Zoetis, Inc. Class A Aktie

Hi, everyone. Thank you for joining us this afternoon. I am Brandon Vazquez. For those of you who I haven't met for -- I have to read off this real quick. I'm the research analyst here at William Blair covering Medical Devices and Animal Health. And for a complete list of research disclosures and potential conflicts of interest, please go to our website at williamblair.com.

I am excited to have here Zoetis' CFO, Wetteny Joseph, he is going to go through a couple of minutes of intro, and then we'll host a little bit of a fireside chat as we typically do in this because where we try to keep these presentations in the presentation session a little higher level. I'll keep the fireside chat a little bit higher level, but a little topical on what's going on. And then after that, we'll go to a breakout room, breakout I have it here, break out Mayer, and then we'll go into a little bit more detail.

So I'll let Wetteny go first, and then we'll chat a little bit.

Thank you, Brandon. Good afternoon, everyone. Given I'm sure we have a fair amount of ground to cover with the fireside chat. I will keep my opening comments relatively brief, particularly for those who may be new to the Zoetis name. We are the leader in animal health. And our purpose is really centered on nurturing our world in human kind by advancing animal care. And we advanced animal care via innovation.

We'll spend a little bit of time talking about here as well as how we scale our solutions globally and drive a customer-centric delivery approach in terms of how we execute. We have more than 75 years a track record and truly underpinned by both scientific and commercial expertise across the business which yield did to about $9.5 billion of revenue last year across really strong long-term and markets for us. We have broad diversification across the business, as you can see on the page, across diagnostics, medicines, vaccines, including biodevices and genetic testing, et cetera.

That diversity extends to who we serve as well in terms of the core species that we cover across 8 core species, of course, companion animal, representing about 70% of the business with a balance of 30% driven across livestock. And so we get to benefit from the long-term trends related to companion animal, but certainly have livestock participation, which we have seen really strong growth on over the last few years as well. Our existing portfolio is the broadest in our industry and the deepest as well. It happens to also have 18 blockbusters. And in animal health, that's roughly $100 million of revenue in a given year.

And we continue to drive differentiation through our innovation and our innovation engine also has the promise of the future with an approximate or potential 12 additional blockbusters stemming from key areas of the greatest unmet need across animal health with a renal with Connie's focus, in particular, oncology, cardiology, obesity as well as anxiety. Now if you look at our capital allocation priorities, it is relatively straightforward. Given where the industry is and the amount of unmet need that remains and the innovation engine that we have built over the years, we see tremendous opportunity to invest in the business, first and foremost, that comes by way of what we do in our R&D as well as capital we deploy within our manufacturing to scale the innovation that we work on and that we're going to market.

And then, of course, we pursue business development that accelerate the strategies that we have in mind. And lastly, and very consistently, we return capital back to shareholders via a balance between dividends and share buybacks, given the tremendous opportunity we have an ability to generate free cash flow on a consistent basis. So with that, I'm going to turn it over to Brandon, who will go through the Q&A.

Great. Okay, Wetteny. Thank you for the intro there. I think -- as you had mentioned, there's plenty of topics to discuss here. I want to talk about the animal health market overall. Let's start in the companion animal side, in part because I want to compare it to what it has historically been. You guys have talked about this before. It's a pretty good, I think, like a mid-single, maybe 5% growth market.

But lately, we've been talking about and you're not the only one in many of my consumer-exposed health care companies have been talking about a little bit of consumer weakness, a little pockets here and there. So first, just level set us on like what is historically this market? What is the growth within this market in the companion animal side? And then what are you seeing recently? Where might you be seeing some pockets of weakness if there are any?

Sure. Look, across the last decade or so, we have seen animal health deliver somewhere between 4% to 6% growth globally. Zoetis has a proven track record of leading the way with that, largely driven by innovation. And it's not just in a 1- or 2-year period where you bring out new products. It's how we have through expansion of those markets and continuing life cycle innovation extend sort of the growth tailwind that we get from our innovation. And what we are seeing now we've seen over the last couple of quarters is some more adverse picture when we look at the macro.

And it's showing up in terms of how the consumer, pet owners, are extending dosage intervals, for example, or delaying visits to the clinic is how it's showing up. And it's compounded and you see it also more in the therapeutic categories, which are more important to us versus overall visits, but you also see it more concentrated around the large corporate clinics given the cumulative effect of price increases that we've seen over the years. Now that happens to also be happening at the same time that we see more competition in some categories.

Although I would say this, competition is not foreign to Zoetis. We operate in markets within Animal Health they have always been highly competitive. If you think about parasiticides, for example, the largest market in animal health, it is intensely competitive, it has always been. And we clearly have shown an ability to grow in that market and gain share over the years, similarly in the vaccines and lifestyle, et cetera. And so we're seeing this sort of adverse macro condition play out at the same time that we're seeing more competition in categories like derm, where we haven't seen as much competition clearly given our position here other than we're competing against still use for dermatological issues for over-the-counter or nontreatment at all.

That's not been our competition. Now you have others that are launching products in this space, we remain very much differentiated. But in the window as they're launching and are being more aggressive in terms of their promotional pricing, they are lasting longer. You see that compounding with the macro piece that we talked about.

Okay. Let's stick with the macro first, and we'll follow up on the competition comments as well. But are there as you think of where you might be seeing pockets of macro, you mentioned -- you have a broad portfolio, [ radio parasiticides ], maybe $300 to $500 annually, if you look at online, how much a Trio might cost and then you might have like an injectable like Librela or Cytopoint, are there certain pockets within the portfolio that are being impacted more than others by macro?

So I think this combination is how to bifurcate the two pieces. Certainly, they both are having an impact. It might vary a little bit from one category to another. Clearly, when you reach some comments I just made around dermatology, with the onset of new competition, it might be a little bit more competition impacting the macro, but there's a little bit of macro there as well. which is demonstrated by the fact that you saw visits in now we're talking U.S. specific. Obviously, we run a global business.

But visits in the quarter for periodic in the clinic, we're down about 2% in the quarter. So clearly, there has some effect across from an overall demand and macro standpoint before you get into what happens then within competition, right? And in the case of parasiticides, which as I said, has always been highly competitive there, it's a little bit more of the macro than it is of the competition that's playing out in terms of what we're seeing right now. We saw the height of launch promotions happened last year, about the second half of last year.

Since then, we've seen some sequential improvement in terms of our overall share, which was only modestly affected before that anyway. We've seen sequential improvement. So it's been very stable for us overall, particularly when you think about Puppyshare, which is very much a leading indicator, remains above our overall share, and it's been very consistent as well for us. So that's how I'd bifurcate just to pick on those two. Clearly, the macro environment has implications beyond just these two therapeutic categories, but these are the ones I know they're the top of mind for everyone.

Has macro gotten worse as we've gone into 2026? I mean we've been talking about the visit declines for several years now. Is there something about macro only that has gotten worse this year? Or is it just that it's compounding with other headwinds like competition?

It's a little bit of both, Brandon. Look, we've been talking about the fact that overall visits don't -- are not determinative for us for years. And you've seen us post really strong growth despite overall business being down anywhere from 1% to 3% since 2022, following 2021 in the peaks there. A combination of things have enabled that has been innovation as we launch products that we're ramping, for example, Trio ramping, et cetera, after the 2020 launch and launching [indiscernible] for a period of time that was really driving a tailwind for us.

And by the way, really strong growth that was outpacing what's happening in the clinic and to some extent, making up for some of the clinic headwinds and what's happening outside of the cleaning in terms of alternative channels that we're growing at much higher rates. Now they're still growing faster than the clinic, but then at the rate that they were 2 or 3 years ago. So when you combine those, in terms of the overall macro picture, it starts to compound with the competitive launches.

Okay. And maybe the last one on macro and we'll move on to some other topics. But because, again, like we want to keep this high picture. And I think one of the big questions I keep getting for all of animal health right now is I think people can appreciate this is a resilient market, but it's not an immune market to macro as we're seeing. So if this is historically a 4% to 6% growth market, what are we talking about now, right? Like what do you think the market is going to grow at through '26? What are you kind of implying within your guidance at this point?

So look, I think it's important to talk about what don't we see changing. We spend a lot of time so far in this conversation just covering some of the cyclical things that we're seeing across the business. What we are seeing long term is the secular tailwinds that drive these major market areas continue to be strong long term. the human animal bond, driving pet span across the world, not just in the U.S. continues to be a really strong feature.

Consumer is actually spending more it's just that the cumulative effect of price that has been taken, particularly in the clinics, logic lengths in the U.S. is having an effect on volume versus price. But in the last quarter, for example, overall revenue for clinics actually were up about 3% with visits being down about 3%, so about 6% of price is putting some of that additional pressure. On volume, but you see strength in terms of pet owners spending, if anything goes wrong with the animal, they're spending it on diagnostics and they're spending on emergency clear, which continues to really do really well in this environment as well.

So I do think it's important to think about whereas the pet owner, they remain -- in fact, they're even more engaged in the care of their pets than they ever were. And so that is a strength, I would say, long term that's going to carry this industry in addition to innovation. And then on the livestock side, of course, you've seen continued strength in terms of animal protein consumption, you saw strength in diagnostics, et cetera. So those are the things that have not been as impacted. In the long term, we continue to see that being the feature for the business overall that we will continue to lead.

Okay. As we think about Q1 results, and this is a little bit tricky because you guys don't guide on a quarterly basis. So I'll acknowledge that upfront. So -- but this may be a helpful question for us to understand the trajectory of how the business is going into the year. When we're talking about macro, we're talking about competition. These are the two things that are headwinds to the business right now. I think The Street, as you -- sorry, you can see obviously about the stock. The Street was a little surprised by the Q1 results. Where either of those dynamics surprising to you in Q1 or did Q1 unfold the way that you thought it would?

When we look at each of these components, there are elements that we certainly saw, and that started late last year, for example, the competitive launches. The timing of those may vary, but we've known competition is coming for some time. We know what the effect of what some of the tactics that are used are -- it's the combination of these things plus the impact they had in terms of distributors and retailers replenishing their inventories that impacted the quarter more meaningfully than expected.

It's the combination, not individual item, if you will, is what happened with the quarter and the impact that we saw. Now we've reflected those in the guidance for the rest of the year, to your point, we won't give guidance by quarter. But a few things that I would remind everyone of. Number one, we came into 2026, expecting to see a first half versus second half dynamic.

Is it more pronounced now with the results of the first quarter? Sure. Are we expecting an uptick in terms of significant improvement in vet clinic visits for the rest of the year? No, we're expecting the macro to be significantly better now or the competition intensity to reduce significantly. No.

However, if you look at sequential execution, across a number of our products in key categories, you see improvement as we go through the year, you see an easier comp in the back half of the year. stemming from last year, by the way, we had a 9% growth first half last year. We ended the year at 6%. So you saw the deterioration in the back half of the year. So there's an easier comp we have there.

You haven't asked about Librela, but let's talk about OA pain and what we saw in the first quarter. We saw the first -- we've been saying how that's going to stabilize over time. You saw the stabilization play out, including sequential albeit modest growth in Librela. And as we go through the back half of the year, the comps get a lot easier for that as well.

So there's a combination there. One last point I will make is we're not anticipating an uptick in terms of pull-through as we see in the back half. It's really the comps that create a dynamic where you see a higher growth rate at the back end versus the front end.

Okay. let's pivot a little bit and talk more about kind of the innovation pipeline. This is, of course, an innovation-driven story and I think a sector that's heavily new product cycle driven. You touched on Librela, so maybe we'll segue into their because that's probably the nearest term kind of new market for you guys that is developing. What is it about as you went into Q1 that is finally kind of stabilizing this business because I think that will help us set the base for them to talk about. What is it that's giving you confidence that this can actually return to growth in the back half of '26?

Sure. When you have a multipronged strategy that we've been executing now, we've been talking about it for better part of the year, it's hard to pinpoint one element to see this is the piece that's having the greatest impact versus the other. I'll start high level, the OA pain opportunity remained very, very significant. And you can see in the U.S., for example, it's somewhere between 25 million and 27 million dogs that suffer from OA pain with about $9 million being treated and being treated largely with NSAIDs, which tells you that both clinicians and pet owners want to treat this.

And we're doing a lot to help educate more and more to the pet owners, in particular, around the fact that this is a progressive disease, that has other downstream implications that as well if it's not treated. And that is resonating with pet owners as well as with veterinarians in terms of sharing data with them, what we're seeing across the world, real-world data, et cetera, in terms of how the product is and you continue to see positive opinions around the risk-benefit profile of the products.

So those -- all those are contributing to driving us. As we look ahead, we also have the approvals of the long-acting components with Lenivia and Portela that are starting to launch in markets in Canada and parts of Europe, we anticipate additional approvals in other markets. And as we get into next year in the U.S., et cetera, that will continue to help drive and access this market because the convenience factor, for example, of having a 3-month injection versus a 1 month particularly for moderate cases that are more chronic, that 4 years, you're going to require a monthly injection, that's a tall ask for a pet owner.

And we believe firmly that will be additive in terms of the picture, but give flexibility to both pet owners and veterinarians in terms of how to treat in this category. So we remain very much looking forward to continue to drive the expansion in this market, both in terms of driving that for the existing products and then the contribution from the new products that will come out as well.

Okay. Talk to us a little bit also, this is probably the nearest term. We have long-acting Cytopoint coming soon, and then there's renal others. Talk to us a little bit about the pipeline, especially for those who are newer to the story in the next several years, what's the pipeline of the next kind of 3 or 4 biggest drugs that we should be thinking about?

Yes. So clearly, the OA pain launch and how that has transpired over the last couple of years, has created a little bit of a challenge for us in terms of the additive element in terms of growth across the horizon. As we look ahead, we have a number of launches and approvals in terms of life cycle innovation that's going to contribute to our growth. And then we're anticipating the new big areas to start to get approvals towards the back half of next year to start the new innovation cycle, if you will for the company.

Meanwhile, to your point, in terms of the areas that are going to continue to drive value for us. You mentioned Cytopoint, a product that has very high satisfaction levels, we're very excited about the anticipated approval for long-acting Cytopoint towards the end of this year with launch early next year that will drive that. We have seen approval in Canada for convenient RTU, for example. And we anticipate over the next few years to see approvals in other markets for that product, one that has some generic competition against it currently. We've seen label improvements and geo expansion of products even like Trio with the launch in Brazil recently.

We've seen label expansion to include flea enduced tapeworm. So prevention of that on the label for Trio. So lots and lots of things that are R&D function and our manufacturing teams, et cetera, we've been working on. you're seeing the impact that those will have over time before we start to get into the renal chronic kidney disease, oncology and 1 that we can talk about.

Okay. As we think about like a Cytopoint later this year, we think about renal later in '27 how do we think, especially now in the context of Librela that I think you guys have had some learnings as maybe the way I'd phrase it and how to launch that and how to make sure it's a durable trajectory. How do we think of the launch of new products like this? So you've given us a guidance for late '26 Cytopoint. I think a late '27 renal, correct me if those are wrong. But what does that mean for when they will ramp and be more meaningful to the P&L?

As we've been talking about for some time now, one of the observations coming through the Librela experience has been the need to make sure that we spend time and invest in that time with specialists to get their hands on the product and get really familiar with. With it and using it so that they can be part of the voice, if you will, to general practitioners to get their hands on a molecular antibody.

And that approach, particularly when you consider we're getting into more and more therapeutic categories where you're treating sick animals, that's going to be increasingly important. So we are preparing for that evolution in terms of how we approach launching products in a number of ways. Number one, you saw us talk about some changes we made to our go-to-market in the U.S. in terms of field force. But we look to optimize that and get even better reach a frequency across the field force, where we saw opportunities to reduce some of the head count in that area. We reinvested components of that into professional services vets in areas we're actually calling on vets, which is an important piece when you think about the pipeline that's coming in terms of how we might leverage those conversations and the input from bid-to-bid conversations that can happen.

So that's one example. In terms of how we go about the launches, we're going about them in a very deliberate manner, where we will do early experience and exposure specialists first, get feedback and input from them to factor into the rest of the world as we launch in other markets. which means you have a slightly slower beginning to help you accelerate later on as we continue in terms of the launch across those products. And certainly, that's the approach we're taking with the long-acting OA pain product in Lenivia as well as what we are contemplating with respect to chronic at disease, oncology and other components that will come.

Okay. And remind me the long-acting OA pain, just to make sure we have this right. Is that coming to the U.S. in '26 as well approval in '26?

We have said that's a 2027 approval expectation.

Okay. Got it. I don't -- in the general presentation here, I want to make sure we touch on. I don't give it enough love, the livestock side of the business, especially because of the position we're in right now in -- especially around the world. cattle prices are high. It feels like a really attractive market. Tell us about the durability of growth on that side. What do we -- what should that be through '26 plus? And what are kind of the tailwinds helping that business?

Sure. Thank you for asking a livestock question. It's an important growth driver for the business. And if you've seen over the last 3 years coming into you've seen us deliver mid-single-digit growth somewhere between 6% and 7% over the last 3 years. We came into this year very strong with the first quarter performance of double-digit growth there. and we're continuing to expect mid-single digit to high single-digit growth in livestock for the year.

And to your point, what we've seen in sustaining the growth that we're seeing across livestock right now and a number of factors. Number one, you see long term, by the way, population will -- another 2 billion people will be on this planet as you look out over the next 3 or so years. and the incremental protein production that's going to be necessary to feed that population is going to be a secular tailwind here. We're also seeing increased income levels across emerging markets where they're looking for more quality of animal proteins to consume.

That's certainly part of the tailwind. And then we see in markets like the U.S. particularly driven by GLP-1s and so on, increased animal protein consumption that's driving some tailwind here as well. Now the fastest-growing protein and porting categories are poultry and fish. We are #1 in fish. We have some very effective vaccines that have been driving our growth in that globally for us. We continue to be the market leader in that spectrum. In poultry, we have opportunity to continue to expand. We're getting more and more approvals. You may have seen for vector vaccines that are delivered via the biodevices that we actually have a leading market share in globally as well.

So we see continued opportunity to continue to increase our presence across protein around the world. But clearly, we have a very broad spectrum in terms of species that we cover in livestock, which also drive diversification across the business and help us capitalize on the growth wherever it might be around the world.

Okay. What -- how do we think about innovation in that product in that side, where is it -- this is predominantly vaccines? Are there any other big areas that you are investing in, in the livestock side?

You certainly see prevention being the leading pathway to drive growth here. This is where the demand is around the world, so vaccines, first and foremost, other elements, genetics, right? So we talked about Zoetis. We happen to play across prevention, genetics and so forth as we see vaccines being a key component when it comes to life cycle, that is why I used the example in the poultry and vector vaccines and how those are delivered in overall -- in eggs, as well and again, having the leading share of the devices that do that.

Similarly, in the Aqua, fish business across cattle, et cetera, around the world, this is the leading area. The parasiticide prevention in livestock that's also driving areas. There have been disease burden in certain areas that we continue to pursue solutions for. So livestock is again, an attractive end market for us, and we continue to drive innovation in that space. Although it's not talked about as much because the size of individual markets don't get to the sizes that we talk about in terms of derm, et cetera, but they're very meaningful.

Yes. Maybe in the last minute or two here on the P&L and the financial side. Your stock right now is trading at the lowest multiple, I think, since you guys have gone public. How do you think about using your free cash flow, your balance sheet to get aggressive on share buybacks. I mean you guys have used the balance sheet a little bit already for that. So level set us where you are with that and thoughts on a go-forward basis to use that.

Sure. Both dividends and share buybacks are important pillars within our overall capital allocation priorities, the type of products and unmet need that still exists in animal health means that our primary focus has been and will continue to be in investing in the business to pursue driving solutions that are meaningful in terms of advancing animal care, which I mentioned earlier as being our primary purpose.

Having said that, we do generate significant cash in at Zoetis. And you've seen us deploy that via acquisitions. But even after CapEx and everything else, we've delivered last year, $2.3 billion of free cash flow. And so that gives us opportunities to both pay a dividend that has increased over the years, as well as pursue share buybacks. And we, in December, also tap into the balance sheet to do more of that. where the stock is trading right now. By the way, we still have $1.8 billion remaining from the last authorization that we received from the Board as of the end of Q1, we still have $1.8 billion.

So clearly, that gives us plenty of firepower to continue to execute on, and we do take into consideration current market conditions and share price into that equation, but consistently buying back here is something that we have demonstrated over the years, and we'll continue to do that.

Okay. Great. We'll end here for the presentation, and we'll go out to Meyer for the breakout session. We'll start there in 10 minutes. Thanks, everybody.

Thanks.

Thanks, Wetteny.

All right, guys. Good afternoon. Next up, we have Zoetis. I'm pleased to have on stage with us their CEO, Kristin Peck; and Wetteny Joseph, their CFO.

I got a lot to discuss, a lot to get into. Guys, if you have questions, throw up your hand. I'm going to try to go in some sort of order or structure and see if I can abide by that.

So let's start with the updated 2026 guidance. Top line organic operational growth was 0 in the quarter -- in the first quarter. It did have a benefit. And the updated full year guidance calls for 2% to 5%. So some of the incoming that I've been getting is like, look, other than comps, why do things get better for the balance of the year? Maybe if you could just call out maybe some of the drivers there.

Sure. I'll start, Jon, on this. And as we shared on the call, as we look at the balance of the year, there are a number of areas that we anticipate sequential improvement in. You would have seen in the quarter, for the first time in 5 quarters, we saw OA pain actually saw sequential growth. We've been talking about, although modest, but we've been talking about stabilizing OA pain for some time now and our multipronged execution is taking hold, and we're seeing some of that impact as we saw in the quarter. If you look at Simparica franchise, and so if we look at heartworm, we are anticipating to see sequential benefit as we go through the balance of the year as well.

Now in derm, we are expecting to see incremental competition there. So as we said, we believe that the -- both the competitive and macro conditions that we saw in the quarter will continue to persist. We're not anticipating that there's any significant improvement on those to drive the year. And as we step back and look at actual revenue dollars, we're not anticipating a significant uplift -- an uptick between the first half and the second half. But the comps actually drive a greater and more pronounced view in terms of what the growth rates look like across those.

Now you saw strength across livestock. We came into the year, after 3 straight years of mid-single-digit growth in livestock, and you saw double-digit growth in the quarter. And so we continue to see a really strong performance across livestock in emerging markets, and of course, International. And in the U.S., diagnostics posting double-digit growth as well, which we continue to drive sustainably. And then of course, we have the commercial areas that we're executing against that we expect to have contribution as we exit the year as well that will help.

But one last point I'll make is that when we gave our guidance initially back in February, we anticipated the first half/second half dynamic. So this is not new. Of course, the performance in the quarter means that the inflection point is a bit greater from first half, second half, but it's not a new dynamic in terms of how we think about our guidance. And because we anticipate that the conditions will continue to persist, we widened the range to accommodate for both incremental entry in terms of competition in derm as well as what we're seeing in the macro.

Okay. And one of the things that some investors struggle with is it does seem like a decent ramp. Part of that, as you discussed on the call, the distributors working down inventory. I know you don't want to be precise. But it would help us, is there a way to frame that headwind around where it landed for the quarter, right? Because some of those numbers, the declines were exaggerated as the distributors had less inventory at the end of the quarter than when they began the quarter. So is there a framework that you can provide when we think about that?

One thing I'll say is like we always start inventory, and most people in the industry do, before price increase is at the high, and we end at the inventory you have for most of the rest of the year. I want to be clear, those were more normal dynamics. What happened was as demand -- it's more of a demand issue, which was as the market was soft, especially early in the year with weather and things like that, and then the markets of paras and derm weren't growing, they weren't reordering.

So inventory level is much more about a demand issue, is what we're saying. So the dynamic that we were paying attention to was sales out of distribution and sales in from us into distribution was where the anomaly was. And that will not persist. And that's the other dynamic that won't persist as you look at the rest of the year. I mean that was a normal dynamic in the sense of where we started, where we ended. What we were expecting to see and what we normally see is them reordering. But I think based on the fact that, especially in our portfolio, we, in derm and in paras and in those areas, were really hit by both the macro and overall competition. There wasn't a reorder in the quarter.

Because if we were to try to match the 2, and I know it's not that easy, right? Say, hey, if we were to match the 2, what went out the door and what were to go back to the distributors, I've been hearing some numbers thrown around, and it just might be from clients in sales side, but it's like $60 million to $80 million, which was the impact that hit you in the quarter because those 2 variables did not match up.

I mean you have to look at -- we wouldn't say it was that simple to look at, and we haven't quantified it overall. Because again, you have to believe what was the order, what was the demand, what do they expect of the promo. So that's a lot of whys. It's a little complicated.

Okay. A lot of variables there.

Yes.

How about just what you guys have dialed into expectations? You're going to have Numelvi just recently launched in the U.S. Praferan is supposedly going to go out the door shortly. So when you went ahead and you came up with the construct for the guidance, like what are you assuming the success or lack thereof is for these products?

Sure. Look, there are a number of factors we take into consideration when we put guidance together. And certainly, the launch of these competitive products is what we anticipate, and anticipate them being aggressive, particularly initially as they try to position those new products in the market. And that those are things that also contributed to the widening of the guidance range that we gave. Going from 2 to 3-point range is not typically what we come out with. We didn't come out with the 3 point initially, but we widened it to reflect those. So those are certainly incorporated, in addition to what I answered on the prior question in terms of what are some of the things that offset that in terms of what we're looking at the balance of the year.

Okay. Maybe one more just sort of nuanced question. You obviously printed 1Q, you gave the year. You guys never give specific quarterly guidance. But earlier in the conversation, you mentioned, hey, the comps ease into the back part of the year, and that is part of the dynamic. We have 2Q highly reflective of 1Q from a growth rate perspective, right? So you guys were essentially flattish in 1Q. I think we're 0 to negative 1. Are we thinking through that correctly where 2Q would be representative of 1Q from a growth perspective, and then that puts sort of, I don't want to say the inflection point, but the growth right into 2H that's needed?

Look, I think, as I've mentioned, we had the first half/second half dynamic in our initial guidance. So we saw some of the stronger comps that we were up against coming into 2026.

Certainly, if you look at OA pain, for example, we started to see some of the headwinds in OA pain last year about the tail end of the second quarter. And therefore, it still is a very strong comp that we have. Though again, we're very pleased with the sequential performance that we saw starting in the first quarter in OA pain and the impact of what we're doing, in addition to the additional products that we're launching in markets like Canada and Europe with Lenivia and Portela as well contributing to what we expect as we go through the rest of the year.

We won't give guidance on a specific quarter as we typically wouldn't, nor give an update in mid-quarter. However, those were the factors that we put in that caused us to know that there was going to be a first half/second half dynamic from the beginning.

Okay. So at least just hypothetically speaking, if we are flattish in 2Q, we're sort of abiding by where you're going with it directionally.

It's a consistent view we had on the year from the very beginning.

Okay. Fair enough. Kristin, for you, Zoetis' competitive response, and you and I caught up a little bit after the call. I'm just curious how you would frame it with targeted promotions, but maybe not pursue a big pricing reset. Is that an accurate characterization of how Zoetis is going to respond in the field?

Yes. I mean, look, I think Zoetis is always really focused on having a differentiated portfolio both on safety and efficacy. We've always focused on leading with innovation and then making sure that we deliver a great customer experience with our reps and with the service that we provide.

With that, we remain a premium-priced product. We do not play the pricing game. We do do targeted promotions. We continue to believe we have a differentiated portfolio. And as the market leader in most of the spaces that we're now, if you look at derm and paras, where we're seeing new competitors, we continue to believe we remain differentiated. And we really don't think it creates value for any party by us taking prices down.

Will we be more disciplined about price increases? Of course. Will we be really more targeted and focused as we think about promotions? We will certainly do that. But we do not intend to reduce prices to compete in this world. I don't think that's, A, necessary, but more, do I think it creates value. I think especially as you enter market that's not growing right now, as you look at the parasiticides, we hope it returns to growth, it has a lot of ways that it can continue to grow.

All the untreated dogs.

Right. The untreated dogs. And if you look at just parasiticides, dogs moving from singles or topicals or collars, the market has a huge opportunity to grow. We're going to focus on being a market leader and growing the market. We're going to focus on direct-to-consumer advertising, driving loyalty programs with pet owners, things like that, that continue to drive demand. And I think that's our role as the industry leader, is shaping that environment and helping to grow those markets.

So I'm just going to sort of beat this up a little bit, because people don't believe me when I say it, but they'll believe you when you say it. So I had a lot of incoming afterwards. And again, when you and I caught up, I said, look, I had this clear aligner company and they had 90% share, and it's not a great place to be in. But you got to figure out your strategy. They didn't pursue a big pricing reset. And I think our conversation went something like, "Look, Jon, I'm not going to reset prices by 10% or 15% to shrink the market and then compete off that lower or smaller market." Is that fair?

Yes. I mean we went from someone who owned basically 100% of the derm market, if you pull out like steroids, and we've lost, give or take, in the U.S., it's different in different markets, say, 7% share. Unless you believe you can grow the market, taking a price reset when you have 93% of the market destroys value for everybody. And so my view, and more importantly, for us and for our shareholders, I don't think that actually creates value.

So we want to make sure we're focused on growing the market, making sure that we're building deep relationships with our customers, building customer loyalty. But unless you believe you can more than grow the market 10% taking the pricing down, you can't...

Put yourself in the hole.

Right. I mean at 93% share, that's a losing proposition. So no, we're not going to do that. Is that clear enough? Since you've just you heard it now 3 times.

So I heard loyalty programs on the call, and you just threw it out again. What are you going to do differently, or what are you going to tweak a bit? I think it's like what can you do to better retain or limit the churn? So can you give some more specific examples around some of these initiatives that you might run in order to sort of better keep your customer base intact?

Yes. I mean I want to be clear, there's 2 different kinds of loyalty programs. There's the vet loyalty program and then there's a pet owner loyalty program.

As we think about the vet program, we think about incentivizing both across our portfolio of reps. So the more categories you buy with us, the better the discounts and service you can get, as well as the more of the dollars you spend in each category. So we're going to continue to invest in those loyalty programs with the vets, making sure that it's the right balance across those categories and those growth targets overall makes sense.

And then as you think about the pet owner, we've had My Petcare Rewards program. And in that, you would scan your invoices, and at the end of every quarter, you get points that would get you a card, a credit card basically, you could spend back at the vet on anything you wanted, on any category, but only at the vet channel.

I think in this market where it's a lot more important to be able to afford that bill at the checkout, we instead want to pivot a lot more of our loyalty program to being a loyalty program, at checkout, you can get that discount right away. And so we're looking more at being in the loyalty program and really maybe the longer you get, the more of the discount. So how do we think about loyalty, but giving that discount at point of care when you're checking out versus getting that card that you're then going to get [ little ]. So we're thinking differently about that. And how do we find more engagement in that loyalty program and encourage them to stay with product and to buy across more of our products, et cetera.

Have you started to implement some of those initiatives?

So we started, in certain parts at least, we're piloting them in certain customers with different technologies to be able to do that. Again, you need them to get registered and you need the vets to be signed up a little bit here too. So we're looking at different technologies to do that.

Okay. Great. Maybe if we could just go to -- we have a lot to talk about on life cycle and what you guys have coming through the pipeline. So maybe let's start with Cytopoint Plus, and just walk us through the timing. I think year-end '26 in terms of approval. Do we also see a launch this year, or could that spill into '27?

Our expectation is the launch would be next year, as we normally, from approval to launch, there's going to be a little bit of time. So we are expecting the approval of Cytopoint Plus, which is our Cytopoint long-acting. So this is indeed Cytopoint that would be a 3-month Cytopoint.

We're really excited about that. We think it provides incremental convenience and affordability for the pet owner, which I think will be really compelling. A lot of pet owners find it difficult to get in every month, and so sometimes it's 45 days or 60 days. So being able to go in once and get 3-month dose we think will be a compelling value proposition and certainly help us compete as we'll start to see this year the first competitor in the IL-31 space for a monoclonal antibody.

So just to put some numbers to it, I remember we did work a while back where it was like, hey, the average Cytopoint user was getting 7 months out of 12 treatment. But now, look, if they come in 3 out of 4, it's 9 months. So you're getting sort of that lift on utilization. Is it also a market expander? Some people that sort of stepped away and, "Look, I can't lifestyle-wise get in here every month," now maybe they come in to the equation?

Yes. I mean we think it will be both. We think it'll be, obviously, increased compliance for those that are currently Cytopoint users. But more importantly, for some people who are just, "It's a lot. I mean I work. I can't -- there's no way I can come in every month." It will help expand that market as well.

Okay. And how about the timing for OUS markets for Cytopoint Plus? Because you do have a pretty good book of business in Cyto OUS.

We do. We have not announced the timing on those, but it will not be in '26.

Okay. Maybe to go to Lenivia for a second. Can you share feedback? I know it's early, but where you are in the International markets?

Sure. We just started our early experience for Lenivia and Portela. Those are approved in certain EU markets as well as in Canada. So we're beginning that. We're just doing our First to Know. So as we get into our Q2 earnings, we're happy to sort of share sort of where those are starting to read out. And we're looking forward to the full launch as we look into the second part of the year.

Again, very similar to what you were talking about in Cytopoint, we do think a 3 months here will be much more convenient for pet owners, and more affordable. And what's different here with Lenivia and Portela is they are not long-acting Librela and Solensia. They're indeed unique molecules.

So we're going to very much take the lessons that we learned as we launched Librela and Solensia. We're starting with specialists and sort of some very large GPs building an early experience. And then we're going to have those specialists help us educate the broader veterinary community as we use the product. So really just being a little more slow and thoughtful and really starting with the specialty group and early experience before we launch fully.

I think if I go back in time, it's off the top of my head, but like Librela was a rocket ship out of the gate. I think it was like $40 million in that first quarter, so sort of all guns blazing. To your point here, you're going to move a little bit slower, get the specialists, get the support, maybe get some podium, and then go from there.

We're really focused on making sure that we have a deep understanding in the specialist community, that they're helping educate the GP community, really investing in the early experience and as many studies as we can to really support these products. We'll continue to do that.

And more and more, we'll start talking about dog OA pain and cat OA pain as categories, because obviously, as we think about the growth of the category, we're going to be fine if they switch from Librela to a long-acting Lenivia. So we're really going to be thinking overall about monoclonal antibody OA pain. I had a customer, a client here say, "Are you going to put Rimadyl in there?" No, I'm not putting Rimadyl. It will just be looking at injectable OA pain treatment, et cetera.

Okay. We had a couple of doc panels throughout the past couple of days. And they're excited about the longer duration. And then I mentioned like the 3 months versus the 1. Like, "Well, I mean, are they going to price it 3x?" I think so. So maybe your thoughts on that. Will you guys just take sort of a duration -- price time duration, and that's the new...

It has launched in, again, in certain European countries. And in that launch, it is at a slight discount to the 3-month, because we believe that everyone isn't getting a full 3 months. And so we're trying to make sure that it's a good value proposition.

Okay. And then on the earnings call, you did mention additional label updates for Librela. And there was a lot going on in the earnings call and I thought that was maybe a little bit missed. So are those label updates U.S.? Are they OUS? And maybe if you could help us out what might be coming out on that front.

Well, there were announcements in the EU. So as we've said, we're going to continue to work with regulators across the globe as we do more and more of these studies to continue to update the labels. So we were just being very clear that we'll -- as we said previously, I think the last few quarters, we'll continue to work with regulators. We'll continue to expect it. We did get an update, obviously, in the EU in the quarter. I mean I don't think they're going to be as -- there's not as probably -- this is more usual course, is what I would say.

Not more restrictive in any way?

We're trying to make sure that whatever we're learning about the safety-risk profile of the product, that we are capturing all that on our label in each of the markets as we get those. Every market has their own process, as you're well aware. So we'll be -- as soon as we get that information in each of the markets, we're working with the regulators to update those labels.

Okay. And then just help me tie it back to the model a little bit. Like you mentioned earlier, "Hey, Librela has sort of stabilized off these lower levels sequentially." When we think forward to '27 and beyond, does this help sort of resuscitate growth specific to canine OA pain?

Yes, certainly. If you look at the opportunity, it remains large. We've quoted the size of the market opportunity in the U.S. alone. For example, we have somewhere between 25 million and 27 million dogs with OA, with only about 9 million getting treated today. So we believe these solutions or longer-acting solutions will help us, to the point that Kristin already made, expand the market and drive growth across the OA pain franchise for us. And these approvals across Europe and Canada, and we're seeing more and more coming in and we're expecting more, will help us drive that expansion of the market.

I know it's a small part of the business, but on diagnostics, I mean I go back to the old Abaxis, and so there hasn't been new chemistry for a while. You're talking about a next-gen system. Anything that you can give us on features and functionality, the advantages and when you plan to roll that out?

Sure. We are very excited. It hasn't yet been launched so I can't tell you much about the unlaunched product, as I know you would be excited to. We do think a new, innovative, disruptive chemistry is what is needed to really accelerate that and to accelerate our growth, especially in the U.S. We do think we're quite differentiated as we think about hematology with our OptiCell. We think we're quite differentiated with images, but we don't believe yet in chemistry. We're as differentiated as we need to be to get more of that competitive capture wins in the United States.

We're quite competitive outside the United States, but we're super excited for this launch. And I think it will help us to gain share overall, and more importantly, provide a faster and easier-to-use chemistry instrument to the industry. So we're excited. We are expecting to be sort of launching that and discussing more about the function and features as we get to the second half of this year.

Wetteny, to bring it back to you from a modeling perspective. When we think about some of these life cycle innovations, a lot of them are in and around 2027, right? Maybe they have a stub period in '26, but most of them are incremental dollars in '27. So I think about like an up arrow and a down arrow, right? I mean so you have competition that I think is going to become a little bit more acute in '27 versus '26. You'll have full year Befrena, full year Numelvi, some other maybe headwinds as well. But then you have these incremental dollars, they won't be as big as some of the new opportunities, but there will be some incremental dollars from life cycle innovation.

How do we balance the 2? Like is this enough to sustain the lower rate of growth that we're seeing in 2026? Or is it like no, those competitive pressures are pretty persistent, and we want to take a step back in '27 versus '26?

Yes. So it's still a little early to give precision on 2027, certainly, Jon.

I got to model.

And appreciate the way that the question is framed. I do think, as we said, we expect some of the macro and competitive pressures that we're seeing to persist through this year and going into 2027. Now we're already well into the competitive launches. If you think about outside of the U.S. in particular where the Numelvi has now been out for, I think, 3 quarters now. We have all the competition in derm that's been around for over a year in markets including the U.S. and outside. So it's not to say that we're not anticipating more competition and the intensity to continue, but it's not net new in terms of what we're seeing going into 2027. Now lots of other factors we'll take into consideration as we think about guidance for '27, but that's a ways from here.

Okay. And Kristin, I think a lot of investors, sell side, we're all trying to figure out like where can Apoquel land in 3 to 5 years? Where can Cytopoint share land in 3 to 5 years? Are there any analogs that think about, for Apoquel, it would be a 3-player market; for Cytopoint, it would be, we think, a 2-player market? And you go out and you sort of say, "Hey, if I look back at flea and tick, it went from X to Y after monopoly. What percent of share do you expect to have of AD JAK and AD monoclonal 3 to 5 years out for Zoetis?

We've been asked question a lot. Is there another good example of this? I mean to be frank, there is no other category in animal health where someone was selling $1.7 billion and at a 100%, other than steroids, share of our market for as long as we did. So there is no other market.

And paras, we've talked about, it's not a great example because paras has always been incredibly competitive. There have been multiple players since the beginning of time. There's multiple modalities. You can do topicals, you can do collars, you can do single-agents, you can do triple-agents, you can do injectables. And they've all existed for a very long period of time.

So to me, there's new innovation. So as you get with isoxazolines and then you had triple combos, so it's been evolving, but it's a highly competitive market. It always has been. So I'm not sure there really is a great proxy for what that ultimately looks like. We're really just going to remain focused on what we have, which is we have differentiation, we're going to continue to drive that. So we're still the only one with a deep flavored chew. So we've got Apoquel, we've got Apoquel Chew. We have Cytopoint and we're expecting Cytopoint Plus.

So our focus is continuing to invest in that and then to look at other species, other new innovations that we can put on top of that. So I think what Zoetis' modality approach has always been is continue to innovate, continue to life-cycle innovate and to try to stay ahead of the competition by providing innovative solutions with innovations that matter for our customers.

Okay. Fair enough. I got to get to new offerings, right? You guys, a lot in the pipeline. On the earnings call, you mentioned, hey, maybe we'll start to see some dollars, you phrased it differently, into late '27, 2028. Is that U.S. canine renal that you were sort of alluding to, which we could start to see to come to fruition in late '27, early '28?

So I think that's the first. We'll be looking, as we look into the '27, '28, into sort of renal and oncology as being the 2 big new categories. We'll be approaching renal, oncology and cardio very similar to how we're approaching right now long-acting OA pain. We're going to start with early experience.

What makes these products different is we're going to be entering into sick animals, which is quite different. And that's sort of a little bit of our learning as we thought about OA pain. So we're going to be starting with early experience and then expanding beyond that. So I think as we're looking at these, renal is the single largest category, as you probably know, of unmet medical need overall in animal health. It's a $3 billion to $4 billion market. It's 40% prevalence in cats, up to 20% prevalence in dogs. There's really nothing today.

There's a lot of products needed in this category. First, to prevent the progression of the disease and the damage to the kidneys. And secondly, to manage symptoms. So we have a broad portfolio of multiple products as we talked about, as well as diagnostics and biomarkers to be able to watch the progression of the disease to be able to get people to prevent the kidney damage, et cetera. So we're excited to take a more holistic approach to what I think are some pretty big new blue ocean categories.

