As part of a free webinar from Kisaco Research, Animal Pharm editor Joseph Harvey spoke to two of the animal health industry's leading businesses about how COVID-19 has impacted strategy, R&D and the overall veterinary sector. The article (dated 04/04/20) below also features a video of the panel discussion in full.

Two leaders within the animal health sector both believe companies should be preserving a constant flow of R&D, at a time when many expenditures might be axed. However, it will be very difficult for all firms to maintain the same level of pre-COVID-19 spending on developing new products.

Kathy Turner - corporate vice president and chief marketing officer at IDEXX Laboratories - said: "Continuing to invest in R&D is going to be critical and, certainly from an IDEXX perspective, R&D and innovation is at the core of what we do as a company.

"Everything we invest in is focused on what is medically necessary to improve veterinary standards of care, whether that's in our companion animal or production animal businesses. We will continue to focus R&D on unmet clinical needs.

"Obviously, every company has to pick and choose where they're going to be spending discretionary money or how they're going to be investing in certain projects. I think the larger companies will continue to do that. I would recommend the smaller companies do so as well."

Ms Turner recommended firms should prioritize essential pipeline projects that have a viable end-market or products that target known unmet needs.

Zoetis executive vice president and president of international operations Rob Kelly echoed Ms Turner's comments. He also pointed out some companies will be in a better position to maintain R&D expenditure than others.

Mr Kelly stated: "No company wants to make a short-term decision on R&D that is going to have a long-term impact on the business. Obviously, there's going to be an economic impact from this that going to go on for some time. Some companies are going into this with a stronger balance sheet position than other organizations and other companies are more diversified. So, the impact is going to vary.

"Across the industry, we're going to see some changes in how companies focus their R&D efforts. There are some companies where you're going to see little to no change at all. It will really depend on their financial position.

"I can't imagine every company is going to be in a position to maintain R&D expenditure levels of the last few years."

He also pointed out many regulatory authorities have shifted their focus to respond to the challenge of COVID-19, which may slow down the amount of product approvals for an interim period. Zoetis is currently working with agencies around the world to prioritize products of critical need that are in the regulatory pathway.

A recession-resilient industry

Mr Kelly suggested the opportunities for growth in animal health are not going to change in light of the coronavirus pandemic. The same unmet needs are still present and will remain relevant in the years to come.

However, he suggested animal health businesses will be investing more in geographic markets that have experienced a quicker recovery from COVID-19. These include countries in northern Asia and Australasia.

Mr Kelly also pointed out: "We're not a recession-proof industry but we're more resilient to recession than other industries."

He said the consequences of COVID-19 will be felt more heavily on the companion animal health sector than in the livestock space, as treatments and vaccinations of pets decline.

The food animal market will see a shift to swine and poultry, away from beef and dairy - something that tends to happen in most economic crises, as consumers target cheaper protein sources.

Mr Kelly noted a particular challenge for the animal health sector will be if any shutdowns of manufacturing facilities create a shortage of vaccines. He said Zoetis has seen some reduced capacity in some manufacturing sites. However, the firm has maintained full supply of its products and has yet to close any of its facilities.

Positive outlook

Both panelists were optimistic for the long-term growth prospects of the animal health sector. Ms Turner suggested the human-pet bond continues to get stronger and, during the current crisis, the number of companion animal adoptions has increased and animal shelters are largely empty.

"The industry is going to continue to grow," she told webinar attendees. "Is it going to grow at the same rate? We can't answer that. But is that demand going to continue to be there? Yes. We've anticipated this market is going to be a multi-billion-dollar market and it still has a tremendous runway for growth all over the world. That is not going to change."

Mr Kelly added: "Certainly, the growth in the industry is going to be reduced over the next one to three years, compared to what we might have predicted six months ago, but our industry is a lot more resilient when you compare it to other sectors. Our industry is better placed than most to capitalize on the opportunities that still exist out there."

Animal health companies will need to re-evaluate how they structure their businesses in the future, according to Mr Kelly. He said this should stoke increased investment in digital technologies, while companies will also focus on better managing capital, inventory, warehousing and logistics.

Telemedicine adoption rates

IDEXX has been helping veterinarians with workflow improvements, as well as helping them adapt to a paperless and contactless practice. Ms Turner pointed out the significant increase in adoption of the veterinary telehealth services that IDEXX offers. She expects use of these services to continue beyond the pandemic. However, she said the broader usage of telehealth around the world for consultations will depend on national regulations.

In fact, regulation has slowed the adoption of telemedicine in many places.

Mr Kelly noted: "Typically, telemedicine has not been seen as a valid veterinary-client relationship. We have seen a relaxation of regulations. We've certainly seen it in the US, Canada, the UK and France with this coronavirus challenge. We've even partnered with some of the companies that provide these services in North America."

The webinar and panel discussion were a precursor to Kiscao Research's first virtual event, which will take place on June 23-25. Animal Health Investment One will feature presentations, discussion and networking.

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.