Hi, everyone. Thank you for joining us this afternoon. I am Brandon Vazquez, for those of you who haven't met. I have to read off this real quick. I'm the research analyst here at William Blair, covering medical devices and animal health. For a complete list of research disclosures and potential conflicts of interest, please go to our website at williamblair.com. I'm excited to have here Zoetis' CFO, Wetteny Joseph. He is going to go through a couple minutes of intro, and then we'll host a little bit of a fireside chat. As we typically do in this, because we try to keep these presentations in the presentation session a little higher level. I'll keep the fireside chat a little bit higher level, but a little topical on what's going on. Then after that, we'll go to a breakout room.
Breakout, I have it here, breakout Meyer. Then we'll go into a little bit more detail. I'll let Wetteny go first. Then we'll chat a little bit.
Thank you, Brandon.
Good afternoon, everyone. Given I'm sure we have a fair amount of ground to cover with the fireside chat, I will keep my opening comments relatively brief, particularly for those who may be new to the Zoetis name. We are the leader in animal health. Our purpose is really centered on nurturing our world and humankind by advancing animal care. We advance animal care via innovation. We'll spend a little bit of time talking about here, as well as how we scale our solutions globally and drive a customer-centric delivery approach in terms of how we execute. We have more than 75 years as track record and truly underpinned by both scientific and commercial expertise across the business, which yielded to about $9.5 billion of revenue last year across really strong long-term end markets for us.
We have broad diversification across the business, as you can see on the page, across diagnostics, medicines, vaccines, including biodevices and genetic testing, et cetera. That diversity extends to who we serve as well, in terms of the core species that we cover across eight core species. Of course, companion animal representing about 70% of the business with a balance of 30% driven across livestock. So we get to benefit from the long-term trends related to companion animal, but certainly have livestock participation, which we have seen really strong growth on over the last few years as well. Our existing portfolio is the broadest in our industry and the deepest as well. It happens to also have 18 blockbusters, and in animal health, that's roughly $100 million of revenue in a given year. We continue to drive differentiation through our innovation.
Our innovation engine also has the promise of the future with an approximate or potential 12 additional blockbusters stemming from key areas of the greatest unmet need across animal health with renal, with chronic kidney disease focus in particular, oncology, cardiology, obesity, as well as anxiety. If you look at our capital allocation priorities, it is relatively straightforward. Given where the industry is and the amount of unmet need that remains and the innovation engine that we have built over the years, we see tremendous opportunity to invest in the business first and foremost. That comes by way of what we do in our R&D as well as capital we deploy within our manufacturing to scale the innovation that we work on and that we bring to market. Of course, we pursue business development that accelerate the strategies that we have in mind.
Lastly, and very consistently, we return capital back to shareholders via a balance between dividends and share buybacks, given the tremendous opportunity we have and ability to generate free cash flow on a consistent basis. With that, I'm going to turn it over to Brandon, who will go through the Q&A.
Great. Okay, Wetteny, thank you for the intro there. I think as you had mentioned, there's plenty of topics to discuss here. I want to talk about the animal health market overall. Let's start in the companion animal side, in part because I want to compare it to what it has historically been. You guys have talked about this before. It's a pretty good, I think, like a mid-single, maybe 5% growth market. Lately, we've been talking about, and you're not the only one, and many of my consumer-exposed healthcare companies have been talking about a little bit of consumer weakness, little pockets here and there. First, just level set us on what is historically this market? What is the growth within this market in the companion animal side? Then what are you seeing recently? Where might you be seeing some pockets of weakness, if there are any?
Sure. Look, across the last decade or so, we have seen animal health deliver somewhere between 4%- 6% of growth globally. Zoetis has a proven track record of leading the way with that, largely driven by innovation. It's not just in a one or two-year period where you bring out new products. It's how we have, through expansion of those markets and continuing lifecycle innovation, extend sort of the growth tailwind that we get from our innovation. What we are seeing now, we've seen over the last couple quarters, is some more adverse picture when we look at the macro. It's showing up in terms of how the consumer pet owners are extending dosage intervals, for example, or delaying visits to the clinic is how it is showing up, and it's compounded.
