Yoke Har Lee: Running with the big players produces results

Will Rouse with some of the drenching guns that Simcro Tech produces. Photo / Sarah Ivey

Learning to tango with the big players in an industry can be the route to growth, a Waikato-based animal healthcare company has learnt.

Simcro Tech has found out that developing a product in a vacuum is not as powerful a business model as working with key partners.

Simcro helps design and make equipment such as drenching guns that help farmers maintain the health of their animals.

The company's success over the past few years has been based on intensive cultivation of strategic relationships with global animal healthcare companies, whose sales and resources are vast by New Zealand standards.

Among Simcro's strategic global partners are names such as Novartis Animal Healthcare of Switzerland and US-based Pfizer Animal Health.

Chief executive Will Rouse, an ex-Citibanker turned business investor, says: "Our primary channel to markets is via a clutch of global players. Our point of difference is we are globally competitive doing what we do. We spend lots on research and development. We don't market our products in a vacuum."

On its menu are 40-odd projects that are developed in close association with global animal healthcare companies. The gestation period can seem glacial at times.

Sekurus, a gun-like injector used to deliver Pfizer's drug Improvac - a vaccine against boar taint, which produces an unpleasant taste in some pork - began life at Simcro in 2004 and made its first sale only this year.

The brief from Pfizer Animal Health included requirements that the product should be soft, and not cause lesions to the boars, and that there had to be two levels of safety for the protection of the person administering the vaccine.

Another feather in Simcro's cap is the Optiline sheep drencher developed in conjunction with Novartis to administer ZOLVIX worm-control drench.

Rouse says that since the 1950s there has been little change in sheep drenching technology. In 2006 Simcro was one of six companies which pitched to supply a new drenching tool to Novartis. The result was Optiline, which was launched in March this year.

"New Zealand has a very strong culture of innovation," Rouse says. "Products take longer to get to market because of our location but we also have real advantage in that it gives us perspective to think clearly than if we were, say a US-based company."

Simcro was founded in 1993 by Joe Simmonds and Brian Croy. In 2007, Rouse and several others took ownership. The shareholders are Rouse, Jeff Excell, John Dennehy and the company's R&D guru, Rod Walker.

Since taking the reins, the current shareholders have focused on tightening up internal systems, including streamlining its legal structures and its complex supply chain management.

"When we bought the company, there were quite a number of products under development but only three or four were significant ones," Rouse says.

The previous management hired Rod Walker five years ago when it decided R&D was crucial. Today Simcro has 11 engineers and the equivalent of 80-85 fulltime staff. About 80 per cent of its sales are to large animal healthcare companies and over 90 per cent are for export.

Working with animal healthcare companies can be a bit of a headache at this stage given the complex restructuring going on among their parents, the big pharmaceutical firms.

Pfizer, the world's largest drug company, is acquiring Wyeth in a deal estimated at over US$60 billion ($87.5 billion), while Merck is in the process of acquiring Schering-Plough for US$41.1 billion.

In New Zealand, Wyeth supplies animal health products through its subsidiary Fort Dodge. Wyeth, according to press reports, must shed part of its Fort Dodge assets to gain US regulatory approvals for its merger with Pfizer.

Due to these mergers, several animal health care assets are up for sale.

Pharmaceutical companies are also keen to grab more of the animal healthcare drugs market to buffer impending falls in revenue as more generic human drugs come into the market in the next two years.

The Bloomberg news agency recently cited an IMS Health Inc study which showed animal health drug sales in the US rose 7.2 per cent to $19.2 billion in 2008, outpacing growth in human drugs, which grew 1.3 per cent to $291 billion.

Simcro is focused on the opportunities that will present themselves as a result of the reshuffling in the animal health drugs industry. But major competitors are also knocking on the same doors. Rouse says there is also the risk of competitors ramping up their own R&D efforts. He is confident, however, of Simcro's edge.

"We know what we are capable of. We work with these drug companies in the early development cycle of a new drug."

But it is also not uncommon for a project to be tossed aside after a few years. "I have seen one project being put out of development after $50 million was spent [by the drug company]," he says.

Having a strong market direction is another key to success, Rouse adds. A product can be created but there is no guarantee people will buy it.

For others in New Zealand seeking to break into the global market, Rouse's advice is: "Focus on one doing one thing well, that often opens the whole road ahead."

Colin Harvey, founder of animal healthcare products company Ancare, which has since been sold to Merial (owned by Sanofi-Aventis SA and Merck) says that as long as Simcro keeps innovating, it will have a strong business. However, the traditional market for Simcro - sheep drenching systems - has many competitors, Harvey says.

"Simcro has designed products for us in new delivery systems and are very good at it. They have worked with us in putting together delivery systems which Merial's taken to the world," says Harvey.

Rouse says Simcro is looking at opportunities to branch out into the market for pet healthcare, where a huge amount of money is being spent.

A wider issue is the value of the Kiwi dollar. New Zealand needs to seriously consider re-examining its foreign exchange rate policy - a managed peg, Rouse says, would be great for exporters.

Simcro Tech

* Founded in 1993 by Joe Simmonds and Brian Croy.
* Ownership changed in 2007.
* Revenue up over 30 per cent since 2007.
* Over 90 per cent of its products are exported.
* Finalist in three categories of the International Business Award, organised by NZ Trade and Enterprise.