兽医供应链的牛与熊：生命科学工具与诊断

1、This is an updated version of the document published yesterday toincorporate takeaways from our Bull/Bear Lunch.Animal Health Supply Chain Bull/BearLife Science Tools & Diagnostics18 December 2019Equity Research AmericasErin Wright Research Analyst (212) 538-4080 HYPERLINK mailto:Erin.wright Erin.wr

2、ightKatie Tryhane Research Analyst (212) 325-2713 HYPERLINK mailto:Katie.tryhane Katie.tryhaneHaley Christofides Research Analyst (212) 325-3720 HYPERLINK mailto:Haley.christofides Haley.christofidesMatthew Urbik Research Analyst (212) 325-2152 HYPERLINK mailto:Matthew.Urbik Matthew.UrbikDISCLOSURE

3、APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-USANALYSTS. 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

4、 the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Traditional Distribution Channels (CVET, PDCO, ABC) Bull/Bear ScenariosIndustry DynamicsBull CaseBear CaseUnde

5、rlying Pet Industry FundamentalsStrength in Pet Spending: Demand across the companion animal market remains robust, with pet adoptions up +5.6% in November and veterinary Rx volumes up +6.1% YTDCyclicality of Discretionary Spending: While the pet market is relatively recession resilient, overall mar

6、ket downturns could result in slowed spending/ adoption trendsRise of Alternative ChannelsVFC/Vetsource Remains a Bright Spot: VFCs role to veterinarians becomes increasingly critical as vet revenue from prescriptions moves online; still a fragmented marketLandscape Evolving Rapidly: With 35% of vet

7、s willing to partner with CHWY (according to our survey), VFC may face intensifying competitive dynamicsManufacturers Going DirectRole of Distribution Remains Intact: Manufacturers have reiterated that they plan to use a hybrid direct/distribution modelRole of Traditional Distribution Limited: Manuf

8、acturers will increasingly sell directly to vets/online, disintermediating the distribution channelOther Industry DynamicsMAP Pricing Raises Industry Price LevelsVendor Concentration SlowingLarge Salesforce Differentiates PlayersMAP Pricing may have Mixed Margin Implications over TimeVendor Consolid

9、ation likely to ContinueRequired Salesforce Investment GrowingCovetrus: Company -Specific DynamicsVets First ChoiceWill VFC be a meaningful contributor to CVET and veterinary revenues?Pharmacy Management Growth Driver Underappreciated: VFC is conceptually appealing, indicated positively in our surve

10、y, and it will become more meaningful as the supply chaincontinues to evolveVFC Uptake Weak; CHWY Poses a Threat: Vets in our survey only attribute 5% practice revenues to VFC, and the e-Rx space is evolving faster than anticipatedLoss of RelationshipsIs CVET losing share to MWI and PDCO?Status Quo/

11、 Stabilizing: Revenues rose 4% in 3Q19, above estimates, and CVET has reported no major customer losses since VCAPotential Share Loss Likely: CVET previously attributed revenue weakness to lackluster N. American demand, but our survey results suggest share gains by MWI and PDCOManagement ChangesMana

12、gement Transition Offers Hope for LT Strategy: With both the CEO and CFO roles in transition, the appointment of permanent top management may offer a clearer strategy to achieve a longer term turnaround storyPotential Further Guidance Cuts: While new management may offer a clearer strategy, it may a

13、lso further recalibrate guidanceValuationUpside following recent pullback: CVET shares are down 46% since its spin from HSIC, trading at 12.5x EV/EBITDA, well below the Animal Health average (18.3x)CVET still trading at premium: At 12.5x EV/EBITDA, CVET still trades at a premium to distributors PDCO

14、 (9.6x) and ABC (7.5x)Industry DynamicsBull CaseBear CaseUnderlying Pet Industry FundamentalsStrength in Pet Spending: Demand across the companion animal market remains robust, with pet adoptions up +5.6% in November and veterinary Rx volumes up +6.1% YTDCyclicality of Discretionary Spending: While

15、the pet market is relatively recession resilient, overall market downturn could result in slowed spending/ adoption trendsRelationships with ManufacturersLegitimizes Alternative Channels: Manufacturers like ZTS and ELAN increasingly sell to online channels, legitimizing and centralizing the platform

