Bringing
Bringing smiles
smilestoto everyone
everyone

28-8,
28-8,Honkomagome
Honkomagome2-chome,2-chome,Bunkyo-ku,
Bunkyo-ku,Tokyo
Tokyo
113-8650,
113-8650,Japan
Japan
Tel:
Tel:81-3-5977-5001
81-3-5977-5001
Fax:
Fax:81-3-5977-5131
81-3-5977-5131
http://www.kaken.co.jp
http://www.kaken.co.jp

AnnualAnnual Report
Report 2008
2008
Year
YearEnded
EndedMarch
March31,
31,2008
2008
PrintedPrintedininJapanJapan

Corporate Data
Business Philosophy: Three Joys
(As of March 31, 2008)

Corporate Philosophy

Directory

Bringing smiles to everyone

REGISTERED HEAD OFFICE
28-8, Honkomagome 2-chome, Bunkyo-ku,
Tokyo 113-8650, Japan
Tel: 81-3-5977-5001
conducts business by
Fax: 81-3-5977-5131
http://www.kaken.co.jp

KAKEN

By serving as many people as possible to return smiles of happinessto their faces, through supplying superior pharmaceuticals,
Kaken helps improve the quality of life for patients.

Global Business Development
Executive Director & General Manager
Masao Ishida
Creating joy as
Tel: 81-3-5977-5046
a company.
Fax: 81-3-5977-5133
E-mail: masao-ishida@kaken.co.jpWe recognize our social

To continue realizing our corporate philosophy of “bringing smiles to everyone,” it is essential that Kaken
not only responds to changes in the times but also innovates and remakes itself.
Looking to create new drugs that are competitive on the global market, we will build Kaken into a

responsibility as a pharmaceuticalcompany with a high ethicalstandard and society’s trust.

company that makes our employees proud by providing much-needed, high-quality pharmaceuticals. Kaken
strives to advance to the 21st century as a company that maintains a strong presence and fulfills its
obligations to society as a pharmaceutical company.

ProfileContents

The origin of Kaken Pharmaceutical Co., Ltd. can be traced back to the

President’s Message

02

Institute of Physical and Chemical Research (Riken), established in

Developing New Products

04

1917. The Company started pharmaceutical business with full-scale

Overview of Major Products

06

Commitment and Excellence

10

Fulfilling Our Social Responsibilities

12

Board of Directors and Corporate Auditors

14

Financial Section

15

Corporate Data

35

development of penicillin and streptomycin based on Riken’s own
technologies in 1948, and since then broadened the scope of its businessand drug development activities through merger and alliance. Kaken’s
prestige has soared accordingly.
While the Company has established strength in developing andselling pharmaceuticals for orthopedics, it is now expanding its
The Company contributes to improving people’s health by cultivating its
own original technologies, engaging in joint development initiatives,
introducing new technologies and acquiring marketing rights.
As a fruit of its technology and product introduction, theCompany has been since June 2001 marketing Fiblast Spray consisting
factor (bFGF) for the first time in the world, licensed from a US
bio-pharmaceutical company, Scios, in the area of regenerative medicine(wound healing medicine).

FoundedCreating joy for
March 1917

patients.

Incorporated
We strive to create and offer
March
1948that satisfy theeffective drugs
needs of patients and medical
professionals.

Paid-in Capital¥23,853 million

CommonStockCreating
joy for
Authorized:
360,000,000 shares
our employees.
Issued: 101,879,461 shares (As of Aug. 31, 2008)
Our objective
to become a 17,143 (As of Mar. 31, 2008)
Numberof isShareholders:company with vitality andpresence whose employees enjoy
Employees(Non-Consolidated)
and take pride in their work.

Main Branches
Sapporo Branch
Administration: 141
Sales & Marketing: 992
Sendai Branch
Production & Technology: 243
Tokyo-1 Branch
Research & Development: 280
Tokyo-2 Branch
Regulatory Affairs: 39
Nagoya Branch
Osaka-1 Branch
Osaka-2 BranchConsolidated
Financial Highlights
Hiroshima BranchMillions of yen
Fukuoka Branch
2008
2007

Thousands of
U.S. dollars (Note)2008

For the years ended March 31,

Plant
Net Shizuoka
sales
Factory

Operating income
Net Research
income Laboratories
Shizuoka Research Laboratories
Kyoto
At March
31,Research Laboratories
Production Technology Laboratories
Total net assets
TotalOverseas
assets Office:Kaken New York Office
Per share
data: Avenue, 24th Floor, New York, NY10167
245 Park
1-212-372-8910
Net Tel:income(Basic)Fax:
1-212-372-8970
Cash dividends (Non-Consolidated)
E-mail: ny@kaken.co.jp

involvement in other medical fields, such as hyperlipidemia and diabetes.

of Trafermin, a recombinant form of human basic fibroblast growth

Company Information¥79,934¥ 76,415$799,340

9,842

8,113

98,420

5,106

4,602

51,06057,44760,433

574,470

93,856

100,900

938,560

Yen

U.S. dollars (Note)¥ 48.35¥ 42.42

$

0.484

20.00

17.00

0.200

Forward-Looking Statements

Ratios:This annual report contains forward-looking statements pertaining to the Company’s

ROE

8.66

8.00

—

Capital adequacy ratio

61.21

59.89

—

business and prospects. These statements are based on current analysis of existing
information and trends. Actual results may differ from expectations due to unforeseen%risks and uncertainties.

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥100.00 = $1 effective on March 31, 2008.

35

Business Philosophy: Three Joys

Creating joy forpatients.

KAKEN

conducts business by

We strive to create and offer
effective drugs that satisfy theneeds of patients and medical
professionals.

Creating joy as
a company.

Creating joy forour employees.

We recognize our social
responsibility as a pharmaceuticalcompany with a high ethicalstandard and society’s trust.

Our objective is to become acompany with vitality andpresence whose employees enjoy
and take pride in their work.

Consolidated Financial Highlights

Thousands of
U.S. dollars (Note)

Millions of yen

2008

2007

2008

¥79,934¥ 76,415$799,340

Operating income

9,842

8,113

98,420Net income

5,106

4,602

51,060Total net assets

57,44760,433

574,470

Total assets

93,856

100,900

938,560

For the years ended March 31,

Net sales

At March 31,

Per share data:

Net income (Basic)
Cash dividends (Non-Consolidated)

Yen

U.S. dollars (Note)¥ 48.35¥ 42.42

$

0.484

20.00

17.00

0.200

%

Ratios:

ROE

8.66

8.00

—

Capital adequacy ratio

61.21

59.89

—

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥100.00 = $1 effective on March 31, 2008.

1

President’s Message

increasingly challenging business climate, as the Japanese

Overview of Results for the Fiscal Year Ended March
31, 2008

government implemented further measures to curtailThe pharmaceutical industry continued to face a challenging

medical expenses.

business climate, led by lackluster market growth, arising

In fiscal year 2007, ended March 31, 2008, Kaken faced an

Under these circumstances, as a medium-sized phar-from the expansion of facilities applying the Diagnosis

maceutical company with management that facilitates

Procedure Combination (DPC) and measures to reduce

flexible response to changes, we continued to enhance our

medical costs by promoting the use of generic drugs, andcorporate quality and strove to develop and supply effective

intensified competition between pharmaceutical companies.

pharmaceuticals. We also actively pursued the generic drug
business as one pillar of our operations.

Under these circumstances, the Group endeavored to
expand business that is closely tied to local communities

Upholding its corporate philosophy of “bringing

through activities to provide high-value-added information

smiles to everyone,” Kaken aims to be characterized by an

attuned to the needs of medical professionals in the field.

independent spirit and a strong global presence. Kaken’s

As a result of these efforts, we maintained growth incommitment to “bringing smiles to everyone” entails

sales and profits, with the steady expansion of sales of ourproviding superior pharmaceuticals that improve patients’core products, accompanied by a license agreement for basic

quality of life. We embrace strong principles and a compli-

Fibroblast Growth Factor (bFGF). Kaken paid out dividends

ance orientation, utilize management resources efficientlyof ¥20.00 per share, representing the sixth consecutive year

and maximize corporate value to earn the trust of all ourof dividend increases. We also raised capital during the year

stakeholders.

through the conversion of convertible bonds.

Addressing Future Challenges for Continued Growth
Ongoing government initiatives to curb healthcare spending
are raising the level of competition within the pharmaceuticalindustry. Under these circumstances, we aim to maximize
corporate value by steadily raising awareness and implementing
operational reforms, as well as maintaining our status as atrusted company in the eyes of society through a strong
commitment to compliance. Our five key reforms are outlined below.

Focus investments on research and development
Targeting specific research areas, we are working to expand
our product range by accelerating research and development.
At the same time, we will continue to actively pursue strategic alliances with domestic and overseas companies andresearch institutions, and introduce new research programs.
To speed up research and development, we will
outsource basic research procedures, make use of contract
research organizations (CROs) and conduct overseas
clinical trials.
With bFGF research as a core, we are making extensive2

efforts to develop new pharmaceuticals that follow up on
Fiblast Spray, a wound healing agent.

Basic Policy and Approach concerning Return toShareholders
Kaken considers long-term, comprehensive profit increases

Strengthen our sales force

for its shareholders an important management goal. Operat-

Our sales staff works closely with local communities to

ing in the pharmaceutical industry entails large risks, requir-

provide high-value-added information to meet the needs ofing us to have a higher level of equity capital than companies

medical professionals in the field. We will expand our market

in other industries. We employ a flexible dividend policy

share to ensure our strong position in the field of orthoped-that sets cash dividends based on performance while main-ics. We are also actively pursuing the generic drug business as

taining a balance between returns to shareholders andone pillar of our operations.

strengthening equity capital.
Dividends per share of common stock applicable to theEstablish an internal control system and carefully manage risk

fiscal year under review consisted of a ¥10.00 interim divi-

We will reinforce our internal control system to bolster

dend and a ¥10.00 year-end dividend, resulting in total

operating effectiveness and efficiency, reliability of financial

dividends for the year of ¥20.00 per share. This amount isreporting, compliance, and security of assets, and to ensure¥3.00 higher than for the preceding fiscal year, making fiscalthat we attain our management goals. We have established ayear 2007 our sixth consecutive year of dividend increases.

committee and are steadily introducing the improvements

Kaken also implements a flexible system of acquisition

needed to respond to the Standard for Assessment and Auditof treasury stock through resolutions by the Board of Direc-

of Internal Controls over Financial Reporting (J-SOX).

tors to facilitate returns to shareholders and respond tochanges in the business environment. During the year, Kaken

Optimize and streamline operations
On the production side, we will make further reassessments

acquired ¥5,787 million in treasury stock on this basis.
Retained earnings are appropriated to optimize corpo-of procedures, products and standards as we strive to lower

rate value through targeted investment in research andmanufacturing costs. In the field of agrochemicals, we aredevelopment and in improvements to business infrastructure.

expanding consigned production to overseas companies andover, we are outsourcing overall distribution functions andTarget Management Indicators and Long-TermBusiness Strategy

we will continue to promote cost reductions.

