will have annual performance evaluations of these committees from time to time.

          Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the NYSE.

As a result of the Separation, we will lose Lilly's brand, reputation, capital base and other resources, and may experience difficulty operating as a standalone company.

          We believe our association with Lilly has contributed to our building relationships with our customers due to Lilly's globally recognized brand and perceived high-quality products. This offering and the Separation could adversely affect our ability to attract and retain customers, which could result in reduced sales of our products.

          The loss of Lilly's scale, capital base and financial strength may also prompt suppliers to reprice, modify or terminate their relationships with us. In addition, Lilly's reduction of its ownership of our company could potentially cause some of our existing agreements and licenses to be terminated. We cannot predict with certainty the effect that this offering, the Separation or the Distribution will have on our business, our clients, vendors or other persons, or whether our Elanco brand will be accepted in the marketplace.

          Further, because we have not operated as a standalone company in the past, we may have difficulty doing so. We may need to acquire assets and resources in addition to those provided by Lilly to our company, and in connection with the Separation, may also face difficulty in separating our assets from Lilly's assets and integrating newly acquired assets into our business. Our business, financial condition and results of operations could be materially adversely affected if we have difficulty operating as a standalone company, fail to acquire assets that prove to be important to our operations or incur unexpected costs in separating our assets from Lilly's assets or integrating newly-acquired assets.

Lilly may compete with us.

          Lilly will not be restricted from competing with us in the animal health business. Although Lilly has informed us it has no current intention to compete with us in the animal health business, if Lilly in the future decides to engage in the type of business we conduct, it may have a competitive advantage over us, which may cause our business, financial condition and results of operations to be materially adversely affected.

Certain of our directors may have actual or potential conflicts of interest because of their positions with Lilly.

          Following this offering, a majority of our directors will retain their positions as employees with Lilly. In addition, such directors may own Lilly common stock or equity awards. For certain of these individuals, their holdings of Lilly common stock or equity awards may be significant compared to their total assets. Their position at Lilly and the ownership of any Lilly equity or equity awards creates, or may create the appearance of, conflicts of interest when these directors are faced with decisions that could have different implications for Lilly than for us. These potential conflicts could

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arise, for example, over matters such as the desirability of changes in our business and operations, funding and capital matters, regulatory matters, matters arising with respect to the master separation agreement and other agreements with Lilly relating to the Separation or otherwise, employee retention or recruiting, or our dividend policy.

          Provisions relating to certain relationships and transactions in our amended and restated articles of incorporation address certain potential conflicts of interest between us, on the one hand, and Lilly and its officers who are directors of our Company, on the other hand. By becoming our shareholder, you will be deemed to have notice of and have consented to these provisions of our amended and restated articles of incorporation. Although these provisions are designed to resolve certain conflicts between us and Lilly fairly, we cannot assure you that any conflicts will be so resolved. The principles for resolving these potential conflicts of interest are described under "Description of Capital Stock — Conflicts of Interest; Corporate Opportunities."

Lilly and its directors and officers will have limited liability to us or you for breach of fiduciary duty.

          Our amended and restated articles of incorporation provide that, subject to any contractual provision to the contrary, Lilly will have no obligation to refrain from:

    engaging in the same or similar business activities or lines of business as we do; or

    doing business with any of our clients, customers or vendors.

          Under our amended and restated articles of incorporation, neither Lilly nor any officer or director of Lilly, including our directors who are also Lilly employees, except as provided therein, is liable to us or to our shareholders for breach of any fiduciary duty by reason of any of these activities.

To preserve the tax-free treatment to Lilly and its stockholders of the Separation and the potential Distribution, we may not be able to engage in certain transactions.

          To preserve the tax-free treatment to Lilly and its stockholders of the Separation and the potential Distribution, under the tax matters agreement, we will be restricted from taking any action that prevents the Separation and the potential Distribution, taken together, from being tax-free for U.S. federal income tax purposes. These restrictions may limit our ability to pursue certain strategic transactions or engage in other transactions, including use of our common stock to make acquisitions and equity capital market transactions that might increase the value of our business.

We will incur significant charges in connection with this offering and the Separation and incremental costs as a standalone public company.

          We will need to replicate or replace certain functions, systems and infrastructure to which we will no longer have the same access after this offering. We may also need to make investments or hire additional employees to operate without the same access to Lilly's existing operational and administrative infrastructure. These initiatives may be costly to implement. Due to the scope and complexity of the underlying projects relative to these efforts, the amount of total costs could be materially higher than our estimate, and the timing of the incurrence of these costs is subject to change.

          Lilly currently performs or supports many important corporate functions for our company. Our combined financial statements reflect charges for these services on an allocated basis. Following this offering, many of these services will be governed by our transitional services agreement with Lilly. Under the transitional services agreement we will be able to use these Lilly services for a fixed term established on a service-by-service basis. Partial reduction in the provision of any service or

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termination of a service prior to the expiration of the applicable fixed term requires Lilly's consent. In addition, either party will be able to terminate the agreement due to a material breach of the other party, upon prior written notice, subject to limited cure periods or if the other party undergoes a change of control.

          We will pay Lilly mutually agreed-upon fees for these services, which will be based on Lilly's costs (including third-party costs) of providing the services through March 31, 2021 and subject to a mark-up of 7% thereafter, with additional inflation-based escalation beginning January 1, 2022. However, since our transitional services agreement was negotiated in the context of a parent-subsidiary relationship, the terms of the agreement, including the fees charged for the services, may be higher or lower than those that would be agreed to by parties bargaining at arm's length for similar services and may be higher or lower than the costs reflected in the allocations in our historical financial statements. In addition, while these services are being provided to us by Lilly, our operational flexibility to modify or implement changes with respect to such services or the amounts we pay for them will be limited. Prior to the Distribution, if effected, Lilly will have the unilateral right to resolve disputes under the transitional services agreement.

          We may not be able to replace these services or enter into appropriate third-party agreements on terms and conditions, including cost, comparable to those that we will receive from Lilly under our transitional services agreement. Additionally, after the transitional services agreement terminates, we may be unable to sustain the services at the same levels or obtain the same benefits as when we were receiving such services and benefits from Lilly. When we begin to operate these functions separately, if we do not have our own adequate systems and business functions in place, or are unable to obtain them from other providers, we may not be able to operate our business effectively or at comparable costs, and our profitability may decline. In addition, we have historically received informal support from Lilly, which may not be addressed in our transitional services agreement. The level of this informal support will diminish or be eliminated following this offering.

          In addition, our historical combined financial statements include the attribution of certain assets and liabilities that historically have been held at the Lilly corporate level but which are specifically identifiable or attributable to the businesses being transferred to us in connection with the Separation. The value of the assets and liabilities we assume in connection with the Separation could ultimately be materially different than such attributions, which could have a material adverse effect on our financial condition.

Lilly's rights as licensor under the intellectual property and technology license agreement could limit our ability to develop and commercialize certain products.

          Prior to the Separation, we had the ability to leverage certain of Lilly's intellectual property. As part of the Separation, we intend to enter into an intellectual property and technology license agreement. Pursuant to the intellectual property and technology license agreement, Lilly will license to us certain of its intellectual property (excluding trademarks) related to the animal health business and a license for us to use Lilly's proprietary compound library for a period of two years plus an additional one-year period to be granted under Lilly's sole discretion. If we fail to comply with our obligations under this agreement and Lilly exercises its right to terminate it, our ability to continue to research, develop and commercialize products incorporating that intellectual property will be limited. In addition, this agreement includes limitations that affect our ability to develop and commercialize certain products, including in circumstances where Lilly has an interest in the licensed intellectual property in connection with its human health development programs. These limitations and termination rights may make it more difficult, time consuming or expensive for us to develop and commercialize certain new products, or may result in our products being later to market than those of our competitors. For a summary description of the terms of the intellectual

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property and technology license agreement, see "Certain Relationships and Related Party Transactions — Relationship with Lilly — Intellectual Property and Technology License Agreement."

