Enthusiastic investors | Animal medicines and vaccines cost only a fraction of human drugs to develop and hit the market in half the time
OVERLAND PARK, Kan. (Reuters) — Whether it is cancer drugs for cats, pain relief for dogs, diarrhea drugs for hogs or hormones for dairy cattle, the “animal pharm” industry is increasingly drawing the interest of Wall Street investors.
Jaguar Animal Health of California, one of the newest companies to market in the emerging sector, notified the Securities and Exchange Commission in late August of its plans to launch an initial public offering valued at up to US $70 million to develop of gastrointestinal products for pets and livestock.
Jaguar said it launched its first commercial product, a drug to treat diarrhea in calves, earlier this month.
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Analysts say interest in the growing sector is strong despite risks, such as the possibility that drugs do not perform as expected.
“There is a lot of enthusiasm for animal health,” said Tim Lugo, an analyst at William Blair & Company, which has helped manage two recent animal health IPOs.
“Vets in general are starving for new innovative therapies.”
The global animal health industry is pegged at $92 to $102 billion, with the subsector of animal medicines and vaccines seen at $22 billion annually, according to a report by Technology Acceleration Partners, a private capital development firm that targets animal health, food and agricultural ventures.
The animal medicines and vaccines sector is expected to grow by 5.7 percent per year from 2011-16, according to the report.
Investors like the fact that regulatory approval of products for animals can move faster at less cost than with drugs for people.
A drug for humans can take 10 years and more than $1 billion to develop, while one for animals can reach the marketplace in half that time for about $10 million.
Animal drug development companies were largely off the radar screen until 18 months ago. They were either divisions of much larger human-focused pharmaceutical companies, with products and profit streams secondary to the parent operations, or start-ups struggling for cash.
That changed in January 2013 when Pfizer Inc. raised $2.2 billion by spinning off its animal health business, Zoetis. Shares have climbed more than 40 percent since then, to around $38.
One of Zoetis’s hottest draws is a vaccine for pregnant hogs to ward off a virus that has killed millions of newborn pigs in the United States.
With Zoetis laying the groundwork, several other animal health companies have stretched out a hand to Wall Street, seeking capital for re-search and drug development.
Phibro Animal Health of New Jersey made a $200 million offering in April and saw shares rise 31 percent through October.
And in June, Parnell Pharmaceuticals Holdings of Overland Park, Kansas, raised $50 million for a portfolio that includes bone regeneration products for dogs.
Stan Baker, a lawyer for Husch Blackwell, which provides legal counsel for animal health companies, called the industry’s rise “explosive.”
“There was nothing, and then lo and behold we have an animal health space,” he said. “All of a sudden people are going, ‘wow.’ ”
A rising world population and increased wealth are boosting de-mand for animal health products, industry experts say. The drugs being developed help keep livestock healthy and can extend the lives and well-being of the pets that people want to pamper.
Still, risks are real.
In August, shares in newly minted public company Kindred Biosciences plunged following a failed field study on a new product for treating dogs with osteoarthritis. The company, which saw net proceeds of $56 million from its December 2013 IPO, spent $4 million developing the drug before determining it would not work.
That did not deter Aratana Therapeutics Inc. of Kansas City, Kan., from announcing Sept. 16 that it planned to raise more than $41 million in its third public offering in less than 18 months.
Four-year-old Aratana has already raised more than $200 million from public market investors since its June 2013 IPO.
Industry observers say it is too early to tell how well the animal health companies will do in the public investment spotlight, since few of them have meaningful track records.
“Is it a bubble? Maybe,” said Michael Helmstetter, Technology Acceleration’s chief executive officer.
“We’ll know in the next few years.”
