New York Community Bancorp Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
November 3, 2021

There are 14 speakers on the call.

Operator

Welcome to

Speaker 1

the Q3 2021 Financial Results Conference Call and Webcast for Zoetis. Hosting the call today is Steve Frank, Vice President of Investor Relations for Zoetis. The presentation materials and additional financial tables are currently posted on the Investor Relations section of zoetis.com. The presentation slides can be managed by you, the viewer, It will not be forwarded automatically. In addition, a replay of this call will be available approximately 2 hours after the conclusion of this call via dial in or on the Investor Relations section of zoetis.com.

Speaker 1

At this time, all participants have been placed in a listen only mode and the floor will be open for your questions following the presentation. On your touchtone phone. In the interest of time, we ask that you limit yourself to one question and then queue up again with any follow ups. Your line will be muted when you complete your question. It

Speaker 2

is

Speaker 1

It is now my pleasure to turn the floor over to Steve Frank. Steve, you may begin.

Speaker 3

Thank you, operator. Good morning, everyone, and welcome to the Zoetis 3rd quarter 2021 earnings call. I am joined today by Kristin Peck, our Chief Executive Officer and Whitney Joseph, our Chief Financial Officer. Before we begin, I'll remind you that slides presented on this call are available on the Investor Relations section of our website and that our remarks today will include forward looking statements And that actual results could differ materially from those projections. For a list and description of certain factors that could cause results to differ, I refer you to the forward looking statement in today's press release and our SEC filings, including but not limited to our annual report on Form 10 ks and our reports on Form 10 Q.

Speaker 3

Our remarks today will also include references to certain financial measures, Which were not prepared in accordance with generally accepted accounting principles or U. S. GAAP. A reconciliation of these non GAAP financial measures To the most directly comparable U. S.

Speaker 3

GAAP measures is included in the financial tables that accompany our earnings press release and and the company's 8 ks filing dated today, Thursday, November 4, 2021. We also cite operational results, which excludes the impact of foreign exchange. With that, I will turn the call over to Kristin.

Speaker 2

Thank you, Steve, And welcome everyone to our Q3 earnings call. We delivered strong results again this quarter with 10% operational growth in both revenue And adjusted net income, driven by our innovative portfolio of pet care parasiticides and dermatology products. Our U. S. Business grew revenue 7% operationally, while international grew revenue 14% operationally.

Speaker 2

In terms of species, our companion animal portfolio generated 19% operational revenue growth in the quarter, with great performance in markets around the world. Our latest innovation in parasiticides, the triple combination Simparica Trio, is increasing its global adoption. Our groundbreaking dermatology products, Apoquel and Cytopoint, continue to redefine and expand the category, And we completed the 1st full quarter of sales for both of our new monoclonal antibody therapies for osteoarthritis pain in dogs and cats, Librela and Valencia. These new products are exceeding expectations and receiving very positive feedback from veterinarians and pet owners in European markets where they've been launched. When you add all of this to our growth in diagnostics for companion animals, I see our business continuing to capitalize on the positive demographics for pets.

Speaker 2

Increased spending on pet wellness and treatment will be sustainable well beyond the pandemic, and our portfolio and pipeline have us well positioned to Continue leading and innovating in this market. Livestock product sales continue to present a more complex picture for the industry and Zoetis, With market dynamics varying widely by species and geographies. As we expected, our livestock portfolio declined 2% operationally in the Q3, largely due to generic competition across cattle, poultry and swine, and most significantly in the U. S. We have taken proactive strategies to protect these product lines, including the introduction of a life cycle innovation Like Drax and KP, but pricing pressure remains due to the increasing effects of generic competition.

Speaker 2

On the positive side, We saw 7% operational growth for Livestock in international as markets like Brazil, Chile and other emerging markets performed well. Our long term advantage in livestock continues to be our diverse portfolio and strength across geographies and product categories Like medicines, vaccines and medicated feed additives. We also continue to invest in R and D programs that align with our customers' long term needs for more efficient and sustainable production methods, which can be built on new therapies, analytics and digital solutions. We remain on track for a record setting year with updated guidance for operational revenue growth in the range of 14% to 14.5% And adjusted net income growth in the range of 16.5% to 18% for 2021. Our major catalysts for growth have performed well this year and have more runway ahead for 2022 and beyond.

Speaker 2

And we'll do we make the right investments and continue successfully executing our growth strategies. Our strength in pet care has an incredibly strong foundation across Through the 1st 9 months of 2021, our container animal portfolio has grown 29% operationally. We also remain very excited about the long term blockbuster potential of our new monoclonal antibody franchises in pain, Labrela and Valencia as they grow in Europe and we make progress on approvals in the U. S. We currently expect approval of Valencia in the U.

Speaker 2

S. In the first half of twenty twenty two, with Barela remaining more likely in the second half. Our revenue growth in international markets has been 20% operationally through the 1st 9 months, driven by China, Brazil and other emerging markets. We continue to expect growth to come across both our companion animal and livestock portfolios in these markets. Finally, our diagnostics portfolio remains a key catalyst for growth with 28% operational growth through the 1st 9 months.