You see it also more in the therapeutic categories, which are more important to us versus overall visits. You also see it more concentrated around the large corporate clinics given the cumulative effect of price increases that we've seen over the years. That happens to also be happening at the same time that we see more competition in some categories. I would say this, competition is not foreign to Zoetis. We operate in markets within animal health that have always been highly competitive. If you think about parasiticides, for example, the largest market in animal health, it is intensely competitive. It has always been, and we clearly have shown an ability to grow in that market and gain share over the years, similarly in vaccines and livestock, et cetera.
We're seeing this sort of adverse macro condition play out at the same time that we're seeing more competition in categories like derm, where we haven't seen as much competition, clearly, given our position here, other than we're competing against steroid use for dermatological issues or over-the-counter or non-treatment at all. That's been our competition. Now you have others that are launching products in this space. We remain very much differentiated, but in the window as they're launching and are being more aggressive in terms of their promotional pricing, that are lasting longer, you see that compounding with the macro piece that we talked about.
Okay. Let's stick with the macro first, and we'll follow up on the competition comments as well. Are there, as you think of where you might be seeing pockets of macro, you mentioned you have a broad portfolio, right? You have parasiticides, maybe $300-$500 annually if you look at online how much a Trio might cost, and then you might have an injectable like Librela or Cytopoint.
I think there's a combination. It's hard to bifurcate the two pieces. Certainly, they both are having an impact. It might vary a little bit from one category to another. Clearly, based on comments I just made around dermatology, with the onset of new competition, it might be a little bit more competition impacting than macro, but there's a little bit of macro there as well, which is demonstrated by the fact that you saw visits in, now we're talking U.S.-specific. Obviously, we run a global business, visits in the quarter for pruritic in the clinic were down about 2% on the quarter. Clearly that has some effect across from an overall demand and macro standpoint before you get into what happens then within competition, right?
In the case of parasiticides, which as I said, has always been highly competitive, there it's a little bit more of the macro than it is of the competition that's playing out in terms of what we're seeing right now. We saw the height of launch promotions happen last year, about the second half of last year. Since then, we've seen some sequential improvement in terms of our overall share, which was only modestly affected before that anyway. We've seen sequential improvement. It's been very stable for us overall, particularly when you think about puppy share, which is very much a leading indicator. It remains above our overall share and has been very consistent as well for us. That's how I would bifurcate just to pick on those two.
Clearly, the macro environment has implications beyond just these two therapeutic categories, but these are the ones I know that are top of mind for everyone.
Has macro gotten worse as we've gone into 2026? We've been talking about vet visit declines for several years now. Is there something about 2026 macro only that has gotten worse this year, or is it just that it's compounding with other headwinds like competition?
It's a little bit of both, Brandon. Look, we've been talking about the fact that overall visits aren't as determinative for us for years, and you've seen us post really strong growth despite overall visits being down anywhere from 1%- 3% since 2022, following 2021 and the peaks there. A combination of things have enabled that. It's been innovation as we launch products that were ramping, for example, Trio ramping, et cetera, after the 2020 launch. Launching OA pain for a period of time, that was really driving a tailwind for us. By the way, really strong growth that was outpacing what's happening in the clinic and to some extent, making up for some of the clinic headwinds in what's happening outside of the clinic in terms of alternative channels that were growing at much higher rates.
They're still growing faster than the clinic, but not at the rate that they were two or three years ago. When you combine those in terms of the overall macro picture, it starts to compound with the competitive launches.
Okay. Maybe the last one on macro, and we'll move on to some other topics. Because again, we want to keep this high picture, and I think one of the big questions I keep getting for all of animal health right now is, I think people can appreciate this is a resilient market, but it's not an immune market to macro as we're seeing. If this is historically a 4%- 6% growth market, what are we talking about now, right? What do you think the market is going to grow at through 2026? What are you implying within your guidance at this point?
Look, I think it's important to talk about what don't we see changing. We spent a lot of time so far in this conversation just covering some of the cyclical things that we're seeing across the business. What we are seeing long term is the secular tailwinds that drive these major market areas continuing to be strong long term. The human animal bond driving pet spend across the world, not just in the U.S., continues to be a really strong feature. The consumer is actually spending more. It's just that the cumulative effect of price that has been taken, particularly in the larger clinics in the U.S., is having an effect on volume versus price. In the last quarter, for example, overall revenue for clinics actually were up about 3% with visits being down about 3%.
