KYORIN Holdings, Inc.
ANNUAL REPORT 2016

2016
ANNUAL REPORT

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

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Year ended March 31, 2016

This report was printed using vegetable oil ink.
Printed in JapanKYORIN Holdings, Inc.

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

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

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Contents

Editorial Policy
Annual Report 2016 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
data with nonfinancial information relating to value creation by the
Kyorin Group, including business processes and strategies. Throughthis approach, we aim to help stakeholders gain a deeper understanding of the Group’s activities.

To Our Stakeholders

2

History of the Kyorin Group

4The Kyorin Group’s Vision andValue Creation Process

6

Performance Highlights

8

President’s Interview

10

Feature Four Priority Strategies to
Be Promoted Under the New Medium-TermBusiness Plan HOPE100—Stage 2—

14

The Core Company of the Kyorin Group and
Overview of Business18

Ethical Drugs Business

20

Healthcare Business26

Corporate Governance28

Directors, Corporate Auditors,
and Corporate Officers

31

Corporate Social Responsibility

32

Financial Analysis

38

Consolidated Financial Statements

40

Notes to Consolidated Financial Statements

45

Independent Auditor’s Report

63

Corporate Overview / Stock Information

64

Target Audience
Shareholders, investors and other stakeholders

Fiscal 2015 (April 1, 2015 to March 31, 2016); some information also
relates to fiscal 2016 activities.

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2016 ANNUAL REPORT

Period Covered by Report

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To Our Stakeholders

The Kyorin Group seeks to realize our corporate philosophy,
which states “to cherish life and benefit society by contributing to better health.” As the embodiment of that, we formulated HOPE100 as a long-term vision for 2023, when
KYORIN Pharmaceutical Co., Ltd., the core subsidiary, willcelebrate the 100th anniversary of its founding. Under thestatement “The Kyorin Group will promote diversified
healthcare business expansion and by 2023 be recognizedboth within and outside as a company that supports soundand healthy lifestyles,” we aim to develop as a company

2016 ANNUAL REPORT

whose existence is recognized as meaningful.

Masahiro Yamashita

Minoru Hogawa

Representative Director, Chairman
KYORIN Holdings, Inc.

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

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We at the Kyorin Group take on the challengesof transformation with new ideas and aim torealize HOPE100, our long-term vision.
The medium-term business plan HOPE100—Stage 1—, the first step towardrealizing the long-term vision of HOPE100, was implemented from fiscal 2010
to fiscal 2015 under the statement “business organization, the building of asystem to promote each business, and the enhancement of the driving forceof each business.” We realized a certain degree of results by enhancing thedevelopment pipeline in the ethical drugs business, thoroughly deploying
franchise customer strategies, and establishment and promotion of the new
ethical drugs business model concurrently offering a variety of medical drugs(PC model: Pharma Complex Model). In the healthcare business, we began tosee results budding from the seeds that had been sown, including the launchof a new business.
In terms of results and objectives, fiscal 2015 was the final year of Stage 1
and we were able to achieve record net sales and operating income due tofactors including the growth of the ethical drugs business, in spite of operating
under challenging conditions brought about by such events as drug pricing
revisions.
However, to achieve further growth under an environment fluctuating significantly it is not enough to merely expand on actions taken in the past, but newideas are called for to take on the challenge of transformation. Consequently,
we have started the new medium-term business plan HOPE100—Stage 2—
for fiscal 2016 to fiscal 2019 and, going forward, all Group employees will
work as one to achieve the goals set forth in the plan.
We look forward to the continued understanding and support of all our
stakeholders.
August 2016

Masahiro Yamashita

Minoru Hogawa

Representative Director, Chairman
KYORIN Holdings, Inc.

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

2016 ANNUAL REPORT

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History of the Kyorin GroupKYORIN Pharmaceutical, the core company within the Kyorin Group, was established
93 years ago.
We have unceasingly strived to realize our corporate philosophy of always making
a contribution to human health.
Kyorin will continue to take on challenges and will evolve to become a company
supporting healthy lifestyles through our business in the treatment
and prevention of disease and the maintenanceand promotion of good health.

950
1923 1

980
1951 1sophy

te philo

orporad the cy state•Clearl vision
e
th
d
an

000
2
1
8
9
1

1981

Mucodyne, a mucoregulant, was launched.
1982
1961

Product history

Behyd, a diuretic and antihypertensive agent, waslaunched.
1965
KYORIN AP-2, an analgesic, was launched.
Deamelin-S, an oral hypoglycemic agent, was launched.
1971
Cholexamin, a lipid metabolism and peripheral circulation
improving agent, was launched.
1974
Hespander, a plasma substitute and extracorporeal
circulation flow improver, was launched.
1976
Hydroxyethylstarch (HES) was licensed to Pfrimmer(Germany, present Baxter Deutschland).
1980
Norfloxacin (NFLX), an antibacterial agent, was licensed
to Merck & Co. (U.S.A.).

Toyo Shinyaku Sha, the predecessor of
KYORIN Pharmaceutical Co., Ltd., wasfounded.
1931
Kyorin Chemical Laboratory was established.
1940
The company was renamed KYORIN
Pharmaceutical Co., Ltd., and Kyorin YakuhinCo., Ltd. was organized as an independent
marketing division.
1947
The Okaya Plant was started

2016 ANNUAL REPORTManagement-related events

1923

1957

Norfloxacin (NFLX) was licensed to Astra (Sweden,
present AstraZeneca) and Boots (U.K., present Abbott).
1983
Norfloxacin (NFLX) was licensed to American Home
Products (U.S.A., present Pfizer).
1984
Baccidal (NFLX), a broadspectrum oral antibacterial
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 broadspectrum 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.).

The medical journal bulletin “Doctor Salon” was started.
1962

Kyorin Chemical Laboratory (later Technical Center ofDevelopment) was established.
1965
The Head Office was completed in Kanda Surugadai.
1977
Central Research Laboratories were established.

1992

KYORIN Pharmaceutical Co., Ltd. and Kyorin YakuhinCo., Ltd. were merged, and the new KYORIN
Pharmaceutical Co., Ltd. was founded.
1995
The Noshiro Plant was started.
1996
A joint venture, Nisshin KYORIN Pharmaceutical Co., Ltd.,was established with Kyorin’s capital participation.
The Research Center (now the WATARASE ResearchCenter) was founded.
1998
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.

4

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3
23)
for 202noi
0–FY20
s
1
i
0
v
2
Y
e
t
(F
PE100
rpora

Co
ed
ormulat

F

2001

2010

g-termthe LonO

Vision H

2016

2023

Medium-TermBusiness Plan
Fiscal 2020 — 2023

Stage
Medium-TermBusiness Plan
Fiscal 2010 — 2015

2001

Kipres, the leukotriene receptor antagonist andbronchial asthma treatment medicine, was launched.
2002
Gatiflo (GFLX), a broad-spectrum, oral antibacterial
agent, was launched.
2007
Uritos Tablets 0.1 mg, an overactive bladder drug, waslaunched.
Kipres Fine Granules 4 mg, a bronchial asthma
treatment drug, was launched.
A business transfer agreement was made with theFresenius Kabi AG Group in Germany concerning
Hespander and Salinhes, plasma substitutes andhemodilution agents.
2008
Kipres Tablets 5 mg, a bronchial asthma and allergic
rhinitis treatment drug, was launched.
2009
A license agreement for Neramexane, a tinnitus drug,
was made with Merz Pharmaceuticals (Germany) for theJapan region.
2010
Mucodyne DS 50%, a mucoregulant, was launched.

2001

1

Stage

2

3

A company that supports
sound and healthy
lifestyles

2011

Uritos Orally Disintegrating (OD) Tablets 0.1 mg, an overactive
bladder drug, was launched.
2012
RUBYSTA, a multi-purpose disinfectant cleaner, was launched.
Transfer of business related to a topical antifungal prescription
drug Pekiron cream 0.5% to Galderma S.A. (Switzerland).
2013
Pentasa Suppositories 1 g, a treatment for ulcerative colitis,
was launched.
Flutiform, a combination drug for asthma treatment, waslaunched.
2014
Signed a license agreement concerning Vibegron, atherapeutic agent for overactive bladder, with Merck & Co.
(U.S.A.).
2015
Eklira Genuair, a treatment for COPD, was launched.
FPR2 agonist program was licensed to Bristol-Myers Squibb
Company (U.S.A.)
Kipres OD, a treatment for bronchial asthma and allergic
rhinitis, was launched.
Pentasa Granules 94%, a treatment for ulcerative colitis andCrohn’s disease, was launched.

2012

Acquisition (conversion into subsidiary) of the Shiga Plant of
MSD K.K. and established KYORIN Pharmaceutical Facilities
Co., Ltd.
2013
Head office moved to Ochanomizu sola city in Kanda
Surugadai.
2015
Established the WATARASE Research Center.

2016 ANNUAL REPORTA subsidiary company, Kyorin USA, Inc. (U.S.A.), wasestablished.
2002
A subsidiary company, Kyorin Europe GmbH (Germany), wasestablished.
2004
ActivX Biosciences, Inc. (U.S.A.) became a wholly owned
subsidiary.
2005
The stock of Toyo Pharma Co., Ltd. (present KYORIN Rimedio
Co., Ltd.) was acquired, making it into a subsidiary company.
Dr. Program Co., Ltd. became a wholly owned subsidiary.
2006
The Kyorin Group shifts to a holding company structure
through a share exchange with KYORIN Co., Ltd.
The new Noshiro Plant began operating.
2008
KYORIN Pharmaceutical merged with Nissin Kyorin
Pharmaceutical.
2010
KYORIN Co., Ltd. changed its name to KYORIN Holdings, Inc.

Stage

Medium-TermBusiness Plan
Fiscal 2016 — 20195

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The Kyorin Group’s Vision andValue Creation Process
The Kyorin Group’s mission is to continue to manufacture original new drugs that cancontribute to the health of the world’s people, and we believe this to be the source ofour value creation.
With the ethical drugs business at our core, we respond to various health needs and,from the standpoint of supplementing the growth of the ethical drugs
business, combine the healthcare business and utilize various
types of capital to enhance corporate value.
Specific Fields for
the New Drugs BusinessRespiratory

Urology

Otolaryngology

Ethical Drugs Business•Drug discovery•New drugs business•Generic drugs business

Sales

Human Capital

Eco-capital

Utilization of individual
employee capabilities(knowledge andtechnical skills)

Intellectual Capital•Specialized pipeline
focusing on specificfields•Intellectual property

Energy rationalization
Reductions in CO2 andwaste emissions

Six capitals
investment
Manufacturing
CapitalSocial Capital

Overall optimization of
the Kyorin Group’s
production system

Contribution tohuman health2016 ANNUAL REPORT

Financial Capital
Strong cash flow,high shareholders’equity ratio6

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Corporate vision for 2023
Long-term Vision HOPE100
Statement
The Kyorin Group will promote diversified businessexpansion and the development of the healthcare
business, and by 2023, will be recognized within andoutside the Group as a company that supports soundand healthy lifestyles.

The Kyorin Group takes the standpointof enhancing corporate value over the
medium- to long-term and aims for sound andsustainable development while dispersing
business risk through the ethical drugs businessand healthcare business.

Five HOPEs (Corporate Objectives)•The Leading Company for Career Fulfillment•An International Company that Supports HealthyLifestyles Around the World•A Company that Seeks to Co-Exist with Society•A Company that Sustains Growth•An Innovative Company that Customers Trust

Creating Value(Contributing to health)Drug Discovery /Research andDevelopment

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

Healthcare Business
Production•Skincare•Environmental hygiene•Over-the-counter drugs
and others

2016 ANNUAL REPORT

7

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Performance Highlights
Consolidated Financial Highlights
Millions of yen

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

FY2011FY2012FY2013

FY2014FY2015Net sales

103,232

107,031

111,400

113,121

119,483

Operating income

14,464

17,94817,607

14,737

19,636

Profit attributable to shareholders of KYORIN Holdings, Inc.

9,231

12,422

12,025

12,064

13,639Net cash provided by operating activities

8,913

11,544

19,293

6,391

11,137

Net cash provided by (used in) investing activities(4,926)(7,187)(2,477)(1,364)650

Net cash used in financing activities(7,412)(5,132)(3,704)(5,233)(2,245)

Free cash flow

3,987

4,357

16,816

5,027

11,787

R&D expenses

13,964

11,05911,35913,51413,019

Capital expenditures

1,952

6,576

6,500

2,655

7,218

Depreciation and amortization

2,363

2,738

3,153

3,053

3,730

Total assets

145,673

154,968

169,378

183,383

197,825

Total net assets

118,201

129,099

137,821

148,600

157,049
yen

Amounts per Share
Net assets

1,581.94

1,727.86

1,844.61

2,009.45

2,131.67

Basic profit

123.54166.25160.95161.63184.28Cash dividends

45.00

50.00

52.00

52.00

58.00

14.0

16.8

15.8

13.0

16.4

Key Performance Indicators
Operating income margin (%)
Profit attributable to shareholders of
KYORIN Holdings, Inc./Net sales ratio (%)

8.9

11.6

10.8

10.7

11.4

R&D expenses/Net sales ratio (%)

13.5

10.3

10.2

11.9

10.9

Total shareholders’ equity ratio (%)

81.1

83.3

81.4

81.0

79.4

ROE (%)

8.0

10.0

9.0

8.4

8.9

ROA (%)

6.3

8.3

7.4

6.8

7.2

Consolidated payout ratio (%)

36.4

30.1

32.3

32.2

31.8

Number of employees

2,297

2,444

2,452

2,445

2,420

Total assets / Total net assets

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

Total assets
Total net assets(Millions of yen)

197,825

200,000

183,383
169,378

150,000 145,673

154,968

118,201

Basic profit per share / Consolidated
payout ratio

129,099

137,821

148,600

157,049

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

(%)

(Yen)

15,00015200

13,63912,422

12,0009,231
9,000 8.0

10.0

12,025 12,064
9.0

8.4

12
8.9

2016 ANNUAL REPORT

0166.25 160.95

9100

2011 2012 2013 2014 2015 (FY)

6,000

6

3,000

3

0

0

2011 2012 2013 2014 2015 (FY)

50

0

60

161.63150

45
123.54

100,000

50,000(%)

184.28

36.4

30.1

32.3

32.2

31.8
30

15

0

2011 2012 2013 2014 2015 (FY)8

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Fiscal 2015 Highlights
Operating Results
Net sales (left scale)

Consolidated net sales andoperating income

achieved newrecord highs

Operating income (right scale)(Billions of yen)

119.5 billion yen(Billions of yen)

120

107.0

103.2

80

113.1

111.4

17.9

30

19.6
billion yen

20

17.6
14.7

14.5
40

10

0

0

2011

2012

2013

2014

2015

(FY)

Sales Status of a Key Product
Combination drug for asthma treatment

Flutiform sales increased

7.2

billion yen

3.6

billion yen

2014

2015

(FY)

Progress in the Out-licensed Activities

Novartis (Switzerland) has decided to concentrate on

the development of KRP-203 for GvHD*.

(Announced in November 2015)* Graft-versus-host disease(December 2015)2016 ANNUAL REPORT

Out-licensed FPR2 agonist program to Bristol-Myers
Squibb Company (U.S.A.) and received an upfront payment
of US$35 million

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President’s Interview“Amid the dramatically fluctuating environment
inside and outside of the Company, it is clearthat it is difficult to respond to the challenges weare facing based on our existing mindsets alone,
so we are creating and executing new initiatives
and advancing our business strategy oftransforming.”

Minoru Hogawa
Representative Director, President andChief Executive Officer

Looking back at fiscal 2015, how doyou see the year?
Fiscal 2015 was the final year of the medium-termbusiness plan HOPE100—Stage 1—, the first step
toward the embodiment of HOPE100, our long-term
vision for fiscal 2010 to fiscal 2023. Amid a tough businessclimate due partly to drug pricing revisions, we were able to set
a new record for consolidated net sales and operating income. It
was also a significantly fruitful year connecting to the new
medium-term business plan HOPE100—Stage 2— for fiscal
2016 to fiscal 2019 in terms of new in-house drug discovery due
to factors such as the move to full-scale operation of a newresearch and development base and conclusion of major license
agreements.

2016 ANNUAL REPORT——

Please describe the overall situation
regarding medium-term businessplan HOPE100—Stage 1—.

During Stage 1 we established our statement "businessorganization, the building of a system to promote eachbusiness, and the enhancement of the driving force ofeach business," restructured our business strategy to respond tothe changes in the environment and grew business that will
become our new core.
In the pharmaceutical business, we aim to become a manufacturer of original new drugs that can contribute to the health of
the world’s people, and to that end launched the WATARASE
Research Center in July 2015. Development of immunomodukatory drug KRP-203, out-licensed to Novartis of Switzerland,
became full-scale for graft-versus-host disease (GvHD), while atthe KYORIN Pharmaceutical Development Research Laboratories(currently the WATARASE Research Center), the FPR2 agonist
program was out-licensed to Bristol-Myers Squibb Company,
taking it global in a development we consider to be significant.

Meanwhile, we also strengthened our domestic sales pipelines
for new drugs and licenses including overactive bladder treatment
KRP-114V and allergic rhinitis treatment Desloratadine.
On the production side, we advanced the transfer of functions
from KYORIN Pharmaceutical’s Okaya plant to KYORIN Pharmaceutical Facilities Co., Ltd.
On the sales side, we deepened the franchise customer (FC)strategy in an endeavor to maximize the spread of main products
such as Flutiform, a combination drug for asthma treatment,
while net sales of new drugs exceeded initial forecasts. However,
due to changes in the environment brought about by the dramatic
contraction of the market for longstanding pharmaceuticalproducts due to the promotion of the development of genericdrugs, original drugs fell short of their target. However, by
establishing a proactive joint development model in the genericdrugs business, we achieved a certain level of growth and have
expanded the business so that it is now twice the size that it
was at the start of Stage 1.
In the healthcare business, we were able to launch theenvironmental hygiene business as a new business, but were notable to achieve initial targets, while the skincare business andother existing businesses were also significantly below targets.
As a result of these developments, the Group was about¥20.0 billion short of its target of ¥140.0 billion in net sales, butalmost achieved its target of ¥20.0 billion in operating income.
We consider record net sales and operating income to be acertain level of achievement. There are still issues left over from
Stage 1 that need to be resolved, but we have implemented avariety of reforms and we feel the seeds we sowed have begun
to bear fruit.

