Industry Mergers Reshuffle Animal-Health Leadership
With sales of human pharmaceuticals languishing, several factors are focusing increased attention on animal health products, once a little-noticed industry niche market
One is the big-pharma consolidation that is causing some reshuffling of the animal-health industry. Merck, to fend off anti-trust concerns over its purchase of Schering-Plough, agreed to sell its half of animal-health company Merial to co-owner Sanofi-Aventis. In addition, Pfizer, whose animal-health unit is the industry’s largest, is acquiring Wyeth, which includes the Fort Dodge Animal Health unit, and may need to shed some animal-health products to gain regulatory clearance. “The big players are still consumed by this,” says Jill Sackman, senior consultant at Numerof & Associates, Inc. (St Louis).
In late September, to win FTC approval, Pfizer and Wyeth agreed to sell about half of the Fort Dodge business, and part of Pfizer’s animal-health business, to Boehringer Ingelheim. Terms were not disclosed.
The other, more enduring trend is the increased willingness by consumers to spend more on their pets—the so-called “companion animal” sector—which is making this area of animal health look at least somewhat recession-proof. “Pets used to sleep in the back yard—now they sleep in your bed at night,” says John Ryan, VP of marketing at veterinary products distributor MWI Veterinary Supply in Meridian, ID. “People might not be going on expensive vacations, but pets are regarded as members of family, and not something they see as discretionary spending.”
As a result, pharmaceutical sales for pets have remained relatively strong. Long term, the worldwide market for pharmaceuticals for food or “production” animals such as cattle and pigs — traditionally the core of the animal-health market—is expected to remain strong too, but currently US farmers are being badly hit by the recession and other factors. As a result, US sales to this sector are suffering, says Ron Brakke, of animal-health management consulting firm Brakke Consulting, Inc. in Dallas, TX. “The fastest growing part of the industry is companion animal. Things have slowed a bit—but in general we still expect growth in companion animal this year. In food animal, we don’t.”
The cycle driving increased companion-animal sales goes something like this. Pets are living longer because owners take better care of them, and as a result develop more age-related conditions ranging from cancer to arthritis, says David Lummis, author of the recent Packaged Facts report, “The US Market for Pet Medications.” As pets live longer, owners develop an even stronger emotional attachment and become even more likely to spend money on medications that further prolong or enhance the pet’s life rather than euthanizing the animal.
As a result, the market, traditionally dominated by the production animal sector, has shifted steadily towards pets. According to the International Federation for Animal Health (IFAH) Worldwide, companion animals accounted for about 41% of the industry’s revenues in 2008; the share in the US, which is leading the pet-meds trend, is generally estimated to be higher. Lummis thinks US retail sales of pet medications grew 11% to about $5 billion in 2007, and that more than half of US pet market revenues are directly healthcare-related.
One aspect of this growth is the continuing “humanization” of the pet pharmaceuticals market. Though the biggest-selling products are still anti-flea treatments such as Merial’s Frontline—the first animal health blockbuster with more than $1 billion in sales—and Bayer Animal Health’s Advantage, pharmaceutical companies are intensively developing products for many therapeutic categories that are familiar from the human side.
ERNST HEINEN, BAYER ANIMAL HEALTH
“We are looking to areas where there is a medical need, and people are willing to help their animals and pay for treatment—and when you talk about cancer, that can be pretty significant,” says Ernst Heinen, VP of research and development at Bayer Animal Health in Kansas City, MO.
Because the global animal-health market is tiny, compared with the human pharmaceuticals market, it’s tough for the animal-health units of pharmaceutical companies to fund the research of new drugs from scratch; instead, they often seek to take advantage of work already undertaken by their parent company for the human pharmaceutical market. “It is very rarely that can animal health do afford the expensive exercise of finding and developing molecules,” Heinen says. “We look for molecules from the human side; we are looking for closely related molecules—mostly not identical, but where we have a good base dataset.” Heinen declined to elaborate on specific plans, but noted that that veterinary medicine now includes many of the specialist areas that exist in human medicine, focusing on age-related problems such as cardiovascular disease, diabetes, and other metabolic disorders as well as cancer.
Cancer drugs represent one of the newest categories to emerge. This year, Pfizer received FDA approval for Palladia, the first animal-specific targeted cancer therapy approved in the USA. Palladia is aimed at mast cell tumors, a common cancer in dogs, and is in the same class—tyrosine kinase inhibitors—as Pfizer’s human drug Sutent. Pricing hasn’t been set yet.