About 6% of price is putting some of that additional pressure on volume. You see strength in terms of pet owners spending. If anything goes wrong with the animal, they're spending it on diagnostics and they're spending on emergency care, which continue to really do really well in this environment as well. I do think it's important to think about where is the pet owner. In fact, they're even more engaged in the care of their pets than they ever were, and so that is a strength, I would say, long term, that's going to carry this industry in addition to innovation. On the livestock side, of course, you've seen continued strength in terms of animal protein consumption. You saw strength in diagnostics, et cetera. Those are the things that have not been as impacted.
In the long term, we continue to see that being the feature for the business overall that we will continue to lead.
As we think about Q1 results, this is a little bit tricky because you guys don't guide on a quarterly basis, I'll acknowledge that upfront. This may be a helpful question for us to understand, though, the trajectory of how the business is going into the year. When we're talking about macro, we're talking about competition. These are the two things that are headwinds to the business right now. I think the street, Oops, sorry. You can see obviously by the stock, the street was a little surprised by the Q1 results. Were either of those dynamics surprising to you in Q1, or did Q1 unfold the way that you thought it would?
When we look at each of these components, there are elements that we certainly saw, and that started late last year. For example, the competitive launches. The timing of those may vary, we've known competition's coming for some time. We know what the effect of what some of the tactics that are used are. It's the combination of these things plus the impact they had in terms of distributors and retailers replenishing their inventories that impacted the quarter more meaningfully than expected. It's the combination, not individual item, if you will, is what happened with the quarter and the impact that we saw. Now we've reflected those in the guidance for the rest of the year. To your point, we won't give guidance by quarter, a few things that I would remind everyone of.
Number one, we came into 2026 expecting to see a first half versus second half dynamic. Is it more pronounced now with the results of the first quarter? Sure. Are we expecting an uptick in terms of significant improvement in vet clinic visits for the rest of the year? No. Are we expecting the macro to be significantly better? No. The competition intensity to reduce significantly? No. However, if you look at sequential execution across a number of our products in key categories, you see improvement as we go through the year. You see an easier comp on the back half of the year stemming from last year, by the way. We had a 9% growth first half last year. We ended the year at 6%, you saw the deceleration in the back half of the year. There's an easier comp we have there.
You haven't asked about Librela, but let's talk about OA pain and what we saw in the first quarter. We've been saying how that's going to stabilize over time. You saw that stabilization play out, including sequential, albeit modest, growth in Librela. As we go to the back half of the year, the comps get a lot easier for that as well. There's a combination there. One last point I will make is we're not anticipating an uptick in terms of pull-through as we see the back half. It's really the comps that create a dynamic where you see a higher growth rate at the back end versus the front end.
Okay. Let's pivot a little bit, and talk more about the innovation pipeline. This is, of course, an innovation-driven story and I think a sector that's heavily new product cycle driven. You touched on Librela, so maybe we'll segue into there, because that's probably the nearest term new market for you guys that is developing. What is it about as you went into Q1 that is finally stabilizing this business? Because I think that'll help us set the base for then to talk about what is it that's giving you confidence that this can actually return to growth in the back half of 2026.
Sure. When you have a multi-pronged strategy that we've been executing now, we've been talking about it for the better part of a year, it's hard to pinpoint one element to say this is the piece that's having the greatest impact versus the other. I'll start high level. The OA pain opportunity remained very, very significant. You can see in the U.S., for example, it's somewhere between 25 million and 27 million dogs that suffer from OA pain, with about 9 million being treated and being treated largely with NSAIDs, which tells you that both clinicians and pet owners want to treat this. We're doing a lot to help educate more and more to the pet owners, in particular around the fact that this is a progressive disease that has other downstream implications as well if it's not treated.
That is resonating with pet owners as well as with veterinarians in terms of sharing data with them, what we're seeing across the world, real world data, et cetera, in terms of how the product is. You continue to see positive opinions around the risk-benefit profile of the product. All those are contributing to driving this. As we look ahead, we also have the approvals of the long-acting components with LENIVIA and PORTELA that are starting to launch in markets in Canada and parts of Europe.
