More than 18 months after pandemic lockdowns triggered a wave of pet adoptions, the frenzy has eased, veterinarians are exhausted, but the industry’s prospects remain brighter than ever.
Adoptions have drifted back to pre-COVID-19 levels, observers say, but the pandemic has accelerated trends that were already underway.
Millennials have dived into pet ownership in a big way, with an enthusiasm matched only by their spending habits. They’re now the single largest pet-owning cohort in the U.S. at 32 per cent, followed by their baby boomer parents at 27 per cent, according to the American Pet Products Association (APPA).
Yet, millennials, in particular, are paying what it takes for tests and treatments, upscale pet clothing and premium food. E-commerce is second nature for this demographic as is their comfort with technology – making Fitbit-type pet collars popular to track heart rates, pulses, and blood pressure. Owners can monitor them with a smartphone app.
Many [millennials] may not be getting married or having kids, and view their dogs or cats as surrogate children.— Dr. Ian Sandler, Greywolf Animal Health Inc.
For investors, the expanding industry is worth a look.
It has a US$100-billion a year annual value, according to APPA. At that size, it’s larger than the U.S. wireless telecom sector, says Scott Helfstein, executive director, thematic investing at Bethesda Md.-based ProShares Group ETFs.
“I love these statistics,” says Mr. Helfstein, reeling off several. “There are more U.S. households with pets than with children. Morgan Stanley found that 70 per cent of owners view their pet as a family member. Another 79 per cent said a change in their financial circumstances would not impact ownership.”
Pets getting health and welfare benefits
That all adds up to a growing business. ProShares Pet Care ETF PAWZ-A, which has US$396-million in assets under management, is the only pet-focused exchange-traded fund in North America. Pet pharmaceuticals and diagnostic companies are the largest component followed by pet foods and consumables and veterinary services.
Observers say the most significant broad-based trend is a change in the way people view their pets. They’re seen as part of the family deserving the same health and welfare considerations as everyone else.
Dr. Ian Sandler, founder and chief executive officer of Greywolf Animal Health Inc., a Toronto-based company providing pharmaceutical products to veterinary clinics, also says millennials are driving the growth of this space. He says the pandemic has left vets exhausted by the high demand just as the pandemic made the job harder to do, as it did with the hospital system.
Dr. Sandler, who speaks on behalf of the Canadian Veterinary Medical Association, says millennials are outspending other groups by four or five to one.
“Many of them may not be getting married, or having kids, and view their dogs or cats as surrogate children,” he says. “So, the relationship between pet and human is very strong in that generation.”
Diagnostic tools have also expanded and there are a broader array of tests for things like heart, liver, and kidney function and thyroid and enzyme imbalances. The use of medical imaging and wearable devices is also growing. The latter uses advanced software to monitor bodily functions. Pet owners are warned of changes and medications can be adapted. Vets can aggregate the data to build profiles of symptoms and treatments.
“At the clinic level, this is super helpful,” Dr. Sandler says.
Pet health care’s biggest players
Parsippany, N.J.-based Zoetis Inc. ZTS-N is the largest pure animal pharmaceutical company, and it has made four diagnostic acquisitions since 2018. Zoetis makes medicines and vaccines for companion animals as well as livestock and was spun off by Pfizer Inc. PFE-N in 2013. It has annual revenue of about US$7.4-billion.
Zoetis is the largest single holding in ProShares Pet Care ETF at 10 per cent. Oakville, Ont.-based Harvest Portfolios Group Inc. also has a 5 per cent holding in the stock in its Harvest Healthcare Leaders Income ETF HHL-T.
Paul MacDonald, chief investment officer of Harvest, says the acquisitions have broadened Zoetis’ offering and helped solidify its place as the pet pharmaceutical leader.
He adds that the company has a pipeline of drugs in development. An example of its dominance is the newly launched Simparica Trio. It’s the only product for dogs that combines tick, flea, and worms protection in one monthly chewable.
Zoetis’ earnings have been exceptionally strong. Its shares have responded and are up more than 30 per cent year-to-date, pushing its price-to-earnings (PE) ratio to a lofty 52.
Elanco Animal Health Inc. ELAN-N, which was spun off from Eli Lilly & Co. in 2019, is the second-largest pet pharmaceutical company after Zoetis. Its performance has been less consistent, Mr. Macdonald says.
Merck & Co. Inc. MRK-N operates its animal health business as a division within the larger company. It’s also doing well. In the latest quarter, sales in the animal health division grew 6 per cent to US$1.4-billion. It generates about 11 per cent of Merck’s overall revenue. Both Merck and Elanco are in ProShares Pet Care ETF.
Both Mr. MacDonald of Harvest and Mr. Helfstein of ProShares say that pet drugs and treatments have higher margins for drug makers than human drugs do. There’s less competition, so fewer choices, including for generic options. There are also fewer regulatory hurdles, which means the drugs are cheaper to develop.
Another growth area is pet insurance as the cost of treatments rises. The Ontario Veterinary Medical Association estimates the average annual cost of a puppy is $4,659 a year, which does not include the cost of the pet. It estimates the annual cost for a fully grown dog is $3,724.
Adam Mayers is a contributing editor to the Internet Wealth Builder investment newsletter.