In this week's episode of Industry Focus: Healthcare, host Kristine Harjes interviews Matt Wallach, the co-founder and president of cloud computing company Veeva Systems (NYSE:VEEV). Veeva serves healthcare companies across the board, from fledgling biotechs to massive stalwarts like Johnson & Johnson, and many investors see big potential for sustainable, long-term growth in the future.
Listen to this episode to find out more about just what Veeva does, how the company achieved such impressive success so quickly, what the competition looks like, what some of the most exciting new growth opportunities on its horizon are, a few things that investors should keep an eye on this year to see how Veeva is doing, and more.
A full transcript follows the video.
This video was recorded on March 15, 2017.
Kristine Harjes: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. I'm your host, Kristine Harjes. This Healthcare episode is being released on March 22, and it features an interview that I recorded on March 15 with Matt Wallach, the co-founder and president of one of my favorite healthcare companies, Veeva Systems. Hope you enjoy it.
Hi, Matt! Thanks so much for coming onto Industry Focus today. Let's kick off with some background. Talk to me about how Veeva was created, and what the business does.
Matt Wallach: Sure. Thanks, Kristine, for having me on. It was a little bit of an unusual recipe to start a company. Peter Gassner and I had never met, and we lived 3,000 miles away. We got together because there was a shared idea that cloud computing was going to go in the same direction that client server and mainframe had before, and that is that, as it gets more and more mature, it gets more and more verticalized, more specific to specific industry segments. So no one had done that in the cloud yet at that time. So that was the original idea. Peter and I were a combination of Peter's deep expertise in Silicon Valley. He's really one of the best product guys in Silicon Valley and has attracted a great group of product people around there. Then I had a long background in life sciences, knowing what life-sciences companies look for in technology, the types of solutions that they need, the types of people that would be innovative and would potentially be an early adopter. That was the original combination -- deep Silicon Valley expertise with deep life-sciences expertise.
The products that we have today basically come in two big packages. The Veeva Commercial Cloud is used by lots of pharma companies and biotech companies around the world to help them sell and market their products more effectively and efficiently around the world. It started as Veeva CRM, which was our first product, and now it's expanded to be all kinds of interaction management between life-sciences companies and their customers. So that could be face to face, over the phone, through the web, through video calls, through email. Really, all the interactions between our customers and their customers. It's also expanded to include things like the data that you would use to make a CRM product effective, and the content that you use to deliver the message in front of physicians, either face to face or through all those different channels. So that's the Commercial Cloud; that's where we started. Our second product line is called Vault. That's been a really big success for us as well. That's content management and data management, also in the cloud, for all kinds of life-sciences companies. That products spans from commercial and medical content, anything you might see in a doctor's office or the script that you would be read from if you were to call a call center, all the way through to regulatory, clinical, and quality. So all the important documentation gets collected during clinical trials, that you train people on in a quality manufacturing setting, and all the documents that go into regulatory submissions for new drugs and new indications around the world. The product set is pretty broad, which makes us a unique partner to the life-sciences industry as we try to build out this industry cloud.
Harjes: Who are your typical customers?
Wallach: Our customers are life-sciences companies large and small. It's large companies that you've heard of. Johnson & Johnson and Pfizer, Novartis, and Amgen. It's also many smaller companies, either that are commercializing their very first drugs, or companies that are still in the clinical development stage that maybe you haven't heard of. It really is any life-sciences company from about the time they have 20 employees all the way up to the largest companies in the world.
Harjes: So clearly this is a company that has been able to infiltrate this market and really expand a customer base fairly quickly. Veeva was, in fact, the second fastest software company to ever reach $500 million in annual revenue. Matt, how were you able to achieve that?
