English translation

March 13, 2018

Annual Report(January 1, 2017 through December 31, 2017)
1.

Business Performance of SymBio Pharmaceuticals Limited(1) Business conditions and operating results
Progress in the Company’s business for the fiscal year under review is as follows.
(i) Domestic[Anticancer agent: SyB L-0501 (lyophilized powder formulation), SyB L-1701 (ready-todilute (“RTD”) formulation), SyB L-1702 (rapid infusion (“RI”) formulation) and SyB C-0501(oral formulation) (generic name: bendamustine hydrochloride, trade name: TREAKISYM®)]
The Company markets TREAKISYM® in Japan through its business partner, Eisai Co.,
Ltd. (“Eisai”). The Company obtained marketing approval for first-line treatment of lowgrade non-Hodgkin’s lymphoma and mantle cell lymphoma in December 2016, and forchronic lymphocytic leukemia in August 2016. These are in addition to the approvals forthe indications of recurrent/refractory low-grade non-Hodgkin’s lymphoma and mantle cell
lymphoma which were obtained in October 2010. This indication expansion has resulted
in a significant in-market sales increase of 60.9% year-on-year (NHI price basis). Net sales
to Eisai also grew considerably, by 62.7% year-on-year.
In addition to the three already approved indications, the Company continues to work on
obtaining approval for recurrent/refractory intermediate/high-grade non-Hodgkin’s
lymphoma (diffuse large B-cell lymphoma) to benefit patients in need of new therapies andto further maximize product value. For these indications, the Company has completed a
Phase II clinical trial and in August 2017 began a Phase III clinical trial (designed inaccordance with consultations with the Pharmaceuticals and Medical Devices Agency(“PMDA”)) and completed the first patient enrollment in January 2018.
In addition to the ongoing label expansion initiatives, the Company concluded an
exclusive license agreement with Eagle Pharmaceuticals, Inc. (head office: New Jersey,U.S.) (“Eagle”) in September 2017, under which Eagle licensed to the Company rights
under Eagle’s intellectual property to develop, market, and sell Eagle’s RTD and RI liquid
formulations (“TREAKISYM® liquid formulation”) (Note 1) in Japan. This will further
enable the Company to extend the product life until 2031 through patent protection and-1-maximize the value of TREAKISYM®, while bringing significant benefits to patients andmedical professionals. (See press release dated September 21, 2017 titled “Eagle
Pharmaceuticals Licenses Japanese Rights for Bendamustine Hydrochloride Ready-todilute and Rapid Infusion Injection Products to SymBio Pharmaceuticals Limited.”)In addition to the development and expansion of the intravenous formulation product,
the Company is exploring the development of an oral formulation of TREAKISYM® witha focus on the treatment of solid tumors and autoimmune diseases and intends to further
expand the business, with an aim to solidify its business through a platform of
TREAKISYM® products. Amid such initiatives, the Company commenced a Phase I
clinical trial for progressive solid tumors in January 2018, with the aim of examining therecommended dosage and schedule as well as tolerability and safety of the oral formulationof TREAKISYM®, and narrowing down the types of potential target tumors.
(Note 1) RTD and RI are pre-dissolved liquid formulations that differ from currently
available freeze-dried (“FD”) powder injection. RTD (ready-to-dilute) will
significantly reduce the preparation time and labor cost for healthcare
providers, and RI (rapid infusion) will reduce infusion duration to 10 minutes
from the current 60 minutes, providing significant benefit and value to bothpatients and healthcare providers..
[Anticancer agents: SyB L-1101 (intravenous formulation) and SyB C-1101 (oralformulation), generic name: rigosertib sodium]
U.S. Licensor Onconova Therapeutics, Inc. (head office: Pennsylvania, U.S.)(“Onconova”) is conducting a global Phase III clinical trial (with trial sites in more than 20
countries) of the intravenous formulation of rigosertib sodium for higher-risk
myelodysplastic syndromes (HR-MDS) which do not respond to the current standard
treatment with hypomethylating agents (“primary HMA failure”) or which relapse after
treatment under the current standard of care. The Company is responsible for clinicaldevelopment in Japan and in December 2015 started a domestic trial for which 30 patientsare already enrolled. The Company completed the first patient enrollment in Japan in July
2016 and patient enrollment is proceeding favorably. Based on the results of the interim
analysis completed in January 2018, the Company will continue the trial with an increasein patient enrollment in accordance with pre-determined statistical criteria.
Regarding the oral formulation of rigosertib, the domestic Phase I clinical trial for
combination therapy with azacitidine (Note 2) for the target indication of HR-MDS began in
December 2015. Although delays with the investigational drug by Onconova had delayed
patient enrollment, Onconova has recently resumed provision of the investigational drug

-2-and the Company commenced a new domestic Phase I clinical trial in June 2017 to confirm
the safety of high-dose oral rigosertib, which was added to the Phase II clinical trial being
conducted by Onconova in the U.S. for first-line treatment and recurrent/refractorytreatment of patients with HR-MDS. First patient enrollment was completed in October
2017. After safety is confirmed through this trial, the Company plans to conduct a domestic
clinical trial for combination therapy with azacitidine, and to take part in Onconova’splanned global Phase III clinical trial for combination therapy with azacitidine for the firstline treatment of patients with HR-MDS.
(Note2) About azacitidine (Vidaza®: currently marketed by Nippon Shinyaku Co.,
Ltd.): This drug (for injection) was approved in 2011 upon successful
confirmation of extended overall survival for the first time in the Phase III
clinical trial for the indication of MDS, and is currently used as a first-line drugfor MDS patients who have difficulties in hematopoietic stem celltransplantation. MDS is a preleukemic state, and decrease in tumor suppressor
gene due to excessive methylation of DNA is thought to be related to the disease.
Hypomethylating agents such as azacitidine are thought to suppress progress toleukemia by restoring tumor suppressor gene with a deterrent effect against
methylation of DNA.
[Patient-controlled iontophoretic transdermal system for the short-term management of acutepost-operative pain: SyB P-1501]
In October 2015, the Company entered into an agreement with Incline Therapeutics, Inc.,a wholly-owned subsidiary of US-based The Medicines Company (Head Office: New
Jersey, U.S.) for an exclusive license to develop and commercialize SyB P-1501 in Japan.
The Company commenced a domestic Phase III clinical trial for SyB P-1501 in June 2016
and completed the first patient enrollment in November 2016, with enrollments
accumulating. The Company, acting in the best interest of patients, determined on April 21,
2017 to temporarily suspend new patient enrollment due to its recently arising concern as
to the continuity of The Medicines Company’s business regarding the product. The license
agreement with Incline Therapeutics, Inc. terminated effective November 30, 2017.
The Company initiated an arbitration against The Medicines Company on October 11,
2017, under the rules of the International Chamber of Commerce, seeking damages of 82
million U.S. dollar (approximately 9.0 billion yen) arising from The Medicines Company’s
repudiation of the license agreement. (See press releases “Initiation of an Arbitration
against The Medicines Company,” dated November 13, 2017, and “Termination of License
Agreement between SymBio Pharmaceuticals Limited and The Medicines Company,”-3-

