ANNUAL REPORT
Year ended March 31, 2018

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 JapanKYORIN Holdings, Inc.

2018

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

HOPE100（Aim for Health Of People and our Enterprises）

Statement

The Kyorin Group will promote diversiﬁed healthcare business expansion and by 2023 berecognized both within and outside as a company that supports sound and healthy lifestyles.

Corporate Objectives

Five HOPEs

Be a company that contributes to people’s healththrough the Consumer Healthcare BusinessBe a company that promotes business expansion overseas

Be a company that maintains
positive business results
and excellent ﬁnancial standing

A Company that
Sustains Growth

An International
Company that Supports
Healthy Lifestyles
Around the WorldThe Leading
Company for Career
Fulﬁllment

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

An Innovative
Company that
Customers Trust

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

Contents
To Our Stakeholders ・・・・・・・・・・・・・・・・・・・・ 2

Ethical Drugs Business ・・・・・・・・・・・・・・・・・・・・ 14

Financial Analysis・・・・・・・・・・・ 40

History of the Kyorin Group・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・ 4

Healthcare Business ・・・・・・・・・・・・・・・・・・・・・・・・ 24

The Kyorin Group’s Vision
・
・
・
・
・
・
・
・
・
・
・
・
・
・ 6
and Value Creation Process ・Reliability Assurance・・・・・・・・・・・・・・・・・・・・・・・・ 25

Consolidated Financial
・
・
・
・
・
・
・ 42
Statements

Performance Highlights・・・・・・・・・・・・・・・・・・ 8
Overview of Medium-Term
・
・
・
・
・
・
・
・ 9
Business Plan HOPE100–Stage 2–
Interview with the President ・・・・・・・・・・・・・ 10

・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・ 26
Corporate Governance ・Notes to Consolidated
Financial Statements ・・・・・・・ 47

Directors, Corporate Auditors,
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・ 30
and Corporate Ofﬁcers

Independent Auditor’s
・
・
・
・
・
・
・ 67
Report

・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・
・ 32
Corporate Social Responsibility・

Corporate Overview/
・
・
・
・
・
・
・
・ 68
Stock Information ・Editorial Policy

Annual Report 2018 integrates financial reports with information on the Group’s environmental, social and governance (ESG) activities. Inline with the framework established by the International Integrated Reporting Council, the report combines results and other financial datawith nonfinancial information relating to value creation by the Kyorin Group, including business processes and strategies. Through thisapproach, we aim to help stakeholders gain a deeper understanding of the Group’s activities.

Target Readers

Shareholders, investors and other stakeholders

Period Covered
by Report

Fiscal 2017 (April 1, 2017 to March 31, 2018); some information also relates to fiscal 2018 activities.

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

Photo courtes of O

eria photo raphic ervice Co , td ando Co , td

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

About the Kyorin GroupTo Our Stakeholders

To realize our corporate philosophy, “Kyorin continues to fulfill its mission of cherishinglife and benefiting society by contributing to better health,” the Kyorin Group formulated HOPE100 as a long-term vision for 2023, which marks the 100th anniversary of
the founding of our core subsidiary, KYORIN Pharmaceutical Co., Ltd.
Going forward, we will strive to enhance corporate value over the medium to long termby comprehensively integrating our ethical drugs and healthcare businesses and working to disperse business risks, with the aim of achieving healthy, continuous growth as“a company that supports sound and healthy lifestyles.”Minoru Hogawa
Representative Director, President andChief Executive Officer

22018 ANNUAL REPORT

Consolidating the strength of all employees to implementa speedy “transformation,” based on the medium-termbusiness plan HOPE100–Stage 2–
Against a backdrop of efforts to preserve financial resources to cover the cost ofJapan’s social security system through the pursuit of increased efficiency in medical
expenditures and the reining in of drug prices, the ethical drugs industry is experiencing unprecedented, major changes at a speed that had not been anticipated.
Given this situation, the achievement of continuous growth will require that we anticipate changes in the external environment and appropriately address those changes
more quickly. We also consider it important to lay out new growth scenarios, and toact independently and autonomously. The Kyorin Group is currently operating underthe medium-term business plan HOPE100–Stage 2–, covering the period from fiscal
2016 to 2019, as the second step toward the achievement of the long-term vision
HOPE100, as we strive for continuous growth and the creation of corporate value overthe medium to long term. Our statement for Stage 2 is “making reforms (changes andinnovations) and achieving continuous growth in an effort to realize our long-term
vision,” as we pursue our business strategies (four priority strategies and two development strategies) and organization strategies. In fiscal 2018, all Group employees will
work together as one to implement a speedy transformation, while specifically striving
to achieve the plan’s numerical targets with a maximum focus on strengthening our
foundation for growth and increasing our earnings strength.
We ask for the continued understanding and support of all of our stakeholders.
July 2018

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

2018 ANNUAL REPORT

3

About the Kyorin Group

History of the Kyorin GroupKYORIN Pharmaceutical Co., Ltd., the core company within the Kyorin Group, was established 95 years ago.
uring that time e ha e or ed sincerely to em ody our corporate philosophy o eneﬁting society ycontributing to better health.” We will tirelessly continue to pursue this challenge by evolving as a company
that supports sound and healthy lifestyles through businesses related to curing and preventing disease andmaintaining and promoting health.

1923 1950

1951 1980

1981 2001

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.).
 2001
Kipres, a leukotriene receptor antagonist and bronchialasthma treatment medicine, was launched.


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

Product history

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 to Pfrimmer(Germany, present Baxter Deutschland).
 1980
Norfloxacin (NFLX), an antibacterial agent,
was licensed to Merck & Co. (U.S.A.).


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2018 ANNUAL REPORT1992
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.



1957
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.





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.
 2001
A subsidiary company, Kyorin USA, Inc. (U.S.A.), wasestablished.

Kyorin Legend

Origin of the Name “Kyorin”
The name Kyorin originated from two Chinese characters that represent a truly virtuous way of practicing
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.
Long ago, a Chinese physician named Dong Feng treated the sick free of charge, and asked those who recovered from serious illness toplant five apricot tree saplings and those cured of minor illness to plant one. As time went by, a thick forest of apricot trees was formed in thearea. (A story that comes from a Chinese legend named Shinsen-den) “Kyorin” is a compound of “kyo,” the Chinese word for “apricot,” and“rin,” the Chinese word for “woods.” Praising the virtue of Dong Feng, the characters were transported from China to Japan as those
representing medicine and medical treatment in general.

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

2018

2002 2013

2023
Medium-TermBusiness Plan
Fiscal 2020 – 2023

Medium-TermBusiness Plan
Fiscal 2016 – 20192002
Medium-Term
Gatiflo (GFLX), a broad-spectrum oral antibacterial
Business Plan
agent, was launched.
Fiscal 2010 – 2015 2007
Stage
Uritos Tablets 0.1 mg, an overactive bladder drug, waslaunched.
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.


Stage

1

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.
 2011
Uritos Orally Disintegrating (OD) Tablets 0.1 mg, an overactive bladder drug,
was launched.

2

Stage

3

A company that supports
sound and healthy
lifestyles

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.


2002
A subsidiary company, Kyorin Europe GmbH (Germany), was established.
 2004
ActivX Biosciences, Inc. (U.S.A.) became a wholly owned subsidiary.
 2005The 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.
 2012The Shiga Plant of MSD K.K. was acquired (conversion into subsidiary) andKYORIN Pharmaceutical Facilities Co., Ltd. (head office: Shiga Prefecture)
was established.
 2013
The Head Office was moved to Ochanomizu sola city in Kanda Surugadai.


2014
Signed 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.
 2018Signed a license agreement with SANWA KAGAKU KENKYUSHO CO., LTD. for KRP-N118(SK-1404), a therapeutic agent for the treatment of nocturia, covering Japan and Asia.
Acquired the exclusive distribution rights in Japan for NASONEX® Nasal, a therapeutic
agent for allergic rhinitis using a metered-dose manual pump spray unit, from MSD K.K.


2015
KYORIN Pharmaceutical Co., Ltd.’s WATARASE Research Center was established.
 2017All shares of Dr. Program Co., Ltd. were transferred to Taisho Pharmaceutical Co., Ltd.
KYORIN Rimedio Co., Ltd.’s Takaoka Drug Discovery Laboratory was established.
KYORIN Pharmaceutical Co., Ltd. acquired all of the outstanding shares of jTAS Inc., andcarried out an absorption-type merger of jTAS.




2018
New manufacturing subsidiary, KYORIN Pharmaceutical Group Facilities Co., Ltd. (headoffice: Tokyo), commences operations.

2018 ANNUAL REPORT

5

About the Kyorin GroupThe Kyorin Group’s Vision andValue Creation Process
The Kyorin Group’s mission is to create and provide innovative new drugs that contribute to the health of people
around the world on an ongoing basis, and we consider this to be the source of our value creation. We aim tocontinue to grow with the ethical drugs business as our core business. At the same time, we are meeting diverse
medical needs by developing an integrated healthcare business as a way to supplement the growth of the ethicaldrugs usiness e are also or ing to address social issues rom an en ironment social and go ernance
perspective as we strive to enhance our corporate value.

Group-Related
Social Issues

The Kyorin Group’s Business Activities

Rapidly aging
population

Ethical Drugs Business
Drug discovery

Increasing
medical costs

ursuing the challenge o ﬁrst in class drug disco ery
 Utilizing open innovation

New drugs business
Increasing the ratio of the new drugs group* sta lishing a presence in speciﬁc ﬁelds
respiratory otolaryngology urology
Unmet
medical needs

Generic drugs business

Diversifying
medical needs
Combating
infectious diseases

romoting usinesses that use the eneﬁts o handling
new drugs in-house*New drugs group: drugs that are already launched or to be developed, which are protected by patents
and exclusivity

Research

Development

Environmental, Social and62018 ANNUAL REPORTThe long-term vision HOPE100 was formulated in 2010 in anticipation of
the 100 th anniversary of the founding of KYORIN Pharmaceutical, theGroup’s core subsidiary, in 2023. The period covered by HOPE100 isro en do n into three stages
tage

ﬁscal

tage

ﬁscal

tage

ﬁscal

and e are currently operating underthe medium term usiness plantage

Corporate Vision for 2023
Long-Term Vision

HOPE100
A Company That Supports
Healthy Lifestyles

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



Healthcare Business

Creation of new
innovative products

Environmental hygiene

Providing outstanding
products and services

Working to grow into a core business

Over-the-counter drugs and othersValue Provided
to Stakeholders

ontri uting to di ersiﬁed needs such as sel medication

Responding to unmet
medical needs
Enhancing the qualityof life of patients andtheir families

Production

Sales

Combating infectious
disease through environmental
hygiene, diagnosis, andmedical treatment

Governance (ESG) Activities

2018 ANNUAL REPORT

7

About the Kyorin Group

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

Millions of yen

FY2013

FY2014FY2015FY2016FY2017¥111,400¥113,121¥119,483¥115,373¥110,640

Operating income

17,607

14,737

19,636

10,413

8,822

Profit attributable to shareholders of KYORIN Holdings, Inc.

12,025

12,064

13,639

7,305

6,574

Net cash provided by operating activities

19,293

6,391

11,137

16,386

10,456

Net cash provided by (used in) investing activities(2,477)(1,364)650(13,142)(6,038)Net cash used in financing activities(3,704)(5,233)(2,245)(5,721)(3,735)

Free cash flow

16,816

5,027

11,787

3,244

4,418

R&D expenses

11,35913,51413,01913,56914,243

Capital expenditures

6,500

2,655

7,218

3,051

2,885

Depreciation and amortization

3,153

3,053

3,730

3,619

3,628

Total assets

169,378

183,383

197,825

192,668

198,350

Total net assets

137,821

148,600

157,049

157,837

163,297

Net sales

Yen

Amounts per Share
Net assets¥1,844.61¥2,009.45¥2,131.67¥2,146.83¥2,214.13

Basic profit

160.95161.63184.28

99.45

89.28

Cash dividends

52.00

52.00

58.00

58.00

58.00

Operating income margin (%)

15.8

13.0

16.4

9.0

8.0

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

10.8

10.7

11.4

6.3

5.9

R&D expenses / Net sales ratio (%)

10.2

11.9

10.9

11.8

12.9

Total shareholders’ equity ratio (%)

81.4

81.0

79.4

81.9

82.3

ROE (%)

9.0

8.4

8.9

4.6

4.1

ROA (%)

7.4

6.8

7.2

3.7

3.4

Consolidated payout ratio (%)

32.3

32.2

31.8

59.3

65.9

Number of employees

2,452

2,445

2,420

2,382

2,348

Key Performance Indicators

Total assets/Total net assets
Total assets
Total net assets

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

200,000

183,383

197,825 192,668 198,350

169,378
150,000

137,821

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

148,600

157,049 157,837

163,297

(%)

(Yen)

15,00015

200

12,00013,63912,025 12,064
9.0

8.4

12
8.9

6,000

8

4.6

3,000

2013

2014

2018 ANNUAL REPORT

2015

2016

2017 (FY)

0

2014

2015

2016

65.9

150

6

0

60

59.3
99.45
32.3

32.2

89.28 40

31.8

4.1

2017 (FY)80

160.95 161.63

100

6,574

3

2013

(%)

184.289
7,305

100,000

0

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

9,000

50,000

Basic profit per share/Consolidated
payout ratio

50

0

20

2013

2014

2015

2016

2017

0

(FY)

er ie oedium erm usiness lan

tage

With the business environment for the ethical drugs business becoming ever more challenging and the patent on one ofour main products ha ing e pired the yorin roup is acing ma or changes in its operating en ironment i en thesesigniﬁcant e ternal changes e need to implement a dynamic trans ormation o the ay e ha e done usiness to dateand create and implement ne measures that go eyond our historical gro th trac
e ha e esta lished ma ing re orms
changes and inno ations and achie ing continuous gro th as our statement or ourtage medium termbusiness plan, and are pursuing the areas of Strategy usiness strategies our priority strategies and t o de elopment
strategies) and Organization (organizational strategies) to achieve Performance per ormance targets

Strategy
Priority strategies

1
2
3
4

Priority items
Build a structure that continuously creates innovative new drugs

Enhancing drug discovery
capabilities:
nitiatives for first in classnew drug discovery

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

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 (Desalex, KRP-AM1977X/KRP-AM1977Y, and KRP-114V) andpromote 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.

Promoting generic drugs
usiness y making the mostof its characteristics

Proactively address authorized generics (AG)Enhancing cost reductions:
Change of cost structurey ensuring optimi ation
within the Group

Comprehensively optimize production capabilities through cooperation within the Group

Development strategies

Priority items

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

Manufacture at appropriate locations without regard to distinctions between new
drugs group, original drugs group, and generic drugs group.
Remove imbalances in plant capacity utilization and pursue the efficient use of assets.

Overseas expansion

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.

Enhancing healthcare business

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

Organization
iming to e the leading company or career ullﬁllment or employees
Establishing and operating a system for managing human resources

Strengthening human resources development

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

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: stabledividends

2018 ANNUAL REPORT

9

Kyorin’s Growth Strategy

Interview with the President

Aiming for continuous growth byanticipating a drastically changing
business environment andimplementing speedy transformation.
Minoru Hogawa
Representative Director, President
and Chief Executive Officer

The growth of Japan’s ethical drug industry slowed during fiscal 2017, on efforts to make medical expenditures more
efficient and rein in drug prices, against a backdrop of preserving financial resources needed to fund social security
expenses. At the Kyorin Group, the full-year effect on sales from the expiry of the patent of our main product created asituation requiring unprecedented corporate action. During fiscal 2017, we worked to refine our pharmaceutical businessmodel to facilitate continuous growth at the ethical drugs business while searching for new core businesses to drive thehealthcare business, under a management policy of “Promoting reform by consolidating diverse knowledge.”Q

How would you summarize Kyorin’s
financial results for fiscal 2017?

A

Sales and profit declined owing to certain
factors including lower sales of new drugs
in Japan.

Net sales in fiscal 2017 declined ¥10.1 billion from theprevious year with large decreases in long listed drugs
including Kipres and Mucodyne, though solid growth from
Flutiform and Desalex, our main new drug products inJapan, was confirmed. Overseas sales of new drugs grew
¥2.5 billion, on one-time income from progress in thedevelopment of the out-licensed FPR2 agonist program,and sales of generic drugs rose ¥2.7 billion, on increased102018 ANNUAL REPORT

sales of Montelukast Tablets “KM.” Sales at the healthcare
business were roughly flat, with sales of hand hygiene
products offsetting the effect of a business transfer inskincare products. As a result, consolidated net sales forthe year declined 4.1% from the previous year, to ¥110,640
million.
Profit declined mainly from a decrease in gross profit asa result of lower new drug sales in Japan, an increase indisposals of inventory assets, and the effects of foreignexchange rate movements. The cost of sales declined onprogress in cost reductions, despite an increase in research and development expenses from one-time outlays
for in-licensing contracts. As a result, operating income
declined 15.3% from the previous year, to ¥8,822 million.

