Selling Through Distribution in the U.S. Animal Health Market. Presented by Vet-Advantage Magazine [Name] [title] [contact info]

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1 Selling Through Distribution in the U.S. Animal Health Market Presented by Vet-Advantage Magazine [Name] [title] [contact info]

2 Goal and Objectives Provide information regarding the animal health market and the opportunity available Overview of the market Overview of distribution Profiles of key distributors

3 Animal Health vs. Human Healthcare $25 co-pay versus the $300 check No Obamacare Recession resilient business Steady stream of new devices Market dynamics very positive No other distribution-focused magazine or services Publisher Chris Kelly spent 25 years in the business of healthcare before switching exclusively to animal health in 2008.

4 U.S. Animal Health Markets Companion (CA) Dogs Cats Equine Exotic Livestock (LS) Cattle Dairy Swine Poultry Sheep/Goats

5 DVMs by the Numbers 93,047 U.S. veterinarians 30,000 hospitals staffed by 63,000 veterinarians 9,826 are specialists 77.4% practice on companion animal 8.2% Government, Industry, Educa4on, etc., 6.1% Equine 8.3% practice on production animal 6.1% practice on equine Remaining 8.2% consists of government, industry, education, etc. 77.4% Companion 8.3% Produc4on Animal Majority are female Median pre-tax income is $91,000 - $148,000 *

6 Companion Animal DVMs Human animal bond is the driver Practice management software and EMR savvy Retail business makes up 17-22% of revenues Business expertise is not a strong suit 22% of their revenue is spent on supplies OTC items (ex. shampoo) 4% Diet 3.5% Pharmaceu*cal products & medical supplies 10% Heartworm & Flea Tick products 4.5%

7 Companion Animal Pet Owners 67% of U.S. households have a pet 45% of U.S. households have 1+ pet 50% consider their pet a member of the family 78 Million pet dogs* Owners spend an average of $453 annually per dog 86 Million pet cats* Owners spend an average of $363 annually per cat 8 Million pet horses* Owners spend > $6,400 annually per horse *These numbers are slightly down over 5 years

8 Companion Market $60 Billion Business

9 Companion Market Breakdown $60 Billion Business Accessories and Supplies 20% or $13B Breeding and Gene4cs 5% or $3B Diets and Treats 30% or $18B Vet and Professional Services 45% or $26B * Estimated 2012 number APPA

10 Trends to Watch Changing DVM demographics Lifestyle implications change dynamics Selling of a practice becomes more challenging The rise of corporate veterinary medicine Banfield/VCA = Kaiser Permanente Current penetration is 6% or 1,500 hospitals It is expected to peak at 20% or 4,700 hospitals Corporate hospital revenue is 2X greater then avg. practice

11 Trends to Watch Prevention takes center stage PHP is an industry consortium Designed to work like annual check-ups at dentist Increasing level of care expected; more diagnostics The consolidation game is on Pharmaceutical activity is driven by the human side Distributor activity is expected to continue What will it look like in distribution?

12 Trends to Watch The role of the Vet Tech is evolving Vet Tech = Nurse Practitioners More responsibility for care More training and stature in the practice The rise of pet insurance 4% penetration in U.S. v 30% in Europe Model is different than healthcare (owner is reimbursed) Expected to result in more care, more procedures

13 Market Trends: What s Next? Human animal bond continues to drive industry More insurance means more procedures More emphasis on prevention and medicine More sophisticated retail strategies Tougher environment for new pharmaceuticals DVMs reliance on business partners will increase

14 Distribution Value to Customers Aggregators for the collective needs of vet hospitals One-stop shopping for +/- 30,000 SKUs High level of touch with customers 50,000 orders placed per day order average is ~ $445/order with 5-6 line items Superior fulfillment capacities Primary and secondary delivery of key manufacturer messages

15 Distributor Value to Manufacturers Efficient fulfillment to 30,000 vet hospitals who possess little inventory management expertise ISR and OSR relationships are strong from routine business interactions DSRs have ability to confirm benefits and reinforce decisions as well as quantify demand DSRs are considered the most trusted resources for information for the vet hospital DSRs uncover sales opportunities and drive retention of product

