The Experts in Animal Health

Brakke Consulting’s
Animal Health News & Notes for December 23, 1999

Company earnings releases
 Neogen Corporation reported that its second quarter earnings did not match the Company’s excellent performance in the second quarter of its previous fiscal year.  Neogen reported second quarter earnings of $338,000 as compared to the prior year’s second quarter of $666,000.  The Company reported that earnings were down as a result of reduced sales in the quarter.  Neogen recorded sales of $5.4 million in the second quarter, as compared to $5.9 million in the previous year.
 Alcide Corporation announced net sales and earnings for its fiscal second quarter and first half, which ended November 30, 1999. Net sales of $3.0 million for the quarter ending November 30, 1999 were 11% higher than for the equivalent quarter a year ago. First half sales of $5.6 million were $815,000 lower than first half sales last year, which included a non-recurring contractual minimum payment of $1.1 million from the Company’s former distributor, Novus International, Inc.  Sales of Sanova to the poultry industry totaled $846,000 for the second quarter and $1.3 million for the first half.

Holiday Notes from Brakke Consulting

Let me add my voice to the chorus of holiday well-wishers.  1999 has been a very fulfilling year for me professionally.  My sincere thanks to our clients who provided us with the opportunity to work with you on projects.  Come to think of it, I think that just about includes everyone!
A long-time friend shared these words of wisdom on his Christmas card, and I pass them along to you:
Work…like you don’t need the money.
Love…like you’ve never been hurt.
Dance…as if no one is watching.
My best to all.  Merry Christmas and Happy 2000.
John Volk; Brakke Consulting, Inc., Chicago

Company News Releases
 The FDA is amending the animal drug regulations to reflect approval of a supplemental new animal drug application (NADA) filed by Pharmacia & Upjohn Co. The supplemental NADA provides for use of neomycin sulfate Type A medicated articles to make Type B and C medicated feeds for cattle, swine, sheep, and goats, and medicated milk replacers for calves, piglets, lambs, and goat kids.
 Purina Mills, Inc. announced that it will resume its ingredient purchasing activities in St. Louis starting in early January, 2000.  These activities are currently performed in Wichita, Kansas, by Koch Nutrient Services, which is a division of Koch Agriculture Company, a subsidiary of Purina’s current parent company, Koch Industries, Inc.  The reintegration of the purchasing function is an important step in Purina’s financial restructuring, which the Company is executing in Chapter 11.
 Doane Pet Care Company announced that it has signed a letter of intent to acquire A/S Arovit Petfood (“Arovit”) located in Esbjerg, Denmark.  The terms of the transaction have not been disclosed.  Arovit is a leading producer of private label pet food in Europe supplying a full range of products for dogs and cats, including wet, dry and treats. The Company has approximately 850 employees, four production facilities and nine sales offices throughout Europe.
 Vical Inc. announced that it has received a payment of $1.6 million from Merial for the initial exercise of options under a 1995 agreement covering naked DNA vaccines for animal health applications.  A number of therapeutic and vaccine product candidates are currently under development for the prevention or treatment of cancer, infectious diseases and metabolic disorders by Vical and its collaborative partners. 
 According to an article from AnimalNet, Avoparcin will be taken off the market worldwide because it causes antibiotic resistance in humans.  Avoparcin, commonly used as a growth promoter in chickens, will be withdrawn by its manufacturer, Roche Vitamins, under pressure from doctors and governments. It is believed the company informed Australian Federal drug authorities of their decision to remove Avoparcin earlier this month.
 DRAXIS Health Inc announced that it has amended the license terms with Pfizer in respect of Anipryl for the European market.  A lower-priced selegiline-based product is now being sold in the European veterinary market for indications other than Cushing’s disease or CDS.  Under the amended license terms, Pfizer will retain its European rights to Anipryl and reaffirms its present intention to launch in Europe after DRAXIS achieves the necessary regulatory approval. $9 million of milestones related to Europe will be eliminated in exchange for DRAXIS receiving additional funding for the completion of a clinical trial on a new Anipryl indication, additional regulatory support for the new indication as well as manufacturing data.  DRAXIS will be entitled to receive up to an additional $8 million in milestone payments in respect of the new indication. The Company will continue to be entitled to royalties on global Anipryl sales by Pfizer and will retain the manufacturing rights for Anipryl.  In addition, DRAXIS will retain royalty entitlements in all territories, including Europe, for the new Anipryl indication currently under development.
 announced PC Data Online and Nielson NetRatings statistics that place as the number one Internet pet commerce site in several key categories.      Achieving top rankings in terms of number of buyers and site ’stickiness,’ these latest figures place at the head of pack.  A November PC Data report listed as one of the top 20 U.S. Web Retailers among home web users as determined by number of unique buyers.
 announced Media Metrix, has joined PC Data and Nielsen//Net Ratings in naming the most highly trafficked Internet pet site for the month of November.  According to the Media Metrix survey, had 1,562,000 site visitors for November, a 37% increase over October.  The site also ranked among the top 40 e-commerce sites for November 1999 according to Media Metrix.’s November revenues increased by over 60% versus October.
 IBP, inc. announced that it has signed a definitive agreement to acquire Corporate Brand Foods America (“CBFA”), a leading privately held processor and marketer of meat and poultry products for the retail and foodservice markets. The transaction will make IBP one of the world’s leading producers of high-margin, value-added processed meat, poultry and other food products. In 1999, CBFA generated sales of approximately $800 million on an annualized basis. The combined Company will have annual sales of approximately $15 billion.  Based on yesterday’s closing price of $18.313, the value of the transaction would be $584 million including the assumption of $323 million of CBFA debt.  As recently as 1996, value-added products were just 15% of total IBP sales. When this transaction is completed, value-added products will represent approximately 40% of the combined company’s annualized 1999 sales.