Risks Related to Our Initial Public Offering and Ownership of Our Common Stock

An active trading market for our common stock may not develop, and you may not be able to sell your common stock at or above the initial public offering price.

          Prior to the completion of this offering, there has been no public market for our common stock. An active trading market for shares of our common stock may never develop or be sustained following this offering. If an active trading market does not develop, you may have difficulty selling your shares of common stock at an attractive price, or at all. The price for our common stock in this offering will be determined by negotiations among Lilly, us and representatives of the underwriters, and it may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell your common stock at or above the initial public offering price or at any other price or at the time that you would like to sell. An inactive market may also impair our ability to raise capital by selling our common stock, and it may impair our ability to attract and motivate our employees through equity incentive awards and our ability to acquire other companies, products or technologies by using our common stock as consideration.

The price of our common stock may fluctuate substantially.

          You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand a significant loss and wide fluctuations in the market value of your investment. Some factors that may cause the market price of our common stock to fluctuate, in addition to the other risks mentioned in this section of the prospectus, are:

    our announcements or our competitors' announcements regarding new products, enhancements, significant contracts, acquisitions or strategic investments;

    changes in earnings estimates or recommendations by securities analysts, if any, who cover our common stock;

    failures to meet external expectations or management guidance;

    fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

    changes in our capital structure or dividend policy, including as a result of the Distribution, future issuances of securities, sales of large blocks of common stock by our shareholders, including Lilly, or our incurrence of additional debt;

    reputational issues;

    changes in general economic and market conditions in or any of the regions in which we conduct our business;

    changes in industry conditions or perceptions;

    changes in applicable laws, rules or regulations and other dynamics; and

    announcements or actions taken by Lilly as our principal shareholder.

          In addition, if the market for stocks in our industry or related industries, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition and results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

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You will incur immediate dilution as a result of this offering.

          If you purchase common stock in this offering, you will pay more for your shares than the pro forma net tangible book value of your shares. As a result, you will incur immediate dilution of $                  per share, representing the difference between the assumed initial public offering price of $         per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) and our pro forma net tangible book deficit per share as of June 30, 2018 after giving effect to the Transactions, of $                    . Accordingly, should we be liquidated at our book value, you would not receive the full amount of your investment.

Our historical combined financial data is not necessarily representative of the results we would have achieved as a standalone company and may not be a reliable indicator of our future results.

          Our historical combined financial data included in this prospectus does not reflect the financial condition, results of operations or cash flows we would have achieved as a standalone company during the periods presented or those we will achieve in the future. This is primarily the result of the following factors:

    our historical combined financial data does not reflect the Separation;

    our historical combined financial data reflects expense allocations for certain support functions that are provided on a centralized basis within Lilly, such as expenses for executive oversight, treasury, legal, finance, human resources, tax, internal audit, financial reporting, information technology and investor relations that may be higher or lower than the comparable expenses we would have actually incurred, or will incur in the future, as a standalone company;

    our cost of debt and our capital structure will be different from that reflected in our historical combined financial statements;

    significant increases may occur in our cost structure as a result of this offering, including costs related to public company reporting, investor relations and compliance with the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"); and

    this offering may have a material effect on our customers and other business relationships, including supplier relationships, and may result in the loss of preferred pricing available by virtue of our reduced relationship with Lilly.

          Our financial condition and future results of operations, after giving effect to the Separation, will be materially different from amounts reflected in our historical combined financial statements included elsewhere in this prospectus. As a result of the Separation, it may be difficult for investors to compare our future results to historical results or to evaluate our relative performance or trends in our business.

The pro forma and non-GAAP financial measures included in this prospectus are presented for informational purposes only and may not be an indication of our financial condition or results of operations in the future.

          The unaudited pro forma condensed combined financial statements included in this prospectus are presented for information purposes only and are not necessarily indicative of what our actual financial condition or results of operations would have been had the Transactions been completed on the date indicated. The assumptions used in preparing the pro forma financial information may not prove to be accurate and other factors may affect our financial condition or results of operations. Accordingly, our financial condition and results of operations in the future may

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not be consistent with, or evident from, such pro forma financial information. The non-GAAP financial measures included in this prospectus, adjusted EBITDA and adjusted net income, include information that we use to evaluate our past performance, but you should not consider such information in isolation or as an alternative to measures of our performance determined under U.S. GAAP. For further information regarding such limitations, see "Prospectus Summary — Summary Historical and Unaudited Pro Forma Combined Financial Data."

As a standalone public company, we may expend additional time and resources to comply with rules and regulations that do not currently apply to us, and failure to comply with such rules may lead investors to lose confidence in our financial data.

          As a standalone public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and regulations of the NYSE. We have established all of the procedures and practices required as a subsidiary of Lilly, but we must implement others as a separate, standalone public company. Establishing such procedures and practices will increase our legal, accounting and financial compliance costs, will make some activities more difficult, time-consuming and costly and could be burdensome on our personnel, systems and resources. We will devote significant resources to address these public company requirements, including compliance programs and investor relations, as well as our financial reporting obligations. As a result, we have and will continue to incur significant legal, accounting and other expenses that we did not previously incur to comply with these rules and regulations. Furthermore, the need to establish the corporate infrastructure necessary for a standalone public company may divert some of management's attention from operating our business and implementing our strategy. However, the measures we take may not be sufficient to satisfy our obligations as a public company. In addition, we cannot predict or estimate the amount of additional costs we may incur in order to comply with these requirements.

          We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations. In particular, as a public company, our management will be required to conduct an annual evaluation of our internal controls over financial reporting and include a report of management on our internal controls in our annual reports on Form 10-K. Under current rules, we will be subject to these requirements beginning with our annual report on Form 10-K for the year ended December 31, 2019. In addition, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal controls over financial reporting pursuant to Auditing Standard No. 5 beginning with our annual report on Form 10-K for the year ended December 31, 2019. If we are unable to conclude that we have effective internal controls over financial reporting, or if our registered public accounting firm is unable to provide us with an attestation and an unqualified report as to the effectiveness of our internal controls over financial reporting, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our common stock.

While we currently intend to pay a quarterly cash dividend to our common shareholders, we may change our dividend policy at any time.

          Although we currently intend to pay a quarterly cash dividend to our common shareholders, we have no obligation to do so, and our dividend policy may change at any time without notice to our shareholders. We currently intend to pay a quarterly cash dividend on our common stock of $         per share. Returns on your investment will primarily depend on the appreciation, if any, in the price of our common stock. We anticipate that we will retain most of our future earnings, if any, for use in the development and expansion of our business, repayment of indebtedness and for general

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corporate purposes. The declaration and payment of dividends to holders of our common stock will be at the discretion of our board of directors in accordance with applicable law after taking into account various factors, including our financial condition, results of operations, current and anticipated cash needs, cash flows available in the U.S., impact on our effective tax rate, indebtedness, legal requirements and other factors that our board of directors deems relevant.

The distributions we pay on our common stock may not qualify as dividends for U.S. federal income tax purposes, which could adversely affect the U.S. federal income tax consequences to you of owning our common stock.

          Generally, any distributions that we make to a stockholder with respect to its shares of our common stock will constitute a dividend for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. We had no accumulated earnings and profits, as determined for U.S. federal income tax purposes, as of June 30, 2018. Furthermore, our ability to generate earnings and profits, as determined for U.S. federal income tax purposes, in any future year is subject to a number of variables that are uncertain and difficult to predict.

