Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

	{audio:0:03:13} It seems vet practices have faced significant capacity issues since Covid and have not been able to keep up with demand for pet consultations and procedures; I was curious to hear how you see the situation today compared to last year?

	{audio:0:03:56} 2020 and 2021 were record breaking on many accounts, and there has been a softening in demand in 2022 across the platform. We call it coming back to the new normal we experienced in 2019, which is what we're experiencing in the field.

	{audio:0:04:36} I expected the issue was unrelated to demand but to capacity constraints. Vet clinics have reduced working hours and face issues with reduced staff, so were not able to keep up with new demand due to new puppies being adopted and higher standards of care new pet owners have.

	{audio:0:05:13} From my experience, in my region of the country, demand has increased. We had some constraints but for the hospitals I manage, visits were up, even with the same amount of staff. Perhaps that was the case on a more global ecosystem, but I would suggest otherwise from the data I experienced. Visits were up during 2020 and 2021.

	{audio:0:06:07} How is the situation today at the practices you oversee? Can you absorb demand or have you declined some new pets or treatments as a result of being full?

	{audio:0:06:36} Increased capacity was top of mind three to six months ago but there has been a softening of demand more recently. We are seeing much more open patients to schedulers; the books are more open than they were in the beginning part of the year.

	{audio:0:07:13} Is this softness in demand related to wellness or to a particular disease?

	{audio:0:07:22} I would suggest both, but it's probably leaning more towards the wellness. I base that on year over year differences in our revenues and how they have changed over the last six to nine months. The economy has a lot to do with that softening.

	{audio:0:07:53} Is this more pronounced in diagnostics, vaccines or pharmacy sales of your practice?

	{audio:0:08:32} I feel like it would be in the diagnostic category.

	{audio:0:08:40} Is that in-house diagnostics or more related to reference labs?

	{audio:0:08:52} The decision for primary providers to use an in-house or reference lab is a function of their vendor relationships. It's probably a decrease in both categories.

	{audio:0:09:19} Despite the softness you are seeing, do you expect the average spend per visit to increase in the coming years?

	{audio:0:09:45} I've been practicing for 22 years and our field is very resilient. Veterinary care will continue to be relevant as people continue to treat their pets like family.

	{audio:0:10:17} Have you suffered product supply issues from major pharma companies during the last quarters and if so, which players have the most acute problem?

	{audio:0:10:41} The most obvious was the diet category with Royal Canin products. There have been occasional issues with opioids but I don't know the manufacturers of those drugs to know what was behind that.

	{audio:0:11:31} Zoetis mentioned they had issues supplying SIMPARICA Trio, monoclonal antibodies and Revolution during the last quarter; did you notice supply issues with those products in the practice you oversee?

	{audio:0:11:50} It was minor compared to the dietary stuff and didn't seem like a major challenge in terms of supplying our hospitals.

	{audio:0:12:28} In recessionary times when customers are hesitant to spend, do diagnostics suffers the most, or is that also the case in pharmacy and vaccine sales?

	{audio:0:13:09} I don't know which would be the biggest decline, but diagnostics has the highest cost and is the most optional when a pet presents an illness. Clients could postpone or decline that more compared to other products.

	{audio:0:14:03} What are the key drivers for the increasing relevance of corporate vet practices and buying groups in the US vet sector?

	{audio:0:14:26} The multiples being presented to the sellers would be first. Other drivers involve corporate entities taking on staffing responsibilities and using their scale to do a better job or offload that work to a different team.

	{audio:0:15:19} Working at Mars and other corporate practices, how much influence do corporate guidelines have in the medications veterinarians recommend to pet owners?

	{audio:0:15:43} I've worked for more corporate groups since leaving MARS in 2019 and currently work with a different group. Was your question about freedom to choose?

	{audio:0:16:11} Yes, how much freedom of choice does the vet have? Are there corporate guidelines which mention a particular product or brand has to be used?

	{audio:0:16:35} Each corporate group has a different culture, but MARS is the most stringent about what appears on shelves, and veterinarians or primary providers have no choice. Prescribing practices of what's on shelves is in the hands of the veterinarian. At least two corporate groups do not allow the hospital level to make decisions, but the one I am currently with allows individual hospitals to choose what goes on their shelves, with some preferred providers giving the best margins.

	{audio:0:17:34} With MARS, how many different brands of a similar medication were available at pharmacies? Did they have two or three anti parasites or only one for example?

	{audio:0:17:57} In the class of anti inflammatories or parasiticides, there are two or three at most, so they are subject to a great deal of limitations.

	{audio:0:18:17} As corporates become more relevant in the US market, are smaller pharma companies that do not have a robust and diversified portfolio in a tougher position?

	{audio:0:18:54} How do business practices differ between corporate and independent?

	{audio:0:19:17} Product margins are better with corporate groups due to sale volumes.

