Q1.

Does the earn out structure focus on the right performance parameters
Ans : The earn out structure basically linked to 2 main matrices. The analysis of both are as
given below :

 Out of total earn out $ 65 million are payable dependent on approval by FDA or third
party. This earn out clause should focus on the business generated from the new
product or margins generated by the new product. It may also include the clause in
terms of speed of new product introduction or patents received etc. The reason is
that even post approval from FDA (or third party) business is not assured. It is
possible that the product is approved, but does not succeed in the market due to
other factors like acceptance by doctors / hospitals, developments in other countries
bringing advanced products for same applications etc.
 The second clause is linked to sales and earning goals. Here the earn out is very high.
In the first year for the earning of $ 8 million payout is $ 15 million. This parameter
should also focus on the milestones and not on end results only. Even if the payouts
are lower in terms of %, but linked to clearly measurable milestones, both parties
will be inclined towards achieving them.

Q1 (a). Should Scepter Pharmaceutical put additional controls on the firm

Ans : It is not advisable to add controls to the firm. The firm is working on innovation. And
for them to succeed free hand and motivation is important. With controls they will not be
able to work upto the full capability and hence may not be able to produce results

Q2 If you were president of ATH, how would you communicate and motivate the
employees
Ans : Communication with employees should be in two parts, one to focus on the earning
and other financial performance, and other part is the larger vision.
Here also the employees should be motivated to link their efforts and innovation in the
patients get cured, or get relief from pain or disease. This emotion of helping someone and
few families to feel better and happier would be very effective in getting best out of the
employees.
Other part is the financial part. It should not be linked to the end result of sales or profits,
but focus on the intermediate milestones. Like timely launch of new products, contribution
of new products to total sales etc.
Q2 (a) Performance Goals to focus
Ans : Performance goals to be in 3 parts :
1. Financial Performance : Sales, Cost, profits, Market Share
 2. Process Measures : In process parameters like adherence to specs, quality as per
expectation or as per standard. Rejections, PPM levels
3. Customer Satisfaction : Complaints, Issues faced, on time in full delivery.

Q2 (b) Communicate and control events and employee actions

Ans : Best way to communicate is to be transparent and build trust with the management.
Integrity and openness are the best ways to get employee confidence. Once the employees
trust the management and there is a transparency it is easy to communicate and get the
plans executed.
Q3 Best measures to assess ATH performance :
Ans : Best measure to assess the performance is :
Total Revenue growth, market share growth, gross margin, investment in R & D. Other
important measure is Revenue Growth that is coming from new customers and new
products. If one divide the sources of revenue on the lines of old and new this is how it will
look

In this case business coming from Q1 is most critical and post than Q2. Hence the
contribution from Q1 and Q2 in the overall business is a good way to assess the
performance

Growth Phase :
Q1 Performance Evaluation :
Ans : Performance in the growth phase was mixed. Revenue growth is high, but not leading
to bottom line due to high investment in R & D.
In the growth phase it is important for ATH to focus on gaining market share. With more and
more customers coming in their fold they can get the revenue to invest in R&D. Similarly it is
import to focus on R & D so that market share can be increased.
Q2 Strategy of the business :
Ans : Strategy of the business is to acquire market share through new product development
and aggressive marketing efforts. It is to build acceptance and franchise of ATH for the
customers.
Q3 Performance measured and analysed :
Ans : Strategy of the business is to acquire market share through new product development