Holiday Notes from Brakke Consulting
It has been an interesting business year. Let’s hope that the new century brings both interest and good business.  I wish you all and your families all the very best for a peaceful Christmas time and new year.
John Short; Brakke Consulting, Inc., Asheville, NC

Animal Health News
 Ventures West announced the closing of its $2.5 million investment in Caprion Pharmaceuticals Inc., an early-stage diagnostic and therapeutics research organization based in Montreal.  Caprion is a private biotechnology company engaged in protein research. Caprion is engaged in the development of rapid blood-based diagnostics for detecting transmissible spongiform encephalopathies (TSEs). The company’s proprietary technologies, including prion receptors, antibodies and in vitro assays that mimic recruitment, solidified a strategic relationship with IDEXX Laboratories.
 After a year of extremely low hog prices that forced many producers out of business and pared down the herd, the coming year offers hope of higher prices and profits for struggling producers, livestock analysts said. Fewer hogs, low feed prices and continued strong consumer demand for pork should restore some financial health to an industry that endured the lowest hog prices in 50 years a year ago, analysts said.  “There is no doubt we have lost producers because of the very bad year last year,” said Joe Kropf, livestock analyst with Kropf and Love Consulting, a Kansas City-based agriculture consulting firm.  However, Kropf said hog producers should profit for much of 2000, with even the lowest prices next year covering production costs.  “I think for a lot of the industry it will be profitable,” said Kropf, who said hog prices of 45 to 50 cents per pound should be common in 2000. The better prices will largely be the result of fewer hogs. Low hog prices the past two years forced many producers out of business and others to raise fewer hogs.
 Following the release of USDA regulations for the irradiation of red meat, Colorado Boxed Beef, in association with Food Technology Service, Inc. announced that it will launch the first irradiated ground beef label in the US market. Colorado Boxed Beef’s newly created brand New Generation will be available to consumers following the mandatory USDA 60-day waiting period. The New Generation brand should be available in supermarkets by March.
 Dairy farming is moving west from traditional centers, according to an Associated Press news article.  Wisconsin and Minnesota once dominated U.S. dairy production. Now California leads the way, and other western states are also rapidly increasing production at huge, mechanized farms that would be unthinkable in the Midwest.  Western producers have thrived by treating farms as businesses instead of family-focused operations. They warmed to new technology and techniques, such as milking cows around the clock, said Harold Stanislawski, a livestock development specialist for the Minnesota Department of Agriculture.  In 1998, the average dairy herd in Minnesota had 57 cows, compared with 225 in Idaho and 526 in California.
 A weekly survey of internet users by PC Data Online reported that home internet users spent more than $1.2 billion the week of December 6.  An estimated $20 million was spent on pet supplies, with 21% of those surveyed indicating that they had purchased pet supplies online.

Holiday Notes from Brakke Consulting
Counting ones blessing should be an on-going everyday activity but it seems that the holiday season, as well as the closing of a year, evokes the need to do so more than at others times.   We extend to all of you our best wishes for a happy holiday and a prosperous 2000 as we all await the new millennium and the wonders that it will bring.  Happy Holidays.
Richard Wilson; Brakke Consulting, Inc., Kansas City

Agribusiness News
 U.S. farmers are delaying purchases of corn and soybean seeds for next year’s plantings because of poor commodity prices and the controversy over genetically modified crops, Novartis Seeds Inc. said. Marc Henned, Novartis’s corn marketing manager, said in an interview that there has been a 10- to 15-percent delay so far this year in seed bookings compared with last year. He said the delays have as much to do with low commodity prices and unseasonably warm weather in the United States as they do with the uproar in Europe and Asia over genetically modified crops and food products.

Holiday Notes from Brakke Consulting

It only remains for me to wish you all a Very Happy Christmas Season and an Unique and Wonderful Slide (as they say in German), into the New Century, the year 2000!  All the very best to you all.
Robin Oakley; Brakke Consulting Europe, Goermering, Germany

Brakke Consulting Viewpoint
 The closing of this century, this decade, and this year will occur in a few days.  How different the animal health industry is from the beginning of this century.  Animal health as a business really did not exist as an industry until the advancement of modern high-production agriculture in the 1940’s and 50’s.  This was closely tied to the scientific advancements in human health and crop agriculture. 

There have been many changes in animal health in this decade alone.  This past year has seen the continued rapid consolidation at all levels within the animal health industry, leading to bigger and fewer competitors.  In 1990, none of the top animal health companies (excluding nutritional feed additives) had sales of over $650 million.  In 1999, the top three companies each had sales of $1 billion or more.

As we close out 1999, we wonder about the next century, the new threats and our budgets for 2000.  We’d like to recommend to each of you that you pat yourself on the back for your 1999 efforts in a difficult year. Go home early!  Enjoy the holidays with your families, and address the business issues early in the new millennium.
[Ron Brakke]


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