Finally, election season is upon us.  But for finance nerds like myself, earning season is here as well with 3Q24 corporate earnings reports beginning in early November.  It will be very interesting to see not only what the companies have to say about third quarter results but what signals they send for the rest of 2024 and 2025.

I recently saw some data from Vetsource that indicates that through the end of September, foot traffic through the vet clinic is down by -1.8% vs. 2023.  However, at the clinic level, revenues have increased by +3.1% indicating a continuation of solid price contribution.

In the companion animal space, innovation is the most critical driver of growth.  Elanco for example, is about to enter a wave of new product introductions in some of the largest market segments including flea/tick/heartworm (F/T/HW) and dermatology.  BI recently launched NexGard Plus in the US.  Zoetis’ growth in F/T/HW, dermatology and osteoarthritis is unmatched and Merck has received approval in Europe/Australia on the next wave of F/T innovation with a long-acting injectable product.  All of these therapies come with higher price tags.

Will this innovation be enough to continue to drive growth?  Will these products, especially the injectables and monoclonal antibody products, drive pet owners back to the clinic or will the increased prices finally create a breaking point for consumers?  We should get a glimpse of this as 3Q earnings and 2024/2025 projections are communicated.

Randy Freides

As we reported earlier in the newsletter, this month Mars released its Global Pet Parent Study. This survey of 20,000 dog/cat owners and non-owners covered 20 global markets including North America. Their survey found that 47% of dog and cat owners were first-time owners, which was higher than I would have expected.

The Mars study also looked at generational differences in pet ownership. The study found that the younger the pet owner, the more pet-centric they are: Generation Z owners (18-27 years old) were 50% more likely than Baby Boomers (60+) to say their pets are “the most important thing in their life.”  Gen Z owners also placed more importance on products that are sustainable and ethically produced. The AVMA’s 2022 Pet Ownership and Demographics Sourcebook also identified different preferences in veterinary care: younger pet owners (in this case, Gen Z and Millennials) were three times more likely to value telemedicine and curbside service, compared to older pet owners.

A pet owner’s age impacts their approach to their pets’ healthcare, and understanding the nuances of generational approaches to pet ownership can help make your marketing programs more successful.  Let us know if we can help you investigate these trends.

Lynn Fondon

Congratulations to AVMA for another outstanding Veterinary Business and Economic Forum!   This virtual event attracted more than 400 attendees, the most ever.  Keynote speakers included Dr. Adam Grant, organizational psychologist and best-selling author at the Wharton School, and Anders Sörman-Nilsson, global futurist and founder of Thinque.  Sörman-Nilsson is an expert on use of AI.  The AVMA also released a wealth of new data on pets, pet owners, veterinarians, veterinary practices and best practices.  The research shows that while client satisfaction with veterinary services is extremely high, the profession is experiencing a pull-back in patients, visits and revenue since the pandemic peak.

During the Forum I announced results of a new Workforce Study we just completed on behalf of AVMA.  We had the opportunity to collaborate with Dr. Matthew MacLachlan, an economist and expert in forecast modeling at Cornell’s Center for Veterinary Business and Entrepreneurship. Contrary to what you might have read elsewhere, we could find no evidence of the likelihood of a dire shortage of veterinarians in the next few years.  On the contrary, if 13 proposed new schools come onstream, it will take a significant uptick in pet ownership and/or demand for veterinary services to avoid a negative economic impact on the profession.  Over the last 15 years, the profession has experienced both soft and tight labor markets, and will again in the future.  But they’re episodic, not permanent.  The study has been submitted for publication and should be available in the next few weeks.

John Volk

October has always been one of my favorite months of the year.  Great weather, great sports, great activities for sportsmen – I could go on.  But business-wise, I always felt that October was like the start of the last lap around the track in a mile-long race.  I had three quarters (or laps) behind me, and I had to finish the year strong…and had to finish the budget for the next year.

This connection between budgeting and innovation came to mind after reviewing this week’s developments in the newsletter. Several companies announced the approval of important and popular generic products for companion animals and livestock.  And the FDA’s CVM announced they are restructuring their ONADE organization into two groups, one focused on generic drugs and the other on new, original drugs.  I have not yet been able to find out what drove this change, but it would not be a surprise that a big driver was the high volume of generic drugs going through the approval process.  Maybe it was a low volume of new drug applications.