          Generally, any distribution not constituting a dividend under the rules described above will be treated as first reducing your adjusted basis in your shares of our common stock and, to the extent that the distribution exceeds your adjusted basis in your shares of our common stock, as gain from the sale or exchange of such shares, and if you are a domestic corporation, you will not be entitled to claim, with respect to such non-dividend distribution, a "dividends-received" deduction, which generally applies to dividends received from other domestic corporations.

          Prospective foreign investors should see "Material U.S. Federal Income and Estate Tax Considerations for Non-U.S. Holders" for a more detailed description of the material U.S. federal income tax consequences of the ownership and disposition of shares of our common stock to such investors.

Applicable laws and regulations, provisions of our Amended and Restated Articles of Incorporation and our Amended and Restated Bylaws and certain contractual rights granted to Lilly may discourage takeover attempts and business combinations that shareholders might consider in their best interests.

          Applicable laws, provisions of our amended and restated articles of incorporation and our amended and restated bylaws and certain contractual rights that will be granted to Lilly under the master separation agreement may delay, deter, prevent or render more difficult a takeover attempt that our shareholders might consider in their best interests. For example, they may prevent our shareholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.

          Our amended and restated articles of incorporation and our amended and restated bylaws contain provisions that are intended to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover, which could deter coercive takeover practices and inadequate takeover bids. These provisions provide for:

    a board of directors divided into three classes with staggered terms;

    advance notice requirements regarding how our shareholders may present proposals or nominate directors for election at shareholder meetings (except for Lilly's designation of persons for nomination by the board of directors);

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    the right of our board of directors to issue one or more series of preferred stock with such powers, rights and preferences as the board of directors shall determine;

    only the board of directors to fill newly-created directorships or vacancies on our board of directors;

    limitations on the ability of shareholders to call special meetings of shareholders and require that all shareholder action be taken at a meeting rather than by written consent;

    a two-thirds shareholder vote requirement to amend our amended and restated articles of incorporation;

    the exclusive right of our board of directors to amend our amended and restated bylaws; and

    the requirement that a 662/3% vote is necessary to remove directors.

          These limitations may adversely affect the prevailing market price and market for our common stock if they are viewed as limiting the liquidity of our stock or discouraging takeover attempts in the future.

The Distribution or future sales of our common stock or securities convertible into or exchangeable for common stock, or the perception that the Distribution or such sales may occur, could depress the market price of our common stock.

          We are unable to predict with certainty whether or when Lilly will sell a substantial number of shares of our common stock to the extent it retains shares following the Distribution or in the event the Distribution does not occur. The Distribution or sale by Lilly of a substantial number of shares after this offering, or a perception that the Distribution or such sales could occur, could significantly reduce the market price of our common stock.

          We may also issue additional shares of common stock or convertible debt securities to finance future acquisitions or for other corporate purposes. Sales of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could adversely affect the market price of our common stock. Further, we cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of our common stock will have on the market price of our common stock. Any such issuance could result in substantial dilution to our existing shareholders.

After the expiration of the lock-up period, there may be sales of a substantial amount of our common stock by our current shareholders, and these sales could cause the price of our common stock to decline.

          Lilly and our executive officers and directors have entered into lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell, directly or indirectly, any shares of common stock without the permission of each of Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC and Morgan Stanley and Co. LLC for a period of 180 days following the date of this prospectus. We refer to such period as the lock-up period. When the lock-up period expires, we and our shareholders subject to a lock-up agreement will be able to sell shares of our common stock in the public market. In addition, Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC and Morgan Stanley and Co. LLC may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements at any time and for any reason. See "Shares Eligible for Future Sale." Sales of a substantial number of such shares upon expiration of the lock-up agreements, the perception that such sales may occur, or early release of these agreements, could cause our market price to decline or make it more difficult for you to sell your common stock at a time and price that you deem appropriate.

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If Lilly makes the Distribution, and there is later a determination that the Separation and the Distribution, taken together, are not tax-free for U.S. federal income tax purposes because the facts, assumptions, representations or undertakings underlying the tax opinion are incorrect or for any other reason, then Lilly and its shareholders could incur significant U.S. federal income tax liabilities, and we could incur significant liabilities.

          Completion by Lilly of the Distribution is expected to be conditioned on, among other things, the receipt of an opinion of tax counsel to the effect that, among other things, the Separation, together with the Distribution, will qualify as a transaction that is tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). The opinion will rely on certain facts, assumptions, representations and undertakings from Lilly and us regarding the past and future conduct of the companies' respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not otherwise satisfied, the conclusions reached in the opinion could be adversely affected and the Separation and/or the Distribution may not qualify for tax-free treatment. Furthermore, an opinion of counsel is not binding on the IRS or the courts, and the IRS could determine on audit that the Separation, together with the Distribution, is taxable if it disagrees with the conclusions in the opinion or for other reasons, including as a result of certain significant changes in the stock ownership of Lilly or us after the Distribution. Accordingly, no assurance can be given that the IRS will not challenge the conclusions set forth in the opinion or that a court would not sustain such a challenge. If the Separation and/or the Distribution is determined to not be tax-free for U.S. federal income tax purposes, Lilly and its shareholders could incur significant U.S. federal income tax liabilities, and we could incur significant liabilities under applicable law or as a result of our indemnification obligations to Lilly under the tax matters agreement.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

          This prospectus contains forward-looking statements, including, without limitation, statements concerning our industry and our operations, performance and financial condition, including in particular, statements relating to our business, growth strategies, product development efforts and future expenses. Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects" and similar references to future periods, or by the inclusion of forecasts or projections. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, such as those contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations."

          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 factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national, or global political, economic, business, competitive, market, and regulatory conditions and the following:

    heightened competition, including from new innovation or generics;

    the impact of disruptive innovations and advances in veterinary medical practices, animal health technologies and alternatives to animal-derived protein;

    changes in regulatory restrictions on the use of antibiotics in food animals, as well as changing market demand regarding the use of antibiotics and productivity products;

    our ability to implement our business strategies or achieve targeted cost efficiencies and gross margin improvements;

    consolidation of our customers and distributors;

    the success of our R&D, acquisition and licensing efforts;

    unanticipated safety, quality or efficacy concerns associated with our products;

    the impact of weather conditions and the availability of natural resources;

    changes in U.S. foreign trade policy, imposition of tariffs or trade disputes;

    the impact of global macroeconomic conditions; and

    the effect of the Separation or the Distribution, if consummated, on our business.

          See "Risk Factors" for a further description of these and other factors. 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 prospectus. 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 prospectus. For the reasons described above, 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 prospectus. Any forward-looking statement made by us in this prospectus 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.

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USE OF PROCEEDS

          We estimate that the net proceeds to us from this offering will be approximately $              million, or approximately $              million if the underwriters exercise in full their option to purchase additional shares, assuming an initial public offering price of $             per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

          We intend to pay to Lilly as consideration for the portion of its animal health businesses Lilly is contributing to us in connection with the Separation all of the net proceeds we will receive from the sale of our common stock in this offering, including any net proceeds we receive as a result of any exercise of the underwriters' overallotment option, together with the net proceeds we received from the Debt Transactions; provided, to the extent the unrestricted cash held by us immediately prior to the completion of this offering is less than $             million, we will retain a portion of the net proceeds so that the unrestricted cash held by us for working capital and other general corporate purposes upon completion of the offering is $             million. In addition, a portion of the consideration to be paid to Lilly will be temporarily retained by us as restricted cash in connection with the transfer to us from Lilly of certain animal health assets in certain jurisdictions that will occur following the completion of the offering.

