Valeant Pharmaceuticals International, Inc.

Jason Arnold, Kari Froehlich, Mat McBride, Stanley Parker, Ann Utterback, Robin Chapman, Gail Christian / Arizona State University

Introduction significant restructuring efforts before and resulting from the merger, an important question is whether Valeant Pharmaceuticals International, Inc. pro- the changes will yield the benefits promised to motes itself as a multinational specialty pharma- shareholders and enable the firm to compete more ceutical company with a diverse product portfolio effectively. The answers to these questions and oth- focusing on branded pharmaceuticals, branded ers appearing in this case will influence Valeant’s and unbranded generics, and over-the-counter future success. (OTC) products specializing in neurology and der- matology.1 Product sales focus on North America, Central Europe, Mexico, Brazil, and Australia, with History manufacturing sites in Canada, Brazil, Poland, and Valeant Pharmaceuticals was founded in 1960 by 2 Mexico. Milan Panic, a Yugoslavian defector. The com- In his 2006 message to shareholders, Timothy pany started in California and was originally called C. Tyson, then president and chief executive officer, International Chemical & Nuclear Corp. (ICN). reflected, “In many ways, 2006 was a life-changing Panic ran the company for 43 years.5 Initially, the year for Valeant Pharmaceuticals. It was a challeng- company’s primary business involved chemical and ing year—one that certainly stretched us and tested drug sales, but it grew through acquisitions of small our resolve.”3 That was the year that Valeant lost drug companies. In 1963, the company launched its chairman Robert W. O’Leary to cancer. Valeant its IPO.6 would face a new set of challenges in the fall of 2010, In 1970, ICN scientists discovered ribavirin and when it merged with Canada’s Biovail Corporation. in 1985, gained U.S. Food and Drug Administration Although Valeant eventually recovered from the loss (FDA) approval for this drug to treat lung infections of chairman Robert W. O’Leary, would it be able in children. As a blockbuster drug, ribavirin powered to overcome the challenges of the merger and stra- ICN’s growth and reputation for decades.7 In later tegically position itself to capture a significant por- years, Panic directed ICN to promote ribavirin as a tion of the global pharmaceutical market, which was treatment for AIDS and for hepatitis C.8 During the expected to reach $1.1 trillion in 2014?4 1970s, ribavirin failed to qualify for FDA approval Although we give a brief history of Valeant here, as a stand-alone hepatitis C drug. However, in the this case focuses on the merger with Biovail and on 1990s, ribavirin did receive FDA approval to be used Valeant’s neurology division. This division manu- in combination with Schering-Plough’s interferon factures and markets products to treat Parkinson’s drug to treat hepatitis C. The licensing of ribavirin’s disease (PD), epilepsy, migraines, depression, patent to Schering-Plough was lucrative and led to a chronic pain, Huntington’s disease, and myasthenia similar interferon/ribavirin royalty-generating agree- gravis. A central question is whether Valeant will ment with Roche Pharmaceuticals.9 be able to capitalize on a growing demand for its The year 2002 was a watershed one in the his- new epilepsy drug retigabine and its other products tory of ICN. That year, Panic was paid $63.5 mil- as the result of an aging population. Also, due to lion, which included $33 million in bonuses, and

The authors thank Professors Robert E. White and Robert E. Hoskisson for their support and under whose direction the case was developed. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The case solely provides material for class discussion. Reprinted by permission.

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other senior executives received bonuses of $15 grow earnings, and focus research and development million.10 A shareholder proxy fight over excessive (R&D) resources on late-stage pipeline drugs. To executive compensation resulted in the replacement accomplish these goals, Valeant reduced headcount19 of Panic, the entire board of directors, and most of and sold its manufacturing facility in Poland, its dis- senior management.11 In the summer of 2006, Panic covery and preclinical assets, and its cancer and HIV reached a settlement with the company to return drug development programs.20 These actions pro- $20 million of his 2002 annual bonus.12 duced cost savings of $30 million during 2006, and In 2003, ICN changed its name to Valeant an estimated $50 million annually thereafter. Pharmaceuticals International and relisted its stock Also in 2006, Valeant obtained FDA permis- symbol on the New York Stock Exchange as VRX. sion to market and launch two drugs in the United The name change signified Valeant’s new strategic States; the cannabinoid drug Cesamet® (used to treat focus and emphasized its core principles and values. nausea and vomiting associated with cancer chemo- This change was made in conjunction with restruc- therapy) and Zelapar® to treat PD. It also acquired turing. Valeant’s restructuring efforts focused on the the hepatitis C drug Infergen® from Intermune. following activities: centralization of global purchas- In the beginning of 2007, Valeant sold its man- ing activities serving to leverage buying power on ufacturing plants in Switzerland and Puerto Rico. a global basis;13 rationalization of Valeant’s manu- Then in late 2007, it sold Infergen® because it had facturing network; and restructuring of debt, result- not met growth and profitability expectations.21 ing in a longer maturity structure and decreasing Also in 2007 Valeant initiated a study of retigabine the effective interest rate.14 These activities allowed for pain associated with postherpetic neuralgia, and Valeant to raise cash for its 2004 and 2005 acqui- a Phase 2b clinical study of taribavirin, for treat- sitions.15 Valeant expanded its specialty neurology ment of chronic hepatitis C.22 platform by acquiring Amarin Pharmaceuticals, In 2008, the company experienced some sig- Inc., Xcel Pharmaceuticals, and Tasmar (a neurol- nificant changes in structure and strategic direction ogy drug).16 as it went through another change in leadership; In 2004, Valeant improved its financial outlook J. Michael Pearson became the new chairman by purchasing and redeeming its 6.5 percent con- and CEO. In March 2008, Valeant announced a vertible subordinated notes.17 However, it experi- company-wide restructuring plan to reduce the enced a financial reversal when the FDA approved company’s focus to two therapeutic classes (der- a generic version of ribavirin. At its peak, ribavirin matology and neurology) and five geographic areas royalties comprised a quarter of all sales; but after (the United States, Canada, Australia/New Zealand, the generic version appeared on the market, they Mexico/Brazil, and Central Europe). The business only accounted for 6 percent of revenues in 2009 infrastructure was adjusted to support this strat- (see Exhibit 1). This revenue stream would diminish egy. Nonstrategic products and regional operations further when generic drug competition entered the that did not meet growth and profitability expec- Japanese and European markets in 2010.18 tations were divested or discontinued. Infergen® In 2006, Valeant announced another strategic rights; Asian assets (including subsidiaries, branch restructuring program intended to reduce costs, offices, and commercial rights in Singapore, the

Exhibit 1 Ribavirin Royalty Revenues

Revenue Percent of ($ millions) Total Revenue 2009 46.7 6 2008 59.4 9 2007 67.2 10 2006 81.2 9 2005 91.6 11

Source: Valeant 2007 Annual Report and Valeant 2009 Annual Report, www.valeant.com.

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Philippines, Thailand, Indonesia, Vietnam, Taiwan, national Pty Limited (a privately held company Korea, China, Hong Kong, Malaysia, and Macau), in Australia engaged in product development and product rights in Japan; subsidiaries in Argentina sales and marketing of premium skincare products and Uruguay; and business operations located in mostly in Australia), and Laboratoire Dr. Renaud Western and Eastern Europe, the Middle East, and (a privately held cosmeceutical company located in Africa (known as the “WEEMEA” business) were Canada). The year 2009 was also the year that the sold.23 Under Pearson, Valeant’s growth strategy FDA accepted the New Drug Application (NDA) focused on “small buys and diversified drugs, avoid- filing for retigabine.32 As external R&D expenses for ing too much reliance on a single drug.”24 Valeant taribavirin were $2.3 million in 2009 and $8.5 mil- continued its strategy of growth through acquisitions lion in 2008, Valeant chose to stop further indepen- with Coria Laboratories, Ltd. (a privately held U.S. dent development of taribavirin and seek potential specialty pharmaceutical company focused on derma- partners for the program.33 tology products), DermaTech Pty Ltd (an Australian In 2010 Valeant acquired three Brazilian com- specialty pharmaceutical company focused on panies (Instituto Terapeutico Delta Ltda, Bunker dermatology products marketed in Australia), and Industria Farmaceutica Ltda, and a branded gener- Dow Pharmaceutical Sciences, Inc. (a privately held ics/OTC company), along with Vital Science Corp. dermatology company that specialized in the devel- in Canada and Aton Pharma, Inc., located in opment of topical products).25 According to Pearson, Lawrenceville, New Jersey. Aton, a specialty phar- “Dermatology, we think, is a very attractive area maceutical company, focused on ophthalmology and for us to continue to grow as a smaller company. “orphan drugs” that are used to treat rare medical Skin drugs carry less development risks and don’t conditions.34 The Aton acquisition was considered to require a big sales force in order for Valeant to be a significant enhancement to Valeant’s neurology compete with larger players.”26 In addition, it suc- and other products as it had both an in-line business cessfully completed the retigabine Phase III epilepsy and a development pipeline that mainly consisted program and announced a worldwide license and of orphan drugs.35 In addition, Valeant entered collaboration agreement with GlaxoSmithKline collaboration with Spear Pharmaceuticals. In June (GSK) for the development and commercialization 2010, Valeant announced plans to merge with the of retigabine.27 Canadian pharmaceutical company Biovail. Then, As part of the 2008 restructuring plan, Valeant on September 28, 2010, Valeant Pharmaceuticals also cut its R&D budget by half. Such a move is International and Biovail Corporation completed generally considered unwise in the pharmaceutical the merger to form one company.36 industry, as profitability depends heavily on the development of new drugs.28 Valeant decided to use the funds resulting from the budget cut for acqui- The Merger sitions and stock buybacks, in addition to paying off debt. Research was considered so risky it was Although the merger was officially announced in best left to small biotechnology companies, which June 2010, Valeant and Biovail Corporation, one Valeant could later buy if they were successful.29 of Canada’s largest pharmaceutical companies, had Robert Ingram, Valeant’s lead director (now chair- been independently considering a business combina- man of the board) and vice chairman of pharmaceu- tion or transaction with the other for several years. ticals at GSK, believed that R&D “is a high-risk bet, Management of each company was generally famil- and the fact is we fail more often than we succeed. iar with the other’s businesses, and in early 2008, Rather than invest in a high-risk bet, we will be smart when Valeant implemented its new strategy focused through acquisition and licensing.”30 The strategy on shifting investment from R&D to acquiring small appeared to pay off as Valeant shares increased in-line undervalued products and companies, it also 60 percent on the New York Stock Exchange during considered a transformational business combination 2008.31 to apply the new strategy to a larger asset base, with More acquisitions followed in 2009, including the goal of increasing shareholder value. It identified EMO-FARM sp. z o.o. (a privately held Polish com- Biovail as a future potential transaction partner. In pany specializing in gel-based OTC and cosmetic August 2009, Pearson contacted William M. Wells, products), Tecnofarma S.A. de C.V. (a Mexican CEO of Biovail, to discuss a transaction involving generic company), Private Formula Holdings Inter- a Valeant neurological product, based on Biovail’s

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Exhibit 2 Valeant Pharmaceuticals International Merger Plan

Source: Valeant Pharmaceuticals International, Inc. Third Quarter Earnings Call, November 4, 2010.