dated November 30, 2017.)
In conjunction with the termination of the license agreement, the Company initiated theprocess of terminating development of SyB P-1501, a process which was completed on
February 9, 2018.
[New drug candidates]
The Company continues to actively seek new drug candidates and in-licensing
opportunities globally, aiming to expand both profitability and growth potential over the
medium-to-long-term, and discussions with multiple potential licensors are ongoing.
In May 2016, the Company established a wholly-owned subsidiary, SymBio Pharma
USA, Inc. (Menlo Park, California, U.S., “SymBio Pharma USA”), as the Company’splanned strategic base for overseas business development. Acquiring rights to new drugcandidates through SymBio Pharma USA as the base of global business will be part of theCompany’s continued transformation into a global specialty biopharmaceutical company
with capability to develop and commercialize new drugs in the U.S., Japan, Europe, andother major global markets.
(ii) Markets outside Japan
SyB L-0501 is also marketed in South Korea, Taiwan, and Singapore, and product salesof SyB L-0501 in these countries progressed favorably at a pace exceeding the Company’s
forecasts.
(iii) Business results
As a result of the above, net sales totaled 3,444,206 thousand yen for the fiscal year
ended December 31, 2017, primarily reflecting product sales of TREAKISYM® in Japan.
Product sales showed a year-on-year increase of 61.1%. Accordingly, overall net sales rose
45.4% year-on-year.
Selling, general and administrative expenses totaled 4,978,327 thousand yen (a year-onyear increase of 64.2%), including research and development (“R&D”) expenses of
3,017,812 thousand yen (a year-on-year increase of 81.0%) primarily due to the upfront
payment relating to the license agreement with Eagle Pharmaceuticals for TREAKISYM®
liquid formulation (RTD and RI formulations) and expenses associated with the clinical
trial for TREAKISYM®, the intravenous and oral formulations of rigosertib as well as SyB
P-1501, and other selling, general and administrative expenses of 1,960,514 thousand yen(a year-on-year increase of 43.7%).
As a result, an operating loss of 3,947,061 thousand yen was recognized for the fiscal
year ended December 31, 2017 (an operating loss of 2,127,049 thousand yen for the-4-

previous fiscal year). In addition, the Company recorded non-operating expenses totaling
34,229 thousand yen primarily comprising stock issuance costs of 14,477 thousand yen,foreign exchange losses of 10,421 thousand yen, and commission fees of 9,090 thousand
yen, and non-operating income totaling 4,506 thousand yen primarily due to interest
income of 3,092 thousand yen and dividend income of 1,339 thousand yen. This resulted
in an ordinary loss of 3,976,784 thousand yen (an ordinary loss of 2,316,806 thousand yen
for the previous fiscal year) and net loss of 3,977,862 thousand yen (a net loss of 2,313,233
thousand yen for the previous fiscal year).
Segment information has been omitted as the Company operates within a single segmentof the pharmaceutical industry, which includes the development and commercialization ofdrugs, manufacturing, marketing and other related activities.
(iv) Capital investment
The total amount of capital expenditures during the current fiscal year was 43,815
thousand yen, mainly consisting of the purchase of business software.
(2) Status of fund procurement, etc.
Issuance of the 42nd stock acquisition rights
In order to secure the funds necessary for its research and development activities, theCompany made a resolution at the Board of Directors meeting held on August 9, 2017 toissue the 42nd warrant (total issue price 32,560 thousand yen by way of third-party allotment,
total issue price of stocks when issued through the exercise of stock acquisition rights:
1,892,000 thousand yen), and completed the payment of 1,115,042 thousand yen as of thecurrent fiscal year end.

-5-(3) Status of assets, profit and loss in the current fiscal year and the three preceding fiscal
years(Unit: thousands of yen, except for per-share figures)
FY 2014The 10th Term

FY 2015
The 11th Term

FY 2016
The 12th Term

FY 2017
The 13th Term(current)

Net sales

1,955,027

1,933,241

2,368,112

3,444,206

Operating loss

(1,303,279)(2,551,662)(2,127,049)(3,947,061)

Ordinary loss

(1,110,316)(2,630,386)(2,316,806)(3,976,784)

Net loss(1,115,877)(2,632,095)(2,313,233)(3,977,862)

Net loss per share (yen)(36.26)(81.26)(58.82)(79.78)

Total assets

7,453,799

4,984,289

6,878,384

4,252,284

Net assets

6,963,576

4,431,811

5,484,870

3,239,402

Net assets per share (yen)208.80127.56108.61

50.00

Fiscal year
Classification(4) Issues to be addressed by the Company
The Company is commited to making improvements in the following areas.
(i) Further expansion of the pipeline
In order to enhance the enterprise value as a specialty pharmaceutical company, we needto expand the pipeline through ongoing in-licensing of new drug candidates fordevelopment.
The Company is conducting or planning development of the following anticancer agents:
SyB L-0501, SyB C-0501, SyB L-1101, SyB C-1101, SyB L-1701 and SyB L-1702.
Currently we are in discussion with counterparties regarding the in-licensing of several
new drug candidates, and will continue with active efforts to in-license new products inorder to further expand our pipeline.
(ii) Pursuit of life cycle management in the existing pipeline
In order to enhance the enterprise value, it is critical to maximize returns from each drug
under development through indication expansion after the in-licensed drugs’ initialapproval.
TREAKISYM® is approved for manufacturing and marketing in Japan for theindications of recurrent/refractory low-grade non-Hodgkin’s lymphoma and mantle cell
lymphoma, chronic lymphocytic leukemia, and first-line treatment of low-grade non--6-

Hodgkin’s lymphoma and mantle cell lymphoma. The Company has completed a Phase II
clinical trial for recurrent/refractory intermediate/high-grade non-Hodgkin’s lymphoma(diffuse large B-cell lymphoma), and a Phase III clinical trial is currently underway. In
addition, the Company will pursue the development of TREAKISYM® RTD and RI liquid
formulations in-licensed from Eagle Pharmaceuticals, Inc. (head office: New Jersey, U.S.).
The Company is also exploring the development of an oral formulation of TREAKISYM®
with a focus on the treatment of solid tumors and autoimmune diseases, further expanding
the business potential. To this end, the Company has commenced a Phase I clinical trial for
progressive solid tumors with the aim of examining the recommended dosage and schedule
as well as tolerability and safety of the oral formulation of TREAKISYM®, and narrowing
down the potential types of target tumors.
The development of rigosertib intravenous and oral formulations for the indication of
myelodysplastic syndromes (MDS) is also progressing. Few useful therapeutic agents are
currently available for this indication, so it is an area with very high unmet medical need.
As for the global Phase III trial of the intravenous formulation for the target indication ofrecurrent/refractory higher-risk MDS conducted by Onconova, the Company is conducting
its clinical trial in Japan. As for the oral formulation, the Company has completed thedomestic Phase I clinical trial as a monotherapy for the target indication of lower-risk MDS,
and is currently conducting a domestic Phase I clinical trial to confirm the safety of highdose as a monotherapy, in order to conduct the Phase I clinical trial in combination withazacitidine for the target indication of first-line treatment of patients with higher-risk MDS.
The Company is considering participating in global clinical trials after completing thePhase I clinical trial. The development for the target indication of transfusion-dependent
lower-risk MDS will be considered based on the development progress made by Onconova.
The Company is focused on maximizing the value of TREAKISYM® and rigosertib
through further indication expansion.
(iii) Global expansion for further growth
In addition to Japan, the Company operates its businesses in other Asian countries,
including China, Korea, Taiwan, and Singapore.
However, with expanding medical expenditures due to the aging population in Japan,
and the advent of the “era of generic drugs comprising 80% of all drugs dispensed” as agovernmental policy of Japan, the business environment for innovative drug developers is
expected to remain extremely challenging. Such a policy may also be implemented by other
Asian countries.
Under these circumstances, the Company will promote global expansion aiming for
further growth. The Company will carry out the search, evaluation, and negotiation-7-

activities for new drug candidates, in order to acquire global rights on such candidates,
utilizing its experience fostered through its business in Asia.
(iv) Securing personnel
The Company places the highest priority on personnel as the Company’s principal
management resource. We cannot make superior achievements in exploring and developing
new drugs without talent. We have been continually recruiting talented people, especiallyafter being listed; we have recruited the best and brightest people in order to strengthen the
management organization. Going forward, we plan to further strengthen our humanresources by providing development programs such as OJT and other trainings.
(v) Financial issue
It is necessary for the Company to raise funds required for business activities such as
R&D expenditures as the pipeline development progresses and the number of drugcandidates increases. Therefore, we make every effort to strengthen the financial base bycontinually diversifying the manner of fund raising and reducing costs through budget
control.
(5) Major business activities (as of December 31, 2017)
The Company regards underserved therapeutic areas that lack the development of new drugs,
despite significant unmet medical needs, as business opportunities. We engage in thedevelopment of new drugs with main focus in the areas of oncology, hematology, and pain
management; search and evaluation, development and manufacturing to sales are the main
activities of our business.

