Annual Report
Year ended 31 December 2022

23 March 2023 | Sosei Group Corporation
23 March 2023 | Sosei Group Corporation

About Sosei Heptares

Sosei Heptares’ mission is to make life­changing medicines using
world­leading science and our vision is to become one of Japan’s
global biopharmaceutical champions.
We are a science and technology­led company focused on the
discovery and early development of new medicines originating fromour proprietary GPCR­targeted StaR® technology and structure­
based drug design platform. We are advancing a broad anddeep pipeline of novel medicines across multiple therapeuticareas, including neurology, immunology, gastroenterology, andinflammatory diseases.
We have established partnerships with some of the world’s leading
biopharmaceutical companies and multiple emerging technology
companies, including AbbVie, AstraZeneca, Genentech (Roche), GSK,
Kallyope, Lilly, Neurocrine Biosciences, Novartis, Pfizer, Sanofi,
Takeda and Verily.
Sosei Heptares is headquartered in Tokyo, Japan with corporate andR&D facilities in Cambridge, UK.
“Sosei Heptares” is the corporate brand and trademark of Sosei
Group Corporation, which is listed on the Tokyo Stock Exchange(ticker: 4565).

Letter from the Chief Executive Oﬃcer

Dear Stakeholders,2022 was a very important and successful year for Sosei Heptares during
which our newly appointed leadership team set about implementing aclear and evolved strategy to accelerate the growth and development of
the Company, both internationally and in Japan, and to maximise potential
future value creation.

CHRIS CARGILL
Representative ExecutiveOﬃcer, President & CEO
Sosei Group Corporation

Our strategy is based on four key pillars:

1

2

3

4

Enhancing
Our Platform

Partnering
Progress

Transforming
R&D

Commercializing
Products inJapan

to extend and enhance
the competitive
advantages of our in­house GPCR­focusedstructure­based drug
design (SBDD) anddiscovery platform
through internalinnovation andcollaboration

to drive forward existing
partnerships with global
biopharma companies
and initiate new high­value partnerships toensure the continued
flow of revenues

to transform how we do
R&D through a more
focused, program­centric
operational model thatleverages enhanced
translational medicine
capabilities to improve
productivity, value andsuccess

to build out an agile,scalable and eﬀective
clinical development andcommercialization
business in Japan todeliver new medicines
to patients inthis market

The progress we made in 2022 was exceptional and we enter 2023 with a clear vision to build a disruptive commercial­stage biopharmaceutical company making a diﬀerence for patients worldwide. We are well positioned and well financed
to progress our strategy across all areas of focus to achieve this goal.
We believe this position is further supported by the Company’s recent change of TSE listing to the Prime Market segment.
We expect this move will help us achieve our vision by improving our ability to attract a broad institutional shareholder
base providing long­term support to the Company and its strategy.

SOSEI GROUP CORPORATION - ANNUAL REPORT YEAR ENDED 31 DECEMBER 2022

III

Enhancing Our Platform
We have established an innovative and highly productive StaR® and SBDD technology platform, focused
predominantly on the important G protein­coupled receptor (GPCR) class of proteins. GPCRs represent thelargest single class of targets for drug discovery across a wide range of therapeutic areas.
Our capabilities and leadership in this area are recognizedacross the industry and have enabled the generation of asignificant number of novel drug candidates and programs,
which are currently being advanced by our global biopharma
partners and internally.
This unique platform provides us with unprecedented accessto GPCRs as sources of new targets and candidates tocontinuously feed our rich pipeline. The aim of our firststrategic priority is to ensure we both retain our competitive
advantage in this space and maximize the drug discovery
opportunities our technology has the potential to deliver.

IV

We are focused on doing this through continual internalinnovation alongside collaboration with global technology
leaders from industry and academia. We added several suchcollaborations in 2022 focused on improving our ability toselect the ‘right’ targets, including with Verily, the Alphabet­owned precision health company, and Kallyope, pioneers inthe science of the gut­brain axis, and through R&D
agreements with leading research groups at the University of
Oxford and KU Leuven.

SOSEI GROUP CORPORATION - ANNUAL REPORT YEAR ENDED 31 DECEMBER 2022

Partnering Progress
Pre-Start / Discovery

Preclinical

Phase 1PARTNERED

Mul琀pleMul琀pleGI

Inﬂammatory Diabetes
Neurology Metabolic

Ongoing technology collabs.

Phase 3Marketed

SELECTED ACTIVE PIPELINE PROGRAMS

15+ PROGRAMSPrevious and ongoing discovery collabs.

Phase 2

M1M4 ag. NBI’570

CCR6 ant. PF’894

M4 ag. NBI’568

Ul琀bro® Breezhaler®

Neurology

IBD

Schizophrenia

COPD

M1 ag.

MC4 ant. PF’669

GLP-1 ag. PF’532

Seebri® Breezhaler®

Neurology

Anorexia

T2DM/Obesity

COPD

GPR35 ag.

mGlu5 NAM TMP-301

Enerzair® Breezhaler®

IBD

Substance abuse

AsthmaCXCR4 mAb KY1051

Oravi®

Immuno-oncology

Mouth candidiasis

Progressed in FY2022

Partnering with global biopharmaceutical companies around
specific candidates/programs that we have developed or forthe discovery and development of candidates against
partner­nominated targets has long been a successful
strategy that we have employed. Our partnered pipeline
currently includes over 15 programs being progressedin discovery stage, seven programs in preclinical and Phase
1 and two programs in Phase 2.

Our second strategic priority is to support our existing
partnerships as well as to initiate new high­value
collaborations to drive this continued revenue flow. During2022, we saw further substantial progress in these areas,
with over US$125 million in milestone payments frompartners resulting from progress with Neurocrine, Pfizer,
AbbVie, Genentech and Takeda, and upfront payments fromnew agreements signed with AbbVie and Lilly.

Our success here provides significant industry validation for
our approach and has generated nearly USD1 billion inrevenues to date from upfront and milestone paymentsfrom our partners, with the potential for significant ongoingrevenues as further milestones are reached.

We are particularly excited by the clinical progress made by
Neurocrine and Pfizer in 2022.

Neurocrine advanced NBI­1117568 (an investigational, selective muscarinic M4 receptor
agonist, formerly HTL­0016878) into Phase 2 trials for the treatment of adults withschizophrenia, triggering a US$30 million payment. In addition, Neurocrine stated its
expectation that it would initiate Phase 1 studies in 2023 of NBI­1117570, a dual M1/M4
agonist, and of a selective M1 agonist, for neurological diseases.
It is important to note that Sosei Heptares retains rights to develop all M1 agonists
advancing under this productive collaboration in Japan in all indications.
Pfizer dosed the first subject in a Phase 2 trial with PF­07081532 (lotiglipron), a potentiallybest­in­class, once­daily, oral small molecule GLP­1 receptor agonist in development for
the treatment of Type 2 diabetes and obesity, triggering a US$10 million payment. PF­
07081532 is one of three clinical candidates nominated by Pfizer during its collaboration
with Sosei Heptares, all of which are progressing in clinical trials: PF­07054894, a CCR6
antagonist targeting Inflammatory Bowel Disease and PF­07258669, an MC4 antagonist
targeting Anorexia are both in Phase 1.

The new deals signed in 2022 were both multi­target collaborations: with AbbVie
in neurological diseases worth up to US$1.2 billion plus royalties, which also
adds to an existing agreement in inflammatory and autoimmune diseases; andwith Lilly targeting diabetes and metabolic diseases worth up to US$730 million
plus royalties.

SOSEI GROUP CORPORATION - ANNUAL REPORT YEAR ENDED 31 DECEMBER 2022

V

Transforming R&D
Building on the first two priorities, we are highly focusedon driving the Company through its next phase of evolution
by building an agile, best­in­class drug discovery anddevelopment organization.
During 2022, we have been working with Weatherden, aspecialist R&D consultancy, to transform our in­house R&D
to a program­centric operational model. This model isdesigned to enhance our discovery and translational
medicine capabilities and accelerate progress of higher
quality candidates into and through Phase 1b/2a trials. This
will allow us to establish early clinical proof­of­concept forVI

our programs, a key milestone for value creation tostrengthen our in­house pipeline and support partneringand growth opportunities, including in Japan.
Reflecting this transformation and our growth aspirations,
we have expanded our UK R&D operations to a second site
in Cambridge, UK.
Importantly, this transformation has allowed us to prioritize
and advance three wholly owned candidates towards
clinical trials, which are expected to begin in 2023:

EP4 ANTAGONISTGPR52 AGONIST

EP4 AGONISTAn oral selective EP4antagonist immunotherapy forsolid tumors (HTL0039732),
which is being prepared for a
first­in­human trial by Cancer
Research UK (CRUK), theworld’s largest private funderof cancer research

An oral small molecule GPR52
agonist program, which
potentially presents
opportunities to address
symptoms and cognitive
impairment in schizophrenia
and psychosis

An oral, gut­restricted small
molecule EP4 agonist
potentially for thetreatment of Inflammatory
Bowel Disease

SOSEI GROUP CORPORATION - ANNUAL REPORT YEAR ENDED 31 DECEMBER 2022

Commercializing Products in Japan
During 2022, we have refined our strategy for Japan withthe aim of commercializing specialty products that target
underserved therapy areas. Japan is the third largest pharma
market behind the US and China and has a very large aging
population and universal health care system.
We believe that there is a huge opportunity for anagile, scalable and eﬀective clinical development andcommercialization business in Japan and are committed tobuilding such a business over the coming years.
We intend to start by in­licensing approved products orcandidates in late­stage clinical development and, in thelonger term, to grow our product oﬀering based onprograms discovered and developed in­house, including
those partnered candidates, such as the M1 agonist, forwhich we retain Japan rights.
In addition, we will begin to augment our existing clinicaldevelopment capabilities by creating a small, highly qualified

team to eﬀectively manage the clinical, regulatory andcommercial activities needed to eﬃciently deliver theseproducts to patients.
Our cash and cash equivalents as at 31 December 2022
amounted to JPY 66,557 million (approximately US$500
million). This is a strong financial position from which to
execute on all four pillars of our strategy as we look todeliver on our long­term mission of using our world­leading
science to deliver life­changing medicines to patientsworldwide.

Acknowledgements
Finally, this progress would not be possible without the hard
work and dedication of all our employees and partners.
I would like to thank them for their important contributions
to our business during 2022 and I am confident thattogether we can look forward to another important year of
progress in 2023.

CHRIS CARGILL
Representative ExecutiveOﬃcer, President & CEO
Sosei Group Corporation
23 March 2023

SOSEI GROUP CORPORATION - ANNUAL REPORT YEAR ENDED 31 DECEMBER 2022

VII

Table of Contents
Part 1: Company Information
Section 1. Company Overview .............................................................................................................................. 1
Section 2. Business Review ................................................................................................................................... 8
Section 3. Facilities .............................................................................................................................................41
Section 4. Information about the Filing Company ..............................................................................................42
Section 5. Financial Statements ..........................................................................................................................82
Section 6. Stock-Related Information relating to the Parent Company ............................................................170
Section 7. Reference Information Relating to the Filing Company ................................................................... 171
Part 2: Information about a Company which Provides a Guarantee to the Filing Company
Information about a Company which Provides a Guarantee to the Filing Company ........................................173
Independent Auditor’s Reports
Independent Auditor’s Reports ........................................................................................................................174
Internal Control Report of Management
Internal Control Report of Management .......................................................................................................... 186

Annual Securities Report
Accounting period:

The 33rd Term (January 1, 2022 – December 31, 2022)

Company name:

Sosei Group Corporation

Representative’s name and title:

Christopher Cargill, Executive Officer, CEO

Location of head office:2-1 Kojimachi, Chiyoda-ku, Tokyo

Phone:+81-3-5210-3290 (main)Contact person:

Kieran Johnson, Executive Officer, CAO

Nearest contact location:

2-1 Kojimachi, Chiyoda-ku, Tokyo

Phone:+81-3-5210-3290 (main)Contact person:

Kieran Johnson, Executive Officer, CAO

Location for public inspection:

Tokyo Stock Exchange, Inc.
(2-1 Nihonbashi Kabutocho, Chuo-ku, Tokyo)

Sosei Group Corporation
Section 1. Company Overview
1. Changes in Key Management Indices1.1 Management Indices on consolidated basis
PeriodFinancial year-end

The 29th Term

The 30th Term

The 31st Term

The 32nd Term

The 33rd Term

December 31,
2018

December 31,
2019

December 31,
2020

December 31,
2021

December 31,
2022

Revenue

¥m

2,872

9,726

8,842

17,712

15,569Profit (loss) before income taxes¥m(7,243)

534

1,622

433

1,078

Net profit (loss) attributable toowners of the parent company
Total comprehensive income
attributable to owners of theparent company
Equity attributable to owners of
the parent company
Total assets¥m(5,977)

1,432

1,479

1,017

382

¥m

(7,618)

2,367

661

5,623

(255)

¥m

41,57745,07552,381

57,46857,936¥m

58,98756,68076,46596,98599,417

Equity attributable to owners of
the parent company per share
Basic earnings (loss) per share¥

544.89584.83649.92704.97707.20¥(78.40)

18.70

18.77

12.53

4.68

Diluted earnings (loss) per share¥(78.40)

18.50

18.59

12.40

4.63

Ratio of equity attributable toowners of the parent company tototal assets
Ratio of profit to equity
attributable to owners of theparent company
Price earnings ratio (PER)

(%)

70.5

79.5

68.5

59.3

58.3

(%)

(13.2)

3.3

3.0

1.9

0.7

-

116.1095.90

151.96456.84(Times)Cash flows from operating¥m(3,995)
3,441
4,672
7,095
9,952
activities
Cash flows from investing¥m(2,808)
(246)
(150)
278
1,043
activities
Cash flows from financing¥m(2,268)(6,964)
20,278
11,123(4,887)
activities
Cash and cash equivalents at the¥m
18,76015,37540,00860,08766,557end of the year
Number of employees(Employees)
169
163
190
198
202
[Separately, average number of[12.1][11.2][12.1][10.8][18.1]
other workers]
Notes 1. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (hereinafter, “IFRS”).
2. Price earnings ratio (PER) was not provided because a net loss was recorded in the 29th Term.
3. The number of employees presented above represents the number of regular employees at the year end. The annual average number ofother workers (including part-time employees and employees engaged through temp agencies) is provided separately in squareparentheses [ ].
4. The Group changed the end of the financial year from March 31 to December 31 at the 28th ordinary general meeting of shareholders andit will continue to have a December financial year end. The 29th term is a nine month irregular term.
5. Effective July 1, 2018, the Company executed a stock split at a ratio of 4 shares per common share. Basic earnings (loss) per share anddiluted earnings (loss) per share has been calculated as if the stock split had occurred at the beginning of the 29th consolidated financial
year.

-1-

Sosei Group Corporation
Section 1. Company Overview
1 Changes in Key Management Indices (continued)
1.2 Filing Company’s Management Indices
PeriodThe 29th Term

The 30th Term

The 31st Term

The 32nd Term

The 33rd Term

Financial year-end

December 31,
2019
675

December 31,
2020
433

December 31,
2021
823

December 31,
2022
1,118

Operating revenue¥m

December 31,
2018
819

Ordinary loss¥m

(2,052)(764)(1,430)(4,720)(1,586)Net loss¥m(2,501)(504)(1,308)(4,260)(1,497)

Capital stock¥m

36,85437,47940,22041,03641,33576,301,936

77,073,136

80,596,128

81,518,316

81,923,230

Total number of issued shares(Shares)

Net assets¥m

57,74758,08961,50458,47057,544

Total assets¥m

66,41859,19778,886

94,34989,385

Net assets per share¥

732.78735.13754.79714.03699.45

Cash dividends per share[Interim dividends per share]
Net loss per share

¥
¥

[-]
(32.79)[-](6.57)[-](16.62)[-](52.47)[-](18.30)

Diluted net income per share

¥

-

-

-

-

-

Equity ratio

(%)

84.2

95.7

77.1

61.7

64.1

Return on equity (ROE)

(%)

-

-

-

-

-

Price earnings ratio (PER)(Times)

-

-

-

-

-

(%)

-

-

-

-

-

19
[1.2]

19
[1.7]

23
[2.7]

30
[2.9]

32
[4.2]

36.2
[67.3]

98.5[74.4]

81.6[99.2]

86.3[81.9]

97.0[60.6]

9,080
1,855
6,380
748

2,794

2,217

2,418

2,294

780

1,051

1,491

991

Dividend payout ratio

Number of employees(Employees)[Separately, average number of otherworkers]
Total shareholder return[Comparative indicator: TSE Mothers(%)
Index]
Highest share price¥
Lowest share price

Notes

¥

1.

The filing company’s financial statements are prepared in accordance with Japanese Generally Accepted Accounting Standards(hereinafter, “JGAAP”).
2. Diluted net income per share is not provided despite the existence of residual shares, because a net loss per share was recorded.
3. Return on equity (ROE) and price earnings ratio (PER) are not provided because a net loss was recorded.
4. The number of employees presented above represents the number of regular employees at the year end. The annual average number ofother workers (including part-time employees and employees engaged through temp agencies) is provided separately in parentheses [ ].
5. The Company changed the end of the financial year from March 31 to December 31 at the 28th ordinary general meeting of shareholders
and it will continue to have a December financial year end. The 29th term is a nine month irregular term.
6. Effective July 1, 2018, the Company executed a stock split at a ratio of 4 shares per common share. Net loss per share has been calculated
as if the stock split had occurred at the beginning of the 29th Term.
7. The highest and lowest share prices were those recorded on the Growth market of the Tokyo Stock Exchange on April 4, 2022 and thereafter,and on the Mothers market of the Tokyo Stock Exchange before that date.
8. Effective July 1, 2018, the Company executed a stock split at a ratio of 4 shares per common share. The share prices after the stock split
are provided in the second line of the 29th Term.

-2-

Sosei Group Corporation
Section 1. Company Overview
2 History
Date

Event

June 1990

Sosei Co. Ltd. established in Bunkyo-ku, Tokyo, aiming to be a biopharmaceutical R&D andtechnology transfer business company

March 1999

Launched the Drug Reprofiling Platform® (DRP®) project and made a full-scale start in thepharmaceutical development business.

September 2002

Established London office in the U.K.

July 2004

Listed on the Mothers market of the Tokyo Stock Exchange.

June 2005

Moved to a “Company with committees” (Company with Nomination, Compensation and Audit
committees in 2015).

August 2005

Acquired 100% of the shares of Sosei R&D Ltd. (formerly Arakis Ltd., U.K.).

October 2006

Moved to a holding company structure and changed the company name to Sosei Group
Corporation.

July 2009

Relocated Headquarters to Kojimachi, Chiyoda-ku, Tokyo.

May 2011

Concluded an agreement with Onxeo S.A. (formerly BioAlliance Pharma SA) to in-license SO-1105(treatment for oropharyngeal candidiasis).

September 2012

NVA237 received MHLW approval in Japan with the product name of “Seebri® Inhalation Capsules
50 mcg” (world’s first approval for glycopyrronium bromide as a COPD treatment).

September 2013

QVA149 received European Commission approval in Europe with the product name of “Ultibro®
Breezhaler®” (world’s first approval of a LAMA/LABA combination drug).

February 2014

Concluded agreement with FUJIFILM Toyama Chemical Co., Ltd. (formerly FUJIFILM Pharma Co.,
Ltd.) for commercialization of SO-1105.

February 2015

Acquired 100% shares of Heptares Therapeutics Ltd.

August 2015

Concluded collaboration agreement with AstraZeneca UK Ltd. for development of immunooncology treatments.

October 2015

Seebri® (NVA237) and Utibron™ Neohaler® (QVA149 received Food and Drug Administration (FDA)
approval in the U.S.).

November 2015

Concluded strategic collaboration agreement with Pfizer Inc. for novel treatments related to up to
10 types of GPCR target.

November 2016

The Company’s subsidiary, Heptares Therapeutics Ltd. acquired 100% of the shares of G7
Therapeutics AG (renamed as Heptares Therapeutics Zurich AG).

May 2017

Acquired a stake in MiNA (Holdings) Ltd., which became an associated undertaking of the Group.

November 2017

International offering of new shares raised ¥21,286m.

September 2018

SO1105 received marketing approval in Japan under the product name of “Oravi®”.

November 2018

UK legal entity reorganization involving the transfer of the trade and assets of Sosei R&D Ltd. to
Heptares Therapeutics Ltd.

July 2019Concluded contract with Genentech Inc. for the worldwide development, manufacturing andcommercialization rights for certain GPCR targets.

August 2019Concluded contract with Millennium Pharmaceuticals Inc. (a 100% subsidiary of Takeda
Pharmaceutical Co., Ltd.) for the worldwide development, manufacturing and commercializationrights for certain GPCR targets.

June 2020

Concluded contract with AbbVie Ireland Unlimited Company for the exclusive worldwide
development and commercialization rights for new drug candidates which Heptares and AbbVie
will jointly develop.

June 2020

Enerzair® Breezhaler® received manufacturing approval and marketing approval for the treatmentof asthma in Japan.

July 2020

Enerzair® Breezhaler® received manufacturing approval and marketing approval in the EU.

July 2020

International offering of new shares raised ¥5,055m and issuance of euro-yen denominatedconvertible bonds due 2025 raised ¥16,000m.

November 2020

Concluded contract with Tempero Bio, Inc. for the exclusive global rights to the Group’s mGlu5
negative allosteric modulator program.

November 2020

Concluded contract with Biohaven Pharmaceutical Holding Company Ltd. for the exclusive rights
to develop, manufacture, and distribute a portfolio of novel, small-molecule CGRP receptor
antagonists.

December 2020

Concluded a contract with GlaxoSmithKline p.l.c. for the exclusive rights to develop, manufactureand distribute a portfolio of GPR35 agonists.

July 2021

Repurchase and cancellation of euro-yen denominated convertible bonds due 2025 which were
issued in July 2020 and raised ¥16,000m.

July 2021

Issuance of euro-yen denominated convertible bonds due 2026 raised ¥30,000m.

-3-

Sosei Group Corporation
Section 1. Company Overview
2 History (continued)
Date

Event

July 2021

Agreement to transfer the commercialization rights to sell SO-1105 in Japan from FUJIFILM Toyama
Chemical Co., Ltd. to Hisamitsu Pharmaceutical Co.,Inc

November 2021

Concluded collaboration and license agreement with Neurocrine Biosciences, Inc. to develop Novel
Muscarinic Receptor Agonists for Schizophrenia and Other Neuropsychiatric Disorders.

April 2022

Transferred from the Tokyo Stock Exchange Mothers market to the Growth market following market
restructuring of the Tokyo Stock Exchange.

August 2022

Concluded contract with AbbVie Inc. for new multi-target collaboration to discover, develop andcommercialize novel medicines targeting neurological diseases.

October 2022

MiNA (Holdings) Limited excluded from associates accounted for using the equity method as theGroup no longer exercised significant influence over MiNA (Holdings) Limited.

December 2022

Concluded contract with Eli Lilly and Company for multi-target collaboration and license agreement
in diabetes and metabolic diseases.

March 2023

Listing market changed to the Tokyo Stock Exchange Prime market.

* Seebri®, Ultibro®, Seebri® Breezhaler®, Ultibro® Breezhaler®, Enerzair® and Enerzair® Breezhaler® are registered trademarks of Novartis
International AG (“Novartis”).
* Oravi® is a registered trademark of Vectans pharma SAS.

-4-

Sosei Group Corporation
Section 1. Company Overview
3 Business Description
The Group is a science and technology-led company, specializing in drug discovery and early-stage drug
development.
The Group’s core scientific focus is to discover new medicines, including novel small molecules,
peptides and therapeutic antibodies, targeting G Protein-Coupled Receptors (“GPCRs”). Its proprietary
StaR® (“stabilized receptor”) technology and structure-based drug design (“SBDD”) have enabled theGroup to develop small molecules, peptides and antigens for mAb discovery. In addition, the Groupalso has a legacy business that generates a stream of royalties on global sales of Novartis’ respiratory
disease products Seebri® Breezhaler®, Ultibro® Breezhaler® and Enerzair® Breezhaler®. These royalties
provide the Group with a significant source of capital to support its strategic objectives.
As at December 31, 2022 the Group comprised the Company (Sosei Group Corporation) and fiveconsolidated subsidiaries (one of which, Heptares Therapeutics Zurich AG, is in the process of being
liquidated as at March 23, 2023). The Group operates in only one segment, the Pharmaceuticalbusiness segment.
Business segment

Company nameGroup management
and support

Sosei Group Corporation
Sosei Co. Ltd.

Pharmaceutical business

Heptares Therapeutics Ltd.

Nature of business
Strategic management of the entire
Group and administrative duties
performed on behalf of its subsidiaries.
Pharmaceutical R&D and sales.
Structural analysis and production ofearly lead compounds targeting GPCRs,
identification of drug candidates using
proprietary StaR® technology.

The Company corresponds to a specified listed company provided in Article 49 paragraph 2 of the
Cabinet Office Ordinance on Restrictions on Securities Transactions. Therefore, the criteria forassessing the materiality of information under the insider trading regulations are determined basedon consolidated figures.

-5-

Sosei Group Corporation
Section 1. Company Overview
4 Status of Subsidiaries and Associates
Consolidated subsidiaries
Company Name
Location

Sosei Co. Ltd.

Ratio of
VotingRights (%)
Million JPY
100.0
90

Capital Stock

Chiyoda-ku, Tokyo

Heptares Therapeutics Ltd. Cambridge, U.K.
Notes 2,3

Thousand GBP
416

100.0

Relationship

Parent company
provides:- centralizedadministrative services- provision of officers- funding assistanceParent company
provides:- centralizedadministrative services- provision of officers

Three other companies
Notes:
1. MiNA (Holdings) Limited was included in the consolidation as an associate accounted for using the equity method up to October
2022 when the Group ceased to exercise significant influence over it and was excluded from associates accounted for using theequity method.
2. Over 10% of the revenue of the Company relates to the specified subsidiaries.
3. The revenue of Heptares Therapeutics Ltd. (excluding internal revenues between consolidated companies) represents more than 10%of the Group’s consolidated revenue. Major profit/loss information for the year ended December 31, 2022 is as follows:
Major profit/loss information (IFRS)Revenue

Heptares
Therapeutics Ltd.

Net profit for
the year¥m

Net assets¥mProfit before
income taxes
¥m

¥m

¥m

15,489

3,141

2,079

30,52240,801-6-

Total assets

Sosei Group Corporation
Section 1. Company Overview
5 Status of Employees
5.1 Consolidated Companies

At December 31, 2022

Segment

Number of employees

Pharmaceutical business

170 (13.9)

Group administration

32 (4.2)
202 (18.1)

Notes:
1. The number of employees presented above represents the number of regular employees. The annual average number of otherworkers (including part-time employees and employees engaged through temp agencies) is provided separately in parentheses.

5.2 Filing Company (the Company)

At December 31, 2022

Number of employees(Employees)

Average age(Years old)

Average years of service(Year)

Average annual salary (¥)

32 (4.2)

43.0

2.9

13,447,521

Notes:
1. The number of employees presented above represents the number of regular employees. The annual average number of otherworkers (including part-time employees and employees engaged through temp agencies) is provided separately in parentheses.
2. Average annual salary includes bonuses, share-based payments and overtime pay.
3. Employees shown here are part of the Group administration department.

5.3 Status of Labour Union
No labour unions exist. Labour-management relations are regarded as amicable.

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Sosei Group Corporation
Section 2. Business Review

Forward-looking statements in this text were determined by management as at December 31, 2022.
1 Management Policy, Management Environment and Issues to be Addressed
1.1 Management Policy
The Group is a science and technology-led company, specializing in drug discovery and early-stage drug
development. Its mission is to make life-changing medicines using world-leading science and its vision
is to become one of Japan’s global biopharmaceutical champions.
1.2 Management Environment
The development of pharmaceutical products is characterized by fierce competition between
numerous domestic and overseas companies, research institutions, and other entities, including majorinternational corporations. Development requires massive investment and has long lead times, andthe likelihood of success is not high. However, there are still unmet medical needs in the world andexpectations exist about the development of new drugs that will offer value to patients.
1.3 Management Strategy
Business
Based on its proprietary StaR® technology and SBDD, the Group has established an innovative andproductive discovery platform, which enables unprecedented levels of drug discovery towards GPCRs,
the largest protein family representing drug discovery targets and are known to influence a wide rangeof therapeutic areas. A significant number of novel drug candidates have been generated through theapplication of this platform and are currently in development by global biopharmaceutical partners or
in-house.
GPCRs are involved in signaling pathways that influence a wide range of biological processes and areimportant drug targets implicated in a broad range of human diseases and disorders. GPCRs are
involved in approximately 34% 1 of currently marketed drugs. GPCRs form the largest humanmembrane protein family, with around 400 non-olfactory receptors, of which approximately 75%
remain yet to be explored, offering broad untapped potential.
Despite GPCRs representing one of the most important groups of drug targets for modern medicine,
drug discovery targeting GPCRs remains challenging. The available structural information about GPCRs
strongly suggests that they are intrinsically druggable with small molecules. Historically, however,mapping the structure of GPCRs when they are isolated from the cell membrane has been difficult as
GPCRs are inherently unstable in isolation, often preventing their structural determination. The
unstable nature of GPCRs has also hindered the ability to generate stable antigens to raise antibodies.

1 Hauser A. S., Attwood M. M., Rask-Andersen M., Schiöth H. B., Gloriam D. E. (2017). Trends in GPCR drug discovery: new agents,

targets and indications. Nat. Rev. Drug Discovery. 16, 829–842. 10.1038/nrd.2017.178-8-

Sosei Group Corporation
Section 2. Business Review
1 Management Policy, Management Environment and Issues to be Addressed (continued)
1.3 Management Strategy (continued)
Solution
Anchored by its proprietary stabilized receptor, or StaR®, technology, the Group has developed
technologies that enable us to “unlock” GPCRs through an advanced understanding of their structures.
Its StaR® technology allows the Group to effectively stabilize a GPCR by engineering a small number ofsingle point mutations outside of the ligand-binding site such that they retain their organized structureeven after they are removed from the cell membrane. The resulting stabilized proteins (StaR® proteins)are much more robust than the corresponding “wild-type” or unmutated proteins. These StaR®
proteins are more readily purified and subjected to a variety of hit discovery and biophysicalapproaches. For example, these StaR® proteins enable crystallization for detailed X-ray (or other)structure determination, which facilitates the design of innovative medicines with better safety andefficacy profiles and lower preclinical and clinical attrition rates compared to wild-type proteins. StaR®
technology also enables the production of stabilized proteins that can be utilized for biologics
discovery, either via in vitro phage screening, or for in vivo immunization
GPCR Pipeline
To date, the Group has leveraged its innovative and productive discovery platform to create a pipelineof drug candidates targeting GPCRs that the Group believes have potential to become first-in-class or
best-in-class medicines in therapeutic areas including neurology, immunology, gastroenterology andinflammatory diseases.
The Group’s partnered pipeline includes programs with some of the world’s leading pharmaceuticalcompanies, including AbbVie Inc. (“AbbVie”), AstraZeneca UK Limited (“AstraZeneca”), Genentech Inc.
(“Genentech”), GlaxoSmithKline p.l.c. (“GSK”), Eli Lilly and Company (“Lilly”), Neurocrine Biosciences,Inc. (“Neurocrine Biosciences”), Novartis International AG (“Novartis”), Pfizer Inc. (“Pfizer”) and Takeda
Pharmaceutical Company Limited (“Takeda”) and additionally with multiple emerging technology
companies. The Group has established programs in which its partners develop one or more drugcandidates that the Group discovered using its SBDD platform, such as that in its muscarinic agonist
program. The Group also promotes high value discovery and early-stage development collaborations
targeting multiple GPCRs. The Group believes these strategic arrangements validate its GPCR
technologies and SBDD platform capabilities and also provide a diversified source of revenues in theform of up-front fees and milestone payments.
The Group’s in-house pipeline comprises discovery and early development programs to generate new
candidates for partnering. Going forward, the Group intends to license programs to large pharma or
biotech for clinical development and commercialization.

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Sosei Group Corporation
Section 2. Business Review
1 Management Policy, Management Environment and Issues to be Addressed (continued)
1.3 Management Strategy (continued)
Business Strategy
Following the creation of a new leadership team in 2022, management has outlined a clear and evolved
strategy to grow the business internationally and in Japan leveraging the Group’s proprietary drug
discovery platform and pipelines. This strategy is based on four key strategic pillars:(i)

Extending and enhancing the competitive advantages of the Group’s world-leading StaR®/SBDD
discovery capabilities through continued internal innovation combined with external
collaborations that provide access to complementary technologies.

(ii)

Diligently driving forward existing partnerships with global pharmaceutical companies andinitiating new high-value partnerships to ensure the continued flow of revenues throughupfront and development milestone payments, and ultimately royalties from sales of productsthat reach the market.

(iii)

Transforming R&D to a program-centric operating model, entrenching target biology, andenhancing translational medicine capabilities to quickly achieve clinical proof of concept, which
in turn is expected to enable higher quality candidates more cost effectively, larger out-licensing
deals as well as a deeper in-house pipeline and a pathway for clinical development in Japan.

(iv)

Building out an agile, scalable and effective clinical development and commercialization
business in Japan. This new strategic initiative is designed to capitalize on significant
underserved opportunities that the Group sees within the large attractive market. The Groupintends to start this strategy by in-licensing foreign de-risked approved or late-stage clinicalassets and will expand the pipeline with internally generated programs in the future.

Other Business Activities
In addition to its core activities in GPCR medicine design and development, the Group also has a legacy
business that generates a stream of royalties on global sales of Novartis’ respiratory disease products
Seebri® Breezhaler®, Ultibro® Breezhaler®, and Enerzair® Breezhaler®. These royalties provide theGroup with a significant source of capital to support its strategic objectives.

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Sosei Group Corporation
Section 2. Business Review
1 Management Policy, Management Environment and Issues to be Addressed (continued)
1.4 Business and financial issues that should be addressed with priority
Business advancement and strategy
The group drives novel drug discovery and early-stage development against diseases with high unmet
medical need. The Group has outlined a strategy to leverage its proprietary StaR® technology and SBDD
platform, expert R&D capabilities and emerging pipeline to grow the business internationally and inJapan.
Outside of Japan, the Group intends to take programs from drug discovery through translational
medicine into early clinical development internally, and license these in-house programs to partners,
while retaining its rights to develop such programs in Japan when possible. In Japan, the Group will
start its development and commercialization strategy by in-licensing foreign de-risked approved orlate-stage clinical assets and will expand the pipeline with internally generated programs in the future.
Please refer to “Section 1 Management Policy, Management Environment and Issues to be Addressed,
1.3 Management Strategy” for details of the Group’s four key strategic pillars.
Risk recognition and countermeasures
The Group is exposed to a range of risks consistent with the industry in which it operates. The business,financial position and financial results of the Group may be adversely impacted by any of these risks.
The main risks relating to the financial position and operating results of the Group that management
considers could have a potentially significant impact on investor decisions are described in “Section 2,
Sub-section 2 Business and Operational Risks” and management takes appropriate measures to deal
with these risks.
Value creation
The pharmaceutical industry is undergoing rapid change due to numerous pressures faced by large
companies, such as patent expiries, the higher burden of approval and ever-increasing costs. This has
led to a reduction in the number of research-based businesses taking the full financial and commercial
risk of drug development.
New strategies across the industry are focused on securing external innovation in an efficient way.
Furthermore, ageing populations in many developed countries are driving the need for differentiatedand better treatments. As a result, large pharma and biotech companies are increasingly seeking
innovative solutions to their R&D challenges, and therefore increasingly executing collaborations
across research, discovery and development activities with mid-sized science and technology-led
companies. The Group is positioned to take advantage of this growth trend. The Group regularly
identifies and evaluates opportunities for business expansion and value creation and is pursuing acapital efficient business model that will sustainably create new commercial opportunities in an
evolving industry landscape.

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Sosei Group Corporation
Section 2. Business Review
1 Management Policy, Management Environment and Issues to be Addressed (continued)
1.4 Business and financial issues that should be addressed with priority (continued)
Corporate Governance
The Group has business activities in multiple jurisdictions and takes corporate governance very
seriously. The Group is continuously evaluating ways to enhance its systems and processes, to ensure
it complies with all national regulations. Furthermore, the Group will continue to promote a corporate
culture that is committed to the highest standards of openness, integrity and accountability.
The Group’s Board of Directors is responsible for overseeing management and conducting risk
management and compliance activities to maintain standards and accountability and a majority ofmembers are independent external directors. Executive Officers work closely with the Board of
Directors to achieve long-term and sustainable growth for the Group and to create shareholder value.
They make decisions on and execute the Group’s strategy and business transactions that are significant,based on the authority delegated by the Board of Directors.

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Sosei Group Corporation
Section 2. Business Review
2 Business and Operational Risks
The main risks affecting the financial position, operating results and cash flows of the Group aredescribed below. The Group’s business faces various risks, not all of which may necessarily be included
below. The Group’s CEO and CAO have operational responsibility for the management of risk and they
have put systems in place for the heads of each department to report significant risks upwards.
Management will avoid risks, or introduce countermeasures to reduce the impact of risks, according
to the nature and potential severity of those risks, as and when they become apparent. Forwardlooking statements in this text were determined by the Group as at December 31, 2022.
2.1 Research and Development of Pharmaceutical Products
Uncertainty of research and development
・Risk
The Group’s business is focused on pharmaceutical research and development. Generally, the researchand development period for pharmaceutical products, from basic research through to approval, takes
a long time and requires a considerable scale of investment. Moreover, the likelihood of success isextremely low compared to other industries. Thus, research and development activities areaccompanied by uncertainty, and there is a possibility that this uncertainty may have a significant
impact on the Group’s financial position and operating results.
・Countermeasure
The Group has expanded its development pipeline by creating multiple new therapeutic drugcandidates continuously using its unique platform technology, and subsequently partnering productcandidates with other pharmaceutical companies in co-development or licensing models that transfer
the R&D funding costs and risks associated with clinical development and commercialization. Thereby
the Group benefits from a diversification of funding sources, and from balancing the risks associatedwith clinical development failure across multiple partnerships.
Matters related to the review of business strategies of business partners
・Risk
The pharmaceutical industry is characterized by fierce competition from numerous domestic andforeign companies and research institutions, including large international organizations. In addition,technological innovation is advancing at a rapid pace. As a result, major pharmaceutical andbiopharmaceutical companies are periodically reviewing their business strategies in order to maintaintheir competitiveness in the industry, and the result of these reviews may have a significant impact on
the financial position and operating results of the Group. In addition, as a result of competition withthese competitors in their respective business activities of research, development, manufacturing andsales, the Group's financial position and operating results may be significantly impacted.
・Countermeasure
The Group strives to reduce such risks by maintaining and developing good relationships with its
business partners and executing appropriate contracts. In addition, through research and developmentof multiple profitable drugs, the Group aims to minimize the impact on business performance when
individual partnerships end.

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Sosei Group Corporation
Section 2. Business Review
2 Business and Operational Risks (continued)
2.1 Research and Development of Pharmaceutical Products (continued)
Adverse drug reactions
・Risk
Pharmaceutical products may have adverse drug reactions during clinical trials or after
commercialization. For marketed products the Group continues to carry out activities to minimize therisk of damage to patients’ health by conducting drug safety monitoring (pharmacovigilance) as amarketing authorization holder. The Group makes every effort to avoid risks and reduce possible
impacts. However, if unexpected adverse drug reactions lead to product recall, discontinuance of
manufacturing and sales, or filing of lawsuits regarding adverse drug reactions, there may be asignificant impact on the Group’s financial position and operating results.
・Countermeasure
The Group collects domestic and overseas safety management information (information on adverse
drug reactions, etc.) in cooperation with partner companies or sales agents. In addition, the collectedsafety management information is appropriately evaluated, examined, and analyzed, andappropriately reported to agencies in accordance with the regulations of each country and region, andthe information is provided in cooperation with partner companies or sales agents. Thereby the Group
promotes the proper use of pharmaceutical products.
Pharmaceutical laws and other regulations
・Risk
The pharmaceutical industry is subject to a variety of regulations due to pharmaceutical laws andpharmaceutical administrative guidance in individual countries, and other laws and regulations
applicable to the business activities of research, development, manufacturing and sales. Taking a drug
from the discovery stage to the manufacturing and marketing approval stage incurs a great deal ofresearch and development cost over a long period of time. If sufficient data on efficacy and safety is
not obtained, and its medical utility as a drug cannot be demonstrated, approval from regulatory
authorities may not be granted as planned, and the market launch may become difficult. If thishappens with products licensed to other companies, the licensing conditions may change from thoseestablished at the outset or licensing itself may become difficult. In such an event, or in the event that
there is a large change in applicable regulations, there may be a significant impact on the Group’s
financial position and operating results.
・Countermeasure
The Group, in cooperation with its business partners, has a system in place to identify trends in therevision of pharmaceutical-related regulations at an early stage and analyze whether or not a response
is necessary. In addition, the Group has a governance structure that allows it to take rapid decisions tominimize risks.

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Sosei Group Corporation
Section 2. Business Review
2 Business and Operational Risks (continued)
2.1 Research and Development of Pharmaceutical Products (continued)
Product Liability
・Risk
The Group is responsible for the manufacture/supply of pharmaceutical products, including for use inclinical trials. If the Group supplies products and those products are not of the required standards ofquality and safety, the Group's financial position and operating results may be severely affected.
・Countermeasure
The Group places the highest priority on product safety and quality, and constantly strives to raise theawareness of its employees through internal education and other means. In addition, the Group
mitigates product liability risks by purchasing appropriate insurance.
2.2 Strategic Risks
Execution of business strategy
・Risk
The Group continues to focus its in-house activities on leveraging its platform and expertise to createand develop drug candidates as well as enhancing its pipeline with the aim of achieving importantvalue inflection points that will enable new out-licensing and co-investment agreements. The Group isalso focused on in-licensing foreign de-risked approved or late-stage clinical assets to build out abusiness in Japan. It is possible that investments might be allocated to the development of
unsuccessful drug candidates, or failed technologies. In such an event, there may be a significant
impact on the Group’s financial position and operating results.
・Countermeasure
In considering investments, the Group combines internal and external expertise and evaluatesbusiness profitability The Group’s approach to investments is to balance risk and reward appropriately,
ensuring excessive capital is not put at risk.
Risks from investment strategy
・Risk
In the past, the Group has made equity investments in companies with highly promising yet unproventechnologies. These investments may enable the Group to accelerate its business model as they
provide a beneficial risk-reward profile through to a significant value inflection. However, investments
in unproven technologies also carry the risk of failure which may lead to the impairment of investments.
In such an event, there may be a significant impact on the Group’s financial position and financial
performance.
・Countermeasure
The Group operates an Investment Committee that is responsible for conducting due diligence andmaking recommendations to the Group’s Board of Directors, who are in turn responsible for approving
strategic investments. The Group’s approach to investments is to balance risk and reward appropriately,
ensuring excessive capital is not put at risk.

