Alignment of Procurement Programs with Performance Management and Best Practices

1. Alignment of Procurement Programs with Performance Management and Best Practices Joseph Hopkins, Senior Director: Strategic Sourcing and Procurement Supply-Chain World North America March 19, 2007

2. Session Objectives • Company Overview: Allergan: “Building Leadership in Specialties” • Allergan’s Sourcing & Procurement Program: “Built on Best Practices” • Supplier/Buyer Relationships: “Defining and Expanding the Paradigm” • Conclusion • Discussion and Q&A

3. Allergan “Building Leadership in Specialties”

4. Allergan • Founded January 27th, 1950 in Los Angeles, California, by Gavin S. Herbert Sr. • Headquartered in Irvine, California • Global specialty pharmaceutical company that develops and commercializes innovative products for: • Ophthalmology • Neurosciences • Medical Dermatology • Medical Aesthetics • Obesity Intervention

5. Specialty Pharmaceuticals • #52 on 2007 BusinessWeek’s Best Performers List • New York Stock Exchange (NYSE): AGN • One of the leading life science companies on West Coast of U.S. • Approx. 6,800 employees worldwide, over 40 commercial locations, 4 world-class Research and Development facilities and 8 state-of-the-art manufacturing plants • Discovery-to-development research programs • Global marketing and sales capabilities in over 100 countries • 2007 Projected Revenue: $3.5B-$3.6B USD • Market Capitalization: ~$17B USD Revenue projections provided on Jan. 31, 2007 Earnings Call

6. Ophthalmology Neurosciences Dermatology Our Four Specialties Medical Aesthetics

7. Eye Care Product Portfolio

8. OphthalmologyPositioned For Growth & Innovation 25% 20% 15% 10% 5% 0% -5% 2002 2003 2004 2005 YTD Q3-06 Alcon Pfizer Allergan Total Market Merck 2005 world market growth 10% Allergan fastest growing global ophthalmology company last 5 years* Market Share Growth* * Source: IMS Global, Excluding retinal therapeutics

9. Dermatology Portfolio – Retinoid for Topical Acne – Glycolic Acid for fine lines/smoothing – Idebenone Antioxidant for skin care – Movement Disorder, Excessive Sweating, Spascity and Headache – Brow Furrow

10. 1000 900 800 700 600 Sales ($M) 500 400 300 200 100 0 2002 2003 2004 2005 2006 BOTOX® PerformanceStrong Growth Across Segments +24% BOTOX® Franchise +18% +25% +28% Therapeutic +17%* +16% +42% +20% Cosmetic +32% +25% +30% +21% +30% +25% +60% * Growth rate excludes 2005 Japan Sales, see reconciliation at end of presentation

11. Neurosciences: GlaxoSmithKline PartnershipMaximizing value of Botox® assets • Japan & China • Large untapped markets where GSK has critical mass & local marketing/expertise • Allergan to receive up-front payment and royalty payments • United States • Co-promotion of GSK’s migraine products, Imitrex STATdose System and Amerge • Enables Allergan to learn migraine market • Contractual payments enable Allergan to double neurology salesforce • Strategic expansion in Neurology

12. Facial Aesthetics Breast Aesthetics Obesity/Health Intervention “Allergan Medical:”High Growth Markets • Inamed Acquisition of $3.2B • Brings global leadership in dermatology and plastic surgery channels • Leading product portfolio includes: • Breast aesthetics: augmentation and reconstruction • Dermal fillers: collagen & hyaluronic-acid based products • Obesity intervention products: Lap-Band®, BIB® system • Products address two global mega trends • Personal expenditures on appearance • Morbid obesity Extrapolation based on April – Dec. ’06 Sales Figures

13. Ophthalmology Neurosciences Dermatology Allergan: Leader in Specialty Therapeutics Medical Aesthetics

14. Allergan’s Sourcing & Procurement Program: “Built on Best Practices”

16. Why a Sourcing Program at Allergan? • Company has Historically focused on Top-End Performance • Funding of Key Growth Drivers • Consistent with Pharma • Efficiency Opportunities • Growing As We Are! • High Proliferation of “Vendors” • Need for Additional “Checks • and Balances” Institutionalizing Best Practice Cost Management Program

