Article:Young animal health firms review survival in COVID-19, new normal

During the recent Animal Health Investment One conference, a group of industry stakeholders discussed surviving the coronavirus pandemic as a young biotech and how to navigate the new normal.IHS Markit Animal Healthanalyst Sian Lazell listened to their perspectives.

The novel coronavirus pandemic has seen many operations across different industries either adapt or come to a halt during lockdown conditions. Young companies have experienced a particularly bumpy ride caused by COVID-19, as they endeavor to conserve cash and carry on with their discovery activities.

Many companies in the animal health industry have also pivoted their operations during the pandemic to aid the human health space's response to COVID-19.

However, Joy Parr Drach, president and chief executive of Advanced Animal Diagnostics, said: "We're not really pivoting because we're not turning away from what we're doing in animals. We're just adding work to it."

Christopher Belnap - chief executive and founder of US microbiome-derived therapeutics firm Resilient Biotics - told delegates how his company has remained focused over the last three to four months.

He stated: "First off, we were pretty heavily impacted by the pandemic. Our lab is located in North Carolina and pretty quickly in this pandemic situation we shut down the lab. That really impacted everything.

"Everything we do in the field needs to be supported by lab scientists. In terms of generating new data, it ground to a halt there for a little while. It was striking and scary as a small company. You're always under pressure to move fast as a small company."

Dr Belnap added: "We tried to turn it into an opportunity as best as we could. We're heavily focused on bovine respiratory disease and the bacterial component of that. With the pandemic, since we weren't continuing with field work, we were able to take a step back and say: 'Let's re-process all of our data. Let's go back and look at everything and instead of focusing on the bacterial side. Let's focus on the viral component'. That's given us a great data package."

He said this re-focus has also allowed the firm to look at the translational potential of its operations across different diseases, as well as human health.

Dr Belnap commented: "We've been able to identify what impacts an approach like ours might have on viral infection and that's very applicable to a lot of different disease areas.

"We've relatively recently resumed where we left off and we're a month or more behind on a lot of experiments and some field work we planned to do in the spring. So, we're trying to move as quickly as we can but we're trying to review everything that we're doing and refocus."

K9 Biotech already views itself as a One Health company. The firm is aiming to develop cancer therapies for both animals and humans. So, has that changed at all during COVID-19? Chief executive and founder Anton Xavier thinks not and confirmed the company will not waver from its current path, at a time when many are lending their expertise to address the crisis.

He said: "It's important for us to remain on strategy. Our lead indication is oncology and other inflammatory disorders. We are not going to go into infectious disease. We do see one of our lead assets may have a beneficial impact in this current virus, however, our strategy does not allow for that.

"If you look at how we created our company, essentially it's how any company should be created. It's [based on] a high unmet medical need with a large enough market size. Regardless of if there's a pandemic or not, people are going die from a high unmet medical need. So, it's important to remain on strategy."

He added: "The downside was our timing was a little bit bad. We came out of stealth earlier this year. Our plans were to raise a series A during this COVID-19 phase. However, that's been delayed a little bit."

UK antibody specialist PetMedix has not only managed to keep working during lockdown but also bagged funding despite ongoing disruption to the economy.

"As Dwight [Eisenhower] said: 'Plans are worthless but planning is everything'," commented chief executive Thomas Weaver.

"We have a plan that we're working to as a company. We have a very tight executive team and we meet once a week. One of the things we did even before lockdown happened was to identify the business critical pathway."

Dr Weaver said the main factor in PetMedix's survival has been connecting its team and agreeing on new experiments, priorities and ways of operating in the current environment. He suggested companies should be taking this approach anyway, regardless of the pandemic.

He explained: "We really focused down on the key elements, the key experiments and what we need to do to really meet the value inflections of the company. We have three drug programs going very actively. What we decided to do was put a lot of our effort into our furthest advanced program but still maintain activity in our other programs as well. That means everything is progressing and it's not actually that far off our original timelines."

Before lockdown, PetMedix was highly dependent on a third-party provider for some of its core technology. This work abruptly stopped and even when operations return to normal, the third party indicated PetMedix would be very low priority because the provider would be lending its expertise to human health to deal with the pandemic.

Dr Weaver said although that was a challenge, having "solid investors" backing the firm and understanding the situation allowed the PetMedix team to adapt. As a result, the company has "acquired and brought in some pretty expensive technology", so it is now not dependent on third parties as it emerges from lockdown.

Virtual networking and fundraising

Simon Doherty, senior vice president of the British Veterinary Association, highlighted electronic communication has almost become the new normal for society overnight.

Mr Xavier said: "Electronic communication is a great tool for networking and ensuring you're touching base with the team. It can be misused and, during this time, I'm seeing a lot of companies who are actually putting more meetings on a calendar than they should be. That's a bad thing. You need to minimize your meetings and maximize your actual milestone driven work itself."

The animal health industry has already demonstrated continued M&A, funding and regulatory activity during the pandemic, strongly supported by virtual communication.

Nevertheless, Mr Xavier added: "In terms of electronic meetings, when you're trying to meet and nurture your investors, that's a totally different game plan. In reality, investors and strategic partners prefer a face-to-face meeting. They're investing in a person and they're investing in a team, rather than the asset itself. They're investing in both but they prefer to meet the team."

Mr Xavier believes young companies can get through the present phase of the pandemic by ensuring they have a board of directors and "business creation" individuals with significant experience, who "can align you with those investors".

He commented: "You don't want to cold call anyone. You don't want to add anyone on LinkedIn you don't know. It's not a good idea.

"Investments are made through people and if you have people on your team that can make those warm introductions, you can make that initial phone call or WebEx or Zoom meeting through this phase, but essentially a close of a fund is usually made face-to-face.

