Elanco Animal Health Inc.

11/05/2025 | Press release | Distributed by Public on 11/05/2025 08:07

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
Management's discussion and analysis of financial condition and results of operations (MD&A) is intended to assist the reader in understanding and assessing significant changes and trends related to our results of operation and financial position. This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and accompanying footnotes in Item 1 of Part I of this Form 10-Q. Certain statements in this Item 2 of Part I of this Form 10-Q constitute forward-looking statements. Various risks and uncertainties, including, but not limited to those discussed in "Forward-Looking Statements" of this Form 10-Q, in Item 1A, "Risk Factors" of Part II of this Form 10-Q and in Item 1A, "Risk Factors" of Part I of our 2024 Form 10-K, may cause our actual results, financial position and cash flows to differ materially from these forward-looking statements.
Business Overview
Elanco is a global leader in animal health, dedicated to innovating and delivering products and services to prevent and treat disease in farm animals and pets. Our diverse, durable product portfolio is sold in more than 90 countries and serves animals across many species, primarily: dogs and cats (collectively, pet health) and cattle, poultry, swine, sheep and, prior to the divestiture of our aqua business in July 2024, aqua (collectively, farm animal). With a heritage dating back to 1954, we consistently innovate to improve the health of animals and to benefit our customers while fostering an inclusive, cause-driven culture for our employees. We operate our business in a single segment, directed at advancing the well-being of animals, people and the planet, enabling us to realize our vision of Food and Companionship Enriching Life.
Our diverse product portfolio of approximately 200 brands helps make us a trusted partner to pet owners, veterinarians and farm animal producers. Our products are generally sold worldwide to third-party distributors and independent retailers and directly to farm animal producers and veterinarians. Our omnichannel presence extends to both the veterinary clinic and retail markets, including e-commerce.
Product Development and Regulatory Update
A key element of our targeted value creation strategy is to drive revenue growth through portfolio development and product innovation. We continue to pursue the development of new chemical and biological molecules, as well as additional registrations and indications for current products. Our future growth and success depends on both our pipeline of new products, including new products we develop internally, develop with partners or that we obtain through licenses or acquisitions, and the life cycle management of our existing products. We believe we are an industry leader in animal health R&D, with a track record of successful product innovation, business development and commercialization. New product development, regulatory and product launch highlights throughout 2024 and 2025 include the following:
Bovaer: In May 2024, the U.S. Food & Drug Administration (FDA) completed its comprehensive, multi-year review of Bovaer® (3-NOP), a first-in-class methane-reducing feed ingredient for use in lactating dairy cattle. Producers began feeding the product to cattle in the U.S. during the third quarter of 2024.
Zenrelia: We received final FDA approval for Zenrelia®, a JAK inhibitor targeting control of pruritus and atopic dermatitis in dogs, in September 2024. We launched Zenreliain the U.S. shortly after final approval and have also received approval for Zenreliain Australia, Brazil, Canada, the European Union (EU), Japan and the U.K. Additional reviews are ongoing in other markets.
Credelio Quattro: In October 2024, we received final approval from the FDA for Credelio Quattro™, a monthly chewable tablet for dogs that protects against fleas, ticks, heartworms, roundworms, hookworms and three different species of tapeworms. Credelio Quattrowas launched in January 2025. Regulatory submissions have now been made in other key markets, including Europe, Australia, Canada, Japan and the U.K.
Experior: In October 2024, we received multiple combination clearance approvals from the FDA for Experior®to be used in combination with other farm animal products, allowing for broader use in heifers, which represent nearly 40% of the fed cattle population in the U.S.
AdTab: In April 2025, AdTab™, a chewable flea and tick treatment for dogs and cats, was approved and launched in the U.K.