	{audio:0:20:05} Where else do corporates have an advantage over independent practices? 

	{audio:0:20:23} They offer special rebates during spring when more parasiticides are sold. Continuing education is provided to corporate groups who have a bigger audience. I do not feel distribution would be impacted, but I don't have data to say otherwise. During times when there are supply constraints, I have seen some hospitals where corporate entities were able to get product and private practices were not.

	{audio:0:21:49} Choosing a pharma company is related to pricing conditions and ancillary services and support to corporate practices, how much weight would you give those?

	{audio:0:22:41} Assuming we've established the safety of medical products, price outweighs support 60/40.

	{audio:0:23:13} How do online players and big box retailers threaten vet practices?

	{audio:0:23:31} Online players like Chewy present a big threat. All the work we're doing in the field to give a channel to clients doesn't compare to the ease and customer service they will get with Chewy or other competitors such as Walmart. Every day clients refuse to buy product at veterinary hospitals because they can get it cheaper online.

	{audio:0:24:28} Is the threat more related to parasiticides and chronic medications which do not need to be administered at the clinic?

	{audio:0:24:48} Do you expect vet practices to lower their mark-ups to match larger players?

	{audio:0:25:24} We initially tried price matching but our margins were being eaten away. There were some other incentives like rebates that could only be applied at hospitals. Some big companies offered incentives to do with client charge cards, where there was an incentive to make that point of sale at the practice and not online. Our vision is to promote services more and products less. Our split is 75% service, 25% product. There are in-house methods to divert clients either to our hospitals or online pharmacies. Those are other methods to help convince owners to buy within our own ecosystem.

	{audio:0:27:08} Is that 25% pharmacy and vaccines you sell?

	{audio:0:27:23} That would include parasiticides, medical prescription and diet.

	{audio:0:27:57} What specific threats do the online players and big boxes represent?

	{audio:0:28:21} Clients are looking for the best market price and are finding it online. I don't know of other threats because they don't offer support or anything else.

	{audio:0:28:50} Are you also trying to divert treatments to other means, for example injections that online players cannot provide? Is this the strategy?

	{audio:0:29:07} Absolutely. ProHeart injections have been out for over a decade and that was embraced by the majority of hospital systems. We're trying to do everything we can such that the product is only delivered by the vet. Zoetis has an arthritis medicine for cats that is only delivered by injection by a veterinarian, so there are several categories of the same model out there.

	{audio:0:30:12} How is the refill rate for chronic medications and parasiticides evolving?

	{audio:0:30:26} Are you asking how many people are coming back for refills?

	{audio:0:30:32} Yes, because if you have an 80% refill rate, 20% are doing it online? What is the refill rate in your clinic?

	{audio:0:30:50} Half our clientele go elsewhere to receive parasiticides.

	{audio:0:31:08} Do you see this because they ask for the prescription to buy online?

	{audio:0:31:15} We have visibility but don't collect data on it.

	{audio:0:31:25} Has that stabilized at 50% or is there more room for erosion?

	{audio:0:31:39} We had a lot of erosion, years ago, when this whole channel B began to open up and things leveled off. Most recently companies such as Chewy have done a better job with client service, and there is continued need for concern as Chewy is hiring veterinarians. I expect more erosion to occur at practices because companies are getting their act together and offering a better service to clients with product delivery.

	{audio:0:32:49} How has the adoption of generics evolved in the pet segment and which industry players have been most active in adopting generics for treatments?

	{audio:0:33:09} MARS has not been and all of their product is branded. At the provider level, veterinarians lean towards providing better price points for clients, which is generics. There are a few exceptions with chronic medication and palatability where compliance with clients is a must, and generics don't offer the same palatability as name brands.

	{audio:0:34:07} Which pharma companies are more protected from the generic threat?

	{audio:0:34:25} The non-steroidal categories from Pfizer and Zoetis are an example of chronic use in the pain category, and clients are driven to keep their pets on it. These are generally oral products for older pets. For medicine given by the owner, palatability is higher on the list.

	{audio:0:35:13} Which pharma companies have a more protected portfolio?

	{audio:0:35:22} Zoetis do well with NSAIDs and Boehringer Ingelheim have a heart drug that is well prescribed.

	{audio:0:36:21} Do you see an increasing trend for the use of generics in pets?

	{audio:0:36:47} How do you see the individual relevance of diagnostics, vaccines and pharmacy evolving for vet practices over the next 10 years?

	{audio:0:37:14} Our parasiticide category is currently 5% of revenue. I could see that eroding slightly in future, but being a corporate group, we have several things in our toolbox to do a better job and assure our clients are able to get a better price point. What were the other categories?

	{audio:0:38:01} Would you expect diagnostics to account for more revenue in future?

	{audio:0:38:08} Yes, I do. Diagnostic companies such as Antech are installing their machines in-house and allowing quicker turn around on different testing.

	{audio:0:38:42} What about for vaccines?

