Zoetis is a pharmaceutical giant, though its name might not be immediately recognizable because it makes medicine for pets and companion animals. And while Zoetis’s business has stayed solid the last several years as people are willing to spend on their pets, CFO Wetteny Joseph said they’re always looking for efficiencies to help stand out. I talked to Joseph about how Zoetis uses AI, a solid market and old fashioned work with customers to stay ahead of the profit curve.
This interview has been edited for length, clarity and continuity. It was excerpted in the Forbes CFO newsletter.
How are things going at Zoetis from a business standpoint?
Joseph: We are seeing really strong demand and growth across our portfolio and across the markets that we operate in. We’re a global company. We’re the biggest animal health company in the world and the most innovative, and therefore we have a very broad portfolio that is very durable. It’s science driven as well. We’ve gotten there by carefully listening to our customers’ needs and keeping touch with the changes and evolution of those needs. Our deep understanding of the biology of different animals and our capabilities enable us to do that. We have a broad portfolio.
You see it come through in our results as well. We posted 14% operational growth in revenue on the quarter, an excellent quarter—and an excellent first three quarters of the year, actually. We’re up 12% year-over-year on the top line operationally. I couldn’t be more pleased with the performance.
To what do you attribute the growth?
We get the benefit of the secular trends that are driving our industry overall. There are two primary ones. One is the companion animal side, the human-animal bond. How people see their pets as a member of their family means they’re willing to do whatever it takes [for] their health, and the products we provide are addressing the greatest needs on that side. We see that demand across the world. The other part of the business is livestock production animals, in a growing-population, emerging middle market. The need for quality proteins and the products we provide to keep those animals healthy is also driving demand for our business there.
That’s the baseline on the industry that propels [us]. We’re unique even within our industry because we tend to be the first to introduce these meaningful innovations, and then we keep incrementally adding to those over time, so we build these markets that end up being very durable. That’s unique to a large extent to Zoetis, and why our performance tends to be above the animal health market, which is itself very resilient.
We’re also very agile. Our business is a long-cycle business, and we understand the need to invest for the long term, to drive R&D, to drive manufacturing and scale, but we know the world changes around us all the time. We have to execute that agility to redeploy capital, which, as a CFO, I’m in the middle of: Working with my colleagues on the executive team and our leadership team across the board on ways to do that, but keep an eye on the things that are important, to continue to invest in those. I think that tends to help us capitalize on the opportunities and mitigate the risks in between.
Speaking of agility, how have you used that recently?
You mentioned AI. That’s an area that helps to fuel and drive some of the capabilities that I described earlier, in terms of our ability to innovate. We’re finding ways to redeploy capital into areas that can help fast track drug development, identifying targets that will solve for existing unmet needs, and then leverag[e] our treasure trove of data that we have within our company. As the biggest animal well company, that means we have the most data on the biology of different animals. We have more data on how diseases start, and how they progress over time. And therefore that data, when you pair that with the capabilities of AI, really can be very powerful.
We’re very excited about what we call our golden use cases. After you run a clinical trial, the time it takes to analyze that information and prepare it into a dossier that you send to the regulatory agencies is measured in months, if not years. We think we can streamline that, leveraging AI to cut that timeframe significantly. The faster we can get it to market, the sooner we can start meeting those unmet needs, and the more we can fuel our growth.
We are also very disciplined. One of our value propositions is to actually grow the bottom line faster than the top line. That puts some parameters around our financials such that we have to find ways to do what I just said—invest in AI and other aspects of the business—but at the same time, keep the discipline to drive the bottom line growing faster. You have a mix of more companion animal [products] that helps you be able to drive operating leverage to the P&L, but we also have to be disciplined around find[ing] ways to be more productive in this area, unlock the dollars that we can put in this. That’s really what’s fueling us.
It’s been said that you are an AI ally in the CFO’s office. What does that mean?