Speaker 2

We are gaining significant traction with our expansion of the point of care portfolio in markets outside the U. S. We always believed international expansion was one of the biggest value drivers for the Abaxis acquisition once we combine that portfolio with the global Zoetis footprint. The acceleration of international growth for diagnostics is a very positive sign and continues gaining momentum. We also recently added digital psychology testing to our Vetscan images platform in the U.

Speaker 2

S, U. K, Canada, Australia and New Zealand. This means we can now offer a network of expert remote pathologists in addition to artificial intelligence technology for sequel testing. We are seeing our strongest early adoption of Vetscan images in Germany, Australia, Spain and the UK, and we will continue developing additional applications for the platform In addition to our ongoing investments in R and D programs and direct to consumer campaigns, we are investing in manufacturing capacity To meet increasing demand for our new parasiticide products and monoclonal antibody therapies. Expansions are underway at our sites in Kalamazoo, Michigan Lincoln, Nebraska and Telmore, Ireland.

Speaker 2

All of these are significant multiyear projects to ensure we have ongoing reliable supply While maintaining a diverse global network of 3rd party contract manufacturers that give us the greatest flexibility and redundancy. Our supply chain team has done an excellent job over the last 2 years to optimize inventory levels of key products, While minimizing the impact of a challenging global supply landscape, we continue to carefully monitor and manage our supply chain and inventories. And finally, Before I hand things off to Whitney, I wanted to note our recent news about changes in our R and D leadership team. Long time R and D leader, Kathy Knupp will be retiring at the end of the year and ensuring a smooth transition through February. I am very grateful to Kathy for building the most innovative and productive R and D organization in the animal health industry and for leading us with a rich pipeline of future innovations and R and D talent, which includes her successor, Rob Holzer.

Speaker 2

Rob has been with Zoetis since 2015, working on many of the innovations that have come to market recently in parasitocytes in monoclonal antibodies. He has experience running our global therapeutics and biologics R and D organization and is the right leader for the future of innovation at Zoetis. In closing, I want to thank our colleagues for delivering another great quarter and bringing the value of Zoetis to our customers every day. We are confident in the updated guidance we have provided and see the fundamental growth drivers of our business continuing into 2022 beyond. Now let me hand things over to Whitney.

Operator

Thank you, Kristen, and good morning, everyone. The focus of my comments today will be on our Q3 financial results, the contributing factors that drove our performance and an update of our improved full year 2021 guidance. In In the Q3, we generated revenue of $2,000,000,000 growing 11% on a reported basis and 10% operationally. Adjusted net income of $597,000,000 was an increase of 14% on a reported basis and 10% operationally. Operational revenue grew 10% with 2% from price and 8% from volume.

Operator

Volume growth is comprised of 5% from new products, including and 3% from our in line portfolio, primarily our key dermatology franchise. Now let's dive further into the details of the quarter. Companion animal products again led the way in terms of species growth, growing 19% operationally, with livestock declining 2% operationally in the quarter. Our parasiticide portfolio made the largest contribution to companion animal growth, driven by sales of Simparica Trio and Continued strength across our broader portfolio, including the Pro Heart franchise, Simparica and Revolution Stronghold Plus. We also saw robust growth in our key dermatology products, Apoquel and Tytopoint.

Operator

SIPERA Catrillo had another exceptional quarter, hosting revenue of $122,000,000 representing operational growth of 140% versus the comparable 2020 period With year to date sales of $350,000,000 we believe the global fleet thick and hardware market will continue to expand And that our broad and innovative portfolio, which grew 32% operationally in the quarter, has us well positioned to capture share and outpace our competitors. Global sales of our key dermatology products were $321,000,000 in the quarter, growing 26% operationally. Total sales exceeded $300,000,000 for the first time in company history, and we remain ahead of schedule to surpass $1,000,000,000 in dermatology sales for the year. Our diagnostics portfolio had operational sales growth of 7% in Q3 against a very challenging comparative period as The Q3 of 2020 had a sharp increase in wellness visits following wide scale clinic closures in the Q2. Our international diagnostics portfolio performed very well, which as Kristen mentioned, was a key component for the strategic rationale of the Abaxis acquisition.

Operator

Diagnostics remains the key growth driver for Zoetis, and we will continue to make significant investments in new technology, expand our reference lab footprint as well as provide flexible solutions to our customers. Our equine products delivered strong results with operational sales growth of 20% in the quarter as horse shows and racing returned to pre pandemic levels and field growth in vaccines as well as nutritional and pain products. The expected decline in livestock in the quarter was primarily driven by our U. S. Cattle and U.

Operator

S. Poultry businesses as our international segment delivered operational growth across all species. Globally, our cattle business declined 5% operationally in the quarter, driven by the impact of generic competition for Jackson And a difficult comparative quarter resulting from COVID-nineteen dynamics and an earlier fall cattle run-in the U. S. In the Q3 of 2020.

Operator

Poultry also declined in the quarter as producers in the U. S. Rotated to lower cost alternatives to our premium products as a result of current market dynamics. Sales were also negatively impacted by generic competition for Zolomix and BMD, our alternatives to antibiotics and medicated feed additives. The decline in cattle and poultry offset the growth in fish.

