Zoetis Inc. — 2024 Q1

Great. First, I want to ask just about the guide change. It seems like there's just so many moving pieces right now: the FX moves, you've got all the price you're taking in Argentina, some of the stocking comments for Apoquel Chewable, and obviously, Librela. Just this early in the year to decide to raise the guide, just sort of like what went into that? And what do you see as the upside risks or downside risks to that as you go through the year?

I'll be happy to take this, Mike. Look, we're very pleased with an outstanding quarter to start the year, clearly delivering 12% operational growth at revenue; 15% at adjusted net income from an operational perspective. Couldn't be more pleased with this.

I'll take the Argentina question first and then Kristin will cover Librela. Look, the way I look at it, as we said in the prepared commentary and you quoted here, there's a 200 basis point contribution to the top line from Argentina in the quarter. And so if I were to say, look, we're still early in the year and we'll continue to look to take price in that market. And we'll have to watch how that plays out between price and volume as we go. It's a hyperinflationary market. We're pegging what we're looking at based on the actuals and what we anticipate. But again, it's still early in the year.

Sure, Jon. And I'll take the second part of your question on Librela. I mean, first, I really want to underscore that we have the utmost confidence in the safety and efficacy of Librela. It has been used for over 3 years across the globe in over 14 million dogs and it's approved in over 50 countries. And if you overall look at the rate of reported adverse events, it's about 18% per 10,000 or 0.18% globally. And I think it's important to keep in mind that no single adverse event is classified under the EMEA guidelines as more than rare, which is more than 1 to 10 out of 10,000.

Sure. I'll let -- Wetteny, why don't you start with Librela performance and the questions you got there and then I can take the livestock question after that. Wetteny?

Yes, I'd be happy to. Look, we delivered $100 million of revenue in Q1 on Librela. That's 189% growth over the prior year. Clearly, the U.S. contributing $40 million is a big part of that. But we're very pleased with the performance across our International markets as well for Librela. And we saw a really strong sequential quarter growth across our International markets, and we continue to see the uptake.

Sure. And Erin, I'll take your second question on livestock. As you and I have talked about many times, livestock generally historically in our industry has grown at around 2% to 4%. I know we grew less for a period of time when we were facing the LOE on DRAXXIN and with some [ large ] disease outbreak across the globe.

Yes, David. Look, I'll take a stab at this and then Kristin may add some. First of all, when you look at Librela sales in the U.S., keep in mind, Librela is sold direct to clinics and the turnaround is very fast. And so there's no sort of channel dynamics to play out in terms of what we're seeing. What we're seeing from week to week is actually coming directly from what the clinics are ordering.

First, on Librela, I'll ask two upfront here. On Librela, can you guys talk about are you starting to see any pockets of that going from maybe the more severe OA dogs and being used in the moderate OA population? Anything you guys can do to kind of help push that market development because that seems to be the bigger opportunity as you -- as this grows over the coming years.

Sure. Wetteny, do you want to take the first one on Librela and I can take the R&D question?

Yes. I'd be happy to. Look, we continue to be very pleased with the performance of Librela, as we said, both the U.S. and International. We did complete a recent survey of vet clinics across European markets. And after 3 years in the market, we are certainly seeing the transition to having a lot more moderate cases. In fact, vets, based on surveys, are saying more than 50% of the cases they're seeing now are moderate and even some mild cases coming into the mix. So that's very encouraging.

Sure. And Brandon, to your second question on our R&D. Yes, you probably saw the strong growth in R&D in the quarter that is really because we remain very confident in our pipeline in many of the key areas that we mentioned at Investor Day, which was, I guess, a little less than a year ago, really investing behind some of the key therapeutic areas, both our long-lasting monoclonal antibodies, which will be some of the more near-term launches. We are not making any announcements on today's call, obviously, with regards to that. But that's going to be some of the more near-term launches.

This is Chris on for Steve Scala. We had two questions. First, on livestock, are you seeing any impacts on ongoing outbreak of H5N1 avian influenza?

Thanks, Steve (sic) [ Chris ]. I'll try to take those, and Wetteny, certainly, if there's anything I missed, you can jump in. Look, we, like all of you, are continuing to watch the outbreak of H5N1. If you look at the portfolio that we have and our capabilities, we stand ready to support both governments and customers across the globe as they look at potential solutions to address H5N1, both on the vaccine side and on the diagnostics side.

I'll take the first one, Nathan, just on Argentina. Look, clearly, the devaluation occurred prior to us issuing guidance and we have plans and continue to see our ability to take price fairly significantly in that market perhaps beyond what we factored in.

Sure. I'll take your first question, Balaji, on Librela. And Wetteny, I expect you can take the second one on quarterly cadence.

Yes. And Balaji, in terms of quarterly cadence and I'll answer the question specific with respect to Librela. If you mean it for overall, I can certainly recap that conversation.

Sure. I'll start and then, Wetteny, you can certainly build on this one. We remain very confident and it's really based on our historical performance, and I think you can look at that, we invest in the local innovation across our franchises.

Look, the only thing I would say is two things. One, we are not seeing a weakening consumer. You saw us post high double-digit growth across Trio and our key derm franchise. And even if we normalize for some of the tailwinds from last year, we still have high double-digit growth across each of those. And so that certainly demonstrates continued demand products and our innovation.

Sure. Thanks, Chris. I'll let -- you take, Wetteny, the Trio question. I can follow up on Librela.

Yes, absolutely. Look, the short answer is no. There's no channel dynamics that we're seeing here. As I mentioned just a moment ago, we did have dynamics last year in the quarter where you saw destocking coming from promotional -- timing of promotions in the prior year and more prepriced buy-ups. And so that did provide some tailwind here.

Sure. And on your second question with regards to Librela in the U.S., I mean, what we have seen historically in Europe and in markets that launched first is it is often put into the severe dogs who are desperate for a new therapy initially and moving to the moderate.

Thanks for the color on Librela. I have some follow-ups. What is the early effect from the vet from your online education sessions? And how many of vets approximately did you reach out to so far? Also interested in your early dialogue with the FDA, if any? Is that just a common surveillance after a product launch so far?

Sure. Thank you. With regards to your first question on the vets we've reached out to, we've reached out to through our tech bulletins with letters directly from our Chief Medical Officer almost every vet in the U.S. -- any vet who's a customer of ours in the U.S. We think that, that's really critical.

Thank you. Look -- sorry, back to me. Thank you. Look, I really want to thank everyone for joining today. I want to reiterate that this was an outstanding performance this quarter. I really want to thank our colleagues for their commitment. And hopefully, you see our focus on creating shareholder value. I think it's a strong start as we look forward to continued momentum in 2024.