2O17
ANNUAL REPORT

Year ended March 31, 2017

KYORIN Holdings, Inc.

Corporate Philosophy of the Kyorin GroupKyorin continues to fulﬁll its mission ofcherishing life and beneﬁting society bycontributing to better health.

Watarase Yusuichi (drainage basin) adjacent to KYORIN Pharmaceutical Co., Ltd.’s WATARASE Research Center

Photo courtesy of TOHAN Aerialphotographic Service Co., Ltd. and Aﬂo Co., Ltd.

Contents
Long-Term Vision

HOPE 100

To Our Stakeholders

2

History of the Kyorin Group

4The Kyorin Group’s Vision andValue Creation Process

6

Performance Highlights

8Interview with the President

10

Overview of Medium-TermBusiness Plan HOPE100–Stage 2–

14

Statement

The Kyorin Group will promote diversiﬁed healthcare
business expansion and by 2023 be recognized bothwithin and outside as a company that supports soundand healthy lifestyles.

Progress of Medium-TermBusiness Plan HOPE100–Stage 2–

Corporate Objectives

Five HOPEs
An International
Company that Supports
Healthy Lifestyles
Around the WorldA Company that
Sustains Growth

The Leading
Company for Career
Fulﬁllment

An Innovative
Company that
Customers Trust

A Company that
Seeks to Co-Exist
with Society●

Be a company employees can be proud of, have trust in,and make united efforts for

Be a company that contributes to people’s health through theConsumer Healthcare Business● Be a company that promotes business expansion overseas●

Be a company that is well-regarded for its products and services
and practices excellent Monozukuri● Be a company with a positive brand image
●

●
●

●

Be a company that works to foster positive relationships with society
Be a company that acts with the social good in mind
Be a company that maintains positive business results andexcellent ﬁnancial standing

16

Ethical Drugs Business
Healthcare Business24

Corporate Governance26

Directors, Corporate Auditors,
and Corporate Ofﬁcers

29

Corporate Social Responsibility

30

Financial Analysis

38

Consolidated Financial Statements

40

Notes to Consolidated Financial Statements

45

Independent Auditor’s Report

63

Corporate Overview/Stock Information

64

Editorial Policy
Annual Report 2017 integrates financial reports
with information on the Group’s environmental,social and governance (ESG) activities. In linewith the framework established by theInternational Integrated Reporting Council, thereport combines results and other financial datawith nonfinancial information relating to value
creation by the Kyorin Group, including businessprocesses and strategies. Through thisapproach, we aim to help stakeholders gain adeeper understanding of the Group’s activities.

Target Readers
Shareholders, investors and other stakeholders

Period Covered by Report
Fiscal 2016 (April 1, 2016 to March 31, 2017);
some information also relates to fiscal 2017activities.

2017 ANNUAL REPORT

1

About the Kyorin GroupTo Our Stakeholders

To realize our corporate philosophy, “to cherish life and beneﬁtsociety by contributing to better health,” the Kyorin Group
formulated HOPE100 as a long-term vision for 2023, whichmarks the 100th anniversary of the founding of KYORIN
Pharmaceutical Co., Ltd., our core subsidiary. Under the long-term
vision HOPE100, we will comprehensively integrate our ethicaldrugs business and healthcare business and work to disperse
business risks, while focusing on increasing corporate value
over the medium to long term, with the aim of achieving healthy,
continuous growth as “a company that supports sound andhealthy lifestyles.”22017 ANNUAL REPORT

Masahiro Yamashita

Minoru Hogawa

Representative Director, Chairman

Representative Director, President andChief Executive OfficerWe will pursue “transformation” with new ideas that
go beyond our previous growth track, with the aim ofachieving our long-term vision HOPE100 and
medium-term business plan HOPE100–Stage 2–.
As the external environment surrounding the ethical drugs business becomesincreasingly challenging, the Kyorin Group faces major changes to its operating
environment, including the expiration of a patent on a key product. This uncertain
and unpredictable situation means that it will be difficult to address issues using
only our existing mindset. We are therefore working to create and implement new
approaches that go beyond our previous growth track, for dynamic innovation in
the way we carry out our business.
In fiscal 2016, the Kyorin Group formulated and began operating its medium-termbusiness plan HOPE100–Stage 2–, covering fiscal 2016 through fiscal 2019, tofurther strengthen its operating base and achieve continuous growth. We haveestablished “making reforms (changes and innovations) and achieving continuous
growth in an effort to realize our long-term vision” as our statement for Stage 2,
and all Group employees are working as one, making every effort to achieve thePlan’s targets through the pursuit of our business strategies (four priority strategies
and two development strategies) and organization strategies.
We ask for the continued understanding and support of all of our stakeholders.
July 2017

Masahiro Yamashita

Minoru Hogawa

Representative Director, Chairman
KYORIN Holdings, Inc.

Representative Director, President andChief Executive Officer
KYORIN Holdings, Inc.

2017 ANNUAL REPORT

3

About the Kyorin Group

History of the Kyorin Group• Clearly stated the corporate

philosophy and the vision (1995)

1923 1950

1951 1980

1961
Behyd, a diuretic and antihypertensive agent,
was launched.
 1965KYORIN AP-2, an analgesic, was launched.
Deamelin-S, an oral hypoglycemic agent,
was launched.


1971
Cholexamin, a lipid metabolism and peripheral
circulation improving agent, was launched.
 1974
Hespander, a plasma substitute and extracorporeal
circulation flow improver, was launched.
 1976
Hydroxyethylstarch (HES) was licensed toPfrimmer (Germany, present Baxter Deutschland).
 1980
Norfloxacin (NFLX), an antibacterial agent,
was licensed to Merck & Co. (U.S.A.).

Product history



1923
Toyo Shinyaku Sha, the predecessor of
KYORIN Pharmaceutical Co., Ltd., wasfounded.
 1931
Kyorin Chemical Laboratory was established.

Management-related events



4

1940
Kyorin Chemical Laboratory was renamed
KYORIN Pharmaceutical Co., Ltd., and Kyorin
Yakuhin Co., Ltd. was organized as anindependent marketing division.
 1947The Okaya Plant was started2017 ANNUAL REPORT1957
The medical journal bulletin “Doctor Salon”
was started.
 1962
Kyorin Chemical Laboratory (later TechnicalCenter of Development) was established.


1965
The Head Office was completed in Kanda
Surugadai.
 1977
Central Research Laboratories were established.
1981 2000

1981
Mucodyne, a mucoregulant, was launched.
 1982
Norfloxacin (NFLX) was licensed to Astra (Sweden, present
AstraZeneca) and Boots (U.K., present Abbott).
 1983
Norfloxacin (NFLX) was licensed to American Home Products(U.S.A., present Pfizer).
 1984
Baccidal (NFLX), a broad-spectrum oral antibacterial agent,
was launched.
 1986
Fleroxacin (FLRX), an antibacterial agent, was licensed toF. Hoffmann-La Roche (Switzerland).
 1989Ketas, for bronchial asthma and cerebrovascular disorders,
was launched.
Baccidal Eyedrops, a broad-spectrum ophthalmic antibacterial
agent, was launched.
 1993
Megalocin (FLRX), a long-acting new quinolone agent,
was launched.
 1996
Gatifloxacin (GFLX) was licensed to Bristol-Myers Squibb(U.S.A.).
 2000Gatifloxacin-eyedrops was licensed to Allergan (U.S.A.).


1992
KYORIN Pharmaceutical Co., Ltd. and Kyorin Yakuhin Co., Ltd.
were merged, and the new KYORIN Pharmaceutical Co., Ltd.
was founded.
 1995The Noshiro Plant was started.
1996
A joint venture, Nisshin KYORIN Pharmaceutical Co., Ltd.,was established with Kyorin’s capital participation.
The Research Center (now the WATARASE Research Center)
was founded.
 1998
Milton, an effervescent disinfectant business, was acquired
from P&G.
 1999Listed on the Tokyo Stock Exchange, Second Section.
 2000Listed on the Tokyo Stock Exchange, First Section.
KYORIN Pharmaceutical Co., Ltd., the core company within the Kyorin Group, was established 94 years ago.
We have unceasingly strived to realize our corporate philosophy of always making a contribution to human health.
Kyorin will continue to take on challenges and will evolve to become a company supporting healthy lifestyles
through our business in the treatment and prevention of diseases and the maintenance and promotion of good health.

Corporate Vision for 2023
Formulated the Long-Term Vision HOPE100 (FY2010–FY2023)

2017

2001 2010

Medium-TermBusiness Plan
Fiscal 2016 – 2019

Medium-TermBusiness Plan
Fiscal 2010 – 2015

Stage

1

2001
Kipres, the leukotriene receptor antagonist and bronchial asthma treatment
medicine, was launched.
 2002
Gatiflo (GFLX), a broad-spectrum oral antibacterial agent, was launched.
 2007
Uritos Tablets 0.1 mg, an overactive bladder drug, was launched.
Kipres Fine Granules 4 mg, a bronchial asthma treatment drug, was launched.
A business transfer agreement was made with the Fresenius Kabi AG Group in Germany
concerning Hespander and Salinhes, plasma substitutes and hemodilution agents.


2008
Kipres Tablets 5 mg, a bronchial asthma and allergic rhinitis treatment drug,
was launched.
 2009A license agreement for Neramexane, a tinnitus drug, was made with Merz
Pharmaceuticals (Germany) for the Japan region.
 2010
Mucodyne DS 50%, a mucoregulant, was launched.


2001
A subsidiary company, Kyorin USA, Inc. (U.S.A.), was established.
 2002A subsidiary company, Kyorin Europe GmbH (Germany), was established.
 2004
ActivX Biosciences, Inc. (U.S.A.) became a wholly owned subsidiary.


2005
The stock of Toyo Pharma Co., Ltd. (present KYORIN Rimedio Co., Ltd.) was 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 exchangewith KYORIN Co., Ltd.
The new Noshiro Plant began operating.
 2008KYORIN Pharmaceutical Co., Ltd. merged with Nisshin Kyorin Pharmaceutical Co., Ltd.
 2010KYORIN Co., Ltd. changed its name to KYORIN Holdings, Inc.


Stage

2

2023

Medium-TermBusiness Plan
Fiscal 2020 – 2023

Stage

3

A company that supports
sound and healthy
lifestyles

2011
Uritos Orally Disintegrating (OD) Tablets 0.1 mg, an overactive bladder drug,
was launched.
 2012
RUBYSTA, a multi-purpose disinfectant cleaner, was launched.
Transfer of business related to a topical antifungal prescription drug Pekiron cream
0.5% to Galderma S.A. (Switzerland).


2013
Pentasa Suppositories 1 g, a treatment for ulcerative colitis, was launched.
Flutiform, a combination drug for asthma treatment, was launched.
 2014Signed a license agreement concerning Vibegron, a therapeutic agent for overactive
bladder, with Merck & Co. (U.S.A.).
 2015
Eklira Genuair, a treatment for COPD, was launched.
FPR2 agonist program was licensed to Bristol-Myers Squibb Company (U.S.A.).
Kipres OD, a treatment for bronchial asthma and allergic rhinitis, was launched.
Pentasa Granules 94%, a treatment for ulcerative colitis and Crohn’s disease,
was launched.
 2016Montelukast Tablets “KM” was launched.
Desalex 5 mg Tablets, an antiallergic agent, was launched.
2012
The Shiga Plant of MSD K.K. was acquired (conversion into subsidiary) andKYORIN Pharmaceutical Facilities Co., Ltd. was established.
 2013
The Head Office was moved to Ochanomizu sola city in Kanda Surugadai.
 2015KYORIN Pharmaceutical Co., Ltd.’s WATARASE Research Center was established.




2017
All shares of Dr. Program Co., Ltd. were transferred to Taisho Pharmaceutical Co., Ltd.
KYORIN Rimedio Co., Ltd.’s Takaoka Drug Discovery Laboratory was established.

2017 ANNUAL REPORT

5

About the Kyorin GroupThe Kyorin Group’s Vision andValue Creation Process
As a pharmaceutical manufacturer, the Kyorin Group sees its mission as continuously discovering and providing
innovative, new drugs that can contribute to the health of people around the world, and we believe this to be
the source of our value creation.
While maintaining ethical drugs as our core business, we are developing a business that comprehensively
combines the healthcare business from the standpoint of responding to various health needs and supplementing
the growth of the ethical drugs business, using a variety of capital, and addressing environmental, social, andgovernance (ESG) issues to increase our corporate value.

Human Capital
Utilization of individual
employee capabilities(knowledge andtechnical skills)

The Kyorin Group’s Business Activities

Intellectual
CapitalSpecialized pipeline focusing
on specific fields

Ethical Drugs BusinessIntellectual property

Drug discovery
Pursuing the challenge of ﬁrst-in-class drug discovery
 Utilizing open innovation

Manufacturing
Capital

New drugs business

Overall optimizationof the Group’s production
system

Increasing the ratio of the new drugs group*
Establishing a presence in speciﬁc ﬁelds(respiratory, otolaryngology, urology)

Generic drugs business

Promoting businesses that use the beneﬁts of handling
new drugs in-house*New drugs group: drugs that are already launched or to be developed, which are protected by patents
and exclusivity

Financial Capital
Strong cash flow
High shareholders’equity ratio

Addressing Risks and the Environment
Medical care reform
Addressing diseases with low degree of
medical satisfaction● Changes in medical needs, sense of values●●

62017 ANNUAL REPORTCorporate Vision for 2023
Long-Term Vision

HOPE100
A Company That Supports
Healthy Lifestyles

Aiming to integrate our ethical drugs business and healthcare
business and to disperse business risks with a focus on enhancing
corporate value over the medium to long term, for healthy,
continuous growth.

Value Provided to Stakeholders

Healthcare Business
Environmental hygieneWorking to grow into a core business

Over-the-counter drugs and othersContributing to diversiﬁed needs such as self-medication

Creation of new
innovative products
Providing outstanding
products and services
Responding to unmet
medical needs
Enhancing the quality of life ofpatients and their families

Competition with other companies
Changes in economic conditions overseas● Sustainability as a company●●

2017 ANNUAL REPORT

7

About the Kyorin Group

Performance Highlights
n Consolidated Financial Highlights
KYORIN Holdings, Inc. and Consolidated Subsidiaries
Fiscal years ended March 31/As of March 31

Millions of yen

FY2012FY2013

FY2014FY2015FY2016

Net sales

107,031

111,400

113,121

119,483

115,373

Operating income

17,94817,607

14,737

19,636

10,413

Profit attributable to shareholders of KYORIN Holdings, Inc. 12,422

12,025

12,064

13,6397,305

Net cash provided by operating activities

11,544

19,293

6,391

11,137

16,386

Net cash provided by (used in) investing activities(7,187)(2,477)(1,364)650(13,142)

Net cash used in financing activities(5,132)(3,704)(5,233)(2,245)(5,721)

Free cash flow

4,357

16,816

5,027

11,787

3,244

R&D expenses

11,05911,35913,51413,01913,569

Capital expenditures

6,576

6,500

2,655

7,218

3,051

Depreciation and amortization

2,738

3,153

3,053

3,730

3,619

Total assets

154,968

169,378

183,383

197,825

192,668

Total net assets

129,099

137,821

148,600

157,049

157,837
Yen

Amounts per Share
Net assets

1,727.86

1,844.61

2,009.45

2,131.67

2,146.83

Basic profit

166.25160.95161.63184.28

99.45

Cash dividends

50.00

52.00

52.00

58.00

58.00

Operating income margin (%)

16.8

15.8

13.0

16.4

9.0

Profit attributable to shareholders of
KYORIN Holdings, Inc. / Net sales ratio (%)

11.6

10.8

10.7

11.4

6.3

R&D expenses / Net sales ratio (%)

10.3

10.2

11.9

10.9

11.8

Total shareholders’ equity ratio (%)

83.3

81.4

81.0

79.4

81.9

ROE (%)

10.0

9.0

8.4

8.9

4.6

ROA (%)

8.3

7.4

6.8

7.2

3.7

Consolidated payout ratio (%)

30.1

32.3

32.2

31.8

59.3

Number of employees

2,444

2,452

2,445

2,420

2,382

Key Performance Indicators

Total assets/Total net assets

Profit attributable to shareholders of
KYORIN Holdings, Inc.
ROE (%)

Total assets
Total net assets(Millions of yen)

200,000

183,383

197,825 192,668

169,378
150,000

154,968
129,099

Profit attributable to shareholders of
KYORIN Holdings, Inc./ROE

137,821

148,600

157,049 157,837

Basic profit per share
Consolidated payout ratio(Millions of yen)

(%)

(Yen)

15,00015

200

12,00013,63912,422 12,025 12,064
10.0

9,000

9.0

8.4

12
8.9

100,000
6,000

0

8

2017 ANNUAL REPORT

2014

2015

2016 (FY)

0

150

100

4.6

2013

184.28

(%)

60

45
30.1

32.3

32.2

31.8
99.45

30

6

3,000

2012

59.3
166.25 160.95 161.63

9
7,305

50,000

Basic profit per share/Consolidated
payout ratio

3

2012

2013

2014

2015

0

2016 (FY)

50

0

15

2012

2013

2014

2015

2016

0

(FY)

n Fiscal 2016 Highlights

Status of New Ethical Drugs

Release of Desalex,

Combination drug for asthma treatment

Sales growth for
Flutiform

a treatment for allergic diseases(launched in November 2016)

10.1billion yen(Billions of yen)

12

9
7.2
6
3.6
3
0.6
0

2013

2014

2015

2016

(FY)

Development of Pipeline

Application for manufacturing and marketing
approval of KRP-AM1977X, a quinolone synthetic antibacterial agent(April 2017)

KRP-114V, an overactive bladder treatment
Expansion of the Generic Drugs Business
Sales for generic drugs business

Release of Montelukast Tablets “KM”,(Billions of yen)a treatment for bronchial asthma and allergic rhinitis (September 2016)25.0 billion yen

30(Fiscal 2016 sales of ¥8.2 billion)

20

Commencement of operations of
Takaoka Drug Discovery Laboratory

10.1

10
0

(July 2017)

2012

15.5

15.5

2014

2015

12.0

2013

2016

(FY)

Status by Segment
Sales of major products

Sales volume by segment

5%

0.7%

Ethical drug
sales overseas

5.8 billion yen

0.8 billion yen
Generic drug

25.0 billion yen
Ethical drug
sales in Japan

83.8 billion yen

Healthcare
business

21.7%

72.6%

95%
Ethical drugs
business

109.6 billion yen

Ethical drugs business
Ethical drug
sales in Japan

Generic drug

2.2 billion yen

Flutiform 10.1 billion yen Kipres

MiltonUritosRUBYSTA 1.0 billion yen

Desalex32.7 billion yen
7.5 billion yen Pentasa 15.5 billion yen
1.0 billion yen Mucodyne 9.9 billion yen

Healthcare business

Montelukast Tablets “KM” 8.2 billion yen

2017 ANNUAL REPORT

9The Group’s Growth Strategies

Interview with the President
Within the drastically changing businessenvironment, we will pursue steadytransformation toward the achievementof the medium-term business plan
HOPE100–Stage 2–.
Minoru Hogawa
Representative Director, President andChief Executive Officer

Q
A

How would you recap ﬁscal 2016?
We worked toward continuous growth in a
drastically changing business environment.

The ethical drug industry in Japan has experienced
sluggish market conditions as a result of government
policies to promote the use of generic drugs, with atarget of having generics account for 80% of the market
in terms of quantitative share, combined with the drug
price revisions implemented in April 2016. In addition tothis market effect, the Kyorin Group’s ethical drugs
business is facing the expiration of a patent on a key
product, creating a situation requiring an unprecedented
response. The market for the healthcare business remains
uncertain, as consumer spending remains flat despite a
gradual pickup in the economy.

102017 ANNUAL REPORT

Against this backdrop, the Kyorin Group has been
striving to achieve its long-term vision HOPE100 underthe medium-term business plan HOPE100–Stage 2–,
covering the four years from fiscal 2016, by developing abusiness model that enables continuous growth. In the
ethical drugs business, this has meant working to overcome the drop in new drug sales from the expiration of apatent on a key product. In the healthcare business, which
includes skincare, environmental hygiene, and over-thecounter drugs, we worked to develop core businesses byselecting and concentrating on these businesses.

