Veterinary medicine more skilled and specialized than ever
Biotechnology & DrugsSector:
Healthcare, NASD: HSKA
Heska Corporation
1613 Prospect Parkway, Fort Collins, CO 80525
Phone: 970-493-7272
Robert Grieve, Chairman and Chief
Executive Officer
Interviewer conducted by: Diane Reynolds, Co-Publisher
CEOCFOinterviews.com - December 2000
Brief History and
Background:
My name is Robert
Grieve; I was an academic and outside technical founder for Heska. In 1988, I was
recruited as an outside founder by the founding venture capitalist. Over time, I elected
to leave academics and join the company, first as Vice President of research and
development, then as Chief Scientific Officer. During both of those positions I was also
Vice Chairman and then, most recently, January 1, 1999, I took over as CEO, having learned
more about the business aspects of Heska over that period of time.
CEOCFOinterviews: You mentioned that you were
involved in the product development, don’t you miss the hands on side of the
business?
Robert Grieve: Sure, creating
the products, both from beginning with the technical idea for the product and its fit in
the market place all the way through making it happen is very exciting. In the position I
currently hold, I am able to still oversee some of that, not the detail, not the day to
day but certainly help to oversee the programs, make sure that the product pipeline is
appropriate to the market place and then finally oversee the commercial side of the
operation to see that those great products are effectively commercialized.
CEOCFOinterviews: Explain to my
readers…”Who is this company?”
Robert Grieve: Heska
Corporation is essentially a biotechnology company. Our mission is to create products
exclusively for use by veterinarians for companion animals. Companion animals are dogs,
cats and horses. We’re unique in the animal health industry in that we’re
singularly focused on companion animal health. We’re also relatively unique in the
emphasis we put on research and development, certainly in proportion to our revenues and
our size. We commit a lot of resources, human capital and financial capital, exclusively
towards companion animal health using many aspects of biotechnology as a means to that
end.
CEOCFOinterviews: In the past two years you’ve
been going through some restructuring. Why and is there more to come?
Robert Grieve: Earlier this
year, we completed all the restructuring that we had planned to do when I took over as
CEO. That restructuring included closing an operation that was integrated into existing
operations. We also sold nonprofitable businesses in the United Kingdom and on Long
Island, and eliminated unprofitable or nonstrategic products that we had been selling.
Those are some of the actions that we have completed and the net effect is we have a far
more focused business base now than we did some two years ago. These are changes that we
envisioned and planned from the beginning of 1999. It’s not to say we won’t make
other changes, add product lines, and subtract product lines and so forth, as we continue
to build the business. The business restructuring that had been planned, however, has been
essentially completed.
CEOCFOinterviews: Aren’t there other animals
besides the companion animals that could benefit from some of the research and development
that you’ve done?
Robert Grieve:
There’s no question that the research we do benefits more than dogs, cats and horses.
You’ll see a history of press releases in the past year and a half or so, where
we’ve been out licensing our technology even into human medicine. Beyond that, some
of the research we do could be of value for livestock. In these regards, we’re always
interested to find someone who’s in that business, out licensing the technology and
perhaps giving up some of the upside in those areas. We do this so that we’re very
focused in this one market place. We think focus is critical for success.
CEOCFOinterviews: How much of the company is
diagnostic and patient monitoring instrumentation and do you get revenues from this side
of the business?
Robert Grieve: We haven’t
disclosed our various business segments to that level of detail, but instrumentation
comprises a substantial portion of our revenue. I would say it’s been an important
opportunity in that the veterinarian is relatively underserved with respect to vendors
offering high-end technology in the form of diagnostic and monitoring instruments. They
typically are provided these instruments as refurbished human instruments or on a very
spotty basis by smaller companies. We’ve assembled an important growing line of
instruments with a consumable supply stream that goes with those instruments that provide
ongoing revenue. We’ve done all of this with an eye specifically on the veterinarian
and the unique attributes of companion animals. We’ve surrounded the product
offerings with a lot of service providing technical support for those instruments.
