The paragraph introduces the Second Quarter 2024 Financial Results Conference Call and Webcast for Zoetis, with Steve Frank, Vice President of Investor Relations, as the host. The presentation materials and financial tables are available on the company's website. The call will be followed by a Q&A session. The speakers are Kristin Peck, Chief Executive Officer, and Wetteny Joseph, Chief Financial Officer. The presentation may include forward-looking statements and references to financial measures not prepared in accordance with US GAAP.

The company had a successful second quarter with 11% operational revenue growth and 18% operational growth in adjusted net income. This was driven by strong demand for innovative products, market expansion, and dedicated employees. Both the US and international segments saw double-digit growth, with a 12% increase in the companion animal portfolio and a 9% increase in the livestock portfolio. The company's focus on delivering consistent results, commitment to excellence, and investments in R&D and digital transformation have led to a diverse and comprehensive animal health portfolio.

The company continuously refines its commercial strategies to effectively launch new products and penetrate the market. Their strong brand recognition, direct-to-consumer campaigns, and experienced sales reps and medical experts help them gain new market share and customer loyalty. They are focused on understanding and exceeding customer expectations and use scientific innovation and commercial execution to maintain their market leadership. The company's breakthrough products, such as Librela and Solensia, have shown significant growth and are revolutionizing the treatment of chronic pain in dogs and cats. The company also has a strong commitment to cultivating long-term success for their products, as seen in their dermatology franchise's 18% operational growth.

The company has successfully managed atopic dermatitis in dogs with their safe and effective solutions, with over 23 million dogs treated globally. Apoquel is the top prescribed medication for allergic itch and is highly endorsed by veterinarians. There is still a large untapped market for their products, with an estimated 11 million dogs in the US alone who could benefit from their therapies. The company is focused on DTC marketing, improving medical education, and expanding retail partnerships to solidify their leadership and reach new patients. The pet owner demographics are shifting and becoming more invested in their pet's health, providing a significant global market opportunity for the company's growth.

Zoetis is adapting to the changing needs of younger pet owners by making their products more accessible and focusing on innovation and execution. They are also focusing on providing innovative solutions for livestock producers, while remaining committed to meeting their needs in a changing market. Despite macroeconomic challenges, Zoetis remains confident in their ability to outperform the market and has announced a $6 billion share repurchase program. Their dedication to innovation puts them at the forefront of the evolving animal health landscape.

The company's success is attributed to multiple drivers of growth, including breakthrough innovation, life cycle innovations, and strategic investments. These efforts have allowed the company to bring critical new solutions to market faster, minimize development risk and costs, and expand the reach of established products. The company's commitment to life cycle innovation, market leadership, deep customer insights, and purpose-driven colleagues have positioned them to deliver on their value proposition of growing revenues, investing in innovation and growth capabilities, and returning excess capital to shareholders. In the second quarter, the company saw strong results with $2.4 billion in revenue and a 9% growth in adjusted net income.

The company saw strong quarterly growth driven by their innovative companion animal portfolio, particularly in their OA pain mAbs, Simparica franchise, and dermatology franchise. They are confident in their US launch strategy for OA pain and have reached out to thousands of vets and pet owners to promote the safety and efficacy of their products. They are also expanding their direct-to-consumer strategy to help pet owners detect the signs of OA. The positive impact of their products is reflected in high market adoption and reorder rates. In Europe, they are now treating more moderate and mild OA cases that were previously untreated.

Librela is expected to continue growing in the US market, with significant room for expansion. The key dermatology franchise, including Apoquel and Cytopoint, is driving volume growth and addressing a range of dermatological conditions. Veterinarians and pet owners are highly satisfied with the results of these products. The company plans to target the 8 million untreated or non-vet treated dogs with atopic dermatitis through direct-to-consumer advertising, as well as the 3 million dogs using alternative products like steroids. The company is confident in its ability to win these new customers with its proven safety and efficacy.

In the second quarter, the company saw growth in the US market due to trends in pet health care, such as a preference for injectable therapies and chewable formulations. The company's key dermatology franchise also contributed to growth in the US and international markets. The US companion animal portfolio surpassed $1 billion in sales for the first time, driven by OA pain mAbs, Simparica Trio, and the key dermatology franchise. The company is confident in the market adoption of Librela, which generated $53 million in revenue. Feline OA visits have doubled since the launch of Solensia two years ago. Simparica Trio saw US growth of 19% in the quarter.

