Zoetis Q1 2022 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
May 5, 2022
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Operator

Welcome to the first quarter 2022 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, and will not be forwarded automatically. In addition, a replay of this call will be available approximately two hours after the conclusion of this call via dial-in or on the Investor Relations section of zoetis.com. [Operator Instructions]

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

Steven Frank
Vice President of Investor Relations at Zoetis

Thank you, operator. Good morning, everyone, and welcome to the Zoetis First Quarter 2022 Earnings Call. I am joined today by Kristin Peck, our Chief Executive Officer; and Wetteny Joseph, our Chief Financial Officer. Before we begin, I'll remind you that the 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 statements in today's press release and our SEC filings including but not limited to our annual reports on Form 10-K and our reports on form 10-Q.

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. GAAP measures is included in the financial tables that accompany our earnings press release and the company's 8-K filing dated today, Thursday, May 5, 2022. We also cite operational results, which exclude the impact of foreign exchange.

With that, I will turn the call over to Kristin.

Kristin Peck
Chief Executive Officer at Zoetis

Thank you, Steve, and welcome, everyone, to our first quarter earnings call for 2022. Zoetis delivered a strong quarter to start the year with 9% operational revenue growth and 8% operational growth in adjusted net income driven by the strength of our companion animal portfolio. We generated similar growth for both the U.S. and international segments, with 9% and 8% operational growth, respectively. Our strength across parasiticides, dermatology products, monoclonal antibodies and diagnostics are all capitalizing on the marriage of positive trends in pet care with customer-driven science coming from Zoetis. In the first quarter, we grew 20% operationally in our companion animal portfolio. As we expected, our livestock portfolio continued to face challenges, declining 6% operationally in the quarter largely due to declines in swine product sales in China and generic competition from DRAXXIN.

As we look at the rest of the year, we are updating our guidance to reflect the negative impact of recent changes in foreign exchange rates, but this has no impact on our previous operational growth rates and assumptions for the year, even as we face uncertainties related to the war in Ukraine, COVID-19 lockdowns, inflation and ongoing supply chain constraints, we remain confident in the underlying strength and performance of our business. Our diverse portfolio, global scale, talented colleagues and continuous innovations remain the foundation of our long-term success and durability, and we continue to invest in the resources, marketing programs and manufacturing capacity we need to support our growth. In R&D, we're building new capabilities and pipeline across our companion animal and livestock portfolios to ensure our long-term performance.

In the first quarter, we continued to receive approvals for new products and indications, develop life cycle innovations for major brands and expand our portfolio into new markets. On the livestock side of the business, we expanded our cattle vaccine portfolio with an approval in the U.S. of Protiviti, the first modified live vaccine to offer protection against mycoplasma Bovis. This vaccine provides cattle producers and veterinarians with broader overall protection against bovine respiratory disease. We also gained approval in Brazil for Draxxin KP, which is also a treatment for BRD and combines the antimicrobial properties of DRAXXIN with the nonsteroidal anti-inflammatory ketoprofen to rapidly reduce fever in a single dose. Draxxin KP is also approved in the U.S., Canada and European Union, Australia and Mexico, and it has been an important part of how we continue to distinguish the DRAXXIN brand in the face of generic competition. In poultry, we received approval in Brazil for Poulvac Procerta HVT-IBD, our recombinant vector vaccine that is also approved in the U.S. and Canada.

On the companion animal side of the business, we received another approval for Solensia, the industry's first monoclonal antibody for osteoarthritis pain in cats, adding Australia to the U.S., European Union, U.K., Canada and Switzerland and another mAb therapy, Cytopoint, received a claim extension in Canada so it now covers both the treatment of atopic dermatitis and allergic dermatitis in dogs. Cytopoint and Apoquel continue to grow significantly and expand the dermatology market as disease awareness and treatment options become more known to pet owners. We have a strong leadership position based on our innovative science and do not believe competing products will come to market in 2022. We also continue building our multipurpose diagnostics platform, Vetscan images with the recent addition of blood smear testing. Introduced in September 2020, Vetscan images is a first-of-its-kind technology with a multitude of applications, including AI fecal analysis, digital cytology image transfer and now AI Blood smear, all helping veterinarians broaden their in-clinic diagnostic offerings to provide the best care possible for dogs and cats.

For the last two years, I've been speaking to you about our catalyst for growth, and those continue to drive our performance. Our outlook for growth in international markets remains very positive based on a diverse global footprint and continued expansion opportunities for key brands like Simparica Trio, Apoquel, Cytopoint, Librela and Solensia. In terms of Ukraine, we have condemned the Russian invasion from the outside, and we are deeply saddened by the senseless violence being brought upon the people of Ukraine. Our company, colleagues and the Zoetis Foundation have worked together to provide veterinary care, medicines, financial support and evacuation assistance to those in need. With every decision, even the most difficult and complex ones, we're guided by our purpose to nurture the world and human kind by advancing care for animals.

