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A definitive distribution relationship has been formed between Abaxis, Inc. (ABAX - Analyst Report) – a manufacturer of point-of-care blood analysis systems for medical and veterinary markets – and MWI Veterinary Supply, Inc. (MWIV - Analyst Report), a worldwide distributor of animal health products to veterinarians. Per the deal, effective January 2013, MWI Vet, as a business partner of Abaxis, will be able to store, market and promote the entire veterinary product line of Abaxis in the U.S.

We note that Abaxis’ veterinary instruments cater to a substantial part of the clinical diagnostic requirements of veterinarians and the research marketplace. As per recent data, one third of the North American veterinarians practice working with Abaxis instruments for routine wellness testing and annual check-ups.

We believe that this is a large market with a high potential for growth. An increase in the number of households with pets, enhanced human-animal bonding, aging pet population, more focus on animal health or preventive care, and advancements in pharmaceuticals and diagnostic testing drive increased spending, which in turn is favorable for the company.

Abaxis is performing well in its veterinary division with an expanded product line and a growing direct sales force. The company also intends to introduce more rapid assay of products, which would boost the veterinary revenue. In the previous month, the company launched its new Kidney Profile Plus panel for the treatment of critical and chronic renal diseases in animals, especially in canine, feline and equine species.

Alongside, Abaxis Veterinary Reference Laboratories’ (“AVRL”) performance in the third full quarter of operations complemented growth of the company’s veterinary segment. Abaxis is optimistic about its consistent performance in the veterinary market and expects to maintain this growth momentum in the upcoming quarters.

On the other hand, in a highly fragmented animal health products distribution market, MWI Vet is currently focused on preserving long-term customer relationships as well as building new ones. In August 2012, the company revised its distribution relationship with IDEXX Laboratories, Inc. (IDXX - Analyst Report), per which MWI Vet, as a business partner of IDEXX, will also be able to distribute other competitive diagnostic products.

Other than that, MWI Vet's long term distribution agreements include a 13-year contract with Banfield, the largest private veterinary practice in the U.S. The company also maintains a strong relationship with Feeders' Advantage, a buying group comprising several large cattle feeders in the U.S.

We believe that despite the veterinary market being highly competitive, strong bonding between vendors like Abaxis and distributors like MWI Vet will enable both the companies to achieve robust growth. The companies believe this new venture to significantly add synergies to their individual businesses. According to Abaxis, the new strategic partnership with MWI Vet will enable it to further penetrate the western U.S. animal health market, where the company has limited distribution. Currently, Abaxis and MWI Vet carry a Zacks #3 Rank (short-term ‘Hold’ rating). Over the long term, we are Neutral on both the companies.

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