Inside innovation: How to make strides in animal health
Earlier this month, a joint webinar from Animal Pharm and Kisaco Research canvassed the opinions of three key industry experts regarding the state of innovation in animal health. Animal Pharm editor Joseph Harvey spoke to Nesya Goris of ViroVet, Theo Kanellos from Zoetis and George Gunn from Stonehaven Consulting. Below is a transcript of the webinar.
Joseph Harvey: As with many industries, innovation is the pathway to growth, and of course, animal health is no different.
Over recent years there has been a lack of new chemical entities in the animal health market, with many companies relying on life-cycle management to boost their existing big brands, such as some of the big antiparasitics.
A full recording of this webinar with the accompanying slides is available here.
Many of the brands in animal health have been on the market for a very long time and a lot of them do battle with generic competition. However, in the last year or 18 months, the industry has seen some new blood in terms of novel products. Particularly, Zoetis and Aratana Therapeutics spring to mind. They've both commercialized some quite noticeable pet therapeutics that could become, or have become, major blockbusters.
Also, on the other side of the coin in the food animal industry, many firms are searching for antibiotic alternatives, and we think this is really resulting in some interesting R&D outside of the normal sphere of veterinary vaccines.
I'll start with the start-up, which is ViroVet. Nesya, you have an interesting perspective because you've worked at start-ups both in the companion animal and food animal industries. I just wondered if you could tell us, at what stage of the R&D process did you and your management team realize your product candidates were truly something novel?
Dr Nesya Goris: When we started the start-up company, usually we're backed by good science, but there's often not much development, or even preclinical development done.
So, although the science is usually very well-understood, it's really only after we've generated some very convincing preclinical safety and efficacy data that both the company and investors start believing in the product. By very convincing preclinical efficacy data, I mean data that shows significant differences between treated and control animals, with relatively small numbers of animals per arm.
Dr Nesya Goris
Dr Nesya Goris is the chief development officer and co-founder of ViroVet – a Belgian start-up working on vaccines and antiviral drugs in the livestock sector. She has experience working for several animal health start-ups such as Okapi Sciences and Aratana Therapeutics, and has a PhD in veterinary sciences from the University of Ghent.
Also, safety. For many of these products, there are new concepts. They're targeting either new indications or new mode-of-actions, safety is often an issue. So, de-risking that safety is something we try to do early on to make sure these compounds find their way to the market. So, once we've done that, what really makes it interesting, and when we really start believing that we have a nicely developable product in our hands, is when we get this external validation.
So, external validation from either investors, from other animal health companies, or going for scientific advice, which could also de-risk the development trajectory. All of that is really what is needed before we think that this idea, this concept, can actually turn into a profitable product.
Joseph Harvey: So, that was the point-of-view from a start-up, and then we can spin it completely and hear from Theo, who's at Zoetis – the industry's biggest company. One of the biggest stories for Zoetis in recent times is that it became a standalone entity, and Theo, I just wondered if you could talk about, since Zoetis spun out of Pfizer, how has it improved its innovation, and how has it improved its pipeline of products?
Dr Theo Kanellos: Since becoming Zoetis, we have continued to be the leader in several novel products, including new classes of drugs such as Apoquel, which is a leading dermatology product for dogs. Or, the introduction of very innovative technologies like Cytopoint, which is the first therapeutic monoclonal antibody for animal health.
Of course, we continue to develop new antiparasitics such as Simparica and novel vaccines. However, I want to emphasize that at Zoetis, we continue to focus on innovation and providing the technology in livestock produces with even better solutions. The first and major challenges they have to predict, prevent, detect and treat livestock and companion animals.
I believe this continuation from prediction, prevention, detection and treating of livestock and companion animals is linking more now. Therefore, at Zoetis, we have expanded our diverse portfolio from traditional medicines and vaccines into more complementary spaces for the production of genetic tests, diagnostics, digital innovations and data analytics. These are all areas of interest for our innovation at Zoetis.y
Finally, the future of animal health will depend on creating these many different solutions and technologies that allow the producers and veterinarians make early and accurate decisions, hopefully to prevent diseases but also to deliver targeted and effective treatment as needed. So, in other words, decisions in farming and individual medicine is where we'll see a lot of the opportunities.