We anticipate additional approvals in other markets as we get into next year in the U.S., et cetera, that will continue to help drive and access this market because the convenience factor, for example, of having a three-month injection versus a one-month, particularly for more moderate cases that are more chronic, that for years are going to require a monthly injection, that's a tall ask for a pet owner, and we believe firmly that will be additive in terms of the picture, but give flexibility to both pet owners and veterinarians in terms of how to treat in this category. We remain very much looking forward to continuing to drive the expansion in this market, both in terms of driving that for the existing products and then the contributions from the new products that will come out as well.
Okay. Talk to us a little bit also, this is probably the nearest term. We have long-acting Cytopoint coming soon, and then there's renal, others. Talk to us a little bit about the pipeline, especially for those who are newer to the story in the next several years. What's the pipeline of the next kind of three or four biggest drugs that we should be thinking about?
Yeah. Clearly the OA pain launch and how that has transpired over the last couple of years has created a bit of a challenge for us in terms of the additive element in terms of growth across the horizon. As we look ahead, we have a number of launches and approvals in terms of life cycle innovation that's going to contribute to our growth, then we're anticipating the net new big areas to start to get approvals towards the back half of next year to start a new innovation cycle, if you will, for the company. Meanwhile, to your point, in terms of the areas that are going to continue to drive value for us, you mentioned Cytopoint, a product that has very high satisfaction levels.
We're very excited about the anticipated approval for long-acting Cytopoint towards the end of this year with launch early next year that will drive that. We have seen approval in Canada for Convenia RTU, for example, and we anticipate over the next few years to see approvals in other markets for that product, one that has some generic competition against it currently. We've seen label improvements and geo expansion of products even like Trio with the launch in Brazil recently.
We've seen label expansion to include flea-induced tapeworm, so prevention of that on the label for Trio. Lots and lots of things that our R&D function and our manufacturing teams, et cetera, have been working on, and you're seeing the impact that those will have over time before we start to get into the renal chronic kidney disease, oncology, and so on that we can talk about.
Okay. As we think about a Cytopoint later this year, we think about a renal later in 2027. How do we think, especially now in the context of Librela, that I think you guys have had some learnings, is maybe the way I'd phrase it, in how to launch that and how to make sure it's a durable trajectory. How do we think of the launch of new products like this? You've given us a guidance for late 2026 Cytopoint, I think a late 2027 renal. Correct me if those are wrong. What does that mean for when they will ramp and be more meaningful to the P&L?
As we've been talking about for some time now, one of the observations coming through the Librela experience has been the need to make sure that we spend time and invest in that time with specialists to get their hands on the product and get really familiar with it and using it so that they can be part of the voice, if you will, to the general practitioners that get their hands on a molecule or antibody. That approach, particularly when you consider we're getting into more and more therapeutic categories where you're treating sick animals, that's going to be increasingly important. We're preparing for that evolution in terms of how we approach launching products in a number of ways. Number one, you saw us talk about some changes we made to our go-to-market in the U.S. in terms of the field force.
While we look to optimize that and get even better reach and frequency across the field force, where we saw opportunities to reduce some of the headcount in that area, we reinvested components of that into professional service vets, veterinarians who are actually calling on vets, which is an important piece when you think about the pipeline that's coming in terms of how we might leverage those conversations and the input from vet-to-vet conversations that can happen. That's one example.
In terms of how we go about the launches, we're going about them in a very deliberate manner where we will do early experience and exposure with specialists first, get feedback and input from them to factor into the rest of the rollout as we launch in other markets, which means you have a slightly slower beginning to help you accelerate later on as we continue in terms of the launch across those products. Certainly that's the approach we're taking with the long-acting OA pain product in LENIVIA as well as what we are contemplating with respect to chronic kidney disease, oncology, and other components that will come.
Okay. Remind me, the long-acting LENIVIA, just to make sure we have this right, is that coming to the U.S. in 2026 as well, approval in 2026?
We have said that's a 2027 approval expectation.