Kaken’s new medium to long-term numerical targets for

we remain committed to obtaining FDA certification. More-future growth comprise consolidated operating income of

Promote environmental protection¥15 billion and return on equity (ROE) of 10% or more. In

Kaken’s Shizuoka production and R&D facilities havethe future, we will endeavor to optimize the value of eachobtained ISO 14001 certification, and our Kyoto researchdivision and establish a base that ensures our survival as alaboratories have been awarded the Kyoto Environmental

business that maintains a strong presence in the 21st century.

System certification by the city of Kyoto in recognition of
their environmental management systems. We recognize

June 2008

environmental protection as a social responsibility, and to
this end we are aggressively promoting activities at all levelsof our organization. For example, we have established an
Environment Committee and set up Environment Task
Forces at each worksite. These activities are summarized in

Shiro Inui

our Social and Environmental Report on the Kaken website.

President

3Kaken’s Innovative Product for Regeneration
Fiblast Spray—the world’s first regenerative medicine—is the commercialized product of ahuman recombinant protein basic Fibroblast Growth Factor (bFGF). A member of the FGF
family, bFGF exists endogenously in almost all tissues. bFGF, which binds to the extracellularmatrix, is released from the matrix once cells or tissues are damaged, such as by trauma or
ischemia, after which bFGF acts on a variety of cells and tissues to promote repair. As the
drug’s actions are broad-ranging, it is characterized by its powerful ability to stimulate not only
the proliferation of numerous cell types, but also the formation of new blood vessels.
After obtaining exclusive licensing rights in Asia in 1988 from Scios Inc. of the United States, Kaken made continued R&D efforts toward approval of the drug for the treatment of bedsores and other skin ulcers (burns and leg ulcers), releasing the product onto
the market for the first time as Fiblast Spray in June 2001. After more than seven years on
the market as a wound healing agent, the drug has a solid reputation in numerous hospitals
and clinics in Japan.
bFGF has also been found to promote the proliferation and regeneration of periodontal

SPECIALFEATUREDe velo ping
Ne w Pr o ducts
and bone tissues, in addition to skin tissue. Its effectiveness has been proven in the regenerationof alveolar bone, as well as to the regeneration of periodontal ligament and cementum.
We have completed two Phase II clinical trials in periodontitis patients to confirm the dosedependent effects on the regeneration of destroyed alveolar bone, and also to identify the
optimal dose for Phase III. Currently, we are conducting Phase III trial as a confirmatory study,
aiming to apply for NDA in 2010. We are conducting basic research with the prospect of
expansion into areas of dentistry beyond periodontitis, including implant applications.
For bone tissue, bFGF has demonstrated the ability to promote the healing of fractures byenhancing bone metabolism through both the direct proliferative effect on osteoblasts and theindirect accelerative effect on osteoclasts. We are currently conducting Phase II clinical trials forbone fractures, aiming to apply for NDA in 2013.
In addition to the areas in which we are conducting clinical trials, we are also currently
collaborating with universities and other research organizations in Japan in broad-ranging areas
to expand the possibilities of bFGF-based regenerative medicines.
In March 2005, we obtained worldwide rights to develop, manufacture and market bFGF.

4

New Drug Development Pipeline
Product

IndicationStage

LaunchRemarks

Preparing for PIII

2011

bFGF
PIII clinical trials scheduled to commence in June 2008

1 KCB-1D

Periodontitis

2 KN-48

Postherpetic neuralgia

PII

2012

Additional PII in progress
Key opening (after double blind test) scheduled for August
2008

3 KCB-1B

Intractable bone fractures

PII

2014

bFGF

4 KP-102LN

Short stature

PII

2014

For growth hormone deficiency(intermediate and higher)

5 KP-496NS

Allergic Rhinitis

PI

2014

6 KP-103

Onychomycosis (topical)

Pre-clinicalLicensed to Dow Pharmaceutical Sciences Inc.;PII in U.S.A.

7 KP-413

Atopic dermatitis

Pre-clinicalPreparing for overseas trials

8 SPK-843

Systemic mycosis

Development
discontinued

Introduced by Aparts B.V.;
currently examining our strategy

Diabetic ulcers

Development
abandoned

KCB-1(Fiblast Spray)That same year in December, we concluded a license agreement with a Chinese pharmaceuticalcompany for the development and marketing of Fiblast Spray. In June 2007, we concluded alicense agreement with Sunstar Inc. involving the development and marketing in Europe andNorth America in the dental area.
Utilizing the technologies and know-how accumulated through our research and development efforts toward bFGF, we continue to collaborate with our overseas partners to expand our
global activities.

New Measures—Anti-human Anti-Alpha-9 Integrin Antibody
Kaken has concluded a licensing agreement with Gene-Techno Science Co., Ltd. (GTS), which grants exclusive
worldwide rights to Kaken for the development, manufacturing and marketing of anti-alpha-9 integrin antibody.
Integrins are known to be involved in autoimmune diseases, bone diseases and cancer metastasis. The
anti-human anti-alpha-9 antibody is capable of suppressing alpha-9 integrin functions, as anticipated by clinicaltherapeutics. Kaken and GTS are progressing with a joint research and development program toward the clinical trialof this antibody.

5Overview of Major Products

6Artz (sodium hyaluronate)
Artz is an anti-osteoarthritis with highly purified sodium hyaluronate

Pharmaceuticals
and Medical
Devicesas the active ingredient. Hyaluronic acid is extracted from rooster
combs and has viscoelastic, waterretentive and lubricating properties.
In 1987, Artz was released for the first time, indicated forosteoarthritis of the knee as a form of hyaluronic acid injectable
into the joint, obtaining additional approval for the treatment ofshoulder periarthritis in 1989.

Artz (Sodium hyaluronate)

In 1992, Artz Dispo—a packaging of the drug with a disposable syringe—was released with theaim of making injection procedures simpler and faster, as well as reducing the danger of infections.
In 2005, the drug was approved for the treatment of knee joint pain accompanying chronicrheumatoid arthritis.
Procylin (oral prostaglandin I2 analog)
Procylin is a prostaglandin I2 analog, beraprost sodium, as its active ingredient, which dilates bloodvessels and inhibits platelet aggregation, serving as a treatment for chronic artery occlusive disease.
This drug was created by Toray Industries, Inc. and commercialized through joint clinical development with Kaken. It is the only oral prostaglandin I2 analog formulation in the world.
Procylin is a superior circulation enhancer with its ability to inhibit platelet aggregation andincrease peripheral blood flow. The drug was launched in 1992 for its effectiveness in treating ulcers,

Procylin(oral prostaglandin I2 analog)

pain and chills resulting from such conditions as arteriosclerosis obliterans (ASO) and thromboangitis
obliterans (TAO). In 1999 Procylin received additional approval for primary pulmonary hypertension.
Adofeed (pain- and inflammation-relieving plaster)
Adofeed is an antiphlogistic analgetic plaster containing Flurbiprofen as its active ingredient, which
is a non-steroidal anti-inflammatory drug that acts as a powerful prostaglandin biosynthesis inhibitor. Absorbed directly through the skin, Adofeed has proven effective in reducing pain and inflammation associated with osteoarthritis, shoulder periarthritis, tennis elbow, muscle pain and otherinflammatory diseases.
Mentax (anti-trichophyton agent)
Mentax is a topical treatment for superficial mycosis with butenafin hydrochloride—created by
Kaken—as its main ingredient. Mentax is marketed worldwide, including in the United States

Adofeed(pain- and inflammation-relieving plaster)through Mylan Pharmaceuticals. In December 2001, Mentax was approved as an over-the-counter(OTC) drug in the United States and is now marketed under the trade name Lotrimin Ultrathrough Schering-Plough Corporation.
In 2003, Mentax was approved for manufacture and sale as an OTC drug in Japan, and iscurrently being marketed as an OTC drug by Takeda Pharmaceutical Company Limited and Sato
Pharmaceutical Co., Ltd.
In 2004, we launched a new spray formulation of Mentax.
Lipidil (anti-hyperlipidemia)This new micronized formulation of the active ingredient Fenofibrate in the drug Lipantil—released
in 1999—is a fibrate type of lipid-lowering agent with increased absorbability.
Fenofibrate is a fibrate compound developed by Fournier Pharma (now Solvay S.A.) in France.

Mentax(anti-trichophyton agent)

7

The drug improves overall lipid metabolism by activating peroxisome proliferatoractivated receptora (PPARa) in liver cells and lowering triglycerides and cholesterol while increasing HDL-cholesterolby adjusting the expression of a variety of proteins involved in lipid metabolism.
Lipidil is sold in over 90 countries and has accumulated extensive clinical experience.
Lipidil (anti-hyperlipidemia)

Seprafilm (synthetic-absorbent anti-adhesive barrier)Seprafilm is a sheet-type, synthetic-absorbent and anti-adhesive medical device developed by Genzyme Corp. in the United States, consisting of sodium hyaluronate and Carboxymethylcellulose.
Within 24 to 48 hours after applying Seprafilm to tissues damaged by surgery, the product becomesa hydrated gel and remains in place for approximately seven days, acting as an effective anti-adhesiveby creating a physical barrier between damaged tissue and the surrounding normal tissue.
Fiblast Spray (wound healing agent)
Consisting of Trafermin, a recombinant form of human basic Fibroblast Growth Factor (bFGF),
Fiblast Spray is a wound healing promotor having effects of angiogenesis and granulation formation.
Scios Inc. paved the way for the development of recombinant bFGF by mapping the complete

Seprafilm(synthetic-absorbent anti-adhesive barrier)DNA sequence of the human bFGF gene. Kaken then took over development of the drug, releasing
Fiblast Spray as the world’s first human bFGF agent in 2001.
Ebrantil (treatment for dysuria and the-selective hypertension)

1

Ebrantil is a sustained-release formulation of the-selective blocker, Urapidil.

