In an attempt to further simplify its business and unlock shareholder value, Pfizer Inc. (NYSE:PFE) has been busy divesting itself of non-core assets. Last year, that involved the sale of its infant nutrition business to Nestle. And earlier this year, that simplification process led to Pfizer spinning off its animal health care division into a separate company called Zoetis Inc (NYSE:ZTS). In the largest IPO since Facebook Inc (NASDAQ:FB), Pfizer Inc. (NYSE:PFE) and Zoetis highlighted to the public the many reasons why the animal health care industry can make for a great long-term investment opportunity.
Reason #1: The $100 billion global market.
Animal health is not some tiny, inconsequential health care niche. Keeping pets and farm animals healthy is big business. According to the research and consulting firm Vetnosis, the global animal health care market is worth between $92 billion and $102 billion. Within that overall animal health care industry, the market for animal medicines and vaccines alone is estimated at $22 billion globally.
It is that medicine and vaccine market that Zoetis Inc (NYSE:ZTS) and other pharmaceutical companies operate in. Zoetis, the market’s only major pure play, is the world’s largest animal health care company, commanding nearly 20% of the market share based on 2012 sales. Although the largest, Zoetis is not without major competitors from the diversified drug makers. Merck & Co., Inc. (NYSE:MRK)‘s Animal Health division has the distinction of being the world’s second largest, with a market share of about 15.5%. And let’s not forget about the Paris-based Sanofi SA (ADR) (NYSE:SNY) and its animal health division, Merial, which comes in with about 13% of the global market. With just under half of the total worldwide market between themselves, these three are certainly the companies to watch.
Reason #2: Helping to feed the world.
According to the United Nations, it is projected that the Earth’s population will grow to 9.15 billion people by 2050. That is a lot of hungry mouths to feed. Most of that population growth will occur in the emerging market countries, where diets are becoming increasingly westernized. And by westernized, I mean more protein (milk, cheese, beef, pork, chicken, lamb, fish, eggs and the like).
Animal health companies are well positioned to address this growing emerging market demand for higher-protein diets. Zoetis Inc (NYSE:ZTS)’ top-selling Ceftiofur, for example, helps to protect livestock herds with a line of broad-spectrum antibiotics for cattle, pigs, and sheep. Merck & Co., Inc. (NYSE:MRK) contributes to the cause with Estrumate, a treatment for cattle fertility disorders. And then there is Sanofi SA (ADR) (NYSE:SNY)’s Ivomec, which is used to control internal and external parasites. These and other drugs help to keep animals healthy, which gives all of us access to affordable and delicious animal-based food products.
Reason #3: The love for our pets.
In a recent study published by researchers at Georgia Regents University, participants were asked a hypothetical question about who they would rather save if they could only choose one: a foreign tourist or their pet dog. About 40% answered that they would save their beloved pet. And when asked a similar question substituting “foreign tourist” for “immediate blood relative,” amazingly 2% answered that they would choose to save their dogs over their own family members. Wow.
Ignoring for a second the obvious misplaced priorities of some (particularly that 2%), this study makes one thing crystal clear: People really love their pets. Pet owners treat their furry companions like members of the family. And as with any family member, you would do just about anything to keep them safe, happy, fed, and healthy. It is for that reason that in the United States alone, Americans spent more than $53 billion on food, pet supplies, over-the-counter and prescription medications, veterinary care, live animal purchases, and other pet-related services.