The Experts in Animal Health

Brakke Consulting’s
Animal Health News & Notes for February 4, 2000

Copyright © Brakke Consulting, Inc.
Company Earnings Releases
 Schering-Plough reported that worldwide sales of animal health products in 1999 totaled $678 million, up 5% over 1998 (6% when foreign exchange is excluded).  Fourth quarter 1999 sales of animal health products were up 12% to $192 million (15% when foreign exchange is excluded), reflecting gains for Nuflor (florfenicol), a broad-spectrum, multi-species antibiotic.  (PRNewswire)
 Aventis reported that sales of Aventis Animal Nutrition (formerly Rhone Poulenc Animal Nutrition) declined 8.2% to euro 551 million ($553 million) due to significant overcapacity and resulting price weakness in the methionine and vitamin businesses.  Sales for Merial were not reported, but Frontline sales increased 9.6% to euro 296 million ($297 million), while avermectin sales declined 4.4% to euro 530 million ($532 million). (PRNewswire)
 Heska reported total revenues for the year ended December 31, 1999, increased 29%, to $51.2 million compared to $39.8 million for the prior year.  The growth in revenues during 1999 was primarily due to increased sales of new products introduced by the Company during 1999. Net loss for the year ended December 31, 1999 was $35.8 million, compared with a loss of $44.3 million for the prior year.  Fourth quarter 1999 revenues increased 11%, to $14.2 million compared to $12.8 million for the fourth quarter of 1998.  The growth in revenues during the fourth quarter of 1999 was primarily due to sales of Solo Step CH, the Company’s heartworm diagnostic test, and other products introduced by the company during 1999.  (PRNewswire)
 Colgate reported that, at year-end 1999, Hill’s Pet Foods was 12% of company sales, or an estimated $1.09 billion.  Unit volume grew 9% in the fourth quarter and sales expanded 7%. Full-year volume rose 8%, on 7% higher sales. Strong domestic growth for Hill’s reflects wide acceptance of Science Diet Feline Hairball Control, which has been expanded with two new life-stage related varieties, and new Prescription Diet products for pets that suffer from renal and liver disease. Hill’s-International achieved excellent results in all regions. Hill’s sells its products in 72 countries worldwide and commands a leading market position in each. (Business WIre)
 Central Garden & Pet Company announced financial results for the fiscal first quarter of 2000, ended December 25, 1999.  Net sales for the first quarter were $218.6 million, compared with $228.0 million in the comparable fiscal 1999 period. The Company recorded a net loss for the quarter of $6.5 million compared with a net loss of $435,000 in the comparable year-ago period. Central typically shows a loss in the three-month period ending in December, which is the slowest time of the year for the lawn and garden industry. (Business Wire)