primary focus on specialty neurology. Discussion it did not anticipate paying dividends in the future. continued throughout 2009 and in January 2010 The board also established a Special Dividend shifted to a potential merger. In June 2010, the Reinvestment Plan in which shareholders could elect board of directors of each company approved the to reinvest the special dividend in additional com- finalized agreement, and on June 21 Valeant and mon shares. This plan would automatically termi- Biovail issued a joint press release announcing the nate after payment of the dividend.40 merger37 (see Exhibit 2 for information on Valeant’s Under terms of the merger, the name of the com- overall approach to the timing of the merger). bined company would be Valeant Pharmaceuticals The deal, a reverse merger worth approximately International, Inc., and it would be headquartered $3.2 billion, would allow Biovail to acquire Valeant. in Mississauga, Ontario, Canada, where corpo- Biovail shareholders would own 50.5 percent of the rate income taxes were 18 percent federal and combined company and Valeant shareholders would 14 percent provincial, as opposed to a location in own 49.5 percent.38 The combined company would the United States where the corporate tax rate was be listed on both the Toronto Stock Exchange 35–40 percent with a state tax rate of approximately and the New York Stock Exchange. Just prior to 8 percent.41 Pearson would become CEO and Wells the merger, Valeant shareholders would receive a would serve as nonexecutive chairman of the board one-time special dividend of $16.77 per share, and of directors.42 The initial composition of the board would receive 1.7809 shares of Biovail common of directors would be 11 directors including five stock in exchange for each share of Valeant stock representatives from Valeant, five representatives owned. Biovail shareholders would continue to own from Biovail, and one additional resident Canadian their existing common shares. The transaction was director who would be selected through a search intended to qualify as a tax-exempt reorganization process, chosen by Valeant subject to the approval for Valeant shareholders.39 After the merger, in of Biovail.43 Biovail’s corporate structure would be November 2010 Valeant declared a special one-time retained. dividend of $1.00 per common share, as outlined The merge was considered a positive move by in the merger agreement. The company stated that both companies. Biovail CEO William Wells said

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that Biovail had always planned to add a second Law.46 All approvals were obtained successfully, therapeutic area, along with international markets, and on September 27, 2010, the shareholders of once it had established a position in specialty neu- Valeant Pharmaceuticals International and Biovail rology, and it had been acquiring products in vari- Corporation voted in favor of combining the two ous stages of development in that area for the past companies.47 few years. According to Wells, “With this deal, we After the merger, Pearson began a new restruc- have accomplished that in one fell swoop. We’ve turing plan for the combined company. Valeant achieved with this deal what I only hoped we’d be targeted 1,100 jobs (approximately 25 percent of able to do in ten years.”44 Additional benefits of the the combined workforce) that were considered merger include:45 “redundant” for elimination. By January 2011 approximately 500 employees received notifica- • a larger, more globally diversified company tion48 (see Exhibit 3 for information on Valeant’s would be created, with a broader and better planned workforce reductions). Valeant also elimi- diversified range of products, a deeper drug nated eight or nine R&D programs to focus on its development pipeline and an expanded presence strategy of growth through acquisitions of small in North America and internationally; companies rather than creating new products itself. • the combination of two well-known and “What we try to do is find these things, most of respected specialty pharmaceutical companies these companies no one’s ever heard of and we like could create a superior combined specialty phar- that,” said Pearson. “We try to buy them inexpen- maceutical company; sively. Our average price since I’ve been here is • the expected market capitalization, strong bal- 1.8 times sales.” Pearson also said that the com- ance sheet, free cash flow, liquidity, and capital pany would like to make at least five acquisitions structure of the combined company; in 2011.49 • the belief that the combined company could On February 1, 2011, Valeant and PharmaSwiss achieve approximately $175 million in annual S.A. announced an agreement for Valeant to acquire operational cost savings (synergy benefits) by the PharmaSwiss, a privately owned pharmaceuti- second year of operations, coming from reduc- cal company based in Zug, Switzerland specializ- tions in general and administrative expenses, ing in branded generics and OTC pharmaceuticals. R&D consolidation and sales and marketing; Valeant agreed to pay approximately 350 million • Valeant’s and Biovail’s product lines and geo- euros. PharmaSwiss has a product portfolio in seven graphic markets were complementary and did therapeutic areas and operations in 19 countries not present significant areas of overlap; throughout Central and Eastern Europe includ- • additional revenue growth opportunities pre- ing Poland, Hungary, the Czech Republic, and sented by the expanded product offerings and Serbia. It also has operations in Greece and Israel.50 stable cash flows from legacy products antici- On February 3, 2011, Valeant launched an offer- pated to support future growth with limited ing of $650 million aggregate principal amount of patent exposure with respect to the existing port- 6.750 percent senior unsecured notes due 2021. folio of products; Proceeds from the offering would be used to finance • the combination of two strong senior manage- the PharmaSwiss acquisition and also the acquisi- ment teams; tion of all U.S. and Canadian rights to nonophthal- • the combined company would be able to operate mic topical formulations of Zovirax (an antiviral under Biovail’s existing corporate structure. drug) from GSK, along with associated fees and Valeant and Biovail would have to obtain gov- expenses, and for general corporate purposes.51 The ernmental and regulatory approvals prior to closing acquisition of PharmaSwiss was expected to close the merger. Notifications were required by the FTC in the first or second quarter of 2011. According and the Antitrust Division of the Department of to Pearson, “This acquisition of PharmaSwiss solidi- Justice, and a mandatory premerger waiting period fies our position as a leading pharmaceutical com- would need to be observed. The merger was not pany in Central and Eastern Europe. PharmaSwiss notifiable under the Competition Act in Canada. A has an attractive partnering strategy as well as a premerger notification was required in Poland under complementary branded generics and OTC product the Competition and Consumer Protection Act, and portfolio that will strengthen our presence in the in Mexico under the Federal Economic Competition region.”52

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Exhibit 3 Valeant Pharmaceuticals International, Inc. U.S. and Canada Personnel Reductions

Source: Valeant Pharmaceuticals International, Inc., Third Quarter Earnings Call, November 4, 2010.

CEO Pearson, formerly with McKinsey & The company’s real estate holdings in Costa Mesa, Company, had the leadership skills and abilities California were sold in 2006 and the headquar- required to lead Valeant through the merger process ters moved to a new, leased campus in Aliso Viejo, and into its next phase of development efficiently California.53 and effectively. O’Leary formed a new management team, with the majority of his senior personnel recruits remain- Leadership ing in place for many years. The change in the compo- sition of the board of directors was dramatic. Nearly In 2002, because of shareholder disgruntlement, all of the new board members were not employed Robert W. O’Leary replaced Panic as the new CEO by the company and had no previous consulting and chairman of the board. O’Leary was well- or other business relationship with Valeant. A pri- respected in the health care industry, having served mary goal of the new board was to institute new as CEO of six different companies in 28 years prior corporate governance initiatives to make the board to joining Valeant. He specialized in managing dif- independent and transparent.54 O’Leary remained ficult restructuring circumstances. His job was to with the company until his death from cancer undertake a complete strategic restructuring of in 2006.55 Valeant. The goal was to create a leaner company In January 2005, Timothy C. Tyson took over that emphasized the specialty pharmaceutical busi- as Valeant’s CEO when O’Leary became too sick to ness. In pursuit of this goal, noncore businesses manage the firm on a daily basis. Tyson had been not fitting with future strategic growth plans were hired as the president and chief operating officer. divested. The divestiture process began by eliminat- Before coming to Valeant, Tyson was president ing all operations in Russia and Eastern Europe and of global manufacturing and supply for GSK, the the raw materials businesses in Central Europe. The third-largest pharmaceutical company in the United biomedical division, the North American photon- States at that time. The connection to GSK is note- ics business, personal radiation dosimetry division, worthy because, at the time, many members of and the Circe unit were also immediately divested. senior management were alumni of that company.

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This influx of GSK alumni in management helped to analyst David Amsellem of Piper Jaffray & Co., to accelerate needed culture changes, many derived “It is time for us to concede that the run in the stock from GSK. is no fluke and that investors are likely to view this In February 2008, Tyson resigned as CEO and management team with increasing confidence given J. Michael Pearson was selected as the successor. its execution over the past one to two years.”63 Pearson was head of McKinsey & Company’s global After the merger Pearson became the CEO of pharmaceutical practice and head of its mid-Atlantic the combined company, Valeant Pharmaceuticals region. Pearson held various positions at McKinsey International, Inc. He agreed to waive the acceler- during his 23-year career, including membership ated vesting of the equity awards he would have on McKinsey’s board of directors.56 At McKinsey, been entitled to in association with the merger. Pearson worked with leading CEOs to develop and A significant portion of his future compensation implement major turnarounds, acquisitions and cor- would be in the form of equity in the company and porate strategy. Pearson was already providing advice would be contingent on the performance of the com- and guidance to Valeant prior to Tyson’s departure. pany’s common shares.64 Pearson’s pay package, a sharp contrast to Although Pearson has continued in his role as Panic’s, was developed by G. Mason Morfit, chair- CEO of the combined company, William Wells re- man of Valeant’s board compensation committee. signed from his position as nonexecutive chairman Morfit was also a partner of Value-Act Capital, in December 2010. One week after Wells’ resigna- an “activist hedge fund” with a 22 percent stake tion CFO Peggy Mulligan also resigned. Although in Valeant, which made it Valeant’s largest stock- the reasons for both resignations were stated as holder.57 The pay package focused on giving Pearson “to pursue other interests,” analysts said that old incentives to increase long-term value for investors Valeant personnel had dominated the combined and was considered unusual for a public company. company, and the changes were viewed as part of the Morfit explained to Pearson and the other finalists new direction and strategy of the new company.65 for the CEO position that he preferred the private Philip W. Loberg, Valeant’s former senior vice equity model for executive compensation “because president and corporate controller, was appointed it aligns management’s incentives with those of the Interim CFO replacing Mulligan,66 and Valeant’s investor.” He later recalled that “Nobody was scared Lead Independent Director Robert A. Ingram was off.”58 This drew national attention and praise from appointed as Chairman of the Board of Directors.67 compensation critics.59 Pearson was awarded $18.1 Exhibit 4 shows listing of Valeant’s current manage- million in equity but was also required to buy at ment team members, which includes executives from least $3 million in stock and would not receive rou- both legacy Valeant and legacy Biovail. Pearson tine annual equity grants. He would not be allowed and Valeant’s management team continue to work to sell most restricted shares or exercise stock together to help Valeant reach its potential in pro- options for two years after they vested and would viding products that would offer relief to customers only get to keep certain restricted shares if Valeant’s and generate revenue. share price increased by at least 15 percent per year through February 2011. Pearson actually purchased Produc t Overview $5 million in Valeant shares.60 Pearson and the board of directors then adopted the same approach As noted in the introduction, this case focuses on for new senior executives. They were required to the neurology division—a division that develops buy large amounts of company stock, which limited products to treat PD, epilepsy, migraines, and other candidates to “affluent risk takers.” According to central nervous system disorders. Pearson, already successful people were willing to 61 take less guaranteed pay up front. Parkins on’s Disease Although this pay plan model was not a guaran- tee of success, by May 2010 Valeant’s shares were PD, a disorder characterized by slow movement, up 40 percent since the end of the 2009 fiscal year, rigidity, and tremor, affects more than one million with a market value of approximately $3.5 billion Americans.68 Most people are diagnosed with PD in and a first-quarter adjusted profit of $52.8 million the later years of life. It is estimated that four to six (up 39 percent from the previous year). Valeant had million people around the world currently have PD, also posted a 40 percent gain in 2009.62 According including one million people in the United States.

