Animal Health News & Notes for May 30, 2003

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Brakke Consulting’s
Animal Health News & Notes for May 30, 2003
Copyright © Brakke Consulting, Inc.
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COMPANY EARNINGS RELEASES

>  PETsMART, Inc. announced results for its first quarter  ended May 4, 2003. The company reported first quarter net income of $24.6 million, compared with net income of $22.1 million for the first quarter of 2002. Net sales for the first quarter of 2003 were $696.8 million, compared to $645.8 million for the same period last year. Comparable store sales grew 4.8% over the first quarter of last year.  Pet services sales for the first quarter were $45.5 million, up 22% over the first quarter of last year, an increase that reflects the company’s focus and investment in growing its grooming and training businesses. The company opened 19 new stores, closed two locations and reformatted 49 stores in the first quarter of 2003. (Business Wire)

>  Sanderson Farms reported net sales for the second quarter of fiscal 2003 were $201 million compared with $175 million for the same period a year ago. For the quarter, Sanderson reported net income of $12.8 million compared with net income of $7.7 million in the prior year period.  Net sales for the first six months of fiscal 2003 were $385 million compared with $340 million for the first half of fiscal 2002. Net income for the first half of the year totaled $18.1 million compared with net income of $13 million for the first six months of last year. (Meating Place)

>  Oil-Dri Corporation of America announced sales of $46 million for the third quarter ended April 30, 2003, 17% greater than the same quarter a year ago. The company reported net income of $977,000, 94% greater than income reported in the same quarter one year ago. Sales for the nine months were $128 million, 4% greater than sales in the same period one year ago. Net income for the nine months was $2.6 million, a significant increase from $845,000 in the comparable period last year. Sales for the Consumer Products Group were ahead 15% in the quarter and flat for the nine months. Distribution at Wal-Mart for Cat’s Pride and Jonny Cat brands of cat litter remain strong. (Business Wire)

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BRAKKE CONSULTING ANNOUNCES
UPCOMING MULTIUSER STUDY ON
VETERINARY DRUG COMPOUNDING

In the past year or two, the exhibit halls at veterinary conferences have seen a proliferation of veterinary compounding pharmacies.  In response to frequent questions about this topic, Brakke Consulting will be conducting a study of the phenomenon of veterinary compounding.  The study will answer questions such as

– what do veterinary compounders offer?
– what types of companies are offering compounding services?
– how many and how big are they?
– how frequently are veterinarians using compounding services?
– are there differences in veterinary usage between equine and small animal practitioners?
– are veterinary compounders taking business away from traditional pharmaceutical manufacturers?

The study will be completed in July 2003.  The pre-publication price, available until June 15, is $2,750, a $500 discount off the actual $3,250 cost.  Orders placed by June 15 will also be permitted to submit questions for potential inclusion in the veterinary survey.  For more information, please call 972-243-4033 or email info@brakkeconsulting.com .

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COMPANY NEWS RELEASES

>  Premium Standard Farms will supply retail customers with pork that complies with USDA’s Country of Origin labeling requirements as of July 1, certifying that all pigs in its integrated system are born, raised and slaughtered in the US. Source verification is one of six key components in the Premium Standard Farms’ Process Verified Program that has been in place since 1998. Premium Standard Farms says it was the first pork company to achieve Process Verified accreditation from USDA’s Agriculture Marketing Service. (Meating Place)

>  PETCO Animal Supplies, Inc. announced the pricing of a public offering of 9,000,000 shares of its common stock at $19.65 per share. All of the 9,000,000 shares are being offered by selling stockholders. Certain selling stockholders have granted the underwriters an option to purchase an additional 1,350,000 shares of common stock to cover over-allotments, if any. PETCO will not receive any proceeds from the sale of the shares by the selling stockholders. (Business Wire)

>  VetCentric, Inc. announced the opening of a 12,000 square foot distribution center.  VetCentric filled more scripts for more veterinarians last month than in all of 2001, so expansion was critical.   The new facility includes state of the art automation equipment and a substantial amount of space for shipping and receiving.  The facility also has a new “facility within a facility” dedicated to pharmaceutical compounding.  (company press release)

>  Nutreco and Genex Swine Group Inc. have completed the merger between the businesses of the Canadian swine genetics company Genex and Nutreco’s swine genetics company Hypor. Both parties had signed a Memorandum of Understanding on January 28, 2003. The new company has a leading position in the pig breeding markets of Canada, Japan, Spain and Belgium and has a stronghold for further expansion into the US, Latin America and Europe. Nutreco owns a 50% share of the merged business, which will have a turnover of 30 million euros.  (Wattnet Meatnews)

CLARIFICATION:  Pfizer would like to emphasize that the company’s newly approved injectable Rimadyl, when followed by take-home dosing with either the 30-count package of Rimadyl chewables or the Rimadyl caplet 4- or 8-day Pain Pack, provides the industry’s only continuum of pain management therapy for dogs. These products allow the veterinarian to manage pain before, during and after surgery with a single compound. (company communications)

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BRAKKE CONSULTING, INC.
Buy, Sell, or Stay the Same

In the past few years, Brakke Consulting has been the finder of record, agent of record or consultant for a number of projects that have closed.  We have assisted with valuations and due diligence on confidential transactions, and provided executive counsel on a number of potential transactions.

