Brakke ViewpointsWe are the experts in animal health
Earnings season for 1Q22 is now behind us with the top animal health companies reporting continued strong sales growth. Excluding the impact of exchange, the scorecard for some in the largest companies for the first quarter is as follows: Zoetis (+9%), Merck Animal Health (+9%), IDEXX (+8%), Heska (+7%), Covetrus (+6%), MWI (+4%), and Elanco (+2%). The strong growth was largely driven by the companion animal segment.
As we move further into 2022, there are signs that growth rates may be moderating. Recent reports indicate clinic visits may be flat to slightly negative in 1Q22. This is not surprising as the industry saw a surge coming out of the pandemic in 2021. The overall economic condition of the country is another area of concern with inflation surging. Some data suggests that the US economy is likely heading toward a recession. The last time we faced a recession in 2008-2010, vet visits declined by 2-3% annually as consumers juggled pet healthcare with other household spending.
The rest of 2022 will be a delicate balancing act for the industry with rising input costs and wage pressures relative to decisions to increase end-user prices to maintain profitability. We know that the veterinary industry is not recession proof, but it is rather recession resistant – people still eat and still take care of their pets.
Traditionally, veterinary practices have been the leading purveyors of both prescription and non-prescription animal health and nutrition products. With the advent of Internet sales, that pre-eminent position was seriously challenged. In reality, it’s one of the most dynamic, rapidly-changing issues in the animal health industry.
Today’s newsletter includes several items relevant to this topic. In the earnings section, Covetrus and PetMedExpress compete directly or indirectly on one side of the market for home delivery or the other.
This newsletter also features the announcement of a new report that sorts it all out – the Veterinary Home Delivery Report. This study provides detailed information on the percentage and growth in number of veterinary practices that offer online sales and home delivery, which service providers they use, satisfaction with those service providers, growth rates of online sales, percentage of clients requesting prescriptions for third-party pharmacies, and substantial additional information. It’s well worth a read and contains a lot of actionable information if you’re involved or invested in animal health product sales.
Later this month, scientists around the world will attend the 2022 Global African Swine Fever (ASF) Research Alliance (GARA) Scientific Meeting with the objective to increase our understanding of ASF, which has affected hundreds of millions of pigs in the last few years around the world, especially in Asia. However, science and technology alone are not enough without sensible policies from the government.
The countries of North America and Europe demonstrated decades ago that ASF and CSF can be eradicated with proper government policy and adequate scientific and technological tools. At both local and national levels, governments should develop and implement science-based animal disease outbreak emergency management policies that will encourage the full participation and support of pork producers, processors and consumers. These policies must consider:
- What will happen if the government does not adequately compensate swine producers for their loss due to ASF outbreaks?
- What is the best way to cull/dispose of thousands of pigs in a short period of time in a restricted area, considering animal welfare, economic and environmental impact, and technical feasibility?
- The negative impacts of biosafety measures such as disinfectants on environment, food safety, and human health should be carefully investigated.
Hopefully those attending the GARA meeting will be considering these issues as well as scientific issues and advances.
A recent report from the IQVIA Institute entitled “The Use of Medicines in the US 2022” is interesting reading if you believe that trends in human medicine eventually show up in veterinary medicine. Some notable results…
First, the overall use of telehealth has returned to pre-pandemic levels at the end of 2021, or 1-2% of patient visits. Mental health saw dramatic increases in telehealth during the pandemic, peaking at about 30% of all visits, and is now about 20%. Telehealth visits for chronic diseases, like hypertension, diabetes, and HIV/AIDS, peaked between 5 to 11% of visits, but are now down to 1-2%, because these diseases frequently require testing and bloodwork.
Second, spending on specialty medicines in the US is 55% of total net manufacturer revenue. These medicines treat autoimmune diseases, oncology, and multiple sclerosis and is now about double the 2011 level, which was 28%.
Finally, all the growth in medicine spending in the past 5 years, ($82.0B) has been due to new products ($87.7B). The volume impact of patented products already launched (+$94B) was completely offset by products going off patent (-$93.0B).
Veterinary medicine often follows in the footsteps of human health, so what can we learn from this report? Innovation focused on specialty products is likely to drive future growth in veterinary medicine, while innovation in services, like telehealth, will be a harder sell.
Amazon this week announced its inaugural Amazon Pet Day, coming up the first week of May. Many of us in the industry may not think of Amazon as a key player in pet products, but a recent Packaged Facts report found that Amazon was the #1 source for online pet purchases, which they claim now represent nearly one-third of all pet product sales.
Amazon is known to drive increased sales on its platform on its annual Amazon Prime Day: according to one source, retailers enjoy at 20-30% bump in e-commerce sales on Prime Day. One can only imagine how much anticipation there is at those companies selling pet products through Amazon. Will competitors like Chewy, Petco.com and Petsmart.com offer similar deals on May 2, as has happened with Prime Day? Don’t be surprised if they do.
