Q4 2021 Zoetis Inc Earnings Call
Question, and then queue up again with any follow ups. Your line will be muted when you complete your question when posing your question. Please pickup your handset to allow optimal sound quality.
Lastly, if you should require operator assistance. Please press star zero. It is now my pleasure to turn the floor over to Steve Frank Steve You may begin.
Thank you Catherine good morning, everyone and welcome to the <unk> fourth quarter and full year 2021 earnings call I am joined today by Kristin Peck, our Chief Executive Officer, and what the Joseph Our Chief Financial Officer before we begin I'll remind you that the slides presented on this call are available on the invest.
The 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 statement 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 filings dated today Tuesday February 15th 2022, 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 year end earnings call for 2021.
I'm happy to report that <unk> delivered its strongest performance ever in 2021, thanks to our innovative diverse and durable portfolio and the talent and commitment of our colleagues.
We grew revenue, 15% operationally, which is once again above the anticipated growth rate for the animal health market and these results were highlighted by 27% operational growth in our companion animal portfolio with 1% operational growth in livestock.
Our parasiticide dermatology vaccines diagnostics and monoclonal antibody therapies all contributed to these strong results driven by the positive trends in pet care trends that we see continuing to be a key growth driver in 2022 and beyond.
From a segment perspective, we saw solid balance across our global footprint with the U S up 14% and international growing 17% operationally.
Operationally for the year, China grew 25%, Brazil grew 28% and other emerging markets grew 22%, leading the way for our international performance.
Another major growth driver for the year has been our global diagnostics portfolio, which grew 21% operationally with significant strength in international markets and the continued launch of that scan images.
Our AI driven diagnostics platform.
Based on the strong revenue performance, we were able to deliver 19% operational growth in adjusted net income for the year, while investing significantly in our latest product launches as well as staffing R&D and manufacturing projects for future growth.
Looking ahead, we believe this momentum sets us up well for 2022.
We expect to continue growing revenue faster than the market in the coming year, driven by continued strength in pet care expansion of our diagnostics portfolio internationally as significant growth in both companion animal and livestock product sales for emerging markets, including China and Brazil.
As a result, we are guiding to full year operational growth of 9% to 11% and revenue.
What do you and I will discuss more details about the full year 2022 guidance.
Let me share some views on the year and other updates first the essential nature of animal health continues to be affirmed by our performance during the COVID-19 pandemic we.
We have seen the fundamental drivers such as increased emphasis on pet wellness, a growing global population and continuous consumption of animal based proteins all reinforced the animal health industry as a positive investment choice and.
In terms of the companion animal market People's commitment to the health and well being of their pet has continued to drive higher spending and new opportunities for innovation geographic expansion and increasing levels of care.
Pet owner spending in animal health remains one of the more durable trends and consumer spending as people place a premium on the health and well being of their pet even during challenging economic times.
In January the human Animal Bond Research Institute and the wettest released the results of a new global survey of more than 16000 pet owners and 1200 small animal clinics.
Which reinforced how deep the connection is between pets and pet owners and how that dynamic relates to abuse on veterinary care and the related benefits of pet ownership.
The study 92% of respondents said there was no reason they could ever be convinced pick about their pet and 86% said they would pay whatever it takes if their pet needed extensive veterinary care the strength of the human animal bond strongly correlated with higher rates of veterinary treatment for both prevented.
Good care and specific conditions and their pets.
This study and other research support our focus on advancing an innovative pipeline for pain, dermatology and parasiticide for pets, and we continue to invest in our field force direct to consumer marketing and manufacturing capacity to bring these products to market.
Moving on to the livestock industry, the need for safe and reliable sources of animal protein continues to be a fundamental growth driver for the industry, particularly in emerging markets in any given year, whether disease and market dynamics may have various regional impacts, but the underlying demand continues to be served locally.
Or through global trade across more than 100 markets, whereas the wettest products are sold.
We've continued to seize the wettest livestock business show modest growth during the pandemic and recent economic challenges based on our strength internationally, we see that international growth continuing this year, while we continue to see declines in the U S driven primarily by generic competition and certain product lines.
Our competitive strategies in pricing and new lifecycle innovations will help us mitigate some of that impact.
<unk> products are a key element of our global strategy and long term growth and we've continued to expand our vaccine product lines like pullback for startup for poultry and applegate micro for fish as well as Jackson K P. As a treatment for cattle.
We're also exploring more livestock innovation around greater efficiency precision animal health and more sustainable food production, we've been focusing our investments in vaccines for prevention and maintaining healthy animals data analytics for more individualized animal care and research into other sustainability improvements erratic immunotherapies.
I was particularly excited by two recently announced additions to our precision animal health portfolio performance Ranch, a new cloud based cow calf management software is simplified tracking of individual animal performance and health product usage, and our new block yard platform, which is blockchain technology.
Developed in cooperation with IBM to provide a secure way to share information across different segments of the animal production supply chain.
For the way that we continue to stay focused on our five strategic priorities for the long term and we are optimistic about the growth drivers we see for 2022.
Pet care will remain a major growth driver for us the wettest globally based on our diverse and innovative portfolio. We see continued growth potential for our dermatology portfolio, which surpassed $1 billion in revenue for the first time in 2021.
Our parasiticide driven by our triple combinations and Paragon trio as well as revolution, plus strong whole cloth comparable and pro Hartwell will continue to achieve growth as we gained market share in major markets and look at further lifecycle innovations and label gains across the portfolio.
