Welcome to the Third Quarter 2024 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. You can manage the presentation slides yourself, as they will not be forwarded automatically. A replay of this call will be available approximately two hours after the conclusion of the call via dial-in or on the Investor Relations section of zoetis.com. 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 third quarter 2024 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, Monday, November 4, 2024. We also cite operational results, which exclude the impact of foreign exchange. And with that, I will turn the call over to Kristin.

Thank you, Steve, and good morning, everyone. Thank you for joining our 2024 third quarter earnings call. Let me start by thanking our dedicated purpose-driven colleagues who helped us deliver another excellent quarter. Building on the strong momentum from the first half of the year, revenue grew 14% operationally and adjusted net income is up 15% operationally. We saw balanced double-digit growth across the business. Driven by steady demand for our key franchises, U.S. grew 15% and international revenue grew 13% operationally. Our innovative companion animal portfolio grew 15% operationally, while livestock grew 11% on an operational basis. Our consistent growth is fueled by a diverse, durable, and science-driven portfolio, carefully crafted through a deep understanding of our customers' evolving needs. By maintaining a strong focus on innovation, we set the standard for improving patient outcomes, higher customer satisfaction, and strong partnerships with veterinarians and pet owners. Our osteoarthritis pain franchise, Librela and Solensia, continues to make a transformative impact by addressing a critical unmet need, delivering 97% operational revenue growth globally. From our conversations with customers around the world, it's clear that our safe effective solutions are making a meaningful difference in patients' lives. We recognize the profound impact of our work, which only strengthens our commitment to developing this market. We have navigated this path before and understand that building a new category of care requires a steady strategic approach. As we lap the U.S. Librela launch, we continue to grow share, even in a market where canine pain visits typically slow down from Q2 to Q3. In fact, Librela is actively disrupting this trend by driving more clinic visits and increasing engagement. With $55 million in U.S. quarterly sales, we see significant opportunity to further expand share and utilization. In just 11 months, we have treated 1 million dogs, compared to an estimated 8 million receiving other treatments, and Librela has already become the fourth largest product in U.S. pet care. This highlights the demand and long-term growth potential, reinforcing our confidence in the franchise's $1 billion trajectory. With record market penetration in the U.S., we're only scratching the surface of broader utilization potential. We estimate that an additional 17 million dogs are suffering from untreated OA. That's because before Librela, NSAIDs were the only option for vets, which many untreated dogs could not tolerate due to pre-existing conditions. Globally, Librela opportunity is equally significant, with OA pain estimated to affect nearly 40% of dogs. And importantly, in the U.S., we see a similar non-linear growth curve to Europe, where revenue grew 18% operationally year-over-year, in year four of launch. Given our results there, we are poised to create and expand this market domestically. Drawing on that experience is key to positioning Librela as the preferred pain treatment by highlighting its safe, effective, and convenient choice for vets. We will leverage our strong partnerships and continue collaborating with veterinarians to expand treatment adoption, shifting away from two decades of reliance on NSAIDs. Results and trends like these reaffirm what we've long understood. The human-animal bond is undeniable. Today's generation of pet owners see their pets as integral members of their family and expects human-quality care. Monoclonal antibodies, increasingly important in human health, are a prime example of how we are bringing that same kind of innovation to animal health with treatments like Librela and Solensia. Our Simparica franchise continues to deliver impressive results as well, growing 27% operationally. While our science-backed innovations have created entirely new categories in animal health, we have also set the standard for competing in established markets. Through close collaboration with customers, we understood that overcoming first-mover advantage requires two differentiations, and long-term loyalty is earned with products that stand out in both safety and efficacy. The success of our Simparica franchise expanded the total parasiticides market and demonstrated that improving patient outcomes is not zero-sum, especially with significant unmet needs. In 2020, we pioneered the U.S. triple-combination parasite market with Simparica Trio, offering comprehensive protection against fleas, ticks, and heartworms in one monthly chewable. Trio is now the number one vet-prescribed parasiticide, with over 13 million dogs treated in just four years, and 86% of pet owners report high satisfaction. Despite increased competition, Trio prescription rates continue to climb as triple-combination products are gaining share, supported by our field force's scale and excellence in driving customer engagement. And our commitment to making our products accessible through the most convenient channels for pet owners has solidified Trio's retail leadership. Looking ahead to 2025, we anticipate a dynamic landscape, but perceive two key outcomes. First, consistent with historic trends, the overall addressable market will grow. Second, having more options will accelerate education of vets and pet owners. Increasing awareness of the benefits of broad-spectrum protection will drive conversion to triple-combination treatments. With our significant head start, proven efficacy, and convenience, along with our trusted relationships, we believe Simparica Trio will remain the preferred choice, even as new products enter the market. Similarly, 16% operational revenue growth across our key dermatology franchise demonstrates how disruptive innovation and strategic lifecycle enhancement drive sustained growth. Over a decade ago, we identified a crucial unmet need in veterinary medicine, a solution for canine dermatological itch that balanced safety and efficacy. Itch impacts the well-being of both pets and their owners. It's heartbreaking to see dogs struggling to find relief from persistent discomfort. We were first to address this challenge. Thanks to our relentless focus on innovation and execution, in just a decade, the market grew from $70 million to over $1.5 billion and growing. But we didn't just enter the market; we built it, cultivated it, and continuously evolved it, creating the industry's first $1 billion franchise. As a result, today, Apoquel is the number one prescribed medication in animal health, and the market and our customers have grown alongside us. And when vets wanted other options, we delivered truly differentiated first-line treatments like Cytopoint, the first monoclonal antibody to treat itch, and Apoquel Chew, a convenient chewable that enhances compliance. These therapies are trusted by veterinarians worldwide, bringing relief to over 23 million dogs globally, and we believe they are the best treatment options. And it's not only our product portfolio that sets us apart; it's our customer-focused approach to development. Vets trust our products for their rigorous safety standards and confidence in dosing regimens that allow for chronic uninterrupted use. Our research-driven approach to JAK inhibition selectively ensured that our treatments can be used safely alongside other medications, including vaccines. With over 20 million dogs globally with untreated or undertreated itch, the derm market growth potential is vast. Our proven performance reflects our commitment to expanding access and providing trusted first-line solutions. Similar to our experience in paras, we expect optionality will grow the overall market, a market where Zoetis has two first-line treatments that are known for being safe, effective, and trusted. Even with alternatives, satisfied customers are far less likely to switch, and we continue to deliver the solutions they trust and rely on. Innovation, execution, and a relentless focus on customer needs are the cornerstones of our key market-leading franchises. Turning to livestock, we recently closed the sale of our Medicated Feed Additive and certain water-soluble product portfolios to Phibro Animal Health. This transaction is a prime example of Zoetis' disciplined capital allocation strategy, allowing us to focus our investments on areas with the highest-growth potential aligned with our core capabilities. We remain deeply committed to livestock, sharpening our focus on key areas of innovation, including preventatives, antibiotic alternatives, and genetics. For example, in September, we announced a strategic partnership with Danone to leverage Zoetis' genetic testing capabilities in promoting sustainable dairy production. This collaboration aims to help dairy producers and Danone's global supply chain improve animal health and productivity with a focus on animal well-being. This strengthens long-term industry resilience while also reducing environmental impact. Looking ahead, we anticipate the livestock industry to grow 2% to 4% annually, and we aim to be at the higher end of that range. Innovation will be a key driver of that growth. And to that end, we have updated our guidance to reflect strong performance across our key franchises, along with impact primarily from the MFA divestiture. Wetteny will guide into the details there. With 12% operational revenue growth through the first three quarters, we have outpaced our initial expectations, a testament to our agility in navigating a complex environment. As we look to Q4, we anticipate a return to our previous levels of above-market growth and remain on track to meet our revised full-year guidance with strong momentum going into 2025. This quarter's results highlight the strength of our diverse, durable portfolio and unwavering commitment to delivering for our customers. Before I close, I want to extend my sincere gratitude to our colleagues. They embody our purpose, support our customers, and drive our exceptional performance. Their dedication is what truly makes the difference. With their passion and commitment, we feel positive about our ability to deliver on the four key tenets of our value proposition: to grow revenue faster than the market, to invest in innovation and growth capabilities, to grow adjusted net income faster than revenue, and to return excess capital to shareholders. With that, I'll turn it over to Wetteny.

