Annual Report 2002
Year Ended March 31, 2002

Bringing smiles to everyone

KAKEN

The origin of Kaken Pharmaceutical Co., Ltd. can be traced back to the Institute of Physical and Chemical
Research (Riken), established in 1917. The Company started pharmaceutical business with full-scale development of penicillin and streptomycin based on Riken’s own technologies in 1948, and since then broadened thescope of its business and drug development activities through merger and alliance. Kaken’s prestige has soared
accordingly.
While the Company has established strength in developing and selling pharmaceuticals for orthopedics, it is
now expanding its involvement in other medical fields, such as hyperlipidemia and diabetes. 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, the Company has been since June 2001 marketing
Fiblast Spray consisting of Trafermin, a recombinant form of human basic fibroblast growth 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).

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

Business Philosophy: Three Joys

KAKEN

conducts business by

Creating joy forpatients.
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.

CONTENTS
Consolidated Financial Highlights ......................... 1
President’s Message ................................................. 2
Special Report .......................................................... 4
Review of Operations .............................................. 6
R&D, Production andQuality Control, and MR System ...................... 11
Organizations ........................................................ 15
Consolidated Financial Review ............................. 16
Consolidated Financial Statements ...................... 18
Corporate Data, Board of Directors
and Corporate Auditors .................................... 33

Consolidated Financial Highlights
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.

Thousands of
U.S. dollars (Note)

Millions of yen

2002

2001

2002

¥ 73,272
7,725
1,765

¥ 70,306
6,805
1,999

$550,917
58,083
13,27139,018114,125

36,112
121,803

293,368
858,083

For the years ended March 31,

Net sales ............................................................................................................
Operating income .............................................................................................
Net income ........................................................................................................
At March 31,

Total shareholders’ equity ................................................................................
Total assets ........................................................................................................

Yen

U.S. dollars (Note)

Per share data:

Net income (Basic) ...........................................................................................
Cash dividends .................................................................................................

¥

18.74.
7.50.

¥

21.78.
7.50.

$ 0.141.
0.056.

ROE (%) ............................................................................................................
4.70.
5.63.
Capital adequacy ratio (%) ..............................................................................
34.19.
29.65.
.Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥133 = $1 effective on March 31, 2002.

00

02

98

99

00

39,01836,112

34,854

121,80301

30,593

99

114,12598

30,63802

106,24001

100,59000

98,7699973,27298

70,306(¥ millions)

71,801

Shareholders' Equity(¥ millions)

66,870Total Assets(¥ millions)

65,649Net Sales

01

02

Kaken Pharmaceutical Co., Ltd. 01

President's Message

BUSINESS CLIMATE AND PERFORMANCE

13.5 percent from the previous year. In contrast, however, net

During Fiscal 2001, ended March 31, 2002, the Japanese phar-income fell 11.7 percent, to ¥1,765 million (US$13.3 million)

maceutical business faced severe challenges. Despite difficulties

during the same period, which resulted mainly from year-end

in the business environment, we generally succeeded in expand-evaluation losses on investment securities due to the sluggish

ing our business by launching new products into the market.

stock market.

From a long-term perspective, however, we need to find appro-

During the year under review, we paid a dividend of ¥7.50

priate solutions for further development by intensifying R&D

per share, the same amount we have paid for the past five years.

activities to discover innovative new drugs, beef up business ca-

Our fundamental policy is to provide stable dividends to all ourpabilities, and improve management efficiency.

shareholders whenever possible, regardless of our business per-There have been years of discussion regarding the amend-

formance. Additionally, in consideration of our future develop-

ment of the Japanese health care system to cap increases in medi-

ment, we are allocating funds to internal reserves to invest in

cal expenses as the proportion of the elderly among the popula-

R&D activities and shore up our financial foundation.

tion increases. As the culmination of this debate, the government
enforced a decision in April 2002 to cut National Health Insur-

R&D ACTIVITIES

ance (NHI) price by an average of 6.3 percent industry-wide, re-We are always looking at ways to enhance our future develop-

duce medical fees at medical institutions, and increase the pa-

ment to emphasize our brick-and-mortar presence in the com-tients’ co-payment for health insurance.

munity and in the industry. We pay particular attention to

We anticipate that these reforms will affect the pharmaceuti-

strengthening our development capabilities and improving ourcal industry. They will shrink demand in the market, if only tem-financial position to maximize our corporate value as a whole.

porarily. Accordingly, our business environment has grown

We also are eager to rationalize the R&D process and make clini-

harsher against a backdrop of swelling development costs. In

cal trials more effective. To achieve this objective, we are concen-

addition, successive mergers among big pharmaceutical compa-

trating our R&D resources on selected medical fields and jointly

nies have created mega-companies in the industry, and their Japa-

working with pharmaceutical companies and institutions world-

nese corporations have bulldozed their way into the market

wide to obtain the latest scientific information and technology.

through activities in product development and sales promotion

Our corporate efforts also are devoted to reinforcing our busi-

with the help of their business networks worldwide and a uniqueness foundation. We are currently expanding our involvement inproject, the International Conference on Harmonisation of Tech-other medical sectors, such as hyperlipidemia and diabetes treat-nical Requirements for Registration of Pharmaceuticals for Hu-

ment, along with our existing field of orthopedics, in which weman Use (ICH). These new trends have aggravated all-or-noth-have established pharmaceutical development and sales as one

ing competition industry-wide.

of our strengths.

In this climate, we have spared no effort to expand the mar-

For instance, we have received the plaudits of the market forket share of our existing products, enhance our sales activities forour intractable skin ulcer medication Fiblast Spray, a new drug

new products, and conduct R&D activities and clinical trials.

in the field of regenerative medicine. In June 2001, we were the

As a result, consolidated net sales of the Company and its

first to place a drug of this type on the market. Since then, thesubsidiaries reached ¥73,272 million (US$550.9 million) dur-

number of university hospitals and major hospitals using Fiblast

ing this fiscal year, a year-on-year increase of 4.2 percent, andSpray for medical treatment has been increasing, and its sales areoperating income totaled ¥7,725 million (US$58.1 million), up

rapidly growing.

02 Kaken Pharmaceutical Co., Ltd.

In the future, we continue to exert our efforts to penetrate thepharmaceutical market with our products as a pioneer in regenerative medicine. Concurrently, our target is to harness the potential of basic Fibroblast Growth Factor (bFGF), for which weare conducting clinical trials for use in bone fractures and periodontitis.
We have completed clinical trials and requested the production approval for marketing our new drug Aldos for diabetic neuropathy treatment. Contrary to our expectations, however, we arestill conducting additional clinical experiments, which will require a few more years. Thus, there will be a delay before welaunch Aldos into the market.
To reinforce our new drug initiatives, we are focusing our R&D
capabilities on treating allergic diseases and osteoporosis (bonedisease).
As these examples clearly illustrate, we are aggressively making advances in new drug development.

As our guidance for revenue in Fiscal 2002, ending March 31,
2003, we project an increase of two percent in consolidated sales
and consolidated ordinary income. Among the components contributing to increased sales, we can count on Lipantil, Fiblast Spray,
and Seprafilm. On the other hand, sales of such existing drugs as
Artz and Procylin will decline, affected by decreases in drug prices
and by industry-wide competition intensified. We also expect
gains in net income, as we no longer need to report evaluation
losses on investment securities as we did this year.

OUR OBJECTIVESJapanese business environment is supposed to be rife with difficulties. These will include a further decline in the number of children and the adoption of additional measures to curb medical
expenditures. This trend will become more pronounced as big
pharmaceutical companies expand the pharmaceutical market
in Japan. Consequently, we anticipate that competition in themarket will grow harsher.
Confronted with these new challenges, we intend to secure
our unique position in the industry. To achieve this objective, wehave made our priority enhancing corporate value rather than
expanding our business activities. Consequently, we will add toour expertise in the fields in which we specialize, cultivate new

In the wake of the recent breakdown of business ethics worldwide, we are determined to engage in business activities basedon strict ethical standards. For this purpose, we have establishedour corporate philosophy and business philosophy. Specifically,
we have drawn up Kaken’s Business Behavior Guidelines, implemented compliance programs, and published a guidebook forcompliance with laws and regulations. Accordingly, each employee of our company recognizes our social responsibilities as acorporation in the pharmaceutical, agrochemical, and animal
health product industry, while maintaining business activities
pursuant to laws and regulations as well as corporate ethics.
We look forward to the continued support and cooperationof our stockholders.

fields as potential catalysts for revenue creation, strengthen andbroaden our R&D pipeline, and expedite production activities toJune 27, 2002

achieve our targets. We also will secure financial liquidity, solidify our corporate financial structure, and emphasize businessethics.
Shiro Inui
President

Kaken Pharmaceutical Co., Ltd. 03

Special Report

Fiblast Spray - a New Track inRegenerative Medicine
Kaken has actively been pursuing pharmaceutical development in tissue regeneration, pain treatment, endocrine diseases, metabolic disorders, systemic mycosis, arthritis, inflammation, and bonediseases. Fiblast Spray is a remarkable product from our R&D activities in regenerative medicine.
The worldwide attention on regenerative medicine testifies the latest development in the pharmaceutical industry. Regenerative medicine has enormous potential, and it is expected to becomea huge market in the future. R&D activities in this new field have rapidly expanded and diversified
with government support.
While research on regenerative medicine has been progressing by using cellular cultures, wehave started to develop regenerative drugs using bFGF, a protein that stimulates the growth anddifferentiation of blood vessels, muscles, bones, and other tissue cells. Kaken was the first tocommercialize a human bFGF as a regenerative medicine product. After conducting clinical studies
in patients with intractable skin ulcers, we launched Fiblast Spray into the market in June 2001.
Fiblast Spray contains Trafermin, a human recombinant form of bFGF, licensed from Scios Inc., in
the U.S.