I know that innovations in our industry are coming to market – Elanco’s dermatology product Zenrelia was just approved, and they expect approval of their parasiticide Credelio Quattro still this year.  But I often feel, especially on the livestock side, there should be more investment – budgets – for true innovation.  And launching new products always helps everyone run that four quarter-long race.

Bob Jones

INNOVATION that delivers
Innovations in animal health are rapidly increasing, with new developments entering areas previously untouched. However, some fields, particularly AI-driven information, are becoming crowded with similar offerings. Larger pharmaceutical and nutrition companies often have strategies for evaluating innovations, so entrepreneurs should carefully consider these before investing time and resources.

At the core of innovation is one key question: “What problem am I solving?” This simple question has two critical factors:

• Does the innovation address a real problem or need? If so, is it novel?
• Does it compete with an existing solution? If so, how is the innovation better?

Innovations in niche areas may not target large markets but can still offer significant profit potential by addressing specific needs with little competition. In contrast, competing innovations must have a clear and compelling unique value proposition.

Many passionate entrepreneurs approach market entry without fully understanding the problem their innovation solves. Often, they create a solution first and then seek out applications for it, which can lead to missed opportunities. Moreover, some innovators remain unaware of existing competitors in their space, which hampers their success.

Involvement earlier in the development process would allow for better strategic guidance, ensuring a more successful outcome. That is why we like to work with clients early in the process to address these two critical factors.  The takeaway is simple: ensuring clarity around the problem and the innovation’s unique value is crucial to delivering a successful market solution.

Lourens Havenga

My career has primarily developed in my native country, Brazil, where I’ve dedicated 33 years to the animal health industry across various companies. Throughout this time, I’ve been consistently amazed by the industry’s dynamism, especially with the recent growth in veterinary specialties like telemedicine, health plans, and artificial intelligence.

Reflecting on the past year, I wanted to summarize the key growth drivers in this market. According to SINDAN (the industry’s union), the animal health market grew by 4.2% in 2023 compared to 2022. Over the past 10 years, the compound annual growth rate (CAGR) has been 10.5%, signaling a slowdown after the post-COVID peak of 20.5% growth in 2021, which mirrors the global trend.

The primary growth driver continues to be the market for dog and cat products, which accounted for 29% of the industry’s total revenue of 10.8 billion reais (approximately 2 billion USD at current exchange rates). Within the companion animal segment, the rapid adoption of innovative therapeutic products like monoclonal antibodies stands out.

I will continue to monitor the annual data for 2024 and share any new developments with you.

Mauri Moreira – Brakke LATAM

The U.S. veterinary workforce situation is a complex blend of challenges, combining both shortage and retention issues. Recent studies indicate that while there isn’t a widespread, across-the-board shortage of veterinarians, there are clear gaps in certain sectors including food animal, production, and rural practices.

Additionally, the workforce is facing high turnover rates and burnout, especially among new vets with less than 5 years in practice, vet techs and other supporting staff roles. One real world example is the practice who cares for my dog and has been a long-standing pillar of the local vet community since 1968.  The practice manager says there’s been no shortage of veterinarians, however, finding reliable and committed support staff is an ongoing challenge.

Graduation rates from veterinary schools remain relatively steady, with around 3,000 to 4,000 new veterinarians entering the workforce annually. However, the demand for veterinary services continues to grow faster than the available supply, particularly in companion animal medicine, where a significant portion of new veterinarians are employed.

One key factor contributing to the workforce issues is retention. Many veterinarians experience burnout due to significant stressors including student debt, hectic caseloads and poor work-life balance, which leads to early exits from the profession. This can exacerbate the shortage, as the industry struggles not only to fill new roles but also to retain the veterinarians already in practice.

In conclusion, while there seems to be no immediate shortage of new veterinarians entering the field, retention issues among vets and supporting staff will compound the problem. These challenges can be addressed by offering better emotional support, flexible work environments, and decreasing heavy caseloads to keep more professionals in the field.

Rich Hayworth

In last week’s Viewpoint, Jeff Santosuosso recognized the level of innovation as presented by emerging companies at the Kansas City Animal Health Corridor Summit meeting last month.  His weekly question then asked what you see as the source of most of the innovation; Corporate R&D, Animal Health Start-ups, Outside our Industry, Universities, or Digital/Data enterprises?

