Just as biopharmaceutical companies do for humans, so animal health companies strive to improve the lives of pets and farm animals. They supply farmers, pet owners, and veterinarians with advanced treatments that help pets live longer, healthier lives and improve the well-being of animals raised for food production.
For Elanco Animal Health president and CEO Jeff Simmons, the mission is “food and companionship enriching life.” Until 2019, Elanco was a subsidiary of Eli Lilly; it was then divested and listed on the New York Stock Exchange. With stand-up and integration complete, Elanco is on track this year to launch one of its biggest pipelines in its 70-year history.
Shail Thaker, a senior partner in McKinsey’s Life Sciences Practice, talked with Simmons, who has been with Elanco since 1989, about the relevance of the animal health industry in today’s world and his views on innovation as a factor for future industry growth.
This interview has been edited for clarity and length.
McKinsey: What gets you excited about the animal health industry?
Jeff Simmons: From growing up on a dairy farm to raising my family’s Labrador retrievers, animals have always been central to my life. The animal health industry is different from other industries because it touches nearly everyone’s life every day. Some animals we love as pets; others we rely on as a critical source of protein. The resilience of our industry was tested during the COVID-19 pandemic. But what we learned is that whether it’s your pet giving you companionship and improving your mental health or whether it’s raising animals that give people access to a reliable, quality protein source, the world needs animals now more than ever.
Coming out of the pandemic, we’ve seen an increase in the humanization of pets. Pet owners today, particularly Gen Zers, are more likely to see their pets as best friends, which drives an increased willingness to spend. At the same time, there’s increasing demand for animal protein. With global consumption of protein expected to grow by 90 million metric tons over the next ten years, there’s a sense of urgency to supply our growing population with sustainable protein—be it beef, pork, or poultry—in a way that makes economic sense for farmers.
McKinsey: If you reflect on your journey so far, what are some of the unexpected things you have experienced and what have you learned from them?
Jeff Simmons: A few weeks after Elanco completed its IPO, two major things happened. First, in our trials to bring our broad-spectrum antiparasitic treatment Credelio Plus for dogs to market, we missed testing for an important worm. Because of this, it launched internationally but was delayed in the United States. Second, Bayer Animal Health became available in 2020, and we had to make a choice: Do we capture this opportunity or not? If we acquired the company, it would level up our business, allowing us to reach a broader range of consumers. But it would also change our corporate strategy and direction. Ultimately, because we could triple our pet business, balance our portfolio between pets and farm animals, and enhance our value proposition, we made the decision to acquire.
There have also been headwinds: from the negative effects on animal populations of disease outbreaks like avian flu and African swine fever to a global pandemic, the strengthening of the US dollar, and climbing interest rates. But today, five years later, we are a story of execution, and we offer investors a compelling long-term value proposition. We’re on the cusp of launching our most exciting pipeline in our 70-year history. We’re focused on delivering six potential blockbuster treatments by 2025 and doubling down on our next wave of development projects to deliver consistent innovation through the second half of the decade.
I would say our vision is clear. In the end, it is about purpose. Our focus is on making life better for animals, because when we do that, it just makes life better for all.
McKinsey: One of the distinctive features of the Elanco journey has been its serial acquisitions of different businesses in different geographies and with different cultures. What are your learnings from that?
Jeff Simmons: We’ve learned a lot. Sometimes good strategy is great, and sometimes good timing is even better. Our acquisition of Janssen Pharmaceutical’s animal health business in 2011 expanded our footprint in Europe, and our acquisition of Novartis Animal Health in 2014 extended our reach in the pet market. But integrations are hard. It took us a few acquisitions to realize that culture is paramount, and typically the acquirer’s culture comes out on top. There are strong antibodies in the acquiring culture.
Another lesson is that transparency between the acquired and acquiring organizations is vital; that’s something we learned after a few mistakes. There are synergies, there are strengths, there are savings—all reasons to do an acquisition. Be direct, be transparent, and be fast. It took us a few mistakes and a few acquisitions to figure that out. Acquisitions are not easy, but there are a lot of benefits when you bring two great companies together. We wouldn’t be where we are if it weren’t for acquisitions like Novartis and Bayer.
McKinsey: Where do you see that next wave of growth that could induce industry expansion from about $50 billion in sales to $100 billion?
Jeff Simmons: When I joined Elanco, animal health was a $5 billion industry. We were an industry that typically existed as a division within an agricultural, chemicals, or pharmaceutical company. Many times, I would dig through the Eli Lilly annual report to see if we got half a page. Our business was a financial asset, not a strategic asset. But we were opportunistic with whatever was given to us.
And then the innovations and breakthroughs started to come, especially in parasiticides and farm animal growth. And we kept that opportunistic mindset. To go from $50 billion to $100 billion, an industry typically goes through three Cs: consolidate, converge, and then, a choice to commoditize or create. We’ve seen consolidation in animal health. We’ve started to see the industry converge with geographic and portfolio coverage of major actors getting more and more alike. And then, one of two things happens: either you start to commoditize or you start to create. To create, we need to create more innovation. We need more capital, more business and structural models, more alliances than ever before. Some of the innovations Elanco is pursuing include needle-free treatments for feline diabetes and the first treatment for the deadly parvovirus in puppies.
Some companies are fighting for capital, but good innovation also takes patience. We should not just innovate on top of ourselves on the same things in a red ocean; we need to start opening up and creating some blue oceans. The farm animal division has to start taking its share back a little bit and start nurturing growth through innovation. That is essential. And on the pet side, innovation is going to be centered on convenience and globalization. We must grow our market and compete while we do so.
McKinsey: There is a lot of innovation in the human pharma space, such as new modalities, drug–device combinations, omics, and more. All of that will be exciting for animal health as well. What is currently holding back innovation in animal health?
Jeff Simmons: Starting in the targeted species has created higher probabilities of our innovation, which in a way gives us less patience for failure. There was a lot of failure to get where Eli Lilly took Elanco. We need to be willing to accept a little more failure in new spaces. Companies I admire tremendously are chasing treatments for bird flu, African swine fever, cancer, diabetes, obesity, and allergies. Do we have the patience and persistence to do that? We tend to get high probabilities when we are safely in a targeted species. We need to learn from our human pharma parent companies.
McKinsey: It’s our sense that you have always had a tremendous sense of personal purpose and mission. You believe in the impact that the animal health industry can have. Over the last five to ten years, you have built an interesting and quite effective venture called Hatch. Could you tell us a little bit more about that?
Jeff Simmons: From my years of experience in the farm animal business, I noticed there was a low-value product that was not being used: medium-size eggs. A lot were wasted. Meanwhile, besides diapers, the most demanded thing right now in food pantries around the United States is animal protein. So we started an organization, Hatch for Hunger, that takes low-value protein, buys it at a cost-plus basis, and sells it to food banks. You buy a dozen eggs at 65 cents, and you sell it to a food bank for 70 cents. We are enabling about 100 million meals annually right now and trying to get to one million meals per day. Hatch is creating value in a sustainable way. More important, having protein in the morning and improving a diet can change a person’s life.
McKinsey: If you could share a message with the rest of the industry, what would you say?
Jeff Simmons: Just stay in it. Stay at it. We need innovation. At Elanco, we’re not going to go down the commodity route. We have consolidated, we have converged, and now we have got to continue to create. And others in the industry will agree. Innovation is what makes the industry sustainable and creates value. Ultimately, this is about our customers—farmers, pet owners, and veterinarians—and adding more value to their lives and work. Do not give up. Don’t make the popular decision. Make the right decision.
