Meet the Company That May Become Healthcare's Version of Berkshire Hathaway

Bill Ackman. Source: Flickr user .

Bill Ackman. Source: Flickr user Insider Monkey .

Before you continue reading, keep one thing in mind: Ackman's fund, Pershing Square, has about 20% of its investable capital tied up in Valeant, so it has a vested interest in its success. In other words, Ackman is going to be a bit biased in his assessment of Valeant.

That being said, based on Ackman's view, Valeant is much more than just a traditional pharmaceutical company. Instead, Ackman describes Valeant as a "platform company," and compared it to a special purpose acquisition company, which is a shell company that's used to purchase other companies, much like Berkshire Hathaway is for the many companies it owns.

To some extent Ackman's view is correct, as Fortune notes Valeant has made more than 100 acquisitions since 2008. While many of Valeant's acquisitions have been pharmaceutical-based, it did agree to purchase Solta Medical in 2013 in order to get its hands on Solta's energy-based medical devices, which are used for aesthetic applications. Additionally, the 2013 announcement of its Bausch & Lomb acquisition landed Valeant a product portfolio filled with ophthalmic products and devices. Thus there is already some degree of diversity at Valeant.

Per Ackman's estimates, Valeant should be capable of between $7 billion and $20 billion worth of acquisitions on an annual basis . Ackman believes these acquisitions, and Valeant's transformation into a platform company, make it difficult for investors to properly value Valeant, which has led to the perceived discount that Ackman alluded to in his presentation.

Source: Pixabay.

On the other hand, integrating business can be difficult. Berkshire Hathaway and Warren Buffett are successful because they have a very "hands-off" approach to their acquisition strategy. It's not easy to purchase companies in the dynamic healthcare space and simply "keep your distance." Furthermore, there's always the concern of asset writedowns if the biotech bubble bursts. A number of biotech stocks are arguably at nosebleed valuations, yet Valeant is none too afraid to pull the trigger if its sees a product or device it likes. Getting caught on the wrong side of the tracks during a sector downturn could really hit Valeant hard.

Personally, I believe Ackman has a point if you're buying this stock for the next 10 to 20 years. Valeant's portfolio of healthcare companies is going to take a few years to really get ramped up, and the high costs of making acquisitions are going to weigh on its results for the time being. At some point the value of its assets and the potential of its products will likely surprise investors (and potentially cause them to buy Valeant stock and drive it significantly higher), but I suspect this "investor renaissance" is still a few years away.

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The article Meet the Company That May Become Healthcare's Version of Berkshire Hathaway originally appeared on

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong , track every pick he makes under the screen name TrackUltraLong , and check him out on Twitter, where he goes by the handle @TMFUltraLong .The Motley Fool owns shares of, and recommends Berkshire Hathaway and Valeant Pharmaceuticals. It also recommends Teva Pharmaceutical and ZELTIQ Aesthetics. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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