Q
A

Please give us an overview ofbusiness results for ﬁscal 2016.
Sales and proﬁt both declined, mainly
because of drug price revisions and a
decline in prescription volumes forlong listed drugs.

In fiscal 2016, domestic sales in the ethical drugs businessrose from the previous year on increased sales of genericdrugs, from the release of Montelukast AG, the authorized
generic version of Kipres, despite a decline in domestic
sales of new drugs from the effect of drug price revisions
and a decline in prescription volumes for long listed drugs.
On the other hand, overseas sales of ethical drugs declinedin the absence of an upfront payment recorded in theprevious year related to the out-licensing of the FPR2
agonist program.
In the healthcare business, sales of skincare products
declined from the previous year, but sales of over-thecounter drugs and environmental hygiene and otherproducts rose, led by sales growth for its main products
RUBYSTA (multi-purpose disinfectant cleaner) and Milton(baby bottle disinfectant) combined with the releases of
new over-the-counter drugs and other products.
As a result, consolidated net sales for fiscal 2016
declined 3.4% from the previous year, to ¥115,373 million.
Operating income for fiscal 2016 declined 47.0%, to¥10,413 million, mainly from the effect of drug price revisions
and the absence of an upfront payment recorded in theprevious year from an out-licensing agreement. Profit
attributable to shareholders of KYORIN Holdings, Inc.,
decreased 46.4%, to ¥7,305 million, which included
approximately ¥1,000 million in extraordinary loss related tothe settlement of a lawsuit involving out-licensed synthetic
antibacterial Gatifloxacin-eyedrops.

Q

A

How was the progress of R&D
during fiscal 2016?
Our R&D pipeline showed steady progress.

Our development pipeline in Japan showed major advanceswith the conclusion of Phase III clinical trials of the quinolone synthetic antibacterial agent KRP-AM1977X and theoveractive bladder treatment KRP-114V. In addition,
KRP-116D (general name: dimethyl sulfoxide), which we
decided in fiscal 2013 to develop as an unapproved drugwith high medical needs, entered Phase III clinical trials as atreatment for interstitial cystitis in March 2017.
In terms of in-house drug discovery, operations at the
WATARASE Research Center, which opened in July 2015,
are running smoothly, with drug discovery research focusedon specific disease categories based on basic research
fields (inflammation, immunization, and infectious diseases).
Going forward, we will focus on these specific areas,
working with other drug manufacturers and academia for
efficient and vigorous research and development activities.

QA

How is the progress of themedium-term business plan
HOPE100–Stage 2– ?
We are moving forward with our four priority
strategies and two development strategies.
Based on our progress in ﬁscal 2016, we willseek to achieve our targets in ﬁscal 2017.

Under the medium-term business plan HOPE100–Stage 2–,
we are pursuing our four priority strategies of “enhancing
drug discovery capabilities,” “increasing the ratio of the
new drugs group,” “promoting the generic drugs businessby making the most of its characteristics,” and “enhancing
cost reductions,” and our two development strategies of“healthcare business” and “overseas expansion.”
Enhancing our drug discovery capabilities is the mostimportant issue facing the Kyorin Group, and during fiscal
2016 we strove to combine open innovation with Japanese2017 ANNUAL REPORT

11

The Group’s Growth Strategies

and overseas pharmaceutical manufacturers, academia,
and venture businesses with our in-house drug discovery
at the WATARASE Research Center in Japan and ActivX
Biosciences Inc. in the United States, to revitalize ourexisting drug discovery platforms and make use of newtechnologies including peptides and gene therapy.
Looking ahead, we will steadily move forward to create
and manufacture original new drugs, with a determination
to become a first-in-class drug discovery company.
In terms of increasing the ratio of the new drugs
group, our goal is to launch four new drugs during theperiod covered by Stage 2, and to promote these new
products along with Flutiform, a combination drug forasthma treatment that has already been launched, tothe greatest extent possible. During fiscal 2016, welaunched Desalex, a treatment for allergic diseases, inNovember 2016. Going forward, we will work for theswift popularization of this product while also putting
maximum effort into making applications, receiving
approvals, and launching the quinolone synthetic antibacterial agent KRP-AM1977X and the overactive bladdertreatment KRP-114V.

To promote the generic drugs business using thecharacteristics of generic drugs, we released Montelukast
Tablets “KM”. We have begun working as a Group in thearea of authorized generics, and will pursue the development of our next authorized generics.
For enhanced cost reductions, we have decided toestablish a new manufacturing subsidiary and consolidate
the Group’s manufacturing functions at this subsidiary,
to integrate the Group’s manufacturing structure. By
working to reduce differences in plant capacity utilization
and use assets efficiently, we will strive to build a Group
production infrastructure that remains competitive
through providing high-quality products at stable, low costs.
In terms of our development strategies, we are working
to further expand the environmental hygiene businessand develop it into a core business.

Q
A

What initiatives are you pursuingin ﬁscal 2017?
We are addressing new issues that we haveidentiﬁed in light of recent changes in the businessenvironment and our activities in ﬁscal 2016,
while also investing to build a foundation for growth.

We are forecasting a decline in net sales in fiscal 2017 fromfactors including the full-year impact of the expiration of thepatent for the adult-use formulation of Kipres and therelease of a generic version of its child-use formulation. In
terms of profit, we are forecasting growth, mainly from anincrease in revenue related to overseas out-licensing and areduction in selling, general and administrative (SG&A)
expenses. Our forecasts are for a 1.7% decline in net sales,to ¥113.4 billion, with a 16.2% increase in operating income,to ¥12.1 billion.
Against this backdrop, the Kyorin Group will instill further
awareness of profitability while at the same time investing tobuild a foundation for future growth, and balancing these twocomponents as we implement measures from a medium- tolong-term perspective to achieve continuous growth.
Specifically, we will strive to reduce our cost of sales ratio
and make efficient use of SG&A expenses to raise near-term
profitability, while also working to create markets for new
drugs such as KRP-AM1977X/KRP-AM1977Y and KRP-114V
to build a foundation for growth. Under the business plan’s
122017 ANNUAL REPORTStage 3 (covering fiscal 2020 to fiscal 2023) and beyond, we
will work toward continuous growth by placing a priority on
acquiring licensed products in the ethical drugs business to
expand and reinforce our innovative development pipeline.

Q
A

Please tell us about your environmental,social and governance (ESG) activities.
We are proactively addressing ESG issues tocreate corporate value for the Kyorin Groupover the medium to long term, with the aimof achieving continuous growth.

We recognize that contributing to all stakeholders—patients, medical professionals, shareholders and investors,
employees, business partners, and local communities—isessential to the creation of corporate value for the Kyorin
Group over the medium to long term and to achieving
continuous growth. In light of heightened interest in environmental and social issues in recent years, we are working
on ESG issues at the Group level.
Under the long-term vision HOPE100, in addition to
working proactively to manufacture the innovative new
drugs that are the source of the Kyorin Group’s value
creation on an ongoing basis, we are also emphasizing
compliance and risk management, human resourcesmanagement, environmental management, and social
contribution activities as important themes in our role as acorporate citizen. In the area of human resources management in particular, we place a high value on employees,
based on the idea that energizing employees and the organization is the driving force behind corporate growth. We
are reorganizing our structures for hiring, assigning, training,
evaluating, transferring, compensating, and providing social
welfare, while strengthening human resources developmentwith the aim of becoming the leading company for career
fulfillment among our employees.
In terms of corporate governance, we are concentrating
on expediting decision making, strengthening appropriate
management oversight functions, and ensuring transparency
in corporate activities firmly rooted in our corporate ethics,
to create a management environment that will be trusted
by the general public. We have established a voluntary
Committee on Remuneration and Nominations, and actively
engage our outside directors. Through these initiatives, we
aim to continue to enhance corporate value.

QA

Do you have any message inclosing for shareholders?
We aim to achieve continuous growth bycreating innovative new drugs on an ongoingbasis. I ask for your continued support.

The Kyorin Group’s basic policy is to maintain a healthyfinancial foundation while investing for growth and providing
a stable return to shareholders. In fiscal 2016, we maintained the full-year dividend at ¥58 per share despite adecline in profit. In light of our policy of maintaining stabledividends, we plan to pay a full-year dividend of ¥58 pershare again in fiscal 2017.
We will also continue to work toward the achievementof the long-term vision HOPE100 and the medium-termbusiness plan HOPE100 –Stage 2–, with the aim of achieving
continuous growth. I ask for the continued support of all
stakeholders going forward.

2017 ANNUAL REPORT

13

Kyorin’s Growth Strategy

Overview of Medium-TermBusiness Plan HOPE100–Stage 2–
Positioning of Medium-Term Business Plan HOPE100–Stage 2–
To realize our corporate philosophy, “Kyorin continues to fulfill its mission of cherishing life and benefiting society by contributing to better
health,” in 2010 the Kyorin Group formulated HOPE100 (Aim for Health Of People and our Enterprises) as a long-term vision for 2023,
which is the 100th anniversary of the founding of our core subsidiary KYORIN Pharmaceutical Co., Ltd.
The period covered by HOPE100 is broken down into three stages (Stage 1: FY2010–2015; Stage 2: FY2016–2019; and Stage 3:
FY2020–2023), and with a focus on enhancing corporate value over the medium to long term, we will work to comprehensively integrate
our ethical drugs business and healthcare business and to disperse business risks, with the aim of achieving healthy, continuous growth
as “a company that supports sound and healthy lifestyles.”We are currently operating under HOPE100–Stage 2–, which began in fiscal 2016 as the second step toward the realization of thislong-term vision.

Background behind the Formulation of HOPE100–Stage 2–
Drug price revisions and other developments are creating an increasingly challenging business environment for the ethical drugs
business. In addition, the Group is faced with the issue of major changes to its operating environment with the expiration of a patent on a
key product. Given this environment, it will be difficult to address issues using only our existing mindset. To create and implement new
approaches that go beyond our previous growth track and add dynamism to the way we have previously carried out our businesses, weformulated the medium-term business plan for the four-year period beginning in fiscal 2016 based on making reforms (changes andinnovations).

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

Long-term vision HOPE100 (Aim for Health Of People and our Enterprises)(Corporate vision for 2023)

Present

2010–2015
Stage 1

2016–2019
Stage 22020–2023
Stage 3Future (2023)
100th anniversary offounding

Medium-Term Business Plan, Yearly Business Plan
(What we should work on now to achieve our vision for the future)

Structure of Medium-Term Business Plan HOPE100–Stage 2–
We have established “making reforms (changes and innovations)and achieving continuous growth in an effort to realize ourlong-term vision” as our statement for Stage 2, and are pursuing
the three areas of Strategy (business strategies: four priority
strategies and two development strategies), Organization(organizational strategies), and Performance (performancetargets).

14

2017 ANNUAL REPORT

Strategy
Performance
Organization

Strategy
Priority strategies

1
2
3
4

Enhancing drug discovery
capabilities:
Initiatives for ﬁrst-in-classnew drug discovery

Increasing the ratio of new
drugs group:
Signiﬁcantly increase theratio of new drugs group bypromoting the group to thegreatest extent possible

Priority items❚ Build a structure that continuously creates innovative new drugs
Identify novel drug discovery targets in franchise customer areas.
Create first-in-class new drugs utilizing existing drug discovery platforms based on
low molecular weight (kinase and receptors) and new technologies (peptides, genetherapy, etc.).
● Aim for early collaboration with global partners to accelerate the global expansion anddevelopment of original new drugs.
●●❚ Increase the ratio of new drugs group to offset sales declines●

Aim to launch four new drugs (Desloratadine*, KRP-AM1977X/KRP-AM1977Y, and KRP-114V)and promote these new products along with Flutiform to the greatest extent possible.

❚ Realign the marketing structure●

Restructure along the lines of area management based on franchise customer strategy.
*Launched as Desalex in November 2016

❚ Proactively address authorized generics (AG)Promoting generic drugs
business by making the most of
its characteristics●●

Aim to acquire a large share within the generics market for Montelukast Tablets “KM”.
Consider new AG acquisitions to follow Montelukast Tablets “KM”.

❚ Strengthen business promotion capabilities of KYORIN Rimedio Co., Ltd.
●Strengthen sales capabilities, pharmaceutical development capabilities, andproduction system.

Enhancing cost reductions:
Change of cost structure
by ensuring optimization
within the Group❚ Comprehensively optimize production capabilities through cooperation within the Group

Development strategies

Priority items

Manufacture at appropriate locations without regard to distinctions between new
drugs group, original drugs group, and generic drugs group.
● Reduce differences in capacity utilization across plants and use assets efficiently.
●

Partner to promote the global expansion of innovative new drugs created by Kyorin(with early inroads into the U.S. and Europe) and capture overseas sales.
● Work in collaboration with other companies to lay the foundations for future direct
expansion (ethical drugs business, healthcare business), with a focus on Asia.
●

Overseas expansion

Enhancing healthcare business●

Expand the environmental hygiene business and strengthen cooperation with existing
businesses to create a core business.

Organization
Aiming to be the leading company for career fullﬁllment for employees❚ Establishing and operating a system for managing human resources●

Build and operate a human resources management system that is based on
creating mutually beneficial cooperation and symbiotic long-term relationships
between the Company and its employees.

❚ Strengthening human resources development●

Work to strengthen management capabilities.

Performance
Numerical targets
Final targets for Stage 2
Consolidated net sales: average annual
growth rate of 3% or more
● Consolidated operating income margin:
15% or more●

Capital policy●

Invest for growth and provide stable
returns to shareholders while maintaininga healthy financial base●

Returns to shareholders: stable dividends
Cash dividends per share
FY2016 full-year dividend: ¥58 (actual)
FY2017 full-year dividend: ¥58 (forecast)2017 ANNUAL REPORT

15

Ethical Drugs Business

Progress of Medium-Term Business Plan

Progress of Medium-Term Business Plan HOPE100–Stage 2–
The medium-term business plan HOPE100–Stage 2– was formulated to overcome changes in the external
environment and operating issues for continuous growth. Under this plan, we are strengthening our drug discovery
capabilities and raising the portion of the new drugs group, as we pursue the following four priority strategies andtwo development strategies to achieve our targets of 3% or more for the average annual growth rate of consolidated
net sales and 15% or more for the consolidated operating income margin.

P riority s trategies

1Enhancing drug discovery capabilities:
Initiatives for ﬁrst-in-class new drug discovery

Many unmet medical needs still exist. We believe that continuing to create innovative new drugs that contribute to people's
health around the world is the mission of the Kyorin Group. At the WATARASE Research Center, our base for new drug
creation, we are promoting stronger cooperation and greater efficiency among people, organizations, and systems during
the ongoing course of drug discovery, as we work to create original new drugs focusing on first-in-class drug discovery in
our designated areas of respiratory, otolaryngology, and urology.

Enhancing Basic Research and Theme Selection
KYORIN Pharmaceutical Co., Ltd. is engaged in businessactivities targeting disease domains in the specific fields ofrespiratory, otolaryngology and urology to efficiently engage innew drug discovery with limited resources.
We are using fundamental research in our core technologies
of inflammation, immunology, and infectious diseases as thebasis for identifying novel drug discovery targets, while further
strengthening our technologies, expertise, human resources,and networks cultivated to date. Based on our portfolio strategy,
we are verifying medical needs, commercial viability, and thepossibility of clinical trials as we select themes in priority areas.

Enhancing Basic Research and Theme Selection
Basic Research Field

WATARASE
Research Center

Inﬂammation Immunology

U.S.-based ActivX
Biosciences

Infectious
diseasesVeriﬁcation of the details of the following target
diseasesuExisting treatment method(applicable pharmaceuticals)uNumber of patients

uPossibility of clinical trials
uCompatibility with portfolio
uOther (patent status, etc.)

uNeeds, commercial viability

Franchise Field (Disease domain)●

Respiratory●

Otolaryngology●

Urology

KYORIN Pharmaceutical’s WATARASE Research Center

Strengthening Basic Research Capabilities
KYORIN Pharmaceutical engages in basic research to discover
innovative, first-in-class new drugs by strengthening biologicaland chemical biological research, and explore new drug discovery
targets based on research into inflammation, immunology andinfectious diseases. We aim to achieve this through the targetbased approach*1 and the phenotype-based approach*2.

162017 ANNUAL REPORT*1: Target-based approach: Search for new drug discovery targets from
disease-related proteins that are new or for which their functions remain
unknown. Following this, an assay is built and hit compounds are
acquired from HTS.
*2: Phenotype-based approach: An original assay of the disease’s modelcells is built and hit compounds are acquired from HTS. Following this,lead optimization research is carried out in parallel with the new drug
discovery target search.

System for Creating Novel New Drug Discovery Targets
We discover original new themes by strengthening our feasibility
research. We have identified novel drug discovery targets using
receptor technology at KYORIN Pharmaceutical’s WATARASE
Research Center and KiNativ technology at U.S.-based ActivX
Biosciences Inc. and are engaged in drug discovery using low
molecular weight compounds in these areas. In terms of newtechnologies, in addition to in-house efforts to accelerate drug
discovery and increase the likelihood of success, we are
aggressively pursuing research via open intervention (withacademia, venture companies, and domestic and overseas

pharmaceutical companies) using technologies other than low
molecular technology, including peptides, nucleic acid medicines,
and gene therapy. While pursuing research and development inhighly original research themes, we are also developing outlicensing with overseas partners to accelerate research anddevelopment. The Kyorin Group is using its comprehensive
strength in the continuous pursuit of drug discovery researchwith the determination of being a “drug discovery venture
enterprise.”Strengthening cooperation with KYORIN Pharmaceutical’s
WATARASE Research Center and ActivX Biosciences

Pursuing open innovation with Kyoto University

To establish a structure for creating first-in-class drug discovery,
Hugh Rosen, an acclaimed researcher in the field of chemical
biology, has been named the new president of ActivX
Biosciences. We are further strengthening our cooperation withKYORIN Pharmaceutical’s WATARASE Research Center, which
has the low molecular drug discovery technology, and with
ActivX Biosciences, which has the KiNativ platform (exhaustive
analysis technology for kinase/protease), and further evolving
ActivX Biosciences’ technologies to make maximum use of
their potential in our drug discovery activities. In this way, weare creating novel drug discovery targets and working todiscover compound drugs from those targets.

With the aim of discovering innovative therapies in Japan, KYORIN
Pharmaceutical has established a collaborative research laboratory,
Department of Drug Discovery for Lung Diseases at the Graduate
School of Medicine of Kyoto University. Fusing academia’s capabilities in pathological research and basic research with KYORIN
Pharmaceutical’s proactive first-in-class drug discovery, research is
being conducted to identify genetic factors related to respiratory
illness and verify possibilities for drug creation targets, to identify
new targets for drug creation. In this course, along with researching
the pathological causes of fibrosis processes of organs such as
pulmonary fibrosis, basic technology using iPS cells is being
applied to advance drug discovery evaluation.

System for Creating Novel New Drug Discovery Targets

WATARASE Research Center(receptor technology)

Drug discovery
information

U.S.-based ActivX
Biosciences(KiNativ technology)

Academia, venture companies

Pharmaceutical companies
in Japan and overseas

Open innovation

Open innovation

New structure
New president(April 2017)

Collaborative research laboratory at
Kyoto University (April 2017)

Novel new drug discovery targets
Original
response

Low molecular compounds

Peptides, nucleic acidmedicines, gene therapy, etc.

PeptiDream Inc.
Joint research and development
Peptides, nucleic acid medicines,
gene therapy
Momotaro-Gene Inc.
Gene therapy

2017 ANNUAL REPORT

17

Ethical Drugs Business

Progress of Medium-Term Business Plan

P riority s trategies

2

Increasing the ratio of new drugs group: Signiﬁcantly increase the ratio of
new drugs group by promoting the group to the greatest extent possible

We believe that strengthening our domestic new drugs business is essential for continuous growth in the current businessenvironment. The Kyorin Group recognizes that the new drugs group is more important than ever, and we are working to
expand the development pipeline, accelerate new drug development, and promote the use of new drugs to the greatest
extent possible. To achieve our target of having new drugs account for at least 50% of the ethical drugs business in the final
year under Stage 2 (fiscal 2019), we are putting maximum emphasis on the new drugs group.

