The 2009-2014 Outlook for Biological Veterinary Vaccines, Bacterins, Toxoids, Other Antigens, and Other Biological Products in the United States
ICON Group International, February 2009, Pages: 749
WHAT IS LATENT DEMAND AND THE P.I.E.?The concept of latent demand is rather subtle. The term latent typically refers to something that is dormant, not observable, or not yet realized. Demand is the notion of an economic quantity that a target population or market requires under different assumptions of price, quality, and distribution, among other factors. Latent demand, therefore, is commonly defined by economists as the industry earnings of a market when that market becomes accessible and attractive to serve by competing firms. It is a measure, therefore, of potential industry earnings (P.I.E.) or total revenues (not profit) if the United States is served in an efficient manner. It is typically expressed as the total revenues potentially extracted by firms. The “market” is defined at a given level in the value chain. There can be latent demand at the retail level, at the wholesale level, the manufacturing level, and the raw materials level (the P.I.E. of higher levels of the value chain being always smaller than the P.I.E. of levels at lower levels of the same value chain, assuming all levels maintain minimum profitability).The latent demand for biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products in the United States is not actual or historic sales. Nor is latent demand future sales. In fact, latent demand can be either lower or higher than actual sales if a market is inefficient (i.e., not representative of relatively competitive levels). Inefficiencies arise from a number of factors, including the lack of international openness, cultural barriers to consumption, regulations, and cartel-like behavior on the part of firms. In general, however, latent demand is typically larger than actual sales in a market.For reasons discussed later, this report does not consider the notion of “unit quantities”, only total latent revenues (i.e., a calculation of price times quantity is never made, though one is implied). The units used in this report are U.S. dollars not adjusted for inflation (i.e., the figures incorporate inflationary trends). If inflation rates vary in a substantial way compared to recent experience, actually sales can also exceed latent demand (not adjusted for inflation). On the other hand, latent demand can be typically higher than actual sales as there are often distribution inefficiencies that reduce actual sales below the level of latent demand.As mentioned in the introduction, this study is strategic in nature, taking an aggregate and long-run view, irrespective of the players or products involved. In fact, all the current products or services on the market can cease to exist in their present form (i.e., at a brand-, R&D specification, or corporate-image level) and all the players can be replaced by other firms (i.e., via exits, entries, mergers, bankruptcies, etc.), and there will still be latent demand for biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products at the aggregate level. Product and service offerings, and the actual identity of the players involved, while important for certain issues, are relatively unimportant for estimates of latent demand.THE METHODOLOGYIn order to estimate the latent demand for biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products across the states and cites of the United States, I used a multi-stage approach. Before applying the approach, one needs a basic theory from which such estimates are created. In this case, I heavily rely on the use of certain basic economic assumptions. In particular, there is an assumption governing the shape and type of aggregate latent demand functions. Latent demand functions relate the income of a state, city, household, or individual to realized consumption. Latent demand (often realized as consumption when an industry is efficient), at any level of the value chain, takes place if an equilibrium is realized. For firms to serve a market, they must perceive a latent demand and be able to serve that demand at a minimal return. The single most important variable determining consumption, assuming latent demand exists, is income (or other financial resources at higher levels of the value chain). Other factors that can pivot or shape demand curves include external or exogenous shocks (i.e., business cycles), and or changes in utility for the product in question. Ignoring, for the moment, exogenous shocks and variations in utility across geographies, the aggregate relation between income and consumption has been a central theme in economics. The figure below concisely summarizes one aspect of problem. In the 1930s, John Meynard Keynes conjectured that as incomes rise, the average propensity to consume would fall. The average propensity to consume is the level of consumption divided by the level of income, or the slope of the line from the origin to the consumption function. He estimated this relationship empirically and found it to be true in the short-run (mostly based on cross-sectional data). The higher the income, the lower the average propensity to consume. This type of consumption function is labeled "A" in the figure below (note the rather flat slope of the curve). In the 1940s, another macroeconomist, Simon Kuznets, estimated long-run consumption functions which indicated that the marginal propensity to consume was rather constant (using time series data). This type of consumption function is shown as "B" in the figure below (note the higher slope and zero-zero intercept). The average propensity to consume is constant. Is it declining or is it constant? A