This week’s newsletter contains information regarding 4 different investments made in companies related to our industry by private equity or investment firms just in the past week. I haven’t been keeping count, but each week as I read Animal Health News and Notes, I see more and more similar announcements. Many are relatively small investments, but the trend is not small at all; capital is available to fund good ideas developed by smart people who are willing to take risks. At Brakke Consulting, we were proud to recently represent Jorgensen Laboratories as they secured an investment from Main Street Capital to fund future growth.
Interestingly, many of the announcements made in recent months have a digital component as the visionaries of our industry see ways to use our exploding digital power to level the playing field. The power of mass and scale enjoyed by Big Pharma will be challenged by smaller players who see ways to chip away at that power with disruptive technologies. Of course, we also see examples of Big Pharma investing in that same sort of digital platform to maintain a market advantage. Good ideas aren’t limited to small companies, and entrepreneurs exist in large organizations as well.
Years ago, I learned a lesson that was not at all obvious to me; that is, good competition makes everyone better. Greater access to capital enables competition, which in turn makes us all better competitors. Isn’t that everyone’s goal?
The Michigan House is considering a bill to codify the ability for veterinarians to conduct telehealth exams without prior in-person visits. Currently, these are allowed there only in emergencies or when the patient is a shelter pet. While some cite the convenience offered, others, including the MVMA, oppose the proposal. Their argument relates to upholding a doctor-patient relationship. Though a vigilant pet parent may be finely attuned, the pets do not talk.
Some may recall that the State of Colorado once considered legislation equating pets to members of the household, such as children. That, too, was opposed locally due to concerns over potentially skyrocketing legal cases and fees.
Brakke Consulting conducted an in-depth review of telemedicine in the veterinary industry and could not find that the practice has gained any traction. Undoubtedly, the service is widely available and touted, but apparently not popular with veterinarians. In fact, uptake was found to be nearly negligible.
Still, research with pet owners has found that they find the concept quite appealing: a 2020 survey found that nearly half would like their veterinary practice to offer digital/remote consultations
What do you think? Is this an idea whose time has come? Does convenience trump veterinary familiarity?
The lingering effect of the COVID Period and returning to normal has created a lot of discussions recently. As we still face a virus that continues to evolve, we can learn much from the Poultry Industry, which has been battling coronavirus (Infectious Bronchitis) since its isolation in 1931. The first variants were later identified in 1956, and evidence of rapid evolutional ability of the virus has resulted in dozens of known variants that have shown up all over the world. Today it is still considered one of the major disease threats to poultry. But successful vaccine development through the years has helped control the impact of the disease and is always on the forefront of research and monitoring by academia and companies.
In today’s environment with a new focus on ‘One Health’ there could be an excellent opportunity to conduct research and vaccine development between human and veterinary pharmaceutical companies to combat Coronavirus. After all, animal health has a lot of experience to share with our human colleagues.
In a recent viewpoint, John Volk wrote about the Western Vet Conference in Las Vegas and how attendance was nearly back to pre-pandemic levels. I too was pleasantly surprised at the turnout. As I walked the convention floor, the largest companies were prominent with their mega-booths. What amazed me was the number of small and mid-sized companies displaying their products and services to support the animal health industry.
There were numerous instrument, diagnostic, exam room equipment and clinic supply companies displaying their products. However, what struck me the most was the number of companies promoting services and technologies to help drive efficiencies in the clinic and to assist with a clinic’s financial needs. Technologies to drive efficiency have become more and more critical as the industry continues to suffer from labor shortages both in terms of veterinarians and for support staff including vet techs. Stress levels appear to be at all-time highs in the industry both with vets and vet techs. In the absence of a wave of quality labor supply, clinics will continue to turn to technology to help handle the surging patient volumes.
I hope the efficiency tools help deliver the benefits that were promoted to ease some of the stress the industry is facing. The need is now.
This week the state of Wisconsin announced a confirmed case of highly pathogenic avian influenza (HPAI) in a large commercial layer flock, marking the 17th state with a confirmed case in 2022 and the largest commercial case in the country to date. This serves as a reminder that the spread of diseases, even those that have been around for a number of years, can have significant financial impacts on the animal health industry. Control measures for HPAI include depopulating the entire premises where the disease is confirmed – in this most recent case, a facility with 3 million birds.
It’s encouraging to note that the USDA is investing in research into preventing these kinds of devastating animal diseases, but $13 million is a drop in the bucket. Our industry needs to continue to invest in R&D efforts – not just vaccines, but other novel strategies for disease prevention and control – to stay ahead of these wily microbes.