Operator

Swine was essentially flat in the quarter As decline in the U. S, primarily from pricing pressure on our anti infective and vaccine portfolio as a result of generic competition, offset the growth internationally from further key account expansion. Overall, we delivered another strong quarter, benchmarked against a very difficult prior year comparative period on both the companion animal and livestock size of our business. Now let's discuss the revenue growth by segment for the quarter. U.

Operator

S. Quarterly revenue exceeded $1,000,000,000 for the 2nd consecutive quarter with revenue growth of 7%. Sales of companion animal products grew 17% and livestock product sales declined by 13%. For Companion Animal, pet care trends continue to be robust. Pet clinic revenue and patient visits grew again this quarter against growth rates from the Q3 of last year, which were well above historical levels.

Operator

Our view remains unchanged that certain trends will moderate, but we remain above pre pandemic levels. Growth in U. S. Companion animal was led by our Silithide's portfolio and our key dermatology products. SIBERICO TRIO continues to perform well with U.

Operator

S. Sales of $110,000,000 and year to date sales north of $300,000,000 This quarter is also an excellent representation of our commitment to invest in the broader prior suicide portfolio as we launched the targeted DTC campaign for poor heart and prevalent heartworm geographies. Key dermatology Sales were $217,000,000 in the U. S. For the quarter, growing 20% with significant growth for Apoquel and Cytopoint.

Operator

US Diagnostics sales grew 2% in the quarter, which as I mentioned earlier, had a very difficult comparative period. However, year to date performance has been strong at 23% growth. U. S. Livestock sales declined 13% in the quarter.

Operator

Our U. S. Cattle business faced a comparative period that saw robust growth as 3rd quarter performance of 2020 benefited from the early fall cattle run and pent up demand work its way through the system. In addition, generic competition has not entered the market in the Q3 of 2020. Our generic defense strategy has been successful As we have been able to maintain a greater volume share of the thalithromycin market than originally expected, although additional generics will likely enter the market in the coming quarters.

Operator

From an end market perspective, producer profitability remains challenged by input costs, primarily feed and labor. U. S. Poultry sales declined in the quarter as smaller flocks resulted in lower disease pressure, allowing producers to expand usage of lower cost alternatives to a highly efficacious premium products. In addition, generic competition is creating pricing pressure on our soda mix and BNP franchises.

Operator

To summarize, our U. S. Operations delivered another strong quarter, driven by our innovative and robust companion animal products, Along with pet care end markets displaying very strong fundamentals. The near term weakness in our U. S.

Operator

Livestock business has been expected and has been more than offset by the strength in companion animal, which demonstrates the importance of diversification across species. Now turning to our international segment. Revenue of our international segment grew 14% operational in the quarter with With companion animal revenue growing 24% and livestock revenue growing 7% operationally. In In the second half of twenty twenty, we saw a material uptick in medicalization rates and standard of care by pet owners, a trend which has continued through the Q3 of this year. We in turn made significant investments in advertising promotion to capitalize on favorable market conditions and drive growth.

Operator

Companion Animal achieved broad based growth internationally in the quarter, led by strong performance of our key dermatology products. Through 3 quarters of 2021, year to date sales are in excess of total sales from the entire prior year. In addition, We are in the early stages of a DTC campaign for key dermatology, which we expect will create additional demand for our products. Parasiticides had a strong quarter internationally, led by significant growth in the Simparica franchise, which benefited from DTC campaigns and joint growth in Brazil, Eastern Europe and Latin America. Librela, a monoclonal antibody for alleviation of oraping in dogs has done extremely well, generating $15,000,000 in quarterly sales in a select number of markets.

Operator

Feedback from veterinarians and pet owners on the quality of life improvement for the patients has been extremely encouraging. Our feline monoclonal antibody for alleviation of oirapain, So, let's see. The positive feedback from the early experience programs in Q2 and launched in the EU this quarter. OIPA new cast There's a significant unmet need in animal health, and our view is that Solencia will become a blockbuster product with the paying market for cats becoming approximately a $200,000,000 global category over time. Our international diagnostics portfolio grew 20% operationally in the quarter with significant growth in consumable and instrument revenue and strong growth across a number of geographies such as the UK, Australia, China and various other markets.

Operator

Moving on to livestock. Our international business Quarter was driven by further key account penetration and favorable export market conditions in Brazil and several other emerging markets. Our fish portfolio continues to perform very well, growing 21% operationally. Growth in our fish portfolio Was primarily the result of increased sales of our AlphaFlux fulyze treatment product as well as strong growth in vaccines. Performance in swine and poultry were also fueled by growth in key accounts as well as overall market growth, primarily in emerging markets.

Operator

At a market level view for our international segment, all major markets grew operationally in the Q3 with the exception of France, which was essentially flat in Q3. Emerging markets was again a key contributor to our international performance led by Brazil, which We're 22% on an operational basis. As we expected, growth in China slowed in the 3rd quarter as lower pork prices challenged producer profitability. However, the companion animal business in China, which grew double digits once again, offset the weakness in swine. Overall, total emerging markets has grown significantly in both the quarter and on a year to date basis.

Operator

Our international segment again delivered strong results With robust growth in companion animal and growth across all species and livestock. On a year to date basis, our international segment has grown 20% operationally with our companion animal and livestock businesses each growing double digits. While falling pork prices China are creating a headwind that is moderating growth in swine. It is more than offset by the growth across other species and markets, further demonstrating the importance of our diversity across species and geography. Now moving on to the rest of the P and L.