Joseph Harvey: I think Zoetis mirrors a lot of what's happening in animal health. Theo said they are moving into complementary areas. You really have to say: 'What is the animal health market in 2017?' Is it just pharmaceuticals and vaccines, or actually, is it this much wider, expansive industry that is bleeding into diagnostics and data?
Calan Smith of Kisaco Research: I was just going to echo your point because through running the investment forum, we've started to see that. We initially had a lot of start-ups in animal health applying to showcase their products, and they were in that more traditional space. But as it's gone on – we've just closed the application process for our London event in 2018 – there are some amazing companies in there, in very surprising adjacent areas.
We're starting to see things in artificial intelligence, and in the microbiome, and in data collection, precision farming, monoclonal antibodies and all these really interesting spaces opening up.
Joseph Harvey: The next question goes to George, and having been at the head of a global player in animal health, it would be interesting to see into the decision process behind Novartis Animal Health, or a global player's innovation. So, what was more important when prioritizing novel products? Was it the candidates' potential revenues or was it the ability to undress an unmet need?
Dr George Gunn: I think it's probably both. The unmet need, going into a big market, is obviously the Holy Grail. It's quite a lot more complicated than that – many other factors. You have to make revenue, you can't make profit without revenue, so sales are, in the end, the important thing. It's about getting a return on your investment. Ultimately, you have to get that.
I always used to say that in R&D, probably 80% of the people are working for 80% of their time on stuff that doesn't get to the market, so you have to have the good ones be very good to pay for all the stuff that doesn't make it along the way.
There's many great technologies out there but if there's a limited market, you can't – it's pointless developing it. Of course, one complication is often the cost of goods, particularly in food animal. If, ultimately, when you make the product and the cost of goods is too high and that prevents you from making a profit, it's not worth doing. So, what you really want, I guess, is an unmet medical need – it's an opportunity to couple that with high commercial value.
You want good intellectual property, you want an opportunity to go into more than one species, if that is possible, and you want an opportunity to get more claims as time goes on. Often, it's very hard to meet all of these, so you compromise along the way and get products to the market that give you a reasonable return, rather than the Holy Grail that you're often looking for.
Joseph Harvey: I know Nesya mentioned investment just now and we've had an interesting question come through from a start-up company that is currently seeking investment. Seeing as ViroVet has received investment over the last year or two, Nesya do you have any advice for animal health start-ups that are currently raising money? There seems to be difficulty getting traction with traditional funding sources as an animal health company. So, Nesya, when you were looking for investment, was it hard to convince potential investors that your pipeline was novel?
Dr Nesya Goris: So what we've experienced is that investors are really looking for innovation. They want innovation.
Don’t ever give up. If a potential investor decides not to invest, you can always go back to them at a later time point when you're raising a series B.
On the other hand, that creates a certain level of tension because it comes with a certain level of uncertainty. Will the product be accepted on the market? What's the regulatory trajectory? How long is development going to take? What is the risk associated with this to-be-developed product?
So, although they're looking for innovation, it also scares them a little bit. The advice that I would give any start-up is to really champion your product. You need to believe in your product, in your development plans and in your business. Don’t ever give up. If a potential investor, for whatever reason, decides not to invest or not to invest at that particular moment in time, you can always go back to them at a later time point when you're raising, for instance, a series B.
So, try to network as much as possible. Attend different investment forums. Talk to key opinion leaders, get to know the market, and make sure that you're ready to go – that there are no gaps in your plans, that you've thought of everything and that you are ready to execute. Again, just you believing in the product is going to make all the difference.
Joseph Harvey: Don't ever give up. That's really good advice there from ViroVet, who have proved that it can be done. They've gone out there and got investment, and I thought that was particularly interesting in Europe, as we've seen companies like Aratana, Kindred and others, get funding in the US, and ViroVet went out and proved that it can be done in Europe. Hopefully, that will pave the way for more start-ups to source funding.
I thought I'd also ask that question to George, because at Stonehaven you must talk with a lot of start-ups. Is there one recurring piece of advice that you keep having to give to animal health companies?
Dr George Gunn: Get a plan, communicate it well and believe in it. In the human health field, or in almost all the other fields, there’s a clear pathway for investment.
