MWI Veterinary Supply, Inc.,
(
MWIV
), a worldwide distributor of animal health products to
veterinarians, has formed a revised distribution relationship with
IDEXX Laboratories
,
Inc.,
(
IDXX
), a manufacturer of veterinary diagnostic products. Both the
companies entered into a non-exclusive distribution agreement, per
which MWI Vet as a business partner of IDEXX, will also be able to
distribute other competitive diagnostic products.
With this modified settlement, MWI Vet will be converted to a
"generalist," distributor of IDEXX from a value added one and will
be eligible for a reduced discount from the list price at which
IDEXX sells its products. Execution of the new terms, which is
expected by January 1, 2013, is subject to the review and clearance
of the U.S. Federal Trade Commission ('FTC'). MWI Vet believes that
the modification of IDEXX's terms will aid its future growth
although the financial impact was not disclosed.
This issue came into the forefront in 2010 when IDEXX received a
request letter and subsequent subpoenas from the FTC regarding
investigation of its U.S. distributor strategy. FTC started an
investigation to check whether IDEXX violated the FTC Act by
engaging in unfair methods of competition. As per the initial
agreement with IDEXX, MWI Vet was barred from distributing certain
competing products of IDEXX.
The U.S. market for animal health products distribution is
highly fragmented with numerous national, regional and local
distributors. MWI Vet is currently focused on preserving long-term
customer relationships as well as building new ones.
Other than the agreement with IDEXX, MWI Vet's long term
distribution agreements include a 13-year contract with Banfield,
the largest private veterinary practice in the U.S. The company
also maintains a strong relationship with Feeders' Advantage, a
buying group comprising several large cattle feeders in the
U.S.
MWI Vet primarily sources the vast majority of its products from
several vendors. Although vendors have relationships with multiple
distributors, the company has successfully maintained long-term
relationships with many of them including the likes of
Pfizer
Inc.
(
PFE
), Merial and Vedco. We believe that in spite of the veterinary
market being highly competitive, strong bonding with both vendors
and customers has enabled the company to achieve robust growth.
However, the company faces stiff competition from key player
like
Henry Schein
(
HSIC
) among others. Currently, MWI Vet retains a short-term Zacks #2
Rank (Buy). However, over the long term (3-6 months), we are
Neutral on the stock.
HENRY SCHEIN IN (HSIC): Free Stock Analysis
Report
IDEXX LABS INC (IDXX): Free Stock Analysis
Report
MWI VET SUPPLY (MWIV): Free Stock Analysis
Report
PFIZER INC (PFE): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research