Q

What progress has been made underthe medium-term business plan HOPE100–Stage 2– ?

A

We moved forward aggressively with our priority
strategies and development strategies, with theaim of fully achieving our targets.

We moved forward aggressively with the strategies included in the medium-term business plan HOPE100–Stage 2–(from fiscal 2016 to 2019): the four priority strategies ofenhancing drug discovery capabilities, increasing the ratioof the new drugs group, promoting the generic drugs
business by making the most of its characteristics, andenhancing cost reductions, and the two development
strategies of enhancing the healthcare business andoverseas expansion.
Enhancing our drug discovery capabilities is the mostimportant issue we face, and in addition to proprietary
drug discovery through cooperation between the WATARASE Research Center in Japan and ActivX Biosciences of
the United States, we pursued open innovation with domestic and overseas pharmaceutical companies, academic institutions, and venture start-ups to revitalize existing
drug discovery platforms and make use of new technologies (peptides, gene therapy, and so forth).
To increase the ratio of the new drugs group, we strove
to generate further growth from Flutiform and Desalex and
to increase prescriptions of Uritos and Pentasa Granules,
to counteract the decline in new drugs with other new
drugs. In addition, in May 2018 we acquired the exclusive
sales rights for NASONEX Nasal spray, a therapeutic agent
for allergic rhinitis using a metered-dose manual pumpspray unit, from MSD K.K., and plan to commence sales inAugust 2018. In addition, KRP-114V and KRP-AM1977X
are moving closer to market launches, and we aim toachieve the medium-term business plan’s final-year targetof having a new drug ratio of at least 50% of the ethicaldrugs business in fiscal 2019.
With regard to promoting the generic drugs business bymaking the most of its characteristics, Montelukast Tablets“KM” has achieved a more than 50% share in the genericmarket. We will pursue the development of next authorized
generics going forward.
To enhance cost reductions, we have consolidated ourgroup manufacturing functions by establishing the new
manufacturing subsidiary KYORIN Pharmaceutical Facilities Co., Ltd., and in April 2018 we merged KYORIN Pharmaceutical’s Noshiro Plant, KYORIN Rimedio’s Manufacturing Division, and the former KYORIN Pharmaceutical

Facilities into this new subsidiary. This is intended to enhance cost reductions by removing imbalances in plant
capacity utilization and making more efficient use of assets.
With regard to our development strategies, the healthcare business is marking sales growth from hand hygiene
products that we began selling in the previous fiscal year,
and we intend to expand the business further with products related to environmental hygiene. We are also developing a new diagnostic business using the GeneSoC®
ultrahigh-speed genetic measurement device, and will
work to grow this business into a next core business.
Through these activities, we will work to strengthen our
foundation for growth and increase our earnings strengthin fiscal 2018.

Q

Please tell us more about your efforts “tostrengthen the foundation for growth andincrease earnings strength” in fiscal 2018.
We intend to strengthen our foundation for

A-1 continuous growth and create new markets
through new drug discovery.

Today, it has become clearer than ever that new drugs are
the source of growth for our core business of ethical drugs,
and we intend to strengthen our foundation for growth byputting even more effort into the new drug business. Determined to become a first-in-class drug discovery company,
we will work to be able to carry out multilayered program
development on a single theme, while strongly pursuing
selection and concentration in drug discovery programs, tocreate innovative new drugs with global potential. We will
also proactively explore external drug discovery programs,
and quickly build a structure for an assessment system as
we strive to bolster our drug discovery programs and proactively pursue open innovation in drug discovery research.

2018 ANNUAL REPORT 11

Kyorin’s Growth Strategy

Furthermore, in terms of our medium- to long-term
growth trajectory, we need a promising R&D pipeline. Our
top priority is the rapid expansion of our pipeline throughstepped-up investment in in-licensing, and we will work tobuild a platform for continuous growth over the medium
term by creating a continuous stream of new drugs.
KYORIN Pharmaceutical Co., Ltd. is currently carryingout research and development of seven compounds, andone compound is being out-licensed. In terms of progressin domestic development during fiscal 2017, we began
Phase III clinical trials for KRP-108P, a combination drug forasthma treatment, in June 2017. The application for marketing approval of KRP-114V, an overactive bladder treatment, was filed in September 2017, and we aim to bringthis product to market during fiscal 2018. Following additional non-clinical trials, the review has recommenced for
KRP-AM1977X, a quinolone synthetic antibacterial agent
for which the application was filed in April 2017, and we are
now aiming for a market launch early in fiscal 2019.
In the priority area of urology, we concluded a licensing
agreement with Sanwa Kagaku Kenkyusho Co., Ltd. for
KRP-N118 (SK-1404), a therapeutic agent for the treatmentof nocturia, in March 2018. With regard to out-licensing,the U.S. company Bristol-Myers Squibb has begun Phase
I clinical trials of the FPR2 agonist program, which is apromising sign for Kyorin’s future.
The Kyorin Group is also working to increase the speed
at which we maximize the market presence of our major
products and make an early penetration of our new drugs
to the market. During fiscal 2018, as noted previously,
we will bring KRP-114V to market, while at the same timefurther increasing sales of our main products, Flutiformand Desalex, and marketing NASONEX Nasal spray, which
is currently in co-promotion, and aim to work to create newmarkets with new drugs.
Flutiform has recorded solid sales growth since its
release in 2013, and we are forecasting fiscal 2018 salesof ¥12.3 billion. Based on its appeal and our efforts topromote this drug based on its superior ability to penetrate
and reach the whole lung system from central to peripheral
airways, Flutiform is aimed to acquire a position as a firstline drug in asthma treatment.
Desalex was launched in 2016, and since then has beena focus of the Group’s marketing strength in otolaryngology (ear, nose, and throat). As a result, Desalex jumped to
the No. 2 position among otolaryngological prescriptions
as of the end of fiscal 2017, and we aim for it to become
the No. 1 drug in its field during fiscal 2018 in recognition122018 ANNUAL REPORTof its high degree of effectiveness, lack of associateddrowsiness, and ease of use. Drug manufacturers havereleased new drugs for numerous antiallergy treatments inrecent years, and this itself appears to have stimulated themarket. We expect the market to continue to grow, and areforecasting a ¥3.2 billion increase in Desalex sales in fiscal
2018, to ¥8.1 billion.
NASONEX Nasal spray has one of the largest sharesof the roughly ¥43 billion market for steroid nasal sprays.
KYORIN Pharmaceutical Co., Ltd. began a co-promotion
agreement with MSD K.K., the manufacturer and seller of
NASONEX Nasal spray, in 2016, and concluded a contract
for the exclusive distribution rights in Japan. We are forecasting sales of ¥10.1 billion in fiscal 2018. In the growing
market for overactive bladder treatments, we plan tolaunch KRP-114V during fiscal 2018, and with this productin addition to Uritos, a drug for overactive bladder treatments, we expect our share of the market for overactive
bladder treatments to increase.

We are working to accelerate growth at peripheral

A-2 businesses and increase our earnings strength, as
we proactively pursue even lower costs.

At the generic drug business, one of the Kyorin Group’s
main businesses, we are continuing with the proactive
development of authorized generics. KYORIN Rimedio Co.,
Ltd. has received approval to manufacture and sell an
authorized version of NASONEX Nasal spray, so we expect
to be able to continue with smooth operations after thepatent has expired. We plan to have the diagnostic business operation by 2020, and are considering its global
expansion. The healthcare business is placing its toppriority on increasing earnings, and we will continue toinvest the profits from these peripheral businesses into
new drugs which are the driving force of the Group’s
growth.
In addition, with annual revisions of drug prices potentially occurring, lowering manufacturing costs and reducing
manufacturing expenses are pressing issues. We areworking toward the early establishment of a new manufacturing structure organized around KYORIN Pharmaceutical
Facilities, our new manufacturing subsidiary, and alongwith setting a firm course for removing imbalances in plant
capacity utilization and making effective use of assets, weare carrying out reviews at existing businesses with theaim of reducing all expenses.

Through these activities “to strengthen the foundation
for growth and increase earnings strength,” we will makeevery effort to achieve a 3.4% increase in net sales, to¥114.4 billion, in fiscal 2018, with a 2.5% decrease inoperating income, to ¥8.6 billion.

Q

Please tell us about your environmental,social, and governance (ESG) initiatives.

A

We are proactively addressing ESG issues, with theaim of continuous growth and the enhancement ofcorporate value over the medium to long term.

We recognize that contributing to all stakeholders – frompatients and medical professionals to shareholders andinvestors, employees, business partners, and local communities – is essential to the Kyorin Group’s continuous
growth. Based on this recognition, and given the recent
heightened increase globally in environmental and social
issues, we are stepping up our efforts to address environmental, social, and governance issues.
In addition to working proactively for the continuous
creation of innovative new drugs that are the source of theGroup’s corporate value, and contributing to people’s
health, the long-term vision HOPE100 also identifies compliance and risk management, human resources management, environmental management, and social contribution
activities as key themes, and we are addressing ESG
issues as a corporate citizen. Based on the belief that
invigorated employees and organizations are the driving
force behind corporate growth, we value employees andaim to be their first choice as a satisfying place to work.
Along with restructuring our human resources management and strengthening the development of human resources, we are beginning environmental preservation
activities with a sense of being part of the local communities in which we operate and new social contribution
activities in which all employees participate.
With regard to 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 and bolster 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 will strive for the enhancement of corporate value and continuous growth.

Q

Do you have a message for stakeholders?

A

By implementing speedy transformation, we areworking to meet our fiscal 2018 numerical targets
in full, and achieve our medium-term business plan.

Under the medium-term business plan HOPE100–Stage 2–,
the Kyorin Group’s basic capital policy is to maintain ahealthy financial foundation while investing for growth andproviding a stable return to shareholders. Although we arefacing a period of temporary profit decline with the expiryof the patent for Kipres occurring during the period covered by the medium-term business plan, we expect this tobe followed by an earnings recovery, and based on thisoutlook and our policy of maintaining a stable recovery, we
kept the full-year dividend for fiscal 2017 unchanged at ¥58
per share.
We will continue to aim to achieve the numerical targets
for fiscal 2018 set in the medium-term business plan
HOPE100–Stage 2– as we work toward the achievementof the long-term vision HOPE100. I ask for the continued
support of all stakeholders going forward.

2018 ANNUAL REPORT 13

thical rugs usiness

Kyorin’s Growth Strategy

Medium-Term Business Plan

Drug
Discovery

HOPE100–Stage 2–
Enhancing
drug discovery
capabilities

Priority Strategies

Initiatives for first-in-classnew drug discovery

The Kyorin Group considers its mission to be the continuous creation of innovative new drugs that address medical needs and contribute to the health of people around the world. At the WATARASE Research Center, our researchand development base, we are clarifying our areas of priority research, selecting drug discovery programs andfocusing on those programs, and pursuing multilayered drug discovery activities to create original new drugs with
global potential. At the same time, we proactively search for and introduce outside drug discovery programs, foreven faster first-in-class new drug discovery.

Selection and Concentration
By strengthening cooperation between the WATARASE Research Center, which possesses technology in low molecularweight drug discovery, and ActivX Biosciences in the US,
which has the KiNativ TM platform (exhaustive analysis technology for kinase/protease), we are making maximum use of thetwo research sites’ potential. These activities are concentrating
resources and working on themes that have global potential, in
the pursuit of effective drug discovery activities to create novelcompound drugs.

ploratory esearch or Ne

argets sing inase echnology

The WATARASE Research Center is working with US

perform exhaustive analysis of kinases’ activities at theaffiliated company ActivX Biosciences in drug discovery

cellular and organ level, and are also used in the U.S.

that uses kinase analysis technology. There are more than

National Institutes of Health (NIH) databases. The incorpo-

500 types of kinases, which control complex biologicalration of this cutting-edge technology in our group is afunctions like cell specialization, multiplication, and apopto-

major strength as our research pursues the creation of new,sis, and many of these functions have yet to be identified.

original drugs with global potential.

ActivX has advanced, proprietary technologies that can

14

By focusing our research on the priority project of kinaseresearch and fibrosis research, we are working to bolster our
early-exploration-stage themes (feasibility themes) both quantitatively and qualitatively, while at the same time acquiring backup
compounds and multiple pharmacophores, to pursue multilayered drug discovery with a stronger backup structure thatsimultaneously evaluates different compounds from multiple
basic structures.

2018 ANNUAL REPORTPursuit of Open Innovation
KYORIN Pharmaceutical is supplementing and further strengthening its proprietary drug discovery by proactively searchingfor external drug discovery programs and external early-stage
compounds, and using its own evaluation technology platforms
in areas including bladder function, auditory function, and infectious diseases to create a structure that can carry out speedy
evaluations. Part of this involves pursuit of open innovation withacademic institutions, venture start-ups, and domestic andoverseas pharmaceutical companies for multiple drug discovery approaches to drug creation targets.

In addition to our existing low molecular weight drug discovery, we are exploring new compounds including medium molecular weight compounds and nucleic acid medicines, andworking in gene therapy to pursue possibilities in new modalities and create new, original drugs with global potential, while
also promoting best-in-class new drug discovery with a highdegree of completion.

Approach to “First-in-Class” Drug Discovery

WATARASE Research Center

ActivX, USA

PartnershipOpen innovation
Global and domestic
pharmaceutical companies

Open innovation
Academia and ventures

Selection and Concentration

Research Focuses
Fibrosis

KinaseExternal
drug
discovery
programs

Multilayered approach

Unique Drug Target

World-class Drug Discovery

WATARASE Research Center

ActivX Biosciences

2018 ANNUAL REPORT 15

thical rugs usiness

Kyorin’s Growth Strategy

Medium-Term Business Plan

Ne rugs
usiness
Development/ar eting

HOPE100–Stage 2–
Increasing theratio o the ne
drugs group

Priority Strategies

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

The Kyorin Group is strengthening its new drugs business to achieve continuous growth, and in particular we
see increasing the ratio of the new drugs group as our top priority. In addition to promoting to the greatest extent
possible key products on which we have patents, we are expanding our development pipeline to discover aconstant stream of new drugs and create new markets.

Accelerating a Return to Growth Through the New Drugs Group and New Products
The expiry of the patent on Kipres, our main product, and an
accelerating shift from long listed drugs to generics are creatinga challenging business environment for the Kyorin Group, andagainst this backdrop, under “Stage 2” we are working to bring
the ratio of the new drugs group, which at one point had fallen
to the 20% level, to at least 50% by fiscal 2019. To achieve
continuous growth, we will need to promote to the greatest
extent possible new drugs still covered by patents (Flutiform,
Desalex, Uritos, and Pentasa granules), and also bring drugs
currently under development (KRP-114V, KRP-AM1977X/Y) tomarket without fail and begin promoting them for rapid market
penetration. We aim to achieve our targets by strengthening ourefforts related to the new drugs group.

During fiscal 2017, we applied for approval of KRP-AM1977X
in April and for KRP-114V in September, and concluded Phase III
clinical trials for KRP-AM1977Y. We are responding to inquiries
related to the testing of KRP-114V, and aim to receive approval
during fiscal 2018. In addition, sales of existing drugs during
fiscal 2017 included an 18.1% increase for Flutiform, to ¥11.9 billion, and a 404.8% increase for Desalex, to ¥4.9 billion. We also
concluded an in-licensing agreement for KRP-N118 as a new
addition to our R&D pipeline, as we worked to expand our
product portfolio to achieve continuous growth.

Projected Ratio of New Drugs GroupNew drugs
group (%)

New drugs group
At least 50%
56%

Return to
growth throughnew drugs
KRP-AM1977X

50
KRP-114V
iming or mar et launch during ﬁscal

Kipres for adults

41%

40

35%
30

29%

Kipres for children
20

NasonexPlanning to release in August 2018

Desalexlaunched in November 2016

Flutiform

10

UritosPentasa granules

0
April 2015

2015

2016
April 20162017
April 20172018
April 20182019
April 2019

Medium-Term Business Plan HOPE100– Stage 2– (Fiscal 2016 – 2019)162018 ANNUAL REPORT(FY)April 2020

Raising Our Presence in the FC Fields
KYORIN Pharmaceutical, which handles new drugs, aims toestablish a presence in the field of franchise customers (FC),focusing on the specific fields of respiratory, otolaryngology,
and urology. Roughly 750 medical representatives (MRs)regularly visit specialist doctors to provide, collect, and passon information regarding the appropriate use of pharmaceuticalproducts.
During fiscal 2017, in the FC field of otolaryngology, MRsstrove to promote a better understanding of the special featuresof high effectiveness, lack of drowsiness, and ease of use forthe product Desalex, an antiallergic agent in its second year
after release, and sales have shown solid growth. In addition,
we have obtained the exclusive distribution rights in Japan for
NASONEX® Nasal, a therapeutic agent for allergic rhinitis using
a metered-dose manual pump spray unit, from MSD K.K., andintend to commence sales in August 2018. Together with theanti-bronchial asthma and allergic rhinitis drug Kipres, we havea product lineup that can meet a wide range of needs for thetreatment of allergic rhinitis, and we expect our presence in thefield of otolaryngology to grow further.