CEOCFOinterviews: Where is the manufacturing of all
the instruments and monitoring instrumentation done?
Robert Grieve: It varies, we
typically OEM the manufacturing and in some instances we’ve actually taken an
instrument from the human side, adopted it for veterinary use and directly distributed it
as a Heska product. One important example would be our relationship with iSTAT. iSTAT
makes a very nice handheld blood chemistry instrument with disposable cartridges. It was
initially designed for human medicine and we’ve taken this particular product on,
adapted it for use in companion animal health and distributed it under the Heska brand.
CEOCFOinterviews: Has the new cancer treatment that
you’re now using for dogs has actually gone into human clinical trials?
Robert Grieve: I want to
emphasize that with respect to our cancer therapeutic product, it is not yet completed.
The cancer therapeutic product is probably two years from the market place. It’s a
product where we’ve taken a technology license from Valentis and Valentis in turn is
developing a very similar product for human use. It’s a very nice synergy between a
biotechnology companion health company like ours and a biotechnology human health company
like Valentis.
CEOCFOinterviews: Are you a global company?
Robert Grieve: Corporate
headquarters and our principal business concerns are here in the United States. We have a
small effort in Europe with around fifteen people who primarily manage several
distribution relationships. Our European staff also are involved in supporting the
regulatory process for products in Europe as well as providing a certain amount of
marketing support.
CEOCFOinterviews: Do you see other countries you
might be moving into or feel would be strategic at this point?
Robert Grieve: Certainly in
the near term, North America is the essential market. At least half of our market place
worldwide is in North America and roughly a quarter of that market is in Western Europe,
including the United Kingdom. That is really where our focus is at present. There’s
some ten percent of our market in Japan and after that it is relatively insignificant.
CEOCFOinterviews: You have one alliance and that
alliance has been going on for two years now. Are you just now seeing results from that?
Robert Grieve: We’ve
generated the first product from the Ralston-Purina alliance which we announced mid this
year. It’s a diabetic diet for cats where Heska technology was essentially
co-developed with Ralston Purina . Ralston-Purina
markets the product. We certainly hope that there will be more diets that come out of that
alliance. We also have an existing corporate relationship with Novartis Animal Health
where we have a number of cooperations in research and development and different
distribution relationships as well.
CEOCFOinterviews: Would you say you rely very heavily
on your relationships?
Robert Grieve: We believe that
a creative approach to alliances with big partners, in some cases even big partners that
can be competitors in other areas, are absolutely essential to maximizing the value of Heska.
CEOCFOinterviews: Is this affordable, easily
obtainable and are the veterinarians educated on the uses?
Robert Grieve: Yes. Our first
intention is to always make affordable products. Products that work which aren’t in
reach financially are more frustrating than they are helpful, so they have to be made
affordable. The two-edge sword here, if you will, is that there is no substantial health
insurance established for companion animals here in the United States. It’s growing, but
it’s not yet substantial. That’s sort of the bad news in terms of high-end,
expensive products. The good news though, is that I suppose we are not to the point that
HMO’s or even the government are making spending decisions for people and their pets.
So, it’s purely a situation where a pet owner, a consumer, is making a discretionary
decision as to what they think they can afford.
CEOCFOinterviews: As pet insurance becomes more
popular, will prices go up to compensate for the insurance?
obert Grieve: It’s hard
to predict that trend, at least in the near term. Some of the opportunities provided to
pet owners by insurance companies certainly seem to make sense particularly in terms of
catastrophic care in companion animals. A pet
owner may be facing a decision they just don’t want to make if it’s euthanasia
versus treatment. Say for a serious surgery, it may cost several thousand dollars; they
would be able to afford that if they had insurance. Otherwise, they’re looking at
euthanizing someone with whom they’ve created a real special relationship.
CEOCFOinterviews: How much does your company spent in
R&D a year?
Robert Grieve: We’ve been
spending on the order of fifteen to seventeen million dollars a year.
CEOCFOinterviews: How would you characterize your
company?
