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Stock Analyst Update

What Zoetis' Acquisition Means for Idexx

Wide-moat Zoetis' purchase of Abaxis makes strategic sense but doesn't threaten narrow-moat Idexx Labs.

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While we think the acquisition of Abaxis by  Zoetis (ZTS) makes strategic sense, we do not think the combined company will pose a larger competitive threat to narrow-moat  Idexx Labs, (IDXX) the market leader in benchtop vet analyzers. We’re holding steady on our fair value estimate for Zoetis and Idexx. Wide-moat Zoetis has long indicated it was interested in enlarging its presence in animal diagnostics. We think folding Abaxis in with the Zoetis therapeutic portfolio for companion animals makes sense—the firm already has relationships with vets, veterinary distributors, and can tie the diagnostics and therapeutics together. For example, Zoetis can pair up the heartworm diagnostic with its recently approved Diroban to treat heartworm as well as Revolution and ProHeart preventative products.

We recognize the acquisition will provide Zoetis with a broader range of products to sell to the companion animal market, and there’s no question Zoetis sells a great deal of product to vets. However, we don’t think the combined firm will necessarily strike at the heart of Idexx’s competitive advantage, which is primarily focused on its strong partnerships with vet and animal hospitals. We have yet to see any companion animal healthcare company partner as closely with vets as Idexx does to improve the delivery of medical services and operational well-being of the animal hospital. The relationships that Idexx has been able to foster with vets goes far beyond simply supplying diagnostic tests. Idexx starts out with its range of diagnostic services but also branches out with integrated practice management software and consulting services. The strength of these relationships is one major reason why Idexx was able to shift to all-direct distribution of its products, including lab consumables, without missing a beat. Zoetis and Abaxis have yet to forge that kind of collaboration with vets.

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Debbie Wang does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.