Animal Health News & Notes for November 24, 1999

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Brakke Consulting’s
Animal Health News & Notes for November 24, 1999

Company earnings releases
 PETsMART, Inc. announced the unaudited financial results for its fiscal 1999 third quarter and thirty-nine weeks ended October 31, 1999. Net sales for the 1999 third quarter were $564.7 million, an increase of 8.4 % over the third quarter last year. The Company reported net income of $2.9 million for third quarter 1999, excluding $9.9 million equity in the loss of PETsMART.com, and related income tax effects. This compares to net income for third quarter 1998 of $5.3 million. At October 31, 1999, the Company operated 484 stores in North America and 93 stores in the United Kingdom.
 Smithfield Foods, Inc. reported record second quarter earnings for fiscal 2000.  Net income in the quarter ended October 31, 1999 increased to $22.2 million from $18.5 million in the record second quarter a year ago.  Net income in the first six months of fiscal 2000 increased 122% to $29.1 million from net income of $13.2 million in the six month period a year ago. Sales for the second quarter of fiscal 2000 were $1.2 billion, up from $874 million in the same quarter of fiscal 1999. Sales for the first six months of fiscal 2000 were $2.4 billion, compared to $1.7 billion in the same six-month period a year ago. The record fiscal 2000 second quarter net income reflected substantially improved operating results at the Company’s Hog Production Group which more than compensated for lower earnings in the Company’s Meat Processing Group.

Company News Releases
 Pfizer announced that it has filed a new Complaint against Warner-Lambert and American Home Products alleging that Warner-Lambert breached its contractual obligations to Pfizer contained in a Standstill Agreement between Pfizer and Warner-Lambert.  The Complaint also alleges that American Home Products wrongfully interfered with Pfizer’s contractual relationship with Warner-Lambert by inducing Warner-Lambert’s breach.  Citing public reports that Warner-Lambert entered into negotiations with AHP in July of this year, Pfizer stated that Warner-Lambert failed to disclose the negotiations to Pfizer and misrepresented them in response to inquiries from Pfizer’s management. Had Warner-Lambert not failed to inform and not misled Pfizer regarding its negotiations with American Home Products, Pfizer would have known it was free from restrictions in the Standstill Agreement and would have made its superior proposal prior to the American Home Products/Warner-Lambert Merger Agreement.
 PETsMART.com announced that industry research firm Media Metrix has named the Company the most highly trafficked Internet pet site for the fourth consecutive month and ranked it among the top 50 e-commerce sites for October 1999.  According to the Media Metrix survey, www.petsmart.com had 1,140,000 site visitors for October, more than twice the number of its nearest competition and more than the number two and three pet sites combined.
 Merial announced that it has completed the sale of its manufacturing facility in Le Sueur, MN, and the associated Osborn branded animal health product lines.  The facility and product line were sold to Bimeda, the US division of Cross Vetrepharm Group of Dublin. The Le Sueur facility manufactures dry-formulation animal health pharmaceuticals.
 IGI, Inc. announced that it was withdrawing its previously announced plans for a private placement of up to 1,400,000 shares of its common stock.  President and Chief Operating Officer Paul Woitach said:  “Following the recent debt refinancing of the company, we have decided not to proceed with a private equity placement at this time.”
 Petopia.com announced long-term partnerships with The American Society for the Prevention of Cruelty to Animals (ASPCA) and Petfinder.org, the biggest online directory of shelter pets, to advance the successful placement of shelter animals in homes across the country.  The partnerships underscore the company’s Million Pet Mission, which seeks to save the lives of one million animals in the year 2000 through three strategies: harnessing the power of the Internet to increase shelter adoptions; supporting community spay and neuter programs to reduce the number of animals destroyed each year; and empowering owners to improve pet behavior problems so that animals are not surrendered to shelters.

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Brakke Consulting Viewpoint

I recently had the pleasure of spending 10 days in Japan.  The purpose of the trip was to conduct seminars on Veterinary Practice Management, Animal Health Industry Overview, and Worldwide Pet Food and Supplies Market.  During and following these seminars we were able to meet with some of the leaders in the animal health industry in Japan.  The following are some of our observations from these meetings:

1 Japan is becoming a companion animal market.  They currently report 10 million dogs and 7.5 million cats.  Companion animal products now make up 22% or almost $190 million of the $860 million animal health market.  In addition Japan has a $465 million pet products market and a $2.1 billion pet food industry that has doubled since 1993.  Over 55% of the pet food is imported with US companies gathering the lions share.  The Japanese companion animal market is a mirror of the US market with many of the same leading brands.

2 In the next 3 to 5 years we would not be surprised to find an attempt to organize corporate clinics in Japan by one or two financial firms.  We would clearly anticipate more multi-doctor clinics, and some change in the current, very traditional, method of distributing products. 

3 The number of food animals is decreasing while the companion animal numbers increase slightly.  This is expected to continue for the next few years.  Accordingly the number of large animal veterinarian is declining. 

4 It appears that Japan is over the tougher parts of its financial problems.  With the Yen  stronger and for the first time in history some real restructuring of industry taking place, we believe you’ll find a robust economy in 12 to 18 months.  While I was in Tokyo the major telephone company NIT announced the reduction of 10,000 workers out of 60,000.  This type of action was unheard of in the past in Japan. 

5 I could sense in my visits with companies that it was not business as usual in Japan.  This was particularly true in the pharmaceutical companies’ animal health divisions.  They see merging of the animal health divisions or outright sales like Takeda is attempting.

As we begin the close the books on 1999 and start taking off for the Thanksgiving Holiday, we would like to take this opportunity to thank all of our clients for their support this past year.  We are so thankful for the trust many of you put in our group during the year.  We hope we met your expectations and look forward to working with you on more projects in the near future.  Have a great Thanksgiving and Happy Holiday Season.

Brakke Consulting, Inc.
Ron Brakke      

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