2
Animal Health Competitive Landscape
The Animal Health sector is an attractive, unconventional healthcare niche, with much of the inherent resiliency and less
discretionary characteristics of human health care while unchained to associated risks such as third party payors, health care
reform, generic threats, and development inefficiencies. Fundamentals in terms of demand, pricing, and the utilization of
medicines, vaccines, and diagnostics are improving, supporting increasing revenue and earnings growth assumptions.
Source: Company data, Credit Suisse estimates, Thomson Reuters
CSPriceUpside /7/20/18MarketAvg VolRevenue (CY)Avg (5yr)EPS (CY)Avg (5yr)EBITDA (CY)Avg (5yr)P/Sales (CY) P/E (CY) EV/EBITDA (CY) Dividend
TickerRatingTargetDownsidePriceCap(000's)20182019Growth20182019Growth20182019Growth201820192018201920182019Yield
Products
ZoetisZTSOutperform$918%$84.13$40,6742,537$5,753$6,1224%$3.10$3.5014%$2,259$2,50812%7.1x6.6x27.1x24.0x19.5x17.5x0.6%
IDEXX LaboratoriesIDXXOutperform$235-5%$246.22$21,807446$2,227$2,4969%$4.16$4.8518%$578$65211%9.8x8.7x59.2x50.7x39.1x34.7x-
Phibro Animal HealthPAHCNeutral$42-13%$48.25$1,95299$831$8724%$1.79$1.9834%$132$14510%2.4x2.2x26.9x24.4x16.6x15.1x0.9%
AbaxisABAXNeutral$830%$83.19$1,894315$275$2967%$1.57$1.7515%$54$6012%6.9x6.4x52.8x47.5x34.0x30.6x-
Genus PLCGNS29.441,8011064875127%0.760.829%72787%3.7x3.5x38.7x36.1x26.4x24.4x0.9%
NeogenNEOG$82.12$4,249201$425$46614%$1.21$1.3214%$94$10613%10.0x9.1x67.6x62.3x42.9x38.1x-
Dechra PharmaceuticalsDPH29.582,75620543548420%0.830.9618%12114320%6.3x5.7x35.8x30.9x23.6x20.0x0.8%
Virbac SAVIRB€ 121.20€ 1,0219€ 883€ 9224%€ 4.11€ 5.2614%€ 118€ 133-4%1.2x1.1x29.5x23.0x12.5x11.1x0.7%
Vetoquinol SAVETO€ 51.60€ 6123€ 359€ 3704%€ 2.77€ 2.976%€ 57€ 615%1.7x1.7x18.6x17.4x9.0x8.4x1.0%
HeskaHSKA$108.45$79264$139$15514%$1.66$2.03174%$21$26-5.7x5.1x65.4x53.4x37.2x29.8x-
Average9%31%10%5.5x5.0x42.2x37.0x26.1x23.0x
Distributors, Services & Retail
Patterson CompaniesPDCOOutperform$3545%$24.10$2,2262,207$5,475$5,6609%$1.57$1.920%$288$3282%0.4x0.4x15.3x12.6x11.5x10.0x4.6%
Henry ScheinHSICNeutral$76-1%$76.54$11,6341,492$13,350$9,8477%$4.09$3.4810%$1,142$9267%0.9x1.2x18.7x22.0x11.5x14.2x-
Petmed ExpressPETSUnderperform$27-22%$34.72$708635$289$3014%$2.08$2.2619%$57$615%2.5x2.4x16.7x15.4x10.9x10.3x2.8%
PetIQPETQ$27.03$581398$481$568$0.80$1.00$43$531.2x1.0x33.6x27.0x16.4x13.3x-
Average7%10%5%1.2x1.2x21.1x19.2x12.6x12.0x
Pet-Biotech / Other
Aratana TherapeuticsPETXOutperform$879%$4.47$200305$36$47--$0.49-$0.17--$18-$4-5.6x4.3x-----
Kindred BiosciencesKIN$13.25$373187$2$27--$1.56-$1.30--$40-$27-168.8x14.0x-----
TrupanionTRUP$45.80$1,380312$299$357--$0.10$0.07-$5$12-4.6x3.9x-634.2x250.2x108.2x-
Average---59.7x7.4x-634.2x250.2x108.2x
Large-Cap Pharmaceuticals
Merck & CoMRK$62.61$168,8219,879$42,049$43,241-2%$4.23$4.553%$15,506$16,381-6%4.0x3.9x14.8x13.8x11.9x11.3x3.1%
Bayer AGBAYGn€ 92.42€ 77,6623,199€ 39,201€ 47,579-2%€ 6.29€ 7.997%€ 10,228€ 13,3584%2.0x1.6x14.7x11.6x7.7x5.9x3.0%
Eli Lilly and CoLLY$88.95$97,8463,645$23,994$24,4870%$5.15$5.564%$7,661$8,1771%4.1x4.0x17.3x16.0x13.7x12.8x2.6%