16 Best Practices for Selling Through Distribution PLANNING Never assume placing product in inventory will create sales ALIGN tactics to maximize customer visibility of your product or services PRIORITIZE which sales group has the best opportunity to influence customers COMMUNICATE frequently and actionably MEASURE results before, during, and after any event SHARE successes and results

17 PROFILE: Inside Sales Reps (ISRs) Spend an average of 3-7 minutes servicing an inbound order Clarifying correct SKU information Quoting prices and informing Offering promotions on items ordered ISRs talk to individual customers 15 times for every contact made by OSRs ISRs may talk to same account 2-4 times per week

18 PROFILE: Outside Sales Reps (OSRs) Spend an average of 25 minutes per call See 2-3 persons in the practice Visit on a 2-4 week sales call cycle Typically maintain 100 active accounts Frequently have a topic list of items Detail 5-7 promotions Detail 1-2 duplication opportunities Detail 4-6 featured products

19 Other Important Influencers in Distribution (Execs) Purchasing Manages entry of SKUs, costs, pricing, forecasting, maintaining inventory Warehouse group Manages stocking, SKU handing, space allocations, inventory turns Systems group Determines how and where SKUs are viewed Marketing group Manages promotions, internal/external communications, customer-facing publications, lists, s and web-elements Sales Management group Determines prioritization of SKUs or vendors in concert with senior management

20 Animal Health Distribution Companies The Big 4 (Patterson and AHII, Butler Schein, MWI) 20 Regional/local distributors of significance $7B+ in collective volume (includes agency, COM, LS) 80% of the business comes from 400 manufacturers

21 PROFILE: Henry Schein Animal Health Sales of $3B+ Approximately 500 sales reps (inside and out) Customer base of 25,000 practices 14% internal growth and a strong international presence 30% of the U.S. CA market Only in the CA business (but do sell some LS products) Columbus, OH based

22 PROFILE: MWI Veterinary Supply Sales of $3.2B+ (US and international) Approximately 675+ sales reps (inside/out; CA/LS) Customer base of 25,000 veterinary practitioners Acquisition focus and new hires driving growth 30% share of the U.S. CA market, 35% LS market Recent acquisitions include PCI, IVESCO Acquired by AmerisourceBergen 2/23/15

23 PROFILE: Patterson Veterinary Supply Sales of $1.3B+ Approximately 375 sales reps (inside and out) Symbol PDCO on NASDAQ 18% share of CA market Heavy focus on equipment and dental procedures Last major acquisition Columbus Serum in 2008 Recent merger with AHII results in a total combined value of $2.7B

24 PROFILE: Animal Health International Rolled up by Lextron and taken private $1.5B+ sales, 525 sales people 50% market share LS Livestock business is primary Companion animal business: TW Medical and DVM Resources acquisitions Recent merger with Patterson results in a total combined value of $2.7B

25 Regional Players of Note Super Regional Distributors Midwest ($110M, 150 DSRs) Victor ($50M, 40 DSRs) Penn Vet ($50M, 40 DSRs) Merritt ($40M, 75 DSRs) Regional Distributors NEVSCO First Vet Supply Western Medical Miller Vet Northwest Vet

26 Cooperatives Vedco 80% CA Clipper Distributing 90% CA AgriLabs 75% LS

27 Distribution Trends Consolidation is expected to continue Fewer agency agreements, more buy/sell Exclusive agreements becoming less common More value-added selling, less order taking More focus on equipment selling and lab

28 Distribution Trends More private label products in both pharmaceutical and device categories Looking for another blockbuster pharmaceutical product Will distribution look like physician office or dental? More focus on infection control Retail will decline, medicine will increase

29 Vet-Advantage Current Mix of Animal Health Products Promoting Excellence in Animal Health Sales Veterinary Advantage Magazine (CA/LS/EQ) Veterinary Advantage Digital Supplement (CA/LS) Vet-Advantage Weekly News (CA/LS/EQ) Vet-advantage.com (re-launched July 2012) SoundBytes (Sales training doc and video) Flip the Switch webinar for inside sales reps Vet-Advantage Online Product Training Vet-Advantage Pricing Index App Vet-Advantage Resource App (document management)

30 Thank You!