As the dog days of summer turn into fall, Americans continue to pamper their pets, treating them as members of the family -- which apparently includes medicating them.
Credit Suisse just added the global animal health care company to its Focus List on Tuesday. The analysts highlighted Zoetis' attractive and diverse drug portfolio, which they believe will continue to grow the company's top line ahead of the rest of its industry -- and they aren't wrong.
There's a new product that Zoetis has that could be a big boon for business: Sileo, the first and only noise aversion medicine for dogs that's been approved by the Food and Drug Administration. Zoetis launched the product in May under an exclusive agreement with Finnish company Orion. And the oral paste that works in 30 minutes arrived in time for the holiday most dogs hate: the Fourth of July. The Kelsey Canine Medical Center in Collierville, Tenn., posted a video on Twitter to demonstrating how the medicine works.
While aversion to noises like thunder and fireworks do not affect every dog, Sileo is slowly adding to Zoetis' top line.
"New products other than Apoquel, including our new companion animal vaccines, Simparcia, Synovex1, and Sileo, to name a few, added 2%," said former CFO Paul Herendeen, who went to Valeant (VRX) recently, during the second-quarter conference call.
Despite making up such a small percentage of revenue for Zoetis, noise aversion is a common problem. Rivergate Veterinary Clinic's founder and medical director Dr. Peter Kross said about 25% of his canine clientele suffer from noise aversion. An online survey conducted by Harris Poll on behalf of Zoetis in November 2013 found that among 784 dog owners, one-third reported that their dogs suffer from noise aversion. Another study published in Applied Animal Behavior Science Journal looked at noise sensitivity in 17 dog breeds. The researchers found that of the 5,257 dogs studied, on average, about 23% were fearful of noises. So, yes, it's a pretty common problem.
Dr. Kross said Sileo was "totally" needed as vets had used Benadryl, Xanax and Valium with "mixed results." He added that the drug used in Sileo is a drug used in anesthesia for dogs, remarking that it is "not a novel drug, just a novel use for it."
Sileo costs roughly $30, depending on your vet, and the doses vary depending on the size of the dog. Dr. Kross said for a small dog less than 12 pounds there would be about 32 doses, but for a large dog weighing about 65 pounds, there would be just two doses. But he did mention one limitation with Sileo: Once the package is opened, it can only be used for two weeks, which he said could be a slight issue for small dogs.
So far, Dr. Kross, whose clinic has offered Sileo since August, has dispensed 10 packages, with one client already getting a refill.
Even though Zoetis does not provide revenue forecasts for this product, the company said via email that it recognizes that "there is a significant unmet need for canine noise aversion treatments." The company said it "will work to educate veterinarians about the benefits of this new product."
Now, this drug may not be for every dog, but as part of the humanization of pets trend, it could be appealing to dog owners who see their pet distressed during thunderstorms. The noise aversion drug could be a benefit for Zoetis in the longer term, as it is the only FDA-approved treatment on the market and is qualified for three years of marketing exclusivity.
The company also sells tablets of Apoquel, which treats acute and chronic itching in dogs. It looks to be a driver of growth in the short term -- though it won't replace those pesky cones. After experiencing a supply shortage in 2015, the drug is now more widely available and has had a "very positive story" this year, says CEO Juan Ramon Alaix.
"For the first half of 2016, we have exceeded $100 million in revenue, and since May, we have been supplying Apoquel with no restrictions," Alaix said during a conference call with analysts on Aug. 3.
With revenue of $60 million for the second quarter, the drug was an "important driver" of U.S. revenue growth (up 10% for the period) and for the companion animal segment (up 13%), in terms of the global business.
Apoquel's revenue should continue to grow, as Zoetis has launched the drug in regional markets such as Brazil, Japan, Mexico and Russia. The CEO added that it would also be introduced in Colombia, Peru, Singapore and Hong Kong. The company expects long-term peak revenue for Apoquel to reach $300 million. They do not provide any specifics on annual or quarterly revenue expectations.
"We have seen that most of the use of the product has been in chronic conditions. Now the effort of our people, it's really to promote the product to expand also the use of acute indications," Alaix said.
Herendeen put this opportunity in perspective for analysts during the latest quarterly conference call.
"If you take the universe of itchy dogs, over half of itchy dogs are considered acute ... the next largest group, in terms of a percentage, are the seasonal itchy dogs; and then the smallest is the chronic. About 20% are chronic," Herendeen said.
Another drug Zoetis was touting was Simparica, a chewable for dogs that offers protection from fleas and ticks. Alaix said the company looks to have the product well established in the U.S. market in 2017. But the flea and tick market is pretty well saturated -- from Frontline Plus and Bayer's (BAYRY) K9 Advantix to Merck's (MRK - Get Report) Bravecto and many more -- so breaking into the market may be more difficult that Zoetis is anticipating. Simparica launched in the U.S. earlier this year.
If investors need further convincing as to the direction of Zoetis, director Michael McAllister just purchased 2,000 shares on Sept. 6, valued at approximately $102,680.
Editor's Note: This article was originally published on Real Money at 2:30 p.m. on Sept. 9.