Bioterp Partners PETX Long Thesis

Aratana Therapeutics: Something New in Animal Health
Zachary Fink
Co-Founder and Portfolio Manager Bioterp Partners
Authors Note: If you have any information that confirms or denies my thesis, Id love to hear from you
at: zack@bioterppartners.com
DISCLAIMER: Mr. Fink has a conflict of interest and will benefit financially if the stock price of PETX
rises. Please read the Disclosure at the end of this paper for more information.
Copyright 2016 by Zachary Fink
Executive Summary
In the last five years, just four new chemical entities (NCEs) have been approved for dogs and cats,
known in the industry as companion animals. Pet health no wonder has been an over-looked subsector of the biopharmaceutical industry. Thats slowly changing.
Aratana Therapeutics is a pet-centric company developing therapeutics for unmet needs in the
companion animal health market. Aratanas three key late-stage assets, Galliprant (AT-001), Entyce (AT002), and Nocita (AT-003), are all on the cusp of FDA Center for Veterinary Medicine (CVM) regulatory
approval in 2016, for osteoarthritis, inappetence, and postoperative pain in dogs, respectively.
Nevertheless, Aratanas current market capitalization meaningfully discounts the potential value
creation from these assets. This what I would argue inefficiency was catalyzed by two recent events
unrelated to the successful development or commercialization of its three key assets. First, in
September of 2015, Aratana announced that they would be deprioritizing the commercial launch of two
oncology product, AT-004 and AT-005, in favor of spending on advancing AT-001, AT-002, and AT-003.
Neither drug has significant commercial potential. Second, in October 2015, in order to avoid an equity
financing, Aratana entered into a $45 million credit facility that included what has been perceived as
two highly onerous covenants: Aratana must have three USDA- or FDA-approved products by
December 31, 2016 and must secure at least $45 million in new capital by October 16, 2016.
These two events, along with the deterioration of sentiment in the biotech sector, have led to Aratanas
stock price decreasing approximately 75% over the last 6 months. I argue that both headwinds are
strawmen, and non-issues for a company on the verge of 6 approved and commercial pet health
products by the end of the year. Considering the recent clinical and regulatory de-risking of Galliprant,
Basic Model AT-001/2/3 US
Entyce, and Nocita, I believe the market is still
Asset
Peak Year Peak Sales
NPV
Market Value
SOTP
inefficiently valuing these assets, and Aratana.
AT-001 (Dogs)
2023
$ 126,000,000 $ 56,996,001 $ 227,984,005 $5.16
AT-002 (Dogs)
2023
$ 49,412,160 $ 22,351,552 $ 89,406,207 $2.02
Its hard to find this kind of risk/reward
AT-003 (Dogs)
2023
$ 49,000,000 $ 22,165,112 $ 88,660,446 $2.01
AT-001 (Cats)
2026
$ 166,500,000 $ 26,890,680 $ 107,562,718 $2.44
imbalance elsewhere. This skewed risk/reward
AT-002 (Cats)
2025
$ 17,760,000 $ 3,442,007 $ 13,768,028 $0.31
makes for an intriguing investment ahead of
AT-003 (Cats)
2026
$ 37,000,000 $ 5,975,707 $ 23,902,826 $0.54
Total $ 551,284,230 $ 12.48
multiple value-drivers in 2016, beginning with
Basic Model AT-001/2/3 EU
the potential FDA approval of Galliprant by
Asset
NPV
Market Value Royalties SOTP
March 25. This will be followed by the NADA
AT-001 (Dogs)
2024
$ 75,600,000 $ 30,533,572 $ 122,134,288 15.0%
$0.41
AT-002 (Dogs)
2025
$ 29,647,296 $ 10,691,112 $ 42,764,449 15.0%
$0.15
submissions and ADUFA (approval) dates for
AT-003 (Dogs)
2025
$ 29,400,000 $ 10,601,935 $ 42,407,739 15.0%
$0.14
Entyce and Nocita. In addition, Aratana is
AT-001 (Cats)
2028
$ 99,900,000 $ 11,204,450 $ 44,817,799 15.0%
$0.15
AT-002 (Cats)
2027
$ 10,656,000 $ 1,434,170 $ 5,736,678 15.0%
$0.02
working hard to secure a collaboration with an
AT-003 (Cats)
2028
$ 22,200,000 $ 2,489,878 $ 9,959,511 15.0%
$0.03
U/F Payment
2016
$ 45,000,000 $ 45,000,000 $ 45,000,000 100.0% $1.02
ex-US animal health company to monetize
$1.93
Galliprant, Entyce, and Nocita overseas. My
Target Price $14.41
Figure 1
very basic valuation model (covered herein)
suggests that even if Aratana does not enter into an ex-US collaboration in the next 6-9 months, there is
still a significant amount of value not priced into Aratanas stock.
This paper will walk the reader through my analysis, focusing primarily on the clinical development and
commercial opportunities of AT-001, AT-002, and AT-003. In addition, Ill provide background
information on the company and FDA regulatory framework, notably different from that of human
drugs. This information is provided so readers have adequate context to fully comprehend the
investment thesis and understand how recent events have enabled an intriguing investment
opportunity.
Table of Contents
Cover Page
Executive Summary
Table of Contents
Introduction
Veterinary Medicine Regulation: The FDAs CVM and USDA
A Review of Aratanas Key Pipeline Assets
Galliprant for Canine Osteoarthritis
Entyce for Canine Inappetence
11
Nocita for Canine Postoperative Pain
13
Building the Aratana Brand
15
How Did We Get Here? The Investment Set-Up
17
Market Opportunity and Valuation: Is the Market Mispricing Aratana?
20
Galliprant Canine Osteoarthritis Market Model
20
Entyce Canine Inappetence Market Model
21
Nocita Canine Postoperative Pain Market Model
22
SOTP Valuation Model
23
Conclusion
25
Appendix
26
AT-001 Licensing Deal and Human Data
26
26
27
AT-016 (allogenic adipose-derived stem cells) For Canine Osteoarthritis
27
AT-001, AT-002, and AT-003 Feline Market Models
28
List of Potential Upcoming Key 2016 Events
28
References
29
Disclosure
31
Introduction
Animal health specifically companion animal pharmaceuticals is a growing field in both the United
States and European Union. One of the main tailwinds for this growth is an increase in the average
amount of money spent per year on pets. Pet owners increasingly view their pets as loving members of
the family. Common sense suggests an accompanying increase in innovation in the field; however, the
opposite is true. Surprisingly, new and innovative pet therapeutic New Chemical Entities (NCEs) and New
Animal Drug Applications for dogs and cats are lacking in recent years (excluding flea/tick products). This
is even more shocking when considering the surge in innovation and new therapeutics for humans in the
same time frame. The fact of the matter is, despite the scientific innovation and growth in revenue in
the companion animal health market, the established companies in this field have not been able to
develop and commercialize new companion animal biopharmaceuticals for large indications. Aratana
Therapeutics looks to capitalize on this lack of innovation from more established companies.
Aratana (meaning something new in
Japanese) is a biopharmaceutical company
developing pet therapeutics. Aratana
advanced to an IPO in 2013 after acquiring
rights to AT-001, AT-002, and AT-003 from
RaQualia and Pacira Pharmaceuticals [1].
Following the IPO, the company continued
to expand its product portfolio by acquiring
Vet Therapeutics and Okapi Sciences, both
private companies, as well as licensing rights
to AT-014 and AT-016 from Advaxis and VetStem, respectively (figure 2) [2-6]. Since
Figure 3 [2]
these deals, Aratana has continued to
advance these pipeline assets and as of
Asset
March 20, 2016, their key late stage
AT-001 (Galliprant)
programs are summarized in figure 3.
AT-001
Aratana is guiding to potentially have 6
AT-002 (Entyce)
AT-002
products FDA or USDA approved by the
AT-003 (Nocita)
end of 2016. Aratana has been aggressively
AT-003
AT-004
preparing for the commercial launch of
AT-005
AT-014
Galliprant, Entyce, and Nocita domestically,
AT-016
and have plans for partnering these
Figure 2
programs outside of the US (more on this
later).
Aratana's Key Late Stage Pipeline Assets

