Veeva Systems (VEEV 2.25%) is a flashy, high-growth SaaS company disguised as a stuffy old medical compliance company. The company plays a critical role for pharma companies in hastening the time from trial and data collection to selling drugs. At the same time, Veeva's services maintain compliance in a very complex and constantly evolving regulatory environment. Let's take a closer look.
Flattening the curve
Pharma and Biotech are highly regulated industries. Everything from clinical trials all the way to commercialization and marketing must be documented and approved by the Food and Drug Administration in the U.S. In addition, each state has its own set of regulations to comply with. And that's just the tip of the iceberg. Multinational pharma and biotech companies sometimes must deal with regulations in every country they do business. But wait -- it gets worse. Laws and regulations in each state and country change all the time.
If that sounds like a migraine waiting to happen, it's good news for Veeva. The company's cloud-based solutions help its customers sort through the red tape and allow them to focus on the research and development of drugs and therapies they're in business to create.
Though Veeva's services are wide-ranging, the company groups them into two major areas: Veeva Commercial Cloud and Veeva Development Cloud. Veeva Commercial Cloud is a suite of collaboration software with many end uses. The suite helps commercial and medical departments save, search, and share compliance data globally. It also allows marketing departments to optimize data for media campaigns aimed at patients and healthcare professionals in a compliant and privacy-protected manner.
Veeva Development Cloud includes applications for clinical, regulatory, quality, and safety functions. The unique platform creates the ability to handle data from clinical trials, streamline study execution, and manage documents and compliance reporting in a single cloud-based platform.
These functions were formerly hands-on and extremely time-consuming. Veeva has streamlined an extraordinary amount of routine but complex tasks. As a result, users benefit handsomely by shortening the time from trials to commercialization and saving money in the process.
Veeva provides a vast number of separable capabilities. Sometimes customers begin their relationship with Veeva with a few services. Other times they sign up for many services. Over time, though, pharma companies see the value provided by Veeva's services and add additional services.
Because add-on services require minimal costs to Veeva, the company becomes more profitable as it grows its revenue line. For example, Veeva's operating margin has increased from 35.6% in fiscal 2019 to 41% in fiscal year 2022. Total operating income grew 147% from $307 million to $759 million over the same time.
Is Veeva stock a buy now?
Veeva sells its solutions on a contracted subscription basis. It also earns revenue from implementation and customer service when it installs new services. Recurring subscription revenue can be a reliable source of sales and profits for the company. About 80% of total revenue comes from highly profitable subscription revenue.
Veeva's guidance for full-year fiscal 2023 ending January 31, 2023, includes revenue between $2.165 billion and $2.175 billion. In addition, adjusted earnings per share are forecasted at about $4.16. The stock is down 11% this year, and based on the company's earnings-per-share forecast, the stock is trading around a forward P/E ratio of about 53 times. That might seem expensive, but it shows that the market is willing to bet there's a long growth runway ahead for Veeva. The stock might be more of a bargain than meets the eye.