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Sosei Group Corporation
Section 2. Business Review
2 Business and Operational Risks (continued)
2.3 Business Activities of the Group
Partnerships
・Risk
The Group aims to build broad partnerships at each stage of research and development, and thereby
incorporate state-of-the-art technology while avoiding an increase in fixed costs. Should these current
partnerships change, or should the Group fail to create partnerships as expected there may be asignificant impact on the Group’s financial position and operating results.
・Countermeasure
When concluding agreements, the Group assesses possible risks, and strives to discuss and agree
mitigation strategies which are then included within the contracts, as appropriate. Furthermore, theGroup has built a strong governance system across various functions and organizations with its
partners to identify risks in the partnership and discuss solutions closely with those partners. The
Group takes necessary steps to minimize the impact on financial results.
Securing and training human resources
・Risk
The business activities of the Group depend on the current management team, as well as divisional
leaders and their members. For that reason, the Group continually strives to secure and place highcalibre human resources in the right role and invest in their development through training. If humanresources cannot be secured due to tight labour markets or trained as planned, this may have asignificant impact on the Group’s business activities and operating results.
・Countermeasure
The Group believes that it is important to avoid human resource risks by improving the working
environment and providing employee training so that employees are invested in the company andwork with a sense of security. Management strives to create a sense of unity by sharing its corporate
goals based on employees’ understanding of the company’s philosophy and vision. To this end
management maintains a pleasant office environment, allows flexible working styles that suit
individual employee's lifestyles (super-flexible working and remote working), organizes events with andtraining by experts in various fields inside and outside the company, and provides nutritional education
to maintain a healthy workforce.
Intellectual property rights
・Risk
The Group uses a variety of intellectual property rights in research and development activities, which
are either proprietary or in-licensed by the Group. However, it is possible that the Group may not beable to continue to use the intellectual property rights it needs to operate its businesses. Also, it ispossible that a third party will in the future launch a dispute claiming intellectual property right
infringement. Such events may have a significant impact on the Group’s financial position andoperating results.

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Sosei Group Corporation
Section 2. Business Review
2 Business and Operational Risks (continued)
2.3 Business Activities of the Group (continued)
・Countermeasure
The Group protects its intellectual property rights through the employment of an internal IP expert(supported by external patent attorneys) who is responsible for monitoring and addressing any thirdparty infringements.
Financing・Risk
A large amount of research and development spending is necessary in the pharmaceutical industry
and that amount tends to increase as research and development progresses. When the Group requires
funds, if it is not possible to carry out flexible funding due to a deterioration in the market environment,
there may be a significant impact on the Group’s financial position and operating results, such that theGroup will be forced to reconsider its research and development structure and plans.
・CountermeasureManagement strives to reduce this risk by creating and updating cash flow forecasts on a timely basis
and maintaining sufficient liquidity (Cash and cash equivalents as at December 31, 2022 totaled JPY
66,557 million). In addition, regular review of funding options such as the issuance of new shares,
issuance of corporate bonds, arranging commitment lines, taking out term loans, and other refinancing
measures enables the Group to secure funds in response to funding market conditions. As part of this,the Company entered into a new commitment line agreement (JPY 5,000 million) in 2022 and issued
convertible bonds (JPY 30 billion) during 2021 in order to strengthen liquidity.
Foreign currency fluctuations
・Risk
The Group’s international business activities include engaging in foreign currency-denominatedlicensing transactions with foreign companies and performing overseas research and development
activities. Foreign currency risk cannot be completely removed, even by hedging, and if the risk
manifests itself through sudden exchange rate fluctuations, it may have an impact on the Group’s
financial position and operating results.
・CountermeasureManagement reports monthly to the Board of Directors, cash balances broken down by currency andan analysis of foreign exchange gains / losses, to regularly monitor the risk of foreign currency
fluctuations from holding foreign currencies. In addition, Management mitigates foreign currency
fluctuations by purchasing foreign currency or entering forward exchange contracts.

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Sosei Group Corporation
Section 2. Business Review
2 Business and Operational Risks (continued)
2.3 Business Activities of the Group (continued)
Contractual payment obligations
・Risk
In its development pipeline-related contracts with business partners, the Group may have an obligation
to make payments to a partner both at a development stage prior to sales and after thecommencement of sales. Also, there may be an obligation to pay joint development costs, and to invest
in marketing activities after sales start. It is recognized that the form of payment for these
considerations is natural due to the nature of our business as a product development type bio-venture.
However, if the cost is high compared to the Group’s capital resources, the Group may experience asignificant financial burden, which could have a significant impact on its financial position andoperating results.
・Countermeasure
When concluding agreements, the Group assesses possible risks, and strives to discuss and agree
mitigations which are then included within the contracts. Furthermore, the Group has built a strong
governance system across various functions and organizations with its partners to identify risks in thepartnership and discuss solutions closely with those partners. The Group takes necessary steps tominimize the impact on financial results.
Establishment of domestic sales structure and technology licensing
Sales of the company's products in the domestic market
・Risk
The Group is a licensed marketing authorization holder for pharmaceuticals in Japan. When apharmaceutical product is approved for manufacturing and marketing, the Group, as a marketing
authorization holder, will contract with an appropriate sales agent for the supply of product to theJapanese market, in order to maximize sales. If the Group cannot partner with an appropriate sales
agent in Japan, or if product sales by the sales agent are not in line with expectations, or if the Group
cannot provide a stable supply of its product to the Japanese market due to compliance issues
caused by the sales agent, the Group’s financial position and financial performance may be affected
as a result of harmed reputation as a marketing authorization holder and decreased revenue.
・Countermeasure
To ensure the quality and safety of its products, the Group has adopted an appropriate corporate
structure for a pharmaceutical marketing authorization holder with legal compliance as a top priority.
As a marketing authorization holder, management evaluates whether a potential sales agent has
sufficient capabilities, including sales expertise and regulatory compliance capabilities, and strives tomaintain and develop good relationships with its partners.
Technology licensing of products developed by the Company or its subsidiaries
・Risk
The Group can profit through licensing out products to other companies at an intermediate stage ofdevelopment and receiving an upfront payment and sales-associated revenues. However, if technology
is not licensed out at the planned time due to delays in development or for some other reason, or if it
becomes difficult to license out a development product as planned, it could have a significant impact
on the Group’s financial position and operating results.
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Sosei Group Corporation
Section 2. Business Review
2 Business and Operational Risks (continued)
2.3 Business Activities of the Group (continued)
・CountermeasureManagement will seek to resolve any unexpected external issues if they cause delays or have otheradverse business impacts. External experts will be engaged to help management avoid the risk ofdelays in development. In addition, the Group strives to develop the capabilities and expertise of its
workforce to drive effective decision making.
Business expansion through M&A (merger, acquisition, or transfer of a business, and otherinvestments)
・Risk
The Group seeks to manage its resources efficiently and strives to maximize corporate value. It is theGroup’s policy to respond flexibly to business expansion opportunities, including M&A. However, if bythese measures the expected benefit is not obtained and an impairment loss relating to goodwill or
intangible assets is recorded, there may be a significant impact on the Group’s financial position andoperating results. Goodwill totaling JPY 15,306 million and intangible assets totaling JPY 8,577 million
were carried in the consolidated balance sheet as at December 31, 2022.
・Countermeasure
When entering M&A transactions, management conducts detailed due diligence, using external
experts where necessary. It verifies alignment of the opportunity with the Group’s medium-termbusiness strategy, the potential impact on enterprise value and the existence and size of synergies.
Significant contracts
・Risk
Important agreements are stated under “Part 1: Company Information, Section 2. Business Review,
sub-section 4. Significant Contracts in Business Operation.” If significant contracts are terminated, it ispossible this will have a significant impact on the Group’s financial position and operating results.
・Countermeasure
The Group takes appropriate measures when drafting significant contracts, such as the inclusion oftermination clauses drafted by external lawyers, where necessary.
Litigation
・Risk
The Group was not litigated against in the year ended December 31, 2022, but the Group could be
subject in the future to litigation or other legal procedures, or investigation by authorities. If the Group
has to pay a large settlement, is ordered to pay a large fine or is subject to a disadvantageous legal
determination, this could have a significant impact on the Group’s financial position and operating
results.
・Countermeasure
The Group has established compliance systems, quality management processes and other necessary
corporate structures to prevent problems from occurring. It strives to reduce the risk of litigation
connected to its business activities through the involvement of its legal department and by obtaining
advice from external lawyers and other specialists, as necessary.
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Sosei Group Corporation
Section 2. Business Review
2 Business and Operational Risks (continued)
2.3 Business Activities of the Group (continued)
Establishment of internal controls
・Risk
The Group complies with the Standards and Practice Standards for Management Assessment and Audit
concerning Internal Control Over Financial Reporting in accordance with the Financial Instruments andExchange Act. It has established an internal control system for financial reporting and strives to operate
the system appropriately. If the internal controls fail to function effectively or an unexpected problem
occurs with internal controls such that the Group incurs significant losses, this could have a significant
impact on the Group’s financial position and operating results.
・Countermeasure
The Group has established an effective internal control system for financial reporting and strives toensure its proper operation.
Spread of Viruses including COVID-19
・Risk
The COVID-19 situation has normalized in many geographies. However, it is possible that COVID-19
variants or other viruses could arise in the future which could adversely affect the Group’s drug
discovery and development projects, supply chain, clinical trials, business development activities,
partnerships and other business activities.
・Countermeasure
The Group’s top priority during the COVID-19 pandemic was the safety of its employees and thecontainment of the situation to prevent further spreading. There were many learnings from thepandemic which can be redeployed in the future in the event of new outbreaks, and some of the
mitigations adopted continue to be used today, such as support for working from home.

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Sosei Group Corporation
Section 2. Business Review
3 Management’s Analysis of Financial Position, Operating Results and Cash Flows
Forward-looking statements in this text were determined by management as at December 31, 2022.
3.1 Operating Results
The Group is a science and technology-led company, specializing in drug discovery and early-stage drug
development. Its mission is to make life-changing medicines using world-leading science and its vision
is to become one of Japan’s global biotechnology champions.
Based on its proprietary StaR® technology and SBDD, the Group has established an innovative andproductive discovery platform, which enables unprecedented levels of drug discovery towards GPCRs,
the largest protein family representing drug discovery targets and are known to influence a wide rangeof therapeutic areas.
A significant number of novel drug candidates have been generated through the application of thisplatform and are currently in development by global biopharmaceutical partners or in-house.
Following the creation of a new leadership team in 2022, management has outlined a clear and evolved
strategy to leverage the Group’s proprietary platform, pipeline and capabilities to grow the businessinternationally and in Japan. This strategy is based on four key strategic pillars:(i)

Extending and enhancing the competitive advantages of the Group’s world-leading StaR®/SBDD
discovery capabilities through continued internal innovation combined with external
collaborations that provide access to complementary technologies.
(ii) Diligently driving forward existing partnerships with global pharmaceutical companies andinitiating new high-value partnerships to ensure the continued flow of revenues through upfrontand development milestone payments, and ultimately royalties from sales of products that reachthe market.
(iii) Transforming R&D to a program-centric operating model, entrenching target biology, andenhancing translational medicine capabilities to quickly achieve clinical proof of concept, which
in turn is expected to enable higher quality candidates more cost effectively, larger out-licensing
deals as well as a deeper in-house pipeline and a pathway for clinical development in Japan.
(iv) Building out an agile, scalable and effective clinical development and commercialization businessin Japan. This new strategic initiative is designed to capitalize on significant underserved
opportunities that the Group sees within the large attractive market. The Group intends to start
this strategy by in-licensing foreign de-risked approved or late-stage clinical assets and will expand
the pipeline with internally generated programs in the future.

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Sosei Group Corporation
Section 2. Business Review
3 Management’s Analysis of Financial Position, Operating Results and Cash Flows (continued)
3.1 Operating Results (continued)
In 2022, the Group continued to make progress in extending and enhancing its world-leading
StaR®/SBDD discovery capabilities mentioned in (i). The Group entered into a collaboration with VerilyLife Sciences LLC, to leverage its Immune Profiler, a next generation immune mapping platform, toidentify novel targets and generate drug candidates for immune-mediated diseases. The Group also
entered into a collaboration with Kallyope Inc., which has an innovative gut-brain axis platform, toidentify and validate novel gastrointestinal GPCR targets. Furthermore, the Group entered into R&D
agreements with the University of Oxford and KU Leuven to identify and validate key GPCRs driving
gastrointestinal and immune disorders.
The Group’s partnerships with major pharmaceutical companies mentioned in (ii) progressed well in
2022 with two new agreements signed and multiple milestones achieved. Notably, the Group enteredinto a second collaboration agreement with AbbVie to discover novel medicines targeting neurologicaldiseases, and it expands the 2020 agreement focused on inflammatory and autoimmune diseases. The
Group also entered into a new drug discovery collaboration with Lilly in diabetes and metabolic
diseases.
In the collaboration with Neurocrine Biosciences, the first patient was randomized in its Phase 2 clinicalstudy of NBI-1117568 (formerly HTL0016878) in adults with schizophrenia. Furthermore, in the drug
discovery collaboration signed with Pfizer in 2015, three clinical candidates are progressing well, with
PF-07081532 (a GLP-1 agonist for diabetes and obesity) being advanced by Pfizer into a Phase 2b
clinical trial.
The Group also made significant progress in transforming its R&D and operations, as mentioned in (iii)
above, including working in collaboration with Weatherden Limited ("Weatherden”), a specialist R&D
and clinical development consulting group. The focus of the collaboration is to embed an agile
program-centric operating model and enhance the Group’s discovery and translational medicine
capabilities to deliver higher quality candidates faster and more cost-effectively into its pipeline. The
Group also expanded its UK R&D operations within Granta Park, Cambridge as part of its growthstrategy to become a multi-program, early clinical stage business and a partner-of-choice for leading
biopharmaceutical companies.
Furthermore, the Group aims to rapidly take its wholly owned programs to a clinical proof of concept
stage, with the following three candidates at the forefront:• EP4 antagonist (HTL0039732) for solid tumors - the Group signed an agreement with Cancer
Research UK, the world’s largest private funder of cancer research, to bring this cancer
immunotherapy candidate into a first-in-human trial.
• GPR52 agonist for schizophrenia and psychosis• EP4 agonist for Inflammatory Bowel Disease
As mentioned in (iv) above, the Group announced that it will build out an agile, scalable and effective
clinical development and commercialization business in the important healthcare market of Japan.

- 22 -

Sosei Group Corporation
Section 2. Business Review
3 Management’s Analysis of Financial Position, Operating Results and Cash Flows (continued)
3.1 Operating Results (continued)
The Group is highly motivated and committed to growing and developing its business internationallyand in Japan over the coming years, and focusing its R&D investments accordingly. At the same time,
the Group will continue to rigorously manage costs and remain flexible to all value-creating
opportunities.

- 23 -

Sosei Group Corporation
Section 2. Business Review
3 Management’s Analysis of Financial Position, Operating Results and Cash Flows (continued)
3.1 Operating Results (continued)
As of December 31, 2022, the Group had a total of 202 employees (an increase of 4 employees vs. theend of the prior year).
Financial results for the year ended December 31, 2022:
Revenue of JPY 15,569 million (a decrease of JPY 2,143 million vs. the prior year), an operating profitof JPY 3,436 million (a decrease of JPY 339 million vs. the prior year), a net profit before income taxesof JPY 1,078 million (an increase of JPY 645 million vs. the prior year) and a net profit of JPY 382 million(a decrease of JPY 635 million vs. the prior year).

RevenueYear ended
December 31, 2022¥m
15,569Year ended
December 31, 2021¥m
17,712

Change(926)(7,454)(4,377)(12,757)
624
3,436
(93)
(429)

(933)
(5,931)(3,940)(10,804)(3,133)
3,775(3,598)50

7(1,523)(437)(1,953)
3,757
(339)
3,505
(479)

(1,836)206(2,042)

1,078
(696)
382

433
584
1,017

645
(1,280)
(635)

3,436

3,775

(339)

Cost of sales
Research & development expenses
Selling, general & administrative expenses
Operating expenses
Net other income (expense)
Operating profit
Net finance costs
Share of (loss) gain of associates accounted forusing the equity method(Impairment loss) or gain on reversal of
impairment loss on investments accounted forusing the equity method
Net profit before income taxes
Income tax (expense) benefit
Net profit(2,143)

Alternative performance measureCore operating profit (Note 1)
Operating profit (as stated above)
Adjustments:
Depreciation
Amortization
Share-based payments(excluding amounts in Restructuring)
Restructuring
Impairment
Core operating profit

563
782
542

541
737
713

22
45
(171)

533
5,856

3,138
8,904

533
(3,138)(3,048)Average exchange rate for the period
USD:JPY
GBP:JPY131.30161.76110.16151.50

21.14
10.26

Notes
1. Core operating profit is defined as IFRS Operating profit/loss + material non-cash costs + material one-off costs
and provide insights into the underlying recurring cash generating capability of the business.
- 24 -

Sosei Group Corporation
Section 2. Business Review
3 Management’s Analysis of Financial Position, Operating Results and Cash Flows (continued)
3.1 Operating Results (continued)
The Group operates as a single business segment and, therefore, segmental information has been
omitted. Further explanation of the Group’s financial performance is detailed below.
RevenueYear ended
December 31, 2022¥m
12,063

Year ended
December 31, 2021¥m
14,667

Upfront fee revenue recognized at contract inception

4,666

11,408(6,742)

Milestone revenue recognized at milestone event

6,429

1,963

4,466

968

1,296

(328)

2,564
80
862
15,569

2,311
28
706
17,712253
52
156(2,143)

Upfront fees and milestone income

Deferred revenue releases

Royalty income
Pharmaceutical product sales
Other

Change(2,604)

Revenue in the year under review totaled JPY 15,569 million (a decrease of JPY 2,143 million vs.
the prior year).
Revenue relating to upfront fees and milestone income in the year under review totaled JPY 12,063
million (a decrease of JPY 2,604 million vs. the prior year). Upfront fees and milestone income
comprises upfront fee revenue, milestone income and deferred revenue releases. Upfront fees andmilestone income can vary considerably year on year and depend on the commencement of newpartnership agreements and the achievement of defined milestone events within that year. The
decrease in upfront fees and milestone income is primarily due to substantial upfront fees from
Neurocrine Biosciences recognized in the amount of JPY 11,408 million (USD 100 million) in theprior year compared to upfront fees revenue recognized at contract inception from two newcollaborations (AbbVie Neurology and Lilly) totaling JPY 4,666 million (USD 35 million) in 2022. Thisdecrease was partially offset by a rise in milestone income recognized upon the occurrence of
milestone events. There were five milestone events in 2022 generating JPY 6,429 million, as a resultof significant progress including advancement into Phase 2 clinical trials, vs. 8 milestone events in
2021 generating JPY 1,963 million. Deferred revenue releases decreased compared to the prioryear due to maturation of the older platform collaborations. In addition, as the majority of theGroup’s revenues are earned in USDs, the substantially stronger USD in 2022 also had an offsetting
effect.
Revenue relating to royalties in the year under review totaled JPY 2,564 million (an increase of JPY
253 million vs. the prior year). The Group’s royalty revenue relates to sales of Ultibro® Breezhaler®,
Seebri® Breezhaler® and Enerzair® Breezhaler® by Novartis2.

2 Glycopyrronium bromide and certain use and formulation intellectual property were exclusively licensed to Novartis in April 2005 by Sosei and

Vectura. Seebri®, Ultibro®, Enerzair® and Breezhaler® are registered trademarks of Novartis.

- 25 -

Sosei Group Corporation
Section 2. Business Review
3 Management’s Analysis of Financial Position, Operating Results and Cash Flows (continued)
3.1 Operating Results (continued)
Operating expenses
Cost of sales
Cost of sales in the year under review totaled JPY 926 million (a decrease of JPY 7 million vs. the prioryear). Cost of sales comprises the cost of pharmaceutical product sold in the period plus the internalcosts of delivering research and development services to customers.
Research & development expenses
Research and development (“R&D”) expenses in the year under review totaled JPY 7,454 million (anincrease of JPY 1,523 million vs. the prior year). The increase is primarily due to increased investment
in our in-house discovery and early development programs, the cost of a restructuring program
designed to accelerate the development of medicines, the impact of the weaker Yen and cost inflation.
In addition, the reclassification of share-based payment expenses relating to scientists to the R&D
expenses line from the Selling, general and administrative expenses line as this is regarded as a better
presentation of that spend. In the year under review 98% of R&D expenses relates to our UK operations.
Selling, general & administrative expenses
Selling, general and administrative (“G&A”) expenses in the year under review totaled JPY 4,377 million(an increase of JPY 437 million vs. the prior year). This was primarily due to the cost of a restructuring
program designed to accelerate the development of medicines, the impact of the weaker Yen and cost
inflation. These increases were partly offset by the reclassification of share-based payment expenses
relating to scientists from the G&A expenses line to the R&D expenses line as this is regarded as abetter presentation of that spend.
Net other income
Net other income in the year under review totaled JPY 624 million (an increase of JPY 3,757 million vs.
the prior year). This was primarily due to intangible asset impairment loss recorded in the amount of
JPY 3,138 million following the decision by a partner not to proceed with clinical trials for certain outlicensed products in the prior year compared to no equivalent in 2022. In addition, the R&D
expenditure related UK tax credit increased in 2022.
Operating profit
Operating profit in the year under review totaled JPY 3,436 million (a decrease of JPY 339 million vs.
the prior year). The main reasons for the decrease in the operating profit are the decrease in revenue
and increase in R&D expenditure, for the reasons stated above, which were partially offset by higher
net other income.

- 26 -

Sosei Group Corporation
Section 2. Business Review
3 Management’s Analysis of Financial Position, Operating Results and Cash Flows (continued)
3.1 Operating Results (continued)
Net finance costs
Net finance costs in the year under review totaled JPY 93 million (a decrease of JPY 3,505 million vs.
the prior year). This decrease was primarily due to a non-recurring event in the prior year which
resulted in a substantial contingent consideration expense being recorded for the Neurocrine
Biosciences licensing transaction. In addition, interest income has risen due to higher UK interest rates.
These reductions in the net cost have been partially offset by higher bond amortization costs, whichhave increased following (i) the issuance of new convertible bonds with a face value of JPY 30,000
million and (ii) the repurchase of existing convertible bonds with a face value of JPY 16,000 million in
July 2021.
Share of loss of associates accounted for using the equity method
Share of loss of associates accounted for using the equity method in the year under review totaled JPY
429 million (an increase of JPY 479 million vs. the prior year). This was due to MiNA (Holdings) Limited(“MiNA”), an associated company of the Group, generating no licensing revenue leading to a net loss
for the year under review vs. MiNA recording a net profit in the prior year. The Group has excluded
MiNA from associates accounted for using the equity method since October 2022 as management
determined that it no longer exercised significant influence over MiNA from that date.
(Impairment loss) or gain on reversal of impairment loss on investments accounted for using the equity
methodImpairment loss of JPY 1,836 million on investments accounted for using the equity method wasrecorded during the year under review. This was due to a decrease in the fair value of MiNA. In theprior year, a gain of JPY 206 million arose on reversal of impairment loss on investments accounted forusing the equity method. This was due to an increase in the fair value of Jitsubo CO., LTD., an associatedcompany of the Group, which was disposed of in April 2021.
Net profit before income tax
Net profit before income tax in the year under review totaled JPY 1,078 million (an increase of JPY 645
million vs. the prior year). This increase reflects the combined effect of all of the movements explained
above.
Income tax expense
Income tax expense in the year under review totaled JPY 696 million (vs. an income tax benefit of JPY
584 million in the prior year). This was primarily due to the cessation of entitlement of Heptares
Therapeutics Ltd., a subsidiary of the Group, to claim certain UK R&D expenditure related tax incentives
due to its sustained growth.
Net profit
Net profit in the year under review totaled JPY 382 million (a decrease of JPY 635 million vs. the prioryear). This decrease reflects the combined effect of all of the movements explained above.

- 27 -

Sosei Group Corporation
Section 2. Business Review
3 Management’s Analysis of Financial Position, Operating Results and Cash Flows (continued)
3.1 Operating Results (continued)
Alternative performance measure: Core operating profit / loss
Core operating profit / loss is an alternative performance measure which adjusts for material non-cash
costs and one-off costs in order to provide insights into the recurring cash generating capability of thecore business.
Core operating profit in the year under review totaled JPY 5,856 million (a decrease of JPY 3,048 million
vs. the prior year). The main reasons for the decrease are a reduction in revenues in 2022 for thereasons explained above, and an increase in investment in R&D in line with the Group’s growth strategy.
In calculating core operating profit the following adjustments to the IFRS operating profit have been
made:






Depreciation totaling JPY 563 million (an increase of JPY 22 million vs. the prior year).
Amortization totaling JPY 782 million (an increase of JPY 45 million vs. the prior year).
Share-based payments totaling JPY 542 million (a decrease of JPY 171 million vs. the prior year).
Restructuring costs totaling JPY 533 million. These costs related to the management
reorganization announced on February 1, 2022 (including JPY 158 million of accelerated sharebased payment expenses).
No impairment loss in the year under review (JPY 3,138 million charge recorded in the prioryear). This was mainly due to the impairment of intangible assets recorded in the prior year asa result of a decision by a partner not to proceed with clinical trials for certain out-licensed
products.

Analysis of financial position: Assets, liabilities and equity
AssetsTotal assets as at December 31, 2022 were JPY 99,417 million (an increase of JPY 2,432 million vs. theend of the prior year). This was primarily due to increased cash and cash equivalents following thereceipt of USD 77 million in upfront payments from AbbVie and Lilly and an increase in the yen valueof assets held by our consolidated subsidiary Heptares Therapeutics Ltd. as a result of the appreciationof the British pound against the yen, partially offset by the impairment loss recorded on the Group’s
shareholding in MiNA and a decrease in other financial assets due to a fall in the share price of Centessa
Pharmaceuticals plc.
Liabilities
Total liabilities as at December 31, 2022 were JPY 41,481 million (an increase of JPY 1,964 million vs.
the end of the prior year). This was primarily due to the increase in deferred revenue arising from our
new collaborations with AbbVie and Lilly, partially offset by a decrease in the contingent consideration
liability arising from business combinations due to the payment of contingent consideration to theformer shareholders of Heptares Therapeutics Ltd.

- 28 -

Sosei Group Corporation
Section 2. Business Review
3 Management’s Analysis of Financial Position, Operating Results and Cash Flows (continued)
3.1 Operating Results (continued)
EquityTotal equity as at December 31, 2022 was JPY 57,936 million (an increase of JPY 468 million vs. the endof the prior year). This was primarily due to the net profit for the year.
The ratios of Cash and cash equivalents, Interest-bearing debt and Equity attributable to owners of theparent company to total assets were 66.9%, 29.9% and 58.3%, respectively.
3.2 Analysis of cash flows
Cash and cash equivalents as at December 31, 2022 increased by JPY 6,470 million from the beginningof the year and amounted to JPY 66,557 million. The status and main drivers of each cash flow during
the year under review were as follows:
Cash flows from operating activities
Net cash provided by operating activities in the year under review totaled JPY 9,952 million. This wasprimarily due to cash revenues exceeding cash operating costs.
Cash flows from investing activities
Net cash provided by investing activities in the year under review totaled JPY 1,043 million. This wasprimarily due to proceeds received from the sale of shares in Biohaven Pharmaceutical Holding
Company Ltd in response to its tender offer.
Cash flows from financing activities
Net cash used in financing activities in the year under review totaled JPY 4,887 million. This wasprimarily due to the payment of contingent consideration totaling JPY 4,680 million to the former
shareholders of Heptares Therapeutics Ltd.
3.3 Capital resources and liquidity of funds
Working capital to advance business is generated through the receipt of upfront fees and milestone
income, as well as royalty income from partner companies in accordance with the terms ofcollaboration and licensing agreements. In addition, funds are raised for working capital purposes andbusiness acquisitions through the issuance of new shares and bonds in the holding company andthrough bank borrowings.
The Group’s organic funding requirement on an ongoing basis primarily relates to the cost of thedeveloping candidate drugs and developing the Group’s drug discovery platform. R&D activities
include clinical trials of candidate drugs, the in-house development of pipeline drugs and seeking
approval from regulatory authorities. The Group will continue investing in research and development
activities and related facilities.
Please also refer to “Section 5 Financial Statements Notes to the Consolidated Financial Statements,
Note 9 Financial Instruments, sub-section 9.1 Capital management”.

- 29 -

Sosei Group Corporation
Section 2. Business Review
3 Management’s Analysis of Financial Position, Operating Results and Cash Flows (continued)
3.4 Status of production, orders received and sales
The Group reported only one pharmaceutical segment in the year under review and prior year. Groupsales are primarily driven by upfront fees and milestone income associated with developmental
progress, and royalty income. Inventory purchases and sales orders were not relevant.
Purchases of inventory
There were no significant purchases of inventory in the year under review.
Status of Product Sales Orders Received
There were no significant product sales orders in the year under review.
Sales Result
Sales for the year ended December 31, 2022 were as follows:Year ended
December 31, 2022¥m

Year ended
December 31, 2021¥m

Change%Upfront fees and milestone income

12,063

14,667(17.8)

Royalty income

2,564

2,311

10.9

Pharmaceutical product sales

80

28

185.7

Other

862

706

22.1

15,56917,712(12.1)

Notes:
1. Sales to major business partners and their percentage of Total Sales for the year ended December 31, 2022 and the year ended
December 31, 2021 were as follows. Sales in the table below include sales to subsidiaries of the customer groups listed.

Business partner

Year ended
December 31, 2022
AmountPercentage¥m%Year ended
December 31, 2021
AmountPercentage¥m%

Neurocrine Biosciences, Inc.

4,138

26.6

11,40864.4

Eli Lilly and Company

3,429

22.0

-

-

AbbVie Inc.

2,849

18.3

301

1.7

Novartis International AG

2,564

16.5

2,311

13.1

3.5 Significant accounting estimates and associated assumptions
The Group's significant accounting policies and estimates are described in“Section 5 Financial
Statements, Note 3 Significant accounting policies and Note 4 Significant accounting estimates andassociated judgments.”In addition, the impact of COVID-19 on accounting estimates is described in“Section 5 Financial Statements, Note 33 Additional information – COVID 19 .”- 30 -

Sosei Group Corporation
Section 2. Business Review
4 Significant Contracts in Business Operation
The significant contracts that existed during the year ended December 31, 2022 were as follows:
4.1 Contracts Involving Sosei Group Corporation
Contract regarding acquisition of Heptares
Contract nameShare Purchase Agreement
Counterparty
105 Heptares shareholders
Execution dateFebruary 20, 2015
Contract period
Not determined
Main contents of
The Company acquired all of the issued shares of Heptares for a maximum
contract
price of USD 400 million, comprising USD 180 million as consideration for theshares and a maximum price of USD 220 million in contingent consideration,
payable in the event that Heptares receives milestone or royalty revenues
upon the occurrence of certain events stipulated in the agreement.
Commitment line contract
Contract nameCommitment Line Agreement
Counterparty
Financial institutions, with Mizuho Bank, Ltd. as arranger and agent
Execution date
December 30, 2022
Borrowing limit
JPY 5,000 million
Commitment period From December 30, 2022 to December 29, 2023 (However, the Company
has the right to extend the Commitment period until December 30, 2024 or
December 30, 2025.
Collateral
Non-collateral agreement
4.2 Contracts Involving Heptares
Development of Respiratory Drugs
Contract name
License Agreement
Counterparty
Novartis International AG, Vectura Ltd. (Note: Originally contracted with
Sosei R&D Ltd and novated to Heptares UK Ltd. in November 2018)
Execution date
April 12, 2005
Contract period
From the date of conclusion of the agreement until the later of (1) the expiryof the last patent licensed by Sosei R&D Ltd. and its joint licenser Vectura, or(2) 10 years after the initial launch date of the last product commercialized
by Sosei R&D Ltd. or a licensee.
Main contents ofSosei R&D Ltd. and Vectura granted exclusive licenses to Novartis to develop
contract
and commercialize NVA237 and QVA149 globally.

- 31 -

Sosei Group Corporation
Section 2. Business Review
4 Significant Contracts in Business Operation (continued)
4.2 Contracts Involving Heptares (continued)
Contract nameCounterparty
Execution date
Contract period

Main contents ofcontract

Contract nameCounterparty
Execution date
Contract period
Main contents ofcontract

Contract nameCounterparty
Execution date
Contract period
Main contents ofcontract

Research and License Agreement
AstraZeneca UK Limited
August 6, 2015
From the effective date of the agreement (the end of the waiting period
under the United States antitrust law) until the later for each applicableproduct and country of (1) the expiry date of the applicable patent rights, (2)the end of the legal monopoly period, or (3) the earlier of 10 years after themarket launch or the launch of a generic version.
Heptares granted to AstraZeneca exclusive worldwide development,
manufacturing and commercialization rights for the adenosine A2A receptor
antagonist HTL1071 and receives as consideration an upfront payment,
milestone and royalty revenues. In addition, both companies are to conducta joint research program.
Research Collaboration and License Agreement
Pfizer Inc.
November 18, 2015
From the date of conclusion of the agreement until the later for eachapplicable product and country of either (1) the final patent expiry date of
the applicable patent rights, or (2) 10 years after the market launch.
Heptares granted to Pfizer exclusive rights to develop, manufacture, andcommercialize new pharmaceutical products related to up to 10 types of
GPCR targets in multiple fields in return for development andcommercialization milestone payments and royalties on net sales.
Research Collaboration and License Agreement
Genentech, Inc.
July 12, 2019
From the Contract Date to the later of either (1) the expiration date of thepatent term for the subject patent rights, etc., or (2) the date 10 years after
the commencement of marketing, for each covered product and country.
The two companies will jointly develop multiple GPCR targets, and Heptares
granted to Genentech exclusive worldwide development, manufacturing
and commercialization rights for the identified Exclusive Targets. Heptares iseligible to receive an upfront payment, milestones and royalties inconsideration.

- 32 -

Sosei Group Corporation
Section 2. Business Review
4 Significant Contracts in Business Operation (continued)
4.2 Contracts Involving Heptares (continued)
Contract nameCounterparty
Execution date
Contract period

Main contents ofcontract

Multi-Target Collaboration Agreement
Millennium Pharmaceuticals, Inc.
(a 100% subsidiary of Takeda Pharmaceutical Co., Ltd.)
August 2, 2019
From the Contract Date to the later of (1) the expiration date of the patentterm for the Subject Patent Rights, etc., (2) the expiration date of 10 years
after the commencement of marketing, or (3) the end date of the statutory
monopoly period, for each Subject Product and country.
Heptares granted to Millennium Pharmaceuticals, Inc. exclusive worldwide
development, manufacturing and commercialization rights for selected
GPCR targets. Heptares is eligible to receive an upfront payment, milestones
and royalties in consideration. The two companies have also implemented ajoint research program.

Contract name

Collaboration and Option to License Agreement

Counterparty

AbbVie Ireland Unlimited Company

Execution dateJune 24, 2020
From the Contract Date to the later of (1) the expiration date of the patentterm for the Subject Patent Rights, etc., (2) the expiration date of 10 years
after the commencement of marketing, or (3) the end date of the statutory
monopoly period, for each Subject Product and country.
Heptares and AbbVie will jointly develop new drug candidates. Heptares
granted to AbbVie an option to exclusively license the worldwide
development and commercialization rights. Heptares is eligible to receive an
upfront payment, milestones and royalties in consideration. AbbVie has theoption to expand the collaboration up to a total of four targets.

Contract period

Main contents ofcontract

Contract name

Collaboration and License Agreement

Counterparty

Tempero Bio, Inc.

Execution dateNovember 2, 2020
From the Contract Date to the later of (1) the expiration date of the patentterm for the Subject Patent Rights, etc., or (2) the expiration date of 10 years
after the commencement of marketing, for each Subject Product andcountry.
Heptares granted to Tempero Bio exclusive global rights to its mGlu5
negative allosteric modulator (NAM) program including the candidate
HTL0014242. Heptares is eligible to receive an upfront payment, Tempero
Bio stock, milestones and royalties in consideration.

Contract period

Main contents ofcontract- 33 -

Sosei Group Corporation
Section 2. Business Review
4 Significant Contracts in Business Operation (continued)
4.2 Contracts Involving Heptares (continued)
Contract name

Global Collaboration and License Agreement

Counterparty

Biohaven Pharmaceutical Holding Company Ltd. (acquired by Pfizer in 2022)

Execution dateNovember 30, 2020
From the Contract Date to the later of (1) the expiration date of the patentterm for the Subject Patent Rights, etc., (2) the expiration date of 10 years
after the commencement of marketing, or (3) the end date of the statutory
monopoly period, for each Subject Product and country.
Heptares granted to Biohaven exclusive rights to develop, manufacture anddistribute a portfolio of novel, small-molecule CGRP receptor antagonists
and is eligible to receive an upfront payment, milestones and royalties inconsideration.

Contract period

Main contents ofcontract

Contract name

Collaboration and License Agreement

Counterparty

GlaxoSmithKline Intellectual Property (No.5) Limited

Execution date

December 18, 2020
From the Contract Date to the later of (1) the expiration date of the patentterm for the Subject Patent Rights, etc., (2) the expiration date of 10 years
after the commencement of marketing, or (3) the end date of the statutory
monopoly period, for each Subject Product and country.

Contract period

Main contents ofcontract

Heptares granted to GSK, exclusive rights to develop, manufacture anddistribute a portfolio of GPR35 agonists and is eligible to receive an upfront
payment, milestones and royalties in consideration.

Contract nameCounterparty
Execution date
Contract period

Collaboration and License Agreement
Neurocrine Biosciences, Inc.
November 22, 2021
From the Contract Date to the later of (1) the expiration date of the patentterm for the Subject Patent Rights, etc., (2) the expiration date of 10 years
after the commencement of marketing, or (3) the end date of the statutory
monopoly period, for each Subject Product and country.
Heptares granted to Neurocrine Biosciences exclusive rights to develop,
manufacture and commercialize novel subtype-selective muscarinic
receptor agonists for the treatment of major neurological disorders,
including Alzheimer’s disease in return for an upfront payment,
development and commercialization milestone payments and royalties on
net sales.

Main contents ofcontract- 34 -

Sosei Group Corporation
Section 2. Business Review
4 Significant Contracts in Business Operation (continued)
4.2 Contracts Involving Heptares (continued)
Contract nameCounterparty
Execution date
Contract period

Main contents ofcontract

Contract nameCounterparty
Execution date
Contract period

Main contents ofcontract

Amendment to Collaboration and Option to License Agreement
AbbVie Global Enterprises Ltd.
August 1, 2022
From the Contract Date to the later of (1) the expiration date of the patentterm for the Subject Patent Rights, etc., (2) the expiration date of 10 years
after the commencement of marketing, or (3) the end date of the statutory
monopoly period, for each Subject Product and country.
Heptares and AbbVie will jointly develop new drug candidates targeting
neurological diseases. Heptares granted to AbbVie an option to exclusively
license the worldwide development and commercialization distribution
rights. Heptares is eligible to receive an upfront payment, milestones androyalties in consideration.
Multi-Target Collaboration and License Agreement
Eli Lilly and Company
December 15, 2022
From the Contract Date to the later of (1) the expiration date of the patentterm for the Subject Patent Rights, etc., (2) the expiration date of 10 years
after the commencement of marketing, or (3) the end date of the statutory
monopoly period, for each Subject Product and country.
Heptares and Eli Lilly will jointly develop new drug candidates targeting
diabetes and metabolic diseases. Heptares granted to Eli Lilly exclusive
worldwide development and commercialization rights. Heptares is eligible
to receive an upfront payment, milestones and royalties in consideration.

