Good morning, everyone. Thanks for joining us at the Barclays Healthcare Conference. My name is Balaji Prasad, the Senior Analyst for the Specialty Pharmaceutical sector. Continuing our session for the day, I'm delighted to have Wetteny Joseph, the CFO of Zoetis, with us. Wetteny, thank you for joining us at the conference, and hope you have a great conference. My pleasure, as always, Balaji. Great to be with you. Thank you. Wetteny, Zoetis recently reported Q4 results. Obviously, the stock did move a fair amount around the results. I would like to leave it to you for some opening remarks around what are the key points there and what are you seeing in terms of investor focus and attention and what has changed. Sure. Look, we had an outstanding 2024, with the second-highest growth rate the company has had in its public company history. Our major franchises in companion animal led the way with double-digit growth for us on the year. We saw, for the second year in a row, livestock growing 5% and 6% over the last two years as well. If you think about our industry, it is an incredibly resilient industry, but it is also still very young, with substantial opportunity to expand existing markets that we have leadership position in, including Derm and parasiticides with the Simparica franchise. Continue to have significant room to expand there. New markets that we are barely just scratching the surface with OA pain, which I am sure we will talk about some more, but significant runway there as well. We are extremely excited to share even more detail into what are really large open-ended markets. Mm-hmm. That we have in our pipeline that we're going after, with respect to renal, chronic kidney disease, oncology, and cardiology. A relatively young market that's very resilient, a leadership position, and lots to be excited about in the pipeline as we think about our future. Great. Thank you. Outstanding 2024, how does that translate into priorities for Zoetis for 2025? Within the guidance that you gave out, what are the key pushes and pulls that you're seeing in this outlook? Sure. Our priorities remain the same. Our strategy is clear and consistent, and it's to continue to drive innovation forward, but also to continue to expand the existing franchises that we have. When you look at Derm, for example, that's been around for over a decade with Apoquel, we still have more medicalized. Mm-hmm. Dogs globally that are not treated than that are treated, with our product. We think there's substantial opportunity to continue to expand those. We're hyper-focused on driving those and being the first to leverage our unparalleled data and knowledge of the animal biology to be first to market in areas of excitement. We're focused on those. Execution has been key for us. Scaling our manufacturing. Mm-hmm. is, remains, a key area of focus for us. We continue to, to invest in those areas. That scale has allowed us to be able to launch products and expand those markets, through our field force, as well. Those are the focuses. When you think about 2025, our multiple sources of growth with our existing franchises is important. We remain in position to take price, as we have, historically. We've taken two to three points of price. The last couple of years, we've been north of four, sort of, closer to 5% in that time. We said we believe we'll be able to take price above the two to three-year range, even if below what we've done in the last couple of years. Those are areas as well that we are focused on, driving and executing. Mm-hmm. Across the business. Got it. Maybe digging a bit more into individual products, let's start with Librela. Clearly, there is, understandably, there's been an enormous amount of investor focus on this product. Last year, the discussion points around this changed through the course of the year. Now, post the vet letter that we posted, can you speak to how the veterinarians are responding to this, to the veterinarian, the vet letter and the label change? Are they understanding the product better and how to prescribe and use this in the clinical practice? Yes. Librela is a very important product for us, but we have a portfolio that drives our growth overall, including existing franchises. We believe, and expect those combined key franchise areas to drive double-digit growth for us in 2025. For Librela specifically, vets remain very positive in terms of their actual experience with the product. That has never been an issue. Mm-hmm. For us in terms of as we connect with veterinarians and so forth. Finalizing the label, which the FDA has approved now, officially, drives clarity to your point. It's actually been a very positive element, including the client information sheet, to be able to have that conversation with the pet owner and so on. It's been met with very positive feedback from vets, and very consistent with what we've been saying to them for the last several months in terms of what we expect to happen. That label is also very consistent with labels that we have elsewhere, in other markets. It's been all positive in terms of getting that finalized and to drive forward with continuing to expand. Just to put into context just the sheer size of the opportunity and how Librela and OA pain in general, if we add Solensia, which, by the way, became a blockbuster last year as well. I know we do not get much questions on Solensia, but it has been phenomenal in terms of the growth that we are seeing there as well. If you roll the tape back, in May of 2023, we had an Investor Day. Mm-hmm. We said we expect our OA pain franchise, in three to five years, to be north of $1 billion. In 2024, we delivered just short of $600 million if you combine those globally. We are well on our way to delivering that. If we double-click then on the U.S., which I know there is a lot of focus and attention on the U.S., it has been a very successful launch, by the way. If you look at the U.S., we are treating about 1.2 million dogs with Librela, but there are about 8 million being treated with NSAIDs. Mm-hmm. A total of 9 million being treated out of an estimated 27 million medicalized dogs that have OA. Only about a third are being treated, and we're only treating a small proportion of those. If you think about what that means, particularly when you consider the