Zoetis Inc. Q2 FY2025 earnings call

• Strong broad-based 8% organic operational revenue growth and 10% growth in adjusted net income on an organic operational basis.
• International segment grew organic operational revenue 9%, U.S. grew 7% (excluding MFA divestiture impact), Companion Animal grew 8% operationally, and Livestock delivered 6% organic operational growth.
• Key franchises like Simparica (17% growth) and Key Dermatology (11% growth) showed strong performance.
• Challenges with Librela in OA pain but ongoing efforts to accelerate adoption through medical education and post-launch studies.
• Livestock business outperformed with 7% organic operational growth year-to-date, outpacing low single-digit market growth projections.

In the second quarter, Zoetis achieved 8% organic operational revenue growth. The Companion Animal portfolio posted $1.8 billion in revenue, growing 8% operationally. Globally, the Simparica franchise contributed $448 million, growing 17%, and the Key Dermatology franchise posted $460 million, growing 11%. The Livestock business grew 6% organically. The U.S. revenue grew 4% on a reported basis and 7% on an organic operational basis. The International segment saw revenue grow 3% on a reported basis and 9% on an organic operational basis. The Companion Animal segment in International grew 8% operationally, and Livestock grew 10% on an organic operational basis.

Zoetis raised full-year guidance: organic operational revenue growth is now expected to be in the range of 6.5% to 8%. Adjusted net income is projected to be in the range of $2.825 billion to $2.875 billion, reflecting organic operational growth of 5.5% to 7.5%. Adjusted diluted EPS is expected to be in the range of $6.30 to $6.40, and reported diluted EPS is expected to be in the range of $5.90 to $6.

• Tariffs and policy changes pose potential impacts on the business.
• Competitive pressures in certain markets, such as with new entrants in dermatology and parasiticides, can affect market share and growth.
• Challenges in Librela adoption, with slow progress in U.S. and some international markets due to various headwinds.

Q: Great. Congrats on the quarter, guys. I want to start first with the Trio derm franchises at a high level. You spent a lot of time talking about competition and how you've been able to retain meaningful share, not really seeing any incremental erosion. I'm just wondering if you've had any change in your go-to-market strategy in terms of how you approach things as you've seen more and more entrants in both of those markets. Are competitors being more aggressive on price? And you called out retail alternate channels, is that an area you're leveraging to sort of retain your first-mover advantage in those markets? And then for the follow-up, I want to ask on Librela. Kristin, Wetteny, you guys both emphasized the steps you're taking in terms of medical education, post-launch studies, engaging with pet owners. Just want to get a sense of your expectations on timing, when we'll see the benefit for that. When do you think Librela can return to growth, if you think it can start growing again year-over-year later this year or if this is more of a 2026 benefit?

A: Wetteny N. Joseph: Thanks for the question, Mike. Look, we have been very pleased with the performance across both our Key Derm as well as Simparica and particularly Simparica Trio. As you know, we've been facing direct competition in Trio for a couple of years now, and you've seen the product just absolutely perform. So in the quarter, you saw Trio grow 20%, 19% in the U.S., overall Simparica franchise growing 18% on the quarter, and following last year with the first full year of their competition, we grew 25%. Look, as we've been highlighting for some time now, the triple combination space is still relatively new standard of care that we set in the U.S., and we continue to lead it. Trio is the leading product across flea, tick, heartworm combination. This is a market segment that grew 45% last year. We continue to see strong growth there. And we expect to continue to see that end of the market continue to expand as consumers move from older therapies into triple combinations, and even with competitive entrants, we expect that to continue to happen as more awareness will be created by those. So we're very confident in long term being able to do that. And what I would say is in terms of our go-to-market on this, we have not changed anything. We remain very disciplined here. And as you note, last year, in particular, we highlighted, and we continue to see, better price realization. So we're being very targeted about how we do promotions that will drive long-term growth and patient share in this space. This is why you have not seen us have any patient share loss in any quarter since direct competition has come on with Trio. Again, I couldn't be more confident, and we're pleased, quite frankly, with how we're executing on that front. Similarly, with Key Derm, I mean, we grew 17% last year, largely driven by volume. Of course, we saw some price contribution there as well, and you see some price contribution this year. But Key Derm grew 11% on the quarter. It's 13% on a year-to-date basis. We have been saying for some time now. If you look at the market that's available to us, unaddressed, either untreated or undertreated, it is bigger than the market we're treating today. That just spells for room for expansion here. And that's before you even consider compliance, which we're seeing nice tailwind from compliance, particularly, as you mentioned, in alternative channels where you see increasing compliance, both for Trio as well as Key Derm. So again, markets are quite large. We are leaders in these markets with multiple products, and we will leverage that leadership position and continue to drive our first-mover advantage to continue to lead and grow long term in these spaces. So I'll let Kristin go ahead and take the Librela question. Kristin C. Peck: Sure. Thanks, Mike. I really think by fundamentally improving the quality of life for dogs with OA Pain, Librela is making a big difference. As we mentioned, over 75% of U.S. patients report being extremely or very satisfied with the product. And we are quite focused on how we accelerate the adoption of this. As you mentioned, we've been focusing a lot on medical education with vets. We've been partnering with key opinion leaders. We even brought in some of our top vets from Europe who had the product for over 4 years to do a tour in the U.S., which has been quite impactful. We're also, as we talked about before, launching a number -- we're doing some third-party studies. They're underway right now. They should be reading out beginning in Q4 of this year and into next year. We really think this will help provide even more clinical validation and support, a broader understanding of the product and ultimately adoption. We're also engaging directly with pet owners to educate them on the burden of osteoarthritis and to build awareness and demand. So we remain very committed to this. We're seeing the positive impact that Librela is having, and we're confident in the long-term potential of this product, and we continue to be confident on the safety and efficacy.