Animal Pharm Reports
Animal Pharm's Top 20: 2005 edition
Published October 2005
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CHAPTER 1 - INTRODUCTION
1.1 The world market for animal health and nutrition products
Global sales of animal health and nutrition products exceeded $20 billion for the first time in 2004, as currency factors continued to inflate the dollar value of the sector, and as growth rates in major markets such as the US and Brazil exceeded those witnessed in recent years. Total market value was estimated to have reached $20,255 million – up by 6.5% on year-earlier figures.
1.1.1 Market shares by region
The continued slide in the value of the US dollar meant that currency factors continued to exert a significant influence on market shares by region. The US currency declined in value against the Euro by just over 9% and against the Yen by almost 7% during the course of 2004, inflating the dollar value of sales in Europe, Japan and many other international markets.
Despite the impact of currency factors on regional shares of the global sales total, North America retained its position as the world’s biggest market for animal health and nutrition products, generating sales of almost $7.5 billion. Sales in the region rose at high single-digit rates, driven primarily by growth in the US, where demand remained strong across most species segments.
Table 1.1: Geography of the world market, 2004
| Region | Sales ($ million) | % of total |
| North America | 7,490 | 37 |
| South America | 1,825 | 9 |
| Western Europe | 5,265 | 26 |
| Asia/Pacific | 3,445 | 17 |
| Rest of the world | 2,230 | 11 |
| Total | 20,255 | 100 |
Growth was harder to come by in most European markets, where conditions generally remained difficult in the livestock sector, and where companion animal market growth has been less marked in recent years. In common with other market regions, nutritional feed additive sales values in Europe were affected by pricing pressures in that sector, while growth rates in the remainder of the market were distinctly limited. Sales in France were up by little more than 1% on year-earlier figures, while market values in Germany, Spain and the UK rose by only 3-4%.
Elsewhere, a return to strong growth in Latin America’s major markets was one of the few highlights in an otherwise relatively gloomy picture. Sales in Brazil rose at double-digit levels, driven by a combination of that country’s economic recovery and further rapid expansion of output in its poultry and livestock production sectors. Strong growth was also reported in Argentina, though sales there remain well below peak levels recorded before the economic crash witnessed earlier this decade.
Markets in south-east Asia, which have been a source of strong growth in recent years, suffered as a result of disease-related problems, with avian influenza disrupting sales across the region. The Japanese market also remained relatively flat – though as in Europe, dollar-based sales values were higher as a result of exchange rate fluctuations.
1.1.2 Market shares by product category
Pharmaceuticals are the dominant product sector in the animal health and nutrition market, generating global sales of almost $11 billion (54% of the total) in 2004. This segment of the market is dominated by antiparasitics and anti-infectives, which contributed approximately $4.7 billion and $2.6 billion, respectively, to total pharmaceutical revenues. The market for companion animal speciality products is a sector of growing importance, however, and was a major contributor to sales growth in 2004, which was estimated at almost 9% in dollar terms.
Increases in the dollar value of the biologicals market were even sharper, at around 12%, taking sales in this sector to $3.2 billion, or 16% of the animal health and nutrition total. Dollar-based sales of medicated feed additives (MFAs) were also stronger than in recent years, thanks largely to significant volume increases in markets such as the US and Brazil. The market for nutritional feed additives declined in value by more than 3% to just over $4.1 billion, however, as prices of vitamins and amino acids came under strong pressure.
Table 1.2: World market structure by major product sector, 2004
| Sector | Sales ($ million) | % of total |
| Pharmaceuticals | 10,950 | 54 |
| Biologicals | 3,205 | 16 |
| Medicinal feed additives | 1,950 | 10 |
| Nutritional feed additives | 4,150 | 20 |
| Total | 20,255 | 100 |
1.1.3 Market shares by species
Products for use in food animal species dominate the market, with health and nutrition inputs for use in cattle, pigs and poultry alone responsible for almost two-thirds of global sales. The cattle segment is the biggest single food animal market, generating global revenues of well over $5 billion.
While food animal products still dominate in terms of market share, it is the companion animal products sector that has been the main source of growth in the industry over the past 10 years. Sales in this segment continue to rise at rates in excess of the market average, thanks to a steady stream of new product launches, increased levels of spending by animal owners in developed markets and the development of more significant demand for pet health products in developing economies.
Table 1.3: World market structure by species, 2004
| Species | Sales ($ million) | % of total |
| Cattle | 5,265 | 26 |
| Pigs | 4,050 | 20 |
| Poultry | 3,645 | 18 |
| Small animals | 5,470 | 27 |
| Others | 1,825 | 9 |
| Total | 20,255 | 100 |
The structure of the animal health and nutrition products industry has altered dramatically over the past 10 years. The list of companies that have disposed of interests in the sector since the middle of the 1990s continues to grow, while several other leading animal health and nutrition businesses have been restructured as a result of merger or acquisition deals – most of which have been driven by parent-company strategies.
