TSUMURA & CO.
Second Quarter Business Resultsfor Fiscal 2016
(From April 1, 2016 to September 30, 2016)

November 10, 2016
President, Representative Director

Terukazu KatoRoadmap to Realizing Long-Term Vision
Visionfor2021

New Medium-Term Management Plan

Strategic Challenges
１．Expansion and stable growth in the Kampo market
２．Continued reinforcement of profitability and maximization of cash flow
３．Taking on the challenge of new businesses in China

Second Quarter Business Resultsfor Fiscal 2016

2Q Consolidated Performance for Fiscal 2016（¥ million）

FY 2016
2Q Plan

FY 2016
2Q

Achievement

FY 2015
2Q

Net sales

55,70056,359101%

54,560Operating profit

6,200

7,868

(Operating profit
margin)Ordinary income
Net income
attributable to owners ofparent

127%

9,855

Vs. FY 2015 2Q
Amount Change
1,799-1,987 -20.2%(11.1%)(14.0%)

6,300

7,366

117%

10,072-2,705 -26.9%

4,500

5,311

118%

6,538

-1,227 -18.8%(18.1%)

Sales by product

Dividends
per share

3.3%

FY 2016
2Q Plan

FY 2016
2Q

FY 2015
2Q

¥32

¥32

¥32

Prescription
Kampo
Products
95.8%

Other prescription
pharmaceuticalproducts
0.5%
OTC medicines
2.0%
Other
1.7%

4

Key points in PerformanceThe financial results exceeded the plan for 2Q. Sales increased, reflecting the steady sales of Kampo
products. Profit declined due to the increased procurement costs of raw materials. No changes havebeen made to the full-year forecast.

Consolidated net sales¥56,359 million

Vs. planned

101％

YoY

3.3％

 Sales increased 1.79 billion yen (up 3.3%) year on year due to the sales increase in Kampo formulation forprescription although this reflects the impact of NHI drug price revision (down 3%). It was 101.2% of the target.
 Undertake a continual promotion based on basic and clinical evidence and publication of treatment guideline,
focusing on the three important domains of the elderly, cancer (supportive care) and female as well as providing
information about the proper use of drugs according to Kampo medicine, etc.
 Rikkunshito has been particularly successful thanks to the effective use of new evidence, intensive education on the
product, enhanced approaches to target customers, and other factors.

Operating profit
Operating profit margin¥7,868 million

Vs. planned

127％

14.0 ％

YoY-20.2％

YoY-4.1pts

 The cost of sales ratio was 43.0%. It rose 4.5 percentage points year on year, mainly reflecting influence of NHI
drug price revision and the increase in crude drug costs. It decreased by 0.8 percentage points for the plan mainly
due to improvement of processing costs through increase in productivity
 The SG&A ratio fell 0.4 percentage points year on year to 43.0%, partially reflecting the cost controls that
accompanied improvements in operational efficiency. Cost containment and difference in time for payment ofresearch expenses caused a decrease of 0.86 billion yen for the plan (SG&A ratio of 2.1 percentage points).

Ordinary income¥7,366 million

Vs. planned

117％

YoY

-26.9％

 A foreign exchange loss of 0.84 billion yen that was accompanied by loans to the Chinese subsidiaries was recorded
as other expense.

Net income
attributable to owners of parent¥5,311 million

Vs. planned

118％

YoY

-18.8％
5

Current sales performance of priority products（¥ million）
Product name1

TJ-100

2

TJ-54

3

TJ-41

4

TJ-43

5

TJ-68

6

TJ-24

7

TJ-29

8

TJ-107

9

TJ-114

10

TJ-17

22

TJ-14

(Daikenchuto)(Yokukansan)(Hochuekkito)(Rikkunshito)(Shakuyakukanzoto)(Kamishoyosan)(Bakumondoto)(Goshajinkigan)(Saireito)(Goreisan)(Hangeshashinto)

FY 2015
2Q

FY 2016
2Q

Abdominal pain / abdominal flatulence

5,065

5,212

147

2.9%

Neurosis / insomnia , etc.

3,594

3,712

117

3.3%

Reinforcement of physical strength after illness/ anorexia , etc.

3,599

3,630

30

0.9%

Gastritis / maldigestion / anorexia , etc.

3,257

3,431

174

5.4%

Pain accompanying sudden muscle spasms ,
etc.