Labella influenza are monoclonal antibodies for control of osteoarthritis pain in dogs and cats will continue to increase our revenue in 2022, primarily in the EU and we're making regulatory progress for these products in the U S.
We received FDA approval for Celesio in January with the launch expected in the second half of the year and we still anticipate approval umbrella in the second half of the year, assuming FDA inspections are completed at a facility outside the U S.
As we begin 2022, we are seeing strong demand in the EU for Labella, Valencia, and we remain confident in the blockbuster potential for marella in 2022 and Celesio in the longer term.
We continue to optimize our global supply chain and manage ongoing challenges would have been creating isolated constraints for liberal arts Valencia and some of our other products.
As always maintaining a consistent reliable supply for our customers is our top priority and we've been communicating with them about any impact to their orders we want to ensure all pets can continue their treatments without interruption, especially for chronic treatment of OA pain.
Our global manufacturing network is working around the clock to ensure reliable supply for our customers as they did throughout 2021, and our full year guidance and strong growth reflects our views on supply.
Diagnostics is our next major growth driver in 2022 with a fully integrated point of care business that is prime for strong growth internationally, along with the expansion plans for our relatively new reference lab operation we.
We're making significant progress in one of the fastest growing markets for animal health, we're adding more dedicated field force and customer service resources, while developing more offerings that will leverage our portfolio across the continuum of care and finally, we see significant growth opportunities in emerging markets, including China, and Brazil, where we see.
Excellent opportunities for both our companion animal and livestock products based on increased Medicalization and other positive trends.
Meanwhile, our R&D team along with external partners will continue to generate the industry's most productive pipeline in the years to come.
With more than 500 million in R&D spending in 2021, our largest ever annual investment for R&D. We continue progressing research to drive allergies livestock help chronic pain and inflammation chronic kidney disease and diagnostics through our vaccines therapeutics and digital technology platforms.
In conclusion I want to thank our colleagues for delivering another terrific year and for always bringing the value of the wettest to our customers every day.
<unk> remains well positioned in terms of our market leadership financial strength investment strategies and diverse portfolio to deliver sustainable growth to investors in 2022 and beyond.
Now, let me hand things off to Whitney.
Thank you Kristen and good morning, everyone.
I was wondering if anyone was an exceptional year for us with revenue of $7 8 billion and adjusted net income of $2 2 billion, both exceeding the high end of our November full year guidance range.
Full year revenue grew 16% on a reported basis and 16% operationally with adjusted net income increasing 21% on a reported basis and 19% operationally.
Looking deeper into the 2020 , one numbers price contributed 1% to full year operational revenue growth with volume contributing 14%.
Volume growth consisted of 6% from other in line products.
5% from new products, including some further trio and 30% from key dermatology products.
Revenue growth was again broad based with the U S growing 14% and international growing 17% operationally.
Our strong performance was driven by our innovative diverse and durable companion animal portfolio, which grew 27% operationally.
Our livestock business, which faced generic competition on key franchises as well as challenging macro conditions in certain markets grew 1% operationally on a year over year basis.
Performance in companion animal was led by our small animal parasiticide portfolio bolstered by full year sales of tobacco trio, which generated revenue of $475 million, an increase of $305 million compared to 2020.
<unk> also grew double digits for the year with operational revenue growth of 15%.
For the year, the comparator franchise grew 82% operationally with revenue of approximately three quarters of $1 billion.
Our key dermatology products performed incredibly well growing 24% operationally with approximately $1 $2 billion in revenue for the year performing above our expectations.
Our diagnostic portfolio grew 21% operationally in the year with strong contributions from our U S and international segments, and we will continue to make meaningful investments in the coming years to drive global growth.
We do believe the adoption of diagnostics products and services outside the U S represents a larger growth opportunities geographically and feel we are favorably positioned to capture future growth in those markets.
Our last night performance in 2021 depicts the importance of geographical diversification.
Generic competition and challenging market conditions weighed on our U S performance, but were offset by solid growth internationally, primarily in emerging markets.
The modest lifestyle growth on a global basis was in line with our expectations for the year.
Okay.
Moving onto our Q4 financial results, we posted another strong quarter with revenue of $2 billion, representing an increase of 9% on both a reported and operational basis.
Adjusted net income of $474 million is an increase of 8% on a reported basis and 5% operationally.
Yeah.
Of the 9% operational revenue growth, 1% is from price and 8% from volume.
Volume growth of 8% consisted of 5% from new products, which include a <unk>, 2% from key dermatology products and 1% from other in line products.
Companion animal products led the way in terms of species growth growing 21% operationally with less stock declining 6% on an operational basis in the quarter.
Yeah.
Small animal parasiticide were the largest contributor to growth in the quarter, where our innovative and diverse fleet tick and heartworm portfolio grew 32% operationally.
Some perpetual posted revenue of $124 million, representing operational growth of 106% versus the comparable 2020 period, and a third consecutive quarter with sales exceeding $100 million.
Meanwhile, our key dermatology products Apple cider points again had significant global growth in the quarter with $316 million of revenue, representing 23% operational growth against a robust prior year in which <unk> grew 27% in the fourth quarter of 2020.
Our lifestyle business declined 6% in the quarter as a result of generic competition for Jackson on favorable market conditions in the U S, primarily resulting from elevated input costs as well as software conditions in China, mostly driven by reduced pork prices.
