Animal Health News & Notes for July 20, 2001

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Brakke Consulting’s
Animal Health News & Notes for July 20, 2001
Copyright © Brakke Consulting, Inc.
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Company Earnings Releases

>  Pfizer reported that second-quarter sales of the Animal Health business were down 14% (down 9% excluding the effects of foreign exchange) to $247 million, mainly due to the recent divestiture of feed-additive product lines, foreign exchange, and the impact of mad cow disease and foot and mouth disease in Europe. Excluding foreign exchange and sale of the feed-additive product lines, second-quarter sales were essentially unchanged. (company press release)

>  Eli Lilly reported that worldwide sales of animal health division Elanco in the second quarter of 2001 were $156.2 million, an increase of 3% compared with the second quarter of 2000.  Excluding the effect of exchange rates, sales grew by 8% for the quarter. (company website)

>  IDEXX Laboratories, Inc. reported net income of $10.0 million for the quarter ended June 30, 2001, compared to net income of $9.5 million for the same period in the prior year.  Revenues for the second quarter increased to $102 million from $94 million for the second quarter of 2000. For the six months ended June 30, 2001, net income increased to $17.575 million from $17.562 million for the first six months of 2000. (Business Wire)

>  Guyomarc’h  announced sales of 189 million euros for the first quarter of 2001, an increase of 14.5% over the same period in 2000.  The increase was a result of several acquisitions by the company in the past year.  In addition, Guyomarc’h announced a name change to Evialis.  Guyomarc’h will remain a brand name only in France.  (Animal Pharm)

>  Pilgrim’s Pride Corporation announced record net income of $25.3 million for the third fiscal quarter ended June 30, 2001, an $8.1 million increase when compared to net income in the prior year’s third quarter.  The Company also announced record net sales for the third fiscal quarter ended June 30, 2001 of $645.8 million, a 64.8% increase when compared to the $392.0 million for the same period last year, with the increase resulting primarily from the acquisition of WLR Foods, Inc., which was effective January 27, 2001. (PRNewswire)

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American Veterinary Medical Association conference
Boston, Massachusetts

The 138th annual convention of the American Veterinary Medical Association was held this week in Boston, MA.   Close to 8,000 individuals registered for the convention with 3,500 veterinarians and over 500 technicians and practice support staff.   

One of the major events at the meeting was the presentation by Howard Rubin, CEO of the National Commission on Veterinary Economic Issues.   Mr. Rubin, along with Dr. John Albers, executive director of the American Animal Hospital Association, Dr. James Nave, AVMA president, and Dr. Lonnie King, Dean of the Michigan State Veterinary College reviewed the significant progress the commission has made in development of analytic pricing models; benchmarking plans; and programs to enhance the skills, knowledge, aptitude and attitude of veterinarians, and staff retention.  More information can be obtained by visiting the NCVEI website at: www.ncvei.org.

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Company News Releases

>  Nestle SA has proposed selling off pet food brands in Spain, Greece and Italy to win European Union approval for its $10.3 billion acquisition of Ralston Purina, according to a document obtained by Reuters and later confirmed by the company. The European Commission recently extended its review of the Swiss firm’s proposed purchase of the U.S. pet food maker to July 30 from July 18.  The extension was given because the Commission found competitive concerns
with Nestle’s purchase of Purina. Nestle proposed divesting some businesses in order to meet those concerns. A Nestle spokesman indicated that the deal is expected to be completed by the end of the year. (Reuters)

>  Nestle will reportedly invest over $10 million to expand the production of its petfood plant in Saladillo City in Buenos Aires province, Argentina.  In 2000, the company acquired Cargill’s local petfood division, which included the brands Dogui and Gati and the plant in Saladillo.  The acquisition of Ralston Purina gives Nestle a nearly 60% market share of the petfood market in Argentina. The petfood business turns over nearly $250 million annually in Argentina, but recession has affected this sector.  (PetFood Industry Enews)