number of other economists, notably Franco Modigliani and Milton Friedman, in the 1950s (and Irving Fisher earlier), explained why the two functions were different using various assumptions on intertemporal budget constraints, savings, and wealth. The shorter the time horizon, the more consumption can depend on wealth (earned in previous years) and business cycles. In the long-run, however, the propensity to consume is more constant. Similarly, in the long run, households with no income eventually have no consumption (wealth is depleted). While the debate surrounding beliefs about how income and consumption are related is interesting, in this study a very particular school of thought is adopted. In particular, we are considering the latent demand for biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products across the states and cities of the United States. The smallest cities have few inhabitants. I assume that all of these cities fall along a "long-run" aggregate consumption function. This long-run function applies despite some of these states having wealth; current income dominates the latent demand for biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products. So, latent demand in the long-run has a zero intercept. However, I allow different propensities to consume (including being on consumption functions with differing slopes, which can account for differences in industrial organization, and end-user preferences).Given this overriding philosophy, I will now describe the methodology used to create the latent demand estimates for biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products in the United States. Since ICON Group has asked me to apply this methodology to a large number of categories, the rather academic discussion below is general and can be applied to a wide variety of categories and geographic locations, not just biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products in the United States.Step 1. Product Definition and Data CollectionAny study of latent demand requires that some standard be established to define “efficiently served”. Having implemented various alternatives and matched these with market outcomes, I have found that the optimal approach is to assume that certain key indicators are more likely to reflect efficiency than others. These indicators are given greater weight than others in the estimation of latent demand compared to others for which no known data are available. Of the many alternatives, I have found the assumption that the highest aggregate income and highest income-per-capita markets reflect the best standards for “efficiency”. High aggregate income alone is not sufficient (i.e. some cities have high aggregate income, but low income per capita and can not assumed to be efficient). Aggregate income can be operationalized in a number of ways, including gross domestic product (for industrial categories), or total disposable income (for household categories; population times average income per capita, or number of households times average household income). Latent demand is therefore estimated using data collected for relatively efficient markets from independent data sources (e.g. Official Chinese Agencies, the World Resources Institute, the Organization for Economic Cooperation and Development, various agencies from the United Nations, industry trade associations, the International Monetary Fund, Euromonitor, Mintel, Thomson Financial Services, the U.S. Industrial Outlook, and the World Bank). Depending on original data sources used, the definition of “biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products” is established. In the case of this report, the data were reported at the aggregate level, with no further breakdown or definition. In other words, any potential product or service that might be incorporated within biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products falls under this category. Public sources rarely report data at the disaggregated level in order to protect private information from individual firms that might dominate a specific product-market. These sources will therefore aggregate across components of a category and report only the aggregate to the public. While private data are certainly available, this report only relies on public data at the aggregate level without reliance on the summation of various category components. In other words, this report does not aggregate a number of components to arrive at the “whole”. Rather, it starts with the “whole”, and estimates the whole for all states and cities in the United States (without needing to know the specific parts that went into the whole in the first place).Given this caveat, this study covers “biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products” as defined by the NAICS coding system (pronounced “nakes”). For a complete definition of biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products. The NAICS code for biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products is 325414A1. It is for this definition of biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products that the aggregate latent demand estimates are derived for the states and cities of the United States. “Biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products” is specifically defined as follows: 325414A1Biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products325414A111Biological products, excluding diagnostic, for veterinary, industrial, and all other miscellaneous uses, veterinary vaccines, including vaccines against foot_and_mouth disease 325414A121Biological products, excluding diagnostic, for veterinary, industrial, and all other miscellaneous uses, bacterins, toxoids, and other antigens, excluding