Zoetis

A.1.1. In its 2023 10-K, Zoetis repeats that ‘negative beliefs about animal health products’ could impact demand for its products. It provides the example of AMR, stating that the issue has led to increased regulation of antibiotics in food-producing animals and greater demand for animals raised without antibiotics. The company states this may materially negatively affect the business. While it is positive that the company acknowledges consumer demand and regulation as risks to the business, it does not identify AMR as a material risk, despite its potential to reduce the efficacy of the antibiotics Zoetis sells. Draxxin, one of the company's top-selling products (representing 1% or more of its revenue), contains the shared class antibiotic tulathromycin, which the WHO has defined as critically important. The WHO has recommended an overall reduction in the use of critically important antimicrobials, but Zoetis does not acknowledge this risk in its 2023 reporting. Additionally, there is no evidence that Zoetis has conducted a risk assessment to understand the potential financial implications of tighter regulations on the business, for example, quantifying the impact of the January 2022 EU regulation restricting the use of antibiotics for prophylaxis. A.1.2. In 2020, Zoetis stopped selling antibiotics for growth promotion globally. The company also continues to highlight that it believes veterinary professionals should be involved in all decisions about how antibiotics are to be used. In 2021, Zoetis launched its board-endorsed ‘Driven to Care’ sustainability strategy. This included an objective to promote a ‘preventative approach to animal health with positive implications on human health’. Within this objective, Zoetis has made two commitments: (i) promote responsible use of antibiotics (ii) innovate around AMR to reduce the dependency on antibiotic classes shared with human health. Zoetis continues to report on its efforts related to these objectives. While it remains positive that Zoetis has publicly disclosed its strategies to address AMR it has not publicly committed to a quantified strategy to decreasing its exposure to antibiotics used for non-therapeutic purposes. Its commitments are high-level without time-bound quantifiable targets or metrics to measure progress, and its strategy could be improved in scope as it currently only covers shared-class antibiotics. A.1.3. Zoetis reports on its total revenue from antibiotics for livestock in both its Sustainability report and the risks section of its annual report. Revenue decreased by ~27% from $1.3 billion in FY2018 to less than $950 million in 2023. However, Zoetis’s livestock business segment remains significantly exposed to antibiotics, with ~33% of total revenue attributed to this in 2023.

A.2.1. Zoetis is committed to ‘the responsible use of antibiotic medicines.’ As part of its ‘Position on Responsible Use of Antibiotics in Animals’ on its US website, Zoetis states that veterinary professionals should always be involved in decisions on the use of antibiotics and highlights its priority to focus on prevention through the tools it offers and educating its customers on best practices. This has not changed in its 2022 Sustainability report. Zoetis has stated that its technical service veterinarians and field representatives educate its customers on the ‘responsible use of antibiotics’ and has now clarified this to ‘include proper indications, dosages, routes of administration and the importance of withdrawal periods’. It continues to also educate its customers on vaccination and other husbandry protocols for disease prevention. While it is positive that Zoetis has further defined responsible use it is unclear if Zoetis representatives educate its customers on the need to reduce the prophylactic use of antibiotics. Additionally, Zoetis’ target areas and aspirations under antimicrobial stewardship center around technical education, introducing antibiotic alternatives, and developing diagnostic and digital tools rather than incorporating a responsible use strategy into its internal policies. It is, therefore, important for Zoetis to demonstrate that it is implementing a strategy that changes its internal practices to support reductions in the use of antibiotics for non-therapeutic purposes at the farm level. A.2.2. Zoetis has publically announced that it does not sell medically important antibiotics (as classified by the US Food & Drug Administration) for growth promotion in animals anywhere in the world. The company implemented this change in European Union (EU) markets in 2006 and its US markets in 2017, in compliance with regulatory changes that banned the sale of medically important antibiotics for growth promotion. Positively, Zoetis voluntarily chose to expand this commitment to cover all geographies in June 2020. Zoetis is one of only four companies in the engagement to implement this global ban on selling medically important antibiotics for growth promotion. While these actions are positive, there is no evidence that Zoetis has removed indications of growth promotion from the labels of ionophores or animal-only antibiotics. Furthermore, Zoetis has not removed indications for prophylaxis from the labels of shared-class antibiotics, and it continues to actively encourage livestock producers to use shared-class antibiotics to prevent disease. For example, in March 2024 on its Chilean websites, Zoetis marketed its Lincospectin premix, a medicated feed additive containing MIAs, ‘for treatment and prevention of diarrhea caused by L. intracellularis (Ileitis), Swine Dysentery (black diarrhea), Salmonellosis and enteritis associated with E. coli. Indicated in respiratory conditions such as pig mycoplasmic pneumonia’. A.2.3. From public disclosure, it is unclear who is responsible for the company’s strategy for the sale and marketing of antibiotics. A.2.4. It is unclear if Zoetis has a sales incentive scheme for antibiotics. It, therefore, cannot be ascertained whether Zoetis has decoupled incentives for sales agents from sales volumes of antibiotics.