1

In Japan, the drug was first marketed in 1989 as a treatment drug for hypertension, based on
its peripheral vasodilating effect. In 1995 the treatment was approved for difficulty in urination
caused by benign prostatic hyperplasia, and in 1999 it was approved as the world’s first-blocker1

for the treatment of dysuria caused by neurogenic bladder.
Cytotec (NSAID-induced ulcer preventive drug)
Fiblast Spray(wound healing agent)This drug is excellent at treating gastric and duodenal ulcers brought on by the administration of
NSAIDs. The active ingredient, prostaglandin E1-analog Misoprostol, developed by G.D. Searle(now Pfizer, Inc.), both inhibits the secretion of gastric juices and exerts a mucosal protective effect(site protection).
In the Guidelines for the Examination of Gastric Ulcers and Guidelines for the Treatment ofRheumatoid Arthritis in Japan, Cytotec is recommended as a drug backed by clinical evidence forthe prevention and treatment of NSAID-induced ulcers.
Generic Drugs
In Japan, government authorities are currently urging the use of generics as part of a movement to
reduce medical costs. We are also seeing an increase in frequency of generic drug use in actual
medical practice.
As the generic drug market grows, Kaken is making aggressive forays into generics to seize thisbusiness opportunity.
In addition to pharmaceuticals, medical devices, agrochemicals and animal health products, andreal estate, we intend to build generics into the fifth pillar of our operations with a medium-term goalof ¥10 billion in sales. We will continue to expand our product line to achieve this objective.

8Berasus (oral prostaglandin I2 analog sustained-release formulation)
In October 2007, Kaken gained manufacturing and sales authorization for Berasus, and launched
the drug on the market the same year in December
Berasus is a sustained-release formulation of beraprost sodium, a primary component of procylin, which was launched in 1992. Compared with procylin, it can be used as a treatment for pulmonary arterial hypertension (PAH) but with more stable blood concentrations and with the possibilities of reduced number of administrations and higher single doses.
To date, there have been few effective drugs to combat PAH and Berasus is anticipated as ahigh-potential possible alternative.

Berasas(Oral Prostaglandin I2 analog
Sustained-Release Formulation)

Polyoxins (fungicides)
Two different technical grade active ingredients (TGAIs), Polyoxin AL
and Polyoxin Z, are produced by fermentation using a microorganism

Agrochemicals

isolated from a soil of Mt. Aso in Japan. Formulations of WP, SG and
WG are registered in various countries and used widely to control
fungal diseases on fruit trees, vegetable, flowers, turf and ornamentals.
As natural source fungicides, they are known to be highly safe forhumans, animals, plants and the environment

Pentoxazone (rice herbicide)
Pentoxazone is known as a Protox inhibitor and used to control annual broad leaves, barnyard grass
and monocholia in paddy fields with a long-lasting effect. GR, SC, TB and EW formulations ofpentoxazone alone or in combination with sulfonylurea and other herbicidal compounds are available and can be applied before, during and after transplantation of rice seedlings due to their highcrop safety.
Salinomycin (ionophore anti-coccidial for chicken)
Salinomycin was discovered and developed by Kaken and registered

Animal Health
Products

first in Japan in 1978. Through successful marketing and licensing,salinomycin is now the best-selling anti-coccidial feed additive in theworld and is instrumental in economically producing millions of tonsof healthy chicken meat. Kaken produces salinomycin under GMP andsupplies worldwide technical grade material and formulated products
directly and through distributors.

Colistin sulfate (polypeptide antibiotic)
Colistin sulfate is used as a veterinary medicine or feed additive to control diseases caused by gramnegative bacteria in poultry, swine, cattle and other animals. This antibiotic has been used worldwide for a long period of time because of its excellent safety and efficacy. Kaken produces the EP5
grade material under GMP, and its Drug Master File (DMF) is available if required.

9Commitment and Excellence

R&D Divisionseeks out and evaluates pharmacological activities ofKaken’s drug discovery research focuses on such areas ofcandidate compounds. The Pharmacology Laboratory verifies

strength as inflammation, immunity and allergies, inthe utility of candidate compounds created throughaddition to its core competence of fungal infection disease.

discovery research and compares them alongside other drugs.

We invest substantial financial and human resources into

The Pharmacokinetics and Safety Research Laboratory

such research activities with the aim of developing new drugs

verifies the safety of candidate compounds on animals andthat are both effective and safe. To create new drugs that canhumans and assesses their ADME in vivo. The Drugcompete in the world market, we maintain an active program

Formulation Laboratory investigates the physical andof drug discovery research, spearheaded by outstanding

chemical properties of the drug compound and creates a

research professionals and techniques refined over many years

production plan to ensure maximum safety and effectivenessof experience in pharmaceutical development.

in the resulting drug’s action on the target disease.

At present, we have a total of around 300 researchers.

As a result of our research activities, in 2001 Kaken’s

During the year under review, research and development

scientists received the 23rd Young Investigator Award fromexpenses amounted to ¥6.8 billion. To expedite our R&D

the American Society for Bone and Mineral Research

activities, we are actively pursuing strategic alliances with(ASBMR)— the most prestigious organization in the field—

companies and research institutes both in Japan and overseas,in recognition of our research in osteoporosis. In 2003,

including for offshore clinical development, as well as

Kaken’s scientists received the Prize for the Most

outsourcing some of our operations.

Outstanding Pharmacy Thesis from Academy ofKaken is fully committed to R&D activities that

Pharmaceutical Science and Technology, Japan in the field

generate innovative proprietary products, which will enableof oral solid formulation design, underscoring our high level

the Company to build a unique position as a pharmaceuticalof basic technology. We are leveraging such research

manufacturer. To enable efficient R&D activities, we adopt atechnologies to accelerate and expand our R&D efforts.

multifaceted approach that includes pinpointing specificresearch programs, in-house development, joint

Gene Techno Science Co., Ltd. (GTS), a venture company

development, licensing and outsourcing.

of Hokkaido University, which grants exclusive worldwide

Our Drug Discovery Research Laboratories are locatedrights to Kaken for development, manufacturing andin Kyoto, the ancient capital of Japan, and our Development

marketing of the anti-alpha-9 integrin antibody. ThroughResearch Laboratories are in Shizuoka. We divide duties andsuch initiatives, we are pressing forward with theemploy cutting-edge research equipment and techniques todevelopment of antibody drugs.

aid drug discovery and investigation, which require long and

Furthermore, to expedite discovery research in genomic

arduous research and unrivalled expertise. At our Kyoto

drug discovery and other areas, we will continue focusing onlaboratory, we carry out discovery research, synthetic studies

our specialist areas and actively pursue alliances with researchand pharmacological studies, while at our Shizuoka

institutions in Japan and overseas. We will also introduce

laboratory we conduct studies on pharmacokinetics, drug

and license new technologies on a global basis, seeking out

safety and formulation.

new technologies and their seeds on a worldwide scale. As a

We advance R&D efforts through cooperation and

10

During 2007, we concluded a licensing agreement withpart of our efforts to continue carrying out top-class research,coordination among five research sections. The Chemistry

we have set up a Scientific Advisory Board comprised ofLaboratory handles synthesis of the compounds that are therespected researchers in Japan who periodically discuss andseeds of new drugs. The Drug Discovery Research Laboratory

advise on Kaken’s drug discovery programs.

In our R&D division, clinical trials are studies in which

The Regulatory Affairs Department supervises anddrug candidates that have passed the non-clinical trials are

assists with general aspects of production and marketing.

actually administered to humans. The Clinical Development

Separate from these matters, the department is also involved

Department verifies the efficacy of candidate compounds

in drug R&D affairs. It compiles basic and clinical data

coming out of discovery research or from elsewhere andproduced in the R&D Division, obtaining drug approvals asplans and performs clinical trials on those compounds. The

well as registration in the drug price standards after approval.

Administration Department of Clinical Development
oversees clinical trial quality and reliability and manages

Production Divisionsafety information for investigational drugs. These

Our production facilities in Shizuoka Prefecture were among

departments coordinate with the research laboratories tothe first in the industry to incorporate factory automation

ensure speedy completion of clinical trials.

systems. They comply with Japanese GMP, which stipulates
requirements for drug manufacturing and quality control. In

Regulatory Affairs Division

addition to satisfying these requirements, the quality of

Kaken’s Regulatory Affairs Division consists of three

products for export clears current Good Manufacturing

departments—the Quality Assurance Department, thePractice (cGMP) regulations in the United States, which

Pharmacovigilance Department and the Regulatory Affairs

were formulated the Food and Drug Administration (FDA).

Department.
The Regulatory Affairs Division shoulders Kaken’s

We have also set up Production Technology
Laboratories within the

responsibility as a pharmaceutical manufacturer andfacilities, aiming tomarketer, making the final judgments on quality,

enhance product quality

effectiveness and safety in providing Kaken’s drugs toand research

medical professionals in the field.

pharmaceutically useful

The Quality Assurance Department assesses whether

innovations.

each drug is produced according to those judgments every
time and whether the quality test results comply with

Marketing and Sales Division

standards. The Pharmacovigilance Department thenKaken’s medical representatives (MRs) provide professionals

evaluates the safety information collected so far from medicalon the medical front line with up-to-date information on theinstitutions pertaining to the drug in question, after which

Company’s drugs and medical devices. Our MRs also talkthe Regulatory Affairs Division judgments arewith healthcare professionals to gather medical information

comprehensively carried out.

related to the safety and effectiveness of our drugs and

The Quality Assurance Department therefore works tomaintain quality by regularly inspecting internal and external

provide feedback to the relevant departments.
We have established nine branches and 66 sub-branches

plants and collecting and examining information on quality.

so that our 700 MRs can work closely with local

Meanwhile, the Pharmacovigilance Department reports thecommunities, particularly in our specialist fields ofassessed safety information to the required entities andorthopedics and dermatology.

distributes information to medical institutions on theappropriate use of pharmaceuticals to enhance theirDistribution Divisioneffectiveness, such as by incorporating this information in

We outsource all distribution functions to distributors

the drug documentation.

specialized in handling pharmaceuticals.

11

Fulfilling our Social Responsibilities

Corporate Governancethe control and auditing functions is an important element

Kaken recognizes that corporate governance is one of theof corporate governance, we believe our Board of Directors,

most important issues facing management with regard tocorporate auditor system and operating officer system—

continually enhancing corporate value. Through the imple-

under the current management format for now— are criticalmentation of appropriate systems, we have steadily raised theto the functional operation of the Company.

transparency of management, clarifying the separation ofmanagement’s supervisory and business execution functions.

