VYaDerm Pharmaceuticals

Harvard Business School

9-101-019 !"#$ &'()'*+ ,-. /00,

Vyaderm Pharmaceuticals In 1999 we threw out the old executive compensation system altogether and introduced EVA. It was meant to be symbolic—a symbolic—a cathartic change.

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urchased by: Paulo Oliveira [email protected] [email protected] on March 22, 2014

101-019

Vyaderm Pharmaceuticals

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Economic Value Added X( >'7" ,\\I. TU<*4(" 7)*("< 72 ' 3*2E4("(7 C2(;)>74(5 @4*E @2* 6">3 4( 4E3>"E"(74(5 ZC2(2E4C T'>)" N<<"< iZTN,j$ TU<*4(" 9">4"#"< 76'7 ZTN ?'; ' g*)76>";;>+ 29c"C74#".h C2E3*"6"(;4#" 3"*@2*E'(C" E"';)*" 76'7 ?2)>< g5"7 3"23>" 2@@ ]'>> L7*""7Y; @2C); 2( "'*(4(5; 3"* ;6'*" '(< 764(W4(5 E2*" >2(5 7"*E$h ZTN ?'; 4(7"(<"< 72 9"C2E" 76" ;2>" @4('(C4'> E"';)*" '7 T+'<"*E$ B2 <";45( '(< 4E3>"E"(7 76" ("? ZTN ;+;7"E. TU<*4(" "(>4;7"< 76" 6">3 2@ 164"@ =4('(C4'> [@@4C"* V'(4">>" L'(<"*; '(< 12(7*2>>"* K>'W" M+"*;$ L'(<"*; 6'< c24("< T+'<"*E @*2E V">2477" k B2)C6" 4( ,\-H '; <4*"C72* 2@ @4('(C4'> 3>'((4(5 @2* 76" R2*76 NE"*4C'( <4#4;42(. '(< 9"C'E" C2*32*'7" C2(7*2>>"* 4( ,\\G$ M+"*; 6'< ?2*W"< 3*"#42);>+ '7 76" e(4#"*;47+ 2@ ]';64(572(. c24("< T+'<"*E '; E'('5"* 2@ C2*32*'7" @4('(C4'> 3>'((4(5 4( ,\-,. '(< 4( ,\\H 9"C'E" #4C" 3*";4<"(7 2@ 23"*'742(; @2* 76" R2*76 NE"*4C'( <4#4;42(. M+"*; ;)CC""<"< L'(<"*; '; C2(7*2>>"* 4( ,\\G. ?6"( L'(<"*; ?'; ('E"< C64"@ @4('(C4'> 2@@4C"*$ ]64>" TU<*4(" ;'? ZTN '; ' ?'+ 72 <"E2(;7*'7" 72 76" 4(#";7E"(7 C2EE)(47+ 76'7 6" 4(7"(<"< 72 C2(74()" T+'<"*EY; 3*2@47'9>" 5*2?76. L'(<"*; '(< M+"*; '>;2 ;'? 47 '; ' ;2>)742( 72 C2(@>4C74(5 E'('5"E"(7 3*42*474"; C');"< 9+ C2E3"74(5 @4('(C4'> E"';)*"; ;)C6 '; C';6 @>2? i@2* #'>)4(5 'CD)4;4742(;j '(< *"7)*( 2( ;'>"; i@2* 3'+4(5 92();";j$

EVA Calculations and Adjustments ZTN ?'; ' *"4(C'*('742( 2@ 76" 7*'<4742('> 'CC2)(74(5 C2(C"37 2@ *";4<)'> 4(C2E". ?64C6 E"';)*"< 76" "d7"(7 72 ?64C6 ' C2E3'(+Y; '@7"*F7'd 23"*'74(5 3*2@47; C2#"*"< 76" ;6'*"62><"*Y; C2;7 2@ C'347'>$ `"("*'> M272*; <"#">23"< ' *";4<)'> 4(C2E" ;+;7"E 4( 76" ,\/0; @2* E"';)*4(5 76" 3"*@2*E'(C" 2@ 23"*'74(5 <4#4;42(;. '(< 76" 3*'C74C" ?'; C2(74()"< 9+ ;)C6 C2E3'(4"; '; `"("*'> Z>"C7*4C 4(72 76" ,\J0;. '@7"* ?64C6 76" C2(C"37 @'<"< @*2E 323)>'* E"E2*+$ 12(;)>7'(7; L7"*( L7"?'*7 k 12E3'(+ *"#4#"< 76" *";4<)'> 4(C2E" C2(C"37 4( 76" "'*>+ ,\\0;$ B6"+ '*5)"< 76'7. 9+ 62><4(5 E'('5"*; 'CC2)(7'9>" @2* 76" C'347'> 3*2#4<"< 9+ 4(#";72*;. ZTN ?'; 76" 9";7 ?'+ 72 '>45( 76" 4(7"*";7; 2@ <4#4;42('> E'('5"*;. 76" C2E3'(+. '(< ;6'*"62><"*;$ [@ 76*"" 7*'<4742('> E"';)*"; 2@ 3"*@2*E'(C"S"'*(4(5; 3"* ;6'*". *"7)*( 2( 4(#";7E"(7. '(< <4;C2)(7"< C';6 @>2?S2(>+ 76" <4;C2)(7"< C';6 @>2? E"762< 722W 4(72 'CC2)(7 76" C2;7 2@ C'347'> i76*2)56 76" <4;C2)(7 *'7"j$ L4E4>'*>+. ?476 ZTN 2(>+ 4(#";7E"(7; ?476 ' 32;474#" "C2(2E4C *"7)*( i4$"$. ' *"7)*( 5*"'7"* 76'( 76" C2;7 2@ C'347'>j ?"*" >4W">+ 72 9" 3)*;)"<$ B6" @2*E)>' @2* ZTN ?';P ZTN l R"7 [3"*'74(5 :*2@47 '@7"* B'd"; F m1'347'> d 12;7 2@ 1'347'>n

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2 Purchased by: Paulo Oliveira [email protected] on March 22, 2014


101-019

N; T+'<"*E <";C*49"< 76" C2(C"37 4( 47; ,\\\ '(()'> *"32*7. EVA is a tool which simply yet effectively combines the income statement and balance sheet into one number, by subtracting from earnings a charge for the utilization of assets employed in generating those earnings.