Operator

Adjusted gross margin of 70.7 percent increased 110 basis points on a reported basis compared to the prior year As favorable product mix for an exchange, low inventory charges and price were partially offset by higher manufacturing costs, freight and distribution costs. Adjusted operating expenses increased 19% operationally, with SG and A expenses growing 20% operationally, Resulting from increased compensation related costs as well as increased advertising and promotion expense, freight and T and E. R and D expenses grew 17% operationally, driven by higher project spend. The adjusted effective tax rate for the quarter was 16.7%, A decrease of 3.30 basis points due to favorable changes to the jurisdictional mix of earnings, including increased favorability related to foreign derived intangible income and an increase in favorable discrete items compared to the prior year's comparable 3rd quarter. Adjusted net income and adjusted diluted EPS grew 10% operationally for the quarter, primarily driven by revenue growth, Gross margin expansion and a lower effective tax rate.

Operator

Our liquidity position remains very healthy Ending the Q3 with $3,300,000,000 in cash and cash equivalents following a $600,000,000 repayment of long term debt in August. Our financial flexibility is in a very strong position, which allows us to make meaningful investments in our business while returning excess cash to shareholders as demonstrated by our repurchase of Zoetis shares of approximately $200,000,000 in the quarter. Now moving on to our updated guidance for 2021, which we are raising and narrowing as a result of our performance in the 3rd quarter and confidence in our ability to deliver sustainable future growth. Please note that our guidance Reflects point exchange rates as of mid October. For revenue, we are raising and narrowing our guidance range, With projected revenue now between $7,700,000,000 $7,750,000,000 and operational revenue growth between 14% 14.5% for the full year versus the 12.5% to 13.5% in our August guidance.

Operator

Adjusted SG and A expense for the year are expected to be between $1,910,000,000 $1,940,000,000 versus 1.87 $1,910,000,000 in our prior guidance. The guidance rate largely represents additional competition related costs as well as increased advertising and promotion spend to support growth of new products in key franchises. Adjusted net income is now expected to be in the range of 2.2 and $2,225,000,000 representing operational growth of 16.5% to 18% compared to our prior guidance of 13% to 15%. Adjusted diluted EPS is now expected to be in the range of $4.62 to 4 point $0.07 and reported diluted EPS to be in the range of $4.23 to $4.29 Now to summarize before we move to Q and A. Through the 3 quarters, We've delivered strong operational top and bottom line growth with revenue growing 17% operationally and again raised and narrowed our full year 2021 guidance.

Operator

We have achieved significant growth across our key franchises and are extremely excited about our new product launches and product pipeline. Now I'll hand things over to our operator to open the line for your questions. Operator?

Speaker 1

Again, at the interest of time, we ask that you limit yourself to one question and re queue again with any follow ups. Your line will be muted when you complete your question.

Speaker 4

For taking the question, guys, and congrats on a strong quarter and raise the guide. I want to start on Draxin real quick. You touched on generic impact in U. S. Livestock a number times in your remarks.

Speaker 4

We assume that's predominantly from Draxen. Can you give us an update if you're seeing any stabilization there? Or are you expecting further headwinds in 4Q 'twenty two for 4Q for 2022. Or do you think those trends improve and stabilize from here?

Operator

Yes. Thank you. We were very pleased to deliver another strong quarter and in position to raise our guidance once again for the year. With With respect to Jackson, as expected, we continue to see the effects of the LOE

Speaker 2

and Jackson was down about $15,000,000

Operator

in the quarter. And was down about $15,000,000 in the quarter. Now our defense strategy here is working well, and we are largely maintaining Our market share, although that does have the effect on price, so we're very pleased with how the product is performing as well as Jackson KP In terms of maintaining largely the market share from a volume perspective here. As we look forward, we are expecting further For their generic competitors to come into this space from Jackson perspective and that we believe will continue Into next year as well.

Speaker 2

And the only thing I would add there is, as we said, this is completely in line with our expectations, not just that we gave this year, but that we've Talking about when the generic enters, we generally said it takes somewhere between 20% to 40% over a number of years. We said, at the beginning of this year That would likely be a little faster and we are on track to be doing that. We expect probably somewhere around a 20% Head on price for us on this product in the year. So in line with the expectations, Mike.

Speaker 1

Thank you. We'll take our next question from Louise Chen with Cantor. Please go ahead.

Speaker 5

Hi, thanks for taking my question here. So as we start to think about 2022, what are some of the pushes and pulls here? For example, will recovery from food services and restaurants This will be a tailwind in 2022 for livestock and what else should we be thinking about? Thank you.

Speaker 2

Thanks Louise. We are really Besides, our strength in derm, I mean, that will be $1,000,000,000 this year growing at 26% in the quarter. Diagnostics, again, year to date, 28%, we think continues into next year. Really strong performance in our emerging markets, China, Brazil and other emerging, which I think will continue into next year, not to mention our pain monoclonal antibodies. So I think we have a lot of the growth drivers this year that we think will continue into next year.