Our Initiatives

In addition, we are fulfilling our obligation to provide stake-

Kaken is aware that compliance is pivotal to earning the trust

holders with appropriate information.

of society. To this end, we have established activity principles

We have introduced an operating officer system toand guidelines and adhere to high ethical standards in all ofexpedite decision-making and clarify supervisory and busi-

our business activities. The Company’s businesses are directly

ness execution functions.

concerned with people’s health and lives. In carrying out theseimportant activities, each executive and employee maintains a

Between the “company with corporate auditors” and“company with committees” formats for Kaken’s manage-strong daily commitment to these activity principles andment, we have chosen our existing format of “company withguidelines.

corporate auditors.” While we fully recognize that reinforcing

Moreover, we maintain and operate a basic policy on

Corporate Governance System
General Meeting of Stockholders

Board of Corporate Auditors

Board of Directors

Accounting Auditor

PresidentInternal Auditing Office

Managing Directors Meeting
Executive Directors

Operating Officers, Companywide Departments, Group Companies

12internal control systems, pursuant to the Company Law, based

Environmental Protection Activities

on a resolution of the Board of Directors on May 12, 2006.

Our corporate philosophy is that “By serving as many people
as possible to return smiles of happiness to their faces,

Compliancethrough supplying superior pharmaceuticals, Kaken helps

Kaken recognizes compliance-based management as the mostimprove the quality of life for patients.” Based on this credo,

fundamental element in gaining society’s trust and achieving

we are contributing to the health and lives of people throughhealthy development. We further believe that this will enable

our pharmaceutical operations.

the Company to raise its corporate value for the benefit of

The importance of environmental conservation has

our shareholders, investors, business partners and the local

grown over recent years. Recognizing that environmental

community.

protection and improvement are pressing issues for corporations, too, we are striving to fulfill our corporate philosophy

Kaken’s Activity Principles

through environmental preservation—to realize a society fullEvery executive and employee of Kaken and its subsidiaries isof healthy, smiling faces—and to promote social contribu-

strongly committed to compliance in operations with respecttion activities as a good corporate citizen.

to observing Japanese and foreign laws and regulations,

Kaken launched its environmental campaign in 1983,

respecting different cultures and customs and adopting highwith the objectives of maintaining and preserving people’s

ethical standards.

health and living conditions and responding to general

1. We recognize the preciousness of life and shall contributepollution issues, through the establishment of Environmental

to the welfare of society by channeling all our efforts into

Measure Committees and startup of activities at each opera-enhancing people’s health and patients’ quality of life.

tional site. In 2000, we established an Environmental Com-

2. We recognize the importance of maintaining appropriate

mittee to deliberate and enact Companywide environmental

relations with all our stakeholders, including shareholders,

policies. We also established environmental management

investors, employees, business partners and local com-

regulations to ensure that corporate activities are considerate

munities.

of global environmental preservation and the safety of people

3. We shall compete in a fair and free manner, conducting
our business activities in a just and proper way.
4. We shall handle all the Company’s assets, including
information, in a legitimate and proper manner to facilitate the smooth running of its operations.

and contribute to the realization of a prosperous society.
Further, in 2004, we formulated basic principles and basic
policies related to environmental issues.
Thereafter, we have fortified our environmental management activities, with our Shizuoka production and R&D

5. We shall respect the human rights and individuality offacilities obtaining ISO14001 certification in August 2001

employees, pay attention to health and safety issues andand our Kyoto research laboratories being awarded Kyoto

work hard to foster a fair and honest workplace culture.

Environmental System (KES) certification in April 2005.

6. We shall manage Company information appropriately andIn the future, our Shizuoka and Kyoto facilities will

disclose information in a timely and appropriate manner.

continue to promote waste reduction, control of chemical

7. We shall take seriously the impact of our activities on thesubstances and energy-saving activities. All of our worksites,

global environment and contribute to society as a goodspanning the Company’s headquarters and branches, will

corporate citizen, including through environmental

actively promote environmental management and social-protection efforts.

contribution activities to expand and strengthen our fight

8. We shall not tolerate terrorism and other anti-social
behavior.

against environmental problems. Further, we are striving to
reduce the environmental burden of our business activities
on the environment.

13

Board of Directors and Corporate Auditors(Standing, from left) Susumu Kojima, Masao Ishida, Takao Endo
(Seated, from left) Tetsuo Onuma, Shuji Komoto, Shiro Inui, Takeshi Hirahara, Motoyuki Yajima

President and Representative Director

Executive Director

AuditorShiro Inui

Masao Ishida

Takeji Saito(Global Business Development)(Standing)Takeshi Hirahara

Executive Director

Auditor(Administration)

Takao Endo

Fumio Hoshii(General Affairs)(Standing)Shuji Komoto

Executive Director

Auditor

(Accounting, Purchasing and

Susumu Kojima

Sumio Yoshizawa

Agrochemicals)(Research and Development)

Executive Managing Director

Executive Managing Director

AuditorExecutive Managing Director
Motoyuki Yajima, Ph.D.
(Research and Development)
Executive Managing Director
Tetsuo Onuma(Marketing and Sales)

14

Keizo NemotoFinancial Section
Consolidated Five-Year Summary

16Management Discussion and Analysis

16

Consolidated Balance Sheets

18

Consolidated Statements of Income

20

Consolidated Statements of Changes in Net Assets

21

Consolidated Statements of Cash Flows23

Notes to the Consolidated Financial Statements

24

Report of Independent Auditors

34

15

Consolidated Five-Year Summary
Thousands of
U.S. dollars(Note)

Millions of yen

2008

2007

2006

2005

2004

2008

¥79,934
9,842
5,106

¥76,415
8,113
4,602

¥75,540
8,359
3,886

¥74,922
7,897
3,417

¥72,706
7,525
3,017

$799,340
98,42051,06057,44793,85660,433
100,900

54,637
98,73945,490108,547

43,132
105,612574,470
938,560

For the years ended March 31:

Net sales
Operating income
Net income
At March 31:

Total net assets
Total assets
Per share data:

Net income (Basic)
Cash dividends (Non-Consolidated)

48.35
20.00

42.42
17.00

Ratios:ROE
Capital adequacy ratio

U.S. dollars(Note)

Yen¥40.2315.00¥36.5412.00¥31.87
10.00

7.71
41.91

7.19
40.84

$0.484
0.200

(%)

8.66
61.21

8.00
59.89

7.76
55.33

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥100.00= $1 effective on March 31, 2008.

Management Discussion and Analysis
Business Climate
Competition among pharmaceutical companies stiffened andthe business climate remained challenging amid slower market
growth. More medical facilities adopted the diagnosis procedure
combination (DPC) payment system for medical treatment,
efforts mounted to encourage use of generic drugs and othergovernment-induced measures to limit medical costs took hold.
Under these circumstances, the Group strove to promotesales activities closely tied to local communities by providing
high-value-added information that meets the needs of medical
professionals in the field.

Performance
Consolidated net sales for the year under review amounted to¥79,934 million, up 4.6% from the preceding fiscal year. Operating income jumped 21.3%, to ¥9,842 million, as selling, generaland administrative expenses declined, despite an increase in R&D
expenses of ¥274 million. Net income climbed 10.9%, to ¥5,106
million, despite a ¥896 million loss on disposal of inventories.

16

Segment Information
Pharmaceuticals
Our pharmaceuticals segment consists of two core categories:
pharmaceuticals and medical devices, and agrochemicals.
In pharmaceuticals, sales of Artz—an anti-osteoarthritic
and one of our mainstay products—grew with the expanding
market, and sales of the anti-adhesive absorbent barrier Seprafilm expanded favorably. Sales rose for our wound healing agent
Fiblast Spray, the anti-hyperlipidemia treatment Lipidil andgeneric drugs. However, sales of Procylin—a treatment forchronic artery occlusive disease—fell, as did sales of thepain- and inflammation-relieving plaster Adofeed andrelated products.
In the agrochemicals category, the Company faced difficult
business conditions brought on by restrictions on the use of
agricultural chemicals. In this environment, sales of Polyoxin
fungicides—used to control fungal diseases on fruit trees,
vegetables and lawns—and the rice herbicide Pentoxazone
increased, while sales of the feed additive Salinomycin decreased.

The Company received additional income from an initial
payment on a license agreement relating to basic Fibroblast
Growth Factor (bFGF).
As a result, net sales rose 4.7% year-on-year, to ¥77,547
million, and operating income surged 23.9%, to ¥8,457 million. Net sales overseas reached ¥3,642 million.

Real Estate
Rental income from Bunkyo Green Court represents the bulk ofrevenues from our real estate business. During the period underreview, this income remained at virtually the same level as in theprevious year.
Consequently, sales in the real estate segment rose 1.1%, to¥2,386 million, and operating income increased 7.6%, to¥1,385 million.

Financial Position
Total assets at fiscal year-end stood at ¥93,856 million, down
¥7,043 million from a year earlier. This decline is mainly the
result of a decrease in notes and accounts receivable–trade.
Total liabilities amounted to ¥36,408 million, down ¥4,058
million, primarily as a result of the conversion of bonds anda decrease in notes and accounts payable–trade. Net assets
totaled ¥57,447 million, a decrease of ¥2,985 million, due
mainly to the acquisition of treasury stock.

Cash Flows
Cash and cash equivalents at the end of fiscal year 2007 stoodat ¥12,386 million, up ¥472 million from a year earlier.
Net cash provided by operating activities amounted to¥10,014 million, down ¥1,918 million. Contributing factors
included an increase in income taxes paid, despite an increase
in income before income taxes and a reduction in notes andaccounts receivable–trade.
Net cash used in investing activities totaled ¥1,726
million. The principal use of cash was for the acquisition ofproperty, plant and equipment.
Net cash used in financing activities was ¥7,815 million.
This was the result of cash dividends paid and the acquisitionof treasury stock.

(2) Risks related to occurrence of side effects
Clinical trials undertaken in the development stage involve
the trial administration of drugs to a restricted number ofpatients. Consequently, once a drug is launched into themarket we conduct post-marketing surveillance to supplement clinical trials. In the event a new side effect is discovered at this stage, sales of the drug could be halted.
(3) Risks related to policies to curtail medical expenses
As government initiatives to curtail medical expenses, such
medical system reforms as the establishment of a medicalcare system for elderly patients and changes in prescription
forms are under consideration. Such changes in the market
environment could affect the Company’s performance.
(4) Risks due to competition
Sales competition with other pharmaceutical companies may
result in a drop in prices. In addition, the emergence ofgeneric products upon the expiration of a patent causes a
decline in sales of the original product, which could affect
the Company’s performance.
(5) Risks related to delay or cessation of production
Production may be delayed or halted as a result of various
factors, such as problems with manufacturing facilities ordelays in the procurement of raw materials. These factors
could affect the Company’s performance.
(6) Risks related to legal action
We are exposed to the possibility of legal action in the courseof our business activities. Such actions could affect theCompany’s performance.

