Similar to selling picks and shovels in the California gold rush, companies that make the tools and equipment for drug development can be great investments. Repligen (NASDAQ:RGEN) is a prime example. The company makes filtration, fluid management, and other bioprocessing tools that facilitate the manufacture of biologic drugs. It's set to report the fourth straight year of revenue growth over 30%, with the stock gaining more than 500% over that span.
Even after those gains, there is at least one reason investors may still want to add shares to their portfolios.
Repligen's strategy is to offer single-use systems, or consumables, that improve usability and efficiency while reducing costs for their customers. The company has developed and acquired products to create comprehensive, end-to-end systems that contain all pieces of a particular workflow. As an example, developing vaccines requires a workflow involving bioreactors, filtration, and chromatography equipment. A system that makes planning, design, and ordering easier for customers can lead to a larger share of purchases.
Repligen's single-use consumables can be customized and reduce contamination risk associated with legacy stainless steel that has to be cleaned and maintained. Although stainless steel facilities account for about 85% of commercial-scale drug manufacturing, at least one expert believes that single-use could one day make up as much as 95% of the systems used in drug development.
Before COVID, management estimated the addressable market at about $10 billion, meaning Repligen's 2019 revenue of $270 million was less than 3% of potential sales. The opportunity is clear, and the development of biologics related to COVID has only accelerated trends. On the most recent earnings call, CEO Tony Hunt shared that orders during the third quarter ending September 30 grew 80% year over year. With a price-to-sales ratio of 34 compared to its five-year average of 15, investors are paying for the growth. Even at that price, tailwinds of the migration to single-use systems and COVID-related demand should be enough to propel Repligen to market-beating gains over the long term.