The Experts in Animal Health

Brakke Consulting’s
Animal Health News & Notes for December 17, 1999

Company earnings releases
 4th quarter earnings for Degussa’s feed additives’ division were significantly lower.  Degussa reported that, although volumes continued to rise, there was strong downward pressure on prices.
 Dainippon Pharmaceutical Co reported its financial results for the first half of fiscal 1999 ended September 30.  Net sales of animal health products increased by 6.7% to ¥10.6 billion [$101 million] from ¥9.9 billion in the same period last year.
 Central Garden & Pet Company announced its financial results for the full year ended September 25, 1999.     Full year net sales increased 19% to $1.5 billion from $1.3 billion in fiscal 1998. Central reported net income for fiscal 1999 of $24.5 million compared with $33.7 million in fiscal 1998.

Company News Releases
 American Home Products’ Chairman, President and CEO, John R. Stafford, said that “AHP is fully committed to the completion of the merger-of-equals business combination with Warner-Lambert Company that we announced on November 4, 1999. The friendly merger with Warner-Lambert will create enormous near and long-term value for our shareholders. Regardless of rumors reported by the press, I can assure you that we are not and have not been in discussions either formally or informally with Pharmacia & Upjohn regarding an alternative business combination.”
 The Wall Street Journal reported that Pharmacia & Upjohn and Monsanto are in merger discussions this weekend.  The discussions would be as a “merger of equals” with Monsanto and Pharmacia & Upjohn having similar market capitalizations.  The merger is reported to be just one of the options the Monsanto board is considering.
 announced that the company has filed a registration statement on form S-1 dated December 9, 1999 for an initial public offering of its common stock.  Merrill Lynch & Co. will act as the lead manager of the offering. The co-managing underwriters of the offering are Bear, Stearns & Co. Inc., Thomas Weisel Partners LLC, and Warburg Dillon Read LLC.
 PETsMART, Inc., announced the sale of its Pet City Holdings Limited subsidiary, which owns 92 United Kingdom superstores, to Pets At Home, a chain of pet specialty stores located in the United Kingdom.  Pets At Home has acquired 100 percent of the stock of Pet City Holdings Limited. The sale price of the transaction is U.K. £30 million or U.S. $49 million, less bank indebtedness, which is estimated at approximately $6 to $8 million. The transaction will result in a one-time charge of $28 to $30 million and will be reflected in PETsMART’s third quarter 10Q, which will increase the loss previously reported in the company’s news release dated November 23, 1999.
 Bayer and Japanese company Kyowa Hakko Kogyo Co., Ltd. have jointly developed a product to free fish from parasites based on an active ingredient from Bayer, praziquantel. Bayer and Kyowa Hakko, a company with great experience in the development of health treatments for fish, will jointly market the new product (Bayer trade name: Hadaclean), initially only in Japan.
 Aventis, a new world leader in life sciences, was created December 15, 1999, following a meeting of Rhone-Poulenc shareholders who approved by an overwhelming majority (97.1%) the final steps required to complete the merger between Hoechst AG and Rhone-Poulenc. Aventis will comprise two divisions: Aventis Pharma and Aventis Agriculture.  Aventis Agriculture will include Aventis CropScience (the combination of the crop protection, crop  production and seeds businesses of Rhone-Poulenc Agro and AgrEvo, in  which Schering AG will hold a 24% stake); Aventis Animal Nutrition (nutritional feed additives); and Merial (animal health) – a 50/50 joint venture with Merck & Co.
 IDEXX Veterinary Services, a subsidiary of IDEXX Laboratories, Inc., announced the purchase of Tufts Veterinary Diagnostic Laboratory from Tufts University School of Veterinary Medicine, North Grafton, Massachusetts. Terms of the purchase were not disclosed.  With the purchase of Tufts Veterinary Diagnostic Laboratory, IVS now has 11 reference laboratory locations in the U.S. and three outside the U.S in Australia, Japan and the United Kingdom.