Main Products

Development Pipeline

Flutiform
Kipres
Mucodyne
DesalexNasonex*

KRP-AM1977X/Y
Ad-SGE-REIC
KRP-108P

UritosKRP-114V
KRP-N118
KRP-116D

Respiratory

Otolaryngology

Urology*Sales transferred from MSD K.K. (sales scheduled to commence in August 2018)

Promoting Area Management
KYORIN Pharmaceutical’s marketing organization has introduced a “team structure” in which several MRs are responsible
for a specific geographic area.
To address medical needs as they change with the times,
area coverage is based on secondary medical districts, in aneffort to understand the particular needs of various medical

ddressing nmet edical Needs

professionals in their respective geographic areas. This area
information is complicated, and by promoting our proprietaryarea management, we are able to respond swiftly and systematically, as we work proactively to be a company that is recognized by patients and medical professionals for the value we
provide.

Nocturia due to Nocturnal olyuria

Nocturia is a condition in which a person has to wake uppolyuria, from SANWA KAGAKU KENKYUSHO CO., LTD.

to urinate after having gone to sleep, and as the frequency

By offering a new choice to persons who suffer from noctu-

increases with age, this becomes a significant impedimentria, we aim to contribute to an improved quality of life forto a person’s daily life. It is the most frequently diagnosed

patients.

condition related to urination, and studies* have shown thatroughly 45 million men and women aged 40 and over wake

Causes of Nocturia
Nocturia

up once during the night to urinate, and roughly 8.5 million
wake up three times or more. Causes include nocturnal
polyuria, decreased bladder capacity, and sleep disorders.
Currently, there are no medications recommended for thetreatment of nocturia due to nocturnal polyuria, and existingoveractive bladder medications do not always bring sufficient

Overactive
Bladder (OAB)
Uritos(Anticholinergic agent))

KRP-114V(β 3 receptor agonist)

Nocturnal
Polyuria
KRP-N118(Vasopressin V2
receptor agonist)

improvement. KYORIN Pharmaceutical has acquired theexclusive development and sales rights in Asia and Japanfor KRP-N118, a treatment for nocturia due to nocturnal*Source: Honma, etc., “Epidemiologic Study Related to Urination” (2003)2018 ANNUAL REPORT 17

thical rugs usiness

Kyorin’s Growth Strategy

Four New Pharmaceutical Products
Respiratory and Otolaryngology
Flutiform
General name: Fluticasone/Formoterol
Indication:
Bronchial asthma
Released:2013

Net sales (Billions of yen)

11.9

12

10.1

10

7.2

8
6

3.6

4
2
0

0.6
2013

2014

2015

2016

2017 (FY)Respiratory and Otolaryngology
Desalex
General name: Desloratadine
Indication:
Allergic disease
Released:2016
Co-promotion with Kaken Pharmaceutical Co., Ltd.,in field of dermatology

Net sales (Billions of yen)
8
6

4.9

4
2

1.0

0

2016

2017 (FY)

Urology
UritosGeneral name: Imidafenacin
Indication:
Overactive bladder
Released:2007
Co-development and joint sales with Ono Pharmaceutical Co., Ltd. (sold by Ono Pharmaceutical under thename Staybla®)

Net sales (Billions of yen)
10
8

8.1

7.3

7.5

7.5

7.2

2014

2015

2016

2017 (FY)

6
4
2
0

2013

IBD*
Pentasa
General name: Mesalazine
Indications: Ulcerative colitis, Crohn’sdisease
Released:
1996
2015 (granules)*Inflammatory Bowel Diseases

Percentage of sales
by diagnostic category27%

Net sales (Billions of yen)
18.6
20
17.2
15
10

15.2

13.7

16.1
0.5

■Topical preparation■Tablets ■Granules

15.5

15.3

3.6

5.0

8.5

6.9

3.4
2016

3.4
2017 (FY)

12.1

5
0

3.4
2013

3.5

3.5

2014

2015

63%

Domestic pharmaceuticalproducts (KYORIN
Pharmaceutical)

10%■Respiratory and Otolaryngology(Flutiform, Desalex, Kipres, etc.)■Urology (Uritos)■Others (Pentasa, etc.)182018 ANNUAL REPORTProducts under Development (As of May 10, 2018)
Ph III – Approval
Compound/Code

Therapy area/Action

OriginFeatures• Expectation of high compliance in taking medicine with less side effects
than conventional drugs for overactive bladder• Less drug interaction as β3 receptor agonist• β3 agonist including this agonist may constitute a first-line drug fortreatment of overactive bladder.

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—

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

3/2017

KRP-108P

Bronchial asthma

Vectura (U.K.)

Additional indication of pediatric use for Flutiform combination drug forasthma treatment

6/20179/2017

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
and otolaryngological 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,
and digestive symptoms.

4/20173/2016

POC Project (Ph I –Ph II )Compound/Code

OriginTherapy area/Action

Features

Stage
NDA

KRP-N118(SK-1404)

Nocturia due tonocturnal polyuria

SANWA KAGAKUKENKYUSHOCO., LTD.

A vasopressin V2 receptor agonist that promotes the reabsorption of waterby the collecting duct of the kidney to reduce the amount of urine(antidiuretic action). With its high efficacy and safety, the drug is expected
to be a therapeutic agent for nocturia due to nocturnal polyuria.

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 of cancer cell selective apoptosis and anticancer immunity.

7/2015

Licensing Development (Preclinical)
Licensee/Collaborative Therapy area/Action
research

Compound/Code

OriginFeatures

Comments

Stage
Preclinical

Bristol-Myers
Squibb Company(U.S.A.)FPR2 agonist
programDevelopment Strategies

Non-disclosure

In-house

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

NDA

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

erseas e pansion

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

■ Alliance Strategy

KYORIN Pharmaceutical is working to reinforce and enhance its product pipeline. This is an importantpriority for us as a drug maker, and our approach includes both in-house drug discovery and active
collaboration with external 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.)
Allergan (Ireland)
Merck & Co. (U.S.A.)
R-Pharm (Russia)
Vectura (U.K.)
Merz (Germany)

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 Corporation

Kissei Pharmaceutical
Sato Pharmaceutical
Eisai
Nichi-Iko Pharmaceutical
Chugai Pharmaceutical

Yakult Honsha
Kaken Pharmaceutical
Ono Pharmaceutical

Nisshin Pharma
ROHTO Pharmaceutical

SANWA KAGAKUKENKYUSHO

Senju PharmaceuticalOut-licensed

In-licensed

In- and out-licensed

2018 ANNUAL REPORT 19

thical rugs usiness

Kyorin’s Growth Strategy

Medium-Term Business Planeneric rugs
usiness

HOPE100–Stage 2–

Priority Strategies

Promoting generic drugs business bymaking the most of its characteristics

KYORIN Rimedio Co., Ltd. is the core company for the Kyorin Group’s generic drugs business, and is pursuing thepriority strategy of promoting the generic drugs business by making the most of its characteristics. Generic drugs
are now expected to account for 80% of the pharmaceutical market by volume in September 2020, and going
forward, we will enhance our capability to respond to environmental changes as a manufacturer of generic versionsof new types of drugs. Taking advantage of our integrated development, manufacturing, and sales functions, we
aim to achieve high productivity and lower costs.

Initiatives in Authorized Generics
Our first product in this area was Montelukast Tablets “KM,”
the authorized generic version of Kipres. By handling both theoriginal Kipres and the authorized generic within the Group,
we are able to meet the various needs of patients and medical
professionals, and this benefit has been recognized as we havesteadily gained market share. We have maintained an approximately 60% share of the market for generic versions of Kipres,surpassing our initial target of 50%. The Kyorin Group has also
received approval to begin working on an authorized genericversion of NASONEX as our next authorized generic product.
The timing for the release of this product will be strategicallydecided, as we work toward that point while following changes
in the business environment.

Sales of Generic Drugs(Billions of yen)

30

27.7
25.0

25
20

15.5
15
10

8.7

10.1

8.2

Montelukast
11.7 AG

16.8

16.0 Other GE

15.5

12.0

5
0

2011 2012 2013 2014 2015 20162017 (FY)Strengthening Drug Development at the Takaoka Drug Discovery Laboratory
To provide generic drugs that can be used with greater peaceof mind, KYORIN Rimedio has been working on formulations
and packaging that address ease of use by medical institutions
and the needs of patients when taking drugs, from the perspectives of both medical professionals and patients. The Takaoka
Drug Discovery Laboratory commenced full-scale operations inJuly 2017, with the aim of further strengthening our drug development. The Laboratory aims to develop higher quality drugs
more quickly, and to offer attractive generic drug products withunique characteristics.

Content specification
displayed in large
letters
Drug effectdisplayed

Similar color
to original
product

GS-1Data Bar

Licensing Agreement with Vietnamese Company for Drug Manufacturing Technology
In November 2017, KYORIN Rimedio concluded a licensing agreement with BinhDinh Pharmaceutical and Medical Equipment JSC
of Vietnam for generic drug manufacturing technologies, under which we will begin offering licensed, locally manufactured products
in Vietnam. Using Kyorin’s drug manufacturing technologies to create new drug markets will contribute to people’s health in Vietnam.
We will also consider the possibility of subcontracted drug manufacturing.

20

2018 ANNUAL REPORT

yorin s Ne

hallenge

New Challenges in Diagnosing Infectious Diseases

SpecialFeature— Business related to diagnosis of infectious diseases —In recent years, while the inappropriate use of antimicrobial drugs has led to a global increase in
drug-resistant bacteria, there has also been a decline in the development of new antimicrobial drugs,
creating a major issue of an increasing number of deaths from infections by drug-resistant bacteria.
Efforts to address antimicrobial resistance (AMR) are gaining urgency; the World Health Organization’s 2015 World Health Assembly adopted a Global Action Plan on Antimicrobial Resistance, and in
April 2016, the Japanese government formulated a National Action Plan on Antimicrobial Resistance(AMR) 2016–2020.
Going forward, the treatment of infectious diseases will require more robust measures to ensurethat “appropriate drugs” are used “only when necessary” and “in appropriate amounts for appropriate periods of time.” Early-stage promotion of examinations and diagnosis are also needed so thatappropriate drugs can be selected at academic conferences on infectious disease and at medical
facilities.
The Kyorin Group is taking up a new challenge by entering businesses related to the diagnosis ofinfectious diseases, to help address the international problem of AMR.

uic ly ringing ene o ® to mar et and de eloping ne diagnostics or in ectious diseases
into ne t core usiness
In July 2017, KYORIN Pharmaceutical Co., Ltd. acquired all of the outstanding
shares of jTAS Inc., developer of the GeneSoC® ultrahigh-speed genetic
measurement device, and subsequently carried out an absorption-type mergerof the company. The GeneSoC® employs a nucleic acid amplification techniqueusing proprietary microchannels to genetically test for pathogenic microorganisms in five to six minutes, enabling quick, accurate, and simple identification ofpathogenic microorganisms. The device is a compact, table-top size, whichmakes it possible to select appropriate antimicrobial drugs on-site where thediagnosis is being made, and is therefore expected to be used for the diagnosis of infectious diseases that contribute to the appropriate use of antimicrobial
drugs. The use of the GeneSoC® ultrahigh-speed genetic measurement device in point of care testing (POCT) is
diagnostic testing provided at, or near the patient bedside, making it possible to select appropriate drugs during thediagnosis, and we believe this will help to address AMR by promoting the proper use of antimicrobials. We are working
to bring this product to market as quickly as possible, and to develop this into a next core business.
Nucleic acid ampliﬁcation techniqueusing proprietary microchannels

yorin roup s initiati es in the ﬁeld
o in ectious disease

PCR reaction solution

Diagnosis GeneSoC®

Fluorescence
detector
High-temperature heater(DNA thermal denaturation)

Low-temperature heater(annealing, extension)

Prevention

Treatment

Infection Prevention and Control

Ethical Drugs

RUBYSTA, Milton, hand hygiene products

KRP-AM1977X/Y, BACCIDAL tablets, etc.

2018 ANNUAL REPORT 21

Ethical Drugs Business

Kyorin’s Growth Strategy

Medium-Term Business Plan

Manufacturing

HOPE100–Stage 2–
Enhancing
cost
reductions

Priority Strategies

Change of cost structure by ensuring
optimization within the Group

Given the drastic environmental changes in Japan’s pharmaceutical market, combined with lower sales of long
listed drugs and the effect of annual drug price revisions on the Kyorin Group, we anticipate further declines in
profitability. In response, we are consolidating and optimizing overall Group manufacturing functions in the pursuitof low-cost operations with a greater sense of speed, to build a competitive Group manufacturing structure thatprovides a stable supply of high-quality, low-cost products.

New Manufacturing Subsidiary Commences Operations
One of the priority strategies outlined in the HOPE100–Stage 2–
medium-term business plan is “Enhancing cost reductions:
Change of cost structure by ensuring optimization within theGroup.” To achieve this, we merged KYORIN Pharmaceutical’s
Noshiro Plant, KYORIN Rimedio’s Manufacturing Division, andKYORIN Pharmaceutical Facilities into a new manufacturingsubsidiary, KYORIN Pharmaceutical Group Facilities Co., Ltd.,
which commenced operations in April 2018. By consolidating
the Group’s manufacturing functions, the new manufacturingsubsidiary will combine the respective strengths of its threeplants – low-cost, high-volume manufacturing of new drugs,
small-lot manufacturing of a large number of generic drug products, and subcontracted pharmaceutical manufacturing at
global standards – to remove imbalances in plant capacity
utilization and make efficient use of assets, which will lead toincreased productivity. We will further strengthen our efforts tomaintain quality, ensure stable supplies, and reduce costs, andalso build and operate a human resources management systemthat includes personnel exchanges and the sharing of information. We will also raise our Good Manufacturing Practices (GMP)level and technological level to enhance quality even further.
These activities will contribute to the Group’s development, andat the same time we will also concentrate on earnings growthby increasing subcontracted operations from outside theGroup.
KYORIN Pharmaceutical Group Facilities will build a competitive manufacturing structure that offers a stable supply ofhigh-quality products at a low cost, with the aim of becoming apharmaceutical manufacturing subcontractor that is relied upon
both inside and outside the Group.

Strategic Promotion of Supply Chain Management
Aiming to establish solid earnings strength in the face of environmental changes, the Kyorin Group is working to build astructure for more efficient manufacturing that offers a stablesupply, with flexibility to address changes in demand, bycomprehensively addressing the Group’s entire supply chain.
We are pursuing supply chain management (SCM) that manages (makes visible) the entire process from domestic andoverseas procurement of raw materials to manufacturing(production management, manufacturing), warehousing, andsupply (shipping) on an individual product basis. By reducing
lead times from orders to delivery and quickly addressing
issues as they arise, we are working to ensure stable supplies
and reduce risks, for reliable, stable supplies of products.

Supply Chain Management (SCM)

Procurement222018 ANNUAL REPORT

Production(testing)

Inventory

SupplySales

Investment
recoveryOverview of KYORIN Pharmaceutical Group Facilities’ Plants
NoshiroPlant

Low-cost, high-volume manufacturing. Integrated manufacturing from pharmaceutical ingredients to finished products.

The Noshiro Plant began operating as KYORIN Pharmaceutical’s pharmaceutical ingredient manufacturing plant, and a line that met global standards
for finished product manufacturing began operating in 2006, resulting in a
structure that can efficiently manufacture technologically advanced products
in large volumes. High productivity resultant from automation makes it
possible to manufacture large volumes at a low cost by the automatedtransport of pharmaceutical ingredients and intermediate products, androbotic arms. We will use this strength to manufacture generics for which
demand is growing, in addition to new drugs, and also to increase subcontracted manufacturing from outside the Group.
(Noshiro City, Akita Prefecture)

Inami
Plant

Small-lot manufacturing of numerous types of products, focusing on generic drugs.

The Inami Plant is our primary facility for generic drug manufacturing, andbegan operating as a Kyorin Group plant in 2005. The plant manufactures
more than 200 products, including subcontracted manufacturing fromoutside the Group. The plant’s specialty is its flexibility that enables it to
manufacture small volumes of pharmaceutical products in various forms,
including solid formulations taken internally, and liquid formulations includingsterilized formulations for injections, eyedrops, and nose drops. Visits fromdrug manufacturers subcontracting to the plant provide information that hasenabled the facility to gain expertise in maintaining stable supplies of highquality products. To meet the growing demand for generic pharmaceuticalproducts seen in recent years, manufacturing capacity is being increased,and efforts are being made to raise productivity and reliability even higher
by optimizing the overall manufacturing structure in cooperation with theNoshiro Plant and the Shiga Plant.

Shiga
Plant

(Inami, Nanto City, Toyama Prefecture)

Focusing on subcontracted manufacturing incorporating global GMP.

