ANNUAL REPORT 2014
Year ended March 31, 2014

KYORIN Holdings, Inc.

Consolidated Financial Highlights
KYORIN Holdings, Inc. and Consolidated Subsidiaries(Fiscal years ended March 31)

Millions of yen
FY2009FY2010FY2011FY2012FY2013

Net sales

99,764

104,069

103,232

107,031

111,400

Operating income

13,261

16,443

14,464

17,94817,607

13.3

15.8

14.0

16.8

15.8

8,848

10,927

9,231

12,422

12,025

8.9

10.5

8.9

11.6

10.8

12,027

6,805

8,913

11,544

19,293412(1,806)(4,926)(7,187)(2,477)

12,439

4,999

3,987

4,357

16,816

11,807

12,495

13,964

11,05911,359

11.8

12.0

13.5

10.3

10.2

Capital expenditure

1,291

1,668

1,952

6,576

6,500

Depreciation and amortization

2,810

2,458

2,363

2,738

3,153

ROE (%)

8.8

10.1

8.0

10.0

9.0

ROA (%)

6.8

7.7

6.3

8.3

7.4

Total assets

137,190

147,234

145,673

154,968

169,378

Total net assets

104,911

111,706

118,201

129,099

137,821

76.5

75.9

81.1

83.3

81.4

Results of Operations

Operating income/Net sales ratio (%)
Net income
Net income/Net sales ratio (%)
Net cash provided by operating activities
Net cash used in investing activities
Free cash flow
R&D expenses
R&D expenses/Net sales ratio (%)

Financial Position at Year-end

Total shareholders’ equity ratio (%)

YenAmounts per Share
Net assets

1,403.60

1,494.83

1,581.94

1,727.86

1,844.61

Basic net income

118.37146.21123.54166.25160.95

Cash dividends

50.00

45.00

45.00

50.00

52.00

42.2

30.8

36.4

30.1

32.3

2,246

2,294

2,297

2,444

2,452

Cash dividends payout ratio (%)

Number of employees

Net sales

Overall net sales increased 4.1% year on year to ¥111.4 billion, reaching an all-time high. Sales growth was
driven by year-on-year increases in ethical drug and generic drug sales in the pharmaceutical business,despite lower sales in the consumer healthcare business.

Operating income

Operating income amounted to ¥17.6 billion, down 1.9% year on year. Among the main factors behind thisdecline was a year-on-year increase in gross profit of ¥1.5 billion in line with higher sales, although the cost-ofsales ratio rose 1.1 percentage points, due to the increased sales weight of generic drugs and of KYORIN
Pharmaceutical Facilities Co., Ltd. Another factor was that selling, general and administrative (SG&A) expenses
increased, up 3.7% from the previous year.

Net income

Net income decreased 3.2% year on year to ¥12.0 billion.

ROE (Return on Equity)

9.0%, declining 1.0 percentage point year on year.

Consolidated Financial Highlights

Net sales(Millions of yen)
120,000
99,764

Operating income

Net income(Millions of yen)
20,000111,400
107,031104,069 103,232(Millions of yen)
15,00017,948 17,607
12,422

16,44390,00015,00012,00014,464
13,261

9,000
60,00012,025

10,927
9,231

8,848

10,0006,000

30,00005,0002009 2010 2011 2012 2013

0

(FY)

ROE

3,000

2009 2010 2011 2012 2013

(%)
84.0
10.1

2009 2010 2011 2012 2013

(Yen)(%)
180
90.0

83.3

166.25

10.0
9.0

8.8

81.1

8.0

160.95146.21

82.0

9.0

(FY)

Net income per share/
Dividend payout ratio

Total shareholders’ equity ratio

(%)
12.0

0

(FY)

81.4

123.54118.37

120

60.0

80.0

6.0

42.2
36.4

78.0
60
76.5

3.0

32.3

30.8

30.1

30.0

76.0
75.9

0

2009 2010 2011 2012 2013

(FY)

74.0

2009 2010 2011 2012 2013

(FY)

0

0.0

2009 2010 2011 2012 2013 (FY)Net income per share (Left scale)
Dividend payout ratio (Right scale)Contents
Inside Cover..... Consolidated Financial Highlights

28 .................... Financial Information

02 .................... Corporate History

28 ....................... Financial Analysis

04 .................... To Our Stakeholders
10 .................... Feature: Value Creation Through Collaboration
18 .................... Our Presence in Specific Fields
19 .................... Alliances
20 .................... Main Products
21 .................... Products under Development
22 .................... Corporate Governance
25 .................... Directors, Auditors, and Corporate Officers

32 ....................... Consolidated Balance Sheet
34 ....................... Consolidated Statement of Income/Consolidated Statement of Comprehensive Income
35 ....................... Consolidated Statement of Changes in Net Assets
36 ....................... Consolidated Statement of Cash Flows
37 ....................... Notes to the Consolidated Financial Statements
54 ....................... Independent Auditor’s Report
55 ....................... Non-consolidated Financial Summary
Non-consolidated Balance Sheet/
Non-consolidated Statement of Income

56 .................... Corporate Overview/Stock Information

26 .................... Corporate Social Responsibility

KYORIN Holdings, Inc.

1

[About Us]
Since the founding of its core subsidiary, KYORIN Pharmaceutical, the Kyorin Group has taken its mission of contributing tobetter health seriously. Today, Kyorin is working to discover, produce, and sell pharmaceuticals through its pharmaceuticalbusiness and to develop a consumer healthcare business based on skincare.
By promoting the faster development of superior new drugs and diversifying its businesses to respond to expanding
healthcare needs, the Kyorin Group aims to realize its role as an organization supporting healthy living and to further
enhance its corporate value.

Corporate MarkThe corporate mark consists of three curved lines that form a heart shaped apricot. The lines represent the smiles ofpatients, their families, and workers in medical services, as well as Kyorin’s three core businesses, namely prevention,
treatment, and prognosis.
Orange: Honesty and warmth Violet: The technology that brings confidence

Light green: Free and lively creativity[Corporate History]

1923
1923

1976

1991

Toyo Shinyaku Sha, the predecessor of
KYORIN Pharmaceutical Co., Ltd., was founded.

Hydroxyethylstarch (HES) was licensed to Pfrimmer(Germany, present Baxter Deutschland).

Baccidal Tablets for Children was launched.

1977

KYORIN Pharmaceutical Co., Ltd. and Kyorin
Yakuhin Co.,Ltd. were merged, and the new
KYORIN Pharmaceutical Co., Ltd. was founded.

Central Research Laboratories (present Discovery
Research Laboratories) was established.

1992

1993
Megalocin (FLRX), a long-acting new quinolone
agent, was launched.

1931
Kyorin Chemical Laboratory was established.

1995

1940
The company was renamed KYORIN PharmaceuticalCo., Ltd., and Kyorin Yakuhin Co., Ltd. wasorganized as an independent marketing division.

1980

1946

1981

The Okaya Plant was started.

Mucodyne, a mucoregulant, was launched.

1957

1982

The medical journal bulletin Doctor Salon was started.

Norfloxacin (NFLX) was licensed to Astra (Sweden,
present AstraZeneca) and Boots (U.K., present
Abbott).

1961
Behyd, a diuretic and antihypertensive agent,
was launched.

1962
Kyorin Chemical Laboratory (later Technical Centerof Development) was established.

1965
KYORIN AP-2, an analgesic, was launched.
Deamelin-S, an oral hypoglycemic agent,
was launched.
The Head Office was completed.

1967
The Nogi Plant was started (now closed).

1971
Cholexamin, a lipid metabolism and peripheral
circulation improving agent, was launched.

1974
Hespander, a plasma substitute and extracorporeal
circulation flow improver, was launched.

2

Annual Report 2014

Norfloxacin (NFLX), an antibacterial agent, waslicensed to Merck & Co. (U.S.A.).

The Research Center (now Development ResearchLaboratories) was founded by integrating the
Research Center of Organic Syntheses, TechnicalCenter of Development, Technical Center of
Product Formulation and Technical Center of
Safety Assessment.
The Noshiro Plant was started.

1983
Norfloxacin (NFLX) was licensed to American Home
Products (U.S.A., present Pfizer).

1984

1996

Baccidal (NFLX), a broadspectrum oral antibacterial
agent, was launched.

A joint venture, Nisshin KYORIN PharmaceuticalCo., Ltd., was established with Kyorin’s capital
participation.
Gatifloxacin (GFLX) was licensed to Bristol-Myers
Squibb (U.S.A.).

1986
Fleroxacin (FLRX), an antibacterial agent,
was licensed to F. Hoffmann-La Roche(Switzerland).
Aplace, an agent for gastritis and gastriculcers, was launched.

1998
Milton, an effervescent disinfectant business, wasacquired from P&G.

1989

1999

Ketas, for bronchial asthma and cerebrovasculardisorders, was launched.
Baccidal Eyedrops, a broadspectrum ophthalmic
antibacterial agent, was launched.

The company’s stock was issued on the Tokyo
Stock Exchange, Second Section.

Corporate History

Origin of the Name “Kyorin”
The name Kyorin originated from two Chinese characters that represent a truly virtuous way ofpracticing medicine. It is derived from Chinese folklore, and embodies the Kyorin Group’s aspirations
to continuously contribute to the betterment of people’s health in any day and age.

[Kyorin Legend]Long ago, a Chinese physician named Dong Feng treated the sick free of charge, and asked
those who recovered from serious illness to plant five apricot tree saplings and those cured ofminor illness to plant one. As time went by, a thick forest of apricot trees was formed in the area.
(A story that comes from a Chinese legend named Shinsen-den).
“Kyorin” is a compound of “kyo,” the Chinese word for “apricot,” and “rin,” the Chinese word
for “woods.”
Praising the virtue of Dong Feng, the characters were transported from China to Japan as
those representing medicine and medical treatment in general.

2000

2014

2000

2007

2011

The company’s stock was issued on the Tokyo
Stock Exchange, First Section.
Gatifloxacin-eyedrops was licensed to Allergan(U.S.A.).

A business transfer agreement was made with theFresenius Kabi AG Group in Germany concerning
Hespander and Salinhes, plasma substitutes andhemodilution agents.
Uritos Tablets 0.1 mg, an overactive bladder drug,
was launched.
Kipres Fine Granules 4 mg, a bronchial asthma
treatment drug, was launched.

A license agreement for Aclidinium,
a COPD drug, was made with Almirall (Spain)
for the Japan region.
Uritos Orally Disintegrating (OD) Tablets 0.1 mg,
an overactive bladder drug, was launched.

2001
Kipres, the leukotriene receptor antagonist andbronchial asthma treatment medicine, waslaunched.
A subsidiary company, Kyorin USA, Inc. (U.S.A.),
was established.

2002
A subsidiary company, Kyorin Europe GmbH
(Germany), was established.
Gatiflo (GFLX), a broad-spectrum, oral antibacterial
agent, was launched.

2004
ActivX Biosciences, Inc. (U.S.A.) became a wholly
owned subsidiary.

2005
The stocks of Toyo Pharmar Co., Ltd. (present
KYORIN Rimedio Co., Ltd.) were acquired, making
it into a subsidiary company.
Dr. Program Co., Ltd. became a wholly owned
subsidiary.

2006
The Kyorin Group shifts to a holding company
structure through a share exchange with KYORIN
Co., Ltd.
The new Noshiro Plant began operating.

2008
Kipres Tablets 5 mg, a bronchial asthma andallergic rhinitis treatment drug, was launched.
KYORIN Pharmaceutical merged with Nissin Kyorin
Pharmaceutical.
Ulcerative colitis and Crohn’s disease therapeutic
agent Pentasa Tablets 500 mg was launched.

2012
RUBYSTA, a multipurpose disinfectant cleaner,
was launched.
Acquisition (conversion into subsidiary) of
the Shiga Plant of MSD K.K. and established
KYORIN Pharmaceutical Facilities Co., Ltd.

2009Marketing rights in China were granted to Senju
Pharmaceutical for Gatifloxacin Ophthalmic
Solution.
A license agreement for Neramexane, a tinnitus
drug, was made with Merz Pharmaceuticals(Germany) for the Japan region.

2010
KYORIN Co., Ltd. changed its name to KYORIN
Holdings, Inc.
Mucodyne DS50%, a mucoregulant, was launched.

Transfer of business related to a topicalantifungal prescription drug Pekiron cream 0.5%
to Galderma S.A. (Switzerland).

2013
Head office moved to Ochanomizu sola city in
Kanda Surugadai.
Pentasa Suppositories 1 g, a treatment for
ulcerative colitis, was launched.
Flutiform, a combination drug for asthma
treatment, was launched.

KYORIN Holdings, Inc.

3

To Our Stakeholders

Based on its corporate philosophy “to cherish life and benefit society
by contributing to better health,” the Kyorin Group will promote adiversified business expansion, including in regards to drugs, that
can truly contribute to better health, and will also strive to increase
the Group's presence in society and raise its corporate value.
Amid current uncertain times of intense change and unstableeconomic and social conditions, Kyorin aims to achieve sustained
growth by striving to build a strong portfolio of healthcare businesses.

July 2014

Masahiro Yamashita
Representative Director,
President and Chief Executive Officer

4

Annual Report 2014

To Our Stakeholders

Corporate Philosophy of the Kyorin GroupKyorin continues to fulfill its mission of cherishing life, and benefiting society by contributing to better health.

Long-term Vision HOPE100 (FY2010–FY2023)[Statement]
The Kyorin Group will promote diversified business expansion and the development of the consumer healthcare business,and by 2023 be recognized within and outside the Group as a company that supports sound and healthy lifestyles.
The Kyorin Group is working to achieve its long-term vision HOPE100.
Our long-term vision HOPE100 embodies the Group’s corporate philosophy and sets out the Group’s future development objectives.
This philosophy is the statement of our business objective and the basic rationale for the Group’s business. It encompasses our desire
to support healthy lifestyles through our businesses concerned with the treatment and prevention of disease and the maintenance andpromotion of good health, and to achieve the sustained development of our corporate Group. Moreover, 2023 marks the 100th anniversary of the founding of KYORIN Pharmaceutical Co., Ltd., which is a core subsidiary and has the motto “Aim for Health Of People andour Enterprises,” which reads as “Aim for HOPE” if the underlined first letters are extracted. Based on our corporate philosophy, theKyorin Group is striving every day to achieve its long-term vision HOPE100.

The long-term vision HOPE100 has been divided into three stages. We first aim to achieve HOPE100 Stage 1(Fiscal 2010–2015), the mid-term business plan positioned as the first step in achieving our long-term vision HOPE100.
As the first step in achieving the Kyorin Group’s long-term vision through the HOPE100 Stage 1 medium-term business plan, we believe
it is important to possess a strong, well-balanced business portfolio by means of combining differing businesses in a cyclical manner inorder to realize sustained corporate growth. As a business strategy, Kyorin is promoting a Multi-Core (MC) strategy (see chart below)
comprising our pharmaceutical business and consumer healthcare business. In the pharmaceutical business, we are implementing a
concept that we call the Pharma Complex (PC) Model (see chart below), an approach encompassing multi-faceted development in new
drugs, original drugs, and generic drugs. In the consumer healthcare business, we are compensating for risks in our pharmaceuticalbusiness and promoting growth of the Group by cultivating our existing businesses and striving to create new businesses.
The Group’s long-term vision places great value in the thinking that “a business is only as good as its people.” We seek to become aplace in which employees can bring passion to their work: in short, to become a leading company for pursuing fulfilling careers. In addition,
we recognize that the most crucial factor behind executing our business strategy and delivering results is revitalizing both our people
and our organization as a whole. Recognizing this, we will work to rebuild our human resources management, including structures forhiring, training, performance evaluation, promotion, personnel allocation, compensation, and benefits.
There are two years remaining until the final year of HOPE100 Stage 1, the mid-term business plan. As we work toward reaching ourexit objectives (consolidated sales of ¥140.0 billion and operating income of ¥20.0 billion), the entire Kyorin Group employees are united
in their determination to push ahead steadily with Executive Program 2014. I look forward to the continued understanding and supportof all our stakeholders.

Multi-Core (MC) Strategy—Diversify the Consumer Healthcare Business by Centering on the Ethical Drug Business—

Structure of HOPE100 Stage 1
HOPE100 Stage 1, the Kyorin Group’s medium-termbusiness plan, comprises three elements: Strategy,
Organization, and Performance. By working to steadily

Pharmaceutical Business

Consumer Healthcare BusinessPharma Complex (PC) Model*
Multi-faceted business development(new drugs, original drugs, generic drugs)

Cultivate existing businesses andcreate new businesses* Kyorin classifies its pharmaceutical business into new drugs, original drugs, and generic drugs, enabling us torespond accurately to changes in the business environment by conducting multi-faceted development. As aresult, we are working to strengthen our entire pharmaceutical business.

implement each of these components, we aim to enhance
corporate value even further.

S

Business Strategy

Strategy

O

P

Performance Targets

Performance
Organization Strategy

Organization

KYORIN Holdings, Inc.

5

Fiscal 2013 Highlights

HOPE100 Stage 1 medium-term business plan (for fiscal 2010–2015)
Fiscal 2010
1st year

Fiscal 2011
2nd year

Fiscal 2013
4th year

Fiscal 2012
3rd year

Fiscal 2014
5th yearGroup Record in Net Sales

Fiscal 2015
Final year

(Billions of yen)

111.4
107.0
103.2

Record net sales for two consecutive years

FY2011FY2012FY2013

Launch of Two New Products
Combination drug for asthma treatment

Ulcerative colitis remedy

Flutiform

PENTASA Suppositories 1g

A drug that combines the ICS fluticasone, asubstance that exerts a potent anti-inflammatory
effect, with the LABA formoterol, a substance that
rapidly dilates the bronchi.

• Promoting combination therapy(oral agent and spot formulation)• Highly effective in the rectum• Approval (9/2013) • Launch in the market (11/2013)• Approval (3/2013)• Launch in the market (6/2013)

Double-digit Growth in Generic Drug Business
Expanded sales by mainstay products andsupplementary items in fiscal 2013
Promoted proactive joint development andincreased contract manufacturing

12.0
10.1 +18.7% billion
yenbillion yen
FY2012

Steady Progress in R&D Pipeline

FY2013

KRP-AB1102

Submitted an application (March 2014)

Promoted in-house drug discovery
Advanced development of in-licensed
products
Implemented Life Cycle Management (LCM)
initiatives (additional formulations, etc.)

6

Annual Report 2014

Respiratory

KRP-AB1102F

Initiated Phase III clinical development(August 2013)

Urology
Infectious
diseases

KRP-EPA605

Initiated Phase I clinical development(October 2013)

KRP-AM1977X

Initiated Phase II clinical development(September 2013)

To Our Stakeholders

President’s Interview

Q1
Please describe the businessenvironment in the last fiscal
year, and your financial resultsin general.