Animal
Dogs
Indication
Osteoarthritis
Cats
Osteoarthritis
Dogs
Inappetance
Cats
Inappetance
Dogs
Post-Op Pain
Cats
Dogs
Dogs
Post-Op Pain
B-cell Lymphoma
T-cell Lymphoma
Dogs
Osteosarcoma
Dogs
Osteoarthritis
Status
Source
Expected Approval (US)
NADA ADUFA 3/25/16
RaQualia
By March 25, 2016
Additional Pilot Studies
RaQualia
Required
NADA submission by
RaQualia
By May 31, 2016
3/31/16
Pilot Study Complete
RaQualia
Safety + Effectiveness
Pacira
Late 2016
TSCL received
Pilot Study Complete
Pacira
Full USDA Approval
Vet Therapeutics
Full USDA Approval
Full USDA Approval
Vet Therapeutics
Full USDA Approval
Conditional USDA
Conditional approval
Advaxis
Approval Submitted
expected late 2016
Pivotal Trial Planning
Vet-Stem
2018
Despite that Aratana has assembled a compelling portfolio of late-stage and commercial-stage assets,
the potential future cash flows from these assets are hardly reflected in the companys current
valuation. Below, I will outline why I believe this is, and provide support for the long thesis by primarily
focusing on AT-001, AT-002, and AT-003 for the sake of simplicity. Before I jump into analyzing these
assets and their valuation, background information on the FDA regulatory framework is required in
order to fully understand why I believe their late-stage pipeline is relatively de-risked.
Veterinary Medicine Regulation: The FDA and USDA

New therapeutics for animals are reviewed through one of two federal agencies: the FDAs Center for
Veterinarian Medicine (CVM) or the USDAs Center for Veterinary Biologics. The CVM primarily reviews
small molecule drugs, while the USDA primarily reviews biologic-based products. Since this paper
primarily focuses on AT-001, AT-002, and AT-003 (all products reviewed through the CVM), this basic
introduction to veterinary medicine regulation is going to focus on the FDAs CVM and the associated
review process.
The CVM provides sponsors (and the general public) with significant guidance documentation that
consists of the offices current suggestions on how to proceed with clinical development and the
regulatory review process. To emphasize, these guidance documents are not legally binding; they are
simply the CVMs current thinking on the respective topic. For this introduction, the two key guidance
documents that will be summarized are:
GFI #132: Administrative Applications and the Phased Review Process

GFI #215: Target Animal Safety and Effectiveness Protocol Development and Submission
To summarize GFI #132, the CVM has found that there are more appropriate and efficient ways to
submit the data for a new animal drug application (NADA) than all at once. In fact, the CVM believes a
phased review process is the most appropriate and productive, leading to efficiencies for the CVM and
animal pharmaceutical industry. Essentially, sponsors submit the data for each technical section
required by the CVM prior to filing the actual NADA. The technical sections are listed below:
1.
2.
3.
4.
5.
6.
7.
Chemistry, Manufacturing, and Controls (CMC)

Effectiveness
Target Animal Safety
Human Food Safety
Environmental Impact
Labeling
All Other Information (AOI)
Of note, the major (and most important) technical sections are Target Animal Safety, Effectiveness, and
CMC. Once the FDA has received all technical sections and issued the sponsor technical section
complete letters for each technical section, the sponsor can file the products NADA with the CVM. As
mentioned, this process creates efficiencies in the review process. Specifically, one of the reasons the
phased review process creates efficiencies is because by reviewing each technical section of a
submission separately, deficiencies in the review package can be identified prior to the NADA
submission. When the CVM reviews an NADA after issuing all technical section complete letters,
rejections typically occur only when a collective review of the data package raises questions concerning
the safety and/or efficacy of the new animal drug [7].
These concepts have important implications for investors in the animal pharmaceutical space.
Essentially, if the sponsor adequately follows the CVMs phased review guidance, the risk associated
with an ADUFA date for a NADA is significantly less than the risk associated with a PDUFA date for a
NDA on the human side. In fact, much risk is also mitigated prior to the submission of any technical
section documentation to the CVM because the clinical development process in animal pharmaceuticals
is a much more collaborative process when compared to the human process with which most
bio/pharma will be familiar.
This collaborative development process is exemplified by the CVMs GFI #215. This guidance document
outlines how the CVM strongly encourages sponsors to take advantage of the CVMs collaborative
process when a sponsor is designing clinical trial protocols. The CVM encourages sponsors to leverage
this tool to essentially work towards protocol concurrence with the CVM. CVM protocol concurrence
can be obtained prior to the initiation of any clinical trials by the sponsor. According to the guidance
document, CVM concurrence means that CVM fundamentally agrees with the design, execution, and
analyses proposed in the protocol and is a commitment that CVM will not later alter the perspectives on
these issues unless public or animal health concerns appear that were not recognized at the time of the
protocol assessment [8]. Essentially, if a sponsor obtains CVM concurrence for their new animal drugs
clinical trial protocols, there is a degree of de-risking in relation to the regulatory process if the trials
meet the CVM concurred endpoints. An easier way to think about this is that CVM concurrence for
new animal drugs is (to a degree) analogous to an FDA special protocol assessment (SPA) for new
human drugs.
The key takeaways: prior to a NADA submission, there is a noteworthy amount of de-risking via CVM
concurrence and the phased review process compared to the human NDA process. This is a critical
concept because Aratana has received all major technical section complete letters for AT-001, AT-002,
and AT-003 (excluding AT-003 CMC) in canines with all pivotal field studies being conducted under
CVM concurrence.
With a basic summary of the CVM and USDA review process, I can now provide an analysis of Aratanas
pipeline assets and commercialization efforts in order to establish a basis for my belief that the market
is inefficiently valuating Aratana.
A Review of Aratanas Key Pipeline Assets

