11

Operational Excellence (OE)Operational Excellence (OE)

                            

           

Steve Avery

EVP HR and Operational Excellence

Steve Avery

EVP HR and Operational Excellence

22

(NYSE:VRX)(NYSE:VRX)

in the areas of neurology,in the areas of neurology,infectious disease and dermatologyinfectious disease and dermatology

in the areas of neurology,in the areas of neurology,infectious disease and dermatologyinfectious disease and dermatology

A unique, A unique, GLOBAL,GLOBAL,research-based,research-based,

A unique, A unique, GLOBAL,GLOBAL,research-based,research-based,

specialtyspecialty pharmaceutical company pharmaceutical companyspecialtyspecialty pharmaceutical company pharmaceutical company

that discovers, develops, manufactures and that discovers, develops, manufactures and markets pharmaceutical productsmarkets pharmaceutical products

that discovers, develops, manufactures and that discovers, develops, manufactures and markets pharmaceutical productsmarkets pharmaceutical products

33

Company ProfileCompany Profile

$2B Capitalization Value $2B Capitalization Value $2B Capitalization Value $2B Capitalization Value

1,000 Sales Representatives1,000 Sales Representatives1,000 Sales Representatives1,000 Sales Representatives

Global ManufacturingGlobal ManufacturingGlobal ManufacturingGlobal Manufacturing

3,812 Employees 3,812 Employees (*)(*)3,812 Employees 3,812 Employees (*)(*)

2,400 SKUs2,400 SKUs2,400 SKUs2,400 SKUs490 Products490 Products490 Products490 Products

Research & DevelopmentResearch & DevelopmentResearch & DevelopmentResearch & Development

(*) Excludes discontinued operations(*) Excludes discontinued operations

44

What makes

us unique?What makes

us unique? Global FootprintGlobal Footprint

Manufacturing LocationsManufacturing LocationsR&D Technology CentersR&D Technology Centers

Commercial LocationsCommercial Locations

55

2004

2004

2005

2005

2006

2006

2007

2007

2008

2008

Growth StrategyGrowth Strategy

$1.5 B$1.5 B

PipelinePipeline

Business DevelopmentBusiness Development

Ribavirin RoyaltiesRibavirin Royalties

Regional/Local BrandsRegional/Local Brands

Global BrandsGlobal Brands

Revenue

Goal

Revenue

Goal

66

Performance GoalsPerformance Goals

2004 Results*

2004 Results*

2008 Target2008 Target

Ribavirin Royalties

Product Sales

Cost of Goods Sold

Selling Expense

G & A

R & D

Effective Tax Rate

Ribavirin Royalties

Product Sales

Cost of Goods Sold

Selling Expense

G & A

R & D

Effective Tax Rate

$168MM $77MM $0.1B

$518MM $606MM $1.4B

36% 33% 20-25%

32% 32% 25-30%

22% 16% 10-12%

9% 15% 10-12%

38% 26% 28-30%

$168MM $77MM $0.1B

$518MM $606MM $1.4B

36% 33% 20-25%

32% 32% 25-30%

22% 16% 10-12%

9% 15% 10-12%

38% 26% 28-30%

*Includes non-GAAP adjustments*Includes non-GAAP adjustments

EPS >$1.90EPS >$1.90

2003 Results*

2003 Results*

77

What is OE at Valeant?What is OE at Valeant?

• First and foremost: a business strategy• Uses a combination of methodologies

– Lean: to eliminate waste– Six Sigma: to eliminate variation

• In a model that integrates the “Three Cs” of success: Customer, Culture, Capability

• Corporate wide• Designed to effect a new culture of “How we do

things” and the way we think about work

• First and foremost: a business strategy• Uses a combination of methodologies

– Lean: to eliminate waste– Six Sigma: to eliminate variation

• In a model that integrates the “Three Cs” of success: Customer, Culture, Capability

• Corporate wide• Designed to effect a new culture of “How we do

things” and the way we think about work

88

OE RolloutOE Rollout

99

OE Rollout at ValeantOE Rollout at Valeant

• Across the “whole” company• Began with Manufacturing• Expanded to ALL other areas including:

