ZOETIS INC. Morgan Stanley 24th Annual Global Healthcare Conference

Great. First of all, thanks for the invitation to the conference. We appreciate it. Thanks to those who are joining us today. We appreciate your interest in our company. For me, I was really excited about a few things. I think there is a huge value creation opportunity at Zoetis, and was really excited to get after that. I also really appreciated the great management team, great CEO, and I also felt like I could contribute in terms of helping the company move forward on the journey. Really unpacking the value creation piece, from our standpoint, this is an attractive long-term growth market. I know there has been some volatility in the short term, but at the end of the day, it is a large and growing market. Zoetis is the undisputed leader with world-class products, a world-class commercial capability.

Then as I looked at the opportunity, one of the things that got me most excited about it was this innovation pipeline. We have a series of great products on the market today, but really, as we look forward to areas like CKD, oncology, and next generation versions of a number of important products that we sell today, for me, it is going to unlock the next leg of growth, and I was incredibly excited to be part of that. All of those things led me to this value creation thesis, which I was excited about. I have come on board for a few weeks now. From my perspective, everything has been confirmatory so far, so no real surprises one way or the other. Passionate group of people. Perhaps that is the one thing that I underestimated.

The passion of the people for the mission and the purpose of the company has been remarkable. We have great talented individuals. The pipeline is as advertised, so we'll talk more about that in the coming weeks, months, quarters, and years, but really excited to be there. As far as priorities, I'm new to the industry. I've been in human health for a really long time. Animal health is a little bit different, so really spending a lot of time coming up to speed on that particular area. Then also, what's the value creation agenda for us going forward? So I laid out all of those things. We have specific plans, and for me, it's about getting up to speed on each of those areas to drive it forward.

Sure. I've spent a lot of time coming in, getting up to speed on guidance, obviously, since there have been quite a few short-term dynamics here. What I would say is we're confident in the guidance that we've shared. We made certain assumptions about the market, no improvement in the market and things of that nature. The market's evolving as we expected, so we feel good about the guidance, and we look forward to updating that when we see you all in November.

Sure. I think what's important to understand are the two different dynamics that really drove that. The first of those is sort of the macro of where the industry is, and I think for the first time, we saw a declining pet care market, and that is just something that is, those of you who covered us for a while, you really haven't seen. We saw paras down 6.7%, derm, this isn't us, this is the industry. I think, looking at that sort of macro, and you talked a little bit earlier about vet visits being down, and that's certainly one of the contributing factors, sort of the affordability challenge for a lot of pet owners. Then more specifically, the second factor is more to do with us, which is we have been the market leader in some of the key categories that now have new competition.

In a world that's not growing, that competition, when you have close to 100% share in something like derm, it's coming out of us as you think about that new competition entering. We did get a third entrant overall in derm against Apoquel, and we got obviously a new entrant last year in the paras category. I think what you're seeing is intense competitive pressure. What's historically happened in our industry as new competition enters is it expands the market. There's more people advertising the attractiveness of a market, the big opportunity, et cetera. But what we've seen in a declining market is the market's not growing, and so the entrants that are there are competing for the same share overall.

I think those are the dynamics that we-- I don't think most of us expected that the market would actually move from growth to declining. I think that was really what some of the changes are. I'm sure we'll get into some of those details in each of the categories, but I think those are the dynamics. When we provided the guide at the Q2 meeting, our assumption is let's assume those aren't going to get better in the near term. I do think they will get better. So to your question, is this structural? I think a lot of this is really cyclical, and it will come back. The one factor that we're continuing to watch is dog adoption and whether or not the dog market is growing. The dog market has declined for the last few years.

Cats are up, but cats have not been as medicalized. I don't see that as something that's going to continue forever. Is there one more year? That we'll see. But I think as most people are looking at, we're looking at how do we get that market to grow. You can get that market to grow by simply stabilizing the pets and then launching the innovation that really has differentiated us. What we're super excited about that I think, obviously Jay was talking about, is launching that innovation pipeline and really creating new markets that don't exist today in important categories.

Sure. I think there's different dynamics, as we'll talk about in derm versus paras. I think to answer your first question, what do I really hope investors understand is that this is cyclical, it's not structural. Why do I say that? Well, we're not changing our list price and neither are our competitors. Our competitors have actually taken up their list price over the last few years. If we thought this was structural, you would see list prices coming down, and we're not. What we're seeing is, as people enter the market with new products, they always discount to get penetration, to get on shelf. We certainly saw that, but when the market wasn't growing, they actually were a little more aggressive to make sure they could get on shelf.