By P.J. Huffstutter, Lisa Baertlein and Ransdell Pierson
Aug 13 As questions about the health effects of
Merck and Co's Zilmax feed additive intensified in the
beef industry, the pharmaceuticals giant on Tuesday unveiled a
program to retrain and certify beef producers in administering
the weight-adding drug to cattle.
The news comes a week after Tyson Foods Inc declared
it would stop accepting beef from Zilmax-fed cattle after it
observed animals arriving at its slaughter facilities with signs
they were having difficulty walking or moving.
Merck's animal health unit said it would require cattle
feeders that use Zilmax to undergo more training as part of a
five-step plan to deal with mounting concerns over possible
negative effects of the drug.
Merck also said in the next 30 days it would re-certify feed
lot operators that use Zilmax, a process the company said was
designed to ensure the safe use of the drug. It will conduct
what it termed a "scientific audit," following Zilmax-fed cattle
from the feed yards to the packing plant to determine potential
causes of lameness and other mobility issues seen by Tyson and
JBS USA, a second beef producer.
Tyson Foods, the nation's largest meat processor, said its
decision was based on animal welfare, not food safety. It said
it did not know what was causing the animals' behavior, but
animal health experts have suggested the use of Zilmax may be a
Tyson's move has presented its cattle suppliers with a
choice of sticking with Zilmax and selling to other packers, or
switching to an alternative feed supplement in the beta-agonists
category, or even stopping the use of beta-agonists altogether.
Beta-agonists are a class of drug approved and deemed safe
by the U.S. Food and Drug Administration and long used by the
livestock industry to add muscle weight to cattle, pigs and
turkey in the weeks before slaughter.
An FDA spokeswoman told Reuters on Tuesday the agency
requires drug sponsors to report adverse drug events. The agency
declined to discuss whether it would investigate reports of
animal behavior publicly discussed by Tyson and JBS, a unit of
JBS SA of Brazil.
Beta-agonists have come under scrutiny in recent months over
industry concerns over animals that showed signs of distress and
had difficulty walking after being fed beta-agonist additives.
At an industry conference last week, JBS USA's top animal
health executive showed video footage taken at one JBS facility
showing cattle having difficulty moving and showing signs of
lameness, Reuters reported.
STEADY CASH GENERATOR
Merck's animal health business is the world's second
biggest, with $3.4 billion in sales last year, or 7 to 8 percent
of Merck's total global sales. It sells a wide array of products
for pets, cattle, pigs, sheep, horses and other farm animals -
including vaccines, antibiotics and antiparasitic drugs.
The unit, where sales rose 4 percent last year, is
considered a steady cash generator whose revenues can be used to
bolster Merck's spending on research for human prescription
drugs. Animal health revenue can also help stabilize Merck when
its human prescription drug sales falter - as they did last
year, when drug sales slipped 2 percent due to patent
Merck does not disclose sales data related to Zilmax. But
Kevin Kedra, an animal health analyst for Gabelli & Co, said
Merck has little to lose financially from the Zilmax controversy
and the loss of Tyson's business because it is a niche product
compared with the company's array of human pharmaceuticals that
bring in more than $36 billion a year.
"From a financial standpoint, it doesn't move the needle at
Merck," Kedra said. "An advantage of having animal health is
you're not as reliant on a single product; you have a
diversified portfolio. And as long as there's nothing nefarious
behind (Zilmax), it probably doesn't damage their reputation,"
But Kedra noted that images of lame cattle heading for
slaughter, like JBS's video presented at a beef industry
conference in Denver last week, could fuel the controversy.
"Whenever there's a video, it can go viral," he said.
Eli Lilly's Elanco animal health unit had sales in
2012 of $2.04 billion, a 21 percent jump from the prior year,
helped by the acquisition of some products that had been sold in
Europe by Johnson & Johnson. Elanco sales in the United States
soared 30 percent last year, mainly on increased demand for
pet-related products. The unit generated 9 percent of Lilly
sales last year.
An Elanco spokeswoman told Reuters it is too soon to know
how Tyson's decision will impact the Lilly unit's business.
While Tyson announced its change only last week, some feed
lots say the company has paid them a premium for beef raised
free of beta-agonists. The company's Open Prairie Natural Angus
beef program features beef produced from cattle raised without
hormones, antibiotics or beta-agonists.
According to several feed lot operators interviewed by
Reuters, the company began paying some feeders premium prices
about six months ago to supply cattle that had not been fed
A feed operator in Kansas, who declined to be identified by
name because of concerns that "this could be a big political
issue," said he plans to discontinue Zilmax use and instead
exclusively use a competing beta-agonist, Eli Lilly's Optaflexx.
"The whole deal don't matter to me one way or the other
because their issue is not with Optaflexx," the cattle feeder
Herman Schumacher, co-owner of L.D.L. Cattle Co, a 10,000-
head feedlot in Ipswitch, South Dakota, said he has raised
cattle free of beta-agonists since beginning the business in
1986. Six months ago, he said, Tyson without any explanation
began offering him a premium on cattle that had never consumed
Schumacher said he expects Tyson's rivals to discontinue the
use of beta-agonists, too. "Other packers have not floated out
of this (Zilmax) yet, but with Tyson taking the lead on this, I
think the others will follow," he said.
Gary Mickelson, a spokesman for Tyson, told Reuters in a
statement that the company has not been encouraging feed lots to
produce cattle without beta-agonists and has not paid a premium
for such cattle in recent months. The company does pay a premium
for cattle used in specialty programs, such as Open Prairie
Natural Angus beef, he said.
The National Cattlemen's Beef Association, the beef
industry's trade group, said in a statement that its members
base their feed decisions "on science, not speculation. At this
time, there is no scientific basis for saying the use of
beta-agonists caused the animal welfare concerns cited by Tyson
in their decision to stop buying cattle fed Zilmax."