Zoetis Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Overall Performance: Revenue grew 14% operationally and adjusted net income up 15% operationally. Balanced double-digit growth across the business, with U.S. growing 15% and international 13% operationally.
• Key Franchises:
  • Librela and Solensia: OP pain mAbs had 97% operational revenue growth globally. Librela in U.S. had $55 million quarterly sales, treated 1 million dogs in 11 months, and is the fourth largest product in U.S. pet care. Solensia grew 50% in U.S. for cats.
  • Simparica: Franchise grew 27% operationally, Trio is number one vet-prescribed parasiticide with over 13 million dogs treated and 86% pet owner satisfaction.
  • Dermatology: Key dermatology franchise grew 16% operationally, Apoquel is number one prescribed medication, Cytopoint is first monoclonal antibody to treat itch.
  • Livestock: Focus on innovation, preventatives, antibiotic alternatives, and genetics; sale of certain portfolios to focus on growth areas.

Segment Performance

• Companion Animal: Innovative companion animal portfolio grew 15% operationally. U.S. companion animal grew 18%, with OA pain mAbs (Librela and Solensia) contributing significantly. Librela had $55 million in U.S. quarterly sales, treated 1 million dogs in 11 months, and is the fourth largest product in U.S. pet care. Simparica franchise grew 27% operationally, with Trio being the number one vet-prescribed parasiticide. Key dermatology franchise grew 16% operationally, with Apoquel as the number one prescribed medication.
• Livestock: Closed sale of Medicated Feed Additive and certain water-soluble product portfolios. U.S. livestock grew 5% in the quarter, while International livestock grew 15% operationally, driven by volume growth in cattle and poultry.

Guidance

• Full Year 2024: Revenue expected between $9.2 billion and $9.3 billion (10%-11% operational growth), adjusted net income range $2.67 billion to $2.695 billion (13.5%-14.5% operational growth), adjusted diluted EPS $5.86 to $5.92, reported diluted EPS $5.33 to $5.39.
• 2025 Outlook: Positive outlook with favorable trends in key franchises, normalization of China headwinds, and expected growth above animal health market, driven by portfolio strength and innovation.

Risks

• Competition: New entrants in markets like parasiticides and dermatology could impact market share, but Zoetis believes its products' safety, efficacy, and customer relationships will help defend market position.
• Macro Economic Factors: Inflation, currency exchange rates, and veterinary clinic visit trends could impact performance, but Zoetis focuses on product differentiation and innovation.

Question and Answer

• Q: Erin Wright from Morgan Stanley: Asked about Librela progression, quarterly cadence, and 2025 profitability. A: Kristin Peck and Wetteny Joseph: Discussed Librela's strong performance, quarterly growth dynamics, and 2025 investment and margin expectations.
• Q: Michael Ryskin from Bank of America: Asked about inventory management and MFA divestment impact. A: Kristin Peck and Wetteny Joseph: Stated no significant inventory dynamics and provided details on MFA divestment impact.
• Q: Brandon Vazquez from William Blair: Asked about Simparica Trio performance and price mix. A: Kristin Peck and Wetteny Joseph: Highlighted Simparica Trio's success, market expansion, and balanced volume/price growth.
• Q: Jon Block from William Blair: Asked about Librela sales force focus and 2025 building blocks. A: Kristin Peck and Wetteny Joseph: Discussed sales force focus on expanding Librela use and 2025 growth drivers including normalized China and MFA removal.
• Q: David Westenberg from Piper Sandler: Asked about pricing relative to veterinary CPI and promotional environment. A: Kristin Peck and Wetteny Joseph: Addressed pricing based on product differentiation and normalized promotional environment.
• Q: Balaji Prasad from Barclays: Asked about 2025 growth drivers and parasiticide market conversion. A: Wetteny Joseph: Stated confidence in sustained growth, market conversion trends in parasiticides, and normalized China impact.
• Q: Glen Santangelo from Jefferies: Asked about confidence in above-industry growth and alternate site impact. A: Kristin Peck and Wetteny Joseph: Reiterated confidence in growth due to portfolio strength and alternate site's positive impact.
• Q: Chris LoBianco from TD Cowen: Asked about long-term growth confidence and competitive matches in 2025. A: Wetteny Joseph: Discussed Zoetis' historical outperformance, market building through innovation, and confidence in sustained growth.
• Q: Navann Ty from BNP Paribas: Asked about competition levers for Apoquel and innovation progress. A: Kristin Peck: Stated confidence in defending market position with safety, efficacy, and innovation, and mentioned long-acting injectables and other innovations in pipeline.