allergens, for active immunization 325414A131Biological products, excluding diagnostic, for veterinary, industrial, and all other uses, other biological products, including veterinary blood derivatives, antitoxins, immune serums, and allergens Step 2. Filtering and SmoothingBased on the aggregate view of biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products as defined above, data were then collected for as many geographic locations as possible for that same definition, at the same level of the value chain. This generates a convenience sample of indicators from which comparable figures are available. If the series in question do not reflect the same accounting period, then adjustments are made. In order to eliminate short-term effects of business cycles, the series are smoothed using an 2 year moving average weighting scheme (longer weighting schemes do not substantially change the results). If data are available for a geographic region, but these reflect short-run aberrations due to exogenous shocks (such as would be the case of beef sales in a state or city stricken with foot and mouth disease), these observations were dropped or "filtered" from the analysis.Step 3. Filling in Missing ValuesIn some cases, data are available on a sporadic basis. In other cases, data may be available for only one year. From a Bayesian perspective, these observations should be given greatest weight in estimating missing years. Assuming that other factors are held constant, the missing years are extrapolated using changes and growth in aggregate national, state and city-level income. Based on the overriding philosophy of a long-run consumption function (defined earlier), states and cities which have missing data for any given year, are estimated based on historical dynamics of aggregate income for that geographic entity.Step 4. Varying Parameter, Non-linear EstimationGiven the data available from the first three steps, the latent demand is estimated using a “varying-parameter cross-sectionally pooled time series model”. Simply stated, the effect of income on latent demand is assumed to be constant unless there is empirical evidence to suggest that this effect varies (i.e., . the slope of the income effect is not necessarily same for all states or cities). This assumption applies along the aggregate consumption function, but also over time (i.e., not all states or cities in the United States are perceived to have the same income growth prospects over time). Another way of looking at this is to say that latent demand for biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products is more likely to be similar across states or cities that have similar characteristics in terms of economic development. This approach is useful across geographic regions for which some notion of non-linearity exists in the aggregate cross-region consumption function. For some categories, however, the reader must realize that the numbers will reflect a state’s or city’s contribution to latent demand in the United States and may never be realized in the form of local sales. Step 5. Fixed-Parameter Linear EstimationNonlinearities are assumed in cases where filtered data exist along the aggregate consumption function. Because the United States consists of more than 15,000 cities, there will always be those cities, especially toward the bottom of the consumption function, where non-linear estimation is simply not possible. For these cities, equilibrium latent demand is assumed to be perfectly parametric and not a function of wealth (i.e., a city’s stock of income), but a function of current income (a city’s flow of income). In the long run, if a state has no current income, the latent demand for biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products is assumed to approach zero. The assumption is that wealth stocks fall rapidly to zero if flow income falls to zero (i.e., cities which earn low levels of income will not use their savings, in the long run, to demand biological veterinary vaccines, bacterins, toxoids, other antigens, and other biological products). In a graphical sense, for low income cities, latent demand approaches zero in a parametric linear fashion with a zero-zero intercept. In this stage of the estimation procedure, a low-income city is assumed to have a latent demand proportional to its income, based on the cities closest to it on the aggregate consumption function.Step 6. Aggregation and BenchmarkingBased on the models described above, latent demand figures are estimated for all major cities in the United States. These are then aggregated to get state totals. This report considers a city as a part of the regional and national market. The purpose is to understand the density of demand within a state and the extent to which a city might be used as a point of distribution within its state. From an economic perspective, however, a city does not represent a population within rigid geographical boundaries. To an economist or strategic planner, a city represents an area of dominant influence over markets in adjacent areas. This influence varies from one industry to another, but also from one period of time to another. I allocate latent demand across areas of dominant influence based on the relative economic importance of cities within its state. Not all cities (e.g. the smaller towns) are estimated within each state as demand may be allocated to adjacent areas of influence. Since some cities have higher economic wealth than others within the same state, a city’s population is not generally used to allocate latent demand. Rather, the level of economic activity of the city vis-à-vis others is used. Figures are rounded, so minor inconsistencies may exist across tables.