While we have suspended all investments and promotional activities in Russia, the continued care of pets and livestock remains an essential responsibility for Zoetis and our colleagues, and we remain focused on maintaining a critical supply of animal medicines and vaccines for veterinarians and producers there. We anticipate a negative impact of about 1% to our original full year growth expectations due to Ukraine and Russia, but we are maintaining our previous operational growth rates based on the overall strength of our companion animal business and the positive momentum of expanding our U.S. pet care and diagnostic commercial teams. Speaking of Diagnostics, another catalyst for growth, we delivered 12% operational growth in the first quarter. We continue to invest significantly in this space to accelerate our growth. For example, we've been shifting our go-to-market model this year and building a dedicated field force for our diagnostics portfolio.

This hiring is a significant part of a 40% increase to our total U.S. companion animal field force. We see field force expansion as a key lever to supporting growth opportunities in our diagnostics and pet care businesses. We also continue to see very strong growth in pet care as we expand our major companion animal brands in markets around the world. Simperica Trio is doing very well as it continues to gain market share based on veterinarians preference for an innovative triple combination parasiticide for dogs. Pet owners have also been demonstrating strong loyalty rates after trying Trio, and we are excited by the ability of our direct-to-consumer campaigns and additional field force colleagues to increase interest in this product. Librela is also doing incredibly well across Europe, and we remain confident in the blockbuster potential for Librela in 2022 and Solensia in the longer term.

As we see improvements in supply, we will be launching Solensia in additional markets such as Canada and Australia this year. In terms of the U.S., we are still planning a launch of Solensia in the second half of the year, and we anticipate approval for Librela by the end of the year, assuming FDA inspections are completed at facilities outside of the U.S. Overall, we continue to benefit from pet care trends in terms of increased demand, clinic revenues, pet ownership and spending habits. Finally, a brief update on supply. As I mentioned last quarter, we are managing certain isolated supply constraints for Librela, Solensia and some of our other products as we compete for some limited manufacturing inputs critical to human health during the pandemic. We were also seeing additional global supply challenges related to Russia's invasion of Ukraine and the recent COVID-19 resurgence in China.

While some of these challenges are Global manufacturing and supply network to mitigate any impact to our overall business. And our commercial teams are ensuring control launches for new products and coordinating with customers to minimize any impacts on their animal care. In conclusion, we are off to a good start for the year, and we're maintaining our operational growth expectations for the full year. Our diverse and durable portfolio, global scale and pipeline of innovations have us well positioned to meet customer needs and shareholder expectations for this year and beyond.

Thank you. Now let me hand things off to Wetteny.

Wetteny Joseph
Executive Vice President and Chief Financial Officer at Zoetis

Thank you, Kristin, and good morning, everyone. As Kristin mentioned, we had a very strong start to the year with continued growth across a number of our core product franchises. Today, I will focus my comments on our first quarter financial performance, the key drivers contributing to our performance and provide an update on our full year 2022 guidance. In the first quarter, we generated revenue of $2 billion, growing 6% on a reported basis and 9% on an operational basis. Adjusted net income of $625 million grew 4% on a reported basis and 8% on an operational basis. Of the 9% operational revenue growth, 3% is on price and 6% from volume. Volume growth of 6% consisted of 5% from new products, which includes Simparica Trio and Librela, 3% from key dermatology products, while other in-line products declined 2%. The decline in other in-line products was expected and largely the result of a difficult comparison to the prior year and the impact of our swine business in China.

Companion animal products led the way in terms of species growth, growing 20% operationally with livestock declining 6% on an operational basis in the quarter. Our small animal parasiticide portfolio was the largest contributor to growth in the quarter, where our innovative and diverse fleas, tick and heartworm portfolio drove growth of 25% operationally. Simparica Trio posted global revenue of $164 million, representing operational growth of 83% versus the comparable 2021 period. In Q1, Simparica Trio was the number one canine parasiticide sold in the U.S. in terms of revenue, and we recently launched Trio in Japan, a sizable international heartworm market. Meanwhile, our key dermatology products, Apoquel and Cytopoint, had significant global growth again with $307 million of revenue, representing 28% operational growth against a robust prior year in which key derm grew 24% in the first quarter.

In Europe, our recently launched monoclonal antibody Librela, which is for osteoarthritis pain in dogs, also meaningfully contributed to growth in the quarter, posting $21 million in sales. Our Global Diagnostics portfolio recorded $98 million in revenue and had operational sales growth of 12% in Q1, growing across both our U.S. and international segments. Growth was largely driven globally by consumable usage and new products. We also continue to see growth in the placement of new devices in international markets. Diagnostics remains a key growth driver for Zoetis, and we continue to make significant investments in our field force, new technologies and reference grew 24% in the first quarter. In Europe, our recently launched monoclonal antibody, umbrella, which is for osteoarthritis pain in dogs, also meaningfully contributed to growth in the quarter, posting $21 million in sales.

Our Global Diagnostics portfolio recorded $98 million in revenue and had operational sales growth of 12% in Q1, growing across both our U.S. and international segments. Growth was largely driven globally by consumable usage and new products. We also continue to see growth in the placement of new devices in international markets. Diagnostics remains a key growth driver for Zoetis, and we continue to make significant investments in our field force, new technologies and reference lab. I think revenue will continue to grow at levels above what we were seeing prior to COVID as the standard of veterinary care continues to increase through innovation, better demographics, higher compliance and more pets. Companion animal growth in the U.S. was driven largely by sales from our parasiticide portfolio as well as key dermatology products.

