Pets Are Biotechs’ New Best Friends

“The two of us stood gazing at the gleaming rows without any idea that it was nearly all useless and that the days of the old medicines were nearly over. Soon they would be hustled into oblivion by the headlong rush of the new discoveries.”

So wrote country veterinarian James Herriot about the bottles in his practice’s drug dispensary during the 1930s. Although the discoveries he referred to—human antibiotics, sulfa drugs, and steroids—would change his practice immensely, they were not designed for animals.

Even today, animal-specific drugs are uncommon, especially in the areas of cancer and pain. And that’s true even though about 65% of U.S. households own at least one pet, which adds up to 86 million cats and 78 million dogs, among other animals, according to the American Pet Products Association.

The $7.5 billion-per-year animal health market is dominated by large companies, such as the former Pfizer business Zoetis. Although most of these firms have big pharma ties, they often don’t target diseases but rather viruses, parasites, and infections, often for livestock. Seeing a gap, a new breed of ­biotech start-ups is developing small-molecule and biologic drugs for pets by leveraging the science around human medicines.

“The companion animal space is where the human biotech space was maybe 30 years ago,” says Richard Chin, founder and chief executive officer of California-based Kindred Biosciences. He and others in the emerging field hope that it reaches a similar level of success.

Enabling the growth of animal health are the right tools, accessible therapies, and seemingly few regulatory hurdles. But the fledgling firms are just starting to work with regulators and have yet to see if pet owners will buy more modern, and expensive, medicines.

In recent years, the declining cost of manufacturing and a more receptive investor base have allowed human and animal health to converge. Pfizer’s $2.2 billion spin-off of Zoetis in 2013 sparked interest and, in turn, helped a handful of start-ups quickly go public. But the most important driver has been the shifting attitudes of pet owners.

Eighty years ago, Herriot, who tended mostly to farm and working animals, was shocked when Mrs. Pumphrey christened him “uncle” to her pampered Pekingese Tricki Woo. Today, 95% of pet owners consider their animals a family member, according to a 2015 Harris Poll. In addition to spending $1 billion per year on costumes and gifts, pet owners are willing to pay hefty sums for veterinary care.

Many animal biotech company founders are pet owners who came to realize, after losing furry companions, that treatments are limited. Not just softhearted animal lovers, they leveraged impressive pedigrees in human biotech to recruit former regulators and executives from traditional animal health firms. As a result, their companies quickly identified licensable products, advanced development, and started navigating the regulatory scene.

Around 2009, investor Steven St. Peter began exploring how to apply the human drug development approach to pet medicines. Now, the company he heads, Kansas-based Aratana Therapeutics, has nearly 20 small molecules and antibodies in the pipeline. “We hope next year to have three products through the Food & Drug Administration and three through the U.S. Department of Agriculture,” St. Peter says.

Since 1913, USDA has overseen animal vaccines as well as biologics that act through the immune system. FDA handles small molecules and other drugs. Either way, regulators require that animal drugs are safe and show substantial evidence of effectiveness. Drug manufacturing also must meet quality standards, but USDA’s are not necessarily as rigorous as FDA’s requirements.

In contrast with human drugs, animal drugs can be tested immediately in the target species. Clinical trials are smaller, usually consisting of a “pilot” study of as little as a few dozen animals followed by a “pivotal” study of a few hundred for full approval.

Aratana has full USDA approval for a canine anti-CD20 antibody for treating B-cell lymphoma, which is the target of the human drug Rituxan. And the company has conditional approval for its anti-CD52 antibody against T-cell lymphoma in dogs, which allows it to enter the market while pivotal trials are run.

In 2014, Aratana struck a $45 million deal to license four immunotherapies from the human biotech firm Advaxis, which had done preclinical testing in dogs. Aratana hopes to win approval of a treatment for canine osteosarcoma by 2016.

Working with small molecules, Aratana is developing capromorelin to stimulate appetite and grapiprant for osteoarthritis-related pain in dogs. It licensed both compounds from Japan’s RaQualia Pharma. And to treat postsurgical pain in dogs, Aratana licensed a bupivacaine liposome injectable from Pacira Pharmaceuticals.

Translating a therapy from human to animal has to make medical and commercial sense. For instance, preclinical testing for human small-molecule drugs can generate a substantial amount of valuable data. If collected in dogs, those data are “almost directly applicable to form the basis of a safety submission for regulatory approval in animal health,” says Steven Roy, CEO of VetDC.

A spin-off from Colorado State University and its animal cancer research center, VetDC looks to human drug candidates that may have those data but were shelved in development. As a result, it can get compounds for “a good price and move them forward pretty quickly,” Roy says. “Economically, I don’t think we could make the model work to start from scratch.” The firm has a lymphoma drug, Tanovea (rabacfosadine), awaiting FDA approval that came from Gilead Sciences.

Brad Loncar, a private investor and stock pundit who follows and invests in animal health, warns that “there are no shortcuts.” Companies have to take development seriously, and those that think the translation from humans to pets is easy risk failing. For example, he says, “you have to run pilot studies and get dosing right,” because humans and animals respond differently.

There are fewer shortcuts to tempt companies developing pet antibody drugs because the firms can’t easily leverage human data. Even if human and animal disease targets are the same, antibodies must be species-specific to be effective and nonimmunogenic. As a result, animal health biotechs all have their own methods for making the required structural changes.

