Medium-Term Business Plan
Year End March 31, 2019 through Year End March 31, 2021

M1 TRUST 2021

May 15, 2018

1.

Review of Previous Medium-Term Business Plan

2.

Recognition of Market Conditions

3.

Medium- to Long-Term Vision and outline of Medium-Term Business Plan

4.

Medium-Term Business Plan

5.

Financial Targets

1Review of Previous Medium-Term Business Plan
Summary of M1 TRUST 2018 Results
VisionPeriod Covered
Financial targets foryear end
March 31, 2018

To transform into a company that can continue to grow in the midst of
rapidly changing market conditions
April 2015 through March 2018
Net Sales: ¥157 billion (target), ¥168 billion (actual)*
Operating income: ¥26 billion(target), ¥22 billion (actual)
1. Firmly maintain the number 1 market share in the generics industry• Share within the generics market on volume basis:
16.0% (target), 14.9% (actual)• Revenue growth rate (annual average): 14.1% (target), 16.8% (actual)What“M1 TRUST 2018”
Will achieve

2. Strengthen our ability to provide stable supplies and manage costs
in response to the “80% Generic Era” (substitution rate)• Production Capacity: 15.5 billion tablets (target), 15.5 billion tablets (actual)• Capital Expenditure for 3 years: 55 billion yen (target), 49.3 billion yen
3. Build an operating foundation for future growth through new business
opportunities• Total purchase price of Upsher-Smith Laboratories, LLC (USL) ¥116.5 billion(20% stake has been sold to Sumitomo Corporation of Americas)*Net Sales and Profit in Year ended March 2018 is based on IFRS

2

Review of Previous Medium-Term Business Plan
Summary of M1 TRUST 2018 Results••

Net sales were above target due to the acquisition of USL
Operating income was below target due to fierce competition in the domestic market
Unit: ¥ million
Year EndMarch 31, 2016
Results

Net sales
Cost of sales
Gross profit
SG&A expenses
Operating income(Operating income ratio)

Ordinary income(Ordinary income ratio )Net income( net income ratio )* Japanese GAAP basis

TargetYear EndMarch 31, 2017

Results

TargetResults

Year EndMarch 31, 2018
TargetResults

105,454

124,000

123,492

143,000

132,428

157,000

168,127

60,047

71,90071,85885,00080,30896,50098,39445,406(43.1%)

52,100(42.0%)

51,634(41.8%)

58,000(40.6%)

52,119(39.4%)

60,500(38.5%)

69,734(41.5%)

24,71830,10028,44833,00031,48434,50048,63920,688(19.6%)

22,000(17.7%)

23,185(18.8%)

25,000(17.5%)

20,633(15.6%)

26,000(16.6%)

21,095(12.5%)

20,619(19.6%)

21,700(17.5%)

23,025(18.6%)

24,700(17.3%)

20,557(15.5%)

25,500(16.2%)

19,188(11.4%)

14,053(13.3%)

15,500(12.5%)

17,155(13.9%)

18,500(12.9%)

15,914(12.0%)

18,500(11.8%)

10,633(6.3%)

3

Review of Previous Medium-Term Business Plan
Acquisition of Upsher-Smith Laboratories••

In May 2017, the acquisition of Upsher-Smith Laboratories was completed to establish a businessfoundation in the US market
Integration at the strategic level is in progress at present

Full-fledged US Market Entry through USL
US market

Intellectual
Property Strategy
Formulation
Technology

Sales Channels & Marketing
Manufacturing
Facilities

Strong Brand
Name

Acquisition price• JPY 116.5 billion in total• 20% stake was sold to
Sumitomo Corporation of Americas

Integrated U.S. Business

Funding

Provide high-quality and value-added genericpharma products to patients both in Japanand the US•

4

Transaction financed by bank loans
and equity financeReview of Previous Medium-Term Business Plan
Trends in the Generics Market
The substitution rate trend was as originally anticipated, but the market expanded to only 19 billion
tablets, approximately 1 billion tablets short(Billion tablets)(GE substitution rate)

100

80%

Volume and Substitution Rate Trends in Generics Market
80

70%

60

60%

Expansion of the Generics market
40
20
0

51

58

50%

70

65

Forecast +20 bil. tabs/3 years*
Actual Results +19 bil. tabs/3
years*

40%

30%
'15

'16

'17

Year End Mar. 31,
2018

Actualsubstitution rate

*All figures are estimated by Sawai Pharmaceutical Co., Ltd.