1 INTRODUCTION 91.1 Overview 91.2 What is Latent Demand and the P.I.E.? 91.3 The Methodology 101.3.1 Step 1. Product Definition and Data Collection 111.3.2 Step 2. Filtering and Smoothing 121.3.3 Step 3. Filling in Missing Values 131.3.4 Step 4. Varying Parameter, Non-linear Estimation 131.3.5 Step 5. Fixed-Parameter Linear Estimation 131.3.6 Step 6. Aggregation and Benchmarking 142 SUMMARY OF FINDINGS 152.1 Latent Demand in The US 153 FAR WEST 173.1 Executive Summary 173.2 Latent Demand by Year - Alaska 183.3 Cities Sorted by Rank - Alaska 193.4 Cities Sorted by Zipcode - Alaska 203.5 Latent Demand by Year - California 223.6 Cities Sorted by Rank - California 233.7 Cities Sorted by Zipcode - California 443.8 Latent Demand by Year - Hawaii 653.9 Cities Sorted by Rank - Hawaii 663.10 Cities Sorted by Zipcode - Hawaii 693.11 Latent Demand by Year - Nevada 723.12 Cities Sorted by Rank - Nevada 733.13 Cities Sorted by Zipcode - Nevada 743.14 Latent Demand by Year - Oregon 763.15 Cities Sorted by Rank - Oregon 773.16 Cities Sorted by Zipcode - Oregon 813.17 Latent Demand by Year - Washington 863.18 Cities Sorted by Rank - Washington 873.19 Cities Sorted by Zipcode - Washington 954 GREAT LAKES 1034.1 Executive Summary 1034.2 Latent Demand by Year - Illinois 1044.3 Cities Sorted by Rank - Illinois 1054.4 Cities Sorted by Zipcode - Illinois 1194.5 Latent Demand by Year - Indiana 1344.6 Cities Sorted by Rank - Indiana 1354.7 Cities Sorted by Zipcode - Indiana 1424.8 Latent Demand by Year - Michigan 1494.9 Cities Sorted by Rank - Michigan 1504.10 Cities Sorted by Zipcode - Michigan 1594.11 Latent Demand by Year - Ohio 1694.12 Cities Sorted by Rank - Ohio 1704.13 Cities Sorted by Zipcode - Ohio 1844.14 Latent Demand by Year - Wisconsin 1984.15 Cities Sorted by Rank - Wisconsin 1994.16 Cities Sorted by Zipcode - Wisconsin 2105 MID-ATLANTIC 2225.1 Executive Summary 2225.2 Latent Demand by Year - Delaware 2235.3 Cities Sorted by Rank - Delaware 2245.4 Cities Sorted by Zipcode - Delaware 2255.5 Latent Demand by Year - District of Columbia 2265.6 Cities Sorted by Rank - District of Columbia 2285.7 Cities Sorted by Zipcode - District of Columbia 2285.8 Latent Demand by Year - Maryland 2295.9 Cities Sorted by Rank - Maryland 2305.10 Cities Sorted by Zipcode - Maryland 2375.11 Latent Demand by Year - New Jersey 2445.12 Cities Sorted by Rank - New Jersey 2455.13 Cities Sorted by Zipcode - New Jersey 2555.14 Latent Demand by Year - New York 2655.15 Cities Sorted by Rank - New York 2665.16 Cities Sorted by Zipcode - New York 2945.17 Latent Demand by Year - Pennsylvania 3235.18 Cities Sorted by Rank - Pennsylvania 3245.19 Cities Sorted by Zipcode - Pennsylvania 3416 NEW ENGLAND 3596.1 Executive Summary 3596.2 Latent Demand by Year - Connecticut 3606.3 Cities Sorted by Rank - Connecticut 3616.4 Cities Sorted by Zipcode - Connecticut 3666.5 Latent Demand by Year - Maine 3716.6 Cities Sorted by Rank - Maine 3726.7 Cities Sorted by Zipcode - Maine 3786.8 Latent Demand by Year - Massachusetts 3846.9 Cities Sorted by Rank - Massachusetts 3856.10 Cities Sorted by Zipcode - Massachusetts 3946.11 Latent Demand by Year - New Hampshire 4036.12 Cities Sorted by Rank - New Hampshire 4046.13 Cities Sorted by Zipcode - New Hampshire 4086.14 Latent Demand by Year - Rhode Island 4136.15 Cities Sorted by Rank - Rhode Island 4146.16 Cities Sorted by Zipcode - Rhode Island 4156.17 Latent Demand by Year - Vermont 4176.18 Cities Sorted by Rank - Vermont 4186.19 Cities Sorted by Zipcode - Vermont 4227 PLAINS 4267.1 Executive Summary 4267.2 Latent Demand by Year - Iowa 4277.3 Cities Sorted by Rank - Iowa 4287.4 Cities Sorted by Zipcode - Iowa 4337.5 Latent Demand by Year - Kansas 4397.6 Cities