5 Forces Transforming the Animal Health Market

This article by Michael Helmstetter, Ph.D., was first published Dec. 10, 2019, at Forbes.

The animal health market is becoming increasingly dynamic, paralleling the pace of change in the agricultural technology market. The constant in both markets, of course, is change.

While the animal health market has never had the same level of hype as other sectors of the agriculture, it is no longer a market easily overlooked (especially when you include the companion animal element). Or, as said in one colorful description, the animal health market is no longer “the awkward uncle” of agriculture.  

So what’s behind the change? Pressure from within, pressure from the external environment – including investors – and pressure from consumers. Let’s explore a handful of forces we see that are creating the pressure.

1.    Growth, Consolidation & Competition

First consider the expanding pie: experts say the $38.5B animal health market is expanding by as much as 5.7 percent CAGR through at least 2023. Consolidation is a core strategy to achieve successful growth – take the acquisition of Merial by Boehringer Ingelheim, or Zoetis’ acquisition of Abaxis and Platinum Performance.

The most recent example currently making headlines relates to pharmaceutical and chemical giant Bayer splitting from its animal health division, which will be sold to Elanco, creating the second-largest animal health company. While the sale of the business unit still needs to be examined from an antitrust perspective, the deal is expected to close by mid-2020. Elanco is reportedly offering $7.6 billion – an implied multiple of 18.8x adjusted core earnings – for the acquisition.

With the recent consolidations, the animal health market today is dominated by four global industry giants: Zoetis, Boehringer Ingelheim, Merck and Elanco. The next tier in the animal health industry – including Ceva Sante Animale, Virbac SA, Vetoquinol SA, IDEXX Laboratories Inc., Covetrus and Dechra – faces the same market dynamics as the Big Four. Actually, this mid-tier may even be feeling more stress from specialty producers homing in on nutrition, feed and health products, as well as startups bringing innovation – like the development of new products for animal monitoring and wellness (think probiotics). Look for competition and M&A/consolidation to drive changes in this tier of the industry, too.

2.    Increased Investment

Another force comes from new money. We are seeing an increasing attractiveness of the market to external investors, including an influx of capital from investors expanding beyond human health life sciences, pushing digital innovations, as well as genetic and biotechnology advances, into animal health. (For example, see the recent AgFunder News report on 95 startups innovating in livestock farming – with a known investment of $500M).

3.   Evolving Consumer Behaviors

Overlay the force of evolving consumer behaviors, including in the important millennial marketplace. Biggest among these is the continuing demand for animal protein in global diets, which, in part, has spurred the development of alternate proteins and sources. This impacts the animal health market across the board, from biotech and synthetic meat development (think Beyond Meat and Future Meat Technologies as examples) to insect and plant proteins (like Ynsectand PURIS).

Some of these alternative proteins are targeted for animal feed, others for direct human consumption or use in processed foods. Rarely can you watch an hour or two of sports TV without seeing an ad for plant-based burgers. Plenty of investors see big potential in supplying the growing demand for non-animal meat, from the Bill & Melinda Gates Foundation to Tyson Ventures, from agtech leaders like S2G Ventures and new funds like the AgFunder Alternative Protein Fund.

4.    Digital Transformation

This item has been on this trending list for a while. While the promised digital transformation of the animal health industry hasn’t quite arrived, it is creating waves with the ongoing introduction and adoption of digital technology – monitoring, data mining, cloud-based management, predictive modeling, AI – in animal breeding, care, production and management. Adoption will become more important when we start talking about real information, actionable dashboards, and not just data. Who’s in this space? Production animal trade associations, animal health strategics, academics, entrepreneurs and pet lovers.

5.   Alternative Therapies

You can call this one a bit of a stretch, but I see some of the emerging and alternative therapies for animal health creating real change. The driver is not just the ongoing humanization of animal diseases, it is a response to the challenge of recognizing the mechanics of how drugs work differently in different species.

We re-learn over and over the fact that the same disease must be treated in species-appropriate ways. For example: cats are afflicted by Type II diabetes and asthma, but the human drugs for those diseases have not worked in cats. Why? We are starting to apply knowledge of how therapies work in new ways, understanding the mechanism by which drugs and other additives work.

Forward-thinking researchers are developing new questions like “is there something we can add to the diet of cattle to allow them to more efficiently digest new or highly indigestible feedstuffs” (thus reserving more human “feed” nutrients for humans)? New perspectives will bring new questions, and that’s always a force for change.

Of course, animal health is subject to many other forms of pressure also driving change – this list just scratches the surface. But it certainly looks like a new breed of industry is emerging in response.
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