Article

by Carey Gillam

OVERLAND PARK Kan. 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, 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 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. spun off its animal health business Zoetis, 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 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 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 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. 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)