Since the beginning of 1994, SmithKlineBeecham, Solvay, Mallinckrodt, Aventis, Sanofi and Hoffmann-La Roche have all divested animal health or nutrition divisions that were previously ranked among the world’s 20 biggest businesses in the sector, while Merck & Co and Rhône-Poulenc spun off their respective animal health interests in 1997 to create the Merial joint venture. Other leading animal health divisions, including those previously held by American Cyanamid, Syntex and Pharmacia, have changed hands as a result of corporate-level acquisitions, while those run by Ciba and Sandoz were amalgamated when the two Swiss companies merged at corporate level.
More recently, this pattern of merger and acquisition activity has been repeated in Japan, where a decade of tough market conditions has forced national pharmaceutical majors to pursue fundamental restructuring programmes, offloading interests in subsidiary sectors such as animal health. Takeda, Fujisawa, Eisai, Shionogi and Daiichi are among the growing number of Japanese pharmaceutical majors to have divested animal health interests, and further disposals are expected.
Within the animal health and nutrition industry, interests in particular product segments have also changed hands as a result of strategic decisions by certain companies. Bayer, for example, has divested the majority of its interests in the veterinary vaccines market, while Pfizer has offloaded its MFAs business. Prospects for the MFAs market are particularly poor, with all remaining antibiotic growth promoters due to be withdrawn from sale in the EU at the end of 2005 and debate surrounding their long-term use likely to have an increasingly negative impact on revenues in other market regions.
While interests in some market sectors have been sold by a growing number of animal health and nutrition companies, most have also added to their businesses through strategic acquisitions designed to strengthen their position in particular geographical markets or product segments.
Table 1.4: Merger and acquisition activity in the animal health sector
| Year | Details |
| 1994 | American Home Products (now Wyeth) acquires American Cyanamid |
| 1995 | American Home Products sells Cyanamid’s feed additive business to Roche and purchases Syntex Animal Health from the Swiss company in a related deal |
| Pfizer acquires SmithKlineBeecham Animal Health (SBAH) | |
| Corporate-level merger between Pharmacia and Upjohn leads to the creation of Pharmacia & Upjohn Animal Health | |
| Rhône Mérieux acquires Sanofi’s animal health activities in the Americas and Asia | |
| 1996 | Corporate level merger between Ciba and Sandoz leads to the creation of Novartis Animal Health |
| 1997 | American Home Products acquires Solvay Animal Health |
| Grampian Pharmaceutical divests animal health interests in a management buy-out | |
| Schering-Plough acquires Mallinckrodt Veterinary | |
| Merck & Co and Rhône-Poulenc merge their respective interests in animal health and poultry genetics, creating Merial Animal Health | |
| 1998 | Rhône-Poulenc and Hoechst announce decision to merge, creating life-science specialist Aventis. Stake in Merial and the Rhône-Poulenc animal nutrition business are retained but Hoechst sells its animal health division. |
| BASF acquires Daeseng (South Korea) lysine business | |
| 1999 | Intervet’s parent, Akzo-Nobel, agrees to acquire Hoechst Roussel Vet (HRV) |
| BASF acquires Takeda’s feed additives business | |
| French investment bank Paribas acquires Sanofi Animal Health & Nutrition (now trading as Ceva Animal Health) | |
| Virbac acquires Agri-Nutrition Group (US) | |
| Novartis acquires Vericore (UK) as part of a move into the veterinary vaccines market | |
| Vétoquinol acquires J Webster Laboratories (Canada) from Merial | |
| 2000 | Pharmacia & Upjohn and Monsanto merge to create Pharmacia Corp |
| Alpharma acquires the Roche medicinal feed additives business | |
| BASF agrees the takeover of Takeda’s vitamin business | |
| Schering-Plough acquires Takeda Chemical Industries’ Japanese animal health business | |
| Novartis adds Cobequid and the animal biologicals business of Biostar to its growing veterinary vaccines portfolio | |
| Pfizer sells its medicinal feed additives business to Philipp Brothers Chemicals (now Phibro Animal Health) | |
| 2001 | Ceva completes the acquisition of Centralvet-Vetem (Italy) |
| Schering-Plough acquires Fujisawa’s animal health business | |
| Vétoquinol acquires the Chassot Group (Switzerland) from Asklia Holdings | |
| 2002 | Boehringer Ingelheim Vetmedica (BIV) takes a majority stake in an animal health joint venture with Shionogi of Japan |
| Dainippon Pharmaceutical acquires Tanabe Seiyaku’s animal health business | |
| CVC Capital Partners completes the acquisition of Aventis Animal Nutrition | |
| Ceva acquires majority stakes in Interchem (Tunisia) and Laval (Algeria) | |
| Vétoquinol acquires the US companion animal business of IGI | |