– Commercial Operations– R&D– Supply– Global functions such as finance and

procurement

• Across the “whole” company• Began with Manufacturing• Expanded to ALL other areas including:

– Commercial Operations– R&D– Supply– Global functions such as finance and

procurement

1010

Key indicators for ValeantKey indicators for Valeant

Earnings

$235M

$18M

02 03 08

EBITDA

$493M

$126M

02 03 08

R&D

12%

7%

02 08

COGS

34%

20%

02 08

Effective Tax

38%

30%

02 08

SG&A

56%

39%

02 08

Revenue

$1.5B

$.74B

02 ‚08

1111

Key EnablersKey Enablers

• Sr. Team evolution of commitment• Strong tie between business plans and project

selection• Accountability in performance management• Finance leadership• BB selection• Strong consistent leadership communication

• Sr. Team evolution of commitment• Strong tie between business plans and project

selection• Accountability in performance management• Finance leadership• BB selection• Strong consistent leadership communication

1212

OE Benefit Tracking – Types of BenefitOE Benefit Tracking – Types of BenefitOE Benefit Tracking – Types of BenefitOE Benefit Tracking – Types of Benefit

There are three types of OE benefits: P&L

Must have a direct impact on Operating Income in the period recognized

Reduction in cost or increase in revenue

Balance SheetBalance sheet benefits arise when improvements are made

against either the working capital or fixed asset base of the organization

Reduction in inventory, fixed assets, A/R, etc.

MemorandumThis occurs where an improvement project does not directly

result in an immediate P&L or balance sheet benefit, but rather creates the opportunity to realize the above

Savings of unbudgeted expenses Efficiency gain that does not drive an immediate P&L or BS

benefit• Improvement in a process in a factory that cuts required hours

but does not cause an immediate headcount reduction

There are three types of OE benefits: P&L

Must have a direct impact on Operating Income in the period recognized

Reduction in cost or increase in revenue

Balance SheetBalance sheet benefits arise when improvements are made

against either the working capital or fixed asset base of the organization

Reduction in inventory, fixed assets, A/R, etc.

MemorandumThis occurs where an improvement project does not directly

result in an immediate P&L or balance sheet benefit, but rather creates the opportunity to realize the above

Savings of unbudgeted expenses Efficiency gain that does not drive an immediate P&L or BS

benefit• Improvement in a process in a factory that cuts required hours

but does not cause an immediate headcount reduction

1313

OE Benefit Tracking – Types of BenefitOE Benefit Tracking – Types of BenefitOE Benefit Tracking – Types of BenefitOE Benefit Tracking – Types of Benefit

Which benefit does Valeant want to target?

All of them!

Each category of OE benefit drives savings to the company, the only difference is the timing. This is a long-term program designed at

driving efficiency and savings in the short, medium, and long term.

If we target the biggest areas of waste, we will maximize our long-term benefit

Which benefit does Valeant want to target?

All of them!

Each category of OE benefit drives savings to the company, the only difference is the timing. This is a long-term program designed at

driving efficiency and savings in the short, medium, and long term.

If we target the biggest areas of waste, we will maximize our long-term benefit

1414

Baseline MethodologyBaseline Methodology

• A primary tool for focusing change efforts• Start with a Value Stream/global process• Collect data from several perspectives:

– Customer/user, Operations/process, Business systems, Organization, Finance, e.g.

• Analyze data to discover root causes• Commission projects to improve those

leverage points (root causes)

• A primary tool for focusing change efforts• Start with a Value Stream/global process• Collect data from several perspectives:

– Customer/user, Operations/process, Business systems, Organization, Finance, e.g.

• Analyze data to discover root causes• Commission projects to improve those

leverage points (root causes)

1515

Data

UDE UDE UDE

UDE

UDE

UDEs

Waste

Ro

ot

Cau

ses

UDEs

Day 5Finalize Plans

& Committo Change

UDE

UDE

Collect &Interpret Data

Day 1Identify Waste

& UDEs

Day 2ID Root Causes

& Problems

Day 3ID Solutions& Projects

The Problem Is that DCH overproduces, which leads to excess WIP and FG inventory . . .

