Bringing Smiles to Everyone

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

Annual Report 2010
Year
Year Ended
Ended March
March 31,
31, 2010
2010
PrintedPrinted inin JapanJapan

Bringing smiles
to everyone

Corporate Philosophy
By serving as many people as possible to return smiles of happinessto their faces, through supplying superior pharmaceuticals,

Corporate Data
ProfileContents(As of March 31, 2010)
The originof Kaken Pharmaceutical Co., Ltd. can be traced back to the

President’s Message

02

Institute of Physical and Chemical Research (Riken), established in 1917.

Developing New Products

04

The Company started pharmaceutical business with full-scale development of

Overview of Major Products

06

Directory

Company Information

REGISTERED HEAD OFFICE
FoundedCommitment and Excellence
10
28-8, Honkomagome 2-chome, Bunkyo-ku,
March 1917
since Tokyo
then broadened
the scope
Fulfilling Our Social Responsibilities
12
113-8650,
Japanof its business and drug development activities
throughand alliance. Kaken’s prestige has soared accordingly.
Tel:merger
81-3-5977-5001
Incorporated
Board of Directors and Corporate Auditors
14
Fax:
81-3-5977-5131
While
the Company has established strength in developing and selling March 1948
Financial Section
15
http://www.kaken.co.jp
pharmaceuticals for orthopedics, it is now expanding its involvement in other
Data
39
Paid-in Corporate
Capitalmedical fields, such as dermatology. The Company contributes to improving
Global Business Development¥23,853 million
people’shealthbycultivatingitsown
originaltechnologies,
engaging
injoint
Executive Director & General Manager
development
initiatives, introducing new technologies and acquiring
Masao Ishida
Common Stock
Tel: 81-3-5977-5046
Authorized: 360,000,000 sharesmarketingrights.
Fax: 81-3-5977-5133
Issued: 101,879,461 shares (As of July 31, 2010)
As a fruit of its technology and product introduction, the Company has
E-mail: masao-ishida@kaken.co.jp
Number of Shareholders: 16,159 (As of Mar. 31, 2010)
penicillin and streptomycin based on Riken’s own technologies in 1948, andbeen since June 2001 marketing Fiblast Spray consisting of Trafermin, a

Forward-Looking Statements

annual report contains forward-looking statements pertaining to the Company’s
recombinant
form of human basic Fibroblast Growth Factor (bFGF) for the EmployeesThis(Non-Consolidated)
Main Branchesbusiness and prospects. These statements are based on current analysis of existing

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.

Sapporoinformation119
and trends. Actual results may differ from expectations due to unforeseen
first timein theBranchworld, licensed from a U.S. bio-pharmaceutical company, Administration:
BranchScios,Sendai
in the areaof regenerative medicine (wound healing medicine).

risks and uncertainties.
Sales & Marketing:980
Production & Technology: 232
Research & Development: 295
Regulatory Affairs: 39

Tokyo-1 BranchTokyo-2 Branch
Nagoya Branch
Osaka-1 Branch
Osaka-2 BranchConsolidated
Financial Highlights
Hiroshima Branch
Fukuoka Branch
2010

Thousands of
U.S. dollars (note)Millions of yen

2009

2010

For the years ended March 31,

Plant
Net sales
Shizuoka Factory¥85,022¥82,930$914,215

Operating income

11,784

10,629126,710

Research Laboratories
Net income
Shizuoka Research Laboratories
Kyoto
At March
31, Research Laboratories
Production Technology Laboratories
Total net assets

6,734

5,579

72,40959,57556,679640,591

95,096

94,504

1,022,538

Total assets
Overseas Office:Kaken New York Office
Per share
245 data:
Park Avenue, 24th Floor, New York, NY10167
Tel: 1-212-372-8910
Net income(basic)Fax:
1-212-372-8970
Cash dividends (non-consolidated)
E-mail: ny@kaken.co.jp

Yen

U.S. dollars (note)¥ 68.79¥ 55.61

$

0.740

30.00

26.00

0.323

%

Ratios:

ROE

11.59

9.78

—

Capital adequacy ratio

62.65

59.98

—

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥93 = $1 effective on March 31, 2010.

39

Profile

Contents

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

President’s Message

02

Institute of Physical and Chemical Research (Riken), established in 1917.

Developing New Products

04

The Company started pharmaceutical business with full-scale development of

Overview of Major Products

06

penicillin and streptomycin based on Riken’s own technologies in 1948, andCommitment and Excellence10

since then broadened the scope of its business and drug development activities

Fulfilling Our Social Responsibilities

12

through merger and alliance. Kaken’s prestige has soared accordingly.

Board of Directors and Corporate Auditors

14

Financial Section

15

Corporate Data

39

While the Company has established strength in developing and selling
pharmaceuticals for orthopedics, it is now expanding its involvement in othermedical fields, such as dermatology. 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

Forward-Looking Statements

recombinant form of human basic Fibroblast Growth Factor (bFGF) for theThis annual report contains forward-looking statements pertaining to the Company’s

first time in the world, licensed from a U.S. bio-pharmaceutical company,

information and trends. Actual results may differ from expectations due to unforeseenbusiness and prospects. These statements are based on current analysis of existingrisks and uncertainties.

Scios, in the area of regenerative medicine (wound healing medicine).

Consolidated Financial Highlights

Thousands of
U.S. dollars (note)Millions of yen

2010

2009

2010

Net sales¥85,022¥82,930$914,215

Operating income

11,784

10,629126,710Net income

6,734

5,579

72,409Total net assets

59,57556,679640,591

Total assets

95,096

94,504

1,022,538

For the years ended March 31,

At March 31,

Per share data:

Net income (basic)
Cash dividends (non-consolidated)

Yen

U.S. dollars (note)¥ 68.79¥ 55.61

$

0.740

30.00

26.00

0.323

%

Ratios:

ROE

11.59

9.78

—

Capital adequacy ratio

62.65

59.98

—

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥93 = $1 effective on March 31, 2010.