■ Performance in Fiscal 2015
Looking at results for fiscal 2015, in the pharmaceutical business,
net sales increased by 1.8% year on year in the ethical drugs
sales in Japan due to an increase in net sales compared to theprevious year by Flutiform, a combination drug for asthma
treatment, Kipres, a treatment for bronchial asthma and allergic

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Medium-TermBusiness Plan
Fiscal 2016-2019

Stage

2

Target Figures
Medium-TermBusiness Plan
Fiscal 2010-2015

Stage

1

FY2015 ActualSales¥119.5 billion

Operating
Income¥19.6 billion

Average annual growthrate of sales
Consolidated operating
income margin

rhinitis, and Uritos, a treatment for overactive bladder, as new
drugs, despite net sales decreasing year on year for Pentasa, anulcerative colitis and Crohn’s disease remedy, and Mucodyne, amucoregulant, as longstanding pharmaceutical products.
In ethical drugs sales overseas, net sales increased significantly by 441.2% compared to the previous fiscal year due toconcluding a contract to license the FPR2 agonist program,which resulted in recording an upfront payment made at the timeof signing the contract.
Sales for generic drugs remained about the same as they had
been in the previous year with an increase in the health insurance
pharmacy market’s sales resulting from an expansion of themarket due to the promotion of use of generic drugs and raised
awareness of them; however, this was offset by a decrease incontract manufacturing sales. As a result, net sales in thepharmaceuticals business increased by 5.8%.
In the healthcare business, net sales decreased by 7.8%
compared to the previous fiscal year, mainly due to reduced
sales at Dr. Program Co., Ltd., which is engaged in the production
and sales of skincare products.
As a result of the above, consolidated net sales were a record¥119,483 million, a 5.6% increase on the previous fiscal year,
due to a significant year-on-year increase in the net sales of new
drugs.
On the earnings front, we achieved a record ¥19,636 million
in operating income, an increase of 33.2% compared to theprevious fiscal year, bringing us close to the Stage 1 target,
which was mainly due to an increase in gross profit that resulted
from recording increased income from main products andbooking an upfront payment upon signing an agreement.

■ R&D Pipelines Are Progressing Steadily

Stage

3

3% or more
15% or more

In regard to out-licensing developments, KRP-203 had been
out-licensed to Novartis of Switzerland, which in November
2015 decided to concentrate on development of GvHD. We
signed an agreement in December 2015 with Bristol-Myers
Squibb to out-license the FPR2 agonist program, using FPR
agonists as new drug candidate compounds that mainly inhibit
the migration of neutrophils and exhibit anti-inflammatory action.
Furthermore, KYORIN Pharmaceutical has concluded an agreement with Kissei Pharmaceutical Co., Ltd. to co-develop andco-market KRP-114V, currently undergoing Phase III clinical trials
in Japan.

How do you analyze the businessenvironment at a point where you areformulating the new medium-termbusiness plan HOPE100—Stage 2—?
The external environment surrounding the ethical drugs
business is expected to become increasingly morechallenging with the arrival of the 80% generics era andthe drug pricing revisions. Further, the Kyorin Group is facing
major changes in its business environment unlike any it has
experienced in the past, including the expiration of a patent for a
key product, Kipres. In this environment, it is difficult to respondto the challenges we are faced with based on our existing
mindsets alone. In an effort to dynamically remake past systems
for conducting business, we must create and execute new
initiatives that are not simply an extension of the past.

Please give us an overview of the
new medium-term business plan
HOPE100—Stage 2—.
The ethical pharmaceuticals market structure is changing
dramatically and to respond to the national policy
recommending the materialization of high-quality,
efficient medical care, we are anticipating changes in the environment as rapidly as possible, changing our awareness andreforming our operations. We have established “making reforms(changes and innovations) and achieving continuous growth inan effort to realize our long-term vision” as our statement andare working on business strategies and organization strategies.

2016 ANNUAL REPORT

Looking at the main progress made in R&D activities during fiscal
2015, Phase I and Phase II clinical trials for gene-therapy drug
Ad-SGE-REIC, a formulation that targets the treatment ofmalignant pleural mesothelioma, started in July 2015, and in
March 2016, we initiated Phase III clinical trials for KRPAM1977Y, a new quinolone synthetic antibacterial agent. In
October 2015, MSD K.K., with which we concluded an in-licensing agreement, filed an application to the Ministry of Health,Labour and Welfare seeking permission to engage in production
and sales of Desloratadine.

Medium-TermBusiness Plan
Fiscal 2020-2023

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Please give us the key points of thebusiness strategies.
Under our new medium-term business plan
HOPE100—Stage 2—, we will carry out, under the
aforementioned statement, the following four priority
strategies and two development strategies.

■ Four Priority Strategies
Enhancing drug discovery capabilities
We will build a system for continuously creating and delivering
innovative new drugs and work towards first-in-class drug
discovery. Specifically, this will involve identifying novel drug
discovery targets in the franchise customer areas and creating
first-in-class new drugs through the utilization of existing drug
discovery platforms based on low molecular weight and newtechnologies, such as peptides and gene therapy. Furthermore,
we will also aim for early collaboration with global partners toaccelerate global expansion and development of original new
drugs.
For details, please refer to page 15.
Increase the ratio of new drugs group
We plan to increase the percentage of the new drugs group to
50% or higher by maximizing the spread of new drugs by fiscal
2019. To deal with the expiration of our patent for the key
product Kipres with the growth of new drugs, we will aim tolaunch three components and four new products (allergic rhinitis
treatment Desloratadine, new quinolone synthetic antibacterial
agent KRP-AM1977X (oral agent), KRP-AM1977Y (injection),and overactive bladder treatment KRP-114V) during the Stage 2
period, along with Flutiform, which has already been launched.
For details, please refer to page 16.

Promotion of generic drugs business by making the most of
its characteristics
In addition to making use of the merits of in-house development, production, and sales of generic drugs and KYORIN

Pharmaceutical dealing with new drugs within the Kyorin Group,
we will actively handle authorized generics. As well as aiming fora large market share with Montelukast AG, the authorized
generic version of Kipres, we also have in sight the acquisition ofother authorized generics.
For details, please refer to page 25.
Enhanced low cost
We will reform the cost structure through optimization within the
Kyorin Group. Currently, the Group owns four plants; however,
KYORIN Pharmaceutical’s Okaya plant will be closed from
September 2016. The Group is working toward the maximum
utilization of KYORIN Pharmaceutical’s Noshiro plant dealing in
new drugs, KYORIN Pharmaceutical Facilities, whose various
products include MSD products, and KYORIN Rimedio’s Inami
plant, which makes generics. By the three plants with different
characteristics working together on production within the Groupto advance overall optimization, production will occur in theappropriate place regardless of the bounds of the new drugs
group, original drugs group and generic drugs group, and we will
undertake the leveling of plant utilization rates and the efficientuse of assets.
For details, please refer to page 24.

■ Two Development Strategies
Overseas expansion
We will deliver original new drugs to people around the world.
Specifically, the Kyorin Group will use partnering to promote
expansion to the U.S. and Europe of innovative new drugs
created by the Company and capture overseas sales. We will
also work in collaboration with other companies to lay thefoundations for future direct expansion, with a focus on Asia.
Enhancing healthcare businessWe will grow the environmental hygiene business (multi-purpose
disinfectant cleaner RUBYSTA), strengthen collaboration withexisting businesses and create a new key business. We are alsobuilding the businesses that will pave the way for candidates
that will be the next core.

2016 ANNUAL REPORT

Strategy
Priority
Strategies

1. Enhancing drug discovery capabilities
2. Increase the ratio of new drugs group
3. Promotion of generic drugs business by making
the most of its characteristics
4. Enhanced low cost

Development
Strategies

1. Overseas expansion
2. Enhancing healthcare business

Organization• Establishment and operation of the system for management of
human resources• Strengthening of human resources development

Performance
TargetFigures

Average annual growth rate of 3% or more
for the consolidated net sales
Consolidated operating income marginof 15% or more

Capital Policy
and Shareholder
Returns

Adopt the capital policy ensuring both
growth investment and stable returnto shareholders.

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Please tell us about the organization
strategies.
The Kyorin Group has positioned valuing employees
and invigorating people and the organization as the key
challenge for implementing business strategies andrealizing results. In Stage 2, we will undertake the enhancementof personnel development and rebuilding of personnel management systems such as employment, allocation, training anddevelopment, evaluation, transfers, compensation, welfare andbenefits, and so forth for each of the respective group companies
under the basic policies of personnel management in the hopesof becoming “a leading company for pursuing fulfilling careers”
for employees.

Please tell us your thoughts
regarding shareholder returns.
Under Stage 1, the Kyorin Group had a basic policy of
conducting investments for growth, investments forbusiness continuity and shareholder returns in a wellbalanced manner and strengthening our management base. As
for shareholder returns, we are aiming for a consolidated payout
ratio of approximately 30% when deciding dividends. The
dividend per share for fiscal 2015 was ¥58, consisting of aninterim dividend of ¥20 and year-end dividend of ¥38, representing a consolidated payout ratio of 31.8%.
Under Stage 2, we will anticipate the management environment under Stage 2 and maintain a healthy financial base while
undertaking a capital policy of a balance between growth investments and shareholder returns. We are aiming to provide stableshareholder returns based on the current return level. In fiscal
2016, we are forecasting a dividend per share of ¥58 (interim
dividend of ¥20).

Please tell us your thoughts about
corporate governance and CSR.
The most important management goal for the Kyorin
Group is to continue improving its corporate value. To
achieve this goal requires fostering a management
environment that enables us to build trust with the general public.
Therefore, having given better corporate governance a highpriority, we seek to ensure prompt decision making, strong
monitoring of the appropriateness of management, and ethicaland transparent corporate activities. To ensure transparency andfair disclosure, we release appropriate information without delay
for the benefit of shareholders and investors. In the future, we
intend to actively increase our disclosure of information, andexpand and improve our communications with all stakeholders.
The starting point of the Kyorin Group’s corporate social
responsibility (CSR) endeavors is its corporate philosophy. For
sustainable growth, Kyorin will prioritize building and maintaining
trust-based relationships with medical professionals, customers,
shareholders, investors, employees, business partners, and local
communities. The Group will continue to work to realize that goalby providing trusted products and services, and by fulfilling its
corporate social responsibility in the areas of environmental andindustrial safety and hygiene through activities that contribute tohealth and society.
For details, please refer to page 32.

Finally, do you have a message foryour stakeholders?
The Kyorin Group has taken a fresh approach with its
new medium-term business plan HOPE100—Stage 2—
toward realizing HOPE100, our long-term vision, andwe aim to achieve sustainable growth. I look forward to thecontinued support of all of our stakeholders.

Please tell us about the numericaltargets included in Stage 2.

2016 ANNUAL REPORT

We have not set performance targets for the Kyorin
Group under Stage 2 after having judged them to beinappropriate, taking into account that we are experiencing an uncertain management environment of a type we havenever experienced before due to factors such as pricing revisionand the expiration of a patent on a key product.
I touched on these matters earlier, but although under Stage
2 there will be the Kipres patent cliff resulting in a temporary
decrease in profit, we have three components and four new
drugs that will definitely hit the market. By the time we exit Stage
2 in fiscal 2019, we predict our net sales and operating income
will surpass fiscal 2015’s results of consolidated net sales of¥119.5 billion and operating income of ¥19.6 billion, and we will
aim to consolidate a growth trajectory for the time beyond that.

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Feature

Four Priority Strategies to Be
Promoted Under the New
Medium-Term Business Plan
HOPE100—Stage 2—
Forging a New Path for the Future!
The Kyorin Group’s
New Challenge

2016 ANNUAL REPORTThe external environment surrounding the pharmaceutical industry has become increasingly
more challenging due to factors including thereform of the drug pricing system, and further
dramatic change can be anticipated. The Kyorin
Group strives to respond to these various changes
in the environment by evolving an ethical drugs
business model that will enable sustainablegrowth in the business. Specifically, we havedeveloped the following four priority strategies
and engage in these to attain quantitative targets
that indicate our performance (average annual
growth rate of 3% or more for consolidated net
sales and consolidated operating income marginof 15% or more) and to advance a capital policythat aims for both growth investment and shareholder returns.

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Four Priority Strategies to Be Promoted Under
the New Medium-Term Business Plan HOPE100—Stage 2—

Priority
Strategy

1

FeatureInitiatives for first-in-class new
drug discovery

Enhancing drug
discovery capabilities

The Kyorin Group’s mission is to meet the numerous unmet medical needs that still exist, continuously discoveringand delivering innovative new drugs that contribute to the health of people around the world. Further, based on ourbelief that the creation of original new drugs is the true driving force for growth, we will be aware of our venturespirit, as we focus on first-in-class drug discovery and continue toward its advancement.

Enhancing Basic Research and Theme Selection

KYORIN Pharmaceutical is engaged in business activities targeting disease domains in thespecific fields of respiratory, otolaryngology
and urology to efficiently engage in new drug
discovery with limited resources. In the basic
research fields of inflammation, immunology
and infectious diseases, we will further
strengthen accumulated technologies, expertise, human resources and networks and set
themes in our focus areas based on portfolio
strategy after verification of such factors as
medical needs, commercial viability and thepossibility of clinical trials.

Basic Research Field

Inflammation

Verification of the details of the following
target diseases

U.S.-based
ActivX Biosciences

Infectious
diseaseImmunity

Existing treatment method (pharmaceuticals applicable)
Number of patients
Needs, commercial viability
Possibility of clinical trials
Compatibility with portfolio
Other (patent status, etc.)     

WATARASE ResearchCenterFranchise Field (Disease domain)• Respiratory• Otolaryngology• Urology

Establishment of the System for Generation of Innovative New Drugs
KYORIN Pharmaceutical creates original newthemes by strengthening feasibility research.
For novel new drug targets identified using
KYORIN Pharmaceutical’s receptor technology
and U.S.-based ActivX Biosciences’ KiNativtechnology, we engage in low molecular new
drug discovery activities on the one hand, while
actively engaging in open innovation (including
with academia, venture companies and pharmaceutical companies inside and outside ofJapan) to utilize technologies other than low
molecular technology in peptides, nucleic acidmedicines and gene therapy.

Drug Discovery Information

WATARASE Research Center
receptor technology

U.S.-based ActivX Biosciences
KiNativ technology

Academia, Venture company

Pharmaceutical companies
in Japan and overseas

Open innovation

Open innovation

Target novel new drug discovery
Original response

Low molecular compound

External use

Peptides, nucleic acidmedicines, gene therapy

Strengthening Basic Research Capabilities
KYORIN Pharmaceutical engages in basic research todiscover innovative, first-in-class new drugs by strengthening biological and chemical biological research, andexplore new drug discovery targets based on research
into inflammation, immunology and infectious disease.
We use the two approaches of a target-based approach and a phenotype-based approach to do this.

Up to 4 years

Up to 1.5 years

Up to 1 year

Up to 1.5 years Up to 9 years

Feasibility
research

Lead
optimization
research

PCC
assessment

Non-clinical
trialsThemeselection

1 compound
selection

PCC
compoundClinicaltrialsPOC
assessment

Marketlaunch2016 ANNUAL REPORT* Target-based approach: Search for new drug discovery targets from
disease-related proteins that are new or their functions remain unknown.
Following that, an assay is built and hit compounds acquired from HTS.
* Phenotype-based approach: An original assay of the disease’s model cells
is built and hit compounds acquired from HTS. Following that, lead optimization research is carried out in parallel with the new drug discovery target
search.

Timeframe of Low Molecular Drug Discovery

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Feature

Four Priority Strategies to Be Promoted Under
the New Medium-Term Business Plan HOPE100—Stage 2—

Priority
Strategy2

Substantial increase in the ratio of
new drugs group by maximizing
spread of new drugs group

Increase the Ratio of
New Drugs GroupThe Kyorin Group recognizes the new drugs group is even more important than ever if we are to achieve sustainable growth, so we will undertake the enhancement of its development pipeline, early drug development,
and work to maximize the spread of new drugs to strengthen the new drug business in Japan.
During Stage 1, we needed to respond to the expiration of a patent on a key product and did so by actively
forming alliances and promoting strengthening of the development pipeline. During Stage 2, we will launch four
new products (Desloratadine, KRP-AM1977X (oral agent), KRP-AM1977Y (injection) and KRP-114V) and, together
with the already marketed Flutiform, work to maximize the spread of new drugs.
By steadily implementing these initiatives, we aim to significantly increase the percentage of new drugs from
20% after the expiration of the Kipres patent to 50% or higher by fiscal 2019, the end of Stage 2.

Aiming for the Launch of Four Products in Stage 2
FY2016 Expected Release

FY2018 Expected Release

Desloratadine

FY2019 Expected Release
KRP-AM1977Y
Lascufloxacin

New quinolone synthetic
antibacterial agent
Oral agent

Overactive bladder treatment
Selective β3 Adrenergic
Receptor Agonist

New quinolone synthetic
antibacterial agent
Injection



KRP-114V
Vibegron

KRP-AM1977X
LascufloxacinAntiallergic agent
Second generation histamine
H1-receptor antagonist

FY2018 Expected ReleaseTowardnew
growthDesloratadine

Lascufloxacin

Vibegron•High affinity for a histamine receptor and low
central nerve transition•Balanced efficacy and safety•Superior ability to combat drug-resistantgram-positive bacteria (incl. MRSA)•Has a powerful antimicrobial activity against
anaerobic bacteria•Expectation of high clinical effects withexcellent tissue penetration•High degree of safety expected (including forblood sugar level irregularities, photodermatosis
and digestive system organs)•Expectation of high compliance in taking
medicine with less side effects than theconventional drugs for overactive bladder•Less drug interaction as β3 receptor agonist•β3 agonist including this agonist may
constitute the first-line drug for treatment ofoveractive bladder.

