Profile

CONTENTS
Highlights of the Fiscal Year1

President’s Message

2

Since the foundation of Kyorin in 1923, its corporate philosophy

Outline of Operations

6

has been to cherish life and benefit society by contributing to better

Ethical Drug R&D

6

health. KYORIN has become what it is today by adhering to thisEthical Drug Sales in Japan7

philosophy, which has entailed enhancing corporate value andEthical Drug Sales Overseas

7

securing the trust of its stakeholders – a vital asset.

Generic Drug Business

8

In March 2006, the KYORIN Group converted to a new

Consumer Healthcare Business

9organization with KYORIN Co., Ltd., as the Group holding

10

company. Accordingly, fiscal 2007 represented the first year of the

Corporate Governance10

drive to create corporate value under the new organization. In the

Corporate Social Responsibility

12fiscal year ending March 31, 2010, which marks the final year of the

Directors, Auditors and Corporate Officers 14

Kyorin MIC-09 medium-term business plan, the Kyorin Group will

Kyorin’s Management

Financial Section

15

Organization Chart

43

Corporate Information

44

strive to achieve the plan’s objectives to “reinforce the new ethicaldrug business,” “optimize the synergies of the merger with Nisshin
Kyorin Pharmaceutical Co., Ltd.,” and “nurture and reinforce
KYORIN Rimedio Co., Ltd. and Dr. Program Co., Ltd. (peripheralbusiness).
The newly formed Kyorin Group centers on a drug discovery
business that not only discovers and develops new drugs that are
accepted across the world but also licenses out those drugs. Its
operations include a pharmaceuticals business focusing on new
ethical and generic drugs, in addition to a consumer healthcare
business. By expanding these operations, the Kyorin Group aims tobecome an optimum integrated healthcare organization that meets adiverse range of health needs.

The Kyorin Corporate Brand
Kyorin believes that true health can only beachieved when a patient forgets his or her
sickness and becomes able to fully enjoy everyday
life. We aim to go beyond the conventional
concept of healthcare – treating diseases – andtake care of people’s mental and emotional health.
To do so, we will propose products and services
that ensure a happy life. For this reason, our new
corporate mark is a smiling face in the shape of an
apricot (a reference to our company name). This
mark symbolizes our commitment to helping
customers achieve true happiness.

Disclaimer Regarding Forward-Looking Statements
Statements made in this annual report with respect to Kyorin’s forecasts, plans, strategies and other statements other than those ofhistorical facts 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.

Highlights of the Fiscal Year
KYORIN Co., Ltd. and Consolidated Subsidiaries(as of the end of the fiscal year ended March 31, 2009)

Operating Results
Despite a significant decline in lump-sum income fromlicensees and business transfer, consolidated net sales
increased 12.1% to ¥90,889 million and operating income
jumped 43.2% to ¥8,952 million due to favorable sales ofprincipal products in the ethical drugs in Japan segment, theeffects of the integration with Nisshin Kyorin Pharmaceuticaland growth in the generic drug business. Net income
declined 7.0% to ¥2.0 billion due to recording an
extraordinary loss of ¥4,564 million.

Ethicaldrug
business

Sales of principal products,
including Kipres, Pentasa andUritos, expanded smoothly despite
the discontinuation of sales of
Gatiflo tablets.

Peripheralbusiness

KYORIN Rimedio and Dr.
Program achieved profitability inthe second half of the fiscal year
and for the full year, respectively.

(Millions of yen)

Year ended March

2006

2007

2008

2009

Net sales

74,05477,093

81,07090,889Operating income

8,989

8,413

6,251

8,952

Net income

5,228

4,842

2,189

2,037

Total assets

121,044

124,039

122,398

124,552

Net assets

94,752

98,17897,18496,501R&D expenses

10,107

8,609

10,826

10,531

Capital expenditure

4,605

2,954

1,952

1,612

Depreciation expense

3,646

4,544

4,536

3,799

ROE (%)

5.6

5.0

2.2

2.1

ROA (%)

8.2

7.1

5.4

7.5

Net income per share (yen)

69.74

64.97

29.26

27.24

Dividend per share (yen)

20.00

30.00

22.50

13.00

The figures for the fiscal year ended March 2006 are the consolidated figures for KYORIN Pharmaceutical Co., Ltd. The figures from the fiscal years ended
March 2007 and onward are the consolidated figures for KYORIN Co., Ltd.

Net sales/Operating income(Millions of yen)
100,000

Net income/ROE

Total assets(％)
6(Millions of yen)
6,000
5.6

90,88981,0705,228

77,09380,0005.0
120,000

4,842

74,0544,000

124,552
124,039
121,044
122,398

4
90,00060,0002.2

40,000
2,000

2,189

60,000

2.1
2
2,037

30,00020,0008,989 8,413
0(Millions of yen)
150,000

2006

2007

6,251
2008

8,952

2009

0

2006

2007

2008

2009

0

0

2006

2007

2008

2009

1

President’s Message

Greetings on Assuming the Post of President
I was elected President at the Ordinary General
Shareholders’ Meeting and the Board of Directors
meeting held on June 24, 2009, and then assumed
the post. I was heretofore mainly in charge of thesustainable growth of our new drug business inJapan as the responsible officer in sales operations.
Drawing on my experience, I am determined todevelop the Kyorin Group into an integrated
healthcare corporate group to further raise thecorporate value.

Representative Director, President and Chief Executive Officer

Masahiro Yamashita

Brief Personal Career:
Apr. 1969

Joined KYORIN Yakuhin Co., Ltd.

Apr. 1995

Director, Sales & Marketing Planning Department, Sales &Marketing Headquarters, KYORIN Pharmaceutical Co., Ltd.

Apr. 1998

Director, Strategies & Business Development Division,
KYORIN Pharmaceutical Co., Ltd.

Apr. 2004

Corporate Officer and Director, Sales & Marketing
Headquarters, KYORIN Pharmaceutical Co., Ltd.

Jun. 2004

Corporate Officer and Executive Director, Sales & Marketing
Headquarters, KYORIN Pharmaceutical Co., Ltd.

Jun. 2005

Senior Executive Officer and Executive Director, Sales &Marketing Headquarters, KYORIN Pharmaceutical Co., Ltd.

Jan. 2006

Executive Director, KYORIN Co., Ltd.

Jun. 2007

Senior Managing Officer and Executive Director, Sales &Marketing Headquarters, KYORIN Pharmaceutical Co., Ltd.

Jun. 2008

Executive Vice President and Executive Director, Sales &Marketing Headquarters, KYORIN Pharmaceutical Co., Ltd.

Jun. 2008

Executive Vice President and Executive Director, Sales andMarketing, KYORIN Co., Ltd.

Apr. 2009

Executive Vice President, Executive Director, ProductStrategy Division, KYORIN Pharmaceutical Co., Ltd.

Jun. 2009

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

Kyorin MIC-09 Medium-Term Business Plan
KYORIN’s corporate philosophy has been to cherish life and benefit society by contributing tobetter health. I believe that the Group should enhance its value as a healthcare business group thatdevelops diversified businesses around the mainstay pharmaceutical business and truly contributes
to people’s health under this corporate philosophy. In addition, it is important for the Group to havea well-balanced business portfolio that consists of a variety of businesses with different life cycles
to ensure sustainable corporate growth in a rapidly changing environment marked by uncertain
economic and social circumstances.
The Kyorin Group is still implementing the Kyorin MIC-09 medium-term business plan, which covers

2Basic Policies: Evolution and Innovation II in the Kyorin MIC-09 medium-term business plan
The aim: Become an integrated, trusted and unique healthcare organization centered on global drug discovery operations.
Kyorin MIC-09, the Group’s medium-term business plan, outlines how we will win against the competition by evolving our drug discovery business model. This will enable us to create drugs that are groundbreaking and versatile and can be commercialized rapidly. We
must build a solid base to support our high-risk, high-return drug discovery business, which requires prolonged investment. Accordingly, we will promote innovation aimed at developing new operations that will complement our ethical drug business.

Targets for the Year Ending March 31, 2010

Establish Kyorin
as a Global Drug
Discovery Company

PromoteAlliances

Enhance drug
discovery andresearchcapabilities

Build a Solid Base forthe Drug Discovery Business
Increase the competitive
Establish new businesses
strength of thepharmaceuticals business

Return on equity (ROE)

7.0%

Late-stage compounds

One per year

Evolution

Establish Kyorin as a global drug discovery company byenhancing drug discovery and research capabilities andpromoting alliances

Innovation

Increase the competitive strength of the pharmaceuticalbusiness and develop new, related businesses to form
a solid foundation for drug discovery, which relies on along-term, high-risk, high-return business model

the five years from April 2005 to March 2010, with marketing, innovation and challenge as the plan’s
keywords. In this plan, we address three basic strategies as priorities: 1) Establish KYORIN as a
global drug discovery company, 2) Increase the competitive strength of the pharmaceutical businessto support investments in drug discovery operations and 3) Establish new businesses that contributealmost as much to future growth as the pharmaceutical business.
1. Establish Kyorin as a global drug discovery company
The Kyorin Group has established drug discovery and research bases in Japan, the United Statesand Europe—Exploratory Research Laboratories and Discovery Research Laboratories in Japan,
ActivX Biosciences, Inc., in the United States and Kyorin-Scotland Research Laboratories in Europe.
By leveraging this three-pronged network of global drug discovery to mutually generate operatingsynergies, a particular focus is on producing one late-stage compound per year. Late-stage
compounds are drug candidates that have established their proof of concept (POC), which indicates
their efficacy and safety in humans, up to the end of Phase IIa trials.
2. Increase the competitive strength of the pharmaceutical business to support investments in
drug discovery operations
We intend to raise the competitiveness of our pharmaceutical business to support investments inthe drug discovery business. Specifically, we are actively pursuing our FC strategy in respiratory
medicine, otolaryngology and urology to reinforce long-term relationships with customers. We
are also focused on extending the growth curves of our core pharmaceuticals by using a lifecycle management program for enhanced drug management (the addition of drug indications andformulations) and promoting the introduction of license-in products to strengthen our lineups in the
FC areas.
3. Establish new businesses that contribute almost as much to future growth as thepharmaceutical businessWe are developing healthcare-related businesses in accordance with our corporate philosophy in
a complex manner. Specifically, we are endeavoring to expand our generic drug business mainly
assumed by KYORIN Rimedio and our healthcare business mainly assumed by Dr. Program as
promising businesses after our core pharmaceutical business.

3

Kyorin MIC-09 Targeted Corporate Image
Consumer Healthcare Businessthat is Supported by Physician
Recommendations

Core Businesses:
Drug Discovery BusinessPharmaceutical Business

Generic Drug Business that
Provides Reliable Products

Dr. Program

KYORIN Pharmaceutical

KYORIN Rimedio

Wellness Business that is Based on Cooperation with Physicians

Business Structure

Initiatives and Operating Results for Fiscal 2008
In Japan, the pharmaceutical industry continued to operate in an increasingly difficult market
environment as seen by the ongoing governmental policies to control the cost of medical treatment
and pharmaceuticals, the increased difficulty of R&D activities and the intensifying competition.
Against this backdrop, the Kyorin Group addressed speeding up the growth of new drug operations
and fostering the underlying strength of peripheral businesses, in line with the management policy
set out in the fiscal year under review of “ensuring that our business is firmly positioned on a growthtrajectory.” As a result, consolidated net sales during the fiscal year ended March 31, 2009, rose
12.1% year on year to ¥90,889 million. Operating income came to ¥8,952 million, an increase of
43.2%, and ordinary income was ¥9,208 million, a rise of 38.6%. Net income dropped 7.0% to¥2,037 million.

Initiatives for Fiscal 2009
In fiscal 2009, the last year of the Kyorin MIC-09 plan, the Group will strive to focus on the following
three priorities to achieve the plan’s growth target of 7% in ROE and the sustainable growth of theGroup.
1. Reinforce the new drug business(1) Develop competitive sales activity in Japan via selection and focus
The Group will regularly visit about 67,000 physicians, especially those in respiratory medicine,otolaryngology and urology, and collaborate with wholesalers to boost sales of the four existing
mainstay products—Kipres, Mucodyne, Pentasa and Uritos—in the pursuit of sustainable growth insales of new domestic drugs.
(2) Reinforce R&D channels
The Group will further promote R&D activities on new drugs and license-in products based on the“market-in” concept. We will reinforce the R&D channels of short-, medium- and long-term R&D
projects through priority-based resource distribution by reviewing the self-discovered drugs andthe value-enhancing measures for existing and licensed-in drugs according to the same evaluation
criteria.
2. Utilize the consolidation effect due to the merger of Nisshin Kyorin Pharmaceutical
The Group intends to strengthen its R&D and marketing capabilities through the merger of Nisshin
Kyorin Pharmaceutical by KYORIN Pharmaceutical in October 2008 and will work to maximize the4Goal and Initiatives for Fiscal 2009
N Reinforce the new drug business

Strive to achieve the financial target set
out in the Kyorin MIC-09 plan

・Develop competitive sales activity in Japan via selection
and focus
・Reinforce R&D channels

7% in ROE

N Utilize the consolidation effect due to the merger with

Nisshin Kyorin Pharmaceutical

N Develop and improve the corporate strength of KYORIN

Rimedio and Dr. Program

consolidated effect in fiscal 2009 with further cost reductions due to more efficient management of
the Group.
3. Develop and improve the corporate strength of KYORIN Rimedio and Dr. Program
We see considerable growth potential for the generic drug business, in which KYORIN Rimedio
principally engages, and anticipate a growing social need for such products. In fiscal 2008, salesof generic drugs, which were previously sold by the merged Nisshin Kyorin Pharmaceutical, weretransferred to KYORIN Rimedio. KYORIN Rimedio aims to restore profitability in fiscal 2009 on a
non-consolidated basis with measures such as setting reasonable selling prices, trimming costs andplacing new products on the market.
Dr. Program, which engages in the development and sales of skin care products, aims to become thecore company of the consumer healthcare business within the Group through appropriate business
operations commensurate with its growth level.