2,384

2,506

122

5.1%

Oversensitivity to cold / menstrual irregularity /climacteric disturbance , etc.

2,236

2,258

21

1.0%

Coughing / bronchitis / bronchial asthma

1,972

1,986

13

0.7%

Leg pain /low back pain / numbness / dysuria ,
etc.

1,922

1,901

-20

-1.1%

Acute gastroenteritis / swelling (edema) , etc.

1,702

1,771

69

4.1%

Edema/ diarrhea / headache / heaststroke, etc.

1,560

1,715

155 10.0%

616

642

Main effectively treatable disorders

Fermentative diarrhea / neurotic gastritis /stomatitis , etc.

Total sales of 129 prescription Kampo products

52,280Y o Y Change

26

4.2%

53,974 1,693

3.2%“ Drug Fostering Program” formulations

6

Factors in Increase / Decrease of Operating Profit (YoY)（¥ million）（¥ million）
Factors of Sales increase
Prescription Kampo 129
products+1,799 -3,232

Other

9,855
-554

+106

Factors of
Cost of sales margin

7,868

Cost of sales margin
38.5%→43.0%+4.5pts

NHI drug price revision+1.5Pts

Increase in crude drug cost

+2.8Pts

Improvement of processing
cost-0.6Pts

Other+0.8Pts

Factors in decrease of
SG&A expenses
Sales promotion expenses

FY 2015
2Q
Operatingprofit+1,693

Sales Sales cost
SG&A
FY 2016
increase increase expenses
2Q
increase Operating

profit+112

R&D expenses-57

Advertising expenses+18

Personnel expenses

+266

Other

+213
7

Financial Condition/ Cash Flow Position
Balance Sheet（¥ billion）

As of March
2016

As of
September
2016

changeTotal assets

2,224

2,146

-78

Current
assets

1,336

1,291

-45

Noncurrent
assets

887

855

-32

Total liabilities

667

651

-15

Current
liabilities

437

419

-17

Noncurrent
liabilities

230

232

1

Total net
assets

1,557

1,494

-62

Equity Ratio

68.8%

68.5% -0.3pts

Cash Flow（¥ billion）

Investing
Activities
Operating -46 Financing
Activities
Activities

+135

251

Cash and cash
equivalents at
beginning of
period-56

Effect ofexchangerate
Changes-8278Cash and cash
equivalents at endof period8Crude Drug Prices
Overall procurement price of crude
drugs produced in China

Expected purchase prices in 2016

Representation of weighted average of actual
prices from production region to affiliatedcompany when 2006 price is set as 100

241
100 117 110 110

2006

2007

2008

2009

156

Calculated on a used amount basis,
instead of a procured amount basis

190

234 230 217
201（Forecast）

2010

2011

2012

2013

2014

2015

2016

Price increase of ginseng, etc.
(1) Local demand in China increased;(2) Unfavorable weather;(3) Speculative investment cornering market

Drop in ginseng prices that exceeded expectations(1) Declining trend of purchases for speculative gains(2) Increase in supply to market

9FY2016 Performance Forecasts

FY2016 Performance Forecasts
 No changes have been made from the results forecast
announced on May 12, 2016.（¥ million）

FY2015FY2016

YoY（announced in
May,2016）

AmountChangeNet sales

112,625

115,400

2,774

2.5%

Operating profit

19,826

14,500(Operating profit margin)(17.6%)(12.6％)-5,326-26.9%

Ordinary income

19,49415,000-4,494-23.1%Net income

12,557

10,700-1,857-14.8%FY2015

Dividends per share

FY2016

Estimates after
considering theeffects ofacquisition oftreasury stock（announced in
May,2016）

¥64

¥64

ＥＰＳ

¥178.06¥151.72

ＲＯＥ

8.3%

6.9%

→
→

¥153.75
7.0%

11Return of Profits to Shareholders

Return of Profits to Shareholders
Policy To improve corporate value through capital investments in order to realize the continuous
development and growth of “Kampo”
 To consider medium- to long-term profit levels and cash flows as well as carry out a stabledividend To acquire treasury stock in a flexible manner after making efforts in shareholder returns
based on examinations and revisions for an optimal capital structure as well as giving
comprehensive consideration to market trends, etc.