You said the source is:

I went back to the program from the KCAH Corridor Summit to see where the technologies disclosed by the 13 selected emerging companies that presented at the Summit would fit on this scale.

I found, as best as I can tell, that the actual sources are:

* Not a surprise, since the big pharma companies seldom seek investment partners and don’t generally disclose research projects prior to launch.

Most of the “Outside our Industry” sources were in-licenses from human health research projects or technologies.  It seems we have a healthy mix of sources of innovation as evidenced by the program at the KCAH Corridor Summit.  If these 13 companies are an example, our industry pipeline looks promising, with a broad range of offerings to come, and multiple pathways available for good ideas to reach the market.

Jim Kroman

Our industry’s innovation is alive and well! Thanks to the Kansas City Animal Health Corridor for another fine Investment Forum. What a great opportunity to see old friends and colleagues and make new ones. We joke about two degrees of separation in our industry, but it’s a reality. For veterans to see talented and committed new faces along with the energy and fresh perspectives they bring is reassuring and uplifting. It bodes well for our industry.

I saw an array of innovation. From emerging companies ranging in products and services from sea life to pest control, oral hygiene to virus prevention, supply chain to block chain, and oncology to delivery mechanisms, I witnessed a slew of fine ideas finely presented.

I see new products and services that would have been unimaginable just a few years ago. Along with dedicated corporate R&D teams, universities, startups, and clever entrepreneurs are fueling innovation, often assisted by financial and strategic partnerships.

We congratulate the presenters and thank our hosts and look forward to upcoming meetings and the innovation and growth they bring. Whether you seek assistance with development, partnering, or commercialization, or whether you need to find that top talent to supercharge your organization, Brakke Consulting can help.

Jeff Santosuosso

I hope everyone had a nice summer and got to spend time with friends and family!

Last week I was in Vail for a few days and got back home at the end of the week in time to attend a rodeo in Eureka, Kansas. So you go from a place where people like to dress up like cowboys- to a place there are only real cowboys(and Cowgirls)!

What I admired most about the rodeo and its participants was their tenacity and unyielding ethic to perform and have fun.

It seems each year there is a big thunderstorm which they work around to pull off the evening. And this year was no difference.

As the first storm hit, the US flag was presented and we sang the Star Spangled Banner(nobody kneeled of course). Then it was fun time as all the events were held with rain and lightning all around. Now mind you at a  college football game we have to leave the field for 30  minutes every time there is lightning nearby. Not with these folks!

Cowboys and Cowgirls carried on as impervious to the weather because there is no margin for the conducting the event, and of course anyone who willingly gets on a bull or horse who’s one objective is to throw you off- well, they certainly have an inherent high risk tolerance.

The rodeo competitors and the support staff are usually on the road full time, arrived earlier in the day, and as soon as they are finished- hit the road to the next location, sometimes driving all night. With muddy, wet clothes and sore joints, I am sure.

What I believe is the real story in all of this- is about how this group of people demonstrate every week a very positive way of how to deal with risk and combine it with a tremendous work ethic(and adrenaline). This high tolerance of risk, plus a duty to perform no matter what- is really what made America great. And we as a country need to find a way back to this in a big way.

Some examples of high risk and work ethic from our past include buildings structures like the Hoover Dam, or the San Francisco bridge, which in at that time only took 4-5 years to build(along with a cost of worker’s lives). Compare that to today – and we can use the example of the great California High Speed rail project – which began with a successful ballot in 2008. Construction began in 2015 and it is now estimated to be finished (if ever) in 2033. Wow.

In our nation’s workforce, while starting during COVID, the ‘Great Resignation’ and ‘quiet quitting’ are still plaguing today’s workplace environment. Is it any wonder that things just don’t seem to work, but costs continue to go up. Just go fly on any commercial airline to experience firsthand.

In my view, we must help reset our culture in work back to a penchant for high risk tolerance, along with a strong work ethic, to build a strong, growing economy and country.  Each of us individually can reset the scale and help encourage and mentor the younger generations. This will bring innovation, high customer satisfaction, and a good feeling about what you do and what you have accomplished. Maybe then we would stop talking about DEI, man-made climate change, and other such vicissitudes.

How is it in your company? Do you have a strong culture of risk tolerance and willingness to accept the occasional failure? And are you really customer focused and committed to your job? Did you make one more sales call- or call it day at 4pm?

Paul Casady