| Novartis acquires the US veterinary vaccine businesses of Grand Labs and ImmTech Biologics | |
| Schering-Plough Animal Health acquires the privately owned UK company, Aquaculture Vaccines Ltd |
| 2003 | Pfizer completes its $60 billion acquisition of Pharmacia Corp |
| Meiji Seika acquires the animal health business of fellow Japanese company Eisai | |
| Degussa buys out Cargill’s 50% holding in the US-based Midwest Lysine joint venture | |
| Paribas Affaires Industrielles sells its majority stake in Ceva Animal Health to Industri Kapital | |
| Virbac acquires the privately held US veterinary pharmaceutical company, Delmarva Labs | |
| Virbac purchases the veterinary pharmaceutical business of King Pharmaceuticals (US) | |
| DSM completes the acquisition of Hoffman-La Roche’s vitamins and fine chemicals division, including the Roche animal nutrition business | |
| DSM sells its vitamin B3 business to the US company, Reilly Industries | |
| 2004 | Pfizer completes the acquisition of CSL Animal Health (Australia) |
| Meiji Seika acquires Daiichi Pharmaceutical’s veterinary and livestock feed additive interests | |
| Kyoritsu Seiyaku acquires the Mitaka Seiyaku veterinary medicines and feed additives joint venture from Asahi Kasei Pharma and Intervet | |
| Idexx acquires the German-based veterinary reference laboratory, Vet Med Lab (VML), in a $31 million cash deal | |
| Boehringer Ingelheim buys out Shionogi’s 33% stake in the Japanese animal health joint venture established by the two companies in 2002 | |
| Idexx acquires the Swiss veterinary diagnostics specialist, Dr Bommeli, from Intervet | |
| 2005 | Ceva acquires Dogu Ilac Veterinar, the leading animal health company in Turkey, from Sanofi-Aventis |
| | Private equity firm Montagu acquires Leo Animal Health from Leo Pharma of Denmark for approximately Euro 100 million |
| | Phoenix Scientific, the biggest veterinary generics manufacturer in the US, is acquired by Ivax Corp – which in turn is acquired by Teva Pharmaceuticals of Israel |
| | The Butler Company and Burns Veterinary Supply merge to create the biggest veterinary distributor in the US |
| | Ceva acquires US veterinary vaccine specialist Biomune from Zeon Corp |
| | Intervet sells its range of MFAs to the Bulgarian company, Biovet |
| | Schering-Plough buys out Takeda’s 40% stake in the Japanese animal health joint venture established by the two companies in 2000 |
| | Merial announces the sale of poultry breeding interests Hubbard and British United Turkeys in two separate deals |
| | Intervet acquires New Zealand veterinary vaccine specialist AgVax from state-owned research institute AgResearch |
1.1.5 Leading companies in the animal health and nutrition sector
The net result of restructuring, both at parent company level and within the animal health and nutrition industry, has been a trend towards the consolidation of market shares in the hands of fewer, bigger players. Aggregate sales of the five biggest companies in 2004 were equivalent to over one-third of total market value; the 10 market leaders boasted an aggregate share of 55%; and total sales of the 20 companies profiled in this report – at more than $15 billion – were equivalent to 75% of global market value.
1.1.6 Market leaders in 2004
Pfizer cemented its position at the head of the industry sales rankings in 2004, posting a 22% gain that took its global revenues to within a whisker of the $2 billion mark. New product launches and strong performances by several of the company’s more established brands contributed to the size of that increase. The residual impact of the Pharmacia acquisition, the addition of revenues from its more recent purchase, CSL, and the continued weakness of the US dollar also had a positive impact on results, however.
Currency factors were a significant contributor to gains posted by all US companies during the year. Most also benefited from strong demand in their home market, however, and Merial, Elanco and Schering-Plough Animal Health all returning increases of 9-10%. The Swiss company, Novartis, which began reporting its financial results in dollars during 2003, tabled gains of a similar magnitude, while diagnostics specialist Idexx reported a 15% increase in sales thanks to a combination of in-house growth and first-time revenues from recently acquired business. Fort Dodge was also set to book a double-digit increase before the withdrawal of its ProHeart 6 canine heartworm treatment took the shine off results in the last four months of the year.
Even Alpharma and Phibro, which operate in the more difficult MFAs segment of the market, were able to report sales increases of around 6% during 2004. Revenues generated by a distributor business that was on Alpharma’s books for the first three months of the year were a factor behind the upturn there, however, and if currency factors are discounted from calculations, underlying sales of the company’s core MFA lines were flat.
