Animal Pharm Reports
Animal Pharm's Top 20: 2006 Edition
Published October 2006
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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 totaled almost US$21.7 billion in 2005. That figure was around 7% higher than the year-earlier total of US$20.3 billion, marking a continuation of the generally improved conditions that have characterized the sector since the early years of this decade.
1.1.1 Market shares by region
Around two-thirds of global animal health and nutrition sales are generated in North America and Western Europe, which are home to around half of the world's 20 biggest national markets in the sector. South and southeast Asia, South America and Australasia are the world's other main sources of demand for animal health and nutrition products.
The US is the pre-eminent national market, accounting for over one-third of global sales. With Canada and Mexico both ranked among the world's 20 biggest national markets, the North American region is responsible for 38% of the global sales total - equivalent to almost US$8.3 billion. Sales have been patchy in both Canada and Mexico since the beginning of the decade, but the US market has exhibited strong growth since 2002, thanks to a combination of improved conditions in the livestock sector and continued expansion of companion animal product sales.
Table 1.1: Geography of the world market, 2005
| Region | Sales (US$ million) | % of total |
| North America | 8,260 | 38.1 |
| Western Europe | 5,940 | 27.4 |
| South America | 2,300 | 10.6 |
| Asia/Pacific | 3,755 | 17.3 |
| Rest of the world | 1,430 | 6.6 |
| Total | 21,685 | 100.0 |
Growth in most major European markets has been more limited in recent years, due primarily to the depressed conditions that have characterized the region's livestock and poultry sectors. Exchange rate factors inflated dollar-based European market values between 2002 and 2004 as the euro strengthened against the US currency, but underlying growth across much of the region remained modest, and the dollar/euro exchange rate settled in 2005, exposing generally modest rates of expansion. Sales in France, which is Europe's biggest market, rose by only 2% during the year, while growth in Spain was less than 4%. Stronger performances were reported in Germany and the UK, but the Italian market remained depressed. At regional level, sales totaled just over US$5.9 billion, accounting for a little over 27% of the global total.
Sales in the Asia/Pacific region totaled over US$3.7 billion - equivalent to a 17% share of the world market. Sales in China, which has emerged as the region's biggest national market, rose by around 8% in 2005, but growth rates in several other emerging markets have slowed as disease outbreaks and strong competition from imports affect the incomes of local livestock and poultry producers. Japan is the region's biggest developed market, but growth there has also been limited in recent years, thanks to a combination of economic problems and the depressed nature of the livestock and poultry segments.
South America is the world's other major market region, generating sales of approximately US$2.3 billion, or close to 11% of the global total. Brazil is the region's dominant market, and sales there have recovered strongly from a sharp downturn at the beginning of the decade, thanks to a combination of rising domestic demand for livestock products and the country's booming export trade. Local currency sales growth was close to double-digit levels there during 2005, but with the Brazilian real strengthening significantly against the US dollar, growth expressed in dollar terms was equivalent to almost 30%.
1.1.2 Market shares by product category
Veterinary pharmaceutical products generated global sales of more than US$11.8 billion in 2005, accounting for almost 55% of the animal health and nutrition sector total. This segment has increased in value appreciably since the middle of the 1990s. Growth has been spearheaded by the success of new companion animal parasite controls brought to market over the past ten years, but several other sub-sectors, including anti-inflammatory products, have also expanded rapidly.
Antiparasitics now generate global revenues of almost US$4.9 billion. Therapeutic anti-infectives, sales of which have grown at more modest rates in recent years, remain the second largest sub-sector of the veterinary pharmaceuticals market, generating annual revenues of around US$2.8 billion.
Global sales of veterinary biologicals reached almost US$3.7 billion in 2005, accounting for 21% of the animal health and nutrition products total. This segment is dominated by vaccines, which are used widely in all major livestock and companion animal species, but also includes a growing market for veterinary diagnostics. The diagnostics market is concentrated largely in developed markets, with the US representing by far the biggest source of demand. Vaccine sales are spread more evenly - partly because of the substantial market that exists for foot and mouth disease and rabies prophylactics in a number of developing countries.