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Exhibit 4 Valeant Pharmaceuticals International, Inc. Leadership

Board of Directors Theo Melas-Kyriazi Chief Financial Offi cer, Levitronix LLC Robert A. Ingram Formerly a member of the Valeant board of directors Chairman General Partner, Hatteras Venture Partners Senior Management Formerly Lead Director of the Valeant board of directors J. Michael Pearson J. Michael Pearson Chief Executive Offi cer, Valeant Pharmaceuticals Chief Executive Offi cer, Valeant Pharmaceuticals International, Inc. International, Inc. Formerly Chairman of the Valeant board of directors and Formerly Chairman of the Valeant board of directors and Chief Executive Offi cer of Valeant Chief Executive Offi cer of Valeant Kate Stevenson Philip W. Loberg Corporate Director Executive Vice President and Chief Financial Offi cer Formerly Senior Vice President, Group Financial Controller Lloyd Segal for Valeant Equity Partner, Persistence Capital Partners Robert Chai-Onn Formerly a member of the Biovail board of directors Executive Vice President, General Counsel and Corporate Norma A. Provencio Secretary President and Owner, Provencio Advisory Services Inc. Formerly Vice President, Assistant General Counsel, of Formerly a member of the Valeant board of directors Valeant Robert N. Power Mark Durham Corporate Director Senior Vice President, Human Resources Formerly a member of the Biovail board of directors Formerly Senior Vice President, Human Resources of Biovail Corp. G. Mason Morfi t Partner, ValueAct Capital Rajiv De Silva Formerly a member of the Valeant board of directors President, Valeant Pharmaceuticals International, Inc. and Chief Operating Offi cer, Specialty Pharmaceuticals Dr. Laurence Paul Formerly Chief Operating Offi cer of Specialty Founding Principal, Laurel Crown Capital LLC Pharmaceuticals for Valeant Formerly a member of the Biovail board of directors Richard K. Masterson Michael R. Van Every President of Biovail Laboratories International in Barbados, Retired Partner of Price Waterhouse Coopers LLP a wholly-owned subsidiary of Valeant Pharmaceuticals, Formerly Chairman of the Audit Committee of the Biovail International. board of directors

Source: 2011, Valeant Pharmaceuticals, www.valeant.com/.

Approximately 50,000–60,000 new cases are diag- the ease of once-daily dosing, as compared to other nosed each year.69 As the U.S. population ages and medications used to treat PD, which are dosed mul- lives longer, PD is expected to “rise astronomically tiple times per day.71 Two other products that com- in the coming decades.”70 Valeant’s PD drugs include pete in the same market are Teva’s Azilect® and the Zelapar® and Tasmar®. Both products are approved generic drug selegiline. for use as an adjunctive treatment with levadopa/ Tasmar® is a COMT-inhibitor.72 It is used as a carbidopa (l-dopa), a product every patient with PD last resort option in the pharmaceutical treatment eventually takes. algorithm, since it has a “black box” warning that Valeant gained Zelapar® through the acquisition requires patients to monitor their liver functions on of Xcel Pharmaceuticals. Zelapar® offers patients a biweekly basis. Tasmar® was initially launched in

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1997 by Roche Pharmaceuticals, but due to three or vomiting. Valeant gained the rights to Migranal® patient deaths in 1998, it stopped promoting it. through the acquisition of Xcel. Valeant acquired the product in May 2004 in an effort to expand its presence in the neurology mar- Myasthenia Gravis ket.73 The only other COMT-inhibitor on the mar- ket is Novartis’s Comtan®. Myas thenia gravis is a rare disease that only affects 13,600 Americans. It is a neuromuscular disorder Epilepsy that affects the body’s voluntary muscles. It is often characterized by a drooping eyelid or loss of facial Approx imately 3 million Americans are living with movements. Unfortunately, the low incidence of epilepsy, a disorder caused by the hyperactivity myasthenia gravis provides little financial incen- of electrical charges in the brain, and “approxi- tive for pharmaceutical companies to invest in drug mately 200,000 new cases of seizures and epilepsy development. Mestinon® is Valeant’s approved, but occur each year.”74 However, an estimated 30 per- not promoted, drug for myasthenia gravis. cent of patients with epilepsy do not find suffi- As a result of the merge, Valeant added the cient relief with current drugs. Analysts forecast following key neurology products to its portfo- that the annual sales of medicines to treat epilepsy lio: Wellbutrin® XL for depression, Ultram® ER would range from $200 million to $800 million in for chronic pain management, Xenazine® for the 2011.75 reduction of involuntary movements caused by Valeant’s Diastat® Acudial™ is the only FDA- Huntington’s disease, and Ativan® for the treatment approved medication approved for at-home acute of anxiety disorders.80 seizure control; as such, it does not have any direct Valeant also has products in its development competitors. However, the delivery system is unat- pipeline. These products include retigabine (for treat- tractive to patients,76 and Valeant is developing ing epilepsy and pain), taribavirin (for chronic hepa- a new delivery system where the drug would be titis C), and several dermatology drugs for treating administered intranasally. rosacea, acne, and dermatological fungus. Valeant Retigabine, referred to as ezogabine in the United plans to expand its pipeline with the addition of new States, is a neuronal potassium channel blocker that compounds and product extensions through com- is a possible treatment for adult partial-onset sei- pany and product acquisitions81 (see Exhibit 5 for zures in combination with other antiepileptic prod- information on the products in Valeant’s product ucts. It is also used for postherpetic neuralgia pain.77 development pipeline). In December 2010, retigabine received preliminary In order to remain competitive and to achieve its approval from the Swiss Agency for Therapeutic vision of becoming the “leading specialty pharma- Products, Swissmedic, and on January 21, 2011, ceutical company in the world,”82 Valeant needs to Valeant and GSK announced that the European be aware of its competitors and their products. Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) recommended Competitive Environment marketing authorization for retigabine.78 In the United States, retigabine’s NDA is under review by In the United States, approximately 1,500 compa- the FDA. Until the NDA has been approved by the nies compete in a market worth $200 billion annu- FDA, retigabine cannot be commercialized in the ally. Revenue market share is highly consolidated, United States.79 where 80 percent of the market is driven by the top 50 companies. Global pharmaceutical market 83 Migraines growth is predicted to reach $880 billion in 2011. Market consolidation is further highlighted by the Migraines affect 28 million Americans, and are recent acquisition trends, whereby drug manufac- characterized by severe headaches, with side effects turers gain R&D capability by acquiring smaller including nausea, vomiting, and sensitivity to light firms.84 Valeant’s neurology division competitors or sound. Migranal® is Valeant’s migraine medica- can be narrowed to a few key companies: Teva tion and the only product available in its medication Pharmaceutical Industries Ltd., UCB S.A., and class. Migranal® is administered intranasally, which H. Lundbeck (see Exhibit 6 for comparative infor- is an advantage for patients who experience nausea mation on Valeant and its competitors.)

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Exhibit 5 Valeant Pharmaceuticals International, Inc. Product Development Pipeline

Development Pipeline

Discovery Pre-Clinical Phase 1 Phase 2 Phase 3 NDA/MAA ANDA In Development Submitted Dermatology Lacrisert (Lifecycle Management) IDP 115 (Rosacea) IDP 107 (Acne) IDP 108 (Topical Anti-fungal) IDP 113 (Topical Anti-fungal)

Specialty CNS Demser (lifecycle management) Syprine (lifecycle management) Mephyton (lifecycle management) Istradefylline (Parkinson’s Disease)

GSK Partnership Retigabine/Ezogabine Retigabine/Ezogabine Pain Retigabine/Ezogabine MR

Other Compounds Venlafaxine ER Fenofibrate Quetiapine ER

Phase 1 Phase 2 Phase 3

Source: Valeant Pharmaceuticals International, Inc. website, www.valeant.com, January 2011.

Teva Pharmaceutical Industries Ltd.85 UCB87 Teva employs a low-cost strategy, as it endeavors UCB’s vision is to develop a leadership position in to introduce generic versions of branded products severe disease categories to deliver superior, long- as early as possible following patent expiration. run returns to shareholders. It aspires to connect To support this strategy, Teva actively reviews with patients to understand their pain points, and current patents for opportunities to legitimately to connect sciences, specifically “biology and chem- challenge patent duration. It also enters into alli- istry in a unique way to target proteins which are ances to share product development costs and liti- currently undruggable.” gation costs, maintaining the lowest R&D invest- UCB has nine products in the R&D pipeline ment rates in the central nervous system product to address epilepsy, migraine prophylaxis, mul- category. Teva’s Azilect® (offered through a col- tiple sclerosis, fibromyalgia, restless legs syndrome laborative agreement with H. Lundbeck) competes (RLS), and PD.88 Sales of central nervous system with Valeant’s Zelapar® product for the treatment (CNS) products accounted for 41 percent of its of PD. In 2009 Teva had $13.9 billion in annual net sales amount of 2.7 billion euros in 2009.89 sales.86 Consistent with its strategy, UCB maintains more

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Exhibit 6 Valeant Pharmaceuticals International, Inc. Competitive Landscape

Valeant Pharmaceuticals International, Inc. and Top Competitors

Valeant H. Teva Key Numbers Pharmaceuticals Lundbeck Pharmaceuticals UCB Annual Sales ($ mil.) 820.4 2,647.7 13,899.0 4,170.6 Employees 1,311 5,733 35,089 9,324 Market Cap ($ mil.) 11,696.6 —1 52,210.1 —1 Valeant H. Teva Industry Market Profi tability Pharmaceuticals Lundbeck Pharmaceuticals UCB Median Median2 Gross Profi t Margin 73.15% 80.40% 56.11% 64.78% 57.16% 28.77% Pre-Tax Profi t Margin (6.01%) 22.29% 21.32% 23.20% 11.22% 8.48% Net Profi t Margin (11.46%) 16.68% 18.96% 17.63% (0.48%) 5.53% Return on Equity (3.1%) 22.9% 14.4% 12.2% (0.5%) 10.1% Return on Assets (1.6%) 13.4% 8.1% 5.5% (0.2%) 1.5% Return on Invested Capital (1.6%) 22.9% 10.8% 12.2% (0.3%) 4.4% Valeant H. Teva Industry Market Valuation Pharmaceuticals Lundbeck Pharmaceuticals UCB Median Median2 Price/Sales Ratio 6.86 1.50 3.29 1.65 3.06 —1 Price/Earnings Ratio (59.88) 8.98 17.36 9.66 50.00 —1 Price/Book Ratio 2.19 2.05 2.41 1.09 2.99 —1 Price/Cash Flow Ratio 15.87 5.52 12.79 16.29 16.72 —1 Valeant H. Teva Industry Market Operations Pharmaceuticals Lundbeck Pharmaceuticals UCB Median Median2 Days of Sales Outstanding 117.06 52.09 116.73 —1 78.04 34.66 Inventory Turnover 0.8 1.9 1.9 2.7 2.5 8.1 Days Cost of Goods Sold in Inventory 442 195 196 137 144 45 Asset Turnover 0.1 0.8 0.4 0.3 0.5 0.3 Net Receivables Turnover Flow 3.1 7.0 3.1 —1 4.7 10.5 Eff ective Tax Rate —1 25.2% 10.0% 24.9% —1 37.9% Valeant H. Teva Industry Market Financial Pharmaceuticals Lundbeck Pharmaceuticals UCB Median Median2 Current Ratio 1.36 1.36 1.60 0.87 2.05 1.33 Quick Ratio 0.9 —1 1.0 —1 1.4 1.2 Leverage Ratio 1.53 1.95 1.76 2.06 1.92 7.13 Total Debt/Equity 0.29 0.30 0.29 0.51 0.42 1.37 Interest Coverage (0.31) 15.98 15.25 4.05 4.75 17.33

