Jeff Simmons: Sorry about that. Listen Mike, real quick – we do anticipate and we see competitive reactions in the marketplace, and this marketplace has seen a lot of innovations come and we’ve made a lot of decisions over the last couple years, relative to launch. We’ve taken this very seriously. This is not new – we’ve been preparing for some time, and we’ve had a lot of products to be testing and building the muscle of launch from Zorbium, Bexacat, now parvo, and so I would say we’re really well prepared. Look, I think the first thing that I would emphasize is it comes back to a couple basics – share of voice to create clinic awareness that then leads to clinic penetration, that’s why we’ve added the sales force.
Our share of voice metrics are high – they’ve grown dramatically the last two quarters. That’s a key lead indicator that we’re looking at. We know that’s important and it’s with credible experienced people that have a lot of deep relationships in territories. That’s key number one, and then look, the differentiation – you know, we’re working to optimize these labels because we know differentiation also impacts adoption. I also would note this four pillar approach we’ve talked about, and that’s why derm for us really helps. It will help Quattro, but it will also help Zenrelia and our existing portfolio to be able to say we have therapeutics, vaccines, derm now, and parasiticides. I’d point to those things as well as what we’re kind of calling next generation sales and launch from digital to campaigns.
You know, the thing I would note too on derm, because it’s all accretive to us, it’s new, it’s a big market, we’re excited about Zenrelia. We’re also excited about the IL31 that’s coming. A few things I look to – the derm market is large, it’s growing meaningfully not just in international but U.S. and even this last quarter. We expect it to be differentiated, Zenrelia, and our market research continues to indicate vets are looking for more options, so this will be a key fourth pillar for us on our offering that we believe puts us in a really good place, and as I mentioned, the engagement is high. Going back to the earlier question, Zenrelia globally, we are positioned to see Zenrelia come into the marketplace, we believe late this year, and some of the international markets to be our fastest global launch ever.
That’s a little bit of the launch side. Jumping to Kexxtone – Kexxtone, a key cattle product in Europe, it’s a controlled release capsule that treats ketosis and the ruminant of cattle. This is about a manufacturing process, it is a key product. We have taken this product off the market and our focus–and we did that with the EMA, and we believe that our manufacturing team is working very hard on the manufacturing process. We see the product coming back to the market, but don’t anticipate that probably until late in 2025, and that’s why we felt it was prudent to highlight that product and the removal on the market.
Todd Young: Mike, the impact is both to gross margin but also some inventory write-offs as well.
Katy Grissom: Thanks. We’ll take the next question.
Operator: Thank you. Our next question comes from the line of Balaji Prasad of Barclays. Please go ahead.
Katy Grissom: Shoot – Balaji, it looks like we are not hearing you. Let’s go onto the next caller and then we’ll get him back in the queue.
Operator: Certainly. Our next question comes from the line of Umer Raffat of Evercore. Please go ahead.
Mike DiFiore: Hi, good morning guys. This is Mike DiFiore in for Umer. Thanks so much for taking my question. Two for me. I’ll ask the first one first. Regarding bundling, you’ve consistently said that having a derm asset in your portfolio will greatly enhance your bundling capabilities and therefore enhance your competitiveness in pet health. My question is, have those bundling discussions happened yet or do you need to wait for launch and pricing to kind of get established? You mentioned in your prepared remarks that you continue to solidify partnerships with corporate accounts, and then I have a follow-up.
Jeff Simmons: Yes Mike, that’s exactly right. I mean, this is quite common in a marketplace. Any vet practice, whether they’re corporate or general practitioner, is only going to carry a certain number of products, and as you bring in a wider portfolio as a company, that’s going to help across the board. That fundamental principle plays out no matter what the size of the clinic. Then as you get to other groups that are larger corporately, there is no question, having another alternative on the derm side is going to help overall, and the market research shows that there’s a high interest in that, so those two principles play out, Mike, and we see that happening today, and a high desire for more of that going forward.
