Harvard Business School

9-101-019
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Vyaderm Pharmaceuticals
In 1999 we threw out the old executive compensation system altogether and
introduced EVA. It was meant to be symbolica cathartic change.
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Research Associate Indra A. Reinbergs prepared this case under the supervision of Professor Robert Simons as the basis for
class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
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1
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014

101-019

Vyaderm Pharmaceuticals

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2
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014

Vyaderm Pharmaceuticals

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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3
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014

101-019

Vyaderm Pharmaceuticals

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4(7"*#'>%?"*"%);)'>>+%W"37%C2(;7'(7%@*2E%+"'*%72%+"'*$%%Exhibit 2%<"34C7;%5*'364C'>>+%T+'<"*EY;%ZTN
4(C"(74#"%C'>C)>'742($
N(% 4E32*7'(7% @"'7)*"% 2@% ZTN% ?';% 76"% )(>4E47"<% )3;4<"% '(<% <2?(;4<"% 2@% '(% 4(<4#4<)'>
E'('5"*Y;% 92();% 327"(74'>.% C*"'74(5% '% ;7*2(5% 3"*@2*E'(C"% 4(C"(74#"% i;""% Exhibit 3j$% % N% E'('5"*Y;
target bonus% ?';% ;"7% ';% '% @4d"<% 3"*C"(7'5"% 2@% 9';"% 3'+.% *'(54(5% @*2E% H0a% @2*% E4<<>"% E'('5"*;% 72
\0a%@2*%76"%1Z[$%%N%bonus bank%"(;)*"<%76'7%ZTN%4E3*2#"E"(7;%?"*"%;);7'4("<%2#"*%74E"%9"@2*"
'?'*<;%?"*"%@)>>+%3'4<%2)7$
B6"% @4*;7% ;7"3% 4(% C2E3)74(5% '(()'>% 92();";% ?';% 72% C'>C)>'7"% 76"% <4#4;42(Y;% 'C7)'>% ZTN
4E3*2#"E"(7%2#"*%76"%3*"#42);%+"'*.%'<c);7"<%@2*%76"%"d3"C7"<%ZTN%4E3*2#"E"(7%52'>%'(<%4(7"*#'>$
B6"% ;"C2(<% ;7"3% ?';% 72% <"7"*E4("% 76"% 92();% 3'+2)7% @2*% 76"% +"'*$% % X@% ZTN% 52'>;% ?"*"% @)>>+
'C64"#"<.%76"%C2E3'(+%?2)><%C*"<47%76"%@)>>%'E2)(7%2@%76"%92();S3>);%'(+%'<<4742('>%'E2)(7%<)"
72%*";)>7;%4(%"dC";;%2@%76"%ZTN%52'>S72%76"%92();%9'(W$%%=*2E%764;%g9'(W%9'>'(C"h%76"%E'('5"*%?';
3'4<%76"%7'*5"7%92();%3>);%2("F6'>@%2@%'(+%*"E'4(4(5%9'>'(C"%i<)"%"476"*%72%;)3"*42*%3"*@2*E'(C"%4(
76"%C)**"(7%+"'*.%2*%72%76"%C'**+F@2*?'*<%2@%9'>'(C";%@*2E%3*"#42);%+"'*;j$
N%<"C>4("%4(%ZTN%3"*@2*E'(C"%*"<)C"<% 76"% 'E2)(7% 2@% 92();% C*"<47"<% 72% 76"% 9'(W$% % X@% ZTN
3"*@2*E'(C"%@">>%9">2?%76"%ZTN%4(7"*#'>.%'%("5'74#"%"(7*+%?';%E'<"%72%76"%92();%9'(W.%?64C6%?2)><
*"<)C"%76"%9'(W%9'>'(C"%';%?">>%';%@)7)*"%*"?'*<;$%%A2?"#"*.%4@%;)@@4C4"(7%@)(<;%"d4;7"<.%'%E'('5"*
?';%;74>>%">4549>"%72%<*'?%<2?(%76"%9'>'(C"%4(%76"%9'(W%4(%'(%'E2)(7%"D)'>%72%76"%7'*5"7%92();%3>);
2("F6'>@% 2@% '(+% 9'>'(C"% @*2E% 3*"#42);% +"'*;$% iL""% Table A% 2(% 76"% ("d7% 3'5"% @2*% '(% "d'E3>"% 2@% 764;
C'>C)>'742($j
N% ;"3'*'7"% 92();% 9'(W% ?';% C*"'7"<% @2*% "'C6% 4(<4#4<)'>% E'('5"*$% % X@% '% E'('5"*% C6'(5"<
<4#4;42(;% ?4764(% T+'<"*E.% 76"% 92();% 9'(W% ?2)><% @2>>2?% 76"% E'('5"*$% % A2?"#"*.% 4@% 76"% E'('5"*
4
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014

Vyaderm Pharmaceuticals

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

H0a%2@%9';"%3'+%l%^H0.000

ZTN%XE3*2#"E"(7%`2'>

^%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 pjorgeoliveira@gmail.com on March 22, 2014