- 35 -

Sosei Group Corporation
Section 2. Business Review
5 Research and Development Activities
As a biotechnology Group oriented towards product development, management focuses resources on
pharmaceutical research and development activities. The Group’s research and development expenses
comprise development expenses for the Group’s development products, expenses for discovering thenext generation of development candidates and research for foundational technologies for drug
discovery.
The Group’s research and development expenses for the year ended December 31, 2022 were JPY
7,454 million (measured in accordance with IFRS).
Details of the Group’s Research and Development activities during the year were as follows:(i) Extending and enhancing the Group’s world-leading StaR®/SBDD discovery capabilities
Verily Life Sciences LLC – to identify novel targets and generate drug candidates for immune-mediateddiseases
On January 6, 2022, the Group and Verily Life Sciences LLC (“Verily”), an Alphabet precision healthcompany, announced that they had entered into a strategic research collaboration bringing together
the complementary capabilities of Verily’s immune profiling platform and the Group’s GPCR SBDD. The
collaboration aims to:• Advance the understanding of GPCR biology in immune cells, particularly in the fields ofimmunology, gastroenterology, immuno-oncology and other disorders with immunoprotective or
immunopathogenic mechanisms• Prioritize and validate GPCR targets with strong potential as drug targets• Discover and develop novel drug candidates that modulate these targets
Verily’s proprietary Immune Profiler is a next generation immune mapping platform that combines
high-resolution molecular phenotyping performed in Verily’s labs and advanced computational
analysis techniques to generate insights into immune system functions. It will be used to identify GPCR
targets that represent new opportunities to modulate immune cell function and ameliorate disease
pathology. The companies will collaborate to prioritize the GPCR targets using the Group’s worldleading StaR® platform and structure-based drug design expertise, with the goal of generating leadmolecules for further development or out-licensing. We have reached our first milestone in identifying
and prioritizing targets in only 6 months from the start of the collaboration and have entered validation,
hit generation and lead selection.
Kallyope Inc. - to identify and validate novel gastrointestinal GPCR targets
On May 17, 2022, the Group and Kallyope Inc. (“Kallyope”), a pioneer in drug discovery involving the
gut-brain axis, announced that they had entered into a strategic research collaboration to identify andvalidate novel GPCR targets with a goal of creating new drug discovery programs in the area ofgastrointestinal diseases. The agreement leverages the Group’s GPCR Diversified Compound Library
and GPCR expertise with the innovative Kallyope gut-brain axis platform, which combines single-cellsequencing, circuit mapping, computational biology and enteroid phenotypic screening. Together, thecompanies will prioritize and validate GPCR drug targets that represent new opportunities for potential- 36 -

Sosei Group Corporation
Section 2. Business Review
5 Research and Development Activities (continued)
therapeutic intervention in gastrointestinal diseases and create programs for the development of novel
small molecules that modulate these targets.
University of Oxford and KU Leuven - R&D Agreements to identify and validate key GPCRs driving
gastrointestinal and immune disorders
On December 8, 2022, the Group announced it had entered into translational medicine and R&D
agreements with the MRC Weatherall Institute of Molecular Medicine at the University of Oxford, UK
and KU Leuven, Belgium. The focus of the agreements is to apply the innovative technologies andresearch capabilities of the respective academic groups to identify, validate and prioritise key GPCRs
driving gastrointestinal and immune disorders, including Inflammatory Bowel Disease, as targets for
SBDD.
(ii) Supporting our existing partnerships with major global pharmaceutical companies to drive
continued revenue flow
AbbVie partnership
On August 1, 2022, the Group and AbbVie, a research-based global biopharmaceutical company,
announced that they had entered into a new drug discovery collaboration and option-to-license
agreement to discover, develop and commercialize small molecules that modulate novel GPCR targets
associated with neurological disease. The new agreement leverages the Group’s StaR® technology and
SBDD platform and AbbVie’s extensive neuroscience and disease area expertise. The agreement
expands the breadth of the ongoing collaboration between the Group and AbbVie, building on the firstmulti-target discovery agreement signed between the companies in June 2020, which is focused on
the inflammatory and autoimmune disease areas.
Under the terms of the new agreement, the Group will conduct and fund R&D activities through tothe completion of Investigational New Drug (IND)-enabling studies. AbbVie has the exclusive option tolicense up to three programs at this stage and will have responsibility for clinical, regulatory andcommercial development thereafter.
The Group received an upfront payment of US$40 million on signing and is eligible to receive up to
US$40 million in near-term research milestone payments expected over the next three years, as well
as further potential option, development and commercial milestones totaling up to US$1.2 billion, plus
tiered royalties on global sales.
On December 13, 2022, the Group announced that it had reached an important R&D milestone under
its discovery collaboration with AbbVie focused on inflammatory and autoimmune diseases. The
achievement triggered a payment of US$10 million to Group.
Neurocrine Biosciences partnership
On August 4, 2022 (UK time), the Group announced that it had been notified by its partner Neurocrine
Biosciences that a US$30 million milestone had become payable to the Group following Neurocrine
Biosciences’s determination that it could proceed as planned with a Phase 2 clinical trial of NBI1117568 for the treatment of adults with schizophrenia after receiving approval of its IND applicationby the US Food and Drug Administration (“FDA”).
- 37 -

Sosei Group Corporation
Section 2. Business Review
5 Research and Development Activities (continued)
NBI-1117568 is an oral, selective muscarinic M4 receptor agonist in development for the treatment ofschizophrenia and other neuropsychiatric disorders. As a selective M4 orthosteric agonist, NBI1117568 offers the potential to deliver therapeutic effects without the need for combination therapy
to minimize side effects, as required with non-selective muscarinic agonists, whilst also avoiding therequirement for cooperativity with acetylcholine (ACh) when compared to positive allostericmodulators. Clinical studies completed to date have shown NBI-1117568 to be generally safe and welltolerated.
NBI-1117568 is the most advanced candidate from a broad portfolio of novel clinical and preclinicalsubtype-selective muscarinic M1, M4 and dual M1/M4 receptor agonists discovered by the Group andin development under the 2021 collaboration with Neurocrine Biosciences for the treatment of major
neurological disorders. Upon successful completion of pre-clinical studies, Neurocrine Biosciences
anticipates initiating Phase 1 studies for a dual M1/M4 and selective M1 agonist. Advancing additional
compounds into clinical studies would trigger further milestone payments from Neurocrine
Biosciences to the Group.
On October 28, 2022, the Group noted that its partner, Neurocrine Biosciences, had announced thefirst patient had been randomized for its Phase 2 placebo-controlled study evaluating the efficacy,
safety, tolerability and pharmacokinetics of NBI-1117568 in adults with schizophrenia. The Phase 2
study will enroll approximately 200 adults and is being conducted at 15 centres throughout the US.
The study will evaluate multiple active dose levels of NBI-1117568. The primary outcome measure willbe the change in total Positive and Negative Syndrome Scale (PANSS) score from baseline to Week 6.
Lilly partnership
On December 16, 2022, the Group announced that it had entered into a drug discovery collaboration
with Lilly, a global biopharmaceutical company, to discover, develop and commercialize small
molecules that modulate novel GPCR targets associated with diabetes and metabolic diseases. This
new agreement leverages the Group’s StaR® technology and SBDD platform and Lilly’s extensive drug
development and commercialization expertise as well as its therapeutic area expertise in diabetes andmetabolic diseases.
Under the terms of the agreement, the Group will focus its efforts on multiple GPCR targets nominatedby Lilly to deliver novel target-selective small molecule candidates for further development andcommercialization. The Group received an upfront payment of US$37 million on signing and is eligible
to receive development and commercial milestones totaling up to US$694 million, plus tiered royalties
on global sales.
Pfizer partnership
On December 21, 2022, the Group announced that it had been notified by Pfizer that the first subject
had been dosed in a Phase 2 clinical trial with Pfizer’s candidate PF-07081532. Achievement of thismilestone triggered a US$10 million payment to Group. PF-07081532 is a once-daily, next-generation
oral small molecule GLP-1 receptor agonist in development for the treatment of Type 2 diabetes andobesity. PF-07081532 was discovered by Pfizer scientists during a multi-target research collaborationin which Pfizer had access to the Group’s proprietary StaR® technology. PF-07081532 had successfullycompleted Phase 1 clinical studies conducted by Pfizer.
- 38 -

Sosei Group Corporation
Section 2. Business Review
5 Research and Development Activities (continued)
PF-07081532 is one of three clinical candidates nominated by Pfizer during its collaboration with theGroup, all of which are now progressing in clinical trials. The other two candidates, both currently inPhase 1 trials, are:
• PF-07054894 (a CCR6 receptor antagonist targeting Inflammatory Bowel Disease), and• PF-07258669 (an MC4 receptor antagonist for anorexia)(iii) Transforming in-house R&D to a program-centric operating model designed to enhance
productivity, value and success
Weatherden Limited – strategic collaboration to embed an agile operating model and enhance
discovery and translational medicine capabilities
On April 26, 2022, the Group announced a strategic collaboration with Weatherden Limited("Weatherden”), a specialist R&D and clinical development consulting group. The collaboration aims
to build upon the Group’s world-leading GPCR SBDD platform and expertise and Weatherden’stranslational medicine and drug development expertise to create an agile operating model supported
by best-in-class drug discovery and development teams.
The goal of this collaboration is to accelerate the prioritisation and progression of multiple pipeline
programs through Phase 1b/2a trials to establish clinical proof-of-concept. This stage represents a key
value inflection point that will potentially drive the Group to enter high-value global licensing anddevelopment deals as a way to generate significant revenues and fund accelerated growth over thelong term.
By leveraging Weatherden’s extensive experience, scientific expertise and data driven approach,
together with its commercial focus on pharmaceutical asset evaluation and development, the Group
has assembled the capabilities needed to enable a ‘venture-like’ capital allocation approach to pipeline
development.
In this way, the Group aims to optimize decision-making and value generation by:• creating new, efficient drug discovery and development pathways,• accelerating the translation of its world-leading science into life-changing therapeutics forpatients, and• maximizing partnering transaction opportunities by taking selected in-house programs to aclinical proof-of-concept stage.
Expansion of UK R&D operations to a second site in Cambridge, UK
On May 26, 2022, the Group announced that it had expanded its UK R&D operations into a second andadjacent site within Granta Park, Cambridge. The expansion has been driven by the Group’s growthstrategy to become a multi-program, early clinical stage business and a partner-of-choice for leading
biopharmaceutical companies.

- 39 -

Sosei Group Corporation
Section 2. Business Review
5 Research and Development Activities (continued)
Advancing three wholly owned candidates towards clinical trials
Based on the new strategy to transform R&D to a program-centric operating model, entrench target
biology and enhance translational medicine capabilities, the Group aims to swiftly progress its wholly
owned programs to a clinical proof of concept stage, with the following three candidates at theforefront:• An oral EP4 antagonist (HTL0039732), a potential novel immunotherapy for solid tumors. On July22, 2022, the Group and Cancer Research UK, the world’s largest private funder of cancer research,announced the signing of an agreement to bring HTL0039732 into a first-in-human trial.
• An oral small molecule GPR52 agonist program, which potentially presents opportunities toaddress both the positive and negative symptoms and cognitive impairment in schizophrenia andpsychosis, without adverse effects typically associated with existing antipsychotics.
• An oral, gut-restricted small molecule EP4 agonist potentially for the treatment of Inflammatory
Bowel Disease. The Group’s candidate, which acts through combined anti-inflammatory and gut
barrier-protecting effects to promote mucosal healing, has shown robust efficacy across a rangeof preclinical models.
(iv) Building out a leading commercialization business in Japan
During 2022, the Group has been refining its strategy for Japan to focus on specialty products targeting
underserved therapy areas. The Group believes that a huge opportunity exists for an agile, scalable
and effective clinical development and commercialization business in Japan and intends to capitalize
on significant underserved opportunities that the Group sees within the large attractive market. The
Group is committed to building such a business over the coming years. This belief is based on the factthat Japan is the third largest pharma market behind the US and China, has a very large aging
population and universal health care system. The Group intends to in-license foreign de-risked
approved or late-stage clinical assets initially and, in the longer term, to expand the pipeline withinternally generated programs.

- 40 -

Sosei Group Corporation
Section 3. Facilities
1 Overview of Capital Expenditures
In the year under review, UK R&D Operations in Cambridge were expanded. As a result, a right-of-use
asset in the amount of JPY 102 million was recorded. There were no disposals or sales of importantfacilities during the year under review.
2 Status of Main Facilities
The Group’s main facilities as at December 31, 2022 were as follows:
2.1 Filing Company

Office name
(Location)

Description

Head office(Chiyoda-ku, Tokyo)

Group administration

Buildings¥m
27Book value
Furnitureandfixtures
Leases
¥m
¥m
11

-

Total
¥m
38

Numberofemployees
24(1.7)

Notes:
1. The above amounts are based on JGAAP.
2. The Head office is a leased facility.
3. The annual average number of other workers is provided separately in parentheses.

2.2 Overseas Subsidiaries

Subsidiary(Location)
Heptares
Therapeutics Ltd.
Head office(Cambridge, U.K.)

Description
Research
facility

Buildings Machineryandandstructures equipment
¥m
¥m

1,474

Book value
Furniture Construction Right-of-use
in progress
Assetsand¥mfixtures
¥m
¥m

502

124

Notes:
1. The above amounts are based on IFRS.
2. The Research facility is a leased facility.
3. The annual average number of other workers is provided separately in parentheses.

3 Plans for New Installation and Retirement of Facilities
3.1 New Installation of Important Facilities
Not applicable.
3.2 Retirement of Important Facilities
Not applicable.

- 41 -

109

1,520

Total

Numberof¥m employees

3,729

158
(13.6)

Sosei Group Corporation
Section 4. Information about the Filing Company
1 Stock Information
1.1 Total Number of Shares
Total Number of Shares
Type

Total number of authorized shares (shares)

Common shares

149,376,000

Issued Shares
Number of issued
shares at
December 31,
2022 (shares)

Number ofissued shares atthe date ofsubmissionMarch 23,2023 (shares)

Name of listed
financial instruments
exchange or name ofregistered authorized
financial instruments
firms’ associations

Commonshares81,923,230

81,923,230

Tokyo Stock Exchange
Growth (at December
31, 2022)
Prime (at the date ofsubmission - March
23, 2023)

Number of sharesconstituting one unit:
100 shares

Total

81,923,230

81,923,230

-

-

Type

Details

Notes:
1. In the “number of issued shares at the date of submission” the number of shares issued through the exercise of stock options
during the period between March 1, 2023 and the submission date of this securities report is not included.
2. On March 15, 2023, the company’s shares changed market from the Growth market to the Prime market on the Tokyo Stock
Exchange.

1.2 Stock Acquisition Rights (Stock Options)
Details of Stock Acquisition Rights
Please refer to “Section 5 Financial Statements Notes to the Consolidated Financial Statements, Note
22 Share-based payments”.
Contents of Rights Plan
Not applicable.

- 42 -

Sosei Group Corporation
Section 4. Information about the Filing Company
1 Stock Information (continued)
1.2 Stock Acquisition Rights (Stock Options) (continued)
Contents of Exercise of others
Sosei Group Corporation Euro-Yen Convertible Bonds due 2026 (Hereinafter referred to as the "Bonds
with Stock Acquisition Rights", of which only the bonds are referred to as the "Bonds" and only thestock acquisition rights are referred to as the "Stock Acquisition Rights".)
Resolution dateJuly 7, 2021

Number of stock acquisition rights (units) (*)

3,000

Number of treasury stock acquisition rights among stock acquisition rights (*)
Class and number of shares underlying stock acquisition rights (shares)(Note 1) (*)

Common Shares

Amount to be paid into exercise stock acquisition rights (yen) (Note 2) (*)
Period for exercising stock acquisition rights (Note 3) (*)

13,422,818

2,235
From August 10, 2021 to July 13, 2026

Share issue price and additional paid-in capital per share in the event ofissuance of shares upon exercise of stock acquisition rights (yen) (Note4) (*)

Issue price: 2,235
Additional paid-in capital per
share:1,118

Conditions for exercising stock acquisition rights (*)(Note 5)Matters relating to transfer of stock acquisition rights (*)

The stock acquisition rights areattached to convertible bond-typebonds with stock acquisition rights andcannot be transferred separately fromthe bonds.

Matters relating to granting of stock acquisition rights in association with actsof organizational restructuring (*)(Note 6)

Details and value of assets to be contributed for the exercise of stock

Upon the exercise of each stockacquisition right, the bonds pertaining
to such stock acquisition rights shall becontributed, and the value of suchbonds shall be equal to the nominal
value thereof.

Balance of stock acquisition rights at the end of the financial year (\m)

30,000(*)

The position as at the end of the current year (December 31, 2022) is described above. As at the end of the monthprior to the submission date (February 28, 2023) there had been no change. Accordingly, equivalent disclosures relating
to the position as at the end of the month prior to the submission date have been omitted.

Note 1 The type and content of shares to be issued upon exercise of the Stock Acquisition Rights shallbe shares of the Company's common stock (100 shares per unit), and the number of sharesof the Company's common stock to be delivered by the Company upon exercise of the Stock
Acquisition Rights shall be the number obtained by dividing the total face value of the Bonds
pertaining to the exercise request by the conversion price set forth in 2 (1) and (2) below.
However, any fraction of a share resulting from the exercise of the Stock Acquisition Rights
shall be rounded down and no adjustment in cash shall be made. In addition, if the exerciseof the Stock Acquisition Rights results in the issuance of shares constituting less than one unit,
such shares constituting less than one unit shall be delivered to the holders of the Bonds (the"Bondholders") in the same manner as shares constituting one unit, and the Company shallnot make any cash settlement for such shares constituting less than one unit.
- 43 -

Sosei Group Corporation
Section 4. Information about the Filing Company
1 Stock Information (continued)
1.2 Stock Acquisition Rights (Stock Options) (continued)
Note 2 (1) The amount to be paid in at the time of exercise of the Stock Acquisition Rights (the"Conversion Price") shall initially be JPY 2,235.
(2) The conversion price shall be adjusted in accordance with the following formula if, after
the issuance of the Bonds, the Company issues shares of common stock of the Company at a
paid in price below the market price of the Company's common stock or disposes of sharesof common stock of the Company held by the Company. In the following formula, the"number of shares already issued" refers to the total number of the Company's issued
common shares (excluding those held by the Company).

Conversion Price＝after adjustment

Conversion Price
beforeadjustment

×

Number ofoutstanding
shares+Net balance ofAmount paid per
newly issued
×share
and disposed
sharesMarket value

Number ofoutstanding shares＋

Net balance of newly issued anddisposed shares

The Conversion Price shall also be adjusted from time to time in the event of a split orconsolidation of the Company's common stock, the distribution of a certain amount of
surplus, the issuance of stock acquisition rights (including those attached to bonds with stockacquisition rights) that allow the Company to request the delivery of the Company's common
stock at a price lower than the market price of the Company's common stock, or theoccurrence of certain other events.
Note 3 Provided, however, that (i) in the event of early redemption by the Company as provided forin the terms and conditions of the Bonds, no later than three business days prior to theredemption date in Tokyo (however, this excludes the Stock Acquisition Rights pertaining to
the Bonds that are elected not to be subject to early redemption due to Tax Reform), (ii) in
the event of early redemption at the option of the Bondholders, until the time when the
Redemption Notice is deposited with the Agent for Receipt of Payment and Exercise of Stock
Acquisition Rights, (iii) in the case of a purchase and cancellation, until the time of cancellationof the Bonds, and in the case of forfeiture of the benefit of the term of the Bonds, until thetime of forfeiture of the benefit of the term. In any of the above cases, the Stock Acquisition
Rights may not be exercised later than July 13, 2026 (local time at the place where the Bonds
are deposited for the exercise of the Stock Acquisition Rights). Notwithstanding the foregoing,
if the Company reasonably determines that it is necessary in order to carry out organizational
restructuring, etc. of the Company, the Stock Acquisition Rights may not be exercised during
the period designated by the Company that ends within 14 days from the day following theeffective date of the organizational restructuring, etc. Notwithstanding the foregoing, theBondholders shall not be entitled to receive payment of interest on the Bonds if the
Depositary Date (as defined below) is the record date (including the same date) for thepayment of interest on the Bonds. Notwithstanding the above, the Stock Acquisition Rights
may not be exercised if the calendar day in Japan on which the exercise of the Stock
Acquisition Rights takes effect (or, if such calendar day is not a business day in Tokyo, the next
- 44 -

Sosei Group Corporation
Section 4. Information about the Filing Company
1 Stock Information (continued)
1.2 Stock Acquisition Rights (Stock Options) (continued)
business day in Tokyo) falls within the following period: from the date two business days prior
to the record date set by the Company in Tokyo (or, if such date is not a business day in Tokyo,
the date three business days prior to such date in Tokyo) (including the same date) (the"Record Date") or any other date set by the Company to determine shareholders inconnection with Article 151, Paragraph 1 of the Act on Book-Entry Transfer of Company Bonds,
Shares, etc., to the date of determination of shareholders (or, if the date of determination ofshareholders is not a business day in Tokyo, the next business day in Tokyo) (including thesame date). However, if Japanese laws, regulations or practices relating to the delivery ofshares upon exercise of stock acquisition rights through the book-entry transfer system underthe Act on Book-Entry Transfer of Corporate Bonds, Shares, etc. are changed, the Company
may amend the limitation on the period during which the Stock Acquisition Rights may be
exercised under this paragraph to reflect such change. The "Deposit Date" shall mean the dateon which the Bond with Stock Acquisition Rights and other documents necessary for the
exercise request are deposited with the Payment and Stock Acquisition Rights Exercise
Request Agent and the other conditions necessary for the exercise request are satisfied.
Note 4 The amount of stated capital to be increased shall be half of the maximum increased amountof stated capital, etc., as calculated in accordance with Article 14, Paragraph 1 of the Rules of
Account Settlement of Corporations, with any fraction less than one yen resulting from thecalculation being rounded up to the nearest one yen. In addition, the amount of capitalreserve to be increased shall be the amount obtained by subtracting the amount of capital to
be increased from the relevant maximum amount of increase in capital, etc.
Note 5 Each Stock Acquisition Right may not be exercised in part.
Note 6 (1) In the event of Organizational Restructuring, etc., the Company shall use its best efforts tohave the Succeeding Company, etc. (as defined below) succeed to the position as the principal
debtor of the Bonds with Stock Acquisition Rights and deliver new stock acquisition rights inplace of the Stock Acquisition Rights in accordance with the terms and conditions of the Bonds
with Stock Acquisition Rights. However, such succession and delivery shall take place only if(i) such succession and delivery are feasible under the laws applicable at the time, (ii) a
mechanism for such succession and delivery has already been established or can beestablished, and (iii) the Company or the Succeeding Company, etc. does not incur any costs(including taxes) that are unreasonable (as determined by the Company) from the perspectiveof the Reorganization, etc. as a whole. In such cases, the Company shall also make its best
efforts to ensure that the Succeeding Company, etc. is a listed company in Japan as at theeffective date of the Reorganization, etc. This shall not apply if the Company issues acertificate to the effect that the Succeeding Company, etc. is not expected by the Company
to be a listed company in Japan on the effective date of the Reorganization, etc. for any reason
whatsoever. The "Succeeding Company, etc." means the counterparty in the Reorganization,etc., which assumes the obligations of the Company with respect to the Bonds with Stock
Acquisition Rights or the Stock Acquisition Rights.
- 45 -

Sosei Group Corporation
Section 4. Information about the Filing Company
1 Stock Information (continued)
1.2 Stock Acquisition Rights (Stock Options) (continued)(2) The details of the stock acquisition rights of the Succeeding Company, etc. to bedelivered in accordance with the provisions of (1) above shall be as follows:(i) Number of Stock Acquisition Rights:
The number of Stock Acquisition Rights shall be the same as the number of Stock
Acquisition Rights pertaining to the Bonds with Stock Acquisition Rights remaining
immediately prior to the effective date of the Reorganization.
(ii) Class of shares to be issued upon exercise of stock acquisition rights:
Common stock of the Succeeding Company, etc.
(iii) Number of shares to be issued upon exercise of stock acquisition rights:
The number of shares of common stock of the Succeeding Company, etc. to bedelivered upon exercise of the stock acquisition rights of the Succeeding Company, etc.
shall be determined by reference to the terms and conditions of the Bonds, taking into
consideration the terms and conditions of the Reorganization, etc., and shall also be
subject to (I) or (II) below. The conversion price shall be subject to adjustment in thesame manner as set forth above.
(I) In the case of certain mergers, share exchanges, or share transfers, the conversion
price shall be determined so that the number of shares of common stock of thesucceeding company, etc. that the holders of the number of shares of common stockof the Company that would be obtained if they exercised the Stock Acquisition Rights
immediately prior to the effective date of the Reorganization, etc. receive in the
Reorganization, etc. shall be received when they exercise the Stock Acquisition
Rights of the succeeding company, etc. immediately after the effective date of theReorganization, etc. If securities or other property other than the common stock of
the Succeeding Company, etc. are delivered upon the Reorganization, etc., thenumber of shares of common stock of the Succeeding Company, etc. equal to thenumber obtained by dividing the value of such securities or property by the market
value of the common stock of the Succeeding Company, etc. shall be received
together.
(II) In the case of organizational restructuring, etc. other than the above, theconversion price shall be determined so that the Bondholders with Stock Acquisition
Rights will receive the same economic benefits as they would receive if they
exercised their Stock Acquisition Rights immediately prior to the effective date ofsaid organizational restructuring, etc. when they exercise the Stock Acquisition
Rights of the Surviving Entity, etc. immediately after the effective date of saidorganizational restructuring, etc.
(iv) Details of property to be contributed upon the exercise of stock acquisition rights andthe amount thereof:
Upon exercise of the stock acquisition rights of the Succeeding Company, etc., theSucceeded Bonds shall be contributed, and the value of such Succeeded Bonds shallbe the same as the face value of the Succeeded Bonds.
(v) Period during which the Stock Acquisition Rights may be exercised:
From the effective date of the Reorganization, etc. (or a date within 14 days after theeffective date of the Reorganization, etc., as the case may be) until the expiration date
- 46 -

Sosei Group Corporation
Section 4. Information about the Filing Company
1 Stock Information (continued)
1.2 Stock Acquisition Rights (Stock Options) (continued)of the exercise period of the Stock Acquisition Rights set forth above.
(vi) Other conditions for the exercise of stock acquisition rights:
Partial exercise of each stock acquisition right of the Surviving Entity shall not be
permitted.
(vii) Capital stock and capital reserve to be increased in the event of the issuance of shares
upon the exercise of stock acquisition rights:
The amount of stated capital to be increased in the event of the issuance of shares by
the exercise of stock acquisition rights of the Successor Company, etc. shall be themaximum amount of increase in stated capital, etc. calculated in accordance with theprovisions of Article 17 of the Corporate Calculation Rules multiplied by 0.5, with any
fraction less than one yen resulting from the calculation being rounded up to thenearest one yen. The amount of additional paid-in capital to be increased shall be theamount obtained by subtracting the amount of stated capital to be increased from the
maximum amount of increase in stated capital, etc.
(viii) In the event of reorganization, etc.:
In the event of an organizational restructuring, etc. of the Succeeding Company, etc.,
the Bonds will be treated in the same manner.
(ix) Other matter:
If a Succeeding Company, etc. exercises the stock acquisition rights, fractions of lessthan one share resulting from the exercise of stock acquisition rights shall be rounded
down and no cash adjustment shall be made. The stock acquisition rights of the
Succeeding Company, etc. cannot be transferred separately from the Succeeded Bonds.
(3) In the event that the Company's obligations under the Trust Deed are assumed or
succeeded to by the Successor Company, etc., the Company shall comply with the terms andconditions of the Bonds, in addition to attaching a guarantee in certain cases as set forth in
the terms and conditions of the Bonds.
1.3 Status of Exercise of Moving Strike Convertible Bonds (MSCB)
Not applicable.

- 47 -

Sosei Group Corporation
Section 4. Information about the Filing Company
1 Stock Information (continued)
1.4 Changes in the Total Number of Issued Shares, and Capital Stock
Date

Increase/ Balance of total
number of(decrease) in
total number of issued sharesissued shares(shares)(shares)

Increase/(decrease) in
capital stock¥m

Balance ofcapital stock

Increase/ Balance of legal(decrease) in capital reserve
legal
capital reserve
¥m
¥m
¥m

April 1, 2018 –December 31,
2018
Notes 1,2

57,246,952

76,301,936

72

36,85472

24,971January 1, 2019 –December 31,
2019
Note 3

771,200

77,073,136

625

37,479625

25,596

January 1, 2020 –December 31,
2020
Notes 4,5,6

3,522,992

80,596,128

2,741

40,2202,741

28,337January 1, 2021 –December 31,
2021
Notes 7,8,9

922,188

81,518,316

816

41,036816

29,153January 1, 2022 –December 31,
2022
Notes 10,11,12

404,914

81,923,230

299

41,335299

29,452

Notes:
1. On May 10, 2018 the Board of Directors resolved to conduct a stock split. The Company revised its Articles of Incorporation toincrease the total number of authorized shares in proportion to the stock split ratio with effect on 1 July 2018. Therefore, issued
shares increased by 57,164,952 shares.
2. The total number of issued shares increased by 82,000 due to the exercise of stock acquisition rights between April 1, 2018 andDecember 31, 2018, and the resulting increases in capital stock and legal capital reserve were JPY 72 million each.
3. The total number of issued shares increased by 771,200 due to the exercise of stock acquisition rights between January 1, 2019 andDecember 31, 2019, and the resulting increases in capital stock and legal capital reserve were JPY 625 million each.
4. The total number of issued shares increased by 3,301,400 due to the issuance of new shares by way of an international offering andthird-party allotment in association with a secondary offering with a payment date of July 16, 2020 based on the resolution at themeeting of the Board of Directors held on June 30, 2020, and the resulting increases in capital stock and legal capital reserve were
JPY 2,528 million each:Issue price JPY 1,595
Payment amount JPY 1,531.2
Additional paid-in capital per share JPY 765.6
5. The total number of issued shares increased by 149,200 due to the exercise of stock acquisition rights between January 1, 2020 and
December 31, 2020, and the resulting increases in capital stock and legal capital reserve were JPY 132 million each.
6. The total number of issued shares increased by 72,392 due to the issue of new shares under the Restricted Stock Unit (RSU) schemeand the resulting increases in capital stock and legal capital reserve were JPY 81 million each.
7. The total number of issued shares increased by 136,312 due to the exercise of stock acquisition rights of Euro-yen denominatedconvertible bonds due 2025 between January 1, 2021 and December 31, 2021, and the resulting increases in capital stock and legal
capital reserve were JPY 127 million each.
8. The total number of issued shares increased by 584,000 due to the exercise of stock acquisition rights between January 1, 2021 andDecember 31, 2021, and the resulting increases in capital stock and legal capital reserve were JPY 503 million each.

- 48 -

Sosei Group Corporation
Section 4. Information about the Filing Company
1 Stock Information (continued)
1.4 Changes in Total Number of Issued Shares, and Capital Stock (continued)
9. The total number of issued shares increased by 201,876 as a result of the issue of new shares under the RSU scheme and the resulting
increases in capital stock and legal capital reserve were JPY 186 million each.
10. The total number of issued shares increased by 5,200 due to the exercise of stock acquisition rights between January 1, 2022 andDecember 31, 2022, and the resulting increases in capital stock and legal capital reserve were JPY 9 million each.
11. The total number of issued shares increased by 380,071 as a result of the issue of new shares under the RSU scheme and the resulting
increases in capital stock and legal capital reserve were JPY 278 million each.
12. The total number of issued shares increased by 19,643 as a result of the issue of new shares under the Performance Share Unit (PSU)
scheme and the resulting increases in capital stock and legal capital reserve were JPY 12 million each.

1.5 Shareholding by Shareholder Category as at December 31, 2022
Category

Shareholding status (Number of shares per share unit: 100 shares)
PublicFinancial
Financialsector institutions instruments
business
operators

Other
corporations

Individuals

Individuals,
etc.

Total

Companies,
etc.

Fractional
shares(shares)

Foreign investors, etc.

Number ofshareholders(persons)

-

8

33

256

168

44

22,93923,448-

Number ofshares held
(units)-82,34045,51349,507

223,743

1,160

416,589

818,852

38,030Shareholding
10.0555.558
6.045
27.3230.141
50.874100.000
ratio (%)
Notes:
1. Common shares in the “Individuals, etc.” column include 2 units and the “Fractional shares” column includes 54 treasury shares(totaling 254 shares) owned by the Company.

- 49 -

Sosei Group Corporation
Section 4. Information about the Filing Company
1 Stock Information (continued)
1.6 Major Shareholders as at December 31, 2022
Name

Address

Number of shares
Ratio ofheld shares held to total(shares)numberof shares issued(%)

Daisuke Gomi

Matsumoto-shi, Nagano

6,570,000

8.02

The Master Trust Bank of Japan, Ltd.
(trust account)

2-11-3, Hamamatsucho, Minato-ku,
Tokyo, JPN

4,686,000

5.72

TAIYO FUND, L.P.
(Standing proxy: MUFG Bank, Ltd.)

5300 CARILLON POINT KIRKLAND,
WA 98033, USA(Standing proxy: 2-7-1, Marunouchi,
Chiyoda-ku, Tokyo, JPN)

3,545,400

4.33

Custody Bank of Japan, Ltd. (trust
account)

1-8-12, Harumi, Chuo-ku, Tokyo,
JPN

2,447,800

2.99

SBI SECURITIES Co., Ltd.

1-6-1, Roppongi, Minato-ku, Tokyo,
JPN

1,909,109

2.33

Pfizer Pharmaceuticals K.K.

3-22-7, Yoyogi, Shibuya-ku, Tokyo,
JPN

1,885,136

2.30

SSBTC CLIENT OMNIBUS ACCOUNT(Standing proxy: HSBC Tokyo Branch,
Custody Business Department)

ONE LINCOLN STREET， BOSTON
MA USA 02111 (Standing proxy: 311-1, Nihonbashi, Chuo-ku, Tokyo,
JPN)

1,820,835

2.22

TAIYO HANEI FUND, L.P.
(Standing proxy: MUFG Bank, Ltd.)

5300 CARILLON POINT KIRKLAND,
WA 98033, USA(Standing proxy: 2-7-1, Marunouchi,
Chiyoda-ku, Tokyo, JPN)

1,682,800

2.05

MLI FOR CLIENT GENERAL OMNI NONCOLLATERAL NON TREATY-PB(Standing proxy: BofA Securities Japan
Co., Ltd.)MERRILL LYNCH FINANCIAL CENTRE
2 KING EDWARD STREET LONDONUNITED KINGDOM(Standing proxy: Mitsui building, 14-1, Nihonbashi, Chuo-ku, Tokyo,
JPN)

1,519,692

1.86

STATE STREET BANK AND TRUSTCOMPANY 505227(Standing proxy: Mizuho Bank, Ltd.,
Settlement & Clearing Services
Department)

P.O. BOX 351 BOSTONMASSACHUSETTS 02101 U.S.A.
(Standing proxy: Shinagawa
Intercity Tower A, 2-15-1, Konan,
Minato-ku, Tokyo, JPN)

1,429,800

1.75

27,496,572

33.57

Notes:
1. Of the above number of shares, the number of shares held in association with fiduciary activities is as follows:
The Master Trust Bank of Japan, Ltd. (trust account) 4,686,000 shares
Custody Bank of Japan, Ltd. (trust account)
2,447,800 shares- 50 -

Sosei Group Corporation
Section 4. Information about the Filing Company
1 Stock Information (continued)
1.6 Major Shareholders as at December 31, 2022 (continued)
2.

In the amended report of possession of large volumes provided for public inspection on April 22, 2022, the following
shareholdings are respectively attributed to Capital Research and Management Company and its three joint holders
as at April 15, 2022. However, since the Company is unable to confirm the actual number of shares held at December
31, 2022, they are not included in the major shareholders table above. The contents of the amended report ofpossession of large volumes is as follows:
Name

Address

Number ofsharesheld(shares)

Ratio ofshares held tototal numberof shares issued(%)

Capital Research and Management
Company

333 South Hope Street, Los Angeles,
CA 90071, USA

1,189,700

1.46

Capital International Inc.

11100 Santa Monica Boulevard, 15thFl.,
Los Angeles, CA 90025, USA

372,780

0.46

Capital International Sarl

3 Place des Bergues, 1201 Geneva,
Switzerland

334,3220.41

Capital International Corp.

Meiji Yasuda Seimei Building, 14th Fl.,
2-1-1, Marunouchi, Chiyoda-ku,
Tokyo, JPN

2,920,100

3.58

4,816,902

5.91- 51 -

Sosei Group Corporation
Section 4. Information about the Filing Company
1 Stock Information (continued)
1.7 Voting Rights
Issued Shares as at December 31, 2022
Item

Number of shares(shares)Number of voting
rights

Details

Non-voting shares

-

-

-

Shares with restricted voting rights (treasury
shares, etc.)

-

-

-

Shares with restricted voting rights (other)

-

-

-

Shares with full voting rights (treasury shares,etc.)

Common shares
200

-

-

Shares with full voting rights (other)

Common shares
81,885,000

Shares less than one unit

Note
818,850

Common shares
38,030--81,923,230

-

-

-

818,850-

Total number of issued shares
Voting rights held by all the shareholders

Notes:
1. These shares are standard shares of the Company which do not have any limitation of rights.
2. The number of shares less than one unit includes 54 treasury shares owned by the Company.

Treasury Shares, Etc. as at December 31, 2022
Name or tradename of holder

Holder’s
address

Sosei Group
Corporation

2-1 Kojimachi,
Chiyoda-ku, Tokyo

Number of shares Number of shares
held in own name held in another’s(shares)name (shares)

200-

Total number ofshares held
(shares)

Ratio of shares
held to total
number of sharesissued (%)

200

0.00

2 Acquisitions, etc. of Treasury SharesClasses of shares: Acquisition of ordinary shares that falls under Article 155, Item 7 of the Companies
Act
2.1 Acquisitions by Resolution of General Meeting of Shareholders
Not applicable.
2.2 Acquisitions by Resolution of Board of Directors
Not applicable.

- 52 -

Sosei Group Corporation
Section 4. Information about the Filing Company
2 Acquisitions, etc. of Treasury Shares (continued)
2.3 Acquisitions not Based on Resolution of General Meeting of Shareholders or Board of Directors
Category

Number of shares (shares)

Acquired treasury shares during the financial year
ending December 31, 2022
Acquired treasury shares during the period from theend of the financial year to the filling date of annual
securities report

41

Total amount of purchaseprice (yen)55,801--

Notes:
1. " Acquired treasury shares during the period from the end of the financial year to the filling date of annual securities report" do notinclude fractional shares purchased from March 1, 2023 to the filling date of this annual securities report.

2.4 Status of Disposals or Holdings of Acquired Treasury Shares
During the financial year ending December
31, 2022
Item

The period from the end of the financial
year to the filling date of annual securities
reportNumber of shares(shares)

Total amount ofdisposal price(yen)

Number of shares(shares)

Total amount ofdisposal price(yen)

Undertaken treasury shares

-

-

-

-

Retirement treasury shares

-

-

-

-

Mergers, Stock exchange,
Share delivery, company split
treasury shares

-

-

-

-

Others

-

-

-

-

254

-

254

-

Holding of Acquired Treasury
Shares

Notes:
1. Treasury shares disposed of in the period from the end of the financial year to the filling date of annual securities report do notinclude fractional shares sold from March 1, 2023 to the filling date of this annual securities report.
2. Treasury shares held in the period from the end of the financial year to the filling date of annual securities report do not include
fractional shares purchased from March 1, 2023 to the filling date of this annual securities report.

3 Dividend Policy
The declaration and payment of any dividends in the future will depend on the results of operations,financial condition, cash requirements, future prospects, profits available for distribution and otherfactors deemed by the Board to be relevant at the time.
At present, the Group is making prudent investments to build a globally competitive biotechnology
business and, therefore, does not expect to pay any dividends in the near to medium term. The Board
will continue to reassess this position based on the factors above. With regard to dividends of surplus,
except where stipulated otherwise by laws and regulations, the Company’s Articles of Incorporation
stipulate that the Board of Directors may decide without a resolution of the General Meeting of
Shareholders. Moreover, the record date for the year-end dividend shall be December 31, and therecord date for the interim dividend shall be June 30.

- 53 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance
4.1 Corporate Governance
Overview of Corporate Governance
The Group aims to become one of Japan’s global biotechnology champions. It has been building
business systems to support further business expansion and recognizes that building an effective
corporate governance system is an important management priority for achieving an increase incorporate value over the medium to long term. For this reason, the Group utilizes independent
external directors and establishes communication channels between the Audit Committee, theexternal auditor and the internal audit department, to support the strategic management andoversight functions of the Board of Directors. At the same time, the Group is striving to increase theintegrity and transparency of management and further improve its corporate governance throughmeasures such as fulfilling its accountability to various stakeholders, including shareholders,
employees, business partners, customers, creditors, consumers and local communities.
Overview of the Corporate Governance System and Reason for Adoption of the System
The Company has adopted the “company with nomination committee, etc.” system in order tostrengthen Board oversight, increase transparency and speed up management decision-making,among other duties. Under this system, the Company has clearly separated the oversight function andbusiness execution function of management and has largely delegated business execution authority
to its executive officers. It judges this system to be appropriate to increase management efficiency
and strengthen the oversight of management.
Overview of the Board of Directors and Committees
a. Board of Directors
The Board of Directors comprises 9 directors, including 7 independent external directors, one of whomis scheduled to assume office on April 1, 2023. The Board sets basic management policies, supervises
the execution of duties by executive officers and directors, and deliberates on management strategies
to realize sustainable growth and add corporate value. One of the directors serves concurrently as
representative executive officer.
b. Nomination Committee
The Nomination Committee comprises 3 independent external directors and the Chairman of theBoard. The Committee makes proposals for the election of directors for resolution by the Shareholders.
The Committee assesses whether candidates have sufficient expertise and experience to support theCompany’s global strategy.
c. Compensation Committee
The Compensation Committee comprises 3 independent external directors, the Chairman of the Board
and 1 director serving concurrently as a representative executive officer. The Committee sets the
remuneration policy for directors and executive officers, and, based on that policy determines theirindividual remuneration in view of performance and other contributions to the Company.

- 54 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.1 Corporate Governance (continued)
d. Audit Committee
The Audit Committee comprises 5 independent external directors. The Committee is responsible foroverseeing the execution of the directors’ and executive officers’ duties as well as the appointment
and dismissal of the external auditor. The Committee does not have full-time members, but it works
closely with the Internal Audit Department.
e. Executive officers
As described in “4.2 Status of Officers as at March 23, 2023”, 6 executive officers are currently
appointed (including one representative executive officer). They perform the decision-making andbusiness execution functions entrusted to them by the Board of Directors.
The Board of Directors elects the representative executive officer and other senior executive officers
as well as assigning responsibilities to them.

- 55 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.1 Corporate Governance (continued)
Schematic Depiction of the Group’s Corporate Governance System- 56 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.1 Corporate Governance (continued)
Other Matters relating to corporate governancea. Status of Establishment of Internal Control Systems
To ensure that management complies with all aspects of the law, the reliability of financial reporting,and implementation of appropriate risk management practices, the Board of Directors has resolved abasic policy for the establishment of internal control systems in accordance with the Companies Act
and aims to implement it thoroughly. An overview of the basic policy is as follows:i. Matters related to directors and employees who assist in Audit Committee duties:
Employees who assist in the duties of the Audit Committee conduct their duties in coordination
with the Internal Audit Department in accordance with the directions of the chairman of theCommittee. Evaluations related to the performance of these employees are conducted by theCommittee, and transfers of such employees are subject to approval by the Committee.
ii. Systems regarding matters to be reported by directors (excluding directors who are Audit
Committee members), executive officers, and employees to the Audit Committee and othermatters to be reported to the Audit Committee:
 Directors, executive officers and employees of the Company and subsidiaries who learn offacts that may cause material damage to the Company or acts, etc. that are in violation oflaws and regulations or Articles of Incorporation shall report them to the Audit Committee,
and those who make such reports shall not be treated unfairly for reporting such facts or
actions.
 The Internal Audit Department reports timely and properly to the Audit Committee on theimplementation status of internal audits.
 The Legal and Compliance Department reports timely and properly to the Audit Committee
on the status and content of any whistleblowing communications.
iii. Other systems to ensure that audits are conducted effectively by the Audit Committee:
 The Internal Audit Department consults in advance with the Audit Committee regarding
internal audit policies and plans, etc. and closely coordinates with the Committee, which
includes holding discussions related to audits.
 The Company promptly processes requests by the Audit Committee members foradvancement or reimbursement of expenses necessary for the performance of Audit
Committee duties.
iv. System to ensure the performance of duties, by executive officers and employees and by directors
and employees of subsidiaries, conform with laws and regulations and Articles of Incorporation:
 Compliance with laws and regulations and adherence to corporate ethics are stipulated in theGroup’s code of corporate conduct, and every effort is made to raise awareness of this among
all executive officers and employees, including at subsidiaries. An independent whistleblower
hotline exists and is operated appropriately.
 The Internal Audit Department conducts internal audits related to the performance of duties
at the Company and its subsidiaries.
v. System related to preservation and management of information related to the performance of
duties by executive officers:
Information related to performance of duties by executive officers is appropriately prepared,
retained and managed in accordance with internal company rules.
- 57 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.1 Corporate Governance (continued)
vi. Rules and other systems related to the management of risk of loss: Specific policies and measures are created to deal with risks relating to the Group’s business
operations, and risk management procedures are appropriately conducted at the Company
and its subsidiaries.
 Important management decisions are made after adequate deliberation by the Board of
Directors, etc. and based on the opinions of outside experts, as necessary.
vii. System to ensure that the performance of duties by executive officers and directors, etc. of
subsidiaries is conducted efficiently:
 The operational responsibilities of executive officers and the authority granted to executives
and employees of the Company and subsidiaries are clearly defined. Reporting on operational
performance and deliberations on important matters are conducted with flexibility inaccordance with these rules.
 System construction is promoted to improve operational efficiency.
viii. System to ensure the appropriateness of operations at the corporate group consisting of theCompany and its subsidiaries: Reports on operational matters at subsidiaries are received in accordance with internal
company rules, and instructions and support relating to the establishment of systems
designed to ensure operational appropriateness are provided to subsidiaries.
 The Internal Audit Department provides instructions and recommendations for
improvements to subsidiaries based on the findings of internal audits.
 Efforts are made to ensure the appropriateness of the Group’s financial reporting processes,
which are evaluated, maintained, and improved.
b. Overview of Details of Liability Limitation Agreements
The Company and the Independent External Directors have concluded agreements limiting liability fordamages under Article 423, Paragraph 1 of the Companies Act, in accordance with the provisions ofArticle 427, Paragraph 1 of the same act. The maximum amount of liability for damages under these
agreements for each Independent External Director is the minimum amount stipulated in Article 425,
Paragraph 1 of the Companies Act.
c. Outline of the directors and executive officers, etc. liability insurance policy, etc.
The Company has concluded a directors and officers liability insurance (“D&O insurance”) policy withan insurance company as provided for in Article 430-3, Paragraph 1 of the Companies Act with all
Directors, Executive Officers and Corporate Auditors of the Company and its subsidiaries as insured
parties. The Company pays the full premium for the provision of this policy.
This insurance policy covers losses arising from the liability borne by the insured party in the course of
the execution of his/her duty or claims pertaining to the pursuit of such liability.