Growth of Simparica Trio was again strong in the quarter with sales of $147 million in the U.S., growing 77%. We continue to meet our clinic penetration targets and take share within individual clinics with additional runway for future revenue growth. Federal on and satisfaction material is approximately 90% Key dermatology products sales were $194 million for the quarter, growing 23% with APOQUEL and Capon each significantly contributing to growth. Our investment to support the portfolio have been instrumental in driving more patients into the clinic, and we will continue to invest meaningfully in this space as a large portion of dolls with dermatitis remain undertreated, representing an opportunity to further expand the market. In an effort to support all of our long-term sustainable sources of growth in our companion animal portfolio.

In April, we launched our new pet care go-to-market strategy, expanding our U.S. companion animal field force by approximately 40% and creating dedicated and separate diagnostic and pharma coverage for our portfolio of products. U.S. livestock declined 11% in the quarter, primarily resulting from our cattle business. This was expected as we experienced challenges from generic competition for Jackson, which didn't exist in the same quarter last year as well as elevated input costs continuing to weigh on producer profitability. Meanwhile, upholstery business continues to be negatively impacted by the expanded use of lower cost alternatives resulting from reduced disease pressure from smaller foxises as well as generic competition for Zoamix. Swine products sales grew in the quarter as a result of favorable market conditions for producers and higher disease equivalence. Moving on to our International segment, where revenue grew 3% on a reported basis and 8% operationally in the quarter.

Companion animal revenue grew 23% operationally, and livestock revenue declined 3% operationally. Increased sales of companion animal products resulted from the growth of our key dermatology products, monoclonal antibodies for alleviation of ore pain and our parasite portfolio. Semak brands continue to benefit from our international direct-to-consumer campaigns in Latin America and parts of Europe, and we remain excited with the long-term prospects of these programs. We are encouraged by the performance of our monoclonal antibody for OA pain with Librela generating $21 million and Cerencia delivering $3 million in first quarter sales. Librela remains on track to exceed $100 million in revenue this year. As we mentioned last quarter, Librela became the number one pain product in the EU in the first year of launch, with the underlying performance metrics being very favorable for future growth. Reordering rates remain at around 90%. Compliance exceeded our initial expectations, and we'll continue a significant opportunity to expand the pain market with a meaningful percentage of dogs on Librela being new to the market.

Meanwhile, international livestock declined 3% operationally in the quarter. opportunity to expand the pain market with a meaningful percentage of dogs on Librela being new to the market. Meanwhile, international livestock declined 3% operationally in the quarter. This decline was driven predominantly by our swine portfolio in China. As we indicated over the past several months, increased port supply in the market like to a significant decline in pork prices, which impacts producer profitability. In addition, our first quarter of 2021 presented a difficult comparative period as pricing and producer profitability in that quarter had been at an all-time high. While we expect China to return to growth in the back half of the year, we anticipate a challenging second quarter for our swine portfolio. Partially offsetting our decline in swine was growth in our fish, poultry and cattle portfolios.

Our fish portfolio grew double digits again this quarter, driven by growth of the AlphafluxCLIce treatment product and AlphaGeLivVac vaccine for SRS in Chile. Sales of cattle products grew in key markets due to favorable market conditions and pricing in Brazil and Australia as well as demand generation efforts in emerging markets such as Turkey and China. Now moving on to the rest of the P&L for the quarter. Adjusted gross margin of 71.6% improved Advertising and promotion as well as direct-to-pet owner campaigns for key brands. R&D expenses increased 4% operationally due to higher compensation costs. The adjusted effective tax rate for the quarter was 18.9%, a decrease of 20 basis points, driven by the impact of favorable discrete tax items and settlements with certain tax authorities, slightly offset by changes in the jurisdictional mix of earnings. And finally, adjusted net income grew 8% operationally and adjusted diluted EPS grew 9% operationally for the quarter. Capital expenditures in the first quarter were $115 million.

We are still anticipating a significant increase in capital expenditures for the full year 2022, primarily related to investments in Ireland, the U.S. and China to support manufacturing capacity needed to meet our long-term growth demands. In the quarter, we returned over $0.5 billion to shareholders through a combination of share repurchases and dividends. We purchased approximately $361 million of Zoetis shares, representing our largest dollar-based quarterly share repurchase ever. Now moving on to guidance for the full year 2022. Foreign exchange rates on our updated guidance are as of late April and reflect the recent strengthening of the U.S. dollar. Please note that any update to our full year guidance are related directly and only to foreign exchange and that the ranges of our operational growth rates for revenue of 9% to 11% and adjusted income of 10% to 13% remained the same as our previous February guidance. We are holding these top and bottom line operational growth rates the same despite the conflict in Russia and Ukraine, negatively impacting our expected full year operational growth by 1%.

We feel we can offset this impact with the strength of our companion animal portfolio. Beginning with revenue for the full year 2022, we are decreasing both the low and high end of the range by $100 million to reflect the impact of foreign exchange. We are now projecting revenue of between $8.225 billion and $8.375 billion while maintaining our expected operational growth of 9% to 11%. and bottom line operational growth rates the same despite the conflict in Russia and Ukraine, negatively impacting our expected full year operational growth by 1%. We feel we can offset this impact with the strength of our companion animal portfolio. Beginning with revenue for the full year 2022, we are decreasing both the low and high end of the range by $100 million to reflect the impact of foreign exchange. We are now projecting revenue of between $8.25 billion and $8.375 billion while maintaining our expected operational growth of 9% to 11%. For adjusted net income for the year adjusted net income is now expected to be in the range of $2.365 billion to $2.4 billion, while maintaining our expected operational growth of 10% to 13%.