Conclusion■

日清The Kyorin Group endeavors to build and solidify trust with stakeholders. Above all, with regard
to shareholders, I intend to steadily practice corporate governance that satisfies shareholder
expectations and the return of profits to them. The distribution of dividends to shareholders was¥22.5 per share for fiscal 2007 and ¥13.0 per share for fiscal 2008. Our dividend policy targets apayout ratio of 50%, and we plan to distribute a dividend of ¥45 per share for fiscal 2009, the year
ending March 31, 2010.
I will thoroughly address the current and future status of the Kyorin Group to plan and steadily
execute appropriate business targets. In these endeavors, please continue to provide us with yoursupport and understanding as to the future initiatives of the Kyorin Group.

July 2009

Masahiro Yamashita, Representative Director,
President and Chief Executive Officer5Outline of Operations

Ethical Drug R&D
Reinforcement of R&D channels for short-, medium- andlong-term R&D projects
expertise.

The Kyorin Group’s core drug discovery business conducts

In line with the Kyorin MIC-09 plan, the Group is

efficient research activities by focusing KYORIN
Pharmaceutical’s research efforts on the areas of infectious,

developing a global drug discovery system, and through the

immunological/allergic and metabolic diseases. Exploratory

Company’s trilateral organization, the system aims to obtain

Research Laboratories and Discovery Research Laboratories

the ability to develop one late-stage compound each year thatin Japan, ActivX Biosciences, Inc., in the United States andhas completed proof of concept (POC) (confirmation of drug

Kyorin-Scotland Research Laboratories in Europe form aefficacy and safety in humans) through the Phase IIa trials.

trilateral drug discovery organization to develop new drugs

Although the Group worked to discover two late-stage

that can be approved worldwide in these priority researchcompounds from fiscal 2005 to fiscal 2008, the increased

areas. The Kyorin Group pursues quality improvement and theefficiency of drug discovery will be a vital issue to reinforce

acceleration of its drug development and research operations

R&D channels.

by taking advantage of the Group companies’ respective

Shifting Our Focus from Total Drug Development to Drug Discovery
POC

KyorinSearch for
CandidateCompounds

Drug
Discovery

ActivX

Identification of
CandidateCompounds

Phase IIa
Clinical Trials

KSRL

Trilateral Organization (Japan, the United States and Europe):
Kyorin Exploratory Research Laboratories, Kyorin Discovery ResearchLaboratories (Japan), ActivX Bioscience Inc.
(United States) and Kyorin-Scotland Research Laboratories (KSRL; Europe)
Target Diseases: Infectious, immunological/allergic and metabolic diseases
R&D: Prioritize the stage screening through POC (Phase IIa)

Late-stage Compounds

Kyorin’s Core Drug Creation Business
Drug Discovery

LicensedOut

Alliance

Goals

In-House
Development Production Marketing

Actively Seek Alliance Partners
Generate maximum value more quickly
from late-stage compounds

Late-Stage Compounds: One per year
In fiscal 2009, the Group restructures its R&D portfolio based

execution of the core processes from drug discovery toon the “market-in” concept that allows for the effective

development, application for approval and commercialization ofutilization of it’s limited business resources to reinforce R&D

the product. Meanwhile, we will attempt to maximize productchannels, which will be the spine of the sustainable growth ofvalue through the advanced life-cycle management of existing

KYORIN Pharmaceutical, the Group’s core company. As for the

drugs and be active in finding candidate compounds for drugs

continuing discovery of new drugs, we will devote ourselves tothat may be licensed to Kyorin on a broader stage together

realizing effective monozukuri (in this case, the discovery of new

with Kyorin USA, Inc., and Kyorin Europe GmbH, both of whichdrugs) by establishing an R&D system that enables seamlessare our subsidiaries.

Reinforcement of Monozukuri and License-in Based on the “Market-in” Concept
Setting of priorities and the distribution of resources by reviewing the drugs, the life-cycle management of
the existing drugs and the licensed-in drugs according to the same evaluation criteria

Self-discovered drugs

KRP-104, KRP-203, etc.

Life-cycle management

addition of formulations,effect-efficacy, etc.

Licensed-in drugs

KRP-108, etc.

Unification of evaluation
and review processes
Medical treatment needs
Alignment with the areas
covered by the FC strategy
Degree of difficulty in thedevelopment

Setting of priorities
and the distributionof resources

Reinforce R&D channels for short-, medium- and long-term R&D projects

6Ethical Drug Sales in Japan
Develop Competitive Sales Activity in Japan via Selection
and Focus
In this segment, KYORIN Pharmaceutical—which primarily

Group is committed to the sustainable growth of priority

deals with the ethical drug business in the Group—promotes

products in cooperation with wholesalers.

the franchise customer (FC) strategy that concentrates sales

Promotion of the FC Strategies

activity on the areas of respiratory internal medicine,otolaryngology and urology.

Regularly visit approximately 67,000 doctors
who specialize in respiratory internal medicine,otolaryngology and urology

The Group is concentrating its business resources on about
67,000 physicians nationwide who are visited on a regularbasis, including 23,500 physicians in the FC3 areas. The
Group focuses on its original team-system sales activity to

Cooperation withthe wholesale trade

increase the number of adoptions and cases for the use of
our products by enhancing relationships with longtime loyal
users. Furthermore, the increased number of medical
representatives (MRs), which rose to 750 through the merger

Focus on priority items to pursue a sales increase of
10% or more with the aim of sustainable growth fordomestic new drug sales

with Nisshin Kyorin Pharmaceutical in October 2008, willfurther strengthen our sales capabilities. In addition, theMaximizing the effects of absorbing Nisshin Kyorin Pharmaceutical
The effects of the October 2008 absorption of Nisshin Kyorin
Pharmaceutical Co., Ltd., are expected to contribute to ourbusiness performance throughout the fiscal year ending March 31,
2010, by 1) enhancing our marketing abilities, 2) reducing the costof sales and 3) increasing the efficiency of operations. To maximize
the effect of enhanced marketing abilities, we will enlarge the staff of
medical representatives to secure closer relationships with doctors

and seek larger sales by increasing the number of calls regarding
major products. We will also enable the self-production of our core
Pentasa series products to help reduce the cost of sales. In
addition, we will seek a further increase in the efficiency ofoperations and resulting cost reductions by streamlining research
projects to reduce R&D expenses and enhancing the utilization ofhuman resources.

Ethical Drug Sales Overseas
Proactive Development of Overseas Alliances
Strategic alliances are being used to expand global sales ofMajor Domestic and Overseas Alliances

gatifloxacin. Although Zymar (licensed to Allergan Inc. in the
Eisai

Taisho Pharma

Yungin (Korea)

Dainippon
Sumitomo Pharma

Novartis (Switzerland)

Meiji Seika Kaisha

United States) ensures a certain share in the U.S. market for

SenjyuPharmaceuticalKaken

antibacterial eye drops, we are considering an early increase

ChugaiPharmaceutical

Han-Dok (Korea)

in the number of licensees in anticipation of the completion of

Banyu
Pharmaceutical

LG Life Sciences (Korea)

KYORIN
Pharmaceutical

Merck & Co.
(U.S.)

Sato Pharma

Sekisui Medical

Ono Pharma

Chong Kun Dang
(Korea)Shinlin Sinseng(Taiwan)

Thea (France)
Allergan (U.S.)
SkyePharma (U.K.)

Nichi-Iko
Pharmaceutical

SPIMACO*

Galderma

MediciNova (U.S.)

Sanofi-Aventis

Nisshin Pharma*SPIMACO:Saudi Pharmaceutical Industries ＆ Medical Appliances Corporation

the patent period for gatifloxacin and pursuing the possibilityof other alliances regarding existing products.
In February 2009, Kyorin entered into a master agreement
to grant the exclusive sales rights for Uritos® (generic name:imidafenacin), for treating an overactive bladder, to Saudi
Pharmaceutical Industries & Medical Appliances Corporation(SPIMACO) in 13 countries in the Middle East and North
Africa, including Saudi Arabia.

7

Outline of Operations

Generic Drug Business
Build New Businesses That Contribute to Future Growth :Develop and improve the corporate strength of
KYORIN Rimedio
A potential new business that will complement our ethicalnumber of medical representatives to 70 and securing

drug business is the generic drug business. The Kyorin MIC-

wholesale channels to promote sales. Other efforts include

09 plan emphasizes the generic drug business to support ourtransferring the generic drug sales of Nisshin Kyorin

high-risk, high-return drug discovery business, which requires

Pharmaceutical to KYORIN Rimedio. By securing a greater

prolonged investment, and to ensure stable corporate growth.

number of customers, we expect to boost the market

KYORIN Rimedio Co., Ltd., is the nucleus of the Kyorin

proliferation of our products. Furthermore, we will reinforce

Group’s generic drug business.

sales to dispensing pharmacies.

We see considerable growth potential for generic drugs in

Cost-reduction measures include the start of the toll

Japan’s ethical drug market and anticipate a growing social

manufacturing of KYORIN Pharmaceutical’s mainstay

need for such products. Above all, the market is expanding

products and expanding sales of mainstay and new products

due to the increased use of generic drugs at hospitals underto raise plant utilization rates.

the Diagnosis Procedure Combination (DPC) system and at

Product lineups are being enhanced in the pursuit of higher

dispensing pharmacies. To capitalize on this opportunity,

sales in collaboration with KYORIN Pharmaceutical and joint

KYORIN Rimedio is strengthening its sales capabilities,

development with other corporations, and we expect thesetrimming costs and expanding its product lineup.

arrangements to result in the addition of at least 10 products
per year.

Sales capabilities are being strengthened by increasing the

KYORIN Rimedio: Results for fiscal 2008 and Initiatives for fiscal 2009
Net Sales

Operating income (loss)(billions of yen)

/ Net income (loss)(billions of yen)

8.0

0.2

6.0

0

0

6.0

4.0
3.0

3.0

4.3
-0.4

3.4

-0.3
-0.4
-0.5

-0.6

2.0

0.10.1

-0.1

-0.2
4.0

0 0

-0.4
-0.5

-0.8
0
1st half 2nd half 1st half 2nd half 1st half 2nd half

FY2007(actual)

FY2008(actual)

FY2009(forecast)

-1.0

-0.9
1st half 2nd half

1st half 2nd half

1st half 2nd half

FY2007(actual)

FY2008(actual)

FY2009(forecast)

Note: The date of closing accounts will change from January 31 to March 31, therefore the fiscal year ending March 2010 covers 14 months.

Overview (comparison with the previous year)
Net sales

Sales of products Increased, owing to the performance of Nisshin Kyorin Pharmaceutical
Expanding sales of mainstay and new products

Operating income Although the cost rate rose due to the reduction of NHI drug prices and intensified price competition,
profitability recovered in the second half with enhanced cost-cutting efforts

Handling of issues

Aim to achieve profitability on an annual basis
Setting reasonable selling prices
Trimming costs
Increasing sales by introducing new products to the market

8Outline of Operations

Consumer Healthcare Business
Build New Businesses that Contribute to Future Growth:
Development and Improvement of a Customer Healthcare
Business Centered on Dr. Program
Another potential new business that will complement ourIn the consumer healthcare business, KYORIN

ethical drug business is the consumer healthcare business.

Pharmaceutical sells Milton, which is a baby bottle

In recent years, we have seen increasing changes in attitudes

disinfectant highly regarded by obstetricians and midwives.

toward health. In response to these changes, the Kyorin

New promotions are planned in fiscal 2009 to increase sales

Group is developing a consumer healthcare business thatin response to environmental changes such as the dwindlingtakes a broader approach to health issues, focusing on

birthrate and an aging population and intensifying

prevention, maintenance and improvement.

competition.

Dr. Program is the nucleus of the Kyorin Group’s consumer
healthcare business to develop and sell cosmetics using
pharmaceutical technology. The inclusion of Dr. Program into
the Kyorin Group in 2005 has helped push up overall sales
with the continuation of the segment’s efforts to expand its
customer bases. Further sales expansion is intended byconducting more efficient ad activity to attract new
Dr. Program :TRINITYLINE

customers.

KYORIN
Pharmaceutical :Milton CP

Milton : liquid form

Dr. Program: Results in fiscal 2008 and Initiatives for fiscal 2009
Net Sales

Operating income (loss)(billions of yen)(billions of yen)

3.0

0.2 0.2

0.2

2.0

1.6

1.8

1.9

2.2

0.1 0.1

0.1

1.9

1.9

0 0

0
-0.1

1.0

-0.2
0
1st half 2nd half 1st half 2nd half 1st half 2nd half

FY2007(actual)/ Net income (loss)

FY2008(actual)

FY2009(forecast)-0.3-0.1 -0.1-0.1-0.1-0.2-0.3
1st half 2nd half

1st half 2nd half

1st half 2nd half

FY2007(actual)

FY2008(actual)

FY2009(forecast)

Note: The date of closing accounts changed from January 31 to March 31, therefore the fiscal year ended March 2009 covered 14 months.

Overview of fiscal 2008
New sales channels contributed to sales expansion (TV shopping via QVC broadcasting)Business operations started overseas
Cost reduction via efficient and effective use of ad and sales promotion expenses
Future initiatives
Create efficient ads to attract new customers (using such media as TV commercials)
Promote sales of a new product (U50) and the renewal of existing products
Develop and launch new products with an emphasis on proven technology and efficacy
U50
U50 received the Grand Gold Medal in the Monde Selection contest.

9

Kyorin’s Management

Basic Management Policies
In accordance with our corporate philosophy of “cherish life andbenefit society by contributing to better health,” the Kyorin Group
engages in the development, manufacture and sale of beneficial
drugs. By providing highly trusted products and services, we
contribute to the maintenance and enhancement of people’s
health. We believe that the greater the contribution our drugs
make to improving people’s health, the more we can raise ourcorporate value, which in turn will ultimately lead to the Company’s
further development and growth. Backed by our ability to create
innovative new ideas, the Kyorin Group aims to be an original andsignificant healthcare contributing force.