Kindred makes such changes, Chin says, but it “isn’t reinventing the wheel.” It is developing the canine equivalent of the arthritis drug Orencia, the anti-inflammatory Enbrel, and the allergy medicine Xolair.

And human data do offer useful clues for antibody developers. “We take a pathway and a disease that is conserved between the animal and the human from a validation perspective,” says Mark Heffernan, CEO of Nexvet. He says the company’s remit is to take human products that are at least in Phase II where there is a substantial body of data on both safety and efficacy. “Humans essentially have been the guinea pigs,” he says.

With headquarters in Ireland, Nexvet pursues antibodies because “dogs and cats aren’t humans,” and small-molecule human drugs won’t always translate, Heffernan says. Nonsteroidal anti-inflammatories can be toxic in animals, so the company’s lead products are anti-nerve-growth-factor antibodies for controlling joint pain.

Although Kindred identifies small-molecule generic drugs that have been successful in humans, Chin says it tries to choose ones not available in the U.S. It then reformulates and alters the delivery and dosing method for animals. Kindred’s lead product, SentiKind for dogs, is based on flupirtine, a generic painkiller used widely in Europe but never sold in the U.S.

Developing generic drugs and licensing shelved candidates avoid another complication. “You don’t want to develop the same drug for humans and animals because the price points are dramatically different,” VetDC’s Roy points out.

A human oncology drug can cost $10,000 per dose, whereas a significant number of surveyed pet owners say they would be willing to pay $3,000 to $5,000 for new treatments. The coexistence of a human drug and a cheaper pet version creates the risk of inappropriate use of the animal drug.

Biotech firms are betting that people will buy more effective and safer products designed for their pets. Pet owners already pay upward of $10,000 out of pocket for vet care with generic human chemotherapies that often don’t work. And although only 5 to 10% of people get insurance for their pets today, the practice is growing swiftly.

“If the market is going to grow to the size people think, it can’t be only a cash market,” Loncar says. Third-party payers will have to emerge because the pet drugs being developed are “day and night compared to what has been on the market,” he says, and will “get much more expensive as they go up the innovation curve.”

Executives counter with several factors they say will keep animal drugs affordable. Because most pets are significantly smaller than humans, less active ingredient is needed, says Jennie Mather, CEO of CanFel Therapeutics. Advances in antibody manufacturing “can bring the cost down to 10 to 20% of what it is for humans,” she adds.

Meanwhile, getting supplies of generic small-molecule drugs is a walk in the park. “Because we repurpose drugs, we can often get the active pharmaceutical ingredient from manufacturers that are already making it,” Chin says. Moreover, royalties or licensing fees are not required.

As a result, company executives estimate that it will cost between $3 million and $7 million to develop an animal drug. Factor in the approval process, and development times can be measured not in human but in dog years: Estimates for getting to the market generally range from two to five years.

At the same time, “the markets are smaller than on the human side, and so to make the numbers work, we need a portfolio of products,” Chin says. A pet drug is a blockbuster with annual sales of $100 million.

By taking a portfolio approach, animal biotech firms also aren’t betting everything on one product. “For the price of developing one human drug, we can develop a dozen or more vet drugs, and that mitigates the risk,” Chin adds. “We have generally said that we expect about a 70% success rate.”

Kindred’s first drug, CereKin, an interleukin-1 inhibitor to control pain and inflammation in dogs with osteoarthritis, failed in pivotal trials despite showing activity, Chin says. Although he chalks that up to bad luck, the firm stopped developing AtoKin, a version of the antihistamine fexofenadine for treating dermatitis in dogs, when Zoetis launched a competing JAK inhibitor, Apoquel (oclacitinib).

Although they are competitors to the start-ups, Zoetis and other large animal health firms could become important collaborators and marketing partners. But many cancer-focused companies contend that they can manage sales forces large enough to address the few hundred vets specializing in animal oncology.

Other companies intend to remain virtual. Mather calls CanFel “semivirtual,” with only small research and early development labs. It initially operated under the radar after raising enough money through crowdfunding to buy equipment on eBay. “Beyond that, we have been able to self-fund to the point where we have antibodies that we can partner with some of the larger animal health companies,” she says.

Along with the start-ups, several human biotech firms have one or two animal health products in development. Companies may have become excited about the prospect and latched on to the idea that they can “make a quick hit in animal health and get some revenue,” VetDC’s Roy says.

Although human and animal drug development have similarities, there are differences. “With just one or two drugs, it will be more difficult to do it efficiently and well,” Aratana’s St. Peter says about those dabbling in the field. “In the long run, the winners are going to be the pure-play pet biotechs.”

Yet St. Peter and other pet biotech executives are also excited about being at the forefront of research that might translate to humans. St. Peter points to Aratana’s work on adipose-derived stem cell therapies for treating osteoarthritis. And Nexvet has formed a subsidiary called Tevxen to validate better models of disease to benefit both animals and humans.

Meanwhile, CanFel’s Mather hopes to find leads for rare human diseases. “If we could find something that we show works in dogs,” she says, “it would be much more likely to convince a pharma or biotech company to back-engineer or develop the equivalent because you already have very good proof of efficacy.”