Thank you, Kristin, and good morning, everyone. To reiterate, innovation and execution drove an excellent third quarter, supported by the strength of our diverse portfolio. We achieved another quarter of double-digit operational growth across species and geographies. The impressive performance of our companion animal portfolio demonstrates pet owners' willingness to invest in their pets' health, reflecting the value of our products for both pet owners and veterinary practices. Our livestock growth highlights the increasing demand for animal protein globally and the vital role our products play in maintaining herd health. In essence, we provide essential solutions central to animal health. Our success is directly linked to our customers, and our innovative products continue to enhance the growth and success of their practices. In the third quarter, we recorded $2.4 billion in revenue, an 11% increase on a reported basis and 14% operationally, with volume contributing 8% and price 6%. Adjusted net income of $716 million rose 14% on a reported basis and 15% operationally. Our revenue growth was primarily driven by our innovative companion animal portfolio, with OA pain monoclonal antibodies contributing $151 million. The Simparica franchise generated $333 million, and our significant dermatology franchise contributed $449 million. Our lifestyle portfolio also showed strong growth with $758 million in revenue. In Europe, our OA pain monoclonal antibodies, Librela and Solensia, after just 3.5 years in the market, have become the leading treatments for OA pain, expanding the market by providing more treatment options. Many of these patients were previously untreated due to NSAID intolerance. Librela's expansion into this group in Europe and the U.S. presents a significant market growth opportunity. Despite a decrease in overall U.S. clinic visits, especially for prescription-only visits moving to alternative channels, therapeutic visits for OA are growing. Librela has introduced nearly 0.5 million new patients to the OA pain category in the U.S. since its launch, establishing a new standard of care. Our success with the Simparica franchise underlines our ability to address the changing needs of pet owners by offering effective products through convenient channels like retail, where Trio is the top-selling pharmaceutical. Parasiticides are the largest and most competitive category in animal health, and we have significantly increased our market share by being the first to market in the U.S. with a trusted differentiated product. Since Trio's launch, we have progressed from being fifth in this category to second, establishing clear leadership in triple combinations. In the first year competing in the U.S. triple combinations, we saw revenue growth exceeding 25% and an increase in our market share. We estimate that nearly 60% of medicalized dogs are not currently on triple combination products. The growing presence of new entrants should speed up the shift towards these combinations, where we hold a first-to-market advantage. We are also winning with puppies, as Trio has become the preferred choice for these new patients, indicating strong growth potential. Earlier, Kristin pointed out the careful balance between safety and efficacy in our key dermatology products. Apoquel has fulfilled this need and quickly established itself as one of the most important products in clinics. We recognized our customers' desire for more convenient dermatology treatment options and have delivered on that. We offer multiple derm products with unique value propositions for both veterinarians and pet owners. All of our products are suitable for acute, seasonal, and chronic cases and have years of proven satisfaction from veterinarians and pet owners. As we face new competition, we are confident in our growth trajectory. We have a solid track record of defending our established brands, and we believe our portfolio of first-line treatments remains critical in veterinary clinics. Moving to segment results, U.S. revenue increased by 15% in the quarter, with companion animal revenue up 18% and livestock revenue rising 5%. The strong performance in U.S. companion animals was driven by our OA pain monoclonal antibodies, the launch of Librela, continued adoption of Simparica Trio, and our key dermatology franchise. We continue to outpace the market, fueled by increased treatments for OA and dermatology, veterinarians' preferences for injectables, and the evolving pet owner demand for retail convenience and home delivery, which also enhances compliance with oral medications. Our OA pain monoclonal antibodies, Librela and Solensia, achieved a combined $73 million in U.S. sales in Q3. Librela generated $55 million, mainly due to rising clinic utilization, with an 85% penetration rate—faster than any product in our history. A critical aspect of our successful launch was ensuring availability in clinics. We believe we are just beginning to explore the potential of OA, similar to our key dermatology franchise where addressing unmet needs with innovative treatments can deliver sustained growth. We anticipate that Librela will support our growth for years to come. Solensia generated $18 million in revenue, representing a 50% increase. The incidence of OA in cats is comparable to dogs at about 40%, yet treatment options for cats were scarce prior to Solensia. Since its launch in the U.S. two years ago, we have observed a 70% increase in feline OA patients. Given that feline medicalization rates are still significantly lower than those for dogs, there is considerable opportunity to increase feline treatment. Simparica Trio achieved U.S. growth of 29%, with $237 million in revenue. We've previously discussed Trio's momentum, and our expectations remain high. As we've seen with past generations of parasiticides, new entrants tend to accelerate the transition from older therapies. However, without meaningful differentiation, they do not take away market share. Alongside strong volume growth for Trio, we are benefiting from price advantages due to a lower promotional environment and more measured discounting strategies. In U.S. key dermatology, we