Company News Releases
 Pfizer Inc. has tentatively agreed to raise its takeover bid for Warner-Lambert Co. to $85 billion, and the two are working out the details of a deal.  The companies must now placate American Home Products, the losing suitor in a 3- month fight for control of Warner-Lambert.  Pfizer reportedly will offer 2.75 shares, worth about $99, for each share of Warner-Lambert.  While Warner-Lambert shareholders would get 10% more of Pfizer’s stock than its original offer, those shares are worth about 8% less today than they were when Pfizer first made its bid. Pfizer will have to pay a $1.8 billion breakup fee to American Home Products. And Pfizer may also have to make other concessions to American Home, which could still prevent Pfizer from using a favorable accounting treatment in its acquisition of Warner-Lambert. (AP)
 Novartis AG is considering the possibility of a merger or acquisition in the U.S., according to the Financial Times, citing people close to the company. The Swiss drugmaker is weighing a bid for American Home Products Corp. if its friendly merger with Warner-Lambert Co. falls apart or possibly an attempt at Pharmacia & Upjohn Inc., which has agreed to merge with Monsanto Co., the FT said. The paper said that no approaches have been made, and Novartis is considering a number of options. (Financial Times)
 A federal court has ruled that Neogen Corporation’s aflatoxin detection product does not infringe a patent licensed to Vicam, L.P.  In 1996, Vicam and Radlo sent a letter to a large number of companies and other entities alleging that one of Neogen’s diagnostic tests infringed on two patents licensed to Vicam.  The letter threatened those companies and entities with legal action if they purchased Neogen’s new product to detect aflatoxin.   After Vicam and Radlo refused Neogen’s request for a retraction of the patent infringement allegations, Neogen brought suit seeking a declaratory judgment of non-infringement and for monetary damages. (PRNewswire)
 ABAXIS, Inc. announced that they have been selected by Purchasing Services, Inc., St. Petersburg, FL as an approved vendor for chemistry and hematology instruments.  Purchasing Services, Inc. is a group purchasing organization with over 500 member animal hospitals throughout the state of Florida. (PRNewswire)
 Abbott Laboratories has registered SevoFlo (sevoflurane) for use as a general anesthetic in dogs.  SevoFlo is indicated for induction and maintenance of general anesthesia. (CVM)
 Smithfield Foods Inc., the largest U.S. hog processor, has completed its acquisition of No. 2 hog producer Murphy Farms Inc. in a deal challenged by at least two states (Iowa and Missouri) for possibly violating laws against corporate farming.  Smithfield said that North Carolina-based Murphy Farms sold its Iowa assets to a former employee prior to closing to avoid a legal battle.  Smithfield bought Murphy Farms for 11.1 million shares, $203 million in assumed debt and other liabilities.  (Reuters)
 On the heels of last week’s financing and strategic partnership with NBC and ValueVision, announced it has raised an additional $10 million in cash from Greyrock Capital, a leading financier to technology companies. The additional capital enables to continue to build its business and expand its infrastructure, as well as to support marketing efforts and hiring of industry talent. (Business Wire)
 announced that it has filed a registration statement with the Securities and Exchange Commission for an initial public offering of shares of its Common Stock.  All shares being offered are being sold by the Company., Inc. was founded in May 1999., Inc. has entered into a strategic alliance with PETsMART, Inc.  The offering will be made only by means of a prospectus.  The Company anticipates that the proposed sales to the public will commence sometime in the next several months. (PRNewswire)
 officially launched its Affiliate Program. affiliate participants will be able to earn money and enhance their content offerings by placing banners, buttons or text links on their Web site. Specifically, affiliate participants will receive 10 percent commission on every order originating from their sites and an additional $5 for each new customer that makes a purchase. (company press release)
 announced that it will open two new distribution and supply centers at PETCO Animal Supplies, Inc., bringing its total to five locations nationwide.  Beginning this quarter, will be able to use two PETCO centers in Dayton, N.J. and Joliet, Ill.’s other distribution and supply centers are located in Tennessee, Ohio and California. (Business Wire)
 announced an exclusive alliance with Three Dog Bakery, the leading producer of healthy, all-natural pet products.  Next month, will open a co-branded boutique within its site that will feature Three Dog Bakery’s brand along with creative content such as recipes, stories, photos and the company’s trademark spokesrovers. (Business Wire)

Animal Health News
 An experimental vaccine, developed by the Veterinary Infectious Disease Organization (VIDO) in Saskatoon, Canada, is proving highly effective in protecting early-weaned pigs from Strep suis.  Researchers were able to demonstrate, in both a test setting as well as in a small field trial, that the vaccine did have a statistically significant protective effect on reducing mortality in the litters from vaccinated sows.  VIDO is currently working with a commercial partner to refine the production of the vaccine so it can be commercialized.  (AnimalNet)
 The British government announced that pets with passports will have a choice of six transport companies when they travel abroad with their owners, on Monday.  Pet owners will need to meet a number of requirements to obtain a passport, including getting cats and dogs vaccinated against rabies and attaching microchip identification.  (Reuters)
 The total US cattle inventory was estimated at 98 million head, down 1% from a year ago and down 6% from the peak in 1996.  The 1999 calf crop was 38.7 million head, down slightly from last year and the smallest calf crop since 1953.  (TCFA Newsletter)
 Federal officials said today they are conducting a criminal investigation into the shipment of American beef to Switzerland last year that contained the illegal hormone known as DES.  The Swiss government notified the United States last July that the banned carcinogen, diethylstilbestrol, had been found in two samples of U.S. beef that was supposed to be free of hormones.  The Agriculture Department stopped testing beef for DES in 1991 after failing to find the compound for several years, but had already planned before the Swiss discovery to resume testing for it.  Use of DES in food animals has been banned for 20 years.  (AP)