-8-(6) Main office and employees(i) Main office (as of December 31, 2017)
Name

Location

Main office

Minato-ku, Tokyo(ii) Employees (as of December 31, 2017)

Male

56

Increase or
decrease fromprevious fiscal
year end
3 (increase)

Female22

Total or average

78

Classification

Number of
employees1

Average age(years)Average numberof years of service

51.6

4.2

2 (decrease)

45.4

4.8

1 (increase)

49.9

4.4

(Note 1) Number of employees refers to full time employees (12 temporary staff are not included).

(7) Status of parent company and significant subsidiaries
Not applicable.
(8) Status of main lenders (as of December 31, 2017)
Not applicable.

-9-2. Matters related to stock (as of December 31, 2017)(1) Total number of authorized shares

Common stock

167,000,000 shares(2) Total number of shares outstanding

Common stock

54,049,149 shares(excluding 75 shares oftreasury stock)
20,667(3) Number of shareholders(4) Major shareholders (10 largest)
Name of shareholder

Number of shares held

Shareholding ratio

Fuminori Yoshida

3,120,000

5.8%

Cephalon, Inc.

2,589,000

4.8%Japan Securities Finance Co., Ltd.

1,812,000

3.4%

Matsui Securities Co., Ltd.

993,800

1.8%

Daiwa Securities Co. Ltd.

853,000

1.6%

Eisai Co., Ltd.

833,400

1.5%

Waseda No.1 Investment LP

684,000

1.3%

SBI SECURITIES Co., Ltd.
BNY GCM CLIENT ACCOUNT JPRD AC
ISG (FE-AC)
Rakuten Securities, Inc.

595,300

1.1%

577,700

1.1%

532,500

1.0%(Note) Calculation of issued shares (%) excludes treasury stock from the number of shares outstanding.

- 10 -

3. Matters related to stock acquisition rights(1) Stock acquisition rights held by the Company’s Directors and Audit & Supervisory Board
Members that were issued as compensation for services (as of December 31, 2017)
The 20th series of stock The 22nd series of stock The 24th series of stockacquisition rights
acquisition rights
acquisition rights
by resolution of theby resolution of theby resolution of theOrdinary General Meeting Ordinary General Meeting Ordinary General Meetingof Shareholdersof Shareholdersof Shareholders
on March 30, 2010
on March 30, 2010
on March 30, 2011
Number of stockacquisition rights

3,445

1,530

1,920

Number of shares to beissued upon the exerciseof stock acquisitionrights344,500

153,000

192,000

Amount paid for stockacquisition rights

None

None

None

585 yen per share

585 yen per share

682 yen per share

From: April 1, 2012
To: March 31, 2020

From: April 1, 2012
To: March 31, 2020

From: March 31, 2013
To: March 30, 2021

1,800 units (1 holder)
180,000 shares-

1,200 units (1 holder)
120,000 shares

300 units (1 holder)
30,000 shares

200 units (1 holder)
20,000 shares

150 units (1 holder)
15,000 shares

Value of property to becontributed upon theexercise of each stockacquisition right (Note1)
Period in which exerciseof stock acquisitionrights is possible
Status of possession by
Directors (excluding
Outside Directors)
Status of possession by
Outside Directors- 11 -

The 26th series of stock The 30th series of stock The 32nd series of stockacquisition rights
acquisition rights
acquisition rights
by resolution of the Board by resolution of the Board by resolution of the Boardof Directors meetingof Directors meetingof Directors meetingon April 17, 2012
on May 14, 2013
on April 15, 2014
Number of stockacquisition rights

3,625

1,160

2,520

Number of shares to beissued upon the exerciseof stock acquisitionrights362,500

116,000

252,000

Amount paid for stockacquisition rights

None

None

22,900 yen per unit
(Note 2)555 yen per share

799 yen per share

1 yen per share

From: April 18, 2014
To: April 17, 2022

From: May 15, 2015
To: May 14, 2023

From: April 16, 2017
To: April 15, 2024

2,600 units (1 holder)
260,000 shares

645 units (1 holder)
64,500 shares

1,830 units (1 holder)
183,000 shares

324 units (1 holder)
32,400 shares

205 units (2 holders)
20,500 shares

350 units (2 holders)
35,000 shares

Value of property to becontributed upon theexercise of each stockacquisition right (Note1)
Period in which exerciseof stock acquisitionrights is possible
Status of possession by
Directors (excluding
Outside Directors)
Status of possession by
Outside Directors- 12 -

The 35th series of stock The 37th series of stock The 40th series of stockacquisition rights
acquisition rights
acquisition rights
by resolution of the Board by resolution of the Board by resolution of the Boardof Directors meetingof Directors meetingof Directors meetingon March 26, 2015
on March 30, 2016
on March 29, 2017
Number of stockacquisition rights

2,042

2,365

2,800

Number of shares to beissued upon the exerciseof stock acquisitionrights204,200

236,500

280,000

Amount paid for stockacquisition rights

30,600 yen per unit
(Note 2)

27,200 yen per unit
(Note 2)

20,300 yen per unit
(Note 2)

1 yen per share

1 yen per share

1 yen per share

From: March 27, 2018
To: March 26, 2025

From: March 31, 2019
To: March 30, 2026

From: March 30, 2020
To: March 29, 2027

1,480 units (1 holder)
148,000 shares

1,490 units (1 holder)
149,000 shares

1,950 units (2 holders)
195,000 shares

253 units (2 holders)
25,300 shares

545 units (3 holders)
54,500 shares

850 units (4 holders)
85,000 shares

Value of property to becontributed upon theexercise of each stockacquisition right (Note1)
Period in which exerciseof stock acquisitionrights is possible
Status of possession by
Directors (excluding
Outside Directors)
Status of possession by
Outside Directors(Notes) 1. New shares were issued through the public offering on December 4, 2013, and third-party
allotment on December 25, 2013, at the paid-in amount less than the value of property to becontributed upon the exercise of each stock acquisition right. Therefore, the stated value of
property to be contributed upon the exercise of each stock acquisition right excluding thoseissued for the 32nd series and thereafter is adjusted in accordance with the adjustment
provision.
2. The person who receives the allotment of stock acquisition rights shall offset the amount tobe paid for the relevant stock acquisition rights against cash compensation equivalent to theamount.
3. There are no stock acquisition rights held by Audit & Supervisory Board Members.

- 13 -

(2) Stock acquisition rights distributed to the Company’s employees as compensation forservices during the current fiscal year (as of December 31, 2017)
The 41st series of stock acquisition rights
by resolution of the Board of Directors meetingon March 29, 2017
Number of stock acquisition rights

4,512

Number of shares to be issued upon
the exercise of stock acquisitionrights451,200

Amount paid for stock acquisitionrights

20,300 yen per unit
(Note 2)

Value of property to be contributed
upon the exercise of each stockacquisition right1 yen per share

Period in which exercise of stockacquisition rights is possible

From: March 30, 2020
To: March 29, 2027

Status of allotment to theCompany’s employees

4,512 units (71 holders)
451,200 shares(Notes) 1. Of the stock acquisition rights mentioned above, 601 units (60,100 shares) havebeen forfeited due to the retirement of employees.
2. The person who receives the allotment of stock acquisition rights shall offset theamount to be paid for the relevant stock acquisition rights against cash
compensation equivalent to the amount.