1

President’s Message

Kaken strives to be a company with anindependent presence. Rather than pursuingscale, we center on areas in which we have acompetitive advantage. We leverage this strengthand our independence to raise the value of ourcompany. By providing drugs that meet the needsof the times, we intend to remain a company thathas a clear reason to exist as we work to bringsmiles to the faces of patients and their families.
We aim to return smiles of happiness to as
many people as possible. We will continue toapply innovation and creativity in drug
development as we pursue this goal.

Overview of Results for the Fiscal Year Ended March 31, 2010industry. The Kaken Group considers this situation an

The pharmaceutical industry in Japan is being affected by theopportunity. We aim to maximize corporate value by steadily

national government policy of constraining medical costs byraising awareness and implementing operational reforms, as well

promoting the use of generic drugs at medical institutions andas maintaining our status as a trusted company in the eyes ofsales at dispensaries, and to increase the number of medical

society through a strong commitment to compliance. Our five

facilities adopting the diagnosis procedure combination (DPC)

key reforms are outlined below.

payment system for medical treatment.
During the fiscal year under review, increased sales ofFocus investments on research and development

mainstay pharmaceuticals and medical devices prompted a 2.5%

We are striving to concentrate our investment in and raise theincrease in consolidated net sales compared with the previous

efficiency of our research and development to expand theyear, to ¥85,022 million. Spending was higher on experimental

product pipeline. At the same time, we will continue to actively

R&D for the development of overseas clinical trials, but profits

pursue strategic alliances with domestic and overseas companies

increased because we offset through efforts to use selling, generaland research institutions, and introduce new research programs.

and administrative expenses more efficiently. Consequently, weTo speed up research and development, we will outsource

fared well on the profit front, with operating income growing

basic research procedures, make use of contract research

10.9%, to ¥11,784 million; and net income jumping 20.7%, toorganizations (CROs) and conduct overseas and joint¥6,734 million.

international clinical trials.
We will also endeavor to maximize new research andAddressing Future Challenges for Continued Growthdevelopment of new drugs, to raise our level of contribution to

Ongoing government initiatives to curb healthcare spending arepeople throughout the world.

raising the level of competition within the pharmaceutical2

Strengthen our sales force

Basic Policy and Approach concerning Returns to Shareholders

We have developed a system to ensure that medical

Kaken considers long-term and comprehensive profit increases

representatives provide medical institutions with necessary

for its shareholders an important management goal. Operating

information at the appropriate times. We will expand ourin the pharmaceutical industry entails large risks, requiring us tomarket share to ensure our strong position in the field of

have a higher level of equity capital than companies in otherorthopedics. We are also actively pursuing the generic drug

industries. We employ a flexible dividend policy that sets cash

business as one pillar of our operations. We are augmenting

dividends based on performance while maintaining a balance

the information we provide by utilizing product-related

between returns to shareholders and strengthening equity capital.

websites and the mass media.

Dividends per share of common stock applicable to thefiscal year under review consisted of an interim dividend of

Establish an internal control system and carefully
manage risk

¥15.00 and a year-end dividend of ¥15.00—each ¥2.00 higher

We are reinforcing our internal control system to achieve four

year of ¥30.00 per share. This amount is ¥4.00 higher than for

objectives: higher operating effectiveness and efficiency, reliable

the preceding fiscal year, making fiscal year 2009 our eighthfinancial reporting, compliance in our business activities andconsecutive year of dividend increases and achieving a payout

security of assets.

ratio of 43.6%. Kaken also implements a flexible system ofthan in the previous year, resulting in total dividends for theacquisition of treasury stock through resolutions by the Board of

Optimize and streamline operations

Directors to facilitate response to changes in the businessOn the production side, we will make further reassessments ofenvironment. During the fiscal year, Kaken bought back anprocedures, products and standards as we strive to lower

additional 2 million of its shares from the market.

manufacturing costs. In the field of agrochemicals, we are

Retained earnings are appropriated to optimize corporate

expanding consigned production to overseas companies and wevalue through targeted investment in research and development

remain committed to obtaining FDA certification. Moreover,and in improvements to business infrastructure.

we are outsourcing our distribution center business and we willcontinue to promote cost reductions.

Target Management Indicators and Long-Term Business
Strategy

Promote Environmental Protection

The Kaken Group’s medium- to long-term numerical targets for

Kaken’s Shizuoka production and R&D facilities have obtained

future growth comprise consolidated operating income of ¥15

ISO 14001 certification, and our Kyoto research laboratories

billion and return on equity (ROE) of 12% or more. In thehave been awarded the Kyoto Environmental System certification

future, we will endeavor to optimize the value of each divisionby the city of Kyoto in recognition of their environmental

and establish a base that ensures our survival as a business thatmanagement systems. We recognize environmental protection

maintains a strong presence in the 21st century.

as a social responsibility, and to this end we are aggressively
promoting activities at all levels of our organization. For example,

June 2010

we have established an Environment Committee and set up
Environment Task Forces at each worksite, and we carefullycomply with the revised Law Concerning the Rational Use ofEnergy. These activities are summarized in our Social andEnvironmental Report on the Kaken website.
Shiro Inui
President

3Kaken’s Innovative Product for Regeneration
Fiblast Spray—the world’s first regenerative medicine—is thecommercialized product of the human recombinant protein basic
Fibroblast Growth Factor (bFGF). bFGF, a member of the FGF family
that exists endogenously in almost all tissues and binds to theextracellular matrix, is released from the matrix once cells or tissues aredamaged, such as by trauma or ischemia, after which bFGF acts on avariety of cells and tissues to promote regeneration. As the drug’s actions
are broad-ranging, it is characterized by its powerful ability to stimulate
not only the proliferation of numerous cell types, but also the formationof new blood vessels.
After obtaining exclusive licensing rights in Asia in 1988 from Scios
Inc. of the United States, Kaken made continued R&D efforts toward
approval of the drug for the treatment of pressure ulcer and other skinulcers (burns and leg ulcers), releasing the product onto the market for
the first time as Fiblast Spray in June 2001. After more than nine years
on the market as a wound healing agent, the drug is employed in