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=2* ZTN C'>C)>'742(;. consumer advertising "d3"(;"; ?"*" C'347'>4_"< '(< 'E2*74_"< 2( ' ;7*'4567F>4(" 9';4; 2#"* 76*"" +"'*;$ 1'347'>4_"< '<#"*74;4(5 ?'; '<<"< 72 ("7 23"*'74(5 ';;"7;. '(< 76" C)**"(7 +"'*Y; "d3"(;" ?'; '<<"< 9'CW 72 23"*'74(5 "'*(4(5;$

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e(<"* e$L$ `NN:. goodwill @*2E 'CD)4;4742(; ?'; 'E2*74_"< 2( ' ;7*'4567F>4(" 9';4; @2* 3"*42<; )3 72 H0 +"'*;$ =2* ZTN C'>C)>'742(;. 764; 'CC2)(74(5 "(7*+ ?'; *"#"*;"<$ 1)E)>'74#" 522> 76'7 6'< 9""( 'E2*74_"< 72 <'7" ?'; '<<"< 72 ("7 23"*'74(5 ';;"7;. '(< 76" C)**"(7 +"'*Y; 'E2*74_'742( ?'; '<<"< 9'CW 72 23"*'74(5 "'*(4(5;$

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=4('>>+. @2* ZTN 3)*32;"; restructuring "d3"(;"; ?"*" *"E2#"< @*2E 76" 3*2@47 '(< >2;; ;7'7"E"(7 '(< '<<"< 9'CW 72 ("7 23"*'74(5 ';;"7;$

L"" Exhibit 1(a) @2* ' ;)EE'*+ 2@ T+'<"*EY; ZTN C'>C)>'742(; '(< Exhibit 1(b) @2* '( !kV 'E2*74_'742( "d'E3>"$

EVA Incentive Program e(<"* 76" 2>< C2E3"(;'742( ;+;7"E. '33*2d4E'7">+ ,.000 E'('5"*; *"C"4#"< '( '(()'> 92();$ A'>@ 76" 92(); ?'; 9';"< 2( 29c"C74#" 23"*'74(5 *";)>7; i;)C6 '; 9);4(";; )(47 ;'>";. "'*(4(5;. '(< ';;"7 E'('5"E"(7jb 76" 276"* 6'>@ 2@ 76" 92(); <"3"(<"< 2( ' ;)9c"C74#" "#'>)'742( 2@ 76" E'('5"*Y; 3"*;2('> C2(7*49)742($ N; V'(4">>" L'(<"*; i1=[j <";C*49"< 76" 2>< C2E3"(;'742( ;+;7"EP

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Financial Statement Analysis . ]4(7"* ,\\\. 33$ IF,\$ 3 Purchased by: Paulo Oliveira [email protected] on March 22, 2014

101-019


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101-019

#2>)(7'*4>+ >"@7 76" C2E3'(+. 76" 9'>'(C" 4( 76" 92(); 9'(W ?'; @2*@"47"<$ N; T+'<"*EY; 3*2d+ ;7'7"E"(7 ;7'7"<. g764; 92(); 9'(W C*"'7"; ;62*7F '(< >2(5F7"*E 4(C"(74#" @"'7)*";. *"?'*<4(5 ;);7'4("< 3"*@2*E'(C" '(< C2(74()"< "E3>2+E"(7$h Table A

L'E3>" K2(); 1'>C)>'742(

B6" @2>>2?4(5 "d'E3>" 4>>);7*'7"; 76" "@@"C7 2( 92();"; 2@ ZTN 3"*@2*E'(C" '92#" '(< 9">2? 76" ZTN 7'*5"7P Assumptions:

M'('5"*Y; K';" :'+P

^,00.000

•

B'*5"7 K2();P ZTN XE3*2#"E"(7 `2'>

H0a 2@ 9';" 3'+ l ^H0.000 ^ G E4>>42(

•

ZTN X(7"*#'>

^ ,G E4>>42(

•

1'>C)>'7"< K2(); l B'*5"7 K2(); d ZTN :"*@2*E'(C"

•

ZTN :"*@2*E'(C" l , q miNC7)'> XE3*2#"E"(7 F XE3*2#"E"(7 `2'>jQ X(7"*#'>n

•

•

Year One: Actual EVA Improvement = $10 million

Year Two: Actual EVA Improvement = - $11 million

(Performance Above EVA Target)

(Performance Below EVA Target)

Beginning Bank Balance = $0

Beginning Bank Balance = $6,667

1. Calculated Bonus = Target Bonus x EVA Performance 1. Calculated Bonus = Target Bonus x EVA Performance = $40,000 x [1 + [10 million - 5 million]/15 million] = $40,000 x [1+ [-11 million - 5 million]/15 million] = $40,000 x 1.33

