1、 Animal Tracks Chew on This:1Q Veterinary Survey;Initial COVID-19 Impact;Sustained Confidence in ZTS and CHWY Life Science Tools and Diagnostics|Channel Check Initial COVID-19 pandemic impact on 1Q Vet practice volume,revenue:According to our proprietary survey of 75 US companion animal veterinarian
2、s,47%of practices experienced positive volume growth in 1Q,declining-0.1%on a weighted avg.basis,the first quarter in our surveys history in which patient traffic was negative on a weighted avg.basis,attributable to social distancing protocols at vets and calls from veterinary industry organizations
3、 to delay routine and elective procedures in response to COVID-19 pandemic.Practice revenues fared slightly better than overall traffic,increasing 0.1%on a weighted avg.basis in 1Q,with sustained strength in acute visits/ER helping to offset declines in routine procedures.For 2Q,vets are calling for
4、 a more pronounced(-2.4%weighted avg.)decline in practice volume,as expected,but respondents expect the COVID impact to be concentrated in the coming months,with the majority(73%)expecting postponed visits to occur within the next three months.More broadly,we reiterate the resiliency of the Animal H
5、ealth sector,which rebounded relatively rapidly in prior recessionary periods.ZTSLeading the Animal Kingdom:The majority(59%)of respondents selected Zoetis(ZTS,Outperform)as the best positioned in Animal Health,noting its high-impact and comprehensive portfolio.Responses regarding its blockbuster Si
6、mparica Trio(est.mid-April launch)were encouraging,with over half(51%)likely to prescribe the parasiticide over current offerings,and the vast majority(60%)viewing the launch as in time for the 2020 flea/tick season.Feedback on its atopic dermatitis portfolio was incrementally positive,with 55%expec
7、ting to prescribe more Apoquel in 2020(vs.2019),and the advantages of Cytopoint are increasingly resonating with overwhelmingly constructive feedback,suggesting upside to our 2020 estimate of$227 million,+10%($802 total atopic derm).The vast majority(73%)of respondents expressed willingness to presc
8、ribe ZTSs upcoming monoclonal antibody candidate to treat feline pain(est.2021 launch),underscoring the dire need for the product.While our recent conversations with the company and latest survey work have been encouraging,we acknowledge near term headwinds in veterinary office visits.Consequently,w
9、e are reducing our 2020 EPS estimate to$3.65(from$4.00),reflecting operational revenue growth of+3.5%for 2020 and-2.7%for 2Q with,importantly more normalized underlying trends into 2021.14 April 2020 Equity Research Americas|United States DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPOR
10、TANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could af
11、fect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.Research Analysts Erin Wilson Wright 212 538 4080 erin.wrightcredit- Katie Tryhane 212 325 2713 katie.tryhanecredit- Haley Christofides 212 325 3720 haley.christofide
12、scredit- Matthew Urbik 212 325 2152 matthew.urbikcredit- 14 April 2020 Animal Tracks 2 DognosticsIDXX remains clear leader:While optimism over near-term diagnostic testing was more subdued amidst COVID-19 pandemic,with 48%of vets expecting testing volume to rise over NTM(hist.avg:81%),we maintain ou
13、r conviction in long-term growth prospects for IDEXX Laboratories(IDXX,Outperform),amidst continued lackluster traction for competitors offerings,where IDXX holds majority(53%)share in equipment and 51%share in reference labs based on our cohort,and where we view ZTS/ABAXIS integration efforts and r
14、eference lab adoption remain in early stages.While there are still several variables and the COVID-19 situation remains fluid,we are lowering our 2020 EPS to$5.33(from$5.51),reflecting more muted organic topline growth of+7.3%in 2020(from+9.8%).Our target price moves to$300(from$308)on the lower vie
15、w.CHWYs rise continuesheightened channel shifts:A whopping 89%and 83%view Chewy(CHWY,Outperform)is gaining share in the OTC market and the pet Rx market,respectively,suggesting building traction for CHWYs newer pharmacy offerings.Utilization of e-prescription management platforms remains in its nasc
16、ent stages,as(49%)of respondents use either Vets First Choice(Covetrus/VFC,20%)or Vetsource(29%)for e-prescription management,but sales generated from online platforms represent only 4.7%of practice revenue,and ad hoc commentary continues to indicate that the platforms fail to compete with CHWYs pri
17、cing and customer mindshare.Importantly,40%of respondents expressed willingness to partner with CHWY instead of VFC/Vetsource if the economics were favorable(vs.29%in 4Q).While vet commentary on CHWY remains naturally contentious,our view is that it is steadily gaining share in the prescription spac
