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8-K - FORM 8-K - VALEANT PHARMACEUTICALS INTERNATIONAL | y86507e8vk.htm |
Exhibit 99.1
Dear
Colleagues:
As the summer winds down and the official beginning of our new company approaches, I write to
update everyone on the progress we have made on integration plans.
First I thank all of you who have and continue to work tirelessly and professionally to bring our
two companies together on integration planning, raising the financing, meeting the legal
requirements, and on the many, many other tasks that have been added to your normal workload.
Second, I thank all of you who have continued to focus on running our two businesses. As I
continue to monitor weekly sales and other key metrics for the Valeant businesses, I see continued
strong performance. Peggy and Gilbert have indicated to me that they are seeing similar strong
performance at Biovail. And hats off to Sue Hall and the Potiga (retigabine/ezogabine) team for
shepherding this potentially very important medicine through the regulatory process. Unlike most
other integrations I have observed, I am pleased to report that the new Valeant is not losing
momentum. And on behalf of both of our Boards and shareholders, I salute all of you for these
accomplishments.
In terms of integration planning, we are largely finished. The new strategy is agreed, the
organizational design is largely done, and the synergy targets, both in terms of dollars and
timing, have been significantly exceeded. Over $300 million of cost synergies have been identified
and we expect to realize well north of $200 million in 2011. The rest will be captured in 2012.
As suggested in my earlier communication, we are planning to reduce headcount by approximately 25%
across the U.S. and Canadian business of the combined company. In addition, our combined cash tax
rate by the end of 2012 is expected to be approximately 15%.
The primary purpose of this memo is to communicate the new strategy, discuss our organizational
model, and outline decisions that have been reached. This includes the timing of specific
communications of individual roles in the new company and programs we have put in place for
colleagues who will not be continuing with us on the next phase of our journey. It is a
bittersweet moment in the history of both our companies, but I am confident that all of you will
take pride in the way the new Valeant will be treating all of our employees during this transition
period.
So let me first touch on: (1) New Valeant strategy and operating philosophy, (2) organizational
design and philosophy and finally (3) decisions made and timing.
1. New Valeant Strategy and Operating Philosophy
Our vision for new Valeant is to become the leading specialty pharmaceutical company in the world.
We will measure our success through our returns to our shareholders and our overall market
capitalization. We will have a balanced and diversified portfolio of businesses: in terms of types
of products branded pharmaceuticals, over the counter medications, branded generics, and
unbranded generics; therapeutic areas dermatology, neurology, and ophthalmology; and geographies
- U.S., Canada, Central Europe, Latin America, Australia and New Zealand. We will measure
ourselves in terms of overall growth, organic growth, cash earnings, and cash flow from operations.
Our portfolio will evolve over time. All of our assets are for sale if they are worth more to
others than they are to our shareholders. However, if our operating units continue to meet their
financial objectives, our bias will be to keep them. Over time, I would expect us to both enter
and exit geographies, therapeutic areas, and potentially even product forms. We will
continue to seek out high growth, high profit markets where we can bring a unique competitive
advantage, and exit markets where growth and profitability is no longer attractive. Again, we will
measure our success through shareholder returns and market capitalization, not revenues, assets, or
other measures.
In terms of innovation, we will continue to invest in a leveraged R&D portfolio (leveraged means we
will seek partners for any of our high spend development efforts), but our spend in R&D will be
substantially less than our peers. Internal R&D has not proven to be a good return for most
pharmaceutical companies over the last decade, and I dont think we are smarter, better or luckier
than others in the industry. To the extent that we have a unique capability such as our Dow
formulation expertise, we will continue in-house development. Our primary source of innovation
will come through acquisitions of smaller in-line products that we can grow dramatically though our
infrastructure and commercial processes as well as smart and focused life cycle management
projects. Past examples of acquiring innovation include: CeraVe, Atralin, Wellbutrin XL, Lacrisert
and Acanya, in the U.S., Dr. Renaud and Vital Science in Canada, DermaTech and Dr. Lewinns in
Australia, EMO-FARM in Central Europe, Delta and Bunker in Brazil, and Tecnofarma in Mexico.
Given our new corporate structure and Barbados subsidiary, our returns on these types of
investments will only be enhanced.
We will operate a low cost operating model in all we do. In essence, we will continue to apply a
low margin operating mindset to a high margin business. We will take pride in our frugality, our
ability to make quick decisions based on internal resources, our willingness to all wear different
hats at different times. And in return, we will pay above average compensation for superior
performance and beyond average shareholder returns.
I recognize that many of you did not sign up for either this strategy or operating philosophy. And
many of you may choose not to continue to work for the new Valeant. I understand and respect that
decision. For those of you who do continue with the new Valeant, I suspect that most of you will
grow more as a professional over the next few years than you have at any previous time in your
careers.
2. Organizational Design and Philosophy
To support our strategy, the new Valeant will employ a decentralized organizational model. We will
create ten operating units U.S. Dermatology Rx, U.S. Dermatology OTC, U.S. Neurology /
Other, U.S. Ophthalmology, Barbados, Canada, Mexico, Brazil, Europe, and Australia/New Zealand.
Each will be led by a President / General Manager and he/she will in most cases have direct line
responsibility for all critical functions: sales, marketing, business development, manufacturing,
R&D, human resources, IT, legal, etc. Only finance, compliance, regulatory and pharmacovigilence
will report centrally to ensure proper controls on the business. However, the CFOs of each of
these units will also be expected to be business partners of the operating units. Each of these
operating units will be managed and held accountable for four key metrics:
1. | Constant currency growth | ||
2. | Organic growth |
3. | EBIT | ||
4. | Cash flow from operations |
Our corporate targets for each, and what I expect from each of our units, are:
1. | Constant currency growth >20% | ||
2. | Organic growth >10% | ||
3. | EBIT margin >35% | ||
4. | Cash flow from operations Annual target |
While not all units will exceed each metric every year, we expect the portfolio of businesses to
deliver in aggregate.