The success of AT-001, AT-002, and AT-003, Aratanas key late-stage pipeline assets in canines, are
critical aspects to my investment thesis. For simplicity, I will focus on each assets pivotal field study data
and regulatory status. In addition, I will briefly summarize each assets respective indication and current
disease treatment landscape. Herein, I will refer to each asset by its proposed trade name in canines:
Galliprant (AT-001), Entyce (AT-002), and Nocita (AT-003).
Galliprant (AT-001)
Galliprant is in development for the treatment of pain and inflammation associated with osteoarthritis
in canines (and felines). Aratana acquired Galliprant via a licensing agreement with RaQualia (see
Appendix for additional information). Galliprant has had a successful clinical development plan,
including a successful pivotal field study under CVM protocol concurrence. Aratana has received all
technical section complete letters for Galliprant for canine osteoarthritis and has submitted the NADA
with an ADUFA date of March 25, 2016. I believe Galliprants clinical data and regulatory package
provide significant de-risking in terms of this assets chance of approval. In addition, I believe Galliprant
is poised to become a competitive treatment option in canine osteoarthritis a space dominated by
COX inhibitors because of Galliprants advantageous safety profile and comparable efficacy. Below I
provide data supporting this belief. But before jumping into Aratanas data package, a review of its
mechanism of action and biology is required to understand my reasoning.
Galliprant (AT-001, grapiprant, CJ-023,423) is a small-molecule selective prostaglandin E2 (PGE2) EP4
receptor antagonist. EP4
is one of four receptors
(EP1-EP4) of PGE2. PGE2 is
a downstream molecule in
the arachidonic acid
cascade pictured in figure
4 [9]. The arachidonic acid
cascade produces a wide
range of molecules that
modulate certain aspects
of cell function. First is the
conversion of arachidonic
acid to three types of
molecules via cellular
Figure 4 [9]
pathways: leukotrienes,
epoxides, and prostanoids (PGH2). Cyclo-oxygenase 1 and 2 (COX-1/2) are the enzymes responsible for
converting arachidonic acid into PGH2. Cellular machinery then converts PGH2 into 5 active prostanoid
molecules: PGE2, PGD2, PGF2, PGI, and TXA. These prostanoid molecules are responsible for a wide
range of homeostatic functions in different organ systems including renal, cardiovascular, and
gastrointestinal. Notably, it is currently believed that some of the pain and inflammation mediated by
the arachidonic acid pathway is the result of PGE2 interaction with the EP4 receptor. This biology is very
important to understand because common analgesics and anti-inflammatory agents such as
corticosteroids and NSAIDs function by modulating the arachidonic acid cascade. An adequate
understanding of the cascade enables appropriate background to appreciate the drawbacks of using
these agents in companion animals, and why a more targeted, downstream modulator of the
arachidonic acid pathway such as Galliprant could have advantageous product characteristics.
Corticosteroids analgesic and anti-inflammatory activity are the result of the molecules ability to inhibit
the activity of phospholipase A2 (PLA2). PLA2 is the enzyme responsible for making arachidonic acid
free and available to cellular machinery to begin the arachidonic acid cascade. Non-steroidal antiinflammatory drugs (NSAIDs) typically function as cyclo-oxygenase 1 and/or 2 (COX-1/2) inhibitors.
Despite their efficacy, their use in dogs and cats has been limited by tolerability issues. Notably, the
use of COX inhibitors in humans has also been limited by tolerability issues. These tolerability issues
are a result of acting upstream of the numerous molecules downstream of arachidonic acid responsible
for controlling important homeostatic functions. In order to mitigate this, scientists have developed
selective COX-2 inhibitors. Despite selective COX-2 inhibition leading to a more targeted modulation of
the arachidonic acid cascade, tolerability issues in dogs (and cats) remains. This is glaringly obvious when
analyzing Rimadyl (carprofen).
Rimadyl is a selective COX-2 inhibitor developed by Pfizer (spun-out to Zoetis) and essentially created
the canine osteoarthritis pharmaceutical market when launched in 1997. Rimadyl and other COX-2
inhibitors are essentially first-line therapy for moderate-severe canine osteoarthritis. Notably, Rimadyl
holds the CVM record for most Adverse Drug Event reports and carries safety warnings on the label. In
addition, it is strongly recommended that dogs actively receiving COX inhibitors undergo continuous
blood monitoring to mitigate the chance of adverse events [10-11]. Many dogs simply cannot tolerate
COX inhibitors, and according to Aratana, the average time on COX inhibitors/Rimadyl is around 70-80
days per year. Of course, in a chronic condition such as osteoarthritis, this length of treatment is
massively inadequate. Other treatment options for osteoarthritis include nutraceuticals and opiates.
Theres simply is a lack of efficacious, tolerable, and differentiated treatments for canine osteoarthritis,
a clear opportunity for Galliprant if it is both safe and efficacious when used over longer periods of time.
As a small-molecule EP4 receptor antagonist, Galliprant is poised to be the most downstream modulator
of the arachidonic acid cascade approved for canine osteoarthritis. Major renal and hepatic adverse
events typically associated with COX inhibitors have not been seen in trials with Galliprant. In fact, blood
monitoring for Galliprant will apparently not be required. Galliprant was assessed in a randomized,
placebo-controlled, pivotal field study in 280 client-owned dogs diagnosed with osteoarthritis. Galliprant
was administered at 2 mg/kg per day by tablet for 28 days. The primary endpoint for this pivotal trial
conducted under CVM protocol concurrence was success rate on day 28 defined as an improvement
of 1 or more on the pain severity scale (PSS), an improvement of 2 or more on the pain interference
score (PIS), and overall impression same or better. PSS and PIS are part of the Canine Brief Pain
Inventory (CBPI), a questionnaire completed by the owner that is typically used in osteoarthritis clinical
trials. The trial met its primary endpoint, with a statistically significant (p<0.05) improvement compared
to placebo as measured by success rate on day 28, with 48% of participants responding in the Galliprant
treated cohort compared to 31% in the placebo cohort. In addition, Figure 5 displays the statistically
significant improvement in PSS and PIS in Galliprant treated dogs compared to placebo over the study
period [9, 12].
Figure 5 [8]
To emphasize, no major adverse events were detected in this trial, and the most common adverse
events were emesis, diarrhea, and decreased appetite. The clinical experience with Galliprant to date
supports the theory that Galliprant is a safer and more tolerable drug than COX inhibitors. With
Galliprants safety profile established, it is now a question of whether efficacy is comparable to Rimadyl
and other COX inhibitors.
There are a few key peer-reviewed publications assessing Rimadyl and other common treatments for
canine osteoarthritis in placebo-controlled clinical trials using CBPI as an efficacy endpoint. Brown et al.
investigated Rimadyl versus placebo in a randomized clinical trial recruiting 70 dogs previously
untreated for osteoarthritis. The group published two separate publications analyzing the data from this
clinical trial. Unfortunately, the way the data are presented and analyzed is inconsistent. Nevertheless,
these data can still be used to ballpark treatment efficacy in this clinical trial as measured by CBPI [1314]. Malek et al. investigated the effect of carprofen, tramadol, and ABT-116 measured by CBPI in a
placebo controlled clinical trial enrolling dogs with hip osteoarthritis [15]. To the best of my ability,
figure 6 presents these data compared to Galliprants pivotal field study data in terms of change in
baseline of CBPI PSS and PIS score. Of course, this comes with the typical caveat that cross-trial
comparisons are imperfect.
10
Canine Osteoarthritis CBPI Clinical Trial Data

N (active
arm)
Primary Endpoint
Assessment
Brown et al. (2008) Carprofen 4.4 mg/kg
35
Day 14
4.25 (median)
4.33 (median)
-47% (median)
-38% (median)
N/A
N/A
Brown et al. (2013) Carprofen 4.4 mg/kg
Study
Drug
Dose
Baseline Pain Severity

Baseline Pain
D14 PSS % Change
Score (PSS)
Interference Score (PIS) from Baseline
D14 PIS % Change

from Baseline
D28 PSS % Change D28 PIS % Change

from Baseline
from Baseline
33 (mITT)
Day 14
4.50 (median)
4.33 (median)
-27% (median)
-25% (median)
N/A
N/A
Malek et al.
Carprofen
13
Day 14
-39% (mean)
-42% (mean)
N/A
N/A
Malek et al.
Malek et al.
Aratana
Tramadol
ABT-116
AT-001
2 mg/kg
12
12
~140
Day 14
Day 14
Day 28
-25% (mean)
-15% (mean)
-30% (mean)
-47% (mean)
-20% (mean)
-34% (mean)
N/A
N/A
-36% (mean)
N/A
N/A
-41% (mean)
Figure 6
Fortunately, Brown et al. published retrospective analyses in 2013 that pooled data from their n=70
carprofen placebo-controlled study with data from an additional set of dogs collected in the same
manner [16]. These data were analyzed in a manner that reflected how likely individual treated patients
were to respond to treatment, as measured by CBPI. This analysis consisted of different cut-off criterion
for defining treatment success based on minimum improvements (reductions) in PSS and PIS. Figure 7
compares treatment success in this retrospective analysis to treatment success in Galliprants pivotal
field study. Although cross-trial comparison in this manner for these studies is not ideal, these data
continue to support the theory that Galliprants efficacy in canine osteoarthritis is comparable to
Rimadyl (carprofen).
CBPI Treatment Success Data Comparison (improvement on PSS 1 AND PIS 2)
N (active
Endpoint
Treatment
Further supporting the theory that
Study
Drug
Dose
Notes
arm)
Assessment
Success
Galliprant (EP4 antagonist) has
Success includes overall
Aratana
AT-001
2 mg/kg
~140
Day 28
48%
impression same or better
comparable efficacy to COX inhibitors
Population 2 (baseline
Day 14
46%
(Rimadyl, NSAIDs, etc.), Galliprant (RQ- Brown et al. (2013) Carprofen 4.4 mg/kg 116
PSS 2 and PIS 2)
Population 3 (baseline
7) has been shown to have comparable Brown et al. (2013) Carprofen 4.4 mg/kg 87
Day 14
51%
PSS 3 and PIS 3)
efficacy and improved safety in humans
Figure 7
compared to Naproxen (COX inhibitor)
in a clinical trial enrolling humans with osteoarthritis (please see Appendix for more info). The biology
responsible for Galliprants improved safety profile despite both class of molecules modulating the
arachidonic acid cascade is Galliprants downstream, targeted effect on EP4 receptor ligand binding.
These product properties support my belief that Galliprant if approved is positioned to potentially
become a competitive treatment in the canine osteoarthritis space beginning in 2016.
Entyce (AT-002)
AT-002 (capromorelin) is Aratanas growth hormone secretagogue in development for appetite
stimulation in dogs (and cats). Aratana acquired Entyce via a licensing agreement with RaQualia (see
Appendix for additional information). Entyce has had a successful canine clinical development path,
including a successful pivotal field study under CVM protocol concurrence. Aratana has received all
major technical section complete letters for Entyce for appetite stimulance in dogs. Aratana is guiding
to submit an NADA by the end of March 2016, setting up a US commercial launch (pending approval)
in late 2016. Efficacious appetite stimulance in dogs (and other companion animals) is an unmet need,
with no FDA approved drugs to date. Of note, mirtazapine has been used off-label to treat inappetence
and has shown intriguing data in cats; however, data in canines is lacking. For simplicity, I will focus on
11
the pivotal field study and key data from previous trials in canine inappetence to support this claim. But
before jumping into these data, a summary of Entyces mechanism of action and biology is appropriate.
Entyce (capromorelin) is an orally active growth hormone secretagogue that agonizes GHS-1 receptors.
This effect mimics the natural activity of
ghrelin a peptide with appetite regulating
and growth hormone secreting properties
(figure 8). Notably, ghrelin activity also leads
to an increase in insulin-life growth (IGF-1) a
molecule thought to be involved in lean body
mass regulation. Essentially, ghrelin activity
leads to appetite stimulation and increases in
lean (and total) body mass. The consequences
of ghrelin receptor agonism led Aratana to inlicense and develop Entyce for canine
inappetence. The data below briefly
Figure 8 [9]
summarize the efficacy of Entyce in canine
inappetence.
Entyces efficacy was assessed in three key canine clinical trials (2 field studies and 1 lab study). Entyces
pivotal study for canine inappetence was a blinded, placebo-controlled 2:1 randomized study in 244
client-owned dogs. Entyce was administered by oral liquid 3 mg/kg daily for 4 days to dogs with
inappetence for a variety of reasons. The primary endpoint of this study under CVM protocol
concurrence was owner
appetite assessment success
Entyce Pivotal Field Study Data Summary
rate on day 4. Available data for
Endpoint Success
Entyce Placebo P-value
this pivotal field study is shown
Increase in Appetite Assessment
68.6%
44.6% p=0.0078
in figure 9 [9, 17]. These data
Increase Appetite Questionnaire
56.2%
26.8% p=0.0071
support Entyces activity as an
Increase in Weight Gain
76.0%
44.6% p=0.0012
appetite stimulator and as a
Figure 9
facilitator of weight gain in dogs.
Entyces efficacy is corroborated by the two other canine clinical trials. In an earlier field study (n=36), 7
days of Entyce treatment led to statistically significant increases in weight gain and appetite scores
compared to placebo (Figures 10 and 11) [18].
12
Figure 11 [18]
Figure 10 [18]
Lastly, a 7-day placebo

