Merck & Co., Inc. (MRK), Novartis AG (ADR) (NVS): One Hidden Pharmaceutical Technology for Your Portfolio

And compare that with where they stand today:

Source: Codexis Corporate Overview May 2013.

If a drug wins approval and uses a biocatalyst, the supplier (i.e., BASF) locks in royalties for the life of the drug. In fact, the process has to be included in any New Drug Application submission. Once the drug loses market exclusivity, BASF can offer its manufacturing improvements to generic-drug makers such as Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) to continue generating revenue, albeit with smaller margins. While Merck & Co., Inc. (NYSE:MRK) and Teva have gone virtually all in on biocatalytic processes, they aren’t the only big names involved. Pharma and biotech companies of all sizes and focuses, from Pfizer to Vertex, are beginning to employ small biocatalysis teams.

Foolish bottom line

You may not want to invest directly in BASF since its biocatalysis business is just a tiny sliver of the overall company, but investing in more proven pharmaceutical companies that utilize biocatalysts in their manufacturing processes could certainly lead to better long-term results. Skip Volante, vice president of R&D at Merck & Co., Inc. (NYSE:MRK) in 2010, made an eye-opening confession to C&EN Magazine about the improvements made to Januvia’s process:

The advance led to a threefold increase in productivity and helped [Merck] avoid the cost of building a second factory to meet rising demand for Januvia.

That’s a pretty big deal when you consider that a new manufacturing facility can cost hundreds of millions of dollars to build and take years to get final approval. Investors may never see a number put on the cost savings associated with using biocatalysts, but Merck & Co., Inc. (NYSE:MRK) may have already saved several hundred million dollars for shareholders. The potential is too great to ignore.

The article 1 Hidden Pharmaceutical Technology for Your Portfolio originally appeared on Fool.com and is written by Maxx Chatsko.

Fool contributor Maxx Chatsko owns shares of Codexis. Check out his personal portfolio, his CAPS page, or follow him on Twitter @BlacknGoldFool to keep up with his writing on energy, bioprocessing, and biotechnology. The Motley Fool has no position in any of the stocks mentioned.

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