5

Review of Previous Medium-Term Business Plan
Status of achieving priority measures of M1 TRUST 2018••

In the domestic market, volume share target was not achieved mainly due to our fair price strategy*
in the increasingly competitive environment
Operating foundation for future growth has been steadily built as planned

・Volume share target within the Generics market was not achieved
1. Firmly maintain the number 1・Intensifying price competition due to commoditization and increase in AG
share in the generics industry
in Japan Target share was not achieved due to a larger-than-anticipated increase in the number of AG products launched.
 Intensifying price competition due to increased price pressure from major dispensing pharmacies and drug chains.
 Although existing products grew steadily, the use of generics at DPC** facilities stabilized and the sales volume ofexisting products did not increase as much as we had expected.
・Maintain high quality and continue stable supply
2. Strengthen stable supply and cost control capabilities
・Cost rate worsened in contrast with initial planin response to changing market conditions
 Sales and quantity targets were not achieved, as a result, the cost rate was worse than the initial plan.
 Gross profit target was not achieved, however, optimizing Selling, General, & Administrative (SG&A) expenses
curbed profit decline.
・Complete establishing the foundation in the US market
3. Build an operating foundation for future growththrough USL acquisition
through new business opportunities
・Development and application of Pitavastatin (PIV) products
are on track Acquisition of USL created a foundation for US market penetration. Efforts underway for synergy creation.
 Three Paragraph IV candidate products are on track and PIV product is expected to launch by FY2023.
 Sawai is the sixth market entrant to domestic biosimilar market. Although sales are not significant, certain
knowledge was acquired.
*Sawai tries to maintain price with high quality and stable supply rather than lowering price to gain the share**Diagnosis Procedure Combination

6

1.

Review of Previous Medium-Term Business Plan

2.

Recognition of Market Conditions

3.

Medium- to Long-Term Vision and outline of Medium-Term Business Plan

4.

Medium-Term Business Plan

5.

Financial Targets

7

Recognition of Market Conditions
Changes in the Micro/Macro Environment••

The domestic market will substantially change due to fundamental reform in the drug pricing
systemA move toward industry reorganization has begun in the generics industry
Macro environment changes
 Optimization of health expenditures throughre-examination of prescription itself

 Optimization of medical expenses through thepromotion of generic use Borderlessness of long-listed and generic products

 Setting a target for generic substitution rate of 80%

 Maintaining stable supply and high quality
 Strengthening the business structure throughintegration and the sales

 Quality and reliability
 Stable supply system

Present

Past

Future Original drug market segmentation and treatment
personalized Patent expiration of major products Growth opportunities for the generic industry as a whole Intensifying competition due to commoditization andindustry maturation
 Increase in purchasing power pressures due topharmacy and distribution alliances Increase in uncertainty associated with the drastic drug
pricing system reform Integration and growth in size of dispensing pharmacies
 Predictability by setting roadmap

Micro environment changes
8

Recognition of Market Conditions
Volume Forecast in Generics Market••

Generics market will continue to grow to reach 80% substitution rate by September 2020
Generics market size will grow to 85 billion tablets in fiscal year 2020 due to promotion of proper useof pharmaceuticals(100 million tablets)(GE substitution rate)

100%

1,200

Actual results Forecast

1,100

80%
1,000
900
800

65.5%
54.8%

69.4%

73.1%

76.6%

80.0%
60%

59.5%
40%

700
850

600

20%

700
500

0%

400
'15

'16

'17

Long-term listed drugs

'18

'19

generics'20'21

Substitution rate
*All figures are estimated by Sawai Pharmaceutical Co., Ltd.

9

1.

Review of Previous Medium-Term Business Plan

2.

Recognition of Market Conditions

3.

Medium- to Long-Term Vision and outline of Medium-Term Business Plan

4.

Medium-Term Business Plan

5.

Financial Targets

10Medium- to Long-Term Vision

Medium-to Long-Term Vision

Establish a dominant position in the domestic generics market,
and transform into a world-leading generic company
by accelerating growth of USL

Further expand generic businessand invest in future growth

Build foundation for a greater
jump forward

Improve growth efficiency bystrengthening cooperation
with USL

Year end March 31, 2015

Year end March 31, 2018Year end March 31, 2021

11

Transformation
into a global company

Medium-to Long-Term Vision
Management Theme During M1 TRUST 2021
Sawai’s strengths
 Secured productive capacity prepared ahead of time and the solid financial ground Industry-leading product lineup and high capabilities of R&D, production and sales
 Business platform in overseas markets through the acquisition of USL

Build an intra-industry network through potential strategic alliances;
Accelerate globalization through USL Slower growth due to the 80% generic substitution achievement
and the promotion of prescription optimization
 Decrease in profitability due to annual drug price revisions
and intensified price competition
 Increase in uncertainty, such as a price consolidation of
all listed generics into one-price, etc.

