ANNUAL REPORT

2019

Year ended March 31, 2019

KYORIN Holdings, Inc.

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

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

Long-Term Vision

HOPE100(Aim for Health Of People and our Enterprises)

Statement
7KH.\RULQ*URXSZLOOSURPRWHGLYHUVLŰHGKHDOWKFDUHEXVLQHVVH[SDQVLRQDQGE\EHUHFRJQL]HGERWKZLWKLQDQGRXWVLGHDVDFRPSDQ\WKDWVXSSRUWVVRXQGDQGKHDOWK\OLIHVW\OHVFive HOPEs• Be a company that contributes to people’s healththrough the Consumer Healthcare Business• Be a company that promotes business expansion overseas
An International
Company that Supports
Healthy Lifestyles
Around the World• Be a company employees can be proud of,have trust in, and make united efforts for

The Leading
Company for Career
Fulﬁllment

A Company that
Sustains Growth• Be a company that maintains
positive business results
and excellent ﬁnancial standing

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

A Company that
Seeks to Co-Exist
with Society• Be a company that works to foster positive relationships
with society• Be a company that acts with the social good in mindC O N T E N T S
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Interview with the President・
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History of the Kyorin Group ・
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Overview of HOPE100–Stage 2–・・ 15
Medium-Term Business Plan ・Directors, Corporate Auditors, and Corporate Ofﬁcers ・・・ 32

Ethical Drugs Business ・
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Healthcare Business ・
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A Message from an Outside Director・
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The Kyorin Group’s Core
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Companies and Businesses
The Kyorin Group’s Vision
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Performance Highlights ・
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Financial Analysis ・
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Consolidated Financial Statements ・
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Notes to Consolidated Financial Statements ・
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Independent Auditor’s Report ・
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Editorial Policy

Annual Report 2019 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 2018 (April 1, 2018 to March 31, 2019); some information also relates to ﬁscal 2019 activities.

About the Kyorin GroupTo Our Stakeholders

Minoru Hogawa
Representative Director andChairmanYutaka Ogihara
Representative Director, President andChief Executive Ofﬁcer

Based on our corporate philosophy, “Kyorin continues to fulﬁll its mission ofcherishing life and beneﬁting society by contributing to better health,” the Kyorin
Group is working to achieve the HOPE100 long-term vision for 2023, which will
mark the 100th anniversary of the founding of our core subsidiary, KYORIN
Pharmaceutical Co., Ltd. We are comprehensively integrating our core ethicaldrugs business and healthcare business with a view toward the enhancementof corporate value over the medium to long term, with the aim of dispersing
business risks and achieving healthy, continuous growth as “a company that
supports sound and healthy lifestyles.”Your Health Is Kyorin’s Mission.

2 2019 ANNUAL REPORTExecuting the HOPE100–Stage 2– medium-termbusiness plan under a new management structure,for steady “transformation” and continuous growthWith the drastic reform of the drug pricing system as part of the government’s bold measures tocurtail outlays for social security costs, the operating environment for Japan’s pharmaceuticalindustry is undergoing dramatic changes more rapidly than had been foreseen.
For the Kyorin Group, ﬁscal 2019 is the ﬁnal year under the HOPE100–Stage 2– medium-termbusiness plan. Over the past three years, the Group has been able to address a variety of management
issues to overcome the effect of the expiry of the patent on one of our main products, and in ﬁscal
2019, turn around to an underlying trend of revenue and proﬁt growth. Nevertheless, we expect thechanges taking place in the operating environment for pharmaceutical companies to present evengreater challenges. Given this situation, we have determined that a new management team for the next
generation of management would be optimal for the formulation and implementation of the next
medium-term business plan, and we launched this new structure with Minoru Hogawa as
Representative Director and Chairman and Yutaka Ogihara as Representative Director, President
and Chief Executive Ofﬁcer, from June.
Under this new structure, we will work with all Group employees as one during ﬁscal 2019 toachieve the HOPE100–Stage 2– targets, while at the same time steadily implementing “transformation”
for continuous growth and formulating the new HOPE100–Stage 3– medium-term business plan,
which will mark the achievement of the HOPE100 long-term vision.
We ask for the continued understanding and support of all of our stakeholders.
July 2019

Minoru Hogawa

Yutaka Ogihara

Representative Director and Chairman
KYORIN Holdings, Inc.

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

2019 ANNUAL REPORT 3

About the Kyorin Group

History of the Kyorin GroupKYORIN Pharmaceutical Co., Ltd., the core company of the Kyorin Group, was established 96 years ago. Over that time,
we have continuously created new drugs to fulﬁll our social mission of contributing to the treatment and preventionof disease, and to the maintenance and promotion of health. As we approach our 100th anniversary, we willcontinue to evolve as a “Company that supports sound and healthy lifestyles” under our HOPE100 long-term vision.

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.).
•1981
Mucodyne, a mucoregulant, was launched.
•1982
Norﬂoxacin (NFLX) was licensed to Astra(Sweden, present AstraZeneca) and Liade(Spain, 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.

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

•1986
Fleroxacin (FLRX), an antibacterial agent, was licensed toF. Hoffmann-La Roche (Switzerland).
•1989
Ketas, for bronchial asthma and cerebrovasculardisorders, 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.).
•2000
Gatiﬂoxacin eyedrops was licensed to Allergan (U.S.A.).
•2001
Kipres, a leukotriene receptor antagonist and bronchialasthma treatment medicine, was launched.
•2002
Gatiﬂo (GFLX), a broad-spectrum oral antibacterial agent,
was launched.

VisionManagement-related events

1923 1970

1971

2004

•1923

•1977

•1998

Toyo Shinyaku Sha, the predecessor of KYORIN
Pharmaceutical Co., Ltd., was founded.
•1931
Kyorin Chemical Laboratory was established.
•1940
Kyorin Chemical Laboratory was renamed
KYORIN Pharmaceutical Co., Ltd., and Kyorin
Yakuhin Co., Ltd. was organized as an independent
marketing division.
•1947
The Okaya Plant was started.
•1957
The medical journal bulletin “Doctor Salon” wasstarted.
•1962
Kyorin Chemical Laboratory (later Technical Center ofDevelopment) was established.
•1965
The Head Ofﬁce was completed in Kanda Surugadai.

Central Research Laboratories were established.
•1992
KYORIN Pharmaceutical Co., Ltd. and Kyorin
Yakuhin Co., Ltd. were merged, and the new
KYORIN Pharmaceutical Co., Ltd. was founded.
•1995
The Noshiro Plant was started.
•1996
A joint venture, Nisshin KYORIN PharmaceuticalCo., Ltd., was established with Kyorin’s capital
participation.
The Research Center (now the WATARASE
Research Center) was founded.

Milton, an effervescent disinfectant business, wasacquired from P&G.
•1999
Listed on the Tokyo Stock Exchange, Second Section.
•2000
Listed on the Tokyo Stock Exchange, First Section.
•2001
A subsidiary company, Kyorin USA, Inc. (U.S.A.), wasestablished.
•2002
A subsidiary company, Kyorin Europe GmbH (Germany),
was established.
•2004
ActivX Biosciences, Inc. (U.S.A.) became a wholly owned
subsidiary.

4 2019 ANNUAL REPORT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
to plant ﬁve apricot tree saplings and those cured of minor illness to plant one. As time went by, a thick forest of apricot trees wasformed in the area. (A story that comes from a Chinese legend named Shinsen-den) “Kyorin” is a compound of “kyo,” the Chinese
word for “apricot,” and “rin,” the Chinese word for “woods.” Praising the virtue of Dong Feng, the characters were transported from
China to Japan as those representing medicine and medical treatment in general.

O2015
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.

•2007

Uritos Tablets 0.1 mg, an overactive bladder drug, was launched.
Kipres Fine Granules 4 mg, a bronchial asthma treatment drug, was launched.
A business transfer agreement was made with the Fresenius Kabi AG Groupin Germany concerning Hespander and Salinhes, plasma substitutes andO2016
hemodilution agents.
Montelukast Tablets “KM” was launched.
•2008
Desalex 5 mg Tablets, an antiallergic agent, was launched.
Kipres Tablets 5 mg, a bronchial asthma and allergic rhinitis treatment drug,
O2018
was launched.
Signed a license agreement with SANWA KAGAKU KENKYUSHO CO., LTD. for KRP-N118•2010(SK-1404), a therapeutic agent for the treatment of nocturia, covering Japan and Asia.
Mucodyne DS 50%, a mucoregulant, was launched.
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.
•2011
Beova Tablets 50mg, an overactive bladder drug, was launched.
Uritos Orally Disintegrating (OD) Tablets 0.1 mg, an overactive bladder drug,
was launched.
•2012
RUBYSTA, a multi-purpose disinfectant cleaner, was launched.
Transfer of business related to a topical antifungal prescription
drug Pekiron cream 0.5% to Galderma S.A. (Switzerland).
•2013
Medium-Term
Medium-Term
Medium-Term
Pentasa Suppositories 1 g, a treatment for ulcerative colitis,
Business Plan
Business Plan
Business Plan
was launched.
FY2016 – FY2019
FY2020 – FY2023
FY2010 – FY2015
Flutiform, a combination drug for asthma treatment, was launched.
•2014
Signed a license agreement concerning Vibegron, a therapeutic
agent for overactive bladder, with Merck & Co. (U.S.A.).

Stage 2

Stage 1

Stage 3

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

2019

2005

•2005
The stock of Toyo Pharma Co., Ltd. (present KYORIN Rimedio Co., Ltd.) was acquired,making it into a subsidiary company.
Dr. Program Co., Ltd. became a wholly owned subsidiary.
•2006
The Kyorin Group shifts to a holding company structure through a share exchange withKYORIN Co., Ltd.
The new Noshiro Plant began operating.
•2008
KYORIN Pharmaceutical Co., Ltd. merged with Nisshin Kyorin Pharmaceutical Co., Ltd.
•2010
KYORIN Co., Ltd. changed its name to KYORIN Holdings, Inc.
•2012
The 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.

2023

•2015
KYORIN Pharmaceutical Co., Ltd.’s WATARASE Research Center was established.

•2017
All shares of Dr. Program Co., Ltd. were transferred to Taisho Pharmaceutical Co., Ltd.
KYORIN Rimedio Co., Ltd.’s Takaoka Drug Discovery Laboratory was established.
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.
(head ofﬁce: Tokyo), commences operations.

2019 ANNUAL REPORT 5

About the Kyorin GroupThe Kyorin Group’s Core Companies and Businesses
The Kyorin Group is organized under the holding company KYORIN Holdings, Inc., with KYORIN PharmaceuticalCo., Ltd. as its core subsidiary operating an ethical drugs business and a healthcare business. The ethicaldrugs business is proactively engaged in proprietary drug discovery, while at the same time developing,
manufacturing, and selling new drugs and generic drugs. The healthcare business primarily handles products
related to environmental hygiene and over-the-counter drugs.

The Kyorin GroupKYORIN
Pharmaceutical Co., Ltd.

KYORIN
Medical Supply Co., Ltd.

Drug discovery business,
ethical drugs, over-the-counter
drugs and others

Environmental hygiene,
sales promotion, planningand production of advertising

KYORIN Holdings, Inc.
Holding company responsible forfunctions including formulationand implementation ofGroupwide management
strategies

KYORIN
Rimedio Co., Ltd.
Generic drugs, over-the-counter
drugs and others

KYORIN Pharmaceutical
Group Facilities Co., Ltd.
Manufacture and sales of drugs

Breakdown of net sales by business
Healthcare Business¥5.8 billion

Ethical Drugs Business¥107.9 billion

5.1%

94.9%

Generic drugs

25.8%

New drugs in Japan
New drugs overseas

0.7%

6 2019 ANNUAL REPORT

68.4%

Main Products in Four Areas
Respiratory and Otolaryngology
Flutiform

Net sales

11.9(Billions of yen)

13.1

10.1

General name: Fluticasone/Formoterol
Indication:
Bronchial asthma
Released:
2013

7.2
3.6

ICS/LABA: ¥120 billion
Market share in FY2018: 12%
2014

2015

2016

2017

2018

(FY)

Otolaryngology
Desalex

Net sales(Billions of yen)

General name: Desloratadine
Indication:
Allergic disease
Released:
2016

4.9
3.7

Co-promotion with Kaken Pharmaceutical Co., Ltd.,in field of dermatology

1.0

Antihistamine: ¥160 billion
Market share in FY2018: 3%

2016

2017

2018

7.5

7.2

7.3

(FY)

Urology
Uritos

Net sales(Billions of yen)

7.3

General name: Imidafenacin
Indication:
Overactive bladder
Released:
2007

7.5

0.7

Co-development and co-marketing with Ono PharmaceuticalCo., Ltd. (sold by Ono Pharmaceutical under the nameStaybla®)

Beova

6.6

2014

2015

2016

2017

2018

(FY)

Uritos Beova

General name: Vibegron
Indication:
Overactive bladder
Released:
2018

OAB: ¥90 billion
Market share in FY2018: 8% (Uritos)
1% (Beova)

Co-development and co-marketing with Kissei
Pharmaceutical Co., Ltd.

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

IBD: ¥40 billion
Market share in FY2018: 38%

Net sales(Billions of yen)

17.2

13.7

16.1
0.5
12.1

15.5

15.3

3.6

5.0

8.5

6.9

13.5
5.5
5.1

3.5

3.5

3.4

3.4

3.0

2014

2015

2016

2017

2018

(FY)

Topical preparation Tablets Granules

2019 ANNUAL REPORT 7

About the Kyorin GroupThe Kyorin Group’s
Vision and Value
Creation Process

The Kyorin Group aims to be a “Company that supports soundand healthy lifestyles,” based on our HOPE100 long-term vision
for 2023, the 100th anniversary of our founding. The source ofour value creation is the continuous creation and supply of new
drugs that contribute to the health of people around the world.
With ethical drugs as our core business, we disperse businessrisks through combinations with our healthcare business and also
work to address social issues from an environmental, social, andgovernance (ESG) perspective, with the aim of continuous growth.

8 2019 ANNUAL REPORTCorporate Vision for 2023

HOPE100

Long-Term Vision
Aiming to Evolve as a Company That Supports Sound and Healthy Lifestyles

Value Provided to Stakeholders
Creation of new
innovative products

Providing outstanding
quality products
and services

Kyorin’s
strengths

Enhancing the qualityof life of patientsand their families

Responding to unmet
medical needs

Combating infectious
disease throughenvironmental
hygiene, diagnosis,
and medical treatment

The Kyorin Group’s Business Activities
We are developing our business through combinations of ethical drugs and healthcare businesses fromthe perspective of enhancing corporate value over the medium to long term.

Ability to identify
novel targets

Ethical Drugs Business• Pursuing the challenge of ﬁrst-in-class drug discovery

Drug discovery • Utilizing open innovation
Development
pipeline thatprioritizes speciﬁc
ﬁelds• Creating markets with new drugs

Research/
Development• Increasing the ratio of the new drugs group*

New drugs
business• Establishing a presence in speciﬁc ﬁelds(respiratory, otolaryngology, urology)*New drugs group: drugs that are already launched,which are protected by patents and exclusivity

Relationships oftrust with medical
professionals in
speciﬁc ﬁelds

Sales

Stable supply ofgeneric drugs
with the samehigh quality as
new drugs

Production

Optimized Group
manufacturing
structure

Generic drugs
business• Promoting businesses that use the beneﬁts ofhandling new drugs in-house• Proactive initiatives in authorized
generics (AG)Healthcare Business
Environmental
hygiene• Working to grow into a core business

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

Environmental, Social, and Governance (ESG) Activities
Group-Related Social Issues•Rapidly aging population•Unmet medical needs•Combating infectious diseases•Existing in harmony with local communities•Addressing the increasing sophistication of medical technologies in areas including artiﬁcial intelligence (AI), the internet of things (IoT), and life sciences•Increasing medical costs•Diversifying medical needs•Human resource development•Social contribution

2019 ANNUAL REPORT 9

Strategy to Achieve Continuous GrowthInterview with
the President

All Group employees working
as one for steady transformation
to secure a new path for growth
Yutaka Ogihara
Representative Director, President
and Chief Executive Ofﬁcer

10 2019 ANNUAL REPORTQ

Please give us an overview of businessresults for ﬁscal 2018.

A

We overcame the effect of the patent expiry for
Kipres, one of our main products, and achieved/
recorded our ﬁrst revenue and proﬁt growth in
three years.

Japan’s pharmaceutical industry experienced slow market
growth during ﬁscal 2018, mainly due to drug pricerevisions (an industrywide average 7.5% reduction) as
part of an extensive reform of the drug pricing system.
For the Kyorin Group, ﬁscal 2018 was the third year
under the HOPE100–Stage 2– medium-term businessplan, and under the management policy of “implementing
speedy transformation,” we strove to strengthen ourplatform for growth and enhance our earnings strength.
In terms of business results for the year, we were able toovercome the effect of the patent expiry for Kipres, oneof our main products, and record increases in sales andproﬁt for the ﬁrst time in three years. With regard to new
drugs in Japan, sales of Desalex declined from theprevious year, from the effect of a voluntary recall by the
manufacturer and distributor MSD K.K. following thediscovery of a procedural ﬂaw in a storage facility for theactive pharmaceutical ingredient, but in addition to sales
growth for Flutiform, contributions from the market launchof Beova and the transfer of distribution rights in Japan
for Nasonex resulted in a ¥4.0 billion increase from theprevious year for sales of new drugs in Japan.
Sales of new drugs overseas declined ¥2.5 billion fromthe previous ﬁscal year, in the absence of the previous
year’s one-time revenue associated with development
progress for the out-licensed FPR2 agonist program.
Generic drugs recorded sales growth of ¥1.6 billion on
increased sales including generics released during ﬁscal
2018. The healthcare business saw increased sales ofRubysta but sales of other products declined, resulting inan overall decrease of ¥0.1 billion. As a result, consolidated net sales for ﬁscal 2018 rose 2.7% from the previous
year, to ¥113,620 million.
In terms of proﬁt, drug price revisions had the effect ofraising the cost of sales ratio, and in the absence of theprevious year’s one-time revenue under an out-licensing

contract, gross proﬁt declined, but this was absorbed byfactors including a reduction in R&D expenditures and as
a result, operating income rose 1.7%, to ¥8,972 million.

Q

What are the main points of yourbusiness strategy for ﬁscal 2019?

A

We will use new drugs to secure a path ofgrowth, to ensure continuous growth.

