This article by Michael Helmstetter first appeared on the Kisaco website in connection with the June 23-25 virtual event: Animal Health Investment One.
In these challenging times, one impact of the COVID-19 pandemic has been to alter the concept of what’s ‘normal’. Think of the magnitude of disruption it has caused in animal health – food waste, culling of production animals and loss of markets.
Nobody said it would be easy. Disruption is, by nature, disorienting and challenging; especially when it proves that the old version of “normal” really wasn’t all that we thought it was. The shifts and pivots that we are seeing in animal health now will survive into the “next normal.”
Some examples of changes I think will stick with us into the post-pandemic phase:
Constriction in R&D will drive innovation in unexpected places. We find evidence of
consolidation in events like Elanco’s acquisition of Novartis and then its $7.6B acquisition of Bayer Animal Health Division. Indeed, those moves are the latest in a three-year run in that saw merger and acquisition activity involving the top animal health firms including Elanco acquisition of Aratana Therapeutics, combining Merial and Boehringer Ingelheim, Merck Animal Health acquisition of Vallee, Zoetis acquisition of Abaxis. The top 10 companies in animal health are estimated to account for 80% of the animal health market value.
Consolidation can constrict research and development budgets. Some of the benefits of M&As lie in the opportunity to trim duplicative investments in facilities and infrastructure, to streamline redundant departments and to clear out lower performing products in the combined portfolio. It’s almost inevitable that the time spent after a merger or acquisition is heavily inward focused. So, look for new opportunities to spring from small startups, especially those formed by scientists exiting the newly merged firms, and from external innovation partners.
Short-term priorities take focus at the expense of long-term gains. The inward-looking perspective of a post-merger period aims at maximizing assets, which may entail realigning strategic priorities in favor of quicker returns. That’s definitely been happening in the COVID-19 pandemic where products that still have a market are ramped up. But I hope to be proven wrong here. I’d like to believe that the COVID-19 pandemic leads to a commitment to the necessary research in disease control and prevention, biosecurity, and zoonotic threats. After all, we still have African Swine Fever and other zoonotic diseases spreading, without viable vaccines or therapeutics.
One Health takes on greater relevance. On a related note, the animal health industry, with its deep roots in human health pharmaceuticals, is sometimes perceived as a gateway for products to prove out capabilities in one animal species then move into the human realm. As we found in TechAccel’s own 2019 research of the animal health industry landscape, there is a surge of investment in animal health biotechnology – a doubling of investment dollars since 2017 going to 385 firms.
Evidence includes the launch of CAH Capital GmbH, the industry’s first venture fund dedicated to the animal health industry. The company, based in Switzerland, invests in both production animal and companion animal health and leverages the animal health and venture capital expertise of its founders. AgTech investors also continue to show signs of interest in the animal health innovators: two signals are Paine Schwartz Partners’ new Animal Health & Nutrition Investment Platform and the animal focus added to Lewis & Clark Partners’ recently closed $110M Agrifood Fund II.
I saw further evidence for optimism among the finalists at Animal Health Investment Europe 2020.We heard from animal health firms in pharmaceutical development, including Bioceltix, Genclis, K9Biotech, PetBioCell and ScoutBio. Another startup, Okava Pharmaceuticals, specializes in bridging the gap between human and animal pharma, repurposing human medications for the veterinary market.
Our ever-deepening understanding of animals, especially the bonds between humans and animals, bodes well for One Health-related investments. One Health is now promoted by such entities as the Centers for Disease Control and Prevention, the World Health Organization, USDA, and dozens of professional associations for physicians, nurses, veterinarians, environmentalists and public health professionals. All these findings, plus the influx of newly educated investors, point to reason for optimism in One Health investment.
Pets have taken even stronger roles in our families, in a matter of weeks leapfrogging gains previously made over genevrations. No turning back. Pets are de facto members of our families, providing emotional stability and wellbeing to humans, as humans reward these fur-bearing companions with ever more therapeutics, additives, nutrition, toys, games and digital devices. Guggenheim Partners has predicted the companion animal sector of the industry alone could grow as much in the next five years as it has in the last 50.
We have greater awareness of fragile food supply chains and growing intolerance for food waste. Will this prompt renewed vigor in technology investments to address? I think so. Look for biotechnology products that promote freshness and avoid browning or spoiling in fruit, sensing and monitoring devices to aid decision-making, and a renewed emphasis on regenerative ag practices that minimize waste at every step of the cycle.
Digital technology reaches the penetration long predicted. Despite all the jokes about Zoom and work-from-home computer mishaps, digital technology has taken hold across the world in all segments in a big way. Look for an upsurge in new technology deployments across the animal health landscape, too. Production animal monitors for health alerts, automated feeding, management of health indicators and all-lifecycle tracking will contribute to cleaner labeling and food supply chain transparency.
Instead of thinking about the old normal, let’s focus on the next normal.
And let’s do what we can to make it better.