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This is a transcript of episode eight of the Down to Agribusiness podcast. Visit the show page here.

Top dogs: The leaders, movers and shakers in animal health

Alan Bullion

Hello, and welcome to episode eight of the Down to Agribusiness podcast. I’m Alan Bullion, Special Reports and Projects Director for Agribusiness Intelligence. In this episode, we turn our focus to the animal health sector, and the leading companies in this space. Which companies are leading the way in terms of company rankings? Where are we seeing change and growth through innovation, mergers and acquisitions?

I’m joined here in London today by Joe Harvey, Editor of Animal Pharm, which is a leading source of animal health and nutrition news and analysis. We wanted to give our listeners the opportunity to hear some exclusive insights into the top-ranked companies for 2017. Ahead of the much-anticipated Animal Pharm Top 50 Report, which is due to be published in late September.

Hi Joe, thanks for joining. Joe, Animal Pharm has been publishing industry rankings for some time now. Why are they so important?

Joe Harvey
Yes, so Animal Pharm has been publishing top 10, 20, 30 and top 50 rankings for the animal health industry since around the 1990s. Two years ago, I wrote the first Top 50 Rankings Report on the animal health sector, and this latest one hopes to look at those leading companies over fiscal 2015 and fiscal 2016, which are the most recent full financial years. I think publishing the league tables based on yearly sales has helped Animal Pharm analyse the industry’s movers and shakers over a long period. While the majority of our subscribers and readers, and people in the industry as well, they’ll all know who the top ten companies are, and how, generally, they’re performing. However, the companies from positions 11 to 50 are less well-known, and less people know what companies feature in which rankings.

This latest report sheds a bit more light on these leading players that are more off the radar. This will include the top animal health companies in big markets such as Japan, China, India and Latin America, and, for the latter there, particularly the Brazilian market. I think the report also provides an interesting insight into how these top dogs have performed over a wider period of time. I sometimes think it’s quite harsh to solely judge a company on how it has performed over one quarter or one financial year.

So, the Top 50 Report gives readers a wider scope on how firms such as Zoetis, Elanco or Boehringer Ingelheim are performing over the long run. As well as looking at the growth drivers for the industry over the next decade, the report also makes predictions for the future top 50, as well as potential acquisitions that might happen in animal health. Each company overview featured in the report contains my personal rundown on how I think the company’s going to perform in the coming years, and what each individual business strategy is.

So, thanks for that. Can you summarise the latest rankings in a few sentences?

A few sentences? Okay. Well, the majority of companies are experiencing good growth, and that would be growth of around 4 to 5% or more. The companies experiencing this type of growth, it seems to be especially the ones that have made big or small acquisitions recently. This might be acquisitions of vaccine companies, or acquisitions that have helped the company expand geographically. Novel pet products and vaccines are driving growth around the world. For pet products, specifically in urban areas. Japanese firms haven’t performed as well in the last few years, they seem to have quite flat growth, but the Japanese market is quite flat anyway, while the Chinese companies are seeing a big double-digit rise in their annual revenues.

So, we’ve had big questions about antibiotic use. Have more stringent regulations on antibiotics impacted the companies in the top 50?

Well, definitely. The new regulations might not have impacted the rankings specifically, but companies across the breadth of animal health have felt the impact of these regulations. These tighter rules will have reduced sales from antibiotics over the last few years in Europe, and now I think this effect is being increasingly felt in the US. New rules came into play on January 1st 2017 in the US. Prior to some of these more stringent regulations, there’s been heightened acquisitions of firms that develop next generation vaccines, which has actually seen some companies disappear from the rankings over the last few years.

Notably, Lohmann Animal Health, that was acquired by Elanco, and Pharmaq which is an agriculture vaccine company bought by Zoetis. So, previously, companies who were tackling a predicted decline in antimicrobial sales with more vaccine-focussed M&A, now, as there are not many vaccine companies left to acquire, the top animal health companies are looking to partner on antibiotic alternatives such as in-feed enzymes, probiotics and prebiotics, bacteriophages, peptides and organic acids.

So, given the state of play, do you think some of the companies lower down the table will ever be able to reach the top twenty, or top ten even?

