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.

(Click to enlarge)

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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KPMG report urges radical new look at long-term care

'We need to support [the public's] informed choice so that the A&E department is not be seen as the inevitable solution', writes Hilary Thomas. Photograph: Christopher Thomond

For much of the 20th century, the biomedical model of care constructed around hospitals served us well. It was ideal for a time when a paternalistic approach to disease was deemed as the right way to go. But in a world of Web 2.0, with an ageing demographic and where multiple conditions are becoming the norm, it is no longer appropriate to suggest that "doctor knows best".

In the report, A promise to learn – a commitment to act, Don Berwick, the legendary patient safety guru, set out four guiding principles. One of these is to engage, empower and hear patients and carers throughout the entire system and at all times.

The point made was that engaging and hearing patients will lead us to understand how current experience suggests poor co-ordination between healthcare and community support. It also hints that poor engagement results in individuals not admitting when and with what they need help – and this cannot be good for patients or the professionals trying to help them.

Yet, the solution must lie in the system and not within the walls of an institution. Integration is a term much bandied about in healthcare and could become a weasel word in the healthcare lexicon if the many pilots we have at present are not effectively implemented; if they don't begin to provide more care at home and in the community, and if they don't ensure a more seamless experience.

It's against this background that KPMG recently conducted a survey of 1000 patients, asking them about the future of the NHS. It revealed – surprisingly – that only 36% were comfortable with the idea of using technology, with 54% also arguing that taxes should rise to pay for healthcare.

So the public are ready to have a much more mature and sophisticated dialogue – but we need to support their informed choice so that the hospital and the A&E department are not seen as the inevitable solution.

While news of an additional £500m to A&E departments may defer some of the pain of demand over the winter, the sticking plaster approach is not going to yield the sustainable change required. The best integrated systems in the world have sustained leadership, an effective clinical leadership and engagement and have usually invested considerable sums in their IT infrastructure.

Two examples speak volumes. To begin with, take Virginia Mason in Seattle – where Gary Kaplan, the medically qualified CEO, has been in post for 15 years and where Toyota and Six Sigma approaches to clinical practice are a way of life. He says that "you don't have to be a champion, but you can't be a burier". There's also Kaiser Permanente, where almost 50% of the 9 million population can access their healthcare records online.

Yet despite these great examples of care being made fit for the 21st century, KPMG's latest report, called An Uncertain Age: re-imagining long-term care in the 21st century, suggests that few, if any societies, are facing up to the long-term care problem. Commissioned by the Lien Foundation – a Singapore philanthropic foundation – it makes the point that an ageing population coupled with changing demographics, where people move away from their home base, means the threat of less family support is becoming a reality. Add to this the growing cost of healthcare and the dwindling available funding and we need to redraw the way we provide care and the way we engage the population in that change.

As our report suggests, person-centred care is a must, institutional boundaries must be redrawn or erased and technology must play a part. Perhaps this is Berwick's most important guiding principle as, without that engagement, empowerment and listening we will not be able to make the seismic shift required to a holistic view of the system. In other words, we will not be able to move beyond the walls of the hospital, where patients and the public expect increased autonomy in return for greater responsibility for their health.

And without that, governments will continue to deploy expensive sticking plasters and the benefits will become increasingly short-lived.

Professor Hilary Thomas is a partner in KPMG's public sector healthcare advisory service

This article is published by Guardian Professional. Join the Healthcare Professionals Network to receive regular emails and exclusive offers.

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Councils are developing coherent, long-term public health strategies

Local authorities can now relate to the Beatles' Ringo Starr when he sang 'How do I feel by the end of the day?' Photograph: Jon Super/AP

Now councils have a major new role in public health, they once again have the chance, as Ringo Starr didn't quite put it, to help their residents feel better at the end of the day.

The report I have written for Localis clearly shows councils exploring new and innovative ways to tackle the wider social, cultural and environmental determinants of health, following April's switch of £2.7bn of public health funding from NHS control to the hands of local authorities. New health and wellbeing boards were created, enhancing the role of councils in the planning and oversight of all local health services.

With NHS acute treatment costs on a seemingly unsustainable, upwards trajectory, this shift in emphasis towards prevention and tackling the "causes of the causes" of poor health could not be more timely.

Housing, transport, children's services, leisure services and employment (among others) have all been demonstrably linked to health outcomes. It is refreshing, then, to see councils showing real innovation in pushing through short-term public health projects with the potential to deliver instant benefits. Barnet borough council told us that this year it has rolled out green gyms, "forging a closer integration between public health and leisure providers".

