Welcome to the First Quarter 2023 Financial Results Conference Call and a Webcast for Zoetis. Hosting the call today is Steve Frank, Vice President of Investor Relations for Zoetis. The presentation materials and additional financial tables are currently posted on the Investor Relations section of zoetis.com. The presentation slides can be managed by you, the viewer, and will not be forwarded automatically. In addition, a replay of this call will be available approximately two hours after the conclusion of this call via dial-in or on the Investor Relations section of zoetis.com. [Operator Instructions]. It is now my pleasure to turn the floor over to Steve Frank. Steve, you may begin.

Thank you, operator. Good morning, everyone, and welcome to the Zoetis first quarter 2023 earnings call. I am joined today by Kristin Peck, our Chief Executive Officer; and Wetteny Joseph, our Chief Financial Officer. Before we begin, I will remind you that the slides presented on this call are available on the Investor Relations section of our website and that our remarks today will include forward-looking statements and that actual results could differ materially from those projections. For a list and description of certain factors that could cause results to differ, I refer you to the forward-looking statements in today’s press release and our SEC filings, including, but not limited to, our Annual Report on Form 10-K and our reports on Form 10-Q. Our remarks today will also include references to certain financial measures, which were not prepared in accordance with Generally Accepted Accounting Principles or U.S. GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures is included in the financial tables that accompany our earnings press release and the company’s 8-K filing dated today, Thursday, May 4, 2023. 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 first quarter earnings call for 2023. Today, we reported solid first quarter results of 4% operational growth in revenue as expected, based on our diverse portfolio and strength in international markets. As we indicated in February, we expected a softer first quarter and a stronger growth for the remainder of the year, and we are reiterating our full year guidance for operational growth of 6% to 8% in revenue and 7% to 9% in adjusted net income, given the underlying strength of the petcare market. In the first quarter, our international segment led the way growing revenue 10% operationally and was partially offset by a 1% decline in the U.S. Our livestock portfolio drove the results with 12% operational growth in revenue, while companion animal product revenues were flat operationally. The performance in livestock was based on double-digit operational growth for cattle, poultry, sheep and fish. In the case of U.S. cattle, this performance was supported by an improvement in the supply of key products. Meanwhile, our companion animal portfolio in the U.S. declined due to distributors destocking and reducing their inventories in the first quarter. As well as higher purchases in the fourth quarter of 2022, which occurred in anticipation of price increases and based on promotional programs. We see strong end market demand in companion animal channels based on data from veterinary clinics, retailers and pet owners. And we view distributor inventories as a short-term impact on our companion animal sales. For example, while our sales into distributors declined in the quarter, as we expected, our product sales from distributors out to veterinary clinics were up approximately 8% and our product sales out of retail channels to pet owners were up about 35% up affirming a healthy petcare market in…

Thank you, Kristin, and good morning, everyone. We had a solid start to the year, with growth driven by our livestock business and strong international market performance. Echoing Kristin’s comment, our Q1 results are in-line with our expectations. As we indicated on our Q4 earnings call, we expected the first quarter to be below the low end of our forecasted annual operational growth rate of 6% for 2023. In the first quarter, we generated revenue of $2 billion growing 1% on a reported basis and 4% on an operational basis. Adjusted net income of $607 million declined 3% on both a reported and an operational basis. Of the 4% operational revenue growth, 5%age from price with a 1% decline in volume. The volume decline is driven primarily by U.S. companion animal distributor destocking in the quarter. Our livestock portfolio led the way in terms of species growth growing 12% operationally with companion animal revenues flat on an operational basis in the quarter. Livestock growth was broad based with double-digit operational growth across cattle, poultry, sheep and fish. The growth in cattle was driven by additional supply of key products in the U.S. We saw growth in our poultry portfolio driven by higher sales of vaccines. Our sheep products benefited from favorable market conditions in Australia as well as our acquisition of Jurox in the fourth quarter of 2022. Finally, our fish portfolio continues to perform well with double-digit operational growth driven by strong vaccine performance in Norway. Sales of our companion animal products were flat operationally in the quarter, with growth in our monoclonal antibody products, Cytopoint, Librela and Solensia, offsetting declines in Apoquel, parasiticides and anti-infectives. Our monoclonal antibodies for osteoarthritis pain in dogs and cats, Librela and Solensia posted $51 million in revenue globally in the quarter, with…

[Operator Instructions]. We'll take our first question from Jon Block from Stifel. Please go ahead.