SPECIAL FEATURE

Developing New Products
numerous hospitals and clinics in Japan. In recent years, the drug has
earned a solid reputation for its ability to improve the “Quality ofWound Healing,” as evidenced by the prevention of hypertrophic scarand scar contracture, the formation of moisturized soft scar and so on.
bFGF has also been found to promote the proliferation andregeneration of periodontal and bone tissues, in addition to skin tissue.
In dentistry, its effectiveness has been proven in the regeneration ofalveolar bone, as well as to the regeneration of periodontal ligament andcementum. We have completed two Phase II clinical trials inperiodontitis patients to confirm the dose-dependent effects on theregeneration of destroyed alveolar bone, and also to identify the optimaldose for Phase III. Currently, Phase III trial is proceeding as scheduled,
and we expect to obtain marketing approval in 2012. We are conducting
basic research with the prospect of expansion into areas of dentistrybeyond periodontitis, including implant applications.
For bone tissue, bFGF has demonstrated the ability to promote
fracture repairs by enhancing bone metabolism through both the directproliferative effect on osteoblasts and the indirect accelerative effect on
osteoclasts. We recently completed Phase II clinical trials on patients4New Drug Development Pipeline
Product

Indication

Stage

Remarks

1 KCB-1D

Periodontitis

PIII

bFGF

2 KP-103 (IDP-108)

Onychomycosis

PIII

Global clinical development; topical formulation

3 KCB-1B

Bone fractures

PII FinishedbFGF
Next stage of clinical trials under consideration

4 TRK-100STP

Lumbar spinal canal stenosis

PII

Developed jointly with Toray;
New indication for sustained-release formulation of beraprost sodium

5 KP-413

Atopic dermatitis

PI/IITopical formulation; PI/ II in U.S.A.

6 KP-102LN

Short stature

Development
abandoned

7 KP-496NS

Allergic rhinitis

Development
abandoned

with tibial shaft fractures, and we are in the process of setting our next
objective.
In addition to the areas in which we are conducting clinical trials,
we are also currently collaborating with universities and other researchorganizations in Japan in broad-ranging areas to expand the possibilities
of bFGF-based regenerative medicines.
In March 2005, we obtained worldwide rights to develop,
manufacture and market bFGF. That same year in December, weconcluded a license agreement with a Chinese pharmaceutical company
for the development and marketing of Fiblast Spray. In June 2007, weconcluded a license agreement with Sunstar Inc. involving development
and marketing in Europe and North America in the dental area.
Furthermore, in November 2009 Kaken and Olympus Corporationentered a license agreement regarding the development, manufacture
and marketing of bFGF in wound healing applications in Europe andNorth America.
Utilizing the technologies and know-how accumulated through our
research and development efforts toward bFGF, we continue tocollaborate with our overseas partners to expand our global activities.

5Overview of Major Products

6

Pharmaceuticals and Medical Devices
Artz (sodium hyaluronate)
Artz is an anti-osteoarthritis with highly purified sodium hyaluronate as the active ingredient. Hyaluronic
acid is extracted from rooster combs and has viscoelastic, water-retentive and lubricating properties. In 1987,
Artz was released for the first time, indicated for osteoarthritis of the knee as a form of hyaluronic acidinjectable into the joint, obtaining additional approval for the treatment of shoulder periarthritis in 1989.
In 1992, Artz Dispo—a packaging of the drug with a disposable syringe—was released with the aim ofmaking injection procedures simpler and faster, as well as reducing the danger of infections. In 2005, thedrug was approved for the treatment of knee joint pain accompanying chronic rheumatoid arthritis.
Procylin (oral prostaglandin I2 analog)
Procylin is a prostaglandin I2 analog, beraprost sodium, as its active ingredient, which dilates blood vessels
and inhibits platelet aggregation, serving as a treatment for chronic artery occlusive disease. This drug was
created by Toray Industries, Inc. and commercialized through joint clinical development with Kaken. It is
the only oral prostaglandin I2 analog formulation in the world.
Procylin is a superior circulation enhancer with its ability to inhibit platelet aggregation and increase
peripheral blood flow. The drug was launched in 1992 for its effectiveness in treating ulcers, pain and chills
resulting from such conditions as arteriosclerosis obliterans (ASO) and thromboangitis obliterans (TAO). In
1999 Procylin received additional approval for primary pulmonary hypertension.

Artz (Sodium hyaluronate)

Procylin(oral prostaglandin I2 analog)

Adofeed (pain- and inflammation-relieving plaster)
Adofeed is an antiphlogistic analgetic plaster containing Flurbiprofen as its active ingredient, which is a
non-steroidal anti-inflammatory drug that acts as a powerful prostaglandin biosynthesis inhibitor. Absorbed
directly through the skin, Adofeed has proven effective in reducing pain and inflammation associated withosteoarthritis, shoulder periarthritis, tennis elbow, muscle pain and other inflammatory diseases.
In October 2008, we began selling products that are twice the size of previous offerings. This enhanced
lineup gives patients more range in selecting products that are sized correctly for their use.
Mentax (anti-trichophyton agent)
Mentax is a topical treatment for superficial mycosis with butenafin hydrochloride—created by Kaken—as
its main ingredient. Mentax is marketed worldwide, including in the United States through Mylan Pharmaceuticals. In December 2001, Mentax was approved as an over-the-counter (OTC) drug in the UnitedStates and is now marketed under the trade name Lotrimin Ultra through Schering-Plough Corporation.
In 2003, Mentax was approved for manufacture and sale as an OTC drug in Japan, and is currently being
marketed as an OTC drug by Takeda Pharmaceutical Company Limited and Sato Pharmaceutical Co., Ltd.
In 2004, we launched a new spray formulation of Mentax.
Lipidil (anti-hyperlipidemia)This new micronized formulation of the active ingredient Fenofibrate in the drug Lipantil—released in
1999—is a fibrate type of lipid-lowering agent with increased absorbability.
Fenofibrate is a fibrate compound developed by Fournier Pharma in France. The drug improves
overall lipid metabolism by activating peroxisome proliferator activated receptor a (PPARa) in liver cells andlowering triglycerides and cholesterol while increasing HDL cholesterol by adjusting the expression of avariety of proteins involved in lipid metabolism.
Lipidil is sold in over 90 countries and has accumulated extensive clinical experience.

