Animal Health News & Notes for October 1, 1999

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Brakke Consulting’s
Animal Health News & Notes for October 1, 1999

 Internet pet supply retailer PETsMART.com announced today a second round of venture capital funding in excess of $50 million. The financing commitment was provided by PETsMART, Inc. and by the company’s initial outside investors, including idealab!, idealab Capital Partners and Global Retail Partners, in addition to new investor Big Dog Holdings, Inc.
 Scottsdale Insurance Co. of Scottsdale, Ariz., has purchased VCA’s minority investment in Veterinary Pet Services, Inc. (VPSI) of Anaheim, Calif., the parent company of Veterinary Pet Insurance, nearly tripling its investment in the nation’s oldest and largest pet medical insurance provider. VCA had invested nearly $5 million in October 1997, in exchange for preferred, non-voting Veterinary Pet Insurance stock.
 Virbac Corporation announced a strategic plan for the cost-cutting consolidation of its manufacturing and distribution operations, which the Company believes will result in annualized savings of approximately $1.1 million.  All pet product distribution will be transferred to the Company’s Fort Worth, Texas, facility. Production at the Chicago, IL plant will cease by December 31, 1999, and be transferred to other existing Virbac facilities, and the majority of products presently produced in Los Angeles will be transferred to the Fort Worth facility.
 Alpharma Inc. announced that its Animal Health Division has acquired the exclusive worldwide license for REPORCIN porcine somatotropin.  At the same time, Alpharma has also acquired Southern Cross Biotech, Pty Ltd., the manufacturer and marketer of REPORCIN.  Both are owned by Biotechnology Investments Ltd and their partners.  Porcine somatotropin (PST) is a naturally occurring protein produced in the pituitary of pigs that controls growth.  PST directs nutrients toward the production of lean meat instead of fat.  The exclusive worldwide license for REPORCIN acquired by Alpharma is for technology for the production of a commercial version of PST that duplicates naturally occurring PST.  REPORCIN is licensed for use in Australia, New Zealand, Malaysia and Indonesia.
 Antex Biologics Inc. announces a collaboration with Pfizer Inc. to develop animal vaccines. Antex’s platform technologies, ART™ (Antigen Receptor Technology) and NST™ (Nutriment Signal Transduction), have been used initially to develop human vaccines.
 Neogen Corporation reported first quarter earnings of $807,749, the highest earnings per share for any quarter in the Company’s 17-year history.  The earnings performance exceeded internal expectations. Neogen’s total sales for the first quarter ended 8/31/99 were $5.3 million compared to fiscal year 1999 first quarter of $5.7 million.
 Neogen has added a test kit for the pathogen identified as the number one bacterial cause of domestic foodborne illness — campylobacter. The addition of the campylobacter test adds to Neogen’s extensive line of rapid test kits to detect foodborne pathogens, which also includes kits for E. coli O157:H7, Salmonella and Listeria.
 ArQule, Inc. announced that it has entered into a three year collaboration with Bayer to design and create several hundred thousand compounds for screening against Bayer’s proprietary therapeutic and agrochemical targets. ArQule will receive $30 million in cash payments over the term of the agreement as compound delivery goals are met.
 ABAXIS, Inc. a medical products company manufacturing point-of-care blood analysis systems, announced the signing of a co-promotion agreement with Abbott Laboratories. With this agreement, the Abbott animal health sales force will co-promote Abaxis’ VetScan chemistry analyzer in the United States and Canada.
 Maple Leaf Foods announced the acquisition of The Landmark Group, resulting in one of the largest feed manufacturers and vertically coordinated pork production systems in North America.  The Canada-based farm-to-store pork production system will be second in size only to Smithfield Foods.
 Tyson Foods, Inc. announced that it has signed a letter of intent to sell its wholly owned subsidiary The Pork Group, Inc. to Smithfield Foods, Inc. Tyson will receive approximately 3 million shares, with certain restrictions, of Smithfield common stock in the transaction. The Pork Group, headquartered in Rogers, Arkansas, has approximately 110,000 sows that produce approximately 1.8 million market hogs a year.
 According to Feedstuffs magazine, analysts are predicting that, although the herds are smaller, the US hogs and pigs inventory will be the largest ever on the ground Sept 1, and consequently hog production will lose money again in 2000.
 Agricultural Research Service announced the start of an experiment to see if pasteurization is an effective means of killing E. coli, Cryptosporidium parvum and other pathogens possibly lurking in cow manure, to make sure it can be used safely to improve soils.  N-Viro, International, of Toledo, Ohio, has loaned the USDA patented equipment used to pasteurize biosolids — the solids remaining after wastewater treatment. The equipment turns the sludge into a product that meets the federal standards for safe biosolids.
 A Southern Illinois University researcher has reportedly developed a system to quickly strip the odor from hog waste and produce high-grade fertilizer and surplus energy to boot. Hot water heat produced during the treatment process can be used instead of electricity or gas to heat animal nurseries and containment buildings.
 Perdue Farms Inc. was cited as saying that it was considering feeding its chickens and turkeys only corn that was not genetically modified as consumer concerns over biotechnology rise. Perdue sells its products nationwide and exports to more than 50 countries.
 Indiana is launching the IQ Plus Beef program, a new and ambitious effort designed to ensure safe, wholesome and palatable beef. Cattle that are certified IQ Plus Beef are managed under specific practices and are identified by a distinctive tag in the left ear.
 Several U.S. agencies have been discussing the GM issue, according to USDA spokesman Andy Solomon. While no decision has been made, momentum for labels is growing in the wake of European and Japanese demands for GM-free imports from the United States. Genetically modified crops are expected to be a major issue at the WTO talks, spurred by environmental and trade concerns in the European Union and other countries.
 The Georgia Tech Research Institute (GTRI) is preparing to field test a new bacterial sensing device called a biosensor. The biosensor can simultaneously identify species and determine concentrations of multiple pathogens — including the deadly E. coli 0157:H7 and Salmonella — in food products in less than two hours while in operation on a processing plant floor. A few large companies perform laboratory tests, but they are costly and slow — sometimes not even yielding results for 48 to 72 hours. Tests for bacterial pathogens in meat are currently not required by federal or state food industry regulators.
 Canadian Rural Computer Services Inc, a Calgary-based agricultural software developer, has launched a program that allows feedlot operators to access and update animal health records right at the chute.  According to the company, Cattle Medical System can run in the office or right by the squeeze chute. The program was developed in conjunction with a group called Veterinary Agri-Health Services Ltd., an Alberta Agriculture beef specialist, an animal health technician and a feedlot operator.
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The Brakke Consulting Viewpoint

The stories in this week’s newsletter reflect many of the key issues affecting the animal health industry today.  The large integrated animal protein companies like Smithfield and Maple Leaf keep getting larger.  With fewer companies to serve in the marketplace, animal health companies should look closely at the size and expertise of their sales force.  Large integrated customers with established health programs need different kinds of support and services.

Food safety remains a major issue for all segments of the industry.  Consumer hysteria over genetically modified anything seems to be the order of the day.  If a leading national brand like Perdue builds market share by proclaiming its products to be GMO-free, it will force others to follow their lead.  The positioning and marketing of biotechnology developments are issues that cannot be ignored.

We believe that biotechnology will be successful in the long term because of the many benefits it will bestow on food production and quality.  However, getting over the “bumps in the road” along the way will challenge many managers’ patience.  Industry needs to increase its commitment to educating consumers on the benefits of these new technologies.

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