Thanks guys. Appreciate it. Good morning. I'll ask both upfront I think importantly, is the channel now normalized in the U.S., Kristin? And then some rough crude math, but if you were down 7% U.S. companion animal and sales out were up 8% -- it's over like a 1500 basis point delta. And I sort of landed over $100 million in sales if you quantify that. So can you guys bridge how you get there? I guess there's $25 million to $30 million of parasiticides last quarter, or [does these] (ph) working down inventory by a week, whatever you can do to bridge that would be helpful. And then a quicker one, an easier one, Librela, I think you said approval still expected 1H. So launch 2H, is that the full launch call it before the end of the year. And then again, Kristin, how do you feel on your ability to serve demand we believe there's a lot of Solensia users that are chomping at the bid to get at it. So do you expect U.S. Librela supply to be an issue at all call it, 1H ‘24? Thanks guys.

Sure, Jon. I'll start with your second question. It's pretty straightforward. Yes, we continue to expect approval of Librela in the first half with the launch in the second half. The timing of exactly that a full launch, we would obviously, we've always said do early experience first and then go to full launch, the full launch could be very late in the year. But as we continue to -- and I'll reiterate again, the Librela is not in our numbers for the year. We do not include in our numbers for the year, a product that's expected to launch very late in the year for obvious reasons. So, we would do early experience. As we've always done with a full launch -- if we did a full launch, it will be very late in the year based on what we're saying. And no, we do not anticipate any supply challenges, on a full launch in 2024, whether it's late this year or early 2024, we don't see any challenges there. On your second question on distributor, I think we'll spend a bunch of time on that today. Obviously, there's a lot of complexity in that one. But again, it is in-line with what we expected and we really don't think the trend you see in the quarter is going to continue. Let me let what get into all the details because I know this is probably the biggest question we've been hearing early this morning. So, Wetteny, you want to go through some of the details?

Sure. Jon, the start of your question was, are we at normalized levels, I’ll start there, first? And yes, we're at normalized levels here sitting here in the second quarter. And let me just step back and give you a little bit more details here. As Kristin said, we came into the year and as you may recall on the last call, we described how we saw increased buy-in in the fourth quarter. Driven by promotions that we ran on parasiticides, given we have recovery of supply late in the year, as we got through some of our supply constraints. And there was more pre-priced buy-in given the level of pricing pieces we're coming into 2023 with, in the fourth quarter above what I would call normal levels pre-price buy-in. So, we expected to see destocking in the quarter, which is why we said that the first quarter would be below the low end of the range of growth that we have for the year at 6% to 8%. So we've seen destocking in the first quarter down to I would say the lower end of our normal range that we've experienced historically. And as we step into -- and by the way, given rising interest rates, that is not unexpected. And then as we got into April, we saw slightly more destocking as we started the quarter, but those have normalized and have been reflected in the guidance that we just reiterated today. And so we're not anticipating a return back to normal levels in terms of inventories or assumption in our guidance is that they'll stay about where they are now. Now to be clear, if you look at the end market demand dynamics, they remain very strong. As we said in our earnings release, sales out of distributors into clinics were up 8% on a volume basis in the quarter. And if you look at retail, sales out pet owners were up 35% on the quarter. We've seen for the first time in about a year vet visit increased by 2%, and if you look at derm patients, for example, visit increased in the quarter versus a year ago. And so again, we've seen normalization since then, and by the way, international markets where we didn't see -- we haven't seen and don't expect to see the level of destocking that we've seen in the U.S. you saw 10% operational growth in our international markets across livestock and companion animal. And so again, without an extremely return to those levels and these are factored into our guidance, and we're contemplated when we gave the initial guidance back in February.

