Best in Show Zoetis Earns a Wide Moat

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Best in Show Zoetis Earns a Wide Moat Pfizer's animal health unit has a wide moat in an attractive industry, but the proposed offering range looks to fully price in the firm's advantages. January 29, 2013

Contributing Analysts Zoetis' IPO will be the first opportunity for a pure-play investment in one of the major animal health manufacturers. The underfollowed industry has historically been buried within big pharma firms and largely ignored, but we believe David Krempa Associate Equity Analyst it has very attractive characteristics. As the market leader, Zoetis is the best-positioned firm in the industry, and Specialty Pharmaceuticals we believe it warrants a wide economic moat. Its scale, fragmented customer base, cash-pay market, and minimal [email protected] generic competition all contribute to the firm's ability to earn returns well in excess of its cost of capital. +1 312-696-6633

Damien Conover, CFA TRANSACTION SNAPSHOT Director Pharmaceuticals [email protected] Zoetis is scheduled to begin trading on the NYSE on Feb. 1 under the ticker symbol ZTS. Pfizer will offer 86.1 million +1 312-696-6052 Class A Zoetis shares of the 504.5 million (17.1%) total diluted shares to be outstanding at the time of the offering assuming a $23.50 pricing, the midpoint of the $22-$25 proposed offering range. The $2 billion offering would value

Zoetis at $11.1 billion-$12.6 billion. Pfizer will hold all Class B shares, which carry 10 times the voting power of Company Stats Class A shares, and has said it may subsequently make a tax-free distribution to its shareholders of all or part of its Zoetis (ZTS) Fair Value: $22 Trend: Stable remaining Zoetis stake. Moat: Wide Uncertainty: Medium 2011 2012E 2013E KEY INVESTMENT CONSIDERATIONS Adj EPS $1.00 $1.18 $1.31 FV/EPS 22.0x 18.6x 16.8x × At the midpoint of the filing range ($23.50), Zoetis would trade at 18 times our 2013 earnings per Pricing Range: $22.00-$25.00 share estimate. Our discounted cash flow-driven fair value estimate is $22, suggesting that valuation, at the Market Cap: $11.1 - $12.6 Billion proposed offer price, leaves limited upside for long-term investors. We forecast a five-year revenue compound annual growth rate of 7% and a five-year EPS CAGR of 9%.

× As the biggest firm in the industry, Zoetis has scale that gives it significant advantages over Offering Stats competitors. Its large product portfolio can justify an extensive salesforce and reduce distribution costs while Lead Underwriters: smaller competitors must rely on expensive and less efficient distributors. J.P. Morgan Merrill Lynch × With leading positions in the emerging markets, Zoetis is best positioned to capitalize on growth, Morgan Stanley in our opinion, as rising standards of living drive wider adoption of meat-heavy diets. Zoetis has Expected Pricing Date: market-leading positions in the fast-growing Latin America and Asia regions, which allows it to invest in January 31, 2013 salesforces and infrastructure, further distancing itself from competitors. Proposed Offer Range: × The lack of government payers and large health insurance firms makes animal health a very $22-$25 per share attractive industry with strong pricing power and minimal generic competition. Zoetis sells to a Proposed Max Offering Amount: highly fragmented group of cash-paying customers, so it is able maintain significant pricing power. The lack of Base: $2.15 billion Over-allotment: $323 million large payers to force or encourage customers to switch to generic treatments leads to very low generic

utilization.

SELECTED FINANCIALS ($mm) FYE December 2009A 2010A 2011A 2012E 2013E 2014E 2015E 2016E Revenues 2,760 3,582 4,233 4,318 4,613 4,929 5,250 5,574 % yoy change 30% 18% 2% 7% 7% 7% 6% Adj EPS $ 0.37 $ 0.55 $ 1.00 $ 1.18 $ 1.31 $ 1.43 $ 1.55 $ 1.67 % yoy change 49% 82% 18% 11% 9% 8% 8%

Morningstar Institutional Equity and Credit Research

Morningstar Institutional Equity Research: Zoetis IPO Perspective 2 January 29, 2013

Our $22 Fair Value Estimate Points to Low End of Proposed Range

Our DCF valuation of the firm is $22 per share, which is 17 times our 2013 EPS estimate and implies an enterprise value of 12 times our 2013 EBITDA estimate. We forecast a 7% five-year sales CAGR and a 9% EPS CAGR. We believe the firm's leading position in the fastest-growing markets should allow it to grow slightly faster than the global market.

