How They Funded It: Aratana Therapeutics

• Aratana Therapeutics
  Steven St. Peter, M.D. + Linda Rhodes, VMD and Ph.D. | Kansas City, Kansas | Second Stage
  Pet therapeutics
  Raised upwards of $250 million from venture capitalists and angel investors, and launched an IPO

Most startups stories begin with an entrepreneur who has an idea and then chases the money to shepherd it to maturity. That idea is developed and the team is funded with pre-seed money from the founder, friends and family. Seed money and Series A funding from crowdfunding, angels and/or venture capitalists help push the startup through product development and market validation. Series B, Series C and Mezzanine help it develop further and faster on its way to IPO.

But that’s not Aratana’s funding story.

(See Funding Stage Definitions for the types of funding, amounts and who typically feeds it.)

Beyond Fleas, Ticks and Worms

The animal health industry has largely focused on edible over petable animals, offering mainly vaccines and treatments for fleas, ticks and worms. On the forefront of a new wave of biotech pet therapies, Kansas City, KS-company Aratana Therapeutics centers on medications for our four-legged family and their emerging medical needs.

To date, it has more than 15 pet therapies in development that address conditions such as cancer, pain, viral disease and skin conditions. Two drugs have received conditional approval to treat canine lymphoma.

Aratana went public last year, marking one of the first IPOs by a pet therapeutics company. As founder and CEO Steven St. Peter told investors in its Q2 earnings call, “It’s hard to imagine that approximately one year ago pet therapeutics did not really exist as the public market investment category.” 

(See the New York Times write up of “Startups Work on Biotech Drugs for Pets,” published Aug. 1.)

Capital in Reverse

It takes years of research, development and clinical trials to bring pet meds to market. And that commitment requires serious capital, $100s of millions to, as St. Peter calls it, “run the experiment.”

So where most startups follow the traditional funding narrative—friends and family, angel investors and venture capitalists—Aratana started at the VC end of the line and worked backwards.

Aratana was born in 2010, out of one the largest venture capital firms, MPM Capital. St. Peter, then managing director at MPM, had the discretion to start companies and fund them. He convinced his partners to put $10 million on the table. Another venture capital firm in San Diego matched it.

Check Series-C and Mezzanine financing off the list.

About a year later, Aratana pursued additional financing, including the Kansas Bioscience Authority and local angel investors, Mid-America Angels and Women’s Capital Connection, in the funding mix.

Check Series-B financing off the list.

Last year, Aratana made the decision to dramatically expand its portfolio and its direction. In 2013, Aratana decided to take on the commercial side of pet meds as well. It went public to access new pools of capital to allow the company to become commercially integrated, acquired two of its competitors, licensed additional products and expanded to Europe.

Check IPO off the list.

Sum total, Aratana’s funding pool is upwards of $250 million.

(Kansas City claimed two animal health IPOs this past year. Read about Parnell.)

Animal Biotech in Kansas City

St. Peter will tell you Aratana was made to be in Kansas City.

A Wichita native, St. Peter had spent years trying to figure out how to build a company that could take advantage of the Animal Health Corridor and our region’s unique cluster of resources.

“We’re creating a new industry that didn’t exist anywhere, but the pieces are here in Kansas City in terms of people, talent and familiarity with animal health, manufacturing and regulations. KC was a great place to recruit the talent to pursue this new model.”

Once he settled on pet therapeutics, he hired Linda Rhodes, VMD and Ph.D., to helm the company and make it happen. When Aratana went public, the board asked St. Peter to join as CEO.

Among the region’s animal health resources, St. Peter cites Kansas City Area Life Sciences Institute, the Kansas Bioscience Authority and the Kansas City Area Development Council, all KCSourceLink Resource Partners.

“As we went out to tell the story about the company and why it’s in Kansas City, there was no pushback,” says St. Peter. “Clearly those resources did a lot of the groundwork to give us the canvas on which to paint the vision.”

(Read about America’s Animal Health Corridor located here in Kansas City.)

Entrepreneurship in Kansas City

“It’s been very exciting to watch the evolution of this area over the last 25 years, and more recently with the tech boom and tech companies,” says. St. Peter.

But we still have plenty of room to grow. While Aratana raised a lot of money, the bulk of their capital came from outside of Kansas City. St. Peter sees that as a boon, but with a big caveat.

“Some people would look at our success and say there’s really not a problem: the coasts are willing to fund innovation in KC. I would hesitate to have people draw that conclusion from our success,” cautions St. Peter. “That would be a tragedy of Aratana’s success if people assumed access to capital is not a problem—and it’s only a problem if KC really wants to become a leader in therapeutics.”