experienced 17% growth, equating to $303 million for the quarter, with Apoquel being the main contributor and strong performance from the retail channel. The growth of Apoquel Chewables outpaced declines from tablet cannibalization by enhancing conversion and compliance, while Cytopoint growth continues to rise due to the preference for injectables. U.S. livestock revenue grew by 5% in the quarter, mainly attributed to volume increases in cattle, although this growth was somewhat tempered by price declines for Draxxin. In the International segment, revenue rose by 7% on a reported basis and 13% operationally in the quarter. International livestock increased by 15% operationally, and companion animal revenue climbed 11% operationally. International livestock growth was bolstered equally by volume and price, particularly in cattle, which saw growth driven by higher demand and better supply, compounded by price impacts in inflationary markets. Poultry growth resulted from pricing and key account penetration, and fish witnessed robust volume growth in Norway, fueled by high demand for our vaccines and a favorable comparison to last year's performance. The growth in our international companion animal segment was led by our Simparica and key dermatology and OA pain monoclonal antibodies franchises. Our international Simparica franchise achieved a 28% operational growth, generating $75 million in sales, largely driven by Simparica Trio's 39% operational growth, which brought in $31 million, benefiting from key account growth in Europe, direct-to-consumer strategies, and positive outcomes from our China launch in Q1. Simparica itself grew by 22% operationally to $44 million, largely driven by Eastern Europe and Brazil. Our international key dermatology franchise generated $146 million and a 13% operational growth rate, with strong contributions from both Apoquel and Cytopoint. Apoquel's performance was bolstered by solid direct-to-consumer results, particularly in European markets, where the chewable version of Apoquel now comprises over half of the doses dispensed. We continue to expand our key dermatology franchise internationally, with many countries still in the early stages, indicating significant growth potential as medicalization increases and newer formulations like chewables and injectables gain traction. Internationally, our OA pain monoclonal antibodies achieved a 27% operational growth, tallying $78 million in total revenue. Librela's international sales hit $62 million, marking a 26% operational increase, fueled by greater usage in Europe and gains in second-wave launch markets. We also see opportunities for further market expansion by converting existing NSAID patients and increasing duration on therapy. Solensia sales were $16 million, growing 32% operationally. Now, turning to the profit and loss statement for the quarter, we achieved an adjusted gross margin of 70.7%, up 20 basis points, driven by price and mix improvements, though offset by higher manufacturing costs. Adjusted operating expenses rose 9% operationally, mainly due to an increase in SG&A costs of 9%, largely from higher compensation-related expenses due to company performance. R&D expenses rose 10% operationally, driven by higher compensation costs related to company performance and increased project spending for internal advancements. Adjusted net income grew faster than revenue at 15% operationally, and adjusted diluted EPS increased by 17% operationally for the quarter. Now, looking ahead to our guidance for full year 2024. Our increased revenue outlook reflects the ongoing strong performance of our key franchises, partially tempered by a reduction in sales following the divestiture of our Medicated Feed Additive product portfolio and specific water-soluble products completed on October 31. As Kristin mentioned, we remain dedicated to livestock and see opportunities across several therapeutic areas, strengthened by our strategic partnerships and focus. Please note that our guidance is based on foreign exchange rates as of mid-October. For the year, we anticipate revenue between $9.2 billion and $9.3 billion, indicating a 10% to 11% operational growth rate. This marks both an increase and a narrowing of our revenue range compared to our previous full-year guidance. We now expect adjusted net income to be between $2.67 billion and $2.695 billion, representing operational growth of 13.5% to 14.5%. Lastly, we expect adjusted diluted EPS to range from $5.86 to $5.92 and reported diluted EPS to fall between $5.33 and $5.39. We have accomplished remarkable results in 2024 thus far, with broad growth from our innovative products across species and regions, and we are optimistic about the remainder of the year and beyond. Our guidance, along with our year-to-date performance, does indicate anticipated deceleration in revenue growth for Q4 specifically. Just to remind you, Q4 revenue growth will be influenced by the MFA divestiture, accounting for two months of lost U.S. sales and one month from our international business. Moreover, we also experienced stocking effects following the launches of Librela and Apoquel Chewable in Q4 of last year. After accounting for these factors, Q4 is expected to align more closely with our historical growth rates. We remain confident in the underlying demand and market conditions as we approach the fourth quarter and into 2025. Our outlook for next year remains bright. We continue to observe positive trends in our key franchises, including OA, dermatology, and Simparica, alongside momentum from alternative channels. While we expect the recent advantages from high inflation to level out, our performance has outstripped any gains from price increases alone. Additionally, we foresee headwinds in China normalizing in Q4 and into next year, estimating that these challenges have negatively impacted our growth by around 1 percentage point this year, which should stabilize in 2025. We are confident in our ability to continue growing beyond the animal health market, bolstered by our robust portfolio, pipeline, and our dedicated team. Now, I’ll hand it back to the operator to open the line for your questions.

