Good morning, ladies and gentlemen, and welcome to Zoetis Inc.'s 2026 Annual Shareholders' Meeting. I would like to introduce you to Mr. Michael McCallister, Chair of the Board of Zoetis Inc. Mr. McAllister, you may begin.
Good morning, welcome to the 2026 Annual Shareholders' Meeting. I'm Michael McCallister, Chair of the Board, and I'd like to thank you for your interest in our company and welcome you to our virtual shareholder meeting. At this time, I'd like to introduce the other board members who are participating in today's meeting. Kristin Peck, who serves as our Chief Executive Officer, Paul Bisaro, Vanessa Broadhurst, Frank D'Amelio, Gavin Hattersley, Sanjay Khosla, Dr. Antoinette R. Leatherberry, Gregory Norden, Dr. Willie M. Reed, Dr. Mark Stetter, and Stephanie Tilenius. In addition, Roxanne Lagano, Executive Vice President, General Counsel, and Corporate Secretary, is also participating in today's meeting. Also present online today are representatives from KPMG, our independent auditors, and Kathryn Blackwell, a representative from Carl T. Hagberg & Associates, who is serving as Inspector of Election.
All will be available to answer appropriate questions during the question and answer portion of this meeting. It is now 8:00 a.m., and in accordance with the notice of the meeting, I'd like to call the 2026 Annual Shareholder Meeting to order. I'll be serving as the chair of the meeting, and Roxanne Lagano will serve as secretary of the meeting. Prior to the meeting, we provided each shareholder with copies of our annual report and our proxy statement, either by mail or online. Copies of these documents and the rules of conduct and agenda for the meeting are available on the meeting website. As a reminder, shareholders attending the virtual meeting will be able to vote their shares online while the polls are open by logging into the meeting website as a shareholder and clicking the voting button on the meeting website.
If you have previously voted by proxy and do not wish to change your vote, your vote will be cast as you previously instructed, and no further action is required. Please note that if we experience technical difficulties during the meeting and are required to adjourn, we will promptly notify shareholders of the decision and relevant details via the meeting website. I will now turn the meeting over to Roxanne to begin the formal matters to be discussed at this meeting. Roxanne?
Thank you, Michael McCallister. We are conducting this meeting in accordance with our bylaws and the meeting rules of conduct and procedures. The meeting rules and agenda are available on the meeting website. A list of shareholders on the record date has been made available for review at the company's corporate headquarters in Parsippany, New Jersey. We will begin by attending to the formal business of the meeting, during which we will take questions related only to the formal business items. After the formal meeting is adjourned, Kristin Peck, our Chief Executive Officer, will provide brief remarks. Following that, we will hold a question and answer session open to general company-related questions. Shareholders logged into the meeting website are able to submit all questions by typing them into the text box on the meeting website through the end of the general question and answer session.
This meeting is being held pursuant to the notice of annual meeting sent to all shareholders of record as of the close of business on March 27, 2026. We have received an affidavit of mailing from Broadridge Financial Solutions, our proxy mailing service provider, indicating that notice of the meeting has been duly given. A copy of our proxy statement is available on our company's investor relations website and the Securities and Exchange Commission's website at www.sec.gov. I declare that there is a quorum present. Accordingly, the meeting is duly constituted, and we may now proceed with the business of the meeting. The polls are open now for voting. We will close the polls after the proposals have been presented. There are 5 items of business to be voted on at this meeting.
The first item of business is the election of the board of directors of the 12 director nominees whose terms expire at this annual meeting, in each case to hold office for a one-year term until the 2027 annual meeting of shareholders or until their respective successors are duly elected and qualified. The director nominees are Paul M. Bisaro, Vanessa Broadhurst, Frank D'Amelio, Gavin D.K. Hattersley, Sanjay Khosla, Antoinette R. Leatherberry, Michael McCallister, Gregory Norden, Kristin Peck, Willie M. Reed, Mark Stetter, and Stephanie Tilenius. As disclosed in the proxy statement, our board recommends that you vote for the election of each of the director nominees. The second item of business is an advisory vote to approve the executive compensation of our named executive officers. As disclosed in the proxy statement, our board recommends that you vote for the approval of the company's executive compensation.
The third item of business is an advisory vote to approve the frequency of future advisory votes on the executive compensation of our named executive officers. As disclosed in the proxy statement, our board recommends that you vote for annual as the frequency of future advisory votes on the company's executive compensation. The fourth item of business is the ratification of the appointment of KPMG as our independent registered public accounting firm for 2026. As disclosed in the proxy statement, our board recommends that you vote for the ratification of the appointment of KPMG. The fifth item of business is a shareholder proposal to permit shareholder action by written consent if properly presented at today's meeting. Mr. John Chevedden or his designated representative will present this proposal.
