I’ve seen a lot of posts about people speculating which pharmaceutical company is going to make the next big vaccine or test for COVID-19. In my opinion, making bets like this is a total gamble, and these companies will fluctuate with news of trials that may or may not be true. Buying calls on pharmaceutical companies is like trying to bet on a mining company during the gold rush; a total chance on who will strike gold and get rich.
I propose an alternate play here. The companies that sell the equipment and supplies that make it possible for these companies to continue to do research and development. Regardless of who comes up with a solution, there are a few companies making an absolute killing while all of this goes on. These are the shovel sellers.
I’m going to share a couple of my plays, and I’d encourage others to share their thoughts or any other plays that fit into this category.
Play #1: Veeva Systems (VEEV)
Veeva Systems creates software that is specifically tailored to the life sciences and pharmaceuticals industry. Their platform is used to manage clinical trials, have virtual meetings, manage customers and data, and more.
Certain aspects of their platform such as Veeva Engage, a tool built on top of Zoom for meeting with Healthcare professionals, have seen insane growth in usage.
The reason I like Veeva so much is that because they are in such a compliant industry, many parts of their platform have basically no competition. A great example of this is with their CRM. It can cost millions of dollars to buy a CRM system (i.e. Salesforce, Dynamics, Zoho, Hubspot, etc.) and customize it to your business. Veeva licensed Salesforce and customized it to the needs of an entire industry over a decade, to the point that it would almost impossible for their customers to build their own systems, or for another software company to make something that’s up to par. They also have tons of cash and no debt, which is a major bonus.
Position: I’ve been holding 5/15 $190 calls for a couple weeks (already printing), and I plan to buy a few higher OTM calls with strikes later this year. This is an extremely safe position (the stock not the FD) whether you’re bullish or bearish on the market overall, so I expect more people to pile into Veeva.
Play #2 – Thermo-Fisher Scientific (TMO)
Thermo Fisher is a manufacturer and distributor of laboratory equipment and supplies.
Thermo Fisher supplies all of the tools necessary for laboratories to keep up production. This includes everything from test tubes and vials, to masks and PPE, to the heavy equipment used to test samples. They’re even developing their own COVID-19 tests:
I like Thermo because they stand to make a killing even after a vaccine is found, because they sell equipment used in the manufacture of tests and vaccines that will be in high demand as production ramps up, regardless of who discovers the best method.
Positions: I have 6/19 $350 calls. I’m planning to buy more long-dated calls (probably Jan ’22) that will cover through the manufacturing period.
TL:DR There are a few companies that supply the pharmaceutical industry. I’ve found that betting on these is a hell of a lot safer than betting on individual companies to develop a test or vaccine.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.