Four Products Targeted for Launch during Stage 2 and Maximizing the Spread of Flutiform
To offset the decline in the ratio of new drugs from the expirationof the patent on Kipres, the important theme is the securelaunch and popularization of three products: the quinolone
synthetic antibacterial agents KRP-AM1977X and KRP-AM1977Y,
and the overactive bladder treatment KRP-114V. We will also
promote Flutiform, a combination drug for asthma treatment,
and Desalex, an antiallergic agent, which have already beenlaunched, to the greatest extent possible for rapid market
penetration, to reach our target of having sales from the new
drugs group account for at least 50% of sales for the ethicaldrugs business in fiscal 2019, the final year under Stage 2.
In terms of progress in fiscal 2016, Desalex was launched in
November 2016, and KRP-AM1977X and KRP-114V completed
Phase III clinical trials. The application for manufacture andsales approval of KRP-AM1977X was submitted to the Ministryof Health, Labour and Welfare in April 2017. Sales of Flutiform,
which had already been launched, showed significant growth,with a 39% increase over the previous year, to ¥10.1 billion.

Projected Ratio of New Drugs Group

Towardnew
growthFY2019New drugs group
At least%

50

New drugs group
Approx.
%20

KRP-114V(Application in process)KipresPatent cliff

KRP-AM1977X(Application made in April 2017)

Desalex launched in November 2016
Flutiform launched in November 2013
2016

2017

2018

2019

(FY)

Aiming for the Launch of Four Products in Stage 2
Launched in November 2016

Desalex(Desloratadine)
Antiallergic agent
Second generation histamine
H1-receptor antagonist

Aiming for Launch in Stage 2

KRP-AM1977X

DesalexShows high affinity for histamine H1 receptors anddemonstrates certain effectLong half-life means a single daily dose suppresses
symptoms for a long time
● Being non-drowsy and unaffected by food fits patients’lifestyles●●

KRP-114V(Lascuﬂoxacin)
New quinolone synthetic
antibacterial agent
Oral agent

KRP-AM1977Y(Vibegron)Overactive bladder treatment
Selective β3 adrenergic
receptor agonist(Lascuﬂoxacin)
New quinolone synthetic
antibacterial agent
Injection

Lascuﬂoxacin
Superior clinical efficacy of one 75 mg dose per day has been
confirmed (community-acquired infection for respiratory andotolaryngology).
● Shows strong antimicrobial activity against pathogenic
bacteria for respiratory and otolaryngological infections andagainst beta-lactam and macrolide antimicrobial resistantstrains.
● Favorable penetration for lung tissue, more than 10 times
that of blood plasma ratio

Vibegron
Expectation of high compliance in taking medicine with lessside effects than conventional drugs for overactive bladderLess drug interaction as β3 receptor agonist● β3 agonist including this agonist may constitute a first-line
drug for treatment of overactive bladder.
●●

Expectations for high level of safety•Lower likelihood of concerns associated with the samestrain of antibacterial agent, including abnormal blood sugar
levels, photosensitivity, arthropathy, and digestive
symptoms.
Antihistamine market
Approx. ¥180.0 billion

182017 ANNUAL REPORT

Antibacterial agent market
Oral agent
Approx. ¥190.0 billion

Injection market
Approx. ¥130.0 billion

Towardnew
growthOveractive bladder market
Approx. ¥80.0 billion

Establishing a Presence in Speciﬁc Fields
KYORIN Pharmaceutical Co., Ltd., which handles new drugs,
has approximately 750 medical representatives (MRs), who
regularly visit doctors, focusing on specialists in our specificfields (respiratory, otolaryngology, urology) to build strong relationships of trust with these physicians with the aim of establishinga presence for KYORIN Pharmaceutical in these fields.
The marketing structure is organized around a franchisecustomer (FC) strategy*, and by promoting area managementthat conforms to the circumstances of each area, we are working
on steadily spreading drugs through providing, collecting, andtransmitting information regarding the appropriate use of pharmaceutical products by identifying the needs of various medical
professionals as well as for specific areas. We are also building
market platforms by area to ensure the early recognition of new
drugs scheduled for launch in those markets. The marketingorganization has introduced the “team” as the smallest management

unit. With groups of several MRs covering a designated area, theteam works as a unit to develop the area in an organized manner.
Specifically, we reorganized our team areas based on the secondary medical districts (branch, sales office, and team), with
headquarters and branches working together to implement
strategies in line with area management, a specified agent policy,
and redeployment of sales resources. By fully understanding
physicians’ methods of treatment, MRs aim to offer solutions thatmeet a variety of needs, gain the trust and appreciation ofpatients and medical professionals, and be recognized as being
significant members of society.
*Franchise customer strategy: A strategy that emphasizes marketing activities andprovision of information to physicians and medical
institutions in specific fields, focusing on respiratory,
otolaryngology, and urology specialists.

MR StructureThis structure focuses marketing activities
on regular visits, concentrating on specialists
in speciﬁc ﬁelds (respiratory, otolaryngology,
urology).

Approx. 750 MRs
Respiratory
Approx. 9,000

A structure of approximately
750 MRs focusing on speciﬁc
ﬁelds covering roughly
70,000 doctors

Otolaryngology
Approx. 9,000

Doctors working in
3 FC ﬁelds
Approx. 25,000Internal medicine, pediatrics,
IBD* specialists and others
Approx. 45,000

Urology
Approx. 7,000*Inflammatory Bowel Diseases

Enhance the Product Portfolio to Realize Sustainable Growth
The Kyorin Group is working to enhance its product portfolio toachieve sustainable growth. We are working to ensure that theapplication process goes smoothly and create a strategy thatmaximizes the product value of our future growth drivers: thequinolone synthetic antibacterial agents KRP-AM1977X and
KRP-AM1977Y, and the overactive bladder treatment KRP-114V.
We will also consider licensing new products through life cycle
management (LCM) and alliances, and bolster the development
pipeline, with the aim of building a product portfolio (released
products, products in development, in-licensed products,
out-licensed products, LCM) linked to specific fields (respiratory,
otolaryngology, urology).

Main Products and Development Pipeline in FC Fields
Main Products
Flutiform
Respiratory

Eklira Genuair
Kipres
Mucodyne

Otolaryngology

Urology

Development Pipeline

KRP-AM1977X
KRP-AM1977Y
Ad-SGE-REIC

Desalex

KRP-AM1977X

KipresKRP-AM1977Y

Mucodyne

KRP-209

UritosKRP-114V
KRP-116D2017 ANNUAL REPORT

19

Progress of Medium-Term Business Plan

P riority s trategies

Ethical Drugs Business

3 Promoting generic drugs business by making the most of its characteristics

We view the coming age of generic drugs accounting for 80% of the pharmaceutical market by share as an opportunity for
the Kyorin Group to demonstrate its strength in being able to provide a stable supply of high-quality generic drugs. The
Group will utilize its expertise gained through the development of new drugs and strive to strengthen the generic drugs
business focused on KYORIN Rimedio Co., Ltd. and capitalize on the benefit of integrated in-house development,
manufacturing, and sales, to flexibly develop its generic drugs business.

Initiatives for Authorized Generics (AG)The Kyorin Group began handling AGs for the first time with the launch in
September 2016 of Montelukast Tablets “KM”, the authorized generic versionof Kipres, a treatment for bronchial asthma and allergic rhinitis. With the Grouphandling both Kipres and Montelukast Tablets “KM”, we will work to meet theneeds of medical professionals and patients, as well as social demand. We will
aggressively consider developing other generics to follow Montelukast Tablets“KM” as the source of growth for the generic drugs business, with the aim ofacquiring a large share of the generics market.

Sales of Generic Drugs(Billions of yen)

28.5

30

25.0

25

10.3
8.2

20

15.5
15
10

8.7

10.1

Montelukast
AG

15.5

12.0
16.8

18.2 Other GE

2016

2017
Forecast

5
0

2011

2012

2013

2014

2015

(FY)

Commencement of Operations at the New Takaoka Drug Discovery Laboratory
To promote further increases in use of generics, KYORIN Rimedio has built the
Takaoka Drug Discovery Laboratory in Takaoka City, Toyama Prefecture, as a
new research facility to strengthen and promote the generic drugs business,and the facility commenced operations in July 2017. The laboratory has multiple lines for investigational new drug manufacturing, making it possible toresearch and develop a greater number of solid formulations and solutions andthereby develop higher-quality drugs with greater speed. The laboratory iscreated through an ingenious design with a compact layout intended to prevent crossover contamination in researchers’ lines of flow, while at the sametime ensuring adequate space to facilitate communication among researchers.
With the construction of this laboratory, we intend to increase the number of
products developed in-house and add even more attractive and characteristicfeatures to these items, while also moving forward to provide generic drugs
that consider peace of mind by maintaining high quality, delivering stablesupplies, and providing appropriate information.

Manufacturing Methods for Generic Drugs
KYORIN Rimedio strives to provide generic drugs that consider peace of mind
and a sense of satisfaction by constantly taking into account the perspectivesof both medical professionals and patients. Specifically, the company is introducing proprietary manufacturing and packaging processes to prevent errors
by dispensing pharmacists and erroneous ingestion by patients, and to promoteadherence to prescribed dosages.

202017 ANNUAL REPORT

Overview of Takaoka Drug Discovery Laboratory
Address:
11 Takaoka Office Park,
Takaoka City, Toyama
Building:
Building site area 1,809 m2
Total floor space 3,510 m2
S-structure and earthquake-resistant
structure, three stories above groundConstruction start:
July 2016
Construction completion: June 2017
Operations start:
July 2017
Construction cost:
Approximately ¥2.0 billion

Examples of Manufacturing and Packaging Methods
PTP sheets

Product name is displayed in large letters in thecenter, and the ingredients, content, and effects
are printed on each tablet.

Eyedrop bottles

Product name is printed on the cap’s shrink wrap.

Tablets

To prevent confusion, the name of active ingredientsand dosages are printed on the tablet (to prevent
erroneous dispensing and ingestion).
Tablets are made smaller for ease of swallowing.

P riority s trategies

4

Enhancing cost reductions:
Change of cost structure by ensuring optimization within the GroupThe Kyorin Group has identified “Enhancing cost reductions: Change of cost structure by ensuring optimization within theGroup” as one of its priority strategies under Stage 2. With the domestic pharmaceutical industry facing an increasingly
challenging environment, the Group is coordinating manufacturing within the Group for overall optimization and cost
reductions, to provide high-quality pharmaceuticals at stable, low costs.

Consolidation of Manufacturing Functions
In recent years, with the shift from long listed drugs to generics
accelerating more rapidly than anticipated, imbalances havearisen in the capacity utilization of manufacturing lines at theGroup’s plants. To address this, the Group decided in May 2017
to establish a new manufacturing subsidiary to create an integrated internal manufacturing structure and consolidate theGroup’s manufacturing functions. We plan to launch this new
manufacturing subsidiary in April 2018 by transferring KYORIN
Pharmaceutical Co., Ltd.’s Noshiro Plant (Noshiro City, Akita

Prefecture) and KYORIN Rimedio Co., Ltd.’s Manufacturing
Division (Nanto City, Toyama Prefecture) to the new company
via an absorption-type company split, and by merging KYORIN
Pharmaceutical Facilities Co., Ltd. (Koka City, Shiga Prefecture)
into the new company. By consolidating these Group manufacturing functions, we intend to build a competitive Group manufacturing structure that provides high-quality products at stable,
low costs by reducing differences in capacity utilization acrossplants and using assets efficiently.

KYORIN Pharmaceutical’s Noshiro Plant(Noshiro City, Akita Prefecture)

KYORIN Rimedio’s Inami Plant(Nanto City, Toyama Prefecture)

KYORIN Pharmaceutical Facilities(Koka City, Shiga Prefecture)

KYORIN Pharmaceutical’s main plant that mainly
handles the new drugs group and the original drugs
group for the ethical pharmaceuticals market.

KYORIN Rimedio’s production plant that mainly
handles generic drugs.

An ethical drugs company that mainly handles
prescription drugs.
Newly established in 2012.

Integration of manufacturing structure

Establishment of new company (pharmaceutical manufacturing company)

Akita site

Toyama site

Shiga site

Building a competitive Group manufacturing structure that provides high-quality products at stable,
low costs by reducing differences in capacity utilization across plants and using assets efficiently.

Strategic Promotion of Supply Chain Management
To establish solid earnings strength in a changing environment,
we are comprehensively addressing the Kyorin Group’s overall
supply chain to achieve more efficient manufacturing and astable supply structure that can flexibly respond to changes indemand. We are currently promoting supply chain management (SCM) by managing (visualizing) processes from materials

procurement to manufacturing (production management,
manufacturing), warehousing, and supply (shipping) globally by
product. This is intended to strengthen a structure that shortens lead times, reduces risks, and facilitates stable supplies, toenhance speed and accuracy.

Supply Chain Management (SCM)

Procurement

Production(testing)

Inventory

SupplySales

Investment
recovery2017 ANNUAL REPORT

21

Ethical Drugs Business

Progress of Medium-Term Business Plann Products under Development (As of May 11, 2017)
OriginCompound/Code Therapy area/Action

Features

Stage
NDA

KRP-114V

Overactive
bladderMerck & Co. Inc.
(U.S.A.)

KRP-AM1977X(Oral agent)

New quinolone
synthetic
antibacterial agent

In-house

KRP-AM1977Y(Injection)

New quinolone
synthetic
antibacterial agent

In-house

KRP-116D

Interstitial cystitis—• Expectation of high compliance in taking medicine with less side effects thanconventional drugs for overactive bladder• Less drug interaction as β3 receptor agonist• β3 agonist including this agonist may constitute a first-line drug for treatmentof overactive bladder.

Application inprocess

Superior clinical efficacy of one 75 mg dose per day has been confirmed(community-acquired infection for respiratory and otolaryngology).
• Shows strong antimicrobial activity against pathogenic bacteria for respiratory andotolaryngological infections and against beta-lactam and macrolide antimicrobial
resistant strains.
• Favorable penetration for lung tissue, more than 10 times that of blood plasma ratio
Expectations for high level of safety• Lower likelihood of concerns associated with the same strain of antibacterial
agent, including abnormal blood sugar levels, photosensitivity, arthropathy, anddigestive symptoms.

4/20173/2016

Dimethyl sulfoxide (DMSO), an unapproved and off-label drug with high medical needs

3/2017*Antiallergic agent “Desalex 5 mg Tablets” launched in November 2016

POC Project (Ph I –Ph II )OriginCompound/Code Therapy area/Action

Features

Stage
NDA

KRP-209

Tinnitus

Merz (Germany)

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

Ad-SGE-REIC

Malignant pleural
mesothelioma

Okayama
University

A gene therapy drug that uses the new cancer-inhibiting gene REIC that was
discovered at Okayama University. It is expected to induce the active development ofcancer cell selective apoptosis and anticancer immunity.

8/2015(redeveloping)

7/2015

Licensing Development (Preclinical)
Compound/CodeLicensee/Collaborative
research

Therapy area/Action

OriginFeatures

Comments

Stage
Preclinical

KRP-203

Novartis(Switzerland)

Graft-versus-hostdisease (GvHD)

In-house

Sphingosine-1-Phosphate
Receptor Agonist
Immunomodulatory drug

License agreement with
Novartis (2/2006).
Novartis has decided toproceed with developmentof KRP-203 for GvHD
(announced 11/2015).

FPR2 agonist
program

Bristol-Myers
Squibb Company(U.S.A.)

Non-disclosure

In-house

FPR-2 agonists that mainly
inhibit the migration ofneutrophils and exhibit
anti-inflammatory action

License agreement with
Bristol-Myers Squibb(12/2015)

D evelopment s trategies

NDA

Overseas expansion

As we move forward with the realignment of policies from a global perspective, overseas expansion is an important issue forthe Kyorin Group. We are therefore developing initiatives that anticipate partnering and direct expansion focusing on Asia, toprovide original new drugs to people around the world.

n Alliance Strategy

KYORIN Pharmaceutical is working to reinforce and enhance its product pipeline. This is an important priority
for us as a drug maker, and our approach includes both in-house drug discovery and active collaboration withexternal partners. We intend to continue striving to build an even more attractive product pipeline going forward.

Actively Promoting Alliances with External Partners in Japan and Overseas

Bristol-Myers Squibb (U.S.A.)
MediciNova (U.S.A.)

Novartis (Switzerland)
R-Pharm (Russia)
Vectura (U.K.)
Merz (Germany)

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

Ferring International Center (Switzerland)
AstraZeneca (U.K.)
SPIMACO*(Saudi Arabia)
LG Chem (Korea)
Handok (Korea)
Chong Kun Dang (Korea)

Yungjin (Korea)
Shinlin Sinseng (Taiwan)
Synmosa (Taiwan)*SPIMACO: Saudi Pharmaceutical Industries & Medical Appliances Corporation222017 ANNUAL REPORT

Allergan (U.S.A.)
Kissei Pharmaceutical
Sato Pharmaceutical
Eisai

Yakult Honsha
Kaken Pharmaceutical
Ono Pharmaceutical

Nichi-Iko Pharmaceutical
Chugai Pharmaceutical

Nisshin Pharma
ROHTO PharmaceuticalSenju PharmaceuticalOut-licensed

In-licensed

In- and out-licensed

n Main Products
Respiratory

Respiratory

Flutiform

Eklira Genuair

Combination drug
for asthma treatment

Flutiform 50 Aerosol 56 Inhalations
Flutiform 50 Aerosol 120 Inhalations
Flutiform 125 Aerosol 56 Inhalations
Flutiform 125 Aerosol 120 Inhalations

COPD treatment

Eklira 400 μg Genuair 30 Inhalations
Eklira 400 μg Genuair 60 Inhalations

Respiratory andOtolaryngology
KipresRespiratory andOtolaryngology
Mucodyne

Anti-bronchial asthma andallergic rhinitis drug

Kipres Tablets 5 mg/Kipres Tablets 10 mg
Kipres OD Tablets 10 mg

Anti-bronchial asthma drug

Kipres Fine Granules 4 mg/
Kipres Chewable Tablets 5 mg

Mucoregulating drug

Otolaryngology
Desalex

Mucodyne Tablets 250 mg/Mucodyne Tablets 500 mg
Mucodyne Syrup 5%/Mucodyne DS 50%

IBD*
Pentasa*Inflammatory Bowel Diseases

Antiallergic agent

Desalex Tablets 5 mg

Ulcerative colitis andCrohn’s disease remedy

Pentasa Tablets 250 mg/Pentasa Tablets 500 mg
Pentasa Granules 94%

Ulcerative colitis remedy

Pentasa Intestinal Infusion 1 g/
Pentasa Suppositories 1 g

Urology
Uritos

Therapeutic agent for
overactive bladder

Uritos Tablets 0.1 mg
Uritos OD Tablets 0.1 mg

2017 ANNUAL REPORT23

Healthcare Business

Progress of Medium-Term Business Plan

The Kyorin Group is working toward the comprehensive integration of its ethical drugs business and healthcare
business while dispersing business risks, with the aim of achieving healthy, continuous growth as “a company that
supports sound and healthy lifestyles.” Under the medium-term business plan HOPE100–Stage 2–, we are pursuing
to grow businesses related to environmental hygiene and enhance their links to existing businesses, to develop
core businesses within the healthcare business, while also proactively promoting businesses that have the potential to grow into core businesses in the future.

Environmental
Hygiene BusinessIn recent years, medical institutions have been implementing a variety ofmeasures to address the growing importance of preventing infections in daily
operations. Against this backdrop, the Kyorin Group is working toward further
growth in businesses related to environmental hygiene. By controlling the riskof various infections, we are striving to develop and promote hygiene management products that address medical needs and contribute to people’s health.

Multi-Purpose Disinfectant Cleaner RUBYSTA
RUBYSTA, a multi-purpose disinfectant cleaner launched in Japan by the
Kyorin Group in 2012, has become widely used for hygiene management
by medical institutions around the world, to prevent infections and stop the
spread of pathogenic microbes. We are working to promote this productfurther, by expanding our lineup in this business while also obtaining
scientific evaluation data from medical and research institutions.
In terms of overseas development, PT. Meiji Indonesian PharmaceuticalIndustries, a subsidiary of Meiji Seika Pharma Co., Ltd., began selling
RUBYSTA in Indonesia in March 2017. In addition to making inroads into
the Indonesian market, we are considering new possibilities for businessdevelopment in other ASEAN countries, where there is increased awareness for managing infections.

Over-The-Counter
Drugs and Others

We offer reliable over-the-counter drugs that can be used with peace ofmind, to address diversifying health needs.