B.1.1. In its 2022 Sustainability report, Zoetis refers to its Global Environmental, Health and Safety (EHS) Policy Standards. However, the details of this policy are not publicly available and there is no explicit mention of the inclusion of antibiotics. Zoetis has a Pharmaceuticals in the Environment (PiE) programme, addressing the environmental risks associated with pharmaceutical production. It specifically highlights that the manufacturing of antibiotics is included in this programme. The company provides more information than in previous reporting cycles, specifying that the program includes a detailed evaluation of how APIs are managed to ensure that safe emission limits are achieved in its wastewater discharges. The company does not provide details of how it calculates safe emission limits or how it manages non-compliance with these limits. B.1.2. From the disclosure provided, it appears that the company’s EHS policy covers third-party suppliers and manufacturers. However, it is unclear if it applies to external waste treatment plants. Its PiE programme covers its own manufacturing sites and ‘key suppliers’, although Zoetis has not updated its reporting to define ‘key suppliers’ or give an indication of the scope of suppliers covered. B.1.3. In its disclosures, Zoetis states that its own manufacturing sites complete ‘periodic self-audits, checklists and inspections’. This could be interpreted that it does not use third-party organisations for manufacturing audits. Third-party suppliers and manufacturers may also be audited by Zoetis, and the company states it has a formal process for targeting and intervening with suppliers to develop action plans if required. However, no evidence of a non-compliance policy was found, and there is no disclosure of the number of audits conducted or action plans created. B.1.4. Zoetis discloses that it operates 29 manufacturing sites in 12 countries, including China, Brazil and the US. However, it does not disclose information about where its 109 CMOs or additional third-party suppliers or manufacturers are located or the proportion of antibiotics/APIs produced by them.

C.1.1. Zoetis has not defined what products in its portfolio are considered alternatives or provided a formal definition of alternatives to antibiotics. In its 2022 Sustainability report, it has a section on alternatives to antibiotics where it includes a high-level statement on how it is seeking new classes of antibiotics for veterinary use only as well as exploring non-antibiotic anti-infective solutions. Zoetis has previously referenced how it helps customers to prevent disease in animals through the promotion of vaccination programmes, nutrition, and good animal husbandry techniques. Furthermore, Zoetis provides its customers with vaccines, genetic tests and digital innovations to enable farmers to predict and detect disease earlier, reducing the need for non-therapeutic uses of antibiotics. Zoetis has also highlighted that it is exploring immunomodulators to help livestock producers make earlier and more informed decisions. C.1.2. As Zoetis has not defined its alternatives product portfolio, the company does not disclose the percentage of products that are alternatives to antibiotics. However, Zoetis discloses some qualitative insights into how its portfolio of alternatives is growing, highlighting its new vaccine, Protivity™, to protect against M. Bovis as well as its first on-farm diagnostic Vetscan Rapid Mastigram+™, for mastitis, which distinguishes between gram-positive and gram-negative infections and therefore reduces the use of antibiotic treatments. Both of these were launched in 2023. Zoetis provides limited disclosures on how it assesses the effectiveness of its alternatives to antibiotics. However, in its previous reporting, it provided one best-in-class disclosure example referring to a trial study conducted by the Zooprophylactic Institute of Rome and Zoetis; it found that Vetscan DC-Q, a diagnostic solution for dairy cattle, reduced the need for antibiotics by 55%, with equal milk quality and performance of the cows. Providing effectiveness disclosures is vital for convincing protein producers to switch from antibiotics to alternatives. It would be helpful to investors to see more examples of this related to its specific product offering of alternatives to antibiotics. C.1.3. Zoetis does not disclose the percentage of revenue from alternatives to antibiotics. This prevents investors from measuring Zoetis’ exposure and monitoring whether it increases year over year.