Antihistamine market
Approx. ¥180 billion

Antibacterial agent market
Oral agent
Approx. ¥190 billion

Injection market
Approx. ¥130 billion

Overactive bladder market
Approx. ¥80 billion

Maximizing the Spread of a Combination Drug for Asthma Treatment Flutiform

2016 ANNUAL REPORT

Flutiform Product Features•This combination asthma treatment delivers fluticasone forthe prevention of airway inflammation along with formoterolthat acts as a bronchodilator. The use of a pressurized
metered-dose inhaler enables patients to inhale the drug
easily, irrespective of the level of lung function.
•Works quickly and effectively with good symptom control•Inhalation operations are simple, employing a pMD I aerosol
spray

Popularizing Proper Inhalation Methods•Provide inhalation guidance
thoroughly (doctors, pharmacists,
health-care providers)•Enhance learning tools for patients

Experience
effects

Maximizespreadof products

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Four Priority Strategies to Be Promoted Under
the New Medium-Term Business Plan HOPE100—Stage 2—

Priority
Strategy

3

Promotion of Generic Drugs
Business by Making the Mostof Its Characteristics

FeatureTake advantage of handling of
new drugs for flexible businessFor details, please refer to page 25.
operations

While the use of generics accelerates and the market grows as we move towards the realization of efficient
medical care being promoted as a government policy, the competition among corporations is expected to become
increasingly severe. In this environment, the Kyorin Group will make use of the merits of in-house development,
production, and sales and of handling new drugs within the Kyorin Group to conduct flexible business development. We will also promote the distinctive features of the generic drugs business such as acquiring new authorized
generics, continuing on from the authorized generic version of Kipres due to go on sale from September 2016.

Priority
Strategy

Change of the cost structure by
ensuring optimization within the
For details, please refer to page 24.
Group

4 Enhanced Low Cost

In a difficult environment for the domestic pharmaceutical industry, the Kyorin Group will strongly push cost
reduction efforts, such as undertaking the rebuilding of the Group production system to ensure a stable, low-costsupply of high-quality products. By working together and exceeding the bounds of the original drugs group,
new drugs group and generic drugs group in addition to moving beyond the confines of Group companies, we
can work on overall optimization of production within the Group (including by undertaking the leveling of plantutilization rates and efficient use of assets).

Group Production Bases

KYORIN Pharmaceutical Noshiro Plant
KYORIN Pharmaceutical’s main
plant that mainly handles the
new drugs group and the original
drugs group for the ethicalpharmaceuticals market(Noshiro City, Akita Prefecture)

KYORIN Pharmaceutical
Okaya Plant(Nagano Prefecture)
All the production functions to betransferred, scheduled to beclosed (in September 2016)

New drugs group, original drugs group,
generic drugs group
KYORIN Rimedio Inami Plant
Production
transfer

KYORIN Pharmaceutical Facilities Co., Ltd.
An ethical drugs company
that mainly handles
prescription drugs
Newly established in 2012.
(Koka City, Shiga Prefecture)2016 ANNUAL REPORTKYORIN Rimedio’s production
plant that mainly handles
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The Core Company of the Kyorin Group and Overview of Business

The Kyorin Group comprises KYORIN Holdings, Inc. and five consolidated subsidiaries and isengaged in the development, production and sale of new and generic drugs in the ethical drugs
business. We are also pushing ahead with skincare, the environmental hygiene business, overthe-counter drugs and others as part of the healthcare business.

The Kyorin GroupKYORIN Pharmaceutical Co., Ltd.
Drug discovery business, ethical drugs,
over-the-counter drugs and others

KYORIN Rimedio Co., Ltd.

KYORIN Medical Supply Co., Ltd.

Generic drugs, over-the-counter drugs andothersEnvironmental hygiene, sales promotion,planning and production of advertising

KYORIN Holdings, Inc.
A holding company in charge ofplanning and promoting of Group-wide
management strategies
Ethical Drugs Business(New drug discovery, new drugs business,
generic drugs business)

KYORIN Pharmaceutical Facilities
Co., Ltd.

Healthcare Business(Skincare, environmental hygiene,
over-the-counter drugs and others)

Dr. Program Co., Ltd.
Development and sales of skincare products

Manufacture and sales of prescription drugs

New drugs business2016 ANNUAL REPORT

From the standpoint of enhancing
corporate value from the medium- tolong-term, we combine a fusion of the
ethical drugs business and healthcare
business to disperse risk and promotesustainable growth.

Ethical Drugs
Business

Generic drugs business

Environmental hygiene business
Healthcare
Business

SkincareOver-the-counter drugs and others

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As the core company for the Kyorin Group,
we aim to be a pharmaceutical manufacturer
that is trusted by patients and medical professionals,
and realizes sustainable growth.
Since its founding in 1923, each and every employee of
KYORIN Pharmaceutical has added unstinting effort tohigh ideals to bring about the creation, development,
production and provision of new drugs sought by the
medical frontlines to realize the corporate philosophy
shared throughout the Kyorin Group of “Kyorin continues
to fulfill its mission of cherishing life and benefiting
society by contributing to better health” to bring smiles
to the faces of patients and their families.
Currently, Japan’s pharmaceuticals industry faces anuncertain environment with the full-scale arrival of anaging society and continued implementation of policies
involved with dealing with that by restraining the costsof medical care and medicines. Under such circumstances, our company has adopted the slogan of being“a pharmaceutical manufacturer that is trusted bypatients and medical professionals, and is recognized
for its presence in society,” as we work under the
Kyorin Group’s long-term vision HOPE100. We will seek
to create new medicine that contributes to healthworldwide, and establish a strong presence in thespecific fields of respiratory, otolaryngology, and urology.
We ask our stakeholders for your continued support.

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

2016 ANNUAL REPORT

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Ethical Drugs Business New Drugs

Drug
Discovery /R&D

Driving innovation to promote continuous
discovery of new products andmaximization of their value

KYORIN Pharmaceutical Co., Ltd. seeks to continue growing sustainably with new drug manufacturers from
HOPE100—Stage 2—, and creating the continuous discovery of innovative new products. To this end, in
July 2015, we established the WATARASE Research Center, which brings together our collective capabilities.
Through this, we are able to conduct R&D functions in one place, carrying out a series of activities ranging
from basic research to confirmations of effectiveness and safety of drug candidate compounds. This enables
us to maximize efficiency and coordination in terms of people, organization and systems. We have transformed our research framework into a matrix organization that facilitates the simultaneous pursuit of bothproducts and technologies in a parallel manner. This means that we can both improve the pipeline of specificfields (respiratory, otolaryngology, and urology) and also shorten the development time from drug creation tomarket entry.
Backed by our ability to create innovative new ideas, KYORIN Pharmaceutical aims to become a manufacturer of original new drugs that can contribute to the health of the world’s people.

2016 ANNUAL REPORT

Initiatives under the New Medium-term
Business Plan HOPE100—Stage 2—
The Discovery Research Division continuously produces original
drugs that contribute to the health of people around the world
under our long-term vision HOPE100, and has set a goal ofestablishing a strong presence in the Company’s specific fields.
To do this, we believe it is important to build a highly productive
organization by emphasizing timelines, and to fully explore the
R&D processes from drug discovery to life cycle management:
theme selection, evaluation, development period, and theintroduction of new drug discovery technology.
In the drug discovery process, we are leveraging our foundation research in areas such as inflammation, immunity, andinfectious diseases as core technologies as the basis for identifying novel drug discovery targets, aiming to create first-in-class new
drugs in specific fields. We actively utilize existing drug discovery
platforms (kinase and receptors) based on low molecular weightand new technologies (peptides, gene therapy, and so forth).
With regard to our new technologies, we are promoting not justresearch within the Company but also collaboration with academia
such as universities and research institutes and through otherventures. We will select highly original research themes andpursue R&D activities.
The Ministry of Health, Labour and Welfare has issued theComprehensive Strategy to Strengthen the PharmaceuticalIndustry. Under the strategy, the Ministry has stated that its vision

for the role of new drug manufacturers is the creation of innovative
pharmaceuticals with global potential, assuming that we haveentered an age where generics make up 80% of the market. In
order for us to survive and continue creating new products as a
new drug manufacturer, we will take the following initiatives.
1. Expand the pipeline of original new drugs
1) Expand feasibility research to generate themes for novel
drug discovery
2) Actively promote open innovation
3) Out-license to global mega partners for the global
expansion of original new drugs developed in-houseand to accelerate development
2. Enhance the product portfolio to realize sustainablegrowth1) Formulate product strategies to advance development
themes (KRP-AM1977X/Y and KRP-114V) and maximize value2) Examine options and decide on life cycle management
themes3) Examine options for licensing new products
KYORIN Pharmaceutical will make a companywide effort toadvance these themes at a faster rate, with the spirit of a drug
discovery venture company.

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Products under Development (As of July 29, 2016)
Ph-Approval

Compound / Code

OriginTherapy area / Action

Features

Stage

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

Overactive
bladder

Urology

KRP-114V
Respiratory / Otolaryngology

KRP-AM1977X(Oral agent)
Respiratory / Otolaryngology

KRP-AM1977Y(injection)

New quinolone
synthetic
antibacterial agent

In-house

New quinolone
synthetic
antibacterial agent

In-house

1/2015• Superior ability to combat drug-resistant gram-positivebacteria (incl. MRSA)• Has a powerful antimicrobial activity against anaerobic
bacteria• Expectation of high clinical effects with excellent tissue
penetration• High degree of safety expected (including for blood sugar levelirregularities, photodermatosis and digestive system organs)

4/20153/2016[Reference]
General name

Therapy area / Action

FeatureAllergic rhinitis, hives, itching resulting fromskin diseases (eczema/dermatitis, pruritus
cutaneous)

Otolaryngology

Desloratadine

Stage

Second generation histamine H1-receptor
antagonist* Kyorin will have the exclusive right to market the drugs. (5/2016)

Application submitted by MSD K.K. (10/2015)* Signed a contract for the co-promotion with Kaken Pharmaceutical. (7/2016)

POC Project (Ph -Ph )Compound / Code

OriginFeaturesTinnitus

Merz(Germany)

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

Malignantpleuralmesothelioma

Okayama
University

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

Therapy area / Action

Stage

NDA
Otolaryngology

KRP-209
Respiratory

Ad-SGE-REIC

8/20157/2015

Licensing Development (Preclinical)
Compound / CodeLicensee / Collaborative
research

Therapy area / Action

OriginFeatures

Comments

Sphingosine-1-Phosph-

KRP-203

Novartis(Switzerland)

Graft-versus-hostate Receptor Agonist
diseaseIn-house immunomodukatory(GvHD)drug

FPR2 agonist
program

Bristol-Myers
SquibbCompany(U.S.A.)

Non-disclosure

FPR-2 agonists thatmainly inhibit the migration
In-house of neutrophils and exhibit
anti-inflammatory action

NDA

Stage

Preclinical

NDA

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

License agreementwith Bristol-Myers
Squibb Company(12/2015)

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

Actively Promoting Alliances with External Partners in Japan and Overseas

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

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

R-Pharm (Russia)

Allergan (U.S.A.)

Vectura (U.K.)
Merz (Germany)
Ferring International
Center (Switzerland)
AstraZeneca (U.K.)

KISSEI PHARMACEUTICAL

Yakult Honsha

Sato Pharmaceutical

Kaken Pharmaceutical

Eisai

Ono Pharmaceutical

Taisho Pharmaceutical
Nichi-Iko Pharmaceutical
Chugai Pharmaceutical

LG Life Sciences (Korea)

Yungjin (Korea)

Nisshin Pharma

Handok (Korea)

Shinlin Sinseng (Taiwan)

ROHTO Pharmaceutical

Chong Kun Dang (Korea)

Synmosa (Taiwan)
Senju Pharmaceutical* SPIMACOS: audi Pharmaceutical Industries & Medical Appliances Corporation

Out-licensed
In-licensed
In- and out-licensed

2016 ANNUAL REPORTSPIMACO* (Saudi Arabia)

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Ethical Drugs Business New Drugs

Sales

Innovating and strengthening
our sales capabilities for early-stage
market penetration

KYORIN Pharmaceutical’s sales division is striving to establish its presence among franchise customers inthe specific fields of respiratory, otolaryngology and urology. We have approximately 750 medical representatives (MRs), who work to build strong, trust-based relationships with the physicians they visit regularly,
particularly the specialists in these fields, so that from an organizational standpoint, we are able to precisely
grasp the needs of medical professionals and quickly accommodate them. We make various proposals
after sufficiently understanding physicians’ approaches to drug treatment. Our aim is to be a new drug
manufacturer that is trusted by patients and those in the medical industry and recognized as being useful
to society.

2016 ANNUAL REPORT

Initiatives under the New Medium-TermBusiness Plan HOPE100—Stage 2—
Recently, business risks have been increasing with the Japanese
government promoting policies to curtail the annual spending of
the National Health Insurance system amid rising drug costs inthe ethical drug industry. Moreover, the formulation and implementation of a regional healthcare vision based on secondary
medical districts is promoting functional separation and clarification of medical institutions. Furthermore, we are facing the expiryof its patent for Kipres in fiscal 2016.
In this environment, under the new medium-term businessplan HOPE100—Stage 2—, our top priority for ensuring sustainable growth is to increase the ratio of the new drugs group. We
recognize that this group is more important than ever before,
and we will aim to achieve early penetration and maximize thespread of newly developed products. Accordingly, we see themain missions of the Sales & Marketing Headquarters as being
to quickly achieve the planned launch and market penetration offour products: Desloratadine, a treatment for allergic rhinitis;
KRP-114V, an overactive bladder treatment; and KRP-AM1977X
and KRP-AM1977Y, which are new quinolone synthetic antibacterial agents, and to promote the spread and early-stage maximization of Flutiform, a combination drug for asthma treatment,
and Eklira Genuair, a treatment for chronic obstructive pulmonary
disease (COPD).
Transforming the sales strategy to anticipate changes isessential for responding accurately amid harsh environmental
changes. In Stage 2, we reorganized our team areas based on
the secondary medical districts (branch, sales office, and team),with headquarters and branches working together to implement

strategies in line with area management, a specified agent policy,
and redeployment of sales resources.
Specifically, KYORIN Pharmaceutical has instituted a teambased sales structure in which a number of MRs are maderesponsible for a certain area. In order to develop the areas for
all teams, we swiftly respond to diverse medical needs as anorganization. We will continue to evolve these measures going
forward, thereby fostering a climate in which MRs experience thepleasure of achieving a goal as a team.
We will treasure the relationships of trust that we have built withmedical professionals working in our specific fields, as we continue
to evolve our franchise customer (FC) strategy. The market
environment is changing with the times. We will optimize our listof regularly visited physicians and build further layers of expertise,personal contacts, and networks, leveraging these to accelerate
new product development. We will do our utmost to deliver new
drugs to patients in key disease domains as quickly as possible.

Area Management Based on FC Strategy

Ensure a competitive amountof face-to-face time

Introduce strategies alignedwith needs

Deploy sales capabilities basedon area situation/customer
information

Adequately assess area
situation/customer informationand share within the team22

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Mainstay Products
Respiratory

Flutiform

Respiratory

Eklira Genuair

Sales(Billions of yen)

8.0

The product was
launched in May 2015 forthe treatment of COPD.
Administered twice dailyusing the advanced
Genuair inhaler, Eklira
improves respiratory
function throughout theentire day.

7.2

6.0

Launched in
November 2013

4.0

Combination drug for asthma
treatment
Flutiform 50 Aerosol 56 Inhalations
Flutiform 50 Aerosol 120 Inhalations
Flutiform 125 Aerosol 56 Inhalations
Flutiform 125 Aerosol 120 Inhalations

Respiratory
andOtolaryngology

3.6

2.0

COPD treatment
Eklira 400 g Genuair for 30 Inhalations
Eklira 400 g Genuair for 60 Inhalations

0.6
02011 2012 2013 2014 2015 (FY)

KipresUrology

Uritos

Sales

Sales

(Billions of yen)(Billions of yen)

60.0

150

45.0

36.8

Leukotriene receptor antagonist
Anti-bronchial asthma andallergic rhinitis drug

39.6 40.2 41.2

44.1

Kipres Fine Granules 4 mg /Kipres Chewable Tablets 5 mg

Respiratory
andOtolaryngology

7.50

Uritos Tablets 0.1 mg
Uritos OD Tablets 0.1 mg

7.3 7.5

6.3

2.5

0

2011 2012 2013 2014 2015 (FY)

IBD*

2011 2012 2013 2014 2015 (FY)Pentasa

Sales

Sales

(Billions of yen)(Billions of yen)

24.0

8.1

Therapeutic agent for
overactive bladder

Mucodyne

20.0

21.5
19.1 18.4

18.0 17.6 18.6

17.2

16.1

15.0

18.0

14.0

,
Ulcerative colitis and Crohn s
disease remedy

6.0

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

13.0

10.0

5.0

Ulcerative Colitis Remedy02011 2012 2013 2014 2015 (FY)Pentasa Intestinal Infusion 1 g /Pentasa Suppositories 1 g* Inflammatory Bowel Diseases02011 2012 2013 2014 2015 (FY)2016 ANNUAL REPORT

12.0

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

7.5

5.0

30.0

Kipres Tablets 5 mg / Kipres Tablets 10 mg
15.0
Kipres OD Tablets 10 mg

Leukotriene receptor antagonist
Anti-bronchial asthma drug

10.0

23

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Ethical Drugs Business New Drugs

Production

Building the foundation for realizing thelong-term vision HOPE100 throughproduction revitalization

Providing a stable supply of high-quality pharmaceutical products at a low cost is our ongoing mission.
At KYORIN Pharmaceutical, we have a quality policy of maintaining stable supplies and working to reduce
costs while ensuring high quality, and are currently involved in reinforcing production activities and supply
chain management from a scientific standpoint. For this to be achieved, it is important that initiatives be
people-driven. With all employees aware of their respective roles, we are promoting the development ofsystems that allow us to maximize the strengths we possess. KYORIN Pharmaceutical aspires to be a drug
manufacturer that is trusted not only in Japan but also all over the world by building a strong, cohesive
production organization for the overall Group and fulfilling our mission.

Initiatives under the New Medium-TermBusiness Plan HOPE100—Stage 2—
In Stage 2, we are working swiftly to anticipate environmental
changes by reviewing our existing work structures and approaches
from the ground up (reform) and creating them anew (renovation).
We will advance to a new stage by quickly achieving overall
optimization of production within the Group, aiming to build a new
production system for the stable supply of high-quality products
at low costs. Specifically, as we strive to realize our long-term
vision HOPE100, we will continue and accelerate our ongoing
efforts under Stage 1 on the following priorities to achievesustainable growth.
1) Low-cost operations
2) Overall optimization in production within the Group3) Advance to a Global New Production & Delivery (GNP)
system4) Human resources development

With the goal of establishing robust earnings power that is
resistant to changing conditions, we are comprehensively
assessing the supply chain throughout the entire Kyorin Groupand building a system for more efficient production and greater
supply stability. Right now, it is essential that we promote Kyorin
supply chain management (SCM) to raise speed and accuracy
through product-by-product management (visualization) on aworldwide basis, from raw material procurement to production(production management and manufacturing), inventory, andsupply (shipping). Ultimately, by carrying out our SCM strategy
we will advance and achieve the targets under the medium-termbusiness plan.

