85 million American families own a pet, mostly split between 60 million dog owners and 47 million cat owners1. These animal companions need health care just like people do. The high level of ownership stimulates the $19 billion2 in estimated veterinary care spending and the mid-single digit growth rate that the industry is experiencing. As pets become a more important part of the family, the quality of their health care is also receiving more attention. There is a parallel between improvements in therapies and diagnostics for human and animal health. New technologies are enabling higher quality testing to more cheaply and accurately figure out what is wrong with our pets when they get sick.
The veterinarian has a big job to do. He or she must interact with a variety of species and find a remedy for sick animals that cannot verbally communicate and balance this with owners are frequently in a hurry and price sensitive. Time and cost are as important as an accurate diagnosis and effective treatment. One of the primary tools used in the effort to address these concerns are diagnostic tests, which are critical for evaluating and identifying a condition. Some tests can be performed in the clinic; however, many of the more complex assessments must be sent out to the lab. While the reference lab can provide an accurate result, turnaround takes a few days and frequently the patient needs an immediate diagnosis. Outsourcing test results requires additional work including another review of the case after results are received, contacting the owner, and issuing a prescription. Many times the prescribed food or therapy will be purchased elsewhere rather than at the clinic, resulting in lost revenue.
What should a veterinarian do?
Zomedica Pharmaceuticals (NYSE:ZOM) is a companion animal diagnostic and therapeutic development company with a full pipeline of products that target the most important unmet needs in veterinary medicine. The company’s lead candidate is TRUFORMA™, a point of care (PoC) biosensor platform that is initially being developed to test thyroid and adrenal disorders. Other diagnostics in development include ZM-020, a PoC pathogen detection platform being developed in a partnership with Seraph Biosciences as well as ZM-017 and ZM-022, both canine cancer liquid biopsy platforms being developed with Celsee, Inc. to detect circulating tumor cells associated with cancers of the bone, connective and blood tissue.
Zomedica also has a full portfolio of therapeutics that are in the pilot study stage. The candidates are pharmaceuticals that have been approved for human use; however, the method of administration and dosages have not been tailored to companion animals and frequently a compounding pharmacy is required to create what is needed. The company is seeking to develop new formulations of approved human drugs that provide the proper dosage and format for animals. The four therapeutics in the pipeline include anti-diarrheal metronidazole oral suspension and tablet, transdermal methimazole for hyperthyroidism and transdermal fluoxetine for behavioral disorders. These ambitions have received recognition from the investment bank H.C. Wainwright & Co. and analyst Dr. Ramakanth who has highlighted the company’s diversified pipeline, 2020 expected launch of two PoC diagnostic platforms and high 10-year compound annual growth rate of 47%.
View Exhibit I – Zomedica Diagnostic and Therapeutic Pipeline
Zomedica’s diagnostics can fill an unmet need in veterinary practices, providing not only a rapid and accurate result, but also allowing the veterinarian to generate higher revenues through the immediate sale of the prescribed food or therapeutic.
Trends and Statistics
There are a number of trends driving the increase in demand for pet products and services, including medicines and diagnostics. In the United States and in other parts of the world such as China, disposable income is increasing, allowing for greater rates of pet ownership. Veterinary care has advanced, allowing pets to live longer lives and older dogs and cats need more care compared to younger ones.
Pet ownership is high and surveys find from 49 percent to 68 percent3 of households own a pet and that pet industry spending has increased from $51 billion in 2011 to almost $73 billion in 20184. Of this total, veterinary care was estimated to be $17.1 billion in 2017 and $18.1 billion in 2018. The APPA forecasts that this segment will grow 4.5% in 2019. The diagnostics subcategory of diagnostics has even higher expectations with MarketandMarkets citing an 8.8% compound annual growth rate until 20235. The APPA also noted that Millennials are the largest pet-owning demographic and they are willing to pay more for the health and welfare of their pets compared to previous generations.
