Pfizer to Spin-Off Animal Health Biz

Pfizer Inc. (PFE - Analyst Report) finally unveiled its plans for its Animal Health business. The company, which has been exploring strategic alternatives for its Animal Health business, recently announced that it intends to spin-off the business. Pfizer said that it will file a registration statement for an initial public offering (IPO) for a minority stake in Zoetis, the new company.

Pfizer’s Animal Health business, which focuses on the discovery, development, manufacture and marketing of animal vaccines, medicines, biopharmaceuticals, diagnostics and genetic tests, has a presence in more than 120 countries. The business delivered sales of $4.2 billion in 2011.

With the upcoming spin-off of the Animal Health business, Pfizer should be able to focus on its core business area. Pfizer has already taken steps to make its operations more streamlined and focused. The company sold its Capsugel unit to Kohlberg Kravis Roberts & Co L.P. (KKR - Snapshot Report) for $2.375 billion in cash in August 2011.

Then, in April 2012, Pfizer announced that it has entered into an agreement with Nestlé regarding the sale of the Nutrition business for a cash consideration of $11.85 billion.

The spin-off of the Animal Health business should be completed before July 2013. Pfizer will continue treating the Animal Health business as continuing operations. We expect to hear more about the spin-off when the company reports second quarter results. Pfizer intends to use the proceeds towards share buybacks.

We currently have a Neutral recommendation on Pfizer, which carries a Zacks #3 Rank (short-term Hold rating). The company is facing a major patent cliff with Lipitor losing patent protection in November 2011. Near-term earnings at Pfizer will be driven by cost cutting efforts and share repurchases. Longer-term growth will be dependent on the success of drug development.