>  IDEXX announced that the Center for Veterinary Medicine of the FDA has informally told the Company that it is likely to issue an incomplete letter regarding the Company’s new animal drug application (NADA) for nitazoxanide, a drug intended for the treatment of equine protozoal myeloencephalitis.  An incomplete letter would require the Company to submit more information to the FDA before nitazoxanide could be approved. (Business Wire)

>  Tyson Foods, Inc. and Renewable Energy, an Australian based company with offices in North Carolina, announced that they are joining forces to provide an alternative use for approximately 80-85,000 tons of chicken litter a year in the Delmarva Region. The two companies will be constructing a gasification facility adjacent to the Tyson Foods poultry processing that will convert the chicken litter, as well as sludge from its wastewater treatment plants, to energy in the form of steam, that will then be used by Tyson in its protein conversion plant. The process will dramatically reduce sulfur emissions from conventional boilers currently being used, and will significantly reduce the current land application of chicken litter and DAF sludge in the Chesapeake Bay region. (PRNewswire)

>  Smithfield Foods reported plans to buy Gorges/Quik-to-Fix Foods for $34 million in cash. The U.S. Bankruptcy Court that is overseeing Gorges/Quik-to-Fix’s bankruptcy proceeding approved the deal last Friday, allowing Smithfield to buy the assets and business but not the debt of Gorges/Quik-to-Fix.  Smithfield said the privately held company has annual revenues of about $140 million.  The company’s debt was more than $100 million, or more than three times what Smithfield paid.  Gorges/Quik-to-Fix’s product include “ready-to-eat” pre-cooked chicken, beef and pork. Smithfield Foods expects to close the deal within 14 days. (DirectAg – Knight Ridder Tribune)

>  PetQuarters, Inc. announced that the Company has successfully renewed its $1,420,000 term
loan.  The new agreement extends the loan maturity to July 14, 2003 with an interest rate of 8.50%.  (PRNewswire)

>  AUSTRALIA  Nutreco has received approval from Australia’s Foreign Investment Review Board to acquire Pivot Aquaculture in Melbourne.  Nutreco will also gain a 10. 5% stake in the Tasmania firm Tassal.  The new venture provides a base for further development in the Southeast Asian market.  (Animal Pharm)

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  BRAKKE CONSULTING, INC.
Veterinary Practice Management Services

The Practice Management Group (PMG) of Brakke Consulting, Inc. provides a wide-range of consulting services in the areas of veterinary practice management.  The Veterinary Behavior and Management study conducted by Brakke Consulting for the AVMA gives our consultants insights not available in other consulting firms.  PMG can help your company better understand how veterinarians think and operate their businesses.  We can add value to your organization by helping your teams learn how to better communicate and relate to your customers; by assisting your valued clients with sponsored consulting assistance in their veterinary practices; through speaking to local, regional and national veterinary associations about a several relevant practice management issues your customers face; and by assisting in current and new product marketing programs for  your company.  Whether you are an individual veterinarian with management challenges in your practice or an animal health company looking for ways to increase your value to your clients, consider contacting the Practice Management Group at pmg@brakkeconsulting.com.

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Animal Health News

>  EUROPE   The EU Commission adopted a proposal for comprehensive reform of the current EU pharmaceutical legislation.  The proposal includes specific measures concerning the availability of veterinary products.  These measures include a harmonized system allowing the controlled prescription of veterinary medicines for extralabel use, and the waiver of certain requirements for veterinary medicines whose use has been well established in practice.  It also includes a proposal for an incentive scheme to encourage companies to develop older products for use in neglected indications or minor species.  (commission press release)

>  UK   BSE has been diagnosed in another UK cow born in December 1996, four months after strict measures to combat the fatal brain-wasting illness were implemented.  The United Kingdom’s Department for Environment, Food and Rural Affairs (DEFRA) said the state veterinary service is investigating the case. This case brings the number of BSE cases in animals born after August 1996 to three in Britain.  One case has also been diagnosed in Northern Ireland. (AgWeb)