= $40,000 x [ -.067]

= $53,333

= - $2,667

New Bank Balance = $0 + 53,333 = $53,333

New Bank Balance = $6,667 - 2,667 = $4,000

2. Payout = Target Bonus + 50% Remaining Balance

2. Payout = Target Bonus + 50% Remaining Balance

(but not to exceed balance in bank)

= $40,000 + 0.5 [4,000]

= $40,000 + 0.5 [53,333 - 40,000]

(but not to exceed $4,000 balance in bank)

= $46,667

= $4,000

Ending Bank Balance = $6,667

Ending Bank Balance = $0

N; 76" "d'E3>" 4>>);7*'7";. 4( 76" @4*;7 +"'* 2@ '( ZTN 4(C"(74#" 3*25*'E E'('5"*; 6'< (2 92(); 9'(W 72 @'>> 9'CW 2( 4@ 76" @4*;7 +"'*Y; ZTN *";)>7; @">> 9">2? "d3"C7'742(;$

Redesigning the Organization X( ,\\J. T+'<"*E ?'; 2*5'(4_"< 3*4E'*4>+ 9+ 5"25*'36+P ;)9;4<4'*4"; ?"*" 4(C2*32*'7"< 4( ,0 C2)(7*4"; 2)7;4<" 76" e(47"< L7'7";$ ]4764( 76" e(47"< L7'7";. T+'<"*E 23"*'7"< G <4@@"*"(7 9);4(";; )(47;$ Z'C6 9);4(";; )(47 6'< 47; 2?( 3*2@47 '(< >2;; ;7'7"E"(7 '(< 23"*'74(5 52'>;$ A2?"#"*. 76"*" ?'; (2 C'347'> C6'*5" @2* ';;"7; 2( 76" 9);4(";; )(47Y; 9'>'(C" ;6""7$ X( @'C7. E'(+ 9);4(";; )(47; <4< (27 6'#" C2E3>"7" 9'>'(C" ;6""7;$ N; M+"*; *"C'>>"<. gB64; >'CW 2@ 9'>'(C" ;6""7 5 Purchased by: Paulo Oliveira [email protected] on March 22, 2014

101-019


'CC2)(7'94>47+ ?'; #4;49>" 4( C'3'C47+ 3>'((4(5$ Z#"*+764(5 ?'; @*""$ B6"*" ?'; 722 E)C6 C';6 74"< )3 4( 76" 9);4(";;$ N; 9);4(";;"; E'7)*"< '(< 3*2<)C7; 9"C'E" C2EE2<474";. E'*54(; 9"5'( 72 <"C>4("$h e(<"* B2E =4((. @4('(C4'> 7'*5"7; ?"*" ;"7 '7 C2*32*'7" 6"'2(5 '; 76" 5"("*'> E'('5"*; 2@ "'C6 C2)(7*+ E"7 76"4* ()E9"*;. 76"+ ?"*" 54#"( ' 5*"'7 <"'> 2@ 4(<"3"(<"(C" 4( 4E3>"E"(7'742($ N; ' *";)>7. 76"*" ?'; (27 E)C6 62*4_2(7'> C2EE)(4C'742( 9"7?""( 9);4(";;";$ X( ,\\-. ?6"( TU<*4(" 4(474'>>+ 9"5'( 764(W4(5 '92)7 4(7*2<)C4(5 ZTN. 6" ?'(7"< 72 2*5'(4_" 2( ' 5>29'> 3*2<)C7 9';4; '(< 9';" ,00a 2@ 76" 92();"; 2@ 76" ,.000 E'('5"*; 2( C2*32*'7" ZTN$ X( "@@"C7. 764; ?2)>< C*"'7" ' ;4(5>" ZTN C"(7"*$ A2?"#"*. 764; 3*232;'> *'( 4(72 ;7*2(5 *";4;7'(C" @*2E 76" 9);4(";; )(47;$ V4#4;42( E'('5"*; '*5)"< 72 E'4(7'4( 3"*@2*E'(C" E"';)*"; 76'7 76"+ C2)>< C2(7*2> E2*" <4*"C7>+$ B6" @)*76"* '?'+ E'('5"*; ?"*" >2C'7"< @*2E L"'77>". 76" E2*" 76"+ >2994"< @2* g>4(" 2@ ;4567h 3"*@2*E'(C" E"';)*";. 9';"< 2( ZTN <*4#"*; ;)C6 '; ;'>"; 5*2?76. *'76"* 76'( C2*32*'7" ZTN$ iL"" Exhibit 4 @2* ' >4;7 2@ ZTN <*4#"*;$j B2 3>'C'7" 76" *"542('> E'('5"*;. L'(<"*; '(< M+"*; E'<" ;"#"*'> 4(474'> <";45( C624C";$ Z'C6 ;"3'*'7" 9);4(";; )(47 9"C'E" '( ZTN C"(7"*. ;2 76'7 4( ,\\\ 76"*" ?"*" ,G ;"3'*'7" ZTN C"(7"*;$ iL"" Exhibit 5 @2* C6'(54(5 2*5'(4_'742('> ;7*)C7)*" @*2E ,\\J 72 /000$j B6"*" ?"*" (2? 72 9" I 5>29'> 3*2<)C7 ZTN C"(7"*; i*'(54(5 @*2E 76" '(74@)(5'> 72 76" ()7*'C")74C'> 9);4(";;j. I *"542('> C"(7"*; i@*2E 76" e(47"< L7'7"; 72 L2)76 N;4'j. '(< 76" C2*32*'7" ZTN C"(7"* 4( L"'77>"$ =)*76"*E2*". 72 "';" 76" 7*'(;4742( @*2E 76" 2>< 92(); ;+;7"E. E2;7 3'*74C43'(7;. ;)C6 '; 5>29'> 9);4(";; ;7'@@ '(< *"542('> ;7'@@. ?2)>< 6'#" 2(>+ IGa 2@ 76"4* ,\\\ 92(); 9';"< 2( 76"4* ZTN C"(7"*Y; *";)>7;$ B6" *"E'4(4(5 /Ga *"3*";"(74(5 4(<4#4<)'> 2* 7"'E 52'>; ?2)>< 9" 9';"< 2( ZTN <*4#"*;. ?64C6 '>>2?"< @2* ;2E" ;)9c"C74#47+$ B6" 6"'< 2@ 76" E'('5"*Y; 5>29'> 9);4(";; )(47 ;"7 76" 4(<4#4<)'> <*4#"*;$ iL"" Exhibit 6 @2* ,\\\ 52'> ?"4567;j$ =2* E4<<>" E'('5"*; "'*(4(5 9"7?""( '92)7 ^J0.000 '(< ^-0.000. 76" ZTN 92(); ?'; 76" >'*5";7 3'*7 2@ 76"4* 727'> C2E3"(;'742( 3'CW'5"$

