A low-risk way to play the biotech boom is to buy companies that are key suppliers to the industry. Companies like West Pharmaceutical Services (WST -2.11%), Veeva Systems (VEEV -0.01%), and Repligen (RGEN 1.86%) don't make headlines, but they all provide important products or services and have been wonderful long-term holdings.
In this episode of The Motley Fool's Industry Focus: Healthcare, host Shannon Jones and Fool.com contributor Brian Feroldi discuss each of these businesses in more detail and highlight why they can be great choices for biotech investors moving forward.
A full transcript follows the video.
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This video was recorded on Jan. 23, 2019.
Shannon Jones: Let's talk about our third and final way to play it safe when it comes to biotechs, Brian, and that's with picks-and-shovels providers. Brian, what in the world is a pick and shovel?
Brian Feroldi: That's a that's a fun investor way of saying if you want to play a trend, one of the safer ways to do it is to buy the suppliers to that industry. Let me give you an example. There's a company called West Pharmaceutical Services. What they do is, they're a leading provider of components and systems that make drugs injectable. They provide vials, syringes, pens, stoppers, safety devices on the actual drugs themselves. If you have a thesis that the number of drugs that are available is going to grow and the number of people using them is going to grow, that naturally leads to more demand for the injectable products, the actual things that get the drug into your body -- the vials themselves, the packaging. All of those things are actually handled by West Pharmaceutical. These guys are one of the top-tier suppliers to the industry. In fact, about the top 75 biotech injectable products on the market actually come from West. This is a company that has no risk of any particular drug not going well. They're a steady-eddie business, and they've produced fantastic returns for shareholders over the last 10 years. They're actually up about 520%. That's a return that just smashes the index.
Jones: That's incredible returns for a company you don't hear a lot about. I did some research, this company has actually been around since the 1920s, which is very surprising to me. When you're in the position of being a biopharma company, you want that long-term expertise, that experience on the regulatory front, and even more so when it comes to the delivery components. Sometimes, getting that right -- both from a manufacturing and a compliance and regulatory perspective -- is just as important as getting the drug itself through to approval. So this company in particular, don't see it going away anytime soon. They supply pharmaceutical companies, they supply the biotech companies, even generic medical device companies, as well. They're massive. They've got over 50 locations, 28 facilities across the globe. This is one I'm certainly going to be watching, Brian.
Let's talk about the second picks-and-shovels play on your list, a company that I pretty much consider a good Fool favorite around here.
Feroldi: Veeva Systems should be a name that sounds familiar to a lot of longtime listeners. This a company that provides cloud-based software that's specifically made for the life sciences industry. Veeva Systems provides software that helps companies to manage their clinical trial data, manage customer relationships before and after the sale, can help with regulatory compliance. This is a company that has taken an extreme niche focus on the life science industry. Because of that, because of their tailored needs, they've really made a name for themselves. In fact, today, they currently boast more than 600 customers, which includes some of the biggest names in the industry, like GlaxoSmithKline, AstraZeneca, Biogen, Lilly, Novartis, etc. All of them rely on Veeva Systems' tools to help them with the clinical trial process.
Because of their niche focus, and because they've been able to grow so rapidly in the industry, this a company that's put up great returns for investors. They just IPO'd in 2014, so we don't have an incredible amount of data to look at, but investors who got in at the IPO are already up 177% because this company is growing so rapidly.
Jones: Another thing I love about the Veeva story is the CEO. He was actually a former executive from Salesforce. He recognized that for the pharmaceutical industry, they didn't have a cloud-based offering that could fit the needs of the industry itself. So there you have it, here comes Veeva. Veeva has a number of different products. In particular, they started off with a CRM, customer relationship management, tool built for big pharma specifically. But really, the big money maker has been Veeva Vault. That's helping companies manage all of the data that's needed to track and analyze clinical trials.
What I love about the Veeva platform is that with all these multiple products, they're all connected. As you're a biopharma company, you've got really high switching costs to come off of that one platform to go to another. I love the fact that they've got such a wide moat here. I think Veeva in and of itself is in a league of its own, and it's even expanding beyond biopharma. It's working now with companies in the consumer goods industry, manufacturing, even the chemical industry. Huge, huge growth ahead for Veeva.
Brian, let's turn our attention to the last picks-and-shovels play, one that I had not followed as much. But after doing some digging, this one certainly piqued my interest.
Feroldi: The final company today is called Repligen. Its ticker is RGEN. These guys make proteins and filtration technology that enable the drugs themselves to actually be manufactured. When you're making a drug, you need active ingredients. Repligen helps drug companies to actually make the equipment and provides the proteins that go into the drugs themselves.
These guys have literally a 95% market share in making proteins that are used to make vaccines and are used in gene therapy. They've grown right alongside with the general demand in the biotech market. In fact, this one of the best-performing stocks over the last decade. Their stock is up 1,320% over the last 10 years. Again, because they don't care specifically about any particular drug making it through, and because they're very well diversified among a lot of customers, they can ride the general wave of growth in biotech.
Jones: Absolutely. When you consider that the equipment that they make is needed to purify biologics, and just how crucial that is -- if you think about it, biologics themselves are products that are made from living cells. They're very large, very complex. After they're produced, though, you have to purify the product. This is really where Repligen stands out in terms of lowering the cost. Purification in and of itself is a very cost-intensive step, and one of the riskiest, too, when it comes to biologics manufacturing.
Speaking of biologics, there are currently over 1,000 biologics being studied for development. The growth runway on this stock is tremendous. That's across the globe. Also, interestingly enough, oncology is actually the leading therapeutic area with the maximum number of biologics under development right now. A lot to watch here on this particular company, especially as biologics are expected to hit over $300 billion by next year. It's a massive market.
All in all, Repligen is a great way for investors to ride the wave safely when it comes to biologics development, both on the development front and post-commercialization.