- 14 -

(3) Other important matters concerning stock acquisition rights (as of December 31, 2017)
Details of the 42nd stock acquisition rights issued by resolution of the Board of Directors
meeting held on August 9, 2017 are as follows.
The 42nd series of stockacquisition rights
by resolution of the Board of
Directors meetingon August 9, 2017
Number of stock acquisition rights

88,000

Number of shares to be issued upon theexercise of stock acquisition rights

8,800,000

Amount paid for stock acquisition rights

370 yen per unit

Value of property to be contributed upon theexercise of each stock acquisition right

215 yen per share

Period in which exercise of stock acquisitionrights is possible

From: August 26, 2017
To: August 27, 2018

(Note) All of the stock acquisition rights mentioned above were exercised on January 22, 2018.

- 15 -

4. The Company’s Directors and Auditors (as of December 31, 2017)(1) Names of Directors and Audit & Supervisory Board Members
Company Position
Representative Director

Name

Responsibility / Significant
Concurrent Position

Fuminori Yoshida

Chief Executive Officer

Representative Director

Kazuo Asakawa

Corporate Officer, Executive
Vice President (COO) and Headof the Japan Business Unit

Director

Sumio Ariyoshi

Director

Naoko Iino

Director

George Morstyn

Director

Milton Grannatt

Full-time Audit &Supervisory Board
MemberKiyoshi Watanabe

Audit & Supervisory
Board Member

Saneaki Ichijo

Audit & Supervisory
Board Member

Shigetoshi Matsumoto

Cuorips Inc.
Representative Director
G&R Morstyn Pty Ltd.
CEOCooperative Research Centre forCancer Therapeutics
Member of the Board of
Directors
Biomedical Research Victoria
Chairman
Actinogen Medical Ltd.
Members of the Board of
Directors
ARKAY Therapeutics LLC.
Member of the Board of
Directors
Myostin Therapeutics Pty Ltd.
Members of the Board of
Directors
Toho Acetylene Co., Ltd.
Outside Member of the Audit &Supervisory Board
Lawyer at Anderson Mori &Tomotsune(Notes)1. Of the Directors, Sumio Ariyoshi, Naoko Iino, George Morstyn, and Milton Grannatt are Outside
Directors.
2. Kiyoshi Watanabe, Saneaki Ichijo, and Shigetoshi Matsumoto are outside members of the Audit &Supervisory Board.
3. Kiyoshi Watanabe and Shigetoshi Matsumoto have been designated as independent officers pursuant
to the provisions of the Tokyo Stock Exchange and registered as such with the Tokyo Stock
Exchange.

- 16 -

4. Kiyoshi Watanabe has years of experience as a corporate Audit & Supervisory Board Member at
listed companies, and possesses deep insight in finance and accounting.
5. Changes in Directors and Audit & Supervisory Board Members during the current fiscal year are as
follows:- Directors Lowell Sears and George Vandeman resigned upon expiration of their terms of office at
the closing of the 12th Ordinary General Meeting of Shareholders held on March 29, 2017.
- Audit & Supervisory Board Members Takeshi Masuda and Chikara Shimazaki resigned at theclosing of the 12th Ordinary General Meeting of Shareholders held on March 29, 2017.
- Kazuo Asakawa and Sumio Ariyoshi were newly appointed as Directors at the 12th Ordinary
General Meeting of Shareholders held on March 29, 2017.
- Kiyoshi Watanabe and Shigetoshi Matsumoto were newly appointed as Audit & Supervisory Board
Members at the 12th Ordinary General Meeting of Shareholders held on March 29, 2017.
6. The Company has adopted the Corporate Officer System. A Corporate Officer who does not hold aconcurrent position as a Director is as follows:
Corporate Officer
Tsutomu Abe- 17 -

(2) Summary of the contents of the liability limitation agreement
The Company has executed an agreement with each Director (excluding those who
engage in business execution) and each member of the Audit & Supervisory Board withrespect to the liability in Article 423, Paragraph 1 of the Companies Act, setting forththat director liability will be limited to the higher of 1,000,000 yen or the maximum
liability amount set forth in laws and regulations in cases where the Director or memberof the Audit & Supervisory Board has performed their duties in good faith and withoutgross negligence.

(3) Compensation of members of the Board of Directors and the Audit & Supervisory Board

Company Board

Board of Directors
Audit & Supervisory Board
Total

Number of
Directors/Board
Members Paid

Total Amount of Compensation(thousands of yen)

8
(Outside: 6)

146,750(Outside: 47,995)

5(Outside: 5)
13(Outside: 11)

19,542(Outside: 19,542)
166,292(Outside: 67,537)(Notes) 1. Salary in the event of a Director doubling as an employee is not included in the above compensation
for Directors.
2. The maximum amount of compensation for Directors was resolved as an annual amount of 130
million yen at the Extraordinary General Meeting of Shareholders held on August 3, 2005. In
addition to the aforementioned compensation, it was resolved that compensation for Directors in theform of stock acquisition rights as stock options be granted up to a maximum annual amount of 80
million yen at the 9th Ordinary General Meeting of Shareholders held on March 27, 2014. (Of 80
million yen, 30 million yen was granted for Outside Directors, which was resolved at the 11th
Ordinary General Meeting of Shareholders held on March 30, 2016.)
3. The maximum amount of compensation for Audit & Supervisory Board Members was resolved as
an annual amount of 30 million yen at the Extraordinary General Meeting of Shareholders held on
June 30, 2011.
4. The number of Directors/Board Members paid as stated above includes two (2) Directors and two(2) Audit & Supervisory Board Members who resigned at the closing of the 12th Ordinary General
Meeting of Shareholders held on March 29, 2017.
5. The total compensation paid includes expenses (for eight (8) Directors, a total of 70,306 thousandyen) in connection with stock acquisition rights as stock options for the current fiscal year.

- 18 -

(4) Matters Concerning Outside Directors and outside members of the Audit & Supervisory
Board(i) Status of concurrent positions as an executive at other companies, and the relationshipbetween such companies and the Company
Position
Director
Director(Note)Name
Naoko Iino
George Morstyn

Responsibility at the Company and significant
concurrent positions
Cuorips Inc. - Representative Director
G&R Morstyn Pty Ltd. - CEO

There are no significant transactions between any of the above companies and the Company.

(ii) Status of concurrent positions as an outside officer at other companies and the relationshipbetween such companies and the Company
Position
Name
Responsibility and significant concurrent
positions
Director
George Morstyn
Cooperative Research Centre for Cancer
Therapeutics - Member of the Board of
Directors
Biomedical Research Victoria - Chairman
Actinogen Medical Ltd. - Member of theBoard of Directors
Director
Milton Grannatt
ARKAY Therapeutics LLC. - Member ofthe Board of Directors
Myostin Therapeutics Pty Ltd. - Member ofthe Board of Directors
Audit &
Supervisory
Board Member(Note)

Kiyoshi Watanabe

Toho Acetylene Co., Ltd. - Outside Memberof the Audit & Supervisory Board

There are no significant transactions between any of the above companies and the Company.

- 19 -

(iii) Status of main activities during the current fiscal year
Position
Name
Status of
Status ofattendance atattendance
the Board of at the Audit
Directors&
meetings
Supervisory
Board
meetings
DirectorSumio
11 out of 11
Ariyoshi(100%)

Director

Naoko Iino

15 out of 15(100%)-

Director

GeorgeMorstyn

14 out of 15
(93%)

-

- 20 -

Opinions at the Board of
Directors meetings and the
Audit & Supervisory Board
meetings

Mr. Ariyoshi expressed
opinions from an objective
perspective independent
from the Company’s
management engaged inbusiness operations,leveraging his extensive
knowledge and experiencein senior management.
Ms. Iino expressed
opinions from an objective
perspective independent
from the Company’s
management engaged inbusiness operations,leveraging her extensive
knowledge and experiencein senior management.
Dr. Morstyn expressed
opinions from an objective
perspective independent
from the Company’s
management engaged inbusiness operations,leveraging his
extensiveknowledge andexperience as a doctor.