Our fish business grew double digits in the quarter and along with the strength of our emerging markets, partially offset the broader viewpoint.
Overall.
Performance in the fourth quarter was in line with our expectations.
Yeah.
Now moving on to revenue growth by segment for the quarter.
U S revenue grew 9% with companion animal products growing 20% and livestock sales declining by 13%.
U S pet care vet practice trends remained robust in Q4 with practice revenue growing approximately 8% with visits growing 3% despite challenging prior year comps.
Companion animal growth in the quarter was driven by sales from us empirical franchise as well as key dermatology products.
We are driving growth in both therapeutic areas by making meaningful investments primarily through direct to consumer advertising and field force and we continue to be pleased by the return on investment the programs are yielding.
Growth of <unk> was again strong in the quarter with sales of $114 million growing more than 100%. We also met our clinic penetration targets and continue to take share within the clinics.
Key dermatology sales were $216 million for the quarter growing 22% with Africa inside a point each growing significantly.
Our investments to support the franchise have been instrumental in driving more patients into the clinic and we will continue to invest meaningfully in this space.
A large portion of dogs with dermatitis remain untreated representing an opportunity to further expand the market.
U S livestock fell 13% in the quarter, primarily resulting from our cargo business, which as expected was challenged by generic competition for Jackson as well as elevated input cost continuing to weigh on producer profitability.
Our poultry business was negatively affected by reduced disease pressure from smaller lot sizes.
Generic competition, while swine faced competitive pricing pressure on anti infectives and vaccine products.
Moving onto our international segment.
Where revenue grew 8% on a reported and operational basis in the quarter companion animal revenue grew 23% operationally and lifestyle revenue declined 2% operationally.
Increased sales of companion animal products resulted from growth of our key dermatology products are monoclonal monoclonal antibodies for alleviation of OA pain, and our parasiticide portfolio.
Several key brands are benefiting from our international DTC campaigns in Latin America, and parts of Europe , and we remain excited with the long term prospects of these programs.
Overall companion animal grew double digits operationally in every major market in the quarter.
We are encouraged by the performance of our monoclonal antibodies for pain with labella generating $50 million in celesio delivering $3 million in fourth quarter sales.
In the fourth quarter well it became the number one pain product in the EU in its first year with the underlying performance metrics being very favorable for future growth.
Reordering rates were in excess of 90% and compliance rates exceeded our initial expectations.
In the past, we've highlighted the significant opportunity to expand the pain market. Therefore, we were extremely pleased to see approximately 40% of the wella and so Lindsay of sales were from patients receiving medication for the first time.
International livestock declined 2% operationally in the quarter as declines in cattle and swine were partially offset by growth in fish and poultry.
Cattle declines were largely in the EU and Canada is generic competition for Jackson weighed on sales.
The declines in swine sales was primarily the result of lower pork prices in China negatively impacting producer profitability.
Our fish portfolio grew double digits again, this quarter, driven primarily by growth of Alpha flux in Chile, and the growth in poultry was largely attributed to further key account penetration.
Now moving on to the rest of the P&L for the quarter.
Adjusted gross margin of 69, 6% increased 190 basis points on a reported basis compared to the prior year resulted from favorable product mix lower inventory charges and favorable FX and price.
This was partially offset by higher freight manufacturing and other costs.
Adjusted operating expenses increased 12% operationally with compensation related costs being the primary driver of the 15% operational increase in SG&A as well as a 3% operational increase in R&D expenses.
And Chris International advertising and promotion expense for key brands also contributed to a higher SG&A, while R&D had increased project spend in the quarter.
The adjusted effective tax rate for the quarter was 18, 6% an increase of 510 basis points driven by the impact of prior year discrete tax benefits and changes to the jurisdictional mix of earnings.
And finally, adjusted net income grew 5% operationally and adjusted diluted EPS grew 6% operationally for the quarter.
In December we announced that 30% annual dividend increase continuing our commitment to grow our dividend at or faster than the growth in adjusted net income.
In the quarter repurchased approximately $200 million of <unk> shares and announced the authorization of a $3 $5 billion multi year share repurchase program.
Because we generate significant free cash flow, we have the ability to grow our business through organic investments and business development and return excess cash to shareholders without consuming our cash balance or being dependent on elevated leverage.
Okay.
Now moving onto guidance for 2022.
Please note that guidance reflects foreign exchange rates as of late January .
We are expecting an unfavorable foreign exchange impact versus prior year by approximately $160 million on revenue, which is roughly 200 basis points and approximately 12 on EPS, which is about 250 basis points.
For 2022, we are projecting revenue between eight three to five and $8 $4 75 billion, representing 9% to 11% operational growth.
We again expect companion animal to be the primary growth driver in 2022 with the continued strength of our diverse parasiticide portfolio further expansion of our key dermatology products. The adoption of our monoclonal antibodies for OA pain and the growth in point of care diagnostics in reference labs.
We see a very favorable companion animal backdrop for 2022.
<unk> certain vet clinic trends to moderate over time, we believe they remain above pre pandemic levels.
The catalyst for growth in 2022, and beyond some form of younger pet owner demographic and the standard of care increase increases which took shape over the prior two years.
Our innovative portfolio geographic representation and significant investments in key brands have us positioned extremely well to capture a meaningful portion of that growth.