Answer: 01
Net sales increased ¥4.4 billion year on year to reach a record high. One factor behind
this increase was sales growth in the new drugs business atop the launch of two new
products, specifically Flutiform, a combination drug for asthma treatment, and PENTASA
Suppositories 1g, a treatment for ulcerative colitis. Another factor was that our performancein the generic drugs business surpassed forecasts. All in all, fiscal 2013 was an extremely
fruitful year in which we made significant advances toward our next stage of growth.
[Performance Summary] Looking at the operating environment surrounding the pharmaceutical business in fiscal 2013, business conditions continued to be pressured by sluggish market
growth, as various measures were implemented to reduce drug costs.
Despite these challenging conditions, sales in the new drugs business within our pharmaceutical business rose 3.1% year on year. This reflected growth in sales of mainstay products suchas Kipres, a drug used to treat bronchial asthma and allergic rhinitis, and for Uritos, an overactive
bladder drug. Furthermore, KYORIN Pharmaceutical Facilities Co., Ltd., a consolidated subsidiary that commenced operations in October 2012, started contributing to sales on a full-yearbasis. In addition, sales were pushed up by new product launches. In the generic drugs business, sales grew by a steady 18.7% year on year, due mainly to higher sales of mainstay products, including supplementary items in fiscal 2013, as well as expansion in the third-party
contract manufacturing business.
Sales in the consumer healthcare business decreased 5.7% year on year. However, we are
now on track to increasing market penetration of RUBYSTA, a multi-purpose disinfectant cleaner
positioned as a new core earnings driver in our environmental hygiene business.
As a result of these and other efforts, consolidated sales rose 4.1% year on year to ¥111.4
billion, marking a second straight year of sales growth. However, on the earnings front, operating
income decreased 1.9% year on year to ¥17.6 billion. This was mainly due to a higher cost of
sales tracking a rise in the cost of sales ratio, and to higher sales promotion expenses and othercosts associated with the launch of new drugs. This result has left us with issues that we must
tackle going forward.
[FY2013 Results](Billions of yen)
FY2009FY2010FY2011FY2012FY2013

YoY (%)

99.8

104.1

103.2

107.0

111.4

Pharmaceutical business

91.0

96.9

96.7

100.8

105.5

4.7

Consumer healthcare business*

8.7

7.2

6.6

6.2

5.9

(5.7)

Operating income

13.3

16.4

14.5

17.9

17.6

(1.9)

Net income

8.8

10.9

9.2

12.4

12.0

(3.2)

Net sales

4.1* Skincare, over-the-counter drugs and others[Progress on Business Strategies] The Kyorin Group believes that two goals are crucial toattaining sustainable growth: mitigating risks in the pharmaceutical business and building a solid
business portfolio that will spur growth. Our MC strategy was developed to achieve these goals.
Under this strategy, we will strive to bolster the pharmaceutical business as a matter of course, as
we cultivate existing business and create new businesses in the consumer healthcare business.
In the pharmaceutical business, we implemented the PC Model for pursuing multi-faceted
development of new drugs, original drugs and generic drugs. In terms of new drugs, we worked
to advance in-house drug discovery, development of in-licensing opportunities, and Life Cycle
Management (LCM) of existing drugs (acquiring additional formulations, indications and dosages).
Our goals are to develop an attractive product pipeline in specific fields and discover new drugs
that can be licensed worldwide. Looking at the status of research and development (R&D) activities
in fiscal 2013, we made steady progress on advancing our drug development pipeline, including
filing for approval of KRP-AB1102, a treatment for chronic obstructive pulmonary disease (COPD)(see P6), following the aforementioned new drug launches. Furthermore, we decided to construct
a new R&D facility, eyeing the discovery of globally competitive, original drugs under our HOPE100
Stage 3 (fiscal 2020–2023) long-term vision. The aim is to establish an R&D framework that

KYORIN Holdings, Inc.

7

maximizes the overall strengths of the company in in-house drug discovery. Construction of the
new facility commenced in January 2014.
In the sales division, we launched Flutiform, a combination drug for asthma treatment that is
anticipated to become our next mainstay product in specific fields (respiratory, otolaryngology,
and urology). The launch of this new product is intended to solidify the Group’s presence in
specific fields. With this move, we have built a strong foothold for future growth.
In generic drugs, we have gradually developed a track record based on a business model
where we work to not only strengthen internal collaboration within the Group, but also to take thelead in joint development, and translate these efforts into winning contract manufacturing business from third parties. In our view, we have developed this business model into a frameworkthat will help to boost sales in the generic drugs business.
The production divisions are involved in a full range of areas from new drugs to generic drugs. In
production, we have defined our key priorities as establishing a production infrastructure that supplies high-quality products in a stable manner at low cost. Production at KYORIN Pharmaceutical
Facilities, which began operation in the previous fiscal year, is progressing steadily. We havetaken steady strides toward creating the Group’s new production infrastructure.
In the consumer healthcare business, we are bolstering collaboration between Group subsidiaries KYORIN Medical Supply Co., Ltd. and KYORIN Pharmaceutical, with the view to increasing
the market penetration of RUBYSTA, a multi-purpose disinfectant cleaner in the environmental
hygiene business. Our priority is to accelerate growth dramatically by increasing the number ofcustomers adopting this product through a joint effort by both companies. Looking ahead, we
will work to achieve this priority.

Q2
Tell us about your initiatives infiscal 2014, the fifth year of the
HOPE100 Stage 1 medium-termbusiness plan.

Answer: 02
Faced with an increasingly challenging business environment due to Japan’s National
Health Insurance (NHI) drug price revisions and other factors, we will adapt to changes inthe environment while diversifying our exposure to business risk. To achieve our HOPE100
long-term vision, the entire organization will work on key priorities with an emphasis onwhat we must accomplish now and the time horizon. Through these measures, we aim todrive the sustainable growth of the Kyorin Group.
In the pharmaceuticals business, we will continue to put the PC Model approach into practice.
For new drugs, our most urgent priorities are to enhance our R&D pipeline and discover original
new drugs that can be licensed worldwide during HOPE100 Stage 3 (for fiscal 2020–2023).
Given the time consuming and costly nature of developing new drugs, we will not only collaborate with other companies, but we will also promote open innovation with academia, research
institutions, startup companies and other partners. We will enhance drug discovery themes fromshort-, medium- and long-term perspectives, and vigorously push ahead with initiatives to discover innovative drugs. In the sales divisions, we will build even stronger relationships of trustwith doctors and other medical professionals than before—relationships that have been developed through the Franchise Customer (FC) strategy promoted by Kyorin. Besides working tomaximize the market penetration of our existing mainstay products, we will do our utmost to
rapidly increase the market penetration of our new products, specifically PENTASA Suppositories
1g, a drug for the treatment of ulcerative colitis, and Flutiform, a combination drug for asthma
treatment. Notably, the removal of prescription term restrictions for Flutiform is planned for
December 2014. We intend to seize this opportunity to dramatically increase Flutiform prescriptions by working to increase medical professionals’ understanding of Flutiform’s productcharacteristics.
In generic drugs, we will work to increase sales of key products and push ahead with business models based on proactive joint development and contract manufacturing. In the process,we will strive not only to drive further sales growth, but also to pursue profits by improving thecost of sales ratio and the SG&A expenses ratio.
In the production divisions, our key priority is to adapt to changes in the operating environment. For example, we must explore ways to generate earnings from longstanding items on the
NHI drug price list, which are significantly impacted by reforms to the drug pricing system. To
solidify our earnings power, we will promptly examine cost effective production policies and the8

Annual Report 2014

To Our Stakeholders

implementation of supply chain management (SCM) frameworks, as we pursue low cost operations
and work to provide a stable supply of products.
In the consumer healthcare business, we will focus on dramatically accelerating growth in theenvironmental hygiene business and on making it the Kyorin Group’s new core business. In theskincare business, we will rebuild operations in order to rapidly put this business back on a
growth path.

Q3
What is your stance regarding
shareholder returns?

Answer: 03
The Kyorin Group is balancing investments for growth, investments for business continuity,and shareholder returns.
Under HOPE100 Stage 1, in addition to quantitative performance targets, the Kyorin Group also
aims to contribute to stakeholders. Investments for growth include promotion of efforts to license
new products and to expand the R&D pipeline in the Group’s pharmaceuticals business. We arealso considering strategic, proactive investments with an eye toward the future of our consumer
healthcare business.
As for shareholder returns, we are aiming for a consolidated payout ratio of approximately
30% when deciding dividends. The dividend per share for fiscal 2013 was ¥52, representing a
consolidated payout ratio of 32.3%. In fiscal 2014, we are forecasting a dividend per share of¥52 (interim dividend of ¥20), for a consolidated payout ratio of 34.4%.
The Kyorin Group will work to strengthen its management base through balanced implementation of investments for growth, investments for business continuity, and shareholder returns. In
doing so, we will strive to increase our corporate value and fulfill our responsibilities to stakeholders.
[Performance Targets]

FY2015 (Target)

(Billions of yen)

140.0

Consolidated net sales
Pharmaceutical business

120.0

Consumer healthcare business*

20.0

Consolidated operating income

20.0* Skincare, over-the-counter drugs and others

Balance between Investment andShareholder Returns

Shareholder returns

Aim for a consolidated payout
ratio to shareholders ofapproximately 30%

Q4
Do you have a message foryour stakeholders?

Investment for growth

Investment forbusiness continuity

Answer: 04
We have two more years left until the end of the final year of our medium-term business plan
Hope100 Stage 1 (2010–2015). In fiscal 2014, eyeing the achievement of exit objectives forStage 1 of the plan, all employees will work together to implement our program of businessexecution for 2014 to steadily produce results. And in the next stage of the plan, we will not
merely extend past approaches into the future. We will harness fresh ideas to drive the evolutionof Kyorin into an enterprise with a strong presence and growth potential—one that enables
employees to pursue fulfilling careers.
Going forward, the Kyorin Group will continue to provide proactive disclosure, informing our
stakeholders of the progress we make on bringing the HOPE100 long-term vision to fruition.
I look forward to the continued understanding and support of all our stakeholders.

KYORIN Holdings, Inc.

9

Feature: Value Creation Through Collaboration—Seeking to Diversify Businesses through In-group Collaboration—

The Kyorin Group is engaged in the development, production and sale of new and generic drugs, centeredon the core company KYORIN Pharmaceutical Co., Ltd., which is developing the pharmaceutical business.
We are also pushing ahead with the consumer healthcare business through Group-wide collaboration, withthe aim of diversifying our businesses.

KyorinPharmaceutical Business(New drugs, generic drugs)

KYORIN Rimedio Co., Ltd.
K Generic drugs, over the counter drugs
and others
As the Kyorin Group subsidiary
responsible for the generic drug
business, KYORIN Rimedio aims tobecome a highly reliable genericdrug manufacturer.
To contribute to the health ofpatients, and recognizing its criticalsocial role in reducing healthcare
costs and helping to maintain social
security infrastructure, KYORIN
Rimedio will continue to ensure astable supply of high quality products and information, as it works to deliver distinctive generic drug products to the market.

http://www.kyorin-rmd.co.jp/

KYORIN Pharmaceutical Co., Ltd.

KYORIN Pharmaceutical Facilities Co., Ltd.
K Prescription drugs (manufacturing)
KYORIN Pharmaceutical Facilities commenced business in October 2012 as apharmaceuticals manufacturing company. The company conducts business
related to the manufacturing of prescription medicines using pharmaceuticalmanufacturing assets acquired from MSD K.K. Looking ahead, the company willbuild a framework for flexibly and rapidly executing a variety of measures in
response to changes in the business environment. The company’s goals are toprovide a stable supply of high-quality products, enhance manufacturing technologies and streamline costs.

K New drugs, generic drugs,
over the counter drugs and others
KYORIN Pharmaceutical aspires
to be a drug manufacturer thatis trusted by patients andmedical professionals, and isrecognized for its significant
presence in society. To this end,
the company is striving toenhance its presence in specificfields, including respiratory
medicine, otolaryngology, andurology, while aiming to discovernovel, global new drugs.

http://www.kyorin-pharm.co.jp/en/
http://www.kyorin-fc.co.jp/

10Annual Report 2014

Feature: Value Creation Through Collaboration

Group

Consumer Healthcare Business
KYORIN Medical Supply Co., Ltd.

(Skincare, over the counter
drugs and others)KS ales promotion, planning and production of advertising, andenvironmental hygiene
KYORIN Medical Supply is involvedin a wide range of communicationsrelated business activities centeredon planning and production ofpharmaceutical advertising. It isalso actively engaged in the environmental hygiene business, which
will be nurtured into a core Kyorin
Group business in the future. In thismanner, KYORIN Medical Supply
will contribute to society as amember of the Kyorin Group, while
seeking to become a characteristiccompany supporting healthy living.

http://www.kyorin-ms.co.jp/

Collaboration within
the KYORIN Pharmaceutical Co., Ltd.
R&D
We aim to provide attractive
and high quality products
by discovering novel, global
and original new drugs,
by introduced productdevelopment and by cureresearch, is the mission of
R&D at the Kyorin Group.

Sales

Production

We are conducting efficientand effective sales activities
by promoting the franchisecustomer (FC) strategy forprioritizing activities in
specific fields.

We have established quality
assurance systems in the
manufacturing process to
produce and provide astable supply of high-quality
products at a low cost.

Dr. Program Co., Ltd.
K Skincare
Dr. Program manufactures products based on nanocapsule technology—a pharmaceuticalformulation concept that we havecultivated through research into
new beauty-enhancing ingredientsand development of technologies
for penetration of ingredients.
Going forward, the company
will continue to listen closely to its
customers, working to create
completely new value in the market
and contributing to the beauty andgood health of women everywhere.

http://www.drprogram.co.jp/

KYORIN Holdings, Inc.

11

Feature: Value Creation Through Collaboration

Research and Development

Enhancing the Development Pipeline by Promoting Drug Discovery,
Development and Life Cycle Management (LCM), While Paying
Close Attention to Timelines

Masakatsu Komuro

KYORIN Pharmaceutical Co., Ltd.
Senior Executive Director andHead of Research & Development Headquarters
KYORIN Holdings, Inc.
Executive Director

With the aim of strengthening and improving thecontinuous discovery of and pipeline for new
and innovative drugs, we are expanding our
drug-discovery portfolio and making efforts toimplement clinical development based on animage of the finished product. Furthermore, we
aim to accelerate clinical development bytransforming the R&D process. The researchers
charged with that work display the highest
levels of teamwork and strive for high-quality
drug creation.

The Group is striving to achieve the goals it has established for results at eachstage of its HOPE100 long-term vision, taking the fundamental approach of
promoting R&D with an emphasis on timelines.
We have established roles and objectives in the R&D process, and we aretackling the issues that are the current (this fiscal year’s) focus of attention.
HOPE100 Stage 1 emphasizes maximizing product value through LCM drug
fostering. Stages 1 and 2 focus on bringing products to market through development, while in Stage 3 and beyond, the emphasis is on the creation of new
drugs that can contribute to the health of the world’s people. Based on these
efforts, we are strengthening the development pipeline for the Company’s
specific fields (respiratory, otolaryngology, and urology) and enhancing our
product lineup.
In “drug discovery,” we have, as core technologies, drug discovery technologies, based on foundational research in inflammation, immunology, andinfectious diseases, which we exploit to efficiently synthesize new compounds.
In addition, we are focusing on developing low molecular weight (LMW) drugs
under the key concept of creating new and innovative drugs in Stage 3 (onesthat can transform the current system of medical treatment).
In the development process, we aim to reduce development times andimprove quality. We are striving for high quality “development research” thatshortens the time required for development, from identification of developmentcandidate compounds through to clinical trials. In addition, we follow a “developer-producer” approach in which we formulate development policies with astrong awareness of our vision for a product after launch. That is, we envision
the patients who will actually use the product, and endeavor to meticulously
meet their needs.
In LCM, we work to build evidence by implementing high-quality research,and to maximize product value.

Leveraging Our Strength in Small-Scale Advantages
At KYORIN Pharmaceutical, we nurture staff who are able to handle a broad
range of exploratory, development and clinical research, and we are accelerating
the R&D process and improving quality by improving coordination between

12

Annual Report 2014

Feature: Value Creation Through Collaboration

departments and emphasizing results achieved as a team. One of our strengths
is our relatively small scale, and we will continue to exploit the benefits ofcollaboration between departments and individuals with a broad range of
research expertise in order to meet the challenges of developing drugs at thehighest levels. In terms of drug discovery and development research, weunderstand that it is important to maintain cutting-edge knowledge and technology. In the Research & Development Headquarters, we have formulated andimplemented a human resources management policy to support employees’
efforts to polish their skills and knowledge. We are putting efforts into continually educating staff and realizing research activities based on multi-facetedknowledge and experience.

Expanding Possibilities with Open Innovation

Employee Message
Our R&D activities are guided by a consistentfocus on the needs of the patients who will use thedrugs we bring to market. When setting R&D
themes, we give ample consideration to marketability, profitability and feasibility, pursuing drug
designs that emphasize effectiveness, safety andconvenience. We have an open environment inwhich anyone can proactively establish new
research themes and take action—one where we
strive to enhance the specialized expertise of eachindividual as a matter of course, while conducting
discussions spanning the entire organization. In sodoing, we are working to understand the needs of
medical professionals and patients, and to create
globally competitive, innovative drugs.

Furthermore, we are promoting not just research within the company but also
open innovation with academia (research with universities, research institutes
and through other ventures), transforming the R&D process and building a new
drug discovery system. One example of open innovation is our collaboration
with Okayama University and Momotaro-Gene Inc., a venture set up by theuniversity, on the development of next-generation gene therapy drugs. We arefocusing our efforts on practical applications so that we can provide patientswith new therapies as soon as possible.

Group Collaboration
K A drug Discovery System Created Through Cooperation
with ActivX
We are cooperating with ActivX Biosciences Inc. (San Diego, C.A., U.S.A.), a
wholly owned subsidiary of KYORIN Pharmaceutical, on exploratory research
and making use of the company's proprietary drug-discovery platform(foundational technology) to work toward innovative drug discovery.

K Development of Generic Drugs
KYORIN Pharmaceutical and KYORIN Rimedio have been collaborating on
R&D, thereby enabling the development of high-quality generic drugs.

K Development of Skincare Products
KYORIN Pharmaceutical and Dr. Program have been collaborating on thedevelopment of cosmetics products as the Skincare Research Group.

K Preparing the Environment for Creating Original New Drugs
KYORIN Pharmaceutical is currently
constructing a new R&D facility (plannedcompletion in August 2015). By
concentrating domestic R&D functions
in one place, we aim to maximize
efficiency and coordination in terms ofpeople, organization and systems withthe goal of creating a system that demonstrates the strength of the businessto the greatest extent. We will work to develop an environment at the facility
that will allow researchers to show their powers of concentration and that
stimulates communication and promotes creativity, striving for the discovery
and provision of innovative new drugs.

KYORIN Holdings, Inc.

13

Feature: Value Creation Through Collaboration

Production

Pursuing an Ongoing Mission of Providing a Stable Supply ofHigh Quality Products at a Low Cost

Kazuhiro Marubayashi

KYORIN Pharmaceutical Co., Ltd.
Executive Director andHead of Production & Manufacturing Headquarters

Quality assurance, supply stability, and cost
reduction are the three pillars that comprise themission of the production divisions and represent
the divisions’ goals in pursuit of a production
system at the highest level in the country. We areproactively committed to Environment, Healthand Safety (EHS) activities. We strive to ensurethat our factories are at the top levels domestically, including in terms of environmental considerations, and we are working with the Group
as a whole to create production divisions thatare trusted both in Japan and also throughout
the world.
In the production divisions, based on the ideathat “an organization depends on people,” weare striving for a strong production organization
with a unifying strength that demonstrates thefull potential of each individual within it.

Based on our fundamental stance on quality assurance, supply stability, andcost reduction, the Group is steadily conducting production activities. By doing
so, we aim to maintain sustained growth and revenue for the Group. The
Group’s HOPE100 long-term vision and HOPE100 Stage 1 medium-termbusiness plan raise the important issue of the “construction of a production
division that provides a stable supply of high quality products at a low cost,”
and we are working to deal strategically with the following four issues.
Firstly, in order to achieve “overall optimization of the Group production
system,” we are planning efficient production activities in accordance with theGroup’s business plan that ensure a stable supply system for each of theGroup’s factories. Next, in order to achieve a “worldwide system for new
production,” we aim to enhance our production system by responding to global
standards focused on the future. With the addition to the Group of KYORIN
Pharmaceutical Facilities in October 2012 and with the continued stable supplyof high quality products, improvements in manufacturing technology andreductions in cost, we are aiming for global expansion. Also, in terms of “lowcost operations,” we aim to simultaneously implement both quality improvements and cost reductions through visualization. From this financial year, weare tackling these issues mentioned above through the creation of a Supply
Chain Management (SCM) department in the Production Division. Regarding
the nurturing of human resources, we are building a highly creative organizationin which each member of staff aspires to deliver high quality products topatients and healthcare professionals. Through these efforts Kyorin Group willcontinue working to strengthen both the physical and intangible aspects of its
production infrastructure in order to further enhance Group value.