Basic Policy on Corporate
GovernanceThe key management goal for KYORIN Co., Ltd. is to continue
raising shareholder value. To achieve this goal requires fostering amanagement environment that enables us to build trust withstakeholders and the general public. Therefore, having given
better corporate governance a high priority, we seek to ensure
prompt decision-making, strong monitoring of the appropriatenessof management, and ethical and transparent corporate activities.
To ensure transparency and fair disclosure, we releaseappropriate information without delay for the benefit ofshareholders and investors. Within our website, we have createdan investor information section on which we list businessperformance data, information presented at meetings, oursecurities report, news releases and other corporate information,
enabling anybody to access information about Kyorin at any time.
In the future, we intend to actively increase our disclosure of
information, and expand and improve our communications with all
stakeholders.
We are an audit- and committee-based company underJapanese law. The Board of Auditors endeavors to fully
demonstrate its auditing and supervising functions and ensure thetransparency of the decisions being made by the Board of
Directors. Corporate auditors conduct audits in line with anauditing policy and plan set by the Board of Auditors at the
beginning of each fiscal year. Corporate auditors carry out adiverse range of activities in fulfilling their auditing function. In
addition to participating in important meetings, including those of
the Board of Directors and the Management Committee,
corporate auditors implement comprehensive audits by checking
documents and other materials relating to key decisions andinspecting departments, facilities and Group companies.
In recognition of our corporate social responsibility, for every
Kyorin Group company we appoint compliance and risk
management officers. In addition, we have established a groupwide compliance and risk management system that is
administered by the Compliance Committee and Risk
Management Committee. We are establishing guidelines for eachaffiliated company based on the Kyorin Compliance Guidelines
and will set up a system for employees to report and seek advice
about possible irregularities. In addition to the above measures,

10

we will create management guidelines for affiliated companies andbuild a system of support that respects their autonomy. Under thissystem, we will receive regular business reports from thesecompanies and hold meetings with their management before
deciding important issues. The Internal Audit Office conducts
audits of affiliated companies based on internal audit guidelines.
Based on the results of these audits, departments that oversee
the operations of the affiliated companies issue instructions or
warnings and provide appropriate guidance.

Management Organization
and Internal Control System(1) Management Organization
To clarify the roles of directors, who are responsible for making
business decisions and supervising business execution, andexecutive officers, who are responsible for business execution,
Kyorin has established an executive officer system. The Board of
Directors usually meets once a month, deciding important
operational matters after debating the issues as well as
supervising each director's duties. To oversee business execution,
we established a Management Committee, comprising thepresident and directors, which discusses key operational mattersconcerning the Group.
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 arebuilding a system that facilitates highly transparent decisionmaking.

(2) Internal Control System, Risk Management Structure
and ComplianceKyorin is building an internal control system in accordance withthe following basic policy.

Basic Policy
In keeping with our corporate philosophy of “cherish life andbenefit society by contributing to better health,” we undertake ouractivities in Japan and overseas guided by a high standard ofcorporate ethics as we respect human rights and comply with theletter and spirit of all laws and codes of conduct.
1. We established the Compliance Committee, which is chairedby a director in charge and includes the participation of the
Director of the Internal Audit Office who serves as a member ofthe committee. Thoroughgoing guidance is provided to
executives and regular employees via training programs, while
the Corporate Ethics Hotline has been set up for consultations
and reporting matters concerning internal violations.
2. We are building and 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 department responsible for overseeing
the committee. For risks concerning compliance, theenvironment and accidents, we also formulated the Risk
Management Guidelines and the Corporate Ethics andCompliance Guidelines as part of a quick-response structure.

Additionally, to handle crisis management when dealing withany contingencies, we have set up the Contingency Measures
Headquarters under the leadership of the president.
3. In accordance with the Documentation Management Guidelines
and other internal regulations, we carry out the appropriate
preparation, preservation and management of information
regarding directors’ decisions, their execution of other duties
and reports concerning directors.
4.To ensure that auditors effectively perform audits, theaccounting auditing firm explains the details of the accounting
audit to the auditors and exchanges various information while
cooperating with the Internal Audit Office in ensuring
appropriate communication and effective auditing.
5. Along with establishing compliance committees and risk
management committees at each Kyorin Group company, theCompliance Committee and Risk Management Committee
oversee and promote compliance and risk management for theentire Group. In addition, we have built a structure for
consultation and reporting that covers the whole Group.
We will create management guidelines for affiliatedcompanies and build a system of support that respects theirautonomy. Under this system, we will receive regular business
reports from these companies and hold meetings with their
management before deciding important issues.
The Internal Audit Office performs audits of affiliatedcompanies based on internal audit guidelines. Depending on
the results of these audits, departments that oversee theoperations of the affiliated companies issue instructions or
recommendations and provide appropriate guidance. We arealso building a structure that enables managers to prepare
reliable internal control reports for financial reporting. Under thisstructure, the Internal Audit Office also evaluates and reports on
internal controls related to financial reporting based on theStandards and Practice Standards for Management
Assessment and Audit concerning Internal Control Over
Financial Reporting.
6. Basic rationale on the elimination of anti-social forces and theestablishment of related measures
Giving consideration to our corporate philosophy, weformulated the Kyorin Corporate Charter to ensure a highstandard of corporate ethics and thoroughgoing compliance.
This charter clearly states that we will “stand firmly against any
anti-social forces or groups that pose a threat to the order andsafety of society.”
The Company will eliminate any relationships with andstrongly confront anti-social forces or groups. As an internal
structure for overall monitoring of our corporate ethics and ourcompliance structure, we established the Compliance
Committee, with the director in charge of the committee also

handling overall coordination. As the department in charge ofcompliance, the General Affairs department is working tostrengthen and promote a wider permeation of corporate ethics
and compliance through education and other measures incollaboration with relevant departments.
We have also established standard measures to prepare forany possible undue demands from anti-social forces. To thisend, we have built a structure that includes designating a“person responsible for prevention of undue claims” at our
Head Office and all branch offices to respond to encounterswith any anti-social forces or groups. We also maintain close
communications with police departments with relevant
jurisdictions, special crime prevention units and legal advisers
to ascertain the latest trends and gather other information on
anti-social forces or groups as well as for guidance,
consultation and assistance.
Also, we have prepared Responding to Telephone Calls andVisits to the Company during the Initial Phase of Claim-related
Problems as a manual, to ensure that employees makeappropriate initial responses. In this manner, we haveestablished a structure for properly responding to any demands
from anti-social groups.

(3) Audit Organization
1. Internal Auditors
Internal audits are conducted by the Internal Audit Office, which isstaffed by five employees, reports directly to the president and isindependent from other sections. Based on yearly auditing plans,
the Internal Audit Office regularly assesses and evaluates theeffectiveness and efficiency of the legal compliance and internal
control systems in every section of the parent and Group
companies. After an audit, the office communicates any problems
or areas that need improvement directly to the president andmakes the appropriate recommendations.
2. Corporate Auditors
Corporate auditors conduct audits in line with an auditing policy
and plan set by the Board of Auditors at the beginning of 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 to key
decisions and inspecting departments, facilities and Group
companies.
3. Independent Auditors
In accordance with the Corporation Law and the Financial
Instruments and Exchange Law, we receive annual audits by Ernst& Young ShinNihon. We benefit from its valuable advice as anaccounting firm, as well as from its services as an auditor of our
financial accounts.

General Shareholders’ Meeting
Appointment/Dismissal

Auditing Firm

Reports
Exchange of Opinions

Appointment/Dismissal
Appointment/Dismissal

Board of Auditors(5 members)
Cooperation

AuditsRepresentative Director

Internal Audit Office(5 members)
AuditsAuditsBoard of Directors(11 members)

AffiliatedCompanies

Audits

Guidance

Supervision
Executive Officers/
Departments

Management
Committee

Outside Legal Counsel

Corporate
Governanceand Management
Structure
Basic Corporate
Governance
Structure(As of June 24, 2009)11

Corporate Social Responsibility

The starting points of the Kyorin Group’s corporate social
responsibility (CSR) endeavors are to cherish life and contribute tosociety by contributing to better health, together with Kyorin’s
corporate branding aimed at making that philosophy a reality. For
sustainable growth, Kyorin has made a commitment to medical
workers, shareholders and customers to help bring about a happysociety and will continue to work to realize that goal by providing
trusted products and services, and by fulfilling its corporate social
responsibility in the areas of environmental and industrial safety
and hygiene and through activities that contribute to health andsociety.

Ongoing Environmental Initiatives
KYORIN Pharmaceutical is implementing the following activities.

1. Preventing global warming
The amount of fuel used is being reduced by installingcogeneration systems and using smaller boilers.
n Power consumption is being reduced by controlling airconditioning settings to 27°C in summer and 21°C in winter.
n Eco-cars and hybrid vehicles are being used to improve fuelefficiency and reduce exhaust emissions.
n

2. Reducing waste volumen

The amounts of emissions are being reduced and recycling isbeing promoted to achieve the ultimate goal of zero landfill.

9. Preventing contamination of soil and surface waternTanks are being located above ground, oil barriers installed andemergency response training implemented.

10. Noise reductionnNoise levels are being measured and responses prepared.

11. Preventing foul odorsnDraft chambers are being installed and scrubbers used toremove odors.

Measures Relating to Industrial
Safety and Hygiene
In 2004, KYORIN Pharmaceutical obtained occupational healthand safety management system certification (OHSAS 18001) forall production and research divisions, and in 2005, consolidated
its ISO 14001 and OHSAS 18001 measures. The Rimedio Centerof KYORIN Rimedio obtained ISO 14001 certification in 2008 and
OHSAS 18001 certification in 2009.

1. Rate and severity of work accidents
As a result of measures implemented to prevent work accidents,
the frequency and severity of such accidents are much lower than
the industry average. There have been no fatal accidents since
the start of operations.

2. Vehicle accidents
3. Managing chemical substancesn

Substances covered by the Pollutant Release and Transfer
Register (PRTR) law are being managed, and methods for
reducing amounts used and the use of alternatives are being
evaluated.

Despite setting a target of a year-on-year reduction of 10% in thenumber of vehicular accidents per branch, in fiscal 2008 there were
170 more accidents. Kyorin views this matter very seriously, and assuch, is implementing various accident-prevention measures. For
fiscal 2009, the Company has set per store targets that will holdaccidents on a company-wide basis to no more than 113.

4. Preventing atmospheric pollutionnMeasurement and control of the amounts of soot and smoke,
nitrogen oxides (NOx) and sulfur oxides (SOx) emitted by boilers
and generators are being carried out.

5. Preventing water pollutionnProcessing of wastewater, including by primary processing
plants, and management of pH, biochemical oxygen demand(BOD) and suspended solids (SS) levels are being carried out.

6. Preventing deforestationn

Recycling of paper, using recycled paper and promoting apaperless office environment are being carried out.

Corporate Social Responsibility
In recognition of the importance of its corporate social
responsibility, the Kyorin Group is enhancing its corporate ethicalstandards and putting in place a system of compliance in line withthe approach set out below.
uCompliance Measures
Basic Policy

8. Preventing ground subsidence

An enterprise should pursue profits through fair competition andat the same time should be a force for the greater good of society.
Based on its corporate philosophy to cherish life and contributeto society by contributing to better health, the Kyorin Group willconduct its activities based on a high standard of corporate
ethics, respecting human rights and observing all laws, as well as
standards of conduct and the spirit thereof.

Checking for ground subsidence and improved utilization of
piped water are being carried out.

Measures7. Preventing destruction of the ozone layernnReplacement of equipment that uses specified
chlorofluorocarbons is being expedited.

To ensure the Group’s activities are based on a high standard of12

corporate ethics, the Company has drawn up the Kyorin
Corporate Charter and the Kyorin Compliance Guidelines, andinstituted a compliance committee.
1. The Kyorin Corporate Charter was developed to specify
matters of corporate ethics and compliance in accordance withour corporate philosophy, and serves as the starting point forour corporate activities.
2. The Kyorin Compliance Guidelines complements the Kyorin
Corporate Charter by clarifying the standards to be followed forsound and proper business activities.
3. In March 2006, the Compliance Committee was established toprovide overall supervision of corporate ethics and compliancesystems. Each company has a compliance promotion manager
who is responsible for the understanding and instilling ofcorporate ethics and compliance.

Education and Training
In-house training courses are conducted to promote
understanding of and instill corporate ethics and compliance.
1. Compliance managers organize education and training courses
on corporate ethics and compliance, which are conducted ateach level of the organization on a company-wide basis, andinstructional activities are aimed at company officers andemployees.
2. Details relating to corporate ethics and compliance are being
incorporated into training by job function conducted by eachdivision to promote understanding and instill a sense of ethics
and awareness of compliance among employees.

Risk Management Measures
The passing of the Corporation Law in May 2006 made itnecessary to set up an internal control system.
Kyorin established a risk management committee in order toprevent risk and deal with any risks that do arise. Also, a risk
management promotion manager has been appointed at eachcompany to raise awareness relating to risk management.

Local Community Activities
Cherry blossom viewing party
The Kyorin Discovery Research Laboratories holds an annual
party for viewing the blossoms on cherry trees that are more than
40 years old. As usual, this year’s party had many participants.
The occasion was also used as an opportunity to explain Kyorin’s
environmental and occupational safety activities.

Summer evening parties
Each year, the KYORIN Pharmaceutical Development ResearchLaboratories and various plants hold summer evening parties towhich local residents are invited. These are popular events,
providing an opportunity to further promote understanding of theCompany’s activities.

Local cleanup activities
For several years, the Okaya Plant has been a “foster parent”
responsible for beautifying a section of the shore of Lake Suwa aspart of the Lake Suwa Adoption Program.
Employees also help to keep the lakeside park clean. Employeesof the Noshiro Plant participate in voluntary activities to maintainthe “Kaze-no-Matsubara,” a pine forest and recreational area thatacts as a barrier protecting the locality from winds.
In our head office, employees participate on a voluntary basis incleanup campaigns carried out twice a year by the local Chiyoda
City authorities.

Public seminars
KYORIN Pharmaceutical provides highly regarded public lecturesat its branches and offices. Currently, seminars are being
conducted relating to chronic obstructive pulmonary disease(COPD), from which increasing numbers of elderly people aresuffering. Wherever they are held across the nation, theseseminars draw large numbers of attendees who can hear advice
from experts on COPD symptoms, how to stop smoking, andother related matters.