18、e,particularly as manufacturers sell directly to e-commerce channels and as COVID accelerates shifts to online channels.Of note,we will be hosting virtual meetings with CHWY management on Thursday.Please let us know if you would like a follow up call.14 April 2020 Animal Tracks 3 Table of Contents V
19、eterinary survey takeaways 4 1Q Survey Executive Summary by Company.4 State of the Industry 8 1Q Patient volume&practice revenues:Initial COVID-19 impact.9 Seasonal factors Slight negative impact noted 12 NTM and 2Q outlook.13 Animal health supply chain.16 E-Commerce Platforms.17 Chewy takes a bite
20、of the Rx market 24 Practice management software 25 Amazon,negligible presence to date.26 Dognostics dynamics.26 Diagnostic testing momentum impacted by COVID-19 26 Diagnostic equipment share analysis:IDEXX remains clear leader 27 Factors influencing point-of-care equipment purchases 29 Diagnostic e
21、quipment shifts minimal 30 Innovation Tracker:Initial Feedback for IDXXs Digital Cytology Offering 32 Reference laboratory dynamics:A duopolistic market,limited share shift,with minimal ZTS traction yet,as expected 33 Reference laboratory innovation 35 Animal Pharm:A look at Animal Health therapeuti
22、cs.36 Fleas and Ticks:A look at Simparica(ZTS)and Credelio(ELAN)37 Assessing veterinarians appetite for a triple combination parasiticide 38 Apoquel A notable driver in veterinary medicine(Zoetis)39 Cytopoint(Zoetis):Cited as the most impactful new product 41 Addressing feline pain:Overwhelming dema
23、nd for a feline chronic pain product41 Galliprant(Aratana Therapeutics,PETX):Demand Steady 43 Entyce:Solid trajectory for appetite stimulant 44 Generics.45 Relevant detailed commentary.47 Zoetis 60 IDEXX Laboratories 62 14 April 2020 Animal Tracks 4 Veterinary survey takeaways We commissioned a surv
24、ey of 75 practicing veterinarians dispersed across 24 states in the U.S.,with the highest number of responses in Texas(9),New York(7),Colorado(6),Florida(5),and California(5).Respondents were exclusively small/companion animal veterinarians with an average tenure of 18.1 years,only slightly lower th
25、an previous surveys(historical avg.=20.1 years).Of note,the vast majority of respondents were from independently-owned offices(76%)or from corporate chains of over 100 hospitals(16%),a breakdown we will monitor as consolidation plays a greater role in the industry.1Q Survey Executive Summary by Comp
26、any Zoetis(ZTS,Outperform)Top pick in Animal Health:Despite near term COVID-related headwinds to veterinary traffic,we note that no respondents cited pharmaceutical sales as a revenue category experiencing significant headwinds,with channel shifts to online growing rapidly,helping to support prescri
27、ption sales.All in,the survey results continue to bode well for ZTSs US companion animal business(32%of sales)longer term,where the majority(59%)of vets selected ZTS as the best positioned animal health company.That said,focus will be on 2Q and beyond,amid COVID disruption,where we anticipate social
28、 distancing protocols to inevitably negatively impact veterinary office visits,as depicted in our survey.Consequently,we are reducing our 2020 EPS estimate to$3.65(from$4.00),reflecting operational revenue growth of+3.5%for 2020 and-2.7%for 2Q with more normalized trends into 2021.We recently caught
29、 up with ZTS amidst ongoing stock volatility and COVID-19 inquiries from investors.While certain elective and wellness companion animal procedures will inevitably be postponed,according to the AVMA and the government,veterinary medicine/animal health products are considered essential in nature.Many
30、veterinarians are adapting to new social distancing protocols with many allowing curbside drop-off of pets and pick-up of medications along with greater utilization of alternative online channels,mitigating some of the disruption.ZTSs field sales force has been working from home since mid-march,but
31、we expect this dynamic to create limited disruption,unless prolonged for several months.As for Simparica Trio,it continues to view awareness of the product as strong and will likely see stocking from distributors NT.In our survey,veterinarians were optimistic on the potential blockbuster Simparica T
32、rio,its upcoming flea/tick/heartworm combination product that received FDA approval in February and is expected to begin shipping in the US mid-April.Importantly,60%of vets view the product launch is in time for the all-important 2020 flea and tick season.According to our survey,51%(vs.49%in 4Q)of r
33、espondents noted they would be inclined to prescribe the product(assuming it is safe and effective).See our analysis of the broader flea/tick/heartworm market in our note(Animal Tracks:Triple Check).Importantly,livestock is relatively more insulated as more of a consumer staple,representing 48%of to
34、tal revenue at ZTS,underscoring the advantages of ZTSs diversified portfolio.From a supply chain perspective,ZTS noted limited disruption(business as usual)with ample supply on hand.Our survey revealed continued broad-based enthusiasm for Cytopoint,with 17%of respondents ranking the monoclonal antib