- 58 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.1 Corporate Governance (continued)
d. Number of Directors and election of Directors
The Company’s Articles of Incorporation stipulate that there may be no more than 10 directors.
Furthermore, the Articles of Incorporation stipulate that a resolution to elect a director must be madeby a majority vote where shareholders holding at least one-third of the voting rights of theshareholders eligible to exercise voting rights are present, furthermore that a resolution to elect a
director may not be made by cumulative voting.
e. Matters Requiring a Special Resolution of the General Meeting of Shareholders
With regard to special resolutions of the General Meeting of Shareholders stipulated in Article 309,
Paragraph 2 of the Companies Act, to ensure the smooth operation of the General Meeting of
Shareholders, the Company’s Articles of Incorporation stipulate that these resolutions must be madeby a vote of at least two-thirds where shareholders holding at least one-third of the voting rights ofthe shareholders eligible to exercise voting rights are present.
f. Decision-Making Body for Declaring Dividends of Surplus
With regard to matters such as the dividend of surplus stipulated in the items under Article 459,
Paragraph 1 of the Companies Act, the Company’s Articles of Incorporation stipulate that in order toenable flexible decision-making the Board of Directors shall decide on these matters without aresolution from the General Meeting of Shareholders, except in cases where it is otherwise stipulated
by laws and regulations.
g. Interim DividendWith regard to matters such as the interim dividend stipulated in the items under Article 454,
Paragraph 5 of the Companies Act, the Company’s Articles of Incorporation stipulate that in order toenable flexible decision-making the Company shall pay any interim dividend on June 30 as thereference date.
h. Acquisition of Treasury Shares
To enable execution of flexible capital policies in response to changes in the business environment, theCompany’s Articles of Incorporation stipulate that the Company may acquire its own stock from market
exchanges by resolution of the Board of Directors, in accordance with the provision of Article 165,
Paragraph 2 of the Companies Act.

- 59 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.2 Status of Officers as at March 23, 2023
Men: 11, Women: 3 (percentage of female officers: 21.4 %)The above number includes 1(one) woman who is scheduled to be appointed as an Independent external director from April 1, 2023.

Status of Directors
Job title

Name

Date ofbirth

Summary of career

Director
Chairmanof theBoard

ShinichiTamuraSep. 17,
1949

Apr. 1978
Feb. 1987
Jul. 1989
Jun. 1990
Jun. 2005
Mar. 2012
Jun. 2016
Jan. 2019

Director

Christopher
CargillJan. 3,1984

Sep. 2021
Mar. 2022
Feb. 2009
Apr. 2010
Sep. 2017
Jun. 2018
Jun. 2018
Nov. 2018
Jan. 2019
Apr. 2021
Sep. 2021
Mar. 2022
Aug. 2022
Apr. 2023

Director

Tomohiro
TohyamaFeb. 21,1950

Apr. 1978
Apr. 1980
May 1984
Feb. 1985
Jun. 1985
Aug. 1985
Oct. 1990
Nov. 1999
Jun. 2010
Jun. 2011
May 2016
May 2016
Jun. 2016

Joined Fujisawa Pharmaceutical Co., Ltd. (currently
Astellas Pharma Inc.)
Joined Genentech Inc.
Representative Director & President, Genentech Limited
Representative Director & CEO of the Company
Board Director, Representative Executive Officer andPresident, CEO of the Company
Managing Director, Sosei R&D Ltd.
Chairman of the Board of the Company
Representative Executive Officer and Executive
Chairman of the Company
Representative Executive Officer, Chairman, President
and CEO of the Company
Representative Executive Officer, CEO of the Company
Chairman of the Board of the Company (to the present)
Joined KPMG
Joined J.P. Morgan Chase & Co
Head of IR and Corporate Communication Dept of theCompany
Interim CFO of the Company
Director, Sosei R&D Ltd.
Executive Officer and Executive Vice President, CFO of
the Company
Director, Heptares Therapeutics Ltd. (to the present)
Executive Officer, COO, CFO of the Company
Executive Officer, CFO of the Company
Board Director, Representative Executive Officer,
President and CEO of the Company (to the present)
Director, Sosei Group USA Inc. (to the present)
Representative Director and President, Sosei Co. Ltd.
(Scheduled)Entered Legal Training and Research Institute, Supreme
Court of Japan
Registered with Dai-ichi Tokyo Bar Association
Joined Nishimura & Sanada Law Office
Mason & Sloane LLP., USA
Pollock, Bloom & Dekom, USA
Pryor, Cashman, Sherman & Flynn, USA
Returned to Nishimura & Sanada Law Office as a partner
Partner (one of founders) at TMI Associates (to thepresent)
Outside Corporate Auditor, Nippon Shikizai, Inc.
Outside Director, Avex Group Holdings Inc.
Independent External Director of the Company (to thepresent)
Outside Director, Member of the Audit and Supervisory
Committee, Nippon Shikizai, Inc. (to the present)
Outside Director, Trust Capital Co., Ltd.
Outside Statutory Auditor, WOWOW Inc.

- 60 -

TermofofficeNote
3

No. ofsharesowned
1,172,152

Note
3

21,050Note
339,982

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.2 Status of Officers as at March 23, 2023 (continued)
Job title

Name

Date ofbirth

Summary of career

Director

Kuniaki Kaga

Sep. 1,
1951

Apr. 1975
Jun. 2004
Oct. 2005

Jun. 2006

Jun. 2009
Jun. 2010
Apr. 2012

Apr. 2014

Feb. 2015
Jun. 2018
Director

David Roblin

Sep. 25,
1966

Jan. 2021
Apr. 1991
Jun. 1997
Jun. 2008
Apr. 2011
Sep. 2013
Feb 2014
Jun. 2015
Feb. 2017
Feb. 2017
Jun. 2018
Mar. 2020
Apr. 2022

Joined Mitsubishi Kasei Kogyo Kabushiki Kaisha (current
Mitsubishi Chemical Corporation)
Deputy Director, Head of Healthcare Planning
Department, Mitsubishi Chemical Corporation
Deputy Director, Mitsubishi Chemical Holdings
Corporation (current Mitsubishi Chemical Group
Corporation)
Head of Healthcare Strategy Office
Executive Officer and Head of Healthcare Strategy Office,Mitsubishi Chemical Holdings Corporation (current
Mitsubishi Chemical Group Corporation)
Executive Officer, Head of Healthcare Business Domain,
and General Manager of Healthcare Planning Office,Healthcare Business Domain, Mitsubishi Chemical
Corporation
Board Director, Mitsubishi Tanabe Pharma Corporation
Representative Director, Managing Executive Officer,
General Manager of International Business Department,
Mitsubishi Tanabe Pharma Corporation
Representative Director, Senior Managing Executive
Officer, General Manager of Research Division andInternational Business Department, Mitsubishi Tanabe
Pharma Corporation
President and Representative Director, Life Science
Institute, Inc.
Board Director, Mitsubishi Tanabe Pharma Corporation
Board Director, The KAITEKI Institute, Inc.
President and Representative Director, The KAITEKI
Institute, Inc.
Independent External Director of the Company (to thepresent)
External Director, SUSMED, Inc (to the present)
Medical practice at St George's and St Bartholomew's
Hospital, London
Head of Therapy Area for Anti-Infectives, Bayer PharmaAG
Senior Vice President, Head of Research, Site Head, Chief
Medical Officer (CMO) Europe R&D, Pfizer Inc.
CMO, Creabilis
Honorary Professor, Swansea University, School of
Medicine (to the present)
COO, The Francis Crick Institute
Honorary Professor of Translational Medicine, St
George's Hospital Medical School (to the present)
Chairman of Scientific Translation, The Francis Crick
Institute (to the present)
President of R&D, Summit Therapeutics
Independent External Director of the Company (to thepresent)
COO and CEO JuvRX, Juvenescence Ltd
CEO, Relation Therapeutics Limited (to the present)
Chairman of the Board, Centauri Therapeutics Limited (tothe present)- 61 -

TermofofficeNote
3

No. ofsharesowned
29,322

Note
3

2,022

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.2 Status of Officers as at March 23, 2023 (continued)
Job title

Name

Director Noriaki Nagai

Date ofbirth

Summary of career

Term ofofficeDec. 1,
1957

Apr. 1981
Sep. 1998

Note
3

Jun. 2000
Apr. 2006
Apr. 2010
Apr. 2011
Jun. 2013
Jun. 2013
Apr. 2014
Apr. 2015
Mar. 2019
Director

Rolf
Soderstrom

Jul. 29,
1965

Jan. 1988
Dec. 2000
Jun. 2002
Jan. 2004
Aug. 2007
Dec. 2008
Jul. 2019
Mar. 2020
Sep. 2020
Jul. 2021

Director

Miwa SekiFeb.25,1965

Apr. 1988
Apr. 1989
Sep. 1993
Feb. 1997
Jan. 2003
Apr. 2015
Jun. 2018
Jun. 2020
Apr. 2021
May. 2021
Mar. 2022

Joined Nomura Securities, Co., Ltd. (NSC)
Managing Director, Head of European Administration
Division of Nomura International plc
General Manager, Legal Dept., NSC
Executive Officers in charge of Corporate, Nomura
Holdings, Inc. (NHI) Executive Officer in charge of Legal,
NSC
Executive Managing Director in charge of corporate
planning, legal and secretary, NSC
Executive Officer and Chief Legal Officer, NHI
Executive Managing Director in charge of legal andsecretary, NSC
External Director, Japan Securities Depository Center, Inc.
External Director, Japan Securities Clearing Corporation
Executive Officer in charge of Corporate and Chief Legal
Officer, NHI Executive Managing Director in charge ofplanning management, NSC
Professor of Business Law, Doshisha University
Independent External Director of the Company (to thepresent)
Joined PricewaterhouseCoopers
Corporate Finance Director, Cable & Wireless plc
External Director, MobileOne Ltd. (current M1 Ltd.)
Divisional Finance Director, Cobham plc
Chief Financial Officer, Protherics plc (current BTG plc)
Chief Financial Officer, BTG plc
Senior Independent Director, Ergomed plc
Independent External Director of the Company (to thepresent)
Non Executive Director, BioPharma Credit plc (to thepresent)
Chief Financial Officer, Syncona Investment Management
Limited (to the present)
Joined DENTSU INC.
Joined Smith Barney
Joined Morgan Stanley
Joined Clay Finlay Limited
General Manager, Tokyo Branch, Clay Finlay Limited
Associate Professor, Faculty of Foreign Studies, Kyorin
University
External Director, World Co., Ltd. (to the present)
External Director, DAIWA HOUSE INDUSTRY CO., LTD. (tothe present)
Specially Appointed Associate Professor, Faculty of Foreign
Studies, Kyorin University
General Partner MPOWER PARTNERS FUND (to thepresent)
Independent External Director of the Company (to thepresent)- 62 -

Note
3

Note
3

No. ofsharesowned
25,888

7,425-

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.2 Status of Officers as at March 23, 2023 (continued)
Job title

Name

Date ofbirth

Summary of career

Director

Eiko Tomita

Apr.20,1961

Apr. 1984 Joined Eisai Co., Ltd.
Sep. 1994 Joined IBRD Japan Corporation
Sep. 1999 Joined Monsanto Japan Ltd. (current Pfizer Inc.)
Nov. 2000 Joined AstraZeneca K.K.
Sep. 2006 Joined Pfizer Japan Inc.
Apr. 2007 Joined Bristol-Myers Squibb K.K.
Nov. 2017 Bristol-Myers Squibb
Vice President, Global Regulatory Sciences
Intercontinental responsible for Japan, Korea, Taiwan andIntercontinental (Australia, Brazil, Turkey, India, Middle
East and South America, etc.)
Mar. 2020 Bristol-Myers Squibb
Vice President, Global Regulatory Sciences
Intercontinental responsible for Intercontinental (China,
Korea, Taiwan, Australia, Russia, Brazil, Turkey, India,
Middle East, South America, etc.) (to the present(Scheduled to retire at the end of March 2023))
Apr. 2023 Independent External Director of the Company(Scheduled)

Total

Term
of
officeNote
4No. ofsharesowned-

1,297,841

Notes:
1. Directors Tomohiro Tohyama, Kuniaki Kaga, David Roblin, Noriaki Nagai, Rolf Soderstrom and Miwa Seki are External Directors.
2. The Company’s committee structure is as follows:
Nomination Committee:
Chairman: Shinichi Tamura, Member: David Roblin, Member: Noriaki Nagai, Member: Miwa
Seki
Compensation Committee:
Chairman: David Roblin, Member: Shinichi Tamura, Member: Christopher Cargill,
Member: Tomohiro Tohyama, Member: Rolf Soderstrom
Audit Committee:
Chairman: Tomohiro Tohyama, Member: Kuniaki Kaga, Member: Noriaki Nagai,
Member: Rolf Soderstrom, Member: Miwa Seki
3. From appointment at the Ordinary General Meeting of Shareholders held on March 23, 2023, to the conclusion of the Ordinary
General Meeting of Shareholders relating to the period ending December 31, 2023.
4. Eiko Tomita will retire from Bristol-Myers Squibb on March 31, 2023 and will be appointed as the Independent External Director of
the Company on April 1, 2023. Therefore, the term of office will be from April 1, 2023 to the conclusion of the Ordinary General
Meeting of Shareholders relating to the period ending December 31, 2023.

- 63 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.2 Status of Officers as at March 23, 2023 (continued)
Status of Executive Officers
Job title

Name

Date ofbirth

Summary of career

Representative
Executive
Officer,President andChief Executive
Officer
Executive
Officer andExecutive Vice
President,
Chief Financial
Officer

Christopher
CargillJan. 3,1984

See previous section

Hironoshin
NomuraNov.26,1983

Apr. 2009
Jan. 2015
Sep. 2020
Mar. 2022
Apr. 2023

Executive
Officer andExecutive Vice
President,
Chief
Accounting
Officer

KieranJohnsonExecutive
Officer andExecutive Vice
President,
Chief
Compliance
Officer

Kazuhiko
Yoshizumi

May 13,
1969

Jan. 1992
Oct. 2002
Apr. 2004
Sep. 2017
Jan. 2019
May 2019
Mar. 2022

Feb. 19,
1954

Aug. 2022
Apr. 1977
Jan. 2003
Dec. 2007
Apr. 2010
Apr. 2015
Jul. 2016
Apr. 2018
Sep. 2021
Mar. 2022

Executive
Officer andExecutive Vice
President

Matthew
BarnesMay 2,
1973

Mar. 1998
Jan. 2003
Aug. 2016
Jan. 2022
Mar. 2022

TermofofficeNote

No. ofsharesowned
21,050Joined Mitsubishi Research Institute
Joined Mizuho Securities
Senior Vice President, IR & Corporate Strategy, theCompany
Executive Officer and Executive Vice President, Chief
Financial Officer, the Company (to the present)
Director, Sosei Co. Ltd. (Scheduled)

Note

1,400

Joined KPMG (UK)Founded Amberley Consulting Ltd.
Joined GSK (UK)
Senior Vice President, Group Financial Controller, theCompany
Director, Heptares Therapeutics Ltd. (to the present)
Director, MiNA (Holdings) Ltd. (to October 13, 2022)
Executive Officer and Executive Vice President, Chief
Accounting Officer, the Company (to the present)
Director, Sosei Group USA Inc. (to the present)
Joined NEC Corporation
General manager of legal department, NEC
Corporation
General Manager of NEC Fielding Co., Ltd.
Associate Senior Vice President and General
Manager of NEC Fielding Co., Ltd.
General manager of legal department, the Company
General manager of legal department and generalmanager of group compliance, the Company
Executive Officer and Executive Vice President,Group Chief Compliance Officer, the Company
Executive Officer and Group Chief Compliance
Officer, the Company
Executive Officer and Executive Vice President, Chief
Compliance Officer, the Company (to the present)
Joined Celltech R&D (now UCB)
Joined Takeda Pharmaceuticals (formerly Paradigm
Therapeutics)
Joined Heptares Therapeutics Ltd.
Senior Vice President, Drug Discovery, Head of R&D
Portfolio Management, the Company
Executive Officer and Executive Vice President, theCompany (to the present)
President of Heptares Therapeutics Ltd. (to thepresent)

Note

6,907

Note

8,344

Note

2,786

- 64 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.2 Status of Officers as at March 23, 2023 (continued)
Job title

Name

Date ofbirth

Summary of career

Term ofofficeExecutive
Officer andExecutive Vice
President
Chief of Staff

Candelle
Chong

Oct. 16,
1989

Feb. 2013
Apr. 2018
Apr. 2022

NoteMar. 2023

Joined J.P. Morgan Chase & Co.
Vice President, Corporate Strategy, the Company
Senior Vice President, Corporate Strategy, theCompany
Executive Officer and Executive Vice President, Chiefof Staff, the Company (to the present)

Total

No. ofsharesowned
5,688

46,175

Notes:
1.
From the conclusion of the first Board of Directors meeting held after the conclusion of the Ordinary General Meeting of
Shareholders on March 23, 2023 to the conclusion of the first Board of Directors meeting to be held after the conclusion of theOrdinary General Meeting of Shareholders relating to the period ending December 31, 2023.

External Officers
Number of external directors and personal, capital or business relationships with the Group and otherinterests
The Company has 7 external directors (one of whom is scheduled to assume office on April 1, 2023).
There are no reportable personal or transactional relationships or other special interests between theexternal directors and the Company. The holdings of external directors in the Company's shares areshown in the number of shares owned column above.
Functions and roles of external directors in the corporate governance of the Company
Mr. Tomohiro Tohyama is expected to play a significant role in making decisions on importantmanagement matters and supervising the execution of operations of the Company as an external
director of the Company, in addition to making comments as necessary on deliberations of agenda
items at meetings of the Board of Directors, from his professional perspective as an attorney at law,and leading audits as the chairman of the Audit Committee.
Mr. Kuniaki Kaga, based on his experience in corporate management at one of Japan's leading chemicaland pharmaceutical companies, is expected to make comments as necessary for deliberations on
agenda items at meetings of the Board of Directors and play a significant role in making decisions onimportant matters concerning the Company's management and supervising the execution of businessas an external director of the Company.
Mr. David Roblin, based on his clinical experience as a physician and his experience in research anddevelopment at a pharmaceutical company, is expected to make comments as necessary fordeliberations on agenda items at meetings of the Board of Directors and to play a significant role inmaking decisions on important management matters and supervising business execution as anexternal director of the Company.

- 65 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.2 Status of Officers as at March 23, 2023 (continued)
Mr. Noriaki Nagai, based on his experience in the corporate division of a major securities company andas a professor at the Faculty of Law, is expected to play a significant role in making decisions onimportant management matters and supervising the execution of business operations of the Company
as an external director of the Company.
Mr. Rolf Soderstrom has extensive experience in M&A, risk management, governance, etc. as a financeleader at companies in Europe, North America, and Asia, and is expected to play a significant role inmaking decisions on important management matters and supervising business execution as anexternal director of the Company.
Ms. Miwa Seki has extensive experience as Head of Japan at a foreign capital financial institution andas a founding partner of an ESG-oriented investment fund and is expected to play a significant role inmaking decisions on important management matters and supervising business execution as anexternal director of the Company.
Ms. Eiko Tomita (scheduled to assume office on April 1, 2023) has been deeply involved in theinternational pharmaceutical approval process for global pharmaceutical companies both domesticallyand internationally and is expected to play a significant role in making decisions on importantmanagement matters and supervising business execution as an external director of the Company
Details of the Company's stance on the appointment of external directors and the criteria for their
independence from the Company
When appointing external directors, the Company considers it important to ensure the effectivenessof the Board of Directors and their independence from the management team and makes individual
judgments that they meet the criteria set forth by the Company below, based on their background andrelationship with the Company. The Company has designated Mr. Tomohiro Tohyama, Mr. Kuniaki Kaga,
Mr. David Roblin, Mr. Noriaki Nagai, Mr. Rolf Soderstrom, Ms. Miwa Seki and Ms. Eiko Tomita (scheduled
to assume office on April 1, 2023) as independent directors in accordance with the provisions of Tokyo
Stock Exchange, Inc.

- 66 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.2 Status of Officers as at March 23, 2023 (continued)
Criteria for determining the independence of external directors:
An external director will be determined to be independent if he or she does not fall under any of thefollowing categories:(1) A person who is or was an executive director, executive officer or other officer or employee(hereinafter collectively referred to as "Executive") of our Group (the Company and its subsidiaries andassociates);(2) A person who is or was in any of the last three business years an Executive at one of the Group’s
principal business partners (a company with which the annual amount of transactions (the amount of
products and services provided or procured) exceeds 2% of the consolidated net sales of the Company
or the partner, or a financial institution from which the amount of borrowing outstanding at the endof the financial year exceeds 2% of the Company’s consolidated total assets) and its parent andsubsidiary companies, and subsidiaries of such parent company;(3) A consultant, or accounting or legal expert who has received in any of the last three business years
cash or other property exceeding JPY 10 million from our Group, other than the remuneration as adirector or officer (or a person who belongs to an organization if the said property has been received
by a juridical person, partnership or any other organization);(4) A person who belongs or belonged to an auditing firm that is an external auditor of the Company
or its consolidated subsidiaries in any of the last three business years;(5) A major shareholder of the Company (shareholder holding 10% or more on a voting rights basis of
the shares in the Company in their own or other's name) at the end of the most recent business year;(6) A spouse or relative within the second degree of kinship of a person who falls under any of theitems (1) to (5) above provided that an Executive shall be in an “Important Position.” For the purposeof this item, a person is in an “Important Position" when the person is a director (excluding external
director), executive officer, officer, employee in a senior management position or general manager orhigher, or other person who is objectively and reasonably judged to be in a position of equivalent
importance; or(7) A person who is reasonably judged to be unable to perform his or her duties as an independent
external director due to a potential conflict of interest with shareholders.
Mutual collaboration between supervision by external directors and audits by the Audit Committee,
internal audits and external audits, and relationship with other departments in charge of internal
control
The Company's external Directors make comments as appropriate to ensure the adequacy andappropriateness of management supervision and decision-making by the Board of Directors, such as
by asking questions and expressing opinions, as appropriate, based on their expertise during
deliberations at Board of Directors meetings. In addition, external directors who are members of the
Audit Committee have regular opportunities to exchange opinions and reports by the external auditor
and receive timely and appropriate reports from the Internal Audit Department on the implementation
status of internal audits in order to gather information and share issues. Furthermore, the external
Directors share awareness of internal controls with the Internal Audit Department and otherdepartments in charge of internal controls, and work to continuously improve internal controls.

- 67 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.3 Status of Audits
Status of Audit Committee’s Audits
The Audit Committee comprises 5 independent external directors. Mr. Noriaki Nagai, having had yearsof experience from senior positions including as a director of a corporate planning division at a major
securities company, Mr. Rolf Soderstrom, a Chartered Certified Accountant in the UK and having had
experience as Head of a Finance department , and Ms. Miwa Seki, having had experience as Head ofJapan at a foreign capital financial institution and as a founding partner of an ESG-oriented investment
fund, possess considerable knowledge in accounting and finance.
The Audit Committee was held 18 times during the year ended December 31, 2022. The Committee
received an explanation of the annual audit plan from the External Auditor at the beginning of thefinancial year and subsequently received reports and explanations of the audit procedures and audit
results from the External Auditor at each quarter-end and at the financial year-end. The Committee
also evaluated the appropriate qualification and independence of the External Auditor and evaluatedthe appropriateness of the audit conducted by the External Auditor.
The Audit Committee receives and comments on a report from the Internal Audit Department
regarding the annual internal audit policy and audit plan. When required, the Committee provides
instructions regarding the content, method, and other aspects of internal audits. The Audit Committee
determines its own annual audit policy and audit plan and receives regular reports from the directors
and the executive officers on their execution of duties. The Audit Committee receives reports on the
results of internal audits conducted by the Internal Audit Department and provides instructions to therelevant departments as necessary.
The Audit Committee has conducted audits in close coordination with the internal audit department
and employees who assist in the performance of duties of the Committee, and believes it is notessential that a full-time committee member be selected. Accordingly, a full-time committee member
has not been selected.
The attendance status of each Audit Committee members during the current financial year was asfollows.
Name

Number of times held

Number of times attendance

Tomohiro Tohyama

18

18

Kuniaki Kaga

18

18

Noriaki Nagai

18

18

Rolf Soderstrom

18

16

Miwa Seki

12

12

Notes:
1.

Ms. Seki assumed office as a director at the 32nd Ordinary General Meeting of Shareholders held on March 24, 2022 and was elected
Member of the Audit Committee at the meeting of the Board of Directors held on the same day. Accordingly, the number of
meetings attended and percentage of attendance at the meetings of the Audit Committee stated above only count meetings held
since her assumption of office.

- 68 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.3 Status of Audit (continued)
Status of Internal Audits
The Company’s Internal Audit Department conducts internal audits of the Company and its
subsidiaries. The Internal Audit Department is staffed by two members, who investigate and evaluate
the effectiveness, efficiency, and appropriateness of operations, including internal controls overfinancial reporting, and based on the results provides guidance on improvements to relevant internal
departments and subsidiaries whenever needed. The staff members also report the audit results to
the Representative Executive Officer and CEO, and to the Audit Committee.
Status of External Audits
Name of the audit firm:
Ernst & Young ShinNihon LLC
Number of consecutive periods of audits:
5 periods
The certified public accountants that performed the external audit:
Hironao Yazaki (number of consecutive years of audits: 5)
Yutaka Mishima (number of consecutive years of audits: 5)
Number of audit team members:
9 certified public accountants and 7 others
Policy and reason for Nominating External Auditor
The Audit Committee has selected Ernst & Young ShinNihon LLC as the candidate for External Auditor,
as it concluded that Ernst & Young ShinNihon LLC is qualified for the role based on a comprehensive
review of its auditing systems, including its capability to conduct audits of the consolidated financial
statements on a global basis. Ernst & Young ShinNihon LLC demonstrated significant expertise inquality control systems and has assured independence, and according to our judgment, is wellqualified for the position of External Auditor.
If circumstances arise that would interfere with the appropriate execution of the duties of the
independent auditors or cause the Audit Committee to deem it appropriate to dismiss or not toreappoint the independent auditors, the Audit Committee will make a proposal for dismissal or nonreappointment of the independent auditors for submission to the Ordinary General Meeting of
Shareholders. Also, when it deems that any cause stipulated in each item of Article 340, Paragraph 1of the Companies Act applies to the independent auditors, the Audit Committee can dismiss theindependent auditors by agreement of all Committee members.

- 69 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.3 Status of Audit (continued)
Compensation for Audits paid to the External Auditor
Year ended December 31, 2022
Classification

Year ended December 31, 2021

Compensation foraudit certification
services¥mCompensation for
non-audit services¥mCompensation foraudit certification
services¥mCompensation for
non-audit services¥mFiling company

60

-

64

17

Consolidated
subsidiaries

-

-

-

-

60

-

64

17

Total

Notes:
1.
In the audit agreement between the Company and the External Auditor, there is no clear distinction between the compensation
for audits based on the Companies Act and the compensation for audits based on the Financial Instruments and Exchange Act,and no distinction can be made in practice, so amounts of compensation for the External Auditor for the year ending December
31, 2022 are the total of these two components.
2.
Compensation for non-audit services in the previous year relates to providing a comfort letter for the international offering.

Compensation paid to auditors from the same network as the External Auditor (excluding the above
amounts)
Classification

Year ended December 31, 2022

Year ended December 31, 2021

Compensation foraudit certification
services¥mCompensation for
non-audit services¥mCompensation foraudit certification
services¥mCompensation for
non-audit services¥mFiling company

-

8

-

-

Consolidated
subsidiaries

47

-

43

-

Total

47

8

43

-

Notes:
1.

Non-audit services to the filing company include support services such as the provision of advice on the preparation of an
expatriate policy.

- 70 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.3 Status of Audit (continued)
Other Compensation for Audit Certification Services by the External Auditor from the same network
Year ended December 31, 2022
Not applicableYear ended December 31, 2021
Not applicable
Policy for Determining Compensation for Audits
Audit compensation paid to the Company’s External Auditor is decided with the consent of the Audit
Committee after discussion with the External Auditor regarding the audit content, conditions, andother factors for that financial year.
Reason for Compensation for Audits
The Audit Committee has confirmed the audit plan of the independent External Auditor, the state of
execution of duties for external audits, the basis of remuneration estimates, etc. and has considered
whether audit remuneration is adequate for the implementation of appropriate audits. The
Committee concluded that the audit remuneration is appropriate and has given its consent to the
remuneration, etc. of the independent External Auditor in accordance with Article 399, Paragraph 1of the Companies Act.

- 71 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.4 Remuneration paid to Officers
Policy concerning decisions on the content of individual remuneration for Executive Officers andDirectors by the Compensation Committee
The Compensation Committee of the Company has adopted a policy (please see below) to determine
the remuneration for individual Executive Officers and Directors. The Compensation Committee
concluded that the individual remuneration packages of Executive Officers and Directors during theyear under review was in line with the above mentioned policy, as the method in which the content of
remuneration was decided and the remuneration content itself were consistent with the policy.
i. Basic Policy
・ The basic policy of the remuneration for Officers is to provide incentives for attracting andretaining talent, and implementing management strategies designed to deliver sustainablegrowth and enhance the corporate value of the Group.
・ Remuneration for Directors is set to provide incentives for attracting and retaining excellent talent
to act as Directors of the Company, to enable strengthening the oversight function of Groupmanagement, as well as to enable a proactive contribution to the enhancement of corporate valueby sharing the benefits and risks of stock price fluctuations with shareholders. Director’s
remuneration consists of a fixed amount of base salary and share-based payments in the form of
restricted stock units (RSUs).
・Remuneration for Executive Officers is set to provide incentives for realization of the Company’s
vision and strategy, medium-to long-term enhancement of corporate value and shareholder value,
as well as to compensate for the individuals’ roles and achievements. Executive Officer’s
remuneration consists of a fixed amount of base salary, a bonus determined according to theaccomplishment of the individual’s business objectives, retirement allowances, and share-based
payments in the form of Restricted Stock Units (RSUs).
・ The Compensation Committee, of which a majority comprises external directors, determines
compensation fairly and appropriately, ensuring transparency under the chairmanship of an
external director.
ii. Policy for determining the amount or the method of calculation of individual remuneration (excluding
non-monetary remuneration outlined in iii. below)
a. Remuneration paid to Directors
The amount of fixed base salary (annual salary) is the same for all Directors except for the
Chairperson, and determined referring to the market data obtained from benchmarking surveys
and other available databases of external research organizations. Directors who concurrently
serve as Executive Officers shall not be paid Directors’ compensation.

- 72 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.4 Remuneration paid to Officers (continued)
b. Remuneration paid to Executive Officers
・ Fixed base salary (annual salary) is determined based on an individual performance in theprevious financial year and an evaluation of their contribution to the Company, taking into
consideration factors such as remuneration levels at comparable companies in the country
where the individual is acting or resides, using available databases of external researchorganizations for reference.
・ Bonuses, are determined by multiplying the amount of base salary by a certain percentage
determined for each individual according to factors such as his/her responsibilities andperformance, and the difficulty in acquiring the talent that is fit for the role. The amountpayable is determined in accordance with the accomplishment of the individual businessobjectives.
・ Retirement allowances are equivalent to the sum of the bonus and the annual salary for theprevious business year. However, retirement allowances are not paid to Executive Officers who
are not re-appointed or dismissed due to misconduct, violation of law, regulations and the
Articles of Incorporation of the Company, breach of trust, gross negligence, incompetence orinability to execute duties, disqualification as an Executive Officer under the Companies Act, or
any other justifiable reason. Furthermore, in case where the law stipulates that a dismissal
notice allowance is payable following a contract termination, only the difference between theamount of the annual salary of the previous year and the dismissal notice allowance will be
paid.
iii. Contents of non-monetary remuneration and policy for determining the amount or number or the
method of calculating the amount or number of non-monetary remuneration
The Company has introduced a post-hoc granted share-based payments (RSUs) as non-monetary
remuneration. An overview of which is as follows.
a. Conditions for allotment
Shares of the Company are allotted on the condition that an individual has served continuously inthe position of Director or Executive Officer of the Company throughout the performance period.
However, in cases where a Director or Executive Officer ceases to hold office due to the expirationof his/her term of office, other grounds deemed by the Board of Directors to be justifiable, ordeath during the performance period, a number of shares calculated by the Company under theapplicable share-based payment regulations will be allotted.
b. Maximum number of the Company’s shares to be delivered
The number of shares of the Company to be delivered under the plan, together with the numberof shares issued under other share-based payment plans, cannot exceed 10% of the total number
of issued and outstanding shares of the Company.
c. Performance period and number of allotted shares:
・ The performance period for Directors (excluding Directors who concurrently serve as Executive
Officers) is one year, after the expiration of which, a number of shares to be allotted is
calculated by dividing an amount equivalent to 130% of the base salary by the stock price atthe start of the performance period.
- 73 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.4 Remuneration paid to Officers (continued)
・ The performance period for Executive Officers and Directors who concurrently serve as
Executive Officers are two years and three years from the first day of the performance period
respectively. After the expiration of each performance period, half of the total number ofshares will be allotted respectively. The number of shares to be allotted is calculated by dividing
the amount of basic compensation multiplied by a certain ratio (97.5% to 195%), set by position,by the stock price at the start of the performance period.
d. Method for the allotment of shares
Shares are allotted in exchange for the contribution in kind of monetary compensation claims.
Monetary compensation claims is provided to Officers to whom the allocation of shares isscheduled and the amount is calculated by multiplying the number of allocated shares by theamount to be paid per share determined by decision of the Board of Directors or a Representative
Executive Officer authorized thereby.

ⅳ. Policy for determining the composition of Officer compensation
The composition ratio of the amount of individual remuneration, etc. is as follows:
Base salary

Bonus

Stock compensation
Restricted Stock
Units (RSU).

Retirement
allowances

Director

1

-

1～2

-

Representative
Executive Officer &
CEO

1

0.75

2

1.75

Executive Officer

1

0.4～0.61

1.4～1.6

Notes:
1.

In the above table, the model for the bonus to be paid is a payment of standard amount determined by the Company.
This ratio may change in accordance with factors such as the Company’s business results and share price.

ⅴ. Policy for determining the timing or conditions for granting remuneration to Officers
・ One twelfth of the base salary is payable monthly.
・ Bonuses are paid annually in February.
・ Share-based payments: Restricted Stock Units (RSU) are granted in April of each year, andshares are allotted after the end of the performance period.

- 74 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.4 Remuneration paid to Officers (continued)

ⅵ. Overview and activities of the Compensation Committee’s process of determining the amount of
remuneration for Officers in the current financial year
The Compensation Committee consists of four directors including three external directors and one
director who also serves as a representative executive officer. It set the policy for determining the
remuneration packages for Directors and Executive Officers and determined the remuneration for each
Officer based on this policy, considering individual performance and their contribution to the Company.
The Compensation Committee was held six times during the current financial year, and the attendance
was as follows:
Name

Attendance at meetings

Shinichi Tamura

5 out of 6

Christopher Cargill

3 out of 3

Tomohiro Tohyama

6 out of 6

David Roblin

6 out of 6

Rolf Soderstrom

6 out of 6

Notes:
1. For Christopher Cargill, the number of Compensation Committee meetings held is shown after his appointment as a director.

The amount of individual base salary, bonuses, share-based payments and retirement allowance was
decided in consideration of the roles, the achievements and other contributions to the company ofeach Officer as well as the remuneration level of other companies in the same industry.
Additional Information: Summary of the Performance Share Units (PSUs) granted in 2019:a. Conditions for Allotment
The Company allots shares of the Company to the Executives according to a pre-defined method, on
the condition that they serve in their position during the three-year performance period.
b. Maximum number of the Company’s shares to be delivered
The number of shares of the Company to be delivered under the plan, together with the number ofshares issued under other share -based payment plans, cannot exceed 10% of the total number ofissued and outstanding shares of the Company.
c. Number of Allotted Shares
The number of the Company’s shares allotted to each individual (Allotted Shares) is calculated for eachindividual by setting the base number of shares at the start of the performance period and multiplying
the base number of shares by certain coefficients after the performance period has elapsed.

- 75 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.4 Remuneration paid to Officers (continued)(i) Base number of shares
The base number of shares is determined by dividing the amount obtained from multiplying the basesalary by a certain percentage determined for each individual, by the stock price at the start of theperformance period.
(ii) The number of shares to be allotted is determined by multiplying the sum of the following figuresby the base number of shares:
50% of the number between 25% to 100 % to be determined based on the coefficients according
to the Relative Total Shareholder Return (“TSR”) Achievement level measured against an agreed
peer group at the end of the performance period where such TSR is above the median.

50% of the number between 50% to 200% to be determined based on the coefficients according
to the Absolute TSR of the Company Achievement Level where Absolute TSR at the end of theperformance period increases by 25% or more.
For Relative TSR the Company has selected multiple domestic competitors based on market
capitalization and R&D expense ratios. The above coefficients are subject to change in the future.
As described above, the TSR ratio is selected as an indicator for PSUs. To increase awareness ofcompetitors, to share the benefits and risks of stock price fluctuations with shareholders, and toactively contribute to the increase of stock prices and corporate value, the Group adopts figures basedon the Company's TSR growth rate at the end of the Relevant Calculation Period (Absolute TSR), andthe average of the figures based on percentiles (Relative TSR) compared to TSRs of multiple domestic
peers. The actual achievement level of the performance target was 12.5%.
d. Board of Directors meeting for issuance or disposition
The Board of Directors meeting for issuance or disposition of shares to be allotted is held, in principle,
within one month after the date of the Ordinary General Meeting of Shareholders for the most recent
business year during which the performance period ends; provided, however, that if there are
exceptional circumstances, the date of the Board of Directors meeting for issuance or disposition may
be changed.
e. Method of delivery of the Company shares
Under this Plan, common shares of the Company are allotted to Executives after the expiration of the
pre-defined performance period in exchange for the contribution in kind of monetary compensation
claim. Monetary compensation claim is provided to Executives to whom the allocation of shares isscheduled.
The amount of monetary compensation claims to be provided to each individual is calculated bymultiplying the number of Allotted Shares set forth in “c.” above by the issue price or disposal priceper share determined by the Board of Directors for issuance or disposition of shares to be allotted.

- 76 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.4 Remuneration paid to Officers (continued)
f. Grounds for Forfeiture
If during the performance period an Executive falls under certain specified circumstances, such as
being subject to criminal punishment equivalent to or more severe than imprisonment, being subject
to a filing for the commencement of insolvency proceedings or civil rehabilitation proceedings, etc.,
the Executive will not obtain any rights to be allotted Company shares under the Plan and the rights toreceive the Company’s shares shall lapse at the time such circumstances in question occur.
g. Treatment in Cases of Reorganization or Change of Control Transactions
If during the performance period a transaction involving a reorganization or a change of control suchas a merger agreement in which the Company becomes a dissolved entity, or a share exchange/transfer
agreement under which the Company becomes a wholly owned subsidiary is approved by a general
meeting of shareholders, etc. of the Company and that transaction becomes effective before thecompletion of the performance period, the Company will, by resolution of the Board of Directors, allot
the maximum number of shares to be allotted under the Plan prior to the reorganization transaction
coming into effect.
Total Amount of Remuneration, Total Amount of Remuneration by Type, and Number of Officers to Be
Paid, by Executive Category
Total amountof
remuneration¥mBase salary

Directors(External
directors)

208
(159)

101
(77)

Executive
Officers

772

194

Executive
category

Number of
officers to be
paid

Total amount of remuneration by type(¥m)
Share-based
payments

Retirement
allowance

(-)

107
(82)

–
(–)

7
(6)

186

207

185

5

Bonuses

Notes:
1.
Renumeration of Christopher Cargill, Director and Executive Officer is excluded from Directors remuneration.
2.
Renumeration of Christopher Cargill, Director and Executive Officer is included in Executive Officers remuneration.
3.
Number of officers to be paid in the table indicates the total number of officers. Renumeration of Shinichi Tamura until March2022 is included in Executive Officers remuneration, and renumeration from April 2022 is included in Directors remuneration.
4.
Remuneration of four Executive Officers whose expenses were borne by Company subsidiaries, including two Executive Officers
who retired in March 2022, are not included in the above table. Please refer to Note 5 for details on their remuneration.
5.
The table above does not include the following:
・Retirement allowance of JPY 155 million paid to two Executive Officers paid by a Company subsidiary in March 2022 inaccordance with the resolution of the Compensation Committee held in March 2022.
・Based salary of JPY 84 million, bonus of JPY 39 million (paid in February 2023 in accordance with the resolution of theCompensation Committee held in January 2023), and share-based payments of JPY 24 million, which were paid by Company
subsidiaries to four Executive Officers including two Executive Officers who retired in March 2022.
6.
The remuneration of the two retired Executive Officers until March 2022 is reflected in the above numbers until March 2022, as
well as the remuneration of the two Executive Officers who assumed office in April 2022.
7.
Share-based payments include the Company's shares. The terms of allocation are as described in " iii Contents of non-monetary
remuneration and policy for determining the amount or number or the method of calculating the amount or number of nonmonetary remuneration" of “Policy concerning decisions on the content of individual remuneration for Executive Officers andDirectors by the Compensation Committee”.
8.
The amount of share-based payments in the table above shows the amount recorded as expenses in the current financial yearin accordance with JGAAP.
- 77 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.4 Remuneration paid to Officers (continued)
Total amount of Consolidated Compensation and Other Payments for Individuals whose Consolidated
Compensation and Other Payments amount to JPY 100 million or more
Total amount of remuneration by type
Name

ShinichiTamura(Chairman of
the Board)

Christopher
Cargill(Representati
ve Executive
Officer,Company
category

Filingcompany

Filingcompany

Executive
category

Base salary

Director

Share-based
compensation

Bonuses24-

25

Total amount(¥m) of consolidated
remuneration
Retirement(¥m)
allowance
332

Executive
Officer

24

-

74

185

Executive
Officer

88

112

92

-

292

President &Chief Executive
Officer)
Notes:
1.
Renumeration of Shinichi Tamura until March 2022 is included in Executive Officer remuneration, and renumeration from April
2022 is included in Director remuneration.
2.
The amount of share-based payments in the table above shows the amount recorded as expenses in the current financial yearin accordance with JGAAP.