The company is successfully defending its position as a leader in the triple combination parasiticide market and has seen significant growth in the past year. Their success can be attributed to their first mover advantage, stickiness of their customer base, and success with Simparica Trio and Apoquel. They have also been successful in the growing retail and home delivery space, with Simparica Trio and Apoquel being the top-selling prescription products in the retail channel. The company estimates that a significant portion of their sales now come from the retail channel, and the growth in alternative channels has led to a decline in clinic visits for these products.

The company's performance cannot be accurately measured by visits, as they have consistently grown volume despite changes in the market. In the US, the companion animal diagnostics portfolio grew 5% and the Livestock segment grew 11% due to supply timing. Internationally, revenue grew 4% and 10% excluding foreign exchange impact, with companion animal growing 12% and Livestock growing 8%. The growth was driven by Simparica, key dermatology and OA pain franchises, but was partially offset by China. The Simparica franchise saw a 35% operational growth, while the key dermatology franchise grew 19% and the OA pain mAbs grew 35%.

The company saw strong growth in international markets, with increases in sales for Solensia and the companion animal and livestock portfolios. However, there were expected declines in China due to economic challenges. The company remains committed to reinvesting in the business and saw a decline in adjusted gross margins due to foreign exchange, but saw higher margins overall due to price increases and favorable mix.

In the second quarter, the company saw growth in adjusted operating expenses, net income, and diluted EPS, driven by improvements in gross margin and prudent expense growth. They also announced a new $6 billion share repurchase program and provided an update on the planned divestiture of their Medicated Feed Additives portfolio. The company has raised their 2024 guidance due to strong performance in the first half of the year. They expect revenue between $9.1 billion and $9.25 billion, representing 9% to 11% operational growth.

The company's OA pain trajectory remains on track and their expectations for Librela for the year are unchanged. They expect adjusted net income to grow faster than revenue and are increasing their investment in demand generating activities. They expect adjusted diluted EPS to be in a certain range and reported diluted EPS to be in a slightly lower range. The company is confident in their portfolio and colleagues to continue outperforming their peers. The operator then opens the line for questions from analysts, with the first question asking about the split between price and volume for the quarter and the potential impact of 2025 life cycle innovation on pricing. The second question is about the best returns for the company's DTC investments, with the analyst suggesting that Librela may have the most potential due to its lower penetration, but Apoquel and Trio have longer annuities.

The speaker discusses the balance between spending and returns in the company's recent quarter. They mention that the company has had an outstanding start to the year, with demand for innovative products and balanced growth in different areas. They also mention that there was 8% price and 3% volume growth in the quarter, with 2 points coming from Argentina. On a year-to-date basis, there has been a balanced picture between price and volume, with 5% growth in both areas. The speaker also notes that Trio had a strong quarter and that targeted promotions have helped with price realization.

The speaker is pleased with the overall performance of the company, with a stronger price contribution expected for the year. They also discuss the success of their DTC (direct-to-consumer) approach in driving growth for their products, particularly in the parasiticides, derm, and pain markets. The company invests in various channels and closely monitors ROI for each product and season. The next question is about the progress and potential label changes for their product Librela, and the competitive positioning of the company.

The company is pleased with the growth of their product Librela in the dermatology category and attributes it to the positive reception from pet owners. They have had ongoing discussions with the FDA about possible label changes, but have seen positive trends in other markets after similar changes. The company expects to see continued growth in Librela in the rest of the year.

The company's performance in the derm market has been strong, with contributions from their OA pain franchise and the recent launch of Librela and Solensia. They have raised their expectations for derm to double digits and do not anticipate any significant impact from the launch of Trio. The company also provided updates on the launch of Apoquel chewable and the long-term potential of the derm market, citing its underpenetrated nature and steps being taken to further penetrate it.

Kristin Peck discusses the opportunities for growth in the dermatology market, despite the fact that the company has had a product on the market for over a decade. She mentions the potential for increasing compliance through retail and auto shift, as well as the potential to expand the market by converting dog owners who are currently using other products to their product. She also notes that the company saw 18% growth in the quarter.

The company sees a significant opportunity to continue growing the market for dog osteoarthritis treatments, with 8 million dogs in the US alone using shampoos or over-the-counter treatments or no treatment at all. Internationally, there are also many dogs yet to be treated, particularly in countries like China and Brazil. The company is also targeting specific sub-parts of the business in the dermatology market, with the potential to treat an additional 11 million dogs in the US. The company is also focused on converting more dogs to their Apoquel treatment, with a 50% penetration rate in European markets and a 25% rate in the US.

