What do you think of when someone mentions investing in biotechnology? Young cash-burning pharmaceutical-wannabes on the cutting edge of drug discovery and development? That's the view of most of the participants on The Motley Fool's biotechnology discussion board. I, on the other hand, have always preferred to look to the technology side -- those companies that support and provide the tools that enable innovations in the drug discovery, development, and diagnostic segments of biotechnology.

There is an old saying in investing that the surest way to get rich in a gold rush is to sell picks and shovels to the miners, and a couple of current trends give me the feeling that biotechnology has the makings of a gold rush. First is the scramble by big pharmaceutical firms to merge or partner with biotechnology firms. A couple of examples from December include Income Investor selection GlaxoSmithKline (which offered up a potential $2.1 billion to codevelop and commercialize Genmab's leukemia treatment HuMax-CD20), and former selection Merck, which closed on its $1.1 billion offering for Sirna Therapeutics. The latter seemed a generous price for the pharmaceutically unproven technology of RNA interference. The second trend giving me that warm fuzzy feeling is detailed in the most recent MoneyTree Report from PriceWaterhouseCoopers. The report tracks venture capital funding in different industries; it noted that in Q3 of 2006, biotechnology supplanted software as the top venture money attractor. It looks like it's well past time to expand biotechnologies' hardware stores.

There are a number of firms that support the biotechnology, pharmaceutical, and clinical industries, primarily by providing instrumentation and consumables. I maintain a short diverse list of about 30 companies that qualify as pure plays in this niche. The list excludes companies that operate in this field but have substantial offerings in other industries as well, such as Agilent Technologies (NYSE:A) and the health-care division of General Electric. Of the companies that qualify, a few are very well-regarded selections in CAPS, the Motley Fool's investor-based stock rating service (among other things).

First among these is five-star-rated Bio-Rad Laboratories (AMEX:BIO), a mid-cap biotechnology firm that provides tools and reagents designed to separate and identify the components of biological samples and mixtures. Bio-Rad has a nice strong balance sheet, high insider ownership, and has increased sales each year for more than a decade. The company has expanded its offerings in protein identification technologies with the recent acquisition of Ciphergen's struggling (NASDAQ:CIPH) SELDI ProteinChip Systems business. Only one Wall Street analyst currently follows this company.

Next up is Waters Corp. (NYSE:WAT). Waters is known for specialized laboratory instrumentation, including offerings in High Performance Liquid Chromatography (HPLC) and Mass Spectroscopy (MS); tools used routinely in target discovery and drug development and analysis. Waters has recently released a newer version of the laboratory mainstay HPLC system, termed UPLC (Ultra-performance), with the goal of speeding analysis time using lower sample and solvent volumes. Here, too, we see a strong balance sheet and years of profitability.

The final mention is another five-star CAPS-rated company, Sigma-Aldrich (NYSE:SIAL). I've commented previously on the company's investor-friendly dividend growth and share buyback programs. Yesterday, Sigma-Aldrich paid out a different kind a dividend. The 100% stock dividend is an action very similar to a 2-1 stock split, but subtly different, in that it alters the components of shareholder equity on the balance sheet. I also like the operations growth the company is showing in India and China. Pharmaceutical research and production outsourcing to these countries has been strong because of the appeal of highly educated and inexpensive labor pools, but chemical procurement can often prove difficult. This arena should continue to be a future growth driver for the company.

Many of the companies involved in biotech support haven't yet garnered enough interest to generate a CAPS rating. This includes well-established and respected midcap companies such as Pall (NYSE:PLL) and PerkinElmer (NYSE:PKI). To me, this is further evidence that this underappreciated market sector likely harbors a few bargains.

Biotech investors will continue to venture into the dark and scary mines of burgeoning pharmaceutical firms. There is certainly gold to be found in some of them, just remember to invest in some of the hardware stores of biotechnology along the way.

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Fool contributor Ralph Casale actually puts on a lab coat and fires up his Waters HPLC system nearly every working day. He owns shares in GlaxoSmithKline and General Electric. The Motley Fool has a disclosure policy.