Zoetis Inc - Class A (ZTS) — Q2 2015 Earnings Call Transcript

Thank you. Good morning and welcome to the Zoetis second quarter 2015 earnings call. I am joined today by Juan Ramon Alaix, our Chief Executive Officer; and Paul Herendeen, our Chief Financial Officer. Before we begin, I'll remind you that the slides presented on this call are available on the Investor Relations section of our website and our remarks today will include forward-looking statements and actual results could differ materially from those projections. For a list and description of certain factors that could cause results to differ, I refer you to the forward-looking statements in today's press release and our SEC filings, including, but not limited to, our 2014 annual report, on Form 10-K and our reports on Form 10-Q. Our remarks today will also include references to certain financial measures which were not prepared in accordance with Generally Accepted Accounting Principles or U.S. GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures is included in the financial tables that accompany our earnings press release and in the company's 8-K filing dated today, August 4, 2015. We also say operational results which exclude the impact of foreign exchange. With that, I will turn the call over to Juan Ramon.

Thank you, John and good morning, everyone. Today, I will discuss our performance for the second quarter and provide updates related to the integration of Abbott Animal Health, the performance of new products and progress on our operational efficiency program. Paul will then provide additional perspective on the quarter and comment on our guidance for 2015, 2016, and 2017. All the growth rates that I'm discussing today are rational, excluding the impact of foreign currency. I am very pleased to report that this quarter, we generated very strong revenue and adjusted net income growth based on the strength and the diversity of our business. The growth this quarter was driven by the positive performance of our portfolio, in both companion animal and livestock. The addition of Abbott Animal Health and the growth of APOQUEL and other new products and the continued discipline on operating expenses. In the quarter, we generated operational growth of 11% of revenue and 20% in adjusted net income or adjusted diluted EPS of $0.42 per share. This performance continued to demonstrate our long-term valuable position and grow adjusted earnings faster than sales. In the quarter, APOQUEL contributed 2% of revenue growth or $19 million. Abbott Animal Health accounted for 2% of the revenue growth or $25 million and another 2% came from new product launches. The remaining 5% is related to both performance including a 2% price increase. In livestock, we view 8% even by some growth in cattle and swine. Cattle then grew 9% with continued favorable market conditions in the U.S. and Brazil, partially offset by the impact of the full reductions in poultry. Swine products also made a contribution this quarter, growing 14% based on strong sales in the U.S. and China. In the U.S., the markets for swine continued for building after the original impact of PEDv. We continue adoption of our key brands and a positive impact in terms like our better ACTOGAIN. Quarter revenue grew 1% reflecting new product launches which were partially offset by the customer rotation of medicated feed additives in certain Latin American markets. Turning to companion animal, revenue grew 15% due to additional sales from the Abbott Animal Health and the continued performance of key brands such as APOQUEL in the dermatology space and some whole and production insights. We feel very good about the progress we have made on the integration of Abbott Animal Health and we expect to achieve the targets we've set from the condition in terms of revenue and cost percentages. Now switching to Sarolaner operational updates, we completed the go-live profile of our ERP system in the U.S. at the beginning of May as scheduled. From a systems and control point of view, the completion was successful. However, due to a large number of our customers affected by our change of systems, we've had customers experiencing a disruption in their services. The variability of these shipments and these issues have been resolved. Customers should see the level of our service improving and returning to the quality they expect and deserve from us. Foreign presentation in other countries will remain on track to complete the growing ERP product by the end of Q1 2016. As for the Abbott growth, since the beginning of the year, we've had a significant increase in product supply and today more than 13,000 veterinarians have access to APOQUEL in the U.S. and more in markets outside of the U.S.. We have the manufacturing capacity to meet the future demands of the public but the process of scaling up the active pharmaceutical ingredient or API, as we mentioned to you. We have now made the necessary changes to improve the process and we're continuing to ramp up the manufacturing. While the situation is improving, we're not yet meeting all our market demand and our first priority is to manage a solution of available supply to our locations and to fulfill August for our current customers. With that in mind, we have temporarily suspended taking new first-time customers' orders for APOQUEL in most markets. We remain committed to making APOQUEL available to new customers as soon as possible. Even with these changes in our operating products, we now expect revenue for APOQUEL to be about $150 million in 2015 and increasing really early in 2016. The productivity of our investment in new product development continues to support our future growth. The U.S. Department of Agriculture has granted a conditional license for a first trial of first-of-its-kind antibody therapy that targets interleukin-31 or IL-31, to help reduce clinical signs associated with atopic dermatitis in dogs. It represents another major breakthrough from our R&D platform based on new scientific insights into the pathway of allergic skin conditions. We continue to receive approvals for new indications and formulations of our key products and we have expanded many products into new markets. In the second quarter, for example, we sought approval of new label claims in the U.S. and European Union for CERENIA, an antiemetic to treat and prevent acute vomiting in dogs and cats. We continue expanding the breadth of our FOSTERA swine vaccine franchise. We have new label claims in Canada and Latin America. And DRAXXIN 25, an injectable anti-infective, which will tap into an important market for swine, was launched in additional European markets, such as Spain, Italy, and Portugal. Now to achieve concerns, comments and update on the operational efficiency program, we announced last quarter. I do want to recall the program we announced to simplify operations, improve our cost structure and better allocate the resources for future long-term growth. We expect to generate cost savings of at least $300 million in 2017 and improve our adjusted EBITDA margin from 25% in 2014 to approximately 34% in 2017, as we review complexity and achieve greater focus on key brands and markets. Our visual leader is moving ahead with the elimination of approximately 5,000 SKUs from our total of 13,000 and changing our solution model in about 25 markets. Approximately 45 countries will remain with our direct sales model and generate 95% of our revenue. Meanwhile, we have begun the process of selling or exiting seven manufacturing sites. A few sites will be sold or exited in a later phase as part of our supply network strategy. We've also started job reductions as we reorganize and streamline our operations. We're making very good progress on the implementation of our operational efficiency program. And I'm very optimistic about delivering or exceeding the target of $300 million in savings by 2017. While we're making these changes on efficiency, we remain absolutely committed to the momentum that has been driving our success. Our direct selling approach and world-class salesforce distinguish us from the competition. Our investment in research drives breakthrough products and ensures the lifecycle development of our portfolio and our high-quality manufacturing and supply. In summary, we delivered excellent second quarter operational results, with various sources of revenue growth across our portfolio. We remain well-positioned for profitable growth based on our core capabilities, diverse portfolio and focus on expansion growth. And we're seeing initial progress on the efficiency program that makes us more competitive and profitable for the long term. I will now ask Paul to provide some comments on the quarter. Paul?

