The Experts in Animal Health

Brakke Consulting’s
Animal Health News & Notes for July 28, 2000

Copyright © Brakke Consulting, Inc.
Company Earnings Releases

>  Pfizer  reported that first-half 2000 sales of Animal Health were down by 6% to $553 million, reflecting the negative impact of foreign exchange, continuing weakness in U.S. and European livestock markets and the decision of the European Commission to ban certain antibiotic feed additives, including the Pfizer product virginiamycin, in the European Union after June 30th of last year. Sales for the second quarter 2000 were $287 million, down 5% from 1999.  (PRNewswire)

>  Schering-Plough reported that worldwide sales of animal health products in the second quarter rose 1% (6% when foreign exchange is excluded) and totaled $174 million.  First-half sales of animal health products increased 2% in the 2000 first half and totaled $332 million. (PRNewswire)

>  Aventis reported sales for Aventis Animal Nutrition during the first 6 months 2000 were $267 million (euro 280 million), compared to $270 million (euro 284 million) for the same period last year. Second quarter sales were $135 million (euro 142 million), flat compared to the second quarter 1999. Volumes of methionine and Vitamin A were sharply higher than last year, with strong growth recorded in the Asia-Pacific market in particular.  However, these gains were offset by continued weakness in vitamin prices, notably for Vitamin E. (PRNewswire)

> Aventis did not report second quarter 2000 Merial sales, but Ivomec sales were $151 million (euro 159 million), an increase of 24% over 1999.  Sales for the first six months 2000 were $250 million (euro 263 million), an increase of 13%.  Frontline sales for the second quarter were $121 million (euro 127 million), an increase of 26% over 1999, while sales for the first six months were $188 million (euro 197 million), an increase of 34% over the prior year. (PRNewswire)

>  Heska Corporation reported that total revenues for the second quarter 2000 increased 10%, to $14.2 million.  The growth in revenues during the second quarter of 2000 was primarily due to strong sales of vaccines and veterinary medical instrumentation. The Company’s net loss for the second quarter of 2000 was $5.7 million compared with a loss of $6.9 million for the second quarter of 1999.  During the second quarter of 2000, the Company closed on the sale of its Center Laboratories business in Port Washington, New York, and recorded a gain of approximately $150,000 related to this  transaction. (PRNewswire)

> Veterinary Centers of America Inc. VCA reported financial results for the second quarter ended June 30, 2000.  Revenues in the second quarter of 2000 increased 9% to $93.9 million in the second quarter last year.  Hospital same-store revenues increased 6.6% for the second quarter of 2000.  On March 31, 2000, VCA announced that the company had signed a
definitive merger agreement. Under the terms of the agreement, the company’s stockholders will receive $15 per share in cash. Completion of the transaction is subject to stockholder approval, receipt of regulatory approval, the completion of debt financing and other customary closing conditions. (Business Wire)

>  Ralston Purina Company announced third quarter earnings from continuing operations before unusual items of $64.3 million compared to pro forma earnings from continuing operations before unusual items of $63.2 million in the prior year.  (Pro forma comparisons are necessary because Ralston spun-off its Battery Products business on April 1, 2000.)  Third quarter sales were $668.3 million compared to $650.1 million in the prior year third quarter. Sales for North American Pet Foods were flat in the quarter.  International Pet Foods’ sales increased 11% percent in the quarter. Ralston’s super premium pet food business continued to post sales and volume increases.   (PRNewswire)

> announced that net sales for the second quarter reached $8.8 million, compared to $7.7 million in net sales achieved in the first quarter 2000.  Total cumulative customers grew 68%  during the quarter to over 443,000. Repeat customer purchases represented approximately 59%  of all orders. Net losses fell from $39.1 million in the first quarter, to $24.1 million loss in the second quarter. reported a net loss much lower than expected, beating the First Call consensus estimate for the quarter by $0.20 per share. (Business Wire)

> has made significant strides toward profitability, achieving positive gross margins, efficient distribution and cost effective customer acquisition. Revenue for the first half of fiscal 2000 was more than $16 million, compared to approximately $10 million for all of fiscal 1999. The company achieved positive gross margins for the second quarter and is currently producing gross margins in excess of 15%. (Business Wire)

Company News Releases

>   The FDA is amending the animal drug regulations to reflect approval of a supplemental new animal drug application (NADA) filed by Pfizer, Inc. The supplemental NADA provides for topical veterinary prescription use of selamectin solution (Revolution) for the additional indication for control of intestinal hookworm and roundworm infections in cats. Revolution was previously approved for control of heartworms, fleas and ear mites in cats.  (AnimalNet – CFR)

> IDEXX Laboratories, Inc. announced that its Board of Directors has increased the Company’s share repurchase authorization to 10,000,000 shares of the Company’s Common Stock. Under the repurchase program, which commenced in August 1999, the Company has repurchased approximately 5.1 million shares of its Common Stock, resulting in approximately 4.9 million shares remaining under the authorization. (BW HealthWire)

