A new breed of pet health care company

Perrigo Company (PRGO), maker of generic over-the-counter drugs like Claritin, Sudafed and Nyquil, has bought its way into the pet industry by acquiring Sergeant's and PetArmor, adding two OTC flea & tick brands to its portfolio, plus a wide range of products for dogs, cats, birds and small animals.

Veterinary spending has increased steadily over the last decade, reaching $17 billion in 2011. These days, pet diagnostic and treatment options can cost thousands of dollars, and consumer demand for lower cost alternatives has skyrocketed.

Historically, pet trends mirror human trends, and preventive health, over-the-counter pet meds, and holistic therapies have thrived in this environment.

Capitalizing on this consumer demand should allow Perrigo to capture market share from Merial's established Frontline brand. But the company will also compete in other segments; its new range of pet products is wide and includes flea & tick sprays, powders, shampoos and home cleaners, skin & coat, ear and joint care therapies, pheromone-based collars, and toys and accessories.
 

FTC to Examine Pet Medications Industry

Ten years ago, pet medications were dispensed mostly by veterinarians. Today, brick-and-mortar, online retail and nationwide pharmacy chains like Kroger also sell pet meds, especially OTC medications.

As we've pointed out in earlier posts and in our pet market research over the years, the evolution of America's pet culture - and corresponding increase in spending - has fundamentally changed the distribution practices and competitive landscape of the pet medications industry. The internet economy and recent flood of generic flea & tick meds onto the market are among many changes responsible for this.

Now, the Federal Trade Commission plans to take a look in a FTC Workshop on Pet Medications Issues later this year.

Issues of competition and consumer protection will be discussed, including prescription portability, consumer choice, veterinarians rights, product supply and quality. The FTC also has questions about business rationales, innovation, and future barriers to entry into the pet medications market.

That's a lot of questions for a lot of stakeholders. This could be a very important meeting that defines the next ten years of the pet medications industry. Upon completion, the Commission may prepare a report on the issues.

Stakeholders include businesses and consumers, and are invited to comment on any of these issues to the FTC before September 14, 2012.
 

Kroger Offers Prescription Pet Meds

Kroger is now offering pet medications at its pharmacies nationwide, with many covered under its $4 generic program, according to the Houston Chronicle. "Four legs or two, same pharmacy," by David Kaplan, Houston Chronicle, January 23, 2012 It's a good article, pointing out how this is the natural evolution of the veterinary industry.

Target is piloting a similar program in 670 pharmacies, but Kroger is already full-steam ahead in it's over 1,900 pharmacies in the U.S. Already under pressure from the economy and other factors, it seems veterinarians can't rely on the old business model moving forward and will need to adapt.

On the flip side, this new mass marketing will benefit many segments of the pet industry and satisfy consumer demand for value pricing of prescription (human and) pet meds.

Emerging pet trends

A new study illustrates the health benefits of owning a pet, finding pet owners have greater self esteem, are more physically fit, and more extraverted than non pet owners. Unlike most studies that simply add a pet to the equation to find a benefit but no causality, this one compares pet owners to non pet owners across these metrics.

Apparently pet owners also own a lot of gadgets. A demographic profile of iPad owners reveals that their most common traits are being male, owning pets, and playing video games.

Speaking of gadgets, BusinessWeek notes that chipmaker Qualcomm is entering the consumer market with Tagg, a GPS locator for your dog. A $200 clip on product with a year of free service (on the Verizon network), the device alerts you if your dog leaves a predefined area. Since the broader effort envisions everyday gadgets and appliances wired up using their chips, this product could help evolve the Qualcomm brand.

Sanofi Wins Dogfight for Merial

Sanofi-Aventis SA will acquire the remaining 50% of the animal-health business Merial from Merck & Co, according to Bloomberg. Global animal drug sales - mostly livestock but also pets - were estimated to grow 7.2% to $19.2 billion in 2008 by Vetnosis Ltd.
 

Animal Health Care News and Forecast

Consolidation in big pharma is changing the landscape of the companion animal health market. Merck (NYSE:MRK) and Schering Plough (NYSE:SGP) will combine their respective animal health companies Merial and Intervet. Pfizer's (NYSE:PFE) acquisition of Wyeth (NYSE:WYE) includes Fort Dodge, which combined with Pfizer Animal Health would form the largest animal drug provider in the world. According to Pfizer's first quarter 2009 results, the company has "had productive discussions with the [FTC] regarding the possible divestiture of some animal health products." So it seems part or all of Fort Dodge may be for sale.

