Animal Health News & Notes for January 7, 2000

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Brakke Consulting’s
Animal Health News & Notes for January 7, 2000

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Company Earnings Releases
 Central Garden & Pet Company announced that it expects to report a loss of between $0.29 and $0.39 per share for the fiscal first quarter of 2000, ended December 25, 1999. The Company typically reports a first quarter loss. The Company said results reflect lower distribution sales related to the previously announced expiration of the Solaris Alliance, a seasonal shift in garden product sales, increased interest costs and a lower share count resulting from Central’s share repurchase program, and a timing difference in sales of methoprene, the active ingredient in certain pet products, among other factors.
 Smithfield Foods Inc said it expected to post lower profits in fiscal third quarter because of recent flooding in North Carolina and weaker profit margins for fresh pork compared with the year earlier.  Analysts polled by First Call/Thomson Financial had expected Smithfield to post earnings of $1.03 per share in the period, compared with a profit of $1.31 per share in the same year-ago quarter.

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Company News Releases
 The Iams Company announced plans to expand availability of its Iams Dog and Cat Foods in North America.  The expansion will focus on retail sales channels where parent company Procter & Gamble sells its products, such as grocery stores, mass merchandisers and club stores.  Iams had been evaluating expansion prior to P&G’s acquisition last September.  Since then, the two companies have been working together on expansion plans. The premium Eukanuba Dog & Cat Foods brand will continue to be well-supported in the pet specialty channel and will not be affected by the expansion.
 Elanco announced that it has received FDA approval for PAYLEAN, its new swine feed ingredient that increases the amount of quality meat in high value cuts and improves production efficiency.  PAYLEAN directs nutrients away from fat to increase the amount of quality lean pork.  In addition, PAYLEAN helps protect the environment by enabling producers to use less feed, thus producing less animal waste.  Each PAYLEAN-fed pig produces about 40 pounds less manure.
 Central Garden & Pet Company announced that its Pennington subsidiary has acquired an equity stake in Cedar Works, a manufacturer of bird feeders. Terms of the transaction were not disclosed.  Cedar Works has annual sales of approximately $23 million and has approximately 225 employees. Cedar Works is the largest producer of wooden bird feeders in the country.
 Monsanto Co. and Pharmacia & Upjohn Inc. have exactly one year in which to complete their proposed merger, or the deal will be canceled on Dec. 31, 2000, according to a Schedule 13D filed with the Securities and Exchange Commission Thursday. If there is any material breach of the contract between the two, or either fails to meet its obligations, the deal can be canceled and Pharmacia & Upjohn would have to pay $575 million to Monsanto. Pharmacia & Upjohn also would pay $575 million to Monsanto if Pharmacia & Upjohn accepts a “superior offer” from another suitor. Though the two negotiated an unusually long termination date, Monsanto and Pharmacia & Upjohn expect to complete their $27 billion merger in the second quarter of 2000.
 NetGrocer.com announced that it has been ranked among the top ten websites in Gomez Advisors Spring 2000 Internet Pet Scorecard. NetGrocer.com’s carries an array of pet products including pet food, toys and accessories as well as health items. The NetGrocer pet department features such brands as Hartz, Purina and Fancy Feast.
 ImmuCell Corporation announced that it had acquired rights to the product Wipe Out Dairy Wipes and certain other related rights from AMBI Inc.  The transaction included the purchase of certain equipment, trademarks and a license of intellectual property for an aggregate of $359,000. The Company also acquired approximately $190,000 of product inventory. The Wipe Out product consists of pre-moistened towelettes that are impregnated with nisin to clean, sanitize and dry the teat area of a cow in advance of milking. Nisin is a natural antibacterial protein that has been demonstrated in clinical studies to be an effective aid in the reduction of disease-causing organisms in dairy cows.

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Animal Health News
 The USDA reported that hog prices in December rose $2.00 per hundredweight to $35.40, up from $20.70 per cwt one year ago. Beef cattle commanded an average $66.40 in December, nearly $10 higher than one year ago.
 The beef industry expects to see slightly higher prices in 2000, based primarily on what promises to be the first decline in output since 1993, a 3% reduction equal to 1.7 billion pounds. With supply down and demand up, selling prices for slaughter-ready steers and heifers will increase slightly from this year, the feedlot industry expects, as will prices for feeder calves to place in feedlots. During the third quarter of this year, beef experienced its first increase in consumer demand in about 20 years.  Cattle feeders are anticipating a profitable 2000.
 Ear cells from a prize Japanese bull, frozen and then cultured in a lab over several months, have produced successful clones, challenging the notion that cells become too stale to duplicate. The findings were published Tuesday in the Proceedings of the National Academy of Sciences. The researchers were cited as saying that to date, cells used in cloning have generally been implanted either fresh or after fewer than 10 “passages,” or periods in a culture medium.  In the new study, at the University of Connecticut and the Kogashima Cattle Breeding Development Institute in Japan, ear cells from a 17-year-old bull went through up to 15 “passages” over three months before they were used to create calves.
 The year 1999 ended on a high note for the biotech industry with renewed interest in biotech stocks (even “effervescent” public markets at year-end), many stocks more than doubling in value during the year, and a number of companies completing successful IPOs during the fourth quarter, according to Burrill & Company.
 ActivMedia Research LLC announced that total online retail sales during 1999 are expected to reach $66 billion.  Online purchases of pet supplies were estimated to be $300 million.

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Brakke Consulting Viewpoint

We believe the animal health industry started off 2000 correctly by avoiding the Y2K buildup that was supposed to shut down the milking machines, keep hogs and poultry from accessing automated watering systems, and cause us to cuddle up to our companion animals to keep warm.

The FDA has approved Elanco’s PAYLEAN for use in pork production.  Elanco has worked long and hard for this approval, and we congratulate them on receiving it.  We suggest you all read the Elanco press release on PAYLEAN in detail.  It is a perfect example of taking the high road on the value of this product to the swine producer, the consumer, and the environment.

All indications are that pork and beef prices will be higher through the first six months of 2000.  This should be great for the industry.

It’s still a little early to really tell how successful e-commerce sales were during December, but we would guess that the NASDAQ decline over the past three days is a good indicator of results versus forecasts.

[Ron Brakke]
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NAVC Presentation Announcement

2000 Animal Health Industry Overview – Monday, January 17th
Marriott World Center hotel – Orlando, Florida at 1:30 p.m.
Time and space are running out.  We have a few seats left if you have not already registered for the Overview presentation at the North American Veterinary Conference.  Please register by email immediately to RogerinTex@aol.com or by fax to (972) 243-0925.  The cost is $250 for the first registrant from a company and $175 for each additional registrant from the same company.
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