Good morning. The key financial highlights for the quarter include consistent growth and disciplined cost management. Revenues increased by 11% operationally compared to the third quarter of 2014, primarily driven by the acquisition of Abbott Animal Health products, the ramp-up of APOQUEL, and a strong livestock portfolio. We took measures to reduce operating expenses to maintain our 2015 profit guidance amid currency challenges, resulting in a 2% increase in operating expenses on an operational basis compared to the same quarter last year. This kept us aligned with our efficiency initiative launched in May. Our strong revenue performance in animal gross profit margins benefited from favorable foreign exchange impacts on the cost of goods sold and effective expense control, enabling a robust adjusted net income growth of 20% operationally and 14% on a reported basis. While the year's outlook is positive, we consider our business in broader terms, focusing on annual performance rather than quarterly metrics. Therefore, view this quarter as a positive indicator of our ability to meet our 2015 goals and beyond. We narrowed our 2015 guidance towards the upper range, reflecting our strong performance. Regarding foreign exchange effects, foreign exchange rates negatively impacted our reported revenue and profit growth, reducing our reported sales by approximately $106 million compared to the second quarter of 2014, and adjusted net income growth was down by $12 million. We assess performance on an operational basis, and on that front, we delivered strong results. As part of the operational efficiency program initiated in May, we streamlined from four reporting segments to two, U.S. and International, and future financial reporting will reflect this structure. We provided a historical view of our 2014 and third quarter 2015 results within this framework to assist in updating financial models. This consolidation will enhance decision-making and simplify operations while providing better visibility through more detailed revenue reporting from key countries accounting for nearly 80% of our sales. However, expect quarterly fluctuations, and don't draw conclusions from a single quarter's performance. Our business model's strength lies in geographic revenue and profit diversity, especially within livestock, where market performance offsets each other. Finally, we disclosed revenues, costs, operating expenses, and pre-tax earnings for the two segments, reflecting an improved financial reporting model. Highlights from the quarter include an operational growth of 11%, with contributions from unit growth, pricing, APOQUEL, acquired products, and new product introductions. In the U.S., we achieved a significant growth of 17% across all species, driven mainly by Abbott products and APOQUEL. The international segment grew 6%, with Brazil, China, and the UK leading contributions. In the livestock segment, cattle and swine sales offset declines in poultry, and the companion animal group also saw growth. Although emerging markets grew 10% operationally, we're scaling down in Venezuela awaiting better economic conditions, which will impact future sales. Moving to our operational efficiency initiative, we are on track to achieve at least $300 million in operating expense reductions by 2017. We intend to maintain a direct presence in key markets and focus on products that promise growth. Transparency is crucial regarding one-time costs. In the second quarter, one-time costs associated with our separation from Pfizer totaled $39 million, while costs from the operational efficiency initiative reached $263 million. Additionally, we incurred $15 million in costs toward our supply strategy. Current estimates of one-time costs remain unchanged from previous guidance. Looking ahead to 2016, based on strong second-quarter performance, we now anticipate revenue and adjusted EPS near the top of our range. We expect our operating expenses to follow the seasonal trends observed previously. For long-term guidance, we reaffirm our expectations for 2016 and 2017, aiming for a constant diluted share count. We plan to use our share repurchase program to mitigate dilution from equity-based compensation. In the second quarter, we repurchased 2.1 million shares. We filed a shelf registration statement for financial flexibility, preparing for upcoming cash needs related to standup costs, efficiency implementation, dividends, share repurchases, and a debt maturity next year. That concludes our prepared remarks, and now we’re ready for your questions.