We anticipate modest lifestyle growth again in 2022 led by the contributions of our emerging markets.
The macro trends would make which makes livestock and essential business remain intact, and we believe more normalized growth will occur in 2023.
Okay.
I'd like to touch upon the key assumptions that underpin our expectations for revenue growth.
Beginning with companion animal, we do not assume a triple combination product will launch in the U S. In 2020 to compete against <unk> trio or competitive entrants for our key dermatology products <unk>.
As Christian mentioned in 2022, we expect to the gorilla to become a blockbuster product in the first full year of sales with revenue exceeding $100 million largely from the EU markets.
We remain very optimistic about the potential celesio as well, while the revenue curve will have a different shape due to the lack of an established feline pain market. We've used Valencia as a long term blockbuster product, which addresses a significant unmet need in animal health.
And lifestyle, we expect generic competition to negatively impact Jackson revenue by approximately 20% in 2022 comparable to the impact we saw this year.
For the remainder of the P&L adjusted cost of sales as a percentage of revenue is expected to be approximately 29% were favorable product mix and price are expected to generate margin expansion.
Adjusted SG&A expenses for the year are expected to be between 2.07 and $2 one 2 billion with.
With the increase from 2021 focus on supporting primary drivers of revenue growth, including investments to support new and existing products as well as diagnostics.
Adjusted R&D expense for 2022 is expected to be between 540 and $560 million.
So what is the leader in animal health because of the novel products disruptive innovation and lifecycle enhancements, we bring to the market.
Our internal R&D engine remains the primary source of innovation and we are committed to ensuring it will continue to be significantly funded as a priority in capital allocation.
Adjusted interest and other income and deductions are expected to be approximately $240 million, representing a minimal year over year change.
Our adjusted effective tax rate for 2022 is expected to be approximately 20%.
The increase in 2022 is primarily related to the favorable impact of foreign derived intangible income and nonrecurring net discrete tax benefits that occurred in 2021.
Adjusted net income is expected to be in the range of $2 415 to $2 470 billion rub.
Representing operational growth of 10% to 13%.
Our guidance once again reflects our value proposition of growing revenue in line with or faster than the market and growing adjusted net income faster than revenue.
We are anticipating a significant increase in capital expenditures in 2022, primarily related to investments in manufacturing expansions in Ireland, the U S and China.
Finally, we expect adjusted diluted EPS to be in the range of $5 nine since 2019 and reported diluted EPS to be in the range of $4 75.
The $4 87.
While our guidance represents our expectations for full year financials, I would like to provide some color on the expected phasing of growth in 2022.
We expect topline growth to be fairly consistent between the first half and second half of the year.
Due to the impact of generic competition for Jackson isolated supply constraints and the continued weakness of our swine business in China, We expect growth in the first quarter of 2022 to be lower than the remaining three quarters.
In addition, the significant investments we are making early in the year to support revenue growth, primarily in companion animal, including diagnostics, along with very challenging comparative periods for <unk> and other expenses will impact Q1 materially more than that.
Subsequent quarters.
Now to summarize.
2021 was another exceptional year, our best performing year with 15% operational revenue growth and 19% operational growth in adjusted net income.
Our guidance for 2022 reflects the strength of our innovative portfolio, our ability to successfully launch new products and establish new markets and our confidence in the end market dynamics for the spaces, we compete in.
Now I'll hand things over to the operator to open the line for your questions operator.
As a reminder, if you would like to ask a question. Please press star one on your Touchtone phone will go first to Louise Chen with Cantor Fitzgerald. Your line is open.
Hi, congratulations on the quarter and thanks for taking my question. So you've been very successful over the years in your R&D efforts and where do you see your next wave of innovation coming from.
And is it going to be companion or livestock focused drugs or diagnostic. Thank you.
Thanks, Luisa to hear from you.
Are quite excited with regards to our pipeline and I really think it is the innovative nature.
The letter that have made us so successful.
You look at the pipeline works excited about a number of areas both across pet care and livestock.
In pet care continuing to innovate in the parasiticide parasite base, it's a $5 billion market I think we can continue to bring innovation there.
Certainly.
Growing our osteoarthritis monoclonal antibodies for pain Labella, Valencia, continuing to innovate in the derm space.
<unk> and agricultural in Europe . For example, they're also leveraging that whole platform of monoclonal antibodies for other indications. We think is a big opportunity really excited on diagnostics.
We continue to bring really disruptive innovation, there certainly are images platform and some of the new indications. There is a great example, we also think taking a lot of our products and growing them in emerging markets will be valuable and as you move into the livestock space. We're excited about vector vaccines in poultry vaccines in cattle and swine and then.
Really investing as well in our precision livestock farming and genetics portfolio you probably saw we launched two new products. There over the last few weeks. So we think there is significant innovation across both pet care and livestock and believe we have strong platforms in R&D for growth investing over $500 million.
In R&D.
We will take the next question from Mike <unk> with Bank of America. Your line is open.
Great. Thanks for taking the question and congrats on the quarter on a strong guide.
Just to start I know you touched on this in the prepared remarks, but I have to ask a follow up on the on the trio competition.
We heard from one of your competitors that they may be closer than that so even though you won't expect competition and it's not built into your assumptions for 2022.
How would you react if you did see it how what's your assumptions be impacted and how do you think you would adjust pricing or go to market. How would you see a flow through and if I could ask just a quick follow up to that on pricing in general across the portfolio. What are your expectations for 2022, where you're going be able to take more price less price. Obviously, there is some inflationary environment you have to hit.