Distribution of Doctor Salon booklets
Radio Nikkei broadcasts Doctor Salon, a program aimed at
physicians. These broadcasts have been compiled into booklets,
which KYORIN Pharmaceutical’s medical representatives
distribute during their monthly calls on doctors. A wide range of
diseases is covered, providing timely coverage of current topics,
making the booklets very popular with primary care physicians.

Supporting sporting events
The Kyorin Group supports sporting events that help to promotehealth. Starting in the fiscal year under review, the Group has also
become a co-sponsor of the Giants Academy, where members of
the Yomiuri Giants baseball club provide year-round baseballinstruction to children. We also co-sponsor the Giants’ Cup.

Employee voluntary community/health activities (Kyorin
Smile Program)
The Kyorin Group launched its corporate branding program in
March 2006. To help achieve a happy society, the aim of thecorporate branding program is to change the awareness andactions of each and every employee by promoting the Kyorin
Smile Program, a set of employee initiatives for making acontribution to society and people’s health. The activities in thisprogram include giving blood, local beautification schemes andmonetary donations.
In fiscal 2008, the Kyorin Group donated a total of ¥200,039
contributed by employees to Unicef. This money is being used forfunding a sanitation improvement project in Burkina Faso in West
Africa. The Group also collected 2.0 kilograms of used stamps,
which were donated to the Japanese Organization for International
Cooperation in Family Planning (JOICFP). The stamps will be used
to help fund White Ribbon Campaign activities aimed at protecting
the lives of mothers and babies throughout the world.

13

Directors, Auditors and Corporate Officers

Executive Director and Honorary
Advisor

Minoru Ogihara

Hiroko Ogihara

Representative Director, President
and Chief Executive Officer

Masahiro Yamashita

Executive Director

Executive Director

Executive Director

Itaru Kojo

Toshiro Takusagawa

Keiji Hirai

Senior Executive Officer,
Executive Director

Senior Executive Officer,
Executive Director

Corporate Officer,
Executive Director

Takashi Matsuda
Senior Corporate Auditors
Hiroyuki Fukashiro
Seiyu Miyashita

Corporate Auditors
Masaji Obata
Junji Honda
Yasuyuki Hirota

14

Representative Director,
Chairman

Toyozo Goho

Corporate Officers
Yoh ItoHaruki Watanabe
Takashi Nishino
Satoru Kanai(As of June 24, 2009)

Tomiharu Matsumoto

Senior Executive Officer,
Executive Director

Minoru Hogawa

Corporate Officer,
Executive Director

Mitsutomo Miyashita

Financial Review

KYORIN Co., Ltd..

CONTENTS

Overview

15

Segment Overview

18

Products under Development

20

Business Risk

21

Consolidated Balance Sheet

22

Consolidated Statements of Income

24

Consolidated Statements of Changes in Net Assets

25

Consolidated Statements of Cash Flows

26

Notes to Consolidated Financial Statements

27

Report of Independent Auditors

41(For reference: unaudited)
KYORIN Pharmaceutical Co., Ltd.
Balance Sheet

42

Statements of Income

42

Overview
Trends in Domestic Pharmaceutical Industry

Co., Ltd., and growth in generic products.

During the fiscal year ended March 31, 2009, the environment

The cost of sales ratio increased 1.3 percentage points year-

surrounding the Japanese pharmaceutical industry, which is theon-year to 40.5% primarily attributable to the decrease in lump-core business area for the Kyorin Group, became increasingly

sum income as well as a revision to drug prices, down

harsh mainly due to a reduction in standard drug prices

approximately 4% for KYORIN Pharmaceutical. Despite this,

implemented in April 2008, amounting to approximately 4% forgross profit rose ¥4,785 million to ¥54,098 million due to

KYORIN Pharmaceutical Co., Ltd. versus an industry averageincreased net sales. Operating income increased ¥2,700

of 5.2%; the strengthening of measures to contain the cost of

million, or 43.2%, to ¥8,952 million as a result of an increase of

medical treatment and the cost of pharmaceuticals; and¥2,084 million in selling, general and administrative (SG&A)

increasing complexity in new drug development. Future

expenses to ¥45,146 million and a decrease of ¥294 million inprospects have become increasingly uncertain owing in

R&D expenses. Factors contributing to the rise in SG&A

particular to the start of earnest debate concerning reforms of

expenses included costs associated with the merger with

the National Health Insurance (NHI) drug pricing system.

Nisshin Kyorin Pharmaceutical. Net income totaled ¥2,037
million, down 7.0%, due to the recording of extraordinary

Consolidated Operating Results

losses in the amount of ¥4,564 million that included loss

Despite a significant drop in lump-sum income from licensees

associated with the voluntary cessation of sales of Gatiflo, loss

as well as business transfer, consolidated net sales rose ¥9,819

on revaluation of investment securities, and loss on sales of

million to ¥90,889 million owing to favorable sales of principal

investment securities in line with the dissolution of Bistner First

products for ethical drugs in Japan, coupled with positive

Investment LPS.

effects from the merger with Nisshin Kyorin Pharmaceutical

15

Summary of Consolidated Statements of Income(Millions of yen)March 2009

March 2008

YoY change (%)

Net sales

90,88981,07012.1

Operating income

8,952

6,251

43.2

Net income

2,037

2,189

(7.0)

Net Sales(Millions of yen)
100,000

90,889

1,357
3,280
349
60,00077,09374,05480,00066,296
8,838
52,47081,070
1,054

1,133

1,248

7,296

7,273
5,734

5,088
4,334

8,575

5,762

63,29655,70557,188

5,035
3,488

1,208
7,725
6,264
3,755
71,93540,00020,000

Ethical Drug Sales in Japan
Ethical Drug Sales Overseas
Generic Drug Business
Consumer Healthcare Business
Other Businesses

0

2005

Cost of sales ratio

(％)

2006

2007

Operating income

2008/ Operating margin(％)
15(Millions of yen)
10,00050

2009

Net income

/ ROE

(％)
6

(Millions of yen)
6,000

5.6
8,989
39.7 39.2 40.5

40

34.2

12.1

8,000

35.8

8,952
5,228

8,413

10.9
8.8

6,251

9.8

6,000

30

5.0
4,842

12

4,000

4

9
5,866
7.7

4,000

20

6

2.2
2,000

2,013
2,000

10

0

16

2005 2006 2007 2008 2009

0

2.2

2.1

2,189 2,037

2

32005 2006 2007 2008 200900

2005 2006 2007 2008 20090

F I N A N C I A L

R E V I E W

Assets, Liabilities and Net Assets
Current assets increased ¥9,124 million principally due toLiabilities at year-end amounted to ¥28,051 million, an

increases in cash and cash in banks, notes and accounts

increase of ¥2,837 million, due mainly to increases in short-receivable, and short-term investments, as well as a decrease

term bank loans and accrued income taxes and a decrease in

in inventories. Fixed assets, including property, plant andnotes and accounts payable.

equipment and investments and other assets, fell ¥6,970

Net assets at year-end amounted to ¥96,501 million, amillion owing to an increase in deferred tax assets anddecrease of ¥683 million, attributable to an increase in retained

decreases in tangible and intangible fixed assets andearnings and unrealized holding loss on securities.

investment securities. As a result, total assets at year-end

As a result, the shareholders’ equity ratio was 77.5%, downstood at ¥124,552 million, up ¥2,153 million from the end of

1.9 percentage points from the end of the previous term.

the previous term.

Summary of Consolidated Balance Sheets(Millions of yen)March 2009

March 2008

YoY change

Current assets

75,14066,016

9,124

Fixed assets

49,412

56,382(6,970)Current liabilities

21,715

19,201

2,513

Long-term liabilities

6,336

6,012

323

Net assets

96,501

97,184(683)

Cash FlowsNet cash provided by operating activities totaled ¥4,575 million,

As a result, cash and cash equivalents at end of year totaled

reflecting income before income taxes of ¥4,847 million,¥12,363 million, up ¥1,224 million, and including ¥1,539 million

depreciation and amortization of ¥3,799 million, increase ingained from merger.

notes and accounts receivable of ¥5,628 million, decrease inTurning to cash flow projections for the year ending March

inventories of ¥1,649 million and income taxes paid of ¥2,497

31, 2010, with regard to net cash from investing activities, wemillion.

forecast payments for property, plant and equipment of ¥2,600

Net cash used in investing activities totaled ¥4,229 million

million primarily to expand plant facilities.

mainly due to payments for time deposits of ¥2,021 million,

With regard to net cash from financing activities, we forecast

proceeds from cancelation of time deposits of ¥2,220 million,

total cash dividends for the year of approximately ¥1,400 million

payments for purchase of property, plant and equipment of

based on a year-end dividend of ¥9.00 per share and an interim¥1,498 million, payments for purchase of investment securities

dividend of ¥10.00 per share.

of ¥4,808 million, proceeds from sales and redemption of
investment securities of ¥5,512 million and payments of merger
consideration of ¥3,511 million.
Net cash provided by financing activities totaled ¥1,184
million, largely attributable to an increase in short-term loans of¥2,475 million and cash dividends of ¥863 million.

Summary of Consolidated Statements of Cash Flows(Millions of yen)March 2009

March 2008

Cash provided by operating activities

4,575

4,444

Cash used in investing activities(4,229)(6,144)

Cash provided (used in) financing activities

1,184(1,527)

Cash and cash equivalents at end of year

12,363

9,599

17

Segment Overview
Consumer Healthcare Business

Other Businesses

8.5%

1.3%
Net sales by segment

Generic Drug Business

6.9%

0

Ethical Drug Sales
Overseas

4.1%(Millions of yen)

81,0702008

Ethical Drug Sales Overseas-579

Generic Drug Business

1,176(Year ended March 31, 2009)

Ethical Drug
79.1%
Sales in Japan

8,638

Ethical Drug Sales in Japan

Percentage ofnet sales by segment

Consumer Healthcare Business

429

Other Businesses

153
90,8892009

Ethical Drug Sales in Japan
Sales of the four principal products

Principal Products(billions of yen)

70

Kipres, a leukotriene receptor antagonist for treating
bronchial asthma and allergic rhinitis
Mucodyne, a mucoregulant
Pentasa, for treating ulcerative colitis and Crohn’s disease
Uritos, for treating overactive bladder

20.6

60

50

21.2
20.4

40

25.2

19.9
19.0

30
19.1

Kipres

Mucodyne

Pentasa

15.0

20
11.8

13.4
15.7

Mucodyne

10
6.4
0

Ketas

2006

8.0

2007

KipresPentasa

0.7 2.0
2008
2009

Uritos

UritosIn the ethical drug sales in Japan segment, we bolstered our

2008.

sales capabilities by focusing sales resources on respiratory

Sales of Uritos were up ¥1.3 billion to ¥2.0 billion as a result

medicine, otolaryngology and urology through our franchiseof steady sales expansion in line with the lifting of restrictions on

customer strategy, as well as strengthening cooperation withthe prescription period in July 2008.

the wholesale trade. Through these endeavors, segment sales

Sales declines were recorded for Mucodyne, aincreased 13.6% year-on-year to ¥71,935 million.

mucoregulant; Ketas, a bronchial asthma and cerebrovascular

Sales of our main products were steady, namely Kipres, adisorder treatment; Rocaltrol, an active form of vitamin D3; andleukotriene receptor antagonist for treating bronchial asthma

Aplace, a gastritis and gastric ulcer treatment agent. Sales ofand allergic rhinitis; Pentasa, for treating ulcerative colitis and

Gatiflo, a broad-spectrum antibacterial agent, decreased

Crohn’s disease; and Uritos, for treating an overactive bladder.

considerably since we voluntarily stopped selling this product

In October 2007, we launched Kipres 4mg fine granules andincluded the additional indication for treating allergic rhinitis in

18

2005

7.3

8.8

on September 30, 2008.
In terms of domestic development, in August 2008 we started

adults in January 2008. Sales of Kipres products were brisk as

Phase II clinical trials for KRP-108, a treatment for bronchiala result, up ¥6.1 billion to ¥25.2 billion.

asthma, for which we concluded a licensing agreement with U.

Pentasa sales increased ¥6.9 billion to ¥15.7 billion in line

K.-based SkyePharma PLC in April 2008. In October 2008, wewith the transfer of sales due to the merger of Nisshin Kyorin

launched Pentasa Tablets 500 as an additional formulation for

Pharmaceutical with KYORIN Pharmaceutical on October 1,

treating ulcerative colitis and Crohn’s disease. In December

F I N A N C I A L

R E V I E W

2008, we attained approval for an additional dosage andoptimization of the Kyorin Group’s production system in terms

administration (4,000 mg divided into two doses per day) ofof production efficiency, risk avoidance and stable supply, wePentasa for the treatment of ulcerative colitis in its active phase.

transferred manufacturing of KYORIN Pharmaceutical’s coreOn the production front, we are working to create efficient

products for which production technologies have beenand stable production systems at the Noshiro Plant in Akita

established from the Noshiro Plant to the Inami Plant ofPrefecture and Okaya Plant in Nagano Prefecture of KYORINKYORIN Rimedio. The Kyorin Group aims to create a system

Pharmaceutical and the Inami Plant in Toyama Prefecture ofthat ensures continued efficient production of high-quality

KYORIN Rimedio Co., Ltd. During the fiscal year, we shifted

products and their stable supply.

production of Pentasa, which was previously handled at the

For the year ending March 31, 2010, we expect sales

Osaka Plant of Nisshin Kyorin Pharmaceutical, to the Okaya

growth in the principal products of Kipres, Mucodyne, Pentasa

and Noshiro Plants in line with the merger with Nisshin Kyorin

and Uritos. Segment sales are forecast to increase ¥4.2 billion

Pharmaceutical on October 1, 2008. Production at the two

to ¥76.1 billion in line with efforts aimed at realizing further

plants is already underway. As part of efforts to achieve totalsynergistic effects through the merger with Nisshin Kyorin
Pharmaceutical that was executed in October 2008.

Ethical Drug Sales Overseas
Principal Products
Gatifloxacin, and ophthalmic solution Zymar

Consumer Healthcare Business
Principal Products
Milton, a disinfectant for the insides and nipples ofbaby bottles, and TRINITYLINE, a range of cosmetic
skincare products.

