Zoetis

A.1.1. In its 2022 10-K, Zoetis recognises ‘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. 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 2021, Zoetis launched its board-endorsed ‘Driven to Care’ sustainability initiative; included under pillar 2 is an objective to promote a “preventative approach to animal health that has positive implications on human health”. Within this objective, Zoetis has made two commitments: (i) promote the responsible use of antibiotics (ii) reduce the dependency on antibiotic classes shared with human pharma. To achieve these objectives, Zoetis plans to develop antibiotic alternatives as well as diagnostic and digital tools. While it is positive that Zoetis has publicly disclosed its strategies to address AMR it has not publicly committed to decreasing its exposure to antibiotics for non-therapeutic purposes. Moreover, its commitments are high-level without time-bound quantifiable targets or metrics to measure progress, and its strategy is limited in scope as it only covers shared-class antibiotics. A.1.3. Zoetis reports on its total revenue from antibiotics for livestock in its risks section of its annual report. Revenue decreased by ~23% from $1.3 billion in FY15 to $1 billion in FY22, however, Zoetis’s livestock business segment remains significantly exposed to antibiotics, with ~35% of total revenue attributed to this in FY22. Zoetis has been scored ‘Low’ due to the limited reporting on the company’s exposure to antibiotics. A.1. Recommendation: To improve its score, Zoetis should: (i) recognise AMR as a material risk to the business; (ii) set a quantitative timebound commitment to reduce exposure to antibiotics for non-therapeutic purposes; and (iii) report a more granular breakdown of revenue from antibiotics, such as a breakdown from shared-class and animal-only antibiotics, ionophores, as well as by application method.

A.2.1. Zoetis is committed to “the responsible use of antibiotic medicines”, however, the company does not define what “responsible use” means. Its commitment includes three components: (1) advocating for the health of animals, vets and livestock farmers (2) investing in alternatives to antibiotics (3) collaborating on a One Health approach. While it is positive that Zoetis has developed its position, and it is the outline of what could be a strong strategy on responsible use, it is unclear how this position translates into clear requirements for its sales and marketing team. Additionally, its actions to achieve its ‘Driven to Care’ commitments focus on providing technical education, introducing alternatives, and developing diagnostic tools rather than incorporating a responsible use strategy into its internal policies. These actions indicate that Zoetis expects antibiotic reductions to be achieved through external actors adapting their actions. It is therefore important for Zoetis to demonstrate that it is implementing a strategy that changes its internal practices to support reductions in sales of antibiotics for non-therapeutic purposes. A.2.2. Zoetis is the only company in the engagement that has publicly stopped labelling all its shared-class antibiotics for growth promotion purposes. Zoetis implemented this change in markets in the European Union (EU) in 2006 and its US markets in 2017, in compliance with regulatory changes which banned the sale of medically important antibiotics for growth promotion. Zoetis chose to expand this commitment to cover all geographies in June 2020. 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 October 2022 on its Chinese and Chilean websites, Zoetis marketed RIGOMYCIN/LINCOSPECTIN, a medicated feed additive containing MIAs “for the prevention and treatment of salmonellosis, Escherichia coli enteritis, mycoplasma infection and porcine treponemal dysentery”. A.2.3. From public disclosure, it is unclear who is responsible for the company’s strategy for the responsible sale and marketing of antibiotics. A.2.4. Zoetis has a sales incentive scheme in place, however, there is no transparency on the pharmaceuticals and geographies covered or how sales representatives are incentivised. It, therefore, cannot be ascertained whether Zoetis decouples incentives for sales agents from sales volumes of antibiotics. A.2. Recommendation: For Zoetis to score ‘Partial’ it would need to provide evidence of a responsible sales and marketing policy for antibiotics.

B.1.1. In its 2020 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 also discusses its Pharmaceuticals in the Environment (PiE) programme, demonstrating that it is addressing the environmental risks associated with pharmaceutical production. While specific details of the programme are not discussed, the company states it covers the responsible manufacturing of antibiotics. The limited disclosure means investors cannot understand whether the company has set residue limits for antibiotic effluent, and this results in the company being scored ‘Low’. B.1.2. From the disclosure provided, it is indicated 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 does not define its key suppliers or give an indication of the scope of suppliers covered. Specifically relating to its supply chain, Zoetis’ has its Supplier Conduct Principles publicly available. While the document does mention environmental risk management, it is high-level and there is no mention of antibiotic residues in manufacturing effluent, preventing the company from scoring higher. B.1.3. In its disclosures, Zoetis states that its own manufacturing sites complete “periodic self-audits, checklists and inspections”, confirming 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. 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 has 28 manufacturing sites which are located across 11 countries, including China, Brazil and the US. It does not disclose any information about where its third-party suppliers or manufacturers are located or the proportion of antibiotics/APIs produced by them, preventing the company from scoring ‘Partial’. B.1. Recommendations: to improve its score Zoetis would need to disclose details on: (i) the standards it has in place to ensure wastewater discharged into the environment contains safe levels of antibiotic residues with best practice being to set PNECs; (ii) how this applies to its CMOs and to third party suppliers; (iii) how standards are enforced, and; (iv) disclose where the company’s largest third-party manufacturers and suppliers of antibiotics are located. If Zoetis disclosed detail relating to antibiotics specifically, the company would be scored as ‘Partial’ or even ‘Good’.