We expect slight margin improvement over the next five years. Zoetis has recently seen margin improvement due to synergies from the acquisitions of Fort Dodge (Wyeth) and Alpharma (King Pharma) and from Pfizer's companywide cost-reduction program. Management expects continued margin expansion as a result of additional cost-saving initiatives and operating leverage, but has yet to give specifics. We forecast the operating margin improving from 24.0% in 2012 to 24.6% in 2016. We expect operating leverage and efficiency programs to be partially offset by lower-margin emerging markets making up a growing portion of Zoetis' sales.

Limited comparable metrics for Zoetis. Acquisitions in the industry have not yielded many comparable valuation metrics. All recent deals have been for undisclosed terms or have been part of a larger health-care firm, such as Pfizer's acquisition of King Pharma (Alpharma). The only data point worth noting is the valuation used for the proposed Merial-Intervet merger, which was later terminated. The firms had agreed that a 3.1 enterprise value/trailing sales multiple would be appropriate for both. Because of its consumer focus, Merial posts higher margins than Intervet, but this was deemed to be offset by the more attractive growth prospects Intervet carries as a production animal-focused business. Our $22 fair value estimate would imply an EV/sales multiple of 3.2.

Zoetis will be the only one of the major pure-play animal health firms that is publicly traded, although the eighth- largest player, Virbac, is publicly traded in France. Given its small size, it may not be an appropriate comparable, but Virbac trades at 19 times 2013 consensus EPS estimates.

Cost Advantages and Barriers to Entry Earn a Wide Moat for Zoetis

Zoetis earns a wide economic moat as a result of its intangible assets and scale. Although patents are not essential for maintaining a product in the animal health industry, 20% of the firm's revenue comes from products protected by patents that allow Zoetis to charge a premium price and insulate it from competition. Its strong brand name gives Zoetis another advantage over competitors. When customers are using drugs on potentially millions of dollars' worth of livestock, or a pet that they love like a family member, they will be willing to pay a premium to buy from a firm they trust.

Scale also provides Zoetis with a key advantage. Because of the highly fragmented customer base, the salesforce, distribution, and relationships are extremely important. Launching a new product is not as simple as getting one large payer (managed-care organization, Medicare, or government) on board; the company needs to individually deal with veterinarians and meat producers. Zoetis' broad portfolio can support its own salesforce, allowing the firm to bypass distributors.

Barriers to entry are significant in both capital and time. Although not nearly as expensive or as time-consuming as in human health, it is still very challenging to bring a new animal health product to market. Given the small market size and relatively modest sales potential of products, the reward often will not justify a new competitor pursuing clinical trials to bring a product to market.

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Morningstar Institutional Equity Research: Zoetis IPO Perspective 3 January 29, 2013

One of the best examples of the strength of Zoetis' moat is its pain medication for dogs, Rimadyl. The product lost patent exclusivity in 2001, but sales are currently 35% higher than they were in 2001. Vets' relationship and trust in Zoetis have allowed Rimadyl to maintain and increase sales despite generic competition.

Source of Moat Application to Zoetis Intangible Assets: Patented product and trusted brand name Switching Costs: Direct switching costs are low, but switching to an inferior product could lead to substantial losses for meat producers Network Effect: Not applicable Cost Advantage: Scale plays significant role, leverage the sales force across many products, and avoid relying on distributors Efficient Scale: The small size of individual product categories offers little reward for new entrants relative to the high initial investment Source: Morningstar.

Mature Industry Warrants a Stable Moat Trend

We believe Zoetis has a stable moat trend. The firm competes in a very mature industry that is not experiencing any significant changes. With the heavy concentration among top firms and few revolutionary products in development, we do not expect the industry to face any material changes to its competitive landscape.

Zoetis Is Top Dog in a Very Attractive Industry

Zoetis' initial public offering will be the first opportunity for a direct investment in one of the major global animal health players. We believe the underfollowed industry carries very attractive characteristics. Animal drugmakers sell to a highly fragmented market of cash-pay buyers, so they possess significant pricing power and see very low generic utilization. The industry also has favorable tailwinds that should provide solid long- term growth. On the production side, rising standards of living in emerging markets should lead to wider adoption of meat-heavy diets. In the companion business, owners are increasingly viewing pets as members of the family and have shown an increased willingness to pay for premium health-care treatment for their animals.

