Zoetis Inc at Morgan Stanley Global Healthcare Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Erin Wright - Morgan Stanley - Analyst : <_ALACRA_META_ABSTRACT>So with that, I think we'll just kick it off with Q&A, if that works for you. So a lot has been accomplished even this year alone at Zoetis, and obviously, throughout your entire tenure, Kristin. But for this year, the launch of Librela in the US is underway. You're seeing accelerating growth across your broader even companion animal portfolio even for a lot of legacy products. And you're seeing -- you're divesting your MFA business. So there's been a lot that's accomplished, and I think that it's sometimes underappreciated, what does Zoetis looks like in 3 to 5 years or even longer term than that. But you're seeing 9% to 11% operational growth this year that's above your 6% to 9% long-term guidance. I guess, what keeps the momentum going here?

Question: Erin Wright - Morgan Stanley - Analyst : Okay. Great. And then you recently raised your operational growth guidance by about 50 bps. That's to that 9% to 11% I was referencing before, but can you speak to -- and maybe this is a question for you, Wetteny, some of the key components of that 9% to 11% in terms of companion animal versus livestock as well as some of those nuances in Argentina for instance that we should be thinking about, and Librela especially as we head into the second half here.

Question: Erin Wright - Morgan Stanley - Analyst : Okay. That's good to hear. And then as we think about the mix of your business and the long-term kind of growth aspirations as well as even margin targets, too, but should we think about, with the MFA divestiture, that the long-term growth and margin profile should inflect higher for longer in terms of how we think about the mix of this business?

Question: Erin Wright - Morgan Stanley - Analyst : Okay. And then price, we're getting a lot of questions from investors just around price. Some of it was tied to what was going on in Argentina, too. So it's a little bit of an anomaly here. But can you talk about -- it's been a little bit more of a contributor to growth. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 5:05PM, ZTS.N - Zoetis Inc at Morgan Stanley Global Healthcare Conference How much more price can you take into next year? What do you see as the long-term price realization across your business?

Question: Erin Wright - Morgan Stanley - Analyst : Okay. And then let's take a step back and talk about just industry fundamentals. In companion animal, in particular, based on the data that I tracked, we're at 11 consecutive quarters of negative same-store visit trends, which is a long period of time. But you've been fairly resilient through that. And you have an omnichannel approach, for instance, that you will also look at different data like therapeutic visits and that kind of stuff. So can you talk about your vision of sort of the end market as you see it from a pharmaceutical angle?

Question: Erin Wright - Morgan Stanley - Analyst : Okay. And as you think about, since you mentioned also the 27% growth across the online channel, I guess can you remind us how big of an exposure do you have to that channel today? Where does that go over time in terms of across your portfolio where that's applicable? But also, the continued kind of growth across that space, but you also get better economic sometimes across that channel as well. Can you talk a little bit about that?

Question: Erin Wright - Morgan Stanley - Analyst : Okay. And then let's shift gears to Librela. So we've seen ramping sales on a sequential basis, which is what you've been telling us about for some time, and the US launch has gone well, there has been noise around adverse events, but I think you've been able to navigate that fairly well. Can you talk a little bit about the narrative coming out of that practitioner today in terms of the traction you're seeing for Librela? How you expect that to continue into the second half?

Question: Erin Wright - Morgan Stanley - Analyst : And where are you at with moderate utilization, if there's a metric or penetration or --

Question: Erin Wright - Morgan Stanley - Analyst : Okay. And there have been label changes in other geographies. Has there been a label change in the US? I don't think so as yet, but do you anticipate that? I think you see label changes for nearly all of your products. So that's typical in animal health. But can you speak to kind of the nature of the label changes that you've seen?

Question: Erin Wright - Morgan Stanley - Analyst : Okay. Great. And so a sequential ramp quarter over quarter for the back half of the year is something that is we can continue to assume in the US market and in International as well?

Question: Erin Wright - Morgan Stanley - Analyst : Okay. And in Solensia, we don't talk as much about it. But I see your [socks] and they're supportive of it. And it is a slower ramp just given the nature of that type of market. But can you give us a little bit of update on the traction you're seeing there and the opportunity as you see that (inaudible)?

Question: Erin Wright - Morgan Stanley - Analyst : Okay. And it's not just about -- and I'll get to kind of derm and parasiticide as well. But like it's not just about Librela and like Solensia and Cytopoint. There are other monoclonal antibodies in your pipeline that you're focused on. What have you learned since launching those products in terms of the vet reception of this type of therapy and the compliance from the pet owner that was always sort of the questionary as we enter the newer space in animal health? And how do you think about the growth prospects across that pipeline in that?

Question: Erin Wright - Morgan Stanley - Analyst : Okay. Great. Switching to derm. Let's talk about, I guess, Apoquel. Can you speak to your ability to kind of maintain the momentum here that you've been seeing but also the competitive landscape, what we've seen from Elanco's product or what we know in terms of a black box warning, How does that change your go-to-market strategy at all with Apoquel or your strategy around Cytopoint or your strategy distributors with this product or the chewable? I guess, can you talk a little bit about that or if it changes at all?