Livestock versus companion differently. So could you just talk us through your assumptions on price across the portfolio.
Yes, So let me let me take that.
First with respect to trio, we continue to be very pleased with the performance of trio and really the entire <unk> franchise and when you look at trio, we delivered $124 million of revenue in the quarter and you look across the franchise, we continue to see really strong growth for the year.
Franchise grew 82% across the board so very pleased with that.
And we're putting significant investments behind the product.
<unk> purpose well in markets, where you don't see heartworm being prevalent and so we've seen some paragraphs world, 13% on a year and so we're continuing to make those investments in our field force as well as <unk>.
Advertising and DTC campaigns across our confidence is that we'll continue to see growth even when there is a competitor in this space. We have seen that in other cases, where other products have come into the market.
If you look at the.
The flea tick heartworm market biggest market within animal health with $5 billion and there are other products in the in this space.
To have the sizes of $800 million.
Plus so as we look here, we continue to see more headroom to continue to grow.
This brand in this franchise, even when there is competition when I look at price.
We delivered a 1% of growth in price net in 2021, Oh, probably looking at about the same sort of range. When we think about 2022.
You have to keep in mind, while we see opportunities to take price across the board, particularly in companion animal.
And behind our innovative brands and seeing really strong demand in the end markets will continue to pull that lever.
In terms of whats going the other way as you as you're aware Jackson is one with competitive.
Generic competition, there with respect to that as well so it makes in DMD we've seen.
That sort of partially offset.
I would say, but we still delivered net price increase in 2021, and we believe even as we look to offset inflation as we have done in 2021 will have the opportunity to do that we do look at price on a market by market in a SKU by SKU basis, and so we're deliberate about where we can be more aggressive.
And we'll take those opportunities as we go through.
Yeah.
We'll take the next question from Nathan Rich with Goldman Sachs. Your line is open.
Hi, good morning, Thanks for the questions I had two on La <unk> Christian I think you said you expect labella to be a blockbuster in 'twenty two what have you seen with respect to prescribing patterns for vessels that have started to use the product I mean is this displaced other products or our events just diagnosing OE more in.
And does the guidance for it being a blockbuster in 'twenty to assume a U S launch and then just as a quick follow up to that could you just go into more detail on the supply disruption that you mentioned for labella as an API issue or a factory issue just any more details you could share there that'd be great. Thank you sure sure. Thanks Nathan.
Very excited at this that the trends we're seeing in labella in Europe for starters. It is now the number one selling OA pain product in Europe , which is pretty incredible given it wasn't even a full year in Europe .
And what's really exciting about that is we're seeing 40% of the prescriptions.
That are new to the category. So I think for a lot of pet owners, who were worried about safety or.
Our efficacy of the previous portfolios. They really see this as really a game changer and the people who have been on it we've seen a 90% reorder rate from clinics and very high compliance sell once they are on it really staying with it which gives us great confidence as we look into 2022 that we can get labella could be a blockbuster product to <unk>.
Your question about does that assume a U S launch it definitely does not assume a U S likelihood not without approval late in the year, we would not be able to launch <unk> in 2022, so that would hit blockbuster status just outside of the U S.
As you look at some of the supply challenges the inputs to labella are the same inputs as you would make a human COVID-19 vaccine. So we've been really thoughtful about where we launch and making sure we do market by market and sure. We can supply we have had challenges intermittently just having to do with the fact that the inputs are the same so.
I think our supply chain team has done a phenomenal job I mean in a matter of fact that we're already the number one selling in the OA pain, but we are really thoughtful about where we are launching a lot of those are getting addressed the capacity and a lot of those component parts in human health have increased so we become more confident every quarter. We can do that but that is what was driving some of the short term interim.
Our supply challenges, we had in Europe , but I think as you look at our August guidance for this year and we can clearly see if we're going to hit 100 million that we're pretty confident we can address that yes.
Yes, I'll just add with <unk> in the fourth quarter were a deliberate.
Holding back into new patients coming on because we wanted to make sure that we can secure the inputs.
So that when it all comes on they can stay on given that it's a chronic.
In condition so.
And we've been able to secure materials and be able to to run and we're confident in.
And our forecasted.
<unk> here to be able to manufacture and deliver those.
The next question comes from Erin Wright with Morgan Stanley . Your line is open.
Great. Thanks, a question on the monoclonal antibody can you can you speak to the pipeline outside of Philly.
Okay.
Significant capacity, there and you've entered multiple partnerships, including one.
All right.
How would you think about the target there and the timeline and what not on that fund do you see several monoclonal antibody launches.
Three to five years, and then on diagnostic imaging increased focus internationally.
Sequel, how that strategy is progressing I guess, both of you asking internationally from reference lab as well as on point of care and the International reference lab also on your radar screen.
Thanks Erin.
Yes, if you look at the monoclonal antibody platform, we do see that very much as a platform for growth with the relative Valencia being the second and third as you know we also have a data point, we are the only one with any monoclonal antibodies approved right now so I do think we have a good head start we do see this similar to what you see in human health with application across a number of diseases. So.
We have not been terribly public about that pipeline I think we've talked about a few such as chronic kidney disease et cetera.
Obviously in our world, our pipelines or not.