Supply Chain Management (SCM)

Procurement

Production Inventory(testing)

SupplySales

Investment
recovery2016 ANNUAL REPORTThe key points are to swiftly reorganize and optimize theGroup’s production system, rebuild supply chain managementwith a goal of shortening lead times, and reinforce a structurethat can reduce risk and provide a stable supply of products.

■ Strategic promotion of supply chain management24

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Ethical Drugs Business Generic Drugs Business

Generic
Drugs

The national government is promoting the use of generic drugs to improve the state of medical careexpenses without sacrificing any medical care quality. The Kyorin Group sees the arrival of the 80% generics
era as an opportunity to display its strength of being able to provide a stable supply of high-quality genericdrugs. The Kyorin Group started the new medium-term business plan HOPE100—Stage 2— from the fiscal
year under review, with one business strategy forming part of that being the “promotion of generic drugs
business by making the most of its characteristics.”
Kyorin Group subsidiary KYORIN Rimedio Co., Ltd. will play a central role in strengthening this business(through such means as pharmaceutical development capability, sales capability and production systems).
Going forward, the Kyorin Group will continue working for a high-quality, stable product supply and appropriate information provision, and to continue to produce products used with peace of mind, in addition, it will
provide generic drugs that meet the needs of medical professionals and patients and aim for sustained growth.

Initiatives for Authorized Generics

Construction of a New Research Institute

In September 2016, by handling both authorized generic Montelukast tablets (KM) and a treatment for bronchial asthma andallergic rhinitis drug Kipres, we aim to respond to the needs of
medical professionals and patients. Moreover, in addition toMontelukast tablets (KM), the Kyorin Group will actively examine
acquisition of further authorized generics to become the sourceof growth for the generic drugs business.

KYORIN Rimedio Co., Ltd. will build a new research institute in
Takaoka-shi, Toyama, as a strengthening measure for businesspromotion. This new research institute will handle research anddevelopment of solid formulations and solutions through tomanufacturing of investigational new drugs and will be capableof developing about double the existing number of items. Construction of this research institute will enhance the quality andspeed of formulation development in the generic drugs businessand increase the number of attractive original new drugs.

Sales of Generic Drugs
Performance of generic drugs over the six years of Stage 1 wasbrisk, backed by factors including the promotion of their use.
We forecast increased revenues in fiscal 2016, the first year ofStage 2.
(Billions of yen)

25.0

21.5

20.0

15.5 15.5

15.0
10.0

8.9

8.7

10.1

12.0

Overview of New Research Institute Plan
Address:
Building:

11 Takaoka Office Park, Takaoka-shi, Toyama
Building site area 1,809 m2
Total floor space 3,510 m2
S-structure and earthquake-resistant structure, three stories
above groundConstruction start:
Scheduled for July 2016
Construction completion: Scheduled for March 2017
Operations start:
Scheduled for July 2017
Construction cost:
Approximately ¥2 billion planned

5.02010 2011 2012 2013 2014 2015 2016 (Forecast) (FY)2016 ANNUAL REPORT

025

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Healthcare Business

Developing businesses to respond to diversifying
healthcare needs, and from the standpoints of
prevention, prognosis and enhancing health
The Kyorin Group is focusing on the expansion of the ethical drugs business from the perspective ofenhancing corporate value over the medium- to long-term. Additionally, to respond to diversifying
healthcare requirements, and from the perspective of supplementing growth from the ethical drugs
business, by complexly combining the healthcare business, we aim to disperse corporate risk and become a company that supports sound and healthy lifestyles, is robust and achieves sustainable growth.
The healthcare business, which consists of skincare, environmental hygiene and over-the-counter
drugs and other businesses, will be made into a core business and pave the way for candidates thatwill be the next core.

Environmental
HygieneBusiness

The Kyorin Group entered the environmental hygiene business in 2011, focusing on theincreasing importance of daily infection prevention at medical institutions and the likeand the belief that we should contribute to medical needs and health through the control
of environmental infection. Looking ahead, we aim to contribute to the control of various
types of infection risk and are engaged in the development of environmental hygiene andactivities to disseminate it further.

Multi-purpose Disinfectant Cleaner RUBYSTA
The multi-purpose disinfectant cleaner RUBYSTA was introduced from the U.S.-based DuPont
and is a product that has been widely used for hygiene management at medical institutions andthe like around the world both for infection prevention and to prevent the spread of pathogens.
The Kyorin Group launched this product in Japan in 2012. In the environmental hygiene business, the Group contributes to medical needs and health through the control of environmental
transmission. Additionally, we have expanded uses and enhanced the product lineup by launching the RUBYSTA Vomit Disposal Kit and RUBYSTAR Powder 5g, and worked to broaden sales
channels to accelerate the spread of the products going forward.

■ Overseas developments
Overseas expansion has become a crucial issue for the Kyorin Group as Japan’s population is forecast to decline. The healthcare
business is developing initiatives anticipating direct overseas expansion, centered on Asia. One of these initiatives involved the conclusion in January 2016 of a basic agreement on transactions related to RUBYSTA in Indonesia with P.T. Meiji Indonesian PharmaceuticalIndustries, a subsidiary of Meiji Seika Pharma Co., Ltd. The Group aims to disseminate RUBYSTA within the Indonesian market with P.T.
Meiji Indonesian Pharmaceutical Industries, which has a wealth of business experience in Indonesia and regards infectious diseases as
one of its strengths, while advancing with business development possibilities in the ASEAN region, where awareness of infection control
is rising.

2016 ANNUAL REPORTDisinfectant Milton

26

Since its launch in 1963, the disinfectant Milton has assisted mothers hoping for the healthy
growth of their babies. As the leading brand of baby bottle disinfectant, it has maintained stablesales, backed by many consumers as well as medical professionals. In 2016, we launched a new
product “Detergent Milton,” which can be used to clean baby bottles, milkers and vegetables,
under the concept of creating hygienic environments for babies.
Looking ahead, the Kyorin Group will provide information across a wide area about theawareness of assured disinfectant methods in addition to the importance of disinfecting in advanceto enable the display of assured disinfectant effects. We will also deliver the Milton brand messageof “unchanging safety into the future.”

Sundries

Second-class
OTC drugSkincare

Dr. Program Co., Ltd. creates new value (skincare products) found nowhere else in theworld and aims to contribute to the physical and mental beauty and health of women.
Our hope is to provide customers with cosmetics that are safe and have real effectiveness.

The Trinityline Skincare Brand
Regardless of however outstanding a particular beauty ingredient may be, it ismeaningless if the ingredient is unable to firmly penetrate the skin down to thedepths of the keratinous layer. It is widely known that the skin has barriers thatprevent its moisture from evaporating and protect it against external stimulants,
but these same functions work as an obstacle to penetration of cosmetic
functions. Trinityline employs a nanocapsule developed from a drug delivery
system using pharmacological technology to resolve this issue. The nanocapsule passes through the minute gaps in the keratinous layer to close in thebeauty ingredients and enables effective delivery of components to the places
where they are needed. Trinityline cosmetics supply a full amount of moistureand vitality to the keratinous layer.

■ New Product shi zu me essence gel
In April 2016, we launched the long-awaited new product shi zu me, anessence gel. This product has the fundamental concept of transforming fromanti-aging to un-aging and proposes new value to resolve current skin issues
so that they do not develop into future skin issues.

Over-thecounter Drugs
and Others

Against a social backdrop of a low birthrate, aging and rapid escalation of lifestylediseases while trying to control medical care costs, common sense about health ischanging as health consciousness is increasing. The Kyorin Group responds to various
needs and provides over-the-counter drugs that are safe, reliable and trustworthy.

Over-the-counter Drugs Responding to
the Era of Self-medication

Designatedsecond-class OTC drug

Designatedsecond-class OTC drug

Second-class
OTC drug2016 ANNUAL REPORTAt a time when awareness of self-medication is rising, the Kyorin Groupsells mainly the COOL ONE series, applying ingredients that proved tobe effective for ethical drugs to an over-the-counter drug. By appropriately providing safe and effective information that had been accumulated
in the ethical drugs business, the series is also highly regarded by
medical professionals. In August 2016, COOL ONE Cough Medicine
GX Syrup, a first liquid drug in the COOL ONE series, was newly
launched. At a time when lifestyles are changing and requirements forhealth are diversifying, providing products with characteristics such asthese will contribute to people’s health.

27

Corporate Governance
Basic Management Policies
We will pursue diverse expansion and development of our healthcare business* under our corporate
philosophy and the long-term vision HOPE100, striving to advance as a group that supports sound andhealthy lifestyles.
* A broad definition of the meaning of the healthcare business: Supporting healthy lifestyles through our business in the treatment and prevention of
disease and the maintenance and promotion of good health

Basic Policy on Corporate Governancefunction. In addition to participating in important meetings,
including those of the Board of Directors and the Management
Committee, corporate auditors implement comprehensive
audits by checking documents and other materials relating toimportant decisions and inspecting Group companies.
In addition, in recognition of our corporate social responsibility (CSR), for every Kyorin Group company we appoint complianceand risk management promotion officers. We have establisheda Group-wide compliance and risk management system that is
administered by the Compliance Committee and Risk Management Committee. We have established guidelines for eachaffiliated company based on the Kyorin Compliance Guidelines
and set up a system for employees to report and seek advice
about possible irregularities. As well as the above measures, wehave created management guidelines for affiliated companies
and built a system of support that respects their autonomy.
Under this system, we receive regular business reports fromthese companies and hold meetings with their management
before deciding important issues. The Internal Audit Officeconducts audits of affiliated companies based on internal audit
guidelines. Based on the results of these audits, departmentsthat oversee the operations of the affiliated companies issue
instructions or warnings and provide appropriate guidance.

The most important management goal for KYORIN Holdings,
Inc. is to continue raising shareholder value. To achieve thisgoal requires fostering a management environment that enables
us to build trust with the general public. Therefore, having given
better corporate governance a high priority, we seek to ensure
prompt decision making, strong monitoring of the appropriateness of management, and to secure ethical and transparent
corporate activities. To ensure transparency and fair disclosure,
we release appropriate information without delay for the benefitof shareholders and investors. In the future, we intend toactively increase our disclosure of information, and expand andimprove our communications with all stakeholders.
KYORIN Holdings, Inc. has appointed three outside directors
to further strengthen the supervision of the business executionof directors, and to further enhance the transparency andfairness of management.
Kyorin is a Company with a Board of Corporate Auditors
based on the Companies Act of Japan. The Board of Corporate
Auditors, including the three outside corporate auditors, endeavors to fully demonstrate its auditing and supervising functions
and to ensure the transparency of the decisions being made by
the Board of Directors. At the same time, corporate auditors
carry out a diverse range of activities in fulfilling their auditing

Corporate Governance and Management Structure(As of June 24, 2016)

Ordinary General Shareholders’ Meeting
Appointment / dismissal

Reports
Exchange of
opinions

Appointment / dismissal

Board ofAuditors(5 Auditors)

Appointment / dismissal

AuditsBoard ofDirectors(11 Directors(3 Outside
Directors))Committee on
Remuneration
andNominations

Cooperation

Accounting
Auditing
Firm(Independent
Auditor)

Representative
Directors

2016 ANNUAL REPORT

AuditsManagement
Committee

Internal Audit
Office(7 Members)

Supervision

AuditsAffiliatedCompanies

Guidance

Corporate
Officers / Departments

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1. Management Organization
To clarify the roles of our eleven directors, who are responsible
for making business decisions and supervising business execution, and three corporate officers, who are responsible forbusiness execution, Kyorin has established a corporate officer
system. The Board of Directors usually meets once a month,deciding important operational matters in a timely manner after
debating issues as well as supervising each director’s duties.
To oversee business execution, we established a Management
Committee, comprising the president and directors, which
discusses key operational matters concerning the Group. In
addition, at its Ordinary General Shareholders’ Meeting held in
June 2016, Kyorin appointed three outside directors, and wewill be leveraging their independence, rich experience, and highlevel of specialization to further enhance our managementtransparency and monitoring functions.
We also utilize a corporate auditor system with two statutory
corporate auditors and three outside corporate auditors. By
capitalizing on such auditing and supervisory functions, we havebuilt a system that facilitates highly transparent decision-making.
Nomination of a candidate to become a director or corporate auditor is based on the selection of candidates regardlessof gender or nationality, and who have outstanding characteristics and knowledge and appropriately strong awareness ofcompliance with laws and corporate ethics.
The (voluntary) Committee on Remuneration and Nominations deliberates in advance on whether a candidate to becomea director or a corporate auditor meets selection standards,
and the Board of Directors makes a decision.

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

3. Audit Organizationb) Corporate auditors
Corporate auditors conduct audits in line with an auditing policy
and plan set by the Board of Auditors at the beginning of eachfiscal year. In addition to participating in important meetings,
including those of the Board of Directors and the Management
Committee, corporate auditors implement comprehensive
audits by checking documents and other materials relating toimportant decisions and inspecting departments, facilities, andGroup companies.
Under our adopted system, if someone discovers that an
executive officer or employee is acting in contravention of either
laws and regulations, or the Company’s Articles of Incorporation,
they immediately notify the corporate auditors. We are working
to establish an environment conducive to more efficient audits
by corporate auditors by coordinating closely with executives
and regular employees and by fostering deeper understandingof audits. Furthermore, we assign auditing staff to assist theduties of the corporate auditors as necessary, and thesehuman resources are carefully checked by directors andcorporate auditors to ensure that they are independent.
Moreover, the statutory senior corporate auditor, Seiyu
Miyashita, has experience as a director and head of accountingof KYORIN Pharmaceutical Co., Ltd., and has a considerable
level of knowledge about finance and accounting.
c) Outside directors and outside corporate auditors
Kyorin has three outside directors and three outside corporate
auditors.
Outside director Senji Ozaki has experience as a representative director of B-R 31 ICE CREAM Co., Ltd. With his richmanagement experience and wide-ranging insight, Kyorin
deemed Senji Ozaki well-qualified overall for appointment tooutside director. In addition, no risk of conflicts of interest
arising with our general shareholders was found that might
affect the performance of his duties as outside director, and we
recognize that he brings a high degree of independence to theposition. Note that no purchasing, sales, or other trade relationship exists between Kyorin and B-R 31 ICE CREAM Co., Ltd.
As an attorney well-versed in corporate law, outside director
Noriyuki Shikanai has also served on the board of Keio University and in other important positions, and with his high degreeof specialization and rich experience, was deemed wellqualified overall for appointment to outside director. In addition,
no risk of conflicts of interest arising with our general shareholders was found that might affect the performance of his
duties as outside director, and we recognize that he brings ahigh degree of independence to the position.
Outside director Takashi Takahashi has experience as adirector of Teijin Limited. With his wide-ranging insight developed from his rich management experience, Kyorin deemed
Takashi Takahashi well-qualified overall for appointment tooutside director. Note that no purchasing, sales, or other traderelationship exists between Kyorin and Teijin Limited.
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. We utilize their specialist understanding and2016 ANNUAL REPORTa) Internal auditors
Internal audits are conducted by the Internal Audit Office, whichis staffed by seven employees who report directly to the president, and is independent from other sections. Based on yearly
auditing plans, the Internal Audit Office regularly assesses andevaluates the effectiveness and efficiency of the legal compliance and internal control systems in the parent and Group
companies. After an audit, the office communicates any

problems or areas that need improvement directly to thepresident and makes the appropriate recommendations.
Another function of the office is to evaluate the Group’s
internal controls over financial reporting. The office evaluates
the development and operation of these internal controls
according to a predetermined scope for evaluation, and makes
a report to the president.

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wide-ranging knowledge and experience to strengthen andenhance our auditing functions.
Outside corporate auditor Masaji Obata is well versed in
Corporation Law as a lawyer, and has considerable knowledge
concerning finance and accounting. Outside corporate auditor
Takao Yamaguchi has a considerable level of knowledge inmatters of finance and accounting as a certified public accountant and a certified tax accountant.
Kyorin selects outside directors and outside corporate
auditors based on a review of the individuals’ backgrounds andrelationship with Kyorin, and, from a standpoint independent
from that of management, on the assumption that sufficient
independence can be ensured that said individuals are able toadequately carry out their duties as outside directors andoutside corporate auditors.

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

d) Independent auditors
In accordance with the Corporation Law and the Financial
Instruments and Exchange Law, we receive annual audits by
Ernst & Young ShinNihon LLC. We benefit from its valuableadvice as an accounting auditing firm, as well as from its
services as an auditor of our financial accounts.
The following certified public accountants performed theaudit of KYORIN Holdings, Inc.:(Names of certified public accountants) Shigeyuki Amimoto,designated limited liability partner and engagement partner;and Hidemitsu Kato, designated limited liability partner andengagement partner.
A further 10 certified public accountants and 19 assistantaccountants assisted with the audit.
The Board of Auditors provides a forum for close, regularexchange of information and opinions with the Internal Audit
Office and the accounting auditing firm, thereby enhancing theauditing system.

7. Conditions for Resolution on Appointments of
Directors and Corporate Auditors

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

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

Total compensation
paid(Millions of yen)

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

Number of applicabledirectors andcorporate auditors(People)Directors (Excluding outside
directors)

228

228

8

Corporate auditors(Excluding outside
corporate auditors)

30

30

2

Outside directors or
corporate auditors

41

10

7

2016 ANNUAL REPORTb) Importance of employee salary in cases where a director is also an employee
None to report.
c) Policy and method of determination of the policy, asregards the amount of compensation paid to a director
or corporate auditor, and the method of calculation
There are two forms of compensation for directors and corporate
auditors: basic compensation and stock options. These areprovided as incentives and compensation for the roles that directors and corporate auditors should play. Under the Kyorin Group
corporate philosophy, the roles of the directors and corporate
auditors include executing management based on management

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

The Company’s Articles of Incorporation stipulate that a resolution to appoint a director or corporate auditor must be made by
the majority vote of attending shareholders holding at least onethird of the voting rights of shareholders who are eligible toexercise voting rights.