Drug price revisions associated with the consumption tax
increase are anticipated in ﬁscal 2019, and we expect anincreasingly challenging operating environment in thedomestic pharmaceutical market. We certainly feel like
we are on an escalator that is going down, and I believethat growth can only be achieved by climbing upward at
an even greater speed.
Although we face a difﬁcult operating environment, ournew drugs give the Kyorin Group an opportunity for
growth, and ﬁscal 2019 will be an important year for
reinforcing our platform for medium-term growth. We will
work to ensure continuous growth by creating newmarkets through the increased prescription of Beova,
owing to the elimination of restrictions on dosage periods,
and the release and early market penetration of thequinolone synthetic antibacterial agent KRP-AM1977X.
Speciﬁcally, we will pursue the speedy implementationof the following six items to secure a path of growth.
1. Creating original new drugs with global potential
First-in-class drug discovery requires the identiﬁcationof new targets, and we intend to expand our feasibility
research to an even greater degree through proactive
outside collaboration and the acquisition of new technologies. KYORIN Pharmaceutical also established a
new Discovery Research Planning Division in April as anorganizational restructuring to strengthen our drug
discovery strategy function.
2. Continuous drug discovery
With regard to the discovery pipeline, along with reexamining target diseases and in addition to low molecularweight drug discovery, we are proactively introducing

2019 ANNUAL REPORT 11

Strategy to Achieve Continuous Growthnecessary technologies from outside in areas like nucleic
acid medicines as we pursue continuous drug discovery
that overrides the framework of our past drug discovery.
Our target going forward is to have a development pipelinethat is able to bring at least one project to market each year.
3. Creating markets with new drugs
In addition to our three main drugs—Flutiform, Desalex,and Beova—with the expected market launch for KRPAM1977X, we are pursuing the challenge of creating
markets by centering on four products. Our futuretargets are for Flutiform to achieve a 30% market sharein terms of volume, for Desalex to become the mostprescribed drug in the ﬁeld of otolaryngology, and for
Beova to achieve a 30% share in terms of the number ofprescribed patients. Our target for KRP-AM1977X after
the introduction to market is to be the most prescribeddrug in terms of the number of prescribed patients forrespiratory and otolaryngology diseases.
Creating markets with new drugs also requires transformation in marketing activities. We expect stricter
regulation to make it increasingly difﬁcult to differentiate
ourselves from our competitors, and will work to establish a marketing style that anticipates these changes in ashort time.
4. Accelerating growth and increasing theearnings strength of peripheral businesses
The generic drug business is pursuing a two-pronged
growth strategy of proactively incorporating authorized

generics and strengthening the business’s driving force(products developed in-house). The strength of the Kyorin
Group’s generic drugs business lies in the fact thatdevelopment, manufacturing, and sales are all handledwithin the Group. During ﬁscal 2019, we plan to bring an
authorized generic of Nasonex to market and to pursue
the development of new authorized generic products.
At the diagnostic business, during ﬁscal 2019 we plan
to commercialize reagents for research and measuring
devices, with the aim of starting to sell an extracorporeal
diagnostic agent in 2021. Along with its main environmental hygiene products, the healthcare business aims
to build a business model based on treatment, diagnosis,
and prevention in the ﬁeld of infectious diseases.
5. Pursuing low-cost operations
With an annual drug price revision within sight, lowering
manufacturing costs is an important issue. In addition to cost
reductions from the integration of KYORIN Pharmaceutical
Group Facilities Co., Ltd., we are working to remove
manufacturing imbalances among plants promptly under a
new manufacturing structure. We are also looking for
streamlining through overall examinations of the supply
chain with a view toward drastic improvements while
maintaining stable supplies, and in human resources byassigning the appropriate persons to the appropriate
positions.
6. Improving employee satisfaction by promoting
understanding of and improving the humanresource management system
We will continue to work to ensure that employees
understand the human resource management system,
while also promoting work style reform based on employee feedback.

Q

Please tell us about the progress
being made under the HOPE100–Stage
2– medium-term business plan
covering ﬁscal 2016 through 2019.

A

We are making progress under a policy of“Promoting sustainable growth throughinnovative changes (changes and innovations)
to realize our long-term vision.”

The HOPE100–Stage 2– medium-term business plan
designates four priority strategies: ﬁrst-in-class drug
discovery, increasing the ratio of the new drugs group,
promoting the generic drugs business by making the mostof its characteristics, and enhancing cost reductions, aswell as two development strategies, which we are pursuing
as we strive to achieve the targets.
With regard to ﬁrst-in-class drug discovery, we havesucceeded in establishing a drug discovery structure to

12 2019 ANNUAL REPORT

a certain degree. In addition to proprietary drug discovery
through cooperation between the WATARASE ResearchCenter in Japan and ActivX Biosciences of the UnitedStates and open innovation with domestic and overseas
pharmaceutical companies, academic institutions, andventure start-ups, we are striving to revitalize existing drug
discovery platforms and to make use of and cultivate
new technologies including peptides and gene therapy.
In addition, since ﬁscal 2018 we have been pursuing
selection and concentration in drug discovery programs
and working toward multilayered program development,
while at the same time proactively identifying and implementing external drug discovery programs. To increase
the ratio of the new drugs group, we are moving forward
without delay in the progress of the development pipeline
and although we have successfully launched Beova,
there have been some delays in the development of
KRP-AM1977X that will still need to be resolved. The
ratio of the new drugs group fell from 56% in ﬁscal 2015
to 29% in ﬁscal 2017, but rebounded to 41% in ﬁscal
2018, and we will promote Flutiform, Desalex, and Beova
to the fullest extent possible and work to be certain to bring
KRP-AM1977X to the market and quickly be popularized
as we work to create markets as a way of accelerating
our return to growth.
We are promoting the generic drugs business bymaking the most of its characteristics under a dual strategy
of increasing authorized generics and expanding ourlineup of products developed in-house (quality enhancement and expansion of the number of products), as wework to strengthen our development capabilities by quickly
establishing a development structure.
To enhance cost reductions, KYORIN Pharmaceutical
Group Facilities Co., Ltd., which was established throughthe consolidation of the Group’s manufacturing functions,commenced full-scale operations in April 2018, and thishas achieved a certain degree of cost reductions. Goingforward, we will work toward further cost reductions byremoving manufacturing imbalances among our plants.

Q

What management indicators
are you targeting?

A

As the ﬁnal year under the medium-termbusiness plan, we will follow through on ourefforts to achieve our numerical targets forﬁscal 2019.

Fiscal 2019 is the ﬁnal year under the HOPE100–Stage
2– medium-term business plan, which covers ﬁscal 2016
through 2019, so please allow me to explain the correlation
with the management indicators we have set as four-yeartargets.
Our numerical targets for Stage 2 are for averageannual growth of at least 3% in consolidated net sales,

and a consolidated operating income margin of at least
15%. However, with delays in the development of KRPAM1977X, the licensee’s discontinuing development of theimmunomodulator KRP-203, and a decline in sales fromthe temporary halt in supplies of Desalex and so forth,
the trend in results is below our original projections, andwe are now forecasting consolidated net sales of ¥114.1
billion, with operating income of ¥9.1 billion, for ﬁscal 2019.
In terms of the management indicator targets, this represents an average annual decline of 1.1% for consolidated
net sales, and a consolidated operating income marginof 8%.
In terms of capital policy, with a recovery in businessresults being expected to some extent and in light of theGroup’s ﬁnancial foundation, in ﬁscal 2018 we changed
course to emphasize capital efﬁciency and the further
enhancement of shareholder value. With a basic policy ofmaintaining a healthy ﬁnancial foundation while raising
capital efﬁciency through investments for growth andreturns to shareholders, and taking into account thedividend on equity (DOE) ratio, we strive to maintain astable dividend as returns to shareholders.
We aim to achieve our ﬁscal 2019 targets for net sales
and operating income by pursuing the six priority initiatives outlined above.

2019 ANNUAL REPORT 13

Strategy to Achieve Continuous Growth

Q

Please tell us about yourenvironmental, social, andgovernance (ESG) initiatives.

A

We are strengthening our human resource
development and corporate governance for thecontinuous enhancement of corporate value.

In the course of our business activities, we are taking
greater interest in responding to the calls from global
society to contribute to the resolution of environmental
and social issues. The Kyorin Group is strengthening its
ESG initiatives based on a recognition that contributing
to all stakeholders—patients and medical practitioners,
shareholders and investors, employees, business partners,
and local communities—is essential for the enhancementof corporate value and continuous growth.
In addition to the proactive, continuous creation of
innovative new drugs that are the source of the Group’s
value creation and contributing to people’s health, the
HOPE100 long-term vision designates compliance andrisk management, human resource management, environmental management, and social contribution activities
as important themes, and we are working on ESG issues
as a corporate citizen. Speciﬁcally, based on the belief thatthe vitality of employees and the organization is the driving
force behind a company’s growth, we value employees
and aim to be their ﬁrst choice as a satisfying place towork, as we continue to implement our human resource
management system and promote work-style reform,
while also preserving the environment with a sense of
cohabitation with local communities, and continuously

14 2019 ANNUAL REPORT

developing new social contribution activities in which all
employees participate.
In terms of corporate governance, we have put in placea management environment that will be trusted by society,and to reinforce this, we are working to implement swift
decision-making, strengthen oversight functions for appropriate management, and maintaining transparency in our
corporate activities, which are ﬁrmly rooted in our corporate philosophy. In addition to Noriyuki Shikanai and Ken
Shigematsu, in June 2019 Hiromi Watanabe joined theBoard of Directors as an Outside Director. With the advice
they provide based on their extensive experience in various
ﬁelds, Outside Directors are invigorating the deliberationsof the Board of Directors and acting as a stronger checkon its activities. By strengthening our ESG initiatives inthese ways, we are working for the enhancement ofcorporate value and continuous growth going forward.

Q

Having taken ofﬁce as President
and Chief Executive Ofﬁcer, whatmessage do you have for stakeholders
regarding your aspirations anddetermination?

A

I want to ensure that we implementtransformation and build a foundation
for growth.

I recognize that my mission is not only to work with all
Group employees to achieve the ﬁnal-year targets of the
HOPE100–Stage 2– medium-term business plan, but also
formulate the scenario for further growth under the new
HOPE100–Stage 3– medium-term business plan, andensure that the plan is fully implemented.
With drastic revisions to the drug pricing system, thereview of the price maintenance premium system, andprice revisions for long-listed drugs, transformation isinevitable for all companies in the pharmaceutical industry.
The Kyorin Group views these measures as developmentsthat could shake our management foundation. Facing
this environment, I am conﬁdent that by making reforms(changes and innovations) under the HOPE100 long-term
vision, the Kyorin Group will be able to achieve continuous
growth and enhance its corporate value. I will focus inparticular on the creation of innovation for ﬁrst-in-classdrug discovery and enhancement of the capacity to
improve customer satisfaction.
During ﬁscal 2019, we will aim to achieve the year’s
numerical targets as we continue to work toward therealization of the HOPE100 long-term vision.
I ask for the continued support of all stakeholders.

Overview of HOPE100–Stage 2– Medium-Term Business Plan
With the business environment for the ethical drugs business becoming ever more challenging and the patent on one of our main products
having expired, the Kyorin Group is facing major changes in its operating environment. Given these signiﬁcant external changes, we needto implement a dynamic transformation of the way we have done business to date and create and implement new measures that go beyond
our historical growth track. We have established “making reforms (changes and innovations) and achieving continuous growth” as ourstatement for our HOPE100–Stage 2– medium-term business plan, and are pursuing the areas of Strategy (business strategies: four priority
strategies and two development strategies) and Organization (organizational strategies) to achieve Performance (performance targets).

Strategy
Priority strategies

1
2
3
4

Priority items
Build a structure that continuously creates innovative new drugs(QKDQFLQJGUXJGLVFRYHU\capabilities:,QLWLDWLYHVIRUğUVWLQFODVVQHZGUXJGLVFRYHU\

Identify novel drug discovery targets.
Create ﬁrst-in-class new drugs utilizing existing drug discovery platforms based on
low molecular weight (kinase and receptors) and new technologies (nucleic acid,peptides, gene therapy, etc.).
O Aim for early collaboration with global partners to accelerate the global expansion anddevelopment of original new drugs.
O
O

Increasing the ratio of new
drugs group:
6LJQLğFDQWO\LQFUHDVHWKH
UDWLRRIQHZGUXJVJURXSE\promoting the group to thegreatest extent possible

Increase the ratio of new drugs group to offset sales declines

Promoting generic drugs
EXVLQHVVE\PDNLQJWKHPRVW
of its characteristics

Proactively address authorized generics (AG)Enhancing cost reductions:
Change of cost structure
E\HQVXULQJRSWLPL]DWLRQ
within the Group

Comprehensively optimize production capabilities through cooperation within the Group

Development strategies

Priority items

O

Aim to launch four new drugs (Desalex, Beova, KRP-AM1977X/KRP-AM1977Y) and promotethese new products along with Flutiform to the greatest extent possible.

Realign the marketing structure
O

OO

Restructure along the lines of area management based on franchise customer strategy.

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.
O Remove imbalances in plant capacity utilization and pursue the efﬁcient use of assets.
O

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.
O Work in collaboration with other companies to lay the foundations for future direct
expansion (ethical drugs business, healthcare business), with a focus on Asia.
O

Overseas expansion

Enhancing healthcare businessO

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

Organization$LPLQJWREHWKHOHDGLQJFRPSDQ\IRUFDUHHUIXOŵOOPHQWIRUHPSOR\HHV
Establishing and operating a system for managing human resources
O

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.

Strengthening human resources development
O

Work to strengthen management capabilities.

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

Capital policy
O

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

Returns to shareholders: stabledividends

2019 ANNUAL REPORT 15

Strategy to Achieve Continuous Growth

Ethical Drugs Business

HOPE100–Stage 2– Medium-Term Business Plan

Drug
Discovery[ENHANCING DRUG DISCOVERY CAPABILITIES]

Priority
Strategies

Initiatives for ﬁrst-in-classnew drug discovery

The Kyorin Group considers its mission as addressing medical needs including unmet medical needs, andcontributing to the health of people around the world, through the continuous creation of innovative
new drugs. In addition to our proprietary drugs created in cooperation with our research centers—
the WATARASE Research Center and ActivX Biosciences (ActivX) in the United States—we are
pursuing open innovation with pharmaceutical companies, academic institutions, and venture startups in Japan and overseas, as well as striving to revitalize existing drug discovery platforms and use
new technologies (nucleic acids, peptides, gene therapy, and so forth), to create original, new drugs
with global potential, while also proactively searching for and implementing outside drug discovery
programs to discover ﬁrst-in-class drugs with even greater speed than in the past.

Selection and Concentration
KYORIN Pharmaceutical Co., Ltd. is clarifying its areas of priority
research, and selecting drug discovery programs and focusing on
those programs in the pursuit of multilayered drug discovery.
Making maximum use of the potential of the WATARASE ResearchCenter with low molecular weight drug discovery technology andActivX’s KiNativ platform (broad and quantitative analysis technology
for kinase/protease), we are concentrating resources and working
on themes with global potential, in the pursuit of efﬁcient drug

discovery activities for the creation of novel compound drugs.
Focusing on the priority areas of kinase research 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 multiple pharmacophores in the
pursuit of multilayered drug discovery with a stronger backup
structure that simultaneously evaluates compounds with different
basic structures.

System for Continuous Creation of Innovative New Drugs
Joint Research• Kyoto University
Department of Drug Discovery
for Lung Diseases•Institute ofMicrobial Chemistry
Discovery of antibiotics•The Hebrew Universityof Jerusalem
Development of drugs
for respiratory diseases

WATARASE Research Center
Receptor technology

ActivX, USA

Partnership

KiNativ technology

Open innovation

Open innovation

Global and domestic
pharmaceutical companies

Academia and ventures

Selection and concentration
Strengthening drug
discovery researchplanning function
Organizational restructuring

Work in oligonucleotide
therapeutics as
new modality

Research Focuses
Fibrosis

KinaseMultilayered approach

New Drug Discovery Target

World-class Drug Discovery
16 2019 ANNUAL REPORT

External
drug
discovery
programs

Pursuit of Open Innovation
KYORIN Pharmaceutical is supplementing and further strengthening its proprietary drug discovery by proactively searching forexternal drug discovery programs and external early-stage
compounds, and using its own evaluation technology platforms
in areas including bladder function, auditory function, andinfectious diseases to create a structure that can carry out speedy
evaluations. This includes open innovation with academic
institutions, venture start-ups, and domestic and overseas
pharmaceutical companies for multiple drug discovery approaches
to drug creation targets. In April 2017 we established the Department of Drug Discovery for Lung Diseases as a joint research

program at the Graduate School of Medicine Kyoto University,
integrating the academic institution’s pathological research andbasic research capabilities with KYORIN Pharmaceutical’s drug
discovery capabilities to search for new targets for drug discovery.
In addition, during ﬁscal 2018, KYORIN Pharmaceutical concluded
a strategic partnership with the Technology Transfer Companyof The Hebrew University of Jerusalem for drug discovery in the
respiratory ﬁeld, and also began joint research with the Microbial
Chemistry Research Foundation’s Institute of Microbial Chemistry
to search for antibacterial drugs that are effective against
anti-microbial resistant bacteria.

Three Initiatives in Innovative New Drug Discovery
KYORIN Pharmaceutical’s new drug discovery uses three
approaches to achieve ﬁrst-in-class drug discovery.
OSearching for novel targets
We are strengthening our early-exploration-stage research
to search quickly for novel drug discovery targets and create
innovative new drugs that are effective against those targets.
To strengthen our early-stage drug discovery research bothquantitatively and qualitatively, we are using human (patients),
disease model animal tissue or cells and applying technologies
including KiNativ and genome editing to enhance the quality ofour target validation. We are also stepping up our ﬁbrosis
research as a priority research area. Working with academic
institutions with strengths in basic research, we are making
maximum use of cutting-edge technologies like humandisease-speciﬁc iPS cells for an enhanced level of drug discovery
evaluation to select candidate compounds for medications.

OExpansion of modalities
In addition to our existing low molecular weight drug discovery,
we are exploring new compounds including medium molecularweight compounds and nucleic acid medicines, and working ingene therapy to pursue possibilities in new modalities and create
new drugs with global potential that help to address medical
needs that cannot be met with low molecular weight drugs.
OConsolidating drug discovery research centers
All research bases for the early-exploration stage to the development stage have been consolidated at the WATARASE ResearchCenter, as we pursue drug discovery research with a structurethat is effective and cooperative in the research areas ofpharmacology, chemistry, safety, and pharmacokinetics, aswell as formulation and analysis. Experts in each of these ﬁelds
work in teams that cross organizational divisions, to conduct
research and development with greater quality and speed for drug
discovery research that is up to global standards.

Exploratory Research for New Targets Using Kinase Technology
The WATARASE Research Center is working with ActivX in
drug discovery that uses kinase analysis technology. There are
more than 700 types of kinases, which control complex biological
functions like cell specialization, multiplication, and apoptosis,
and many of these functions have yet to be identiﬁed. ActivX has
advanced, proprietary technologies that can perform exhaustive
analysis of kinases’ activities at the cellular and organ level, andare also used in the U.S. National Institutes of Health (NIH)
databases. The incorporation of this cutting-edge technology in
our Group and the ability to use it to the fullest in our drug
discovery is a major strength in the creation of new, original
drugs with global potential.

Image: Drug discovery using kinase
analysis technology

2019 ANNUAL REPORT 17

Strategy to Achieve Continuous Growth

Ethical Drugs Business

Overseas Development
With pharmaceutical manufacturers pursuing business activities from a global perspective, overseas development is an important
issue for the Kyorin Group’s ethical drugs business. We are expanding and strengthening our product pipeline through partnering andproactive outside collaboration to deliver original, new drugs to people around the world, with a view to direct overseas expansion in
the future, focusing on Asia.

Partnering with Companies in Japan and Overseas

Allergan (Ireland)

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

R-Pharm (Russia)

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

Vectura (U.K.)
Ferring International Center (Switzerland)
AstraZeneca (U.K.)
Faes Farma (Spain)

SPIMACO* (Saudi Arabia)

LG Chem (Korea)
Handok (Korea)

Kissei Pharmaceutical
Sato Pharmaceutical
Eisai

Nichi-Iko Pharmaceutical
Chugai Pharmaceutical
Nisshin Pharma

Shinlin Sinseng (Taiwan)
Synmosa (Taiwan)*SPIMACO: Saudi Pharmaceutical Industries & Medical Appliances Corporation

Yakult Honsha
Kaken Pharmaceutical
Ono Pharmaceutical

ROHTO Pharmaceutical
Sanwa Kagaku Kenkyusho
MSD

Senju PharmaceuticalOut-licensed

In-licensed

In- and out-licensed

Partnering

Overseas expansion

Through partnering, we are pursuing the global expansion of
innovative new drugs that we have created in-house (throughthe out-licensing of early-stage products to major Europeanand American pharmaceutical manufacturers and the expansion
of Uritos into emerging market countries through local companies), accelerating development, and gaining overseas sales.
We are also proactively partnering with outside entities (companies and academic institutions in Japan and overseas) to expand
our product pipeline, which is an important issue for an ethicaldrugs manufacturer. Going forward, we will engage in partnering
activities worldwide to build an attractive pipeline in the Kyorin
Group’s priority areas of respiratory, otolaryngology, and urology.
(Diagram above: Partnering with Companies in Japan andOverseas)

We established a representative ofﬁce in Indonesia in March 2017
to lay the foundation for our direct expansion in the future,
focusing on Asia and through cooperation with other companies.
In addition to Indonesia, we are conducting market surveys andgathering information throughout the ASEAN region, as we
proactively consider possibilities for business expansion in theﬁelds of ethical drugs and healthcare. In March 2017, we beganselling the multi-purpose disinfectant cleaner RUBYSTA in
Indonesia through PT. Meiji Indonesian Pharmaceutical Industries,
a subsidiary of Meiji Seika Pharma Co., Ltd., and in November
2017 we concluded a licensing agreement related to genericdrug manufacturing technologies with a Vietnamese company.
In addition, during 2019 we concluded a contract with a
Mongolian company for distribution rights for generic drugs.

