) on Mar. 12 pledged $14.4 billion to acquire the Dutch biotech. Organon is also the world's leading maker of vaccines to protect livestock and household pets. What's more, it markets drugs to treat everything from diabetic dogs to cats with cardiac problems. Of the $5 billion that Organon is expected to add to Schering's top line this year, $1.5 billion will come from products for four-legged and feathered critters.
As Big Pharma struggles to find new blockbuster drugs for treating human ills, the industry is quietly churning out innovations on the animal side of the business. Livestock pharmaceuticals are booming, thanks to increased farm production fueled by the globalization of agricultural products. And the pet business is even friskier. Eli Lilly & Co. (LLY
) has a brand-new pet-health unit, which released a doggie antidepressant on Apr. 2. Pfizer Inc. (PFE
) is about to launch a drug to help obese dogs shed pounds, and this summer it will introduce a product that can prevent Bowser from getting carsick. Bayer Animal Health has a new injectable chip for tracking lost pets.
Despite the expense—the obesity drug might cost as much as $2 a dose for a once-daily treatment—pharma companies are likely to find plenty of doting pet owners eager to open their pocketbooks. All told, Americans will spend $9.9 billion on medicines to treat their pets this year, 52% more than they spent five years ago, estimates the American Pet Products Manufacturers Assn. "People will pay as much as $500 per animal just to do a round of vaccines and tests," points out Schering Chief Executive Fred Hassan. Schering was a stalwart in the veterinary market even before the Organon acquisition.
There are other advantages for companies making dog de-wormers and bovine antibiotics. Animal health is an important hedge against the human side of the business, where drugmakers are facing what analysts call a "generic cliff." With more than 70 major drugs set to go off patent by 2011, the industry could lose $100 billion in revenues to copycat products. But animal drugs are less vulnerable to such steep declines because there are few competitors in each category. Plus, the vast majority of animal fanatics don't carry pet insurance, so they're not under pressure to switch to cheap generics. And animal drugmakers face relatively low exposure to legal blowups, unlike their colleagues on the human side of the fence—not to mention the pet food industry, which is now facing lawsuits over the recent poisonings from contaminated food.
Sales of drugs for livestock and pets have been growing steadily, year after year, often outpacing the growth of drugs designed for people. In 2006 revenues for Pfizer's animal-health business edged up 5%, compared with just 2% growth for its human pharmaceuticals. Units like these "tend to be strong cash generators, which adds consistency and visibility to earnings," as well as contributing to dividends, says David Risinger, an analyst for Merrill Lynch & Co. (MER
)HINTS FOR HUMAN CURESBreakthroughs in animal health can also help educate scientists who are developing human drugs. On Mar. 26 the Agriculture Dept. granted limited approval of a therapeutic vaccine to treat dogs with skin cancers called melanomas. The drug will be marketed by Merial, an animal-health joint venture of Merck & Co. (MER
) and Sanofi-Aventis (SNY
). Merial will spend the next year or so collecting data on how dogs respond to the vaccine so it can ultimately promote the product beyond a limited market of veterinary oncologists. Those efforts might complement research by many companies into cancer vaccines for humans. "We hope the human side of the industry will benefit from our findings," says Dr. Robert Nordgren, Merial's vice-president for vaccine research.
To understand why the industry is so eager to play in the pet and livestock market, consider one detail buried in Bayer's 2006 annual report. The company's Advantage line of flea and tick-control products outsold all of its other consumer treatments aside from aspirin and a diabetes drug. Not to mention, says Thomas Hopper, director of marketing for Bayer Animal Health, the business taps into the primal human-pet connection. Says Hopper: "It's a feel-good industry." And feeling good is something Big Pharma has been missing of late. By Arlene Weintraub