Dividend history
90円

30.3%
70円

10円

-10円

31.6% 31.5%

22.3%
17.8%

50円

30円

41.6%

45.0%

110円

30

30

32.1%

35.9%

40.0%
35.0%

28.4%

32

25.0%
32

30.0%

32

32

32

23
9.1%

10
7
2006

17
13
10
2007

17
2008

23

28

30

30

32

32

32

32

4Q(¥)
25.0% 期末配当
20.0%

中間配当
2Q(¥)

15.0%

Dividend
配当性向

10.0%

5.0%

2009

2010

2011

2012

2013

2014

2015

payoutratio(%)

2016… 0.0%
forecast

The year-end dividend and dividend payout ratio for FY2016 are based on the assumption that the dividend item will be approved at the 81st annual
shareholders’ meeting13

Return of Profits to Shareholders
Acquisition of treasury stock
Matters regarding the acquisition of treasury stock were resolved at
the meeting of the Board of Directors held on August 4, 2016
Details of the resolution on August 4, 2016.

Actual results（announced on same day）

（announced on November 2, 2016）■Type of stock to be acquired: Company’s common
stockSame as left

■Number of shares that can be acquired:
1,800,000 shares (maximum)(2.55% of the number of shares outstanding(excluding treasury stock) )1,741,000 shares■Total acquisition cost: 5 billion yen (maximum)

4,999,708,000 yen■Acquisition period: From August 5, 2016 to
October 31, 2016

From August 5, 2016 till October27, 2016(on an agreed-to trade basis)

14

To Realizing
Long-Term Management Vision(Vision of 2021)
1. Evidence for Kampo― Toward the new stage
2. Topics of the business in China

Evidence for Kampo― Toward the new stage

Evidence for Kampo ― Towards a New Stage
2004
Started promoting drug fostering［Approach in a Western medical way]
➡ Intensively specialized in 3
preparations

Concept
Looking at the recent structure ofdisease, the Company has selectedcertain diseases in fields where
medical treatment needs are highthat are difficult to treat with
Western drugs and that Kampo
products have demonstrated
special efficacy for. The Company
will establish a base of scientificevidence related to treating these
diseases with Kampo medicine.

Respond to people
who insist Kampo
preparations lackscientific evidence

2009

2013

Added 2 more
preparations for drug
fostering

2016-

Established Kampo Scientific
Strategies Division(Introduced the concept ofpromoting the priority field)

Large scale RCTs,
DKT forum, etc.
Top authorities fromhome and abroad
Research on Kampo
using Health and Labour
Sciences Research Grant

Accumulation ofbasic and clinicalevidence

Evidence package
Treatment guidelines
References to Kampo in
the national medical
policyThe future vision forum for
Kampo as Japanese traditional
medicine contributing to
public welfare. [organized by
the JSOM and JKMA]

Use of evidence inthe treatment
setting17

Evidence for Kampo ― Towards a New Stage■Tsumura’s effort to build evidence【Basic study】【Clinical study】

Report on efficacy(conference presentation, article publication, etc.)
Top authorities,
including physicians and medical institutions

Tsumura Research Laboratories

Conducting
an explorative study

Conducting
a pharmacokinetic study

Report on efficacy from multiple institutions

Verification ofutility (doubleblind trial)

Monitoring of side
effects frequency
surveys

Identification of active ingredients

Druginteractions

Understandingof actionmechanism

Enhance of package insert
References in disease treatment guidelines18

Evidence for Kampo ― Towards a New Stage■Current status of evidence building of priority preparations
Clinical EBM, action mechanism, monitoring of frequency of side effects, ADME, medical economics data

Drug fostering
preparations
Growing
preparations

RCT

actionmechanism

Monitoring ofside effects
frequency
surveys

ADME

Paper
submitted

25

◎

◎

◎

Pediatric chronic functional constipation disease, systemicsclerosis

TJ-54

2

12

◎

◎

◎

Dementing illnesses, Use of psychotropic drugs for BPSD for
primary care physicians

Rikkunshito

TJ-43

―

18

◎

On going◎

Functional gastrointestinal diseases, the diagnosis andtreatment of psychosomatic diseases, GERD, systemicsclerosis

Goshajinkigan

TJ-107

―

14

△

―

○

Benign prostatic hyperplasia, overactive bladder syndrome,
the pharmacologic management of nuropathic pain

Hangeshashinto

TJ-14

5

TJ-41
TJ-68
TJ-29

5

◎
―

Amyotrophic lateral sclerosis

Bakumondoto

―
―
○
―

―
―

Shakuyakukanzoto

○
○
△
―

―

Hochuekkito

―
―
―
―

Kamishoyosan

TJ-24

―

4

―

―

―

Diseases in obstetrics and gynecology, the treatment anddiagnosis of psychosomatic disorders

Goreisan

TJ-17

―

2

―

―

―

Chronic headachePreparation name/ Product No.