18 2019 ANNUAL REPORTNew Products
Products under Development (As of May 13, 2019)
Ph # – Approval
Compound/Code Therapy area/Action

OriginFeatures

Stage

Ph!

Ph@

Ph#

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

NDA

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 high medical
needs

Preparing
application

KRP-108P

Bronchial asthma

Vectura (U.K.)

Additional indication of pediatric use for Flutiform combination drug for asthma
treatment

Preparing
application

OriginFeaturesApr 2017

Preparing
application

POC Project (Ph!–Ph@)
Compound/Code Therapy area/Action

Stage

Ph!

Ph@

KRP-N118

Nocturia due tonocturnal polyuria

SANWA KAGAKUKENKYUSHOCO., LTD.

A vasopressin V2 receptor agonist that promotes the reabsorption of water by
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.

Aug 2018

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 developmentof cancer cell selective apoptosis and anticancer immunity.

Jun 2018

Ph#

NDA

Out-Licensed ProductTherapy area/Action
Compound/Code Licensee/Collaborative
research

OriginFeatures

Comments

Stage
Preclinical

FPR2 agonist
program

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

Non-disclosure

In-house

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

Ph!

Ph@

Ph#

NDA

License agreement with
Bristol-Myers Squibb(Dec 2015)

New Challenges in Diagnosing Infectious Diseases—Business related to diagnosis of infectious diseases—

GeneSoC® ultrahigh-speed genetic measurement device—Making business related to diagnosis of infectious diseases our next core business
The GeneSoC® ultrahigh-speed genetic measurement device, which
is currently in development, employs a nucleic acid ampliﬁcation
technique using proprietary microchannels to genetically test for
pathogenic microorganisms in ﬁ ve to six minutes, enabling quick,accurate, and simple identiﬁcation of pathogenic microorganisms.
The device is a compact, table-top size, making it possible for the
medical practitioner to carry out point of care testing (POCT) near
the patient bedside, and select appropriate antimicrobial drugs
GeneSoC model 4
on-site where the diagnosis is being made. This is therefore expected
to be used for diagnosis of infectious diseases that contributes tothe appropriate use of antimicrobial drugs.
We aim to bring the GeneSoC® to market during ﬁscal 2019, and in February 2019 we exhibited a reference display at an
academic conference on infectious diseases. Medical practitioners gave the prototype model high marks, and many said they
hoped it would be brought to market at an early date. Few new antimicrobial drugs are being brought to market, and needs
have steadily been increasing for swift diagnosis and detection of infectious diseases as a way to address the recent issue of
antimicrobial resistance (AMR). We intend to pursue this business going forward and develop it as our next core business.

2019 ANNUAL REPORT 19

Ethical Drugs Business

Strategy to Achieve Continuous Growth

New Drugs
Business
Development/
Marketing

HOPE100–Stage 2– Medium-Term Business Plan
[INCREASING THE RATIO OF THE NEW DRUGS GROUP]

Priority
Strategies

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

The Kyorin Group is strengthening its new drugs business as a way to achieve continuous growth,and in particular we regard increasing the new drugs group’s portion of net sales as an important
issue. In addition to working toward maximum market penetration for our main products, we will work
to create new markets with the new drugs group, including new drugs released during ﬁscal 2018 andproducts we expect to release during ﬁscal 2019, as we make every effort to secure a path of growth.

Accelerating a Return to Growth Through the New Drugs Group and New Products
With the expiry of the patent on Kipres, one of our main products,
and an accelerating shift to generic versions of long-listed drugs
causing an adverse operating environment for the Kyorin Group,
we are working for the maximum market penetration of new drugs
for which we hold patents (Flutiform, Desalex, Uritos, and Pentasa
Granules) to increase the proportion of the new drugs group,
which fell below 30% temporarily during “Stage 2,” to at least
50% in ﬁscal 2019. In addition, we released Beova (development
code: KRP-114V), a treatment for the overactive bladder that acts
selectively on the bladder's ȕ3-adrenergic receptor, during ﬁscal
2018 as per our target. With regard to the quinolone synthetic
antibacterial agent KRP-AM1977X, which has experienced
development delays, we are aiming for a deﬁnite ﬁscal 2019release and will work to gain rapid market penetration to achieve
our target.
Fiscal 2018 sales of our main product Flutiform, the combination drug for asthma treatment, further rose 9.8% from theprevious year, to ¥13.1 billion. Also contributing to increased salesof ethical drugs in ﬁscal 2018 were Nasonex, a therapeutic

agent for allergic rhinitis using a metered-dose manual pumpspray unit that we launched in ﬁscal 2018, which recorded salesof ¥12.8 billion, and the launch of Beova, a treatment that wedeveloped in-house, with sales of ¥0.7 billion. On the other hand,sales of Desalex, a long-acting selective H1 receptor antagonist
for the treatment of allergic diseases, declined 24.1%, to ¥3.7
billion, after the product’s seller and manufacturer MSD K.K.
launched a voluntary recall and temporarily halted supplies ofthe product from January 2019.
In terms of the R&D pipeline, during ﬁscal 2018 applications
were being prepared for KRP-AM1977Y, the interstitial cystitis
treatment KRP-116D, and the combination drug for asthma
treatment KRP-108P (additional indication of Flutiform for pediatricuse), and we aim to ﬁle the applications in ﬁscal 2019.
The delay in development of KRP-AM1977X and the temporary suspension of supplies of Desalex will present challenges
in terms of bringing the new drug group’s portion of net sales toat least 50%, but we will make every effort to carry through andachieve this target.

Projected Ratio of New Drugs GroupNew drugs
group (%)

56%

50

Ratio of new drugs group:
At least 50%

40

41%

Return to
growth throughnew drugs
45%
KRP-AM1977X

35%
30

Beova (Nov 2018)29%
Kipres for adults

20

Nasonex (Aug 2018)

Kipres for children

DesalexFlutiform

10

UritosPentasa granules

0
April 2015

FY2015FY2016
April 2016

FY2017
April 2017

FY2018
April 2018

FY2019April 2019

HOPE100 – Stage 2– Medium-Term Business Plan (Fiscal 2016 – 2019)20 2019 ANNUAL REPORT

April 2020

Establishing a 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, and roughly 750 medical representatives (MRs)regularly visit doctors specializing in these ﬁelds to provide,collect, and pass on information regarding the appropriate useof pharmaceutical products.
During ﬁscal 2018 in the ﬁeld of otolaryngology, we beganselling Nasonex Nasal in 2018 following the transfer of distribution
rights from MSD K.K. Together with the leukotriene receptor
antagonist Kipres and the long-acting selective H1 receptor
antagonist Desalex, we have been striving to raise our presenceeven further in the ﬁeld of otolaryngology, with a product lineupthat is able to address a broad range of needs in the treatmentof allergic rhinitis. In the ﬁeld of urology, we launched the new
product Beova in November 2018, and together with thepreviously released Uritos, we are providing a new alternative asa medication for the treatment of overactive bladder.
To address medical needs as they change with the times
and as different needs arise in different areas, we have built an
area coverage based on secondary medical districts to facilitatetargeted responses to these needs. We have introduced a teamstructure in which multiple MRs cover one area, and by promoting
independent area management based on the FC strategy, we
aim to establish a strong presence in these speciﬁc ﬁelds.

Creating Markets with New Drugs
One of the priority items included in the HOPE100–Stage 2–
medium-term business plan is to launch the four new drugs
during the period covered by the plan (Desalex, Beova, and
KRP-AM1977X/Y) and along with the existing product Flutiform,
promote them to the greatest extent possible. We expect tohave this new drug group fully in place during ﬁscal 2019. We
will clarify the gaps between our envisioned position for theseproducts (targets including share by volume and by number ofprescribed patients) and their current position in the respective
markets of drugs for bronchial asthma, overactive bladder, allergic
rhinitis, and infectious disease, and make every effort to create
new markets by steadily carrying out our unique initiatives
within the time frame we established.

Four New Drug Products
FY2016 –Progress

Current State(FY2015)

Top market share
Flutiform

Marketshare 12%*1

(FY2018)

FY2023 –ICS/LABA: ¥120bln
39%

Marketshare 7%

Flutiform

FY2019 –• Aim to launch pediatric drugs(scheduled to ﬁle the application in 2019)

VisionQuantity-based
market share of
ICS/LABA combination
drug market: 30%

12%

*2

OAB: ¥90bln
40%

Beova

LaunchTop market shareBeova(November 2018)

Antihistamine: ¥160bln
20%
3%

Launch(November 2016)*2

KRP-AM1977X

Application(December 2019)

Top market share
Desalex

Antibacterial agent (oral): ¥110bln
9%• Aim to get the highest
prescription acquisition rate in
the otolaryngology area after
the resumption of supply• KRP-AM1977X Aim to launch(2019)KRP-AM1977Y

Preparing
application

Share ofpatients that takeprescriptions: 30%
or higher

1%*2

Desalex• The limits on prescription
periods will be removed

Top market share• KRP-AM1977Y Aim to launch(Injection): ¥110bln(scheduled to ﬁle the application in 2019)

Top share in theantihistamine
marketTop share of respiratory
and otolaryngology
patients thattake prescriptions*2

OAB market: Anticholinergic agents and ȕ3 adrenoceptor agonists
Antibacterial agent market: Includes all systemic antibacterial agents and children in all markets.

*1,2 （Source：Copyright 2019 IQVIA. IMS –JPM. Unauthorized copying prohibited）

2019 ANNUAL REPORT 21

Strategy to Achieve Continuous Growth

Ethical Drugs Business

HOPE100–Stage 2– Medium-Term Business Plan

Manufacturing[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 annual drug price revisions, 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 that provides a stable supply of high-quality, low-cost products.

New manufacturing subsidiary commences operations
and new manufacturing structure establishedOne 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.” KYORIN Pharmaceutical Group Facilities Co., Ltd.,
which was established as a new subsidiary specializing in
manufacturing by consolidating the manufacturing functions
that had been dispersed among various Group companies into
three plants as manufacturing bases, commenced full-scale
operations in April 2018. While each of the facilities will maintaina speciﬁc strength—low-cost, high-volume manufacturing of new
drugs, small-lot manufacturing of many types of generic drugs,
and subcontracted pharmaceutical manufacturing at global
standards—we are optimizing the overall manufacturing structureso that the facilities will not be bound by these roles, and will beable to make the most efﬁcient and effective use of each facility’sequipment, technologies, and human resources. We also havea proactive plan for capital investment for energy conservation,
greater efﬁciency, and to meet customer needs. In addition, we
are implementing personnel exchanges and the sharing of
information among plants to build on our efforts to maintainquality, ensure stable supplies, and reduce costs in our manufacturing, while also building and operating a human resourcesmanagement system and working to raise our Good Manufacturing
Practices (GMP) level and technological level. Our aim isto establish a stable manufacturing structure that is highly
competitive in its ability to offer a stable supply of high-quality
products at a low cost. We are also focusing on increasing our
subcontracted manufacturing from outside the Group, as wework to build a solid manufacturing foundation.

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 and overseas

procurement of raw materials to manufacturing (production
management, manufacturing), warehousing, and supply (shipping) on an individual product basis. By quickly addressing
issues such as reducing lead times from orders to delivery as
they arise, we are working to ensure stable supplies and reducerisks, for reliable, stable supplies of products.

Supply Chain Management (SCM)

Procurement

22 2019 ANNUAL REPORT

Production(testing)

Inventory

Supply(shipments)

Sales(delivery)

Investment
recoveryOverview of KYORIN Pharmaceutical Group Facilities’ Plants

Noshiro Plant

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

The Noshiro Plant began operations as the pharmaceutical manufacturing
plant of KYORIN Pharmaceutical, and is engaged in API (Active Pharmaceutical Ingredients) manufacturing of products developed in-house. Subsequently,
as a manufacturing plant of ﬁnished products, automated transport ofpharmaceutical ingredients and intermediate products, and robotic arms forlabor saving have been introduced. Automation makes it possible to manufacture large volumes at a low cost with high productivity. Using thesestrengths, the facility has recently begun manufacturing generic drugs inlarge volumes in addition to new drugs, focusing on tablets and capsules.
The plant has also achieved solid success in inspections by overseas
regulatory authorities.

Shiga Plant(Noshiro City, Akita Prefecture)

Focusing on subcontracted manufacturing incorporating global GMP.

For many years the Shiga Plant was a manufacturing base for a non-Japanesepharmaceutical manufacturer, and in 2012 it began operating as part of the
Kyorin Group. In addition to manufacturing the Group’s main products, theplant is unique for its high portion of manufacturing subcontracted fromoutside the Group, including the manufacturing of pharmaceutical products
to be sold in Japan by overseas manufacturers. The plant’s manufacturing
is able to keep pace with the needs of the times, having implemented global
GMP since its establishment with manufacturing equipment oriented to prevent
things like cross contamination, and the ongoing introduction of the latest
equipment. Using its abundant experience and expertise gained fromsubcontracted manufacturing from overseas global companies, the facility
is working aggressively to increase its subcontracted manufacturing fromoutside the Group.

Inami Plant(Koka City, Shiga Prefecture)

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 from outside
the Group. The plant’s specialty is its ﬂexibility that enables it to manufacturesmall volumes of pharmaceutical products in various forms, including solid
formulations taken internally, and liquid formulations including sterilized
formulations for injections, eyedrops, and nose drops. Visits from drug
manufacturers subcontracting to the plant provide information that hasenabled the facility to gain expertise in maintaining stable supplies of highquality products. Along with responding to the growth in demand for genericdrugs seen in recent years, the facility is working with the Noshiro and theShiga plants to create a stable supply structure, and striving for even higher
productivity and reliability.

(Inami, Nanto City, Toyama Prefecture)2019 ANNUAL REPORT 23

Strategy to Achieve Continuous Growth

Ethical Drugs Business

HOPE100–Stage 2– Medium-Term Business Plan

Generic Drugs
Business

Priority
Strategies

Promoting generic drugs
business by making the mostof its characteristics

The Kyorin Group is pursuing the priority strategy of promoting the generic drugs business bymaking the most of its characteristics, with KYORIN Rimedio Co., Ltd. as the core company.
The Japanese government has set a target of generic drugs accounting for 80% of drugs usedby September 2020, and we will enhance our capability to address this environmental change.
As a manufacturer of new and generic drugs, we will work to increase proﬁ tability by taking
advantage of our integrated development, manufacturing, and sales functions while also
proactively pursuing authorized generics.

Initiatives in Authorized Generics
We have released Montelukast Tablets “KM,” our ﬁrst authorized genericversion of Kipres. By handling both the original Kipres and the authorized
generic within the Group, we are able to meet the various needs ofpatients and medical professionals, and this beneﬁt has been recognized
as we have steadily gained market share. During ﬁscal 2018, we maintained our market share for generic versions of Kipres above our initial
target of 50%. The Kyorin Group has also received manufacturing
approval of Mometasone Nasal Spray 50μg “Kyorin,” an authorized
generic version of Nasonex, as our next authorized generic product.
The timing for the release of this product will be strategically decided,
as we move forward while following changes in the business environment.

Sales of Generic Drugs(Billions of yen)

30

27.7
25.0

25

8.2

20

15.5
15
10

29.3

11.7

11.9 Montelukast

AG

15.5

12.0
10.1
16.8

16.0

17.4 Other GE

2016

2017

2018

5
0

2012

2013

2014

2015

(FY)

Strengthening Drug Development at the Takaoka Drug Discovery Laboratory
To provide generic drugs that can be used with greater peace of mind, KYORIN Rimedio has been working on formulations andpackaging that address ease of use by medical institutions and the needs of patients when taking drugs, from the perspectives ofboth medical professionals and patients. The Takaoka Drug Discovery Laboratory commenced full-scale operations in July 2017, asa means of further strengthening our drug development. In addition to developing higher quality drugs more quickly, the Laboratory
is working to increase the number
Ingredient names and quantities areof products it develops, with thedisplayed on the package of each tablet
aim of being a generic drug company
Drug effect displayedthat offers even more attractive
A bar code for GS-1 data isdisplayed on each tablet
generic drug products with unique
Similarcolor to original productcharacteristics.
The “product name” and “trade name”
are printed on both sides of the tablet

Agreement for Distribution Rights Concluded with Mongolian Company
Following its conclusion of a licensing agreement for generic drug manufacturing technologies with the Vietnamese company
BinhDinh Pharmaceutical and Medical Equipment JSC in November 2017, KYORIN Rimedio concluded an agreement for distribution
rights with Monospharm Trade Co., Ltd. of Mongolia in March 2019. We are looking beyond Japan to create drug markets using our
proprietary drug manufacturing technologies in Southeast Asia as well, to contribute to the health of people around the world.

24 2019 ANNUAL REPORTHealthcare Business

Healthcare
Business

HOPE100–Stage 2–
Medium-Term Business Plan

Development
Strategy

Based on the medium-term business plan’s development strategy to “Grow businesses related toenvironmental 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 ofenvironmental hygiene. With further growth at businesses related to environmental hygiene, we willbuild a core business, and proactively work to pave the way for potential new businesses.

Environmental
HygieneWe are currently faced with various issues in the ﬁelds of infectious diseases and infection control,
including emerging and reemerging infectious diseases, antimicrobial resistance (AMR),
and the global spread of infectious diseases. Kyorin is working in these ﬁelds as priority areas,
and we continue to dedicate ourselves to contributing to infection control at medical institutions.

Multi-Purpose Disinfectant Cleaner Rubysta
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.

Expansion of Hand Hygiene Products
We believe that hand hygiene is the most important way to prevent transmission of infectious
pathogens in medical environments, and alcohol-based solutions are the basic ingredient usedin hand sanitizers. At the same time, some medical practitioners ﬁnd it difﬁcult to use alcoholbased hand sanitizers for reasons including excessive sensitivity to alcohol or irritated skin on
the hands and ﬁngers. We have therefore begun selling non-alcoholic hand sanitizers that canbe used by these people, and have expanded our lineup of hand hygiene products. In addition
to hand sanitizers, we are developing total promotions to contribute to the enhancement of handhygiene with products to care for irritated skin on the hands and ﬁngers.

Milton Brand
Since its release in 1963, Milton has assisted persons involved in promoting the healthy growthof 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, andvegetables, and we are also providing a wide range of information about the importance andappropriate 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 canbe used with peace of mind.

Over-the-Counter Drugs Addressing Diversifying Health 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. The Kyorin Group sells the COOL ONE series of over-the-counter drugs that apply active
ingredients used in ethical drugs. This series is highly regarded because we are able to provide
accurate information regarding the product’s effectiveness and safety gained at the ethical drugs
business. We will continue to work to provide products that are able to address diversifying
health needs.