And they seem huge, and you mentioned $3 billion to $4 billion, and maybe you'll be first there for renal oncology and others. What we've written a little bit too, and it came up recently with investors, is like, are these markets as big or even bigger than some of the ones that you're currently operating in? But does it take longer to cultivate, and sort of the ramp and the altitude how you get there is different? And what I mean by that is I walk in my house, and I can tell if my dog is itching or limping. And I can sort of self-diagnose and then you blast with DTC. And we've seen really quick ramps and adoption curves.

For something like renal in oncology, I know they might be a sick dog, but you sort of got to go to the vet. Are you going to the vet? Are they going to run the diagnostics? And does it take longer to do that sort of assessment? So how do you get there? I mean ultimately, x years out, maybe it's a $3 billion opportunity. But does it take longer to get there for those reasons?

I'll answer it in a few different ways. One, I don't recommend people self-diagnose their dog with osteoarthritis pain. There could be many things why your dog is limping. So I say that I think if your dog is limping, you know you want to take your dog to the vet. I think if your dog is peeing everywhere and has to pee every 5 seconds and is having accidents, you probably want to bring your dog.

So what we want to actually do is diagnose that before that happens, before you can get the kidney damage. But we're also going to have a product for the disease is already there and you see it. So as chronic kidney disease develops, if your dog or cat has it, I guarantee you know if your dog or cat has it. You still need to get it formally diagnosed.

So I don't think that diagnosis part -- you still have to go to the vet and understand. We want to make sure that you can diagnose the diseases earlier, and we'll really focus on that. But as I think about all of these sort of chronic diseases and as you look at all those COVID puppies that are now going to be aging into all of these diseases that we're talking about, I think there's a significant opportunity. But I think you want to make sure you're getting the right diagnosis, which is what we're really focused on, understanding what's really going on with your dog or with your cat, diagnosing that carefully and making sure you pick the right therapy.

So that will take -- will the ramp, in other words, is this going to be as fast as the ramp in a product in a healthy dog or cat, like derm, your dog has a hotspot, it's playing in the water too long and you're going to give it some acute -- some Apoquel to treat that, to treat the hot spot. It's not like that. Yes, there's going to be a little more thoughtful, you're going to have to understand. But I think we're going to be launching these products, in my view, as the COVID puppies and COVID cats are all going to be aging and really have this.

So I think there's a big opportunity. But I do think we need to be really thoughtful about how we launch these products so that we build the specialist understanding to help the GPs treat diseases that in humans often are actually treated by specialists.

And in retrospect, so to push you on this a little bit, that was the misstep on Librela looking back? It was just too broad, too fast, too quick?

Look, I think there was such excitement for a product that could treat OA pain. Vets are really comfortable treating with monoclonal antibodies. They've already been doing it with Cytopoint for a long time. There was a quick uptake. I think what we probably look back and say is, we should have spent more time with specialists to make sure that we're really understanding how to diagnose. Everyone is truly, again, "My dog is limping so I know it has OA pain." It may or may not be OA pain if your dog is limping.

So making sure that those vets are really doing that diagnosis, that they're explaining the risk-benefit profile of the product. They're understanding the comorbidities. Again, as we get into oncology and some of these diseases, there's often comorbidity. So how do you decide what the best-risk benefit profile for your pet is given the comorbidities of an older dog with probably other conditions?

Okay. See what we can get through in 3 minutes. First, Kristin, on the call, you talked about commercial execution and cost management. So sometimes it's just like thrown out in your earnings call, you don't have time to elaborate much. But maybe if you can elaborate a bit. When I think cost management, are you peeling back on reps or presence in the field? Maybe if you can give us some examples.

Sure. I'll start with cost management and then get to commercial execution. As we think about cost management, we're really focused on, obviously, managing headcount. We will be doing, obviously, as we announced, some reductions. But it's really in T&E, projects, consulting, professional services, sort of all those overall categories, to make sure that we can have a leveraged P&L, as we've talked about.

So cost management has always been part of the Zoetis value proposition. We're going to continue to make sure our cost base makes sense for the revenue growth overall that we're driving. But the one place that's not going to come out of is anything that generates demand or feeds our future portfolio. We're very focused. We're a long-term growth company. We've got to continue to be investing in our pipeline that is not coming out of any programs in our pipeline.

We're looking at, again, professional services, all the other things that you'd sort of focus on. Because we really think commercial execution today and developing that pipeline is where we're going to add value. So we're going to continue to invest in direct-to-consumer advertising, which as we go into Q2 and Q3, as we naturally would, we'll continue to ramp that up and be more targeted and focused on that.

We're going to focus again on some of those targeted promotions that we spoke about. We're going to focus on initiation. So how do we make sure we get those puppies onto paras? And how do we make sure we get those -- those dogs that are coming in for a first dermatology experience, how do we make sure they're choosing Apoquel Chewable on that or Cytopoint, et cetera?

So we're really going to be focused on commercial execution at both the vet and the pet owner space and leveraging all the tools. And no, we will not be taking any dollars out of our field force or out of our pipeline. I don't know if there's anything else you want to add there.

No. You covered it.

Okay. Wetteny, back to you just on the growth algo for this year. So the organic operational is 2% to 5%. Just to clear something up, like on the earnings call, someone asked, "Hey, could that have the Neogen revenue in there?" And you left the door open, but it's organic operational, right? So don't put that in there?

No. So the definition we laid out for organic operational are any acquisition that's less than 1% of our prior year revenue would be included. So anything that's immaterial in terms of size, and if you look at this, something that we would expect to close sometime in the second half, the contribution will be very marginal here.

Okay. So the stuff could go into the organic operational?

[ Especially when ] we get to the higher end of the range of the guidance that we gave.

Okay. And then again, within the algo, the expectation is for low to mid-single-digit growth for key franchises, for the year, right? Since 1Q was down 4%, you got to get to high single digits in the back part of the year.

Yes. And my point earlier stands here as well, which is we're not -- comps play a big part, as well as the sequential improvement that we're seeing across parts of the business that we've talked about.

Okay. So that's low to mid. Livestocks, mid-plus, call it, for the year?

Yes. I mean it's -- we already started the year pretty strong with 12% growth on livestock. And you've seen mid-single digit the last few years.

And if we follow that, at least the way we run our model, we sort of back into legacy companion animal outside the key franchise. That's sort of how you would...

Yes, with about 1 to 2 points on price.

Okay. And so the 1 to 2 points on price, the team, I'm biased, I think, did some good work. In your Qs, and you do give a lot of good disclosures, like the pricing realization in your key franchises has come down. Kristin, to your point, it's not you doing this massive price reset. It's just like a gross-to-net argument, I would guess, right?

That's exactly right.

Correct.

So it used to be as high as 8% and now it seems to be maybe slightly negative. Your overall price for the year only went from plus 2% to 3% to plus 1% to 2%. So if key franchises is not actually getting price, you're getting a good amount of pricing in livestock, is this what's leading the turn?

If you look at life cycle performance, it was both price and volume on -- again, that's the quarter. We're not breaking it down to that level for our guidance. However, this is an aggregate price that we're giving in guidance for the company total across markets and across products.

And yes, we are looking at, in terms of our key franchises, the sequential growth in the comps are very important. So in parasiticides, for example, we're coming from very strong comps, both in total and in price utilization for Trio, coming off of the first half of last year and the year before. So you've seen that decelerate here, but that's factored into our calculations.

Okay. We got to a lot of stuff and we're at time. Guys, thanks very much. Appreciate it.

Thanks.

Welcome to the First Quarter 2026 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 2 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 call over to Steve Frank. Steve, you may begin.

Thank you, operator. Good morning, everyone, and welcome to the Zoetis First Quarter 2026 Earnings Call. I am joined today by Kristin Peck, Chief Executive Officer; and Wetteny Joseph, Chief Financial Officer.

This morning, we issued a press release announcing our first quarter 2026 financial results. Before we begin, I would like to remind you that the release and corresponding earnings presentation, which we will reference during this call, are available on the Investor Relations section of our website and that many of our statements today may be considered 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 in our company's reports filed with the SEC.

Additionally, today's remarks will include certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures can be found in our earnings press release and our company's 8-K filing dated today, May 7, 2026. We also reference reported and organic operational growth. Organic operational growth excludes the effect of foreign currency as well as acquisitions and divestitures, which individually impact Zoetis growth by 1% or more. Unless otherwise stated, all revenue growth performance metrics will be based on organic operational performance.

And with that, I turn the call over to Kristin.

Thank you, Steve. Good morning, everyone, and welcome to our first quarter 2026 earnings call. I'll start with the headline numbers we reported today. On an organic operational basis, revenue was flat and adjusted net income grew 1%. Our International segment delivered 10% organic operational revenue growth, while the U.S. declined 8%. By species, livestock delivered 12% organic operational revenue growth, while companion animal declined 4% operationally.

To level set, the quarter unfolded differently than expected, particularly in companion animal. We saw a convergence of interconnected dynamics shaping decisions at the point of care. I'll outline each along with their impact and what we're doing about it.

First, pricing in veterinary clinics continue to rise, though at a slower pace, adding to a multiyear increases and lower clinic traffic.

Second, pet owners demonstrated increased price sensitivity with softer demand for premium products in preventative and chronic care, where Zoetis leads amid a more cautious spending environment.

Third, competition intensified across key pet care categories, including dermatology and parasiticides with additional pressure in vaccines from certain generics. While competition is not new to us, what was different in Q1 was the pace and level of activity, more entrants across more markets with competitors leaning more heavily and aggressive pricing and incentives for extended periods of time to drive share, particularly in a softer end market.

And fourth, in contrast to what we've seen historically, these new entrants have not yet translated into overall market expansion. Taken together, the result is a more price-sensitive and competitive environment. Pet owners delayed routine visits, extended dosing and had new lower-cost options, compounded by winter storms that further reduced clinic visits, all without the benefit of underlying market growth. As the market leader with significant share in premium products, we are at a point where our growth is less driven by new product cycles as we progress our blockbuster pipeline, which we expect to begin delivering significant value for the end of '27 and into '28.

These dynamics increased our exposure, particularly compared to new entrants just launching into these categories and competing primarily on price. You see these dynamics most clearly in our key dermatology and Simparica franchises, where we saw declines in the quarter.

In key dermatology, even with the industry's broadest and most differentiated portfolio, we were not able to fully offset the combined impact of increased pet owner price sensitivity and the lack of market expansion, which drove share pressure. That said, we do see a path for the market to return to growth over time, and we continue to invest in long-term growth, while taking decisive near-term actions to compete more effectively. We also remain on track advancing Cytopoint Plus, which we expect will further strengthen our dermatology leadership.

In parasiticides, the Simparica franchise saw similar dynamics but more pronounced in the U.S. Fewer patient visits drove lower prescription volumes and impacted new patient starts and compliance with retail growth also moderating. Importantly, in the U.S., while competitive launches earlier in 2025 put pressure on share, largely through aggressive promotion, we saw that stabilizing with share levels nearing prior year by quarter end and puppy share still well above our overall patient share.

International markets continue to deliver strong growth in the quarter, supported by the ongoing geographic expansion of our portfolio, partially offsetting the U.S. Despite pressure on revenue, we are pleased with the improving U.S. share trends and our ability to maintain a leadership position in a more constrained market, and across both franchises, while you can see these impacts geographically in today's results. This is more fundamentally about portfolio mix against the backdrop of the shifting demand trends I mentioned. Demand softness across key developed pet care markets underscores that this is not isolated, while emerging markets continue to provide runway for expansion.

Now turning to OA Pain. While the broader trends for this category are consistent with what we saw in derm and paras, competitive dynamics are less of a factor here. In the quarter, Solensia continued to perform well, while Librela drove the year-over-year OA decline. That said, sequentially, Librela has stabilized in the U.S. with roughly flat growth. This U.S. stabilization reflects the continued execution across our multipronged strategy with a strong emphasis on medical education and specialist engagement, which is helping build veterinary prescribing confidence.

Findings like those published by the Veterinary Medicines Directorate in the U.K., confirming Librela's positive benefit risk profile are important inputs into the education effort, and we saw an improvement in our conversations with vets in that market following the report.

And as mentioned on previous calls, we expect additional label updates. These are a normal part of the ongoing regulatory review and provide more information to support appropriate use. We are also in the early phases of our Lenivia and Portela launches in certain European markets and Canada, which will expand the OA Pain franchise and support the long-term growth trajectory and early feedback continues to be encouraging.

Looking more broadly across companion animal, diagnostics continues to be a source of strength. Performance in the quarter was driven by strong international momentum with modest U.S. growth against a strong comparison period and slower placement activity. Expansion in reference labs drove performance alongside strength in chemistry and hematology with continued progress in images. This is consistent with the broader shift we see across pet care, where spending remains resilient in areas tied to urgent and diagnostic care.

Turning to livestock. We again delivered broad-based performance. Underlying market conditions remain favorable with sustained protein demand, driving stronger producer profitability and enabling continued investment in herd health and productivity. Performance was supported by our bios portfolio, particularly in cattle and poultry, where disease outbreaks and increased adoption reinforce the importance of prevention alongside strong performance in fish, benefiting from favorable vaccination timing and in swine. As a result, livestock remains a strong source of growth with solid end market demand and a more focused portfolio following the MFA divestiture.

Our performance this quarter underscores the value of our diversified portfolio while also highlighting where we need to take action to maintain our leadership and regain momentum in pet care markets, where the consumer is under pressure and the competition is increasing. We are doing this on multiple fronts.

First, we are sharpening execution across our core commercial levers with a clear focus on capturing demand more effectively. That starts with how we engage veterinarians, where we are focusing on integrated solutions that make better use of our broad portfolio and help strengthen clinic economics.

We're also focused on improving execution in priority markets through localized action plans to more consistently convert demand into prescriptions. For pet owners, we're investing in targeted DTC activity, simplifying point-of-sale choices with clear loyalty and affordability options and ensuring convenient authorized access across clinics, retail and home delivery. And in livestock, we're reinforcing continuity of supply and responsiveness in key products and markets, ensuring demand is not constrained by availability.

Second, we're accelerating our science to scale model, shortening time from approval to launch and translating that into growth. That includes prioritizing near-term launches and advancing convenience-led life cycle innovations with our portfolio to create new ways to compete, including long-acting mAbs, Procerta and the recent Canadian approval of Convenia RTU, which expands access through a ready-to-use, cost-effective formulation.

Third, we announced an agreement to acquire Neogen's animal genomics business, expanding our capabilities in livestock genetics. This reflects our broader approach to targeted business development, where we continue to be strategic in pursuing opportunities to unlock new sources of growth over time.

Finally, we are sharpening our approach to capital allocation, while continuing to invest in our key growth priorities. As reflected in our adjusted net income, we acted decisively as growth softened in the quarter and launched a comprehensive cost and productivity program, further tightening discretionary spending, driving procurement and operating efficiencies and assessing organizational levers to deliver a leveraged P&L in 2026 and beyond. We have clear priorities and a proven track record of execution, and we are confident these actions will position us to better navigate the current environment and improve performance over time.

Looking ahead, our focus is on improving our trajectory over the balance of the year. Zoetis is providing updated guidance based on the current operating environment and the presentation of its financials for fiscal year alignment.

For the full year, on an organic operational basis, we expect revenue growth of 2% to 5% and adjusted net income growth of 2% to 6%. This quarter reflects pressure in parts of our companion animal portfolio where market growth has slowed and competition has intensified.

As we bridge to Zoetis' next wave of innovation-driven growth, execution, commercial effectiveness, portfolio optimization and enhanced cost discipline will play a greater role in driving performance, especially in this environment. We are actively managing through this period and our conviction in the underlying strength of our business and what enables Zoetis to win has not changed.

Animal health remains a durable and essential industry, underpinned by the strength of the human animal bond and sustained global demand for protein. We operate from a position of strength with leadership in the categories we've helped build a diversified portfolio across species, geographies and channels and the colleagues and capabilities to compete effectively in a dynamic environment.

Our near-term focus is clear: sharpen commercial execution and compete with precision while positioning the business to deliver the next wave of innovation. We are doing this with a pipeline that includes 12 potential blockbusters and more than $7 billion in additional market opportunity as we extend our leadership into entirely new categories of care.

We have helped define the standards of care that exist today, and we expect to play a leading role in what comes next as we deliver our next wave of innovation. We've demonstrated our ability to perform in different environments, and we will do so again. And we remain committed to delivering long-term value for our shareholders by executing with discipline today while continuing to invest in the innovation that will drive tomorrow's growth.

With that, I will hand it over to Wetteny.

Thank you, Kristin, and good morning, everyone. As Kristin highlighted, our quarterly performance reflects multiple converging dynamics, macro-driven price sensitivity weighing on certain aspects of pet owner spending, ongoing pressure on vet clinic visits and an increasingly competitive landscape in which price continues to be a key differentiator. These dynamics have led to performance that is below our expectations this quarter, but we are confident in our near-term efforts to drive demand and cost discipline as well as our industry-leading portfolio and pipeline, which we believe will continue to drive growth in the longer term.

Now I'll walk you through our financial results for the first quarter, which, as a reminder, are reflective of an aligned calendar year. For the first quarter, we reported global revenue of $2.3 billion, growing 3% on a reported basis and flat on an organic operational basis, with 2% growth coming from price, offset by 2% decline in volume.

As we previewed last quarter, our Q1 2026 financial results were positively impacted by certain operational changes made in connection with our fiscal year alignment for subsidiaries outside of the United States. As referenced in our press release this morning and now posted under supplemental materials in the Quarterly Results section of our Investor Relations website, we have provided additional information in connection with our fiscal year alignment, including recast financial information on a quarterly basis for 2025 and annually for 2024 and 2025 to help with comparisons.

You will note that for most quarters, the overall differences are relatively immaterial. However, I draw your attention to the $128 million revenue decrease on a recast basis from our previously reported Q4 2025 revenue. See the recast information on Page 3 of the supplemental material.

As we described last quarter, certain operational changes made in connection with our fiscal year alignment resulted in the acceleration of the timing of sales, which led to an approximate $30 million increase in the sales that we reported for our International segment for Q4 2025.

The balance of the $128 million decrease in recast Q4 2025 revenue or approximately $100 million resulted in a corresponding increase in Q1 2026 sales in our International segment. This $100 million difference was driven by the change that we previously referenced in the timing of price increases in certain international markets and the delayed processing of customer orders that we referenced in our full year 2025 results as well as by differences in the performance of the business when comparing Q4 2025 to a stronger Q4 2024. Excluding the approximately $100 million that shifted from Q4 2025 to early 2026 as a result of our fiscal year alignment, globally, we would have seen a 5% organic operational decline in the quarter.

Adjusted net income of $646 million grew 2% on a reported basis and 1% on an organic operational basis.

Turning to our franchises. Our global companion animal portfolio posted $1.5 billion in revenue, declining 4%. Key dermatology recorded $347 million in revenue, down 11% versus the prior year. Consumer sentiment is pressuring aspects of pet owner spend in several key markets as we are facing increased competition globally for Apoquel and despite our strong label, price has played a larger role in the decision process.

While Cytopoint is also impacted by the vet clinic dynamic as a monoclonal antibody with a longer duration of treatment, Cytopoint switching to recent JAKi competitors has been low. Our OA Pain mAbs, Librela and Solensia posted a combined $140 million in revenue, declining 8%.

Librela sales were $101 million, declining 13%. Librela trends have stabilized in the U.S., where we saw encouraging signs that our efforts are gaining traction. Solensia posted $39 million in revenue, growing 6%. Our Simparica franchise contributed $385 million globally, declining 1%. Simparica Trio declined 1% on sales of $297 million, while Simparica declined 3% on sales of $88 million.

Additionally, we have seen recent generic competition impacting 2 companion animal products, Convenia, an antibiotic treatment for bacterial skin infections and Cerenia, the market-leading small animal antiemetic. While not considered part of our innovative core, these brands are both blockbusters and have lost meaningful share in the quarter due to price-driven generic competition.

Our global companion animal diagnostics business posted $113 million in revenue, growing 10%, driven by expansion of our reference lab business as well as growth in chemistry and hematology, driven by our recently launched Vetscan Opticell.

Moving on to livestock, which performed well in the quarter on $720 million in global revenue, growing 12% with broad-based growth across geographies and species as well as price and volume. Favorable producer economics drove higher demand, particularly in cattle. Combined with improved product supply and commercial wins, this provides solid foundation for sustained livestock growth, further supported by the long-term secular tailwind of rising global protein consumption.

While our performance is driven by the declines in our companion animal business in the U.S. and certain developed markets internationally, this quarter highlights the benefit that having a global cross-species portfolio can have in challenging market conditions.

Now let's move on to our segment results for the quarter. U.S. revenue was $1.1 billion in the quarter, declining 8%. U.S. companion animal posted $865 million, declining 11%.

Before going into our brand performance, I wanted to highlight some of the broader impacts we've seen across our U.S. companion animal business. The global trends we have mentioned around competition and consumer price sensitivity are very prevalent in the U.S. market. Additionally, distributor and retail channel purchasing patterns were also a headwind this quarter, reflecting the lower end market demand.

Historically, Q1 distributor inventories start the quarter higher than they ended as distributors typically buy ahead of price increases and promotions. This quarter, our promotions underperformed expectations and end market demand softened. So distributors and retail partners took longer to work through their opening inventories and engaged in less replenishment activity. As a result, our sales into distributors and retail partners lagged their sales out to customers compared with prior year quarters. These overarching drivers have impacted much of our U.S. companion animal portfolio.

Our key dermatology products posted $215 million in revenue, declining 13% in the U.S. Apoquel has continued to face competitive headwinds consistent with our expectations with price remaining the primary differentiator, driving some shifts toward lower-cost alternatives. However, the impact has been more pronounced than we had expected. Share loss is being amplified by a derm market with declining patient volume in the clinic.

Unlike prior competitive cycles, we do not currently have the benefit of underlying market expansion to cushion the revenue effect of competitive share shifts, though we do see a path for the market to return to growth over time with significant untreated and undertreated dogs in the space.

Cytopoint trends were consistent with the global picture, primarily impacted by the vet clinic dynamics rather than JAKi competition.

The U.S. Simparica franchise reported $238 million in revenue, declining 8% in the quarter. Simparica Trio posted $222 million in sales, declining 8%. Despite modest year-over-year declines due to additional entrants, our share has improved sequentially versus the second half of last year when we saw the impact of competitive launch promotions, which pressured our share, but also expanded the triple combination market, the dynamic that is not providing the same market tailwind in the quarter.

We continue to see market contraction with softness in the clinics driven by lower flea tick and heartworm visits as well as a slowing of alternative channel sales driven partly by script denials in retail.

Our market-leading share in puppies remains stable. In the U.S., our OA Pain mAbs posted $55 million, declining 15%. Librela contributed $37 million, declining 22%. U.S. Librela revenue increased sequentially for the first time in 6 quarters, and vet and pet owner satisfaction ratings remained stable.

Additionally, despite declines in the canine OA pain market, our patient share has remained stable since the second half of 2025. Looking ahead, the comparative periods become more favorable as the year progresses. And combined with the stabilization we are seeing, we believe the underlying foundation of the business continues to strengthen.

Solensia grew 2% in the quarter on $18 million in sales with feline OA visits holding relatively flat year-over-year. Generic competition in Convenia and Cerenia also contributed to the U.S. companion animal decline. Our U.S. livestock business posted broad-based growth of 7% in the quarter, reporting $225 million in sales. We saw growth across all species, driven primarily by cattle on improved supply of Septicure as well as the impact of strong demand generated from our spring promotions.

Poultry and swine also delivered meaningful contributions with poultry growth driven by increased vaccine adoption and disease outbreaks and swine benefiting from improved supply.

Moving on to our International segment for the quarter. Revenue grew 17% on a reported basis and 10% on an organic operational basis, posting $1.1 billion in revenue. Excluding the impact of the previously noted $100 million in sales that shifted from Q4 2025 to early 2026 as a result of our fiscal year alignment, our International segment growth was flat for the quarter.

International companion animal reported $654 million in sales, growing 7%. The competitive and macroeconomic headwinds we have seen in the U.S. do exist in parts of our international business, but are largely concentrated in developed markets where conditions more closely resemble the U.S. environment.

In many of our emerging markets where the standard of care is still maturing, we believe that meaningful market expansion opportunities remain, and that distinction is evident in our international results this quarter. Our international Simparica franchise grew 14% on $147 million in sales. Simparica Trio posted sales of $76 million, growing 29%, driven by key account penetration in major markets and the benefit of our recent launch in Brazil.

Simparica reported $71 million in revenue, which was flat on the quarter, impacted by conversion to Trio in Brazil. Partially offsetting our growth in the quarter, key dermatology posted $131 million in revenue internationally, down 5%. For Apoquel, similar to the U.S., competitive pressures and macro price sensitivity, which are more pronounced in developed markets where Apoquel has a larger presence are having a compounding impact on sales. Similar to the U.S., Cytopoint performance is holding up better than Apoquel. Our OA Pain mAbs posted $85 million in sales internationally, declining 2%. Librela reported $64 million in sales, down 7%.

As Kristin noted, positive benefit risk findings have helped strengthen our medical education effort around Librela, and we have seen a meaningful improvement in our conversations with veterinarians. Solensia grew 10% on $21 million in sales. Additionally, our international small animal vaccines products grew 13% in the quarter, driven by increased usage of FeloVax in China.

International livestock contributed $495 million with growth of 14% with broad-based growth across all of our core species. We saw growth in cattle, swine and poultry, driven by disease outbreaks, commercial wins, especially in vaccines and improved supply.

In fish, we continue to benefit from improved pricing on our Moritella vaccine as well as volume growth from market expansion into the Faroe Islands.

Now let's move down the P&L. Adjusted gross margins of 71.8% declined approximately 10 basis points on a reported basis. Foreign exchange had an unfavorable impact of approximately 150 basis points. Excluding FX, we saw a 140 basis point improvement in margins due to benefit from price and lower manufacturing costs, partially offset by product and geographical mix.

Adjusted operating expenses increased by 3% operationally due to higher compensation-related expenses as well as increased freight and logistics costs. Adjusted net income grew 1%. Adjusted diluted EPS grew 7%, including a 3% benefit from our convertible debt funded share repurchases.

Now moving on to guidance for the full year 2026. Our updated guidance is reflective of the current operating environment as well as the presentation of our financials on an aligned fiscal calendar basis. Foreign exchange rates used in our guidance are as of late April.

We are revising our full year revenue guidance to a range of $9.68 billion to $9.96 billion, with growth of 2% to 5% based on the current operating environment. It is worth noting that our fiscal year alignment was anticipated to provide approximately 200 to 250 basis points of tailwind to full year revenue growth.

However, the challenging operating environment we experienced in Q1 and the expectations that carries for the remainder of the year more than offset that contribution. We now expect adjusted net income to be in the range of $2.87 billion to $2.95 billion with growth of 2% to 6%, reflective of the comprehensive cost and productivity programs Kristin mentioned earlier.

Finally, we are updating our reported diluted and adjusted diluted EPS guidance ranges to $6.35 to $6.50 and $6.85 to $7, respectively. While Q1 reflected a more challenging environment than we anticipated, particularly in U.S. companion animal, where the convergence of price sensitivity, lower clinic traffic and intensified competition was more pronounced than expected, our path forward is clear. We are taking decisive action to sharpen commercial execution and drive cost discipline.

Looking ahead, while we have appropriately reflected the near-term environment in our updated guidance, we remain confident in the underlying strength of our diversified portfolio and our ability to deliver the next cycle of innovation-driven growth in the years ahead. We remain committed to delivering long-term value for our shareholders.

Now I'll hand things back to the operator for your questions. Operator?

[Operator Instructions] We'll take our first question from Michael Ryskin with Bank of America.

I'm going to throw a couple in here real quick. So one, Kristin, for you, just maybe a high-level big picture one. From what we see in the market, competition appears to still be at a relatively early point. We think it's only going to get worse from here. You've got a number of competing products that are still early in the launch cycle or haven't even launched yet at all.

And with this increased competitive landscape, the macro consumer pressures, we think that's going to persist for some time, maybe as much as 1 or 2 years, if not longer. So when you talk about working through the challenges you're seeing, you call out pipeline innovation as an offset. From what we can tell, some of the bigger product launches you have are still a couple of years out. So what can you specifically do more in the near term to turn the ship around in the face of this growing competitive pressure and the consumer challenges?

And then, if I could squeeze in a second one real quick for -- more for Wetteny. The math is a little bit messy given the calendarization impact, maybe bear with me, but you called out the 200 bps, 250 bps impact from calendar. For 1Q specifically, you did 0 organic under the new math, under the old calendar, maybe that comes out to something like down 4% or down 5% given the $100 million benefit. And yet you're guiding to something like low-single to mid-single-digit growth for the full year. That seems like a pretty aggressive ramp. You've got easier comps in the second half. You do have the 4Q benefit from the calendar switch. But can you just bridge that for us? Is there anything else factoring in that will get you to that full year number after this 1Q print?

Thanks, Mike. I'll start and then Wetteny can build on your second question. Essentially, what we saw in the quarter was sort of the economic and sustained price increases that the pet owner has experienced in the clinic. This has obviously made them much more sensitive, but also, as you saw, led to a decrease in vet visits, especially in some of the key therapeutic areas that we're in, such as paras, OA Pain, derm, et cetera. And I think this combined with an increase in price-driven competition as people saw the pressures of the pet owners on, I think you saw more promotions and more price competition there.

And really, what that happened is that the market did not grow. Historically, as you've seen over the last few years, when we had competition increasing in paras, the market grew. And I think what I think changes is that with new competition, we didn't see that market grow. I think the difference, I think we might have with you as to what we see in the future is we are seeing positive trends.

As Wetteny and I mentioned in our remarks, if you look at paras, for example, we have actually gained share from the end of last year into this year. And we ended the quarter, as we mentioned, pretty close to where we were last year before the competition entered. So again, our focus will be on expanding the markets. But as I think as you look at paras, we're pleased with the progress that we continue to make there. We're also pleased that with Librela, we saw stabilization of that product. As we look to the rest of the year, we continue to believe we can return that product to growth overall.

Obviously, in the first half of the year, we have some tough comparable periods. But I think as we move through the year, we'll continue to gain share there and to grow. Obviously, in derm, we do have continuing to see new entrants, but we think we have a strong differentiated portfolio there. We're also excited to be adding long-acting Cytopoint as we look to the end of the year.

And look, we are sharpening our focus on execution of our commercial strategy. We're going to continue with veterinarians, leveraging the broad portfolio that we have and providing them integrated solutions to help capture share. We're going to focus with pet owners, as I mentioned, leveraging DTC to help broaden that market. But importantly, focus on affordability, which is clearly a major issue for them at the point of sale through loyalty and some affordability options we're providing. We'll also focus as well as retail and home delivery to optimize access there. So we think we've got a strong portfolio there that we can continue to build on. And I also don't want to undermine the strength we saw in diagnostics and livestock in the U.S. and across the globe.

But with that, Wetteny, I'll turn it over to you.

Yes, Mike. The first thing to really note here and importantly, is that our initial guidance already contemplated some first half to second half dynamics. Now clearly, the quarter ended up below our expectations. But this dynamic around the persistence of competition and macro was something we contemplated and we are seeing. And so we expect those to continue in the guidance that we give today.

But to the point Kristin just raised, we do see stabilization in a number of areas, including Librela with our OA Pain franchise as we are launching our long-acting products in a couple of markets -- in a few markets here in the quarter as well and across our Simparica franchise and so forth.

Now as we noted in our prepared commentary, you heard that this end market demand softness also caused purchasing patterns to be a headwind for us in the quarter. But we ended the quarter at a level that we believe is also normalized for how we go from here versus being a headwind given they ordered less during the quarter that they were shipping out to clinics. So with those and the actions that we are taking, we have widened the range in the guidance given we do see a remaining uncertainty in the markets that we operate, but we're also executing against those, hence, the guidance that we have issued today.

We'll move next to Erin Wright with Morgan Stanley.

I want to dig into that a little bit more. So what does guidance imply now for the quarterly progression for companion animal, I guess, given the implied ramp here, even backing out the easy realignment comp in the fourth quarter, which is about 1 point, like are you baking in some distributor or retail then restock? Is that what you're implying after the destock? And why is that just given the increasing competition? And how much of a headwind was that in the quarter? And were there significant changes in purchasing patterns, I guess, at retail as well? You mentioned script denials. Can you talk a little bit more about that? And is that that's now going back to their typical conflicts of interest there with online scripts and denying scripts there?

And can you clarify a little bit more about what we're lapping here from last year in terms of stocking and destocking dynamics? Because I want to make sure just we're aware, given some of the unforeseen dynamics in the current quarter on stocking, destocking dynamics and how much you're leveraging the channel.

And I guess one bigger picture question just on guidance as well. You talked about the 200 basis point benefit from the accounting change now embedded in the guide. I just want to confirm one point of that will not recur in 2027, right? So as we think about 2027 and beyond, how do you kind of mitigate that? And when could we get back to your typical 6% to 8% operational revenue growth?

Sure, Erin. Look, with respect to unpacking the guidance, starting with companion animal and then we'll get to your bigger picture question in terms of comps going into 2027. We are not embedding an assumption that inventory picks up in terms of the level of inventory that is in distribution. We typically don't do that. As you may recall, you've been around with us for a long time.

In '23, we saw quite a step down in terms of level of inventory that distributors take. We have not assumed that those would come back into the channel, and they have not. We've been operating at a range that is well below where we were pre-2023. And within that range, we're now operating at the low end of that new range, if you follow, as we exit the first quarter of '26. So we are not baking in some rebound in that.

It is reflective of what the end market demand has been and is reflected in the performance that we shared today with respect across our key franchises. And so what we are embedding here -- and by the way, we are also assuming headwinds related to competition that is to launch and continued pressure from a -- in terms of what we're seeing from a competitive, similarly in macro perspective. And so the script denials have been an impact as we look at retail.

Retail continued to grow faster than the clinic, though, but not at the rate that it had been over the last couple of years. I mean, if you go back to last year and the year before, you were seeing retail growth somewhere in the 25% to 30% range. That growth rate in retail is in the low double digits as we look at this quarter, somewhere in the 10% or so range in retail. So clearly, a step down and part of that is what we're seeing in terms of script denial.

Again, we're not assuming those necessarily come back. It's really the actions that we're taking to drive commercial execution as well as the easier comps that we face as we get into the back half of the year that's playing here. Now we won't get ahead in terms of what 2027 looks like. Clearly, the 200 to 250 basis points that we're talking about is a combination of coming into Q1 and then what the Q4 comp is versus the prior year. And so that will clearly be a headwind you go into 2027, all else being equal. However, we are executing to what the market is showing, both in the top line to drive performance there as well as the bottom line, which is why you see a guidance that shows leverage through the P&L down to the bottom line.

We'll take our next question from Brandon Vazquez with William Blair.

Maybe I can start with a high-level question. Kristin, you were talking a lot about kind of the headwinds you guys are seeing from a macro perspective, right? Let's just ignore some of the competitive and company-specific issues, but we're talking about price being a lever here. We're talking about markets not expanding. We're talking about more competition, even generic competition. These are all very uncharacteristic, I think, of what this market historically used to be. It used to be resilient. It used to take price. It used to not really have a lot of generics and it used to be powered by brand.

And so the question being, it feels like what you're describing is entering a new world in this market, one that maybe is less durable and less attractive for Zoetis. Is that true? What is -- I mean, clearly, you guys are assuming something improves. What is it that's giving you hope that this kind of reverses back into the old animal health market we used to know?

Sure. I mean for starters, I'd say, look, the demand for veterinary care remains structurally very strong given the importance of the human-animal bond and the large number of untreated populations. That's clear. If you look and as I mentioned in my prepared remarks, we're continuing to see strength in urgent care, and we're continuing to see strength in diagnostics and areas like that, which says to me the pet owners still wants to get care. I think they're in a period where they're a little bit struggling with the price increases over the last few years. We ultimately believe that will stabilize. I think that clinics are really trying to address that and trying to get the pet owners back in.

As us and others have mentioned, we saw about 3% growth of revenue in the clinic, but that was all driven continued by price, with clinic visits down about 3%. Ultimately, that will stabilize. We firmly believe that. We're also really optimistic as we've seen of the sequential trends we've seen in areas like OA Pain and in paras.

We think that the strength of our portfolio, the differentiation, the innovation we provide will endure. I don't think we're moving to a world of generics. We are not expecting generics in any of our key categories. We're not expecting it in derm. We're not expecting it in pain or in paras in the near term. So for the next many years, we will not see that. There's certainly, as we saw in Cerenia and Convenia, which are blockbuster products, but not ones we talk about, we did see some increased competition from generics there.

The competition we see today is not generic in our major therapeutic areas. It's products that have launched that we've been -- in categories we've been in for a while. We ultimately believe some of these price-driven promotions will stabilize over time. And we also believe the differentiation, I think we have with our portfolio, the strength of our brand and importantly, the strength of the service we provide veterinarians will endure. So no, I don't see it the way you do. I think innovation matters. I think the service we provide matters. And I think ultimately, given the strength of the human-animal bond and the structural demand for veterinary care that this will stabilize over time.

We'll take our next question from Chris Schott with JPMorgan.

Just 2 for me. Can you just comment on your latest assumption around pricing this year given some of the comments you're making around the promotional activity you're seeing from your competitors. Is that something you're reacting to on price on your side? Or is that more -- we should be thinking about share loss as we think about those near-term dynamics?

And the second question, sorry if I missed this in the remarks, but when I think about U.S. companion growth and what's reflected in guidance, can you just talk a little bit about how we should be thinking about growth for this year? I know you're assuming a recovery from the down 12% this quarter. But is this a business we should assume is down this year within livestock and some of the international dynamics driving growth? Or do you think this is a business that can kind of get back to flat or growing as we go through the year?

Sure. I'll start on the price one and then Wetteny can take the guide. As we've always said, we are not planning to compete through price as our main strategy. Our focus, as always, will remain on our differentiated portfolio, the breadth of it, the service we provide and execution. We are a premium innovative brand, and that is not going to change. We did take price, as you saw in the quarter. I think we can continue and Wetteny can talk where it is relative to historic price challenges.

Obviously, in areas where we've seen generic competition, we have taken selective price actions there. We'll obviously continue to leverage promotions. But our priority remains innovation, differentiation and service to our customers. And we continue to believe we can take price, albeit maybe at lower levels than right now given the challenges we're facing right now. But I'll let Wetteny put that into perspective and also talk about an impact on the guide.

Chris, as you know, we don't typically provide guidance down to the species, but I would share a couple of things that I think might be helpful for you. Just keep in mind, we are running a global diversification business with companion animal both in the U.S. and outside the U.S. And in the quarter, our International segment, companion animal grew 7%.

I would add also, given the dynamics that we described and the headwinds that those created in the quarter, including how distributors order pattern and retail had a more pronounced effect on the first quarter. We do see stabilization across companion animal as we go with the key franchises. And what we're seeing now is we expect our key franchises to grow in the low to mid-single digits, which is a step down from what we said when we initially issued guidance. And so, when you take all that into consideration, yes, we do expect livestock to continue to drive momentum here. I put livestock in the mid- to high single-digit growth range for the year, but the balance would be growth across companion animal without getting into specifics on guidance.

We'll move next to Jon Block with Stifel.

Maybe just the first one, Wetteny, I believe you said the channel is now normalized. I do think that U.S. Pet Health number surprised everyone. So is there a way of calling out the impact in 1Q '26 from the channel, what that was specific to U.S. Pet Health.

And then, Kristin, just to back up at a higher level, I'm just trying to dig in on the competitive response and maybe I was a little confused. So is anything changing from Zoetis among your approach to, call it, the atopic derm or the Trio franchises regarding price? If it's not sort of unilateral, are there any targeted promotions or no? Because it seemed like you acknowledge the consumer wants a cheaper alternative or is looking for that. And then I was a bit confused if Zoetis is pivoting there and trying to deliver on that or just really focus on the bundling and the services.

Yes. Perhaps, Jon, I'll take the normalization point around inventory. Clearly, it is, I would say, difficult to separate out the macro and the soft end market demand versus what the patterns are and what distributors and retailers did in terms of adjustments. Again, they ordered less from us than they were shipping out to customers given the softer end market demand and promotions that did not execute to the level that we expected coming into the year, right?

And so that certainly had a pronounced impact, but I would put that back to the macro and the competitive dynamics that we're seeing and the impact it has in terms of end market demand.

So Jon, I'll build off the second part of your question. My point is we're not overall lowering our list price on products. We continue to run promos as we always have seasonal promos for paras. We can do cross-portfolio promos in the United States, leveraging both derm and other categories. But I think what I was really focusing on is addressing the affordability issue, which is actually a pet owner. That's not what we sell into the vet. It's the pet owner at point of sale. We've always had loyalty programs, as you know, but those loyalty programs are you scan your receipt and then you get a cashback card to spend later.

Given the affordability issue that is more urgent, we're looking at more point-of-sale loyalty programs, more ability to deal at point of sale with the challenges the pet owner may be having economically. So our real focus there is not as much on the vet but on the pet owner issue.

We have these programs today. But as I said, we're looking to alter them to make sure we can do that more at point of sale versus just over time where they can use it in 1 month or 2 months, et cetera. We're really trying to make sure we address that with our programs both in the United States and across the globe.

We'll move next to Steve Dechert with KeyBanc.

I guess just first, on price sensitivity, is that still limited to the Gen Z and Millennial age groups? Or is that spread more into other age groups now? And then just on Lenivia, as you move closer to U.S. launch next year, how tied is the performance of that drug? Do you expect it to be tied to Librela? Just -- or should we view those as 2 completely separate products?

Sure. So I'll start with your question with regards to Lenivia. With regards to Lenivia, we did get approval in the -- in certain markets in the EU and in Canada, and we just launched that product. So we look forward to having more information on how that launch is going as we go into the next quarter. As we talked about, this is not long-acting Librela. We think the efforts, the multipronged strategy we've been executing across OA Pain, really focusing on awareness that treating OA Pain as a serious condition is important, making sure we spend time with vets and specialists understanding OA Pain will continue to be important.