Zomedica’s goal is to find gaps in the diagnostic and therapeutic offerings of veterinary practices and fill them with products that increase effectiveness and profitability. Based on their experience in practice, the company’s veterinary management identified diagnostic needs that can be served with PoC testing that can provide reference lab sensitivity and specificity with a turnaround time of less than 15 minutes. This will allow the practice to prescribe more quickly and accurately for the pet patient, retaining drug revenues and reducing follow up work. On the therapeutic side, Zomedica’s strategy is to develop products that are now commonly synthesized in the compound pharmacy and make them available in dosages and formats appropriate for dogs and cats. This approach seeks to develop therapeutics with the appropriate format, formulation and dosage. Veterinarians can ensure higher compliance with prescribed therapies and dispense a broader variety of medicine at their practice to retain a portion of the revenues when immediately writing a script.
While Zomedica initially began as a therapeutics company with the goal of adding complementary diagnostics, the more direct pathway to market for animal diagnostics propelled this business segment into the lead. The rapid pace of development is possible as there are no direct regulatory requirements from the FDA Center for Veterinary Medicine (CVM) or the U.S. Department of Agriculture (USDA). However, all of the verification and validation records need to be maintained if they are requested by the regulatory authorities. Of the four diagnostic contenders, TRUFORMA emerged as the company’s lead candidate in early 2019 due to partner Qorvo’s substantial development resources and is expected to be available for launch in 1Q:20.
View Exhibit II – TRUFORMA Technology
TRUFORMA is a diagnostic platform that fits on the tabletop and employs bulk acoustic wave (BAW) technology to isolate a target bandwidth and detect a potential immunological reaction. If a reaction takes place, the mass of the combined particle is greater and the sensor located in the cartridge detects a change in the oscillation frequency, indicating a positive test. As compared to commonly used optical sensors, the acoustic approach is substantially more precise. The higher level of precision provided by the BAW approach can bring gold standard quality to PoC in what was previously only available in the reference lab. Zomedica is building the instrument in conjunction with Qorvo Biotechnologies, LLC, a wholly owned subsidiary of Qorvo, Inc., a leader in radio frequency solutions for mobile and other devices.
View Exhibit III – TRUFORMA Device Size Comparison
The arrangement with Qorvo required an initial $1 million upfront payment and issuance of $3.9 million in shares for the exclusive worldwide license to commercialize the device over a 10 year period. Further milestone payments are required if future goals are met and they total approximately $10 to $11 million. Qorvo is responsible for the manufacture and supply of the equipment and consumables to Zomedica.
The device employs sound waves to detect changes in mass that signal an immunological reaction. A disposable cartridge with an assay specific sensor is used to contain the reaction with the sample. When a sample antigen which indicates the presence of a disease binds to the antibody that is specific to that antigen, the mass of the combined molecule increases. TRUFORMA is able to detect this change through a frequency shift and present a test result.
View Exhibit IV – Mass Increase from Antibody-Analyte Binding6
Steps for conducting test:
1) Blood sample taken from animal patient
2) Sample is added to cartridge
3) Cartridge is inserted in machine
4) Patient characteristics are entered into TRUFORMA instrument
5) Test is run
6) Test result appears on screen and is shared with printer and Zomedica data portal
View Exhibit V – TRUFORMA Instrument with Cartridge
Developer Qorvo is using the same technology for human diagnostic development due to the superior properties of BAW compared to the standard of optical testing. When compared to reference lab optical diagnostic readers, substantial additional cost and complexity are required to achieve the same level of sensitivity and specificity that can be obtained using BAW technology.
Zomedica has made substantial progress this year with its validation work, focusing on gold standard comparisons with reference lab diagnostics7 which have demonstrated greater than 95% analytical range correlation. Feasibility studies have also been completed using both spiked and real life samples, both of which are compared to the gold standard. Zomedica plans to work with several key opinion leaders (KOLs) to determine the performance standards that are appropriate for veterinary medicine. The company is currently conducting optimization work now that is balancing the tradeoff between time to result and specificity and it appears that accurate output can be generated in less than 15 minutes. After the optimization steps are completed, then verification will take place to determine performance for the assays and reference ranges. When verification is completed, validation will begin and the instruments will be placed in the field where results will show if TRUFORMA is achieving the consistent real-world performance that is expected.