Over-The-Counter Drugs Responding to the Era of Self-Medication
Against the backdrop of a declining birthrate and aging population, an
increase in lifestyle-related diseases, and high medical costs under thenational health insurance system, the Japanese government introduced a“self-medication tax system” (special tax deductions for medical expenses) in
January 2017. There is increasing awareness for people’s health, and as aresult their ways of thinking are changing. Self-initiative in health managementand disease prevention is expected to lead to long, healthy lives and also
reduce expenses for the national health insurance system.
The Kyorin Group sells the COOL ONE series of over-the-counter drugs
which apply ingredients that have proved effective for ethical drugs(“switch OTC drugs”). By appropriately providing safe and effective information accumulated in the ethical drugs business, the series is also highly
regarded by medical professionals. At a time when lifestyles are changing
and requirements for health are diversifying, providing products with suchcharacteristics will contribute to people’s health.
242017 ANNUAL REPORT

Designatedsecond-class
OTC drug

Designatedsecond-class
OTC drug

Second-class
OTC drug*COOL ONE Cough Medicine GX tablets and syrup and COOL ONE
expectorant capsules, are eligible under the self-medication tax system.

Expansion of Hand Hygiene Products
Infection through hand contact is one of the means for healthcare-related infections. Hand hygiene is the most fundamental way to prevent infection throughdirect contact, which is why medical practitioners should always maintain handhygiene. The Kyorin Group offers Noahtect, an alcohol-free hand-sanitizer whichis easy on the skin, and TRINITYLINE Hand Care Treatment for dry skin. In addition, we expanded our hand sanitizer line in 2017 with the conclusion of a sales
alliance agreement with Air Liquide Japan, Ltd. Going forward, we intend topromote hand sanitizers to encourage more thorough hand hygiene, which isessential for fighting healthcare-related infections.

Milton Brand
Since its release in 1963, Milton has assisted mothers in protecting the healthy growth of
infants as the leading brand for baby bottle disinfectant. Through its brand message, “unchanging safety into the future,” Milton has achieved steady sales with the support of medical
practitioners and general consumers that continues today. In 2016, we expanded the lineup
with the launch of Detergent Milton, which can be used to clean baby bottles, milkers andvegetables, under the concept of creating hygienic environments for babies. We are also
providing a wide range of information about the importance and appropriate methods fordisinfecting in advance, which is necessary for ensuring complete disinfection.

Kyorin Group’s Environmental Hygiene Products
Decontamination of environment

Decontamination of equipment
and materials

RUBYSTA

MiltonPuremist

Microshield Scrub Liquid 4%

Personal protection

Purerubbing

Gentle Cleanser hand soap

Infectious diseaseprotection kit

Noahtect

Hand care treatment

RUBYSTAvomit disposal kit

Decontamination of hands

New Initiatives

Pursuing New Challenges in the Area of Infection Diagnosis
In July 2017, KYORIN Pharmaceutical Co., Ltd. acquired all of the outstanding shares of jTAS
Inc., which developed the GeneSoC ultrahigh-speed genetic measurement device using
proprietary technology.
A global effort is being made to address the issue of antimicrobial resistance (AMR) in thetreatment of infections, by promoting the appropriate selection of antimicrobials and theproper use of drugs. As part of this effort, GeneSoC was developed as an ultrahigh-speed
genetic measurement device that can quickly, accurately, and simply identify pathogenic
bacteria, and its use for diagnosing infectious diseases is expected to contribute to the properuse of antimicrobials. The device makes it possible to select appropriate medicines using
POCT*, and we believe that promoting the proper use of antimicrobials will contribute to AMR
measures. The Kyorin Group is working to commercialize this device as quickly as possible.
*Point Of Care Testing (POCT): Testing conducted by a medical practitioner in physical contact with the subject. Through the benefits of less time spent on examination and giving the subject
a feeling of closeness, POCT offers swift and appropriate diagnosis and nursing care, prevents diseases, contributes to advancement of health, and helps toraise the quality of medical care and the subject’s quality of life.

2017 ANNUAL REPORT

25

Structure Supporting Value Creation

Corporate Governance
The Kyorin Group will work to improve sustainable corporate value in order to gain the conﬁdence and live up to
the expectations of all stakeholders. As part of these efforts, the Group considers strengthening and enhancing
corporate governance to be an important management issue.

n Basic Policy on Corporate Governance
The most important management goal for KYORIN Holdings,
Inc. is to continue raising shareholder value. To achieve thisgoal requires fostering a management environment that enables
us to build trust with the general public. Therefore, having given
better corporate governance a high priority, we seek to ensure
prompt decision making, strong monitoring of the appropriateness of management, and to secure ethical and transparent
corporate activities. To ensure transparency and fair disclosure,
we release appropriate information without delay for the benefitof shareholders and investors. In the future, we intend toactively increase our disclosure of information, and expand andimprove our communications with all stakeholders.
KYORIN Holdings, Inc. has appointed three outside directors
to further strengthen the supervision of the business executionof directors, and to further enhance the transparency andfairness of management.
Kyorin is a company with a board of corporate auditors
based on the Companies Act of Japan. The Board of Corporate
Auditors, including the three outside corporate auditors, endeavors to fully demonstrate its auditing and supervising functions
and to ensure the transparency of the decisions being made by
the Board of Directors. At the same time, 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 toimportant decisions and inspecting Group companies.
In addition, in recognition of our corporate social responsibility (CSR), for every Kyorin Group company we appoint complianceand risk management promotion officers. We have establisheda Group-wide compliance and risk management system that is
administered by the Compliance Committee and Risk Management Committee. We have established guidelines for eachaffiliated company based on the Kyorin Compliance Guidelines
and set up a system 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 their autonomy.
Under this system, we receive regular business reports fromthese companies and hold meetings with their management
before deciding important issues. The Internal Audit Officeconducts audits of affiliated companies based on internal audit
guidelines. Based on the results of these audits, departmentsthat oversee the operations of the affiliated companies issue
instructions or warnings and provide appropriate guidance.

Corporate Governance and Management Structure(As of June 23, 2017)

General Shareholders’ Meeting
Appointment/dismissal

Reports/exchange of
opinions

Accounting
Auditing
Firm(Independent
Auditor)Appointment/dismissal

Board ofCorporate
Auditors

Appointment/dismissal

AuditsBoard ofDirectors

Representative
Directors

Cooperation

AuditsInternal Audit
Ofﬁce

Management
Committee
AuditsSupervision

Guidance

Corporate
Ofﬁcers/Departments

AuditsAfﬁliated
Companies

26

2017 ANNUAL REPORT

Committee on
Remuneration
andNominations

1. Management Organization

To clarify the roles of our eleven directors, who are responsible
for making business decisions and supervising business execution, and four corporate officers, who are responsible forbusiness 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 as well 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 the Group. In
addition, at its Ordinary General Shareholders’ Meeting held in
June 2016, Kyorin appointed three outside directors, and wewill be leveraging their independence, rich experience, and highlevel of specialization to further enhance our managementtransparency and monitoring 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 havebuilt a system that facilitates highly transparent decision-making.
Decisions on remuneration are made by the Board of Directors
after monitoring by the voluntary Committee on Remuneration
and Nominations.
Nomination of a candidate to become a director or corporate
auditor is based on the selection of candidates regardless ofgender or nationality, and who have outstanding characteristics
and knowledge and appropriately strong awareness of compliance with laws and corporate ethics.
The voluntary Committee on Remuneration and Nominations
deliberates in advance on whether a candidate to become adirector or a corporate auditor meets selection standards, andthe Board of Directors makes a decision.

2. Internal Control System and Risk Management System

Kyorin is building an internal control system in accordance withthe basic policy determined by the Company:•W e established the Compliance Committee, which is chairedby a director in charge and includes the Director of the Internal
Audit Office who serves as a member of the 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 to ensure the accuracy of financial reporting,and developed systems for ensuring the validity and reliabilityof internal controls over financial reporting of the Group.
•W e have built and are operating a structure for reducing andpreventing risks. As part of this structure, we established the
Risk Management Committee, chaired by a director in charge,
with the General Affairs & Human Resources Department
responsible for overseeing the committee. For risks concerningcompliance, 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 withany contingencies, we have set up the Contingency Measures
Headquarters under the leadership of the president.

3. Audit Organizationa) Internal auditors
Internal audits are conducted by the Internal Audit Office, whichis staffed by seven employees who report directly to the president, and is independent from other sections. Based on yearly
auditing plans, the Internal Audit Office regularly assesses andevaluates the effectiveness and efficiency of the legal complianceand internal control systems in the parent and Group companies.
After an audit, the office communicates any problems or areasthat need improvement directly to the president and makes theappropriate recommendations.
Another function of the office is to evaluate the Group’s
internal controls over financial reporting. The office evaluates
the development and operation of these internal controls
according to a predetermined scope for evaluation, and makes
a report to the president.
b) Corporate auditors
Corporate auditors conduct audits in line with an auditing policy
and plan set by the Board of Corporate Auditors at the beginningof each fiscal year. In addition to participating in important
meetings, including those of the Board of Directors and theManagement Committee, corporate auditors implement comprehensive audits by checking documents and other materials
relating to important decisions and inspecting departments,
facilities, and Group companies.
Under our adopted system, if someone discovers that an
executive officer or employee is acting in contravention of 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 understandingof audits. Furthermore, we assign auditing staff to assist theduties of the corporate auditors as necessary, and these humanresources are carefully checked by directors and corporate
auditors to ensure that they are independent.
Moreover, the statutory senior corporate auditor, Seiyu
Miyashita, has experience as a director and head of accountingof KYORIN Pharmaceutical Co., Ltd., and has a considerable
level of knowledge about finance and accounting.
c) Outside directors and outside corporate auditors
Kyorin has three outside directors and three outside corporate
auditors.
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 with his high degreeof specialization and rich experience, was deemed wellqualified 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.
Outside director Ken Shigematsu has experience as an
officer of Isetan Mitsukoshi Holdings Ltd. and other companies.
With his wide-ranging insight developed from his rich management experience, Mr. Shigematsu was deemed well-qualified
overall for appointment to outside director. Note that no purchasing, sales, or other trade relationship exists between Kyorin
and MFSJ Co., Ltd.
Outside director Yoh Goto has experience as an officer of the
Teijin Group. With his wide-ranging insight developed from hisrich management experience, Mr. Goto was deemed wellqualified overall for appointment to outside director. Note that nopurchasing, sales, or other trade relationship exists between
Kyorin and Teijin Limited.
Kyorin has three outside corporate auditors who are neutrally
positioned and not compromised by relationships with management or specified parties having a special interest. Theseoutside corporate auditors all have a considerable level ofknowledge of corporate legal matters, and matters of financeand accounting. We utilize their specialist understanding andwide-ranging knowledge and experience to strengthen andenhance our auditing functions.
Outside corporate auditor Masaji Obata is well-versed in
Corporation Law as a lawyer, and has considerable knowledge
concerning finance and accounting. Outside corporate auditor

2017 ANNUAL REPORT

27

Structure Supporting Value Creation

Takao Yamaguchi has a considerable level of knowledge inmatters of fi nance and accounting as a certifi ed public
accountant and a certified tax accountant.
Kyorin selects outside directors and outside corporate
auditors based on a review of the individuals’ backgrounds andrelationship with Kyorin, and, from a standpoint independent
from that of management, on the assumption that sufficient
independence can be ensured that said individuals are able toadequately carry out their duties as outside directors andoutside corporate auditors. The appointment of outside directors
Noriyuki Shikanai and Ken Shigematsu and outside corporate
auditors Masaji Obata and Takao Yamaguchi as independent
directors/corporate auditors has been reported to the Tokyo
Stock Exchange.
d) Independent auditor
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 valuableadvice as an accounting auditing firm, as well as from its
services as an auditor of our financial accounts.
The following certified public accountants performed theaudit of KYORIN Holdings, Inc.:(Names of certified public accountants) Ryuzo Shiraha,
designated limited liability partner and engagement partner;and Hidemitsu Kato, designated limited liability partner andengagement partner.
A further 11 certified public accountants and 19 assistantaccountants assisted with the audit.
The Board of Corporate Auditors provides a forum for close,
regular exchange of information and opinions with the Internal
Audit Office and the accounting auditing firm, thereby enhancing the auditing system.

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

5. Compensation of Directors and Corporate Auditorsa) Total compensation paid to each director or corporate
auditor, total paid by type of compensation, and number
of applicable directors and corporate auditors
Total paid by type ofcompensation(Millions of yen)
Basic compensation

Number of applicabledirectors andcorporate auditors(People)

238

238

8

Corporate auditors(Excluding outside
corporate auditors)

33

33

2

Outside directors or
corporate auditors

48

48

6

Director or corporate
auditorDirectors (Excluding outside
directors)

Total compensation
paid(Millions of yen)b) Importance of employee salary in cases where a
director is also an employee
None to report.
c) Policy and method of determination of the policy, asregards the amount of compensation paid to a director
or corporate auditor, and the method of calculation
There are two forms of compensation for directors and corporate
auditors: basic compensation and stock options. These areprovided as incentives and compensation for the roles that directors and corporate auditors should play. Under the Kyorin Group
corporate philosophy, the roles of the directors and corporate
auditors include executing management based on management
policy and taking into consideration the value creation of various
stakeholders, and enhancing corporate value through the282017 ANNUAL REPORT

sustainable and stable growth of the Group. However, as outside
directors and outside corporate auditors perform their role ofsupervising and overseeing management from an independent
position, payment is not linked to performance each year.
The voluntary Committee on Remuneration and Nominations
deliberates in advance on the remuneration system for directors
and basic policies, using industry standards and the Company’s
performance as reference, and the Board of Directors makes adecision based on such deliberations.

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 Appointments of 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 onethird of the voting rights of shareholders who are eligible toexercise voting rights.

8. General Shareholders’ Meeting Matters That May Be
Resolved by the Board of Directorsa) Acquisition of treasury stock
Pursuant to the provisions of Article 165, paragraph 2 of the
Corporation Law of Japan, the Company’s Articles of Incorporation stipulate that the Company may acquire treasury stockby a 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 to acquire treasury stock throughmarket transactions, etc.
b) Decision-making body for cash dividends from retained
earnings
Pursuant to Article 459, paragraph 1 of the Corporation Law ofJapan, and except where otherwise specified in a separate
applicable legal or regulatory provision, the Company’s Articles
of Incorporation stipulate that cash dividends are to be decided
by resolution of the Board of Directors, and not the generalshareholders’ meeting. The aim is to allow management toexercise a capital policy as deemed appropriate.

9. Requirements for Special Resolution by a General
Shareholders’ Meeting

Pursuant to Article 309, paragraph 2 of the Corporation Law ofJapan, the Company’s Articles of Incorporation stipulate thatspecial resolutions by a general shareholders’ meeting must be
passed by at least a two-thirds majority vote of attending
shareholders holding at least one-third of the voting rights ofshareholders eligible to exercise voting rights. The aim is to lower
the required quorum for a special resolution of a generalshareholders’ meeting to facilitate the smooth operation of themeeting.

10. Status of Stockholding

Among KYORIN Holdings, Inc. and its consolidated subsidiaries,
details of KYORIN Pharmaceutical Co., Ltd., the largest company(largest holding company) in terms of investment securities(amount of investment stocks) reported on the balance sheet,
are as follows.
Among investment stocks, the number of different stocks
and the total reported consolidated balance sheet value ofinvestment stocks held for other than purely investment purposes:
28 different stocks¥22,131 million
For details, please refer to:
http://www.kyorin-gr.co.jp/en/company/governance.shtml

Directors, Corporate Auditors, and Corporate Ofﬁcers(As of June 23, 2017)

From the left: Yoh Goto, Shigeru Ogihara, Noriyuki Shikanai, Tomiharu Matsumoto, Tomiya Sasahara, Masahiro Yamashita, Kenji Akutsu,
Minoru Hogawa, Michiro Oonota, Yutaka Ogihara, Takeshi Shigematsu

Representative Director, Chairman

Representative Director, President
and Chief Executive Officer

Senior Managing Director

Senior Executive Director

Masahiro Yamashita

Minoru Hogawa

Tomiharu Matsumoto

Yutaka Ogihara

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

General Affairs & Human Resources,
Finance & Accounting, Legal andCompliance

President’s OfficeSenior Executive Director

Executive Director

Executive Director

Executive Director

Shigeru Ogihara

Kenji Akutsu

Tomiya Sasahara

Michiro Oonota

Intellectual Property
Research and Development

General Affairs & Human Resources
and Personnel Affairs
Healthcare Business

Quality Assurance & Reliability

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

Outside Director

Outside Director

Outside Director

Noriyuki ShikanaiTakeshi Shigematsu

Yoh Goto

Senior Corporate Auditors

Outside Corporate Auditors

Senior Corporate Officers

Corporate Officers

Seiyu Miyashita
Hiroaki Hama

Masaji Obata
Yuuji Konishi

Yoh Ito
Kei Takahashi

Yasuo Nii
Kikou Obi

Takao Yamaguchi2017 ANNUAL REPORT

29

Structure Supporting Value Creation

Corporate Social Responsibility
Under the corporate philosophy, “KYORIN continues to fulfill its mission of cherishing life, and benefiting
society by contributing to better health,” the Kyorin Group works to make a significant contribution to
the creation of an energetic society and economic development through activities based on
the ESG (environment, society and governance) viewpoint. Through these activities, the Group also aims toachieve sustainable corporate growth and create corporate value in the medium to long term.
To achieve this, we consider it important to take our Corporate Charter to heart, and to build and maintainrelationships of trust with all stakeholders*, and provide reliable products and services as a “company
that supports healthy lifestyles,” while at the same time continuously striving as a corporate citizen
to fulfill our corporate social responsibility (CSR), beginning with the fundamentals of compliance andrisk management and also emphasizing themes including human resources management, environmental
management, and activities that contribute to society.
*The Kyorin Group’s stakeholders: patients and medical professionals, shareholders andinvestors, employees, business partners and local communities

Relationship between the Kyorin Group and the General Public

Society
A vigorous society in which people canlive a healthy and heartful life

Contribution

Trust

The Kyorin Group“The Leading Company for Career Fulfillment”
Major Themes:

Corporate
Activities

Corporate
Citizenship● Compliance/Risk Management● Human Resources Management● Environmental Management● Social Contribution Activities

30

2017 ANNUAL REPORTCompliance/Risk Management
The Kyorin Group abides by all laws, regulations, and codes of conduct, and the spirit thereof, and acts with high ethical standards, as well as
promoting activities to appropriately manage internal and external risk pertaining to the business with a view to the ongoing enhancement ofcorporate value. Each Group company establishes a Compliance Committee and a Risk Management Committee that adopt a variety of measures toraise awareness and otherwise promote Group compliance and risk management.

n Compliance
Basic Policy
An enterprise should pursue profits through fair competition
as an economic entity, and at the same time should be a force
for the greater good of society.
Based on its corporate philosophy, the Kyorin Group willconduct its activities in every country based on a high standardof corporate ethics, respecting human rights and observing alllaws, as well as standards of conduct and the spirit thereof.

Corporate Charter and Compliance Guidelines
To ensure that the Kyorin Group’s activities are based on ahigh standard of corporate ethics, we established the KYORIN
Holdings Corporate Charter and Compliance Guidelines(August 2006). Furthermore, we have also built and promoted acompliance system by establishing a Compliance Committeethat meets on a monthly basis, and other measures.
1. The KYORIN Holdings Corporate Charter
was developed to specify matters of corporate
ethics and compliance in accordance withour corporate philosophy, and serves as thestarting point for our corporate activities.
2. The Compliance Guidelines complement the
KYORIN Holdings Corporate Charter byclarifying the standards to be followed for sound and proper
business activities.

3. The Compliance Committee was established to provide
overall supervision of corporate ethics and compliancesystems. Each Kyorin company has a compliance promotion manager who is responsible for the understanding andinstilling of corporate ethics and compliance.

