Phibro Animal Health Corporation
PAHC:US US71742Q1067
Key Information
HQ:
United States
Market Cap:
$0.77bn
Primary Market:
North America
Animal Pharmaceuticals Engagement
Analysis Breakdown
Sales and Marketing Practices
Strategy, risk and reporting on antibiotics
A.1.1. Phibro acknowledges that antibiotics constitute a significant portion of its revenue. MFAs, which include antibiotics, anticoccidials, and other products such as Mecadox accounted for 60% of animal health revenue in 2022. Phibro recognises that increased government regulations on the use of antibiotics, growing consumer awareness, and the development of alternatives to antibiotics by competitor companies could present a material risk to its business. Nevertheless, Phibro does not recognise AMR as a material risk.
A.1.2. Despite recognising antibiotics as a material and at-risk portion of its business, Phibro does not publicly disclose a strategy to reduce its exposure to the sale of antibiotics for non-therapeutic purposes. Additionally, Phibro does not publicly acknowledge the inherent long-term risks of AMR, such as reduced antibiotic efficacy and a consequent decline in the viability of its antibiotic portfolio.
As a company that predominately sells FAP pharmaceuticals, Phibro is more vulnerable than its peers to the risks associated with antibiotic misuse and overuse. Failure to recognise the extent of these risks, coupled with a lack of strategic diversification away from antibiotics, could leave Phibro poorly positioned to transition towards a more secure FAP portfolio.
A.1.3. Phibro breaks down its revenue by intended species, geography, and product type. The company discloses that it generated $362 million (60% of its total animal health revenue) from the global sale of MFAs in 2022.
Its largest business segment by species is poultry, with poultry MFAs and other products accounting for 47% of sales in 2022. Phibro’s core MFA product portfolio includes three medically important antibiotics (MIAs) (oxytetracycline, virginiamycin, and neomycin).
Neo-Terramycin is one of Phibro’s top five best-selling antibiotics. It is composed of two antibiotics, oxytetracyline and neomycin, which are respectively classified by the World Health Organization (WHO) as highly important and critically important antimicrobials (CIAs), meaning they are the sole or limited treatment available for human use. Neo-Terramycin is sold by Phibro as a medicated feed additive (MFA), allowing it to be mixed directly into animal feed and used prophylactically. The WHO advises against the use of CIAs, even for controlling the spread of a “clinically diagnosed infectious disease identified within a group of food-producing animals”. Manufacturing Neo-Terramycin as an MFA goes against the WHO’s recommendations and increases the risk of widespread AMR.
A.1. Recommendation: To improve its score to ‘Low’, Phibro should:
(i) recognise AMR as a material risk to the business.
To improve its score to ‘Partial’ Phibro should also:
(ii) report a more granular breakdown of revenue from antibiotics by WHO classification.
NRD
Applying a consistent sales and marketing approach in line with best practice operating market
A.2.1. Phibro does not disclose a strategy for the responsible sale and marketing of antibiotics. The company also does not publicly share its definition of responsible antibiotic use.
A.2.2. In 2017, Phibro aligned with the FDA and the animal pharmaceutical industry to voluntarily remove growth promotion claims from its medically important antibiotics (MIAs) in the US, where 40% of its animal health revenue is generated. The company also reports aligning with antibiotic regulations in the countries where it operates. It can therefore be assumed that Phibro has removed indications for growth promotion from its MFAs sold in China and indications for both growth promotion and prophylaxis from all antibiotics sold in the EU. Nevertheless, Phibro does not disclose whether it has a policy for labelling and marketing that applies to its entire antibiotic portfolio, making it difficult to determine how products are marketed in geographies where growth promotion and prophylaxis are still legal such as Brazil, which accounted for 16% of sales in FY22.
A.2.3. & A.2.4. Phibro does not disclose who would be responsible for overseeing and enforcing a company strategy for the responsible sales and marketing of antibiotics nor report which sales team KPIs are linked to antibiotic sales.
A.2. Recommendation: Phibro could improve its score to ‘Partial’ or even ‘Good’ by setting a time-bound commitment to remove indications for growth promotion from all antibiotics globally and by disclosing more detail on its approach to the sales and marketing of antibiotics.