What’s bFGF?
Extra Cellular Matrix(heparan sulfate)bFGF is stored ubiquitously in extra cellularmatrix (ECM) of tissues and released when
the tissues undergo some damage liketrauma and ischemia, and it works as apotent regeneration agent.

DamageVariety of Cells with FGFR
Epithelial Cell, Vascular Endothelial Cell,
Vascular Smooth Muscle Cell, Osteoblast,Chondrocyte, Neuronal Cells etc.

bFGF
FGF receptor (FGFR-1 to 4)

Neovascularization“Establishment of Lifeline”

Proliferation

Tissue Regeneration
Dermal Ulcers, Bone Fractures, Periodontitis,
Myocardial Infarction etc.

04 Kaken Pharmaceutical Co., Ltd.

the poor prognosis that burn patients face. In this respect, bFGF
can accelerate the formation of new blood vessels and their networks, through which they help supply oxygen and nutrients.
They also help destroyed tissues recover by promoting cellular
proliferation. Moreover, bFGF binds to the receptors on osteoblasts and nerve cells. This characteristic is expected to contribute to regenerating lost functions by stimulating the recovery of
In 1988, we contracted a licensing agreement with Scios Inc. ininjured bones and nerves. We will conduct further R&D activities

the U.S. and introduced bFGF into our research programs. Since

and clinical tests to exploit this characteristic.

then, we have focused our research activities on the pharmaceu-

From a broader perspective, bFGF has the distinct potential

tical applications of bFGF for intractable skin ulcers and con-for treating various diseases, i.e., skin ulcers, osteopathy, includ-

ducted numerous clinical studies.

ing intractable bone fractures and osteoporosis, periodontitis,

First introduced into the market as a bFGF application, Fiblast

such ischemic heart diseases as myocardial infarction, and nerve

Spray is effective in treating bed sores and other various kinds of

injuries. We are assiduously conducting basic research and clini-

intractable skin ulcers, producing highly vascularized granula-cal development into this wide range of applications. For instance,tion tissues, and promoting the formation of new blood vessels.

when applied to periodontitis, for which as much as 80 percent

Quite easy to use, Fiblast Spray is a handy spray for daily applica-of people aged 40 and over are reportedly known to need medi-tion to the wound. When applied to the tissues damaged by burns

cal treatment, bFGF stimulates periodontal tissues and improves

or ulcers, it regenerates natural skin in two to three weeks.

periodontal health. Clinical experiments with animals have

Presently in Japan, some 200,000 to 300,000 patients are estimated to be suffering from intractable skin ulcers, for which

proved that bFGF successfully contributed to periodontal regeneration.

applicable drugs have a Japanese market worth some ¥14,000 to

In light of these results, we will continue to carry out our R&D¥15,000 million. If the range of applications of these drugs should

activities in regenerative medicine to discover wider applications

widen in the future, their market could yield ¥20,000 million afor internal medicine and the circulatory system.

year.

Kaken is now developing Trafermin (bFGF) in the both therapeu-

A type of protein called growth factor, bFGF is unique in stimu-

tic areas of bone fractures (Phase-II) and periodontitis (Phase-II).

lating the growth and differentiation of blood vessels, muscles,
bones, nerve and other numerous tissue cells. It also effectively
promotes the formation of new blood vessels. In addition, bFGF
is essential for wound healing in the body.
The objectives of regenerative medicine are to eliminate therejection caused by artificial skin or skin grafts and to improve

Kaken Pharmaceutical Co., Ltd. 05

Review of Operations

Pharmaceuticals

YEARLY SUMMARY
Pressed hard by the sales promotion activities of our competitors in the industry, the sales of our major
products Artz, Procylin, and Adofeed declined. On the other hand, we secured gains in sales from Fiblast
Spray and Seprafilm. Fiblast Spray attracted clinicians’ significant attention since these products were launched
into the market in June 2001. As a result, non-consolidated sales of pharmaceuticals and other medical
products increased 5.1 percent year on year to ¥64,050 million.
In the wake of April 2002’s new regulations on drug prices, the prices of our products were reduced bynearly seven percent while drug prices were cut by an average of 6.3 percent industry-wide. Reflecting these

Kaken Pharmaceuticalnew drug prices, our major products may lose their sales slightly. Nevertheless, we believe we can achievesales gains by aggressively promoting Fiblast Spray, Lipantil, and other new products. We also have launched
Pronase-MS, a mucus solubilizer to be used as pretreatment for conventional gastro-endoscopy in December 2001. The

following is a summary of our main products.

06 Kaken Pharmaceutical Co., Ltd.

Artz (anti-osteoarthritic) Artz is made of ultra-pure sodium hyaluronic acid extracted from rooster
combs. Hyaluronic acid is a naturally occurring, biocompatible polymer found throughout the body,particularly in synovial fluid. A viscoelastic supplement, Artz replaces the diseased synovial fluid found inosteoarthritic knees and restores the physical properties and elastoviscosity of this diseased synovial fluid.
It is injected directly into the knee joint by the physician.

Procylin (Prostacyclin analog) Procylin is an orally active and chemically stable prostacyclin analog (Beraprost) that directly acts on the PGI2 receptor to inhibit platelet aggregation. It is already in wide clinical use fortreating chronic artery occlusive disease. In September 1999, Procylin wasapproved for the additional indication of pulmonary hypertension, whichcannot be cured with most remedies currently in use.

Adofeed (pain-relieving plaster) Adofeed is a pain-relieving plaster containing Flurbiprofen as its active ingredient, which is absorbed throughthe skin. Applied to the affected area twice a day, Adofeed has proven effective in treating osteoarthritis, tennis elbow, muscle pain, and other inflammatory diseases.

Mentax (topical antifungal) Mentax is a topical antifungal with Butenafine as its main ingredient. An original Kaken product, Mentax is sold worldwide, including in the U.S. through Bertek/Mylanand in Canada through Schering-Plough. In December 2001, Mentax was approved as OTC Drug in the
U.S., which is sold under the trade name of Lotrimin Ultra through Schering- Plough.

Kaken Pharmaceutical Co., Ltd. 07

Pharmaceuticals

Lipantil (anti-hyperlipidemic) A fibrate type of lipid lowering agent, Lipantil containing
Fenofibrate lowers both triglyceride and cholesterol. Originally developed by Fournier in France, Lipantil
was sublicensed to Kaken in 1996 from a Japanese licensee, Grelan Pharm. Kaken launched Lipantil on
the Japanese market in May 1999.

Kaken Pharmaceutical

Seprafilm (post-operative anti-adhesive) Seprafilm is a sheettype, bioabsorbable, anti-adhesive, biomaterial consisting of hyaluronic acidand CMC. This unique product, licensed from Genzyme Corp., was alreadyin use in the gynecological field in Japan. In June 1999, it received additional
approval for use in preventing post-operative abdominal adhesions.

Fiblast Spray (wound healing agent) Consisting of Trafermin, ahuman recombinant form of bFGF, this is a new type of drug for treating bed
sores and other skin ulcers. Fiblast Spray strongly stimulates the growth ofendothelial cells and fibroblasts. It also accelerates wound healing by producing highly vascularized granulation tissues. Introduced by Scios Inc., Fiblast
Spray was first developed by Kaken, which commenced sales in June 2001.

Ebrantil ( 1-blocker) Ebrantil is a specific 1-adrenergic receptor antagonist (Urapidil) for neurogenic dysuria. Clinical studies have shown that twice-daily administration of Ebrantil capsules significantly improves difficulty in urination caused by central or peripheral neural disorders without causing
significant hypertension. It was approved for this indication in November 1999. Ebrantil already has beenin use for hypertension and dysuria caused by BPH (Benign Prostatic Hyperplasia).

Cytotec (ulcer preventive) An ulcer preventive whose active ingredient is Misoprostol, Cytotec is
effective for NSAIDs - induced gastric ulcer. It was developed by Searle (now Pharmacia Corporation), andhas been sold by Kaken since 1995.

08 Kaken Pharmaceutical Co., Ltd.

Norinyl T28 (Low-dose oral contraceptive) Norinyl T28 is a Sunday-start-type, low-dose
oral contraceptive pill containing a combination of two hormones: norethisterone and ethinylestradiol.
Incidence of metrorrhagia, which is often observed by users of this type product, is low. Norinyl T28 wasdeveloped by Monsanto Company and Daiichi Pharmaceutical Co., Ltd. and received approval in June
1999. In September 1999, Kaken launched this product into the Japanese market. Kaken is currently
marketing Norinyl T28 in collaboration with Morinaga Milk Industry Co., Ltd.

Eyecare 0.1 (Eye drop for corneal disorders) Hyaluronic acid, a naturally occurring,biocompatible polymer, was first discovered in the eye and has proved to promote to healing cornea
epithelium wounds. It is also a major component of Kaken’s Artz for the treatment of osteoarthritis.
Eyecare 0.1 eye drop solution, containing ultrapure hyaluronic acid (0.1%), was approved in March 2000,
for the treatment of corneal disorders, including dry eyes. It was launched into the Japanese market in July
2000 and co-marketed with Teika Pharmaceutical Co., Ltd. under the same brand name.

Mirol (Anti-glaucoma) Consisting of Levobunolol (0.5%), Mirol isa β-blocker for treating glaucoma and ocular hypertension. Mirol is used
once daily as eye drops without heavy viscosity. This product was launchedin February 2001. Originally developed by Allergan Inc. in the U.S., Mirolwas sublicensed to Kaken from a Japanese licensee, Kyorin PharmaceuticalCo., Ltd.

