Professional Veterinary Products (PVP), the nation’s only veterinarian-owned distributor in the animal health industry, has filed for bankruptcy protection.
The announcement came late Friday afternoon with a notice to the U.S. Securities and Exchange Commission (SEC). The company reports between $50 and $100 million in assets and up to $100 million of debt, according to its Chapter 11 filing in United States Bankruptcy Court for the District of Nebraska.
The SEC filing instructs potential bidders for PVP’s assets to contact officers with Alliance Management, an asset management firm that specializes in liquidation. Those assets will likely include the PVP’s 140,000-square-foot distribution center in Omaha and its 87,500-square-foot hub in York, Penn, in addition to at least two other facilities.
A meeting of PVP’s creditors is slated for Sept. 21, with a Dec. 20 deadline for creditors to file proof of a claim. Court documents show that Pfizer Animal Health is owed the most from PVP, with $9.2 million outstanding. Agri Laboratories Ltd., Intervet/Schering-Plough Animal Health and Novartis Animal Health are among other drug companies that will be looking for a payout from the liquidation of PVP’s assets.
Court documents also reveal that founding CEO Dr. Lionel Reilly has $3.27 million hanging in the balance. Earlier this month, he divulged to the VIN News Service that his retirement funds are tied up with the company. Reilly retired from PVP in January 2009 and noted that during his 26-year tenure, the company was financially stable.
While he recently expressed sadness concerning the 300-plus PVP employees who are steadily being laid off, Reilly could not be reached for comment concerning Friday’s bankruptcy filing.
Joining the PVP in its bankruptcy proceedings are its two subsidiaries: Exact Logistics, which distributed products to other animal-health firms, and ProConn Animal Health, a servicer of veterinarians and producers in beef and dairy segments. While separate court filings were submitted for both divisions, a petition has been made to consolidate them under the PVP case.
The rather sudden downfall of PVP comes as a surprise to many who have tracked its successes. Reilly, in a previous article with the VIN News Service, stated: “For every year I was there, this company was profitable. I would have never suspected this.”
PVP was founded in 1982 by a group of veterinarians who wanted to unite their high-volume practices with others to increase their purchasing power. They created a model whereby the company would be jumpstarted by the investments of practitioners using its services. The company wholesales and distributes pharmaceuticals and health care supplies to licensed veterinarians, carrying roughly 20,000 products. At the height of its success, 2,000 veterinarians had each purchased one $3,000 share, creating $6 million in capital for PVP. In return, shareholders received discounted goods from the distributor and annual rebates.
Earlier this month, a message board discussion surfaced on the Veterinary Information Network (VIN), an online community for the profession, with veterinarians calling for news concerning the status of PVP. Some expressed dissatisfaction with PVP’s customer service as well as a lack of direct communication between the company and its shareholders.
Though PVP is a private company, it is obligated to provide financial statements to the SEC due to its ownership structure. According to government documents, less than 1,900 veterinarians now own a piece of PVP, though many have tried unsuccessfully to unload their shares after hearing rumors of the company’s financial difficulties. Some believe that shareholders will lose their investments, though the company has not released an official statement addressing the prospect.
PVP spokeswoman Cindy Christensen responded with “no comment” when queried by the VIN News Service today concerning the company’s bankruptcy proceedings and status of its shares.
Yet news of the company’s demise is equally distressing to non-shareholders like Dr. Sherrie Hartke, who owns a solo practice in Texas.
For 18 months, Hartke has relied on PVP to distribute to her practice small quantities of products that she would otherwise be forced to forgo purchasing or buy in larger lots with higher price tags. She credits PVP for saving her from the big drug bills that otherwise might weigh down her practice.
“PVP was just really helpful for a small practice,” she explains. “I could order the amount of super products that I needed and carry them in-house. If I order Interceptor from Novartis, I have to order a case of 10 cards. PVP allowed me to order a single card instead."
(Super products are medications that constitute the bulk of the veterinary profession’s drug sales. They include, among others, flea, tick and heartworm medications.)
Veterinarians on VIN are hungry for details concerning the status of PVP, with some relaying information gleaned from PVP board members as well as a letter to employees from company CEO Steve Price. In it, Price notes that PVP had “encountered significant and material financial challenge” due to “macroeconomic factors” and a sluggish economy.
A closer look into recent PVP filings with the SEC reveals more of the story. Among the details:
- PVP defaulted on a credit agreement with Wells Fargo, its biggest lender, on July 12.
- In April 2009, PVP settled a lawsuit with INVESCO, a competitor. Legal costs totaled $2.6 million. INVESCO alleged, among other things, that PVP conspired with departing INVESCO employees to “take over or steal” INVESCO's swine business.
- PVP reported losses of $3.6 million during the quarter ending April 30. It lost $1.1 million last year.
- Sales and other revenues were $88.7 million, compared to $75.3 million during the same period last year. However, the cost of sales increased by $13 million to $80.7 million.
- For the first three quarters of the company's 2010 fiscal year, from August 2009 until April 2010, PVP reported a loss of $7.3 million compared to a loss of $3 million in the same period the previous year.
PVP's latest filing suggests that bankruptcy was considered to be a last resort by company officials. It states that prior to the company's filing, PVP executives evaluated a number of options, including reorganizing the business and selling it.
"At this point, the company is pursuing a sale of substantially all of its assets pursuant to Section 363 of the Bankruptcy Code under a bankruptcy court supervised auction and sale process," the notice states. "The Board of Directors and management believe that this course of action will be in the best interests of all of the stakeholders and will maximize value for all of the constituents."
In related business, PVP’s online pharmacy — Vets First Choice — recently announced that the company is partnering with DirectVetMarketing, which is headed by CEO Ben Shaw. He is a founding partner in the Black Point Group, an investment group that also lists his father, David Shaw, as an official.
David Shaw is married to actor Glenn Close and founder of one of the largest veterinary companies ever formed, IDEXX Laboratories. In 2007, Close and her husband launched FetchDog, a website selling consumer pet products that is financed primarily by the Black Point Group.
In an announcement to stakeholders, Vets First Choice officials make no reference to the closure of PVP or its separation from the company. Rather, the move is billed as one that will provide users with improved performance and access to more products.
A news release advertising the home delivery service to veterinarians states: “DirectVetMarketing is the most sophisticated compliance marketing firm in the U.S. veterinary market. This relationship gives you the choice to explore new opportunities and tools to improve your client’s compliance and your clinic’s traffic.”
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