Shares of Phibro Animal Health ($PAHC) have fallen more than 40% from their 12-month high of $37, as the New Jersey company has come under pressure from the changing regulatory environment for antibiotics used in food production. Many of the company’s customers were already looking for alternatives to Phibro’s antibiotic-based products when, in April, the FDA announced it would withdraw its approval of Mecadox (carbadox), the company’s antibiotic for pigs, on concerns that it leaves trace amounts of cancer-causing residues in pork.
Those pressures were evident in Phibro’s fourth-quarter and fiscal 2016 results, which the company announced on August 29. The company’s revenues for the quarter rose 2% to $189 million but were flat for the year, at $752 million. Its net income of $15 million in the fourth quarter translated to earnings per share of 40 cents, which beat estimates by a couple of pennies. For the year, Phibro’s net income was $83 million ($1.61 per share). The company's shares rose nearly 12% to $23.88 when the market opened on August 30.
But Phibro set somewhat low expectations for fiscal 2017, telling investors it is forecasting sales to come in between $750 million and $770 million and earnings per share to drop to between $1.38 and $1.45. The company pointed to ongoing changes, mandated by the FDA, that place increased antibiotics oversight on food producers--compounded by pressure from consumers, who are demanding meat from animals raised without antibiotics.
"Some of our U.S. customers continue to reduce usage of antibacterials that are classified as medically important by the Food and Drug Administration, in anticipation of upcoming regulatory changes and in response to consumer preferences for the reduction or elimination of antibacterials in protein production,” said Phibro CEO Jack Bendheim in a press release announcing the results.
That drop in demand is being offset somewhat by an increase in demand from overseas customers, Bendheim said. He predicted that the volume of international orders would continue to grow, and that Phibro would ultimately benefit from increasing interest in its nutritional specialty products and vaccines.
Still, the controversy over Mecadox continues to cast a shadow over Phibro. The company is trying hard to change the FDA’s mind about withdrawing the drug, and on July 11 it submitted several new studies to support its request for a hearing on the agency’s proposed action. In an executive summary of the research, which Phibro did in conjunction with Charles River Laboratories and the University of Edinburgh, the company reported that no carcinogenic residues were detected in meat tested over a period of four years, and that the only residue that could be found was a harmless metabolite of the drug.
The company has not provided a timeline for resolving the Mecadox issue with the FDA, saying only that it continues to market the product while discussions with the agency are underway. Still, keeping the product on the market may be a challenge: Mecadox was banned in Europe in 1999 and in Canada 5 years later.
- here’s the earnings release
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