Risk Factors
The factors outlined in the list below may materially affect investors’decisions relating to the Company’s business activities. It should
be noted that not all risks are included in the list.
(1) Risks related to new drug development
Substantial investment and development periods are required before a new drug is released onto the market. Whileundertaking development with due regard to verifying theefficacy and safety of a particular drug, development could
be halted midway.

17

Consolidated Balance Sheets
As of March 31, 2008 and 2007
Thousands of
U.S. dollars(Note 4)

Millions of yen

ASSETS
Current Assets:
Cash on hand and at banks (Note 5)

2008

2008

2007

¥ 8,288 ¥ 10,915$ 82,880

4,097

999

40,97028,04334,629280,430

971

1,005

9,710

29,01435,635

290,140

(6)

(8)

(60)

29,00735,627290,070

Inventories (Note 7)

9,938

9,126

99,380

Deferred tax assets (Note 14)

1,192

1,133

11,920

678

799

6,780

53,20358,600532,030

Buildings and structures

35,54334,989355,430

Machinery and equipment

18,851

18,219188,51054,39553,208543,950(33,150)(31,822)(331,500)

21,244

21,385

212,440

3,362

3,437

33,620

543

415

5,430

25,151

25,237

251,510

7,733

10,391

77,330

792

795

7,920

Deferred tax assets (Note 14)

4,221

3,413

42,210

Other assets

2,755

2,461

27,55015,502

17,061

155,020¥93,856 ¥100,900$938,560

Marketable securities (Notes 5 and 6)
Receivables:
Notes and accounts receivable–trade
Accounts receivable–otherLess: Allowance for doubtful receivables

Other current assets
Total current assets
Property, Plant and Equipment (Note 8):

Less: Accumulated depreciation
Land
Construction in progress
Total property, plant and equipment
Investments and Other Assets:
Investment securities (Notes 6 and 8)
Intangible assets and long-term prepaid expenses

Total investments and other assets
TOTAL ASSETS
The accompanying notes are an integral part of the Consolidated Financial Statements.

18

Millions of yen

LIABILITIES AND NET ASSETS
Current Liabilities:
Short-term bank loans (Note 8)
Current portion of long-term debts (Note 8)
Payables:Notes and accounts payable–trade
Notes and accounts payable–construction
Accounts payable–otherThousands of
U.S. dollars(Note 4)

2008

2007

¥ 5,380 ¥
3,000

5,380
1,006

$ 53,800
30,000Accrued expenses
Accrued bonuses
Accrued sales rebates
Accrued income taxes (Note 14)
Other current liabilities
Total current liabilities

13,380327
3,318
17,026
616
1,215
466
2,092
484
30,282

15,147
1,178
3,248
19,573
648
1,183
566
2,562
557
31,478133,800
3,270
33,180170,260
6,160
12,1504,660
20,9204,840
302,820

Non-Current Liabilities:
Long-term debts (Note 8)
Accrued pension and severance costs (Note 11)
Accrued retirement benefits to directors
Deferred tax liabilities (Note 14)
Other long-term liabilities
Total non-current liabilities

—
5,100
303
210
511
6,125

3,000
4,958
354
220
455
8,989

—
51,000
3,030
2,100
5,110
61,25023,853

23,348238,530

22,727
21,44022,22618,305

227,270
214,400(11,618)(5,771)(116,180)

56,403

58,110564,030

1,045
2,321
(0)
1
1,044
2,323
57,44760,433¥93,856 ¥100,900

10,450(0)
10,440574,470$938,560

Net Assets:
Shareholders’ Equity (Notes 2 (l), 8 and 12):
Common stock - no par value
Authorized: 360,000,000 shares
Issued: 114,879,461 shares as of March 31, 2008 and 113,282,639
shares as of March 31, 2007
Capital surplus
Retained earnings
Treasury stock, at cost: 13,564,112 shares in 2008 and 6,495,694
shares in 2007
Total shareholders’ equity
Valuation and translation adjustments:
Net unrealized gain on other securities (Note 2 (c))
Deferred gain on hedges
Total valuation and translation adjustments
Total net assets
TOTAL LIABILITIES AND NET ASSETS

2008

The accompanying notes are an integral part of the Consolidated Financial Statements.

19

Consolidated Statements of Income
For the years ended March 31, 2008 and 2007
Thousands of
U.S. dollars(Note 4)

Millions of yen

2008

2007

2008

Net sales
Cost of sales
Gross profit¥79,934
41,236
38,697¥76,415
39,222
37,193$799,340
412,360
386,970

Selling, general and administrative expenses (Note 13)
Operating income

28,855
9,842

29,0798,113

288,550
98,420

158
(145)
(524)
448
(136)
—
48
(209)
(896)
(0)
20
(1,239)

133
(121)
(524)
—
(188)
342
—
—
—
(5)
33
(329)

1,580
(1,450)(5,240)4,480(1,360)—480(2,090)(8,960)(0)200(12,390)

8,603

7,783

86,030

3,496
1
3,497

2,964
216
3,181

34,96010
34,970¥ 5,106¥ 4,602$ 51,060

Other income (expenses):
Interest and dividend income
Interest expenses
Amortization of net obligation at transition
Gain on sales of property, plant and equipment, net
Loss on disposal of property, plant and equipment
Gain on establishment of retirement benefit trust
Gain on sales of investment securities, net
Loss on devaluation of investment securities
Loss on disposal of inventories
Revaluation loss of golf membership
Other, net

Income before income taxes
Income taxes (Note 14):
Current
Deferred

Net income¥48.35¥48.11¥42.42¥40.83$0.484$0.481

Cash dividends applicable to the year (Note 12)¥20.00¥17.00$0.200

The accompanying notes are an integral part of the Consolidated Financial Statements.

20

U.S. dollars(Note 4)Per share data:
Net income (Note 16):
Basic
DilutedYen

Consolidated Statements of Changes in Net Assets
For the years ended March 31, 2008 and 2007
Millions of yen
Shareholders’ equity
Number ofcommon stock
BALANCE–MARCH 31, 2006

105,992,690

Commonstock

Capitalsurplus¥20,737

Total
Treasuryshareholders’
stock at costequityRetainedearnings¥19,462¥15,428(¥3,784)¥51,843

Net income

4,602

4,602

Cash dividends(1,682)(1,682)

(43)

(43)

Director’s bonuses
Shares issued on conversion of convertible bonds

7,289,949

2,611

2,596

5,208

Treasury stock acquired
Treasury stock sold168

(5,799)(5,799)

3,812

3,980

(¥5,771)¥58,110

Net changes of items other than shareholders’ equity
BALANCE–MARCH 31, 2007

113,282,639¥23,348¥22,226¥18,305

Net income

5,106

5,106

Cash dividends(1,971)(1,971)

Shares issued on conversion of convertible bonds

1,596,822

504

501

1,006

Treasury stock acquired(0)Treasury stock sold(5,857)(5,857)10

9(¥11,618)¥56,403

Net changes of items other than shareholders’ equity
BALANCE–MARCH 31, 2008

114,879,461¥23,853¥22,727¥21,440

Millions of yen
Valuation and translation adjustments
Net unrealized
Total valuation
Deferred gain
gain on otherand translation
on hedges
securities
adjustments
BALANCE–MARCH 31, 2006

¥2,793—¥2,793

Total net
assets¥54,637

Net income

4,602

Cash dividends(1,682)

Director’s bonuses(43)

Shares issued on conversion of convertible bonds

5,208

Treasury stock acquired(5,799)Treasury stock soldNet changes of items other than shareholders’ equity
BALANCE–MARCH 31, 2007

3,980
(471)

1

(470)

(470)

¥2,321¥1¥2,323¥60,433

Net income

5,106Cash dividends(1,971)

Shares issued on conversion of convertible bonds

1,006

Treasury stock acquired(5,857)
9Treasury stock soldNet changes of items other than shareholders’ equity
BALANCE–MARCH 31, 2008

(1,276)(2)(1,278)(1,278)¥1,045(¥0)¥1,044¥57,447

21

Thousands of U.S. dollars (Note 4)
Shareholders’ equity
Number ofcommon stock
BALANCE–MARCH 31, 2007

113,282,639

Total
Treasuryshareholders’
stock at costequityCommonstock

CapitalsurplusRetainedearnings$233,480$222,260$183,050($ 57,710)$581,100

Net income

51,06051,060Cash dividends(19,710)(19,710)

Shares issued on conversion of convertible bonds

1,596,822

5,040

5,010

10,060Treasury stock acquired(0)Treasury stock sold(58,570)(58,570)100

90($116,180)$564,030

Net changes of items other than shareholders’ equity
BALANCE–MARCH 31, 2008

114,879,461$238,530$227,270$214,400

Thousands of U.S. dollars (Note 4)
Valuation and translation adjustments
Net unrealized
Total valuation
Deferred gain
gain on otherand translation
on hedges
securities
adjustments
BALANCE–MARCH 31, 2007

$23,210$10$23,230$604,330

Net income

51,060Cash dividends(19,710)

Shares issued on conversion of convertible bonds

10,060Treasury stock acquired(58,570)
90

Treasury stock soldNet changes of items other than shareholders’ equity
BALANCE–MARCH 31, 2008

(12,760)(20)(12,780)(12,780)$10,450($ 1)$10,440$574,470

The accompanying notes are an integral part of the Consolidated Financial Statements.

22

Total net
assetsConsolidated Statements of Cash Flows
For the years ended March 31, 2008 and 2007

Millions of yen

Cash flows from operating activities:
Income before income taxes
Adjustments for:
Depreciation
Amortization of long-term prepaid expenses
Accrual for pension and severance costs, less payments
Interest and dividend income
Interest expense
Revaluation loss of golf membership
Gain on sale of investment securities, net
Loss on devaluation of investment securities
Gain on establishment of retirement benefits trust
Loss on disposals of property, plant and equipment
Gain on sale of property, plant and equipment
Decrease (Increase) in notes and accounts receivable–trade
Decrease (Increase) in inventories
Increase (Decrease) in notes and accounts payable–trade
Paid bonuses to directors
Other, net
SubtotalInterest and dividends received
Interest paid
Income taxes paid, net
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition of property, plant and equipment
Proceeds from sales of property, plant and equipment
Acquisition of investment securities
Proceeds from sales of investment securities
Payment of long-term prepaid expenses
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Acquisition of treasury stock
Cash dividends paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 5)

Thousands of
U.S. dollars(Note 4)

2008

2007

2008

¥ 8,603¥ 7,783$ 86,030

2,280
327
(244)
(158)
145
0
(48)
209
—
136
(448)
6,586
(811)
(1,766)(54)(812)
13,948155(145)(3,943)
10,014

1,977
619
(215)
(133)
121
5
—
—
(342)
188
—
(2,260)
530
2,845
(43)
1,091
12,166
133
(121)
(245)
11,93322,8003,270(2,440)(1,580)
1,450
0
(480)
2,090
—
1,360
(4,480)65,860(8,110)(17,660)(540)(8,120)139,480
1,550(1,450)(39,430)
100,140(2,183)
528
(2)
348
(315)
(100)
(1,726)(1,524)
1
(356)
—
(153)
(189)
(2,222)(21,830)
5,280
(20)
3,480
(3,150)(1,000)(17,260)(5,848)(5,796)(1,967)(1,682)(7,815)(7,478)472
2,232
11,914
9,681¥12,386 ¥11,914(58,480)(19,670)(78,150)
4,720
119,140$123,860

The accompanying notes are an integral part of the Consolidated Financial Statements.

