My name is Chris Behrenbruch, and I live with a cat named Kuzya.
In case you have wondered why I started this post this way, I figured after taking a look at Nexvet’s management bios on the company website, I would lack credibility if I didn’t also disclose my relationship to the aforementioned moggy. To be honest, I am more of a dog lover than a cat guy – but this little fella came as a part of the package deal with my wife, and I have to admit I do love him. He is also not the typical cat, he loves cuddles, attention and tolerates a fair amount of roughhousing from my son. We also probably spend more money each year on feline healthcare than we do human healthcare in our household.
I wonder if when Nexvet hires, they put animal ownership forward as a condition of employment? Or at least a probationary period to consider it? I particularly loved the comment from the HR guy’s bio : “Regan is considering sharing his apartment with a cat.” I wonder how his girlfriend feels about that thinly veiled reference? I am joking of course. It made me smile, though I do think it would be funnier if we could see the individual management team and their furry mates (particularly the dogs) with side-by-side selfies so that we can ascertain whether or not there are also visual similarities, as is so often the case.
Nexvet is not technically part of the Long Tail, it is more the case of the black sheep of the family that went abroad and never came back. It was obviously able to pick up the incentives and tax structures that it needed to be successful outside of Australia, which is a shame because if we had a higher quality ASX healthcare capital market, this is probably a company that would have possibly done better here than on NASDAQ, where it is hard enough to be a micro-cap human health company, let alone an animal health biotech. I have often been asked about what I think of Nexvet and also I occasionally “bump” into Nexvet business development activities as the company looks for new pipeline opportunities, so I thought it was worth a few words.
This is a company that I like, and although its NASDAQ debut hasn’t been terribly exciting (frankly, a bit of a dog) it still has the potential to be a great company. A veterinary therapeutics company is not a new idea – indeed between some solid small-cap companies like Virbac and Ceva Santa and then the top end of the scale, such as Elanco (Lilly) and Zoetis (ex-Pfizer spinout), there is no doubt that animal health is a significant opportunity and one that is growing very fast, even if watching the space is a bit like the M&A equivalent of an obedience camp (lots of sniffing, lots of barking and the occasional bite). One of the key growth drivers for the space is also “companion animal” products, Nexvet’s focus area.
The heart of what the company does is really not that revolutionary in many ways. For a couple of decades now we have been humanising antibodies generated in other species (rats, mice, rabbits, camelids … er, sharks) for human use, and some pretty good products have come out this technology. Famous and successful antibody drugs like Trastuzumab (Herceptin) and Bevacizumab (Avastin) are examples of antibodies that came from rodents and then were “humanised” to be tolerated in humans (any antibody drug name with a “zu” in it, means humanised). I should note that humanisation used to be a really sophisticated and difficult thing to do, but these days the repertoires and sequences of human antibodies are so well understood, that a graduate student in a decent biology lab can essentially do basic humanisation. It is mostly a bioinformatics exercise where protein sequences are substituted from the originating species to the “target” species, and then simulated to try and confirm that the transformation still results in a stable structure, usually backed up by some fairly straightforward biology experiments.
Nexvet, in a way, does the opposite. It takes drugs that are successful (or potentially successful) in human health, and “PETizes” them (awful term) so that the protein sequences that encode an antibody are recognised by a dog or cat’s immune system as being “native”. That doesn’t mean you can’t administer a human antibody into an animal (providing that the antibody is able to hit the analogous target in the animal – is “cross-reactive”) but it is likely to have much poorer tolerance or immunogenicity, less amenable to repeat dosing, and just generally less effective. This is just as we experienced in humans when the first mouse monoclonals were approved for use in patients 30 years ago (wow, three decades, can you believe it?!).
There are probably three main challenges to Nexvet’s business model. The basic technology to “animalise” (de-humanise?) human biologic drugs for animal use is not a major impediment to success (not rocket science) and although it may be possible to develop proprietary libraries of repertoires that do this very efficiently, while maintaining drug potency and stability, it is mostly just a bioinformatics exercise that is pretty well understood. Anyhow, the real value creation process is not so much in a technology platform, but in getting a very good drug out the other end that is potent, optimised for immunogencity (repeat/long term dosing) and highly manufacturable.