Designatedsecond-class
OTC drug

Designatedsecond-class
OTC drug

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

2019 ANNUAL REPORT 25

Reliability Assurance

Strategy to Achieve Continuous Growth

Kyorin’s Reliability Assurance System

Reliability Assurance System
KYORIN Pharmaceutical’s corporate vision aims to be “a pharmaceutical manufacturer that is trusted by patients and medical
professionals, and is recognized for its presence in society.” To achieve this, the company continuously needs to provide products
and information that are trusted by broad sectors of society, and we consider this to be our highest priority. We take a uniﬁed approach
to all operations—from (research and) development to sales—and place a maximum emphasis on compliance with relevant laws andregulations, 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 informationthat patients and medical professionals can use with peace of mind.

Patients, Medical professionals

Reliable products and information
Development

Manufacturing

Sales

GMP GCPGMP

GQP GVP GPSP

GMP: Good Manufacturing Practice
GCP: Good Clinical Practice
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 to designatedprocedure manuals. After-sales inquiries regarding quality collected from patients and medical professionals are given the highest
priority, and are addressed sincerely and quickly.

Safety Management
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 can become 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 to ensure 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.

The Kyorin Group’s HOPE100 long-term vision includes the statement that it will “Promote diversiﬁed healthcare businessexpansion and by 2023 be recognized both within and outside as a company that supports sound and healthy lifestyles.”To achieve this, we consider it important to build a sophisticated system for ensuring the reliability of drugs handled by theGroup and products sold by the healthcare business. By working to ensure the consistent reliability of Kyorin products andproviding users with high-quality products that can be used “safely and with peace of mind,” we are gaining the trust of
broad sectors of society.

26 2019 ANNUAL REPORTStructure Supporting Value Creation

A Message from an Outside Director

As an Outside Director, I contribute to the
Kyorin Group’s sustainable growth by adding
depth to the deliberations of the Board of
Directors from an objective perspective.

Ken Shigematsu
Outside Director
I am very honored to be involved as an Outside Director in the management of KYORIN Holdings, Inc., with its
social mission rooted in the areas of life and health, and I also feel a great sense of responsibility.
As one of the people responsible for the important task of strengthening corporate governance, I am engaged
in management oversight from an objective perspective, and offer needed advice related to areas including
management strategy, capital policies, and compliance.
During my many years with a department store, I was involved with the management of commercial products
businesses, overseas businesses, and head ofﬁce operations, and I observed these businesses from a perspective that is closest to the consumer. Subsequently, I was involved with the metal processing business, which is
upstream on the supply chain, but in both capacities my fundamental management policies of “operating
businesses with a view toward future value” and “healthy management with effective governance” have been
the same.
The pharmaceutical industry’s operating environment is undergoing major changes, from factors including rapid
advances in medicine and science, and the overhaul of the drug price system in Japan. Against this backdrop,
KYORIN Holdings, Inc. has formulated the HOPE100 long-term vision to establish a new business foundation,and is steadily moving forward with that process. This ﬁscal year is the ﬁnal year of the vision’s Stage 2, and will
also be the year that we formulate Stage 3 for further transformation. As we pursue this, we will concentrate
our efforts in the three speciﬁc areas of respiratory, otolaryngology, and urology, while clearly addressing
issues including the creation of new drugs that are competitive globally and accelerating the growth of nextgeneration businesses.
When the Board of Directors’ meetings are held, materials are distributed in advance and persons responsible
provide appropriate explanations so that proposals are seriously considered. In addition, outside directors listen
to the opinions of persons involved in operational execution and responsible staff, visit manufacturing sites, andengage in other activities as we strive to observe closely the current state of Kyorin’s businesses.
In addition, outside directors play an important role on the Committee on Remuneration and Nominations, where
they are given the information needed to make fair and strict decisions.
As an Outside Director, I seek to deepen the deliberations of the Board of Directors from an independent, objective
perspective, and to contribute to the continuous enhancement of KYORIN Holdings’ corporate value.
I ask for the continued support of our stakeholders going forward.

2019 ANNUAL REPORT 27

Foundation Supporting Value Creation

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

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 to actively
increase our disclosure of information, and expand and improve
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 and fairnessof management.
Kyorin is a company with a board of corporate auditors basedon 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 toensure the transparency of the decisions being made by the
Board of Directors. At the same time, corporate auditors carryout a diverse range of activities in fulﬁlling their auditing function.

In addition to participating in important meetings, including
those of the Board of Directors and the Management Committee,
corporate auditors implement comprehensive audits by checking
documents and other materials relating to important 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,
we have 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 Ofﬁce
conducts 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
Board of Directors
The Company’s Board of Directors comprises a total of elevendirectors, including three outside directors. The Board of Directors
usually meets once a month, resolving legal matters, formulating
and deciding important management policies and strategies,
and overseeing business execution, etc.
Chairperson: Yutaka Ogihara, Representative Director,
President and Chief Executive Ofﬁcer
Executive Directors: Minoru Hogawa, Shigeru Ogihara, Kenji Akutsu,
Tomiya Sasahara, Michiro Onota, Koichiro Hagihara,
Masahide Sugibayashi
Outside Directors: Noriyuki Shikanai, Ken Shigematsu, Hiromi Watanabe

28 2019 ANNUAL REPORTBoard of Corporate Auditors
Kyorin is a company with a board of corporate auditors basedon the Companies Act of Japan, which comprises three outside
corporate auditors and two statutory corporate auditors. The
Board of Corporate Auditors has established a system to ensurethat exercise of authority for audits, etc., is carried out from an
independent and objective standpoint through the active
engagement of outside corporate auditors.

Chairperson: Tomiharu Matsumoto, Senior Corporate Auditor
Senior Corporate Auditor: Shugo Tamaki
Outside Corporate Auditors: Masaji Obata, Takao Yamaguchi, Naohiro Kamei

Business Execution System
To oversee business execution, we established a Management
Committee, comprising the president and directors, which
discusses and decides key operational matters concerning theGroup.
Chairperson: Yutaka Ogihara, Representative Director,
President and Chief Executive Ofﬁcer
Executive Directors: Minoru Hogawa, Shigeru Ogihara, Kenji Akutsu,
Tomiya Sasahara, Michiro Onota, Koichiro Hagihara,
Masahide Sugibayashi

Committee on Remuneration and Nominations
Regarding remuneration and nomination of directors andcorporate auditors, Kyorin has established the voluntary Committee on Remuneration and Nominations mainly comprising
independent outside directors to seek appropriate advice inorder to enhance transparency of decision making.
Chairperson: Kenji Akutsu, Senior Executive Director
Executive Director: Yutaka Ogihara
Outside Directors: Noriyuki Shikanai, Ken Shigematsu, Hiromi Watanabe

In addition to the representative directors and the executive
directors, who are engaged in ordinary business execution, we
actively delegate authority to the corporate ofﬁcers responsible
for speciﬁc areas appointed as necessary, thus establishing aframework that allows prompt decision making and clariﬁcationof responsibility of business execution under the guidance andsupervision of the Board of Directors. As of June 21, 2019, theCompany has ﬁve corporate ofﬁcers.

Corporate Governance System

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 2018)(Average attendance rate of outside directors)(Average attendance rate of outside corporate auditors)

14 times(100%)(95.2%)

Number of the Board of Corporate Auditors’ meetings(held during ﬁscal 2018)(Average attendance rate of outside corporate auditors)

14 times(95.2%)

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

2019 ANNUAL REPORT 29

Foundation Supporting Value Creation

Outside Directors and Outside Corporate Auditors
Kyorin has three outside directors and three outside corporate
auditors.
We seek advice from an independent and objective standpoint from outside directors at Board of Directors’ meetings, etc.,
and have established a highly effective management supervisionsystem maintaining a certain degree of independence frombusiness execution.
Outside director Noriyuki Shikanai, as an attorney well-versedin corporate law, has also served on the board of Keio University
and in other important positions, and with his high degree of
specialization and rich experience, was deemed well-qualiﬁed
for appointment to outside director.
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 Hiromi Watanabe has wide-ranging insightin a medical setting developed from her rich clinical practice andresearch experience as a physician, and through nursing
education. Accordingly, she was deemed well-qualiﬁed forappointment to outside director.
Kyorin has three outside corporate auditors who are neutrally
positioned and not compromised by relationships withmanagement or speciﬁed parties having a special interest.
These outside corporate auditors all have a considerable levelof knowledge of corporate legal matters, and matters of ﬁnanceand accounting, etc., and perform a monitoring function withwide-ranging insight and from a broader perspective.
Outside corporate auditor Masaji Obata is well-versed incorporate law as a lawyer and has considerable knowledge
concerning ﬁnance and accounting.
Outside corporate auditor Takao Yamaguchi has a considerable level of knowledge in matters of ﬁnance and accounting asa certiﬁed public accountant and a certiﬁed tax accountant.
Kyorin selects outside directors and outside corporate auditors
based on a review of the individuals’ backgrounds and relationship with Kyorin, and, from a standpoint independent from thatof management, on the assumption that sufﬁcient independence
can be ensured that said individuals are able to adequately carryout their duties as outside directors and outside corporate
auditors. Outside directors Noriyuki Shikanai, Ken Shigematsu,
and Hiromi Watanabe and outside corporate auditors
Masaji Obata and Takao Yamaguchi fulﬁll the requirements
as independent directors/corporate auditors stipulated by
the Tokyo Stock Exchange and have been reported as
independent directors/corporate auditors to the Tokyo
Stock Exchange.

Corporate Governance and Management Structure (As of June 21, 2019)
General Shareholders’ Meeting
Appointment/dismissal

Reports/exchange of
opinions

Appointment/dismissal

Board ofCorporate
Auditors

Appointment/dismissal

AuditsCommittee on
Remuneration
andNominations

Board ofDirectors

Cooperation

Accounting
Auditing
Firm(Independent
Auditor)

Representative
Directors

AuditsManagement
Committee

Internal Audit
Ofﬁce
AuditsSupervision

AuditsAfﬁliated
Companies

30 2019 ANNUAL REPORT

Guidance

Corporate
Ofﬁcers/Departments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 andcorporate auditors include executing management based on
management policy and taking into consideration the value
creation of various stakeholders, and enhancing corporate
value through the sustainable and stable growth of the Group.

However, as outside directors and outside corporate auditors
perform their role of supervising and overseeing managementfrom 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 of applicable directors
and corporate auditors
Total paid by type of compensation
Director or
corporate auditor

Total compensation paid

(Millions of yen)

(Millions of yen)

Basic compensation
Directors(Excluding outside directors)

Corporate auditors(Excluding outside corporate auditors)

Outside directors or corporate
auditors

Number of applicable directors
and corporate auditors(People)

249

249

9

33

33

4

49

49

7

Note: The amount of compensation paid and the number of applicable directors and corporate auditors above include one director and three corporate auditors who retired upon the conclusion of
the 60th Ordinary General Shareholders’ Meeting held on June 22, 2018.

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 and evaluates
the effectiveness and efﬁciency of the legal compliance andinternal control systems in the parent and Group companies.
After an audit, the ofﬁce communicates any problems or areasthat need improvement directly to the president and makes theappropriate recommendations.
Another function of the ofﬁce is to evaluate the Group’s
internal controls over ﬁnancial reporting. The ofﬁce evaluates thedevelopment and operation of these internal controls according
to a predetermined scope for evaluation, and makes a report tothe 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 other materials

relating to important decisions and inspecting Group companies.
In order to ensure that audits are conducted effectively bycorporate auditors, corporate auditors receive explanations on
the contents of accounting audits from the accounting auditingﬁrm of the Company and exchanges information with the ﬁrm.
Corporate auditors also cooperate with the Internal Audit Ofﬁce
to conduct appropriate communication and to effectively
perform the 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. We assign one auditing staff member to assist theduties of the corporate auditors, and such human resource iscarefully checked by directors and corporate auditors to ensure
independence.

2019 ANNUAL REPORT 31

Foundation Supporting Value Creation

Directors, Corporate Auditors, and Corporate Officers (As of June 21, 2019)
Representative Director, Chairman

Representative Director, President and Chief Executive Ofﬁcer

Minoru Hogawa

Yutaka Ogihara

Representative Director, Chairman

Representative Director, President andChief Executive Ofﬁcer

KYORIN Pharmaceutical Co., Ltd.
Representative Director, Chairman

Auditing

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.
June 2017
Representative Director, President and Chief Executive Officer of
KYORIN Pharmaceutical Co., Ltd.
June 2019
Representative Director, Chairman of KYORIN Holdings, Inc.
(current)
June 2019
Representative Director, Chairman of KYORIN Pharmaceutical Co.,
Ltd. (current)

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.
June 2016 Senior Executive Director of KYORIN Pharmaceutical Co., Ltd.
April 2019 Senior Executive Director, Management Strategy Office, incharge of Information System Management Department of
KYORIN Holdings, Inc.
June 2019 Representative Director, President and Chief Executive Officer
of KYORIN Holdings, Inc. (current)
June 2019 Executive Director of KYORIN Pharmaceutical Co., Ltd. (current)

Tomiya Sasahara

Michiro Onota

Executive Director

Executive Director

Promotion Compliance & External Relations
Quality Assurance & Reliability

Generic Drugs Business
KYORIN Pharmaceutical Group Facilities Co., Ltd.
Representative Director, President and Chief Executive Officer

Executive Directors

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)

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.
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)
June 2019 Executive Director, in charge of Generic Drugs Business of
KYORIN Holdings, Inc. (current)

Outside Directors
Noriyuki Shikanai

Ken Shigematsu

Outside Director

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)

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)

Major Activities of Outside Directors and Outside Corporate Auditors (Year ended March 31, 2019)
Position
OutsideDirectors

Name

Major Activities

Attendance at Meetings

Noriyuki
Shikanai

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

Attended 14 out of 14 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 14 out of 14 Board of Directors’
meetings

Yoh
Goto

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

Attended 14 out of 14 Board of Directors’
meetings

32 2019 ANNUAL REPORTExecutive Directors
Shigeru Ogihara

Kenji Akutsu

Senior Managing Director

Senior Executive Director

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

General Affairs & Human Resources
Finance & Accounting
Corporate Planning
Product Strategy
Information System Management

April 1979 Joined Kyorin Yakuhin Co., Ltd.
June 2009 Corporate Officer of KYORIN Pharmaceutical Co., Ltd.
June 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.
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.
June 2019 Senior Managing Director of KYORIN Holdings, Inc. (current)
June 2019 Representative Director, President and Chief Executive
Officer of KYORIN Pharmaceutical Co., Ltd. (current)

April 1978 Joined KYORIN Pharmaceutical Co., Ltd.
June 2009 Corporate Officer, Product Strategy Office of KYORIN
Pharmaceutical Co., 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.
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.
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.
June 2019 Senior Executive Director of KYORIN Holdings, Inc. (current)
June 2019 Senior Executive Director of KYORIN Pharmaceutical Co., Ltd.
(current)

Koichiro Hagihara

Masahide Sugibayashi

Executive Director

Executive Director

Intellectual Property
Research and Development

Legal
Sales & Marketing
Healthcare Business

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.
June 2018
Executive Director, Deputy General Manager of Discovery
Research Headquarters, Head of Clinical Development
Center of KYORIN Pharmaceutical Co., Ltd.
June 2019
Executive Director, in charge of Intellectual Property
Department and Research and Development of KYORIN
Holdings, Inc. (current)
June 2019
Executive Director, General Manager of Discovery
Research Headquarters, Head of Clinical Development
Center of KYORIN Pharmaceutical Co., Ltd. (current)

Hiromi Watanabe

April 1981
April 2006
April 2009
April 2010
April 2012
April 2013
April 2015
April 2015
April 2017
June 2018
June 2019

Joined Kyorin Yakuhin Co., Ltd.
General Manager of Saitama-Chiba Branch, Sales & Marketing
Headquarters of KYORIN Pharmaceutical Co., Ltd.
General Manager of Tokyo Branch I, Sales & Marketing
Headquarters of KYORIN Pharmaceutical Co., Ltd.
Corporate Officer, General Manager of Tokyo Branch, Sales &Marketing Headquarters of KYORIN Pharmaceutical Co., Ltd.
Corporate Officer, Head of Sales & Marketing Headquarters of
KYORIN Pharmaceutical Co., Ltd.
Senior Corporate Officer, Head of Sales & Marketing
Headquarters of KYORIN Pharmaceutical Co., Ltd.
General Manager of General Affairs & Human Resources
Department of KYORIN Holdings, Inc.
Senior Corporate Officer, General Manager of Human
Resources Department of KYORIN Pharmaceutical Co., Ltd.
Senior Corporate Officer, Head of Sales & Marketing
Headquarters of KYORIN Pharmaceutical Co., Ltd.
Executive Director, Head of Sales & Marketing Headquarters of
KYORIN Pharmaceutical Co., Ltd. (current)
Executive Director, in charge of Legal Department, Sales &Marketing, and Healthcare Business of KYORIN Holdings, Inc.
(current)

Senior Corporate Auditors

Senior Corporate Ofﬁcer

Tomiharu Matsumoto

Yoh ItoOutside Director
April 1972

Joined Internal Medicine Department of Tokyo Women’s
Medical University Hospital
Assistant Professor of Internal Medicine, School of
Nursing of Tokyo Women’s Medical University
April 2007
Professor and Dean of Medical Science, College ofNursing of Shukutoku University
April 2010
Member of the Board of Daijo Shukutoku Gakuen
April 2011
Professor of Medical Science, College of Nursing andNutrition of Shukutoku University
November 2014 President of Tokyo Branch of Japan Medical Women’s
Association (current)
April 2016
Professor of Graduate School of Nursing Division of
Nursing of Shukutoku University
April 2018
Neurology Department of Yokufukai Hospital of Total
Health and Medical Care Center for Seniors (social welfare
corporation) (current)
June 2018
Member of the Board of 3.11 Fund for Children with
Thyroid Cancer (NPO) (current)
June 2019
Outside Director of KYORIN Holdings, Inc. (current)

Shugo Tamaki

April 1998

Outside Corporate Auditors

Corporate Ofﬁcers

Masaji Obata

Yasuo Nii

Takao Yamaguchi

Kikou Obi

Naohiro Kamei

Hiroshi Hashizume
Yasuyuki Shimokawa

Position
OutsideCorporate
Auditors

Name

Major Activities

MasajiObata

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

Takao
Yamaguchi

He makes comments as necessary based mainly on his specialist understanding of ﬁnanceand accounting as a certiﬁed public accountant and a certiﬁed tax accountant.

NaohiroKamei

He 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.

Attendance at Meetings
Attended 14 out of 14 Board of Directors’
meetings and 14 out of 14 Board of Corporate
Auditors’ meetings
Attended 12 out of 14 Board of Directors’
meetings and 12 out of 14 Board of Corporate
Auditors’ meetings
Attended 11 out of 11 Board of Directors’
meetings* and 10 out of 10 Board of Corporate
Auditors’ meetings**Achievements since assumption of ofﬁce in June 20182019 ANNUAL REPORT 33

Structure Supporting Value Creation

Corporate Social Responsibility
Under the corporate philosophy, “KYORIN continues to fulﬁll its mission of cherishing life, and beneﬁting society bycontributing to better health,” the Kyorin Group works to make a signiﬁcant contribution to the creation of an energetic
society and economic development through activities based on the ESG (environment, society, and governance) viewpoint.
Through these activities, the Group also aims to achieve sustainable corporate growth and create corporate value in themedium to long term. To achieve this, we consider it important to take our Corporate Charter to heart, and to build andmaintain 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 as a corporate citizen to fulﬁll our corporatesocial 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 can live a healthy and heartful life

Contribution
Trust

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

Corporate
Activities

Corporate
Citizenship

Sustainable Development Goals
The 2030 Agenda for Sustainable Development was adopted at a
United Nations summit in September 2015, and sets internationaltargets 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 protect the global
environment and improve the industrial health and safety in theworkplace through environmental, health, and safety (EHS)
activities, recognizing that appropriately considering andaddressing the Company’s environmental, social, and governance issues will contribute to the creation of a sustainable society.

