Zoetis: Finding Long-Term Growth In Pfizer's Spin-Off

Over the last few years, the pharmaceutical industry has been defined by a significant number of big mergers and acquisitions. This has occurred as major pharma companies continue to seek mid-to-late stage pipeline candidates that hold much potential. Rather than allocating a large amount of capital and time to develop these products from scratch, these companies have sought to take advantage of their growing cash reserves.

Yet coinciding with this trend is the complementary desire to stay disciplined and focused. The divestment of non-core businesses by the pharma sector has also been a growing trend. Recently, AstraZeneca (AZN) sold its Astra Tech business to DENTSPLY. GlaxoSmithKline (GSK) divested certain non-core assets from its Consumer Healthcare segment. Even Abbott Labs (ABT) found it ideal to split into two separate publicly traded companies, one which is focused on research-based pharmaceuticals.

Yet through these divestitures, some interesting investment opportunities have come about. Early this year, Pfizer (PFE) spun off its animal health unit in a $2.2 billion initial public offering of Zoetis (ZTS). The offering exceeded expectations by pricing the stock at $26 per share, above an expected price range of $22 to $25 per share. Now listed as a separate public entity, Zoetis exists as the world's largest independent company solely focused on animal health.

Zoetis is dedicated to the discovery, development, manufacture and commercialization of animal health medicines and vaccines for livestock and companion animals around the world. The company sits squarely between two growing trends as incomes continue to rise in developing regions of the world. Both livestock production and the rate of pet ownership continue to increase in response to rising standards of living. Consequently, animal health medicines and vaccines continue to be needed in greater volumes.

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This rising demand for animal health medicines and vaccines stands to positively affect Zoetis. Through 2004-2011, one out of every four FDA animal health medicine approvals was awarded to Zoetis products. Likewise, one out of every five USDA animal health vaccines was awarded to Zoetis products over the same time period.

In 2012, the company generated $4.3 billion in annual revenue. Of this figure, 65% was derived from farm animal products and 35% came from companion animal products. According to Vetnosis, a research and consulting firm specializing in global animal health and veterinary medicine, the animal medicines and vaccines sector is projected to grow at a compound annual growth rate of 5.7% per year.

At $32.37, Zoetis now trades at a market capitalization of $16.18 as of September 20. The company carries a forward price-to-earnings ratio of 20.09 based on analyst earnings estimates of $1.61 for 2014. Yet at the same time, Zoetis trades with a modest PEG Ratio of 1.40 suggesting the company's price remains in line with expected growth. Nevertheless, Zoetis clearly trades with a hefty premium. The company carries a price-to-book ratio of 20.32 and a price-to-sales ratio of 3.70.

Zoetis remains healthy from a financial point of view. The company remains well capitalized and supports a safe current ratio of 2.33. Above all, the company continues to generate a significant amount of value. Over the last two years, the former division of Pfizer generated an average of $476 million in cash flow from operating activities.

As a spin-off of Pfizer, Zoetis is likely to hold a less volatile investment audience. Shareholders of Pfizer were given 0.9898 shares of Zoetis for every share of Pfizer common stock exchanged. This roughly put 405 million shares of the company's 500 million shares outstanding into the hands of an established investment base.

Additionally, from the offset it was clear that insiders endorsed the establishment of the new company. At the IPO price of $26, 13 directors and officers subscribed to an additional 42,500 shares valued at $1,105,000. Most recently, company director Michael McCallister purchased an additional 7,000 shares in an open market transaction valued at $219,461 according to the Form 4 found here. Since the creation of the public company, no insiders have sold shares in Zoetis.

Conclusion

The spin-off of Pfizer's animal health unit has opened a new pure play opportunity for investors looking to diversify into a growing sector of the global economy. Zoetis remains a profitable entity located between two long-term growth trends found in animal livestock production and pet ownership.

However, at its current price, it remains difficult to believe that Zoetis is undervalued. Despite a high-end IPO price at $26, the company now trades roughly 25% higher less than a year later. At the same time, the animal medicines and vaccines is only anticipated to grow 5.7% annually.

Altogether, Zoetis remains a leading company in a specialized field experiencing steady growth. The company clearly trades with a premium but likely retains a stable investment base having been spun off to Pfizer's shareholders. For investors looking to diversify their portfolios, Zoetis offers exposure into two long-term growth trends. The company remains a public leader in a rather unique field within the pharmaceutical industry.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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Knockout mouse grows larger, but weaker, muscles: Finding has implications for age-related muscle loss

Main Category: Bones / Orthopedics
Also Included In: Seniors / Aging
Article Date: 19 Aug 2013 - 1:00 PDT Current ratings for:
Knockout mouse grows larger, but weaker, muscles: Finding has implications for age-related muscle loss

Although muscle cells did not reduce in size or number in mice lacking a protective antioxidant protein, they were weaker than normal muscle cells, researchers from the Barshop Institute for Longevity and Aging Studies at The University of Texas Health Science Center San Antonio found.

