The Changing Structure of the Animal Health Industry
By Mr. Sam Walker
Director of Marketing, Pork Business Team
Pfizer Animal Health

Chairman Mulder, Livestock Conservation Institute members and distinguished guests, thank you for the opportunity to speak to you regarding the "new" Pfizer and our vision of the future of the animal pharmaceutical business. On January 19th, Pfizer’s $1.45 billion acquisition of the Animal Health division of SmithKline Beecham was completed. In less than five months our management had taken the actions that led to this event. Many people have asked us, "Why is Pfizer buying an Animal Health business?" "What can be gained by this?" It is especially significant when you realize that this was the largest single acquisition in the history of Pfizer.

All of us in animal agriculture are dealing with tumultuous change. We are faced with dealing with it, becoming a part of change or getting run over by it. Further complicating our decisions is the truly global nature of agriculture today. Treaties like GATT and NAFTA put agriculture firmly into the global arena. It is having a major impact on our business strategies. Producers continue to get larger and fewer. The nature, size and number of businesses that service livestock must change accordingly. You can find examples of this every day in your newspapers. Mergers, acquisitions, plant closings, down sizing, restructuring, right sizing, etc. have been common terminology in this process.

As a business strategy, Pfizer recognized that industry leadership has several advantages. After analyzing our position in the animal health industry we looked at what our company had to offer and recognized the opportunities of taking a combined business farther, faster than either could have done separately. The animal health industry is undergoing dramatic change, especially in regards to food animals, with an increasing focus on producer economics, tighter regulatory requirements, evolving dietary habits and a fierce competitive environment. Pfizer, in its overall business planning, intends to be the recognized global leader in health care focused on high-growth, research based businesses. The "new" Pfizer Animal Health meets those criteria. It gives us manufacturing capacity, distribution, and operating efficiencies to support existing products more efficiently and to fully develop new products or product uses. The integrated sales and marketing organization will help us bring this new business to each market we intend to operate in.

We see our business in two contexts. One is a generic business. Its services and support will be focused at keeping the products on the market and meeting regulatory requirements. Pfizer will continue to compete in these markets with some of our traditional products where we have manufacturing or operational efficiencies. The second is a proprietary business that comes from our research and development of new exclusive products. We intend to be very committed to these products. Our future success is tied to bringing these novel products and delivery systems to markets around the world. Pfizer’s corporate commitment to research is demonstrated by a total research budget of over $1.5 billion per year. As a result we have a pipeline of new products for human health care and animal health that is the envy of the pharmaceutical industry.

Pfizer is launching these outstanding new products for animal health into markets around the world. This certainly helped increase the perceived value of animal health to our corporation. We recognized that there were certain markets or business segments, vaccines and companion animal products for example, that we wanted a stronger presence in. The acquisition of SBAH offered us a very complementary fit to enhance our position in all animal health product segments and gave us a greater presence in world markets where we weren’t as strong. The combination of two research based organizations with a dedication to bringing novel new products to the industry only made the acquisition decisions easier.

Our corporation accepted that if we are going to be in this business for the long term we needed to be big enough to justify staying in it in their terms. The combined sales volume would permit the needed support structure and staff to help us remain a market leader. It also allowed us to meet aggressive growth goals from our corporation. The efficiencies from doubling sales without doubling costs would make our combined organization stronger than either could have been separately.

I discussed consolidation before. We are far from unique in recognizing the dynamics of change. Our corporation made a strong commitment to animal health. The risks and rewards are large and we are in the process of adapting our marketing and sales strategies accordingly. Cross-functional market teams are being formed to address market needs. We are committed through these teams to market partnerships with customers and end users of our products. This will include strategic alliances with our customers that will lead us to share risks and rewards.

So what will the "NEW" Pfizer look like? We are in the process of making that happen now. There are a few things I can share with you. First, our business will be managed from Southeast Pennsylvania in a suburb of Philadelphia. We will be organized by species and market with teams built around each. Our worldwide business is divided into geographic operating areas. We are a part of the North American Area. Each operating area has two divisions, livestock and companion animal.

In livestock, for example, there are poultry, cattle and pork species groups. I am sponsoring the pork business group along with a Director of Sales and a Director of Technical Services. We are establishing several cross-functional teams within these business units that have team leaders and participants from the various operational disciplines of sales, marketing, technical services and others such as manufacturing, Information Technologies, Human Resources, Regulatory and Legal. Each business unit is being empowered with P&L responsibility. They will develop plans and take action to develop their respective markets. Throughout this organization we expect there to be a true customer focus. We intend to develop, research, launch, market, sell and sustain products from within these teams. The success of our new venture will be measured by how well we accomplish these goals.

Is Pfizer the only company creating a larger animal health organization? We don’t think so. Over the next few years we expect more companies to expand their commitment to animal health. How few will there be? Only time will tell. One of our leaders predicted five years ago that you would see as few as four major animal health companies dedicated to new product research. His prediction may well happen. All I can tell you is that Pfizer is one of them. Who do you think the others will be?