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

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

10. Status of Stockholding
Among KYORIN Holdings, Inc. and its consolidated subsidiaries,
details of KYORIN Pharmaceutical Co., Ltd., the largest company(largest company holding) in terms of investment securities(amount of investment stocks) reported on the balance sheet,
are as follows.
Among investment stocks, the number of different stocks
and the total reported consolidated balance sheet value ofinvestment stocks held for other than purely investment purposes:
27 different stocks¥25,847 million

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Directors, Corporate Auditors, and Corporate Officers(As of June 24, 2016)

Representative Director,
Chairman

Masahiro Yamashita

Representative Director, President
and Chief Executive Officer

Executive Director

Minoru Hogawa

Mitsutomo Miyashita

Auditing

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

Senior Corporate Auditors

Seiyu Miyashita
Hiroaki Hama

Senior Managing Director

Senior Executive Director

Tomiharu Matsumoto

Yutaka Ogihara

Shigeru Ogihara

Masaji Obata

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

President’s OfficeIntellectual Property

Yuuji Konishi
Takao Yamaguchi
Senior Corporate Officers

Senior Executive Director

Executive Director

Executive Director

Outside Director

Kunio Kajino

Kenji Akutsu

Senji Ozaki

Sales & Marketing Strategy

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

Outside Director

Outside Director

Noriyuki Shikanai

Takashi Takahashi

Outside Corporate Auditors

Yoh Ito
Kei Takahashi

Corporate Officer

Michiro Oonota

2016 ANNUAL REPORT

From the left: Takashi Takahashi, Yutaka Ogihara, Senji Ozaki, Mitsutomo Miyashita, Kunio Kajino, Masahiro Yamashita, Shigeru Ogihara,
Minoru Hogawa, Kenji Akutsu, Tomiharu Matsumoto and Noriyuki Shikanai

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Corporate Social Responsibility
The starting point of the Kyorin Group’s corporate social responsibility (CSR) endeavors is its corporate philosophy, which states “to cherish life and benefit society by contributing to better health.”
The Kyorin Group will fulfill its corporate social responsibility, with a belief in the importance ofbuilding and maintaining a relationship of trust with all stakeholders – including patients, medical
professionals, shareholders and investors, employees, business partners, and local communities– by offering trusted products and services.

CSR of the Kyorin GroupWe aspire to be a drugs manufacturer
that is trusted by patients and medical
professionals, and that is accepted bysociety.

Patients andMedicalProfessionals

We aspire to be a company
that all of our employees
feels is a leading organizationin which to pursue fulfilling
careers.

Shareholders
andInvestors

Employees

Environment

2016 ANNUAL REPORT

We advance environmental conservation initiatives,with a focus on preventing global warming,
protecting resources, and living in harmony with
the natural environment.

Compliance

We disclose corporate
information that impacts
corporate revenues appropriately and in a timely manner.

Local
Communities

We endeavor to contribute to society
and create active communication
with local communities.

The Kyorin Group acts with a strong sense of ethics, complying with all laws
and regulations, standards of conduct and the spirit thereof.

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Patients and Medical Professionals
Meeting Needs from Patients’ Perspectives

Publishing Websites for Medical Professionals

We endeavor to meet a variety of needs, listening to feedback

As a way of providing information through websites to medical

from clinical practice. We put ourselves in our patients’ shoes,

professionals, we created Kyorin Medical Bridge. We endeavor

striving to develop pharmaceutical forms that are easy to admin-to meet the needs of medical professionals by enhancing infor-

ister, and imprinting them with their names to keep patients frommation about our products, latest academic news, and information

taking the wrong medicine.

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

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

Website for medical professionals
Kyorin Medical Bridge“Drug Information Center” Helpline
We opened the “Drug Information Center” as a helpline for

Providing Information via “Doctor Salon”

inquiries relating to Kyorin products. We respond swiftly andAt the Kyorin Group, we provide information by sponsoring

accurately to various inquiries from physicians and pharmacists,“Doctor Salon,” a radio program for physicians, on Radio NIKKEI

from the standpoint of correct usage. We also provide accurate(shortwave), producing and distributing brochures, and offeringand easy-to-understand responses to inquiries from patients andback issues on the web. “Doctor Salon” is a program that provides

the general public. In fiscal 2015, we responded to more thananswers to issues that are highly relevant to clinical practice. It is

20,000 inquiries.

extremely popular among physicians, especially primary-care
doctors.

Employees
Human Resources Management
The Kyorin Group positions valuing employees and empowering

where all employees are united with their peers. Under our basic

people/organizations as the most important challenge under thepolicy of human-resource management, we will strive to rebuild

long-term vision for executing business strategy and realizing

the human-resource management system of each Group com-achievements. To this end, we aspire to be the most rewardingpany (including hiring, placement, training, evaluation, transfers,

place for our employees to work; a place where employees takeremuneration, and welfare), and strengthen our human resources

pride in their work, trust the company and its organizations, anddevelopment.

Organization Strategy
Aspire to be a company that employees feels isa leading organization in which to pursue fulfilling careers
Enhancing human-resource
development

Build and operate a new human-resource management
system whose starting point is the mutually beneficial
cooperation and symbiotic long-term relationship between
employees and the company.

Endeavor to strengthen
management capabilities
2016 ANNUAL REPORT

Building and operating a human-resource
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Mental Healththe employee’s department, industrial psychiatrists, and Human
Resources Department work together to help the employee
recover, return to work, and prevent relapse.

KYORIN Pharmaceutical Co., Ltd. provides mental-healtheducation to managers and employees. Our manager training
focuses on prevention and early detection of mental illness, byencouraging managers to pay attention to their subordinatesand promoting understanding of the specific symptoms ofmental disorders. We also encourage employees to gain knowledge about maintaining mental health via our intranet and othermeans, and have created a hassle-free system for employees
and their families to seek help. When a mental health issue arises,

Childcare Support
KYORIN Pharmaceutical has introduced programs to create anenvironment that facilitates balancing work with family. These
programs include childcare leave, shortened work hours, andmaternity/paternity leave. We also endeavor to create a culturethat supports a work-family balance of employees.

Industrial Safety and Hygiene
In fiscal 2004, the KYORIN Pharmaceutical head office and alla work-related accident since their founding, and the rate andplants, research laboratories, branches and sales offices obtained

severity of work accidents are substantially below the industry

OHSAS 18001 certification. They have not had a fatality due toaverages.

Rate of work accidents
KYORIN Pharmaceutical
1.20

1.05

1.00

0.94

0.88

0.85

0.82

1.00
0.80

Severity of work accidents
Chemical industry

0.40

0

1.06

KYORIN Pharmaceutical
0.20

1.06

0.15

0.60

0.20

Entire manufacturing industry

0.29

0.29

0.76
0.29

0.81

0.10

0.30

0.05

0.00

2011

2012

2013

2014

0

2015 (FY)

Chemical industry

0.17

0.12

0.12

0.10

0.10

0.000

0.006

0.010

2011

2012

2013

0.08

Entire manufacturing industry

0.09
0.06

0.04
0.001

0.04
0.004

2014

2015 (FY)

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

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

Environment
Environmental Conservation Initiatives
We are actively committed to environmental conservation,

laboratories, and branch offices obtained certification in the ISO

focusing on the following major themes: preventing global

14001 international standard for environmental management

warming, protecting resources, and living in harmony with thesystems.
In its efforts to reduce CO2 emissions to combat global

natural environment. We are working to reduce the environmental burden and promote effective use of limited resources bywarming, we set a target of reducing CO2 emissions by 25%

conserving energy and resources, reducing waste and strength-from the base year of fiscal 2009 (21,099 tons) by fiscal 2015

ening our management of chemical substances. In 2004, the(to 15,824 tons) and are promoting such efforts. In fiscal 2015,

KYORIN Pharmaceutical head office and all plants, research

our CO2 emissions were 19,840 tons.

KYORIN
PharmaceuticalCo., Ltd.
material flow

Raw materials
2,751tMaterials
Total: 885t

EnergyTotal heat: 328,867GJ(PRTR substances: 7.7t)

Materials: 847t
Paper usage: 38t(crude oil equivalent: 8,485k ) Drinking water: 132,400t
Electricity: 19,346 thousand kWh
Groundwater: 27,000t
Heavy oil: 804k
Kerosene: 2,964k(fiscal 2015)

Water
Total: 159,400t

INPUT

2016 ANNUAL REPORT

Research

Sales

Manufacturing

Management

OUTPUT

CO2 emissions
19,840t

Waste
Amount: 638t
Amount recycled: 324t
Amount landfilled: 21t

Wastewater
105,000t

Packaging
Recycled
Total: 617t

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KYORIN Pharmaceutical Co., Ltd. environmental targets and progress (fiscal 2015)
Target initiatives

Fiscal 2015 plan(incl. numerical targets)

Method for achieving

Selfassessment

Fiscal 2015 actual

Reduce fuel consumption (crude oil equivalent) through new capital
investment

7,166k (fiscal 2014 actual)

8,485k (118.4%)★

Use eco-cars to improve fuel efficiency and reduce exhaustemissions934/939(99.5%, fiscal 2014 actual)

948/948 (100%)★★★

Reduce total CO2 emissions

15,824t(When nuclear power plants areoperational)

19,840t(When nuclear power
plants are operational:
17,681t)★

Reduce total waste

659t (fiscal 2014 actual)

638t

★★★

Promote recycling

48% (fiscal 2014 actual)

50.8%

★★★

Amount landfilled

27t (fiscal 2014 actual)

21t

★★★

Zero-landfill challenge

Under 5.0%

3.3%

★★★

3. Managing chemical substances

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

9.8t (fiscal 2014 actual)

7.7t

★★★

4. Preventing atmosphericpollution

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

Continuous measurement

At or below standards★★★

5. Preventing water pollution

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

Continuous measurement

At or below standards★★★

6. Preventing deforestation

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

48t (fiscal 2014 actual)

38t

★★★

7. Protecting destruction ofozone layer

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

Elimination completed in fiscal 2010—★★★

8. Preventing ground subsidence

Reduce groundwater usage and increase drinking water reuse

81.1% (fiscal 2014 actual)

83.1%

★★★

9. Noise reduction

Periodic measurement

Continuous measurement

At or below standards★★★

10. Protecting biodiversity

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

Plan for each business facility

Achieved targets at all
business facilities★★★

11. Publishing environmental
information

Create and publish environmental report

Publish on website in August

Published on website inAugust★★★

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

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

CO2 Emissions from Factories and Research Laboratories(t)

Reduction of Waste(t/millions of yen)

25,00020,000100

17,815

18,417

19,84017,91915,00060

10,000

40

5,000

20

0

2011

2012

2013

2014

2015

80

80

17,389

(FY)

0

80
70

60

2011

60

2012

2013

2014

2015

(FY)

Starting Operation of Environmentally Aware R&D Facility
In July 2015, we began full-scale operation of our new R&D facility, the WATARASE
Research Center. The center realizes an environmentally friendly R&D facility byadopting energy-efficient equipment, and utilizing geothermal energy and othermeasures.

Reference: Geothermal energy system

WATARASE Research Center2016 ANNUAL REPORT

Two adjacent buildings (a shared building and the research building) improve their heat-utilization
efficiency through a heat interchange system by connecting multiple heat sources, including
geothermal energy and unused waste heat harvested from water cooling systems and otherequipment, and multiple heat consumers (air conditioners and water heaters) to a single waterloop (heat medium).

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Local Communities
Communication with Local Communities•Cherry blossom viewing parties and summer evening parties
KYORIN Pharmaceutical Co., Ltd.’s WATARASE Research Centerand each plant hold cherry blossom viewing parties and summer
evening parties. These events are popular among local residents.

•Local cleanup activities
Each of our Group companies participates in local cleanup
activities. One example is the Kaze-No-Matsubara volunteer
cleanup activities at the Noshiro Plant.

•Sponsoring sporting events
The annual Shimotsuke Soccer Workshop in Nogi was held forthe 16th time. Many local children attended, and we saw themgiving their all playing soccer under the coaching of former
Japan national team player
Tetsuo Nakanishi.
The Kyorin Group supports many other events that
contribute to people’s health.

Employee-Driven Efforts to Contribute to
the Community

Initiative to Raise Awareness of Maternity Mark

Since fiscal 2007, KYORIN Pharmaceutical Co., Ltd. has implemented the Kyorin Smile Program, a program with employee
participation aimed at creating “a society that smiles.”<Major Initiatives>•Charity donations (donations to UNICEF)•Collecting used stamps (donations to JOICFP)•Collecting plastic bottle caps (sending vaccines to developing countries)•Blood drives at each business facility•Distributing eco-bags to employees (KYORIN Pharmaceutical Co., Ltd.)2016 ANNUAL REPORT•Work experience programs
Each Group facility provides opportunities for internships, gives
tours and workplace experience opportunities to middle andhigh-school students, and provides remote classes and workshops.

Since 2009, KYORIN Pharmaceutical Co., Ltd. has been placing“Milton” advertisements near priority seats in various trains
mainly in Tokyo and Kansai regions. The advertisements raiseawareness of the Maternity Mark, with the aim of increasing
recognition of the symbol and contribute to creating an environment that is friendly to pregnant women.

Support for Great East Japan Earthquake Recovery

2016 Kumamoto Earthquake Relief

Since fiscal 2011, KYORIN Pharmaceutical Co., Ltd. has supported the Sunflower Project, which brings cheer to regions
affected by the Great East Japan Earthquake. We continued our
support in fiscal 2015, growing 300 pots of sunflower seedlingsat WATARASE ResearchCenter, and donating themto the city of Natori, in Miyagi
Prefecture.

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

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Shareholders and Investors
Information Disclosure and Communication
We established our Basic Policy and Principles of Conduct for
Information Disclosure as our basic stance on disclosure ofcorporate information. We endeavor to swiftly, accurately, andfairly disclose corporate information necessary to make investment decisions, including important corporate information
requiring thorough timely disclosure.
We hold an Ordinary General Shareholders’ Meeting (in Juneof each year) and financial results presentations (second quarterand full year) as opportunities for information disclosure andcommunication with our shareholders and investors. We also
focus on enhancing the Investor Relations section of our website
with the goal of providing information to our shareholders andinvestors in a timely manner. We publish information as neededon our Investor Relations website, including financial statements,press releases, presentation documents for investors, andAnnual Reports.

Feedback from our shareholders is communicated to management in a timely and appropriate manner. Valuable viewsreceived through dialog with our shareholders are regularly
reported to top management and the Director in charge ofInvestor Relations, and presentations are made to the Executive
Committee as needed.

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

Compliance■ Basic Policy■ Education and Training

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

The Promotion Compliance & External Relations Department
leads an effort in collaboration with each department to spreadawareness of and strengthen corporate ethics and compliancethrough in-house education.

■ Corporate Charter and Compliance Guidelines
To ensure that the Kyorin Group’s activities are based on a highstandard of corporate ethics, we established the KYORIN
Holdings Corporate Charter and Compliance Guidelines (August2006). Furthermore, we have also built and promote a compliancesystem by establishing a Compliance Committee that meets on
a monthly basis and other measures.

The mission of an R&D-driven pharmaceutical company is tocontribute to the realization of patient-focused medical care,through continuous research and development of new drugs
and their stable supply, thereby contributing to global medicalcare and people’s health. To fulfill this mission, partnerships
between pharmaceutical companies, research laboratories andmedical institutions including universities and others are essential,
and we are required to properly manage our relationships where
there is a potential conflict of interest with pharmaceuticalcompanies.
Under these circumstances, the Kyorin Group established the
Guidelines for Transparency of Relationships between Corporate
Activities and Medical Institutions, etc., and the Guidelines on
Transparency of Relationships between Corporate Activities andPatient Groups. In accordance with these guidelines, we publish
information about capital funding to medical institutions, patientgroups, and others on our website.
Risk Management Measures
Kyorin established a Risk Management Committee in order toprevent risks from materializing and deal with any risks that domaterialize.
Also, a risk management promotion officer has been appointed
at each company to raise awareness relating to risk management.

2016 ANNUAL REPORT

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

Guidelines for Transparency

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Financial Analysis

Industry Trends in Japan
During fiscal 2015, the domestic pharmaceutical industry
showed upper-single-digit growth despite the continued implementation of measures to control prices for drugs and medical
services; however, the operating environment became increasingly challenging, with major changes to the market structure
expected as a result of the Ministry of Health, Labour andWelfare’s announcement of a Comprehensive Strategy toStrengthen the Pharmaceutical Industry, as well as the finalizationof fiscal 2016 drug price revisions intended to strengthen
controls on outlays for social security costs.
The operating environment for the healthcare business saw
weak consumer spending as economic growth remained flat.
Against this backdrop, the Kyorin Group, in the final year of its
medium-term business plan HOPE100–Stage 1– (fiscal 20102015), worked toward rebuilding our business strategy to addressa variety of changes in our operating environment and achieving
growth in new core businesses under the management principlesof advancing initiatives related to the Pharma Complex Model(PC Model: new drugs business model) and accelerating growthin healthcare operations, as we strove for continuous growth andgreater support and recognition from stakeholders.