What do these mergers mean for growth in veterinary services and pet care spending? Competing products may disappear, jobs may be lost, and supply chains may be disrupted. For instance, in fiscal year 2008, MWI Veterinary supply (NASDAQ:MWIV), Pfizer products accounted for 23% of sales, Fort Dodge 12%, Merial 60% and Intervet 9%.

On the flip side, however, it's clear that pet (and livestock) drugs have become an important part of the new diversified business models of big pharma. Pfizer plans to give the group "more autonomy" and global moves imply additional investment as well. Pfizer Animal Health does business in 60 countries and in the first quarter of 2009 opened a new Shanghai office, expressed interest in acquiring an Indian veterinary health company, and announced new product launches in certain countries.

Long term consumer spending forecasts on veterinary services, prescription and over-the-counter drugs are quite positive. We estimate veterinary services spending to grow 4% in 2009 and 8% in 2010, reaching $16.4 billion by 2011, compared to $13.6 billion in 2007. Compelling demographics will drive future growth. In 2003, the $8 billion spent on vet services was split 50/50 by pet owners making less than $70,000 per year and those making more than $70,000 per year. But by 2007 almost $14 billion was spent, and that ratio changed to 28/72, favoring higher income consumers. Married couples without children are the biggest spenders at the vet, according to the Bureau of Labor Statistics, spending over $4.5 billion in 2007 alone.
 

Helmsley's Trust Leaves Billions of Dollars To Dogs

In June, a New York judge reduced the amount of money available to Leona Helmsley's dog, Trouble, from $12 million to $2 million, ordering the remaining $10 million to go to her charitable foundation.

But the New York Times reports that the charitable trust has been assigned to the care and welfare of dogs, according to a mission statement that may or may not be legally binding. Being the only clear direction for the donor's intent, however, means that the entire trust, valued at $5 to $8 billion, may indeed go to the dogs ("Helmsley Left Dogs Billions in Her Will," by Stephanie Strom, The New York Times, July 2, 2008).

May I suggest outlets that uniquely benefit both dogs and humans, such as service dog programs, public assistance through HSUS and ASPCA funding, a national disaster fund (FEMA for pets), veterinary student grants, a centralized database linking CDC, vets, FDA and the public, and research that also benefits humans?
 

Pet Owner Spending Trends in the U.S.

A new report has just been published on nationwide pet owner spending trends.

The aging population, childless consumers and the ascendancy of high-income baby boomers are analyzed by their pet spending habits. Charts and tables are included using data from the Department of Labor, Bureau of Labor Statistics that highlight core trends in U.S. consumer spending by income, age, general region, and family composition.

The Pet Industry 2008 Strategic Outlook is our annual report, written for businesses marketing to pet owners.
 

Looking Toward 2008

The pet industry has been called recession-resistant by many people, myself included, as it stood up to economic shocks in 2002 and again in 2005 after hurricane Katrina.

This year may test that theory, however. A decade of strong growth has created some fluff in an industry that has been growing like a balloon, in every direction at once. Balloon, bubble...we think slowing growth or contraction in certain segments is inevitable in 2008.

Sure, pet owners will continue to spend money on their companions in tough times, but on what? The latest available data from the Department of Labor show spending on pet purchases and supplies declined 20% in 2006 from the year before, while the other segments of food, services and veterinary services grew but at a much slower pace.

Just like humans, spending constraints will probably result in cutting out non-essential products and services, but with some interesting twists. Higher income demographics are supporting more and more of the industry each year.

Two new reports on U.S. pet owner spending are out.

Pet Food Consumer Spending Data Tables

How much money Americans spend on pet food by age, income, region and family composition.

Veterinary Services Consumer Spending Data Tables

How much we spend at the vet each year.

Kansas City Animal Health Corridor

Last year's unique initiative by Kansas City to attract animal health companies keeps paying off. MWI Veterinary Supply, Inc. (NASDAQ:MWIV) based in Idaho is the most recent company to sign up, announcing plans to open a 105,000 square foot distribution facility in the area.

In fact, the KC Animal Health Corridor contributes 32 percent of total sales in the $15.2 billion global animal health market by hosting company divisions including Bayer HealthCare, Hill's Pet Nutrition, Del Monte and Cargill.