Speaker 2

I mean, obviously, things we're going to watch for next year that could be headwinds for us, Could be the timing of competition for a potential product against Apoquel or Simparica Trio. As Whitney mentioned in his remarks, we're not really expecting that until the second half of twenty twenty two. Again, we don't have great visibility into that. Obviously, we think livestock, once we lap some of this drafts and impact, That will lessen as a real headwind for us. But overall, we really think the durable growth drivers you saw this year really continue Next year and we're pretty confident about that.

Speaker 1

And we'll take our next question from Nathan Rich with Goldman Sachs. Please go ahead.

Speaker 6

Thanks so much. If I can maybe follow-up on the revenue outlook, Whitney for 4Q. I I think historically, 4Q has been a bit of a stronger quarter. You mentioned the competition on Draxin. Is there any other dynamic That we should have in mind in terms of the revenue cadence for the Q4.

Speaker 6

And I guess with the focus on inflation and cost pressures in the market, Do you feel like you've seen any pre buying of products or stocking up from customers in either the LiveLock or companion business? Thank you.

Operator

Yes, sure. Look, we continue to see really strong underlying market dynamics overall, and our portfolio is really well positioned and continues to perform very well Against those dynamics, as we discussed on the prior earnings call, what we're seeing in terms of growth rates in the second This year is more a reflection of how the phasing occurred last year versus this year, given our position in the market. Again, the strong market dynamics that we continue to face. But the phase here, if you look at last year, the second half had almost 17% more revenue in the back half than the first half of last And so that's really what's driving the comp here because of the phasing of last year where this year is a little bit more normalized. As Kristin just referenced, We see a number of growth drivers for us, not only from the overall market, but also our portfolio across Perazderm as we look at pain diagnostics as well with the one area the areas that we're watching, including Jackson.

Operator

To your point around inflation, Given our portfolio and the innovative products that we have and demand we see for those products, they position us well to take price. And you saw a 2% price In the quarter, including 10% operational growth, and we'll continue to look at opportunities to continue to do As we go into next year, you saw in the quarter our gross margins actually expanded by 110 basis points versus last year Q3. And so and that despite some headwinds in the area of the freight, etcetera. So we'll continue to monitor those and take price where And

Speaker 2

And our

Speaker 1

next question is from Jon Block with Stifel. Please go ahead.

Speaker 7

Great. Thanks, guys. Good morning. See if I can slip in a couple. The first on Livestock and Quite honestly was pleasantly surprised by the international livestock up 7% operationally.

Speaker 7

There's just a lot of noise out there with other companies and Swine chatter. So I guess the first question is, was that a clean number, no pull forwards? And maybe Talk to this market overall, do you still view it as a low single digit grower for you this year with eventual improvement to mid single digit and call it 22twotwenty 3? And then just to pivot, Christian remind me, I know we're not going to get a 'twenty two guide, but maybe conceptually at a high level, How do we think of 2022 in terms of a year where the delta how do we think about the delta between revenue And EPS growth. And I guess where I'm going with this is a lot of innovation for you where you're still dominating the market.

Speaker 7

So conceptually, do we just think about it as another year of Spending supporting the portfolio DTC where the delta between those two revenues, revs and EPS might be a little bit tighter in prior years. I'm sorry for the long winded questions. Thanks.

Speaker 2

Sure. I'll take the first part of the question, and I will let Whitney take the second half, John. Livestock is a complex picture. So I think your insight is quite well founded in the sense of not just the difference between U. S.

Speaker 2

And international, But the difference between the species. So as you rightly mentioned, the U. S. Was down significantly in livestock and that's pretty much generic competition against And some other products that we've mentioned before. But to your point, international was up 7%.

Speaker 2

And that was still with a really rough time in China, as you saw in the quarter, with China livestock down about 10%, but more than made up for by China's companion animal. And really, it has to do with the mix Between species that are growing quite quickly for us like fish, cattle and poultry may be struggling, but you look at strong growth in emerging markets, which is What's really booing livestock. As we've said in previous quarters, how U. S. Livestock goes does not mean how overall livestock goes.

Speaker 2

So I think we Really, the diversity of our portfolio across species, across geographies continues to really be one of the strengths for us at least. And we do think overall, You'll see a flat to low single digit growth overall across the company for us in livestock. That may be a little bit slower than the market, as Because of, Draxen and some of the key LOEs that we have. And ultimately, once we lap some of those LOEs, we think you do go back You know, in 'twenty three, 'twenty four, to a mid single digit, exactly where we've always been. So, you know, the historic growth of livestock is around 4%.

Speaker 2

And As we said, we think it actually returns there. And what's the reason to believe? Well, if we're growing international in the quarter at 7% And really, the U. S. Is mostly getting hit by the generics.

Speaker 2

Once we lap those, we do believe you can get back to a livestock growth in the sort of mid single digits the way it historically has been. But I'll let Whitney take your second

Operator

Yes. As we discussed just before here, we're well positioned going out of this year into next year to continue to sustain growth beyond this year. In terms of how you might see things flow through the P and L, our Our long term value proposition is to grow adjusted net income faster than revenue. We don't see any reason to depart from that. However, given the Our position across a number of really key brands and the demand that we see, we'll take the opportunity to invest behind those brands to drive DTC and other awareness campaigns, etcetera.

