» 1999

Animal Health News & Notes for December 3, 1999 12/3/1999

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Brakke Consulting’s
Animal Health News & Notes for December 3, 1999

Company earnings releases
 PETCO Animal Supplies, Inc. reported that continued strong comparable store sales growth and gross profit margin improvement led to record sales and net earnings for its third quarter and nine month period ended October 30, 1999. Net sales for the third quarter increased 22% to a record $249.0 million from $204.8 million in the third quarter last year. During the third quarter, comparable store sales rose 13.2%, the largest increase reported in the premium pet food and supplies sector in the past three years. For the nine months (39 weeks) ended October 30, 1999, net sales increased 19% to a record $714.8 million from $598.4 million in the same period last year. Comparable store sales increased 12.1% for the nine month period.

Company News Releases
 Novartis Group has acquired Vericore Holding limited, a UK based Animal Health company which holds 5.26 million shares or 40% of the issued shares in Cobequid Life Sciences. Cobequid Life Science divisions include the Aqua Health Group of Companies (AHL) and Progressive Genetics Systems (ProGeneSys). The Aqua Health Group’s principal business is the research, development, production and marketing of health care technologies to aid in the prevention and control of diseases in the global aquaculture industry. ProGeneSys manufactures DNA vaccines, genetic medicines and will provide contract manufacturing at its new Montreal production facility in the spring of 2000.
 Akzo Nobel’s purchase of Hoechst Roussel Vet was finalized last week after a contract was signed on Friday. Closing of the deal follows the European Commission’s approval of the transaction last week. The acquisition effectively doubles the size of Intervet, with combined sales of both operations totaling approximately EUR 800 million (in 1998). With this acquisition Akzo Nobel has strengthened and broadened the basis for one of its best performing Pharma business units. Akzo Nobel will pay approximately EUR 655 million for Hoechst Roussel Vet.
 Warner-Lambert Company announced that it has filed a counterclaim against Pfizer seeking a declaratory judgment that Warner-Lambert is entitled to terminate the Lipitor(R) agreements.  The counterclaim sets forth that Pfizer has repeatedly misstated the terms of the standstill restrictions to which it agreed in the Lipitor(R) agreements. According to Warner-Lambert, the actual language of the standstill makes clear, and the counterclaim sets forth, that Pfizer breached its agreement when it made its November 4, 1999 proposal for Warner-Lambert and in its subsequent actions.
 Heska Corporation announced the completion of its previously announced public offering of common stock.  The Company sold 6,500,000 shares of its common stock to several institutional investors, all of whom were existing stockholders of Heska.  Net proceeds from the offering totaled approximately $13.3 million.
 Milkhaus Veterinary Products, Inc. announced its intention to conduct a trial of its patented product for the treatment of equine heaves, a form of chronic obstructive pulmonary disease ("COPD") similar to that found in humans. It is caused by an allergic response to particles, fungus or microorganisms in hay.  Both human experience at the parent company, Milkhaus Laboratory, Inc, and pre-clinical work with horses gives indicates that the equine symptoms will be relieved by the same mechanism of action as that induced by HP-3, Milkhaus’ human medicine.
 Gaines Pet Food Corporation of Canada, a quality pet food manufacturer and marketer of branded and private label products for dogs and cats, sold select assets to Maple Leaf Pet Care LLC, of the United States.  The acquisition was effective Friday, November 26, 1999.  The recent acquisition of assets for Maple Leaf Pet Care from Gaines Pet Food includes brands and trademarks.  Gaines trademarks in the U.S. include Love My Cat, Me and My Dog, and Nuggets & Nibbles.  Canadian trademarks include Gaines-Burgers, Top Choice, Gravy Train and Gaines Denta Care.  Maple Leaf Pet Care LLC is a company jointly owned by Pet Life and Dad's Products Company. 
 PogoPet Inc. announced the launch of its Web-based pet care center, www.pogopet.com.  The PogoPet site, which offers personalized information and services to help dog and cat owners improve the lives of their pets, is the first to employ sophisticated data warehousing as its primary profit center. The site's e-commerce component, planned for early 2000, will be a secondary revenue stream.  PogoPet members register their pets by providing information on age, breed and geographic location. These data are then used to dynamically generate information and interactive services tailored to the unique needs of the individual pet. Information is also aggregated and made available to marketing partners, who can use the intelligence to identify opportunities and drive marketing initiatives on and off the site. 
 Biopure Corporation announced that the European Commission has issued a marketing authorization for Oxyglobin that is valid in all 15 European Union countries for the treatment of canine anemia, a potentially life-threatening condition that affects millions of dogs each year.  Oxyglobin, the only commercially available oxygen therapeutic of its kind in the world, was first approved for this indication by the U.S. Food and Drug Administration in January 1998. Biopure has sold more than 35,000 units of Oxyglobin in the United States for use in a broad range of anemia-related conditions.