Pet health has become one of the driving trends in the industry. Even though pharmaceutical companies have been in the animal health segment for years, there's been a recent acceleration in interest, as previously reported in this blog and on our company website.

A good article on the subject: "Big Pharma Chases Dogs and Cats," by Rachel Petkewich, Chemical & Engineering News, June 25 2007.

Three Weeks Later, Recall Still Growing

The pet tragedy continues to unfold three weeks after the first public announcement on March 16. Menu Foods, the first of six companies to recall product, and after several attempts to reassure the public of its safety, today expanded the date range of its original recall.

Sunshine Mills today announced a recall of its products but failed to mention brand names. Sound familiar? Yes, that is exactly what Menu Foods did on March 16, prompting retailers to pull too many products and consumers to panic.

Tracing just one of the supply chains: the tainted wheat gluten came from unknown sources, through a known middleman in China, to a distributer in the US named ChemNutra, then to Menu Foods' two processing plants. There are other routes, possibilities and companies involved. So the difficulty in finding exactly where the contaminant entered the supply chain is obvious.

Listen to a discussion on pet food manufacturing and animal nutrition with a vet, a food safety expert and a pet food maker, from KQED Forum.

The damage to established brands is yet to be determined, but it seems clear from the news that consumer confidence has been shaken.

I can't keep up anymore.

Pet Connection can.

[update: Sunshine Mills recalled brands have been posted on their website and include Wal-Mart's (WMT) Ol' Roy Puppy Biscuit and Peanut Butter Biscuit.]
 

Pet Food Recall: 2nd Chemical Found

The FDA cannot confirm the presence of aminopterin in the recalled pet foods, but announced today it found a second chemical possibly responsible for kidney failure. Melamine is a chemical used in the manufacturing of plastics, and was found in the affected wet food, in the kidneys of animals, and in the wheat gluten imported from China.

It is not clear exactly which of these chemicals, if any, is causing kidney failure in cats and dogs. The FDA also announced that a maker of dry pet food potentially received a shipment of contaminated wheat gluten. Obviously that referred to Purina and Hills, who expanded the recall to certain Alpo and Science Diet products.

CNN has an update.
 

Kidney Treatment Centers for Pets

The Washington Post reports on the differences between acute and chronic kidney failure, concluding "if your pet ate any of the tainted foods recalled by Menu Foods and is not showing symptoms, that does not necessarily mean your pet is safe."

Newsweek offers an interview with an expert with an interesting perspective on issues about pet food safety and feeding dogs and cats in general.

As noted in an earlier post, the UC Veterinary Medical Center-San Diego's unit for treating acute and chronic kidney failure is one of only two veterinary clinics in California and five in the nation equipped to provide dialysis for cats and dogs.

Another source of advanced veterinary care is the University of Pennsylvania, School of Veterinary Medicine feline renal transplantation program. A cat kidney transplant costs $8,000.
 

Pet Food Contaminated by Rat Poison

ABC News reports on the pet food recall:

"A source close to the investigation tells ABC News that the rodenticide, which the source says is illegal to use in the United States, was on wheat that was imported from China and used by Menu Foods in nearly 100 brands of dog and cat food."

The name of the chemical is aminopterin. A press conference is scheduled for later today by experts in New York, whose food laboratory found the contaminant.

[Update] New York State officials confirmed in a news conference that the name of the chemical is aminopterin. Menu Foods confirmed they do not know where or how it entered the supply chain to contaminate its wet foods products (see complete list at www.menufoods.com/recall. The company said it will take responsibility for pet owner bills for cases they determine are related to the recall.

Officials continue to investigate and expect the number of affected pets to increase.

The New York State Food Laboratory equipped to discover the toxin is a member of the food emergency response network setup by the Department of Homeland Security after 9/11. Aminopterin and other chemicals like Aluminum Phosphide and Ammonia are on a DHS list of extremeley hazardous substances.

 

Expect More Bad News From Pet Food Recall

Read the latest on the recall here.

March 22, 2007 - A pet food recall almost one week old continues to grow in scope. Menu Foods, the largest supplier of wet pet food in North America and private label manufacturer for widely used brands and retailers including Iams and Wal-Mart, still has not figured out the cause.

Official statements by the FDA refer to 16 pets dead, but the true number will most likely be much higher. Cat and dog owners who used the recalled brands are advised to stop immediately and go to the vet for tests. Menu Foods says it fielded 47,000 phone calls over the weekend, but most news reports tell of people unable to contact the company due to overloaded phone lines.