safety profile of Librela versus NSAIDs, we believe there's a tremendous opportunity to go after that 18 million. Plus, those that are not treated at all tend to be leaning more towards those moderate and mild cases, and we believe there's significant opportunity to do that. When we launched in Europe, about a year, year and a half after the launch, we were seeing that about 40% of those dogs that are getting on Librela were new to the category in terms of being treated. Those were the, in the case of the U.S., that's the remainder that are not on NSAIDs today. We couldn't be more pleased in terms of the long-term prospects here, which remain very consistent with what we said back in 2023 around what we think the OA pain franchise will mean in terms of the number of years of growth we have ahead. Got it. That's a very helpful context, Wetteny. I think tapping into less than a single or single-digit percentage penetration, you've doubled the global OA market size in just two years. Yeah? Yeah. As I want to parse this down a bit, at least in terms of numbers, I think there was a lot of focus around Q4 in terms of the fact that there seemed to be no sequential growth between quarter-to-quarter. I wasn't sure if that's the right way to look at it. Maybe at a 2025 size, how have you baked this into your guidance for 2025? Sure. Look, we issued our guidance in February, and we set expectations across those three key franchises to grow double digits. Mm-hmm. We did not specifically give one for Librela or any other product for that matter, because really we have these levers that we are using that drive our growth consistently, and we saw that last year. In terms of what we are expecting, and we try to showcase this in January as well, which is when we launch new products and markets that we are developing, we are building that market meaningfully different from how treatment, the preceding paradigm was, around using NSAIDs and so forth. That takes time. It takes educating pet owners. It takes educating veterinarians. Particularly for a product like Librela that initially goes out to a lot more severe cases that are older pets to begin with, they tend to be closer to end of life, and there is more churn and more turnover of those. If you combine what we said around Cytopoint as the case that we used in January, which showed clearly sequential growth is not a consistent pattern that we've seen when we build markets. Mm-hmm. For the reasons I just said, that is true. On top of that, the more severe cases that you are treating means that you'll see more variability, more variation, when you launch a product like this. As long as you are more leaning on the severe cases, that will be the case. This is not unexpected is what I would say. For that reason, we're not expecting to see sequential growth, but we are expecting annual growth in the product, is the way we frame it. Yeah. Even without, you know, sizing that specifically for 2025. I will not repeat everything I just said about just the sheer size of the opportunity. Sure. We are excited about it long term. Okay. Great. Maybe on the pipeline side of OA, I mean, you recently mentioned that you are expecting a potential approval for a long-acting OA pain product. So can you provide a bit more details around this and possible timelines for this and the ramp? And when you think about this opportunity of 27 million dogs, what could fit into this category for this long-acting product? Sure. We're extremely excited about the pipeline, as much as we're excited about the existing franchises. Sure. and how much more room we see to expand there. From a, when we look ahead, we expect a significant approval each year for the next several years. And these long-acting components of our OA pain are significant approvals, and we expect them to incrementally grow the market for us as we think about the 27 million, total in the U.S. alone. By the way, significantly more when you think about globally, in terms of that, right? These are monthly injections, roughly, right? Mm-hmm. If you consider what it takes, even the most diligent pet owner to actually go out to the clinic month after month. Then when you think about moderate to mild cases where there could be for years. Yeah. That clearly shows an opportunity here. Yeah. We see that the pet owner is telling us they want more convenience, and that through that convenience, we'll see better compliance. We see that in terms of the last several years, significantly faster growth in alternative channels that includes retail and home delivery. It is the same sort of concept here. We do believe we'll see substantial incremental growth from the long-acting, although we believe the monthly injections will continue to have a market. Mm-hmm. For various reasons as we look ahead. We are very excited about being able to drive months on therapy and compliance through this, convenience, for pet owners as the products get approved. I'm not giving any more specificity around the timing of when those approvals will take place nor the launch of those, but we do expect a significant approval in a major market. Mm-hmm. over the next several years each year. Understood. Maybe just a quick question on the competitive side of things. I mean, I've been looking at this company and following the company now for 10 years as an investor and as a sell-side analyst. Clearly what I've seen is that you have like a five- to seven-year lead in terms of innovation or sometimes even more, over your closest competitors. With the current information that you have in sight, you have, when do you expect some competitor activity into this space? Obviously, it's a very profitable space, but they're monoclonal. Right. Look, we go into each area expecting the competition to come. I think it's. Sure. A healthy level of, sort of, you know, competitive anxiety that you want to have. I think what's behind our success over the years in terms of innovation, it starts with something I mentioned briefly earlier, which is our requisite knowledge of the biology of the animal we believe is. Mm-hmm. Superior, in this space. Studying and understanding how diseases progress over time is part of that. When we go after an area of unmet need, we start out first understanding that there is a market, and we have a