Public, but we are very excited we have invested in building significant capacity across monoclonal antibodies both in the U S and outside the U S and multiple facilities just given our excitement on the fact that this is a really important space. We do have a number of partnerships with human health companies and even some small animal health companies in this space.
So we're really excited at the pipeline and believe we can continue to launch new products, New labs over time, and I will let let me take the diagnostic questions. Yes, we continue to be very excited about the diagnostic space with with growth above the animal health space in general if you look at 2021, we delivered 21% growth in diagnostics across the year.
Particularly when you look at although we grew above both across the U S and international and we've always said that international was a more level playing field, but we look to be aggressive and we continue to make investments across field force reference labs et cetera here, you've seen us innovate in this space with images the first AI platform with <unk>.
Equal indication, we will look at additional indications coming on there as well and so we'll continue to make those investments and diagnosis is one of our key growth drivers as well as we look ahead.
We will go now to Jon block with Stifel. Your line is open.
Thanks, guys good morning.
It seems like Youre, implying 2022 companion animal growth roughly mid.
Mid to high teens very solid growth rate, maybe I can just push you guys a little bit on some of the key products you know any specifics for <unk>.
When we think about 2020 to record this in park, a franchise and or the atopic derm franchise juice.
In terms of contribution to growth and then a little bit of a follow up.
The librarian numbers are really solid international numbers.
Out of the gate, where the Medicalization rates are usually a lot lower so Christian can you just comment does this still hold where longer term. This is still like a 70 30 U S International split in terms of revenue from those novel Therapeutics. When we look out a number of years. Thanks guys.
Sure I'll start with your second question is on just Labella Valencia and international they are solid look we're really focused on increasing the medicalization.
And the adoption of new technologies outside the U S. I think it's been a key focus for Glenn David since you've moved into the International Group I mean as you know there is a very similar number of animals in the U S and outside the U S and to your point historically the revenue splits have been quite different but we're really looking at especially in categories right now where we are the only product out there Germany is one.
But even Michael OA pain really thinking of unbranded and really see if we can raise the standard of care. It's a key focus for us as well on the diagnostic space, how we increased medicalization outside the U S. I think it will evolve over time and be you know I'm not sure when it gets too.
Equal number of animals, but really why we feel like we have a lot of optimism international if you think about some of the emerging markets, where there are adopting new technologies and that curve is quite different. So if you look at the increase in China in Brazil across a number of emerging markets, they're really moving up that curve and much much more quickly.
We also see our belief our belief that we can continue to do that in some of the key category then to your point on your first question. We continue to see growth potential in <unk>, we do not expect a competitor in 2022 and derm again I don't have any data where you always ask me why do I believe that I mean based on just what I know today I could obviously be wrong, but we're going to invest.
<unk>, we have been doing in direct to consumer.
I believe there are 6 million untreated dogs in the U S alone, who have etch and don't have treatment and if you saw the growth that we delivered in 2021 across <unk> with 24% growth in R&D at over $1 billion, we still see growth in derm, certainly in Paris, where going to aggressive aggressively grow that portfolio through direct.
The consumer advertising amongst other thing in 2022 to make sure we had the highest share as we enter I think the brand equity there has been really strong. So we continue to see significant opportunities as well in Paris, So and I think you also can add in our emerging markets across all of these continuing to do really well. So as we look at growth obviously growth will be led as you.
Referenced by our companion animal business in 2022, and I think what's important is there's not one key platform. That's driving that it is multiple it is derm is perez is diagnostics. It's math, it's emerging markets. So we do think we have a range of platforms to continue to grow in 2022 and beyond.
We'll go now to Chris Schott with J P. Morgan.
Great. Thanks, so much for the questions just a follow up on.
Labella and capacity in the U S launch.
By the time that drug is approved later this year do you expect some of these issues will be addressed by then or should we be thinking about either a gap between approval and roll out or a more targeted rollout as youre dealing with capacity I was trying to get a sense of is this something thats.
The next few quarters that you're going to be.
Most of this or is this going to be an ongoing kind of challenge given the kind of broader capacity demands in the industry out there.
And then the second question I had was just maybe a longer term operating margin question and.
The guidance implies moderating moderate kind of operating margin improvement in 'twenty two as we think about longer term do you see kind of a sustained period, where we're going to see opex growth, that's kind of keeping up with overall sales growth. So that you are seeing some margin improvement, but not a ton or do we think about a window, where there is a maybe a larger margin improvement cycle.
Coming as well, maybe you think out to 2023 and beyond as maybe some of these initial investments on.
<unk> trio et cetera kind of start to plateau at some point in here. Thanks, so much.
Yes, sure let me.
Take both so going to your first question with respect to labella as we said in our prepared commentary we continue to anticipate approval sometime late in 2022 that is hinging on inspection. The FDA has to do at a facility outside the U S.
Tom This product gets approved and as we continue to leverage our global manufacturing footprint and our plans and we anticipate having the manufacturing capacity that we need to meet demand across the market. We will certainly leverage our learnings from our launches outside the U S. In terms of how we go about executing that with respect to early expense will go.
<unk> et cetera, but at this point, we're confident in our ability to manufacture to meet customer commitments across that product when it gets approved.
Going on to the operating margins as we've said, we see opportunity to really invest behind a number of areas to drive long term sustainable growth and we're doing so whether you look at R&D investments in our field Force for example.
Investments in advertising.