Strategic Promotion of Supply Chain Management
We manage each product from procurement of raw materials to production
management, manufacture and shipping, and we are promoting SCM aimed at
improving speed and reliability. In order to reduce supply-side risks and toobtain a stable supply, we are building strong relationships of mutual trust withforeign and domestic suppliers. Also, we are aiming to ensure supply throughsecond and third supply sources and transportation routes. Furthermore, inorder to build strong revenue potential that is resistant to environmental

14

Annual Report 2014

Feature: Value Creation Through Collaboration

changes, we are pursuing an efficient production system and exploring ways oflowering manufacturing costs.
Henceforth, we will comprehensively grasp the supply chain at Kyorin
Group, and we will build a system in order to realize more efficient production
and stable supply.

[Group Production Site]

KYORIN Pharmaceutical Co., Ltd.,
Noshiro Plant

KYORIN Rimedio Co., Ltd.,
Inami Plant

KYORIN Pharmaceutical Co., Ltd.,
Okaya Plant

Employee Message
The Noshiro Plant, the Kyorin Group’s central
production facility, has flowbin production systems
that automate the transfer of raw materials andintermediates, and other automated, highefficiency equipment. Indeed, it embodies the
Kyorin Group’s efforts to promote the creation ofhighly productive, worker-friendly plants. Guided
by this principle, the Group has set clear production goals: quality assurance, supply stability, andcost reduction. Each section is working as one to
execute programs to achieve these goals. Looking
ahead, we will maintain a positive, energetic
workplace, and continue acting as a Group to
exploit our full creativity.

KYORIN Pharmaceutical
Facilities Co., Ltd.

Enhancing Value Through Collaboration
K Building a New Production Infrastructure

K Collaboration on Production of Generic Drugs

In the production divisions, we are enhancing implementation of the Good
Manufacturing Practice (GMP) quality assurance standards at all production
facilities. We are also implementing a quality assurance system that directly
connects the head office and is in accordance with the Pharmaceutical
Inspection Convention and Pharmaceutical Inspection Co-operation Scheme(PIC/S), which aims to harmonize GMP standards and quality systems
globally. We are also promoting a project to transfer the production functionsof the KYORIN Pharmaceutical Okaya Plant to KYORIN Pharmaceutical
Facilities in order to optimize the Group’s overall production system, which isa vitally important issue. By strengthening cooperation between KYORIN
Pharmaceutical Facilities and the Okaya and Noshiro plants, we will ensure asmooth transition.

We are dispatching employees from the production divisions of KYORIN
Pharmaceutical and KYORIN Pharmaceutical Facilities to KYORIN Rimedio,
which manufactures generic drugs. We are also sharing technology andproviding production assistance, and we are improving coordination among
employees within the Group in order to ensure a reliable supply of genericdrugs. Regarding items for which KYORIN Rimedio has production functionality,
such as injections, manufacturing is contracted from KYORIN Pharmaceuticaland we are collaborating to optimize Group production as a whole.

KYORIN Holdings, Inc.

15

Feature: Value Creation Through Collaboration

Sales

Aiming to Establish a Presence in Specific Treatment Areas

Masahide Sugibayashi

KYORIN Pharmaceutical Co., Ltd.
Senior Corporate Officer andHead of Sales & Marketing Headquarters

As the market for ethical pharmaceuticals
changes, the company’s sales division is continuously aiming to further strengthen our position in the key fields of respiratory medicine,otolaryngology, and urology. By building relationships of trust with doctors in these three fields,
and contributing to drug therapy in each field,
we will be able to achieve sustained growth.

Our medical representatives (MRs), working as “drug therapy partners,” gather,
provide and transmit information to doctors and other healthcare professionals
in order to promote the appropriate use of medical and pharmaceutical products. With about 750 MRs, KYORIN Pharmaceutical aims to maximize thediffusion of its main products by expanding its FC strategy, which focuses
primarily on the doctors our medical representatives regularly visit primarily inthe three specific treatment fields that we promote of respiratory medicine,otolaryngology and urology, and by making efforts to build a firm relationship ofmutual trust with the approximately 77,000 doctors in those three fields.
In order to enhance the aforementioned strategy, we have introduced ateam-based sales structure in which a number of MRs are made responsible
for a certain area. This system allows MRs to demonstrate their individual
abilities and gain an accurate understanding of the needs of medical personnel,
helping us to provide a rapid response in a systematic way. These efforts are
based on fostering a climate in which MRs experience the pleasure of achieving a goal as a team, and we will continue to work together as one team toachieve our organizational goals.
In fiscal 2013, we achieved record sales by working on the spread of ourprincipal products and also by focusing efforts on the market penetration of
Flutiform, a combination drug for asthma treatment that was put on sale as a
new drug, and of PENTASA Suppositories 1g, a drug for the treatment ofulcerative colitis.
We have steadily improved results by increasing the frequency of communication with doctors based on plans drafted carefully according to product anddosage form. In the next fiscal year, too, we will promote a sales strategy
responsive to the changing environment, and we will accelerate the expansion
in the adoption and prescription of the new drug Flutiform while aiming also to
maximize prescription of our existing main products.

Nurturing MRs in Whom Doctors can Place Their Trust Increases
Our CompetitivenessIn order to continuously increase prescription of our main products, it is important to enhance the general abilities of each MR, including his or her knowledge,
technical skills and personal abilities.
We are cultivating MRs who can understand and respond to the needs of16

Annual Report 2014

Feature: Value Creation Through Collaboration

healthcare professionals. To this end, we conduct training for new employeesthat enables them to gain product and related knowledge and that fosters anappropriate attitude for participating in medical treatment. For employees intheir second and third years, we conduct training to improve presentation andcommunication skills. Overall, we not only conduct monthly training throughthe training department of the Sales & Marketing Headquarters, but are also
reinforcing staff development through the implementation of a systematic
education program based on our Group Human Resources Management Policy.
As for building relationships of trust with doctors, in addition to striving to
improve relationships with them by having the sales division host lectures,
seminars and briefings for medical specialists, we are working on policies toenhance the gathering and provision of constantly changing information by, forexample, introducing tablet computers for use in sales operations. These
measures will help further improve the relationship the company as a wholehas with medical specialists.

Employee Message
As MRs of a pharmaceutical company whose role
is to provide treatment of diseases through drugs,
we constantly strive to provide useful information
to doctors, as we work to solve the problems
those doctors face. We believe that it is especiallycrucial to build relationships of trust with doctors
by providing them with appropriate informationaccording to their needs. The sales approach at
KYORIN Pharmaceutical is unique for the way weprioritize our sales activities in specific fields, basedon our FC strategy, and we are notable for the levelof relationships we maintain with doctors in those
key fields. In addition, through the introduction ofa team structure, and the sharing of individual
experiences and capabilities, we have fostered a
corporate culture where team members work
toward their mutual improvement, and all employees engage in their day-to-day activities with theireyes on a common goal. Going forward, we willcontinue to contribute to medical care, and to thehealth of individuals, by becoming highly skilled
and knowledgeable MRs who can make a variety
of proposals to doctors based on our ability tothoroughly understand the kinds of drug treatments
provided by doctors.

Value Creation Through Collaboration
K Eyeing Expansion of Generic Drugs
KYORIN Rimedio and KYORIN Pharmaceutical are collaborating on the sale of genericdrugs. They aim to expand sales of generic drugs by leveraging the know-how, network
and information resources of KYORIN Pharmaceutical, which is principally focused on the
new drug business.

K Promoting Greater Use of RUBYSTA, a Multi-purpose Disinfectant Cleaner
KYORIN Medical Supply and the Healthcare Business Department of KYORIN Pharmaceuticalare collaborating on promoting greater use of RUBYSTA, a top priority, mainstay multipurpose disinfectant cleaner in the facility environmental hygiene business. The twopartners are mainly approaching facilities that have obtained “additional reimbursement
points for infection prevention measures 1” under the NHI System, among customers
purchasing prescription pharmaceuticals sold by KYORIN Pharmaceutical.

KYORIN Holdings, Inc.

17

Our Presence in Specific Fields

Seeking to Establish a Greater Presence in Specific Fields
KYORIN Pharmaceutical is promoting the FC strategy to strengthen competitiveness in the pharmaceutical business, by stepping up
sales activities and providing information to customers whom it regularly visits, centered on specialist doctors in respiratory medicine,otolaryngology, and urology. KYORIN Pharmaceutical is also working to built relationships of trust with doctors in these specific fields
and enhance its product lineup in the FC field, with the aim of establishing a greater presence and driving sustainable growth in this field.

Products Related to the Respiratory and Urology Fields

FC Field
Otolaryngology

Respiratory

Urology

Product/Pipeline

Target Disease/Field

KRP-AM1977X/KRP-AM1977Y

Treatment for infectious diseases

KRP-AB1102/KRP-AB1102F

Treatment for chronic obstructive pulmonary disease

Flutiform

Combination treatment for asthma

KipresLT antagonist

Mucodyne

Mucoregulating drug

KRP-EPA605

Therapeutic agent for overactive bladder

Uritos

Therapeutic agent for overactive bladder

Regular calls on doctors(About 77,000 people)

Number of MRs About 750 people

Urology Field
Maximizing Product Penetration and Bolstering the Pipeline

KYORIN Pharmaceutical has been working to strengthen relationships of trust with specialist doctors in the key respiratory field,
through the supply of Kipres and Mucodyne. In November 2013,
KYORIN Pharmaceutical launched Flutiform, a combination treatment
for asthma, in an effort to contribute further to the treatment of bronchial asthma. Flutiform is a drug that not only features a potent antiinflammatory effect and fast-acting relief, but also can be inhaled withcertainty and ease. KYORIN Pharmaceutical is striving to provide
information and foster understanding of Flutiform, as a drug thatanswers the needs of patients who cannot adequately control their
symptoms using existing treatments. The removal of prescription term
restrictions for Flutiform is planned for December 2014, and will further
increase convenience for patients. The company will seize on thisopportunity to dramatically increase the market penetration of Flutiform.
The R&D pipeline in the respiratory field includes KRP-AB1102, achronic obstructive pulmonary disease (COPD) treatment for which a
new drug application is currently pending; KRP-AB1102F, which iscurrently in Phase III clinical development; and KRP-AM1977X and
KRP-AM1977Y, which are new quinolone synthetic antibacterial
agents currently in Phase II clinical development. Based on the trust
we have developed with medical professionals to date, we are doing
our utmost to harness our expertise, connections, networks andother resources in the clinical development field to more speedily
conduct development and deliver these new drugs to patients assoon as possible. We will continue to embrace new challenges inorder to be recognized by patients and their families and medical
professionals in the respiratory field as an even more valuable
company than before.

In urology, another key field, we are supplying the Uritos treatment for
overactive bladder (OAB) to medical practitioners. Sales of Uritos are
growing steadily. We continue to actively encourage medical practitioners to offer Uritos to their patients as a first choice prescription. At
the same time, we are striving to maximize penetration of Uritos bydriving the expansion of the OAB market, where there are manypotential patients. In terms of measures to improve the R&D pipeline,
we commenced Phase I clinical trials of the new OAB treatment
KRP-EPA605 in October 2013 together with Kissei PharmaceuticalCo., Ltd., which is strong in the urology field. Furthermore, in July
2014 we signed a domestic license agreement concerning the OAB
treatment KRP-114V with Merck & Co. of the United States. Goingforward, we will continue to bolster the R&D pipeline by vigorously
pushing ahead with R&D, licensing and other activities, in order toestablish a greater presence in the urology field.

18

Respiratory Field
Increasing Market Penetration of Flutiform

Annual Report 2014

Our Business and Strategies

Alliances

Reinforcing Our Pipeline in Specific Fields through an Alliances Strategy
KYORIN Pharmaceutical, a core company in the Kyorin Group, has set a goal of establishing a greater presence in specific fields, and is
working to reinforce its product pipeline. In addition to the harsh environment owing to the number of competitors, the lack of promisingnovel new drugs in the world makes it extremely difficult to acquire in-licensing opportunities. Under these conditions, we have been able
to in-license new products in the FC field (respiratory, urology, and otolaryngology), Flutiform, a combination treatment for asthma,
KRP-209, a treatment for tinnitus, and KRP-AB1102 and KRP-AB1102F, treatments for chronic obstructive pulmonary disease (COPD).
We also commenced development of KRP-EPA605, a treatment of OAB, together with Kissei Pharmaceutical. These results are due tothe fact that among all of the companies that out-licensed these products, the joint-development companies found the prospect ofworking with the Kyorin Group attractive, and were confident that we would prove to be a reliable partner. We believe this is evidence
that the FC strategy we are pursuing is gaining a firm hold in the pharmaceutical industry, both in Japan and the rest of the world. Goingforward, our employees will work together to build an even more attractive product pipeline, which will be trusted by physicians andpatients, and the Kyorin Group will be recognized as having a significant presence in society.

Promoting Alliances with Domestic and Overseas Pharmaceutical Companies
In addition to its own drug discovery efforts, through proactive collaboration with outside firms, KYORIN Pharmaceutical is working toenrich and strengthen its product pipeline, its most critical issue as a pharmaceuticals manufacturer.
MSD

Eisai

Taisho Pharmaceutical

Yakult Honsha

Kaken Pharmaceutical

Sato Pharmaceutical

Ono PharmaceuticalNovartis (Switzerland)

Handok (Korea)

MediciNova (U.S.A.)

LG Life Sciences(Korea)SPIMACO*(Saudi Arabia)

Chong Kun Dang (Korea)

KYORIN
Pharmaceutical

Nichi-Iko Pharmaceutical

Yungjin (Korea)

Chugai Pharmaceutical
Shinlin Sinseng (Taiwan)
Nisshin Pharma
Senju Pharmaceutical
ROHTO Pharmaceutical
Ferring International
Center, S.A.
(Switzerland)

Merck & Co. (U.S.A.)
Merz (Germany)

SkyePharma (U.K.)* SPIMACO: Saudi Pharmaceutical Industries & Medical Appliances Corporation

Promoting Joint Development andContract Manufacturing of Generic Drugs
In the generic drug business, we are pursuing quality assurance,
stable supply, and lower costs by promoting stronger collaboration

Almirall (Spain)

Out-licensed

Allergan (U.S.A.)

In-licensed

In- and out- licensed

Domestic and overseas alliances
Promoting joint development
and expanding businessas an outsourcer

within the Group and with local and global alliances. We are pushingahead with in-house development and production of generic drugs.
At the same time, we are actively promoting the expansion of business models like joint development with third parties and contract
manufacturing in a bid to reinforce our distinctive and competitive
generic drug business.

Quality assurance Stable supply Lower costs
Strengthen allianceswith KYORIN Pharmaceuticaland KYORIN Rimedio

In-group collaboration

KYORIN Holdings, Inc.

19

Main Products

PHARMACEUTICAL BUSINESSFLUTIFORM

URITOS

Sales of Flutiform(Billions of yen)

1.0

10.0

0.8

Combination drug for asthma treatment
Flutiform 50 Aerosol 56 inhalations

Flutiform 125 Aerosol 56 inhalations

KIPRES

3.7
Therapeutic agent for
overactive bladder
URITOS OD Tablets 0.1 mg

2009

2010

2011

2012

2013

(FY)

PENTASA

Sales of Kipres

40.0

KIPRES Tablets 5 mg

KIPRES Tablets 10 m5g

Leukotriene receptor antagonist
Anti-bronchial asthma drug
KIPRES Fine Granules 4 mg

MUCODYNE

34.5

36.8

39.6 40.2

29.2

PENTASA Tablets 250 mg
PENTASA Tablets 500 mg

Ulcerative Colitis Remedy
2010

2011

2012

2013

(FY)

PENTASA Intestinal Infusion 1 g

KETAS

Sales of Mucodyne

20.0

MUCODYNE Syrup 5%(FY)

19.4 19.4

18.0 17.6 18.6

10.0
5.0
0

2009

2010

2011

2012

2013

(FY)

19.1

4.6

18.4

4.0

4.0
Phosphodiesterase inhibitor agent forameliorating cerebro-vasculardisorders and bronchial asthma

10.0
5.0

3.4

3.0

2.8

2.0

KETAS Capsules 10 mg

MUCODYNE DS 50%

0

Sales of Ketas
6.0

20.9 21.3 21.5

15.0

MUCODYNE Tablets 500 mg

2013(Billions of yen)

25.0

MUCODYNE Tablets 250 mg

2012

PENTASA Suppositories 1 g(Billions of yen)

Mucoregulating drug

2011

15.0
Ulcerative Colitis/
Crohn’s Disease Remedy

2009

2010

Sales of Pentasa

20.0

10.0
0

2009

25.0

20.0

KIPRES Chewable Tablets 5 mg

0(Billions of yen)

50.0

30.0

2.5

URITOS Tablets 0.1 mg(Billions of yen)

Leukotriene receptor antagonist
Anti-Bronchial asthma and allergic
rhinitis drug

5.5

5.0

November 2013

8.1

6.3

0.6
Launched in

0.2
0

7.5

7.5

0.6
0.4

Sales of Uritos(Billions of yen)

2009

2010

2011

2012

2013

0

(FY)

2009

2010

2011

2012

2013

(FY)

HEALTHCARE BUSINESS

MiltonRUBYSTA
Since its launch in 1963, the disinfectant

RUBYSTA, a multi-purpose disinfectant

Milton has assisted mothers hoping for thecleaner that went on sale in 2012, is used

healthy growth of their babies. As thein hygiene control in medical institutions

leading brand of baby bottle disinfectant, it

and other settings, both for infection

also enjoys the support of obstetricians,

prevention and to prevent the spread

gynecologists, and nurses.

of pathogens.

Developing the environmental hygiene business through joint efforts between
KYORIN Medical Supply Co., Ltd. and KYORIN Pharmaceutical Co., Ltd.
With its stated objective of creating new businesses in the healthcare field, theThe product is being marketed to medical institutions, nursing homes, andKyorin Group, by diversifying its healthcare business, is aiming to supplement the

public facilities in a joint effort between KYORIN Medical Supply, which in-licensed

risks of its drug business and work toward sustained Group growth. Today, thethe product, and KYORIN Pharmaceutical, which has an extensive track record

Group is engaged in the environmental hygiene business, contributing to medical

and expertise in the medical field. We will continue to strengthen sales of ourneeds and better health through control of environmental infection. In July 2012,existing flagship product, Milton, while working to enhance our lineup of products

we introduced RUBYSTA, a new multi-purpose disinfectant cleaner.

in the environmental hygiene business, using partnerships within the Kyorin Groupto further popularize these products.