Wallach: I think some of it was good timing. We certainly came into the market at a time that the world was moving to cloud computing. And life sciences companies had been coming off -- we founded the company in 2007. If you look at the two decades before that, the life sciences industry really had a large string of very successful and very profitable years. Operational excellence was not the most important thing to pharma companies, it was getting products to market and selling them any way that you could. So, in 2007, there was a need to start to get more efficient as an industry as some big drugs were coming off of patent and it was getting more competitive. And the life sciences industry had not invested in any cloud computing up until that point. We were really the first cloud computing option that these companies had, and we really became synonymous with cloud computing, starting with our CRM product. The CRM product hit the market at just the right time, and I think that we created the right kind of product team that understood the importance of running to the complexity, where things are difficult for our customers. Many software companies might think, "We'll do the easy stuff, and we'll let them custom-code the hard things." We ran toward that complexity, and that created a lot of fans within our customer base. So now that we have 10 years of operating experience under our belts, where we're really known for having great products because of that focus on the details and getting everything right and making them reliable, and we've expanded over time, now, I think companies look at us and think, "That's a pretty safe investment. I know that if the Veeva guys say they're going to do it, the product is going to work, we're going to be successful and be able to focus on doing things more efficiently."
Harjes: You're certainly right that there are plenty of challenges that these companies face, particularly because they are in the healthcare sector, which is such a unique space. What are some of the biggest challenges for you guys working in this industry, and what is Veeva doing to overcome them?
Wallach: I think one of the things that was a challenge for us and is a challenge for them is, these are big, global enterprises. There's no such thing as a leading life-sciences company that has a really good business just in Germany. You can't do that. So these are big, global companies. They have lots of specific requirements. And I think it's really that combination, where it's much more global than many other industries. You can't just build a successful software business in the U.S. and call yourself a partner to the life-sciences industry. But then, there's also a lot of specifics, around specific functionality that they need, specific regulations that they need to comply with, and those regulations may differ literally from country to country around the world. So it makes operating a life sciences company very challenging, and normal off-the-shelf software doesn't work. They really need verticalized software. And that was the thing that made the life-sciences industry late adopters to cloud. Software companies were late adopters to cloud for a specific industry. Veeva was one of the first companies to try to build industry cloud software. It looks like it's a great match for this big, complex industry.
Harjes: Are there any competitors out there in cloud-based solutions, specifically for life sciences?
Wallach: We have lots of competitors. I wouldn't say any pure cloud companies like us. Most of our competitors started 10 or 15 years before we did. And one of the great advantages that we have is, we're kind of late to this party, and we're able to start with real, multi-tenant cloud technology, all types of web-based technology that literally didn't exist or wasn't usable five, 10, 15 years ago. So yeah, we always have competitors, but generally, when we're competing for a new business, we're the only real cloud solution.
Harjes: Where would you say the pharma industry as a whole stands as far as the adopting cloud technology?
Wallach: I think, in general, life sciences has always been a technology laggard. In my whole career -- it's almost 20 years now -- marketing and selling things into the life-sciences industry, we've always referred to pharma companies as fast followers. The hardest thing is getting the first pharma company to sign on. But once you do, and they're successful, you get them on stage telling other people that it works, there has been a tendency for companies to follow quickly.
Harjes: One of the most exciting parts of your latest earnings report and conference call was some caller on the expansion of the product outside of life sciences. What's the latest on that opportunity?
Wallach: We took several months to figure out what the right opportunity would be. We realized, it's really a couple years ago that the Vault platform was going to be a unique asset, really unique, the ability to blend content management in the cloud with data management applications. To do that on a single platform was really unique. And other companies started hearing about us, so we were getting inbound from companies that were asking us, "Hey, I know that you guys just do life sciences, but we have this really bad problem, could you help us with this?" So, rather than bleeding into other industries in and uncoordinated fashion, last spring, almost a year ago, we decided to do it for real and to put together a small, targeted team to figure out what the right strategy would be. So we took time last year to figure out the strategy and just announced it recently on the earnings call, as you said. What we're going to go after is the quality management space.