controlled lab study assessing
Entyce in (n=34) beagles led to
statistically significant
increases in body weight and
food consumption compared
to placebo (figure 12 and 13)
[19].
In addition to these data in
dogs, Entyce (capromorelin)
Figure 13 [19]
Figure 12 [19]
was assessed in a placebocontrolled trial enrolling elderly adults. In this trial, Entyce led to a statistically significant increase in lean
body mass and total weight compared to placebo (please see Appendix for additional info).
In conclusion, the data from these three canine clinical trials, in conjunction with capromorelins human
clinical data (see Appendix), support my belief that Entyce is an efficacious treatment for inappetence,
and if approved can fill the unmet need for a FDA-approved therapeutic in this indication.
Nocita (AT-003)
Nocita (AT-003, Exparel) is Aratanas experimental local anesthetic in development for the treatment of
dogs (and cats) suffering from postoperative pain. Nocita (human brand name: Exparel) is an FDA
approved local anesthetic for human postoperative pain that Aratana licensed from Pacira
Pharmaceuticals. Simply put, Nocita is a liposomal time-release formulation of bupivacaine. Recall,
bupivacaine is a local anesthetic that functions by inhibiting sodium influx into nerves. Bupivacaine has
been effective as a postoperative local anesthetic in both animals and humans, however, its
effectiveness is measured in hours. Therefore, Aratana licensed Exparel from Pacira to expand
veterinarians postoperative pain management armamentarium to include a time-release local
anesthetic.
Nocita has had a successful canine clinical development path, including a successful pivotal field study
under CVM protocol concurrence. Aratana has received the safety and effectiveness technical section
13
complete letters from the CVM for Nocita. Aratana expects to receive FDA approval for Nocita as a
treatment for canine post-op pain in late 2016, positioning it to potentially become an important tool in
veterinarians perioperative pain management armamentarium. Below I will summarize the clinical data
that support this.
Aratana assessed Nocitas 72-hour analgesic activity in canines suffering from postoperative pain in two
field studies. In a randomized placebo-controlled (n=46) pilot field study, treatment with 5.3 mg/kg
Nocita facilitated 72-hour local analgesic activity in dogs undergoing lateral retinacular suture placement
for cranial cruciate insufficiency. Specifically, Nocita led to a statistical significant overall treatment
effect compared to placebo as measured by the Glasgow Composite Pain Scale (CMPS-SF). In addition,
dogs treated with Nocita had statistically significant greater number of treatment successes compared
to placebo over 24-hour intervals
Nocita Post-Op Canine Pivotal Study Data
assessed. Importantly, Nocita treated dogs
Endpoint
Nocita
Placebo P-value
also demonstrated a statistically significant
Primary endpoint Tx Success 0-24 hours
68.8%
36.5%
p=0.0322
Secondary endpoint Tx Sucess 24-48 hours
64.3%
34.6%
p=0.0402
reduction in need for rescue analgesia
Secondary
endpoint
Tx
Success
48-73
hours
61.6%
32.7%
p=0.0432
compared to placebo [20]. Aratana
Figure 14
proceeded to advance Nocita into a pivotal
randomized, placebo-controlled field study enrolling (n=182) dogs undergoing cranial cruciate ligament
stabilization surgery. Patients enrolled received up to a single dose of 5.3 [mg/kg] Nocita and were
assessed according to the CMPS-SF. The primary endpoint under CVM concurrence was treatment
success in the first 24 hours post-surgery (0-24 hours). Treatment success was defined as no pain
intervention, meaning no rescue analgesia or a score 6 on CMPS-SF [8, 21]. The data for the primary
endpoint, along with data for the secondary endpoints are shown in figure 14. These data support
Nocitas analgesic effect for up to 72-hours post-op.
Considering the lack of FDA-approved anesthetic agents that can provide similar efficacy as Nocita, if
approved, the product should be well-received by veterinarians. In addition, veterinarians should be
relatively comfortable with this therapeutic because of the history of bupivacaine use in animals. To
emphasize, the differentiation of Nocita from bupivacaine and other anesthetic agents is the 72-hour
time-release liposome formulation.
Nocita has demonstrated 72-hour local anesthetic activity in canines and humans in the postoperative
setting (please see Appendix for additional info). The lack of FDA-approved (and off-label) therapies than
can provide the same efficacy as Nocita positions it to become an integral treatment in canine
postoperative pain management.
14
Building the Aratana Brand

Building a company brand is extremely important in the companion
animal space; a brief and basic background on the commercialization
dynamics in the space is helpful to grasp its importance. The
commercialization dynamic in companion animals is vastly different
from the human therapeutic side, as depicted in figure 15 [9]. In
contrast to the human model, the veterinarian (doctor) typically
diagnoses conditions, prescribes medications, and sells (or assists in
acquiring) said medication to owners. Owners are typically
reimbursed by insurance after the fact a much different dynamic
Figure 15 [9]
than the human payor model. The key implication: veterinarians are Aratanas customers. In recent
years, many large animal health companies have begun offering their products through alternative sales
channels (big-box retailers). This has consequences for veterinarians because a portion of their
practices revenue is the result of directly
dispensing pharmaceuticals to the pet
owner. As an increasing number of
therapeutics are offered through
alternative sales channels, veterinarian
practices revenue from these products
decreases. Considering this, it is not that
surprising that veterinarians (n=267)
surveyed by Trone Brand Energy
communicated the importance of animal
health companies standing by their
products and offering them exclusively
Figure 16 [9]
through veterinarians (figure 16) [9]. In
addition to a pharmaceuticals profile, the attributes of the company and their distribution channels are
important to veterinarians as well. Interestingly, these veterinarians were also surveyed on how well
three of the large animal health companies fulfilled the specified criteria. According to the surveyed
veterinarians, the established companies in the animal health field are not catering to all their needs,
such as veterinarian exclusivity. This demonstrates that if Aratana can execute on a commercialization
strategy that specifically caters to the needs of veterinarians, products that improve on the standard of
care should be well received.
15
Aratana has already invested

extensively in their
commercialization strategy and
network. These efforts include
hiring/training the sales force,
interacting with key stakeholders
(commercial distributors, etc.), and
presenting their science at key
scientific conferences (a thorough
discussion of these efforts is outside
the scope of this paper). Aratanas
annual internal benchmark
awareness study depicted in figure
17 demonstrates that the company
has been successful at raising
awareness among veterinarians in a Figure 17 [9]
short amount of time even before any key (AT-001, AT-002, and AT-003) products are approved [8].
In conclusion, Aratana has been developing their brand and raising its awareness among veterinarians
YEARS before any of their key products (AT-001, AT-002, and AT-003) are approved. Considering the
commercial dynamics in the animal health space, if Aratana can execute on a commercial strategy that
emphasizes the needs of veterinarians, these efforts should translate into successful commercial
launches, paving the way to long-term success in the companion animal health space.
16
How Did We Get Here? The Investment Set-Up