20

Annual Report 2014

Our Business and Strategies

Products under Development (As of July 29, 2014)

Ph III~Application
Compound/Code

Therapy area/Action

OriginFeatures

Stage
Ph I

Chronic
Obstructive
Pulmonary
Disease (COPD)

KRP-AB1102(inhalant)

Almirall (Spain)

Overactive
bladder

KRP-114V

Ph IIINDA– New chemical entity: Aclidinium bromide– Long acting muscarinic agonist (LAMA)– Twice daily administration– Onset of action on the first day
Genuair®
1. Designed with a feedback system, which througha ‘colored control window’ and an audible clickhelps confirm that the patient has inhaled correctly
2. Counter for remaining doses
3. Safety features such as an anti-doubledosing
mechanism and an end-of-dose lock-out system
to prevent use of an empty inhaler

Chronic Obstruc- Almirall (Spain)
tive Pulmonary
Disease (COPD)

KRP-AB1102F(inhalant)

Ph II

3/2014

Combination of aclidinium bromide with the longacting beta agonist formoterol: This combination is
aimed at providing higher efficacy than each component
alone, as well as the improved convenience of having
the two products in the same easy to use inhalation
device. This is currently in Phase III clinical development.

8/2013Merck & Co. (U.S.A.) KRP-114V is expected to improve urinary frequency
through stimulation of the beta 3 receptor in the
bladder which improves bladder muscle relaxation.

In preparation[Reference Information] Overseas
K KRP-AB1102	(Europe) Launched by Almirall (9/2012)(U.S.A.) Launched by Forest Pharmaceuticals (12/2012)
K KRP-AB1102F	(Europe) Application submitted by Almirall (10/2013)(U.S.A.) Application being submitted by Forest Laboratories

Proof of Concept (POC) Projects (Ph I~Ph II)
Compound/Code

Therapy area/Action

OriginFeatures

Stage
Ph I

Tinnitus

KRP-209

Merz (Germany)

Transplantation,
autoimmune
diseases,and IBD

KRP-203

KRP-209 (Neramexane) is expected to improve thepatients’ annoyance and difficulties in their life causedby tinnitus, mainly through its two pharmacologicalproperties: 1) NMDA antagonistic activity and 2)
Nicotinic acetylcholine antagonistic activity.

In-house

KRP-AM1977X(oral agent)

New quinolone
In-housesynthetic
antibacterial agent

KRP-AM1977Y(injection)

New quinolone
In-housesynthetic
antibacterial agent

KRP-EPA605

Overactive
bladder

Ph II

Ph III

NDA

8/2011

An immunosuppressant with a novel mechanism
called an S1P-agonist. It may have a better safety
profile than previous ones as well as an excellent
effect under concomitant use with other types of
immunomodulators.

3/2013

1. Superior ability to combat drug-resistantgram-positive bacteria (incl. MRSA)
2. Outstanding ADME (oral absorption,
tissue migration)
3. High degree of safety expected since safety
hurdles cleared prior to clinical trials

9/20136/2014In-house

KRP-EPA605 is a novel selective prostaglandin EP1
receptor, and expected to improve urinary frequency
by suppressing detrusor overactivity of the bladder

10/2013[Reference Information] Overseas
K KRP-209 Merz: Phase III

Licensing Development
Compound/Code

Licensee/Collaborative
research

Therapy area/
ActionNovartis(Switzerland)

Transplantation, In-houseautoimmune
diseases, andIBD

OriginComments

Stage
Ph I

KRP-203• An immunosuppressant with a novel mechanism called an S1P-agonist. It
may have a better safety profile than previous ones as well as an excellent
effect under concomitant use with other types of immunomodulators.
• License agreement with Novartis (2/2006) and new license agreement for
inflammatory bowel disease (11/2010).

Overseas

Ph II

Ph IIINDA

POC 12/2010

Others• Ad-SGE-REIC formulation, a gene-therapy product, planned for development. (Target disease: for the treatment of malignant pleural mesothelioma)• Dimethyl sulfoxide, applicable to unapproved drugs and off-label drugs that are greatly needed in medical care, planned for development. (Target disease: for the treatment ofinterstitial cystitis)• Uritos, an overactive bladder drug: launched in Korea, July 2013. (Chong Kun Dang Pharmaceutical Corp.)

KYORIN Holdings, Inc.

21

Corporate Governance

Basic Management Policies
As a group, our corporate philosophy is “to cherish life and benefit society by contributing tobetter health.” To realize this philosophy, we will pursue diverse expansion and developmentof our consumer healthcare business under our long-term vision HOPE100 (aiming for the
Health Of People and our Enterprise), striving to advance as a group that supports soundand healthy lifestyles.

Basic Policy on Corporate
Governance
The most important management goal for KYORIN
Holdings, Inc. is to continue raising shareholder value.
To achieve this goal requires fostering a management
environment that enables us to build trust with the generalpublic. Therefore, having given better corporate governance a high priority, we seek to ensure prompt decisionmaking, strong monitoring of the appropriateness ofmanagement, and ethical and transparent corporate
activities. To ensure transparency and fair disclosure, werelease appropriate information without delay for the
benefit of shareholders and investors. Within the Kyorin
website, we have created a shareholder and investor
information section on which we list business performancedata, information presented at meetings, our securities
report, news releases and other corporate information,
enabling anybody to access information about Kyorin at
any time. In the future, we intend to actively increase ourdisclosure of information, and expand and improve ourcommunications with all stakeholders.
We are an audit- and committee-based company
under Japanese law. The Board of Auditors endeavors to
fully demonstrate its auditing and supervising functions andensure the transparency of the decisions being made by
the Board of Directors. Corporate auditors conduct audits
in line with an auditing policy and plan set by the Board ofAuditors at the beginning of each fiscal year. Corporate

auditors carry out a diverse range of activities in fulfilling
their auditing function. In addition to participating in important meetings, including those of the Board of Directors
and the Management Committee, corporate auditors
implement comprehensive audits by checking documents
and other materials relating to key decisions and inspecting
departments, facilities, and Group companies.
In addition, in recognition of our corporate social
responsibility (CSR), for every Kyorin Group company weappoint compliance and risk management promotion
officers. We have established a Group-wide complianceand risk management system that is administered by theCompliance Committee and Risk Management Committee.
We have established guidelines for each affiliated company
based on the Kyorin Compliance Guidelines and set up asystem for employees to report and seek advice about
possible irregularities. As well as the above measures, wehave created management guidelines for affiliated companies and built a system of support that respects theirautonomy. Under this system, we receive regular business reports from these companies and hold meetings
with their management before deciding important issues.
The Internal Audit Office conducts audits of affiliatedcompanies based on internal audit guidelines. Based on
the results of these audits, departments that oversee theoperations of the affiliated companies issue instructions or
warnings and provide appropriate guidance.

Corporate Governance and Management Structure (As of June 24, 2014)
Ordinary General Shareholders’ Meeting
Appointment/dismissal

Reports

Accounting
Auditing Firm
(Independent
Auditor)Appointment/dismissal

AuditsBoard ofAuditors(5 Auditors)

Exchangeofopinions

AuditsAppointment/dismissal

Board ofDirectors(11 Directors(3 Outside
Directors))

Cooperation
Representative
Director
Internal
Audit Office(7 Members)

Supervision

OutsideLegal
CounselManagement
Committee

AuditsAuditsAffiliated Companies
Guidance

22

Annual Report 2014

Corporate Officers/
Departments

Management Foundation

Management Organization andInternal Control System
1. Management Organization

To clarify the roles of our eleven directors, who areresponsible for making business decisions and supervising business execution, and three corporate officers, who
are responsible for business execution, Kyorin has established a corporate officer system. The Board of Directors
usually meets once a month, deciding important operational matters in a timely manner after debating issues aswell as supervising each director’s duties. To oversee
business execution, we established a Management
Committee, comprising the president and directors,
which discusses key operational matters concerning theGroup. In addition, at its Ordinary General Shareholders’Meeting held in June, 2014, Kyorin appointed threeoutside directors, and we will be leveraging their independence, rich experience, and high level of specialization tofurther enhance our management transparency andmonitoring functions.
We also utilize a corporate auditor system with two
statutory corporate auditors and three outside corporate
auditors. By capitalizing on such auditing and supervisory
functions, we have built a system that facilitates highly
transparent decision-making.

2. Internal Control System and
Risk Management System
Kyorin is building an internal control system in accordancewith the basic policy determined by the Company:• We established the Compliance Committee, which ischaired by a director in charge and includes the Directorof the Internal Audit Office who serves as a member ofthe committee. Thoroughgoing guidance is provided to
executives and regular employees via training programs,
while the Corporate Ethics Hotline has been set up for
consultations and reporting matters concerning internal
violations. Moreover, we have set Company rules toensure the accuracy of financial reporting, and developed systems for ensuring the validity and reliability ofinternal controls over financial reporting of the Group.
• We have built and are operating a structure for reducing
and preventing risks. As part of this structure, we established the Risk Management Committee, chaired by adirector in charge, with the General Affairs & Human
Resources Department responsible for overseeing thecommittee. For risks concerning compliance, the environment and accidents, we also formulated the Risk
Management Guidelines and the Corporate Ethics andCompliance Guidelines as part of a quick-response
structure. Additionally, to handle crisis management
when dealing with any contingencies, we have set up
the Contingency Measures Headquarters under theleadership of the president.
For details, please refer to http://www.kyorin-gr.
co.jp/en/company/governance.shtml

3. Audit Organization
1 Internal Auditors
Internal audits are conducted by the Internal Audit Office,which is staffed by seven employees who report directly
to the president, and is independent from other sections.
Based on yearly auditing plans, the Internal Audit Officeregularly assesses and evaluates the effectiveness andefficiency of the legal compliance and internal control
systems in the parent and Group companies. After anaudit, the office communicates any problems or areasthat need improvement directly to the president andmakes the appropriate recommendations.
Another function of the office is to evaluate theGroup’s internal controls over financial reporting. The
office evaluates the development and operation of theseinternal controls according to a predetermined scope for
evaluation, and makes a report to the president.
2 Corporate Auditors
Corporate auditors conduct audits in line with an auditing
policy and plan set by the Board of Auditors at the beginning of each fiscal year. In addition to participating inimportant meetings, including those of the Board of
Directors and the Management Committee, corporate
auditors implement comprehensive audits by checking
documents and other materials relating to important
decisions and inspecting departments, facilities, andGroup companies.
Under our adopted system, if someone discovers thatan executive officer or employee is acting in contraventionof either laws and regulations, or the Company’s Articles
of Incorporation, they immediately notify the corporate
auditors. We are working to establish an environment
conducive to more efficient audits by corporate auditors
by coordinating closely with executives and regular
employees and by fostering deeper understanding ofaudits. Furthermore, we assign auditing staff to assist theduties of the corporate auditors as necessary, and thesehuman resources are carefully checked by directors andauditors to ensure that they are independent.
Moreover, the statutory senior corporate auditor,
Seiyu Miyashita, has experience as a director and headof accounting of KYORIN Pharmaceutical Co., Ltd, andhas a considerable level of knowledge about financeand accounting.
3 Outside Directors and Outside Corporate Auditors
Kyorin has three outside directors and three outside
corporate auditors.
With rich management experience gained in his
position as chairman of B-R 31 ICE CREAM Co., Ltd.,
Kyorin deemed Senji Ozaki well-qualified overall for
appointment to outside director. In addition, no risk of
conflicts of interest arising with our general shareholders
was found that might affect the performance of his duties
as outside director, and we recognize that he brings ahigh degree of independence to the position. Note thatno purchasing, sales, or other trade relationship exists
between Kyorin and B-R 31 ICE CREAM Co., Ltd., where
Mr. Ozaki serves as chairman.
As an attorney well-versed in corporate law, outside
director Noriyuki Shikanai has also served on the board of
Keio University and in other important positions, and withhis high degree of specialization and rich experience, wasdeemed well-qualified overall for appointment to outside
director. In addition, no risk of conflicts of interest arisingwith our general shareholders was found that might affectthe performance of his duties as outside director, and we
recognize that he brings a high degree of independence
to the position.
With insight gained from his experience as a directorof Teijin Limited, Kyorin deemed Takashi Takahashi wellqualified overall for appointment as an outside director.
Note that no purchasing, sales, or other trade relationshipexists between Kyorin and Teijin Limited, where
Mr. Takahashi serves as a director.

KYORIN Holdings, Inc.

23

Kyorin has three outside corporate auditors who areneutrally positioned and not compromised by relationships with management or specified parties having a
special interest. These outside corporate auditors all havea considerable level of knowledge of corporate legal
matters, and matters of finance and accounting. We
utilize their specialist understanding and wide-ranging
knowledge and experience to strengthen and enhance
our auditing functions.
Outside corporate auditor Masaji Obata is well versedin the Corporation Law as a lawyer, and has considerable
knowledge concerning finance and accounting.
While Kyorin has no clearly established standards orpolicies regarding independence in the appointment of its
outside directors and outside corporate auditors, appointments are decided based on a review of the individuals’
backgrounds and relationship with Kyorin, and, from astandpoint independent from that of management, on theassumption that sufficient independence can be ensured
that said individuals are able to adequately carry out theirduties as outside directors and outside corporate auditors.
4 Independent Auditors
In accordance with the Corporation Law and the Financial
Instruments and Exchange Law, we receive annual audits
by Ernst & Young ShinNihon LLC. We benefit from its
valuable advice as an accounting auditing firm, as well asfrom its services as an auditor of our financial accounts.
The following certified public accountants performed
the audit of KYORIN Holdings, Inc.: (Names of certified
public accountants) Shigeyuki Amimoto, designatedlimited liability partner and engagement partner; andHidemitsu Kato, designated limited liability partner andengagement partner.
A further 12 certified public accountants and 10
assistant accountants assisted with the audit.
The Board of Auditors provides a forum for close,
regular exchange of information and opinions with theInternal Audit Office and the accounting auditing firm,
thereby enhancing the auditing system.

4. Overview of Personnel, Capital and Trading
Relationships between the Company and theOutside Directors and Outside Auditors
None to report.

5. Compensation of Directors and Corporate
Auditors
1 Total compensation paid to each director or

corporate auditor, total paid by type of compensation, and number of applicable directors andcorporate auditors

Basic compensation

Number ofapplicabledirectors andcorporate
auditors(People)

188

188

7

Corporate auditor(Excluding outside
corporate auditors)

30

30

2

Outside director or
corporate auditor

29

29

5

Director or
corporate auditor

24

Annual Report 2014

Director(Excluding outside
directors)

Total
compensation
paid(Millions of yen)

Total paid by typeof compensation(Millions of yen)

2 Importance of employee salary in cases wherea director is also an employee
None to report.
3 Policy and method of determination of the policy,
as regards the amount of compensation paid toa director or corporate auditor, and the methodof calculation
Kyorin has not decided its policy as regards the amountof compensation paid to directors and corporate auditors
or the method of calculation.

6. Number of Directors
The number of directors is limited to 15 as set out in the
Company’s Articles of Incorporation.

7. Conditions for Resolution on Appointmentsof Directors and Corporate Auditors
The Company’s Articles of Incorporation stipulate that a
resolution to appoint a director or corporate auditor must
be made by the majority vote of attending shareholders
holding at least one-third of the voting rights of shareholders who are eligible to exercise voting rights.

8. Ordinary General Shareholders’ Meeting
Matters that May Be Resolved by the Boardof Directors
1 Acquisition of treasury stock
Pursuant to the provisions of Article 165, paragraph 2 of
the Corporation Law of Japan, the Company’s Articles ofIncorporation stipulate that the Company may acquire
treasury stock by resolution of the Board of Directors. The
aim is to allow management to swiftly exercise capital
policies as deemed appropriate in response to changes in
the operating environment, by allowing the Company toacquire treasury stock through market transactions, etc.
2 Decision-making body for cash dividends fromretained earnings
Pursuant to Article 459, paragraph 1 of the Corporation
Law of Japan, and except where otherwise specified in a
separate applicable legal or regulatory provision, theCompany’s Articles of Incorporation stipulate that cash
dividends are to be decided by resolution of the Board of
Directors, and not the ordinary general shareholders’meeting. The aim is to allow management to exercise
capital policy as deemed appropriate.

9. Requirements for Special Resolution by an
Ordinary General Shareholders’ Meeting
Pursuant to Article 309, paragraph 2 of the Corporation
Law of Japan, the Company’s Articles of Incorporation
stipulate that special resolutions by an ordinary generalshareholders’ meeting must be passed by at least a
two-thirds majority vote of attending shareholders holding
at least one-third of the voting rights of shareholders
eligible to exercise voting rights. The aim is to lower therequired quorum for a special resolution of an ordinary
general shareholders’ meeting to facilitate the smooth
operation of the meeting.

Management Foundation

Directors, Auditors, and Corporate Officers (As of June 24, 2014)

From the left: Takashi Takahashi, Yutaka Ogihara, Senji Ozaki, Minoru Hogawa, Satoru Kanai, Masahiro Yamashita,
Masakatsu Komuro, Mitsutomo Miyashita, Shigeru Ogihara, Tomiharu Matsumoto and Noriyuki Shikanai
Representative Director,
President and Chief
Executive Officer

Executive Director

Senior Managing Director

Senior Executive Director

Mitsutomo Miyashita

Minoru Hogawa

Tomiharu Matsumoto Yutaka Ogihara

Masahiro Yamashita

KYORIN Pharmaceutical Co., Ltd.

Management Planning
Finance & Accounting

General Affairs & Human
Resources
Legal, Compliance

President’s Office
Corporate Communication
Information System Management

Representative Director, President
and Chief Executive Officer

Executive Director

Executive Director

Executive Director

Executive Director

Outside Director

Outside Director

Outside Director

Masakatsu Komuro

Satoru Kanai

Shigeru Ogihara

Senji Ozaki

Noriyuki Shikanai

Takashi Takahashi

Intellectual Property

KYORIN Medical Supply
Co., Ltd.
Representative Director,
President and Chief Executive
Officer

KYORIN Rimedio Co., Ltd.
Representative Director,
President and Chief Executive
Officer

Senior Corporate
Auditors

Outside Corporate
Auditors

Senior Corporate
Officers

Corporate
Officers

Seiyu Miyashita

Masaji Obata

Takayoshi Ishizaki

Yoshiya Yoshida

Hiroaki Hama

Yasuyuki Hirota

Yoh ItoYuji Konishi

KYORIN Holdings, Inc.

25

Corporate Social Responsibility

The starting point of the Kyorin Group’s corporate social responsibility (CSR) endeavors is its
corporate philosophy, that is “to cherish life and benefit society by contributing to better
health.” For sustainable growth, Kyorin will prioritize building and maintaining trust-based
relationships with medical professionals, customers, shareholders, investors, employees,
business partners, and local communities. The Group will continue to work to realize that goalby providing trusted products and services, and by fulfilling its corporate social responsibility inthe areas of environmental and industrial safety and hygiene through activities that contributeto health and society.

Corporate Social Responsibility
In recognition of the importance of its corporatesocial responsibility, the Kyorin Group is enhancing
its corporate ethical standards and putting in placea system of compliance in line with the approach
set out below.

Compliance Measures
Basic policy
An enterprise should pursue profits through faircompetition as an economic entity, and at thesame time should be a force for the greater goodof society.
Based on its corporate philosophy “to cherish
life and benefit society by contributing to better
health,” the Kyorin Group will conduct its activities
in every country based on a high standard of corporate ethics, respecting human rights andobserving all laws, as well as standards of conduct
and the spirit thereof.
MeasuresTo ensure the Group’s activities are based on ahigh standard of corporate ethics, the Company
has built a compliance framework. It has updated
the KYORIN Holdings Corporate Charter and its
Compliance Guidelines to their current form inAugust 2010, and holds a Compliance Committee
meeting once a month.
1.	The KYORIN Holdings Corporate Charter wasdeveloped to specify matters of corporate ethics
and compliance in accordance with our corporate philosophy, and serves as the starting point
for our corporate activities.
2.	The Compliance Guidelines complement the
KYORIN Holdings Corporate Charter by clarifying the standards to be followed for sound andproper business activities.
3.	In March 2006, the Compliance Committee wasestablished to provide overall supervision of
corporate ethics and compliance systems. Each
Kyorin company has a compliance promotion
manager who is responsible for the understanding and instilling of corporate ethics andcompliance.
Education and training
In-house training courses are conducted to promote understanding of and instill corporate ethics
and compliance.
1.	Compliance managers organize education andtraining courses on corporate ethics and compliance, which are conducted at each level ofthe organization on a Company wide basis, andrun instructional activities for Company officers
and employees.
26

Annual Report 2014

2.	Details relating to corporate ethics and compliance are incorporated into job function-specifictraining conducted by each division to promote
understanding and instill a sense of ethics andawareness of compliance among employees.
3.	Each November is designated as complianceenhancement month, during which time theCompany works to tighten up on compliance atevery level.