Ramon, I'm wondering if you could give us a little bit more detail behind your comments on the APOQUEL supply and what is going on with the ERP and the implementation with the billing issues?

I will answer the APOQUEL question and then I will ask Paul to provide details of the presentation of the ERP, not only in the U.S. but also in other markets where we're implementing this new system. So in terms of APOQUEL, as I said, we were able to significantly increase the supply but still we're facing some challenges in ramping up the manufacturing of API. API is explaining some order of comments and it is a very complex manufacturing process, and we had some delays in terms of permitting all the needs for finished goods. Now we have a process that, in our opinion, will meet the demands of the market and we expect that very soon we will be able to meet all the market demands in the power expectation. In 2015, as I said, we plan to sell about $150 million, and that significantly increases the revenues in 2016. I'm very confident that the situation is under control. We have all the capacity that we need to utilize API and also to use the finished goods in various markets to start meeting all the needs of our customers. For now, Paul will provide an update.

Let me start by saying when we went live with the implementation SAP in the U.S. in the beginning of May itself, high level, the go-live was and continues to be successful. That is not to say that everything is perfect. I would say on the good side we have full control of our key business processes and we have full contact with any of our financial information. We have work to do in addressing the ways in which our system changes have impacted our customers. The US segment of our business interfaces with tens of thousands of customers and the overwhelming majority have systems that are working well at that. That does not matter if you are a customer where our system changes have led to issues with respect to you and the customer. Addressing all of those issues continues to be a top priority for us, and we will continue to look at resources and address outstanding issues. I'm sure you and others on the line including some of our customers, this is something that Ramon and I think about every day. Last thing on this: I've been involved in a number of SAP implementations and all of them have been successful and none of them have been without bumps in the road. We're going to call this implementation a success. Our customers are happy with the level of our customer service, and we have work to do there, and we're on it every day.

Paul, I know you don't manage the quarters, but I was curious how we should think about the third quarter and fourth-quarter qualitatively in terms of EPS progression because you did announce a meaningful beat in the second quarter but you did not raise your guidance as much as the beat. Thanks.

A couple of things let's talk about the second half. Please keep in mind, as I mentioned earlier during my prepared remarks, that the net-net was down over the second half of the year and we are pairing our expectations for APOQUEL to the lower communicated range. We're still expected to sell more than four times last year's volume but towards the low end of our previously indicated range for APOQUEL. Also bear in mind you're looking at our business in the second half of the year and our livestock business that's been chugging along quite nicely has some very tough comps in the second half of the year. So realistically from a revenue perspective, if we're going to be making our guidance range, and we think that's pretty good. We're on track for 2015 and on track for 2016 and on track for 2017 picked out on the expense side, which really has more of the question of income, the income and where it should be and to call out my prepared remarks, it's at 55% of our OpEx in last year came in the second half of our year. We're expecting similar phasing in the second half of this year although less pronounced than you saw last year between Q3 and Q4, so you really need to take that into account in order to think about the full-year. We tightened our guidance range. We continue to be on track and we think for a very solid 2015 with a lot of moving parts and on into '16 and '17.