2016 ANNUAL REPORT

Consolidated Operating Results
Net Sales
Although net sales for fiscal 2015 fell short of the target set inStage 1, sales of new ethical drugs were significantly higher year
on year, and overall net sales rose ¥6,362 million, or 5.6%, to¥119,483 million, reaching an all-time high.
In the ethical drugs business in Japan, the Kyorin Group’s core
operating company KYORIN Pharmaceutical Co., Ltd. pursued
its franchise customer (FC) strategy of focusing marketing activities on physicians and medical institutions in the specific fields ofrespiratory, otolaryngology, and urology. In the respiratory field,
we strove to maximize the use of main products including Flutiform, a combination drug for asthma treatment, and Kipres, atreatment for bronchial asthma and allergic rhinitis, while at thesame time striving to raise our presence in the field with the newchronic obstructive pulmonary disease (COPD) treatment Eklira
Genuair, released in May 2015. Ethical drug sales were also
boosted by the new dosage forms Kipres OD Tablets (orally disintegrating tablets) and the ulcerative colitis and Crohn’s disease
treatment drug Pentasa Granules 94%, both released in
December 2015. In terms of mainstay products, sales of Flutiform grew ¥3.6 billion from the previous year, and Kipres and theoveractive bladder treatment Uritos grew as well. On the other
hand, sales of longstanding pharmaceutical products Pentasa
and the mucoregulant Mucodyne declined from the previous
year. As a result, sales of ethical drugs in Japan rose 1.8% fromthe previous year, to ¥92,695 million.
Sales of ethical drugs overseas rose 441.2% from the previous
year, to ¥5,586 million. Royalty income for gatifloxin ophthalmic
solution (outlicensed to Allergan, Inc. (U.S.A.)) increased, andKYORIN Pharmaceutical Co., Ltd. concluded a licensing agreement with Bristol-Myers Squibb Company of the United Statesfor KYORIN Pharmaceutical’s FPR2 agonist program, which
resulted in the recording of one-time revenue.
Sales of generic drugs declined 0.1% from the previous year,to ¥15,465 million. The market grew as measures to promote theuse of generics took root and from the effect of sales of authorized generics, and although health insurance pharmacy market’ssales increased, lower sales in the contract manufacturing
resulted in a slight overall decline.
In the over-the-counter drugs and others business, sales rose
7.3% from the previous year, to ¥4,490 million, on growth in environmental hygiene-related sales from increased sales of mainstay
products RUBYSTA, a multi-purpose disinfectant cleaner, andthe disinfectant Milton for baby bottles and nursing mothers. As
a result, net sales in the pharmaceutical business rose 5.8% fromthe previous year, to ¥118,238 million, with a 33.8% increase inoperating income, to ¥19,499 million.
The healthcare business recorded lower sales at Dr. ProgramCo., Ltd., which handles skincare products, amid weak consumer spending and increased competition from other companies, and as a result segment net sales declined 7.8% from theprevious year, to ¥1,244 million, with an operating loss of ¥77
million, compared with a ¥20 million operating loss in the previous year.
Cost of Sales Ratio, SG&A Expenses, and Operating
IncomeGross profit grew ¥5,599 million from the previous year onincreased sales of mainstay products and one-time contract
revenue. At the same time, even though SG&A expenses
increased ¥700 million (including a ¥495 million decrease in R&D
expenses), operating income rose ¥4,898 million, or 33.2%, to arecord ¥19,636 million, nearly reaching the Stage 1 target.

Outlook for Fiscal 2016
With the NHI drug price revisions implemented in April 2016, theoperating environment for the ethical drugs business is seen
becoming increasingly challenging. In addition, the patents on
several of the Kyorin Group’s mainstay products are set to expire,
and we are therefore facing unprecedented changes in our operating environment. Given this situation, the Kyorin Group will
strive to develop a pharmaceutical business model with an
ethical drugs business that can generate continuous growth andpursue strategies for concentration and development in thehealthcare business to build a new core business, in order toachieve our targets under the new medium-term business planand gain greater support and recognition from stakeholders as
we pursue the achievement of the HOPE100 long-term vision
under the medium-term business plan HOPE100–Stage 2– (fiscal
2016-2019). Although we expect a decrease from fiscal 2015 insales of new ethical drugs, we are forecasting a slight increase in
overall net sales on higher sales of generic drugs. The reasonsfor the anticipated decline in sales of new ethical drugs include
the NHI drug price revisions implemented in April 2016 and theexpiry of our patents on several mainstay products. We are forecasting growth in generic drug sales based on a generic drug
market that is expected to grow as the use of generics isincreasingly promoted, further boosted by the release of authorized generics.
We are forecasting a decline in profit, mainly from the effects ofthe drug price revisions and patent expiries, and the absence ofthe previous year’s one-time revenue from the conclusion of alicensing agreement.

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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 Affairs
Law, the NHI system, NHI drug prices and laws in other 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 affectour business performance 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 undergoing clinical trials. The clinical development of such drugs could be terminated as a consequence ofvarious factors, such as unforeseeable side effects or failure toachieve 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 were more 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.

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 another company’s patents orthreaten its intellectual property rights relating to its products, theGroup 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 or labor
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 insales, 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 theGroup.

2016 ANNUAL REPORT

6. Slowdowns or Delays in Production
Technical or regulatory problems, natural disasters and accidents, including fires, could cause slowdowns or delays inproduction or the cessation of operations, thereby affecting theGroup’s performance. Operations at the Noshiro Plant (Noshiro,
Akita Prefecture, Japan) of Kyorin Group company KYORIN
Pharmaceutical Co., Ltd. were not affected by the Great East
Japan Earthquake that struck on March 11, 2011. No plant
personnel were injured, and the plant itself sustained no physicaldamage 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 a situation would adversely affect the Group’s business results.

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

Millions of yen

Thousands of
U.S. dollars(Note 3)

2016

2015

2016

¥ 45,712¥ 30,652$ 405,644

Notes and accounts receivable (Note 11)

48,29647,007428,574

Short-term investments (Notes 5 and 11)

5,989

17,86753,146Merchandise and finished goods

14,80813,868131,405

Work in process

1,408

1,205

12,494

Raw materials and supplies

11,44910,855

101,597

Deferred tax assets (Note 14)

2,903

2,471

25,761

Other

7,966

5,194

70,690

(50)

(58)

(444)

138,483

129,064

1,228,885

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

Inventories:

Less allowance for doubtful accounts
Total current assets

Property, plant and equipment:
Land

2,022

2,019

17,943

Buildings and structures

38,28230,604

339,711

Machinery and vehicle

20,43619,006

181,347

Leased assets

557

559

4,943

Construction in progress

49

3,526

435

8,007

8,082

71,053(46,568)(44,423)(413,240)

22,78819,374202,218

33,46431,008296,956

Long-term loans

2

3

18

Asset for retirement benefits (Note 12)

42

1,034

373

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

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

—

2

—

113

84

1,003

Other

3,057

2,940

27,128Less allowance for doubtful accounts

(126)

(129)

(1,118)36,55434,944324,377¥197,825¥183,383$1,755,480

TrademarkDeferred tax assets (Note 14)2016 ANNUAL REPORT

Total investments and other assets
Total assets

40

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Millions of yen

Thousands of
U.S. dollars(Note 3)

2016

2015

2016

¥ 11,792¥ 11,259$ 104,641

1,862

1,372

16,523

112

83

994

Accrued income taxes (Note 14)

3,121

2,440

27,695

Accrued bonuses to employees

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

3,252

3,288

28,858Reserve for sales returns

29

26

257

Provision for point card certificates

35

34

311

7,845

9,267

69,61628,052

27,773248,931

Long-term debt (Note 6)

3,926

2,227

34,839Lease obligations (Note 6)

543

277

4,819

2,613

2,815

23,188

13

10

115

3,087

368

27,394

Other
Total current liabilities
Long-term liabilities:

Deferred tax liabilities (Note 14)
Accrued retirement benefits for directors and corporate auditors
Liability for retirement benefits (Note 12)

2,539

1,309

22,531

12,723

7,009

112,903

700

700

6,212

Capital surplus

4,752

4,752

42,169Retained earnings

147,331

137,577

1,307,401(2,975)(2,511)(26,400)

149,808

140,518

1,329,381

10,372

7,798

92,040

160

168

1,420

(3,292)

115(29,213)

7,241

8,082

64,256

Total net assets

157,049

148,600

1,393,637

Total liabilities and net assets¥197,825¥183,383$1,755,480

Other
Total long-term liabilities
Contingent liabilities (Note 17)
Net assets:
Shareholders’ equity (Note 7):
Common stock, no par value:
Authorized – 297,000,000 shares in 2016 and 2015
Issued – 74,947,628 shares in 2016 and 2015

Treasury stock, at cost:
1,273,045 shares in 2016
996,611 shares in 2015
Total shareholders’ equity
Accumulated other comprehensive income:Unrealized holding gain on other securities
Translation adjustments
Retirement benefits liability adjustments
Total accumulated other comprehensive income

2016 ANNUAL REPORT

See notes to consolidated financial statements.

41

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Consolidated Statement of Income
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2016

Millions of yen

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

Thousands of
U.S. dollars(Note 3)

2016

2015

2016

¥119,483
47,360¥113,121
46,598$1,060,280
420,268

72,12252,486
19,636

66,522
51,785
14,737640,004
465,756
174,248

313
(17)
(24)
(126)
115
1,467
47
(0)
—
(2,695)98(820)
18,815

279
(6)
(7)
130
65
4,306
—
(2)
(2,232)—291
2,823
17,561

2,778
(151)
(213)
(1,118)1,020
13,018417(0)—(23,915)870(7,277)
166,962

5,191
(15)
5,175
13,639¥ 13,639

4,712
785
5,497
12,064¥ 12,064

46,064(133)
45,922
121,031$ 121,031

Other income (expenses):
Interest and dividend income
Interest expense
Equity in losses of affiliates
Foreign exchange gains (losses)
Subsidy income
Gain on sales and retirement of property, plant and equipment, net (Note 9)
Gain on sales of investment securities, net (Note 5)
Loss on devaluation of investment securities
Impairment loss (Note 10)
Loss on closure of plant
Other, net
Other income (expenses), net
Profit before income taxes
Income taxes (Note 14):
Current
Deferred
Total income taxes
ProfitProfit attributable to shareholders of KYORIN Holdings, Inc.
See notes to consolidated financial statements.

Consolidated Statement of Comprehensive Income
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2016

ProfitMillions of yen

Thousands of
U.S. dollars(Note 3)

2016

2015

2016

¥13,639¥12,064$121,031

2,591(7)(3,407)

4,322
155
1,014

22,992(62)(30,233)

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

2016 ANNUAL REPORT

Comprehensive income

(17)

41

(151)

(841)
¥12,798

5,534¥17,598(7,463)$113,568¥12,798—¥17,598—$113,568—

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

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Consolidated Statement of Changes in Net Assets
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2016

Millions of yen
Accumulated othercomprehensive income

Shareholders’ equity
Number ofshares issued Common(Commonstock
stock)

CapitalsurplusRetainedearnings

Treasurystock,
at costTotal
shareholders’equityTotal
Unrealized
Retirement
accumulated
holding gain Translation
benefitsotheron other adjustments
liability
comprehensive
securities
adjustments
incomeTotal
net assets

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

Cash dividends

—

—

—

(4,632)—(4,632)

—

—

—

—

(4,632)

Profit attributable toshareholders of KYORIN
Holdings, Inc.

—

—

—

12,064—

12,064————

12,064Purchase of treasury stock

—

—

—

—

(2,225)(2,225)

—

—

—

—

(2,225)

Disposals of treasury stock

—

—

—

—

39

39

—

—

—

—

39

Other changes

—

—

—

—

—

—

4,364

155

1,014

5,534

5,534

Net changes during
the year

—

—

—

7,431

(2,186)

5,244

4,364

155

1,014

5,534

10,77974,947,628

700

4,752

137,577(2,511)

140,518

7,798

168

115

8,082

148,600

Cash dividends

—

—

—

(3,885)—(3,885)

—

—

—

—

(3,885)

Profit attributable toshareholders of KYORIN
Holdings, Inc.

—

—

—

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

—

—

—

—

(1,040)(1,040)

—

—

—

—

(1,040)

Disposals of treasury stock

—

—

—

—

576

576

—

—

—

—

576

Other changes

—

—

—

—

—

—

2,573

(7)

(3,407)

(841)

(841)

Net changes during
the year

—

—

—

9,753

(463)

9,290

2,573

(7)

(3,407)

(841)

8,448

Balance as of March 31, 2016 74,947,628¥700¥4,752¥147,331¥(2,975)¥149,808¥10,372¥160¥(3,292)¥7,241¥157,049

Balance as of April 1, 2014

Balance as of April 1, 2015

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

Shareholders’ equity
Number ofshares issued Common(Commonstock
stock)

Balance as of April 1, 2015

CapitalsurplusRetainedearnings

Treasurystock,
at costTotal
shareholders’equity74,947,628 $6,212 $42,169 $1,220,845 $(22,282) $1,246,943

Total
Unrealized
Retirement
accumulated
holding gain Translation
benefitsotheron other adjustments
liability
comprehensive
securities
adjustments
income$69,199$1,491$ 1,020Total
net assets$71,719 $1,318,662

Cash dividends

—

—

—

(34,475)—(34,475)

—

—

—

—

(34,475)

Profit attributable toshareholders of KYORIN
Holdings, Inc.

—

—

—

121,031—

121,031

—

—

—

—

121,031

Purchase of treasury stock

—

—

—

—

(9,229)(9,229)

—

—

—

—

(9,229)

Disposals of treasury stock

—

—

—

—

5,111

5,111

—

—

—

—

5,111

Other changes

—

—

—

—

—

—

22,833(62)(30,233)(7,463)(7,463)

Net changes during
the year———

86,547(4,109)82,43922,833(62)(30,233)(7,463)74,967

Balance as of March 31, 2016 74,947,628 $6,212 $42,169 $1,307,401 $(26,400) $1,329,381$92,040$1,420$(29,213)$64,256 $1,393,637

See notes to consolidated financial statements.

2016 ANNUAL REPORT

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Consolidated Statement of Cash Flows
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2016

Millions of yen

Thousands of
U.S. dollars(Note 3)

2016

2015

2016

¥18,815
3,730
—
2,695
(11)
(35)
2
(1,172)
19
24
(313)
17
(1,467)(47)
0(1,288)(1,736)532(1,446)(2,978)15,338320(17)(4,504)
11,137¥17,561
3,053
2,232
—
10
(21)
(3)
(843)
(382)
7
(279)
6
(4,305)—2(2,877)(4,230)
202
1,117
(503)
10,748289(6)(4,640)6,391$166,962
33,100—23,915
(98)
(311)
18
(10,400)
169
213(2,778)151(13,018)(417)
0(11,430)(15,405)
4,721(12,832)(26,426)
136,108
2,840(151)(39,968)
98,829Investing activities
Payments for time deposits
Proceeds from withdrawal of time deposits
Purchase of short-term investments
Proceeds from sales and redemption of short-term investments
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Purchase of investment securities
Proceeds from sales and redemption of investment securities
Other, net
Net cash provided by (used in) investing activities

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

(777)
622
(8,398)
11,100(5,383)
4,756(472)(6,905)4,413(320)(1,364)(5,520)12,051—45,257(60,449)
18,333(4,703)(71,062)
73,662(1,793)
5,768

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 in treasury stock
Cash dividends
Net cash used in financing activities
Effects of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 4)

100
(99)
2,853
(764)
(458)
(3,876)(2,245)(226)
9,315
35,727¥45,043

(240)
(99)
2,227
(308)
(2,186)(4,626)(5,233)105(100)
35,828¥35,727887(879)
25,317(6,780)(4,064)(34,395)(19,922)(2,006)
82,660317,038$399,707

2016 ANNUAL REPORT

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

See notes to consolidated financial statements.

44

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Notes to Consolidated Financial Statements
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2016

1. Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated financial statements of KYORIN Holdings, Inc. (the “Company”) and its
domestic subsidiaries have been prepared in accordance with accounting principles generally accepted inJapan (“Japanese GAAP”), which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards, and are compiled from the consolidated financial
statements prepared by the Company as required by the Financial Instruments and Exchange Act of Japan.
Certain reclassifications have been made in the 2015 consolidated financial statements to conform to the2016 presentation. These reclassifications have no effect on consolidated profit and net assets.

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

2016 ANNUAL REPORT

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

3 to 50 years

Machinery and vehicle

4 to 17 years

Intangible assets are amortized by the straight-line method over their estimated useful lives. Computer
software for internal use is capitalized and amortized by the straight-line method over the useful life of five years.
(g) Leases
Leased assets are initially accounted for at their acquisition costs and depreciated over the lease term by thestraight-line method with no residual value. All finance leases are accounted for in the same manner as sales
transactions.
(h) Research and Development Expenses
Research and development expenses are charged to income as incurred.
(i) Income Taxes
Deferred tax assets and liabilities are determined based on the differences between financial reporting and thetax bases of the assets and liabilities and are measured using the effective tax rates and laws which will be ineffect when the differences are expected to reverse.
(j) Accounting Method for Retirement Benefits
The retirement benefit obligation is calculated by allocating the estimated retirement benefit amount to periodof service on the benefit formula basis.
Prior service cost is amortized as incurred by the straight-line method over the average remaining years ofservices of the employees in the year such cost occurs (10 years).
Actuarial gain or loss is amortized from the year following the year in which such gain or loss is recognizedprimarily by the straight-line method over the average remaining years of service of the employees in the year
such gain or loss occurs (10 years).
Unrecognized actuarial loss and unrecognized prior service costs are, after adjusting for tax effects, recorded
as retirement benefits liability adjustments under accumulated other comprehensive income in net assets.
(k) Accrued Retirement Benefits for Directors and Ccorporate Auditors
Directors and corporate auditors of certain consolidated subsidiaries are customarily entitled to lump-sum
payments under their respective unfunded retirement benefits plans. Accrued retirement benefits for these
directors and corporate auditors have been estimated in an amount required under the assumption that all
directors and corporate auditors retired at the balance sheet date based on their policy.
(l) Appropriation of Retained Earnings
Appropriation of retained earnings with respect to a given financial period is made by resolution of the boardof directors’ meeting for dividend and resolution of the ordinary general shareholders’ meeting for other2016 ANNUAL REPORT

appropriations (see Note 7).