Ongoing Environmental Initiatives
The main subsidiary of the Kyorin Group, KYORIN
Pharmaceutical, is implementing the following
activities on an ongoing basis. For details, pleaserefer to the Environment and Workplace Safety and
Health Report on the KYORIN Pharmaceutical Co.,
Ltd. website (Japanese only).
1. Preventing global warming• Reduce the amount of fuel used by installingcogeneration systems and using smaller boilers• Reduce power consumption by controlling air
conditioning settings to 28°C in summer and
21°C in winter• Use eco-cars and hybrid vehicles to improve fuelefficiency and reduce exhaust emissions
2. Reducing waste volume• Reduce waste emissions and promote recycling
towards achieving zero final landfill, and introduce
a negative carbon printing system
3. Managing chemical substances• Manage substances covered by the Pollutant
Release and Transfer Register (PRTR) Law, andevaluate methods for reducing amounts used
and the use of alternatives
4. Preventing atmospheric pollution• Measure and control the amounts of soot andsmoke, nitrogen oxides (NOx) and sulfur oxides(SOx) emitted by boilers and generators

CO2 Emissions from Factories andResearch Laboratories(t)
25,00021,09920,00020,187
17,815

18,417

17,79915,00010,000
5,000
0

2009

2010

2011

2012

2013 (FY)* FY2009–FY2013 data is from the Periodic ReportManagement Foundation

5. Preventing water pollution• Process wastewater, including by primaryprocessing plants, and management of pH,
biochemical oxygen demand (BOD), andsuspended solids (SS) levels
6. Preventing deforestation• Recycle paper, use recycled paper, and promotea paperless office environment
7. Noise reduction• Take steps to measure and manage noise levels
8. Preventing foul odors• Remove odors by installing draft chambers andusing scrubbers, etc.

Measures Relating to Industrial
Safety and Hygiene
In 2004, KYORIN Pharmaceutical obtained occupational health and safety management system certification (OHSAS 18001), and in 2005, consolidated
its ISO 14001 and OHSAS 18001 measures. The
subsidiary Rimedio Center of KYORIN Rimedio
also obtained ISO 14001 certification in 2008 and
OHSAS 18001 certification in 2009.
1. Rate and severity of work accidents
As a result of measures implemented to prevent
work accidents, the frequency and severity of such
accidents are much lower than the industry average. There have been no fatal accidents since thestart of operations.
2. Vehicle accidents
Targets were set for the year-on-year reduction in
the number of vehicular accidents per branch, andin fiscal 2013 there were 176 accidents, 36 lessthan the previous year. To reduce the number ofvehicle accidents, for fiscal 2014, the Kyorin Groupis implementing various accident-prevention measures, incorporating both physical and systematic
approaches.

Risk Management Measures
Kyorin established a Risk Management Committee
in order to prevent risks from materializing and deal
with any risks that do materialize. Also, a risk management promotion officer has been appointed ateach company to raise awareness relating to risk
management.

Social Contributions Activities
1. Local community activities• Cherry blossom viewing party
The KYORIN Pharmaceutical Discovery
Research Laboratories and Development
Research Laboratories hold an annual party forviewing the blossoms of cherry trees that are
more than 40 years old. As usual, this year’s
party had many participants. The occasion was
also used as an opportunity to explain Kyorin’s
environmental and occupational safety activities.
• Summer evening parties
Each year, the KYORIN Pharmaceutical Development Research Laboratories and various
plants hold summer evening parties to which
local residents are invited. These are popular

events that provide an
opportunity to further
promote understanding of the Company’s
activities.
• Local cleanup
activities
For more than ten
years, the Okaya Plant
has been a “foster
parent” responsible
for beautifying a section of the shore of
Lake Suwa as part of
the Lake Suwa Adoption Program. The plant
received an award in recognition of these activities. Employees also help to keep the lakesidepark clean.
Employees of the Noshiro Plant participate involuntary activities to maintain the Kaze-noMatsubara, a pine forest and recreational area thatacts as a barrier protecting the locality from wind.
In our head office, employees participate on
a voluntary basis in cleanup campaigns carriedout twice a year by the local Chiyoda City
authorities.
• Supporting sporting events
The Kyorin Group supports sporting events.
Among these are the Shimotsuke Soccer
Workshops for children, with former J-League
players and other soccer athletes serving as
instructors.
2. Employee voluntary community/
Health activities (Kyorin Smile Program)
The Kyorin Group is promoting the Kyorin Smile
Program, a set of employee initiatives for making acontribution to society and people’s health. The
activities in this program include donating bloodand fund-raising.
In fiscal 2013, the Kyorin Group donated a totalof ¥127,416 contributed by employees to UNICEF.
The Group also collected 2.4 kilograms of usedstamps, which were donated to the Japanese
Organization for International Cooperation in Family
Planning (JOICFP). The stamps will be used tohelp fund White Ribbon Campaign activities aimed
at protecting the lives of mothers and babies
throughout the world.
3. Support for recovery from the Great East
Japan Earthquake• Sunflower Project
KYORIN Pharmaceutical’s Discovery ResearchLaboratories, Development Research Laboratories
and Sendai Branch Office have been participating since 2011 in the Sunflower Project in which
sunflower seedlings are grown and delivered tothe areas afflicted by the Great East Japan
Earthquake. We will continue these efforts withthe aim of cheering up the locals with sunflowers as everyone works to achieve the region's
recovery from the disaster as soon as possible.

KYORIN Holdings, Inc.

27

Financial Analysis

Business Overview

Net sales(Millions of yen)
120,000
99,764

104,069 103,232 107,031

2009

2010

The Kyorin Group comprises KYORIN Pharmaceutical Co., Ltd., which is mainly involved
with the R&D, manufacture and sales of pharmaceuticals; KYORIN Rimedio Co., Ltd.,
which mainly manufactures and sells generic drugs; Dr. Program Co., Ltd., which mainly
develops and sells skincare products; KYORIN Medical Supply Co., Ltd., which is mainly
involved in sales promotion, advertising planning and production, and the environmental
hygiene business; and KYORIN Pharmaceutical Facilities Co., Ltd., which is mainly
involved in contract manufacturing of third-party products. These five companies operate
under the Group holding company, KYORIN Holdings, Inc. (“the Company”). As theGroup’s controlling company, KYORIN Holdings is responsible for the business strategiesof the overall Group, and strives to efficiently allocate and utilize management resources.

111,400

90,00060,00030,000

0

2011

2012

2013

Industry Trends in Japan(FY)n Ethical drug sales in Japan (Ethical drug business)n Ethical drug sales overseas (Ethical drug business)
n Generic drug businessn Consumer healthcare business

Operating income and operating income margin(Millions of yen)
20,00017,94816,44315,00014,464
13,261

15.8

13.3

16.8

(%)
20.0
17,607
15.0

15.8

14.0

10,000

10.0

5,000

5.0

0

2009

2010

2011

2012

2013

(FY)

0

n Operating income (Left scale)Operating income margin (Right scale)n

Net income and ROE(Millions of yen)
15,000(%)
15.0
12,422
10,927

10,000

8,848

10.1

8.8

12,025

9,231
10.0

10.0
9.0

8.0
5.0

5,000

0

2009

2010

n Net income (Left scale)ROE (Right scale)
n

2011

2012

2013

(FY)

0

In fiscal 2013, the Japanese economy remained on a gradual recovery path, supported
mainly by improving employment conditions and growing consumer spending. The recovery was also underpinned by a weaker yen and rising stock prices reflecting expectations
for the government’s economic stimulus policy measures.
Under these circumstances, in the domestic pharmaceutical industry, where the corebusiness of the Kyorin Group operates, the market growth rate remained low and competition among companies intensified mainly due to the fact that the Japanese government
continued to implement various policies designed to curtail spending on drugs. The
consumer healthcare business continued to face a challenging environment despite an
upturn in business conditions due to higher consumer spending.

Consolidated Operating Results
Net Sales
In fiscal 2013, overall net sales increased 4.1% year on year to ¥111,400 million, reachingan all-time high. Sales growth was driven by year-on-year increases in ethical drug andgeneric drug sales in the pharmaceutical business, despite lower sales in the consumer
healthcare business.
With regard to the ethical drugs business in Japan, sales increased year on year due tothe launch of new products, notably Pentasa suppository in June 2013 and Flutiform, acombination treatment for asthma, in November 2013, and higher royalty income fromout-licensed products. Another factor behind the higher sales was continued growth inour principal products. There were also contributions to sales from KYORIN Pharmaceutical
Facilities Co., Ltd., which started business on October 1, 2012. As a result, segment
sales rose to ¥91,668 million, up 3.8% year on year. Among our mainstay products, sales
growth was posted for Kipres, a treatment for bronchial asthma and allergic rhinitis, for
Uritos, a treatment for overactive bladder, and Pentasa, a treatment for ulcerative
colitis and Crohn’s disease. On the other hand, sales decreased year on year for
Mucodyne, a mucoregulant.
In ethical drug sales overseas, royalty income decreased year on year for gatifloxin
ophthalmic solution (outlicensed to Allergan, Inc. (U.S.A.)) due to the impact of generics
launched in the U.S. Meanwhile, there was a decrease in other non-recurring revenues
from contractual agreements, reflecting the transfer of assets related to the topical antifungal prescription drug Pekiron cream to Galderma S.A. (Head office: Switzerland) in theprevious fiscal year. As a result, segment sales decreased 22.9% year on year to ¥1,849
million.
Sales for generic drugs increased 18.7% year on year to ¥11,987 million. There wereincreased sales to insurance dispensing pharmacies mainly due to the implementationof measures to promote the use of generic drugs, and increased sales for products
manufactured under outsourcing contracts.
Sales in the nonprescription drugs, etc., business declined 4.7% year on year to¥4,172 million. Despite the rise in sales for RUBYSTA, a multi-purpose disinfectant
cleaner, the overall decline in sales reflected lower sales of other products. As a result, net
sales in the pharmaceutical business increased by 4.3% to ¥109,678 million and operating
income amounted to ¥16,973 million, down 5.5% year on year.
In the consumer healthcare business, the Kyorin Group posted lower sales but higher
earnings. Sales declined 7.9% to ¥1,721 million. This mainly reflected reduced sales at
Dr. Program Co., Ltd., which is engaged in a nanocapsule technology-based cosmetics
business, following the consolidation of sales channels into mail order sales. Operating
income amounted to ¥161 million, compared to an operating loss of ¥200 million in theprevious fiscal year.

Cost of Sales Ratio, SG&A Expenses, and Operating Income
The cost of sales ratio increased 1.1 percentage points year on year to 38.6%, mainly due
to the impact of the conversion into a consolidated subsidiary of KYORIN Pharmaceutical
Facilities Co., Ltd. (six months’ results), which is mainly involved in contract manufacturingof third-party products. Gross profit was up by ¥1,454 million year on year due to theincrease in sales.

28

Annual Report 2014

Financial Information

SG&A expenses increased 3.7% year on year to ¥50,744 million, mainly attributable toan increase in selling expenses and patent royalties and other fees.
As a result, operating income decreased 1.9% year on year to ¥17,607 million. The
operating income margin fell 1.0 percentage point to 15.8%.

Cost of sales ratio
(%)
40.0
38.6

Summary of Consolidated Statements of Income
Millions of yen

FY2012FY2013

Net sales

107,031

111,400

4,368

4.1

Cost of sales

40,13343,0472,913

7.3

YoY change YoY change (%)

Gross profit

66,897

68,352

1,454

2.2

SG&A expenses

48,94950,744

1,795

3.7(R&D expenses)

11,05911,359300

2.7Operating income

17,94817,607

(340)

(1.9)

790

732

(57)

(7.3)

Other income
Other expenses

62

59

(2)

(3.9)

Income before income taxes

18,60318,312

(290)

(1.6)

Net income

12,422

12,025

(396)

(3.2)

Millions of yen

Income before minority interests
Total other comprehensive
incomeComprehensive income

12,422FY2013

12,025

37.6

37.5
36.1

35.8

36.0

34.0

2009

2010

2011

2012

2013

(FY)

Net assets

Summary of Consolidated Statements of Comprehensive Income
FY201238.0

YoY change YoY change (%)

(397)

(3.2)

1,843

1,333

(510)

(27.7)

14,265

13,358

(907)

(6.4)

(Millions of yen)
150,000
120,000

111,706 118,201

129,099

137,821104,91190,00060,000Net Income and Net Income Per Share
Net income decreased 3.2% year on year to ¥12,025 million. Net income per sharedecreased ¥5.30 from the previous fiscal year to ¥160.95.

30,0000Assets, Liabilities and Net Assets
At March 31, 2014, current assets had increased ¥13,373 million due to increases in cash
and cash in banks and in short-term investments. The increases were partly offset bydecreases in notes and accounts receivable. Fixed assets rose ¥1,037 million mainly due
to an increase in property, plant and equipment, despite declines in investment securities
and deferred tax assets. As a result, total assets increased ¥14,410 million from a year
earlier to ¥169,378 million.
Liabilities at the fiscal year-end were up ¥5,688 million to ¥31,557 million from a year
earlier. This was mainly due to increases in notes and accounts payable, and accrued
facility expenses under other current liabilities, despite a decrease in accrued income
taxes.
Net assets at the fiscal year-end amounted to ¥137,821 million, up ¥8,722 million froma year ago. This was mainly attributable to increases in retained earnings and in unrealized
holding gain on other securities.
As a result, the shareholders’ equity ratio at year-end was 81.4%, down 1.9 percentage
points from the previous fiscal year-end.

ROE (Return on Equity)
The Kyorin Group has established net sales and operating income as its performancetargets, with the aim of achieving sustainable growth. The Group recognizes that improving profitability and raising ROE are crucial to attaining those targets. In fiscal 2013, ROE
was 9.0%, down 1.0 percentage point from the previous fiscal year.

2009

2010

2011

2012

2013

(FY)

Total shareholders’ equity ratio
(%)
85.0
83.3
81.4

81.1
80.0
76.5

75.9

2009

2010

75.0

70.0

2011

2012

2013

(FY)

Summary of Consolidated Balance Sheets
Millions of yen

FY2012FY2013

YoY change YoY change (%)

Current assets

108,265

121,638

13,373

12.4

Fixed assets

46,70247,740

1,037

2.2

Total assets

154,968

169,378

14,410

9.3

Current liabilities

22,89728,401

5,503

24.0

Long-term liabilities

2,970

3,155

185

6.2

Total liabilities

25,86831,557

5,688

22.0

Total shareholders’ equity

126,985

135,273

8,287

6.5
20.6

Total accumulated othercomprehensive income
Net assets
Total liabilities and net assets

2,113

2,548

434

129,099

137,821

8,722

6.8

154,968

169,378

14,410

9.3

KYORIN Holdings, Inc.

29

Cash Flows

Cash flows from operating activities,
cash flows from investing activities,
and free cash flow
(Millions of yen)
20,00019,293
16,816

12,027 12,439
8,913

10,0000

11,544

6,805

412

4,999

3,987

4,357

(1,806)(2,477)(4,926)–10,000(7,187)

2009

2010

2011

n Cash flows from operating activitiesn Cash flows from investing activities
Free cash flown

20122013 (FY)

Net cash provided by operating activities totaled ¥19,293 million. The main components
were income before income taxes and minority interests of ¥18,312 million, depreciation
and amortization of ¥3,153 million, an increase in notes and accounts payable of ¥2,499
million, a decrease in notes and accounts receivable of ¥2,445 million, an increase ininventories of ¥1,761 million and income taxes paid of ¥6,089 million.
Net cash used in investing activities was ¥2,477 million. Cash was mainly used for
payments for purchase of short-term investments of ¥9,895 million, proceeds from sales
and redemption of short-term investments of ¥6,501 million, payments for purchase ofproperty, plant and equipment of ¥2,622 million, and payments for purchase of investment securities of ¥4,509 million. On the other hand, cash was provided by proceedsfrom sales and redemption of investment securities of ¥7,829 million.
Net cash used in financing activities was ¥3,704 million, largely attributable to paymentof cash dividends of ¥3,736 million.
As a result, cash and cash equivalents at the end of the fiscal year were up ¥13,285
million year on year to ¥35,828 million.
Cash flows for the next fiscal year, the fiscal year ending March 31, 2015, are projected
as follows. Investing activities are projected to use approximately ¥6,000 million cash
mainly for acquiring property, plant and equipment, including constructing a new R&D
facility and enhancing plant facilities. Financing activities are projected to use approximately ¥4,600 million for the payment of dividends, comprising ¥42.00 per share for the
year-end dividend, and ¥20.00 per share for the interim dividend.

Summary of Consolidated Statements of Cash Flows
Millions of yen

FY2012FY2013

YoY change YoY change (%)

Cash provided by operating
activities

11,544

19,293

7,749

67.1

Cash used in investing activities(7,187)(2,477)

4,710

65.5

Cash provided by (used in)financing activities(5,132)(3,704)

1,428

27.8

Cash and cash equivalents
at end of year

22,54335,82813,285

58.9

Outlook for Fiscal 2014
The outlook for the domestic pharmaceutical industry is expected to remain challenging
mainly due to the fact that the Japanese government should continue to implement
various policies designed to curtail spending on drugs, including lowering prices on the
NHI drug price list in April 2014 by about 3% for the whole industry on average, alongwith the impact of the consumption tax rate increase.
Under these conditions, the Kyorin Group will make every effort to achieve the targets
prescribed by our medium-term business plan, HOPE100 Stage 1 (for fiscal 2010–2015).
Fiscal 2014 is the fifth year of this plan, and we will actively promote the plan’s businessstrategies, including advancing initiatives related to the Pharma Complex Model andaccelerating growth in new consumer healthcare operations. Our ultimate goal here is toachieve sustainable growth and earn trust and improved assessments from all our
stakeholders.
On the sales front, in the new drugs business, we are projecting higher sales of products such as the new Flutiform drug launched in fiscal 2013. Combined with an anticipated increase in sales in the generic drugs business, we are expecting overall sales toreach a record high.
On the earnings front, we are forecasting lower earnings based on an anticipatedincrease in the cost of sales ratio due to the impact of the lowering of prices on the NHI
drug price list, as well as a projected ¥1.1 billion year-on-year increase in R&D expenses
to ¥12.5 billion.

Forecasts for Fiscal 2014
Millions of yen

30

Annual Report 2014

FY2012FY2013

FY2014 YoY change (%)

Net sales

107,031

111,400

112,200

0.7

Operating income

17,94817,60715,800(10.3)Net income

12,422

12,025

11,300(6.0)

Financial Information

Business Risks
We have described below the risk factors that could affect the business performance or
financial health of the Group. Although the Group has taken organizational and systematic
measures to minimize risk, the outline does not include every risk or variable that could
affect its business.

1. Legal Regulations

7. Pharmaceutical Recalls

Legal regulations in Japan, such as the Pharmaceutical
Affairs Law, the NHI system, NHI drug prices and laws inother countries can affect the Group’s business. Everystage of our operations, including pharmaceutical development, production, import, and distribution, is regulated
by various approval and licensing systems. Unforeseen
substantial shifts in future healthcare administration policy
could affect our business performance and financial health.