Products
CR-1505 (Loside)
KP-102D (GHRP-2)
CR-1505 (Loside)
SNK-860 (Aldos)

Stage
NDA
NDA
Pre-NDA
Phase III

TRK-100STP (Procylin) Phase II
KCB-IB (Trafermin)
KCB-ID (Trafermin)
KP-102LN (GHRP-2)
KP-107 (Arthrotec)
KN-48
SPK-843
KP-496

Phase II
Phase II
Phase II
Phase I
Phase I
Phase I
Pre-clinical

Category
CCK antagonist (iv)
GH secretagogue
CCK antagonist (po)ARI

Indication
Acute pancreatitis
Diagnostic
Chronic pancreatitis
Diabetic Neuropathy

Orally active
prostacyclin
bFGF
bFGF
GH secretagogue
Diclofenac+Misoprostol
Lidocaine patch
Polyene antibiotic
LT/TX dual inhibitor

ASO
Bone fractures
Periodontitis
Short stature
RA/OA
Postherpetic neuralgia
Mycosis (systemic)
AsthmaNote
Jointly developed with Mitsubishi Pharma Corp.
Developed In-house
Jointly developed with Mitsubishi Pharma Corp.
Jointly developed by N･K Curex Co., Ltd.
and Sanwa Kagaku Kenkyusho Co., Ltd.
New Indication:
Jointly developed with Toray Industries, Inc.
New Indication
New Indication
Developed In-house
Developed In-house
Developed In-house
Developed In-house
Developed In-house

Kaken Pharmaceutical Co., Ltd. 09

Agrochemicals and Animal Health Products

YEARLY SUMMARY
While overall agrochemical sales slumped, sales grew for Polyoxin, a fungicide for fruits and vegetables.
Partly affected by the government’s regulations for further rice acreage reduction, we struggled to promote
the paddy herbicide Pentoxazon, which still posted a sales increase. Characteristic of fewer pollutants,
Pentoxazon has fewer adverse affects on the water and the soil. For this reason, we received the Society Awardof Pesticide Science Society of Japan in 2001.
In the animal health product sector, sales of our main products Eustin and Colistin decreased owing to

Kaken Pharmaceuticalprice cutting in foreign markets.

AGROCHEMICALSPolyoxin (Fungicide) Polyoxin is a fungicide produced by a certain type of bacterium isolated fromthe soil in the Aso region of Japan. It is particularly effective for treating damage caused by alternalia inapple, pear and other fruit trees, as well as flowering trees and tobacco plants. It is also effective against
botrytis rot and powdery mildew. With low toxicity, it does not damage crops and is highly safe for use.

Pentoxazon (Herbicide) Pentoxazon is a new type of paddy herbicide. It iseffective against first-year weeds and has long-lasting effects. It is highly safe for use
in rice paddies and can be used before, during or after transplantation.

ANIMAL HEALTH PRODUCTS

Salinomycin (Anti-coccidiosis in fowls) Salinomycin was developed originally by Kaken. It issold in Japan, Europe, North America, Asia and other regions. It is the most widely used agent in the world
to prevent and treat coccidiosis, a contagious disease that begins when protozoans become parasitic in theintestinal tracts of fowls. When transmitted, coccidiosis causes stunted growth and even death. The diseasecan be known to cause major economic damage in modern, large-scale chicken farms.

Colistin (Antibiotic) Colistin is used to prevent diseases caused by Gram-negative bacteria, such ascolon bacillus and salmonella. Colistin is highly safe and is one of the few drugs used against Gramnegative bacteria. It has found widespread use. It is sold in Japan, European and Asian countries.

10 Kaken Pharmaceutical Co., Ltd.

R&D, Production and Quality Control, and MR System

Research and Development

DISCOVERY RESEARCH
Kaken is committed to returning smiles of happiness to the facesof many people. To achieve that objective, we have intensified
our R&D activities in drug formation, pharmacokinetics, and me-ous projects in order to design a superior peptidemimetic focus-

tabolism. In so doing, we are striving to take the initiative in dis-ing library.

covering and developing new drugs. We also are engaged in effec-

To establish a strong presence in cost-consuming genomic

tive R&D activities to create our own drugs, for which we haveapproach and other state-of-the-art technologies, we are actively

developed strong and wide-ranging tie-ups with other academic

involved in joint research programs with other laboratories andinstitutions and pharmaceutical companies.

academic institutions. We contract license agreements with these

Drug Discovery Research Laboratories are located in Kyoto,organizations as necessary. We expect these collaborations to re-the ancient capital of Japan. There, surrounded by historic andsult in more effective R&D activities and obviate unforeseeable

cultural remains, our dedicated researchers are constantly study-risks in R&D investment.

ing the latest scientific information and technologies.

In this respect, Toray Industries Inc. and Kaken are jointly

Currently, our main therapeutic interests lie in inflammation

developing the prostacyclin analog Procylin. Further, The Insti-

and immunology, endocrine and metabolic diseases, and infec-

tute of Physical and Chemical Research (RIKEN) and Kaken are

tions. While conducting research in these areas, we are diversify-

jointly working to expedite research into the structure and func-

ing our research activities into some twenty programs, such astion of proteins. Based on our blueprints for candidate drugs, wegrowth factor stimulants. In addition, we are constantly improv-

are analyzing the three-dimensional structure of proteins and theing the quality of our drugs by adding new applications and de-genomic DNA clone, and searching for new candidate com-veloping optimal dosage forms. Responding to recent fundamen-pounds.

tal changes in drug discovery processes throughout the pharma-

Besides, our laboratories are exploring a number of innova-

ceutical science and biotechnology sectors, our research labora-

tive technologies in collaboration with leading academic scien-

tories employ new technologies to accelerate discoveries andtists and pharmaceutical companies. As a result, our expertise

optimization processes.

has expanded to the fields of asthma, endocrinology, systemic

Computer-aided drug design (CADD) is an important partmycosis, cardiology, and oral care.

of the rational approach to drug discovery. Our medicinal chem-

As these examples illustrate, our top-notch capability for R&D

ists constantly explore chemical candidates synthesized in vari-activities leads the industry. In 2001, Kaken’s scientist was awarded
the ASBMR Young Investigator Award from the American Society
for Bone and Mineral Research (ASBMR) for our osteoporosis
research.
Recently, we have succeeded in developing Fibrast Spray, ahuman recombinant form of bFGF, which is the first drug in theregenerative medicine field. Cognizant of the great potential of

Kaken Pharmaceutical Co., Ltd. 11

Research and Development

this drug, we are expanding our R&D activities in regenerative

develop optimal dosage forms. The Safety Evaluation Group strictly

medicine, a promising field for the treatment of bone fractures

evaluates the safety of candidate compounds. The Quality Assur-and periodontitis while promoting the recovery of nerve cells

ance Control Group works to ensure that information generated

and the growth and differentiation of blood vessels.

in all Kaken laboratories is of the highest quality and reliability.

Our researchers are highly motivated and dedicated to excel-

Our R&D activities are progressing in several kinds of medical

lence at every phase of drug discovery research. Moreover, wefields. For instance, we are engaged in clinical trials for a new drug

have a highly refined education program that is producing manyin an effort to develop KP-102, a growth hormone-releasing pep-talented young researchers.

tide (GHRP), for treating pituitary dwarfism. Clinical trials are alsoin progress for diagnosing hypothalamic pituitary functions.

Kaken Pharmaceutical

DEVELOPMENT RESEARCH

Kaken signed a sales agreement for Aldos (anti-diabetic neu-

Development Research Laboratories are located in Shizuoka Pre-

ropathy) with N.K. Curex Co., Ltd., which was applied for ap-

fecture. We undertake a wide range of research activities in a stimu-

proval to manufacture by N.K. Curex and Sanwa Kagaku

lating environment. Our objective here is to develop candidate

Kenkyusho Co., Ltd. We also formed an agreement with IDD Inc.

compounds discovered during drug discovery research into newof the United States to undertake R&D activities aimed at devel-

drugs. Our drug development research activities encompass phar-oping treatments for diabetes.

macokinetics research, drug formulation, safety evaluation andquality assurance.
Our drug development research is highly acclaimed. In fact,

During the year under review, our R&D expenses reached¥5,252 million on a consolidated basis, an increase of 5.5 percent year on year.

we have received the Okochi Memorial Prize five times in thepast. This is the most respected prize for companies and research-

AGROCHEMICAL DEVELOPMENT

ers who have contributed to innovative drug production.

In our effort to develop agrochemicals and animal health prod-

For instance, the Pharmacokinetics Research Group utilizes theucts, we continue to search for new compounds from synthetic

latest equipment and technologies to study the absorption, distri-and natural resources. A number of promising candidates are now

bution, metabolism and excretion of drugs in order to determine

under further investigation. We also continue to develop new

their effectiveness and safety in the body. The Drug Formulation

herbicides to expand our presence in the industry.

Group studies general pharmaceutical designs and formulations
using drug delivery systems (DDSs) and targets technologies to

12 Kaken Pharmaceutical Co., Ltd.

Production and Quality Control

Located on the east bank of the Ohi River, and near Mt. Fuji, ourproduction facilities in Shizuoka Prefecture are among the firstto have introduced factory automation systems. Today, theShizuoka facilities are in compliance with the Good Manufacturing Practices (GMP) of Japan, which stipulate requirements
for drug manufacturing and quality control.
In addition to these regulations, we have stricter in-house regulations for the facilities. In particular, the quality of export products is governed by the GMP regulations of the U.S., which were
formulated by the U.S. Food and Drug Administration (FDA)
under the authority of the Federal Food, Drug, and Cosmetic Act.
Thus, we are enforcing thorough quality control regulations.
The Shizuoka facilities also are equipped with the latest technology for implementing environmental measures. The facilities
have a recycling rate of more than 99.6 percent and have alreadyacquired ISO14001 certification.
During the year under review, our capital expenditure totaled¥1,581 million on a consolidated basis. This was mainly used forpurchasing manufacturing equipment for pharmaceuticals in the
Shizuoka facilities and the land allocated for the construction of
the Sapporo Branch.

