Phibro Animal Health Corporation

A.1.1. Phibro acknowledges that the sale of antibiotics is a material portion of its business, but does not clarify the proportion of revenue generated by antibiotics. MFAs, which include antibiotics, anticoccidials, and other products such as Mecadox accounted for 59% of animal health revenue in 2023, down from 60% in FY22. Phibro continues to recognise that increased government regulations on the use of antibiotics, inclusion of its products on rating lists for antimicrobials from organisations such as the WHO, growing consumer awareness, and the development of alternatives by competitor companies could present a material risk to its business. Nevertheless, as before, 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. It continues to provide a high-level statement that it is looking to develop additional products for its companion animal sector but does not provide any targets to reduce its exposure to antibiotics. 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. Rather than acknowledging the risk of AMR, Phibro actively continues to submit comments to the FDA requesting that the antibiotic class ‘streptogramins’ is removed from the FDA’s list of MIAs, despite this request having been previously declined. This class of antibiotics is used in Phibro’s MFA, Stafac 20. As a company that predominately sells FAPs, Phibro remains more vulnerable than its peers to the risks associated with antibiotic misuse and overuse. Continued 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. As in previous reporting cycles, Phibro breaks down its revenue by segment, intended species, geography, and product type. 2023 net sales are segmented by species as follows: 34% Poultry, 19% Dairy, 13% Cattle, 9% Swine, and 25% Other, which includes but is not limited to aquaculture and other animal species. The US remains the company’s main market, with 59% of net sales generated in the US, 22% in Latin America and Canada, 12% Europe, Middle East and Africa and 6% in Asia Pacific. The company discloses that it generated $387 million (59% of its total animal health revenue) from the global sale of MFAs in 2023. Phibro’s largest business segment by species remains poultry, with MFAs and other products for the poultry industry accounting for 44% of sales in 2023. Phibro’s core MFA product portfolio continues to include three medically important antibiotics (MIAs) as defined by the WHO (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 AMR.

A.2.1. Phibro does not disclose a strategy for the responsible sales and marketing of antibiotics. The company states in its 2022 ESG report that it follows five principles that contribute to responsible use but does not demonstrate how these are integrated into a sales and marketing strategy. 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 42% of its animal health revenue is generated. Phibro has not removed indications for prophylactic use from its products containing MIA. 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. Phibro continues, however, to sell MIA for growth promotion in countries such as Brazil where this is still legal. 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 if sales team KPIs are linked to the volume of antibiotics sold.

B.1.1. Phibro does not disclose details of its environmental health, and safety (EHS) strategy, and unlike other companies in the engagement, Phibro does not disclose any details suggesting it is taking measures to ensure wastewater discharges of antibiotic effluent remain at safe levels. It remains unclear if Phibro has any policies specifically addressing antibiotic residues in manufacturing effluent. Phibro identifies how country-specific EHS regulations could affect its business and states it devotes considerable resources toward 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 remains 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 to ensure compliance. 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 has not provided details on how it ensures best practice compliance at its own manufacturing sites, third-party suppliers or waste management facilities, outside of confirming it performs external EHS audits as it deems necessary. Phibro 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 remain 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 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.

C.1.1. Phibro offers a selection of products that could potentially reduce the need for antibiotic use, such as vaccines and nutritional products. However, the company does not specifically categorise any of its products as alternatives to antibiotics or provide a definition. This limits investors’ ability to measure the year-on-year growth of Phibro’s alternatives portfolio. C.1.2. Phibro does not report on the percentage of its portfolio that could be classified as alternatives to antibiotics. However, it does offer vaccines, vaccine delivery systems and nutritional products, such as its Provia Prime, that have been linked to disease prevention and, therefore, a reduced need for antibiotics. Encouragingly, compared to 2022, the company now markets an additional 25 vaccines for the prevention of disease in poultry. However, it is unclear how many of these could specifically contribute to reduced antibiotic use. Phibro also manufactures autogenous vaccines for viral and bacterial diseases and has now begun production at its facility in Brazil. Autogenous vaccines can be custom-made to contain antigens specific to each farm. In 2023, Phibro introduced a third autogenous vaccine Phi-Shield®, to its offering, so that it now manufactures two forms of autogenous vaccines that can be used against bacterial diseases. Additionally, the company previously reported on its diagnostic tool, 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, improved vaccination delivery and increased health information could reduce the need for antibiotics. Despite offering several alternative products, these do not appear to be part of a strategic decision to reduce exposure to antibiotics. Phibro does not provide any information on how effective these products are at reducing the need for antimicrobials. 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 from this category. It does report on its revenue for vaccines, which generated $100m in FY23, making up 15% of total animal health revenue. This is the same as in FY22.

C.2.1. In FY23, Phibro invested $24.4m in research and development. The company does not disclose what percentage of this is directed toward the development of alternatives. Encouragingly Phibro highlights in its 2022 ESG report that it invests in developing new vaccines, vaccine delivery systems and software technologies to improve the vaccination process. Phibro also states that it is investing in ‘understanding of beneficial bacteria and nutritional products that help promote gut health and reduce the need for antibiotics’. Phibro does not disclose its research spending on the above, making it difficult for investors to understand the extent to which they are prioritising these as part of a move away from antibiotics. Phibro continues to state that most of its R&D programmes 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.

D.1.1. Phibro outlines 5 principles in its ESG report under its commitments and actions on antibiotic use. As part of this, Phibro provides high-level disclosures on its actions related to antimicrobial stewardship. This includes developing and offering preventative tools such vaccines, nutritional specialty products, direct fed microbials (probiotics), as well as educational initiatives such as its Phibro Acadamy, “You Herd Right” podcast, the Explore Animal Health website, presenting at conferences and universities, sharing disease management tips on social media and its websites and educating university students, customers, farmers, ranchers and nutritionist on best practices to prevent disease. Encouragingly, the Phibro Academy now includes one course looking at solutions to reduce the need for antibiotics in poultry through digestive health and another on managing gastrointestinal disease in antibiotic-free broiler production. These courses help educate farmers about themes related to reduced antibiotic use. In 2023, Phibro also released 5 ‘You Herd Right’ podcast episodes related to best practices and strategies to consider when feeding and managing dairy cows. It is unclear how many of these episodes discuss topics that specifically help to reduce antibiotic use. Phibro continues to promote its Explore Animal Health website, which aims to increase knowledge, transparency and communication as part of its antibiotic use commitments. However, this website’s key messaging minimizes the threat of AMR and promotes the use of antibiotics for disease prevention. 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.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 but has not found any recent disclosures. 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 governing how it conducts lobbying and political expenditures related to antibiotics and AMR.

E.1. Phibro has not acknowledged or provided a written response to the questions in the engagement letter sent in July 2023. It also declined to attend a FAIRR-facilitated engagement call with investors.