>  JAPAN   Japan reported it has found Newcastle disease virus in poultry products shipped from China before Tokyo banned such imports in early June due to fears about the spread of bird flu. The Japanese government halted imports of poultry products from China on June 7 and said the ban would last until they were confirmed to be free from bird flu virus. Tokyo’s move followed a similar ban by South Korea in early June after it detected the Highly Pathogenic Avian Influenza (HPAI) virus in imported Chinese ducks. (Reuters)

>  UK   Officials have estimated that foot and mouth disease will cost British taxpayers $3 billion before it’s eradicated. The estimate includes the cost of killing and disposing of animals, disinfecting diseased premises and compensating farmers for slaughtered livestock. So far, the government has paid out $1.5 billion. The outbreak has also cost England’s tourism industry about $168 million in lost profits. (AnimalNet – AP)

>  FRANCE   France has banned all imports of live pigs and pork products, including genetic material, from Spain after new cases of swine fever were detected on the Iberian peninsula last week.  In addition, any Spanish-bred pigs already in France will be destroyed if they show any signs of the disease, while healthy animals will be sent back.  Genetic products already imported will also be destroyed. (AnimalNet – Reuters)

>  US   Hogs at the Dallas and Greene county (Iowa) fairs were diagnosed with erysipelas. More than 190 hogs from the Greene County Fair were sent to slaughter several days earlier than planned because they were exposed to 4 hogs found to have the disease. In Dallas County, erysipelas was detected in one hog after the live hog show was held. About 60 hogs exposed to the disease will be held for 3 weeks on the fairgrounds in Adel after being vaccinated for the disease. (AnimalNet – International Society for Infectious Diseases)

>  A six-year old Swiss cat has been diagnosed with an illness related to BSE, probably from eating infected cat food. Swiss authorities said it is the first case in Switzerland, although 90 cases have been identified in Britain, with the first registered in 1990. The authorities added that in various countries several big cats in zoos, like puma, tiger and lion, have also been diagnosed with the illness called feline spongiform encephalopathy (FSE). They said the disease could not spread from cats to humans and noted that no cases had been detected in dogs. (Reuters)

>  HONG KONG   Hong Kong health authorities confirmed that the virus found in a dead chicken this month was the highly contagious H5NI, but they downplayed the risk to humans or poultry.
Authorities added that, so far, there is no unusual mortality of chickens in Hong Kong markets. The virus isolated this time is different from the one that caused disease in humans in 1997. (AnimalNet – Agence France Presse)

>  US   The beef promotion program known for the slogan “Beef, It’s What’s for Dinner’’ could be the first victim of a Supreme Court ruling that it was unconstitutional for the government to force mushroom producers to pay for industry advertising.  Groups opposed to the beef program, which is funded through mandatory fees on producers, have said they will ask a federal judge to rule that it violates First Amendment protections for free speech. The groups already have a lawsuit pending before the judge seeking a referendum on the program. Cattle producers pay a fee of $1 per cow that raises about $80 million a year for the beef program. The beef program was authorized by Congress in 1985, and approved by producers in 1988. There has been no referendum since then. (AP)

>  US   Farm Credit Services of North Dakota now is offering an insurance policy geared specifically toward covering disease-related livestock losses of the type that devastated producers in Europe in recent years.  The policy, which would provide coverage in the event of losses related to foot-and-mouth disease or mad cow disease, is made available to FCS through Crowe Livestock Underwriting Ltd., a subsidiary of Lloyd’s of London. (AnimalNet – Knight-Ridder Tribune)