The scientists, who are faculty in the university's School of Medicine, are studying how oxidative stress in cells impacts sarcopenia - a loss of muscle mass and strength that occurs in all humans as they age.

Protein knocked out selectively

The antioxidant protein is called SOD1. The researchers developed mice that did not have SOD1 in their muscles, though it was still present in other types of cells. Then they asked the question: Is lack of SOD1 at the muscle enough to cause atrophy?

Surprisingly, the total muscle mass in this mouse was larger. "We think that lack of SOD1 could be priming the muscle to use all of its survival skills," said Holly Van Remmen, Ph.D., professor of cellular and structural biology in the School of Medicine and associate director for basic research at the Barshop Institute. "The muscle knows things aren't quite right. Its rescue mechanisms are pulled into play."

But even though the muscles were not atrophied, they were still weak.

Sarcopenia and oxidative stress

Sarcopenia in people has two components: loss of muscle mass and loss of function (weakness). This study supports the idea that oxidative stress has a role in these detrimental effects. If a way can be found to curb the effects, then healthier, more productive aging could result, Dr. Van Remmen said.

The oxidative stress theory of aging holds that oxidation from molecules called "free radicals" causes damage to cells over time, resulting in sarcopenia and other decline.

The study is described in The FASEB Journal. Future research will assess whether limiting oxidative stress can effect muscle regeneration, Dr. Van Remmen said.

Article adapted by Medical News Today from original press release. Click 'references' tab above for source.
Visit our bones / orthopedics section for the latest news on this subject.

This work was supported by U.S. National Institute on Aging grant AG-020591.

CuZnSOD gene deletion targeted to skeletal muscle leads to loss of contractile force but does not cause muscle atrophy in adult mice, The FASEB Journal, Yiqiang Zhang, Carol Davis, George K. Sakellariou, Yun Shi, Anna C. Kayani, Daniel Pulliam, Arunabh Bhattacharya, Arlan Richardson, Malcolm J. Jackson, Anne McArdle, Susan V. Brooks,_,1 and Holly Van Remmen, doi:10.1096/fj.13-228130

University of Texas Health Science Center at San Antonio

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Potential for new antibiotics following finding that protein delays cell division in bacteria

Main Category: Infectious Diseases / Bacteria / Viruses
Also Included In: Genetics
Article Date: 14 Aug 2013 - 0:00 PDT Current ratings for:
Potential for new antibiotics following finding that protein delays cell division in bacteria

In 1958 a group of scientists working in Denmark made the striking observation that bacterial cells are about twice as large when they are cultured on a rich nutrient source than when they are cultured on a meager one. When they are shifted from a nutrient-poor environment to a nutrient-rich one, they bulk up until they have achieved a size more appropriate to their new growth conditions.

It has taken 60 years to figure out how the bacteria are able to sample their surroundings and alter their cell cycles so that they grow to a size suited to the environment.

In 2007 Petra Levin, PhD, a biologist at Washington University in St. Louis, reported in Cell that a soil bacterium named Bacillis subtilis has a protein that senses how much food is available and, when food is plentiful, temporarily blocks the assembly of a constriction ring that pinches a cell in two to create two daughter cells.

Now Norbert Hill, a graduate student in her group, reports in a recent online edition of PLoS Genetics that Escherichia coli uses a similar protein to help ensure cell size is coordinated with nutrient conditions.

Delaying division even just a little bit leads to an increase in daughter cell size. Once stabilized at the new size, cells take advantage of abundant nutrient sources to increase and multiply, doubling their population at regular intervals until the food is exhausted.

Because both the B. subtilis and E. coli proteins interact with essential components of the division machinery, understanding how they function will help in the discovery of antibiotics that block cell division permanently. A group in Cambridge, England, is already working to crystallize the E. coli protein docked on one of the essential components of the constriction ring.

If they are successful they may be able to see exactly how the protein interferes with the ring's assembly. An antibiotic could then be designed that would use the same mechanism to prevent division entirely, killing the bacteria.

Why do bacteria get bigger on a good food source?

Bacteria increase and multiply by a process called binary fission. Each cell grows and then the divides in the middle to produce two daughter cells. What could be simpler?

But the closer you look, the less simple it becomes. For binary fission to work the cell must make a copy of its circular chromosome, unlink and separate the two chromosomes to create a gap between them, assemble a constriction ring in the middle of the cell and coordinate the growth of new cell membrane as the ring cinches tight and pinches the mother cell in two. To complicate matters, bacteria don't necessarily do these steps one by one but can instead work on several steps simultaneously.

Most of the time the goal is to produce daughters the same size as the mother cell. But when food is plentiful, bacteria start making more copies of their DNA (as many as 12) in anticipation of divisions to come, and they can't easily cram all the extra DNA into standard-sized cells. So they grow bigger to accommodate the extra genetic material and remain large as long as the food lasts.