And finally, we expect adjusted diluted EPS to be in the range of $4.99 to $5.09 and reported diluted EPS to be in the range of $4.65 to $4.77. Sales of companion animal products will be the primary growth driver in 2022 with the continued strength of our diverse prior silicide portfolio, further expansion of our key dermatology products, the adoption of our monoclonal antibodies for OA pain and growth in point-of-care diagnostics. We also continue to see a very favorable global companion animal backdrop for 2022. For livestock, the fundamental macro trends, which make animal protein on essential business remain intact, and we believe more normalized growth will occur in 2023. While our guidance represents our expectations for the full year, I would like to provide some color on the expected phasing of growth for the remainder of 2022. We expect top line operational growth for Q2 to be slightly below Q1 as today business and certain supply chain activities.

We also expect a similar foreign exchange impact in Q2 that we experienced in Q1, where reported revenue was negatively impacted by about 3%. In addition, the significant investments we are making early in the year to support future revenue growth, including field force expansion in the U.S. and incremental DTC advertising will drive opex growth in Q2 at a faster rate than revenue, impacting Q2 bottom line profitability more materially than in the back half of the year. We expect that foreign exchange in Q2 will have a negative impact to the bottom line of about 5%. Our full year 2022 guidance once again reflects our value proposition of growing revenue in line with or faster than the market and growing adjusted net income faster than revenue. Our success is derived from our diversified portfolio of enduring brands driven by multiple sources of in-line growth, and agile and disciplined innovation engine and our infrastructure to develop and expand markets globally. We extract to continue to execute across multiple dimensions of our business and capitalize on favorable end market dynamics for the foreseeable future.

Now I'll hand things over to the operator to open the line for your questions. Operator.

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Operator

[Operator Instructions] Our first question is coming from Erin Wright of Morgan Stanley.

Erin Wright
Analyst at Morgan Stanley

Great. Thanks for taking my question. I have one on companion animal trends that I have to ask here. What are you seeing at the clinic level if you could parse out a little bit more of what you're seeing across the U.S. and international in terms of demand trends, what you're seeing in terms of capacity constraints at the vet clinic level? And what is implied in your guidance at this point in terms of operational growth across the companion animal segment? And then a follow-up on Trio, I guess, where do you stand now in terms of market share in canine parasiticide at this point? And how much do you think Simparica Trio is taking share versus expanding the market with greater compliance? Thanks.

Kristin Peck
Chief Executive Officer at Zoetis

Okay, Erin, it's Kristin. Great to hear from you. So we fundamentally and structurally believe the pet care industry is in great shape. I think as you've seen some of these trends over the last few years, there's a very high standard of care. The demographics of who is adopting these pets over the last few years being millennials, the number of pets you have out there and honestly, the aging of pets. So we do not think there is a demand problem. I think you saw in the quarter potentially a difficult cost to what you saw last year. If you look overall, a 5% increase at the vet clinic, there is a little bit less traffic, as you referenced. I think those are some of the shorter-term capacity constraints. But remember, we've got a lot more pets. So you're really -- the base is much larger than it's historically been.

But given Omicron, there was definitely some challenges at some of the vet clinics. But the other thing to consider about the data that we would just highlight is that it really pulls out a lot of the large corporates who have found more innovative ways to structure their business to add more capacity. And I think you'll see more of that coming overall. There were the short-term labor shortages. The other thing to really focus on, we would say is if you look at Zoetis' business, it's a little different, the nature of our business and our innovation, we have a lot of chronic medications. It doesn't require tons of visits. So we focus a little bit more on the spend per visit as we look at it. We also have alternative channels, which for us in the quarter grew 34%. So we remain very optimistic with regards to pet care trends overall? And maybe, Wetteny, you can take her second question on Simparica.

Wetteny Joseph
Executive Vice President and Chief Financial Officer at Zoetis

Yes. Sure, Erin. Look, very, very pleased with the performance of Simparica Trio posting $164 million of revenue in the quarter, up 83%, became the number one canine parasiticide in the U.S. And as we've shared before, we have 90% penetration across large corporate accounts, etc. And within those penetrated clinics, we continue to take share as well. Satisfaction level with our product is about 90% among pet owners, and we also just launched Simparica Trio in Japan, which is a key heartworm market as well, just in the middle of this quarter. So I'm very pleased with the performance with Trio.

Operator

Our next question comes from Christine Rains, William Blair.

Christine Rains
Analyst at William Blair

Hi, Thanks for the question. I was just wondering if I could have any update on diagnostics contribution to the quarter and overall performance? Is growth tracking with your expectations? And can you comment on system placements versus testing volume growth. And if you would have made any additional reference lab purchases? Thank you.