Can you speak to the recent acquisition of KL progress in the poultry segment and will that be a meaningful contributor going forward and how should we think about capital deployment more broadly as it relates to acquisition and how would you characterize the deal pipeline right now and are you looking at both small and large targets? Thanks.

The KL acquisition was small, but it signifies and strengthens our presence in the country, particularly in the poultry sector. We entered the poultry segment a few years ago, and we are improving our ability to vaccinate with a highly efficient device that can vaccinate up to 60,000 eggs per hour. This device will enhance our position in this area of our business. Additionally, it allows us to foster better relationships with our customers and offer them more services. Paul will address the capital deployment.

On the capital deployment, I can't resist going through the whole sort of diagram of how we think about capital allocation. First and foremost, we look to invest in our business and see opportunities to drive significant value for example increased investment through R&D and sales investment; that would be our first call because we have a business that can generate organic growth in line with or in the markets in which we compete with these investments and that would lead to solid organic growth and earnings. Now next, M&A is additive to our organic growth. A good example is the Abbott acquisition earlier this year which is fitting in quite nicely and helping us with our results. We think we entered Q1 perhaps it might have been observed in that we mentioned the anatomy of line of sight regarding completing the standup I described. We are interested and ready to look at M&A opportunities that are out there in the market, and we're looking for leverage in the places where we have expertise and where we can leverage our core capabilities, broad-spectrum. We look at pipeline assets, in-market products, and technologies, and we look at company acquisitions. I want to point out that we use return rates to evaluate transactions and we look for deals that add value and cash flow and generate value for our shareholders as we look to pursue those deals. We've got some capacity to do deals and we're interested in assessing there are certainly areas that are adjacencies for us or areas where we currently like to do that.

We continue assessing any possibility that we can make a strategic sense and will generate synergies in terms of revenues and cost. We like the financial value. Also very importantly, we did incorporate into this assessment any antitrust parameters that we may have. That's really where we see M&A as a way to complement our internal growth, our operational growth and internal growth that will increase the value of Zoetis and value to our shareholders.

My question relates to the atopic dermatitis franchise that you are building. Can you talk about how APOQUEL fits into this versus the new IL-31 antibody, and do you expect to do a full launch of the new antibody now or wait for more clinical data? Thanks.

APOQUEL is an oral treatment, while IL-31 is injectable. APOQUEL is taken in pill form for both acute and chronic conditions in dogs. IL-31, being an injectable, serves a different purpose. Both products are seen as complementary; APOQUEL is more focused on first-line treatment, whereas IL-31 is better suited for chronic conditions and dogs needing additional veterinary care. The full launch of IL-31 will occur once we receive the complete license. Initially, we plan to execute the product while reviewing methodologies in the U.S. We'll gather details on its efficacy, which will be presented to the USDA to obtain final approval for the license in about a year.

We have had several big presence with APOQUEL and IL-31. Can you talk about how you think about the anticipated case of additional R&D development? Should we expect another large product launching every two years or every year? Also, on business development, you said in the past that you’re looking to upgrade from smaller and mid-sized deals and that these opportunities tend to be more therapeutic and geographically focused. Are any therapeutic or geographic areas that are particularly attractive and are you interested in continuing to build-in devices or diagnostics?

I will try to go through all of the different questions that you raised, starting with the pipeline. We're very pleased with the productivity of our investment in our R&D. We've been able to produce APOQUEL but also provide strong contributions in terms of vaccines, and we had the opportunity to launch the vaccine product in record time. Now we have IL-31 that will complement our dermatology franchise, and we expect in 2016 to gain approval for an oral parasiticide, which is an important segment where we're currently underrepresented. We are focused on bringing innovation, and in my opinion, we're showing that we're leading not only in terms of revenue but also in terms of innovation that we've been demonstrating many examples of how our team is achieving this kind of innovation. At the same time, we're continuing investing in the part which is equally important, extending the lifecycle of our portfolio. This will represent a significant part of our investment; in fact, most of our R&D budget is allocated to ensure that our products remain competitive and we achieve that by combining products, increasing indications, and also geographical expansion. So we’re very pleased with our innovation and pipeline, and we definitely want to see continued deliveries of this success in the future. In terms of business development, we are now in a situation contemplating business development from a provisional first time perspective. We have a significant presence in all of the therapeutic areas; we have facility presence in all geographies and also in all species, but we still see opportunities in some of the gaps that also strengthen our position. However, those opportunities need to make strategic sense from the financial perspective. In terms of other areas, we're open to considering opportunities beyond our core business. We may enter into complementary spaces, such as genetics, devices, and diagnostics, and we will continue assessing opportunities in these areas that strengthen our position.