Mr. Chevedden's proposal and supporting argument is contained in the proxy statement and is deemed submitted. We understand Mr. John Chevedden or his designated representative wishes to make a brief statement in support of his proposal. Operator, please open the line.
Your line is now open. You may proceed.
Good morning. Can you hear me okay? Hello?
Yes.
Hello? Okay. Proposal 5, shareholder right to act by written consent sponsored by John Chevedden. Shareholders request that the board of directors take the necessary steps to permit written consent by the shareholders entitled to cast the minimum number of votes that would be necessary to authorize an action at a meeting at which all shareholders entitled to vote thereon were present and voting without any unnecessary restriction based on length of stock ownership or the method by which shareholders hold their shares. According to state law, I hope I say the name of your company right. I'll just say Zoetis. Shareholders can have the right to act by written consent and the right to call for special shareholder meetings. Both rights allow shareholders to take action between annual meetings. Zoetis shareholders actually do not even have a viable right to call a special shareholder meeting.
The so-called Zoetis right is more of an insurance policy to make sure that Zoetis shareholders have no viable right to call for a special shareholder meeting. The special shareholder meeting rule at Zoetis requires 25% of shares outstanding to support a call for a special shareholder meeting instead of 10% allowed by state law. 25% is not realistic because shareholders of at least 100 companies have voted on a shareholder right to call for a special shareholder meeting, and not 1 of these 100 companies has ever given even 1 example of a special shareholder meeting actually taking place at a company that required the backing of 25% of shares outstanding.
Zoetis was not satisfied with the 25% roadblock for calling for a special shareholder meeting and then added a second roadblock that a substantial block of Zoetis shares are disqualified from being part of the required 25% of shares. Shareholders of at least 100 companies have voted on the shareholder right to call for a special shareholder meeting, and not 1 of these 100 companies has ever given even 1 example of a special shareholder meeting actually taking place at a company that disqualified a substantial block of its share from participating. Please vote for proposal 5 for a shareholder right to act by written consent to make up for the Zoetis lack of a viable right to call for a special shareholder meeting. Please vote yes, proposal 5. Thank you.
Thank you. For the reasons stated in the proxy statement, our board has considered this proposal and recommends a vote against the proposal. This concludes the presentation of the items of business that you've been asked to vote on at today's meeting. We will now provide some additional time for voting and to entertain questions limited to the formal items of business. Are there any questions specific to the items of business at this time? No.
Since there are no questions from our shareholders on the proposals, the polls are now closed. Roxanne?
All votes are subject to final count certified by the Inspector of Election. We will report the final vote results on a Form 8-K filed with the SEC within four business days from today's meeting. Mike?
There being no further business to come before the meeting, the business portion of the 2026 annual meeting of shareholders of Zoetis is now adjourned. Zoetis CEO Kristin Peck will now provide brief remarks, followed by a general question and answer session. As a reminder, Kristin's remarks and answers provided during the question and answer session may contain forward-looking statements. Forward-looking statements are based on the current expectations, and actual results may differ materially due to risks and uncertainties as described in Zoetis' SEC filings, including our 10-K and 10-Qs. With that, let me turn the meeting over to Kristin.
Thank you, Mike. Good morning, everyone. It's a pleasure to be with you today for our annual meeting of shareholders. In 2025, our colleagues executed with discipline and purpose, delivered for our customers, and demonstrated resilience. On an organic operational basis, we delivered 6% revenue growth and 7% growth in adjusted net income. In livestock, we grew 8% organic operational revenue, benefiting from a more focused portfolio following the MFA divestiture, while companion animal delivered 5% operational revenue growth. Our global footprint also remained a key driver of performance, with international markets delivering 8% organic operational revenue growth with 4% organic operational growth in the U.S. Before diving into the annual highlights, it's worth reflecting on the environment in which we operated.
2025 was a year of strong progress and one that sharpened our perspective on a rapidly changing landscape shaped by both external and industry forces. We operated against a backdrop of economic and geopolitical uncertainty that influenced customer behavior and market dynamics across regions. Meanwhile, the animal health industry became more competitive and complex, with increased participation in key categories, reflecting the attractiveness of the markets we helped build. The veterinary channel also shifted. Visit volumes declined, pricing increased, pet owners faced ongoing financial pressure, and care delivery models evolved from retail-based clinics to more specialized veterinary networks. Taken together, these trends resulted in a market that was more dynamic, more competitive, and more demanding than prior years. These headwinds have persisted in 2026, as reflected in our first quarter 2026 results, with pressure in parts of our companion animal portfolio where market growth has moderated and competition has intensified.