And we will take our next question from Erin Wright with Morgan Stanley. Please go ahead.

Great. Thanks. Two questions, one on livestock, one on companion. So, on the livestock side, was there a stocking benefit across livestock in the segment in the quarter? Can you quantify that for us and how much of the strength in U.S. livestock should continue in the coming quarters, given that you expect flat for the year? And you touched on derm a little bit on the companion animal side, but you mentioned Apoquel declined with no competitors in that segment and your direct distribution strategy, what drove the decline, and does that volatility that you're seeing across that retail channel for this product change how you think about leveraging that alternative channel, and are you proactively shifting customers to side of going ahead of competition? Thanks.

Sure. Thanks, Erin. Again, livestock did grow 12% as you mentioned, which was in line with what we expected, but the growth really was driven by resupply or increased supply of a lot of key products As we reiterated in our prepared remarks, we continue to expect a flattish growth for livestock for the year. If you look at it we saw, if you look at the U.S. business, we think you'll see it's really more of a onetime sort of getting back into supply and some of this. Is it slightly up or slightly down? I think a lot of that is genuinely going to depend on China. If it's return to travel and dining out in China will drive growth in a number of our markets around the world in our export markets such as Brazil or Australia or even the U.S. So we continue to expect and built into our guidance for the year is to have a flattish livestock number, which obviously gets back to Wetteny’s point, which is we're expecting very strong double digit growth in companion animal. As you look at derm for the quarter, it did decline, but this is largely due to the destocking of the pre-price buy-ins and promotions in the U.S. And as Wetteny mentioned in his remarks, the one-time issue in Japan back to Q1 of 2022, in fact, if you pull that out, international had double digit growth if you take out Japan. So again, this performance was in line with our expectations, but really importantly it is not indicative of our view of our expectations for the year. We continue to expect double-digit growth for the rest of the year and for the overall year for dermatology. Our sales out remain really strong. We're seeing a lot of uptick right now in Cytopoint, more and more on pet owners are really seeing the compliance benefits of it, the efficacy of it, invest, love it because it obviously stays in the clinic. As we continue to see the shift here it would compliance, I think again we'll underscore our growth there. And the other thing I'd mentioned that Wetteny mentioned is derm visits continue to grow in Q1. And we're not really seeing any pushback from customers on the price increases that we did do. So we continue to expect strong growth for derm for the year per our last guidance, double digit growth for derm.

Yes, I would just add that first quarter is non-indicative of the year here, Aaron, similar to the overall results. And so to your point around retail channels, etcetera, we don't see us changing that. I think the fact that, Cytopoint we expect to continue to lead the growth for key derm franchise, we'll change the mix between those two. But not changing the overall picture and our expectations for derm remain the same for the rest of the year. And we're off to actually a strong start. In the second quarter for derm both in the U.S. and internationally.

And we will take our next question from Michael Ryskin with Bank of America. Please go ahead.

Great. Thanks for taking the question guys. First, I want to ask about sort of the top line progression through the rest of the year. I think you'd point to some softness from what you previously and you talked about just now let me on when you saw distributors to start the second quarter. But any additional color you could give us as sort of we go through the rest of the year given that there is a relatively steep ramp implied in numbers right now just to hit your $8.65 billion and 68% operational growth. So just talk about the step up in 2Q, 1Q to 2Q versus 2Q to 3Q, 4Q. And then as a follow on to that, Kristin, you touched on Librela earlier, but I was wondering if you guys could comment on the other product launch expected this year, the competitor to Simparica Trio. We haven't seen that yet. Obviously can come any day, but just curious what you're hearing on that. And if your thoughts on what's going on parasiticides market have changed regarding that in terms of what some of your competitors are doing with stocking, what some of your competitors are doing with promotions of some of their products and sort of how that's impacting your view on tariff through the rest of the year. Thanks.