Brakke Consulting has the experience, insight, abilities, and contacts that provide our clients with the highest quality services in the animal health, pet, veterinary, and specialty chemicals markets.  Please contact any of our offices for a confidential consultation on our range of services.  Contact information for all offices are available on our website at www.brakkeconsulting.com

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ANIMAL HEALTH NEWS

>  CANADA   Canadian agriculture officials announced that all 192 animals from the same herd as the BSE-infected cow tested negative for BSE. 17 farms remain under quarantine across the provinces of Alberta, Saskatchewan and British Columbia while officials tried to piece together which other herds had contact with the infected cow, or with poultry feed rendered from its carcass. To date, more than 400 head of cattle have been destroyed to ensure that the case, first announced May 20, was an isolated incident. All calves sold out of the original herd are now being removed from their current herds, slaughtered and tested, with results due later this week. Another 180 have been slaughtered for more testing, including genetic tracing in search of where and when the infected cow was born. (Meating Place)

>  CANADA   parts of the Canadian cow that recently tested positive for BSE may have been used to make dry dog food that was shipped to the US, according to an FDA news release. The dog food was made by Champion Pet Food between February 4 and March 12, 2003, and marketed by Pet Pantry International of Nevada. The Pet Pantry products were packed in 50-pound bags, distributed to franchises around the US and sold by home delivery only. There was no retail distribution. The FDA advisory notes that there has been no scientific evidence so far that dogs can contract the disease or spread it to humans. Consumers are asked not to destroy or discard the product themselves as the FDA is working with Pet Pantry to ensure proper disposal. (Texvetmed)

>  EU   The European Standing Committee on the Food Chain and Animal Health has altered the controls over avian influenza in the Netherlands, Belgium and Germany. In the Netherlands, the existing restrictive measures have been extended until 17 June. In Belgium, the measures still applicable in the provinces of Antwerp and Limburg will expire on 11 June. In Germany, the restrictions will be limited to the part of North Rhine-Westphalia west of the Rhine from 3 June onwards and will expire on 24 June.
No new outbreaks have been confirmed in the Netherlands since the end of April. (Wattnet Meatnews)

>  UK   One in five poultry companies that abandoned the use of antibiotics to make chickens grow faster are now using them again, according to a story in London’s The Guardian. Assured Chicken Production, which sets standards for the British chicken industry, prohibited the use of antibiotics in 2000; however, last year quietly allowed them back on “welfare” grounds, under the supervision of a veterinarian.  According to The Guardian, veterinarians, producers and retailers had complained that some flocks were developing liver damage and diarrhea. This caused extra mess on the bird’s litter in production complexes and caused more birds to suffer from hock burn on their legs. The antibiotics were used to prevent disease, not treat it, according to the ACP. There was also a 23% drop in the use of therapeutic drugs to control illness. (Meating Place)

>  ARGENTINA   International Epizootic Office (OIE) officially raised Argentina to the “free with vaccination” category for foot-and-mouth disease after an outbreak more than two years ago.  Argentina officially recognized an outbreak of the virus in March 2001, its first in seven years. Argentina eradicated the virus through a massive vaccination campaign. (Meating Place)

>  AUSTRALIA   The Australian red meat industry gave final approval to form a new representative body for processors, retailers and exporters. The Australian Meat Industry Council (AMIC) is a merger of the Australian Meat Council (AMC) and the National Meat Association of Australia (NMAA). AMIC will represent constituent interests on the industry’s peak advisory body, the Red Meat Advisory Council (RMAC), alongside the other peak bodies representing Australia’s cattle and sheep producers, lot feeders and live exporters. (Wattnet Meatnews)

>  US   Legislation was introduced this week in the US House of Representatives to include goat and poultry meat under the new country-of-origin labeling law (COOL) as well as grandfather in animals born before the mandatory program’s implementation date. The bill also amends the COOL law so that it would not apply to covered commodities derived from an animal born before 1 October 2004, or whose birthdates is before that date but not readily verifiable. (Wattnet Meatnews)

>  US   Some of the 28 million children in the national school lunch program may find irradiated hamburger on their plates as early as next year. The USDA is seeking suppliers to furnish irradiated ground meat for the school lunch program. Despite apprehension among some people about the technology, the department issued specifications this week to schools, notifying them of the coming availability, and said it will seek bids from potential suppliers by January. (AP)

>  US   A University of Idaho/Utah State University research team is the first worldwide to clone a member of the horse family, a mule, according to an article to be published in the journal Science. The baby mule was born May 4. It is the first clone of a hybrid animal. A mule results from a cross between a female horse and a male donkey. As hybrids, mules are sterile, except in extremely rare cases. Veterinary examinations of the foal and its surrogate mother showed them to be in good health. (AnimalNet)

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BRAKKE CONSULTING VIEWPOINT

Have you read any articles in the newspaper or magazines lately on deflation?  I’ve seen a number of them and each one gives me a bit of heartburn when I try to transpose the principles onto the animal health and nutrition industries.  One of the best definitions of deflation I’ve seen is taken from a New York Times editorial on May 20, 2003 by George Melloan. 

“Deflation is a manifestation of slowed economic activity as prices adjust to reflect an imbalance of supply over demand.   With prices falling and lower returns in prospect, business investment declines.  Producers who can’t cut their costs rapidly enough go broke.”

Now, let’s take a few measurements of the animal health and nutrition industries.
 – Do we have excess manufacturing capacity and inventory?
 – Have we taken price increases lately?
 – Have we adjusted prices downward to sell capacity or aging inventory?
 – Has net revenue increased for each unit sold?
 – How many factory line or facilities have been closed or shuttered?

Is it you or your competitors that are causing the problem?  Think about it over the weekend and send me an email with your thoughts.  I’d be interested to hear them.

Ron Brakke
rbrakke@brakkeconsulting.com

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