From Human Biotech to Animal Health …. The Difficulties
Jan 23, 2016
Following the wonderful and humbling responses I received from my first LinkedIn blog, I have been asked by many followers to talk about the road we have traveled, so here is the next installment about building our innovation engine at Integrated Animal Health.
Integrated Animal Health currently has more than 30 technologies on our books in various degrees of commercialization, and we could easily have another 10 or 20, but some intellectual property (IP) owners are innocently naive to the process of taking a ‘technology’ and commercializing it to having an actual product people (or companies) will buy. Actually, this issue is not unique to inventors, it seems many listed biotechs also suffer from this lack of understanding of what it takes to create or build a product.
Biotechnology refers to the large and growing array of scientific tools that use living cells and their molecules to make biological products for many different industries. Human and animal health care, agriculture, forestry, environment, and specialty chemicals are among the industries that have benefited most from biotechnology.
In founding our company, we originally set out to take a unique human biotech platform technology and apply it to several animal health applications. Sounds relatively simple doesn’t it? You would think so, as human drug technologies require testing on animals as part of the approval process for human use. Unfortunately the connection is often lost, so even in the animal testing, some biotechs fail to see the potential for animal commercial applications.
Irrespective of whether you are dealing directly with a small or large cap biotech or a University that has an interesting technology, quite often the demands of these IP owners is at best out of kilter with how the Animal Health world works, or at worst just completely incongruous. And let’s face it, not all great scientific ideas have real commercialization potential.
For the most part, when dealing with individual inventors or scientists that are not aligned with a biotech company or a University, we have to manage their expectations. Many have spent years developing their technology to ‘proof of concept’ which means they then ‘may’ have an Intellectual Property (IP), so it’s not unreasonable for these folk to mistakenly think its pay dirt time! At that point it’s our job then to manage their expectations.
Product Development Managers the world over will tell you it can take almost the same amount of time to get an IP off the drawing board and into the market as it did when working up the science behind the IP. At its best, it can take biotech two-four years to take a IP and get it to market, if it’s a FDA or EPA product then you can certainly double that, 10 years is an average.
So inventors’ expectations are one aspect that we have to manage, but they are generally a lot easier to manage than a listed biotech that has its own investors pushing for a return or alternately a University that has the faculty and executive of the University wanting to see a return, or perhaps trot out some good news for their campus to garner more dollars from the government.
Most Biotechs are pre-revenue, a term that is used to say they are not making any money, and most are also heavily laden with R&D costs. Generally these folk are the best that can be found in academic circles, but then they move across to the ‘dark side’ (another technical term for a listed biotech) and everything seems suddenly foreign to these incredibly smart researchers.
The challenges of an R&D biotechnology company include raising capital, building strategic partnerships, recruiting, motivating and retaining top scientific talent and compliance with regulatory bodies. However running a commercial biotechnology company entails challenges in manufacturing, sales and marketing, and several other managerial challenges, and if the key staff don’t change during the changeover from R&D to Commercial, then we often see failure. More often than not we see a morphing occur where non-commercial oriented staff are placed in commercial roles. Ultimately we would like to see the change a little like a caterpillar to a butterfly, however many just want to stay a caterpillar, slow and in many cases unattractive, if full of potential.
R&D is the backbone of biotech, but it is not usual to find a commercial imperative at the R&D level. Many of the boffins would be pleased to never commercialize a product as it quite often means the end of the line for their paycheque, so biotechs can be interesting animals to work with because of shareholder demands and unrealistic expectations.
In the human health world, a new technology can (but not very often) mean you are about to hit ‘paydirt’. Large pharma has a voracious appetite as many of their drugs are coming off patent and they need new products to keep the dollars rolling in. So coming up with a new drug candidate, platform technology or IP can mean the cheque books are rolled out and in some circumstances bidding wars, that mean upfront payments and milestones and ultimately royalties for the IP owner.
So then clearly biotech should expect the same from Animal Health right? Arghh no. Depending on whether we are dealing with a companion animal (pet) technology or a food producing animal, the animal health world is challenging to navigate.
Many pet owners are willing to spend almost anything to keep their animals healthy and happy, conversely a beef farmer or a dairy farmer has a finite budget as all these animals have a price tag on their backs, meaning there is a ceiling as to how much can be spent during their growth or production phase.
What numbers are we talking about? Well, a dairy farmer may baulk at spending as little as 10c extra a day if there is no clearly defined benefit. Same with a cattle farmer, 10c per day extra can mean they are writing a big cheque if they have say 3000 steers on the farm. Most US farms don’t have 3000 steers - many don’t have 300 steers - and on average most have 75 steers, but only having 75 animals means you need to be prudent with your expenses.
During our growth phase we have found that single inventors or IP owners that are prepared to learn and listen to advice based on decades of experience in animal health, are getting their technology across the line. I have seen first-hand the smile on the faces of inventors when they see their ‘technology’ packaged now as a real product, and ready to sell - not very different to the smile you see from a parent when they first hold their baby boy or girl. After all, when you think about it, they have conceived the idea, nurtured the technology along in what can be a very long and dark period, and then when they are at their most vulnerable, they hand over the nacent technology to a commercialisation expert who disappears with it for many months, if not years, to then bring them back their ‘baby’ all dressed up and ready to hold, feel and touch. At that point the money doesn’t matter, their idea is now alive and breathing.
Small cap biotechs don’t have this affinity with their technology, it’s a job for the executives. I have heard it said that it’s better not to get your technology to market if you are a biotech executive as it’s easier to sell blue sky than poor sales. As I said earlier, it can also mean the end of the line once you strike a commercial deal, the R&D is finished, so why hurry it up?
But back to expectations, small cap biotech CEOs only have an eye on the finish line, most have packages tied to hitting targets associated with their remuneration package which means they only get to the prize when they achieve revenue targets or share price targets, the latter of course driven by markets that can be very fickle.
Perceived faster drug development times, which go hand in hand with perception of fewer CVM FDA problems, contribute to make our animal health sector very alluring to small cap biotech CEOs and they then apply the same expectations of dollars as they would to a big pharma deal.
Taking early stage unproven technologies to market can be dangerous, and to give a sense of how precarious that is, according to one survey of leading human drug companies, 97% of drugs in preclinical tests never make it to market, and nor do 95% of the molecules in phase 1 clinical trials and 88% of molecules in phase 2. Not until phase 3 do their prospects get much better: Of the ones that make it that far, 56% are approved.
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 recent report, so there has been enormous interest in the sector over the past 2 years. However it’s no slam-dunk when taking human biotech and transferring the technology to Animal Health as US stock traded companies like Kindred, Aratana and Jaguar have found out recently.
What have we learnt? We have watched and taken note from the mistakes of others and whilst we have regulated products in our pipeline both near term and long term, we have focused our capital and managerial expertise at getting low to non-regulated nutraceuticals and OTCs to market first.
Of course in Animal Health when sales do actually occur, they are not subsidized by various governments or insurance agencies around the world. We can’t command massive retail prices as each animal only has a certain value in the feed chain, past that value, the drug or product actually has no value and this is where small cap human Biotech needs to adjust its expectations.
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