The Experts in Animal Health

Brakke Consulting’s
Animal Health News & Notes for February 22, 2002
Copyright © Brakke Consulting, Inc.

Company Earnings Releases
>  Akzo Nobel reported that year-end 2001 sales for its animal health division Intervet were 1,096 million euros ($971 million), an increase of 7% over year-end 2000.  The company closed the year on a record performance, and is reported to be earning margins in line with Akzo Nobel’s human healthcare business.  (company website)

>  Heska reported financial results for the fourth quarter and year 2001.  For the quarter, revenues increased 29% to $14.7 million, while net loss was $5.6 million compared with $5.5 million in the fourth quarter 2000.  For the year, revenues were $48.3 million compared with $52.7 million in 2000.  The prior year revenue included $3.2 million from two businesses that were sold in 2000 and $1.3 million from the sale of rights to one of the company’s products.  The net loss in 2001 was $18.7 million compared with net loss of $21.9 million in the prior year. (company press release)

>  VCA Antech, Inc. reported financial results for its fourth quarter and year ended December 31, 2001. Revenue for the fourth quarter ended December 31, 2001 increased 12.4% to a record $96.0 million from revenue of $85.4 million in the same quarter last year. For the year ended December 31, 2001, revenue increased 13.2% to a record $401.4 million from $354.7 million in 2000.  In the fourth quarter of 2001, the Company completed its initial public offering of 17.4 million shares of common stock and the sale of $170.0 million of 9.875% senior subordinated notes. (Business Wire)

>  Virbac Corp. reported record sales results for the fourth quarter and twelve months ending Dec. 31, 2001. Net sales for fourth quarter 2001 rose 10% to a record $15.0 million from $13.6 million for the 2000 corresponding quarter.  The company reported a fourth quarter gross profit of $6.0 million compared with $5.8 million in the prior-year fourth quarter.  Virbac also reported record annual sales results, achieving a 14% jump in sales growth from last year, reaching $60.6 million in 2001, compared with $53.0 million in 2000. For the twelve months ending December 31, 2001, operating profit increased 11%, growing to $3.1 million in 2001, compared with $2.8 million 2000. (Business Wire)

> Patterson Dental reported third quarter sales of $37.4 million for Webster Veterinary Supply.  Patterson’s fiscal quarter ended January 26, 2002.  Acquired in July 2001, Webster’s comparable basis sales increased approximately 11% from last year’s third quarter. The company added that it was pleased with the performance of Webster Veterinary Supply in the third quarter, typically its weakest sales period of the year due to reduced demand for certain seasonal medications during the winter months. (Business Wire)

>  Smithfield Foods Inc. reported for its fiscal 2002 third-quarter that net income rose 46% to $54.5 million from $37.2 million last year, excluding the impact of a non-recurring gain in the prior year.  Sales in the third quarter were $2.1 billion, up 36% from $1.5 billion in the same period a year ago, reflecting sales from the company’s newly acquired beef operations and an improved product mix from the company’s emphasis on its branded and value-added product categories. (Meating Place)

Company News Releases

>  The European Commission gave conditional approval for Mars Inc to take over France’s Royal Canin in a deal that values Europe’s top premium petfood maker at 1.5 billion euros ($1.31 billion).  The European Commission said that Mars, which is conducting the deal through its Masterfoods subsidiary, had agreed to divestments that would enable the purchase to clear antitrust hurdles.  Mars has undertaken to divest for the whole of Europe its businesses connected to five of the merged group’s pet food brands, together with two major manufacturing plants. (Reuters)

>  Pfizer has put together the Pfizer Animal Health Sedation and Pain Management Team, a team of 5 veterinarians and one veterinary technician assembled to provide education and consultation to veterinary practices interested in enhancing sedation and pain management techniques and protocols.  The educational modules can be used for continuing education.  (company press release)

