Synbiotics Poised to Catch Sales Tide : Growing Market for Veterinarian, Human Health Products Seen

The commercial that aired on a San Diego radio station last week gently poked fun at the cat fancier’s tenderest spot--concern for tabby’s health.

Paid for by a leading manufacturer of veterinary medicines, the commercial suggested that cat owners vaccinate their pets against feline leukemia, a usually fatal disease that strikes an estimated 3% to 5% of the nation’s 50 million cats.

Although the advertisement is part of a national campaign to promote a vaccine manufactured by Lincoln, Neb.-based Norden Laboratories, the message might also spark some business for San Diego-based Synbiotics, which recently introduced a reliable and fast test that determines if a cat already has feline leukemia.

Synbiotics and its competitors are using monoclonal antibodies (molecules that can recognize and bind themselves to specific molecules) to produce quick and accurate tests used in veterinary and human medicine.

Nationwide sales of monoclonal antibody products for veterinary and human health care are expected to reach $100 million this year and $2 billion by 1995, according to Synbiotics President Edward T. Maggio.

Competition Underscored

The Norden commercial underscores the competition facing Synbiotics in the growing veterinary medicine market.

Norden Laboratories, which now sells the nation’s only U.S. Department of Agriculture-approved feline leukemia vaccine, last month signed an agreement to market a diagnostics test developed by Cambridge BioScience Corp.

The Boston-based firm anticipates that its link to Norden--”the No. 1 veterinary health care marketer in the world,” according to Cambridge BioScience Vice President Rod Raynovich--will help it record its first profitable year.

“At the outset, we were a bit concerned by their product,” Synbiotics’ Maggio acknowledged. “But we think we’ve got the better test.”

Maggio, who said veterinarians will use the “better test,” believes Synbiotics’ product will overcome any “brand-name loyalty among veterinarians” using the Norden vaccine.

Interestingly, Synbiotics has been forging its own relationship with Norden. The two companies are creating a test that quickly and accurately diagnoses pseudorabies, an often fatal virus that attacks livestock, Maggio said, adding that “Norden recognizes our test as the leader.”

Other Major Players

Norden, a subsidiary of SmithKline Beckman, a Philadelphia-based pharmaceutical giant, is just one of the major players on the veterinary testing scene. Synbiotics is also competing against Pitman-Moore, the veterinary division of Brunswick, New Jersey-based health care giant Johnson & Johnson, and Elwood, Kan.-based TechAmerica Group Inc., a veterinary and human health-care products company. Several small and under-capitalized companies are also scrambling to enter the market, according to industry observers.

Those firms are scrambling for a bigger share of the animal veterinary market because “the owners of America’s 107 million dogs and cats spend in excess of $3.5 billion per year for veterinary care,” Maggio said.

Although the company will face growing competition, Maggio said Synbiotics’ feline leukemia cancer test could generate $900,000 during its first year of sales. The test, introduced last summer, could eventually generate more than $1 million a year in revenues, Maggio said.

Good Profit Margins

Maggio anticipates that the leukemia test kit, which carries “very good profit margins,” will help direct the 2 1/2-year-old Rancho Bernardo-based company toward its first annual profit. For the first quarter ended June 30, Synbiotics reported a net loss of $395,869 and revenues of $174,833. In fiscal 1984, the company reported a net loss of $849,525 and revenues of $916,701.

Synbiotics also expects to carve out a share of the canine test market with a pair of tests that determine if pets have rheumatoid arthritis or heart worm. Canine products are an important addition, Maggio said, because “dog owners spend 2 1/2 times as much (on veterinarians) as cat owners.”

Synbiotics is also developing products for the $1.5-billion large-animal (swine, horses, cows) veterinary-care market, Maggio said.

Products for Humans

At the same time, the company is honing its monoclonal technology in the veterinary market, Maggio said Synbiotics is also developing technology for the human health-care market. Veterinary care products now generate about 60% of Synbiotics’ revenues, but $445,000 of Synbiotics’ 1984 revenues were tied to its affiliation with Miles Laboratory, which uses 15 of Synbiotics’ monoclonal antibody materials in its human health-care testing products, which are used mainly in laboratories.

Synbiotics is also developing its first human diagnostics tests, Maggio said. One of them, which is now being developed for use in doctors’ offices, will detect the presence of chlamydia, which Maggio identified as one of the nation’s fastest-growing, sexually transmitted diseases. The second test, which is likely to be used in Third World countries, will identify the presence of amoebic dysentery.

Synbiotics, which this year allied with a large veterinary products distributor, recently augmented its West Coast and Northeast coverage by linking up with regional distributors, Maggio said.

Maggio said that although the current distributing arrangement gives Synbiotics access to today’s veterinary markets: “Five years from now we may need our own product sales force. We’re at the beginning of logarithmic sales growth.”

That U.S. expansion will be accompanied by foreign sales growth, Maggio added. Although the United States spends “2 1/2 to 3 times as much on pets as other nations,” Synbiotics has begun negotiations with veterinary products distributors in Canada, Australia, New Zealand and Japan. It has also begun work on a human diagnostics kit to be marketed in Europe.

Building in a Sound Way

“Within the last six months we have made the critical transition from a contract developer and (product supplier) to a producer of complete, end-user products,” Maggio said. “What we’ve tried to do is develop the technology to build (a presence) in various market segments where there isn’t a lot of competition,” Maggio said. “We’re trying to build our business in the soundest possible way.”

Interestingly, Synbiotics entered the veterinary products market because the U.S. Department of Agriculture’s new product-approval route is less cumbersome than the human health-care approval process, Maggio said. That fast track from the development laboratory to actual sales helped the company move rapidly from research and development into production, Maggio explained.

He suggested that Synbiotics received a boost last week from Eli Lilly & Co.’s proposed $300-million purchase of San Diego-based Hybritech.

Lilly’s planned acquisition proved that “monoclonal antibody technology is valued by the big boys,” said Maggio, who added that “the incubation period for our technology is over. We have come of age.”

Picking Up the Slack

“The only negative associated with Lilly’s announcement is the fact that Hybritech used to focus analysts’ attention on San Diego,” Maggio said. “However, I think Synbiotics can go a long way toward picking up the slack.”

Synbiotics, with its technology and product base, might be a candidate for a takeover by a major pharmaceutical firm, Maggio acknowledged.

However, Maggio indicated that the company, which went public in 1983, probably would turn to a limited partnership based on research and development, or attempt a private stock placement that would “result in a corporate affiliation.”

“We’re just now seeing the fruits of investment in our initial public offering funds,” Maggio said. “These (products) will be followed by a continued stream of related human and veterinary health care products.” SYNBIOTICS AT A GLANCE

1985 (March 31) 1984 (March 31) Assets: $2.9 million $3.6 million Shareholder equity: $2.5 million $3.6 milllion Revenues: $916,701 $790,538 Net income (loss): ($849,525) ($83,080)