          Assuming no exercise of the underwriters' option to purchase additional shares, each $1.00 increase (decrease) in the assumed initial public offering price of $             per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) would increase (decrease) the net proceeds to us from this offering by $              million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, an increase (decrease) of one million shares of common stock sold in this offering by us would increase (decrease) our net proceeds by $              million, assuming the initial public offering price of $             per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

          The foregoing represents our current intentions with respect to the use and allocation of the net proceeds of this offering based upon our present plans and business conditions, but our management will have significant flexibility and discretion in applying the net proceeds. The occurrence of unforeseen events or changed business conditions could result in application of the net proceeds of this offering in a manner other than as described in this prospectus.

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DIVIDEND POLICY

          We initially expect to pay quarterly cash dividends to holders of our common stock of $             per share, subject to the discretion of our board of directors.

          Our ability to pay dividends may be restricted by any future indebtedness we incur.

          We are a holding company that does not conduct any business operations of our own. As a result, our ability to pay cash dividends on our common stock is dependent upon cash dividends and distributions and other transfers from our subsidiaries.

          The declaration and payment of dividends to holders of our common stock will be at the discretion of our board of directors and will take into account:

    general economic business conditions;

    our earnings, financial condition and results of operations;

    cash flows available;

    our capital requirements;

    our prospects;

    restrictions in our debt instruments, including the indenture governing our Senior Notes and the credit agreement governing our Credit Facilities;

    legal restrictions; and

    such other factors as our board of directors may deem relevant.

          See "Risk Factors — Risks Related to Our Indebtedness," "Risk Factors — Risks Related to Our Initial Public Offering and Ownership of Our Common Stock — While we currently intend to pay a quarterly cash dividend to our common shareholders, we may change our dividend policy at any time," "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources," "Description of Material Indebtedness" and "Description of Capital Stock."

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CAPITALIZATION

          The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2018:

    on a historical basis; and

    on a pro forma basis to give effect to (i) the Transactions and (ii) the sale of                      shares of our common stock in this offering at an assumed public offering price of $             per share, (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), and the application of the net proceeds received by us from this offering as described under "Use of Proceeds."

          This table should be read in conjunction with "Use of Proceeds," "Selected Historical Combined Financial Data," "Unaudited Pro Forma Condensed Combined Financial Statements," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Description of Capital Stock" and the combined financial statements and notes thereto appearing elsewhere in this prospectus.

    June 30, 2018
 

    Historical     Pro Forma
For
Transactions
and Offering(1)
 

    (Dollars in millions)  

Cash and cash equivalents

  $ 321.0   $    

Debt(2):

             

Credit Facilities

  $   $    

Senior Notes

                   

Equity:

             

Net parent company investment

    7,947.5                

Common stock, no par value,                      shares authorized;                      shares issued and outstanding on a pro forma basis

                   

Additional paid in capital

                   

Accumulated other comprehensive income (loss)

    (360.9 )              

Total equity

    7,586.6                

Total capitalization

  $ 7,586.6   $    

(1)
Each $1.00 increase or decrease in the public offering price per share would increase or decrease, as applicable, our net proceeds, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, by $              million (assuming no exercise of the underwriters' option to purchase additional shares), assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same. Similarly, an increase or decrease of one million shares of common stock sold in this offering by us would increase or decrease, as applicable, our net proceeds, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, by $              million, based on an assumed initial public offering price of $             per share, (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus). See "Use of Proceeds."

(2)
For a description of our indebtedness, see "Description of Material Indebtedness."

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DILUTION

          If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock upon the completion of this offering. Dilution results from the fact that the per share offering price of our common stock is in excess of the book value per share attributable to new investors.

          Our pro forma net tangible book value as of June 30, 2018 was $              million, or $             per share of common stock. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities after giving pro forma effect to the Transactions, and pro forma net tangible book value per share represents pro forma net tangible book value divided by the number of shares of common stock outstanding.

          After giving further effect to (i) the sale of                      shares of common stock in this offering at the assumed initial public offering price of $             per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) and (ii) the application of the net proceeds from this offering, our pro forma as adjusted net tangible book value as of June 30, 2018 would have been $              million, or $             per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $             per share to our existing investors and an immediate dilution in pro forma as adjusted net tangible book value of $             per share to new investors.

          The following table illustrates this dilution on a per share of common stock basis:

Assumed initial public offering price per share

                $            

Pro forma net tangible book value per share as of June 30, 2018

                             

Increase in pro forma net tangible book value per share attributable to new investors

  $                          

Pro forma as adjusted net tangible book value per share after this offering and the application of the use of proceeds

                             

Dilution in net tangible book value per share to new investors in this offering

                $            

          If the underwriters were to fully exercise their option to purchase                      additional shares of our common stock, our pro forma as adjusted net tangible book value would be $             per share. This represents an increase in pro forma as adjusted net tangible book value of $             per share to our existing investors and an immediate dilution in pro forma as adjusted net tangible book value of $             per share to new investors.

          Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), would increase (decrease) our pro forma as adjusted net tangible book value by $              million, or $             per share and the dilution per share to new investors by $             , in each case assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

          A one million increase (decrease) in the number of shares offered by us would increase (decrease) our pro forma as adjusted net tangible book value by $              million, or $             per share, and the dilution per share to new investors by $             , in each case assuming the initial public offering price of $             per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

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          The following table summarizes, on a pro forma as adjusted basis as of June 30, 2018, after giving effect to this offering, the difference between our existing shareholder and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid to us, or to be paid, and the average price per share paid by our existing shareholder or to be paid by new investors purchasing shares in this offering, at an assumed initial public offering price of $             per share, (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), before deducting the estimated underwriting discounts and commissions:

    Shares
Purchased
    Total
Consideration
    Average
Price
 

    Number     Percent     Amount     Percent     Per Share
 

Existing shareholder

                            % $                         % $            

New investors

                                                                       

Total

                  100.0 % $               100.0 % $            

          If the underwriters were to fully exercise their option to purchase                      additional shares of our common stock, the percentage of shares of our common stock held by our existing shareholder would be         %, and the percentage of shares of our common stock held by new investors would be         %.

          The foregoing tables and calculations exclude                      shares of our common stock reserved for future issuance under our equity incentive plan as of the date hereof, which will be effective upon the completion of this offering. To the extent the options are exercised, there will be further dilution to new investors.

          The above discussion and tables are based on the number of shares outstanding at June 30, 2018. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in further dilution to our shareholders.

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SELECTED HISTORICAL COMBINED FINANCIAL DATA

          The following tables set forth our selected historical combined financial data for the periods indicated below.

          The selected historical combined statement of operations data for the six months ended June 30, 2018 and 2017 and the selected historical combined balance sheet data as of June 30, 2018 and 2017 presented below have been derived from our unaudited combined financial statements included elsewhere in this prospectus. The selected historical combined statement of operations data for the years ended December 31, 2017, 2016 and 2015 and the selected historical combined balance sheet data as of December 31, 2017 and 2016 presented below have been derived from our audited combined financial statements included elsewhere in this prospectus. The selected historical combined statement of operations data for the years ended December 31, 2014 and 2013 and the selected historical combined balance sheet data as of December 31, 2015, 2014 and 2013 presented below have been derived from unaudited combined financial information not included in this prospectus.

          Our combined financial statements include the attribution of certain assets and liabilities that have historically been held at the Lilly corporate level but which are specifically identifiable or attributable to us. Our combined financial statements also include expense allocations related to certain Lilly corporate functions, including executive oversight, treasury, legal, finance, human resources, tax, internal audit, financial reporting, information technology and investor relations. These expenses have been allocated to us based on direct usage or benefit where specifically identifiable, with the remainder allocated primarily on a pro rata basis of revenue, headcount or other measures. We believe that this expense methodology, and the results thereof, is reasonable for all periods presented. However, the allocations may not be indicative of the actual expense that would have been incurred if we would have operated as an independent, publicly traded company for the periods presented. It is impractical to estimate what our standalone costs would have been for the historical periods presented.

