Animal health startups: Connecting innovation and opportunity in the Animal Health Corridor

The KC Animal Health Corridor gives startups a head start—whether in Kansas City or anywhere in the world—connecting them to key individuals and corporations.

By Fabian Kausche, M.S., Dr.med.vet.

A few weeks ago, Kimberly Young, president of the Kansas City Animal Health Corridor, and I spoke about the unique ecosystem the Corridor has established for animal health startups and innovation, and we felt it was worthwhile to describe its role and impact for the wider animal health community.

Back in the 1990s animal health was considered a staid and quiet industry. Ten years ago, just a handful of startups existed in the space. Today more than 600 startups are looking to make their mark, and the pace of innovation is accelerating at an impressive ?rate.

From my vantage point leading R&D teams at established animal health companies and now helping new products come to market as a consultant and board member, it has been exciting to watch these waves of innovation crest and the industry change as a result.

Over the last years, I’ve also come to admire the important role the KC Animal Health Corridor plays in all of it. Founded in 2006, the Corridor was the first entity to focus intensively on the ecosystem surrounding startups in animal health, and it has helped transform the industry as we know it today.

In fact, I think it is important that more animal health innovators become aware of the what the Corridor has to offer. Whether you are an established startup on the brink of a successful exit or seeking your first round of financing, here’s how the Corridor can make a difference in your efforts.

A feel for the buzz

The Corridor is most well-known for its annual Animal Health Summit, which takes place this year August 29-30. This multi-day event hosted in Kansas City encompasses education, networking and—perhaps most famously—a slate of emerging companies in animal health. These startups are selected from an increasingly competitive field to pitch industry execs and investors on ideas they believe will improve the lives of animals, whether in the companion animal or agricultural sectors.

For the past few years, I’ve presented on the Summit program and served as a judge for the emerging companies presentations. And I’ve begun urging nearly every startup I encounter to attend the Summit to meet people, learn and absorb the energy. They can get a feel for what products and technologies companies are interested in, what’s generating excitement and what a good pitch deck looks like. Because I’ve seen some rather inadequate pitch decks—which brings us to the next point.

Coaching and feedback

All applicants, regardless of whether the startup is selected to present as an emerging company at the Summit, have the opportunity to work with a coach who reviews and offers feedback on their business plan, pitch deck and overall approach. This is an invaluable Corridor resource that not enough people know about.

I’ve seen too many startups that have little idea what investors are looking for. Their pitch decks contain too much irrelevant data and not enough financials. Or they are overoptimistic from a timeline or regulatory perspective, thinking they can get something to market years earlier than they possibly can. Or they assume each and every one of their products is a $100 million blockbuster.

Investors shy away from startups that don’t know how to be realistic. The Corridor’s coaches work with emerging companies to recalibrate their projections, helping not only the startups themselves but the larger companies that might eventually invest in them or acquire them or their assets. This is an incredible service to the industry.

Personal connections

Another thing the Corridor does really well is its one-to-one business partnering, where attendees meet for 20 minutes in a “speed dating” scenario. Almost all large companies in animal health send their business development and licensing (BD&L) teams, if not senior executives, to the Summit. This means a startup can meet with many of them in an highly efficient manner, so they can test their ideas and potentially initiate discussions that hopefully lead to deals being consummated.

Beyond the Summit itself, I like to introduce new people in the industry to the Corridor’s president and vice president, Kimberly Young and Emily McVey. Kim and Emily in turn connect them to other people who can be valuable allies as they make their way forward. The Corridor helps people get to know players in the field in both a formal and informal way.

Industry savvy

Many startups as well as outside investors have a limited understanding of the animal health ecosystem. Startups may think that it’s a smaller version of human health, that there are no regulatory requirements, or that they can get their product approved in two years and make $100 million in their first year on the market.

