Towards the end of 2021, Bob Jones wrote about the US economic situation and the inflation the country is experiencing.  As 2021 came to a close, the CPI posted an annual rate increase of +7%, the highest rate since 1982.  While nominal wage gains were higher than seen in many years, when adjusted for inflation, real wages declined by -2.5%.

Recall that in the early 1980’s, the inflation rate (CPI) peaked at 14.8%.  To tackle inflation, the Fed drove the country into a recession, increasing their benchmark interest rate as high as 19%.  Two critical differences between the 70’s and today relate to the labor market.  Back in the early 1980’s, unemployment peaked at almost 11% whereas today’s rate is 3.9%.  However, today we are experiencing significant labor shortages partly driven by the labor participation rate (work rate for prime-age people; 25-54 yrs. old) that peaked at 67% in 2000 and is now about 62%.

The Animal Health industry is facing similar inflationary challenges.  We heard from one senior executive at VMX that costs continue to rise due to supply chain disruptions, labor shortages and wage increases, especially for manufacturing talent.  Companies are passing along the cost increases to customers to the extent they can, trying to maintain margins.

2021 was an extremely strong year for the Animal Health industry.  2022 may prove to be much more challenging forcing business leaders to navigate choppy waters driven by the multitude of headwinds facing global economies.

Randy Freides

Brakke Consulting View Point

Almost back to normal.  That’s how a lot of people, including me, felt this week at the VMX veterinary meeting and expo in Orlando.  Attendance was down from non-COVID years, but still over 15,000 attended the conference and many exhibitors felt that their time there was well spent.

At VMX, Merck Animal Health released findings of the Veterinary Wellbeing Study, the third survey of veterinarians since 2017 and the first survey of veterinary technicians and support staff.  The concept of the wellbeing study started with Brakke Consulting’s John Volk and with the collaboration of the AVMA, this report showed how COVID impacted people working in clinics.  Another notable observation was how serious staff shortages were and the stress that this caused the clinic teams.  From Merck’s press release:

“The percentage of veterinarians with serious psychological distress has increased to 9.7% in 2021 as measured by the Kessler Psychological Distress Scale, compared to 6.4% in 2019, due in large part to the ongoing pandemic. Among staff, the prevalence of serious psychological distress was nearly twice as high (18.1%). In addition, half of staff respondents (49.6%) and approximately one-third (30.5%) of veterinarians reported high levels of burnout.”

Back to VMX.  The Brakke Consulting Industry Overview was well attended, the KCAHC/UVSA/Animalytix Networking Summit was well attended and, in the evenings, the bars at the Hyatt and Hilton were well attended.  Almost back to normal.

Bob Jones

Next week marks the return of VMX at its regularly scheduled time in January, as well as the return of the in-person Brakke Industry Overview.

In these turbulent times, it pays to have as much information as possible about the current trends in our industry and what is driving them.  This year, in addition to all the valuable insights you expect from the highly experienced Brakke team at our Industry Overview, we are including a panel with other industry leaders, bringing you wide-ranging insights into the companion animal segment. Our annual Overview is the best 2 hours you’ll spend at VMX – be sure to register today!

Lynn Fondon

ANIMAL HEALTH NEWS & NOTES CELEBRATES
22 YEARS OF INDUSTRY NEWS

Wow – it’s hard to believe that 22 years has passed since we at Brakke decided that an industry-focused e-newsletter would be a good idea.  Our first newsletter was sent out in August of 1999 to about 200 subscribers.  As of December 15, we had over 6,700 active subscribers in more than two dozen countries, and many more readers view the newsletter online or see it forwarded from a colleague.

The industry has changed more than a little in the ensuing two decades.  The very first newsletter featured a “top 10” list that included the following: Merial; Pfizer; Bayer; Intervet; Fort Dodge; Novartis; Schering Plough; Elanco; Pharmacia & Upjohn; and Hoffmann-La Roche.  Who would have predicted back then that 9 out of 10 of those names would no longer be around in animal health 20 years later?!