In that context, staying close to our customers and focused execution was reflected in how we operated across our portfolio in 2025. In our Simparica franchise, we maintained global leadership with Simparica Trio remaining the number one selling canine brand. In the U.S., sales surpassed $1 billion, supported in part by our omni-channel strategy, which expanded access, convenience, and compliance. We also received key approvals in new markets, reinforcing the durability and long-term runway of the franchise. In dermatology, after nearly a decade of setting the standard of care, new entrants increased competition. Our differentiated portfolio, combined with targeted adjustments to our distribution strategy, allowed us to win new patients and compete from a position of strength. We also advanced key strategic priorities, including driving conversion to Apoquel Chewable to support improved compliance and a better experience for veterinarians and pet owners, positioning us to compete more effectively going forward.
In OA pain, while the franchise declined for the year, Solensia delivered strong growth and Librela showed signs of stabilization in the second half. Our OA portfolio has now surpassed the size of the entire category prior to launch, driven by significant unmet medical need. We executed a multi-pronged strategy to return Librela to growth, engaging both veterinarians and pet owners, increasing disease awareness, and reinforcing the risk-benefit profile of our products. We also advanced our pipeline, receiving initial approvals for Lenivia and Portela, our long-acting therapies at the end of 2025. Diagnostics delivered strong growth even as clinic visits remained under pressure and outperformed the broader market for the year. This performance reflects the strength of our innovation strategy, including AI-enabled capabilities with the launch of Vetscan OptiCell, bringing faster, simpler in-clinic hematology and AI Masses, further expanding the Vetscan Imagyst menu, both contributing to strong platform performance.
Across livestock, we delivered broad-based growth with momentum in key cattle and swine markets, along with strength in aquaculture. We also demonstrated our ability to address disease outbreaks through our scientific capabilities with conditional approvals for HPAI and New World screwworm. More broadly, we continue to strengthen the capabilities that support our business and differentiate Zoetis. We expanded our global medical affairs organization, including a phase IV study strategy to generate additional real-world scientific data to deepen customer engagement. As veterinary professionals and livestock producers face increasing complexity, our teams deliver timely, evidence-based guidance and clinical education, helping them make more confident prescribing decisions and improve health outcomes. We also advanced our AI strategy, embedding data and analytics across the business from accelerating discovery and improving diagnostics to enabling more efficient manufacturing and more targeted customer engagement.
This included scaling an AI-powered omni-channel listening capability, increasing customer feedback signals from fewer than 100,000 annually to more than 1 million interactions. We continue to make progress against our Driven to Care sustainability strategy. In its fifth year, we supported veterinary professionals and livestock farmers worldwide through the Zoetis Foundation while advancing animal health, productivity, and environmental performance across our operations. Together, these capabilities strengthen our science to scale model and underpin our ability to navigate a more dynamic and competitive environment while continuing to shape the future of animal health. The dynamics we saw in 2025 did not change the fundamental strength of animal health. This remains an essential and resilient market, supported by long-term structural drivers, most notably increasing longevity. Across the industry, the focus continued to shift toward extending healthy lifespans. For companion animals, that means more years of quality life.
For livestock, it means greater durability with healthier, more productive animals that sustain performance over time. This shift is increasing demand for more advanced care and expanding the scope of treatment. We are uniquely positioned to capture that opportunity through our scientific capabilities and robust pipeline. We have 12 potential blockbusters in development, which for us are products with at least $100 million in annual revenue, including new categories of care such as cardiology, renal disease, oncology, obesity, and anxiety, as well as continued advancements in livestock genetics, all of which support longevity. Each of these innovations will deepen and expand our portfolio, which today includes the largest offering of animal health monoclonal antibodies, 17 blockbuster products, and 3 billion-dollar franchises. None of this would be possible without our colleagues.
Across Zoetis, our teams are driven by a shared sense of purpose to nurture our world and humankind by advancing care for animals, which is reflected every day in how we serve customers, how we innovate, and how we operate. As we bridge to Zoetis' next wave of innovation-driven growth, expected to begin delivering significant value toward the end of 2027 and into 2028, execution, commercial effectiveness, portfolio optimization, and cost discipline will play an even greater role in driving performance, particularly in a more dynamic market. As we noted on our recent first quarter 2026 earnings call, we are taking meaningful and deliberate actions to align our cost structure with the current operating environment, with a focus on both the near-term performance and long-term growth.