Kaken Pharmaceutical Co., Ltd. 13

Medical Representative System

Kaken’s medical representatives (MRs) provide doctors with updated information on our products and respond promptly to requests from medical professionals. At the same time, they garner
medical information related to the safety and effectiveness of ourdrugs and channel feedback from the customers to the relevant
departments.
Our MRs also play an important role in our R&D and production activities through their communication with doctors andpatients. As front-line staff, they obtain invaluable information

Kaken Pharmaceuticalfrom doctor’s offices and other medical institutions.

We introduced information technology (IT) into our customer
service operations in March 2002 to enhance the quality of these

Additionally, our MRs help us develop user-oriented package

operations, enabling us to promptly respond to inquiries fromdesign and product descriptions by incorporating the suggestions

medical institutions. We intend to utilize IT to provide greaterof medical professionals.

satisfaction to our customers. For this purpose, we will oversee
the information management of the safety and effectiveness of
our existing products as well as the drugs in clinical trials. We
also will create a database for all information related to our business.
We presently employ around 650 MRs. In the future, we plan
to hire more MRs to form a group of 700, which we will strategically assign to the expanding fields such as internal medicine.
Adding staff will result in galvanizing our information and communication channels at medical institutions, which we expect tocontribute to boosting our R&D capabilities and enlarging ourmarket share.

14 Kaken Pharmaceutical Co., Ltd.

Organizations

General Meetingof Stockholders

Corporate Planning & Coordination Department
Legal Affairs Development
Legal Affairs
Intellectual Property
General Affairs Department
Human Resources Department
Education & Training
Accounting & Finance Department
Purchasing Department
Subsidiaries Coordination Department
Construction & Maintenance Department
Information System Department
Regulatory Affairs Department
Global Business Development Department
International Business & Administration - NY OfficeLicensing & Business Development
Agrochemicals & Animal Health Products,
Planning & Coordination Department
Agrochemicals & Animal Health Products Department

ChairmanManaging
Directors
Meeting

Board of Directors

President

Corporate Auditors
Board ofCorporate Auditors

R&D Division
R&D Strategy Department
FGF Product Team
KP-102 Product Team
Central Research Laboratories
Drug Discovery Research Department
Chemistry Department
Pharmacology Department
Pharmacokinetics Department
Drug Formulation Department
Safety Research Department
Administration Department of Clinical Development
Clinical Development Department
Post Marketing Surveillance Department
R&D Quality Assurance Department
R&D Administration Center
Marketing & Sales DivisionMarketing Planning & Coordination Department
Marketing & Sales Department
Sales Promotion & Information Service Department
Promotion & Information
Domestic Nine (9) Marketing & Sales Branches
Tokyo Administrative Office Center
Osaka Administrative Office CenterTokyo Sales Promotion & Information Service Center
Osaka Sales Promotion & Information Service Center
Production Planning & Coordination Department
Shizuoka Factory
Quality Assurance Control Department
Production Technology Laboratories

Kaken Pharmaceutical Co., Ltd. 15

Consolidated Financial Review
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.

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

Millions of yen

2002

2001

Net sales ...................................................... ¥ 73,272
Operating income .......................................
7,725
Net income ..................................................
1,765

2000

1999

1998

2002

¥ 70,306
6,805
1,999

¥ 71,801 ¥ 66,870 ¥65,649
5,925
5,487
3,541
1,989
647
72

$550,917
58,083
13,271

36,112
121,80334,854106,240

293,368
858,083

For the years ended March 31,

At March 31,

Total shareholders’ equity ..........................
Total assets ..................................................

39,018114,125

30,593
100,590

30,63898,769Yen

U.S. dollars (Note)

Per share data:

Net income (Basic) ..................................... ¥ 18.74.
Cash dividends (Non-Consolidated) ........
7.50.
ROE (%) ......................................................
Capital adequacy ratio (%) ........................
.

¥ 21.78.
7.50.

¥ 21.68.
7.50.

¥7.06.
7.50.

¥0.79.
7.50.

5.63.
29.65.

6.08.
32.81.

2.11.
30.41.

0.23.
31.02.

4.70.
34.19.

$

0.141
0.056

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥133 = $1 effective on March 31, 2002.

OVERVIEW

year on year due to competing products. Sales of the prostacyclin

During the year under review, we posted ¥73,272 million in con-analog Procylin and the flurbiprofen plaster Adofeed sank be-

solidated net sales, about 95.9 percent of which resulted from

low the previous year’s levels due to harsher competition withpharmaceuticals, agrochemicals, and animal health products.

other drugs in the same categories.

Sales of these products amounted to ¥70,268 million. OtherIn contrast, sales of the fenofibrate Lipantil steadily increased

businesses, which account for the remaining 4.1 percent of sales,

thanks to our aggressive sales activities. Sales of Cytotec, areached ¥3,004 million.

misoprostol preventing NSAIDs-induced gastric ulcers, have contributed to pushing sales up since we acquired the exclusive

BUSINESS PERFORMANCE

marketing right in January 2002. In the past, both Pharmacia
Corporation and Kaken marketed Cytotec in Japan. In addition,

Pharmaceuticals

Fiblast Spray sales rapidly increased since we placed it on the

Kaken’s pharmaceutical business includes pharmaceuticals, medi-

market in June 2001. This increase in sales reflects medical pro-cal devices, agrochemicals, and animal health products. The con-fessionals’ acknowledgement of the advantages for the treatment

solidated net sales of these products increased 4.5 percent fromof skin ulcers.

the previous year, to ¥70,268 million. Operating income rose
22.0 percent from the year before, to ¥6,502 million.
Sales of the viscoelastic supplement Artz declined slightly

16 Kaken Pharmaceutical Co., Ltd.

Sales of the hyaluronic acid film Seprafilm soared as medical
professionals increased Seprafilm use since health insurance
started to widely cover abdominal operations in February 2001.

While overall sales of agrochemicals slumped, sales of the

CASH FLOWS

fungicide Polyoxin rose against a backdrop of intensified sales

Cash and cash equivalents at the end of Fiscal 2001 totaled

activities. Despite the downward pressure exerted by the¥16,410 million, a decline of ¥7,531 million year on year. This

government’s additional regulations to reduce rice acreage, sales

downturn resulted mostly from the redemption of convertibleof the paddy herbicide Pentoxazon grew in the severe businessbonds. The following describes changes in funds during the year

environment.

under review.

In the animal health products sector, sales of the salinomycin

Cash flows from operating activities. Cash flows from operating

feed additive Eustin and the antibiotic Colistin dropped as we

activities tumbled to ¥3,142 million, a ¥2,976 million decline,

were faced with the industry-wide trend to slash product prices

or 48.6 percent lower than the previous year. This significant

in world markets.

decline stemmed from the 7.7 percent year-on-year drop to¥4,191 million in income before income taxes and minority in-

Other Businesses

terests, and the growth of income taxes paid from ¥2,363 mil-Sales in this segment, which mainly stem from the land we own,lion to ¥5,366 million.

declined 1.0 percent year on year to ¥3,004 million, and operat-

Cash flows from investing activities. Owing to our investing ac-

ing income fell 17.1 percent to ¥1,223 million during the same

tivities, our cash and cash equivalents decreased ¥2,004 million,

period.

which decreased ¥2,521 million in Fiscal 2000. The primary factors behind this decline include the ¥995 million for new prod-

EARNINGS

uct equipment in the Shizuoka and other facilities, and ¥1,488

In the wake of our performance noted in the foregoing, we posted

million for the purchase of sales rights.

consolidated net sales of ¥73,272 million, up 4.2 percent from

Cash flows from financing activities. Cash flows from financing

the year before. Operating income amounted to ¥7,725 million,

activities during the term totaled ¥8,669 million, a ¥17,679 mil-up 13.5 percent during the same period. Net income, however,lion decline year on year, with ¥6,256 million allocated for the

stumbled to ¥1,765 million, down 11.7 percent year on year.

redemption of convertible bonds and ¥1,499 million for pay-

This decline was due to year-end evaluation losses on invest-

ment of long-term debt.

ment securities. EPS was ¥18.74 and ROE 4.70 percent.

Kaken Pharmaceutical Co., Ltd. 17

Consolidated Financial Statements
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.

Consolidated
Balance Sheets
As of March 31, 2002 and 2001

Thousands of
U.S. dollars (Note 3)

Millions of yen

ASSETS

2002

2001

2002

¥014,439
2,191¥019,884
4,285$108,564
16,47439,436561

37,442566

296,511
4,218

Less: Allowance for doubtful accounts .....................................

39,997(11)

38,008(11)

300,729(83)

Inventories (Note 6) .......................................................................
Deferred tax assets (Note 13) .........................................................
Other current assets .........................................................................

39,986
9,796
830
882

37,997
8,522
904
775

300,646
73,654
6,241
6,632

Total current assets ....................................................................

68,12472,367512,211

Property, Plant and Equipment:
Buildings and structures .................................................................
Machinery and equipment .............................................................

35,054
17,13634,864
18,139263,564
128,842

Less: Accumulated depreciation .....................................................

52,190(26,982)

53,003(26,655)

392,406(202,872)

Land ...............................................................................................

