The operator welcomes participants to the First Quarter 2024 Financial Results Conference Call and Webcast for Zoetis. Steve Frank, Vice President of Investor Relations, will be hosting the call. The presentation materials and additional financial tables are available on the Investor Relations section of zoetis.com. The presentation slides can be controlled by the viewer and a replay of the call will be available later. Steve Frank is joined by CEO Kristin Peck and CFO Wetteny Joseph. Forward-looking statements and non-GAAP financial measures will be discussed, and a reconciliation to U.S. GAAP measures is included in the financial tables. Operational results, excluding the impact of foreign exchange, will also be cited.

In the second paragraph, Kristin Peck discusses the company's first quarter earnings and highlights their strong performance, driven by steady demand for their products and a focused strategy. The U.S. saw 16% growth, while internationally there was 8% operational growth. The launch of the osteoarthritis pain franchise and the demand for their companion animal portfolio contributed to this growth. Peck also emphasizes the importance of science and innovation in the animal health industry, citing the success of their products Librela and Solensia in treating OA pain in pets.

The company is committed to providing safe and effective treatments for OA pain in dogs and cats, as well as addressing the under-medicalization of this market. They have earned the trust of veterinarians and are confident in the potential success of their products. They are actively working to educate and train veterinarians and expand their direct-to-consumer strategy. A recent survey showed that veterinarians remain confident in their product and the company believes that OA pain could be their next $1 billion franchise.

Zoetis is experiencing growth in multiple areas, including adoption, penetration, reorder rates, patient share, and utilization. This is due to their understanding of customer needs and their ability to create new markets. They have been successful in the parasiticides and dermatology categories, and are now leading in OA pain as well. Their success is attributed to their strong brand equity, first mover advantage, lifecycle innovation, and strong customer relationships.

Zoetis has a long history of leading the animal health industry through innovation and investing in research and development. Their recent agreement with Phibro Animal Health to sell certain product portfolios is an example of their disciplined capital allocation strategy and commitment to focusing on areas with the greatest growth potential. They remain dedicated to livestock and their core growth areas, and their pursuit of science has led to breakthrough products in dermatology, parasiticides, and now osteoarthritis pain. Despite the challenges, Zoetis' purpose-driven employees continue to drive industry leadership and create new markets, and the company remains focused on delivering strong growth through their innovative products and diverse portfolio.

In the first quarter of 2024, the company had a strong start with a 10% increase in revenue and 4% increase in net income on a reported basis. The growth was driven by the strength of their companion animal portfolio and price growth across all species. However, economic conditions in China, tough comparative quarter in livestock, and inventory destocking in the U.S. diagnostics sales model change offset some of this growth. The company saw a 12% operational revenue growth, with 7% from price and 5% from volume. The volume growth was driven by new products such as monoclonal antibodies for OA pain, key dermatology products, and Simparica Trio. The U.S. segment had the strongest performance, while the international segment was impacted by economic conditions in China. The company remains disciplined and adaptable in their approach to potential challenges and economic shifts.

In the first quarter, the company reported a total revenue of $2.2 billion, with a 16% growth in the domestic segment and 8% growth in the international segment. The companion animal portfolio was the main driver of revenue growth, with a 20% increase in both the U.S. and international markets. The strong performance of innovative products, such as Simparica Trio and OA pain mAbs, contributed to this growth. The dermatology products also saw a 25% increase, driven by the Apoquel franchise and Cytopoint. However, the companion animal diagnostics portfolio declined by 12% due to a distribution model change in the U.S. market.

The company's livestock portfolio declined 1% due to a tough comparative quarter and economic conditions in China, but this was partially offset by price growth in other international markets. In the U.S., revenue grew 16%, driven by strong performance in the companion animal segment and a decline in the livestock segment. This was due to the launch of new products and a weak comparative quarter. Despite a decrease in vet clinic visits, revenue and spend per visit increased. The product Simparica Trio saw a 61% growth in sales, and the company remains the market leader in the triple combination parasiticide space. Sales of key dermatology products also saw significant growth in the U.S. market.

In the first quarter, the company saw growth in both price and volume for their dermatology products Apoquel and Cytopoint. This was aided by a weak previous year and high market demand. The company also launched Apoquel chewable and saw strong sales for their pay mAbs Librela and Solensia. While there was a decline in their companion animal diagnostics portfolio, it was primarily due to a change in channel strategy.

In the first quarter of 2023, the company saw a decline in U.S. livestock sales due to destocking, but this had little impact on overall clinic demand. The company's results were in line with expectations, with a 7% decline in U.S. livestock sales. In the international segment, revenue grew 3%, with strong growth in companion animal products and a 67% increase in sales of OA pain mAbs. The success of DTC advertising campaigns has increased awareness of OA in pet owners. Sales of key dermatology products also saw double-digit growth in most major markets.