Minimal economic sensitivity, high diversification, and low dependence on patents provide very stable revenue. Despite the weak global economy, Zoetis' organic growth has held up very well. Although meat consumption may be negatively affected by a weak economy, it is not typically one of the first places consumers look to cut expenses. On the companion side, the economy has only a small impact on spending. Owners are likely to cut back on other discretionary spending before forgoing treatment for a pet. The economy may affect the decision to get a new pet, but it has a small impact on owners who already have one. Zoetis is also immune to patent cliffs that add volatility to human drugmakers' sales and earnings. The majority of the firm's products are off patent and are able to maintain or increase sales; given minimal generic competition, there is little risk of a product's sales evaporating overnight upon patent expiration. Zoetis is further isolated because of its extremely high diversification. The company's top product makes up just 8% of sales and its top 10 products make up just 38% of sales.

Market-leading position in emerging markets makes Zoetis best positioned to take advantage of growth opportunities. The key growth driver of the industry will be demand from the emerging markets. When standards of living increase, demand for animal protein increases dramatically. Zoetis holds leading share in the Asia/Pacific and Canada/Latin American regions, which are expected to see a 7%-8% CAGR over the next five years. The only one of the four geographic regions that Zoetis is not the leader in is the slowest-growing Europe/Africa/Middle East region.

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2011 Morningstar Vetnosis Est 5 Yr Zoetis Est 5 Yr Region Market ($B) Zoetis ($B) Zoetis Marketshare Zoetis Position Region CAGR Sales CAGR United States 6,490 1,659 26% 1st 4.5% 6.0% Europe/Africa/Middle East 7,467 1,144 15% 2nd 4.4% 4.0% Canada/Latin America 3,691 788 21% 1st 7.9% 8.0% Asia/Pacific 4,353 642 15% 1st 7.5% 9.8% Global 22,001 4,233 19% 1st 5.7% 6.5% Source: Vetnosis.

Fragmented customer base means minimal pricing pressure for Zoetis. On the human health side, firms are traditionally at the mercy of payers. Government payers or large managed-care organizations have the power to force generic utilization, squash price increases, and even in extreme cases force price cuts onto drug manufacturers. Conversely, animal health products are purchased by a fragmented group of meat producers, veterinarians, and pet owners, allowing very little bargaining power over the highly concentrated animal health firms. There is little risk of reimbursement cuts or mandated pricing in animal health. If anything, the competitive dynamics are the opposite of human health. Sellers are highly concentrated, while buyers are very fragmented. The top five animal health firms make up 62% of the global market, versus just 29% for the human health market.

Market Concentration, Human Health vs Animal Health Company 2011 Sales ($B) Market Share Company 2011 Sales ($M) Market Share Pfizer 61 6.9% Zoetis 4,233 19.2% Novartis 59 6.7% Intervet (Merck) 3,253 14.8% Roche 47 5.3% Merial (Sanofi) 2,823 12.8% Merck 45 5.1% Bayer 1,679 7.6% GSK 43 4.9% Elanco (Eli Lilly) 1,649 7.5% Top 5 255 28.9% Top 5 13,637 62.0% Total Market 880 Total Market 22,000 Source: Morningstar, company reports, Vetnosis.

Antitrust concerns make it unlikely for a competitor to surpass Zoetis' scale. With such a concentrated market, U.S. and European regulators have intensely scrutinized merger and acquisition activity. In 2010, the second- and third-largest players, Intervet (Merck) and Merial (Sanofi), announced plans to merge. The combined entity would have towered over Zoetis with more than $6 billion in sales, but the deal was ultimately called off when it was clear the deal would not earn regulatory approval without significant divestitures. We saw similar regulatory hurdles during the megamergers of Pfizer-Wyeth and Merck-Schering Plough. Regulators found few issues with the human health portfolios, but both deals results in the forced divestitures of significant animal health assets. We expect the industry leaders to pursue small bolt-on acquisitions, but consolidation among the top players seems unlikely.

Animal health margins are significantly lower than human health, leaving minimal opportunity for generic competitors. With gross margins of just over 60%, there is very little opportunity for a generic manufacturer to come in and undercut on price. Pfizer posted companywide gross margins of more than 82% in 2011 excluding the animal health unit, and that includes the low gross margin consumer unit and royalty payments that are recognized as cost of goods sold. The true manufacturing cost of human pharmaceutical products is probably 10% of sales or less, which is why generic firms can profitably offer massive discounts to branded products. Generic firms traditionally make up for a lower gross margin with selling, general, and administrative

Morningstar Institutional Equity Research: Zoetis IPO Perspective 5 January 29, 2013

expense savings since prescriptions can be automatically filled with generics and a salesforce is unnecessary. However, with animal health that is not the case; generic firms would still need to employ a salesforce to convince farmers and veterinarians to directly purchase their generic products. Similarly, the lower research and development spending in animal health versus human health leaves less room for additional savings from generic manufacturers. There is currently no large global generic manufacturer in the market.