Adofeed(pain- and inflammation-relieving plaster)

Mentax(anti-trichophyton agent)

Lipidil (anti-hyperlipidemia)

Seprafilm (synthetic-absorbent anti-adhesive barrier)Seprafilm is a sheet-type, synthetic-absorbent and anti-adhesive medical device developed by Genzyme
Corp. in the United States, consisting of sodium hyaluronate and Carboxymethylcellulose. Within 24 to 48
7hours after applying Seprafilm to tissues damaged by surgery, the product becomes a hydrated gel andremains in place for approximately seven days, acting as an effective anti-adhesive by creating a physicalbarrier between damaged tissue and the surrounding normal tissue.
Seprafilm is available in three types of package, for selection according to use.

Seprafilm(synthetic-absorbent anti-adhesive barrier)Fiblast Spray(wound healing agent)

Fiblast Spray (wound healing agent)
Consisting of Trafermin, a recombinant form of human basic Fibroblast Growth Factor (bFGF), Fiblast
Spray is a wound healing promoter having effects of angiogenesis and granulation formation. Scios Inc.
paved the way for the development of recombinant bFGF by mapping the complete DNA sequence of thehuman bFGF gene. Kaken then took over development of the drug, releasing Fiblast Spray as the world’s
first human bFGF agent in 2001.
Ebrantil (treatment for dysuria and 1-selective hypertension)
Ebrantil is a sustained-release formulation of the 1-selective blocker, Urapidil.
In Japan, the drug was first marketed in 1989 as a treatment drug for hypertension, based on its
peripheral vasodilating effect. In 1995 the treatment was approved for difficulty in urination caused bybenign prostatic hyperplasia, and in 1999 it was approved as the world’s first α1-blocker for the treatment ofdysuria caused by neurogenic bladder.
Cytotec (NSAID-induced ulcer preventive drug)
This drug is excellent at treating gastric and duodenal ulcers brought on by the administration of NSAIDs.
The active ingredient, prostaglandin E1-analog Misoprostol, developed by G.D. Searle (now Pfizer, Inc.),
both inhibits the secretion of gastric juices and exerts a mucosal protective effect (site protection).
In the Guidelines for the Examination of Gastric Ulcers and Guidelines for the Treatment of Rheumatoid Arthritis in Japan, Cytotec is recommended as a drug backed by clinical evidence for the prevention
and treatment of NSAID-induced ulcers.
Generic Drugs
In Japan, government authorities are currently urging the use of generics as part of a movement to reduce
medical costs. We are also seeing an increase in frequency of generic drug use in actual medical practice.
As the generic drug market grows, Kaken is making aggressive forays into generics to seize this business
opportunity.
In addition to pharmaceuticals, medical devices, agrochemicals and animal health products, and realestate, we intend to build generics into the fifth pillar of our operations with a medium-term goal of ¥10billion in sales. We will continue to expand our product line to achieve this objective.

Berasas(Oral Prostaglandin I2 analog
Sustained-Release Formulation)

8

Berasus (oral prostaglandin I2 analog sustained-release formulation)
In October 2007, Kaken gained manufacturing and sales authorization for Berasus, and launched the drugon the market the same year in December
Berasus is a sustained-release formulation of beraprost sodium, a primary component of procylin,which was launched in 1992. Compared with procylin, it can be used as a treatment for pulmonary arterial
hypertension (PAH) but with more stable blood concentrations and with the possibilities of reduced
number of administrations and higher single doses.
To date, there have been few effective drugs to combat PAH and Berasus is positioned as an important
drug in this category.
Clinical trials are currently underway that include lumbar spinal canal stenosis as a new indication.

Agrochemicals
Polyoxins (fungicides)
Polyoxins were discovered in 1963 by Dr. Saburo Suzuki and his associates at the RIKEN Institute. Polyoxins
are natural pesticides produced from microorganisms by culturing from the actinomycete Streptomyces cacaoi
var. asoensis, which is isolated from the soil of the Aso region of Kumamoto Prefecture, Japan.
Polyoxins are not single compounds, but rather consist of a group of composite compounds withchemically similar structures. So far, 14 types of polyoxin analogues of Polyoxins A through N have been
discovered. Among these analogues, Polyoxin AL, used on fruit trees and vegetables, has Polyoxin B as its
active ingredient, while Polyoxin Z, used on lawns, has Polyoxin D as its active ingredient. Polyoxins havealready been marketed as horticultural fungicides for over 40 years and are used broadly in a wide variety of
applications. Polyoxin AL formulation has demonstrated wide-ranging antifungal activity against diseasedamage from powdery mildew, gray mold and other mold fungi affecting vegetables, flowers and ornamental
plants and has recently been clarified as showing an acaricidal activity on Tetranychus species.
Pentoxazone (rice herbicide)
Pentoxazone is an oxazolidinedione-type rice herbicide synthesized at the Sagami Chemical Research Centerand developed by Kaken. In 1997, we obtained registration of Pentoxazone in Japan as a single agent andmixed formulation, since which time the herbicide has been used primarily as the initial chemical in a
number of rice herbicide mixtures.
While Pentoxazone is mainly used to control annual weeds, such as barnyard grass, broad leaves, andmonocholia in paddy fields, the chemical is effective against a vast array of weeds, including Eleocharis
kuroguwai, a perennial weed that is difficult to control. It is especially stable, effective and long-lasting incontrolling broad leaves and monocholia species, which are resistant to sulfonylurea herbicides.
Pentoxazone can be used in diverse situations owing to its high crop safety. The agent may be applied
as an initial chemical before or after transplant, allowing simultaneous transplanting as a one-shot herbicide.
One formulation has also recently received registration for direct planting in flooded soil. Although injury tocrops may result in the form of light browning on the leaf sheaths of the rice plants five to ten days after
application, this condition is temporary and the plants recover quickly with little impact on their development.
The herbicide has extremely low water solubility and high soil adsorptivity, resulting is almost no
outflow into groundwater or rivers. Pentoxazone’s low toxicity to humans, animals, marine creatures andother living things lends the herbicide a high degree of environmental safety.