The Diagnostic Adjustment X( ,\\\. 76" @4*;7 +"'* 2@ 76" ZTN 3*25*'E. 76" V4'5(2;74C 9);4(";; 6'< '( )("d3"C7"<>+ 9'< +"'*$ e(<"* 76" ("? ZTN 3*25*'E. 76" ;62*7@'>> ?2)>< 9" 32;7"< '; ' <"@4C47 72 76" 92(); 9'(WS ?434(5 2)7 76" 327"(74'> @2* @)7)*" 92();"; @2* 2(" 2* E2*" +"'*;$ TU<*4(" @'C"< ' <4>"EE'$ A" ?2**4"< 5*"'7>+ '92)7 <"E274#'74(5 E'('5"*; '7 76" 2)7;"7 2@ 76" 3*25*'E$ K)7 6" ?'; #"*+ *">)C7'(7 72 ';W T+'<"*EY; 92'*< E"E9"*; 72 ' ZTN C'>C)>'742(. ;4(C" 6" 6'< ';;)*"< 76"E 76'7 76"*" ?2)>< 9" (2 "dC"3742(;$ X( 76" "(<. 76" 92'*< E"E9"*; '5*""< 72 ?43" 76" ;>'7" C>"'( @2* V4'5(2;74C. 54#" ' #"*+ ;E'>> 92();. '(< (27 '33>+ 76" ZTN C'>C)>'742( 4( 76" @4*;7 +"'* 2@ 76" 3*25*'E$ L'(<"*; >'7"* ' 9'CW 72 _"*2 ;"7 ' 9'< 3*"C"<"(7. 9"C');" 76"( 276"* 3"23>" ;'4<. p]6+ (27 <2 47 @2* );fY g [( *"@>"C74(5 9'CW 2( 76" C2E3'(+Y; "d3"*4"(C" ?476 76" ,\\\ ZTN 3>'(. M+"*; iC2(7*2>>"*j ;7'7"<. ]" ?"*" @22>4;6 72 '5*"" 72 <2 76" ,G ZTN C"(7"*; 4( ,\\\$ =4@7""( ZTN C"(7"*; ?"*" 722 E)C6 72 E'('5"$ =2* ZTN 72 ?2*W +2) (""< ' @)>> 9'>'(C" ;6""7$ ]476 T+'<"*EY; E)>74('742('> 23"*'742(;. 47 ?'; <4@@4C)>7 72 *";7'7" 3*2@47 '(< >2;; ;7'7"E"(7; 4( C2(;7'(7 e$L$ <2>>'*;b 9'>'(C" ;6""7; 2@ *"542('> ZTN C"(7"*; ?"*" 4(C2E3>"7"b '(< 76"*" ?"*" 7*'(;@"* 3*4C4(5 4;;)";$ ]" ?"*" @'9*4C'74(5 52'>; '(< 4(7"*#'>; @2* ,G ZTN C"(7"*;$



101-019

Streamlining EVA K';"< 2( 764; "d3"*4"(C". TU<*4(". L'(<"*; '(< M+"*; <"C4<"< 72 <*';74C'>>+ *"<)C" 76" ()E9"* 2@ ZTN C"(7"*; @*2E ,G 72 H '(< *"2*5'(4_" 76" C2E3'(+ '>2(5 ' ;"C72* ;7*)C7)*"$ B6);. '7 76" 9"54((4(5 2@ /000. T+'<"*E ?'; *"2*5'(4_"< 4(72 76*"" 5>29'> 9);4(";;"; iV"*E'72>25+. X(7"*('> M"<4C4(". '(< T"7"*4('*+ M"<4C4("j. *)( 'C*2;; @2)* 5"25*'364C *"542(; iR2*76 NE"*4C'. Z)*23". N;4'. '(< r'74( NE"*4C'j$ Z'C6 5>29'> 5*2)3 ?'; '( ZTN C"(7"*. 3>); 76" C2*32*'7" 6"'"$ Z'C6 2@ 76" @2)* ZTN C"(7"*; 6'< 47; 2?( ZTN 7'*5"7 '(< C'>C)>'742($ B6" 5>29'> ;"C72* 6"'<; <"#">23"< ;7*'7"54C 5>29'> 23"*'74(5 3>'(;. ?64C6 76" *"542('> 6"'<; 2@ R2*76 NE"*4C'. Z)*23". N;4'. '(< r'74( NE"*4C' 4E3>"E"(7"< '(< C);72E4_"< 4( 76" C2(7"d7 2@ '( '(()'> 23"*'74(5 3>'( 76'7 76"+ <"#">23"< @2* 76"4* *"542($ ZTN 7'*5"7; @2* "'C6 ZTN C"(7"* ?"*" 72 9" C';C'<"< <2?( 72 76" 4(<4#4<)'> 23"*'74(5 )(47; 76'7 C2E3*4;"< 76" <4#4;42($ =2* C2*32*'7" 2@@4C"*;. 92();"; ?"*" 9';"< ,00a 2( C2*32*'7" ZTN. ?64>" 76"4* <4*"C7 *"32*7; ?"*" C2E3"(;'7"< 2( ' E4d 2@ C2*32*'7" ZTN. 9);4(";; )(47 ZTN. '(< 4(<4#4<)'> 2* 7"'E ZTN 52'>;$

