Pfizer Inc. (PFE), Zoetis Inc (ZTS): 4 Investment Opportunities in Animal Health

Page 1 of 2

Pfizer Inc. (NYSE:PFE) recently announced plans to sell its remaining 80% stake in animal-health company Zoetis Inc (NYSE:ZTS) after about four months on the public market. Margins and profits aren’t as high in the animal health business, which has pushed the world’s largest pharmaceutical company to streamline its focus. It also highlights a delicate Catch-22 for Big Pharma.

Pfizer Inc. (NYSE:PFE)

While animal health companies represent a sizable chunk of total revenue in the dark days of the patent cliff, investors want to see pharma companies focus solely on pharma products to successfully clear the patent cliff. Pfizer Inc. (NYSE:PFE) ultimately decided to appease the masses. Depending on the success of Zoetis Inc (NYSE:ZTS) — and perhaps its parent — other pharmaceutical companies may decide to release their animal health businesses. That could open up several entirely new long-term investment opportunities for your portfolio.

The one and only?

The animal health business is a $100 billion global opportunity with a $22 billion medicines and vaccines segment that is growing at a CAGR of 6%. That represents the core focus for Zoetis Inc (NYSE:ZTS), which has ridden the growth to become the largest animal health businesses in the world. It may be the first to test the public markets, but there are three other closely held companies investors can keep an eye on.

Company, Parent

2012 Sales

2012 Sales Growth

% of Total Sales

Zoetis, Pfizer $4.3 billion 3% 7.3%
Merck Animal Health, Merck $3.4 billion 4.5% 7.2%
Merial, Sanofi (NYSE:SNY) $2.9 billion 3.1% 6.2%
Elanco, Eli Lilly (NYSE:LLY) $2.0 billion 21% 9%

Source: Company 2012 SEC filings.

Merck has made a big push to keep Merck Animal Health on the fast track for growth and recently announced plans to relocate the division from the Netherlands to its New Jersey campus. The company hopes the move creates a more efficient business by bringing 300 employees into closer quarters and reducing costs. It also brings the company closer to America’s massive cattle farms, for which Merck Animal Health offers dozens of products.

Merial was founded in 1997 as a joint venture between Merck and Sanofi, but it was bought outright by Sanofi a few years ago for $4 billion (after Merck assumed the Intervet/Schering-Plough Animal Health business in its merger with the company). Considering that Zoetis Inc (NYSE:ZTS), albeit a bit larger, is now worth $16.5 billion that move could pay off tremendously. With well-known companion products such as Frontline and Heartgard and dozens of products for livestock and horses, Merial should continue to grow comfortably in the years ahead.

And finally investors have Elanco, which is smaller but growing like a mangrove tree. Couple its growth with the fact that it represents 9% of Eli Lilly’s total sales and it is easy to see why CFO Derica Rice flatly rejected the notion that it would consider a spinoff. Instead, the parent is pushing the company into major growth opportunities in emerging markets. I wouldn’t expect the company to grow at a 21% clip for the next few years, but I wouldn’t be surprised to see it ascend the list above.

Forbidden: patent cliffs and insurers

You may question why an animal health business belongs in your portfolio at all. Although margins may be lower than human pharmaceutical businesses there are several key advantages. Animal health companies don’t have to face generic competition or deal with pesky insurers — two of the biggest risks juggled by Big Pharma. It also helps that livestock vaccines represent a relatively small cost for the food industry and pay big dividends for productivity, so farmers don’t question their usage.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Top Reasons For Getting Fired

The 3 Best States to Start an LLC

10 Jobs That Allow You to Travel

7 High-Paying Jobs You Can Do From Home

12 Best Cities to Shop in USA

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!