Even if a generic is on the market, meat producers have very little incentive to switch. When combined with veterinary expenses, the cost of health care for cattle and hog production in the United States is just 4% and 2% of direct costs, respectively. This ignores indirect costs such as labor, rent, machinery, taxes, insurance, and general farm overhead, so in aggregate, medicine costs are just a tiny element of a farmer's budget. As we mentioned, the price difference on generics is minimal, so the risk/reward is not attractive. Farmers are hesitant to switch to a generic product and risk losing or harming their highly valuable animals in return for immaterial savings.

Meat Production Cost Structure Cattle Production Costs, $ Per Cow 2011 % of Costs Hog Production Costs, $ Per Hundredweight 2011 % of Costs Purchased feed 89 16% Purchased feed 37 55% Homegrown harvested Feed 191 35% Homegrown harvested feed 4 6% Grazed feed 102 19% Total feed cost 41 61% Total Feed 382 70% Feeder pigs 14 21% Cattle for backgrounding 45 8% Nursery pigs 8 11% Veterinary and medicine 22 4% Veterinary and medicine 2 2% Bedding and litter 0 0% Bedding and litter 0 0% Marketing 11 2% Marketing 0 0% Custom services 10 2% Custom services 0 0% Fuel, lube, and electric 46 8% Fuel, lube, and electricity 2 3% Repairs 34 6% Repairs 1 1% Other 0 0% Other 0 0% Total Direct Costs 550 100% Total Direct Costs 67 100% Source: USDA Commodity Costs and Returns, 2011.

Companion market offers slower growth but still has attractive characteristics. Companion products are estimated to make up 40% of the global market and accounted for 34% of Zoetis' 2011 sales. We expect the majority of growth in the companion market to be driven by increased spending per pet, although it should also see a small benefit from increased pet ownership. Over the past two decades, the percentage of households owning pets has been relatively flat, leading to pet growth at the rate of new household formation. In recent years, young adults delaying parenthood and a rise in the number of empty nesters has driven a slight uptick in pet ownership, but it has been largely offset by the negative impact of the weak economy. However, spending per pet has seen robust growth. Over decades, attitudes toward pets have changed, and now an increasing number of owners view their pets as members of the family. As a result, they have drastically increased spending on pet care. Pet owners are pursuing treatments that would have been unheard of in past decades, such as Palladia, Zoetis' cancer treatment for dogs. The following chart shows that pet ownership has grown just 1.1% per year over the past two decades, but vet spending, which is a fairly good indicator of drug spending, has risen 7.0% per year.

Annual 1991 1996 2001 2006 2011 Growth US Dog Ownership (Mil Households) 34.5 31.3 37.8 43.0 43.3 1.1% US Vet Spending on Dogs ($ Billions) 4.9 7.0 11.6 16.1 19.1 7.0% Source: American Veterinary Medical Association.

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Most of Zoetis' companion products tend to be advanced treatments sold by veterinarians rather than retail stores. The firm's size and scale give it significant advantages over smaller competitors. With its deep portfolio, Zoetis is able to use its salesforce to market numerous products and minimize the salesforce cost per product. Smaller competitors may not have the revenue base to justify a salesforce large enough to adequately cover the entire market and are forced to resort to using distributors or a suboptimally sized salesforce. Some animal health products, such as flea and tick treatments, are distributed through major retailers, but Zoetis has a minimal presence in that market. The retail market is largely dominated by Merial's Frontline and Bayer's Advantage line of flea and tick treatments, which are the two largest products in the entire animal health industry.

Minimal Debt and Strong Cash Flow Put Zoetis in Strong Financial Health

Zoetis recently issued $3.65 billion of debt, $1 billion of which will be transferred to Pfizer. Upon the IPO, Zoetis will have $300 million cash and $2.65 billion of long-term debt outstanding. Zoetis issued the debt at attractive rates and we do not expect it to have any trouble meeting its obligations. The debt includes $400 million of 1.15% notes due 2016, $750 million of 1.875% notes due 2018, $350 million of 3.25% notes due 2023, and $1.15 billion of 4.7% notes due 2043.