With a background on the CVM review process, Aratanas key late stage pipeline assets, and the Aratana
brand, a suitable amount of contextual information has been provided so readers can fully grasp the
investment thesis and set-up. Figure 18 summarizes the key events driving the stock since the 2013 IPO:
Figure 18
I strongly believe that PETXs performance over the last 6-9 months does not reflect Aratanas
progress in advancing their pipeline towards regulatory approval and subsequent commercialization.
For simplicity, I will expand on recent events relevant to Aratana executing on advancing their pipeline
assets in dogs. In July 2015, Aratana announced positive pivotal results for AT-002 and AT-003 for dogs
with inappetence and postoperative pain [22-23]. Aratana also announced positive pilot field data for
AT-016 in dogs suffering from osteoarthritis [24]. Following these data, Aratanas stock went from
around $14/share to ~$17/share. This ($17/share) equates to around a $625 million market cap (36.8
million fully diluted shares outstanding).
On September 24, 2015, Aratana announced a product update for AT-001, AT-002, AT-003, AT-004, and
AT-005 in dogs via press release, outlined below [25]:
AT-001: received technical section complete letter for effectiveness from CVM. This was the
final major technical section complete letter required for the AT-001 NADA submission for
dogs with osteoarthritis. Aratana provided guidance for NADA submission in the 1st quarter of
2016, enabling a product launch in late 2016.
AT-002: submitted technical section for effectiveness to the CVM. Aratana provided guidance
for a response from the CVM by February 22, 2016. Aratana provided guidance for submitting a
NADA in early 2016 enabling a product launch in 2016.
17
AT-003: submitted technical section for effectiveness to the CVM. Aratana provided guidance
for a response from by CVM by February 20, 2016. Aratana provided guidance for expecting to
commercialize this product (if approved) in late 2016.
AT-004 and AT-005: Essentially, after doing an interim review of ongoing trials with these
biologics, Aratana announced they believe these products are not as efficacious as previously
believed, and despite being USDA-approved, management does not plan to aggressively market
these products as previously expected. Despite this, Aratana will keep these products available
to veterinarians since there are no alternative monoclonal antibody products available.
As expected, the negative updates pertaining to AT-004 and AT-005 were the main focus of the market,
leading PETX to drop from around $16/share that morning to ~$10.50/share at close on September 24.
Over the following few weeks, Aratanas stock price trickled down to around $7/share.
The next important update came on October 16, 2015 when Aratana announced a new $40 million
credit facility. Aratana used this credit facility to pay back an existing $15 million loan and to strengthen
their balance sheet without doing a dilutive financing. This credit facility was not without caveats: it
included a covenant that is very important to understand. Essentially, Aratana must have 3 full USDA or
FDA approved products by December 31, 2016. In addition, Aratana must receive $45 million in
additional funding (via issuance of equity or non-dilutive partnership/collaboration payments) by
October 16, 2016. Notably, Aratana also announced on October 16, 2015 a $52 million at-the-market
(ATM) offering via Barclays [26]. These events along with the deterioration of the favorable biotech
investing environment most likely facilitated Aratanas stock finishing 2015 at around $6/share.
Aratanas stock was not immune to the continued downward spiral of biotech stocks in 2016, and by
January 13, PETX was trading below $3/share on no new material news since the new financing in
October 2015. But Aratana has continued to execute. Between January 25 and February 23, 2016,
Aratana announced they filed for Galliprant (AT-001) approval in the US and EU for dogs with
osteoarthritis [27-28]. In addition, they also announced the reception of technical section complete
letters for effectiveness for Entyce (AT-002) and Nocita (AT-003) for dogs with inappetence and
postoperative pain, respectively [17, 21]. Despite these updates being immensely positive and de-risking
events (see above sections), Aratanas stock price continues to hover around $4/share equivalent to a
market cap of ~$150 million.
In my opinion, this significantly undervalues the potential future cash flows of Aratanas advancing
pipeline. I believe this inefficiency is occurring for a few key reasons:
The stock has been left for dead due to the indiscriminate selling in the biotech sector
The company and animal health space is not well understood
Overhang as a result of the debt covenant
I believe one of the most misunderstood aspects of the company is the contribution of their oncology
programs (AT-004, AT-005, and AT-014) to the companys future success and valuation. These oncology
programs became a central part of the investment thesis in 2015 because of the lack of significant valuedriving events for AT-001, AT-002, and AT-003 between 2014 and early 2015.
18
While AT-004 and AT-005 are Aratanas most advanced programs, the fact has always been that they are
niche products and not key sources of revenue. AT-001, AT-002, and AT-003, at a very basic level,
address everyday problems for veterinarians. For example, AT-001 may raise the standard of care for
dogs and cats suffering from pain and inflammation broadly; AT-002 may become the first FDAapproved treatment to address inappetence in dogs and cats. Lastly, AT-003 addresses the need for
additional treatment options specifically long-acting local anesthetics in the postoperative pain
setting.
I believe Aratanas stock price has been unduly punished for appropriately re-focusing their pipeline in
the most capital efficient manner. At the same time, Aratana has continued to move their key products
towards regulatory approval. Capital efficiency entails discontinuing programs in their pipeline no
matter what stage of development if the potential ROI is not favorable. Investors have lost focus on
the much larger market opportunities in AT-001, AT-002, and AT-003 compared to niche products like
AT-005 and AT-006. This misunderstanding and large drop in share price has opened the door to a
compelling risk/reward. Below I will provide very basic market and SOTP models that will allow for a
ballpark estimate for quantifying how much the market is discounting the potential revenue from
these products.
19
Market Opportunity and Valuation: Is the Market Mispricing Aratana?

Ive summarized why Galliprant, Entyce, and Nocita are safe and efficacious drugs for their respective
indications, now its a question of valuation. Below I will provide a very basic market and SOTP model for
these products.
Galliprant Canine Osteoarthritis Market Model
Before jumping into the canine osteoarthritis market model, a
synopsis of the key concepts contributing to the estimation of
key variables in the market model is appropriate. As I outlined
above, I believe Galliprants current data package supports that
it has close to the efficacy of Rimadyl with a superior safety
profile. Despite Galliprant appearing to be slightly less
efficacious (pain management) compared to Rimadyl,
Galliprants superior safety profile should give it a
commercialization advantage. In a chronic condition such as
canine osteoarthritis, analgesic therapy effectiveness is
maximized if treatment is not interrupted. Galliprants safety
profile could enable the mean treatment duration per year, on
average, per dog to be greater than Rimadyl (and other COX
inhibitors). According to Aratana, the average treatment
duration with Rimadyl in the chronic OA setting is about 75 days
per year. In addition, this will allow a greater number of
patients to be amenable to Galliprant (market penetration into
chronic OA patients currently not treated with NSAIDs).
Canine Osteoarthritis Market Model

# of Dogs as Pets (US)
70,000,000
% of Dogs Diagnosed with OA
20%
14.7m Dogs Diagnosed with OA
14,000,000
% of Dogs Treated for OA
60%
# of Dogs Treated for OA
8,400,000
% of Dogs Treated Chronically for OA
50%
# of Dogs Treated Chronically for OA
4,200,000
% Chronically Treated (>20 days) with NSAIDs
50%
# Chronically Treated (>20 days) with NSAIDs
2,100,000
% Chronically Treated non-NSAIDs
50%
Chronic OA Treated non-NSAID
2,100,000
Cost to Vet per Day
$
1.00
Average Treatment Duration per Year (days)
75
Current NSAID Tx Chronic OA Market Size
$ 157,500,000
Galliprant Canine Chronic OA Market Model
Cost to Vet per Day
$
1.00
Average Treatment Duration per Year (days)
150
% Penetration Chronic OA Previous NSAID Tx
15%
Peak Sales Chronic OA Previous NSAID Tx
$ 47,250,000
% Penetration Chronic OA non-NSAID Tx
15%
Peak Sales Chronic OA non-NSAID Tx
$ 47,250,000
Total Chronic OA Peak Sales
$ 94,500,000
Galliprant Canine Acute OA Market Model
% Sales Chronic OA
75%
% Sales Acute OA
25%
Peak Sales Acute OA
$ 31,500,000
Galliprant Canine OA US Peak Sales
$ 126,000,000
Figure 19
Galliprants greater amenable market and treatment duration