23

Notes to the Consolidated Financial Statements
1. Basis of Presenting Consolidated Financial Statements:

The accompanying consolidated financial statements of KAKEN PHARMACEUTICAL CO., LTD. (the “Company”) and its
consolidated subsidiaries (collectively the “Group”) are basically an English version of those which were prepared from accounts
and records maintained by the Group and in accordance with accounting principles and practices generally accepted in Japan,
which are different in certain respects from the application and disclosure requirements of International Financial ReportingStandards, and filed with the Director of Kanto Finance Bureau.
Certain items presented in the consolidated financial statements have been reclassified for the convenience of readers outside Japan.
The consolidated financial statements are not intended to present the consolidated financial position, results of operations
and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions otherthan Japan.
As permitted by the Japanese Financial Instruments and Exchange Law, amounts of less than one million yen have been
omitted. As a result, the totals shown in the accompanying consolidated financial statements (both in yen and U.S. dollars) do
not necessarily agree with the sum of the individual amounts.
Some supplementary information included in the statutory Japanese language consolidated financial statements, but notrequired for fair presentation, is not presented in the accompanying consolidated financial statements.

2. Summary of Significant Accounting Policies:(a) Principles of Consolidation
The Company had three subsidiaries as of March 31, 2008 and 2007. The consolidated financial statements include the accounts of the Company and all of its subsidiaries. The consolidated subsidiaries as of March 31, 2008 are as follows:
KAKEN REALTY & SERVICE CO., LTD.
KAKEN PHARMA CO., LTD.
FUJIKA CORPORATION
There was no affiliate which was accounted for by the equity method.
All significant intercompany transactions, account balances and unrealized profits or losses among the Group have been
eliminated in consolidation.
(b) Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statements of cash flows are composed of cash on hand, bank deposits which areable to be withdrawn within three months and short-term investments with original maturity of three months or less and areconsidered to have minimal risk from market fluctuations.
(c) Marketable and Investment Securities
Securities are classified into one of the following four categories; (1) Trading, (2) Held-to-maturity debt, (3) shares in subsidiaries and affiliated, and (4) Other. Trading securities are recorded at market value with unrealized gains and losses recognized in
the current year’s earnings. Debt securities that are expected to be held to maturity are carried at amortized cost. Shares insubsidiaries and affiliates are carried at cost. Other securities are expected to be sold in future and those whose fair values arereadily determinable are carried at fair value and the related unrealized gains or losses, net of taxes, are included as a componentof “Valuation and translation adjustments” under net assets. Other securities without market quotations are stated at cost,
determined by the moving average method.
(d) Inventories
Inventories are stated at cost, being determined by the gross average method as of March 31, 2007. Effective the year ended
March 31, 2008, inventories are stated at the lower of cost or net selling value, which is defined as the selling price less additional estimated manufacturing costs and estimated direct selling expenses (see Note 3).
(e) Property, Plant and Equipment
Depreciation is computed on the declining-balance method at rates based on the estimated useful lives of assets, except forbuildings, structures, machinery and equipment for the Komagome office that are computed on the straight-line method.
Furthermore, depreciation of buildings, except for ancillary facilities to buildings, acquired on and after April 1, 1998, is com24

puted using the straight-line method. The range of useful lives is from 3 years to 60 years for buildings and structures, and from
2 years to 8 years for machinery and equipment.
Effective the year ended March 31, 2008, pursuant to an amendment to the Corporate Tax Law, the Group have depreciated property, plant and equipment acquired on or after April 1, 2007 in accordance with the method stipulated in the amended Corporate Tax Law. As a result, operating income and income before income taxes for the year ended March 31, 2008
decreased by ¥76 million ($760 thousand), respectively. In addition, the residual values (5% of the acquisition cost) of theproperty, plant and equipment acquired on or before March 31, 2007 which were fully depreciated based on the Corporate Tax
Law before the amendment are depreciated equally over five years starting from the year ended March 31, 2008. As a result,operating income and income before income taxes for the year ended March 31, 2008 decreased by ¥109 million ($1,090
thousand), respectively.
(f) Accounting for Impairment of Fixed Assets
In accordance with the accounting standard for impairment of fixed assets, the Group review their fixed assets for impairment
by grouping the assets in income generating units whenever there is any indication of a significant decline in the fair value
against its book value based on an independent appraisal, and when the existence of any impairment for the group of the assets
is identified, an impairment loss will be recognized and such amount is directly deducted from the related assets.
(g) Pension and Retirement Benefits
Employees who terminate employment are entitled, under most circumstances, to lump-sum payments or pension payments as
described below, determined by reference to current basic rate of pay, length of service and conditions under which the termination occurs. The minimum payment is an amount based on voluntary retirement. In addition to the minimum payment basedon voluntary retirement, employees receive additional benefits for retirement due to age limit, death or other defined reasons.
The Company has a non-contributory defined benefit funded pension plan (entrusted) which covers 30% of the benefits payable
under the existing retirement plan to employees.
The accrued pension and severance costs represent the amount actuarially calculated projected benefit obligation less (1) the
fair value of the plan assets, (2) unrecognized actuarial loss or gain, (3) the unrecognized transition amount arising from adopting the new standard and (4) unrecognized prior service cost. If the fair value of the plan assets exceeds the projected benefit
obligations, prepaid pension and severance costs are recorded on the balance sheet. The transition amount is amortized on astraight-line basis over 15 years. Unrecognized actuarial loss or gain is amortized on a straight-line basis over 10 years from thenext year in which they arise. Unrecognized prior service cost is amortized on a straight-line basis over 10 years from the year inwhich they arise. For the Company, prepaid pension and severance costs were recognized for a portion of the plan covered by
the non-contributory pension plan assets and the accrued pension and severance costs were recognized for a portion of the plan
not covered by the plan assets.
Accrued retirement benefits to directors and statutory auditors is provided in an amount equivalent to the liability therelevant company would have been required to pay upon retirement at the balance sheet date, as prescribed by its internal rules.
(h) Income Taxes
Income taxes are determined using the asset and liability approach, where deferred tax assets and liabilities are recognized for
temporary differences between the tax basis of assets and liabilities and their reported amount in the financial statements.
(i) Consumption Taxes
Consumption taxes withheld and consumption taxes paid are excluded from revenues and expenses in the accompanying consolidated statements of income. The net balance of consumption taxes withheld and consumption taxes paid is included incurrent liabilities of the consolidated balance sheet as of the end of the fiscal year.
(j) Derivative Financial Instruments
Derivative instruments, which include forward foreign exchange contracts and interest rate swap agreements, are used as a partof the Company’s risk management of foreign currency and interest rate risk exposures of its financial assets and liabilities.
Foreign currency exchange forward contracts:
The Company enters into forward foreign exchange contracts to limit exposure, affected by changes in foreign currency exchange rates, on accounts receivable and payable and cash flows generated from anticipated transactions denominated in foreign
currencies. For forward foreign exchange contracts which are designated and are effective as hedges of such currency exchange
rate risk on existing assets and liabilities, the Company adopted the accounting method whereby foreign currency denominatedassets and liabilities are measured at the contract rate of the respective forward foreign exchange contracts. With respect to suchcontracts for anticipated transactions, the contracts are marked-to-market and the unrealized gains/losses are deferred in thebalance sheet to be released to income when the exchange gains/losses on the hedged items or transactions are recognized.
25

Interest rate swap agreements:
The Company enters into interest rate swap agreements, in order to lower funding costs and limit the Company’s exposure in
respect of the underlying financial instruments, resulting from adverse fluctuation in interest rates. The related interest differentials paid or received under the interest rate swap agreements are recognized in interest expenses over the terms of the agreements.
Derivative financial instruments have not been implemented by consolidated subsidiaries.
(k) Appropriations of Retained Earnings
Appropriations of retained earnings at each year end are reflected in the consolidated financial statements for the following year
upon stockholders’ approval.
(l) Shareholders’ Equity
The new Corporate Law of Japan (“the Law”), which superseded most of the provisions of the Commercial Code took into
effect on May 1, 2006. The Law provided that an amount equal to 10% of the amount to be disbursed as distributions of capitalsurplus (other than the capital reserve) and retained earnings (other than the legal reserve) be transferred to the capital reserveand the legal reserve, respectively, until the sum of the capital reserve and legal reserve equals 25% of the stated capital. Such
distributions can be made at any time by resolution of the shareholders or by the Board of Directors if certain conditions are
met. The above mentioned legal reserve is included in retained earnings in the accompanying consolidated balance sheets.
(m) Net Income and Dividends per Share
Net income per share of common stock is based upon the weighted average number of shares of common stock outstanding
during each financial year appropriately adjusted for subsequent free distribution of shares (stock splits), if applicable.
Cash dividends per share shown for each year in the accompanying consolidated statements of income represent dividends
approved or declared as applicable to the respective years.
Fully-diluted net income per share is computed, based on the assumption that the convertible bonds were fully converted
into common stock on the date of issue or at the beginning of the respective years subsequent to the issue, with appropriate
adjustments of related interest expense (net of taxes).

3. Change in Accounting Policies:(Accounting for Inventories)
Effective the year ended March 31, 2008, the Group adopted the new accounting standard for measurement of inventories
issued by the Accounting Standards Board of Japan (ASBJ) on July 5, 2006. The new standard requires that inventories held forsale in the ordinary course of business be measured at the lower of cost or net selling value, which is defined as the selling priceless additional estimated manufacturing costs and estimated direct selling expenses. The replacement cost may be used in placeof the net selling value, if appropriate. The effect of this change was to decrease operating income and income before income
taxes for the year ended March 31, 2008 by ¥317 million ($3,170 thousand), respectively.
(Reclassification of cash on hand and at banks and marketable securities in balance sheets)
From the year ended March 31, 2008, in accordance with the amendments to the guideline of consolidated financial statements reporting standard certificates of deposit previously included in “cash on hand and at banks” have been transferred to“marketable securities” and now constitute part of this line item. Certificates of deposit held at the end of the previous fiscal
year (March 31, 2007) totaled ¥600 million.