>  Schering-Plough introduced the Auriflush ear wash system.  The system uses hydrovac technology to simultaneously combine suction and irrigation, gently dislodging dirt, cerumen, mites and other debris.  The user controls a steady stream of temperature controlled, pressure regulated water.  The Auriflush system was well-tolerated by dogs and cats in field trials (DVM Newsmagazine)

> Nutramax introduced Cosequin for Cats Flavored Sprinkle Capsules, a natural chicken and tuna flavored sprinkle capsule whose contents can be sprinkled onto the cat’s food.  Nutramax asserts that cartilage deterioration is common in older cats but may not be noticed by owners, and Cosequin for Cats can help manage joint health in cats. (DVM Newsmagazine)

>  PETCO Animal Supplies, Inc. announced that its newly issued common stock began trading on the Nasdaq National Market under the symbol “PETC”. Its initial public offering of 14,500,000 shares of common stock was priced at $19.00 per share, taking in $275.5 million from the sales of company shares. (Business Wire)

>  VetCentric introduced the “C-Pak,” a single dose of Merial’s Heartgard or Heartgard Plus delivered monthly to pet owners on behalf of their prescribing veterinarians. Rather than purchasing several doses of a heartworm preventive in advance, clients who are prescribed the C-Pak will receive one Heartgard chewable every 30 days against an authorized credit card transaction, cutting down on missed doses and locking in a year’s worth of revenue for the veterinary practice.  (company press release)

>  Tyson Foods, Inc. and Gold Kist, Inc. have discontinued use of the fluoroquinolone class of antibiotics in the production of their broiler chickens. Fluoroquinolones were used in less than two-tenths of one percent of the flocks of both companies prior to discontinuation. (AnimalNet – AP; PRNewswire)

>  AgInfoLink Global Inc. has been granted patents from the U.S. Patent and Trademark Office for The “Method and Apparatus For a Livestock Data Collection and Management System”. The patent broadly provides for the tracking for individual animals from the farm to the table and specifically includes claims for individual animal identification, event data collection with radio frequency identification work cards, BeefLink software chute-side individual animal data collection, Pony Express Relay Database the sharing of individual data among past and future owners of the animals, and distributed databases to store the information needed to interface with other software management systems at each stage of production. (company press release)

>  Bio-Rad Laboratories announced two new, automated platforms that will increase efficiency, lower costs, and produce faster results for bovine spongiform encephalopathy (BSE).  Full introduction of these systems is expected in the coming months. In conjunction with these new systems, Bio-Rad is introducing a second-generation BSE screening test, along with the first commercially available Western Blot confirmation test sensitive enough to be used for verification of initial screening results. (Wattnet Meatnews)

>  FRANCE   Masterfoods (subsidiary of Mars) has bought the French aquarium company Rena from PSB Industries.  Terms were not disclosed.  Masterfoods has appointed Rob Sawyer, director at Masterfoods Europa as responsible person.  The President of Rena will stay on as managing director. (Pets International)

BRAKKE CONSULTING, INC. announces Due Diligence Seminar in Australia

The quality of the due diligence process is one of the most critical elements in determining the success or failure of a merger, acquisition, divestiture or licensing agreement.  It also assists in to determine whether value will be created by the transaction. 

After successful Due Diligence seminars in New York and Chicago in 2001, Brakke Consulting Inc. has decided to present a due diligence seminar in Sydney, Australia on the 4th & 5th June, 2002.

Whether your company is licensing, buying or selling, the Brakke Due Diligence Seminar will help you design an efficient, effective due diligence process to assist you to test strategic assumptions, determine fair value, uncover potential problems, and avoid costly mistakes or surprises.  Seminar participants receive an outline notebook for use in future due diligence investigations.