Hey, Mike. I'll start with progression for top line for the year and then I'll turn it over to Kristen. And she'll cover Librela launch in sure competition. So with respect to progression for the balance of the year, we expect normalized growth across the year starting with the second quarter, which obviously we're already about halfway into the second quarter. And as I mentioned just a little bit ago, we've got a strong start particularly in derm but across the board to what I'll call more normalized mix and normalized cadence for the balance of the year. One thing I would say is with respect to Q2, and that's normalized operational growth rate I'm referring to. If you take a look at FX, for example, that was about three points of headwind in the first quarter based on where rates are right now, I would expect about two points of headwind on the second quarter. So when you map out operational growth to reported growth, you should take that into consideration. That turns around in the second half again based on where rates are now and it ends up being slightly unfavorable on the year, year-on-year on FX on the top line and slightly favorable at the bottom line. So that's how I would sort of think through the progression. But again, starting with the second quarter, you should expect normalized growth to get to the guidance that we just reiterated at 6% to 8%.

Sure. And let me pick up your second question, which was the other product. We are continuing to expect competition in the second half of the year for Simparica Trio. But I want to underscore that as you look at the first quarter, we actually gained share. So as we said, there's very strong underlying demand for Simparica Trio in the U.S and even with competition coming, if you look at our performance, it was in line with our expectations. Again, we said it's not indicative of the year and we continue to expect strong growth for the remainder of the year. Even with competition in the second half. So we have been expecting this competition. The good news is it's later than we did expect. As we think about it, we've talked about this before, we're not expecting them to radically change any pricing if they would really I think given they are the leader right now with HEARTGARD NexGard, they would really cannibalize their own business. And I think it's important to keep in mind even if you look at the quarter. They ran very strong promotions ahead of their launch. And even with those promotions, we gained share in that quarter. So we remain very confident in the strength of Simparica Trio. In the strength of our relationships with that in the pet owner satisfaction of it, we do expect competition. We think they'll bring a product as I said in the second half of the year, but we remain confident of the strong growth for Simparica Trio as we said before for the year.

We'll take our next question from Nathan Rich with Goldman Sachs. Please go ahead.

Great. Thanks for the questions. Sorry to keep honing in on the destocking dynamics, but could you maybe just talk about how the first quarter U.S. companion animal sales kind of played out month by month? It seems like January and February price saw the bulk of the impact from the pre buy-in and pull forward into the fourth quarter. It sounded like the destocking might have occurred a little bit later in the quarter. I think this is people are looking to get better visibility on the improvement in the second quarter. Could you maybe just comment on how March or April played out just as we think about kind of where the business is heading into the second quarter?

Yes. So look, I'll be happy to answer the question as to destocking. We saw destocking from the start of the quarter just as we anticipated and as we discussed in some of prior call given the dynamics coming out of Q4. As we mentioned too in the last call, the timing of our supply recovery in terms of last year would have had an impact on the cadence on the year, which is playing out exactly as we thought. I'll give you a little bit more color perhaps that might be helpful if you think about what the end market demand looks like. When we look at our sales out of distribution to clinics, we said its 8% volume growth on the quarter. If you look at how those played out for March, the end of the quarter, they're actually above that number. So, we haven't seen anything in terms of what the end markets are that would indicate a slowdown. And as I said, we've had a strong start to the second quarter and we're sitting here in the middle of the second quarter, and I'm saying that we would see normalized growth starting in this current quarter for the balance of the year.

Yeah. And I think I want to also reiterate what Wetteny said earlier, which is they are at very low levels, the lower end of their ranges, but our guidance expects that they do not go back up. We believe that given the current interest rate environment, our expectation is that they will stay at this level. So again, our confidence in the guidance we're providing is assuming that they're not going back up, they will stay at the levels that they're at now.

And we will go next to Louise Chen with Cantor. Please go ahead.

Hi, thanks for taking my questions here. So wanted to ask you, on your upcoming investor event, what will you discuss here? What are some of the key things that you're going to be going over. It's been a while since you've had investor event. And will you be disclosing more additional pipeline products, longer term guidance, anything from that front? And then I also wanted to ask you in your diagnostics business, what's the outlook for the remainder of the year on that business? Thank you.

