Executive Summary / Key Takeaways

• Innovation-Led Market Expansion: Zoetis continues to drive robust organic operational revenue growth, fueled by its pioneering innovation in companion animal health, particularly with its Simparica, Key Dermatology, and OA Pain franchises. These efforts are actively expanding addressable markets and setting new standards of care.
• Strong Q2 2025 Performance & Raised Guidance: The company delivered 8% organic operational revenue growth and 10% organic operational adjusted net income growth in Q2 2025, leading to a raised full-year 2025 guidance for both metrics, demonstrating resilience and disciplined execution.
• Technological Moat in Biologics: Zoetis's core strength lies in its differentiated technology, especially monoclonal antibodies (mAbs) and JAK inhibitors, which provide tangible benefits like enhanced efficacy, convenience, and safety, underpinning its competitive advantage and future pipeline.
• Strategic Competitive Positioning: Despite increasing competition in key categories, Zoetis leverages its first-mover advantage, strong brand loyalty, and diversified portfolio across species and channels to maintain market leadership and capture expanding market share.
• Long-Term Growth Catalysts: A robust pipeline, including long-acting OA pain mAbs, chronic kidney disease, and oncology treatments, promises significant future growth by addressing substantial unmet medical needs and creating multi-billion dollar new markets.

Zoetis's Enduring Foundation and Strategic Pillars

Zoetis Inc., spun off from Pfizer (PFE) in 2013, has rapidly cemented its position as a global leader in animal health. Its foundational strategy centers on the discovery, development, manufacture, and commercialization of a diverse portfolio spanning medicines, vaccines, diagnostics, biodevices, genetic tests, and precision animal health. This comprehensive approach serves both companion animals (dogs, cats, horses) and livestock (cattle, poultry, swine, fish, sheep) across over 100 countries, establishing Zoetis as a critical partner in animal well-being and food security.

The company's history is marked by a consistent drive to identify and address unmet medical needs, thereby creating entirely new therapeutic categories. This innovation-led model, coupled with a customer-first approach, has enabled Zoetis to build deep relationships with veterinarians and pet owners. Its global scale and diversified business model provide inherent resilience, allowing it to adapt to evolving market dynamics, competitive pressures, and macroeconomic shifts.

Technological Edge: The Engine of Differentiation

At the heart of Zoetis's competitive advantage lies its technological prowess, particularly in advanced biologics and targeted small molecules. The company's pioneering work with monoclonal antibodies (mAbs) and JAK inhibitors represents a significant leap in animal health, offering solutions that were previously unavailable or suboptimal.

For osteoarthritis (OA) pain, Librela (for dogs) and Solensia (for cats) are mAb treatments that have revolutionized chronic pain management. These biologics offer targeted relief, with Librela demonstrating high patient satisfaction, as over 75% of U.S. patients report being extremely or very satisfied with its results. Solensia, similarly, has captured over half of the feline OA market share internationally, underscoring its efficacy and the significant unmet need it addresses.

In dermatology, the Key Dermatology franchise, comprising Apoquel (a JAK inhibitor) and Cytopoint (an mAb), exemplifies Zoetis's differentiated offerings. Apoquel boasts over a decade of safety and efficacy data, while Apoquel Chew provides enhanced convenience and palatability, driving compliance. Cytopoint offers long-acting relief, simplifying treatment for chronic conditions by reducing the need for frequent administration. This multi-modal approach allows veterinarians to personalize care, improving outcomes and fostering strong brand loyalty.

Zoetis's commitment to innovation extends to its robust R&D pipeline. The company anticipates a significant approval in a major market every year for the next few years. A notable near-term development is a new long-acting OA pain mAb for dogs and cats, expected to receive approval this year. This novel antibody, targeting a unique binding site, is designed as a 3-month product with a 10x lower dose than Librela, promising even greater convenience and longer-lasting effects. Beyond this, the pipeline includes potential blockbusters in chronic kidney disease (a $3-4 billion market with virtually no existing treatments), oncology (an over $1.5 billion market), and cardiology. These initiatives highlight Zoetis's strategic intent to not just compete, but to create and lead new, high-value markets, thereby solidifying its competitive moat and driving long-term financial growth.

Dominating Key Markets: Companion Animal Growth Drivers

Zoetis's companion animal portfolio consistently demonstrates robust growth, driven by its market-leading franchises. In Q2 2025, the global Companion Animal segment grew 8% operationally, contributing significantly to the company's overall performance.

