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Undervalued Valeant's Unique Strategy Is Underappreciated

This narrow-moat pharma firm's focus on acquiring already-approved products that aren't subject to reimbursement pressure is misunderstood.

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David Krempa: Drug development is an inherently risky and uncertain business. Pharma companies have to invest capital today in drug discoveries that might pay off five to 10 years down the road if the drug is approved. Valeant (VRX) takes a unique strategy to pharmaceutical development. They focus on buying products that are already approved so that they can more accurately predict the returns on capital and they can ensure to shareholders that they are making value-creating investments.

The company also focuses their portfolio on cash pay products such as contact lenses, plastic-surgeon products, and over-the-counter medications. Because [these products] aren't covered by governments or large insurance companies, Valeant is isolated from some of the paying pressure that we are seeing a lot of the traditional pharmaceutical companies deal with right now.

David Krempa does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.