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(m) Accounting Change
Accounting Standard for Business Combinations, etc.
Effective from the year ended March 31, 2016, the Company and its consolidated subsidiaries have applied
the Accounting Standard for Business Combinations (ASBJ Statement No. 21, September 13, 2013 (hereinafter, the “Statement No. 21”)), the Accounting Standard for Consolidated Financial Statements (ASBJ Statement No. 22, September 13, 2013 (hereinafter, the “Statement No. 22”)) and the Accounting Standard forBusiness Divestitures (ASBJ Statement No. 7, September 13, 2013 (hereinafter, the “Statement No. 7”)), etc.
Accordingly, any differences associated with changes in the Company’s ownership interest of subsidiaries
over which the Company continues to control are recorded as capital surplus and acquisition-related costs
are expensed in the fiscal year in which the costs are incurred. In addition, for business combinations carriedout on or after the beginning of the year ended March 31, 2016, reallocation of acquisition costs on completionof the provisional accounting treatment is reflected in the consolidated financial statements for the fiscal year
in which the business combination occurs. Furthermore, the presentation of net income, etc. has beenchanged and the presentation of minority interests has been changed to non-controlling interests. The 2015
consolidated financial statements has been reclassified to conform to these changes in presentation.
In the consolidated statement of cash flows for the year ended March 31, 2016, the cash flows related toacquisition or sale of subsidiaries’ shares not resulting in a change in scope of consolidation are classified as“Cash flows from financing activities,” and cash flows related to acquisition-related costs for subsidiaries’ shares
resulting in a change in scope of consolidation or expenses arising from acquisition or sale of subsidiaries’ shares
not resulting in a change in scope of consolidation are classified as “Cash flows from operating activities.”
The accounting standard for business combinations, etc. have been applied in accordance with provisional
treatments prescribed in Article 58-2 (4) of the Statement No. 21, Article 44-5 (4) of the Statement No. 22,
and Article 57-4 (4) of Statement No. 7. These standards are prospectively applied from the beginning of theyear ended March 31, 2016.
The effect on the consolidated financial statements for the year ended March 31, 2016 is immaterial.
(n) Additional Information
At a meeting of the Board of Directors held on February 2, 2015, the Company (KYORIN Holdings, Inc.)
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 price and 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 Transactions of Delivering the Company’s Own Stock to Employees etc. through Trusts” (Practical Issues Task
Force (PITF) No. 30, March 26, 2015).
(1) Outline of transactions
The Plan is an incentive plan designed to return the economic benefits of an appreciation in the Company’s
stock price to all employees who join the Kyorin Pharmaceutical Group Shareholding Association (hereinafter,
the “Shareholding Association”).
Under the Plan, the Company shall enter into a stock benefit trust (Employee Shareholding Association
Distribution Type) agreement where the Company is the settlor and Mizuho Trust & Banking Co., Ltd. (hereinafter, “Mizuho Trust & Banking”) is the trustee (Hereinafter, the trust based on the agreement shall be referred
to as the “Trust.”). Furthermore, Mizuho Trust & Banking shall enter into an agreement with Trust & Custody
Services Bank, Ltd. to re-entrust the management of trust assets, such as the Company’s shares, with Trust& Customer Services Bank (Trust Account E) (hereinafter, “Trust Account E”) as the trustee.
2016 ANNUAL REPORT

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Trust Account E will acquire the Company’s shares from the markets in the amounts expected to beacquired by the Shareholding Association during the prescribed stock acquisition period, after borrowing theacquisition funds from a bank. Until the trust account finishes, the shares will be periodically sold to the
Shareholding Association. If a significant amount of realized gains on sale of shares remain within the trust
assets of the Trust following the sale of the shares to the Shareholding Association by Trust Account E, thesegains will be distributed as residual assets to Shareholding Association members who satisfy the eligibility
requirements for beneficiaries. Moreover, the Company provides guarantees for the loans undertaken toacquire its shares. Therefore, if there is a residual loan balance equivalent to a realized loss on the sale ofthese shares due to a decline in the Company’s stock price, the Company shall repay this residual loanbalance based on the guarantee agreement.
(2) Company shares remaining in trust
Treasury shares remaining in the Trust are presented as treasury stock in net assets with carrying value in the
Trust (excluding ancillary expenses). As of March 31, 2016 and 2015, the carrying amount of the treasury
shares were ¥1,608 million ($14,269 thousand) and ¥2,185 million, respectively, and the total number of treasury shares were 562 thousand shares and 764 thousand shares, respectively.
(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 were ¥1,765 million($15,662 thousand) and ¥2,227 million as of March 31, 2016 and 2015, respectively.
At a meeting of the Board of Directors held on February 23, 2016, the Company (KYORIN Holdings, Inc.)
resolved that KYORIN Pharmaceutical Co., Ltd. (“KYORIN Pharmaceutical”), a subsidiary of the Company
introduces an incentive plan referred to as the Employee Stock Delivery Trust (the “J-ESOP”) (hereinafter, the“ESOP Plan”) 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 of Delivering the Company’s Own Stock to Employees etc. through Trusts” (Practical Issues Task
Force (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 performanceand his or her personal contribution and deliver or pay the Company’s shares and cash to its employees who
attained rights to receive such delivery or payment under certain conditions. The Trust will acquired theCompany’s shares to be delivered including future delivery portion using the entrusted money, and separately
manage as trust assets.
Through introduction of the ESOP Plan, it is expected to contribute to employees’ work motivation, byincreasing interest in improvement of business performance and the Company’s share price. In addition, it isexpected that various stakeholders including shareholders will receive shared benefits from improvement in
the Company’s corporate value.
(2) Company shares remaining in trust
Treasury shares remaining in the Trust are presented as treasury stock in net assets with carrying value in the
Trust (excluding ancillary expenses). As of March 31, 2016, the carrying amount of the treasury shares was2016 ANNUAL REPORT¥1,039 million ($9,220 thousand), and the total number of treasury shares was 477 thousand shares.

48

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3. U.S. Dollar Amounts
The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter ofarithmetic computation only, at the rate of ¥112.69 = U.S.$1.00, the approximate rate of exchange on March
31, 2016. 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, 2016 and 2015 for the consolidated statements of cash flows
consisted of the following:

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

2016

Millions of yen
2015

Thousands of
U.S. dollars
2016¥45,71283(752)¥45,043¥30,652
6,562(1,487)¥35,727$405,644
737(6,673)$399,707

5. Short-Term Investments and Investment Securities
Information regarding marketable securities classified as other securities as of March 31, 2016 and 2015 is asfollows:
Marketable other securities

Acquisition
cost

Carrying
value

Millions of yen
2016
Unrealized
gain (loss)¥ 8,706¥24,135¥15,428$ 77,256$214,172$136,907

11,008——19,714

11,028——35,16319——
15,44897,684——
174,940

97,861——
312,033169——
137,084

2,026

1,448

(577)

17,97912,849(5,120)

400
500
1,000
3,926
¥23,640

400
498
989
3,336
¥38,500

(0)
3,550
(1)
4,437
(10)
8,874
(589)
34,839¥14,859 $209,779

3,550
4,419
8,776
29,603$341,645

(0)
(9)
(89)
(5,227)$131,857

Acquisition
cost

Thousands of U.S. dollars
2016
Carrying
Unrealized
value
gain (loss)

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

2016 ANNUAL REPORT49

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Acquisition
cost

Carrying
value

Millions of yen
2015
Unrealized
gain (loss)¥ 8,222¥19,583¥11,361

13,299——21,522

13,386——32,97086——
11,447

30

27

(3)

13,405500
1,000
14,935¥36,458

13,402500964
14,894¥47,864

(3)
—
(35)
(41)
¥11,406

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

Unlisted securities and other non-marketable securities are not included in the above schedules as theirfair market values are extremely difficult to be determined. The amounts of these securities were ¥401 million($3,558 thousand) and ¥416 million as of March 31, 2016 and 2015, respectively.
Sales amounts of securities classified as other securities and the related aggregate gain and loss for theyears ended March 31, 2016 and 2015 are summarized as follows:

Proceeds from sales
Gains on sales
Losses on sales

2016

Millions of yen
2015

Thousands of
U.S. dollars
2016¥2,101
59
11

¥200
—
—

$18,644524
98

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, 2016
and 2015 consisted of the following:

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

2016

Millions of yen
2015

Thousands of
U.S. dollars
2016¥1,230632
112¥1,974¥1,130242
83¥1,455$10,915
5,608
994$17,517

The average interest rates applicable to short-term bank loans outstanding as of March 31, 2016 and2016 ANNUAL REPORT2015 are 0.4% and 0.5%, respectively.

50

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Long-term debt (excluding long-term debt related to a trust-based employee shareholding incentive plan)
and lease obligations as of March 31, 2016 and 2015 consisted of the following:

Long-term debt, due through 2017 at average interest
rate of 0.5% in 2016 and 2015
Lease obligations due through 2030 in 2016 and 2015
Current portion of long-term debt and lease obligations
due within one year
Total

Millions of yen

Thousands of
U.S. dollars

2016

2015

2016

¥4,558656¥2,469361$40,447
5,821

(744)

(326)

(6,602)¥4,470¥2,504$39,666

Interest expenses related to a trust-based employee shareholding incentive plan (see Note 2(n)) are excluded
from the calculation of the average interest rate applicable to long-term debt because interest expenses onsuch debt are not recorded as interest expense in the consolidated statement of income.
Long-term debt from Japan Science and Technology Agency (National Research and Development Agency),
amounting to ¥164 million ($1,455 thousand) as of March 31, 2016, 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 Researchand Development Agency)) and lease obligations are summarized as follows:Year ending March 31,

2017
2018
2019
2020
2021

Millions of yen

Thousands of
U.S. dollars

¥744
735
727
703
168

$6,602
6,522
6,451
6,238
1,491

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

7. Shareholders’ Equity
Japanese companies have been subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the Companies Act that affect financial and accounting matters are summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to theyear-end dividend upon resolution at the shareholders’ meeting. The board of directors may declare dividends(except for dividends-in-kind) if the company has prescribed so in its articles of incorporation for companies
that meet certain criteria such as:(1) having the board of directors,(2) having independent auditors,(3) having a board of corporate auditors, and(4) the term of service of the directors is prescribed as one year rather than two years of normal term by its
articles of incorporation.
The Companies Act permits companies to distribute dividends-in-kind (non-cash assets) to shareholders
Semiannual interim dividends may also be paid once a year upon resolution by the board of directors if thearticles of incorporation of the company so stipulate. The Companies Act also provides certain limitations on theamounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount avail-2016 ANNUAL REPORT

subject to a certain limitation and additional requirements.

51

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able for distribution to the shareholders, but the amount of net assets after dividends must be maintained at noless than ¥3 million.
(b) Increases / Decreases and Transfer of Common Stock, Reserve and Surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal
reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus)
depending on the equity account charged upon the payment of such dividends until the total of aggregate
amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Companies
Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The
Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capitalsurplus and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders.
(c) Treasury Stock and Stock Option
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury
stock by resolution of the board of directors. The amount of treasury stock purchased cannot exceed theamount available for distribution to the shareholders, which is determined by specific formula. Under theCompanies Act, stock acquisition rights, which were previously presented as a liability, are now presented asa separate component of net assets. The Companies Act also provides that companies can purchase bothtreasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as aseparate component of net assets or deducted directly from stock acquisition rights.

8. Research and Development Expenses
Research and development expenses included in general and administrative expenses for the years ended
March 31, 2016 and 2015 were ¥13,019 million ($115,529 thousand) and ¥13,514 million, respectively.

9. Gain on Sales and Retirement of Property, Plant and Equipment, Net
Significant components of the gain on sales and retirement of property, plant and equipment, net for theyears ended March 31, 2016 and 2015 are as follows:
Millions of yen

Thousands of
U.S. dollars

2016

2015

2016

¥ 608
0
1,272
—
¥1,881

¥ 615
0
3,889
0
¥4,505$ 5,395
0
11,288—$16,692¥ (361)
(26)
(25)
(413)
¥1,467¥$ (3,203)
(231)
(222)
(3,665)$13,018

Gain:
Buildings and structures
Machinery and vehicle
Land
Other
Loss:
Buildings and structures
Machinery and vehicle
Other2016 ANNUAL REPORT

Total

(64)
(2)
(131)
(199)
¥4,30652

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10. Impairment Loss
In principle, the Company and its consolidated subsidiaries group assets into the smallest units that generate
independent cash flow that is almost independent from cash flows provided by other assets or asset groups,
and assets to be disposed are grouped by each asset.
For the year ended March 31, 2016, the Company and its consolidated subsidiaries recognized a loss on
impairment of long-lived assets:
Location

Use

Type of assets

Okaya-shi, Nagano Prefecture

Assets to be disposed

Land, buildings and structure,other

In the fiscal year ended March 31, 2016, consolidated subsidiary, KYORIN Pharmaceutical Co., Ltd.
reduced the carrying amount of assets whose recoverable amounts had fallen below their carrying amounts
to the recoverable amounts of those assets, mainly after arriving at decisions related to relocation and closureof Okaya plant’s manufacturing functions and recorded an impairment loss of ¥380 million ($3,372 thousand)under extraordinary loss.
The components of the impairment loss were building and structures of ¥320 million ($2,840 thousand),land of ¥51 million ($453 thousand), other property, plant and equipment of ¥8 million ($71 thousand).
The recoverable amount of assets to be disposed is calculated based on real estate appraised values lessestimated costs of disposal.
For the year ended March 31, 2015, the Company and its consolidated subsidiaries recognized a loss on
impairment of long-lived assets:
Location

Use

Type of assets

Nogi-machi Shimotsuga-gun,Tochigi Prefecture and others

Assets to be disposed

Land, buildings and structure,other

In the fiscal year ended March 31, 2015, consolidated subsidiary, KYORIN Pharmaceutical Co., Ltd.
reduced the carrying amount of assets whose recoverable amounts had fallen below their carrying amounts
to the recoverable amounts of those assets, mainly after arriving at decisions related to the centralization of its
R&D bases and recorded an impairment loss of ¥2,232 million under extraordinary loss.
The components of the impairment loss were building and structures of ¥646 million, land of ¥171 million
and dismantlement and other costs of ¥1,414 million.
The recoverable amount of assets to be disposed is based on the net selling value, but as it is difficult toconvert to other uses and sell the assets, the recoverable amount is valued at memorandum value.

11. Financial Instruments(a) Investment Policy of Financial Instruments
The Company and its consolidated subsidiaries mainly operate funds by the highly secured financial instruments such as deposits and highly rated bonds, ensuring the security and liquidity. The Company and its
consolidated subsidiaries use bank loans as the prime source of financing, and no derivatives are used.
(b) Details of Financial Instruments, Associated Risks and Risk Management
Operating receivables such as notes and accounts receivable are exposed to credit risk. The Company andits consolidated subsidiaries, in accordance with internal rules, keep track of the adverse financial conditionsof the customers in the early stage to mitigate the bad debt by monitoring the major customers’ credit conditions periodically and managing the due date and balance per each customer. The Company and its consolidated subsidiaries mitigate foreign currency risk by utilizing foreign currency deposits for operating receivables
denominated in foreign currencies and settling payables denominated in the same currencies through thedeposits.
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.

2016 ANNUAL REPORT

Short-term investments and investment securities mainly consist of highly rated bond securities and equity

53

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Operating payables such as notes and accounts payable are mainly due within six months. Certain operating payables are denominated in foreign currencies.
Short-term bank loans are mainly used to finance operating capital, and long-term debts are used tofinance fund for the introduction of a trust-based employee shareholding incentive plan, fund for the introduction of the Employee Stock Delivery Trust (the “J-ESOP”) and funding support for development expenses
from Japan Science and Technology Agency (National Research and Development Agency).
Operating payables and loans and debts are exposed to liquidity risk. The Company and its consolidated
subsidiaries manage the risk by preparing and updating the cash management plan periodically.
(c) Supplemental Information on Fair Value of Financial Instruments
As well as the values based on market prices, fair values of financial instruments include values, which arereasonably calculated in case market prices do not exist. As the calculation of those values includes variablefactors, those values may vary in case different assumptions are applied.
Carrying values, fair values, and their differences of financial instruments as of March 31, 2016 and 2015
are as follows:
Millions of yen

Thousands of U.S. dollars

2016
Carrying
value

Fair value¥ 45,712¥ 45,712

48,29648,29638,500¥132,509

Notes and accounts payable ¥ 11,792

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

Total liabilities¥ 11,792

Difference

2016
Carrying
value

Fair value

Difference¥— $ 405,644 $ 405,644$——

428,574—

38,500¥132,509—
341,645
341,645¥— $1,175,872 $1,175,872—$—¥ 11,792¥ 11,792¥— $ 104,641 $ 104,641¥— $ 104,641 $ 104,641$—$—

428,574

Millions of yen
Carrying value

Fair value

2015
Difference

Cash and cash in banks¥ 30,652¥ 30,652¥—

Notes and accounts receivable

47,00747,864¥125,524

47,00747,864¥125,524——¥—¥ 11,259¥ 11,259¥ 11,259¥ 11,259¥—¥—

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

Unlisted securities and others of ¥953 million ($8,457 thousand) and ¥1,011 million whose fair values are
extremely difficult to determine as of March 31, 2016 and 2015, respectively, are not included in the abovetables.
Calculation method of fair value of financial instruments and information about securities are as follows:
Cash and cash in banks and Notes and accounts receivable
The carrying value is deemed as the fair value since it is scheduled to be settled in a short period of time.
Short-term investments and Investment securities
Fair value of equity securities is based on the price on stock exchanges and that of bonds is based on the2016 ANNUAL REPORT

price on bond markets or the price presented by the counterparty financial institutions. Please see Note 5,
Short-Term Investments and Investment Securities, for securities by classification.
Notes and accounts payable
The carrying value is deemed as the fair value since it is scheduled to be settled in a short period of time.