34 2019 ANNUAL REPORT• Compliance/Risk Management• Human Resources Management• Environmental Management• Social Contribution Activities

Compliance/Risk Management
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 business witha 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 complianceand 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 our corporate philosophy, the Kyorin Group conducts its activities in Japan and around the world
based on a high standard of corporate ethics, in compliance with both the letter and the spirit of relevant laws and regulations andinternational rules.

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 was developed to specify matters of corporate ethics and compliance in accordance withour corporate philosophy, and serves as the starting point for our corporate activities.
2. The Compliance Guidelines complement the KYORIN Holdings Corporate Charter by clarifying the standards to be followed forsound and proper business activities.
3. The Compliance Committee was established to provide overall supervision of corporate ethics and compliance systems. Each Kyorin
company has a compliance promotion manager who is responsible for the understanding and instilling of corporate ethics andcompliance.

Education and Training
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 each division’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 that anunderstanding and consideration of compliance is reflected in the work performed by directors, corporate auditors and officers, and employees.
2. June and November are designated as “compliance enhancement months,” with the Corporate Charter and Compliance Guidelines read out at morning meetings andother activities to ensure a thorough understanding and familiarity with compliance Groupwide.

Risk Management
A management structure is in place to prevent the occurrence of risk events at Kyorin and its Group companies, and a Risk Management
Committee has been established to address events that do occur. The Risk Management Committee oversees risk management
initiatives across the entire Group, while also promoting activities to be implemented as necessary at respective divisions to build astructure to identify potential risks, reduce risks, and prevent risk events from occurring, and to minimize the damage from risk events
that do occur unavoidably. The roles of the committee are as follows:
1. Direct risk assessments to related divisions to identify and understand latent risks.
2. Prepare various guidelines and operation manuals for related divisions, and implement training for employees and other preventive measures as necessary, to ensurethat latent risks do not materialize.
3. Prepare procedure manuals and carry out simulated drills at related divisions, and take out insurance and implement other measures as necessary, to minimize losses
in 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 conﬂict ofinterest 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.

2019 ANNUAL REPORT 35

Structure Supporting Value Creation

Human Resources Management
The Kyorin Group considers it fundamental for its sustained operations and growth to ensure that our employees are passionate about their work. We have therefore restructured our human resources management system, and are promoting an
understanding of that system and its appropriate operation, to make our employees feel that this is the very best place towork. We are also striving to improve levels of safety and health with the goal of attaining zero workplace injuries, by
preventing work accidents, improving the health of everyone who works here, and further enhancing the comfort of theworking environment.

Human Resources Management System
and work in solidarity with their coworkers. We are working to
restructure and appropriately operate the human resourcesmanagement system (hiring, assigning, training, evaluation,transfers, compensation, social welfare, etc.) and strengthen
training at all Group companies under our basic policy forhuman resources management.

The Group positions valuing employees and empowering
people/organizations as the most important challenge under
the long-term vision for executing business strategy andrealizing achievements. We therefore aim to be “the leading
company for career fulﬁllment,” where employees take pride in
their work, have trust in the Company and its organizations,

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 with asense 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.
QLegal standards
Pregnancy

6 weeks
before birthChildbirth

8 weeks
after birth

12 months old

QKyorin’s own standards or additional provisions

End-April
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 April
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

QExpanded nursing care leave and breaks(186 days, vs. legally stipulated 93 days)

36 2019 ANNUAL REPORTQSupport system for remote nursing care

QNursing care seminars

Respect for Human Rights
The Kyorin Group is managed with respect for the human rights
of all people, and our Compliance Guidelines clearly state, “Alongwith understanding international norms regarding universally
recognized human rights, we will respect the values and characterof each individual, and will not engage in any form of discrimination in any situation, regarding each individual as being equalwith all others, regardless of position or function.” The Company

also respects the individuality of each employee, and has
formulated guidelines to prevent harassment, to create acomfortable workplace environment where employees feel atease. These guidelines cover sexual and power harassment, as
well as harassment related to pregnancy, childbirth, and childcare
and nursing care leave.

Regular Surveys on Employee Satisfaction
The Kyorin Group seeks to create a comfortable and rewarding
work environment that further enhances its employees’ “desire towork.” 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 nine
years. The results of the survey are used as reference as wework to improve the operation and ﬁrmly establish our humanresources management system, with the aim of becoming “theleading company for career fulﬁllment,” where employees takepride in their work, have trust in the Company, and work insolidarity with their coworkers.

Mental Health
The Kyorin Group provides mental-health education to managers
and employees. Our manager training focuses on prevention
and early detection of mental illness, by encouraging managers
to pay attention to their subordinates and promoting understanding of the speciﬁc symptoms of mental disorders. We also
encourage employees to gain knowledge about maintaining

mental health via our intranet and other means, and have createda 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, and prevent relapse.

Recognized as a “2019 Certified Health & Productivity Management
Outstanding Organization – White 500”
KYORIN Holdings, Inc. and KYORIN Pharmaceutical Co., Ltd.
have both been recognized as “2019 Certiﬁed Health & Productivity Management Outstanding Organizations – White 500” by
the Ministry of Economy, Trade and Industry (METI) and the
Nippon Kenko Kaigi. To realize our corporate philosophy of“Kyorin continues to fulﬁll its mission of cherishing life andbeneﬁting society by contributing to better health,” some of theaims outlined in the HOPE100 long-term vision are to be “Theleading company for career fulﬁllment” and “A company thatseeks to co-exist with society,” in addition, we are working forthe creation and continuing development of a vigorous society

in which people can live ahealthy and heartful life.
As a company that supports healthy lifestyles, weplace the utmost priority on
ensuring the “safety” and“health” of all persons involved
with the Kyorin Group, andare proactively pursuing
initiatives in the area of industrial safety and hygiene.

Industrial Safety and Hygiene
The Kyorin Group places the highest priority on the “safety” and“health” of our employees, and we are proactively pursuing
activities related to industrial safety and hygiene. One of our
EHS activities has been to formulate an industrial safety
and hygiene system, and we have set a goal of having zero

workplace accidents. As a result of the activities being implemented at workplaces across the Group, the frequency andextent of workplace accidents as measured by rate andseverity are well below industry average levels.

2019 ANNUAL REPORT 37

Structure Supporting Value Creation

Environmental Management
The Kyorin Group regards environmental issues as a challenge shared by all humanity, and is actively striving to preserve
the environment 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 the natural environment. We are working to reduce the environmental burden andpromote effective use of limited resources by conserving energy and resources, reducing waste and strengthening our managementof chemical substances. KYORIN Pharmaceutical Group Facilities Co., Ltd. has obtained ISO 14001 certiﬁcation, an international
standard for environmental management systems, at its Noshiro Plant and Inami Plant.
In our efforts to reduce CO2 emissions to combat global warming, we set a target of reducing CO2 emissions by 2% on averageannually until ﬁscal 2019, based on CO2 emissions of ﬁscal 2015 (30,444 tons) and are promoting such efforts. In ﬁscal 2018, our CO2
emissions were 28,823 tons.

Introducing Hybrid Cars to Reduce CO2 Emissions
The Kyorin Group 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 2019, all 1,001 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, 652 (approximately 65%) are hybrid vehicles, which wereintroduced in 2004. In addition, these vehicles adhere to the Ministry of theEnvironment’s “Eco-Driving” guidelines, as their operation regards the impact on
the environment and trafﬁc safety.

Environmentally Friendly R&D Center
In May 2017, the ReHP technology newly installed at KYORIN Pharmaceutical’s
WATARASE Research Center, which commenced operations in ﬁscal 2015, wasawarded an honorable mention for the Kanto chapter of the Japanese Associationof Building Mechanical and Electrical Engineers’ carbon neutral prize for construction
equipment contributing to the achievement of a low-carbon society. During ﬁscal
2018, this system reduced electric power consumption by 81,071 kWh and CO 2
emissions by roughly 41 tons compared with conventional heat pumps for air
conditioning and heating, for approximately 32% in energy savings.
A Renewable Energy Heat Pump (ReHP) is a highly efﬁcient heat pump that uses renewable energy,
and the ReHP installed at two adjacent buildings (CS and LAB1) at the WATARASE ResearchCenter uses geothermal heat and unused waste heat from a water chiller as a heat source, andcirculates heated water in a single loop, which is used by air conditioning and water heating
equipment, to increase energy efﬁciency.

Biodiversity
KYORIN Pharmaceutical Group Facilities Co., Ltd.’s Noshiro Plant participates in acitizen’s volunteer activity to protect the Kaze-no-Matsubara pine forest near the plant,
to provide local residents with a place to relax. In ﬁscal 2018, a total of 26 plant
employees removed dead brush as part of an activity to preserve local biodiversity.
In addition, KYORIN Pharmaceutical’s WATARASE Research Center has installed
birdhouses in trees adjacent to the Watarase Yusuichi wetland and conﬁrmed thelocation of nests as a way to enhance the environment for wild animals in the Center’s
grounds.

38 2019 ANNUAL REPORTThe Kyorin Group Environmental Targets and Progress (Fiscal 2018)
Target initiatives

Fiscal 2018 plan(incl. numerical targets)

Method for achieving

Fiscal 2018 actualSelfassessment

Reduce fuel consumption (crude oil equivalent) through newcapital investment

13,036kR(FY2017 actual)

13,037kR(100.0%)+++

Use hybrid cars to improve fuel efﬁciency and reduce
exhaust emissions

683/1,025 (66.6%, FY2017 actual)652/1,001 (65.2%)++

Reduce total CO2 emissions

29,432t

28,823t (97.9%)+++

Reduce total waste

772t (FY2017 actual)

763t (98.8%)+++

Promote recycling

57.6% (FY2017 actual)

59.4%

+++

Amount landﬁlled

63t (FY2017 actual)68t (107.9%)++

Zero-landﬁll challenge

8.2%

8.9%

++

3. Managing chemical
substances

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

14.7t (FY2017 actual)

11.4t

+++

4. Preventing atmosphericpollution

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

Continuous measurement

At or below standards+++

5. Preventing water pollution

Process wastewater, including by primary processing plants,
and management of pH, biochemical oxygen demand (BOD),
and suspended solids (SS) levels

Continuous measurement

At or below standards+++

6. Preventing deforestation

Recycle paper, use recycled paper, and promote a paperlessofﬁce environment

55t (FY2017 actual)

50t (90.9%)+++

7. Protecting destruction ofozone layer

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

Elimination completed in FY2010—+++

8. Preventing groundsubsidence

Reduce groundwater usage and increase drinking water
reuse

67.1% (FY2017 actual)

67.1%

++

9. Noise reduction

Periodic measurement

Continuous measurement

At or below standards+++

10. Protecting biodiversity

Communicate with local communities (activities to contributeto 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
in August+++

1. Preventing global warming(CO2 reduction and energy
conservation)

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

2019 ANNUAL REPORT 39

Structure Supporting Value Creation■社会貢献活動
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 Visits
Since ﬁscal 2017, we have planned and organized visits to schools by
employees to teach and demonstrate the correct ways of using medicine
and washing your hands to elementary and junior high school children, tonurture the next generation. During ﬁscal 2018, head ofﬁce and Group
company employees visited a total of 11 elementary and junior high schools
in the communities of our workplaces around Japan. This is one of oursocial contribution activities that embodies our corporate philosophy of“Contributing to better health.”

Work Experience Programs
Each Group facility offers internships, provides workplace tours andhands-on workshops for junior and senior high school students, andsends staff to teach in classrooms.

Health Information Website for Children
The Kyorin Group has supported the “Kyorin Group Presents the Great
Adventure for the Body’s Secrets” program since 2016, based on the ideaof supporting healthy lives for the children of the next generation. Duringﬁscal 2018, we launched a portal site related to this program, “Teacher,
Teach Me about the Body’s Secrets” that shows videos of “impure thingsin the body” to deepen the understanding of diseases and how the bodyworks to (nursery school through early elementary school) children.
We will continue to work to enable children to have an interest in andenjoy learning about their own bodies.
URL: http://www.karada-kyorin.com (Japanese only)

Activities with Patients and Medical Professionals

Listening to patients and medical professionals as we strive to address a variety of needs
Drug Manufacturing from Patient’s Perspective

Providing Information via “Doctor Salon”

We put ourselves in our patients’ shoes, striving to develop
pharmaceutical forms that are easy to administer, andimprinting them with their names to keep patients from taking
the wrong medicine.

The Kyorin Group sponsors “Doctor Salon,” a radio programfor physicians on Radio NIKKEI (shortwave) that answers
questions related to day-to-day clinical practice from generalpractitioners across Japan. In addition, the program’s content
is distributed as a brochure that also introduces overseas
literature, and back issues are available via a website.
The audio of “Doctor Salon”
is also distributed as a
podcast. 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, and also provide
accurate and easy-to-understand responses to inquiries frompatients and the general public. In ﬁscal 2018, we responded
to more than 20,000 inquiries.

40 2019 ANNUAL REPORTCommunication with Local Communities
Health Challenge Program
The Health Challenge program was launched in 2017 as a new activity to promote employees’
health and contribute to local communities by donating items that are useful for maintaining
health. All Group employees form teams at their workplace and count how many steps theytake during a two-month period, competing in terms of points based on the number of steps,
and health equipment is donated to a social welfare center located near the workplaces of
the two top teams. There were 207 teams that participated during ﬁscal 2018, and healthequipment including a “body fat monitor,” a “body composition monitor” and exercise bikewas donated to facilities in Nanto City, Toyama Prefecture, and the town of Nogi in Tochigi
Prefecture, where the two top teams are located.

First-Aid and Lifesaving Courses for Employees
As part of KYORIN Pharmaceutical Co., Ltd.’s CSR activities, the Company’s approximately 750 medical representatives receiveﬁrst-aid training, covering the necessity of ﬁrst aid, CPR, the use of AEDs, and ways to stop bleeding. Some employees from the headofﬁces of KYORIN Holdings, Inc., KYORIN Pharmaceutical Co., Ltd., and KYORIN Rimedio Co., Ltd. also attend these classes. In addition
to its corporate activities of collecting and providing information regarding the appropriate use of pharmaceutical products, the Kyorin
Group strives to coexist in harmony as a corporate citizen of local communities.

Sponsoring Sporting Events
Based on our corporate message of “Your Health is Kyorin’s Mission,” the Shimotsuke
Soccer Workshop in Nogi was held for the 19th time with the aim of providing local children
with an easily accessible opportunity to think about and experience their own healthmanagement and improve their skills. Coached by former J.League professional soccer
player and current sports journalist Tetsuo Nakanishi, many children enjoy energeticallyplaying soccer each year. Donations are also solicited at the workshop and are used tohold events to support the local community.

Support for Great East Japan Earthquake Recovery
Since ﬁscal 2011, KYORIN Pharmaceutical Co., Ltd. has supported the Sunﬂower Project,which brings smiles and cheer to regions affected by the Great East Japan Earthquake.
In ﬁscal 2019, the program’s ninth year, 95 employees of the WATARASE Research Centercultivated 300 pots of sunﬂower seedlings and donated them to the city of Natori in
Miyagi Prefecture.

Publishing Websites for Medical Professionals and Patients

Providing Ailments Information

We strive to meet medical professionals’ needs for information
by posting product-related information, the latest academic
information, and useful information for day-to-day clinicalpractice on websites for medical professionals including
Kyorin Medical Bridge. We also launched a website for patientsin July 2019. This site endeavors to raise patients’ adherence
by providing information on the correct ways to take medications
and information on illnesses.

We create ailment information tools to be used when a medical
professional obtains a patient’s informed consent, with theaim of helping the patient correctly understand their ailments
and improve their quality of life.

Kyorin Medical Bridge, a website
for medical professionals

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

Website for patients2019 ANNUAL REPORT 41

Financial and Corporate Data

Ten-Year Consolidated Financial Highlights
KYORIN Holdings, Inc. and Its Consolidated Subsidiaries
Fiscal years ended March 31/As of March 31

2010

2011

2012

2013

99,764¥ 104,069¥ 103,232¥ 107,031

Ethical drugs business*1

96,422

101,271

100,654

105,162

Healthcare business*2

3,342

2,797

2,577

1,869

Operating income

13,261

16,443

14,464

17,948

Profit attributable to shareholders of
KYORIN Holdings, Inc.

8,848

10,927

9,231

12,422

Net cash provided by operating activities

12,027

6,805

8,913

11,544

Net cash provided by (used in) investing activities

412(1,806)(4,926)(7,187)

Net cash provided by (used in) financing activities(3,297)201(7,412)(5,132)

Free cash flow

12,439

4,999

3,987

4,357

R&D expenses

11,807

12,495

13,964

11,059

Capital expenditures

1,291

1,668

1,952

6,576

Depreciation and amortization

2,810

2,458

2,363

2,738

Total assets

137,190

147,234

145,673

154,968

Total net assets

104,911

111,706

118,201

129,099

Net assets¥ 1,403.60¥ 1,494.83¥ 1,581.94¥ 1,727.86

Basic profit

118.37146.21123.54166.25

Cash dividends

52.00

45.00

45.00

50.00

Operating income margin (%)

13.3

15.8

14.0

16.8

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

8.9

10.5

8.9

11.6

R&D expenses / Net sales ratio (%)

11.8

12.0

13.5

10.3

Total shareholders’ equity ratio (%)

76.5

75.9

81.1

83.3

ROE (%)

8.8

10.1

8.0

10.0

Consolidated payout ratio (%)

42.2

30.8

36.4

30.1

PER (times)

11.42

9.68

12.68

13.82

2,246

2,294

2,297

2,444

Net sales¥

Per Share Information

Key Performance Indicators

Non-Financial Information
Number of employees*1 F rom fiscal 2016 (ended March 31, 2017), the pharmaceutical business was renamed the ethical drugs business. Until fiscal 2015 (ended March 31, 2016), the pharmaceutical businesscomprised new drugs, generic drugs, and over-the-counter drugs, but from fiscal 2016 over-the-counter drugs were included in the healthcare business.
*2 With the transfer of the skin care business effective April 1, 2017, from fiscal 2017 (ended March 31, 2018) the healthcare business consisted of environmental hygiene products andover-the-counter drugs and others.
*3 Figures shown are adjusted to retroactively apply certain revisions to accounting standards related to tax-effect accounting.

