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3 Stocks That Help Drugmakers Create Billion Dollar Blockbusters

By Todd Campbell - May 26, 2016 at 8:20AM

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Thermo Fisher Scientific, Quintiles Transnational, and Repligen all benefit from growing biopharma R&D spending.

Research into next generation, game-changing medicine is at record highs, but many promising drugs in trials fail and that can make picking winning investments tough. Rather than investing in the drugmakers creating new medicine, a better approach may be to invest in companies that are helping them along the way. Here are three companies that make their money from helping biopharma companies research, develop, and market their next medicine.

Image source: Thermo Fisher Scientific

Thermo Fisher Scientific (TMO 0.92%)

From beakers to gene sequencing machines, Thermo Fischer Scientific supplies virtually any product or instrument a drug researcher needs.

The company's customers include educators, government researchers, and private and public companies, and thanks to a record number of drugs in development, its sales and profit are higher than ever.

Thermo Fisher Scientific operates four business segments, but it's biggest and fastest growing unit is its laboratory products and services group. Last quarter, sales for this segment jumped 14% to $1.7 billion and that performance, along with solid growth from its other businesses, led to total sales climbing 10% from a year ago to $4.3 billion last quarter.

With over 7,000 drugs in the works worldwide and R&D spending having soared from less than $40 billion in 2005 to more than $50 billion now, tailwinds supporting Thermo Fisher Scientific's growth are likely to continue. Industry watchers expect sales and earnings per share (EPS) of about $18 billion and $8.13 this year and $18.8 billion and $8.98 in 2017, respectively.

Quintiles Transnational Holdings, Inc. (IQV -0.89%)

This company makes most of its money managing clinical stage trials for big and small biopharma companies. Once a drug proves itself in pre-clinical studies, drugmakers advance it into large and complex human trials. These clinical trials are expensive and time-consuming, so getting trial design and enrollment done right is critical, and for that reason, many drugmakers rely on Quintiles Transnational to run them. 

Demand for Quintiles services is expected to generate $4.64 billion in sales and $3.78 in earnings per share this year and $4.97 billion and $4.19 next year, respectively. But, a bigger opportunity for the company may come courtesy of its recently inked $8.75 billion merger with IMS Health (NYSE: IMS).

The combination with IMS Health creates a soup-to-nuts solution for drug development and commercialization with $7.2 billion in trailing sales. Leveraging each others respective client lists is expected to add an incremental 1% to 2% of top line growth within three years of this deal closing.

Post-merger cost-cutting should allow for more of that growth to flow to the bottom-line too. Management thinks it can shave $100 million in expenses from the combination, making this merger accretive to earnings as soon as next year. ClinicalTrials.gov reports that 216,000 drug trials are ongoing globally, up from 139,000 trials in 2012, so picking up shares in this stock could be a nice way to benefit from the global spike in drug development. 

Repligen Corporation (RGEN 2.54%)

One of the fastest-growing areas of drug research is biologics and that's good news for Repligen because it markets the "stuff" that's needed to create them. The company's proteins are used to produce monoclonal antibodies, recombinant proteins, and vaccines that are increasingly changing standard-of-care across many indications. For example, the planet's top selling drug, Humira, is a monoclonal antibody. But, Humira is just one example. There are 55 different monoclonal antibodies on the market (including 13 that have been approved since 2014) with combined annual sales of nearly $90 billion. 

Last quarter, growing demand for Repligen's bioprocessing products, such as protein A, which is used to purify monoclonal antibodies, led to record quarterly sales of $25.1 million, up 21% from the same quarter in 2015.

That first quarter performance has investors targeting $99.5 million in sales this year, up from $83.5 million last year, and $0.48 in EPS, up from $0.24 in 2015. Next year should be even better. Industry watchers anticipate sales and EPS at $114.6 million and $0.61, respectively.

Management thinks its sales can eclipse $200 million in 2020, and since the company's clients include 20 of the top 25 biotech companies, Repligen's shares give investors back-door exposure to some of the most exciting R&D programs in biotech.

 

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Stocks Mentioned

Repligen Corporation Stock Quote
Repligen Corporation
RGEN
$166.52 (2.54%) $4.12
Thermo Fisher Scientific Inc. Stock Quote
Thermo Fisher Scientific Inc.
TMO
$548.27 (0.92%) $4.99
IQVIA Holdings Stock Quote
IQVIA Holdings
IQV
$215.05 (-0.89%) $-1.94

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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