Also making sure we share the science and the positive experience that many of our customers have and investing in that Phase IV research. We think building this understanding in OA Pain will be important as we launch long-acting. Certainly, that's what we're experiencing right now in certain markets in the EU and in Canada. And we think that long-acting provides, again, to the issue that pet owners are having on just convenience as well as affordability, a great new option. So we're excited for that.

I think you asked the second question with regards to demographics on Gen Z and Millennials. I mean, I think affordability is more based on the economic situation that a pet owner is in. It's not just based on age, to be honest. So we're really targeting the affordability issue, not at generations, but just at pet owners overall who are facing those challenges.

And we'll move next to Navann Ty with BNP Paribas.

A follow-up on the pricing strategy. So you discussed the pricing against that price sensitivity. And I'm also curious of your pricing strategy to defend against the competitive pressure in derms, which is further intensifying and also your pricing strategy for your upcoming innovation in renal oncology and cardiology, that price sensitivity environment is maintained?

And then I have a second question on derm specifically because we are seeing that the competitor has raised prices on the JAK. So would you say that the competition is now not only on price, but also some efficacy in frontline use as well?

Sure, Navann. I'll take your question on pricing strategy. And look, the way we approach pricing is always down to each market, each product and what is the value that we bring and what is the competitive landscape at the time. And as Kristin referenced earlier, we now have an aggregate price expectation. This is not by product, of course, for the company that's in the 1% to 2% range when we started the year at 2% to 3%, and we've been higher than that over the last couple of years. So clearly, we have adjusted our expectations, not getting down to specific pricing actions and strategy on a specific product for competitive reasons here on this call. But certainly, we are taking those into consideration.

And as we launch new products, which we do extensive market research on prior to launch, we, of course, will be looking at what is the value that we're bringing clinically and what is the willingness to pay for that, which we continue to see sustaining across the industry. So that will be what we'll put into place. In terms of competitors' prices, look, as you've said, historically, we've seen competitors come in with list prices that are somewhat slightly below where ours are, but with aggressive promotions initiated to get the products embedded into clinics and so forth. So we've certainly seen that.

The price sensitivity in the market is translating to that lasting longer, I would say, than we've seen historically. But they are, in many instances, and including you referenced one, are raising prices well above where we're raising. It still remains that there's a gap between where our pricing is versus where theirs is, but it is closing in effect. And so we'll continue to monitor those, but also executing on our actions against those, including the breadth and strength of our portfolio.

We'll move next to Daniel Clark with Leerink Partners.

Also I wanted to ask about the 2026 updated guide. How are you thinking about the macro and sort of competitive intensity as we head through the year? Should we expect similar levels of both as we saw in 1Q through the rest of the year? I guess, how are you thinking about that? And then secondarily, I just wanted to quickly ask, how did -- how much did key derm grow ex U.S. if we strip out any of the alignment impact?

Sure. In terms of our expectations on the macro, we are expecting that to persist. And so we're not expecting a rebound nor a significant deterioration in terms of what the macro looks like. We've seen the impact that it has both in terms -- in terms of end market demand and then therefore, directly impacts to where distributors and retailers are replenishing their inventory levels, which created a headwind for us. And so that's the answer on that one.

In terms of -- keep derm and what the implications might be related to FIA, we have not broken those down to individual products -- to individual markets to be able to get to that level. We believe we've been very helpful in our comments, which is what the overall impact is and what we would have expected to be the guidance impact, which is around 200 to 250 basis points lift in our guidance. And clearly, given the performance we've seen and the persistence that we're expecting in the macro and competitive dynamics, that has not come to fruition in the guidance that we're giving today.

We'll move next to Andrea Alfonso with UBS.

I just have a quick question around margins. So on gross margins, you did 71.8% this quarter, and it looks like your updated guidance calls for 71.5% for the full year. I know you don't provide quarterly guidance, but just sort of looking at the trajectory for the remainder of the year, it does look like you're lapping a pretty tough comp in 2Q. I guess more broadly, how do you think about that trajectory and sort of frame the levers that you have at your disposal to deliver there given that pressure on some of your higher gross margin products? And then, if I could squeeze in a separate housekeeping question. If you could just confirm that the 2% to 5% revenue growth outlook constant currency does not include any benefit from Neogen potentially closing in the second half?

Sure. I'll take both of those. If you look at our gross margins in the quarter, they were down about 10 basis points. But if you strip out the impact of FX, they're actually up about 140 basis points. So we have been very pleased with the execution across our manufacturing enterprise. And certainly, you see that reflected in our performance in the quarter. We will continue to drive actions across the company, including in this segment that will contribute to the performance for the year and the leverage that we have on the P&L.

Do keep in mind that the mix in terms of products is an element to consider here. As you've seen in our guidance, and as I shared just a moment ago, we expect livestock to continue to drive momentum here and grow faster than companion animal. There is some mix impact to that with respect to what you see in gross margins.

And in terms of FX, you've seen the U.S. dollar impact in terms of revenue, but that has some converse effects when you get down to cost of sales. So that is a consideration here as well in terms of where you're comparing in terms of comps as we go through the rest of the year. But very pleased with the performance in terms of what we're doing on cost of sales despite the mix that we see in some geographical implications as well.

With respect to the guidance range on 2% to 5%. We do take a number of factors into consideration, including when competitive launches are going to come in, how aggressive they'll be. And so that range, which we widened by a point here for the uncertainty associated with those is in here. And so within the guidance range, you could have the impact of potential the closing of the deal with Neogen within that range.

We'll move next to Steve Scala with TD Cowen.

This is Chris on for Steve Scala. First, what is Zoetis' level of interest and confidence in FTC approval of large-scale transformational business development? And second, do you see any opportunity to significantly pull forward launch time lines for products for new markets like renal and oncology, e.g., by changing trial designs or filing based on surrogate endpoints?

So sure, let me start with your BD question. As always, our focus is on incremental BD. We don't see transformational BD as a major strategy for the company. As we've spoken about before, from a capital allocation perspective, first and foremost, we are investing in our business. We obviously will continue to look at business development.

And I think Neogen is a great example where we think there's incremental technologies or additional portfolios such as what we've done in Australia for sheep, et cetera. So we'll continue to look for that. I wouldn't -- you should not expect large transformational BD. I think the deal like Neogen is what our sweet spot has historically been and will continue to be.

Was there a second part of your question?

Just on launch time lines and potential to pull forward filings for some of the newer market products like renal and oncology.

Sure. We're always focused as we think about our pipeline of how we can pull forward. I would say anything that you see in the next few years is already in clinical trials. We're certainly partnering with the FDA, myself and the other industry leaders to look at ways to speed innovation and to find new innovation pathways with the FDA. We're certainly leveraging AI, as I've spoken about before, within our portfolio, both in discovery, research, development and importantly, preparing our dossiers for submission. We think all that can certainly speed it up. And we're also focused on once we get approval, how we can speed time from approval to in market across our portfolio.

Thank you. At this time, we've reached our allotted time for questions. I'll now turn the call back over to Kristin for any additional or closing remarks.

As always, everyone, thank you for your questions and your continued interest in Zoetis. I do want to recognize before we close our colleagues around the world whose commitment to their customers and their resilience has really helped us navigate this environment. We will continue to keep you updated on our progress and our priorities. We are focused on executing with discipline to position the business to return to growth, and we remain committed to delivering long-term value for our shareholders. Thanks so much for joining us today.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Okay. Good morning. My name is Steve Dechert with KeyBanc Capital Markets. I'm on the healthcare tech team. And today, we have Kristin Peck, CEO of Zoetis. Before we get going, if anyone would like to ask a question, you can do so in our webinar chat.

But Kristin, just to kick things off, so you're guiding to 3.5% organic constant currency growth this year after doing 6% in 2025. Can you walk us through the puts and takes of the guidance, and which segments are expected to lead that growth?

Sure. Well, first, thanks for having me. It is great to be back. As we look at our guidance of a 3% to 5% organic operational revenue growth, what we'd say is, as always, it's really the diversity of our portfolio that will lead that. We don't think there's sort of one single factor that will drive that.

As you think about that, there's our core therapeutic areas, both across the derm, paras and pain. As we mentioned before, we are expecting in 2026 for pain to return to growth. We think the growth across these 3 franchises will be led by paras this year, given some of the significant increase in competition across the derm portfolio overall.

But we've got a broad portfolio beyond that. If you look at diagnostics, which is also continuing to perform well, as well as livestock, which has been really a bright spot. Historically, livestock grows 2% to 4%. We've been growing mid- to high single digits the last 3 years in a row, and we expect to beat the market as well in livestock this year. So again, I would say is the breadth of the portfolio as we look at that guide.

Okay. Great. I just I want to touch on the volume versus price assumptions in your '26 guide. How does that -- how does this year compare to last year? Whatever you can tell us there?

Sure. Historically, as we look at our guide, we normally do somewhere between 2% to 3% in price and 2% to 3% in volume and maybe incremental innovation on top of that. As we mentioned when we gave the guide, we're expecting somewhere between 2% to 3% in price and the rest in volume for the year. So that's how we're sort of thinking about the breakup.

As you know, we've generally been able to take 2% to 3% in price beyond just innovative products historically. And that's really both across our companion animal portfolio as well as our livestock portfolio.

Got it. Okay. And just, I want to touch on Iran. We've had oil prices now at about $100 for the last few days, I believe, we're in the third week of the conflict. I guess I want to understand if this has any kind of impact on the logistical aspect of your business, any of your manufacturing inputs? And then if this were to go on for a prolonged period of time, maybe, call it, several months, what would that mean to Zoetis?

Sure. I mean, well, let me start with my heart goes out to my colleagues who are in the region today, and my prayers remain that they all remain safe for that.

Our sales for that region, as you probably see from our filings, is less than 1%. So from a sales perspective, it's not a huge region for us. As your other question was around sort of manufacturing supply chain, we do not have any manufacturing facilities there. We do have some supply chain partners that are in the region that we're certainly watching. We really don't have any major shipments that go through the Strait of Hormuz. However, the shipping costs and air freight, and sort of price of oil obviously would have an impact for all companies as we think about shipping given we're a very global company.

So we're continuing to watch that and the impact would obviously depend on what that would be. And as you can look at our freight numbers to get a sense of what that might look like. But really, I would say the primary impact for us materially will be in what a sustained increase in oil prices would be, but that would really only be affecting us on our freight costs.

Got it. Okay. We've seen the weakness in vet clinic visits for some time now, but we've seen strength in the spend number, up 6% in the fourth quarter. I just want to get a sense from your perspective, how sustainable do you think that is that clinics can continue to take price? I mean, presumably, there's a limit on this and prices will have to level out at some point. Just what's your view there?

Sure. I mean I think clinics did take significant price in the sense of their visits and their services over the last few years. And that has definitely affected pet owner ability and willingness to spend. I think those price increases, as you know, were significantly above those of inflation. And this has really impacted as we've seen overall, the vet visits. And really, vet visits have not been lower across every type of area. And I think that's important.

The reason I say this is the sort of medicalization and humanization of pets remains a major theme. And if you look at when their dogs are actually getting sick or their cats, they're spending. If you look at VEG and some of the emergency care. So their willingness to spend still exists, but the reluctance to commit to, sort of, wellness care and some of that regular care, we've definitely seen that in the decline in visits, both in wellness and in some of the therapeutic area visits.

But as you mentioned, and I think to pay attention to is, there's still growth overall in spending at the vet clinic. I think it grew 6%, as we mentioned in the last quarter, which is still strong. And what that says is the humanization of pets, the human animal bond still remains strong. But I think what pet owners are looking for is some stabilization in that pricing. They're also looking to have a better expectation of what it's going to cost.

I think the other thing is most pet owners are millennials and Gen Z, and that surprise factor of how large that bill was, as they're right now trying to afford to buy their first home and trying to pay off their student loans has definitely been a struggle. And what I'm excited about and optimistic about is two things. One, that vets really get this challenge, and they're coming up with new value propositions, that are more attractive overall to pet owners. And second is we're going to see the aging of those COVID pets. And as they age, they're going to have more chronic problems. And if the pets are really coming in and the vets can meet them where they need to be on value proposition, I think there's a lot of growth we can continue to see.

Okay. Yes. You kind of mentioned this, but with brand loyalty being a big factor in animal health, can you talk about some of the reorder rate metrics you're seeing across your kind of big 3 products of Apoquel, Cytopoint and Simparica Trio?

Yes. I mean I think one thing about animal health we've seen is there's a significant first-mover advantage, and we're grateful that we have that across our derm, our paras and our pain. One of the things we've mentioned for the last few years, as you look at derm is how strong the reorder rates and the brand satisfaction has been in Apoquel. As we've even tried to convert Apoquel customers to Apoquel Chewable, or beef flavored chew, as you saw, it's taken us a lot more time to try to convert what we have now is around 50% over to chew, and that really speaks to the brand loyalty.

I think the move to retail, which we've been seeing growing at 20% to 30% over the last few years, has really driven also on autoship. And so autoShip also, to your point, on reorder rates, we're not seeing any change from a clinic perspective in those that are carrying our products. And I think our continued commitment to life cycle innovation from a film-coated tablet to a chew, to an injectable to now a long-acting injectable that we're expecting approval on this year, really speaks to the strength of our life cycle innovation. And I think the commitment to the brands that our customers have. The customer satisfaction across these products remains incredibly high in the 80s to 90s across both our paras and our derm portfolio.

Okay. And then on Librela, you guys are doing more to have discussions with key opinion leaders to kind of change the viewpoint on that product. How is that going, I guess, one? And then on a sequential basis throughout 2026, how should we think about the growth for Librela?

Yes. I mean we've been quite focused on a multipronged strategy to return Librela to growth. And that's first and foremost, focusing on the need to treat patients pain who have osteoarthritis, the severity of osteoarthritis and the need to treat that pain. It's also been focused on ensuring that veterinarians and specialists really understand the risk-benefit profile of our product and where it's appropriate to use. We're also really focused on ensuring that from a pet owner perspective, that the great stories of so many of the pets that have had tremendous success and that risk-benefit profile at the pet owner level gets told. And lastly, investing in Phase IV research.

We think it's really important that some of the questions that have been raised that there are third parties answering those questions. And we've started publishing that, as you know, in Q4 of last year, and we'll continue to publish studies throughout this year. And based that on, that's why we said we did see signs of stabilization in Q4, as we mentioned in the Q4 earnings call, and we are expecting a return to growth in 2026.

We noted that, that will be in the back end. Our comps in the first half of the year and the first part of the year remain very strong as you look at sort of what the rhythm of the numbers was in 2025. So that's really what we're watching for. We remain really close with all of our regulators, making sure we share all the data and making sure that we update labels where appropriate so the best understanding of the risk-benefit profile of the product is understood.

Okay. We think about '26 is kind of -- we could characterize it as maybe like an air pocket, so to speak. But beyond '26, which therapeutic areas do you think gets you back to that, maybe, high single-digit type growth rate that Zoetis has normally seen? Is it parasiticides, derm, pain? Or is it maybe one of these newer categories of oncology, cardiology or renal?

Sure. I mean, I think as you mentioned, as we look into 2026, we are facing sort of an unprecedented competitive pressure in some of our core therapeutic areas that we have in the market now. But we're also really excited to start to be driving the new products such as our long-acting pain products for dogs, cats, Lenivia and Portela. We are expecting approval of long-acting Cytopoint, which I think will be exciting to continue to grow that franchise. Also approval on a new chemistry platform, which will be critical to our growth in diagnostics. And that's really what we're focused on as we think about '26.

So I think as you think about the next few years, once we get past some of the competitive pressure that we feel this year, we do see some of those core franchises, obviously, being a significant contributor to growth in the future. But what we're really excited about is sort of the new waves of innovation.

As we mentioned on our innovation webcast, in December. As you look at renal, which will be the next major approval in '27, that is the largest single unmet need in animal health. We think that market is somewhere between $3 billion to $4 billion. It's a market where there's really just no product today. And we're excited, as we mentioned, that we'll be bringing multiple molecules to the market there.

The first one really focusing on being able to prevent the damage that happens to your kidneys early on in the disease. So that's a product that is more of a chronic product you take. We'll also be looking at biomarkers and diagnostics there, as well as looking at some products that will really treat some of the symptoms that occur later in the disease. So again, we're talking about building franchises, not just one product but there, but that's a $3 billion to $4 billion market. We're behind that.

You'll also see oncology, which we're super excited about. We'll have two molecules we mentioned there for both lymphoma, the first one and then melanoma. The melanoma molecule can also be used for other cancer types. So melanoma will be the first approval for there. We're also really excited there as well for biomarkers and diagnostics to continue to grow that space. We also have cardiology, anxiety, obesity. So as you think about the unmet medical need across animal health and then the breadth and depth of our portfolio, as you saw from the innovation webcast, we've got 12 potential blockbusters that we highlighted in that webcast.

So I think what's really exciting about the future is there's not just one source of growth, there are multiple sources of growth, both from the core diverse portfolio we have today, as well as in the future. And that doesn't even include some of the long-acting pairs that we'll have that you saw on innovation webcast, some of the new vaccines that you'll see, as well as our focus more and more on genetics and livestock as well.

Okay. One more on the oncology, cardiology, renal products that are in development. I mean I'm assuming -- and maybe I'm wrong about this, but I'm assuming that those are going to be kind of more higher price point type products. And I guess I'm just wondering how do we square that with the budgets that we're seeing from the millennial, Gen Z populations that are kind of having a tighter wallet right now? I mean I get it's not -- it won't be for a couple of years really until -- or at least a couple of years until those products are released. But how do we square those 2 things as those come out?

Sure. I mean as we talked about a little earlier, Steve, I think there's still the human animal bond and the medicalization of dogs, and the aging population, which I think as you think about the timing of these products will be really important. At the same time, we really do have to pay attention to the value that these products bring for our pet owners, and we need to price them based on the value that they provide.

I think as you've seen, we've been able to bring highly innovative monoclonal antibodies to a self-pay market before. And I think we're going to take all the learnings we've seen over the last few years on both the dynamics in the pet care space, the dynamics as we think about launching a lot of these long-acting therapies, which, to your point, will be more expensive upfront. How do we price those? How do we think about that value proposition from the pet owner perspective?

I think we've continued to do this from the first launch in monoclonal antibodies years ago, where most people thought that will never work in animal health, you'll never do that in self-pay. And I think continuing to pay attention to the pet owner and to the vet and what that value proposition. Obviously, we have not decided the pricing of those future portfolio. But you can, I'm sure, imagine that we're going to be learning from what we see today, especially as we see some of the first competition in some of those spaces for monoclonal antibodies this year.

Okay. You mentioned the long-acting pain products. You're also doing long-acting Cytopoint later this year. Can you talk about the demand for these long-acting products? Like what do pet owners -- or what will do you expect them to like more about than your existing products in the same categories?

Sure. I mean I first want to focus on the fact that as we think about any of our key therapeutic areas or products, the value that life cycle management has and extending the life and the growth of our products. We've continued to do that, obviously, as you've seen just with Apoquel and Apoquel Chewable. And I do think as you think about adding long-acting, it adds a significant life to these franchises, but also value to both the vet and the pet owner.

And as you think about that, I think from a pet owner perspective, it's really the convenience and the compliance you get with one visit and one shot for 3 months. And so again, when we were talking about that value proposition a little earlier, that means they don't have to pay for 3 visit fees and 3 injection fees. So there's also -- there's a convenience. I don't have to come 3 times. So for some, that will be just make their lives easier because they were already on a Librela, or Solensia or a Cytopoint.

But there's also a lot of people that just don't choose these therapies because they just -- they work full time or they're busy. And the thought of coming in every month just is too challenging to them to be perfectly frank. And so we think what these long-acting therapies do is extend the category to patients who might not have already taken the product. It will increase compliance because instead of 12 shots, I only need 4 shots to get a full year. So we're also expecting that it will increase months on therapy, as well as extend the life cycle of our brands and of our franchises overall.

So we are obviously paying attention to what that price point will be for our customers, but we really do think long-acting will be really helpful in expanding those -- the target market, as well as increasing compliance.

Okay. Maybe just one on the TAM sizes of those newer categories. But maybe on the smaller side of derm and parasiticide. I mean, do you think the TAM sizes of oncology, cardiology, renal, they have the opportunity to maybe get larger as we kind of develop more products in those spaces?

Yes, I think they definitely do. When we put out a total addressable market for any of our products, it is based on the actual molecules we have now and our understanding of those molecules, as well as what we see as the market potential, which really is limited right now by the diagnostic rate for some of these diseases. And so I do think some of these TAMs could increase as the diagnostic rate for those diseases increase.

I'll give you an example. In oncology, there's not a lot of impetus today to be testing for some of these cancers because even if you test it, there is no therapy. But once you actually know there's a therapy, will vet test more often. And I think this is as you think about growing these TAMs. Also, as we get for some of these molecules, more cancers we can treat on each molecule, that will continue to expand the market.

And even as we think about our first one, which is the largest, renal, which we believe will be a $3 billion to $4 billion market. But there's a lot of different factors as we think about what that market is. The earlier we can diagnose dogs and cats with renal disease, the bigger that market becomes. But that's really limited today by the diagnosis rate and the diagnostics out there to sense that.

Again, it's critical in renal disease that you're treating before the damage to the kidney happens because that's irreversible once that damage occurs. And so we think we could continue to expand that market if we could continue to expand the diagnostic rate earlier in the disease, and both the prevalence of that diagnostics as well as the accuracy of those to make sure that we can treat those dogs. We'll then obviously, Steve have to talk about what that value proposition as you go earlier in a disease to treat an animal and the commitment that would take. But we're really excited by that challenge.

And I think one of the real uniqueness of Zoetis is we are not just a therapeutics company, we're also a diagnostics company. So we are looking at companion biomarkers and diagnostics that we can run. And look, if we find a biomarker that can diagnose that disease much earlier, we could hand that out for free with everyone, every more than 5-year-old dog or cat who goes in for our reference lab testing, things like that. So I think we have multiple ways of expanding these markets. And so to your point, we have evolved those TAMs over the last few years as we get to know our molecules and what those labels will be, but also as we think about the diagnostic rate for those diseases.

Okay. Amazing. On livestock growth, so you did 8% consolidated in '25 and 10% of that was international. I just -- can we get a sense of maybe how sustainable that growth is in '26, what you're expecting this year? I know you guys don't guide to it specifically, but maybe just some commentary around it. And then there's been a ton of talk about protein demand, your viewpoints on where that's coming from and your outlook?

Sure. I mean, as you know, historically, livestock has grown in the animal health sector around 2% to 4% per year. And what I'd start is what drives that growth in general?

What drives that growth is more people entering the middle class across the globe. As you enter the middle class, you, generally speaking, eat more protein. And so the second factor is just a growing global population. And as you look at the population, we believe by 2050, you're going to need 50% to 70% more protein produced in order to meet both the growing population, as well as the increased need that population gets to the middle class of protein consumption.

And then if you double-click and say, well, where is that primarily coming from? The fastest-growing protein sources today are poultry, fish and pork. And again, this is a very global business. As you saw, we see obviously significant growth in the U.S., but significantly growth outside the U.S. that, again, as we talked about where some of that population growth is, as well as some of that growth into the middle class.

And I think the focus as you then look into Zoetis is we want to be where the future consumer wants their protein, which is we sold out of our medicated feed additive business, and we're really focusing on our preventatives or vaccines and our genetics portfolio. Our genetics portfolio is really focused on helping poultry producers breed animals that will be both healthier and more productive. So less likely to get a disease, so definitely healthier, which lowers their overall cost, be able to be more productive. So on the dairy side can produce more milk, et cetera, or on the livestock side, better traits overall for the marketing of that animal. So we're really excited of what those two are doing.

And I think as you look at our growth versus some of our competitors, that's there. And we remain confident that livestock will continue to be a significant contributor to our growth in the years to come just because I think those macro dynamics driving it remain strong. But I'd also double-click for a second on just we always talked a lot about protein consumption in emerging markets and the growing population. But as you even look at developed markets these days, the growth of GLP-1s, the protein consumption is increasing all over the place.

If you go out to dinner with anyone, they're talking about how much protein they consume today and how they're going to get a protein -- new drink, I just was at dinner last night and someone was talking about a new drink from Fairlife at 42 grams of protein. That is animal-based protein that they're all consuming. And I think this will continue to be even in developed markets, which is why I remain confident in both the U.S. and Europe and some of the developed markets of that increasing focus on growing overall our livestock business given the increasing demand for protein across the globe.

Yes. Starbucks has a protein coffee now.

I know, I mean you ever thought you see even coffee? Exactly.

Just to follow up on that -- are you placing more of a weight, do you think, on the GLP-1 side of it? Or is it more still on just growing emerging market populations?

I would say it's all of the above is what I'd say. Our focus is really on meeting the needs of our customers and then supporting the growth that we see. And I think, look, I believe the overall macro trends that will be most important. Number one, it's going to be a growing population. And two, will be movement into the middle class as we think about overall.

I mean protein consumption has always been important. There's probably more of a focus, and we'll decide whether based on these new nutrition guidelines that brought beef back up to the top of that thing in whole milk, whether that really stays, I'm not sure that's the biggest driver to be frank, of overall demand. But I think an increasing focus on health and wellness and an aging population, to be honest, Steve, I think that is more of the trend.

As you look at the need for protein consumption as people age, and more and more is the demographics in a lot of these developed markets, you're seeing an aging population that is putting more focus on maintaining muscle mass as they age to protect their health and wellness. So I think a focus more and more on health and wellness is going to continue to support that overall. But I think the largest trends will certainly be the growing population and the movement into the middle class.

Okay. Got it. You guys have made some changes to your field team here in 2026. Can you just kind of give us an overview of what's going on there? And then where should we see that impact your OpEx this year?

Sure. Our focus overall when we did the restructuring of our go-to-market teams in the U.S. was looking at sort of where is our future portfolio going? So as we talked about earlier in this conversation, a lot of that's going into more specialty products and chronic products, as well as the need as you do that to make sure that we are ensuring that we have the right conversations with vets and more and more on the specialist side.

And what we chose to do is combine our corporate field force with our regular GP field force. And what we -- by doing that, we both increased reach and frequency. So we had in the same city, someone seeing our corporates and someone seeing our local independent GPs, which meant each of those people were driving further to get to their core number of customers. By consolidating, we needed fewer people, and they could see more people more often. And with those savings, we really -- what we did was invest in bringing in more professional service vets.

So as you bring in more specialty monoclonal antibody products, the vets really want more scientific conversations, more vet-to-vet conversations. As we talked about those Phase IV studies that we've been doing currently in our pain portfolio, we'll be thinking about Phase IV studies across all of our portfolio. So the really thought is, as we think about the growth of the company going forward, more and more in some of these chronic more specialty type products, we felt it was important that we had greater reach and frequency at the sales rep basis, but as importantly, that we spent more on bringing professional service vets into the field to have more vet-to-vet conversations.

And so that was really the focus of the go-to-market, increase reach and frequency, add more vets to be having more vet-to-vet conversations. So I don't think you'll see any significant change in the sort of overall cost. This wasn't -- we reallocated some of the cost savings by consolidating the field forces and investing in more specialty and medical education overall for our vets and our specialists.

Okay. Got it. So I want to ask this one around AI. I mean we cover a handful of these AI drug discovery companies where they're really saving a lot of money in the discovery process where they're able to come up with candidates or targets much faster than more traditional methods. Is that being applied in the animal health space currently? If not, are you looking at it? Or if you are, to what degree is it being used?

Yes. I think we're really excited to have been the leader in this in the animal health space. We started investing, as you probably might have heard about 1.5 years ago, 2 years ago, and that was -- we focused on golden use cases. And our first ones were actually in R&D in both one, early discovery, which is looking at picking targets. And then second golden use case we are focusing on is in once we have a target, what is the right molecule to actually address that target?

And I think what makes Zoetis unique is that as we think about leveraging those tools, those AI tools, we have, I think, the most unique data sets of anybody else because we're not -- we don't just have all the clinical trial data that we have and all the research that's public that anyone has. We also have all of the genetics that nobody else has. As you think of between our base pod and our livestock genetics, we have all the genetic data to better pick a target as well as to pick the molecule against it. We also have the most data from a diagnostics perspective.

So whereas I think we were probably one of the earliest in the leader in leveraging those tools in each space, I think our ability to get value out of that and really incremental value. And the way we see the potential of leveraging AI across both early discovery and research isn't just in speed as you talked about. It's in the quality, we think, of the molecule you're ultimately going to select, that it's going to have fewer off-target side effects. We're looking at what it would do from a COGS perspective, the safety and efficacy of that.

So we're super excited at both the speed, and we're already seeing that value today. But we're also excited to really be leveraging that to make sure that we create better molecules that are safer and more efficacious with less sort of off-target effects. So we're really excited seeing that progress across those. And then leveraging those tools to even better understand, Steve, the molecules we have in the market today. If we can help both vets and pet owners better understand who's going to be the best responder to Cytopoint?

As you know, with any product, some animals are generally more successful than others and some people are. Well, what if we can better predict which people or which animals? So we're super excited, and I spent a lot of time in the last week or 2 with the FDA, with Dr. Tim Schell, who runs the Center for Veterinary Medicine, to better understand how we can start to leverage some of this real-world data as well as some of this AI-generated data to be able to really be able to market on some of this.

Today, I may know this, but I'm not actually yet allowed to say it. So it's really working with our regulators to get more value out of our future portfolio, but also out of the portfolio that I have today, and actually just improve the safety and efficacy of our portfolio. So we're very excited at what we think AI can do certainly across our R&D portfolio, and not to mention how we've been leveraging it on the commercial side as well.

Great. Perfect. We've had a pretty long winter here to start out 2026. I guess just specifically on the parasiticide market. Any impact there just from a seasonality standpoint?

Well, winter is not normally the highest season, as you know, for our paras portfolio that tends to be more of a Q2, Q3. As we look at the visit data, which I know a lot of you and other analysts have been talking about, we've definitely seen significant weather impacts in Q1 for our business and most businesses overall. But paras is generally not probably the business you see the strongest in Q1, but we have seen weather impacts certainly from the cold, the snow, the tornadoes, the winds, you name it, it's been -- depending on where you live in this country, the fires, it has been a challenging Q1 from a weather forecast, which is obviously, as you've seen, people have witnessed that, obviously, in the overall vet visits, et cetera.

Got it. Maybe just to wrap it up here. There's been a lot of new competition coming into the market, specifically on the derm side with [ Nmelby ], Zenrelia, you also have Quattro parasiticide market [indiscernible] And then there's another monoclonal antibody product coming out later this year.

I guess just 2030 kind of -- how do you see the market share of your existing products in those spaces? Where do you see those by then? What's your outlook?

Yes. I mean, look, we're very confident in the franchises we've built, as we talked about today and the loyalty and importantly, in the customer satisfaction of that portfolio. If you look at like Apoquel, as we talked about, I mean, significant customer satisfaction in the high 80s to 90s across Apoquel, Apoquel Chewable. So as competitors launch with film-coated tablets, or not even film-coated tablets, what they're competing against is a beef flavored chew that's got over 11 to 12 years of safety and efficacy data with really strong overall customer satisfaction. So we're very confident in the safety and efficacy of our portfolio.

Look, when people launch, whether it's in paras or in derm, they're going to launch with much lower prices than they're going to be able to sustain. They're going to flood the market as we expect. And so that's going to be there. But one thing that's always made Animal Health unique, but more importantly, Zoetis and the brands that we've built and the franchises we have, is the durability of those franchises over time. Even with competition, even -- look at Simparica, which continues to grow, even though we've added Simparica Trio. These are meaningful brands that the consumers ask for by name. And I think as we look into the future, as we look in 2030, we're really excited to continue to see the growth in our core franchises.

And then to add to those core franchises, new ones in therapeutic areas we're not even addressing today. What I think has been the two biggest parts of Zoetis' strength since we IPO-ed back in 2013 is really focusing more and more on the diversity and breadth of our portfolio. We always talk about the leading franchises because sometimes they're the leaders of growth, but really the breadth and depth of that. And secondly, Zoetis' ability to find new markets, to innovate in really disruptive ways. And we think as you look across our therapeutic portfolio, our diagnostics portfolio and our genetics portfolio, we're really excited to continue to do that. And we believe the combination of both of those is what will drive our growth from 2030 and beyond.

Okay. I think we can leave it there. Kristin, thank you so much for joining us.

Thanks for having me. Good to see you all. Thanks, Steve.

Bye.

All right. Perfect. Great. Well, thank you, and good morning, everybody. For those who don't know me, I'm Glen Santangelo. I'm the analyst at Barclays, and we're very excited as our next presentation to host Wetteny Joseph, who's the EVP and CFO of Zoetis. So we're very excited that he's here to join us. So welcome.

Thank you, Glen. Good to be here.

All right. Maybe to sort of level set the conversation since we're reasonably fresh off of your fiscal fourth quarter results. Maybe that's a good place to start for you to just give everybody a little bit of an update in terms of sort of how things ended the year in fiscal '25 and the outlook you provided for fiscal '26, and then we can sort of dive right into our questions.

Sure. I'd be happy to do that. Look, 2025 was a strong year for us. We delivered 6% growth at the top line on an organic operational basis. The bottom line grew by 7% on the year. You see really strong discipline is always through the P&L all the way through adjusted net income. It was a tale of 2 halves of sorts, if you will. The first half of last year, we had 9% growth and ended the year at 6% due to a confluence of a few items.

One, we've seen some weakness in the U.S. around the consumer, in particular, showing up on the pet care side, though the consumer is still spending the same, if not more, on their animal health and pet health, though some of that's going through higher prices, or less volume and more emergency care. So we'll unpack that a little bit, I'm sure, in this conversation.

But we saw really strong growth continuing in our livestock portfolio stemming from the last few years. We've grown 6%, 5% and 7% over the last 3 years. And as we gave our guidance for 2026, we're expecting the top line to grow between 3% and 5%, bottom line between 3% and 6% -- and we continue to expect livestock to grow in the mid-single digits, so effectively outpacing the growth of companion animal in 2026 as well.

Pretty incredible, right? When you -- you touched on the decelerating growth in the second half, and you talked about the consumer and the impact in pet care. I think the market is also focused on maybe some of the competitive dynamics in that space. And so could you just talk about some of that as being the primary driver for maybe some of the deceleration in the trend in the second half within the pet business?

I would say the second half had a few factors involved. When it comes to the competitive launches and the impacts we're seeing, we've been telecasting those for some time. We knew those were coming and we knew the types of activities to expect in the initial launch period when they're trying to get the product into clinics in order to position them to turn around and do more direct-to-consumer type advertising to drive demand at that end of the spectrum.

So what we're seeing play out is what we would have expected. It happens to be happening at the same time that we're seeing some pressure on the consumer, particularly Gen Z and millennials who have absorbed quite significant price increases over the last few years, and that's starting to play out in some of those. So that's having, quite frankly, a bigger effect, we believe, as we exited 2025 than the competitive dynamics, though they do have some impact, but we anticipated those, I would say, by and large.

Now we're in a global business. So our diversification does play out for us. Even in places where you've seen some of those competitive dynamics play out, you continue to see strong volume growth in those markets, which again -- and then again, our livestock business, given the diversification with our aqua business, poultry, et cetera, you've seen really strong performance across those to offset some of that.

Okay. Maybe just one more question on last year 2025. Could you break down the year for us? You gave us the growth numbers, but could we talk about that in terms of volume and pricing? Because I think that's maybe a little bit of an interesting story that we're going to touch on.

Sure. Price was just a touch below 4% on the year, rounded to 4% with the balance being volume, obviously. So we landed the year at 6%, just a touch over 6%. And so you had about 2.5% or so on volume and just under 4% price in that mix. Now of course, it varies again across different species and categories of products, but that's the aggregate.

Okay. Awesome. All right. When you think about your business and you sort of break down the companion and livestock in the U.S. and the outside the U.S., that's 4 separate quadrants, right? I mean we're going to talk a lot about your U.S. pet business, right, because that's where we get most of the investor questions. But I think there's a diversification story here that maybe is a little bit underappreciated. So maybe could you talk a little bit about your sort of livestock and your -- and even more so your international business and some of the trends that you've seen there because maybe that's not as well followed or discussed or talked about.

I really appreciate that, Glen. If you look at our international companion animal business and you track the last, call it, 8 years, -- our international companion animal business has grown at a very similar rate to the U.S. companion animal business. Yet most of the questions are on U.S. companion animal. Now it's understandable, right? U.S. is 55% of our revenues. And now particularly after the divestiture of the MFA portfolio, companion animal is about 80% of our U.S. business, and I can understand why, but there is significant opportunity when we think about international and we think about companion animal internationally, which has already been showing, as I said, the historical results that we've been talking about, but remains a significant opportunity as we look ahead.

If you look at the percentage of our revenues that companion animal outside the U.S., it's about 55%, give or take. And in the U.S., it's about 80%. But as I said, the growth rate is there, the continuing increase in terms of medicalization rates, the innovation that we keep bringing to different markets. For example, we just got Trio approved recently in Brazil, while Trio has been in the U.S. since 2020. That's just one example of the types of innovation that's going to different markets where applicable that will continue to fuel that growth, and we believe tremendous opportunity to come.

You asked about livestock, particularly in international, you've seen continued growth in livestock outpacing the growth we've seen in the U.S. But overall, livestock with demand for animal protein, quality animal protein has continued to be on the rise. And with us divesting our portfolio of MFAs, which is dragging down our growth in livestock and with our field force more focused on driving vaccines and all the other preventatives that we have in our portfolio, -- those have combined to 4 straight years, effectively 3 in the bag and then what we've included in our guidance here will be mid-single-digit growth in livestock.

And we are the biggest in terms of aqua. So fish and poultry are the fastest-growing animal protein consumption around the world and certainly, our leading position in aqua and continued opportunity in poultry will help to fuel that in addition to the other species.

And I'm sorry to make it potentially repeat yourself, but just give people the split between U.S. and international in terms of your total revenues?

Yes. So the U.S. is about 55% of our total revenues with the balance obviously spread across international. And again, to reinforce the point you made earlier on the question around diversification, outside the U.S., our next largest market would be about 5% -- and you can really see how that plays out in terms of the consistent delivery of growth regardless of what's happening in any given market, you can absorb some headwinds in 2 or 3 of your markets and still drive the type of performance that we have given that level of diversification.

Okay. All right. Maybe if we could segue into parasiticides. It's obviously an important topic, gets a lot of focus. You had in the U.S., clearly a little bit of a slower 3Q number. But then again, in 4Q, we've seen that number sort of recover kind of significantly. And so I guess I was kind of curious one, about the dynamics of the deceleration in 3Q and then the rapid acceleration into 4Q and how we should think about that sort of going forward.

And I think you sort of touched on it a little bit in your previous response about Trio outside of the U.S., right, is starting to get some renewed acceleration. If you could just sort of talk about those trends as well.

Sure. If you look at parasiticides globally, it's almost $7 billion. It is the biggest segment in animal health and arguably most competitive, though I would say there are a lot more competitive spaces in animal health than I get the impression from -- when I come out to talk about the business. Now parasiticides is one where we have really gained a lot of share over the years, particularly with Trio, but not only because of Trio. We have a broad portfolio, the broadest in the industry with parasiticides across cats, dogs, livestock and so forth.

Now if you look at what we've done there and the performance that you've seen, this remains a very attractive space as we think about the future. The transition that has been happening since we launched Trio in the U.S. in 2020 is that triple combinations are becoming and have become now the standard in parasiticide prevention. And we have quickly gone from 2 or so years ago where triple combinations were about 25% to 30% of the U.S. clinic patient share, it's now 50% because it grew north of 20%, 30% a year over the last couple of years.

It's sitting at 50%. But if you look at puppies, they're about 2/3. So 2/3 of puppies are getting triple combinations. So if triples are 50% of the market, but puppies are getting -- 2/3 of them are getting triples, that tells you the market is making its way to 2/3 of the market, right? So that would spell significant more expansion opportunity with triple combinations where we are by far the leader. Not only were we in first, we just delivered $1 billion in revenues in Trio in the U.S. alone last year.

And so clearly, there's a lot more room to grow. And with being the leading product with really high satisfaction levels from our customers, that positions us well to really not only participate but lead in the expansion of that space.

What it's worth my dogs on Trio. So I'm doing my part.

Thank you for being a customer.

All right. Since you touched on this on the combo, the broad spectrum market, I think you said maybe it would grew 30% last year. And you said that you said 2/3 of the puppies are on a combination therapy, and it's only 50% of the market today. So it tells you the market is going to 2/3. Help us think about the expansion in this category and the time frame with which we should expect to sort of see that expansion play itself out. I mean that feels like a 2026, 2027 business as we continue to ramp at an elevated rate. Is that the right way to think about it?

Right. And look, while we've seen this level of growth, it will continue to outpace overall animal health and overall parasiticide as a category, triples will grow faster than that for sure. Is it going to sustain 30% growth? Not by definition, it won't. However, we do see substantial more room for it to expand and having more players in this space help do that because there's a significant amount of direct-to-consumer advertising that happens in this space to drive awareness that, first of all, heartworm is deadly and it is prevalent across the U.S. This is why the U.S. is such a big part of this.

Trio, I give the example of a market like Brazil, where in Australia and other markets. Heartworm is not prevalent in every market around the world. And so in places where heartworm is, Trio is very popular, obviously. If heartworm is not prevalent in a certain geography, then Simparica has gained a lot of traction. And we've seen really strong growth in Simparica outside the U.S. as well.

So this conversation is not just about Trio. It's about the parasiticides category broadly, and we have the most robust and most -- biggest portfolio to offer to our customers across that spectrum. But we are very excited about the continued outpacing of growth in terms of triple combinations in the U.S. as a market, and we believe that will continue to fuel our growth as we -- certainly in 2026 and beyond.

