3 Health Care Investments Immune From FDA Scrutiny

Clinical trial jargon and the "yea" or "nay" decisions of the Food and Drug Administration can seem like intimidating obstacles to finding successful health care investments. But with the Health Care Select Sector SPDR ETF (NYSEMKT: XLV  ) outperforming the broader market in 2013 and exciting prospects for 2014, it's worth considering investing in less intimidating health care businesses not subject to FDA regulation. Veeva Systems  (NYSE: VEEV  ) , Express Scripts  (NASDAQ: ESRX  ) , and Repligen  (NASDAQ: RGEN  ) are three companies following macro- trends in health care while operating outside the scope of FDA regulation.

Making drugs in the cloud
If there was one theme among big pharma in 2013, it has been the implementation of major restructuring and cost-cutting initiatives. Those initiatives attempt to quell increases in SG&A and R&D expenses that have ballooned despite disappointing trial results. Veeva's two cloud-based platforms aim to help life sciences companies make those operations more efficient.

Like the Salesforce.com platform on which it's based, Veeva Customer Relationship Management, or CRM, helps sales reps all over the globe share data and marketing materials with company HQ. Tailored specifically for the life sciences, Veeva CRM is designed for a niche market within the broader and more established CRM industry. Veeva reported revenue of $55 million in the last quarter as it sells its software service to 50 drugmakers.

Veeva's real growth driver is Veeva Vault. Vault provides a secure cloud-based system for clinical trial design, execution, analysis, and FDA submission. Large trials involve dozens of health care providers collecting data from thousands of patients at centers across the world. Vault should help those centers standardize the collection of data, present it in real time, and organize it for more efficient analysis to reduce time and capital spent on drug development.

While there are definitely concerns that market saturation is a threat to CRM growth, it will be up to Veeva to grow revenue by converting CRM subscribers into Vault users and build deeper relationships with existing customers. I'll be digging deeper into Veeva's prospects in future articles.

The Amazon.com of drugs
As a pharmacy benefit manager, or PBM, Express Scripts competes with the likes of CVS Caremark as a provider of insurance benefits for prescription coverage and distribution of drugs to patients. After acquiring Medco Health Solutions, Express Scripts is now the largest PBM with greater than 30% market share.

Express Scripts sits at the union of several macro trends that could boost its position moving forward. Unlike CVS, Express Scripts is an online mail-order pharmacy provider in a growing e-commerce culture that has sent Amazon.com skyrocketing. That could help Express Scripts build its customer base as the Affordable Care Act brings insurance coverage to millions more Americans, and as the growing percentage of generic drug prescriptions decreases wholesale costs and increases prescription volume. I'll be watching in early 2014 to see if Express Scripts can convert these headwinds into meaningful growth.

Biotech made easy
Whereas traditional pharmaceuticals are synthesized small molecules, the biotech revolution has introduced biologic compounds purified from living organisms like bacteria. That approach to drug making has introduced a new set of manufacturing challenges that Repligen hopes to solve with its brand of commercial-scale purifaction and quality control products.

Repligen's main product offering is the OPUS chromatography column, which is used for the commercial-scale purification of biologic molecules. Repligen will soon be launching a column with larger capacity to meet the demand of customers manufacturing drugs in larger batches, which also require the use of some of Repligen's cell culture growth factors.

Avoiding the perils of development and regulatory failures while exploiting the growing demand for biologic drugs could help Repligen maintain 50% gross margins on top of double digit revenue growth. While there's some concern that revenue will take a hit in 2014 when royalty payments from Bristol-Myers Squibb expire, the resulting market reaction could present a buying opportunity for interested investors.

A top stock to usher in 2014
There's a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2779491, ~/Articles/ArticleHandler.aspx, 9/2/2014 11:02:20 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement