Every day when I wake up, I read The Wall Street Journal. See, a large part of my day involves looking for new ideas to invest in.
But four times a year, I get to read a set of reports that are chock full of ideas.
At the end of every quarter, the largest institutional investors reveal all the stocks they own. This is done through a 13F filing.
These documents show what stocks, hedge funds, and institutional investment managers who control over $100 million in assets are buying.
And what I found this quarter could be the most disruptive software platform to ever hit the pharmaceutical industry…
How I Found This Top Biotech Innovator
While thousands of 13F reports are filed every quarter, I’ve culled the number I look at over the years to a select 50 funds I believe are run by the best-performing investors in the world. Even though many of these funds are filled with large and mega-cap stocks like Facebook Inc. (NASDAQ: FB), Amazon.com Inc. (NASDAQ: AMZN), Netflix Inc. (NASDAQ: NFLX), and Apple Inc. (NASDAQ: AAPL), new or growing smaller positions help me to get in early on exciting investments. Many multibillion-dollar hedge funds and mutual funds have the resources I could never afford and often give me new investment ideas that I can share with our readers on Money Morning.
This last quarter was particularly interesting as the pandemic has really reshaped how business is done and created structural changes that could last forever. For me, this meant that I could potentially find interesting new investment ideas from my favorite investors.
With all the attention vaccine stocks are getting, and many of them soaring to new highs, I thought I would take a step back and look at pick and shovel plays. This is an investment strategy that invests in the underlying technology needed to produce a good or service instead of the final output.
This helps me to invest in an industry without having to worry about the risks of the market for the final product. Think about investing in the semiconductors and not the phone, for example. These types of companies can also often lead to much more stable investments.
Knowing that many drugs never actually make it to market even though billions in R&D has been spent developing the drug, I thought to myself, how can I still benefit from all of this spending?
This led me to a very interesting 13F filed this quarter by the Bill and Melinda Gates Foundation. Given the primary goals of the foundation are, globally, to enhance healthcare and reduce extreme poverty, I thought this would be a perfect place to look given the current environment.
It turns out the Bill and Melinda Gates Foundation, which is the world’s largest, recently invested $300 million into a U.S.-based drug discovery software company. That was enough to put it in its top 10 investments of its $17 billion fund. On top of the Gates foundation, prolific investor David Shaw also owns a large chunk of the company.
This biotech stock could change the game for drug makers forever.
And you can still get in before the rest of the investing world catches on.
In fact, this biotech IPO was buried in the pandemic news this spring, but that’s working to your advantage…
One of the Best Biotech Stocks You Haven’t Heard Of
The company is Schrodinger Inc. (NASDAQ: SDGR).
Now, this company is really interesting. They have been around since 1990, but only recently went public in February of this year.
In simple terms, Schrodinger has created a platform for drug discovery. But it is much more complicated than that. Here’s how the company explains it: “Our physics-based computational platform integrates differentiated solutions for predictive modeling, data analytics, and collaboration to enable rapid exploration of chemical space.”
In plain English, this platform can do two amazing things. First, it can reduce the average time and cost to identify a drug development candidate. Secondly, it can increase the probability of drug discovery programs entering clinical development. Combined, this could make it one of the most sought-after companies in the biotech space.
This platform is proven and is already being used by over 1,000 customers, counting all of the top 20 pharmaceutical companies in the world.
Taken from its S-1 filing when it went public, its customer count has gone from 742 in 2013 to 1,150 in 2018, a number that has yet to see a drop. On top of that, its ability to expand within current customers can be seen in the accelerating growth of annual contract value (ACV). The number of customers with ACV of $100K+ a year has gone from 71 to 122 in the same time period with over 96% customer retention rate. This has led to revenue growth over 20% for the last four quarters.
Going public has also given it a cash position of over $200 million in its most recent quarter, which should help it to spend more on R&D. With customer penetration growing, the runway for growth is massive.
In fact, its software platform is so compelling that its customers are also partnering with it in the creation of new drugs, and it now has a drug pipeline with partners including Sanofi and Takeda. Two drugs from its pipeline have already been approved by the FDA with major partners, and it currently has five more drugs in discovery.
This company is disrupting the traditional drug discovery process and pharmaceutical industry. With more and more companies looking to develop new drugs and with worldwide pharmaceutical R&D spend reaching $204 billion by 2024, Schrodinger will continue to benefit.
— Alex Kagin
Source: Money Morning