Okay. All right. Maybe let's shift over to dermatology because that's obviously another big area of focus. And just following up on that themes of the tale of 2 halves in 2025. I mean, I think you saw significant elevated growth in the first half, sort of flattening growth in the second half. And maybe if you could just sort of comment on that trend in both the U.S. and outside the U.S. in terms of what you saw in the second half of 2025 and maybe help us think about how that sort of layers into the 2026 guidance that you provided.

Sure. Look, we delivered $1.7 billion of derm revenues in 2025. This is a segment that continues to grow, and it's a market that continues to have significant room to expand. Now we've been expanding that market over the years. I joined Zoetis in 2021. And by recollection, I would say the revenue we had back then was about $1.3 billion, $1.2 billion, $1.3 billion, and we've just crossed $1.7 billion last year. So we've been expanding that market and believe as other participants come into the space and drive more DTC and awareness, it will help to continue to expand the market.

Now 2025, certainly, we saw some headwinds on the back half of the year, not only from the competitive launches, which we anticipated and we talked about for some time, it's also a bit of a slowdown we saw in the U.S. You saw visits for therapeutic visits for derm decrease when they increased in 2024 by about 4%. They decreased starting in the second quarter of last year, and it progressively got better through the quarter. So it got to basically flat in terms of visits in the clinic last year in the end. And then, of course, we have a substantial portion of our Apoquel sales that are in the alternative channels in the U.S. where we've continued to see strong growth in that area, including better compliance, which drives more volumes in those as well.

So we are certainly confident about the ability to continue to grow this space over the long term. Derm that is and more expansion of the category, both with compliance and more patients that use it. Just one last point I will make, Glen, is if you look at derm in the U.S. in particular, treatments in the vet clinic between our products and steroids, which are the 2 areas of prescriptions, account for about 50% of the itchy dogs in the U.S., which means -- and about 2/3 of those are on our products with the rest on steroids. So we still have substantial more room to expand this space is what I'm saying. And again, we'll lead in that over the years.

And I guess that's kind of part of the question, right? I mean we think about this as being an underpenetrated space, right? But we shouldn't -- and correct me if I'm wrong, we shouldn't think about the growth here like we think about the broad spectrum parasiticide growth. It's a little bit slower, a little bit more measured. I don't know how we think about that growth relative to the sort of the 2026 guidance that you provided, given that this is maybe not quite 20% of your revenues, but pretty close.

Right. We tend to guide broadly across the company, and then we give indications around our key franchises combined. And so if you take our key derm franchise, we've been just talking about, our Simparica franchise and OA pain, combined, we expect those to grow in the mid- to high single digits. Having said that, to your point, if you look at key derm versus the triple combination space, triple combination is still penetrating, if you will, and expanding at a rate that would surpass the expansion rate of derm, right? The parasiticides category at large isn't necessarily growing faster than derm, but triple combinations, in particular, given what I just described already, certainly, you would put in a category that's growing faster.

Okay. All right. Can we move on to the pipeline a little bit? It seems like renal and oncology seem to get a lot of the attention and the company sort of talked about that. They're also very much talked about on the diagnostic side. I understand that Zoetis has its own diagnostics business, but the major diagnostics player talks a lot about renal as well.

Help us think about the pipeline and potentially a cadence of launches over the next several years and how we can think about that as entering the sort of -- we're contributing to the growth algorithm over the next couple of few years?

Sure. We're very excited about our pipeline, which is why we took the time to have an innovation webcast in early December. Indeed, there are some big categories and opportunities that we're pursuing. If you look at the key ones that we highlighted, you mentioned chronic kidney disease with renal, oncology, cardiology, you look at obesity, et cetera. If you look at these 5, they account for about $7 billion of total addressable market opportunity now.

It will take time, of course, and to continue to expand those markets from the time we get products approved and then launch, et cetera. But we're very excited about the work that we're doing and the profile of assets that we're pursuing in these spaces. Now as always, our pipeline, while we talk about these focus areas, is a lot broader than that, right? The number of approvals that we have in a given year is in the triple digits. If you think about some of the geo expansions and additional claims on labels, et cetera. We don't tend to talk about those a lot, but about half of our spend in R&D is to drive those, which help us actually build and grow markets over periods of decades.

And so those are very important in terms of the consistent delivery of growth for the company, have always been. But certainly, when we get an opportunity to solve for the most significant unmet needs that exist in animal health to make an impact on animals' lives and those who care for them and so forth, you have to get really excited about what those are. And if you look at chronic kidney disease, it certainly is the #1 killer for cats -- globally and cancer is the #1 killer for dogs. And when you can make an impact in those areas, certainly, that gets you excited.

Okay. All right. Maybe a couple of financial questions in the interest of time. I wanted to shift to the 2026 guidance. And you sort of touched on it a little bit, the 3% to 5% this year. But when you think about sort of those high-level drivers within that sort of top line growth in that mid-single-digit sort of range to EPS in high single-digit, low double-digit range. Could you flesh out for people maybe what some of the high-level drivers are and maybe what some of the puts and takes on that guidance may be?

Yes, happy to. We talked earlier about livestock and the trend we have been enjoying there and how we continue to execute to mid-single-digit growth, and we expect that to continue in 2026. So that's certainly a significant contributor to our growth. We've talked about our key franchises in companion animal also growing mid- to high single digit in 2026. Leading the way is the Simparica franchise. And then, of course, contributions from derm and OA pain, particularly as we lap some of the tougher comps in the latter category when we get in the back half of 2026 and so forth.

So that's a contributing factor there. And then price is an element that historically, we've taken 2 to 3 points of price, which is what we have in the guidance for 2026. Down, of course, as we've been saying, we would come back to our normal levels, historical levels, which is where we are now coming from where we were last year and the year before. Certainly, diagnostics, we only mentioned briefly, but that's been growing faster than the company. We expect that to contribute, of course. Now it's roughly 4% of our revenues, but growing faster. So that is contributing and additive to our growth profile here as well.

And you sort of touched on this. I think in 2025, you said 2% to 2.5% in terms of price. And when we put that within the context of your guidance for '26, if we have sort of a normalized pricing year, your mix should be roughly 50-50 on the pricing and the volume side. Is that a fair characterization?

Sure. I think that's a fair characterization. If you look at the midpoint of the guidance, right, you go from 2% to 3% on price, your guidance is 3% to 5%. So depending on where you are on the range, the price versus volume contribution shifts. But in the middle, it's closer to balance.

Can we touch on capital allocation a little bit? I think when you look at what happened in 2025, a fair amount of share repo. I think you have $2.4 billion remaining on the repurchase authorization, if I'm correct in that. How should we think about the capital allocation strategy in 2026, particularly in light of where the stock is sort of trading today? How do we think about those uses of capital?

Over the long haul, the allocation priorities have not changed. Investing in the business is our #1 place we look to deploy capital. We've done so very effectively and efficiently. You've seen the output in terms of what we're doing in R&D. You see it play out in manufacturing and the way we're scaling technologies like mAbs. We already have $1 billion of revenues coming from mAbs today, right?

And we've scaled to that level and continue to scale given what we have in our pipeline and opportunity in our existing products. And then we look at M&A. You saw the announcement this last week with the genetics acquisition on the livestock side. We believe that's very complementary to our existing offerings there. We're excited about what that will look like in the future. So when it comes to returning capital to shareholders, which follows investing in the business and M&A, last year was certainly a year -- a record year given the level of buybacks we did, $3.2 billion. That included $1.75 billion from the leverage buybacks.

But our normal course, I would call it, buybacks have been trending about $1.5 billion to $1.8 billion a year, and we generate sufficient cash after we invest in the business to be able to continue to do that level of buybacks.

Okay. All right. Well, we're just -- we're essentially out of time, but I want to sort of conclude and see if we can sort of wrap this up for people. You talked about 2025 as being the tale of 2 halves. And I think there's some green shoots here that may be underappreciated in the OUS business and maybe we'll have easier comps in the back half of this year versus last year. Sort of -- I want to give you the last word to sort of tie it all together and help people think about 2026. And if there's anything that we didn't touch on or you feel like may be underappreciated, any sort of message that you want to leave with the investors here today?

Sure. Thanks for the opportunity to do that. When I think about Zoetis and I think about animal health, it's a very resilient space. We're clearly the leader. If you look at the -- our pipeline, it says we're positioned to continue to be the leader. Now the consumer has been extremely resilient. They're still spending significantly and prioritizing their pet health on the consumer side. And then, of course, on the livestock side, we've talked about that as well.

So the opportunity we have here, of course, there's a combination of things, including some headwinds in the U.S. at the same time as competitive launches and so forth. But when you look beyond that, there's a lot to be excited about in terms of how much more room we have to grow in the existing markets that we participate in today. Simparica and triple combination certainly is one of the highlights. And then, of course, we're very excited about the products that we're working on that will solve some of the biggest problems in animal health and continue to drive our growth in the future.

Okay. All right. Well, we'll leave it there. Wetteny Joseph, CFO of Zoetis. Thank you very much. Much appreciate it.

Thank you, Glen. Thank you.

Thank you.

Okay. Great. Well, thank you, everybody, for joining us here at the Leerink Global Healthcare Conference. Very happy to be here today with Zoetis' CFO, Wetteny Joseph; and Head of IR, Nick Soonthornchai. Wetteny, just going to kind of get into it here. Thank you for being with us.

I wanted to start on the companion animal side. At this point, how are you thinking about the broader health of the pet consumer in 2026? We've seen some pockets of durable growth, some slowdowns at a high level. How are you sort of seeing the landscape and thinking about consumer behavior through the course of the year?

Well, first of all, thanks for having us here at the conference. And clearly, I think the biggest thing to really pay attention to is that the consumer overall is still spending and prioritizing pet health. If you look at the latest data even through Q4 of 2025, overall vet clinic revenues were up about 6% in the quarter. However, we are seeing some pressure, though, on some segments of the consumer, particularly millennials and Gen Z whether it's from student loans and other factors that are impacting them, that's putting some pressure in terms of volumes, and you see it in clinic visits, not only in overall visits, which we saw for a number of years, but we're seeing it in therapeutic visits as well. And we also see a concentration around particularly certain segments of the customer, meaning the vet clinics, particularly those were corporate-owned that took larger price increases over the years, you see that more pronounced with them.

So -- but I start with the overall because the overall is still that they're spending. They're spending though more -- higher prices and also more emergency care. So if you look at emergency hospitals and so on, you're seeing an uptick there, which is an indication of either delaying treatments or what have you that ultimately, if the pet is sick and has an issue, they're going to address it, which again is where you start from and those strong secular trends that have driven the industry in the past are still there.

And when we're talking to our customers, we're just at the largest conference in the industry. It feels like an eternity ago, but VMX. And you can hear the conversation with our customers recognizing that there is a need to really look at ways to drive a value proposition to pet owners to drive the right level of preventative care, not just with emergency care and drive continued spend and focus in those areas. So we believe, one, we would expect a different tempo around how much price increase there is, in some instances, maybe not taking price at all this year and so forth. Those are the type of things that customers are evaluating or doing to help drive the business forward and drive it that way.

Got you. Makes sense. Jumping to parasiticides, Trio has been a great product for you. It's been growing quite well. How should we think about sort of the product's growth from here, especially in the U.S. On the one hand, you've got a little more competition, but you've also got a fairly sticky user base. You've got good new puppy starts each year. The ability to take price. And I think the auto-ship channel has been one that's been beneficial just driving improved compliance. So a lot of different factors sort of at play within pair and Trio, but how do you think about those relationships going forward?

Trio is a phenomenal product for us. When we look at this past year, Trio delivered more than $1 billion in revenues in the U.S. alone. Now you have to analyze the overall parasiticide space and the triple combination space to really appreciate where things are going and what we're seeing and why we remain very excited about this space. We have a very strong head start with Trio. And if you look at the satisfaction levels, so this is behind the revenues, right, beyond those, look at the satisfaction levels and pet owners and veterinarians are showing satisfaction levels with safety and efficacy that are in the 90s, mid-90s, you're talking at 95%, 96%. That's a very, very strong foundation to grow from.

Now what's happening with triple combinations is that they occupy today about 50% of the vet clinic patient base are triple combinations. However, puppies are close to 2/3. So what that tells you is, this is where the market is going from roughly 50%, which is what the overall share is to 2/3, which is where the new puppies are getting started on. And Trio is getting about half of those puppies. So if it's 67% that are getting puppies that are getting triples, Trio is getting about 31%, 32%. So that shows you where we stand and where the overall space stands in terms of more room to expand. That 50% I described, by the way, was only about 25% or 30% just a couple of years back. And so it's grown rapidly to this point. We think there's still a lot more room to expand into triple combinations. In some instances where competitors have launched products, they're just ramping up and therefore, cannibalizing some of their legacy sort of treatments in the process. But overall, there's significant room here for this market to keep expanding.

How do you sort of think about compliance given you've got more auto-ship? Like where has that been across sort of the totality of dogs that are treated with Trio? What are you seeing in the auto-ship channel? And sort of how can that play out?

Certainly, when we think about expansion of the market, it's not just in what I just covered, which is number of animals, number of dogs, et cetera. It's also in terms of the compliance, right? And you see it very clearly when you look at Trio. So about almost 50% of Trio sales are in alternative channels. And if you look at those that go through retail and on auto-ship, where the overall compliance rates for parasiticides in the U.S. stand at about 6 months. When they're on auto-ship, they go up to 11. And so clearly, there's a substantial opportunity here in terms of compliance and where growth will come in into the space, not just in terms of number of animals, but the level. And that's very sticky, as you said. You don't see switching in the space anyway, particularly if there's not any significant differentiation in products that are coming out. And

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I guess switching to derm, I want to touch again on the slowdown in visits. And I was just curious, if we think about the owner burden associated with atopic derm, like these are dogs that are going to get worse if they skip, if it's a Cytopoint visit or what have you, is there any possibility that we start to see, if you want to call it a boomerang dynamic or something else where these untreated dogs get so bad that they have to come back to the clinic? Like how does the elasticity, inelasticity of sort of derm demand play out over the longer term?

Yes. Look, I think we all sort of lived through the period of COVID, when we saw a lot more false treating for itch because it was very visible and they saw it because they were home. I think that dynamic is still there. So when you think about itch and to the extent that treatments are getting skipped or extended

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come back. And if you look at the data, as we went through 2025, for example, even the therapeutic visits that we talked about seeing some headwinds, they got progressively better through the end of the year, right? We're not quite at the point of seeing growth in derm visits through the fourth quarter of 2025. However, the worst of it was in Q2, it got better in Q3. And then by the time we got to Q4 was barely negative. It was basically flat in terms of the derm visits in the clinics.

Now there is some lag effect in terms of patient starts and so forth, but the direction of travel is, I would say, favorable in terms of what we're seeing and perhaps from some of what you're describing already or other factors that are coming in. But this is clearly an area we posted $1.7 billion in key derm revenue last year. And despite that, you still have substantial more room to grow. So just under 50% of itch in dogs are getting some treatment from a veterinarian today and about 2/3 of those are on our products with the other 1/3 getting steroids or what have you. But you're still talking about less than 50% of itch in dogs that are seeing a vet on a regular basis and getting treatment. Therefore, there is substantial room to grow.

And I think if you look past prior to 2025 for a second and you look at what happened in 2024, our key derm products grew by about 16%, 17% actually in 2024. And the volume growth within that was double digits, right? So clearly, this is a market that continues to have -- and it's both number of patients as well as compliance that's driving that. And Apoquel is -- more than 40% of Apoquel is coming through alternative channels in the U.S. And so it's a healthy proportion that's coming through alternative channels. And you see the effects of auto-ship and so forth. So there's still substantial room for compliance growth as well as number of patients growth.

Actually, I wanted to revisit the commentary that derm visits are getting -- we're getting a little better sequentially through the second quarter through the fourth quarter. When we think about your ability to drive visit growth, whether it's increasing awareness, getting new dogs in the visit, like what has your strategy been to sort of get more dogs into the clinic? And did you do anything differently in the back half of last year?

Look, the playbook is similar in terms of awareness and all the work that we do. And a lot of this conversation so far has been U.S.-focused and centric, but we are running a global business. And if you look at the growth that we've enjoyed over the last number of years in companion animal more broadly, but specifically also within key derm, you have seen that companion animal growth outside the U.S. has grown about the same rate as companion animal growth in the U.S., right?

Now having said that, international segment, companion animal proportion is just over 50%, call it, 54-ish, 55% of our revenues outside the U.S., whereas companion animal is about 80% of the U.S., right? So there's still a lot of room to grow internationally from a companion animal perspective. And I saw all of this because we are also -- we have in the past done a lot of awareness type campaigns, particularly when there wasn't another product in the market because while in some markets in Europe, for example, you can't do branded DTC, we're doing a lot of DTC just on unbranded basis and bringing and driving more pet owners to veterinarians asking for our products. We continue to do DTC in the U.S. and elsewhere to do that as well. And all those are going to continue to accrue to driving more patient starts. But at the end of the day, someone has to show up to a clinic and see a veterinarian to start a treatment regime before they could use other channels as well.

Got you. So I guess speaking about the oral JAK space, specifically here, again, you've got the longest tenured market on the product in Apoquel. How are you thinking about whether it's new patient starts or patient switching, thinking through you've got a label that's quite efficacious. You've got a good track record that's been in the public eye for a long time. Like how are you thinking about the opportunity in Apoquel, both in the U.S. and ex U.S. at this point?

Yes. So we look across the key derm franchise. We have 3 products across 2 key brands, with Apoquel and Cytopoint. And we see substantial opportunities I talked about already in terms of expanding the market. On the film coated side, yes, Apoquel has been around for more than a decade, very, very high satisfaction levels, both for efficacy and safety. We have managed as a company to really strike that balance between those 2 safety and efficacy in a way that perhaps is why we've seen the longevity of the success of this product, and now we have the chewable version as well.

So clearly, it's a balance we've been able to achieve, which accrues to the success of the product. We continue to see some conversion from Apoquel to Apoquel chewable, which remains very much differentiated. And I would say even on a pure film coated Apoquel basis, pound for pound, we believe we have a product that's differentiated against others, whether it's looking at safety on the one hand or efficacy on the other, which is something we'll continue to leverage and drive our business here.

Got you. I guess just thinking through the derm landscape here, can you just remind us how you're thinking about promotional activity across the space through 2026 and the subsequent years given your position?

Sure. Look, I think derm isn't quite as seasonal as parasiticides. And you get into pairs season as we're getting into now, you tend to see a lot more promotional activity that just common place, whereas in derm, there are some seasonal derm patients, but a lot of it is chronic. If you look at the dosing, it's about 60% of those are chronic conditions. And so it's not -- it doesn't lend itself to that on its own. I would say, generally speaking, we do look to leverage some level of promotional activity across our products, particularly given our strength is our portfolio and products that are very important to vet clinics and their practices.

So we -- where we can in markets like the U.S., you can't do that everywhere. We do bring those together to bring a value proposition to our customers that connects those in terms of where the pricing ends up depending on which products they buy, et cetera. So in that way, the derm products are being sort of presented alongside other areas, including pairs, et cetera, and driving our business for us.

Got you. I guess jumping from one derm product with a long, good track record here to the other, Cytopoint, how are you thinking about the growth trajectory of this business through 2026 and subsequent years? And it's maybe an unfair question, but if the incremental dog comes into a clinic looking for atopic dermatitis treatment, like do you have a preference that it goes to Cytopoint or Apoquel? And how are you kind of thinking about that?

Cytopoint is a terrific product. And again, it's been around for about a decade and satisfaction levels are very high there. And what we have are products that give a clinician a vet and the pet owners a choice in terms of what's the best product to use under each circumstance. It certainly is the reason why we started to combine and talk about key derm in combination versus individual products because you still see a strong preference on the part of veterinarians and pet owners for an injectable form that you have higher compliance with, et cetera. Now the same headwinds we've talked about with respect to key derm visits have impacted here. But overall, there's definitely a preference on the part of pet owners and veterinarians for the injectable form here, too.

Got you. And how are you thinking about so competing IL-31 mAb coming out and then you've got long-acting Cytopoint coming out this year. Just given the phasing of that, how are you thinking about the interplay of what the market look like in a year from now?

Sure. It's certainly a part of our factor. We've been investing in this, and we're excited about the prospects of having an approval late in 2026 here for Cytopoint long-acting. Again, given the foundation we sit on in terms of a decade of experience and satisfaction with customers, we always have been and will be disciplined in terms of how we approach the market as an IL-31 competitor launches. And then, of course, we'll look forward to the long-acting component to come into play as well.

Sounds good. Just jumping to OA pain here. How are you thinking about Librela at this point? It seems like on a sequential basis, trends are starting to firm up a little bit. Can you just talk about where your strategy sits at this point to help firm up sort of that franchise?

Sure. We have a multipronged strategy. We continue to execute on and getting more and more confidence in terms of how that's working, given what we're seeing, which we've described on the last couple of calls in terms of seeing stabilizing effects. And they come by way of sort of the sequential rolling 4-week, 5-week trends we're seeing in terms of sales, as well as we gauge veterinarians on a regular basis around where their satisfaction levels are intent to prescribe and all those things. And we've seen those elevate from their previous lows to a point where we see the combination of those signaling the stabilization of this product. And then, of course, we continue to execute on that multipronged strategy, whether it's educating pet owners, by the way, in terms of the long-term effects of OA that it's a painful product that is progressive. And if you don't treat it, it has other implications, including the animal is not moving as much, they're going to have other issues. They can -- it may lead to cardiovascular issues, et cetera.

So educating pet owners is important and then continuing to share data with veterinarians around the product. And remind you, the satisfaction levels of pet owners who are using the products are very, very high. We're talking about more than 75% are either very or extremely satisfied with the product, and those give us a really strong foundation.

And that's before we get into the long-acting OA products that are launching in different markets. So we think about the OA pain opportunity still as a very substantial opportunity. Just to share a few figures, and again, we're running a global business, but sometimes it's helpful to just look at what the U.S. data looks like. And we would estimate somewhere between 25 million and 27 million dogs with OA pain in the U.S. And that population are the ones that see a vet on a regular basis. It'd be a bigger number if you look at all dogs. But just think about roughly dogs, roughly 75% or 80% of dogs will see that on a regular basis. So think about it that way. So 25 million to 27 million with OA pain in the U.S. with only about 9 million getting treatments and 8 million are getting NSAIDs and 1 million getting Librela. So if you think about that context, there's a huge opportunity here.

And when we think about the long-acting products, which we don't have an approval in the U.S. yet, but we do have in Canada and Europe, as those continue to get approvals, and we would expect an approval in the U.S. in the 2027 time frame, that will continue to add more options and flexibility for a veterinarian and a pet owner to treat OA pain and continue to expand that market.

So look -- actually looking ahead to Lenivia and Portela, like you talked a little bit with Librela about increasing vet owner education coming to the table with more data. how are you taking what you've learned from the Librela and I suppose Solensia launches and sort of applying that to these future launches here?

As we've been sharing, one of the key learnings for us is though we've had tremendous success with products launching directly into general practitioner veterinarians, it really is helpful to first work with specialists with these products as general practitioners will look to them as questions arise and so forth. And that's one of the big learnings for us. And though as we launch long-acting products and many other products we have in our pipeline, as we -- particularly as we get into treating more sick animals versus preventative, et cetera, this is an important component for us. And so the launch will be more measured initially, working with specialists and select GPs to gather some of the data from those and really start the Phase IV studies and all those things early on through some of the data that we'll gather through those before launching more broadly across a broader GP population. And so that's one of the key items in addition to the education and everything else that we've been talking about doing with Librela doing the same thing with other products.

Got you. And then just taking a step back and looking at sort of your other companion animal health products, whether it's vaccines, anti-nausea meds, things of that sort. What are really the main drivers we should think about for that other companion animal health bucket? Is it visits? Is it the broader health of the consumer, puppies, older dogs? What should we be thinking about there?

Look, I think the broader health of the consumer is always a factor, no matter which way a customer or a pet owner chooses to get their products fulfilled. Of course, it all starts with the veterinarian in terms of diagnosing, creating a treatment sort of plan and all those type of things. So those are really important aspects. When you start to get into different channels, though, some products lend themselves to those versus others that don't. And so the convenience factor and the opportunity to expand the market through better compliance that comes with some of the alternative channels would lend themselves to injectables, for example.

So when you think about that category of that basket of products you're talking about, vaccines are going to have to be done in a clinic because it's an injectable product. You have a mix in products like Rimadyl, between an injection versus a tablet or what have you. So those can go either direction. And they have different -- slightly different uses, too. An injection is likely to be in a surgical setting. So a surgical visit will be important there versus others that might be post-surgery type treatment for pain and what have you, broad pain, not OA pain specifically. And so those may -- initially, we will start with the prescription, obviously, and a clinic visit, but then they could be fulfilled elsewhere. So it's a mix. But overall, though, the health of the consumer and all the other aspects we started the conversation with are factors to think about in that.

Got you. And what are the gross margin contributions sort of look like from these drugs versus your more innovative ones?

Look, we don't tend to break out specifically by different products. Clearly, we look to drive value across all the products that we bring to customers, and that drives how we price them and ultimately, what happens with respect to margins. And we continue to see that we endeavor to be the first to solve major problems for our customers and bring products to market that can stand the test of time, right? We talk about key derm, for example, and how we have struck that balance and have a substantial sort of risk-benefit equation and a product that has very high satisfaction and balances both safety and efficacy, right? And so we aim for that, and that is the #1 driver ultimately in terms of what value we bring and therefore, what margins we have.

Got you. This is a bigger term macro question. Obviously, oil prices have gone up quite a bit over the past week, and I'm sure we're all still figuring out what this means. But just at a high level, like how are you thinking about the impacts of that at all across your companion animal or your livestock businesses?

Sure. Just like other factors as a major global company with a global supply chain and moving products around everywhere around the world, this is one that we're certainly monitoring and continue to do different scenario planning around it. At the levels we're talking about right now, of course, they would have some impact, but it's nothing significant.

Okay. Yes, I should probably touch on livestock here because end markets have been quite strong. How are you thinking about sort of the supply-demand dynamics here over the next couple of years? Should we expect similar levels of growth? Any upside, downside? How are you thinking about that?

The way we laid out our guidance that we issued mid-February is exactly that, which is to expect the recent trends we've seen in livestock that's delivered somewhere around 6% and 7% growth. And so we expect to see mid-single-digit growth in 2026 on livestock. The trends that are driving those, of course, are animal protein consumption have been on the rise. Certainly, if you think long term with population growth, emerging markets, emerging middle class, et cetera, those are all -- and urbanization. Those are all factors that are -- that have been pushing more protein consumption, animal protein consumption and will continue to do that. There are some additional ones, though, that have entered into the mix.

We believe we're seeing some tailwinds from GLP-1s, et cetera, in the U.S. that are also helping to drive more animal protein consumption. So we have always said diversification across Zoetis is an important asset, and that continues to play out. You saw livestock grow faster than companion animal in 2025. And if you follow our guidance with mid-single-digit growth for livestock, that would imply that it's growing faster than companion animal in 2026 as well.

Now long term, we continue to see dynamics for companion animal growing faster than livestock. But as we are right now, this is what we're seeing, and we see those trends continuing to sustain there. And certainly, if you look at our diversification here, we have virtually every species, right, from fish, certainly beef and both on the dairy and beef consumption side, swine, poultry and fish are the fastest-growing animal proteins out there, and we're participating in both with our fish business market leading.

Got you. Jumping quickly to the pipeline here as we're getting close on time. You got a number of things in the works as you highlighted at your Innovation Day last December. When we look out over the next couple of years, which ones are sort of generating the most internal excitement?

Look, I had this question recently, and I didn't pick a favorite. I will say, though, if you look at the pipeline, there's a lot to be excited about. And by size, at least -- and quite frankly, if you talk to veterinarians and you ask them clinically, what is the biggest challenge you have, I'd be very surprised if renal and chronic kidney disease is not the very first thing they say in terms of clinical challenges. So when you can make that sort of an impact and have this size of a market opportunity, we're saying that the TAM here is between $3 billion and $4 billion.

Sitting here as a CFO, you have to be excited about both sides, right? The impact we can make and as our purpose for being and the opportunity to drive value there is certainly significant. And we have a number of assets we're pursuing on that one, both from a therapeutic perspective as well as diagnostics that we believe will go towards expanding that market over time. And so we can go at it with respect to treating some of the symptoms that are appearing, particularly as they get into more severe end of the spectrum. When it starts to show up in the current diagnostics that exist today, it's kidney function. And when kidney function starts to break down, it's very, very advanced.

We have products or assets in our pipeline to treat at that stage as well as products that can help slow the progression of the disease before it shows up in the current test, which is why we're saying new tests that will signal and show when you start to have a breakdown at the cellular level before it starts to show up in kidney function will be very, very impactful here, and we have assets that will tackle that end of the spectrum as well.

Okay. Got you. We've got about a minute left. I wanted to touch quickly on capital deployment. bought quite a few shares in 2025. You just bought Neogen's, part of their genomics business. How do you think about going forward, sort of the use of capital from here? And are there any areas, whether it's diagnostics or elsewhere that are particular targets for you at this point?

Sure. Look, looking at 2025, $4 billion of capital return to investors with just over $800 million of that being dividends, $3.2 billion in buybacks. That's a record number. It doesn't change our prioritization, though. It always has been to invest in the business first, and we're doing that in our R&D pipeline. We just talked about the health of the pipeline a moment ago, and we're doing that with respect to the capacity and supply chain and everything else that we're doing to continue to drive supply and of the spectrum. So those are just a couple of examples. There are lots of places we invest in the business, certainly, to drive that.

And then M&A is the second priority for us. And where we see something that makes sense from a strategic perspective, we pull the trigger. So this deal with Neogen, we're already the leading genomics company, particularly when you look at livestock, and we're participating in genomics on the companion animal side, too. It certainly is a very complementary sort of offering for us in terms of geographic spread, where we can apply our methods and so forth where we have a strength and drive growth in that business. So we're excited about that. We'll continue to look for those. And then we generate cash that we return back to shareholders as we won't sit on the cash. But we certainly, first and foremost, invest it in the business.

Okay. Great. Well, that takes us to time. Thank you, Wetteny. Thanks, everyone, for being here. We appreciate it.

Thank you.

Ladies and gentlemen, the program is about to begin. At this time, it is my pleasure to turn the program over to your host, Michael Ryskin. You may begin.

Okay. Great. Thanks, everyone, for joining us for our next session. My name is Mike Ryskin. I'm on the Bank of America Life Science Tools and Diagnostics team. I also have the pleasure of covering animal health space. For our next session, we're joined by Zoetis, and we have Wetteny Joseph, Chief Financial Officer with us. Wetteny, thanks so much for taking the time to be here with us today.

Mike, thanks for having us. I appreciate it.

It's always a pleasure. Maybe just to kick things off, our standard question, you guys reported 4Q results and gave us your initial '26 guide just a couple of weeks ago. Can you talk through some of the moving pieces in the quarter, key highlights from the guide, sort of what the takeaway message is in terms of how the year played out and how you're thinking about the year going forward?

Look, first of all, I step back and I think about the year, and we delivered solid results with 6% growth on revenue and 7% on adjusted net income. Both of those are on a [indiscernible] basis, so organic operational growth, excluding the impacts of the MFA divestiture and FX in those. And if you look at our EPS, it was double-digit growth on the year. And this is certainly in a macro environment that includes both -- some headwinds from the consumer coming off of some significant price increases over the last few years as well as competitive launches that we anticipated would have some impact on us. And despite that, given the resiliency and the diversity of our portfolio, we continue to deliver again solid results here.

And Animal Health itself is very resilient, Mike. And if you look at the -- even in the quarter, and we've seen consistently, even with these headlines, you still have a spend on Animal Health being really robust. So in the quarter, we saw about 6% growth for revenue for clinics. It is coming in by way of more price, which is having some impact on volume and visits. But I don't think it's -- it can be denied the fact that the consumer is still prioritizing animal health and still spending those dollars, right? And so I think that certainly is something that we continue to see and believe we'll continue to sustain for the industry.

And we have leadership positions in every area, category that we are participating in, if you look at our franchises. And these are even with -- I'm sure there'll be a number of questions on competition here. But even with that, we feel very confident in our portfolio and how we're differentiated against what we've seen so far. And these are areas that have substantial more room to expand. At the same time, we have the deepest and most promising pipeline in the industry that gives us a lot of excitement in terms of the next wave of growth that is to come.

And so that gives us a solid foundation, Mike, to operate from. And certainly, as we anticipated, we did see some deceleration in the back half of the year. But the full year is, again, delivering on 6%. And we've guided to 3% to 5% on '26 and revenue and 3% to 6% on adjusted net income. Again, we'll unpack that here on this call as well.

Okay. Okay. That's a good starting off point. Yes, we're going to touch on a lot of those topics. Maybe just to kick things off, sort of a technical issue, but something we've gotten a lot of follow-ups on, I'm sure you have as well. The whole calendarization bit led to some confusion on the call. Could you just walk us through that just really simple. The OUS calendar for Zoetis historically was 1 month earlier from a legacy -- from legacy Pfizer, you're adjusting that now. But is it -- am I right in that 4Q '25 was the same way it's always been where it was -- the U.S. calendar was the U.S. calendar. International was September, October, November. So the same 3-month stagger it always was. And what's happening in '26 is you're synchronizing both. They'll both be January to December. So in both cases, you're having 3-month quarters, 12-month years, and such thing as a 4-month quarter, which I think there was some [indiscernible] earlier. And the comps will always be even. It's just you're sort of what's shifting that calendar? Is that -- did I summarize it right? Or did I screw it up for you?

No, Mike. No, you summarized it correctly. One piece I will highlight, though, is you're right. Historically, it's been this way for our entire existence is a legacy phenomenon where outside the U.S. has been on a lag, so closes 1 month earlier to allow time to close the books and all that. And everything we've reported so far, fourth quarter 2025, all of that and the guidance for 2026, all on the same exact basis we've always reported. 12 months with 1-month lag for international is on the same basis. Nothing has changed there.

As we contemplate the change, we wanted to be able to share that with investors and share what this will mean as we do that going forward, but we have not done it yet. And when we do, it will be on a 12-month basis. It will not be a 13-month year or a 4-month quarter. It will be on a calendar basis for both, and we will provide investors recasted financials for all of 2025 by quarter and all of 2024. So you will always have a way to compare what we are now reporting on a calendar basis for international. Obviously, the U.S. has always been this way on the same basis like-for-like as we go forward.

So -- that's helpful. Just to make sure I got that right. So then for 1Q '26 international, what months are you reporting in that?

When we report 1Q '26 and have adopted this change, at that same time, we will report on a calendar basis. So it will be January, February, March will be the quarter.

Okay.

But the guidance, I just want to make sure this is really clear, crystal clear. The guidance that we issued for 2026 for international is from December to November. It is on the same exact basis as always.

Okay.

When we report Q1, will be the time that we will make that change. And that change will then mean we will give you, obviously, how the quarter ends, the latest information we have in terms of how we're executing, et cetera. All those will be factored into what our guidance is at that time. And the new way we're reporting on a fiscal year -- or calendar year basis will also be reflected at that time.

Okay. Okay. So then -- so -- and this is what you talked about on the 4Q call where you'll provide an update to the guide to account for the change, but you had talked about that change should be relatively de minimis because it still going to be 12 months-12 months. Is that fair?

So 12 months-12 months, it's not 13 months. What that change is, again, our guidance at that time will not only reflect the fiscal year that's changing, it will reflect the latest in the business and our outlook.

1Q results. Yes. Okay. Okay. Fair enough. Fair enough. And on the 4Q call sort of related to this, you also said something along the lines where you think maybe 4Q benefited, like a modest benefit from some timing. It didn't seem like it was to be -- it was huge. Was that related to the shift happening or in anticipation of the shift or anything related to that?

Right. So in anticipation of making this change, we have made some operational changes. One, notable one, I would say, is the fact that we have now shifted the timing of when we do price increases in some of our markets, internationally, so that it will fall -- as you know, customers, larger distributors will order products ahead of price increases. And that anticipation, we want to make sure that it falls into the same year as the price increase itself. When our price increases have been, for those markets in January, for example, if they would have ordered in December and got products in December, that was in the same fiscal year because the year started in December. Once the year starts in January, if we keep -- if we kept all of them in the same way, you would have impacts of price increases falling in a different year. By shifting some of those, we now have them in the same year effectively.

So that change, as you can imagine will have some implication as we anticipate when we do shift the fiscal year, but we'll provide, again, the guidance and any implications of those as well as the ongoing business.

Okay. We look forward to 1Q and post 1Q when this will hopefully be a little bit simpler and we can just sort of [indiscernible] I think that was a helpful explanation. I appreciate that. Wetteny, I think that cleared it up hopefully for everybody as well.

Okay. So that was one thing we wanted to get through. And then the other topic that, as you said, we're going to spend a lot of time on is sort of competition, innovation across both Zoetis, but also from a number of competitors and just sort of how the dynamic is evolving. That's been very top of mind for a lot of people. Maybe kick things off, just the most recent news hit yesterday. Merck's Numelvi got approved in the U.S., not unexpected, this has been talked about for a long time. It's already been on the market in Europe and some other selected markets. We were looking at the label overnight, had some interesting questions on that.

Just anything that strikes you from that approval? I think it's already factored into the guide, but just sort of any change from that? And also if you can make some color on your experience with Numelvi or going against Numelvi in Europe and those other markets?

Sure. Happy to do that, Mike. And I'll start with 1 point you made in the question, which is we've anticipated this for some time, and our latest expectations were that we would see this approval around this time. And of course, when we put our guidance together, we have a range of scenarios that we put in around when competition would launch, what that label might look like, how aggressive might they be initially to get the product going. All those things are inside of the ranges that we talked about. So this is, I would say, in line with our expectations along those lines.

With respect to the label, it is early, right? The approval just came in yesterday. And rather than focusing on their label, I would much rather emphasize where we see our products and where we see the market opportunity. And you can put that up -- those comments against what -- how it positions us for strength against not only Numelvi, but other products in this space. And the way I look at it, key derm is an important franchise for us. We're north of $1.7 billion in revenue in 2025 here. This is a market that we have established, and it still has substantial more room to grow. I always like to go back to my -- we talk about 2025. The comp in 2025, particularly for key derm was an interesting and important one to think about. Because in 2024, we enjoyed high double-digit growth, right, 17% growth in key derm in 2024.

And partly what we saw in '25 is that tough comp that we're up against, right? But the point there though is within that, it was double-digit growth in volume. And I do think it's a point of emphasis because it just demonstrated for us just how much more after a decade, room there is to expand these markets. We didn't go from a market that could expand double-digit volumes in '24 to -- well, there's no more room to expansion, it's all about a fight for the same pie. I do believe there's still room to continue to expand this market, both in the U.S. and outside the U.S. And I believe, our 3 products we have there today, APOQUEL, which is a film-coated product, going up against one competitor that is not film-coated, I do think it's an important differentiation. And we have APOQUEL chewable, which we don't have a competitor yet that has launched a chewable product. And we have CYTOPOINT. And by the way, as we've said during our innovation webcast, we said we were working on CYTOPOINT long-acting, which we anticipate to have approval in late 2026.

So when I take the body of this franchise here against any other competitor that I'm seeing, my bet is on ours and more than just the fact that I'm the CFO of Zoetis, and I'm clearly biased. So I do think this market remains very attractive in terms of room to expand, both in terms of number of animals as well as compliance. And I believe our products are well positioned against everything we've seen so far. And again, we'll spend more time in terms of the specific label, et cetera, but I do like the fact that we have more than a decade. And if you look at CYTOPOINT and APOQUEL, by the way, the satisfaction levels on safety and efficacy, which I will definitely stress here are well into the 90s percent satisfaction levels.

Okay. Okay. Just few points you quickly brought up, remind us the importance of the film coating. Is that -- what's the benefit of that? Why do you feel like that's an important differentiator?

Well, when it's up against a product that is not, there are some implications. And one, for sure, is that you don't have -- if the compound, right, the active ingredient is better, it could present a challenge in terms of compliance, right? And so the fact that it's film-coated is important for that aspect certainly, and we have been emphasizing that for some time. And that's our sort of APOQUEL product before you get into a chewable, which is not just from a film-coated standpoint, now you have a flavored product, which is even more, I would say beneficial from a compliance perspective.

Okay. And then on the chewable front, the other part I was going to ask on, yes, I mean, we've certainly followed APOQUEL and the performance of that, the tablet for many, many, many years. You've had the chewable for a couple of years now. And that is an important differentiator versus others in the market. It took Zoetis many years to launch a chewable. Is that because you weren't in a rush to launch it? Could you have launched it earlier, if you wanted to? So if we think about your 2 competitors now, like is it going to take them 10 years to launch a chewable? Could it take them a year? Is there anything that we should read into there in terms of like time to develop a chewable or?

I won't venture in terms of how long someone may take. And clearly, these products have been out now, as you said, 2 years in the U.S., but 3 years in European markets for us and we've seen really strong traction in terms of that conversion, which is around 60% in Europe and north of 40%, around 45% in the U.S. Now having said that, the level of satisfaction that APOQUEL has actually has been one of the hurdles, if you want to call it that, for chewable even further converting here. So I think the reason I bring that up Mike, is that I think it's important in the context of even if someone were to come with a chewable product, however long that may take, you're still up against a product that has proven to be very, very high satisfaction and therefore, very sticky as a result because of the value that the customer, both the vet and the pet owner are getting from this product. And again, we have a broad portfolio that we will continue to leverage and drive there.