Animal Health Products
Salinomycin (ionophore anti-coccidial for chicken)
Salinomycin sodium is a polyether antibiotic discovered by Kaken Pharmaceutical Co., Ltd. in 1968 in a
culture of a strain of the actinomycete Streptomyces albus. Salinomycin sodium is the most widely usedanti-coccidial in the world and is effective even against clostridia. Salinomycin sodium is produced under
Good Manufacturing Practice (GMP), supplied to Japan and exported worldwide.
Colistin sulfate (polypeptide antibiotic)
Colistin sulfate is a polypeptide antibiotic discovered in 1950 in a culture of Bacillus Colistinus, which had
been extracted from soil in Fukushima Prefecture, Japan. Colistin’s activity against gram-negative bacteria,
including the major livestock pathogens E. coli and salmonella, has led Kaken to export the antibiotic aroundthe world in response to high global demand.

9

Commitment and Excellence

R&D Division
Kaken’s drug discovery activities focus on such areas of strength
as inflammation, allergies and pain, in addition to its continued
research on fungal infections. We invest substantial financial
and human resources into such research activities with the aimof developing new drugs that are both effective and safe. To
continue creating innovative drugs, we maintain active programsof drug discovery research, spearheaded by outstanding researchprofessionals and techniques refined over many years ofexperience in pharmaceutical development.
At present, we have a total of around 300 employees in the
R&D division. During the year under review, we estimate that
our research and development expenses came to ¥7.5 billion. To
reinforce the new product development pipeline, we cooperatewith Global Business Development to enhance the proactive
evaluation of licensing-in candidates among developed products.
In addition, to expedite our R&D activities we are actively
pursuing strategic alliances with both domestic and international
companies and research institutes including for global clinicaldevelopment, as well as outsourcing some of our operations.
Kaken is fully committed to R&D activities that produce
progressive proprietary medicines, which will enable the Company
to build a unique position as a pharmaceutical manufacturer.
To enable efficient R&D activities, we adopt a multifaceted
approach that includes pinpointing specific research programs,
in-house discovery, joint research and development, in- andout-licensing of developed products, and outsourcing.
The Central Research Laboratories are located in Kyoto,
the ancient capital of Japan, and Shizuoka. We divide duties
and employ cutting-edge research equipment and techniques toaid drug discovery and investigation, which require long andarduous research and unrivalled expertise. At our Kyoto
laboratory, we carry out drug discovery research, synthetic
studies and pharmacological studies, while at our Shizuoka
laboratory we conduct studies on pharmacokinetics, drug safety
and formulation.
We advance R&D efforts through cooperation andcoordination among five research sections. The Chemistry
Laboratory handles synthesis of medicinal compounds that are
the seeds of new drugs. The Drug Discovery Research Laboratory
seeks out discovery targets, performs screening and evaluates
pharmacological activities of candidate compounds. The
Pharmacology Laboratory verifies the utility of candidate
compounds created through discovery research and compares
them alongside other drugs. The Pharmacokinetics and Safety

10

Research Laboratory investigates the safety of candidate
compounds on animals and humans and assesses their ADME
in vitro and vivo. The Drug Formulation Laboratory characterizes
the physico-chemical properties of compounds and designs
formulation for drug compounds to bring out maximum safety
and effectiveness in the resulting drug’s action on target patients.
As a result of our research activities, in 2003, Kaken’s
scientists received the Award for the Most Outstanding Pharmacy
Thesis from the Academy of Pharmaceutical Science andTechnology, Japan (APSTJ) in the field of oral solid formulation
design, and in 2009, we won the APSTJ Asahi Kasei Encouraging
Award for employing the same technology in the formulation
design of Itraconazole. These awards underscore our high levelof fundamental technology. We are leveraging such researchtechnologies to accelerate and expand our leading R&D efforts.
During 2007, we concluded a licensing agreement with
Gene Techno Science Co., Ltd. (GTS), a venture company of
Hokkaido University, which grants exclusive worldwide rights
to Kaken for development, manufacturing and marketing of theanti-alpha-9 integrin antibody. Through such initiatives, we arepressing forward with the development of antibody drugs.
Furthermore, to expedite drug discovery research, we willcontinue focusing on our specialist areas and actively pursue
alliances with research institutions in Japan and overseas. We
will also introduce and license new technologies on a global basis,seeking out new technologies and their seeds on a worldwide scale.
As a part of our efforts to continue carrying out research that
anticipates future needs, respected researchers in Japan periodically
discuss and advise on Kaken’s drug discovery programs.
Following numerous pharmacological and safety studies,clinical candidates proceed to clinical development. Clinical
trials are studies in which drug candidates that have passed thenon-clinical trials are actually administered to humans. The
Clinical Development Department verifies the efficacy of
candidate compounds coming out of discovery research or from
elsewhere and plans and performs clinical trials on thosecompounds. The Administration Department of ClinicalDevelopment oversees clinical trial quality and reliability andmanages safety information for investigational drugs. These
departments coordinate with the research laboratories to ensure
speedy completion of clinical trials.