Sure. We are excited for our Investor Day. We spent a time talking to a lot of our investors over the last six months as to what they're looking about. Our focus there will be really on building confidence in our medium to long term growth expectations. We've gotten a lot of questions obviously on our pipeline and R&D. So, you'll see us as we mentioned in our press release, Rob Polzer, our Head of R&D will be coming to give more detail on our R&D portfolio. And we also look forward to introducing you to other members of our leadership team. So you get to meet them as well. We're excited to share what we view as the short medium and long term growth aspirations and give you some confidence in more detail around all of those. So Wetteny, do you want to take her second question on diagnostics?

Yes, happy to, Kristen. So look on diagnostics, we have seen increased productivity from our diagnostics team, particularly if you look at the U.S. where we made the change about a year ago into the second quarter. In this first quarter, we actually saw very strong placements across our instruments, including images as well. Those will help drive growth from a consumables perspective if you look at the rest of the year consistent with our guidance, we said we would expect to see improvements in terms of that to the productivity given the new field force and the change out that we did last year. And we would expect to see return to growth in the U.S. in the back half of this year. And again, we're lapping those changes that we made, which we believe -- firmly believe are going to drive long term growth for the business in addition to innovation that we continue to work on in terms of diagnostics.

And we will take our next question from David Westenberg with Piper Sandler. Please go ahead.

Hi. Thank you for taking the question. So just to get on the Simparica Trio franchise and so in the distributor dynamics here, I usually think about the parasiticide portfolio is being heavy in March to August season. As we take a step back or take a zoom outlook, do you think any of the dynamics that have happened with some of the distributor destocking is going to be a net negative for the annual sales of the product? Put it another way, do you think maybe at this impact the timing of missing the flea and tick season in any of this kind of dynamic? And then just to reiterate on the inventory question on the livestock portfolio, it doesn't have the same dynamics, right? So I mean like the price increases in livestock were not the same as the price increases in companion. Therefore, you wouldn't see some of that same distributor dynamic. And then if I could squeeze just one more, just I want to -- I didn't see the inventory or the balance sheet yet, so just wanted to see if inventory levels trended up or down. Thank you. Sorry. That was one.

Sure. Let me start with Trio and then I'll let Wetteny take the other two. I want to underscore what we said earlier. We have very strong demand in sales out. And so what you saw in Trio in the first quarter was a stocking issue. But as we look at the demand for the product and where it's going, it has no effect on the flea and tick season as needed. We have full supply in. I think what makes it a little complicated and as unusual was the supply issues we had in Q3, Q2 and Q3 of 2022 put us putting a lot more inventory into the channel at the end of Q4. Trying to restock shelves against what we thought as you remember was going to be a launch in Q1 of a competitor. So I think there's obviously some quarter-to-quarter stocking dynamics, but I want to underscore demand for this product remains strong. We gained share in the quarter. We are now at normal inventory levels, so no, we do not see anything if you look at the Q2 to Q3 of the product and which we would agree that is normally Q2 to Q3 is the strongest sales normally in parasiticides. So, we continue to see very strong demand for the product. Obviously, there is some quarter-to-quarter stocking stuff that is relatively unique as you look at the end of 2022 and the beginning of 2023. But we don't think that actually signals through anything and the demand for the product or importantly the strong growth we see for the product for the year. Even as we said assuming competition in the second half.

Yes, look, I think there were couple other parts to your question, I'll touch on in terms of livestock. We're not seeing the same dynamics in livestock. Look, I mean if you look at where we ended last year, maybe we're in the middle of the range towards the bottom of the range, might have been slightly increase in the quarter given the recovery of some supply for certain products as we mentioned in our prepared commentary, but overall, not any meaningful movement there to speak of. And then with respect to our balance sheet on inventory, as you know, we are ramping up certain products, anticipating launch and approval of certain other products that will continue to drive inventories. First, if you look at operating cash flows on the quarter, they're actually favourable to last year because as inventories continue to increase, we saw really strong performance on receivables and other NAP. So overall, operating cash flows look favorable versus a year ago.

And we will take our next question from Balaji Prasad with Barclays. Please go ahead.