42 2019 ANNUAL REPORTMillions of yen

2014

2015

2016

2017

2018*32019¥ 111,400¥ 113,121¥ 119,483¥ 115,373¥ 110,640¥ 113,620

109,678

111,771

113,970

109,566

104,703

107,859

1,721

1,349

5,512

5,807

5,937

5,761

17,607

14,737

19,636

10,413

8,822

8,972

12,025

12,064

13,639

7,305

6,574

6,869

19,293

6,391

11,137

16,386

10,456340(2,477)(1,364)650(13,142)(6,038)14,939(3,704)(5,233)(2,245)(5,721)(3,735)(27,315)

16,816

5,027

11,787

3,244

4,418

15,27911,35913,51413,01913,56914,243

10,790

6,500

2,655

7,218

3,051

2,885

2,306

3,153

3,053

3,730

3,619

3,644

2,940

169,378

183,383

197,825

192,668

196,736

173,034

137,821

148,600

157,049

157,837

163,297

123,395yen¥ 1,844.61¥ 2,009.45¥ 2,131.67¥ 2,146.83¥ 2,214.13¥ 2,154.05

160.95161.63184.28

99.45

89.28

104.68

52.00

52.00

58.00

58.00

58.00

75.00

15.8

13.0

16.4

9.0

8.0

7.9

10.8

10.7

11.4

6.3

5.9

6.0

10.2

11.9

10.9

11.8

12.9

9.5

81.4

81.0

79.4

81.9

83.0

71.3

9.0

8.4

8.9

4.6

4.1

4.8

32.3

32.2

31.8

59.3

65.9

72.6

12.25

17.78

11.63

23.64

22.39

20.64

2,452

2,445

2,420

2,382

2,348

2,297

2019 ANNUAL REPORT 43

Financial and Corporate Data

Performance Highlights

Financial Information

Basic profit per share/Consolidated payout ratio

Net sales
Ethical drugs business(Millions of yen)
125,000

Healthcare business

Basic profit per share

(Yen)
200

120,000

Consolidated payout ratio (%)

184.28161.63

160

80

72.6
65.9
59.3

60

5,512
115,000

1,349

5,807

120

5,761

110,000
5,937
105,000

111,771

104,703

100,000
0

2014

80

113,970
109,566

2015

2016

2017

107,859

Operating income

24,00013.0

16,000Operating income margin (%)
18

150,000

9.0
10,413

2015

2016

8.0

7.9

8,822

8,972

6

2014

2015

2016

2017

2018 (FY)

197,825

183,383
148,600

192,668
157,837

157,049

Total net assets

196,736
163,297

173,034
123,395

100,000

2014

2015

ROE (%)
9

8.9

R&D expenses(Millions of yen)
20,00016,00010.9

16,00013,63912,064

7,305

8,000

2018 (FY)

2017

4.8

13,514

6

R&D expenses/Net sales ratio

13,01911.8
13,56912
14,243

12,000

6,869

9.5
10,790

4.1
6,574

2014

44 2019 ANNUAL REPORT

2015

2016

2017

2018 (FY)

8

4
4,000

0

10

6

8,000
3

4,000

(%)
14

12.9
11.9

4.6

2016

R&D expenses/R&D expenses/Net sales ratio

Profit attributable to shareholders of KYORIN Holdings, Inc.
8.4

0

0

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

0050,0004,000

12,0002018 (FY)2017

Total assets(Millions of yen)
250,000
200,000

8,000(Millions of yen)
20,0002014

12

12,000020

Total assets/Total net assets

19,636

14,737

40

31.8

0

2018 (FY)

16.4

20,00089.28

40Operating income/Operating income margin(Millions of yen)
28,000104.68

99.45
32.2

0

2

2014

2015

2016

2017

2018 (FY)0Non-Financial Information
Human Resources

Environment

Waste volume

Number of employees(Persons)
2,500

2,445

2,420

2,382

2,348

(t/millions of yen)
100

2,297

2,000

75

80

73

70

67

2017

2018 (FY)

64
1,500

60

1,000

40

500

20

0

2014

2015

2016

2017

2018 (FY)

1.20

Chemical industry

1.20

1.06

0.48

0.90

2016

(t)
30,44428,00028,06529,19629,432

28,823201620172018 (FY)

0.81
0.81

0.76

0.88

21,00014,000

0.41

0.40

0.24
0.00

2015

35,000

1.02

0.96
0.72

Entire manufacturing industry

1.15
1.06

2014

CO2 emissions from factories and research laboratories

Rate of work accidents
KYORIN Pharmaceutical

0

2014

2015

0.22

0.20

0.21

2016

2017

2018 (FY)

7,000
0

2014

2015

Rate of work accidents: Number of deaths and injuries due to industrial accidents per total working hours x 1,000,000(indicates frequency of accidents)
C alculation method: Number of deaths and injuries due to industrial accidents (excluding accidents while commuting) /Total working hours x 1,000,000

Severity of work accidents
KYORIN PharmaceuticalVolume of water used

Chemical industry

Entire manufacturing industry

Total drinking water(t)

Total groundwater

300,000

0.20
0.17

240,000

0.15

0.10

72,00074,000

0.09

0.09
0.06

0.05

0.04
0.002

0

2014

0.000

2015

0.07
0.08
0.03

180,000

0.06

120,000

0.023
0.001

0.016

2016

0.10

2017

2018 (FY)

208,000

180,000

69,000177,000

79,00077,000161,000

157,000

60,000
0

2014

2015

2016

2017

2018 (FY)

Severity of work accidents: Number of lost working days per total working hours x 1,000 (indicates magnitude of accidents)
Calculation method: Number of lost working days (excluding accidents while commuting) / Total working hours x 1,000

2019 ANNUAL REPORT 45

Financial and Corporate Data

Financial Analysis
Industry Trends in Japan
Japan’s pharmaceutical industry experienced slow market growthduring fiscal 2018, as the government introduced various measures to make medical spending and pharmaceutical spending
more efficient, including drastic drug price revisions (a 7.5%
reduction on an industry average basis) in April 2018, as a way tosecure the financial resources needed to cover social security
expenses.
Faced with this challenging environment, the Kyorin Group
strove to strengthen its foundation for growth and enhance its
earnings strength under the management slogan of “Implementing speedy transformation” for fiscal 2018, based on the
HOPE100-Stage 2- medium-term business plan (covering fiscal
2016-2019) for achieving the Group’s HOPE100 long-term vision(extending to fiscal 2023). The core ethical drugs businessworked to create original new drugs with global potential andcreate a continuous stream of new drugs, and create markets
for these new drugs with a greater sense of speed than in thepast. In peripheral businesses, we worked to accelerate growthand enhance earnings strength while also pursuing low-cost
operations Companywide, as we strove to achieve our numericaltargets and gain greater support and recognition from stakeholders.

Consolidated Operating Results
Consolidated net sales for fiscal 2018 rose ¥2,979 million fromthe previous fiscal year, or 2.7%, to ¥113,620 million. Despite theeffect of the April 2018 drug price revisions (an overall reductionin the 7% range for KYORIN Pharmaceutical Co., Ltd.), total sales
at the ethical drugs business rose, owing to an increase indomestic sales of new drugs on continued growth in our main
products and on contributions from products for which sales
were transferred to the Group and newly released products,
which offset a decline in overseas sales of new drugs in theabsence of the previous fiscal year’s one-time revenue associatedwith progress in the development of an out-licensed product,
while generic drug sales exceeded the sales of the previous
fiscal year. Sales at the healthcare business declined marginally.
In terms of profit, drug price revisions raised the cost of sales
ratio, and with a decrease in one-time revenue gross profit
declined ¥4,166 million from the previous fiscal year. At the sametime, expense reductions led to a ¥4,316 million reduction in
SG&A expenses (including a ¥3,452 million decrease in R&D
expenditures), absorbing the decline in gross profit, and as aresult operating income rose ¥150 million, or 1.7%, to ¥8,972
million. Profit attributable to shareholders of KYORIN Holdings,
Inc. rose 4.5%, to ¥6,869 million.

Assets, Liabilities, and Net Assets
Current assets as of March 31, 2019 decreased ¥5,042 million
from the previous fiscal year-end, on increases in notes andaccounts receivable, merchandise and finished goods, andwork in process, and a decrease in cash and cash in banks.

46 2019 ANNUAL REPORT

Fixed assets decreased ¥18,659 million, with an increase inintangible fixed assets and a decrease in investment securities.
As a result, total assets decreased ¥23,701 million from the endof the previous fiscal year, to ¥173,034 million.
Liabilities grew ¥16,200 million from the previous fiscal year-end,to ¥49,639 million, on increases in notes and accounts payable
and in short-term bank loans, and decreases in accrued income
taxes, other current liabilities, and long-term debt.
Net assets decreased ¥39,902 million from the end of theprevious fiscal year, to ¥123,395 million, reflecting decreases inretained earnings and in the unrealized holding gain on othersecurities, and from the acquisition and retirement of treasury
stock shares.
As a result, the total shareholders’ equity ratio at the fiscal
year-end was 71.3%, marking an 11.7 percentage point decline
from the end of the previous fiscal year.

Cash Flows
Operating activities during fiscal 2018 generated net cash in theamount of ¥340 million, with the main items being profit before
income taxes of ¥9,359 million, depreciation and amortization of¥2,940 million, a ¥4,773 million increase in notes and accounts
receivable, a ¥2,112 million increase in inventories, and the payment of ¥3,476 million in income taxes paid.
Investing activities generated net cash in the amount of ¥14,939
million, with outlays of ¥2,170 million for the purchase of property,
plant and equipment and ¥2,199 million for the purchase ofintangible assets being more than offset by ¥19,997 million ofproceeds from the sales and redemption of investment securities.
Financing activities used net cash in the amount of ¥27,315
million, with ¥19,975 million of inflow from an increase in shortterm bank loans, net, as well as outlays of ¥1,582 million for
repayments of long-term debt, ¥40,839 million for the acquisitionof treasury stock, and ¥5,068 million as cash dividends.
As a result, cash and cash equivalents at the end of fiscal 2018
totaled ¥30,914 million, marking a ¥12,057 million decrease fromthe previous fiscal year-end.

Outlook for Fiscal 2019
We expect drug price revisions scheduled for October 2019 tocreate an even more challenging market environment for thedomestic ethical drugs business.
As a result, the Kyorin Group will make every effort to evolve
its pharmaceutical business model to facilitate continuous growthat the ethical drugs business based on the HOPE100-Stage
2- medium-term business plan (covering fiscal 2016-2019) for
achieving the Group’s HOPE100 long-term vision. We will also
work to develop the healthcare business into a core businessand search for potential new core businesses, as we strive toachieve the Kyorin Group’s numerical targets and gain greater
support and recognition from stakeholders.
With regard to net sales in fiscal 2019, although we expect
lower domestic sales of new drug products, we are forecastingan overall increase in net sales at the ethical drugs business from

increased overseas sales of new drugs and of generic drugs.
We are also forecasting increased sales at the healthcare business,*1 for an overall increase in net sales. For domestic new drug
products, although we expect sales growth for our main products
Flutiform, Desalex, and Beova, in addition to the anticipatedeffect of drug price revisions accompanying the consumption
tax increase scheduled for October 2019, with the release of ageneric version, we expect sales of NASONEX to decline. We areforecasting increased sales of generic drugs with the scheduled
release of an authorized generic version of NASONEX.

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 of greaterthan 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 production or
the cessation of operations, thereby affecting the Group’s performance. Operations at the Noshiro Plant (Noshiro, Akita Prefecture,
Japan) of Kyorin Group company KYORIN PharmaceuticalCo., Ltd. were not affected by the Great East Japan Earthquakethat struck on March 11, 2011. No plant personnel were injured,and the plant itself sustained no physical damage from the disaster.
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.

2019 ANNUAL REPORT 47

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)

2019

2018

2019

Cash and cash in banks (Notes 4 and 10)¥ 32,007¥ 44,117$  288,325

Notes and accounts receivable (Note 10)52,63547,862474,146

Short-term investments (Notes 5 and 10)

501

599

4,513

Merchandise and finished goods

12,924

11,749116,422Work in process

3,198

1,282

28,808Raw materials and supplies

9,297

10,276

83,749

4,384

4,101

39,492

(45)

(43)

(405)

114,904

119,946

1,035,078

Land

2,093

2,082

18,854

Buildings and structures

31,877

31,663

287,154

Machinery and vehicle

21,846

21,387

196,793

635

589

5,720

AssetsCurrent assets:

Inventories:

Other
Less allowance for doubtful accounts
Total current assets

Property, plant and equipment:

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

644

41

5,801

8,731

8,405

78,651(44,035)(42,269)(396,676)

21,792

21,901

196,307

29,79950,715

268,435

Investments and other assets:
Investment securities (Notes 5 and 10)
Long-term loans

4

4

36

Asset for retirement benefits (Note 11)

88

133

793

Deferred tax assets (Note 12)

1,529

726

13,774

Other

4,961

3,356

44,690

(44)

(47)

(396)

36,33854,888327,340¥173,034¥196,736$1,558,724

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

48 2019 ANNUAL REPORTLiabilities and net assets

Millions of yen

Thousands of
U.S. dollars(Note 3)

2019

2018

2019

¥ 11,441¥ 10,266$  103,063

20,932

957

188,560

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

80

99

721

Accrued income taxes (Note 12)

815

2,317

7,342

Accrued bonuses to employees

2,241

2,381

20,187

48

52

432

Reserve for sales returns

—

428

—

5,919

8,631

53,32041,48025,134

373,660

Long-term debt (Note 6)

2,634

3,912

23,728

Lease obligations (Note 6)

376

411

3,387

2,064

1,255

18,593

Provision for loss on guarantees
Other
Total current liabilities

Long-term liabilities:

Deferred tax liabilities (Note 12)
Provision for stock-based payments
Liability for retirement benefits (Note 11)
Other
Total long-term liabilities

11

4

99

2,485

2,136

22,385

587

582

5,288

8,159

8,303

73,498Contingent liabilities (Note 15)
Net assets:
Shareholders’ equity (Note 7):
Common stock, no par value:
Authorized – 297,000,000 shares in 2019 and 2018

700

700

6,306

Capital surplus

4,752

4,752

42,807Retained earnings

128,999

152,542

1,162,048(17,707)(2,506)(159,508)

116,744

155,489

1,051,653

8,925

10,10180,398

56

83

504

Retirement benefits liability adjustments(2,331)(2,377)(20,998)

Total accumulated other comprehensive income

6,651

7,808

59,914

Issued – 64,607,936 and 74,947,628 shares in 2019 and 2018

Treasury stock, at cost (Note 17):
7,322,490 shares in 2019
1,194,974 shares in 2018
Total shareholders’ equity
Accumulated other comprehensive income:Unrealized holding gain on other securities
Translation adjustments

Total net assets

123,395

163,297

1,111,567

Total liabilities and net assets¥173,034¥196,736$1,558,724

See notes to consolidated financial statements.

2019 ANNUAL REPORT 49

Financial and Corporate Data

Consolidated Statement of Income
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2019
Thousands of
U.S. dollars(Note 3)

Millions of yen

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 8)
Operating income
Other income (expenses):
Interest and dividend income
Interest expense
Equity in gains of affiliates
Foreign exchange gain (loss)
Losses on sales and retirement of property, plant and equipment, net (Note 9)
Gain on sales of shares of subsidiaries and affiliates
Gain on sales of investment securities, net (Note 5)
Loss on devaluation of investment securities
Settlement-related costs
Provision for loss on guarantees
Commission for purchase of treasury stock
Subsidy income
Other, net
Other income, net
Profit before income taxes
Income taxes (Note 12):Current
Deferred
Total income taxes
ProfitProfit attributable to shareholders of KYORIN Holdings, Inc.

2019

2018

2019

¥113,620
56,21057,40948,436
8,972¥110,640
49,064
61,57652,753
8,822$1,023,511
506,351
517,152
436,32180,822

415
(64)
36
54
(107)
—
28
(0)
—
—
(245)
138
131
386
9,359

398
(24)
28
(53)
(51)
576
—
—
(379)
(428)
—
53
119
238
9,061

3,738
(577)
324
486
(964)
—
252
(0)
—
—
(2,207)
1,243
1,180
3,477
84,308

2,004
485
2,490
6,869
¥ 6,869

2,759
(272)
2,486
6,574
¥ 6,574

18,052
4,369
22,43061,87761,877$

See notes to consolidated financial statements.

Consolidated Statement of Comprehensive Income
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2019

ProfitMillions of yen

Thousands of
U.S. dollars(Note 3)

2019

2018

2019

¥6,869¥6,574$61,877

Other comprehensive income (Note 13):

(1,169)2,456(10,531)Translation adjustments

(27)

(31)

(243)

Retirement benefits liability adjustments

46

133

414

(6)
(1,157)¥5,711(0)
2,557¥9,132(54)(10,422)$51,446¥5,711¥9,132$51,446———

Unrealized holding gain (loss) on other securities

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.

50 2019 ANNUAL REPORT

Consolidated Statement of Changes in Net Assets
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2019
Millions of yen
Accumulated othercomprehensive income

Shareholders’ equity

Number ofshares issued(Common stock)

Commonstock

CapitalsurplusRetainedearnings

Treasurystock,
at costTotal
shareholders’equityUnrealized
holding
gain (loss)
on othersecurities

Translation
adjustments

Retirement
benefits
liability
adjustments

Total
accumulated
othercomprehensive
incomeTotal
net assets

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 to shareholders
of KYORIN Holdings, Inc.

—

—

—

6,574

—

6,574

—

—

—

—

6,574

Purchase of treasury stock

—

—

—

—

(0)

(0)

—

—

—

—

(0)

Disposals of treasury stock

—

—

—

—

662

662

—

—

—

—

662

Retirement of treasury stock

—

—

—

—

—

—

—

—

—

—

—

Other changes

—

—

—

—

—

—

2,455

(31)

133

2,557

2,557

Balance as of April 1, 2017

—

—

—

2,241

662

2,903

2,455

(31)

133

2,557

5,460

74,947,628

700

4,752

152,542(2,506)

155,489

10,10183(2,377)

7,808

163,297

Cash dividends

—

—

—

(5,081)—(5,081)

—

—

—

—

(5,081)

Profit attributable to shareholders
of KYORIN Holdings, Inc.

—

—

—

6,869

—

6,869

—

—

—

—

6,869

Purchase of treasury stock

—

—

—

—

(40,838)(40,838)

—

—

—

—

(40,838)

Disposals of treasury stock

—

—

—

—

306

306

—

—

—

—

306

Retirement of treasury stock

10,339,692——(25,330)

25,330

—

—

—

—

—

—

—

—

—

—

—

—

(1,175)(27)

46(1,157)(1,157)

Net changes during the year
Balance as of April 1, 2018

Other changes
Net changes during the year

—

—

—

(23,542)(15,201)(38,744)(1,175)(27)

46(1,157)(39,902)

Balance as of March 31, 2019

64,607,936¥700¥4,752¥128,999¥(17,707)¥116,744¥ 8,925¥ 56¥(2,331)¥6,651¥123,395

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

Shareholders’ equity

Number ofshares issued(Common stock)

Commonstock

CapitalsurplusTreasurystock,
at costTotal
shareholders’equityUnrealized
holding
gain (loss)
on othersecurities

Translation
adjustments

Retirement
benefits
liability
adjustments

Total
accumulated
othercomprehensive
incomeTotal
net assets$1,374,128 $ (22,575)$1,400,676$90,992$748$(21,412)$70,336$1,471,012(45,771)

—

—

—

—

(45,771)Retainedearnings

74,947,628$6,306$42,807

Cash dividends

—

—

—

(45,771)

Profit attributable to shareholders
of KYORIN Holdings, Inc.

—

—

—

61,877—61,877————61,877Purchase of treasury stock

—

—

—

—

(367,877)(367,877)

—

—

—

—

(367,877)

Disposals of treasury stock

—

—

—

—

2,757

2,757

—

—

—

—

2,757

Retirement of treasury stock

Balance as of April 1, 2018—10,339,692——(228,178)

228,178

—

—

—

—

—

—

Other changes

—

—

—

—

—

—

(10,585)

(243)

414

(10,422)(10,422)Net changes during the year

—

—

—

(212,071) (136,934)(349,014)(10,585)

(243)

414

(10,422)(359,445)

Balance as of March 31, 2019

64,607,936$6,306$42,807$1,162,048 $(159,508)$1,051,653$80,398$504$(20,998)$59,914$1,111,567

See notes to consolidated financial statements.