Alongside such "quick wins", it is inspiring to see councils developing coherent, long-term public health strategies. A mass of evidence links employment to a person's health and wellbeing, and Kent county council's long-running apprenticeships programme offers businesses grants of up to £2,000 to take on an unemployed 18-24 year-old as an apprentice.

Critics argue that the £2.7bn public health budget transferred to local authority could prove a little leaky, accusing councils of using the money to fill in holes in their budgets. But as Public Health England chief executive Duncan Selbie rightly observes, "ultimately these are local decisions".

Selbie is right to caution, however, that this approach should not be taken too far, offering reassurance that if money was spent on things "completely outside any reasonable view about what constitutes health then of course we'd have to be addressing that".

And where existing, traditional public health themes are demonstrably working, councils are continuing to support such measures. Persistent problems like smoking cessation, healthy eating, drugs, alcohol services and sexual health, are – quite rightly – still absorbing the overwhelming majority of public health budgets.

The return of public health responsibilities to the town hall is a golden opportunity to do things differently. But, crucially, restoring public health to the heart of local government requires fostering links and synergies with wider local government functions.

And to do this, councils will need more than a little help from their friends.

Gwilym Tudor Jones is a research fellow at thinktank Localis.

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View the original article here

KPMG report urges radical new look at long-term care

'We need to support [the public's] informed choice so that the A&E department is not be seen as the inevitable solution', writes Hilary Thomas. Photograph: Christopher Thomond

For much of the 20th century, the biomedical model of care constructed around hospitals served us well. It was ideal for a time when a paternalistic approach to disease was deemed as the right way to go. But in a world of Web 2.0, with an ageing demographic and where multiple conditions are becoming the norm, it is no longer appropriate to suggest that "doctor knows best".

In the report, A promise to learn – a commitment to act, Don Berwick, the legendary patient safety guru, set out four guiding principles. One of these is to engage, empower and hear patients and carers throughout the entire system and at all times.

The point made was that engaging and hearing patients will lead us to understand how current experience suggests poor co-ordination between healthcare and community support. It also hints that poor engagement results in individuals not admitting when and with what they need help – and this cannot be good for patients or the professionals trying to help them.

Yet, the solution must lie in the system and not within the walls of an institution. Integration is a term much bandied about in healthcare and could become a weasel word in the healthcare lexicon if the many pilots we have at present are not effectively implemented; if they don't begin to provide more care at home and in the community, and if they don't ensure a more seamless experience.

It's against this background that KPMG recently conducted a survey of 1000 patients, asking them about the future of the NHS. It revealed – surprisingly – that only 36% were comfortable with the idea of using technology, with 54% also arguing that taxes should rise to pay for healthcare.

So the public are ready to have a much more mature and sophisticated dialogue – but we need to support their informed choice so that the hospital and the A&E department are not seen as the inevitable solution.

While news of an additional £500m to A&E departments may defer some of the pain of demand over the winter, the sticking plaster approach is not going to yield the sustainable change required. The best integrated systems in the world have sustained leadership, an effective clinical leadership and engagement and have usually invested considerable sums in their IT infrastructure.

Two examples speak volumes. To begin with, take Virginia Mason in Seattle – where Gary Kaplan, the medically qualified CEO, has been in post for 15 years and where Toyota and Six Sigma approaches to clinical practice are a way of life. He says that "you don't have to be a champion, but you can't be a burier". There's also Kaiser Permanente, where almost 50% of the 9 million population can access their healthcare records online.

Yet despite these great examples of care being made fit for the 21st century, KPMG's latest report, called An Uncertain Age: re-imagining long-term care in the 21st century, suggests that few, if any societies, are facing up to the long-term care problem. Commissioned by the Lien Foundation – a Singapore philanthropic foundation – it makes the point that an ageing population coupled with changing demographics, where people move away from their home base, means the threat of less family support is becoming a reality. Add to this the growing cost of healthcare and the dwindling available funding and we need to redraw the way we provide care and the way we engage the population in that change.

As our report suggests, person-centred care is a must, institutional boundaries must be redrawn or erased and technology must play a part. Perhaps this is Berwick's most important guiding principle as, without that engagement, empowerment and listening we will not be able to make the seismic shift required to a holistic view of the system. In other words, we will not be able to move beyond the walls of the hospital, where patients and the public expect increased autonomy in return for greater responsibility for their health.

And without that, governments will continue to deploy expensive sticking plasters and the benefits will become increasingly short-lived.