Okay. Okay. All right. Maybe taking a step back from that then and just thinking about how you laid out the guide for 2026 and the moving pieces for that? I think then when you talk about the big 3 and the growth expectations you see from them, I know you're not going to break it down product by product, even though we'd love to. Can you just talk about the confidence in that as a basket in the light of competition, in the light of growing base and some of the challenges there? Just sort of like what's the confidence in that mid- to high single?

Look, we -- let's first start with our overall guidance, right? We guided to 3% to 5% on an organic operational basis for the company, and we believe we took a prudent approach to that guidance, considering all these factors that you mentioned and then some. And we anticipate that our livestock business, which has really shown significant momentum, as you've seen through '23, '24 and '25, we believe that it will grow mid-single digits for us in 2026. Companion animal will grow as well. And the big 3, as you call them, franchises, will contribute to that, and we believe it will be in the mid- to high single-digit range as you think about our broad range of growth overall for the company in terms of where that contribution falls.

We have 2 to 3 points of price in our guidance as well as obviously diagnostics, which is roughly 4% of the company, we're seeing really, really strong growth there, and we expect those to continue as we get into next year. Within the key franchises, they're not all created equal in terms of where they are in terms of the marketplace that we're in and some of the, I would say, near term or short-term issues that we might anticipate around how aggressive competitors might be and what levers we pull along those lines. So in the pecking order, we think about in terms of contributions, we think the Simparica franchise will be the leading contributor to that as we think about it. So that order is that.

And then we think about key derm and followed by OA pain franchise is sort of rough order of magnitude, but I won't get into more detail in terms of breaking down each of those franchises in terms of how much contribution by the order I would put this way, and given what we're seeing right now and how we are executing.

Okay. No, I mean, I think that's reasonable. That's probably how we had it stacked up as well, just given the individual dynamics with all those products and competition question. You touched on price for 2026. I know you don't break down price to significant detail, you think about it on a company-wide basis, but still how much are you fine-tuning price on a product-by-product basis in the light of competition? Like I'd have to imagine that you have to be a little bit more careful with price, in APOQUEL and CYTOPOINT in 2026, than you might have needed to be 2, 3, 4 years ago when you really did have a monopoly and there were no alternatives. Are you having to be a little bit more careful in some of these areas? Just sort of like what's the strategy and what's the wiggle room you have in these markets where you're seeing competitors come in to continue to take price?

Yes. Look, the first basis for our price is the value we bring and the clinical value that these products provide to certainly veterinarians and for pet owners. And I would never say never had a monopoly. There's always a strong market position based on that value. We always had -- I mean there are other alternatives, right? Customers will use antihistamines or steroids and things of that nature, which we continue to penetrate and drive, which is where you've seen the expansion of the market, both in terms of compliance as well as the conversion from those. So there's always been those. And so we'll continue to endeavor to drive that value, which then leads into what price we take in terms of these markets. And of course, that's the primary gauge.

And then, of course, we take into consideration what the competitive landscape might look like at any point in time to fine tune, but it's fine-tuning on a market-by-market basis on a product-by-product basis. This is how we've always done it rather than a top-down sort of push, it's a bottom-up way we go about how we do that pricing across those markets based on these products and what the value is. So we'll continue to be our primary focus is what value do we bring and how do we continue to enhance that, both in terms of the product and the services that go with it in terms of how we approach our customers.

Okay. Okay. I want to touch a little bit on the rest of the portfolio. I mean, when you kind of do some of the sum of the parts if you think about the big 3 contribution being mid-single to high single, and then you look at the total guide of 3% to 5% and sort of what that implies for the legacy portfolio. Have you seen any changes there? Are you anticipating any changes there in the market? It's all things that we don't talk about as much because it is an amalgamation of hundreds, thousands of products. But part of what I think makes Zoetis so well positioned in this market is the ability to leverage the breadth of portfolio to win share in some other parts, maybe some of the more commoditized areas like companion animal vaccines. Is that dynamic changing based on stronger pressure from Elanco or others?

I don't see significant shifts in that dynamic here, Mike. Again, I'll go back to the point of -- the value of our portfolio is the value it brings to our customers on a combined basis, and the level of investment we make in those relationships on education, et cetera, et cetera. So there's a lot that comes with our products and the relationships we've established with customers and the trust and value they get from that. And that is the starting point, if you will, to how much are we able to leverage that in terms of driving our growth and driving our share, et cetera. So in markets where we can specifically tie those together, we do. Like in the U.S., there are other markets where you cannot, and so we don't, right? However, even in those markets, we're still bringing substantial value to customers whereby using our products across a spectrum is helpful to them and valuable to them, and we tend to garner more of their share of wallet in that way.

And so I think those spend again, to continue to benefit us. And as we look ahead and we look at the number of key or top challenges that we are solving for, and we're doing it with products that are promising to be very impactful, we continue to have confidence in our ability to continue to be that provider for our customers that will allow us to be able to move our entire portfolio forward that way.

Okay. It's a topic we've asked on before, and I know others have as well in terms of distribution and go-to-market channel, big news in that space in terms of Covetrus and MWI has been anticipated for a while, but sort of now it's official. Can you remind us sort of how you view the distribution channel, how you view the go-to-market? And sort of how do you characterize your relationship with those major players?

Look, we do have an omnichannel approach to how we go to market. And I think you've seen the benefits from that in terms of how we're both servicing our customers through the vet clinics direct in some cases, through distribution in other cases and then alternative channels, which are meeting the demands and the needs of the end pet owner wherever they are. And that flexibility you've seen from us perhaps before you even hear or see of it from others and has positioned us well in terms of the growth that we've seen. We've had really strong penetration with corporate customers, own clinics, independents, certainly through direct servicing those customers as well as going through the alternative channels. And we continue to look at best ways to optimize those in terms of the work that we do there.

Now as you know, Mike, we do a lot of our own demand generation, right, in markets like the U.S. In fact, we have sales force in 45 countries of the, call it, 100 that our products are in. And that means we are establishing those direct relationships with customers to drive the demand, particularly as you think about the breadth of our portfolio but also the impact of these products. And as we look ahead, these products become even more, I would say, complex in terms of treating disease sort of sick patients and pets. When you start to get into chronic kidney disease and how you modify the disease progression and all those things, I do think it starts to drive more of the importance that we have on demand generation in those cases than not. And so I think this is the way that the -- if I look ahead into the future, that emphasizes that even more.

So do we leverage distribution? Absolutely we do, but it continues to be where we do our own demand generation by and large, and go with an omnichannel approach.

Okay. I want to touch on a couple of other points. I want to talk a little bit about margins and how you're leveraging some of those levers in 2026. You touched on earlier, you're going to -- your guide calls for faster adjusted net income than revenue growth. That's consistently been part of the Zoetis framework. But you're still seeing less margin expansion than you have in prior years in 2026. How much of that would you attribute to sort of the relatively lower top line growth, some of the volume leverage there, the price dynamic or maybe just incremental investments you're making?

Yes. So look, I think we've demonstrated this discipline through the P&L time and time again. You saw it in 2025, even with some of the macro dynamics we talked about and competitive dynamics we talked about, we still delivered a bottom line that was a point ahead of the top line. And so we certainly endeavor to continue to do that. Now if you look at the P&L in terms of how the rhythm of the P&L works, when you have growth rates that are closer to the 3% to 5% range, it's certainly a lot harder to get there than if you're looking at growth rates that are in the 7% to 10% range, that is just natural in terms of how you think about how the P&L works.

But again, we're very pleased with our plans to be able to do that even as we are on that lower end of the spectrum via that discipline. And I think you'll see it both across our gross margins as well as how we run below that in terms of SG&A and OpEx, et cetera. And we're doing it while we are still continuing to invest in areas, as you know, this is a long-cycle business, particularly if you look at the innovation cycle. And we, as an executive team and a company, recognize and appreciate that, and we tend to stay focused on that long term and drive that even as we deliver higher bottom line to top line in any given year. We certainly prioritize that long term, and we'll continue to do so. And we'll do that.

I don't think this is a year that's particularly marked with substantial new investments per se. We have had times, and I have already said, we have -- the business inherently has the capacity to continue to drive margin expansion. There are times where there's some noise related to FX, et cetera. But overall, we have that. And if we do see opportunities to invest in the business where it's incremental amount of investment that's going to drive long-term sustainable growth, and therefore, value creation, we're not shy to do that at any time. I wouldn't say this is a particular year that's marked by that, though.

So when we think about future years going forward, assuming hoping that the revenues on the top line, reaccelerates back to what you had discussed as your LRP and that 2026 is a temporary downturn. Would you anticipate the operating leverage and the margin expansion to go with that...

Yes. I'll put the caveat that I just gave, Mike, which is if there is an opportunity that we see to invest, we will do so, but barring something like that, yes, I certainly see the potential for the business to do that at those growth rates. And then when you think about what the source of that growth would be, it would most likely be coming from companion animal, which long term, if you look at the trends, continue to support that growing faster, even as we are growing -- we grew livestock faster in 2025 and are anticipating livestock growing faster in '26. Long term, I would expect companion animal to lead the way, and that would contribute to it. That's one element.

The other one is if you look at a lot of what's in our pipeline, particularly when you think about the mAbs and so forth, as those start to contribute towards that growth, we have capacity that we've built to deliver on those that I believe are very much leverageable through the P&L., and I think that would do that as well. So there are a combination of reasons that, as I look at the P&L, as I look at the business that gives us confidence on our ability to continue to expand margins as we look ahead at those kind of growth rates that you're talking about.

Okay. Okay. And then I mean you touched on your own innovation. I definitely want to hit on that as well. We spent a lot of time talking about competition, but we haven't touched on that. So you've got some innovation coming in 2026 as well. You had a -- first of all, you had an R&D Day, I think December 2, pipeline update day, that was very interesting. And some of that pipeline is very near term. Can you just talk about any update on timing for that throughout 2026 specifically? How much of that is factored into guide or not? Just sort of what the upside from some of these near-term launches could be?

Mike, consistent with our past practices, we intend to update the pipeline once a year, broadly speaking, roughly. And then as you know, we did that at JPMorgan essentially a year ago. And then this last year, we did it with respect to December 2. I think that's starting to establish a rhythm that we will do that. Within a year, we would only really update anything that we have within that year that's coming as we have any milestones or anything noteworthy on that front.

So I'm not updating, if you will, the time lines right now. Clearly, we're very excited about what's to come and the nearest term items have already started, right? When you think about the approvals we started to see with Lenivia and Portela in Europe and Canada, for example, that is the starting of these long-acting OA elements. We've said CYTOPOINT long-acting, late 2026 approval expected. So that's another one that's coming. And so you can start to see a wave, again, that was already started. And then time frames we've given on when you could expect approvals for chronic kidney disease, really the -- one of the biggest unmet needs in animal health. You've seen what we've talked about with respect to the potential addressable market there to go after. And quite frankly, when we are looking at assets in our pipeline that can both impact the progression of the disease as well as treat symptoms for those that are quite advanced, there's a lot to be excited about the impact that we can make here clinically on animals.

Okay. Okay. That's helpful. I got just a couple of minutes left. I want to ask a little bit about the other update from December. You guys did a little bit of a covenant debt transaction, bought back some stock. Just had a lot of questions in terms of why it was structured the way that it was. I appreciate returning capital to shareholders always, but just sort of what led to that approach versus a more traditional buyback given your cash flow, given your balance sheet and just sort of what to expect from the balance sheet going forward?

Look, we have always prioritized maintaining a strong balance sheet, and we continue to have that. I mean, clearly, you can see how we executed this and continue to have substantial flexibility to invest in the business, do M&A and all those things. So that holds true, and that's really paramount for us.

In terms of the how to execute on this, I think the why we're very high conviction, I mean, I think the innovation webcast was sort of a pivotal point in that, given the -- what we see in our future and the pipeline that we have and the needs of our customers that we intend to meet with that gives us a lot of confidence in the future and the underlying resiliency of the industry and everything else I've talked to you about already on this call, all those things underpin our confidence in the future, and we see a disconnect, if you will, between that and where we're valued today and we felt that this was a prudent way to return capital to investors.

Now the how then, really became to what's the most efficient way to do that. And when we looked at that, this was the most efficient way. I think given some of the volatility in the stock and so forth, it made this an attractive way to go about this. And clearly, all of the options we had in front of us would have been accretive. This one is the most, again, even when we -- even if we fully load the cost with the cost of the cap call and everything, it still is more efficient than what you would call, say, traditional way. So that's why we did it the way we did.

Okay. Okay. I appreciate that. We're almost out of time, but I just had 2 questions come in from investors. I'm going to shoot them back to back. One is the vet visit dynamics. You guys have talked about in the last couple of quarters as far as impact. The last few weeks have turned positive in the vet source data we track. Are you turning a little bit more optimistic on that? Is it too short term? Is it not a direct read? Sort of just if you have any updated views on what's happening in vet visits, month-to-date or week-to-date?

As you know, Mike, we tend to look at the long term, and we've given guidance for the full year. We'll -- whatever chance we see, we continue to look at and execute against our plans. I won't necessarily respond to a few weeks of data. Certainly, we want to see a lot longer sort of data range to look at on that. But we monitor the same things you're monitoring, and we'll continue to do that. I won't necessarily update our thinking on the year based on that data.

Okay. Okay. And then second question was about the gross margin, and the argument was that ex MFA gross margin was relatively flat, even though your growth was a little bit better. So how to think about that relative to your margin guidance for '26, given you've got livestock being a better part of the growth, your key products are slowing just a little bit, just sort of bridge that margin ex MFA from 2025 to 2026, keeping in mind, the livestock mix and the key growth drivers?

Yes. Look, of course, we take all those into consideration when we gave the guidance that we did, and we were very confident in terms of where we position that given all the puts and takes around margins. Indeed, we talked last year about the first half of the year, seeing some headwinds with respect to some of the costing of inventory coming out of 2024 into 2025. And as you saw some of that started to improve as we exited 2025 as we anticipated that it would. So that's sort of the carrying point going into 2026 for us. And we factor in the mix of livestock versus MFA versus companion animal and all that into our 2026 guidance.

Okay. All right. We're over time, so we'll have to leave it there. Thanks so much for joining us. I could keep going for a while longer, but I appreciate you...

I appreciate it, Mike. Thank you. Enjoy the rest of the conference.

Thanks, you too. Thanks, everyone else, for being on the line. Really appreciate your time and participation here.

Welcome to the Fourth Quarter and Full Year 2025 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 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 2 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.

Thank you, operator. Good morning, everyone, and welcome to the Zoetis 2025 Full Year and Fourth Quarter 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 report 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, February 12, 2026. We also cite operational results, which exclude the impact of foreign exchange.

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

Thank you, Steve, and good morning, everyone. Welcome to our fourth quarter and full year 2025 earnings call. For the full year, on an organic operational basis, we delivered 6% revenue growth and 7% growth in adjusted net income, in line with expectations. International markets were again a key contributor, delivering 8% organic operational revenue growth while the U.S. delivered 4% organic operational growth, reinforcing the value of our global footprint. [indiscernible] species, Livestock delivered 8% organic operational revenue growth benefiting from a more focused portfolio following the MFA divestiture.

Companion animal grew 5% operationally, reflecting the strength of our diverse and durable portfolio. In 2025, we executed with discipline and delivered growth across the portfolio against the backdrop of a dynamic operating environment shaped by macroeconomic and competitive pressures. Importantly, our execution further strengthened the foundation for what's next from advancing long-acting approvals and a robust pipeline that extends our growth runway to strategic actions that sustain growth through competition to sharpening focus in livestock post MFA and strengthening our commercial and medical capabilities globally.

Before highlighting our performance drivers for the year, I want to share what we've seen in the U.S. since our third quarter call. as these dynamics show up across the portfolio. In the veterinary channel, we continue to see some economic pressure on Gen Z and millennial pet owners, which has contributed to a decline in therapeutic visits and doses. At the same time, emergency and urgent care continue to show strength, which reinforces our view that this is not a declining -- decline in underlying demand for care but rather greater price sensitivity and tighter household budgets when it comes to the cost of routine care.

We are beginning to see clinics react to this environment by taking a more measured approach to the overall cost of care for head owners. We are also operating in a more competitive landscape, including elevated promotional launch activity, which historically has not been sustainable. In response, we are taking targeted actions to offset these pressures by optimizing our channel mix, increasing recent frequency with veterinarians, while reinforcing our scientific leadership through expanded medical education. But stepping back, these near-term dynamics are unfolding within a broader U.S. macro environment that we believe will gradually improve as we move through 2026, and some of our veterinary partners are even beginning to reengage in acquisitions and de novo clinic development.

The continued expansion of retail-based clinics, stand-alone hospitals and urgent and specialty care centers reflects evolving pet ownership dynamics and the emergence of new operating models across the industry. These trends underscore a market that is adjusting and evolving even as pressures persist. And despite these near-term headwinds in the U.S. Zoetis continues to lead across key brands. Our portfolio continues to be differentiated by the pace and scale of our innovation.

With more than 185 geographic expansions and life cycle innovations in 2025, we expanded access to proven therapies, address additional unmet medical needs and strengthened our foundation for future growth as the operating environment evolves. Turning to our performance drivers. Our Simparica franchise grew 12% operationally for the year, with double-digit performance in both the U.S. and international markets. So continued to be a key driver, growing to 13% operationally. In the U.S. sales surpassed $1 billion with continued gains at initiation and the highest coffee share in the clinic. Globally, Trio maintained its position as the #1 selling canine brand reinforcing its position as the standard of care for broad spectrum coverage in the fastest-growing parasiticide segment.

That performance also reflects the strength of our omnichannel strategy helping us navigate headwinds in the clinic. By ensuring our products are available wherever customers want them, we continue to grow with double-digit contributions from retail and home delivery, supporting improved compliance, and positioning us well as customers weigh convenience, access and value across channels. [indiscernible] remains the largest category in companion animal health. And despite an increasingly competitive market, the Simparica franchise gained share globally in 2025. Our key dermatology franchise grew 6% operationally for the year, with strong international contributions, reflecting the durability of the category we built.

The breadth and differentiation of our portfolio continue to support veterinarian choice, pet owner compliance and consistent patient outcomes. While the category is competitive and expected to remain so, we are executing its focus through direct-to-consumer investment, APOQUEL chewable conversion and targeted outreach to OTC users. That dynamic is especially evident internationally, were continued category expansion and rising awareness are driving adoption and reinforcing long-term franchise confidence with a large untreated population globally and a clear preference for a proven, trusted therapies we are competing on a position of strength built on portfolio diversity and scale.

Innovation is central to our strategy. And as we discussed during our innovation webcast, our near-term pipeline is positioned to provide significant growth catalysts and opportunities to drive value. Turning to OA pain. The franchise declined 3% operationally for the year, and we remain committed to returning it to growth. We continue to see strength in the fee line opportunity with Valentia growing 7% operationally. Last year's market approvals of Portela will expand our portfolio in 2026, enhancing our long-term ability to address OA pain and cap across different patient needs. While Librela declined 6% operationally, we continue to advance our multipronged strategy anchored in education, ensuring veterinarians and pet owners clearly understand the benefit risk profile. We are seeing signs that our strategy is working, supported by stabilizing monthly sales trends and veterinarian and pet owner satisfaction. Overall, we remain confident in the long-term strength of Librela grounded in a significant unmet need, the meaningful impact it is having for dogs and the veterinary who treat them, and the introduction of [ Lynibia's ], which will further expand our ability to support OA pain management across the stages of disease and patient profiles. And as we advance our OA pain franchise, we continue to engage in ongoing dialogue with regulators around the world to closely monitor and evaluate adverse events support the safe and effective use of the product and ensure prescribing information remains up to date. Companion Animal Diagnostics delivered broad-based 13% operational revenue growth for the year, even with ongoing pressure on clinic visits.

This is another example of why portfolio balance matters, particularly in a dynamic operating environment. It also reinforces the success of our innovation strategy, including AI-enabled capabilities. In 2025, we expanded our diagnostics portfolio with the launch of VetScan [ Opticel ] bringing faster, simpler, in-clinic hematology to veterinary practices and AI masses broadening the best scan images menu, each contributing to a strong platform performance for the year. Similarly, we broadened our laboratory footprint across the U.K. and Ireland, with the acquisition of Veterinary Pathology Group in November. We expect this momentum to continue alongside the anticipated launch of our next-generation chemistry innovation in 2026. Our Diagnostics business strengthens the portfolio today and expands the opportunity over time as we pioneer new diagnosis driven therapeutic areas.

Turning to Livestock. We delivered 8% organic operational revenue growth for the year, with especially strong double-digit contribution internationally. Growth was broad-based across CCs and geographies, with momentum in key cattle and swine markets driven by consistent demand and solid execution throughout the year. Poultry contributed double-digit growth driven by focused post MFA execution, strengthen biologics, key account penetration and geographic expansion of [ Perserta ]. Aquaculture also delivered especially strong growth driven by continued more detail in demand, underscoring the importance of disease prevention and the benefit of scale in a high stake production environment as fish remain one of the fastest-growing sources of protein globally. In 2025, our R&D leadership delivered important conditional approvals for HPAI and New World Screwer, reinforcing our ability to address critical challenges facing producers. We continue to believe the long-term fundamentals in livestock are strong. Globally, protein consumption continues to grow alongside GDP and rising incomes. While in the U.S., surge in DLT1 use and updated nutritional guidance are expected to drive demand for meat and dairy. That shift reinforces the connection between the accessibility, affordability and safety of the food on our plate and animal health, underscoring the importance of the industry's ongoing shift from treating disease to preventing it altogether.

These dynamics play to the strength of our portfolio, and we expect continued momentum. Looking ahead to 2026, we are guiding to a range of 3% to 5% organic operational revenue growth and expect 3% to 6% organic operational growth in adjusted net income. This outlook reflects our confidence in our ability to execute across the portfolio while navigating macroeconomic and competitive pressure which we expect to moderate as the year progresses. The essential and resilient nature of animal health, together with secular trends such as an aging pet population and meaningful unmet need, provide a durable foundation for growth. In closing, 2025 was a year of meaningful progress across our portfolio and pipeline with important innovative delivered to customers and continued advancement of a focused strategy. We have been deliberate about where to invest how to compete and how to scale innovation in ways that are designed to endure across cycles.

Today, Zoetis has the industry's most diverse portfolio and our robust pipeline, with 12 potential blockbusters in development, which for us are products with at least $100 million in annual revenue, including innovations that are pioneering entirely new categories of care. Guided by our purpose and our commitment to addressing unmet medical needs, we are not only advancing science or helping shape the future of animal health. As the operating environment continues to evolve, Zoetis is competing for a position of strength grounded in a differentiated science to scale model, trusted brands, global scale and deep, long-standing customer relationships. In 2026 and beyond, our focus remains on a disciplined execution and building on the capabilities we have put in place to drive durable long-term growth and value creation. And before turning it over, I want to extend my deepest thanks to our purpose-driven colleagues around the world for their unwavering commitment to customers.

With that, I'll pass it over to Wetteny before taking your questions.

Thank you, Kristin. Our disciplined execution and ongoing investments in innovation have strengthened our foundation for sustained growth. Despite the dynamic operating environment and the ongoing macroeconomic and competitive pressures Christian discussed, we delivered solid performance across our diverse portfolio.

Now I'll walk you through our financial results for the quarter and full year. Our full year results reflect our ability to grow even in an increasingly competitive environment through the diversity of our portfolio, strength of our commercial relationships and the value our products provide to our customers. For the year, we reported global revenue of $9.5 billion, growing 2% on a reported basis and 6% on an organic operational basis with 4% coming from price and 2% from volume.

Despite facing a challenging economic environment, we ultimately finished at the high end of our November guidance range. Adjusted net income grew 6% on a reported basis and 7% on an organic operational basis to $2.8 billion. Turning to our franchises. Global revenue growth was driven by our companion animal portfolio, which grew 5% operationally in 2025.

Leading the way, our Simparica franchise reported $1.5 billion in revenue on the year, growing 12% operationally. Simparica Trio remains the #1 selling key parasiticides globally. The triple combination space continues to expand, converting share from older therapies with ample room for market expansion. Our key dermatology portfolio grew 6% on an operational basis to $1.7 billion in revenue. We continue to drive growth and extend the market in the face of competition through execution, adjusting our distribution strategy and driving the benefit of our differentiated offerings to win new patients.

Partially offsetting the growth in companion animal, our OA pain monoclonal antibodies declined [indiscernible] operationally for the year to $568 million in revenue. Our OA pain products alone have eclipsed the revenue of the entire OA space prior to their launch, reflecting broader adoption and expansion of the category. We are also very pleased with the strong performance from our companion animal diagnostics business. which grew 13% on an operational basis globally. For the year, we delivered growth ahead of the broader diagnostics market and saw strong adoption and growth across our portfolio, driven by images, a newly-launched [indiscernible] annualizer. In addition to this innovation-led growth, as Krisin mentioned, we continue to expand our reference laboratory footprint and expect these to be strong building box from which we can continue to grow. Our lifestyle portfolio had another strong year with $2.8 billion in revenue or 8% organic operational growth. driven by broad-based growth across geographies and species as well as price and volume.

Moving to our segment performance for the year. Our U.S. segment posted $5.1 billion in revenue, flat on a reported basis, while growing 4% on an organic operational basis. Growth was balanced across both U.S. companion animal and livestock on an organic operational basis. Our U.S. companion animal portfolio grew 4%, driven by the performance of our Simparica franchise and our key dermatology franchise. Our Simparica franchise [indiscernible] $1.1 billion in sales, growing 10%. As Kristin mentioned, Simparica Trio became our first brand to exceed $1 billion in annual sales in the U.S. dermatology posted 4% growth on the year and $1.1 billion of revenue. While the highly promotional environment and slower periodic visits in the back half of the year were a headwind to new patient starts, we are pleased with the strong growth from our omnichannel strategy, particularly on delivery.

This channel drives existing patient compliance and revenue growth, and we expect they will continue to drive growth as we maintain a leading position in canine dermatology. Our retain products saw a decline of 12% in the U.S. and $238 million in annual sales. Librela posted $169 million in revenue, a decline of 16% versus 2024. As Kristin noted, vet and pet owner satisfaction with Librela remains high, and we saw sales trends stabilize as we move through the fourth quarter. The last year declined 2% to $69 million in revenue. Our U.S. Companion Animal Diagnostics business grew 14% on the year. We are pleased with our diagnostics growth in the U.S. and expect additional innovation to drive share attention in the future. Our U.S. lifestyle business closed out a solid year with 4% organic operational growth. Growth was driven primarily by our vaccine portfolio and the sales force is focused on prevention following the MFA divestiture.

We continue to see low cattle herd sizes, which while limiting the number of animals to cheap thus [indiscernible] favorable producer economics and a higher standard of care due to the value of each animal. Now on to our International segment, which grew 4% on a reported basis and 8% on an organic operational basis for the year. International companion animal grew 7% operationally during the year, driven by our Simparica and key dermatology franchises as well as our [indiscernible]. The Simparica franchise grew 17% operationally, posting $409 million in sales with double-digit growth across both Simparica Trio and [indiscernible]. Simparica Trio grew 28% operationally to $183 million in revenue, driven by an increasing standard of care in many international markets. Simparica grew 10% operationally to $225 million in sales with high levels of adoption in markets with lower standard of care or where [ hardware ] equivalence is low.

We have seen minimal impact from recent competitive launches internationally. Dermatology posted revenue of $608 million for the year, growing 10% operationally. We saw solid contributions from both [indiscernible]. Internationally, we are now taking 2 old JAK competitors. We are driving market expansion with our differentiated offerings by increasing compliance and maximizing the lifetime value of the patient for both Zoetis and veterinary practices. Ultimately, we see new entrants competing for shelf space alongside our established portfolio. Strategically, we remain focused on driving conversion to APOQUEL [ Trio ] as well as CYTOPOINT as we went through differentiation. Internationally, our OA pain maps grew 5% operationally on $330 million in combined revenue.

Librela sales were $254 million, growing 2% operationally. [indiscernible] sales were $76 million, growing 17% average. We are excited for the launch of our long-acting OA pain products, [ Lumivia and Portella ] in certain international markets later this year. which will continue to expand the $1 billion-plus OA pain market through increased convenience and compliance. Our international Companion Animal Diagnostics business grew 11% operationally on the year. Our international [indiscernible] portfolio grew 10% on an organic operational basis to $1.9 billion in sales for the year. This growth was enough to completely offset the revenue impact of the MFA divestiture, and we saw growth across both price and volume in all major species. Cattle was a primary driver of our international essie performance, driven by good market momentum across our major cattle markets. Poultry performance was driven by growth in vaccines, especially in emerging markets, aided by [indiscernible] focus and execution following our MFA divestiture.

Our [indiscernible] portfolio continues to drive growth from high demand for our [indiscernible] vaccine. Moving on to our Q4 results. We posted $2.4 billion in revenue in the quarter, growing 3% on a reported basis and 4% on an organic operational basis with 3% driven by price and 1% from volume. Adjusted net income of $648 million, grew 3% on a reported basis and 4% on an organic operational basis. Our companion animal portfolio grew 1% operationally, posting $1.6 billion in revenue. Growth in companion animal primarily from our Simparica franchise, which contributed $333 million, growing 3% operationally. Our PHA franchise, which grew 16% operationally and our key dermatology franchise, which posted $426 million in revenue, growing 1% operationally. This growth was partially offset by declines in our OA pain franchise, which declined 11% operationally to $137 million in the quarter.

Our global companion animal diagnostics business grew 10% operationally in Q4. Our Lifestyle portfolio contributed $756 million in global revenue, growing 9% on an organic operational basis, with growth across both U.S. and international and in all species as well as price and volume. Now let's move on to our segment results for the quarter. U.S. revenue was flat in the quarter, with companion animal declining 1% and livestock growing 3% on an organic operational basis.

Our U.S. companion animal decline was driven primarily by headwinds from our OA pain franchises versus declined 25% in the quarter on $53 million in combined revenue. While we do expect these headwinds to continue into 2026, the impact on our growth should moderate as we move through the year. Librela posted $36 million in revenue for the quarter declined 32%. We are continuing to execute on our multipronged strategy and remain confident that our Opain portfolio will return to growth. [indiscernible] declined 7% on $17 million in revenue. [indiscernible], like many injectable products has had headwinds from software and [indiscernible], but market share remained stable. The OA pain franchise decline was partially offset by growth in our parasiticide portfolio, specifically for [indiscernible] and our Simparica franchise as well as our key dermatology portfolio.

Sales of our ProHeart franchise have seen solid growth due to increased usage in clinics that prioritize the maximum hard-work compliance offered by our long-acting injectable products. We continue to see growth in Simparica Trio, which were 1% in the quarter on $225 million in sales as well as growth in the triple combination segment. Our U.S. key dermatology franchise grew 1% in the quarter to $272 million in revenue for the reasons we discussed earlier. We posted organic operational growth in U.S. livestock of 3% in the quarter on $234 million in revenue.

Growth in our poultry vaccines was the primary driver of growth. We also saw contribution from cattle which benefited from favorable supply of captive as well as wealth in vaccines. Moving to International segment for the quarter. Revenue grew [ 3% on ] a reported basis and 7% on an organic operational basis, posting $1.1 billion in revenue. Our international revenue in the fourth quarter was positively impacted by certain operational changes made in connection with our expected fiscal year alignment for subsidiaries outside the United States. These operational changes resulted in the acceleration of the timing of sales into the reported fourth quarter of 2025, leading to an approximate 2.5% to 3.5% increase in sales in the International segment in the quarter, a trend that we do not expect to recur at the end of fiscal 2026.

Our international companion animal business grew 4% operationally, while livestock grew 12% on an organic operational basis. International companion animal growth was driven by Simparica, key dermatology and OA pain franchises. Our sales of our Simparica franchise were $90 million internationally, growing 6% operationally. Simparica Trio grew [indiscernible] 4% operationally to $41 million in sales driven by increased adoption in Australia and geographic expansion. Simparica declined 9% operationally and $49 million in sales, largely due to softer macroeconomic conditions in Brazil, our largest international market for Simparica.

Our key dermatology franchise with 2% operationally, posting $155 million in revenue. Growth was driven by [indiscernible] chewable and CYTOPOINT, which remain differentiated. While we have seen some impact on Apoquel share due to competition, switch from CYTOPOINT and [indiscernible] chewable has been limited. We continue to drive expansion in the overall market through higher compliance and new patient adoption driven by our direct-to-consumer investments and expect additional insurance to further increase awareness of the methodological treatment options.

Our OA pain maps grew 2% operationally in international markets [ or ] $84 million in revenue. International Librela sales were $64 million, down 2% operationally in the quarter. Performance continues to be mixed, with weaker performance in English-speaking markets being partially offset by the rest of the international market. [indiscernible] grew 15% operationally and $21 million in sales. International livestock grew 12% on an organic operational basis in the quarter, with broad-based growth across all of our core species. Growth was driven by the Brazilian capital market, where exports remained high as well as favorable supply on certain products.

Fish continues to flow strong growth driven by the performance of vaccines in both Chile and Norway. And our poultry business continued to post strong growth on key account penetration driven by [indiscernible] focus on vaccines [indiscernible] divestiture. Before we move down the P&L, I wanted to highlight an important initiative that underscores our ongoing commitment to evolving our business for long-term success. To support our strategy, to greater speed, productivity and insight. We're advancing our multiyear multiphase initiative to transition our ERP system. This initiative leverages our existing strengths, further modernizing the way we operate day-to-day and enhancing our ability to capture and report insights on our global business.

As part of this effort, we are expecting to eliminate the 1-month reporting lag of our subsidiaries operating outside the United States, aligning our fiscal year with calendar year 2026 on a global basis. When we adopt the expected fiscal year alignment, we will retroactively apply the new accounting principle to prior financial statement periods enabling a clear comparison of our financial results through historical operations.

In anticipation of this potential change, we've made certain related operational changes as highlighted in our International segment results. These changes resulted in the acceleration of the timing of sales into our reported fourth quarter 2025. Starting in early 2026, we also shifted the timing of annual price increases in certain international subsidiaries. So both the price increase and the related customer buying activity will occur within the same calendar year.

Additionally, the processing of certain customer orders from December 2025 was delayed to calendar year 2026. With that in mind, let's move on to the P&L. Full year adjusted gross margin of 71.9%, grew 120 basis points on a reported basis. Foreign exchange had a favorable impact of 80 basis points. Excluding FX we saw higher margins due to the favorable impact of our MFA divestiture as well as benefits from price. These benefits were partially offset by higher manufacturing costs in the first half of the year related to inventory valued at prior year standards.

Adjusted operating expenses increased by 2% operationally, reflecting cost discipline as we navigate the challenging macroeconomic environment. Adjusted net income grew 4% operationally and 7% on an organic operational basis. Adjusted diluted EPS grew 6% operationally for the year and 10% on an organic operational basis. Lately, I'd like to touch on capital allocation. During the year, we continue to deploy capital in a disciplined manner, balancing ongoing investments in the business with returning capital to shareholders. In December, we completed a convertible bond offering, which supported a $1.75 billion common stock buyback while maintaining a strong balance sheet and capacity for future investments.

In total, we returned more than $3.2 billion to shareholders through share buybacks in 2025 and an additional $800 million in dividends, consistent with our long-term approach to capital deployment. Turning to guidance. For 2026, we are guiding to organic operational revenue growth of 3% to 5% and organic operational growth in adjusted net income of 3% to 6%. Our 2026 guidance reflects foreign exchange rates as of late January. On a reported basis, this translates to expected revenue of $9.825 billion to $10.025 billion with contributions from both price and volume.

I will now provide some of the operating assumptions in our guidance range. We expect companion animal business to remain a key growth driver in 2026, supported by a differentiated portfolio, even as competition in parasiticides and key [indiscernible] dermatology intensifies, dynamics that are reflected in the guidance range. While our outlook includes contributions from long-acting products in markets where we have approvals, it does not assume revenues from products or geographies where approvals have not yet been granted. We also expect robust contributions to growth from our Life portfolio, aided by global increases in protein demand and favorable reducer economics.

We exited 2025 with strong momentum across all of our livestock species. We expect continued [ field force ] focus and disciplined execution to fuel mid-single-digit organic operational growth in 2026. Now moving on to the rest of the P&L. Adjusted cost of sales as a percentage of revenue is expected to be approximately 28%. Adjusted SG&A expenses for the year are expected to be between $2.43 billion and $2.49 billion. Adjusted R&D expenses for 2026 is expected to be between $715 million and $725 million. Adjusted interest expense and other income deductions is affected to be approximately $200 million.

Our adjusted effective tax rate for 2026 is expected to be approximately 20.5%. Adjusted net income is expected to be in the range of $2.975 billion to $3.025 billion, representing growth of 3% to 6% on an organic operational basis. Lastly, we expect adjusted diluted EPS to be in the range of $7 to $7.10 and reported diluted EPS to be in the range of $6.65 to $6.75. We estimate that the share repurchase is funded by our recent convertible bond offering will have an impact of roughly $0.22 on EPS for 2026, which is reflected in our guidance. In closing, '25 was a year that showcased the resiliency and durability of our diversified portfolio as we delivered solid performance despite varying market conditions and competitive pressures.

Our continued investments in innovation, coupled with the path of our portfolio and disciplined execution have laid a strong foundation for the future. Looking ahead to 2026. We remain confident in our ability to build on this momentum, leveraging our differentiated brands, expanding global reach and our unwavering commitment to both operational excellence and long-term value creation. As we advance our multiphase ERP system transition, we are setting the stage for greater speed, productivity and insight across the business. We are excited for the opportunities that lie ahead, and believe we are well positioned for continued success.

Now I'll hand it back over to the operator for your questions. Operator?

[Operator Instructions] Our first question is coming from Michael Ryskin with Bank of America.

I want to ask sort of explicitly on competition for 2026 and what you're factoring in? Just maybe you could at a high-level frame the level of conservatism you've put in some of the key brands as more competitors enter the market. I mean, for example, in [ Key Derm ], you flagged 6% growth for the year, but it was, I think, 1% in the fourth quarter.

So it seems like things are moderating a little bit. Just sort of how that affected your thinking on the framing of next year's numbers. And then maybe related to that, just I'll squeeze it in my follow-up now. I would love to hear your comments on price versus volume next year, your ability to take price. I don't know if it's beyond apples to apples, at least, I know you talked about maybe some changes to the timing of price, but any way you could frame that would be helpful.

Sure, Mike. I'll be happy to take it. Look, your first part of the question is how do we see competition going into 2026. And I remind you, in 2025, we expected certain launches to take place and there are certain much related promotions that we have seen in this space. and we expected those to occur. So we knew the back half was going to decelerate based on that point. And we've seen that perhaps a bit more from the macro in the U.S. is what I would say, contributor to that. .

To your point, Derm landed with 6% growth on the year with deceleration that again, at the back end, closer to 1% in the fourth quarter, again, we should anticipate. We always take into consideration various factors in terms of within the range of guidance that we give, we believe is certainly prudent in terms of how we positioned it. We do take various scenarios into consideration, including when we expect competition to launch and the level of aggressive promotions that they will do within that window, and those are factored here.

Certainly, when we think about in the derm space, another JAK competitor launching potentially in the U.S. as well as in terms of IL-31 in that sense as well. So all those are factors into our thinking here that we put into the guidance. On price, we've said we will return to our normal range, which is 2% to 3%, which is what you can assume in this guidance with the balance before evolving. So at the low end of the range, you would have potentially 2 to 3 points on price there. So less volume and then on the higher end of the range, you start to see more balance.

Our next question comes from Erin Wright with Morgan Stanley.

So the 3% to 5% operational guidance, what does that incorporate with U.S. companion animal operational growth? And what are you seeing playing and you talked a little bit about this on the derm category outside of the aggressive promotions from Merck, how is APOQUEL matching up to [indiscernible] and others in terms of efficacy. And then one more housekeeping one here. Is there was a significant benefit in the pull forward or the 1-month lag in terms of that fixing in the quarter on the international side. What does that mean for 2026 revenue on a reported and operational basis? And can you remind us how you're defining organic operational growth here? And how many months of international include versus 2025?

Sure, Erin. I'll try and get each of the [indiscernible] here on the question, and if I miss a anything, certainly, we'll get that clarified here. On the guidance in terms of 3% to 5%, again, we do take into consideration what we see in the market currently and how we expect those to transpire over the coming year. And keep in mind, we do have the broadest and deepest portfolio, most innovative portfolio in the space and leadership position across all of the key areas. .

And so as we look to navigate and execute through the year, these are positions that are very strong that we have that we take into consideration. But of course, we do take a look at what the macro conditions look like. I would say this, really what's important here. When you think about animal health, it remains extremely resilient. So as we look at the macro in the U.S. and we see some pressure on the consumer. At the same time, they are spending on Animal Health, as Kristin mentioned in the prepared commentary, in the fourth quarter, we saw that 6% growth in clinic revenue. Now of course, that is a bit slanted towards more of the emergency care as well as price that's having some impact on volume and visits. But certainly, with consumers continuing to prioritizing spend in animal. So I think that gives us a strong foundation as we look ahead. On the 1-month lag in terms of what that means to 2026, we have taken those into consideration, of course, there are a number of ships that are involved as we make this change that we're contemplating for the first quarter of 2026.

Those individual shifts across customers, across countries and so forth. So we factored those into what we've given you here. And the basis for our guidance is exactly as it's always been, which is the international segments are on a lag because we have not implemented the fiscal year alignment yet, that will be taking place in Q1 2026.

True definition is something we thought we would have a basis or a metric that is very consistent for analysts and investors to be able to to gauge us on. And so what we're doing here is sustaining that metric versus bringing it in and out intermittently. And so that metric is effectively excluding FX. And then any significant acquisitions that would be on an annualized basis, 1% or divestitures for that matter. 1% or more of the prior year revenue. And so if it's 1% or more of the prior year revenue on an annualized basis, we'll adjust it out. Otherwise, it stays in and that's a very consistent way we plan to continue to to report out. .

Our next question comes from Chris Schott with JPMorgan.