54

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The redemption schedule for monetary receivables and securities with maturities subsequent to March 31,
2016 is as follows:
Millions of yen
2016
Due in one
year or lessDue after one
year throughfive years¥

Due after five
years throughten years

Due after
ten years

—

¥ —

¥—

Cash and cash in banks¥45,712

Notes and accounts receivable

48,296

—

—

—

5,900
—
—
¥99,908

5,500
—
1,000
¥6,500

—
500
—
¥500

—
—
—
¥—

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

Thousands of U.S. dollar
2016
Due in one
year or lessDue after one
year throughfive years$—

Due after five
years throughten years$

Due after
ten years

Cash and cash in banks$405,644—$—

Notes and accounts receivable

428,574———

52,356——$886,574

48,806—
8,874$57,680—
4,437—$4,437———$—

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

12. Retirement Benefit Plans
The Company and its consolidated subsidiaries have defined benefit pension plans, defined contribution
pension plans, and annuity in advance retirement severance plans, and certain domestic consolidated
subsidiaries adopt lump-sum retirement plans and the Government Welfare Pension Fund Plan.
Certain consolidated subsidiaries have adopted the simplified method in calculating the retirement benefit
obligations.
Defined benefit plans(1) The changes in the retirement benefit obligation for the years ended March 31, 2016 and 2015 are as
follows:
Millions of yen

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

Thousands of
U.S. dollars

2016

2015

2016

¥30,062
964
390
4,317
(1,256)¥34,478¥29,589967
384
169(1,048)¥30,062$266,767
8,554
3,461
38,309(11,146)$305,954

2016 ANNUAL REPORT

55

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(2) The changes in plan assets for the years ended March 31, 2016 and 2015 are as follows:
Millions of yen

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

Thousands of
U.S. dollars

2016

2015

2016

¥31,033
620
(547)
1,934
(1,256)¥31,784¥27,902
558
1,662
1,958
(1,048)¥31,033$275,384
5,502(4,854)
17,162(11,146)$282,048(3) The changes in liability (asset) for retirement benefits for consolidated subsidiaries applying the simplified
method for the years ended March 31, 2016 and 2015 are as follows:

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

Millions of yen

Thousands of
U.S. dollars

2016

2015

2016

¥305
136
(8)
(82)

¥367
46
(32)
(76)

$2,707
1,207
(71)
(728)

¥350

¥305

$3,106(4) The reconciliation between the liabilities recorded in the consolidated balance sheet and the balances ofdefined benefit obligations and plan assets as of March 31, 2016 and 2015 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

2016

2015

2016

¥34,856(32,196)2,660
384¥ 3,044¥30,373(31,387)(1,014)347¥ (666)$309,309(285,704)
23,605
3,408$ 27,012¥ 3,087(42)¥ 3,044¥$ 27,394(373)$ 27,012

368(1,034)¥ (666)

The above table includes defined benefit plans applying the simplified method.
(5) The components of retirement benefits costs for the years ended March 31, 2016 and 2015 are as follows:
Millions of yen
2016

2015

2016

Amortization of prior service costs

¥964
390
(620)
16
(67)

¥967
384
(558)
162
(88)

$8,554
3,461(5,502)
142(595)

Retirement benefits costs basedon the simplified method

136

46

1,207

Retirement benefits costs

¥820

¥914

$7,277

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

2016 ANNUAL REPORT

Thousands of
U.S. dollars

56

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(6) Prior service costs and actuarial gain or loss included in other comprehensive income (before tax effect) for
the years ended March 31, 2016 and 2015 are as follows:
Millions of yen
2015

2016

Prior service costs
Actuarial gain or loss
Total

¥

67
4,848
¥4,915

Thousands of
U.S. dollars¥

88(1,656)¥ (1,567)

2016

$

595
43,021$43,615(7) Unrecognized prior service costs and unrecognized actuarial loss included in accumulated other comprehensive income (before tax effect) as of March 31, 2016 and 2015 are as follows:
Millions of yen

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

Thousands of
U.S. dollars

2016

2015

2016

¥ (473)
5,218¥4,745¥(540)
369¥(170)$ (4,197)
46,304$42,107

2016

2015

24.4%
4.9
24.4
12.0
7.8
26.5
100.0%

50.7%
6.0
6.2
11.9
—
25.2
100.0%(8) Plan assets
The breakdown of plan assets is as follows:
Domestic debt securities
Domestic equity securities
Foreign debt securities
Foreign equity securities
General account
Other
Total

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

2016

2015

0.5%
2.0%

1.3%
3.0%

Defined contribution plans
The Company and its consolidated subsidiaries contributed ¥308 million ($2,733 thousand) and ¥316 million
to the defined contribution plans for the years ended March 31, 2016 and 2015, respectively.

13. Pledged Assets
Assets pledged as collateral for guaranty deposits as of March 31, 2016 and 2015 are as follows:
Assets pledged as collateral:

Millions of yen

Thousands of
U.S. dollars

2016

2015

2016

¥10
¥10

¥10
¥10

$89
$89

For guaranty deposits
Cash and cash in banks
Total

2016 ANNUAL REPORT

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14. Income Taxes
Significant components of deferred tax assets and liabilities as of March 31, 2016 and 2015 are as follows:
Millions of yen

Thousands of
U.S. dollars

2016

2015

2016

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

¥ 63
1,067
59
189
157
181
1,058
419
813
—
203
1,107
5,320
(373)
4,947

$13,941
8,750
488
1,784
1,677
1,500
9,850
3,514
4,925
7,312
1,136
10,63165,543(3,061)62,472(1,446)(51)—(1,182)(4,548)(639)(2)(6,637)¥ 403(3,688)(279)(4)(5,207)¥(259)

Deferred tax assets:
Liability for retirement benefits
Accrued bonuses to employees
Allowance for doubtful accounts
Accrued enterprise tax
Loss on retirement of inventories
Loss on devaluation of investment securities
Loss on retirement of property, plant and equipment
Impairment loss
Amortization of deferred assets
Loss on closure of plant
Tax loss carryforward
Other
Subtotal
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Reserve for reduction entry of property,
plant and equipment
Reserve for special account for advanced
depreciation of non-current assets
Unrealized holding gain on other securities
Prepaid pension cost
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)(12,832)—(40,359)(5,670)(18)(58,896)$ 3,576

Taxes on income consist of corporate, inhabitants and enterprise taxes. Reconciliation of the statutory tax
rate to the effective tax rate for the years ended March 31, 2016 and 2015 are as follows:
Statutory tax rate
Entertainment expenses and others that are not tax
deductible permanently
Inhabitants’ per capita taxes
Adjustment to deferred tax assets and liabilities from change
in the statutory tax rate
Tax credits for research and development expenses
Valuation allowanceInternal profit elimination
Other
Effective tax rate

2016

2015

33.1%

35.6%

0.8
0.5

1.2
0.5

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

1.6
(6.4)
0.5
(0.6)
(1.2)
31.3%

The “Act for Partial Amendment of the Income Tax Act, etc.” (Act No. 15 of 2016) and the “Act for Partial

2016 ANNUAL REPORT

Amendment of the Local Tax Act, etc.” (Act No. 13 of 2016) were enacted in the Diet session on March 29,
2016.
Accordingly, the effective statutory tax rate used to measure deferred tax assets and liabilities waschanged from 33.1% to 30.9% for the temporary differences expected to be realized or settled in the fiscal
years beginning between April, 2016 and March 31, 2018. The effective statutory tax rate was also changed

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to 30.6% for the temporary differences expected to be realized or settled in the fiscal years beginning on orafter April 1, 2018.
As a result, deferred tax assets (net of deferred tax liabilities) as of March 31, 2016 decreased by ¥49
million ($435 thousand), while unrealized holding gain on other securities as of March 31, 2016 and income
taxes-deferred for the year ended March 31, 2016 increased by ¥255 million ($2,263 thousand) and ¥206
million ($1,828 thousand), respectively.

15. Comprehensive Income
Reclassification adjustments and income tax effects on other comprehensive income for the years ended
March 31, 2016 and 2015 are as follows:
Millions of yen

Thousands of
U.S. dollars

2016

2015

2016

¥3,454
(1)
3,452
(861)
2,591

¥6,131—6,131(1,809)4,322$30,650(9)30,633(7,640)22,992

(7)

155

(62)

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

1,493
73
1,567
(552)
1,014

(43,163)(453)(43,615)
13,382(30,233)(17)¥ (841)

41¥5,534(151)$ (7,463)

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

16. Segment Information(a) Overview of Reportable Segments
The Company’s reportable segments are those for which separate financial information is available 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 Pharmaceutical Business and the Consumer Healthcare(Skincare) Business, which are classified based on similarities in the products and services.
The Pharmaceutical Business mainly produces, sells, and purchases ethical drugs, generic drugs andover-the-counter drugs. The Consumer Healthcare (Skincare) Business mainly sells and purchases skincare
products.
(b) Method of Calculating Net Sales, Profit (Loss), Assets and Other Items by Reportable Segment
Accounting policies of the reportable segments are consistent to those described in Note 2, Summary of
Significant Accounting Policies.
Segment profit is based on operating income.
Inter-segment transactions are based on prevailing market price.
2016 ANNUAL REPORT

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(c) Information about Net Sales, Profit (Loss), Assets and Other Items by Reportable Segment
Millions of yen
2016
Reportable segment
PharmaceuticalBusiness

Consumer
Healthcare(Skincare)Business

Total

Sales to third parties¥118,238¥1,244¥119,483¥—¥119,483

Inter-segment sales or transfers

50¥118,288¥ 19,499¥172,292

40¥1,285¥ (77)¥ 699

90¥119,574¥ 19,421¥172,992

(90)
¥
(90)
¥ 214
¥24,833—¥119,483¥ 19,636¥197,825

¥

¥

¥

¥

¥

Adjustments

Consolidated

Net sales:

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

380
3,348

—
9

380
3,358

—
372

380
3,730

551

—

551

—

551

7,093

2

7,096

134

7,230

Thousands of U.S. dollars
2016
Reportable segment
PharmaceuticalBusiness

Consumer
Healthcare(Skincare)Business

Sales to third parties$1,049,232$11,039 $1,060,280$

Inter-segment sales or transfers

444$1,049,676$ 173,032$1,528,902

355
799$11,403 $1,061,088$ (683) $ 172,340$ 6,203 $1,535,114

(799)
—
$
(799) $1,060,280$ 1,899 $ 174,248$220,366 $1,755,480

$

$

$

Total

Adjustments

Consolidated

Net sales:

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

3,372
29,710

— $
80

3,372
29,7994,890—

62,94318— $1,060,280

– $
3,301

3,372
33,100

4,890

—

4,890

62,9691,189

64,158Millions of yen
2015

Reportable segment
PharmaceuticalBusiness

Consumer
Healthcare(Skincare)Business

Total

Sales to third parties¥111,771¥1,349¥113,121¥—¥113,121Inter-segment sales or transfers

47¥111,819¥ 14,576¥163,135

48¥1,398¥ (20)¥ 683

96¥113,217¥ 14,556¥163,818

(96)
¥
(96)
¥ 181
¥19,564—¥113,121¥ 14,737¥183,383

¥

¥

¥

¥

¥

Adjustments

Consolidated

2016 ANNUAL REPORTNet sales:

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

2,232
2,678

—
13

2,232
2,692

—
361

2,232
3,053

594

—

594

—

594

2,587

5

2,592

195

2,788

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1. “Adjustments” for “Segment profit (loss)” of ¥214 million ($1,899 thousand) and ¥181 million for the years
ended March 31, 2016 and 2015, respectively, were mainly eliminations of inter-segment transactions.
2. “Adjustments” for “Segment assets” of ¥24,833 million ($220,366 thousand) and ¥19,564 million as ofMarch 31, 2016 and 2015, respectively, were the Company’s assets and offset of inter-segment receivables and payables.
3. “Adjustments” for “Depreciation and amortization” of ¥372 million ($3,301 thousand) and ¥361 million forthe years ended March 31, 2016 and 2015, 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 ¥134 million ($1,189
thousand) and ¥195 million for the years ended March 31, 2016 and 2015, respectively, were increase inproperty, plant and equipment and intangible assets of the Company.
5. “Segment profit (loss)” is adjusted to operating income disclosed in the accompanying consolidated statements of income.
(Related Information)(a) Information by Product and Service
Information by product and service is omitted since the classification by product and service was the same as
the reportable segment for the years ended March 31, 2016 and 2015.
(b) Information by Geographical Area
(1) Sales
Information about sales by geographical area is omitted for the years ended March 31, 2016 and 2015,
since domestic sales were more than 90% of net sales on the consolidated statements of income.
(2) Property, plant and equipment
Information about property, plant and equipment by geographical area is omitted for the years ended
March 31, 2016 and 2015, since property, plant and equipment in Japan constituted more than 90%
of property, plant and equipment on the consolidated balance sheets.
(c) Information by Major Customer for the Years Ended March 31, 2016 and 2015
Millions of yen
2016
Name of customer

Sales amount

Related segments

Pharmaceutical Business

SUZUKEN CO., LTD.

¥20,583
18,334

MEDIPAL HOLDINGS CORPORATION

17,363

Pharmaceutical BusinessToho Pharmaceutical Co., Ltd.

15,828

Pharmaceutical BusinessAlfresa Corporation

Pharmaceutical BusinessThousands of U.S. dollars
2016
Name of customer

Sales amount

Related segments

Alfresa Corporation

Pharmaceutical Business

SUZUKEN CO., LTD.

$182,652
162,694

MEDIPAL HOLDINGS CORPORATION

154,078

Pharmaceutical BusinessToho Pharmaceutical Co., Ltd.

140,456

Pharmaceutical BusinessPharmaceutical Business2016 ANNUAL REPORT

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Millions of yen
2015
Name of customer

Sales amount

Related segments¥19,641
17,768

Pharmaceutical Business

SUZUKEN CO., LTD.
MEDIPAL HOLDINGS CORPORATION

16,523

Pharmaceutical BusinessToho Pharmaceutical Co., Ltd.

15,161

Pharmaceutical BusinessAlfresa Corporation

Pharmaceutical Business(d) Information about Amortization and Unamortized Balance of Goodwill by Reportable Segment
There is no unamortized balance of goodwill at the years ended March 31, 2016 and 2015.

17. Contingent Liabilities
Contingent liabilities as of March 31, 2016 and 2015 are as follows:

Guarantors of indebtedness of employees

Millions of yen

Thousands of
U.S. dollars

2016

2015

2016

¥1

¥1

$9

Yen

U.S. dollars

18. Amounts per Share
Amounts per share for the years ended March 31, 2016 and 2015 are as follows:

Basic profit
Cash dividends
Net assets

2016

2015

2016

¥ 184.28
58.00
2,131.67¥ 161.63
52.00
2,009.45$ 1.640.51
18.92

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, 2016 and 2015.
Cash dividends per share represent the cash dividends applicable to the year.
The amount per share of net assets is computed based on the net assets attributable to common shareholders of KYORIN Holdings, Inc. and the number of shares of common stock outstanding at the year-end.
The treasury shares remaining in trust and recorded as treasury stock in shareholders’ equity are includedin the treasury shares excluded from the calculation of the average number of shares during the fiscal year,
which is used to calculate the amount of profit per share. Furthermore, these treasury shares are included in
the number of treasury shares excluded from the total number of issued shares at the end of the fiscal year,
which is used to calculate net assets per share.
The average numbers of treasury shares during the fiscal year that were excluded from the calculation of
the amount of profit per share were 698,516 and 76,875 for the years ended March 31, 2016 and 2015,
respectively.
The numbers of these treasury shares at the end of the fiscal year that were excluded from the calculationof net assets per share were 1,040,100 and 764,100 as of March 31, 2016 and 2015, respectively.

19. Subsequent Events

2016 ANNUAL REPORT

There are no relevant items.

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Independent Auditor’s Report2016 ANNUAL REPORT

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Corporate Overview/Stock Information

6, Kanda Surugadai 4-chome, Chiyoda-ku, Tokyo 101-8311

Head Office(As of March 31, 2016)

Major Shareholders

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

1958

Common Stock¥700 million

27.1%

6,021
16.4%

6,021

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

0.9%

Shareholders

Outstanding Shares 74,947,628
Shareholders

18.5%

Percentage of shares held

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

19.12%
3.66%

37.1%

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

18.5%
0.9%
37.1%
16.4%
27.1%

3.66%
2.97%
2.60%
2.60%
2.49%
2.35%
2.33%
2.26%

Change in Share Price
Share price
(Yen)

TOPIX

TOPIX

3,000

3,000

2,500

2,500

2,000

2,000

1,500

1,500

1,000

1,000

500

500

0

2016 ANNUAL REPORT

Share price1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4
2011
2012
2013
2014
2015
2016

0

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

64

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Subsidiaries and Affiliate
Consolidated
Subsidiaries

KYORIN Pharmaceutical Co., Ltd.
Capital:¥4,317 million
Percentage of ownership: 100%
Head office: 6, Kanda Surugadai 4-chome,
Chiyoda-ku, Tokyo 101-8311
Operations: Manufacture and sales of prescription
medicines and quasi-drugs,
diagnostics, and industrial chemicals
KYORIN Medical Supply Co., Ltd.
Capital:¥488 million
Percentage of ownership: 100%
Head office: 6F Niikura Building, 2-11, Kanda
Tsukasamachi 2-chome, Chiyoda-ku,
Tokyo 101-0048
Operations: Sales promotion, planning andproduction of advertising, etc.
KYORIN Rimedio Co., Ltd.
Capital:¥1,200 million
Percentage of ownership: 100%
Head office: 287-1, Shimocho Moroe-cho,Kanazawa-shi, Ishikawa 920-0017
Operations: Manufacture and sales of prescription
medicines and quasi-drugs,
diagnostics, and industrial chemicals
Dr. Program Co., Ltd.
Capital:¥251 million
Percentage of ownership: 100%
Head office: 34-14, Hatagaya 1-chome, Shibuya-ku,
Tokyo 151-0072
Operations: Development and sales of skincare
products
KYORIN Pharmaceutical Facilities Co., Ltd.
Capital:¥450 million
Percentage of ownership: 100%
Head office: 1-4 Sasagaoka, Minakuchi-cho,
Koka, Shiga 528-0061
Operations: Manufacture and sales of prescription
medicines

Corporate MarkKYORIN
PharmaceuticalCo., Ltd.
Subsidiaries

Equity-method
Affiliate

Kyorin USA, Inc.
Capital:
US$500,000
Percentage of ownership: 100%
Head office: 500 Frank W. Burr Boulevard,
Teaneck, New Jersey 07666, UnitedStatesOperations: Research and analysis of othercompanies’ technologies andcollection 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 othercompanies’ technologies andcollection of information concerning
clinical trials
ActivX Biosciences, Inc.
Capital:
US$1
Percentage of ownership: 100%
Head office: 11025 N. Torrey Pines Rd., La Jolla,
California 92037, United States
Operations: Discovery and evaluation of candidate
compounds
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 ofpharmaceuticals, reagents,
intermediates, and other products

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

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

[Kyorin Legend]2016 ANNUAL REPORTLong ago, a Chinese physician named Dong Feng treated the sick free of charge, and asked
those who recovered from serious illness to plant five apricot tree saplings and those cured ofminor illness to plant one.
As time went by, a thick forest of apricot trees was formed in the area.
(A story that comes from a Chinese legend named Shinsen-den).
“Kyorin” is a compound of “kyo,” the Chinese word for “apricot,” and “rin,” the Chinese word for“woods.” Praising the virtue of Dong Feng, the characters were transported from China to Japanas those representing medicine and medical treatment in general.

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KYORIN Holdings, Inc.
ANNUAL REPORT 2016

2016
ANNUAL REPORT

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

0901_E_キョーリン製薬H1-H4.indd 1

Year ended March 31, 2016

This report was printed using vegetable oil ink.
Printed in JapanKYORIN Holdings, Inc.

2016/09/01 19:40