Each of our Presidents / General Managers will also be expected to create a highly ethical
environment for their employees. In the end, our primary mission as an organization is to serve
the patients and consumers who use our products, the physicians who prescribe / recommend them and
the customers who provide retail outlets for these products. Healthcare companies are held by
society to the highest possible ethical standard and they should be. Adhering to this extremely
high ethical bar supersedes any financial or other objective.
To succeed, each of our units will need to do two things well: (1) Execute flawlessly in terms of
developing, producing, marketing and selling their products and (2) Identify, negotiate and close
value creating business development deals (working as appropriate with our new Barbados subsidiary)
on behalf of the company. Again, our focus in our business development activities will be on
in-line, or soon to be marketed products.
Consistent with the decentralized operating philosophy, our corporate center will be small, lean
and focused on three things:
1. | Ensuring adequate controls to protect our shareholders and to ensure we are in compliance with all regulatory requirements | ||
2. | Ensuring overall corporate financial objectives are met | ||
3. | Actively managing all capital allocation decisions (e.g.: what business development deals we will or will not do) |
In total, our corporate staff functions will number less than 80 people.
3. Decisions Made and Timing
Over the past several months, we have been working diligently to design and staff the new Valeant
organization and to identify and begin to eliminate unnecessary non-FTE costs consistent with our
new strategy and organizational approach.
3.1 New Executive Management Team
The new Executive Management Team or EMT will initially consist of:
Rajiv De Silva President of Valeant and COO of Specialty Pharmaceuticals, Peggy Mulligan
Chief Financial Officer, and Mark Durham SVP of HR. In addition, I will be naming a new
General Legal Counsel in the next couple of weeks who, along with me, will complete the five person
EMT. Peter Blott, Bhaskar Chaudhuri, Gilbert Godin, Greg Gubitz, Elisa Karlson, and Steve Min will
not continue with the combined company.
Rajiv will have responsibility for all Specialty Pharmaceutical Operations, including: Canada,
Australia, Aton, Dow Services, U.S. Neuro, Coria, Kinerase and Specialty R&D (Dow, Neuro and Aton)
and North America manufacturing including Steinbach.
Tom Schlader will assume responsibilities for new Valeant Canadian Operations including Biovails
commercial operations in Canada. He will also be responsible for our Canadian Manufacturing
function with the exception of Steinbach. Our Canadian commercial operations will be headquartered
in Montreal.
Rob Tessarolo, current head of Biovails Canadian business is considering other opportunities
within the new Valeant. I thank Rob for his successful leadership of Biovails Canadian operation
over the past 3 years.
Our branded generics businesses in Europe and Latin America will report directly to me.
Peggy Mulligan, who was previously announced, will have responsibilities for Finance, IT,
Procurement and Facilities.
Our new General Counsel will assume responsibilities for all of the corporate legal teams.
Mark Durham will be responsible for corporate Human Resources including talent management,
benefits, compensation and internal communications.
Barbados will continue to report to Bill Wells until I establish my residency in Barbados, at which
time it will transfer to me.
3.2 New Organization
As part of the integration process, we have developed new organization charts for U.S. Operations,
our Canadian business and all corporate functions. Over the next few weeks the new Executive
Management Team will be working with me to populate these organization charts with employees from
Biovail, Valeant, and when appropriate from outside the company. We expect to notify all employees
of Biovail and Valeant of their individual employee status by October 15th.
I would like to thank all of our departing executives for their leadership and dedication and wish
them well in the next phase of their professional lives. To the new executive team, I again offer
my congratulations and best wishes.
3.3 Pipeline Decisions
Over the past couple of months, we have conducted an extensive R&D pipeline review across both
companies. We have a number of recommendations that once finalized by the appropriate Boards, will
be communicated to our partners. In the coming weeks, I will communicate these
decisions both internally and to the investor community. For projects we plan to stop funding, we
will look to maximize the value of these assets through partnerships and/or outright sales.
3.4 Severance Plans
Both the Canadian and U.S. Severance Plans have been finalized. The objective of these severance
plans is to provide individuals with support during transition to alternative employment. This
support consists of financial payments, benefits extension and career transition services. Our
intention is to treat all departing employees with the support and respect they deserve.
Information about these plans will be forwarded to Canadian and U.S. employees via email over the
next few days. Our intent is to inform all employees of their job status on or before October
15th.
3.5 Site Town Halls
During the week of September 6th, we will be hosting town halls at all Biovail and
Valeant locations in North America (with the exception of Steinbach where I held a town hall last
week). We will provide an overview of the information shared today and use this time to address
your questions and concerns.
Details regarding the specific times and locations of town halls will be sent shortly to each site
under a separate email.
***
I appreciate that, as exciting as this new venture may be, change is difficult and some of this
information may be unsettling particularly with regard to appointments and terminations. It is
not easy when friends and colleagues leave the business or when there is uncertainty regarding your
individual roles. My objective with this announcement is to share with you, openly and honestly,
what has transpired over the past couple of months and plans for the weeks ahead. I hope that this
message has provided some clarity and guidance for each of you.
If you have questions please attend your site town hall. You can also speak with your local HR
representative. Thank you for your continued support throughout this process.
Best regards,
Mike
Mike