Just two questions for me. I guess first on Trio, we've seen a bit lower growth these past 2 quarters. Can you just elaborate a little bit more on the dynamics you're seeing there? And how you're thinking about that growth profile as we enter into 2026. And I just wanted to come back to the accounting dynamics that we're dealing with here. Just unclear, I think you mentioned some delayed revenue recognition from 4Q into 1Q of '26. Just how big is that deferral? And I just want to make sure I caught the comment, is that deferred revenue part of the 3% to 5% organic? Or is that kind of being normalized in the way you're calculating that?

Yes, sure. I'll start with Trio. Look, again, Trio is the leading product in the U.S. has now -- it was $1 billion in revenue in the U.S. alone and continue to be significant room to expand that space as we've talked about many times. If you look at that patient share, triple combinations are now about 50% has grown from about 30% 2 years ago and certainly significant more room to expand there.

And again, we have a very strong first mover advantage in that regard. So as we think about 2026, and we think about our drivers of growth, Certainly, within our key franchises, we expect the Simparica franchise to lead the way into this 3% to 5% growth that we have provided here. In terms of the commentary on the various shifts that we've talked about and the operational changes that have caused some either acceleration or delay processing here, we would be -- those, of course, are factored into our guidance here, again, on the same basis as we've always reported with the 1-month lag, and we will be factoring the lag as we look ahead once we have implemented it in the first quarter.

Our next question comes from Brandon Vazquez with William Blair.

I'll ask in front here. Wetteny, maybe for you, I just want to spend a second on making sure we have all of this clarified because the sequential of the year feel like they're going to be a little bit tricky given the financial accounting, and then -- not seasonality to competition and year-over-year comps. And if I look at -- the Street right now, sales growth expectations for the year are kind of within a 1 point band, that maybe doesn't feel right. So like I don't know if you can give commentary around full year is 3 to 5 operational should first half to be towards the low end of that, if not below it, the second half go above it as some of this stuff normalizes? And then maybe just a macro kind of question as well, like the commentary I'm hearing from you guys that the pet owners financial situation is getting worse? Or is it that the vet clinics raised price too much and we need to pull back on pricing increases.

Yes. Sure, Brendon. I'll go over the first part, I think Kristin will chime in from there. In terms of what the rhythm of the year may look like. I would point you to a few considerations here. And so clearly, if you look at how 2025 executed, you would have seen very strong performance, I would say, just based on where the macro conditions started to shift we're halfway through the year.

So I would say take that into consideration, we'll be lapping some of those as we get through the first half of 2026. In other words, a little bit tougher comp there. Similarly, if you look at the OA pain, particularly if you were to build in the U.S., you started to see some of those impacts until end of the second quarter, going into the second half of the year. again, not only are the various items that we are executing on there, starting to take shape, and we see that in [indiscernible], but it still means on a year-over-year basis, the comps remain strong for us in the first half on that. The last point I would make is we have seen, as we anticipated, competitors launched products. And when they're in this launch window, they tend to be a bit more aggressive around promotions to drive shelf space. And some of those will be lapping through the year and others will start in the year.

And so given the delay we've seen in terms of a [indiscernible] competitor launching in the U.S. that would shift into further into the year, and therefore, a window that they would potentially be more aggressive might extend a little bit more. So hopefully, that's helpful in terms of how you might think about sequentially ticking through 2026. So we got the best [indiscernible]

Yes. And Brandon, to follow up on your other question, just more broadly about the pet owner dynamics. As we mentioned in Q3 and as I mentioned our remarks about Q4, we did continue to see some deceleration from the pet owner perspective in traffic in both therapeutic and wellness. But I think as you look at the overall demand, and I think it is important, the demand stayed high. I think there was really just pricing at the vet clinic was taken a lot over the last 3 years, and I think the be [indiscernible] the vet owners, it was a little much. I think really the veterinarians have seen this.

They're very focused on providing better value to pet owners. And pet owners still have demand. If you look at when the [indiscernible], they're bringing them in. So I continue to think the demand is there, and we're excited to see a lot of new innovative operating models to meet different consumers where they are, and we think this will continue to drive growth. I also think, as you look especially at the large corporates, they're focused on providing special programs for pet owners to encourage them to bring them in is going to help recover some of that. So as we look at the year, as we move forward through the year, we do see an improvement overall in the pet-owner macro situation, and that's certainly what we're expecting.

Our next question comes from David Westenberg with Piper Sandler.

So I want to just get some clarification on the price increases. I think you're calling 2 to 3 price increases. Last year, I think the bulk of the revenue did come from in fact, price increases, not as much volume. So can you talk about some of the changes you can make in terms of pricing strategy to maybe like bundle with clinics or anything to kind of drive volume versus what you've seen in the private -- what you've seen in prior years? And then secondly, just around how you are implementing prices? I mean in the year -- in the years past, it's really been raising prices on innovation and kind of keeping that in-line portfolio the same? Is there kind of changes this year relative to previous years in terms of that dynamic? And I get there's competitive reasons so you're not going to get into each individual product, but at a high level.

Sure. Look, I would start maybe where you ended on the question, which is, by and large, we don't see significant shifts in our approach to pricing. Our pricing has always been and remains an element that we take into consideration, product by product, market by market and the value -- the clinical value we bring, both vet and pet owners to those products.

And so we don't make a blanket statement around here's the pricing we intend to get. We run that through, again, that approach, and that remains pretty much consistent. In terms of Look, we certainly are leveraging our sets, right? We have a very broad portfolio, products that are incredibly important to veterinarians as they care for animals across the world, not just in the U.S. And we leveraged those certainly within the confines of what's allowed in certain markets. So in the U.S., for example, we are able to leverage across portfolio to drive volumes and so forth with customers. And we do so in other markets, those parameters may be different, and therefore, we navigate based on what is legally allowed in those markets.

But certainly, that is a strength of ours, and will continue to be as we innovate and you've seen the strength of our pipeline. And so that's something we will continue to leverage.

Our next question comes from Jon Block with Stifel.

I've got 2. I'll try to break them up. And Wendy, I know others have tried, but honestly, just from my e-mails, it's still a bit unclear. So do 2026 revenues benefit from this accounting change or, call it, the adjustment changes, it reads in the PR. We get the benefit from 4Q. You called it out, it seems like it lands at $30 million. .

But again, specific to 2026 due to the adjustment, is there an extra, call it, month of international sales that go into as you normalize it, call it, for the calendar. Let me pause there because I think that's really important, and then I'll ask just a tighter follow-up.

Sure, Jon. use. Look, here's what I would help with [indiscernible] here. First, there is not an extra month that we would contemplate. Again, we have not implemented fiscal year alignment. I want to make sure that is very clear. The work to do so and the recast of our financials, which we will -- we plan to produce on a recast basis so that you and our investors can have comparable periods to compare as we start to report with our first quarter.

And that work is ongoing, and we have not completed the process yet. And so it is not an effect. What it is, we would anticipate that there would not be an extra month. It will be a 12-month year, both for U.S. and international segments, that year would then start January to December versus starting December to November. And so that's the first point I want to make very clear. Now we did talk about certain shifts that have occurred that have either benefited 2025 or potentially delay processing into 2026 that could have an increase in 2026. However, we will not be measuring because, again, once we implement the change, we'll factor that as well as the results of the first quarter and other dynamics around the business to share with you and our investors.

Yes. And just to give you a sense, when you get our -- will we provide recast financials we will look at prior periods in the new calendar year, fiscal year aligned perspective, so you can continue to compare. But there's definitely never going to be a year that's 13 months. It will be 12 months. They've got 1 month of international will ship, but you'll be able to see it in the recap financials. .

Our next question comes from Glen Santangelo with Barclays.

So Kristin, not to delabor the point, but just to sort of follow up on that point you just made. When we look at the cadence of the 4 quarters for 2026, is it fair to say that the first quarter will have the strongest growth? Or you're saying no because it will be comparable versus restated numbers in 1Q '25?

Yes. Look, I'll take this. As you know, we don't guide by quarter. Our guidance for the year is between 3% and 5% on the top line, 3% to 6% on the bottom line.

Certainly, we are executing across markets. We're delivering for customers, et cetera. That is our focus. When we report our first quarter 2026, we will be recasting. Obviously, you'll know what the results are for that quarter. But again, our guidance is on a full year basis, not a quarter, we've tried to be helpful in terms of some of the puts and takes around timing of when we saw some of the macro ships in the U.S. and some of the competitive launches when they occurred and how those might affect our growth rates as we work through 2026, but we'll give guidance on that particular quarter.

Our next question comes from Andrea Alfonso with UBS.

I guess sorry to just [indiscernible] this point again regarding the 3% to 5% operational growth that you expect for 2026. So it sounded a little bit like you discussed certain shifts that -- or delay in processing that could increase in 2026. So I guess, is there some sort of clarity on what that figure might be? And does that sort of delay negate kind of the $30 million plus that you saw in 4Q of '25 such that it's sort of a neutral impact?

And then, in addition to that, within that 3% to 5% growth, the U.S. was flat on an organic operational basis in 4Q. Should we expect that to be the case as well within that 3% to 5%.

Sure. Look, in terms of the 3% to 5% operational growth, that is our expectations for 2026 on the same basis that we have always reported and certainly, that factors the baseline, which is 2025 and the performance throughout the year, inclusive of the fourth quarter.

Now put into context here, the amount we're talking about for 2025 is effectively basis points to 40 basis points of the total company for 2025. This is not a significant amount that would swing the range of growth that we're taking for 2026 in a material way is what I would say. And again, we'll provide -- on a like-for-like basis, we casted financials when we implement the fiscal year alignment. And hopefully, that will be very clear for everyone. In terms of what the U.S. performance may be. Again, we don't guide by segment. But certainly, we've seen the macro and Kristin and I have already discussed some of the elements that we see there. going into next year, we do have some comps that in some respects, are easier in the back half of the year versus the first half and so forth.

So we take into consideration However, given our portfolio and the strength of that and our leadership position, we certainly will continue to execute commercially in ways to maximize those and drive our growth, not only U.S. but across a very diverse business we have geographical.

Our next question comes from Steven Dechert with KeyBanc.

Could you just give us an update on where you are in the approval process for [indiscernible] with the FDA.

Sure. Happy to take that. Yes, we're very excited right now to be launching the [indiscernible] for [indiscernible] in EU and Canada, and we do expect approval of [indiscernible] in the U.S. in 2027. So we're really busy right now getting the early experience ready for you in Canada. I'm excited to bring those learnings as we launch the product after we get its approval in the U.S. in 2027. .

And our next question comes from Daniel Clark with Leerink Partners.

Two for me. One, just wanted to ask about your assumptions for the derm market in 2026 and if you're thinking that that's going to grow and maybe just how you're thinking about the high and the low end of guide based on that. .

And then secondarily, more of a clarification than anything. Can you just remind us when your key patents on Simparica and APOQUEL when those are through?

Sure. In terms of term assumptions here, we are expecting our key franchises, obviously, to lead the way for us in 2026, we're expecting mid- to high single-digit growth contribution here -- within that, of course, we don't guide by product category or specific franchise, but we do expect term to contribute to growth on year.

The Simparica franchise will be the leading driver for us within those. And we have reduced dates around products in terms of when patents expire. So for example, with APOQUEL, we're out to 2032 time frame on that in terms of what our expiry is on that, but I would refer you to our public filings for more specifics.

Our next question comes from Navann Ty with BNP Paribas.

On the 3% to 5% guidance, would you say that 2026 is [ fair ] pocket before a higher contribution of innovation in 2027? And maybe just one on the parity side, if you could discuss the performance of Simparica Trio in the U.S. as well as ProHeart whether it's driven by [indiscernible] quantum?

Sure. Look, your audio cut out a little bit, but I think I got the gist of your question. Certainly, you've seen the company deliver on average 8% top line growth over the last 5 or 6 years, it's been closer to 9%. We believe the guidance we're giving today taking into consideration certain elements, including competitive launches, which we fully expect to be very aggressive to get positioned in terms of penetration in clinics so that they can then start to drive more DTC to drive their growth longer term.

In the past, we have seen those in short-lived, again, with the objective of getting products on shelf. And that those -- including the macro conditions we've talked about factor into what we're putting in here, Certainly, we are very excited about not only the remaining expansion opportunities we see within the products we have on market today, which are in leadership positions. We're very excited about the pipeline. And yes, some of the bigger areas that we have in our pipeline will start to contribute as we look out into the 2027, 2028 time frame. But we are very focused on executing in 2026, as we always have.

And you'll see that both in terms of how we drive those commercially with our existing products and all the way through the P&L. And you see the guidance we've issued inclusive of leverage through the P&L as we continue to drive disciplined execution there as well. On your point around, so performance and Road contributions, if any, coming from Merck's product in terms of quantum. The last part of that, I would say, no, we don't see any meaningful contributions here.

We've seen really consistent growth and performance from ProHeart throughout the year, and it's some existing clinics that value long-term heartworm prevention and those are just using more. And what I would say is over the last 4 quarters, 3 out of the 4, has had double-digit growth, and we don't see that tied to the Merck product in any significant way.

Trio itself great year. Certainly, you saw growth at 13% on the year in trial and 5% is what the growth was in the fourth quarter in the U.S. similar to derm. Due to the macro conditions that we've talked about, saw lower growth in that closer to 1% on the year. Again, I won't repeat all the comments around what's contributing the exam, but certainly, Intreis the clear leader in parasiticides in the U.S. And clearly, there in terms of triple combinations, our Puppy share is higher than our overall share in bulk share, which is a very, very good indicator in terms of how we'll be driving this going forward.

And our next question comes from Chris LoBianco with TD Securities.

What initial feedback are you doing some debt KOLs on the [indiscernible] product profiles of [indiscernible]? And second, what is your level of confidence that 2026 will be the year of maximum competitive pressure to Trio and [indiscernible]

Okay. I think I heard your question was what are we hearing from KOLs with regards to [indiscernible]. So as I mentioned earlier, we have not launched Lanivia and Portela yet. So it is not yet in the market. We do have the approvals currently in Canada and the EU, and we are preparing to start early experience, which would be with the specialists and the KOLs that we spoke about. So we'll be excited to share that once that product is out there, but we're just in the preparation of that launch. So there's no feedback there. Wetteny, do you want to take the second part of the question?

Yes. It was, again, a little bit difficult to hear specifically, but I got the gist is really in terms of competitive pressure. And what we've seen so far is we have not seeing any significant impact from competitive pressure here. Obviously very limited impact from competitors as we look at Trio and the triple combination space. As I said just a moment ago, significant more room to expand in terms of [indiscernible] combinations, which were having a strong first-mover advantage and very, very high level of satisfaction. We intend to continue to really leverage our strength there to lead the way in terms of the expansion of this [indiscernible] space.

Okay. As always, I want to thank everyone for their questions today and your continued interest in Zoetis. We're really proud of the progress we made in 2025, and we are energized by the opportunity ahead. We remain focused on disciplined execution, growing our existing portfolio and stewarding a deep and differentiated pipeline and translating innovation into meaningful outcomes for our customers and value for our shareholders. That focus, combined with the essential and resilient nature of animal health gives us confidence we can continue to demonstrate why Zoetis is an indispensable partner for customers around the world. We look forward to keeping you updated on our progress. Thanks for joining us today. .

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning, everybody. I'm Chris Schott from JPMorgan. It's my pleasure to be introducing Zoetis today. From the company, we have a presentation from CEO, Kristin Peck, and we'll have Wetteny Joseph, company's CFO, available for Q&A. So with that, Kristin, happy New Year and looking forward to the presentation.

Well, thank you, Chris, and welcome to everyone. It is great to be back at JPMorgan, and I'm excited to share today how Zoetis is defining the next era in animal health, powered by our industry-leading innovation, our science-to-scale model and our disciplined execution. Now everyone's favorite slide, some housekeeping before we get started.

Today's remarks will include forward-looking statements and non-GAAP financials. For more information on these risks as well as the reconciliation to our GAAP financials, please visit our Investor Relations website and click on today's presentation.

As Chris mentioned, today, I am joined by our Chief Financial Officer, Wetteny Joseph. And together, we are excited to share how Zoetis' momentum and capabilities will shape the future of animal health.

So let me get started on the slides now. We are excited to share -- where am I now? Okay. We're excited today to really highlight the essential animal health industry, which has got very strong sectoral tailwinds, which we'll discuss. The industry is projected to grow to $90 billion over the next 10 years, really led by tailwinds in both companion animal and livestock.

Next, we'll really highlight the science-to-scale model at Zoetis and how really powered by this model, we can leverage the incredible secular tailwinds of the industry to drive sustainable, consistent growth across our portfolio.

We'll then double-click some of the significant growth drivers that we have at Zoetis, which will provide a trajectory of consistent growth that you've seen over the last few years. Hopefully, many of you joined us for our innovation webcast back in December, and we'll talk a little bit more about our robust pipeline that has 12 potential blockbuster drugs. And so we're super excited about those and also expecting a major market approval every year for the next few years. And then Wetteny will join us on stage to discuss how all of this together will help us drive sustainable shareholder value over the long term.

So let's start overall with the industry. The animal health industry is an essential industry, and it's really powered on the humans who are going to be doubling by 2050 -- sorry, not doubling, moving to 10 billion by 2050. And more and more, what people want is nutritious protein. They want comfort and they want companionship.

So as you look here, we have a market today that's around $50 billion, and it's expected to almost double to $90 billion. And as I move to the next slide, you can look at what that has meant for the compound annual growth rate of the industry and for Zoetis. Looking ahead, there are clear tailwinds as we've discussed to drive the industry. And as you look at the 5% compound annual growth rate that the industry has been having over time has been very strong. But as you look at Zoetis, our compound annual growth rate since our IPO has been 8%. That's significantly above the overall industry. But importantly, we've also driven industry-leading margins. So we've been putting cost discipline and disciplined execution across both of those.

And really one of the drivers of that has been the growth in companion animal. And as you look into what's driving that growth is more and more the next generation of pet owners. These pet owners are younger, they tend to be Millennials and Gen Z. And they embrace being pet parents and everything that comes with being a pet parent. They are, therefore, driving an increase and deepening the human animal bond. And as they do that, they're increasing the pet medicalization. They're interested in getting top-quality veterinary care and investing in treatments that it can expand the life of their pets. And indeed, they are. Pets are living longer. And as these pets live longer, they want more advanced therapies. And as you saw and as we'll talk about today, is our future portfolio, they're investing in a lot more in diseases of long life.

Many of these diseases also require diagnostics, which is, therefore, driving the diagnostics market. And the growth of the pet care space is also being driven by consumers' desire for convenience, moving more and more to alternative channels which is also, in turn, increasing compliance. We're also seeing incremental growth in the livestock sector as well with really strong tailwinds. One of the greatest tailwind is really the market normalization of what was a very disruptive period for many years. It started with African swine fever. We then had COVID and then post COVID some of the supply and demand imbalances that we saw. But what you've also been seeing is significant mid-single-digit growth over the last few years of both the industry and of Zoetis. And really, what's been driving that is an expansion of the global population. That population is looking for nutritious, sustainable, safe and affordable protein sources. That's meant more and more livestock producers have been investing in prevention versus treatment. And looking at precision animal health, digital, data, AI, all spaces where Zoetis really leads the way.

So let me highlight how we take that industry and leverage our science-to-scale model to accelerate the growth for Zoetis. We really believe it's our ability at Zoetis to connect discovery to delivery, ensuring that innovation translates into products that provide durable value overall. For Zoetis, it starts by investing in our world-class R&D and then importantly, connecting that with our manufacturing excellence and then our excellent commercial execution. And together, that brings discovery to impact on a global scale.

In fact, as you look at Zoetis, Zoetis has led 35% of the regulatory approvals of the industry over the last 10 years. And we've been doing that with our R&D engine that includes 1,600 world-class colleagues. We've invested $5 billion in R&D since our IPO, and we've done that across 15 therapeutic areas and 8 species. We have the most robust and comprehensive pipeline in the industry, and we're advancing care for animals across every stage of life.

Our R&D engine is proven. It has delivered over 2,000 regulatory approvals over the last decade. And what starts and what's at the center of that is meeting unmet customer need. But then importantly, that's taking the science that we have, the biology of species, the biology of disease and really innovating the next generation of therapeutics and of preventatives. We've got a full complement of capabilities, as you can see on the slide, and it allows us to deliver solutions across the continuum of care from prediction with our genetics to prevention with our vaccines, to detection with our diagnostics, to treatments across our whole portfolio with both biologics and therapeutics.

We're very excited in our ability to continue to drive innovation. And we highlighted that at our innovation webcast in December. And as we showcased, we're expecting a major market approval every year for the next few years. We have a robust pipeline. If you look back to 2025, we were very excited to get the approvals of Lenivia and Portela as well as for high-path avian influenza vaccines for livestock. I'm looking ahead into this year, we're expecting the approval of long-acting Cytopoint as well as the next-generation chemistry platform for our diagnostics business.

And as we look into the years ahead, we'll be innovating in entirely new categories across renal, across oncology, cardiology, obesity and metabolic as well as anxiety. We're also excited to bring you the next generation for parasides and vaccines for companion animal as well as really drive innovation across our livestock business with a particular focus on preventatives for our poultry business, for our fish business and for our swine business, again, ensuring that we've got a robust portfolio into the future, focused on the areas of greatest unmet medical need.

So let's double-click for a second into some of those new areas that we're talking about entering, which will really be the next wave of innovation. As you can see on this slide, this next wave of innovation will be a $7 billion total addressable market in areas that are largely not even tapped at all today. And it starts with the largest in chronic kidney disease, which is the #1 cause of death in cats, and is a significant disease where there's really very little treatments today to address it. This market could be $3 billion to $4 billion. And today, Zoetis has 7 assets and biomarkers in development.

We're also really excited to bring innovation to the market in oncology. Oncology is the #1 cause of death in dogs and the #2 in cats. We've got 4 assets and biomarkers in our portfolio that we believe will create a market of around $1.2 billion to $1.7 billion. We also see significant opportunity in cardiology that today is an incredibly underserved market. We think that market be $0.8 billion to $1 billion, and we've invested in 9 assets and diagnostic biomarkers across that industry to really bring new treatments to life.

We're also excited about the opportunity around obesity and metabolic disease that affects 60% of dogs and cats today. That market could be $0.8 billion to $1 billion depending on the product profile. This has been obviously a big area in human health, and we're really excited to bring new innovation here to animal health.

And lastly, and importantly, anxiety. 70% of dogs and cats today suffer from some form of anxiety. It could be from the thunderstorm, and we have a product for that like, SILEO, it's separation anxiety and it's GAD, generalized anxiety disorder. This market also could be $0.7 billion to $1.4 billion. This is what will continue to drive the growth of Zoetis into the future. But as we take that portfolio, it's our commercial excellence that turns innovation into impact for our customers and for all of our stakeholders. And it starts with our global scale.

We have a direct field force in 45 markets across the globe. This is an award-winning field force. We then combine that with a proven model of execution, combining that sales force with our medical affairs team, our professional service vets and bringing that all together with an omnichannel approach, and combining that with a strong marketing department and direct-to-consumer, and we lead with deep customer insight, both at the veterinarian level, the pet owner and the livestock producer and we bring this to life with the broadest and most diverse portfolio in animal health.

And as we think about that, what I'd love to do is double-click into some of the most -- our biggest categories today in the terms of franchises and significant growth drivers for us going forward, starting with Simparica Trio in the parasiticide space. The parasiticide space, as many of you know, is the largest single category in animal health, and Simparica Trio is the market leader. It leads in dogs and it leads in puppies. And this means a long tail of revenue as these dogs live longer and healthier lives. We really see Simparica Trio as leading in market share going forward, and we have a first mover advantage here. 85% of the pet owners on this product are very satisfied with our product. We also believe we can continue to expand this market.

Today, only 60% of puppies are getting a triple combination. So we see a long runway for expansion in parasiticides for Simparica Trio as well as for future portfolios and injectables as well. We see the retail expansion as well as direct-to-consumer advertising continue to expand this market, where we are the leader today, and we plan to be the leader going forward.

We also want to highlight our strength in dermatology from our diverse and differentiated portfolio. We believe we are well positioned to continue to expand this. Our portfolio today includes Apoquel, Apoquel chewable and Cytopoint. And as I mentioned earlier, we are expecting the approval of our long-acting Cytopoint this year. So we will have the strongest and the largest portfolio of dermatology products, and we have very delighted customers. The majority of our customers have a 90% or higher satisfaction with our products today.

We plan to invest in real-world studies to reinforce our leadership against new entrants in this space, but we also importantly believe we can continue to expand this market. There is still a large number of undertreated or untreated pets that we can continue to reach. We reach them by disease awareness as well as investing in direct-to-consumer advertising as well as driving better diagnosis in this market. We, again, believe we can continue to lead this market.

Next, we are still in the early phases of the OA market and we believe Zoetis can continue to expand this market with Librela and Solensia. And then obviously, as we'll talk about in a second, adding some of our long-acting products. These products improve the quality of life for pets across the world, millions of dogs and cats. Today, they have a 75% of the pet owners who are very or extremely satisfied with this product. We are really excited about our multi-pronged strategy to return Librela to growth and have been excited at Solensia's ability to continue to expand this market. Indeed, since Solensia's launch, they've expanded this market 84%. We believe we can continue to do this and are very excited about the addition of Lenivia for dogs and Portela for cats.

These long-acting therapies will help improve compliance for many pet owners who struggle to go in every month. We think they can continue to expand the market. They've also demonstrated significant improvement in the pets that have gotten them. They work quickly, and they've improved quality of life. So we remain excited to add these products, and we'll expect the launch of these in the first half of 2026.

I also want to highlight livestock. As we talked about a little earlier, livestock has been driving mid-single-digit growth. And for Zoetis, it's been driving mid-single-digit growth over the last 3 years. Livestock is an incredibly diversified business for us. And now that we're past some of the disruptive periods, as you look across both poultry and swine and fish and cattle, we see significant diverse and durable growth drivers as we see an expanding population across the globe and more and more desire for nutritious protein, which we believe will continue to drive this market. And importantly, the innovation that Zoetis is leading, especially in the preventative space in vaccines will continue to drive our growth into the future. So now what I'd like to do is introduce Wetteny who will join us to talk about how all of this will drive sustained shareholder value. Wetteny?

Thank you, Kristin. Good morning, everyone. Building on everything you just heard, this slide truly depicts how our strategy shows up in our results and our track record. We have delivered 8% to 9% revenue growth over the last 5 years with 41% to 42% EBITDA margins and mid-20s ROIC, and we have done so consistently and at scale.

This is truly a powerful combination, and it stems from a repeatable formula. We invest in innovation. We focus on our commercial execution, and we drive disciplined capital allocation. And as we look ahead, what's even more important is that we have the focus and the discipline to keep delivering even as we scale into these new exciting areas that Kristin highlighted earlier, and we still are expanding our existing franchises.

Now we have a tremendous innovation model. And it doesn't just drive top line revenue growth, it delivers superior returns. What you can see on this page is something we think is very unique and very attractive about Zoetis. Our ROIC sits well above the S&P 500 and the health care and pharma benchmarks. What this means is that our science-to-scale model is not just scientifically sound. It is capital efficient. That efficiency, in turn, gives us the confidence to keep investing in the business to drive margin expansion and sustain earnings growth.

So everything you've seen so far on our track record is actually a direct result of how we deploy capital. Our capital allocation framework and therefore, our priorities are very clear and very consistent. We invest in the business to fund our industry-leading R&D engine, to drive capacity and drive efficiency, which leads to sustained top line growth and margin expansion. We pursue external business development opportunities both in terms of bolt-ons that strengthen our existing portfolio and complementary technologies that also drive acceleration of our strategy.

And then we return excess cash to our shareholders. This is through a combination of dividends and share buybacks. And this combination, in turn, drives this cycle to continue to drive our business as we sustain a strong balance sheet and an investment-grade profile, which means we have the flexibility to act, whether it's periods of uncertainty or opportunistic environments.

Over the last 3 years, we have returned over 125% of our free cash flow back to shareholders. This slide showcases the strength and consistency of our cash generation as well as our commitment to delivering cash back to shareholders as depicted by the 13% CAGR in our dividends and our steady buybacks. During our innovation webcast back in December, we are very happy to share our excitement and the strength of our pipeline and the confidence that, that gives us in the future of our business. And then recently, we launched a bond offering and had immediate execution of buybacks associated with that bond offering, which really shows that conviction in life.

I'm very pleased to announce today that we have actually completed the buybacks that were associated with the bond offering. That brings our total buybacks over the last 12 months to over $3.2 billion, all while maintaining a strong balance sheet and the flexibility to keep investing in our business at the same time. And all of this brings us where we actually started the conversation. Animal health is a very resilient and growing industry with strong secular tailwinds across both companion animal and in livestock.

Zoetis is uniquely positioned to capitalize on that strength on that growth with our proven science-to-scale model and the commercial capabilities to actually build enduring brands and franchises. We have multiple and diverse growth drivers and a very robust near to midterm pipeline, including 12 new potential blockbusters. And our capital allocation discipline and approach means that we're about to continue creating and sustaining shareholder value through growth, margin expansion and strong returns. This combination really supports our confidence in our ability to continue leading this industry over the long term.

Thank you very much for your time today. With that, we'll turn it over to Chris to drive Q&A.

Perfect . Appreciate it. Obviously, a lot of exciting things in the pipeline over time. I do want to start maybe the conversation on the nearer term, there's been some controversies there. Can you just level set us to start with, I know we're seeing a bit of a step down in companion growth second half of this year versus what we've historically seen for Zoetis. So maybe a 2-part question. One, drivers of that; and two, your confidence that this is a shorter-term trend versus a longer-term drag in the business?

Yes, sure. Look, Chris, as we've just highlighted, when you zoom out, this is an industry that has proven to be very resilient and the dynamics and underlying secular trends that are driving the industry, we believe are sustainable, and we are well positioned to drive those. So when we think about not only our existing franchises, that have ample room to keep growing and expanding. And we think about the exciting new areas that we're going into that meet the greatest unmet needs and really quality of life and so forth across so many disease areas, we're very excited about what future holds.

Now the question is where are we navigating today and what does it look like? And I think if you think about on the companion animal side as you went there, if you look at the human animal bond that has driven what you've seen so far, certainly, the prioritization of health of pets continues to be of highest importance to pet owners, who actually, if you think about Millennials and Gen Z, they see themselves as pet parents and these are members of their family. So there's no question about their ability and interest to continue to spend and support those. But certainly, we've seen very significant price increase in the U.S., particularly through corporate-owned clinics that the consumer is looking to absorb what that looks like over a period of time, given how significantly those price increases have happened, and we've seen that play out in terms of the macro here. But keep in mind, Zoetis is also broadly geographically diverse.

So we're operating in markets around the world, 100 markets where our products show up, and you see that diversification still showing up in how we perform. And so we're looking at a year that is sort of in the 5.5% to 6.5% range to quote our last guidance and really robust growth all the way down to the bottom line as we continue to exercise discipline through the P&L even as we're continuing to invest in these very exciting areas for the future. So we're very confident in the future of the business despite what is some macro headwinds in some of our markets. But clearly, livestock has been performing really, really well for us, and we see that continuing to drive growth for us in addition to the other areas, I have to mention diagnostics and so forth.

And just to follow up on that macro piece of it, what do you think it takes to see those headwinds lift a bit. Is this just we've to annualize some of the trends we're seeing? Is this about some of the new product introductions you have coming? I'm trying to get a sense of like how long of a cycle we should be thinking about where that could be weighing on growth?

Well, I think this is going to be a combination of what happens naturally and what we're doing about it in terms of our execution. So we're very, very much focused on our commercial execution. We have such a broad portfolio. The question is how do we present those to not only veterinary clinics, but also the pet owner who is looking at how do they keep their pets healthy and so forth. So we think given the various products that we have across our portfolio, we're well positioned to drive those in terms of the value that we bring to the pet owner and what it means to drive prevention in terms of some of our offerings to avoid some of the other more acute cases and conditions that might develop over time and so forth. So we believe we're well positioned to really exercise and execute both in this market that we're in, regardless of how long it might take for it to cycle through and again, the broad diverse areas that we operate around the world...

And I know you're not giving guidance, but just I think we're all trying to get our hands around what 2026 looks like. So I guess is it fair to assume growth, maybe somewhere between where we're in 4Q and your historic 6% to 8% range is how to think about that? Or if you can't comment on that, just maybe qualitatively, just some pushes and pulls to help us maybe get better handle on that year.

Yes, I'd be happy to judge some of the qualitative elements. And it's not a surprise to you, Chris, that I'm not going to try to what the growth range is going to be for '26. You have to stay tuned and join us in February to hear more about how we're thinking about the year and how we're executing in this environment that we're in and given the strength of our portfolio. But here's how I think about it.

When you zoom out, we have multiple levers that drive our growth. The first is price and I know price is a topic that everyone is talking about, and I just spoke about how aggressively our customers have taken price. But it still is a lever for us, and we have historically been very consistent about how we approach price and we've done so in a range of about 2% to 4%, 2% to 3%. So I think that's what we're looking at in this year, 2025, as we said, it's about a 4% or coming down from where it was the prior 2 years. So that's one.

We are very confident in our existing franchise areas that there is substantial more room to expand those. So we expect to grow in derm and parasiticide as we look ahead. Now of course, we are taking into consideration the sort of the short-term transitory impacts of initial launches from competitors and navigating those and executing through those because we operate in a lot of very competitive spaces. So this is not new to us, right? So we'll do that across those sectors.

Livestock, we talked about having posted 2 years of growth that's around 6%. And on a year-to-date basis through third quarter growing above that. And so we'll update what that looks like for the full year '25, but certainly, as we look ahead, the trends that have been driving that, we see those continuing. And so that's an element we'll look at. Diagnostics has had a great year in 2025. We expect to continue to drive robust growth there. And then last but not least, certainly, I alluded to this earlier, but our discipline to execute through the P&L to drive bottom line growth even as we invest in the business is something we'll continue to exercise.

And maybe just one longer-term one. Given the pipeline you laid out, maybe some transitory stuff in the near term. Is 6% to 8% growth still a reasonable way to think about Zoetis as we think about a 5-year time horizon or 8-year time horizon as this new portfolio comes to market?

Well, we're not updating sort of long-term growth expectations at this time. But I think the long-term secular trends that we talked about certainly would support continuing to drive robust growth for us and very attractive for the overall industry. And again, we continue to lead in terms of meeting those unmet needs in those areas that will drive a market that's going from about $50 billion to nearly doubling over the next 10 years.

Great. One more financial one. Capital deployment, I think you mentioned the repo kind of being executed against. Just priorities right now. I mean, I look at your stock price and given the pipeline you have, it seems like it's a great value. So how are you thinking about capacity to keep doing repo, how you're balancing that against dividend or tuck-in acquisitions or...

Well, I think you know that we agree with you on that it's a great value. And certainly, we demonstrated that with what we did over the December time frame with the bond offering, convertible bond and subsequent buybacks. And certainly, when we think about our future, we're very excited and confident about what the future looks like, which we want to demonstrate in that. But it's all around how we continue to drive long-term shareholder value. And that's the lens that we look at all this with, and that's what we'll continue to factor in and maintaining a very strong balance sheet because we also want to make sure we're operating and running a long cycle innovation business.

And so we have to keep doing those things today that's going to drive the business tomorrow. And that discipline is also always a factor for us as we think about how much buybacks. But we've done so consistently. And this buyback that's supported by the bond offering is in addition to our normal program that we've been running and that will continue to run as well.

Great. Can you talk about a little bit in the core business, Dermatology. You're targeting in your slides a 7% to 8% CAGR for the category. I know you've had great success in building this up, but it's been a category you've been building over a decade. So just help us a little bit about just like where we are in penetration and what gives you confidence that there still is such a long runway of growth ahead for the market?

Yes. I mean I think we are very proud of the entire sector that we built. I think we have the broadest and most differentiated portfolio in animal health. We've talked a lot about Apoquel. It's been around for more than a decade, Apoquel chewable in the last few years, Cytopoint with almost a decade, but we're continuing to innovate. We're obviously seeing an opportunity with long-acting, which we're expecting approval on. We're looking at other species. But even if you focus just on the species where we are today, there's significant unmet medical need in both underpenetrated, so dogs that might just be getting steroids today or completely unpenetrated, dogs that are getting nothing that are suffering today.

And we really do believe, as you have more people entering the space, building disease awareness, encouraging more diagnostics of pets, we think you can continue to access this significant unmet medical need. This is obviously in developed markets like the U.S. and Europe, but I would also highlight the opportunity outside of that in some of the developing markets where we recently launched or where they're really expanding and spending more money on their pets. So we continue to believe there's significant opportunities to expand this market, and we're also excited to continue to innovate in the space as well.

Great. Can you just elaborate on some of the trends you're seeing ex U.S. where the market is less developed, but you've had maybe full competition for a bit longer period of time. Anything surprising with the trends that you've been seeing there?

Are you talking about within Derm in Europe?

Derm specific.

Yes. Well, we have had some of the overall launches. I mean, look, I think our position is incredibly strong. One of the -- I think our best demonstrations of this is how challenging it was to switch customers from Apoquel to Apoquel chewable and how long that took. They were so happy with their Apoquel. They thought why would I change? I'm like a [ beef flavored tube ]? That's why you change. But it was challenging. And I said that it was even hard for us to switch customers, I think we're seeing that.

So look, there's a huge effort around pricing and promotions that we've seen in Europe for many of our new competitors to get their products on shelf. Those are limited. You'll run those promotions to get penetration. I think when you -- we're really focused on our head-to-heads as we've talked about, and basically demonstrating that we have a differentiated and great portfolio and there's really no need to change. So we have seen some of the promotions to be aggressive as we've spoken about, but we were expecting that, and that was planned. That's what you would do if you were trying to get penetration in the market.

Yes. And just the latest views on the U.S. side of the market in terms of timing of competition, kind of behavior of competition as it comes out.

We've been really bad historically at predicting. I mean we're all -- we're all expecting -- we were expecting at the end of last year. We'll be expecting this year, certainly from Merck. We've seen the competition now for a while from Zenrelia. And look, we continue to be proud of the way we performed and really confident in our portfolio going forward.

When I look out to '27 and beyond, so as we get through some of the whatever near term noise of promotions around launches. Is it fair to think about Zoetis being able to grow at kind of that industry average rate in dermatology as we can just wash through this initial launch cycle?

Look, we continue, as I said, to be excited about the opportunity to continue to expand the market. I mean also continue to expand compliance. I mean the advantage of bringing long-acting is you're going to increase compliance. So I think there's just so many different levers to continue to expand the market and we think new competitors entering some of these spaces, again, increases awareness, increases focus in the clinic on treating what is a really important disease. So we remain very optimistic even as we get multiple competitors. Again, we'll continue to innovate as well, which Zoetis has continued to do.

Great. Pivoting over to Librela. Talk a little bit some of the learnings you've had for this franchise over the last year or two with -- as the headlines, et cetera? And then just as we think about the priorities for '26, like what are you most focused on for the -- to return the franchise to growth?

Sure. I think as we've talked about it, we remain very confident in Librela and Solensia and in the risk-benefit profile of both of these products. I mean 75% of pet owners are extremely or very satisfied with the product. That being said, we've obviously faced a lot of challenges, and we've been very humble and reflective about what we've learned. The first thing we've learned is we should have spent more time with specialists. So as they started getting these news and the people felt that they had experts that they could lean to that were not Zoetis experts. So we're going to apply that to the launches of Lenivia and Portela. As we talked about, we're expecting launch of those in the first half of 2026, but those will be slower ramps.

We will focus first on really early experience programs, primarily with specialists also with some GPs really sharing those learnings, making sure that they then can help bring on the GPs in the future. So I think our first learning was spending more time there. Our second learning was we should have paid more attention to social media, which animal health was not really big in the space for a very long time. So we've really built our capabilities for sensing as well as really engaging. We also need -- we've been focused on doing a better job of getting those incredibly positive stories of the large population of pet owners who are very and extremely satisfied, getting them to tell their story.

So there's a lot that I think as we look back that we want to do differently, where also the big learning is animal health never really invested in Phase IV trials. As we look at every product launch in the future, not just in OA pain, but every product category, we've expanded our outcomes research, our medical affairs organization. And we're going to invest in Phase IV trials, so we can continue to provide robust data, both in trials as well as real-world analysis from some of the larger practices that will do retrospective analyses. We're really looking at a comprehensive Phase IV study program for every product going forward.

Great. In the last couple of minutes here, just maybe switching gears to Trio. Where do we stand at this point in terms of penetration for triples? And where do you think that can go over time?

Yes. penetration for triples in the U.S. is about half of the market. So there's still tremendous room to continue to drive triple combinations, both from legacy sort of treatments as well as those that are over-the-counter and so forth and [ collars ] and topicals, et cetera. So we're very excited about that. And given Trio is the #1 product in the U.S. and the largest market for triple combinations, given [ heartworm ] prevalence and so forth, we're very well positioned to continue to capitalize on that, not to mention the first-mover advantages in the very high level of satisfaction pet owners and vets have with Trio.

And just from a competitive standpoint, any changes you've seen in terms of intensity of promotional activity as we've had a new competitor kind of introduced in the last year?

Parasiticides is one of the most competitive spaces in animal health, always has been. I won't make a prediction, but I suspect it will continue to be very competitive. And we have really gained a lot of share in the space over the last few years, given our innovation and we remain focused on that, both driving innovation as well as the commercial excellence that it takes, given the benefits of our product and where we stand and the differentiation that we have.

So very excited to continue to drive that. And certainly, we're not -- competition is not new for us. We operate in a lot of competitive spaces every day. Like I said, we're very good at hand-to-hand combat as well.

Great. Well, I think we're out of time. Thank you so much for all the comments. Really appreciated.