Dr George Gunn
Dr George Gunn is the founder and chief executive of Stonehaven Consulting – a consultancy in both the animal health and life sciences sectors. He was previously the division head for Novartis Animal Health, from 2004 until early 2015. Dr Gunn is also a veterinarian and, in 2008, he received an honorary doctorate in veterinary medicine and surgery from the University of Edinburgh. He also received Animal Pharm's Lifetime Achievement Award earlier this year.
We always jokingly say: 'It starts with the three Fs, fools, friends, and family'. Then, it goes on to venture funds, and then to growth funds, and then private equity comes along when the businesses are established, and then you can head for an IPO or get a sale to a strategic, or you can get a sale to a strategic much earlier than that. All of that is well-established.
So, what you're tapping into is often the guys who are familiar with investing in the human health area and are not at all familiar with animal health. You say to them you've got a product that, if you invest in this you'll sell $50-100 million. They probably are used to sales numbers in excess of a billion, maybe up to five billion. So, the whole opportunity has to be put in perspective: the amount of money you have to spend on it; the route to market; the ease in establishing the brand. It's all very, very complicated. What I often see is people who believe but who have difficulty in finding the route to communicate what they believe.
That 10-page slide deck is really important, and it's the slide deck that an investor who knows nothing about your subject is able to interpret in a way that makes him interested. If it's a 50 to 100-page slide deck, and it's full of technical stuff, the chances are it won't get past first pass. So, it's really important to have that plan, and have the key communication points that you want to make to the investor, because it's the first time that you meet that investor that's really, really important.
Joseph Harvey: We've actually had a question come in for Calan. 'Could you let me know who are the start-ups selected for the showcase at the London Summit next year?' Are you allowed to do that? Or, could you say, when will we find out who the 10 or 12 companies are?
Calan Smith: We will be announcing on January 9 who the 12 companies are. The showcase is on the February 20. We are currently in the process of appraising and evaluating all our submissions. We had just over 35 companies submit this year, which is pretty consistent, it's been around that number each time for London. Some really, really interesting companies in there, it's not easy to, to go through.
Joseph Harvey: Which actually leads me on to, you were just speaking there George, are there any particular young companies that you think are quite exciting at the moment in animal health?
Dr George Gunn: Oh, Joe, that's a tough one. Well of course, I am chairman of ViroVet, and Nesya’s on the call, so I'm bound to say ViroVet. I was chairman of Nexvet, and we sold that to Zoetis, and Theo's on the call, so I'm bound to say these.
I suspect that among these little companies that are out there at the present time, there is an Amgen in animal health, or a Genentech in animal health. They will create the difference in the next 15-20 years.
You know, these are examples of companies with really leading-edge technology. The monoclonal antibody field is ripe for development. It's fully developed in human health, there’s virtually nothing in animal health, and I would predict that in the next 20 years it'll be a major force in animal health. That technology is going to create new markets for us.
ViroVet, they have their antiviral platform, plus the vaccines, and they're pretty unique technologies, and we're desperate in this world of lack of antibiotics to get something that has good antiviral activity. So, I think these technologies are good.
There are a lot of good companies out there. What, I think, in my post-pharma world, what really surprised me was the number of companies that are out here. There are literally hundreds of these companies, and a lot of them have very good technology, we've touched on it before. Many of them are having difficulty getting funding, and we need to sort that area out in animal health. I do think that, if you look back in human pharma history, 30 years ago we had a biotech revolution that completely changed the whole face of the human pharma industry. You had companies like Amgen and Genentech, and many, many others that went on to become huge companies, and I suspect that among these little companies that are out there at the present time, there is an Amgen in animal health, or a Genentech in animal health, sitting there. They will create the difference in the next 15-20 years.
Joseph Harvey: Yes, that really does sound exciting, especially for the future of animal health. So, Theo, looking at this from a Zoetis point-of-view. When you're looking for strategic alliances, there are potentially hundreds of really interesting start-ups out there, but from your company's point-of-view, is there a vast pool of opportunities that you think could be really interesting? Or, do you see a much smaller pool because you're very selective with who you work with?