The Simparica franchise (parasiticides) continues to be a powerhouse, growing 17% operationally in Q2 2025 to $448 million. Simparica Trio, a triple-combination product, is setting the standard of care in the fastest-growing segment of the parasiticide market, delivering 20% operational revenue growth. Despite nearly two years of competition, Simparica Trio has maintained its patient share, expanding the triple combination share in vet practices from 30% to 45%. Zoetis's first-mover advantage, strong commercial relationships, and strategic use of alternative channels (which now account for approximately 22% of U.S. Companion Animal sales and grew mid-20% in Q2 2025) reinforce its leadership. Internationally, the Simparica franchise grew 16% operationally, with Simparica Trio growing 22%, indicating significant untapped potential as many global markets are still in early stages of triple-combination adoption.

The Key Dermatology franchise also delivered impressive results, growing 11% operationally in Q2 2025 to $460 million. This sustained growth, over a decade since its initial launch, is a testament to the durability of true innovation. Zoetis has not only created but continues to expand the dermatology category with complementary treatment options. The Apoquel Chewable formulation is experiencing the strongest growth, offering ease of administration and differentiation from competitors. The market opportunity remains vast, with an estimated 20 million dogs globally still untreated or undertreated for itch, providing a long runway for continued expansion.

While the OA Pain mAbs franchise (Librela and Solensia) has faced headwinds, particularly in the U.S., its long-term potential remains compelling. Librela's U.S. ramp-up has been slower than expected, declining 16% to $45 million in Q2 2025, due to adoption barriers and perceived safety concerns among veterinarians. However, Zoetis is actively investing in medical education, partnering with key opinion leaders, and conducting Phase IV studies to reaffirm safety and efficacy. The U.S. market alone presents a massive opportunity, with 27 million dogs suffering from OA, only 9 million currently treated, and just 1 million on Librela. Internationally, Librela grew 1% to $64 million, experiencing some social media headwinds in English-speaking markets, but Solensia for cats grew 17% to $19 million, demonstrating high satisfaction and market expansion. Zoetis's strategy is to continue investing in market development, confident in the long-term value of these breakthrough therapies.

Resilience in Livestock and Global Reach

Zoetis's Livestock portfolio continues to be a robust contributor, demonstrating strong resilience and outperforming market expectations. In Q2 2025, Livestock delivered 6% organic operational revenue growth globally, marking the fifth consecutive quarter of above 5% organic operational growth. This performance is particularly noteworthy given the low single-digit market growth projections for the sector. The strength is broad-based, with double-digit gains internationally (10% organic operational growth in Q2 2025).

Key drivers in the International Livestock segment include timing-related tailwinds from China in swine products, strong vaccine sales in Norway and Chile for fish, and increased demand for poultry vaccines in the Middle East and Asia. Cattle products benefited from strategic price contributions in high inflationary markets. This consistent performance underscores the essential nature of animal protein and the critical role Zoetis's products play in safeguarding supply chains and enhancing productivity.

The strategic divestiture of the medicated feed additive (MFA) product portfolio in October 2024, while resulting in a net pre-tax loss of $25 million in 2024 and an additional $3 million loss in H1 2025, was a deliberate move to streamline the portfolio and focus investments on higher-growth, higher-value areas. Zoetis remains deeply committed to the livestock sector, emphasizing innovation in preventatives, antibiotic alternatives, and genetics, as evidenced by the conditional license for its Avian Influenza Vaccine for lactating dairy cattle in Q2 2025.

Zoetis's global footprint, with direct operations in approximately 45 countries and products sold in over 100, provides significant diversification. Approximately 41% of its revenue is denominated in foreign currencies, which can introduce FX volatility (a 2% unfavorable impact on revenue growth in H1 2025). However, its diversified manufacturing base, with 60% of global manufacturing in the U.S. and 75% of U.S. sales produced domestically, provides a strategic advantage in managing supply chain risks and potential tariff impacts.

Financial Strength and Operational Discipline

Zoetis's financial performance in the first half of 2025 reflects its operational effectiveness and strategic focus. For Q2 2025, the company reported revenue of $2.46 billion, an increase of 4% year-over-year, and 8% on an organic operational basis. Net income attributable to Zoetis Inc. was $718 million, up 15% from Q2 2024. Adjusted net income reached $783 million, growing 10% organically, translating to adjusted diluted EPS of $1.76, an increase of 13% organically.