C.1.1. Zoetis has not defined what products in its portfolio are considered alternatives or provided a formal definition of alternatives to antibiotics. It does, however, provide a high-level statement on 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 genetic tests and digital innovations to enable farmers to predict and detect disease earlier, reducing the need for non-therapeutic uses of antibiotics. 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 changing. In recent years Zoetis has begun explicitly highlighting some of its key alternative products in its reporting; for example, Orbeseal a non-antibiotic internal teat sealant that prevents cows from contracting mastitis, and Zoamix a medicated feed additive for poultry which is antibiotic-free. Zoetis provides limited disclosures on how it assesses the effectiveness of its alternatives to antibiotics. However, it does provide 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 towards alternatives. C.1.3. Zoetis does not disclose the percentage of revenue from alternatives to antibiotics. This prevents investors from being able to measure Zoetis’ exposure and monitor whether this increases year-over-year. C.1. Recommendation: To improve its score to ‘Partial’ Zoetis should disclose the percentage of its portfolio or revenue for food-producing animals that is made up of alternatives to antibiotics.

C.2.1. Zoetis disclosed that it spent $539 million on R&D in FY22 (~6% of total revenue), increasing its spending by ~6% from $508 million in FY21. 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 states that it is developing vaccines targeted against viral and bacterial pathogens and it is exploring additional diagnostics, immunomodulators and precision animal health tools to reduce the need for antibiotics. • In 2022, the company shared it gained regulatory approval in the US for its vaccine, Protivity™, the first modified live vaccine for M. bovis (providing protection against respiratory disease.) • 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 is collaborating with Colorado State University to establish the Zoetis Incubator Research Lab to explore the livestock immune system and target new immunotherapies, paving the way for new alternatives to antibiotics in livestock. • In Nebraska, Zoetis is establishing 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 for their lifetimes, while producing 35% more milk. C.2.2. In recent years Zoetis has been strategically investing in the diagnostics and digital market. 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 used 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. 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. C.2. Recommendation: To improve its score Zoetis should: (i) disclose the percentage of R&D spend dedicated to alternatives to antibiotics; (ii) provide greater insight on marketing spending on alternatives and antibiotics.

D.1.1. Compared to competitors in this engagement, Zoetis has a comprehensive set of stewardship initiatives. A key strength of Zoetis’ stewardship initiatives is its African Livestock Productivity and Health Advancement (A.L.P.H.A.) initiative, co-funded with a $14 million grant from the Bill & Melinda Gates Foundation. Between 2017 and 2022, 91 new veterinary products became commercially available across Ethiopia, Nigeria, Uganda and Tanzania, including vaccines, parasitic treatments and medicines. The prevention of disease in poultry was a key focus for the A.L.P.H.A. initiative; Zoetis has provided access to a broad portfolio of poultry vaccines, which it hopes “will help to prevent disease and reduce treatment, including the use of antibiotics in poultry farming”. Additionally, Zoetis conducts responsible use educational programmes in Latin America and Southeast Asia. Zoetis collaborates 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. D.1.2. In 1998 Zoetis established its own AMR surveillance system, which is now recognised by the FDA and USDA. The programme includes 29 bacterial pathogens from 5 animal species and utilises 32 veterinary diagnostic laboratories in the U.S. and Canada. The company shares some of this data publicly. D.1. Recommendation: To improve its score to ‘Good’ Zoetis should provide greater insight into the impacts of its stewardship initiatives to demonstrate positive change.

D.2.1. 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 expenditure to the Federal Election Commission, but it does not disclose any figures in its annual reporting. Zoetis does not report any data beyond what is required by regulation. The company does not provide any information on the industry organisations with which it has memberships. D.2. Recommendation: To improve its score, Zoetis should disclose its approach to lobbying on issues related to AMR and antibiotics.

E.1. Zoetis did not respond to the investor coalition’s formal letter sent in July 2022 and declined to attend an engagement call with investors. The company provided some high-level feedback on its preliminary assessment sent in December 2022, or on its final assessment sent in May 2023.