25,2083,844

26,348
3,583

189,534
28,902

29,05229,931

218,436

3,869
773
4,318
6,027
151
1,811

6,561
773
3,415
4,775
366
3,615

29,0905,812
32,46645,316
1,135
13,617

16,94919,505

127,436¥114,125¥121,803$858,083

Current Assets:
Cash on hand and at bank (Note 4) ..............................................
Marketable securities (Notes 4 and 5) ...........................................
Receivables:
Notes and accounts receivable-trade ........................................
Accounts receivable-other .........................................................

Investments and Other Assets:
Investment securities (Note 5) .......................................................
Investments in unconsolidated affiliates (Note 5) .......................
Intangible assets and long-term prepaid expenses ........................
Deferred tax assets (Note 13) .........................................................
Deferred charges ..............................................................................
Other assets .....................................................................................

TOTAL ASSETS ...........................................................................

The accompanying notes are an integral part of the Consolidated Financial Statements.
18 Kaken Pharmaceutical Co., Ltd.

Thousands of
U.S. dollars (Note 3)

Millions of yen

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent Liabilities:
Short-term bank loans (Note 7) .....................................................
Current portion of long-term debt (Note 7) .................................
Payables:Notes and accounts payable-trade ............................................
Notes and accounts payable-construction ...............................
Accounts payable-other .............................................................

2002

2001

2002

¥006,204
19,167¥006,409
6,602$046,647
144,113

14,482643
3,261

13,953526
2,383

108,887
4,835
24,519Accrued expenses .............................................................................
Accrued bonuses ..............................................................................
Accrued sales rebates .......................................................................
Accrued income taxes (Note 13) ....................................................
Other current liabilities...................................................................

18,386
557
1,773
472
1,506
560

16,862
463
2,112
481
3,402
622

138,241
4,188
13,331
3,549
11,323
4,210

Total current liabilities .........................................................

48,62536,953

365,602

Non-Current Liabilities:
Long-term debt (Note 7) ................................................................
Accrued pension and severance costs (Note 10) ...........................
Accrued retirement benefits to directors ........................................
Deferred tax liabilities (Note 13) ...................................................
Other long-term liabilities ..............................................................

19,169
6,162
500
319
331

41,817
5,780
511
373
256

144,128
46,331
3,759
2,398
2,489

Total non-current liabilities .................................................

26,481

48,737

199,105

Minority interests in consolidated subsidiaries ..............................

1

1

8

17,00015,735
6,557

15,923
14,661
5,537

127,820
118,308
49,301

Commitments and contingencies (Note 14)
Shareholders’ Equity:
Common stock, 2001 — 50 yen par value, 2002 — no par value
Authorized: 360,000,000 shares
Issued : 91,799,041 shares as of March 31, 2001
and 94,518,374 shares as of March 31, 2002 ........................
Additional paid-in capital ...............................................................
Retained earnings ............................................................................

39,29236,121

295,429Less:
Net unrealized loss on valuation of other securities,
net of taxes (Note 2) ................................................................
Treasury stock, at cost ................................................................

(258)
(16)

—
(9)

(1,940)(121)

Total shareholders’ equity ....................................................

39,01836,112

293,368

TOTAL LIABILITIES ANDSHAREHOLDERS’ EQUITY .................................................

¥114,125¥121,803$858,083

Kaken Pharmaceutical Co., Ltd. 19

Consolidated
Statements of Income
For the years ended March 31, 2002 and 2001

Thousands of
U.S. dollars (Note 3)

Millions of yen

2002

2001

2002

Net sales ...............................................................................................
Cost of sales ..........................................................................................

¥73,272
37,500¥70,306
36,321$550,917
281,955

Gross profit ......................................................................................

35,77233,985

268,962

Selling, general and administrative expenses (Note 12) ....................

28,047

27,180210,879

Operating income .................................................................................

7,725

6,805

58,083

102
(813)
(525)

157
(862)
(525)

767
(6,113)(3,947)279(304)(1,882)
(0)
(6)
(385)

(423)
—
(340)
(0)
(316)
45

2,098
(2,286)(14,150)(0)(45)(2,895)(3,534)(2,264)(26,571)

4,191

4,541

31,512

3,471(1,045)

4,579(2,037)26,098(7,857)

2,426

2,542

18,241

Income before minority interests ........................................................

1,765

1,999

13,271

Minority interests ..................................................................................

0

0

0

Net income ............................................................................................

¥01,765¥01,999$013,271

Other Income (Expenses):
Interest and dividend income ........................................................
Interest expense ...............................................................................
Amortization of net obligation at transition .................................
Gain (Loss) on sales/disposal of property,
plant and equipment, net .............................................................
Loss on sales of investment securities, net .....................................
Revaluation loss of investment securities ......................................
Equity in losses of affiliates ............................................................
Revaluation loss of golf membership ............................................
Others, net .......................................................................................

Income before income taxes and minority interests ..........................
Income taxes (Note 13):
Current .............................................................................................
Deferred ...........................................................................................

Yen

U.S. dollars (Note 3)

Per share data:
Net income:Basic ............................................................................................

¥018.74.

¥021.78.

$000.141

Diluted .......................................................................................

¥016.17.

¥018.89.

$000.122

Cash dividends ................................................................................

¥007.50¥007.50$000.056

The accompanying notes are an integral part of the Consolidated Financial Statements.
20 Kaken Pharmaceutical Co., Ltd.

.

.

.

.

.

Consolidated
Statements of Shareholders’ Equity
For the years ended March 31, 2002 and 2001
Number ofcommonstock

Commonstock

Additional
paid-in
capitalMillions of yen
Retainedearnings

Unrealized
loss on othersecurities

Treasurystock
at costTotal
shareholders’equityBalance at March 31, 2000 ................. 91,799,041 ¥ 15,923 ¥ 14,661
Net income ....................................
Cash dividends ..............................
Directors’ bonuses .........................
Treasury stock acquired, net .........

¥ 4,272 ¥
1,999
(688)
(46)

—

¥

(2) ¥ 34,854
1,999
(688)
(46)
(7)
(7)

Balance at March 31, 2001 ................. 91,799,041 ¥ 15,923 ¥ 14,661
Net income ....................................
Cash dividends ..............................
Directors’ bonuses .........................
Shares issued on conversionof convertible bonds .................... 2,719,333
1,077
1,074
Net unrealized loss on
valuation of othersecurities, net of taxes ..................
Treasury stock acquired, net .........

¥ 5,537 ¥
1,765
(699)
(46)

—

¥

(9) ¥ 36,112
1,765
(699)
(46)

Balance at March 31, 2002 ............... 94,518,374 ¥ 17,000 ¥ 15,735¥ 6,557

2,151

(258)
(7)
¥ (258)(258)(7)¥ (16) ¥ 39,018

Thousands of U.S. dollars (Note 3)
Number ofcommonstock

Commonstock

Additional
paid-in
capitalRetainedearnings

Unrealized
loss on othersecurities

Balance at March 31, 2001 ................. 91,799,041 $119,722 $110,233
Net income ....................................
Cash dividends ..............................
Directors’ bonuses .........................
Shares issued on conversionof convertible bonds .................... 2,719,333
008,098
008,075
Net unrealized loss on
valuation of othersecurities, net of taxes ..................
Treasury stock acquired, net .........

$41,632 $13,271(5,256)(346)

Balance at March 31, 2002 ............... 94,518,374 $127,820 $118,308$49,301—

Treasurystock
at costTotal
shareholders’equity$ (68) $271,519
13,271(5,256)(346)
16,173(1,940)(53)$(1,940)(1,940)(53)$(121) $293,368

Kaken Pharmaceutical Co., Ltd. 21

Consolidated
Statements of Cash Flows
For the years ended March 31, 2002 and 2001

Thousands of
U.S. dollars (Note 3)

Millions of yen

2002

2001

2002

¥04,191¥04,541$031,512Interest and dividends received ......................................................
Interest paid .....................................................................................
Gain on settlement of legal proceeding .........................................
Income taxes paid ...........................................................................
Net cash provided by operating activities ...........................

2,073
1,491
215
0
6
382
(102)
813
304
1,882
77
(356)
(2,052)
487
371
(46)
(527)
9,209
107
(808)
—
(5,366)
3,142

2,100
1,228
296
0
316
556
(157)
862
—
340
468
(45)
(3,818)
11
2,367
(46)
(642)
8,377
151
(854)
807
(2,363)
6,118

15,586
11,211
1,617
0
45
2,872
(767)
6,113
2,286
14,150579(2,677)(15,429)
3,662
2,789
(346)
(3,962)
69,241804(6,075)—(40,346)
23,624

II. Cash flows from investing activities
Acquisition of investment securities ..............................................
Proceeds from sales of investment securities .................................
Acquisition of property, plant and equipment .............................
Proceeds from sales of property, plant and equipment ................
Payment of long-term prepaid expenses ........................................
Other, net .........................................................................................
Net cash used in investing activities ....................................

(10)
67
(995)
362
(1,488)60(2,004)(846)
11(1,366)
136
(530)
74
(2,521)(75)
503(7,481)
2,722(11,188)451(15,068)

III. Cash flows from financing activities
Proceeds from long-term debt ........................................................
Repayment of long-term debt ........................................................
Proceeds from issuance of convertible bonds ...............................
Redemption of convertible bonds .................................................
(Decrease) Increase in short-term bank loan ................................
Cash dividends paid ........................................................................
Other, net .........................................................................................
Net cash (used in) provided by financing activities ...........
Net (decrease) increase in cash and cash equivalents ....................
Cash and cash equivalents at beginning of year .............................
Cash and cash equivalents at end of year (Note 4) .........................