Wetteny Joseph
Executive Vice President and Chief Financial Officer at Zoetis

Yes, sure. I'll take this, Christine. Thanks for the question. Look, I'm very pleased with the performance of our Diagnostics business in the quarter. We grew 12%, posting $98 million of revenue. We really saw strong growth across both U.S. and international, both replacements as well as consumables. So we're very pleased with the performance of the business. In terms of reference lab acquisitions, we did not have any in the quarter. Obviously, we made a number of acquisitions that we in the U.S. and continue to make investments across technology. You might have seen images, for example, we've added additional indications here with blood smear in addition to fecal and digital psychology. So we continue to be very pleased with the performance of the business.

Operator

Our next question comes from Louise Chen of Cantor.

Louise Chen
Analyst at Cantor Fitzgerald

Hi, Congratulations on the quarter. Just curious what has been the impact of inflation on your Animal Health business, both companion and livestock and how do you see potential increase in inflation or continued inflation impacting your business going forward?

Kristin Peck
Chief Executive Officer at Zoetis

Thanks, Louise. I'll start and then I'll move it to Wetteny. We've seen historically that pet owner spending has been incredibly durable right now, we've got about 63% of our revenue in companion animal. But if you look at the february research, 86% of pet owners would spend whatever it takes. So we do see inflation, and Wetteny can certainly get into how we've taken price, etc. But I think we've obviously seen increase in labor cost and freight and fuel. But Wetteny can really talk about the fact that we've been able to leverage price especially in our companion animal business. So Wetteny, do you want to go over some of those numbers?

Wetteny Joseph
Executive Vice President and Chief Financial Officer at Zoetis

Yes, sure. Given we continue to see very strong underlying demand from pet owners, we have very innovative products across our portfolio. We've been able to demonstrate that we can take price at or above inflation levels in the past, and we don't see any reason why we won't do that now. If you look at this quarter, for example, our total growth included 3% of price. Now if you parse that out and you look at just companion animal globally, we took 6% of price. And so we'll continue to use that lever as we proceed. But given the dynamics, Kristin just mentioned, underlying strength in the market, we'll continue to have that availability to us.

Kristin Peck
Chief Executive Officer at Zoetis

And the only thing I'd add there is, despite inflation, I would just note that in 2021, we increased our margins and our guidance for 2022 does the same. So I think it really shows the durability and resilience of our industry.

Operator

Our next question comes from Nathan Rich of Goldman Sachs.

Nathan Rich
Analyst at The Goldman Sachs Group

Hi, Good morning, Thanks for the question. Kristin, I'd be curious to get your view following up on the commentary you have on just vet visit trends and vet spending trends. Do you see more variability in sales for your products that are administered need to be administered by the vet? And can you just remind us how big of a percentage of your companion animal business that is? And then a quick follow-up for Wetteny. It looks like the revenue guidance came down by $100 million. It looks like operating profit may be down by $50 million. So it seems like a high decremental margin on the revenue reduction. I guess does that just reflect kind of the composition of the expense base? Just to be curious kind of any color you can shed on that dynamic.

Kristin Peck
Chief Executive Officer at Zoetis

Sure. I mean, I'll start off with your first question. Again, if you look at our overall portfolio and the nature of our business, I think the level of innovation, we're not as susceptible to vet visit trends. You basically what percentage has to be administered in the vet clinic. I don't know maybe around 50% that would be vaccines injectables. But I think if you look at the sales of Librela being now the number one pain product in Europe, clearly, for things that are really important to pet owners, they are getting into the clinic. Regular checks for vaccines, we're not seeing any significantly negative trends there. So I think chronic medications, which is a huge part of our business. And if you look at dermatology and parasiticides, which are growing at pairs are growing at 25% in the quarter, derm at 28% in the quarter. We're clearly not really suffering from the slight decline in the U.S. in trends. But Wetteny, you can take that second question.

Wetteny Joseph
Executive Vice President and Chief Financial Officer at Zoetis

Yes, sure. As we've said, we've revised our guidance solely to reflect FX. We continue to maintain our operational guidance range, both top and bottom for the company that we came into in February that we gave. So from an FX perspective, top line impact is about 3%. It's about $260 million of an impact. And as you referenced, the change you're reflecting the change in FX has a wider impact on the bottom, and that's really largely driven by FX in losses given our exposure across certain currencies, particularly the euro. If you look at the first quarter, for example, you see a wider impact at the bottom that you see at the top, driven by the impact of that as well.

Operator

Our next question comes from Michael Ryskin of Bank of America.

Michael Ryskin
Analyst at Bank of America

Hey, Guys, Thanks for taking the question. Congrats on a strong result. I want to start with livestock markets. I mean we've known livestock was going to be weak for a while, and so it's not a huge surprise. But so I just want to get an update on how you're seeing a couple of factors that are going, both DRAXXIN, are you still sort of projecting lapping the tough comps around the summer and sort of what are your expectations for DRAXXIN exiting this year and next year, and then broader conditions such as drought in the Midwest and the United States, rising input costs. Sort of how do you see that playing out for U.S. livestock and internationally? And then a follow-up question for Wetteny, if I might. You guys touched a number of times in the prepared remarks on field force expansions or investing in growth, investing in the opportunities in companion animal. Just wondering if you could go into a little more detail on how that's going to play out? When do you see that shown up in the numbers when you think you'll start seeing the payoff for that? And just sort of talk about labor pressures, wage pressures, how that affects your thought process there?