I think the majority of the animal health companies in the top twenty have a chance of moving up a bit higher, and potentially breaking into the top ten. Animal health will see more mergers between the smaller companies in coming years. I think we’ve come to an end of a cycle of big mergers. We’ve seen Boehringer Ingelheim and Merial coming together, which impacted the top five. I think we’re going to see less deals like that in the future, but then there’s such a big gulf between the top players in animal health and the smaller firms.

Zoetis, which if you didn’t know is the biggest animal health company, its annual sales were about 100 times larger than the company that’s in 50th position, and this gulf is absolutely vast. Of course, the smaller business can progress up into the top 30 if they’re, sort of, lingering around the 50th position mark, and they’ll need some sizeable acquisitions to do so and some regular double-digit organic growth. Beyond growing into the top twenty, I think it’s going to be quite tough.

So, who are your future tips for the top?

In the near-term, I think companies that have a well-balanced product portfolio, including a healthy amount of next generation vaccines, will feel less of an impact when they do see a reduction in antimicrobial revenues. I think those companies will really prosper. So, the companies I mentioned that have already done the deals for the vaccine companies, they’re going to start reaping the rewards from those strategic decisions. I think autogenous vaccines have been very popular with acquisitions recently. So, companies with those custom-made vaccines will be prospering over the next couple of years.

From a technological point of view, I think companies with solid diagnostic portfolios are also going to do really well. With these companies, one with decent vaccine and diagnostic products, I think they’re going to move up the rankings, but also, they could well be acquisition targets themselves. Without getting too specific, I think the industry’s Chinese companies are going to become more prominent as the Chinese market grows itself, but also as the Chinese companies themselves look to establish a presence in North America, do deals with European companies. I think they’re going to be able to maintain their double-digit annual sales growth. Among the bigger companies, I think there’ll be real push for next generation companion animal products to keep sales growth rates at above 5% per year.

Animal health, well, in my point of view, is in a really healthy position at the moment. I think the Top 50 Report highlights this, and many of the growth drivers that are out there for the companies to harness. If you want one name for the top, I think it’s quite well-establish that Ceva Santé Animale hope to break into the top five before 2020. I think it’s around sixth or seventh at the moment, if you take out IDEXX Laboratories, which is a purely diagnostics company. So, Ceva will be looking to catch up with Bayer Animal Health in fifth position, but I think it might need to do a few more acquisitions to break into the top five.

Okay. Looking more towards the bottom of the rankings for the new start-ups, how hard is it to break into the top 50 for newer entrants and players?

Well, I think if you’d asked me two, three, four years ago, I would have said it was really, really hard. A lot of the start-ups in animal health still haven’t produced any significant revenues, but over the last year this has changed. Aratana Therapeutics has had product registrations in the US, and hopefully will be earning some good revenues in the next few years. That doesn’t necessarily mean it will break into the top 50. I think the target of any business, to be in the top 50 companies’ rankings in animal health, is around 50 million of annual sales. For a start-up to achieve this from zero is quite a tough ask, specifically over a short period of time. Potentially, companies like Aratana or Prevtec Microbia or Piedmont Pharmaceuticals could do this over the next five or six years if they themselves aren’t acquired by a bigger company, although a quicker route into the top 50 is via multiple acquisitions. We’ve seen this recently with an Indian company called Alivira Animal Health, which a few years ago had no animal health revenues, and particularly in the last twelve months, it’s gained over 100 million in sales by purchasing a series of animal health companies from around the globe. So, if Alivira had recorded the sales that it has for 2017, which is going to be about $100 million, if it had recorded those sales last year, I think it would be around 35th in the industry rankings. So, many companies can copy this strategy and break into the top 50, they just need a lot of investment and time.

Okay, well thank you Joe very much for providing us with some interesting insights ahead of the publication of the official company rankings, which I’m sure all our listeners will be looking forward to.

The Animal Pharm Top 50 Report will be published in late September, and if you’d like to get your hands on a copy then we have a special offer for our listeners. Simply register your interest and you’ll get free sample pages when the report is published, plus the chance to apply for a discount offer. You can find the link to the episode description if you’re listening on iTunes, or simply search on Google for Down to Agribusiness episode 8, where you’ll find the details on the episode page.

If you have any questions or comments regarding this podcast episode, or if you have a topic you’d like us to cover, you can reach out to us on Twitter using #DowntoAgribusiness. Be sure to subscribe to this podcast on iTunes or where you’ll also find additional resources on this topic. Thanks for listening.

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