Position

Name

Status ofattendance at
the Board of
Directors
meetings

Director

MiltonGrannatt

15 out of 15(100%)

Full-time
Audit &
Supervisory
Board
MemberKiyoshiWatanabe

11 out of 11(100%)- 21 -

Status ofattendanceat the Audit&
Supervisory
Board
meetings-

11 out of
11(100%)

Opinions at the Board of
Directors meetings and the
Audit & Supervisory Board
meetings

Dr. Grannatt expressed
opinions from an objective
perspective independent
from the Company’s
management engaged inbusiness operations,leveraging his extensive
healthcare industry
knowledge and experience.
Mr. Watanabe proactively
expressed opinions in aneffort to fulfill his duty ofsupervising managementfrom a fair and objective
standpoint and to carry out
highly effective audits byleveraging his extensive
experience and knowledge
as a corporate Audit &Supervisory Board Member
at listed companies.

Position

Name

Status ofattendance at
the Board of
Directors
meetings

Audit &
Supervisory
Board
MemberSaneaki Ichijo

15 out of 15(100%)

Audit &
Supervisory
Board
MemberShigetoshi
Matsumoto11 out of 11(100%)

Status ofattendanceat the Audit&
Supervisory
Board
meetings
16 out of
16(100%)

11 out of
11(100%)

Opinions at the Board of
Directors meetings and the
Audit & Supervisory Board
meetings

Mr. Ichijo proactively
expressed opinions in aneffort to fulfill his duty ofsupervising managementfrom a neutral standpoint
and to carry out highly
effective audits byleveraging his expertise andextensive experience as an
attorney.
Mr. Matsumoto proactively
expressed opinions in aneffort to fulfill his duty ofsupervising managementfrom a fair and objective
standpoint and to carry out
highly effective audits byleveraging his audit
experience at a company inthe same industry as well as
his knowledge and many
years of experience as acorporate Audit &Supervisory Board Member.

(Notes) 1. With regard to Director Sumio Ariyoshi and Audit & Supervisory Board Members Kiyoshi
Watanabe and Shigetoshi Matsumoto, their status of attendance at the meetings is calculated
from the Board of Directors meetings and the Audit & Supervisory Board meetings held after
their appointment in March 2017.
2. In addition to the Board of Directors meetings mentioned above, one resolution was approvedby written consent without a meeting, pursuant to Article 370 of the Companies Act and Article
26, Paragraph 2 of the Articles of Incorporation of the Company.

- 22 -

5. Status of accounting auditor(1) Name of accounting auditor

Ernst & Young ShinNihon LLC(2) Summary of the contents of the liability limitation agreement
Not applicable.
(3) Amount of compensation
Amount paid
Amount of compensation paid to the accounting auditor
concerning the current fiscal year

15,500 thousand yen

Total amount of monetary and other property benefits to be paidby the Company

15,500 thousand yen(Notes) 1. Reasons for the Audit & Supervisory Board’s approval of the amount of compensation to be paid
to the accounting auditor
The Audit & Supervisory Board verified the contents of the audit planning by the accounting
auditor, performance of its duties in previous years, and status of planning and actual performance,
and as a result of a careful review on the adequacy of the amount of compensation for this fiscal
year, has approved the amount of compensation to be paid to the accounting auditor, pursuant to
the provisions of Article 399, Paragraph 1 of the Companies Act.
2. The amounts of compensation for audits paid in accordance with the Companies Act, and theaudits conducted in accordance with the Financial Instruments and Exchange Act, are notdistinguished in the contract agreement between the Company and the accounting auditor. It is notpossible to distinguish between compensation paid for these two types of audits; therefore the total
amount thereof is stated.

(4) Policies for dismissal or non-reappointment of the accounting auditor
When it is deemed necessary to dismiss (or not reappoint) the accounting auditor forreasons relating to the accounting auditor’s execution of duties, the Audit & Supervisory
Board shall determine the contents of a proposal to be presented to a General Meeting of
Shareholders in respect of the dismissal (or non-reappointment). In addition, when theaccounting auditor falls under any of the items of Article 340, Paragraph 1 of the Companies
Act, the Audit & Supervisory Board shall dismiss the accounting auditor with the consent
of all members of the Audit & Supervisory Board. If this is the case, an Audit & Supervisory- 23 -

Board Member selected by the Audit & Supervisory Board shall report the dismissal of theaccounting auditor and the reasons for such dismissal at the first General Meeting of
Shareholders convened after the dismissal.
(5) Matters concerning suspension of business imposed on the accounting auditor during thepast two years(i) Entity on which the suspension was imposed
Ernst & Young ShinNihon LLC(ii) Description of the suspension
Suspension of business related to concluding new engagement contracts: threemonths (from January 1, 2016 to March 31, 2016)
Order to improve business operations (improvement of the operation management
system)- Administrative surcharge payment order (in the amount of 2,111 million yen)(iii) Reason for the suspension- Negligence of due care in attesting to financial statements (of the Toshiba
Corporation) that contained material misstatements.
The audit firm’s procedures were found to be materially deficient.

- 24 -

6. System to ensure the appropriateness of operations(1) The corporate system to ensure that Directors, officers, and employees comply with laws
and ordinances, as well as the Articles of Incorporation, in the process of performing theirduties(i) The Company has its Representative Director and President instill in all Directors,
Audit & Supervisory Board Members, and employees, the Company’s policy that any
and all corporate activities must be based on compliance with laws and maintenance of
ethical standards (hereinafter “Compliance”) and must abide by the spirit of the
Corporate Action Charter.
(ii) The Company promotes a culture of Compliance through a compliance committee
comprised of the head or senior managers of relevant departments and chaired by thesenior manager in charge of the corporate division.
(iii) The Company has established compliance reporting hot-lines both internal to andoutside the Company, and has designated compliance liaisons to respond to requests
for consultation from employees and aim to identify and resolve any unfair acts orpractices at the earliest stage possible.
(iv) The Company has established an internal audit office as an independent organizational
unit which conducts regular audits and acts under the direct authority of theRepresentative Director and President. Through such audits, objective assessments are
made as to the effectiveness and efficiency of business, the reliability of various
financial reports, safeguarding of assets, compliance status of operations, and theappropriateness and effectiveness of corporate risk management policies, and whennecessary, the Company obtains appropriate assurances regarding the recommended
improvements to the maintenance and operation of internal controls.
(v) The Company resolutely opposes antisocial forces and organizations that present a risk
to the order or safety of society.
(2) Corporate system for maintenance and control of information regarding the performanceof duties by Directors
The head of the Legal Department of the Company is the person responsible for generalmanagement of corporate documents and to appropriately maintain and otherwise
control all important documents containing information as to the performance byDirectors of their duties in addition to legally required records of proceedings ofShareholders meetings and Board of Directors meetings, as provided in laws andordinances as well as in the Company’s own “Rules for the Management ofDocuments.”- 25 -

(3) Corporate system for control of risk of loss, including in-house rules for such control
The Company practices risk control under its basic risk control policy and related rules.
In normal circumstances, the Company’s permanent risk-management committee,
which is chaired by its Representative Director and President, monitors the conditionsof risk control and will take appropriate measures on a company-wide basis asnecessary. In emergency situations, the Company will temporarily set up aheadquarters with its Representative Director and President acting as chairman thereof,
and take necessary measures in accordance with decisions made at this temporary
headquarters.
(4) Corporate system to ensure the efficient performance of duties by Directors(i) Directors, officers, and employees perform their duties pursuant to the procedural rules
for appropriate decision-making under the “Rules for the Board of Directors” and“Rules for the Internal Approvals” and other related regulations.
(ii) The Company regularly holds Executive Management Committee meetings pursuant
to the “Rules for the Executive Management Committee” for the purpose ofcontributing to sound and appropriate decision-making by the Representative Director
and President.
(iii) The Company develops long-term business plans, and operates and expands its
business in accordance with such long-term plans. The Company also sets quantifiabletargets for each business year for inclusion in long-term plans, and evaluates businessresults and budget control based on these targets. The Company reports to the Boardof Directors monthly on the status of achieving the targets.
(5) Assistant to Audit & Supervisory Board Members
Audit & Supervisory Board Members may request that the Representative Director andPresident appoint an employee to act as an assistant to Audit & Supervisory Board
Members, and if deemed to be necessary, the Representative Director and President
shall appoint such an assistant.
(6) Independence of employees who assist the Audit & Supervisory Board Members inexecuting their duties
If any employee is given instructions by an Audit & Supervisory Board Member in theperformance of audit-related tasks, such employee shall not receive any instruction or
direction from the Director in charge, the internal audit section or any other section,
and any further instruction or direction is to be received from the Audit & Supervisory- 26 -