	{audio:0:38:49} There have several developments in the vaccine category, and some big organizations have protocols that suggest some vaccines are not needed as often. There are now three-year vaccines and that trend was seen over the last 15 years as new studies were released. We're seeing some adaptation for hospital clinics to find ways to see pets every year. Some strategies are to put in place different vaccines that are needed every six to 12 months. Whatever we've seen in the last five to 10 years with new medical studies, are not going to get worse in terms of not recommending vaccines. Canine flu has increased our vaccine revenues whereas some of the older vaccines which used to be annual, are now done every three years.

	{audio:0:40:22} Parasiticides are losing relevance for pharma; do you see other categories offsetting this reduction to keep pharmacy relevant or will it reduce for vets long term?

	{audio:0:40:56} Recent adaptations to delivery of some pharmaceuticals in the hands of veterinarians in the form of an injection will help. Long-term clients will be asking for scripts to be written and filled at Costco or other vendors who sell antibiotics and other veterinary products. Some classes of medication will no longer be on the shelf, such as human products which are also used in veterinary medicine, simply because we cannot compete with the $4 pharmacy charges at Target, Costco or Walmart.

	{audio:0:42:08} Which pharma companies were most relevant for MARS?

	{audio:0:42:58} Which Elanco products were relevant?

	{audio:0:43:02} Parasiticides. Another, in the same class, would be Zoetis. I can also share a pharma company that would not be, if that's of interest?

	{audio:0:43:36} Of course, what was the relevance of Merck and Boehringer Ingelheim?

	{audio:0:43:43} They were less relevant. Boehringer Ingelheim's parasiticides including Heartgard was not sold.

	{audio:0:44:11} Who has the best vaccine portfolio between Zoetis, BI, Elanco and Merck?

	{audio:0:44:43} I would rank Boehringer Ingelheim and Zoetis highest. PureVax from Boehringer Ingelheim has safety advantages. Boehringer Ingelheim have cutting edge studies so I would put those companies at the top in vaccines.

	{audio:0:45:40} What comments would you make about the portfolio from Zoetis?

	{audio:0:45:49} I know we carry some of their products, but I don't have any comment.

	{audio:0:46:19} How would you compare innovation at Zoetis versus other companies?

	{audio:0:46:30} Zoetis' most recent feline osteoarthritis medicine was a game changer; the first of its kind but it's only been in the market for a short time. That represents Zoetis being innovative and looking for new product categories to deliver medicine to pets.

	{audio:0:47:04} How would you compare Zoetis' commercial and technical support to vet practices with the other major players?

	{audio:0:47:13} Very high, they do a wonderful job supporting veterinary hospitals and meeting their needs. I've only had good experiences and my peers would also agree.

	{audio:0:47:30} How much of this better experience is due to your Zoetis area rep being proactive and you know him for some time, versus a corporate guideline you have felt consistency over the years, even while you were in your previous job?

	{audio:0:47:56} How much of the impact has been local versus a corporate relationship?

	{audio:0:48:12} Is the good opinion you shared based on all your vet experience?

	{audio:0:48:51} My experience is based on Zoetis' investment into veterinary leadership. They have a great track record with the innovation of Apoquel® and Cerenia®, which have become the mainstay of treating many pets. Zoetis has a good reputation nationally, but it is also backed up by their local rep.

	{audio:0:49:44} What are examples of activities Zoetis does to support vet practices?

	{audio:0:50:11} They've offered continuing education at the corporate level and there have been helpful rebates to encourage owners to buy more of a certain product. They also have a national presence.

	{audio:0:51:37} Do you make less margin selling Zoetis products than the competitors?

	{audio:0:51:47} I don't know but I don't think we make less margin on Zoetis products.

	{audio:0:52:00} Are you concerned about Zoetis offering different prices to each channel?

	{audio:0:52:32} I expect companies to provide different pricing models depending on scale.

	{audio:0:52:50} How do you see Zoetis evolving within your pharma and vaccine sales?

	{audio:0:53:08} I only see their relevance increasing because some of their products are mainstays of treatment. CYTOPOINT® and Apoquel® are the top two products used for chronic allergies, which are disease processes that don't go away. They also have a heartworm injectable and the SIMPARICA Trio all-in-one parasiticide, so their relevance is strong in those areas. They have less relevance in the area of vaccines.

	{audio:0:54:18} Using Zoetis dermal products for example, Elanco is working on a similar drug to Apoquel® and CYTOPOINT®, could vets switch to a product with similar efficacy?

Zoetis Animal Health: Vet Practice Perspective

Former Director at Banfield Pet Hospital

inpractise.com/articles/zoetis-animal-health-vet-practice-perspective

Executive Bio

Former Director at Banfield Pet Hospital

Interview Transcript

Have you heard of vets switching from IDEXX to Zoetis or adding one or two analyzers from Zoetis?

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