Professor Hilary Thomas is a partner in KPMG's public sector healthcare advisory service

This article is published by Guardian Professional. Join the Healthcare Professionals Network to receive regular emails and exclusive offers.

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Long-term side-effects in testicular cancer could be reduced by chemotherapy before radiotherapy

Main Category: Cancer / Oncology
Also Included In: Radiology / Nuclear Medicine
Article Date: 20 Aug 2013 - 0:00 PDT Current ratings for:
Long-term side-effects in testicular cancer could be reduced by chemotherapy before radiotherapy

Giving men with testicular cancer a single dose of chemotherapy alongside radiotherapy could improve the effectiveness of treatment and reduce the risk of long-term side-effects, a new study reports. As many as 96% of men with testicular cancer now survive at least ten years from diagnosis (1), but more advanced forms need to be treated with combination chemotherapy - which can have serious long-term complications. Researchers at The Institute of Cancer Research, London, and The Royal Marsden NHS Foundation Trust have therefore been searching for new treatments that would reduce the risk of relapse after initial treatment and so spare as many men as possible from needing combination chemotherapy.

The new pilot study, published in the August issue of prestigious journal the Annals of Oncology, tested a new treatment in a pilot study of men with stage IIA and IIB testicular seminoma - where the cancer has spread to the lymph nodes in the abdomen.

The researchers showed that giving chemotherapy drug carboplatin before radiotherapy could reduce relapse rates compared with radiotherapy alone - cutting the numbers of men who would need follow-up treatment. It also allowed radiation doses to be reduced. The study was funded by The Institute of Cancer Research (ICR), the Bob Champion Cancer Trust and Cancer Research UK, as well as through the NIHR Biomedical Research Centre at The Royal Marsden and the ICR.

Researchers gave 51 men with stage IIA and IIB testicular seminoma a single cycle of carboplatin - a low toxicity form of chemotherapy - followed three to four weeks later by radiotherapy. Most of the men were aged below 50, over a range of 18-73 years.

Adding carboplatin to patients' treatment plans allowed doctors to give a lower dose of radiation over a smaller area of the body for most of the men in the study. Some 39 of the men in the study had their prescription of radiation reduced from the standard 35 Grays (Gy) of radiation to 30 Gy, delivered to a smaller area of the abdomen.

After an average of 4.5 years of follow-up, there were no relapses of the cancer compared with a relapse risk of 5-11% after radiotherapy alone. The side-effects from treatment were mild and only lasted a short time.

Dr Robert Huddart, Team Leader in the Division of Radiation and Imaging at the Institute of Cancer Research, London, and Consultant at The Royal Marsden, who led the study, said:

"The results of this study show great promise. Men who have this stage of testicular seminoma are normally treated with just radiotherapy, or in some countries with intensive combination chemotherapy, where several anticancer drugs are given at once. Relapse occurs in 5-11% of men after radiotherapy alone, and these recurrences have to be treated with combination chemotherapy, which is associated with a risk of serious long-term complications such as cardiovascular disease or second cancers.

"The aim of the study was to develop an effective non-toxic treatment with low risk of long-term treatment complications, and our findings suggest that a single cycle of carboplatin before radiotherapy may reduce the chances of cancer reappearing compared with radiotherapy alone. This will reduce the risk that these patients would need combination chemotherapy. Not only that, but by adding carboplatin to the therapy, the radiation dose and volume can be lowered."

As this was a small, single-centre study, the researchers are recommending the approach is evaluated more widely.

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

(1) Cancer Research UK Testicular cancer survival statistics (2009). Accessed online 15 August 2013.

Neoadjuvant carboplatin before radiotherapy in stage IIA and IIB seminoma

Ann Oncol (2013) 24 (8): 2104-2107. doi: 10.1093/annonc/mdt148

Institute of Cancer Research

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Earlier surgical correction of heart valve disorder associated with greater long-term survival, lower risk of heart failure risk

Main Category: Cardiovascular / Cardiology
Article Date: 13 Aug 2013 - 13:00 PDT Current ratings for:
Earlier surgical correction of heart valve disorder associated with greater long-term survival, lower risk of heart failure risk

In a study that included patients with mitral valve regurgitation due to a condition known as flail mitral valve leaflets, performance of early surgical correction compared with initial medical management was associated with greater long-term survival and lower risk of heart failure, according to a study in the August 14 issue of JAMA.