Dr Theo Kanellos: We see quite a lot of opportunities and a lot of new companies. So, I've been in the industry for over 15 years now, most of them of course, in Zoetis. I've been elsewhere in human pharma but certainly in recent years, I think we see a significant mountain of new opportunities that are spun across different therapeutic areas, and different animal species, including fish.
Dr Theo Kanellos
Dr Theo Kanellos is the director of strategic alliances at Zoetis. He is a vet with a post-graduate studies in business and life science to a PhD level. During his career, he has worked as a clinician, an academic, a governmental official and, for the last 15 years, as part of management within the pharmaceutical industry.
What I have noticed is that more and more, start-ups from human health are considering adapting their innovation for applications in to animal health. That it is quite new for me. This is, what you call a One Health approach. A lot of people talk about it but it's a concept that we've been pioneering at Pfizer before and Zoetis now for several years, because we see the clear opportunities, both for animals and for humans.
At Zoetis we can offer human health companies some distinct advantages. That's a major thing, and that's something that attracts some of the human health companies. A lot of dogs have diabetes or chronic diseases, arthritis.
What they used to say when I was an academia was: 'Everything works in the mouse'. But when you go to real life, then it's a bit difficult.
I think these new companies that are coming from human health into animal health, if they are successful with their technologies they could possibly break into earlier stages of revenues. So, we see quite a lot of these new companies that are from human health considering animal health.
Of course, there are significant challenges and needs in animal health. At Zoetis we have experience in supporting different types of alliances and have joined forces with partners across the pharmaceutical industry, biotechnology.
So, our aim is to have innovation, with a clear purpose for our customers. In Europe, we see more and more scientific consortia. We see more and more, national research emphasis, formed of these public-private partnerships.
Joseph Harvey: If we could just go back to Nesya. To come back on something George said about those 10 slides, getting your sales projections spot on and believing in your product. Does ViroVet make sales projections for your product candidates? If you do, how do you make sure that these are accurate and they're going to be realistic but also impress investors?
Dr Nesya Goris: Those sales projections, we find, are absolutely necessary to include in your business development plans. So, one of the easiest sources to look for prevalence of a particular disease or incidence of a particular target, is literature. Now, what we find is that in the scientific literature, really reliable data for any specific indication that could be linked to our own pipeline, often, these data are lacking. So, what we do is, we try to approach a number of key opinion leaders, talk to our network, people in larger animal health companies, distributors, to get a first feel of the market.
— virovet (@virovet) November 14, 2017
We also try to include potential end-users of the product to fully understand what it is they're looking for. What is important, for instance in the livestock sector, is to really, fully understand it. What does your market look like? If we talk about the pig industry, or the cattle industry, that is a very generic term, because even in the pig industry, you have piglets, you have the sow industry, which can be very, very different, and prevalence of particular disease, or even how the product would be used in those different sub-segments can be really different.
So, first what we'll look at is really trying to understand whether the product fits and then trying to get as much specific information from that specific market segment as we possibly can obtain. When we talk about market segments we also have to look at the different geographic regions. Is the prevalence the same in Europe? What about US? What about Asia? What about Africa?
What we've found useful in the past is the 'Ask the Expert option from Animal Pharm, where we ask very specific questions on very specific diseases to get some input on that. What we've also done in the past is send out questionnaires to different veterinarians, to end users. We've gone on field trips for instance, in the mid-west in the US and compared how that could be related to the European situation. In the end, we liaise with consultants.
Then, we put all of this data together and try to be as accurate as we can possibly be. You end up making assumptions even in the best-case scenarios.
Joseph Harvey: Maybe Nesya, you could answer a question that has just come through. Are there any specific venture capital firms that you feel are actively invested in early stage animal health companies?
Dr Nesya Goris: I think we've made the point, and George has certainly made the point, that there is, at the moment, a gap in identifying very specific investors that typically invest in animal health companies.
Certainly, there are a few of them like, for instance Anterra Capital or Cultivian Sandbox. Many of them would potentially not invest in the very early-stage animal health companies where often one would have to try and source money from, potentially, more local investors and maybe some smaller investors.
What we've also done when we tried to raise money and successfully did so, is approach a number of Ag-tech investors and even when we get a 'no' from some of these, we could have also queried them as to whether they feel that the business could be suited for other investors that they know of, that are in their network and if they could introduce us to other people. We think that there is another fund, Falcon Global Capital, that seems to be willing to start looking at financing animal health companies.