Before we jump off, I want to go back to how do you think about the productivity or the pace coming out of R&D because it is one of our competitive trends. We often talk about and this is in round numbers, we often talk about our industry growing mid-single digits over time. If you think of it as five using an example, it's a 5% growth industry and 2% coming from units, and 2% coming from price, and 1% coming from new products. Our goal is to deliver more from self-developed products than the 1%, and again I don't want to focus too often on one quarter, but if you look at our quarter, in the second quarter of this year we have 2% of our growth year-over-year from introduction of products that have been in line for less than a year. Products like those mentioned represent a collection of new offerings that are in line. So there are lots of things included in our R&D that are not in the same categories perhaps like an APOQUEL or Sarolaner or perhaps even an IL-31, but we can achieve that growth and this is meaningful and to the extent we can grow faster in the market this helps us deliver on one of our value propositions, which is our ability to grow sales at a rate faster than the market.

I was wondering if you could give us a little more of an update on your outlook for the livestock by species of cattle, swine, and poultry specifically as we get through the end of '15 and into '16, and also could you point out what the tough comparisons are for the second half that you mentioned earlier? Thank you.

Starting with livestock, we see that the market conditions are still favorable. If we start with cattle, the price of beef remains high. We see that the value of the animals remains very high, and this also creates an opportunity to continue providing producers the products that they need to keep the animals healthy and productive. Swine and poultry are also two species that have been performing very well; swine in this quarter represented a growth of 14% while poultry showed only 1%. However, one of the advantages of Zoetis is that we have a presence in all species, and we can really maximize opportunities despite some temporary challenges in one species or one geography. So in that respect, we see that the prospects for livestock remain positive, and we see that continuing into 2016.

The other question was to talk about the tougher comparison in livestock compared to last year. If you look back in the second half of 2014, we had margins or significant ramp-up of products that were not present in the first half of 2014. That's what leads to more difficult comparisons year-over-year in the livestock space.

Paul, can you give us your thoughts and expectations regarding potential tax reform in the U.S. which seems to be gaining traction, specifically for your company as we have an important goal for your tax rate, and follow-up if I may, with strong performance in Brazil driven by new product launches, are these products that are already available in other major markets or can we expect similar launches for these products? Thank you.

Looking at the first tax question, tax has been ongoing forever, but it doesn't mean it won't create some traction. It's important to our structure, and the answer is it could be to the extent that we have earnings and cash that's offshore, and part of our tax structure intends to permanently deploy that capital offshore. The rules are changing, and it affects us just like any other U.S. multinational company. So we will just have to wait and see on that.

Let me then answer your question about product traction in other markets. We see in general that companion animals are more globally produced, and this is something we have in our products in that segment. In terms of livestock, it depends. You asked about Brazil; Brazil is a very strong market in terms of cattle. However, there are very specific conditions, and we have introduced new products specific to Brazil. Recently, we introduced products aimed at reproduction that were launched at the end of 2014. We will continue to expand our portfolio as much as we can geographically, and this is part of our potential growth ensuring that we have all of the necessary market introductions in all of our markets.

The growth in the third quarter, I just want to continue the question about the tax. I'm wondering how much tax optimization or tax planning are already included in the long-term guidance because it looks like the effective tax continues to be between 29% and 30% for the next two years. How much is already tax planning that was included in the new guidance and is there any additional potential to optimize further the tax rate in the longer term? Also related to the question about M&As, what rates would you be interested in introductions and for purposes whether you would be interested in merging with a company which is not truly animal health? Thank you.

So first question: how much is included in our long-term guidance? We have a structure, and I think we've articulated that we think we have a solid framework based on the hand that we're dealt here that will allow us to maintain a tax rate in the order of approximately 29%-ish for the planning horizon for us going out at least three years, which we've provided guidance. We have often discussed our desire to address opportunities to lower that rate, but it is a grind. It is not something that there is a magic bullet that we can just put in place in the new structure and magically reduce our tax rate significantly. We do what we can, and we think we have a good solid supported structure, and that's what is included in our long-term guidance. With respect to an inversion, we've talked about this as well. There are precious few companies that would make sense for us to work with, and the second thing that we try to communicate at our investor day back in November of last year is based on our particular set of circumstances. We feel that in an inversion transaction the benefits, if you focus on the entity that’s currently called Zoetis, an offshore structure would be roughly to reduce our tax rate by some 600 basis points, while market folks suggest there are other ways to substantially reduce that rate. That’s our point of view, and it's what we said back in November, and we continue to believe that. In terms of the transaction, it could be helpful, but it’s not something that for us would take our tax rate down into the low single digits.