Regulatory Affairs Division
Kaken’s Regulatory Affairs Division consists of three
departments—the Quality Assurance Department, thePharmacovigilance Department and the Regulatory Affairs
Department.
The Regulatory Affairs Division shoulders Kaken’s
responsibility as a pharmaceutical manufacturer and marketer,
making the final judgments on quality, effectiveness and safety
in providing Kaken’s drugs to medical professionals in the field.
The Quality Assurance Department assesses whether eachdrug is produced according to those judgments every time andwhether the quality test results comply with standards. The
Pharmacovigilance Department then evaluates the safety informationcollected so far from medical institutions pertaining to the drugin question, after which the Regulatory Affairs Division judgments
are comprehensively carried out.
The Quality Assurance Department therefore works tomaintain quality by regularly inspecting internal and external
plants and collecting and examining information on quality.
Meanwhile, the Pharmacovigilance Department reports theassessed safety information to the required entities and distributes
information to medical institutions on the appropriate use ofpharmaceuticals to enhance their effectiveness, such as byincorporating this information in the drug documentation.
The Regulatory Affairs Department supervises and assists
with general aspects of production and marketing. Separate
from these matters, the department is also involved in drug
R&D affairs. It compiles basic and clinical data produced in the
R&D Division, obtaining drug approvals as well as registrationin the drug price standards after approval.

Production Division
Our production facilities in Shizuoka Prefecture were among
the first in the industry to incorporate factory automation
systems. They comply with Japanese GMP, which stipulates
requirements for drug manufacturing and quality control. In
addition to satisfying these requirements, the quality of products
for export clears current Good Manufacturing Practice (cGMP)
regulations in the United States, which were formulated by the
Food and Drug Administration (FDA).
We have also set up Production Technology Laboratories
within the facilities, aiming to enhance product quality andresearch pharmaceutically useful innovations.

Marketing and Sales Division

healthcare professionals to gather medical information related tothe safety and effectiveness of our drugs and provide feedback to
the relevant departments. We have established nine branches
and 68 sub-branches so that our 700 MRs can work closely withlocal communities, particularly in our specialist fields oforthopedics and dermatology.

Agrochemical & Animal Health Products DivisionThis division conducts integrated R&D and sales ofagrochemicals, feed additives and drugs for animals globally.
Within agrochemicals, we supply two original active
compounds for agricultural use: Polyoxins (fungicides) andPentoxazone (a rice herbicide), with sales focused in Japan andan expanding market overseas. Polyoxins are natural pesticides
cultured from Streptomyces mycelia, and can be used against
disease damage on vegetables, fruit trees, lawns and ornamental
plants with a high degree of safety for humans and animals, anda low environmental impact. The product has demonstrated
wide-ranging anti-fungal activity and has earned long-standing
support from agricultural producers in Japan and abroad. In
addition, acaricidal activity has recently been clarified, expanding
the scope of usage. Pentoxazone has proven to be extremely
effective against perennial weeds in rice paddies. As the numberof sulfonylurea herbicide-resistant weeds has increased in recent
years, Pentoxazone has become an essential herbicide for rice
farmers.
We also supply feed additives, including our original
products Salinomycin and Lasalocid used as anti-coccidials forchickens, and colistin sulfate and bacitracin zinc, used to control
the spread of bacterial diseases in stock animals, and otherlivestock products that are essential for healthy animals and safe
food production.
The Agrochemical & Animal Health Products Division
will continue to develop and sell products with a high degree ofsafety for humans and animals and a low environmental impact
and, accordingly, contribute to the safety and reliability of foodproduction.

Distribution Division
We outsource all distribution center functions to distributors
specialized in handling pharmaceuticals.

Kaken’s medical representatives (MRs) provide professionals on
the medical front line with up-to-date information on the
Company’s drugs and medical devices. Our MRs also talk with11

Fulfilling Our Social Responsibilities

Corporate Governanceour business activities. The Company’s businesses are directly

Kaken’s business philosophy is the “three joys.” These are:concerned with people’s health and lives. In carrying out“creating joy for patients,” “creating joy as a company” andthese important activities, each employee maintains a strong“creating joy for our employees.” Of the three, ourdaily commitment to these activity principles and guidelines.
Moreover, we maintain and operate a basic policy onunderstanding of “creating joy as a company” is that “werecognize our social responsibility as a pharmaceuticalinternal control systems, pursuant to the Companies Act,company with a high ethical standard and society’s trust.” Inbased on a resolution of the Board of Directors on May 12,

accordance with this viewpoint, the enhancement of2006.

corporate governance, management transparency and theobligation to provide stakeholders with appropriate

Complianceinformation is among our top management priorities.

Kaken recognizes compliance-based management as the mostfundamental element in gaining society’s trust and achieving

Our Initiatives

healthy development. We further believe that this will enable

Kaken is aware that compliance is pivotal to earning the trust

the Company to raise its corporate value for the benefit ofof society. To this end, we have established activity principles

our shareholders, investors, business partners and the local

and guidelines and adhere to high ethical standards in all ofcommunity.

Corporate Governance System
General Meeting of Shareholders
Appoint/dismiss

Board of Corporate Auditors
Corporate Auditors

Appoint/dismiss

Audit

Appoint/dismiss
Supervise

Coordinate/report

Accounting
Auditor
Audit

InstructOperational Auditing Office

ReportPresident

ReportManaging Directors’ Meeting
Audit

12

ReportBoard of Directors

Coordinate

Risk Management andvarious other committees

Appoint/dismiss

Deliberate
ReportPromoteReportInstruct, supervise

Company-wide organizations,Group companies

supervise

Kaken’s Activity Principles

protection and improvement are pressing issues forEvery executive and employee of Kaken and its subsidiaries is

corporations, too, we are striving to fulfill our corporate

strongly committed to compliance in operations with respectphilosophy through environmental preservation—to realize ato observing Japanese and foreign laws and regulations,society full of healthy, smiling faces—and to promote social

respecting different cultures and customs and adopting highcontribution activities as a good corporate citizen.

ethical standards.

