Zoetis Inc. maintained its place as a leader in animal health in the third quarter, posting double-digit growth in earnings and a 9.9% increase in revenues to $1.48 billion.
Company executives told investors on a Nov. 1 earnings call that revenues will continue to grow faster than the market for the full year of 2018 and 2019.
The majority of Zoetis' growth was due to what analysts call the Big 3: companion animal products Apoquel, Simparica and Cytopoint. Apoquel and Cytopoint, dermatology products for dermatitis, achieved 39% growth for sales of $172 million combined in the third quarter. Simparica generated $43 million, with operational growth of 80% year over year. Simparica protects against external parasites such as fleas and ticks.
Growth in the Big 3 products will likely slow in 2019 and 2020, especially with the influx of competition and generics as the products' exclusivity wears out, CEO Juan Ramón Alaix told investors on the call. Nevertheless, Alaix emphasized that the animal dermatology and pain in dogs markets were "basically created" by Zoetis, and its drugs will remain leaders despite competition.
Cytopoint recently gained a label expansion in the U.S. to treat allergic dermatitis as well as atopic dermatitis, Alaix added.
Internal investment in research and development, particularly for the companion animals unit, will continue, with the expectation of Simparica Trio coming to U.S. markets in 2020. Alaix said Zoetis has filed an application for the product, which will additionally protect against internal parasites like heartworm, with the U.S. Food and Drug Administration as well as the European Medicines Agency.
Other products in the pipeline are a monoclonal antibody program for pain in dogs and cats, and continued life-cycle innovations, Alaix said.
Zoetis' acquisition of Abaxis, completed July 31, also contributed to the company's increased operating expenses, demonstrating Zoetis' new focus on adding a new product category of diagnostics. A survey of 104 veterinarians conducted by Stifel analyst Jonathan Block, published in an Oct. 30 note, showed that vets highly value diagnostics in the clinic, with 92% of respondents ranking diagnostics as a 5 or a 6 on a scale of 1 to 6 in terms of importance.
CFO Glenn David said Abaxis contributed $42 million in sales from two months in the U.S., Canada and Latin America, and one month in all other international markets.
Abaxis' destocking of wholesaler inventories will continue into the fourth quarter, David said, in order to normalize them with Zoetis' levels. If adjusted for destocking, David said he expects Abaxis to post double-digit growth in the fourth quarter.
International expansion will also be a focus point, as Alaix said China poses great potential in the companion animals market. China's approval of Apoquel is pending, and China posted 15% growth in operational revenue, according to David.
Other international emerging markets include Turkey, Vietnam, Argentina and India.
Livestock challenges continue, slow recovery expected
While companion animals saw 19% operational growth, livestock grew 6% operationally. In the U.S., Zoetis' livestock unit saw just 1% growth.
Poultry and swine remained strong, though their performance was offset by a struggling cattle section. David said weather, herd movements and producer profitability will be integral to the cattle business' recovery, which he posited will come in 2019.
Alaix said dairy prices are improving, albeit slowly, though the beef section is experiencing "very little growth." He reiterated modest growth for cattle in the coming quarter.
Fish, on the other hand, posted double-digit operational growth of 21%, due to the continued international demand for pancreatic disease vaccines.
In the meantime, Zoetis is developing a vaccine for African swine fever in collaboration with the U.S. Department of Agriculture, which Alaix said will come to fruition in several years.
Data analytics and digital will also be an area of investment in dairy farms, Alaix said.