Limited Insight Into Current Management

With limited results by which to judge current management, we default to a standard stewardship rating. Juan Ramon Alaix has been president of Pfizer Animal Health since 2006 and will be CEO of Zoetis. Under his leadership, Pfizer's animal health unit successfully integrated Fort Dodge Animal Health and Alpharma. Before that, he was regional president of Central/Southern Europe for Pfizer's pharmaceutical division. We believe his seven years running the company gives him significant operational experience, but he will be faced with many new challenges running an independent public company rather than a subsidiary. Zoetis' CFO will be Richard Passov, who has spent more than 15 years in Pfizer's finance department, most recently as senior vice president and treasurer.

Acquisition opportunities are limited in the animal health industry, so we expect the majority of Zoetis' free cash flow to be returned to shareholders. The firm plans to initiate a quarterly dividend of $0.065 per share, which should result in about a 1% dividend yield. Debt repayment will only require a small amount of free cash flow, so Zoetis should have the capacity to increase its dividend or initiate a stock-repurchase program.

Risks to Our View

× Uncertain long-term guidance. Zoetis has been amid a cost-cutting initiative started under Pfizer, but it has not given guidance on the magnitude of future cuts, so long-term projections carry some uncertainty. × Consolidation among customers. Consolidation among veterinarians or meat producers could lead to less pricing power for Zoetis. On the companion side, we have seen the consolidation of independent vets; however, even the largest player, VCA Antech, operates just 530 clinics, or 2%-3% of the estimated more than 20,000 clinics in the U.S. × Outbreaks of disease in animals. Outbreaks of infectious diseases in animals, such as mad cow disease, can disrupt the market and reduce demand for specific types of meat. However, we believe those types of incidents would largely just affect short-term demand and would be unlikely to significantly change long-term behavior.

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Financial Summary

Zoetis (ZTS) Market Cap: $12 billion Sector: Healthcare Industry: Drug Manufacturers - Specialty & Generic Stewardship: Standard

Five-Star Price 15.40 Economic Moat Wide Valuation Multiples (2013 Estimates) Scenarios Fair Value Estimate 22.00 Moat Trend Stable Adjusted P / E 16.7 Bull Case N/A One-Star Price 29.70 Uncertainty Medium EV / Adjusted EBITDA 10.2 Base Case N/A EV / Sales 2.9 Bear Case N/A Market Price 22.00 Estimated COE 10.0% Price / Book 4.3 Price / Fair Value Estimate 1.00 Pre-Tax Cost of Debt 4.0% FCF Yield 5.6% Morningstar Credit Rating N/A Estimated WACC 8.6% Dividend Yield 1.2% FY Ends: December