"That's how we did it. I came from a 'large pharma' background. We prefer that face-to-face thing but I would hesitate in doing anything that's cold call-related or that you feel you can make a close online."

Giving a different perspective, Dr Belnap said: "Our team is quite distributed, so maybe we're a bit more used to it than other teams. Nevertheless, we've ramped up our usage of teleconferencing.

"For me, personally, online tools are critical and fantastic. I routinely connect with people, including investors, through initial video conferencing. I agree you desire a face-to-face meeting for those things when you get nearer to closing. But one thing I think the online communication has opened up is the flexibility of meeting new people.

"Prior to this, you might have gotten a response like: 'We're going to be in the office in a few weeks. Why don't you come by? And why don't we schedule something then?' Now, I think people are all in their homes, they're taking meetings at whatever hour works for them and I think I've seen a little bit more flexibility. Whether that helps us raise funds, I think that remains to be determined. But I think it has been an interesting evolution of virtual communication."

Transparency versus stealth

Start-ups in the animal health industry have previously been very split on whether they should be fully transparent or play their cards close to their chest. K9 Biotech was in the latter category and spent a significant amount of time in what Mr Xavier called 'stealth mode'.

As start-ups now face the issues of conserving existing cash and trying to bag finance in a turbulent economy, can they still afford to fly under the radar coming out of COVID-19 as some of them previously would have done?

Mr Xavier said: "I don't see any issue of remaining in stealth post-COVID. During COVID-19, you feel that you need to present yourself more. So, if you're in the midst of closing a series A like we are, you need to have those in-person meetings to close that round out, which we feel is important. We have those connections to investors through our board of directors. However, closing is in person.

"In the meantime, what do we do to ensure that we have some level of business continuity? That's really just airing the company out through social media, through events. I think it's more important when you're in a situation like a pandemic to show your board, investors and potential investors that you have continuity through these kinds of events.

"You should be doing that at any stage in a company, but stealth post-COVID-19? I think you can afford to remain somewhat invisible as long as you ensure a plan to get out of stealth at a certain point."

Ms Parr Drach commented: "My perspective is to think long and hard about the real costs and benefits of being in stealth mode. I think the work we do as early-stage companies is difficult work. If it were easy, other companies would have already done what we're doing.

"In our situation, I think it really does 'take a village'. We've been so fortunate to have so many that have helped us along the way because we're not afraid to be public with our challenges, what we're working on or what we're going through.

"I would argue there are a lot of benefits of not being in stealth mode. And I would encourage people to just be really authentic and share what you're going through and be out there. There are a lot of opportunities for visibility and telling your story. The more you can tell your story, the more likely you are to connect with others that share that mission and want to be father and mother to your success."

Dr Doherty added: "I guess it depends what your reasons are for staying in stealth. If you're looking at protecting your [intellectual property], if you're just not quite there in terms of your preparations for a particular funding round, then there's probably no harm in remaining where you are. But once you're at a stage where you can get out there, I think there's an opportunity for you to do that.

"Certainly, I think there will be considerable interest in the broader biotech industry post-COVID as a broad sector for investment. Once we come out of the other side of this, I don't think it's necessarily going to be restricted to the people who are in vaccine design and pharmaceuticals directly related to COVID-19. That's all going to benefit from this. I think there will be a buoyancy in the biotech side altogether."

Dr Weaver stated: "I'm not sure why you would be in stealth mode. It seems to me if you're desperate for cash, you have to talk to people and the more you can be confident, the more you can show people that you've got a plan and you've got a good idea, the more you can convince the investors: 'These guys know what they're talking about'. Also, in animal health, everybody seems to know everybody. I can't believe you'd be able to keep in stealth for very long."

Talent recruitment and CROs

Without a solution to COVID-19, what will be the role of recruiters and contract research organizations in the interim?

Mr Xavier does not think the way K9 Biotech conducts business will change. He said: "Remote recruiting I don't think is a good enough tool for our needs. We go through our internal networks for potential talent.

"We have a strong scientific advisory board and a board of directors that recommend people for certain assets as we move forward and grow the company. I think that's how a company should grow through those internal recommendations and that particular domain of expertise.

"If you already know the recruiter or you already know these people, it's a different thing. It's essentially an email to an old friend or old contact. I don't think these kind of blind phone calls to people who you don't know is the best way to move forward.

"We move through our internal networks in human oncology and also animal oncology. I feel that is going to be necessary moving forward. Certainly, if you can bring in a solid board of directors and scientific advisory board from the start that have significant industry background, significant investment expertise and significant exit strategy expertise, you have an extended network which you can tap into. That's critical to anything moving forward."

Dr Belnap said: "As we come out of [lockdown] and we're trying to go fast, we're definitely communicating with CROs and making sure they're ready to go too.

"We know we're ramping up too and we have things that are going to slow us down. Particularly in our space where we're investigating respiratory infectious disease, even though it's in animals, there are issues with getting things we need, like swabs, extraction kits or PCR buffers. So, we've been trying to stay on top of that but really thinking about how we farm out work to keep moving forward."

Biotechs need to keep moving

While discussing what has and has not worked well for biotech firms during COVID-19, Dr Weaver said PetMedix rapidly established a contingency plan and rapid response that engaged everyone in the company. He said this led to "a lot of suspicion" within the firm about whether it was moving too fast and should remain in total lockdown.

Dr Weaver explained if the firm had completely stopped its activity, it would have been even harder to get operations back up and running again.

He concluded: "It's easy to shut down, hard to get set back up again. I've seen that in other companies and I've seen that across the [universities]. I was talking with friends and the challenges they're having now after three months is: 'How do we get our labs open? How do we get in there?' They're rehearsing the same discussions we had two days into the situation.

"Everyone is different, every company is different but personally, I felt it was really important to keep going, no matter how small."

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.