Project Gantt

Day 4Plan Projects

ContractFor

Change

Baseline at a GlanceBaseline at a Glance

1616

Control MechanismsControl Mechanisms

• All business areas have OE targets • Working with detailed benefit capture rules• Business areas are required to report monthly• OpCom receives monthly update• In the future, all promotions to Director or above will

require past participation in OE as one of:– Black belt – Green Belt – Champion – Sponsor

• All business areas have OE targets • Working with detailed benefit capture rules• Business areas are required to report monthly• OpCom receives monthly update• In the future, all promotions to Director or above will

require past participation in OE as one of:– Black belt – Green Belt – Champion – Sponsor

1717

Re

sults

Valeant 2004 OE BenefitsValeant 2004 OE Benefits

18%

Ob

ject

ive

$1M

$2M

$3M

$4M

$5M

$6M

2004

•Manufacturing objective $4.4M P&L

•Manufacturing results $5.2M P&L

•18% above target

1818

Valeant 2005 OE ExpectationsValeant 2005 OE Expectations

• Projected $5.3M benefit in manufacturing• Projected $8.5M benefit in commercial• $800K in Finance• $1M in G&A• Significant acceleration in new product development

• Against a target of $10M

• Projected $5.3M benefit in manufacturing• Projected $8.5M benefit in commercial• $800K in Finance• $1M in G&A• Significant acceleration in new product development

• Against a target of $10M

1919

Projected 2005 OE BenefitsProjected 2005 OE Benefits

0

2

4

6

8

10

12

14

16

Comm Mfg Finance G&A Budget Frcst

P&LM's

0

2

4

6

8

10

12

14

16

Comm Mfg Finance G&A Budget Frcst

P&LM's

2020

R&DR&D

2121

Study Site Activation AccelerationStudy Site Activation AccelerationVISER2 Versus VISER1VISER2 Versus VISER1

Study Site Activation AccelerationStudy Site Activation AccelerationVISER2 Versus VISER1VISER2 Versus VISER1

0102030405060708090

100

Mon

th 1

Mon

th 2

Mon

th 3

Mon

th 4

Mon

th 5

Mon

th 6

Mon

th 7

Mon

th 8

Mon

th 9

Mon

th 1

0

Mon

th 1

1

Site

s A

ctiv

ate

d

VISER1

VISER2

FasterActivation 1.5 Months

Gain

2222

CommercialCommercial

2323

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

• 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

2424

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 BaselineRequisition to Check Baseline

Blackbelt

Joe De La Cruz, Global Procurement

2525

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

• 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

2626

Requisition to Check BaselineRequisition to Check BaselineRequisition 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!”

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.

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.

2727

Requisition to Check BaselineRequisition 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 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

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

2828

Requisition to Check BaselineRequisition 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-

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

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

2929

Requisition to Check BaselineRequisition to Check Baseline

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

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

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1

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

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.

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.

3030

Requisition to Check BaselineRequisition to Check Baseline

Canada$10M

Costa Mesa$266M

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.

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

3131

Requisition to Check – Organization ImplicationsRequisition to Check – Organization ImplicationsRequisition 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

• 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

3232

Requisition to Check BaselineRequisition to Check Baseline

Lessons Learned:Lessons Learned:Lessons Learned:Lessons Learned:

DoDo Don'tDon'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

•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

•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

3333

Finance Consolidation BaselineFinance Consolidation BaselineFinance 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

• 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

3434

• 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

• 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 BaselineConsolidation Process BaselineConsolidation Process Baseline

3535

Finance Consolidation Baseline OutcomesFinance Consolidation Baseline OutcomesFinance 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

• 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

3636

Key DeliverablesKey DeliverablesKey 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

• 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

3737

Project SuccessesProject SuccessesProject 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.)

• 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.)

3838

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

• 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

3939

Deployment LessonsDeployment 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 OE5 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

• Talk about it everywhere

• Hold everyone accountable

• Become proficient in the process

• Develop leaders who lead by example

• Commit to targets - Communicate results

4141

ValeantValeant

• 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!

• 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!

4242

Key To SuccessKey To SuccessKey To SuccessKey To Success

LeadershipLeadership