Strategy Valeant Pharmaceuticals (Montreal, Quebec, with offices in Mississauga, Valeant's strategy is to acquire, develop, and commercialize new products through partnerships Ontario; founded 1989) especially in the areas of neurology and dermatology. Neurological products under development include Preparation question: How does Valeant’s medications for depression, schizophrenia, Parkinson's, business model differ from Apotex? and pain, as well as an epilepsy drug being researched Source: Hoovers, 2011-2013, updated 11/2014 through a partnership with GlaxoSmithKline. The company is looking to broaden its lineup especially as Valeant Pharmaceuticals International (ex-Biovail) is some of its older offerings, such as Wellbutrin XL 's largest publicly traded drugmaker. The (an extended-release multinational specialty pharmaceutical company version of GSK's antidepressant Wellbutrin) and Ultram specializes in developing, manufacturing, and marketing ER (a long-acting version of J&J's chronic pain drug neurological and dermatological treatments, with a Ultram), face increasing levels of generic competition as portfolio of branded prescription, branded generic, and their patents expire. OTC products. Products in its dermatology segment include genital herpes treatment Zovirax and acne Under the direction of chairman and chief executive J. treatment Acanya, while products in its neurology Michael Pearson, Valeant has made about 50 acquisitions segment include antidepressant Wellbutrin XL. Valeant of companies and assets since 2008. Its acquisition acquired Bausch + Lomb in 2013 to establish a strong footprint is diverse, with several purchases in the US, presence in ophthalmology as well. Canada, Brazil, Russia, and Australia. The company tends to mix larger acquisitions with smaller ones in order to Geographic Reach beef up its portfolio of treatments for central nervous With manufacturing sites in Canada, Mexico, Brazil, and system and skin diseases. Poland, product sales are made around the world. The US Mergers and Acquisitions market (including ) accounts for more than 55% of Valeant's annual revenues. The company has Valeant has embarked on an aggressive acquisition significant specialty and OTC offerings in strategy that has grown the company's revenues Canada, Australia, and New Zealand, as well as a growing exponentially in recent years. The company closed a presence selling branded, generic, and OTC offerings in record number of purchases in 2011, leading to portions of Latin America, Europe, Southeast Asia, and a 108% revenue jump to some $2.5 billion attributed to South Africa. increased product sales in a widening number of global markets. The company also returned to profitability, Operations reporting a $160 million net income figure in 2011 after In addition to the core areas of central nervous system, dropping into the red in 2010 due to acquisition and dermatology, and ophthalmology, Valeant has integration expenses from the Valeant/Biovail merger. prescription offerings for cardiovascular and The company significantly strengthened its position in metabolic ailments. Valeant also has a handful of off- dermatology when it acquired US-based Medicis patent branded drugs, which it continues to sell but does Pharmaceutical for $2.6 billion in December 2012. The not actively promote. These drugs include Cardizem CD Medicis deal gives Valeant a formidable lineup of acne, (a controlled-release version of Cardizem), anxiety drug aesthetic injectable, and antiviral products, and it builds Ativan, and hypertension medication Vasotec. In addition upon prior acquisitions of Dermik and Ortho in 2011 to to branded drugs, Valeant makes generic formulations, cement Valeant's position as a leader in US dermatology. some of them generic versions of its own brands. Valeant's aggressive acquisition strategy has brought Sales and Marketing some failures along with successes, including a $5.7 Valeant sells its products through direct sales billion attempt to acquire fellow neurological representatives in the US and Canada, as well as through drugmaker Cephalon in 2011 and two unsolicited marketing partnerships and distributors in the US and offers ($314 million and $360 million) for ophthalmic international markets. For instance, Valeant sells top- therapies maker ISTA Pharmaceuticals. selling neurology drug Wellbutrin XL in the US, In 2013, Valeant completed an $8.7 billion deal ($4.5 while GlaxoSmithKline sells the product in international billion in cash and $4.2 billion in debt) to acquire Bausch markets. Customers include wholesale drug distributors, + Lomb from Warburg Pincus private equity. B&L’s hospitals, physicians, and pharmacies. Valeant's lines include contact lenses, lens care, and drugs and marketing programs often include direct mailings, trade implants for eye diseases. B&L had 2013 sales of $3.1 magazine ads, and event exhibits and sponsorships. billion, with -3% net profit and 11,000 employees. The deal gives Valeant a leading position in the 1 ophthalmology market and boosts its operations in the efforts to focus on CNS operations, Melnyk (who was medical device industry. Valeant aims to leverage the then the company's