The prescription drug industry for pets is fairly small, but Aratana Therapeutics is still hoping to become the Merck (NYSE:MRK) or Pfizer (NYSE:PFE) of the industry — and, of course, to make it bigger.
That’s a strong possibility, as pets have often become members of the family — just look at PetSmart‘s (NASDAQ:PETM) recent success. Nearly 70% of U.S. households have at least one pet and, with the typical dog or cat living longer, there’s a higher incidence of disease.
With that in mind, it should be no surprise that the U.S. veterinary care segment has been the fastest growing in the pet market, going from $9.2 billion in 2006 to $13.6 billion last year. About a third of those revenues go to the sale of drugs.
Aratana is essentially a start-up, though, just forming in 2010. So far, there are no drugs on the market.
To help things along, Aratana has filed for an IPO. The lead underwriters include Stifel and Lazard Capital Markets (NYSE:LAZ). The company plans to list on the NASDAQ under the symbol of “PETX.”
The company does have three licensed compounds — which are currently being used for human patients — to create six drugs. They will help dogs with pain, inflammation and osteoarthritis. There is also a treatment for inappetance for both cats and dogs.
Usually, the federal approval process is much easier for pets. Still, Aratana’s drugs will probably not hit the market for a couple years … and there is no guarantee they will be effective.
The good news is that Aratana has a stellar management team. Both the chief scientist and the head of drug evaluation and development have led the launch of dozens of pet health products, while the chief commercial officer helped get approval for the highest selling pain drug for dogs — Rimadyl.
Another advantage for Aratana is that there is no need to deal with federal drug reimbursements. Keep in mind that pet owners pay for most costs out-of-pocket.
It’s true that Aratana is a risky venture. As with any biotech operator, there’s always a chance that the drugs will simply not work.
But the company does have a strong platform and an opportunity to become a leader in a mostly untapped and growing industry. Plus, an IPO will be a big help, providing the company with enough resources to commercialize its portfolio.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.