The speaker discusses the increased guidance for the company's top-line and bottom-line, mentioning that there was a small contribution from stocking around chew but that they are still committed to driving operational growth and expansion. They raised the midpoint of their guidance and have seen a separation between top-line and bottom-line growth.

The speaker discusses the company's strategy to invest in areas that will drive growth, while still maintaining a commitment to driving top and bottom lines. They also mention that there will be a heavier focus on operational leverage in the fourth quarter compared to the third quarter due to investments made in the business. The next question asks for a breakdown of sales between key derm products and how the split may evolve over time. The speaker responds by stating that they do not break out sales for individual products, but the key derm franchise saw 18% growth in the quarter, with both Apoquel and Cytopoint experiencing double-digit growth.

The speaker discusses the combination of Apoquel and Apoquel chewable and the various patents that cover the product. They mention that the patents extend out to 2031 and refer listeners to the 10-K for more details. The speaker also addresses a question about pricing differences between pharmaceutical products and diagnostics, stating that pet owners view pet health as essential and are willing to spend whatever is necessary. They also mention the growth of the fish vaccine business and the potential impact of an approval for Alpha Ject Micro on revenue growth.

The company has seen strong growth in their business, with both volume and price increases. They have been able to drive this growth by addressing chronic conditions that pet owners care about, and see continued room for growth in this area. They have also seen strong demand for their fish vaccines, particularly in Norway. The company has both products that drive visits, such as Cytopoint and Librela, and wellness-dependent products like vaccines and Proheart. They expect these wellness products to continue performing well for the rest of the year.

Kristin Peck and Wetteny Joseph address questions about the size and sales of products in Merck's portfolio. Peck discusses the impact of selling their medicated feed additive business, stating that it is not a major factor in their negotiations with customers. Joseph explains that overall visits are a key indicator for their business, and while some products have seen increased volume, the rest of the portfolio has contributed about 2 percentage points to their growth.

The speaker discusses the impact of price and China on the company's growth, stating that there is typically a 1-2 point contribution from the rest of the portfolio. They also mention increased volumes in pet care regardless of overall visit trends. They address concerns about sluggish pet ownership and vet visit trends and how they reconcile this with their decision to raise guidance. They mention that while there may be a decrease in discretionary spending, consumers still view pet and medical care as essential and are willing to spend on it.

The company saw a 4% growth in revenue and 6.2% growth in revenue per visit in the first quarter. Despite a decline in overall clinic visits, the US pet care business had a 13% growth, driven by affluent and dedicated pet owners. The company is optimistic about the rest of the year and confident in their guidance for 2025. Studies show that pet owners are willing to spend whatever it takes to care for their pets. In regards to the derm business, the company's growth outlook for 2024 may be revised due to strong first half results. The recent announcement of a competitor's product potentially having a black box warning does not change the company's plans for promoting and defending their derm franchise.

The company is raising its expectations for its key dermatology franchise due to strong growth. They are targeting an unmet need in the market and are confident in their product's safety and efficacy compared to a competitor with a black box warning. The chewable form of their product provides differentiation and they are optimistic about its potential for growth.

Kristin Peck, CEO of Zoetis, addressed questions about the company's transition to a moderate population and the antitrust investigation in Europe. She also mentioned that the company is making progress in international markets with their drug Librela, with 65% of cases now being mild to moderate. When asked about vet visits, Peck stated that there is not enough information available to give a detailed answer. Another analyst asked about the company's livestock market, noting that excluding fish, the company saw strong growth in cattle, poultry, and swine. Peck responded that the company had seen 9% growth in their livestock portfolio and that they were optimistic about the market improving.

The speaker, Kristin Peck, thanks the participants for joining the call and their questions. She highlights the company's ability to integrate innovation and execution, resulting in a strong second quarter and first half of the year and an increase in guidance. She emphasizes their focus on their strategy and their diverse and durable portfolio. She expresses gratitude to their colleagues.

The company recently celebrated Purpose Months, showcasing how they bring their purpose to life with customers, communities, and each other. The employees' dedication to advancing animal care is praised, and they are thanked for their hard work and commitment. The speaker concludes the program and thanks everyone for participating.

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