largest shareholder with about 18% of brand in emerging markets; its existing eye care products stock) fought against the new plan and waged an and pharmaceuticals are being merged into the Bausch + unsuccessful proxy fight aimed at returning the company Lomb division following the purchase. to its original focus on difficult-to-manufacture generics and brand extensions. In 2010 Melnyk gave up his fight Ownership and sold off his holdings in the company he had founded. Investors with significant stakes in Valeant include Valeant (then named Biovail) bought the US marketing Ruane, Cuniff & Goldfarb (12%) and FMR (10%). rights for top selling neurology drug Wellbutrin XL back History from GSK in 2009, reversing its previous strategy of solely relying on partnerships to sell its drugs in the US. In 2010 the company, then named Biovail Corporation, (GSK continued to handle international marketing of the acquired the former Valeant Pharmaceuticals for $3.3 drug.) The $510 million asset purchase fed the company's billion and took on the Valeant name. The purchase strategy of focusing on CNS therapies, and the firm hoped widened its neurological offerings, as well as its that off-patent sales of Wellbutrin XL would generate dermatology and over-the-counter (OTC) lines and its significant cash to support its R&D programs. The international distribution network. Both companies were deal also gave Valeant the right to produce an authorized already undergoing restructuring efforts to focus on core generic version of Wellbutrin XL. The company offerings, and the new Valeant further cut operational also launched its new depression therapy, Aplenzin, expenses through post-merger integration efforts, through a marketing arrangement with French including a 25% reduction of the combined workforce. drugmaker Sanofi in 2009. Valeant and Biovail combined operations in a reverse- In mid-2009 Valeant acquired the worldwide rights to the merger transaction. Valeant had historically been focused entire portfolio of tetrabenazine products (including on developing improved versions of existing drugs using international Xenazine rights) from Cambridge its oral drug-delivery technologies; however, due Laboratories for $230 million. It also gained several early to increased competition in the drug-delivery stage CNS drug development programs through the deal, technologies marketplace, the company began shifting its including a tetrabenazine program for the treatment of focus to proprietary CNS therapies. Both Ultram ER and Tourette syndrome. The company netted more CNS drugs Cardizem LA (a long-acting version of Sanofi's blood in 2010 with the purchase of certain compounds pressure therapy Cardizem) started facing competition from Cortex Pharmaceuticals. from generic versions in 2009 and 2010. In 2010 Valeant sold its noncore contract research The combined company retained the Biovail division to Lambda Therapeutic Research for $6 million. headquarters in Canada, as well as the Biovail corporate structure, but Michael Pearson, CEO of the old Valeant, took the reins of the new Valeant (replacing former Biovail CEO Bill Wells). [Note; this was one of Recent activity: 2014 the earlier tax inversion deals, which have recently Valeant leadership has said that its goal is to become the become controversial in the US]. world’s largest specialty drug company, with sales of at In addition to meeting growth targets, the company's least $20 billion. It plans to achieve this target primarily name change to Valeant following the merger could also via acquisitions. signify a desire to disassociate itself Throughout 2014, Valeant has been engaged in a highly with some past troubles associated with the Biovail name. public attempt to take over Allergan, Inc., in partnership While operating as Biovail, the company and some of its with Pershing Share Capital Management, with a hostile former executives were charged with accounting fraud in takeover offer worth more than $50 billion. Allergan, with 2008 by the SEC, which claimed that the company misled 2013 sales of $6.3 billion, net profit of 16%, and 11,400 investors over earnings and losses. The company paid a employees, is a US-based specialty drug company with fine to settle the SEC charges; it also paid fines to settle sales in ophthalmics, dermatology, neuroscience, urology, similar allegations from the Ontario Securities and cosmetics. Its best known product is the neurological Commission (OSC), a Canadian regulatory body, in 2009. treatment Botox. Like Valeant, Allergan typically obtains Biovail founder was one of the charged its products through in-licenses and acquisitions. executives who left the company during the investigations. After the company began restructuring

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Valeant: Financial Trends Year Revenue Net Income ROS Employees 17,200 (after B&L 2013 $5,765 ($866) -15% acquisition) 2012 $3,546 ($116) -33% 7,000 2011 $2,463 $160 6.5% 6,900 4,300 (after Biovail Dec-10 $1,181 ($208) -17.6% inversion) Dec-09 $820 $176 21.5% 1,311 Dec-08 $757 $200 26.4% 1,389 Dec-07 $843 $196 23.2% 1,533 Dec-06 $1,070 $204 19.0% 1,734 Dec-05 $935 $89 9.5% 1,744 Dec-04 $887 $53 5.9% 2,291 Dec-03 $824 ($27) -3.3% 1,958 Dec-02 $788 $88 11.1% 2,033 Dec-01 $583 $87 15.% 1,322 Dec 00 $309 ($148) -48% 1,200 Dec 99 $177 $63 35% 701 Dec 98 $113 $45 40% 465 Dec 97 $82 $35 43% 377 Dec 96 $66 $23 34% 301 Dec 95 $21 $6 29% 250 Dec 94 $17 $10 55% Dec 93 $11 $4 35% Valeant Stock Trends, 2001‐2014

