18:44 PM | July 13, 2020 | Joseph Harvey
At the recent virtual Animal Health Investment One conference, IHS Markit Animal Health editor Joseph Harvey hosted a discussion with leaders from some of the sector's top companies. The panelists divulged how animal health has reacted to the COVID-19 pandemic and highlighted how innovation opportunities may have changed.
All predictions tied to the impact of COVID-19 currently come with a caveat: It is hard to fully broach the consequences of the novel coronavirus without highlighting the potential of a second spike that will again disturb the recovery of the animal health sector.
With this in mind, the panelists were cautious in their optimism for the sector’s near-term prospects.
However, the overriding consensus from the speakers was one of continuing positivity for the future of the animal health sector. This is especially evident in the companion animal health segment, with the pet-human bond growing even stronger during the lockdown period and adoption rates soaring.
Although there has been a noticeable dip in companion animal wellness visits to vet clinics during lockdown, Kathy Turner—corporate vice president and global chief marketing officer at IDEXX Laboratories—pointed out pet owners are "noticing a lot more and paying more attention to health," as they spend more time with their animals at home.
Turner said she remains bullish on future growth rates in the pet health sector. ”We continue to see a huge opportunity for the companion animal market globally,” she stated. “The human-pet bond has always been strong. Every generation it grows and, during this pandemic, we’ve seen it grow even further.
"We track clinical visits in the US. We break them down by wellness and sick patient visits. In the early stages of COVID-19 in early April, the US was seeing as much as a 25–30% decline year-over-year in clinical visits. Yet, by May 22, it was virtually flat.
”We’ve seen that similar pattern in other markets and now in Europe, while parts of the US are starting to see growth again. We’re seeing that V-shaped recovery happen a little quicker than people expected.”
More specifically, she underlined the growth potential in the companion animal diagnostics area. The pet diagnostics sector is currently worth around $5 billion globally. However, IDEXX believes it could be as large as $33 billion due to the current unmet need and the potential for increasing the standard of care.
”That runway is here to stay for decades to come,” Turner remarked.
Elanco’s executive vice president of R&D, regulatory and business development, Aaron Schacht, remarked: “With better products, more diverse strategies for access and greater demand, it’s hard to not be excited about the future of companion animal health.
"We've got about 30 years of scientific innovation and biotechnology applications in human health that have yet to fully translate into animal health. What's interesting is we don't actually have to retire old platforms to pursue new therapeutic opportunities. We can jump right to the latest technologies. I think we should all be very bullish about the innovation side of things."
As well as echoing the positive outlook for the companion animal segment and pet innovation, Zoetis executive vice president and chief financial officer, Glenn David, also noted the ongoing shift to online sales channels by consumers as another factor stimulating this part of the market.
However, despite this acceleration online, David stated around 50–60% of the Zoetis product portfolio needs to be administered in a veterinary clinic—a proportion that he said will not be changing in the short term.
Huron noted consumers have turned more to e-commerce due to the lockdown conditions. He said people that were previously not inclined to use online channels have been forced to start adopting them.
Turner added: “A significant amount of veterinarians are ordering IDEXX products online. Between consumers ordering online and customers ordering online, it was already growing at a pretty rapid pace. There’s no reason for it to suddenly stop.”
In addition, Schacht highlighted these new channels represent an opportunity to make products more accessible to consumers if a vet is not required and in turn improve compliancy. He also said the development of easier-to-use and safer products would allow vets to manage their time better and focus on more sophisticated procedures.
During the COVID-19 crisis, a major tool that has been utilized to improve critical vet-to-pet owner communication is telemedicine.
Vets have been increasingly adopting the growing toolbox of telehealth platforms that have been ameliorated globally. Ms Turner said the use and uptake of telehealth is likely to remain after social distancing is lifted.
"While you can't draw blood remotely, you can certainly have a consultation and understand truly if that pet should be coming into the clinic," she explained. "We do think it will deepen the understanding and use of diagnostics. We also think it will help us with the feline population because currently, only about 20% of cats come into the clinic. If you can do more remotely, that can actually help with that particular part of the pet population."
Schacht also highlighted Elanco’s partnership with VetNOW to bring extended telemedicine capabilities to customers.
”That’s something we wanted to promote and reinforce,” he explained. “We wouldn’t limit access to care, we would just change the nature of access through these kinds of measures.”
David said: "We have seen animal protein consumption has remained pretty resilient during economic downturn. In the short term, there's obviously been a big shift from the food service and restaurant sector to the grocery sector. That has had a big impact across the different proteins."
He pointed out there has also been a meat production impact, with capacity at about 70% at the peak impact of COVID-19—a rate that is expected to improve throughout the year.
David also noted there is currently less product innovation in the food animal health portion of the industry.
"I think the lack of innovation we've seen in the last number of years has led the growth to be a little lower than we've seen in the companion animal space," he told conference attendees. "We do expect innovation to come in that space in the medium-to-long term and we would expect livestock to grow at a similar rate to companion animal in the medium-to-long term."
Huron pointed out people have been eating more protein derived from short-cycle species such as chickens during the lockdown. This change in diet is linked to ‘must-have’ consumption, rather than more expensive ‘nice-to-have’ products.
The panel agreed the trend to consumption of protein from smaller species will continue for the time being—a theme that could have a knock-on effect on innovation.
Schacht commented: “The ability to innovate in those smaller species is—on a per unit cost—lower. Therefore, adoption of technologies and proving out those technologies is going to be more abundant.
"We do have some older platforms that are ready for renewal in the sense of new innovation to take the place of antibiotics and even older vaccine constructs are going to give way to new models of vaccines. I think an innovation wave is coming but it's probably going to start with the smaller species and work its way up to the larger species over time."
A particular area of innovation and business development that has been accelerating in recent years is precision livestock farming. David said the restrictions of lockdown have highlighted the benefits of on-farm digital technology, as human labor constraints become more apparent. To bolster its capabilities in this sub-segment, Zoetis recently purchased US firm Performance Livestock Analytics.
David also noted the pig industry’s gradual recovery from African swine fever (ASF)—another boon for growth rates in the food animal sector. He said Zoetis has witnessed recent rapid growth in China, particularly in the pig market.
Huron pointed out some of the benefits ASF will bring to the global pig sector: "We see a strong consolidation of the swine market because of ASF. There will be increasing biosecurity measures and there will be higher standards of production. So, in the end, it will probably be very good for China and the global market. It will be less backyard and more 'technified' production."
Schacht concluded by suggesting the COVID-19 pandemic could unlock some new partnering and acquisition possibilities."I think we will see some businesses and business models seeing moments of truth. Can they continue? Can they sustain? Could they weather this economic uncertainty? That results in some opportunities that are becoming available sooner than planned or sooner than companies would be ready to sell or buy."