Table 1.2: World market structure by product category, 2005
| Sector | Sales (US$ million) | % of total |
| Pharmaceuticals | 11,840 | 54.6 |
| Biologicals | 3,655 | 16.9 |
| Medicated feed additives | 1,915 | 8.8 |
| Nutritional feed additives | 4,275 | 19.7 |
| Total | 21,685 | 100.0 |
The market for medicated feed additives is worth approximately US$1.9 billion - equivalent to less than 9% of the animal health and nutrition products total. Volume sales in this segment have picked up in the US recently as a result of improving livestock and poultry producer incomes. The market in Europe has stagnated, however, and the EU's ban on all growth promoting antibiotics, which came into effect at the beginning of 2006, will deal a further blow to values in the sector. Anticoccidials and anti-infectives with disease control/prevention indications are still used widely, but many active ingredients are no longer protected by patents, and competition for market shares also limits sales values.
The world market for nutritional feed additives is worth almost US$4.3 billion, but like the medicated feed additives sector, growth in recent years has been distinctly limited. Growing competition for shares of what is essentially a commodity market have been the main constraint on market value, with falling prices for some major nutritional inputs (notably amino acids and vitamin C) offsetting higher volume sales.
1.1.3 Market shares by species
The most significant change in the structure of the world market by species over the past ten years has been the inexorable increase in shares accounted for by companion animal products. Sales of veterinary pharmaceuticals and biologicals for use in small animals alone are now worth almost US$6 billion. That figure is equivalent to more than 27% of the entire market, and when products for use in horses are added to the companion animal total, the segment is responsible for around one-third of total market value. Table 1.3: World market structure by species, 2005
| Species | Sales (US$ million) | % of total |
| Cattle | 5,695 | 26.3 |
| Pigs | 4,290 | 19.8 |
| Poultry | 3,825 | 17.6 |
| Small animals | 5,950 | 27.4 |
| Others | 1,925 | 8.9 |
| Total | 21,685 | 100.0 |
In the food animal market, products for use in cattle represent the most valuable sub-sector, generating global sales of close to US$5.7 billion. Demand for cattle health and nutrition products has been particularly strong in Brazil during recent years, while sales in the US have picked up thanks to a period of high beef and cattle prices.
Parasite controls and anti-infectives are among the most widely-used products in this sector, but the market for cattle vaccines is also substantial, thanks in part to the widespread use of foot and mouth disease vaccines in some regions.
The market for pig health and nutrition products is worth approximately US$4.3 billion. Medicated and nutritional feed additives are substantial contributors to that total, and also generate significant revenues in the poultry sector, which is worth around US$3.8 billion.
1.2 The animal health and nutrition products industry
Ownership of the animal health and nutrition products industry has traditionally been the preserve of pharmaceutical and chemical majors. This remains broadly true today, though many parent companies have disposed of previous interests in the sector, prompting a period of restructuring over the past 20 years. With fewer multinational parents interested in acquiring animal health interests, venture capital funds have also stepped into the sector.
Since the middle of the 1990s alone, SmithKline Beecham, 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. Elsewhere, 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.
Japanese pharmaceutical and chemical majors played little part in the global restructuring that took place in those sectors through the final quarter of the 20th Century. Most were highly exposed to the prolonged economic depression in their home market, however, while Japanese pharmaceutical companies faced additional constraints on their business in the shape of a national healthcare policy that imposed increasingly tight limits on drug spending. These factors eventually triggered a round of restructuring that is still in progress, and that has seen a succession of Japanese animal health businesses offloaded by parent companies attempting to improve ailing corporate balance sheets. Takeda, Fujisawa, Eisai, Shionogi and Daiichi are among the Japanese pharmaceutical majors to have exited the animal health sector.
Restructuring has also occurred within the animal health and nutrition sector, reflecting individual company strategies and conditions in specific segments of the market. Pfizer's exit from the medicated feed additives sector was among the most significant moves in this respect, while Intervet has followed suit more recently, disposing of its MFA interests in a series of deals during the past two years.
Elsewhere, Bayer has largely disposed of previous interests in the veterinary vaccines market, while Novartis has begun to build a position in that sector through a string of small-scale acquisitions.
