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1、Equity ResearchAmericas | United StatesResearch AnalystsErin Wilson Wright212 538 4080erin.wrightcredit-Katie Tryhane212 325 2713katie.tryhanecredit-Haley Christofides212 325 3720haley.christofidescredit-Credit SuisseAnimal T racksSurvey Says: 1Q Vet Demand Purrs; Continuing Optimism into 21; Highli
2、ght ZTS Innovation; AVefs Perspective on ELAN SerestoLife Science Tools and Diagnostics | Channel CheckAccelerating growth in 1Q veterinary practice volume, revenue: According to our proprietary survey of 75 US companion animal veterinarians, 82% of practices experienced positive volume growth in IQ
3、. (vs. 79% in 4Q), increasing +2.8% on a weighted avg. basis, reflecting an impressive acceleration relative to the previous quarters robust experience (+2.2%), indicating healthy underlying demand trends. Meanwhile, practice revenues increased 2.7% on a weighted avg. basis (vs. +2.3% in 4Q), driven
4、 by all-important new patient visits, acute care, and diagnostic testing. Sentiment from respondents was even more optimistic on demand trends for the next 12 months, with 96% expecting positive growth in patient traffic, the highest percentage in our surveys history, an encouraging dynamic. All in,
5、 the survey results suggest that veterinarians were largely successful in their ability to operate under modified conditions (70% curbside pickup-only), reinforcing our confidence in the resilience of the Animal Health sector with stepped up drivers in an expanded pet population (+5.7% growth in pet
6、-owning households in 2020, according to CHWY).ZTSVets Highlight Innovative Portfolio： Over half (63%) of respondents selected Zoetis (ZTS, Outperform) as the best positioned in Animal Health, noting its comprehensive, innovative portfolio. Responses regarding blockbuster Simparica Trio (launched Ap
7、ril 2020) were encouraging, with the majority (68%) already prescribing (48%) or planning to prescribe (20%) the product, and where vets highlighted Trio as the most impactful new product to practice revenues in the past year. Feedback on its atopic dermatitis portfolio was incrementally positive, w
8、ith 47% expecting to prescribe more Apoquel in 2021 (vs. 2020), and the advantages of Cytopoint are increasingly resonating, suggesting upside to our underlying 2021 est. The majority expressed willingness to prescribe ZTSs upcoming monoclonal antibody candidates to treat feline pain (77%) and canin
9、e pain (57%), underscoring the underlying need for the products (est. US 2022), as well as continued traction for ZTSs new innovative products.ELANA Vets View on Seresto: Focus for investors has been on ELANs Seresto following headlines scrutinizing the safety of the leading flea/tick collar ($400M
10、in 20 sales, 9% of total) Seresto Update. While the majority of Seresto collars are not sold through the veterinary channel (est. 70-80% through retail), according to our survey, 53% of our vet cohort dispense/recommend Seresto, an impressive number for an OTC product. Encouragingly, of the 40 vets
11、who recommend the collar, only eight have observed an adverse reaction attributable to the product, largely citing mild skin irritation. However, the vast majority (80%) of our cohort was aware of the recent headlines with 40% acknowledging the news flow will have a meaningful impact on consumer dem
12、and for the product. Of note, based on our recent conversations with CHWY, customers have already been shifting to topical parasiticides (from collars) which could represent a partially offsetting factor. While we maintain our positive bias on ELAN and our survey raised no new concerns, Seresto does
13、 represent an incremental risk factor while underscoring the inherent vulnerability of ELANs more consumer-driven (vs. Vet) OTC portfolio with the Bayer transaction. Wed also note that Seresto will face a tough comp in the first half of 2021 following a COVID-related sales bolus in 1H20.DISCLOSURE A
14、PPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS,communications platforms, improving patient adherence, expanding pet ownership, innovative clinical technologies, and sophisticated therapeutics.1Q Practice volume & revenues: DemandTurning to our survey work,
15、82% of respondents experienced positive growth in patient visits in 1Q21 (vs. 79% in 4Q20, 80% in 3Q20, and 71% in 2Q20) with total traffic increasing 2.8% on a weighted average basis, an encouraging acceleration relative to the previous quarters still robust increase of +2.2%, indicative of healthy
16、 underlying demand trends. Approximately 41% of respondents reported +5% or more growth in patient volume over the past three months, well above our historical average of 23%. Additionally, only 12% of respondents reported declines in patient visits in 1Q.21, a slight acceleration relative to the 4Q