(Continued)

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Exhibit 6 (Continued)

Valeant H. Teva Industry Market Per Share Data ($) Pharmaceuticals Lundbeck Pharmaceuticals UCB Median Median2 Revenue Per Share 5.68 75.34 16.95 15.87 7.87 —1 Dividends Per Share 0.37 2.21 0.62 0.92 0.47 0.25 Cash Flow Per Share 2.46 20.45 4.36 1.61 1.44 —1 Working Capital Per Share 0.31 8.25 4.85 (1.46) 2.86 —1 Long-Term Debt Per Share 1.27 —1 4.61 —1 2.65 —1 Book Value Per Share 17.83 54.90 23.15 24.09 8.06 —1 Total Assets Per Share 6.89 87.33 36.12 49.74 13.69 —1 Valeant H. Teva Industry Market Growth Pharmaceuticals Lundbeck Pharmaceuticals UCB Median Median2 12-Month Revenue Growth 8.4% 21.9% 25.4% (19.2%) 14.7% 31.9% 12-Month Net Income Growth (11.7%) 32.9% 215.0% 1,095.3% —1 (27.7%) 12-Month EPS Growth (11.2%) 33.5% 185.9% 1,095.7% —1 (50.0%) 12-Month Dividend Growth (57.0%) (10.2%) 17.5% 0.0% (9.7%) —1 36-Month Revenue Growth (8.5%) 14.2% 18.2% 4.9% 18.1% 14.3% 36-Month Net Income Growth (4.7%) 21.9% 54.2% 11.9% 84.5% (5.6%) 36-Month EPS Growth (5.1%) 25.0% 47.8% 3.0% —1 (14.7%) 36-Month Dividend Growth 8.9% —1 23.7% —1 13.1% —1

1Data unavailable. 2Public companies trading on the New York Stock Exchange, the American Stock Exchange, and the NASDAQ National Market. © 2011 Morningstar, Inc. Financial Data provided by

Source: Hoover’s Company Reports 2011, Valeant Pharmaceuticals International, Inc.

than 30 partnerships to gain access to specific R&D Company and Product Acquisitions expertise within the value chain. For example, it has alliances with Sanofi-Aventis and Amgen. Val eant uses its acquisition strategy as a resource allocation methodology as well as to manage the competitive environment. These acquisitions also H. Lundbeck A/S establish future products in the pipeline, such as H. Lundbeck focuses primarily on developing medi- retigabine. The acquisitions have allowed Valeant cine for the treatment of CNS diseases. Main products to overcome barriers to market entry and to quickly include Cipralex® (marketed as Lexapro® in the United provide new products; it has also potentially reduced States) for depression and anxiety disorders, Ebixa® the number of competitors. for Alzheimer’s disease, and Azilect® for the treatment In addition to its acquisition strategy, Valeant of PD (offered through a collaborative agreement with seeks opportunities to outsource some of the Teva). Approximately 20 percent of its annual revenue secondary operations so that it can focus on its key ($2.6 billion in 2009) is spent on R&D.90 operations. As previously discussed, Valeant follows a strat- Outsourcing egy of limited R&D spending and focuses instead on growth through acquisitions to maintain its com- In an effort to capitalize on core competencies, petitive position. pharmaceutical companies are moving toward

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specializing in one area, specifically in R&D, manu- be placed on a formulary, and the tier status, restric- facturing, or sales and marketing. In turn, they out- tions, and copays. They also make suggestions to source other functions. physicians and patients regarding disease-state man- Valeant and other companies rely heavily on agement. their outsourcing partners for a number of reasons, Pharmaceutical companies negotiate contracts including to reduce the time it takes to bring a drug with PBMs to get their products on formularies, to market through enhanced R&D or manufacturing offering discounts to get preferred status. A drug processes; to increase patient enrollment in clinical with preferred status is easier for physicians to pre- trials; to optimize the drug’s promotion; and to capi- scribe and more affordable for patients. Some for- talize on human labor, whether it involves scientists, mularies place “prior authorizations” on certain marketing, or sales personnel. The FDA enforces products, requiring physicians to justify why they stringent regulations on quality manufacturing and requested the medication. Products without prior ethical promotional activities; therefore, pharmaceu- authorization requirements have a better chance of tical companies must consider quality, compliance, being prescribed because they avoid the associated and reputation ahead of contract flexibility and price extra paperwork and patient wait-time.94 when selecting outsourcing partners that will help 91 them meet the demands of key customers. Patients Key Customers Many patients take an activ e role in their health care. These proactive patients search the Internet Companies in the pharm aceutical industry typically to find product- and disease-specific Web sites, and focus on four customer groups: physicians, phar- often ask their physicians about the products they macy benefit managers (PBMs), patients, and phar- see advertised on television and in magazines. They macies. also attend support groups and seek out local foun- dations to gain further education about available Physicians therapies, costs, symptomatic benefits, and physi- cians’ recommendations regarding the prescriptions Valeant specifically targ ets neurologists and pri- they take. mary care providers. According to an interview with Dr. Joseph Sirven, a neurologist at the Mayo Clinic in Scottsdale, Arizona, physicians utilize several Pharmacists methods to gain knowledge about a product and its Pharmaceutical companies must work with dis- use in clinical practice. They study product-specific tributors to ensure pharmacies have ample stock articles published in peer-reviewed journals, pay- to provide prescriptions. Companies must also ing close attention to the efficacy and safety out- provide pharmacists with educational tools regard- comes, the number of subjects enrolled, the journal ing the drugs and their indications, as they influ- in which the study was published and the physicians ence patients’ medication regimens. If pharmacists who conducted the trial. The volume of clinical tri- are not educated on the products and the role they als available and the long-term safety data reported play in disease management, they may provide on a particular product also carry significant weight. information that negatively influences the patients’ Sales and marketing efforts, a product’s cost, the desires to fill the prescription or perhaps harms the drug’s insurance coverage, and physician habit influ- patient. ence a physician’s decision-making process.92 Customer needs and desires are significantly affected by the general environment. Therefore, Pharmacy Benefit Managers Valeant must analyze the trends that are taking place and adjust its strategies accordingly. PBMs are companies that manage the prescrip- tion pharmaceutical benefits for managed care Trends Influencing companies, employers, and government programs. Pharmaceutical Co mpanies Approximately 95 percent of all drug formularies (lists of medications that are usually covered under a Technological advancements, demographic changes, particular healthcare plan) are managed by a PBM.93 cultural tendencies, and various governmental poli- The role of a PBM is to determine which drugs will cies all create added pressures.

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Technology brain stimulation is associated with potential side effects such as panic attacks, brain hemorrhaging, Technology is a key to increasing the speed and infection, mood changes, delirium, movement dis- efficiency in which pharmaceutical companies can orders, lightheadedness, insomnia, speech problems, get a product to market. Companies are mov- and suicide.102 ing toward electronic collaboration software such On the other hand, for the part of society that as the EMC Documentum enterprise compliance is not pursuing alternative cures, prescription drug platform to reduce costs, provide faster solution use is increasing. Many patients believe that pills can delivery times, and improve the ability to quickly cure just about anything. From diet pills to ADHD 95 retrieve information. Because information changes pills, the majority of Americans are becoming more quickly, books such as encyclopedias are considered medicated. Greg Critser, author of “Generation RX: outdated even as they are printed. With information How Prescription Drugs Are Altering American being constantly updated, scientists and pharmaceu- Lives, Minds and Bodies” discusses how “the aver- 96 tical companies are finding it hard to keep up. age number of prescriptions per person in 1993 According to the World Health Organization was seven, but that had risen to 11 by 2000, and (WHO), “chronic conditions are projected to be the 12 in 2004.”103 leading cause of disability throughout the world by Prescription drug abuse is on the rise, particu- the year 2020; if not successfully prevented and man- larly among teens. In the United States, for example, aged, they will become the most expensive problems “Abuse of prescription pain killers now ranks sec- 97 faced by our health care systems.” Technological ond—only behind marijuana—as the nation’s most advances in equipment are aiding in early detection prevalent illegal drug problem.”104 The President’s and will help keep rising health costs in check. National Drug Control Strategy 2010 outlines the extent of prescription drug abuse in the United Aging Population and Life Style States and federal programs designed to address the problem.105 Life expectancy in the United States is increasing due to advances in medicine and technology as well Regulation as improved access to health care. Life expectancy at birth and at 65 years has steadily increased for The U.S. Government’s role in the pharmaceutical both genders. “The U.S. population age 65 and industry is highlighted by the FDA and the associ- over is expected to double in size within the next ated hurdles that companies must clear to safely take 25 years.”98 According to the WHO, “Neurological a drug to market. These hurdles represent an expen- disorders ranging from migraines to epilepsy and sive, time-consuming process that increases the cost dementia affect up to one billion people worldwide of drugs. The problem is that many consumers view and the toll will rise as populations age.”99 These the high cost for prescriptions as greed money col- factors will increase the need for drugs. Moreover, lected by pharmaceutical companies. because a study conducted by the U.S. Government Statistics show that “R&D costs in the drug Accountability Office found that the cost of pre- industry are among the highest with only three scription medications increased by almost 25 per- out of ten marketed drugs producing revenues cent from 1997 to 2002,100 with the trend only that match or exceed average R&D costs.”106 These worsening, the entire health care industry needs a factors, in addition to other government restrictions better way to manage its rising costs. such as “stem cell research limitations and U.S. visa Many adults try alternative treatments rather policies,”107 are a leading cause in the trend to off- than pharmaceuticals as an answer to health-related shore pharmaceutical R&D processes.108 issues. Complementary and alternative medicine The Health Insurance Portability and Account- (CAM) encompasses a variety of techniques includ- ability Act of 1996 (HIPAA) has significantly ing prayer, massage therapy, yoga, herbal remedies, affected the pharmaceutical industry’s marketing breathing techniques, meditation, and altering strategies. Patient Health Information (PHI) must one’s diet. Another option is surgery, especially be removed from all records before pharmaceuti- for many neurological conditions, with a goal of cal companies can use it to gather marketing data. offering patients improved symptomatic benefits.101 This restriction directly affects mail advertising However, this alternative is not without risk; deep campaigns. Additionally, it limits the number of