Operator

We also are investing in R and D as well as diagnostics and other areas that we believe will help us accelerate and enhance growth going forward. So that may at times Cause that difference to be a little bit tighter, as you said, from time to time, but it's to drive that growth, that enhanced level of growth that we see Given the opportunities that we see in the market.

Speaker 1

Thank you. We'll take our next question from Erin Wright with Morgan Stanley. Please go ahead.

Speaker 8

Great. Thanks. Can you provide us any metrics on the contributions from Librella and Valencia in the quarter? Or any metrics It's around reorder rates of the products in certain markets and how the launch is progressing relative to your expectations At this point in the expected timeline again for the U. S.

Speaker 8

Launch. And then, second, just more broadly on companion animal trends. Any monthly metrics You can give us over the course of the quarter and kind of what's expected for the Q4 and beyond in terms of kind of the underlying demand trends across that

Operator

We continue to be very pleased with the performance of Libella and SOLENZIA in the European markets Where we've launched the product, the feedback has been very, very strong from vet and pet owners as well. We saw $15,000,000 of revenue from Libriella in the quarter and about $2,000,000 from Silencia. Again, really the 1st full quarter of those products being in those select markets for us. In terms of where we're expecting approval for next year, we continue to expect approval for Libriella, As Kristin mentioned, in the first half of the year, I'm sorry, so let's say

Speaker 2

in the first

Speaker 8

half, sorry, go ahead. No way.

Operator

So let's say in the first half was available more likely in the second half of the year in the U. S.

Speaker 2

And I'll take the second half of your question, Erin, with regards to U. S. Companion animal trends. We don't have the monthly data, but just putting some of this in context, we believe that as we look at the data overall right now, We're seeing overall vet clinic revenue growing 7%, which as you know is higher than the historical rate. It's been a little bumpy over the year.

Speaker 2

I mean the weather and lots The different dynamics have been driving it. You saw 8% in Q1, 14% in Q2. We're seeing 7%. The way we sort of see this is we think it overall will be higher than historical norms. I mean, is it the double digit that you saw consistently in 2020?

Speaker 2

No, but I don't think We saw a very weak as you saw in Q1 and there's a huge bounce back in the second half as we saw last year. We do think that vet Revenue at vet clinics will continue to grow above historical rates. We're not really sure, as I said last quarter, that we think that's going to be double digit. But historically, group 5 to 6, is it going to be 7 to 8? I think our view is it will still be stronger than normal, but maybe not in the double digits overall, but I mean, it's still seeing strength.

Speaker 2

If you any one of you who's been trying to get an appointment for your dog or your cat as a vet, It's pretty challenging to get one, so mostly because the demand really does remain high there.

Speaker 1

And our next question comes from Chris Schott with JPMorgan. Please go ahead.

Speaker 9

Great. Thanks so much for the questions. Just Mike, just on the derm portfolio, you've built $1,000,000,000 franchise here. But I was thinking about competition coming in 2022 or beyond. What are you anticipating in terms of the impact that a competitor launch could have?

Speaker 9

I think historically you've talked about a second entry, More building the market than maybe directly cannibalizing your existing business. But I guess as you've had a longer window of time to develop this, like do we reach a point where That competitive launch, I guess, more impacts your growth versus I guess, but the heart of the question is how much more room is there for market expansion as a new player comes in? Thanks so much.

Speaker 2

Sure. Thanks, Chris. Yes, I mean, our Dura portfolio has continued to grow. And I think what we've really discovered is there's still A large number of untreated animals out there. So if you look at we still believe there are 7,000,000 dogs that are diagnosed With some form of itchiness, they're still not being treated.

Speaker 2

So we do believe there's significant market growth. There's still geographic expansion. We've really invested Heavily in direct to consumer advertising to grow this market. People are home more with their pets. They're spending more time.

Speaker 2

So I think people are really starting to notice this edge. It's bothering them more maybe than it did historically, so they are seeking help. We've also really invested in programs such as, in the U. S, our pet care rewards program, which is making customers loyal to our product. So we have been expecting competition, to be frank.

Speaker 2

We probably thought it would have happened before now. But we think there's lots of rooms to continue to grow this market. And so will it remain at 26% as you saw in the quarter? Our growth might And

Operator

our

Speaker 1

And our next question comes from Balaji Prasad with Barclays. Please go ahead.

Speaker 10

Hi, good morning. Thanks for the questions. Mainly focusing on China, but the approval of CYTOPOINT and as Christine, you often spoken about China as a major market understandably. Can you help us understand the expectations around the market? And any competitive range of prices that you think this market would support?

Speaker 10

And also how far behind would Apoquel be in terms of getting introduced or launched in China? Thank you.

Operator

Yes. I'll I'll start and see what Kristen wants to add here with respect to China. As expected, we saw growth accelerate In China this quarter with about 1% growth in the quarter, but keep in mind, China has actually grown 35% on a year to date basis. We're up against a very solid comparative last year, where we saw 63% growth in the quarter And swine was actually up 159% in the same quarter last year. Again, the pricing dynamics For pork, which we discussed on the last call, started about mid June.