101-019

Vyaderm Pharmaceuticals

'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"'<D)'*7"*;$%%N;%>2(5%';%76"%5"("*'>
E'('5"*;% 2@% "'C6% C2)(7*+% E"7% 76"4*% ()E9"*;.% 76"+% ?"*"% 54#"(% '% 5*"'7% <"'>% 2@% 4(<"3"(<"(C"% 4(
4E3>"E"(7'742($%%N;%'%*";)>7.%76"*"%?';%(27%E)C6%62*4_2(7'>%C2EE)(4C'742(%9"7?""(%9);4(";;";$
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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
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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'<
+"'*$%%e(<"*%76"%("?%ZTN%3*25*'E.%76"%;62*7@'>>%?2)><%9"%32;7"<%';%'%<"@4C47%72%76"%92();%9'(WS
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?2**4"<% 5*"'7>+% '92)7% <"E274#'74(5% E'('5"*;% '7% 76"% 2)7;"7% 2@% 76"% 3*25*'E$% % K)7% 6"% ?';% #"*+
*">)C7'(7%72%';W%T+'<"*EY;%92'*<%E"E9"*;%72%'<c);7%76"%4(474'>%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"*% '<E477"<.% g!";"774(5% 76"% V4'5(2;74C% 52'>% 9'CW% 72% _"*2% ;"7% '% 9'<% 3*"C"<"(7.
9"C');"%76"(%276"*%3"23>"%;'4<.%p]6+%(27%<2%47%@2*%);fY%g
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;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;;)";$% % ]"% ?"*"% @'9*4C'74(5% 52'>;% '(<
4(7"*#'>;%@2*%,G%ZTN%C"(7"*;$

6
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014

Vyaderm Pharmaceuticals

101-019

Streamlining EVA
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'%E4d%2@%C2*32*'7"%ZTN.%9);4(";;%)(47%ZTN.%'(<%4(<4#4<)'>%2*%7"'E%ZTN%52'>;$

The Dermatology Opportunity

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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<E4(4;7*'742(%i=VNj%)("d3"C7"<>+%;"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 pjorgeoliveira@gmail.com on March 22, 2014

101-019

Vyaderm Pharmaceuticals

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"
'<c);7"<% 72% *"@>"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)><%'<c);7%76"%ZTN%*";)>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("$

8
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014

Vyaderm Pharmaceuticals

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

- R&D amortization for EVA adjustment

(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<c);7E"(7
i@4*;7%+"'*%2@%3*25*'Ej
1995

1996

1997

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

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

Notes:

= Amount added back to P&L

= Amount subtracted from P&L
= Amount added to Capital (Balance Sheet)

9
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014

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

Improvement
Goal
EVA Interval

Note:

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

Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014

EVA
IMPROVEMENT

-10-

Vyaderm Pharmaceuticals

Exhibit 3

101-019

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

Most
MostIncentives
IncentivesDont
DontWork
Work. .. .. .

Bonus

Caps limit incentive for exceptional performance

Thresholds encourage short-term decision making

Negotiated targets promote sandbagging

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

11
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014

101-019

Exhibit 4

Vyaderm Pharmaceuticals

ZTN%V*4#"*;

Improvement
Improvementin
inEVA
EVA
Sales

Customer
Satisfaction

Operating Expenses

New
Products

Volume
Marketing
Product
Pricing

Growth

Overhead

Account
Management

Manufacturing
Costs

Compensation

Training/
Development

Capital Charge

Acquisitions/
Divestitures

Working Capital
Management

Alliances

Accounts
Receivable

R&D
Decisions

Inventory
Management

Manufacturing EVA Drivers

Research & Development EVA Drivers

!
!
!
!
!
!
!

!
!

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

!
!
!

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

Staff EVA Drivers

Marketing EVA Drivers

!
!
!
!
!
!
!

!
!
!
!
!
!

Work Group/Process Simplification

Consistency MonitorsAudit
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

12
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014

Vyaderm Pharmaceuticals

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

13
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014

101-019

Vyaderm Pharmaceuticals

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

Exhibit 6

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

Business
Unit EVA

Global
Business
EVA

Region
EVA

100%
100%
75%

25%

Global Business
Global Business Staff

75%

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

EVA
Drivers

50%
50%

25%

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

75%
75%

25%
50%
50%

25%

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

Exhibit 7

45
40
35
30
25
20
15
10
5

p9
Ja 3
nJu 94
nO 94
ct
M 94
ar
Au -95
gD 95
ec
M -95
ay
Se 96
pFe 96
b9
Ju 7
l-9
N 7
ov
Ap 97
r
Au -98
g9
Ja 8
nJu 99
nO 99
ct
M 99
ar
-0
Ju 0
l-0
D 0
ec
-0
0

Se

Closing Weekly Stock Price ($/share)

Vyaderm Stock Price, September 1993 to December 2000

14
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014

Vyaderm Pharmaceuticals

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 Years 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

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 Managers 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.

15
Purchased by: Paulo Oliveira pjorgeoliveira@gmail.com on March 22, 2014