For many years the Shiga Plant was a manufacturing base for a nonJapanese pharmaceutical manufacturer, and in 2012 it began operatingas part of the Kyorin Group. In addition to manufacturing the Group’s main
products, the plant is unique for its high portion of manufacturing subcontracted from outside the Group, including the manufacturing of pharmaceutical products to be sold in Japan by overseas manufacturers. Since its
establishment, the facility has been compliant with GMP and has used
manufacturing equipment with an awareness of waste containment, andtoday it continues to use the latest equipment to enable manufacturingthat keeps pace with the needs of the times. Making use of the extensive
experience and expertise gained from subcontracted manufacturing fromoverseas global companies, the facility is proactively working to increase
subcontracted manufacturing from outside the Group and contribute toearnings growth.

(Koka City, Shiga Prefecture)2018 ANNUAL REPORT 23

ealthcare usiness

Kyorin’s Growth Strategy

Healthcare
usiness

Medium-Term Business Plan
HOPE100–Stage 2–

Development Strategy

Based on the medium-term business plan’s development strategy to “Grow businesses related to environmental
hygiene and strengthen their links to existing businesses to create a core business,” the Kyorin Group is striving to
expand our product lineup and increase sales in the area of environmental hygiene. With further growth at businesses related to environmental hygiene and stronger ties to existing businesses, we will build a core business,and proactively work to pave the way for potential new businesses.

Environmental
HygieneGiven the growing importance in recent years of preventing infections in daily operations at medical institutions, the Kyorin Group is developing and promoting hygiene
management products to control the risk of various infections.

ulti urpose isin ectant leaner
The multi-purpose disinfectant cleaner RUBYSTA is widely used at medical institutions aroundthe world to prevent infections and stop the spread of pathogenic microbes. In addition to
expanding the business’s product lineup, we are obtaining scientific evaluation data for further
product promotion. Overseas, domestic sales have begun in Indonesia through PT. Meiji
Indonesian Pharmaceutical Industries, a subsidiary of Meiji Seika Pharma Co., Ltd., and we arealso considering new business possibilities in light of heightened awareness of infection
management in the ASEAN region.

pansion oand ygiene roducts

Hand hygiene is the most fundamental way of preventing infection through physical contact,
therefore, medical practitioners are required to always maintain hand hygiene. In 2017, theKyorin Group concluded a sales agreement with Air Liquide Japan, Ltd., expanding our lineupof hand hygiene products. We will continue to promote total hand hygiene as a way of preventing infection.

ilton rand
Since its release in 1963, Milton has assisted mothers in protecting the healthy growth of infants,
and today it is the leading brand of 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. The lineup has been expanded further with the launch of Detergent Milton, which can be used to clean baby bottles,
milkers, and vegetables, and we are also providing a wide range of information about theimportance and appropriate methods for disinfecting in advance, which is necessary for ensuring complete disinfection.

Over-theCounter Drugs

We are addressing diversifying health needs by offering over-the-counter drugs
that can be used with peace of mind.

er the ounter rugs ddressing i ersi ying ealth Needs
With the Japanese government’s introduction of a “self-medication tax system” (special tax
deductions for medical expenses) in January 2017, people have become more aware of theirhealth and health needs have been diversifying. The Kyorin Group sells the COOL ONE series ofover-the-counter drugs that apply ingredients used in ethical drugs. This series is highly regarded because we are able to provide accurate information regarding the product’s effectivenessand safety gained at the ethical drugs business. We will continue to work to provide productsthat are able to address diversifying health needs.

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

24

2018 ANNUAL REPORT

Designatedsecond-class
OTC drug

Second-class
OTC drugelia ility ssurance

elia ility ssurance ystemelia ility ssurance ystem
KYORIN Pharmaceutical’s corporate vision aims to be“a pharmaceutical manufacturer that is trusted bypatients and medical professionals, and is recognized
for its presence in society.” To achieve this, the company continuously needs to provide products andinformation that are trusted by broad sectors of society,and we consider this to be our highest priority. We takea unified approach to all operations—from (researchand) development to sales—and place a maximum
emphasis on compliance with relevant laws and regulations, and on ensuring reliability. The Quality Assurance& Reliability HQs has primary responsibility in this area,
and is independent from research and development,
manufacturing, and sales divisions, and proactively
works to provide products and information that patientsand medical professionals can use with peace of mind.

Patients, Medical professionals

Reliable products and information

GMP: Good Manufacturing Practice
GCP: Good Clinical PracticeDevelopment

Manufacturing

Sales

GMP GCPGMP

GQP GVP GPSP

GQP: Good Quality Practice
GVP:

Good Vigilance Practice

GPSP: Good Post-marketing Study Practice

Quality Assurance
Quality assurance is carried on investigational new
drugs based on GMP at the development stage,
through compliance with GMP and GQP after sales,
and by confirming that products are manufactured
using appropriate equipment and according todesignated procedure manuals. After-sales inquiries
regarding quality collected from patients and medical
professionals are given the highest priority, and are
addressed sincerely and quickly.

a ety anagement
Drugs can be effective for treating patients (benefits)
but can have adverse reactions (risks), and side effects
that were not foreseen at the development stage canbecome apparent after sales. This is why it is important
to collect and analyze a wide range of information
regarding benefits and risks after a product is launched,
and to provide appropriate information swiftly to medical facilities while taking into account the balance

between benefits and risks. At Kyorin, we strive toensure safety and promote proper use by carrying out
drug monitoring activities based on GVP. Post-manufacturing surveillance is carried out adhering to GPSP
to collect and evaluate information regarding a drug’s
safety and effectiveness after the product is launched.
The analyzed information is provided to medical professionals, and released in professional publications.

To achieve the long-term vision “The Kyorin Group will promote diversified healthcare business expansion and by
2023 be recognized both within and outside as a company that supports sound and healthy lifestyles.” we consider it
important to build a sophisticated system for ensuring the reliability of drugs handled by the Group and products soldby the healthcare business. By working to ensure the consistent reliability of Kyorin products and providing users withhigh-quality products that can be used “safely and with peace of mind,” we are gaining the trust of broad sectors ofsociety.

2018 ANNUAL REPORT 25

Structure Supporting Value Creation

orporate o ernancehe yorin roup ill or to impro e sustaina le corporate alue in order to gain the conﬁdence and li e up to
the e pectations o all sta eholders s part o these e orts the roup considers strengthening and enhancing
corporate go ernance to e an important management issue

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 System

26

Key Items

Description

Organizational design

Company with corporate auditors

Number of directors (including outside directors)

11 (3)

Number of corporate auditors (including outside
corporate auditors)

5 (3)Number of the Board of Directors’ meetings (held during
fiscal 2017)(Average attendance rate of outside directors)(Average attendance rate of outside corporate auditors)

12 times(100%)(94.4%)

Number of the Board of Corporate Auditors’ meetings(held during fiscal 2017)(Average attendance rate of outside corporate auditors)

13 times(97.4%)

Term of office of directors

1 yearAdoption of the corporate officer system

Yes

Voluntary Committee of the Board of Directors

Committee on Remuneration and Nominations

Accounting auditing firm

Ernst & Young ShinNihon LLC

2018 ANNUAL REPORTCorporate Governance System■ Board of Directors
The Company’s Board of Directors comprises eleven directors(including three outside directors as of June 22, 2018). 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.

■ Business Execution System
To oversee business execution, we established a Management
Committee, comprising the president and directors, which
discusses key operational matters concerning the Group. In
addition, the Company has introduced a corporate officer
system in order to clarify the roles of those who are responsible
for making business decisions and supervising business execution, and those who are responsible for business execution.
As of June 22, 2018, the Company has four corporate officers.

■ Board of Corporate Auditors
The Board of Corporate Auditors comprises two statutory
corporate auditors and three outside corporate auditors, for a
total of five corporate auditors (as of June 22, 2018). By capitalizing on such auditing and supervisory functions, we have built
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.

Corporate Governance and Management Structure (As of June 22, 2018)
General Shareholders’ Meeting
Appointment/dismissal

Reports/exchange of
opinions

Appointment/dismissal

Board ofCorporate
Auditors

Appointment/dismissal

Auditsoard ofDirectors

Co ittee on
Re unerationando inations

Cooperation

Accounting
Auditing
Firm(Independent
Auditor)

Representative
Directors

Auditsnterna udit
Ofﬁce

ana e ent
Co ittee
AuditsSupervision

Auditsfﬁ iated
Co panies

Guidance

Corporate
Ofﬁcers Depart ents

2018 ANNUAL REPORT 27

Structure Supporting Value Creation

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.
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.
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 Takao Yamaguchi has aconsiderable level of knowledge in matters of finance andaccounting as a certified 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.

Compensation of Directors and Corporate Auditors
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 thesustainable 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.

Total compensation paid to each director or corporate auditor, total paid by type of compensation, and number ofapplicable directors and corporate auditors
Director or
corporate auditor

Total compensation paid
(Millions of yen)

Total paid by type of compensation(Millions of yen)
Basic compensation

Number of applicable directors
and corporate auditors (People)

Directors(Excluding outside directors)

253

253

9

Corporate auditors(Excluding outside corporate auditors)

34

34

2

Outside directors or corporate
auditors

48

48

8

Note: The number of directors above includes three directors who retired as of April 1, 2017 and upon the conclusion of the 59th Ordinary General Shareholders’ Meeting held on June 23, 2017.

28

2018 ANNUAL REPORTInternal Audits and Audits Conducted by Corporate Auditors
Internal audits are conducted by the Internal Audit Office, whichis staffed by six 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 compliance and internal control systems in the parent and Group
companies. After an audit, the office communicates any problems or areas that need improvement directly to the president
and makes the appropriate 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.
Corporate auditors conduct audits in line with an auditing
policy and plan set by the Board of Corporate Auditors at the
beginning of each fiscal year. In addition to participating inimportant meetings, including those of the Board of Directors
and the Management Committee, corporate auditors implement comprehensive audits by checking documents and othermaterials relating to important decisions and inspecting departments, facilities, and Group companies. In order to ensure that
audits are conducted effectively by corporate auditors, theaccounting auditing firm explains to corporate auditors thecontents of accounting audits and exchanges information withthem. The firm also cooperates with the Internal Audit Office toconduct appropriate communication and to effectively performthe audits.
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.

Internal Control System and Risk Management System
Kyorin is building an internal control system in accordance with the following basic policy.

Basic
PolicyUnder the corporate philosophy, “Kyorin continues to fulfill its mission of cherishing life and benefiting society bycontributing to better health,” the Kyorin Group will conduct its activities in every country based on a high standardof corporate ethics, respecting human rights and observing all laws, as well as standards of conduct and the spirit
thereof.

■ Compliance Committee
We 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 mattersconcerning internal violations. Moreover, we have set Company
rules to ensure the accuracy of financial reporting, and developed systems for ensuring the validity and reliability of internal
controls over financial reporting of the Group.

■ Risk Management Committee
We 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.

We have established the Compliance Committee and the Risk Management Committee for every Kyorin Group company, while theGroup Compliance Committee and the Group Risk Management Committee supervise and promote a Group-wide compliance andrisk management system. We have also set up a system for employees for the entire Group to report and seek advice about possible
irregularities.

2018 ANNUAL REPORT 29

Structure Supporting Value Creation

Directors, Corporate Auditors, and Corporate Officers (As of June 25, 2018)
Representative Director, President and Chief Executive Officer

Executive Director

Minoru Hogawa

Masahiro Yamashita

Representative Director, President and Chief Executive Ofﬁcer

Executive Director and Advisor

Auditing
KYORIN Pharmaceutical Co., Ltd.
Representative Director, President and Chief Executive Officer
December 1976 Joined Kyorin Yakuhin Co., Ltd.
June 2004
Corporate Officer, General Manager of Management Planning
Department of KYORIN Pharmaceutical Co., Ltd.
June 2005
Executive Director, Senior Executive Officer, Management Strategy
Office of KYORIN Pharmaceutical Co., Ltd.
January 2006 Executive Director, Management Strategy Office, General Manager
of Management Planning Department, in charge of Accounting of
KYORIN Holdings, Inc.
April 2010
Executive Director, Senior Executive Officer, General Manager ofManagement Planning Department, in charge of Finance &Accounting Department of KYORIN Holdings, Inc.
June 2010
Senior Executive Director, General Manager of Management
Planning Department, in charge of Finance & Accounting
Department of KYORIN Holdings, Inc.
June 2012
Senior Managing Director, General Manager of Management
Planning Department, in charge of Finance & Accounting
Department of KYORIN Holdings, Inc.
June 2015
Representative Director, President and Chief Executive Officer, incharge of Auditing Office of KYORIN Holdings, Inc. (current)
June 2017
Representative Director, President and Chief Executive Officer of
KYORIN Pharmaceutical Co., Ltd. (current)

April 1969
Joined Kyorin Yakuhin Co., Ltd.
February 2003 Representative Director, President and Chief Executive
Officer of Bistner Co., Ltd.
April 2004
Corporate Officer, Head of Sales & Marketing
Headquarters of KYORIN Pharmaceutical Co., Ltd.
June 2004
Executive Director, Corporate Officer, Head of Sales &Marketing Headquarters of KYORIN Pharmaceutical Co.,Ltd.
June 2005
Executive Director, Senior Executive Officer, Head of
Sales & Marketing Headquarters of KYORIN
Pharmaceutical Co., Ltd.
January 2006 Executive Director of KYORIN Holdings, Inc.
June 2008
Executive Director, Executive Vice President, President’s
Assistant, in charge of Sales of KYORIN Holdings, Inc.
June 2009
Representative Director, President and Chief Executive
Officer of KYORIN Holdings, Inc.
June 2011
Representative Director, President and Chief Executive
Officer, in charge of Auditing Office of KYORIN Holdings,
Inc.
June 2015
Representative Director, Chairman of KYORIN Holdings,
Inc.
June 2018
Executive Director and Advisor of KYORIN Holdings, Inc.
(current)

Yutaka Ogihara

Shigeru Ogihara

Senior Executive Director

Senior Executive Director

President’s OfficeIntellectual Property
Research and Development

Executive Directors

April 1990 Joined KYORIN Pharmaceutical Co., Ltd.
June 2011 Executive Director, President’s Office, in charge of Corporate
Communication Department and Information System
Management Department of KYORIN Holdings, Inc.
June 2015 Executive Director, President’s Office of KYORIN Holdings, Inc.
June 2016 Senior Executive Director, President’s Office of KYORIN
Holdings, Inc. (current)
June 2016 Senior Executive Director of KYORIN Pharmaceutical Co., Ltd.
(current)

April 1979 Joined Kyorin Yakuhin Co., Ltd
June 2009 Corporate Officer of KYORIN Pharmaceutical Co., Ltd.
April 2011 Representative Director, President and Chief Executive
Officer of KYORIN Rimedio Co., Ltd
June 2011 Corporate Officer of KYORIN Holdings, Inc.
April 2012 Senior Corporate Officer of KYORIN Holdings, Inc.
June 2013 Executive Director of KYORIN Holdings, Inc.
June 2015 Executive Director, in charge of Drug Discovery Strategy of
KYORIN Holdings, Inc.
June 2016 Senior Executive Director, Head of Discovery Research
Headquarters and WATARASE Research Center of KYORIN
Pharmaceutical Co., Ltd. (current)
June 2016 Senior Executive Director, in charge of Intellectual Property
Department of KYORIN Holdings, Inc.
June 2017 Senior Executive Director, in charge of Intellectual Property
Department and Research and Development of KYORIN
Holdings, Inc. (current)

Executive Directors
Kenji Akutsu

Tomiya Sasahara

Executive Director

Executive Director

General Affairs & Human Resources
Finance & Accounting
Healthcare Business

Promotion Compliance & External Relations
Quality Assurance & Reliability

April 1978 Joined KYORIN Pharmaceutical Co., Ltd.
June 2009 Corporate Officer, Product Strategy Office of KYORIN PharmaceuticalCo., Ltd.
April 2014 Corporate Officer, General Manager of Discovery Research
Management Department of KYORIN Pharmaceutical Co., Ltd.
April 2015 Representative Director, President and Chief Executive Officer of
KYORIN Medical Supply Co., Ltd.
April 2015 Corporate Officer of KYORIN Holdings, Inc.
June 2016 Executive Director of KYORIN Holdings, Inc.
April 2017 Executive Director, General Manager of General Affairs & Human
Resources Department, in charge of Human Resources of KYORIN
Holdings, Inc.
June 2017 Executive Director, General Manager of General Affairs & Human
Resources Department, in charge of Human Resources and
Healthcare Business of KYORIN Holdings, Inc.
June 2017 Executive Director, General Manager of Human Resources Department
of KYORIN Pharmaceutical Co., Ltd. (current)
June 2018 Executive Director, General Manager of General Affairs & Human
Resources Department, in charge of Finance & Accounting
Department, and Healthcare Business of KYORIN Holdings, Inc.
(current)

April 1986 Joined KYORIN Pharmaceutical Co., Ltd.
April 2013 Corporate Officer, Quality Assurance & Reliability Office of
KYORIN Pharmaceutical Co., Ltd.
April 2015 Corporate Officer, Head of Quality Assurance & Reliability
Headquarters of KYORIN Pharmaceutical Co., Ltd.
June 2016 Executive Director, Head of Quality Assurance & Reliability
Headquarters of KYORIN Pharmaceutical Co., Ltd. (current)
June 2017 Executive Director, in charge of Quality Assurance &Reliability of KYORIN Holdings, Inc.
June 2018 Executive Director, in charge of Quality Assurance &Reliability and Promotion Compliance & External Relations
Department of KYORIN Holdings, Inc. (current)