16、s in the supply chain (less utilization of gray markets)Risk of Shifting Vet Relationships: Manufacturers remain committed to the vet channel and may pick and choose which products to sell online/ remain loyal to distribution channelMAP PricingDoes this dynamic help or hurt e-commerce constituents?M

17、AP Pricing Levels Help Margins: Price floors improve gross margins NT for e-commerce players, eliminating aggressive competitive discountingRemoving Competitive Advantage: Price floors level the playing field, forcing online sellers to compete on other factorsOther Industry DynamicsIncreasing Consum

18、er Preference Towards OnlineShift to Online Channels Across Animal HealthConvenience and ComplianceVet Channel ControlIntense Competitive Landscape (WMT, AMZN, PETS)Model Easy to Replicate at Low CostChewy Company -Specific DynamicsPartnerships with VetsWill veterinarians be willing to partner with

19、CHWY?Better than Expected Sentiment: 35% of veterinarians saythey would be willing to work with CHWY if the economics werefavorableVeterinary Bias Remains Negative: Many vets remainunwilling to partner with alternative channels that mayencroach on revenueMargin Dynamics/ Rising Customer Acquisition

20、CostsHow will CHWY scale costs to achieve profitability?Costs Scaling with Revenues: Margins should expand as CHWY expands its customer base and spend per active customerCustomer Growth Decelerating: CHWY may not be able to maintain its robust customer growth, forcing it to amplify advertising and m

21、arketing initiatives; Rising customer acquisition costsChewy Pharmacy UptakeWill Chewy Pharmacy achieve meaningful growth prospects?Healthcare Growth Driver Underappreciated: While Chewy Pharmacy represents 5% of revenue, the segment has the potential to be a highly profitable growth driverNascent I

22、nitiative: Chewy Pharmacy may remain a negligible part of CHWYs overall business, contributing little to topline or margin growthOther Company DynamicsGeographic Expansion OpportunitiesGreater Private Label PenetrationUpcoming Services Platform OfferingRegulatory Environment (Grain-free dog food)Inc

23、reasing Private Label Competition (AMZN)Ownership Concentration of PetSmartValuationSignificant Discount to Peers: With CHWYs shares off 20% since its June 14th IPO, its shares trade at only 1.8x CY20E EV/Sales, a discount to peer groups of e-commerce retail platforms (4.7x), AH products and service

24、s (3.5x), and HCIT services companies (3.2x)Risks Justify Discount: With evolving supply chain dynamics, an uncertain margin trajectory, and an intense competitive environment, CHWY should trade at a meaningful discount to peers. Ownership also remains a technical overhang.E-Commerce (Chewy) Bull/Be

25、ar ScenariosSupply Chain Bull/Bear Survey TakeawaysCVET Takeaways76% of investors are Bearish on their outlook of CVETMost Meaningful Long Term Opportunity for CVET: VFC Utilization Growth (Revenue/Clinic Growth), New Customer Wins, VFC Enrollment GrowthLeast Relevant Long Term Opportunity: Expansio

26、n through M&A, Global Expansion, Technology/ Value Add PenetrationTop Risk Factors for CVETs Distribution Segment: Competition from Online Retailers, Depleting Market Share, Customer LossLeast Relevant Risk Factors: Leadership Changes, Cost Management, Macro RisksTop Pharmacy Channel Competitors for

27、 CVETs VFC Platform: Chewy Pharmacy, Amazon, VetsourceCHWY TakeawaysInvestors are evenly split Neutral-to-Bullish on their outlook of CHWYMost Meaningful Long Term Opportunity for CHWY: Chewy Pharmacy Traction, Accelerating Customer Growth, Private Label ExpansionLeast Relevant Long Term Opportunity

28、: Greater Autoship Penetration, International Expansion, Launch of Services PlatformTop Risk Factors for CHWY: E-Retail Competition (WMT, AMZN, PETS), Cost Management/ Rising Customer Acquisition Costs, Shift in Consumer TrendsLeast Relevant Risk Factors: Regulatory Environment (Grain-Free Dog Food)

29、, Advertising/Marketing Missteps, Ownership StructureView on CVETView on PDCOView on CHWYView on PETSTerminalNeutral,11%View , 11%Bullish,11%Bearish,11%Bullish,11%Bullish,10%Neutral,50%Bullish,50%Bearish,60%Neutral,30%Bearish, 67%Neutral,78%Supply Chain Bull/Bear Survey TakeawaysOverall, ZTS was vie