We try to make some of the investors, really investors of the product. So, they look within their network and champion the company with the other potential investors.
Joseph Harvey: We have a question for Theo. I don't know how much Zoetis wants to reveal about its product pipeline but the question is: What kind of products, besides vaccines and classical treatments, does Zoetis find as strategic for the next five to eight years?
Dr Theo Kanellos: The focus of our innovation is providing veterinarians and livestock producers with the best solutions for the challenges that they have to face. They try to predict, detect, prevent and treat diseases. So, this innovation along with the continuation of care is what is important for us at the moment and that's where we will focus our efforts.
Of course, some of these are the traditional ones but what I think what the people may be asking us about is the complimentary status and there you can discuss a little bit about new genetic tests, the diagnostics, some digital tools and the data analytics projects we are working on.
As I said, this continuum is very important and how the different tools can interact to give the best solutions for their diseases.
Joseph Harvey: Theo, could you give us and the listeners an idea of house much of the Zoetis pipeline is being developed through external partnerships and how much of it is just solely internal innovation?
Dr Theo Kanellos: What I want to make clear is with Zoetis, we strive to have both external and internal innovation working in a seamless way. Therefore, the percentage doesn't really matter – it's not meaningful to say this percentage or that percentage.
We see the potential of partnerships to help productivity, facilitate risk-sharing and access high-quality science.
So, what we try to do, is we try to have external and internal innovation. Our comprehensive internal innovation includes more than 300 programs. This reflects our commitments, of course, to balancing animal health with better solutions but in many of these 300 programs, there are external partnerships and that's why it's so key for us to be able to have this similar work between external and internal innovation.
We therefore, see the potential of partnerships to help productivity, facilitate risk-sharing and access high-quality science. So, we are quite selective and that's quite important because we try to go for the high-quality science. Of course, I think external and internal partnerships are important but what is important as well is that they last.
Over more than 60 years as a company we have developed many quite diverse types of partnerships. Therefore, having this expertise is quite important in all these different partnerships that we're making.
Joseph Harvey: We have another good question from a start-up company. Maybe, George would know something about this? The question is: 'Do you see animal pharma eventually setting up venture arms like they do on the human side?' I think, Novartis used to have a venture arm. These venture arms would help drive and fund innovation in animal health.
Dr George Gunn: Novartis has a very successful venture fund. It grew massively over the last 10 years. Other companies have them as well and they are good and they do a great job. These funds, by definition, have to be independent. So, when it comes to the assets being moved on or sold, any company can buy them.
I think the whole future of innovation in animal health in the next 15-20 years will change significantly and for the better.
Do I think animal health companies will set up venture funds? Eventually, yes. It's all about scale here. There's a lot of innovation in animal health, there's just not enough money to fund it now. There's been a huge move away from human pharma and chemical companies that used to own the animal health companies. I always said in Novartis, I spent about €140m on R&D in animal health but I had access to €8.5bn. So, that was what was being spent on the human side and I had access to that. Nobody now has access to that. So, there's a lot of funding gone out of the industry which has to be replaced in some way.
There's a lot of innovation in the industry, it has to be funded. There will be funds, animal health-specific funds, set up. Maybe not necessarily venture funds but certainly funds that are looking at growth in innovation. I know of one that is likely to be launched next year. I think when one is launched, more will come in. That will create much more flexibility in funding in these areas.
Then, I think, in time the bigger animal health companies might well be willing to set up specific venture funds where they would just gamble on early technology. I don't think that’s a bad thing. So, yes, I'm very optimistic that that will happen. I think the whole future of innovation in animal health in the next 15-20 years will change significantly and for the better.
Joseph Harvey: Do you think animal health innovation is in a better shape now than five years ago?
Dr George Gunn: I think animal heath have always had very innovative people. They have always had good innovation coming out from relatively meagre resources. Five years ago, 10 years ago, there was a lot more money available to animal health than there is now. Simply because of the consolidation in the animal health industry and the fact that the big pharma companies no longer, necessarily, have animal health companies. So, at this moment, it's probably less innovative because there's less money around but I think in the future there will be more money around and therefore the opportunity to develop the innovation will continue at a greater pace.