Changes in the Japanese market
12Medium-to Long-Term Vision
Priority Measures During M1 TRUST 2021
Key tasks in the Japanese market

Build a structure capable of responding to changes
in the industry structure and strengthen cost competitiveness

1. Maintain stable supply and high quality, while simultaneously pursuing cost competitiveness2. Shift to a product-development and sales structure that meets the “80% Generic Era” status
3. Pursue higher efficiency by building alliances proactively

Build an intra-industry network with a view to strategic alliances;
Accelerate globalization through USL
Cooperation that leverages the strengths of both companies

Key tasks in the US market

1. Expand the US product lineup and enhance the intellectual property strategy
2. Continue to develop Paragraph IV application products
3. Realize a growth strategy utilizing USL's unique characteristics

13

1.

Review of Previous Medium-Term Business Plan

2.

Recognition of Market Conditions

3.

Medium- to Long-Term Vision and outline of Medium-Term Business Plan

4.

Medium-Term Business Plan

5.

Financial Targets

14

Medium-Term Business Plan
Sales-Related Initiatives
Cooperation that leverages the strengths of both companies
Key tasks in the Japanese market

Key tasks in the US market

Build a structure capable of responding to changes
in the industry structure and strengthen cost competitiveness

Key Initiatives

Action Items

Improve efficiency throughSelection and concentration

1. Build an organizational structure that responds to the medical sphere changes
by community-based integrated care systems
2. Improve sales efficiency through diversification of communication channels
3. Search for business and sales alliances

Optimize Distribution

1. Gain recommendations by strengthening layer-separated communication
with wholesalers and distributors
2. Review rebate and allowance system to align with distribution rationalization

15

Medium-Term Business Plan
R&D-Related Initiatives
Cooperation that leverages the strengths of both companies
Key tasks in the Japanese market

Key tasks in the US market

Build a structure capable of responding to changes
in the industry structure and strengthen cost competitivenessAction Items

Key Initiatives

Product development focused on
added value and cost effectivity

1. Develop value-added products that meet market needs
2. Product development with an awareness of manufacturing costs from early stages

Obtain approvals in an effective
and secured* manner

1. Optimization of development processes through enhanced collaboration
2. Formulation design based on the latest scientific findings*Greatest possibility of success16

Medium-Term Business Plan
Production-Related Initiatives
Cooperation that leverages the strengths of both companies
Key tasks in the Japanese market

Build a structure capable of responding to changes
in the industry structure and strengthen cost competitiveness

Key Initiatives

Action Items

Establish manufacturingsystems to improve
efficiency and flexibility

Strengthen purchasing power

Key tasks in the US market

1. Pursuing efficient production by clarifying the role of each factory
2. Establish a flexible production system that will respond to environment changes,
such as consolidation in generics industry
3. Realization of low-cost production and stable supply by utilizing the surplus
production capacity from other companies including other generic manufacturers(i.e., contract manufacturing services)
1. Establish standard specification requirements and further strengthenbargaining power through centralized purchasing of material and equipment
2. Reduce purchasing price through strengthening of API searching methods

17Medium-Term Business Plan
Reliability Assurance-Related Initiatives
Cooperation that leverages the strengths of both companies
Key tasks in the Japanese market

Build a structure capable of responding to changes
in the industry structure and strengthen cost competitiveness

Key Initiatives

Action Items

Strengthen cooperationin quality assurance

Strengthen regulatory affairs
management system,
including USL

Key tasks in the US market

1. Maintain a stable supply system through thorough management,
evaluation and auditing of suppliers
2. Strengthen QA at factories and strengthen cooperation with GQP
3. Build an organic, cooperative structure with USL

1. Strengthen the domestic regulatory affairs audit system
2. Establish QA/PV/RA system for sales in the US
QA：Quality Assurance, GQP：Good Quality Practice, PV：Pharmacovigilance, RA：Regulatory Affairs

18Medium-Term Business Plan
Initiatives in the US Market
Cooperation that leverages the strengths of both companies
Key tasks in the Japanese market