2019 ANNUAL REPORT 51

Financial and Corporate Data

Consolidated Statement of Cash Flows
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2019

Millions of yen

Thousands of
U.S. dollars(Note 3)

2019

2018

2019

¥ 9,359
2,940
(1)
(139)
—
599
(139)
(36)
(428)
(415)
64
245
107
(28)
0
—
(4,773)(2,112)
1,175
349(3,309)
3,459
422
(64)
(3,476)340¥ 9,061
3,644
(16)
(293)
(16)
586
61
(28)
428
(398)
24
—
51
—
—
(576)
(1,842)
901
(834)
(912)
1,889
11,729405(24)(1,655)
10,456$ 84,308
26,484(9)(1,252)—
5,396(1,252)(324)(3,856)(3,738)
577
2,207
964
(252)
0
—
(42,996)(19,025)
10,585
3,144(29,808)
31,1593,801(577)(31,312)
3,063

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 provided by (used in) investing activities

(622)
659
(2,170)23(2,199)(620)
19,997——(129)
14,939(768)
722(3,387)91(486)(7,099)
5,000
(399)
434
(146)
(6,038)(5,603)
5,936(19,548)207(19,809)(5,585)
180,137——(1,162)
134,573

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

19,975(104)
303(1,582)(40,839)(5,068)(27,315)(22)(12,057)
42,971¥30,914

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

179,939(937)
2,729(14,251)(367,886)(45,654)(246,059)(198)(108,612)
387,091$278,479

Operating activities
Profit before income taxes
Depreciation and amortization
Decrease in allowance for doubtful accounts
Decrease in accrued bonuses to employees
Decrease in accrued retirement benefits for directors and corporate auditors
Decrease in asset for retirement benefits(Decrease) increase in liability for retirement benefits
Equity in gains of affiliates(Decrease) increase in provision for loss on guarantees
Interest and dividend income
Interest expense
Purchase of treasury stock
Losses on sales and retirement of property, plant and equipment, net
Gain on sales of investment securities, net
Loss on devaluation of investment securities
Gain on sales of shares of subsidiaries and affiliates
Increase in notes and accounts receivable(Increase) decrease in inventories
Increase (decrease) in notes and accounts payable
Increase (decrease) in consumption taxes payable
Other, net
SubtotalInterest and dividend received
Interest paid
Income taxes paid
Net cash provided by operating activities

See notes to consolidated financial statements.

52 2019 ANNUAL REPORTNotes to Consolidated Financial Statements
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2019

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 in Japan (“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 2018 consolidated financial statements to conform to the 2019presentation. 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 influencein 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, arecarried at cost or less. Where there has been a permanent decline in the value of such investments, the Company
has written down the investments.
Among the consolidated subsidiaries, Kyorin USA, Inc., Kyorin Europe GmbH, and ActivX Biosciences, Inc. close
their books of account at December 31 for financial reporting purposes. Their financial statements are used for
preparing the consolidated financial statements, and necessary adjustments are made to the consolidated financial
statements for any significant transactions between their balance sheet date (December 31) and the consolidatedbalance 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 componentof 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, and short-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 othersecurities 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 atcost 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.

2019 ANNUAL REPORT 53

Financial and Corporate Data(f) Depreciation and Amortization (Except for Leased Assets)
Depreciation of property, plant and equipment is calculated by the straight-line method based on the estimated useful
lives of the respective assets. The useful lives of property, plant and equipment 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 forinternal 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 the tax
bases of the assets and liabilities and are measured using the effective tax rates and laws which will be in effectwhen 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 period of service
on the benefit formula basis.
Prior service cost is amortized as incurred by the straight-line method over the average remaining years of serviceof 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 recognized primarily
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) Appropriation of Retained Earnings
Appropriation of retained earnings with respect to a given financial period is made by resolution of the Board of
Directors’ meeting for dividend and resolution of the ordinary general shareholders’ meeting for other appropriations(see Note 7).
(l) Accounting Change
Change in Accounting Policies Difficult to Distinguish from Changes in Accounting Estimates
Previously, the Company and its domestic consolidated subsidiaries have applied the declining-balance method forthe depreciation method of property, plant and equipment (excluding leased assets), and the straight-line method forbuildings acquired on or after April 1, 1998 (excluding leasehold improvements) and leasehold improvements andstructures acquired on or after April 1, 2016. Overseas consolidated subsidiaries have applied the straight-line method.
The Company and its domestic consolidated subsidiaries changed the depreciation method to the straight-line methodfrom the fiscal year ended March 31, 2019.
One of the priority strategies of the Group’s (the Company and its consolidated subsidiaries) medium-term businessplan (2016-2019), HOPE 100 Stage 2, is “Enhanced low cost structure: Reform of the cost structure through optimization within the Group” and the Group has been conducting the overall optimization of production operations throughcollaborations between its Group companies. As a result, the Noshiro Plant of KYORIN Pharmaceutical Co., Ltd.
and the Production Division of KYORIN Rimedio Co., Ltd., which are consolidated subsidiaries of the Company, andKYORIN Pharmaceutical Group Facilities Co., Ltd. (Koka, Shiga), which was a consolidated subsidiary of the Company,
were integrated into a new manufacturing subsidiary as of April 1, 2018.

54 2019 ANNUAL REPORTPreviously, the production volumes of the three plants differed. However, by integrating these plants, the Group willproduce generic drugs, which are expected to increase in production, by using production facilities for new drugs andconsolidate production of drugs with similar production processes and forms, regardless of new drugs or genericdrugs and the Group expects to remove fluctuations in plant capacity utilization and pursue the efficient use of assets.
Furthermore, in research and development, priority strategies of the medium-term business plan (2016-2019),
HOPE 100 Stage 2, are “Enhancing drug discovery capabilities: Initiatives for first-in-class new drug discovery” and“Promoting the generic drugs business by making the most of its characteristics.” Capital investments to achieve ahigh-level stabilization of research system came to an end by establishment of WATARASE Research Center andTakaoka Drug Discovery Laboratory so investment level will be stable going forward. In development of new drugs,
the Group has been studying development of an organization system to be able to discover the early stage PCC(pre-clinical development candidates) through the efficient expansion of exploratory research and development
research. Since the establishment of WATARASE Research Center in 2015, the Group has been working to assign
facilities, organizations and personnel to achieve seamless, efficient and stable research activities and expects toensure the discovery of the early stage PCC. In addition, generic drugs are now expected to account for 80% of thepharmaceutical market by volume. The Group established Takaoka Drug Discovery Laboratory in 2017 to handle theincrease in the number of in-house development items and this will ensure a high-level stability in the number of items
for generic drug development from the current fiscal year.
Under these situations, the Group reviewed the usage of property, plant and equipment and found the capacity
utilization in the manufacturing department and research department will be stable and balanced going forward.
Accordingly, the Group decided to apply the straight-line method in place of the previous depreciation method
based on the judgment that it is better suited for the actual condition of the Group’s management to allocate depreciation expenses evenly over the life of the assets.
As a result of this change, depreciation expense decreased by ¥697 million ($6,279 thousand), operating profit
and profit before income taxes increased by ¥664 million ($5,981 thousand) and ¥663 million ($5,972 thousand),
respectively, compared with the previous method.
(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 UnitedStates of America (“FASB”) jointly developed a comprehensive accounting standard for revenue 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 andTopic 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 of comparability offinancial statements, which is one of benefits of maintaining consistency with IFRS 15, and to add alternative
accounting treatments to the extent that they do not impair comparability in cases where common practices andothers in Japan should be considered.
(2) Date of application
From the beginning of the fiscal year ending March 31, 2022.
(3) Effect of application
The effect of applying the “Accounting Standard for Revenue Recognition,” etc. on the consolidated financial statements is currently under assessment.

2019 ANNUAL REPORT 55

Financial and Corporate Data(n) Change in Presentation
Change due to adoption of “Partial Amendments to Accounting Standard for Tax Effect Accounting”
The Company and its domestic consolidated subsidiaries applied “Partial Amendments to Accounting Standard forTax Effect Accounting” (ASBJ Statement No. 28, revised on February 16, 2018) from the beginning of the year ended
March 31, 2019. As a result, deferred tax assets and deferred tax liabilities are presented in “Investments and otherassets” and “Long-term liabilities,” respectively.
As a result of this change, deferred tax assets previously presented in “Current assets” decreased by ¥2,152 million
and deferred tax assets in “Investments and other assets” increased by ¥537 million as of March 31, 2018. In addition,deferred tax liabilities in “Long-term liabilities” decreased by ¥1,614 million as of March 31, 2018. Further, “Total assets”
decreased by ¥1,614 million due to offsetting deferred tax assets and deferred tax liabilities of the same taxable entity.
(o) 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 a trust-based
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 priceand improving work motivation. The Plan will steadily supply the Company’s shares to the employee shareholding
association, and distribute the returns generated by management of trust assets to employees.
The Company is accounting for the Plan in line with the guidelines set out in “Practical Solution on Transactionsof 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 DistributionType) 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 be acquired by
the Shareholding Association during the prescribed stock acquisition period, after borrowing the acquisition funds
from a bank. Until the trust account finishes, the shares will be periodically sold to the Shareholding Association. If asignificant amount of realized gains on sale of shares remains within the trust assets of the Trust following the sale ofthe shares to the Shareholding Association by Trust Account E, these gains will be distributed as residual assets toShareholding Association members who satisfy the eligibility requirements for beneficiaries. Moreover, the Company
provides guarantees for the loans undertaken to acquire its shares. Therefore, if there is a residual loan balance
equivalent to a realized loss on the sale of these shares due to a decline in the Company’s stock price, the Company
shall repay this residual loan balance based on the guarantee agreement. The Trust was terminated in August 2018.
(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, the carrying amounts of the treasury shares were ¥306 million,
and the total number of treasury shares was 107 thousand shares. As of March 31, 2019, there were no treasury
shares remaining in the Trust due to termination of the Trust during the fiscal year then ended.
(3) Carrying amount of debt recorded through the application of the gross price method
The carrying amount of debt recorded through the application of the gross price method was ¥749 million as ofMarch 31, 2018. There was no debt recorded as of March 31, 2019 due to termination of the Trust during the fiscal
year then ended.

56 2019 ANNUAL REPORT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 PharmaceuticalCo., 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”) under which 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 ofDelivering the Company’s Own Stock to Employees etc. through Trusts” (PITF No. 30, March 26, 2015).
(1) Outline of transactions
Under the ESOP Plan, the Company’s shares will be delivered to eligible employees of KYORIN Pharmaceutical who
satisfy certain requirements, based on the share delivery rules prescribed by KYORIN Pharmaceutical in advance.
KYORIN Pharmaceutical will award its employees a set number of points based on business performance and hisor her personal contribution and deliver or pay the Company’s shares and cash to its employees who attained rights toreceive such delivery or payment under certain conditions. The Trust will acquire the Company’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, by increasing
interest in improvement of business performance and the Company’s share price. In addition, it is expected 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, 2019 and 2018, the carrying amounts of the treasury shares were
¥1,645 million ($14,818 thousand) and ¥1,645 million, respectively, and the total numbers of treasury 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 ofDelivering 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 trust with thefunds 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 thestock benefit rules for directors prescribed by the Company and its subsidiary.
The Company adopts a Board Benefit Trust system when introducing the Plan. In principle, the Group Directors
shall receive the Company’s Shares, etc. on a certain date during the trust period set out by the stock benefit rules
for directors or upon their retirement, whichever is earlier.
(2) Company shares remaining in trust
Treasury shares remaining in the Trust are presented as treasury stock in net assets with carrying value in the Trust(excluding ancillary expenses). As of March 31, 2019 and 2018, the carrying amounts of the treasury shares were¥226 million ($2,036 thousand) and ¥226 million, respectively, and the total numbers of treasury shares were 100
thousand shares and 100 thousand shares, respectively.

2019 ANNUAL REPORT 57

Financial and Corporate Data

3. U.S. Dollar Amounts
The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter of arithmetic
computation only, at the rate of ¥111.01 = U.S.$1.00, the approximate rate of exchange on March 31, 2019. 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, 2019 and 2018 for the consolidated statements of cash flows consistedof the following:

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

2019

Millions of yen
2018

Thousands of
U.S. dollars
2019¥32,007—(1,093)¥30,914¥44,117—(1,145)¥42,971$288,325—(9,846)$278,479

5. Short-Term Investments and Investment Securities
Information regarding marketable securities classified as other securities as of March 31, 2019 and 2018 is as follows:
Marketable other securities

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

58 2019 ANNUAL REPORT

Acquisition
cost

Carrying
value

Millions of yen
2019
Unrealized
gain (loss)¥10,673¥23,460¥12,787$ 96,144$211,332$115,188

1,500
200
—
12,3731,501
200—
25,162

1
0—
12,78913,512
1,802—
111,458

13,521
1,802—
226,66490—
115,206

13

11

(1)

117

99

(9)

2,900
—
1,000
3,913
¥16,286

2,898
—
989
3,900
¥29,062

(1)
—
(10)
(13)
¥12,775

26,124—
9,008
35,249$146,708

26,106—
8,909
35,132$261,796

(9)
—
(90)
(117)
$115,080

Acquisition
cost

Thousands of U.S. dollars
2019
Carrying
Unrealized
value
gain (loss)

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

Acquisition
cost

Carrying
value

Millions of yen
2018
Unrealized
gain (loss)¥10,747¥25,242¥14,495

500——
11,247501——
25,744

1——
14,4968

8(0)

23,499—1,000
24,508¥35,756

23,477—987
24,473¥50,217

(21)
—
(12)
(35)
¥14,461

Unlisted securities and other non-marketable securities are not included in the above schedules as their fair market
values are extremely difficult to be determined. The amounts of these securities were ¥612 million ($5,513 thousand)and ¥493 million as of March 31, 2019 and 2018, respectively.
Sales amounts of securities classified as other securities and the related aggregate gain and loss for the years
ended March 31, 2019 and 2018 are summarized as follows:

Proceeds from sales
Gains on sales
Losses on sales

2019

Millions of yen
2018

Thousands of
U.S. dollars
2019¥19,597
52
24

¥—
—
—

$176,534468
216

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, 2019 and 2018consisted of the following:

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

2019

Millions of yen
2018

Thousands of
U.S. dollars
2019¥20,100
832
80¥21,012¥  125832
99¥1,056$181,065
7,495
721$189,280

The average interest rates applicable to short-term bank loans outstanding as of March 31, 2019 and 2018 are
0.3% and 0.5%, respectively.
Long-term debt (excluding long-term debt related to a trust-based employee shareholding incentive plan) andlease obligations as of March 31, 2019 and 2018 consisted of the following:

Long-term debt, due through 2027 at average interest rate of 0.3%
and 0.4% in 2019 and 2018, respectively
Lease obligations due through 2030 in 2019 and 2018
Current portion of long-term debt and lease obligations due
within one year
Total

Millions of yen

Thousands of
U.S. dollars

2019

2018

2019

¥3,466456¥4,745510$31,222
4,108

(913)
¥3,010(931)¥4,324(8,224)$27,1152019 ANNUAL REPORT 59

Financial and Corporate Data

Interest expenses related to a trust-based employee shareholding incentive plan (see Note 2 (n)) are excluded fromthe calculation of the average interest rate applicable to long-term debt because interest expenses on such 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 ¥1,096 million ($9,873 thousand) and ¥792 million as of March 31, 2019 and 2018, 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,

2020
2021
2022
2023
2024

Millions of yen

Thousands of
U.S. dollars

¥913
377
271
255
241

$8,224
3,396
2,441
2,297
2,171

The annual maturities of long-term debt from Japan Science and Technology Agency (National Research andDevelopment Agency) are excluded from the above table because authorization date of success in development andother 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 the year-end
dividend upon resolution at the shareholders’ meeting. The board of directors may declare dividends (except for
dividends-in-kind) if the company has prescribed so in its articles of incorporation for companies that meet certain
criteria such as:(1) having the board of directors,(2) having independent auditors,(3) having a board of corporate auditors, and(4) the term of service of the directors is prescribed as one year rather than two years of normal term by its articles
of incorporation.
The Companies Act permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subject
to a certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the board of directors if the articles
of incorporation of the company so stipulate. The Companies Act also provides certain limitations on the amounts
available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.
(b) Increases/Decreases and Transfer of Common Stock, Reserve and Surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve(a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on theequity account charged upon the payment of such dividends until the total of aggregate amount of legal reserve andadditional paid-in capital equals 25% of the common stock. Under the Companies Act, the total amount of additional
paid-in capital and legal reserve may be reversed without limitation. The Companies Act also provides that common
stock, legal reserve, additional paid-in capital, other capital surplus and retained earnings can be transferred among
the accounts under certain conditions upon resolution of the shareholders.

60 2019 ANNUAL REPORT

(c) Treasury Stock and Stock Option
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock byresolution of the board of directors. The amount of treasury stock purchased cannot exceed the amount available for
distribution to the shareholders, which is determined by specific formula. Under the Companies Act, stock acquisitionrights, which were previously presented as a liability, are now presented as a separate component of net assets. The
Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock.
Such treasury stock acquisition rights are presented as a separate component of net assets or deducted directly fromstock acquisition rights.

8. Research and Development Expenses
Research and development expenses included in general and administrative expenses for the years ended March 31,
2019 and 2018 were ¥10,790 million ($97,198 thousand) and ¥14,243 million, respectively.

9. Gain or Loss on Sales and Retirement of Property, Plant and Equipment, Net
Significant components of the gain or loss on sales and retirement of property, plant and equipment, net for the years
ended March 31, 2019 and 2018 are as follows:
Millions of yen

Thousands of
U.S. dollars

2018

2019

2019

Gain:
Buildings and structures
Machinery and vehicle
Land
Other
Loss:
Buildings and structures
Machinery and vehicle
Other
Total

¥

2
3
7
0
¥ 14

–
–
50
0
¥ 50

$

$

¥ (29)
(3)
(87)
(121)
¥(107)¥ (40)
(27)
(35)
(102)
¥ (51)$ (261)(27)(784)(1,090)$ (964)

¥

18
27
63
0
126

10. Financial Instruments(a) Investment Policy of Financial Instruments
The Company and its consolidated subsidiaries mainly operate funds by the highly secured financial instruments suchas 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 and its
consolidated subsidiaries, in accordance with internal rules, keep track of the adverse financial conditions of thecustomers 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 the deposits.
Short-term investments and investment securities mainly consist of highly rated bond securities and equity securities of companies with business relationships and are exposed to market risk and credit risk. The Company and its
consolidated subsidiaries regularly review the fair value and issuers’ financial condition to mitigate the risks.
Operating payables such as notes and accounts payable are mainly due within six months. Certain operating
payables are denominated in foreign currencies.
Short-term bank loans have been procured to finance the purchase of treasury stocks, etc., and long-term debts
are used for the funding support for development expenses from Japan Science and Technology Agency (National
Research and Development Agency) and fund for capital investments, etc.

2019 ANNUAL REPORT 61

Financial and Corporate Data

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 are reasonably calculated in case market prices do not exist. As the calculation of those values includes variable factors, thosevalues may vary in case different assumptions are applied.
Carrying values, fair values, and their differences of financial instruments as of March 31, 2019 and 2018 are as follows:
Millions of yen

Thousands of U.S. dollars

2019

2019

Carrying value

Fair value

Difference

Carryingvalue¥ 32,007¥ 32,007¥—$ 288,325$ 288,325$—

52,63552,635—474,146474,146—

29,062¥113,705

29,062¥113,705—¥—

261,796$1,024,277

261,796$1,024,277—$—

Notes and accounts payable¥ 11,441¥ 11,441¥—$ 103,063$ 103,063$—

Short-term bank loans¥ 20,932¥ 32,374¥ 20,932¥ 32,374¥—¥—$ 188,560$ 291,631$ 188,560$ 291,631$—$—

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

Total liabilities

Fair value

Difference

Millions of yen
2018

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

Carrying
value

Fair value

Difference¥ 44,117
47,86250,217¥142,197¥ 44,117
47,86250,217¥142,197

¥—
—
—
¥—

¥ 10,266¥
957¥ 11,224¥ 10,266¥
957¥ 11,224¥—¥—¥—

Unlisted securities and others of ¥1,238 million ($11,152 thousand) and ¥1,097 million whose fair values are
extremely difficult to determine as of March 31, 2019 and 2018, respectively, are not included in the above tables.
Calculation method of fair value of financial instruments and information about securities are as follows:
Cash and cash in banks and Notes and accounts receivable
The carrying value is deemed as the fair value since it is scheduled to be settled in a short period of time.
Short-term investments and Investment securities
Fair value of equity securities is based on the price on stock exchanges and that of bonds is based on the priceon 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 and Short-term bank loans
The carrying value is deemed as the fair value since these are scheduled to be settled in a short period of time.

