Investor Contact: Tiffany Kanaga (302) 897-0668 or tiffany.kanaga@elancoah.com Media Contact: Colleen Parr Dekker (317) 989-7011 or colleen.dekker@elancoah.com Elanco Animal Health Reports Second Qu

Investor Contact: Tiffany Kanaga (302) 897-0668 or tiffany.kanaga@elancoah.com

Media Contact: Colleen Parr Dekker (317) 989-7011 or colleen.dekker@elancoah.com

Elanco Animal Health Reports Second Quarter

Exceeded second quarter 2021 guidance; Increasing

full year 2021 revenue outlook

GREENFIELD, Ind. (August 9,

2021) - Elanco Animal Health Incorporated (NYSE: ELAN) today reported financial results for the second quarter of 2021, provided

guidance for the third quarter of 2021, and raised revenue guidance for the full year 2021. The results reflect the inclusion of the Bayer

Animal Health business Elanco acquired on August 1, 2020.

"Elanco continues to deliver strong results, extending our track

record of execution since acquiring Bayer Animal Health a year ago," said Jeff Simmons, president and chief executive officer at

Elanco. "Outperformance on both sides of our business allows us to raise 2021 revenue guidance for the third time, with full year

growth exceeding our long-term growth algorithm. We head into the back half of the year with confidence in our ability to drive sustainable

double-digit adjusted EBITDA and adjusted EPS growth. We see evidence that our transformation is creating durable, long-term value for

our customers, our shareholders, and our global team."

In the second quarter, Elanco's results compared to the company's June 16,

2021 guidance are as follows:

Second quarter of 2021 guidance was updated on June 9, 2021 for

an impairment charge of $245 million to $305 million with the exit of three manufacturing sites, driving a reduction of $0.43 to $0.54

in second quarter and full year 2021 GAAP financial guidance for EPS vs. the prior $(0.08) to $(0.01) range for the second quarter and

$(0.35) to $(0.26) for the full year. Second quarter of 2021 guidance was reiterated on June 16, 2021.

In the second quarter, Elanco's revenue was $1,279 million, benefiting

from increased scale and diversification with the addition of Bayer Animal Health. Products from the legacy Bayer Animal Health business

contributed $529 million, including $148 million from the Advantage family of products and $129 million from Seresto. The global

Pet Health business drove approximately two-thirds of the upside versus the midpoint of second quarter guidance, with execution in a competitive

but favorable industry backdrop, and particular strength from the U.S. vaccine business and Elanco's international markets. In the quarter,

global Seresto revenue declined 1 percent and global Advantage family revenue declined 3 percent compared with the second quarter of 2020.

Both faced a difficult comparison against last year's retailer-driven stock-in. Additionally, cooler and wetter weather in May across

many parts of the U.S. negatively impacted seasonal traffic in the OTC channel. The global Seresto brand remains on track toward full

year revenue expectations.

The global Farm Animal business contributed approximately one-third

of the upside versus the midpoint of second quarter guidance, driven by continued improvement in U.S. cattle and swine, and to a lesser

extent by customer orders for aqua products shifting into the second quarter from the third quarter. Outside the U.S., Farm Animal was

impacted by re-emerging African Swine Fever headwinds and sharply lower hog prices in China, as well as continued challenges in international

poultry due to unfavorable macroeconomic conditions and reduced consumption driven by the global pandemic. The company's full year outlook

assumes a gradual recovery in Chinese hog prices, and further industry improvement in international poultry and aqua.

Innovation Launches and Approvals

Innovation is expected to drive Elanco's long-term growth algorithm,

with an anticipated two to three percentage point contribution to overall average annual revenue growth. Seven of the planned eight launches

for 2021 have occurred in the first half of the year, with eight approvals achieved year to date. Highlights include:

Revenue contribution from the three Pet Health launches is running

ahead of expectations, while Farm Animal contribution is on track with the exception of one externally sourced poultry product. ZoaShield

is facing greater than anticipated market supply of the leading competitive product. Consequently, Elanco now anticipates the eight total

products launching in 2021 to contribute $65 million to $85 million in revenue during the year. This revision does not alter the company's

previously stated innovation revenue expectation of $600 million to $700 million by 2025, reflecting an additional $100 million with the

announcement of the KindredBio acquisition.

