As a fiduciary with the purpose of creating returns, an investment firm must be comfortable with taking calculated risks. In the world of pharmaceuticals, where profits hinge on not only regulatory approvals but also flawless execution of product rollouts, the risks are significant–but the rewards associated with the benefit of changing lives through pharmaceuticals are outstanding. With its recent sizable buy of Valeant Pharmaceuticals Inc. (VRX), Parsimony Limited has demonstrated a textbook example of a well-thought out pharmaceutical play.
Valeant Pharmaceuticals produces a number of highly impactful drugs, but is perhaps most notable for their distribution of Bausch + Lomb vision care products. The brand, which Valeant acquired in 2013, holds a significant market share in this enormous category. However, as it pertains to being a desirable investment, their holdings and products are actually less notable than their strategy. Rather than sinking millions of dollars into risky research to develop new products, they have implemented a contrarian strategy of minimizing development costs and acquiring companies with proven, safe, and profitable products.
A Paradigm Shift in Pharma Success
Although Valeant has absorbed some criticism for this approach, the results cannot be denied. Whereas many other pharmaceutical companies lean on the perception of research and proprietary medications as a growth driver, very few actually turn a profit. The astronomical research and development costs, not to mention marketing, go-to-market-strategy, packaging, and various other overhead considerations, eat away at margins almost as quickly as science can progress. Conversely, by approaching pharmaceutical products as assets to be managed in a portfolio, Valeant has rewarded investors with a five-fold return to date.
This strategy has taken Valeant from an also-ran in the world of pharmaceuticals to a $90 billion company–with no signs of slowing down. On the heels of its acquisition of Bausch + Lomb, in July of 2015, Valeant surpassed RBC to become the most valuable company on the Toronto Stock Exchange. This innovative approach and single-minded focus on maximizing return has attracted the attention of Parsimony Limited. In October and November of this year, Parsimony Limited brokered large buys of VRX on their clients’ behalf.
Bold strategy, Bright Future
In addition to the mammoth acquisition of Bausch + Lomb, Valeant has also acquired Synergetics USA, one of the most notable makers of eye surgery products. Perhaps most notably, Valeant has proven their ability to manage floundering and/or risky assets through their acquisition of Biovail in 2010. Given the track record of success that Valeant has shown with outside acquisitions, the sentiment is that they will continue on a predictable growth course and successively make larger acquisitions.
In spite of the inherent risk of pharmaceuticals, where one misstep can derail a company’s prospects and profits, Valeant has demonstrated that they are primed to be a future worldwide leader in the pharma space. It is for all the aforementioned reasons that Parsimony Limited and their affiliate, Global Custodian Solutions, was strongly compelled to take on a large position and brokered this trade on behalf of their members–and moreover, as are many other highly regarded investors, are eager to learn of the next acquisition that Valeant plans to make.
About Parsimony Limited
Parsimony Limited is an investment advisory and brokerage firm, acting as principal on its clients’ transactions, operating out of the Channel Islands. Known worldwide for our expertise in direct client advisement and portfolio management, our specialty is seeking out high-potential assets, while tempering this approach with sound strategy, and executing trades on our clients behalf . Parsimony Limited works closely with their affiliate Global Custodian Solutions, a worldwide leader in bespoke investment strategies that maximize returns for the most knowledgeable and discerning of investors.