Most investors invest for the opportunity to realize life-changing financial gains, but those gains are almost always generated over the long haul, not in the blink of an eye. That means it's critical to invest in top-notch, disruptive companies and to hold on to them through the market's inevitable short-term pops-and-drops.
For example, these three game-changing companies have rewarded investors with jaw-dropping returns over the past decade. Investing $10,000 in each in 2005, and holding them through thick and thin, would have produced a portfolio that is worth more than $1.1 million today. While no one can know if these companies will see similar success in the future, we can consider what made these stocks such big winners and what lessons they might offer in finding the next decade's million-dollar ideas.
1. Regeneron Pharmaceuticals (NASDAQ:REGN): up 4,508% since 2005.
In 2005, Regeneron was a clinical-stage biotech company with no FDA-approved products, but it was working on Eylea, a treatment for wet stage age-related macular degeneration, or wet AMD, that had entered clinical trials in 2004. At the time, Regeneron might have caught investors' attention because of Novartis (NYSE:NVS), which was awaiting FDA approval for Lucentis, its own treatment for wet AMD. Lucentis was widely expected to be a top seller, and quickly became a billion-dollar blockbuster upon winning FDA approval in 2007. Despite the halo effect from Lucentis, investors betting on Regeneron in the mid-to-late 2000s were still taking on substantial risk. After all, Regeneron was a small-cap biotech, with no sales. Moreover, Regeneron faced a significant uphill climb given that, historically, 90% of drugs in clinical trials fail. Ultimately, Regeneron overcame those odds to win FDA approval for Eylea in 2011; the drug became a major commercial success, with sales likely to hit $3 billion next year.
Eylea's success turned Regeneron into a $39 billion company and is financing its research pipeline, which includes the bad cholesterol-fighting drug alirocumab. While Regeneron is more the exception than the rule among clinical-stage biotechs, its performance over the past decade suggests that risk-tolerant investors should be on the lookout for small companies that are working on the next generation of solutions for blockbuster indications, such as cancer, diabetes, and Alzheimer's.
2. Illumina (NASDAQ:ILMN): up 3,842% since 2005.
Illumina has been at the forefront of genetic discovery for more than a decade, and its gene sequencing machines are used by researchers worldwide to advance genetic discoveries and develop personalized medicine used to treat cancers and other specific gene mutations.
In 2005, Illumina already had products on the market that were being used to unlock the genetic code, but genetic sequencing was still extremely pricey, running north of $10 million per genome., The industry was also still in the very early stages of development, with plenty of naysayers. Regardless, thanks in part to interest from universities and research funding provided by the National Institutes of Health, demand for Illumina's products and services grew quickly between 2001 and 2005.
Illumina's rapid growth in the first half of the last decade was impressive, but the company's eventual success stemmed from its willingness to plow revenue back into research and development.
That eventually revolutionized gene sequencing via increasingly faster and cheaper products. As a result, the cost of gene sequencing fell significantly, sparking additional demand for Illumina's products. Today, the cost of gene sequencing has dropped below $1,000, a significant improvement from its $10 million-plus cost a decade ago. Illumina's sales, meanwhile, have marched steadily higher over the past decade. In the first nine months of this year, Illumina's revenue totaled $1.34 billion, up 30% from 2013.
Illumina's leadership in a disruptive and fast-growing industry, and its willingness to spend on R&D for future growth, resulted in massive gains over the past decade that suggest investors would be wise to search out like-minded companies that are working on game-changing technologies. One industry that appears to meet those criteria today is 3D printing.
3. Alexion Pharmaceuticals (NASDAQ:ALXN): up 2,942% since 2005.
Like Regeneron, Alexion was also a clinical-stage company in 2005. But Alexion's lead drug candidate, Soliris, was already in phase 3 trials. Following those trials, which studied Soliris as a treatment for a rare-blood disorder known as paroxysmal nocturnal hemoglobinuria, or PNH, Soliris won the FDA green light in 2007.
The fact that the PNH indication is uncommon, affecting just 8,000 to 10,000 people in North America and Europe in 2005, likely kept many investors away from Alexion that year. However, investors would have been wise to recognize that an absence of FDA-approved treatments for the indication, and a poor prognosis for the disease, would have resulted in significant demand, and ultimately pricing power, for Alexion.
That combination has turned Soliris into a big winner for Alexion and its shareholders. The drug, which is now approved as a treatment for both PNH and atypical hemolytic uremic syndrome, another uncommon disease with a poor prognosis, generated $555 million in sales during the third quarter alone, up 39% year over year, and turned Alexion into a rare disease powerhouse with a market cap of $35 billion. Alexion's success over the past decade suggests investors should search for other clinical-stage biotechs that are working on therapies for rare diseases, such as Fabry disease.
Tying it all together
Regeneron, Illumina, and Alexion were all small-cap stocks in 2005, which made them risky bets for investors. But each was developing unique solutions to important problems. Regeneron and Alexion were clinical-stage biotechs developing next-generation treatments for important diseases, and Illumina was building the machines necessary to revolutionize drug discovery. That common thread might indicate investors hoping to find the next decade's winners should concentrate at least some of their portfolio on small-cap companies.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool recommends Illumina. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.