The Dermatology Opportunity B6" `>29'> V"*E'72>25+ 9);4(";; ?'; 76" ;E'>>";7 2@ 76" 76*"" 5>29'> 9);4(";;";. 3*2#4<4(5 /0a 2@ C2*32*'7" *"#"()";$ K"C');" 2@ T+'<"*EY; *"C"(7 *"2*5'(4_'742( 4(72 5>29'> 3*2<)C7 5*2)3;. @4;C'> /000 ?'; 76" @4*;7 +"'* 76'7 `>29'> V"*E'72>25+ ?'; ;"7 )3 '; ' ;"3'*'7" ZTN C"(7"*$ r4W" '>> T+'<"*E 9);4(";;";. V"*E'72>25+ ?'; C2EE477"< 72 'C64"#4(5 ' C2(;4;7"(7 '(()'> ZTN 4E3*2#"E"(7 2#"* 76" ("d7 76*"" +"'*;$ &'(4(" T'C62( ?'; 76" 3*";4<"(7 2@ `>29'> V"*E'72>25+$ N@7"* 9)4><4(5 )3 76" e$L$ 9);4(";; 72 3*2@47'94>47+. T'C62( ;3"(7 76*"" +"'*; 4( :'*4;. =*'(C". C2(;2>4<'74(5 76" 23"*'742(; 2@ 76" Z)*23"'( <4#4;42($ T'C62( <";C*49"< 6"* "#2>#4(5 #4"?; 2@ ZTN. N>762)56 X ?'; '>?'+; ' ;7*2(5 9">4"#"* 4( p>4(" 2@ ;4567Y 3"*@2*E'(C" E"';)*";. X *"C25(4_"< 76'7 4( 76" "'*>+ ,\\0; ?" *'( 2)* 2?( @4"@<2E; '(< <4<(Y7 7'>W 72 '(+92<+$ [#"* 7?2 +"'*; X 9"C'E" ' C2(#"*7 72 M')*4C"Y; #4"? '92)7 76" 4E32*7'(C" 2@ ZTN. '(< 7*4"< C2(#4(C" 76" 276"* 7?2 5>29'> 9);4(";; 6"'<; 72 4E3>"E"(7 ZTN E2*" @)>>+$ &);7 '; 76" ("? ZTN 3*25*'E ?'; 9"4(5 *2>>""'<"* 4( 5"("*4C '(74@)(5'> C*"'E;. ?476 ' E'*W"7 ;6'*" 2@ 2#"* G0a$ X7; E'4( C2E3"7472* ?'; :&r r'92*'72*4";. ?64C6 6'< ' /Ga E'*W"7 ;6'*"$ 12E3"74742( 9"7?""( T+'<"*E '(< :&r 4( 764; 5"("*4C E'*W"7 ?'; @4"*C"$ ]4762)7 3'7"(7 3*27"C742( 2* 276"* ?'+; 2@ <4@@"*"(74'74(5 76"4* 3*2<)C7;. 76" 7?2 C2E9'7'(7; ?"*" "(5'5"< 4( ' @4"*C" 3*4C" ?'*$ N; ' *";)>7. E'*54(; ?"*" *'_2*F764(. '(< 3*2@47; ?"*" >2?$ X( V"C"E9"* ,\\\. '5"(7; 2@ 76" =22< '(< V*)5 N+ ;"4_"< '>> 2@ 76" 3*2<)C7; '7 :&r @2* #42>'742(; 2@ D)'>47+ ;7'(<'*<;$ iX7 ?'; >'7"* *"#"'>"< 76'7 76" =VN 6'< 9""( 4(#";745'74(5 :&r @2* ;"#"*'> +"'*;$j N; T'C62( <";C*49"< 76" ;47)'742(. gX(#";74(5 4( 7"C6(2>25+ 4; C*)C4'> 72 E""7 =VN ;7'(<'*<;$ K"C');" 2@ >2? E'*54(;. :&r c);7 ?';(Y7 '9>" 72 4(#";7 '; E)C6 '; (""<"< 72 *"E'4( =VNFC2E3>4'(7 '(< ;74>> C2E3"7"$h N; ' *";)>7 2@ 76" =VN 'C742(. :&rY; 3*2<)C742( @'C4>47+ ?'; ;6)7 <2?(. '(< 2#"* ' E4>>42( 7)9"; 2@ 47; 7234C'> '(74@)(5'> ;2>)742( ?"*" *"C'>>"<$ e(74> 76" =VN '>>2?"< :&r 72 *";)E" 3*2<)C742(. 764; ;47)'742( ;)<<"(>+ >"@7 T+'<"*E '; 76" <2E4('(7 ;)33>4"* 2@ '(74@)(5'> C*"'E @2* 76" "(74*" e$L$ E'*W"7$ B6" C6'(5" 4( 76" C2E3"7474#" ;47)'742( ?2)>< "('9>" 76" e$L$ <"*E'72>25+ 9);4(";; 72 7"E32*'*4>+ *'4;" 3*4C"; 72 (2*E'> >"#">; '(< 76"*"9+ 922;7 47; 3*2@47 E'*54( ;)9;7'(74'>>+$ 7 Purchased by: Paulo Oliveira [email protected] on March 22, 2014