2025 Q3 Form 10-Q | 21
Other Key Trends and Factors Affecting Our Results of Operations
Trade Environment and Other U.S. Government Initiatives: Changes to U.S. trade policy throughout 2025 have resulted in new or higher tariffs on goods imported from numerous countries, and some countries have imposed retaliatory tariffs on imports from the U.S. As disclosed in Item 1A, "Risk Factors - Tariffs, trade protection measures or other modifications of foreign trade policy may harm us or our customers", of our 2024 Form 10-K, our business is subject to risks related to, among other factors, tariffs, trade and monetary policies and economic conditions and events. While pharmaceutical products are largely exempt from the U.S. tariffs imposed earlier this year, it remains uncertain if this will continue to be the case, and pharmaceutical products are not exempt from all tariffs imposed outside of the U.S. We do believe that some customers accelerated purchases of certain of our farm animal products internationally during the second quarter of 2025, in anticipation of future tariff increases, which we believe resulted in a shift of revenue from the third quarter to the second quarter of 2025. Aside from this, we do not believe these new and increased tariffs had a material impact on our results of operations for the nine months ended September 30, 2025. We will continue to closely monitor the trade policies in the countries in which we operate and/or from where we import products and are taking actions, where possible, to mitigate the impacts on our business.
Further, throughout 2025, the U.S. presidential administration has sought to implement significant changes to the size and scope of the federal government. Among these changes, certain previously authorized government incentives focused on the adoption of new products for the sole purpose of sustainability have been frozen or rescinded. As disclosed in Item 1A, "Risk Factors - If the acceptance and/or adoption of our farm animal sustainability initiatives do not continue, our future results may be materially impacted", of our 2024 Form 10-K, we have made significant progress in recent years in gaining acceptance of farm animal sustainability products. However, we believe the adoption rate of Bovaer, one of our farm animal sustainability products, has been tempered throughout 2025 given the absence of government incentives focused on such adoption. We continue to monitor the impact these changes are having on our current business and on the adoption ramp of Bovaer, although the potential longer-term impact to us remains uncertain.
Sale of Future Revenue: In May 2025, we executed a Purchase and Sale Agreement (PSA) with affiliates of Blackstone, pursuant to which we received proceeds of $295 million in exchange for the rights to the proceeds from qualifying future royalties and sales milestone payments owed to us by Tarsus based on their net sales of XDEMVY®(lotilaner ophthalmic solution) 0.25%, a medical treatment for Demodex blepharitis in humans. Rights to qualifying royalties sold to Blackstone apply to net sales of XDEMVY in the U.S. from April 1, 2025 through August 24, 2033. We retain the rights to all royalty payments on net sales outside the U.S., and ownership of any royalties due on U.S. net sales after August 24, 2033, will remain with us. These net proceeds were utilized to repay previously outstanding debt.
Under GAAP, the $295 million in proceeds received from Blackstone, net of transaction costs, was recorded as a liability for sale of future revenue on our condensed consolidated balance sheet. Although we will no longer receive the proceeds from the qualifying future royalties and milestones, we are required under GAAP to continue recording these amounts as revenue and other income (expense), respectively. See Note 10. Liability for Sale of Future Revenue to the condensed consolidated financial statements for further information.
Corporate Headquarters Lease: In June 2025, we commenced a five-year lease for our new corporate headquarters in Indianapolis, Indiana. This lease contains both an option for Elanco to purchase the headquarters facility and a put right for the landlord to put the facility to us, both of which, if exercised, would occur at the end of the five-year lease term for $250 million. It is our current expectation that we will exercise our purchase option at the end of the lease term. Based on our review of the terms of this lease, we determined classification as a finance lease to be appropriate. As of September 30, 2025, the total finance lease liability was $255 million, with a corresponding right-of-use (ROU) asset of $224 million. See Note 7. Debt and Finance Lease Liability to the condensed consolidated financial statements for further information.
Aqua Business Divestiture: On July 9, 2024, we closed the sale of our aqua business to a subsidiary of Merck Animal Health, for $1,294 million in cash proceeds, which was paid at closing. Assets sold included inventories, real property and equipment, including our manufacturing sites in Canada and Vietnam, and certain intellectual property, technology and other intangible assets, including marketed products. Along with these assets, approximately 280 commercial and manufacturing employees were transferred to Merck Animal Health as part of this divestiture. We recorded a pre-tax gain on divestiture of $640 million during the third quarter of 2024. Income tax expense associated with this gain on divestiture was $170 million. See Note 4. Acquisitions, Divestitures and Other Arrangements to the condensed consolidated financial statements for further information.
Acquisition and Integration: In November 2024, we acquired a manufacturing facility in Speke, U.K. (Speke), including its workforce and related assets such as inventory and property and equipment, from a former contract manufacturing supply partner, TriRx Speke Ltd. (TriRx Speke), for $36 million.