Perrigo Company PLCPRGO$76.27$10,7391,238$5,023$5,171-$5.24$5.63-$1,144$1,200-2.1x2.1x14.6x13.5x11.7x11.2x1.0%
Average-1%5%0%3.1x2.9x15.3x13.7x11.3x10.3x
Total Average6%22%7%11.9x4.2x31.5x59.8x31.9x22.5x
($ in millions except/share)Global Animal Health Market ($150 billion+)
Global Animal Health Medicines and Vaccines Market Size: $32 billion
42% Companion animal (dogs, cats, horses); 58% production animal (livestock)
Industry growth: 5-6%+ annually
Attractive alternative investment in healthcare
Relative safe haven in health care: The animal health industry is largely unchained to concerns over health
care reform, reimbursement risks, brand to generic conversion risk, and the costs and complications
associated with human drug development.
Robust fundamentals: Multiple data points suggest sustained strength in companion animal demand,
including continued rising pet adoption and pet prescription trends, along with strong organic growth for
industry constituents. Production animal dynamics are also favorable with longer term drivers in rising
demand for more efficient sources of protein.
Est. global animal health products and services mix Top global animal health pharmaceutical companies (2017 revenues in $B)
Medicines &
Vaccines
22%
Pet Supplies,
Services
25%
Veterinary
services
18%
Other
Healthcare
35%
Sources: Vetnosis, Zoetis, Company data, Thomson Reuters, Credit Suisse estimates
$5.3
$4.4
$3.9
$3.1
$1.8
$1.2$1.0
$0.5$0.4
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
Zoet
is
Boeh
ringe
r*
Merc
k
Elan
coBayerCevaVirbacPhibro
Veto
quino
lAnimal Health: Man vs. Wild
Several key differences between the animal and human health care industries enhance the allure of
investment opportunities in the animal health sector:
Human vs. animal health project lifecycles
Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10Year 11Year 12Year 13+
Animal pK
IND Filing
Phase I
Field TrialsPhase II
Field Trials
Final Formulation
Phase III
Human Clinical Studies
$6-$15 MILION IN DEVELOPMENT PER PROGRAM
Proof of Concept in
Dogs /Cats
API, Formulation
Development
pK in Dogs/Cats
Selection of Lead
Dose Selection
Probe Safety in
Dogs/Cats
Chemistry Optimization
Animal Toxicology
Final Formulation
HU
MA
N
AN
IM
AL
(N
CE
, N
BE
)
Proof of concept in lab animals
SAR Chemistry, Selection of lead
In vitro
Toxicology
NADA
Research (2-3.5yrs)
Development (3.7-5 yrs)
Approval (1-1.5yrs)
Phase I, II, III (6-7 yrs)Approval (0.5-2Yrs)
EU
Approval
NDA
Sources: Aratana Therapeutics, Company data, Credit Suisse estimates
R&D operations are faster, less costly, and more
predictable, with more sustainable product pipelines
Limited generic threat
No third party payers
No direct reimbursement risk
Human HealthAnimal Health
Trial processMultiple species stepsDirect to species
Approval hurdleBeat a standard of careBeat a placebo
Generics impactSteep declineSlow, modest decline
Buyer accessComplex and indirectAccessible and direct
Pay economicsPayers IntermediatePrivate pay
Development costs~$1.3 billion$6-15 million
Time to market10+ years<5 years
Risk of market adoptionVery HighLower