Sales in the ethical drug sales segment overseas amounted to

Despite a year-on-year decline in sales of non-prescription¥3,755 million, down 13.4% from the previous fiscal year. Thisdrugs at KYORIN Pharmaceutical and KYORIN Rimedio, sales

was due to a decline in royalty income from the ophthalmic

from Dr. Program Co., Ltd., which is engaged in cosmetics

solution Zymar, which we license to Allergan Inc., resulting

business that applies drug formulation technology, increased. In

mainly from currency fluctuations and a reduction in otheraddition, due to the change in the settlement date of Dr.

lump-sum income.

Program from January 31 to March 31, the company’s results

In February 2009, we concluded a basic agreement withincluded sales figures for 14 months. As a result, sales in the

Saudi Pharmaceutical Industries & Medical Applianceconsumer healthcare business amounted to ¥7,725 million, up

Corporation in Saudi Arabia for the exclusive rights to market

5.9% year-on-year. The change in the settlement date was

Uritos in 13 countries in the Middle East and North Africa.

aimed at realizing more efficient business execution by

With regard to development overseas, we concluded PhaseIIa clinical trials for KRP-104, an anti-diabetes agent, in the
United States and other countries in August 2008.
Sales in this segment for the year ending March 31, 2010changing Dr. Program’s fiscal year to the period from April 1 toMarch 31, the same as its parent company, KYORIN Co., Ltd.
Sales in this segment for the year ending March 31, 2010
are forecast to increase ¥100 million to ¥7.8 billion.

are forecast to decrease ¥1.1 billion to ¥2.7 billion in line with aprojected decrease in sales of ophthalmic solution Zymar.

Other Businesses
Kyobundo Co., Ltd. is responsible for the planning andGeneric Drug Businessproduction of sales promotion materials and advertisements.

Generic drug sales rose 23.1% year-on-year to ¥6,264 million

business foundations of the Group and endeavors to enhanceowing to a significant increase in sales, particularly at KYORIN

its performance by augmenting human resources and taking

Rimedio, due to sales transfers from Nisshin Kyorin

other steps to build a stronger organization. Kyobundo is also

Pharmaceutical and sales of supplementary items launched inmoving ahead with measures to decrease the business

July 2008.

expenses of the Group, such as by centralizing the purchasing

Sales in this segment for the year ending March 31, 2010
are forecast to increase ¥2.4 billion to ¥8.7 billion due to a full-This subsidiary devises effective strategies to reinforce theof packaging materials.
For the fiscal year ended March 31, 2009, segment sales,

year contribution from sales transferred from Nisshin Kyorin

including the planning and production of sales promotion

Pharmaceutical, an increase in sales of supplementary items

materials and advertisements and other businesses, amounted

and principal products, and the change in fiscal year end at

to ¥1,208 million, up 14.6% year-on-year.

KYORIN Rimedio from January 31 to March 31, resulting in a
14-month sales period.

Sales in this segment for the year ending March 31, 2010
are forecast to decrease ¥100 million to ¥1.1 billion.

19

Products under Development
Preclinical

Phase IKRP-107(Transplantation and autoimmune
diseases treatment)

KRP-105(Anti-dyslipidemia)(As of May 13, 2009)

Phase II

Phase IIIKRP-204 tablets(Anti-obesity)

Amorolfine hydrochloride
Nail varnish(Anti-mycotic agent)

Development in Japan
Development overseas
POC projects/Phase II – III compounds
Licensed out

KRP-204 tablets(Overactive bladder)

KRP-109(Acute lung injury (ALI))

AS-3201 tablets(Diabetic neuropathy)
KRP-101 tablets(Anti-dyslipidemia with
anti-diabetes)
KRP-104 tablets(Anti-diabetes agent)
KRP-108(Anti-asthmatic treatment)
KRP-203(Transplantation andautoimmune diseases treatment)

Ketas(Cerebrovasculardisorders)KCA-757(Anti-bronchial asthma andInterstitial cystitis agent)
Alphagan/Alphagan P(Glaucoma)

POC Projects/Phase II-III Compounds
Product Name/Code

OriginDescription

Other Comments

PEKIRON Nail lacquer

KYORIN
Anti-mycotic agent. First nail varnish formulation for nail mycosis in Japan.
Pharmaceutical

KRP-204 tablets

Co-development with Nisshin
Flour Milling
Ph II a ended
Co-development with Nisshin
Nisshin Flour
Overactive bladder agent. A highly selective 3-agonist that may relax
bladder smooth muscle and improve urine storage dysfunction by activating Flour Milling
Milling
3 receptor on bladder.
Ph II a ended
Dainippon
Diabetic neuropathy agent. Sorbitol accumulation in cells is suppressed by
Co-development with Dainippon
Sumitomo
effectively inhibiting aldose reductase, thereby improving diabetic neuropathy. Sumitomo
PharmaPh II b(9/07)
KYORIN
Anti-dyslipidemia with anti-diabetes agent. A PPAR agonist expected to have Ph II a ended
Pharmaceutical an effect on diabetes in addition to improving lipid metabolism—a benefit that
includes the reduction of neutral fats.
KYORIN
Anti-diabetes agent. A DPP inhibitor that reduces blood glucose by
Overseas Ph II a ended (8/08)
Pharmaceutical suppressing the degradation of insulin-releasing hormone. A diabetic therapy Domestic Ph II b (3/09)
with fewer expected side effects than existing treatments.
SkyePharma
Anti-asthmatic treatment. An ICS/LABA combination product, which offers
Licensing agreement with
PLC
better compliance and convenience to the patients.
SkyePharma (4/08)

KRP-204 tablets

AS-3201 tablets

KRP-101 tablets

KRP-104

KRP-108
KRP-203

KRP-105

KRP-107
KRP-109

Nisshin Flour
Milling

Anti-obesity agent. A highly selective 3-agonist that may improve obesityand have less cardiac effect in comparison with previous compounds.

KYORIN
Transplantation and autoimmune diseases treatment. An immunosuppressant Licensing agreement formed with
Pharmaceutical with a novel mechanism called an S1P-agonist. The treatment is expected to Novartis (February 2006)
have a better safety profile than previous ones as well as an excellent effectunder concomitant use with other types of immunosuppressants.
KYORIN
Anti-dyslipidemia agent. A highly selective PPAR agonist. In addition to lipid
Pharmaceutical metabolism improvement, KRP-105 increased adiponectin, reduced leptin,
and suppressed weight gain in animal models, suggesting potential to be aunique and ant-dyslipidemia agent.
Transplantation and autoimmune diseases treatment. Selective S1P1 receptor
In-houseagonistIn-house

Acute lung injury (ALI). Neutrophil elastase inhibitor with high distribution into lungs

Licensing and Joint Development
Product Name/Code20

OriginLicensing and Joint
Other Comments
Research Tie-ups
Senjyu•Licensed from Allergan (Cross-license of gatifloxacin ophthalmic solution)
Pharmaceutical •Licensed-out to Senju Pharmaceutical May 2004

Alphagan/Alphagan P

Allergan

Ketas

KYORIN
Pharmaceutical

MediciNova

KCA-757

KYORIN
Pharmaceutical

MediciNova

KRP-203

KYORIN
PharmaceuticalNovartis•KYORIN grants MediciNova an exclusive license in all countries worldwide except forJapan,China, South Korea and Taiwan to develop, manufacture and sell the compound andproducts for the multiple sclerosis indication.(10/04)*Result of Ph II was reported in April 2008.
•KYORIN grants MediciNova an exclusive license in all countries worldwide except forJapan,China, South Korea and Taiwan to develop and sell the compound and products•Interstitial cystitis : Results of Ph II/III was reported Ph II/III (Interstitial cystitis:5/05) In January
2007 and ceased development•Bronchial asthma: Clinical trial oversea was discontinued.
•An immunosuppressant with novel S1P called S1Pagonist. It may have a better safety profile
than previous ones as well as an excellent effect under concomitant use with other types of
immunosuppressants. (2/06)

B usine ss Risk

We have described below the risk factors that could affect the

restricted or, in some cases, its sale could be discontinued.

business performance or financial health of the Group. Although
the Group has taken organizational and systematic measures to(6) Slowdowns or Delays in Production

minimize risk, the outline does not include every risk or variable

Technical or regulatory problems, natural disasters andthat could affect its business.

accidents, including fires, could cause slowdowns or delays inproduction or the cessation of operations, thereby affecting the(1) Legal Regulations

Group’s performance.

Legal regulations in Japan, such as the Pharmaceutical
Affairs Law, the National Health Insurance (NHI) system,(7) Pharmaceutical Recalls

NHI drug prices and laws in other countries can affect theIf pharmaceuticals are shown to be defective due toGroup’s business. Every stage of our operations, including

contamination or other causes, they will be recalled. Such a

pharmaceutical development, production, import andsituation would adversely affect the Group’s business results.

distribution, is regulated by various approval and licensing
systems. Unforeseen substantial shifts in future healthcare(8) Intellectual Property Protection

administration policy could affect our business performance

There is a risk that the Group may become unable to protect

and financial health.

its intellectual property effectively in Japan or overseas. In
this event, third parties could exploit the Group’s technology(2) Pharmaceutical R&D

and reduce demand for its principal products and related

Ethical drug development requires substantial R&D investment

pharmaceuticals. If the Group’s other activities are deemed toover lengthy periods. Furthermore, the success rate is low

infringe on another company’s patents or threaten its intellectualfor companies seeking to discover original compounds andproperty rights, the Group may become involved in legal

bring pharmaceutical products to market. Currently, several

disputes and have to terminate some business operations.

of KYORIN Pharmaceutical’s ethical drugs are undergoingclinical trials. The clinical development of such drugs could(9) Lawsuits

be terminated as a consequence of various factors, such as

The Group could become the subject of a lawsuit for alleged

unforeseeable side effects or failure to achieve intended results.

patent infringements, violations of the Product Liability Act or
the Antimonopoly Act or as a result of environmental issues(3) Increased Competitionor labor disputes. Daiichi Sankyo Co., Ltd. has filed a patent

The pharmaceutical industry is experiencing rapid technologicalinfringement lawsuit against KYORIN Rimedio Co., Ltd.

change. Sales of the Group’s principal products could berequesting an injunction on Levofloxacin Hydrate (brand name:affected if a competitor developed and brought to market drugs

Cravit). We intend to make a thorough response to this lawsuit.

that were more useful or produced the same effects.
(10) Exchange Rate Fluctuations(4) NHI Drug Price Revisions

As the Group exports pharmaceutical products, its sales are

Japan’s NHI drug prices are usually revised every two years.

vulnerable to exchange rate fluctuations. In the year ended

When forecasting business results, the Kyorin Group does

March 31, 2009, overseas sales accounted for 5.8% of theits best to predict and factor in the effects of such changes.

Kyorin Group’s consolidated net sales.

Nevertheless, our performance could suffer as a result ofgreater-than-expected NHI drug price revisions or changes to(11) Cancellations of Tie-up Agreements

the NHI system.

KYORIN Pharmaceutical promotes strategic alliances to makeefficient use of external capital. Through tie-up agreements with

(5) Side Effects

other pharmaceutical companies, the subsidiary allocates sales

Information concerning the safety of new pharmaceuticals isrights for some of its products and collaborates in sales, R&D

based only on clinical trials using a limited number of subjects

and other activities. A cancellation of these tie-up agreements

and therefore cannot eliminate the possibility of other side

for any reason could

effects. If a drug in general use is found to have unknown
and unreported side effects after its launch, its usage may be

21Consolidated Balance Sheets

Thousands of
U.S. dollars

Millions of yen(Note 3)

2009

2008

2009

Cash and cash in banks (Notes 4 and 14)¥ 12,223¥ 10,647$ 124,394

Notes and accounts receivable (Note 5)

35,61528,995362,457

Short-term investments (Notes 4 and 6)

3,500

2,209

35,620

Merchandise and finished goods

9,454

12,067

96,214Work in process

1,429

1,033

14,543

Raw materials and supplies

7,304

6,669

74,333

Deferred tax assets (Note 15)

2,067

1,556

21,036

Other

3,680

2,935

37,452Less allowance for doubtful accounts

(134)

(99)

(1,364)75,14066,016

764,706

Land (Note 7)

1,671

1,740

17,006

Buildings and structures (Notes 7 and 14)

28,16528,567

286,637

Machinery and vehicle (Note 7)

14,023

14,581

142,713

Lease assets (Notes 7 and 12)

189

—

1,923

Construction in progress

12

2

122

6,352

6,410

64,645(33,291)(33,086)(338,805)

17,122

18,214

174,252

23,531

30,692

239,477

Long-term loans

30

57

305

Goodwill

953

998

9,699

Trademark

23

372

234

Deferred tax assets (Note 15)

5,042

3,181

51,313

Other

3,003

3,020

30,562Less allowance for doubtful accounts

(294)

(155)

(2,992)32,28938,167

328,608¥124,552¥122,398$1,267,576

AssetsCurrent assets:

Inventories:

Total current assets

Property, plant and equipment:

Other (Note 14)
Less accumulated depreciation and impairment loss (Note 7)
Property, plant and equipment, net

Investments and other assets:
Investment securities (Note 6)

Total investments and other assets
Total assets

22

KYORIN Co., Ltd. and Consolidated Subsidiaries
March 31, 2009 and 2008

Thousands of
U.S. dollars

Millions of yen(Note 3)

2009

2008

¥

8,258

¥ 10,792

4,149

1,531

42,225

59

—

600

2009

Liabilities and net assets
Current liabilities:
Notes and accounts payable (Note 5)
Short-term bank loans (Notes 8 and 14)
Lease obligations (Note 8)$

84,042

Accrued income taxes (Note 15)

963

50

9,801

Accrued bonuses to employees

2,560

2,238

26,053

Reserve for sales returns

110

54

1,119

Reserve for dismantling of fixed assets

—

84

—

Provision for point card certificates

57

51

580

Other
Total current liabilities

5,555

4,399

56,534

21,715

19,201

220,995

1,035

1,128

10,533Long-term liabilities:
Long-term debt (Notes 8 and 14)