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Seasonality: While many of our products are sold consistently throughout the year, we do experience seasonality in our pet health business due to increased demand for certain parasiticide product offerings in the first half of the year. For example, in 2024 approximately 70% and 55% of total annual revenue generated by our higher-margin parasiticide products Serestoand Advantage Family, respectively, occurred during the first half of the year, which is reflective of the flea and tick season in the Northern Hemisphere.
Results of Operations
The following discussion and analysis of our results of operations should be read along with our condensed consolidated financial statements and the notes thereto. Our results of operations for the periods presented below may not be comparable with prior periods or with our results of operations in the future due to many factors, including but not limited to the factors identified above.
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 % Change 2025 2024 % Change
Revenue $ 1,137 $ 1,030 10% $ 3,571 $ 3,419 4%
Cost of sales 530 492 8% 1,567 1,502 4%
Gross profit 607 538 13% 2,004 1,917 5%
Research and development 89 87 2% 275 263 5%
Marketing, selling and administrative 351 323 9% 1,092 1,014 8%
Amortization of intangible assets 140 133 5% 404 397 2%
Asset impairment, restructuring and other special charges 25 17 47% 35 143 (76)%
Gain on divestiture - (640) NM - (640) NM
Interest expense, net of capitalized interest 52 58 (10)% 140 189 (26)%
Other expense, net - 1 NM 23 12 92%
(Loss) income before income taxes (50) 559 NM 35 539 (94)%
Income tax (benefit) expense (16) 195 NM (9) 193 NM
Net (loss) income $ (34) $ 364 NM $ 44 $ 346 (87)%
Certain amounts and percentages may reflect rounding adjustments.
NM - Not meaningful
Revenue
Our products are sold in more than 90 countries, and as a result, a significant portion of our revenue is recorded in currencies other than the U.S. Dollar. Because of this, our revenue is influenced by changes in foreign currency exchange rates. During the nine months ended September 30, 2025 and 2024, approximately 51% and 53%, respectively, of our revenue was denominated in foreign currencies, respectively.
Further, increases or decreases in inventory levels in our distribution channels can positively or negatively impact our periodic revenue results, leading to variations in revenue. This can be a result of various factors, such as end customer demand, new customer contracts, initial stocking of new products, heightened and generic competition, the need for certain inventory levels, our ability to renew distribution contracts with expected terms, our ability to implement commercial strategies, regulatory restrictions, unexpected customer behavior, proactive measures taken by us in response to shifting market dynamics, payment terms we extend, which are subject to internal policies, blackout shipping periods due to system downtime, implementations and integrations and procedures and environmental factors beyond our control.
Our revenue by product category for the three and nine months ended September 30, 2025 and 2024, was as follows:
Three Months Ended September 30,
Revenue % of Total Revenue
(Dollars in millions) 2025 2024 2025 2024 $ Change % Change
Pet Health $ 533 $ 486 47 % 47 % $ 47 10 %
Farm Animal 593 530 52 % 52 % 63 12 %
Contract Manufacturing and Other (1)
11 14 1 % 1 % (3) (21) %
Total $ 1,137 $ 1,030 100 % 100 % $ 107 10 %
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Nine Months Ended September 30,
Revenue % of Total Revenue
(Dollars in millions) 2025 2024 2025 2024 $ Change % Change
Pet Health $ 1,811 $ 1,704 51 % 50 % $ 107 6 %
Farm Animal 1,722 1,680 48 % 49 % 42 3 %
Contract Manufacturing and Other (1)
38 35 1 % 1 % 3 9 %
Total $ 3,571 $ 3,419 100 % 100 % $ 152 4 %
Note: Numbers may not add due to rounding.
(1)Represents revenue from arrangements in which we manufacture products on behalf of a third party and royalty revenue. In May 2025, we entered into an agreement to sell certain qualifying royalties, among other potential future cash flows, to Blackstone for proceeds of $295 million in cash. While we are no longer entitled to these qualifying royalties, we are required under GAAP to continue recognizing them as revenue. For the three and nine months ended September 30, 2025, royalty revenue associated with this arrangement, which is reflected within the Contract Manufacturing and Other line in the table above, totaled $6 million and $10 million, respectively. See Note 10. Liability for Sale of Future Revenue to the condensed consolidated financial statements for additional information.