NRD
Manufacturing and Production
Demonstrating effective management of antibiotic residues in manufacturing and production
B.1.1. Phibro does not disclose a comprehensive company-specific environment, health, and safety (EHS) strategy that addresses antibiotic residues in manufacturing effluent. The company identifies how country specific EHS regulations could affect its business and claims to devote considerable resources towards complying with Environmental Laws and managing environmental liabilities.
Phibro aims to comply with current Good Manufacturing Practice (cGMP) standards and local regulations for its own manufacturing sites, however, the company acknowledges this is not always possible. Phibro is transparent about its past difficulty adhering to EHS requirements: “Although it is our objective to remain in full conformance with U.S. cGMP standards, we have in the past received adverse observations and may in the future receive adverse observations or warning letters”. The company acknowledges that failure to comply with cGMP standards could have a material impact on its business, yet it does not report its internal mechanisms for compliance.
Phibro’s most recent FAP acquisition was the purchase of Osprey Biotechnics, Inc., a privately held developer and marketer of innovative microbial products used for wastewater treatment. Osprey was acquired for its “intellectual property, working capital and property, and plant and equipment” in 2019 for $54.5 million and could improve Phibro’s waste disposal. Phibro should disclose how this acquisition could influence its approach to managing antibiotic residues in wastewater.
B.1.2. Phibro does not disclose whether it has an EHS strategy for antibiotic residues that applies to its third-party manufacturers.
B.1.3. The company claims to follow the manufacturing guidelines set forth by the regions it operates in, specifically, the Food and Drug Administration (FDA) in the US, the European Food Safety Authority (EFSA) in the EU, and the Ministry of Agriculture, Livestock and Food Supply (MAPA) in Brazil. However, it is unclear what, if any, audit and compliance mechanisms are in place. Various Phibro subsidiary sites are engaged in continuing internal investigation, remediation, and monitoring to address contamination issues associated with past operations.
B.1.4. The company discloses that it manufactures active pharmaceuticals for certain antibacterial products in Brazil and Israel. Phibro sources certain active pharmaceutical ingredients from contract manufacturing organisations (CMOs) in China and India, which are then formulated into final dosage form in some Phibro-owned facilities and contract facilities in Argentina, Australia, Brazil, Canada, China, Israel, Malaysia, Mexico, South Africa and the United States. The company does not disclose where its third-party suppliers are located, which limits investors’ ability to understand what local regulatory standards suppliers are governed by.
B.1. Recommendation: To improve its score to ‘Low’, Phibro would need to disclose details on:
(i) the standards it has in place to ensure wastewater discharged into the environment contains safe levels of antibiotic residues with best practice being to set predicted no-effect concentrations (PNECs).
To improve its score to ‘Partial’, Phibro would need to disclose also details on:
(ii) how this applies to its CMOs and to third party suppliers.
NRD
Research and Development
Defining alternatives to antibiotics
C.1.1. Phibro has a selection of products that can reduce the need for antibiotic use; however, the company does not specifically categorise any of its products as alternatives to antibiotics, nor provide a definition. This limits investors’ ability to measure the year-on-year growth of Phibro’s alternatives portfolio.
C.1.2. The company manufactures vaccines which can be used to combat bacterial diseases. This includes Salmin Plus TM, the first multi-variant inactivated vaccine containing to combat Salmonella infections.
Phibro also manufactures autogenous vaccines for viral and bacterial diseases and is building a vaccine production facility in Brazil for this purpose. Autogenous vaccines are created by taking microorganisms from an individual animal and then using them to immunize that same animal against a specified disease. Phibro currently manufactures two forms of autogenous vaccines, Tailor-Made® and MJPRRS®. Tailor-Made® can be used against bacterial diseases and is manufactured and sold in the United States for use in livestock.
In 2019, the company launched a new direct-fed microbial, Provia Prime, with the goal to “improve the support provided to producers intent upon reducing their use of antimicrobials”. This nutritional product is designed to improve chicken health and therefore reduce the need for antibiotics.