Thank you. We'll take our first question from Erin Wright of Morgan Stanley.

Great, thanks for taking my question. A two-parter here. So first on Librela, how should we be thinking about the quarterly progression from here in terms of U.S. Librela, and how has the experience been in terms of reorder rates, and the months on therapy relative to your internal expectations? And then, just how we should think about that quarterly progression given the stocking dynamics in the fourth quarter and into 2025. And then as we think about bigger picture here, just several moving pieces into 2025 from a profit perspective, I guess you continue to invest in innovation Librela scales, you have favorable mix also from MFA sale. Like how do you think about the level of investment that you need to make next year, and sort of how much you're going to let sort of the enhanced product mix, more skewed towards that companion animal actually flow through in terms of margin expansion next year as well. So how do you think about those headwinds, and tailwinds I guess into 2025? Thanks.

Thanks Erin. I'll start with overall Librela and move to Wetteny on sort of quarterly cadence, and the 2025 question you had. Look, we are really pleased with the performance globally with Librela with 123% growth, we really remain committed to being a $1 billion franchise. And as you look at just the quarterly progression to-date, it's been the most successful launch in our company's history. In the U.S., we have an 85% penetration rate. Globally we're averaging over 90%. In the first 12 months, we've already got 1 million patients on the product, and we believe we've got a significant runway for growth. With only 1 million patients on that and 8 million still on NSAIDs. We think there's a really large addressable market. We can focus on higher compliance. So, we're very optimistic on that. I'll let Wetteny get into the quarterly cadence going forward as well as your 2025 question as well.

Yes, Erin, as Kristin said, Librela has been our most successful launch in the history of the company by every metric that we look at in penetration and also the first 12 months revenue of approximately $192 million. Now as we don't tend to give guidance down to an individual product for an individual quarter. But what I would say in terms of the cadence of Librela, is that we'll continue to see and exiting this year into next year. We expect to see strong growth given our penetration. As Kristin said, about $1 million being treated, compared to NSAIDs that are at about 8 million. And so we know launching these major franchises, standards of care, take time. And one other item that is certainly clear, when you look at the historical visits around OA Pain, as Kristin said in the prepared commentary. We do tend to see a peak in Q2 coming down in Q3, and then typically comes back up a bit in Q4, but not to the level of Q2. So that's another element that I would give you to sort of consider as you think about what to expect through the end of the year and going into 2025. Now with respect to your second part of your question around considerations and profitability, et cetera. We continue to demonstrate an ability to grow above the animal health market. We certainly see that in our performance this year, on a year-to-date basis we're at 12%. We just raised guidance again for the third time this year, clearly well above the market, and are growing our adjusted income faster than our top line, including in this quarter, which as you recall last call. We highlighted the fact that we are increasing some of our investments as we exit this year. And we still delivered faster adjusted income. And so as we look ahead, this is a core tenet of our value proposition that we'll continue to be mindful of, and we have the opportunity here as we look ahead to leverage investments we've made in the past, including field force investments in the U.S. And we see opportunity to continue to leverage those even as we continue to drive growth and launch products across the market. We will continue to see some investments in DTC behind our key brands. Again, we're building a market, something we have demonstrated an ability to build the markets, expand them, and defend them. If you look at what we're doing across our portfolio right now. And an important part of that will be DTC and advertising promotion behind these products as we go into next year. We would anticipate again, as I've said before, the business has an inherent ability to grow the bottom line faster than the top. As you see the mix, as well as price that we're able to take. How much we deliver in any given year may vary depending on the levels of investments we're making, but we may committed to growing the bottom line faster.

