How This Unique Pharma Play Keeps Winning

Over the past five years, Valeant Pharmaceuticals' (NYSE: VRX  ) stock is up 856%, absolutely smashing the returns delivered by the market. The company has recently made further waves by teaming up with activist investor Bill Ackman's Pershing Square Capital in a bid to take over Allergan (NYSE: AGN.DL  ) , the specialty pharma company famous for Botox. 

In the following video, Motley Fool analysts Michael Douglass and Brendan Mathews discuss Valeant's unique business model. As Brendan explains, Valeant only invests a relatively small amount in research and development. According to management, the returns on investing in research simply aren't high enough in most cases. Management believes it can get a better return by purchasing proven drugs or companies with existing product portfolios. It's a lot less risky, and the returns, especially if acquisitions are made judiciously, are much higher than investing in drug development. Michael points out that this isn't a totally new strategy -- Pfizer (NYSE: PFE  ) , for instance, hasn't been shy about making acquisitions. But Valeant has definitely taken cost-cutting to the next level with its R&D reductions.

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Brendan Mathews

A Fool since 2005, Brendan is a research analyst on The Motley Fool's Stock Advisor newsletter. He enjoys scouring financial statements, pontificating on competitive advantage, and any outdoor activity.

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Related Tickers

9/2/2015 4:02 PM
VRX $232.18 Up +8.13 +3.63%
Valeant Pharmaceut… CAPS Rating: ***
AGN.DL $0.00 Down +0.00 +0.00%
Allergan, Inc. CAPS Rating: ****
PFE $31.97 Up +0.61 +1.95%
Pfizer CAPS Rating: ****