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Insight & Intelligence : Jan 16, 2013
Scratching and Clawing for Sales
The animal pharma industry’s tail is wagging as more and more people invest in medical care for their pets.
A start-up drug developer is working to gain a paw-hold in animal medicines, now being reshaped by several deals as biopharmas and investors capitalize on growing spending on pets.
Aratana Therapeutics this month is planning to start a pivotal trial for its lead drug candidate, EP4 antagonist AT-001 for arthritis in dogs, with a pivotal trial in cats also planned this year. Aratana licenses AT-001 from Japan’s RaQualia Pharma; terms are undisclosed. The drug has shown proof of efficacy in human studies and animal models for several conditions including pain, cancer, and autoimmune/inflammatory diseases.
Last month, Aratana agreed to develop and pursue approvals for publicly traded Pacira Pharmaceuticals’ bupivacaine liposome injectable suspension for unspecified animal health indications. The drug is now marketed in the U.S. as Exparel® for management of postsurgical pain. Aratana received $1 million up front, with potential for up to $42.5 million tied to undisclosed development and commercial milestones.
“Our strategy is to in-license drugs that are working in humans—either in clinical development in humans or, as in the case of Pacira, approved in humans—and to have a particular reason why they are applicable in the animal health world. We’re not doing discovery, because it’s too capital intensive to do basic research,” Steven St. Peter, M.D., Aratana’s president and CEO, told GEN.
“We think a lot of products that are being developed by small biotech and even big pharma, have use in animal health. It’s worth companies at least thinking what is their animal health strategy to unlock that value. It may not be something that they want to take on. But it’s something that Aratana will take on,” added Dr. St. Peter.
Also in Aratana's pipeline are the ghrelin agonist AT-002, also licensed from RaQualia, and Pacira’s drug, DepoBupivacaine™ or AT-003. A pivotal trial of AT-002 is also set for this year. Dr. St. Peter won't disclose whether that drug will be tested in dogs or cats, but will say testing on the other species will follow "closely after that."
Aratana, which has raised $31 million since being founded in 2010, is in a pharma segment that’s buzzing with activity. On Dec. 20, Sanofi’s Merial said it would acquire Indian veterinary business Dosch for an undisclosed sum, in a deal to close during Q2.
Also last year, Bayer spent $145 million for the U.S.-based animal health business of generics giant Teva Pharmaceutical Industries, adding Teva’s DVM Pharmaceuticals family of dermatology products to Bayer’s companion animal drug portfolio. Perrigo is expected to expand into animal pharma during Q2, when it is set to close on its $285 million purchase of Sergeant’s Pet Care Products. And in May, Dechra Pharmaceuticals completed snapping up Eurovet Animal Health from A.U.V. Holding for €135 million ($180.6 million).
Waiting for Zoetis
The largest animal pharma player, Pfizer, is expected within weeks to spin off its animal health unit through an initial public offering. The IPO identifies the new company as Zoetis, which will continue the Pfizer animal-health operations that generated $4.2 billion in 2011 sales. In the first half of 2012, Zoetis doubled its earnings to $284 million on sales that rose 4%, to $2.14 billion.
“It's the first time you're going to have a really large animal health business on a standalone basis. All the other big animal health players are wrapped up within a big pharmaceutical company. I think that's sparking investors’ interest,” Damien Conover, CFA, a director covering the healthcare industry for Morningstar, told GEN. “Given the volatility of the patent cliff that most of these pharmaceutical firms are facing right now in human health, the animal health has actually been a nice area where they have seen some steady growth.”
Animal pharma, Conover said, is about a $20 billion-a-year market that has attracted investors of late with stronger growth prospects than many human-health segments. Over the next five years, animal pharma sales are expected to rise 5% annually.
“If you get into oncology and ophthalmology, those are growing a little bit more quickly. You get into some of your older school medicines like allergy and some cardiovasculars, then you're talking about low single digits,” Conover said.
Notwithstanding that projected growth, he added, Aratana faces a significant challenge given the presence of Zoetis and other giants. While smaller companies tend to be targeted by the larger companies, Conover noted, at least the start-ups don’t face the same antitrust pressure as the giants to divest in animal health.
U.S. spending on pets reached a projected $52.87 billion last year, according to the American Pet Products Association, more than triple 1994’s $17 billion. The 2012 figure includes $13.59 billion in veterinary care—not counting over-the-counter drugs, which account for a separate $11.77 billion lumped in with spending on supplies. The U.S. carries out more than half the world’s total spending on pets, reported by Euromonitor at $94 billion in 2012.
“The willingness that people have to spend on their cats and dogs is huge. The question is, are they willing to spend on their pets’ medical needs, if given the opportunity and offered products from their veterinarian to deal with their pets’ medical needs?” Dr. St. Peter said.
The potential market is huge: 62% of American households have a cat or dog. There are 160 million cats and dogs in American households. “If you just imagine if it’s a dollar a day for their medical needs, that’s $60 billion a year in the US alone. And if the market looks like $1,000 a year for 1% of animals, that’s $16 billion. Just the sheer number of animals creates, we think, a huge market opportunity,” Dr. St. Peter added.
$10 Million Drug
According to a membership survey by the Animal Health Institute (AHI), "companion animal" products like pet drugs cost an average $22 million to develop, ranging anywhere from $5 million to $70 million, with timeframes averaging 3-1/2 years, ranging from 3-1/2 to nine years.
"We believe that we can develop a product for a cat or a dog for under $10 million. And it takes between three and four years," Dr. St. Peter said.
That's much cheaper than developing human drugs: Estimates range from $1.3 billion (Tufts Center for the Study of Drug Development) to at least $4 billion (InnoThink Center for Research In Biomedical Innovation), though a blockbuster can generate several billion in annual sales: "The leverage on that is four to one. Whereas we think we can find products, and have them developed, that can address potentially, let’s say, a $200 million market. The leverage on that is 20:1 if you spend under $10 million," Dr. St. Peter said. "We love the math on animal health. This is a highly attractive area to be doing development in."
However, according to AHI, animal drug development costs have nearly doubled in a decade, while timeframes have increased by a year to a year and a half just in the past five years.
“There are a lot factors of why development costs have gone up. General costs of goods and services and active ingredients, all of those have gone up. Regulatory costs have definitely increased,” Richard A. Carnevale V.M.D., AHI’s vp for regulatory, scientific and international affairs, told GEN. “The longer it takes for a product to get on the market, the more the company ends up investing in it, and the longer it takes to recoup that cost.”
While antibiotics and anti-parasitics are the two biggest classes of animal drugs, Dr. Carnevale said, “in companion animals, there's been a move recently for lifestyle type drugs—obesity, behavioral modification, geriatric—because dogs and cats are living longer, so they're looking at more geriatric indications, like renal disease and heart disease, as well as metabolic diseases such as diabetes and hyperthyroidism.”
Bringing these or other lifestyle drugs to market is one of two challenges faced by start-ups like Aratana. The second, and more daunting, is growing into a key player—something Dr. St. Peter says is possible for Aratana because of the economics of animal pharma—that can either afford to go it alone, or at least prove irresistible to a buyer.
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