Robert Grieve: First, Heska is
what some in the investment community would call a “pure play”. We’re very
unusual, which is good and bad. It’s good for an investor that understands the
long-term value of the investment. It’s bad because were so unusual, in some
instances we’re off of everyone’s radar screen. We are focused in companion
animal health. There isn’t another public company that I am aware of that is
completely focused in companion animal health. Companion animal health is key because this
is a very rapidly growing area. People are spending more every year on dogs and cats and
their veterinary care than ever before. There
are more households with dogs and cats than ever before. Our human demographics are
changing such that we have more people with empty nests, more baby boomers with more
discretionary income who are very interested in the companionship afforded by these
relationships. So, I believe we’ll see
growth in our society in the value of the dogs, cats and horses. Couple that with the fact
that veterinarian demographics are also
changing. They are more skilled and more specialized than ever before; looking for more
value-added products so that they can provide more to their client and that dog or cat.
Finally, the demographics of animals themselves are changing because all this attention
and extra care causes them to live longer than ever. We’re seeing an additional
spectrum of diseases in animals associated with aging: arthritis, dementia and cancer as
examples. So, there’s a tremendous amount of growth potential here. Secondly, then if
you look at Heska today and you look at our market capitalization you’ll see
it’s barely above one times revenue; which doesn’t take into account any of the
value in the pipeline, the technology, the intellectual property or the market place. We
think it’s an undervalued stock with a tremendous amount of potential going forward.
CEOCFOinterviews: Are you using your Website to its
fullest advantage? Do you figure you’re getting enough information out there using
your website
Robert Grieve: Our website is
better than it’s ever been. We re-launched it mid year and we’re always adding
to it. I’m happier than I’ve ever been with it but I’m certain that
we’re far from meeting its complete potential. We want to do more and more with
providing information to the pet owner directly and through appropriate linkages. We also
want to provide more and more of an electronic business medium for the veterinarian.
CEOCFOinterviews: Do you provide purchasing over the
Internet?
Robert Grieve: Yes. We do
provide products to veterinarians only and it is possible for veterinarians to place an
order on our website.
CEOCFOinterviews: What essential issues would you
like to highlight about your company?
Robert Grieve: In the short
term, we’re focused on as much financial performance and discipline as is possible. First we are trying to grow revenue from a
quality revenue base. Second, we’re trying to hold our operating expenses flat to low
in the short term relative to the historical operating expenses. Third, we’re trying to grow our gross
margin percentages. We’re doing that by adding more proprietary products and
eliminating unprofitable products or those with marginal profitability. In the longer
term, I would emphasize the growth potential. We have some fifteen or so products in our
product pipeline. We see ongoing investment in research and development to create that
growth; we’re committed to growth as well as near term profitability.
CEOCFOinterviews: What motivated you personally to go
from one end of the spectrum now into the corporate life?
Robert Grieve: There are
probably two motivating factors. One is, I’m a complete zealot with respect to our
mission and I believe this company and our mission make a tremendous amount of sense. I
believe there are a lot of unmet needs in companion animal health. This business is a
tremendous means to the end of providing value- added companion animal health products.
Then personally, I think the business has been extremely interesting, challenging and
greatly fulfilling to learn. In the long run,
I think that it is prudent to understand that drug development is primarily a risky
business. Drugs go into people and thus there
could be safety issues which, despite everyone’s best efforts, may result in certain
unfavorable outcomes. The second issue
is that we are in a highly regulated industry. The
FDA has to approve products before sale and they have very stringent criteria for
approval. The mechanisms for applying these
criteria may be scientifically sound, but may have more serious consequences, from a time
and cost perspective, for the company trying to launch a product. Recognizing those things, I think the investor who
is considering our company has to understand that there are inherent risks associated with
our business. From the company’s
perspective, however, I think the investors have to look at our ability to deliver on our
promises. They need to notice that
management is dedicated to high quality, timely and efficient performance. If we put milestones, goals and objectives out
there for ourselves, they
represent the yardstick of investors. Investors
should look at our company and say “they can do what they say they can do!” and
this is the highest level
of confidence that investors can have in a company. |