101-019


T+'<"*EY; "E3>2+""; 9"5'( 5"'*4(5 )3 3*2<)C742( 72 7'W" '<#'(7'5" 2@ 76" 2332*7)(47+. ?64C6 E'('5"*; W("? C2)>< 9" ;62*7F>4#"<$ ]64>" 47 ?'; (27 C"*7'4( 76'7 :&r ?2)>< *"5'4( =VN '33*2#'>. 276"* 5"("*4C E'()@'C7)*"*; ?"*" C"*7'4( 72 "(7"* 76" E'*W"7 72 C'37)*" 76" 3*2@47 327"(74'>$ X( 76" E"'(74E". '>> '#'4>'9>" *";2)*C"; ?"*" 72 9" <"<4C'7"< 72 *'E34(5 )3 3*2<)C742(S'(< 3*2@47;$

January 2001 V'(4">>" L'(<"*; '(< K>'W" M+"*; ?"*" 3*"3'*4(5 72 E""7 ?476 M')*4C" TU<*4("$ N; 76"+ 6'< '(74C43'7"<. /000 3*2@47; @2* 76" V"*E'72>25+ 9);4(";; 6'< 5*"'7>+ "dC""<"< 76" ZTN 7'*5"7$ K)7. '; "d3"C7"<. ' ("? C2E3"7472* 6'< "(7"*"< 76" 5"("*4C '(74@)(5'> 9);4(";; >'7" 4( 76" +"'*. C');4(5 3*2@47; 72 @'>> 9'CW 72 64;72*4C'> >"#">;$ B6" 7?2 2@@4C"*; ?2)>< 6'#" 72 E'W" ' *"C2EE"(<'742( *"5'*<4(5 76" /000 ZTN 92(); @2* 76" R2*76 NE"*4C'( V"*E'72>25+ 9);4(";;$ L62)>< 76" 7'*5"7 9" '"C7 76" g?4(<@'>>h C*"'7"< 9+ 76" "d47 2@ :&r @*2E 76" 5"("*4C E'*W"7 3>'C"f N*5)E"(7; C2)>< 9" E'<" 9276 ?'+;$ X( 76"2*+. 76" ("? ZTN 3>'( ?'; ;)332;"< 72 6'#" )(>4E47"< )3;4<" 327"(74'>$ e(<"* 764; #4"?. 76" <4#4;42('> E'('5"*; ;62)>< *"C"4#" ' @)>> 92(); @2* 76" )("d3"C7"<>+ 6456 3*2@47;$ =2* "d'E3>". 4@ 76" "d47 2@ :&r @*2E 76" E'*W"7 "('9>"< T+'<"*E 72 "dC""< 47; ZTN 7'*5"7 9+ O00a. 76"( 4( /000 76" E'('5"*; ?2)>< *"C"4#" ,00a 2@ 76"4* 7'*5"7 92(); 3>); 6'>@ 2@ 76" "dC";; i,G0aj. ?476 76" *"E'4(<"* 9"4(5 9'(W"<$ X@ 4( /00, 76" V"*E'72>25+ 9);4(";; 76"( )(<"*3"*@2*E"< 47; ("?. ;)9;7'(74'>>+ 6456"* ZTN 7'*5"7 9+ /00a. 76" ("5'74#" /00a ?2)>< g?43" 2)7h 76" 32;474#" 9'>'(C" 4( 76" 92(); 9'(W$ N; ' *";)>7. 76" E'('5"*; ?2)>< *"C"4#" (2 92(); @2* /00,. '(< 6'#" (2 C);642( @2* /00/$ M2*"2#"*. ZTN 3"*@2*E'(C" E4567 (27 *4;" 72 /000 >"#">; @2* ;"#"*'> +"'*; 4(72 76" @)7)*"$ L74>>. E'('5"*; ?2)>< 6'#" 76" 9"("@47 2@ *"C"4#4(5 ' >)E3 ;)E "'*>+$ L'(<"*; '(< M+"*; ?2(<"*"< 4@ 76"+ ;62)>< '7; ;4(C" 764; ?'; C>"'*>+ ' 2("F74E" C2E3"7474#" ;47)'742($ L'(<"*; 7)*("< 72 M+"*;. gXYE '@*'4< 76'7 ("5'74#" ZTN *";)>7; 4( V"*E'72>25+ @2* +"'*; 4(72 76" @)7)*" ?4>> '@@"C7 ;7'@@ E2*'>". C');4(5 522< E'('5"*; 72 >"'#" 76" <4#4;42( '(< 6)*7 "@@2*7; 72 *"C*)47 ("? 64*"; ?62 ?4>> (27 6'#" ' 92(); 9'(W 72 @'>> 9'CW 2($ K)7 76" *"'> 3*29>"E 4; 6)E'( 3;+C62>25+$ B6" "E2742('> *2>>"* C2';7"* ?4>> 9" *4<4C)>2);$ o2) ?4>> ("#"* C6'(5" 76" 3;+C62>254C'> 4E3'C7 2@ ?4((4(5 945 764; +"'* '(< 3"*@2*E4(5 322*>+ 76" ("d7$h e;4(5 <'7' @*2E Exhibit 8, L'(<"*; '(< M+"*; 9"5'( 72 3*"3'*" 76"4* *"C2EE"(<'742($ L4(C" 764; ?'; 76" @4*;7 +"'* 2@ 76" ZTN 3*25*'E @2* 76" ("?>+ @2*E"< V"*E'72>25+ <4#4;42(. M')*4C" TU<*4(" 6'< ';W"< 76"E 72 C'>C)>'7"P ,$ /000 ZTN @2* 76" R2*76 NE"*4C'( V"*E'72>25+ <4#4;42( /$ /000 ZTN 92(); 3'+2)7 @2* ' E'('5"* "'*(4(5 ^/00.000. ';;)E4(5 76'7 76" E'('5"*Y; 92(); ?'; 9';"< ,00a 2( 76" <4#4;42(Y; ZTN O$ /00, ZTN '(< ";74E'7"< 92(); 3'+2)7 @2* 76" ;'E" E'('5"*. ';;)E4(5 76'7 T+'<"*E 3*2@47; @">> 9'CW 72 64;72*4C'> >"#">; '(< 76" +"'*F72F+"'* ZTN 4E3*2#"E"(7 52'> *"E'4("< C2(;7'(7 ]476 76";" C'>C)>'742(; 4( 6'(<. '(< '?'*" 2@ 76" *"C"(7 3*";;)*" 2( ;72CW 3*4C"; iExhibit 7j. L'(<"*; '(< M+"*; ?2)>< E'W" 76"4* *"C2EE"(<'742( 72 M')*4C" TU<*4("$