We will continue to invest in innovation, expand our reach, and strengthen our capabilities with a clear focus on delivering long-term sustainable value for you, our shareholders. We've demonstrated our ability to perform in different environments and will do so again. Thank you for your continued support. Now, I will hand things back to Michael McCallister and look forward to addressing any of your questions.
Thank you, Kristin. I would now like to open the meeting to any questions.
I will read our first question for Kristin Peck. How is Zoetis currently utilizing AI or data analytics to streamline supply chain management and manufacturing?
For the last five years, Zoetis have had artificial intelligence as one of the cornerstones of our overall strategy to transform how we innovate, operate, and serve our customers. Today, AI is embedded across our business, delivering value at every step across the continuum of care, from accelerating breakthroughs in the research lab to optimizing production efficiency, empowering decision-making on the farm, and enhancing care in the veterinary clinic. To address the specific question on manufacturing on the shop floor and in quality labs, we've deployed AI to help reduce material waste, increase yield, and strengthen clinical and critical processes. We've got key technologies including continuous process verification, multivariate process controls, golden batch modeling, and advanced anomaly detection, which is allowing us to proactively identify and address potential issues. Additionally, improved data and analytics capabilities are facilitating earlier issue detection and promoting more reliable operations across our manufacturing network.
I'll read our second question, also for Kristin Peck. How is Zoetis addressing generic and biosimilar competition entering certain legacy markets?
Indeed, the macro environment with heightened pet owner price sensitivity has amplified the pace of generic substitution and generic entrants, vying to gain market share and help lower the bill for pet owners. The level of substitution was more pronounced this year than we've seen historically and that we originally assumed. As you look at this with regards to generic competition, we've countered with price reductions where we've seen generic competition as opposed to broader innovative competition to close some of that gap in pricing. Additionally, we expect further differentiation through innovation, as we announced with Convenia RTU. Animal health continues to have significant barriers to entry for generics. It's quite different, actually, than the human pharmaceutical market, and we've had a blueprint for defending our share against generic entrants from our experience with Draxxin, a blueprint that we plan to continue to refine with more experience.
I'll read our next question, also for Kristin Peck. What is Zoetis' strategy to defend market share and maintain pricing power?
We generally are focused on innovation and differentiation in portfolio breadth and execution. That's where we think our value really lies. We are not planning to compete through sort of broad-based pricing reductions. We do use targeted promotions and other programs to remain competitive and focus on initiation, in particular. For products where we now have expanded generic competition, as I mentioned before, we have taken select pricing actions. We really believe our focus will continue to be on differentiation, innovation, portfolio breadth, and execution. We believe this will help us protect long-term share through value and not leading with price.
I'll read our next question for Wetteny Joseph. What is Zoetis' outlook on the cadence of 2026? Will second quarter 2026 be the trough, followed by gradual recovery in the second half of 2026?
We expect improvement in the second half of 2026 as a result of stabilization in key franchises, incremental impact from our commercial actions, and favorable competitors versus prior year. Our expectations of improving trajectory through the year is grounded in several identifiable and measurable drivers. For Librela, Q1 2026 marked the first sequential revenue increase in 6 quarters in both the U.S. and internationally. Comparative periods become increasingly favorable as the year progresses. We continue to expect a return to year-over-year growth in the second half of the year. For key dermatology, comparative promotional intensity from new entrants based on historical precedent tends to moderate after the initial launch phase, while we realize that some of these promotional activity could be longer than historically witnessed. We also expect our DTC investments, direct to consumer, which is now live and ramping to begin driving measurable demand at the pet owner level.
For Simparica Trio, we expect increased DTC investment to provide support. We have also seen sequential improvement in U.S. market share since the peak of competitive promotional activity in the back half of 2025. Our commercial actions are already in market and should begin to impact demand. Key proof points include stabilization in share, improved compliance, and sequential revenue growth. Importantly, our focus on sharp execution, promotional effectiveness, portfolio optimization, and enhanced cost discipline will play a greater role in driving performance, especially in this environment.
As there are no further questions, we will conclude the 2026 Zoetis Annual Shareholder Meeting. Thank you for your time today. We extend our appreciation to our shareholders as well as our directors and our team members at Zoetis. We look forward to addressing the opportunities ahead. Thank you for your support.
You may now disconnect. Have a great day.