We have had a few consulting projects lately where we reviewed how the top global animal health companies have grown.  So when I saw an article from McKinsey entitled, “Choosing to grow: The leader’s blueprint”, I was curious to see what the world’s largest consulting company had to say.

The authors use data from their research to describe how growth leaders, those that purposely choose to grow, are different than those that just pay lip service to growth.  Their blueprint has three parts: (1) Set an aspirational mindset and culture, (2) Activate pathways, and (3) Execute with excellence.  Even the authors thought these are timeless and holistic.

The Activate Pathways part has three parts, which made me think of the fast-growing animal health companies.  They are (1) Expand the core, (2) Innovate into adjacencies and (3) Ignite breakout businesses.  Successful examples of these in animal health can be seen, like Zoetis growing its core parasiticide and dermatology businesses and moving into diagnostics.  Or Merck AH’s innovative step into the animal digital technology world.

The authors conclude, “Making the conscious choice to grow creates powerful momentum that orients the entire business toward that goal.  The clarity of purpose and vision that comes from choice is what helps leaders and their teams believe in the seemingly impossible and make it happen.”

Bob Jones

The financial markets have taken a beating thus far in 2022.  The Dow Jones Industrial Average has declined -14%, while the S&P 500 Index is down -18% YTD.  Perhaps indicative of the animal health segment, PAWZ, the Petcare ETF that tracks the animal health industry, is down -30% YTD.  Ouch.

The Fed recently raised its benchmark interest rate by 75 basis points with more hikes likely to come, so the days of “free money” or inexpensive borrowing are over.  This can potentially have long term impacts on innovation in the animal health industry.  The industry depends not only on the big companies (Zoetis, Elanco, Merck and BI) who have well-funded R&D organizations, but also on hundreds, if not thousands of small start-up companies for innovation, where access to cash is critical.

Investment capital and borrowing is needed by start-ups and early-stage companies to fund operations and growth.  It remains to be seen how venture capital along with increased borrowing rates will impact the funding of innovation.  Moreover,  increased interest payments combined with reduced margins due to inflation may impact nascent companies in tenuous cash flow situations.

Innovation is critical to address the many unmet animal health needs both in terms of products and technologies.  If your company needs help making decisions about innovation and funding, we can help.

Randy Freides

This week’s news includes an announcement of a partnership between Kimpton Hotels and Wag! to offer dog walking services at Kimpton’s US hotels. Last week Mars Petcare and Hilton Hotels announced that guests at many of Hilton’s hotels will be able to access virtual support for questions about traveling with pets. Traveling with pets has become commonplace: a recent survey conducted for Hilton found that 55% of pet owners with summer travel plans intend to travel with their pet. Another survey sponsored by Wag! found that 70% of pet owners say they almost always seek out pet-friendly hotels, and 94% would trade away at least one common amenity in exchange for more pet-friendly policies. According to Hilton, 85% of their hotels are pet-friendly, so they seem poised to capitalize on this trend.

I’ve never personally vacationed with my dog (or cat), but I know many who have.  A good number of those chose to go the Vrbo/Airbnb route because those offerings tended to be more pet-friendly. Hotels seem to be determined to win some of that business back; time will tell if the new pet-centric offerings swing the momentum back their way.

Have a great Independence Day holiday, and be safe!

Lynn Fondon

This week’s newsletter is chock full of items about new technologies, new products, new investments, new initiatives, and new collaborations – strong evidence that these are exciting times in animal health.

But not everything in our industry is bullish.  The University of Minnesota recently published market research that showed the strength of the plant-based movement.  31% of consumers said they would eat more plant-based protein over the next 5 years, and 36% said they were concerned about the environmental impact of animal production.  Although 80% said they preferred beef, pork and poultry as their protein sources, 20% did not.  To me, these data are surprising, and sobering for animal agriculture. And they don’t even address the growth in milk substitutes!  While I support people’s right to choose plant-based diets, we have to keep in mind that they reduce demand for meat, and thus animal health products.  It motivates me to grill some steaks this weekend.  You know, to help the industry.

John Volk, Senior Consultant

The first commercially available African Swine Fever (ASF) vaccine in the world is currently being field tested for safety and efficacy in Vietnam. While this is an important milestone in ASF control and prevention, we should be aware that this is a modified live virus (MLV) vaccine and a DIVA (differentiate infected from vaccinated animals) diagnostic assay that can distinguish vaccinated pigs from those infected with wildtype ASF viruses has yet to be developed.