I would say more broadly, I’m an innovation ally, and AI becomes a really important tool set to leverage to drive that innovation. The source of that, quite frankly, goes all the way back to why I’m even in this sort of career path that I got into at a relatively young age after I came to the U.S. as an immigrant. I remember thinking about why some companies thrive when others don’t in the same industries? That initial question has remained a huge point of curiosity for me.
When I was running a business and engaging with customers on a regular basis, I realized—if I dare use the word—the fight for competing for the customer’s needs becomes truly what competition is about, innovating in new solutions that solve their biggest problems. Everything else will work its way through. As the CFO, I’m watching the levers and deploying capital and so on, but the start and the end is right there. That’s what makes me an ally to innovation.
I try to stay connected with customers. We go on what we call field rides, where we go out to the field, we have some of our salespeople with us and we talk to customers. I’m not just talking to them about the impact that our products are making. I want to know as much about their day-to-day as possible, because then the context of the value of what we bring to them can be better measured. Then, what I try to do is bring the customer back into the company virtually by the ways that I interact with my team in finance and my colleagues around the table, in terms of what we need to do to stay focused on the long term, which is delivering for them. Whatever we have to do in terms of redeploying to do that, I’m going to be a proponent.
Many times, they call the CFO the “CF-no.” I don’t find myself being that person. I find myself being the “CF-yes, but let’s find a way to do it and still deliver on the same value proposition.”
What are you using AI for?
As a CFO, the default is you’re going to get very excited about the productivity you can drive in AI, even within the finance function itself. And certainly there are those opportunities, but the point around our customer obsession is we have to start there. What are the things that we can put in place that help us deliver for our customers, [that] actually enhance the interactions that we have with customers?
First and foremost, we have what we call our next generation sales engine, that we’ve been leveraging across the world. We started in the U.S. first. It uses AI algorithms to look at all the other interactions we’ve had with the customer: Whether they come and look at it on our website, what products they have questions on, who last gave them a technical brief on something. Based on that, we tell our sales folks what is the next best action and interaction that you need to go and have with the customer. For the customer, it’s more productive and they get a lot more out of the conversation. It’s more pointed to what their exact needs are. For us, we end up having increased sales where the salespeople are leveraging this tool.
We also are in diagnostics. Our business stems all the way from ways to predict, detect, prevent, and treat different diseases. On the area of detection, diagnostics is a big tool set. We’re the first company in our space to leverage AI in a product we call Imagyst. You can take a sample from an animal and put it into this instrument, it’s sending that into the cloud, and it’s actually reading and diagnosing what it’s finding and giving that result back to the veterinarian while the patient is still in the clinic. It changes the interaction that they can have right then and there.
Our latest major innovation area, which could be our next billion dollar franchise in AI, addressing pain. For cats, they hide their pain very well. You can’t really tell that they’re in pain. So we have this tool we call Cat Pain IQ. You can take a video of your cat and how it’s moving, and there’s an AI algorithm comparing those videos against lots of data points on how cats move when they don’t have pain. We can gauge as to whether there is a high likelihood that they have [osteoarthritis] pain or not. The customer can do this on their own, and then it feeds those results to the pet owners’ veterinarian. When the cat comes in, they can see that initial piece and can go through the whole screening process from there.
You’ve been in the pharmaceutical business for a while and it hasn’t always just been on animals. How is it different from the human pharmaceutical business?
I spent more than a dozen years on the human health side, and I came over to Zoetis. The first impression I would say is veterinarians take this as a vocation and they care deeply about making an impact on animals’ health across the world. That also is shared within Zoetis, among our colleagues. That is very tangible for me, to see that coming through.
If you look at the ways we go about innovating, we’re using some of the same technologies that are very advanced in human health. We’re using them in animal health. The risk profile in animal health is lower, and the cost of development is less. So this is comparing tens of millions of dollars to develop a drug through R&D in animal health versus hundreds [of millions] of. development programs on the human health side. Part of it is because you start your work in the same species that you’re going to end it in. For human health, you start doing work in animals, then you have to transfer those to human health models, and that tends to add costs and risks. The relative level of risk is lower, the relative level of investment is lower as well.