Kristin Peck
Chief Executive Officer at Zoetis

Great. Mike, I'll take the first part of it, which is the broader livestock trends and then Wetteny can take the DRAXXIN and the field force question that you've got. I mean, look, as you know, well, historically, livestock has grown around 4% I think if you look at 2019 and 2020, you saw sort of some unusual events that affected overall industry livestock growth. Obviously, African Swine Fever in China, as you remember, and then overall COVID, but then as I think as you look at 2021 and 2022, Zoetis has been unusually impacted and that has everything to do with where DRAXXIN is. And Wetteny can get into the numbers, but that has played out exactly how we expected it to. Our long-term outlook, as Wetteny mentioned a few minutes ago in his prepared remarks, remains unchanged. We think you're going to start to go back to more normalized growth in 2023 and beyond, basically because feeding the world is a powerful trend, the desire for protein and higher quality protein. But let me let Wetteny get into some of the specifics on the DRAXXIN numbers and then your second question.

Wetteny Joseph
Executive Vice President and Chief Financial Officer at Zoetis

Yes. So as we said from the very beginning with the cycle DRAXXIN, we expect it to have about a 20% impact to the top line in the first year and another 20% in the second. So what we're seeing across livestock right now is playing out exactly as we thought. In fact, in 2021, we did a little bit slightly better than that with respect to DRAXXIN. And we continue to have the effects positive effects of life cycle innovation like Draxxin KP, and we're maintaining most of our volume. And the margin for DRAXXIN remains very attractive for us as well. So as we expected, we've seen competitors come in, but the performance has been at or slightly better than we expected. Broadly speaking, I think if you look at swine, for example, in China, there was a pretty significant impact on the quarter with respect to large stock. Again, we expected that coming in.

And it's really looking at where swine prices are in China versus a year ago, where they were at all-time highs and have been at all-time lows essentially here and the lockdowns having an impact on sort of demand consumption as well in this case. So with respect to the field force, if I can transition to that part of your question, very pleased to be able to expand our field force here. We have the broadest portfolio across the market. And if you look at innovation that we have coming as well with respect to the pain franchises for Solensia that we are probably launching across the second half of this year. And as we get approval for Librela and launched that as well in the U.S., we continue to have opportunities to really capitalize on the market dynamics and the strong demand and have additional field force, which we see a strong return on those as well.

We're also launching a dedicated sale force for diagnostics, separate and apart from our Rx teams, which we believe will have, again, a very positive return for us as well. Now you can see that with those plans, we still have an operational levered P&L where we're growing the bottom line above the top line. So top line in 9% to 11% and the bottom at 10% to 13% with approximately a 40% increase in our field force.

Operator

Our next question comes from Jon Block of Stifel.

Jon Block
Analyst at Stifel Nicolaus

Great. Hey, Guys good morning. Maybe just a couple of quick ones. For U.S. Librela approval, was that a slight push, Kristin, to year-end '22 for mid-'22? If it was, maybe just if you could elaborate on what still needs to get done there for approval? And if it is here in '22, how are you from a supply standpoint? Do you think that product will be ready for early 2023 U.S. launch? And then maybe just as a quick follow-up. Wetteny, can you talk about the supply chain and cost and how you feel there? Companion animals expected to be a big year-over-year in '22. So you've got this positive mix shift, you've got price running ahead of what it normally does. I think you called out 3% versus 1% last year. And GM still expected to be flattish. So you just would love some color on how you're feeling in the supply chain. Thanks.

Kristin Peck
Chief Executive Officer at Zoetis

Sure. Thanks, Jon. I'll start with the first question and let Wetteny take the second. With regard to Librela, no, this is exactly as we expected. We were expecting an approval later this year. We continue to expect that, as we wrote in the market, there's no change there. We still require an ex-U.S. site visit, as we said all along. So I would say there's really no update there. And to your second question, when would you expect a launch? We're obviously, as we would in any product working to build up supply. But as always, in our industry and especially with regards to biologics and monoclonal antibodies, the standard in our industry is it takes somewhere between three and nine months to get up to a full launch. So is a monoclonal antibody. We'll do an early experience sometime in the first half, again, depending on when the approval is and launch shortly thereafter. We're quite excited about this. Obviously, we're working hard to build up that supply as soon as we get the approvals of the site, etc. So everything on Librela is exactly where we were before, really absolutely no change there.

Wetteny Joseph
Executive Vice President and Chief Financial Officer at Zoetis

Yes. And I'll take the supply chain part of the question, Jon. Look, our supply chain has proven to be very resilient despite challenging elements over the last couple of years. We delivered 15% operational growth last year with 14 of that in volume. So we put an ability to continue to navigate through those. Currently, we are looking at China, for example, where the lockdowns have had an effect certainly in our first quarter, and we see that in our second quarter as well, which is why we included those in our prepared commentary around Q2 expectations. But in terms of price, we are pulling that leverage 3% total for the company.

On the companion animal side, which now that's about 53% of our company if you look at the first quarter, companion animal has grown almost 60% over the last two years, if you look back to 2019 level. So again, very strong market dynamics and demand. We do see the mix shift being very positive for us with more companion animal and with our innovative products that are launching as well. But we do have some offsets when you look at livestock, particularly DRAXXIN, as we just talked about in line with our expectations, but certainly are giving price and maintaining the volume and, as I said, still at attractive margins for us. But that's really the main offset if you look at it across the year.