Executive Directors
Michiro Oonota
Executive Director
KYORIN Pharmaceutical Group Facilities Co., Ltd.
Representative Director, President and Chief Executive Officer
April 1985 Joined KYORIN Pharmaceutical Co., Ltd.
April 2015 Representative Director, President and Chief Executive Officer of
KYORIN Rimedio Co., Ltd
April 2015 Corporate Officer of KYORIN Holdings, Inc.
June 2017 Executive Director of KYORIN Holdings, Inc. (current)
April 2018 Representative Director, President and Chief Executive Officer of
KYORIN Pharmaceutical Group Facilities Co., Ltd. (current)
June 2018 Executive Director of KYORIN Pharmaceutical Co., Ltd. (current)

30

2018 ANNUAL REPORT

Koichiro Hagihara
Executive Director
Legal
Clinical Development
April 1983
Joined Nisshin Flour Milling Inc.
April 1998
Dispatched to Nisshin KYORIN Pharmaceutical Co., Ltd.
October 2008 Joined KYORIN Pharmaceutical Co., Ltd.
April 2013
Corporate Officer, General Manager of Discovery
Research Department of KYORIN Pharmaceutical Co.,Ltd.
April 2016
Senior Corporate Officer, Head of Clinical Development
Center, General Manager of Discovery Research
Management Department of KYORIN Pharmaceutical Co.,Ltd.
April 2017
Senior Corporate Officer, Deputy General Manager ofDiscovery Research Headquarters, Head of ClinicalDevelopment Center of KYORIN Pharmaceutical Co., Ltd.
June 2018
Executive Director, in charge of Legal Department andClinical Development of KYORIN Holdings, Inc. (current)
June 2018
Executive Director, Deputy General Manager of Discovery
Research Headquarters, Head of Clinical Development
Center of KYORIN Pharmaceutical Co., Ltd. (current)Senior Corporate Auditors

Outside Director
Noriyuki Shikanai

Tomiharu Matsumoto

Outside Director
October 1971 Passed the National Bar Examination
April 1974
Registered with Daini Tokyo Bar Association
March 1977 Established Shikanai Law Office(currently Kyobashi Law
Office) (current)
October 2002 Councilor of Keio University (current)
October 2010 Trustee of Keio University (current)
April 2012
Auditor of J. F. Oberlin University (current)
June 2013
Outside Director of KYORIN Holdings, Inc. (current)

Syuugo Tamaki

Outside Corporate Auditors
Masaji Obata
Takao Yamaguchi
Naohiro Kamei

Outside Director

Senior Corporate Officer

Ken Shigematsu
Outside Director
April 1971
March 1999

Joined Mitsukoshi, Ltd.
Executive Officer, General Manager of Product Planning
Division, Sales Headquarters of Mitsukoshi, Ltd.
May 2002
Director, Executive Officer, Deputy General Manager of Sales
Headquarters of Mitsukoshi, Ltd.
March 2004 Director, Managing Executive Officer, General Manager ofMerchandising Headquarters of Mitsukoshi, Ltd.
March 2005 Director, Managing Executive Officer, Store Manager of
Mitsukoshi Ginza of Mitsukoshi, Ltd.
April 2008
Managing Executive Officer of Isetan Mitsukoshi Holdings Ltd.
Director of Mitsukoshi, Ltd.
April 2009
Director, Senior Managing Executive Officer, Special
Appointive Officer of Mitsukoshi, Ltd.
April 2010
Senior Managing Executive Officer of Isetan Mitsukoshi
Holdings Ltd.
Representative Director, President and Chief Executive Officerof Nagoya Mitsukoshi Ltd.
October 2011 Representative Director, President and Chief Executive Officer
of Endo Manufacturing Co.,Ltd.
October 2015 Representative Director, President and Chief Executive Officerof MFSJ Co., Ltd.
June 2017
Outside Director of KYORIN Holdings, Inc. (current)

Yoh Ito

Corporate Officers
Yasuo Nii
Kikou Obi
Hiroshi Hashizume

Outside Director
Yoh Goto
Outside Director
April 1977
June 2009
April 2012
April 2013
April 2014
June 2014
April 2015
April 2017
June 2017

Joined Teijin Limited
Executive Officer of the Teijin Group
General Manager of Engineering Division of the Teijin
Group
Executive Officer of Teijin Limited
General Manager of Technology Division of Teijin Limited
Member of the Board of Teijin Limited
Senior Executive Officer, Representative Director of theBoard of Teijin Limited
Member of the Board of Teijin Limited
Outside Director of KYORIN Holdings, Inc. (current)

Major Activities of Outside Directors and Outside Corporate Auditors (Year ended March 31, 2018)
Position
OutsideDirectors

OutsideCorporate
Auditors

Namea or cti ities

ttendance at eetings

Noriyuki
Shikanai

Utilizing his high degree of specialization and rich experience as an attorney, he makes
appropriate comments to perform the monitoring function.

Attended 12 out of 12 Board of Directors’
meetings

Ken
Shigematsu

Utilizing his rich experience and wide-ranging insight in corporate management,
he makes appropriate comments to perform the monitoring function.

Attended 9 out of 9 Board of Directors’
meetings*

Yoh
Goto

Utilizing his rich experience and wide-ranging insight in corporate management,
he makes appropriate comments.

Attended 9 out of 9 Board of Directors’
meetings*

MasajiObata

He makes comments as necessary based mainly on his specialist understanding as an
attorney.

Yuji
KonishiHe makes comments appropriately to ensure accurate decision-making by the Board of
Directors. In addition, he makes appropriate comments based on his experience and insightat meetings of the Board of Corporate Auditors.

Attended 12 out of 12 Board of Directors’
meetings and 13 out of 13 Board of Corporate
Auditors’ meetings
Attended 12 out of 12 Board of Directors’
meetings and 13 out of 13 Board of Corporate
Auditors’ meetings

Takao
Yamaguchi

He makes comments as necessary based mainly on his specialist understandingof finance and accounting as a certified public accountant and a certified tax accountant.

Attended 10 out of 12 Board of Directors’
meetings and 12 out of 13 Board of Corporate
Auditors’ meetings*Achievements since assumption of office in June 20172018 ANNUAL REPORT 31

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 anenergetic society and economic development through activities based on the ESG (environment, society andgovernance) viewpoint. Through these activities, the Group also aims to achieve sustainable corporate growth andcreate 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 maintain relationships 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 asa corporate citizen to fulfill our corporate social responsibility (CSR), beginning with the fundamentals of compliance and risk 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 and investors, 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

Identification and Awareness of Priority Issues and Risks
The Kyorin Group seeks sustainable growth by resolving social issues through our businesses.
We are therefore working to identify risks that could impede our achievement of the HOPE100 long-term vision, and by clarifying
the important issues we will consider responses to risk events across the entire organization.

Sustainable Development Goals
The 2030 Agenda for Sustainable Development was adopted at a United Nations summit
in September 2015, and sets international targets to be achieved from 2016 to 2030. The
Agenda comprises 17 goals and 169 targets for the realization of a sustainable world. The
Kyorin Group is proactively working to identify social issues related to the Group’s businesses.

322018 ANNUAL REPORT

ompliance isanagement

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

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 thegreater good of society. Based on its corporate philosophy, the Kyorin Group will conduct its activities in every country based on ahigh standard of corporate ethics, respecting human rights and observing all laws, 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 a high standard of corporate ethics, we established the KYORIN Holdings
Corporate Charter and Compliance Guidelines (August 2006). Furthermore, we have also built and promoted a compliance system by
establishing a Compliance Committee that meets on a monthly basis, and other measures.
1. The KYORIN Holdings Corporate Charter wasdeveloped to specify matters of corporate ethics
and compliance in accordance with our corporate philosophy, and serves as the starting
point for our corporate activities.

2. The Compliance Guidelines complement the KYORIN Holdings Corporate Charter by clarifying the standards to befollowed 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 and familiarity with Kyorin’s corporate philosophy and compliance.
1. Focusing on departments responsible for compliance and eachdivision’s compliance promotion managers, Companywide
level-specific training (newly hired employees, newly appointed
managers, etc.) and functional training are held to teach corporate ethics and compliance, and efforts are made to ensure thatan understanding and consideration of compliance is reflectedin the work performed by directors, corporate auditors andofficers, and employees.

2. June and November are designated as “compliance enhancement months,” with the Corporate Charter and Compliance
Guidelines read out at morning meetings and other activities toensure a thorough understanding and familiarity with compliance Groupwide.

Risk Management
Kyorin established a Risk Management Committee in order to prevent risks from materializing and deal with any risks that do materialize. 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 and otherpreventive 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 othermeasures as necessary, to minimize losses in the event a risk
event does occur. Also, a risk management promotion officer
has been appointed at each company to raise awareness
relating to risk management.

Initiatives Related to Transparency in Relationships with Medical Institutions and Other Parties
The mission of an R&D-driven pharmaceutical company is to contribute to the realization of patient-focused medical care, throughcontinuous research and development of new drugs and their stable supply, thereby contributing to global medical care and people’s
health. To fulfill this mission, partnerships between pharmaceutical companies, research laboratories and medical institutions including universities and others are essential, and we are required to properly manage our relationships where there is a potential conflictof 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 and PatientGroups. In accordance with these guidelines, we publish information about capital funding to medical institutions, patient groups, andothers on our website.

2018 ANNUAL REPORT 33

Structure Supporting Value Creation

uman esources anagement
The Kyorin Group considers it fundamental for its sustained operations and growth to ensure that its employees are passionate about their work. As such, we create, operate, and establish new human resources management systems with theaim of engendering in our employees the sense that this is the very best place 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 thehealth of everyone who works here and further enhancing the comfort of the working environment.

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 and realizing achievements. We therefore aim to be “the leading company for career fulfillment,” where employees take pride in theirwork, have trust in the Company and its organizations, andwork 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.

Support for Employees’ Childcare and Nursing Care
KYORIN Pharmaceutical Co., Ltd. supports employees’ daily lives throughout their life cycle, including when they require childcare or
nursing care, with the aim of providing an environment in which they are easily able to balance their lives between work and family.
We strive to maintain an environment in which employees can feel fulfilled in their work, backed by a healthy home life.
■ Legal standards
Pregnancy

6 weeks
before birthChildbirth

8 weeks
after birth

12 months old■ Kyorin’s own standards or additional provisions

End-March
after 1st birthday

18 months old

2 years old

3 years old

Startselementary school

Shortened work hours for childbirth and child-rearing – Up to 2 hours per day (in 30-minute units) until the child starts elementary school
Exemption from after-hours and holiday work
Exemption from late-night work
Limit on after-hours work

Work
Nursing time –30 minutes each,
twice a day

Child-rearing

MRs may use company (marketing) vehicles to drop off and pick up child at nursery, day care, etc.

Maternity leave
after birth –Can be taken
for 8 weeks
after birthMaternity leave
before birth –6 weeks beforedue date

Leave,
Time off

Special vacation of
2 days for spouse

Childcare leave – can be taken until child is
18 months old or until the end of March
after child’s 1st birthday

Permission granted
for up to 2ndbirthday if unable
to enter nursery,
day care, etc.

Leave for care of children (5 days per year for one child up to 6th grade, 10 days for 2 children, half-day units)

Hourly-based paid leave*
Childbirth and childcare
support money

Financial subsidies for the use of nurseries and preschools

Financialsupport, etc.

Matriculation
support money
Job return system: Preferential rehiring of employees who have resigned for pregnancy, childbirth, child-rearing, nursing care, etc.*

Other

Nursingcare*Hourly-based paid leave and the job return system are also available for nursing care support

34■ Expanded nursing care leave and breaks(186 days, vs. legally stipulated 93 days)2018 ANNUAL REPORT■ Support system for remote nursing care

■ Nursing care seminars

Respect for Human Rights
The Kyorin Group respects the human rights of all people. The
Compliance Guidelines state that “There will be no discrimination or 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, andchildcare and nursing care leave.

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 eight
years. 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.

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 subordinatesand promoting understanding of the specific symptoms ofmental disorders. We also encourage employees to gain knowledge about maintaining mental health via our intranet and othermeans, and have created a hassle-free system for employees
and their families to seek help. When a mental health issue
arises, the employee’s department, industrial psychiatrists,public health nurses, and Human Resources Department work
together to help the employee recover, return to work, andprevent relapse.

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
1.20
1.00
0.80

1.06

1.06

Entire manufacturingindustry
1.15

0.29

0.76
0.29

0.81

0.15

0.88

0.12

0.62

0.29

0.09

0.010

2013

2014

2015

2016

2017 (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

0.09

0.10

0.06

0.05

0.20
0

Entire manufacturingindustry

0.17

0.10
0.30

Chemical industry

0.20

0.81
0.82

KYORIN Pharmaceutical

1.02

0.94

0.60
0.40

Chemical industry

Severity of Work Accidents

2013

0.04
0.001

0.004

2014

2015

0.07

0.08
0.03

0.017

2016

0.017

2017 (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

2018 ANNUAL REPORT 35

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

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 thenatural environment. We are working to reduce the environmental burden and promote effective use of limited resources
by conserving energy and resources, reducing waste andstrengthening our management of chemical substances. In
2004, all plants 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
average annually until fiscal 2019, based on CO2 emissions offiscal 2015 (19,840 tons) and are promoting such efforts. In
fiscal 2017, our CO2 emissions were 16,978 tons.

KYORIN Pharmaceutical’s Material Flow (fiscal 2017)
Raw materials

Materials

Energy450t

Total: 488t

Total heat: 289,532GJ(PRTR substances: 9.9t)

Materials: 442t
Paper usage: 46t

Research

Sales

Total: 106,100t
Drinking water: 86,400t
Groundwater: 19,700t

OUTPUT

Manufacturing

Management

CO2 emissions

Waste

Wastewater

Packaging
Recycled

16,978t

Amount: 400t
Amount recycled: 180t
Amount landfilled: 12t

79,300t

Total: 654t

KYORIN Pharmaceutical Co., Ltd. is proactively introducing low-emission cars, hybrid cars, andother environmentally friendly vehicles for its sales force as a way of preventing global warming.
As of March 2018, all 936 vehicles used by the sales force met the standard for having low emission (a 75% reduction in emissions from the 2005 standard), and of these, 614 (approximately66%) are hybrid vehicles, which were introduced in 2004. In addition, these vehicles adhere to
the Ministry of the Environment’s “Eco-Driving” guidelines, as their operation regards the impact
on the environment and traffic safety.

Biodiversity
KYORIN Pharmaceutical Co., Ltd.’s Noshiro Plant participates in a citizen’s volunteer activity toprotect the Kaze-no-Matsubara pine forest near the plant, to provide local residents with a place
to relax. In fiscal 2017, a total of 27 plant employees removed dead brush as part of an activity topreserve local biodiversity.
In addition, KYORIN Pharmaceutical’s WATARASE Research Center has installed birdhousesin trees adjacent to the Watarase Yusuichi wetland and confirmed the location of nests as a way
to enhance the environment for wild animals in the Center’s grounds.

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 chapterof 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
2017, this system reduced electric power consumption by 104,078 kWh and CO2 emissions byroughly 53 tons compared with conventional heat pumps for air conditioning and heating, forapproximately 36% in energy savings.
A Renewable Energy Heat Pump (ReHP) is a highly efficient heat pump that uses renewableenergy, 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 aheat source, and circulates heated water in a single loop, which is used by air conditioning
and water heating equipment, to increase energy efficiency.

2018 ANNUAL REPORTElectricity: 17,833 thousand kWh
Heavy oil: 453k
Kerosene: 2,687k

INPUT

Introducing Hybrid Cars to Reduce CO2 Emissions

36(crude oil equivalent: 7,470k )Water

N harmaceutical otd n ironmental argets and rogress (Fiscal 2017)

Target initiatives

Fiscal 2017 plan(incl. numerical targets)

Method for achieving

Fiscal 2017 actual

Reduce fuel consumption (crude oil equivalent) through newcapital investment

7,854k (92.6%)(fiscal 2016 actual)

7,470k (95.1%)

Use hybrid cars to improve fuel efficiency and reduce exhaustemissions466/940(49.6%, fiscal 2016 actual)

614/936 (65.6%)

Reduce total CO 2 emissions

17,828t

16,978t

Reduce total waste

434t (fiscal 2016 actual)

400t

Promote recycling

43.3% (fiscal 2016 actual)

45.0%

Amount landfilled

12t (fiscal 2016 actual)

12t

Zero-landfill challenge

2.8%

3.0%

3. Managing chemical
substances

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

9.8t (fiscal 2016 actual)

9.9t

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

51t (fiscal 2016 actual)46t

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

81.7% (fiscal 2016 actual)

81.4%

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 inAugust1. Preventing global warming(CO 2 reduction and energy
conservation)

2. Reducing waste volume*Self-assessment scale:

CO2 Emissions from Factories and Research Laboratories(t)(t/millions of yen)100
19,84017,91917,38918,19280

16,97815,00060

10,000

40

5,000

20

0

2013

2014

2015

2016

2017

(FY)

largely achieved;

more work required

Waste Volume

25,00020,000achieved;

Selfassessment

0

80
70
60

2013

2014

2015

40

40

2016

2017

(FY)

Volume of Water Used
Total groundwater

Total drinking water(t)

200,000
150,000

42,50030,90027,000100,000
50,0000125,100

2013

132,400

2014

132,400

2015

22,80019,70098,70086,400

2016

2017

(FY)

2018 ANNUAL REPORT 37

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 with society. 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 to develop in a sustainable manner.

