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Zoetis at five: The industry leader is now leaner and more adventurous

Over the last 1,825 days, Zoetis has evolved considerably from a segment within Big Pharma to a standalone trendsetter in animal health. Animal Pharm editor Joseph Harvey looks at the first five years after the industry leader's rebirth. 

The best place to start when mapping the changes Zoetis has undergone during its first five years of existence is its product portfolio.

Previously, Zoetis had a portfolio largely geared towards production animals. It featured many established brands, as well as a wide-ranging inventory. A combination of product innovation and cost-cutting has seen Zoetis regenerate its portfolio in a way that mirrors some major trends in the wider industry. 

In half a decade, the company has increased its exposure to the companion animal market considerably. When it first launched as a standalone entity, around 65% of the firm's sales were from the food animal sector. Now, according to its most recent financial results (first nine-months of fiscal 2017), Zoetis' food animal products account for about 55% of revenues.

New launches such as Apoquel, Cytopoint, Stronghold Plus and Simparica have aided this shift. The move towards more companion animal revenues will only continue as these brands continue to take hold in new geographies and Zoetis maintains its R&D focus on monoclonal antibodies and its sarolaner antiparasitic platform.

The growing importance of companion animals to the Zoetis make-up has seen the firm grow its stature in the US – the key market for cats and dogs. In 2013, the company derived 42% of its sales from its domestic market. Now, US sales represent about half of the firm's turnover.

A clearer picture of the company's changing portfolio will arrive in around two weeks' time, when it publishes its financial report for fiscal 2017. One landmark is guaranteed for the firm – it is expected to become the first animal health company with annual revenues of more than $5bn.

Pfizer Animal Health recorded sales of $4.3bn in fiscal 2012. When Zoetis hits the $5bn landmark, the company will have recorded around 16% in sales growth across five years. This represents growth of around 3% per year, which is solid bearing in mind the company's recent restructuring and lack of game-changing megadeals.

Zoetis has slimmed down over the past five years. Its number of manufacturing sites have decreased, as has its employee count, product lines and geographical presence. The result of this is a healthier bottom line – something chief executive Juan Ramón Alaix recently explained to Animal Pharm.

Zoetis had an initial target of cutting $300m from its annual costs by 2017. The company expects to surpass this goal when it announces full-year results.

M&A rationale sees no major changes

While several of the firm's competitors have undergone some major changes recently through mega-mergers, Zoetis has had a bolt-on strategy from the off. 

All of its transactions since 2013 have seen it build on its existing portfolio. The company's most notable deal was for Pharmaq, which added a significant portfolio of fish vaccines. There have been other small purchases, with the capture of Nexvet Biopharma's monoclonal antibodies and Scandinavian Micro Biodevices' diagnostics being the most notable.

How has the industry reacted?

Last year, Clint Lewis, executive vice president and president international operations for the company, told Animal Pharm about the 'Zoetis effect'.

"Our initial public offering validated the attractiveness of the animal health market," he explained. "Over time, we have seen the success of our 'story-telling' to the broader world and the investment community drawing positive attention and interest in animal health.

"We take seriously our role as a market leader. Consistent with market leaders across other industries, we want to demonstrate the right stewardship for this industry. There is no question that we want to be successful but we want the way that we go after that success to be seen as a positive for the broader animal health industry as a whole."

The creation of Zoetis via the public markets had a knock-on impact on the rest of animal health with start-ups receiving the investor backing they needed to list after the industry leader' successful initial public offering.

However, it will be a test of time if spin-offs from Big Pharma have become more acceptable in animal health. With Elanco under strategic review by its parent company, perhaps the next big animal health spin-off is not far away.

While Zoetis remains the market leader, it is now involved in its closest ever contest for the top spot. Boehringer Ingelheim transformed its animal health division last year with the acquisition of Merial.

Nevertheless, this competition will not perturb Zoetis. The firm will continue on the same M&A strategy and R&D course as it did before. Competition will be good for Zoetis, as it will stimulate it to become an even stronger trendsetter and key opinion leader than ever before – a win-win for the industry as a whole.

Valuation keeps on rising

On February 1, 2013, the firm's initial public offering valued the world's largest animal health business at $13bn. Now, Zoetis has a market capitalization in excess of $38bn.

Earlier this week, the firm's shares climbed north of $80 each for the first time. This value is more than double its share price back in February 2013.

Zoetis share price progression 2013-2018


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