Heska’s Bob Grieve leads his pack to profitability

LOVELAND – Heska might not be the lead dog in its industry, but the veterinary products company has caught the scent of profitability and appears to be pulling up to the pack.

The Loveland-based animal-health-care firm has navigated the rocky road of drug development – where research costs are high and profits often far on the horizon – and is finally realizing the rewards of many years of difficult decisions.

In 1998, Heska lost $44.2 million – the most it’s lost as a publicly traded company. Prior to its initial public offering, the company had dug itself into a $38.4 million hole. In its last unprofitable year, 2004, the company was $4.8 million shy of breakeven.

But Heska has gone to the dogs (and cats), and that’s a good thing. For the last two years, Heska was able to break out the black ink on its annual earnings reports. The company’s 2006 net income of $1.8 million was an increase of more than 500 percent from the previous year.

Such a turnaround doesn’t just happen. Heska had to make major changes to its business model to get to profitability. And though he won’t take credit, CEO Bob Grieve made many of the hard decisions necessary to get the company focused.

All about Bob

Grieve, an academic and scientist at heart, never predicted that his career path would veer into a chief executive position. He taught at Cornell University, the University of Pennsylvania and the University of Wisconsin before landing at Colorado State University in 1987.

Grieve helped launch Heska, then known as Paravax, while maintaining his faculty position at CSU. He served as an adviser to the California-based venture-capital firm that was interested in launching a business to study parasitic diseases. That company had a shaky start.

“The company was really a virtual company in the beginning,” Grieve explained. “We had some faltering beginnings and decided to start over.”

The company moved to Fort Collins in 1991 to be closer to CSU, where Grieve was overseeing much of the research Heska would later license.

He didn’t leave the university until 1994, when he joined Heska full-time as vice president of research and development. By the end of that year, he moved into the expanded role of chief scientific officer.

Heska went public in July 1997, and it soon became apparent that the company might be barking up the wrong tree.

“A few years after the company went public, it became clear that the financial and business models weren’t working,” Grieve said.

Through several acquisitions, the company had strayed from its original focus of companion animal health. Some of its new ventures even delved into the world of human health – a much trickier industry.

At the end of 1998, the board – hesitant to spend six months to conduct an extensive CEO search – asked Grieve to take over the position because he knew Heska better than anyone.

“The wheels had sort of fallen off,” Grieve said. “I had been at the table a long time, and I knew things were bad.”

Come out swinging

It wasn’t that investors didn’t think he was competent, but more that his competencies were in the research realm. Many found the idea of promoting the chief scientific officer to a business role a bit ridiculous.

Grieve remembered one who likened the move to taking Mark McGwire out of the starting lineup to manage the St. Louis Cardinals.

But Grieve came out swinging. He quickly got to work concentrating the company on its core competency – companion-animal and equine-health products.

“We began to see results within the first year,” Grieve said.

In 2000, Heska sold off several holdings, including a diagnostic laboratory in England – acquired just three years prior – and New York-based Center Laboratories, a subsidiary making allergy-testing agents for human and veterinary use.

The company consolidated other locations as it moved toward greater operating efficiencies. Also by 2000, the company had almost halved its work force to about 375 worldwide.

It wasn’t until 2005, after moving to a larger space in Loveland, that Heska began recording net income.

“We made about $230,000 that year, and it was awesome,” Grieve recounted. “After what we’d been through, it was huge.”

Market booming

But profitability doesn’t mean his work is done. Grieve’s goal for the company is to get it to the point where it has brand recognition and enduring growth potential in an expanding market – a pretty good place to be.

The market for core companion-animal health-care products is booming. In 2005, spending on products to treat and prevent disease in companion and farm animals increased 6 percent to more than $5 billion, according to the most recent data from the Animal Health Institute. Companion-animal spending represented 54 percent of the total.

As the market grows, so does the competition. Research and development spending in 2005 increased 11 percent. Of the $618 million spent in 2005, $533 million of it was to support innovative research rather than enhancement of existing products.

Heska isn’t a giant of its industry, where even pharmaceutical companies known for their human drugs – such as Bayer AG – often dabble. IDEXX Laboratories Inc. is the lead dog in the animal-health-care industry. The company’s stock trades at more than $100 per share, and it boasted 2006 net income of $93 million.

In contrast, Heska’s stock launched at $8.75 and went as high as $16.50 in early 1998. Today, the stock hovers between $2 and $3.

“The stock price lags performance,” Grieve said. Investors want to see a history of positive results.

Grieve looks at the current stock price optimistically. He points to the two-year stock chart as a sign of improvement – in 2005 the stock dipped as low as 52 cents. Heska recently began the active pursuit of promoting the company and its stock.

“We sort of went dark during the days of trying to get our house in order,” Grieve said.

Telling the story again

A little more than a year ago, Grieve and CFO Jason Napolitano started to tell Heska’s story again. The two have been getting the word out by aggressively attending investor conferences – three in one week in June.

Right now, the company sees the most potential in the individual investor realm, but hope to move to the institutional level as the company grows.

Heska received a mention from multimedia financial information firm The Motley Fool. The Fool recommended Heska’s stock for investors “looking to cash in on the growing animal health-care market.”

Such mentions support Grieve’s goal of brand recognition. He has also been the source of such publicity. Last month, Grieve was named one of about 160 America’s Best CEOs, according to research and financial consulting firm DeMarche Associates Inc.

The award, given to CEOs who provided shareholders with exceptional value during the last three years, is based on DeMarche’s analysis of value compared with CEO compensation.

Heska appears poised for another record year. For the first half, the company reported net income of $3.4 million, nearly double that for all of 2006.

In terms of new research, Grieve no longer discusses the product pipeline – investors didn’t take notice, but Heska’s competitors did, he says. This year, the company announced the release of two new products.

Despite all the activity and positive news of late, Grieve still counts his most memorable moment as CEO as occurring just after June 2002.

While in Florida for the company’s annual sales meeting, he received the news: The company had just had its first profitable month. That moment was also one of the hardest because, Heska being a public company, he couldn’t tell anyone.

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