All right. I'm David Westenberg. I cover life sciences tools -- animal health and life science tools at Piper. With me today is Zoetis, we have the CEO, Kristin Peck and the CFO, Wetteny Joseph, thank you both for coming here.

So we'll get right into Q&A. You're coming off your R&D Day. One of the things that we did find pretty interesting is your likelihood of approval. Can you remind investors of why your R&D efficiency is so high? And then can you talk about some of the products you're most excited about coming on Innovation Day?

Sure. Well, we were really excited for those who were able to join us for our webcast on Tuesday morning, really focused on R&D, and we talked about the science to scale R&D engine that we have. And I think what's really differentiated both for Zoetis and particularly also for animal health is how much more efficient R&D is. And it starts with the fact that we can start in our target species. So if you look at just overall development time, they're significantly faster if you even talk about the cost of doing it, it's significantly cheaper. So no matter how you look at it, and that really has to do with for us. We start in the target species. So we have validated targets much sooner than you see in human health.

But I think what really differentiates Zoetis and our engine, those are very animal health specific. But I think what really differentiates Zoetis is all the different parts of our engine, including AI, genetics, diagnostics. So we can get to a target faster and then we can find a molecule even faster because we can leverage all of our genetic data, all of our diagnostic data, all of our biomarker data to speed that process up. So I think when you look at our pipeline, our confidence in that pipeline, especially over the next 3 or 4 years is much higher than you would see in human health.

The second part of your question was what...

It was on the pipeline update, most exciting key takeaways on the pipeline disclosure from Tuesday's call.

Yes. A few things I'd say. For starters, for those who joined, it's probably the most robust disclosure we've ever provided on it. I think the key takeaways from it is how diverse and balanced it is. We'll be launching a major blockbuster every year for the next 4 years. As you look at the key slide, which I'm sure most people are focused on, there are 12 blockbuster products in that pipeline. And a blockbuster for us is defined as a product that's at least $100 million. And if you look at sort of year-by-year, we're really excited in 2026 to get approval for long-acting Cytopoint that's through the USDA. So that will be super exciting.

Also to get a next-generation chemistry platform, which we think will be super exciting. You look at '27, that's renal CKD. You look at '28, '29, you'll see oncology and then 2030, you'll see oncology. So there's a lot of super exciting. And I think if you look at that, we're entering new markets with blockbuster products. And those addressable markets for those 2 or 3 biggest combined, even CKD and oncology is over $5 billion in addressable market that we'll now be entering. So we're super excited, honestly, every year for the next 3 years to be launching some exciting new products.

Got it. Well, admittedly, I haven't gone to the full Tuesday call, but I think on the highlights, I think the key -- the CKD in 2027, I think you gave exact time lines of second half of '27. I don't think you've ever talked about that in the past. So can you provide more details on the launch and expectation? And why are you so confident that something that is 2 years out is you're going to hit that time line?

Let me just start with CKD for those who didn't have a chance to join. It is a $3 billion to $4 billion addressable market. So I think it's really exciting. I think what's also quite exciting there is there really are no products for CKD today. It's the #1 disease. As you think about for cats, 8% of dogs will be diagnosed with it. And really today, it's really diets, monitoring, palliative care. So it's really a significant unmet medical need for both dogs and cats.

We have 7 assets. Those are a mix between therapeutic assets and diagnostic biomarker assets. Diagnostics will be additive, so we don't need that to really launch our therapeutics, but it would expand the market. And we say that because -- and if you join the webcast, our new Head of R&D as of January, who is also a vet, explained it in a much more veterinary terms. But the key focus here is that you can address the disease earlier before the damage to the kidney, to the cellular structure of the kidney happens. And that's really what we're focused on. So we think this will be significant. And the first asset that we're launching will be in 2027, as we mentioned.

Got you. I think you mentioned the U.S. -- or sorry, Librela is stabilizing in the U.S. Can you tell us what you're seeing that give you confidence that, that is indeed happening and about sequential growth in Q4 versus Q3, if that is a possibility?

So as we talked about on the call, we remain confident in Librela and in its long-term potential. We're also confident that it will return to growth in 2026. As we've been speaking about, that will be gradual. So we'll obviously update on our Q4 call in February, any sales trends and things like that. But I think what we're really focused on, as we talked about in sort of metrics is looking at satisfaction. Right now, if you look at pet owners, pet owners who are very or extremely satisfied are over 75%. And so we've talked about the multipronged strategy that we think will return it to growth, and that's really focused on, first and foremost, making sure that both vets and pet owners understand that OA is a serious disease and treating pain is really important.

Secondly, it's spending time engaging and educating vets and specialists on the disease and on the risk-benefit profile of the product, then also trying to make sure we share the facts about that product as well as how many people are really seized on it in some of those case studies. And lastly, investing in some Phase IV studies, which we also talked about, which will provide incremental data for vet specialists and pet owners, and we'll be doing that. And some of those studies, as you know, launch starting this quarter, and we'll be launching it throughout 2026. So we're excited about that.

Got you. Can you clarify whether or not Librela can return to growth in '26? I believe what you might have said on the call Tuesday or maybe it was on the earnings call that back half, is that the expectation? And what gives you confidence kind of in the back half?

Sure. Look, we shared on the third quarter call what we are seeing in the product in terms of signs of stabilization. We also highlighted that entering into 2026, although we're not clearly giving guidance quite yet, we anticipate and know that we have some stronger comps in the first half of the year. But our confidence is with all the work that we're doing and what Kristin just highlighted in terms of the multipronged strategy that we'll see the product return to growth next year, likely in the second half given the comps that we talked about.

Got you. I want to stick with pipeline just because there is the newest update. So you received approval in Lenivia in Canada and the EU. How do you expect to differentiate that product from Librela?

Sure. So we are very excited that we received approval for Lenivia in the EU and in Canada. And we think really what Lenivia will do is will expand the market. They'll do that in a few ways. First, providing a more convenient option for pet owners who today, if to treat the pain, they have to come in every month and every 3 months would be a significant savings. It also provides vets with more flexibility to target treatment to the specific animal and what makes the most sense for that animal and that family, et cetera. And we think we can differentiate in a few ways.

First is around convenience, as I mentioned. So I think that will technically do it. I think as you also look at it, it targets a different place on the NGF, and that is what gives it a longer lasting so it can last instead of 1 month to 3 months. And it's a different -- again, because it's a different product, it also does that at 10x lower dose. So we're quite excited for it to expand the market. We think there's a lot of people who just don't go on these products because coming in every month just seems like too challenging for them to consider. So we think we're excited for it to expand the market overall, and we do think it will be differentiated.

Got you. I want to maybe dive in a little bit further. I mean I think what we find with Cytopoint versus Apoquel is you actually have different efficacy cases where some will work in some patients, some in the other. Just given that it targets a different area, do you think that might be the case where one of them can work where the other one wouldn't be as effective in anyway. If you have any...

Yes. I mean they are 2 separate molecules. So we really can't do a comparison for safety and efficacy. And I think what we'll work on, as we've talked about before, is really starting with specialists to make sure they understand the product, and they can help educate other veterinarians about better use cases. These kind of patients are more targeted for this. So -- but we're really going to make sure that we follow the science on this one, and we work with specialists and vets to best understand which patients are best targeted for that. But that should always be based on the particular case. They are different molecules. So you really can't do a direct comparison on safety and efficacy.

Got you. Okay. Can you talk about expectations for U.S. approval?

Sure. So as we talked about on the call, we are currently working directly with the FDA to go through all that. We're actively engaged with them. As you probably know from other approvals, there's normally very different time lines in different authorities, whether that be in the U.S., Canada or Europe. So there could be a significant range, and we'll obviously provide an update as soon as we get it at the exact time.

Got it. Just to clarify, is it -- with mAbs, I don't know whether or not it's USDA or...

Yes. So I know that is confusing for some. I won't get into the technical reasons which goes to -- because we don't get to choose. It's very specific. It has just whether it prevents the disease or treat the disease and the way they define it. So the reason he's saying that a Cytopoint long-acting would be through the USDA Cytopoint through the USDA, which is, again, we keep saying different authorities have different time lines because he's saying that would be first. But yes, Cytopoint is USDA and Lenivia and Portela are with the FDA.

Got it. Sorry, Wetteny, I've been leaving you without questions. So we'll go to the guidance. We'll go back to guidance. You raised guidance in Q2. In Q3, you lowered the guide. What has kind of been the change in that?

Yes, sure. Look, maybe we'll start with what didn't change. We came into the year expecting the back half to be slower versus the first half due to a number of factors, particularly the timing of when we anticipated competitive launches, which tend to be a bit more on the aggressive side initially to get traction on their products, particularly given just how long and the level of satisfaction our products have in the market, they just have to do more to get those going. And so we anticipate those and anticipate the back half will be a bit slower growth for us.

Now what did change is a couple of things, I would say. One, looking at the U.S., particularly therapeutic business for derm and for OA pain, we did see those decline in the quarter. And that was, I would say, a deterioration of the macro slightly than what we would have anticipated earlier in the year. The other one is Librela and the performance on Librela through Q3 and what we anticipated for Q4 being slightly worse than what we would have seen. So those 2 things are the 2 competitive dynamics are about where we would anticipate them. Again, we have a global business in different markets. We see different behaviors slightly. But generally speaking, by and large, they're coming in where we would anticipate as we kind of got into this year.

Got it. We believe the Numelvi launch is a little bit behind schedule in the U.S. How could that play out in, say, Q4? And then for 2026, do you expect heightened competition versus what you came in with in 2025? And of course, you can't give guidance, but I mean the way investors should think about...

I appreciate that. And look, I think a couple of things that I would say, Numelvi has yet to be approved in the U.S. It is approved in Europe and launched. We came into Q3 anticipating the behaviors that I already described and also anticipating that they would continue through Q4 because it's only a partial quarter in Q3, which is part of what we factored into our guidance for the fourth quarter is that continue to be intense for the entirety of the fourth quarter. Now as you get into next year, of course, the timing of when they get an approval in the U.S. is still something we're watching. But I would say this, when we zoom out, you look at the derm market, it is one that still has substantial room to expand. And we've been expanding that market. As you know, last year, we clocked in 16% growth in derm with double-digit volume.

So this is a market that remains very attractive with significant room to expand. And over time, we expect to continue to do that. And I think other players coming in will be more voices sharing with pet owners, et cetera, and driving them to clinics. And our products remain very, very much differentiated against everything that we've seen so far that has been approved or launched, including Numelvi, by the way, in Europe based on what we've seen on that product. And that's just our Apoquel film-coated product, we believe is differentiated against them. And then on top of that, we have Apoquel Chewable and we have Cytopoint. And as you heard, we talked about a couple of days ago, there's anticipation of Cytopoint long-acting to come latter part of next year. So when I look at our products here and I look at the market, there's a lot of reasons to be very, very excited about what the future holds. And I won't get into specifics as to how long those dynamics are going to play in terms of competitive intensity in '26 versus the expansion of the market.

So you answered very well. So I'm sorry, I am going to dive in a little bit further on the Numelvi launch because I just thought I want to hear about both Numelvi because it is in Europe and then, of course, the [indiscernible] product has a better label in Europe. So can you talk about some of the dynamics you might have seen in Europe? And if we can apply those to what we might see in '26.

Yes. Sure. Look, it's still early is what I would say to start with, particularly for Numelvi that just again started launching in the third quarter in Europe. And so we'll continue to watch. But I'll go back to what I said, Dave, which is just the confidence we have in our portfolio and the differentiation that we have in terms of what that will mean in terms of how we will participate and lead in the expansion of this market and where we will drive that.

Now what I was alluding to in terms of the product, if you look at our product, it's film coated, the Numelvi product is not. It does have -- it's a larger pill. It has to be taken with food. And the active ingredient can be better in that product. And so again, just to give you some examples in terms of how we look at our product versus what we've seen so far. Now by and large, the label is about what we expected on this product in Europe. And again, we'll wait and see what happens in the U.S. with that. But competitive intensity is what we anticipated. We participate in parts of the market that has always been very intense from a competitive standpoint, and we performed very well. You've seen what we've done in the parasiticide space and how we have gotten to #1 in the U.S., #2 globally in that space. So competition is not something that's going to us. And certainly, given the breadth of our portfolio and I would say, differentiation of these products, we feel confident about the future.

Got you. You touched on long-acting parasiticides and you touched on just protectional injectable parasiticides. So I believe and my data suggests that Quantum may not be doing as well as kind of we would have expected. So how are we thinking about injectable parasiticides ability to grow the overall market and kind of what we would think about pricing and whatnot. Again, sorry, I don't want to take away from that product. It's growing. It's actually growing really, really fast relative to what I would have expected.

Yes. Look, I would say it's doing about what we thought it would be doing. And if you zoom out and look at the parasiticide space, we're still less than half of the space has transitioned from flea tick to flea tick heartworm triple combination. So there's still a lot of room to go here in terms of what is the current standard of care in that space and how much room there is and our product Trio being a leader here. And again, more room for us to expand. Now when we talk about triple combination injectables, that's the next frontier, which Quantum is not, right?

And I think this is part of why we say it's doing about what we thought because it does not include heartworm, for example. It also has certain dynamics around it. It's a very large gauge needle, et cetera, and it does present some challenges to practices because of the way that the vials come where you have to substitute them, et cetera, and potential for waste if you don't have enough dogs coming in at the right window of time to use it.

So all those reasons, we would anticipate what we are seeing right now is what's happening. Triple combination, though, is an area that we're working on, clearly, and we have in our road map from an innovation standpoint. We are careful to really think about what the profile of the product needs to look like, just like any other thing we work on to be meaningful for both the veterinarian and practice as well as for the pet owner and what is the longevity that makes the most sense versus 12 months, right? And then pricing will be something we'll take in based on what the value is that we're bringing based on that profile.

Got it. I want to maybe touch on some of the Q3 dynamics around therapeutic visits and kind of in IDEXX, we are seeing a little bit of wellness, non-wellness recovery. So can you help kind of clarify the differences between what we might see in the IDEXX data and kind of what you guys have said around therapeutic visits?

Yes, there are some slight differences in terms of what we're talking about here in terms of measurement. What IDEXX is referring to is a broader sector of non-wellness that would include some acute care and hospital type items, not just therapeutic visits, which is a subset. So when we talk about therapeutic non-wellness in this case, it's therapeutic visits, specifically periodic visits for derm and then OA pain visits. Those are the areas that really are meaningful to us that we've always tracked and we've said, are the things that are more correlated to our performance in the market in addition to what happens outside of the clinic, obviously, those are the alternative channels. But periodic visits were actually down on the quarter, and we see those having an impact on patient starts, which is what we've seen play out in terms of the macro.

Got it. I want to maybe switch back to pipeline. You're planning on launching a significant amount of therapeutics over the next 10 years. I think you're mentioning 2 to 3 a year. Can you talk about kind of that ability to grow? I mean, I think your goal is still growing a couple of hundred basis points above the market. So is that how we get there?

Well, and I think -- when you think about the pipeline and our growth trajectory, it's first starting with the growth of our core portfolio. So I think if you look at it, I think Wetteny has talked about, there's still significant opportunities to grow in derm, in para, in pain. We haven't talked about livestock yet today, but I think livestock also had yet another year of significant above-market growth. So I think the company has a lot of growth drivers.

And then the pipeline has always been what has set us apart above the market. And I think what you hopefully saw from the webcast -- the innovation webcast is we're entering a bunch of brand-new markets with over $5 billion new and addressable market that we haven't -- that no one is in today and no one's entered. So we think there's significant opportunity. If you look at sort of -- and there's also multiple assets in those as we talked about. So 7 in CKD. So the first will be a monoclonal antibody for dogs. But as you see in there, there's also one coming for cats.

There's multiple biomarkers coming, diagnostics that will grow. I mean I think there's significant drivers of growth. But I don't want to underestimate the core portfolio, even OA pain, returning to growth. That's going to be a growth driver as well. So I think the company has a lot of drivers of growth and that the pipeline, as always, has been what's helped us really grow even faster.

Got you. I think maybe one thing that investors might underestimate is how you've always come kind of a first to market with a lot of different products. So can you talk about your market leadership and your ability to come with these first to market and educate vets and kind of what that does for margin profile, growth profile, et cetera?

Yes. I mean I think it's great that when we're first to market. I think there's also cases with us, and I think what really what we're best at is best products. And we talked a lot on the call about the sort of science to scale engine. And what I mean by that is you're seeing someone else come with an injectable flea tick right now, and it's not doing as well as you just said as maybe you hoped. I think what we're really focused on is delivering products that vets and pet owners really value and then building those markets. But it's really understanding what are they looking for.

And as you look at, for example, oncology, it's making sure that it can be available, right, at the general practitioner. There's very few specialist vets in the United States. We'll start with those specialist vets. But if you can't reach the general practitioner, the market size isn't going to be that great. But then you also have to understand what can a pet owner expect and can they manage side effects, et cetera. So we talked a lot on the call also about anxiety and obesity and metabolic disease. They affect a significant number of pets, but you have to understand what can the pet owner handle, what can a pet at home handle.

So I think what really differentiates us isn't just that we are first to market. It's -- we also have really thought about what it takes to build that market. We're going to be launching diagnostics with the therapeutics. We're going to look at expanding those markets, and we've demonstrated that, whether you look at dermatology or whether you look at pain. It's -- we're really good at building those markets in a thoughtful way. But it's also because we understood the market and we launched a product that really met that need.

I think the only thing I would add is when you step back and you look at the setup here, this is a market, and we talked about this on Tuesday, the drivers of the industry are very strong and very positive. You have pets that are aging, they're living longer, which means that they have more of the chronic type conditions. And you have increased medicalization across the world, particularly markets outside the U.S., where you're seeing growth rates, by the way, outside the U.S. in companion animal that are about similar to what we see in the U.S. with a lot more room to grow.

Why does that matter? Well, it matters because then you're applying a much broader portfolio we have today to those increasing needs. And so that puts us in a great position to best leverage an already strong and positive market landscape, but then our portfolio can be applied to that more than anyone else. And then we add the things that we're working on, which we're very excited about that we'll also capitalize on it. So I do think that if I want to really share with investors that zoom out in terms of the health of the industry, I would start there and then apply.

Given that we have one more minute, I want to talk about just 2 different things. Like number one, I mean, the multiple of the stock is maybe the lowest since I've covered it. So what do you think investors are missing? And Wetteny, would you be increasing share purchases just given the fact that we do have a lower multiple than what you've had historically?

One thing I would say is share purchase is a one sort of tool in our overall framework for capital allocation. As you know, we focus, first and foremost, on investing in the business and reinvesting in it. And certainly, Tuesday's innovation webcast was a real showcase of how serious we are about that and the impact we're looking to make and the value to bring to the market. So that's first and foremost, we'll continue to do that. Of course, we do look for M&A to augment and perhaps accelerate some of our strategic objectives, and we'll pull on those levers as well. And maintaining a strong balance sheet is important to us.

And then we return to shareholders. And we do that both in dividends, obviously, as well as buybacks. And what you've seen us do consistently is that. Now clearly, when you listen to the call and you see the excitement we have, not only in our existing portfolio, but what we're working on, there's a disconnect, I would say, between the conviction we have in the future versus where the stock is right now. And one thing I'll say in terms of buybacks is we'll always look at that disciplined capital allocation to decide how we execute on buybacks and how we maintain a healthy balance sheet as well and so forth in terms of looking at that.

Got it. Well, we're out of time. Thank you so much.

Thanks, everybody.

Good morning, everyone, and welcome to our Innovation Webcast. It's truly an exciting time for animal health. Across our industry, we're seeing remarkable advances in science and technology, along with a growing appreciation for the essential role animals play in our lives and communities.

The pace of innovation is accelerating. And with it, our ability to make a meaningful impact is greater than ever. And at Zoetis, we're proud to be leading the way. Our teams are driven by curiosity, guided by science and inspired every day by the animals and communities we serve. This passion fuels our efforts to pioneer the next era of animal health, and it's why our commitment to research and development has never been stronger.

Since our pipeline update was in January at the JPMorgan Healthcare Conference, we are excited today to share progress on the advances we're making across our pipeline and the vision guiding us forward.

Before we get started, the usual housekeeping. Today's comments will include forward-looking statements and non-GAAP measures, and you can find more details on these risks as well as a reconciliation of the non-GAAP financials in the slide deck on our Investor Relations website.

Today, you'll hear from Dr. Rob Polzer, our current Head of R&D; as well as Dr. Kevin Esch, who will lead our R&D organization beginning in the new year. They are both great examples of the strong bench of accomplished and inspiring leaders we have across our R&D organization. And of course, we're also joined by our Chief Financial Officer, Wetteny Joseph.

And here's what we'll cover. I will start by highlighting the vast and exciting animal health opportunity and the trends that reinforce our confidence in Zoetis' leadership as we continue to raise the bar on the standard of care in animal health. Rob will then outline our differentiated R&D model that enables Zoetis to pioneer new solutions for animals and the people who care for them, an approach that has fueled our distinguished decades-long track record of innovation and impact.

Then Kevin will highlight our deep, diverse and exciting pipeline that reflects both the breadth of our innovation and the bold science driving our future. And finally, Wetteny will bring it all together, showing how our unrivaled Zoetis innovation engine continues to deliver sustainable growth and long-term value.

And with that, let's talk about the opportunity. From livestock to companion animals, we are at the forefront of an essential industry, one that ensures healthy, productive animals can provide food, companionship and comfort to a growing global population.

Today, the total addressable market is about $50 billion, and it's expected to nearly double by 2035. Yet when you take a step back, it's clear that we're still in the early innings of veterinary medicine, which means there's a tremendous runway of innovation and expansion.

This opportunity is driven by a set of powerful and interconnected dynamics that are reshaping the way we care for animals across livestock and companion animals. First, we're seeing a new generation of pet owners, younger, wealthier, Gen Z and millennial consumers, who identify as pet parents and embrace the responsibilities that come with that role.

This deeper emotional bond, in turn, is driving greater medicalization as more owners seek access to high-quality veterinary care and invest in the best possible treatments. As a result, pets are living longer, and this aging pet population is creating new and growing demand for advanced and specialized therapies.

These shifts are opening entirely new therapeutic frontiers in areas like chronic kidney disease, oncology and cardiology, building on our track record of creating new markets and elevating standards of care across others. As these chronic diagnosis dependent diseases become more common, diagnostics are becoming increasingly central to animal health. Earlier detection and more targeted interventions will be critical, and diagnostics will play a pivotal role in enabling both.

And while the dynamics differ, similarly strong forces of change are transforming the livestock market. As the global population approaches $10 billion by 2050 and the middle class continues to expand, demand for sustainable, nutritious protein will continue to rise.

Consumers are also demanding greater transparency and sustainability, creating new opportunities for innovation in animal care. The industry is steadily shifting from treatment to prevention, with increasing investment in herd health, vaccines and biodevices, all critical to ensuring productivity and sustainability across species.

At the same time, powerful new technologies are redefining what's possible across both pet care and livestock. AI, genetics and precision health are enhancing our R&D approach, enabling earlier insights, more personalized medicine and smarter data-driven care.

As you can see, the opportunities are vast and customers are increasingly demanding and investing in solutions that transform care. We're not just keeping pace with the evolution of animal health, we're driving it. Our scale, innovation and global reach will continue to set the standard for what's possible in this dynamic and growing industry.

One of the most powerful forces driving that evolution is the rising standard of care and increased medicalization. Outside of the U.S., medicalization rates remain meaningfully lower, creating a long runway for growth. In fact, international companion animal markets are now growing nearly as fast as the U.S. off their smaller base.

And as more pets receive regular veterinary care, demand for diagnostics, chronic therapies and preventative care continues to accelerate. And importantly, consumers aren't just changing preferences, they're prioritizing higher quality, innovative care.

And that's what you see on this slide. In canine parasitology and dermatology, the adoption of new innovation is redefining entire categories with triple combinations and monoclonal antibodies, setting a new benchmark for the standard of care.

And while we've seen some near-term macroeconomic dynamics, including subdued clinic traffic, research suggests these are not structural and the long-term outlook for pet care remains strong. McKinsey's latest U.S. consumer survey reinforces this trend as petcare services ranks number one for near-term spending intent, underscoring the essential role of animal health.

Our alignment between science and demand is what enables us to stay ahead of the market and continue setting the pace for innovation. That medicalization is having a measurable impact contributing to longer, healthier lives for pets around the world.

One of the most significant and structural industry tailwinds is the rise in pet longevity. As you see on this slide, average lifespans for dogs and cats have increased 1.5x to 1.7x over the past 4 decades. And when you combine that with the pandemic-era pet boom when the population grew about 5% annually, you now have a large generation of pets entering middle and older age where their health care needs become more complex.

And with more pets living longer and so many aging at the same time, we're seeing a compounded demand effect, more years of care across more pets, driving growth in wellness, prevention, and especially chronic and specialty care.

On the right side, we highlighted an example of how longevity is changing the mix of veterinary care, with chronic disease management now making up a larger and more consistent share of overall demand. That evolution is creating sustained high-value demand for advanced therapies and long-term management solutions, an area where Zoetis is uniquely positioned to lead.

We hold market leadership in high-growth therapeutic categories aligned with the needs of an aging pet population. Our trusted relationships with vets and pet owners provide durable foundation for lasting loyalty. And through continuous innovation, we're meeting evolving health care demands, creating a virtuous cycle of better outcomes for pets and sustained growth for Zoetis.

Our leadership is built on diversity across species, categories and geographies. And livestock is both a core growth driver and a powerful expression of our purpose to nurture the world and human kind by advancing care for animals. Animals will always be central to the global food supply. And as the slide illustrates, their health, productivity and welfare are essential to feeding a growing world.

While we've seen a reacceleration in the livestock market, it's really a normalization following several years of disruption. From African swine fever in 2019 to the supply and demand impacts of COVID. For the third consecutive year, demand has strengthened, enabling us to deliver mid-single-digit growth, fueled by a global demand for safe, sustainable animal protein.

That momentum reflects the resilience of the livestock sector and the essential role Zoetis plays in supporting producers as they invest in health, genetics and productivity to feed the world more efficiently and responsibly. Zoetis' innovation, scale and trusted partnerships make us the partner of choice, driving steady, high-quality growth that complements our companion animal business.

As that partnership deepens, we're seeing a fundamental shift in how producers approach livestock health, moving from treatment to prevention and creating stronger, more predictable demand.

As you can see from the growing livestock vaccine revenue, this shift is already taking hold. Vaccines and preventative platforms are now growing faster than the broader livestock market. And Zoetis is leading this transition with next-generation technologies like Procerta and Protivity.

These innovations strengthen productivity, reduce antibiotic reliance and support sustainable protein production, helping producers meet rising global demand responsibly. Prevention is becoming the defining standard of livestock care, and Zoetis is setting that standard globally.

So how do we all capture this opportunity? It starts with how we bring science to life, connecting discovery to delivery through our science to scale engine. Zoetis' integrated model connects R&D, manufacturing excellence and commercial execution, ensuring discoveries translate reliably into products that deliver durable value for customers and shareholders alike.

We don't just lead in innovation, we lead in execution. For more than 10 years, Zoetis has outpaced our peers entering scientific advancements into real solutions. This advantage is powered by a global network of 23 manufacturing sites and more than 100 partners, ensuring world-class quality, agility and reliability from lab to launch.

And because we're so deeply connected to veterinarians and producers, we're constantly learning from the front lines of animal care. These insights directly power our R&D engine with 1,600 world-class colleagues and over $5 billion invested since 2013, translating science into real-world impact across 15 therapeutic areas and 8 species.

That investment has built the most robust and comprehensive pipeline in animal health, advancing care across every category and stage of life. The result is a sustainable cadence of innovation that compounds value year after year. By uniting scientific depth operational excellence and customer trust, we've built an innovation model designed not just to perform but to endure.

And with that, I'll turn it over to Rob, who will take you inside our differentiated R&D model and how it continually powers this science to scale engine.

Thank you, Kristin, and good morning. As we think about our unique R&D model, we have delivered over 2,000 regulatory approvals across the globe over the past 10 years, which underscores and demonstrates strength and continued confidence we have in our year-on-year delivery from our Zoetis R&D engine.

What really sets Zoetis apart is how we turn scientific discovery into market-defining innovation, shaping new standards of care across animal health. Our R&D model begins with customers' unmet medical needs. From this, we utilize our deep scientific knowledge of the biology and diseases of the species we are working in to develop a profile for a future solution to offer to all of our customers.

Zoetis has the full complement of capabilities across genetics, diagnostics, vaccines, therapeutics and biotherapeutics. As a result, we are in a unique position to offer solutions across the continuum of predicting, detecting, preventing and treating disease. In addition, continued investment in digital, AI and precision health strengthens our ability to lead the next generation of innovation.

This deep integration of science, data and customer insight ensures every innovation translates into real-world value. This continual learning approach has allowed us to integrate new modalities faster and more effectively than any other player in animal health. This proven model makes Zoetis the industry's innovation leader, reliably converting science into solutions for our customers and their patients and ultimately, into sustainable company growth.

Building on our foundational capabilities in traditional vaccines and small molecules, our early leadership in monoclonal antibodies has redefined standards of care for dogs who are suffering from allergic itch, and cats and dogs suffering with osteoarthritis pain.

Our complementary and interconnected R&D technical capabilities, talented scientific colleagues, proprietary database and diagnostic platforms allow us to derisk our innovative research projects, improved target validation and help us to increase project survival rates.

Applications of AI and digital tools are improving our ability to deliver solutions to our customers by increasing the speed of our research and providing innovative AI-driven diagnostics to our customers. This combination is also accelerating our biomarker research, improving detection and expanding the diagnosed population, which in turn drives better treatment and commercial outcomes.

These advances highlight how we continue to meet our customers' unmet medical needs by turning discovery into meaningful solutions across the full continuum of care.

Based on my 32 years of pharmaceutical R&D experience, of which 22 years were spent in human health, I know firsthand how our R&D model delivers significantly shorter cycle times, higher success rates and lower development costs while being held and delivering the same robust regulatory standards as human health. Zoetis does this through our scale, leading technical capabilities and by advancing multiple programs in parallel across species and modalities.

Our talented scientists, who are attracted to Zoetis by our innovative science and technical capabilities, have a deep understanding of our target species biology and their diseases. This knowledge, along with our ability to assess our proposed solutions in our target species early in research, help us to reduce uncertainty and accelerate delivery of our solutions to the market.

Our disciplined approach is in strict adherence to regulatory standards, maintaining the same level of rigor and ethical oversight as human therapeutics to deliver the highest standards of quality, safety and reliability for our customers and the animals in their care.

The result is an R&D engine that not only advances innovation faster, but consistently convert scientific leadership into successful patient outcomes and strong sustainable financial performance.

And with that, I'm really pleased to introduce Dr. Kevin Esch. I've worked with Kevin for the past decade, and I am really excited that Kevin will be leading our R&D organization in the new year.

I would be remiss not to acknowledge Kevin's role in many of the breakthroughs we are discussing today. And I am confident that his leadership and vision will ensure a seamless transition while continuing to advance the innovation that defines Zoetis.

With that, Kevin, over to you and more about our exciting pipeline. Thank you.

Thanks, Rob. Before diving into the pipeline, I just want to say that it is the honor of my professional career to lead our R&D team into this new era of innovation and opportunity. Having worked alongside them for over 10 years, I know that our colleagues have unparalleled expertise, capabilities and collaborations.

They are the most passionate and purpose-driven people in animal health. And they're the reason Zoetis continues to lead, not just in what we deliver for our customers, but how we are delivering on our vision to shape the future of innovative animal care.

Our R&D strategy is designed to generate solutions for our customers from a mix of innovation types, geographic expansion, life cycle innovation and new product innovation, each playing a critical role in sustaining growth while balancing risk.

Geographic expansion, for example, extends our proven portfolio into new and growing markets while life cycle innovations enhance the value of our existing products through new species, formulations, indications and combinations.

Importantly, we expect more than half of our R&D-driven revenue in the next 3 to 5 years will come from these lower risk, proven innovation paths that build on established franchises and technologies, underscoring the durability and growth trajectory of our portfolio and our ability to consistently deliver growth.

Finally, new product innovation drive step-change advances that will substantially enhance standards of animal care globally by addressing significant unmet medical needs. This thoughtful diversification across risk profiles, species and modalities means we can deliver predictable performance while continuing to open new markets and therapeutic frontiers.

Combining this with a disciplined approach to strategy and project governance positions us for meaningful value capture, translating science in new products and services that will and ultimately has sustained profitable growth.

Zoetis' balanced R&D portfolio is built with purpose to provide a steady cadence of meaningful launches over the next decade, near-term programs sustained growth today, while incubator and early-stage research secure the next wave of scientific discoveries and fuel our pipeline. This diversity ensures we continuously replenish our pipeline, avoiding dependence on any single product or technology and a cadence of consistent value generation.

We continue to invest across pharmaceuticals, biopharmaceuticals, vaccines, diagnostics, precision medicine and digital solutions to strengthen our innovation engine and accelerate delivery. What sets us apart isn't just the breadth of our investments but how we coordinate across platforms and integrate data to deliver comprehensive solutions in our most critical therapeutic areas.

Our disciplined approach balances near-term performance with long-term discoveries, keeping Zoetis agile and focused on delivering what our customers most value. Even with all the scientific expertise inside Zoetis, we don't do it alone. We complement our internal capabilities through key external partnerships to build on our focused R&D investment strategy, following a disciplined allocation across investment innovation horizons species and therapeutic areas.

Primarily, we have three types of external collaboration. First, through alliances, we codevelop new solutions with leading biotechnology and pharmaceutical partners, combining our expertise to bring new ideas to life. Second, our collaborations focus on advancing foundational science with top research institutions around the world.

And lastly, we make early-stage investments by identifying and nurturing novel technologies new to animal health that have the potential to scale and make a meaningful future impact. As we drive the next wave of growth strategic collaborations will strengthen our pipeline and expand the breadth and depth of innovation across species and modalities.

Based on the foundation we've described, you can see that Zoetis is positioned to lead well into the next decade, both as a scientific innovator and a technology leader. This outlook reflects the strength of our science to scale engine, our ability to move reliably from discovery to delivery, honoring our commitments and ensuring the innovations we invest in reach the animals and the people who depend on them.

And while we expect to achieve a major market approval every year for the next several years, it's not just about volume, it's about the science and the execution that have defined our past performance and continue to fuel our future. In fact, based on what's on the page, we currently have 12 pipeline products with blockbuster potential, each representing a significant opportunity to transform standards of care and drive growth.

That said, as anyone in life sciences will tell you, innovation is not always linear. When you're creating new standards of care and building entirely new markets, there's a natural degree of unpredictability. In the process, expect ongoing transparency and regular updates as we continue to progress our pipeline.

For context, across the Zoetis enterprise, we receive roughly 200 regulatory approvals each year, reflecting the diversity of our innovation strategy and our ability to expand the portfolio through life cycle enhancement and geographic growth.

As you look across this slide, you'll see some of our major new product innovations as well as life cycle innovations that strengthen our key franchises.

On the left, we are incredibly proud of what we've delivered in 2025, particularly in long-acting pain with first approvals for Portela in the European Union and Lenivia in both Canada and now the EU, just the start of a long runway of market approvals that will create tremendous opportunities for growth over the coming years.

Looking beyond 2025, we will continue to build on our dermatology leadership with a long-acting Cytopoint, exciting diagnostics innovation, followed by expansions into entirely new categories of care, including chronic kidney disease, oncology and cardiology. We will also continue to strengthen our leadership in parasiticides and vaccines across an even broader range of species.

And as a veterinarian with practice experience across livestock and companion animals, I am excited to relay that livestock remains a vital growth engine for Zoetis. Beginning next year, we expect several key vaccine franchise expansions across poultry, swine and aquaculture, strengthening prevention and protection across production animals.

As Kristin highlighted earlier, producers are increasingly focused on prevention over treatment. Our pipeline reflects that shift with new vaccines and technologies in development to improve animal health and productivity. And again, to echo an earlier point, animal health remains a young and rapidly evolving industry.

Often when we build new categories, we're not displacing legacy treatments, we are addressing currently unmet medical needs and establishing new standards of care for animals around the world. But most importantly, this slide represents our purpose in action, a foundation of science and innovation and how our team is advancing care, expanding access and creating solutions for healthier, more productive and sustainable livestock as well as healthier, longer lives for pets.

Chronic kidney disease, oncology, cardiology as well as next-generation approaches for established franchises with long-acting parasiticides and oral vaccines are all anchored in validated medical needs with clear scientific pathways. Our progress in these six areas includes having validated the targets and mechanisms for these diseases, either internally or through external collaborations.

Nearly all leverage our existing scientific and technology platforms, including monoclonal antibodies where we have the expertise and capacity to meet commercial demand while our long-acting parasiticide program expands on current platform capabilities, drawing on nearly a decade of research to create a next-generation solution.

Progress across multiple assets gives us confidence in the science and the opportunity ahead to continue leading innovation that helps pets live longer, healthier lives with the people who love them. We are actively working with scientific experts and the veterinary specialty community in all therapeutic areas to understand and build these markets as we progress.

All assets are on track to meet our standards and regulatory expectations for quality, safety and efficacy under the timelines indicated moments ago. Our next wave of innovation will address large unmet medical needs and define the next decade of animal health innovation.

These new frontiers, chronic kidney disease, oncology and cardiology as well as longer-term areas, including anxiety and metabolic diseases such as diabetes and obesity; represent vastly unmet medical needs important to veterinarians and pet owners and consequently, our opportunities with strong commercial potential.

Each program builds on a comprehensive understanding of disease biology and validation of targets and approaches either internally or through collaborations, giving us high confidence in scientific feasibility and likelihood of success. Our approach combines proven platforms such as monoclonal antibodies and diagnostics, complemented by next-generation technology in genetics, biomarkers and artificial intelligence-driven discovery.

The breadth and depth of our capabilities in each of these areas as well as concerted efforts in data integration and artificial intelligence complemented analysis across platforms is truly unique in animal health and allows for rapid novel insights as we forge new scientific frontiers.

This expansion reflects the natural evolution of our R&D model, using deep scientific understanding of canine and feline species biology and integrated capabilities to open entirely new markets and raise standards of care for the world's pets.

With this focused investment in emerging therapeutic frontier, Zoetis is once again reshaping the boundaries of what is possible in animal health. Let's take a closer look at three of these new frontiers and our approach to bring meaningful solutions to general practitioners.

Chronic kidney or renal disease is one of the largest unmet medical needs in companion animal health, especially for cats. In fact, by the age of 13, roughly 80% of cats will have kidney disease. Meanwhile, up to 10% of elderly dogs will get CKD.

Our approach is bold and comprehensive with 7 active projects advancing from pioneering monoclonal antibodies that aim to slow or even prevent disease progression to next-generation diagnostics using early biomarkers to detect kidney injury before it becomes irreversible.

This strategy is particularly relevant because kidneys compensate remarkably well as CKD develops. Current diagnostics primarily measure kidney function, not the cellular structural changes that occurred during the early stages of disease. As a result, at the time of diagnosis, more than 1/3 of nephrons, the kidney's filtration units, are already nonfunctional.

Despite this, our lead therapeutic assets can provide meaningful benefit within the existing diagnostic framework. While earlier detection and identification of CKD could unlock additional upside and help optimize treatment outcomes in the long term, it is not a prerequisite for the success of our current lead assets.

That said, enhancing diagnostics in this area will enable us to achieve ideal outcomes with earlier diagnosis and further expand the addressable market. This program applies our proven monoclonal antibody leadership to a completely new therapeutic category.

Success here, beginning with our first approval expected in 2027 for dogs, would establish Zoetis as the leader in a large new market just as we did with dermatology more than 10 years ago. And kidney disease is just the beginning.

Let's take a look at our next frontier, oncology. Cancer is the leading cause of death in dogs and another major unmet medical need in animal health. The Veterinary Cancer Society estimates that 1 in 4 dogs will get cancer in their lifetime. While treatments exist today, they are complex and are largely only available in a specialty setting. In addition, more precise earlier options for diagnosis will open even more options for targeted treatments and monitoring efficacy outcomes over time.

We're bringing transformative science from human oncology into veterinary care, combining our leadership in mAbs and diagnostics to make earlier cancer detection and targeted treatment accessible beyond specialty clinics, transforming how cancer is managed in everyday practice.

These product opportunities and our R&D strategy accelerates development, reduces risk and position Zoetis to create and lead a new therapeutic market in veterinary oncology. We are progressing toward initial approvals in 2028 and 2029.

And as we expand into oncology, we're taking those same insights and proven platforms to address another major unmet need, cardiovascular disease. Cardiovascular disease is an underserved need in animal health with limited effective options today. We are developing novel therapeutics designed for simpler dosing and better outcomes in sick animals, dogs with mitral valve disease and cats with hypertrophic cardiomyopathy.

These solutions will complement and improve upon what's currently on market. Where current drugs primarily treat the later stages of disease, we're building on validated science and proven modalities to move faster with lower risk and provide options for general practitioners to help detect disease earlier and slow its progression.

Looking ahead to 2030, cardiology offers yet another opportunity to define a new standard of care and expand Zoetis' leadership in chronic diseases and pets.

Thank you. And I'll now turn it over to Wetteny to show how these programs represent the next decade of value creation for Zoetis.

Thank you, Kevin. Everything you just heard reinforces the power of our innovation engine, how it drives growth today and our confidence for the future. Our focus is clear. turning scientific leadership into sustainable value for our customers, colleagues and our shareholders. That's what I'll take you through next.

Zoetis stands at the forefront of an essential, resilient and growing animal health industry. To appreciate the magnitude of the opportunity ahead, I wanted to underscore a few points you've heard this morning.

The industry itself is expected to nearly double over the next decade, driven by enduring trends like rising pet ownership, increased demand for protein and a greater focus on animal wellness. What sets us apart is our position to capture that growth.