The effects of price, foreign currency exchange rates, volume and the impact of the prior year divestiture of our aqua business on changes in revenue for the three and nine months ended September 30, 2025, compared to the three and nine months ended September 30, 2024, were as follows:
Three months ended September 30, 2025
(Dollars in millions)
Revenue Price FX Rate Volume Divestiture Total
Pet Health $ 533 (1)% 1% 9% -% 10%
Farm Animal 593 1% 2% 9% -% 12%
Contract Manufacturing and Other 11 (21)%
Total $ 1,137 -% 1% 9% -% 10%
Nine months ended September 30, 2025
(Dollars in millions)
Revenue Price FX Rate Volume Divestiture Total
Pet Health $ 1,811 2% -% 4% -% 6%
Farm Animal 1,722 2% -% 6% (5)% 3%
Contract Manufacturing and Other 38 9%
Total $ 3,571 2% -% 5% (3)% 4%
Note: Numbers may not add due to rounding.
Pet health revenue increased $47 million, or 10%, for the three months ended September 30, 2025, compared to the same period in 2024, driven primarily by higher volumes and, to a lesser extent, the impacts from foreign currency exchange rate movements. Pricing decreased 1% compared to the same period in 2024. Higher volumes were primarily driven by new products, led by Credelio Quattro and Zenrelia.
Pet health revenue increased $107 million, or 6%, for the nine months ended September 30, 2025, compared to the same period in 2024, also driven by higher volumes and a 2% increase in pricing. For the nine months ended September 30, 2025, volume growth was driven primarily new products, led by Credelio Quattro, Zenreliaand AdTab, including the impacts of initial stocking.
Farm animal revenue increased $63 million, or 12%, for the three months ended September 30, 2025, compared to the same period in 2024, driven by increased volumes across cattle and poultry, a 1% increase in pricing and the impacts from foreign currency exchange rate movements. Higher volumes were led by Experior in U.S. cattle and strength in poultry sales globally. Further, while farm animal product volumes were 9% higher for the three months ended September 30, 2025, compared to the same period in 2024, we believe volumes were negatively impacted by the approximately $10 million to $20 million of previously disclosed accelerated customer purchases during the second quarter of 2025 for our international swine and poultry products that we believe was driven by our customers' anticipation of future tariff increases.
Farm animal revenue increased $42 million, or 3%, for the nine months ended September 30, 2025, compared to the same period in 2024, driven by higher volumes and a 2% increase in pricing. These increases were partially offset by the impact of the divestiture of our aqua business in July 2024, which generated revenue of $81 million during the nine months ended September 30, 2024. Higher volumes of our non-aqua products were led by Experior in U.S. cattle, and to a lesser degree, strength in poultry sales globally.
2025 Q3 Form 10-Q | 24
Gross Profit
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 % Change 2025 2024 % Change
Gross profit $ 607 $ 538 13 % $ 2,004 $ 1,917 5 %
Gross margin % 53 % 52 % 56 % 56 %
Gross profit increased $69 million for the three months ended September 30, 2025, driven largely by the increased revenue discussed above. Additionally, gross margin percentage (gross profit as a percentage of total revenue) increased to 53%, compared to 52% for the three months ended September 30, 2024, driven largely by the favorable productivity benefits from increased sales volumes.
Gross profit increased $87 million for the nine months ended September 30, 2025, driven by increased revenue, while gross margin percentage was flat at 56% compared to the nine months ended September 30, 2024. The favorable impacts from improved pricing and the productivity benefits from increased sales volumes were offset by the impacts of inflation and the higher manufacturing costs associated with owning Speke.
Research and Development
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 % Change 2025 2024 % Change
Research and development $ 89 $ 87 2 % $ 275 $ 263 5 %
% of revenue 8 % 8 % 8 % 8 %
Research and development expenses increased $2 million and $12 million for the three and nine months ended September 30, 2025, respectively, as compared to the same periods in the prior year. The increase for the three months ended September 30, 2025, was primarily driven by foreign currency exchange rate movements, while the increase for the nine months ended September 30, 2025, also included higher employee-related expenses and project costs.