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

Great, thanks for taking the question guys. I want to follow-up on a couple of points you touched on there. First, just in the quarter, thinking about Librela progression year-to-date, I know you had some stocking destocking dynamics earlier in the year. Just making sure for Librela, for Trio, for Derm. Was there anything like that in the third quarter in terms of inventory management with customers, people stocking for year-end or maybe destocking any promotions, anything like that? I just want to make sure we're looking at 'clean numbers here' especially with some competing launches going on for some of these things. And then two, I want to touch a little bit on the MFA component. You updated the guide for that divestment for the fourth quarter, as you touched on two months in the U.S. on OUS, how should we think about full year 2025 impact in terms of updating our numbers? I think it's roughly $350 million annual revenues. But any you can say in terms of how much SG&A spent, how much R&D spend falls into that, just so we can start to true up our models for next year? Thanks.

Sure. For starters, it was a clean quarter across our entire business in the U.S. and abroad. So there's no stocking dynamics or inventory buildups there. But I'll let Wetteny take the more detailed question on MFAs.

Yes, sure. Look to Kristin's point, if you look at inventory levels, particularly across distributors in the U.S., which we have visibility into, not as much visibility obviously across clinics individually. But our inventory levels remain closer to the low end of our historical averages, similar to where we were over a year ago in Q1, after the destocking. So I would say that. And then within Librela, keep in mind, this is a whole chain product that is being shipped direct to clinics and not going through distribution. So it's really a product. And given our penetration levels that we highlighted two quarters ago, there's not incremental penetration to really influence inventory levels here. So I thought I would add that to the answer you already received. With MFAs, just a reminder of what we have disclosed previously. This is a business last year 2023, full year did about $400 million at about 30% margin. So I think that gives you and by the way, seasonality here is roughly linear across the year. So if you look at the divestiture this year, it's about half of a quarter, with two months of the U.S. and one month of international. You can run the numbers here in terms of what the impact is exiting this year. And then what that would be for next year, because we'd have three and a half quarters in the number in 2024 that we'll be comping against. And I think that should give you, even though I'm not getting into specifics on SG&A versus R&D, et cetera, I think that gives you an impact on through the P&L.

Our next question is from Brandon Vazquez of William Blair.

Hi everyone. Thanks for taking the question. I wanted to focus on parasiticides and Simparica Trio. It's been a really strong segment for you guys, especially Trio. Can you talk a little bit about despite more competition in the market, why you guys seem to be taking care. Perhaps it's something on the commercial side, and maybe some of the execution you guys have there. So just any color there, and how much that can continue into 25'. And then the quick follow-up, is just if there's any Wetteny for you, if there's any price mix commentary you could give us on the quarter, especially in the companion animal side? Thank you.

Sure. Thanks, Brandon. Look, we're really proud of the performance of Trio. It is the number one prescribed parasiticide. It's already been used in over 13 million dogs. I think that the real focus here for us is Simparica growing 27% globally, is really having a phenomenal product. I think it starts with that. I think we were first to market with Trio, which I think has made a big difference. We've also been able to grow that product tremendously, leveraging alternative channels, which today is about 20% of that. But I think what's really underscoring all this is that the oral flea tick and heartworm market is growing 45% year-over-year. And that growth is moving more people into the oral category. And if you look at puppy share, which I think is a really good indicator of where we're going in the future, Trio has a 35% share in puppies. So I think between being a first mover advantage, having a phenomenal product that's got comprehensive coverage, it's convenient. It's a chewable. I think it's a great product. And look, we've partnered very closely with all of our customers, and certainly with our corporates. And I think you're seeing, the customers are really pleased with the product. So, we see strong momentum going into next year. And I'll underscore some of the comments that Wetteny said in his prepared remarks, which is what we've seen continuously as new entrants enter the market, is the expansion of the oral flea tick and heartworm market and that is what we're expecting next year into 2025. So Wetteny, do you want to take the second half of the question?

Sure. In terms of price mix and volume here? As you heard in prepared commentary, the 14% operational growth in the quarter was 8% volume and 6% price. Now your question, if it's related specifically to our parasiticides in the Trio performance, I would say it's about balance, with slightly more volume than price. Here and keep in mind as we've stated previously, we have more targeted promotions as well as discounts to our customers. Which is actually driving better price realization, and not just price increases if you will here on this product, which again has been phenomenal execution I would say, and contribution to the growth that you're seeing on Trio specifically.