compared to Rimadyl (and other COX inhibitors) are key assumptions for Galliprants market model in
canine osteoarthritis. Additional assumptions are shown in figure 19 (assisted by Brakke Consultings
Pain Management in Dogs and Cats report) [1]. Notably, the cost to veterinarian per day (WAC/day) is
assumed to be similar to Rimadyl ($1.00-1.50/day), and market penetration estimations appear to be
conservative estimates considering market research conducted by Ipsos, for Aratana. Figure 20 shows
the likelihood that veterinarians surveyed (n=254) would prescribe Galliprant if it is competitively priced
[8].
20
Figure 21 [9]
Figure 20 [9]
Figures 21 and 22 show surveyed

veterinarians potential use of
Galliprant in disease progression
and their adoption of the drug,
respectively [8].
Although this market research is
inherently biased and subject to
the typical market research
caveats, it does, to a degree,
support the potential conservative Figure 22 [9]
nature of the market penetration assumptions used in the Galliprant market model.
Entyce Canine Inappetence Market Model
Entyce is positioned to become the first FDA approved treatment
AT-002 US Canine Inappetence Market Model
# of Dogs as Pets (US)
70,000,000
for canine inappetence. As outlined above, the current clinical
% of Dogs Inappetent
12%
8,400,000
data package for Entyce in canine inappetence is the most robust # of Dogs Inappetent
% of Dogs Treated for Inappetence
43%
in terms of efficacy (that I am aware of) in this indication to date. # of Dogs Treated
3,612,000
# of Dogs Untreated
4,788,000
This concept is one of the key determinants in estimating
% Chronically Treated
56%
# of Dogs Chronically Treated
2,022,720
potential peak market penetration for the basic Entyce market
% Acute Treated
44%
model (figure 23). A second determinant for peak market
# of Dogs Acute Treated
1,589,280
Cost to Vet per Day
$
1.00
penetration estimates is market research prepared for Aratana
Average Chronic Tx Duration (Days)
40
Avgerage Acute Tx Duration (Days)
4
by GfK. 32% of veterinarians surveyed (n=155) say they are
% Penetration Chronic Previous Tx
50%
satisfied with current products for inappetence. In addition, 81% Peak Sales Chronic Previous Tx
$ 40,454,400
% Penetration Acute Previous Tx
50%
of veterinarians surveyed feel there is a need for a product
Peak Sales Acute Previous Tx
$
3,178,560
% Penetration "Tx-nave" Chronic
40%
indicated to treat inappetence. Importantly, figure 24 shows
Peak Sales "Tx-nave" Chronic
$
3,236,352
surveyed veterinarians indicated a strong likelihood of
% Penetration "Tx-nave" Acute
40%
Peak Sales "Tx-nave" Acute
$
2,542,848
recommending, and the subsequent adoption of the product by
AT-002 US Canine Inappetence Peak Sales
$ 49,412,160
owners [8].
Figure 23
21
Figure 24 [8]
Figure 25 [8]
In my market model, the average treatment duration estimation is based on the same veterinarians
indication of the average time per year needed to treat inappetence (figure 25). Although this market
research is imperfect, we can still use it to estimate some key variables in the market model.
Nocita Canine Postoperative Pain Market Model
Nocita is positioned to become an integral part of
veterinarians postoperative pain management treatment
armamentarium. Local anesthetics importance to the
perioperative pain management process is highlighted in
the 2015 AAHA/AAFP (American Animal Hospital
Association, American Association of Feline
Practitioners) Pain Management Guidelines for Dogs and
Cats. Figure 26 highlights that these guidelines emphasize
a multimodal approach to perioperative pain
management that includes local anesthetics (LAs).
According to the guidelines, local anesthetics are the only
class of drug that can provide complete analgesia to the
Figure 26 [29]
patient. The importance of this drug class to the
perioperative treatment armamentarium cannot
be overstated. In fact, the 2015 AAHA/AAFP
Guideline Task Force (authors), supports the
International Veterinary Academy of Pain
Management position that, because of their
safety and significant benefit, [local anesthetics]
should be utilized, insofar as possible, with every
surgical procedure [29]. Considering these
guidelines and that Nocita is positioned to be the
Figure 27 [9]
first time-release long-acting local anesthetic
FDA-approved for canine postoperative pain, Nocitas market opportunity appears very promising.
22
Unfortunately, modeling Nocitas market opportunity in postoperative pain is difficult. Therefore, a basic
model may be the most useful to provide an estimate of potential peak sales. This model is aided by
market research conduct by GfK for Aratana [8]. The results of the market research depicted in figure 27
indicate that surveyed veterinarians (n=152) are likely to use Nocita in a wide range of surgical
AT-003 Canine Model (US)
procedures.
Figure 28 shows the basic Nocita canine postoperative
market model. Although this model needs to be
interpreted with caution, it can still be used to estimate
the potential market opportunity. Importantly, the
AAHA/AAFP Pain Management Guidelines support the
theory that the market opportunity could be much larger
than consensus estimates.
Sum of the Parts (SOTP) Valuation Model
# Dogs as Pets US
% of Dogs Undergoing Surgery
# of Dogs Undergoing Surgery
% of Dogs Undergoing Very Painful Surgery
# of Dogs Undergoing Very Painful Surgery
% of Dogs Receiving LA (normal surgery)
# of Dogs Receiving LA (normal surgery)
% of Dogs Receiving LA (very painful surgery)
# of Dogs Receiving LA (very painful surgery)
Total Receiving LA
Cost to Vet (per treatment course/surgery)
$
Estimated
$
Figure
28Peak Sales
70,000,000
10%
7,000,000
5%
3,500,000
5%
175,000
30%
1,050,000
1,225,000
40
49,000,000
A sum-of-the-parts (SOTP) net present value (NPV) model for AT-001, AT-002, and AT-003 in dogs and
cats in the US and EU is used herein to value Aratana. This model (figure 29) assumes Aratana intends to
capture the EU (ex-US) market opportunity via a partnership with another animal health company. In
this scenario, Aratana receives an upfront cash payment and royalties on sales. In this model, a higher
discount rate is used for the feline programs due to their greater risk. A sales multiple of 4 is used
because it is the typical multiple of companies in the space (Zoetis currently trades at about 4x 2015
sales). In addition, future dilution of 20% of current outstanding shares is assumed. Notably, EU peak
sales are assumed to be 60% of US peak sales and gross margins in line with industry norms (65%).
Assumptions
Basic US Valuation Model For AT-001, AT-002, and AT-003 US
Please see the
Discount Rate (Dogs)
12.0%
Asset
NPV
Market Value
SOTP
Appendix for the
Discount Rate (Cats)
20.0%
AT-001 (Dogs)
2023
$ 126,000,000 $ 56,996,001 $ 227,984,005 $5.16
Current Year
2016
AT-002 (Dogs)
2023
$ 49,412,160 $ 22,351,552 $ 89,406,207 $2.02
AT-001, AT-002,
Ex-US Royalties
15.0%
AT-003 (Dogs)
2023
$ 49,000,000 $ 22,165,112 $ 88,660,446 $2.01
EU Peak Sales (% of US)
60%
AT-001 (Cats)
2026
$ 166,500,000 $ 26,890,680 $ 107,562,718 $2.44
and AT-003 feline
U/F Payment
$ 45,000,000
AT-002 (Cats)
2025
$ 17,760,000 $ 3,442,007 $ 13,768,028 $0.31
market model.
Sales Multiple
4.0
AT-003 (Cats)
2026
$ 37,000,000 $ 5,975,707 $ 23,902,826 $0.54
Shares OS
36,800,000
Total $ 551,284,230 $ 12.48
Future Dilution
20%
As with any
Issued SH
7,360,000
Basic EU Valuation Model AT-001, AT-002, and AT-003
modeling,
Future SH OS
44,160,000
Asset
NPV
Market Value Royalties SOTP
# of Dogs as Pets
70,000,000
AT-001 (Dogs)
2024
$ 75,600,000 $ 30,533,572 $ 122,134,288 15.0%
$0.41
interpret with
# of Cats as Pets
74,000,000
AT-002 (Dogs)
2025
$ 29,647,296 $ 10,691,112 $ 42,764,449 15.0%
$0.15
65%
AT-003 (Dogs)
2025
$ 29,400,000 $ 10,601,935 $ 42,407,739 15.0%
$0.14
caution due to the Gross Margins (Peak Yr)
AT-001 (Cats)
2028
$ 99,900,000 $ 11,204,450 $ 44,817,799 15.0%
$0.15
large number of
Other (as of 12/31/2015)
AT-002 (Cats)
2027
$ 10,656,000 $ 1,434,170 $ 5,736,678 15.0%
$0.02
Cash Position
$86.2M
AT-003 (Cats)
2028
$ 22,200,000 $ 2,489,878 $ 9,959,511 15.0%
$0.03
variables. My
Debt
$39.7M
U/F Payment
2016
$ 45,000,000 $ 45,000,000 $ 45,000,000 100.0% $1.02
model could be
$1.93
Target Price $14.41
overestimating, or
Figure 29
even
underestimating
the future revenue from these products. Of note, Im attempting to model a chicken and egg market,
where the potential market size is simply not understood because its so immature, or non-existent
today. That said, considering the valuation derived from the full SOTP model, there appears to be a lot
23
of value not currently