17. “Making Every Dollar Count” • The Sourcing Program is built on Best Practice Sourcing methods and high level of Key Stakeholder Participation • Select Preferred Supply Partners who can comprehensively fulfill Allergan’s Business Needs/Requirements • Expect and Require highest level of service from our Preferred Supply Partners • Reduce overall costs to Allergan, while not compromising the company’s standards or business requirements

18. Protection Standardization $ROI Pillars of a Best Practice Strategic Sourcing Program

19. Protection Government Contracts Compliance Mitigation of Procurement Risks and Potential Fraud Greater Ability to Monitor and Enforce SOX Compliance Structured Contracting Environment More Favorable Contract Terms

20. Standardization Process Efficiencies Nimble Business Engagement Practices Program Sustainability

21. Category Management Process Situation Analysis Strategy Creation & Approval Strategy Implementation Process Initiation Continuous Improvement Preferred Supply Partner Selection Process Continuous Improvement Continuous Improvement Vendor Assessment & Business Requirements RFI Request For Information RFP Request For Proposal Preferred Supply Partners • Additional Considerations: • Mix of National / Local • Previous Relationship Continuous Improvement

22. Portfolio Analysis

23. Sourcing Efficiency Supplier Rationalization

24. $ROI Leverages Buying Power Overall Program Efficiencies Verifiable Savings to Fund Key Growth Drivers

25. At-A-Glance: Overall Program Results • Rationalization: Based on Initial Spend OA, achieved 50% Reduction of Supplier Base • Vendors of Choice: Approx. 48% of spend Now Supported by Preferred Suppliers • Savings: 290% increase over 2005 Capture Performance • Impact: Most Budgets now reflect lower cost base • Driving Compliance: Launching eProcurement Platform • Do the Right Thing: Proposal on Table to transform “SBA Program” into “Supplier Diversity Program” • New Ways of Working: Business Partners’, Legal and Sourcing Workflow Processes in place

26. Supplier/Buyer Relationships: “Defining and Expanding the Paradigm”

27. Establishing new Ways of Working and Processes to support a Preferred Supplier Program is Critical But, You must concurrently define and expand The Supplier/Buyer Paradigm

28. Supplier/Buyer Relationships: Expanding the Paradigm • Rapid shift from traditional, adversarial, "arm's length“ supplier/buyer relationships toward longer-term, more cooperative relationships in which the buyer and the supplier tend to regard each other more as equal “partners.” • Partnerships or alliances between suppliers and buyers are increasing in frequency and importance. • Regardless of the reasons given for partnering, many purchasing experts believe that partnering is a trend that will continue into the next century. • Customers are recognizing that Successful Engagements largely depend on the Ability to Maneuver through the Supplier/Buyer Relationship Continuum.

29. Supplier/Buyer Relationship Continuum Value Transcendental Relationship (Partnerships or alliances) Transitional Relationship (Preferred Supplier Program) Transactional Relationship (Contracts / Blanket Orders) Informal Relationship (initial / One-off Engagements) Organizational Impact

30. Key Ingredients • The Law of Reciprocity • Is the Supplier Trustworthy? • The Appearance of Self-service • Disclosure of relevant information when requested • Supply Specifications – Get It Right! • Supplier/Buyer Relationship Continuum

31. The Law of Reciprocity • One of the most fundamental requirements of any long-term Supplier/Buyer relationship is the assumption of reciprocity: • a shared understanding that compensate value received with equal value given. • Compensation offered in exchange for goods and services rendered, but must also be perceived as being fair by each of the transacting parties. • Shirkers and free-riders are swiftly penalized for uncooperative behavior. • Without a norm of reciprocity, trust among people would evaporate, and commercial trade among individuals and firms would grind to a halt. • A smart buyer will use tools (i.e. Portfolio Analysis, etc . .) to ensure that a marketplace equilibrium is achieve to competitively determine price. If the competition is either constrained or deficient, the Law of Reciprocity is violated due to inequality.

