By Mick Wells
In honor of the onset of spring in the Northern Hemisphere, here’s an infographic on the holy grail of animal health categories – flea & tick preparations.

The 4 Billion Dollar War on Fleas infographic by Entirelypets.

 

Image from dailyfinance.com

By Mick Wells

Los Angeles based VCA Antech is a juggernaut in the North American animal health sector.

The company owns and operates about 600 veterinary practices (563 in the US and 46 in Canada), the much famed, competitive and profitable Antech Diagnostics, med-tech & imaging services from Sound-Eklin, veterinary & consumer marketing company and data provider to vet-pharma VetStreet, as well as the largest network of veterinary specialty and referral providers.

For a pure-play animal health organization, the company is as diversified as you will find.

The company has its roots in the once fragmented, but highly profitable, diagnostics market and acquired its first hospital about 25 years ago.  Since that time hospital revenues have eclipsed diagnostics revenues about 4:1, but the income contributions are less drastically distorted ($155m from hospitals in 2012, $116m from Antech.)

The challenges that VCA Antech face are representative of the industry in which they operate.  Veterinary practice revenues are impacted by the state of the economy, margins are difficult to manage, there are not many levers that you can pull to make changes to your operating income.  On the diagnostics side, despite the high margins (hovering between the low 40′s and mid 30′s) the market dynamics have intensified.

Idexx, Abaxis, and Heska are well led competitive & aggressive diagnostics companies and have established footprints, too.  And the FTC just finalized a consent agreement with Idexx that opens up the market for more access to the staid distribution network in animal health.  These practices in animal health have been all too common, but are starting to sort out.  What this ultimately means for the Antech business is a shrinking operating margin – and when your income from the diagnostics market is that high as a percentage of total income, that’s troubling.

VCA Antech’s top-line performance over the last 5-years has been impressive, however the operating margin has been a struggle.  Today they announced an impressive increase in operating income (+11%) but their margin dropped nearly two points from 14.6% to 12.9%.   But the company can maintain its operating income without drastic changes how they’ve always done it, thru acquisitions:  hospitals, bolt-on service or supply companies, etc.  And they have been the most persistent buyer.  As long as new revenue sources can be found they can hit their operating income guidance, and it’s worked for them so far.

And, it is in that vein that VCA Antech received good news from the capital investment community over the last several days.  The following investors were issued greater than 5% shares of WOOF stock:

• Black Rock 6.7%
• Veritas Asset Management (UK) Limited 10.5%
• Shapiro Capital Management 8.6%
• The Vanguard Group 5.2%
• Capital Research Global Investors 5.6%

Back-of-the-envelope that looks to be north of $600m if you consider a $20 stock quote.  So, for a company that averaged $100m in hospital acquisitions over the last 5 years – and has given guidance for about $50m this year – what’s to be done with that surplus of cash?  Maybe we’ll see VCA Antech use those funds to buy back some of their common stock; that will certainly make the analyst community happy!

By Mick Wells

For any animal health executive the first quarter is non-stop.  The year kicks off with the North American Veterinary Conference, there’s the Western States Veterinary Conference at the end of February, there’s the Global Pet Expo in February, most commercial organizations have sales meeting and/or customer trips, many of the larger consolidated hospital groups have their Congresses, too.  You’re back and forth on planes and in and out of hotel rooms and before you know it Q1 is in the books and you’re trying to figure out what needs your attention first to drive this year’s results!

Amid all of this, there has been both high and quiet drama in the investment area, too.  The well publicized Zoetis emerging from its IPO cocoon comes to mind – Pfizer does everything big and this was no exception.

A bit overshadowed on that same day Perrigo announced it wants to acquire Velcera and get a larger toe-hold in animal health – ready to store-brand even more of your pet medications and preparations.

And this week, quiet as a church mouse, BlackRock, Inc.  bought roughly 6% interests in PetsMart, VCA Antech, and MWI…comfortable animal health organizations to have position in as the industry evolves!

By Mick Wells

a n t i b i o t i c   u s e   i n   l i v e s t o c k   p r o d u c t i o n

Top animal health story of the year – antibiotics use in livestock feed

Having fermented for decades, this story started to hit the news cycles in both the US and Europe early in 2012.  At issue, global food production and it’s more than half-century long use of antibiotics in beef, poultry & swine feed.  As diseases and bacterial strains that effect humans have learned to survive available antibiotics, most of the fingers have been pointed towards their use – or overuse – in livestock production.

The ubiquitous routine of mixing sub-therapeutic antibiotic doses in livestock feed allows producers to fight off disease as a result of an unnatural diet and filthy, overcrowded conditions that would otherwise generate high and unprofitable rates of sickness and death.  Antibiotics are so effective for this purpose that in the US alone, there are roughly the same number head of cattle as there were in the 1950′s that produce twice as much meat.

As we’ve watched this story unfold Big Pharma, big business, consumer, trade and professional associations have been positioning, counter-attacking, having their experts weigh in, some even using this as an opportunity to lobby for a more relaxed review process for granting FDA approvals on new antibiotics.  It is drama unfolding in front of us – and thankfully, too, because it effects each and every one of us in more ways than one.  It will be a long and compromising road before anything is close to being resolved in the US and we’ll continue to keep you aware of updates throughout 2013.