It's unusual in the pharmaceuticals industry for a big company to take its animal health division off the corporate leash.
Pfizer Inc. is showing why others might want to consider following its lead.
Zoetis, which Pfizer started with an initial public offering in February and fully separated in June, ranks as the top animal health business globally by sales, currently projected at more than $4.2 billion for 2013.
And Zoetis, based in Florham Park, is eyeing further growth, especially in emerging markets.
Countries such as Brazil, India and China generate more than one-quarter of the company's revenue. Research and consulting firm Vetnosis is projecting 5.7 percent annual growth through 2016 in the global animal medicines and vaccines sector.
Backed by growth projections, Zoetis CEO Juan Ramon Alaix said Pfizer concluded that unleashing its animal health unit was justified.
"It was clear that Pfizer's animal health business, now Zoetis, was not as visible as it could be," said Alaix, a former president of Pfizer's animal health division. "So through external and internal growth, we were able to create critical mass needed to be fully independent."
The growth potential is evident.
About 60 percent of Zoetis' business consists of medicines and vaccines geared toward livestock, according to the company, with the rest on companion animals. A big chunk of the growth is expected in emerging markets that will be able to afford more meat consumption — and will therefore need better medicine to produce and care for livestock.
And rising living standards mean the global population is more able to afford pets — and expensive medicines to care for them.
Rutgers University economics professor Mahmud Hassan said Pfizer's decision to spin off Zoetis also makes sense from an industry strategy standpoint.
Hassan said animal health has been getting attention in the industry because it generally does not get competition from generic companies, which have eroded Big Pharma's traditional revenue streams.
"Eighty percent of prescriptions are for generic drugs," said Hassan, who specializes in pharmaceutical studies. "How do you compete with generic prices? It's impossible."
With patent expiration slamming sales, Hassan said he envisions more spinoffs like Zoetis, since the animal and human health businesses, while overlapping, have enough distinctions to justify separation.
Doing it, however, is not that easy.
Alaix said the company's road to independence traces back to the Pfizer acquisition of SmithKline Beecham's animal health unit in 1995, plus later mergers with Pharmacia, Wyeth and King Pharmaceuticals. Each acquisition beefed up Pfizer's existing animal health business, itself a venerable institution formed in 1952.
Zoetis employs 400 in New Jersey and 9,500 worldwide.
In the United States, the animal health landscape mostly consists of business divisions or subsidiaries within major players like Merck & Co., Sanofi, Novartis, Bayer and Eli Lilly & Co.
Merck, a drugmaker otherwise downsizing and restructuring its New Jersey presence, has increased animal health operations here. In May, it moved its Netherlands animal business to Summit, where it employs about 300.
But after the company's animal health unit posted just 2 percent sales growth in its second quarter, analysts on July 30 pressed CEO Ken Frazier on Merck's plans.
Frazier said Merck views the unit as fundamentally strong — it has recently rolled out new product lines — and believes business diversity improves revenue and profit. Still, the CEO didn't rule out exploring other options.
Merck owns the second-largest animal health business, after Zoetis; it has 6,000 employees worldwide and global revenues of $3.4 billion.
Merck spokeswoman Amy Firsching said the company remains committed to its animal health business, noting its synergies with the larger corporation's R&D department "provide a foundation for scientific co-discoveries that benefit customers and shareholders."
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