Operator

Our next question comes from Balaji Prasad of Barclays.

Balaji Prasad
Analyst at Barclays

Hi, Good morning, Thank for question. One each on combined and livestock, firstly on atopic dermatitis. I estimate that you currently probably have around 35% of the market share in the U.S. between Cytopoint and Apoquel. With the what percent of the incremental market is allergic dermatitis and is this market open for you as you get the label extension. On the same subject, do you also have an update on your oral JAK inhibitors and which is expected to come later this year, how that would influence the market share at all? On the livestock side, could you quantify if there are any opportunities that are coming to you through the Chinese consumption shifting towards beef and poultry will be swine, are you there's not much of a trend there? Thank you.

Kristin Peck
Chief Executive Officer at Zoetis

Sure. I'll start on the overall derm. As you saw, it grew about 28% in the quarter, driven by expanding our direct efforts. Certainly, you see we're investing more in our field force pet care rewards. I also think genuinely, it's just more people home with their pets. I don't have the specific share numbers. We can certainly get back to you on that I think it's over 70% in the U.S., our share of the atopic dermatitis, allergic dermatitis markets overall in the U.S. and especially it's even more if you want to look at revenue. But we're really pleased with where that's going. With regards to competition, I know our favorite question, we don't absolutely know.

We would expect competition on it. At this point in time, as we look at 2022, we are not expecting competition in 2022, we would expect it in 2023. As our latest intelligence, obviously, we could be wrong there. But expectation is competition for derm on a small molecule basis will come in 2023. With regards to our own pipeline internally, we don't discuss that. So I don't think we have any color there. But I don't know, Wetteny, do you want to take the second question?

Wetteny Joseph
Executive Vice President and Chief Financial Officer at Zoetis

Yes, sure. Just one thing to add on the first one. For us, really, when we look at Derm, it's less about market share, it's a lot more about market expansion. There's certainly an opportunity when we look at the number of dogs that suffer from [Indecipherable] are not being treated. About six million, and of the 7.6 million that are being created, so a good portion of them are undertreated with either antihistamines or steroids. So we do think there's an opportunity with respect to the under treatment there. Now I'll shift over to your question around livestock, particularly around China. We have seen an increase in beef consumption here, which certainly benefits us when you look at our business in Brazil, for example, that exports into China from a beef perspective as well as in China set of activities. And so it's still in terms of in China, it's still relatively small compared to swine, for example, but we are seeing good trends there that are favorable to us.

Operator

Our next question comes from Chris Schott of JPMorgan.

Chris Schott
Analyst at JPMorgan Chase & Co.

Hi, Great, Thanks so much for the question. First, can you just remind us about your sensitivity to economic growth? I know you're seeing very healthy demand in the companion side right now and you've been able to take price. But if we enter a mild recession in some parts of the world, particularly Europe, what type of pressures would you anticipate, if any, to your business from that? And my second one was on protein demand. I know you've touched on this in a couple of other questions, but it does seem like we're entering kind of a challenging macro environment with food prices growing very rapidly, especially in the emerging markets. Do you see that as a risk at all in terms of global protein demand consumers trading down on protein that could kind of dampen kind of your livestock recovery as we look out to kind of 2023 and beyond. Thanks so much.

Kristin Peck
Chief Executive Officer at Zoetis

Sure. Thanks, Chris. Good to hear from you. As you think about the economic challenges, potential economic risk across the globe, I think one thing you've seen about the animal health industry I was referencing before, the research is 86% will spend what it takes. And I think it's also really important to focus on the fact that our companion animal business is growing 50% between 2019 and 2021. As Wetteny mentioned, it was about 63%. And that is just a more durable business as you think about getting through economic challenges. We grew through the beginning of COVID, for example. As you look at it, we've grown during the Great Recession. And that was when our companion animal business was only 35%. So I think structurally, if you look at our business, it's more positive now than it was during the Great Recession, so I do think we're going to be pretty resilient as we go through those times. But I'll let Wetteny add anything wants to and then take your protein demand trend question.

Wetteny Joseph
Executive Vice President and Chief Financial Officer at Zoetis

Yes, I think you've covered it well, just a companion animal. It's a bigger percentage of our business now is proving to be very resilient. And structurally with respect to demographics we have more Gen Z and millennials, owning pets, more pets. And if you look across our portfolio, a number of chronic conditions that we're treating that are very resilient even as we've seen in the past and structurally even stronger now. With respect to livestock, you do see the potential for people to trade down in proteins going from beef down to chicken or pork and then etc. So we do think that can happen in terms of looking across the globe. We do have a growth portfolio across different species, obviously. But that is one of the areas that we think is a little bit less than what we see in companion animal, where extremely resilient.

Now we do, overall, though, when you look at protein consumption, we do see that growing over time, particularly as you could look across emerging markets, growing populations increase in sort of sole income, etc, and growing middle class across different markets. We see those continuing to maintain growth to protein consumption, we do have the pandemic, which actually has been negative from a lifestyle perspective. I think folks look at the pandemic and think about the positive effects on the companion animal side. but that has actually been largely negative. And so we do believe that they'll in addition to our DRAXXIN, which we've talked about, we do anticipate a return to growth in livestock as we get out into 2023, 2024 timeframe.