Marketing, Selling and Administrative
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 % Change 2025 2024 % Change
Marketing, selling and administrative $ 351 $ 323 9 % $ 1,092 $ 1,014 8 %
% of revenue 31 % 31 % 31 % 30 %
Marketing, selling and administrative expenses increased $28 million and $78 million for the three and nine months ended September 30, 2025, respectively, as compared to the same periods in the prior year. These increases were driven by strategic investments in the global launches of new products and increased selling costs, corresponding to increased revenue.
Amortization of Intangible Assets
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 % Change 2025 2024 % Change
Amortization of intangible assets $ 140 $ 133 5 % $ 404 $ 397 2 %
Amortization of intangible assets increased $7 million for both the three and nine months ended September 30, 2025, as compared to the same periods in the prior year. These fluctuations were primarily driven by changes in foreign currency exchange rates.
Asset Impairment, Restructuring and Other Special Charges
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 % Change 2025 2024 % Change
Asset impairment, restructuring and other special charges $ 25 $ 17 47 % $ 35 $ 143 (76) %
Asset impairment, restructuring and other special charges increased $8 million for the three months ended September 30, 2025, and decreased $108 million for the nine months ended September 30, 2025, respectively, as compared to the same periods in the prior year.
Amounts recorded to asset impairment, restructuring and other special charges during the three and nine months ended September 30, 2025, included asset impairments of $24 million, primarily comprised of $16 million related to two early-stage capital projects that we indefinitely suspended during the third quarter. Additional amounts recorded primarily consisted of upfront payments made during the first quarter in relation to new licensing arrangements.
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Amounts recorded to asset impairment, restructuring and other special charges during the three months ended September 30, 2024, primarily reflected $15 million of asset impairments tied to the financial difficulties of our former contract manufacturing supply partner, TriRx Speke. Amounts recorded during the nine months ended September 30, 2024, also included a $53 million impairment charge related to a pet health IPR&D asset (IL-4R), $17 million of transaction costs associated with the divestiture of our aqua business and $45 million of costs associated with our restructuring plan announced in February 2024.
Gain on Divestiture
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 % Change 2025 2024 % Change
Gain on divestiture $ - $ (640) NM $ - $ (640) NM
As discussed above, we recorded a pre-tax gain of $640 million on the divestiture of our aqua business during the three months ended September 30, 2024. See Note 4. Acquisitions, Divestitures and Other Arrangements to the condensed consolidated financial statements for further information.
Interest Expense, Net of Capitalized Interest
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 % Change 2025 2024 % Change
Interest expense, net of capitalized interest $ 52 $ 58 (10) % $ 140 $ 189 (26) %
Interest expense, net of capitalized interest decreased $6 million and $49 million for the three and nine months ended September 30, 2025, respectively, as compared to the same periods in the prior year. These decreases were driven by lower average outstanding debt balances during the current year, given recent debt paydown activity. Imputed interest on our liability for sale of future revenue of $13 million and $20 million, respectively, for the three and nine months ended September 30, 2025 (see Note 10. Liability for Sale of Future Revenue to the condensed consolidated financial statements for further information), as well as interest expense related to our new corporate headquarters finance lease, partially offset these decreases.
Other expense, net
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 % Change 2025 2024 % Change
Other expense, net $ - $ 1 NM $ 23 $ 12 92 %
Other expense, net for the nine months ended September 30, 2025 and 2024, primarily consisted of foreign currency exchange losses.
Income tax (benefit) expense
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 % Change 2025 2024 % Change
Income tax (benefit) expense $ (16) $ 195 NM $ (9) $ 193 NM
Effective tax rate 30.9 % 34.8 % (24.5) % 35.8 %
We recognized an income tax benefit of $16 million for the three months ended September 30, 2025, and income tax expense of $195 million for the three months ended September 30, 2024. Our effective tax rate of 30.9% for the three months ended September 30, 2025, differed from the statutory income tax rate primarily due to the tax impact from the jurisdictional mix of income and losses in non-U.S. jurisdictions. We also recognized a tax benefit of $16 million related to the remeasurement of certain deferred tax positions due to a foreign tax rate change during the three months ended September 30, 2025. Of the total income tax expense for the three months ended September 30, 2024, $170 million related to the income tax expense associated with the taxable gain on the divestiture of our aqua business. The taxable gain on divestiture exceeded the reported gain of $640 million primarily due to the derecognition of non-deductible goodwill. Our effective tax rate of 34.8% for the three months ended September 30, 2024, differed from the statutory income tax rate primarily due to the tax impact from this gain on divestiture, the jurisdictional earnings mix of projected income in higher tax jurisdictions and losses for which no tax benefit was recognized.