Agribusiness News
 Frito-Lay has told suppliers not to use genetically altered corn, angering farmers while pleasing some environmentalists. Frito-Lay said the company was acting in response to consumers’ worries. A spokesperson for the company noted that the FDA has ruled that biotech foods are safe to eat, but Frito-Lay is a consumer products company.  According to the USDA, about one-third of the corn grown in the United States last year used gene-spliced seeds. Frito-Lay’s action follows last summer’s announcement by Gerber and Heinz that they would stop using genetically modified ingredients in baby food even though they believe the ingredients are safe. (AP)
 Ag Services of America Inc. announced recently the opening of an online community and information resource center for farmers within, the company’s e-commerce website. The community section of the site will initially provide Powerfarm users the ability to communicate with each other by posting messages on a variety of agriculture topics. Conferences have been established for such discussion subjects as crop production, marketing, equipment, GMO issues and more.  (PRNewswire)
 Delegates to the United Nations conference on Biosafety have reached an international agreement on the trade of genetically modified food and other products.  The protocol allows a country to ban imports of a genetically modified product if it feels there is not enough scientific evidence showing the product is safe. It also provides rules for the transport and labeling, requiring that the words “may contain living modified organisms’’ appear on all shipments of genetically altered commodities, such as corn and cotton.  U.S. negotiators said they were satisfied with the final agreement.  In one of the main compromises, the United States and its supporters were able to amend rules that would have required labels to give specific details on what genetically modified materials are in a product. (AP)
 Sumitomo Chemical Co., Ltd. of Tokyo, Japan, announced the completion of the acquisition of Abbott’s agricultural products business. A new company, Valent Biosciences Corporation, has been created to operate the business.  Under the transaction, Sumitomo acquired research and development, sales, marketing and support operations for Abbott’s entire line of naturally occurring biopesticides, plant growth regulators and other products for agriculture, public health and forestry. Abbott Laboratories will continue to manufacture bulk active ingredients for Valent Biosciences.  (Avcare Newsletter)
 Land O’Lakes, Inc., Cenex Harvest States Cooperatives and Farmland Industries today announced that Agriliance, LLC will be the name of the agronomy marketing joint venture between the three regional cooperatives.  Agriliance will be equally owned and governed by Land O’Lakes (50%) and by a Cenex Harvest States/Farmland LLC (50%). Agriliance will be the largest North American crop input provider; marketing approximately 15 million tons of crop nutrients, $1.7 billion of crop protection products, and $300 million of Croplan Genetics seed (through a joint venture between WILFARM, LLC and Land O’Lakes, Inc.).  Agriliance will market crop nutrients, crop protection products, seed, information management and crop technical services to farmers and ranchers through the cooperative system and independent retail dealers in all 50 states, Canada and Mexico. (PRNewswire)
 EnviroLogix Inc. announced that it has successfully completed six months of field testing its three Bt Cry1Ab corn test kits with strong support from customers.   Initially validated through customer testing in the first half of 1999, EnviroLogix began shipping the commercial versions in early July. Since then the tests have become the industry standard for grain screening in corn destined for such diverse applications as food processing, distilling and brewing, and feed and pet food production.  The Company also announced the availability of its test kit for detecting Cry2A in genetically enhanced crops. EnviroLogix plans to have tests for all commercialized genetically modified traits in corn and soybeans by mid-summer, including Cry1C, Cry3A, Cry9C, and the RoundupReady and LibertyLink herbicide-resistance traits. (BW Healthwire)
 Purdue University’s School of Agriculture and Krannert Graduate School of Business are jointly offering a fully accredited executive MBA program with a focus in the food and agribusiness industries.  The program includes course content and applications focused on the unique dimensions of food and agricultural markets. (promotional mailing)

Brakke Consulting Viewpoint

Talk about fooling the rest of the industry.  Two years ago, everyone in the animal health industry was commenting on the “mess” at Schering-Plough Animal Health following the acquisition of Mallinckrodt Veterinary.  Well, the SPAH management is to be congratulated for their operational results in 1999.  In the face of a tough market, they are one of the growth leaders among the top-tier animal health companies.

Also to be congratulated is Hill’s.  Their growth rate of 8% on volume and 7% on dollars indicates that super-premium pet foods are still a growing area.  What other company in animal health has a leading brand share in a prominent category segment in 70 countries?  No wonder Procter & Gamble wanted an entry into the super-premium pet foods market.

Other than the above company observations, the news this week is more of the same: who is going to buy who, spin off what part of their company, downsize to fit the R&D pipeline, or just stand still for a few months?  Many seem to be choosing to either get larger or smaller as merger mania continues.

 [Ron Brakke]
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