To effectively control and eradicate ASF, researchers should continue to develop subunit (proteins and peptides) and nucleotide (DNA and RNA) vaccines that are inherently safer and DIVA compatible. DIVA assays are extremely useful for the control of a newly emerging infectious disease or a foreign animal disease as they can enable the “vaccinate-to-live” strategy by which vaccinated animals can be raised and processed for food production and consumption and/or sold into international trade.

In addition to making safe and efficacious ASF vaccines affordable and available worldwide, we should also prioritize R&D efforts to increase our understanding of ASFV virus survival in the environment and evaluate low-cost and environmental-friendly virucidal disinfectants under field conditions.  It has taken a long time to get this far with an MLV vaccine for ASF and let’s hope DIVA vaccines will be field tested soon.

Jishu Shi

This week’s newsletter contains several announcements that are straightforward alone but indicate some significant shifts when taken together.  Mars Petcare (owner of VCA and Banfield) announced a significant study that would generate physiological metadata from 20,000 pets. This data could provide strong synergy to the Mars investments in genetics made in recent years. Another Mars subsidiary, Antech, has announced an expanded relationship with cancer test maker PetDx to make the OncoK9 test available to all Antech customers, broadening the reach of this testing technology. Finally, PetSmart has announced a program that will enable independent veterinarians to open a franchised practice in PetSmart locations. Until now, the Mars subsidiary Banfield operates most vet clinics in PetSmart retail locations.

We’ve all watched our industry embrace investments in genetics in a very long-term process with very few obvious near-term benefits. It’s too soon to tell, but the Mars Petcare Biobank could mark the beginning of the next phase where genetics begins to be more closely integrated into normal veterinary practice. In addition, PetSmart’s announcement that they will be opening a program to encourage and develop more independent ownership of in-store clinics provides yet another pathway for veterinarians to find a blend of “old style” clinic ownership with the benefits of the corporate business model that has swept the industry in recent years.

We, like you, will eagerly monitor the changes in landscape as they occur, and we’ll try to help us all make sense of the opportunities.

Jim Kroman

The Great Resignation has been upon the animal health and nutrition industry for more than a year now. The tight labor market has slowed hiring as indicated from a recent Brakke survey of veterinarians  indicates that replacing a veterinarian in a clinic averaged 14 months last year  Similar hardships are faced by most companies in our industry.

What should companies do? One way is to reduce turnover by focusing on your company culture, onboarding, and work flexibility, which have been shown to increase team member satisfaction and loyalty, while making them more productive too.

A recent Gallup study showed that a concerted effort to foster and reinforce a positive culture increases sales by 19% and profits by 29%, while reducing attrition by 72%. Another indicates that clear onboarding improves retention by 23%, while poor training accounts for 40% of resignations. A third revealed that nearly half of respondents indicated they’d accept a lower salary if they could work in a hybrid environment. Thirty percent indicated the ideal work environment is 100% remote. (Source: PharmiWeb)

We are reinvigorating the Brakke Consulting recruiting practice and have recently heled several firms fill key managerial and leadership roles.  And while the workforce may have changed over the years, what has not changed is how important retaining and hiring people are to the success of any company.  We can help.

Jeff Santosuosso

We are hearing (and seeing) about possible food shortages in many places due to a multitude of factors. It is incomprehensible that this could happen in today’s world. But faced with reality, we in animal health must take a more active role in bringing solutions to improve efficiency of food production while ensuring good animal welfare.

The innovation and technology our products bring have a major impact on the availability of food. For example, certain pharmaceuticals such as beta-agonists are currently banned in many countries despite their proven safety and tremendous impacts on feed efficiency. Will the barriers continue when the world is going hungry? Or will we let retail beef consumption drop significantly because it is simply unaffordable due to the high costs of inputs? It will take some brave people from our industry to reopen these discussions.

Now comes the story of baby formula. Again, it’s unfathomable that in our country we would ever run out of such a critical item. I wonder if the CVM could help their colleagues in the FDA because I have found them to be very practical in solving issues, while  adhering to their standards and principles. Earlier in my career, I was involved with an issue of supply with a unique product in the US market. As we were not going to be able to supply, we were able to work with the CVM to have a pragmatic withdrawal that ensured a safe transition for the affected animals. Someone should have really thought through shutting down 40% of the nation’s supply of baby formula!

Paul Casady

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.

Randy Freides

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.

John Volk