Operator

And so we expected to see sort of decline in the pork area. Now the other part of your question is long term, what are we expecting in the market? We do see continued opportunity to grow substantially in China over time As we bring more and more robotics to the market, but also if you look at what's happened since African swine fever, you see a concentration more in larger Producers versus backyard farms, and we think that will bode well in terms of form metal position over time as well and for our premium products With respect to swine. And then on the companion animal side, we continue to see really robust growth in China. In companion animal, we saw double digit growth this quarter.

Operator

In A companion animal, which obviously was partly offset by swine. So long term, we continue to expect really solid growth in China, which is our 2nd largest market, Driven by the market dynamics that we discussed, although there may be cycles that we'll see in swine as we're going through right now from a pricing standpoint.

Speaker 2

Yes. The only thing that I could add to that is we obviously have launched Apoquel there. It is doing well. It is Growing this is a specialty product in a market that's traditionally been mostly a primary care generalist market. So We are really excited to grow that.

Speaker 2

And I think we have a very strong pipeline of products coming into China, new innovations that we're going to be bringing in, just like we brought in Quality approval right now at Cytopoint, which has not yet launched there. And honestly, lots of products behind that that we're really excited to be So it is our 2nd largest market. We do think it's going to continue to have very strong growth. As Whitney said, with our year to date of 35%, We're really bullish on our ability to continue to grow in China.

Speaker 1

The next question comes from Steve Scala with Cowen. Please go

Operator

ahead. Thank you. I have

Speaker 11

a question on Librela and Silencia in Europe. There are several parts of the question. Are owners Returning monthly for the next injection or is the time between injections longer than that? What is the Bridge patient cost of each injection. And just to clarify, I think you said CELENCIA in cats is a $200,000,000 opportunity.

Speaker 11

Why is that only $200,000,000 Why isn't it multiples of that? Thank you.

Speaker 2

Sure. I can start there. We are really pleased with Lovelin. Yes, we are seeing animals rechart. I don't have the specific number of days That they're coming back.

Speaker 2

We can certainly look into that and see if we can get that data for you. It is priced at a premium To both Rimadyl as well as to Galliprant on the market. So given it has a phenomenal, both safety and efficacy profile, It has been priced at a premium. The price obviously varies from market to market. So I don't think we have that overall information.

Speaker 2

With regard to the second part of your answer on Silencia, cats is a quite different market. So although today the market in dogs is 400 and we believe we can double it, the market actually pretty higher to size in cats. There's very few approved products out there today, to treat cats. So, it's hard to even say what it is. I mean, it's not 0, but it may be tens of 1,000,000.

Speaker 2

It's certainly not 100 of 1,000,000 of dollars. And cats So you really have to first medicalize those cats. You have to be able to, catch like to hide their pain. So you also have to To find a way that pet owners can notice pain in cats better and identify it and bring them to the vet. So the reason we said it's a Smaller market is the number of cats that are medicalized are just smaller.

Speaker 2

And then the number that are actually treated is really small. So the first thing is you need to be able to identify and test with pet owners, Convince them to take their cats to the vet and build the market from scratch. I mean, cat owners, when they used to call the vet when their cat was suffering from pain From osteoarthritis, we're told there really wasn't anything. There's no product in the US, for example, whatsoever. So it's really about really retraining pet owners That there is a product that can meet their cat needs and helping vets really bring the cat into the vet.

Speaker 2

I mean, a lot of pet owners don't like putting their cats And Craig to bring them to the vet, as you probably know, is that we're very confident that we have a strong pipeline for cats that will increasingly medicalize cats over time and help build this But as we said, just given the number of MediLife cats, it will be a smaller market than the dog space, and it will likely take a little longer to build it.

Speaker 1

And our next question comes from Christine Range with William Blair. Please go ahead.

Speaker 12

Hi, congrats on the great quarter and good morning. My question is that we noticed that Trio declined sequentially for the first time. So I was just hoping to have some color on this And kind of how it's performing versus your expectations? Thanks.

Operator

Sure. Look, we saw another strong quarter across our parasiticides franchise. Small animal parasiticides grew about 32% In the quarter with $391,000,000 we had Trio sales of $122,000,000 $350,000,000 so far through this year on a year to date basis. The product continues to do extremely well, particularly in our large corporate accounts With a penetration rate of about 90%, and we're seeing about 80% reorder rates as well. So we continue to gain share in this very large market.

Operator

If you recall, last year, we launched the product and so we've now been lapping it. And in terms of parasiticide sort of seasonality Now it starts to play into it in terms of what you might see as well. So this is really in line with our expectations and we couldn't be more pleased with how the product is going in the market. And now that we've really penetrated well with the large corporate accounts, we're now going into some of the midsize accounts as well. So we continue to see the product gain Momentum and we've been again in line with our

Speaker 2

expectations. The

Speaker 1

next Question comes from Nivon Tai with Citi. Please go ahead.

Speaker 13

Hi, good morning. Can you share your stats for pet ownership going forward and average revenue per companion animal visit? And apologies if I missed them. And can I Quickly ask, are you able to comment on the EU Commission investigation into the Belgian office? I understand it was related to antitrust Allegations?

Speaker 13

Thank you.