          The financial statements included in this prospectus may not be indicative of our future performance and do not necessarily reflect what our financial position and results of operations would have been had we operated as an independent, publicly traded company for the periods presented, including changes that will occur in our operations and capital structure as a result of this offering and the Separation.

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          You should read the information set forth below together with "Prospectus Summary — Summary Historical and Unaudited Pro Forma Combined Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Capitalization" and our combined financial statements and the related notes thereto included elsewhere in this prospectus.

    Six Months
Ended
June 30,
    Year ended December 31,
 

    2018     2017     2017     2016     2015     2014     2013
 

    (Dollars in millions)  

Statement of Operations Data:

                                           

Revenue

  $ 1,506.4   $ 1,437.6   $ 2,889.0   $ 2,913.5   $ 2,909.1   $ 2,066.0   $ 1,928.4  

Costs, expenses and other:

                                           

Cost of sales

    791.5     712.7     1,493.9     1,409.0     1,533.7     932.6     842.1  

Research and development

    126.6     127.9     251.7     265.8     291.0     208.5     216.4  

Marketing, selling and administrative

    371.1     388.4     779.8     784.8     916.0     561.2     511.0  

Amortization of intangible assets

    98.6     109.4     221.2     170.7     163.0     57.6     49.0  

Asset impairment, restructuring and other special charges

    70.4     165.6     375.1     308.4     263.3     38.8      

Other — net, (income) expense

    10.7     1.6     (0.1 )   (2.8 )   1.6     1.4     1.9  

Income (loss) before income tax expense

    37.5     (68.0 )   (232.6 )   (22.4 )   (259.5 )   265.9     308.0  

Income tax expense (benefit)

    27.6     60.5     78.1     25.5     (48.7 )   101.0     117.0  

Net income (loss)

    9.9     (128.5 ) $ (310.7 ) $ (47.9 ) $ (210.8 ) $ 164.9   $ 191.0  

Net income (loss) as a percent of revenue

    1 %   (9 )%   (11 )%   (2 )%   (7 )%   8 %   10 %

 

    As of June 30,     As of December 31,
 

    2018     2017     2017     2016     2015     2014     2013
 

    (Dollars in millions)  

Balance Sheet Data:

                                           

Total assets

  $ 8,577.4   $ 8,996.1   $ 8,940.3   $ 8,099.7   $ 8,433.6   $ 2,980.6   $ 2,163.7  

Total liabilities

  $ 990.80   $ 1,036.4   $ 1,149.5   $ 1,071.8   $ 993.6   $ 541.0   $ 595.3  

Total equity

  $ 7,586.6   $ 7,959.7   $ 7,790.8   $ 7,027.9   $ 7,440.0   $ 2,439.6   $ 1,568.4  

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

          The following unaudited pro forma condensed combined financial statements should be read in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited and unaudited combined financial statements and accompanying notes included elsewhere in this prospectus.

          Our unaudited pro forma condensed combined financial statements consist of an unaudited pro forma condensed combined balance sheet as of June 30, 2018 and unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2018 and 2017 and the year ended December 31, 2017. The unaudited pro forma condensed combined financial statements are based on and have been derived from our historical combined financial statements included elsewhere in this prospectus.

          In management's opinion, the unaudited pro forma condensed combined financial statements reflect certain adjustments that are necessary to present fairly our unaudited pro forma condensed combined results of operations and our unaudited pro forma condensed combined balance sheet as of and for the periods indicated. The pro forma adjustments give effect to events that are (i) directly attributable to the transactions described below, (ii) factually supportable, and, with respect to the statement of operations, (iii) expected to have a continuing impact on us. The pro forma adjustments are based on assumptions that management believes are reasonable given the best information currently available.

          The unaudited pro forma condensed combined financial statements are for illustrative and informational purposes only and are not intended to represent what our results of operations or financial position would have been had we operated as an independent, publicly traded company during the periods presented or if the transactions described below had actually occurred as of the dates indicated. The unaudited pro forma condensed combined financial statements also should not be considered indicative of our future results of operations or financial position as an independent, publicly traded company.

          The unaudited pro forma condensed combined financial statements give effect to the following transactions, which we refer to as the "Transactions," as if they each had occurred on June 30, 2018 for the unaudited pro forma condensed combined balance sheet and on January 1, 2017 for the pro forma condensed combined statements of operations for the six months ended June 30, 2018 and 2017 and for the year ended December 31, 2017:

    Lilly's transfer to us, through a series of equity transactions, of substantially all of its animal health businesses in consideration for (i) all of the net proceeds we will receive from the sale of our common stock in this offering, including any net proceeds we receive as a result of any exercise of the underwriters' overallotment option, (ii) all of the net proceeds ($             million) we received in the Debt Transactions and (iii)              newly issued shares of our common stock; provided, to the extent the unrestricted cash held by us immediately prior to the completion of this offering is less than $             million, we will retain a portion of the net proceeds so that the unrestricted cash held by us for working capital and other general corporate purposes upon completion of this offering is $             million;

    the incurrence of $              million of indebtedness incurred in connection with the Debt Transactions;

    the incurrence of $              million of costs related to the Debt Transactions; and

    the impact of, and transactions contemplated by, agreements between us and Lilly described in "Certain Relationships and Related Party Transactions — Relationship with Lilly," and the provisions contained therein.

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          Due to local regulatory and operational requirements, in certain non-U.S. jurisdictions, the transfer of certain assets and liabilities of Lilly's animal health businesses may not legally occur prior to this offering. We have not adjusted the accompanying unaudited pro forma condensed combined balance sheet for the potential impact of the delayed transfers because these assets and liabilities are not material to our unaudited pro forma condensed combined financial statements, individually or in the aggregate.

          Our combined financial statements include expense allocations related to certain Lilly corporate functions, including, but not limited to, executive oversight, treasury, legal, finance, human resources, tax, internal audit, financial reporting, information technology and investor relations. These expenses have been allocated to us based on direct usage or benefit where specifically identifiable, with the remainder allocated primarily on a pro rata basis of revenue, headcount or other measures. We believe that this expense methodology, and the results thereof, is reasonable for all periods presented. However, the allocations may not be indicative of the actual expense that would have been incurred if we would have operated as an independent, publicly traded company for the period presented. Following this offering, we expect Lilly to continue to provide us with some of the services related to these functions on a transitional basis in exchange for agreed-upon fees and we expect to incur other costs to replace the services and resources that will not be provided by Lilly. We will also incur new costs relating to our public reporting and compliance obligations as an independent, publicly traded company. We have not adjusted the accompanying unaudited pro forma condensed combined statements of operations for these estimated costs as they are projected amounts based on estimates and are not factually supportable.

          The unaudited pro forma condensed combined statements of operations exclude certain non-recurring costs that we have incurred or expect to incur related to the Separation. We expect these costs in the aggregate to be in a range from $              million to $             million.