> Heska Corporation announced that it was named to the “Top 50 to Watch” of companies in the Denver market, incorporating companies from the whole of the Rocky Mountain region, for the third quarter of 2000.’s reporters and editors evaluate the hot growth companies in different geographical regions to single out those that they feel are worth watching.  For their report, focused on the private and small- to mid-cap public companies that they feel are changing the economy, but without recognition. (company press release)

>  Heska Corporation announced that it has entered into a license agreement with Circassia Limited granting Circassia exclusive rights to the human therapeutic use of certain small cat allergen peptides.  Heska has also granted Circassia an option to license exclusive rights to the human therapeutic use of certain small house dust mite, ragweed, ryegrass and dog allergen peptides.  Financial terms of the agreements were not disclosed. (PRNewswire)

>  PETsMART, Inc. is one of several investors participating in a mezzanine round of financing for pet e-commerce leader PETsMART has committed $15 million in additional funding, bringing its total equity ownership stake in to 48.2%. The company will reflect and absorb the entire amount of the investment in the second quarter as an equity loss. (Business Wire)

>  Virbac Corporation announced the signing of a licensing agreement granting Virbac exclusive marketing rights for four products currently under development for the pet and companion animal market. Of the four products, three will be available through veterinarians, while the fourth product will be distributed over-the-counter through pet specialty stores. This transaction will actively position Virbac in the highly regulated pharmaceutical market for the treatment of internal parasites for companion animals. The first of these products is expected to be available for commercial sale as early as year-end 2000. (BW HealthWire)

> Neogen Corporation announced that it had entered into a Letter of Intent to acquire Squire Laboratories, and most of the company’s product line.  Squire Laboratories is a specialized manufacturer of veterinary pharmaceuticals and other health products targeted mainly at the performance horse industry. Neogen officials indicated that even though Squire Laboratories’ revenues from the product line for its most recent fiscal year were less than $1 million, Squire’s products complement Neogen’s existing product line for the performance horse segment of its Animal Safety Division. (PRNewswire)

>  Veterinary Pet Insurance introduced its Avian Plan, a comprehensive health insurance plan for pet birds.  The plan was recently filed in California and will become available there in October, with other states to follow.  According to the AVMA, there are 12.6 million pet birds in the US. (company press release)

> and Pethealth Inc. announced a multi-year, seven-figure agreement to sell pet health insurance via a co-branded Web site.  With a click of a mouse, dog and cat owners will be able to review and purchase Pethealth insurance policies covering illnesses, diseases and accidents. The policies will be introduced in five states – California, Illinois, New Jersey, New York and Texas – by fall 2000, with the remaining states coming online soon thereafter.  Already the fastest growing provider in Canada, this partnership marks Pethealth’s foray into the U.S. pet insurance market. (Business Wire)

> announced it has partnered with the Bayer Corporation.  With each registration, customers will receive a coupon for their next purchase of Advantage (up to a $12 value).  The coupon is also available on the website following on-line registration—just click the Advantage logo. uses the power of the Internet to reunite lost pets with their owners by registering pets in an online database using rabies tag numbers, municipal license tag numbers, and microchip or tattoo codes.  (company press release)

> and have agreed in principle to merge, creating a new company that will provide veterinarians with complete practice management and medical information, streamlining clinic operations, offering telemedicine capabilities and allowing practitioners to spend more time practicing veterinary medicine.  VetExchange, offers a Web-based practice management software system, while VetMedCenter offers a blend of news and reference materials and access to products and services.  (PRNewswire)

> announced the launch of its online adoption center.  Currently profiling more than 800 participating animal shelters and thousands of posted animals, One2One Care’ s program is a public service that also benefits One2One Care’s member veterinarians. One2One Care member veterinarians can use the Adoption Center to post their own notices of homeless animals at their facilities. Through the online adoption center, prospective pet adopters can search through the database of adoptable animals using criteria such as breed, sex, age and geographic area.  (company press release)


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Animal Health News

>  The FDA has approved the use of irradiation to reduce Salmonella in fresh shell eggs. Published in the Federal Register, the FDA’s final ruling notes that irradiation will reduce the number of microorganisms (Salmonella) in and on fresh shell eggs. (CNW-PRN)

>  Alberta¹s beef industry has launched a landmark study to determine whether there¹s a connection between beef and antibiotic resistance in humans. The $1 million (Canadian) project has collected more than 20,000 nasal and fecal samples from cattle and more than 100 human samples, including workers from the feedlot industry to hospital patients. While other animals, such as poultry and swine, are more suspect that cattle, the commission has decided to take a leading role by undertaking a major research project in order to gain better, more accurate, scientific information about the problem. The project, which was launched in June, is expected to be completed in November 2001. (AnimalNet – Feedstuffs)