4.5 Status of Holdings in Investment Shares
Criteria and Concepts for Classification of Investment Shares
The Group classifies any shares that it acquires according to the purpose of the investment. Shares
held for the purpose of receiving profits solely from fluctuations in the value of those shares ordividends on those shares are classified as investment shares for the purpose of net investment. Sharesacquired and not held for the purpose of net investment are classified as policy-held shares.
Investment shares held for purposes other than investment for gain from capital or dividenda. Holding policy, the method of verifying the reasonableness of a holding, and the details of verificationby the Board of Directors (or organization equivalent to the Board of Directors) regarding theappropriateness of holding individual issues
The Group holds investments in a number of listed companies which arose from past businessdevelopment transactions. After any restrictive holdings periods have passed Management
periodically assesses whether or not to continue to hold each investment after performing a balanced
assessment of various factors, including the investment’s expected returns and future prospects,
general markets conditions and the Group’s liquidity needs. Management’s policy is to divest non-core- 78 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.5 Status of Holdings in Investment Shares (continued)
investments when there is no strategic or financial rationale to continue to hold such investments.
At a meeting held on February 15, 2023 the Board of Directors reviewed the Group’s listed securities
holdings as at December 31, 2022 and concluded the holdings should be maintained for the time being.
b. Shareholding status of the Company
Not applicablec. Shareholdings in companies (largest holding company) with the highest balance sheet values(amount of investment shares) of the Company and its consolidated subsidiaries
Shareholdings of Heptares Therapeutics Ltd., the largest holding company, are as follows:Class

Number of companies in whichinvestment shares are held

Carrying Value

Unlisted shares

2983

Listed shares

2

428

¥m

Notes:
1. Amounts accounted for under IFRS.

Description of shareholdings that increased during the year:
Number of companies
in which investment
shares are held

Total purchase pricerelated to the increasein the number ofshares ¥m (Note 1)

Reason for increase in the number

Unlisted shares

-

-

-

Listed shares

128

Shares in a listed spinout company
were received in partial consideration
following the takeover by anothercorporation of the listed company that
the Group had held shares in.

Classof shares

Notes:
1. The purchase price above represents the value of the listed shares received in partial consideration.

Description of shares sold during the year:
Number of companies
in which investment
shares are held

Total sales price related
to the decrease in thenumber of shares ¥mUnlisted shares--

Listed shares

1

1,209

Class

Shares acquired and sold during the year do not include reverse split, share split, share transfer, shareexchange, merger and such kind of changes in shares.
- 79 -

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.5 Status of Holdings in Investment Shares (continued)
d. Information on the number of shares for each specific investment share and shares deemed to beheld though trust companies
Specific Investment Shares
Description

Centessa
Pharmaceuticals
PLC

December 31,
2022

December 31,
2021

Number ofsharesNumber ofsharesCarrying value¥m

Carrying value¥m929,353929,353

Purpose of holding

378

1,205

To benefit from value created through the
exploitation of IP rights

Purpose of holding, quantitative effect ofholding, and reason for the increase or
decrease in the number of shares

Does theinvestmentcompany holdshares in the
Company?

No

Quantitative Possession EffectNote 2Biohaven
Pharmaceutical-

HoldingCompany Ltd.

-54,617

Purpose of holding866

To benefit from value created through the
exploitation of IP rights

No

Quantitative Possession EffectNote 2
Reason for the decrease in the number ofshares
The shares were sold in response to a
takeover bid by Pfizer Inc. in the year underreview. Shares in a listed spinout company
Biohaven Ltd., were received in partial
consideration (in addition to cash).
Biohaven Ltd.

27,308-

Purpose of holding

50-

To benefit from value created through the
exploitation of IP rights
Quantitative Possession EffectNote 2
Reason for the increase in the number ofsharesA takeover bid by Pfizer Inc. for shares in
Biohaven Pharmaceutical Holding Company
Ltd. occurred in the year under review.
Shares in Biohaven Ltd. (a listed spinout
company) were received in partial
consideration.

- 80 -

No

Sosei Group Corporation
Section 4. Information about the Filing Company
4 Corporate Governance (continued)
4.5 Status of Holdings in Investment Shares (continued)
Notes:
1. Amounts accounted for under IFRS
2. Quantitative holding effects are not described in order to preserve confidential information in contracts. The appropriateness ofholding these shares is explained in “Investment shares held for purposes other than investment for gain from capital or dividend a.”
above.

Deemed Shares held through trust companies:
Not applicable.
Investment shares held for net investment purposesa. Status of shareholdings of the Company
December 31, 2022
Class

Unlisted shares

December 31, 2021

Number ofcompanies in whichinvestment sharesare held
1

Carrying
value
¥m

-

Listed shares

Carrying
value
¥m

117

Number ofcompanies in whichinvestment sharesare held
1

-

-

-

125

Year ended December 31, 2022
Class

Unlisted shares
Listed shares

Dividend income¥mGain or loss on disposal¥m

Unrealized gain or loss onrevaluation
¥m

-

-

(8)

-

-

-

Notes:
1. Amounts accounted for under JGAAP.

b. Status of shareholdings of Heptares Therapeutics Ltd., the largest holding company
Not applicable.

- 81 -

Sosei Group Corporation
Section 5. Financial Statements
1 Policy for the preparation of the Consolidated and Non-Consolidated Financial Statements
The consolidated financial statements of the Company are prepared in accordance with International
Financial Reporting Standards (hereinafter, “IFRS”) pursuant to the provisions of Article 93 of the“Ordinance on Terminology, Forms and Preparation Methods of Consolidated Financial Statements”(Ordinance of the Ministry of Finance No. 28 of 1976).
The non-consolidated financial statements of the Company are prepared in accordance with the“Ordinance on Terminology, Forms and Preparation Methods of Financial Statements, etc.”(Ordinance of the Ministry of Finance No. 59 of 1963) (hereinafter, the “Ordinance on FS”).
The Company is categorized as a company allowed to file specified financial statements, and the nonconsolidated financial statements are prepared in accordance with the provisions of Article 127 of theOrdinance on FS.
2 Audit Attestation
In accordance with the provisions of Article 193-2, Paragraph 1 of the Financial Instruments andExchange Act, the consolidated financial statements and the non-consolidated financial statements
for the year ended December 31, 2022 were audited by Ernst & Young ShinNihon LLC.
3 Special effort to ensure the appropriateness of Financial Statements and development of a system
for the fair preparation of Consolidated Financial Statements in accordance with IFRS
Significant effort is made to ensure the appropriateness of the financial statements. Specifically, theCompany is a member of the Financial Accounting Standards Foundation (FASF), and has developed asystem that enables the timely acquisition of information regarding the establishment and revision of
accounting standards, practical guidelines, etc.
The Company keeps up to date with accounting developments by reviewing new and amended
standards published by the International Accounting Standards Board. To prepare appropriate
consolidated financial statements under IFRS, management has developed accounting policies for theGroup that comply with IFRS and performs accounting procedures based on those policies.

- 82 -

Sosei Group Corporation
Section 5. Financial Statements
Consolidated Balance Sheet as December 31, 2022
December31, 2022¥m

December31, 2021¥m

3,791
15,306
8,577
-

3,817
15,095
9,120
3,479

9
15

1,737
64
29,4752,564
102
34,177

9,14,20

9

2,462
58
865
66,557
69,942
99,417

2,138
70
86
427
60,08762,80896,985

28
9,30

2,922
-

2,706
47

9,16,
28,30
9,12,30
18,20

27,981

27,4401,577
4,909
37,3891,638
495
32,326

9,17

1,628
-

1,176
4,048

260
176
36
1,992
4,092
41,481

279
193
1,495
7,191
39,517

19
19
19
9,19
9,19

41,33529,525(1)(8,911)(4,012)
57,93641,03629,100(0)(9,768)(2,900)57,468

957,936
99,41757,46896,985

Note
AssetsNon-current assets
Property, plant and equipment
Goodwill
Intangible assets
Investments accounted for using theequity method
Other financial assets
Other non-current assets
Total non-current assets
Current assets
Trade and other receivables
Income taxes receivable
Other financial assets
Other current assets
Cash and cash equivalents
Total current assets
Total assets

10,12
4,11
4,11,28
27

9
15
9,13

Liabilities and Equity
Liabilities
Non-current liabilities
Deferred tax liabilities
Contingent consideration inbusiness combinations
Corporate bonds
Lease liabilities
Other non-current liabilities
Total non-current liabilities
Current liabilities
Trade and other payables
Contingent consideration inbusiness combinations
Income taxes payable
Lease liabilities
Other financial liabilities
Other current liabilities
Total current liabilities
Total liabilities
EquityCapital stock
Capital surplus
Treasury stock
Retained earnings
Other components of equity
Equity attributable to owners of theparentTotal equity
Total liabilities and equity

9,30
9,12,30918,20- 83 -

Sosei Group Corporation
Section 5. Financial Statements
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Year ended December 31, 2022
Note
Revenue

4,6,20

Cost of sales

10,21,22

Gross profit
Research and development expenses

10,11,21,22

Selling, general and administrative expenses

10,11,21,22,
23

Year ended
December 31,
2022¥mYear ended
December 31,
2021¥m

15,569(926)
14,643(7,454)

17,712(933)
16,779(5,931)(4,377)(3,940)8(3,141)
3,775
199(3,797)

Finance income

9,26

Finance costs

9,12,26

626
(2)
3,436
663
(756)

27

(429)

50

27

(1,836)

-

7,27

-

206

28

1,078
(696)
382

433
584
1,017

8,9

(928)

760

(928)

760

291

3,846

291

3,846

(637)
(255)

4,606
5,623

382
382

1,017
1,017

(255)
(255)

5,623
5,623

4.68
4.63

12.53
12.40

Other income
Other expenses

24
11,25

Operating profit

Share of (loss) gain of associates accounted for using the equity
methodImpairment loss on investments accounted for using the equity
methodGain on reversal of impairment loss on investments accounted forusing the equity method
Profit before income taxes
Income tax (expense) benefit
Net profit
Other comprehensive income:Items that will not be reclassified subsequently to profit or loss:
Net change in fair value of equity instruments designated asmeasured at fair value through other comprehensive income
Total items that will not be reclassified subsequently to
profit or loss
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations

9,10,11,19,
28

Total items that may be reclassified subsequently to
profit or loss
Total other comprehensive income

19

Total comprehensive income for the year
Net profit attributable to:
Owners of the parent
Total comprehensive income for the year attributable to:
Owners of the parent
Earnings per share (yen)Basic earnings per share

29

Diluted earnings per share29- 84 -

Sosei Group Corporation
Section 5. Financial Statements
Consolidated Statement of Changes in Equity
Year ended December 31, 2022

Note
Balance at January 1, 2021
Net profit
Other comprehensive income
Total comprehensive income for the year
Issuance of new shares
Share-based payments
Issuance of convertible bonds
Repurchase and cancellation of convertible bonds
Conversion of convertible bonds
Total transactions with owners
Balance at December 31, 2021
Net profit
Other comprehensive income
Total comprehensive income for the year
Issuance of new shares
Share-based payments
Purchase of treasury stock
Transfer from other components of equity toretained earnings
Total transactions with owners
Balance at December 31, 2022

8,19
19
19,22
16,19
16
16

19
19
19,22
19
9,19

Capital stock¥m
40,220689
127
816
41,036299-

Capitalsurplus¥m
30,452
(89)
699
1,809
(3,877)106(1,352)
29,100(299)
724-

Treasury
stock
¥m
(0)
(0)
(1)

Retainedearnings¥m(10,785)
1,017
1,017
(9,768)
382
382
-

Other
componentsof equity:(7,506)
4,606
4,606(2,900)
(637)
(637)
-

Equityattributableto ownersof theparent¥m
52,381
1,017
4,606
5,623
600
699
1,809
(3,877)233(536)
57,468
382
(637)
(255)
0
724
(1)

-

-

-

475

(475)

-

-

299
41,335425
29,525

(1)
(1)

475
(8,911)(475)(4,012)723
57,936723
57,936- 85 -

Total equity¥m
52,381
1,017
4,606
5,623
600
699
1,809
(3,877)233(536)
57,468
382
(637)
(255)
0
724
(1)

Sosei Group Corporation
Section 5: Financial Statements
Consolidated Statement of Cash Flows
Note

Cash flows from operating activities
Profit before income taxes
Adjustments for:
Depreciation and amortization
Share-based payments
Impairment loss
Loss (gain) on revaluation of investments in capital
Change in fair value of contingent consideration
Net foreign exchange loss (gain)
Interest income
Interest expenses
Share of loss (gain) of associates accounted for using the equity
methodImpairment loss on investments accounted for using the equity
methodGain on reversal of impairment loss on investments accounted
for using the equity method
Increase in trade and other receivables
Increase (decrease) in trade and other payables
Increase (decrease) in deferred revenue
Other
Subtotal
Grants received
Interest and dividends received
Interest paid
Income taxes paid
Income tax refunded
Net cash provided by operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from sale of investment in associate
Proceeds from sale of investment in securities
Proceeds from settlement of contingent consideration receivable
Net cash provided by investing activities
Cash flows from financing activities
Repayments of lease liabilities
Proceeds from issuance of convertible bonds
Payments for repurchase and cancellation of convertible bonds
Payments for settlement of contingent consideration
Proceeds from issuance of common stock
Other
Net cash (used in) provided by financing activities
Effects of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year

- 86 -

Year ended
December 31,
2022¥mYear ended
December 31,
2021
¥m

1,078

433

1,345
700
41
(114)
195
(236)
714

1,278
713
3,138
(2)
2,787
(194)
(4)
529

429

(50)

1,836

-

-

(206)

(210)
315
5,153
(1,154)
10,092
57
236
(171)
(262)
0
9,952

(799)
(184)
(800)
495
7,134
27
4
(157)
(296)
383
7,095

10
11
7
8
9

(277)
(26)
1,209
137
1,043

(193)
(8)
206

12
16,30
30
9,30
19

(206)
(4,680)0(1)(4,887)362
6,470
60,08766,557(183)
29,855(18,958)(191)
600
11,123
1,583
20,07940,00860,087

10,11
21,22
11,25
26
26
26
26
12,26
27
27
27

12

13

273
278

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
1 Reporting entity
Sosei Group Corporation (the “Company”) is a joint-stock company located in Japan. The address of its
registered head office and principal place of business is available on the Company’s website (URL:
https://www.soseiheptares.com/). The consolidated financial statements reflect the transactions andbalances of the Company and its subsidiaries (the “Group”) and its interests in associated companies
as at the end of December 31, 2022 and for the twelve month period then ended. The Group is
engaged in the pharmaceutical business.
2 Basis of preparation
2.1 Compliance with International Financial Reporting Standards
The Japanese language consolidated financial statements of the Group have been prepared inaccordance with IFRS published by the International Accounting Standards Board since theCompany meets the requirements of a "Specified Company applying Designated International
Financial Reporting Standards", pursuant to Article 1-2 of the Ordinance on Terminology, Forms
and Preparation Methods of Consolidated Financial Statements (Ordinance of the Ministry of
Finance No. 28 of 1976), and applied the provisions of Article 93 of said Ordinance. The Group’s
Japanese language consolidated financial statements were approved by the Board of Directors
on March 23, 2023. The Group’s English language consolidated financial statements wereapproved by the Board of Directors subsequently on June 20, 2023. Refer to Note 34 Significant
subsequent events for details of material event which occurred subsequent to the date of theJapanese language consolidated financial statements, which required additional disclosure in the
English language consolidated financial statements.
2.2

Basis of measurement
The consolidated financial statements of the Group have been prepared on the historical costbasis except for specified financial instruments and other balances measured at fair value as
explained in Note 3 Significant accounting policies.

2.3

Presentation currency
The consolidated financial statements of the Group are presented in Japanese yen, which is thefunctional currency of the Company, and amounts are rounded up or down to the nearest millionyen.

3 Significant accounting policies
3.1

Basis of consolidation
The consolidated financial statements are prepared based on the financial statements of theCompany and entities controlled by the Company as at December 31. The Company controls anentity when it is exposed, or has rights, to variable returns from its involvement with the investee
and has the ability to use its power over the investee to affect its returns. The Company
reassesses whether or not it controls the investee if facts and circumstances indicate that there
are changes to either of the elements of control above.
- 87 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
3 Significant accounting policies (continued)
3.1 Basis of consolidation (continued)
Subsidiaries
All subsidiaries are consolidated from the date the Group obtains control of such subsidiaries
until the date on which the Group loses control of those subsidiaries. Where the accounting
policies of subsidiaries are different from those of the Group, adjustments are made to thefinancial statements of the subsidiaries. Intragroup transactions are eliminated in the
preparation of the consolidated financial statements.
Changes in the Group’s ownership interest in subsidiaries that do not result in the Group losing
control of the subsidiaries are accounted for as equity transactions. The carrying amounts of theGroup’s interests and the non-controlling interests are adjusted to reflect the changes in theirrelative interests in the subsidiaries. Any difference between the amount by which the noncontrolling interests are adjusted and the fair value of the consideration paid or received isrecognized directly in equity and attributed to the owners of the parent.
When the Group loses control of a subsidiary, a gain or loss on disposal is recognized in profit orloss and is calculated as the difference between (i) the aggregate of the fair value of theconsideration received and the fair value of any retained interest, and (ii) the previous carrying
amount of assets (including goodwill) and liabilities of the subsidiary, and any non-controllinginterests.
Associates
An associate is an entity which is not controlled or jointly controlled by the Group but for which
the Group has significant influence over the financial and operating policies of the entity. When
the Group holds 20% or more but less than 50% of the voting rights of other companies, there
is a rebuttable presumption that the Group has a significant influence over the other companies.
Investments in associates are accounted for using the equity method from the date the Groupgains significant influence until the date it loses that influence over the entities.
An investment in an associate is tested for impairment as a single asset if there is objective
evidence indicating that the investment in the associate is impaired.
Unrealized gains arising from transactions with entities accounted for using the equity method
are eliminated against the investment to the extent of the Group’s interest in the investee.
Unrealized losses are eliminated in the same way as unrealized gains unless there is evidence ofimpairment.

- 88 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
3 Significant accounting policies (continued)
3.2

Business combinations
Business combinations are accounted for using the acquisition method. The considerationtransferred in a business combination is measured at fair value, which is calculated as the sumof the acquisition-date fair values of the assets transferred by the Group, liabilities assumed, andequity instruments issued by the Company in exchange for control of the acquiree. If theconsideration transferred exceeds the fair value of identifiable assets and liabilities, the excess isrecorded as goodwill in the consolidated balance sheet. Conversely, if the fair value of such assets
and liabilities exceeds the consideration transferred, the excess is immediately recognized as again in the consolidated statement of profit or loss and other comprehensive income. If the initialaccounting for a business combination is incomplete by the end of the period in which thebusiness combination occurred, the Group reports provisional amounts for items for which theaccounting is incomplete. Those provisional amounts are adjusted retrospectively during themeasurement period which lasts no more than one year from the acquisition date. Acquisition
costs are expensed as incurred.
When the consideration transferred by the Group in a business combination includes assets or
liabilities resulting from a contingent consideration arrangement, the contingent considerationis measured at its acquisition-date fair value and included as part of the consideration transferredin a business combination. Changes in the fair value of the contingent consideration that qualify
as measurement period adjustments are adjusted retrospectively, with corresponding
adjustments against goodwill. Measurement period adjustments are adjustments that arise fromadditional information obtained during the “measurement period” (which cannot exceed one
year from the acquisition date) about facts and circumstances that existed at the acquisition date.
Changes in the fair value of the contingent consideration that do not qualify as measurement
period adjustments are accounted for through either of the following:a)Contingent consideration that is classified as equity is not remeasured at subsequent
reporting dates, and its subsequent settlement is accounted for within equity.
b)Contingent consideration that is classified as an asset or liability is remeasured atsubsequent reporting dates in accordance with IFRS 9 Financial Instruments orInternational Accounting Standards (“IAS”) 37 Provisions, Contingent Liabilities andContingent Assets, with the corresponding gain or loss being recognized in profit or loss.
The Group chooses whether non-controlling interests are measured at fair value or based on the
proportionate interest of the recognized amount of identifiable net assets on the acquisition
date for each transaction.

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Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
3 Significant accounting policies (continued)
3.3

Foreign currency translations
Transactions denominated in foreign currencies
Transactions denominated in foreign currencies are translated into the functional currency ofeach Group company at the rates of exchange prevailing at the dates of the transactions.
Foreign-denominated monetary assets and liabilities are retranslated into the functional
currency of each Group company using the exchange rates at the end of the period.
Non-monetary assets and liabilities denominated in foreign currencies measured at fair value are
retranslated into the functional currency at the exchange rates on the date fair value isdetermined. Non-monetary items measured at cost are translated at the exchange rate on thetransaction date.
Exchange differences resulting from retranslation or settlement are recognized in finance income
or finance costs in the period incurred. Exchange differences resulting from the translation offinancial assets measured through other comprehensive income are recognized in “Other
comprehensive income” in the consolidated statement of profit or loss and other comprehensive
income and accumulated in “Other components of equity” in the consolidated balance sheet.
Financial statements of foreign operations
The assets and liabilities of the Group’s foreign operations (such as overseas subsidiaries) aretranslated into Japanese yen at the exchange rates prevailing at the end of the period. Income
and expenses are translated into Japanese yen at the average exchange rates for the period aslong as there have been no significant exchange rate fluctuation.
Exchange differences arising from the translation of the financial statements of foreign
operations are recognized in “Other comprehensive income” in the consolidated statement of
profit or loss and other comprehensive income and accumulated in “Other components of equity”
in the consolidated balance sheet.

3.4

Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated depreciation andaccumulated impairment losses. The cost includes costs directly attributable to the acquisitionof the asset, the initial estimate of costs for dismantling and removing the asset and the costs ofrestoring property to its original state.

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Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
3 Significant accounting policies (continued)
3.4

Property, plant and equipment (continued)
Property, plant and equipment are depreciated based on their depreciable amounts by thestraight-line method over the expected useful life of each asset.
The normal expected useful lives of major asset categories are as follows: Buildings and structures:
3 - 18 years Machinery and equipment: 4 - 8 years
 Furniture and fixtures:
3 - 18 years
The expected useful lives, residual values and depreciation methods are reviewed at the end ofeach financial year, and changes in these items, if any, are applied prospectively as changes inaccounting estimates.

3.5

Goodwill
Goodwill arising from the acquisition of a subsidiary is recorded at cost less accumulated
impairment losses. Upon initial recognition goodwill is measured at the fair value of theconsideration transferred, including the amount recognized for non-controlling interests, less the
net recognized value (normally the fair value) of identifiable assets and assumed liabilities at thetime of the acquisition.
Goodwill is not amortized. It is allocated to cash-generating units and an annual impairment test
is conducted at the same time in each financial year or whenever there is an indication that
goodwill may be impaired. Impairment losses on goodwill are recognized in the consolidated
statement of profit or loss and other comprehensive income and are not reversed subsequently.

3.6

Intangible assets
Separately acquired intangible assets with finite useful lives are measured at cost lessaccumulated amortization and accumulated impairment losses. The cost is directly attributable
to the acquisition of the intangible asset.
Intangible assets are amortized based on their amortizable amounts by the straight-line method
over the expected useful life of each asset. The amortization method, expected useful lives, andresidual values are reviewed at the end of each financial year, and changes in these items, if any,
are applied prospectively as changes in accounting estimates.
Expected useful lives of major asset categories are as follows: Product-related assets: 18 years
 Core technology:
12 - 20 years
 Customer-related assets: 20 years
Intangible assets with indefinite useful lives and intangible assets that are not yet available foruse and therefore not yet amortized, are tested for impairment at the same time in each financial
year and whenever there is an indication of impairment.
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Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
3 Significant accounting policies (continued)
3.6

Intangible assets (continued)
Expenditure on research activities is recognized as a cost in the period in which it occurs.
Internally generated intangible assets arising at the development stage are recognized only when
all the following criteria have been demonstrated: the technical feasibility of completing the intangible asset so that it will be available foruse or sale; the intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset;
 how the intangible asset will generate probable future economic benefits;
 the availability of adequate technical, financial and other resources to complete thedevelopment and to use or sell the intangible asset; and the ability to measure reliably the expenditure attributable to the intangible asset during
its development.
The amount initially recognized for internally generated intangible assets is the total cost
incurred from the date that the intangible asset initially met the above recognition criteria. Whenan internally generated intangible asset cannot be recognized, development costs are expensed
in the period they occur. After initial recognition, internally generated intangible assets are statedat acquisition cost less cumulative amortization and cumulative impairment in line with otherintangible assets. Intangible assets acquired through business combinations and recognizedseparately from goodwill are stated at acquisition cost less cumulative amortization andcumulative impairment after initial recognition at fair value as of the acquisition date in the same
way as individually acquired intangible assets.

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Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
3 Significant accounting policies (continued)
3.7

Leases (as a lessee)
Management assesses whether any new contract includes a lease at the inception of thecontract. If a contract conveys the right to control the use of an identified asset for a period in
exchange for consideration, the contract is, or contains, a lease.
Initial recognition and measurement
At the commencement date of the contract, a right-of-use asset is measured at an amount equal
to the initial measurement of the lease liability, adjusted by an estimate of costs to be incurredin dismantling and removing the underlying asset, restoring the site on which it is located or
restoring the underlying asset itself. The lease liability is measured at the present value of theremaining lease payments, discounted using the lessee’s incremental borrowing rate at thecommencement date.
Subsequent measurement
A right-of-use asset is depreciated using the straight-line method over the shorter of the leaseterm or the useful life of the right-of-use asset. The expected useful life used in calculating thedepreciation expense is 3 to 16 years. Interest on the lease liability is calculated to be the amountthat produces a constant periodic rate of interest on the remaining balance of the lease liability.
The lease liability is reduced by lease payments net of the interest expense.
Presentation
In the consolidated balance sheet, the Group presents right-of-use assets in “Property, plant andequipment” and lease liabilities in “Lease liabilities”. In the consolidated statement of profit orloss and other comprehensive income, the Group presents interest expense at an amount that
produces a constant periodic rate of interest on the remaining balance of the lease liability in“Finance costs”.
Short-term leases and leases of low-value assets
For low-value asset leases and short-term leases with lease terms of 12 months or less, the Group
has adopted the exemption provisions of IFRS 16 Leases and has elected not to recognize rightof-use assets and lease liabilities. The Group recognizes lease payments for these leases as
expenses over the lease term using the straight-line method.

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Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
3 Significant accounting policies (continued)
3.8

Impairment of non-financial assets
The book values of non-financial assets are reviewed for indications of impairment at eachreporting date. If any such indications exist, the asset’s recoverable amount is estimated. For
goodwill and intangible assets with indefinite useful lives or intangible assets not yet available
for use, the recoverable amount is estimated at the same time in each financial year. The
recoverable amount of assets or cash-generating units is the higher of value in use or fair valueless disposal costs. In the calculation of value in use, estimated future cash flows are discounted
to present value using a discount rate that reflects the time value of money and risks inherent tothe asset. In respect of cash-generating units, assets are grouped into the smallest units
generating largely independent cash flows from other assets or units through continued usage.
In respect of cash-generating units for goodwill, goodwill is assessed based on those business
units defined for the purposes of internal reporting. In principle, a cash-generating unit isclassified as a type of business and geographical region. Corporate assets do not generate
independent cash inflows. Therefore, when there are indications of impairment in corporate
assets the recoverable amount of the cash-generating unit to which the corporate asset belongs
is calculated for the impairment test. Assets that do not have external cash flows are included
within the cash-generating units of the business units that they support. Impairment loss isrecognized in profit or loss when the book value of the asset or cash-generating unit exceeds therecoverable amount. Impairment loss recognized in connection with cash-generating units isallocated first to reduce the book value of goodwill relating to that cash-generating unit. Any
additional impairment required is allocated next to reduce the book values of other assets within
the cash-generating unit proportionally.
Impairment losses related to goodwill are not reversed. In respect of impairment losses on otherassets recognized in the past, the existence of indications showing that the loss has decreased
or been eliminated is assessed on each reporting date. If there are indications of a reversal of
impairment and the estimate used for determining the recoverable amount has changed, theimpairment loss is reversed. The previously recognized impairment loss is reversed to the extent
that the carrying amount of the asset does not exceed what the carrying amount would havebeen (net of amortization and depreciation) had no impairment loss been recognized for theasset in prior years.

3.9

Financial assets (excluding derivatives)
Initial recognition and measurement of financial assets
Trade receivables and other receivables are recognized initially on the date they occur. Other
financial assets are recognized on their transaction dates. At initial recognition, the Groupmeasures a financial asset at its fair value plus, in the case of a financial asset not measured atfair value through profit or loss, transaction costs that are directly attributable to the acquisitionof the financial asset.
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Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
3 Significant accounting policies (continued)
3.9

Financial assets (excluding derivatives) (continued)
At the time of initial recognition, the classification of financial assets is determined as follows:

Debt instruments:o Financial assets measured at amortized cost:
Debt instruments are measured at amortized cost when both of the following
conditions are met:(a) the financial asset is held in a business model whose objective is to hold financial
assets in order to collect contractual cash flows, and(b) the contractual terms of the financial asset give rise on specified dates to cash
flows that are solely payments of principal and interest on the principal amountoutstanding.
o Financial assets measured at fair value through profit or loss are debt instruments
other than those defined above.

 Equity instruments:o Financial assets measured at fair value through other comprehensive income:
The Group may irrevocably elect to classify equity investments, other than those
held for trading, upon initial recognition as financial assets measured at fair value
through other comprehensive income.
o Financial assets measured at fair value through profit or loss are equity instruments
other than those defined above.
Subsequent measurement of financial assets
After initial recognition, the Group measures a financial asset according to its classification as
follows:(a) a financial asset measured at fair value through profit or loss is remeasured at fair value at
year-end with a change in fair value recognized in profit or loss.
(b) a financial asset measured at fair value through other comprehensive income is recognized
as the change in the amount of the fair value. When the financial asset is derecognized, thecumulative gain or loss in other components of equity is transferred to retained earnings.
Dividends from a financial asset are recognized as part of financial income in net income (loss)
for the current period, except for those portions considered to be part of the cost of investment.
(c) a financial asset measured at amortized cost is recognized by the effective interest method.
Derecognition of financial assets
The Group derecognizes a financial asset when, and only when:(a) the contractual rights to cash flows from the financial asset expire, or(b) it transfers the contractual rights to receive cash flows from the financial asset and transfers
substantially all the risks and rewards of ownership of the financial asset.

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Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
3 Significant accounting policies (continued)
3.9

Financial assets (excluding derivatives) (continued)
Impairment of financial assets
For financial assets measured at amortized cost, expected credit losses are recorded through anallowance for doubtful accounts. At each reporting date, the Group assesses whether the credit
risk on a financial instrument has increased significantly since initial recognition. The Groupmeasures the loss allowance for a financial instrument at an amount equal to the expectedannual credit loss where the credit risk on that financial instrument has not increased
significantly since initial recognition. Alternatively, the Group measures the loss allowance for afinancial instrument at an amount equal to the lifetime expected credit loss if the credit risk onthat financial instrument has increased significantly since initial recognition.
The Group uses the change in risk of a default occurring over the expected life of the financial
instrument to determine whether the credit risk has increased significantly. To make thisassessment, the Group compares the risk of a default occurring on the financial instrument as at
the reporting date, with the risk of a default occurring on the financial instrument as at the dateof initial recognition, and considers reasonable and supportable information, such as latepayment or financial information, that is available without undue cost or effort, that is indicativeof significant increases in credit risk since initial recognition. Regardless of a significant increasein credit risk since initial recognition, the Group measures the loss allowance for tradereceivables at an amount equal to the lifetime expected credit losses. The Group assumes thatthe credit risk on a financial instrument has not increased significantly since initial recognition if
the financial instrument is determined to have low credit risk at the reporting date.
Whether or not a financial asset is credit impaired is determined by the default of the borrower,
or if the lender, for economic or contractual reasons relating to the borrower’s financial difficulty,
grants to the borrower a concession(s) that the lender would not otherwise have granted, orwhen other factors occur, such as the indication of a bankruptcy of the borrower or the issuing
company or the disappearance of an active market. Expected credit losses are measured as thedifference between contractual cash flows that are due to the Group in accordance with acontract and the cash flows that the entity expects to receive, discounted at the original effective
interest rate and weighted by each asset’s probability of default risk. The Group directly reduces
the value of a credit impaired-financial asset when it, or a part of it, cannot realistically be
expected to be realized and its collateral is realized or transferred to the Group. Where an
impairment loss is reduced after initial recognition, the decrease in impairment loss (decrease
to the allowance for doubtful accounts) is reversed in profit or loss. The impairment loss isreversed up to the value of the amortization at the time the impairment loss was reversed, had
no impairment loss been recognized.

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Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
3 Significant accounting policies (continued)
3.10 Financial liabilities (excluding derivatives)
Initial recognition and measurement of financial liabilities
Financial liabilities are recognized on the transaction date. At initial recognition, the Groupmeasures a financial liability at its fair value minus, in the case of a financial liability not measured
at fair value through profit or loss, transaction costs that are directly attributable to theacquisition or issue of the financial liability. The Group classifies financial liabilities upon initialrecognition as financial liabilities subsequently measured at fair value through profit or loss, or
financial liabilities measured at amortized cost.
Subsequent measurement of financial liabilities
After initial recognition, the Group measures a financial liability as follows:(a) a financial liability measured at fair value through profit or loss is remeasured at fair value at
year-end with a change in fair value recognized in profit or loss.
(b) a financial liability measured at amortized cost is recognized by the effective interest method.
If the discontinuation of amortization using the effective interest method and derecognition
occur, a gain or loss is recognized within net profit or loss for the current period as part of financecosts.
Derecognition of financial liabilities
The Group removes a financial liability (or a part of a financial liability) from its balance sheet
when, and only when, it is extinguished, i.e. when the obligation specified in the contract isdischarged or cancelled or expires.
3.11 Derivatives
The Group uses forward exchange contracts to manage its foreign currency risk. These
derivatives are initially recognized at fair value on the date the contract is entered into and areremeasured at fair value at each balance sheet date after initial recognition. Changes in fair value
are recognized through profit or loss. These derivatives do not qualify for hedge accounting.
3.12 Presentation of financial assets and financial liabilities
The Group offsets financial assets and financial liabilities showing the net amount only when theGroup has the legal right to offset the balances, and either settles the balances on a net basis orintends to simultaneously realize the asset and settle the liability.

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Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
3 Significant accounting policies (continued)
3.13 Compound Financial Instruments
The liability element of a compound financial instrument is initially recognized at the fair valueof a similar liability that does not have an embedded equity conversion option. The equity
element of a compound financial instrument is initially recognized at the fair value of thecompound financial instrument as a whole minus the fair value of the liability element. The
directly attributable transaction costs are allocated to each element in proportion to the initialcarrying amounts.
After initial recognition, the liability element of a compound financial instrument is measured atamortized cost using the effective interest method. The equity element of a compound financial
instrument is not remeasured after initial recognition. Interest on the liability element isrecognized in finance costs. At the time of conversion, the liability element is transferred toequity and no gains or losses are recognized.
3.14 Cash and cash equivalents
Cash and cash equivalents comprise cash at hand, readily available deposits and short-term
investments having maturities of three months or less from the date of acquisition that arereadily convertible into cash and are exposed to insignificant risk of changes in value.
3.15 Government grants
Government grants are recognized at their fair value when there is reasonable assurance that
the Group will comply with the conditions attaching to them and that the grants will be received.
The amount of government grants relating to assets is recognized as deferred income andtransferred to profit or loss on a systematic and reasonable basis over the useful life of therelated assets. Government grants relating to items of expenses are recognized in profit or loss
systematically over the period during which the related expenses are to be compensated by the
grants.
3.16 Shareholders’ equity
Common sharesWith regard to equity instruments issued by the Company, the issuance value is recorded in“Capital stock” and “Capital surplus”, and any directly attributable costs of issuing shares are
deducted from “Capital surplus”.
3.17 Revenue recognition
Each research and licensing agreement is analyzed to identify the consideration receivable (thetransaction price) and the underlying performance obligations. Such obligations can include thepromise to grant a license, the provision of research and development services and the supplyof product. The transaction price is then allocated to these performance obligations and revenue
is recognized at a point in time or over time as the performance obligations are satisfied.
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Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
3 Significant accounting policies (continued)
3.17 Revenue recognition (continued)
If variable consideration arises under a contract the Group includes in the transaction price only
those amounts in respect of which it is highly probable that a significant reversal in the amountof cumulative revenue recognized will not occur when the uncertainty associated with thevariable consideration is subsequently resolved. Revenue excludes amounts collected on behalfof tax authorities (for example, sales taxes and value added taxes).
The promise to grant a license is regarded as a distinct performance obligation if the customer
can benefit from the license either on its own or together with other resources that are readily
available to the customer, and the Group’s promise to transfer the license to the customer isseparately identifiable from other promises in the contract.
The promise to grant a license under a contract is a promise to provide a right to accessintellectual property if all of the following criteria are met: the contract requires, or the customer reasonably expects, the Group will undertake
activities that significantly affect the intellectual property to which the customer has
rights; the rights granted by the license directly expose the customer to any positive or negative
effects of the Group’s activities identified above; and those activities do not result in the transfer of a good or a service to the customer as
those activities occur.
Where the above criteria are met, the promise to grant a license is accounted for as aperformance obligation satisfied over time and revenue is recognized over time accordingly.
Where these criteria are not met, the promise to grant a license is determined to provide a rightto-use intellectual property accounted for as a performance obligation satisfied at a point in time.
3.18 Cost of sales
Cost of sales comprises (i) the fully loaded cost of those employees providing research anddevelopment services for specific customers under contracts (including other costs directly
associated with these activities such as lab consumables and an allocated share of depreciationof lab equipment) and (ii) the costs directly associated with product sales.
3.19 Share-based payments transactions
The Group operates a Stock Option Plan, Restricted Stock Unit Plan, and Performance Share Unit
Plan as incentive plans for its officers and employees. These incentive plans are estimated at fairvalue at the grant date and recognized in profit or loss over the period up to the time of vesting.
The equivalent amount is recognized as an increase in equity. The fair value of options granted
is measured using a valuation model, such as the Black-Scholes model, taking into account theterms and conditions of the options.
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Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
3 Significant accounting policies (continued)
3.20 Borrowing costs
With regard to assets that require a substantial period of time to prepare for their intended use
or sale, borrowing costs directly attributable to the acquisition, construction, or production ofsuch assets are capitalized as part of the cost of the assets.
3.21 Income taxes
Income tax expenses comprise current and deferred taxes. These are recognized in profit or loss,
except for items arising from business combinations and items recognized in othercomprehensive income.
Current tax expenses are calculated at an expected amount of taxes to be paid to the tax
authorities (or to be returned from tax authorities) using the tax rates (and tax laws andregulations) that have been enacted, or substantially enacted, by the end of the period.
Deferred tax assets or liabilities are recognized for temporary differences arising between the
carrying amount of an asset or liability in the consolidated balance sheet and their tax base.
However, if temporary differences arise from the initial recognition of an asset or liability in atransaction, other than business combinations, that have no effect on profit or loss foraccounting purposes and taxable profits (tax losses) on the transaction date, deferred tax assets
or liabilities are not recognized.
Deferred tax assets or liabilities are calculated in accordance with laws and regulations that havebeen enacted, or substantially enacted, by the end of the period, using the tax rates expected tobe applicable when the related deferred tax assets are realized or the related deferred tax
liabilities are settled.
Deferred tax assets such as deductible temporary differences, unused tax losses and tax credits
are recognized to the extent that it is probable that future taxable profits will be available against
which these assets can be utilized.
Deferred tax assets and liabilities are recognized for temporary differences associated withsubsidiaries. However, deferred tax liabilities are not recognized when the Group is able tocontrol the timing of the reversal of temporary differences and it is probable that the temporary
differences will not be reversed in the foreseeable future. Deferred tax assets are recognized tothe extent that it is deemed probable that there will be sufficient taxable profits against which
benefits from temporary differences can be utilized and the temporary differences will bereversed in the foreseeable future.