Kaken launched its environmental campaign in 1983,

1. We recognize the preciousness of life and shall contributewith the objectives of maintaining and preserving people’s

to the welfare of society by channeling all our efforts into

health and living conditions and responding to generalenhancing people’s health and patients’ quality of life.

pollution issues, through the establishment of Environmental

2. We recognize the importance of maintaining appropriate

Measure Committees and startup of activities at eachrelations with all our stakeholders, including shareholders,

operational site. Further, in 2004, we formulated basic

investors, employees, business partners and local

principles and basic policies related to environmental issues.

communities.

In response to the April 2009 revision of the Act on the

3. We shall compete in a fair and free manner, conducting
our business activities in a just and proper way.

Rational Use of Energy, we recast our Environmental
Measures Committees into an Environmental Measures Task

4. We shall handle all the Company’s assets, including

Force. This organization will work in tandem with theinformation, in a legitimate and proper manner toEnvironmental Committee to develop companywide

facilitate the smooth running of its operations.

activities centered on environmental preservation.

5. We shall respect the human rights and individuality of

Thereafter, we have fortified our environmental

employees, pay attention to health and safety issues andmanagement activities. Our Shizuoka production and R&D

work hard to foster a fair and honest workplace culture.

facilities have had ISO 14001 certification since August 2001

6. We shall manage Company information appropriately andand our Kyoto research laboratories were awarded Kyoto

disclose information in a timely and appropriate manner.

Environmental System (KES) certification in April 2005.

7. We shall take seriously the impact of our activities on the

In the future, all of our worksites, spanning the

global environment and contribute to society as a good

Company’s headquarters and branches, will actively promote

corporate citizen, including through environmental

environmental management and social contribution activities

protection efforts.

to expand and strengthen our fight against environmental

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

problems. Further, we are striving to reduce theenvironmental burden of our business activities on theenvironment.

Environmental Protection Activities
Our corporate philosophy is that “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.” Based on this credo,
we are contributing to the health and lives of people throughour pharmaceutical operations.
The importance of environmental conservation has
grown over recent years. Recognizing that environmental

13

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

President and Representative Director

Executive Director

AuditorShiro Inui

Masao Ishida

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

Executive Director

Auditor(Administration)

Takao Endo

Fumio Hoshii(General Affairs)(Standing)Shuji Komoto

Executive Director

Auditor

(Accounting, Purchasing and

Hirokazu Konishi

Sumio Yoshizawa

Agrochemicals)(Marketing Planning & Coordination)

Executive Managing Director

Executive Director

Tetsuo Onuma

Yoshihiro Ieda

(Marketing and Sales)(Corporate Planning & Coordination)

Executive Managing Director

Executive Managing Director

AuditorExecutive Managing Director
Susumu Kojima(Research and Development)

14

Keizo NemotoFinancial Section
Consolidated Five-Year Summary

16Management Discussion and Analysis

16

Consolidated Balance Sheets

18

Consolidated Statements of Income

20

Consolidated Statements of Changes in Net Assets

21

Consolidated Statements of Cash Flows23

Notes to the Consolidated Financial Statements

24

Report of Independent Auditors

38

15

Consolidated Five-Year Summary

Thousands of
U.S. dollars(note)

Millions of yen

2010

2009

2008

2007

2006

2010

¥85,022
11,784
6,734¥82,930
10,6295,579¥79,934
9,842
5,106

¥76,415
8,113
4,602

¥75,540
8,359
3,886

$914,215
126,710
72,40959,57595,09656,67994,50457,44793,85660,433
100,900

54,637
98,739640,591
1,022,538

For the years ended March 31:

Net sales
Operating income
Net income
At March 31:

Total net assets
Total assets
Per share data:

Net income (basic)
Cash dividends (non-consolidated)¥ 68.79
30.00¥ 55.61
26.00

Ratios:ROE
Capital adequacy ratio

U.S. dollars(note)

Yen¥ 48.35
20.00¥ 42.4217.00¥ 40.23
15.00

8.00
59.89

7.76
55.33

$ 0.740
0.323

%

11.59
62.65

9.78
59.98

8.66
61.21

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥93 = $1 effective on March 31, 2010.

Management Discussion and Analysis
Business Climate
During the year, government-induced measures to limit medical
costs continued through efforts such as encouraging medical
institutions and pharmacies to promote the use of generic drugs,
and the number of medical facilities adopting the diagnosis
procedure combination (DPC) payment system for medical
treatment increased.
Under these circumstances, the Group’s sales of mainstay
pharmaceuticals and medical devices increased.

Performance
Consolidated net sales for the year under review amounted to¥85,022 million, up 2.5% from the preceding fiscal year.
Research and development costs increased, owing to the expansionof overseas clinical trials, but operating income grew 10.9%, to¥11,784 million, as we strove to raise the efficiency of selling,
general and administrative expenses. Net income climbed
20.7%, to ¥6,734 million.

16

Segment Information
Pharmaceuticals
Our pharmaceuticals segment consists of two core categories:
pharmaceuticals and medical devices, and agrochemicals.
In pharmaceuticals, sales of Artz—an anti-osteoarthritic
and one of our mainstay products—grew. Sales of generic drugs
increased, but sales of Procylin—a treatment for chronic artery
occlusive disease—decreased.
In medical devices, sales of the anti-adhesive absorbent
barrier Seprafilm expanded steadily.
In agrochemicals, sales of the feed additive Salinomycinfell, as did sales of Pentoxazone, a rice herbicide.
As a result, net sales rose 2.6% year on year, to ¥82,562
million, and operating income grew 12.4%, to ¥10,281 million.
Net sales overseas reached ¥2,774 million.

