The Experts in Animal Health

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 Brakke Consulting’s
 Animal Health News & Notes for May 21, 2004
 Copyright © Brakke Consulting, Inc.
earnings news:
Doane Pet Care
International Absorbents
PetMed Express

other news:
Avid ID Systems
Pethealth Services (AVID lawsuit)
Pethealth (Petco agreement)
PetMed Express
VanDrie Group
>  PETsMART, Inc. announced results for its first quarter, which ended May 2, 2004. The company reported first quarter net income of $35.8 million compared with net income of $24.6 million in the first quarter of last year.  Net sales for the first quarter of 2004 were $796 million, compared to $696 million for the same period in 2003. Comparable store sales,  or sales in stores open at least a year, grew 8.7%. Pet services sales for the first quarter were $58.4 million, up 28% over the first quarter of last year. (Business Wire)  
>  PETCO Animal Supplies, Inc. reported financial results for the first quarter ended May 1, 2004. Net sales in the first quarter of 2004 were $426 million with a comparable store net sales increase of 6.3%. Overall, net sales increased 13.7% over the first quarter of fiscal 2003. Net earnings for the first quarter increased 42% to $15.8 million compared to the prior year first quarter.  PETCO opened 19 new stores during the first quarter of fiscal 2004. The addition of 15 new stores during the period, net of relocations and closings, increased the store base to 669 locations. PETCO plans to open approximately 90 new stores, or 70 new stores net of relocations and closings, in 2004. (company website)  
>  Doane Pet Care Company reported results for its first quarter ended April 3, 2004.  For the first quarter of fiscal 2004, the Company’s net sales increased 4.2% to $271 million from $260 million in the first quarter of fiscal 2003. Excluding the impact of foreign currency exchange fluctuations, the Company’s net sales increased by 0.3%.  The Company reported a net loss of ($7.8 million) for its 2004 first quarter compared to a net loss of ($7.9 million) for the 2003 first quarter. The benefit of the first quarter price increase was offset by substantially higher year-over-year global commodity costs and lower domestic sales volume. The current quarter net loss also reflected an increase of $4.0 million in net interest expense. (PRNewswire)   
>  Heska reported financial results for the first quarter ended March 31, 2004.  Total product revenue for the first quarter was $16.4 million, up 26% from the first quarter of 2003.  Total quarterly revenue was $16.7 million.  The company reported a net loss of ($2.0 million) for the first quarter of 2004. (company press release)   
>  PetMed Express, Inc. announced results for the fiscal year ended March 31, 2004. Net income was $5.8 million for fiscal 2004, compared to net income of $3.3 million for fiscal 2003, an increase of 79%. Net sales for the fiscal year ended March 31, 2004 were $94.0 million, compared to $55.0 million for the fiscal year ended March 31, 2003, an increase of 71%. PetMed Express also reported new customer growth of approximately 572,000 customers in fiscal 2004, compared with 414,000 in fiscal 2003. (Business Wire) 
>  International Absorbents reported net income of $1.4 million on sales of $19.6 million for the year ended January 31, 2004, compared to net income of $1.5 million on sales of $16.1 million in the year-ago period.  The company, which makes environmentally friendly pet bedding and litter as well as industrial products, reported that its flat net income was a result of increased marketing and sales expenses. (Pet Product News)  

Coming Soon:  New report on the US Equine Market
The equine market is often underappreciated as an important part of the animal health market.  However, there are approximately 7 million horses in the US, and their owners are willing to spend money on their health care.  One of the most explosive new product introductions in the past few years was the launch of Fort Dodge’s West Nile Virus vaccine, which has doubled the size of the entire market for equine vaccines in just two years.