Initiatives to Nurture the Next Generation
Classroom VisitsWork Experience Programs

Health Information Website for Children

Sponsoring Sporting Events

Since fiscal 2017, we have planned and organized visits toschools by employees to teach and demonstrate in an easy-tounderstand manner correct ways of using medicine and how
to wash your hands toelementary and juniorhigh school children, tonurture the next generation. This is one of oursocial contribution
activities that embodies
our corporate philosophy of “Contributing tobetter health.”

The Kyorin Group has supported the “Kyorin Group Presents
the Great Adventure for the Body’s Secrets” since 2016. During
fiscal 2017, we produced a portal site related to the event,“Teacher, Teach Me about the Body’s Secrets” that shows
health-related videos that explain diseases and how the bodyworks by showing the “impure things in the body.” (The target
audience is children in nurseryschool through early elementary school.) This is an effort
to have children enjoy learning
accurate, health-related
information.

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.

The annual Shimotsuke Soccer Workshop in Nogi was held forthe 18th time. Many local children attended, and we saw themgiving their all playing soccer under the coaching of former
Japan national team player Tetsuo Nakanishi. The Kyorin Groupsupports many other events that contribute to people’s health.

URL: http://www.karada-kyorin.com

Activities with Patients and Medical Professionals
Meeting Needs from Patients’ Perspectives

Providing Information via “Doctor Salon”

We endeavor to meet a variety of needs, listening to feedback from clinical practice. We put ourselves in our patients’shoes, striving to develop pharmaceutical forms that are easy
to administer, and imprinting them with their names to keep
patients from taking the wrong medicine.

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.

“Drug Information Center” Helpline
We opened the “Drug Information Center” as a helpline forinquiries relating to Kyorin products. We respond swiftly andaccurately to various inquiries from physicians and pharmacists, from the standpoint of correct usage. We also provide
accurate and easy-to-understand responses to inquiries frompatients and the general public. In fiscal 2017, we responded
to more than 20,000 inquiries.

38

2018 ANNUAL REPORTCommunication with Local Communities

Health Challenge Program

The Health Challenge program was launched in 2017 as a newactivity to promote employees’ health and to contribute to local
communities by donating items that are useful for maintaining
health. All Group employees form teams at their workplace andcount how many steps they take during a two-month period,
competing in terms of average points, with health equipment
donated to a social welfare center located near the workplacesof the two top teams. In total, 263 teams participated, andhealth equipment including a “body composition monitor” and“rehabilitation support machine” was donated to facilities in
Chiyoda Ward, Tokyo, and Nanto City, Toyama Prefecture,
where the two top teams are located.

Initiative to Raise Awareness of Maternity MarkIn fiscal 2017, KYORIN Pharmaceutical Co., Ltd. placed “Milton”
advertisements near priority seats in various trains mainly inTokyo regions. The advertisements raise awareness of theMaternity Mark, with the aim of increasing recognition of thesymbol and contribute to creating an environment that isfriendly to pregnant women.

Support for Great East Japan Earthquake Recovery

First-Aid and Lifesaving Courses for Employees

As part of KYORIN Pharmaceutical Co., Ltd.’s CSR activities,
the Company’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 ofpharmaceutical products, the Kyorin Group strives to coexist
in harmony as a corporate citizen of local communities.

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 2018, growing 300 pots of sunflower
seedlings at WATARASE Research Center, and donating themto the city of Natori, in Miyagi Prefecture.

Publishing Websites for Medical Professionals

Providing Ailments Information

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, andinformation that will be useful in day-to-day clinical practice.

At the Kyorin Group, we provide assistance to help patients
correctly understand their ailments and improve their qualityof life by creating informed-consent tools and providing
patients with information about their ailments through theirhealthcare providers.

Support for the Department of Drug Discovery Medicine

Kyorin Medical Bridge, a website for medical professionals

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.

2018 ANNUAL REPORT 39

Financial and Corporate Data

Financial Analysis
Industry Trends in Japan
During fiscal 2017, Japan’s pharmaceutical industry transitioned
to a low-growth market as measures to make medical spending
more efficient and to rein in drug prices moved forward in aneffort to preserve financial resources required to cover the costsof the social security system. With the expiry of patents on our
main products having a full-year effect on net sales, the Kyorin
Group entered a critical period requiring unprecedented corporate activities. Revisions to the National Health Insurance (NHI)
drug pricing system were deliberated based on the Basic Policy
for Fundamental Reform of the Drug Pricing System, and newmeasures were implemented from April 2018.
Against this backdrop, the Kyorin Group pursued its long-term
vision HOPE100, operating under the medium-term businessplan HOPE100–Stage 2–, which covers the period from fiscal
2016 through fiscal 2019. Under this plan, during fiscal 2017, we
worked to evolve our pharmaceutical business model to facilitate continuous growth at the ethical drugs business while creating new core businesses and searching for next candidates
for a new core business to drive the healthcare business, undera management policy of “Promoting reform by consolidating
diverse knowledge,” as we strove to achieve the plan’s performance targets and gain the increased support and approval of
stakeholders.

Consolidated Operating Results
Consolidated net sales for the fiscal year declined ¥4,732 million, or 4.1%, from the previous fiscal year, to ¥110,640 million.
Despite increased sales of new drugs overseas and of genericdrugs, lower sales of new drugs in Japan resulted in a decline
from the previous year in sales in the ethical drugs business,while sales in the healthcare business were roughly the sameas the previous fiscal year.
In terms of profit, despite one-time revenue from new drugs
overseas, lower sales of new drugs in Japan combined with anincrease in loss on retirement of inventories resulted in a ¥2,949
million decrease in gross profit from the previous fiscal year. On
the other hand, with cost reductions absorbing an increase in
R&D expenses, SG&A expenses declined ¥1,359 million, butnevertheless, operating income fell ¥1,590 million, or 15.3%,
from the previous fiscal year, to ¥8,822 million. Profit attributable
to shareholders of KYORIN Holdings, Inc. declined 10.0% fromthe previous year, to ¥6,574 million, which included roughly¥600 million in extraordinary income from the transfer of sharesof Dr. Program Co., Ltd., roughly ¥400 million in costs related
to the settlement of a class-action lawsuit for violation of U.S.
antitrust laws in connection with an out-licensed product(Gatifloxacin-eyedrops), and a roughly ¥400 million extraordinary loss on a debt guarantee regarding a trust-type employee
stock ownership incentive plan.

Assets, Liabilities, and Net Assets
As of March 31, 2018, current assets had declined ¥4,168 million from the previous fiscal year-end, with decreases in shortterm investments, merchandise and finished goods and othercurrent assets more than offsetting increases in cash and cash

40

2018 ANNUAL REPORT

in banks and in notes and accounts receivable. Fixed assets
grew ¥9,851 million over the same period, mainly on an increase
in investment securities. As a result, total assets stood at¥198,350 million as of March 31, 2018, for a ¥5,682 million
increase from the previous fiscal year-end.
Liabilities as of March 31, 2018 were ¥35,053 million, markinga ¥221 million increase from the previous fiscal year-end, withincreases in accrued income taxes, deferred tax liabilities, andthe liability for retirement benefits, and decreases in notes andaccounts payable and in other long-term liabilities.
Net assets grew ¥5,460 million from the previous fiscal yearend, to ¥163,297 million as of March 31, 2018, mainly fromincreases in retained earnings and in the unrealized holding gainon other securities.
As a result, the equity ratio stood at 82.3% as of March 31,
2018, a 0.4 percentage-point increase from the previous fiscal
year-end.

Cash Flows
Operating activities during fiscal 2017 generated a net cash
inflow of ¥10,456 million, with profit before income taxes of¥9,061 million, depreciation and amortization of ¥3,644 million,a ¥1,842 million increase in notes and accounts receivable, a¥901 million decrease in inventories, an ¥834 decrease in notes
and accounts payable, a ¥912 million decrease in consumption
taxes payable, and income taxes paid of ¥1,655 million.
Investing activities resulted in a net cash outflow of ¥6,038
million, with the main items being outlays of ¥3,387 million forthe purchase of property, plant and equipment, and ¥7,099 million for the purchase of investment securities, with a ¥5,000 million inflow from the proceeds from sales and redemption of
investment securities.
Financing activities resulted in a net cash outflow of ¥3,735
million, with proceeds from long-term debt of ¥1,712 million being
more than offset by outlays of ¥1,297 million for repayments oflong-term debt and ¥4,325 million in cash dividends paid.
As a result, cash and cash equivalents at the end of fiscal
2017 totaled ¥42,971 million, for a ¥471 million increase fromthe previous fiscal year-end.

Outlook for Fiscal 2018
With the enactment of drastic reforms to the drug pricing
system (including an industrywide 7.5% revision in prices) effective April 2018, we expect the ethical drugs business in Japanto face an increasingly challenging operating environment.
In response, the Kyorin Group will pursue its long-term vision
HOPE100, operating under the medium-term business plan
HOPE100–Stage 2–, which was formulated in fiscal 2016 andcovers the period from fiscal 2016 through fiscal 2019, to evolve
our pharmaceutical business model to facilitate continuous
growth in the ethical drugs business, while creating new corebusinesses and searching for next candidates for a new corebusiness to drive the healthcare business, as we strive to achieve
the plan’s performance targets and gain the increased support
and approval of stakeholders.
In terms of net sales for fiscal 2018, in the ethical drugs business we are forecasting lower sales of new drugs overseas andof generic drugs, but also anticipate higher sales of new drugs
in Japan, as well as sales growth in the healthcare business,for an overall increase in net sales. Although sales of new drugs
in Japan will be affected by the drug price revisions that tookeffect in April 2018 (Kyorin’s revision is in the 7% range), we areforecasting sales growth from increased sales of main products
Flutiform and Desalex, and the commencement of sales of
NASONEX following the conclusion of a contract with MSD K.K.
The main factor behind the forecast of lower sales of new drugs

overseas is the absence of one-time revenue from out-licensing
recorded in the previous fiscal year.
In terms of profit, although we expect gross profit to decline
from the effect of drug price revisions and the absence of onetime out-licensing revenue, we are forecasting a significant
reduction in SG&A expenses, including R&D expenses, so
anticipate profit to be on a similar level with the previous fiscal
year.

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 the business performance of the Group.

2018 ANNUAL REPORT 41

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)

2018

2017

2018

Cash and cash in banks (Notes 4 and 10)¥ 44,117¥ 43,619$ 415,141

Notes and accounts receivable (Note 10)

47,862

46,192

450,381

Short-term investments (Notes 5 and 10)

599

5,007

5,637

Merchandise and finished goods

11,74912,901

110,558

Work in process

1,282

1,521

12,064

AssetsCurrent assets:

Inventories:

Raw materials and supplies

10,276

9,956

96,697

Deferred tax assets (Note 12)

2,152

2,136

20,250

Other

4,101

4,976

38,590

(43)

(44)

(405)

122,098

126,267

1,148,941

Less allowance for doubtful accounts
Total current assets

Property, plant and equipment:
Land

2,082

2,010

19,592

Buildings and structures

31,66333,187

297,949

Machinery and vehicle

21,387

20,957201,252

589

591

5,542

Leased assets
Construction in progress
Other
Less accumulated depreciation and impairment loss
Property, plant and equipment, net

41

1,041

386

8,405

7,871

79,091(42,269)(43,227)(397,751)

21,901

22,432206,088

50,71540,647477,228

Investments and other assets:
Investment securities (Notes 5 and 10)

4

2

38

Asset for retirement benefits (Note 11)

133

109

1,252

Deferred tax assets (Note 12)

188

381

1,769

3,356

2,893

31,580

(47)

(65)

(442)

Long-term loans

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

422018 ANNUAL REPORT

54,35043,968511,433¥198,350¥192,668$1,866,472

Liabilities and net assets

Millions of yen

Thousands of
U.S. dollars(Note 3)

2018

2017

2018

¥ 10,266¥ 11,157

957

1,321

Current liabilities:
Notes and accounts payable (Note 10)
Short-term bank loans (Note 6)$

96,603
9,005

99

98

932

Accrued income taxes (Note 12)

2,317

1,194

21,803

Accrued bonuses to employees

2,381

2,690

22,405

52

32

489

Provision for point card certificates

—

36

—

Provision for loss on guarantees

428

—

4,027

8,631

8,502

81,21825,13425,033

236,511Long-term debt (Note 6)

3,912

3,630

36,812

Lease obligations (Note 6)

411

478

3,868

Lease obligations (Note 6)

Reserve for sales returns

Other
Total current liabilities
Long-term liabilities:

2,870

2,067

27,007

Accrued retirement benefits for directors and corporate auditors

—

16

—

Provision for stock-based payments

4

—

38

2,136

1,676

20,100

Deferred tax liabilities (Note 12)

Liability for retirement benefits (Note 11)

582

1,928

5,477

9,918

9,797

93,328

700

700

6,587

Capital surplus

4,752

4,752

44,716

Retained earnings

152,542

150,301

1,435,419(2,506)(3,168)(23,581)

155,489

152,585

1,463,150

10,101

7,645

95,050

83

115

781

Retirement benefits liability adjustments(2,377)(2,510)(22,368)

Total accumulated other comprehensive income

7,808

5,251

73,473

Other
Total long-term liabilities
Contingent liabilities (Note 15)
Net assets:
Shareholders’ equity (Note 7):
Common stock, no par value:
Authorized – 297,000,000 shares in 2018 and 2017
Issued – 74,947,628 shares in 2018 and 2017

Treasury stock, at cost:
1,194,974 shares in 2018
1,426,589 shares in 2017
Total shareholders’ equity
Accumulated other comprehensive income:Unrealized holding gain on other securities
Translation adjustments

Total net assets

163,297

157,837

1,536,624

Total liabilities and net assets¥198,350¥192,668$1,866,472

See notes to consolidated financial statements.

2018 ANNUAL REPORT 43

Financial and Corporate Data

Consolidated Statement of Income
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2018

Millions of yen

Thousands of
U.S. dollars(Note 3)

2018

2017

2018

¥110,640
49,064¥115,373
50,847$1,041,122
461,692

61,57652,75364,526
54,113

579,430
496,405

8,822

10,413

83,015Interest and dividend income

398

374

3,745

Interest expense

(24)

(29)

(226)

Equity in gains of affiliates

28

23

263

Foreign exchange loss

(53)

(5)

(499)

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

(51)

(135)

(480)

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 8)
Operating income
Other income (expenses):Gain on sales of investment securities, net (Note 5)

—

(3)

—

Gain on sales of shares of subsidiaries and affiliates

(576)

—

(5,420)

Settlement-related costs(379)(1,025)(3,566)

Provision for loss on guarantees

(428)
172

—
97

(4,027)
1,619

Other, net
Other income (expenses), net

238

(696)

2,240

Profit before income taxes

9,061

9,716

85,264

2,759
(272)

1,597
814

25,962(2,560)

2,486

2,411

23,393

6,574
6,574

7,305
7,305

61,861
61,861

Income taxes (Note 12):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, 2018

Millions of yen

ProfitThousands of
U.S. dollars(Note 3)

2018

2017

2018

¥6,574¥7,305$61,861

2,456(2,732)

23,111Other comprehensive income (Note 13):
Unrealized holding gain (loss) on other securities
Translation adjustments

(31)

(45)

(292)

Retirement benefits liability adjustments

133

781

1,252

(0)

5

(0)

2,557
¥9,132(1,990)¥5,31524,061$85,932¥9,132¥5,315$85,932———

Share of other comprehensive income of affiliates accounted
for using equity method
Total other comprehensive income
Comprehensive income
Total comprehensive income attributable to:Shareholders of KYORIN Holdings, Inc.
Non-controlling interests
See notes to consolidated financial statements.

44

2018 ANNUAL REPORT

Consolidated Statement of Changes in Net Assets
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2018
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¥147,331¥(2,975)¥149,808¥10,372¥160¥(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 April 1, 2016

74,947,628

700

4,752

150,301(3,168)

152,585

7,645

115

(2,510)5,251

157,837

Cash dividends

—

—

—

(4,333)—(4,333)

—

—

—

—

(4,333)

Profit attributable toshareholders of KYORIN
Holdings, Inc.