Education and Training
Internal training is held to ensure an understanding andfamiliarity with Kyorin’s corporate philosophy andcompliance.
1. Focusing on departments responsible for compliance andeach division’s compliance promotion managers, Companywide level-specific training (newly hired employees, newly
appointed managers, etc.) and functional training are held toteach corporate ethics and compliance, and efforts are
made to ensure that an understanding and consideration ofcompliance is reflected in the work performed by directors,
corporate auditors and officers, and employees.
2. June and November are designated as “complianceenhancement months,” with the Corporate Charter andCompliance Guidelines read out at morning meetings andother activities to ensure a thorough understanding andfamiliarity with compliance Groupwide.

n Risk Management
Kyorin established a Risk Management Committee in order toprevent risks from materializing and deal with any risks that domaterialize. The committee’s roles are as follows:
1. Direct risk assessments to related divisions to identify andunderstand latent risks.
2. Prepare various guidelines and operation manuals for
related divisions, and implement training for employees andother preventive measures as necessary, to ensure that

latent risks do not materialize.
3. Prepare procedure manuals and carry out simulated drills
at related divisions, and take out insurance and implement
other measures as necessary, to minimize losses in theevent a risk event does occur.
Also, a risk management promotion officer has been
appointed at each company to raise awareness relating torisk management.

n Initiatives Related to Transparency in Relationships with Medical Institutions and Other Parties
The mission of an R&D-driven pharmaceutical company is tocontribute to the realization of patient-focused medical care,through continuous research and development of new drugs andtheir stable supply, thereby contributing to global medical careand people’s health. To fulfill this mission, partnerships between
pharmaceutical companies, research laboratories and medical
institutions including universities and others are essential, and weare required to properly manage our relationships where there isa potential conflict of interest with pharmaceutical companies.
Under these circumstances, the Kyorin Group established the
Guidelines for Transparency of Relationships between Corporate
Activities and Medical Institutions, etc., and the Guidelines on
Transparency of Relationships between Corporate Activities andPatient Groups. In accordance with these guidelines, we publish
information about capital funding to medical institutions, patientgroups, and others on our website.

2017 ANNUAL REPORT

31

Structure Supporting Value Creation

Human Resources Management
The Kyorin Group considers it fundamental for its sustained operations and growth to ensure that its employees are passionate about their work. As such, wecreate, operate, and establish new human resources management systems with the aim of engendering in our employees the sense that this is the very bestplace to work. The Group is also striving to improve its level of safety and health with the goal of attaining zero workplace injuries, by preventing work
accidents, improving the health of everyone who works here and further enhancing the comfort of the working environment.

n Human Resources Management System
The Group positions valuing employees and empowering
people/organizations as the most important challenge under
the long-term vision for executing business strategy andrealizing achievements. We therefore aim to be “the leading
company for career fulfillment,” where employees take pride in
their work, have trust in the Company and its organizations,and work in solidarity with their coworkers. We are working to
restructure the human resources management system (hiring,assigning, training, evaluation, transfers, compensation, social
welfare, etc.) and strengthen training at all Group companies
under our basic policy for human resources management.

Basic Concepts of the Human Resources Management System“Long-Term Reciprocal Partnership”
By continuously fulfilling the responsibilities expected of each other over the long term, the Company and its employees become partners fortheir mutual benefit (employees contribute to the Company’s development, the Company contributes to rich and rewarding lives for employees).

Employees

Company

By carrying out their duties, contribute to achievement of theCompany’s (organization’s) goals and targets.
• Carry out duties by performing operations proactively witha sense of initiative.
• Strive to maintain and enhance their own humanity and ability
in carrying out their duties.
• Cooperate with coworkers for the success of the organization.

People are considered assets (drivers of growth) of the Company, which
values its employees and supports their growth.
• Each employee is assigned duties that conform to their abilities andwork style.
• Each employee’s contribution is comprehensively understood, andemployees are evaluated and treated fairly and consistently.
• The Company provides a comfortable and rewarding work environmentthat fosters a “desire to work” among employees.

n Regular Surveys on Employee Satisfaction
The Kyorin Group seeks to create a comfortable and rewarding
work environment that further enhances its employees’ “desire
to work.” To this end, the Group conducts surveys on job
satisfaction with all of its employees.
This survey has been carried out annually for the past sevenyears. The results of the survey are used as reference in creating
our unique human resources management system, with the aimof becoming “the leading company for career fulfillment,” where
employees take pride in their work, have trust in the Company,
and work in solidarity with their coworkers.

n Support for Employees’ Childcare and Nursing Care
KYORIN Pharmaceutical Co., Ltd. supports employees’ daily
lives throughout their life cycle, including when they requirechildcare or nursing care, with the aim of providing an environment in which they are easily able to balance their lives between
work and family. Childcare support includes childcare leave,
shortened work hours, and maternity/paternity leave. The
Company has also introduced programs including financial
support for childbirth and education fees, hourly-based paid

leave, financial subsidies for the use of nurseries and preschools,
and the use of company vehicles to take and pick up thechildren of medical representatives to and from nurseries orpreschools. Support for employees engaged in nursing careincludes increased nursing care leave and nursing care breaks,
and a system to support remote nursing care has also been
introduced, to create an environment where employees canfocus on their work knowing that they have a healthy family life.

n Mental Health
KYORIN Pharmaceutical Co., Ltd. provides mental-healtheducation to managers and employees. Our manager training
focuses on prevention and early detection of mental illness, byencouraging managers to pay attention to their subordinates andpromoting understanding of the specific symptoms of mental
disorders. We also encourage employees to gain knowledge
322017 ANNUAL REPORT

about maintaining mental health via our intranet and other means,and have created a hassle-free system for employees and theirfamilies to seek help. When a mental health issue arises, theemployee’s department, industrial psychiatrists, public healthnurses, and Human Resources Department work together to help
the employee recover, return to work, and prevent relapse.

n Industrial Safety and Hygiene
KYORIN Pharmaceutical Co., Ltd. has not had a fatality due to a work-related accident since its founding, and the rate and severity ofwork accidents are substantially below the industry averages.
Rate of Work Accidents
KYORIN Pharmaceutical

Chemical industry

0.80

1.00

1.06

0.29

0.82

0.29

0.76

0.29

2012

2013

2014

Entire manufacturing industry

0.17
0.15
0.12

0.12

0.10

0.10

0.006

0.010

2012

2013

0.81
0.09

0.10
0.30

0.29

2015

2016

(FY)

Rate of work accidents: Number of deaths and injuries due to industrial accidents per total working hours times
one million (indicates frequency of accidents)
Calculation method: No. of deaths and injuries due to industrial accidents / Total working hours x 1,000,000

0

0.07

0.06

0.05

0.20
0

Chemical industry

0.20

1.06
0.88

0.85

KYORIN Pharmaceutical

0.94

0.60
0.40

Entire manufacturing industry
1.15

1.20
1.00

Severity of Work Accidents

0.04
0.001

0.004

2014

2015

0.03
0.017

2016

(FY)

Severity of work accidents: Number of lost working days per total working hours times one thousand (indicates magnitude of accidents)
Calculation method: No. of lost working days / Total working hours x 1,000

n Respect for Human Rights
The Kyorin Group respects the human rights of all people. The
Compliance Guidelines state that “There will be no discriminationor harassment inside or outside the Company based on race,
ethnicity, nationality, gender, age, religion, beliefs, ideology,
academic background, disability, or disease.” The Company
also respects the individuality of each employee, and has

formulated guidelines to prevent harassment, to create acomfortable workplace environment where employees feel atease. These guidelines cover sexual and power harassment, as
well as harassment related to pregnancy, childbirth, and childcare
and nursing care leave.

Shareholders and Investors
We established our Basic Policy and Principles of Conduct for Information Disclosure as
our basic stance on disclosure of corporate information. We endeavor to swiftly,
accurately, and fairly disclose corporate information necessary to make investment
decisions, including important corporate information requiring thorough timely disclosure.
We hold an Ordinary General Shareholders’ Meeting (in June of each year) andfinancial results presentations (second quarter and full year) as opportunities for
information disclosure and communication with our shareholders and investors. We
also focus on enhancing the Investor Relations section of our website with the goal ofproviding information to our shareholders and investors in a timely manner. We publish
information as needed on our Investor Relations website, including financial statements,press releases, presentation documents for investors, and Annual Reports.
Feedback from our shareholders is communicated to management in a timely andappropriate manner. Valuable views received through dialog with our shareholders are
Investor Relations website:
http://www.kyorin-gr.co.jp/en/ir/

regularly reported to top management and the Director in charge of Investor Relations,and presentations are made to the Management Committee as needed.

2017 ANNUAL REPORT

33

Structure Supporting Value Creation

Environmental Management
The Kyorin Group regards environmental issues as a challenge shared by all humanity, and is actively striving to preserve the environment andprevent pollution by establishing and reviewing objectives and targets as needed; promoting the reduction of substances that place a burden on theenvironment, for example through energy and resource saving, waste reduction, and enhanced management of chemicals; and promoting theeffective use of our limited resources.

n Environmental Conservation Initiatives
We are actively committed to environmental conservation, focusing
on the following major themes: preventing global warming, protecting
resources, and living in harmony with the natural environment. We areworking to reduce the environmental burden and promote effective
use of limited resources by conserving energy and resources,
reducing waste and strengthening our management of chemical
substances. In 2004, all plants and research laboratories of KYORIN
Pharmaceutical Co., Ltd. obtained certification in the ISO 14001
international standard for environmental management systems.
In our efforts to reduce CO2 emissions to combat global warming,
we set a target of reducing CO2 emissions by 2% on averageannually until fiscal 2019, based on CO2 emissions of fiscal 2015
(19,840 tons) and are promoting such efforts. In fiscal 2016, ourCO2 emissions were 18,192 tons.

KYORIN Pharmaceutical’s Material Flow (fiscal 2016)
Raw materials

Materials

Energy451t

Total: 476t

Total heat: 304,403GJ(PRTR substances: 9.8t)

Materials: 425t
Paper usage: 51t(crude oil equivalent: 7,854k )Electricity: 18,592 thousand kWh
Heavy oil: 567k
Kerosene: 2,753k

Water
Total: 121,500t
Drinking water: 98,700t
Groundwater: 22,800t

INPUT
ResearchSales

OUTPUT

Manufacturing

Management

CO2 emissions

Waste

Wastewater

Packaging
Recycled

18,192t

Amount: 434t
Amount recycled: 188t
Amount landfilled: 12t

92,000t

Total: 422t

n Introducing Hybrid Cars to Reduce CO2 Emissions
KYORIN Pharmaceutical Co., Ltd. is proactively introducing lowemission cars, hybrid cars, and other environmentally friendly
vehicles for its sales force as a way of preventing global warming.
As of March 2017, all 940 vehicles used by the sales force met thestandard for having low emission (a 75% reduction in emissions
from the 2005 standard), and of these, 460 (approximately 50%)

are hybrid vehicles, which were introduced in 2004. In addition,these vehicles adhere to the
Ministry of the Environment’s“Eco-Driving” guidelines, as theiroperation regards the impact on
the environment and traffic safety.

n Biodiversity
KYORIN Pharmaceutical Co., Ltd.’s Noshiro Plant participates in acitizen’s volunteer activity to protect the Kaze-no-Matsubara pine
forest near the plant, to provide local residents with a place torelax. In fiscal 2016, a total of 25 plant employees removed deadbrush as part of an activity to preserve local biodiversity.
In addition, KYORIN Pharmaceutical’s Okaya Plant has been
participating in a program to “adopt” and take care of a section ofa shore along Lake Suwa for 15 years. During fiscal 2016, theplant’s final year of operation, a
total of 21 employees from theplant picked up trash andremoved debris from the shore.

n Environmentally Friendly R&D Center
In May 2017, the ReHP technology newly installed at the WATARASE Research Center, which commenced
operations in fiscal 2015, was awarded an honorable mention for the Kanto chapter of the Japanese
Association of Building Mechanical and Electrical Engineers’ carbon neutral prize for construction
equipment contributing to the achievement of a low-carbon society. During fiscal 2016, this system
reduced electric power consumption by 98,276 kWh and CO2 emissions by roughly 50 tons comparedwith conventional heat pumps for air conditioning and heating, for approximately 35% in energy savings.
A Renewable Energy Heat Pump (ReHP) is a highly efficient heat pump that uses renewable energy,
and the ReHP installed at two adjacent buildings (CS and LAB1) at the WATARASE Research Center
uses geothermal heat and unused waste heat from a water chiller as a heat source, and circulates
heated water in a single loop, which is used by air conditioning and water heating equipment, toincrease energy efficiency.

342017 ANNUAL REPORTKYORIN Pharmaceutical Co., Ltd. Environmental Targets and Progress (Fiscal 2016)
Target initiatives

Fiscal 2016 plan(incl. numerical targets)

Method for achieving

1. Preventing global warming(CO 2 reduction and energy
conservation)

Fiscal 2016 actualSelfassessment

Reduce fuel consumption (crude oil equivalent) through newcapital investment

8,485k (fiscal 2015 actual)

7,854k (92.6%)★★★

Use hybrid cars to improve fuel efficiency and reduce exhaustemissions378/925(40.9%, fiscal 2015 actual)466/940 (49.6%)★★★

Reduce total CO 2 emissions

19,840t

18,192t★★★

Reduce total waste

638t (fiscal 2015 actual)

434t

★★★

Promote recycling

50.8% (fiscal 2015 actual)

43.3%

★★★

Amount landfilled

21t (fiscal 2015 actual)

12t

★★★

Zero-landfill challenge

Under 3.3%

2.8%

★★★

3. Managing chemical
substances

Manage substances covered by the Pollutant Release and Transfer
Register (PRTR) Law and revise management method

7.7t (fiscal 2015 actual)

9.8t

★★

4. Preventing atmosphericpollution

Measure and control amounts of soot and smoke, nitrogen oxide(NOx) and sulfur oxide (SOx) emitted by boilers and generators

Continuous measurement

At or below standards★★★

5. Preventing water pollution

Process wastewater, including by primary processing plants, andmanagement of pH, biochemical oxygen demand (BOD), andsuspended solids (SS) levels

Continuous measurement

At or below standards★★★

6. Preventing deforestation

Recycle paper, use recycled paper, and promote a paperless officeenvironment

38t (fiscal 2015 actual)

51t★

7. Protecting destruction ofozone layer

Eliminate all devices that use Chlorofluorocarbon (CFC) andHydrofluorocarbon (HFC)

Elimination completed in fiscal 2010–★★★

8. Preventing groundsubsidence

Reduce groundwater usage and increase drinking water reuse

83.1% (fiscal 2015 actual)

81.7%

★★

9. Noise reduction

Periodic measurement

Continuous measurement

At or below standards★★★

10. Protecting biodiversity

Communicate with local communities (activities to contribute to
local communities)

Plan for each business facility

Achieved targets at all
business facilities★★★

11. Publishing environmental
information

Create and publish environmental report

Publish on website in August

Published on website inAugust★★★

2. Reducing waste volume*Self-assessment scale: ★★★ achieved; ★★ largely achieved; ★ more work required

CO2 Emissions from Factories and Research Laboratories

Reduction of Waste(t)(t/millions of yen)

25,000100

20,00018,417

19,84017,91917,38980

18,192

15,00060

10,000

40

5,000

20

0

2012

2013

2014

2015

2016

(FY)

0

80

80
70
60
40

2012

2013

2014

2015

2016

(FY)

Volume of Water Used
Total groundwater

Total drinking water(t)

200,000

150,000

54,70042,50030,90027,00022,800100,000
134,800
50,0000

2012

125,100

2013

132,400

132,400
98,700

2014

2015

2016

(FY)

2017 ANNUAL REPORT

35

Structure Supporting Value Creation

Social Contribution Activities
The Kyorin Group endeavors to contribute to society in cooperation with local communities in order to realize a mutually beneficial relationship withsociety. The Group promotes social contribution activities that are fitting for “a company that supports healthy lifestyles,” in order to create vibrant local
communities where the foundation of its business activities lies so that people can live healthy, affluent lives, and to ensure that the Group continues todevelop in a sustainable manner.

n Communication with Local Communities
Cherry Blossom Viewing Parties and Summer Evening Parties

Work Experience Programs

KYORIN Pharmaceutical Co., Ltd.’s WATARASE Research Centerand Noshiro Plant and KYORIN Rimedio Co., Ltd.’s Inami officehold cherry blossom viewing parties and summer evening
festivals for local
residents, and these
events are well received as opportunities to gain a deeper
understanding of ourcorporate activities.

Each Group facility offers internships, provides workplace tours
and hands-on workshops for junior and senior high school
students, and sends staff to teach in classrooms.

Support for Health-Related Events

Sponsoring Sporting Events

The Kyorin Group is a special sponsor of the health-related event“Kyorin Group Presents the Great Adventure for the Body’s Secrets.”
This is a new type of participatory, hands-on science event where theentire venue is likened to a giant human body, allowing visitors to
study the structure of the human body as they walk around inside.
Kyorin supports theobjectives of this event—toencourage children to
become interested in theirown bodies and study
them while having fun—and became a special
sponsor in 2016.

The annual Shimotsuke Soccer Workshop in Nogi was held for the
16th time. Many local children attended, and we saw them giving
their all playing soccer under the coaching of former Japan nationalteam player Tetsuo Nakanishi. The Kyorin Group supports manyother events that contribute to people’s health.

Activities with Patients and Medical Professionals
Meeting Needs from Patients’ Perspectives
We endeavor to meet a variety of needs, listening to
feedback from clinical practice. We put ourselves in ourpatients’ shoes, striving to develop pharmaceutical forms
that are easy to administer, and imprinting them with theirnames to keep patients from taking the wrong medicine.

“Drug Information Center” Helpline
We opened the “Drug Information Center” as a helpline forinquiries relating to Kyorin products. We respond swiftly
and accurately to various inquiries from physicians andpharmacists, from the standpoint of correct usage. We
also provide accurate and easy-to-understand responses
to inquiries from patients and the general public. In fiscal
2016, we responded to more than 20,000 inquiries.

36

2017 ANNUAL REPORT

Providing Information via “Doctor Salon”
At the Kyorin Group, we provide information by sponsoring“Doctor Salon,” a radio program for physicians, on RadioNIKKEI (shortwave), producing and distributing brochures,and offering back issues on the web. “Doctor Salon” is a
program that provides answers to issues that are highly
relevant to clinical practice. It is extremely popular among
physicians, especially primary-care doctors.

n Employee-Driven Efforts to Contribute to the Communityn Initiative to Raise Awareness of Maternity Mark

Since fiscal 2007, KYORIN Pharmaceutical Co., Ltd. has implemented the Kyorin Smile Program, a program with employee
participation aimed at creating “a society that smiles.”Since 2009, KYORIN Pharmaceutical Co., Ltd. has beenplacing “Milton” advertisements near priority seats in various
trains mainly in Tokyo regions. The advertisements raise awareness of the Maternity Mark, with the aim of increasing recognition of the symbol and contribute to creating an environmentthat is friendly to pregnant
women.

<Major Initiatives>
Charity donations (donations to UNICEF)
Collecting used stamps (donations to JOICFP)● Collecting plastic bottle caps
(sending vaccines to developing countries)● Blood drives at each business facility●●n First-Aid and Lifesaving Courses for Employees
As part of KYORIN Pharmaceutical Co., Ltd.’s CSR activities, theCompany’s approximately 750 medical representatives receive
first-aid training, covering the necessity of first aid, CPR, the use of
AEDs, and ways to stop bleeding. Some employees from the head
offices of KYORIN Holdings Inc., KYORIN Pharmaceutical Co., Ltd.,and KYORIN Rimedio Co., Ltd. also attend these classes. In
addition to its corporate activities of collecting and providing
information regarding the appropriate use of pharmaceuticalproducts, the Kyorin Group strives to coexist in harmony as acorporate citizen of local communities.

n Support for Great East Japan Earthquake Recovery
Since fiscal 2011, KYORIN Pharmaceutical Co., Ltd. has supported
the Sunflower Project, which brings cheer to regions affected by
the Great East Japan Earthquake. We continued our support in
fiscal 2017, growing 300
pots of sunflower seedlingsat WATARASE ResearchCenter, and donating themto the city of Natori, in Miyagi
Prefecture.

n 2016 Kumamoto Earthquake Relief
At the Kyorin Group, we donated ¥10 million to provide relief tovictims of the earthquake and assist in the recovery efforts.

Publishing Websites for Medical Professionals
As a way of providing information through websites to
medical professionals, we created Kyorin Medical Bridge.
We endeavor to meet the needs of medical professionals
by enhancing information about our products, latest
academic news, and information that will be useful in
day-to-day clinical practice.