Sorted by Rank - Kansas 4407.7 Cities Sorted by Zipcode - Kansas 4447.8 Latent Demand by Year - Minnesota 4487.9 Cities Sorted by Rank - Minnesota 4497.10 Cities Sorted by Zipcode - Minnesota 4567.11 Latent Demand by Year - Missouri 4647.12 Cities Sorted by Rank - Missouri 4657.13 Cities Sorted by Zipcode - Missouri 4727.14 Latent Demand by Year - Nebraska 4787.15 Cities Sorted by Rank - Nebraska 4807.16 Cities Sorted by Zipcode - Nebraska 4827.17 Latent Demand by Year - North Dakota 4847.18 Cities Sorted by Rank - North Dakota 4857.19 Cities Sorted by Zipcode - North Dakota 4867.20 Latent Demand by Year - South Dakota 4877.21 Cities Sorted by Rank - South Dakota 4887.22 Cities Sorted by Zipcode - South Dakota 4898 ROCKIES 4918.1 Executive Summary 4918.2 Latent Demand by Year - Colorado 4928.3 Cities Sorted by Rank - Colorado 4938.4 Cities Sorted by Zipcode - Colorado 4988.5 Latent Demand by Year - Idaho 5038.6 Cities Sorted by Rank - Idaho 5048.7 Cities Sorted by Zipcode - Idaho 5068.8 Latent Demand by Year - Montana 5088.9 Cities Sorted by Rank - Montana 5098.10 Cities Sorted by Zipcode - Montana 5118.11 Latent Demand by Year - Utah 5138.12 Cities Sorted by Rank - Utah 5148.13 Cities Sorted by Zipcode - Utah 5188.14 Latent Demand by Year - Wyoming 5228.15 Cities Sorted by Rank - Wyoming 5238.16 Cities Sorted by Zipcode - Wyoming 5249 SOUTHEAST 5269.1 Executive Summary 5269.2 Latent Demand by Year - Alabama 5279.3 Cities Sorted by Rank - Alabama 5289.4 Cities Sorted by Zipcode - Alabama 5339.5 Latent Demand by Year - Arkansas 5399.6 Cities Sorted by Rank - Arkansas 5409.7 Cities Sorted by Zipcode - Arkansas 5449.8 Latent Demand by Year - Florida 5489.9 Cities Sorted by Rank - Florida 5499.10 Cities Sorted by Zipcode - Florida 5659.11 Latent Demand by Year - Georgia 5829.12 Cities Sorted by Rank - Georgia 5839.13 Cities Sorted by Zipcode - Georgia 5909.14 Latent Demand by Year - Kentucky 5979.15 Cities Sorted by Rank - Kentucky 5989.16 Cities Sorted by Zipcode - Kentucky 6029.17 Latent Demand by Year - Louisiana 6079.18 Cities Sorted by Rank - Louisiana 6089.19 Cities Sorted by Zipcode - Louisiana 6139.20 Latent Demand by Year - Mississippi 6189.21 Cities Sorted by Rank - Mississippi 6199.22 Cities Sorted by Zipcode - Mississippi 6229.23 Latent Demand by Year - North Carolina 6269.24 Cities Sorted by Rank - North Carolina 6279.25 Cities Sorted by Zipcode - North Carolina 6359.26 Latent Demand by Year - South Carolina 6439.27 Cities Sorted by Rank - South Carolina 6449.28 Cities Sorted by Zipcode - South Carolina 6499.29 Latent Demand by Year - Tennessee 6549.30 Cities Sorted by Rank - Tennessee 6559.31 Cities Sorted by Zipcode - Tennessee 6619.32 Latent Demand by Year - Virginia 6679.33 Cities Sorted by Rank - Virginia 6689.34 Cities Sorted by Zipcode - Virginia 6739.35 Latent Demand by Year - West Virginia 6789.36 Cities Sorted by Rank - West Virginia 6799.37 Cities Sorted by Zipcode - West Virginia 68110 SOUTHWEST 68410.1 Executive Summary 68410.2 Latent Demand by Year - Arizona 68510.3 Cities Sorted by Rank - Arizona 68610.4 Cities Sorted by Zipcode - Arizona 69010.5 Latent Demand by Year - New Mexico 69410.6 Cities Sorted by Rank - New Mexico 69510.7 Cities Sorted by Zipcode - New Mexico 69710.8 Latent Demand by Year - Oklahoma 70010.9 Cities Sorted by Rank - Oklahoma 70110.10 Cities Sorted by Zipcode - Oklahoma 70510.11 Latent Demand by Year - Texas 70910.12 Cities Sorted by Rank - Texas 71010.13 Cities Sorted by Zipcode - Texas 72911 DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS 74811.1 Disclaimers & Safe Harbor 74811.2 ICON Group International, Inc. User Agreement Provisions 749
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