February 18, 2022 | 1:07 AM by Jay Kunstman | jkunstman@jaguaranalytics.com

Behind The Numbers – Zoetis (ZTS)

Zoetis (ZTS), the $91B animal health company, reported its Q4 earnings this past week and saw a rather muted reaction (shares closed higher by +0.68%).

-EPS of $1.00 vs $0.96 estimate – Beat
-Revenue of $1.97B vs $1.93B estimate – Beat
-U.S. Revenue of $1.04B vs $1.02B estimate – Beat
-International Revenue of $902M vs $895.7M estimate – Beat
-FY EPS Guidance of $5.09 – $5.19 vs $5.21 estimate – Miss
-FY Revenue Guidance of $8.33B – $8.48B vs $8.39B estimate – In-Line

Getting into more details on the numbers, management highlighted that Simparica Trio posted revenue of $124M, representing operational growth of 106% versus the comparable 2020 period and the third consecutive quarter with sales exceeding $100M. Meanwhile, their key dermatology products, Apoquel and Cytopoint, again, had significant global growth in the quarter, with $360M of revenue, representing 23% operational growth against a robust prior year in which key derm grew 27% in the fourth quarter of 2020. One specific positive, as it relates to the Companion Animal segment, is when CFO Wetteny Joseph commented, “Beginning with companion animal, we do not assume a triple combination product will launch in the U.S. in 2022 to compete against Simparica Trio or competitive entrants for our key dermatology products, Apoquel and Cytopoint.”

Unfortunately, the company’s Livestock business underperformed in the quarter, with total revenue of $760MM, down 6%, and well below analyst expectations. The majority of this decline came from the U.S. where sales were down -13% to $277M, impacted by generic competition for DRAXXIN. Following the DRAXXIN headwinds, management expects the Livestock business to return to +MSD% growth in 2023 and beyond, which should also be aided by new products.

Turning to another area of the business, the Pain portfolio, Stifel analyst Jonathan Block said in his post-earnings note that he thought most of the incremental news on the conference call revolved around the early figures / traction from the pain mAbs (notably canine). More specifically, Librela posted $15M in Q4 revenue (only launched in Europe) and became the #1 pain product in Europe in its first year. For 2022, Stifel notes that Librela is expected to be a blockbuster in Europe alone (>$100MM in sales) versus their prior $39M estimate and is helping drive their 2022 operational revenue growth higher (and offset the step down in Livestock). “Our March 2021 mAb survey laid out the long-term positives of the pain mAb opportunity and while Librela likely drives 2022/2023 upside our recent 4Q21 checks showed the unmet need for Solesia, which can aid OA pain revenue longer-term.”

CEO Kristin Peck, on the conference call, highlighted that Librela and Solensia, their monoclonal antibodies for control of osteoarthritis pain in dogs and cats will continue to increase their revenue in 2022, primarily in the EU and “we are making regulatory progress for these products in the U.S.” They received FDA approval for Solensia in January with the launch expected in the second half of the year and they still anticipate approval of Librela in the second half of the year, assuming FDA inspections are completed at a facility outside the U.S.

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