If the Group’s pharmaceuticals are shown to be defective
due to contamination or other causes, they will berecalled. Such a situation would adversely affect theGroup’s business results.

2. Pharmaceutical R&D
Ethical drug development requires substantial R&D investment over lengthy periods. Furthermore, the success rate
is low for companies seeking to discover original compounds and bring pharmaceutical products to market.
Currently, several of KYORIN Pharmaceutical Co., Ltd.’s
ethical drugs are undergoing clinical trials. The clinicaldevelopment of such drugs could be terminated as aconsequence of various factors, such as unforeseeableside effects or failure to achieve intended results.

3. Increased Competition
The pharmaceutical industry is experiencing rapid technological change. Sales of the Group’s principal products could
be affected if a competitor developed and brought to market
drugs that were more useful or produced the same effects.

8. Intellectual Property Protection
There is a risk that the Group may become unable toprotect its intellectual property effectively in Japan oroverseas. In this event, third parties could exploit theGroup’s technology and reduce demand for its principal
products and related pharmaceuticals. If the Group’s otheractivities are deemed to infringe on another company’s
patents or threaten its intellectual property rights relating
to its products, the Group may become involved in legal
disputes and have to terminate some business operations.

9. Lawsuits
The Group could become the subject of a lawsuit foralleged patent infringements, violations of the Product
Liability Act or the Antimonopoly Act or as a result ofenvironmental issues or labor disputes.

10. Exchange Rate Fluctuations
As the Group imports and exports pharmaceutical products, its sales are vulnerable to exchange rate fluctuations.

4. NHI Drug Price Revisions

11. Cancellations of Tie-Up Agreements

Japan’s healthcare system, including NHI drug prices, isbeing revised. When forecasting business results, theKyorin Group does its best to predict and factor in theeffects of such changes. Nevertheless, our performance
could suffer as a result of greater than expected NHI drug
price revisions or changes to the NHI system.

The Group promotes strategic alliances to make efficientuse of external capital. Through tie-up agreements withother pharmaceutical companies in and outside of Japan,
the subsidiary allocates sales rights for some of its products and collaborates in sales, R&D, and other activities.
A cancellation of these tie-up agreements for any reason
could affect the forecast performance of the Group.

5. Side Effects
Information concerning the safety of new pharmaceuticals
is based only on clinical trials using a limited number ofsubjects and therefore cannot eliminate the possibility ofall side effects. If a drug in general use is found to haveunknown and unreported side effects after its launch, its
usage may be restricted or, in some cases, its sale could
be discontinued.

12. IT Security and Information Management
In the course of business operations the Group utilizes
numerous IT systems. This means business operations
are vulnerable to disruptions caused by system faults oroutside causes such as computer viruses. Furthermore,
the leakage of information could cause a loss of trust in
the Group and materially affect the business performanceof the Group.

6. Slowdowns or Delays in Production
Technical or regulatory problems, natural disasters andaccidents, including fires, could cause slowdowns ordelays in production or the cessation of operations,
thereby affecting the Group’s performance. Operations at
the Noshiro Plant (Noshiro, Akita Prefecture, Japan) of
Kyorin Group company KYORIN Pharmaceutical Co., Ltd.
were not affected by the Great East Japan Earthquakethat struck on March 11, 2011. No plant personnel were
injured, and the plant itself sustained no physical damage
from the disaster.

KYORIN Holdings, Inc.

31

Consolidated Balance Sheet
KYORIN Holdings, Inc. and Consolidated Subsidiaries
As of March 31, 2014

Millions of yen

Thousands of
U.S. dollars(Note 3)

2014

2013

2014

¥ 31,017¥ 21,370$  301,370

Notes and accounts receivable (Note 11)

44,12346,555

428,712

Short-term investments (Notes 5 and 11)

17,965

11,667

174,553

Merchandise and finished goods

12,172

11,405

118,267

Work in process

1,048

837

10,183

Raw materials and supplies

8,477

7,694

82,365

Deferred tax assets (Note 14)

2,432

2,773

23,630

Other

4,456

6,013

43,296

(54)

(53)

(525)

121,638108,265

1,181,869

Land

2,449

2,466

23,795

Buildings and structures

30,57730,306

297,095

Machinery and vehicle

17,991

16,668

174,806

Leased assets (Note 10)

517

332

5,023

Construction in progress

3,505

1,071

34,056

Other

7,668

7,071

74,504(41,869)(39,705)(406,811)

20,841

18,209202,497

23,80424,552

231,286

Long-term loans

4

19

39

Asset for retirement benefits (Note 12)

20

—

194

Goodwill—

64—

Trademark

4

7

39

AssetsCurrent assets:
Cash and cash in banks (Notes 4, 11 and 13)

Inventories:

Less allowance for doubtful accounts
Total current assets

Property, plant and equipment:Less accumulated depreciation and impairment loss
Property, plant and equipment, net

Investments and other assets:
Investment securities (Notes 5 and 11)

Deferred tax assets (Note 14)

454

1,438

4,411

Other

2,732

2,534

26,545Less allowance for doubtful accounts

(122)

(123)

(1,185)26,89828,493

261,349¥169,378¥154,968$1,645,725

Total investments and other assets
Total assets

32

Annual Report 2014

Financial Information

Millions of yen

Thousands of
U.S. dollars(Note 3)

2014

2013

2014

¥ 11,056¥  8,556$  107,423

1,678

1,523

16,304

88

81

855

Accrued income taxes (Note 14)

2,361

3,356

22,940Accrued bonuses to employees

3,301

3,327

32,073

Reserve for sales returns

30

43

291

Provision for point card certificates

39

45

379

9,844

5,962

95,64728,401

22,897

275,952

Long-term debt (Note 6)

242

251

2,351

Lease obligations (Note 6)

259

184

2,517

Accrued retirement benefits for employees (Note 12)

—

1,938

—

Accrued retirement benefits for directors and corporate auditors

14

33

136

2,073

—

20,142

566

562

5,499

3,155

2,970

30,655

700

700

6,801

Capital surplus

4,752

4,752

46,172Retained earnings

130,145

121,856

1,264,526

(325)

(323)

(3,158)135,273

126,985

1,314,351

3,434

2,293

33,366

Liabilities and net assets
Current liabilities:
Notes and accounts payable (Note 11)
Short-term bank loans (Note 6)
Lease obligations (Note 6)

Other
Total current liabilities

Long-term liabilities:

Liability for retirement benefits (Note 12)
Other
Total long-term liabilities

Contingent liabilities (Note 17)

Net assets:
Shareholders’ equity (Note 7):
Common stock, no par value:
Authorized—297,000,000 shares in 2014 and 2013
Issued—74,947,628 shares in 2014 and 2013

Treasury stock, at cost:
231,922 shares in 2014
231,213 shares in 2013
Total shareholders’ equity
Accumulated other comprehensive income:Unrealized holding gain on other securities
Translation adjustments

12

(180)

117

(898)

—

(8,725)

2,548

2,113

24,757

Total net assets

137,821129,099

1,339,108

Total liabilities and net assets¥169,378¥154,968$1,645,725

Retirement benefits liability adjustments
Total accumulated other comprehensive income

See notes to consolidated financial statements.

KYORIN Holdings, Inc.

33

Consolidated Statement of Income
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2014

Millions of yen

Thousands of
U.S. dollars(Note 3)

2014

2013

2014

¥111,400¥107,031$1,082,394

43,047

40,133

418,257

68,352

66,897664,127

50,744

48,949493,043

17,607

17,948171,075

Interest and dividend income

275

308

2,672

Rent income

257

268

2,497

Interest expense

(11)

(38)

(107)

Equity in earnings of affiliates

22

39

214

Foreign exchange loss

(42)

—

(408)

Loss on investments in partnership

(2)

(17)

(19)

Loss on sales and retirement of property, plant and equipment, net (Note 9)

(14)

(98)

(136)

Gain on sales of investment securities, net (Note 5)

64

25

622

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 8)
Operating income
Other income (expenses):

Loss on devaluation of investment securities

(18)

—

(175)

Other, net

175

168

1,700

Other income, net
Income before income taxes and minority interests

705

655

6,850

18,312

18,603

177,925

5,095

5,869

49,504

Income taxes (Note 14):
Current
Deferred
Total income taxes
Income before minority interests
Net income

1,191

312

11,572

6,287

6,181

61,086

12,025

12,422

116,838¥ 12,025¥ 12,422$  116,838

Millions of yen

Thousands of
U.S. dollars(Note 3)

See notes to consolidated financial statements.

Consolidated Statement of Comprehensive Income
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2014

Income before minority interests

2014

2013

2014

¥12,025¥12,422$116,838

1,138

1,738

11,057

192

87

1,866

Other comprehensive income (Note 15):
Unrealized holding gain on other securities
Translation adjustments
Share of other comprehensive income of affiliates accounted
for using equity method
Total other comprehensive income
Comprehensive income

1

18

10

1,333

1,843

12,952¥13,358¥14,265$129,790¥13,358¥14,265$129,790———

Total comprehensive income attributable to:Shareholders of KYORIN Holdings, Inc.
Minority interests
See notes to consolidated financial statements.

34

Annual Report 2014

Financial Information

Consolidated Statement of Changes in Net Assets
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2014

Millions of yen

Balance as of April 1, 2012

Shareholders’ equity

Accumulated othercomprehensive income
Total
Retirement
Unrealized
accumulated
benefits
Translation
holding gainotherliability
on other adjustments
comprehensive
adjustments
securities
incomeNumber ofshares issued Common
stock(Commonstock)

CapitalsurplusRetainedearnings

Treasurystock,
at costTotal
shareholders’equityTotal
net assets

74,947,628¥700¥4,752¥112,797¥(318)¥117,931¥  537¥(267)¥—¥  269Cash dividends

—

—

—

(3,362)—(3,362)

—

—

—

—

¥118,201(3,362)

Net income

—

—

—

12,422—

12,422————

12,422

Purchase of treasury stock

—

—

—

—

(4)

(4)

—

—

—

—

(4)

Other changes

—

—

—

—

—

—

1,756

87

—

1,843

1,843

Net changes during the year
Balance as of April 1, 2013
Cash dividends

—

—

—

9,059

(4)

9,054

1,756

87

—

1,843

10,89874,947,628

700

4,752

121,856(323)

126,985

2,293

(180)

—

2,113

129,099———(3,736)—(3,736)

—

—

—

—

(3,736)
12,025

Net income

—

—

—

12,025—

12,025————Purchase of treasury stock

—

—

—

—

(1)

(1)

—

—

—

—

(1)

Other changes

—

—

—

—

—

—

1,140

192

(898)

434

434

Net changes during the year

—

—

—

8,289

(1)

8,287

1,140

192

(898)

434

8,722

Balance as of March 31, 2014

74,947,628¥700¥4,752¥130,145¥(325)¥135,273¥3,434¥12¥(898)¥2,548¥137,821

Thousands of U.S. dollars (Note 3)

Commonstock

Balance as of April 1, 2013

CapitalsurplusRetainedearnings

Shareholders’ equity

Accumulated othercomprehensive income

Total
shareholders’equityTotal
Retirement
Unrealized
accumulated
benefits
Translation
holding gainotherliability
on other adjustments
comprehensive
adjustments
securities
incomeTreasurystock,
at cost$6,801 $46,172 $1,183,988 $(3,138) $1,233,822

Cash dividends——(36,300)

Total
net assets$22,279$(1,749)$——(36,300)———$20,531 $1,254,363—(36,300)
116,838

Net income——

116,838—

116,838

—

—

—

—

Purchase of treasury stock

—

—

—

(10)

(10)

—

—

—

—

(10)

Other changes

—

—

—

—

—

11,077

1,866(8,725)

4,217

4,217

—

—

80,538(10)

80,51911,077

1,866(8,725)

4,217

84,745$6,801 $46,172 $1,264,526 $(3,158) $1,314,351$33,366$117$(8,725)

Net changes during the year
Balance as of March 31, 2014$24,757 $1,339,108

See notes to consolidated financial statements.

KYORIN Holdings, Inc.

35

Consolidated Statement of Cash Flows
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2014

Millions of yen

Thousands of
U.S. dollars(Note 3)

2014

2013

2014

¥18,312
3,153
64
0
(39)
—

¥18,603
2,738
128
(302)
211
(1,010)$177,925
30,635
622
0
(379)
—

(19)
(20)
134
(22)
(276)
11
14
(64)
18
2,445
(1,761)2,499
9637
25,099294(11)(6,089)19,293

1
—
—
(39)
(308)
38
98
(25)
—
(1,480)
800
(486)
(144)
(2,956)
15,865323(21)(4,623)
11,544

(185)
(194)
1,302
(214)
(2,682)
107
136
(622)
175
23,756(17,110)
24,281
87
6,189
243,8692,857(107)(59,162)
187,456

Investing activities
Payments for time deposits
Proceeds from withdrawal of time deposits
Purchase of short-term investments
Proceeds from sales and redemption of short-term investments
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Purchase of investment securities
Proceeds from sales and redemption of investment securities
Other, net
Net cash used in investing activities

(865)
980
(9,895)6,501(2,622)415(473)(4,509)7,829
161(2,477)(1,328)1,139(5,995)2,402(5,972)0(344)(3,501)
6,853(441)(7,187)(8,405)
9,522(96,143)
63,166(25,476)
4,032(4,596)(43,811)76,0691,564(24,067)

Financing activities
Decrease in short-term bank loans, net
Repayments of lease obligations
Proceeds from long-term debt
Repayments of long-term debt
Net increase in treasury stock
Cash dividends
Net cash used in financing activities
Effects of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 4)

190
(112)
300
(343)
(1)
(3,736)(3,704)173
13,28522,543¥35,828(1,675)
(70)
360
(386)
(2)
(3,357)(5,132)
108(667)
23,210¥22,543

1,846(1,088)2,915(3,333)(10)(36,300)(35,989)
1,681
129,081
219,034$348,115

Operating activities
Income before income taxes and minority interests
Depreciation and amortization
Amortization of goodwill
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in accrued bonuses to employees
Decrease in accrued retirement benefits for employees
Increase (decrease) in accrued retirement benefits for directors
and corporate auditors
Increase in asset for retirement benefits
Increase in liability for retirement benefits
Equity in earnings of affiliates
Interest and dividend income
Interest expense
Loss on sales and retirement of property, plant and equipment, net
Gain on sales of investment securities, net
Loss on devaluation of investment securities
Decrease (increase) in notes and accounts receivable
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable
Increase (decrease) in consumption taxes payable
Other, net
SubtotalInterest and dividend received
Interest paid
Income taxes paid
Net cash provided by operating activities

See notes to consolidated financial statements.

36

Annual Report 2014

Financial Information

Notes to the Consolidated Financial Statements
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2014

1.

Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated financial statements of KYORIN Holdings, Inc. (the “Company”) and its
domestic subsidiaries have been prepared in accordance with accounting principles generally accepted inJapan (“Japanese GAAP”), which are different in certain respects as to the application and disclosure
requirements of International Financial Reporting Standards, and are compiled from the consolidated
financial statements prepared by the Company as required by the Financial Instruments and Exchange
Act of Japan.
Certain reclassifications have been made in the 2013 consolidated financial statements to conform to the2014 presentation. These reclassifications have no effect on consolidated net income and net assets.

2.

Summary of Significant Accounting Policies(a) Basis of Consolidation and Accounting for Investments in Unconsolidated Subsidiaries and Affiliates
The accompanying consolidated financial statements include the accounts of the Company and significant
companies controlled directly or indirectly by the Company. Companies over which the Company exercises significant influence in terms of their operating and financial policies are included in the consolidatedbalance sheets on an equity basis. All significant inter-company balances and transactions are eliminatedin consolidation.
Investments in subsidiaries and affiliates, which are not consolidated or accounted for by the equity
method, are carried at cost or less. Where there has been a permanent decline in the value of such investments, the Company has written down the investments.
Among the consolidated subsidiaries, Kyorin USA, Inc., Kyorin Europe GmbH, and ActivX Biosciences,Inc. close their books of account at December 31 for financial reporting purposes. Their financial statements
are used for preparing the consolidated financial statements, and necessary adjustments are made to theconsolidated financial statements for any significant transactions between their balance sheet date
(December 31) and the consolidated balance sheet date (March 31).
(b) Foreign Currency Translation
The revenue and expense accounts of the foreign consolidated subsidiaries are translated into yen at the
average rates of exchange in effect during the year. The balance sheet accounts, except for the components of shareholders’ equity, are translated into yen at the exchange rates in effect at the balance sheet
date. The components of shareholders’ equity are translated at their historical exchange rates. Translation
adjustments are presented as a component of net assets in the accompanying consolidated balance sheets.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, deposit with banks withdrawable on demand, andshort-term investments which are readily convertible into cash and are subject to an insignificant risk of any
changes in their value and which were purchased with original maturities of three months or less.
(d) Short-Term Investments and Investment Securities
Securities other than equity securities issued by subsidiaries and an affiliate are classified into other securities. Marketable securities classified as other securities are carried at fair value with changes in unrealized
gain or loss, net of the applicable income taxes, directly included in net assets. Non-marketable securities
classified as other securities are stated at cost. Cost of securities sold is determined by the moving
average method.
(e) Inventories
Merchandise and finished goods, work in process, raw materials, and some supplies (samples) are mainly
stated at cost determined by the gross average method. These inventories with lower profitability are written
down to their net realizable value. Supplies except for samples are stated at the last purchase price method.

KYORIN Holdings, Inc.

37

(f) Depreciation and Amortization (Except for Leased Assets)
Depreciation of property, plant and equipment is calculated by the declining-balance method at rates basedon the estimated useful lives of the respective assets. For buildings (excluding accompanying facilities)
acquired on or after April 1, 1998, the straight-line method is used. The useful lives of property, plant andequipment are summarized as follows:
Buildings and structures

3 to 50 years

Machinery and vehicle

4 to 17 years

Intangible assets are amortized by the straight-line method over their estimated useful lives. Computer
software for internal use is capitalized and amortized by the straight-line method over the useful life of
five years.
(g) Leases
Leased assets are initially accounted for at their acquisition costs and depreciated over the lease term by
the straight-line method with no residual value. All finance leases are accounted for in the same manner assales transactions.
(h) Amortization of Goodwill
Goodwill is amortized over a period of 20 years or less on a straight-line basis except that when the amountis immaterial, it is fully charged to income as incurred.
(i) Research and Development Expenses
Research and development expenses are charged to income as incurred.
(j) Income Taxes
Deferred tax assets and liabilities are determined based on the differences between financial reporting andthe tax bases of the assets and liabilities and are measured using the effective tax rates and laws which will
be in effect when the differences are expected to reverse.
(k) Accounting Method for Retirement Benefits
Up to the fiscal year ended March 31, 2014, the retirement benefit obligation is calculated by allocating theestimated retirement benefit to periods of service by the straight-line method.
Prior service cost is amortized as incurred by the straight-line method over the average remaining yearsof service of the employees (10 years).
Actuarial gain or loss is amortized from the year following the year in which such gain or loss is recognized primarily by the straight-line method over the average remaining years of service of the employees(10 years).
(l) Accrued Retirement Benefits for Directors and Corporate Auditors
Directors and corporate auditors of certain consolidated subsidiaries are customarily entitled to lump-sum
payments under their respective unfunded retirement benefits plans. Accrued retirement benefits for these
directors and corporate auditors have been estimated in an amount required under the assumption that all
directors and corporate auditors retired at the balance sheet date based on their policy.
(m) Appropriation of Retained Earnings
Appropriation of retained earnings with respect to a given financial period is made by resolution of the boardof directors’ meeting for dividend and resolution of the ordinary general shareholders’ meeting for otherappropriations (see Note 7).