Operator

Our next question comes from Steve Scala of Cowen.

Steve Scala
Analyst at Cowen

Thank you. You mentioned enhanced spending per pet. Our understanding is that this is due to two things, enhanced compliance and catch-up in routine wellness checks. Is that what you've seen? If so, how much does each contribute? So how much does enhanced compliance contribute versus catch-up in routine visits. The concern is that the catch-up in routine visits would seem like a onetime boost. And if that's the case, then what are the long-term implications of not no longer getting that boost and just enjoying the trends of the enhanced compliance?

Kristin Peck
Chief Executive Officer at Zoetis

Sure. I mean, I guess what we would say is that you're seeing more animals, you're seeing Wetteny's mentioned the demographics of who is adopting these animals, people who spend more time, more money on them, the aging of pets. So I'm not sure we would probably parse the data the way you do to be perfectly honest. Obviously, we are seeing increased compliance. I think alternative channels sort of online and autoship, even from clinics, is really helping driving that increased compliance. But I would say if you look at our portfolio, it's innovation. It's bringing disruptive innovation that people are excited about, looking at Paris, a single product that does three things. people are excited about.

You look at monoclonal antibodies. You look at dermatology. We have great chronic medications that are not as susceptible to how many visits you make. If you get a prescription for par, it lasts the year. So I guess we would look at the data slightly differently than what you're looking at it. And more importantly, for our business, we think the nature of our business and the level of innovation and the demographics of both the number of animals and who's adopting them remains very positive.

Wetteny Joseph
Executive Vice President and Chief Financial Officer at Zoetis

Yes. I would say it's a combination of just an increased standard of care for animals, particularly for pets that's aided by the innovation that's come out of Zoetis across derm and parasiticides and now with pain and the demographics of the owners that actually put a premium on the health of their pets that's driving this. And I think people are doing more in those visits as well, which is driving sort of the revenue per visit figures that you see, which is, again, part of the reason that we don't think the visits themselves are as meaningful as the spend per visit.

Operator

Our next question comes from Elliott Wilbur of Raymond James.

Elliott Wilbur
Analyst at Raymond James

Thanks, Good morning. One question around the EU launch experience and dynamics to date with respect to Librela and Solensia. Just how some of the early experience is shaping expectations for the U.S. launch areas of over underperformance where you've been positively surprised. And just thinking about dynamics such as persistence, do you have any sense of the number of patients started on therapy that are returning for follow-up injections, Librela share of new patients starts. And I know it's still relatively early, but is or are you seeing or are you expecting to see an increase in overall patient volumes from the launch of these products? And then just as a quick follow-up here, how important was or is the mAb opportunity in the U.S. in terms of driving your decision behind the sales force expansion? Thanks.

Kristin Peck
Chief Executive Officer at Zoetis

Sure. Thanks, Elliot. Great questions on Librela. We are super excited at the launch there. To get to some of the specific information you have for us. As we said, this is now Librela in Europe is now the number 1 selling product for pain. What's really exciting also about that is 40% are patients that are new to the category. So I think this is really changing the game for a lot of people, maybe for safety reasons, couldn't take what the other products were are really coming into the vet clinic. And to get to your other question, there's a 90% reorder rate. So which gets that -- if you come in for one injection, are you staying with the product? The answer is yes.

And this is why we believe in its first full year in Europe alone, Librela will be a blockbuster product for us. We did about $22 million in Q1. This definitely does inform. [Technical Issues] How to get the cap to the clinic as you know, there are less medical lives than dogs. You've got to help cat owners know what pain looks like. But we remain super excited about Solensia. It will just be, as we said, the ramp will look slightly different on Solensia than it does with Librela. But we're just as excited, and we think it's potential is very strong there. Do you want to add anything, Wetteny?

Wetteny Joseph
Executive Vice President and Chief Financial Officer at Zoetis

No, just a part of the question on the field force, I wanted to just make a comment on, which is, look, we have the broadest portfolio, as I mentioned before. And we continue to add innovative products to that. And so we carefully analyze sort of the coverage across clinics and across products for our field force and are very confident that this is an investment that's going to have that's going to yield positive returns for us across our products, existing products, opportunities to expand in the existing products as well as new products that are coming on.

Operator

This concludes our question-and-answer session at this time. I'd be happy to return the call to Kristin Peck, CEO, for any concluding remarks.

Kristin Peck
Chief Executive Officer at Zoetis

Great. Thank you all for your questions and for the continued interest in Zoetis. I just want to summarize, I think Zoetis is off to a strong start of the year. We've got continued strength in products for pet care, and I think as you've seen, a diverse and durable global portfolio, we're really happy to be maintaining our operational growth expectations for the full year despite the negative impact of foreign exchange and other headwinds. And we're continuing to make ongoing investments in talent and technology, manufacturing expansions and innovation that have us well positioned to support our future growth plans as well. So I look forward to keeping you updated on future calls and hope you have a great day. Thanks so much, everybody.

Operator

[Operator Closing Remarks]

Corporate Executives
  • Steven Frank
    Vice President of Investor Relations
  • Kristin Peck
    Chief Executive Officer
  • Wetteny Joseph
    Executive Vice President and Chief Financial Officer
Analysts

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