Animal Health News
 According to a University of Missouri swine specialist, pork production is projected to set a new record this year, while avoiding the disastrous price drop of last year.  Annual pork production is projected to exceed 19.2 billion pounds.
 According to the 1998 National Beef Tenderness Survey, the quality of beef tenderness has improved 15-20% across most cuts sold at retail.  The change is attributed to Beef Quality Assurance education efforts that have convinced producers to move cattle injection sites to the neck region.
 Australia's first importation of Ovine Johnes Disease (OJD) vaccine takes place this week, with the product on its way from Spain.  Producers have been pushing for several years to be allowed to use the vaccine in areas where the disease is leading to significant sheep losses. CSL will be importing the Spanish vaccine, which will be [used in trials] at 2 properties on the central tablelands of New South Wales.

Agribusiness News
 Novartis AG and British-Swedish rival AstraZeneca PLC announced they would spin off and merge their agricultural units.  Based in Basel, the new firm - to be called Syngenta - will be the world's No. 1 manufacturer in crop protection and No. 3 in seeds, with combined sales of $7.9 billion based on 1998 results. Novartis will own 61 percent of the new firm, and AstraZeneca will have the remaining 39 percent. The companies expect to complete the merger and spin-off in the second half of 2000.  The merger, if completed, is likely to spur other consolidations within the $30 billion-a-year agrochemical industry.
 American Cyanamid and Northwest Plant Breeding announced they have signed a collaborative research and development agreement that will provide farmers with new herbicide tolerant varieties of wheat, the single largest global agricultural crop.  This initiative utilizes Cyanamid's expertise in herbicide tolerant crops and weed control with NPB's expertise in plant breeding and seed conversion technology.  Through this collaboration the conversion expertise of Northwest Plant Breeding Company will be made available to other seed companies as well as university breeding programs.
 Abbott announced that it has reached an agreement to sell its agricultural products business to Sumitomo Chemical Co., Ltd. of Tokyo, Japan.  Under the transaction, Sumitomo acquires 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. Bulk active ingredient manufacturing rights were retained by Abbott. The transaction is expected to be completed in January 2000.

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Brakke Consulting Viewpoint

It appears from this week’s news that not everyone was on holiday during theThanksgiving week in the US.  The announcement of the formation of Syngenta AG by Novartis and AstraZeneca was the big news for the week and confirmed the start of this round of agribusiness rationalizations by the pharmaceutical and chemical companies. 

Will this spill over into animal health?  No doubt about it; animal health will be affected by the mergers in crop agriculture and human pharmaceuticals.  Basic research in these areas have fueled the growth in animal health by finding veterinary uses for compounds originally developed for human or agricultural use.  One of the interesting quotes in an internet press release was “[a]nalysts said it could spell the end of the life-sciences model for big firms seeking synergies from businesses ranging from farming and livestock to drugs and human nutrition, and spawn a wave of new agribusiness combinations instead.”

Will it become fashionable not to have an animal health division?  It is possible that the new business model for pharmaceutical and chemical companies will not include the incremental animal health sales generated from a company’s basic compounds developed for human health and crop protection uses.

If one takes the backdrop of the news from the WTO talks in Seattle and the USDA hearing in Chicago on genetically modified food issues as an indication of the overall consumer climate, some companies may choose to alter their core business portfolios.

[Ron Brakke]
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