Board Member.
(7) Ensuring the effectiveness of the Audit & Supervisory Board Members’ instructions toemployees
Matters such as personnel evaluation and transfer and disciplinary actions concerning
the staff that assist the Audit & Supervisory Board Members shall be subject to theprior consent of the Audit & Supervisory Board.
(8) Corporate system for Directors and employees to report to the Audit & Supervisory Board;
corporate system for other reports to the Audit & Supervisory Board to ensure the efficientperformance of audits by the Audit & Supervisory Board(i) Any Director or employee shall, if and when he/she becomes aware of any fact which
threatens to cause any significant damage or could adversely affect the Company,
promptly inform the Audit & Supervisory Board.
(ii) Audit & Supervisory Board Members may attend Board of Directors meetings,
Executive Management Committee meetings, and any other important meetings for the
purpose of gaining a better understanding of the decision-making process and theconditions or status of the business.
(iii) The Audit & Supervisory Board provides an opportunity for all Directors andemployees having significant work responsibilities to consult on an individual basis.
(iv) The Audit & Supervisory Board holds meetings for the mutual exchange of views andopinions with the Representative Director and President, and independent Audit &Supervisory Board Members.
(9) Corporate system to prevent retaliation against a person who made a report to the Audit &Supervisory Board Members
The Company establishes a whistleblowing system with points of contact inside as wellas outside the Company, as part of the framework for early detection of violations oflaws or regulations, while ensuring prevention of prejudicial treatment ofwhistleblowers.
(10) Matters related to the treatment of expenses or obligations associated with the executionof duties of Audit & Supervisory Board Members, including the procedures for
prepayment or reimbursement of such expenses(i) With respect to a claim for prepayment of expenses based on Article 388 of theCompanies Act, made by an Audit & Supervisory Board Member in association withthe execution of his or her duties, the Company processes settlement of such expenses- 27 -

or obligations without delay, unless such expenses or obligations are recognized as
unnecessary for the execution of duties of such Audit & Supervisory Board Member
based on thorough review by responsible departments.
(ii) The Company authorizes expenses for seeking opinions and advice from external
experts including attorneys and certified public accountants, if it is found necessary for
the Audit & Supervisory Board Members to execute their duties.
7. Summary of the status of system to ensure the appropriateness of operations(1) The Company is striving to instill a culture of compliance across the organization throughits communications with Directors and employees, and through publication of
information such as the corporate compliance conduct policy and the whistleblowing
system manual on the Company’s intranet bulletin board.
(2) The Board of Directors of the Company is composed of six (6) Directors (including four(4) Outside Directors). Outside Directors participate in resolutions from an independent
standpoint and monitor and supervise the management. Each Audit & Supervisory Board
Member carries out management audits as well.
(3) Full-time Audit & Supervisory Board Members attend important meetings such as theBoard of Directors meetings as well as Executive Management Committee meetings, andexchange views with the Representative Director monthly.

- 28 -

Balance Sheet(As of December 31, 2017)
Item(Assets)
Current assets
Cash and deposits
Accounts receivable-trade
Merchandise and finished goods

Supplies
Prepaid expenses
Advances paid
Consumption taxes receivable

Forward exchange contracts
Other

Amount
4,036,522
2,947,059
489,874
362,514558
73,72018,76098,44015,84429,749Non-current assets

215,761

Property, plant and equipment

46,87335,52149,291(38,003)

Buildings
Tools, furniture and fixtures(Accumulated depreciation)
Construction in progress
Intangible assets

64
68,878Item(Unit: thousands of yen)Amount(Liabilities)
Current liabilities
Accounts payable-trade
Accounts payable-other
Income taxes payable
Other
Non-current liabilities
Provision for retirement benefits

Total liabilities(Net assets)
Shareholders’ equity
Common stock
Capital surplus
Legal capital surplus
Retained earnings(Accumulated deficits)
Other retained earnings

3,295
100,0080
14,209Treasury stock
Stock acquisition rights

85,799Total net assets
Total liabilities and net assets

Total assets

4,252,284(Note) Amounts less than one thousand yen have been omitted.

- 29 -(18,790,705)(18,790,705)(17)
536,772

Software in progress

Lease and guarantee deposits

2,702,629
10,761,676
10,731,676
10,731,676(18,790,705)

65,583

Shares of subsidiaries
Long-term prepaid expenses

1,012,882

Retained earnings(Accumulated deficits)
brought forward

SoftwareInvestments and other assets

1,011,490
604,382
330,867
54,813
21,4271,392
1,392

3,239,402
4,252,284

Statement of Operations
January 1, 2017
( toFrom
December 31, 2017 )(Unit: thousands of yen)
Item

AmountI. Net sales

3,444,206

II. Cost of goods sold2,412,940

Gross profit

1,031,266

III.Selling, general and administrative expenses

4,978,327

Operating loss
IV. Non-operating income
Interest income
Dividend income from insurance(3,947,061)
3,092
1,339

Other

75

V. Non-operating expenses
Commission fees
Stock issuance costs

9,090
14,477

Foreign exchange loss
Other

10,421
240

Ordinary loss
VI. Extraordinary gain
Gain on reversal of stockacquisition rights

4,506

34,229(3,976,784)

VII. Extraordinary loss
Impairment loss
Loss before income taxes
Income taxes – current
Net loss

17,414

17,414

14,692

14,692

3,800(3,974,062)
3,800(3,977,862)(Note) Amounts less than one thousand yen have been omitted.

- 30 -

Statement of Changes in Net Assets
January 1, 2017
( Fromto December 31, 2017 )(Unit: thousands of yen)
Shareholders’ equity
Retained earnings
Capital surplus (Accumulated
deficits)
Total
Treasuryshareholders’stockequityLegal capital Retained earnings
surplus(Accumulated
deficits) brought
forward
Other retained
earnings

Commonstock

Balance at the beginning of year

9,948,298

9,918,298

813,378

813,378(14,812,843)(17)

5,053,735

Changes of items during the year
Issuance of new shares (exerciseof stock acquisition rights)
Net loss
Net changes of items other thanshareholders’ equity
Total changes of items during theyear
Balance at the end of year

Balance at the beginning of year

(3,977,862)

813,378(3,977,862)–(2,351,105)

10,761,676

10,731,676(18,790,705)(17)

2,702,629

StockacquisitionrightsTotal net assets

431,135

5,484,870

Issuance of new shares (exerciseof stock acquisition rights)

1,626,756

Net loss(3,977,862)

Balance at the end of year

(3,977,862)

813,378

Changes of items during the year

Net changes of items other thanshareholders’ equity
Total changes of items during theyear

1,626,756

105,637

105,637

105,637(2,245,468)

536,772

3,239,402(Note) Amounts less than one thousand yen have been omitted.

- 31 -

Notes on Financial Statements(Significant accounting policies)(1) Valuation basis and method of assets
Marketable and investment securities
Shares of subsidiaries

Shares of subsidiaries are stated at cost determined by themoving average method.