Quality management is something that we do within life sciences, who are big manufacturers. Quality management to us has two flavors. One is all of the documents that are stored and captured and utilized during quality and manufacturing operations. This is something like the document that gives you instructions for how to clean a machine between batches. It's a highly controlled document, you don't want people just going in and changing it, and you actually want to know every time it's printed or emailed or opened or downloaded. So it's all kinds of control around documents. So it's those quality documents in manufacturing, and actually, it's all standard operating procedure that the employees would access around the world. It's that read and understood functionality that we have in lots of regulated industries. The other side of quality management we call QMS, or quality management system, is all the data around what you have to do if something goes wrong. The first thing is a deviation; something goes wrong. You have to document it and make sure the right people know. Sometimes you have to actually tell the regulatory authorities about it. Then you have to put together a plan, a corrective action or preventive action plan; we call those CAPAs in the industry. This is the plan for how you're going to make sure that doesn't happen again. Then you have change control, which is now, you have a plan to make sure that that deviation is not going to happen again, you have to go implement it. All of these things are heavily regulated. There's lots of approval processes, sometimes regulatory bodies associated.
That's what we do in life sciences. But it turns out that across lots of discreet and process manufacturing industries, these things look pretty much the same. So we thought this was a perfect opportunity for us to go into a huge market, well over $1 billion in additional opportunity for us, but a huge market that has been underserved by technology providers, basically forever. If you're sitting in Silicon Valley, you're doing artificial intelligence and machine learning and internet of things and Big Data, social media. That's what Silicon Valley is excited about today. We're excited about quality management in big, old, slow companies everywhere around the world, because it's important and they've been underserved, and I think the Vault platform is a really unique platform, because we can do both those two pieces that I described, the document management part and the data management part. That's something we're really excited about. We're starting with a small, focused team to make sure we get the early adopters live and happy this year so that we can start reference selling in the future. But it's something that we think is going to be an important growth driver for Veeva over the long term.
Harjes: That sounds phenomenal, and it also sounds a lot like you guys running at complexity yet again.
Harjes: When you're looking at this opportunity, you mentioned that it was about a $1 billion opportunity. I wanted to ask some follow-up questions about that. Is that just in the quality management space?
Wallach: What we've said is we think just quality management across multiple industries is well over $1 billion. In fact, if you were to go do all the market research, you're going to see some numbers much larger than that. We think that quality management is going to be the strategic entry point for us into lots of these other industries, very similar to how our CRM product was our strategic entry point into life sciences. I think 10 years from now, it's not going to be Veeva with the life-sciences industry cloud and one quality management thing they sell outside; there's going to be a whole suite of products that we sell to multiple industries. Quality management is the first area. And we really have to create a multi-industry model that allows us to scale, allows us to be profitable like we like to, and allows us to become a really important technology provider to those companies.
Harjes: When you look at that broader opportunity, what would you say is the total addressable market for Veeva?
Wallach: I think it's early to put a number on it, because we're just getting started there. But we joke internally, because Vault can manage content management applications, which is this whole huge class of software, and it can manage data management applications, which is even larger; we joke internally that it's kind of an unlimited market. It's limited by which products we choose to build. This is an important part of our strategy, or really any company, but for us specifically -- because we have expanded from one product; now we actually have 23 products that we sell. We're going to continue to build new applications and new modules to expand the product line, a lot of that on Vault. The onus is on us to choose the right markets. We're not just going to go into every market. We have to choose the right markets; we have to do it at the right pace that allows us to continue to provide the same level of customer success that we've seen in life sciences. As we expand and make those strategic bets, we'll update our TAM accordingly. It's just a little early to put a number on what it could look like in 10 or 20 years from now for us.
Harjes: Fair enough. It seems like you put a lot of thought into choosing the first non-life-sciences market that you wanted to enter. What is the competitive landscape within that market?