Brakke Consulting’s new report on the US Equine market is a valuable overview of the market, including information on such topics as
 – healthcare spending by owner segment
 – distribution channels for equine products
 – profiles of leading equine healthcare companies
 – sales and trends by product category
 – recent product launches
 – surveys of participants in the market
The report will be available at the end of May 2004.  The report is priced at $3,500.  For more information, email
> IDEXX Laboratories, Inc. announced that it has received approval from the FDA to market and sell Surpass (1% diclofenac sodium) Topical Anti-Inflammatory Cream, a new treatment for horses with pain and lameness due to osteoarthritis. Surpass topical cream represents the first equine pharmaceutical use of a topical liposomal formulation of the nonsteroidal anti-inflammatory drug, diclofenac. The product is labeled as a veterinary only prescription medication to be used under the supervision of a licensed, practicing veterinarian.  (company website)  
>  Abaxis announced the release and launch of its new VetScan HMII Hematology System for the veterinary market.  The HMII offers operational simplicity, increased accuracy and precision, expanded database capability and enhanced self-cleaning mechanisms.  The HMII is manufactured by Diatron Messtechnik exclusively for Abaxis. (company press release)
>  PETCO Animal Supplies and Pethealth, Inc. have extended their pet insurance marketing agreement for up to three more years.  The original agreement in April 2001 made Pethealth the exclusive provider of pet insurance to PETCO customers.  (Pet Product News)  
>  The Florida Department of Health’s Board of Pharmacy granted a request from PetMed Express for early termination of probation.  The company served two years of a three year probation after being charged with 80 counts, including 33 counts of deceptive or fraudulent representations and 30 counts of selling or dispensing drugs without a proper prescription.  The Board of Pharmacy voted 6 to 2 to lift probation following PetMed Express’ request for early termination. (Journal of the AVMA)  
>  Avid Identification Systems filed a lawsuit against Pethealth Services and Allflex Inc., two companies that partnered to join the North American pet microchipping industry last year.  Avid’s lawsuit contends that the companies have infringed on two of Avid’s patents related to its microchip scanners.  It also accuses them of unfair competition, and false, deceptive, or misleading representations.  Pethealth has filed a counterclaim accusing Avid of similar transgressions. (Pet Product News)  
>  NETHERLANDS   VanDrie Group, a vertically integrated meat company that is one of the world’s largest producers of veal, now provides its customers the opportunity to virtually meet its animals, farmers, even the truck drivers, and visit its farms, through its website This is traceback from the moment an animal is born to the moment a package of meat is delivered to a store.  An I&R is first attached to a veal calf shortly after birth via ear tag, and the number follows the animal through life, into the packinghouse, and then follows all the meat generated by that specific animal, even in separate packages. At the website a customer logs on via password, then can virtually trace back any cut of veal from VanDrie by entering the I&R number. (Wattnet Meatnews)  
>  CANADA   Canadian pet supply chain Petcetera announced plans to spend $40 million to double its size to 66 stores over the next four and a half years.  About half the growth will be in Ontario, where the British Columbia-based chain already has eight locations. (Pet Product News) 
Animal ID Expo Draws Record Crowd
The ID Info Expo hosted by the National Institute for Animal Agriculture (NIAA) drew a record 500 attendees and 35 exhibitors this past week.  The previous Expo, held in 2002, had 285 attendees.
The focus of the meeting was the new National Animal Identification System (NAIS) recently announced by the USDA, and all of the work being done by various livestock and industry groups to implement it.
The goals of the program are to protect the health of the US livestock herd and to be able to achieve traceability of any animal within 48 hours, according to John Clifford, deputy administrator of USDA’s APHIS (Animal and Plant Health Inspection Service).  For the past two years, APHIS has been working with a team of about 70 livestock producers, industry executives and state and federal veterinarians under the auspices of the US Animal Identification Plan (USAIP) to design a comprehensive plan to achieve those goals.
Under the new voluntary federal program, each livestock production location will be issued a unique premise identification number, which is the foundation of the traceback system.  All animals produced at the location would be identified individually or in groups with the premise ID number.  There is substantial work to be done in defining exactly what is a “premise,” and how animals will be tagged, tattooed or otherwise identified.  USAIP has set up working groups for each species of livestock to make recommendations on how the system should be implemented.  There are substantial concerns about how the system will be funded, and how producer confidentiality will be maintained.
Exhibitors at the conference showcased a wide array of visual and DNA-based identification products, as well as various data capture and management systems.