Our next question is from Jon Block of Stifel.

Thanks guys. Good morning. First one, are there any different marching orders for the sales force as U.S. Librela now largely moves from call it new practice adoption, to more driving utilization and getting into mild-to-moderate. Maybe the tack on to that would be any specific thoughts about Q4 revenue from U.S. Librela? Did you commit to q-over-q growth, because just wanted to follow-up there. That seems to be the only noise in the quarter quite honestly. And then, the second one would just be any high level building blocks for 2025 revenue. Wetteny, you mentioned China headwinds of a point this year, I'm guessing for the most part that unwinds you've got Librela, their trajectory obviously some of the other key franchises. So again even at a high level any building blocks, for us to take into consideration? Thanks guys.

Sure. I would say there's not any new sales marching orders. I think it's a lot more of continuing to focus on getting clinics, have more experience across not just severe, but moving into moderate, which we started probably a little while ago. That was a key focus even for us at launch. So, we'll continue to focus on growing the brand there, but I think it's really sticking with the key messages of the safety of the product. The efficacy of the product and really, demonstrating continuously the opportunity to look at the 8 million patients currently on NSAIDs and switching those NSAIDs patients over to Librela, assuming that that's the right product for that pet overall. So, we remain very, very pleased with this launch, and given how pleased we are at the launch, I think we're going to continue down the same tactics that we have. Certainly now that we've got the penetration, it's really focusing on expanding the use out of just not just severe, but obviously in moderate as well as really talking about the opportunity, given the different pets' medical needs to switch from NSAIDs. So I'll turn the second part of the question over to Wetteny on building blocks for '25.

Sure Jon. Look, we look forward to sharing our 2025 guidance on our next call in February, and just maybe a few reminders here that might be helpful in terms of directionally where we're headed, right. We have several sources of growth and we continue to see strong underlying demand across our portfolio in most markets where we operate. Our outlook for derm and for Trio remain very positive, exiting this year and going into next year. We expect to see continued strong growth, across our OA pain franchise on a year-over-year basis. And even if you have more normalized pricing, we would expect those to be above slightly above our historical pricing contribution of 2% to 3%. And as I covered in the prepared commentary, China will be more normalized as we exit this year starting in Q4, and into the next year. And so, you have less of a headwind going into next year, which was almost a full point in the current year. The last piece I would give is just reminder on the MFA and water soluble product portfolio. Removing those and I shared those numbers already in terms of what those products did last year. So hopefully that's helpful, in terms of getting you into some sort of ballpark here.

Our next question is from David Westenberg of Piper Sandler.

Hi, thank you for taking the question, and congrats on a great quarter. So a little bit touch on macro real quick just in terms of how you price relative to veterinary CPI, is that ever a consideration? And as we go into next year, do you also consider some of the clinic growth assumptions that we've seen? Yes, you are isolated in a lot of ways, because you can buy off channel. However, those initial scripts do need to come on visits, and we've seen visits for the last year being quite down. Now and then just a second on a clarification, Wetteny, I think you said in your prepared remarks reasonable promotion environment, or something along the lines of that. Can you clarify what you mean? If you meant Zoetis and industry wide. And specifically, I'm thinking about some of the promotion environments, beginning of next year, as we enter parasiticide season, you'll have a full season of Quattro. You might be lapping some of the promotions from NexGard Plus, I don't know anything like that. So if I could just get a clarity there? Thank you.

Sure. Thanks, David. I'll start with your first one. And Wetteny, if I miss anything, please build on it. As we think about pricing, obviously we start with the pricing environment, and the overall inflation environment in any given market where we compete. But the primary thing that we really focus on, is a product-by-product, SKU-by-SKU view of our differentiation and the marketplace overall. I know you referenced that visits were down. We continue to say visits are not a good proxy for how animal health and more particularly how Zoetis does. Really what you're seeing is some of those wellness visits, and a lot of those are products, pickup products, visits. And a lot of that is going over to the alternative channel, which continues to grow very strongly. But if you look at the visits for our particular products around derm or around pain, they're up. And so, I think we really focus on what is the innovation and what is the value that our product provides to both the vet and the pet owner. And I think that is what really primarily drives our pricing strategy overall. I'll turn the second question on pricing - the promotional environment to you, Wetteny.

Sure. Look, the only thing I would add to the visits, is even as overall visits are down in the U.S. If you look at the key therapeutic areas for us, OA pain business up double-digits. Derm visits are up even as more and more of our Apoquel products are being sold through the retail channel. So I think that really spells it and consistent with what we've been sharing for some time now. And then if you look at alternative channels, it has been a significant growth driver for us across the U.S. pet care, which of course reduces some of the dependency on clearing visits, as well as the auto-ship and higher compliance that that drives. Alternative channels were up actually 34% year-on-year on the quarter, again, demonstrating that point. As far as promotional activities, my comment here is you see far more disciplined promotional environment this year, particularly when you compare it to last year, when we were up against a new competitor in the civil combination parasiticide space. So that comment really is to say, there's not as much promotional activity here, and that we are more targeted in terms of our discounting to our customers.