Build a structure capable of responding to changes
in the industry structure and strengthen cost competitiveness

Key Initiatives

Action Items

Create synergies
between Sawai and USL

Key tasks in the US market

1. Bring products approved in Japan to the US market
2. Collaboratively develop new products
3. Implement cooperative, new product development
strategies for patent-challenging opportunities

Expand pipeline by strengthening
in-house development

1. Aggressively invest in R&D
2. Promote better efficiency of R&D operations

Achieve product diversification
by in-licensing

1. Strategically add products with higher barriers to entry
2. Focus on products that could utilize USL sales capabilities
19Medium-Term Business Plan
Planned New Launches
In the Japanese market, Sawai plans to launch 34 new products during M1 TRUST 2021.

Japanese market

Year End March 31, 2019Year End March 31, 2020

Generics of major
branded products are
expected

AIMIX®
Strattera®
TRAMCET®

URIEF®
Lonasen®
Iressa®

Original productestimated market size

Approx. ¥240 billion

Approx. ¥90 billion

Approx. ¥430 billion

Number of newly listed
active ingredients

11

7

16

20

Year End March 31, 2021

Feburic®
Celecox®
MEMARY®

1.

Review of Previous Medium-Term Business Plan

2.

Recognition of Market Conditions

3.

Medium- to Long-Term Vision and outline of Medium-Term Business Plan

4.

Medium-Term Business Plan

5.

Financial Targets

21

Financial Targets P/L for the Year Ended March 2019••

As the predictability of the Japanese generics market environment is low and it is difficult toforesee the outcome for the second year and beyond, consolidated P/L is only shown for a single
year
Expected increase in sales and profit in FY ended March 31, 2019

Unit: ¥million

Fiscal year end March 31, 2019
(Target)Fiscal year end March 31, 2018
(Actual)By segment

Year on Year Change

By segment

Total

Total
Japan

US

Japan

US

AmountRates

Net sales

168,068

134,720

33,347

172,500

136,600

35,900

4,432

2.6%

Gross profit

69,44051,30918,131

69,60049,30020,300160

0.2%Operating income

22,20921,903303

24,00021,300

2,700

1,791

8.1%

Income before income taxes

20,251－－

23,700

－

－

3,449

17.0%

Profit attributable to ownersof the parent

14,017－－

17,400

－

－

3,383

24.1%

※ IFRS basis

22

Financial Target
USL P/L plan••

Approximately 25 products are planned to be launched in the US market over the next three
years.
Five to 10 products are expected to come to market every year for the next five years.
Unit: ¥million
CAGR
Year Ended March
Year EndYear EndYear EndYear EndYear EndYear End31, 2019
March 31, 2018
March 31, 2019 March 31, 2020 March 31, 2021 March 31, 2022 March 31, 2023
(10 month)Year Ended March
31, 2023

Net sales

33,34735,90037,60044,70047,30056,900

12.3%

Existing products

33,34731,80028,90029,70025,50025,400-

Pipeline

-

4,100

8,700

15,00021,70031,500-Operating income(before PPA)

7,486

7,600

8,500

13,00013,00018,50027.5%

Operating income

1,874

2,700

3,000

7,500

7,500

13,00045.5%

EBITDA

9,463

8,700

9,500

14,50014,00019,50022.4%※ $1=¥105 (2019/3 or later)

23

Financial Target
USL P/L plan•

Estimated to grow 12.3% per year on net sales and 22.4% per year on EBITDA from fiscal
year ended March 31, 2019.

USL: Net Sales (¥100 million)
600
500

USL: EBITDA (¥100 million)
250

Pipeline
Existing products

CAGR:12.3%(Year End March 31, 2019
to March 31, 2023)

200
CAGR:22.4%

400(Year End March 31, 2019
to March 31, 2023)

150

300
100

200

50

100
0

0
'18

'19

'20

'21

'22

'23

'18

24

'19

'20

'21

'22

'23

• The plans, forecasts, strategy and other information regarding the Sawai Group contained in thispresentation are based on the Company’s assumptions and judgements using information available atthe time of publication. Therefore, due to potential risks and uncertainties, there is no guarantee as toaccuracy of this information.
• Potential risks and uncertainties include, but are not limited to, the economic environment forprescription drugs, which is the main operating domain of the Sawai group, market competition andservices offered by the Group.
Contact Information
Sawai Pharmaceutical Co., Ltd.
Corporate Strategy Department
PR & IR GroupE-mail: ir@sawai.co.jp
25