>  US   The National Cattlemen’s Beef announced its support of the federal government’s proposed fresh meat nutrition labeling rule.  The proposed rule would require Nutrition Facts panels on all ground meat and poultry products and nutrition information posters, brochures or labels for whole muscle cuts such as steaks, roasts, pork chops and chicken breasts.  In its comments on the proposed rule, the beef industry also requested the government go one step further and require the inclusion of meat’s significant nutrients on Nutrition Facts panels, posters or brochures. (PRNewswire)

>  The Johns Hopkins scientists who first genetically engineered animals with a missing growth regulator called myostatin have now created a second group of mice whose genetic makeup shows it is possible to get the same effect by blocking the gene for myostatin, rather than entirely knocking it out.  Results were reported the July 16 issue of the Proceedings of the National Academy of Sciences.  The researchers say they have identified several proteins (follastatin, mutant activin type II receptors, and myostatin propetide) that can block the activity of myostatin. Expressing high levels of these proteins in mice, results in muscle mass increased to levels comparable to those seen in mice completely lacking myostatin.  Myostatin is licensed to MetaMorphix and sublicensed to American Home Products and Cape Aquaculture Technologies.  (AnimalNet – Ascribe)

>  US   Humans and cats will soon be able to share and wear the same perfume. Oh My Cat, a scent designed for both cats and humans, is set to hit U.S. store shelves in mid-August.  Oh My Cat is floral, mixing jasmine, magnolia, freesia, mandarin and bergamot with cedar, sandalwood, vanilla and a touch of olive leaf oil that cats with their sensitive noses can smell but humans can’t, according to Adipar, the company that is introducing Oh My Cat in the United States. Since it’s for cats, Oh My Cat is completely edible, he said, although it contains no catnip. Aimed at affluent cat owners, Oh My Cat will be sold exclusively at first at Saks Fifth Avenue, for around $32 for a 50 ml bottle. Its canine counterpart, Oh My Dog, was launched last year, also at Saks. (Reuters)

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Agribusiness News

>  The Japanese Agriculture, Forestry and Fisheries Ministry, which has been conducting safety tests on animal feed containing StarLink corn, reported that test results showed no genetic problems in the meat of pigs raised on feed containing StarLink corn. During the tests, ministry researchers fed 20 pigs, each weighing some 30 kilograms, with feed composed of 70% StarLink for 11 to 13 weeks until their weight increased to 110 kilograms, and examined their meat, organs and blood. There was no evidence that a gene and protein specific to StarLink were carried over to the pig samples. Also, the growth of the samples showed no difference from that of pigs raised on StarLink-free feed. (AnimalNet – AP)

>  The Environmental Protection Agency issued rules for regulating genetically engineered crops. The decision came seven years after the rules were first proposed. The rules are supported both by environmental groups and the biotech industry, and EPA has been following them informally.  However, there had been some dispute over the regulations among researchers who felt they went too far.  The rules include a provision that says all DNA of the gene-altered crops is safe for food use.  Any pesticidal substances in the plant, however, could be subject to restrictions.  (Emarkets – AP)

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Brakke Consulting Viewpoint

The news this week was seemed to have two threads that weave together in various fashions.  The first was a number of stories related to the continued consolidation in the industry in all segments.  Some companies appear to have both a long-term commitment and the cash to participate in the market place. We believe these companies will be successful in the next five years.  Keep taking the initiative to effect change.

The second area of note in the newsletter is the number of disease outbreaks being reported in various species in Europe and Asia.  It would seem that these continued occurrences offer an opportunity for the industry to solve and treat these problems.  This will obviously take R&D dollars.
 
It looks to us like investment and commitment will be the keys to success over the next few years.  If your 2001and 2002 R&D budgets are less than what was spent in 2000, we suggest you might have your eye on the wrong ball.  Buying or merging with another company most times does not increase innovation but instead creates larger firms with more overheads to be absorbed in a market place that is not growing.  We’d love to discuss these issues with each management team in more detail over the next few months. Give us a call.

[Ron Brakke]
 
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