A beta launch is planned when commercialization begins so that any bugs in the system can be resolved before the machine is widely available. Targeted groups include top academic institutions, emergency referral centers and endocrinologists. Publication of articles and white papers from KOLs that will discuss the capabilities of TRUFORMA and highlight the benefits it can provide to a veterinary practice are anticipated. The publication efforts will focus on peer reviewed journals. The early part of the launch will attempt to penetrate TRUFORMA with referenceable physicians and institutions that are recognized as experts and leaders who can further validate the technology. Zomedica has the benefit of IDEXX Laboratories Incorporated’s former US Head of Sales Bruk Herbst as its Chief Commercial Officer. He has over 20 years’ experience developing customer relationships and launching new products among other accomplishments.
The TRUFORMA platform is expected to initially offer five different tests that are focused on thyroid and adrenal disorders. Future cartridges can be designed to address a wide variety of additional tests including gastrointestinal (GI) panels, fructosamine detection for managing diabetes and the identification of novel biomarkers that are not currently available in the marketplace. Multiplexing is also possible. Below are the current tests in development.
View Exhibit VI – Diagnostic Tests Planned for TRUFORMA
Zomedica has identified both diagnostics and therapeutics that can fill holes in the veterinary practice to address common priorities. The goal for TRUFORMA and the rest of the diagnostic portfolio is to accelerate turnaround time, provide accurate PoC diagnosis, provide a better customer experience and maintain revenues for the veterinary practice. To support the optimization, verification and validation activities necessary to attain the commercialization stage, Zomedica completed a $12 million preferred share transaction in the second quarter. Funds are sufficient to complete development of TRUFORMA and provide a valuable tool for today’s veterinarian.
• Finalization of TRUFORMA instrument design – Completed
• Completion of feasibility testing of first arrays – 2H:19
• Optimization work balancing sensitivity, specificity and test duration – 2H:19
• Completion of assay verifications – 4Q:19
• Completion of assay validations – 1Q:20
• Market launch of TRUFORMA – 1Q:20
Today’s veterinary practice faces multiple competing priorities in the clinic including demanding and selective pet owners, lost revenue, timely results and the need for greater precision in diagnostic testing. A tool that has the potential to address all of these issues is being developed by Zomedica. While the company’s first candidates for advancement were therapeutics, they require a more structured regulatory process to obtain the required FDA-CVM marketing approval. Facing this extended timeline, the company identified several diagnostic candidates that have a more streamlined pathway to market and do not require regulatory approval. Zomedica’s partner Qorvo has substantial resources which have been able to propel TRUFORMA into the lead candidate position. The collaboration is conducting internal feasibility, verification and validation efforts with a detailed plan to advance the diagnostic instrument through these processes. Commercialization efforts will obtain the recognition of key opinion leaders and institutions in conjunction with peer reviewed articles and white papers demonstrating TRUFORMA’s comparison with gold standard reference lab diagnostics.
The goal of Zomedica’s efforts in diagnostic and therapeutic development is to provide the practice veterinarian with the ability to obtain reference lab quality at point of care. This has a number of benefits to the practice including better patient and customer service through timely and accurate diagnosis, maintenance of drug and food revenues at the practice and efficiency by minimizing the need for follow up. The company expects to complete assay verification in late 2019 and complete assay validation in 1Q:20 and launch the PoC biosensor platform in the first quarter of 2020. After a beta launch to work out bugs, TRUFORMA will be available widely for veterinary practices throughout North America helping alleviate the multitude of pressures they face every day.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks provides and Zacks receives quarterly payments totaling a maximum fee of $30,000 annually for these services. Full Disclaimer HERE.
1. Source: American Pet Products Association’s 2017-2018 National Pet Owners Survey.
2. Source: The American Pet Products Association’s 2019 Annual Industry-Wide Spending Figures
3. Source: American Pet Products Association (68%); American Veterinary Medical Association (57%), Census American Housing Survey (49%).
4. Source: American Pet Products Association. https://www.americanpetproducts.org/press_industrytrends.asp
5. Source: MarketsandMarkets 2018 Veterinary Diagnostics Market by Product Report
6. Source: Qorvo Immunoassay Technology Landscape primer. A = analyte; D = detection enzyme; C = competitor
7. The comparison system in the reference lab is the Siemens Immulite 2000 XPi Immunoassay System.