Joseph Harvey: That sounds a really interesting trend for the future. We're getting a lot of questions about investment. I think that’s absolutely natural. I think there's obviously a lot of companies out there looking for investment and possibly jealous of the companies that have received investment.
If I could just steer us away for a moment because there are lots of aspects to innovation. Are regulatory guidelines a problem and should they be changed? We've had one question here: 'Do you think there needs to be a change to the regulatory system?' Nesya, could you address mainly from a European point-of-view?
Dr Nesya Goris: So, I've had the pleasure, the opportunity, to really work with new chemical entities and new technology platforms for which there was no regulatory standard. There's two ways of looking at it. You could look at it and think that's a problem because there's no guidance.
You could also look at it as a big advantage because as there's no guidance there's also potential for creative ways to move the product forward. This is really what we've tried to implement here. Be creative, be very open-minded and tackle some problems head on. That doesn't mean you cannot try to prepare as much as possible for how reviewers in the end, how regulators in the end are going to perceive your product.
So, do guidelines need to be changed? I think there's been a lot of movement from the European Medicines Agency to look at new therapies. New groups have been formed, like for instance the ADVENT group within the European Medicines Agency. That is an ad-hoc expert group for novel veterinary therapies. They focus on stuff like stem cells, monoclonal antibodies. There's another initiative that, I think, since 2014 has been implemented at the EMA, which is called the Innovation Task Force. It's really a soft-landing zone for an applicant – that could be a company but it could be an academic group. You don't really have to be an established company to approach the Innovation Task Force.
So, when you have something novel, you can have an informal discussion with both members of the veterinary assessors and members of the human assessment team to talk about potential regulatory hurdles or how regulators would perceive certain new innovations. What to look out for? How to approach certain problems? Will there be potential red flags? All of that can be a very openly discussed without there being a binding negative or positive opinion about your product.
Once you have a little bit more data, the next step is really going for scientific advice. That can be done at either European level or you can also try to approach the more national regulatory authorities and have a discussion about the product. Are there potential gaps in the development plan that need to be addressed? And so on and so forth.
So, many of these initiatives are also taken in the US and there's similar initiatives at both the FDA and the USDA for new products. I would just advise everyone to do that, to take advantage of that opportunity and not look at the lack of guidelines, not perceive that as a hurdle, it can really be a big advantage too.
Joseph Harvey: George, is there anything in particular that, when you meet a young company, a start-up, some 'magic words' in terms of what products they're working on? They could say these words and it would really get you interested in terms of the science or the products?
Dr George Gunn: I guess the things that get people excited are innovations in big markets. That's the thing you can sell to an investor. So, if you have a novel parasiticides, for example, and you know that Fipronil did close to a billion dollars, you can use that as a yard stick.
Yes, I tend to be more of a guy who likes biologicals and biologics rather than pharmaceuticals. You know, in human health, vaccines are 2% of the market. In animal health, its 26% or 27%. That tells you a little bit about how we view disease and that is disease prevention is incredibly important to us. So, I get really excited about technology that's novel and can prevent disease.
Joseph Harvey: The next question goes to Theo. Is there a limit to the amount of strategic partnerships Zoetis can take on at any one time? So, Zoetis, industry leader, it probably will be the first ever animal health company to record annual sales of over $5bn but is the company limited on how many interesting partnerships it can actually juggle at any one time?
Dr Theo Kanellos: I have to say that from the Zoetis point-of-view, it’s more about strategic fit. Certainly, we're quite selective in where we want to go. Other than that, I want to emphasize that through our business development strategy, we deploy our capital for three areas mainly. This is for extending our product portfolio, strengthening our presence in fast-growing developing markets that have some specific needs and specific demands, and to self-expand our complimentary businesses, which is biodevices, genetic tests, diagnostic products.
Joseph Harvey: Lots of listeners are asking what indications are more important than others? What species should be prioritized? So, maybe Nesya, could you speak about the importance when ranking small or large animals in terms of what are more important to ViroVet in terms of investing time on?