Deals have also been announced on a regular basis at regional or national level - mostly involving the purchase of local manufacturers by multinationals attempting to strengthen their business in particular markets. The French companies, Ceva, Virbac and Vétoquinol, have been among the most active in this respect, but even Pfizer, which heads the global animal health and nutrition industry sales rankings, has continued to build its business through acquisitions.
Throughout all of this restructuring, the world's leading animal health and nutrition businesses have remained almost exclusively in the hands of US or European multinationals. Independents such as Virbac and Vétoquinol have broken that mould to some extent, while venture capitalists have stepped into the sector, purchasing Ceva and Adisseo. The recent sale of the latter by CVC Capital Partners to the China National Chemical Corporation (CNCC) is an intriguing development, marking as it does the first time that a top 20 business has resided in the hands of owners based in an emerging economy.
1.2.1 Leading companies in the animal health and nutrition sector
The restructuring witnessed within the animal health industry over the past 20 years has seen shares of the market concentrated increasingly in the hands of fewer, larger players. Pfizer now claims a market share of more than 10%, while aggregate sales of the five biggest companies in the sector were equivalent to almost 36% of total market value in 2005. The ten market leaders boasted an aggregate market share of 55%, while total sales of the 20 companies profiled in this report - at more than US$16.2 billion - were equivalent to 75% of global market value.
1.2.1.1 Market leaders in 2005
Pfizer became the animal health and nutrition industry's first US$2 billion business in 2005, posting a 13% gain that drove its global animal health revenues up to US$2,206 million. Its sales had been up on year-earlier figures by almost 18% at the half-year stage, but like most other US companies, Pfizer reported weaker gains in the second half as exchange rate factors began to depress revenues reported in international markets.
Table 1.4: Top 20 rankings, 2005
| Rank | Company | Local sales (million) | % change | US$ sales (million)1 |
| 1 | Pfizer | US$2,206 | +13.0 | 2,206 |
| 2 | Merial | US$1,987 | +8.2 | 1,987 |
| 3 | Intervet | €1,094 | +6.8 | 1,360 |
| 4 | DSM | €955 | +11.0 | 1,130 |
| 5 | Bayer | €856 | +8.9 | 1,064 |
| 6 | Fort Dodge | US$881 | +5.3 | 881 |
| 7 | Elanco | US$864 | +8.1 | 864 |
| 8 | BASF | €690 2 | -9.2 | 858 |
| 9 | Schering-Plough | US$851 | +10.5 | 851 |
| 10 | Novartis | US$795 2 | +5.2 | 795 |
| 11 | Degussa | €518 | -2.3 | 644 |
| 12 | Idexx | US$638 | +16.2 | 638 |
| 13 | Adisseo | €512 | +1.8 | 636 |
| 14 | Virbac | €372 | +6.0 | 462 |
| 15 | Boehringer Ingelheim | €361 | +7.8 | 449 |
| 16 | Ceva | €270 | +16.9 | 336 |
| 17 | Alpharma | US$325 | +3.2 | 325 |
| 18 | Phibro 3 | US$279 | +5.1 | 279 |
| 19 | Vétoquinol | €197 | +7.7 | 245 |
| 20 | Dainippon Sumitomo 4 | ¥26,400 | -3.2 | 240 |
Merial consolidated its status as the world's second biggest animal health company, reporting 2005 sales of US$1,987 million - up on year-earlier figures by a little over 8% despite a third-quarter reverse. Revenues generated by Merial's avermectins and the fipronil-based Frontline pet ectoparasiticide, which together account for over 60% of the company's animal health sales, were both down sharply on 2004 figures during the third quarter, but bounced back in the final three months of the year. Sales of Frontline rose by almost 12% through the year as a whole, reaching US$758 million, while Merial's veterinary vaccines range also delivered double-digit growth.
Dutch-based Intervet retained third place in the industry sales rankings, delivering its biggest sales gain since 2001 as revenues climbed by almost 7% to €1,094 million in a year during which it divested a number of non-core interests. These included a medicated feed additives line sold to the Bulgarian company, Biovet, and the electronic publishing business, Vetstream, which was acquired by the JCA Group (UK).