profile of a product we want to be able to launch that will be safe and efficacious. We want to set the bar at a level leveraging that knowledge that we have, leveraging our capabilities that is going to be meaningful in terms of setting a new treatment paradigm and new standard of care that even if and when competition comes, I'm not saying it's impossible to sort of. Mm-hmm. Beat that profile, but it is our goal to put something that, first of all, for the customer and for the impact on the pets and on the animal alone, we want to make sure that it's meaningful. That same objective drives a product that becomes that much harder to beat, right? Again, I'm not saying it's impossible. You could have someone leapfrog us, but our aim is to make something that is that impactful, that is more, that is, that effective. Then when a new competition comes, if it's a me-too that is not meaningfully differentiated, you don't see switching happen in this space. Mm-hmm. It continues to drive our confidence that these markets remain long, long, long runways to grow and expansion opportunities. When others come into the space, which I know is a little bit, maybe unusual when you think about the context of human health. Sure. That is far more mature than our space, which is very young, is that when a new product launches, these are not mature spaces where it replaces the existing product. It actually helps to expand more because you have so many more animals that are not treated that they actually put more dollars behind educating pet owners, educating vets, and bringing more of those into the fold so everyone gets an opportunity to grow. Because we've been in it longer, it gives us an opportunity to grow even faster than them and benefit from that. That is our overall premise that we look at. OA pain is no different. We would expect some competition to come at some point in that space. For Derm, we've been expecting competition for a very long time. In fact, we're expecting new approvals in Derm, competitive approvals and launches. As we look ahead, we factor those into our thinking in terms of scenarios for 2025 to make sure that we lay those out and what we set expectations with investors for the year. We've been expecting competition for quite some time in that space. Mm-hmm. I think, I know this is a relatively long answer already, but I'll just add one more in terms of parasiticides. If you look at what happened in the last, you know, year and a half, we had the very formidable competitor launch a competitive product against our triple combination Trio. Through the first year, we grew the product 25% and expanded our market share. I do think our ability, given the expansion opportunities and having very satisfied customers on these products, is a really important proof point to look at. Got it. Great. I think the entry of competitive products into each of your space, be it parasiticides, Derm, or, has been an overhang or key discussion topic over the last one, one and a half years. You commented also upon another competitor product coming in, in Derm. Maybe it's a good segue to discuss that. Merck, of course, announced that they are working on a next-generation product in Derm. How are you thinking about when this product could come in? The second part of this question is, of course, Elanco has launched Zenrelia. What are you seeing in terms of initial activities in the field? What kind of feedback are you getting around it? Any change in your strategy at all on the Derm side? Sure. Maybe we'll start the last couple of years. You mentioned, right? And I, and I vividly recall, our launching our guidance in February of 2023. Mm-hmm. The emphasis on competition in parasiticides against Trio specifically. Fast forward, that competition has come. As I said, we've grown and expanded our market share during that time. I think one thing that we want to make sure that is appreciated is these markets are not mature markets. Yeah. They remain significant more runway to expand as a market leader, particularly when you think about Derm, where we have three products. One has been around for more than a decade with satisfaction levels that are 90%+ both on safety and efficacy, and having an mAb injectable, as well as Apoquel and Apoquel Chewable. I think the number of products that are set to meet the needs of our customers here are vast, and our satisfaction levels are very high. We are very confident in our ability to continue to grow in that space as well. I do think that expectation going back two years ago, we have clearly demonstrated an ability to grow through that competition and that there's more room to grow. I do believe that the emphasis on it and what it means for our business is something that may be a little bit underappreciated is that we expect to continue to grow through those. Now, with respect to Derm specifically, you asked, as I mentioned, we are expecting a competitive approval and launch here. We factor those into our plan. There is no specificity in terms of the timing of that. We have baked those into the back half of our year, but we will continue to monitor. Lastly, until we see the actual label, it is hard to get super tactical on exactly what the levers are. Though, as I said, we are very confident given the slate that we have around these products, the fact that we do not see switching unless there is meaningful differentiation and we are not expecting meaningful differentiation. Mm-hmm. Here, and the fact that we have three different products to go after this and more room to expand. Got it. I have a few questions on parasiticides and pipeline, but I'm going to jump ahead to the pipeline side of things because two years ago we discussed renal, oncology, and cardiovascular as newer areas that you're focusing on and you'll get products out into. I haven't seen much on the launch side there, but I would love to dig into each of these therapeutic segments, think about what is the market opportunity for you and the potential timeline around each of these segments. Sure. Look, we have recently updated expectations around these very exciting areas that are open-ended, large markets that we're going after. We provided as much clarity as we're going to in terms of the potential timing of these approvals in major markets and remain