99

—

1,008

4,330

4,346

44,067

Accrued retirement benefits for directors and corporate auditors

87

305

885

Other

783

231

7,969

6,336

6,012

64,482

Common stock, no per value:
Authorized–297,000,000 shares in2009 and 2008
Issued–74,947,628 shares in2009 and 2008
Capital surplus

700
4,752

700
4,752

7,124
48,361Retained earnings

92,31091,133

939,446

(250)

(184)

(2,544)

(852)

745

(8,671)

Lease obligations (Note 8)
Accrued retirement benefits for employees (Note 13)

Total long-term liabilities
Contingent liabilities (Note 17)

Net assets (Note 9):
Shareholders’ equity:

Treasury stock, at cost:
179,456 shares in 2009
126,369 shares in 2008
Valuation and translation adjustments:
Unrealized holding (loss) gain on securities
Translation adjustments
Total net assets
Total liabilities and net assets

(159)

37

(1,618)96,501

97,184

982,099¥124,552¥122,398$1,267,576

See accompanying notes to consolidated financial statements

23Consolidated Statements of Income
KYORIN Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2009 and 2008

Thousands of
U.S. dollars

Millions of yen(Note 3)

2008

2009

2009

Net sales¥90,889¥81,070$924,985

Cost of sales

36,791

31,757374,425

54,09849,312550,560

45,14643,061

459,455

8,952

6,251

91,105Interest and dividend income

474

415

4,824

Rent income

197

57

2,005

Interest expense

(66)

(38)

(672)

Equity in (losses) earnings of affiliates

(426)

304

(4,335)

Loss on disposal of inventories

(322)

(385)

(3,277)

—

12

—

34

(253)

346

(Loss) gain on sales of investment securities, net (Note 6)

(222)

28

(2,259)Loss on devaluation of investment securities

(819)

(285)

(8,335)

Impairment loss (Note 7)

(414)

(270)

(4,213)

Head office relocation cost

—

(117)

—

Loss on valuation of golf club memberships

—

(54)

—

Provision for dismantling of fixed assets

—

(84)

—

Gain on bad debts recovered

27

—

275

(2,641)—(26,878)

77

42

784

Other income (expenses), net(4,104)(632)(41,767)

Income before income taxes

4,847

5,619

49,328Current

2,727

2,095

27,753

Deferred

82

1,333

835

2,809

3,429

28,587¥ 2,037¥ 2,189$ 20,731

Gross profit
Selling, general and administrative expenses (Note 10)
Operating income
Other income (expenses):

Reversal of allowance for doubtful accounts
Gain (loss) on sales and disposal of property,
plant and equipment, net (Note 11)

Loss on discontinuance of sales of products
Other, net

Income taxes (Note 15)

Total income taxes
Net income
See accompanying notes to consolidated financial statements

24Consolidated Statements of Changes in Net Assets
KYORIN Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2009 and 2008

Millions of yen

Balance at March 31, 2007

Number ofshares issued(Common stock)

Commonstock

CapitalsurplusRetainedearnings

Treasurystock,
at costUnrealized
holding gain
(loss) on
securities

Translation
adjustments

74,947,628¥700¥4,752¥91,564¥ (94)¥1,199Cash dividends

—

—

—

(2,620)Net income
Purchase of treasury
stock

—

—

—

2,189

—
—

—
—

—

—

—

—

(90)

—

—

(90)

Other changes
Net changes during the
year

—

—

—

—

—

(453)

(19)

(473)

—

—

—

(430)

(90)

(453)

(19)

(994)

Balance at March 31, 2008¥

Total net
assets56¥98,178——(2,620)2,189

74,947,628

700

4,752

91,133

(184)

745

37

97,184

Cash dividends

—

—

—

(860)

Net income
Purchase of treasury
stock

—

—

—

2,037

—
—

—
—

—
—

2,037

—

—

—

(65)

—

—

(65)

Other changes
Net changes during theyear
Balance at March 31,
2009

—

—

—

—
—

—

(1,598)(196)(1,794)

—

—

—

1,177

(65)

(1,598)

(196)

(683)

74,947,628¥700¥4,752¥92,310¥(250)¥ (852)¥ (159)¥96,501(860)

Thousands of U.S. dollars (Note 3)

Commonstock

Balance at March 31, 2008

CapitalsurplusRetainedearnings

Treasurystock,
at costUnrealized
holding gain
(loss) on
securities

Translation
adjustments$

Total net
assets$7,124$48,361$927,468$(1,873)$ 7,582

Cash dividends——(8,752)

Net income
Purchase of treasury
stock

—

—

20,731

—
—

—
—

377

$989,049——

20,731

—

—

—

—

(662)

—

—

—
—

(662)

Other changes
Net changes during theyear
Balance at March 31,
2009—(16,263)(1,995)(18,258)——

11,978(662)(16,263)(1,995)(6,951)$7,124$48,361$939,446$(2,544)$(8,671)$(1,618)$982,099(8,752)

See accompanying notes to consolidated financial statements

25Consolidated Statements of Cash Flows
KYORIN Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2009 and 2008

Thousands of
U.S. dollars

Millions of yen(Note 3)

2008

2009
Operating activities
Income before income taxes
Depreciation and amortization
Impairment loss
Amortization of goodwill
Increase in allowance for doubtful accounts
Increase in accrued bonuses to employees
Decrease in accrued retirement benefits for employees(Decrease) increase in accrued retirement benefits for directors andcorporate auditors
Decrease in provision for dismantling of fixed assets
Equity in losses (earnings) of affiliates
Interest and dividend income
Interest expense(Gain) loss on sales and disposal of property, plant and equipment, net
Loss (gain) on sales of investment securities, net
Loss on devaluation of investment securities(Increase) decrease in notes and accounts receivable
Increase (decrease) in inventories
Increase in notes and accounts payable
Increase (decrease) in consumption taxes payable
Other
Subtotal¥ 4,847
3,799
414
312
174
204
(15)

¥5,619
4,536
270
251
54
107
(265)

$ 49,328
38,663
4,213
3,175
1,771
2,076
(153)

(218)

20

(2,219)

(84)
426
(474)
66
(33)
220
819
(5,628)
1,649
447
814
(1,073)
6,670

(251)
(304)
(415)
38
253
(28)
285
2,517
(5,173)
1,121
(848)
844
8,633

(855)
4,335
(4,824)
672
(336)
2,239
8,335
(57,277)
16,782
4,549
8,284(10,920)
67,881

Interest and dividend received
Interest paid
Income taxes paid
Net cash provided by operating activities

466
(63)
(2,497)
4,575

416
(37)
(4,567)
4,444

4,743
(641)
(25,412)46,560Investing activities
Payments for time deposits
Proceeds from cancelation of time deposits
Payments for purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Payments for purchase of intangible assets
Payments for purchase of investment securities
Proceeds from sales and redemption of investment securities
Payments of merger consideration
Other
Net cash used in investing activities(2,021)
2,220(1,498)187(83)(4,808)5,512(3,511)(227)(4,229)(2,026)
1,923(2,025)31(126)(9,980)
6,535
—
(476)
(6,144)(20,568)
22,593(15,245)
1,903
(845)
(48,931)
56,096(35,732)(2,310)(43,039)

2,475
(39)
—
(262)
(60)
(65)
(863)
1,184
(305)
1,224
9,599

900
—
600
(270)
(60)
(90)
(2,606)(1,527)(14)(3,242)
12,842

25,188(397)—(2,666)(611)(662)(8,783)
12,050(3,104)
12,457
97,690

31

—

315

1,507
¥12,363—¥9,59915,337$125,819

Financing activities
Increase in short-term loans, net
Repayments of lease obligations
Proceeds from long-term loans payable
Repayment for long-term loans payable
Redemption of bonds
Purchase of treasury stock, net
Cash dividends
Net cash provided by (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
Increase in cash and cash equivalents from newly consolidated
subsidiary
Increase in cash and cash equivalents resulting from merger
Cash and cash equivalents at end of year (Note 4)
See accompanying notes to consolidated financial statements

26

2009

Notes to Consolidated Financial Statements
KYORIN Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2009

Note 1
Basis of Presentation ofConsolidated Financial
Statements

The accompanying consolidated financial statements of KYORIN Co., Ltd. (the “Company”)
and its domestic subsidiaries have been prepared in accordance with accounting principles
generally accepted in Japan, which are different in certain respects as to the application anddisclosure requirements of International Financial Reporting Standards, and are compiled
from the consolidated financial statement prepared by the Company as required by the
Financial Instruments and Exchange Law of Japan.
Certain reclassifications have been made in the 2008 consolidated financial statements toconform to the 2009 presentation. These reclassifications had no effect on consolidated net
income and net assets.

Note 2
Summary of Significant
Accounting Policies(a) B asis of Consolidation and Accounting for Investments in Unconsolidated
Subsidiaries and Affiliates
The accompanying consolidated financial statements include the accounts of theCompany and significant companies controlled directly or indirectly by the Company.
Companies over which the Company exercises significant influence in terms of theiroperating and financial policies are included in the consolidated balance sheets on an
equity basis. All significant inter-company balances and transactions are eliminated inconsolidation.
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 apermanent decline in the value of such investments, the Company has written down theinvestments.
All consolidated subsidiaries close their books of account at December 31 for financial
reporting purposes except for Kyobundo Co., Ltd., KYORIN Rimedio Co., Ltd. and
Dr. Program Co., Ltd. close their books on February 28, January 31, and March 31,
respectively. Effective from the year ended March 31, 2009, Dr. Program Co., Ltd haschanged its fiscal year end to March 31 from January 31, and because of this change, it
has a transitional 14-month fiscal year for the year ended March 31, 2009.
The necessary adjustments are made to the consolidated balance sheets of all the
consolidated subsidiaries to reflect any significant transactions between their respective
fiscal year end and the Company’s fiscal year end.
Effective from the year ended March 31, 2009, the Company and its subsidiaries haveadopted the ASBJ Practical Issues Task Force (PITF) No.18 “Practical solution on
Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated
Financial Statements” issued by the ASBJ on May 17, 2006 and made necessary
adjustments in its consolidation process. The effect of the adoption on the consolidated
statement of income for the year ended March 31, 2009 was immaterial.
(b) Foreign Currency Translation
The balance sheets accounts of the foreign consolidated subsidiaries are translated into
yen at the exchange rates in effect at the balance sheet date. Translation adjustments
are presented as a component of net assets in the accompanying consolidated balance
sheets.

27

(c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, deposit with banks withdrawable
on demand, and short-term investments which are readily convertible into cash subject
to an insignificant risk of any changes in their value and which were purchased with an
original maturity of three months or less.
(d) Short-Term Investments and Investment Securities
Securities other than equity securities issued by subsidiaries and affiliates are classified
into other securities. Marketable securities classified as other securities are carried at fairvalue 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 statedat cost.
Cost of securities sold is determined by the moving average method.
(e) Inventories
Merchandise and finished goods, work in process, and raw materials and some supplies
are stated at cost determined by the gross average method. These inventories withlower profitability are written down to their net realizable value. Supplies except for
samples are stated at the last purchase price method.
Effective from the year ended March 31, 2009, the Company and its domestic
consolidated subsidiaries have adopted the “Accounting Standard for Measurement of
Inventories” (Statement No.9, issued by Accounting Standards Board of Japan on July 5,2006). Under this standard, inventories held for sale in the ordinary course of business inprinciple, shall be carried at the acquisition cost on the balance sheets. However, in thecase that the net realizable value falls below the acquisition cost at the end of the period,
inventories shall be carried at the net realizable value on the balance sheets, regarded as
decreased profitability of assets. The effect of this change on operating income and net
income before income taxes for the year ended March 31, 2009 was immaterial.
(f) Depreciation and Amortization (Except for Leased Assets)
Depreciation of property, plant and equipment is calculated by the declining-balancemethod at rates based on the estimated useful lives of the respective assets. For
buildings acquired after April 1998, the straight-line method is used. The useful lives ofproperty, plant and equipment are summarized as follows:
Buildings and structures		
3 to 50 years
Machinery, equipment and vehicles
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 is amortized by the straightline method over the useful life of five years.
Effective from the year ended March 31, 2009, the Company and its domestic
subsidiaries have reviewed and changed the useful lives of machinery and equipment
pursuant to the amendment of the Corporate Tax Law in 2008. The effect of the change
on operating income and income before income taxes for the year ended March 31,
2009 was immaterial.
(g) Leases
Leased assets are initially accounted for at their acquisition costs and depreciatedover the leased term by the straight-line method with no residual value. Finance leasetransactions that do not deem to transfer ownership of the leased property to the lessee
whose term begins on or before March 31, 2008 are still accounted for in the samemanner as operating lease transactions.