3-Yr Historical Forecast 5-Yr Projected CAGR/AVG 2010 2011 2012 2013 2014 2015 2016 2017 CAGR/AVG All values (except per share amounts) in: USD Millions Income Statement Revenue 3,582 4,233 4,318 4,616 4,937 5,261 5,587 5,926 Gross Profit 2,138 2,581 2,763 2,954 3,160 3,367 3,576 3,798 Operating Income 287 632 988 1,112 1,195 1,278 1,358 1,458 Net Income 110 245 597 663 722 783 846 938 Adjusted EPS 0.55 1.00 1.18 1.31 1.43 1.55 1.68 1.86 Adjusted EBITDA 472 837 1,193 1,320 1,405 1,494 1,576 1,680 Growth (% YoY) Revenue 16.1% 29.8% 18.2% 2.0% 6.9% 6.9% 6.6% 6.2% 6.1% 6.5% Gross Profit 18.0% 27.1% 20.7% 7.1% 6.9% 6.9% 6.6% 6.2% 6.2% 6.6% Operating Income 66.3% 33.5% 120.2% 56.4% 12.6% 7.4% 7.0% 6.2% 7.4% 8.1% Net Income NM -210.0% 122.7% 143.6% 11.1% 8.9% 8.4% 8.1% 10.9% 9.5% Adjusted EPS 46.7% 45.5% 82.9% 18.6% 11.1% 8.9% 8.4% 8.2% 10.9% 9.5% Adjusted EBITDA 52.1% 39.2% 77.3% 42.6% 10.7% 6.4% 6.4% 5.4% 6.6% 7.1% Profitability (%) Gross Margin 61.6% 59.7% 61.0% 64.0% 64.0% 64.0% 64.0% 64.0% 64.1% 64.0% Operating Margin 15.3% 8.0% 14.9% 22.9% 24.1% 24.2% 24.3% 24.3% 24.6% 24.3% Net Margin 7.6% 3.1% 5.8% 13.8% 14.4% 14.6% 14.9% 15.1% 15.8% 15.0% Adjusted EBITDA Margin 20.2% 13.2% 19.8% 27.6% 28.6% 28.5% 28.4% 28.2% 28.4% 28.4% Return on Equity 11.4% 6.6% 6.9% 20.6% 28.7% 25.3% 22.9% 21.0% 19.9% 23.6% Adjusted ROIC 6.2% -0.9% 6.9% 12.6% 12.1% 12.6% 13.0% 13.3% 14.0% 13.0% Adjusted RONIC 131.4% 10.7% 135.6% 248.1% -3.8% 25.1% 21.9% 19.6% 27.4% 18.0% Leverage Debt / Capital 29.1% 17.5% 13.3% 56.4% 50.6% 45.8% 41.5% 34.0% 30.6% 40.5% Debt / EBITDA 1.7 2.0 1.0 2.3 2.0 1.9 1.8 1.4 1.3 1.7 EBITDA / Interest Expense 14.3 15.2 16.2 18.4 21.4 17.1 Cash Flow Dividends per Share 0.41 0.82 0.82 0.26 0.35 0.37 0.40 0.42 Free Cash Flow to the Firm 25 (8) 335 657 671 702 748 825 FCFE (CFO-Capex) 130 362 362 617 632 664 716 797 Source: Company filings, Morningstar estimates.

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Supplemental Data

Animal Health Industry Estimated Market Share (2011 Sales)

Rank Company Sales ($Mil) Market Share 1 Zoetis 4,233 19% 2 Intervet (Merck) 3,253 15% 3 Merial (Sanofi) 2,823 13% 4 Elanco (Eli Lilly) 1,679 8% 5 Bayer 1,649 7% 6 Boehringer Ingelheim 1,357 6% 7 Novartis 1,304 6% 8 Virbac 867 4% Other 4,835 22% Total Industry 22,000 Source: Vetnosis, company reports.

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Zoetis Sales by Species Sales 2009 2010 2011 Cattle 1,126 1,464 1,617 Swine 388 433 562 Poultry 125 265 501 Other (Fish and Sheep) 47 71 98 Total Livestock/Production 1,686 2,235 2,779 Horses 80 159 168 Dogs and Cats 994 1,190 1,287 Total Companion 1,074 1,350 1,455 All Sales 2,760 3,585 4,234

Growth 2009 2010 2011 Cattle 30% 10% Swine 12% 30% Poultry 112% 89% Other (Fish and Sheep) 51% 38% Total Livestock/Production 33% 24% Horses 99% 6% Dogs and Cats 20% 8% Total Companion 26% 8% All Sales 30% 18%

% of Sales 2009 2010 2011 Cattle 41% 41% 38% Swine 14% 12% 13% Poultry 5% 7% 12% Other (Fish and Sheep) 2% 2% 2% Total Livestock/Production 61% 62% 66% Horses 3% 4% 4% Dogs and Cats 36% 33% 30% Total Companion 39% 38% 34%

All Sales 100% 100% 100% Source: Morningstar, company reports.

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Zoetis Sales by Category: Sales 2009 2010 2011 Anti-infectives 983 1,117 1,311 Vaccines 677 1,014 1,077 Parasiticides 432 602 645 Medicinal feed additives 85 86 347 Other pharmaceuticals 484 653 724 Other non-pharmaceuticals 99 110 129 Total Sales 2,760 3,582 4,233

Growth 2009 2010 2011 Anti-infectives 14% 17% Vaccines 50% 6% Parasiticides 39% 7% Medicinal feed additives 1% 303% Other pharmaceuticals 35% 11% Other non-pharmaceuticals 11% 17% Total Sales 30% 18%

% of Sales 2009 2010 2011 Anti-infectives 36% 31% 31% Vaccines 25% 28% 25% Parasiticides 16% 17% 15% Medicinal feed additives 3% 2% 8% Other pharmaceuticals 18% 18% 17% Other non-pharmaceuticals 4% 3% 3%

Total Sales 100% 100% 100% Source: Morningstar, company reports.