C.2.1. Zoetis disclosed that it spent $614 million on R&D in FY23 (~7% of total revenue), increasing its spending by ~14% compared with 2022. Zoetis does not disclose what percentage is dedicated to the development of alternatives to antibiotics, resulting in the company scoring ‘Low’. Despite this lack of disclosure, it is clear that Zoetis is investing in alternatives: • Zoetis continues to state that it is developing vaccines targeted against viral and bacterial pathogens and exploring additional diagnostics, immunomodulators and precision animal health tools to reduce the need for antibiotics. • In 2023, its vaccine, Protivity™, the first modified live vaccine for M. bovis (providing protection against respiratory disease), was launched. • In 2023, Zoetis launched the first on-farm mastitis diagnostic Vetscan Rapid Mastigram+™, which reduces the need for antibiotic treatment by identifying if the infection is caused by gram-negative or gram-positive bacteria. • Zoetis introduced recombinant vector vaccines that can be delivered in-ovo to protect against diseases such as Marek’s, infectious bursal and Newcastle diseases. • Zoetis provided a case study example of innovation and R&D into alternatives; in 2019 it genomically tested 1,053 dairy cows in the UK using CLARIFIDE Plus to identify animals that had fewer cases of mastitis and required fewer antibiotic treatments. • Zoetis continues to collaborate with Colorado State University to establish the Zoetis Incubator Research Lab, which explores the livestock immune system and targets new immunotherapies. This lab is paving the way for new alternatives to antibiotics in livestock. • In Nebraska, Zoetis has a Veterinary Medical Research & Development registration facility to accelerate innovations in vaccines. • In 2022, Zoetis released a new study showing that genetic selection in dairy can lead to 44% less antibiotic usage during their lifetimes while producing 35% more milk. C.2.2. Zoetis has been strategically investing in the diagnostics and digital market in recent years. In 2018, Zoetis acquired Abaxis for $2 billion, this was the company’s largest acquisition to date and its entrance into the diagnostics market. The company provides veterinary equipment, testing kits, and other tools to help veterinarians test for and diagnose diseases. In 2020, Zoetis acquired two livestock-focused businesses; Pharmaq Analytiq Ltd, a vaccines and diagnostics company, for $18.35 million, as well as Performance Livestock Analytics, a technology company that simplifies data for the livestock industry to accelerate progress in precision livestock farming. No new acquisitions were reported relevant to alternatives to antibiotics in 2023. However, in February 2024, the company entered into a collaboration with Blacksmith Medicines to develop antibiotics for animal health and reduce the need to use shared-class antibiotics. These acquisitions indicate that Zoetis is moving toward a more holistic approach to animal health that can help support antibiotic reductions. C.2.3. Zoetis provides no disclosure on its marketing spend for antibiotics nor alternatives to antibiotics.

