Trying to keep pace with all of the transformation happening right now in animal health? You’re not alone. We can’t think of a CEO, brand manager, startup founder or investor who isn’t trying to navigate the changes in our space and the world at large. Many of them are exciting, but it’s easy to get overwhelmed by the sheer number of changes and the breakneck rate at which they’re occurring.
Fortunately there are people like Fabian Kausche, M.S., Dr.med.vet., to help cut through the noise and make sense of the big picture. Recently Kausche offered a handful of insights on where the industry is headed next—insights founded on decades of experience directing R&D efforts at global animal health companies and now consulting with corporations, startups, investors and others shaping innovation in our industry. Here are five of Kausche’s predictions for the animal health world.
1. Large corporations will continue to look externally for blockbuster products.
It’s no secret that the biggest players in animal health rely on blockbuster products to bring in revenue. The success, for example, of the isoxazoline parasiticides and both oral and injectable products to treat atopic dermatitis has shown the world how much profit there is to be made in veterinary medicine. Anywhere from 20% to 35% of large corporations’ sales comes from these high-earning offerings, according to Kausche’s analysis.
However, many of these drugs are facing patent expirations, and while the patent cliff may not be as pronounced in animal health as it is on the human side, it’s still a factor driving manufacturers to look for ways to replace revenue lost to generic competitors.
The only way they can do that, and also achieve the growth their shareholders demand, is through innovation—developing or discovering the next blockbuster product, Kausche says: “These companies need to bring to market literally several hundred million dollars in innovation every year to be successful in their growth.”
Unfortunately, an R&D department can’t just snap its fingers and produce a $100 million product. In the 1980s and 90s, Kausche explains, successful pet products came from the agricultural world—topical parasiticides are a key example. In the 2000s, many animal health companies were still attached to human pharma, so they mined their human health pipelines—see JAK inhibitors for atopic dermatitis. Now that many animal health companies have been spun off as independent entities, they no longer have that access.
While large animal health companies have top-rate researchers in their internal R&D divisions, these departments are heavily taxed by maintaining regulatory compliance for current inventory in addition to developing line extensions and sourcing novel products internally. The solution? Find the innovation externally, Kausche says. The explosion of startups in the pet biotech space has coincided with the cost of entry coming down, and large corporations will continue to acquire, license and partner with these startups to find the next animal health revolution.
2. Private equity will show new interest in the animal health space.
While the pace of consolidation led by the industry’s “Big Four”—Zoetis, Merck Animal Health, Boehringer Ingelheim and Elanco—may be decelerating due to competitive and regulatory pressures necessitating divestitures, there is growing interest in the sector from private equity, Kausche suggests.
Of course, private equity has been acquiring veterinary practice groups for some time now in hopes that greater efficiencies and consolidated infrastructures will lead to ROI for investors. What’s new here, Kausche says, is private equity’s interest in industry itself.
This new wave is headlined by the 2023 acquisition of Dechra Pharmaceuticals by Swedish firm EQT Partners together with the Abu Dhabi Investment Authority (ADIA), which Kausche hailed as a landmark private equity investment within the sector and the UK. Also of note is the 2022 announcement that veterinary technology and services company Covetrus would be acquired by Clayton, Dubilier & Rice and TPG Capital.
“Private equity companies will likely try to build the companies they acquire through acquisitions, so I think some level of consolidation will continue,” Kausche says. “How it’s going to look? If I knew, I would buy stock.”
3. The pet oncology market is poised to take off.
“I’m bullish on oncology,” says Kausche, who’s spoken about this particular market niche with experts ranging from veterinarians to Wall Street analysts. Once treatments come to market with the capability to extend pets’ lives with limited side effects, pet owners will be willing to invest, he predicts.
Currently, oncology brings with it a number of challenges for pet owners, including cancers of diverse origin and pathology, high cost, managing adverse treatment effects, and limited positive outcomes, Kausche says.
“My hope is that what we see in human health—the new modern biopharmaceutical therapies coming onto the market that change the trajectory of the disease, that can lead to remission, that can lead to months if not years of lifetime extension with somewhat limited side effects—I think once we hit that, oncology is going to be really important,” he says. “It’s going to grow and add wealth.”
4. Startups will be successful if they have three essential qualities.
According to Kausche, a startup must possess three critical qualities. First, the technology itself is key. “The technology needs to be understandable and believable—safe, effective and you have to be able to manufacture at a cost point that will generate a market,” Kausche explains. It’s not enough for a product to be innovative; it must also be practical and financially viable.
Second is the human element. “You need to have people in the company who act with integrity,” Kausche says, adding that the team’s chemistry and commitment to animal health’s distinctive challenges are also key.
Last, Kausche points out the need for a clear strategic vision, particularly an end game. “I believe companies need to have a path to exit,” he notes. This can include selling to a larger corporation, launching an initial public offering, or marketing the product independently.
Kausche warns that without a combination of these elements—technology, team and an exit strategy—the long-term success of a startup is questionable. “If you don’t have all three, I don’t think that’s a good recipe for success in the long run,” he states.
5. The pet health market will need a continuum of care.
The future of pet health is inclusive, Kausche believes. He foresees a market that caters to both ends of the spectrum: high-end gold standard care and affordable, practical options.
Kausche expects the industry to mirror human healthcare, where today’s gold standard treatments become more accessible over time due to technological advancements and economies of scale.
At the same time, he emphasizes the importance of affordable care, stating, “We will always need products that can treat the average dog where the owner doesn’t want to spend the type of money that is needed for super-high-level care.” This recognizes the economic diversity of pet owners and the necessity for a range of care options.
“There’s always going to be space for a COX-2 inhibitor, even when you have an anti-NGF monoclonal antibody for chronic pain,” he notes.
Embracing the unpredictable
Of course, if history has taught us anything, it’s to expect the unexpected. As Kausche knows, predicting the future in animal health is tricky business. “I always predicted that there would never be an oral flea and tick product—man was I wrong,” he says. As the industry looks to 2024 and coming years, we can remember to stay open-minded and ready for whatever comes next.
Kristi Fender is associate director of content and PR for S&A. This article is based on Dr. Kausche’s remarks presented during the 2023 Animal Health Summit in Kansas City.