Healthcare Isn’t Just for Humans (IDXX)

History of IDEXX Labs

IDEXX Laboratories’ (NASDAQ: IDXX) stated mission is about improving the life of animals, as well as improving the safety of food and water, which goes hand in glove with its primary mission.

The company mainly develops, manufactures, and markets products and services related to the screening of diseases in family pets, livestock, and poultry. The company has further expanded its core competencies in developing similar tests to gauge the safety of water and dairy products. It operates in over 175 countries and employs somewhere around 10,000 people. Its current headquarters is in Westport, Maine, which is just to the east of Portland.

 

IDEXX Laboratory’s corporate headquarters building in Westbrook, Maine, USA. (Source: blackpointgroup.com)

 

David E. Shaw founded IDEXX Labs in the early part of 1980. Prior to IDEXX, he worked within an agribusiness management consulting firm in the beautiful Boston suburb of Wellesley, Massachusetts. However, Shaw lived in Maine, and the commute back and forth was getting the better of him. So, he decided to start his own business and ditch the commute.

In the early 1980s, biological testing technology was rapidly advancing. Shaw saw a budding opportunity to remove certain kinds of medical testing from the realm of commercial testing labs and into physicians’ offices. The advantage of this is better economics and shorter duration between sample removal and diagnosis.  Because much of the technology was already in use with humans, Shaw decided to market his technology for use on animals instead.

His reasoning was this novel technology would take forever to get into the offices of human medical doctors due to rigorous FDA testing protocols. So, he aimed at developing medical testing for animals because it didn’t require lengthy approvals and could be deployed rapidly in the veterinarian offices. When you have a start-up, time to becoming cash positive is super critical.

 

Development of Products

His first products were for detecting diseases in poultry and poultry processing plants. In many cases, IDEXX’s tests were developed to fulfill mandatory US government testing of these foods. His first clients were from both governments and businesses.

Regardless, the tests were often needed to prove food safety to government agencies, and therefore, IDEXX’s revenues climbed rapidly. Shortly after establishing itself in these markets, IDEXX developed new tests to use in veterinarian offices. As with its food safety products, these products were fast sellers. The reason for this is that it focused on developing tests that veterinarians recommended be given regularly, such as tests that detect heart worms in cats and dogs.

Another good example is its equine infectious anemia (EIA) test devices. By federal law, horses aren’t allowed to be transported over state lines if they haven’t been tested for EIA. All through the ‘80s and ’90s, IDEXX developed new, low-cost tests for veterinarians to use to detect diseases in your favorite furry pets, such as feline immunodeficiency virus (sometimes called “feline AIDS”), feline leukemia, and canine parvovirus.

The company even developed expensive instruments to analyze animals’ blood for enzyme levels, electrolyte concentrations (potassium, sodium, and chloride), and hormone levels.

 

The company’s popular SNAP group of animal medical diagnostic tests. (Source: IDEXX.com)

 

IDEXX branched out into water testing and dairy product testing and continued to improve its tests for poultry and poultry processing facilities. The company has taken center stage in the US with the tests it has developed for detecting salmonella and e-Coli in food and water. These two pathogens have caused many serious outbreaks, and therefore, the US government continues to require large volume testing.

Not surprisingly, huge profits followed the development of all these tests and instruments. Consequently, throughout the late 90s, IDEXX was able to make several key international acquisitions. It also launched various versions of its veterinarian reference laboratory businesses, and it began to vertically integrate by purchasing companies that make precursor materials for some of the tests it developed, and these acquisitions were not just in the US. IDEXX acquired companies in Japan, the United Kingdom, and Sweden. It also opened offices in Australia, New Zealand, France, Italy, and the Netherlands.

 

IDEXX Labs Today

Most recently, IDEXX has very effectively contributed to curbing the COVID-19 pandemic. The company has developed and now sells COVID-19 PCR detection tests for dogs, cats, and horses. They must be selling quite well because during the pandemic, the number of households with pets has increased. In fact, in the US, 1 in 5 households now have pets.

In addition, IDEXX has developed tests for detecting COVID-19 in municipal wastewaters. In the US, one way that health agencies have gauged the spread of COVID-19 is through measuring how much COVID DNA is in municipal wastewater streams. Moreover, it turns out that medical experts have found that a spike in COVID in a community’s wastewater precedes a spike in cases among the community’s population. Likewise, a drop off in cases can be predicted weeks in advance when the amount of COVID DNA in the wastewater drops off.

Given IDEXX Labs’ expertise in measuring contamination in water supplies, it’s not surprising that it developed a test to measure COVID DNA in wastewater. Unfortunately, no one is expecting COVID to be eradicated in the near future, so wastewater studies will continue, and consequently, so will this revenue stream for IDEXX.

 

Looking for COVID-19 DNA in municipal wastewater is one way to predict COVID case counts. (Source: idexxcurrents.com)

 

Financial Performance

Today, IDEXX generates very enviable cash flow and revenue. In 2021, it reported over $2.7 billion in revenue. The stock performance is reflected in the stock chart below.

 

 

IDEXX had its initial public offering (IPO) in June, 1991. Between 1993 and 2015, the stock split two for one four times. If you had invested $10,000 in IDEXX labs in 2012, you would have increased your initial investment by a factor of over eleven. The fact is, the connections between animal health and human health continue to become narrower. That means IDEXX’s best days are likely ahead of it.

 

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