The Experts in Animal Health

Brakke Consulting’s
Animal Health News & Notes for August 25, 2000

Copyright © Brakke Consulting, Inc.
Company Earnings Releases

> Novartis reported sales for the first half of 2000 were CHF 514 million ($312 million), an increase of 11% over the comparable period in 1999.  Operating income declined 30% to CHF 66 million ($40 million).  Sales were increased by dynamic growth in the Farm Animal business in Europe, Latin America and Asia, as well as the Vericore acquisition completed in January 2000.  These gains were offset by strong competition in the US flea and heartworm business.  In response to the challenging environment in the US market, Novartis Animal Health has significantly increased its US sales force. (company website)

>  PETsMART, Inc. announced financial results for its second fiscal quarter ended July 30, 2000. Net sales for the second quarter were $538.6 million, an increase of 4.5% over the $515.6 million reported for the same period last year, while North American comparable store sales for the quarter increased 1.2%.  The Company reported second quarter net income of $6.5 million excluding the equity loss in  That compares with second quarter 1999 net income of $6.6 million excluding the equity loss on and the operating loss from the United Kingdom subsidiary. Including the $15.4 million of additional funding for, which was absorbed as an equity loss in the second quarter of 2000, the Company reported a net loss of ($1.8) million.  The Company opened 18 stores in the second quarter and, at the end of the quarter, operated 525 stores. (Business Wire)

> Smithfield Foods, Inc. reported record net income of $44.6 million for the first quarter of fiscal 2001.  These results compare with $6.9 million in the same quarter of fiscal 2000.  Sales for the first quarter of fiscal 2001 totaled $1.4 billion compared to $1.1 billion in the same quarter of fiscal 2000.  Results in the first quarter of fiscal 2001 reflected a strong performance in the Company’s Hog Production Group (HPG) which more than offset a modest loss in the Meat Processing Group (MPG).  The combination of twice as many hogs raised, the result of the Murphy Farms acquisition this past January, and a 41% increase in live hog prices provided the environment for this strong performance by the HPG. (PRNewswire)

>  PetMed Express, Inc. announced its results for the fiscal year ended March 31, 2000. Sales for the year were $14.7 million, an increase of 44% over sales for fiscal 1999. The reported net loss available to common shareholders for fiscal 2000 was $(1.8 million), versus a net loss available to common shareholders of $(468,000) for fiscal 1999. Sales for the three months ended March 31, 2000 were $3.1 million, an increase of 18.7% over the comparable three
month period in fiscal 1999. (Business Wire)

Company News Releases

>  ABAXIS, Inc. announced it has entered into a development agreement with Veterinary Software Publishing, Inc. to interface the VetScan DxS laboratory system with ClienTrax Practice Management Software.  The link will provide veterinarians and members of their staffs with the capability for paperless record keeping of laboratory results from the VetScan chemistry and hematology analyzers. (PRNewswire)

>  Agribrands International and Ralcorp Holdings have agreed to merge, creating a $2.3 billion company.  The transaction combines Ralcorp’s leadership position in US private-label foods with Agribrands’ portfolio of premium animal feed businesses in 16 countries around the world.    Each business will continue to be managed separately.  The companies expect to attain financial rather than operational synergies by merging.  Both companies were spun off by Ralston Purina: Ralcorp in 1995 and Agribrands in 1998. (Feedstuffs)

> Smithfield Foods acquired approximately 6.6 million shares of rival IBP for a price of $100 million. Smithfield acquired a 6.3% stake, making it the third-largest shareholder behind Archer Daniels Midland and Brandes Investment Partners.  Sources indicate that Smithfield is not interested in acquiring the whole company.  (Emarkets – Wall Street Journal)

>  MetaMorphix, Inc. announced that it has completed its acquisition of certain animal health assets of BIOSTAR, Inc., encompassing that company’s R&D facilities, staff, and intellectual property.  Terms of the acquisition were not disclosed. The acquisition provides MetaMorphix with an enabling technology capable of delivering MetaMorphix’s proprietary Myostatin platform technology for achieving superior production characteristics in livestock.  MetaMorphix gains a number of additional strategic new assets as a result of the transaction, including four products in various stages of clinical development for improving  livestock production efficiencies, livestock animal health, and companion animal health. (PRNewswire)

>  Antigenics and Aquila Biopharmaceuticals announced that they have entered into a definitive agreement for Antigenics to purchase Aquila in a tax-free, stock-for-stock transaction valued at approximately $4.67 per share. Antigenics will issue approximately 2.5 million shares, valued at approximately $40 million. Conversion of Aquila shares will be based upon an exchange ratio of 0.2898. The proposed transaction has been approved by boards of directors of both companies. The acquisition, expected to close in the fourth quarter of this year, adds a portfolio of one marketed animal health product, eleven clinical products under development, a novel antigen discovery technology (CD1) and 50 additional issued patents. (PRNewswire)