Our next question is from Balaji Prasad of Barclays.

Hi, good morning and thanks for taking the questions. Two from me, one speaking a bit more about 2025. Could you comment about - comment on the incremental growth drivers and headwinds, especially that you see in 2025. And Wetteny, especially as we think about OpEx, again, I don't want to get into guidance, but if you can just comment on the pushes and pulls towards your OpEx spend in the year. Secondly, with regard to Simparica Trio again, can you comment on what kind of move in terms of the 57 million dogs that you have provided that could move to isoxazolines. What's the pace of conversion that could be achieved on a real estate basis? Thanks.

Sure. Wetteny, do you want to take this?

Sure. The first point in terms of next year, and again, I look forward to providing more specific guidance in February here. Balaji, look, I think as we've said at Investor Day, we see opportunity to leverage our SG&A from an OpEx perspective. We have been running R&D driven by our portfolio and our pipeline progression faster than revenue. I think you see that coming in closer to revenue this year. We'll get into more detail in that in terms of what we would expect into next year, but that's certainly one consideration. I think when I think about other pushes and pulls, there's been a lot of conversations around Argentina this year. I think one thing to keep in mind is, as we have highlighted, the pricing that we have taken in Argentina this year you get in other hyperinflationary markets for that matter. Again, if you expect a more normalized pricing environment, and we would anticipate slightly above where our historical rate is, that incremental price you see from Argentina this year, which is actually on a declining basis. So Q1 was the peak we've come down in Q2 and in Q3, and we expect Q4 to be closer to 1%. I think that would be an item to consider as we go through next year. But one important point though is if you work down the P&L that has actually had significant headwinds through inflation, through the middle of the P&L. And then from an FX perspective, if you look at the reported results, the net impact of Argentina year-over-year is actually negative across the P&L. So I think that's really important points to keep in mind, as you're thinking about SG&A? And then the other point on - as we look at the parasiticide market, and what we expect to happen here, we've seen this before. This is the same that we saw, say, almost a decade ago with the launch of all isoxazolines, you saw really continual transition into those that continue to grow the market substantially. And clearly, when we look at the percentage of puppies that are getting put on a triple combination, which is much higher than the overall percentage of dogs that are on paras. So about a third of the prescription parasiticides are in triple combinations, but over 50% of puppies are. And so that gives you a strong indication of what's going to continue to happen in that market. The split between how much is going from other orals versus collars and topic is not something we have a specificity on, but needless to say, that is where the market is going is towards those triple combinations.

Yes. And Balaji, I would just encourage you to look at our slides from today because we show you some of the graphs of what that actually looks like. And I think with a double-digit growth the fourth year on the market, I think it speaks for itself as well.

Our next question comes from Glen Santangelo of Jefferies.

Yes. Thanks for taking my question. Kristin, it sounds like the company is confident in its ability to take another year of above-average price increases. And I'm kind of curious like what's sort of given you that confidence, and given the evolving competitive landscape and current macro climate? And then just a sort of part of that, could you give us an update on what percentage of the companion business is flowing through alternate site versus the vet office, and if that's having any impact on any sort of pricing or customer trends that we should be aware of? Thanks.

Sure. I'll start with your second question. Retail grew 34%. I think it's a little bit over. I mean, Wetteny, you can correct me, around 10% of the U.S. business at this point? What is it a little higher?

It's closer to 15%. If you look at all alternative channels, that's retail online as well as brick-and-mortar and home delivery as well combined.

Yes. No, I think it's growing very strongly in the U.S. I mean, look, as we look at overall pricing, again, I'd go back to where I started before, which is look product-by-product and the innovation we're bringing. And I think what we've really talked about continuously is the diverse, durable, and innovative portfolio that Zoetis has across species and globally. And so that's how we price our products. And we've continued, as we've seen competition, for example in parasiticides, been continuously taking price there as well where we see the convenience and the benefits that Simparica Trio offers. So, I don't have anything new to add here. I'm not sure Wetteny, if you do.

Look, I think if you look at this year, right, we are taking price. If you take Argentina out, it's somewhere in the 4.5% to 5% range across the rest of our portfolio, right? And despite that, you see significant volume growth. This quarter, I think, is a testament to that 8% volume growth and 6% price. And so, if you look at our key product areas, actually derm you see price as well as substantial volume growth. So we think there's room for us to continue that, given the value that we bring with these innovations.

Our next question is from Chris Schott of JPMorgan.

Great, thanks. Just two questions from me. Maybe first on Apoquel, can you just elaborate a little bit about how you're thinking about the impact from the Zenrelia launch - and maybe specifically, should we anticipate any slowdown to your growth due to some of their promotion activities, or are you expecting relatively limited impact there? And then my second question would be on Librela uptake. Just any comments on how U.S. compliance is trending relative to your expectations? I know it's early, but just anything notable in some of those initial trends? Thank you.