For information on the seminar, please contact Dick Miles at Miles/Brakke Consulting Ph: 61 + 2 + 9449 6879 or

Animal Health News

>  EUROPE   Management Forum Ltd of the UK is presenting a seminar of The Regulation of Veterinary Medicinal Products in Europe, April 15 & 16 in London.   The international conference will examine proposals for change in the European regulatory framework, as well as interpreting current requirements.  For more information, please contact Management Forum Ltd at

>  US   The College of Veterinary Medicine and Biomedical Sciences and the College of Business at Colorado State University have launched a program combining the Doctor of Veterinary Medicine and Masters of Business Administration degree.  Beginning in the fall semester of 2002, the College of Veterinary Medicine and Biomedical Sciences will accept five outstanding students from that year’s pool of applicants who express interest in the combined program. Admission to the veterinary medicine program will be guaranteed, but the first year of veterinary school will be delayed until the student successfully completes the first year of the MBA program. The remaining requirements of the MBA program will then be fulfilled concurrently with the first two years of the veterinary program. This is a five-year program, compared to the four-year Professional Veterinary Medicine Program.  A similar program for students of human medicine has been offered at a number of medical schools in the United States for about ten years. (university press release)

>  HONG KONG   Hong Kong health workers will slaughter 192,000 more chickens after another five farms were found to be infected with the H5-type avian influenza virus. The infected farms in
Kam Tin, New Territories, were quarantined earlier this month after the third outbreak of the virus in Hong Kong, so no chickens have left the farms for sale since the quarantine Feb 5.  The government has already slaughtered 322,000 chickens and imposed tighter controls on farms
and markets throughout the territory. (AnimalNet – Agence France Presse)

>  AUSTRALIA   Effective from December 1 2001, ivermectin-based heartworm preventative products (e.g. Heartgard, Heartworm Soluble) were reclassified as Schedule 5 products. They may now be supplied to the public without a prescription, although caution is required in their handling, storage and use. Major benefits for pet owners are availability from more retail outlets, wider choice with new formulations being launched and lower prices due to increased competition. (General Veterinary Newsletter)

>  US   The six largest beef cattle seedstock companies in the US, and three emerging producers, have formed a breeder-owned genetics services company to serve as a catalyst for change in the seedstock industry.  The initial focus of the new company, named Origen, Inc., will be to define a new set of options for the marketing and distribution of beef bull semen to provide cattle producers with more flexibility and control in marketing genetics.  The company has established a marketing alliance with ABS Global, who is also an equity partner in Origen.  (Feedstuffs)

Agribusiness News

>  New cigarettes are due this spring with tobacco genetically altered to be very low in nicotine.  A new USDA study confirmed the low levels of nicotine, the addictive substance in cigarettes, in the biotech tobacco and found that the crop poses little risk to the environment. Tobacco from crops grown on department-supervised test plots last summer is going into the cigarettes made by Vector Group, parent company cigarette maker Vector Tobacco. The tobacco was genetically altered to block the production of nicotine in the plant’s roots. (AP)

Brakke Consulting Viewpoint

One of the realities of the animal health market place is that the CAGR for the industry in manufacturer dollars the last five years has been less than 2%.  If it were not for the increased sales in the companion animal area of heartworm and flea products during this period, the industry would have exhibited even slower growth.  Another reality of the market place is that the average US veterinary income 1998 was $57,130, the lowest of the professions measured.  We’re of the opinion that they have not changed significantly since that tracking period. Some portion of that already low income is impacted by revenue generated from the dispensing of products. The Brakke Study related to veterinary incomes and economic trends found that 42% of veterinarians use four or less of the 19 standard management practices; one of those management practices is the pricing of products.  Another reality of the industry at this time is that we need new technology and products to create new markets and income for the benefit of all participants. During the past 10 years, R&D expenditures by AHI member companies as a percentage of sales has dropped from around 17% of sales to less than 11%.  The lack of new technologies and products makes it difficult for all those involved in the industry that need to generate growth in excess of 3 to 5% per year.

It is important to the industry that we have a financially stable and successful retailer in the veterinarian.  We need to all think about how we can add value to the market place and not reduce the revenue stream that provides the income for veterinarians, distributors and manufacturers.  We’re confident that all of you will find ways that are reasonable and responsible in helping the industry to increase its revenue and improve the viability of our customers in the period.

Have a great weekend.

[Ron Brakke]

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