Skate to Where the Puck Will Be

When I was an intern, one of the first things you had to learn was to distinguish a sick patient from one who wasn't. It seems strange to say this, because by definition, everyone who was in the hospital was sick, but there were ones who were going to do fine, and ones who were in danger of ending up in the ICU or worse.

So when we would sign out to the new resident coming on shift, we would sometimes warn them, "Mr. Johnson in room 1203 is really sick, you should keep on eye on him."

But the real skill, one level above that, was to distinguish patients who were not sick now but were about to become very sick vs. patients who were not sick and would stay not sick. And to distinguish patients who were very sick but were going to recover fully vs. those were not going to. It was very subtle: maybe the patient was straining just a tiny bit while breathing, maybe all the numbers looked bad but you could see color returning to her face, maybe one of the labs was trending a tiny bit in the right or wrong direction.

The good doctors would be able to tell at a glance, "that patient looks perfectly fine now, but he is going to be in the ICU in 6 hours. Be ready." The interns would look confused, "but she looks like she could go out and play golf right now." Or they would say, "get ready to transfer him out of the ICU tomorrow" and the interns would say, "but he's still on a ventilator and unconscious!" Of course, the chief resident would always be right.

Wayne Gretzky would say you need to skate to where the puck will be, not where it is right now.

I want to talk about four areas of innovation, and by definition attractive investment areas, where the puck is going to be: veterinary healthcare, African healthcare, justice tech, and longevity. The key to a successful startup, and successful startup investing, is the ability to see around corners. If you see only what is in the present, you will be swamped by competition and only the lucky will survive.

In this post, I will discuss veterinary healthcare, and in subsequent posts I will discuss the other areas.

Let me start with an example. When we sold KindredBio to Elanco, one of the stars in our portfolio was parvovirus antibody. In a disease where the mortality is up to 90%, our antibody reduced mortality down to zero. Our veterinarians cried when they first saw the results.

Elanco completed the development of this therapy and launched it recently. They're selling every vial they can produce. It looks like it's going to be a blockbuster.

When we started the parvovirus program, some people estimated that the anual sales would peak at $3 million. It look like it may exceed 100X of that.

You see, when we started KindredBio, $100 million per year drug was considered a blockbuster in the veterinary space, vs. $1 billion per year on the human side. It was unfathomable that any drug could sell over a billion a year. People laughed when we said that we expect veterinary drugs to sell a billion dollars per year each. They told us, "almost no drug sells over $10 million per year."

It was not obvious at all at that time, to most people, that pet healthcare was about to have a hockey puck growth curve. I must channel Marc Andreessen here, who says, "if it's obvious, it's not innovation."

We knew the history of biotech. We knew that only a generation ago, it was unthinkable that a human drug would sell over a billion dollars a year (now the top drugs sell tens of billions of dollars per year). When the first statin launched, the marketing group apparently told Dr. Vagelos that Mevacor would sell few tens of million dollars per year.

What happened on the human side is happening on the veterinary side now. Apoquel and Cytopoint combined (for dermatitis) is now selling over a billion dollars per year and they're growing at double digit growth rates. The dermatitis market before those drugs launched was only a few tens of millions of dollars per year.

There are other factors of course that contributed to success. Pandemic increased the number of pets. Cost of producing monoclonal antibodies is dropping. Pets are now family members. There is very little competition (which is consequence of skating to where the puck is). But the key take-away is that the overwhelming market trends are creating swells of opportunity in the space.

Of course, timing is everything, and that's difficult to get exactly right. In retrospect, we probably started KindredBio a few years too early. Nonetheless, we had an excellent exit, and made investors money, while doing good and doing good science. Seed round investors had almost 10X returns.

Am I continuing to invest in the pet sector? Absolutely. I'm super excited about VETmAb, which I helped Denise start. It is using the same playbook as KindredBio, but applying the lessons we learned so it's moving even faster--which I didn't think was possible without breaking the laws of physics but Denise and her team have been moving the ball flawlessly.

I thought we were going to build a multi-billion dollar company with KindredBio, the next Merck or Genentech of animal health. We got bought before that could happen, partly because we skated to where the puck was going to be a bit too early, but I think VETmAb is on track to do that. I can see the puck coming straight at it.