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individuals who qualify for clinical studies as phar- Marketing maceutical companies must now work with covered providers to obtain patient authorization of medical Valeant sells its products through its direct sales records.109 forces in Canada and the United States and through 117 The Prescription Drug Marketing Act (PDMA) marketing partnerships. Valeant develops market- was created by the FDA to monitor prescription ing materials for the salesforce to use in interactions drugs. PDMA requires pharmaceutical companies to with key customers. They, however, must ensure perform annual audits of drug samples in addition to that the marketing pieces are medically accurate monitoring the storage of the drug sample. The goal and compliant with the DDMAC. They also pro- is to “assure that the drug samples are free of con- vide prescription samples. Samples allow physicians tamination, deterioration, and adulteration.”110 to gauge whether a medication is well-tolerated and The FDA also has a Division of Drug Marketing, efficacious before patients purchase a prescription. Advertising, and Communications (DDMAC). Valeant also generates press releases and special It ensures that “information contained in prescrip- interest stories, and develops advertising for medical tion drug promotional materials is not false or journals, Web sites, e-mail opt-ins, pharmacy fax misleading.”111 The DDMAC has a list of firm blasts, and physician and patient direct mailings. guidelines that pharmaceutical companies must fol- Related to its direct marketing efforts, Valeant low when publishing all communications, including provides funding and educational materials for commercials. If the DDMAC decides to ban this peer-to-peer and pharmacy educational programs. mode of advertising, pharmaceutical companies will These programs are divided into two segments: need to find other effective means of advertising (1) medical education, continuing medical edu- their products. The DDMAC also administers the cation, grand rounds, unrestricted educational FDA’s educational outreach program, the “Bad Ad” grants (Valeant provides funding for these pro- program, designed to educate healthcare providers grams, but in no way influences the content); and on ways they can assist the FDA to ensure that pre- (2) promotional programs, including peer-to-peer scription drug advertising and promotion is truth- programs, roundtable discussions, and pharmacy ful and straighforward. It also provides them with educational events. Valeant drives the content, an easy way to report misleading prescription drug which is approved through the regulatory and legal promotion.112 departments. Medicare Part D, a program to assist Medicare Additionally, Valeant supports national founda- beneficiaries in paying for their prescription drugs, tions including the Epilepsy Foundation, Michael has resulted in more U.S. consumers choosing J. Fox Foundation, National PD Foundation, and generic drugs. Medicare Part D has a gap (known as American PD Foundation. Valeant provides these the “Donut Hole”) such that Medicare beneficiaries foundations with educational resources and finan- must pay for drugs out-of-pocket when they reach a cial support to promote research in different thera- certain benefit limit and do not qualify for the next peutic areas. tier in the prescription drug structure. The increased Valeant employees also attend professional soci- out-of-pocket expenses cause more patients to shift ety meetings and trade shows to display product their use from branded products to the cheaper information and to gain information on the chang- 118 generic products.113 However, the 2011 Donut Hole ing pharmaceutical environment. represents the beginning of an effort to close the Patients who are financially disadvantaged can Donut Hole. People who reach the Donut Hole in apply for free medicine through the Valeant Patient 2011 will receive a 50 percent discount on brand Assistance Program. It is available to legal residents name formulary drugs and a 7 percent discount on of the United States who do not have medical insur- all generic formulary medications.114 ance that covers prescription drug costs and do not Retail pharmacies such as Walmart are offering have funding from government or private programs 119 $4 generic prescription options.115 Because of its size, for medicine. Walmart and similar large retail pharmacies further contribute to the increased generic drug awareness Financial Results and usage.116 Therefore, to keep its products in the preferred category, Valeant works hard to employ With the two companies expected to be fully inte- effective and creative marketing strategies. grated by the middle of 2011 and a $250 million

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savings resulting from the merger anticipated the $225–245 million in sales of branded generic drugs same year, Valeant gave strong forecasts for fourth in Central Europe quarter 2010 and fiscal year 2011:120 $260–285 million in sales of branded generic drugs in Latin America Fourth Quarter 2010 44–48 cents profit per share (For Valeant’s segment revenues in 2007 through $510–520 million in revenue 2009, see Exhibit 7.)

Fiscal Year 2011 In 2009 Valeant posted $820 million in annual $2.25–2.50 profit per share revenue with a gross profit margin of 74.56 percent, $2.1–$2.3 billion in total revenue which was above both the industry median of 57.16 $850–950 million in sales of neurologic drugs and and 28.77 percent (see Exhibits 8, 9, 10 and 11 for other products Valeant’s financial information and key ratios). $480–515 million in U.S. sales of dermatology Analysts believe that the combined company products will benefit from greater scale, tax benefits, and $285–305 million in revenue from Canada and stable cash flows and anticipate that Valeant will Australia be able to meet its earnings forecasts. Pearson’s

Exhibit 7 Valeant Pharmaceuticals International Segment Information 2007 through 2009

The following tables set forth the amounts of segment revenues, operating income, non-cash charges and capital expenditures for the years ended December 31, 2009, 2008 and 2007:

Revenues 2009 2008 2007 Specialty pharmaceuticals product sales $403,865 $303,723 $326,682 Specialty pharmaceuticals service and alliance revenue(1) 73,028 4,374 19,200 Branded generics—Europe product sales 151,650 152,804 125,070 Branded generics—Latin America product sales 155,246 136,638 151,299 Alliances (ribavirin royalties only) 46,672 59,438 67,252 Consolidated revenues $830,461 $656,977 $689,503 Operating Income (Loss) Specialty pharmaceuticals $165,920 $ 3,778 $ 14,846 Branded generics—Europe 37,650 45,262 41,908 Branded generics—Latin America 55,300 25,751 36,218 258,870 74,791 92,972 Alliances 46,672 59,438 67,252 Corporate (56,290) (60,127) (74,724) Subtotal 249,252 74,102 85,500 Special charges and credits including acquired in-process research and (6,351) (186,300) — development Restructuring, asset impairments, dispositions and acquisition-related costs (10,068) (21,295) (27,675) Consolidated segment operating income (loss) 232,833 (133,493) 57,825 Interest income 4,321 17,129 17,584 Interest expense (43,571) (45,385) (56,923) Gain (loss) on early extinguishment of debt 7,221 (12,994) — Other income (expense), net including translation and exchange (1,455) 2,063 1,659 Income (loss) from continuing operations before income taxes $199,349 $(172,680) $ 20,145

Source: Valeant Pharmaceuticals International 2009 Annual Report.

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Exhibit 8 Valeant Pharmaceuticals International, Inc. Income Statement

Valeant Pharmaceuticals International, Inc. Income Statement 2006–2009 Period Ended 12/31/09 12/31/08 12/31/07 12/31/06 12/31/05 Update Update Reclassifi ed Update Reclassifi ed 05/05/10 03/11/10 03/11/10 02/09/10 02/09/10 In Millions of USD (except for per share items) Net Sales 803.17 738.90 824.87 1,042.87 915.02 Revenue 803.17 738.90 824.87 1,042.87 915.02 Other Revenue 17.26 18.27 17.94 24.85 23.32 Other Revenue, Total 17.26 18.27 17.94 24.85 23.32 Total Revenue 820.43 757.18 842.82 1,067.72 938.34 Cost of Revenue 204.31 197.17 223.68 211.15 201.33 Cost of Revenue, Total 204.31 197.17 223.68 211.15 201.33 Gross Profi t 598.87 541.74 601.19 831.72 713.69 Selling/General/Administrative Expense 178.60 188.92 159.27 238.44 227.39 Selling/General/Administrative Expense, Total 178.60 188.92 159.27 238.44 227.39 R&D 120.78 92.84 118.12 95.48 88.44 Amortization of Intangibles 104.73 51.37 48.05 56.46 62.26 Depreciation/Amortization 104.73 51.37 48.05 56.46 62.26 Purchased R&D Written-Off ——— .00— Restructuring Charge 19.07 70.20 .67 15.13 19.81 Litigation 6.19 32.57 95.11 14.40 .00 Impairment-Assets Held for Use .00 .00 9.91 143.00 25.83 Impairment-Assets Held for Sale 5.21 9.87 8.95 .00 — Other Unusual Expense (Income) –16.40 .00 12.46 54.80 .00 Unusual Expense (Income) 14.06 112.64 127.10 227.33 45.64 Total Operating Expense 622.49 642.94 676.22 828.86 625.06 Operating Income 197.94 114.24 166.60 238.87 313.28 Interest Income—Non-Operating 1.12 9.40 24.56 29.20 7.18 Investment Income—Non-Operating 1.31 4.28 27.32 –2.89 –.37 Interest/Investment Income, Non-Operating 2.43 13.68 51.88 26.31 6.81 Interest Income (Expense), Net Non-Operating –25.42 –1.02 –9.75 –35.20 –37.13 Interest Income (Expense), Net-Non- Operating, Total –22.99 12.66 42.14 –8.89 –30.32 Other Non-Operating Income (Expense) — — — .00 –3.40 Other, Net — — — .00 –3.40 Net Income Before Taxes 174.96 126.90 208.74 229.97 279.57 Provision for Income Taxes –1.50 –73.00 13.20 14.50 22.55 Net Income After Taxes 176.46 199.90 195.54 215.47 257.02 Net Income Before Extraordinary Items 176.46 199.90 195.54 215.47 257.02 Discontinued Operations — .00 — –3.85 –10.58 Total Extraordinary Items — .00 — –3.85 –10.58

(Continued)

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Exhibit 8 (Continued)

Period Ended 12/31/09 12/31/08 12/31/07 12/31/06 12/31/05 Update Update Reclassifi ed Update Reclassifi ed 05/05/10 03/11/10 03/11/10 02/09/10 02/09/10 In Millions of USD (except for per share items) Net Income 176.46 199.90 195.54 211.63 246.44 Income Available to Common Stock Excluding Extraordinary Items 176.46 199.90 195.54 215.47 257.02 Income Available to Common Stock Including Extraordinary Items 176.46 199.90 195.54 211.63 246.44 Basic Weighted Average Shares 158.24 159.73 160.84 160.06 159.43 Basic EPS Excluding Extraordinary Items 1.12 1.25 1.22 1.35 1.61 Basic EPS Including Extraordinary Items 1.12 1.25 1.22 1.32 1.55 Diluted Net Income 176.46 199.90 195.54 211.63 246.44 Diluted Weighted Average Shares 158.51 159.73 160.88 160.08 159.68 Diluted EPS Excluding Extraordinary Items 1.11 1.25 1.22 1.35 1.61 Diluted EPS Including Extraordinary Items 1.11 1.25 1.22 1.32 1.54 DPS—Common Stock Primary Issue .65 1.50 1.50 1.00 .50 Gross Dividends—Common Stock 102.52 239.90 241.30 160.28 79.78 Stock-Based Compensation, Supplemental 5.61 7.91 10.63 14.79 .00 Interest Expense, Supplemental 25.42 1.02 9.75 35.20 37.13 Interest Capitalized, Supplemental .00 .00 .00 –.87 –.16 Depreciation, Supplemental 18.76 25.82 27.64 25.47 27.98 Total Special Items 14.06 112.64 127.10 227.33 45.64 Normalized Income before Taxes 189.02 239.54 335.84 457.30 325.21 Eff ect of Special Items on Income Taxes 4.92 39.42 8.04 14.33 3.68 Income Taxes Excluding Impact of Special Items 3.42 –33.58 21.24 28.83 26.23 Normalized Income After Taxes 185.60 273.12 314.61 428.47 298.98 Normalized Income Available to Common 185.60 273.12 314.61 428.47 298.98 Basic Normalized EPS 1.17 1.71 1.96 2.68 1.88 Diluted Normalized EPS 1.17 1.71 1.96 2.68 1.87 Amortization of Intangibles, Supplemental 113.91 60.54 57.22 65.63 62.26 Rental Expense, Supplemental 4.83 4.93 4.09 8.77 10.42 Advertising Expense, Supplemental 10.01 7.76 3.77 19.83 — Equity in Affi liates, Supplemental .00 –1.20 –2.53 –.53 –1.16 R&D Expense, Supplemental 120.78 92.84 118.12 95.48 88.44 Audit Fees 2.61 2.76 — 3.34 3.34 Audit-Related Fees .22 .14 — .27 .27 Tax Fees .00 .00 — .14 .14 All Other Fees .00 .00 — — .00 Gross Margin 74.56 73.32 72.88 79.75 78.00 Operating Margin 24.13 15.09 19.77 22.37 33.39 Pretax Margin 21.32 16.76 24.77 21.54 29.79 Eff ective Tax Rate –.86 –57.52 6.32 6.31 8.07 Net Profi t Margin 21.51 26.40 23.20 20.18 27.39

(Continued)

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Exhibit 8 (Continued)

Period Ended 12/31/09 12/31/08 12/31/07 12/31/06 12/31/05 Update Update Reclassifi ed Update Reclassifi ed 05/05/10 03/11/10 03/11/10 02/09/10 02/09/10 In Millions of USD (except for per share items) Normalized EBIT 212.01 226.88 293.71 466.19 358.92 Normalized EBITDA 344.68 313.24 378.57 557.29 449.16 Current Tax—Domestic .00 .00 .00 .03 .45 Current Tax—Foreign 14.50 17.00 13.20 14.47 22.10 Current Tax—Total 14.50 17.00 13.20 14.50 22.55 Deferred Tax—Domestic .00 .00 .00 .00 .00 Deferred Tax—Foreign –16.00 –90.00 .00 .00 .00 Deferred Tax—Total –16.00 –90.00 .00 .00 .00 Income Tax—Total –1.50 –73.00 13.20 14.50 22.55

For a more complete picture of our financial results, please review our SEC Filings

Short Term Debt Reduction represents cash outflow due to the repayment of short-term debt.

