Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Zoetis Inc (ZTS, Financial) reported an 11% operational revenue growth and an 18% operational growth in adjusted net income for Q2 2024.
- The company saw balanced segment growth with 12% growth in the US and 10% operational revenue growth internationally.
- Zoetis Inc (ZTS) leads the industry in R&D investment, bringing over 300 science-driven innovations to market.
- The Librela product for osteoarthritis pain in dogs grew 142% operationally, showcasing strong market adoption.
- Zoetis Inc (ZTS) announced a Board-approved $6 billion share repurchase program, reflecting confidence in its growth trajectory.
Negative Points
- The adjusted gross margin declined by 70 basis points on a reported basis, impacted by unfavorable foreign exchange rates.
- The company faces macroeconomic headwinds, particularly in China, affecting both companion animal and livestock segments.
- Adjusted operating expenses increased by 9% operationally, driven by higher SG&A and R&D costs.
- The sale of the medicated feed additives portfolio, which generated approximately $400 million in revenue in 2023, may impact future revenue streams.
- Despite strong performance, Zoetis Inc (ZTS) acknowledges that subsequent quarters may not have the same level of operating leverage due to the timing of investments.
Q & A Highlights
Q: Was there a split between price and volume for the quarter? How do we think about pricing contribution from here?
A: The quarter had about 8% price and 3% volume growth. Year-to-date, we've grown 12% operationally with a balanced 5% price and 5% volume. We expect this balance to continue for the full year. Trio had an outstanding quarter with better price realization from more targeted promotions.
Q: Where do the best returns reside for DTC spending?
A: We look at DTC spending in a detailed way, considering both product and channel. We invest significantly across Librela, Apoquel, and Trio, focusing on driving compliance and market growth. The ROI varies by channel and seasonality, and we ensure investments make the most sense.
Q: Should we continue to see a sequential ramp in US Librela sales throughout the remainder of the year?
A: Yes, we expect significant quarter-over-quarter growth for Librela. We have about 80% penetration in the US with an 86% reorder rate. We are in ongoing discussions with the FDA about possible label changes, similar to those in Europe.
Q: Can you speak to the competitive positioning in the dermatology category and parasiticides?
A: We are raising our expectations for derm to double digits. Trio's competitive landscape hasn't changed meaningfully. We are confident in our ability to grow and defend our market positions.
Q: How is Apoquel chewable contributing to the better results in derm?
A: Apoquel chewable is largely converting from traditional Apoquel. It is not a significant contributor to overall growth yet but is an important part of our strategy. We are seeing meaningful conversion rates, which could contribute to long-term growth.
Q: Can you provide any color on the breakdown of key derm sales between Apoquel, Apoquel chewable, and Cytopoint?
A: We focus on the key derm franchise as a whole, which grew 18% in the quarter. The Apoquel franchise and Cytopoint both saw double-digit growth. The franchise has patents extending to 2031, providing extended protection.
Q: How do pet owners perceive price hikes for pharmaceutical products versus diagnostics?
A: Pet owners see pet health as essential and are willing to spend. We see strong volume growth even with robust pricing. The innovative solutions we provide address chronic conditions that pet owners care deeply about.
Q: How are wellness-dependent products like vaccines performing?
A: We see increased volume across our pet care business. The rest of the portfolio contributed about 2 percentage points to growth, largely from price. Overall, we see strong demand for our products.
Q: How do you reconcile sluggish pet ownership and vet visit trends with your raised guidance?
A: While there may be a decline in overall clinic visits, we see strong demand for our products. Pet owners view veterinary care as essential and are willing to spend. We are confident in our guidance and optimistic about future growth.
Q: What are your updated thoughts on the transition to the moderate population for Librela and the antitrust investigation in Europe?
A: About 65% of Librela cases are now mild to moderate. Regarding the EU Commission investigation, we believe our decision to stop the experimental compound was sound and are confident the concerns will be unfounded.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