On the similarity side, it is highly regulated. The FDA has an arm that focuses on animal health, and it’s very rigorous. The process you go through to get a drug out in terms of level, quality and everything else, those are the same.
How about from the financial side? There’s less risk and cost on the animal side because you’re only working with the species that the drug is for. Are there any other issues that come in the human health side, but not the animal health side?
If you take a subset of healthcare, including human health, we tend to run higher [revenues] than those. I think it translates some of the pieces that I talked about earlier in terms of the relative risk and relative dollar amounts that you put into that.
At the pet care side, you have a pharmaceutical business, but you have some consumer orientation to it. It’s a combination of those. When you think about the animal health space, it’s pretty similar, but you are facing directly with a lot more customers than a pharma company would, in terms of more intermediaries that you go through.
On the animal health side, you don’t have large payers like the government that actually dictates what your pricing is. You don’t have large insurance either on the animal health side, so you’re dealing with a customer. The end customer has to be able to afford the products that you bring in at a price that they can afford to pay. It’s almost on a cash basis, and that is a very big difference as well. Pet owners more and more want human-quality solutions and treatments for their pets, but we have to deliver it at a price point that they can afford.
My wife is a dermatologist. She had a patient, and at the end of the visit, the patient asked her if she would mind if she brings her dog in. It’s a funny story, but at the same time, it really tells you a lot about the psyche of the pet owner in terms of: This is my baby, a family member, so if you’re good enough for me, you’re good enough for them.
We’ve had a couple of years where the economy has been kind of unpredictable. Have things stayed solid at Zoetis, or do you see ups and downs too?
Things have stayed really solid, especially on our subsegment of the market. Let me just unpack that for you. The industry overall is incredibly resilient. The industry has grown over the last decade or so, between 4% and 6%. We at Zoetis have grown on average three points above that, and we have outpaced the industry every single year for the last 11 years, on average by three, four points. Even if you go back to the Great Recession back in 2008, 2009, the industry grew by 3%. When most industries were declining, this industry grew.
What I mean by the sub-part of the industry is we have therapeutic treatments for, in many cases, chronic conditions. Dermatology for example: If your dog is itching and scratching themselves almost to the point that they’re bleeding, and they’re in your house, because again, they’re a member of the family, you’re going to see the suffering. You’re not going to want to stop treating that. That drives quite a bit of resiliency. Over the last couple of years, even as everyone’s been looking at the macro and questioning what’s going to happen, we’ve consistently delivered significant growth across the business, particularly on the pet care side of the house. In our space, you may see some that have more over-the-counter products or grooming, that [consumers] may see as discretionary. They don’t see therapeutics for these chronic conditions as discretionary, and therefore they continue to spend.
We did an extensive survey a couple years ago, and we asked pet owners, if you had a 20% decrease in your budget, how would that impact what you’re spending on your pet’s health? The summary was there would be no change. They were going to cut back on other places to do it. And I think we’re seeing that play out in our results too.
As we are about to enter another time of economic uncertainty, are you expecting any shocks to your business?
We’re continually evaluating the changes in the atmosphere and baking those into what I call agility in terms of how we operate, how we pivot, et cetera. As a finance function, we’re exactly in the middle of that intersection to be able to evaluate and assess any change that we see. Translating that to what does it mean for us as a company? What does it mean to our strategy, not just in the current year, but beyond, and then making the pivot that we need to while we stay focused on the long term.
But again, we’ve seen that resiliency play out, and so we don’t necessarily lose sleep over it because we know that our industry is as resilient as it is, and we are as well. We’re at the front end of the industry in terms of innovating. So for those reasons, we’re not losing sleep, but we continue to reevaluate.