—

—

—

6,574

—

6,574

—

—

—

—

6,574

Purchase of treasury stock

—

—

—

—

(0)

(0)

—

—

—

—

(0)

Disposals of treasury stock

—

—

—

—

662

662

—

—

—

—

662

Other changes

—

—

—

—

—

—

2,455

(31)

133

2,557

2,557

Net changes during
the year

—

—

—

2,241

662

2,903

2,455

(31)

133

2,557

5,460

Balance as of March 31, 2018 74,947,628¥700¥4,752¥152,542¥(2,506)¥155,489¥10,101¥ 83¥(2,377)¥7,808¥163,297

Balance as of April 1, 2017

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

Shareholders’ equity
Number ofshares issued Common(Commonstock
stock)

Balance as of April 1, 2017

CapitalsurplusRetainedearnings

Treasurystock,
at costTotal
shareholders’equity74,947,628 $6,587 $44,716 $1,414,331 $(29,811) $1,435,824

Unrealized
Total
Retirement
holding
accumulated
Translation
benefits
gain (loss)otheradjustments
liability
on othercomprehensive
adjustments
securities
income$71,939$1,082$(23,619)

—

—

—

Total
net assets$49,412 $1,485,245

Cash dividends

—

—

—

(40,774)—(40,774)

Profit attributable toshareholders of KYORIN
Holdings, Inc.

—

(40,774)———

61,861—

61,861——

Purchase of treasury stock

—

—

—

—

(0)

(0)

—

—

—

—

61,861——(0)

Disposals of treasury stock

—

—

—

—

6,229

6,229

—

—

—

—

6,229

Other changes

—

—

—

—

—

—

23,102

(292)

1,252

24,061

24,061

Net changes during
the year———

21,0886,229

27,317

23,102

(292)

1,252

24,061

51,379Balance as of March 31, 2018 74,947,628 $6,587 $44,716 $1,435,419 $(23,581) $1,463,150$95,050$ 781$(22,368)$73,473 $1,536,624

See notes to consolidated financial statements.

2018 ANNUAL REPORT 45

Financial and Corporate Data

Consolidated Statement of Cash Flows
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2018

Operating activities
Profit before income taxes
Depreciation and amortization
Decrease in allowance for doubtful accounts
Decrease in accrued bonuses to employees(Decrease) increase in accrued retirement benefits for directors
and corporate auditors
Decrease (increase) in asset for retirement benefits
Increase in liability for retirement benefits
Equity in gains of affiliates
Increase in provision for loss on guarantees
Interest and dividend income
Interest expense
Losses on sales and retirement of property, plant and equipment, net
Gain on sales of investment securities, net
Gain on sales of shares of subsidiaries and affiliates(Increase) decrease in notes and accounts receivable
Decrease in inventories
Decrease in notes and accounts payable(Decrease) increase in consumption taxes payable
Other, net
SubtotalInterest and dividend received
Interest paid
Income taxes paid
Net cash provided by operating activities
Investing activities
Payments for time deposits
Proceeds from withdrawal of time deposits
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
Purchase of shares of subsidiaries resulting in change in scope of consolidation
Proceeds from sales of shares of subsidiaries resulting in change
in scope of consolidation
Other, net
Net cash used in investing activities
Financing activities
Decrease in short-term bank loans, net
Repayments of lease obligations
Proceeds from long-term debt
Repayments of long-term debt
Net decrease (increase) in treasury stock
Cash dividends
Net cash used in financing activities
Effects of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 4)
See notes to consolidated financial statements.

46

2018 ANNUAL REPORT

Millions of yen

Thousands of
U.S. dollars(Note 3)

2018

2017

2018

¥ 9,061
3,644
(16)
(293)

¥ 9,716
3,619
(67)
(561)

$ 85,264
34,290(151)(2,757)

(16)
586
61
(28)
428
(398)
24
51
—
(576)
(1,842)
901
(834)
(912)
1,889
11,729405(24)(1,655)
10,456

3(1,326)
21
(23)
—
(374)
29
135
(3)
—
2,102
3,286
(634)
945
2,935
19,804381(29)(3,769)16,386

(151)
5,514
574
(263)
4,027
(3,745)226
480—(5,420)(17,333)
8,478(7,848)(8,582)
17,775
110,3703,811(226)(15,574)
98,391(768)
722(3,387)91(486)(7,099)
5,000
(399)

(1,443)
1,079(2,208)89(437)(16,600)
6,403—(7,227)
6,794(31,872)856(4,573)(66,802)
47,050(3,755)434(146)(6,038)—(26)(13,142)

4,084(1,374)(56,818)

(245)
(104)
1,712
(1,297)524(4,325)(3,735)(210)
471
42,499¥42,971

(600)
(116)
916
(1,153)(445)(4,322)(5,721)(65)(2,543)45,043¥42,499(2,305)(979)
16,110(12,205)
4,931(40,698)(35,146)(1,976)
4,432
399,915$404,357

Notes to Consolidated Financial Statements
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2018

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 2017 consolidated financial statements to conform to the2018 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.
(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 structures

2018 ANNUAL REPORT 47

Financial and Corporate Dataacquired 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 Standard Issued but Not Yet Effective“Accounting Standard for Revenue Recognition” (Accounting Standards Board of Japan (“ASBJ”)
Statement No. 29, issued on March 30, 2018)“Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance
No. 30, issued on March 30, 2018)(1) Overview
The International Accounting Standards Board (“IASB”) and the Financial Accounting Standards Board of
the United States of America (“FASB”) jointly developed a comprehensive accounting standard for revenue

48

2018 ANNUAL REPORT

recognition and issued “Revenue from Contracts with Customers” (IFRS 15, issued by the IASB and Topic
606, issued by the FASB) in May 2014. Considering that IFRS 15 has become applicable from fiscal years
beginning on or after January 1, 2018 and Topic 606 from fiscal years beginning after December 15, 2017,
the ASBJ developed a comprehensive accounting standard for revenue recognition and issued it together
with implementation guidance.
The ASBJ’s basic policy in developing the accounting standard for revenue recognition was to establish
accounting standards as a starting point in accordance with basic principles of IFRS 15 from the viewpoint ofcomparability of financial statements, which is one of benefits of maintaining consistency with IFRS 15, and to
add alternative accounting treatments to the extent they do not impair comparability in cases where common
practices and others in Japan should be considered.
(2) Date of application
The Company is considering the date of application.
(3) Effect of application
The effect of applying the “Accounting Standard for Revenue Recognition,” etc. on the consolidated financial
statements is currently under assessment.
(n) Additional Information
Trust-Based Employee Shareholding Incentive Plan
At a meeting of the Board of Directors held on February 2, 2015, the Company resolved to introduce atrustbased 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.

2018 ANNUAL REPORT 49

Financial and Corporate Data

(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, 2018 and 2017, the carrying amounts of the treasury
shares were ¥306 million ($2,879 thousand) and ¥968 million, respectively, and the total numbers of treasury
shares were 107 thousand shares and 338 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 ¥749 million($7,048 thousand) and ¥1,269 million as of March 31, 2018 and 2017, respectively.
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 Pharmaceuticalin advance.
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, 2018 and 2017, the carrying amounts of the treasury
shares were ¥1,645 million ($15,479 thousand) and ¥1,645 million, respectively, and the total numbers oftreasury shares were 754 thousand shares and 754 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 thestock benefit rules for directors or upon their retirement, whichever is earlier.
50

2018 ANNUAL REPORT

(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, 2018 and 2017, the carrying amounts of the treasury
shares were ¥226 million ($2,127 thousand) and ¥226 million, respectively, and the total numbers of treasury
shares were 100 thousand shares and 100 thousand shares, respectively.

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 ¥106.27 = U.S.$1.00, the approximate rate of exchange on March
31, 2018. 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, 2018 and 2017 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

2018

Millions of yen
2017

Thousands of
U.S. dollars
2018¥44,117—(1,145)¥42,971¥43,619—(1,120)¥42,499$415,141—(10,774)$404,357

5. Short-Term Investments and Investment Securities
Information regarding marketable securities classified as other securities as of March 31, 2018 and 2017 is
as follows:
Marketable other securities

Acquisition
cost

Millions of yen
2018
Carrying
Unrealized
value
gain (loss)

Acquisition
cost

Thousands of U.S. dollars
2018
Carrying
Unrealized
value
gain (loss)

Securities whose carrying
value exceeds theiracquisition cost:
Equity securities¥10,747¥25,242¥14,495$101,129$237,527$136,398500——
11,247501——
25,744

1——
14,496

4,705——
105,834

4,714——
242,251

9——
136,407

8

8

(0)

75

75

(0)

23,499—1,000
24,508¥35,756

23,477—987
24,473¥50,217(21) 221,125
—
—
(12)
9,410
(35) 230,620¥14,461 $336,464

220,918—
9,288
230,291$472,542

(198)
—
(113)
(329)
$136,078

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

2018 ANNUAL REPORT 51

Financial and Corporate Data

Acquisition
cost

Millions of yen
2017
Carrying
Unrealized
value
gain (loss)

Securities whose carrying value exceeds
their acquisition cost:
Equity securities¥ 8,744¥19,927¥11,183

5,501——
14,246

5,508——
25,436

6——
11,189

2,012

1,780

(231)

16,400—1,000
19,412¥33,658

16,382—980
19,143¥44,579

(17)
—
(19)
(268)
¥10,921

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($4,639 thousand) and ¥493 million as of March 31, 2018 and 2017, respectively.
Sales amounts of securities classified as other securities and the related aggregate gain and loss for theyears ended March 31, 2018 and 2017 are summarized as follows:

Proceeds from sales
Gains on sales
Losses on sales

2018

Millions of yen
2017

Thousands of
U.S. dollars
2018

¥—
—
—

¥3
3
—

$—
—
—

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, 2018and 2017 consisted of the following:

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

2018

Millions of yen
2017

Thousands of
U.S. dollars
2018

¥ 125
832
99
¥1,056

¥ 630
691
98
¥1,419$1,176
7,829
932$9,937

The average interest rates applicable to short-term bank loans outstanding as of March 31, 2018 and2017 are 0.5% and 0.4%, respectively.

52

2018 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, 2018 and 2017 consisted of the following:

Long-term debt, due through 2027 at average interest
rate of 0.4% and 0.4% in 2018 and 2017, respectively
Lease obligations due through 2030 in 2018 and 2017
Current portion of long-term debt and lease obligations
due within one year
Total

Millions of yen

Thousands of
U.S. dollars

2018

2017

2018

¥4,745510¥4,321576$44,650
4,799

(931)
¥4,324(789)¥4,108(8,761)$40,689

Interest 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 onsuch debt 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 ¥792 million ($7,453 thousand) and ¥490 million as of March 31, 2018 and 2017, 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 and Development Agency)) and lease obligations are summarized as follows:Year ending March 31,

2019
2020
2021
2022
2023

Millions of yen

Thousands of
U.S. dollars

¥931
918
382
275
258

$8,761
8,638
3,595
2,588
2,428

The annual maturities of long-term debt from Japan Science and Technology Agency (National Researchand Development Agency) are excluded from the above table because authorization date of success indevelopment 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.

2018 ANNUAL REPORT 53

Financial and Corporate Data

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
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)
depending on the equity account charged upon the payment of such dividends until the total of aggregate
amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation.
The Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capitalsurplus and retained earnings can be transferred among the accounts under certain conditions upon
resolution of the shareholders.
(c) Treasury Stock and Stock Option
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury
stock by resolution of the board of directors. The amount of treasury stock purchased cannot exceed theamount available for distribution to the shareholders, which is determined by specific formula. Under theCompanies Act, stock acquisition rights, which were previously presented as a liability, are now presented
as a separate component of net assets. The Companies Act also provides that companies can purchaseboth 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, 2018 and 2017 were ¥14,243 million ($134,027 thousand) and ¥13,569 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, 2018 and 2017 are as follows:
Millions of yen

Thousands of
U.S. dollars

2018

2017

2018

¥ —
—
50
0
¥ 50

¥ —
—
44
—
¥ 44

$ —
—
470
0
$ 470

¥ (40)
(27)
(35)
(102)
¥ (51)¥ (73)
(6)
(100)
(180)
¥(135)$(376)
(254)
(329)
(960)
$(480)Gain:
Buildings and structures
Machinery and vehicle
Land
Other
Loss:
Buildings and structures
Machinery and vehicle
Other
Total

54

2018 ANNUAL REPORT10. 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 andequity securities of companies with business relationships and are exposed to market risk and credit risk.
The Company and its consolidated subsidiaries regularly review the fair value and issuers’ financial condition
to mitigate the risks.
Operating payables such as notes and accounts payable are mainly due within six months. Certain
operating payables are denominated in foreign currencies.
Short-term bank loans are mainly used to finance operating capital, and long-term debts are used tofinance fund 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.
(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, 2018 and 2017
are as follows:
Millions of yen

Thousands of U.S. dollars

2018
Carrying
value

Fair value¥ 44,117¥ 44,117

47,86247,86250,217¥142,197

Notes and accounts payable ¥ 10,266

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

Total liabilities¥ 10,266

Difference

2018
Carrying
value

Fair value

Difference¥— $ 415,141 $ 415,141$——

450,381—

50,217¥142,197—
472,542
472,542¥— $1,338,073 $1,338,073—$—¥ 10,266¥ 10,266

¥— $
¥— $

$—
$—

450,381

96,603 $96,603 $96,60396,6032018 ANNUAL REPORT 55

Financial and Corporate Data

Millions of yen
2017
Carrying
value

Fair value

Difference

Cash and cash in banks¥ 43,619¥ 43,619¥—

Notes and accounts receivable

46,192
44,579¥134,392

46,192
44,579¥134,392——¥—¥ 11,157¥ 11,157¥ 11,157¥ 11,157¥—¥—

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

Unlisted securities and others of ¥1,097 million ($10,323 thousand) and ¥1,075 million whose fair values
are extremely difficult to determine as of March 31, 2018 and 2017, respectively, are not included in theabove tables.
Calculation method of fair value of financial instruments and information about securities are as follows:
Cash and cash in banks and Notes and accounts receivable
The carrying value is deemed as the fair value since it is scheduled to be settled in a short period of time.
Short-term investments and Investment securities
Fair value of equity securities is based on the price on stock exchanges and that of bonds is based on 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.
The redemption schedule for monetary receivables and securities with maturities subsequent to March 31,2018 is as follows:
Millions of yen
2018
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¥44,11747,862

¥

—
—

¥—
—

¥—
—

600
—
—
¥92,580

23,400—1,000¥24,400

—
—
—
¥—

—
—
—
¥—

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

56

2018 ANNUAL REPORTThousands of U.S. dollars
2018
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$415,141

$

—

$—

$—

Notes and accounts receivable

450,381

—

—

—

5,646
—
—
$871,177

220,194—
9,410$229,604

—
—
—
$—

—
—
—
$—

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

11. 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.
Certain consolidated subsidiaries have adopted the simplified method in calculating the retirement benefit
obligations.
Defined benefit plans(1) The changes in the retirement benefit obligation for the years ended March 31, 2018 and 2017 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
Prior service costs
Increase due to change from simplified method
to principle method
Retirement benefit obligation at the end of the year

2018

2017

2018

¥34,704
1,165
173
436
(1,420)228¥34,478
1,160
172
157
(1,264)—$326,564
10,963
1,628
4,103(13,362)2,145

479¥35,767—¥34,704

4,507$336,567(2) The changes in plan assets for the years ended March 31, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

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
Increase due to change from simplified method
to principle method
Plan assets at the end of the year

2018

2017

2018

¥33,441
668
(82)
959
(1,420)¥31,784
635
330
1,954
(1,264)$314,680
6,286
(772)
9,024
(13,362)389¥33,955—¥33,441

3,660$319,516

2018 ANNUAL REPORT 57

Financial and Corporate Data

(3) The changes in liability (asset) for retirement benefits for consolidated subsidiaries applying the simplified
method for the years ended March 31, 2018 and 2017 are as follows:
Millions of yen

Thousands of
U.S. dollars

2018

2017

2018

¥303

¥350

$2,851

Decrease due to exclusion from consolidation

128
(22)
(69)
(20)

53
(17)
(83)
—

1,204
(207)
(649)
(188)

Decrease due to change from simplified method
to principle method

(128)

—

(1,204)

¥191

¥303

$1,797

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(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, 2018 and 2017 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

2018

2017

2018

¥35,911(34,162)1,749
253¥ 2,002¥35,095(33,941)1,153
413¥ 1,567$337,922(321,464)
16,4582,381$ 18,839¥ 2,136(133)¥ 2,002¥ 1,676(109)¥ 1,567$ 20,100(1,252)$ 18,839

The above table includes defined benefit plans applying the simplified method.
(5) The components of retirement benefits costs for the years ended March 31, 2018 and 2017 are as follows:
Millions of yen

Service costs
Interest costs
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service costs
Retirement benefits costs based on the simplified method
Decrease due to change from simplified method
to principle method
Retirement benefits costs

58

2018 ANNUAL REPORT

Thousands of
U.S. dollars

2018

2017

2018

¥1,165
173
(668)
980
(39)

¥1,160
172
(635)
1,020
(67)

$10,9631,628(6,286)
9,222
(367)

128

53

1,204

(38)
¥1,699—¥1,704(358)$15,988

(6) Prior service costs and actuarial gain or loss included in other comprehensive income (before tax effect)
for the years ended March 31, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen
2017

2018

67
(1,194)¥(1,126)$ 2,522(4,338)$(1,807)2018

Prior service costs
Actuarial gain or loss
Total

¥ 268
(461)
¥(192)¥(7) Unrecognized prior service costs and unrecognized actuarial loss included in accumulated othercomprehensive income (before tax effect) as of March 31, 2018 and 2017 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

2018

2017

2018

¥ (136)
3,563¥3,426¥ (405)
4,024¥3,618$ (1,280)
33,528$32,239(8) Plan assets
The breakdown of plan assets is as follows:
Domestic debt securities
Domestic equity securities
Foreign debt securities
Foreign equity securities
General accountShort-term assets
Other
Total

2018

2017

—%
5.7
24.0
10.7
10.5
22.9
26.2
100.0%

41.3%
5.7
6.0
12.5
7.5
—
27.0
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

2018

2017

0.5%
2.0%

0.5%
2.0%

Defined contribution plans
The Company and its consolidated subsidiaries contributed ¥296 million ($2,795 thousand) and ¥306 million
to the defined contribution plans for the years ended March 31, 2018 and 2017, respectively.