We recognized an income tax benefit of $9 million for the nine months ended September 30, 2025, and income tax expense of $193 million for the nine months ended September 30, 2024. Our effective tax rate of (24.5)% for the nine months ended September 30, 2025, differed from the statutory income tax rate primarily due to the remeasurement of certain deferred tax positions due to a foreign tax rate change in the third quarter of 2025 discussed above, as well as due to the jurisdictional mix of income and losses in non-U.S. jurisdictions. Our effective tax rate of 35.8% for the nine months ended September 30, 2024, differed from the statutory income tax
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rate primarily due to the tax impact from the gain on divestiture, partially offset by the release of a valuation allowance attributable to the sale of our aqua business and the recognition of certain state tax credits.
On July 4, 2025, the One Big Beautiful Bill Act (Act) was enacted into law in the U.S. The Act includes significant provisions, including tax cut extensions and modifications to the U.S. and international tax frameworks. Based on our current analysis of these provisions, we do not believe these provisions will have a material impact on our consolidated financial statements, including our analysis of our U.S. valuation allowance position. The Act did not have a material impact on our income tax (benefit) expense during the three or nine months ended September 30, 2025.
Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand, cash flows from operations and funds available under our credit facilities. As a significant portion of our business is conducted internationally, we hold a significant portion of cash outside the U.S. We monitor and adjust the amount of foreign cash based on projected cash flow requirements. Our ability to use foreign cash to fund cash flow requirements in the U.S. may be impacted by local regulations and, to a lesser extent, the income taxes associated with transferring cash to the U.S. We intend to indefinitely reinvest substantially all foreign earnings for continued use in our foreign operations. As our business evolves, we may change that strategy, particularly to the extent we identify tax-efficient reinvestment alternatives for our foreign earnings or change our cash management strategy.
We believe our primary sources of liquidity are sufficient to fund our short-term and long-term existing and planned capital requirements, which include working capital obligations, funding existing marketed and pipeline products, capital expenditures, business development in our targeted areas, short-term and long-term debt obligations, including both principal and interest payments, as well as interest rate swaps, lease payments, purchase obligations and costs associated with mergers, acquisitions, divestitures, business integrations and/or restructuring activities. As of September 30, 2025, we had cash and cash equivalents of $505 million and unused borrowing capacity on our Revolving Credit Facility of approximately $750 million. In addition, our Securitization Facility provides for additional borrowing capacity based on our U.S. Net Eligible Receivable Balances. As of September 30, 2025, we had approximately $110 million in undrawn borrowing capacity on this facility. We also have the ability to access capital markets to obtain debt financing for longer-term funding, if required. Further, we believe we have sufficient cash flow and liquidity to remain in compliance with our debt covenants.
On October 31, 2025, we refinanced our previously outstanding Term Loan B due 2027, paying off the $2,102 million balance in full with the proceeds from three new debt facilities and cash on hand. Our new Euro Term Loan, in the amount of €400 million, bears interest at EURIBOR plus a spread dependent on our Net Total Leverage Ratio, which will initially be 1.50%, and is scheduled to mature on April 1, 2029. Our new $1,100 million Term Loan B due 2032 bears interest at Term SOFR plus 1.75% and our new $540 million Incremental Term Facility due 2032 bears interest at Term SOFR plus 2.25%. Both the Term Loan B due 2032 and the Incremental Term Facility due 2032 are scheduled to mature on October 31, 2032. These refinancing activities extend our debt maturity profile and are expected to lower future cash paid for interest. See Note 7. Debt and Finance Lease Liability to the condensed consolidated financial statements for more details.
Our ability to meet future funding requirements may be impacted by macroeconomic, business and financial volatility. As market conditions change, we will continue to monitor our liquidity position. However, a challenging economic environment or an economic downturn may impact our liquidity or ability to obtain future financing. See "Item 1A. Risk Factors - We have substantial indebtedness" in Part I of our 2024 Form 10-K.