Haynes DTC campaigns behind our brands that we can really drive growth in particularly in areas, where we have an advantage like being the only triple combination in the U S. As.
As we speak as well as in the Derm area as we do that we will be aggressive, but we're mindful to grow the bottom line faster than top line and that may have narrowed the range that you see from time to time.
Certainly the business has the ability to continue to expand margins and we've demonstrated that we are going to be aggressive about those opportunities. When we see them, which may narrow that range in terms of how long would we continue to see that as long as we see the opportunity to continue to drive growth and grab more share we will execute on those books.
Be mindful of the value proposition.
We'll go now <unk> Prasad with Barclays. Your line is open.
Hi, good morning, guys and congratulations on the quarter.
Firstly on the R&D pipeline and the innovation that you called out on the focus that you called out.
670, Adl's for innovation I am not sure if I'm reading too much into it but I thought oncology pipeline was missing.
This being flagged has been part of that in the past.
Have you had a change of thoughts about oncology.
<unk> is a key area for innovation.
And just on Libre.
Does your success in the past year or drive you to revisit your thoughts on the longer term overshooting the chronic pain market.
You called it out as a market, which can potentially double over the next few years.
They had an upside risk those numbers. Thank you.
Sure as we talk about the pipeline.
Certainly oncology and there.
We don't get very specific with regards to that.
I don't believe we've ever said anything specific with regards to oncology historically, it's certainly an area. We're looking at but I would say some of the other focus areas. We talked about we used to think in the near term.
<unk> likely derive more value as you look at Labella has the outlook changed I mean, we think they're taking a $400 million market. That's been established for a long time and doubling it is pretty aggressive.
We are at and probably have more conviction in our ability to do that is what I would say just.
Just based on the first two full quarters that we've launched the product outside the U S. So more confidence there and more confidence as well that we can take what is almost like a non existent market and the cat fertilize, yet and make that a $200 million. So I'm not sure. We're willing to stay above that I think doubling our market is a pretty aggressive timeline.
There, but I do think our commitment and our conviction in our ability to do that and do it faster.
Certainly I would say it's strong.
Our next question comes from Kristine <unk> with William Blair. Your line is open.
Congratulations and good morning, I was just hoping to have some more color about the <unk> rollout in Europe , and how that can translate into the U S. So just kind of how are you reaching cat owners given the low medicalization of cats in the fact that cat owners don't really bring their cat to the.
Austin.
Also different that administered product or something pet owners can do at home with the injection.
Sure.
Well the one thing we've done with Celesio was alerting from site a point on that certainly as you bring new technologies and create new market. It starts with really with your Kols.
So our plan as you probably saw in 2021 was just first start with early experience with some of the key opinion leaders in each of the markets to get that experience to get them talking.
For general practitioners to be able to call them and should adhere their experience as being videos as you think about he raised a really good point.
With regards to pet owners. We're also trying to provide tools for pet owners to be able to know when their cat isn't paying cash do a great job of hiding. It. So that's really been a focus on videos to show them, what it looks like so they can sort of noticed that.
Giving a big awareness campaign, there and then helping that understand how to make it easier for people to either bring their cats and or are there. Some now cat only clinics or the ability to have that go out and do injections of our technicians to allow them to injections. We are not focused right now on having medical antibody is being able to be done by consumers at their houses is a.
Pretty advanced technology, our focus is really on helping to raise awareness increase the medicalization and make treating these cap easier either at the clinic or at home. There's really no reason for example technician once that that has seen it can't do the monthly injection at home. So we're just seeing really positive, but it takes a thoughtful creation of the market.
And as I talked about before that would be our plan in the U S. As well we will start with early experience get that get the kols talking getting that able to be seen multiple cats and that really helps US you know once you get into the GPS and sure that they are using it and they know how to do it successfully so that is our plan as we think about it.
We'll take the next question from Elliot Wilbur with Raymond James Your line is open.
Thanks, Good morning, I guess, just two questions for me.
Kristen specifically with respect to your outlook for the livestock segment.
Aggregate anything you can say about growth expectations for the specific species and what.
Which of those may have more risk based on your current assumption than others and then just switching gears to the international markets and specifically thinking about regions, where you are.
<unk>.
20%, plus or stronger growth, Chile, Italy.
China et cetera can you just talk maybe a little bit more about the key drivers there how much of the growth is coming from companion versus.
Livestock, which markets as the company over performing.
And what are the key drivers of that over performance. Thanks.
Sure. Thanks Ali I'll take the first and I'll, let let me take your second one on some of the specific international markets.
You know as we talk about livestock you know first of all it has been hit much harder with Covid and the pet care space and the pet care has actually been a beneficiary of Covid and is by its nature a cyclical industry. So it can go up and go down ultimately we believe as you look at sort of you know once we get past the Jackson and some of the other big product low it will go back.
And mid single digit growth, but if you double click that a little a little ways. Obviously the biggest challenge for US specifically has been cattle and that's really been led by Jackson, which overall last year declined by 15%, which was in line with our expectations. We expect in 2022 to have a 20% decline as we had a full year.
With generic competition, there, but theres a lot of bright spots as you look at different species to your point you look at fish. They grew 23% in 2021, we see that as a fast growing species with really positive fundamentals, we think poultry, which grew last year, 6%, maybe a little bit more challenge obviously in the U S with some of the <unk>.
Eric competition, there, but we're really excited about some of the innovative things we're launching there.