17、 experience (8%), albeit below our historical avg. of 14%.Figure 2: Quarterly veterinary clinic visits (yoy growth) - Respondent distributionSource: Company data, Credit Suisse, N=73Figure 3: Quarterly clinic patient vcMume growthSource: Company data, Credit Suisse, N=73Source: Company data, Credit
18、Suisse, N=71Practice revenues were in-line with overall traffic, increasing +2.7% on a weighted average basis (vs. +2.3% in 4Q, +3.0% in 3Q, and +1.6% in 2Q), also suggesting healthy underlying trends. Encouragingly, only three vets reported revenue declines of 5% or greater (in line with our histor
19、ical average), and 11% of respondents reported declines, below our historical average of 13%.Importantly, we note that practice revenues were driven by new patient traffic (+2.6%), acute care visits (+2.0%), diagnostic testing volumes (+1.9%), wellness visits (+1.7%), pricing (+1.4%), discretionary
20、procedure volumes (+1.2%), and existing patient traffic (+1.2%). Of note, pricing has had an average impact of +1.3% on practice revenues in the past 12 months, a dynamic that has seemingly been unaffected by COVID-19, consistent with industry commentary that has alluded to sustained price capture f
21、rom both pharmaceutical and diagnostics companies.Figure 6: Pricing impact on practice revenue growth- sustained price captureFigure 5: Factors impacting practice revenuesNew patient traffic, acute care, diagnostics remain prominent drivers1.8%1.6% -1.4% -1.2% -1.0% -0.8% -0.6% -0.4% -0.2%0.0% l-cct
22、- OCMO 寸 。臂 oCMoa 08- 6 g 6 Loco 683 68L 8 g 83CO w 88L ZG ZLOCO9 g 988 98L InGSource: Company data, Credit Suisse, N=75Source: Company data, Credit Suisse, N=75COVID-19 Impact and Response in 1QWe are encouraged by the robust increases in patient traffic and practice revenue across our cohort in IQ
23、 as well as the limited reports of patient traffic/practice revenue declines, indicating healthy, heightened demand for veterinary services following COVID-related lockdowns. The veterinary industry recovery has been impressive over the past several quarters, emphasizing the resilience of the animal
24、 health sector and demonstrating the flexibility of veterinarians to adapt to measures such as curbside pick-up and drop-off.However, with the pandemic ongoing, we asked our cohort about the impact of COVID-19 on their practices in IQ. Similar to past recessionary environments when routine veterinar
25、y visits were slightly slower to recover than other visit types, veterinarians reported that annual exams (20%) were most significantly impacted by COVID, with diagnostics (19%) and surgeries (19%) also facing headwinds. We note that pharmaceutical sales (eight respondents) and vaccinations (six res
26、pondents) were less impacted by COVID-19, an encouraging dynamic for relevant companion animal manufacturers.Figure 7: Categories of Practice Revenues Most Impacted by C0VID19Source: Company data, Credit Suisse, N=75In light of initial COVID impacts on visit traffic and practice revenues, many veter
27、inarians have implemented telemedicine/remote visits and curbside pickup/drop-off procedures to retain visits that may have otherwise been lost due to social distancing protocols. 37% of respondents have implemented telemedicine/ remote visits in response to the pandemic, and a majority (67%) are cu
28、rrently operating under a curbside pickup-only model (vs. 80% in 4Q), with an additional 19% of practices operating under a hybrid curbside pickup and in-person visit model.We highlight that veterinarians continued to be successful in their responses to social distancing mandates in IQ, as only one
29、veterinarian in our survey was closed in January, February, and March (vs. no veterinarians in 4Q). With the vast majority of respondents operating under curbside access throughout the quarter, we view the average increases in patient visits (+2.8%) and revenues (+2.7%) as positive indicators of pra
30、ctices ability to operate under modified conditions.Figure 8: Has your practice implemented telemedicine or other types of remote visits in response to COVID19?Figure 9: Has your practice implemented curbside pickup orother social distancing measures in response to COVID19?No but planNo, 57%Curbside
31、Only, 67%Previously curbside, but now open for in- person visits, 7%Always fully open for in- person visits, 8%Hybridcurbside/in-person visits,19%Source: Company data, Credit Suisse estimates, N=75Source: Company data, Credit Suisse estimates, N=75Figure 10: What best describes your response to COVI
32、D-19 for each month?%84%87%80%8084%83%81%80%72%71% /13%CurbsideOnly, 72%o%7%8%3%2%16%9%2%3%5%13%7%Fully openfor in-personvisits, 19%Other, 8%1 Closed, 1%&ds。$0300另。aCurbside OnlyFully open for in-person visitsOther ClosedSource: Company data, Credit Suisse, N=75In terms of other COVID impacts, we no