Operational Efficiencies

Elanco continues to make progress toward the company's Investor Day

commitment to deliver on $300 million in cost efficiencies by the end of 2023, including $160 million to $175 million of cumulative synergies

to be achieved in 2021. In June 2021, Elanco announced actions to further optimize its manufacturing footprint. Following the acquisition

of Bayer Animal Health, Elanco evaluated how to best allocate its manufacturing efforts to ensure efficient, reliable, quality supply

for customers. As a result, Elanco has entered into an agreement with Connecticut-based TriRx Pharmaceuticals, a global contract manufacturer,

for the sale of the company's sites in Shawnee, Kansas, and Speke, United Kingdom. The sale of the Shawnee facility occurred on

August 1, 2021, and Elanco expects to close on the sale of the Speke facility by early 2022. With these sales to TriRx, Elanco now

expects its adjusted gross margin efforts to reach 60 percent by 2023. These changes also reduce annual capital expenditures by $25 million

to $30 million, which more than offsets an operating income reduction of approximately $5 million from third-party contract manufacturing

activities associated with the sites. Furthermore, Elanco anticipates an improvement in working capital as approximately $75 million to

$85 million of inventory on the company's balance sheet will exit as part of these transactions. Elanco will additionally cease

operations of its regional manufacturing site in Belford Roxo, Brazil.

Working Capital and Balance Sheet

In the second quarter, days sales outstanding was 75 days, up from

69 days in the first quarter of 2021. As of June 30, 2021, cash and cash equivalents were $580 million, with gross debt of $6.19

billion, and resulting net debt of $5.61 billion. The company expects to refinance its $500 million of Senior Notes due August 27,

2021, and utilize its revolving credit facility and cash on hand to finance the KindredBio acquisition. Elanco's year-end net leverage

target is approximately 5.5x.

Second Quarter Reported Results

In the second quarter of 2021, total revenue was $1,279 million, an

increase of 118 percent, or an increase of 114 percent without the impact of foreign exchange rates, compared with the second quarter

of 2020, driven by the inclusion of the Bayer Animal Health business. Legacy Elanco revenue in the second quarter was $750 million,

an increase of 28 percent year over year. Gross margin, as a percent of revenue, was 56.9 percent, an improvement of 740 basis points

as compared with the second quarter of 2020. Total operating expense was $479 million, an increase of 116 percent compared with the second

quarter of 2020, driven by the inclusion of the Bayer Animal Health business. Net loss for the second quarter of 2021 was $210 million,

or $0.43 per diluted share, compared with net loss of $53 million, or $0.13 per diluted share, for the same period in 2020.

Pet Health revenue increased

170 percent for the quarter, driven by the addition of Bayer Animal Health product revenue of $348 million. Legacy Elanco revenue

increased 32 percent in the quarter, driven by a favorable comparison to the prior year period which included actions taken across brands

to reduce channel inventory levels as well as reduced demand for veterinary products as a result of the pandemic, primarily in U.S. vaccines

and international markets; and, in the current period, higher underlying volume trends from newer generation parasiticide and pain products,

and price growth led by U.S. vaccines.

Farm Animal revenue increased

79 percent for the quarter, driven by the addition of Bayer Animal Health product revenue of $157 million. Legacy Elanco revenue

increased 30 percent in the quarter, driven by a favorable comparison to the prior year period which included lower levels of demand due

to the impact of the pandemic on global protein markets, the unwind of anticipatory buying by direct customers in international export

markets, actions taken across brands to reduce channel inventory levels, and increased demand in China; partly offset in the current period

by lower levels of demand in certain markets due to the negative impact of the pandemic on poultry and aqua consumption, production, and

Contract Manufacturing (formerly

Strategic Exits) represents contract manufacturing relationships which are not long-term value drivers for the company. Contract Manufacturing

revenue represented 2 percent of total revenue, including $24 million from the addition of Bayer Animal Health products.

Gross profit was $728 million, or 56.9 percent of revenue, in the second

quarter of 2021 compared with $290 million, or 49.5 percent, for the second quarter of 2020. Gross margin as a percent of revenue increased

740 basis points, primarily due to benefit from the inclusion of the legacy Bayer Animal Health portfolio and continued improvements in

manufacturing productivity and price.

Total operating expenses increased $257 million to $479 million in

the second quarter of 2021 compared with the second quarter of 2020. Marketing, selling and administrative expenses increased $222 million

to $385 million, as a result of the inclusion of expenses supporting Bayer Animal Health. Research and development expenses increased

$35 million to $94 million, or 7 percent of revenue, as a result of the inclusion of the Bayer Animal Health business.

Amortization of intangibles increased $80 million to $129 million in

the second quarter of 2021 as compared with the second quarter of 2020. Asset impairment, restructuring, and other special charges increased

to $299 million in the second quarter of 2021 from $119 million in the second quarter of 2020. Charges recorded in the second quarter