We saw swine last year at 4%. So livestock is not one as you know and it obviously varies by market and I think it's important to sort of note as you look at international it was growing in livestock significantly last year. So if you really pull out the drop in effect.
As we look at lifestyle, we do believe it will go back to you for us and for the industry mid single digits for US. We've just got to get out of some of these near term Louise. We're also excited about our pipeline there, which we think again can drive incremental growth above the market as we launch innovation into that sector. So I don't know if you want to take some of the specifics on the international markets emerging markets, Brazil, China, Yes.
Absolutely.
One of the most remarkable things.
In my first year here that have come to realize is what we're seeing in terms of trends on companion animal are not just in the U S. But we're seeing them across emerging markets. Now if you step back international is still about just over 50% of our international revenues, our livestock and companion animal.
<unk>.
Just over 40% however, the pace of growth that we're seeing across markets and companion animal is absolutely phenomenal markets like China that used to be mostly livestock is now about 50% companion animal and elsewhere, even when we talk about Brazil, we've seen a really great year across cattle et cetera, Brazil is growing double.
Visits in companion animals. So we believe those trends will St reasons that are driving growth of companion animal repaired owners prioritize the health of their pets and are willing to spend more on them, we're seeing those across international markets and we see those outpatient growth.
Livestock, although we've seen much like growth international markets as Christian mentioned.
It was 8% growth in livestock.
'twenty, one across our international markets and if you look at species fish for example is.
100% of our fish businesses outside the U S. So that's one.
One area of growth that we anticipate as well so hopefully that gives you some color looking across international.
The next question comes from Nevada tie with Citi. Your line is open.
Hi, good morning could you.
You discussed your expectation on staffing in the near term and the potential impact on <unk> companion animal segment.
Second question on <unk> trio can you give us more details on the label expansion how significant could be the indication. Thank you.
Lots of thanks, so much John I'll start with the does that staffing.
Short term and long term, we did see some of that I think challenges in the U S. In December and January given absenteeism without COVID-19 and that that was sort of short term. So as you look at.
Trends overall in the U S. We continue to see those to be strong with 8% revenue growth led by 3% increase in traffic and spend per visit at five.
Double clicking on that traffic at 3%, we thinking again, it'll get back to sort about a more normal trend. There has been a challenge as you mentioned given there's so many more pets being seen.
I'm sure that the staffing levels at both the vet and the technician side remains strong we're really focused on partnering with both the AVMA in the a b and C. In the U S and honestly around the globe to ensure there is a reliable supply of that and that technicians, but importantly, as well to make sure that the veterinary profession.
And vet clinics remained really attractive odd job and thats really partnering with different organizations to make sure that that is the case I would say everyone is aligned here I think you are seeing significant increases in compensation for many of these VAT.
We firmly believe that theyre doing the right things to make sure that they can provide the great customer care and pet care that they need to but obviously, it's something that we're highly invested in partnering across the industry to make sure that pets get the care that they need and the staffing levels remain high it is a challenge given the very quick growth in the number of pets that were adopted over the last.
Two years, so the challenges there, but we are.
Confident that in partnership with many other companies pharmaceutical companies as well as that clinics and associations, we can ensure that the vets and that technicians can meet that need.
And you want to add that there's a question on trio label extensions in the future I don't think we've been specific about what we're looking at there and we wouldn't just for competitive reasons.
The next question comes from Kathy Miner with Cowen Your line is open.
Yes. Thank you just a couple follow up questions first on for Lindsay you in.
In the U S launch can you just.
Clarify that the launch in the second half of this year is just set up for getting education and preparation as opposed to any supply issues and will you be coordinating our marketing with like boiler in the U S. Once it gets approved.
Second question just to follow up on the derm side of it for 2022.
I don't think you said gross target, but clearly you've got to be pretty optimistic with no competition coming in for this year.
Do you think that you could see growth get it matching the 2021 trends and your assumptions for the germ include a U S chewable or any fee line options. Thank you.
Sure So with regards to July this year.
Yes, we are focused when we think about the launch.
I'm sure that we start with early experience.
We build that market and we.
Obviously launch shortly thereafter, we're not concerned there on a supply issue or the plans that we have.
In supply for exactly what we're planning on doing it so that that is not what's driving that one.
<unk> in 2022, we continue to expect robust growth, obviously with right.
Right now as we talked about we are not expecting competition next year of course, we can be wrong, but we're not and therefore, we will invest aggressively not just in the U S. But outside of the U S that does not to your question assuming that we have apple to Apple in the U S and nor does that number that we're talking about in <unk>.
Given that we're having it for cat. So we really believe with Apple cider point Apple cultural outside the U S. We can continue to drive robust growth in 2022 across the category.
This will conclude our Q&A session that is now my pleasure to hand, the program back to Kristin Peck for any additional or closing remarks.
Great well. Thank you everyone for your questions and your continued interest in <unk> just to summarize I am really proud of what the what it delivered in 2021, having our best year ever and.
And we see that positive momentum really continuing into 2022 with you I think you heard today from both whitening and myself, we will continue to build on our diverse global portfolio and really our strength in pet care diagnostics in emerging markets to grow faster than the market in 2022 and beyond and we're committed to the investments in talent technology and manufacturing innovation that will spur our.
Future growth. So thanks, so much everybody and talk to you soon.
This does conclude today's program. Thank you for your participation you may disconnect at any time.
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