DSM and Bayer complete the group of five animal health and nutrition companies that now generate global revenues of more than US$1 billion a year. DSM is the biggest player in the nutritional feed additives sector, ahead of BASF and Degussa.
Further down the rankings, Ceva, Schering-Plough and the veterinary diagnostics specialist, Idexx, all posted double-digit sales gains in 2005. Acqusitions were responsible for over half the near-17% increase in revenues reported by Ceva, but the company also posted a sharp increase in operating income, which rose by 29% during the year. Idexx was also boosted by acquisitions, which included the Swiss-based diagnostics business, Dr Bommeli, purchased from Intervet in 2004.
By contrast, growth at Schering-Plough Animal Health was generated almost exclusively by higher sales of established product lines, with currency factors accounting for only one point of a 10.5% hike in revenues. SPAH's improved performance reflects its recovery from manufacturing problems, which had previously disrupted supplies of some major animal health brands - especially in the US, where 2005 sales rose by over 11%.
1.2.1.2 Market leaders in 2006
The 13% increase in revenues reported by Pfizer Animal Health in 2005 saw the company consolidate its position at the head of the global sales league, with a gap of more than US$200 million between it and second-placed Merial. The latter appears set to leapfrog Pfizer in 2006, however, regaining the leadership position it held prior to Pfizer's acquisition of Pharmacia Corp in 2003.
At the half-year stage in 2006, Merial's sales were up on 2005 figures by more than 16%. The company's market-leading pet flea treatment, Frontline (fipronil), continued to spearhead growth, with sales of the brand up on year-earlier figures by 25%. Double-digit growth was also reported for Merial's vaccines and avermectin products, however, and with third-quarter sales due to be measured against a comparatively poor 2005 performance, further substantial gains are likely in the second half. Full-year sales are forecast to reach US$2,345 million - up by 18% on 2005 figures.
By contrast, Pfizer's start to the year was subdued, with first half gains totaling less than 2%. A marginal improvement is expected in the second half, but full-year gains are forecast at only 3%, taking sales to US$2,275 million - some US$70 million behind the forecast total for Merial.
Merial aside, Ceva, Idexx, Phibro and Virbac appear on track to post some of the sharpest gains in the industry during 2006. Ceva's sales were up on 2005 figures by 21% at the half-year stage, but acquisitions were still fuelling growth during that period, and a more modest increase of around 15% is predicted for the year as a whole. Idexx is no stranger to double-digit revenue increases, but the upturn in Phibro's business is more of a surprise. The US-based feed additives manufacturer was on course to post a 15% sales gain in its fiscal 2006, and is also reporting sharp increases in earnings. Virbac's business appears to be firmly back on track after a difficult period during which it was forced to deal with accounting irregularities at its US subsidiary, in which it has now signed a definitive agreement to purchase all outstanding shares.
Table 1.5: Top 20 ranking forecasts, 2006
| Rank | Company | Local sales (million) | % change | US$ sales (million)1 |
| 1 | Merial | US$2,345 | +18.0 | 2,345 |
| 2 | Pfizer | US$2,275 | +3.0 | 2,275 |
| 3 | Intervet | €1,127 | +3.0 | 1,397 |
| 4 | DSM | €995 | +4.0 | 1,234 |
| 5 | Bayer | €925 | +8.0 | 1,147 |
| 6 | Fort Dodge | US$935 | +6.0 | 935 |
| 7 | Schering-Plough | US$920 | +8.0 | 920 |
| 8 | BASF | €710 | +3.0 | 880 |
| 9 | Elanco | US$873 | +1.0 | 873 |
| 10 | Novartis | US$865 | +9.0 | 865 |
| 11 | Idexx | US$730 | +14.4 | 730 |
| 12 | Degussa | €580 | +12.0 | 719 |
| 13 | Adisseo | €504 | -1.5 | 625 |
| 14 | Virbac | €409 | +10.0 | 507 |
| 15 | Boehringer Ingelheim | €390 | +8.0 | 484 |
| 16 | Ceva | €311 | +15.0 | 386 |
| 17 | Alpharma | US$343 | +5.5 | 343 |
| 18 | Phibro | US$320 | +15.0 |