The Experts in Animal Health

Brakke Consulting’s
Animal Health News & Notes for November 12, 1999

Company earnings releases
 Embrex, Inc. announced revenue for the quarter ended 9/30/99 of $8.2 million compared with $7.4 million for the quarter ended 9/30/98, reflecting an 11% increase that was primarily attributable to strong INOVOJECT system revenue in North America.  Net income for the quarter increased 106% to $1,552,000, compared with $753,000 in the same period last year.
 Destron Fearing reported net sales for the 4th quarter ended 9/30/99 of $3.8 million, a 51% increase from $2.5 million in 1998.  Net sales for fiscal 1999 increased 47% to $18.5 million.  Net income for fiscal 1999 was $3.5 million, compared to a net loss of $2.0 million in 1998.

Company News Releases
 American Home Products Corporation said that it remains fully committed to its announced strategic business combination with Warner-Lambert and that it intends to complete the transaction pursuant to the terms of its agreements. 
 Pfizer Inc. Chairman William Steere said the drug maker may drop the conditions it attached to its $74.6 billion hostile bid for Warner-Lambert Co., a move that could ease Wall Street’s concerns and bolster Pfizer’s chances of success. Pfizer’s bid for Warner-Lambert now hinges on reversing antitakeover provisions in the friendly, $67.3 billion merger deal between Warner-Lambert and American Home Products Corp. Those provisions would force Pfizer to pay as much as $2 billion in a breakup fee, should its hostile bid prevail, and would prevent Pfizer from using more-favorable pooling-of-interest accounting treatment for the takeover. Last week, Pfizer sued to remove those provisions.
 Heska Corporation announced that it had filed a registration statement with the Securities and Exchange Commission relating to 7,500,000 shares of its common stock.  These shares will be offered directly to selected institutional investors, including current institutional holders of Heska stock.  Of the 7,500,000 shares being offered, 6,500,000 are to be sold by the company, and 1,000,000 are to be sold by a selling stockholder.
 Schering-Plough received USDA approval to begin marketing Clinacox (diclazuril) anticoccidial for poultry in the US.  Clinacox is already established in Europe and other major international poultry markets.  The official launch will occur later this year, when the company expects to obtain combination clearances with other major feed additives.
 Purina Mills, Inc. announced that it filed a Form 8-K with the Securities and Exchange Commission, which includes preliminary drafts of a plan of reorganization and a disclosure statement.  As described in the preliminary draft disclosure statement, a potential settlement has been negotiated between Koch Industries, Inc. and an unofficial committee representing the Purina Mills Inc. subordinated noteholders. The potential settlement with the subordinated noteholders proposes a $60 million cash contribution by Koch Industries, Inc. and contemplates Koch receiving no consideration for its current equity interest in Purina Mills.  The Company continues on a targeted fast-track schedule and anticipates filing the Company’s revised plan of reorganization and disclosure statement with the Bankruptcy Court shortly and Purina Mills’ management is targeting to emerge from Chapter 11 during early 2000.
 launched an entire site redesign. The new site design includes an intuitive shopping process, a gift center that provides a unique approach to finding the perfect gift for your pet, and an enhanced home page.
 announced that it has launched an offline publication called, The Magazine., The Magazine celebrates the joys of the relationship between people and their pets, as well as helps pet owners give their pets the best care possible, by providing the latest lifestyle, health, behavioral and product information. The magazine also forms a complimentary link to the Web site and the deep content and advice that it offers. will distribute a million copies of the bi-monthly magazine, immediately establishing it as the largest pet magazine in the world, with a circulation equal to that of the top four U.S. pet magazines combined.
 Embrex, Inc. announced it has entered into a multi-year collaborative research and development agreement with Pfizer Inc. to develop a live coccidiosis vaccine for in ovo (in the egg) delivery to poultry.  Financial terms were not disclosed, however each party will provide funding on a comparable basis.

Animal Health News
 Researchers at the State University of New York at Buffalo said that the companionship of a playful dog or a purring cat can cut stress-related increases in blood pressure, even among people with highly stressful jobs. A study of 48 stockbrokers already taking medication for high blood pressure found that those who got a pet reduced by half the increases in blood pressure that came with stress. Having a pet didn’t decrease average blood pressure like drugs can, but it helped reduce stress reactions that can damage the heart.
 A deadly strain of E. coli bacteria is far more common in U.S. cattle than previously thought, and may be found in half the animals that are made into ground beef, steaks and other cuts, according to a senior USDA official. The surprisingly high rate of E. coli 0157:H7, detected by more sensitive testing techniques used since September, has prompted the USDA to take the unusual step of re-evaluating how it regulates the foodborne disease. The USDA data reflects only whether cattle have been exposed to the bug at some point in their lives — not that they are carrying it at the time of slaughter. Actual infection rates are less than one-half percent of cows, based on testing by meat grinders and processors.
 Two U.S. biotechnology companies have already produced genetically modified birds that can lay eggs containing drugs, proteins and antibodies to ward off illness. GeneWorks of Ann Arbor, Michigan, has up to 60 birds that carry genes which enable them to make human proteins or antibodies in their eggs. GeneWorks reportedly has deals to make 14 proteins for six drug companies around the world.  Another company, AviGenics of Athens, Georgia is producing birds that carry a human interferon, or natural antibiotic, to treat cancer. The firm says the birds have already passed on the interferon gene to the next generation of birds.

Agribusiness News
 Monsanto has reportedly been in talks about selling all or part of the company, whose products include the herbicide Roundup, genetically modified seeds, and the arthritis drug Celebrex.  Interested companies include Pfizer or Schering-Plough for the drug unit,and DuPont and possibly Novartis have expressed interest in the agricultural operations.

The Brakke Consulting Viewpoint

The past week had again driven the point home that the some pharmaceutical companies with animal health divisions will be merging and animal health will end up taking whatever falls its way.  Who will it be?  Pfizer and Warner-Lambert, or AHP and Warner-Lambert, or Warner-Lambert and someone else?  Warner-Lambert is not a player in animal health so it will have limited impact except for the fact that Warner-Lambert owns the Tetra Fish Food Brand, which is one of the leading brands in pet shops. 

In addition, we have Novartis discussing purchasing Monsanto. It looks to us like the gloves are off on the pharmaceutical merger business and something big is likely to happen with two or three transactions.  None of these are likely to be good for the animal health divisions no matter what happens.  The animal health businesses will either be consolidated as minor divisions in a much larger company, or spun off to finance the acquisition.  It is a great time for speculation and a concern for those employees involved in the merger activities being discussed.

A couple of the start-up companies in Embrex and Destron are turning in some good numbers for 1999.  Will the bigger companies be able to make claims that are even close to similar?  We doubt it from the third quarter reports we’ve gotten to date.

This report is being written from Japan where we get the feeling that the Japanese ecomomy is beginning to strengthen and the animal health market at least holding its own.   The seminars we are presenting on animal health over the next few days are being well attended.  We’ll report to you in more depth on Japan next week after we’ve had a chance to visit with the leaders in this market.
(Ron Brakke)
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