Cash Flows
The following table provides a summary of cash flows from operating, investing and financing activities for the nine months ended September 30, 2025 and 2024:
(in millions)
Net cash provided by (used for): 2025 2024 $ Change
Operating activities $ 452 $ 364 $ 88
Investing activities (215) 1,248 (1,463)
Financing activities (257) (1,460) 1,203
Effect of exchange rate changes on cash and cash equivalents 57 (14) 71
Net increase in cash and cash equivalents $ 37 $ 138 $ (101)
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Operating activities
Cash provided by operating activities was $452 million for the nine months ended September 30, 2025, compared to $364 million for the nine months ended September 30, 2024. The increase in cash provided by operating activities was primarily driven by increased net income year-over-year, after excluding the prior year gain on divestiture of our aqua business, as the related cash receipts associated with that divestiture were included within investing activities. This increase in net income was partially offset by changes in working capital.
Investing activities
Cash used for investing activities was $215 million for the nine months ended September 30, 2025, compared to cash provided by investing activities of $1,248 million for the nine months ended September 30, 2024. Cash used for investing activities during the nine months ended September 30, 2025, largely consisted of $214 million of net purchases of property and equipment and software, which was $114 million higher than for the nine months ended September 30, 2024. This increase in purchases of property and equipment primarily related to the ongoing expansion of our monoclonal antibody manufacturing facility in Elwood, Kansas, as well as capital projects at our Fort Dodge, Iowa, and Huningue, France, manufacturing facilities. Additionally, in August 2025 we purchased approximately 56 acres of land to further our vision of creating the One Health Innovation District research hub centered around our new corporate headquarters in Indianapolis, Indiana.
Cash provided by investing activities during the nine months ended September 30, 2024, was driven by the cash proceeds of $1,294 million from the sale of our aqua business in July 2024, and to a lesser extent, the collection of a $66 million receivable related to the previous divestiture of our Shawnee and Speke locations (see Note 4. Acquisitions, Divestitures and Other Arrangements to the condensed consolidated financial statements for additional information). These proceeds were partially offset by net purchases of property and equipment and software.
Financing activities
Cash used for financing activities was $257 million for the nine months ended September 30, 2025, compared to $1,460 million for the nine months ended September 30, 2024. Cash used for financing activities during the nine months ended September 30, 2025, included $562 million in scheduled and early repayments of long-term borrowings, partially enabled by net proceeds of $290 million from the sale of qualifying future royalties and sales milestone payments (see Note 10. Liability for Sale of Future Revenue to the condensed consolidated financial statements for further information). Cash used for financing activities during the nine months ended September 30, 2024, included $1,587 million in gross repayments of term loan debt, partially enabled by the proceeds from the sale of our aqua business, and net repayments on our Revolving Credit Facility of $200 million. These repayments were partially offset by proceeds of $350 million from the issuance of our Incremental Term Facility due 2031 in August 2024.
Description of Indebtedness
For a complete description of our existing debt and available credit facilities as of September 30, 2025 and December 31, 2024, see Note 8. Debt within Item 8, "Financial Statements and Supplementary Data," of Part II of our 2024 Form 10-K. New developments, including our October 2025 refinancing of our Term Loan B due 2027, are discussed in Note 7. Debt and Finance Lease Liability of this Form 10-Q.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures at the date of the financial statements and during the reporting period. Certain of our accounting estimates are considered critical because they are the most important to the fair presentation of our financial statements, including the disclosures thereto, and often require significant, difficult or complex judgments, probabilities and assumptions.
While we believe our critical accounting estimates to be reasonable based on all relevant information available, given their inherent uncertainty, if our estimates and assumptions are not representative of actual outcomes, our results could be materially impacted. We regularly evaluate our estimates and assumptions and adjust them when facts and circumstances indicate the need for change, and such changes generally would be reflected in our condensed consolidated financial statements in the period they are determined. We apply estimation methodologies consistently from year to year. Our critical accounting estimates are summarized in Item 7, "Management's Discussion & Analysis of Results of Financial Condition and Results of Operations," of our 2024 Form 10-K. There were no significant changes or developments in the application of our critical accounting estimates during the nine months ended September 30, 2025.
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