How Zoetis is quietly building its presence in animal diagnostics

The announcement from animal health giant Zoetis on August 8 may not have seemed all that significant on first glance. The company spent $80 million to buy Scandinavian Micro Biodevices (SMB), a tiny 35-person company that makes “lab-on-a-chip” diagnostics that veterinarians can use in their offices when examining dogs and cats. But the move was the latest in the company’s ongoing effort to boost its presence in animal diagnostics–a booming market that’s projected to grow 8.6% a year and reach $6.7 billion by 2021.
SMB was a pioneer in point-of-care diagnostics for veterinary offices, according to Zoetis. The heart of its technology is a microfluidic platform that’s combined with data-management capabilities and user-friendly interfaces with customers. The company sells one line of diagnostics called QuickVet overseas, and another in the U.S. called VSpro. It has several more products in its pipeline.
“By combining our experience, production and R&D capabilities, we can enhance our ability to develop point-of-care diagnostics to address veterinarians’ most pressing challenges in clinics and on farms,” said SMB’s CEO Ole Kring in a press release announcing the deal.
SMB’s portfolio will be added to Zoetis’s growing line of diagnostic products for dogs and cats, which includes the canine heartworm test DiroCHEK and the feline leukemia test Assure. Zoetis boosted its diagnostics offerings in 2014, when it paid $255 million to pick up animal health assets from Abbott, now AbbVie ($ABBV). That purchase brought in several new diagnostic brands, including AlphaTRAK, which helps vets monitor pets with diabetes. Zoetis also offers diagnostic systems for horses, swine, poultry and cattle.
In a conference call with investors after Zoetis’s recent second-quarter earnings release, CEO Juan Ramón Alaix said the company would continue to prioritize diagnostics as it looks to fuel its organic growth. “In the second quarter, for example, we continued to expand our business diagnostic franchise into new markets with an additional approval in Spain for livestock test kits,” Alaix said. “These point-of-care test kits deliver accurate, fast and clear results that give the customers timely and informed diagnosis without disrupting their clinical consultation.”
During the quarter, Zoetis charted better-than-expected earnings–and solidified a turnaround effort that began over a year ago, when activist investor Bill Ackman of Pershing Square Capital started buying up shares and pressuring the company to put itself on the block. Zoetis put in place an efficiency plan expected to save at least $300 million a year, and Ackman has since backed off, slashing his ownership of the company from 8% to under 4%.
Alaix has also vowed to increase Zoetis’s efforts to develop more high-margin products–and diagnostics seems to fit well into that plan. Still, Zoetis will be facing plenty of competition. IDEXX Laboratories ($IDXX), a leader in animal diagnostics, reported earlier this month that strong demand for its veterinary diagnostics systems pushed its second-quarter revenues up 13% year-over-year to $466.6 million. IDEXX expects to bring in more than $1.76 billion in revenues this year.
– here’s the press release