Waiting for Zoetis
The largest animal pharma player, Pfizer, is expected within weeks to spin off its animal health unit through an initial public offering. The IPO identifies the new company as Zoetis, which will continue the Pfizer animal-health operations that generated $4.2 billion in 2011 sales. In the first half of 2012, Zoetis doubled its earnings to $284 million on sales that rose 4%, to $2.14 billion.
“It's the first time you're going to have a really large animal health business on a standalone basis. All the other big animal health players are wrapped up within a big pharmaceutical company. I think that's sparking investors’ interest,” Damien Conover, CFA, a director covering the healthcare industry for Morningstar, told GEN. “Given the volatility of the patent cliff that most of these pharmaceutical firms are facing right now in human health, the animal health has actually been a nice area where they have seen some steady growth.”
Animal pharma, Conover said, is about a $20 billion-a-year market that has attracted investors of late with stronger growth prospects than many human-health segments. Over the next five years, animal pharma sales are expected to rise 5% annually.
“If you get into oncology and ophthalmology, those are growing a little bit more quickly. You get into some of your older school medicines like allergy and some cardiovasculars, then you're talking about low single digits,” Conover said.
Notwithstanding that projected growth, he added, Aratana faces a significant challenge given the presence of Zoetis and other giants. While smaller companies tend to be targeted by the larger companies, Conover noted, at least the start-ups don’t face the same antitrust pressure as the giants to divest in animal health.
U.S. spending on pets reached a projected $52.87 billion last year, according to the American Pet Products Association, more than triple 1994’s $17 billion. The 2012 figure includes $13.59 billion in veterinary care—not counting over-the-counter drugs, which account for a separate $11.77 billion lumped in with spending on supplies. The U.S. carries out more than half the world’s total spending on pets, reported by Euromonitor at $94 billion in 2012.
“The willingness that people have to spend on their cats and dogs is huge. The question is, are they willing to spend on their pets’ medical needs, if given the opportunity and offered products from their veterinarian to deal with their pets’ medical needs?” Dr. St. Peter said.
The potential market is huge: 62% of American households have a cat or dog. There are 160 million cats and dogs in American households. “If you just imagine if it’s a dollar a day for their medical needs, that’s $60 billion a year in the US alone. And if the market looks like $1,000 a year for 1% of animals, that’s $16 billion. Just the sheer number of animals creates, we think, a huge market opportunity,” Dr. St. Peter added.