Metaanalysis

Daikenchuto

TJ-100

Yokukansan

98Progress in KPI in FY 2016 (as of October)
Item
Number of articles
Impact factors
Number of references in diseases andtreatment guidelines (total sum)

Publish guidelines

Female lower urinary tract symptoms

Cough, EBM practice guidelines for asthma(Note) The marks above, ◎, ○, and △,indicate the results of thethree stage evaluation based on the number of articles,
achievements, and other factors (on our company basis)TargetResult

50
100
25

39
90.06123

19

Evidence for Kampo ― Towards a New Stage■ Evidence of Kampo in medical care for the elderly Neuropsychiatric disorders in the elderly (BPSD, sleep disorders, etc.)➡Yokukansan, etc.

 Improvement of swallowing reflex and cough reflex in patients with a previous history of
aspiration pneumonia, decreased onset of pneumonia ➡Hangekobokuto
 Functional constipation in patients with sequelae of stroke, improvement of gastrointestinal
peristalsis in patients in the early period after abdominal surgery➡Daikenchuto
 Subjective and objective symptoms in patients with chronic obstructive lung disease,improvement of inflammation markers and nutritional status➡ Hochuekkito
 Study outcomes of Ghrelin Research Project ➡ Rikkunshito...and more

◎ Management of frailty and sarcopenia with aging ➡ Effective use of Kampo preparations

Ministry of Health,Labour and Welfare“New Orange Plan”

Suggestions in the future vision
forum for Kampo as Japanesetraditional medicine contributing to
public welfare. [organized by the
JSOM and JKMA]

20

Evidence for Kampo ― Towards a New Stage■ Evidence for Kampo in the cancer field Reduction in side effects caused by anticancer and other drugs

・Peripheral nerve disorders accompanied by administration of anticancer drugs(numbness and pain) ➡ Goshajinkigan
・Disorders of the gastrointestinal tract mucosa accompanied by administration of
anticancer drugs and radiation therapy (diarrhea and mouth ulcer)➡ Hangeshashinto
・Nausea and loss of appetite accompanied by administration of anticancer drugs➡ Rikkunshito Improvement of QOL in cancer patients

・Decrease in stamina and immune strength ➡ Hochuekkito, Juzentaihoto
・Cancer cachexia (loss of appetite) ➡ Rikkunshito
・Postoperative delirium (neurotic diseases) ➡ Yokukansan...and more
Ministry of Health, Labour andWelfare“Plan to AccelerateCountermeasures for Cancer”

Suggestions in the future vision
forum for Kampo as Japanesetraditional medicine contributing to
public welfare. [organized by the
JSOM and JKMA]

21

Evidence for Kampo ― Towards a New Stage■ Evidence for Kampo in the gynecological field Menopausal syndrome including psychoneurotic symptoms,
sleep disorders, and vasomotor symptoms➡Kamishoyosan Symptoms similar to menopausal syndrome (hot flashes) associatedwith hormonal therapy for breast cancer➡Keishibukuryogan
 Dysmenorrhea associated with endometriosis and other diseases➡Tokishakuyakusan
 Urological field
Nocturia➡Goshajinkigan...and more

◎ Care depending on the stage in women's life
➡ Effective use of Kampo preparations
Enactment and enforcement of the Act ofPromotion of Women's Participation andAdvancement in the Workplace
22

Evidence for Kampo ― Towards a New Stage■Innovation to build evidence
Systems biology
 Innovative Systems Biology Project at University of Oxford
In the clinical study of TJ-68 (Shakuyakukanzoto), modeling analysis revealed the action
mechanism Collaborative study with SBI (The Systems Biology Institute)[Basic]

Mapping technologies revealed the action mechanism of drugs including multiple
components[Clinical] Results from animal studies were verified in human subjects[Clinical] Analysis of drug interactions and risk factors of high incidence of side effects(clustering and network analysis) and others

Intestinal bacteria / metabolomics
The University of Chicago
Effects of TU-100 (Daikenchuto) on intestinal bacteria: article already published