28Effective from the year ended March 31, 2009, the Company has adopted “AccountingStandard for Lease Transaction” (ASJB Statement No. 13), and “Guidance on
Accounting Standard for Lease Transaction” (ASBJ Guideline No. 16), originallyissued by the Business Accounting Deliberation Counsel on June 17, 1993 and by theJapanese Institute of Certified Public Accountants on January 18, 1994, respectively,
and both revised by the ASBJ on March 30, 2007, and finance leases were accounted
for in the same manner as sales transaction. The effect of the adoption had no impact
on operating income and income before income taxes for the year ended March 31,
2009 compared to the previous methods.
(h) Amortization of Goodwill
Goodwill is amortized over a period of within 20 years on a straight-line basis except thatwhen the excess is immaterial, it is fully charged to income as incurred.
(i) Research and Development Expenses
Research and development expenses are charged to income as incurred.
(j) Income Taxes
Deferred tax assets and liabilities are determined based on the differences between
financial reporting and the tax bases of the assets and liabilities and are measured using
the effective tax rates and laws which will be in effect when the differences are expected
to reverse.
(k) Retirement Benefits
Accrued retirement benefits for employees are provided mainly at an amount calculated
based on the projected benefit obligation and the fair value of the pension plan assets
at balance sheet dates, as adjusted for unrecognized actuarial gain or loss andunrecognized prior service cost. The retirement benefit obligation is attributed to eachperiod by the straight-line method over the estimated years of service of the eligible
employees. Actuarial gain and loss are being amortized in the following year in which
the gain or loss is recognized primarily by the straight-line method over the averageremaining years of service of the employees (10 years). Prior service cost is being
amortized as incurred by the straight-line method over the average remaining years ofservices of the employees (10 years). At certain domestic consolidated subsidiaries,¥504 million ($5,129 thousand) of unrecognized transitional assets and liabilities isamortized over 10 years.
In addition, directors and corporate auditors of certain consolidated subsidiaries arecustomarily entitled to lump-sum payments under their respective unfunded retirement
benefits plans. The provision for retirement benefits for these officers has been estimatedin an amount as 100% as benefit obligation based on their policy required underassumption that all directors and corporate auditors retired at the balance sheets date.
At the board of directors’ meeting held on May 14, 2008, the Company and its domestic
subsidiaries has determined to discontinue their accrued retirement benefits for directors
and corporate auditors, effective at the end of the ordinary general shareholders’meetings of the Company held on June 25, 2008, and of the KYORIN PharmaceuticalCo., Ltd. held on June 24, 2008. Because of this discontinuation, the Company andits domestic subsidiary, KYORIN Pharmaceutical Co., Ltd., have reversed all amountof accrued retirement benefits for directors and corporate auditors, and included theunpaid amount in “Other” in the long-term liabilities as of March 31, 2009.
(l) Appropriation of Retained Earnings
Appropriation of retained earnings with respect to a given financial period is made byresolution of the board of directors’ meeting for dividend and resolution of the ordinary
general shareholders’ meeting for other appropriations. (see Note 9).

29

Note 3
U.S. Dollar Amounts

The translation of yen amounts into U.S. dollar amounts is included solely for convenience,as a matter of arithmetic computation only, at the rate of ¥98.26 = U.S.$1.00, theapproximate rate of exchange on March 31, 2009. 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.

Note 4
Cash and
Cash Equivalents

Cash and cash equivalents at March 31, 2009 and 2008 for the consolidated statements ofcash flows consisted of the following:Thousands of
U.S. dollars

Millions of yen

Cash and cash in banks
Short-term investments
Time deposits with a maturity over threemonthsCash and cash equivalents
Note 5
Notes with Maturity Dateof Fiscal Year End

2009¥12,223
1,062

2008¥10,64773

2009$124,394
10,808(921)(1,120)(9,373)¥12,363¥ 9,599$125,819

Notes with a maturity date of the fiscal year end are settled on the clearing date. Since
KYORIN Remedio Co., Ltd. closed its book on January 31, 2009, on which financial
institutions were closed, the following notes are included in the ending balance on the
consolidated balance sheets as of March 31, 2009.
Thousands of
U.S. dollars

Millions of yen

Notes receivable
Notes payable
Note 6
Short-Term Investments
and Investment Securities

¥91
149

$926
1,516

Information regarding marketable securities classified as other securities as of March 31,
2009 and 2008 are as follows:
Marketable other securities
Millions of yen

Thousands of U.S. dollars

2009
Securities whosecarrying value
exceeds theiracquisition cost:
Stock
Debt securities:G overnment
bonds
Corporate bonds
Other bonds
Other
Subtotal
Securities whosecarrying value donot exceed theiracquisition cost :StockDebt securities:G overnment
bonds
Corporate bonds
Other bonds
Other
Subtotal
Total

30

2009

Acquisition
cost

Carrying
value

Unrealized
gain (loss)

Acquisition
cost

¥

603

¥ 1,165

¥

$

199

199

0

2,025

2,025

0

2,695
—
—
3,498

2,716
—
—
4,081

20
—
—
583

27,427——35,59927,641——
41,533

204
—
—
5,933

2,139

1,868

(271)

21,76919,011(2,758)

4,797

4,607

(190)

48,81946,886(1,984)

14,783
2,100
96
23,917¥27,416

13,532
1,825
51
21,884¥25,966(1,250)(274)(45)(2,032)¥(1,449)

562

Carrying value

Unrealized
gain (loss)

6,137 $ 11,856 $

5,720

150,448 137,716 (12,721)
21,372
18,573(2,789)
977
519
(458)
243,405 222,715 (20,680)$279,015 $264,258 $(14,747)

Millions of yen

2008
Securities whosecarrying value
exceeds theiracquisition cost:
Stock
Debt securities:G overnment
bonds
Corporate bonds
Other bonds
Other
Subtotal
Securities whosecarrying value donot exceed theiracquisition cost :StockDebt securities:G overnment
bonds
Corporate bonds
Other bonds
Other
Subtotal
Total

Acquisition
cost

Carrying
value

Unrealized
gain (loss)¥ 1,441¥ 3,403¥1,961

—

—

—

6,674
—
—
8,116

6,724
—
—
10,127

49
—
—
2,011

1,586

1,497

(88)

3,997

3,806

(191)

10,4852,100
101
18,271¥26,387

10,0461,927
81
17,359¥27,486

(439)
(172)
(19)
(911)
¥1,099

Sales amounts of securities classified as other securities and the related aggregate gain andloss for the years ended March 31, 2009 and 2008 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Proceeds from sales
Gains on sales
Losses on sales

2008¥4,24030
2

2009¥2,77572
293

2009$28,241733
2,982

The redemption schedule for securities with maturities classified as other securities as ofMarch 31, 2009 and 2008 are as follows:
Millions of yen

2009
Due inone yearor less

Government bonds
Corporate bonds
Other bonds
Total¥1,0002,300
200¥3,500Due after
one yearthroughfive years

Due after
five years
throughten years¥—
10,200500¥10,700

¥

—
1,600
—
¥1,600Due after
ten years¥4,0003,700
1,200¥8,900Millions of yen

2008

Government bonds
Corporate bonds
Other bonds
Total

Due inone yearor less

Due after
one yearthroughfive years

Due after
five years
throughten years

¥

¥

¥

—
2,140
—
¥2,140—9,200
700¥9,900—1,600—¥1,600Due after
ten years¥4,0004,400
1,400¥9,80031

Thousands of U.S. dollars

2009
Due inone yearor less

Government bonds
Corporate bonds
Other bonds
Total

Due after
one yearthroughfive years

Due after
five years
throughten years$10,177 $—
23,407 103,806
2,035
5,089
$35,620 $108,895$—
16,283—$16,283

Due after
ten years$40,708
37,655
12,212$90,576

Non-marketable securities classified as other securities consisted of unlisted securitiesof ¥362 million ($3,684 thousand) and other securities of ¥303 million ($3,084 thousand)at March 31, 2009, and unlisted securities of ¥1,704 million and other securities of ¥465
million at March 31, 2008.
Note 7
Impairment Loss

The Company and its consolidated subsidiaries recognized a loss on impairment of longlived assets for the years ended March 31, 2009 and 2008 as follows:
2009
Location

Former Nara Office
Kashihara City,
Nara Prefecture
Chiyoda-ku,Tokyo
Total

Use

Type of assets

Millions of yen

Thousands of
U.S. dollars$

Idle properties

Land
Buildings¥

3
17

Business use

Leased assets

393
¥414

Type of assets

Millions of yen

31
173

4,000
$4,2132008
Location

Okaya Plant
Okaya City,
Nagano Prefecture
Noshiro Plant
Noshiro City,
Akita Prefecture
Total

Use

Idle properties

Buildings andmachinery

Idle properties

Machinery

¥145

125
¥270

The Company and its consolidated subsidiaries identify groups of assets based on the
managerial accounting categories except for idle asset, which is grouped individually.
Since the former Nara Office of KYORIN Rimedio Co., Ltd. has been idle, its book value
was written down to its recoverable amount and this decrease in value is included in otherexpenses as impairment loss. The recoverable amounts are estimated based on the net
sales prices; the land is valuated by road rating, and the buildings are estimated to zero due
to its decrepitude. The book value of the leased assets of Japan Medical Advance Co., Ltd.
was written down to its recoverable value as it fell below the book value due to deteriorationof the assets in terms of profitability. This decrease in value is included in other expenses
as impairment loss. The recoverable amount of the leased assets is estimated based on its
utility value with a discount rate of 6.7%.

32

Note 8
Short-Term Bank Loans,Long-Term Debt andLease Obligations

At March 31, 2009 and 2008, short-term bank loans and the current portion of long-term
debt and lease obligations consisted of the following:Thousands of
U.S. dollars

Millions of yen

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

2009
¥3,8442008¥1,320

2009$39,121

305

211

3,104

59
¥4,208—¥1,531600$42,825

The average interest rates applicable to short-term bank loans outstanding at March 31,
2009 and 2008 are 1.1% and 1.2%, respectively.
Long-term debt at March 31, 2009 and 2008 comprised the following:Thousands of
U.S. dollars

Millions of yen

2008

2009
Long-term bank loans due through 2014 ataverage interest rate of 2.1% and 1.8% in2009 and 2008, respectively
Lease obligations due through 2014
1.4% unsecured bonds, payable in yen,due 2011
Current portion of long-term bank loans
and lease obligations, and bonds due
within one year
Total

2009

¥1,250¥ 978$12,721

158

—

1,608

150

210

1,527

(424)

(60)

(4,315)¥1,134¥1,128$11,541

The annual maturities of long-term debt and lease obligations are summarized as follows:Year ending March 31

2010
2011
2012
2013
2014 and thereafter
Total
Note 9
Shareholders’ Equity

Millions of yen

¥ 424
440
322
172
200
¥1,558

Thousands of
U.S. dollars$ 4,315
4,478
3,277
1,750
2,035
$15,856

Since May 1, 2006, Japanese companies have been subject to the Corporate Law of Japan(the Corporate Law”). The significant provisions in the Corporate Law that affect financial
and accounting matters are summarized below;(a) Dividends
Under the Corporate Law, companies can pay dividends at any time during the fiscal
year in addition to the year-end dividend upon resolution at the shareholders meeting.
The board of directors may declare dividends (except for dividends in kind) if thecompany has prescribed so in its articles of incorporation for companies that meetcertain criteria such as;(1) having the board of directors,(2) having independent auditors,(3) having the 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 Corporate Law permits companies to distribute dividends-in-kind (non-cash assets)33

to shareholders subject to a certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the
Board of Directors if the articles of incorporation of the company so stipulate. The
Corporate Law also provides certain limitations on the amounts available for dividends
or the purchase of treasury stock. The limitation is defined as the amount available for
distribution to the shareholders, but the amount of net assets after dividends must be
maintained at no less than ¥3 million.
(b) Increases / decreases and transfer of common stock, reserve and surplus
The Corporate Law requires that an amount equal to 10% of dividends must be
appropriated as a legal reserve (a component of retained earnings) or as additional paidin 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 Corporate
Law, the total amount of additional paid-in capital and legal reserve may be reversed
without limitation. The Corporate Law also provides that common stock, legal reserve,
additional paid-in capital, other capital surplus and retained earnings can be transferredamong the accounts under certain conditions upon resolution of the shareholders.
(c) Treasury stock and Stock option
The Corporate Law also provides for companies to purchase treasury stock anddispose of such treasury stock by resolution of the board of directors. The amount oftreasury stock purchased cannot exceed the amount available for distribution to theshareholders, which is determined by specific formula. Under the Corporate Law, stockacquisition rights, which were previously presented as a liability, are now presented asa separate component of net assets. The Corporate Law also provides that companies
can purchase both treasury stock acquisition rights and treasury stock. Such treasury
stock acquisition rights are presented as a separate component of net assets or
deducted directly from stock acquisition rights.
Note 10
Research andDevelopment Expenses

Research and development expenses, all of which were included in selling, general andadministrative expenses amounted to ¥10,531 million ($107,175 thousand) for the year
ended March 31, 2009 and ¥10,826 million for the year ended March 31, 2008.

Note 11
Gain (Loss) on Sales andDisposal of Property,
Plant and Equipment, Net

Significant components of the gain (loss) on sales and disposal of property, plant andequipment, net for the year ended March 31, 2009 and 2008 were as follows:

2009
Gain:
Buildings and structures
Machinery and vehicle
Land
Other

Loss:
Buildings and structures
Machinery and vehicle
Other
Total

34

Thousands of
U.S. dollars

Millions of yen

2008
¥

2009

¥ 33
2
69
1
¥ 105

¥

—
0
0
0
0

$ 336
20
702
10
$1,069¥ (47)
(11)
(13)
(71)
¥ 34

¥(202)
(21)
(30)
(253)
¥(253)$ (478)
(112)
(132)
(723)
$ 346

Note 12
LeasesLeased assets principally consist of medical computer terminals (machinery and vehicle) for
medical use.
Pro forma information of the leased property whose term begins on or before March 31,
2008 such as acquisition cost, accumulated depreciation, obligations under finance leases,
depreciation expense for finance leases that do not transfer ownership of the leased
property to the lessee on an “as if capitalized” basis for the years ended March 31, 2009
and 2008 was as follows:
Millions of yen
March 31, 2009
Acquisition costs

Machinery and vehicle
Other
Total

¥1,383703¥2,086

Machinery and vehicle
Other
Total

$14,075
7,154$21,229

Accumulated
depreciation

¥537
408
¥946

Accumulated
impairment loss

Net book value

¥393
—
¥393

¥451
294
¥746

Thousands of U.S. dollars$5,465
4,152$9,617$4,000—$4,000$4,5902,992$7,582Millions of yen
March 31, 2008
Acquisition costs

Machinery and vehicle
Other
Total

Accumulated
depreciation

¥ 317
790
¥1,108

¥240
349
¥590

Net book value

¥ 76
441
¥518

Lease payments relating to finance leases accounted for as rental transactions amounted to¥348 million ($3,542 thousand), which was equal to the depreciation expense of the leased
assets computed by the straight-line method over the lease terms assuming no residual
value, and related impairment losses amounted to ¥393 million ($4,000 thousand) for theyear ended March 31, 2009.
Future minimum lease payments (including the interest portion thereon) subsequent toMarch 31, 2009 on noncancelable operating leases and finance leases accounted for as
rental transactions are summarized as follows:Year ending March 31,