The wealth of the company was positively affected by increased purchases in Japan and Europe. The international small animal parasiticide portfolio saw a 6% increase, driven by the Solensia franchise and the launch of Simparica Trio in China. However, the Revolution franchise experienced a decline in sales. The international livestock sector also saw a 2% increase due to price increases, but volume declines were seen across all species. Economic challenges in China and a slowdown in livestock are expected to continue to impact growth throughout the year.

The company's adjusted gross margins declined slightly due to foreign exchange, but saw higher margins from price increases and favorable mix. Operating expenses increased due to higher compensation and R&D spending. The adjusted effective tax rate decreased and adjusted net income and EPS grew. The company also announced a divestiture of certain products to focus on more strategic priorities. Guidance for full-year 2024 will be provided.

In the first quarter, the company had exceptional growth in companion animal and key dermatology products, surpassing expectations. The launch of Librela in the U.S. is going well and the company has raised its operational guidance for 2024. However, foreign exchange rates have negatively impacted revenue and net income, resulting in a 2% decrease in revenue guidance and a 4% decrease in adjusted net income guidance. The company now expects operational growth of 8.5% to 10.5% and adjusted net income growth of 13% to 15%. The U.S. launch of Librela is on track and expectations for the year remain unchanged. Overall, the company is pleased with their performance in the first quarter.

The company has faced some foreign exchange challenges, but they continue to see growth in key areas and markets. They are also leading the way in creating new markets and launching innovative products for animal care. The operator opens the line for questions. The first question is about the change in guidance and the potential risks and upside for the year. The second question is about gross margin and why it isn't better despite the strength in the companion animal portfolio. The company is pleased with the strong quarter and the operational growth, but there are still factors that could impact their performance.

The company's performance in the quarter was largely offset by various factors, including strong growth in Trio and key derm products, easier comps in the companion animal business, and headwinds in livestock and certain international markets. Despite these ups and downs, the company still saw a 15% operational growth in adjusted net income. The company remains confident in the market demand for their products and saw strong growth in Trio despite competition.

The company has raised its guidance for the year due to increased price realization across the globe, including in hyperinflationary markets like Argentina. Margins were impacted by the devaluation of the Argentine peso, but operationally, there was an expansion of 200 basis points. The company saw a significant growth contribution from Argentina in the quarter and for the year, but the exact amount is not specified.

Wetteny Joseph addresses a question about the company's performance in Argentina and explains that the country's hyperinflationary market has contributed 200 basis points to the top-line in the quarter. He also mentions that the company plans to continue taking price in that market and will have to monitor the balance between price and volume. He then hands the call over to Kristin Peck to discuss Librela and address concerns about potential adverse events in dogs with neurological issues. Peck states that the company's derm franchise and Trio have both exceeded expectations and are significant contributors to the top-line growth.

The speaker emphasizes their confidence in the safety and efficacy of Librela, a product that has been used for over three years and approved in over 50 countries. They mention the rate of reported adverse events, which is 18% per 10,000 or 0.18% globally. They state that no single adverse event is classified as more than rare, and they continue to monitor reported adverse events. The top adverse events are lack of efficacy, frequent drinking, and frequent urination. The speaker also addresses questions about quarterly progression and new patient starts for Librela, as well as the rationalization of their livestock business.

In the first quarter, Zoetis saw a 189% growth in revenue for Librela, with $40 million coming from the U.S. and strong performance in international markets. They are confident in the product's continued success and expect increasing orders in the future. They declined to give specific quarter-by-quarter projections, but stated that the $40 million in Q1 did not include any stocking. In the long-term, Zoetis plans to focus on higher growth and higher margin businesses to improve their overall portfolio.

The speaker discusses the initial launch of a product and its rapid penetration into 60% of clinics, attributing some of the growth to stocking. They expect substantial sequential growth in the product this year, with strong international growth despite lapping previous launches. Another speaker then addresses the expected growth in the livestock market, which has historically grown at 2-4%, but is expected to be above that level this year. They remain confident in the livestock market and expect to end at the higher end of the range.

The company is disciplined in its capital allocation and has recently divested in certain areas to focus on high-growth opportunities in the livestock industry. They are confident in their ability to grow faster than the market in this sector. April and Librela sales are seeing a week-on-week build, which is attributed to clinic administration and not stocking. The company is also seeing positive response from veterinarians and their advertising efforts are on track. The assumption for high single-digit growth in the dermatology sector takes into account potential competition.

The company has seen strong sales of Librela in the U.S., which is sold directly to clinics with a fast turnaround. The increase in SG&A spending is due to advertising and promotion of the pain franchise, including Librela. In the derm segment, the company saw strong growth and was able to take price increases. However, they are factoring in potential competition in the back half of the year. The first question from an analyst was about Librela, specifically if it is being used in moderate OA dogs in addition to severe OA dogs.