Available-for-sale securities
Available-for-sale securities Available-for-sale securities with a determinable market
with determinable market
value are stated at fair value with any changes in
unrealized holding gain or loss, net of applicable income
valuetaxes, included directly in shareholders’ equity. Cost of
securities sold is calculated by the moving-averagemethod.
Available-for-sale securities Available-for-sale securities without determinable market
without determinablevalue are stated at cost determined by the moving-averagemethod.
market value
Derivative transactions

Derivative financial instruments are stated at fair value.

Inventories

Inventories held for the purpose of ordinary sale aremeasured at the lower of cost determined by the weighted
average method or net selling value.

(2) Depreciation of non-current assets
Property, plant and equipment Straight-line method(excluding lease assets)
The useful lives of major property, plant and equipment
are summarized as follows:
Building
3 to 18 years
Tools, furniture and fixtures
5 to 15 years
Intangible assets(excluding lease assets)

Straight-line method
Capitalized software costs are being amortized over theperiod of the internal use of 5 years.

Lease assets

Depreciation of lease assets is computed by the straightline method over the lease term with no residual value.

- 32 -

(3) Deferred assets
Stock issuance costs and bond Stock issuance costs and bond issuance costs are charged
to income when incurred.
issuance costs(4) Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated into yen at
the spot exchange rate prevailing on the balance sheet dates, and resulting gains or losses
are credited or charged to income.
(5) Basis for reserves and provisions
Allowance for doubtful
accounts

The allowance for doubtful accounts is provided at an
amount determined based on the historical experience ofbad debt with respect to ordinary receivables and an
estimate of uncollectible amounts determined by reference
to specific doubtful receivables from customers which areexperiencing financial difficulties.
For FY 2017, no allowance for doubtful accounts isprovided due to no historical experience of bad debt and noreceivable balances that are deemed uncollectible.

Provision for retirement
benefits

The provision for retirement benefits is provided at an
amount to be required as of the balance sheet date.
The Company applies the simplified method to calculate
amounts of retirement benefit obligation and retirement
benefit expenses. That is, amounts of retirement benefit
obligation are the payments required for voluntary
retirement as of each fiscal year end.

(6) Accounting for consumption taxes
Transactions are recorded at amounts exclusive of consumption taxes.

- 33 -

(Additional information)(Application of Implementation Guidance on Recoverability of Deferred tax Assets)
The Company has applied “Implemenation Guidance on Recoverability of Deferred Tax
Assets (Accounting Standards Board of Japan (ASBJ) Guidance No. 26, March 28, 2016)”
from the fiscal year ended December 31, 2017.
(Notes on balance sheet)
Monetary assets receivable from subsidiaries are as follows.
Short-term monetary assets receivable
466 thousand yen(Notes on statement of operations)R&D expenses included in general and administrative expenses

3,017,812 thousand yen(Notes on statement of changes in net assets)(1) Shares issued and outstanding / Treasury stock(Unit: number of shares)

Commonstock

At the beginning of
the year

Increase

DecreaseAt the end of
the year

Shares issued

46,530,824

7,518,400-

54,049,224

Treasury stock

75

-

-

75

(Note) The increase of 7,518,400 shares in common stock is due to exercise of stock acquisition rights.

(2) Number of shares to be issued upon exercise of stock acquisition rights issued at the end of
the current fiscal year
Common stock
10,065,175 shares(Note) Excludes stock acquisition rights for which the commencement date of the exercise period has
not yet arrived.

- 34 -

(Notes on deferred tax accounting)Significant components of deferred tax assets and liabilities
Deferred tax assets:
Excess depreciation for lump-sum depreciable assets
Excess amortization for deferred assets
Research and development expenses
Accounts payable-other
Provision for retirement benefits
Enterprise tax payable
Asset retirement obligation
Share-based compensation expense
Impairment loss
Loss carried forward
Subtotal
Valuation allowance
Total deferred tax assets- 35 -(thousands of yen)
2,125
1,080,219
735,170
1,189
426
16,329933
127,971
3,653
2,925,912
4,893,931(4,893,931)–

(Notes on financial instruments)(1) Financial instruments(i) Policies for financial instruments
The Company procures the funds necessary in light of the pipeline development plan
(primarily by third-party allotment and offering by new stock issuance). A temporary
surplus fund is invested in financial instruments which are highly safe and liquid.
As a principle, the Company does not enter into derivative transactions for speculative
trading purposes but uses them within the scope prescribed in the Company’s internal
rules.
(ii) Types of financial instruments and related risks
Operating receivables such as accounts receivable-trade and advances paid inconnection with joint development are exposed to the credit risk of customers and joint
development partners. Operating receivables denominated in foreign currencies are
exposed to foreign exchange fluctuation risk.
The Company intends to invest in marketable and investment securities which have arelatively low risk of falling below initial investments, however, such might entail a finite
risk.
Operating payables such as accounts payable-trade and accounts payable-other are
mostly due within 75 days. Operating payables denominated in foreign currencies are
exposed to foreign exchange fluctuation risk.
The Company uses derivative transactions to avoid foreign exchange fluctuation risks
and enters into forward exchange contracts within the scope prescribed in the internal rules
based on balances of receivables and payables denominated in foreign currencies as wellas the actual volume of exports and imports transactions denominated in foreign
currencies.
Lease and guarantee deposits are mostly security deposits related to leased officepremises and their refunds are subject to the credit risk of the lessor.
(iii) Risk management for financial instruments
1. Monitoring of credit risks (the risk that customers or counterparties may default on
obligations)
In accordance with the Company’s internal credit policies for managing credit risk
arising from operating receivables, the Company’s marketing department periodicallymonitors the creditworthiness of major customers and monitors due dates and- 36 -

outstanding balances by individual customers. In addition, the Company is making
efforts to promptly identify and mitigate risks of bad debts from customers who arehaving financial difficulties.
The Company enters into derivative transactions only with financial institutions
which have a sound credit profile in order to mitigate the counterparty risk.
2. Monitoring of market risk (the risk arising from fluctuations in foreign exchange rates,interest rates and others)
The Company deposits cash primarily with financial institutions with high credit
ratings.
For marketable and investment securities, the Company intends to avoid risks offalling below initial investments by investing in securities with a satisfactory credit
rating and investment period in accordance with the Company’s internal investment
policies.
The Company enters into forward exchange contracts in order to avoid foreignexchange fluctuation risks in connection with receivables and payables denominated inforeign currencies.
Followed by appropriate authorization procedures prescribed in the Company’s
internal rules, the Finance & Accounting department executes and monitors derivativetransactions. Monthly transaction performances are reported to the Executive
Management Committee.
3. Monitoring of liquidity risks (the risk that the Company may not be able to meet its
obligations on the scheduled due date)
Based on the report from each department, the responsible department of theCompany prepares and updates its cash flow plans on a timely basis and ensures tomaintain the liquidity on hand to manage liquidity risk.
(iv) Supplementary explanation of the estimated fair value of financial instruments
The fair value of financial instruments is based on their quoted market price, if
available. When there is no quoted market price available, fair value is reasonably
estimated. Since various assumptions and factors are reflected in estimating the fair value,
different assumptions and factors could result in different fair value.
(v) Concentration of credit risk
As of December 31, 2017, all operating receivables are from one particular major
customer.

- 37 -

(2) Fair value of financial instruments
The carrying value on the balance sheets, fair value and their difference as of December
31, 2017 are as follows.
(Unit: thousands of yen)
(1) Cash and deposits(2) Accounts receivable-trade(3) Advances paid
Assets, total(1) Accounts payable-trade(2) Accounts payable-other(3) Income taxes payable
Liabilities, total

Carrying value
2,947,059
489,874
18,7603,455,694

Fair value
2,947,059
489,874
18,7603,455,694

604,382
330,867
54,813990,062

604,382
330,867
54,813990,062

Difference
–
–
–
–
–
–
–
–

Derivative transactions, total (*)
15,844
15,844–(*) Net assets and liabilities arising from derivative transactions are presented on a net basis andnet liabilities are shown in parentheses.
(Note) 1. Fair value measurement of financial instruments and other matters related tosecurities and derivative transactions
Assets(1) Cash and deposits, (2) Accounts receivable-trade and (3) Advances paid
The carrying value is deemed as the fair value since these are scheduled to besettled in a short period of time.
Liabilities(1) Accounts payable-trade, (2) Accounts payable-other and (3) Income taxes
payableThe carrying value is deemed as the fair value since these are scheduled to besettled in a short period of time.