38

Annual Report 2014

Financial Information(n) Accounting Change
Accounting Standards for Retirement Benefits
Effective from the year ended March 31, 2014, the Company and its consolidated domestic subsidiaries
have applied the Accounting Standard for Retirement Benefits (ASBJ Statement No. 26, May 17, 2012
(hereinafter, “Statement No. 26”)) and Guidance on Accounting Standard for Retirement Benefits (ASBJ
Guidance No. 25, May 17, 2012 (hereinafter, “Guidance No. 25”)), except Article 35 of Statement No. 26
and Article 67 of Guidance No. 25, and unrecognized actuarial losses and unrecognized prior service costs
and the difference between the retirement benefit obligations and plan assets have been recognized asliability for retirement benefits. However, when plan assets exceed retirement benefit obligations, the surplus
amount has been recognized as asset for retirement benefits.
In accordance with Article 37 of Statement No. 26, the effect of the change in accounting policies arisingfrom initial application has been recognized in remeasurements of defined benefit plans in accumulated othercomprehensive income.
As a result of the application of the standard, asset for retirement benefits in the amount of ¥20 million($194 thousand) and liability for retirement benefits in the amount of ¥2,073 million ($20,141 thousand)have been recognized, and accumulated other comprehensive income has decreased by ¥898 million($8,725 thousand) as of March 31, 2014.
Also, the impact of the change was to decrease net assets per share by ¥12.03 ($0.12) as of March
31, 2014.

3.

U.S. Dollar Amounts
The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter ofarithmetic computation only, at the rate of ¥102.92 = U.S.$1.00, the approximate rate of exchange on
March 31, 2014. The translation should not be construed as a representation that yen have been, could
have been, or could in the future be, converted into U.S. dollars at the above or any other rate.

4.

Cash and Cash Equivalents
Cash and cash equivalents as of March 31, 2014 and 2013 for the consolidated statements of cash flows
consisted of the following:
Millions of yen

Cash and cash in banks

Thousands of
U.S. dollars

2014

2013

2014

¥31,017¥21,370$301,370

Short-term investments

6,062

2,462

58,900Time deposits with a maturity over three months(1,251)(1,289)(12,155)¥35,828¥22,543$348,115

Cash and cash equivalents

KYORIN Holdings, Inc.

39

5.

Short-Term Investments and Investment Securities
Information regarding marketable securities classified as other securities as of March 31, 2014 and 2013 is
as follows:
Marketable other securities
Millions of yen

Thousands of U.S. dollars

2014

2014

Acquisition
cost

Carrying
value

Unrealized
gain (loss)

Acquisition
cost

Carrying
value

Unrealized
gain (loss)¥ 7,206¥12,303¥5,096$ 70,016$119,539$49,514942

Securities whose carrying
value exceeds theiracquisition cost:
Equity securities
Debt securities:
Government bonds

15,597

15,695

97

151,545

152,497

Corporate bonds

300

300

0

2,915

2,915

0

Other bonds

200

206

6

1,943

2,002

58

—

—

—

—

—

—

23,30428,5055,201

226,428

276,963

50,534

46

41

(5)

447

398

(49)

11,10011,099(0)

107,851

107,841

(0)

—

—

—

—

—

—

1,000

898

(101)

9,716

8,725

(981)

—

—

—

—

—

—

Other
Subtotal
Securities whose carrying
value does not exceed
their acquisition cost:
Equity securities
Debt securities:
Government bonds
Corporate bonds
Other bonds
Other
Subtotal

12,147

12,038(108)

118,024

116,965(1,049)Total¥35,451¥40,544¥5,093$344,452$393,937$49,485
Millions of yen
2013

Acquisition
cost

Carrying
value

Unrealized
gain (loss)¥ 6,144¥ 9,767¥3,622Government bonds

13,597

13,69092

Corporate bonds

2,338

2,414

75

Securities whose carrying value exceeds
their acquisition cost:
Equity securities
Debt securities:

Other bonds
Other
Subtotal

—

—

—

—

—

—

22,08125,871

3,790

1,042

935

(107)
(21)

Securities whose carrying value does not exceed
their acquisition cost:
Equity securities
Debt securities:
Government bonds

6,400

6,378

Corporate bonds

1,000

993

(7)

Other bonds

1,200

1,054

(145)

Other
Subtotal
Total

40

Annual Report 2014

—

—

—

9,642

9,361

(281)

¥31,724¥35,233¥3,509Financial Information

Unlisted securities and other non-marketable securities are not included in the above schedules as theirfair market values are extremely difficult to be determined. The amounts of these securities were ¥656 million($6,374 thousand) and ¥433 million as of March 31, 2014 and 2013, respectively.
Sales amounts of securities classified as other securities and the related aggregate gain and loss for theyears ended March 31, 2014 and 2013 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen
2014

2013

2014

¥3,003¥2,871$29,178

Gains on sales

64

25

622

Losses on sales

—

—

—

Proceeds from sales

6.

Short-Term Bank Loans, Long-Term Debt and Lease Obligations
Short-term bank loans and the current portion of long-term debt and lease obligations as of March 31,
2014 and 2013 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2014

2013

2014

¥1,370¥1,180$13,311

Current portion of long-term debt

308

343

2,993

Current portion of lease obligations

88

81

855

¥1,766¥1,604$17,159

Short-term bank loans

Total

The average interest rates applicable to short-term bank loans outstanding as of March 31, 2014 and2013 are 0.5% and 0.6%, respectively.
Long-term debt as of March 31, 2014 and 2013 consisted of the following:
Millions of yen

Thousands of
U.S. dollars

2014

2013

2014

Long-term debt, due through 2016 at average interest
rates of 0.5% and 0.7% in 2014 and 2013, respectively

¥550

¥594

$5,344

Lease obligations due through 2023 and 2022 in 2014
and 2013, respectively

347

265

3,372

Current portion of long-term debt and lease obligations
due within one year

(396)

(424)

(3,848)

Total

¥501

¥435

$4,868

The annual maturities of long-term debt and lease obligations are summarized as follows:
Millions of yen

Thousands of
U.S. dollars

2015

¥396

$3,848

2016

314

3,051

2017

52

505

Years ending March 31

2018

29

282

2019 and thereafter

106

1,030

Total

¥897

$8,716KYORIN Holdings, Inc.

41

7.

Shareholders’ Equity
Japanese companies have been subject to the Companies Act of Japan (the “Companies Act”). The significant
provisions in the Companies Act that affect financial and accounting matters are summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to theyear-end dividend upon resolution at the shareholders’ meeting. The board of directors may declare dividends(except for dividends-in-kind) if the company has prescribed so in its articles of incorporation for companies
that meet certain criteria such as:(1) having a board of directors,(2) having independent auditors,(3) having a board of corporate auditors, and(4) the term of service of the directors is prescribed as one year rather than two years of normal term by
its articles of incorporation.
The Companies Act permits companies to distribute dividends-in-kind (non-cash assets) to shareholders
subject to a certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the board of directors if
the articles of incorporation of the company so stipulate. The Companies Act also provides certain limitations
on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as theamount available for distribution to the shareholders, but the amount of net assets after dividends must be
maintained at no less than ¥3 million.
(b) Increases/Decreases and Transfer of Common Stock, Reserve and Surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal
reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus)
depending on the equity account charged upon the payment of such dividends until the total of aggregate
amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Companies
Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The
Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capitalsurplus and retained earnings can be transferred among the accounts under certain conditions upon
resolution of the shareholders.
(c) Treasury Stock and Stock Option
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury
stock by resolution of the board of directors. The amount of treasury stock purchased cannot exceed theamount available for distribution to the shareholders, which is determined by specific formula. Under theCompanies Act, stock acquisition rights, which were previously presented as a liability, are now presented asa separate component of net assets. The Companies Act also provides that companies can purchase bothtreasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented asa separate component of net assets or deducted directly from stock acquisition rights.

8.

Research and Development Expenses
Research and development expenses included in general and administrative expenses for the years ended
March 31, 2014 and 2013 were ¥11,359 million ($110,367 thousand) and ¥11,059 million, respectively.

42

Annual Report 2014

Financial Information

9.

Gain (Loss) on Sales and Retirement of Property, Plant and Equipment, Net
Significant components of the gain (loss) on sales and retirement of property, plant and equipment, net for
the years ended March 31, 2014 and 2013 are as follows:
Millions of yen

Thousands of
U.S. dollars

2014

2013

2014

¥9

¥—

$87

0

0

0

162

—

1,574

Gain:
Buildings and structures
Machinery and vehicle
Land
Other

1

0

10

¥172

¥0

$1,671¥(137)¥(13)$(1,331)

(5)

(66)

(49)

Loss:
Buildings and structures
Machinery and vehicle
Other
Total

10.

(43)

(18)

(418)

(186)

(98)

(1,807)¥ (14)¥(98)$  (136)

LeasesLeased assets principally consist of plant equipment and system devices (machinery and vehicle) for the
Pharmaceutical Business.
Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2014
on noncancellable operating leases accounted for as rental transactions are summarized as follows:
Millions of yen

Thousands of
U.S. dollars

OperatingleasesOperatingleases2015¥ 95$  9232016 and thereafter

371

3,605

Total

¥466

$4,528Years ending March 31

11.

Financial Instruments(a) Investment Policy of Financial Instruments
The Company and its consolidated subsidiaries mainly operate funds by the highly secured financial instruments such as deposits and highly rated bonds, ensuring their security and liquidity. The Company and its
consolidated subsidiaries use bank loans as the prime source of financing, and no derivatives are used.
(b) Details of Financial Instruments, Associated Risks and Risk Management
Operating receivables such as notes and accounts receivable are exposed to credit risk. The Company
and its consolidated subsidiaries, in accordance with internal rules, keep track of the adverse financial
conditions of customers in the early stage to mitigate bad debt by monitoring major customers’ credit
conditions periodically and managing the due date and balance per customer. The Company and its consolidated subsidiaries mitigate foreign currency risk by utilizing foreign currency deposits for operatingreceivables denominated in foreign currencies and settling payables denominated in the same currencies
through deposits.
Short-term investments and investment securities mainly consist of highly rated bond securities andequity securities of companies with business relationships and are exposed to market risk and credit risk.
The Company and its consolidated subsidiaries regularly review the fair value and issuers’ financial condition
to mitigate the risks.
Operating payables such as notes and accounts payable are mainly due within six months. Certain operating payables are denominated in foreign currencies.

KYORIN Holdings, Inc.

43

Short-term bank loans are mainly used to finance operating capital, and long-term debts are mainly used
to finance necessary funds for capital investments and business expansion.
Operating payables and loans and debts are exposed to liquidity risk. The Company and its consolidated
subsidiaries manage the risk by preparing and updating the cash management plan periodically.
(c) Supplemental Information on Fair Value of Financial Instruments
As well as the values based on market prices, fair values of financial instruments include values which arereasonably calculated in case market prices do not exist. As the calculation of those values includes variablefactors, those values may vary in case different assumptions are applied.
Carrying values, fair values, and their differences of financial instruments as of March 31, 2014 and 2013
are as follows:
Millions of yen

Thousands of U.S. dollars

2014

Cash and cash in banks

Carrying
value

Fair value

2014

Difference

Carrying
value

Fair value

Difference¥ 31,017¥ 31,017¥—$  301,370$  301,370$—

Notes and accounts
receivable

44,12344,123—428,712428,712—

Short-term investments
and investment securities

40,54440,544—393,937

393,937—¥115,684¥115,684¥—$1,124,019$1,124,019$—

Notes and accounts
payable¥ 11,056¥ 11,056¥—$  107,423$  107,423$—

Total liabilities¥ 11,056¥ 11,056¥—$  107,423$  107,423$—

Total assets

Millions of yen
2013

Cash and cash in banks
Notes and accounts receivable
Short-term investments and investment securities
Total assets
Notes and accounts payable
Total liabilities

Carrying
value

Fair value

Difference¥ 21,370¥ 21,370¥—

46,55546,555—35,23335,233—¥103,159¥103,159¥—¥  8,556¥  8,556¥—¥  8,556¥  8,556¥—

Unlisted securities and others of ¥1,224 million ($11,893 thousand) and ¥986 million whose fair values
are extremely difficult to determine as of March 31, 2014 and 2013, respectively, are not included in theabove tables.
Calculation method of fair value of financial instruments and information about securities are as follows:
Cash and cash in banks and Notes and accounts receivable
The carrying value is deemed as the fair value since it is scheduled to be settled in a short period of time.
Short-term investments and Investment securities
Fair value of equity securities is based on the price on stock exchanges and that of bonds is based on
the price on bond markets or the price presented by the counterparty financial institutions. Please see
Note 5, Short-Term Investments and Investment Securities, for securities by classification.
Notes and accounts payable
The carrying value is deemed as the fair value since it is scheduled to be settled in a short period of time.

44

Annual Report 2014

Financial Information

The redemption schedule for monetary receivables and securities with maturities subsequent to March 31,
2014 is as follows:
Millions of yen
2014
Due in one
year or lessDue after one
year throughfive years

Due after five
years throughten years

Due after
ten years

Cash and cash in banks¥31,016

¥—

¥—

¥—

Notes and accounts receivable

44,123

—

—

—

¥—

Short-term investments andinvestment securities:
Other securities with maturities:
Government bonds¥17,600¥6,600¥2,500

Bonds

300

—

—

—

Other

—

—

1,000

200

¥93,039¥6,600¥3,500

¥200

Total

Thousands of U.S. dollars
2014
Due in one
year or lessDue after one
year throughfive years

Due after five
years throughten years

Due after
ten years

Cash and cash in banks$301,360

$—

$—

$—

Notes and accounts receivable

428,712———$171,007$64,127$24,291

$—

Bonds

2,915

—

—

—

Other

—

—

9,716

1,943

$903,993$64,127$34,007$1,943

Short-term investments andinvestment securities:
Other securities with maturities:
Government bonds

Total

12.

Retirement Benefit Plans
The Company and its consolidated subsidiaries have defined benefit pension plans, defined contribution
pension plans, and annuity in advance retirement severance plans, and certain domestic consolidated
subsidiaries adopt lump-sum retirement plans and the Government Welfare Pension Fund Plan.
Certain consolidated subsidiaries have adopted the simplified method in calculating the retirement
benefit obligations.
Effective from the year ended March 31, 2014, the Company and its consolidated domestic subsidiaries
have applied the Accounting Standard for Retirement Benefits (ASBJ Statement No. 26, May 17, 2012) and
Guidance on Accounting Standard for Retirement Benefits. In this section, information for the year ended
March 31, 2013 is disclosed in conformity with the former standard.
(For the year ended March 31, 2014)
Defined benefit plans(1) The changes in the retirement benefit obligation for the year ended March 31, 2014 are as follows:
Millions of yen

Thousands of
U.S. dollars

2014

2014

¥29,999$291,479

Service cost

1,003

9,745

Interest cost

389

3,780

Retirement benefit obligation as of April 1, 2013

Actuarial loss
Retirement benefits paid
Prior service costs
Retirement benefit obligation as of March 31, 2014

109

1,059

(1,237)(12,019)(675)(6,558)¥29,589$287,495

KYORIN Holdings, Inc.

45

(2) The changes in plan assets for the year ended March 31, 2014 are as follows:
Millions of yen

Thousands of
U.S. dollars

2014

2014

¥25,269$245,521

Expected return on plan assets

758

7,365

Actuarial gain or loss

992

9,639

Contributions paid by the employer

2,120

20,599Retirement benefits paid

(1,237)(12,019)¥27,902$271,104

Plan assets as of April 1, 2013

Plan assets as of March 31, 2014(3) The changes in liability (asset) for retirement benefits for consolidated subsidiaries applying the simplified
method for year ended March 31, 2014 are as follows:
Millions of yen

Liability (asset) for retirement benefits as of April 1, 2013

Thousands of
U.S. dollars

2014

2014

¥378

$3,673Retirement benefits costs

75

729

Retirement benefits paid

(57)

(554)

Contributions to the plans
Liability (asset) for retirement benefits as of March 31, 2014

(28)

(272)

¥367

$3,566(4) The reconciliation between the liabilities recorded in the consolidated balance sheet and the balances ofdefined benefit obligations and plan assets as of March 31, 2014 is as follows:
Millions of yen

Thousands of
U.S. dollars

2014

2014

Funded defined benefit obligation¥29,821$289,749

Plan assets(28,155)(273,562)

1,666

16,187387

3,760

Net liability (asset) for retirement benefits¥2,053$19,948

Liability for retirement benefits¥2,073$20,142

(20)

(194)

¥2,053$19,948

Unfunded retirement benefit obligation

Asset for retirement benefits
Net liability (asset) for retirement benefits

The above table includes defined benefit plans applying the simplified method.
(5) The components of retirement benefits costs for the year ended March 31, 2014 are as follows:
Millions of yen

Service costs

Annual Report 2014

2014

2014

¥1,003$9,745

Interest costs

389

3,780

Expected return on plan assets(758)(7,365)

Amortization of actuarial loss

310

3,012

Amortization of prior service costs

(95)

(923)

Retirement benefits costs based on the simplified method

74

719

¥  924$8,978

Retirement benefits costs

46

Thousands of
U.S. dollars

Financial Information(6) Unrecognized prior service costs and unrecognized actuarial loss included in accumulated othercomprehensive income (before tax effect) as of March 31, 2014 are as follows:
Millions of yen

Unrecognized prior service costs

Thousands of
U.S. dollars

2014

2014

¥(629)$(6,112)

Unrecognized actuarial loss

2,026

19,685

Balance at the end of the year

¥1,396$13,564(7) Plan assets
The breakdown of plan assets is as follows:
2014

Domestic debt securities

42.5%

Domestic equity securities

16.6

Foreign debt securities

6.6

Foreign equity securities

12.8

Other

21.5

Total

100.0%In determining the long-term expected rate of return on plan assets, the Company and its consolidated
subsidiaries consider the current and projected asset allocations, as well as current and future long-term
rates of return for the various categories of plan assets.
(8) Actuarial assumptions
2014

Discount rate

1.3%

Expected rate of return on plan assets

3.0%

Defined contribution plans
The Company and its consolidated subsidiaries contributed ¥298 million ($2,895 thousand) to the defined
contribution plans for the year ended March 31, 2014.
(For the year ended March 31, 2013)
The following table sets forth the funded and accrued status of the plans and the amounts recognized in the
consolidated balance sheets as of March 31, 2013 for the Company’s and the consolidated subsidiaries’
defined benefit plans:Millions of yen
2013

Projected benefit obligation¥(30,577)

Plan assets at fair value

25,469Unfunded retirement benefit obligation(5,108)Unrecognized actuarial gain or loss

3,219

Unrecognized prior service costs(49)

Net retirement benefit obligation(1,938)Prepaid pension costs
Accrued retirement benefits for employees—¥ (1,938)

KYORIN Holdings, Inc.

47

The components of retirement benefit expenses for the year ended March 31, 2013 are outlined
as follows:
Millions of yen
2013

Service costs¥  898Interest costs

546

Expected return on plan assets(659)

Amortization of actuarial gain or loss

413

Amortization of prior service costs(28)

Premium of defined contribution pension plan and annuity in advance retirement
severance plan, etc.

290

Total

¥1,461

The assumptions used in accounting for the above plans are as follows:
2013

13.

Discount rate

1.3%

Expected rate of return on plan assets

3.0%

Pledged Assets
Assets pledged as collateral for guaranty deposits as of March 31, 2014 and 2013 are as follows:

Assets pledged as collateral:

Millions of yen

Thousands of
U.S. dollars

2014

2013

2014

¥10

¥10

$97

¥10

¥10

$97

For guaranty deposits
Cash and cash in banks
Total

14.