Holiday Notes from Brakke Consulting
I take this occasion to offer our clients my best wishes for a Merry Christmas and a Happy New Year.  Economic conditions in Japan and other Asian countries have gradually improved in 1999 after a serious depression for many years. We expect a steady growth of industries for 2000. With the expansion of small animal market, Japanese small animal veterinarian numbers increased by 9.1% to 8,308 for the previous two years. We will continue our consulting services for the introduction and sourcing of new technology and products into the Japanese market.
Atsuo Hata, DVM; Brakke Consulting, Inc., Osaka  Japan

Animal Health News
 ImmuCell Corporation announced the approval by the USDA of its new immunodiagnostic test kit. Upon licensure, the Company immediately launched commercial sales of Tip-Test:Johne’s, a rapid diagnostic test for the detection of Johne’s disease in cattle. Tip-Test: Johne’s utilizes the same principles as the Enzyme-linked Immunosorbent Assay (“ELISA”) test currently on the market. Tip-Test:Johne’s offers high sensitivity and can be performed in about twenty minutes using bovine blood or serum on-site or in a veterinarian’s office.
, a leading online print shop announced that it has entered the pet merchandise market with the launch of the Pet Shop. Consumers can now custom-design a wide wide array of products that feature their pet’s photo or name.
 Since 1996, Dancing Paws has met the demand for natural pet products with its pet supplement line, Pet Nutrient System, and its new human-grade Howlin’Gourmet dog treats. Dancing Paws now announces a new strategic alliance with Global Health Sciences Inc. (GHS). GHS develops and manufactures vitamins, minerals and other supplements designed to meet customers’ specifications, and is currently the largest manufacturer of nutritional supplements in the United States.
 PawGear, a privately held Internet start-up, is launching sister-site, a site focused on providing product selection, helpful information and impartiality to dog owners. Users can shop through diverse dog products and services, learn more about dog health, sound off about their pooch, track canine events and even give their dog an email account. 
 Processors will be allowed to irradiate raw beef, pork and lamb to eliminate deadly bacteria and other organisms, but products will be required to carry labels informing shoppers of the treatment, the government said Tuesday.  Irradiation, which already was approved for poultry, is the only known method to eliminate deadly E. coli O157:H7 bacteria in raw meat and also can significantly reduce levels of other pathogens, including Listeria, Salmonella and Campylobacter.  Irradiation had to be approved by both USDA, which is responsible for ensuring the safety of meat, and the FDA, which has authority over food additives. The FDA approved irradiation in 1997.
 A federal food safety program was dealt a stunning setback Friday when a Texas judge ruled that the USDA could not punish a beef processing plant that flunked tests for illness-causing salmonella. The decision means that Supreme Beef Processing Inc, a privately-owned company, can keep its doors open and continue to make and sell ground beef. The lawsuit has been closely watched by consumer groups and the meat industry as an important test of whether the USDA can require a company to comply with tests for foodborne illness.
 One in ten home Internet users was mousing around e-tailers last week, spending a total of $900 million, according to a buying study released Monday by Goldman Sachs – PC Data. Toys and music expectedly dominated the past week’s online sales.  But this holiday spree is driving record numbers of online shoppers into all categories including pet supply sites, where spending increased from $7 million top $23 million in a week. The survey included 3,199 home-based Internet users.
 iStreet Labs has announced the launch of its first site,, a gift-giving site that offers the world’s widest selection of edible pet treats. All items purchased at are delivered directly to the recipient’s door in an elegant and unique gift box with a personalized card and a gift for the human recipient.
 CV Apavet Inc., a new Edmonton company, has purchased the exclusive right to market the natural mixtures developed by CV Technologies for use with animals. A local biopharmaceutical company, CVT has used its patented platform technology to develop a range of mixtures made from ginseng, shark cartilege and ginko biloba that offer health benefits to humans. Apavet now has four natural health products for dogs and four for cats,including blends to enhance ease of motion, mental alertness and natural resistance, plus a daily supplement for maintaining general health.
 Animal Pharm reported that inventors in the Netherlands have patented a process to produce meat using cell cultures by cultivating cell samples on a collagen matrix.  The scientists claim that the method can be used with cells from cows, sheep, chickens and shellfish.
 The Titan Corporation’s new state-of-the-art electronic food pasteurization facility will immediately begin pasteurizing meat, including ground beef, as a result of regulations announced this week by the USDA.  The USDA had previously issued similar guidelines for poultry.  Similar to a microwave oven, Titan’s SureBeam system uses commercial electricity as its energy source to destroy harmful food-borne pathogens such as E.Coli, Listeria, Campylobacter, and Salmonella in meat, chicken, vegetables and other foods without affecting their taste, texture or nutritional qualities.