Todd Young: Yes Mike, we provide incentives to all of our customers based off volumes they purchase from us, so by them being able to purchase derm from us now, that just gives them more ability to get savings, but also then incentives to buy other products from us as they increase that volume. That’s really the incentive structure we’re talking about by having a full portfolio and being only one of the four major companies to have that in the U.S. vet side.
Mike DiFiore: Got it, that’s helpful. Then my follow-up question is a brief one, and I may have missed this, could you quantify how much of the one-time Bayer channel stocking amounted to in the quarter?
Todd Young: It was about $10 million to $15 million.
Mike DiFiore: Fifteen? Okay.
Katy Grissom: Thanks. We’ll take the next caller.
Operator: Thank you. Our next question comes from the line of Ekaterina Knyazkova from JP Morgan. Please go ahead.
Ekaterina Knyazkova: Thank you so much. First question is on Bovaer. Can you just remind us where you stand at this point in terms of manufacturing capacity and how we should think about capacity also for 2025, and what are the implications as you kind of think about the launch of that product? The second question is just on the bird flu epidemic in the U.S. Any thoughts on how that could impact producers and anything that you’re watching or you’re concerned about? Thank you so much.
Jeff Simmons: Yes, thank you for the question. On Bovaer manufacturing, we have product here in the United States that is ready to be labeled, it’s bagged and ready to go, and that is then purchased from a partnering contract manufacturer in Europe, so we do have product ready, and again that’s why we’ve targeted a Q3 launch of the product. Then relative to the H5N1, we continue to monitor this closely, work with our customers to make sure there’s heightened biosecurity measures. I think a couple things we’d look to, and we don’t see this issue increasing over the last couple of weeks but pretty stable, it is something we want to keep our eyes on. I think producer profitability and also especially the dairy consumer response are the lead indicators that we’ll keep our eyes on, and I’ll just emphasize overall we’ve not seen and do not see any impact on our business results at this point in time from the H5N1.
Katy Grissom: Great, thanks. We’ll take the next caller.
Operator: Thank you. Our next question comes from the line of Brandon Vazquez from William Blair. Please go ahead.
Brandon Vazquez: Hi everyone, thanks for taking the question. First on guidance, it was really encouraging you guys put up a nice beat here and then raised the guidance a little bit, especially in uncertain macro times. Can you just talk about what so far in the first quarter specifically is kind of outperforming, that gives you confidence in raising that guidance, especially also on the EPS line? I think on top of FX headwinds, you’re still able to increase it just about a penny or so. Then the follow-up is just a quick clarification on the pipeline – I think in the prepared remarks, you mentioned that you think you can get one month heartworm efficacy with Quattro. Can you just confirm, is that because the FDA has already approved that or is that just how the clinical data is looking, and you feel comfortable that you will get approval for that? Thank you.
Todd Young: Brandon, thank you for the question. Q1 was really great performance by our U.S. farm business. We’re seeing accelerating adoption of Experior, and with that continued growth in Rumensin. This is the portfolio effect we talk about with having broad-based solutions for our customers, both on the pet side and the farm side, is by bringing those together, we continue to get ability to offset generic competition and drive growth. Poultry was really strong and we’ve got a PRRS vaccine, called Prevacent, that continues to do very well in the U.S. farm market. Then it was really international pet – continue to see strong momentum both in Brazil as well as in Europe. AdTab, as Jeff mentioned earlier, is doing a great job of gaining sales across the European countries as it launches, and what we’re seeing is less cannibalization of our topicals and collars in Europe from that launch than we originally expected, so those are the big drivers of our confidence to raise the constant currency guidance.
On EPS, one, better cash performance than we expected in Q1. The team has done a really good job of focusing on improving our net working capital and delivering on cash. That allowed us not to borrow cash in Q1, which we typically do as we pay out corporate bonuses as well as some other seasonal effects with rebates. That means we don’t have to pay interest on that borrowing for the rest of the year, that allows us to reduce interest expense. Then finally on the taxes, the tax credits we’re receiving from the State of Indiana is allowing us to have a little better tax expectations than we thought originally and pick up a penny there on the full-year guide. With that, I’ll transfer it to Jeff for the second half of your question.