32. Is the Supplier Trustworthy? • Trust is important, but is seldom. It is a critical component in the development and maintenance of supplier/buyer relationships. • Two views: (a) a business view based on confidence or risk in the predictability of one's expectations, and (b) a view based on confidence in moral integrity of others' goodwill (mutual respect). • Buying organizations must focus on monitoring and measuring performance (SLAs) to ensure fair judgment regarding compensation • Trust is compromised when performance measurement is difficult to accomplish or non-achievable. • Buyers generally trust suppliers until the supplier destroys trust. One manager recently said, “I trust suppliers until they break an agreement.”

33. The Appearance of Self-service • The traditional "arm's-length" buyer-supplier exchange relationship marketed by mutual distrust and active animosity, self-serving behavior, and a prevalent "win-lose" attitude towards the negotiated exchange terms between the buying and supplying parties. • Do not engage in hostile commercial relationships, where the objective is the maximize self-interest. • Guard against Suppliers’ impression of gaining or sustaining any possible commercial advantage – restricting relevant information. • Balance the inevitable “transaction” phases of a relationship (extensive contractual arrangements) with sufficient levels of shared interests that make it attractive for both parties to continue the exchange relationship over a longer period of time. • Much higher levels of trust and openness are displayed between buyers and suppliers in the “transitional” relationship, where self interest is much more prevalent. • Supplier “certification” or preferred programs are examples of transitional relationships.

34. Disclosure of relevant information when requested • A Supplier must be as open to revealing as much accurate and relevant information to the buyer as possible. • Open communication and sharing of information can not be achieve if you regularly engage in backbiting and common negotiation tactics such as bluffing. • Although mentioned in many negotiation training sessions as a strategic tactic, lying/bluffing is definitely a negative characteristic. • A supplier can not move through the Supplier/Buyer Relationship Continuum without accurately discloses relevant information when requested by the Buyer.

35. Supply Specifications – Get It Right! • “I know you believe you understand what you think I said, but I am not sure you realize that what you heard is not what I meant.” • Buyers are responsible for providing procedures and specifications, however, the burden is on the supplier to translate and “get it right.” • The buyer must proactively “feed-forward” Products/Services, Process and System requirements. • If supplier can provide clear and complete specifications, the relationship between supplier and buyer will usually begin on firmer and fertile ground. • Perform regularly Specification “Follow-Through” Sessions with Suppliers • If suppliers don’t “Get It Right” there will be an impact on “The Language of Business” MONEY and The Relationship.

36. Maneuvering through the Supplier/Buyer Relationship Continuum • An optimal Supplier/Buyer relationship will progress from the “Informal” to “Transcendental” Relationship to achieve the highest levels of mutual dependence and commitment. • Transcendental Relationships depend on complex system of checks-and-balances which are controlled through the use of socialization, norms, and internalized common values within the long-term, cooperative buyer-supplier relationship rather than through any contractual or legal enforcement. • Whenever buyers and suppliers must work closely together to design and produce new or complex products, trust must be generated and demonstrated between the parties because of the high level of sensitive information sharing.

37. Maneuvering through the Supplier/Buyer Relationship Continuum, cont . . . • Maximize total relationship outcomes to satisfy both individual firm, group needs and objectives as opposed to divergent outcomes. • Long-term cooperation and loyalty from all parties to the relationship are expected. • A long-term orientation is necessary to develop high levels of trust between the partners because then the relationship itself is shown to have value. • True strategic partnerships are considered to be transcendental relationships.

38. Supplier/Buyer Relationship Continuum(Recap) Value Transcendental Relationship (Partnerships or alliances) Transitional Relationship (Preferred Supplier Program) Transactional Relationship (Contracts / Blanket Orders) Informal Relationship (initial / One-off Engagements) Organizational Impact

39. Successful Trade Engagements largely depend on the Ability to Maneuver through the Supplier/Buyer Relationship Continuum

40. Conclusion

41. Discussion and Q&A

42. There are no Limits! “Whatever you: Vividly imagine, Ardently desire, Sincerely believe, And, enthusiastically act upon - - - Must inevitably come to pass.” Paul J. Meyer

43. Thank You!