We haven't distributed any option, but you have to think about this opportunity that can be justified not only because of tax but because of the strategic rationale of the position. This is something that we include in the assessment.

I have a question about pricing. I'm curious if there's potential to increase prices for livestock and companion animals more than you have previously.

We're always trying to maximize gross profit, and the opportunity to maximize gross profit comes from balancing price and volume, and finding the right balance between volume and price. We have a good strategy in terms of pricing and definitely see opportunities to raise prices at a higher pace and would consider that. We have been quite aggressive in price increases in some of the emerging markets and where we have high inflation, and because of that, we're also applying high price increases. In developed markets, we want to ensure we remain competitive and we're not creating a negative impact on our volume that also would affect our revenue in terms of cost of manufacturing. All of this is part of our consideration in terms of price increases.

So as well as the operational efficiency program being very good for helping the efficiency of the overall business, you did talk on last quarter's call about how this might make Zoetis a much better platform for integrating acquisitions. Can you just give us a bit more feel for when this process would progress to the point where there is less focus on drug in the process and the platform is more efficient, and you might be able to consider larger size deals because I would assume at the moment with a lot of work still to do on this program that’s not something that should be on the cards right now. Thank you.

On the primary it's running, and in my opinion, it's running at full speed. We'll be finalizing all of the necessary changes at the end of this year, and there will be also significant work done in terms of reducing SKUs and changing the internal markets. I don't see at this point that our operational efficiency program is creating any kind of restriction for M&A. On the contrary, we have an operation that is key to our endpoint, and we can really maximize the opportunities for any position with the model that will be more profitable. Our program is running well, and I don't see any concern or issue affecting our ability to deliver or exceed the target of $600 million while considering M&A opportunities.

The operating efficiency initiative is not a requisite factor impacting our M&A opportunities. The best time to do a deal is when there is an attractive actionable deal in front of you. What I expressed earlier was that we're ready and able to take advantage if a situation presents itself; we’re good to go.

This is Arielle in for Jami. I just wanted to follow up on the M&A question. Can you discuss your firepower? You mentioned on many calls that you’re somewhat cash constrained with the operational efficiency, so are you able to do a large scale deal? Can you remind us what your max leverage ratio you are comfortable with? Are you willing to use equity? Secondly, there have been a lot of restrictions on antibiotic usage in livestock, so can you provide color on what the downside risk is for your business? Thanks.

When we think about M&A, let's first address the capital structure question. We might express an upper bound on leveraging, but what we have said is we’re generally thinking about target ratios of roughly 2.5 turns of EBITDA in our capital structure. The expectation is in normal circumstances of ranging 2.5 to 3.5 times within that region. However, we've also said that with the right opportunity, we would be more aggressive in the use of debt capital to complete a value-generative transaction. The best time to pursue a deal is when there is an opportunity in front of you, and we would use available leverage to conclude transactions that we felt were value-generative for all shareholders.

Let me take the question regarding potential risk. We have in our portfolio about 30% of our revenues coming from antibiotics. Out of this 30%, 25% is in companion animals and we see low risk there. The rest is between MSAs and injectable products, which again we see less risk than is provided to animals in feed. There have been significant discussions mainly in poultry where some producers have decided to move away from medically important antibiotics to using non-medically important antibiotics. We have both in our portfolio, and we think we can provide to our producers, especially poultry producers, products that will meet their demand and also meet consumer demand. In our opinion, I think it is a manageable risk, and the advantage I mentioned on many occasions is that we have a portfolio which is extremely diverse in terms of species, geographies, and specific areas. Very importantly, when they move away from antibiotics, they need to increase significantly the use of vaccines to protect these animals, and we have a significant presence in vaccines to compensate any potential impacts in certain areas and to enhance business in others.

Thank you very much for attending this call. Thank you very much for your questions, and again, we think that we reported this quarter very strong results and we're very confident about delivering our objectives in 2015. Thank you very much.