Investors, on the other hand, often expect human health multiples, along with human health risk, neither of which they’ll get. Animal health innovation involves much lower risk but also generates somewhat lower multiples. Again, the Corridor has actively educated newcomers and become a powerhouse for building up the industry knowledge base working hard to demonstrate again and again that animal health is a vibrant and innovative industry worthy of investment.

No hidden agenda

Not to be overlooked, in my opinion, is the fact that the Corridor is simply an enjoyable organization to work with. The people are fun, hardworking, and genuine individuals. But in addition to that, I find no hidden agenda with the Corridor. No single company or sector gets preferential treatment. The Corridor simply tries to be a conduit for industry growth and success whether you’re a global corporate or fledgling startup.

I haven’t seen this focus on building and supporting the animal health industry anywhere else in the world. Associations focus on the professions, but no other entity I know works so transparently to support the industry side of things, making sure products come to market, assisting companies in their hiring, educating the public and so on.

Since the Corridor launched, other groups have entered the animal health investment space, but many are for-profit organizations intent on maximizing their returns. When I see the focus on, for example, preparation for a panel organized by the Corridor, I am really impressed by the amount of time the Corridor team spends making sure everyone receives maximum value. It’s a cliché, but the Midwestern work ethic is real with the Corridor. And I enjoy being associated with that philosophy and approach.

Impact beyond Kansas City

To me it’s clear that the Corridor is growing beyond its geography. While technically the Animal Health Corridor consists of the area between Manhattan, Kansas, and Colombia, Missouri, the work carries well beyond Kansas City and its surroundings. It is the hub of a wheel whose spokes reach all corners of the U.S. and beyond, wherever animal health has a significant presence.

The opportunity

This is perhaps the most important reason startups should get involved with the Corridor. First, let me offer some background. Last year the top five animal health companies all experienced significant sales growth. Zoetis grew by $1.1 billion. Boehringer Ingelheim, Merck and Elanco all grew by hundreds of millions. And, of course, they all want this growth to continue.

A significant portion of this growth will have to come from new products. Elanco says it wants new product approvals to contribute between $110 and $160 million in sales in 2022. Other companies expect about half of their growth to come from new products as well. Let’s think about this: For $1.1 billion growth, that means $550 million in sales must come from new product growth.

At the same time, we will see patents expiring on important products in the next five to seven years. While the patent cliff is not as much a reality in animal health as human health, a number of products going generic can diminish a company’s sales and market share significantly. So that places even more pressure on innovation and bringing new products to market to meet steep sales goals.

Those products won’t come from R&D departments alone with “just” $300 to $500 million in funding stretched between product support, innovative R&D and a broad range of projects, as is the case in a typical pipeline. More companies will be making deals around assets, where they partner with different startups on, say monoclonal assets, a genetic treatment asset, a device and a diagnostic asset. In this way animal health is slowly coming to mirror the human health model, where startup companies support internal innovation efforts with their assets.

Organizations and events that facilitate the connection between startup innovation and established firms seeking growth will become ever more important. As an early and excellent player in this space, the Corridor and its Animal Health Summit are not to be missed.

The future

I believe we are on the verge of a tsunami. The first few startups in animal health were only moderately successful, then things quieted down, and now they’re heating up again. We will likely see several exits in the next couple of years, where people who’ve recently entered the industry will exit with a desirable financial return—and that will make innovation and investment in the space even more attractive.

The Corridor is in a sweet spot as it serves as a conduit between startups and the players who can help make their innovations a reality. We are at the edge of some exciting developments, and the Corridor is literally in the hub of it all in Kansas City, facilitating, supporting, connecting—and transforming the industry into its next evolution.

Dr. Fabian Kausche owns and runs FK Consulting in Atlanta, which specializes in supporting animal health companies, especially startups, in product innovation strategies; elucidating pathways to markets; and enhancing organizational efficiency. He also regularly advises investors interested in the animal health industry. More information is available at linkedin.com/in/fmkausche.