Elanco Animal Health Inc. and Zoetis Inc., two of the industry's major players, both raised their earnings forecasts this week after reporting strong first-quarter results buoyed by Pet care. Last week, the pharmaceutical giant Merck & Co. said sales of its companion-animal drugs increased by 26%.

Millennial and Gen Z consumers, or those under age 40, are spending more on their pets, especially as they engage with their animal companions more than ever during the pandemic, Elanco Chief Executive Officer Jeffrey Simmons said in an interview. What's driving the spending, he said, is that 'over 75% of them believe that their pets are an integral part of the family'.

Elanco, which was spun out from drugmaker Eli Lilly & Co. in 2018, boosted its revenue forecast for the year on Friday, saying pet health sales increased 213% in the first quarter. The growth was also spurred by the company's acquisition of Bayer AG's animal health unit in 2019, which created one of the world's biggest veterinary medicine companies.

The results came a day after Zoetis reported a record quarter, with revenue climbing 22%. Sales of companion-animal products increased 32% in the U.S. The company also saw a 10% gain in revenue per pet visit.

More owners now have increased expectations of care for their Pets, Simmons said, and he expects that to continue even after the Covid-19 pandemic is over. Total pet clinic visits were up 5% in the quarter, and wellness visits rose 16%, trending above pre-pandemic levels.


Online pet shopping is also up. Elanco said 1 in 3 pet owners shifted to spending online during the pandemic, and nearly all expect to continue. And a third of veterinarians expect to continue using telemedicine after the pandemic, the Greenfield, Indiana-based company said.


Virtual Vets

The gains are linked to an increase in so-called curbside veterinary care, in which doctors send treatment recommendations and diagnostics via email, leading to less negotiation about treatments and prices, Zoetis CEO Kristin Peck said in an interview. Pet care now accounts for 55% of the company's portfolio, compared with 35% in 2014.

'It has been growing and will continue to grow both in terms of revenue and the growth of the sector', Peck said.

Zoetis expects people to continue spending more on their Pets, especially as flexible working hours become more common, allowing people to spend more time at home.

Since last summer, Zoetis has seen a significant increase in the adoption of Dogs and Cats. But what's more significant is the amount of time people are spending with their pets. Homebound people are more engaged with their Pets, Peck said.

'Pet owners have become accustomed to a certain level of care', Peck said. And as Pets age, their care needs will likely increase. Data from Idexx Laboratories Inc. shows that a quarter of adult and senior dogs require a follow-up visit after preventative blood and fecal diagnostic tests, said Ann-Hunter van Kirk, Senior Biopharmaceuticals Analyst for Bloomberg Intelligence. That figure increases to nearly two-thirds by the time canines reach age 15. Also, Pet gerontology experts have noted an increased lifespan for pets, estimating that more than 50% of canines over 90 pounds (41 kilograms) are now living longer than 11 years.

'We believe this trend could continue, driven by improvements in veterinary care and nutrition, which may raise demand for preventative companion-animal diagnostic tests,' van Kirk said.

By: Bloomberg

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