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2018

    Historical     Pro Forma
Adjustments
  Notes     Pro Forma
 

    (Dollars in millions)  

Assets

                       

Current Assets

                       

Cash and cash equivalents

  $ 321.0         (a)        

Accounts receivable, net

    587.8                  

Inventories

    1,005.6                  

Other

    142.5                  

Total current assets

    2,056.9                  

Long Term Assets

                       

Goodwill

    2,932.3                  

Other intangibles, net

    2,534.9                  

Property and equipment, net

    877.7                  

Other

    175.6         (b)        

Total assets

  $ 8,577.4                  

Liabilities and Equity

                       

Current liabilities

                       

Accounts payable

  $ 193.9                  

Employee compensation

    65.4                  

Sales rebates and discounts

    127.6                  

Other

    171.5         (b)        

Total current liabilities

    558.4                  

Long Term liabilities

                       

Long-term debt

            (c)        

Accrued retirement benefits

    142.6                  

Deferred taxes

    175.5                  

Other noncurrent liabilities

    114.3         (b)        

Total long term liabilities

    432.4                  

Commitments and contingencies

                       

Equity

                       

Net parent company investment

    7,947.5         (d)        

Common stock, no par value,         shares authorized;         shares issued and outstanding on a pro forma basis

            (d)        

Additional paid-in capital

            (d)        

Accumulated other comprehensive income (loss)

    (360.9 )                

Total equity

    7,586.6                  

Total liabilities and equity

  $ 8,577.4                  

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2018

    Historical     Pro Forma
Adjustments
  Notes     Pro Forma
 

    (Dollars in millions)  

Revenue

  $ 1,506.4   $                   $              

Costs, expenses and other:

                       

Cost of sales

    791.5                  

Research and development

    126.6                  

Marketing, selling and administrative          

    371.1                  

Amortization of intangible assets

    98.6                  

Asset impairment, restructuring and other special charges

    70.4                  

Other — net expense

    10.7         (e)        

Income before income tax expense

    37.5                  

Income tax expense

    27.6         (f)        

Net income

  $ 9.9   $                   $              

Net income (loss) per share:

                       

Basic

              (g)        

Diluted

              (g)        

Weighted average shares outstanding:

                       

Basic

              (g)        

Diluted

              (g)        

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2017

    Historical     Pro Forma
Adjustments
  Notes     Pro Forma
 

    (Dollars in millions)  

Revenue

  $ 1,437.6   $         $    

Costs, expenses and other:

                       

Cost of sales

    712.7                  

Research and development

    127.9                  

Marketing, selling and administrative

    388.4                  

Amortization of intangible assets

    109.4                  

Asset impairment, restructuring and other special charges

    165.6                  

Other — net expense

    1.6         (e)        

Total

    1,505.6                  

Loss before income tax expense

    (68.0 )                

Income tax expense

    60.5         (f)        

Net income (loss)

  $ (128.5 ) $         $    

Net income (loss) per share:

                       

Basic

              (g)        

Diluted

              (g)        

Weighted average shares outstanding:

                       

Basic

              (g)        

Diluted

              (g)        

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2017

    Historical     Pro Forma
Adjustments
  Notes     Pro Forma
 

    (Dollars in millions)  

Revenue

  $ 2,889.0   $         $    

Costs, expenses and other:

                       

Cost of sales

    1,493.9                  

Research and development

    251.7                  

Marketing, selling and administrative

    779.8                  

Amortization of intangible assets

    221.2                  

Asset impairment, restructuring and other special charges

    375.1                  

Other — net expense

    (0.1 )       (e)        

Loss before income tax expense

    (232.6 )                

Income tax expense

    78.1         (f)        

Net income (loss)

  $ (310.7 ) $         $    

Net income (loss) per share:

                       

Basic

              (g)        

Diluted

              (g)        

Weighted average shares outstanding:

                       

Basic

              (g)        

Diluted

              (g)        

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.

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Notes to Unaudited Pro Forma Condensed Combined Financial Statements

    (a)
    Reflects an adjustment to present $                million of cash at the balance sheet, which is the minimum amount of cash we will have at the time of Separation.


    In addition, we will hold approximately $                million of restricted cash and an offsetting payable to Lilly at Separation. This restricted cash will be used to pay Lilly further consideration toward the purchase from Lilly of certain animal health net assets in certain jurisdictions that will occur following the completion of the offering.

    (b)
    Reflects the elimination of income taxes payable and liabilities associated with uncertain tax positions that will not be transferred to us in connection with the Separation.

    (c)
    Reflects the proceeds from the Debt Transactions, which includes proceeds from the Debt Transactions offset by debt issuance costs.

    (d)
    Reflects the impact of the Transactions, including payments to Lilly in connection with the Separation, and the reclassification of Lilly's net investment in us, which was recorded in Net parent company investment, into Common stock and Additional paid-in capital.


    There is no impact on our common stock and additional paid in capital as result of this offering as we will not retain any of the proceeds.

    (e)
    Reflects interest expense related to the Debt Transactions and amortization of the associated deferred debt issuance costs. The interest expense has been calculated based on $              million of debt at an interest rate of         % and $              million of amortization of debt issuance costs.

    (f)
    Reflects the impact of the Transactions on income tax calculated using our statutory tax rate of 24%.

    (g)
    Calculated using the number of shares of our common stock expected to be outstanding following the Separation and the completion of this offering.

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THE SEPARATION AND DISTRIBUTION TRANSACTIONS

The Separation

          Prior to the completion of this offering, we are a wholly-owned subsidiary of Lilly, and all of our outstanding shares of common stock are owned by Lilly.

          The following are the principal steps of the Separation:

    Lilly formed Elanco Animal Health Incorporated on May 3, 2018.

    Prior to the completion of this offering, Lilly will transfer to us, through a series of equity transactions, substantially all of its animal health businesses that will form our business going forward.

    In exchange for substantially all of Lilly's animal health businesses, we will issue to Lilly (i) all of the net proceeds we will receive from the sale of our common stock in this offering, including any net proceeds we receive as a result of any exercise of the underwriters' overallotment option, (ii) all of the net proceeds ($             million) we received in the Debt Transactions and (iii)             newly issued shares of our common stock; provided, to the extent the unrestricted cash held by us immediately prior to the completion of this offering is less than $             million, we will retain a portion of the net proceeds so that the unrestricted cash held by us for working capital and other general corporate purposes upon completion of this offering is $             million. In addition, a portion of the consideration to be paid to Lilly will be temporarily retained by us as restricted cash in connection with the transfer to us from Lilly of certain animal health assets in certain jurisdictions that will occur following the completion of the offering.

          In addition, immediately prior to the completion of this offering, we and Lilly intend to enter into, or have entered into, certain agreements that will provide a framework for our ongoing relationship with Lilly. For a description of these agreements, see "Certain Relationships and Related Party Transactions — Relationship with Lilly."

          Following this offering, Lilly intends to transfer to us certain assets and liabilities of the historic Elanco animal health businesses that, due to business, regulatory or other legal constraints, could not be transferred prior to this offering.

          Historically, Lilly has provided significant corporate and shared functions and resources to our business. Our historical financial statements in this prospectus reflect an allocation of these costs within the following statement of operations line items: cost of sales; R&D; marketing, selling and administrative; and other. These expense allocations for certain support functions that are provided on a centralized basis within Lilly include expenses for executive oversight, treasury, legal, finance, human resources, tax, internal audit, financial reporting, information technology and investor relations. Following the Separation, we expect Lilly to continue to provide us with some of the services related to these functions on a transitional basis in exchange for agreed-upon fees, and we expect to incur other costs to replace the services and resources that will not be provided by Lilly. These fees and costs may be greater than or less than levels allocated in our historical financial statements. We will also incur new costs relating to our public reporting and compliance obligations as an independent, publicly traded company.

The Distribution

          Lilly has informed us that, as of the date of this prospectus, it intends, following this offering, to make a distribution to its shareholders of all or a portion of its equity interest in us, which may include one or more distributions effected as a dividend to all Lilly shareholders, one or more offers

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to Lilly shareholders to exchange their Lilly shares for shares of our common stock, or any combination thereof. We refer to any such potential distribution as the "Distribution."

