The Animal Health Market
Animal health globally is generally described as comprising two segments: Food producing Animal Products (FAP) and Companion Animal Products (CAP). FAP continued to show global growth due to an increased demand for high quality protein production. CAP growth (a sector in which horses are generally included) is driven by the pet owners' compassion for their animals, improved nutrition and a wider range of medical products and treatments.
Our Position in the Animal Health Market
There are few international businesses in our market, five of which have 43.7% of the world's market share. Dechra's objective is to continue to outperform the market and increase its market share, through the execution of its strategy.
Animal Pharmaceuticals vs. Human Pharmaceuticals
The business of developing and marketing animal pharmaceuticals shares a number of characteristics with human pharmaceutical businesses. These similarities include the need to conduct clinical trials to prove product safety and efficacy, obtain regulatory approval for new products, adhere to complex and highly regulated product manufacturing, and market products based on approved clinical claims. However, there are also significant differences between animal and human pharmaceutical businesses, including:
- Generally faster, cheaper, more predictable and sustainable product development: Development of animal medicines typically requires fewer clinical studies with fewer subjects and is conducted directly in the target species. Decisions on product safety, efficacy and likelihood of success can therefore be made more quickly.
- Diversified product portfolios: Animal pharmaceuticals businesses are generally less reliant on a small number of 'blockbuster' products. Animal health products are sold across different regions which may have distinct product requirements. As a result, animal health products often have a smaller market size and the performance of any single product typically has less impact on overall business performance.
- Stronger customer relationships and brand loyalty: Companion Animal Products are directly prescribed and often dispensed and sold by veterinarians which contributes to building brand loyalty, which continues after the loss of patent protection or regulatory exclusivity.
- Lower pricing pressure: Livestock producers and pet owners generally pay for animal healthcare themselves. Pricing decisions are not influenced by government payors that are involved in product and pricing decisions for human medicines.
- Less price erosion by generic competition: Generic competition in animal healthcare, whilst playing an important role, has a lower impact on prices compared to human pharmaceuticals because of the smaller average market size of each product opportunity, stronger customer relationships and brand loyalty.
Types of Veterinary Practices
The majority of our sales are made into veterinary practices that tend to specialise in either companion animal or food producing animal treatment; however, there are numerous practices that are classified as mixed and service all species. There is also an increasing number of equine practices and referral hospitals that provide high levels of specialisation. The veterinary profession is going through significant change as incorporated practice groups are consolidating practices at an increasing rate.
In many countries, our relationships with these corporate groups are very important, and we continue to increase our focus through experienced key account managers and technical support services. With the ongoing integration of professional farming units, our Food producing Animal Product sales efforts are now often focused on these major integrators; however, the integrators themselves employ veterinarians who remain responsible for the prescribing and administration of our products.
Source: Grand View Research 2019
The Animal Health Market by Species
Source: Vetnosis Health for Animals 2018
Market Share by Competitor 2019
Merck/MSD Animal health9.30%
Bayer Animal Health3.80%
Ceva Sante Animal2.80%
Philbro Animal Health1.70%
Source: Animal Pharma 2020 & Grand View Research 2019
Data as at 31 December 2019 except Dechra and Philbro (as at 30 June 2019)
Veterinary Practices – Europe
Buying Groups 27%
Source: DVP EU Sales Data March 2020
Veterinary Practices – North America
Source: Cleveland Research 30 June 2019
Key Trends and Our Response
Recent market trend: The recent trend of the distributors looking to change their historic veterinary supply route to provide a direct to consumer (dog and cat owner) model.
Our products are predominantly Prescription Only Medicines (POMs), so our ultimate partner in the supply chain will remain the veterinarian who will continue to write a prescription. Through education, technical support and innovation, we endeavour to ensure the medicine prescribed and dispensed continues to be for a Dechra product.
Ongoing market trend: The veterinary profession has been going through a period of change for several years as corporates are continuing to consolidate independent practices.
Our relationship with these groups is very important; we are increasingly focused on key account management. We have modified our sales and marketing approach to focus on building relationships with our corporate and buying group customers and to understand better their needs and expectations. We have dedicated corporate account teams in Europe and North America.
Ongoing market trend: We have seen growth in the companion animal market for many years due to veterinarians' capabilities, improved nutrition, increased longevity of pets and the owner's willingness to continue to increase spending on pets. This trend has historically been in Western Europe, North America and other selected markets; however, in the developing world we are now seeing the status of pets increase, creating new markets.
We will continue to innovate in specialist medicine and increase our portfolio in our key areas of therapeutic specialisations. To further the optimal use of our medicines we are increasing the provision of technical support services through experienced veterinarians. We are also expanding our geographical footprint and investing money in product registration in new developing markets.
Ongoing market trend: The veterinary market is seeing a continued increase in global regulatory requirements and quality production standards through more stringent site inspections.
We are strengthening our regulatory teams so we can comply with the respective medicines agencies' requirements and expanding our quality function to enable manufacturing sites to produce products to meet the highest standards.
Long term market trend: With the global increase in population and the improvement in developing countries' economies, there is a huge increase in demand for high quality animal protein and dairy products.
We are consistently strengthening our FAP business both with new products and by international expansion. We are enhancing our range which includes our market leading swine and poultry water soluble antibiotics, and with our vaccines we are increasing our registration activity to obtain marketing authorisations in new markets. We also own the global marketing rights (excluding ANZ) to Animal Ethics' ethical pain treatment for farm animals, Tri-Solfen®, which we are registering for sheep, cattle and pigs in numerous global markets.