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R&D

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Study Site Activation AccelerationStudy Site Activation AccelerationVISER2 Versus VISER1VISER2 Versus VISER1

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Commercial

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G2N Executive SummaryG2N Executive Summary

• Deductions from US gross sales are projected at $29M in FY05Deductions from US gross sales are projected at $29M in FY05

• $29M represents 18% of 2005P US gross sales$29M represents 18% of 2005P US gross sales

• US returns in 2004 related to prior period sales are projected at $9MUS returns in 2004 related to prior period sales are projected at $9M

• Discounts vary across product lines and distribution channelsDiscounts vary across product lines and distribution channels

• OE program delivers significant operational and financial benefitsOE program delivers significant operational and financial benefits

• Greater internal controls and assuranceGreater internal controls and assurance

• Improved management informationImproved management information

• Lower deductions and discounts via improved decision-makingLower deductions and discounts via improved decision-making

• Faster process cycle time and less wasteFaster process cycle time and less waste

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Executive Sponsors

Bary Bailey, EVP & CFO Peter Blott, SVP Group Financial ControllerMichael J Kays, SVP Global Procurement

Objective One: - Overall Process Improvement

To substantially reduce transactional costs within the system by eliminating non-value added steps and duplicate processes, standardizing payment processes and strengthening individual and supervisory accountability

Objective Two: Quick Hits

Identify areas of improvement within the system that can be implemented right away

Requisition to Check Baseline

Blackbelt

Joe De La Cruz, Global Procurement

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D&B report - Guess who?D&B report - Guess who?

• Credit score class - Credit score class - 4 SIGNIFICANT RISK4 SIGNIFICANT RISK– predicts the likelihood of a firm paying in a severely predicts the likelihood of a firm paying in a severely

delinquent manner (90+ days past time) in the next 12 delinquent manner (90+ days past time) in the next 12 monthsmonths

– scale 0 (best) to 5 (worst)scale 0 (best) to 5 (worst)

• Average of trade experiences - Average of trade experiences - 21 days beyond 21 days beyond payment termspayment terms

– 49% of trade experiences indicate slow payment49% of trade experiences indicate slow payment– As comparison MP Biomedicals had average of 19 days As comparison MP Biomedicals had average of 19 days

beyond payment termsbeyond payment terms

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Requisition to Check BaselineRequisition to Check Baseline

Why an OE approach?

Processes users, budget owners and finance representatives Processes users, budget owners and finance representatives continuously approach upper and senior management continuously approach upper and senior management complaining that the current system was not meeting complaining that the current system was not meeting expectations. expectations.

This constant “noise” soon translated to a need for OE action.This constant “noise” soon translated to a need for OE action.

“I know I have a problem, tell me what it is and then fix it!”

Given Valeant's unique finance Given Valeant's unique finance reporting structure (3 CFOs, multiple reporting structure (3 CFOs, multiple finance directors, etc) It was vital that finance directors, etc) It was vital that the sponsors of the baseline be the sponsors of the baseline be executive management that could executive management that could transcend reporting ranks to drive and transcend reporting ranks to drive and secure support for the project.secure support for the project.

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Requisition to Check Baseline

The Solution

A new common process system that A new common process system that will be supported within a shared will be supported within a shared service model that will work as an service model that will work as an advocate and customer service group advocate and customer service group to the business units in Costa Mesa. to the business units in Costa Mesa. The overall throughput and process The overall throughput and process flow through this group will accelerate flow through this group will accelerate by removing unnecessary reviews and by removing unnecessary reviews and approvals, standardizing key steps. approvals, standardizing key steps. This new system has the potential to This new system has the potential to generate payments in 7 to 10 days.generate payments in 7 to 10 days.

The Problem Statement

The problem is that Valeant has not implemented a standardized methodology to facilitate an The problem is that Valeant has not implemented a standardized methodology to facilitate an efficient and accurate requisition to check process. This has resulted in a lack of communication efficient and accurate requisition to check process. This has resulted in a lack of communication and training to the users. The impact is, on average, and training to the users. The impact is, on average, invoice authorization takes 70 daysinvoice authorization takes 70 days resulting resulting in increased processing/cycle time, late fees and lost discounts opportunities of approximately in increased processing/cycle time, late fees and lost discounts opportunities of approximately $121K annually. Ultimately, we have been identified as a significant risk to outside suppliers$121K annually. Ultimately, we have been identified as a significant risk to outside suppliers

VRX Req to Check - Common ProcessVRX Req to Check - Common Process

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Requisition to Check Baseline

The TeamThe Team

A cross functional team with A cross functional team with representatives from multiple representatives from multiple finance departments, finance departments, procurement, internal audit, procurement, internal audit, accounts payable and end accounts payable and end users were secured and users were secured and empoweredempowered to represent their to represent their area during the baseline event.area during the baseline event.

Daily management briefs Daily management briefs allowed for transparent project allowed for transparent project status status - NO SUPRISES-- NO SUPRISES-

Just in Time (J.I.T.) training was given during the weekweek, ensuring that all team members were able to actively participate during baseline

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Requisition to Check Baseline

Pareto Chart: Corporate - Company 109 - Check Release by Requester Sept 04 - Mar 05

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Primary_Description Corp R&D USPharm Professional Services 6,515,533 11,662,459 1,240,996 Business Services 851,008 12,889,417 222,173 Marketing & Sales 983,580 6,590,926 Information Technology 1,595,933 66,114 - Maintenance & Repairs 926,976 119,413 - Unclassified ""Other Disbursements"" 418,314 416,015 Freight & Courier 549,751 49,593 Contractor 364,590 19,529 70,702 Vehicles 5,570 12,056 329,530 Packaging 261,117 Total: 11,661,504 25,579,856 8,919,935

Why a baseline?Why a baseline?