33、te that less than half (40%) of veterinarians have experienced supply shortages in the past quarter, with 17 veterinarians citing shortages of personal protective equipment (PPE), including masks, gowns, gloves, and cleaning supplies such as rubbing alcohol, and with 13 veterinarians noting shortage
34、s/backorders of pharmaceuticals/ prescription diets.Seasonal factors - Slight negative impact notedHeightened veterinary demand and clinic traffic typically coincide with the onset of the flea and tick season, which occurs during the warmer spring and summer months. An earlier or later onset of mild
35、er weather trends can expedite or delay the season and at times cause extreme volatility in veterinary office visits. While we typically view weather as a relatively misguided explanation for fluctuations in earnings trends for companies, there is a seemingly strong correlation between the flea and
36、tick season, weather, and annual veterinary office visits.In terms of weather, on a weighted average basis, respondents noted a slight negative impact in IQ, vs. a flat impact in 4Q and 3Q, and a +0.1% impact in 2Q, with 9% of respondents reporting a decline in practice volumes due to inclement weat
37、her conditions (vs. 1% in 4Q, 5% in 3Q, and 4% in 2Q). Despite extreme weather conditions in geographies such as Texas in the quarter, this percentage remains well below prior years (25% in 1Q20 and 19% in 1Q19).Figure 11: Impact of weather on practice volumes0.6%专。6 6ERE p E6OM。一。Source: Company da
38、ta, Credit Suisse, N=74NTM and 1Q outlookSentiment from respondents was highly optimistic on demand trends for the next 12 months, with 96% of veterinarians expecting positive growth in patient traffic, above the robust 81% experience reported in 4Q and representing the highest percentage in our sur
39、veys history. Meanwhile, only one veterinarian in our survey expects declines in patient visits, vs. 7% in 4Q, 7% in 3Q, and 8% in 2Q. On a weighted average basis, respondents expect patient visits to increase +2.6% over the next 12 months, which compares to +1.7% in 4Q, +2.2% in 3Q, and +2.0% in 2Q
40、.96% of respondents optimistic in 2021 1Q20 2Q20 3Q20 4Q20 B1021Figure 12: Clinic traffic outlook NTM - Respondent distributionSource: Company data, Credit Suisse, N=75Figure 13: Clinic traffic NTM outlook on a weighted average basisTech oeo寸 OCMOCO oCMoe 08- 6 g 6 g 6 Ge 63L 8 g 8 g 83L zg Z8CO ZLO
41、e ZLOL 9 g 9 g 9L0L SLO寸Source: Company data, Credit Suisse, N=75Veterinarians are even more optimistic on practice revenues, expecting a weighted average increase of +3.0% over the next 12 months, compared to +1.7% in 4Q, +2.5% in 3Q, and +1.9% in 2Q. Approximately 96% of respondents expect positiv
42、e growth in practice revenues in the NTM, an impressive acceleration from the 90% recorded in 4Q (historical average: 87%), with only one respondent expecting declines in practice revenues (in-line with 4Q), below our historical average of 7%, suggesting abating pessimism on the impact of COVID-19.F
43、igure 15: Practice revenue NTM outlook on a weighted average basisFigure 14: Practice revenue outlook NTM - Respondent distribution96% of respondents optimistic in 2021 1Q20 -2Q20 3Q20 4Q20 1Q21Source: Company data, Credit Suisse, N=683巧 3.0% 22.5% -2.0% -1.5% -1.0% -0.5% -0.0% -0.5% -1.0% -2Q18 1Q1
44、8 4Q17 3Q17 2Q171Q17 4Q16 3Q 1 62Q16 IQ 1 64Q183Q183Q 1 92Q191Q19Source: Company data, Credit Suisse, N=683.0%-Q21 4Q20 3Q2。 2Q2。 1Q20 4Q19Veterinary sentiment about the upcoming quarter (April, May, June) in terms of both patient visits and practice revenues is relatively in-line with their expecta
45、tions for the next 12 months in total. In terms of demand trends for the next three months, 91% of veterinarians expect increases in patient traffic (vs. 79% in 4Q), while only 1% of veterinarians in our survey expect declines in patient visits (vs. 4% in 4Q). On a weighted average basis, respondent
46、s expect patient visits to increase +2.8% over the next three months. Veterinarians are even more optimistic regarding practice revenues, expecting a weighted average increase of +3.1% over the next three months, with 92% of respondents expecting an increase vs. only 1% expecting a decline in revenu
47、es. While the duration of the COVID pandemic remains unknown, these results indicate that veterinarians expect that the worst of the COVID-19 impact has passed.Figure 16: 2Q Patient traffic outlook - Respondent distribution: +2.8% weighted average increasemoremoreFigure 17: 2Q Practice revenue outlo
48、ok - Respondent distribution: +3.1% weighted average increasemoreSource: Company data, Credit Suisse, N=72Source: Company data, Credit Suisse, N=71Analysis of veterinary practice revenue streamsOur survey data shows that veterinary practices expect to generate the greatest percentage of revenue from annual exams (19%)