Wallach: That competitive landscape actually reminds me a bit of what we've seen in life sciences. There's a large number of companies. None of them are huge. I think it's probably 100- to 400-person companies, and a bunch of them. They have specialization either on the content management side or the data management side. And they also have specialization from industry to industry, although many of them try to target the same industries that we're going after. It's mostly small companies that I would say try to have a best-of-breed type approach. With software companies, there's really two main approaches to building products. Either you want to be a best-of-breed company, you do one thing really well, you try to do it better than everyone else, but when a customer wants to integrate that with other things, they have to write that code themselves. Or you have integrated suites of products, and some of the integrated suite vendors take advantage of the fact that it's an integrated suite. So when they build something new, they make it just good enough that everyone's going to buy it, because they know you're going to buy it anyway because it's part of the suite. What Veeva does that is unique is we talk about unified and best-of-breed products. So yes, we have a unified suite, all of these applications on Vault. And as we build more and more applications, they're all going to be on the exact same platform. But we also make a commitment to our customers that if we go into an area, we're committing to build a best-of-breed product. We're not going to stop until we have the very best product available. And then, our products get better three times a year, working with customers forever. So we're going after, in life sciences today, with a unified suite of best-of-breed products, and we will use that same strategy outside life sciences to try and counter what we think is going to be a competitive set of a bunch of legacy best-of-breed applications.
Harjes: You mentioned earlier that your team relies a good bit on word of mouth within the life-sciences industry. You have one big pharma company that loves you guys, gets up on a stage and talks about how much they love it, and that's really helpful in spreading the word. How do you see that going as you enter completely new industries? Is your sales force prepared for building completely new relationships?
Wallach: I think that's a very fair question, and we certainly have the recipe in life sciences. Our customer events are actually a measurable part of our success. I think we've done a good job of bringing the industry together to allow them to share best practices. When we look outside life sciences, it's not as obvious that we can pull together companies across industries. I think we have to invent new ways to build that sense of community around our products. We do believe that in quality management, there are events that people go to, there are topics that we could sponsor that are relevant to people that work in a quality manufacturing capacity across lots of different industries. But it's a little early to tell in our life cycle here exactly how we'll do that. But it's a good question, and it's one we've been asking ourselves and we'll be experimenting a lot over the coming years.
Harjes: And we'll definitely be looking forward to seeing how you guys choose to tackle that. Before I close this out, I have one last question for you which is, on behalf of our listeners, what is something we should all be keeping an eye out for with this company in the next year or so?
Wallach: If you look out one year for Veeva, I think there's a few new products that, if they're successful, you're going to be looking at a very healthy, long growth trajectory for Veeva for many years. One is our entry into the electronic data capture space. That's a very big market' it's very competitive. We've added a CTMS, a clinical trial management system. Also, those two products are coming out in April. Those are, just themselves, over a $1 billion market just within life sciences. So we're just entering that market in April of this year. We're going to be working on our early adopters. So I would look for signals that we're having some success in that market. The other brand new big thing is our efforts outside of life sciences. I would look for signals and customer wins, the same types of strategies, the same types of product, that have been so successful in life sciences, are working across industries. And then, I would also look at our attempts at becoming a real partner to the industry. Now, I'm talking about the life-sciences industry again. We do have a high market share in many of the markets that we're in. We're trying to use that market share for the good of the industry, to use the seat we have at the table with life sciences companies, to do things that normal software companies wouldn't do. We started Align Biopharma. We're working with seven of the top 25 pharma companies today already on creating standards that will help every pharma company interact with their customers. We're looking at other areas that Align Biopharma can create standards that are good for the whole industry. That's just one of several initiatives that we're going to be taking in the next 12 to 24 months to really try and create community, create this industry cloud, and allow the entire industry to improve their performance.
Harjes: Sounds great. Matt, I want to thank you so much for your time today, and tell you best of luck to you and the entire Veeva team.
Wallach: All right. Thanks, Kristine! Thanks for having us on!
Harjes: As always, people on the program may have interests in the stocks that they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. For Matt Wallach, I'm Kristine Harjes. Thanks for listening, and Fool on!