Aratana Therapeutics (PETX 4.30, -1.65, -27.73%) is under pressure today on a couple of developments: 1) Engaged Capital disclosed in an SEC filing that
it cut its active stake to 4.1% from approximately 8.4%, and 2) Stifel
downgraded the stock this morning. Today’s action returns the stock to lows
last touched in early August.
PETX is a small cap pet therapeutics company that focuses on developing therapeutics for dogs and cats. Its strategy is to in-license proprietary technology from human pharmaceutical companies, academia, or animal health companies that is applicable to dogs and cats.
The stock has not done much recently, but there have been positive developments. In October 2017, Aratana made ENTYCE commercially available for appetite stimulation in dogs. It's still a tiny product, as product sales were just $1.3 mln in Q3. Approximately half of the 25,000 veterinary clinics in the U.S. have ordered ENTYCE, which is a good sign, although nearly half of these sales are from clinics with which Aratana's sales team has interacted directly, so it's clear that vets need to be educated on the product.
The market is generally positive on the ENTYCE opportunity, but quarterly sales of less than $2 mln a year after launch are a bit underwhelming. It sounds like PETX is going to step up its direct sales efforts, which is good to hear, given the success that the company has noted within its target accounts.
Another key product is NOCITA, which is used for post-surgical pain treatment, providing up to 72 hours of relief. It was initially approved for dogs, but the FDA recently added cats to its indication. But again, with product sales in 2017 of just $2.8 mln, it’s a small product, although those sales numbers did grow sharply from the $147K earned in sales for the product in 2016. Furthermore, sales of NOCITA were $1.9 mln in Q3, so 2018 saw a nice uptick. Its last key product is Galliprant, which provides pain relief from canine osteoarthritis.
The stock has inhabited a long-term trading range of $4-8 since late 2016, and today's developments are sending the stock to the lower end of that range. Even so, we would be cautious with owning PETX as a long-term investment until it has developed a more proven track record.
The stake reduction by Engaged Capital is clearly spooking investors. It was just a few months ago (August 2018) that Engaged upped its stake from 6.8% to 8.1%. So why the sudden shift? Perhaps profit taking was part of the motivation, as the stock had been trending higher in recent months, but this is a sizeable reduction in shares, so it may be more than that. Perhaps the investor is losing faith in PETX's potential.
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