While those reporting results in dollars saw revenues inflated significantly by the weakening dollar, the reverse was true for European companies, which saw local currency gains achieved in the US and other international markets eroded on conversion to Euros. Thus Intervet, which registered local currency gains of 4%, reported an increase of little more than 1%, while the 4.5% rise in local currency sales achieved by Bayer was wiped out completely by exchange rate factors. Virbac also struggled to post positive growth, while a flat year for Vétoquinol meant that sales as reported by the French independent were down on 2003 figures by more than 3%.
Boehringer Ingelheim and Ceva both posted bigger gains than most of their European-based counterparts. Boehringer reported local currency growth at a level of 10%, thanks to strong performances by its Metacam (meloxicam) non-steroidal anti-inflammatory drug (NSAID), swine vaccines and companion animal speciality products. Exchange rate factors knocked over 3% off sales as reported, but the company was still able to book a gain of more than 6%. Ceva, which is less exposed than most other European companies to the influence of exchange rates, posted a 7.4% increase in sales, driven primarily by strong in-house growth, but boosted moderately by the impact of recent acquisitions.
Dainippon, which is the sole Japanese representative in the rankings, has outgrown its sluggish home market consistently in recent years, but reported a near-5% decline in sales for the year to 31 March 2005. Revenues had been up on year-earlier figures at the half-year stage, but were affected in the final quarter by the termination of product licensing agreements with Merial.
While currency factors meant that most European animal health companies reported either flat sales or modest increases during 2004, the continued weakness of the dollar compounded the impact of falling prices in the nutritional feed additives sector. As a result, double-digit reverses were the order of the day for European-based nutritional businesses, with BASF, Degussa and Adisseo all reporting revenue totals 10% or more below year-earlier figures. Sales generated by DSM’s animal nutrition business also declined, though no comparative total was available for 2003 following the transfer of the unit to the Dutch company from Hoffmann-La Roche. Table 1.5: Top 20 rankings, 2004
| Rank | Company | Local sales (million) | % change | US$ sales (million) 1 |
| 1 | Pfizer | $1,953 | +22.2 | 1,953 |
| 2 | Merial | $1,836 | +9.0 | 1,836 |
| 3 | Intervet | Euro 1,024 | +1.4 | 1,272 |
| 4 | DSM | Euro 860 | N/a 2 | 1,068 |
| 5 | Bayer | Euro 786 | -0.5 | 976 |
| 6 | BASF | Euro 725 3 | -10.0 | 901 |
| 7 | Fort Dodge | $837 | +5.5 | 837 |
| 8 | Elanco | $799 | +9.9 | 799 |
| 9 | Schering-Plough | $770 | +10.5 | 770 |
| 10 | Novartis | $756 | +10.9 | 756 |
| 11 | Degussa | Euro 530 | -13.1 | 658 |
| 12 | Adisseo | Euro 456 | -14.0 | 566 |
| 13 | Idexx | $549 | +15.4 | 549 |
| 14 | Virbac | Euro 359 | +1.1 | 446 |
| 15 | Boehringer Ingelheim | Euro 335 | +6.4 | 416 |
| 16 | Alpharma | $315 | +6.4 | 315 |
| 17 | Ceva | Euro 231 | +7.4 | 287 |
| 18 | Phibro 4 | $265 | +5.9 | 265 |
| 19 | Dainippon 5 | Yen 27,284 | -4.8 | 252 |
| 20 | Vétoquinol | Euro 183 | -3.2 | 227 |
Source: Company information and Animal Pharm Reports.
1.1.7 Market leaders in 2005
The impact of exchange rates on results through the first half of 2005 was less marked than in recent years (the dollar was 4.5% weaker against the Euro than in the corresponding year-earlier period, compared with a slide of just over 10% in the first half of 2004). Nevertheless, currency factors continued to erode sales reported by European companies, whilst boosting gains posted by US multinationals.
European-based players operating in the nutritional feed additives sector faced additional problems, as the erosion of some vitamin prices continued and amino acid prices plunged. The degree of volatility witnessed in that segment of the market complicates forecasting, but all four of the European nutritional additive manufacturers included in the rankings are expected to post a significant decline in revenues during 2005.
That trend is in marked contrast to US-based companies operating in the veterinary pharmaceutical and biological market sectors, where double-digit increases will be the norm once again. At the head of the industry rankings, Pfizer is set to post the sharpest increase. First-half sales reported by the company were up by 19%, with sizeable gains reported for recent launches and established brands alike. With its new antibiotic, Draxxin (tulathromycin), set to drive domestic sales in the second half, Pfizer is expected to maintain that momentum, with a full-year increase of 19% forecast to drive its sales up past the $2.3 billion mark.
Merial is also expected to post revenues in excess of $2 billion for the first time. The company’s Frontline (fipronil) pet ectoparasiticide continues to spearhead growth, but sizeable gains were also reported for the Merial biologicals range and, in a reversal of recent trends, for its endectocide products. The result was a first half gain of more than 15%, which should almost be matched in the second half of the year, taking 2005 sales to just under $2.1 billion.