Our first News & Notes was pretty brief compared to the newsletters in 2021, with only a half-dozen announcements.  It wasn’t easy to get news about our industry back then, and we felt we could serve an unmet need with a weekly news roundup.  Now, most of us are besieged with e-newsletters on a daily, weekly, and monthly basis.  We hope that our weekly digest continues to be of value by presenting the week’s important news in a way that allows you, our readers, to effortlessly stay caught up on the industry.

Thanks for your readership, and we look forward to serving you for many years to come.

Lynn Fondon

BRAKKE CONSULTING VIEWPOINT

Last week we touched on some bumps on the road to 2022: the shortage of labor, falling labor productivity, and rising labor costs. We said would cover what this means, so let’s first start with the P&L.

To keep profits climbing, animal health companies will raise prices next year as high as they can stomach – this is harder for some, almost required for public companies. And every expense line will be scrubbed for savings, because of higher costs everywhere. We predict travel and entertainment will be limited, R&D spending will be scrutinized, and capital spending will be capped.

On to people. Hiring in a tight labor market will require new strategies – higher salaries will only go so far. You might need to change your definition of an ideal hire. That perfect fit might not be found, and you might need to develop them. Business leaders will need to decide how to manage remote workers and hybrid models of working, while keeping focus on costs and productivity. We think investing in automation and technology is probably the best way to increase productivity, along with skills training.

We are learning about hiring from our job board dedicated to the animal health industry, Animal Health Jobs. But we also know that getting the right people on the bus, and then in the right seat, is the best predictor of long-term business success, regardless of the bumpiness of the road.

Bob Jones

Your View

Coming soon…

BRAKKE CONSULTING VIEWPOINT
We are hearing a lot about how hard it is to find workers in our industry. Seems like the Law of Supply and Demand is at work.

The Bureau of Labor Statistics (BLS) reported that last week, initial jobless claims – a proxy for layoffs – fell to 184,000 in the week ended December 4, which is the lowest level since September of 1969.  Hourly private sector wages were up 4.8% in November from the previous year, reflecting strong consumer demand and a tight labor market. Indeed, the supply of labor is down: the civilian labor force is smaller by 2.4 million people, or 1.4%, compared to 4Q2019. So, the Law of Supply and Demand still works.

It is easy to get lost in mountains of BLS data – but here is a number that struck me: Nonfarm business sector labor productivity fell 5.2% in the 3Q of this year (output declined 1.8%, hours worked increased 7.4%), which is the largest quarterly decline in since the 2Q of 1960.

All these numbers portend a real challenge for big and small businesses in 2022 to increase profits faster than revenue – how to manage rising labor costs, a shortage of workers, and slipping productivity. We expect big increases in labor costs in 2022 along with product price increases, which will propel inflation. More on what this means next week.

Bob Jones

YOUR VIEW

Last week we asked about productivity and working from home.  To no one’s surprise, most respondents (85%) said that they had worked from home a significant portion of last year.  63% of those felt they were more productive at home than at the office; and half of those said they were significantly more productive. Just under 20% of respondents felt their productivity was either about the same or less productive.  In contrast, the majority of those who didn’t work from home don’t believe that people are more productive working from home. Let’s hope those latter folks weren’t in management!

The hot acquisition market in animal health seems to be continuing apace.  There have been over 130 acquisitions noted in our newsletter through November of this year – with another 5 in this newsletter alone – and there are no doubt some we have missed.

Growth through acquisition seems to be a primary focus for many animal health companies large and small.  In addition, private equity and other outside investors are paying impressive multiples to get into the animal health game.  Most of these recently have been smaller, more strategic purchases. But now that the dust has settled from the Elanco/Bayer merger, is it possible there is another mega-merger in the offing?  Only time will tell.

Lynn Fondon

YOUR VIEW

Last week we asked if you thought there will be a mega-merger in animal health in 2022 and a majority (56%) said no. A few respondents left responses with their merger candidates, but we’ll keep them under wraps – don’t want to start rumors!