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Biovail: SEC Charges Biovail Corporation and Senior The SEC's complaint also alleges three accounting Executives With Accounting Fraud (March 24, 2008) schemes that affected reporting from 2001 to 2003. Washington, D.C. The Securities and Exchange  Biovail, over several reporting periods in 2001 and Commission today charged Canadian pharmaceutical 2002, improperly moved off its financial statements company Biovail Corporation and its former CEO, former and onto the financial statements of a special purpose CFO, and two current senior executives with engaging in entity approximately $47 million in expenses a number of fraudulent accounting schemes and making a incurred in the research and development of some of series of misstatements to analysts and investors. Biovail's products. The SEC's complaint alleges that present and former  Biovail concocted a fictitious bill and hold senior Biovail executives, obsessed with meeting transaction to record approximately $8 million in quarterly and annual earnings guidance, repeatedly revenue in the second quarter of 2003. overstated earnings and hid losses in order to deceive  Biovail intentionally misstated foreign exchange investors and create the appearance of achieving earnings losses that caused its second quarter 2003 loss to be goals. When it ultimately became impossible to continue understated by about $3.9 million. concealing the company's inability to meet its own The SEC's complaint alleges that each of Biovail's earnings guidance, Biovail actively misled investors and fraudulent accounting schemes had a material effect on analysts about the reasons for the company's poor Biovail's financial statements for the relevant quarters and performance. years and was engineered by Biovail's senior management Biovail settled the SEC's charges and will pay a $10 in order to inflate Biovail's reported earnings. Biovail million penalty. Four current or former Biovail senior management also intentionally deceived the company's executives still face SEC charges: former chairman and outside auditors as to the true nature of the transactions. CEO Eugene Melnyk; former CFO Brian Crombie; The truck accident misstatements were intended to current controller John Miszuk; and current CFO Kenneth mislead investors about the significance of Biovail's G. Howling. failure to meet its own earnings guidance. "This is another case involving the tone at the top of a According to the SEC's complaint, Melnyk violated . It demonstrates the Commission's shareholder disclosure provisions by failing to include in commitment to holding individuals accountable when his Schedule 13D filings Biovail shares held by several they create a corporate culture of fraud and deceit," said off-shore trusts that Melnyk controlled. Because Melnyk Linda Chatman Thomsen, Director of the SEC's Division exercised both investment and trading authority over the of Enforcement. shares in the trusts, Melnyk was a beneficial owner of the securities and was required to disclose that ownership in "We allege that Biovail and senior executives engaged in his Schedule 13D filings with the SEC. a pattern of systemic, chronic fraud that impacted its public filings of quarterly and annual reports over the The Commission seeks a final judgment permanently course of four years," added Mark K. Schonfeld, Director enjoining all defendants from future violations of the of the SEC's New York Regional Office. "In an effort to antifraud and other provisions of the federal securities conceal the fraud, Biovail's senior officers intentionally laws and ordering them to pay civil penalties and misled the company's auditors and the investing public, disgorgement of ill-gotten gains with prejudgment showing their complete disregard for their responsibilities interest. The Commission also seeks a judgment barring to shareholders." Melnyk, Crombie, Howling, and Miszuk from serving as officers or directors of any public company. The SEC's complaint alleges that in October 2003, Biovail and some of its executives schemed to deceive Without admitting or denying the allegations in the SEC's investors and analysts by falsely attributing nearly half of complaint, Biovail agreed to settle this matter by Biovail's failure to meet its third quarter 2003 earnings consenting to a final judgment requiring it to pay a guidance to a truck accident involving a shipment of one penalty of $10 million. of Biovail's products. Led by Melnyk, Biovail The Commission acknowledges the assistance of the intentionally misstated both the effect of the accident on Ontario Securities Commission in this matter. Biovail's third quarter earnings as well as the value of the product involved in the truck accident. The accident, in fact, had no effect on third quarter earnings.

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