Exhibit 1(a)

101-019

12E32("(7; 2@ T+'<"*EY; ZTN @2*E)>'

NET OPERATING PROFIT AFTER TAXES

CAPITAL

Operating Earnings

Net Operating Assets (NOA)

+ R&D expense reported on P&L 

+ Capitalized research & development ➂

- R&D amortization for EVA adjustment ➁

(less accumulated amortization)

+ Advertising expense reported on P&L

+ Advertising expense

- Advertising amortization for EVA adjustment

(less accumulated amortization)

+ Goodwill amortization add-back

+ Accumulated amortization of goodwill

+ Restructuring add-back

+ Restructuring add-back

= Net Operating Profit Before Taxes (NOPBT)

= Capital

- Taxes (based on actual payments) = Net Operating Profit After Taxes (NOPAT)

Exhibit 1(b)

L'E3>" LC6"<)>" 2@ !kV NE2*74_'742( @2* ,\\\ ZTN N
1996

R&D Expense as Reported on P&L $ 1,500

$ 2,200

$ 2,600

$ 3,100

$ 3,700

Amortization for

1995

$

300

$

300

$

300

$

300

EVA Adjustment

1996 1997 1998 1999

$

440

$ $

440 520

$ $ $

440 520 620

$ $ $ $

440 520 620 740

$

300

1997

1998

$ 2,620

1999 R&D Amortization under EVA Cumulative R&D Expense (P&L)

1999

$ 1,500

Less: Cumulative Amortization (EVA) $

300

$ 3,700

$ 6,300

$ 9,400

$ 13,100

$ 1,040

$ 2,300

$ 4,180

$ 6,800

Capitalized R&D for 1999 EVA Calculation of Capital

$ 6,300



➁

➂

Notes:  = Amount added back to P&L ➁ = Amount subtracted from P&L ➂ = Amount added to Capital (Balance Sheet)


101-019

Exhibit 2

ZTN X(C"(74#" :>'(

BONUS INCENTIVE Slope = Target Incentive/ EVA Interval

TOTAL BONUS EARNED

Bank

Payout Target Incentive

Year 0 Actual EVA

Year 1 Target

EVA IMPROVEMENT

Improvement Goal EVA Interval

Note:

The EVA interval is the shortfall from target that eliminates the bonus. An EVA center’s performance (%) = 1 + [(actual improvement - improvement goal)/EVA interval]

Purchased by: Paulo Oliveira [email protected] on March 22, 2014


Exhibit 3

101-019

ZdC"*37 @*2E T+'<"*E Zd"C)74#" :*";"(7'742( Zd3>'4(4(5 76" M"*47; 2@ ZTN

Most Most“Incentives” “Incentives”Don’t Don’tWork Work. .. .. . • Caps limit incentive for exceptional performance • Thresholds encourage short-term decision making Bonus

• Negotiated targets promote “sandbagging”

-10-


Exhibit 3

101-019

ZdC"*37 @*2E T+'<"*E Zd"C)74#" :*";"(7'742( Zd3>'4(4(5 76" M"*47; 2@ ZTN

Most Most“Incentives” “Incentives”Don’t Don’tWork Work. .. .. . • Caps limit incentive for exceptional performance • Thresholds encourage short-term decision making • Negotiated targets promote “sandbagging”

Bonus

Threshold

Performance Typical Payoff Profile

EVA EVAIncentives: Incentives: Pay Bonuses for Meeting Pay Bonuses for MeetingEVA EVAExpectations Expectations Bonus

• “Equity-like” - share fully in gains and losses • Unlimited upside and downside incentive • Objective targets, not linked to budget negotiations

Unlimited bonus potential Target Bonus

Target EVA

EVA


101-019

Exhibit 4


ZTN V*4#"*;

Improvement Improvementin inEVA EVA Sales

Customer Satisfaction

Operating Expenses

New Products

Volume Marketing Product Pricing

Growth

Manufacturing Costs

Manufacturing EVA Drivers ! ! ! ! ! ! !

