Bloomberg News

Zoetis Plans to Keep Factories as It Seeks New Products

February 02, 2013

Zoetis Inc., the animal health company that gained 19 percent in its initial public offering yesterday, is developing new antibiotic medicines and doesn’t anticipate closing any of its 29 factories around the world.

The animal drug maker, which Pfizer Inc. (PFE:US) spun off in a $2.24 billion IPO, will issue its 2013 financial guidance (ZTS:US) after the first quarter of this year, said Chief Executive Officer Juan Ramon Alaix. It projects annual growth of 5.7 percent a year through 2016, led by its livestock business, he said.

Zoetis traces its roots to 1952 as a Pfizer unit and has made at least 10 acquisitions to become the largest animal- health business, almost doubling its sales (ZTS:US) to $4.3 billion in 2012 from 2005. The company has about 20 percent of the $22 billion market and Alaix said Zoetis probably is done with the bigger deals that helped fuel that growth.

“We have the critical mass to operate, and also the presence in all the markets,” he said in an interview. “We don’t need a large acquisition. But of course we can be opportunistic.”

Zoetis, based in Madison, New Jersey, rose 19 percent (ZTS:US) to $31.01 at the close of its first day of trading, valuing the company at $15.51 billion. Pfizer, the world’s biggest drugmaker, sold 17 percent of the company, or 86.1 million shares, in the biggest IPO since Facebook Inc.’s last year. Pfizer may dispose of the rest of its holdings after a six-month waiting period.

Keeping Assets

Alaix said Zoetis plans to keep all or most of its 29 manufacturing plants, rather than close some to save money, as Mark Schoenebaum, an analyst with ISI Group Inc. in New York, has speculated.

The animal-health company’s structure is different than a company that makes drugs for people, where manufacturing plants are large and expensive, he said in an interview yesterday.

“As for the 29, the number can be misleading -- the size can be very small,” he said. Some of the plants only have six or seven employees, Alaix said, and exist to manufacture vaccines or other products in their country of need.

Zoetis’s research and development operations have been independent from New York-based Pfizer’s since 2003, he said, and won’t need major investment.

“We have created our own organization. We have our own labs. We have our own models,” he said. It also has a seven- year agreement with Pfizer to use the drugmaker’s library of chemicals to help develop new drugs.

Different Populations

Alaix said failure rates are lower for animal-health drugs compared with medicines for humans because there are fewer safety concerns, since the animals don’t live as long as people.

“Human trials, you start with an animal, then you need to move the model to humans,” Alaix said. “In animals, we start with the animals and we continue. Side effects are very rare in our industry, especially in livestock (ZTS:US).”

Alaix said that that major areas for new product investment will include medical diagnostics, new antibiotics less likely to result in bacterial resistance and livestock products that help pigs, chickens and beef on less water or feed, making production cheaper for farmers.

Antibiotics are added to animal feed to tamp down bacterial growth when cattle are fed grain rather than their natural diet of grass. Grain helps them grow more quickly, though wide use of the antibiotics may cause bacteria to develop resistance to the drugs, making them less useful as human medicine.

The company is benefiting as people consume more protein, a trend likely to increase as wealth grows in emerging countries such as Brazil, China and India, said Marshall Gordon, of New York-based money manager ClearBridge Investments LLC.

Rival Drugmakers

Zoetis competes mainly with non-listed units of Merck & Co. (MRK:US) and Eli Lilly & Co. (LLY:US) and companies such as Sanofi, according to ISI’s Schoenebaum. The IPO has forced chief executive officers of other drugmakers to answer questions about divesting their animal health operations. The CEOs of Merck and Lilly talked about their animal units on recent earnings calls and said they were happy keeping the businesses.

While Zoetis’s 17 percent sales growth in 2011 outpaced all but Lilly’s animal unit, data compiled by Bloomberg show, Pfizer is parting with the company as part of CEO Ian Read’s strategy to concentrate on the drug business after losing patent protection for cholesterol pill Lipitor, the world’s best- selling medicine.

To contact the reporter on this story: Drew Armstrong in New York at darmstrong17@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net


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Companies Mentioned

  • PFE
    (Pfizer Inc)
    • $31.12 USD
    • 0.45
    • 1.45%
  • ZTS
    (Zoetis Inc)
    • $41.13 USD
    • 0.28
    • 0.68%
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