35、ody as one of the most impactful products to practice sales currently,more than any other product in our survey,with the top four products cited stemming from ZTS.Cytopoint sales rose 60%in 2019,to$206 million,and we forecast a 10%rise in 2020,to$227 million,with growth of+22%internationally and+7%i
36、n the US,where we may be conservative,given the overwhelmingly positive feedback in the survey.A vast majority of respondents(73%vs.71%in 4Q)expressed willingness to prescribe ZTSs upcoming monoclonal antibody candidate to treat feline pain,cited as the most critical unmet need in animal health,whic
37、h ZTS recently filed for approval and expects to launch in 2021.Even more respondents(81%)view there is a meaningful opportunity to 14 April 2020 Animal Tracks 5 use this product to treat chronic feline pain,indicating a vast and severely underpenetrated market opportunity for ZTS to capture should
38、this product be approved.In Dognostics,while ABAXIS integration from 2018-2019 was slightly slower than initially expected,ZTS now has an integrated field force(fully staffed internationally)and is better positioned to more seamlessly bundle ZTS therapeutics with the legacy ABAXIS portfolio with opp
39、ortunities to expand internationally and into livestock longer term.Additionally,the addition of several domestic reference labs(ZNLabs,Phoenix Central Lab,and Ethos Diagnostic Science)should create further cross-selling opportunities,which we view should offer substantial opportunities for future g
40、rowth,leveraging its extensive sales footprint,consistent with commentary from our survey.While ZTS remains in the early stages of its expansion into diagnostics services and equipment,we highlight 44%of respondents expect ZTS to eventually be successful in bundling therapeutics with diagnostics,and
41、 16%either use ZTS(1%)or express willingness to switch(15%)to ZTS as their primary reference lab provider.IDEXX Laboratories(IDXX,Outperform):While COVID-19 will have an impact on routine diagnostic testing volumes,with only 48%of respondents expecting diagnostic testing to rise over the NTM(vs.87%i
42、n 4Q),we remain encouraged by the clear leadership of IDEXX,sustained rapid testing volumes,and enthusiasm for new offerings in our survey,helping to strengthen our conviction in IDEXXs longer term growth prospects as its direct sales effort matures and expands with compelling advantages in a compre
43、hensive test/instrument/service portfolio,innovative product launches(i.e.Digital Cytology),cohesive IT systems,and an expanding global presence.In terms of equipment share shifts,ZTS/ABAXIS and IDEXX were even,with one respondent noting they switched from IDEXX to ABAXIS in the last 6 months and on
44、e noting they switched from ABAXIS to IDEXX in the last 12 months,and our results emphasize the stickiness of diagnostic relationships,as 80%of respondents do not expect to switch vendors over the next 12 months.We highlight that only seven respondents reported using VetScan SA,ABAXIS/ZTSs urine sed
45、iment analyzer launched in March 2018,13 respondents reported using ABAXISs FLEX4 rapid test(vs.16 in 4Q),and only two respondents cited ZTS as their primary reference lab provider,emphasizing IDEXXs still compelling competitive positioning.While there are still several variables and the COVID-19 si
46、tuation remains fluid,we are lowering our 2020 EPS to$5.33(from$5.51),reflecting more muted topline organic growth+7.3%in 2020(from+9.8%),largely on COVID headwinds.Our target price moves to$300(from$308)on the lower view.Distributors Covetrus(CVET,Neutral),AmerisourceBergens MWI(ABC,Outperform),Pat
47、terson Companies(PDCO,Outperform):While 27%of respondents cite CVET as their primary distributor,second only to ABCs MWI(41%),we note that the company has faced significant challenges since its February 8th,2019 spin related to customer losses,distribution disruption,incremental IT costs,and recurri
48、ng expenses related to exiting TSAs.Until recently,the core supply chain business,representing 95%of revenue and 100%of EBITDA,largely remained out of focus,with the majority of management commentary around Vets First Choice and value-add services(see note Tempering Estimates).However,management,wit
49、h now a permanent CEO appointment,is seemingly committed to driving greater focus and accountability across the business,dynamics we will monitor through 2020.Going into 1Q,we note that all distributors,CVET included,will likely face inevitable headwinds to in-clinic prescription volumes related to
50、lower veterinary utilization amidst COVID-19.In terms of e-Rx platforms,in our survey,49%of veterinarians use either VFC(20%)or Vetsource(29%),vs.33%and 22%,respectively in 4Q.Utilization thereon remains relatively low in its early days(representing 5.1%of practice revenue for VFC users and 4.4%for