Sixty million packages of wet dog and cat food were recalled, representing 1% of all pet food sold in the United States. Menu Foods own tests showed an alarming mortality rate of 1 in 7, meaning 7 out of 50 animals that ate their food died. Using highly conservative numbers, Dillon Media LLC estimates a minimum number of total deaths that still has three zeros after it, as reported in The Economist. That said, it is important to remember that the vast majority of pets in America are safe.

Anecdotal evidence is beginning to back this up, with six lawsuits already reported in four US states and Canada, Petconnection.com reports over 800 pet deaths in their self-reported database, and news organizations around the country have no problem finding affected people to interview. Many pet owners lost a cat or dog weeks ago, only realizing the cause after the recall was announced.

The San Francisco Chronicle reported this morning that the FDA is not asking vets to report suspected cases of recall-related deaths. This is a mistake. In the lightly regulated industry of pet food manufacturing, official documentation of the toll of this pet disaster will help craft the regulations and legislation that will inevitably follow. The last pet disaster - hurricane Katrina - resulted in new federal and state laws incorporating pets into disaster planning. [Update Mar 23: this FDA FAQ encourages vets to file cases]

This one exposes the manufacturer as a weak link in the chain. Few people probably knew just how many brands Menu Foods produced until they were forced to post the affected labels on their website. Private label pet food manufacturers tend not to name their customers. In fact, Doane Pet Care, who manufacturer's Wal-Mart's Ol' Roy dry dog food, does not even mention on its website that it is owned by Mars Inc. Doane is not involved in this recall.

Read the latest post on this topic here.

Click on a Label to learn more about the topic:

Pet Food Recall Update: Affected Brands

Menu Foods fixed their website and posted the affected brands at http://www.menufoods.com/recall.

Thirty-eight different cat food labels and 46 brands of dog food are listed.

The FDA has posted additional information.

 

VCA Antech Gets an Optimistic Diagnosis

What better way to celebrate a twentieth anniversary than by watching the share price hit an all-time high? VCA Antech, Inc. (Nasdaq:WOOF) did just that, beating 2006 estimates and providing upbeat 2007 guidance, citing increases in just about everything from margins to revenues to average order size.

The company bought it's first animal hospital in 1986, and now owns 379 veterinary hospitals in 37 states, operates 33 laboratories that serve all 50 states, has about 10,000 employees and over a billion dollars in annual revenue.

Actively consolidating the veterinary channel, VCA Antech noted in its 4Q and Full Year 2006 conference call very strong growth in digital radiography (high-resolution digital x-ray images) equipment. Recent market penetration has established the company as a leader in this growing area.

Management attributes the company's 2006 growth to "the great market that we're in" and to the core execution of business processes and strategic plans

Source: VCA Antech
Video: WOOF Report

Marketing Veterinary Services?
Check out the Pet Industry Strategic Outlook by Dillon Media.
 

Eli Lilly Enters Pet Health Market

Leveraging existing strengths in human and production animal medications, Eli Lilly and Company will launch a new business group focused on companion animal health. The first products will address obesity and separation anxiety and launch by the end of the year, according to the company's website. Lilly will expand ties to practitioners and schools of veterinary medicine, and hire staff to expand strategy, development and sales at Elanco Animal Health, its production animal division.

Pet Health Reference Search

Check out this search engine tailored to pet health symptoms, diseases, medications and information.

 

PetMed Express

PetMed Express continues to increase the dosage. As the largest pharmacy for dogs, cats and horses, PetMed is well positioned in the prescription and non-prescription pet health segments.

PetMed won the 27th spot on BusinessWeek's list of the top 100 Hot Growth companies. By focusing on their best-selling products and their relationship with vets, PetMed grabbed 1.3 million customers in the past two years, each spending about $76 ('Hot Growth: 100 Sizzling Companies to Watch,' by Arlene Weintraub, BusinessWeek, June 5 2006).

And Standard & Poor's on June 5 announced that PetMed Express, Inc. (NASDAQ:PETS) will be added to the S&P SmallCap 600 GICS (Global Industry Classification Standard) Catalog Retail Sub-Industry Index on Monday, June 12.

Besides the natural alignment with pet health trends, I think PetMed is also decently positioned against high gas prices simply because of its online business model.

Marketing Pet Health Products or Services?
A new report is out, with trends and demographics by age, income, region and family size, called 'Consumer Spending on Veterinary Services 2000-2004.' Check it out.