Hi, good morning, everyone. Thanks for the questions. Couple from me. Firstly, could you give an update on the supply chain issues which impacted growth in 2022, be it in the vaccine side Trio or [indiscernible] and would you foresee or anticipate any supply chain issue impacting any of your key products this year? Secondly, I wasn't sure I got the derm decline fully. This is not a distributed independent segment. Can you provide some numbers around the derm segment and help us understand what led to the decline? Thanks.

Sure. I'll start with your first question on supply chain and maybe Wetteny can build on my derm answer from before. With regards to the supply chain, as we expected, we have completely normalized the supply chain. We always have some small level of challenges as we mentioned before in the biologics. But the challenges we saw in 2022 have been resolved as we indicated they would be. We're back into normal supply on these products as you look at whether that's parasiticides or importantly our monoclonal antibodies. As expected, those are at normalized levels. We'll have some small number in bios as we always have that all of our competitors generally have. But supply chain has been normalized and we don't foresee any specific supply chain challenges in 2023 going forward. But maybe Wetteny you can build up my previous comments on derm segment if you can clarify some of these questions?

Yes, I'd be happy to. So look, the derm story is similar in terms of destocking from pre-price buy-ins that we saw in the U.S. into retail in Q4. As well as a year ago, if you look at Japan and if you look at our reporting last year in Q1, you would have seen a significant growth rate for Japan in the first quarter, driven by those pre-price buy ups in Apoquel. And then you saw that go the other way in the second quarter. So if you were to I would say pro form the results for the first quarter taking into account what I just said, you will see double digit growth for the derm franchise in both the U.S. and international.

And we'll take our next question from Chris Schott with JPMorgan. Please go ahead.

Hi. This is [Katarina] (ph) on for Chris. Thank you so much for taking our questions. So, first on price increases, any feedback from the price increases in the beginning of the year, are you seeing any pushback from veterinarians or pet owners and any initial thoughts of how you'll be approaching price increases in 2024. And then the second question is on diagnostics, any thoughts on the proposed Mars Heska acquisition and the impact that will have on the diagnostics market? Does it change Zoetis’ plans and diagnostics or the investments you're making in that market? Thank you so much.

Sure. Thanks, [Katarina] (ph). I'll take your second question first and then let Wetteny take your first question on the pricing. I really think the margin acquisition of Heska confirms that the veterinary diagnostics market continues to be incredibly attractive investment area. Most importantly it reinforces our strategy, we think the sound around committees executed around in the U.S. specifically building our reference lab network and continuing to invest in innovation importantly in our point of care. We've had a robust start to 2023 as we look at our images, our virtual lab, our reference lab offering, we really believe it's resonating with customers. And really our focus is on leading with cutting edge medicine, really rolling out our virtual lab, which we really think is a differentiator. And we think that's what differentiates what it's overall is innovation in the space, innovation around point of care, innovation in customer experience and innovation in the reference side. So no, we really see that acquisition as reconfirming our strategy. And really we're going to accelerate our growth focus on innovative diagnostics. So, Wetteny, do you want to take our second group of questions around pricing?

Yes, sure. Look, we have not seen any pressure in terms of end market demand given our price increases. We took 5% price on the quarter that's up versus 3% last year. If you look at the end market dynamics that we described earlier, you're seeing significant growth out from distributors to clinics, but also importantly, you're seeing significant growth from retail into pet owners. And we continue to see increased patient visits, for example, in derm, etcetera. So we have not seen any resistance there in terms of price increase. And by the way, if you look at international, we grew 10% in companion animal in the quarter given price increases as well and despite some pre-price buy in, which is normal in the fourth quarter. So we haven't seen any signs of that. If you look at livestock, that actually offsets some of the -- marginally offset some of the price increases we would have seen in companion animal. We can just see some impact on Draxxin, but not meaningful not at the level that we've seen previously as we previously said and actually we saw some volume offset to that positively offsetting some of the price on the Draxxin side. So all told in good shape in terms of what we're seeing in terms of market reaction to our prices. And in terms of what it means for 2024, too early to tell. We won't go into that yet.

And we'll take our next question from Brandon Vazquez with William Blair. Please go ahead.