- 38 -

Derivative transactions
Forward exchange contract
The fair value of forward exchange contracts is measured based on market
quotes obtained from financial institutions.
(Note) 2. Financial instruments whose fair value is extremely difficult to determine
Lease and guarantee deposits (carrying value of 85,799 thousand yen) are notincluded in the above tables since no market quote is available and their fair value
is extremely difficult to determine.
(Note) 3. The redemption schedule for monetary assets and securities with maturities(Unit: thousands of yen)
Due after
five years
Due after
through ten
ten years
years

Due in one
year or lessDue after
one yearthrough fiveyears

2,946,982–––

Accounts receivable-trade489,874–––

Advances paid

18,760–––3,455,617–––

Deposits

Total(Notes on per-share information)(1) Net assets per share(2) Net loss per share
Average number of shares outstanding during the year

50.00 yen(79.78) yen
49,857,917 shares(Other notes)
The Company has overdraft and commitment line contracts with three banks in a business
relationship to efficiently procure working capital. The status of the bank overdraft and loan
commitments based on these contracts at the end of the current fiscal year is as follows:

Total amounts of bank overdraft limit and loan
commitment line
Balance of borrowing outstanding(Unit: thousands of yen)
1,350,000–

Unused balance

1,350,000- 39 -

(Significant subsequent events)
None to be reported.

- 40 -

Independent Auditor’s ReportFebruary 26, 2018
The Board of Directors
SymBio Pharmaceuticals Limited
Ernst & Young ShinNihon LLC

Hironao Yazaki
Certified Public Accountant
Designated and Engagement Partner

Kazuto Shiratori
Certified Public Accountant
Designated and Engagement Partner

Pursuant to Article 436, Section 2, Paragraph 1 of the Companies Act, we have audited theaccompanying financial statements, which comprise the balance sheet, the statement of income,the statement of changes in net assets, the notes to the financial statements and the related
supplementary schedules of SymBio Pharmaceuticals Limited (the “Company”) applicable to the13th fiscal year from January 1, 2017 through December 31, 2017.
Management’s Responsibility for the Financial Statements and the Related Supplementary
Schedules
Management is responsible for the preparation and fair presentation of these financial statements
and the related supplementary schedules in accordance with accounting principles generally
accepted in Japan, and for designing and operating such internal control as management
determines is necessary to enable the preparation and fair presentation of the financial statements
and the related supplementary schedules that are free from material misstatement, whether due
to fraud or error.

- 41 -

Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements and the related
supplementary schedules based on our audit. We conducted our audit in accordance with auditing
standards generally accepted in Japan. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and the related
supplementary schedules are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements and the related supplementary schedules. The procedures
selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the financial statements and the related supplementary schedules, whether due
to fraud or error. The purpose of an audit of the financial statements is not to express an opinion
on the effectiveness of the entity’s internal control, but in making these risk assessments theauditor considers internal controls relevant to the entity’s preparation and fair presentation of thefinancial statements and the related supplementary schedules in order to design audit proceduresthat are appropriate in the circumstances. An audit also includes evaluating the appropriatenessof accounting policies used and the reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the financial statements and the related
supplementary schedules.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinion.
OpinionIn our opinion, the financial statements and the related supplementary schedules referred to above
present fairly, in all material respects, the financial position and results of operations of SymBio
Pharmaceuticals Limited applicable to the 13th fiscal year ended December 31, 2017 inconformity with accounting principles generally accepted in Japan.
Conflicts of Interest
We have no interest in the Company which should be disclosed in compliance with the Certified
Public Accountants Act.

- 42 -

Report of the Audit & Supervisory Board
We, Audit & Supervisory Board Members, prepare this report of audit with regard to the
execution of Directors’ duties during the 13th Term of the Company from January 1, 2017 to
December 31, 2017, as the unanimous opinion of all the Audit & Supervisory Board Members
after careful discussion based on the audit reports prepared by respective Audit & Supervisory
Board Members, and report as follows.
1. Method and Contents of the Audit by the Audit & Supervisory Board Members and the Audit& Supervisory Board
The Audit & Supervisory Board formulated the audit policy and plan for the Term reported,
and received reports from the respective Audit & Supervisory Board Members with regard to thestate of implementation and results of audits as well as received the reporting from Directors andthe accounting auditor with regard to the state of execution of their duties, and requested
additional explanations as deemed necessary.
The respective Audit & Supervisory Board Members, in conformity with the standards foraudits by Audit & Supervisory Board Members that the Audit & Supervisory Board set forth andin accordance with the audit policy and plan for the Term, strove to collect information andimprove audit environments by communicating with Directors, the internal audit section, andother employees. We also attended Board of Directors meetings and other important meetings,
received the reporting from Directors and employees with regard to the state of execution of theirduties, requesting additional explanations as deemed necessary, reviewed documents forimportant settlements, and researched the situation of operations and assets. Moreover, withregard to the system to ensure that the execution of Directors’ duties described in the business
report was compliant with laws and ordinances and the Company’s Articles of Incorporation andother systems required to secure the appropriateness of operations as a stock company maintained
based on the contents of resolution by the Board of Directors with regard to the maintenance ofsystems stipulated by the Ordinance for Enforcement of Article 100, Paragraph 1 and 3 of theCompanies Act (hereinafter the “Internal Control System”), we received reporting on the statusof their establishment and operation from Directors and employees, requested additional
explanation as deemed necessary, and expressed our opinion. Based on the method describedabove, we reviewed the business report and supplementary documents with regard to the Term
reported.
In addition, we monitored and inspected the independent position of the accounting auditor
and the execution of appropriate audits by the accounting auditor, and also received the reportingfrom the accounting auditor with regard to the state of execution of its duties, requesting- 43 -

additional explanation as deemed necessary. Furthermore, we received the notification from theaccounting auditor that “the system to ensure that its duties are executed as appropriate (the items
listed by the respective paragraphs of Article 131 of the Ordinance on the Accounting ofCompanies)” is maintained in accordance with “the standards for quality control of audits(Business Accounting Council, October 28, 2005),” requesting additional explanation as deemednecessary. Based on the method described above, we reviewed the financial report (includingbalance sheet, statement of operations, statement of changes in net assets, and notes on nonconsolidated financial statements) and supplementary statements for the Term reported.
2. Results of audit(1)

Results of the audit of the business reporta. The business report and supplementary statements fairly present the Company’ssituation in accordance with laws and ordinances and the Company’s Articles ofIncorporation.
b. No misconduct in the execution of Directors’ duties or any material facts inviolation of laws or ordinances or the Company’s Articles of Incorporation wasobserved.
c. The contents of resolution by the Board of Directors with regard to the Internal
Control System are appropriate. Also, there is no matter to be noted as for thedescriptions in the business report regarding such Internal Control System and theexecution of Directors’ duties.

(2) Results of the audit of the financial statements and related supplementary statements
The method used to conduct and the result of the audit conducted by the accounting
auditor, Ernst & Young ShinNihon LLC, are appropriate.

February 26, 2018

- 44 -

Audit & Supervisory Board,
SymBio Pharmaceuticals Limited

Kiyoshi Watanabe, (seal)
Full-time Audit & Supervisory Board
Member (Outside)

Saneaki Ichijo, (seal)
Audit & Supervisory Board Member(Outside)

Shigetoshi Matsumoto, (seal)
Audit & Supervisory Board Member(Outside)

End of Report

End of Document- 45 -