The speaker asks about the company's plans to push market development for their product and updates on their R&D. The company's representative discusses the success of their product Librela and its increasing use for moderate and mild cases. They also mention their continued efforts to educate veterinarians about the product. In regards to R&D, the company has spent over $600 million and plans to continue investing in new products and lifecycle innovation.

The company has seen strong growth in R&D due to investments in key therapeutic areas such as long-lasting monoclonal antibodies. They are not making any announcements on today's call but remain confident in their pipeline. They continue to launch products and have a focus on meeting the needs of the cat population. The company also discussed the ongoing outbreak of H5N1 avian influenza in livestock.

The speaker discusses the company's readiness to support governments and customers in addressing the H5N1 outbreak, but reassures that there has been no impact on their business. They also mention that there has not been a significant increase in pet abandonment in the U.S. and that the pets adopted during COVID continue to drive growth. There has been some talk about changing consumer sentiment, but this has not affected the company's business.

The speaker discusses the resilience of the animal health care industry and how pet owners continue to invest in their pets' health. They mention an increase in spend per visit and the strength of the human-animal bond as reasons for this. They also mention a price increase in Argentina and clarify that it was not initially factored into their revenue range for the year. They expect a similar contribution from this market going forward. The speaker also mentions the company's decision to start selling Apoquel Chewable through distribution and asks for factors that led to this decision.

The company is monitoring the impact of the devaluation in Argentina and is considering increasing prices to offset it. A portion of the increase in operational guidance is coming from this, along with the rest from the underlying business. The company is confident in their derm products, Apoquel and Cytopoint, and has launched Apoquel Chewable to meet market needs and as a defense strategy.

The company is anticipating competition in the derm market and expects it to come in the form of a film-coated tablet. They are focused on converting customers to their Apoquel Chewable product, which has seen success in international markets. The company just launched in the U.S. and hopes to accelerate the transition to chewable. This has contributed to the 25% growth in key derm products. The company's messaging to vets about Librela has not changed, and they are focused on educating vets about the product. The company expects the second quarter to see more conversion to chewable, but it is still early. The second question is about the quarterly cadence, which the company's CEO and CFO will answer.

Zoetis has increased their commitment to providing education to veterinarians through webinars, interactive sessions with their Chief Medical Officer, and always-on customer support. This has resulted in a positive experience for both pets and vets, with increased confidence in the product's safety and efficacy. Zoetis has always invested in veterinary education, but has doubled down with the rise of social media. They believe that Librela and Solensia will become a $1 billion franchise for the company, and this is rooted in their confidence in the product's safety and efficacy and their continued investment in educating both vets and pet owners.

The company's $40 million contribution in the first quarter and strong growth in international markets will continue to drive growth. The company expects to ramp up from the $40 million contribution throughout the year and will be lapping the $44 million delivered in the fourth quarter and first quarter of launch. In response to a question about competition and pricing, the company remains confident in its ability to take price increases based on its historical performance and investment in lifecycle innovation. They have grown their share in the parasiticide market despite facing competition from the leader.

The company remains confident in their ability to grow their parasiticides and dermatology franchises despite strong competition. They attribute this to their strong relationships with veterinarians and pet owners, as well as their success in alternative channels such as home delivery and retail. They also mention their lifecycle innovation and the potential for increased compliance through new channels. Additionally, they note that their growth in these areas has not been solely due to last year's tailwinds, but rather a result of continued demand for their products and innovation. They express confidence in their ability to continue growing in the face of competition, although there may be some short-term promotional impact.

The speaker is confident in their products and is waiting to see what labels they will be competing against. The next question is about Trio, and the speaker is asked to quantify any channel dynamic benefits and the size of it. The speaker responds that there are no channel dynamics and that last year's promotions and buy-ups may account for about half of the current growth. The next question is about Librela in the US and whether the initial uptake will be more in severe OA pets or if the market will be different. The speaker responds that there are no channel dynamics and that last year's promotions and buy-ups may account for about half of the current growth.

The company is launching Librela in the U.S. and is focusing on reaching moderate cases first. They have learned from their experience in Europe and have seen an increase in compliance and growth in mild to moderate cases. The company is also conducting online education sessions with vets and has had early dialogue with the FDA.

The company has reached out to thousands of vets in the US through tech bulletins and webinars to ensure they have access to information and can confidently prescribe the product. This is a regular course of business and there are no unusual interactions with the FDA. The 4-week trailing sales continue to accelerate, demonstrating that vets are getting the education they need. The speakers have no further comments.

The speaker thanks everyone for joining and acknowledges the outstanding performance of the company in the quarter. They emphasize their focus on creating shareholder value and thank their colleagues for their commitment. The company is customer obsessed and invests in R&D, manufacturing, and a purpose-driven workforce to address the needs of veterinary care. They are trusted and preferred by customers and will continue to invest in growth. The speaker concludes by thanking the audience and inviting further engagement.

This summary was generated with AI and may contain some inaccuracies.