Dogs, hogs and dairy cows: 'Animal pharm' catches Wall Street's attention

Parnell Pharmaceuticals Holdings

08/10/2014 18:22

By Carey Gillam 
    OVERLAND PARK, Kan., Oct 8 (Reuters) - Cancer drugs for 
cats, pain relief for dogs, diarrhea drugs for hogs and hormones 
for dairy cattle: The "animal pharm" industry is increasingly 
drawing the interest of Wall Street investors.  
    One of the newest companies to market in the emerging 
sector, California-based Jaguar Animal Health  IPO-JAGX.O , 
notified the Securities and Exchange Commission in late August 
of intent to launch an initial public offering valued up to $70 
million for development of gastrointestinal products for pets 
and livestock.  
    Jaguar said it launched its first commercial product, a drug 
to treat diarrhea in calves, last week.  
    Analysts say interest in the growing sector is strong 
despite risks such as drugs that do not perform as expected.     
    "There is a 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 animal health industry globally is pegged at $92 billion 
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 targeting animal health, food and agriculture ventures.  
    From 2011 to 2016, the animal medicines and vaccines sector 
is expected to grow by 5.7 percent per year, the report states.  
    Investors like the fact that regulatory approval of products 
for animals can move faster at less cost than with drugs for 
people. While a drug for humans can take 10 years and more than 
$1 billion to develop, one for animals can reach market in half 
that time for about $10 million, industry experts said.  
    Until 18 months ago, animal drug development companies were 
largely off the radar screen, 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.  PFE.N  spun 
off its animal health business Zoetis  ZTS.N , raising $2.2 
billion. Shares have climbed more than 40 percent since then, to 
around $38. 
    One of Zoetis' 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 research and drug development.  
    Phibro Animal Health  PAHC.O  of New Jersey made a $200 
million offering in April and saw shares rise 31 percent through 
October. And in June, Parnell Pharmaceuticals Holdings  PARN.O  
of Overland Park, Kansas, raised about $50 million for a 
portfolio including bone regeneration products for dogs.  
    Stan Baker, a lawyer for the firm of 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.' "   
     
    PAMPERED PETS 
    A rising world population and increased wealth are boosting 
demand 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 people want to pamper.  
    Still, risks are real. In August, shares in newly minted 
public company Kindred Biosciences  KIN.O  plunged following a 
failed field study on a new product for treating dogs with 
osteoarthritis. The company, which saw net proceeds of roughly 
$56 million from its December 2013 IPO, spent about $4 million 
developing the drug before determining it would not work. 
    That did not deter Kansas City, Kansas-based Aratana 
Therapeutics Inc.  PETX.O  from announcing on Sept. 16 its aim 
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 Technology Acceleration's 
chief executive officer, Michael Helmstetter. "We'll know in the 
next few years."  
 
 (Editing by David Greising, Michele Gershberg and Douglas 
Royalty) 
 ((carey.gillam@thomsonreuters.com; 913-526-6190; Reuters 
Messaging: carey.gillam.thomsonreuters.com@reuters.net)) 
 
Keywords: USA ANIMALHEALTH/