Dr Nesya Goris: What we've seen over the past number of years is that there's been a lot of animal health companies, biotech companies that have sprung up in the companion animal space. Basically, a spill-over from human products have really driven that segment of the industry.
What we've seen in the livestock industry is actually it's been more difficult to bring innovation and we have seen less start-ups in this particular segment. We think this is because it is more difficult to come up with a product for the livestock industry. Basically, there's less spill-over from human health. So, people start with smaller data packages at the start of the development trajectory.
Also, it is a business with a relatively small margin. Cost of goods for new technology needs to be low enough to enable it to enter the market.
So, when we think about the different species within the livestock industry what we've seen is that there is a tremendous demand in poultry and aquaculture proteins. This is definitely a segment that is looking for innovation, actively looking for innovation and craving innovation but the margins are relatively small per animal. So, the innovation that needs to be delivered to those segments is probably even harder to obtain than the innovation we've seen in the companion animal space. That's probably why we've seen less livestock biotechs.
I think we would rank poultry and aquaculture, in terms of species at the top. Followed closely by the swine industry and the small ruminant and cattle industry. In terms of prioritization and diseases, that's really what we at ViroVet try to fully understand. What is needed? What can we do with our technology and where do we focus our products? Is the technology sufficient to work within those margins of the industry?
Joseph Harvey: On that question Nesya just answered, she gave the perspective of a young company. Theo, could you address it from Zoetis' point-of-view?
Dr Theo Kanellos: I think that’s an interesting question but I'm going to reply to this a little bit differently. I quite like how Nesya replied to this.
We can talk about if this is going to be more cattle or more dairy or more pigs or whatever. There are significant numbers for the next 10 years. You know, animal production needs to increase significantly. I think there are numbers like 12% more meat, 21% increase in milk, 30% more beef and so on. So, we as an industry have to find a new innovation for bringing more efficiently the production of animal protein. What George said before, if you can have innovation across more than one species – even better.
Then, when you go to companion animals, I think the forecast is you're going to have in the next 10 years something like 40-50 million more dogs or cats. So, again, these pets will live longer – they need to have a better life.
It's a great time to be in this industry because there are significant unmet medical needs.
Looking very close to my heart is, as Nesya as well said, aquaculture. I do believe aquatics sales are the fastest-growing segment of the animal health industry at the moment. I believe this is an area that will grow significantly. We see it is the most consumed animal protein and the farm fish industry is an area that I believe is going to grow quite nicely.
Joseph Harvey: Maybe, I can personally ask George one more question. I think it would be interesting to hear your point-of-view on future innovation in animal health. Do you think it is going to come more from the big players – the companies that have been in animal health for a long time? Merck, Bayer, Boehringer etc? Or are start-ups going to be an increasing source of really interesting chemical entities going forward?
Dr George Gunn: I think the big players do a fantastic job on limited budgets.
The future is definitely going to be more and more about small companies producing lots of innovation.
If you take the whole animal health industry as we measure it at the present time, it's about $30bn. If we spend 10% on R&D, that's $3bn. We lose half of that to just keeping products on the market. So, we're left with $1.5bn to spend globally. Now, these are just very rough figures and it's probably less than that. It's just nothing in comparison to what is required to get innovation into companion animals and because it's more expensive in food animals, to get innovation into food animals.
The big guys will do the fantastic job with the money they have. They'll turn that into the best opportunities that they can. The future is definitely going to be more and more about small companies producing lots of innovation. Okay, some of them will fail; a lot of them will succeed. I do think the biotech revolution on the human side that happened 30 years ago is about to happen. Maybe it is already happening in animal health.
Joseph Harvey: We've got some really interesting questions here. Just to give you a flavor of what some of them were about because we didn't have time to address them all, there's questions about: sensor technology; the impact of the clean food movement; phytogenics, bioactive peptides, dermatology, oncology, natural products, devices, gene therapy.
I'm naming these because they actually show a lot of the areas that are genuinely interesting in animal health. A lot of those topics I've just read out are burgeoning areas of animal health, that everyone really has to watch in the coming years. There's not many players in some of those areas and it will be really interesting to see how some of those product candidates in those areas actually develop. Hopefully, fingers crossed, they will see the light of day.
If you can make it to London next year, attend the Kisaco Research Animal Health Investment Europe conference.