—(1,499)—(6,256)
(206)
(699)
(9)
(8,669)(7,531)
23,941¥16,410

30
(35)
9,726
—
(16)
(688)
(7)
9,010
12,607
11,334¥23,941—(11,270)—(47,038)(1,549)(5,256)(68)(65,180)(56,624)
180,007$123,383¥01,077¥—$008,098

1,074¥02,151

¥

—
—

8,075
$016,173

I. Cash flows from operating activities
Income before income taxes and minority interests .....................
Adjustments for:
Depreciation ..............................................................................
Amortization of long-term prepaid expenses ..........................
Amortization of deferred charges .............................................
Equity in losses of affiliates .......................................................
Revaluation loss of golf membership .......................................
Accrual for pension and severance costs, less payments .........
Interest and dividend income ...................................................
Interest expense ..........................................................................
Loss on sale of investment securities ........................................
Revaluation loss of investment securities .................................
Loss on disposals of property, plant and equipment ..............
Gain on sale of property, plant and equipment ......................
Increase in notes and accounts receivable-trade ......................
Decrease in inventories .............................................................
Increase in notes and accounts payable-trade ..........................
Paid bonuses to directors ..........................................................
Other, net ...................................................................................

Non-cash transactions:
Increase in common stock due to conversionof convertible bonds .....................................................................
Increase in additional paid-in capital due to conversion of
convertible bonds ..........................................................................
Decrease in convertible bonds due to conversion ........................
The accompanying notes are an integral part of the Consolidated Financial Statements.
22 Kaken Pharmaceutical Co., Ltd.

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 andrecords 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 Accounting Standards, and filedwith the Director of Kanto Finance Bureau. The consolidated

statements of shareholders’ equity have been prepared to provide
additional information.
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 topresent the consolidated financial position, results of operations
and cash flows in accordance with accounting principles andpractices generally accepted in countries and jurisdictions otherthan Japan.

2. Summary of Significant Accounting Policies:(a) Principles of Consolidation
The Company had five subsidiaries as of March 31, 2002. The
consolidated financial statements include the accounts of theCompany and all of its subsidiaries. The consolidated subsidiaries
as of March 31, 2002 are as follows:
KAKEN REALTY & SERVICE CO., LTD.
KAKEN PHARMA CO., LTD.
KAKEN LOGISTICS CO., LTD.
EIKO FILTER CO., LTD.
FUJIKA CORPORATIONThe Company had an affiliate as of March 31, 2002. Investment
in N·K Curex Co., Ltd. is accounted for by the equity method.
All significant intercompany transactions, account balances
and unrealized profits among the Group have been eliminated inconsolidation.
The difference between the cost of an investment in a subsidiary and the amount of underlying equity in net assets of the subsidiary is allocated to identifiable assets based on fair value at thedate of acquisition. The unassigned residual value of the excess ofthe cost over the underlying net equity is recognized as goodwill,
and amortized over a period of five years on a straight-line basis.
(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 as one of four categories; (1) Trading, (2)Held-to-maturity debt, (3) Securities of subsidiaries and affiliated,and (4) Other. Trading securities are recorded at market value
with unrealized gains and losses recognized in the current years
earnings.

Debt securities that are expected to be held-to-maturity arecarried at amortized cost. Securities of subsidiaries and affiliates
are carried at cost. Other securities are expected to be sold in thelong term and those, whose fair values are readily determinable,
are carried at fair value with unrealized gains or losses included asa separate component in shareholders’ equity, net of taxes. Other
securities without market quotations are stated at cost, determinedby the moving average method.
Effective from the year ended March 31, 2002, other securities,
which are expected to be sold in the long-term and those, whose
fair values are readily determinable, are carried at fair value withunrealized gains or losses included as a separate component inshareholders’ equity, net of taxes.
Previously, such securities were carried at cost under a transition treatment of the new accounting standard for financial instruments which was effective in the year ended March 31, 2001.
As a result of this adoption, investment securities decreased by¥445 million, and the related deferred tax assets (non-current)
increased by ¥187 million. Net unrealized loss on valuation ofother securities are reported as a separate component of shareholders’ equity, net of taxes.
(d) Inventories
Inventories are stated at cost, this being determined by the averagemethod.
(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. Consolidated subsidiaries principally adopted the straight-line method.

Kaken Pharmaceutical Co., Ltd. 23

Furthermore, depreciation of buildings, except for ancillaryfacilities to buildings, acquired after April 1,1998, is computed
using the straight-line method.
The range of useful lives is from 3 years to 60 years forbuildings and from 2 years to 17 years for equipment.
(f) Pension and Retirement Benefits
Employees who terminate employment are entitled, under mostcircumstances, to lump-sum payments or pension payments as
described below, determined by reference to current basic rate ofpay, 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 based on 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 underthe existing retirement plan to employees.
The accrued pension and severance costs represents theamount actuarially calculated projected benefit obligations less
(1) the fair value of the plan assets (2) unrecognized actuarial loss
or gain and (3) the unrecognized transition amount arising fromadopting the new standard. If the fair value of the plan assets
exceeds the projected benefit obligations, prepaid pension andseverance costs are recorded. The transition amount (unfunded
and unrecognized benefit obligation) of ¥7,902 million at April 1,
2000 is amortized on a straight-line basis over 15 years (for subsidiaries mainly 10 years). Unrecognized actuarial loss or gain isamortized on a straight-line basis over 10 years from the next year
in which 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 notcovered by the plan assets.
Accrued retirement benefits to directors and statutory auditors
is provided in an amount equivalent to the liability the relevant
company would have been required to pay upon retirement at thebalance sheet date, as prescribed by its internal rules.
(g) 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 andliabilities and their reported amount in the financial statements.
(h) Consumption Taxes
Consumption taxes have been excluded from amounts shown on
the accompanying consolidated statements of income.

24 Kaken Pharmaceutical Co., Ltd.

(i) Research and Development Expenses
Previously significant research and development expenses for new
products and new technologies had been capitalized and amortizedover five years on the straight-line basis.
However, on April 1, 1999, a new accounting standard for
Research and Development expenses (the “R&D expenses”) was
adopted. Under the new standard, R&D expenses are charged toincome as incurred, while the capitalized amounts at March 31,
1999 are amortized over the remaining period.
(j) Hedge Accounting
Derivative financial instruments
With regard to interest rate swap and foreign exchange forward
contracts, the Company uses an accrual method based on the
short-cut method assuming that there is no ineffectiveness in thehedging relationship between hedged items and hedging instruments. Fair value and unrealized gains/losses of derivative transactions are not required to be presented for the years ended March
31, 2002 and 2001, contractual values or notional amounts.
Derivative financial instruments have not been implemented
by consolidated subsidiaries.
(k) Bond Issue Costs
Bond issue costs are capitalized and amortized over three years on
the straight-line basis.
(l) Legal Reserves
Additional paid-in capital
Additional paid-in capital, recorded pursuant to the JapaneseCommercial Code, primarily consists of proceeds on issuance ofshares of common stock of the Company that were not recorded
as “common stock”. Additional paid-in capital may be transferred
to other additional paid-in capital to the extent that the sum ofadditional paid-in capital and earned reserve (collectively, “legal
reserves”) does not fall below 25% of capital amount. However,additional paid-in capital may not transferred to retained
earnings.
Earned reserve
The Japanese Commercial Code requires all companies to appropriate as an earned reserve an amount equivalent to at least 10%of cash payments for appropriation of retained earnings until thelegal reserves equals 25% of stated capital. Earned reserve may betransferred to unappropriated retained earnings to the extent thatthe legal reserves do not fall below 25% of capital amount.
Legal reserves may be transferred to capital through suitabledirectors’ actions or offset against deficit through suitable shareholders’ actions.

(m) Net Income and Dividends per Share
Net income per share of common stock is based upon theweighted 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 theassumption that the convertible bonds were fully converted into
common stock on the date of issue or at the beginning of therespective years subsequent to the issue, with appropriate adjustments of related interest expense (net of tax).

3. 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 ¥133 = U.S.$1. The inclusion of suchdollar amounts is solely for convenience and is not intended to
imply that yen amounts have been or could be converted, realized
or settled in dollars at ¥133 = U.S.$1 or any other rate.

4. Cash and Cash Equivalents:
Cash on hand and at banks and marketable securities are reconciled to cash and cash equivalents of consolidated statements of cash flows
as follows:
Thousands of
U.S. dollars (Note 3)

Millions of yen

Cash on hand and at banks .....................................................................................................
Marketable securities ................................................................................................................
Time deposits which fall due in more than three months .....................................................
Marketable securities due in more than three months ...........................................................
Cash and cash equivalents .......................................................................................................

2002

2001

2002

¥14,439
2,191
16,630
(70)
(150)
(220)
¥16,410¥19,884
4,285
24,169
(78)
(150)
(228)
¥23,941$108,564
16,474125,038(527)(1,128)(1,655)$123,383

5. Marketable Securities and Investment Securities:
For the year ended March 31, 2001
Securities classified as “Other securities” and those whose fairvalue are readily determinable are carried at cost as of March 31,
2001. Information for those securities is as follows:
Millions of yen

Carrying amount in the balance sheet ...............................
Fair value ..............................................................................
Unrecognized loss, net of tax ..............................................
Deferred tax assets ...............................................................