The inventory of partly copied chromosomes fuels rapid population growth, because a cell doesn't start from scratch when it needs another copy of its chromosome. Under optimum conditions, E. coli, for example, divides once every 17 minutes. If they are allowed to grow unhindered this means that in 24 hours 1 bacterium becomes about 5 x 1021 bacteria (that is 5 with 21 zeros after it.)

How do bacteria know the pickings are rich?

In B. subtilis and E. coli the signal is a modified sugar called UDP-glucose. Presumably, the richer the growth medium, the higher the level of this sugar inside the cell.

In both bacteria UDP-glucose binds to a protein and the sugar-protein complex then interferes with the assembly of the constriction ring. In the case of B. subtilis the protein is called UgtP and in the case of E. coli it is OpgH.

"It's interesting," Hill said, "that both organisms, which are more different from one another than we are from bakers' yeast, are using the same system to coordinate changing size in response to nutrient availability."

UgtP and OpgH are bifunctional proteins that are "moonlighting" as elements of the cell-division control systems. In both cases their day jobs are to help build the cell envelope. "We think they are communicating not only how much glucose there is in the cell, but also how fast the cell is growing," Levin said. "The sensor says not only is food abundant, but we're also growing really fast, so we should be bigger."

Both proteins delay division by interfering with FtsZ, the first protein to move to the division site, where it assembles into a scaffold and recruits other proteins to form a constriction ring.

"Very little is known about the assembly of the ring," Hill said. "There are a dozen essential division proteins and we don't know what half of them do. Nor do we understand how the ring develops enough force to constrict."

"We do know FtsZ exists in two states," Hill added. "One is a small monomer and the other is many monomers linked together to form a multi-unit polymer. We think the polymers bind laterally to form a scaffold and then, with the help of other proteins, make a meshwork that goes around the cell.

UgtP and OpgH both interfere with the ability of FtsZ to form the longer polymers necessary for assembly of the constriction ring.

When nutrient levels are low, UgtP and OpgH are sequestered away from the division machinery. FtsZ is then free to assemble into the scaffold supporting the constriction ring so the cell can divide. Because division proceeds unimpeded, cells are smaller when they divide.

What about other bacteria?

This control system helps to explain the 60-year-old observation that bacterial cells get bigger when they are shifted to a nutrient-rich medium.

Comparing the mechanisms that govern cell division in E. coli and B. subtilis reveals conserved aspects of cell size control, including the use of UDP-glucose, a molecule common to all domains of life, as a proxy for nutrient availability, and the use of moonlighting proteins to couple growth-rate-dependent phenomena to the central metabolism.

But much more is known about these model organisms, which many labs study, than the average bacterium. Nobody is sure how many species of bacteria there are - somewhere between 10 million and a billion at a guess - and they don't all divide the way B. subtilis and E. coli do.

The whimsically named giant bacterium Epulopiscium fiselsoni ("Fishelson's guest at a fish's banquet") that lives in the guts of sturgeonfish, has the gene for FtsZ but doesn't divide by binary fission. And then there are bacteria like the pathogen Chlamydia traachomatis that don't have a gene for anything like FtsZ. "We don't know how these bacteria divide, much less maintain an appropriate cell size," Levin said.

Article adapted by Medical News Today from original press release. Click 'references' tab above for source.
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Finding may lead to new treatments for neurodegenerative disease and stroke

Main Category: Neurology / Neuroscience
Also Included In: Stroke;  Rehabilitation / Physical Therapy
Article Date: 25 Jul 2013 - 1:00 PDT Current ratings for:
Finding may lead to new treatments for neurodegenerative disease and stroke

In degenerative brain diseases and after stroke, nerve cells die while their support cells activate the brain's immune system to cause further damage. Now Jonathan Gilthorpe, Adrian Pini and Andrew Lumsden at the MRC Centre for Developmental Neurobiology at King's College London, have found that a single protein, histone H1, causes these distinct outcomes.

The research passed peer review within a week of being published in F1000Research, where Jan-Marino Ramirez, of the University of Washington, called the work "a very important contribution to our understanding of neurodegenerative disease and the response of the brain to injury" in his public referee report. He also noted that he is "confident that this study will be a much cited contribution to the field of traumatic brain injury".

The most unexpected finding in this study is that a histone protein is responsible for neuronal damage. "Histone H1 partners with DNA in the cell nucleus and has been thought of as harmless," explain the authors, "The surprise came when we discovered that it can be released from brain cells upon injury, killing healthy nerve cells and activating the damaging immune response".

The research team is now working on ways to suppress these harmful actions, which may lead to the development of new treatments for neurodegenerative disease and stroke.

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Extracellular histone H1 is neurotoxic and drives a pro-inflammatory response in microglia [v1; ref status: indexed] F1000Research 2013, 2:148 (doi: 10.12688/f1000research.2-148.v1)

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