4. United States Dollar Amounts:

The Group maintains its accounting records in yen. The dollar amounts included in the consolidated financial statements andnotes thereto represent the arithmetical results of translating yen to dollars on the basis of ¥100=U.S.$1, the approximate rate ofexchange at March 31, 2008. The inclusion of such dollar amounts is solely for convenience and is not intended to imply thatyen amounts have been or could be converted, realized or settled in dollars at that or any other rate.

26

5. Cash and Cash Equivalents:

Cash on hand and at banks and marketable securities are reconciled to cash and cash equivalents of consolidated statements ofcash flows as follows:
Thousands of
U.S. dollars(Note 4)

Millions of yen

March 31
Cash on hand and at banks
Marketable securities
Marketable securities due in more than three months
Cash and cash equivalents

2008

2007

2008

¥ 8,288
4,097
12,386—¥12,386¥10,915
999
11,914—¥11,914$ 82,880
40,970123,860—$123,860

6. Marketable Securities and Investment Securities:

The costs and aggregate market values of marketable and investment securities are as follows:
Millions of yen
Cost

March 31
Other securities:
Market value available
Equity securities
Other securities

Market value Unrealized gain

Cost

2008

Market value Unrealized gain

2007

Market value not available
Total¥5,398—
5,398
672¥6,070¥7,160—7,160
672¥7,832¥1,762—
1,762—¥1,762¥5,605—
5,605
372¥5,977¥9,519—9,519
372¥9,891¥3,914—
3,914—¥3,914

Held-to-maturity debt securities:¥3,997¥3,997—¥1,499¥1,499—Thousands of U.S. dollars (Note 4)
Cost

March 31
Other securities:
Market value available
Equity securities
Other securities

Market value Unrealized gain

2008

Market value not available
Total$53,980—
53,9806,720$60,700$71,600—
71,6006,720$78,320$17,620—
17,620—$17,620

Held-to-maturity debt securities:$39,970$39,970—

Other securities sold during the fiscal years ended March 31, 2008 and 2007 are as follows:
Thousands of
U.S. dollars(Note 4)

Millions of yen

2008

Proceeds from sales
Gross realized gains
Gross realized losses

¥348
48
—

2007

¥—
—
—

2008

$3,480480—

27

7. Inventories:

Inventories as of March 31, 2008 and 2007 are comprised of the following:

Millions of yen

March 31
Finished products
Work in process
Raw materials
Supplies
Raw materials in transit
Total

Thousands of
U.S. dollars(Note 4)

2008

2007

2008

¥4,599
1,692
3,389
179
77
¥9,938¥4,150
1,309
2,831
735
100
¥9,126$45,990
16,92033,8901,790
770$99,380

8. Short-term Bank Loans and Long-term Debts:

Short-term bank loans outstanding as of March 31, 2008 and 2007 represented the notes issued by the Group to banks. Customarily, these notes are renewed at maturity subject to renegotiation of interest rates and other factors. The weighted-averageinterest rates applicable to short-term bank loans as of March 31, 2008 and 2007 are 1.50% and 1.37%, respectively. Outstanding balance of short-term bank loans as of March 31, 2008 and 2007 were ¥5,380 million ($53,800 thousand) and ¥5,380
million, respectively.
Long-term debts as of March 31, 2008 and 2007 consisted of the following:

Millions of yen

March 31
Loans from banks and other financial institutions due on September 30,
2008 (interest rate 1.77%)
0.0% unsecured convertible bond due in September, 2007 (a)Less: current portion
Total

Thousands of
U.S. dollars(Note 4)

2008

2007

2008

¥3,000¥3,000$30,000—(3,000)¥ —1,006(1,006)¥3,000—(30,000)$—a) 0.0% Unsecured convertible bond
Holders of this bond were entitled to convert these bonds into common stock at a price of ¥630 during the period from August
9, 2000 to September 14, 2007. These convertible bonds were fully converted into common stock (¥504 million) and capitalsurplus (¥501 million) during the year ended March 31, 2008.
As is customary in Japan, short-term and long-term bank loans are made under general agreements which provide that security
and guarantees for future and present indebtedness will be given upon request of the bank, and that the bank shall have theright, as the obligations become due or in the event of their default, to offset cash deposits against such obligations due to thebank. The Group has not received any such requests to date.
At March 31, 2008 and 2007, assets pledged as collateral for certain short-term and long-term debts, including current
portion of long-term debts, are as follows:28

Thousands of
U.S. dollars(Note 4)

Millions of yen

March 31
Assets pledged:
Buildings and structures
Machinery and equipment
Land
Investment securities
Total
Liabilities secured:
Short-term bank loans
Total

2008

2007

2008

¥2,227
2,539
103
1,708
¥6,578¥2,289
2,364
103
2,232
¥6,990$22,270
25,3901,030
17,080$65,780¥1,400¥1,400¥1,400¥1,400$14,000$14,000

9. Accounting for leases:

Leases that transfer substantially all the risks and rewards of ownership of the assets are accounted for as capital leases, however,leases that do not transfer ownership of the assets at the end of the lease term are accounted for as operating leases, in accordancewith accounting principles and practices generally accepted in Japan.
Assumed data “as if capitalized” as to acquisition cost, accumulated depreciation, net book value and depreciation expenseof the leased assets, which excluded the portion of interest thereon, are summarized as follows:
Thousands of
U.S. dollars(Note 4)

Millions of yen

March 31
Acquisition cost
Accumulated depreciation
Net book value
Depreciation

2008

2007

¥15
15
0
¥ 0

¥15
14
0
¥ 1

2008

$150
150
0
$ 0

Depreciation is computed on the straight-line method over the lease term of the leased assets with no residual value.
Periodic lease expenses on finance lease contracts without ownership-transfer for the years ended March 31, 2008 and 2007 aresummarized as follows:
Thousands of
U.S. dollars(Note 4)

Millions of yen

2008

2007

¥1

Periodic lease expense

¥2

2008

$10

The amount of outstanding future lease payments due at March 31, 2008 and 2007, which excluded the portion of interest
thereon, is summarized as follows:
Thousands of
U.S. dollars(Note 4)

Millions of yen

2008

Within one year
Over one year
Total

¥—
—
¥—

2007

¥1
—
¥1

2008

$—
—
$—

29

10. Derivative Financial Instruments:

Derivative financial instruments are utilized by the Company principally to reduce interest rate and foreign exchange rate risks.
The Company has established a control environment which includes policies and procedures for risk assessments and for theapproval, reporting and monitoring of transactions involving derivative financial instruments. The Company does not hold or
issue derivative financial instruments for speculative purposes.
The Company is exposed to certain market risks arising from its forward foreign exchange contracts and interest rate swap
agreements. The Company is also exposed to the risk of credit loss in the event of non-performance by the counterparties to thecurrency and interest rate derivatives; however, the Company does not anticipate non-performance by any of these counterpar­ties all of whom are financial institutions with high credit ratings.

11. Pension and Retirement Benefits:

The pension and retirement benefit obligation and plan assets, funded status and composition of amounts recorded in the
consolidated balance sheets as of March 31, 2008 and 2007 are as follows:

Millions of yen

March 31
Projected benefit obligations
Plan assets
Funded status
Unrecognized transition amount
Unrecognized actuarial loss
Unrecognized prior service cost
Amounts recognized in the balance sheet consists of —Prepaid pension costAccrued pension and severance costs

2008

Thousands of
U.S. dollars(Note 4)

2008

2007

¥(21,474) ¥(21,720)
10,738
11,988(10,735)(9,732)
3,674
4,199
3,580
1,830
(110)
(132)
(3,590)(3,834)$(214,740)
107,380(107,350)
36,74035,800(1,100)(35,900)

1,509
1,124
¥ (5,100) ¥ (4,958)

15,090$ (51,000)

The components of net pension and severance costs for the years ended March 31, 2008 and 2007 are as follows:

Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization of transition amountAmortization of actuarial loss
Amortization of prior service cost
Net pension expense

Thousands of
U.S. dollars(Note 4)

2008

2007

2008

¥ 683
495
(452)
524
354
(22)
¥1,584¥ 699
502
(261)
524
353
(22)
¥1,797$ 6,830
4,950(4,520)
5,240
3,540
(220)
$15,840

Assumptions used in calculation of the above information for the year ended March 31, 2008 are as follows:
Discount rate
2.3%
Expected rate of return on plan assets
4.0%
Method of attributing the projected benefits to periods of services
Years of service

12. Shareholders’ Equity:

At the general shareholders’ meeting held on June 27, 2008, it was approved to pay dividends of ¥10.00 ($0.10) per share to
the shareholders as of March 31, 2008, aggregating ¥1,013 million ($10,130 thousand). Such dividends have not been incorporated in the accompanying consolidated financial statements for the year ended March 31, 2008.

30

13. Research and Development Costs:

Research and development costs included in selling, general and administrative expenses for the years ended March 31, 2008
and 2007 amounted to ¥6,808 million ($68,080 thousand) and ¥6,533 million, respectively.

14. Income Taxes:

The Group is subject to several taxes based on income, which in the aggregate resulted in statutory tax rates of approximately
40.69% for the years ended March 31, 2008 and 2007. A reconciliation of the differences between the statutory tax rate and theeffective tax rate for the years ended March 31, 2008 and 2007 is as follows:
2008

2007

40.69%

40.69%

4.85

5.72(0.23)
1.00(5.93)
0.27
40.65%(0.24)
1.10(5.54)(0.86)
40.87%

Millions of yen

Thousands of
U.S. dollars(Note 4)

Statutory tax rate
Increase (decrease) in taxes resulting from:
Expenses not deductible for income tax purpose (ex. Entertainment
expenses)
Income not included for income tax purpose (ex. Dividend income)Inhabitant per capita taxes
Tax credit for research expenses
Other
Effective tax rateSignificant components of deferred tax assets as of March 31, 2008 and 2007 are as follows:

2008

2007

2008

Deferred tax assets and liabilities:
Reserve for bonuses
Reserve for sales rebates
Loss of supplies
Devaluation of financial instruments
Amortization of R&D
Amortization of long-term prepaid expenses
Pension and severance costs
Retirement benefits to directors
Unrealized gain of property, plant and equipment
Other
Total
Valuation allowance
Deferred tax assets¥ 470
189
131
103
285
282
1,638
123
2,568
434
6,227
(19)
6,207

¥ 459
230
122
50
241
325
1,734
144
2,568
358
6,234
(11)
6,223

$ 4,700
1,890
1,310
1,030
2,850
2,820
16,3801,230
25,6804,340
62,270(190)
62,070

Deferred tax liabilities:
Deferred gain on sales of property, plant and equipment
Unrealized gain on other securities
Other
Deferred tax liabilities
Deferred tax assets, net

(287)
(717)
(1)
(1,005)¥5,201(301)(1,592)(2)(1,896)¥4,326(2,870)(7,170)(10)(10,050)$52,010

15. Related Party Transactions:

There is nothing to be noted according to the disclosure requirements in Japan for the year ended March 31, 2008 and 2007.