¥6,337
5,844
286
207

For the year ended March 31, 2002
Millions of yen
Marketvalue

Unrealized
gain (loss)

Other securities:
Market value available
Equity securities ........................ ¥3,911
Other securities .........................
228
4,139
Market value not available ............ 2,989
Total ........................................... ¥7,128¥3,499
195
3,694
2,989
¥6,683¥(412)(33)(445)—¥(445)

Held-to-maturity debt securities:
Market value not available ............ ¥0,150¥0,150¥ —Cost

Kaken Pharmaceutical Co., Ltd. 25Thousands of U.S.dollars (Note 3)
Cost

Marketvalue

Unrealized
gain (loss)

Other securities:
Market value available
Equity securities ........................ $29,406
Other securities ......................... 1,714
31,120Market value not available ............ 22,474
Total ........................................... $53,594$26,308
1,466
27,77422,474$50,248$(3,098)(248)(3,346)—$(3,346)

Held-to-maturity debt securities:
Market value not available ............ $01,128$01,128$

Other securities sold during the fiscal years ended March 31, 2002
and 2001
Millions of yen—

Proceeds from sales ..........................
Gross realized gains ..........................
Gross realized losses .........................

Thousands of
U.S.dollars (Note 3)

2002

2001

2002

¥067
—
304

¥—
—
—

$0,504—
2,286

Write down of investments in securities
During the year ended March 31, 2002, certain equity securities
with market quotations were written down by ¥1,882 million.
The Company writes down the book value of equity securities
when the market value declines by more than 50%, or the market
value declines approximately by more than 30% but less than
50% and the Company’s management determines the decline
to be other temporary.

6. Inventories:
Inventories as of March 31, 2002 and 2001 are comprised of the following:Thousands of
U.S. dollars (Note 3)

Millions of yen

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

2002

2001

2002

¥4,884
1,770
2,464
481
197
¥9,796¥5,362
1,769
805
439
147
¥8,522$36,722
13,30818,526
3,617
1,481$73,654

7. Short-term Bank Loans and Long-term Debts:
Short-term bank loans outstanding as of March 31, 2002 and 2001
are represented by 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,
2002 and 2001 are 0.89% and 1.13%, respectively. Outstandingbalance of short-term bank loans as of March 31, 2002 and 2001
were ¥6,204 million and ¥6,409 million, respectively.

Long-term debts as of March 31, 2002 and 2001 consisted of the following:Thousands of
U.S. dollars (Note 3)

Millions of yen

March 31
Loans from banks and other financial institutions due 2002 to 2007 .................................
2.7% unsecured convertible bond due 2002 (a) ....................................................................
1.0% unsecured convertible bond due 2003 (b) ...................................................................
0.0% unsecured convertible bond due 2007 (c) ....................................................................
Other long-term debt with interest bearing due 2002 to 2033 .............................................
Less: current portion .................................................................................................................

26 Kaken Pharmaceutical Co., Ltd.

2002

2001

2002

¥(02,670—
18,491
7,849
9,326
38,336(19,167)¥(19,169¥04,169
6,256
18,491
10,0009,503
48,419(6,602)¥41,817$(020,075—
139,030
59,01570,121
288,241(144,113)$(144,128

a) 2.7% Unsecured convertible bond
Holders of this bond are entitled to convert these bonds into common
stock (par value of ¥50) at a price of ¥1,357.10 during the period from
April 1, 1993 to March 28, 2002.
b) 1.0% Unsecured convertible bond
Holders of this bond are entitled to convert these bonds into common
stock (par value of ¥50) at a price of ¥1,610 during the period from April
1, 1994 to March 28, 2003.
c) 0.0% Unsecured convertible bond
Holders of this bond are entitled to convert these bonds into common
stock (par value of ¥50) at a price of ¥791 during the period from
August 9, 2000 to September 14, 2007.

Aggregate annual maturities of convertible bonds in the next
five fiscal year are as follows:

Within one year .......................................
Over one year less than two years ..........
Over two years less than five years .........
More than five years and thereafter ........

Millions of yen

Thousands of
U.S. dollars(Note 3)

¥18,491——
7,849¥26,340$139,030——
59,015$198,045

Aggregate annual maturities of long-term bank loans and otherinterest bearing debt are as follows:
Millions of yen
Long-termbank loans

Thousands of
U.S. dollars (Note 3)

Other interest
bearing debt

Long-termbank loans

Other interest
bearing debt

Within one year ........... ¥0,493
Over one year lessthan two years ............ 1,488
Over two years lessthan three years ..........
689
Over three years lessthan four years ...........
0Over four years lessthan five years ............
—
More than five years
and thereafter .............
—¥0,183$03,707$ 1,376

188

11,188

1,414

194

5,180

1,459

200

0

1,504

207

—

1,556

8,354

—

62,812¥2,670¥9,326$20,075$70,121

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 the right,
as the obligations become due or in the event of their default, tooffset cash deposits against such obligations due to the bank. The
Group has not received any such requests to date.
At March 31, 2002 and 2001, assets pledged as collateral for
certain short-term (¥1,410 million) and long-term debts (¥10,654
million), including current portion of long-term debts, wereas follows:
Millions of yen

March 31

Thousands of
U.S.dollars(Note 3)

2002

2001

2002

Assets pledged
Buildings and structures ........... ¥11,139
Machinery and equipment .......
2,117
Land ...........................................
108
Investment securities .................
1,411¥13,962
2,326
108
2,048

$083,752
15,917812
10,609¥14,775¥18,444$111,090

Liabilities and secured
Short-term bank loans .............. ¥01,410
Long-term bank loans ...............
1,328
Other interest bearing debt ......
9,326¥12,064¥01,410
2,816
9,503¥13,729$010,602
9,985
70,120$090,707

Under the terms of the agreement for the 2.7% convertible
bonds due 2002, the cumulative amount of cash dividends may
not exceed ¥400 million ($3,008 thousand) plus the aggregate
amount of ordinary income after income taxes (as defined in theagreement) of the Company beginning with the fiscal year ended
March 31, 1993. Under the terms of the agreement for the 1.0%
convertible bond due 2003, the cumulative dividends may notexceed ¥700 million ($5,263 thousand) plus the aggregate
amount of ordinary income after income taxes of the Company
beginning with the fiscal year ended March 31, 1994.

Kaken Pharmaceutical Co., Ltd. 27

8. 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 expense of
the leased assets, which included the portion of interest thereon,
were summarized as follows:
Millions of yen

Thousands of
U.S.dollars(Note 3)

March 31

2002

2001

2002

Acquisition cost .................................
Accumulated depreciation ................
Net book value ..................................

¥15
6
¥09

¥15
4
¥11

$113
45
$068

Depreciation ......................................

¥02

¥02

$015

Periodic lease expenses on finance lease contracts withoutownership-transfer for the years ended March 31, 2002 and 2001
were summarized as follows:
Millions of yen

Periodic lease expense ....................

Thousands of
U.S.dollars(Note 3)

2002

2001

2002

¥2

¥2

$15

The amount of outstanding future lease payments due atMarch 31, 2002 and 2001, which included the portion of interest
thereon, was summarized as follows:
Millions of yen

Thousands of
U.S.dollars(Note 3)

March 31

2002

2001

2002

Within one year ..............................
Over one year ..................................

¥01
9

¥02
10

$08
67

¥10

¥12

$75

Depreciation is computed on the straight-line method over the lease termof the leased assets with no residual value.

9. 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 fromits forward exchange contracts and interest rate swap agreements.
The Company is also exposed to the risk of credit loss in the eventof non-performance by the counterparties to the currency andinterest rate derivatives; however, the Company does not anticipate nonperformance by any of these counterparties all of whom
are financial institutions with high bond ratings.

10. Pension and Retirement Benefits:
The benefit obligation and plan assets, funded status and composition of amounts recorded in the consolidated balance sheet asof March 31, 2002 and 2001 is as follows:
Millions of yen

March 31

Thousands of
U.S.dollars(Note 3)

2001

2002

Projected benefit obligations ....... ¥(22,561) ¥(21,441)
Plan assets .....................................
8,048
7,980
Funded status ................................ (14,513) (13,461)
Unrecognized transition
amount .......................................
6,844
7,372
Unrecognized actuarial loss .........
1,763
467
(5,906) (5,622)
Amounts recognized in thebalance sheet consists of —Prepaid pension cost ...............
256
158
Accrued pension andseverance costs ....................... ¥0(6,162) ¥0(5,780)$(169,632)
60,511(109,121)

28 Kaken Pharmaceutical Co., Ltd.

2002

The components of net pension and severance costs for theyears ended March 31, 2002 and 2001 were as follows:

51,45913,256(44,406)

1,925$0(46,331)

Millions of yen

Service cost ......................................
Interest cost .....................................
Expected return on plan assets .......
Amortization of transition amount
Actuarial loss ...................................
Net pension expense ......................

Thousands of
U.S.dollars(Note 3)

2002

2001

2002

¥0,747
749
(199)
528
46
¥1,871¥0,740
742
(203)
530
—
¥1,809$05,617
5,631(1,496)3,970
346$14,068

Assumptions used in calculation of the above information as ofMarch 31, 2002 were as follows:
Discount rate ................................................... 2.8%
Expected rate of return on plan assets ............ 1.5%
Method of attributing the projected
benefits to periods of services ....................... years of service

11. Shareholders’ Equity:
The following appropriations of the Company’s retained earnings
in respect of the year ended March 31, 2002 which were approvedby the shareholders at the general meeting held on June 27, 2002,
have not been incorporated in the accompanying consolidated
financial statements.

Millions of yen

Retained earnings at the end of the year ......
Utilization of reserve
Utilization of deferred gain on salesof property, plant and equipment ......
Appropriations:
Dividends (¥3.75 per share) .................
Bonuses to directors ...............................
[of which to statutory auditors] ............
Transfer to reserve:
Deferred gain on sales ofproperty, plant and equipment .....
Others reserves ..................................
Retained earnings carried forward to
the following year ......................................