>  US – VESICULAR STOMATITIS   The US’ first case of vesicular stomatitis since 1998 was confirmed on a west Texas premise with nine horses and eight head of cattle.  All livestock on the affected ranch will remain quarantined for several weeks until they no longer pose a health risk to other livestock.  While rarely fatal, clinical signs of vesicular stomatitis can cause concern because they mimic those of foot and mouth disease, which has been eradicated from the US since 1929. (AnimalNet – TAHC News Release) 
>  US – REGULATION OF ANIMAL FEEDING   The Kansas Supreme Court upheld a lower court decision determining that state laws on regulating confined animal feeding operations to protect water quality trump county laws. In a suit brought by the Kansas Livestock Association and three of its members, the court found regulations proposed by the Norton County Commission conflicted with a law providing uniform statewide CAFO regulation. “The County is trying to exempt itself from or effect change in the state statutory provisions…and the resolution cannot stand,” the court said. The proposed Norton County regulations would have gone above existing state and federal requirements.  (Meating Place)
>  US – CANADIAN BEEF BAN   The Washington Post reported that the USDA allowed US meatpackers to import ground beef and other processed beef from Canada last September, despite a ban on importing those products because a BSE-positive cow had been found in Alberta.  Over the next six months a total of 33 million pounds of Canadian processed beef entered the US under a series of undisclosed permits issued by USDA, according to the report.   According to USDA, the agency made exceptions when it “concluded that certain products would not pose a health risk because of risk mitigations” taken by meat processors, according to a USDA spokeswoman. The imports allowed into the US included ground beef, hamburger patties, pepperoni, and fat and meat trim, according to the Post.  (Meating Place)
>  US – WEST NILE SUSCEPTIBILITY IN SWINE   Food Safety Consortium researchers at Iowa State University found that weanling pigs, about four weeks old, are susceptible to West Nile virus infection from a relatively small level of virus delivered by mosquitoes. The pigs’ susceptibility to the virus appears to decrease as the pigs grow older, but more research remains to be done to determine the risk level for market age pigs. (Pork Alert)
>  US – VETERINARY COLLEGES   The University of Minnesota announced the launch of a new program called the Veterinary Food Animal Scholars Program (VetFAST) designed to address the growing concern over the shortage of food animal veterinarians.  The program offers freshmen entering the science and agriculture program at the University the chance to enroll in a fast track to becoming a food animal veterinarian.  Enrollees can receive an early decision on admission to the veterinary college after their freshman year, bypassing the GRE exam, and complete their bachelor’s of science and DVM degrees in seven years instead of eight.  In addition to launching VetFAST, the University has added ten more spots for veterinary students pursuing food animal medicine or public health.  (Journal of the AVMA)
>  US – LASSIE PRODUCT LINE  Classic Media and Charles Flora Consumer Products, LLC have teamed up to launch a brand new Lassie branded pet care line. The Lassie line features the best innovations in pet care & grooming formulations, as well as packaging and design concepts exclusively branded with this “bone”afide movie and TV star. The companies will initially launch four SKUS, including pet shampoo, 2-in-1 conditioning shampoo, puppy “no tears” shampoo and grooming spray. The Lassie pet care line is available at mass market retailers everywhere beginning in Fall 2004. The launch is supported by promotions leveraging Lassie’s 50th television anniversary. (Business Wire)
>  The U.N. Food and Agriculture Organization (FAO) released the report “Agricultural Biotechnology: Meeting the Needs of the Poor?”  Assistant director-general of FAO’s economic and social department, said that biotechnology isn’t a panacea to fight world hunger, but that it can help in three major ways: by raising farmers’ production and incomes, by increasing food supplies and thus reducing prices, and by contributing to the nutritional quality of crops.  But he said greater regulation was needed and that governments, not just private corporations, must be more involved in the research and development of new seeds to ensure the poor benefit. (AP)
>  The European Union lifted its 6 year old ban on biotech products by approving imports of an insect resistant strain of sweet corn for human consumption. David Byrne, the EU’s commissioner for health and consumer protection, said the Bt11 strain of corn from Syngenta was approved after “the most rigorous premarketing assessment in the world.”  The genetically modified corn would only be imported and not grown in Europe, although an application for cultivation is pending. Any biotech corn sold would have to be labeled under strict new rules that took effect last month. (AP)
The fact that attendance at this week’s ID Info Expo was up 75 percent over the previous meeting held two years ago is testament to the high degree of interest in animal identification and traceability.  The seminar drew senior executives from state and federal agencies, as well as livestock producer organizations and companies marketing products from tattoo applicators to DNA sequencers.
From the many excellent presentations at the meeting, it was clear that implementing a US animal identification system is a daunting task.  While a small army of government officials and volunteers has put in literally thousands of hours over the last two years to design a program from the ground up, many of the big decisions are yet to be made.  There are uncertainties about how the system will be paid for, and where the animal identification database will be located and managed.
The most encouraging sign is that federal and state agencies are working in close partnership with producer groups and industry to build a system that works for everyone.  This dramatically improves the chance that the eventual program will work effectively and efficiently, with minimal burden, for everyone.
Congratulations to NIAA on an excellent meeting, and to all the stakeholders working so hard to design the new National Animal Identification System.
John Volk
As I’ve traveled around the US the past couple of weeks, I’ve been most impressed with the revenue increases reported by the various companies for the first few months of 2004.  This is highlighted by the increased sales volumes reported by PETsMART and PetMedExpress.  The OTC part of the pet business seems to be achieving a growth level that companies supplying the industry cannot ignore.  It’s obvious that these firms are offering a menu of items and services that consumers enjoy utilizing.
We’re also finding some interesting and new information related to the equine market in our current study.  We have visited with many of you regarding the equine market and appreciate your feedback.  Our study has revealed to us some interesting information about the equine market that those purchasing the study will be able to utilize in your sales and marketing programs.  Thanks to all of you that have already ordered the report.
We want to congratulate the University of Minnesota School of Veterinary Medicine for the new program to encourage more students to enter Food Animal Medicine as a career.  The veterinary profession needs to play a vital role in the many health and food safety issues facing the production of animal protein.
Have a great weekend!
Ron Brakke

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