Kyorin Medical Bridge, a website for medical professionals

Providing Ailments Information
At the Kyorin Group, we provide assistance to help patients
correctly understand their ailments and improve their
quality of life by creating informed-consent tools andproviding patients with information about their ailments
through their healthcare providers.

Support for the Department of Drug Discovery Medicine
To cultivate innovative human resources for Japan’s drug
discovery in the post-genome era through cooperation withindustry and academia, KYORIN Pharmaceutical Co., Ltd.
helped establish and provides assistance to the Department of Drug Discovery Medicine at the Kyoto University
Graduate School of Medicine.

2017 ANNUAL REPORT

37

Financial and Corporate Data

Financial Analysis
Industry Trends in Japan
In the domestic pharmaceutical industry during fiscal 2016, themarket was stagnant due to factors including the impact of drug
price revisions implemented by the National Health Insurance(NHI) in April 2016. In addition, the Kyorin Group underwent a
critical juncture requiring unprecedented corporate activities,
including response to the expiration of patents for its main products.
Furthermore, while a challenging operating environment can be
expected in the future with the start of concrete studies on matters such as revisions to the NHI drug pricing system based on
the Basic Policy for Fundamental Reform of the Drug Pricing
System formulated in December 2016, there have also been discussions on efforts to accelerate evaluation of innovation, andtrends toward possible support for R&D.
As for the operating environment of the healthcare business,
uncertainties continued to exist as consumer spending
remained flat despite a gradual economic recovery.
Against this backdrop, in the first year (fiscal 2016) of its
medium-term business plan HOPE100–Stage 2– (fiscal 2016–2019) aimed at achieving the long-term vision HOPE100, theKyorin Group worked towards evolving an ethical drugs businessmodel that enables sustainable growth in the ethical drugs businessand creating core businesses in the healthcare business, as it
strove to attain goals and greater support and recognition fromstakeholders.

Consolidated Operating Results
Net Sales
Although sales of new ethical drugs in Japan decreased infiscal 2016 due to the impact of the NHI’s drug price revisions
and a decrease in prescription volumes for long listed drugs,
sales of generic drugs grew due to factors including the launchof Montelukast, an authorized generic version (hereinafter, “AG”)
of Kipres, resulting in a year-on-year increase in sales for the
ethical drugs business in Japan. On the other hand, as salesof new ethical drugs overseas declined in reaction to one-timerevenue related to an out-licensing agreement recorded in theprevious fiscal year, overall sales fell ¥4,109 million, or 3.4%,
from the previous year, to ¥115,373 million.
In the new ethical drugs business in Japan, sales increased
significantly year on year for Flutiform, a combination drug forasthma treatment. Meanwhile, sales decreased for Kipres, atreatment for bronchial asthma and allergic rhinitis, due to the
expiration of its patent. Furthermore, sales were also down year
on year for Pentasa, a treatment drug for ulcerative colitis andCrohn’s disease, and Mucodyne, a mucoregulant, both long
listed drugs. Based on a policy of evolving the franchise customer(FC) strategy of focusing marketing activities on physicians andmedical institutions in specific fields (respiratory, otolaryngology
and urology) and implementing a sales strategy in line with area
management, KYORIN Pharmaceutical Co., Ltd. has responded
to drastic changes in the business environment while working tomaximize the spread of its existing main products and to promptly
instill the features of new products. During fiscal 2016, welaunched Desalex Tablets 5 mg, a treatment for allergic diseases,in November 2016 in an effort to improve our presence in thefield of otolaryngology. KYORIN Pharmaceutical Co., Ltd. hasentered into a co-promotion agreement with Kaken Pharmaceutical Co., Ltd. for sales of Desalex to dermatology physicians
and medical institutions, and both companies have worked
towards the early adoption of the drug. As a result, sales in the
new ethical drugs business in Japan declined 9.9% from the38

2017 ANNUAL REPORT

previous year, to ¥83,777 million.
In the new ethical drugs business overseas, sales decreased
86.3% from the previous year, to ¥764 million, in reaction to therecording of one-time revenue related to an out-licensing agreement with Bristol-Myers Squibb Company (U.S.A.) in December
2015 and as a result of a decrease in royalty income for gatifloxacin
ophthalmic solution (out-licensed to Allergan, Inc. (U.S.A.)).
As for the generic drugs business, in September 2016
KYORIN Rimedio Co., Ltd. launched Montelukast Tablets 10 mg
and 5 mg “KM” (AG for Kipres and Singulair sold by KYORIN
Pharmaceutical Co., Ltd. and MSD K.K.) in response to the
expiration of the patent for Kipres, a treatment for bronchialasthma and allergic rhinitis, which is one of KYORIN Pharmaceutical Co., Ltd.’s main products. Sales of Montelukast Tablets
10 mg and 5 mg “KM” contributed to a significant increase insales of generic drugs. In addition, in line with the Japanese
government’s policies to promote the use of generic drugs, witha target of having generics account for 80% of the market interms of quantitative share, sales of drugs other than Montelukast
Tablets 10 mg and 5 mg “KM” also grew. As a result, overallsales of generic drugs increased 62.0% from the previous year,to ¥25,024 million.
In the healthcare business, although sales decreased year on
year for skincare products, sales increased for environmental
hygiene products, over-the-counter drugs, and other products
thanks to sales growth for its main products RUBYSTA, a multipurpose disinfectant cleaner, and Milton, a disinfectant for baby
bottles and nursing mothers, and the launch of new products(over-the-counter drugs, etc.).
As a measure for enhancing its environmental hygiene business,
in January 2017 KYORIN Pharmaceutical Co., Ltd. entered intoa sales partnership agreement with Air Liquide Japan, Ltd. forhand hygiene products in the Japanese market, and launchedsales of these products in March 2017. Going forward, the
KYORIN Group will work to expand its lineup of environmental
hygiene products to create a core business within its healthcare
business. The above factors resulted in a 5.3% year-on-yearincrease in segment sales, to ¥5,807 million, and an operating
loss of ¥1 million, compared with an operating loss of ¥187 million
in the previous year.
Cost of Sales Ratio, SG&A Expenses, and Operating
IncomeIn terms of profit, gross profit decreased ¥7,595 million from theprevious year as a result of factors including drug price revisions
and a decrease in one-time revenue for out-licensed products.
In addition, because SG&A expenses increased ¥1,627 million(including a ¥549 million increase in R&D expenses), operating
income fell ¥9,222 million, or 47.0%, from the previous year, to¥10,413 million. Profit attributable to shareholders of KYORIN
Holdings, Inc. declined 46.4% from the previous year, to ¥7,305
million, due to the recording under extraordinary loss of approximately ¥1,000 million in litigation settlement-related expenses
resulting from a violation of the U.S. antitrust law related to an
out-licensed product (Gatifloxacin-eyedrops).

Outlook for Fiscal 2017
The operating environment for the ethical drugs business inJapan is expected to become increasingly challenging due tointense discussions on drug price revisions based on the Basic
Policy for Fundamental Reform of the Drug Pricing System.
Under these circumstances, the Kyorin Group faced majorchanges within its management environment during fiscal 2016

as patents expired for the Group’s main products. Against thisbackdrop, based on its medium-term business plan HOPE100–Stage 2– (fiscal 2016–2019) formulated in fiscal 2016 aimed atachieving the long-term vision HOPE100, the Kyorin Group will
implement its priority strategies and development strategies set
forth under the plan with the aim of evolving an ethical drugs
business model that enables sustainable growth in the ethicaldrugs business and creating core businesses in the healthcare
business, and strive for the attainment of goals and greater
support and recognition from stakeholders.
While we expect higher sales in the generic drugs and healthcare businesses, we anticipate a decrease from the previous

fiscal year in sales of new ethical drugs. Therefore, we are forecasting a slight decrease in overall net sales. In new ethicaldrugs, we anticipate a decrease in sales as the generic drug for
Kipres, released in December 2016, will affect sales of Kipres
over the entire fiscal year, and launches of generic drugs forpharmaceuticals for children are also expected, despite theanticipated sales growth of Flutiform and Desalex and revenue
for out-licensed products. In generic drugs, sales are expected
to increase due to factors including continuous growth ofMontelukast AG.
In terms of profit, we are anticipating an increase mainly due
to higher revenue for out-licensed products.

Business Risks
We have described below the risk factors that could affect the business performance or financial health of theGroup. Although the Group has taken organizational and systematic measures to minimize risk, the outline does notinclude every risk or variable that could affect its business.
1. Legal Regulations
Legal regulations in Japan, such as the Pharmaceutical andMedical Device Act, the NHI system, NHI drug prices and laws inother countries can affect the Group’s business. Every stage 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 businessperformance and financial health.
2. Pharmaceutical R&D
Ethical drug development requires substantial R&D investment
over lengthy periods. Furthermore, the success rate is low forcompanies seeking to discover original compounds and bring
pharmaceutical products to market. Currently, several of
KYORIN Pharmaceutical Co., Ltd.’s ethical drugs are undergoingclinical trials. The clinical development of such drugs could beterminated as a consequence of various factors, such as
unforeseeable side effects or failure to achieve intended results.
3. Increased Competition
The pharmaceutical industry is experiencing rapid technologicalchange. Sales of the Group’s principal products could be affected
if a competitor developed and brought to market drugs that weremore useful or produced the same effects.
4. NHI Drug Price Revisions
Japan’s healthcare system, including NHI drug prices, is being
revised. When forecasting business results, the Kyorin Group
does its best to predict and factor in the effects of such changes.
Nevertheless, our performance could suffer as a result ofgreater than expected NHI drug price revisions or changes to
the NHI system.
5. Side Effects
Information concerning the safety of new pharmaceuticals isbased only on clinical trials using a limited number of subjects
and therefore cannot eliminate the possibility of all side effects.
If a drug in general use is found to have unknown and unreportedside effects after its launch, its usage may be restricted or, insome cases, its sale could be discontinued.
6. Slowdowns or Delays in Production
Technical or regulatory problems, natural disasters and accidents,
including fires, could cause slowdowns or delays in productionor 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

Earthquake that struck on March 11, 2011. No plant personnel
were injured, and the plant itself sustained no physical damage
from the disaster.
7. Pharmaceutical Recalls
If the Group’s pharmaceuticals are shown to be defective due tocontamination or other causes, they will be recalled. Such asituation would adversely affect the Group’s business results.
8. Intellectual Property Protection
There is a risk that the Group may become unable to protect its
intellectual property effectively in Japan or overseas. In this event,third parties could exploit the Group’s technology and reducedemand for its principal products and related pharmaceuticals.
If the Group’s other activities are deemed to infringe on anothercompany’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 for alleged
patent infringements, violations of the Product Liability Act or
the Antimonopoly Act or as a result of environmental issues orlabor disputes.
10. Exchange Rate Fluctuations
As the Group imports and exports pharmaceutical products, its
sales are vulnerable to exchange rate fluctuations.
11. Cancellations of Tie-Up Agreements
The Group promotes strategic alliances to make efficient use of
external capital. Through tie-up agreements with other 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 performanceof the Group.
12. IT Security and Information Management
In the course of business operations, the Group utilizes numerous
IT systems. This means business operations are vulnerable todisruptions caused by system faults or outside causes such as
computer viruses. Furthermore, the leakage of information
could cause a loss of trust in the Group and materially affect thebusiness performance of the Group.

2017 ANNUAL REPORT

39

Financial and Corporate Data

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

Millions of yen

Thousands of
U.S. dollars(Note 3)

2017

2016

2017

¥ 43,619¥ 45,712$ 388,761

Notes and accounts receivable (Note 11)46,192

48,296411,693

Short-term investments (Notes 5 and 11)

5,007

5,989

44,626Merchandise and finished goods

12,90114,808114,982

Work in process

1,521

1,408

13,556

Raw materials and supplies

9,956

11,44988,734

Deferred tax assets (Note 14)

2,136

2,903

19,037

Other

4,976

7,966

44,349

(44)

(50)

(392)

126,267

138,483

1,125,374

Land

2,010

2,022

17,914

Buildings and structures

33,18738,282295,784

Machinery and vehicle

20,957

20,436

186,783

591

557

5,267

Construction in progress

1,041

49

9,278

Other

7,871

8,007

70,152(43,227)(46,568)(385,267)

22,432

22,788

199,929

40,64733,464362,2732

2

18

Asset for retirement benefits (Note 12)

109

42

971

Deferred tax assets (Note 14)

381

113

3,396

2,893

3,057

25,784

(65)

(126)

(579)

43,96836,554

391,872¥192,668¥197,825$1,717,184

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:

Leased assets

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

Investments and other assets:
Investment securities (Notes 5 and 11)Long-term loans

Other
Less allowance for doubtful accounts
Total investments and other assets
Total assets

40

2017 ANNUAL REPORTMillions of yen

Thousands of
U.S. dollars(Note 3)

2017

2016

2017

¥ 11,157¥ 11,792

1,321

1,862

11,774

98

112

873

Accrued income taxes (Note 14)

1,194

3,121

10,642

Accrued bonuses to employees

2,690

3,252

23,975Reserve for sales returns

32

29

285

Provision for point card certificates

36

35

321

8,502

7,845

75,77525,03328,052

223,111Long-term debt (Note 6)

3,630

3,926

32,353

Lease obligations (Note 6)

478

543

4,260

2,067

2,613

18,422

16

13

143

Liability for retirement benefits (Note 12)

1,676

3,087

14,938

Other

1,928

2,539

17,184

9,797

12,72387,317

700

700

6,239

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$

99,439Long-term liabilities:

Deferred tax liabilities (Note 14)
Accrued retirement benefits for directors and corporate auditors

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 2017 and 2016
Issued – 74,947,628 shares in 2017 and 2016
Capital surplus

4,752

4,752

42,353Retained earnings

150,301

147,331

1,339,581(3,168)(2,975)(28,235)

152,585

149,808

1,359,938

7,645

10,372

68,137

115

160

1,025

Retirement benefits liability adjustments(2,510)(3,292)(22,371)

Total accumulated other comprehensive income

5,251

7,241

46,800Total net assets

157,837

157,049

1,406,747

Total liabilities and net assets¥192,668¥197,825$1,717,184

Treasury stock, at cost:
1,426,589 shares in 2017
1,273,045 shares in 2016
Total shareholders’ equity
Accumulated other comprehensive income:Unrealized holding gain on other securities
Translation adjustments

See notes to consolidated financial statements.

2017 ANNUAL REPORT

41

Financial and Corporate Data

Consolidated Statement of Income
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2017

Millions of yen

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

Thousands of
U.S. dollars(Note 3)

2017

2016

2017

¥115,373
50,84764,526
54,113
10,413¥119,483
47,36072,12252,486
19,636$1,028,280
453,182
575,098
482,291
92,807

374
(29)
23
(5)
(135)
3
—
—
(1,025)
97
(696)
9,716

313
(17)
(24)
(126)
1,467
47
(0)
(2,695)—214(820)
18,815

3,333
(258)
205
(45)
(1,203)27——(9,135)865(6,203)86,595

1,597
814
2,411
7,305
7,305

5,191
(15)
5,175
13,639¥ 13,639

14,234
7,255
21,488
65,107
65,107

Other income (expenses):
Interest and dividend income
Interest expense
Equity in gains (losses) of affiliates
Foreign exchange loss
Gains (losses) on sales and retirement of property, plant and equipment, net (Note 9)
Gain on sales of investment securities, net (Note 5)
Loss on devaluation of investment securities
Loss on closure of plant
Settlement-related costs
Other, net
Other expenses, net
Profit before income taxes
Income taxes (Note 14):
Current
Deferred
Total income taxes
ProfitProfit attributable to shareholders of KYORIN Holdings, Inc.

¥$

See notes to consolidated financial statements.

Consolidated Statement of Comprehensive Income
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2017

ProfitMillions of yen

Thousands of
U.S. dollars(Note 3)

2017

2016

2017

¥7,305¥13,639$65,107(2,732)
(45)
781

2,591
(7)
(3,407)(24,349)
(401)
6,961

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

5

(17)

45

(1,990)¥5,315(841)¥12,798(17,736)$47,371¥5,315—¥12,798—$47,371—

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

42

2017 ANNUAL REPORT

Consolidated Statement of Changes in Net Assets
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2017
Millions of yen
Accumulated othercomprehensive income

Shareholders’ equity
Number ofshares issued Common(Commonstock
stock)

CapitalsurplusRetainedearnings

Treasurystock,
at costTotal
shareholders’equityUnrealized
Total
Retirement
holding
accumulated
Translation
benefits
gain (loss)otheradjustments
liability
on othercomprehensive
adjustments
securities
incomeTotal
net assets

74,947,628¥700¥4,752¥137,577¥(2,511)¥140,518¥ 7,798¥168

Cash dividends

—

—

—

(3,885)—(3,885)——

Profit attributable toshareholders of KYORIN
Holdings, Inc.

—

—

—

13,639—13,639——Purchase of treasury stock

—

—

—

—

(1,040)(1,040)——

Disposals of treasury stock

—

—

—

—

576

576

—

—

—

—

576

Other changes

—

—

—

—

—

—

2,573

(7)

(3,407)

(841)

(841)

Balance as of April 1, 2015

Net changes during
the year¥

115¥8,082¥148,600——(3,885)——

13,639——(1,040)

—

—

—

9,753

(463)

9,290

2,573

(7)

(3,407)

(841)

8,448

74,947,628

700

4,752

147,331(2,975)

149,808

10,372160(3,292)

7,241¥157,049

Cash dividends

—

—

—

(4,333)—(4,333)

—

—

—

—

(4,333)

Profit attributable toshareholders of KYORIN
Holdings, Inc.

—

—

—

7,305

—

7,305

—

—

—

—

7,305

Purchase of treasury stock

—

—

—

—

(832)

(832)

—

—

—

—

(832)

Disposals of treasury stock

—

—

—

—

639

639

—

—

—

—

639

Other changes

—

—

—

—

—

—

(2,726)(45)781(1,990)(1,990)Net changes during
the year

—

—

—

2,971

(193)

2,778

(2,726)(45)781(1,990)788

Balance as of March 31, 2017 74,947,628¥700¥4,752¥150,301¥(3,168)¥152,585¥ 7,645¥115¥(2,510)¥5,251¥157,837

Balance as of April 1, 2016

Thousands of U.S. dollars (Note 3)
Accumulated othercomprehensive income

Shareholders’ equity
Number ofshares issued Common(Commonstock
stock)

CapitalsurplusRetainedearnings

Treasurystock,
at costTotal
shareholders’equityTotal
net assets$92,442$1,426$(29,340)

Cash dividends

—

—

—

(38,619)—(38,619)

—

—

—

—

(38,619)

Profit attributable toshareholders of KYORIN
Holdings, Inc.

—

—

—

65,107—

65,107————

65,107(7,415)

Balance as of April 1, 2016

74,947,628 $6,239 $42,353 $1,313,111 $(26,515) $1,335,187

Unrealized
Total
Retirement
holding
accumulated
Translation
benefits
gain (loss)otheradjustments
liability
on othercomprehensive
adjustments
securities
income$64,537 $1,399,724

Purchase of treasury stock

—

—

—

—

(7,415)(7,415)

—

—

—

—

Disposals of treasury stock

—

—

—

—

5,695

5,695

—

—

—

—

5,695

Other changes

—

—

—

—

—

—

(24,296)

(401)

6,961

(17,736)(17,736)

Net changes during
the year———

26,480(1,720)24,759(24,296)

(401)

6,961

(17,736)

7,023

Balance as of March 31, 2017 74,947,628 $6,239 $42,353 $1,339,581 $(28,235) $1,359,938$68,137$1,025$(22,371)$46,800 $1,406,747

See notes to consolidated financial statements.