Simple OE tools such as Simple OE tools such as Pareto analysis and Process Pareto analysis and Process Flow Charts allowed the Flow Charts allowed the executive sponsors to make executive sponsors to make fact based decision rather than fact based decision rather than “noise” based decisions.“noise” based decisions.

After a summary review of the After a summary review of the multiple requisition processes multiple requisition processes in the building a baseline of in the building a baseline of the entire system was agreed the entire system was agreed to by the team.to by the team.

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Requisition to Check Baseline

Canada$10M

Costa Mesa$266M

Puerto Rico$21M

Basel$39M

Poland$21M

2004 Worldwide Purchase Order Value: $420M

Source data from Lotus Notes Purchase Requisition System – non Lotus Notes Sites NOT represented.

WHERE TO START

Focus where the money is:

Costa Mesa (VRX headquarters) was chosen for process review based on the volume of purchases processed.

Commercial, GMS, R&D and Corporate finance functions are supported in Costa Mesa which would allow for the solutions to be simultaneously implemented across multiple divisions.

This location had also generated the most “noise” from the users of the system.

All Others$62M

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Requisition to Check – Organization ImplicationsRequisition to Check – Organization Implications

• No increase to FTE• $120K - $300K in P&L Benefits from

discounts not being captured in the current process

• Freeing up Business resource time to apply to value added activity

• Process Consistency• Policy Adherence

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Requisition to Check BaselineLessons Learned:Lessons Learned:

Do Don't

•Exec Support •DisciplinedDisciplined project plan•Weekly update•Address organizational conflicts•Communicate regularly with Stakeholders and users•Empower team members to do vs. recommend•Trust process and the data•Agree on data sources

•Let project scope creep •Be scared about what’s Be scared about what’s under the rocksunder the rocks•Draw conclusions too early•Forget to keep sponsors engaged•Overcomplicate processes / recreate the wheel •Be intimidated by sacred cows or current practices

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Finance Consolidation BaselineFinance Consolidation Baseline

• Project Selection Criteria – Why Consolidations Process?– Consolidations process is critical to the company– Process output was deemed to be late and at times unreliable– Excessive overtime– Excessive re-work– High cost and high energy process

• Goals of project– Agree on current state of process– Identify and agree root causes of inefficiency– Identify solutions to eliminate waste – Improve and standardize the process– Sign contract for change to ensure project completion

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• The current state of the consolidation process was mapped

• 15 Undesirable Effects were discovered

• 4 Root Causes were identified

– Requirements and standards are not clear

– Entity submissions often late and inaccurate

– No control or consequences for missed deadlines

– Output incomplete, inaccurate and late• 2 Projects were established

– Consolidation Process Management– Consolidation Input Management

Consolidation Process BaselineConsolidation Process Baseline

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Finance Consolidation Baseline OutcomesFinance Consolidation Baseline Outcomes

• Data analysis (up to 74% of submissions are late and up to 50% of subsidiaries are required to resubmit data at least once)

• Variance analysis currently late and disjointed

• Potential audit fee reduction from co-ordination $360k

• Initiated 2 projects:(1) The Consolidation Input Management project addresses the accuracy

and timing of subsidiary submissions into HFM with an emphasis on training and performance monitoring

(2) The Consolidation Process Management project will review the process performed at the corporate office with an objective of ensuring maximum efficiency and reliability of output

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Key DeliverablesKey Deliverables

• Develop consolidation milestones and performance tracking data

• Remove unnecessary or non value added work from the process

• Develop a reporting package to meet internal and external requirements

• Standardize the way the general ledgers are kept by all Valeant subsidiaries

• Alignment between how Valeant manages its business to how it is audited

• Reduce the number of hours it takes PwC to audit us

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Project SuccessesProject Successes

• Milestones met• Quality of data from entities improving• Reduced overtime hours worked by

consolidation group “No weekends”• PwC noted significant improvement in

process ($360K reduction in fees)• Decision not to fill positions ($280k yr.)

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2005 and Beyond2005 and Beyond

• Improve processes across whole value streams• Work down and upstream issues with Suppliers and

Customers• Set specific targets in cash flow as well as P&L• Communicate culture and leadership values with

process for accountability• Communicate story and results to the Street.• OE as the engine for employee development

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Deployment Lessons

• Define and reinforce Define and reinforce Leadership BehaviorsLeadership Behaviors..• Finding the right people is critical.Finding the right people is critical.• Go after transactional Go after transactional andand operational operational

opportunities.opportunities.• Evolution is limited by cultural resistanceEvolution is limited by cultural resistance• Some people Some people Can’t Handle ChangeCan’t Handle Change..• Communicate, Communicate, Communicate, Communicate, Communicate!Communicate!

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5 Things We Do To Drive OE

• Talk about it everywhere

• Hold everyone accountable

• Become proficient in the process

• Develop leaders who lead by example

• Commit to targets - Communicate results

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Valeant

• First Pharmaceutical company to First Pharmaceutical company to implement LSS throughout the companyimplement LSS throughout the company

• Key strategic focus for 2005Key strategic focus for 2005

• Make a difference – Get Involved!Make a difference – Get Involved!

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Key To SuccessKey To Success

Leadership