20102011 and thereafter
Total
Accumulated impairment loss

Millions of yen
Operating
Finance leases
leases¥ 307
832¥1,140
¥ 393

¥ 529
1,512
¥2,041¥ —Thousands of U.S. dollars
Operating
Finance leases
leases$ 3,124
8,467$11,602$ 4,000$ 5,384
15,388$20,771$—35

Note 13Retirement 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 certainof its domestic consolidated subsidiaries have lump-sum retirement plan, Government
Welfare Pension Fund Plan, and tax qualified pension plans.
The following table sets forth the funded and accrued status of the plans, and the amounts
recognized in the consolidated balance sheets at March 31, 2009 and 2008 for theCompany’s and the consolidated subsidiaries’ defined benefit plans:
Thousands of
U.S. dollars

Millions of yen

Projected benefit obligation
Plan assets at fair value
Unfunded retirement benefit obligation
Unrecognized transitional assets andliabilities
Unrecognized actuarial gain or loss
Unrecognized prior service cost
Net retirement benefit obligation
Prepaid pension costAccrued retirement benefits for employees

2009¥(25,851)
17,207(8,643)

2008¥(25,088)
20,422(4,665)

2009$(263,088)
175,117(87,961)

67

117

682

4,408
(162)
(4,330)—¥ (4,330)

392
(191)
(4,346)—¥ (4,346)

44,861(1,649)(44,067)—$ (44,067)

The components of retirement benefit expenses for the years ended March 31, 2009 and2008 are outlined as follows:
Thousands of
U.S. dollars

Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization of transitional assets andliabilities
Amortization of actuarial gain or loss
Amortization of prior service cost
Premium of defined contribution pension
plan and annuity in advance retirement
severance plan, etc.
Total

2009
¥ 810
636
(506)

2008
¥ 752
602
(544)

2009
$ 8,243
6,473(5,150)

50

50

509

220
(28)

(2)
(28)

2,239
(285)

270

236

2,748

¥1,451¥1,065$14,767

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

Discount rates
Expected return on plan assets

36

2009
2.5%
2.5%

2008
2.5%
2.5%

Note 14
Pledged Assets

Assets pledged as collateral for guaranty deposits and plant mortgage at March 31, 2009
and 2008 were as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2009
Assets pledged as collateral:
For guaranty deposits
Cash and cash in banks
Total
For plant mortgage
Buildings
Other
Total
Related loans and debt for plant mortgage
pledged as collateral
Short -term bank loans
Long-term bank loans
Total
Note 15
Income Taxes

¥
¥

10
10

¥
¥

2009

10
10

$
$

102
102

¥2,044473¥2,518¥2,174587¥2,761$20,802
4,814$25,626

¥ 143
234
¥ 378

¥ 151
378
¥ 530

$ 1,455
2,381$ 3,847

The significant components of deferred tax assets and liabilities as of March 31, 2009 and2008 were as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2009
Deferred tax assets:
Accrued retirement benefits for
employees
Accrued bonuses to employees
Allowance for doubtful accounts
Accrued enterprise tax
Loss on disposal of inventories
Loss on devaluation of investment
securities
Loss on disposal of property, plant andequipment
Impairment loss
Asset adjustment accountDepreciation and amortization
Accrued retirement benefits for directors
and corporate auditors
Additional reserve for dismantling of fixed
assetsTax loss carry forward
Unrealized holding loss on securities
Other
Subtotal
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Reserve for special depreciation
One time revaluation for property, plantand equipment
Unrealized holding gain on securities
Other
Total deferred tax liabilities
Net deferred tax assets

2009¥1,781¥1,526$18,125

1,035
174
132
200

895
–
17
41

10,533
1,771
1,343
2,035

713

681

7,256

1,101

1,113

11,205

224
966
–

–
–
132

2,280
9,831
–

–

387

–

–

34

–

859
604
1,058
8,853
(1,622)
7,231

646
–
791
6,267
(903)
5,364

8,742
6,147
10,76790,098(16,507)73,590

–

(16)

–

(101)

(104)

(1,028)

–
(19)
(121)
¥7,109

(489)
(15)
(625)
¥4,738–(193)(1,231)$72,349

37

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, 2009 and 2008
were as follows:
2009
41.3%

2008
41.3%

Entertainment expenses and others that are not tax
deductible permanently

10.4

9.7

Inhabitants’ per capita taxes
Tax credits for research and development expenses
Valuation allowance
Equity in earnings of affiliates
Amortization of goodwill
Other
Effective tax rate

1.6
(8.6)
14.8
–
–
(1.5)
58.0%

1.3
(5.8)
16.1
(2.7)
1.9
(0.8)
61.0%

Statutory tax rate

Note 16
Segment Information(1) Business Segments
Information regarding business segments is omitted in the consolidated financial statements
for the years ended March 31, 2009 and 2008, because sales, operating income, and total
assets in the pharmaceutical segment are more than 90% in all business segment for theyears ended March 31, 2009 and 2008.
(2) Geographical Segments
Information regarding geographical areas is omitted for the years ended March 31, 2009
and 2008, because sales and total assets of Japanese area are more than 90% in all
geographical areas for the years ended March 31, 2009 and 2008.
(3) Overseas Sales
Information regarding overseas sales is omitted for the years ended March 31, 2009 and2008, because overseas sales is less than 10% in all consolidated net sales for the years
ended March 31, 2009 and 2008.

Note 17
Contingent Liabilities

Contingent liabilities as of March 31, 2009 and 2008 were as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2009
Guarantors of indebtedness of employees
Guarantors of lease obligations of Japan
Medical Advance Co., Ltd.,
Guarantors of indebtedness of Japan
Medical Advance Co., Ltd.
Notes receivable endorsed
Note 18
Combination of Business

¥10

¥5

2009
$102

—

1,269

—

—

91

—

12

14

122

KYORIN Pharmaceutical Co., Ltd., a wholly owned subsidiary of the Company, merged
Nisshin Kyorin Pharmaceutical Co., Ltd., an affiliate company of the Company, on October 1,
2008, and this transaction was accounted for using the purchasing method.
(1) Details of the merged company(a) Company name and description of businessCompany Name: KYORIN Pharmaceutical Co., Ltd.
Business: Manufacture, sale, and entrusted research and development ofpharmaceutical products(b) Purpose of the merger
In the long run, the Company concluded that it was the best option to enhance38the corporate value by not causing Nisshin Kyorin Phermaceutical Co., Ltd tosolely operate the pharmaceutical business but by integrating Nisshin Kyorin
Pharmaceutical Co., Ltd into KYORIN Pharmaceutical Co., Ltd., throughreinforcements of the capacities of the research and development and the sales
force of ethical drugs.
(c) Effective date
October 1, 2008(d) Type of the merger and trade name
Type: Merger
Trade name: KYORIN Pharmaceutical Co., Ltd.
(e) Acquired voting rights
100%(2) Period of the merged company included in the consolidated income statement
Business result of operation of the merged company from October 1, 2008 to March 31,
2009 was included in the consolidated statement of income for the year ended March
31, 2009. For the period from April 1, 2008 to September 30, 2008, the Company
accounted for by the equity method and recognized equity in losses of affiliates (with
50% of voting rights) in the consolidated statement of income.
(3) Acquisition cost(a) Merger consideration
The merger consideration is paid in cash without issuing new shares of the merged
company of allocating own shares. The amount of the merger consideration was¥3,511 million ($35,732 thousand).
(b) Calculation of merger consideration
The amount of the merger consideration was calculated with consideration of thecurrent net assets including the future value based on the merged company’sbalance sheets as of the end of June 2008.
(4) Goodwill(a) Amount of goodwill¥642 million ($6,534 thousand)(b) Reason for goodwill incurred
Goodwill was incurred because of future excess earning power.
(c) Method and period of amortization
Goodwill is amortized on the straight-line method over 5 years.
(5) The assets and liabilities transferred to the merging company
Millions of yen

Thousands of
U.S. dollars

Current assets
Noncurrent assets
Total assets¥5,729360
6,090$58,304
3,664
61,978Current liabilities
Total liabilities

2,359¥2,35924,008$24,008(6) Effect of the merger on the consolidated statement of income
Information regarding the merger effect on the consolidated statement of income isomitted, as the effect of the merger, assuming that the merger was completed at the
beginning of this fiscal year, was immaterial for the year ended March 31, 2009.

39

Note 19
Amounts Per Share

Amount per share for the years ended March 31, 2009 and 2008 were as follows:
Yen

Basic net income
Cash dividends
Net assets

2009¥27.2413.00
1,290.67

U.S. dollars

2008¥29.2622.50
1,298.89

2009
$0.28
0.13
13.14

Basic net income per share was computed based on the net income available for
distribution to shareholders of common stock and the weighted average number of sharesof common stock outstanding during the year. Diluted net income per share has been
omitted because no potentially dilutive instruments were outstanding during the years
ended March 31, 2009 and 2008.
Cash dividends per share represent the cash dividends as applicable to the year.
The amount per share of net assets is computed based on the net assets available for
distribution to the shareholders of common stock and the number of shares of common
stock outstanding at the year end.
Note 20Subsequent Events

The following appropriations of retained earnings, which have not been reflected in theaccompanying consolidated financial statements for the year ended March 31, 2009, wereapproved at the board of directors’ meeting held on May 26, 2009:
Millions of yen

Cash dividends (¥ 9.0= U.S. 0.09$ per share)

40

¥672

Thousands of
U.S. dollars$6,839

Report of Independent Auditors

41

For reference : Unaudited

NON-CONSOLIDATED FINANCIAL SUMMARY
Non-consolidated Blance Sheet
KYORIN Pharmaceutical Co., Ltd.
Years Ended March 31, 2009 and 2008

(Millions of yen)

2008

2009

Assets
57,04464,822

Cash, deposits

7,755

8,615

Accounts receivable

25,89532,018Market securities

2,007

3,437

Inventory

17,156

15,684

Other

4,229

5,066

Fixed assets

47,866

43,69914,771

13,789Current assets

Tangible assets
Intangible assets

1,450

486

Investments

31,64429,423104,910

108,522

Total Assets

Liabilities and equity
13,824

14,593

Notes and accounts payable

7,968

5,423

Other

Current liabilities

5,855

9,170

Non-current liabilities

4,293

5,457

Total liabilities
Net assets

18,11820,051

Shareholders’ equity

86,14089,328651(857)

Net unrealized gain and translation adjustments

Total equity
Total liabilities and equity

86,792

88,470104,910

108,522

Non-consolidated Statements of Income(Millions of yen)

Sales
Cost of Sales
Gross profit
Selling , general and administrative expenses
Operating income
Non operating income
Non operating expense
Recurring income
Extraordinary gain
Extraordinary loss
Income before income taxes and minority interests
Corporate,inhabitants and enterprise taxes
Deferred income taxes
Net income

42

2008

2009

70,48025,21745,26238,319
6,942
676
289
7,328
15
530
6,813
1,980
1,056
3,776

77,962
29,551
48,411
39,894
8,517
998
52
9,463
176
2,823
6,816
2,617
157
4,041

Org a niza tion Chart(As of April 1, 2009)

General Shareholders
Meeting
Board of Corporate
Auditors
Corporate Auditor
Board of Directors

Management Planning
Corporate Strategic
Planning Division
Strategic Business Alliance

Representative Director,
Chairman
Legal
Representative Director,
President andChief Executive Officer

Management Meeting

Intellectual Property &Legal Division
Intellectual Property

Business Development

General Affairs

Human Resources

Finance & Accounting
Information System
Managementt
Auditing43

Co r p o r a te I n formation

KYORIN Co., Ltd.

(As of March 31, 2009)

Head Office
5, Kanda Surugadai 2-chome, Chiyoda-ku, Tokyo 101-8311
Phone: +81-3-3293-3451
URL: http://www.kyorin-gr.co.jp/eg/index.html

Establishment

1958

Common Stock¥700 million

Outstanding Shares

74,947,628

Shareholders

4,887

Major Shareholders
Minoru Ogihara

8.57%

Hiroko Ogihara

6.86%

Apricot Co., Ltd.

6.67%

Japan Trustee Services Bank, Ltd. (Trust Account)

4.88%

Ikuo Ogihara

4.02%

Yoshiko Ogihara

3.90%

Mykam Co., Ltd.

3.66%

The Master Trust Bank of Japan, Ltd. (Trust Account)

3.69%

Japan Trustee Services Bank, Ltd. (Trust Account 4G)

3.42%

Keiko Sakurai

2.48%

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

44

Consolidated Subsidiaries(As of July 2009)

KYORIN Pharmaceutical Co., Ltd.

Capital:¥4,317 million
Percentage of ownership: 100%
Head office:5, Kanda Surugadai 2-chome, Chiyoda-ku, Tokyo 101-8311
Operations:
Manufacture and sales of prescription medicines		and quasi-drugs, diagnostics, and industrial chemicals

Kyobundo Co., Ltd.

Capital:¥12 million
Percentage of ownership: 100%
Head office:Kyorin Nishi-Shinjuku Building, 25-13, Nishi-Shinjuku 6-chome, Shinjuku-ku,
		Tokyo 160-0023
Operations:
Sales promotion, advertising planning and production

KYORIN Rimedio Co., Ltd.

Capital:¥1,200 million
Percentage of ownership: 100%
Head office:287-1, Shimocho Moroe-cho, Kanazawa City, Ishikawa Prefecture 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:3rd Floor, 4-40, Minami-Aoyama 5-chome, Minato-ku, Tokyo 107-0062
Operations:
Production and sales of skincare products, pharmaceuticals and cosmetic materials

KYORIN Pharmaceutical Subsidiaries(As of July 2009)

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

Kyorin USA, Inc.

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

Kyorin Europe GmbH

Capital:50,000EURO
Percentage of ownership: 100%
Head office:Kaiserstrasse 8, 60311 Frankfurt am Main, Germany
Operations:
Research and analysis of other companies’ technologies
		and collection of information concerning clinical trials

Equity-Method Affiliates(As of July 2009)

Nippon Rika Co., Ltd.

Capital:¥411 million
Percentage of ownership: 29.2%
Head office:2-2, Nihonbashi Honcho 4-chome, Chuo-ku, Tokyo 103-0023
Operations:
Production and sales of pharmaceuticals, reagents, intermediates and other products45