Speaker 2

Sure. I'll start with your question with regards to the investigation, and then Wendy can take the second Half of your question on companion animal. The EC inspection pertains to Zoetis' decision to discontinue the clinical development of a single Environmental drug candidate. Look, we're working with the EC to ensure it has all the necessary information that it needs. And we are confident that we can align the Which prompted the investigation.

Speaker 2

So, I think your second part of the question was on companion animal trends. Of the 7%, Yes, which was broken out between 3% on traffic and 4% on spend per visit. But I don't know, Whitney, if you've got any comments on that.

Operator

Yes, sure. As Kristen mentioned, we saw 7% Revenue growth for Vets with about with visits up 3% and revenue per visit up about 4%. And that's up against a prior year where we saw a real increase in the Q3 in terms of vet visits, etcetera, given the effects of the Pandemic. We continue to expect that these statistics will continue to be above pre pandemic levels, I'll be able to moderate from their peak. 2 other important points to recall here Is that if you look at pet ownership, more and more we're seeing millennials and Gen Z bring pets Into their homes and they're doing a lot more research looking at pet care and wellness and they're willing to spend more on their pets.

Operator

So the increase in pet ownership, we expect that to continue to provide really strong tailwind in the industry for Swelling on pets as we look forward and as those pets continue to age as well.

Speaker 1

And our next question comes from David Steinberg with Jefferies. Please go ahead.

Speaker 11

I had a question on potential competition for us, Paracatria. I know it's been a bit of a moving target. I think initially you thought it could even happen this year and I think it's been pushed out to the right three times, perhaps to the second half of twenty twenty. I was just curious, I know competitor type lipped about what they're doing, but any thoughts from your end on why There continues to be a delay here. Do you think it's regulatory or could it be technical?

Speaker 11

And if it's technical, Is this something that could delay competition for many years to come? And then just hypothetically, If competition comes into derm segment around the same time as competition comes for Simparica Trio, do you think you have the flexibility a show about segment growth during this period.

Speaker 2

Thanks. Sure. I wish we knew exactly. I We have the same theories that you do that there could be certain technical reasons for some competitors. And let me be clear, everyone's working in this This is a parasiticides is the largest single market in animal health at $5,000,000,000 So I think if you're pretty much any of the large companies we compete with, They're all trying to come up with their own triple combination.

Speaker 2

So I don't know that it's the same thing that's holding each of the companies back. I mean, we're not really clear. It definitely could be regulatory. It could be technical. It could be manufacturing, CMC.

Speaker 2

We're not exactly clear. And to your point, There's really very few public companies who actually disclose much about their pipelines. Our ability to know where people are is quite limited. We just and we always I know it's a little frustrating. We keep pushing it out, sort of like 6 to 12 months or whenever you ask the question, because if we haven't seen it, and We haven't heard it in corporate accounts as they're negotiating with us.

Speaker 2

We think it's definitely another 3 every quarter it's another 3 plus months out. And that's really where some of our thought comes from. And yes, we are confident that even if you'll see look, we are planning on competition in these key products. But I think it's the strength and diversity of our pipeline globally that makes us confident we can continue to grow Above market, I mean, we've got diagnostics, we've got pain meds. We still think they're going to be growing in derm, to be honest with you.

Speaker 2

It's still a lot of unmet medical needs. So Yes, we remain confident that we can grow above the market, even as we do start to face competition in some of these key franchises.

Speaker 1

And we'll take a follow-up from Balaji Prasad with Barclays. Please go ahead.

Speaker 10

Hi. Thank you for the follow-up. Just a Question on Drax sale. I mean, we went to date in detail, but I know that you got approval for Draxin KP in July, probably launches some time in 3Q. So what are the expectations from the KT?

Speaker 10

Is it more to ensure that the market stays flat? Or is this goal for this to revive growth? And secondly on the same, I see that till now Bimera, the Elanco launched generic versions. You called out a couple more generics. How many more are you expecting next year?

Speaker 10

Thank

Speaker 2

Sure. Jackson KP was part of our defense strategy. I don't think it's going to restart a growth for us necessarily in Early in the market as we're seeing generic competition, but it is, as Whitney outlined in his remarks at the beginning of this call, It's helped us retain our share. It provides incremental innovation and incremental benefit to our customers and a reason obviously to stay with us. Yes, we have had in the U.

Speaker 2

S. 2 competitors so far. We've heard up to 3 more are potentially coming. I don't know why they We would have expected them this year. So their approval, whether or not they actually enter the market, we're not really We're not sure when and if on that, but we would assume we probably have a few more entering.

Speaker 1

And it appears we have no further questions. I'll return the floor to Kristen back for closing remarks.

Speaker 2

Great. Look, thank you, everyone, for your questions today and Frank. Just to summarize, I think we delivered another strong quarter of results, driven by our diverse global portfolio and strength in pet care parasiticides and dermatology products. We're raising our guidance for the full year 2021, and we remain on track for a record setting year for us, And we're continuing to invest in the areas to support our long term growth. And we remain confident in the fundamental growth drivers for animal health and for Zoetis into 2022 beyond.

Speaker 2

So thanks so much for joining us today. Have a great day.

Speaker 1

This will conclude today's program. Thanks for your participation. You may now disconnect.

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Earnings Conference Call
New York Community Bancorp Q3 2021
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