Pfizer Inks Animal Health JV With Chinese Company Jilin Guoyuan

Pfizer Inc. announced a joint venture Sept. 8 with China's Jilin Guoyuan Animal Heatlh Company, Ltd. to develop, manufacture and distribute animal health vaccines in China.

To be called Jilin Pfizer Quoyuan Animal Health Co., Ltd., the JV will need to be cleared with the Chinese government, which will likely take a few months, Pfizer Animal Heath President Juan Ramon Alaix told reporters. As China is the world's larger producer of pork, the JV will initially focus on swine vaccines. Terms of the deal were not disclosed.

Interestingly, Pfizer announced in July that it would explore strategic alternatives for its Animal Health and Nutrition businesses, while keeping its Established Products and Consumer Health businesses (Also see "Pfizer: Established Products And Consumer Health In; Animal Health And Nutrition Out" - Pink Sheet, 7 Jul, 2011.).

With 2010 sales of $3.58 billion, analysts predicted that the Animal Health unit could be "highly attractive" to other large-cap pharmas and that a joint venture structure or potential breakup could be in the works.

"With 2011 sales forecast at $2 billion and this being a tax advantaged/international business that could be easily acquired in the current environment, we believe it could sell for 5x sales, or $10 billion," Leerink Swann analyst Seamus Fernandez commented in a July 7 note. He valued Pfizer's Animal Health unit at $10 to $12 billion.

Three years ago, Pfizer moved its Animal Health headquarters from New York to Shanghai to better support growth in Asia, which represents 14% of Pfizer's animal health business.

Asia Holds More Weight In Animal Health

With Asia growing faster than any other region, it represents a "higher weight" of the company's animal health business, Pfizer's Alaix said, noting that China's animal health market is roughly $3.4 billion and expected to grow at around 10%. The global animal health market is $20 billion and growing around 5%.

Pfizer is No. 1 in animal health in China and is "leading in innovation with a group of 800 scientists supporting our [Pfizer animal health] R&D activities," he said.

The main driver of growth in China's animal health market is an expanding middle class that is eating a richer, animal protein diet. That growing middle class also has more purchasing power and is seeing a growing demand for companion animals as well, Pfizer said.

As Big Pharma focuses more on emerging markets, some are pointing to animal health as an area for growth and diversification.

Pfizer's animal health unit delivered more than $1 billion in the second quarter, Alaix said, marking "the first time ever any company has reached this milestone."

"We view China as a global center for innovation," Alaix said. "Guoyuan, with its strong vaccine development program and scientific expertise, and newly completed manufacturing capacity in the Huinan Economic Development Zone in Jilin, makes the company the optimal partner for Pfizer Animal Health."

Pfizer has had an animal health business in China since 1995, and operates three manufacturing plants in Suzhou, Shanghai and Chengdu, in addition to the new plant under the JV. Products include vaccines for livestock as well as anti-infectives.

Guoyuan is building a best-in-class manufacturing plant to produce vaccines, Alaix said, which was one of the reasons Pfizer believed they could work together.

"We selected Guoyuan not because they were the only one ... they were completing a plant, which was brand new and it was important, in our opinion, to make sure the plant was designed and completed in line with our standards."

Pfizer sees this move as a strategic way to build upon its current business in China, and the company believed it would be more successful by partnering with a local company.

MNCs Hold 10% Of Animal Health Market

"We have a good presence in China ... and it is a unique market because global companies represent a significant part of the business," Alaix said, noting that MNCs represents 10% of the market, and Pfizer sees the animal health market as an opportunity to get a "fair share of the market comparable to other markets."

Pfizer is also engaged in a number of animal health collaborations with key stakeholders in China, such as the Ministry of Technology and the Ministry of Commerce, helping to educate producers and regulatory agencies about animal health. It is also involved in several collaborations with universities to help develop curricula for future veterinarians.

The JV marks Pfizer's second recent investment in animal health in Asia; the company acquired Indian veterinary care company Vetnex in 2010 and invested $40 million in a research facility near Mumbai to accelerate its pipeline of future compounds for animal care (Also see "After Buying Vetnex, Pfizer Invests $40 Million To Set Up Discovery Research Center For Animal Health Drugs In India" - Scrip, 2 Feb, 2010.).

Just last year, Pfizer divested its swine vaccines business in China as a condition set by China's Ministry of Commerce for its merger with Wyeth. It was the first time that a business in China has been sold as a consequence of Chinese competition authorities' review of a global merger following the new Anti-Monopoly Law passed in August 2008 (Also see "Pfizer Divests Its Swine Vaccine Business To Harbin Pharmaceutical Group In China As Condition Of $68 Billion Merger With Wyeth" - Scrip, 1 Jun, 2010.).

With no current swine vaccine, the new vaccines from the JV will add to Pfizer's vaccine business as well as provide an opportunity for China to lead innovation that can be exported to other markets.

Pfizer hopes to have swine vaccines on the market by early 2012.

- Tamra Sami ([email protected])