priced into the stock. My
belief that there is a lack
of value currently being
priced into Aratanas
stock is further supported
by a SOTP analysis for
different scenarios (figure
30).
Figure 30
24
Conclusion
Despite what Aratanas stock price indicates today, management has been executing on advancing their
key products (AT-001, AT-002, and AT-003) to their respective commercial launches. As outlined above, I
believe each of these products are significantly derisked and have a large commercial opportunities.
Each of these drugs has obtained at least proof of concept data in humans, and each have robust data
packages in canines supporting their potential improvement over standard of care. Despite this, the
market appears to be discounting a significant portion of the potential future cash flows from these
products. Notably, this analysis does not include any future value creation from Aratanas USDA
approved products (AT-004 and AT-005) or from Aratanas other promising pipeline assets (AT-014 and
AT-016). To me, this is rather surprising considering
Aratana is poised to potentially have Galliprant,
Entyce, and Nocita FDA approved in 2016, two of
which (Galliprant and Entyce) are pet therapeutic
new chemical entities (NCEs). According to data
from Aratana and the CVMs Green Book, there has
been only 4 pet therapeutic NCEs excluding parasite
drugs in the past 5 years (figure 31). This is just one
simple way of depicting the lack of innovation in
the companion animal space. To emphasize,
Aratana is positioned to have 2 pet therapeutic
Figure 31 [9]
NCEs in 2016 (Galliprant and Entyce) when there
have only been 4 others (excluding parasite drugs) since 2011.
Considering everything presented in this paper, I believe the market is inefficiently valuing Aratana
providing the opportunity for an intriguing investment in terms of risk/reward. Although the risk/reward
is not as skewed at $4.50 than when the stock was trading in the $3s, the above analysis supports my
belief there is still a lot not being priced into Aratana.
25
Appendix
Aratana acquired exclusive rights to AT-001 (also known as RQ-7, AAT-007) in the animal health field
from RaQualia (Pfizer Japanese spin-out) via an exclusive intellectual property licensing deal in 2010. The
patents licensed include composition of matter claims and methods of treatment conditions such as
osteoarthritis, pain, inflammation, and rheumatoid arthritis in regions such as US, Canada, Europe, India,
Japan, South Korea, Mexico, and Russia. RQ-7 has achieved positive data in two human phase II clinical
trials. In a 7 day, randomized, phase II gastrointestinal healthy volunteer study, RQ-7 was assessed
compared to Naproxen (COX-1/2 inhibitor NSAID). Across
most dose cohorts, 75 [mg] BID RQ-7 demonstrated
statistically significant difference in gastrointestinal ulcer
endpoints compared to 500 [mg] BID Naproxen [1]. RQ-7
was also assed in a 4 week, randomized, placebo-controlled,
phase II study comparing RQ-7 and Naproxen efficacy in
osteoarthritis patients as assessed by WOMAC pain scores.
As shown in figure 32, RQ-7 and demonstrated a statistically
significant differences in placebo as assessed by mean
change from baseline in WOMAC scores across various dose
cohorts in this study [30]. In conclusion, RQ-7 demonstrated Figure 32 [30]
comparable efficacy and an improved gastrointestinal safety profile compared to Naproxen (COX-1/2
inhibitor) in human phase II clinical trials.
Aratana acquired exclusive rights to AT-002 (aka RQ-5, capromorelin) in animal health field from
RaQualia (Pfizer Japanese spin-out) via an exclusive intellectual property licensing deal in 2010. The
patients licensed include composition of matter claims, claims of methods promoting release of
endogenous growth hormone, and claims of treating inappetence in regions such as US, Canada,
Europe, India, Japan, South Korea, Mexico, and Russia [1]. Capromorelin has been assessed in multiple
human clinical trials, however, herein results from the single trial with the most published data is
reviewed. In this randomized, placebo-controlled human phase II (n=295) clinical trial, capromorelin was
administered to older, functionally limited adults. The primary endpoint of the trial was percent lean
body mass (LBM) and percent fat body mass (FBM) as measured at the 6-month interim analysis. This
trial was terminated at the interim analysis because the primary endpoint did not met the specified cutoff of p<0.1 at the 6-months analysis. Despite the trial failing, capromorelin appears to be an active drug
as shown in figure 33, however, it simply is not reflected in the chosen primary endpoint. Patients
treated with capromorelin had a statistically significant increase in LBM compared to placebo at 6 and
12 months. In addition, patients treated with capromorelin had increased total body weight compared
to placebo that was measured as statistically significant at 6 months (12 months p=0.06; less statistical
power). The authors also noted capromorelin treated patients had increased appetite which most likely
contributed to their increase LBM [30].
26
Figure 33 [31]
In conclusion, capromorelin has demonstrated the ability to stimulate appetite and lead to weight gain
in older adults in a 6-12 month phase II trial.
In 2012, Aratana obtained exclusive, worldwide rights to AT-003 (Exparel) in the veterinary field from
Pacria Pharmaceuticals to commercialize AT-003. Under the agreement, Aratana obtained rights to
patent and patent applications in the US, Europe, Canada, Australia, Japan, and other regions. These
patents include claims to composition of matter and methods for treating postoperative pain. AT-003
(human trade name: Exparel) was FDA approved for human postoperative pain in 2011. In two
randomized, placebo-controlled phase III clinical trials, Exparel demonstrated statistically significant
analgesia through 72 and 24 hours for the tissue surgery and orthopedic surgery phase III trial,
respectively. In addition, the phase III trials also met their secondary endpoints including decreased
opioid use and delayed time to first opioid use compared to placebo [1, 32]. In conclusion, Exparel has
demonstrated robust local analgesia activity in humans and was FDA approved for postoperative pain in
2011.
AT-016 (allogenic adipose-derived stem cells) For Canine Osteoarthritis
In June 2014, Aratana announced an exclusive license agreement with Vet-Stem granting Aratana rights
to Vet-Stems allogenic stem cells (denoted AT-016) for the treatment of pain and inflammation of
canine osteoarthritis [6]. Aratana funded Vet-Stems placebo-controlled pilot study in (n=90) client
owned dogs. In this study, AT-016 demonstrated a statistically significant improvement in treatment
versus placebo [33]. Aratana is currently working towards CVM protocol concurrence for the potential
pivotal field effectiveness study. In addition, Aratana is working to establish more favorable COGS for
AT-016. If FDA approved, Aratana believes AT-016 could be commercialized as early as 2018 [33].
To my knowledge, this is the first placebo-controlled study assessing Vet-Stems allogenic adiposederived stem cells (ad-SCs). For background, Vet-Stem has had an extensive background utilizing
autologous ad-SCs for osteoarthritis in canines, although most of the use has occurred outside of
placebo-controlled clinical trials. Although a thorough review of Vet-Stems autologous ad-SCs use and
data in canine osteoarthritis is out of the scope of this paper, it is worth mentioning there have been
27
two small placebo-controlled trials that generated promising data [34-35]. It is also worth mentioning
that there will inherently be push-back in the scientific community for commercializing stem cell
products, especially allogenic products. In addition, Vet-Stems autologous ad-SC therapys efficacy has
been called to question in the past [36].
In conclusion, Aratana, in collaboration with Vet-Stem, have generated positive pilot field data in canine
osteoarthritis with AT-016. Although there is certainly controversy in the chances of successfully
commercializing stem cell therapeutics, this deal at minimum demonstrates Aratanas continued
adherence to their mission of developing medicines that could potentially raise the standard of care for
companion animals. Notably, none of the potential value creation as a result of AT-016 is factored into
this papers Aratana valuation.
AT-001, AT-002, and AT-003 Feline Market Models
AT-001 Cat Model (US)
# of Cats as Pets (US)
% of Cats with Osteoarthritis
# of Cats as Pets with Osteroarthritis
Average time on Tx/year
Cost to Vet per Day
% of Cats chronically treated for OA
Treatable market (peak sales year)
Potential Peak Sales
% Penetration (chronic) Peak Sales Year
Estimated Peak Sales
74,000,000
15%
11,100,000
150
$1.00
20%
2,220,000
$ 333,000,000
50%
$ 166,500,000