Another company working in this area is AB Science, which plans to introduce its own tyrosine kinase inhibitor drug (masitinib) in the US; the product has already been approved in Europe. “We’ve been talking for over two decades about bringing this type of sophisticated high-powered therapy to veterinary medicine,” says Albert Ahn, president of US operations at AB Science in Short Hills, NJ. “We want to build a portfolio that will be available for vets as they treat cancers, and moving forward other diseases that have proven very difficult to treat or manage.” Examples of such conditions include the skin condition atopic dermatitis, he says.
Other categories are already very well established; over the past decade millions of arthritic pets have been treated with a growing number of nonsteroidal anti-inflamatory drugs (NSAIDs) such as Pfizer’s Rimadyl, Novartis’ Deramaxx and Merial’s Previcox. “There’s an emphasis on palliative care, with a reliance on pain management, that one would not have imagined 10 to 20 years ago,” says analyst Lummis.
Less clear is the success to date of lifestyle drugs, the best known of which is Pfizer’s Slentrol weight-management drug for dogs launched in 2007, for which Pfizer’s publicity efforts included a consumer-education website to raise awareness of canine obesity. It’s widely accepted that there are millions of overweight dogs in the country. Pfizer also has a product, Cerenia, designed to prevent motion sickness in dogs. Then there’s Eli Lilly’s Reconcile, which is fluoxetine (Prozac) packaged and sold for separation anxiety –a dog’s reaction when its owner leaves it alone in the house all day.
Lifestyle drugs remain a somewhat controversial area. “Do we really need pharmaceuticals to help our pets lose weight or should we just be feeding them less, giving better-quality food, or more exercise?” Lummis says. “Personally, I wouldn’t expect to see those kinds of products flying off the shelves that quickly.”
Consultant Brakke is more blunt about his perception of Slentrol and Reconcile: “I would say neither introduction has been very successful,” he said. “Pfizer spent a lot of money on Slentrol and missed their target dramatically for what they expected to sell.”
Pfizer Animal Health spokesman Rick Goulart says one issue has been the uncomfortable discussion of obesity that the vet needs to have with the pet owner. “We’ve found typically there is a little bit of hesitancy on the part of the caregiver to embrace the notion that his or her dog is at an unhealthy weight ,” he says. Pfizer stresses that Slentrol is not designed to replace good diet or exercise. “What it does is to help the caregiver bring the dog down to a healthy weight by suppressing appetite, then they are able to move off the drug into a healthier diet and exercise program,” Goulart says.
Pain on the farm
Another area of potential change is that of antibiotics supplied as continuous feed additives to enhance growth. The practice has already been banned in the EU, and there have been various proposals to ban US use too. Brakke says US use has already dropped dramatically over the past 10 years. As Bayer’s Heinen notes, products for farm animals must be acceptable to humans too: “It’s not only that you need a safe and efficacious product—it also needs to meet the hurdle of public opinion,” he says.
One category that is generally well accepted by the public—and is growing rapidly for both farm animals and pets—is vaccines. According to the IFAH, worldwide sales of biologicals, a category that includes vaccines, grew faster than any other in 2008, surging more than 13% to reach $4.7 billion. In contrast, sales of feed additives grew just 2.6%. Recent introductions include the first canine influenza virus, from Intervet/Schering-Plough Animal Health.
For the global farm-animal pharmaceuticals market, the long-term picture may be much more promising. Emerging markets are expected to drive much of the growth, just as with human pharmaceuticals. The IFAH expects global demand for animal protein to rise by 50% by 2020, as the world’s population grows, and more households in emerging economies reach middle-class status and consume more meat; those middle-class consumers are also likely to spend more on their pets. PC
Only a tiny fraction of US pet owners take out insurance; in a recent owner survey from the American Pet Products Assn., only about 3% of dogs and 1% of cats were covered by insurance.
However, there are signs of change. The market has long been dominated by Veterinary Pet Insurance, which Packaged Facts analyst David Lummis estimates still has more than 60% of the market. But half a dozen or more new companies have entered the market in recent years, and the market grew more than 20% in 2007 to reach $248 million, according to a report published by Packaged Facts last year.
Each of these new companies is focusing on direct-to-consumer marketing, and for the first time pet insurance is being sold under nationally known pet care brands. For example, consumers can now buy PurinaCare, from the Nestle SA pet-food subsidiary; the ASPCA is offering insurance for cats and dogs, in a plan administered by the Hartville Group; and the American Kennel Club also offers a plan.
A key factor driving the new interest is the rising cost of veterinary care, plus the fact that owners are more willing to buy that care for their pets. Most plans cover pharmaceuticals, so insurance could make it easier for owners to buy some of the more advanced drugs emerging into the market. These newer entrants tend to resemble scaled-down versions of human health-insurance plans, and to emphasize their simple structure, often applying the same 10-30% copay rates for all services up to an annual or lifetime limit. PC