Big data
Department of Clinical Epidemiology & Health Economics, The School of Public Health, Graduate
School of Medicine, The University of Tokyo
Department of Health service research, Graduate School of Medicine, The University of Tokyo
Study of Kampo preparations using medical big data23

Evidence for Kampo ― Towards a New Stage■Measures by the Ministry of Health, Labour and Welfare Kenko Nippon 21 (second stage)

Healthy life expectancies, prevention of outbreak

and worsening of lifestyle diseases New Orange Plan

Promotion of measures to care for dementia

 Comprehensive Regional Care System

Promotion of general physicians and home healthcare Comprehensive Strategy to Strengthen the Pharmaceutical Industry➡Strategy states that there is a need for the stable provision of high-quality products

in regard to the essential and traditional pharmaceuticals that support medical treatment,such as vaccines, intravenous pharmaceuticals, Kampo products, and external-use

pharmaceuticals.
 Plan to Accelerate Countermeasures for Cancer➡ Strategy states the importance of promoting research related to supportive care that uses
nutritional therapy, rehabilitation, and Kampo medicine from the perspective of reducing
postoperative complications and prognostic symptoms
To accelerate efforts to further build evidence and improve the clinical efficacy of
Kampo preparations for the purpose of contributing to the extension of healthy life
expectancy in Japan, a super-aged society, and establish a presence as a therapeutic
drug with high cost-therapeutic effectiveness24

Topics of the business in China

Start-Up Business in China (traditional Chinese medicine compound granules)■Recent major efforts
 July 2016
A joint venture was established with Shanghai Traditional Chinese
Medicine Co., Ltd., a subsidy of Shanghai Pharmaceuticals Holding
Co.,Ltd.
 Trial production is ongoing for manufacturing approval In preparation for acquiring a factory site (in Shanghai area)

 In preparation for establishing a holding company in China
Control and management of supply chain, human resources, and capital in China spanningfrom existing businesses to new businesses, such as production of traditional Chinese
medicine compound granules and export of crude drugs and extracts to Japan

Contributing to China,
where the Company
procures crude drugs, andthe health of Chinese
peopleTaking on thechallenge of entering
the Chinese market

26

Reference material

Strategic Issues in the New Medium-term Management Plan
(FY 2016 to 2021)
1. Expansion and stable growth in the Kampo market
 Making efforts to expand the market through evidence-based promotional activities targeting specialists inpriority areas at university hospitals, designated hospitals for clinical training, and others
 Conducting promotional activities for Kampo medicine toward practitioners and doctors at clinics,
concentrating on existing customers, to improve the level of knowledge regarding Kampo
 Continuously supporting improvements in Kampo medicine education in schools of medicine at universities,
designated hospitals for clinical training, and other institutions
 Improving the evidence package to have the Drug fostering prescriptions and Growing prescriptions, or thesubsequent strategic prescriptions, mentioned in practice guidelines
 Establishing innovations to build evidence through Kampo study by taking advantage of novel technologies

2. Continued reinforcement of profitability and maximization of cash flow
 Striving to further improve price stability and quality certification of crude drugs through continuous
expansion of cultivated land under own management
 Striving to improve production capacity by increasing the fundamental production capacity at existing
facilities as well as continuously introducing and expanding new manufacturing technologies
 Bolstering earning and cash generating capabilities by optimizing the group supply chain Effectively allocating resources in selling, general and administrative expenses based on management
decisions made from a medium- and long-term perspective

3. Taking on the challenge of new businesses in China
 Aiming to develop a new business in China, where the Company procures crude drugs for many years, withthe purpose of contributing to the health of Chinese people.

28

TSUMURA & CO.
Investor Relations Group

Corporation Communications Dept.

Cautionary items regarding forecasts• The materials and information provided in this presentation contain so-called
forward-looking statements. Readers should be aware that realization of thesestatements can be affected by a variety of risks and uncertainties and that actual
results could differ significantly.
• Changes in the healthcare insurance systems or regulations set by medical
treatment authorities on drug prices or other aspects of healthcare or in interestand foreign exchange rates could impact negatively on the Company’s
performance or financial position.
• In the unlikely event that sales of the Company’s core products were halted or
declined substantially due to a defect, unforeseen side effect or some otherfactor, it would have a major impact on the Company’s performance or financial
position.