Thousands of
U.S.dollars(Note 3)

¥6,032$45,354

18
6,050

135
45,489

(354)
(40)
[4]

(2,662)
(301)
[30]

(63)
(600)

(474)
(4,511)¥4,993$37,541

12. Selling, General and Administrative Expenses:
Major elements of “Selling, general and administrative expenses” for two years in the period ended March 31, 2002 and 2001 are as follows:
Thousands of
U.S. dollars (Note 3)

Millions of yen

Salaries ......................................................................................................................................
Bonuses .....................................................................................................................................
Pension and severance costs ....................................................................................................
Provision for retirement benefits to directors .........................................................................
Research and development expenses ......................................................................................
Sales promotion .......................................................................................................................
Advertisement ...........................................................................................................................
Rent and lease ...........................................................................................................................
Travel .........................................................................................................................................

2002

2001

2002

¥6,926
2,980
992
75
5,253
1,828
651
1,731
1,465

¥6,934
3,303
955
79
4,977
1,722
571
1,734
1,449

$52,075
22,406
7,459
564
39,496
13,744
4,895
13,015
11,015

13. Income Taxes:
The Group is subject to several taxes based on income, which in
the aggregate resulted in statutory tax rates of approximately
42.05% for the two years in the period ended March 31, 2002.
Reconciliation of the differences between the statutory tax rate
and the effective tax rate and the effective tax rate for the years
ended March 31, 2002 and 2001 are as follows:

2002

2001

Statutory tax rate ...................................................... 42.05%
Increase (decrease) in taxes resulting from:
Expenses not deductible for income tax
purpose (ex. Entertainment expenses) ............ 14.36
Income not included for income tax
purpose (ex. Dividend income) ...................... (0.30)
Inhabitant equalization taxes ............................ 1.86
Other .................................................................. (0.09)
Effective tax rate ....................................................... 57.88%

42.05%

12.75(0.28)
1.78(0.33)
55.97%

Kaken Pharmaceutical Co., Ltd. 29

Significant components of deferred tax assets as of March 31, 2002 and 2001 are as follows:
Thousands of
U.S. dollars (Note 3)

Millions of yen

March 31

2002

2001

2002

Deferred tax assets:
Non-deductible portion of reserve for bonuses ...............................................................
Provision for reserve for sales rebates ...............................................................................
Enterprise taxes payable ....................................................................................................
Devaluation of financial instruments ...............................................................................
Amortization of R&D ........................................................................................................
Amortization of long-term prepaid expenses ..................................................................
Pension and severance costs .............................................................................................
Provision for retirement benefits to directors ..................................................................
Non-deductible portion of allowance for bad debt ........................................................
Unrealized gain of property, plant and equipment .........................................................
Unrealized loss on other securities ...................................................................................
Other ..................................................................................................................................

¥0,475
198
133
1,069
56
997
1,015
210
87
2,568
187
62

¥0,475
202
213
285
98
973
710
215
79
2,568
—
28

$03,571
1,489
1,000
8,038
421
7,496
7,632
1,579
654
19,308
1,406
466

Total deferred tax assets .......................................................................................

7,057

5,846

53,060

Deferred tax liabilities:
Deferred gain on sales of property, plant and equipment ..............................................
Other ..................................................................................................................................
Total deferred tax liabilities .................................................................................

(519)
0
(519)

(540)
0
(540)

(3,902)0(3,902)

Deferred tax assets, net ........................................................................................

¥6,538¥5,306$49,158

14. Commitments and Contingencies:
The Group had contingent liabilities arising from notes discounted at banks in the ordinary course of business in theamount of ¥2,157 million as of March 31, 2002.

30 Kaken Pharmaceutical Co., Ltd.

In addition, the Company was contingently liable for the guarantee of loans borrowed by N·K Curex Co., Ltd., an affiliate, in
the amount of ¥2,800 million as of March 31, 2002.

15. Segment Information:
Information about operations in industry segments of the Group for years ended March 31, 2002 and 2001 is as follows:
Millions of yen

2002

I. Sales and Operating Income
Sales to customers ................................................................................
Inter-segment/transfer .........................................................................

Operating expenses ..............................................................................
Operating income ................................................................................
II. Assets, Depreciation andCapital Expenditures
Assets .............................................................................................
Depreciation ..................................................................................
Capital Expenditures .....................................................................

Eliminations
or Corporate

Pharmaceutical

Other*

Total¥70,268—
70,268¥03,004
594
3,598¥73,272594
73,866

63,766¥06,5022,375¥01,223

66,141¥07,725¥¥68,728¥02,913¥03,649¥20,899¥00,866¥00,058¥89,627¥03,779¥03,707¥

Consolidated

—
(594)
(594)

¥073,272—
73,272(594)—

65,547¥007,725¥24,498¥—¥—¥114,125¥003,779¥003,707

Eliminations
or Corporate

Consolidated

2001

I. Sales and Operating Income
Sales to customers ................................................................................
Inter-segment/transfer .........................................................................

Operating expenses ..............................................................................
Operating income ................................................................................
II. Assets, Depreciation andCapital Expenditures
Assets .............................................................................................
Depreciation ..................................................................................
Capital Expenditures .....................................................................

Pharmaceutical

Other*

Total¥67,272—
67,272¥03,034
892
3,926¥70,306
892
71,19861,943¥05,3292,450¥01,476

64,393¥06,805¥¥68,325¥02,697¥01,465¥22,290¥00,927¥00,151¥90,615¥03,624¥01,616

¥

—
(892)
(892)

¥070,306—
70,306(892)—

63,501¥006,805¥31,188¥—¥—¥121,803¥003,624¥001,616

Thousands of U.S. dollars (Note 3)

2002

I. Sales and Operating Income
Sales to customers ................................................................................
Inter-segment/transfer .........................................................................

Operating expenses ..............................................................................
Operating income ................................................................................
II. Assets, Depreciation andCapital Expenditures
Assets .............................................................................................
Depreciation ..................................................................................
Capital Expenditures .....................................................................

Eliminations
or Corporate

Pharmaceutical

Other*

Total$528,331—
528,331$022,586
4,466
27,052$550,917
4,466
555,383

479,443$048,888

17,857$009,195

497,300$ 58,083$$516,752$021,902$027,436$157,135$006,512$000,436$673,887$028,414$027,872$

Consolidated—(4,466)(4,466)$550,917—
550,917(4,466)—492,834$ 58,083$184,196$—$—$858,083$ 28,414$ 27,872*Other business fields consist of mainly real estate.

Kaken Pharmaceutical Co., Ltd. 31

Report of Independent Accountants
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, 2002 and 2001 and the related consolidated statements of income, shareholders’ equity and cash flows for the years ended, all expressed in Japanese yen. Our audits were made inaccordance with auditing standards, procedures and practices generally accepted and applied in Japan and, accordingly,
included such tests of accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the accompanying consolidated financial statements referred to above present fairly the consolidated financial position of the Group as of March 31, 2002 and 2001 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 2 to the consolidated financial statements, the Group adopted new Japanese accounting standards forvaluation of other securities in the year ended March 31, 2002.
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader have been translated on
the basis set forth in Note 3 to the accompanying consolidated financial statements.

ChuoAoyama Audit Corporation

Tokyo, Japan
June 27, 2002

32 Kaken Pharmaceutical Co., Ltd.

Hijiribashi Audit Corporation

Corporate Data (As of March 31, 2002)
REGISTERED HEAD OFFICE
28-8, Honkomagome 2-chome, Bunkyo-ku,
Tokyo 113-8650, Japan
Tel: 81-3-5977-5002
Fax: 81-3-5977-5131
http://www.kaken.co.jp

Employees (Non-Consolidated)
Administration: 132
Sales & Marketing: 969
Production & Technology: 278
Research & Development: 276

Global Business Development
FoundedMarch 1917

Incorporated
March 1948

Paid-in Capital

2-28-8, Hon-Komagome, Bunkyo-ku,
Tokyo 113-8650, Japan
Director & General Manager
Masao Ishida
Tel: 81-3-5977-5046
Fax: 81-3-5977-5133
E-mail: masao-ishida@kaken.co.jp

Plant
Shizuoka Factory

Research Laboratories
Shizuoka Research Laboratories
Kyoto Research Laboratories
Production Technology Laboratories

Overseas Office:Kaken New York Office
245 Park Avenue, 24 th Floor, New York,NY10167
Tel: 1-212-372-8910
Fax: 1-212-372-8970¥17,000 million (As of Sept. 30, 2002)

Branch Offices
Common Stock
Authorized: 360,000,000 shares
Issued: 94,518,374 shares (As of Sept. 30, 2002)
Number of Shareholders: 23,470

Sapporo Branch
Sendai BranchTokyo-1 BranchTokyo-2 Branch
Nagoya Branch
Osaka-1 Branch
Osaka-2 Branch
Hiroshima Branch
Fukuoka Branch

Board of Directors and Corporate Auditors
Chairman and Representative Director
Yoshiharu Wakiyama
President and Representative Director
Shiro Inui
Executive Managing Director
Susumu Yamazaki(Agrochemicals and Animal Health Products)
Executive Managing Director
Hidefumi Kurosawa(Research and Development)
Executive Managing Director
Noriaki Ohsono(Accounting)Executive Managing Director
Osamu Okamoto(Regulatory and Licensing)

Executive Director
Nobuo Nunomura(Production)

AuditorIchiro Aota
(Standing)

Executive Director
Tametsugu Watatani(Marketing)

Auditor
Satoshi Shoji(Standing)

Executive Director
Takeshi Hirahara(Corporate Planning and Coordination)

Auditor
Nobukazu Sakai

Executive Director
Yoshinori Kambayashi(Research and Development)

Auditor
Sumio Yoshizawa

Executive Director
Yutaka Handa(Personnel)
Executive Director
Takeji Saito(Marketing and Sales)

Kaken Pharmaceutical Co., Ltd. 33

Bringing smiles to everyone

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

Printed in Japan