This leads to the first challenge – manufacturability. It takes a lot of work and a lot of expense to develop a biologic that has excellent production yields. One of the challenges of cross-species re-engineering of biologics is that a drug that expresses very well (has good protein structural stability) may have less productivity when re-engineered with another species in mind. So although Nexvet doesn’t have to do so much heroic drug discovery at the front end, the re-engineering process is still non-trivial if the goal is to produce constructs that are economically viable. Related to this is the issue is the fact that product quality and safety requirements for vet biologics are still very high and so making and formulating a product for vet use still isn’t cheap. In fact not a whole lot cheaper than making a drug for human clinical use.
This leads to the second – and related – issue, which is that for biologics the COGS is still relatively high compared to other therapeutic modalities. Although pet insurance is a rapidly growing market, driven in part by the availability and expense of more sophisticated treatment options for our furry friends, the majority of animal lovers are still paying for the cost of expensive drugs out of their own pocket. For serious, mostly-age related conditions like cancer the QALY argument can be very tough to make when we see our little friends suffer, but there is also the sad reality of an economic ceiling. This still makes cost recovery of a biologic more challenging than a small molecule cytostatic or cytotoxic agent, irrespective of efficacy.
The third difficulty with Nexvet’s business model is probably the priority and decision-making around their pipeline. Chronic pain and inflammation are major market opportunities in animal health, especially as we tend to fall in love with breeds that have a higher susceptibility to things like osteoarthritis and autoimmune diseases. Also, although there is a prevailing theory that through the domestication of wolves, Homo sapiens were given a “leg up” on Neanderthals to become the dominant human species, we haven’t exactly returned the favour and the modern human lifestyle does not bode well for our four-legged companions. The same inflammatory and autoimmune diseases that plague humans, devastate the animals we watch re-runs of Friends and snuggle down at night with. There is a real market opportunity for a Remicade-like drug (so, Nexvet’s TNF drug is probably a great idea, though not without competition) but the NGF mAb franchise for canine/feline pain doesn’t rock my world. Not that an antibody approach wouldn’t have a better administration schedule relative to NSAIDs (because of the long effective half-life of the drug) or have possibly some better toxicity issues for prolonged use, but because we are starting to learn that NGF is a challenging target for long-term dosing, even in humans.
Most of these issues are surmountable through good pipeline decisions and it all comes down to the amount of effort and $$$s that Nexvet has to put into a given drug “transformation” in order to make a successful product. The trials are certainly a lot smaller and cheaper to run, even if the data capture is sometimes challenging. Cancer probably isn’t the place to really focus in the short-term, but anything to do with inflammation, fibrosis, autoimmune diseases and possibly even respiratory health, are likely to be areas where the improved dosing schedule of a biologic can make a real difference, and where the market is big enough to overcome the relative expense of manufacturing.
However, in the longer term cancer could be really exciting for Nexvet, and their opportunity could even play a pivotal role in human health. In fact, my personal opinion is that if Nexvet really leveraged its platform concept, it could be the catalyst for “Man’s Best Friend” yet again transforming the quality of human life in the 21st century. Unlike highly dubious companies like Regeneus that do a few dog studies in veterinary setting (with no controls, in 9 different cancers, etc.) and then use this as a justification (with no statistical basis whatosever) for human translation, Nexvet could help actually answer some vital questions that could have impact on human health, as well as do good for our favourite lap warmers.
The biggest question in cancer at the moment is probably that of how to optimise combination therapies with immuno-oncology drugs. There are a few specific immuno-oncology targets for which there is plenty of evidence of equivalent biological function in other mammalian species and the “PETization” of some of these incredibly exciting drugs could be interesting for Nexvet if it establishes a global registry of its furry patients (a lot easier to do from a data protection vantage than for humans) and builds a survival database for different combination regimens. This could also include combination checkpoint inhibitors and cytotoxic/static agents, because many of our standard “chemo” drugs have an equivalent effect in dogs and cats as well. Because immuno-oncology is about using the immune system to attack cancer, and because human and dog immune systems are similar, the mechanisms of action that are observable in vet health could be of significant interest to human health, providing the size of the data set is sufficiently large.
Anyhow, it’s early days for Nexvet and I don’t think the current stock price or market cap of the company is indicative of its future potential. The company needs to build a pipeline and – perhaps strangely – needs to do it in such a way that it has both animal health and human health in mind. I do think that certain biologics franchises could translate very neatly into the animal setting and have tremendous impact if the investment cost is not too onerous. But I also think that if “we” (the “Royal we”) could start to properly collect data in the veterinary setting for certain companion animal biologics, that could be very powerful for human health too.
I mean, it just makes sense – they get the diseases we get, because they share our lives.
Photo Cred: Our cat, hiding out in the parsley bushes, hunting for bugs and lizards … like a tiiiiiiiger…