          While, as of the date of this prospectus, Lilly intends to effect the Distribution, Lilly has no obligation to pursue or consummate any further dispositions of its ownership interest in us, including through the Distribution, by any specified date or at all. If pursued, the Distribution may be subject to various conditions, including receipt of any necessary regulatory or other approvals, the existence of satisfactory market conditions and the receipt of an opinion of counsel to the effect that such Distribution would be tax-free to Lilly and its shareholders for U.S. federal income tax purposes. The conditions to the Distribution may not be satisfied, Lilly may decide not to consummate the Distribution even if the conditions are satisfied or Lilly may decide to waive one or more of these conditions and consummate the Distribution even if all of the conditions are not satisfied.

          The Distribution is not being effected pursuant to this prospectus, and the underwriters of this offering are not acting as underwriters for the Distribution.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

          The following is a discussion and analysis of our financial condition and results of operations as of, and for, the periods presented. You should read the following discussion and analysis of our financial condition and results of operations together with the sections entitled "Summary — Summary Historical and Unaudited Pro Forma Combined Financial Data," "Risk Factors," "Cautionary Note Regarding Forward-Looking Statements," "Selected Historical Combined Financial Data," "Unaudited Pro Forma Condensed Combined Financial Statements" and our combined financial statements and related notes thereto included elsewhere in this prospectus.

Overview

          Founded in 1954 as part of Eli Lilly and Company, Elanco is a premier animal health company that innovates, develops, manufactures and markets products for companion and food animals. Headquartered in Greenfield, Indiana, we are the fourth largest animal health company in the world, with revenue of $2.9 billion for the year ended December 31, 2017. Globally, we are #1 in medicinal feed additives, #2 in poultry and #3 in cattle, measured by 2017 revenue, according to Vetnosis. We also have one of the broadest portfolios of pet parasiticides in the companion animal sector. We offer a diverse portfolio of more than 125 brands that make us a trusted partner to veterinarians and food animal producers in more than 90 countries.

          We operate our business in a single segment directed at fulfilling our vision of enriching the lives of people through food — making protein more accessible and affordable — and through pet companionship — helping pets live longer, healthier lives. We advance our vision by offering products in four primary categories:

    Companion Animal Disease Prevention ("CA Disease Prevention"):  We have one of the broadest parasiticide portfolios in the companion animal sector based on indications, species and formulations, with products that protect pets from worms, fleas and ticks. Combining our parasiticide portfolio with our vaccines presence, we are a leader in the U.S. in the disease prevention category based on share of revenue.

    Companion Animal Therapeutics ("CA Therapeutics"):  We have a broad pain and osteoarthritis portfolio across species, modes of action, indications and disease stages. Pet owners are increasingly treating osteoarthritis in their pets, and our Galliprant product is one of the fastest growing osteoarthritis treatments in the U.S. We also have treatments for otitis (ear infections), as well as cardiovascular and dermatology indications.

    Food Animal Future Protein & Health ("FA Future Protein & Health"):  Our portfolio in this category, which includes vaccines, nutritional enzymes and animal-only antibiotics, serves the growing demand for protein and includes innovative products in poultry and aquaculture production, where demand for animal health products is outpacing overall industry growth. We are focused on developing functional nutritional health products that promote food animal health, including enzymes, probiotics and prebiotics. We are a leader in providing vaccines as alternatives to antibiotics to promote animal health based on share of revenue.

    Food Animal Ruminants & Swine ("FA Ruminants & Swine"):  We have developed a range of food animal products used extensively in ruminant (e.g., cattle, sheep and goats) and swine production.

          For the six months ended June 30, 2018 and 2017, our revenue was $1.5 billion and $1.4 billion, respectively, and for each of the years ended December 31, 2017, 2016 and 2015, our revenue was $2.9 billion. For the six months ended June 30, 2018 and 2017, our net income (loss) was $9.9 million and $(128.5) million, respectively, our adjusted EBITDA was $306.2 million and

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$278.4 million, respectively, and our adjusted net income was $219.0 million and $156.4 million, respectively. For the years ended December 31, 2017, 2016 and 2015, our net income (loss) was $(310.7) million, $(47.9) million and $(210.8) million, respectively, our adjusted EBITDA was $498.9 million, $540.4 million and $393.7 million, respectively, and our adjusted net income was $250.5 million, $332.6 million and $208.7 million, respectively. For a reconciliation of adjusted EBITDA and adjusted net income to net income (loss), see "Prospectus Summary — Summary Historical and Unaudited Pro Forma Combined Financial Data."

Key Trends and Conditions Affecting Our Results of Operations

Industry Trends

          The animal health industry, which focuses on both food animals and companion animals, is a growing industry that benefits billions of people worldwide.

          As demand for animal protein grows, food animal health is becoming increasingly important. Factors influencing growth in demand for food animal medicines and vaccines include:

    one in three people needs improved nutrition;

    increased global demand for protein, particularly poultry and aquaculture;

    natural resource constraints, such as scarcity of arable land, fresh water and increased competition for cultivated land, driving the need for more efficient food production;

    loss of productivity due to food animal disease and death;

    increased focus on food safety and food security; and

    human population growth, increased standards of living, particularly in many emerging markets, and increased urbanization.

          Growth in food animal nutritional health products (enzymes, probiotics and prebiotics) is influenced, among other factors, by demand for antibiotic alternatives that can promote animal health and increase productivity.

          Factors influencing growth in demand for companion animal medicines and vaccines include:

    increased pet ownership globally;

    pets living longer; and

    increased pet spending as pets are viewed as members of the family by owners.

Product Development and New Product Launches

          A key element of our targeted value creation strategy is to drive growth through portfolio development and product innovation, primarily in our three targeted growth categories. Our nine product launches between 2015 and 2017 have had a significant positive impact on our revenue over those periods, and we expect new products and innovation will continue to have a positive impact on our revenue in the future. Revenue from these product launches contributed $143.8 million to revenue for the year ended December 31, 2017 and $136.6 million to revenue for the six months ended June 30, 2018. We continue to pursue the development of new chemical and biological molecules through our approach to innovation. Our future growth and success depends on both our pipeline of new products, including new products that we may develop through joint ventures and products that we are able to obtain through license or acquisition, and the expansion of the use of our existing products. We believe we are an industry leader in animal health R&D, with a track record of product innovation, business development and commercialization.

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Impact of Changing Market Demand for Antibiotics

          In recent years, our operational results have been, and will continue to be, affected by regulations and changing market demand relating to the use of antibiotics and other products intended to increase food animal production.

          There are two classes of antibiotics used in animal health, shared-class, or medically important, antibiotics and animal-only antibiotics. Shared-class antibiotics are used to treat infectious disease caused by pathogens that occur in both humans and animals. As part of our antibiotic stewardship plan and in compliance with FDA guidance, shared-class antibiotics are labeled only for the treatment of an established need in animals and only with veterinarian oversight. However, not all pathogens that cause disease in animals are infectious in humans, and accordingly animal-only antibiotics are not used in human medicine (i.e., not medically important). From 2015 to 2017, our revenue from shared-class antibiotics declined at a CAGR of 7%, excluding the impact of foreign exchange, driven primarily by changing regulations in many markets, including the Veterinary Feed Directive, as well as changing market demand. Globally, during the first half of 2018, our revenue from shared-class antibiotics was flat, excluding the impact of foreign exchange, and represented 12% (4% from sales in North America and 8% from sales outside of North America) of our total revenue, down from 16% in the first half of 2015. From 2015 to 2017, our revenue from animal-only antibiotics grew at a CAGR of 4%, excluding the impact of foreign exchange, driven by sales outside North America, which offset a slight decline in North America. Globally, during the first half of 2018, our revenue from animal-only antibiotics grew 9%, excluding the impact of foreign exchange, and represented 24% of our total revenue, up from 21% in the first half of 2015. During 2017, as well as the first half of 2018, 86% of our revenue from animal-only antibiotics resulted from the sale of ionophores. Ionophores are a special class of animal-only antibiotics, and because of their animal-only designation, mode of action and spectrum of activity, their use has not to date been impacted by regulations or changing market demand in many markets outside of North America.