"Degenerative mitral regurgitation [backflow of blood from the left ventricle to the left atrium due to mitral valve insufficiency] is common and can be surgically repaired in the vast majority of patients, improving symptoms and restoring normal life expectancy. Despite the safety and efficacy of contemporary surgical correction, an ongoing international debate persists regarding the need for early intervention in patients without American College of Cardiology (ACC)/American Heart Association (AHA) guideline class I triggers (no or minimal symptoms and absence of left ventricular dysfunction). This is in part propagated by discordant views of the prognostic consequences of uncorrected severe mitral regurgitation; considered as benign by those supporting medical watchful waiting (nonsurgical observation until a distinct event is encountered) vs. conveying excess mortality and morbidity (including heart failure and atrial fibrillation) by those advocating early surgical intervention," according to background information in the article.

To understand the comparative effectiveness of early surgery vs. initial medical management strategies, Rakesh M. Suri, M.D., D.Phil., of the Mayo Clinic College of Medicine, Rochester, Minn., and colleagues conducted a study to ascertain the comparative effectiveness of initial medical management (nonsurgical observation) vs. early mitral valve surgery following the diagnosis of mitral regurgitation due to flail leaflets (an abnormality of the mitral valve in which a portion of the valve has lost its normal support). For the study, the researchers used data from the Mitral Regurgitation International Database (MIDA) registry, which includes 2,097 patients with flail mitral valve regurgitation (1980-2004) receiving routine cardiac care from 6 tertiary centers (France, Italy, Belgium, and the United States). Of 1,021 patients with mitral regurgitation without ACC and AHA guideline class I triggers, 575 patients were initially medically managed and 446 underwent mitral valve surgery within 3 months following detection.

Within 3 months following diagnosis, 8 patients died, 5 (1.1 percent) after early surgery vs. 3 (0.5 percent) during initial medical management; 9 patients developed heart failure, 4 (0.9 percent) after early surgery vs. 5 (0.9 percent) during initial medical management; and 30 patients developed new-onset atrial fibrillation, 6.2 percent after early surgery vs. 1.2 percent during initial medical management.

Ninety-eight percent of patients were followed up from diagnosis until death or at least 5 years. A total of 319 deaths were observed during an average follow-up time of 10.3 years. "Survival among the entire unmatched cohort for early surgery was 95 percent at 5 years, 86 percent at 10 years, 63 percent at 20 years vs. 84 percent at 5 years, 69 percent at 10 years, and 41 percent at 20 years for initial medical management, favoring early surgery," the authors write. Early surgical correction of mitral valve regurgitation was associated with a 5-year reduction in mortality of 53 percent.

With class II triggers (atrial fibrillation or pulmonary hypertension), survival was again better with early surgery, both overall and in the matched cohort at 10 years.

During follow-up, 167 patients incurred at least 1 incident episode of heart failure representing a rate of 16 percent at 10 years and 27 percent at 20 years. In the overall cohort, heart failure was less frequent after early surgery (7 percent for early surgery vs. 23 percent for initial medical management at 10 years and 10 percent for early surgery vs. 35 percent for initial medical management at 20 years), with a heart failure risk reduction of approximately 60 percent.

Reduction in late-onset atrial fibrillation was not observed.

"These findings emanate from institutions that together provide a very high rate of mitral valve repair (>90 percent) with low operative mortality, emphasizing that such results might also be achieved in routine practice at many advanced repair centers," the authors write. "The advantages associated with early surgical correction of mitral valve regurgitation were confirmed in both unmatched and matched populations, using multiple statistical methods."

In an accompanying editorial, Catherine M. Otto, M.D., of the University of Washington School of Medicine, Seattle, comments on how the findings of this study may influence patient care.

"The study group is atypical compared with most patients with chronic severe mitral regurgitation seen in clinical practice who are referred for surgical intervention at symptom onset or when serial imaging shows early left ventricular (LV) dysfunction. In patients with severe mitral regurgitation due to mitral valve prolapse, early surgery is reasonable if surgical risk is low and the likelihood of successful valve repair is high, which is often the case for patients with a flail leaflet; the new data support this recommendation."

"However, if surgical risk is high or if the likelihood of valve repair is low, it remains uncertain whether early surgical intervention is appropriate in the asymptomatic patient with severe mitral regurgitation due to a flail leaflet when LV size and systolic function are normal. Although the majority of these patients will develop clear indications for valve surgery within 2 years, it may be reasonable to postpone the risks of having an intervention and having a prosthetic valve as long as possible."

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

Article - JAMA. 2013;310(6):609-616

Editorial - JAMA. 2013;310(6):587-588

JAMA

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'Earlier surgical correction of heart valve disorder associated with greater long-term survival, lower risk of heart failure risk'

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