2017 ANNUAL REPORT

43

Financial and Corporate Data

Consolidated Statement of Cash Flows
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2017

Millions of yen

Thousands of
U.S. dollars(Note 3)

2017

2016

2017

Operating activities
Profit before income taxes
Depreciation and amortization
Loss on closure of plant
Decrease in allowance for doubtful accounts
Decrease in accrued bonuses to employees
Increase in accrued retirement benefits for directors and corporate auditors
Increase in asset for retirement benefits
Increase in liability for retirement benefits
Equity in (gains) losses of affiliates
Interest and dividend income
Interest expense
Losses (gains) 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(Decrease) increase 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¥ 9,716
3,619
—
(67)
(561)
3
(1,326)
21
(23)
(374)
29
135
(3)
—
2,102
3,286
(634)
945
2,935
19,804381(29)(3,769)16,386¥18,815
3,730
2,695
(11)
(35)
2
(1,172)
19
24
(313)
17
(1,467)(47)
0(1,288)(1,736)532(1,446)(2,978)15,338320(17)(4,504)
11,137$ 86,595
32,255—(597)(5,000)27(11,818)
187(205)(3,333)
258
1,203
(27)
—
18,73429,287(5,651)
8,422
26,159176,506
3,396(258)(33,592)
146,043

Investing activities
Payments for time deposits
Proceeds from withdrawal of time deposits
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) provided by investing activities(1,443)
1,079—(2,208)89(437)(16,600)
6,403(26)(13,142)

(622)
1,358
5,100
(6,812)2,066(530)(8,008)
8,301
(202)
650

(12,861)9,617—(19,679)
793(3,895)(147,950)
57,068(232)(117,130)

Financing activities(Decrease) increase 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(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 4)

(600)
(116)
916
(1,153)(445)(4,322)(5,721)(65)(2,543)45,043¥42,499

100
(99)
2,853
(764)
(458)
(3,876)(2,245)(226)
9,315
35,727¥45,043(5,348)(1,034)
8,164(10,276)(3,966)(38,520)(50,989)(579)(22,665)
401,453$378,779

See notes to consolidated financial statements.

44

2017 ANNUAL REPORTNotes to Consolidated Financial Statements
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2017

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 2016 consolidated financial statements to conform to the2017 presentation. These reclassifications have no effect on consolidated profit 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 consolidated balance
sheets on an equity basis. All significant inter-company balances and transactions are eliminated in 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, theCompany 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.

2017 ANNUAL REPORT

45

Financial and Corporate Data(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 and facilities attached to buildings and other non-building structuresacquired on or after April 1, 2016, 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 thestraight-line method with no residual value. All finance leases are accounted for in the same manner as sales
transactions.
(h) Research and Development Expenses
Research and development expenses are charged to income as incurred.
(i) Income Taxes
Deferred tax assets and liabilities are determined based on the differences between financial reporting and thetax bases of the assets and liabilities and are measured using the effective tax rates and laws which will be ineffect when the differences are expected to reverse.
(j) Accounting Method for Retirement Benefits
The retirement benefit obligation is calculated by allocating the estimated retirement benefit amount to periodof service on the benefit formula basis.
Prior service cost is amortized as incurred by the straight-line method over the average remaining years ofservice of the employees in the year such cost occurs (10 years).
Actuarial gain or loss is amortized from the year following the year in which such gain or loss is recognizedprimarily by the straight-line method over the average remaining years of service of the employees in the year
such gain or loss occurs (10 years).
Unrecognized actuarial loss and unrecognized prior service costs are, after adjusting for tax effects, recorded
as retirement benefits liability adjustments under accumulated other comprehensive income in net assets.
(k) 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 benefit 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.
(l) 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).
(m) Accounting Change
Application of Practical Solution on a Change in Depreciation Method
Due to amendments to the Japanese Corporation Tax Act, the Company and its consolidated subsidiaries
have applied the “Practical Solution on a change in depreciation method due to Tax Reform 2016”(Accounting Standards Board of Japan (“ASBJ”) Practical Issues Task Force (“PITF”) No. 32, June 17, 201646

2017 ANNUAL REPORT

(hereinafter, “PITF No. 32”)) from the fiscal year ended March 31, 2017 and changed the depreciation method
for facilities attached to buildings and other non-building structures acquired on or after April 1, 2016 from thedeclining-balance method to the straight-line method. The effect of this change on profit and loss for the year
ended March 31, 2017 is immaterial.
(n) Additional Information
Application of Guidance on Recoverability of Deferred Tax Assets
The Company and its consolidated subsidiaries have applied the “Revised Implementation Guidance on
Recoverability of Deferred Tax Assets” (ASBJ Guidance No. 26, March 28, 2016 (hereinafter, “Guidance No. 26”))
from the fiscal year ended March 31, 2017.
Trust-Based Employee Shareholding Incentive Plan
At a meeting of the Board of Directors held on February 2, 2015, the Company resolved to introduce a trustbased employee shareholding incentive plan (hereinafter, the “Plan”) to provide additional incentive for
improving the Company’s corporate value, primarily by enhancing employee welfare and benefits, raising
employee awareness of the stock price and improving work motivation. The Plan will steadily supply theCompany’s shares to the employee shareholding association, and distribute the returns generated bymanagement of trust assets to employees.
The Company is accounting for the Plan in line with the guidelines set out in “Practical Solution on Transactions of Delivering the Company’s Own Stock to Employees etc. through Trusts” (PITF No. 30, March 26, 2015).
(1) Outline of transactions
The Plan is an incentive plan designed to return the economic benefits of an appreciation in the Company’s
stock price to all employees who join the Kyorin Pharmaceutical Group Shareholding Association (hereinafter,
the “Shareholding Association”).
Under the Plan, the Company shall enter into a stock benefit trust (Employee Shareholding Association
Distribution Type) agreement where the Company is the settlor and Mizuho Trust & Banking Co., Ltd. (hereinafter, “Mizuho Trust & Banking”) is the trustee (Hereinafter, the trust based on the agreement shall be referred
to as the “Trust.”). Furthermore, Mizuho Trust & Banking shall enter into an agreement with Trust & Custody
Services Bank, Ltd. to re-entrust the management of trust assets, such as the Company’s shares, with Trust& Customer Services Bank (Trust Account E) (hereinafter, “Trust Account E”) as the trustee.
Trust Account E will acquire the Company’s shares from the markets in the amounts expected to beacquired by the Shareholding Association during the prescribed stock acquisition period, after borrowing theacquisition funds from a bank. Until the trust account finishes, the shares will be periodically sold to the
Shareholding Association. If a significant amount of realized gains on sale of shares remain within the trust
assets of the Trust following the sale of the shares to the Shareholding Association by Trust Account E, thesegains will be distributed as residual assets to Shareholding Association members who satisfy the eligibility
requirements for beneficiaries. Moreover, the Company provides guarantees for the loans undertaken toacquire its shares. Therefore, if there is a residual loan balance equivalent to a realized loss on the sale ofthese shares due to a decline in the Company’s stock price, the Company shall repay this residual loanbalance based on the guarantee agreement.
(2) Company shares remaining in trust
Treasury shares remaining in the Trust are presented as treasury stock in net assets with carrying value in the
Trust (excluding ancillary expenses). As of March 31, 2017 and 2016, the carrying amounts of the treasury
shares were ¥968 million ($8,627 thousand) and ¥1,608 million, respectively, and the total numbers of treasury shares were 338 thousand shares and 562 thousand shares, respectively.
(3) Carrying amounts of debt recorded through the application of the gross price method
The carrying amounts of debt recorded through the application of the gross price method were ¥1,269 million($11,310 thousand) and ¥1,765 million as of March 31, 2017 and 2016, respectively.

2017 ANNUAL REPORT

47

Financial and Corporate Data

Employee Stock Delivery Trust (the “J-ESOP”)
At a meeting of the Board of Directors held on February 23, 2016, the Company resolved that KYORIN
Pharmaceutical Co., Ltd. (“KYORIN Pharmaceutical”), a subsidiary of the Company introduces an incentive
plan referred to as the Employee Stock Delivery Trust (the “J-ESOP”) (hereinafter, the “ESOP Plan”) underwhich the Company’s shares will be delivered to employees of KYORIN Pharmaceutical.
The Company is accounting for the Plan in line with the guidelines set out in “Practical Solution on Transactions of Delivering the Company’s Own Stock to Employees etc. through Trusts” (PITF No. 30, March 26, 2015).
(1) Outline of transactions
Under the ESOP Plan, the Company’s shares will be delivered to eligible employees of KYORIN Pharmaceutical
who satisfy certain requirements, based on the share delivery rules prescribed by KYORIN Pharmaceutical inadvance.
KYORIN Pharmaceutical will award its employees a set number of points based on business performanceand his or her personal contribution and deliver or pay the Company’s shares and cash to its employees who
attained rights to receive such delivery or payment under certain conditions. The Trust will acquire theCompany’s shares to be delivered including future delivery portion using the entrusted money, and separately
manage as trust assets.
Through introduction of the ESOP Plan, it is expected to contribute to employees’ work motivation, byincreasing interest in improvement of business performance and the Company’s share price. In addition, it isexpected that various stakeholders including shareholders will receive shared benefits from improvement in
the Company’s corporate value.
(2) Company shares remaining in trust
Treasury shares remaining in the Trust are presented as treasury stock in net assets with carrying value in the
Trust (excluding ancillary expenses). As of March 31, 2017 and 2016, the carrying amounts of the treasury
shares were ¥1,645 million ($14,661 thousand) and ¥1,039 million, respectively, and the total numbers oftreasury shares were 754 thousand shares and 477 thousand shares, respectively.
Performance-Linked Stock Compensation PlanAt the 58th Ordinary General Meeting of Shareholders held on June 24, 2016, the Company resolved to
introduce a performance-linked stock compensation plan (hereinafter, the “Plan”) for directors (excluding
outside directors) of KYORIN Holdings, Inc. and KYORIN Pharmaceutical (hereinafter, the “Group Directors”).
The Company is accounting for the Plan in line with the guidelines set out in “Practical Solution on Transactions of Delivering the Company’s Own Stock to Employees etc. through Trusts” (PITF No. 30, March 26, 2015).
(1) Outline of transactions
The Plan is a stock-based compensation plan whereby the Company’s shares are acquired through a trustwith the funds contributed by the Company, and the Company’s shares and the amount of cash equivalent to
the Company’s shares at their fair value (hereinafter, the “Company’s Shares, etc.”) are paid to eligible Group
Directors based on the stock benefit rules for directors prescribed by the Company and its subsidiary.
The Company adopts a Board Benefit Trust system when introducing the Plan. In principle, the Group Directors shall receive the Company’s Shares, etc. on a certain date during the trust period set out by the stock
benefit rules for directors or upon their retirement, whichever is earlier.
(2) Company shares remaining in trust
Treasury shares remaining in the Trust are presented as treasury stock in net assets with carrying value in the
Trust (excluding ancillary expenses). As of March 31, 2017, the carrying amount of the treasury shares was¥226 million ($2,014 thousand), and the total number of treasury shares was 100 thousand shares.

48

2017 ANNUAL REPORT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 ¥112.20 = U.S.$1.00, the approximate rate of exchange on March
31, 2017. 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, 2017 and 2016 for the consolidated statements of cash flows
consisted of the following:

Cash and cash in banks
Short-term investments
Time deposits with a maturity over three months
Cash and cash equivalents

2017

Millions of yen
2016

Thousands of
U.S. dollars
2017¥43,619—(1,120)¥42,499¥45,71283(752)¥45,043$388,761—(9,982)$378,779

5. Short-Term Investments and Investment Securities
Information regarding marketable securities classified as other securities as of March 31, 2017 and 2016 is asfollows:
Marketable other securities

Acquisition
cost

Carrying
value

Millions of yen
2017
Unrealized
gain (loss)¥ 8,744¥19,927¥11,183$ 77,932$177,602$99,670

5,501——
14,246

5,508——
25,436

6——
11,18949,029——126,970

49,091——
226,70253——
99,724

2,012

1,780

(231)

17,932

15,865(2,059)16,400—1,000
19,412¥33,658

16,382—980
19,143¥44,579(17) 146,168
—
—
(19)
8,913
(268) 173,012¥10,921 $299,982

146,007—
8,734
170,615$397,317

(152)
—
(169)
(2,389)$97,335

Acquisition
cost

Thousands of U.S. dollars
2017
Carrying
Unrealized
value
gain (loss)

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

2017 ANNUAL REPORT

49

Financial and Corporate Data

Acquisition
cost

Carrying
value

Millions of yen
2016
Unrealized
gain (loss)¥ 8,706¥24,135¥15,428

11,008——19,714

11,028——35,16319——
15,448

2,026

1,448

(577)

400
500
1,000
3,926
¥23,640

400
498
989
3,336
¥38,500

(0)
(1)
(10)
(589)
¥14,859

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

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 ¥493 million($4,394 thousand) and ¥401 million as of March 31, 2017 and 2016, respectively.
Sales amounts of securities classified as other securities and the related aggregate gain and loss for theyears ended March 31, 2017 and 2016 are summarized as follows:

Proceeds from sales
Gains on sales
Losses on sales

2017

Millions of yen
2016

Thousands of
U.S. dollars
2017

¥3
3
—

¥2,101
59
11

$27
27
—

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, 2017and 2016 consisted of the following:

Short-term bank loans
Current portion of long-term debt
Current portion of lease obligations
Total

2017

Millions of yen
2016

Thousands of
U.S. dollars
2017

¥ 630
691
98
¥1,419¥1,230632
112¥1,974$ 5,615
6,159
873$12,647

The average interest rates applicable to short-term bank loans outstanding as of March 31, 2017 and2016 are 0.4% and 0.4%, respectively.

50

2017 ANNUAL REPORTLong-term debt (excluding long-term debt related to a trust-based employee shareholding incentive plan)
and lease obligations as of March 31, 2017 and 2016 consisted of the following:

Long-term debt, due through 2026 at average interest
rate of 0.4% and 0.5% in 2017 and 2016, respectively
Lease obligations due through 2030 in 2017 and 2016
Current portion of long-term debt and lease obligations
due within one year
Total

Millions of yen

Thousands of
U.S. dollars

2017

2016

2017

¥4,321576¥4,558656$38,512
5,134

(789)

(744)

(7,032)¥4,108¥4,470$36,613Interest expenses related to a trust-based employee shareholding incentive plan (see Note 2(n)) are excluded
from the calculation of the average interest rate applicable to long-term debt because interest expenses on suchdebt are not recorded as interest expense in the consolidated statement of income.
Long-term debt from Japan Science and Technology Agency (National Research and Development Agency),
amounting to ¥490 million ($4,367 thousand) and ¥164 million as of March 31, 2017 and 2016, respectively,
bears no interest.
The annual maturities of long-term debt (excluding long-term debt related to a trust-based employee shareholding incentive plan and long-term debt from Japan Science and Technology Agency (National Research andDevelopment Agency)) and lease obligations are summarized as follows:Year ending March 31,

2018
2019
2020
2021
2022

Millions of yen

Thousands of
U.S. dollars

¥789
789
773
234
129

$7,032
7,032
6,889
2,086
1,150

The annual maturities of long-term debt from Japan Science and Technology Agency (National Research andDevelopment Agency) are excluded from the above table because authorization date of success in development
and other matters are not determinable.
The annual maturities of long-term debt related to a trust-based employee shareholding incentive plan are
excluded from the above table because its repayment amount is variable.

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 the 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 thearticles of incorporation of the company so stipulate. The Companies Act also provides certain limitations on

2017 ANNUAL REPORT

51

Financial and Corporate Data

the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amountavailable 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) dependingon 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 capital surplus 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 stockby resolution of the board of directors. The amount of treasury stock purchased cannot exceed the amountavailable for distribution to the shareholders, which is determined by specific formula. Under the Companies Act,
stock acquisition rights, which were previously presented as a liability, are now presented as a separate component of net assets. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a 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, 2017 and 2016 were ¥13,569 million ($120,936 thousand) and ¥13,019 million, respectively.

9. Gain on Sales and Retirement of Property, Plant and Equipment, Net
Significant components of the gain on sales and retirement of property, plant and equipment, net for theyears ended March 31, 2017 and 2016 are as follows:
Millions of yen

Thousands of
U.S. dollars

2017

2016

2017

¥ —
—
44
—
¥ 44

¥ 608
0
1,272
—
¥1,881$¥ (73)
(6)
(100)
(180)
¥(135)¥ (361)
(26)
(25)
(413)
¥1,467$ (651)(53)(891)(1,604)$(1,203)Gain:
Buildings and structures
Machinery and vehicle
Land
Other

$

—
—
392
—
392

Loss:
Buildings and structures
Machinery and vehicle
Other
Total

52

2017 ANNUAL REPORT10. Impairment Loss
In principle, the Company and its consolidated subsidiaries group assets into the smallest units that generate
independent cash flow that is almost independent from cash flows provided by other assets or asset groups,
and assets to be disposed are grouped by each asset.
There was no impairment loss recognized in the fiscal year ended March 31, 2017.
For the year ended March 31, 2016, the Company and its consolidated subsidiaries recognized the following
loss on impairment of long-lived assets:
Location

Use

Type of assets

Okaya-shi, Nagano Prefecture

Assets to be disposed

Land, buildings and structure,other

In the fiscal year ended March 31, 2016, consolidated subsidiary, KYORIN Pharmaceutical Co., Ltd.
reduced the carrying amount of assets whose recoverable amounts had fallen below their carrying amounts
to the recoverable amounts of those assets, mainly after arriving at decisions related to relocation andclosure of Okaya plant’s manufacturing functions and recorded an impairment loss of ¥380 million under
extraordinary loss.
The components of the impairment loss were building and structures of ¥320 million, land of ¥51 million,
other property, plant and equipment of ¥8 million.
The recoverable amount of assets to be disposed is calculated based on real estate appraised values lessestimated costs of disposal.

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 the 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 andits consolidated subsidiaries, in accordance with internal rules, keep track of the adverse financial conditionsof the customers in the early stage to mitigate the bad debt by monitoring the major customers’ credit conditions periodically and managing the due date and balance per each customer. The Company and its consolidated subsidiaries mitigate foreign currency risk by utilizing foreign currency deposits for operating receivables
denominated in foreign currencies and settling payables denominated in the same currencies through thedeposits.
Short-term investments and investment securities mainly consist of highly rated bond securities and equity
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.
Short-term bank loans are mainly used to finance operating capital, and long-term debts are used to financefund for the introduction of a trust-based employee shareholding incentive plan, fund for the introduction of the
Employee Stock Delivery Trust (the “J-ESOP”) and funding support for development expenses from Japan
Science and Technology Agency (National Research and Development Agency).
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.

2017 ANNUAL REPORT

53

Financial and Corporate Data(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, 2017 and 2016
are as follows:
Millions of yen

Thousands of U.S. dollars

2017
Carrying
value

Fair value¥ 43,619¥ 43,619

46,192

46,192

44,579¥134,392

Notes and accounts payable ¥ 11,157

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

Total liabilities¥ 11,157

2017
Carrying
value

Difference

Fair value

Difference¥— $ 388,761 $ 388,761$——

411,693—

44,579¥134,392—
397,317397,317¥— $1,197,790 $1,197,790—$—¥ 11,157¥ 11,157

¥— $
¥— $

$—
$—

411,693

99,439 $99,439 $99,43999,439Millions of yen
Carrying value

Fair value

2016
Difference

Cash and cash in banks¥ 45,712¥ 45,712¥—

Notes and accounts receivable

48,29638,500¥132,509

48,29638,500¥132,509——¥—¥ 11,792¥ 11,792¥ 11,792¥ 11,792¥—¥—

Short-term investments and investment securities
Total assets
Notes and accounts payable
Total liabilities

Unlisted securities and others of ¥1,075 million ($9,581 thousand) and ¥953 million whose fair values are
extremely difficult to determine as of March 31, 2017 and 2016, respectively, are not included in the abovetables.
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 theprice 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.

