Animal Health News & Notes for October 22, 1999

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Brakke Consulting’s
Animal Health News & Notes for October 22, 1999

Company earnings releases
 Pfizer reported that animal health sales increased by 5% to $336 million for the quarter. Solid sales performances of companion-animal products were led by the excellent launch of Revolution and Rimadyl. Partially offsetting the strong performance of the companion-animal business was continuing weakness in the livestock market in the U.S. and Europe.
 Elanco announced that third-quarter worldwide sales of animal health products were essentially flat compared with a year ago.  Excluding unfavorable exchange rates of 4 percent, sales growth was 4 percent.  Sales of Tylosin were down 24% from third quarter 1998, and sales of monensin were up 7%.
 Schering-Plough announced that worldwide sales of animal health products in the third quarter were flat at $161 million (up 1 percent when foreign exchange is excluded). Worldwide sales of animal health products increased 2% to $486 million in the 1999 first nine months (3 percent when foreign exchange is excluded).
 Novartis reported third quarter AH sales were up 4% with dynamic sales particularly in the US and Asia Pacific region.  Nine-month sales in the companion animal segment were driven by a marked expansion of Interceptor and Sentinel in the US, while the farm animal business was held in check by very low commodity prices. Capstar flea control product was launched in its first three countries, while Econor, a new veterinary treatment for intestinal and respiratory diseases in pigs, was successfully introduced in Europe.
 Hill’s reported unit volume grew 9% in the third quarter and sales increased 8%.    Strong domestic results included the success of Science Diet Hairball Control Formula, which has helped Hill’s gain market share in feline pet food.  Hill’s-International continued its very strong volume growth, with all regions showing excellent results. 
 Heska reported total revenue increased 33 percent to $13.1 million for the quarter ended September 30, 1999, as compared to $9.9 million for the third quarter of 1998.  This represents the highest quarterly revenue in the company’s history.  Net loss for the third quarter of 1999 improved to $8.3 million compared to a net loss of $10.9 million, for the third quarter of 1998.  The 1999 results included a restructuring charge of $1.2 million related to the previously announced consolidation of the Company’s diagnostic and monitoring instrumentation operations.
 Abaxis reported revenues increased 45% to $5.1 million for the second fiscal quarter compared with revenues of $3.5 million for the same quarter last year.  The Company reported a net loss of $508,000, compared to a net loss of $1,029,000 for the same quarter last year. During the second quarter of fiscal 2000, shipments to their core market, the U.S. veterinary market, continued to grow.  The revenue from this market increased 35% from the same quarter last year.

Company News Releases
 Doane Pet Care Company announced its acquisition of Larkshall Extrusions of the United Kingdom.  Larkshall is a manufacturer of a complete range of dry pet foods, with an emphasis on super premium pet foods.  The terms of the transaction have not been disclosed. The investment extends Doane’s presence in Europe, joining its other two European plants in Spain and Italy.
 The European Commission is considering banning the antibiotic avilamycin for use in animal feed over fears that it could make humans immune to the effects of similar drugs, EU officials said on Tuesday. A ban on the antibiotic, produced by Elanco Animal Health, would follow a move to outlaw four similar products from animal feed use from July this year.
 A new animal health company has been formed, focused on developing highly palatable products for companion animals.  Pala-Tech Laboratories’ line will include aspirin and fatty acid joint health products, as well as thyroid supplements.  The product line will be sold through veterinarians.
 Neogen has won a new contract for the USDA’s Federal Grain Inspection Service (FGIS) to use the Company’s quantitative test to monitor grain commodities, primarily corn, for aflatoxin.  The contract, with the same terms as the initial contract signed in 1994, calls for the exclusive use of Neogen’s test at FGIS locations nationwide for the next year. Similarly, the USDA’s Food Safety Inspection Service (FSIS) renewed its 1-year agreement to use Neogen’s rapid test for E. coli O157:H7 to screen the nation’s meat supply for the deadly bacteria.  Neogen’s test has earned the use of the FSIS to monitor for E. coli O157:H7 every year since 1994, when Neogen began marketing the test.
 Petstore.com announced that it has opened two new distribution centers, adding 135,000 square feet to support its recent rapid sales growth and to ramp up for the holiday season. Business has increased seven fold over the past few months, and we that growth is expected to accelerate as more Americans shop online this holiday season.
 Veterinary Pet Insurance has formed a strategic relationship with the Canine Health Foundation.  Beginning Jan. 1, 2000, Veterinary Pet Insurance will make a donation for every policy purchased by a new American Kennel Club dog owner to the Canine Health Foundation.  Additional donations will be made each year as these policies are renewed.
 Balchem Corporation announced the availability of REASHURE™, the company’s new rumen-stable encapsulated choline for improved health and productivity in transition dairy cows.  Recent research at Cornell University has shown that REASHURE, which protects supplemental choline from degradation in the rumen and delivers it to the small intestine for absorption, leads to improved liver function.  The result, confirmed in commercial trials on large dairy herds, has been a substantial improvement in milk production of 2 to 9 pounds daily.

Agribusiness News
 Farm-state Democrats upset with the Clinton administration’s handling of recent mergers in the agribusiness industry have proposed an 18-month moratorium. The proposed moratorium would apply to mergers involving at least one firm with revenue or assets of more than $100 million.  Legislation was also proposed in the Senate that would ban Smithfield and other meatpackers from owning livestock.
 3-Dimensional Pharmaceuticals, Inc. and Hoechst Schering AgrEvo GmbH announced a strategic collaboration in which 3DP’s DirectedDiversity® technology will be used to discover and refine innovative new agrochemicals.
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The Brakke Consulting Viewpoint

The sales and earnings reports for the animal health companies reflect the importance of companion animal products in the portfolio.  We believe that this will continue to be the trend for the next several quarters, until the food animal sectors become more stable.

The move of Doane’s into the UK probably means that they will begin supplying the Ol Roy (Wal-Mart) dog food line from a European production facility.  If this proves correct, retail prices of dry dog food in Europe will be impacted.

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