D.1.1. Compared to its peers in this engagement, Zoetis has a comprehensive set of stewardship initiatives. Zoetis has two targets in its ‘Driven to Care’ strategy that it highlights as part of its Antimicrobial Stewardship; (i) Promote responsible use of antibiotics through technical education, introducing antibiotic alternatives, and developing diagnostic and digital tools; (ii) Innovate around anti-microbial resistance to reduce the dependency on antibiotic classes shared with human health. In line with this, in its 2022 Sustainability report, Zoetis states that it: • Remains the only stand-alone animal health company to participate in the AMR Cross-Industry Expert Working Group of the Business Council for the United Nations • Continues to advocate for veterinary oversight of antimicrobial use • Continues to work on around nine projects for the treatment and control of common disease challenges, including necrotic enteritis in poultry, E.coli and swine respiratory disease in pigs, as well as mastitis, metritis, liver abscesses and bovine respiratory disease in dairy and/or beef cattle • Has revised its labelling in the US of over-the-counter products containing medically important antibiotics in support of the FDAs Guidance for Industry 263, a process to transition the approved marketing status of certain medically important antimicrobial drugs from over-the-counter (OTC) to require a prescription • Provides training courses for customers on topics such as preventative healthcare for newborn piglets that could help to reduce the need for antibiotics • Participated in One Health discussions on topics such as duration of use, the US Food and Drug Administration’s (FDA) Draft Guidance 152, released in January 2023, on evaluating the safety of antimicrobial new animal drugs with regard to their microbiological effects on bacteria of human health concern, and World Health Organization antimicrobial list. Zoetis has not stipulated its position on these topics. In 2021 Zoetis conducted responsible use educational programmes in Latin America and Southeast Asia. Zoetis also continues to collaborate with many organisations on the topic of AMR stewardship, including: • International Consortium for Antibiotic Stewardship in Agriculture (ICASA); • Codex Task Force on Antimicrobial Resistance (TFAMR); • Zoetis is the only stand-alone animal health company to participate in the AMR Cross-Industry Expert Working Group of the Business Council for the United Nations, and; • Zoetis also participates in numerous conferences focusing on AMR including the Food Safety Summit, World Antimicrobial Awareness Week, and Virtual Call to Action on AMR Conference. A key strength of Zoetis’ stewardship initiatives remains its African Livestock Productivity and Health Advancement (A.L.P.H.A.) initiative that began in 2017 to establish sustainable veterinary care. This includes access to vaccines, medicines and diagnostic services in Uganda, Nigeria, Tanzania and Ethiopia. As part of this, Zoetis provided access to a broad portfolio of poultry vaccines to prevent disease and reduce treatments, including the use of antibiotics. In March 2023, the initiative received a $15.3 million grant from the Bill & Melinda Gates Foundation to expand on its work. D.1.2. In 1998, Zoetis established its own AMR surveillance system, which is now recognised by the FDA and USDA. The programme covers 29 bacterial pathogens from 5 animal species and utilises 32 veterinary diagnostic laboratories in the US and Canada. The company shares some of this data publicly. In its 2022 Sustainability report, Zoetis disclosed that it participated in a roundtable with the Reagan-Udall Foundation for the FDA to discuss the development of a public-private partnership framework for collecting and analyzing real-world data on antimicrobial use in food-producing animals.

D.2.1. There has been no change in Zoetis’ disclosure related to lobbying. On its website, Zoetis states it has a policy on Political Contributions, which requires the company to report in line with regulations. There is no mention of its position or approach to lobbying relating to AMR or antibiotics specifically. Zoetis states it reports its political expenditures to the Federal Election Commission, but it does not disclose any figures in its annual reporting. Zoetis does reports on its annual contributions above $50,000 to trade associations. As of June 2023, this included $70,770 to the Animal Health Institute (lobbying organisation). The company does not provide any information on the industry organizations with which it has memberships.

E.1. Zoetis acknowledged receipt of the letter but did not provide a written response to the questions in the engagement letter sent in July 2023. However, the company reviewed this assessment and shared comments and feedback. Zoetis declined to participate in a FAIRR-facilitated dialogue with investors. Zoetis previously expressed interest in participating in a meeting with FAIRR to discuss progress in their public reporting. However, this has not yet been confirmed.