Additionally, the company has also created a diagnostic tool known as pHi-Tech, “a portable electronic vaccination device and software that ensures proper delivery of vaccines and provides health management information”. Although Phibro does not recognise this as a potential alternative to antibiotics, it can be assumed that improved vaccination delivery and increased health information could reduce the need for antibiotics.
Despite offering several alternative products, these do not seem to be part of a strategic decision to reduce exposure to antibiotics. Phibro could improve its score by defining and classifying its alternative products and linking them to a strategy for antibiotic reduction.
C.1.3. Phibro does not indicate what percentage of its product portfolio can be classified as alternatives to antibiotics, nor provide a breakdown of revenue. It does report on its revenue for vaccines, which generated $88m in FY22, making up 14.5% of total animal health revenue.
C.1. Recommendation: To improve its score to ‘Partial’, Phibro should provide a definition for alternatives to antibiotics and disclose the percentage of its portfolio or revenue for food-producing animals that is made up by alternatives to antibiotics. To improve its score to ‘Good’, the company should also disclose detail of how it assesses the efficacy of its alternatives at reducing antibiotic use.
Low
Increasing availability and use of alternatives to antibiotics
C.2.1. In FY22, Phibro invested $20.8m in research and development (R&D), equating to 3.4% of consolidated revenue for that year. The company does not disclose what percentage of this is directed toward the development of alternatives. There is evidence that the company is continuing to develop novel vaccines; however, from disclosures, most of Phibro's R&D programs focus on adding new claims or species to existing products.
C.2.2. The company has not made any acquisitions related to alternatives to antibiotics in recent years.
C.2.3. Phibro does not disclose what percentage of marketing spend is spent on alternatives to antibiotics.
C.2. Recommendation: To improve its score, Phibro should:
(i) disclose the percentage of R&D spend dedicated to alternatives to antibiotics and
(ii) provide greater insight on marketing spend on alternatives to antibiotics.
NRD
Stakeholder Engagement and Lobbying
Stewardship initiatives
D.1.1. Phibro does not appear to be engaged in any AMR stewardship campaigns designed to reduce antibiotic use in animal agriculture. The company's virtual academy is highlighted on the HealthforAnimals website as being a source of preventative care education, yet AMR is discussed in only two of the 208 courses. It is not clear if the information provided details AMR prevention or provides instruction for responsible antibiotic use.
Phibro also sponsors a campaign called “Ask Dr. Dorman” where Dr. Leah Dorman answers public questions about animal care and publishes them on the website ExploreAnimalHealth.org. Unfortunately, some of the site’s key messaging minimises the threat of AMR and the material risk it poses to the livestock and pharmaceutical industries.
D.1.2. The company does not disclose whether it supports AMR stewardship efforts to improve AMR surveillance or reduce antibiotic residues entering the environment from farms.
D.1. Recommendation: To improve its score, Phibro should provide greater insight into its stewardship initiatives to demonstrate whether it is looking to support a reduction in non-therapeutic antibiotic use.
NRD
Lobbying and political expenditure
D.2.1. Phibro only discloses its lobbying spend where legally required. It does not publish this in its annual reporting; FAIRR used opensecrets.org and projects.propublica.org to collate Phibro’s lobbying spend.
In the US, Phibro saw a 440% increase in lobbying expenditure from 2020 to 2021 ($10,000 to $54,000) and lobbied for “animal health issues” but did not reveal its positions.
The company does not disclose any policies that govern how its lobbying and political expenditure relating to antibiotics and AMR is carried out.
D.2. Recommendation: To improve its score, Phibro should disclose its approach to lobbying on issues related to AMR and antibiotics.
NRD
Company Engagement
Level of company engagement with the coalition
E.1. Phibro did not respond to the investor coalition’s formal letter sent in July 2022 and declined to attend an engagement call with investors. The company also declined to provide feedback on its preliminary company assessment sent in December 2022, or on its final assessment sent in May 2023.
Inactive
Workstream Information
Last Updated:
22 May 2023
2022/23 Resources
Investor Briefing Pack Progress Report Key Findings Report Animal Pharmaceuticals Engagement