So instead of developing a drug that induces fear, they were working on a chemical that would alter humans so that they would not only be sexually receptive to dogs, they would also be able to carry their puppies. They planned to set up a breeding program once it was complete and then the puppies from that would be the superdogs. The drug they create has these effects, but also the fear inducing ones from canon.

When Sherlock figures out all of baskerville's secrets, he figures out this too, but it's too late, John has already been pretty heavily dosed with the drug and his body is going to change over the coming months, there is no cure. Sherlock, feeling guilty about his part in it, doesn't mention the dog breeding part of it to John and everything proceeds like canon.

Time passes, John notices that his body is changing somehow and that he's developed weird urges. Sherlock is unusually nice and has taken to bring Toby the bloodhound with them on cases...