Question: Erin Wright - Morgan Stanley - Analyst : Do you think you can continue to take price with Apoquel into next year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 5:05PM, ZTS.N - Zoetis Inc at Morgan Stanley Global Healthcare Conference

Question: Erin Wright - Morgan Stanley - Analyst : And was there any sort of meaningful stocking component in the second -- or in the first half that or anything to think about in terms of the second half from an Apoquel perspective?

Question: Erin Wright - Morgan Stanley - Analyst : And a lot of it does go through the online channel. You said autoship is important. How do you think about that in comparison to what potentially your competitor could do there in terms of potential limitations with these safety warning and maybe we just need to see the label to understand the competitive dynamics of that. But how much of, for instance, Apoquel goes through autoship?

Question: Erin Wright - Morgan Stanley - Analyst : And about half of Apoquel is considered chronic and half of that would be like seasonal chronic. Is that the right way to characterize it?

Question: Erin Wright - Morgan Stanley - Analyst : Okay. And any other competitors in the wings that you're aware of in derm that we should be thinking about? I know Merck had one in the pipeline or other vet?

Question: Erin Wright - Morgan Stanley - Analyst : Sorry, I have to ask. And then on Simparica Trio, I want to switch gears to parasiticides. You've done -- it's been a tremendous launch for you in terms of the success that you've seen and even the more recent kind of ramp that you've seen in terms of traction there. Can you talk a little bit about where your overall share is now? I guess, how much has converted over to the combination? How much is there more to go? I think people are less concerned about kind of competition, it's already a competitive market to begin with. And yes. Can you give us an update of where share stands, I guess?

Question: Erin Wright - Morgan Stanley - Analyst : I mean, it maybe came from probably the number one -- number five player in parasiticides to where you are pretty quickly, and that's one of the largest categories or the largest category kind of in companion animal, but you also have Librela where you're basically creating that market. You created atopic dermatitis market in terms of being kind of the first player there. Now where do we stand in terms of now being able to truly bundle around the entire portfolio, leverage the broader innovative offerings and delve into more direct relationships with corporate accounts and more formidable relationships just across the board in terms of your customer base? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 5:05PM, ZTS.N - Zoetis Inc at Morgan Stanley Global Healthcare Conference

Question: Erin Wright - Morgan Stanley - Analyst : And how do we think about then what's next in parasiticides as well in terms of, you mentioned like, come in every 3 months? In terms of an injectable, where does that stand in terms of your pipeline? When do we expect a longer-term injectable product in flea, tick and heartworm combination?

Question: Erin Wright - Morgan Stanley - Analyst : Other innovation. So speaking about CKD, that was another area that you pointed out at your Investor Day. Can you speak to the timing and magnitude of the opportunity there? I think you previously mentioned $1 billion, plus/minus kind of category. What's the timeline on that initiative? And how do you see that rolling out or playing out across the globe?

Question: Erin Wright - Morgan Stanley - Analyst : And can you give us, since we haven't really talked about too much, the production animal market, just where it stands today, key species groups and areas of focus kind of post MFA divestiture and also innovation on that front, too?

Question: Erin Wright - Morgan Stanley - Analyst : And your long-term goal from a margin standpoint was just for margin leverage is kind of how you -- or margin improvement year over year. I guess, can you talk about -- you've seen tremendous growth in some of these faster growing higher-margin categories like companion animal, but then the flow-through, maybe people have been looking for a little bit more. Like how do we think about 2025 and beyond and the levers there from a margin perspective?

Question: Erin Wright - Morgan Stanley - Analyst : And we haven't talked too much about diagnostics recently. Just can you give us an update on the diagnostic strategy where it stands today?

Question: Erin Wright - Morgan Stanley - Analyst : And you recently went direct with that portfolio across your diagnostics business. Can you talk a little bit about that strategy in terms of leveraging sort of this hybrid approach of distribution and your own direct efforts as well and where that stands? And is there -- are there any changes that we should anticipate in terms of the strategy on that front?

Question: Erin Wright - Morgan Stanley - Analyst : But any changes across the broader portfolio in terms of leveraging distribution? And what is your mix of direct versus indirect? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 5:05PM, ZTS.N - Zoetis Inc at Morgan Stanley Global Healthcare Conference

Question: Erin Wright - Morgan Stanley - Analyst : Okay. And then lastly, as we think about the next couple of quarters here. I guess, any nuances from a modeling perspective that we should be aware of quarter to quarter? I know we'll be lapping some of those product launches like in the fourth quarter. But anything else to think about as we head into the second half?

Question: Erin Wright - Morgan Stanley - Analyst : Great. Thanks so much. We're excited for what's to come, and I appreciate the time today. Thanks.