2018 ANNUAL REPORT 59

Financial and Corporate Data

12. Income Taxes
Significant components of deferred tax assets and liabilities as of March 31, 2018 and 2017 are as follows:
Millions of yen

Thousands of
U.S. dollars

2018

2017

2018

¥1,187
719
28
91
249
125
830
—
906
586
—
131
1,160
6,016
(185)
5,831

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

$11,170
6,766
263
856
2,343
1,176
7,810
—
8,525
5,514
—
1,233
10,916
56,611(1,741)54,870Reserve for reduction entry of property,
plant and equipment(1,232)(1,330)(11,593)

Unrealized holding gain on other securities(4,428)(3,344)(41,667)

Prepaid pension cost

(573)
(126)
(6,360)¥ (529)(749)(3)(5,427)¥ 449(5,392)(1,186)(59,848)$ (4,978)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
Provision for loss on guarantees
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. A reconciliation of the statutory
tax rate to the effective tax rate for the years ended March 31, 2018 and 2017 are as follows:
Statutory tax rate
Entertainment expenses and others that are not tax
deductible permanently
Inhabitants’ per capita taxes
Tax credits for research and development expenses
Valuation allowanceInternal profit elimination
Other
Effective tax rate

60

2018 ANNUAL REPORT

2018

2017

30.9%

30.9%

1.4
1.1
(6.2)
1.3
(0.1)
(0.9)
27.4%

1.6
1.0
(3.4)
(3.4)
(0.9)
(1.0)
24.8%

13. Comprehensive Income
Reclassification adjustments and income tax effects on other comprehensive income for the years ended
March 31, 2018 and 2017 are as follows:
Millions of yen

Thousands of
U.S. dollars

2018

2017

2018

¥3,540—3,540(1,083)2,456¥(3,934)(3)(3,937)1,205(2,732)$33,311—33,311(10,191)
23,111

(31)

(45)

(292)

(747)
940
192
58
133

173
953
1,126
(344)
781

(7,029)
8,845
1,807
546
1,252

(0)
¥2,557

5¥(1,990)(0)$24,061

Unrealized holding gain (loss) on other securities:
Gain arising during the year
Reclassification adjustments
Before income tax effects
Income tax effects
Unrealized holding gain (loss) 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

14. Segment Information(a) Overview of Reportable Segments
The Company’s reportable segments are those for which separate financial information is available andregular examination by the board of directors is performed in order to decide how resources are allocatedamong the Company and evaluate their performance.
The Company has two reportable segments, the Ethical Pharmaceutical Business and the Consumer
Healthcare Business, which are classified based on similarities in terms of products and services.
The Ethical Pharmaceutical Business mainly produces, sells, and purchases ethical drugs and genericdrugs. The Consumer Healthcare Business mainly produces, sells, and purchases environmental hygiene
products and over-the-counter drugs.
(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.

2018 ANNUAL REPORT 61

Financial and Corporate Data(c) Information about Net Sales, Profit (Loss), Assets and Other Items by Reportable Segment
Millions of yen
2018
Reportable segment
EthicalPharmaceuticalBusiness

Consumer
Healthcare
Business

Total

Sales to third parties¥104,703¥5,937¥110,640¥—¥110,640Inter-segment sales or transfers

14¥104,718¥ 8,260¥164,079

0¥5,937¥ 187¥9,493

14¥110,655¥ 8,447¥173,572

(14)
¥
(14)
¥ 375
¥24,778—¥110,640¥ 8,822¥198,350

¥

¥

¥

¥

¥

Adjustments

Consolidated

Net sales:

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

3,285

52

3,338

306

3,644

603

—

603

—

603

3,413

29

3,443

98

3,541

Thousands of U.S. dollars
2018
Reportable segment
EthicalPharmaceuticalBusiness

Consumer
Healthcare
Business

Sales to third parties$ 985,255$55,867 $1,041,122$

Inter-segment sales or transfers

132$ 985,396$ 77,727$1,543,982

0
132$55,867 $1,041,263$ 1,760 $ 79,486$89,329 $1,633,311

(132)
—
$
(132) $1,041,122$ 3,529 $ 83,015$233,161 $1,866,472

$

$

$

Total

Adjustments

Consolidated

Net sales:

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

30,912489 $

31,411

5,674—

32,116273— $1,041,122

2,879 $

34,290

5,674

—

5,674

32,399922

33,321Millions of yen
2017

Reportable segment
EthicalPharmaceuticalBusiness

Consumer
Healthcare
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:
Depreciation and amortization
Investments in affiliates accounted
for using equity method
Increase in property, plant andequipment and intangible assets

622018 ANNUAL REPORT

3,236

58

3,294

324

3,619

581

—

581

—

581

2,863

103

2,967

98

3,065

1. “Adjustments” for “Segment profit (loss)” of ¥375 million ($3,529 thousand) and ¥308 million for the years
ended March 31, 2018 and 2017, respectively, were mainly eliminations of inter-segment transactions.
2. “Adjustments” for “Segment assets” of ¥24,778 million ($233,161 thousand) and ¥24,031 million asof March 31, 2018 and 2017, respectively, were the Company’s assets and offset of inter-segment
receivables and payables.
3. “Adjustments” for “Depreciation and amortization” of ¥306 million ($2,879 thousand) and ¥324 million
for the years ended March 31, 2018 and 2017, respectively, were depreciation of property, plant andequipment and intangible assets of the Company.
4. “Adjustments” for “Increase in property, plant and equipment and intangible assets” of ¥98 million ($922
thousand) and ¥98 million for the years ended March 31, 2018 and 2017, 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, 2018 and 2017.
(b) Information by Geographical Area
(1) Sales
Information about sales by geographical area is omitted for the years ended March 31, 2018 and 2017,
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, 2018 and 2017, 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, 2018 and 2017
Millions of yen
2018
Name of customer

Sales amount

Related segments

Alfresa Holdings Corporation¥19,562

Ethical Pharmaceutical Business, Consumer
Healthcare Business

SUZUKEN CO., LTD.

17,344

Ethical Pharmaceutical Business, Consumer
Healthcare Business

MEDIPAL HOLDINGS CORPORATION

16,248

Ethical Pharmaceutical Business, Consumer
Healthcare BusinessToho Pharmaceutical Co., Ltd.

13,351

Ethical Pharmaceutical Business, Consumer
Healthcare BusinessThousands of U.S. dollars
2018

Name of customer

Sales amount

Related segments

Alfresa Holdings Corporation$184,078

Ethical Pharmaceutical Business, Consumer
Healthcare Business

SUZUKEN CO., LTD.

163,207

Ethical Pharmaceutical Business, Consumer
Healthcare Business

MEDIPAL HOLDINGS CORPORATION

152,894

Ethical Pharmaceutical Business, Consumer
Healthcare BusinessToho Pharmaceutical Co., Ltd.

125,633

Ethical Pharmaceutical Business, Consumer
Healthcare Business2018 ANNUAL REPORT 63

Financial and Corporate Data

Millions of yen
2017
Name of customer

Sales amount

Related segments

Alfresa Holdings Corporation¥20,561

Ethical Pharmaceutical Business, Consumer
Healthcare Business

SUZUKEN CO., LTD.

18,251

Ethical Pharmaceutical Business, Consumer
Healthcare Business

MEDIPAL HOLDINGS CORPORATION

16,867

Ethical Pharmaceutical Business, Consumer
Healthcare BusinessToho Pharmaceutical Co., Ltd.

15,076

Ethical Pharmaceutical Business, Consumer
Healthcare Business(d) Information about Amortization and Unamortized Balance of Goodwill by Reportable Segment
There was no unamortized balance of goodwill as of March 31, 2018 and 2017.

15. Contingent Liabilities
Contingent liabilities as of March 31, 2018 and 2017 are as follows:

Guarantors of indebtedness of employees

Millions of yen

Thousands of
U.S. dollars

2018

2017

2018

¥6

¥7

$56

Yen

U.S. dollars

16. Amounts per Share
Amounts per share for the years ended March 31, 2018 and 2017 are as follows:
2018

Basic profit
Cash dividends
Net assets

¥

89.28
58.00
2,214.13

¥

2017

2018

99.45
58.00
2,146.83$ 0.840.55
20.83

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, 2018 and 2017.
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 1,068,358 and 1,255,816 for the years ended March 31, 2018 and 2017,
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 961,700 and 1,193,500 as of March 31, 2018 and 2017, respectively.

64

2018 ANNUAL REPORT17. Subsequent Events
Merger and Demerger among Wholly Owned Subsidiaries of the Company
Based on the resolution at a meeting of the Board of Directors held on December 19, 2017, the Company
had KYORIN Pharmaceutical Group Facilities Co., Ltd. (Chiyoda-ku, Tokyo), a consolidated subsidiary of theCompany, acquire the Noshiro Plant (Noshiro, Akita) of KYORIN Pharmaceutical Co., Ltd., a consolidated
subsidiary of the Company, and the Production Division (Nanto, Toyama) of KYORIN Rimedio Co., Ltd., aconsolidated subsidiary of the Company, through an absorption-type company demerger and acquire
KYORIN Pharmaceutical Facilities Co., Ltd. (Koka, Shiga), a consolidated subsidiary of the Company, throughan absorption-type merger effective as of April 1, 2018.
1. Purpose of the absorption-type demerger and the absorption-type merger
One of the priority strategies of the Group’s medium-term business plan (2016–2019), HOPE 100 Stage 2, is“Enhanced low cost structure: Reform of the cost structure through optimization within the Group” and theGroup has been conducting the overall optimization of production operations through collaborations between
its Group companies. The Group is aiming at leveling of capacity utilization and the efficient use of assets,
and the building of a competitive Group production structure for consistently providing high-quality products
at low cost by consolidating the production functions.
2. Outline of the absorption-type demergers(1) Outline of the companies involved in the absorption-type demergers
Demerged companies

Successor company

1. NameKYORIN PharmaceuticalCo., Ltd.

KYORIN Rimedio Co.,Ltd.

KYORIN Pharmaceutical
Group Facilities Co., Ltd.
(Newly established in
October 2017)

2. Head office

6, Kanda Surugadai
4-Chome Chiyoda-ku,
Tokyo

287-1, Shimocho,
Moroe-Cho, KanazawaCity, Ishikawa

6, Kanda Surugadai
4-Chome Chiyoda-ku,
Tokyo

3. Representative

Minoru Hogawa

Hiroshi Hashizume

Michiro Onota

4. Businessdescription

Manufacture and salesof prescription medicine

Manufacture and salesof prescription medicine

Manufacture and salesof prescription medicine

5. Year of
establishment

1940

1947

2017

6. Closing date

March 31

March 31

March 31

(2) Date of the demergers
April 1, 2018(3) Legal form of the demergers
Absorption-type demerger with KYORIN Pharmaceutical Co., Ltd. and KYORIN Rimedio Co., Ltd. as
the demerged companies and KYORIN Pharmaceutical Group Facilities Co., Ltd. (Chiyoda-ku, Tokyo)
as the successor company(4) Outline of the accounting treatment
The Company applied the accounting treatment stipulated by the Accounting Standard for Business
Combinations (ASBJ Statement No. 21, September 13, 2013) and the Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures (ASBJ GuidanceNo. 10, September 13, 2013) for the transaction under common control.

2018 ANNUAL REPORT 65

Financial and Corporate Data

3. Outline of the absorption-type merger(1) Outline of the companies involved in the absorption-type mergers
Surviving company

Absorbed company

1. NameKYORIN Pharmaceutical Group
Facilities Co., Ltd.
(Newly established in October 2017)

KYORIN Pharmaceutical Facilities
Co., Ltd.

2. Head office

6, Kanda Surugadai 4-Chome
Chiyoda-ku, Tokyo

1-4 Sasagaoka, Mizukuchi-cho,
Koka, Shiga

3. Representative

Michiro Oonota

Kei Takahashi

4. Businessdescription

Manufacture and sales of prescription
medicine

Manufacture and sales of prescription
medicine

5. Year of
establishment

2017

2012

6. Closing date

March 31

March 31

(2) Date of the merger
April 1, 2018(3) Legal form of the merger
Absorption-type merger with KYORIN Pharmaceutical Group Facilities Co., Ltd. (Chiyoda-ku, Tokyo) as
the surviving company and KYORIN Pharmaceutical Facilities Co., Ltd. (Koka, Shiga) as the absorbed
company(4) Outline of the accounting treatment
The Company applied the accounting treatment stipulated by the Accounting Standard for Business
Combinations (ASBJ Statement No. 21, September 13, 2013) and the Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures (ASBJ GuidanceNo. 10, September 13, 2013) for the transaction under common control.

66

2018 ANNUAL REPORT

Independent Auditor’s Report2018 ANNUAL REPORT 67

Financial and Corporate Data

Corporate Overview/Stock Information (As of March 31, 2018)

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

26.7%

1.3%

Shareholders

8,349

Outstanding Shares 74,947,628

15.4%

Shareholders

8,349

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

17.5%■ Financial institutions■ Financial instruments firms■ Other corporations■ Foreign corporations■ Individuals and other

Percentage of shares held

TEIJIN LIMITED
Mykam Co., Ltd.
The Master Trust Bank of Japan, Ltd.
(Trust Account)
Japan Trustee Services Bank, Ltd.
(Trust Account)
Banrina Co., Ltd.
Archans Co., Ltd.
Yutaka Ogihara
Kyorin Group Stock Ownership Association
Mariko Ogihara
Hiroko Ogihara

39.0%

19.17%
5.14%

17.5%
1.3%
39.0%
15.4%
26.7%

3.21%
2.97%
2.60%
2.60%
2.49%
2.40%
2.35%
2.33%

Kyorin Group Website
Please visit the Kyorin Group website for the latest information about the Group and earnings-related materials.

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

68

2018 ANNUAL REPORTThe Kyorin Group
Consolidated Subsidiaries
KYORIN Pharmaceutical Co., Ltd.
Capital:¥4,317 million
Percentage of ownership: 100%
Head office: 6, Kanda Surugadai 4-chome,
Chiyoda-ku, Tokyo 101-8311
Operations: Drug discovery business, manufactureand sales of drugs (ethical drugs,
over-the-counter drugs and others)

KYORIN Rimedio Co., Ltd
Capital:¥1,200 million
Percentage of ownership: 100%
Head office: 287-1, Shimocho Moroe-cho,Kanazawa-shi, Ishikawa 920-0017
Operations: Manufacture and sales of 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 specifi c 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 Group 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 handles the environmental hygiene business,
which is being positioned as one of the core operations of the Kyorin
Group’s healthcare business. The company is also involved in a wide rangeof communications businesses, focusing on the planning and productionof pharmaceutical-related advertising, and contributes to society as amember of a corporate group that aims to support healthy lifestyles.

Capital:¥350 million
Percentage of ownership: 100%
Head office: 6, Kanda Surugadai 4-chome,
Chiyoda-ku, Tokyo 101-8311
Operations: Manufacture, sales, imports, andexports of prescription medicines

As a new pharmaceutical manufacturing subsidiary, KYORIN Pharmaceutical Group Facilities was created through the merger of KYORIN Pharmaceutical’s Noshiro Plant, KYORIN Rimedio’s Manufacturing Division, and theformer KYORIN Pharmaceutical Facilities (Koka City, Shiga Prefecture), andcommenced full-scale operations on April 1, 2018. By consolidating theGroup’s manufacturing functions, the company provides a stable supply ofhigh-quality, low-cost pharmaceuticals, and aims to be an independent
pharmaceutical manufacturing subcontractor that is relied upon by othercompanies both inside and outside the Kyorin Group.

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.
Capital:¥411 million
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.

2018 ANNUAL REPORT 69

ANNUAL REPORT
Year ended March 31, 2018

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 JapanKYORIN Holdings, Inc.

2018