Okay. Got it. In the general presentation here, I want to make sure we touch on, I don't give it enough love, the livestock side of the business especially because the position we're in right now especially around the world, cattle prices are high. It feels like a really attractive market. Tell us about the durability of growth on that side. What should that be through 2026+? What are kind of the tailwinds helping that business?
Sure. Thank you for asking a livestock question because it's an important growth driver for the business. If you've seen over the last three years coming into 2026, you've seen us deliver mid-single-digit growth somewhere between 6% and 7% over the last three years. We came into this year very strong with the first quarter performance, double-digit growth there, and we're continuing to expect mid-single-digit to high single-digit growth in livestock for the year. To your point, what we're seeing sustaining the growth that we're seeing across livestock right now are a number of factors. Number one, you see a long-term, by the way, population growth, another 2 billion people will be on this planet as you look out over the next 30 or so years. The incremental protein production that's going to be necessary to feed that population is going to be a secular tailwind here.
We're also seeing increased income levels across emerging markets where they're looking for more quality animal proteins to consume. That's certainly a part of the tailwind. We see in markets like the U.S. particularly driven by GLP-1s and so on, increased animal protein consumption that's driving some tailwind here as well. The fastest-growing animal protein categories are poultry and fish. We are number one in fish. We have some very effective vaccines that have been driving our growth in that globally. We continue to be the market leader in that spectrum. In poultry, we have opportunity to continue to expand. We're getting more and more approvals. You may have seen for vector vaccines that are delivered via the biodevices that we actually have a leading market share in globally as well.
We see continued opportunity to continue to increase our presence across protein around the world. Clearly, we have a very broad spectrum in terms of species that we cover in livestock, which also drive diversification across the business and help us capitalize on the growth wherever it might be around the world.
Okay. How do we think about innovation in that product, in that side? This is predominantly vaccines. Are there any other big areas that you are investing in the livestock side?
You certainly see prevention being the leading pathway to drive growth here. This is where the demand is around the world. Vaccines, first and foremost. Other elements, genetics, right? We talk about Zoetis. We happen to play across prevention, genetics, and so forth, as we see vaccines being a key component when it comes to livestock. This is why I use the example in the poultry and vector vaccines and how those are delivered in overall in eggs as well. Again, having the leading share of the devices that do that. Similarly, in the aqua fish business across cattle, et cetera, around the world, this is the leading area. There are parasiticide prevention in livestock that's also driving areas. There have been disease burden in certain areas that we continue to pursue solutions for.
Livestock is, again, an attractive end market for us, and we continue to drive innovation in that space, although it's not talked about as much because the size of individual markets don't get to the sizes that we talk about in terms of derm, et cetera, but they're very meaningful.
Yep. Maybe the last minute or two here on the P&L and the financial side. Your stock right now is trading at the lowest multiple, I think, since you guys have gone public. How do you think about using your free cash flow, your balance sheet to get aggressive on share buybacks? I mean, you guys have used the balance sheet a little bit already for that. Level set us where you are with that and thoughts on a go-forward basis to use that.
Sure. Look, both dividends and share buybacks are important pillars within our overall capital allocation priorities. The type of products and unmet need that still exists in animal health means that our primary focus has been and will continue to be in investing in the business to pursue driving solutions that are meaningful in terms of advancing animal care, which I mentioned earlier as being our primary purpose. Having said that, we do generate significant cash at Zoetis, and you've seen us deploy that via acquisitions. But even after CapEx and everything else, we delivered last year $2.3 billion of free cash flow. That gives us opportunities to both pay a dividend that has increased over the years, as well as pursue share buybacks. We, in December, also tap into the balance sheet to do more of that.
Where the stock is trading right now, by the way, we still have $1.8 billion remaining from the last authorization that we received from the Board. As of the end of Q1, we still have $1.8 billion. Clearly that gives us plenty of firepower to continue to execute on, and we do take into consideration current market conditions and share price into that equation. Consistently buying back shares is something that we have demonstrated over the years, and we'll continue to do that.
Okay, great. We'll end here for the presentation, and we'll go out to Meyer for the breakout session. We'll start there in 10 minutes. Thanks, everybody.
Thanks.
Thanks, Buddy.