Our science to scale model bring in discovery, development and delivery together, enables us to translate innovation into impact efficiently and reliably. And as Kevin outlined, our near and midterm pipeline is anchored in proven franchises and expanding into therapeutic areas like CKD, oncology and cardiology.

Together, these new areas represent more than $5 billion in total addressable market opportunity and position us to deliver meaningful innovation over the next 3 to 5 years, building on our legacy of creating markets and leading new frontiers in animal health.

At the same time, our long-range pipeline in next-generation biologics, precision medicine and diagnostics extends that runway well into the next decade. This gives us confidence in our ability to continue delivering sustainable top and bottom line growth, exceptional returns on invested capital and long-term value creation.

Just as our innovation engine drives sustainable growth, our disciplined approach to capital allocation fuels it. We invest with purpose, putting more resources behind R&D than anyone else in the industry and doing it where we can lead and create lasting impact. As you can see, our investment in innovation continues to grow in absolute terms, and we've done that while maintaining R&D at a consistent share of revenue.

It reflects how we sell innovation in step with the business, investing more, but doing it with focus. Our approach is grounded in insight. We anticipate evolving market and customer needs through close partnerships with veterinarians, producers and listening to owners, pet owners, ensuring our investment targets are areas of greatest need.

That focus gives us the conviction to stay consistent through every cycle, continuing to fund the science and innovation that fuel future growth and sustain our leadership regardless of short-term market shifts.

And we do this efficiently. Compared with human health, our development cycles are faster, success rates higher and our commercialization more targeted, which is a structural advantage that supports strong margins, high returns and the confidence to keep investing in what's next. And we'll continue to do it with the same commitment creating long-term value for our shareholders.

And our historical results speak for themselves. Over the past 5 years, we've delivered outstanding consistent performance with high single-digit growth, strong margins and leading returns on invested capital. These results reflects the strength of our model, grounded in strategic capital allocation, operational excellence and a portfolio built for durability and compounding value.

It's an effective formula. Investment focus, execute with precision and reinvest for the future. That rigor gives us confidence in our ability to sustain growth, expand leadership and continue creating long-term value creation.

Our market-leading return on invested capital is proof that our innovation model works, sustained by disciplined capital allocation that efficiently turn science into top and bottom line growth. This performance reflects more than scale. It's the result of R&D productivity, consistent execution and a portfolio designed to deliver high-value innovation year after year.

As you've heard us say, we expect a significant approval in a major market every year for the next several years, a clear demonstration of how that model continues to deliver. While others in pharma and health care have seen returns fluctuate, Zoetis has remained consistent and that's why investors choose Zoetis because of our ability to translate innovation into measurable, durable value isn't a moment, it's a model.

What we've heard today reinforces the power of Zoetis' innovation engine and our confidence in what lies ahead. We operate at the center of an expanding resilient animal health market with the science, scale and customer insight to capture growth and unlock new frontiers.

The dynamics shaping our industry's future are clear: aging pets, increasing medicalization, rising expectations for quality of care and growing global protein consumption, all expanding new markets and fueling steady growth in the categories we already lead.

These trends translate directly into greater demand for diagnostics, chronic care therapies and preventive solutions, each of which builds recurring resilient revenue streams and higher lifetime value per patient.

Our unmatched capabilities across R&D, manufacturing and commercial execution, create multiple pathways to solve unmet needs and deliver standard-setting therapies. This depth allows us to accelerate launches, extend life cycles and expand access, turning scientific leadership into sustainable financial performance.

By investing in precision and sustaining innovation through every cycle, we've built a derisked growth engine, one that compounds value across species, geographies and therapeutic categories. And we're pioneering the future of animal health because our customers depend on us, and we depend on animals. They sustain us, they nourish us, and they remind us every day why our work matters.

Thank you for joining us. Now we'll open it up for Q&A about what you've heard today about our R&D engine and pipeline.

Good morning, everyone. We will now move to the Q&A portion of our presentation today. Our first question is for Dr. Esch and from Dan Clark at Leerink.

Dr. Esch, will the long-acting Cytopoint have lower active ingredient versus the original?

Thank you for the question, Dan. So Cytopoint long-acting as well as the original Cytopoint are both separate molecules and the doses are defined based on the studies that we run throughout development over the 10-or-so year course of research and development.

And so these doses are set individually, and so comparisons on dose or duration can't be made directly However, long-acting Cytopoint will be effective for a much longer period of time to the 2.5- to 3-month interval versus our monthly Cytopoint.

Next question is for Kristin and from Mike Ryskin of Bank of America. Kristin, how do you think about cannibalization versus incremental revenue contribution from long-acting monoclonal antibodies, especially long-acting OA pain and Cytopoint?

Sure. Thanks, Mike, for the question. As we think about long-acting, we think long-acting in general, will expand the market for our products. I'll talk maybe a little more specifically about Lenivia, where we now have approval in both Canada and the EU.

We believe Lenivia will expand the opportunity for a few reasons. One, it will provide a more convenient option for pet owners who instead of having to come in every month, only need to come in now every 3 months. It also helps veterinarians have more flexibility to tailor the therapy for each individual patient.

We think we can continue to differentiate these in the market. And really, it will help expand the market. Obviously, there'll be some cannibalization as some people are excited to move to a 3-month therapy from a 1-month therapy. But we also think it will bring new customers to the market who really just can't imagine bringing either dog in every month.

These are obviously different molecules, they target a different area on the NGF. So one targets one for Lenivia that will be more long acting, and Lenivia will also do that with 10x lower the dose.

So we're excited in general for our long-acting portfolio. We believe it will expand the market, given its convenience and importantly, the flexibility it provides veterinarians to tailor the care that makes most sense for each pet. Thanks.

Thank you, Kristin. Our next question is also for you, Kristin and from Jon Block at Stifel. For renal canine mAbs, how do we think about revenue for 2027? Or is that more specific to 2028 as we think about the rollout?

Sure. As we think about the renal market overall, and I'll start this and I'll let Kevin build on this; the market overall is a $3 billion to $4 billion market. What you saw on the slides today, we're excited to get approval in 2027 for our first asset. But we have 7 assets, including both therapeutic as well as diagnostics. And so as always, we'll give you more information about specific revenue for each asset as we get the label for them.

But maybe if you have a chance, Kevin, can you talk a little bit about sort of how we think about that portfolio and what those different products will actually target?

Yes. Thanks, Kristin. So first, I'd like to highlight the importance of chronic kidney disease for pets. As we mentioned earlier, by the age of 13, roughly 80% of cats will have kidney disease. And that number is roughly 10% in dogs throughout their lifetime. So this is a serious unmet medical need in the veterinary community, for which there aren't great interventional options beyond palliative care.

Our approach is in the 7 assets that we have that encompass both therapeutics and diagnostic offerings are intended first to diagnose disease early; second, to intervene and delay the progression of chronic kidney disease; and thirdly, to intervene earlier at a point when we can intervene, where we can prevent the damage response of the kidney to injury over time, allowing for better longer-term outcomes.

The lead assets we have in this area are in the category of delaying disease progression. By addressing common pathways of degeneration in the kidney over time, we're able to delay the progression of kidney disease, extend the lifespan with a higher quality of life to the benefits of patients.

Okay. Thank you. Our next question is for Dr. Esch. Dr. Esch, when do you expect approval for Lenivia in the U.S.? And where are you in the regulatory process?

So we now have approval for Lenivia in both the European Union and Canada and expect launches in those markets for next year. Regulatory time lines can vary by region and by cadence, and it's important worthwhile to note that Librela was approved sometime in the European Union before the United States.

We are currently under active review with the U.S. FDA, and we'll continue to proactively work with the U.S. FDA to meet all regulatory expectations for approval. And we'll provide further updates as we reach milestones with the agency.

Our next question is also for you, Dr. Esch. What types of cancers are you working on or targeting for dogs?

Yes. So the most common cancer types in dogs are lymphoma, hemangiosarcoma, melanoma, osteosarcoma, mast cell tumors and memory gland tumors in unspayed female dogs. The tumors that we are initially pursuing are lymphoma and melanoma.

For lymphoma, we're pursuing an antibody that directly targets the neoplastic cell for removal, and that asset will be targeted to the lymphoma space. For melanoma, we are evaluating an asset that triggers the immune response towards the neoplastic cells. That provides a broader a broader spectrum of therapeutic options for this therapeutic, and we expect indications to build over time from melanoma.

In either case, these are some of the most common causes of cans and cause of death for dogs overall in veterinary medicine and a really important intervention for the standard of care for cancer patients for veterinarians.

Our next investor question is for Dr. Polzer. Dr. Polzer, could you provide more details on how Zoetis is leveraging AI to accelerate R&D?

Yes, absolutely. And thank you for the question. Within Zoetis, we're utilizing not only AI, but a series of digital tools to really help advance the full continuum of our R&D efforts. And I'll describe that in four examples.

At the very early stages of research, we utilize AI tools to help us with target identification. As we're assessing a new solution for our customers, we have many options as far as the biological target to go after. And the AI tools help us select those targets to ensure that we have a target that is safe, that would also be effective. And it accelerates our ability to select that target and validate that target early in the process.

As that program advances, we then use additional AI tools to help us in candidate selection. So we work with either therapeutics or biotherapeutics or small molecules or monoclonal antibodies as an example. And these tools help us select the optimal small molecule or the optimal large molecule monoclonal antibody that we assess for quality elements, safety elements, efficacy activities.

And again, this opportunity helps us provide an acceleration and an ability to move those programs along much more rapidly in the research space because we have fewer molecules to assess in that time of our research and development continuum.

As we advance into the clinical space, we brought in new digital tools, new databases that allow us to assess our clinical programs much more rapidly. And we've been really excited about a new clinical data management system that we've implemented this year that will help our scientists and clinicians assess the results of clinical trials much more rapidly and progress those programs through development much more rapidly.

And then finally, the last example I will provide are tools that we're using, so AI-driven tools, to help us with report generation and dossier preparation, again, speeding the activity and the work we do in that space, but as importantly, improving the quality of those documents that we provide to regulatory authorities. So thank you for the question.

Our next investor question is for Dr. Esch. Dr. Esch, you have long-acting Cytopoint approval for 2026 in your slide. Is that approval for the U.S. or the EU?

Yes. So we are currently -- and as we communicated at JPMorgan earlier this year, we are currently working with the USDA and anticipate conditional approval for long-acting Cytopoint in the latter half of 2026. Thank you for the question.

Thank you. Next question, also for you, Dr. Esch. Can you talk about some of the projects or how many projects you have in both CKD and oncology?

Yes. So currently, within the pipeline, we have 7 assets progressing for chronic kidney disease. Those range a space of our lead candidates or monoclonal antibodies as well as small molecules and diagnostics.

In the oncology space, we have 2 lead candidates and 5 projects overall progressing in the portfolio, targeted to various different tumor types as well as different aspects of treatment, including addressing the neoplastic cell or tumor itself, working to address metastasis to slow the spread of tumors and of cancer throughout the body, delay progression and improve quality of life and finally, palliation therapies on secondary aspects of the disease that may improve quality of life for patients and as well as for owners. Thank you.

Our next question is for Kristin. Kristin, did you say you're launching Lenivia's in the EU sometime in the first half of next year of 2026? How will you differentiate Lenivia from Librela?

Sure. Our focus on differentiating Lenivia is, first and foremost, the convenience that it provides pet owners from having to come in once a month, which for some pet owners can be challenging to coming in every 3 months.

And secondly, the differentiation would be around the veterinarian. So the vet can actually tailor the care for each pet based on what makes the most sense. Having a therapy that can be every 3 months, obviously, will expand the market. There'll obviously be some cannibalization as well.

And then we'll obviously have our vets will also talk a lot about how it's differentiated from the fact that it targets a different place on the NGF and with that, providing more longer-lasting care and doing so at 10x less the dose.

Our next question is also for you, Kristin. How do you think about the market opportunity across injectable parasiticides? How could this help to expand the market longer term?

Sure. I think what's exciting about parasiticides is it's an incredibly large category. It is the largest category in companion animal. And bringing new innovation to market really helps both pets and vets. As you think about our innovation, bringing in triple combination instead of having to take 2 pills taking 1 and having it taste great.

So there's lots of innovation constantly in this space. And we think as you think about long acting, and a long-acting combination products, we have long acting today as you think about our ProHeart portfolio, ProHeart VI and ProHeart 12. So we already have experience in long acting.

But we think what's going to really add value is finding combination long-acting therapies, again, providing convenience and importantly, compliance.

As we know, most pets do not receive their preventatives every single month, 12 months out of the year, and yet it really is a risk for the pet 12 months out of the year. So we think it will expand the market by having more dogs, having more compliance as well and finding it easier. So we're really exciting excited about the long-acting parasiticides combination market.

Thank you. Our next investor question is for you, Wetteny. What contribution to growth do you expect from your pipeline over the next several years?

I appreciate the question. And first, I just want to acknowledge, the examples you heard today really stand to make significant positive impact on quality of life of pets around the world, we're addressing significant unmet needs here. And clearly, these are areas that will drive significant contribution to our growth as we look ahead.

And as we launch -- get approvals for certain products and launch them, we will provide more specifics in terms of what contribution we expect in those years and what the pace of growth would be for each of those.

Thank you, Wetteny. Our next investor question is for Kristin and from Erin Wright at Morgan Stanley.

Kristin, how should we think about your ability to leverage your existing commercial and manufacturing presence as you roll out these new pipeline products? Also, do you need to invest significantly in commercial or manufacturing presence to do so?

Thanks for the question, Erin. I think one thing that has always been a strength for Zoetis is our scale globally and across species. And right now, as you've been seeing over the last few years, we've invested significantly in that commercial infrastructure across the globe as well as in our manufacturing infrastructure.

In fact, I would argue we have probably the greatest capacity in monoclonal antibodies for any animal health company in the industry. So I'm confident that we have the commercial infrastructure and the manufacturing infrastructure we need to really deliver on the pipeline you've seen today.

But it's not just the capacity, it's really the quality of our leaders across manufacturing, commercial and R&D that will bring that to life.

Thank you, Kristin. Next question also for you. Can you give any update on Librela returning to growth in 2026?

Thanks. Yes, we remain confident in the long-term growth potential of Librela, and we do expect Librela to return to growth in 2026. As we talked about on the earnings call, I would also note that, that growth will really be more in the second half as we'll face a challenging comp in the first half of the year.

Thanks, Kristin. Our final question comes from Brandon Vazquez at William Blair and is directed to Rob and Kevin.

What parts of the R&D flywheel are hardest for competitors to replicate? The space in the past few years has become increasingly competitive. So investors are often trying to understand what parts of Zoetis R&D is most unique and difficult to replicate.

Yes. Thank you for the question. And certainly, I'll have Kevin jump in as well.

What I would argue is that what really makes us competitive and difficult for competitors to replicate is the fact that we have the full breadth of capabilities within the R&D organization that we can tap into. So these not only offer commercial opportunities and solutions, but from an R&D perspective, having the ability to have diagnostics vaccines, therapeutics, biotherapeutics, genetics, all within the walls of an R&D organization allow us to tap into those capabilities very quickly to drive all of our programs very rapidly.

Combined and coupled with AI and digital solutions that we are putting in place and have been putting in place the last few years really help us to accelerate and deliver year-on-year from the R&D portfolio. So for me, those are some of the key areas for why we continue to deliver as we do and why our competitors have a challenge to keep up with us.

But Kevin?

So thanks, Rob. I would just add to everything you mentioned, our people, so we have a global scale as an organization. We have leveraged and have access to tremendous talent as a global animal health company.

I've worked around so many of our scientists from the time I was an individual scientist in the organization to where I am today. And I can say confidently that we have some of the most talented scientists working not only in animal health, but across scientific innovation in the pharmaceutical and biopharmaceutical industry in the world.

Utilizing that talent and accessing all of the capabilities that Rob highlighted is truly differentiating for us. And it gives us a tremendous opportunity not only to deliver value to the market, but improve the lives of the animals that all of us care so much about.

Great. Well, thank you all for joining us today, and I hope you share our excitement for what's ahead. These are our most robust pipeline disclosures to date, a clear reflection of the bold innovation and scientific leadership underway across Zoetis. There is tremendous opportunity in front of us, and we remain committed to leading with purpose and a relentless focus on impact. Thank you.

Good morning, everyone, and welcome to the Third Quarter 2025 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 2 hours after the conclusion of this call via dial-in or on the Investor Relations section of zoetis.com. [Operator Instructions]

I'll now turn the call over to Mr. Steve Frank. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and welcome to the Zoetis Third Quarter 2025 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 report 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, Tuesday, November 4, 2025. We also cite operational results, which exclude the impact of foreign exchange.

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

Thank you, Steve, and welcome, everyone, to our third quarter earnings call. Today, we reported 4% revenue growth and 9% growth in adjusted net income on an organic operational basis. thanks to the relentless focus and consistent execution of our colleagues across the world. Our International segment delivered 6% organic operational revenue growth with the U.S. contributing 3% growth excluding the impact of the MFA divestiture. By species, companion animal revenue grew 2% operationally and livestock organic operational revenue grew 10%.

As we anticipated, growth moderated this quarter driven by a strong year-over-year comp and macro factors, including vet clinic visits and promotional activity. Our resilient growth engine remains strong fueled by our market-leading innovation and pipeline, a diversified portfolio across species and geographies, global reach and trusted brands that continue to lead their categories and remain essential to veterinarians despite some near-term headwinds.

Now let's turn to our key franchises where we're continuing to drive growth and the market opportunities remain significant. In parasiticides, our Simparica franchise grew 7% operationally with 6% operational growth from Simparica Trio. Internationally, we delivered strong broad-based double-digit growth, driven largely by the continued strength of Trio across all regions, underscoring this strong and growing global demand. And Trio's most recent approval in Brazil further extends that momentum. Another example of how our innovation and geographical expansion continue to fuel the franchise's long-term growth.

In the U.S. while broader end market dynamics affected overall franchise performance, we continue to see solid growth in retail and home delivery channels, which drive compliance and convenience for head owners. Trio growth moderated against a strong prior year comp with continued strength in the alternative channels, helping to partially offset subdued clinic traffic. We continue to navigate a more competitive U.S. market and hold share with disciplined and focused execution.

Trio continues to set the benchmark in the category, supported by the broader strength of the Simparica franchise. Our first mover advantage, strong retail presence and customer loyalty position us well to sustain momentum across the portfolio. Parasiticides remains the largest category in Animal Health, and as the clear leader, we are competing from a position of strength with best-in-class innovation and high adoption, driving long-term growth. Our key dermatology franchise grew 3% operationally in the quarter reflecting the resilience of our differentiated and innovative portfolio.

In the U.S., growth was driven by applicable chewable adoption and strong retail performance offset by clinic softness and competitive dynamics in the category. Internationally, dermatology grew despite heightened competitive dynamics, including aggressive promotional activity tied to new product launches. At the same time, we continue to expand our differentiated portfolio with Apoquel chewable approved in Chile and Cytopoint receiving an expanded label in Brazil for allergic itch, again, reflecting our approach to geographic expansion and life cycle innovation that support sustained category growth.

As expected, we saw some minor share shifts during these launch periods, however, we're confident our portfolio will maintain its position as a preferred choice among customers. Even with this competitive backdrop, the overall opportunity in dermatology remains significant. More than half of critic cases globally remain untreated, and we see substantial runway for continued growth and market expansion.

In the quarter, our osteoarthritis or OA pain franchise declined 11% operationally. In addition to impact in the U.S., our performance in primarily English-speaking international markets has also been affected by MIP perceptions amplified on social media, contributing to a 15% operational decline in global Librela sales. We are executing a focused multipronged strategy to return Librela to growth. First, we're increasing awareness that OA is a serious progressive disease requiring early and proactive care to control associated pain and improve a pet's quality of life.

Second, we're deepening education and engagement with specialists and veterinarians to reinforce Librela's positive risk-benefit profile and real growth impact. Third, we're continuing to share clear science-based information and amplify the overwhelmingly positive experiences people and pets are having. Finally, beginning in Q4, our Phase 4 research conducted through independent third-party studies aimed to provide vets and specialists with even greater confidence in Librela.

We are encouraged by recent trends showing signs of stabilization, supported by strong satisfaction among the majority of pet owners, giving us confidence in the actions we're taking to support recovery and then how we're applying those learnings to future launches. To that end, we are excited about the first market approval of Lenivia, a distinct long-acting molecule for dog that offers greater choice and flexibility for veterinarians and pet owners in Canada, with a launch expected there in the first half of 2026.

We also received a positive CVMP opinion recommending marketing authorization in Europe. In addition to that, we received European approval for Portela, our long-acting monoclonal antibody for feline OA pain with the launch also expected in the first half of 2026, further extending our leadership in chronic pain management across species. These milestones highlight the durable strength of our innovation engine and our ability to advance a deep pipeline from approvals through launch and we anticipate a major new market approval each year for the next several years. Together, Librela, Lenivia, Solensia and Portela for a next-generation OA pain portfolio, unmatched in its depth and scientific innovation, offering flexibility, reaching a broader patient population and reinforcing the long-term growth trajectory of this important and underpenetrated market.

To enable growth in this expanding portfolio, we're continuing to invest in manufacturing excellence including our new Atlanta Advanced Biologics facility and expanded monocle antibody production capability, ensuring that every innovation we bring to market reaches veterinarians and pet owners with a [indiscernible] viability and scale they expect from Zoetis. Beyond our product portfolio, we're evolving our U.S. commercial structure to better serve customers and enhance our agility and efficiency building on the strength of our key companion animal franchises and the critical role in veterinary practices.

As the U.S. pet market expands, expectations for more personalized convenience and enhanced care continue to rise. To better meet those needs, we're implementing a go-to-market model that sharpens our focus and simplify our structure. The result will be a leaner, more agile field organization with single point of contact coverage, expanding our reach and frequency and deepening engagement with our customers. We expect this model will support growth and bolster our competitive positioning, and we will continue evaluating opportunities for similar enhancements across the business into 2026, ensuring we continue delivering the best experience for customers and the strongest value for shareholders. We look forward to sharing updates on our progress.

In livestock, organic operational revenue grew 10% in the quarter, reflecting broad-based growth across geographies and species, and we're on track for a third consecutive year of above-market growth in 2025 supported by strong execution and resilient market demand. As an example, poultry continues to benefit from focus and vaccine-led growth following the MFA divestiture with deeper penetration among key accounts, market expansion and growing adoption of Procerta across multiple regions. This progress reflects the strength of our strategy, advancing innovation strengthening partnerships and ensuring our portfolio meets the evolving needs of producers worldwide.

Rising protein consumption and the growing role of fish in the global food supply continue to reinforce the long-term fundamentals of this business. And beyond strong performance, we continue to live our purpose through innovation, demonstrated by the speed and effectiveness of our response to emerging zoonotic diseases including recent approvals related to HPAI and New World screwworm.

Turning to guidance. We are updating our full year outlook based on our year-to-date performance and expectations for the remainder of the year. For organic operational revenue, we're revising and narrowing our range to 5.5% to 6.5%, given a more measured view of the macro and operational environment in the back half of the year. We're also narrowing our organic operational adjusted net income growth range to 5.5% to 7%, supported by continued cost discipline with a balanced approach to investment that enables us to sustain strong profitability and deliver shareholder value even amid near-term variability.

Overall, we have the right portfolio, the right strategy and deep connections with customers and pet owners, positioning us not only to navigate the current environment but to capture the significant opportunities ahead. And we're delivering on the commitments we've made since outlining our innovation time line in January, we've executed on or ahead of schedule.

We are continuing to differentiate our portfolio with more than 130 geographic expansion and life cycle innovations this year, several of which you can see in today's slides. Our ability to deliver on our commitments continues to define Zoetis and position us to create significant value for shareholders. It's how we build trust year after year with customers, colleagues and investors alike. We are confident that Zoetis has the most robust comprehensive pipeline in animal health, advancing care across every category and stage, powered by innovation and purpose, we're shaping the future of animal health and creating entirely new categories of care.

And with that in mind, as we announced yesterday, Rob Polzer, our Head of R&D, will retire following a 10-year distinguished career at Zoetis, advancing our innovative pipeline. We are grateful for Roth's incredible contributions. Rob will remain in his role until the end of the year and following his retirement at the end of February will be available to Zoetis as a scientific adviser until the end of 2026, ensuring a smooth transition and continued momentum for Zoetis' pipeline.

We are excited to appoint Kevin Esch as Rob's successor, effective January 1. Kevin has held a series of influential roles in our R&D organization over the last decade and is ready to step in and lead Zoetis' R&D into the future. Kevin has demonstrated a lifelong commitment to advancing animal health. Before joining Zoetis, Kevin was a practicing veterinarian and practice owner for more than 10 years and has a strong scientific background with formal training in public health, immunobiology and pathology.

I hope you'll join us on Tuesday, December 2 at 8:30 a.m. Eastern Time for an innovation webcast where we will provide investors with the latest pipeline updates and the progress we're making to move the industry forward with a resilient business and unmatched pipeline and significant market potential, we remain confident in Zoetis' long-term growth trajectory.

And with that, I will turn it over to Wetteny.

Thank you, Kristen, and hello, everyone. Let me now provide some additional insights into our third quarter results. We posted $2.4 billion in revenue in the third quarter, growing 1% on a reported basis and 4% on an organic operational basis. This was primarily driven by price as volume was flat in the quarter. As Kristin noted, we anticipated that growth would moderate as we entered the second half of the year. Adjusted net income of $754 million was 5% on a reported basis and 9% on an organic operational basis.

Our global companion animal portfolio posted revenue of $1.7 billion growing 2% operationally in the quarter. On an operational basis, our Simparica franchise contributed $356 million, growing 7% and key dermatology posted $469 million, growing 3%. This growth was partially offset by our or pain franchise, which declined 11% operationally to $138 million. Our global livestock portfolio grew 10% on an organic operational basis in the quarter, contributing $725 million in revenue with strong balanced performance across segments and species.

Again, these results reflect the continued resilience of our business following last year's strong comparison, and they reaffirmed the solid fundamentals driving our growth. Even amid near-term challenges, our core strengths market-leading innovation, a diversified global portfolio in trusted brands continue to position us well for future growth and market expansion.

Now moving on to our Q3 segment results. As expected, growth moderated in the U.S. as we enter the second half of the year, with revenue down 2% on a reported basis and up 3% on an organic operational basis. Companion animal was flat and livestock grew 14% on an organic operational basis. This moderation primarily reflects the strong comparable period in companion animal, particularly in derm and parasiticides. In the vet channel, we continue to believe clinic revenue is more impactful to our growth than overall visits.

That said, we saw declining visits across all major therapeutic areas during the third quarter, which impacted new patient starts. Meanwhile, the distributor inventory dynamics we discussed earlier in the quarter, normalized by quarter end and remain near the low end of the [indiscernible]. The U.S. companion animal business was flat in the quarter with growth in our Simparica and key dermatology franchises, offset by declines in our OA pain meds. Our Simparica franchise grew 2% in the quarter to $263 million in revenue.

Our performance builds off a strong comparable period in the prior year where we saw 27% operational growth, driven by a more disciplined approach to our promotional strategy. Growth in alternative channels continues, fueled by pet owner preference and higher compliance. This strength has helped sustain Simparica Trio's momentum despite continued softness in the U.S. vet channel. As the leader in triple combination parasiticides, the fastest-growing segment in animal health, Simperica Trio is well positioned for continued growth. driven by our first-mover advantage, world label and strong market presence.

Key dermatology sales grew 1% to $306 million, with growth in Apoquel being partially offset by declines in [indiscernible] due to lower dermatology clinic visits. Our growth in the quarter primarily reflects the impact of the initial distributor stocking of the Apoquel film-coated tablet, which was made available to distribution in September. In addition to a strong comparable period in the prior year, we saw modest share loss in the U.S. derm space, primarily driven by competitive discounting and sampling related to new product launches.

Based on our experience, these impacts are typically short-lived, and we remain confident in the value of dermatology portfolio provides to vets and pet owners and that our pricing aligns with the quality and outcomes we deliver. We are well positioned to grow and expand the dermatology market moving forward, anchored by our 3 differentiated brands with a proven track record of safety and efficacy and an estimated 11 million medicalized dogs that remain untreated or undertreated for itch in the U.S. alone.

Our OA pain products saw a decline of 21% in the U.S. on $58 million in sales. Librela posted $41 million in revenue for the quarter, a decline of 26% versus Q3 of last year. Kristen highlighted our multipronged strategy to return Librela to growth and we are confident that the actions we are taking will help reaccelerate adoption. Additionally, I will echo that we are seeing early signs that Librela is beginning to stabilize. While this is an early read, we continue to see high satisfaction scores among vets and pet owners who use level, reflecting the meaningful and positive impact this product has on those living with OA.

Solensia revenue of $17 million declined 4% in the quarter. Despite the decline in this quarter driven by fewer new patient starts, we remain optimistic about the untapped market potential of the fee line OA space. where currently only 15% of effective cats are receiving treatment. Our U.S. Livestock business posted broad-based organic operational growth of 14%, with almost all major brands showing improvement in the quarter. Our performance was primarily driven by improved supply of setter. Additionally, as Kristin mentioned, we have seen an acceleration in our lifelike vaccines, both MSA divestiture due to increased field force focus.

Moving on to our International segment. Revenue grew 3% on a reported basis and 6% on an organic operational basis. Companion animal grew 4% operationally, and Livestock grew 8% on an organic operational basis. International companion animal growth was driven by our Simparica and key dermatology franchise. Our international Simparica franchise grew 22% operationally or $93 million in revenue with double-digit growth across both brands. Simparica Trio grew 32% operationally to $41 million in sales bolstered by an increasing standard of care in many international markets. Simparica grew 15% operationally to $52 million in sales.

Growth remains strong, especially in markets that have not yet adopted triple combinations will then have low hardware equivalence. Our key dermatology franchise grew 7% on an operational basis, posting $162 million in revenue, driven by both Apoquel and Cytopoint. Growth was driven primarily by Europe, where we continue to see expansion in new patients and increased compliance in chronic cases. While we saw a share loss to competitors in certain international markets, these declines like those in the U.S. are losses driven by launch promotions. We continue to see significant room for expansion in our international markets and remain confident in our differentiated franchise of products continuing to be first-line treatment.

Our OA pain mAbs declined 3% operationally in international markets on $80 million in revenue. International Librela sales were $62 million, down 6% operationally in the quarter. As Kristin highlighted, we continue to see perception challenges primarily in English-speaking countries and are implementing many of the same U.S. tactics to return to growth. Solensia sales grew 9% operationally to $18 million. Solensia's adoption continues to expand as the product redefines the standard of care for free line osteoarthritis, supported by strong and sustained vet satisfaction.

We are excited about the recent European approval of our long-acting feline OA pain mAb, Portela. Portela's extended dosing interval delivers meaningful quality of life benefits for cat and pet owners alike, aiming to drive stronger treatment compliance. International livestock grew 8% on an organic operational basis in the quarter, with broad-based growth across all species. In cattle, growth was driven by both price and volume across the portfolio.

Poultry continues to benefit from focus and execution on vaccine growth. Additionally, we saw increased key account penetration across most geographies. Finally, Fish was driven by price increases as producers recognize the value our products provide in driving healthier fish and lower mortality rates contributing to higher yields.

Now moving on to the rest of the P&L for the quarter. Adjusted gross margins of 71.6% grew 90 basis points on a reported basis. Foreign exchange had a favorable impact of 20 basis points. Excluding the impact of foreign exchange, we saw higher margins due to favorable impact of our MFA divestiture as well as benefits from price. Adjusted operating expenses increased by a modest 1% operationally, reflecting our ongoing commitment to cost discipline in a dynamic and inflationary environment.

Adjusted net income grew 5% operationally and 9% on an organic operational basis. Adjusted diluted EPS grew 7% operationally in the quarter and 12% on an organic operational basis.

Now moving to guidance for the full year 2025. Please note that guidance reflects foreign exchange rates as of late October and does not assume any impact of future tariffs or policy changes. We are revising our full year revenue guidance to a range of $9.4 billion and $9.475 billion and organic operational growth of 5.5% to 6.5%. It's on a more measured view of macro and operational trends in the back half of the year. We now expect adjusted net income to be in the range of $2.8 billion to $2.8.4 billion, reflecting a narrowed organic operational growth range of 5.5% to 7%.

Finally, we are maintaining our reported diluted and adjusted diluted EPS guidance range of $5.90 to $6 and $6.30 to $6.40, respectively. We are operating from a position of strength, supported by the broadest portfolio in the industry, even while we are navigating some temporary headwinds. We remain confident in the long-term growth potential of both our business and the broader animal health market.

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

[Operator Instructions] We'll go first this morning to Erin Wright of Morgan Stanley.

Great. So first, I just wanted to know kind of what meaningfully changed for you kind of on an intra-quarter basis after you raised guidance last quarter? And what were some of the key surprises that you saw, whether it's competition or destock or otherwise. But also on competition, just you mentioned some of the competitive dynamics in dermatology. I'm just curious how you're seeing practices at this point, how they're looking at the category? Are they carrying both JAK inhibitors in some of those certain international markets that you were talking about?

And what do you have embedded now in terms of competition? Like do you think that guidance is conservative enough at this point? And should we anticipate a continuing impact as we head into 2026. How does that fit into your typical 6% to 8% top line growth guidance that you would typically give as we head into next year just given where it's tracking below that year-to-date?

Yes. Thanks, Erin. Look, clearly, as we entered the year, we expected some deceleration in the back half of the year compared to how we would start 2025. Certainly, in the quarter, what we saw besides the really strong comp that we anticipated and factored in, besides anticipating competitive launch dynamics in terms of aggressive promotions, we factored into our thinking coming into the year. We certainly saw a bit of a macro impact, particularly in U.S. clinics.

Over the last 3 quarters, we've seen therapeutic visits. As you know, overall visits are not a great gauge for our growth. But therapeutic visits certainly are, and you need those to at least start patients before we can have multiple channels to fulfill those. And so we saw 3 quarters in a real therapeutic visit pressure that has certainly impacted where the quarter landed, and we factored those into our thinking in terms of the remainder of the year and the guidance that we have provided today.

To your point around guidance for 2026, as you know, we will look forward to providing that in February. However, I don't see how we're exiting the year in the fourth quarter to be a readthrough to what 2026 will be. I think there are a few pieces here that I think are worth considering. For one, we would typically see price contribution. And as you know, we have consistently done that over the years. where typically we're in the 2% to 4% range. We've been above that. If you look at the last couple of years, certainly, and this year, we're running closer to 4%. And I think we can see us in the range that we typically would operate in from a price perspective.

Despite what we see historically as launch period aggressive promotions, we have high confidence in continuing to grow our key franchise areas, particularly derm and parasiticides given the significant unmet market opportunity in both of those areas. So we see those driving growth for us as you look ahead. And as you said in prepared commentary, we've seen signs of stabilization from a Librela perspective, which certainly has been a headwind for us throughout this year, but particularly in the back half of this year. and the comps have been very strong in Q3 and Librela comp in Q4 remains relatively strong. So as we see signs of stabilization here, we would expect a return to growth in 2026.

And a couple of other things I would say here, Erin, is that livestock has continued to demonstrate strength for us. You've seen now in our third year of consecutive growth above market, and we anticipate continuing to see growth in livestock in 2026 as well. So those are the reasons why we would say the exit of this year is not indicative. In terms of where '26 is, though, we're not prepared to give guidance here at this time.

We'll go next now to Michael Ryskin at Bank of America.

I want to stick on that topic of what's changed. I mean I hear your answer with me on some of the macro and some of the vet dynamics. I think the pushback I have is that we've seen that be a challenge in the end market for several years now. I think I mean it's 2022 and 2023, where they really started being the case. And Zoetis has really consistently been able to put up better numbers than that in companion in the U.S. really through the second quarter, surprisingly strong.

We've heard you guys speak a thousand times about how you're insulated from some of those vet challenges about the importance of medication, about some of the alternate channels that you're able to build to and all of that has been able to sustain that growth. So it really is a pretty striking change in the companion outlook in the U.S. and globally, sort of what we've seen over the last couple of years versus 3Q.

So I was just wondering the timing with competition coming on you mentioned some of that, but that could be playing a bigger role because that would indicate a little last longer. Just wondering if you could maybe dive in some of those changes a little bit more.

And then as a follow-up, you alluded to some of the intra-quarter dynamics being short living by the end of the quarter, seeing better trends. Just anything you could say on distributor levels inventory levels among some of your customers. Can you just sort of thought on that as you look to the fourth quarter and again into next year.

Yes, sure. I'd love to start and see if Kristin wants to add anything in terms of the macro in terms of what we're seeing. Certainly, as you highlighted, Mike, over the last several years, you've seen overall visits being down. and, in fact, down more than they were in the quarter. We think overall visits were down somewhere just of 2% in the quarter. And you've seen worse than that historically. What is different, though, is we have seen over the last 3 quarters, therapeutic visits being down.

If you recall last year, despite overall business being down, Derm business were up about 3% or 4% on the year. And OA pain visits have been up, particularly since we launched our OA pain products in the U.S. That has turned this year. Certainly, you've seen that impact therapeutic visits. I think flea, tick, heartworm, which are wellness visits have consistently been down, but they've been more than offset by what's happening in the alternative channels if you look at the last 3 years.

So the difference here is the therapeutic visits, particularly when you look at derm as well as retain that are translating to fewer patient starts and certainly, we're starting to see that have an impact here. Now what is encouraging is we continue to see really strong growth across alternative channels. Those grew about 21% on the quarter. And within that, is actually home delivery coming from vet channels as they continue to see opportunity to really drive and meeting the patients where they are. We are seeing momentum in that area as well. It grew about the same rate as retail within the quarter. Again, something we'll continue to encourage and watch as well as work with our vet clients to continue to drive.

So I think those elements certainly continue to be there and are supportive of the business. However, I think what we're seeing in terms of therapeutic where the impact has been. And I think it's a bit of a combination of really significant price increase that our customers have taken over the last few years, both across their products as well as services that is different from our price that we give to them. And we're seeing that impact, particularly the larger corporate accounts as well as we look at the numbers.

So sitting here, if you look at our portfolio, have the broadest portfolio in the industry, certainly, our innovation engine continues to cooperate the most productive in the industry as well. So we're confident in our ability to drive growth as we look at the long term, again, why we don't see the fourth quarter as an indication for '26 in particular, and that those give us a lot of profess we look ahead. In terms of distributor inventory levels, we did highlight those in the middle of the quarter.

We have some distributors take -- move -- shift their inventory levels down into a quarter. It did recover within the quarter. And just to put it in the context, Mike, since the beginning of 2023, we have been operating at levels that are below the low end of the range in terms of level of inventory and distribution. We have remained there even as we exit the quarter. So while the dip even further below where they have been operating in the last few years, they did recover back, but the level is still below where they have been historically.

We'll go next now to Jon Block with Stifel.

Sorry to sort of harbor the same thing. But cash you on the 4Q '25 exit not being sort of indicative for '26. We're calcing [indiscernible] implied 3% organic operational in 4Q. Hopefully, we've got that right. it's off of a comp that eases materially. But just to take a step back, I would think that sort of implies 0-ish volume in the back half of '25. You said volume was 0 this quarter, price was up $4. So if you think about like 0 valves in 2H '25, competition increasing further in some key franchises, notably derm, we never know exactly what's going to happen, but that seems to be the case why wouldn't that be indicative? In other words, what changes between the price/volume algo does price go higher? Or does valves balance and it follows bounce why would that sort of a backdrop.

Yes, John, I'll start. Look, I think what we said in terms of the fourth quarter exit and you're roughly right in terms of your calculation. I'll remind you of a few things. And again, at the risk of being repetitive on this to some extent. We are exiting with -- though we have year-over-year comps with respect to Librela that continue to be challenging we are exiting with that showing signs of stabilizing. And so again, we expect that to turn to growth as we get into 2026.

Look, we came into this year expecting to see some competitive pressure as they launch their products and are looking to gain some traction given the high satisfaction level we have in our products in the number of years that we have -- particularly when you think about derm. We've been in the market for 11 years. We're roughly 120 million doses in when you look at a combination of Apoquel and Cytopoint. The [indiscernible] fashion with customers, both pet-owner as well as vets is very, very high. So competitors, as they launch their products are up against that strong position and are, as we anticipated, being very aggressive to look to get positioned. And if you look at where they are from a patient share perspective, it's still very limited.

Now I think this is where the macro comes in. And I think if you look at the macro in a market where you're seeing fewer therapeutic visits, then the impact of those competitive pressures will be felt a little bit more than when you have extension. Now if you look at derm and International, that grew 7% on the quarter. And that's despite in certain markets where you've seen very aggressive competitive pressure, but you are seeing expansion of those markets. And while I want to sit here and predict how long the macro will be there. our position, though, in terms of our products in our portfolio couldn't be stronger.

And so again, I don't see this as a permanent feature. And as you've seen historically, these initial launch promotions tend to be short-lived. And so we'll make adjustments where we see necessary, but we'll be disciplined as we execute in this market. we've been there before. And so we'll continue to do that, and we're very strong in terms of our portfolio as well as with coming in terms of where we're starting to see approvals on already.

We'll go next now to Brandon Vazquez at William Blair.

I wanted to switch a little bit and talk about the new long-acting OA drugs that have been approved or are upcoming. The question being -- but clearly, Librela has launched didn't go as planned. I think the safety and efficacy stands behind it, but social media kind of got a little bit ahead of the drug and impacted its adoption as we're seeing, what have you guys learned what's going to change as you launch these new long-acting OA drugs because a successful launch of these into 2026 feels like it could be one of the key levers to remain within that 6% to 8% organic growth that you guys have talked about for a long time.

Just curious on thoughts on what that launch might look like relative to what Librela was? And what gives you the confidence that can kind of have a more successful ramp from there.