Income Taxes
Significant components of deferred tax assets and liabilities as of March 31, 2014 and 2013 are as follows:
Millions of yen

Thousands of
U.S. dollars

2014

2013

2014

Deferred tax assets:
Accrued retirement benefits for employees

¥—

¥729

$—

Liability for retirement benefits

739

—

7,180

Accrued bonuses to employees

1,151

1,242

11,183

Allowance for doubtful accounts

57

54

554

Accrued enterprise tax

192

265

1,866

Loss on retirement of inventories

194

259

1,885

Loss on devaluation of investment securities

243

238

2,361

Loss on retirement of property, plant and equipment

901

909

8,754

Amortization of deferred assets

553

673

5,373

Tax loss carryforward

318

590

3,090

1,031

1,237

10,017

5,383

6,201

52,303

(532)

(698)

(5,169)

4,850

5,503

47,124

Other
Subtotal
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Reserve for reduction entry of property,
plant and equipment
Unrealized holding gain on other securities
Other
Total deferred tax liabilities
Net deferred tax assets
48

Annual Report 2014

(66)

(33)

(641)

(1,879)(1,250)(18,257)

(17)

(7)

(165)

(1,962)(1,291)(19,063)¥2,887¥4,212$28,051

Financial Information

Taxes on income consist of corporate, inhabitants and enterprise taxes. Reconciliation of the statutory
tax rate to the effective tax rate for the years ended March 31, 2014 and 2013 are as follows:
2014

2013

Statutory tax rate

38.0%

38.0%

Entertainment expenses and others that are not tax
deductible permanently

2.1

2.1

Inhabitants’ per capita taxes

0.4

0.4

Adjustment to deferred tax assets and liabilities from change inthe statutory tax rate

1.0—

Tax credits for research and development expenses

(5.4)

(4.5)

Valuation allowance

(0.6)

(1.5)

Internal profit elimination

0.1

(0.5)

Other

(1.3)

(0.9)

34.3%

33.2%

Effective tax rate

The “Act for Partial Amendment of the Income Tax Act, etc.” (Act No. 10 of 2014), the “Act for Partial
Amendment of the Local Tax Act, etc.” (Act No. 4 of 2014) and the “Act for Partial Amendment Local
Corporate Tax Act, etc.” (Act No. 11 of 2014) were promulgated on March 31, 2014. As a result, the effective statutory tax rate used to measure deferred tax assets and liabilities was changed from 38.0% to 35.6%
for the temporary differences expected to be realized or settled from fiscal years beginning April, 2014. The
effect of this change was to decrease deferred tax assets (net of deferred tax liabilities) as of March 31,
2014 by ¥181 million ($1,759 thousand), and to increase deferred income taxes for the year ended March
31, 2014 by the same amount.

15.

Comprehensive Income
Reclassification adjustments and income tax effects on other comprehensive income for the years ended
March 31, 2014 and 2013 are as follows:
Millions of yen

Thousands of
U.S. dollars

2014

2013

2014

¥1,833¥2,724$17,810

Unrealized holding gain on other securities:
Gain arising during the year
Reclassification adjustments

(64)

(25)

(622)

Before income tax effects

1,769

2,698

17,188

Income tax effects

(630)

(960)

(6,121)

Unrealized holding gain on other securities

1,138

1,738

11,057

192

87

1,866

Translation adjustments:
Adjustments arising during the year
Share of other comprehensive income of associates
accounted for using equity method:Gain arising during the year
Total other comprehensive income

16.

1

18

10

¥1,333¥1,843$12,952

Segment Information(a) Overview of Reportable Segments
The Company’s reportable segments are those for which separate financial information is available andregular examination by the board of directors is performed in order to decide how resources are allocatedamong the Company and evaluate their performance.
The Company has two reportable segments, the Pharmaceutical Business and the Consumer Healthcare(Skincare) Business, which are classified based on similarities in the products and services.

KYORIN Holdings, Inc.

49

The Pharmaceutical Business mainly produces, sells, and purchases ethical drugs, generic drugs andover-the-counter drugs. The Consumer Healthcare (Skincare) Business mainly sells and purchases skincare
products.
(b) Method of Calculating Net Sales, Profit (Loss), Assets and Other Items by Reportable Segment
Accounting policies of the reportable segments are consistent to those described in Note 2, Summary of
Significant Accounting Policies.
Segment profit is based on operating income.
Inter-segment transactions are based on prevailing market price.
(c) Information about Net Sales, Profit (Loss), Assets and Other Items by Reportable Segment
Millions of yen
2014
Reportable segment
PharmaceuticalBusiness

Consumer
Healthcare(Skincare)Business

Total

Adjustments

Consolidated¥109,678¥1,721¥111,400¥—¥111,400

64

51

115

(115)

—

Total

¥109,742¥1,773¥111,516¥(115)¥111,400

Segment profit¥ 16,973¥  161¥ 17,134¥   473¥ 17,607

Segment assets¥151,201¥  774¥151,976¥17,402¥169,378

Net sales:
Sales to third parties
Inter-segment sales or transfers

Other items:
Depreciation and amortization¥  2,845¥   19¥  2,865¥   288¥  3,153

Amortization of goodwill

64

—

64

—

64

Investments in associates
accounted for using
equity method

568

—

568

—

568

5,906

1

5,908

534

6,442

Increase in property, plant andequipment and intangible assets

Thousands of U.S. dollars
2014
Reportable segment
PharmaceuticalBusiness

Consumer
Healthcare(Skincare)Business

Total

Adjustments

Consolidated$1,065,663$16,722$1,082,394$—$1,082,394

622

496

1,117

(1,117)—

Net sales:
Sales to third parties
Inter-segment sales or transfers
Total$1,066,284$17,227$1,083,521$(1,117)$1,082,394

Segment profit$  164,914$ 1,564$  166,479$  4,596$  171,075

Segment assets$1,469,112$ 7,520$1,476,642$169,083$1,645,725

Other items:
Depreciation and amortization

50

Annual Report 2014$   27,643$   185$   27,837$  2,798$   30,635

Amortization of goodwill

622

—

622

—

622

Investments in associates
accounted for using
equity method

5,519

—

5,519

—

5,519

Increase in property, plant andequipment and intangible assets

57,384

10

57,404

5,188

62,592Financial Information

Millions of yen
2013
Reportable segment
PharmaceuticalBusiness

Consumer
Healthcare(Skincare)Business

Total

Adjustments

Consolidated¥105,162¥1,869¥107,031¥—¥107,031

39

0

40

(40)

—

¥105,202¥1,869¥107,071¥(40)¥107,031

Net sales:
Sales to third parties
Inter-segment sales or transfers
Total
Segment profit (loss)¥ 17,963¥(200)¥ 17,762¥   185¥ 17,948

Segment assets¥138,700¥  752¥139,452¥15,515¥154,968¥  2,556¥   35¥  2,592¥   146¥  2,738

Amortization of goodwill

128

—

128

—

128

Investments in associates
accounted for using
equity method

552

—

552

—

552

5,533

23

5,557

1,081

6,638

Other items:
Depreciation and amortization

Increase in property, plant andequipment and intangible assets

1. “Adjustments” for “Segment profit (loss)” of ¥473 million ($4,596 thousand) and ¥185 million for the years
ended March 31, 2014 and 2013, respectively, were mainly eliminations of inter-segment transactions.
2. “Adjustments” for “Segment assets” of ¥17,402 million ($169,083 thousand) and ¥15,515 million as ofMarch 31, 2014 and 2013, respectively, were the Company’s assets and offset of inter-segment receivables
and payables.
3. “Adjustments” for “Depreciation and amortization” of ¥288 million ($2,798 thousand) and ¥146 million
for the years ended March 31, 2014 and 2013, respectively, were depreciation of property, plant andequipment and intangible assets of the Company.
4. “Adjustments” for “Increase in property, plant and equipment and intangible assets” of ¥534 million($5,188 thousand) and ¥1,081 million for the years ended March 31, 2014 and 2013, respectively, wereincreases in property, plant and equipment and intangible assets of the Company.
5. “Segment profit (loss)” is adjusted to operating income disclosed in the accompanying consolidated
statements of income.
(Related Information)(a) Information by Product and Service
Information by product and service is omitted since the classification by product and service was the sameas the reportable segment for the years ended March 31, 2014 and 2013.
(b) Information by Geographical Area
(1) Sales
Information about sales by geographical area is omitted for the years ended March 31, 2014 and 2013,
since domestic sales were more than 90% of net sales on the consolidated statements of income.
(2) Property, plant and equipment
Information about property, plant and equipment by geographical area is omitted for the years ended
March 31, 2014 and 2013, since property, plant and equipment in Japan constituted more than 90%
of property, plant and equipment on the consolidated balance sheets.

KYORIN Holdings, Inc.

51

(c) Information by Major Customer for the Years Ended March 31, 2014 and 2013
Millions of yen
2014
Name of customer

Sales amount

Related segments

Alfresa Corporation¥19,568

Pharmaceutical Business

SUZUKEN CO., LTD.

17,551

Pharmaceutical Business

MEDIPAL HOLDINGS CORPORATION

16,568

Pharmaceutical BusinessToho Pharmaceutical Co., Ltd.

14,977

Pharmaceutical Business and Consumer
Healthcare (Skincare) BusinessThousands of U.S. dollars
2014

Name of customer

Sales amount

Related segments

Alfresa Corporation$190,128

Pharmaceutical Business

SUZUKEN CO., LTD.

170,531

Pharmaceutical Business

MEDIPAL HOLDINGS CORPORATION

160,979

Pharmaceutical BusinessToho Pharmaceutical Co., Ltd.

145,521

Pharmaceutical Business and Consumer
Healthcare (Skincare) BusinessMillions of yen
2013

Name of customer

Sales amount

Related segments

Alfresa Corporation¥19,437

Pharmaceutical Business

SUZUKEN CO., LTD.

17,763

Pharmaceutical Business

MEDIPAL HOLDINGS CORPORATION

15,918

Pharmaceutical BusinessToho Pharmaceutical Co., Ltd.

14,483

Pharmaceutical Business and Consumer
Healthcare (Skincare) Business(d) Information about Amortization and Unamortized Balance of Goodwill by Reportable Segment
There is no unamortized balance of goodwill at the year ended March 31, 2014.
Information about unamortized balance of goodwill by reportable segment for the year ended March 31,
2013 is as follows.
Millions of yen
2013
PharmaceuticalBusiness

Consumer Healthcare(Skincare) BusinessEliminations

Total

¥64

—

—

¥64

Balance as of March 31, 2013

Information about amortization of goodwill by reportable segment for the years ended March 31, 2014
and 2013 is omitted since the information is disclosed under “(c) Information about net sales, profit (loss),
assets and other items by reportable segment” in this section.

17.

Contingent Liabilities
Contingent liabilities as of March 31, 2014 and 2013 are as follows:

Guarantors of indebtedness of employees

52

Annual Report 2014

Millions of yen

Thousands of
U.S. dollars

2014

2013

2014

¥2

¥2

$19

Financial Information

18.

Amounts per Share
Amounts per share for the years ended March 31, 2014 and 2013 are as follows:
Yen

Basic net income
Cash dividends
Net assets

U.S. dollars

2014

2013

2014

¥  160.95¥  166.25$ 1.56

52.00

50.00

0.51

1,844.61

1,727.86

17.92

Basic net income per share was computed based on the net income available for distribution to shareholders of common stock and the weighted average number of shares of common stock outstanding during
the year. Diluted net income per share is omitted because no potentially dilutive shares were outstanding
during the years ended March 31, 2014 and 2013.
Cash dividends per share represent the cash dividends applicable to the year.
The amount per share of net assets is computed based on the net assets available for distribution to theshareholders of common stock and the number of shares of common stock outstanding at the year-end.

19.

Subsequent Events
There are no relevant items.

KYORIN Holdings, Inc.

53

Independent Auditor’s Report

54

Annual Report 2014

Financial Information

Non-consolidated Financial Summary

Non-consolidated Balance Sheet
KYORIN Holdings, Inc.
As of March 31, 2014

Millions of yen

Thousands of
U.S. dollars

2014

2013

2014

¥17,102¥14,938$166,168

Cash and deposits

10,146

10,112

98,581

Short-term investments

3,599

—

34,969AssetsCurrent assets

147

79

1,428

Income taxes receivable

Prepaid expenses

1,039

2,584

10,095

Short-term loans

2,000

2,000

19,433

Deferred tax assets

154

138

1,496

Other

15

22

146

Less allowance for doubtful accounts

0

—

0

84,37084,649819,763

Property, plant and equipment

744

871

7,229

Intangible assets

761

512

7,394

Noncurrent assets

82,86583,265805,140

101,473

99,587985,941

698

466

6,782

7

7

68

706

474

6,860

Shareholders’ equity

100,767

99,112

979,081

Total net assets

100,767

99,112

979,081

101,473

99,587985,941

Millions of yen

Thousands of
U.S. dollars

2014

2013

2014

Operating revenue¥8,640¥15,654$83,949

Operating expenses

3,078

2,476

29,907

Operating income

5,561

13,17854,032

121

38

1,176

5,683

13,12655,218———Investments and other assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net assets

Total liabilities and net assets

Non-consolidated Statement of Income
KYORIN Holdings, Inc.
For the year ended March 31, 2014

Non operating income
Ordinary income
Extraordinary income
Extraordinary loss

151

185

1,467

5,531

13,031

53,741

Income taxes—current

37

27

360

Income taxes—deferred

101

29

981

5,392

12,97352,390

Income before income taxes

Net income

Note: The rate of ¥102.92 to U.S.$1.00, prevailing on March 31, 2014, has been used for translation into U.S. dollar amounts.

KYORIN Holdings, Inc.

55

Corporate Overview/Stock Information (As of March 31, 2014)
6, Kanda Surugadai 4-chome, Chiyoda-ku, Tokyo 101-8311

Head Office

Major Shareholders

Phone: +81-3-3525-4700
URL: http://www.kyorin-gr.co.jp/en/

17.95%

1958

Establishment

1.33%

31.07%¥700 million

Common Stock

Shareholders

5,578

Outstanding Shares 74,947,628

31.92%
17.73%

Shareholders

5,578

Listing

Tokyo Stock Exchange, First Section

Transfer Agent

Mizuho Trust & Banking Co., Ltd.,
2-1, Yaesu 1-chome, Chuo-ku, Tokyo 103-0028
Phone: +81-3-3278-8111

Major Shareholders

Percentage of total shares outstanding

TEIJIN LIMITED
Apricot Co., Ltd.
Mykam Co., Ltd.
The Master Trust Bank of Japan, Ltd.
(Trust Account)
Japan Trustee Services Bank, Ltd.
(Trust Account)Hiroko Ogihara
Minoru Ogihara
Banrina Co., Ltd.
Archans Co., Ltd.
Yutaka Ogihara

10.13%
6.00%
3.66%

Financial institutions17.95%

Financial instruments firms

1.33%

Other corporations

31.92%

Foreign corporations17.73%

Individuals and other

31.07%

3.65%
3.22%
3.00%
2.97%
2.60%
2.60%
2.48%

Change in Share Price
Share price(Yen)

Share price

TOPIX

TOPIX

3,000

3,000

2,500

2,500

2,000

2,000

1,500

1,500

1,000

1,000

500

500

0

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4
2009
2010
2011
2012
2013
2014

Website introducing Kyorin’s IR activities

http://www.kyorin-gr.co.jp/en/ir/

Kyorin has created an informative website introducing its IR activities, with the aim of providing timely
information to all shareholders and investors. This website provides appropriate public information
about Kyorin, including account settlement information, news releases, investor briefings materials,
and annual reports.

56

Annual Report 20140

Organization Chart (As of June 24, 2014)
General Shareholders’ Meeting

President’s Office

Board of Corporate Auditors

Management Planning

Board of Directors

Corporate Communication

Representative Director, President and Chief Executive Officer

Finance & Accounting

Management Meeting

General Affairs & Human Resources
Legal
Information System Management
Intellectual Property
Compliance
Auditing

Subsidiaries and Affiliates
Consolidated
Subsidiaries

KYORIN Pharmaceutical Co., Ltd.
Capital:¥4,317 million
Percentage of ownership: 100%
Head office: 6, Kanda Surugadai 4-chome,
Chiyoda-ku, Tokyo 101-8311
Operations: Manufacture and sales of prescription
medicines and quasi-drugs,
diagnostics, and industrial chemicals

KYORIN
PharmaceuticalCo., Ltd.
Subsidiaries

KYORIN Medical Supply Co., Ltd.
Capital:¥488 million
Percentage of ownership: 100%
Head office: Kyorin Nishi-Shinjuku Building, 25-13,
Nishi-Shinjuku 6-chome, Shinjuku-ku,
Tokyo 160-0023
Operations: Sales promotion, planning andproduction of advertising, etc.

Kyorin Europe GmbH
Capital:€50,000
Percentage of ownership: 100%
Head office: Kaiserstrasse 8, 60311 Frankfurt am
Main, Germany
Operations: Research and analysis of othercompanies’ technologies andcollection of information concerning
clinical trials

KYORIN Rimedio Co., Ltd.
Capital:¥1,200 million
Percentage of ownership: 100%
Head office: 287-1, Shimocho Moroe-cho,Kanazawa-shi, Ishikawa 920-0017
Operations: Manufacture and sales of prescription
medicines and quasi-drugs,
diagnostics, and industrial chemicals
Dr. Program Co., Ltd.
Capital:¥251 million
Percentage of ownership: 100%
Head office: Kyorin Nishi-Shinjuku Building, 25-13,
Nishi-Shinjuku 6-chome, Shinjuku-ku,
Tokyo 160-0023
Operations: Development and sales of skincare
products
KYORIN Pharmaceutical Facilities Co., Ltd.
Capital:¥450 million
Percentage of ownership: 100%
Head office: 1-4 Sasagaoka, Minakuchi-cho,
Koka, Shiga 528-0061
Operations: Manufacture and sales of prescription
medicines

Kyorin USA, Inc.
Capital:
US$500,000
Percentage of ownership: 100%
Head office: 500 Frank W. Burr Boulevard,
Teaneck, New Jersey 07666, UnitedStatesOperations: Research and analysis of othercompanies’ technologies andcollection of information concerning
clinical trials

ActivX Biosciences, Inc.
Capital:
US$1
Percentage of ownership: 100%
Head office: 11025 N. Torrey Pines Rd., La Jolla,
California 92037, United States
Operations: Discovery and evaluation of candidate
compounds
Equity-method
Affiliates

Nippon Rika Co., Ltd.
Capital:¥411 million
Percentage of ownership: 29.2%
Head office: 2-2, Nihonbashi Honcho 4-chome,
Chuo-ku, Tokyo 103-0023
Operations: Production and sales ofpharmaceuticals, reagents,
intermediates, and other products

Disclaimer Regarding Forward-looking Statements
Statements made in this annual report with respect to KYORIN Holdings, Inc.’s forecasts, plans, strategies and other statements other than those of historicalfacts are forward-looking statements about the future performance of the Company and its consolidated subsidiaries and are based on management’s
rational assumptions and beliefs in light of information currently available. As a consequence, readers should understand that, for a variety of reasons, actual
results could differ materially from projections presented in this report. Key factors that could impact our results include, but are not limited to, economic
conditions, social trends, competition from rival companies, laws and regulations, uncertainties in drug development and exchange rate fluctuations.

KYORIN Holdings, Inc.

57

KYORIN Holdings, Inc.

ANNUAL REPORT 2014

KYORIN Holdings, Inc.
6, Kanda Surugadai 4-chome, Chiyoda-ku, Tokyo
101-8311, Japan
Corporate Communication
TEL+81-3-3525-4707
URL
http://www.kyorin-gr.co.jp/en/

This report was printed using vegetable oil ink.
Printed in Japan