Reduce Inventory Reduce Cycle Time Improve Yields Reduce Scrap/Waste Maximize Labor Efficiencies Improve Vendor Efficiencies Process Improvements

Staff EVA Drivers ! ! ! ! ! ! !

Acquisitions/ Working Capital Divestitures Management

Overhead

Account Management

Capital Charge

Compensation

Training/ Development

Alliances

Accounts Receivable

R&D Decisions

Inventory Management

Research & Development EVA Drivers ! !

! ! !

Improve “To-Market” process Reduce R&D expenses as % of New Product Sales Strategic partners for R&D Stronger Links to Product Marketing New Products via: – Research – Formulation – Development – Acquisition

Marketing EVA Drivers

Work Group/Process Simplification Consistency “Monitors”—Audit Centralizing Resources/Synergies Best Practices Benchmarking Insourcing/Outsourcing Decisions Simplify EVA Measurements/Reporting Ensure Compliance with Legislation

! ! ! ! ! !

Increase Market Share/ Revenue New Markets More Focused Channel Programs Voice of Customer/Consumer Leverage Advertising/Promotion Build Brand Awareness



Exhibit 5

101-019

T+'<"*E 16'(54(5 [*5'(4_'742('> L7*)C7)*"

,\\J [*5'(4_'742('> L7*)C7)*" i,G :*2@47 k r2;; L)9;4<4'*4";j Corporate HQ (Seattle, WA)

Europe, Middle East & Africa Division (5 subsidiaries)

North American Division (5 business units)

Asia-Pacific Division (5 subsidiaries)

,\\\ [*5'(4_'742('> L7*)C7)*" i,G ZTN 1"(7"*;j Corporate Consolidated (1 EVA Center)

Global Businesses (7 EVA Centers) •Antifungals •Anti-infectives •Analgesics •Nutraceuticals •Diagnostics •Gastrointestinals •Antibiotics

Geographic Regions (7 EVA Centers) •United States •Europe •Japan •Latin America •North Asia •South Asia •Canada

/000 [*5'(4_'742('> L7*)C7)*" iH ZTN 1"(7"*;j Corporate Consolidated (1 EVA Center)

Dermatology (1 EVA Center)

Internal Medicine (1 EVA Center)

Veterinary Medicine (1 EVA Center)

North America Eur., ME & Africa Asia Latin America


101-019

Exhibit 6


`2'> ]"4567; F B*'(;4742( o"'* i,\\\j Corporate EVA

Corporate 9 Management Committee Officers (includes 3 global product heads) Staff Officers Corporate Staff

Business Unit EVA

Region EVA

100% 75%

25% 75%

Regions Regional Division President Regional Marketing Heads Regional Staff Country Managers & Controllers Commercial Directors Free Standing Businesses Presidents Staff

EVA Drivers

100%

Global Business Global Business Staff

Exhibit 7

Global Business EVA

50% 50%

25%

25% 50% 50% 75% 50% 50%

75% 75%

25% 50% 50%

25%

T+'<"*E L72CW :"*@2*E'(C"

Vyaderm Stock Price, September 1993 to December 2000 ) e r a h s / $ ( e c i r P k c o t S y l k e e W g n i s o l C

45 40 35 30 25 20 15 10 5 0

7 9 8 9 8 9 9 9 9 9 9 0 0 0 0 0 0 7 9 7 - 9 3 - 9 4 - 9 4 9 4 9 5 9 5 9 5 9 6 9 6 9 9 l l - c t r v b J u o p r - u g - a n - u n - c t - a r - J u p a n u n c a u g e c a y e p e e J J A J J O N O M F M S A D M S A D e



Exhibit 8

101-019

R2*76 NE"*4C'( V"*E'72>25+ =4('(C4'> V'7' @2* ZTN 1'>C)>'742(

($ 000s except bonus)

1996

1997

1998

1999

2000

Divisional EVA Calculation: Actual EVA

$ 2,920 (a)

EVA Improvement Goal

$ 2,150

EVA Target

.

$ 5,070

EVA Interval

$ 12,000

Profit & Loss: Income before following items: Research & Development Expense Consumer Advertising Expense Goodwill Amortization Net Income Before Tax Current Year’s Income Tax Payments

$ 24,694

$ 31,512

$ 36,584

$ 42,545

$ 92,550

12,487

14,610

17,094

20,000

39,000

34

38

41

45

50

0

2,500

2,500

2,500

2,500

$ 12,173

$ 14,364

$ 16,949

$ 20,000

$ 51,000

(4,260)

(5,902)

(6,807)

(7,875)

(18,725)

Balance Sheet: Net Operating Assets

$ 66,949

$ 79,000

$ 93,220

$ 110,000

$ 135,000

$0

$ 2,500

$ 5,000

$ 7,500

$ 10,000

From Footnotes: Accumulated Goodwill Amortization Capital Charge for EVA Purposes

11%

Divisional Manager’s Bonus: Base Salary

$ 200,000

$ 200,000

Bonus Target

n.a.

60%

Bonus Payout

$ 60,000

Note: (a) EVA was introduced in the Dermatology division for the first time in 2000. The 1999 EVA figure was calculated retroactively solely to set 2000 EVA targets. The 1999 EVA calculation includes the amortization of a 1995 R&D expense of $10,673.


VYaDerm Pharmaceuticals

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