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Animal Health News

>  Smart Drug Systems has received a state grant to develop a product that will help pigs grow faster without becoming fat.  The new product will use new delivery systems to deliver  somatotropin, a growth hormone.  Smart Drug Systems will work with the University of Connecticut to develop the product, and hopes to have the new product ready for submission to the FDA within two years. (The Day)

>  The U.K.Government¹s chief veterinarian has stated that there are “encouraging” signs the
outbreak of swine fever may not be spreading. It has also emerged that Asian wild boar illegally
imported into Britain are thought to be a source of the highly contagious disease.  (AnimalNet – PA News)

>  Brazil has discovered 28 cattle harboring foot-and-mouth disease in a key southern ranching state, the latest outbreak of the dreaded virus in a region-wide scare. The story says that the cattle, which have now been ordered destroyed, were found in four locations in the vicinity of Joia, a town near the Argentine border.  The origin of the infection is still being determined, although local media are already speculating that the border regions of Argentina and Paraguay are most likely to blame.  (Reuters)

> The USDA is preparing to stop packers from selling any meat from carcasses in which excessive chemical residue is found. Under current rules, packers can throw out the part of an animal that’s tested for drug residue, typically the liver or kidney, and sell the rest. The new policy, which could be made final as early as next month, would require that the entire carcass be destroyed.  The policy would apply to all livestock, but it would primarily affect slaughtered dairy cows, the source of about 40% of the nation’s hamburger meat.  USDA officials say the intent is to bring their procedures into line with the FDA’s policy on chemical residues in food. FDA sets the limits, or tolerances, for drug residues in food animals.  About 0.2% of the cattle tested in 1997 had drug residues in excess of FDA limits, or 12,400 of the 6.2 million cattle slaughtered that year.  (AP)

>  A new report from the Packers and Stockyards Administration shows concentration in beef packing reached an all-time high in 1999 for the top four beef packing firms. Those four firms reached slightly more than 70% of the total U.S. cattle slaughter – slightly more than the 1998 total of 69.5%. In fed steer and heifer slaughter, they have 81.4% of the nation’s business. By contrast, concentration of the top four packers in hog slaughter is 56% and sheep and lambs is 68%. Although USDA does not rank the companies by size, industry ranks the top four beef packers as: IBP, Cargill-Excel, ConAgra, and Farmland. The top four pork packing firms are: Smithfield Foods, IBP, ConAgra and Cargill-Excel.  (DirectAg – Farm Progress)

> WHO has just released global principles aimed at mitigating the risks related to the use of antimicrobials in food animals. A panel of over 70 experts discussed 6 important areas of intervention: antimicrobial registration, distribution/sales, advertising, surveillance, education/training and prudent use. Some of the measures included in the new global principles are:
–obligatory prescriptions for all antimicrobials used for disease control in food animals;
–termination or rapid phasing-out of the use of antimicrobials for growth promotion if they are also used for treatment of humans in the absence of a public health safety evaluation;
–creation of national systems to monitor antimicrobial usage in food animals;
–prelicensing safety evaluation of antimicrobials with consideration of potential resistance to human drugs;
–monitoring of resistance to identify emerging health problems and timely corrective actions to protect human health;
–guidelines for veterinarians to reduce overuse and mis-use of antimicrobials in food animals.
 (AnimalNet – WHO Weekly Epidemiological Report)

> The sheep disease Chorioptic mange has been reported in the United Kingdom for the first time in over 30 years.  Researchers blame the withdrawal of sheep scab control measures as the reason. (Farmers Guardian)

>  CSIRO has initiated two research programs aimed at identifying certain proteins called bacteriocins that are used by bacteria to fight off competing bacteria.  CSIRO hopes to find bacteriocins that would kill disease-causing bacteria in chickens and pigs, to be used as an alternative to antibiotics.  In addition to reducing the amount of antibiotics used in meat animals, bacteriocins could also be quickly broken down in the animal’s body, eliminating meat residues. (The Drumstick)


Brakke Consulting Viewpoint

The main stories this week reflect the continuing consolidation in our industry, whether at the drug manufacturer or food processor level.  Each quarter we become a more concentrated industry in every segment.  As we’ve discussed before, we do not see this changing in the future.  The smaller company consolidations mentioned are needed in order for these firms to create the critical mass to just develop their technologies, to say nothing about their financial resources to market these technologies in an industry where direct-to-consumer advertising is becoming more and more common. 

A number of our consultants will spend this weekend in Kansas City at the Central Veterinary Conference.  We hope to see many of you there. 

 [Ron Brakke]
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