Year-to-date (H1 2025), revenue stood at $4.68 billion, growing 3% reported and 5% organically. Adjusted net income for H1 2025 was $1.445 billion, up 7% reported and 4% organically, with adjusted diluted EPS of $3.23.

Profitability metrics remain strong, with adjusted gross margins reaching 73.7% in Q2 2025, a 200 basis point increase reported, driven by the MFA divestiture, favorable foreign exchange, and price increases, partially offset by higher manufacturing costs. Operating expenses saw disciplined management, with SG&A increasing 6% operationally due to advertising, promotion, and compensation, while R&D grew 1% operationally, reflecting strategic investment timing.

Zoetis maintains a robust liquidity position, with $1.435 billion in cash and cash equivalents as of June 30, 2025. The company's $1.0 billion revolving credit facility remains undrawn, and it has a $1.0 billion commercial paper program with no outstanding borrowings. Capital allocation priorities include significant shareholder returns; the company repurchased $781 million of shares in H1 2025, with $4.9 billion remaining on its $6.0 billion share repurchase program. A dividend of $0.50 per share was declared for Q3 2025.

Zoetis also proactively managed its debt profile, pricing $1.85 billion in new senior notes to repay existing obligations due in 2025.

Outlook and Investment Implications

Zoetis has raised its full-year 2025 guidance, reflecting confidence in its strong first-half performance and current macro environment. The company now projects revenue between $9.45 billion and $9.6 billion, representing organic operational growth of 6.5% to 8%. Adjusted net income is expected to be in the range of $2.825 billion to $2.875 billion, with organic operational growth of 5.5% to 7.5%. Adjusted diluted EPS is forecasted between $6.30 and $6.40. This guidance incorporates the impact of currently enacted tariffs and assumes competitive entrants in dermatology will primarily impact the fourth quarter.

The investment thesis for Zoetis is compelling, grounded in its ability to consistently outperform the animal health market. Its technological leadership in mAbs and JAK inhibitors, coupled with a relentless focus on R&D, ensures a continuous stream of differentiated products that create and expand markets. The anticipated approval of a long-acting OA pain mAb this year, alongside pipeline assets for chronic kidney disease and oncology, represents significant future growth catalysts.

Zoetis's competitive positioning is formidable. Against Elanco (ELAN), Zoetis offers a more established market position in companion animals, a wider range of innovative solutions, and superior brand loyalty. Compared to Merck Animal Health (MRK), Zoetis demonstrates stronger growth and profitability in its core animal health business, leveraging focused expertise. While IDEXX (IDXX) leads in specialized diagnostic technology, Zoetis's integrated approach of combining diagnostics with pharmaceuticals offers a unique value proposition for comprehensive treatment workflows. Zoetis's first-mover advantage in key categories like triple-combination parasiticides and dermatology, combined with its omnichannel strategy, allows it to capture market share even as new competitors enter.

However, investors should monitor potential risks, including the dynamic tariff environment, which could impact product costs and demand. While Zoetis's diversified manufacturing base offers mitigation, retaliatory trade policies remain a concern. Challenges in Librela's U.S. adoption, driven by vet recommendations and social media headwinds, require continued investment in education and real-world data generation. The ongoing IRS tax audit, with a proposed $450 million additional liability, also presents a financial contingency. Despite these challenges, Zoetis's proven resilience, strategic agility, and commitment to innovation position it for sustained long-term value creation.

Conclusion

Zoetis stands as a testament to the power of innovation and strategic execution in a resilient and essential industry. Its history of pioneering new categories, from dermatology to OA pain, underscores a fundamental ability to identify and address unmet needs, translating scientific breakthroughs into market leadership. The company's robust pipeline, particularly in biologics and new therapeutic areas like chronic kidney disease, promises to extend this growth trajectory well into the future, creating multi-billion dollar opportunities.

Despite a dynamic competitive landscape and macroeconomic uncertainties, Zoetis's diversified portfolio, global reach, and operational discipline enable it to consistently deliver above-market growth and enhance shareholder value. The company's strong financial performance, coupled with a clear strategic roadmap and a commitment to capital allocation, reinforces its position as a compelling long-term investment. Zoetis's enduring power lies in its unwavering dedication to advancing animal care, a purpose that continues to fuel its innovation and market expansion.