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Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
3 Significant accounting policies (continued)
3.22 Earnings per share
Basic earnings per share are calculated by dividing net profit attributable to commonshareholders of the parent by the weighted-average number of common shares outstanding,adjusted by the number of treasury shares for the period concerned. Diluted earnings per share
are calculated by adjusting net profit and the weighted-average number of common shares
outstanding, net of treasury shares, for the effects of all dilutive common shares.
4 Significant accounting estimates and associated judgments
In preparing consolidated financial statements in accordance with IFRS, management is required tomake judgements, estimates, and assumptions that affect the application of accounting policies andthe amounts of assets, liabilities, revenue, and expenses. Actual results may differ from these estimates
due to their nature. The estimates and underlying assumptions are reviewed on an ongoing basis. The
effects of revisions to accounting estimates are recognized prospectively in the period in which theestimate is revised and in any future periods affected. The key judgements and estimates made bymanagement that have had a significant effect on the amounts recognized in the consolidated financial
statements are as follows:
Valuation and impairment of Goodwill and Intangible Assets
The carrying amounts of Goodwill and Intangible Assets were JPY 15,306 million and JPY 8,577 million,
respectively, as at December 31, 2022.
Method of calculation of the carrying amounts in the consolidated financial statements andsignificant assumptions used in the calculation
The book values of non-financial assets are reviewed for indications of impairment at eachreporting date. If any such indications exist, the asset’s recoverable amount is estimated. For
goodwill and intangible assets with indefinite useful lives or intangible assets not yet available
for use, the recoverable amount is estimated at the same time in each financial year. Goodwill
is not amortized. It is allocated to cash-generating units and an annual impairment test is
conducted at the same time in each financial year or whenever there is an indication that
goodwill may be impaired. Impairment losses on goodwill are recognized in the consolidated
statement of profit or loss and other comprehensive income and are not reversed subsequently.
In respect of cash-generating units for goodwill, goodwill is assessed based on
those business units defined for the purposes of internal reporting. In principle, a cashgenerating unit is classified as a type of business and geographical region. In respect of cashgenerating units for intangible assets, intangible assets are grouped based on the smallest cashgenerating unit that produces largely independent cash inflows.

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Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
4 Significant accounting estimates and associated judgments (continued)
The recoverable amounts of the cash generating units have been assessed using a fair valueless costs of disposal model. Fair value less costs of disposal has been calculated based on
estimated future cash flows that have been risk adjusted and discounted to take into accountthe time value of money. Assumptions in business plans used for future cash flows include thetimings of milestone achievements and product launches, the probabilities of success of R&D
activities and projected revenues including expected future product sales and the weighted
average cost of capital. Management uses its experience, external sources, knowledge of theactivities of competitors and industry trends in forming these assumptions.


Effects on the consolidated financial statements for the year ending December 31, 2023
If there are material adverse differences between management’s projected cash flows and theactual cash flows (for example, the timing of the achievement of milestones could differ),
impairment may be recognized to reduce the carrying amounts of goodwill and intangible
assets down to their recoverable amounts.

Revenue recognition
The balance of contract liabilities was JPY 6,221 million as at December 31, 2022. JPY 968 million offormer contract liabilities was recognized as revenue during the financial year ended December 31,
2022.
Method of calculation of the carrying amounts in the consolidated financial statements andsignificant assumptions used in the calculation
When performance obligation is not satisfied at a point in time and consideration is received
prior to the satisfaction of the performance obligation, the consideration is recorded as acontract liability (deferred revenue). Revenue is measured, and the same amount isderecognized from the contract liability (deferred revenue), based on the ratio of actual time
incurred on each R&D program at the reporting period end to the total time estimated to be
incurred from the commencement of the R&D plan until its scheduled completion date.
For the following reasons, the calculation of total estimated time is characterized byuncertainty:
 Research and development generally takes a long time and is highly individualized for eachproject.
 By its nature, the achievement of results is not guaranteed, and the total estimated timerequired varies depending on the progress of the R&D.
 The total estimated time for R&D is subjective in that it depends on the judgment of project
managers who have expertise and experience in R&D.



Effects on the consolidated financial statements for the year ending December 31, 2023
Fluctuations in the total estimated time due to above uncertainties may have a significant
impact on the amount of revenue recognized in the consolidated financial statements for theyear ending December 31, 2023.

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Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
5 New standards and new interpretations not yet adopted
There were no accounting standards that were newly established or amended by the approval dateof the consolidated financial statements that are expected to have a significant effect on the Group.
6 Operating segments
6.1

Overview of reportable segments
The Group operates a single business segment being the pharmaceutical business.

6.2

Information regarding products and services
The breakdown of revenue is as follows:Year ended
December 31, 2022¥m
12,0632,564
80
862
15,569Upfront fees and milestone income
Royalty income
Pharmaceutical product sales
Other

6.3

Year ended
December 31, 2021¥m
14,6672,311
28706
17,712

Geographical information
The following table provides the Group’s revenue from external customers by location andinformation about non-current assets by location.
Revenues from external customers
CountryJapan

Year ended
December 31, 2022¥m
80Year ended
December 31, 2021
¥m
(22)

USA

9,934

13,937

Bermuda

2,849

301

Switzerland

2,564

2,311

142

1,178

-

7

15,56917,712At December 31, 2022¥m

At December 31, 2021
¥m

Japan

167

252

UK

27,571

27,882

27,73828,134UK
IrelandNotes: Revenues in the table are based on the address of customers.

Non-current assets

Notes: Non-current assets do not include investments accounted for using the equity method and other financial
assets.
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Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
6 Operating segments (continued)
6.4

Information about major customers
Revenues: Customers that account for 10% or more of revenue in the consolidated statement of
profit or loss and other comprehensive income are as follows:Year ended
December 31, 2022
¥m
4,138

Year ended
December 31, 2021¥m
11,408Eli Lilly and Company

3,429

-

AbbVie Inc.

2,849

301

Name of customer

Neurocrine Biosciences, Inc.

Novartis International AG.
2,564
Notes: Revenues in the table above include revenues from subsidiaries of the customer groups listed.

2,311

7 Disposal of shares in associateYear ended December 31, 2022
Not applicable.
Year ended December 31, 2021
The Group’s investment in Jitsubo CO., LTD. (‘JITSUBO’), an associate of the Group, was classified as aninvestment accounted for using the equity method in the consolidated balance sheet as at December
31, 2020. In the three month period ended March 31, 2021, the Group resolved to sell its entire
shareholding in JITSUBO and recorded a JPY 206 million gain on reversal of impairment loss forinvestments accounted for using the equity method based on the sale price in the share transfer
agreement. The carrying amount of the Group’s shareholding as at March 31, 2021 was measured atfair value less costs of disposal, which was lower than the carrying amount before recognizing theimpairment loss. On April 30, 2021, the Group completed the disposal of its entire shareholding in
JITSUBO. The fair value was based on the sale price in the share transfer agreement and it was
categorized as Level 3 of the fair value hierarchy. Please refer to Note 9 Financial Instruments for an
explanation of the fair value hierarchy.

- 104 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
8 Licensing transactions with equity components
Year ended December 31, 2022
Heptares Therapeutics Ltd., a subsidiary of the Company, entered into a global research anddevelopment collaboration and license agreement with Biohaven Pharmaceutical Holding Company
Ltd. in 2020 ("Biohaven") and received common shares in Biohaven under the terms of this agreement.
On October 3, 2022, Pfizer completed its tender offer for Biohaven, and the Group received JPY 1,209
million (USD 8.1 million) in cash and 27,308 shares in Biohaven Ltd., a spin-out company that included
Biohaven's non-CGPR development stage pipeline, in exchange for the Biohaven shares. Biohaven Ltd.
is listed on the New York Stock Exchange. Management recognizes the investment in Biohaven Ltd. as
an equity financial asset and designates it as a financial asset measured at fair value through othercomprehensive income.
Year ended December 31, 2021
In January 2021, the Group exchanged its shares in Orexia Limited (”Orexia”) and Inexia Limited(“Inexia”), companies established in 2019 by Medicxi and the Group, for shares in a new Medicxi
company, Centessa Pharmaceuticals plc (“Centessa”). Centessa was established as a holding company
for a portfolio of bio-pharmaceutical and similar businesses that Medicxi held stakes in, including theOrexia and Inexia businesses. Centessa subsequently changed its name to Centessa Pharmaceuticals
plc and was listed on NASDAQ in the United States on May 28, 2021. Management recognizes theinvestment in Centessa as an equity instrument and designates it as a financial instrument measured
at fair value through other comprehensive income.

- 105 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
9 Financial instruments
9.1

Capital management
The Group maintains a capital structure designed to facilitate sustainable growth and maximize
corporate value, in support of its long-term strategy. The capital structure mainly comprises
equity and convertible bonds, with additional flexibility provided by a commitment line.
The Group’s capital structure is regularly reviewed and adjusted in response to commercial
opportunities, changes in economic conditions and associated risks. In order to maintain or
adjust the Group’s capital structure, management may issue new shares, convert bonds to equity,
draw down funds under the commitment line, convert the commitment line to a term loan orraise funds through other means (including corporate bonds, bank borrowings and leases).
Please refer to Note 16 Corporate bonds and borrowings for details of the commitment line.
The capital structure of the Group is as follows:
December 31, 2022
Amount (¥m)

December 31, 2021

Ratio to total
asset (%)

Amount (¥m)

Ratio to total
asset (%)

Cash and cash equivalents

66,55766.9

60,08762.0

Corporate bonds (Note 1)(27,981)(28.1)(27,440)(28.3)

Drawn commitment line

-

-

-

-

Lease liabilities(1,753)(1.8)(1,831)(1.9)

Net cash

36,82337.0

30,816

31.8

Total equity

57,936

58.3

57,468

59.3

Total assets

99,417100.0

96,985100.0

Ratio of cash and cash
equivalents to interest-

223.8

205.3

bearing debt (%)
Notes:
1. The aggregate principal amount of the convertible bonds issued is JPY 30,000 million. The corporate bonds are carried atamortized cost using the effective interest method after deducting an amount equivalent to the value of the stock acquisitionrights as well as directly attributable transaction costs from the principal amount.

- 106 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
9 Financial instruments (continued)
9.2

Classification of financial instruments
The breakdown of financial instruments is as follows:
December 31, 2022¥m

December 31, 2021
¥m

268

344

1,411

2,248

58

58

2,462

2,138

-

4,095

36

-

Corporate bonds

27,981

27,440

Lease liabilities

1,753

1,831

Trade and other payables

1,628

1,176

Financial assets
Financial assets measured at fairvalue through profit or loss:
Other financial assets
Financial assets measured at fairvalue through othercomprehensive income:
Other financial assets
Financial assets measured atamortized cost:
Other financial assets
Trade and other receivables
Financial liabilities
Financial liabilities measured atfair value through profit or loss:
Contingent consideration inbusiness combinations
Other financial liabilities
Financial liabilities measured atamortized cost:

9.3

Risk management of financial instruments
The Group’s activities are exposed to various risks due to changes in the economic and financial
environment. Investments are limited to short-term instruments with minimal risk and the Group
does not engage in speculative transactions. Financing is procured through regular review offunding options such as the issuance of new shares, issuance of corporate bonds, arranging
commitment lines, refinancing term loans, and other refinancing measures.

- 107 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
9 Financial instruments (continued)
9.4

Currency exchange rate risk
The Group operates globally and is exposed to currency exchange rate risk with regard totransactions denominated in currencies other than the functional currency of each groupcompany. Other than Japanese Yen, the Group’s transactions are principally denominated in the
British pound, U.S. dollar, Euro and Swiss franc.
The Group’s exposures to currency exchange rate risk are as follows:
December 31, 2022
Net exposure (¥m)
Net exposure (In thousandsof local currency units)

GBP

USD

EUR

CHF

798

5,283

(28)

26

5,026

40,247

(202)

185

GBP

USD

EUR

CHF

427

576

5

9

2,751

5,009

39

75

December 31, 2021
Net exposure (¥m)
Net exposure (In thousandsof local currency units)

Foreign currency sensitivity analysis
A sensitivity analysis of the Group’s exposures to currency exchange rate risk is as follows. This
analysis shows the impact on profit before income taxes in the consolidated statement of profit
or loss and other comprehensive income of a 1% appreciation in Japanese yen against therelevant foreign currencies at the reporting date, assuming that all other variables remain
constant. The analysis indicates the impact of foreign exchange translation and does not take
into account the potential effect on expected revenue, purchases and other transactions.
December 31, 2022¥m

December 31, 2021
¥m

GBP

(8)

(4)

USD

(53)

(6)

EUR

0

(0)

CHF

(0)

(0)

- 108 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
9 Financial instruments (continued)
9.5Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument willfluctuate due to changes in market interest rates. Interest on the commitment line is chargeable
at a variable rate based on the amount of the facility that has been drawn down. The Group isalso charged a commitment fee, not classed as interest, on the unutilized portion of the facility.
The Group did not borrow any funds under the commitment line during 2022. Whilst thecommitment line remains unutilized, there is no associated interest rate risk. In July 2021 theGroup issued five year Convertible Bonds with a nominal value of JPY 30,000 million. The Bonds
pay a 0.25% fixed coupon per annum (paid semi-annually). As the interest on the Bonds is fixed,
fluctuations in interest rates have a limited impact on profit or loss. With regard to all otherfinancial instruments, the Group’s exposure to interest rate risk is considered insignificant.

9.6

Credit risk
Credit risk is the risk that a customer or counterparty to a financial instrument will cause afinancial loss to the Group by failing to meet its contractual obligations. “Trade and otherreceivables” are exposed to customer credit risk. The Group manages this risk in accordance withcredit management policies. Since customers of the Group are companies with high credit
standings, the Group’s exposure to credit risk is limited. There are no significant over-due
receivables or significant expected credit losses. Therefore, no impairment or allowance for
doubtful accounts has been recorded.

9.7

Liquidity risk
Liquidity risk is the risk that the Group will encounter problems in meeting obligations associatedwith financial liabilities that are settled by delivering cash or another financial asset. Although“Corporate bonds”, “Lease liabilities” and “Trade and other payables” are exposed to liquidity
risk, the Group manages the risk by developing and updating financial plans in a timely manner,
maintaining sufficient liquidity in hand, and through other means. The breakdown of financial
liabilities by due date is as follows:- 109 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
9 Financial instruments (continued)
9.7

Liquidity risk (continued)
Non-derivative financial liabilities
December 31, 2022
Book value

Contractual
cash flow¥m¥m

Corporate bonds

27,981

30,000

Lease liabilities

1,753

Trade and otherpayablesWithin 1 year

Greater than 1
year andless than 5 years¥m¥mGreater than 5
years

-

30,000

-

2,052

230

760

1,062

1,628

1,628

1,628

-

-

31,362

33,6801,858

30,760

1,062Book value

Contractual
cash flow

Within 1 year

Greater than 5
years

¥m

¥m

Greater than 1
year andless than 5 years¥m¥mContingent
consideration inbusiness combinations

4,095

4,101

4,048

32

21

Corporate bonds

27,44030,000-30,000-

Lease liabilities

1,831

2,170

244

716

1,210

Trade and otherpayables

1,176

1,176

1,176

-

-

34,54237,447

5,468

30,7481,231

Book value

Contractual
cash flow

Within 1 year

Greater than 5
years

¥m

¥m

Greater than 1
year andless than 5 years
¥m
¥m

36

36

36

-

-

36

36

36

-

-

¥m

December 31, 2021¥m

Derivative financial liabilities
December 31, 2022

Other financial liabilities(Note 1)
Notes:
1.

Other financial liabilities relate to forward exchange contracts. They are presented net of any receivables arising from suchderivative transactions.

December 31, 2021
Not applicable.
- 110 -

¥m

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
9 Financial instruments (continued)
9.8

Fair value
Fair value of financial instruments
The classification of financial instruments within the fair value hierarchy from Level 1 to Level 3
is as follows:
Level 1: Quoted prices (unadjusted) in an active market for identical assets or liabilities
Level 2: Fair value determined using inputs other than quoted prices included within Level 1 thatare observable for the asset or liability, either directly or indirectly
Level 3: Fair value determined using valuation techniques including measurement based on
unobservable inputs
Transfers between levels of the fair value hierarchy that occurred during the year ended
December 31, 2022 and 2021 are deemed to have occurred at each quarter end.

9.8.1 Financial instruments that are measured at fair value on a recurring basis
The breakdown of financial instruments that are measured at fair value on a recurring basis as ateach financial year end is as follows:
At December 31, 2022

Financial assets:
Financial assets measured at fair value through profit or loss
Other financial assets
Financial assets measured at fair value through othercomprehensive income
Other financial assets
Financial liabilities:
Financial liabilities measured at fair value through profit or loss
Other financial liabilities- 111 -

Level 1¥m

Level 2¥m

Level 3
¥m

Total
¥m

-

-

268

268

428
428

-

983
1,251

1,411
1,679

-

36
36

-

36
36

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
9 Financial instruments (continued)
9.8 Fair value (continued)
9.8.1 Financial instruments that are measured at fair value on a recurring basis (continued)
At December 31, 2021

Financial assets:
Financial assets measured at fair value through profit or loss:
Other financial assets
Financial assets measured at fair value through othercomprehensive income:
Other financial assets
Financial liabilities:
Financial liabilities measured at fair value through profit or loss
Contingent consideration in business combinations

Level 1¥m

Level 2¥m

Level 3
¥m

Total
¥m

-

-

344

344

2,071
2,071

-

177
521

2,248
2,592

-

-

4,095
4,095

4,095
4,095

The above fair values of financial instruments are calculated as follows:
Other financial assets
Other financial assets are revalued as at the reporting period end in line with changes in fair value.
At December 31, 2022 other financial assets comprised listed securities of Centessa
Pharmaceuticals plc. (“Centessa”) and Biohaven Ltd., and unlisted securities of Tempero Bio, Inc(“Tempero Bio”), Sosei RMF1 Limited Partnership for Investment (“RMF1”) and MiNA (Holdings)
Limited (“MiNA”), as well as contingent consideration receivable relating to a business disposal.
The Group received shares in Biohaven Ltd., the spin-out company of Biohaven Pharmaceutical
Holding Company Ltd. which was included in listed securities as at December 31, 2021, as partial
consideration for selling its shares in Biohaven Pharmaceutical Holding Company Ltd. to Pfizer in
response to its tender offer. For more information on these shares, please refer to Note 8
Licensing transactions with equity components.
MiNA was an associate accounted for using the equity method during the year ended December
31, 2021 and period up to October 2022. In October 2022, the Group excluded MiNA from anassociate accounted for using the equity method as it no longer exercised significant influence
over MiNA due to holding less than 20% of the voting rights and the resignation of the Group’s
appointed director from MiNA board. Accordingly, the Group reclassified its investment in MiNA
from investments accounted for using the equity method to other financial assets.

- 112 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
9 Financial instruments (continued)
9.8 Fair value (continued)
9.8.1 Financial instruments that are measured at fair value on a recurring basis (continued)
Listed securities are classified as Level 1 of the fair value hierarchy. All other securities areclassified as Level 3.
a. Listed securities
The fair values of listed shares are assessed using the market price at the end of the period, andchanges in fair value are recorded in “Net change in fair value of equity instruments designatedas measured at fair value through other comprehensive income” in the consolidated statementof profit or loss and other comprehensive income.
b. Unlisted securities
The fair value of the Group’s investment in Tempero Bio is assessed using a discounted cashflow
model. Significant unobservable inputs used in the model include the estimated probabilities ofsuccess of assets progressing through contractual milestone events such as regulatory approval,
the discount rate (13.8%) (as at December 31, 2021, 12.5%) and discount for lack ofcontrol/marketability (32%) (as at December 31, 2021, 32%). Changes in fair value are recordedin “Net change in fair value of equity instruments designated as measured at fair value throughother comprehensive income” in the consolidated statement of profit or loss and othercomprehensive income.
The fair value of the Group’s investment in RMF1 is assessed using an appropriate valuation
model based on a number of variables including net assets, future cashflows and estimatedprofits, all of which represent significant unobservable inputs used in the valuation model.
Changes in fair value are recorded in “Finance income” or “Finance costs” in the consolidated
statement of profit or loss and other comprehensive income.
The fair value of the Group’s investment in MiNA is measured using a fair value assessment basedon a third-party valuation. Changes in fair value are recorded in “Net change in fair value of equity
instruments designated as measured at fair value through other comprehensive income” in the
consolidated statement of profit or loss and other comprehensive income.
c. Contingent consideration receivable relating to a business disposal
The fair value of contingent consideration receivable relating to a business disposal is assessedusing a probability adjusted discounted cashflow model. Significant unobservable inputs used in
the model include the estimated probabilities of success of assets progressing throughcontractual milestone events, such as regulatory approval, and discount rates (5.5%) (as at
December 31, 2021, ranging from 1.0%-1.9%). Changes in fair value are recorded in “Financeincome” or “Finance costs” in the consolidated statement of profit or loss and othercomprehensive income.

- 113 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
9 Financial instruments (continued)
9.8 Fair value (continued)
9.8.1 Financial instruments that are measured at fair value on a recurring basis (continued)
Other financial liabilities
Other financial liabilities relate to forward exchange contracts. They are classified as Level 2 ofthe fair value hierarchy as the fair value is assessed based on the amount presented by thecorrespondent financial institution.
Contingent consideration in business combinations
The fair value of contingent consideration in business combinations is assessed using aprobability adjusted discounted cashflow model. Significant unobservable inputs used in themodel include the estimated probabilities of success of assets progressing through contractual
milestone events such as regulatory approval. As such, contingent consideration in businesscombinations is classified as Level 3 of the fair value hierarchy. Changes in fair value are recordedin "Finance income" or "Finance costs" in the consolidated statement of profit or loss and othercomprehensive income. In the year ended December 31, 2022, JPY 4,680 million was paid to theformer shareholders of Heptares Therapeutics Ltd. As at December 31, 2022 there was nooutstanding balance. The maximum amount of contingent consideration payable to the former
shareholders of Heptares Therapeutics Limited under the 2015 Share Purchase Agreement is
USD 220 million, of which USD 118 million has been paid out to date. In respect of the remainingbalance, it is possible that additional amounts of contingent consideration may become payablein the future.

- 114 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
9 Financial instruments (continued)
9.8 Fair value (continued)
9.8.2 Financial instruments measured at fair value through other comprehensive income
The breakdown of financial assets measured at fair value through other comprehensive income
is as follows:

Centessa
Biohaven (Note 1)

Year ended
December 31, 2022¥m
378

Year ended
December 31, 2021
¥m
1,205

-

866

Biohaven Ltd. (Note 1)

50-

Tempero Bio

2

177

MiNA (Note 2)

981-

Notes:
1. In October 2022, the Group accepted a tender offer and received shares in Biohaven Ltd., the spin-out company of Biohaven
Pharmaceutical Holding Company Ltd., as partial consideration for selling its shares in Biohaven Pharmaceutical Holding
Company Ltd.
2. In October 2022, the Group reclassified its investment in MiNA from an associate accounted for using the equity method toother financial assets due to the loss of significant influence over MiNA.

9.8.3 Derecognition of financial assets measured at fair value through other comprehensive
incomeFair value of investment at the date of derecognition
Cumulative gain or loss on disposal

Year ended
December 31, 2022
¥m
1,174

Year ended
December 31, 2021
¥m
-

588

-

When a financial asset measured at fair value through other comprehensive income isderecognized, the cumulative gain or loss in other components of equity is transferred toretained earnings.
In the year ended December 31, 2022, the amount transferred to retained earnings from othercomponents of equity (after tax) was JPY 475 million. This was due to derecognition of theGroup’s equity investment in Biohaven Pharmaceutical Holding Company Ltd., a financial asset
designated as measured at fair value through other comprehensive income, as it sold its sharesin response to a tender offer and received shares in Biohaven Ltd., a spin-out company, as partial
consideration.

- 115 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
9 Financial instruments (continued)
9.8 Fair value (continued)
9.8.4 Financial instruments measured at amortized cost
The breakdown of the carrying amount and fair value of financial instruments measured atamortized cost at the financial year end is as follows (financial instruments whose carrying value
is a reasonable approximation of fair value are omitted).
Year ended
December 31, 2022¥m
Carrying value
Fair value
Financial liabilities:
Corporate bonds

27,981

28,580Year ended
December 31, 2021¥m
Carrying value
Fair value
27,44028,198The fair value of the debt element of the convertible bonds is calculated by discounting the total
amount of principal and future interest payments at an interest rate that considers the remaining
maturity of the bonds and credit risk. It is categorized as Level 2 of the fair value hierarchy.
9.8.5 Reconciliation of movements of Level 3 financial instruments
For Level 3 financial instruments management decides the appropriate valuation method andmeasures the fair value in accordance with that valuation policy, supported by external valuation
experts when deemed appropriate. The movements in the fair values of financial assets andliabilities are summarized below.
Year ended December 31, 2022
Financial assets
¥m
521
(137)
52
9
(185)
991
1,251

Balance at the beginning of the year
Settlement
Net gains or losses (realized) (Note 1)
Net gains or losses (unrealized) (Note 1)
Other comprehensive income (Note 2)
Transfer from other accounts (Note 3)
Balance at the end of the year

Financial liabilities¥m
4,095(4,680)585-

Notes:
1. Included in "Finance income" and "Finance costs" in the consolidated statement of profit or loss and other comprehensive
income.
2. Other comprehensive income is included in “Net change in fair value of equity instruments designated as measured at fairvalue through other comprehensive income” and “Exchange differences on translating foreign operations” in the consolidated
statement of profit or loss and other comprehensive income.
3. Transfer of equity investment in MiNA from investments accounted for using the equity method.

- 116 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
9 Financial instruments (continued)
9.8 Fair value (continued)
9.8.5 Reconciliation of movements of Level 3 financial instruments (continued)
Year ended December 31, 2021
Financial assets
¥m
1,050
(273)
41
96
1,889
(2,282)
521

Balance at the beginning of the year
Settlement
Net gains or losses (realized) (Note 1)
Net gains or losses (unrealized) (Note 1)
Other comprehensive income (Note 2)
Transfer from Level 3 to Level 1 (Note 3)
Transfer from other accounts
Balance at the end of the year

Financial liabilities
¥m
1,107
(191)
11
2,988
180
4,095

Notes:
1. Included in "Finance income" and "Finance costs" in the consolidated statement of profit or loss and other comprehensive
income.
2. Other comprehensive income is included in “Net change in fair value of equity instruments designated as measured at fairvalue through other comprehensive income” and “Exchange differences on translating foreign operations” in the consolidated
statement of profit or loss and other comprehensive income.
3. The transfer from Level 3 to Level 1 was due to the investee (Centessa) being listed during the year.

9.8.6 Sensitivity analysis
The impact on the fair value of contingent consideration in business combinations if significant
assumptions in its measurement are changed is as follows:(Increase) decrease in(Increase) decrease in
Fair value of contingent Fair value of contingent
consideration in business consideration in businesscombinations
combinations
December 31, 2022
December 31, 2021
¥m
¥m

Item

Amount of milestones or royalties received increases by 5%-(2)

Amount of milestones or royalties received decreases by 5%-

2Interest rate increases by 0.5%-

1Interest rate decreases by 0.5%-

(1)

- 117 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
10 Property, plant and equipment
Changes in acquisition cost, accumulated depreciation and accumulated impairment losses of property,
plant and equipment
10.1 Acquisition cost
Buildings&
structures

Machinery&equipment

Furniture& fixtures

Constructi
on in
progress

Right-ofuse assets(Furniture& fixtures)
¥m

Total

¥m

Right-ofuse assets(Buildings &structures)
¥m

¥m

¥m

¥m

Balance at January 1, 2021

1,760

1,084

273

-

1,902

42

5,061

Additions
Disposals or sales
Exchange differences ontranslation
Balance at December 31,
2021
Additions

1
-

115
(2)

27
(1)

-

-

-

143
(3)

191

130

27

-

190

-

538

1,952

1,327

326

-

2,092

42

5,739

48

107

38

171

102

-

466

Disposals or sales

-

(12)

(35)

-

-

(42)

(89)

Transfer
Exchange differences ontranslation
Balance at December 31,
2022

-

-

60

(60)

-

-

-

41

20

5

(2)

39

-

103

2,041

1,442

394

109

2,233

-

6,219

Right-of-use
assets(Furniture &fixtures)
¥m

Total

¥m

10.2 Depreciation and accumulated impairment losses
Buildings&
structures

Machinery&equipment

Furniture& fixtures

Constructi
on in
progress

¥m

¥m

¥m

¥m

Right-ofuse assets(Buildings &structures)¥m

Balance at January 1, 2021

(250)

(518)

(186)

-

(261)

(22)

(1,237)

Depreciation expense

(122)

(182)

(51)

-

(180)

(6)

(541)

Disposals or sales
Exchange differences ontranslation
Balance at December 31,
2021

-

2

1

-

-

-

3

(30)

(70)

(19)

-

(28)

-

(147)

(402)

(768)

(255)

-

(469)

(28)

(1,922)

Depreciation expense

(137)

(178)

(34)

-

(210)

(4)

(563)

Disposals or sales
Exchange differences ontranslation
Balance at December 31,
2022

-

12

35

-

-

32

79

(6)

(6)

(5)

-

(5)

-

(22)

(545)

(940)

(259)

-

(684)

-

(2,428)- 118 -

¥m

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
10 Property, plant and equipment (continued)
10.3 Carrying amount
Buildings&
structures

Machinery&equipment

Furniture &fixtures

¥m
1,510

¥m
566

¥m
87

1,550

559

71

-

1,496

502

135

109

Balance at January 1, 2021
Balance at December 31,
2021
Balance at December 31,
2022

Constructionin progress

Right-ofuse assets(Buildings &structures)
¥m
¥m
1,641

Right-ofuse assets(Furniture& fixtures)
¥m
20

Total

¥m
3,824

1,623

14

3,817

1,549

-

3,791

Notes:
1: Depreciation expense is recorded in “Cost of sales”, “Research and development expenses” and “Selling, general andadministrative expenses”.
2: There were no significant contractual commitments for the acquisition of property, plant and equipment as at
December 31, 2022 and December 31, 2021.

11 Goodwill and intangible assets
Changes in acquisition cost, accumulated amortization and accumulated impairment losses of
goodwill and intangible assets
11.1 Acquisition cost
Goodwill

Balance atJanuary 1, 2021
Additions
Disposals or sales
Exchange differenceson translation
Balance at
December 31, 2021
Additions
Disposals or sales
Exchange differenceson translation
Balance at
December 31, 2022¥m

Productrelated assets¥mCore
technology¥mIntangible assets
Customerrelated assets¥m

14,134

1,053

12,127

-

-

-

Other

Total

¥m

¥m

4,107

89

17,376

-

-

8

8

-

-

-

(10)

(10)

961

-

1,339

569

(2)

1,906

15,095

1,053

13,466

4,676

85

19,280

-

-

-

-

27

27

-

-

-

-

(19)

(19)

211

-

293

126

1

420

15,306

1,053

13,7594,802

94

19,708- 119 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
11 Goodwill and intangible assets (continued)
11.2 Accumulated amortization and accumulated impairment losses
Productrelated assets¥mCore
technology¥mIntangible assets
Customerrelated assets
¥m

Other

Total

¥m

¥m

-

(856)

(3,589)(1,059)(70)(5,574)

-

(11)

(702)

(17)

(7)

(737)

(74)

-

(3,064)-(3,138)

-

-

-

10

10

-

-

(414)

(311)

4

(721)

-

(941)

(4,705)(4,451)(63)(10,160)

-

(11)

(749)

(12)

(10)

(782)

-

-

-

-

19

19

-

-

(88)

(120)

-

(208)

-

(952)

(5,542)(4,583)(54)(11,131)

Intangible assets
Core
Customertechnology related assets
¥m
¥m

Other

Total

¥m

¥m

Goodwill¥mBalance atJanuary 1, 2021
Amortization
expenseImpairment losses
Disposals or sales
Exchange differenceson translation
Balance at December
31, 2021
Amortization
expense
Disposals or sales
Exchange differenceson translation
Balance at December
31, 2022

11.3 Carrying amount
Goodwill¥mBalance atJanuary 1, 2021
Balance at
December 31, 2021
Balance at
December 31, 2022

Productrelated assets¥m

14,134

197

8,538

3,048

19

11,802

15,095

112

8,761

225

22

9,120

15,306

101

8,217

219

40

8,577

Notes:
1. Amortization expenses are all included in “Selling, general and administrative expenses” in the consolidated statementof profit or loss and other comprehensive income, with the exception of some items in the “Other” category which areincluded in “Research and development expenses” in the consolidated statement of profit or loss and othercomprehensive income.

- 120 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
11 Goodwill and intangible assets (continued)
11.4 Goodwill
Goodwill arose from the separate acquisitions of Sosei R&D Ltd. (formerly Arakis Limited), Heptares
Therapeutics Ltd. and Heptares Zurich AG (formerly G7 Therapeutics AG) by the Group. These
acquisitions generate a stream of royalties on global sales of Novartis’ respiratory disease products
Seebri®Breezhaler®, Ultibro® Breezhaler® and Enerzair® Breezhaler® (“Respiratory business”), andrevenues arising from the discovery of novel small molecules, peptides and antibody drugs targeting
G-protein-coupled receptors ("GPCRs"). The latter business is based on proprietary Stabilized Receptor(StaR®) technology and structure-based drug discovery ("SBDD"), and involves the discovery of small
molecule compounds and peptides and antigen creation for the discovery of monoclonal antibodies("mAbs") (“Drug discovery business”). The Respiratory business and Drug discovery business havebeen identified as separate cash-generating units for the purpose of calculating the fair value lesscosts of disposal when testing for impairment. As at December 31, 2022, the goodwill allocated toeach cash-generating unit was JPY 9,880 million for the Drug discovery business and JPY 5,426 million
for the Respiratory business. As at December 31, 2021, the goodwill allocated to each cash-generating
unit was JPY 9,669 million for the Drug discovery business and JPY 5,426 million for the Respiratory
business.
The recoverable amounts of the cash generating units have been assessed using a fair value less costsof disposal model. Fair value less costs of disposal has been calculated based on estimated future cash
flows that have been risk adjusted and discounted to take into account the time value of money. The
valuation methodology uses significant inputs which are not based on observable market data,
therefore this valuation technique is categorized as Level 3 in the fair value hierarchy. Assumptions inbusiness plans used for future cash flows include the timings of milestone achievements such as
product launches, the probabilities of success of R&D activities and projected revenue plan including
expected future product sales and the weighted average cost of capital. In making these assumptions
management uses its experience, external sources, knowledge of the activities of competitors andindustry trends.
As a result of the impairment test performed based on the below assumptions, there were no eventsor circumstances that led to the recognition of impairment losses during the year ended December
31, 2022 and December 31, 2021.

- 121 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
11 Goodwill and intangible assets (continued)
11.4 Goodwill (continued)
Year ended
December 31, 2022
10.2%

Post-tax discount rate
Respiratory business

Estimate of future cash flows

Estimate of future cash flows

7.8%

Future cash flows have been estimated based on past
performance and its 13 year business plan of Respiratory
business.
10.2%

Post-tax discount rate
Drug discovery
businesses

Year ended
December 31, 2021

7.8%

Future cash flows have been estimated based on past
performance and its 20 year business plan of Drug discovery
business. For the period after the business plan a terminal
value has been included with an expected growth rate of zero.

Notes:
1. The discount rate is based on the weighted-average cost of capital with certain adjustments.

- 122 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
11 Goodwill and intangible assets (continued)
11.5 Significant intangible assets
Product-related assets
Product-related assets relate to Oravi®, an agent for the treatment of oropharyngeal candidiasis, forwhich Sosei Co., Ltd. has received marketing approval. The carrying amounts of product-related
intangible assets at December 31, 2022 and 2021 include internally generated intangible assets of JPY
41 million and JPY 46 million, respectively, and other intangible assets of JPY 60 million and JPY 66
million, respectively. These assets are being amortized using the straight-line method. The expected
useful life is 18 years and the remaining amortization period is 9 years.
Core technology
This represents the assessed value of core technology belonging to Heptares. These assets are being
amortized using the straight-line method over their expected useful lives of 12-20 years. The
remaining amortization periods are 6-13years.
Customer-related assets
This represents the assessed value of intangible assets that existed at the time of the Heptares
acquisition that have subsequently been partnered. These assets are being amortized using thestraight-line method over their expected useful lives of 20 years. The remaining amortization period
is 13 years.
11.6 Impairment
Intangible assets were grouped based on the smallest cash-generating unit that produces largely
independent cash inflows. The recoverable amount of the assets was assessed using their fair valueless costs of disposal. The approach is categorized as Level 3 within the fair value hierarchy.
At December 31, 2022
Not applicable.
At December 31, 2021
Product-related assets
An impairment loss was recorded in product-related assets relating to Oravi®, a drug for the treatmentof oropharyngeal candidiasis, for which Sosei Co., Ltd. has received marketing approval. The Group
recorded an impairment loss of JPY 74 million in "Other expenses" within the consolidated statementof profit or loss and other comprehensive income during 2021 as a result of a decline in forecasted
sales and profitability. The recoverable amount was assessed using a fair value less costs of disposalmodel utilizing future cash flows from the latest business plan that were discounted based on aweighted-average cost of capital of 10.8%. The latest business plan was calculated by estimating sales
volumes and the selling price.

- 123 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
11 Goodwill and intangible assets (continued)
11.6 Impairment (continued)
Customer-related assets
An intangible asset existed in the consolidated balance sheet as at January 1, 2021 relating to two
clinical stage drug candidates. The rights to these two drug candidates were out-licensed to a partner
during 2021 as part of a much broader collaboration. The recoverable amount was assessed using afair value less costs of disposal model. As the collaboration partner decided in 2021 not to progressthese two drug candidates further in clinical trials an impairment loss of JPY 3,064 million has beenrecorded within “Other expenses” within the consolidated statement of profit or loss and othercomprehensive income to reduce the carrying amount of the intangible asset to zero.
11.7 Contractual commitments
There were no contractual commitments relating to the acquisition of intangible assets at December
31, 2022 and December 31, 2021. Milestone payments and royalty payments may become payabledepending on the successful progression of R&D collaborations and future sales revenues.
12 Lease transactions
The Group has principally entered into lease agreements for facilities and buildings. These contracts
do not impose any significant restrictions on decision-making by the Group, such as those concerning
dividends, additional debt and further leasing.
There are no options to renew leases or purchase leased assets. There are no escalation clauses in thelease contracts other than inflationary increases in relation to the Group’s UK R&D facility.
The breakdown of gains/losses (excluding depreciation) and cash outflows related to leases is asfollows:
December 31, 2022¥m

December 31, 2021
¥m

(58)
(4)
(1)
(206)
(269)

(57)
(4)
(1)
(183)
(245)

Gains / (losses) on leases:
Interest expense on lease liabilities
Short term lease expenses
Small asset lease expenses
Payment for lease liabilities
Total cash outflows related to leases

Please refer to Note 10 Property, plant and equipment for details of additions, depreciation expense
and the carrying amount of right-of-use assets.
Please refer to Note 9.7 Liquidity risk for details of the balance of lease liabilities by due date.

- 124 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
13 Cash and cash equivalents
The breakdown of cash and cash equivalents is as follows:
Cash and bank deposits

December 31, 2022¥m
66,557

December 31, 2021
¥m
60,087

14 Trade and other receivables
The breakdown of trade and other receivables is as follows:
Trade receivables
Accrued income

December 31, 2022
¥m
1,383
1,079
2,462

December 31, 2021
¥m
1,250
888
2,138

15 Other assets
The breakdown of other non-current assets and other current assets is as follows:
December 31, 2022¥m

December 31, 2021
¥m

64
64

102
102

638
13
69
145
865

388
33
6
427

Other non-current assets
Long-term prepaid expenses
Other current assets
Prepaid expenses
Accounts receivable
Consumption taxes receivable
Other- 125 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
16 Corporate bonds and borrowings
16.1 Corporate bonds
A summary of the terms & conditions relating to convertible bonds issued by the Company is asfollows:
IssuerSosei Group
Corporation

Bond Name

Issue
Date

Euro-yen DenominatedConvertible Bonds
due 2026

July 27,
2021

Carrying amountAt December At December
31, 2022
31, 2021¥m¥m
27,981
27,440Interest Collateral
Rate
(%)
0.25

None

Maturity
Date

July 27,
2026

Notes:
1. Description of the convertible bonds:
Euro-yen Denominated Convertible Bonds due 2026
Shares to be issued:
Common shares
Issue price of Stock Acquisition Rights:
Free of charge
Conversion price of Shares:
JPY 2,235
Aggregate principal amount:
JPY 30,000 million
Total issue price of shares issued on exercise of Stock Acquisition Rights: Percentage of Stock Acquisition Rights granted:
100%
Exercise period of Stock Acquisition Rights:
From August 10,2021 to July 13, 2026
Note: Upon the exercise of each Stock Acquisition Right, the Bonds relating to such Stock Acquisition Right shall be converted, andthe value of such Bonds shall be equal to the nominal value thereof.

Please refer to Note 9 Financial instruments for the management of liquidity and interest-rate risks on
Convertible bonds.
16.2 Borrowings
As at the end of the current financial year, there is no outstanding loan balance including borrowing
based on commitment line agreement.
On December 30, 2022, the Company entered into a commitment line agreement for one year
(maximum loan amount: JPY 5,000 million) with Mizuho Bank and three other banks. Under thecommitment line agreement, the Company is subject to a financial covenant requiring it to maintainits consolidated net assets at 75% or more of that at the end of the second quarter of the financial
year ending December 31, 2022, as at the end of each second quarter and financial year. The Company
was in compliance with this financial covenant as at December 31, 2022. In addition, the Company
has the following rights under the commitment line agreement:
1. Extend the maturity of the commitment line for a period of one year on the anniversary of thecontract date and for another one year on the anniversary of the second year, a total of two
extension options.
2. At either the original or the extended maturity date, convert the commitment line into an
installment term loan of the same value with a repayment period of four years.

- 126 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
17 Trade and other payables
The breakdown of trade and other payables is as follows:
Accounts payable
Accrued expenses

December 31, 2022
¥m
751
877
1,628

December 31, 2021
¥m
323
853
1,176

18 Other liabilities
The breakdown of other non-current liabilities and other current liabilities is as follows:
December 31, 2022¥m

December 31, 2021
¥m

4,791
118
4,909

384
111
495

1,450
105
400
37
1,992

785
79
570
61
1,495

Other non-current liabilities
Long-term deferred revenue
Other
Other current liabilities
Deferred revenue
Deposits
Accrued bonuses
Other- 127 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
19 Equity and other components of equity
19.1 Capital stock
Number of shares Number of sharesauthorizedissuedBalance at January 1, 2021
Increase in the number of shares through exercise ofsubscription rights to shares
Increase in the number of shares through issuance ofshares due to allotment of Restricted Stock Units
Increase in the number of shares through Conversion of
convertible bonds
Balance at December 31, 2021
Increase in the number of shares through exercise ofsubscription rights to shares
Increase in the number of shares through issuance ofshares due to allotment of Restricted Stock Units
Increase in the number of shares through issuance ofshares due to allotment of Performance Share Units
Increase in the number of shares through requests forpurchase of odd-lot shares
Balance at December 31, 2022
Notes: Issued shares are all common shares with no par value

Treasury stock

149,376,000

80,596,128

213-

584,000--

201,876--

136,312-

149,376,000

81,518,316

213

-

5,200

-

-

380,071--

19,643

-

-

-

41

149,376,000

81,923,230

254

19.2 Capital surplus
Legal capital surplus
Based on the Companies Act in Japan, the Group incorporates more than half of the amount related
to payments or benefits at the time of issuance of shares into capital stock, and the amount that is
not recorded as capital stock is recorded in capital surplus.
Stock acquisition rights
The Group issued stock acquisition rights based on the Companies Act in Japan. Please refer to Note
22 Share-based payments for details of the stock options. In addition, the Group has issued convertible
bonds and recorded the fair value of stock acquisition rights at the time of issuance of the bonds incapital surplus.
Restricted Stock Units (RSUs) and Performance Share Units (PSUs)
Of the fair value of the shares allotted and to be allotted under the RSU and PSU plans, the amountcorresponding to the elapsed service period is recorded in capital surplus. Please refer to Note 22
Share-based payments for details of RSUs and PSUs.
Other capital surplus
The directly attributable transaction cost of equity financial assets issued by the Group is deductedfrom the capital surplus.
- 128 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
19 Equity and other components of equity (continued)
19.3 Retained earnings
Retained earnings comprise unappropriated retained earnings or losses. Retained earnings include
accumulated exchange differences on translating foreign operations at the IFRS transition date.
19.4 Other components of equity
Financial assets at fair value through other comprehensive income
Comprises the cumulative amount of changes in the fair value of financial assets measured at fairvalue through other comprehensive income up to the date of derecognition.
Exchange differences on translating foreign operations
These adjustments reflect exchange differences resulting from the translation of foreign operations’financial statements maintained in foreign currencies for the preparation of the Group’s consolidated
financial statements.