# of Cats as Pets in US
% Cats with Inappetence
Cats with Inappetence US
Average Time on Drug per Year
Cost to Vet per Day
% Cats Treated for Inappetence
Potential Treatable Market Size
Potential Peak Sales
% Penetration Treatable Market
74,000,000
10%
7,400,000
40
$1.00
40%
2,960,000
$ 118,400,000
15%
$ 17,760,000

# of Cats as Pets US
% of Cats Undergoing Surgery
# of Cats Undergoing Surgery
% of Cats Undergoing Very Painful Surgery
# of Cats Undergoing Very Painful Surgery
% of Cats Receiving LA (normal surgery)
# of Cats Receiving LA (normal surgery)
% of Cats Receiving LA (very painful surgery)
# of Cats Receiving LA (very painful surgery)
Total Receiving LA
Cost to Vet (per treatment course/surgery)
$
$
74,000,000
5.0%
3,700,000
2.0%
1,480,000
15%
333,000
40%
592,000
925,000
40
37,000,000
Figures 34-36
List of Potential Upcoming Key 2016 Events
Galliprant (AT-001) NADA ADUFA date by March 25, 2016

Nocita (AT-003) CMC Technical Section ADUFA date June 7, 2016
Entyce (AT-002) NADA Filing By end of March 2016
Nocita (AT-003) NADA Filing By the end of Summer 2016
Entyce (AT-002) NADA ADUFA data 60 days after NADA filing (by May 2016)
Nocita (AT-003) NADA ADUFA data 60 days after NADA filing
AT-014 Conditional USDA Approval by end of 2016
Debt Covenant Equity Deal resolution by October 16, 2016
Potential Product Launches:
o Galliprant: Fall or late 2016
o Entyce: Late 2016 or early 2017
o Nocita: Late 2016 or early 2017
28
References
[1] http://www.sec.gov/Archives/edgar/data/1509190/000119312514025271/0001193125-14-025271index.htm
[2] http://aratana.investorroom.com/download/1Q2016+PETX+Corporate+Presentation_v2.pdf
[3] http://aratana.investorroom.com/2013-10-14-Aratana-Agrees-to-Acquire-Vet-Therapeutics-Inc
[4] http://aratana.investorroom.com/2014-01-06-Aratana-Therapeutics-Acquires-Okapi-Sciences-NV
[5] http://aratana.investorroom.com/2014-03-19-Aratana-and-Advaxis-Enter-Exclusive-Global-LicensingAgreement
[6] http://aratana.investorroom.com/2014-06-12-Aratana-Therapeutics-Expands-Pain-Franchise-withNovel-Regenerative-Cell-Therapy-for-Treating-Osteoarthritis
[7]
http://www.fda.gov/downloads/AnimalVeterinary/GuidanceComplianceEnforcement/GuidanceforIndus
try/UCM052532.pdf
[8]
http://www.fda.gov/downloads/AnimalVeterinary/GuidanceComplianceEnforcement/GuidanceforIndus
try/UCM241787.pdf
[9] Aratana Investor Day Slides
[10]
http://www.fda.gov/downloads/AnimalVeterinary/SafetyHealth/ProductSafetyInformation/UCM055404
.pdf
[11]
http://www.fda.gov/downloads/AnimalVeterinary/Products/ApprovedAnimalDrugProducts/DrugLabels/
UCM050406.pdf
[12] http://aratana.investorroom.com/2014-12-18-Aratana-Therapeutics-Announces-Positive-Top-LineResults-from-AT-001-Pivotal-Field-Study-in-Client-Owned-Dogs-with-Osteoarthritis
[13] http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2896492/
[14] http://www.ncbi.nlm.nih.gov/pubmed/23311715
[15] http://bmcvetres.biomedcentral.com/articles/10.1186/1746-6148-8-185
[17] http://aratana.investorroom.com/2016-02-23-Aratana-Therapeutics-Receives-Technical-SectionComplete-Letter-for-Effectiveness-for-AT-002
29
[18] http://library.aratana.com/?media_dl=366
[21] http://aratana.investorroom.com/2016-02-22-Aratana-Therapeutics-Receives-Technical-SectionComplete-Letter-for-Effectiveness-for-AT-003
[22] http://aratana.investorroom.com/2015-06-26-Aratana-Therapeutics-Announces-Positive-PivotalResults-for-AT-002
[23] http://aratana.investorroom.com/2015-07-14-Aratana-Therapeutics-Announces-Positive-PivotalResults-for-AT-003
[24] http://aratana.investorroom.com/2015-07-30-Aratana-Therapeutics-Announces-Positive-PilotField-Study-for-AT-016
[25] http://aratana.investorroom.com/2015-09-24-Aratana-Therapeutics-Provides-Product-Updates
[26] http://aratana.investorroom.com/2015-10-16-Aratana-Therapeutics-Announces-a-40-MillionCredit-Facility
[27] http://aratana.investorroom.com/2016-01-25-Aratana-Therapeutics-Files-for-First-FDA-Approval
[28] http://aratana.investorroom.com/2016-02-17-Aratana-Therapeutics-Files-for-First-EuropeanApproval
[29]
https://www.aaha.org/public_documents/professional/guidelines/2015_aaha_aafp_pain_management
_guidelines_for_dogs_and_cats.pdf
[30] http://askat.co.jp/pdf/1N_Pain.pdf
[31] http://press.endocrine.org/doi/abs/10.1210/jc.2008-0632
[32] http://www.accessdata.fda.gov/drugsatfda_docs/nda/2011/022496Orig1s000MedR.pdf
[33] http://www.sec.gov/Archives/edgar/data/1509190/000150919015000049/petx20150930x10q.htm
[36] http://thebark.com/content/should-you-treat-your-dog-stem-cell-therapy
30
Disclosure
Mr. Fink and/or his affiliates hold a long position in Aratana Therapeutics. Mr. Fink has a conflict of
interest and will benefit financially if the stock price of PETX rises. This document does not constitute
investment advice and is only a demonstration of an investors thought process.

All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any
form or by any means, including photocopying, recording, or other electronic or mechanical methods,
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critical reviews and certain other noncommercial uses permitted by copyright law.
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Aratana Therapeutics: Something New in Animal Health

Veterinary Medicine Regulation: The FDAs CVM and USDA

A Review of Aratanas Key Pipeline Assets

Galliprant for Canine Osteoarthritis

Entyce for Canine Inappetence

Nocita for Canine Postoperative Pain

Building the Aratana Brand

How Did We Get Here? The Investment Set-Up

Market Opportunity and Valuation: Is the Market Mispricing Aratana?

Galliprant Canine Osteoarthritis Market Model

Entyce Canine Inappetence Market Model

Nocita Canine Postoperative Pain Market Model

SOTP Valuation Model

AT-002 Licensing Deal and Human Data

AT-003 Licensing Deal and Human Data

AT-016 (allogenic adipose-derived stem cells) For Canine Osteoarthritis

AT-001, AT-002, and AT-003 Feline Market Models

List of Potential Upcoming Key 2016 Events

Aratana's Key Late Stage Pipeline Assets

Veterinary Medicine Regulation: The FDA and USDA

GFI #132: Administrative Applications and the Phased Review Process

Chemistry, Manufacturing, and Controls (CMC)

A Review of Aratanas Key Pipeline Assets

Canine Osteoarthritis CBPI Clinical Trial Data

Brown et al. (2008) Carprofen 4.4 mg/kg

Brown et al. (2013) Carprofen 4.4 mg/kg

Baseline Pain Severity

D14 PIS % Change

D28 PSS % Change D28 PIS % Change

CBPI Treatment Success Data Comparison (improvement on PSS 1 AND PIS 2)

Lastly, a 7-day placebo

Building the Aratana Brand

Aratana has already invested

How Did We Get Here? The Investment Set-Up

Market Opportunity and Valuation: Is the Market Mispricing Aratana?

Canine Osteoarthritis Market Model

Galliprants greater amenable market and treatment duration

Figures 21 and 22 show surveyed

Total $ 551,284,230 $ 12.48

of value not currently

AT-002 Cat Model (US)

AT-003 Cat Model (US)

List of Potential Upcoming Key 2016 Events

Galliprant (AT-001) NADA ADUFA date by March 25, 2016

Copyright 2016 by Zachary Fink

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