Holiday Notes from Brakke Consulting
1999 has proven to be an exciting year with many opportunities and challenges for those in the animal health and related industries.  I have watched with interest and amazement the exponential growth of the online pet stores, both in number and in internal growth.  The Holiday Season will provide a boost to all retailers, both online and in traditional stores.  It will be interesting to see who survives and who falls by the wayside in the coming year, and how these new venues will affect the traditional retailers.  I wish the best to all of you, both during the holidays and in the new millennium.
Lynn Fondon, DVM, MBA; Brakke Consulting, Inc., Dallas

Agribusiness News
 Monsanto Co. said its board is meeting this week, amid investor expectations it’s discussing separating the company’s fast-growing drug business from its agricultural unit. The Wall Street Journal reported the board wants to make an announcement on the company’s strategy within the next few days or weeks. Monsanto, whose $8 billion investment in genetically engineered crops has yet to pay off for investors, has held merger talks with two rivals and has told shareholders it’s considering selling or breaking up the company.
 A group of class-action lawyers filed a suit against Monsanto Co., taking the growing controversy over bioengineered food into the courtroom. The suit, filed in federal district court in Washington, alleges that Monsanto didn’t adequately test the safety of its genetically modified corn and soybean plants, and that the St. Louis company’s patented genes are giving it too much control over how staple crops are used.  Monsanto attacked the merits of the lawsuit, which was brought at the urging of antibiotechnology activist Jeremy Rifkin and supported by a coalition of populist farm groups long suspicious of corporate control of agriculture. Activists hope the lawsuit gives them a high-profile stage to air their complaints against bioengineered foods, arguments that U.S. regulators from the FDA to the Justice Department have largely rejected.
 Novartis Seeds and Diversa Corp. announced the formation of a joint venture to pursue opportunities in the fields of animal feeds and agricultural product processing.  Under the agreement, Novartis Seeds will form a new affiliated company to work with Diversa. Diversa and Novartis will apply their resources and proprietary technologies to discover and optimize novel enzymes, which the new company will market for use in animal feed additives and formulations. Novartis Seeds will also develop enhanced crops bearing genes identified by the joint venture.  Financial details were not disclosed.

Brakke Consulting Viewpoint

It just seems like more of the same as we all start to slow down for the Holiday Season.  It appears that many of us are just waiting for the Y2K to see if our preparations were successful or if we just got caught up in the “Biggest Non-Event Ever”.  What is your take on it?  We like to get some of your comments for next week’s newsletter.  That is, for those of you that are still working next week.

We’re looking forward to end of the first quarter in year 2000 so we can learn how all the e-retailers did during the Holiday Season versus the forecasts that were given to the investors.  It could be a real interesting time.  We thought we had a good tracking system, but there are so many e-commerce sites jumping on the pet products bandwagon that we may not have identified them all. 

Next week, we will publish the newsletter on Thursday since most companies will be closed on Friday.  If we do not have the opportunity to visit with you again prior to the Holidays, we want to thank all of you for your support and business in 1999.  It was a challenging year and everybody seemed to make the most of it.  As we close 1999 we see some very encouraging signs in the industry.  Food animal prices have been rising while feed grain prices remain low indicating there may be some improved numbers early next year.

All of us at Brakke Consulting wish you and your families the very best of the “SEASON AND HOLIDAYS”. 

[Ron Brakke]

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