54

2017 ANNUAL REPORTThe redemption schedule for monetary receivables and securities with maturities subsequent to March 31,2017 is as follows:
Millions of yen
2017
Due in one
year or less

Cash and cash in banks
Notes and accounts receivable

Due after one
year throughfive years

Due after five
years throughten years

Due after
ten years¥43,619
46,192

¥

—
—

¥—
—

¥—
—

5,000
—
—
¥94,812

16,900—1,000¥17,900

—
—
—
¥—

—
—
—
¥—

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

Thousands of U.S. dollars
2017
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$388,761

$

—

$—

$—

Notes and accounts receivable

411,693———

44,563——$845,027

150,624—
8,913$159,537

—
—
—
$—

—
—
—
$—

Short-term investments andinvestment securities:
Other securities with maturities:
Government bonds
Bonds
Other
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.
Defined benefit plans(1) T he changes in the retirement benefit obligation for the years ended March 31, 2017 and 2016 are as
follows:
Thousands of
U.S. dollars

Millions of yen

Retirement benefit obligation at the beginning of the year
Service cost
Interest cost
Actuarial loss
Retirement benefits paid
Retirement benefit obligation at the end of the year

2017

2016

2017

¥34,478
1,160
172
157
(1,264)¥34,704¥30,062
964
390
4,317
(1,256)¥34,478$307,291
10,3391,533
1,399(11,266)$309,3052017 ANNUAL REPORT

55

Financial and Corporate Data

(2) The changes in plan assets for the years ended March 31, 2017 and 2016 are as follows:
Millions of yen

Plan assets at the beginning of the year
Expected return on plan assets
Actuarial gain or loss
Contributions paid by the employer
Retirement benefits paid
Plan assets at the end of the year

Thousands of
U.S. dollars

2017

2016

2017

¥31,784
635
330
1,954
(1,264)¥33,441¥31,033
620
(547)
1,934
(1,256)¥31,784$283,280
5,660
2,941
17,415(11,266)$298,048(3) The changes in liability (asset) for retirement benefits for consolidated subsidiaries applying the simplified
method for the years ended March 31, 2017 and 2016 are as follows:

Liability (asset) for retirement benefits at the beginningof the year
Retirement benefits costs
Retirement benefits paid
Contributions to the plans
Liability (asset) for retirement benefits at the endof the year

Millions of yen

Thousands of
U.S. dollars

2017

2016

2017

¥350
53
(17)
(83)

¥305
136
(8)
(82)

$3,119
472
(152)
(740)

¥303

¥350

$2,701(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, 2017 and 2016 are as follows:
Millions of yen

Funded defined benefit obligation
Plan assets
Unfunded retirement benefit obligation
Net liability (asset) for retirement benefits
Liability for retirement benefits
Asset for retirement benefits
Net liability (asset) for retirement benefits

Thousands of
U.S. dollars

2017

2016

2017

¥35,095(33,941)1,153
413¥ 1,567¥34,856(32,196)2,660
384¥ 3,044$312,790(302,504)
10,276
3,681$ 13,966¥ 1,676(109)¥ 1,567¥ 3,087(42)¥ 3,044$ 14,938(971)$ 13,966

The above table includes defined benefit plans applying the simplified method.
(5) The components of retirement benefits costs for the years ended March 31, 2017 and 2016 are as follows:
Millions of yen
2017

2016

2017

Retirement benefits costs based on the simplified method¥1,160
172
(635)
1,020
(67)
53

¥964
390
(620)
16
(67)
136

$10,339
1,533(5,660)
9,091
(597)
472

Retirement benefits costs¥1,704¥820$15,187

Service costs
Interest costs
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service costs

562017 ANNUAL REPORT

Thousands of
U.S. dollars

(6) Prior service costs and actuarial gain or loss included in other comprehensive income (before tax effect) for
the years ended March 31, 2017 and 2016 are as follows:
Thousands of
U.S. dollars

Millions of yen
2016

2017

Prior service costs
Actuarial gain or loss
Total

¥

67
(1,194)¥(1,126)

2017

¥

67
4,848
¥4,915$597(10,642)$(10,036)(7) Unrecognized prior service costs and unrecognized actuarial loss included in accumulated other comprehensive income (before tax effect) as of March 31, 2017 and 2016 are as follows:
Thousands of
U.S. dollars

Millions of yen

Unrecognized prior service costs
Unrecognized actuarial loss
Balance at the end of the year

2017

2016

2017

¥ (405)
4,024¥3,618¥ (473)
5,218¥4,745$ (3,610)
35,865$32,246(8) Plan assets
The breakdown of plan assets is as follows:
Domestic debt securities
Domestic equity securities
Foreign debt securities
Foreign equity securities
General account
Other
Total

2017

2016

41.3%
5.7
6.0
12.5
7.5
27.0
100.0%

24.4%
4.9
24.4
12.0
7.8
26.5
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 various categories of plan assets.
(9) Actuarial assumptions
Discount rate
Expected rate of return on plan assets

2017

2016

0.5%
2.0%

0.5%
2.0%

Defined contribution plans
The Company and its consolidated subsidiaries contributed ¥306 million ($2,727 thousand) and ¥308 million
to the defined contribution plans for the years ended March 31, 2017 and 2016, respectively.

13. Pledged Assets
There are no assets pledged as collateral for guaranty deposits as of March 31, 2017.
Assets pledged as collateral for guaranty deposits as of March 31, 2016 are as follows:
Millions of yen
Assets pledged as collateral:2016

For guaranty deposits
Cash and cash in banks
Total

¥10
¥10

2017 ANNUAL REPORT

57

Financial and Corporate Data

14. Income Taxes
Significant components of deferred tax assets and liabilities as of March 31, 2017 and 2016 are as follows:
Millions of yen

Thousands of
U.S. dollars

2017

2016

2017

¥1,233
818
34
44
230
506
838
121
193
814
176
1,088
6,102
(225)
5,876

¥1,571
986
55
201
189
169
1,110
396
555
824
128
1,198
7,386
(345)
7,040

$10,989
7,291
303
392
2,050
4,510
7,469
1,078
1,720
7,255
1,569
9,697
54,385(2,005)52,371

Reserve for reduction entry of property,
plant and equipment(1,330)(1,446)(11,854)

Unrealized holding gain on other securities(3,344)(4,548)(29,804)

Prepaid pension cost

(749)
(3)
(5,427)
¥ 449

(639)
(2)
(6,637)¥ 403(6,676)(27)(48,369)$ 4,002

Deferred tax assets:
Liability for retirement benefits
Accrued bonuses to employees
Allowance for doubtful accounts
Accrued enterprise tax
Loss on retirement of inventories
Loss on devaluation of investment securities
Loss on retirement of property, plant and equipment
Impairment loss
Amortization of deferred assets
Loss on closure of plant
Tax loss carryforward
Other
Subtotal
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:

Other
Total deferred tax liabilities
Net deferred tax assets

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, 2017 and 2016 are as follows:
Statutory tax rate
Entertainment expenses and others that are not tax
deductible permanently
Inhabitants’ per capita taxes
Adjustment to deferred tax assets and liabilities from change
in the statutory tax rate
Tax credits for research and development expenses
Valuation allowanceInternal profit elimination
Other
Effective tax rate

58

2017 ANNUAL REPORT

2017

2016

30.9%

33.1%

1.6
1.0

0.8
0.5

—
(3.4)
(3.4)
(0.9)
(1.0)
24.8%

1.1
(6.2)
(0.9)
(0.3)
(0.6)
27.5%

15. Comprehensive Income
Reclassification adjustments and income tax effects on other comprehensive income for the years ended
March 31, 2017 and 2016 are as follows:
Millions of yen

Thousands of
U.S. dollars

2017

2016

2017

¥(3,934)(3)(3,937)1,205(2,732)¥3,454
(1)
3,452
(861)
2,591

$(35,062)(27)(35,089)
10,740(24,349)

(45)

(7)

(401)

173
953
1,126
(344)
781

(4,864)(51)(4,915)
1,508(3,407)

1,542
8,494
10,036(3,066)6,961

5¥(1,990)(17)¥ (841)

45$(17,736)

Unrealized holding gain on other securities:
Gain arising during the year
Reclassification adjustments
Before income tax effects
Income tax effects
Unrealized holding gain on other securities
Translation adjustments:
Adjustments arising during the year
Retirement benefits liability adjustments:
Gain (loss) arising during the year
Reclassification adjustments
Before income tax effects
Income tax effects
Retirement benefits liability adjustments
Share of other comprehensive income of affiliates
accounted for using equity method:Gain (loss) arising during the year
Total other comprehensive income

16. 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.
Under the New Medium-Term Business Plan, “HOPE 100: Stage 2,” the Company is reviewing its consolidated group’s business management categories. Accordingly, the reportable segments were changed from thePharmaceutical Business and the Consumer Healthcare (Skincare) Business to the Ethical PharmaceuticalBusiness and the Consumer Healthcare (Skincare) Business from the year ended March 31, 2017.
The Ethical Pharmaceutical Business mainly produces, sells, and purchases ethical drugs and genericdrugs. The Consumer Healthcare (Skincare) Business mainly produces, sells, and purchases environmental
hygiene products, over-the-counter drugs and skincare products. Segment information for the year ended
March 31, 2016 has been restated to reflect the new classification.
(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.

2017 ANNUAL REPORT

59

Financial and Corporate Data(c) Information about Net Sales, Profit (Loss), Assets and Other Items by Reportable Segment
Millions of yen
2017
Reportable segment
EthicalPharmaceuticalBusiness

Consumer
Healthcare(Skincare)Business

Total

Sales to third parties¥109,566¥5,807¥115,373¥—¥115,373

Inter-segment sales or transfers

38¥109,604¥ 10,106¥161,023

0¥5,807¥(1)¥7,61338¥115,412¥ 10,104¥168,636

(38)
¥
(38)
¥ 308
¥24,031—¥115,373¥ 10,413¥192,668

¥

¥

¥

¥

¥

Adjustments

Consolidated

Net sales:

Total
Segment profit (loss)
Segment assets
Other items:
Impairment loss
Depreciation and amortization
Investments in affiliates accounted
for using equity method
Increase in property, plant andequipment and intangible assets

—
3,236

—
58

—
3,294

581

—

581

2,863

103

2,967

—
324

—
3,619

—

581

98

3,065

Thousands of U.S. dollars
2017
Reportable segment
EthicalPharmaceuticalBusiness

Consumer
Healthcare(Skincare)Business

Sales to third parties$ 976,524$51,756 $1,028,280$

Inter-segment sales or transfers339$ 976,863$ 90,071$1,435,143

0339$51,756 $1,028,627$(9) $ 90,053$67,852 $1,502,995

(339)
—
$
(339) $1,028,280$ 2,745 $ 92,807$214,180 $1,717,184

$

$

$

Total

Adjustments

Consolidated

Net sales:

Total
Segment profit (loss)
Segment assets
Other items:
Impairment loss
Depreciation and amortization
Investments in affiliates accounted
for using equity method—
28,841

Increase in property, plant andequipment and intangible assets

— $
517

—
29,358

5,178—

25,517918— $1,028,280

— $
2,888

—
32,255

5,178

—

5,178

26,444873

27,317
Millions of yen
2016

Reportable segment
EthicalPharmaceuticalBusiness

Consumer
Healthcare(Skincare)Business

Total

Sales to third parties¥113,970¥5,512¥119,483¥—¥119,483

Inter-segment sales or transfers

50¥114,020¥ 19,608¥165,279

0¥5,512¥ (187)¥7,712

50¥119,533¥ 19,421¥172,992

(50)
¥
(50)
¥ 214
¥24,833—¥119,483¥ 19,636¥197,825

¥

¥

¥

¥

¥

Adjustments

Consolidated

Net sales:

Total
Segment profit (loss)
Segment assets
Other items:
Impairment loss
Depreciation and amortization
Investments in affiliates accounted
for using equity method
Increase in property, plant andequipment and intangible assets

602017 ANNUAL REPORT

380
3,300

—
57

380
3,358

—
372

380
3,730

551

—

551

—

551

7,073

22

7,096

134

7,230

1. “Adjustments” for “Segment profit (loss)” of ¥308 million ($2,745 thousand) and ¥214 million for the years
ended March 31, 2017 and 2016, respectively, were mainly eliminations of inter-segment transactions.
2. “ Adjustments” for “Segment assets” of ¥24,031 million ($214,180 thousand) and ¥24,833 million as ofMarch 31, 2017 and 2016, respectively, were the Company’s assets and offset of inter-segment receivables and payables.
3. “ Adjustments” for “Depreciation and amortization” of ¥324 million ($2,888 thousand) and ¥372 million forthe years ended March 31, 2017 and 2016, respectively, were depreciation of property, plant and equipment and intangible assets of the Company.
4. “ Adjustments” for “Increase in property, plant and equipment and intangible assets” of ¥98 million ($873
thousand) and ¥134 million for the years ended March 31, 2017 and 2016, respectively, were increase inproperty, 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 same as
the reportable segment for the years ended March 31, 2017 and 2016.
(b) Information by Geographical Area
(1) Sales
Information about sales by geographical area is omitted for the years ended March 31, 2017 and 2016,
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, 2017 and 2016, since property, plant and equipment in Japan constituted more than 90%
of property, plant and equipment on the consolidated balance sheets.
(c) Information by Major Customer for the Years Ended March 31, 2017 and 2016
Millions of yen
2017
Name of customer

Sales amount

Related segments¥20,561
18,251

Ethical Pharmaceutical Business

SUZUKEN CO., LTD.
MEDIPAL HOLDINGS CORPORATION

16,867

Ethical Pharmaceutical BusinessToho Pharmaceutical Co., Ltd.

15,076

Ethical Pharmaceutical BusinessAlfresa Corporation

Ethical Pharmaceutical BusinessThousands of U.S. dollars
2017
Name of customer

Sales amount

Related segments

Alfresa Corporation$183,253
162,665

Ethical Pharmaceutical Business

SUZUKEN CO., LTD.
MEDIPAL HOLDINGS CORPORATION

150,330

Ethical Pharmaceutical BusinessToho Pharmaceutical Co., Ltd.

134,367

Ethical Pharmaceutical Business

Ethical Pharmaceutical Business2017 ANNUAL REPORT

61

Financial and Corporate Data

Millions of yen
2016
Name of customer

Sales amount

Related segments¥20,583
18,334

Ethical Pharmaceutical Business

SUZUKEN CO., LTD.
MEDIPAL HOLDINGS CORPORATION

17,363

Ethical Pharmaceutical BusinessToho Pharmaceutical Co., Ltd.

15,828

Ethical Pharmaceutical BusinessAlfresa Corporation

Ethical Pharmaceutical Business(d) Information about Amortization and Unamortized Balance of Goodwill by Reportable Segment
There is no unamortized balance of goodwill at the years ended March 31, 2017 and 2016.

17. Contingent Liabilities
Contingent liabilities as of March 31, 2017 and 2016 are as follows:

Guarantors of indebtedness of employees

Millions of yen

Thousands of
U.S. dollars

2017

2016

2017

¥7

¥1

$62

Yen

U.S. dollars

18. Amounts per Share
Amounts per share for the years ended March 31, 2017 and 2016 are as follows:

Basic profit
Cash dividends
Net assets

¥

2017

2016

2017

99.45
58.00
2,146.83¥ 184.28
58.00
2,131.67$ 0.890.52
19.13

Basic profit per share was computed based on the profit attributable to common shareholders of KYORIN
Holdings, Inc. and the weighted average number of shares of common stock outstanding during the year.
Diluted profit per share is omitted because no potentially dilutive shares were outstanding during the years
ended March 31, 2017 and 2016.
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 attributable to common shareholders of KYORIN Holdings, Inc. and the number of shares of common stock outstanding at the year-end.
The treasury shares remaining in trust and recorded as treasury stock in shareholders’ equity are includedin the treasury shares excluded from the calculation of the average number of shares during the fiscal year,
which is used to calculate the amount of profit per share. Furthermore, these treasury shares are included in
the number of treasury shares excluded from the total number of issued shares at the end of the fiscal year,
which is used to calculate net assets per share.
The average numbers of treasury shares during the fiscal year that were excluded from the calculation of
the amount of profit per share were 1,255,816 and 698,516 for the years ended March 31, 2017 and 2016,
respectively.
The numbers of these treasury shares at the end of the fiscal year that were excluded from the calculationof net assets per share were 1,193,500 and 1,040,100 as of March 31, 2017 and 2016, respectively.

19. Subsequent Events
There are no relevant items.

62

2017 ANNUAL REPORT

Independent Auditor’s Report2017 ANNUAL REPORT

63

Financial and Corporate Data

Corporate Overview/Stock Information (As of March 31, 2017)

Head Office

KYORIN Holdings, Inc.
6, Kanda Surugadai 4-chome, Chiyoda-ku, Tokyo 101-8311
Phone: +81-3-3525-4700
URL: http://www.kyorin-gr.co.jp/en/

Establishment

1958

Common Stock¥700 million

Major Shareholders

26.6%

19.1%
0.8%

Shareholders

5,424

Outstanding Shares 74,947,628

16.0%
Shareholders

5,424

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 shares held

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

Corporate Mark

19.12%
3.66%■ Financial institutions■ Financial instruments firms■ Other corporations■ Foreign corporations■ Individuals and other

0.8%
37.5%
16.0%
26.6%

2.83%
2.60%
2.60%
2.49%
2.35%
2.33%

The corporate mark consists of three curved lines that form a heart-shaped apricot.
The lines represent the smiles of patients, their families, and workers in medical
services, as well as Kyorin’s three core businesses, namely prevention, treatment, andprognosis.
Orange: Honesty and warmth
Violet: The technology that brings confidence
Light Green: Free and lively creativity

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 Japanas those representing medicine and medical treatment in general.

2017 ANNUAL REPORT

19.1%

3.06%
2.97%

Origin of the Name “Kyorin”

64

37.5%

The Kyorin Group
Consolidated Subsidiaries
KYORIN Pharmaceutical Co., Ltd.

KYORIN Rimedio Co., Ltd

Capital:¥4,317 million
Percentage of ownership: 100%
Head office: 6, Kanda Surugadai 4-chome,
Chiyoda-ku, Tokyo 101-8311
Operations:	Drug discovery business, manufactureand sales of drugs (ethical drugs,
over-the-counter drugs and others)

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 drugs(generic drugs, over-the-counter drugs
and others)

With a corporate vision of aiming to be “a pharmaceutical manufacturer
that is trusted by patients and medical professionals, and is recognized
for its presence in society,” KYORIN Pharmaceutical works to establish its
presence in the specific fields of respiratory, otolaryngology and urology,
and create innovative new drugs that can be deployed on a global level.

As the Kyorin Group subsidiary responsible for the generic drugs business,
KYORIN Rimedio aims to become “a highly reliable generic drug manufacturer.” To contribute to the health of patients, and recognizing critical social
issues in reducing healthcare costs and helping to maintain social security
infrastructure, KYORIN Rimedio will continue to ensure a stable supply ofhigh-quality products and information, as it works to deliver distinctive
generic drugs to the market.

KYORIN Medical Supply Co., Ltd.

KYORIN Pharmaceutical Facilities Co., Ltd.

Capital:¥488 million
Percentage of ownership: 100%
Head office:	6F Niikura Building, 2-11, Kanda
Tsukasamachi 2-chome, Chiyoda-ku,
Tokyo 101-0048
Operations:	Environmental hygiene, sales promotion,planning and production of advertising
KYORIN Medical Supply is actively engaged in the environmental hygiene
business, which will be nurtured into a core Kyorin Group business in the
future, while engaging in a wide range of communications-related businessactivities centered on the planning and production of pharmaceutical advertising, etc. In this manner, the company will contribute to society as amember of the Kyorin Group, while seeking to become a company that
supports sound and healthy lifestyles.

Capital:¥450 million
Percentage of ownership: 100%
Head office: 1-4 Sasagaoka, Minakuchi-cho,
Koka, Shiga 528-0061
Operations:	Manufacture and sales ofprescription medicines
KYORIN Pharmaceutical Facilities commenced operations in October 2012as a pharmaceutical manufacturing company.
The company conducts business related to the manufacturing of ethicaldrugs using pharmaceutical manufacturing assets acquired from MSD K.K.
The company works to provide a stable supply of high-quality products,
enhance manufacturing technologies and streamline costs by building aframework that allows for flexible and rapid execution of a variety ofmeasures in response to changes in the business environment.

KYORIN Pharmaceutical Co., Ltd. Subsidiaries

Equity-Method Affiliate

Kyorin USA, Inc.
Capital:
US$500,000
Percentage of ownership: 100%
Head office: 500 Frank W. Burr Boulevard, Teaneck, New Jersey 07666, United States
Operations:	Research and analysis of other companies’ technologies and collection of
information concerning clinical trials

Nippon Rika Co., Ltd.
¥411 million
Capital:Percentage of ownership: 29.9%
Head office:	2-2, Nihonbashi Honcho 4-chome, Chuo-ku,
Tokyo 103-0023
Operations:	Production and sales of pharmaceuticals, reagents,
intermediates, and other products

Kyorin Europe GmbH
Capital:€50,000
Percentage of ownership: 100%
Head office: Kaiserstrasse 8, 60311 Frankfurt am Main, Germany
Operations:	Research and analysis of other companies’ technologies and collection 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

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.

2017 ANNUAL REPORT

65

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

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