30、wed as best positioned to outperform the group, followed byCHWY, ELAN, PETQ, IDXX, HSKA, KIN, PAHC, PETS, and CVET4.04.06.8Best PositionedZTS CHWY ELAN PETQ IDXX HSKA KIN PAHC PETS ZTS/IDXX and Dognostics Dynamics100% of investors view ZTS will be successful in its broader diagnost

31、ic offeringCommentary:It will take multiple (5) years to complete67% of investors do not view ZTSs entrance into domestic reference labs will have a negative impact on IDXXCommentary:Share going to AntechNTM limited impact but LT meaningful impactNegative impact on share price but not financialsCVET

32、7.50.01.02.03.04.05.06.07.08.0CVET: What Would Make You More Positive/Negative?CHWY: What Would Make You More Positive/Negative?More PositiveMore NegativeShare StabilizesSimparica Trio not in ChannelEBITDA GrowthCustomers Selling DirectAccelerating VFC GrowthShare LossMargin ExpansionGains in Altern

33、ative ChannelsInability to Control CostsSlowing Topline/ GM ContractionMore PositiveMore NegativeMargin ImprovementNegative FCF GrowthUnderstand PE/ PetSmarts Plan to Sell SharesZTS Push for Vet ChannelTakeout InterestLTV/CAC DeteriorationPrivate Label PenetrationChurnARPU GrowthCompanion Animal Pre

34、scription & Distribution MarketAnimal Health Competitive LandscapeCSPrice Upside / 12/17/19 MarketAvg Vol Revenue (CY) TickerRatingTarget Downside PriceCap(000s)20192020Avg (5yr) EPS (CY) Avg (5yr) EBITDA (CY) Growth20192020Growth20192020Avg (5yr)Growth P/Sales (CY) P/E (CY) EV/EBITDA (CY) 201920202

35、019202020192020DividendYieldThe Animal Health sector is an attractive, unconventional healthcare niche, with much of the inherent resiliency and defensive characteristics of human health care while unchained to associated risks such as third party payors, health care reform, generic threats, and dev

36、elopment inefficiencies. Fundamentals in terms of demand, pricing, and the utilization of medicines, vaccines, and diagnostics are improving, supporting increasing revenue and earnings growth assumptions.ProductsZoetisZTSOutperform$1389%$127.17$60,9932,362$6,235$6,6515%$3.58$3.9818%$2,484 $2,70712%9

37、.8x9.2x35.5x31.9x26.4x24.3x0.5%IDEXX LaboratoriesIDXXOutperform$29314%$256.41$22,679540$2,401$2,63510%$4.75$5.3820%$640$71712%9.4x8.6x53.9x47.6x36.8x32.9x-Elanco Animal Health (1)ELANRestricted$28.54$10,6463,988$3,077$3,1220%$1.07$1.22146%$669$78054%3.5x3.4x26.7x23.4x18.6x15.9x-Phibro Animal HealthP

38、AHCNeutral$252%$24.46$992172$827$8625%$1.09$1.2029%$107$1099%1.2x1.2x22.5x20.4x11.6x11.4x2.0%Genus plcGNS-GB$32.16$2,09387$504$5396%$0.75$0.841%$80$88-4%4.2x3.9x42.8x38.1x27.3x24.7x-NeogenNEOG$68.31$3,581151$424$45212%$1.18$1.2817%$93$10414%8.4x7.9x58.0 x53.4x35.8x31.9x-Dechra PharmaceuticalsDPH-GB$

39、28.20$2,899250$510$56319%$0.93$1.0333%$142$15522%5.7x5.2x30.2x27.3x22.1x20.1x-VirbacVIRP-FR$220.00$1,8617$940$9903%$6.58$8.7318%$154$173-1%2.0 x1.9x33.4x25.2x14.9x13.2x-VetoquinolVETO-FR$62.80$7462$390$4104%$2.85$3.3610%$59$657%1.9x1.8x22.0 x18.7x10.7x9.8x-HeskaHSKA$94.06$73680$123$14011%$0.02$0.305

40、2%-90%6.0 x5.3x4703.0 x313.5x-Average (excl. HSKA)7%32%14%5.1x4.8x36.1x31.8x22.7x20.5xDistributors, Services & RetailPatterson CompaniesPDCOOutperform$2519%$20.95$1,9721,092$5,597$5,7238%$2.12$1.944%$259$262-8%0.4x0.3x9.9x10.8x9.7x9.6x5.0%CovetrusCVETNeutral$11-19%$13.50$1,5152,549$3,963$4,1548%$0.5

