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Biotech / Medical : neog - Neogen's E.Coli Test adopted by Japan -- Ignore unavailable to you. Want to Upgrade?

To: Kramer who wrote (223)	10/6/1998 3:18:00 PM
From: Kramer	Respond to of 441

Conference Call Review of earnings in press release. Companies highest quarter ever and was in line with what they expected. Boasting of quarterly revenue increases 29 of the last 31 quarters. Twenty quarters of profitability. Animal Safety products - 43% increase. Food safety - 21% increase. Test kits to detect food born bacteria - 78% increase (that business has been growing 90% to 100% and it is continuing). Gross margin improved from 56% to 61%. All operating groups improved profitability. Marketing change - sales staff has been reorganized into animal safety group and food safety group. New products this quarter: 1. detection of peanuts. 2. Vibrio(sp?) bacterial concern in shrimp and shellfish. A new contract with Chef Williams for over a million speciality needles for marinate and spices in meats. World wide concern over food safety...in the new federal budget includes significant fund increase for USDA and FDA for monitoring for food safety problems. Animal health side we expect a 30% growth. Equine market is only part of our overall part of our animal safety. This is an attractive niche because of the ease of distribution and above average gross margins. There is 7 million horses in U.S., our market is the higher value horses about 40% of that population. This group spends about $250 a horse annually on pharmaceuticals, topicals, prep, performance enhancing supplements, vaccines, veterinary instruments.. the products our company sells. Therefore the market is $700 million annual for our niche products. Share repurchase program - bought back 81,500 and are prepared to buy back more. At these prices we believe it makes sense for our shareholders. Some of the cash used was from the proceeds of options exercised. Questions: 1. Ohio Company - where is the strength? Especially on animal safety? Answer: return to normality in our products for testing grain. Last year we saw a decline in our grain tests. This years grain crop is more normal... there are spotted problems. Problems in the southwest (drought in Texas -- Arkansas) over into southeast; we saw an increase aflotoxin. Our Triple Crown showed a nice increase of about 30%, pharmaceuticals that are part of are animal safety program. The Lexington group selling diagnostic tests was up about 40%. We have the only approved vaccine for type B botulism which was up about 25%. From the animal safety side it was an across the board increase. 2. Ohio Company - is the revenue this quarter sustainable? We have probably moved up to a new plateau. Our inside budgets call for several $2 million dollars months the rest of the year. We do believe we will be able to sustain this type of growth. 3. Litigation expense? Answer - subtracted 2 cents from this quarter. There are only two cases. We are the plaintiffs in both cases. One case is a trademark dispute and is coming to trial at the end of October and one way or another that expense will be behind us. The other case we are not spending much money on and is scheduled to go to court in February -- we are confident that our position is sound. 4. International Arena? Vetoquinal? Answer - our sales in the fiscal year were 22% outside of the U.S. Two spheres unfortunately are a bit confused right now, South and Central America and Asia. Despite the problems we showed an increase in those markets but didn't get the increase we expected. We are adding to our staff in those regions. Vetoquinol - fit well with our company. The Tampa facility is a USDA approved lab, and is quite valuable considering the length approval process. 5 Ideal Instruments? Answer: is up a about 12%. That is all a part of our animal safety group. We expanding and doing new things to market those products. The speciality needles has less offshore competition and higher gross margins. Completed the contract with Chef Williams for a million needles. We are moving to products that have less to do with the cycles of animal agricultural. 6. Acquisitions? Answer - we have three companies on the radar screen; no letter of intent yet; they are all in the food safety arena. 7. Elnino? Elnina? Answer: hot dry weather is our friend, cold wet weather is our friend; we are becoming somewhat insulated because have solutions to problems regardless of what comes up. 8. Market Potential for Peanut test? Vibrio? Answer: we try to never enter a market that we don't have confidence that it will be at least a million dollars in sales. This year in the Galveston area many people were made very sick from vibrio. South East Asia largest producer of tiger shrimp, most from Thailand; there about 1 million ponds that produce the shrimp; in those cases vibrio is a disease of the shrimp and kills the shrimps; if they use a diagnostic product there are certain medications to treat the ponds; so not only does this product have a food safety aspect it has an animal safety use; There are no competing tests to our vibrio test; this test takes less than an hour; Peanut Test - we were part of a consortium with 13 of world largest food processors; we were the only company involved in diagnostics. We won't mention the names but they are household names. The concern is for people that have allergies to peanuts and to avoid inadvertent introduction of peanuts in the manufacturing process. 9. Congress and international standard for food safety? Answer: what it will mean is more testing; which is good news for us. New moneys will make it so there are more people to check product at our borders and possibly at the point of origin. At the same time there will probably be some retaliation insisting that our products be tested coming into their countries, which is also good news for us.