- 129 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
19 Equity and other components of equity (continued)
19.4 Other components of equity (continued)
Other components of equity

Balance at January 1, 2021
Amount arising during the year
Before tax effectAmount of tax effect
Net of tax effectTransfer to profit or loss
Before tax effectAmount of tax effect
Net of tax effect
Other comprehensive income – net of tax effectBalance at December 31, 2021
Amount arising during the year
Before tax effectAmount of tax effect
Net of tax effectTransfer to profit or loss
Before tax effectAmount of tax effect
Net of tax effect
Other comprehensive Income – net of tax effectTransfer to retained earnings (see Note 9.8.3)
Balance at December 31, 2022

Items that will not be
Items that may bereclassified subsequently to reclassified subsequently
profit or loss
to profit or loss¥m¥m
Financial assets measured Exchange differences on
at fair value through othertranslating foreign
comprehensive income
operations¥m¥m
59(7,565)19.5 Dividends
Not applicable- 130 -

Total

¥m
(7,506)

1,047
(287)
760

3,871
3,871

4,918
(287)
4,631

760
819

(25)
(25)
3,846
(3,719)

(25)
(25)
4,606
(2,900)

(721)
(207)
(928)

629
629

(92)
(207)
(299)

(928)
(475)
(584)

(338)
(338)
291
(3,428)

(338)
(338)
(637)
(475)
(4,012)

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
20 Revenue
The Group earns revenue through granting licenses that provide the rights to develop and market
pharmaceutical products and through the provision of research and development services tocustomers. These activities are classified into the following types of revenue based on their purpose
and performance obligations:
Types of revenue classified by purpose:• Upfront fees and milestone income: Upfront fees, Development milestone income, Sales
milestone income• Royalty income: Sales royalty income• Pharmaceutical product sales: Revenue from product sales• Other: Revenue from contracted research and development services
Types of revenue classified by performance obligation are as follows:
Grant of Licenses
When a license is distinct from other goods or services and evaluated as a right to use license• Upfront fees are recognized at the time of the grant of the license if the performanceobligation is satisfied at a point in time.
• Development milestone income is only recognized when it is determined that the achievementof milestones agreed between the parties, such as regulatory filings, are assured, taking into
consideration the probability of a subsequent significant reversal of revenue.
• Sales royalty income and sales milestone income are measured based on the sales recordedby the counterparty when (or as) the later of (i) a sales transaction has occurred or acontractually agreed target is achieved, and (ii) the performance obligation is satisfied.
When a license is distinct from other goods or services and evaluated as a right to access license:
Not applicable.
Research and Development services
Revenue from Research and Development services is recognized over time because the customer
simultaneously receives and consumes the benefits provided by the Group’s performance as theGroup performs.

- 131 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
20 Revenue (continued)(a) Research and Development services – compensated through upfront fees and development
milestones
When performance obligation is not satisfied at a point in time and consideration is received prior to
the satisfaction of the performance obligation, the consideration is recorded as a contract liability(deferred revenue). Revenue is measured, and the same amount is derecognized from the contract
liability (deferred revenue), based on the ratio of actual time incurred on each R&D program at thereporting period end to the total time estimated to be incurred from the commencement of the R&D
plan until its scheduled completion date. However, development milestone income, which includes
variable consideration, is recognized only to the extent that it is highly probable that a significant
reversal in the amount of cumulative revenue will not occur when the uncertainty associated with thevariable consideration is subsequently resolved.
(b) Research and Development services – compensated through FTE charges
Full Time Equivalent (“FTE”) revenue earned from providing research and development services tocustomers is recognized over time by multiplying the amount of time worked by the contracted
charge-out rate.
(c) Pharmaceutical product sales
Pharmaceutical product sales are recognized upon the customer’s acceptance.
The transaction price for granting licenses is allocated to each performance obligation based on thestand-alone selling price calculated using the residual approach. The consideration is the amountreceivable within one year from satisfaction of the performance obligations or fulfillment ofcontractual terms and conditions.
Variable consideration is allocated to a specific performance obligation only if both of the following
conditions apply:- Variable payment terms relate specifically to the entity's effort to satisfy the performanceobligation or transfer the distinct good or service.
- Allocating the variable amount of consideration entirely to the performance obligation or the
distinct good or service, is consistent with the following allocation objective when considering allof the performance obligations and payment terms in the contract: an entity should allocate thetransaction price to each performance obligation or distinct good or service in an amount that
depicts the amount of consideration to which the entity expects to be entitled to in exchange fortransferring the promised goods or services to the customer.
There are no significant financing components included in any license contracts or any research anddevelopment contracts.

- 132 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
20 Revenue (continued)
20.1 Breakdown of revenue
Relationship between types of revenue and performance obligations:Year ended December 31, 2022

Types of Revenue
Upfront fees and milestone income
Royalty income
Pharmaceutical product sales
Other

Grant of Licenses¥m11,0952,564
13,659Performance obligations
Research andProduct
supplyDevelopment
revenue
services
¥m
¥m
968
80
862
1,830
80

Total
¥m
12,0632,564
80
862
15,569Notes:
1. Includes revenue of JPY 8,993 million recognized from performance obligations satisfied in prior periods.

Year ended December 31, 2021

Types of Revenue
Upfront fees and milestone income
Royalty income
Pharmaceutical product sales
Other

Grant of Licenses¥m13,3702,311
15,681

Performance obligations
Research andProduct
Development
supplyservices
revenue
¥m
¥m
1,297
28
706
2,003
28

Notes:
1. Includes revenue of JPY 4,323 million recognized from performance obligations satisfied in prior periods.

- 133 -

Total
¥m
14,6672,311
28706
17,712

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
20 Revenue (continued)
20.2 Contract balances
Receivables from contracts with customers
Included in the balance sheet as “Trade and other receivables”.
Contract liabilities (deferred revenue)
Included in the balance sheet as “Other non-current liabilities” and “Other current liabilities”.
Opening and closing balances of contract liabilities
from contracts with customers
Beginning balance
Of the beginning balance, the amount recognized asrevenue in the year
Exchange differences on translation
Amount newly recognized as contract liability andcarried forward to the next periodEnding Balance
Other non-current liabilities
Other current liabilities

At December 31, 2022¥m

At December 31, 2021
¥m

1,141

1,767

(473)

(932)

(72)

175

5,625

131

6,221
4,791
1,430

1,141
384
757

Notes:
1. All of the contract liabilities (deferred revenue) that existed at December 31, 2022 are expected to be recognized as revenue by
the year ended December 31, 2030.

20.3 Transaction price allocated to the remaining performance obligations
Research and development services related performance obligations arising under contracts may beunsatisfied or partially satisfied at the reporting date. Milestone income allocated to research anddevelopment services is not included in the transaction price allocated to the remaining performanceobligation because the uncertainty of reaching the agreed milestone, such as a regulatory filing, will
not be resolved until the actual achievement of the milestone.
Since the Group has a right to consideration from a customer in an amount that corresponds directlywith the value to the customer of the Group’s performance of services completed to date, thetransaction price allocated to the remaining performance obligations relating to research anddevelopment services is omitted as a practical expedient in accordance with paragraphs 121(b) andB16 of IFRS 15 Revenue from Contracts with Customers.

- 134 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
21 Employee benefits
21.1 Employment benefits
Year ended
December 31, 2022
¥m
3,798
700
380
4,878

Remuneration and bonuses
Share-based payments
Retirement benefit
Note 1

Year ended
December 31, 2021
¥m
3,450
713
11
4,174

Notes:
1. Employment benefits are recorded in “Cost of sales”, “Research and development expenses” and “Selling, general and administrative
expenses”.

22 Share-based payments
The Company introduced a Stock Option Plan, Restricted Stock Unit (“RSU”) Plan, and Performance
Share Unit (“PSU”) Plan to increase the motivation and drive of the Directors, the Executive Officers
and the eligible employees of the Company and its wholly owned subsidiaries (“Executives andEmployees”) to energetically realize the Company’s vision and strategy. These Plans will also promote
the sharing of benefits and risks of share price fluctuations with shareholders, and further encourage
the Executives and Employees to actively contribute to an increase in share price and enhance theCompany’s corporate value. Stock Options, RSUs and PSUs are granted by resolution at a meeting of
the Company’s Board of Directors.

- 135 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
22 Share-based payments (continued)
22.1 Stock Options
Details of stock options
The Company has granted stock options to Directors, Executive Officers and eligible employees of
the Company and its wholly owned subsidiaries. Shares granted through the execution of stock
options are shares issued by Sosei Group Corporation.
Resolution date

Classification and number of people
granted stock options at the time of
grant

Number of stock acquisition rights
outstanding at December 31, 2022
(units)31st Stock Acquisition
RightsMay 15, 2017

32nd Stock Acquisition
RightsMay 15, 2017

33rd Stock Acquisition
RightsMay 15, 2017

Directors

5 Directors

0 Directors

0Executive officers

3 Executive officers

0 Executive officers

0

Employees

0 Employees

7 Employees

1

Directors ofsubsidiaries

0 Directors ofsubsidiaries

2 Directors ofsubsidiaries

0

Employees ofsubsidiaries

4 Employees ofsubsidiaries

7 Employees ofsubsidiaries

102

173

12

23
［18］

Common shares
69,200(Note 4)

Common shares
4,800(Note 4)

Common shares
9,200(Note 4)［7,200］

Amount to be paid to exercise stockacquisition rights (yen)1(Note 5)

3,069
(Note 5)

3,069
(Note 5)Period for exercising stock acquisitionrightsFrom July 1, 2020
to April 30, 2027

From July 1, 2020
to April 30, 2027

From July 1, 2020
to April 30, 2027

Class and number of shares underlying
stock acquisition rights at December 31,
2022 (shares)

Share issue price and contribution tocapital stock per share in the event ofissuance of shares upon exercise ofstock acquisition rights (yen)Conditions for exercising stockacquisition rights
Matters relating to transfer of stockacquisition rights
Matters relating to granting of stockacquisition rights in association with actsof organizational restructuring

Issue price: 3,088
Issue price: 5,015
Issue price: 5,015
Contribution to capital stock Contribution to capital stock Contribution to capital stock
per share: 1,544
per share: 2,508
per share: 2,508
Note 6Note 6Note 6

Approval by resolution of
the Company’s Board of
Directors

Approval by resolution of
the Company’s Board of
Directors

Approval by resolution of
the Company’s Board of
Directors

Note 3Note 3Note 3- 136 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
22 Share-based payments (continued)
22.1 Stock Options (continued)
Resolution date

Classification and number of people
granted options at the time of grant

Number of stock acquisition rights
outstanding at December 31, 2022
(units)Class and number of shares underlying
stock acquisition rights at December 31,
2022 (shares)

34th Stock Acquisition
RightsNovember 21, 201735th Stock Acquisition
RightsNovember 21, 2017

Directors

0

Directors

0

Executive officers

0

Executive officers

0

Employees

3

Employees0

Directors ofsubsidiaries

0

Directors ofsubsidiaries

0

Employees ofsubsidiaries

0

Employees ofsubsidiaries

9

2

1

Common shares
800(Note 4)

Common shares
400(Note 4)

Amount to be paid to exercise stockacquisition rights (yen)2,673(Note 5)

2,673
(Note 5)Period for exercising stock acquisitionrightsFrom December 1, 2020
to October 29, 2027

From December 1, 2020
to October 29, 2027

Share issue price and contribution tocapital stock per share in the event ofissuance of shares upon exercise ofstock acquisition rights (yen)Issue price: 4,227
Contribution to capital stock
per share: 2,114

Issue price: 4,227
Contribution to capitalstock per share: 2,114

Note 6Note 6

Approval by resolution of
the Company’s Board of
Directors

Approval by resolution of
the Company’s Board of
Directors

Note 3Note 3

Conditions for exercising stockacquisition rights
Matters relating to transfer of stockacquisition rights
Matters relating to granting of stockacquisition rights in association with actsof organizational restructuring* The status as at December 31, 2022 is described above. The status as at February 28, 2023, the end of the month
preceding the filling date of the annual securities report, is described in brackets [] for the items that have changed
between December 31, 2022 and the end of the month preceding the month in which the annual securities report is
submitted (February 28, 2023). Other items remain unchanged from those as at December 31, 2022.

- 137 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
22 Share-based payments (continued)
22.1 Stock Options (continued)
1. If the Company issues new shares with a paid-in amount lower than the market value, the exercise
amount in the case of issuance of shares upon exercise of stock acquisition rights shall be adjusted
using the following formula, with any fraction less than one yen resulting from the adjustment being
rounded up.

Exercise amount＝after adjustment

Exercise amount
beforeadjustment

×

Number ofoutstanding
shares+Number ofoutstanding shares

Number ofshares newly
issued×

Amount paid per
share

Market value per share＋ Number of shares newly issued

2. In addition to the above, details are stipulated in an “Agreement on Allotment of Stock Option”
concluded between the Company and eligible recipients in accordance with a resolution of the Boardof Directors.
3. In the event that the Company conducts a merger (limited to cases where the Company is dissolvedin the merger), an absorption-type company split (limited to cases where the Company is the splitting
company), an incorporation-type company split, a share exchange or a stock transfer (each limited tocases where the Company becomes a wholly owned subsidiary) (collectively, “Reorganization”), stockacquisition rights of one of the stock corporations listed in Article 236, Paragraph 1, item 8 (a) through(e) of the Companies Act (the “Reorganized Company”) shall be granted to the holders of the Stock
Acquisition Rights remaining at the time the Reorganization takes effect, in accordance with thefollowing conditions. In this case, the remaining Stock Acquisition Rights will be forfeit and the
Reorganized Company shall issue new stock acquisition rights. Provided, however, that the foregoing
applies only to cases where the grant of the stock acquisition rights of the Reorganized Company, in
accordance with the following conditions, is provided for in the relevant absorption-type merger
agreement, incorporation-type merger agreement, absorption-type company split agreement,
incorporation-type company split agreement, share exchange agreement or stock transfer agreement.
(1) Number of Stock Acquisition Rights of the Reorganized Company to be granted:
Stock acquisition rights will be granted to the respective holders of the remaining Stock
Acquisition Rights in the same number as the Rights they held.
(2) Class of shares of the Reorganized Company to be delivered upon exercise of the Stock
Acquisition Rights:
Common stock of the Reorganized Company(3) Number of shares of the Reorganized Company to be delivered upon exercise of the Stock
Acquisition Rights:
To be determined in accordance with Note 4 after considering the terms and conditions of theReorganization.
(4) Value of assets to be contributed upon exercise of the Stock Acquisition Rights:
To be determined in accordance with Note 5 after considering the terms and conditions of theReorganization.

- 138 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
22 Share-based payments (continued)
22.1 Stock Options (continued)(5) Period for exercising stock acquisition rights:
A period commencing on either the beginning date of the Exercise Period or the effective date of
the Reorganization, whichever is later, and ending on the ending date of the Exercise Period.
(6) Matters concerning increases in capital and capital reserve in the event of issuance of shares
due to exercise of Stock Acquisition Rights:i) The amount of capital to be increased in the event that new shares are issued upon theexercise of the Rights shall be one half of the maximum amount of increase in capital,
calculated in accordance with Article 17, Paragraph 1 of the Ordinance for Companies
Accounting. Any amount less than one yen arising from such calculation shall be rounded up
to the nearest yen.
ii) The amount of increase in the capital reserve in the event that new shares are issued upon
the exercise of the Rights shall be the maximum amount of increase in capital stated in item i)above less the amount of capital to be increased as specified in item i) above.
(7) Restrictions on acquiring Stock Acquisition Rights through transfer:
Acquisition of stock acquisition rights through transfer shall require approval by resolution of theBoard of Directors of the Reorganized Company.
(8) Other conditions for the exercise of Stock Acquisition Rights:
To be determined according to “Conditions for exercising stock acquisition rights” in the table
above.
(9) Acquisition of Stock Acquisition Rights:i) In the event that a merger agreement by which the Company would be the dissolving
company, an agreement or plan to divest by which the Company would be divested, or a shareexchange agreement or stock transfer plan by which the Company would become a wholly
owned subsidiary is approved by the General Meeting of Shareholders (or by resolution of theBoard of Directors if approval by the General Meeting of Shareholders is not required), theCompany may acquire without contribution all of the Rights on a date that would bedetermined separately by the Board of Directors of the Company.
ii) In the event that the provisions in clause “Stock option holders must be directors, executive
officers or employees of the Company or the Company’s subsidiaries when exercising stock
options; provided, however, that this does not apply in cases of retirement due to expirationof term of office or reaching the mandatory retirement age, or when there are other legitimate
reasons” prevent a Rights Holder from exercising the Rights, the Company may acquire theRights without contribution.
4. If, after the allotment date of the Rights, the Company conducts a stock split (including any
allotment of shares without contribution; the same shall apply hereinafter) or a stock consolidation,
the Number of Shares Granted shall be adjusted according to the following formula. Such adjustment
shall only be made with respect to the number of shares subject to unexercised Stock Acquisition
Rights, with any fractional shares resulting from such adjustment rounded down to the nearest wholeshare.

- 139 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
22 Share-based payments (continued)
22.1 Stock Options (continued)
Number of shares
granted after＝
adjustment

Number of shares granted before
adjustment

×

Stock split (or consolidation) ratio

The Number of Shares Granted after adjustment shall apply on and after the next day of the record
date (if no record date is fixed, the effective date) of the stock split or on and after the effective dateof stock consolidation.
Furthermore, if, after the allotment date, the Company conducts a merger, company split or capital
reduction, or in any other case similar thereto where an adjustment in the Number of Shares Granted
is required, the Company shall adjust the Number of Shares Granted as appropriate.
5. The value of the assets to be contributed upon exercise of the Rights shall be the amount obtainedby multiplying the amount to be paid for each share of common stock to be delivered upon theexercise of the Rights (the “Exercise Price”) by the Number of Shares Granted.
i) In case of a stock split or consolidation the Exercise Price shall be adjusted according to thefollowing formula, with any amount less than one yen resulting from the adjustment rounded up
to the nearest yen.
1
Exercise amountafter adjustment＝

Exercise amount
before adjustment

Stock split orconsolidation ratio×ii) In case the Company issues new shares of common stock or disposes of treasury stock at a
price below the market price of its common stock (except in the cases of the issue of new sharesand disposal of treasury shares based on the exercise of the Rights, and the transfer of treasury
shares due to a share exchange), the Exercise Price shall be adjusted according to the following
formula, with any amount less than one yen resulting from the adjustment rounded up to thenearest yen.

Exercise
price after
adjustment＝

Exercise
price
beforeadjustment

×

Number ofoutstanding
shares+Numberof newlyissuedshares×

Amountto bepaid pershare
grantedMarket price per share before
issue of new shares
Number ofoutstanding shares- 140 -＋

Number of newly
issued shares

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
22 Share-based payments (continued)
22.1 Stock Options (continued)
In the formula above, the “Market price per share” shall be the average of the closing prices ofthe shares of common stock of the Company in regular trading on the TSE for the thirty (30)consecutive trading days (excluding days on which there is no such closing price) commencing
forty-five (45) trading days immediately before the date on which the Exercise Price after
adjustment shall be applied (any fraction less than one (1) yen arising as a result of suchcalculation shall be rounded off to one decimal place), and the “Number of outstanding shares”
is the total number of shares of the Company’s common stock minus the number of treasury
shares of common stock. If the treasury shares are disposed of, the “Number of newly issued
shares” shall be replaced with the “Number of treasury shares to be disposed of,” and “Amountto be paid per share granted” shall be replaced with “Selling price per share” in the above formula.
iii) In cases where the Company is a surviving company in an absorption-type merger or a
succeeding company in an absorption-type company split or a parent company in a shareexchange or in other similar cases where the adjustment of the Exercise Price is necessary, theExercise Price shall be adjusted as appropriate and to the extent reasonable.
6.(1) A Rights Holder must be a director, an executive officer and/or an employee of the Company or
its subsidiary at the time the Rights are exercised. Provided, however, this provision shall not apply to
directors or executive officers who have retired due to expiration of their terms of office, or
employees who have retired upon reaching the Company’s mandatory retirement age or for other
legitimate reasons that the Board of Directors may deem appropriate.
(2) Exercise of the Rights by heirs of Rights Holder shall not be permitted.
(3) Rights may not be exercised when doing so would cause the total number of shares of theCompany outstanding after exercise of such Rights to exceed the total number of shares authorized
to be issued by the Company at the time of the exercise.
(4) The Rights may not be exercised in less than one unit.

- 141 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
22 Share-based payments (continued)
22.1 Stock Options (continued)
Additional Information
The information required to be presented in Section 4 Information about the Filing Company 1 Stock
Information 1.2 Stock Acquisition Rights, Details of Stock Acquisition Rights is consolidated in Note 22
Share-based payments.
Total number of exercisable shares and average exercise price of stock options in Sosei Group
Corporation
The number of shares and weighted-average exercise prices are as follows:Year ended December 31, 2022
Number ofshares(Shares)

Balance at the beginning of the year

92,400Year ended December 31, 2021

Weighted- WeightedNumber of
averageaveragesharesexercise remaining(Shares)
price contractual
life(¥)(Years)594
5.3
677,200

WeightedWeightedaverage
averageremaining
exercisecontractual
price
life
(¥)
(Years)976
1.3

Granted during the year

-

-

-

-

-

-

Forfeited during the year

(2,800)

3,069

-

(800)

3,069

-

Exercised during the year

(5,200)1-(584,000)

1,028

-

Balance at the end of the year

84,400548

4.3

92,400594

5.3

Exercise price range (¥)
Up to 2,000
2,001 to 3,069
Exercisable balance at end of year

69,20015,20084,400

1
3,038
548

4.3
4.4
-

74,40018,00092,400

1
3,043
594

5.3
5.4
-

Notes:
1. The weighted-average share price on the exercise date of the stock options exercised during the year ended December 31, 2022
was JPY 1,429 (in the year ended December 31, 2021, it was JPY 1,732).

- 142 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
22 Share-based payments (continued)
22.2 Restricted Stock Units (RSUs) and Performance Share Units (PSUs)
Details of the RSU and PSU Plans (“the Plans”)
At the Board of Directors meeting held on April 17, 2019, the Company resolved to introduce a
Restricted Stock Unit (RSU) Plan for the Directors, the Executive Officers and the eligible
employees of the Company and its wholly owned subsidiaries (“Executives and Employees”) andPerformance Share Unit (PSU) Plan for certain Executives and Employees (except for External
Directors).
a. Conditions of Allotment
The Company will allot shares of the Company to Executives and employees according to thepredefined manner on the condition that they hold the position of Executive or eligible
employee during the specified performance period (the period for PSUs is three years).
b. Maximum number of Shares to be issued under the Plans
The number of shares to be issued under the plans, together with the number of shares to beissued under other share-based payments schemes, shall not exceed 10% of the total numberof outstanding shares of the Company.
c. Relevant Performance Period and Number of Allotted Shares(i) RSUs for Directors (Excluding directors serving concurrently as Executive Officer):
The Performance Period is one year, and after the end of the Performance Period, the numberof shares calculated by dividing the base salary amount by the share price at the time of granting
the unit will be allocated.
However, Performance Periods for newly appointed directors shall be one, two and three years
from the first day of the Performance Period, and after the end of each Performance Period,
one-third each of the number of the shares calculated by dividing twice the amount of the basesalary by the stock price at the start of the Performance Period shall be allocated.
(ii) RSUs for Directors serving concurrently as Executive Officers, Executive Officers and eligible
employees:
Performance Periods shall be two and three years from the first day of the Performance Period,
and after the end of each Performance Period, one half of the number of shares calculated by
dividing the amount obtained by multiplying the base salary by certain percentages determinedfor each individual by the stock price from the start of the Performance Period shall be allocated.

- 143 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
22 Share-based payments (continued)
22.2 Restricted Stock Units (RSUs) and Performance Share Units (PSUs) (continued)(iii) PSUs for Directors serving concurrently as Executive Officers, Executive Officers and eligible
employees:
The number of the Company’s shares allotted to each person (Allotted Shares) will be calculated
for each person by setting the base number of shares at the start of the Performance Period andmultiplying the base number of shares by certain coefficients after the Performance Period has
elapsed.
Base number of shares
The base number of shares shall be determined by dividing the amount obtained frommultiplying the base salary by a certain percentage (determined for each individual), by thestock price at the start of the Performance Period.
The number of shares to be allocated will be determined by multiplying the sum of the following
figures by the base number of shares.
o 50% of the number between 25% to 100 % to be determined based on the coefficients
according to the Relative Total Shareholder Return (“TSR”) Achievement level measured
against an agreed peer group at the end of the Performance Period where such TSR is above
the median.
o 50% of the number between 50% to 200% to be determined based on the coefficients
according to the Absolute TSR of the Company Achievement Level where the Absolute TSR
at the end of the Performance Period increases by 25% or more.
For Relative TSR the Company has selected multiple domestic competitors based on theirmarket capitalization and R&D expense ratio. The above coefficients are subject to change inthe future.
As described above, the TSR ratio is selected as an indicator for Performance Share Units (PSUs).
To increase awareness of the performance of competitors, to share the benefits and risks ofstock price fluctuations with shareholders, and to actively contribute to a rise in the stock priceand corporate value, figures based on the Company's TSR growth rate at the end of the Relevant
Calculation Period (Absolute TSR), and the average of figures based on percentiles (Relative TSR)
compared to TSRs of multiple domestic peers have been adopted. The achievement of theperformance target for relevant PSUs amounted to 12.5% in the year ended December 31, 2022
(the provisional value of the coefficient was 50% at December 31, 2021).
d. Board of Directors meeting concerning Issuance or Disposition
The Board of Directors meeting for issuance or disposition of shares to be allotted shall in
principle, be held within one month after the date of the Ordinary General Meeting of
Shareholders for the most recent financial year during which the Performance Period ends;
provided however, that if there are exceptional circumstances, the date of the Board of Directors
meeting for issuance or disposition may be changed.
- 144 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
22 Share-based payments (continued)
22.2 Restricted Stock Units (RSUs) and Performance Share Units (PSUs) (continued)
e. Method of delivering the Company’s shares
The Shares will be allotted to Executives and employees on the condition that Executives andemployees have been continuously employed by or held office with the Company throughout
the Performance period. Shares will be allotted in exchange for in-kind contribution of monetarycompensation claims, calculated by multiplying a predetermined number of allotted shares by
the issue price per share.
f. Grounds for Forfeiture
If during the Performance Period an Executive or employee falls under certain specified
circumstances, such as being subject to criminal punishment equivalent to or more severe thanimprisonment, being subject to a filing for the commencement of insolvency proceedings or civil
rehabilitation proceedings, etc., the Executive or employee will not obtain any right to be
allotted the shares of the Company under the Plans and the rights to receive the Company’s
shares shall lapse at the time such circumstances occur.
g. Treatment in Cases of Reorganization or Change of Control Transactions
If during the Performance Period, a transaction involving a reorganization or a change of control,
such as a merger agreement in which the Company becomes a dissolved entity, or a shareexchange/transfer agreement under which the Company becomes a wholly owned subsidiary,is approved by a general meeting of shareholders, etc. of the Company and that transaction
becomes effective before the completion of the Performance Period, the Company will, byresolution of the Board of Directors, allot the maximum number of shares to be allotted under
the Plans prior to the reorganization transaction coming into effect.
Number of RSUs granted and fair values at the date of grant
The number of units granted during the year and the weighted-average fair value are as follows.

RSUs
Number of units granted (unit)
Weighted-average fair value at the date of grant (¥)

Year ended
December 31, 2022

Year ended
December 31, 2021

702,616
1,283

351,528
1,826

Notes:
1. Fair value at the date of grant of RSUs is the closing price of the Company’s shares at the grant date.

- 145 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
22 Share-based payments (continued)
22.3 Expenses related to share-based payments transactions

RSU
PSU

Year ended
December 31, 2022
¥m
703
(3)
700

Year ended
December 31, 2021
¥m
629
84
713

Notes:
1. Share-based payment expenses are accounted for as equity-settled share-based payment expenses and are included in “Cost of
sales” “Research and development expenses” and “Selling, general and administrative expenses” in the consolidated statement of
profit or loss and other comprehensive income.

23 Selling, general & administrative expenses
The breakdown of selling, general & administrative expenses is as follows:

Personnel expenses
Depreciation and amortization
Outsourcing expenses
Other

Year ended
December 31, 2022
¥m
2,293
842
658
584
4,377

Year ended
December 31, 2021
¥m
2,105
802
664
369
3,940

Year ended
December 31, 2022
¥m
567
57
2
626

Year ended
December 31, 2021
¥m
3
4
1
8

24 Other income
The breakdown of other income is as follows:

Government grants (Note 1)
Other grants
Other
Notes

1. Government grants mainly consist of R&D expenditure related UK tax credits.

25 Other expenses
The breakdown of other expenses is as follows:

Impairment losses (Note 1)
Other

Year ended
December 31, 2022
¥m
2
2

Notes
1. Please refer to Note 11 Goodwill and intangible assets for details of impairment losses.
- 146 -

Year ended
December 31, 2021
¥m
3,138
3
3,141

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
26 Finance income and finance costs
The breakdown of finance income is as follows:

Changes in the fair value of contingent consideration
receivable relating to business disposals
Changes in fair value of contingent consideration inbusiness combinations
Interest income
Foreign exchange gains
Gains on revaluation of investments in capitalYear ended
December 31, 2022¥m

Year ended
December 31, 2021
¥m

64

104

50

-

236
313
663

4
89
2
199

Year ended
December 31, 2022¥m

Year ended
December 31, 2021
¥m

-

2,891

615
58
41

461
57
378
-

The breakdown of finance costs is as follows:

Changes in the fair value of contingent
consideration in business combinations
Interest expenses
Financial liabilities measured at amortized cost
Lease liabilities
Loss on repurchase of corporate bonds
Loss on revaluation of investments in capital
Cost of borrowing funds- 147 -

42

10

756

3,797

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
27 Investments accounted for using the equity method
The carrying amount of associates that are not individually significant is as follows:
As at December 31, 2022¥m

As at December 31, 2021
¥m

-

3,479

Total carrying amountThe impact on comprehensive income of associates that are not individually significant is as follows:Year ended
December 31, 2022¥m

Year ended
December 31, 2021¥m

Share of (loss) gain of associates accounted forusing the equity method

(429)

50

(Loss) profit from continuing operations

(429)

50

Total comprehensive income

(429)

50

In addition to the above, an impairment loss of JPY 1,836 million was recognized on investments
accounted for using the equity method during the current financial year. In the prior financial year, again of JPY 206 million was recognized on reversal of impairment loss on investments accounted forusing the equity method.
An impairment loss of JPY 1,836 million in the current financial year is for the investment in MiNA
(Holdings) Limited (“MiNA") and due to a decrease in the recoverable amount which is measured usinga fair value assessment based on a third-party valuation.
For additional information on MiNA please refer to Note 9 Financial Instruments 9.8 Fair value 9.8.1
Financial instruments that are measured at fair value on a recurring basis.

- 148 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
28 Income taxes
28.1 Income tax (benefit) / expense
The breakdown of income tax (benefit) / expense is as follows:

Current tax expense
Current year
Prior year adjustment
Total current tax expense
Deferred tax expense (benefit)
Tax losses carried forward or temporary differences
Total deferred tax expense (benefit)
Total income tax expense (benefit)
Income tax expense related to other comprehensive
incomeYear ended
December 31, 2022¥m

Year ended
December 31, 2021
¥m

387

183

(43)

332

344

515

352
352
696
207

(1,099)(1,099)(584)
287

Notes:
1. The deferred tax benefit includes a tax benefit generated from tax losses carried forward, tax credits andtemporary differences related to prior periods that were not previously recognized. This had the impact of
decreasing the deferred tax expense by JPY 546 million for the year ended December 31, 2021, but it had nomaterial impact for the year ended December 2022.

A reconciliation of the statutory effective tax rate and actual tax rate is as follows:

Statutory effective tax rate (Note 1)
Items not deductible permanently
Items not included permanently
Effect of differences in tax rates of foreign subsidiaries
Effect of differences in tax rates of Japanese subsidiaries
Effect of tax rate change (Note 2)
Effect of unrecognized tax losses carried forward or
temporary differences
Share of gain (loss) of associates accounted for using theequity method
Tax benefit on net profit or loss in the prior year
Tax deduction on research and development
expenditure
Undistributed profits of overseas subsidiaries
Convertible bonds
Other
Actual tax rate

- 149 -

Year ended
December 31, 2022
(%)
30.6
14.4

Year ended
December 31, 2021
(%)
30.6
35.6

(0.5)
(43.8)(1.4)
10.1(29.7)(143.1)
(5.5)
103.9

28.0

437.4

39.9

(2.2)

(7.4)

(71.1)-(254.6)

0.6
(6.0)
64.5

30.2
(279.1)
12.6(135.0)Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
28 Income taxes (continued)
28.1 Income tax (benefit) / expense (continued)
Notes:
1. The Company is mainly subject to corporate income tax, residential tax and enterprise tax. The effective
statutory tax rate based on those taxes was 30.6% for the years ended December 31, 2022 and December 31,
2021. However, foreign subsidiaries are subject to corporate tax and other taxes in their jurisdictions.
2. On March 3, 2021, the UK government announced that the corporate tax rate would increase from the current
rate of 19% to 25% on April 1, 2023. As a result of this announcement the nominal corporate tax rates
applicable to Heptares Therapeutics Ltd. will increase to 23.5% in the financial year of 2023, and 25% thereafter.
This change increased deferred tax liabilities (after deferred tax asset deduction) and decreased income tax
benefit by JPY 450 million for the year ended December 31, 2021, and increased income tax expense by JPY
109 million for the year ended December 2022.

28.2 Deferred tax assets and liabilities
The amounts of recognized deferred tax assets and liabilities, and details of their increases ordecreases, are as follows:Year ended December 31, 2022

At January 1,
2022¥m
Deferred tax assets
Tax losses carriedforward
Other
Total deferred tax assets
Deferred tax liabilities
Intangible assets
Corporate bonds
Other (Note)
Total deferred tax
liabilities
Net deferred tax
liabilities

Amounts
recognized inotherAmounts
recognized in comprehensive
incomeprofit or loss¥m¥m

Amounts
directly
recognizedin capital
¥m

Other
¥m

At December
31, 2022
¥m

1,066

(729)

-

-

18

355

364
1,430

61
(668)

-

22
22

4
22

451
806

(2,056)(994)(1,086)

131
212
(27)

152

-

(50)
(10)

(1,975)
(782)
(971)

(4,136)

316

152

-

(60)

(3,728)(2,706)

(352)

152

22

(38)

(2,922)

Notes:
1. Other comprises exchange differences on translating deferred tax liabilities of foreign entities.

- 150 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
28 Income taxes (continued)
28.2 Deferred tax assets and liabilities (continued)
Year ended December 31, 2021

At January 1,
2021¥m
Deferred tax assets
Tax losses carriedforward
Other
Total deferred tax assets
Deferred tax liabilities
Intangible assets
Corporate bonds
Other (Note)
Total deferred tax
liabilities
Net deferred tax
liabilities

Amounts
recognized inotherAmounts
recognized in comprehensive
incomeprofit or loss¥m¥m

Amounts
directly
recognizedin capital
¥m

Other
¥m

At December
31, 2021
¥m

347

681

-

-

38

1,066

367
714

5
686

-

16
16

(24)
14

364
1,430

(2,091)
(482)
(598)

248
321
(156)

(287)

(833)
-

(213)
(45)

(2,056)(994)(1,086)(3,171)

413

(287)

(833)

(258)

(4,136)(2,457)

1,099

(287)

(817)

(244)

(2,706)

Notes:
1. Other comprises exchange differences on translating deferred tax liabilities of foreign entities.

The amounts of deductible temporary differences and tax losses carried forward for which no deferred
tax asset is recognized are as follows:
At December 31, 2022¥m

At December 31, 2021¥m

22,635
10,08032,715

14,815
9,096
23,911

Deductible temporary differences
Tax losses carried forward

The expiration of tax losses carried forward for which no deferred tax asset has been recognized is asfollows:
At December 31, 2022¥m

At December 31, 2021
¥m

462
229
94
228
9,067
10,080

462
229
94
8,311
9,096

Year 1
Year 2
Year 3
Year 4
Year 5 to Year 10- 151 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
29 Earnings per share
29.1 Basic earnings per share
The following table shows basic earnings per share and explains the basis for the calculation.
Net profit attributable to owners of the parent (¥m)
Weighted-average number of common shares
outstanding (Shares)
Basic earnings per share (¥)

Year ended
December 31, 2022

Year ended
December 31, 2021

382

1,017

81,785,008

81,187,311

4.68

12.53

29.2 Diluted earnings per share
The following table shows diluted earnings per share and the basis for the calculation:
Year ended
December 31, 2022

Year ended
December 31, 2021

382

1,017

-

-

382

1,017

81,785,008

81,187,311

70,387

151,334

Increase in number of common shares due tothe allotment of Restricted Stock Units (Shares)

727,124

587,147

Increase in number of common shares due tothe allotment of Performance Share Units(Shares)

7,922

80,114--

82,590,441

82,005,906

4.63
The 32nd-35th series ofstock options(Totaling common shares
15,200)Euro-yen DenominatedConvertible Bonds due 2026
(Common shares 13,422,818)

12.40
The 32nd-35th series ofstock options(Totaling common shares
18,000)Euro-yen DenominatedConvertible Bonds due 2026
(Common shares 13,422,818)

Net profit attributable to owners of the parent (¥m)
Adjustment to net profit used in the calculation ofdiluted earnings per share (¥m)
Net profit used in the calculation of diluted earnings
per share (¥m)
Weighted-average number of common shares
outstanding (Shares)
Increase in number of common shares used in thecalculation of diluted earnings per share (Shares):
Increase in number of common shares due tothe exercise of stock options (Shares)

Increase in number of common shares due tothe conversion of convertible bonds (Shares)
Weighted-average number of common shares
outstanding used in the calculation of diluted
earnings per share (Shares)
Diluted earnings per share (¥)
Summary of potential shares not included in thecalculation of diluted earnings per share because
they do not have a dilutive effect- 152 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
30 Cash flow information
Changes in liabilities arising from financing
Year ended December 31, 2022
Non-cash changes

January 1,
2022

Cash flows

Disposal ofsubsidiary

Fair valuechangeOther

December31, 2022

Contingent
consideration inbusiness combinations

4,095(4,680)

-

(50)

635

-

Corporate bonds

27,440

-

-

-

541

27,981

Lease liabilities

1,831

(206)

-

-

128

1,753

33,366(4,886)

-

(50)

1,304

29,734

Year ended December 31, 2021

Contingent
consideration inbusiness combinations
Corporate bonds(Note 1)
Lease liabilities

Non-cash changes

January 1,
2021

Cash flows

Disposal ofsubsidiary

Fair valuechangeOther

December31, 2021

1,107

(191)

-

2,891

288

4,095

14,78912,132--519

27,440

1,834

(183)

-

-

180

1,831

17,73011,758

-

2,891

987

33,366

Notes:
1. The Corporate bonds cash flow excludes JPY 2,642 million, equivalent to the value of stock acquisition rights, which is part of the
JPY 29,855 million balance shown as "Proceeds from issuance of corporate bonds" in the consolidated statement of cash flows ,and JPY (3,877) million, equivalent to the value of stock acquisition rights, which is part of the JPY (18,958) million balance shownas "Payments for repurchase and cancellation of corporate bonds" in the consolidated cash flow statement.

Non-cash transactions
Year ended December 31, 2022
Acquisition of right of use assets totaled JPY 102 million for the year ended December 31, 2022.
Year ended December 31, 2021
Not applicable.

- 153 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
31 Related parties
31.1 Transactions with related parties
Year ended December 31, 2022:
Transactions with Officers and major individual shareholders
Type

Name

Officer

Shinichi Tamura

Officer

Christopher Cargill

Officer

Tomohiro Tohyama

Officer

Kuniaki Kaga

OfficerDavid Roblin

Officer

Noriaki Nagai

Officer

Rolf Soderstrom

Officer

Kieran Johnson

Officer

Kazuhiko Yoshizumi

OfficerMatthew Barnes

Officer

Tadayoshi Yasui

Description of transaction

Exercise of stock options (Note 2)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)

Transaction amount(¥m)

Outstandingbalance
(¥m)

0

-

91

-

56

-

11

-

11

-

11

-

19

-

19

-

16

-

18

-

9

-

19

-

Notes:
1. Transaction prices and other conditions are determined by reference to similar third party contracts.
2. The exercise of stock options by Mr. Tamura in the current financial year relates to the 31st stock acquisition rights granted by
the Board of Directors on May 15, 2017.
3. In-kind contribution of monetary compensation claim relates to the Restricted Stock Unit plan and Performance Share Unit plan.

Transactions with Associates
Not applicable.