          Over the past two years, we have intentionally shifted away from shared-class antibiotics, and are focusing on animal-only antibiotics, as well as antibiotic-free solutions. When an animal-only antibiotic exists, we believe it should be the first, preferred antibiotic treatment. Antibiotic resistance concerns, or other health concerns regarding food animal products, may result in additional restrictions, expanded regulations or changes in market demand to further reduce the use of antibiotics in food animals. We believe it is important to protect the benefits of antibiotics in human medicine, while responsibly protecting the health of food animals and the safety of our food supply.

Impact of Competition

          The animal health industry is competitive. Established animal health companies who consistently deliver high quality products enjoy brand loyalty from their customers, which often continues after the loss of patent-based or regulatory exclusivity. In 2017, approximately 75% of our revenue was from products that did not have patent protection. In animal health, while potentially significant, erosion from generic competition is often not as steep as in human health, with the originator often retaining a significant market share. While our largest product, Rumensin, has been subject to generic competition for monensin outside the U.S. for more than 10 years, our revenue from Rumensin sales outside the U.S. grew 10% from 2015 to 2017. However, generic competition can nevertheless significantly affect our results. We have experienced significant competitive headwinds from generic ractopamine in the U.S. In the third quarter of 2013, a large, established animal health company received U.S. approval for generic ractopamine. U.S. revenue for Optaflexx, our ractopamine beef product, has declined at a CAGR of 28% from 2015 to 2017 as a result of generic competition and the impact of international regulatory restrictions. In 2017, we had an

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estimated 64% market share of all U.S. ractopamine-treated beef cattle based on management estimates.

          Although we believe brand loyalty is an important contributor to a product's ongoing success, the animal health industry is also impacted by innovation. We experienced an innovation lag in the companion animal parasiticide space from 2015 to 2017. In the absence of a competitive combined oral flea and tick product, our U.S. companion animal parasiticide portfolio revenue declined 15% in 2017, excluding the impact on revenue resulting from a reduction in inventory levels within our distribution channel. In February 2018, we launched Credelio in the U.S. for the treatment of fleas and ticks. Since the launch of Credelio, our U.S. parasiticide portfolio has returned to growth.

Productivity

          Our results during the periods presented have benefitted from operational and productivity initiatives that we have implemented following our recent acquisitions and in response to changing market demand for antibiotics and other headwinds. We estimate that these initiatives have generated more than $500 million in annualized cost savings from the beginning of 2015 through the end of 2017.

          Our acquisitions of Lohmann Animal Health in 2014, Novartis Animal Health in 2015 and the BI Vetmedica U.S. vaccines portfolio in 2017 added in aggregate $1.4 billion in revenue, 4,500 full-time employees, 12 manufacturing and eight R&D sites. In addition, from 2015 to 2017, changing market demand for antibiotics and other headwinds, such as competition with generics and innovation, affected some of our highest gross margin products, resulting in a change to our product mix and driving operating margin lower. In response, we implemented a number of initiatives across manufacturing, R&D and SG&A. Our manufacturing cost savings strategies included improving manufacturing processes and headcount through lean manufacturing (minimizing waste while maintaining productivity), closing three manufacturing sites, consolidating our CMO network, strategically insourcing certain projects, and pursuing cost savings opportunities with respect to raw materials via a new procurement process. Additional cost savings resulted from reducing the number of R&D sites from 16 to nine, SG&A savings from sales force consolidation, and reducing discretionary and other G&A operating expense.

Foreign Exchange Rates

          Significant portions of our revenue and costs are exposed to changes in foreign exchange rates. Our products are sold in more than 90 countries and, as a result, our revenue is influenced by changes in foreign exchange rates. For the year ended December 31, 2017, approximately 50% of our revenue was denominated in foreign currencies. We seek to manage our foreign exchange risk, in part, through operational means, including managing same-currency revenue in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. As we operate in multiple foreign currencies, including the euro, British pound, Brazilian real, Australian dollar, Japanese yen, Canadian dollar, Chinese yuan, and other currencies, changes in those currencies relative to the U.S. dollar will impact our revenue, cost of goods and expenses, and consequently, net income. Exchange rate fluctuations in emerging markets may also have an impact beyond our reported financial results and directly impact operations. These fluctuations may affect the ability to buy and sell our products between markets impacted by significant exchange rate variances. Foreign exchange rates had a negligible effect on revenue in 2017 as compared to 2016 and had a negative impact of 2% in 2016 as compared to 2015.

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General Economic Conditions

          In addition to industry-specific factors, we, like other businesses, face challenges related to global economic conditions. Growth in both the food animal and companion animal sectors is driven in part by overall economic development and related growth, particularly in many emerging markets. In recent years, certain of our customers and suppliers have been affected directly by economic downturns, which decreased the demand for our products.

          The cost of our products to food animal producers is small relative to their other production costs, including feed, and the use of our products is intended to improve economic outcomes for food animal producers. Similarly, industry sources have reported that pet owners indicated a preference for reducing spending on other aspects of their lifestyle, including entertainment, clothing and household goods, before reducing spending on pet care. While these factors have mitigated the impact of recent downturns in the global economy, further economic challenges could increase cost sensitivity among our customers, which may result in reduced demand for our products and could have a material adverse effect on our financial condition and results of operations.

Weather Conditions and the Availability of Natural Resources

          The animal health industry and demand for many of our animal health products in a particular region are affected by weather conditions, varying weather patterns and weather-related pressures from pests, such as fleas and ticks. As a result, we may experience regional and seasonal fluctuations in our results of operations.

          Food animal producers depend on the availability of natural resources, including large supplies of fresh water. Their animals' health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth or floods, droughts or other weather conditions.

          Drought conditions could negatively impact, among other things, the supply of corn and the availability of grazing pastures. A decrease in harvested corn results in higher corn prices, which could negatively impact the profitability of food animal producers of ruminants, pork and poultry. Higher corn prices and reduced availability of grazing pastures contribute to reductions in herd or flock sizes that in turn result in less spending on animal health products. As such, a prolonged drought could have a material adverse effect on our financial condition and results of operations. Factors influencing the magnitude and timing of effects of a drought on our performance include, but may not be limited to, weather patterns and herd management decisions.

          In addition, veterinary hospitals and practitioners depend on visits from and access to the animals under their care. Veterinarians' patient volume and ability to operate could be adversely affected if they experience prolonged snow, ice or other severe weather conditions, particularly in regions not accustomed to sustained inclement weather. Adverse weather conditions or a shortage of fresh water may cause veterinarians and food animal producers to purchase less of our products.

Disease Outbreaks

          Sales of our food animal products could be adversely affected by the outbreak of disease carried by animals. Outbreaks of disease may reduce regional or global sales of particular animal-derived food products or result in reduced exports of such products, either due to heightened export restrictions or import prohibitions, which may reduce demand for our products. Also, the outbreak of any highly contagious disease near our main production sites could require us to immediately halt production of our products at such sites or force us to incur substantial expenses

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in procuring raw materials or products elsewhere. Alternatively, sales of products that treat specific disease outbreaks may increase.

Manufacturing and Supply

          In order to sell our products, we must be able to reliably produce and ship our products in sufficient quantities. Many of our products involve complex manufacturing processes and are sole-sourced from certain manufacturing sites.

          Minor deviations in our manufacturing or logistical processes, unpredictability of a product's regulatory or commercial success or failure, the lead time necessary to construct highly technical and complex manufacturing sites, and shifting customer demand increase the potential for capacity imbalances.