Source: Valeant Pharmaceuticals International, Inc. company website, www.valeant.com, January 2011.

Exhibit 9 Valeant Pharmaceuticals International Inc. Balance Sheet

Valeant Pharmaceuticals International Inc. Balance Sheet 2005–2009 Period Ended 12/31/09 12/31/08 12/31/07 12/31/06 12/31/05 Update Reclassifi ed Reclassifi ed Reclassifi ed Restated 11/11/10 11/11/10 11/11/10 11/11/10 11/11/10 In Millions of USD (except for per share items) Cash & Equivalents 114.46 317.55 433.64 834.54 445.29 Short Term Investments 9.57 1.00 3.90 .00 .51 Cash and Short Term Investments 124.03 318.54 437.54 834.54 445.79 Accounts Receivable—Trade, Gross 109.61 81.07 104.81 123.03 127.65 Provision for Doubtful Accounts –2.44 –1.18 –1.22 –3.50 –4.30 Accounts Receivable—Trade, Net 107.17 79.89 103.60 119.53 123.35 Receivables—Other 12.75 10.97 70.46 9.72 12.15 Total Receivables, Net 119.92 90.86 174.06 129.25 135.51 Inventories—Finished Goods 43.47 26.96 33.42 28.79 23.53 Inventories—Work in Progress 25.01 13.56 14.75 15.23 11.42 Inventories—Raw Materials 14.29 19.04 32.58 34.77 54.53 Total Inventory 82.77 59.56 80.75 78.78 89.47

(Continued)

776812_Valeant.indd6812_Valeant.indd C-19C-19 224/08/114/08/11 6:356:35 PMPM C-20 Valeant Pharmaceuticals International, Inc.

Exhibit 9 (Continued)

Period Ended 12/31/09 12/31/08 12/31/07 12/31/06 12/31/05 Update Reclassifi ed Reclassifi ed Reclassifi ed Restated 11/11/10 11/11/10 11/11/10 11/11/10 11/11/10 In Millions of USD (except for per share items) Prepaid Expenses 15.38 14.58 14.68 15.06 14.92 Discountinued Operations—Current Asset 8.54 6.81 .00 — 1.89 Other Current Assets, Total 8.54 6.81 .00 — 1.89 Total Current Assets 350.64 490.36 707.02 1,057.62 687.59 Buildings—Gross 136.81 176.54 223.06 194.13 156.60 Land/Improvements—Gross 3.40 9.53 13.03 12.05 11.94 Machinery/Equipment—Gross 74.56 76.00 123.97 102.77 98.18 Construction in Progress—Gross 7.18 4.65 31.12 24.87 36.26 Property/Plant/Equipment, Total—Gross 221.95 266.72 391.19 333.83 302.99 Accumulated Depreciation, Total –118.10 –118.45 –152.73 –121.85 –103.42 Property/Plant/Equipment, Total—Net 103.85 148.27 238.46 211.98 199.57 Goodwill, Net 100.29 100.29 100.29 100.29 100.29 Intangibles—Gross 1,805.35 1,076.54 933.48 950.01 1,163.81 Accumulated Intangible Amortization –470.13 –356.17 –302.97 –252.36 –253.53 Intangibles, Net 1,335.22 720.37 630.51 697.65 910.28 LT Investments—Other 11.52 21.92 49.25 62.12 73.28 Long Term Investments 11.52 21.92 49.25 62.12 73.28 Deferred Income Tax—Long-Term Asset 132.80 116.80 20.70 .00 — Discontinued Operations—Long-Term Asset — — — — 1.11 Other Long Term Assets 32.72 25.55 35.88 62.78 64.71 Other Long Term Assets, Total 165.52 142.35 56.58 62.78 65.81 Total Assets 2,067.04 1,623.57 1,782.12 2,192.44 2,036.82 Accounts Payable 72.02 41.07 50.42 44.99 61.45 Accrued Expenses 129.85 117.73 267.43 170.42 88.87 Notes Payable/Short-Term Debt .00 .00 .00 .00 .00 Current Portion of Long-Term Debt/ Capital Leases 12.11 .00 — 11.15 24.36 Dividends Payable 14.25 59.33 .00 80.22 .00 Customer Advances 21.83 40.44 49.09 61.92 61.16 Income Taxes Payable 6.85 8.60 .65 41.60 37.71 Other Current Liabilities, Total 42.93 108.36 49.74 183.73 98.87 Total Current Liabilities 256.91 267.17 367.58 410.29 273.56 Long-Term Debt 313.98 — — 399.38 412.51 Total Long-Term Debt 313.98 .00 .00 399.38 412.51 Total Debt 326.09 .00 .00 410.53 436.87 Deferred Income Tax—Long-Term Liability 66.20 63.70 54.10 .00 — Deferred Income Tax 66.20 63.70 54.10 .00 — Other Long-Term Liabilities 75.59 91.10 62.62 80.52 122.39 Other Liabilities, Total 75.59 91.10 62.62 80.52 122.39

(Continued)

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Exhibit 9 (Continued)

Period Ended 12/31/09 12/31/08 12/31/07 12/31/06 12/31/05 Update Reclassifi ed Reclassifi ed Reclassifi ed Restated 11/11/10 11/11/10 11/11/10 11/11/10 11/11/10 In Millions of USD (except for per share items) Total Liabilities 712.67 421.97 484.30 890.19 808.46 Common Stock 1,465.00 1,463.87 1,489.81 1,476.93 1,461.08 Common Stock, Total 1,465.00 1,463.87 1,489.81 1,476.93 1,461.08 Additional Paid-in Capital 91.77 31.97 23.93 14.95 .38 Retained Earnings (Accumulated Defi cit) –245.97 –319.91 –278.50 –232.73 –284.08 Translation Adjustment 43.57 25.67 62.58 43.11 — Other Comprehensive Income — — — — 50.99 Other Equity, Total 43.57 25.67 62.58 43.11 50.99 Total Equity 1,354.37 1,201.60 1,297.82 1,302.26 1,228.36 Total Liabilities and Shareholders’ Equity 2,067.04 1,623.57 1,782.12 2,192.44 2,036.82 Shares Outstanding—Common Stock Primary Issue 158.31 158.22 161.02 160.44 159.59 Total Common Shares Outstanding 158.31 158.22 161.02 160.44 159.59 Treasury Shares—Common Stock Primary Issue .00 .00 — — — Employees 1,291.00 1,368.00 1,533.00 1,734.00 1,744.00 Number of Common Shareholders 1,245.00 1,271.00 1,273.00 1,351.00 1,398.00 Accumulated Intangible Amortization 470.13 356.17 302.97 252.36 253.53 Deferred Revenue—Current 21.83 40.44 49.09 61.92 61.16 Deferred Revenue—Long Term 69.25 84.95 55.65 73.62 117.12 Total Current Assets less Inventory 267.87 430.80 626.27 978.84 598.12 Quick Ratio 1.04 1.61 1.70 2.39 2.19 Current Ratio 1.36 1.84 1.92 2.58 2.51 Net Debt 202.06 –318.54 –437.54 –424.02 –8.93 Tangible Book Value –81.14 380.93 567.01 504.32 217.79 Tangible Book Value per Share –.51 2.41 3.52 3.14 1.36 Total Long-Term Debt, Supplemental 380.00 — — — 436.51 Long-Term Debt Maturing within 1 Year 12.50 — — — 25.26 Long-Term Debt Maturing in Year 2 17.50 — — — 11.25 Long-Term Debt Maturing in Year 3 .00 — — — 400.00 Long-Term Debt Maturing in Year 4 350.00 — — — — Long-Term Debt Maturing in 2–3 Years 17.50 — — — 411.25 Long-Term Debt Maturing in 4–5 Years 350.00 — — — — Long-Term Debt Maturing in Year 6 and beyond .00 — — — .00 Total Operating Leases, Supplemental 59.98 24.81 29.69 — — Operating Lease Payments Due in Year 1 7.84 5.44 6.02 — — Operating Lease Payments Due in Year 2 6.97 4.09 4.91 — — Operating Lease Payments Due in Year 3 7.01 3.66 3.74 — — Operating Lease Payments Due in Year 4 5.56 3.61 3.60 — —

(Continued)

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Exhibit 9 (Continued)

Period Ended 12/31/09 12/31/08 12/31/07 12/31/06 12/31/05 Update Reclassifi ed Reclassifi ed Reclassifi ed Restated 11/11/10 11/11/10 11/11/10 11/11/10 11/11/10 In Millions of USD (except for per share items) Operating Lease Payments Due in Year 5 5.36 3.60 3.55 — — Operating Lease Payments Due in 2–3 Years 13.99 7.75 8.65 — — Operating Lease Payments Due in 4–5 Years 10.92 7.21 7.15 — — Operating Lease Payments Due in Year 6 and beyond 27.23 4.41 7.87 — — Number of Products in Phase I 1.00 — — — — Number of Products in Phase II 2.00 1.00 — — 1.00 Number of Products in Phase III 1.00 — — — — Number of Products in Preregistration 1.00 3.00 — — — Number of Products Launched 1.00 2.00 3.00 2.00 2.00

Short Term Debt Reduction represents cash outflow due to the repayment of short-term debt. Source: Valeant Pharmaceuticals International, Inc. company website, www.valeant.com, January 2011.