Sure. I'll start with Apoquel and then Wetteny, if you want to build on Librela uptake question. Yes, I mean another strong quarter, obviously, from Apoquel had 16% growth across the quarter. I think it's the number one product out there. It's got 11 years of safety, huge satisfaction rates across both consumers and veterinarians, with a 90% satisfaction rate. And I think our focus with the product, is continuing to grow the category. We think there's an opportunity for higher compliance, to address under or untreated dogs, to convert to 3 million dogs that are on other treatments and 8 million dogs currently not on therapy. We're very confident in our ability to compete with this product given the satisfaction, given the safety, and given the efficacy overall. We're very proud of the performance of this, and we look forward to strong performance obviously going forward in 2025 and beyond. You want to take the update?

Yes, sure. Look, I think as we've said before, this is our most successful launch cover in the company's history. And I think while it's a little bit early to get into a ton of detail around compliance in the U.S. specifically. I always like to look at our international markets, which will continue to see strong double-digit growth across those markets for years out. And when we look at the transition into more moderate cases, which now represent more than 60% of our - of cases in across Europe, for example, that's driving up much on therapy, to be above seven months. And compliance rates that are exceptionally high in that market. So I think this gives you an indication of where the market is, and given the efficacy and the revolutionary profile of this product, what it can do and what it is actually doing across markets outside the U.S., and we're very pleased with where we are in the launch trajectory here in the U.S. as well.

Our next question is from Steve Scala of TD Cowen.

Hi, this is Chris on for Steve Scala. Congrats on the strong quarter and thanks for taking our questions. We had two first, Zoetis has its best confidence in above-industry average sales growth, what is your level of confidence in being able to maintain this growth long-term based only on current on-market products, without contributions from pipeline of business development? And then second, how many competitive matches are you expecting in 2025? And how is this uncertainty impacting your thoughts on how conservative initial 2025 guidance will be? Thank you.

Sure. I'll give that a shot. Look, I think if you look at our history over a decade, we have outperformed the market by three points on average. I would argue, if you look at the market growth rates this year, it's even above that. Now your question is how - what's our confidence level and be able to sustain that. We're very confident in our ability to sustain that given our existing portfolio. And bifurcating between existing portfolio and new launches is not something I'm going to venture into, because that is ingrained into how we go to market, and how we continue to invest in solving for our customers' greatest challenges. It's hard for me to give you what the growth rate would be without that. But what I would say is it's really important to note that it's not only when we launch a brand new innovation in a new area. It is a continued life cycle innovation that we drive, which is almost historically 50% of our R&D spend. So we continue to grow the market and expand the market, adding additional claims as we go along the way, which is how we, over time, build markets. And I know there's a lot of questions around sequential growth, etc., it's not really about the sequential growth. It's never really super linear it's over time, building the market that once you build it, it's also very sticky because you've established the standard and someone else has to come with something that is significantly differentiated in order to overtake you. And that's what drives our business. So, we're very confident in continuing to be able to outperform the industry.

We'll move next to Navann Ty of BNP Paribas.

Hi, good morning. Thanks for taking my question. One on competition and one on innovation. So on competition, can you expand on, which levers Zoetis is using to defend Apoquel versus Zenrelia? Would that be or is it DTC about the safety, as well as near term pricing or anything else? And for Credelio Quattro, did you plan any promotions around that launch maybe to a lesser extent that when you were facing NexGard Plus. And then on innovation, are you able to discuss progress around the long-acting injectables, monoclonal antibodies and parasiticides and longer term innovation in CKD, oncology and cardiology? Thank you.

Sure. With regards to competition, and your first question, I think, was on the derm space, we remain very confident in our ability to continue to grow our overall dermatology franchise, whether that's Apoquel, Apoquel, chewable or Cytopoint even with the new competition. We think again, our 11 years of safety and efficacy competing against a product with a box warning. I think is quite strong. I think our satisfaction, we'll continue to do the same tactics we always did. We don't see any need to change any of those. That's really around building deep relationships with our customers, sharing the performance of the product, investing in direct-to-consumer. We don't really see a need given the competition either with them really or also Credelio Quattro. What we continue to see is Wetteny remarked in his opening statement, is that really when new entrants come, it grows the market overall. They invest more in direct-to-consumer advertising, and you'll see more of a conversion over to the oral isoxazoline class. So we remain very confident. We're not planning on changing any of our promotional tactics, when you think about both the entrant and derm, as well as the additional entrant into the paras. Look, we expect everyone will enter paras, and that will only grow the category overall. As you think about innovation, as we talked about at our Investor Day, we really see long-acting across all of our key franchises, an important driver of growth haven't yet given specific guidance on when those launches will be, but those will be more of the near-term launches, as we mentioned in previous sessions.

And there are no further questions at this time. I'd be happy to return the call to Kristin Peck for closing comments.

Thanks, and thank you all for joining us. As always, we really appreciate your questions and importantly, your interest in Zoetis. The animal health industry has repeatedly proven its resilience, and our work remains essential, not only for animals, but for the people and the communities and economies impacted globally. So looking ahead, we are excited to strengthen our market leadership by leveraging this resilience, and driving long-term growth and value creation. And with that, I want to thank you for your continued trust, as you move forward with confidence and purpose, committed to shaping the future of animal health. Thanks for joining us.

Thank you. This does conclude today's call. You may now disconnect, and everyone, have a great day.