- 154 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
31 Related parties (continued)
31.1 Transactions with related parties (continued)
Year ended December 31, 2021:
Transactions with Officers and major individual shareholders
Type

Name

Officer

Shinichi Tamura

Officer

Tomohiro Tohyama

Officer

Kuniaki Kaga

OfficerDavid Roblin

Officer

Noriaki Nagai

Officer

Rolf Soderstrom

Description of transaction

Transaction amount(¥m)

Outstandingbalance
(¥m)

164

-

35

-

12

-

20

-

20

-

22

-

8

-

60

-

Exercise of stock options (Note 2)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)
Exercise of stock options (Note 2)
Officer

OfficeMalcolm Weir

Christopher Cargill

Officer

Tim Tasker

Officer

Kazuhiko Yoshizumi

Officer

Tadayoshi Yasui

In-kind contribution of monetarycompensation claim (Note 3)
Payment of contingent
consideration (Note 4)
In-kind contribution of monetarycompensation claim (Note 3)

21

-

371

387

20

-

Exercise of stock options (Note 2)

19

-

18

-

84

88

10

-

11

-

In-kind contribution of monetarycompensation claim (Note 3)
Payment of contingent
consideration (Note 4)
In-kind contribution of monetarycompensation claim (Note 3)
In-kind contribution of monetarycompensation claim (Note 3)

Notes:
1.

Transaction prices and other conditions are determined by reference to similar third party contracts.

2.

The exercise of stock options by Mr. Tamura, Mr. Weir and Mr. Tasker in the current financial year relates to the 30th stockacquisition rights granted by the Board of Directors on November 13, 2015.

3.

In-kind contribution of monetary compensation claim relates to the Restricted Stock Unit plan.

4.

The payments for the contingent consideration are made in foreign currency. Transaction amounts are converted into
Japanese yen at the average exchange rate for the period. Outstanding balances are converted into Japanese yen using theexchange rate at the end of the year.
- 155 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
31 Related parties (continued)
31.1 Transactions with related parties (continued)
Transactions with Associates
Not applicable.
31.2 Remuneration of key management personnel
Year ended December 31, 2022¥m

Year ended December 31, 2021¥m

Remuneration and bonuses

727

661

Share-based payments

468

358

340
1,535

1,019

Retirement benefit

Notes:
1. Please refer to Section 4. Information about the Filing Company, 4 Corporate Governance, 4.4 Remuneration paid to directors
for details such as the basic policy regarding the compensation of senior management.

32 Significant subsidiaries
Please refer to Section 1 Company Overview, 4 Status of Subsidiaries and Associates.
33 Additional information: COVID-19
The Group has developed measures to mitigate the potential impact of COVID-19, and the situationin the countries in which the Group currently operates has largely normalized. As a result, COVID-19
had no material impact on the Group during the current financial year.

- 156 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
34 Significant subsequent events
Issuance of new shares under RSU
In the year ended December 31, 2019, the Company introduced a RSU Plan with the intention ofincreasing the motivation and drive of the Directors, the Executive Officers and the eligible
employees of the Company and its wholly owned subsidiaries (“Executives and Employees”) to
realize the Company’s vision and strategy. The Plan has also been designed to share the benefits
and risks of share price fluctuations with shareholders, and further encourage the Executives andEmployees to actively contribute to the increase of the share price and enhance the Company’s
corporate value.
On April 7, 2023 the Board of Directors approved a resolution to issue new shares under the RSU
Plan as described below.
Details of Issuance
16th RSU

17th RSU

18th RSU

1 Payment date

May 16, 2024

May 15, 2025

May 18, 2026

2 Type andnumber of shares
to be issued

Common shares
71,018 shares

Common shares
262,639 shares (planned)

Common shares
262,639 shares (planned)

2,401 yen per share

Representative Executive
Officer will decide thepayment amount hereafter

Representative Executive
Officer will decide thepayment amount hereafter

170,514,218 yen

Representative Executive
Officer will decide the total
issue value hereafter

Representative Executive
Officer will decide the total
issue value hereafter

3 Payment
amount(Note)
4 Total issue value

5 Planned
allottees

8 Directors of the Company(excluding Directors who
serve as Executive Officers
concurrently)
71,018 shares will be allotted

6 Executive Officers of the
6 Executive Officers of theCompany
Company
207 Directors of subsidiaries
207 Directors of subsidiariesof the Company andof the Company and
Employees of the
Employees of theCompany and its subsidiaries
Company and its subsidiaries
262,639 shares to be allotted 262,639 shares to be allotted(planned)(planned)(Note) Delivered in return for the contribution in kind of monetary compensation claims that is provided to the
Executives and Employees to whom the allocation of shares is scheduled.

- 157 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Consolidated Financial Statements
35 Quarterly results
Quarterly information for the year ended December 31, 2022
Cumulative period
Revenue (¥m)
(Loss) profit before income
taxes (¥m)
Net (loss) profit attributable toowners of the parent (¥m)
Basic (loss) earnings per share(Yen)(Accounting period)
Basic (loss) earnings per share(Yen)First quarter

Second quarter

Third quarter

Fourth quarter

1,119

2,457

8,641

15,569(2,497)(4,282)(3,108)1,078(2,070)(3,538)(3,225)382(25.39)(43.33)(39.46)

4.68

First quarter

Second quarter

Third quarter

Fourth quarter(25.39)(17.96)

3.82

44.04

- 158 -

Sosei Group Corporation
Section 5. Financial Statements
Non-consolidated Balance Sheet
As at December 31, 2022
Note
AssetsCurrent assets
Cash and deposits
Prepaid expenses
Other
Total current assets
Non-current assets
Property, plant and equipment
Buildings
Tools, furniture and fixtures
Leased assets
Total property, plant and equipment
Intangible assets
Software
Other
Total intangible assets
Investments and other assets
Shares of subsidiaries and associates
Long-term loans receivable from subsidiaries andassociates
Investments in capital
Other
Allowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total assets

159

December 31, 2022¥m

December 31, 2021¥m

39,10357
35
39,19544,06430
44
44,138

27
11
38

31
8
14
53

4
0
4

2
0
2

49,97349,973

2,918

2,418

117
58
(2,918)50,14850,19089,385125
58(2,418)50,15650,211
94,349

Sosei Group Corporation
Section 5. Financial Statements
Non-consolidated Balance Sheet
As at December 31, 2022
Note
Liabilities
Current liabilities
Lease obligations
Accounts payable - otherAccrued expenses
Income taxes payable
Deposits received
Provision for bonuses payable to employees
Provision for bonuses payable to executive officers
Provision for share-based payments
Other current liabilities
Total current liabilities
Non-current liabilities
Convertible bonds
Asset retirement obligations
Provision for share-based payments
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity:
Capital stock
Capital surplus:
Legal capital surplus
Retained earnings
Other retained earnings
Retained earnings brought forward
Treasury stock
Total shareholders’ equity
Valuation/translation difference
Unrealized holding gains or losses on securities
Stock acquisition rights
Total net assets
Total liabilities and net assets

1- 160 -

December 31, 2022¥m

December 31, 2021
¥m

218
132
113
22
69
447
18
1,019

15
4,133
89
63
19
53
165
455
11
5,003

30,53513274
30,822
31,84130,68513
178
30,87635,87941,33529,452
29,452(13,480)

41,03629,15329,153(11,983)(13,480)(1)
57,306(5)(5)
243
57,54489,385(11,983)(0)58,206
264
58,47094,349

Sosei Group Corporation
Section 5. Financial Statements
Non-consolidated Statement of Profit or Loss
For the year ended December 31, 2022
Note
Operating revenue
Operating expenses
Operating loss
Non-operating income
Interest income
Foreign exchange gains
Miscellaneous income
Total non-operating income
Non-operating expenses
Interest expenses
Commission expenses
Loss on redemption of bonds
Bond issuance costs
Foreign exchange loss
Provision of allowance for doubtful accounts for
subsidiaries and associates
Miscellaneous loss
Total non-operating expenses
Ordinary loss
Extraordinary income
Gain on sale of shares of subsidiaries and associates
Gain realized on contingent consideration receivable
relating to business disposals
Gain on reversal of stock acquisition rights
Total extraordinary income
Loss before income taxes
Corporate tax, residential tax and enterprise tax
Net loss

1
2

1

161

Year ended
December 31, 2022¥m
1,118
(2,213)(1,095)

Year ended
December 31, 2021¥m
823
(1,981)(1,158)

79
0
79

66
555
0
621

(1)
(41)
(25)

(1)
(22)
(2,895)
(895)
-

(500)

(350)

(3)
(570)
(1,586)(20)(4,183)(4,720)

-

194

136

266

5
141
(1,445)(52)(1,497)1461(4,259)(1)(4,260)Sosei Group Corporation
Section 5. Financial Statements
Non-consolidated Statement of Changes in Net Assets
For the year ended December 31, 2022
Shareholders’ equity
Capitalsurplus

Total
shareholders’equity¥m

Valuation/translationdifference
Unrealized
holdings gains
or loss on
securities
¥m

Stock
acquisitionrights¥m

Total net assets¥m

60,834-670

61,504

Capital stock¥m

Legal capitalsurplus¥m

Retainedearnings
Other retained
earnings:
Retainedearnings¥mTreasuryshares¥m

40,22028,337(7,723)(0)Issuance of new shares

689

689

1,378

1,378

Conversion of convertible bonds

127

127

254

254

(4,260)(4,260)

Balance at December 31, 2020
Changes during the period:

Net loss
Net changes in items other thanshareholders’ equity
Total changes during the period
Balance at December 31, 2021

(4,260)816

816(4,260)-(2,628)41,03629,153(11,983)(0)58,206

299

299

-

(406)

(406)

(406)

(3,034)264

58,470Changes during the period:
Issuance of new shares
Net loss
Purchase of treasury stock
Net changes in items other thanshareholders’ equity
Total changes during the period
Balance at December 31, 2022

(1,497)
(1)

598

598

(1,497)(1,497)

(1)

(1)

-

(5)

(21)

(26)

299

299

(1,497)

(1)

(900)

(5)

(21)

(926)

41,33529,452(13,480)(1)

57,306(5)

243

57,544162

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Non-consolidated Financial Statements
1 Significant Accounting Policies
1.1

Asset Valuation Standards and Methods
Securities
Shares of subsidiaries and associates are carried at cost determined by the moving-averagemethod.

1.2 Depreciation Methods for non-current Assets
Property, Plant and Equipment (except leased assets)
The declining balance method is used. However, the straight-line method is used for facilities
attached to buildings acquired on or after April 1, 2016.
The normal estimated useful lives are as follows: Buildings (facilities attached to buildings): 6-18 years
 Tools, furniture and fixtures:
5-18 years
Intangible Assets (except leased assets)
The straight-line method is used.
For internal-use software, the straight-line method is used based on an estimated useful life of
5 years.
Leased assets: Finance lease transactions without a transfer of ownership
The straight-line method is used over the term of the lease with a residual value of zero.
1.3

Recognition Standards for Provisions
Allowance for doubtful accounts
Allowance is made for credit losses on accounts receivable and other accounts. An estimate of
the irrecoverable amount is set aside based on historical credit loss rates for ordinary receivables
and based on individual collectability for specific receivables regarded as doubtful.
Provision for bonuses payable to employees
Provision is made during the financial year for the estimated payment of employee bonuses.
Provision for bonuses payable to executive officers
Provision is made during the financial year for the estimated payment of bonuses to executive
officers.
Provision for share-based payments
Provision is made for an estimation of the in-kind contribution of monetary compensation claim
incurred from RSU/PSUs for directors and employees.

163

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Non-consolidated Financial Statements
1 Significant Accounting Policies (continued)
1.4. Revenue Recognition
The Company's revenue consists of management fees charged to its subsidiaries. Since theCompany's performance obligation is to provide contracted services to its subsidiaries and theCompany's performance obligation is satisfied when those services are performed, revenue isrecognized at that point in time.
1.5. Other Significant Matters relating to the Basis of Preparation of the Financial Statements
Accounting for Deferred Assets
Bond issuance cost: Expensed in full at the time of payment.
Share issuance cost: Expensed in full at the time of payment.
Standards for Conversion of Foreign-denominated Assets and Liabilities to Japanese Currency
Foreign-denominated monetary receivables and payables are converted to Japanese yen basedon the closing spot rate of each reporting period, and exchange differences are accounted forwithin profit or loss for the period.

2 Changes in accounting policy
Application of "Accounting Standard for Revenue Recognition" and relevant implementation
guidance
The Company has applied “Accounting Standard for Revenue Recognition” (ASBJ Statement No.
29 revised on March 31, 2020; hereinafter the “Revenue Recognition Standard”) and relevant
Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Statement No.
30 revised on March 26, 2021) from the beginning of the current financial year. Accordingly, theCompany recognizes revenue as the amount expected to be entitled to in exchange for thepromised goods or services when the control of those goods or services is transferred to thecustomer. In accordance with the transitional treatment stipulated in the proviso of paragraph 84
of the Revenue Recognition Standard, the cumulative effects of retrospective application of the
new accounting policy, assuming it has been applied to periods prior to the beginning of thecurrent financial year, has been added to or subtracted from retained earnings at the beginningof the current financial year, and the new accounting policy is applied from the said balance.
However, there has been no effect on the beginning balance of Retained earnings brought forward
for the current financial year. Moreover, the application of the Revenue Recognition Standard andrelevant implementation guidance had no impact on the non-consolidated financial statements.

- 164 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Non-consolidated Financial Statements
2 Change in accounting policy (continued)
Application of "Accounting Standard for Fair Value Measurement" and relevant implementation
guidance
The Company has applied “Accounting Standard for Fair Value Measurement” (ASBJ Statement No.
30 issued on July 4, 2019) and relevant implementation guidance from the beginning of the current
financial year. In accordance with the transitional treatment stipulated in paragraph 19 of the“Accounting Standard for Fair Value Measurement” and paragraph 44-2 of the “Accounting Standard
for Financial Instruments” (ASBJ Statement No. 10 revised on July 4, 2019), the new accounting policy
set forth by the “Accounting Standard for Fair Value Measurement” and relevant implementation
guidance is applied into the future. The application of the “Accounting Standard for Fair Value
Measurement and relevant implementation guidance” had no impact on the non-consolidated
financial statements.
3 Significant Accounting Estimates
Valuation of Shares of subsidiaries and associates
The closing balances were as follows:
December 31, 2022¥m
49,973

Shares of subsidiaries and associates

December 31, 2021
¥m
49,973

Method of calculation of the carrying amounts in the non-consolidated financial statements andsignificant assumptions used in the calculation
A valuation loss is recorded on non-marketable securities, such as unlisted subsidiaries andassociates, when their net asset value decrease significantly due to deterioration of the financial
position of the security issuer, unless there is sufficient evidence to support their recoverability. The
net asset value used in the impairment assessment is calculated based on the net assets of the latest
available financial statements prepared in accordance with the Generally Accepted AccountingStandards and obtained from subsidiaries and associates before the period end. For subsidiaries andassociates whose net asset value has decreased significantly due to deterioration of its financial
position, if there is sufficient evidence to support their recoverability considering factors such as theirfinancial outlook and cash-flow situations, a valuation loss on shares of subsidiaries and associates is
not recorded. As a result of the above valuation, no valuation loss has been recorded in the current
financial year.
Effects on the non-consolidated financial statements for the year ending December 31, 2023
Although valuation of investment in subsidiaries and associates has been performed appropriately
based on the latest available information, there is possibility that valuation loss would be recognized
due to uncertain events in the future.

- 165 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Non-consolidated Financial Statements
4 Non-consolidated Balance Sheet
4.1

Monetary claims and obligations to subsidiaries and associates (excluding presented items) are
as follows:
December 31, 2022¥m

December 31, 2021
¥m

-

0

Monetary amounts payable tosubsidiaries and associates

4.2

Guarantee obligations
As at December 31, 2022 debt guarantees totaling JPY 1,938 million existed (JPY 2,067 million in
the previous year) in relation to a land and building lease agreement signed by the Company’s
subsidiary, Heptares Therapeutics Ltd.

5 Non-consolidated Statement of Profit or Loss
5.1

Transactions with subsidiaries and associates are as follows:Year ended
December 31, 2022¥m

Year ended
December 31, 2021
¥m

1,129

833

-

29

Operating transactions
Non-operating transactions

5.2

The ratio of selling expenses to total expenses is 0% and the ratio of general & administrative
expenses to total operating expenses is 100% for both the current and previous years
The primary expense items and amounts for operating expenses are as follows:Year ended
December 31, 2022¥m

Year ended
December 31, 2021¥m

Personnel expenses

1,608

1,343

Outsourcing expenses

253

368

- 166 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Non-consolidated Financial Statements
6 Note on Securities
At December 31, 2022, the carrying amount of shares in subsidiaries in the balance sheet was JPY
49,973 million.
At December 31, 2021, the carrying amount of shares in subsidiaries in the balance sheet was JPY
49,973 million.
Since market prices are not available, further notes are omitted.

7 Note on Revenue Recognition
Basic information to understand revenue recognition is shown in Notes to the Non-consolidated
Financial Statements under Note 1 Significant Accounting Policies, Section 1.4. Revenue Recognition.

8 Note on Tax Effect Accounting
8.1

Main reasons for the occurrence of deferred tax assets and deferred tax liabilities
December 31, 2022¥m

December 31, 2021¥m

Tax losses carried forward

2,499

2,526

Shares in subsidiaries and associates

3,135

3,135

893

740

Deferred tax assets:

Allowance for doubtful debts
Other

354

263

6,881

6,664

Valuation allowance for tax losses
carried forward(2,499)(2,526)

Valuation allowance for deductible
temporary differences(4,382)(4,138)(6,881)(6,664)--

Deferred tax assets subtotal

Valuation allowance subtotal
Total deferred tax assets- 167 -

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Non-consolidated Financial Statements
8 Note on Tax Effect Accounting (continued)
8.2

Main reasons for the difference between the statutory effective tax rate and actual effective tax
rate after the application of tax effect accounting
Year Ended
December 31, 2022¥m

Year Ended
December 31, 2021
¥m

Statutory effective tax rate

30.6%

30.6%

Items not deductible permanently
such as entertainment expenses

(4.8)

(1.7)

Japanese Controlled Foreign Company(18.3)

-

0.9

(1.0)

(14.9)(26.7)

Other

2.7

(1.2)

Actual effective tax rate after theapplication of tax effect accounting

(3.8)

(0.0)

Share-based payment expenses
Valuation allowances

9 Significant Subsequent Events
Significant Subsequent Events is shown in Notes to the Consolidated Financial Statements under Note
34 Significant subsequent events.
10 Supplementary Schedules
10.1 Supplementary Schedule of Property, Plant and Equipment
Balance at
beginningof current
year

Increaseduringcurrent
year

Decreaseduringcurrent
year

Balanceat end ofcurrent
year

Accumulated

¥m

¥m

¥m

¥m

Buildings

45

0

0

Tools,
furniture& fixtures

36

5

Leasedassets42

Total
SoftwareClassification Type of
assetsNetbalanceat end ofcurrent
year¥m

Depreciation&amortization
chargeduringcurrent year
¥m

45

18

4

27

9

32

21

3

11

-

42

-

-

4

-

123

5

51

77

39

11

38

27

2

15

14

10

0

4

Other

0

-

-

0

-

-

0

Total

27

2

15

14

10

0

4

Note 1

Property,plant andequipment

Intangible
assetsdepreciation

Note 1

Notes:
1. The balances at the beginning and end of the current period are based on acquisition costs.

- 168 -

¥m

Sosei Group Corporation
Section 5. Financial Statements
Notes to the Non-consolidated Financial Statements
10 Supplementary Schedules (continued)
10.2 Supplementary Schedule of Provisions
Account title

Balance at
beginning ofcurrent year¥m

Increase during
current year

Decrease during
current year

Balance at end ofcurrent year

¥m

¥m

¥m

Allowance for doubtful accounts

2,418

500

-

2,918

Provision for bonuses payable toexecutive officers

165

-

165

-

Provision for bonuses payable toemployees

53

69

53

69

Provision for share-based payments

633

379

291

721

10.3 Components of Major Assets and Liabilities
This information is omitted as consolidated financial statements have been prepared.
10.4 Others
Not applicable.

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Sosei Group Corporation
Section 6. Stock-Related Information relating to the Parent Company
Accounting period
From January 1 to December 31
General shareholders
Held in Marchmeeting
Record date
December 31
Record date for distribution of June 30 (Interim dividends)
surplus
December 31 (Year-end dividends)
Number of shares
100 sharesconstituting one unit
Purchase of shares less than
one unit
Handling office(Special accounts)
4-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo
Stock Transfer Agency Business Planning Department
Sumitomo Mitsui Trust Bank, Limited
Transfer agent(Special accounts)
4-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo
Sumitomo Mitsui Trust Bank, Limited
Purchasing fee
FreeMethod of public noticeElectronic public notice. However, if the Company is unable to makeelectronic public notice due to an accident or any other compelling
reason, it will make an alternative public notice in “The Nikkei”
newspaper.
Public notices will be posted on the Company’s website:
https://www.soseiheptares.com/

Special benefit for
Shareholders

Not applicable.

Notes:The Company’s shareholders may not exercise any rights for shares less than one unit except for the following:(1) Rights set forth in items of Article 189, paragraph 2 of the Companies Act.
(2) Right to receive an allocation of shares for subscription or stock acquisition rights for subscription.
(3) Right to request sale of shares less than one unit as provided in the previous article.

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Sosei Group Corporation
Section 7. Reference Information Relating to the Filing Company
1 Information on Filing Company’s Parent Company
The Company does not have a parent company.
2 Other Reference Information
From the beginning of this financial year until the filing date of this Annual Securities Report, theCompany has filed the following documents.
2.1 Annual Securities Report and Appendices, and Written Confirmation
Filed with Director General of Kanto Local Finance Bureau on March 24, 2022
Accounting period: 32nd Term (January 1, 2021 – December 31, 2021)
2.2 Internal Control Report and Appendices
Filed with Director General of Kanto Local Finance Bureau on March 24, 2022
Accounting period: 32nd Term (January 1, 2021 – December 31, 2021)
2.3 Quarterly Report and Written Confirmations
Filed with Director General of Kanto Local Finance Bureau on May 13, 2022
The 33rd Term First Quarter (January 1, 2022 – March 31, 2022)
Filed with Director General of Kanto Local Finance Bureau on August 10, 2022
The 33rd Term Second Quarter (April 1, 2022 – June 30, 2022)
Filed with Director General of Kanto Local Finance Bureau on November 11, 2022
The 33rd Term Third Quarter (July 1, 2022 – September 30, 2022)
2.4 Extraordinary Reports
Filed with Director General of Kanto Local Finance Bureau on March 24, 2022
Extraordinary Report based on Article 19, paragraph 2, item (ix-2) (Results of Exercise of Voting
Rights at the Annual General Meeting of Shareholders) of the Cabinet Office Ordinance on
Disclosure of Corporate Information, etc.
2.5 Securities Registration Statement (Reference Method)
Filed with Director General of Kanto Local Finance Bureau on April 20, 2022
(Securities Registration Statement (Reference Method) related to allotment to other eligible
persons)
2.6 Amendment to Securities Registration Statement (Reference Method)
Filed with Director General of Kanto Local Finance Bureau on May 13, 2022
Amendment related to the Securities Registration Statement (Reference Method) filed on April 20,
2022
Filed with Director General of Kanto Local Finance Bureau on August 10, 2022
Amendment related to the Securities Registration Statement (Reference Method) filed on April 20,
2022
Filed with Director General of Kanto Local Finance Bureau on November 11, 2022
Amendment related to the Securities Registration Statement (Reference Method) filed on April 20,
2022- 171 -

Sosei Group Corporation
Section 7. Reference Information Relating to the Filing Company
2 Other Reference Information (continued)
2.6 Amendment to Securities Registration Statement (Reference Method) (continued)
Filed with Director General of Kanto Local Finance Bureau on February 14, 2023
Amendment related to the Securities Registration Statement (Reference Method) filed on April 20,
2022- 172 -

Sosei Group Corporation
Part 2: Information about a Company which Provides a Guarantee to theFiling Company
Not applicable.

- 173 -

Independent Auditor’s Report

The Board of Directors
Sosei Group Corporation

OpinionWe have audited the accompanying consolidated financial statements of Sosei Group
Corporation and its subsidiaries (the Group), which comprise the consolidated balance sheet as
at December 31, 2022, and the consolidated statements of profit or loss and othercomprehensive income, changes in equity, and cash flows for the year then ended, and notes tothe consolidated financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at December 31, 2022, and its
consolidated financial performance and its consolidated cash flows for the year then ended inaccordance with International Financial Reporting Standards (IFRSs).
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for
the Audit of the Consolidated Financial Statements section of our report. We are independent of
the Group in accordance with the ethical requirements that are relevant to our audit of theconsolidated financial statements in Japan, and we have fulfilled our other ethicalresponsibilities in accordance with these requirements. We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significancein our audit of the consolidated financial statements of the current period. These matters wereaddressed in the context of the audit of the consolidated financial statements as a whole, and informing the auditor’s opinion thereon, and we do not provide a separate opinion on thesematters.

Ernst & Young ShinNihon LLC

Valuation of goodwill and core technology relating to the Drug discovery business
Description of Key Audit Matter
As described in Note 11 “Goodwill and intangible assets” to the consolidated financial
statements, the Group has identified the discovery of drugs targeting G-protein-coupled
receptors (“GPCRs”) (“Drug discovery business”) as a cash-generating unit (“CGU”) andrecognized goodwill in the amount of JPY 9,880 million in the consolidated balance sheet as at
December 31, 2022. In addition, core technology has been recognized in the amount of
JPY 8,217 million. Together they represent 18% of the total assets in the consolidated balance
sheet.
The CGU of the Drug discovery business is tested for impairment annually or whenever there
is an indication of impairment. In the impairment test, when the recoverable amount is less thanthe carrying amount, the carrying amount is reduced to the recoverable amount, and theresulting decrease in the carrying amount is recognized as an impairment loss.
The Group determined the recoverable amount of the CGU in the annual impairment test
performed for the year ended December 31, 2022 by calculating the fair value less costs ofdisposal. The future cash flows used for measuring the fair value less costs of disposal were
estimated based on the business plan of the Drug discovery business prepared by management
and reflects assumptions that market participants would use when pricing the asset. Significant
assumptions underlying the future cash flows include timings of milestone achievements suchas product launches of products being developed in the Drug discovery business performing
drug discovery activity, probabilities of success of Research and Development (“R&D”)
activities and projected revenue plan including expected future product sales. Since suchsignificant assumptions involve high estimation uncertainty and management subjectivity,
management judgements have significant effects on the estimated future cash flows.

Moreover, selecting the appropriate calculation method and input data for the discount rate,
which is an assumption used to measure the fair value less costs of disposal, requires a highdegree of expertise and experience in valuations.
Therefore, since the measurement of fair value less costs of disposal of the Drug discovery
business involves estimation uncertainty and management subjectivity, and requires a highdegree of expertise and experience, we determined the valuation of goodwill and coretechnology relating to the Drug discovery business as a key audit matter.

Ernst & Young ShinNihon LLC

Auditor’s Response
We performed the following procedures, among others, to assess the valuation of goodwill
and core technology relating to the Drug discovery business.

・ considered the consistency of the business plan used for estimating future cash flows withthe business plan approved by management.
・ compared the business plan used for estimating future cash flows in the prior fiscal yearwith the actual results of the current fiscal year to evaluate the accuracy of the Group’sbusiness plan.
・ considered timings of milestone achievements including product launches as well asprobabilities of success of R&D activities through inquiry of project managers responsible
for R&D activities and inspection of relevant meeting minutes as well as comparison withinformation obtained from external professional research organizations.
・ compared projected revenue plan including expected future product sales which are thebasis for calculating sales milestone revenues and royalty income, with relevant contracts
and information obtained from external professional research organizations and performed
recalculations.
・ involved valuation specialists from our network firm as specialists used by auditors to assessthe discount rate used by management. The valuation specialists independently estimatedthe discount rate using external information and compared it with the discount rate selectedby management.
・ performed stress testing using our independent assumptions for the significant assumptions
underlying the future cash flows.

Ernst & Young ShinNihon LLC

Revenue recognition relating to license contracts of development and commercializationrights for pharmaceutical products
Description of Key Audit Matter
As described in Note 20 “Revenue” to the consolidated financial statements, the Group earns
revenue primarily through license contracts with third parties that provide the rights to develop
and market pharmaceutical products. While license contracts are highly individual and containvarious contract terms and conditions, basic model is to receive upfront fees when a license is
granted and receive milestone income thereafter when the milestones agreed in the contract areachieved as the development progresses. The Group recognized upfront fees and milestone
income in the amount of JPY 12,063 million in the consolidated statement of profit or loss andother comprehensive income for the year ended December 31, 2022, representing 77% of thetotal revenue in the consolidated statement of profit or loss and other comprehensive income.
In addition, as described in Note 4 “Significant accounting estimates and associated judgments,
Revenue Recognition” to the consolidated financial statements, contract liability is recorded
when consideration is received prior to the satisfaction of the performance obligation related to
R&D services. The Group recognized contract liability in the amount of JPY 6,221 million in
the consolidated balance sheet as at December 31, 2022, representing 15% of the total liabilities
in the consolidated balance sheet.
As mentioned above, license contracts with partner companies are highly individual and may
contain other performance obligations to provide services such as research and development
services in addition to the grant of licenses, depending on the contract terms and conditions.
Since revenue is recognized for each performance obligation, when multiple performanceobligations are identified from a contract, revenue recognition may become complicated andsubjective management judgements in identifying performance obligations, among others, may
be required in applying IFRS 15 “Revenue from Contracts with Customers”.
Moreover, while revenue is recorded from contract liability based on the ratio of actual time
incurred on each R&D program at the reporting period end to the total estimated time of the
R&D plan, since the measurement of total estimated time involves estimation uncertainty andmanagement subjectivity, management judgements have significant effects on revenue
recognition.
Therefore, since revenue recognition relating to license contracts involves subjective
management judgements for each contract and derecognition from contract liability involves
estimation uncertainty and management subjectivity, we determined this item as a key audit
matter.

Ernst & Young ShinNihon LLC

Auditor’s Response
We performed the following procedures, among others, to verify revenue recognition relating
to license contracts.
・ inspected relevant contracts and considered appropriateness of the performance obligations
identified by the Group in accordance with the contract terms and conditions that affectrevenue recognition, when significant contracts were newly signed or subsequently
modified.
・ considered the economic substance of license contracts through inquiry of managements
when needed.
・ evaluated the existence of upfront fees and milestone income through vouching to relevant
evidence and confirming cash receipts.
・ inspected documents that summarize the result of the Group’s revenue recognition
consideration and evaluated whether the identification of performance obligations andrevenue recognition timing, among others, have been determined in accordance with therelated accounting standards based on contractual terms and conditions as well as the
economic substance of the license contract.
・ evaluated the accuracy of the total estimated time of the R&D plan through inspection of
relevant contract, inquiry of project managers responsible for R&D activities andcomparison with actual time incurred.
・ evaluated the appropriateness of revenue recognized from contract liability throughconsidering consistency with actual time incurred and recalculation.

Other Information
The other information comprises the information included in the Annual Securities Report that
contains audited consolidated and non-consolidated financial statements but does not include theconsolidated and non-consolidated financial statements and our auditor’s reports thereon.
Management is responsible for preparation and disclosure of the other information. The Audit
Committee is responsible for overseeing the Group’s reporting process of the other information.
Our opinion on the consolidated financial statements does not cover the other information and
we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is toread the other information and, in doing so, consider whether the other information is materiallyinconsistent with the consolidated financial statements or our knowledge obtained in the audit orotherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
We have nothing to report in this regard.

Ernst & Young ShinNihon LLC

Responsibilities of Management and the Audit Committee for the Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with IFRSs, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing theGroup’s ability to continue as a going concern and disclosing, as required by IFRSs, mattersrelated to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Group or to cease operations, or has no realistic alternative but todo so.
The Audit Committee is responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and toissue an auditor’s report that includes our opinion. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these consolidated
financial statements.
As part of an audit in accordance with auditing standards generally accepted in Japan, we
exercise professional judgment and maintain professional skepticism throughout the audit. We
also:
・ Identify and assess the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error, design and perform audit procedures responsive tothose risks, and obtain audit evidence that is sufficient and appropriate to provide a basis forour opinion.
・ Consider internal control relevant to the audit in order to design audit procedures that areappropriate in the circumstances for our risk assessments, while the purpose of the audit of
the consolidated financial statements is not expressing an opinion on the effectiveness of theGroup’s internal control.
・ Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.
・ Conclude on the appropriateness of management’s use of the going concern basis ofaccounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group’s ability tocontinue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor’s report. However, future events or conditions may cause the Group to cease tocontinue as a going concern.

Ernst & Young ShinNihon LLC

・ Evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair presentationin accordance with IFRSs.
・ Obtain sufficient appropriate audit evidence regarding the financial information of theentities or business activities within the Group to express an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and performance ofthe group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit Committee regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies ininternal control that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with the ethicalrequirements regarding independence that are relevant to our audit of the consolidated financial
statements in Japan, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Audit Committee, we determine those matters thatwere of most significance in the audit of the consolidated financial statements of the current
period and are therefore the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because theadverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan
Our firm and its designated engagement partners do not have any interest in the Group which is
required to be disclosed pursuant to the provisions of the Certified Public Accountants Act ofJapan.
Ernst & Young ShinNihon LLC
Tokyo, Japan
June 20, 2023

Hironao Yazaki
Hironao Yazaki
Designated Engagement Partner
Certified Public Accountant

Yutaka Mishima
Yutaka Mishima
Designated Engagement Partner
Certified Public Accountant
Ernst & Young ShinNihon LLC

Independent Auditor’s Report

The Board of Directors
Sosei Group Corporation

OpinionWe have audited the accompanying non-consolidated financial statements of Sosei Group
Corporation (the Company), which comprise the non-consolidated balance sheet as at December
31, 2022, and the non-consolidated statements of profit or loss and changes in net assets for theyear then ended, significant accounting policies, other notes to the non-consolidated financial
statements and supplementary schedules.
In our opinion, the accompanying non-consolidated financial statements present fairly, in allmaterial respects, the non-consolidated financial position of the Company as at December 31,
2022, and its non-consolidated financial performance for the year then ended in accordance withaccounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for
the Audit of the Non-Consolidated Financial Statements section of our report. We are
independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the non-consolidated financial statements in Japan, and we have fulfilled our otherethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significancein our audit of the non-consolidated financial statements of the current period. These matterswere addressed in the context of the audit of the non-consolidated financial statements as awhole, and in forming the auditor’s opinion thereon, and we do not provide a separate opinion
on these matters.

Ernst & Young ShinNihon LLC

Valuation of shares of Heptares Therapeutics Ltd.
Description of Key Audit Matter
As described in Note 3 “Significant Accounting Estimates” to the non-consolidated financial
statements, shares of subsidiaries and associates recognized in the amount of JPY 49,973
million in the non-consolidated balance sheet as at December 31, 2022 represents theCompany’s investment in Heptares Therapeutics Ltd. (“Heptares”), a wholly owned unlisted
subsidiary, and represents 56% of the total assets in the non-consolidated financial statements.
A valuation loss is recorded on non-marketable securities, such as investment in unlisted
subsidiaries, when the net asset value decreases significantly due to deterioration of the financial
position of the security issuer, unless there is sufficient evidence to support its recoverability.
When calculating the net asset value excluding goodwill of the investment in Heptares, theCompany includes valuation difference based on the fair value assessment of the intangible
assets such as core technology recognized at the time of acquisition in addition to the net assetsof the financial statements of Heptares.
As described in Note 11 “Goodwill and intangible assets” to the consolidated financial
statements, core technology has been recognized in the amount of JPY 8,217 million in the
consolidated balance sheet as at December 31, 2022.
Hence, management judgements relating to the impairment of intangible assets described in“Valuation of goodwill and core technology relating to the Drug discovery business” of the key
audit matter for the audit report of the consolidated financial statements, significantly affects
the calculation of the net asset value.

Therefore, since the calculation of the net asset value involves estimation uncertainty andmanagement judgements, we determined this item as a key audit matter.
Auditor’s Response
We performed the following procedures, among others, to assess the valuation of shares ofsubsidiaries and associates.

・ evaluated through recalculation that the net asset value excluding goodwill was calculated
based on the net assets of the financial statements of Heptares and included the valuationdifference of intangible assets.
・ considered the consistency of the net assets of the financial statements of Heptares and thevaluation difference of intangible assets which comprise the net asset value excluding
goodwill of Heptares, with the amounts evaluated during the audit of the consolidated
financial statements.
・ compared the carrying amount of shares of subsidiaries and associates with the net asset
excluding goodwill.
・ performed procedures described in the auditor’s response of “Valuation of goodwill andcore technology relating to the Drug discovery business” within the audit report of theconsolidated financial statements, that relates to management judgements on the impairmentof intangible assets and thus significantly affect the net asset value calculation.
Ernst & Young ShinNihon LLC

Other Information
The other information comprises the information included in the Annual Securities Report that
contains audited consolidated and non-consolidated financial statements but does not include theconsolidated and non-consolidated financial statements and our auditor’s reports thereon.
Management is responsible for preparation and disclosure of the other information. The Audit
Committee is responsible for overseeing the Company’s reporting process of the otherinformation.
Our opinion on the non-consolidated financial statements does not cover the other information
and we do not express any form of assurance conclusion thereon.
In connection with our audit of the non-consolidated financial statements, our responsibility is toread the other information and, in doing so, consider whether the other information is materiallyinconsistent with the non-consolidated financial statements or our knowledge obtained in theaudit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of Management and the Audit Committee for the Non-Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of these non-consolidated
financial statements in accordance with accounting principles generally accepted in Japan, andfor such internal control as management determines is necessary to enable the preparation of
non-consolidated financial statements that are free from material misstatement, whether due tofraud or error.
In preparing the non-consolidated financial statements, management is responsible for assessing
the Company’s ability to continue as a going concern and disclosing, as required by accounting
principles generally accepted in Japan, matters related to going concern.
The Audit Committee is responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Non-Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the non-consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and toissue an auditor’s report that includes our opinion. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these nonconsolidated financial statements.
As part of an audit in accordance with auditing standards generally accepted in Japan, we
exercise professional judgment and maintain professional skepticism throughout the audit. We
also:

Ernst & Young ShinNihon LLC

・ Identify and assess the risks of material misstatement of the non-consolidated financial
statements, whether due to fraud or error, design and perform audit procedures responsive tothose risks, and obtain audit evidence that is sufficient and appropriate to provide a basis forour opinion.
・ Consider internal control relevant to the audit in order to design audit procedures that areappropriate in the circumstances for our risk assessments, while the purpose of the audit of
the non-consolidated financial statements is not expressing an opinion on the effectivenessof the Company’s internal control.
・ Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.
・ Conclude on the appropriateness of management’s use of the going concern basis ofaccounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Company’s ability tocontinue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the nonconsolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor’s report. However, future events or conditions may cause the Company to cease tocontinue as a going concern.
・ Evaluate the overall presentation, structure and content of the non-consolidated financial
statements, including the disclosures, and whether the non-consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair presentationin accordance with accounting principles generally accepted in Japan.
We communicate with the Audit Committee regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies ininternal control that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with the ethicalrequirements regarding independence that are relevant to our audit of the non-consolidated
financial statements in Japan, and to communicate with them all relationships and other mattersthat may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with the Audit Committee, we determine those matters thatwere of most significance in the audit of the non-consolidated financial statements of the current
period and are therefore the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because theadverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan
Our firm and its designated engagement partners do not have any interest in the Company whichis required to be disclosed pursuant to the provisions of the Certified Public Accountants Act ofJapan.

Ernst & Young ShinNihon LLC

Ernst & Young ShinNihon LLC
Tokyo, Japan
June 20, 2023

Hironao Yazaki
Hironao Yazaki
Designated Engagement Partner
Certified Public Accountant

Yutaka Mishima
Yutaka Mishima
Designated Engagement Partner
Certified Public Accountant

Ernst & Young ShinNihon LLC

Unaudited 1

Sosei Group Corporation
Internal Control Report of Management

1. Matters related to the basic framework of internal control over financial reporting
Representative Executive Officer, CEO Christopher Cargill and Executive Officer, CAO Kieran
Johnson are responsible for the development and operation of the Company's internal control overfinancial reporting, and have developed and implemented internal control over financial reporting
based on the basic framework of internal control presented in the “On the Revision of theStandards and Practice Standards for Management Assessment and Audit concerning Internal
Control Over Financial Reporting (Council Opinions)”issued by the Business Accounting Council.
Since internal control can only provide reasonable assurance that each basic element of internal
control is functioning effectively in a combined and unified manner, there is a possibility thatinternal control over financial reporting cannot completely prevent or detect misstatements infinancial reporting.
2. Matters related to the scope of assessment, reference date and assessment procedures
The reference date for the assessment of internal control over financial reporting for the current
financial year was December 31, 2022, the end of the current financial year, and the assessment
was performed using the standard for evaluation of internal control over financial reporting whichis generally accepted as fair and appropriate.
In this evaluation, we evaluated those internal controls which could significantly impact overall
consolidated financial reporting [“Company Level Controls”]. Based on that, business processes
were selected for evaluation, and through analysis of those processes we identified key controls
which could significantly impact the reliability of financial reporting. We then evaluated theeffectiveness of those key controls by evaluating the design and operation of such controls.
The scope of our evaluation of internal control over financial reporting was determined for theCompany and its consolidated subsidiaries from the viewpoint of their impact on the reliability offinancial reporting after considering the significance of both monetary and qualitative effects.
Based on the results of our evaluation of Company Level Controls, we determined the required
scope for our evaluation of internal controls relating to business processes. In addition, the scopeof Company Level Controls covered all business locations except those which we determined to beminor from both monetary and qualitative materiality perspectives.
With regard to the scope of our evaluation of internal control related to business processes, we
designated two business locations as “significant business locations” whose aggregate sales andtotal assets, respectively, in the previous financial year (before the elimination of inter-company
transactions) exceeded two-thirds of consolidated sales and total assets.
For the locations designated as significant, we evaluated the business processes relating to theaccounts most significant to their underlying business activities such as sales, accounts receivable
and R&D expenses. Notwithstanding this, we evaluated the business processes relating toimportant accounts requiring estimates and forecasts which are likely to cause significant
misstatements if not performed properly, for locations designated as significant as well as otherlocations, since the possible impact of those processes on financial reporting could be material.

1: This document has been translated from the Japanese original for reference purposes only. Accordingly, this document is describedas ‘unaudited’ whereas the Internal Control Report of Management in the Japanese original have Note been audited.
- 186 -

Unaudited 1
Sosei Group Corporation
Internal Control Report of Management
3. Matters related to assessment results
As a result of the assessment described above, we determined that the internal control overfinancial reporting was functioning effectively as at the closing date of the current financial year.
4. Supplementary information
Nothing reportable.
5. Special notes
Nothing reportable.

1: This document has been translated from the Japanese original for reference purposes only. Accordingly, this document is describedas ‘unaudited’ whereas the Internal Control Report of Management in the Japanese original have Note been audited.
- 187 -

Sosei Group Corporation
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