62 2019 ANNUAL REPORTThe redemption schedule for monetary receivables and securities with maturities subsequent to March 31, 2019is as follows:
Millions of yen
2019
Due in one
year or lessDue after one year
through five years

Cash and cash in banks¥32,007¥

Notes and accounts receivable

Due after five years
through ten years

Due after
ten years

—

¥—

¥—

52,635

—

—

—

500
—
—
¥85,142

3,900
200
1,000
¥5,100

—
—
—
¥—

—
—
—
¥—

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

Thousands of U.S. dollars
2019
Due in one
year or lessDue after one year
through five years

Cash and cash in banks$288,325$

Notes and accounts receivable

Due after five years
through ten years

Due after
ten years

—

$—

$—

474,146

—

—

—

4,504
—
—
$766,976

35,132
1,802
9,008$45,942

—
—
—
$—

—
—
—
$—

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 domestic consolidated subsidiaries apply a simplified method that uses the amount that would be required
to be paid at the year-end for voluntary termination as the retirement benefit obligation in computing liability for retirement benefits and retirement benefits costs.
Defined benefit plans(1) The changes in the retirement benefit obligation for the years ended March 31, 2019 and 2018 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
Decrease due to transfer
Retirement benefit obligation at the end of the year

2019

2018

2019

¥35,767
1,245
178
62
(1,696)—¥34,704
1,165
173
436
(1,420)228$322,196
11,215
1,603
559(15,278)——(56)¥35,500

479—¥35,767—(504)$319,791

2019 ANNUAL REPORT 63

Financial and Corporate Data

(2) The changes in plan assets for the years ended March 31, 2019 and 2018 are as follows:
Millions of yen

Plan assets at the beginning of the year
Expected return on plan assets
Actuarial gain or loss
Contributions paid by the employer
Retirement benefits paidIncrease due to change from simplified method
to principle method
Plan assets at the end of the year

Thousands of
U.S. dollars

2019

2018

2019

¥33,955
679
(633)
1,011
(1,696)¥33,441
668
(82)
959
(1,420)$305,873
6,117(5,702)
9,107(15,278)—¥33,315389¥33,955—$300,108(3) The changes in liability (asset) for retirement benefits for consolidated subsidiaries applying the simplified method
for the years ended March 31, 2019 and 2018 are as follows:
Millions of yen

Thousands of
U.S. dollars

2019

2018

2019

Decrease due to exclusion from consolidation

¥191
47
(14)
(12)
—

¥303
128
(22)
(69)
(20)

$1,721
423
(126)
(108)
—

Decrease due to change from simplified method
to principle method

—

(128)

—

¥212

¥191

$1,910Liability (asset) for retirement benefits at the beginning of the year
Retirement benefits costs
Retirement benefits paid
Contributions to the plans

Liability (asset) for retirement benefits at the end of the year(4) The reconciliation between the liabilities recorded in the consolidated balance sheet and the balances of defined
benefit obligations and plan assets as of March 31, 2019 and 2018 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

2019

2018

2019

¥35,622(33,525)2,096
300¥ 2,397¥35,911(34,162)1,749
253¥ 2,002$320,890(302,000)
18,881
2,702$ 21,593¥ 2,485(88)¥ 2,397¥ 2,136(133)¥ 2,002$ 22,385(793)$ 21,593

The above table includes defined benefit plans applying the simplified method.
(5) The components of retirement benefits costs for the years ended March 31, 2019 and 2018 are as follows:

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

64 2019 ANNUAL REPORT

Millions of yen

Thousands of
U.S. dollars

2019

2018

2019

¥1,245
178
(679)
809
(46)

¥1,165
173
(668)
980
(39)

$11,215
1,603(6,117)
7,288
(414)

47

128

423

—
¥1,555(38)¥1,699—$14,008

(6) Prior service costs and actuarial gain or loss included in other comprehensive income (before tax effect) for theyears ended March 31, 2019 and 2018 are as follows:
Thousands of
U.S. dollars

Millions of yen

Prior service costs
Actuarial gain or loss
Total

2019

2018

2019

¥ 46
(113)
¥ (66)¥ 268(461)¥(192)$ 414(1,018)$ (595)(7) U nrecognized prior service costs and unrecognized actuarial loss included in accumulated other comprehensive
income (before tax effect) as of March 31, 2019 and 2018 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

2019

2018

2019

¥ (89)
3,449¥3,360¥ (136)
3,563¥3,426$ (802)
31,069$30,268(8) Plan assets
The breakdown of plan assets is as follows:
Domestic equity securities
Foreign debt securities
Foreign equity securities
General accountShort-term assets
Other
Total

2019

2018

4.8%
19.6
11.1
16.8
25.5
22.2
100.0%

5.7%
24.0
10.7
10.5
22.9
26.2
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

2019

2018

0.5%
2.0%

0.5%
2.0%

Defined contribution plans
The Company and its consolidated subsidiaries contributed ¥290 million ($2,612 thousand) and ¥296 million to thedefined contribution plans for the years ended March 31, 2019 and 2018, respectively.

2019 ANNUAL REPORT 65

Financial and Corporate Data

12. Income Taxes
Significant components of deferred tax assets and liabilities as of March 31, 2019 and 2018 are as follows:
Millions of yen

Thousands of
U.S. dollars

2019

2018

2019

¥1,108
668
28
23
145
140
38
661
602
—
1,677
5,094
(57)
5,037

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

$ 9,981
6,017
252
207
1,306
1,261
342
5,954
5,423
—
15,10745,888(513)
45,374(1,162)(3,912)(374)(123)(5,572)¥ (535)(1,232)(4,428)(573)(126)(6,360)¥ (529)(10,468)(35,240)(3,369)(1,108)(50,194)$(4,819)

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
Amortization of deferred assets
Loss on closure of plant
Provision for loss on guarantees
Other
Subtotal
Valuation allowance (Note)
Total deferred tax assets
Deferred tax liabilities:
Reserve for reduction entry of property, plant and equipment
Unrealized holding gain on other securities
Prepaid pension cost
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)
Note:
The valuation allowance decreased by ¥127 million ($1,144 thousand), mainly due to a decrease in the Company’svaluation allowance for future deductible temporary differences in the amount of by ¥118 million ($1,063 thousand).
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, 2019 and 2018 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
Dividends income that is not taxable permanently
Distribution amount of residual assets of Trust-Based Employee
Shareholding Incentive Plan that is tax deductible
Difference on disposals of treasury stock of Trust-Based Employee
Shareholding Incentive Plan
Effect of tax audit
Other
Effective tax rate

66 2019 ANNUAL REPORT

2019

2018

30.6%
1.1
1.1
(4.3)
(1.5)
(0.2)
(0.3)

30.9%
1.4
1.1
(6.2)
1.3
(0.1)
(0.7)

(0.3)

—

1.5

—

(0.4)
(0.7)
26.6%

—
(0.2)
27.4%

13. Comprehensive Income
Reclassification adjustments and income tax effects on other comprehensive income for the years ended March 31,
2019 and 2018 are as follows:
Millions of yen

Thousands of
U.S. dollars

2019

2018

2019

¥(1,657)(27)(1,685)516(1,169)¥3,540—3,540(1,083)2,456$(14,927)(243)(15,179)
4,648(10,531)

(27)

(31)

(243)

(696)
762
66
20
46

(747)
940
192
58
133

(6,270)
6,864
595
180
414

(6)
¥(1,157)(0)¥2,557(54)$(10,422)

Unrealized holding gain (loss) on other securities:
Gain (loss) 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:
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:
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 and regularexamination by the board of directors is performed in order to decide how resources are allocated among theCompany 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 generic drugs.
The Consumer Healthcare Business mainly produces, sells, and purchases environmental hygiene products andover-the-counter drugs.
(b) Method of Calculating Net Sales, Profit, 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.

2019 ANNUAL REPORT 67

Financial and Corporate Data(c) Information about Net Sales, Profit (Loss), Assets and Other Items by Reportable Segment
Millions of yen
2019
Reportable segment
EthicalPharmaceuticalBusiness

Consumer
Healthcare
Business

Total

Sales to third parties¥107,859¥5,761

Inter-segment sales or transfers

12¥107,872¥ 8,316¥184,188

0¥5,761¥ 199¥9,592¥ 2,654¥

Adjustments

Consolidated¥113,620¥—¥113,620

13¥113,633¥ 8,515¥193,780

(13)
¥
(13)
¥ 457
¥(20,745)—¥113,620¥ 8,972¥173,03437¥ 2,691¥249¥ 2,940

625

—

625

—

625

4,316

46

4,362

55

4,418

Net sales:

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

Thousands of U.S. dollars
2019
Reportable segment
EthicalPharmaceuticalBusiness

Consumer
Healthcare
Business

Total

Sales to third parties$ 971,615$51,896$1,023,511$—$1,023,511

Inter-segment sales or transfers108$ 971,732$ 74,912$1,659,202

0$51,896$ 1,793$86,407117$1,023,629$ 76,705$1,745,609

(117)
$
(117)
$ 4,117$(186,875)—$1,023,511$ 80,822$1,558,724

$

$

$

$

$

Adjustments

Consolidated

Net sales:

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

23,908333

24,241

2,243

26,484

5,630

—

5,630

—

5,630

38,879414

39,294495

39,798Millions of yen
2018

Reportable segment
EthicalPharmaceuticalBusiness

Consumer
Healthcare
Business

Total

Sales to third parties¥104,703¥5,937

Inter-segment sales or transfers

14¥104,718¥ 8,260¥162,558¥ 3,285

Adjustments

Consolidated¥110,640¥—¥110,640

0¥5,937¥ 187¥9,39814¥110,655¥ 8,447¥171,957(14)¥ (14)¥ 375¥24,778—¥110,640¥ 8,822¥196,736¥

52¥ 3,338¥306¥ 3,644

603

—

603

—

603

3,413

29

3,443

98

3,541

Net sales:

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

68 2019 ANNUAL REPORT1. “Adjustments” for “Segment profit” of ¥457 million ($4,117 thousand) and ¥375 million for the years ended March
31, 2019 and 2018, respectively, were mainly eliminations of inter-segment transactions.
2. “Adjustments” for “Segment assets” of ¥(20,745) million ($(186,875) thousand) and ¥24,778 million as of March
31, 2019 and 2018, respectively, were the Company’s assets and offset of inter-segment receivables andpayables.
3. “Adjustments” for “Depreciation and amortization” of ¥249 million ($2,243 thousand) and ¥306 million for the years
ended March 31, 2019 and 2018, respectively, were depreciation of property, plant and equipment and intangible
assets of the Company.
4. “Adjustments” for “Increase in property, plant and equipment and intangible assets” of ¥55 million ($495 thousand)and ¥98 million for the years ended March 31, 2019 and 2018, respectively, were increases in property, plant andequipment and intangible assets of the Company.
5. “Segment profit” is adjusted to operating income disclosed in the accompanying consolidated statements ofincome.
6. As described in Note 2 (1) “Change in Accounting Policies Difficult to Distinguish from Changes in Accounting
Estimates”, previously, the Company and its domestic consolidated subsidiaries have applied the decliningbalance method for the depreciation method of property, plant and equipment (excluding leased assets), andthe straight-line method for buildings acquired on or after April 1, 1998 (excluding leasehold improvements) andleasehold improvements and structures acquired on or after April 1, 2016. However, the Company and its domestic
consolidated subsidiaries changed the depreciation method to the straight-line method from the fiscal year ended
March 31, 2019. As a result of this change, segment profit for the year ended March 31, 2019 increased by¥629 million ($5,666 thousand) in Ethical Pharmaceutical Business segment, ¥20 million ($180 thousand) in
Consumer Healthcare Business segment and ¥14 million ($126 thousand) in Adjustments, respectively,
compared with the previous method.
(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 thereportable segment for the years ended March 31, 2019 and 2018.
(b) Information by Geographical Area
(1) Sales
Information about sales by geographical area is omitted for the years ended March 31, 2019 and 2018, sincedomestic 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, 2019 and 2018, since property, plant and equipment in Japan constituted more than 90% of property,
plant and equipment on the consolidated balance sheets.

2019 ANNUAL REPORT 69

Financial and Corporate Data(c) Information by Major Customer for the Years Ended March 31, 2019 and 2018
Millions of yen
2019
Name of customer

Sales amount

Alfresa Holdings Corporation¥21,025SUZUKEN CO., LTD.

19,020MEDIPAL HOLDINGS CORPORATION

16,979Toho Pharmaceutical Co., Ltd.

14,369Related segments

Ethical Pharmaceutical Business, Consumer Healthcare
Business
Ethical Pharmaceutical Business, Consumer Healthcare
Business
Ethical Pharmaceutical Business, Consumer Healthcare
Business
Ethical Pharmaceutical Business, Consumer Healthcare
Business
Thousands of U.S. dollars
2019

Name of customer

Sales amount

Related segments

Alfresa Holdings Corporation$189,397

SUZUKEN CO., LTD.

171,336

MEDIPAL HOLDINGS CORPORATION

152,950

Toho Pharmaceutical Co., Ltd.

129,439

Ethical Pharmaceutical Business, Consumer Healthcare
Business
Ethical Pharmaceutical Business, Consumer Healthcare
Business
Ethical Pharmaceutical Business, Consumer Healthcare
Business
Ethical Pharmaceutical Business, Consumer Healthcare
Business
Millions of yen
2018

Name of customer

Sales amount

Alfresa Holdings Corporation¥19,562SUZUKEN CO., LTD.

17,344

MEDIPAL HOLDINGS CORPORATION

16,248

Toho Pharmaceutical Co., Ltd.

13,351

Related segments

Ethical Pharmaceutical Business, Consumer Healthcare
Business
Ethical Pharmaceutical Business, Consumer Healthcare
Business
Ethical Pharmaceutical Business, Consumer Healthcare
Business
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, 2019 and 2018.

15. Contingent Liabilities
Contingent liabilities as of March 31, 2019 and 2018 are as follows:

Guarantors of indebtedness of employees

Millions of yen

Thousands of
U.S. dollars

2019

2018

2019

¥—

¥6

$—

Yen

U.S. dollars

16. Amounts per Share
Amounts per share for the years ended March 31, 2019 and 2018 are as follows:
2019

Basic profit
Cash dividends
Net assets

70 2019 ANNUAL REPORT¥ 104.68
75.00
2,154.05

¥

2018

2019

89.28
58.00
2,214.13$ 0.940.68
19.40

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, 2019and 2018.
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 included in thetreasury 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 theamount of profit per share were 875,683 and 1,068,358 for the years ended March 31, 2019 and 2018, respectively.
The numbers of these treasury shares at the end of the fiscal year that were excluded from the calculation of net
assets per share were 854,700 and 961,700 as of March 31, 2019 and 2018, respectively.

17. Related Party Information
Material transactions of the Company with related parties for the year ended March 31, 2019 are as follows:
Category

Name of the related party

Location

Paid-in capital

Principal business

Principal shareholder

TEIJIN LIMITED

Osaka city

¥71,833 million

Research, manufacturing
and sales of synthetic
fibers and chemical
products

Share of voting rights
in the Company

Relationships with therelated party

Description of the transactions

Transaction amount

Balance as ofMarch 31, 2019

Directly owned:19.2%

Sales of the Company’s
stock

Purchase of treasury
stock¥35,304 million($318,025 thousand)—

The Company purchased treasury stock through Off-Auction Own Shares Repurchase Trading (ToSTNeT-3) of theTokyo Stock Exchange the September 26, 2018 closing price. As a result of this transaction, the TEIJIN LIMITED’s
ownership ratio in the Company was reduced to 0%.
There were no applicable matters for the year ended March 31, 2018.

18. Business Combination
Transaction under common control
Based on the resolution at a meeting of the Board of Directors held on December 19, 2017, KYORIN Pharmaceutical
Group Facilities Co., Ltd. (Chiyoda-ku, Tokyo), a consolidated subsidiary of the Company, acquired 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., a consolidated subsidiary of the Company, through anabsorption-type company demerger and acquired KYORIN Pharmaceutical Facilities Co., Ltd. (Koka, Shiga), a consolidated subsidiary of the Company, through an 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 the Grouphas 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 acompetitive Group production structure for consistently providing high-quality products at low cost by consolidating
the production functions.

2019 ANNUAL REPORT 71

Financial and Corporate Data

2. Outline of the absorption-type demergers(1) Outline of the companies involved in the absorption-type demergers
Demerged companies

Successor company

1. NameKYORIN Pharmaceutical Co., Ltd. KYORIN Rimedio Co., Ltd.

2. Head office

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

287-1, Shimocho, Moroe-Cho,
Kanazawa-City, Ishikawa
Hiroshi Hashizume

KYORIN Pharmaceutical Group
Facilities Co., Ltd. (Newly
established in October 2017)
6, Kanda Surugadai 4-Chome
Chiyoda-ku, Tokyo
Michiro Onota

5. Year of ­establishment

Manufacture and sales ofprescription medicine
1940

Manufacture and sales ofprescription medicine
1947

Manufacture and sales ofprescription medicine
2017

6. Closing date

March 31

March 31

March 31

3. Representative
4. Business ­description(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 Guidance No. 10, September 13, 2013)
for the transaction under common control.
3. Outline of the absorption-type merger(1) Outline of the companies involved in the absorption-type mergers
Surviving company

1. NameAbsorbed company

2. Head office

KYORIN Pharmaceutical Group­­Facilities Co., Ltd.
(Newly established in October 2017)
6, Kanda Surugadai 4-Chome ­Chiyoda-ku, Tokyo

KYORIN Pharmaceutical Facilities Co., Ltd.

3. Representative

Michiro Onota

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

4. Business ­description

Manufacture and sales of prescription medicine

Manufacture and sales of prescription medicine

5. Year of
establishment
6. Closing date

2017

2012

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 thesurviving 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 Guidance No. 10, September 13, 2013)
for the transaction under common control.

72 2019 ANNUAL REPORT

Independent Auditor’s Report2019 ANNUAL REPORT 73

Financial and Corporate Data

Corporate Overview/Stock Information (As of March 31, 2019)

Head Office

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

Establishment

1958

Common Stock¥700 million

Outstanding Shares 64,607,936
Shareholders

6,225

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

Major Shareholders

10.0%
Percentage of shares held

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
KAKEN PHARMACEUTICAL CO., LTD.
Akira Ogihara

8.32%
5.76%
3.84%
3.35%
3.35%
3.20%
3.11%
3.02%
2.75%
2.74%

19.3%

1.6%
24.7% Shareholders

6,225

23.8%

20.6%

■ Financial institutions■ Financial instruments firms■ Other corporations■ Foreign corporations■ Individuals and other■ Treasury stock

19.3%
1.6%
23.8%
20.6%
24.7%
10.0%

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

https://www.kyorin-gr.co.jp/en/

74 2019 ANNUAL REPORTIR Site: https://www.kyorin-gr.co.jp/en/ir/

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 specific fields of respiratory, otolaryngology and urology,
and create innovative new drugs that can be deployed on a global level.

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

KYORIN Pharmaceutical Group Facilities Co., Ltd.

KYORIN Medical Supply Co., Ltd.

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
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
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

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-related 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 range ofcommunications businesses, focusing on the planning and production ofpharmaceutical-related advertising, and contributes to society as a memberof a corporate group that aims to support healthy lifestyles.

Equity-Method Affiliate
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

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.

2019 ANNUAL REPORT 75

6, Kanda Surugadai 4-chome, Chiyoda-ku, Tokyo
101-8311, Japan
Corporate Planning Division
TEL +81-3-3525-4707
URL https://www.kyorin-gr.co.jp/en/

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