Exhibit 10 Valeant Pharmaceuticals International, Inc. Cash Flow Statement

Valeant Pharmaceuticals International, Inc. Cash Flow Statement 2005–2009 Period Ended 12/31/09 12/31/08 12/31/07 12/31/06 12/31/05 Update Update Update Update Reclassifi ed 03/11/10 03/11/10 03/11/10 11/14/09 11/14/09 In Millions of USD (except for per share items) Net Income/Starting Line 176.46 199.90 195.54 211.63 246.44 Depreciation 149.26 102.91 94.99 92.15 96.64 Depreciation/Depletion 149.26 102.91 94.99 92.15 96.64 Deferred Taxes –16.00 –90.00 .00 .00 — Discontinued Operations — .00 .00 3.29 6.81 Unusual Items 24.13 17.46 –4.77 201.94 29.23 Purchased R&D 59.35 — — .00 .00 Equity in Net Earnings (Loss) .00 1.20 2.53 .53 1.16 Other Non-Cash Items –6.16 8.04 21.99 20.47 3.40 Non-Cash Items 77.33 26.69 19.75 226.23 40.59 Accounts Receivable –29.33 27.62 10.06 4.69 12.78 Inventories –26.21 20.58 3.02 10.91 16.62 Prepaid Expenses –.80 .32 .38 –.31 1.10 Accounts Payable 30.77 –6.14 3.27 –13.00 17.03 Accrued Expenses 11.80 –56.90 52.16 28.09 5.61 Taxes Payable .73 8.70 –7.51 3.90 13.34 Other Liabilities –13.11 –29.35 –30.80 –42.32 47.96 Changes in Working Capital –26.15 –35.17 30.58 –8.04 114.44

(Continued)

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Exhibit 10 (Continued)

Period Ended 12/31/09 12/31/08 12/31/07 12/31/06 12/31/05 Update Update Update Update Reclassifi ed 03/11/10 03/11/10 03/11/10 11/14/09 11/14/09 In Millions of USD (except for per share items) Cash from Operating Activities 360.90 204.33 340.85 521.96 498.11 Purchase of Fixed Assets –7.42 –22.00 –35.09 –44.80 –37.81 Purchase/Acquisition of Intangibles — — .00 .00 –26.00 Capital Expenditures –7.42 –22.00 –35.09 –44.80 –63.81 Acquisition of Business –761.83 –101.92 .00 .00 .00 Sale of Fixed Assets 28.30 ———— Sale/Maturity of Investment 2.00 109.39 55.95 4.85 6.30 Purchase of Investments –3.82 –86.02 –35.91 –4.50 –8.79 Sale of Intangible Assets — .00 .00 4.00 98.13 Other Investing Cash Flow .00 –7.29 .00 .00 –.05 Other Investing Cash Flow Items, Total –735.35 –85.83 20.04 4.36 95.59 Cash from Investing Activities –742.77 –107.83 –15.05 –40.45 31.78 Other Financing Cash Flow –26.67 –30.02 –.34 –1.28 –2.72 Financing Cash Flow Items –26.67 –30.02 –.34 –1.28 –2.72 Cash Dividends Paid—Common –147.15 –180.29 –321.52 –80.06 –79.78 Total Cash Dividends Paid –147.15 –180.29 –321.52 –80.06 –79.78 Sale/Issuance of Common .87 .00 11.22 15.63 2.99 Common Stock, Net .87 .00 11.22 15.63 2.99 Issuance (Retirement) of Stock, Net .87 .00 11.22 15.63 2.99 Long-Term Debt Issued 130.00 ———— Long-Term Debt Reduction –130.00 .00 –418.01 –26.55 –39.59 Long-Term Debt, Net 350.00 .00 –418.01 –26.55 –39.59 Issuance (Retirement) of Debt, Net 350.00 .00 –418.01 –26.55 –39.59 Cash from Financing Activities 177.05 –210.31 –728.65 –92.26 –119.10 Foreign Exchange Eff ects 1.74 –2.28 1.94 –.01 .17 Net Change in Cash –203.08 –116.09 –400.90 389.25 410.97 Net Cash—Beginning Balance 317.55 433.64 834.54 445.29 34.32 Net Cash—Ending Balance 114.46 317.55 433.64 834.54 445.29 Cash Interest Paid 4.18 .46 16.10 31.49 31.38 Cash Taxes Paid 12.14 6.74 20.42 10.96 9.24

For a more complete picture of our financial results, please review our SEC Filings

Source: Valeant Pharmaceuticals International, Inc. company website, www.valeant.com, January 2011.

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Exhibit 11 Valeant Pharmaceuticals International, Inc. Key Ratios

Valuation P/E (TTM) — Price to Revenue (TTM) 12.06 Price to Cash Flow (TTM) 166.54 Price to Book (MRQ) 2.05 Per Share Revenue/Share (TTM) 5.66 EPS Fully Diluted (TTM) –.62 Dividend/Share (TTM) .38 Book Value/Share (MRQ) 18.13 Cash Flow/Share (TTM) .41 Cash (MRQ) 2.03 Profi tability Operating Margin (TTM) (%) –.94 Net Profi t Margin (TTM) (%) –11.46 Gross Margin (TTM) (%) 72.50 Growth 5 Year Annual Growth (%) –1.28 5 Year Annual Revenue Growth Rate (%) –1.37 5 Year Annual Dividend Growth Rate (%) — 5 Year EPS Growth (%) 1.45 Financial Strength Quick Ratio (MRQ) 1.19 Current Ratio (MRQ) 1.54 LT Debt to Equity (MRQ) (%) 58.21 Total Debt to Equity (MRQ) (%) 60.48 Management Eff ectiveness Return on Equity (TTM) (%) –3.13 Return on Assets (TTM) (%) –1.58 Return on Investment (TTM) (%) –1.72 Effi ciency Asset Turnover (TTM) .14 Inventory Turnover (TTM) 1.32

MRQ, most recent quarter; TTM, trailing 12 months*

*TTM (Trailing 12 Months) refers to the most recently completed 12 month period, ending on the last day of the most recent month. Above data refers to the 12-month period ending December 2010.

Source: Valeant Pharmaceuticals International, Inc. company website, www.valeant.com, January 2011.

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recommendation that the executive management Mr. Pearson invests the combined company’s team should not receive bonuses if Valeant fails to financial, intellectual, and other resources will be meet its targeted earnings per share also gained ana- critical to the firm’s success in delivering long-term lysts’ approval, and they liked that he waived the value to shareholders. accelerated vesting of his equity awards because of 121 the merger. Analysts support Valeant’s acquisition NOTES strategy and subsequent savings on R&D expenses and expect that Valeant will be able to generate com- 1. 2011, Valeant Pharmaceuticals International, Inc., www.valeant.com. 122 2. Ibid. pound annual growth of 17 percent until 2019. 3. 2007, Valeant, www.valeant.com. 4. 2010, B. Berkrot, Global drug sales to top $1 trillion in 2014-IMS, Reuters, April 20, http://www.reuters.com. 5. Ibid. Strategic Direction 6. 2007, Valeant, Hoovers, www.hoovers.com/valeant/—ID__10763—/freeuk- co-factsheet.xhtml. Before resigning, Tyson outlined to shareholders 7. 2001, Valeant Pharmaceuticals, ICN to maximize shareholder value, SEC his strategy as follows: “Our strategic focus will be Online, www.secinfo.com/dRY7g.45z.htm, April 6. 8. 1985, Ribavirin vs. AIDS, Fortune, January 21, 11. to aggressively acquire, develop and commercial- 9. 2007, Valeant, Research & Markets, www.researchandmarkets.com/reportinfo. ize new products. Through strategic acquisitions, asp?report_id=222850. growth in our promoted brands, and continued 10. M. Cecil, 2000, ICN is frozen with panic against heartland, Mergers & Acquisitions, July 31, 42. management of expenses, we expect to make fur- 11. 2002, Where is ICN Pharmaceuticals Incorporated? Labor productivity ther progress toward our goal of creating long-term and financial competitiveness benchmarks published, Market Wire, http:// value for our stockholders.… We have talented findarticles.com/p/ articles/mi_pwwi/is_200204/ai_mark09040884, April. 12. 2007, Valeant, BusinessWeek, http://investing.businessweek.com/research/ and experienced professionals, good products and stocks/snapshot/snapshot.asp?capId=92852. a sound business strategy. The management team 13. V. Reed, 2007, Valeant refocuses, strategy questioned; where’s Blockbuster? continues to be committed to delivering on its Orange County Business Journal, http://www.orbj.com, November 19. promises.”123 14. 2002, Panic gone, new ICN team finds finances in disarray, Los Angeles Business Journal, July 29, 28. Tyson’s successor, J. Michael Pearson, appears 15. 2003, ICN, International Directory of Company Histories, www. successful in the application and further development fundinguniverse.com/company-histories/ICN-Pharmaceuticals-Inc- of Tyson’s acquisition strategy. However, there Company-History.html. 16. V. Reed, 2007, Valeant refocuses, strategy questioned; where’s Blockbuster? are many challenges and opportunities ahead. For 17. 2007, Valeant, www.valeant.com/aboutValeant/seniorManagementDetail. example, pharmaceutical sales in emerging mar- jspf?objectId=20. kets are anticipated to increase by 14 to 17 percent 18. 2007, Valeant, Hoovers.com, www.hoovers.com/valeant/—ID__10763—/ free-co-factsheet.xhtml. through 2014, led by China and Brazil, compared 19. K. McCormack, 1999, Foolish love, ICN, Smartmoney.Com, www.smartmoney. with a three to six percent growth rate in developed com/stockscreen/index.cfm?story=19990922intro, September 22. markets, according to IMS Health.124 Some west- 20. 2006, Valeant sells development programs, FierceBiotech.com, www. fiercebiotech.com/tags/valeant-pharmaceuticals, December 21. ern companies such as Eli Lilly and Novartis have 21. 2007, Valeant Pharma hits new low on downgrade, BusinessWeek, www. already made long-term investments in manufactur- businessweek.com/ap/financialnews/D8SNT41G0.htm, November 5. ing facilities and partnerships with local Chinese 22. Ibid . 23. 2009, Valeant Pharmaceuticals International, Annual Report. firms. Pfizer has announced plans to attain a six per- 24. 2010, V. Reed, Valeant’s Cost Cutting, Small Buys Find Favor with Wall Street, cent market share in China within three years.125 Orange County Business Journal, May 23. Although Brazil is one of Valeant’s target markets 25. 2009, Valeant Pharmaceuticals International, Annual Report. 26. 2010, V. Reed, Valeant’s Cost Cutting, Small Buys Find Favor with Wall Street, and it has a manufacturing facility there, was the Orange County Business Journal, May 23. March 2008 sale of Valeant’s Asian assets to Invida 27. 2010, Retigabine NDA Accepted for Filing, PRNewswire-First Call, December Pharmaceutical Holdings Pte. Ltd.126 a decision that 30, http://www.drugs.com/nda/retigabine_091230.html. 28. 2009, J. Rockoff, Drug Firm Leaves R&D to others – Valeant Pharmaceuticals Pearson will eventually regret? Is the February 2011 Prefers to Forgo the Risk, Grow Through Acquisitions, The Wall Street Journal, purchase of PharmaSwiss an indication that Pearson March 2, B6. is considering further expansion of Valeant’s geo- 29. Ibid . 30. Ibid . graphic scope? 31. Ibid . Will the strategy outlined in the case combined 32. 2011, Valeant Pharmaceuticals, www.valeant.com. with the current restructuring efforts resulting from 33. 2009, Valeant Pharmaceuticals International, Annual Report. 34. 2010, V. Reed, Valeant’s Cost Cutting, Small Buys Find Favor with Wall Street, the merge be substantiated in the marketplace or Orange County Business Journal, May 23. will the strategy need to be further refined? Where 35. 2010, Aton Pharma, Inc., http://www.atonrx.com/press/18/pdf.

776812_Valeant.indd6812_Valeant.indd C-25C-25 224/08/114/08/11 6:356:35 PMPM C-26 Valeant Pharmaceuticals International, Inc.