41、4$0.81-$193$21160%0.4x0.4x25.1x16.7x13.7x12.5x-Petmed ExpressPETSUnderperform$14-39%$22.88$461530$276$2834%$1.16$1.1219%$30$2914%1.7x1.6x19.7x20.5x12.1x12.8x4.7%PetIQPETQ$24.83$582447$68580819%$1.14$1.33-$62$80-0.8x0.7x21.7x18.7x10.1x7.8x-ChewyCHWY$28.05$1,5002,842$4,7265,995-$0.65-$0.51-$107-$12-0.

42、3x0.3x-Average10%12%22%0.7x0.7x19.1x16.7x11.4x10.7xPet-Biotech / OtherKindred BiosciencesKIN$7.84$306103$4$11-$1.54-$1.32-$56-$54126%73.7x28.9x-TrupanionTRUP$34.68$1,212304$383$46531%-$0.06$0.07-$11$17-119%3.2x2.6x-505.7x108.7x68.3x-Average31%-3%38.4x15.7x-505.7x108.7x68.3xLarge-Cap PharmaceuticalsM

43、erck & CoMRK$89.00$226,5938,000$46,824$49,450-2%$5.16$5.6317%$19,756 $21,309-1%4.8x4.6x17.3x15.8x12.3x11.4x2.5%BayerBAYN-DE$70.06$65,3372,412$44,123$45,362-2%$6.41$7.3323%$11,536 $12,7033%1.5x1.4x10.9x9.6x8.8x8.0 x1.4%Average-2%20%1%3.2x3.0 x14.1x12.7x10.5x9.7xTotal Average-12%7.8x4.9x28.7x25.2x18.1

44、x16.4x($ in millions except/share)ELAN based on FactSet Consensus estimatesSources: Company data, Credit Suisse estimates, Factset. Prices as of 12PM 12/17/19.Companion Animal Industry SnapshotPet care expenditures: $75 billion in 2019E, growing mid-to-high singledigits annually.2019E US Pet Expendi

45、tures BreakdownPet Services:Key drivers of companion animal spending:Increasing pet ownership: Pet adoptions grew 0.1% in 2018 while surrenders and euthanasia decreased (-3.1% and -13.4%, respectively).Humanization of pets: 90% of dog owners and 86% of cat owners consider their pets as important mem

46、bers of their family, supporting greater spending per animal through a variety of channels including premium consumables, pet healthcare, and pet goods and services (Packaged Facts).Rise of e-commerce driving compliance: Online penetration for petVet Care24%Supplies/ OTC Medicine 22%grooming & board

47、ing 9%Live animal purchases 2.6%Food 42%food and supplies is estimated to be $11 billion (in 2019) and is expectedto grow at a double digit CAGR through 2022 (Packaged Facts).US Pet Expenditures (APPA) 1994-2019E, $ in billions$80$70$73 $75$67 $70$60$51 $53$56 $58 $60$50$46 $48$40$30$32 $34 $36$39 $

48、41 $43$30$20 $17$10$21 $23$29$0$ in billionsUS Pet Expenditures by Category (APPA), yoy growthCategory201420152016201720182019EFood3.2%3.5%22.5%3.0%4.3%4.5%Supplies/OTC Medicine4.6%3.9%3.0%2.7%6.0%2.7%Vet Care4.7%2.5%3.4%7.0%6.1%4.8%Grooming & boarding9.8%11.8%6.5%6.9%(0.8%)3.3%Live animal purchases

49、(3.6%)(1.4%)(0.9%)0.0%(4.3%)(2.0%)Total4.2%3.9%10.7%4.1%4.4%3.9%Sources: APPA, Gfk, Company data, Credit Suisse.1.9%1.5%2.0%1.6%2.3%2.1%2.3%2.3%2.3%2.4%1.9%1.4%1.5%1.3%0.8%0.3%0.8%1.3%1.3%1.3%1.3%2.0%1.4%1.5%0.9%1.5%1.9%2.1%2.4%2.4%2.4%2.2%2.1%2.5%2.2%2.9%3.2%4.4%3.8%4.0%4.1%5.3%6.2%6.5%6.6%6.7%6.6%