31

16. Per Share Information:

Per share information for the years ended March 31, 2008 and 2007 is as follows:
U.S. dollars(Note 4)Yen

Net assets per share
Net income per share
Diluted net income per share

2008

2007

¥567.02
48.35
48.11

¥565.92
42.42
40.83

2008

$5.6700.484
0.481

Calculation for net income per share and diluted net income per share is as follows:

Millions of yen

For the years ended March 31, 2008 and 2007
Net income
Net income relating to common stock
Adjustment to net income(Share data)
Average number of share (thousand)
Additional number of share (thousand)Thousands of
U.S. dollars(Note 4)

2008

2007

2008

¥5,106
5,106—¥4,602
4,602—$51,060
51,060—105,608
515

108,486
4,241——

17. Segment Information:

Information about operations in industry segments of the Group for the years ended March 31, 2008 and 2007 is as follows:
Millions of yen

Year ended March 31, 2008

I. Sales and operating income
Outside customers
Inter-segment
Total
Operating expenses
Operating income
II. Assets, depreciation andcapital expenditure
AssetsDepreciation
Capital expenditure

32

Pharmaceutical

Real estate

Total

EliminationorCorporate

Consolidated¥77,547—
77,547
69,090¥ 8,457¥ 2,386
305
2,691
1,306
¥ 1,385¥79,934
305
80,23970,396¥ 9,842

¥

—
(305)
(305)
(305)
¥
—

¥79,934—
79,93470,091¥ 9,842¥57,020¥ 1,939¥ 2,227¥16,508¥ 669¥ 436¥73,528¥ 2,608¥ 2,663¥20,328¥—¥—¥93,856¥ 2,608¥ 2,663

Millions of yen

Year ended March 31, 2007

I. Sales and operating income
Outside customers
Inter-segment
Total
Operating expenses
Operating income
II. Assets, depreciation andcapital expenditure
AssetsDepreciation
Capital expenditure

Year ended March 31, 2008

I. Sales and operating income
Outside customers
Inter-segment
Total
Operating expenses
Operating income
II. Assets, depreciation andcapital expenditure
AssetsDepreciation
Capital expenditure

Pharmaceutical

EliminationorCorporate

Other*

Total¥74,056—
74,056
67,229¥ 6,826¥ 2,359
303
2,662
1,375
¥ 1,287¥76,415303
76,71868,605¥ 8,113

¥

—
(303)
(303)
(303)
¥
—

¥ 76,415—
76,41568,301¥ 8,113¥64,966¥ 1,869¥ 2,186¥16,789¥727¥
51¥81,756¥ 2,596¥ 2,238¥19,144¥—¥—¥100,900¥ 2,596¥ 2,238

Pharmaceutical

Real estate

Total

Consolidated

Thousands of U.S. dollars (Note 4)
EliminationorCorporate
Consolidated$775,470—
775,470
690,900$ 84,570$ 23,860
3,050
26,91013,060$ 13,850$799,340
3,050
802,390
703,960$ 98,420$

—(3,050)(3,050)(3,050)$—$799,340—
799,340
700,910$ 98,420$570,200$ 19,390$ 22,270$165,080$ 6,690$ 4,360$735,280$ 26,080$ 26,630$203,280$—$—$938,560$ 26,080$ 26,630

18. Subsequent Event:

There was no significant subsequent event to be noted herein as of June 27, 2008.

33

Report of Independent Auditors
To the Board of Directors
KAKEN PHARMACEUTICAL CO., LTD.

We have audited the accompanying consolidated balance sheets of KAKEN PHARMACEUTICAL CO., LTD. and its consolidated subsidiaries (collectively, the “Group”) as of March 31, 2008 and 2007 and the related consolidated statements ofincome, changes in net assets and cash flows for the years ended , all expressed in Japanese yen.
These consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards, procedures and practices generally accepted and applied inJapan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting princi­ples used and significant estimates made by management, as well as evaluating the overall consolidated financial statement
presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of the Group as of March 31, 2008 and 2007 and the consolidated results of their operations and their cash
flows for the years ended in conformity with accounting principles and practices generally accepted in Japan (See Note 1).
As described in Note 3, effective for the year ended March 31, 2008, the Group changed their accounting policy for measurement of inventories.
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader have been translated on thebasis set forth in Note 4 to the accompanying consolidated financial statements.

Hijiribashi Audit Corporation
Tokyo, Japan
June 27, 200834

Corporate Data
Business Philosophy: Three Joys
(As of March 31, 2008)

Corporate Philosophy

Directory

Bringing smiles to everyone

REGISTERED HEAD OFFICE
28-8, Honkomagome 2-chome, Bunkyo-ku,
Tokyo 113-8650, Japan
Tel: 81-3-5977-5001
conducts business by
Fax: 81-3-5977-5131
http://www.kaken.co.jp

KAKEN

By serving as many people as possible to return smiles of happinessto their faces, through supplying superior pharmaceuticals,
Kaken helps improve the quality of life for patients.

Global Business Development
Executive Director & General Manager
Masao Ishida
Creating joy as
Tel: 81-3-5977-5046
a company.
Fax: 81-3-5977-5133
E-mail: masao-ishida@kaken.co.jpWe recognize our social

To continue realizing our corporate philosophy of “bringing smiles to everyone,” it is essential that Kaken
not only responds to changes in the times but also innovates and remakes itself.
Looking to create new drugs that are competitive on the global market, we will build Kaken into a

responsibility as a pharmaceuticalcompany with a high ethicalstandard and society’s trust.

company that makes our employees proud by providing much-needed, high-quality pharmaceuticals. Kaken
strives to advance to the 21st century as a company that maintains a strong presence and fulfills its
obligations to society as a pharmaceutical company.

ProfileContents

The origin of Kaken Pharmaceutical Co., Ltd. can be traced back to the

President’s Message

02

Institute of Physical and Chemical Research (Riken), established in

Developing New Products

04

1917. The Company started pharmaceutical business with full-scale

Overview of Major Products

06

Commitment and Excellence

10

Fulfilling Our Social Responsibilities

12

Board of Directors and Corporate Auditors

14

Financial Section

15

Corporate Data

35

development of penicillin and streptomycin based on Riken’s own
technologies in 1948, and since then broadened the scope of its businessand drug development activities through merger and alliance. Kaken’s
prestige has soared accordingly.
While the Company has established strength in developing andselling pharmaceuticals for orthopedics, it is now expanding its
The Company contributes to improving people’s health by cultivating its
own original technologies, engaging in joint development initiatives,
introducing new technologies and acquiring marketing rights.
As a fruit of its technology and product introduction, theCompany has been since June 2001 marketing Fiblast Spray consisting
factor (bFGF) for the first time in the world, licensed from a US
bio-pharmaceutical company, Scios, in the area of regenerative medicine(wound healing medicine).

FoundedCreating joy for
March 1917

patients.

Incorporated
We strive to create and offer
March
1948that satisfy theeffective drugs
needs of patients and medical
professionals.

Paid-in Capital¥23,853 million

CommonStockCreating
joy for
Authorized:
360,000,000 shares
our employees.
Issued: 101,879,461 shares (As of Aug. 31, 2008)
Our objective
to become a 17,143 (As of Mar. 31, 2008)
Numberof isShareholders:company with vitality andpresence whose employees enjoy
Employees(Non-Consolidated)
and take pride in their work.

Main Branches
Sapporo Branch
Administration: 141
Sales & Marketing: 992
Sendai Branch
Production & Technology: 243
Tokyo-1 Branch
Research & Development: 280
Tokyo-2 Branch
Regulatory Affairs: 39
Nagoya Branch
Osaka-1 Branch
Osaka-2 BranchConsolidated
Financial Highlights
Hiroshima BranchMillions of yen
Fukuoka Branch
2008
2007

Thousands of
U.S. dollars (Note)2008

For the years ended March 31,

Plant
Net Shizuoka
sales
Factory

Operating income
Net Research
income Laboratories
Shizuoka Research Laboratories
Kyoto
At March
31,Research Laboratories
Production Technology Laboratories
Total net assets
TotalOverseas
assets Office:Kaken New York Office
Per share
data: Avenue, 24th Floor, New York, NY10167
245 Park
1-212-372-8910
Net Tel:income(Basic)Fax:
1-212-372-8970
Cash dividends (Non-Consolidated)
E-mail: ny@kaken.co.jp

involvement in other medical fields, such as hyperlipidemia and diabetes.

of Trafermin, a recombinant form of human basic fibroblast growth

Company Information¥79,934¥ 76,415$799,340

9,842

8,113

98,420

5,106

4,602

51,06057,44760,433

574,470

93,856

100,900

938,560

Yen

U.S. dollars (Note)¥ 48.35¥ 42.42

$

0.484

20.00

17.00

0.200

Forward-Looking Statements

Ratios:This annual report contains forward-looking statements pertaining to the Company’s

ROE

8.66

8.00

—

Capital adequacy ratio

61.21

59.89

—

business and prospects. These statements are based on current analysis of existing
information and trends. Actual results may differ from expectations due to unforeseen%risks and uncertainties.

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥100.00 = $1 effective on March 31, 2008.

35

Bringing
Bringing smiles
smilestoto everyone
everyone

28-8,
28-8,Honkomagome
Honkomagome2-chome,2-chome,Bunkyo-ku,
Bunkyo-ku,Tokyo
Tokyo
113-8650,
113-8650,Japan
Japan
Tel:
Tel:81-3-5977-5001
81-3-5977-5001
Fax:
Fax:81-3-5977-5131
81-3-5977-5131
http://www.kaken.co.jp
http://www.kaken.co.jp

AnnualAnnual Report
Report 2008
2008
Year
YearEnded
EndedMarch
March31,
31,2008
2008
PrintedPrintedininJapan
Japan