Over the past several months, I have written several times about biotech company Kindred Biosciences (KIN) and its unique business model. Kindred focuses on drugs for pets. There is no pure play company like it and, to be sure, big biotechs don't see the market as lucrative as making drugs for human beings.
So Kindred is out on its own, focusing on a market that I believe is poised to grow immensely. Today, just about anything that can be made for a pet is being made. Whole Foods (WFM) now sells organic pet food and all-natural grooming products. Organic food still remains a premium category for many consumers, yet many pet owners will pay a lot more to make sure Fido is eating only the best.
So it makes sense that there should be a class of drugs to help pets recover from today's debilitating diseases. Kindred is that company. However, the company was dealt with a setback last week. A pivotal test for one of its leading drugs, CereKin, turned out negative and so the study was ceased. (CereKin is a treatment for dogs suffering from pain and inflammation due to osteoarthritis.) The shares fell by more than 20% and are now trading around $10.
In most cases when a biotech is dealt this blow on a human drug, the effect is nearly fatal. But Kindred has a unique business model. Instead of focusing on one blockbuster drug, the company takes a portfolio approach. All in, the company's total cash cost for CereKin was $4 million. That represents just a sliver of the company's $100 million cash coffer.
Kindred has several other drugs in its portfolio that are in the latter stages of approval cycle. The value proposition of what Kindred does is twofold. First, the cost to bring a new animal drug application (NADA) from the concept stage to marketing approval costs a fraction of what it would for a comparable human drug. Second, while it may take five or more years before a human drug is approved, it can take as little as two years for a NADA. This structure gives Kindred the ability to pursue more drug candidates, and to do so at a very attractive return on investment.
So while the CereKin news is certainly not what the company wanted to hear, the company's business model is "heads I win big, tails I lose little." Inevitably, Kindred will need to have some successes to move forward. With a deep portfolio of candidates, a low cost to commercialization and a short drug application cycle, the stock price decline has only made the upside that more appealing for patient investors.