Hi, good morning. Thanks for taking the question. The first one is just on guidance. You started off the year pretty strong despite kind of inventory levels creating a little bit of noise here. But if you kind of read through that, you're looking at, I don't know, like high single digits, maybe even double digits operational growth to start the year reiterated guide for 6% to 8% operational growth. So the question being basically what would get you to that low end of that operational growth range given the strength you're already seeing in the year if you kind of read through the noise?

So look, if you look at the end market dynamics that we see, we see strength there, so I think that supports certainly the mid to high end of our guidance I would say. If you look at what it means for the rest of the year and I'll reiterate this point, which is we're already halfway through the second quarter. And again, we're seeing strong start to the quarter and we'll see that normalized growth rate including mix by the way for the balance of the year. And keep in mind, right, our guidance didn't change including what we expect from livestock for the balance of the year. Right? We went from saying livestock could be minus one to plus one. We're saying it's flattish, basically the same thing. So how Q1 has played out exactly as we thought essentially and therefore the rest of the year is the same. And so no point in our guidance range is any, I would say, more probable than the other, we feel great about where we are on the year. And how it's starting out for us in the second quarter, particularly, despite what you described as the noise in terms of the inventory levels.

And we'll go next to [Steve Scholar with PD Cohen] (ph). Please go ahead.

Thank you. A couple of questions. First, the new manufacturing facility in Georgia, is the investment based predominantly on increased forecasts for current products or positive late stage R&D progress for which we at least on the outside currently don't have visibility or is this some combination? And in the prepared remarks, you referred to disruptive novel innovation in the pipeline. Should we expect to get a window on that during the May meeting? And can you tell us if this is likely mainly directed at currently untreated diseases, more species, wider claims within existing species, improve dosing or something else? Thank you.

Sure. The new manufacturing facility in right outside of Atlanta, Georgia will be both to support current products and the growth in our current products as well as we'll target launching some of our new monoclonal antibodies out of that facility as well. It's a very large facility. It gives us tons of flexibility, which is what we found really exciting about the opportunity to be able to use it for lots of different things and really build a strong centre in the South with a great labor market, really good access to workforce that we think makes a lot of sense. So we actually -- we see it’s the facility's ability to do both and that is currently the intention. As I mentioned in my prepared remarks, we would expect it to be fully operational by 2026 and doing both at that point. With regards to Investor Day, we will be looking at the whole portfolio. We'll give you more details which we've been asked for around the pain opportunity and what we're expecting there. We'll also talk about some of the new disease areas we've mentioned before. It will give you a sense of what we think those markets could look like. A lot of those markets are new markets, so we'll help you size that market. We'll talk a lot about what our pipeline looks like. And what we're doing now. So we'll give you information both on a species basis importantly on sort of key technologies as we talked about in monoclonal areas -- monoclonal antibodies. And then also lastly, talk about some of these emerging big new markets that we think we can attack with some of our new novel technologies.

And there are no further questions at this time. I'll turn the program back to Kristin Peck for closing remarks.

Thank you. So look, just to summarize, we really see a very positive and sustainable demand for our product based on what we've talked about for long time which is the fundamental drivers of animal health. We are confident that Zoetis has the industry's most diverse and durable global portfolio. And this is really founded on innovative science as we talk about and supported by a high quality supply chain. We'll remain focused this year and going forward on our five key growth catalyst; dermatology, pet parasiticides, pain, diagnostics and emerging markets. And we're going to continue to invest in the talent, the pipeline and the capabilities that support this future growth while ensuring that we can adapt to the dynamic environment that we all operate in. And we really look forward to sharing more about this with you. Our vision, our pipeline, our strategies for growth at our Investor Day on May 25th. And there you'll hear more from me, Wetteny, our Head of R&D, Rob Polzer, about the confidence we have in the animal health industry. And importantly, our ability to go faster than that market and the investments that we're making to create that value for our shareholders. So, we announced the event this week and I hope you can all join us virtually or at the New York Stock Exchange. As always, you can find more details about our Investor Relations information on our website. So thanks so much for joining us today.

Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time.