By Mackenzie Tatananni

It's shaping up to be a dog-eat-dog world for Zoetis as the maker of veterinary medicine faces stiff competition in the animal health market.

Shares slid on the heels of a downgrade at Stifel Nicolaus. Analysts led by Jonathan Block cut their rating to Hold from Buy and trimmed their price target to $160 from $165.

The stock tumbled 2.8% to $157.20 and appeared set to extend the previous session's losses after closing down 1.7% on Wednesday. The benchmark S&P 500 was up 0.3%.

Zoetis was created in 2013 after splitting off from Pfizer's animal health division. While it may not seem like a household name, it is one of the largest animal-health companies globally and has grown to rival established players like Merck.

In fact, Zoetis has proven to be even more profitable than Merck's animal health division as of late. Sales of $9.3 billion in 2024 came in above Merck's $5.9 billion, with dermatology and parasiticides accounting for 41% of total revenue.

However, Stifel expects revenue growth to decelerate through 2027, "potentially compressing the stock's multiple, or at least, preventing multiple expansion."

While Zoetis "has effectively dealt with competition in the past," competitive inroads may prove more successful as Merck and other players look to snap up market share.

The firm's thesis rests largely on survey results that indicate "strong veterinarian interest" in a novel treatment called Numelvi. The drug, manufactured by Merck, is styled as an answer to Apoquel, a treatment from Zoetis that manages itching and inflammation in dogs.

Numelvi inched closer to winning approval in Europe last week when it received a positive opinion from the European Medicines Agency's Committee for Veterinary Medicinal Products.

The Stifel team expects 55% of all U.S. veterinarians to adopt another rival medication, Zenrelia, by mid-2026. Zenrelia is manufactured by Elanco Animal Health, a former subsidiary of Eli Lilly.

Even if 45% of veterinarians aren't using the drug, Zenrelia's traction outside the U.S. should make up for it, the analysts argued. While survey responses indicated "notable concerns" about Zenrelia's safety profile, Stifel believes these so-called label headwinds shouldn't persist in countries like Brazil and Canada where boxed warning labels are different.

First-quarter results indicate that growth may be stalling in Zoetis's international segment. Revenue of $1 billion was flat from the prior year and down sequentially. Meanwhile, year-over-year revenue growth in the drugmaker's U.S. segment was driven by sales of Simparica Trio, a combination medication meant to repel fleas, ticks, and internal parasites.

The Stifel analysts noted the market for triple combination parasiticides "is large and experiencing robust growth," with Simparica Trio operational sales surging 30% in 2024. However, another Elanco-made competitor called CQ "is quickly establishing itself as a real alternative in the market."

Among 70 respondents to the Stifel survey, 24% indicated that their practices now offer CQ, up from 14% in April. While there is room for multiple players and market growth is expected to remain robust, CQ's dominance "may limit future Simparica Trio upside," the analysts wrote.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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June 18, 2025 12:46 ET (16:46 GMT)

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