Two scientists walked into Leroy Hood‘s office in Seattle a little more than five years ago with a burning question about the genomes of dogs. They had sequenced the entire string of DNA in the canine genome for biomedical researchers, and sought out the high-speed gene sequencing pioneer for business advice. They wondered what it would take to build a business that sells information to pet owners, who might be curious about what breed their dog is.
This conversation in the summer of 2003 led to the formation of Seattle-based Argus Genetics, a spin-off company from the Fred Hutchinson Cancer Research Center. The technology has since been licensed to Mars Inc., the $21 billion-a-year candy and pet food giant in McLean, VA, which has turned it into a test called the Wisdom Panel MX. I heard the story of how this idea evolved into a product from Carl Weissman, a venture capitalist at Seattle-based Accelerator (and OVP Venture Partners), and Neale Fretwell, a business development manager for Mars’s veterinary division.
The original idea from Elaine Ostrander and Leonid Kruglyak at the “Hutch” intrigued Weissman when he got the referral, even if it made some of his investing partners roll their eyes because it wasn’t their usual swing-for-the-fences-to-treat-cancer kind of bet. Weissman and Kristina Burow, a Kauffman Fellow now with Arch Venture Partners, started their research. They learned there are 60 million dogs in the U.S., and half are purebred, while half are from mixed-breed heritage. They talked to breeders and purebred owners, and found out they didn’t want the test because it might disqualify purebreds from shows. That left mixed-breeds. There are 30 million of those dogs, and the test could be developed and sold for $100. That meant if Argus could capture at least 11 percent of the market, it could have a $330 million opportunity.
“Dog people are serious,” Weissman says. “It looked like an interesting business to us.”
It also seemed like something that could take off quickly, Weissman thought. It was an application of cutting-edge science that didn’t need to pass the strict scrutiny of the FDA, or go through hassles with reimbursement from health insurers. He negotiated for the rights to the technology from the Hutch, and set up the company in a structure that left what he calls “significant ownership stakes” for Ostrander, Krugylyak, and the Hutchinson Center, who get royalties on sales from Mars. (Ostrander has since left for the National Institutes of Health, and Krugylak is now at Princeton University.)
Mars got an early bead on this technology because it has sponsored some of Ostrander’s research in the past, Fretwell says.
Here’s how it works. A pet owner comes into a veterinarian’s office, curious about what breed their dog is. They provide a blood sample, … Next Page »