It is no secret that people love their pets. What is surprising is how much pet owners will spend to keep Rover and Whiskers¹ healthy. Of the top ten animal health companies, no fewer than eight are subsidiaries of large pharmaceutical corporations. Although they provide no more than 4 to 5 percent of their parents’ sales, their contribution to corporate profits can be quite substantial because human treatments, though expensive to develop, can be applied to animal care at a relatively low cost. Even so, the profits can seem small to major pharma companies, and some of them are thinking about divesting these subsidiaries in order to focus more on their human drug business. But our research indicates that animal health divisions could be worth keeping.

Forecasts suggest that the US market for pet products and services—the single biggest, with more than 54 percent of worldwide sales—will reach almost $36 billion by 2007, for an annual average growth rate of 4.5 percent (Exhibit 1). The animal health businesses of the major pharma companies have two parts: one for production animals and one for companion animals such as dogs and cats. Sales by veterinarians—the single most important channel by...