very excited. We also increased significantly in two of the areas the size of what we believe those markets are. Sure. For example, on the renal side, back in 2023, we had that market around $1 billion. We've increased it to between $3 billion-$4 billion. Part of the reason for that is what I said earlier, which is when we go out to endeavor to find a solution for an unmet need, we have a profile in mind that we want to have that is going to be the efficacy and safety profile of those. As we work through those products, we get closer and closer to what that profile will look like. We have market studies with customers, veterinarians, and pet owners around their willingness to pay for that profile, and it gives us better sizing on what that market will look like and what they're willing to pay for it. Therefore, what is the treatment levels as well. In addition to that, we are seeing advances in diagnostics, in these various areas, particularly in oncology, but also in renal. That means you will have that sort of cycle of more diagnosis drive more treatment and a better therapy also drive more diagnostics. We believe those components have led to a substantial increase in the size of that market. We also increased the size on oncology for similar reasons, although not as significant a jump from what we said in 2023 to what we're saying now. The cardio area is a little bit further out, and it's about the same that we sized it back in 2023. Nonetheless, across the board, we are very excited, and we provided more clarity around what is expected in the next 12 months, what's in the 12 months- 36 months, and then what is beyond that in terms of the different categories of things that we are going after in our pipeline. We're very excited about those. Got it. With me, with a few minutes left, I do want to touch upon the macro side of things. Obviously, I think we can probably set effects aside, but everything around the tariffs and what it means to businesses which have major export revenues, and what are the other major broad macro factors that's going to impact you or potentially could impact you this year. Sure. Like every other major global company, and we have a global supply chain, we continue to monitor those developments, which tend to change quite, quite rapidly, as well and what they mean for our business. A couple of things I will remind everyone of with respect to animal health. Number one, this is an incredibly resilient business industry. It has proven so through various economic cycles in the past. If you go back to 2008, 2009, this is an industry that grew when others did not. Since then, arguably even more resilient is what I would say. We've gone from two-thirds of our business being in livestock, which is essential, obviously, to two-thirds being a companion animal. And the pet owner, not just in the U.S. Western Europe, but across the world, has elevated significantly the value of that pet and what it means to them and being a member of their family and their willingness to spend on that pet. We've seen that play out. In fact, the last three years, every year we've gone into a little bit less so in 2024, I would say, but in 2022 and in 2023, for sure, we walked into those years with the same question, which was, what happens in a tight economy where the consumer is under pressure? Because inflation was going up, in 2022 and in 2023, and we were seeing that, same questions were coming up. You've seen what happened during that time. We have also not only market studies, but we've seen it in our actuals, right? We did a market study where we asked pet owners, what would happen if you had a 20% reduction in your budget? What would that mean in terms of your spend on pet health? Mm-hmm. Not only, first of all, the answer was nothing. Interestingly, the cat owners would spend slightly more. I think it was like 0.3%. Yeah. The reason that happened is because we actually asked them to show where they would cut back. Mm-hmm. In giving us that answer. Not only is it that they would not reduce what they're spending on pet health, but they showed what areas they would reduce from to make up for that 20%. We've seen that play out in our numbers over the last two or three years as well. We are very confident in terms of the resilience of the industry. Zoetis, our position in the market, our innovation, our portfolio, the breadth of those and continuing opportunities we see, gives us an opportunity to grow faster than the industries you've seen us do time and time again. I can't 100% predict. Mm-hmm. where the macro is going, where tariffs are going to go. I like our position relative to the rest of our industry and other industries. Got it. Maybe a quick final question around the margin side of things. I mean, clearly, MFA divestiture changes the margin profile for the company. Expand on that. As we think about margin improvement for 2025 and longer term, what are the pushes and pulls there? We have consistently driven margin expansion in the business. The pushes and pulls, if you think about the mixed shift, is continuing to grow faster, companion animal. I talked about the existing franchises in new areas. We do have innovation on the livestock side as well. I do not want to make it seem that it is the only place. However, we continue to be in position to drive faster growth in companion animal, which has a higher margin profile. That mixed shift will benefit us. We continue to see opportunity to take price, still above the historical 2%-3% as we go into 2025, but below where we did in 2024. That tends to drive towards that as well. FX is always a consideration. The dollar and the strength of the dollar has proven to be, sort of a headwind when you think about margins, not from an operational perspective, but from a reported standpoint. I would just point at that. There's a little bit increase in manufacturing costs and so on. That offsets some of it. Generally, we've added and expanded margins as well. The MFA divestiture also helps to expand margins as that was the alluded to our overall margin profile. Got it. Wetteny, thank you so much for your comments and feedback. Always great to have you at the conference, and I do wish you a very productive conference. Thank you, Balaji. Thanks. Thanks for joining us. Yeah. Yeah. Great.