36. Ibid . 72. Catechol-O-methyltransferase (COMT) inhibitors are a new class of drugs 37. 2010, Biovail Corporation S-4/A Registration of Securities Issued in Business that provide an alternate therapeutic option to patients with Parkinson’s Combination Transactions, August 18. disease. They are most useful for “wearing-off” (end-of-dose deterioration) 38. 2010, S. Stovall, Valeant, Biovail Agree to Merge, The Wall Street Journal, New motor fluctuations and are used in conjunction with levodopa. C. Waters & York, N.Y., June 21. A. Constantino, 2001, The use of COMTInhibitors in older patients, Geriatric 39. Ibid . Times 2, no. 2 (March/April). 40. 2010, Valeant Pharmaceuticals International, Inc. Declares Special Dividend 73. 2004, Valeant Pharmaceuticals acquires rights to Tasmar®, www.valeant.com/ and Plans to Create a Special Dividend Reinvestment Plan, Reuters, mediaCenter/newsArticle/newsArticle.jspf?objectId=393, November 26. November 4, http://www.reuters.com/finance/stocks/keyDevelopments?sy 74. 2011, Epilepsy and Seizure Statistics, About Epilepsy & Seizures, Epilepsy mbol=VRX&pn=2. Foundation, http://www.epilepsyfoundation.org/about/statistics.cfm. 41. 2010, P. Sacha, Why Canada’s corporate tax policy is paying off in spades, 75. 2010, FDA declines to OK Glaxo epilepsy drug for now, Reuters, December 1, Divestor, Canadian Finance, Economics and Securities Analysis, June 21, http://www.reuters.com/article/idUSTRE6B06HI20101201. http://divestor.com/2010/06/21/why-canadas-corporate-tax-policy-is- 76. Diastat® Acudial™ is a gel that is administered through the rectum. paying-off-in-spades. 77. Postherpetic neuralgia (post-her-PET-ic noo-RAL-jah) is a complication of 42. 2010, Biovail Corporation S-4/A Registration of Securities Issued in Business shingles. It is a painful condition affecting the nerve fibers and skin such Combination Transactions, August 18. that patients feel sharp jabbing, burning, or deep aching pain, itching, and 43. Ibid . numbness, headaches, or extreme sensitivity to touch and temperature. 44. 2010, A. Georgiades, Biovail Says Valeant Deal Rockets Company Into the 2008, Mayo Clinic, www.mayoclinic.com/health/postherpetic-neuralgia/); Future, The Wall Street Journal (online), June 21, http://onlinewsj.com/article/ 2007, Valeant R&D Portfolio, www.valeant.com/researchAndDevelopment/ SB10001424052748704895204575320350568757726.html. pipeline/retigabine.jspf, November 26. 45. 2010, Biovail Corporation S-4/A Registration of Securities Issued in Business 78. 2011, Regulatory Update – GSK and Valeant Receive Positive Opinion in Combination Transactions, August 18. Europe From the CHMP for Trobalt (Retigabine), PRNewswire, January 21. 46. Ibid . 79. 2010, Retigabine NDA Accepted for Filing, PRNewswire-First Call, December 47. 2011, Valeant Pharmaceuticals, www.valeant.com. 30, http://www.drugs.com/nda/retigabine_091230.html. 48. 2011, S. Freeman, Valeant Pharmaceuticals lays off 500 employees in merger 80. 2011, Valeant Pharmaceuticals, www.valeant.com. with Biovail, The Canadian Press, January 12. 81. Ibid . 49. Ibid . 82. Ibid . 50. 2011, Valeant Pharmaceuticals to Acquire PharmaSwiss S.A., PR Newswire 83. 2010, G. Gatyas, IMS Health Forecasts Global Pharmaceutical Market Growth Association LLC, February 1, http://corporate.lexisnexis.com/news/marketing. of 5-7 Percent in 2011, Reaching $880 Billion, October 6, http://www. branding/cat300001_doc1351234472.html. imshealth.com. 51. 2011, Valeant Pharmaceuticals International, Inc. Announces Pricing of 84. 2007, Hoover’s, premium.hoovers.com.ezproxy1.lib.asu.edu/subscribe/ind/ Senior Notes, February 3, Reuters, http://www.reuters.com/finance/stocks/ fr/profile/basic.xhtml?ID=108. keyDevelopments?symbol=VRX. 85. 2008, Teva Pharmaceutical Industries Ltd. 2007 Annual Report, www. 52. 2011, Valeant Pharmaceuticals to Acquire PharmaSwiss S.A., PR Newswire tevapharm.com, February. Association LLC, February 1. 86. 2011, Hoover’s Company Reports, Teva Pharmaceutical Industries Limited. 53. M. Herper, 2002, ICN shareholders win. Now what? Forbes.com, www.forbes. 87. 2008, UCB 2007 Annual Report, www.ucb-group.com/investor_relations/ com/2002/05/30/0530icn.html, May 30. financials/index.asp. 54. 2004, Valeant annual report 2003, Valeant.com, www.valeant.com. 88. 2011, UCB Company Website, http://www.ucb.com/about-ucb/facts/sales. 55. 2003, ICN, International Directory of Company Histories, www. 89. Ibid . fundinguniverse.com/company-histories/ICN-Pharmaceuticals-Inc- 90. 2011, Hoover’s Company Reports, H. Lundbeck A/S. Company-History.html. 91. K. Richards, 2004, Outsourcing: The pharmaceutical industry’s strategy of 56. 2010, J. Michael Pearson Executive Profile, Forbes, http://people.forbes.com/ choice for managing risk and rapid change, www.touchbriefings.com/ profile/j-michael-pearson/83598. pdf/890/PT04_richards.pdf, November 22. 57. 2009, J. Lublin, Valeant CEO’s Pay Package Draws Praise as a Model, The Wall 92. Dr. J. Sirven, 2007, personal interview, November 21. Street Journal, August 24, B4. 93. AIS, A Guide to Drug Cost Management Strategies, 2002; PCMA, 2001. 58. Ibid . 94. J. Richardson, 2003, PBMs: The basics and an industry overview, www.ftc. 59. Ibid . gov/ogc/healthcarehearings/docs/030626richardson.pdf, November 25. 60. Ibid . 95. C. Sprague, 2007, Speeding time to market and ensuring regulatory 61. Ibid . compliance with business process and content management integration, 62. 2010, V. Reed, Valeant’s Cost Cutting, Small Buys Find Favor with Wall Street, www.ngpharma.com/pastissue/article.asp?art=270061&issue=201, Orange County Business Journal, May 23. November 26. 63. Ibid . 96. J. Carroll, 2006, 10 major health care/pharmaceutical trends, www.jimcarroll. 64. 2010, Biovail Corporation S-4/A Registration of Securities Issued in Business com/weblog/archives/000757.html, November 26. Combination Transactions, August 18. 97. 2002, Integrating prevention into health care, www.who.int/mediacentre/ 65. 2010, Update1 – Valeant searches for new CFO, shares slide, Reuters, factsheets/fs172/en/index.html, November 25. December 20. 98. 2007, U.S. Census Bureau, www.census.gov/Press-Release/www/releases/ 66. Ibid . archives/aging_population/006544.html, November 27. 67. 2010, Valeant Pharmaceuticals International, Inc. Announces Appointment 99. S. Nebehay, 2007, Neurological disorders affect one billion people— of Robert A. Ingram as Chairman, December 13, Reuters, http://www.reuters. WHO, Reuters, www.reuters.com/article/latestCrisis/idUSL27230278, com/finance/stocks/keyDevelopments?symbol=VRX. November 25. 68. 2006, Ten frequently asked questions about Parkinson’s Disease, Parkinson’s 100. 2005, Prescription drugs: Price trends for frequently used brand and generic Disease Foundation, www.pdf.org/Publications/factsheets/PDF_Fact_Sheet_ drugs from 2000 through 2004, United States Government Accountability 1.0_Final.pdf, November 25. Office, www.gao.gov/new.items/d05779.pdf, November 23. 69. 2011, Parkinson’s Disease (PD) Overview, National Parkinson Foundation, 101. 2004, Questions and answers about Activa Parkinson’s control therapy, http://www.parkinson.org/parkinson-s-disease.aspx. 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103. M. Kakutani, 2005, Generation RX: How prescription drugs are altering 114. 2011, How does this Donut Hole really work?, Q1Medicare.com, http://www. American lives, minds and bodies, www.iht.com/articles/2005/10/02/ q1medicare.com/PartD-MoreOnTheDonutHolesOrCoverageGap.php. features/booklun.php, November 26. 115. 2007, Considerations for generic drug use in the elderly, Pharmacy Times, 104. M. Lombardi, 2007, Raising awareness of “Generation Rx,” www.cbsnews. www.pharmacytimes.com/issues/articles/2007-01_4286.asp, November 27. com/blogs/2007/11/29/couricandco/entry3553088.shtml, November 29. 116. J. Frederick, 2007, Medicare Part D driving up generic dispensing, BET 105. 2010, National Drug Control Strategy, Office of National Drug Control Policy, Research Center, http://findarticles.com/p/articles/mi_m3374/is_3_29/ http://www.whitehousedrugpolicy.gov/policy/ndcs.html. ai_n19020244, November 23. 106. 2004, Offshore outsourcing of pharmaceutical R&D. 117. 2011, Hoover’s Company Reports, Valeant Pharmaceuticals International, 107. Visa policies are an issue for pharmaceutical companies because they are Inc. not able to hire and retain knowledge from foreign human capital. 118. C. North, personal interview. 108. J. Carroll, 2006, 10 major health care/pharmaceutical trends. 119. 2011, Valeant Pharmaceuticals, www.valeant.com. 109. Dr. S. Salam, 2002, HIPAA: Impact on the pharmaceutical industry, www. 120. 2011, Valeant Pharma soars on 4Q and 2011 forecasts, Bloomberg pharmabiz.com/article/detnews.asp?articleid=11394§ionid=46, Businessweek, January 6, http://www.businessweek.com/ap/financialnews/ November 23. D9KJ2B001.htm. 110. 2006, Inventories and audits for Prescription Drug Marketing Act (PDMA) 121. 2011, M. Venu, Valeant Pharmaceuticals International, Inc. Analyst Report, Compliance, Global Compliance, www.globalcompliance.com/prescription- Morningstar Investment Research Center, http://library.morningstar.com. drug-marketing-actpdma.html, November 27. ezproxy1.lib.asu.edu/stocknet/MorningstarAnalysis.aspx?Country=USA&Sym 111. 2007, Division of Drug Marketing, Advertising, and Communications, U.S. bol=VRX&Custid-&CLogin=&CType=&CName=. Food and Drug Administration, www.fda.gov/cder/ddmac/, November 22. 122. Ibid . 112. 2011, Truthful Prescription Drug Advertising and Promotion (Bad Ad 123. 2007, Valeant, www.valeant.com. Program), U.S. Food and Drug Administration, http://www.fad/gov/Drugs/ 124. 2010, B. Berkrot, Global drug sales to top $1 trillion in 2014 – IMS, Reuters, GuidanceComplainceRegulatoryInformation/Surveillance?DrugMarketingAd April 20, http://www.reuters.com. vertisingandCommunications/ucm209384/htm. 125. 2010, M. Kimes, Big Pharma’s Challenge: Figuring out China, Fortune, 113. S. Saul, 2007, Patient money: Strategies to avoid Medicare’s big hole, The September 23, http://money.cnn.com/2010/09/23/news/international/ New York Times, www.nytimes.com/2007/11/24/health/policy/24donut. big_pharma_china.fortune/index.htm. html?ref=todayspaper, November 26. 126. 2009, Valeant Pharmaceuticals International Annual Report.

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