50、6.3%5.2%5.0%4.2%1.0%0.5%1.0%1.0%1.9%2.0%2.2%2.2%1.9%1.7%1.0%0.7%1.0%0.7%0.4%-0.1%0.4%0.7%0.6%0.6%0.6%1.4%1.0%1.1%0.5%1.4%2.0%2.4%2.6%2.7%2.4%2.3%2.1%2.5%2.3%2.8%2.9%3.9%3.3%3.4%3.7%5.1%6.2%6.7%7.0%7.4%7.5%7.4%6.6%6.5%6.3%3.5%3.7%4.4%3.1%3.3%2.8%3.1%3.2%3.9%5.1%4.7%3.6%3.4%3.5%2.7%1.8%2.4%3.7%4.2%4.1

51、%4.1%4.6%3.5%3.5%2.8%2.7%2.3%1.9%2.9%3.3%3.6%3.2%3.2%3.6%3.3%4.6%5.2%7.4%6.5%6.6%5.9%6.9%7.0%6.6%6.1%5.6%4.3%3.2%1.0%0.5%Pet Care ExpendituresPet care expenditures have been growing at a mid single digit rate for the past two years, driven more by price increases than by volume - possible evidence o

52、f a shift towards online channels.Pet Care (rolling 3-month average growth) excluding onlinePet Supplies (rolling 3-month average growth) excluding online8%8%7%7%6%6%5%5%4%4%3%3%2%2%1%1%0%0%Pet Food (rolling 3-month average growth) excluding online8%Pet Treatments (rolling 3-month average growth) ex

53、cluding online35%25%6%15%4%5%2%-5%0%-15%-2%-25%Source: Nielsen, Company data, Credit Suisse researchDecember 18, 2019924.5%25.8%22.8%16.4%8.0%1.1%0.5%1.4%1.5%4.8%5.9%7.9%0.8%-1.4%-4.5%-0.2%1.4%1.7%1.0%2.1%1.3%1.5%-0.8%-0.3%-2.8%-3.0%-8.4%-10.0%-11.8%-12.3%-8.2%-5.3%-2.8%-5.1%-6.5%-4.8%-4.6%-6.9%-8.7

54、%-1.7%1.8%2.0%0.7%-1.5%-0.1%-3.1%-0.1%-0.3%-1.3%-4.2%-4.9%Companion Animal Prescription MarketGlobal companion animal health market (medicine/vaccines) is worth $12 billion annually, growing mid-to-high single digits.Majority flows through vet channel: Veterinarians control 58% of the pet medication

55、 dispensing market (including OTC)More sophisticated therapeutics: Rising spend per pet driven by innovation in therapeuticsEvolving dynamics: The emergence of online pet medication retailers (PETS and CHWY) has increasingly disintermediated the vet channel and disrupted the supply chain, leading to

56、 the emergence of value-add solutions for veterinarians (i.e. CVETs Vets First Choice)2013201420152016 20172018Human Rx HistoricalAverage = +0.1%Animal Rx HistoricalAverage = +5.2%2019: +6.1% YTDUS Pet Medications by Dispensing ChannelVeterinary Rx outpaces Human RxOther mail order25%1-800-PetMeds6%

57、6%20%15%Retailers (PetSmart, PetCo, etc.)30%10%Veterinarians 58%5%0%JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember-5%Sources: IQVIA, Petmed Express, Credit Suisse. Note: IQVIA excludes veterinary-exclusive therapeutics such as flea/tick medications, and thus, theAnimal He

58、alth Distribution LandscapeAnimal Health Supply Chain OverviewVeterinariansDistributorsManufacturersConstituents: Zoetis (ZTS, Outperform), Elanco (ELAN, Restricted), Merck Animal Health (MRK), Boehringer Ingelheim, Phibro Animal Health (PAHC, Neutral)Traditionally, manufacturers sell through distri

59、butors or directly to veterinariansTraditional Distribution ChannelManufacturers are increasingly selling directly to online channels and implementing MAP pricingConstituents: Covetrus (CVET, Neutral), AmerisourceBergens MWI (ABC, Outperform), Patterson Companies (PDCO, Outperform)Distribute to both

60、 the veterinarian and to online channelsPer our survey, 88% of veterinarians do not expect to purchase a greater portion of pharmaceuticalproducts directly from product manufacturers vs. distributors58% of prescriptions continue to flow through veterinary practice (40,000 vet practices in the US)Inc