> Dairy Management Inc and the National Milk Producers Federation (NMPF) are co-sponsoring an industry-wide program known as Reputation Management, which will reinforce public confidence in the dairy industry. The program will educate consumers about the dairy industry’s herd health practices, environmental stewardship, product safety standards and commitment to producing quality dairy products.  Reputation Management will also educate the media about dairy farming and launch public education campaigns to correct consumer misperceptions about the dairy industry. (Agweb)

>  AniGenics Inc, a new animal genomics company, has announced the formation of the AniGenics Alliance.  The purpose of this coalition is to establish and support an integrated, collaborative relationship with the world’s top research institutions in animal genomics.  The initial members of the Alliance include the USDA Meat Animal Research Center, University of Illinois, University of Minnesota and the Roslin Institute. (PRNewswire)

>  Brucellosis may be eradicated by December from the only quarantined, privately owned buffalo herd in the United States, and this will bring the nation one step closer to eliminating the disease.
The buffalo herd in South Dakota, as well as a small number of privately owned cattle herds, are among the last U.S. livestock infected with brucellosis. The brucellosis eradication effort in the United States has made major strides in since eradication began in the 1950s. In 1956, for example, there were 124,000 infected herds nationwide. In contrast, only four Texas beef herds and one Florida dairy herd tested positive for the disease as of July 1 this year. (AgWeb)

Agribusiness News

>  AstraZeneca and Novartis announced that the European Commission (EC) has cleared the planned merger of the Zeneca Agrochemicals business with the Novartis Agribusiness to form Syngenta AG, the world’s first global dedicated agribusiness company. The approval follows the agreement of AstraZeneca and Novartis to divest or license some of their crop protection products.  In aggregate, the divestitures represent less than 5% of Syngenta’s unaudited pro forma 1999 sales. (Business Wire)

>  Prairie Plant Systems Inc, a Canadian biotechnology company, is cultivating genetically altered tobacco. Its seeds are being used to produce a protein that scientists hope to develop into medicine to fight bone marrow cancer, officials said in announcing the project.  While using plants for medicinal purposes is nothing new, scientists are still learning to transfer human genetic material into plant cells. The plants are capable of turning the material into proteins, which are extracted from the seeds and made into drugs.  According to researchers, plants are a cleaner and less expensive vehicle for protein production than conventional means such as fermentation in vats.  (AP)

Brakke Consulting Observations from AVMA in Salt Lake City

Several Brakke Consulting consultants attended the American Veterinary Medical Association annual convention this past week in Salt Lake City, Utah.  Dr. Dave Horn of Brakke Consulting presented a program in food animal practice management. There were over 6,000 registered for the  convention with over 1,000 of those being exhibitors. 

Whereas we dubbed the North American Conference in January the “dot-com” conference because of the many Internet companies in attendance, the AVMA exhibit hall could have been nicknamed the “nutraceutical” conference.  There were a wealth of “natural” products on display, offered by both old and new players in the animal health market.

Brakke Consulting congratulates Dr. Jim Nave on being elected president of the AVMA and chair of the National Commission on Veterinary Economic Issues (NCVEI). Dr. Nave issued some major challenges to the association.  He hopes the Executive Board districts can be restructured to better represent the actual demographics of US veterinarians.  He also stated that he would use his term to focus on the economic challenges facing the veterinary profession.

Improving the economic success of the veterinary profession is something that everyone within the animal health industry supports. In 1998, the AVMA commissioned Brakke Consulting to conduct a study of the business behaviors of small animal practitioners, both clinic owners and associates.  The study was funded by Bayer Animal Health.  The Executive Summary of this study will be published in the August issue of the Journal of the American Veterinary Medical Association.  Reprints of the Executive Summary will be available after publication.  This study, combined with the KPMG Megastudy published last year, can be important tools for both veterinarians and those who serve them.

Dick Wilson, John Volk and Roger Cummings thank all of our clients and participants for their time and involvement at the AVMA meeting.

[Roger F. Cummings, CVPM]


Brakke Consulting Viewpoint

The week brought another round of financial reports for the public companies, and there was only one that reported a decline in revenues compared to 1999.  In general we believe business remains strong in both the food animal and companion animal portions of the industry. 

The early predictions on the 2000 corn and soybean crops in the US are strong.  This should mean continued low feed costs for animal production.  However, record numbers and size of animals may put some pricing pressure on producers, holding profits in the moderate range.  It still means good things for the animal health and feed industries.

In the companion animal area, we’re still not sure that everyone in the supply chain recognizes that we’ve moved from a “push products” to a “pull products” business model for successful companies.  Our studies and observations would indicate that the Internet is going to accelerate this transformation over the next two years.  Those companies that learn to play the Internet game successfully will prosper in the coming years.

 [Ron Brakke]
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