Real Estate
Rental income from Bunkyo Green Court represents the bulkof revenues from our real estate business. Sales in the real estatesegment declined 0.8%, to ¥2,460 million, while operating
income increased 1.5%, to ¥1,503 million.

Financial Position
Total assets at fiscal year-end stood at ¥95,069 million, up ¥592
million from the previous year. This growth was mainly the
result of an increase in marketable securities. Total liabilities
amounted to ¥35,521 million, down ¥2,303 million, primarily
as a result of a decrease in payables. Net assets totaled ¥59,575
million, a rise of ¥2,895 million, due mainly to higher retained
earnings.

Cash Flows
Cash and cash equivalents at the end of fiscal year 2009 stood at¥17,504 million, up ¥4,947 million from the previous year.
Principal factors related to cash flow during the year aredescribed below.
Net cash provided by operating activities amounted to¥11,049 million, up ¥2,576 million. Principal factors were adecrease in inventories and an increase in income before
income taxes.
Net cash used in investing activities totaled ¥2,374 million,
down ¥197 million from the preceding year. The primary reason
for the change was the redemption of investment securities.
Net cash used in financing activities was ¥3,727 million,¥2,002 million less than in the preceding term. This was mainly
the result of a decrease in the acquisition of treasury stock.

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

Risk Factors
The factors outlined in the list below may materially affectinvestors’ decisions relating to the Company’s business activities.
Forward-looking statements reflect the Group’s judgment andforecasts based on information available as of the end of the
fiscal year under review. It should be noted that not all risks areincluded in the list.
(1) Risks related to new drug development
Substantial investment and development periods of morethan 10 years are required before a new drug is released onto
the market. While undertaking development with due regard
to verifying the efficacy and safety of a particular drug,
development could be halted midway.

17

Consolidated Balance Sheets
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.
As of March 31, 2010 and 2009
Thousands of
U.S. dollars(Note 4)

Millions of yen

ASSETS
Current Assets:
Cash on hand and at banks (Notes 5 and 11)

2010

2009

¥ 9,900¥10,155$ 106,452

7,603

2,401

81,753

Notes and accounts receivable–trade (Note 11)27,66028,347

297,419

Accounts receivable–other

1,197

996

12,871

28,85829,344

310,301

(7)

(7)

(75)

28,851

29,336

310,226

Inventories (Note 7)

8,993

10,946

96,699Deferred tax assets (Note 17)

1,168

1,319

12,559

306

771

3,290

56,82454,931

611,011

Buildings and structures

36,95736,485397,387

Machinery and equipment

19,171

19,476

206,140

56,12955,962603,538(35,617)(34,754)(382,978)20,511

21,207

220,548

3,762

3,762

40,452969

925

10,41925,24325,895

271,430

5,445

5,042

58,548

519

657

5,581

Deferred tax assets (Note 17)

4,900

5,276

52,688Other assets

2,162

2,699

23,247

13,02813,677140,086¥95,096¥94,504$1,022,538

Marketable securities (Notes 5, 6 and 11)2010

Receivables:

Less: Allowance for doubtful receivables

Other current assets
Total current assets
Property, Plant and Equipment (Notes 9 and 10):

Less: Accumulated depreciation
Land
Construction in progress
Total property, plant and equipment
Investments and Other Assets:
Investment securities (Notes 6 and 11)
Intangible assets and long-term prepaid expenses

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

18

Thousands of
U.S. dollars(Note 4)

Millions of yen

LIABILITIES AND NET ASSETS
Current Liabilities:
Short-term bank loans (Notes 8 and 11)
Payables:Notes and accounts payable–trade (Note 11)
Notes and accounts payable–construction
Accounts payable–other

2010

2009

¥ 8,510¥ 7,910$ 91,505

Accrued expenses
Accrued bonuses
Accrued sales rebates
Accrued income taxes (Note 17)
Other current liabilities
Total current liabilities

11,174130
3,452
14,758
1,131
1,214
451
2,061
731
28,85813,172431
4,242
17,846
648
1,222
485
2,564
561
31,237

120,151
1,398
37,118
158,688
12,161
13,054
4,849
22,161
7,860
310,301

Non-Current Liabilities:
Accrued pension and severance costs (Note 13)
Accrued retirement benefits to directors
Deferred tax liabilities (Note 17)
Other long-term liabilities
Total non-current liabilities

5,678
395
189
398
6,662

5,598
357
200
431
6,588

61,054
4,247
2,032
4,280
71,63423,85323,853

256,484

11,587
28,684(4,999)59,124

11,587
24,698(3,417)56,722

124,591
308,430(53,753)
635,742447
245059,575¥95,096

(43)
—
(43)
56,679¥94,504

4,806
22
4,839
640,591$1,022,538

Net Assets:
Shareholders’ Equity (Notes 2 (l) and 14):
Common stock–no par value
Authorized: 360,000,000 shares
Issued: 101,879,461 shares as of March 31, 2010 and 101,879,461 shares
as of March 31, 2009
Capital surplus
Retained earnings
Treasury stock, at cost: 5,738,399 shares in 2010 and 3,695,041 shares in 2009
Total shareholders’ equity
Valuation and translation adjustments:
Net unrealized gain on other securities, net of taxes (Note 2 (c))
Deferred gain on hedges
Total valuation and translation adjustments
Total net assets
TOTAL LIABILITIES AND NET ASSETS

2010

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

19

Consolidated Statements of Income
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.
For the years ended March 31, 2010 and 2009
Thousands of
U.S. dollars(Note 4)

Millions of yen

2010

2009

2010

Net sales
Cost of sales
Gross profit¥85,022
44,11640,905¥82,930
43,14439,786$914,215
474,366
439,839

Selling, general and administrative expenses (Note 15)
Operating income

29,12011,78429,156
10,629313,118
126,710

105
(97)
(524)
—
(248)
68
—
(180)
(0)
22
(855)

161
(130)
(524)
0
(80)
(403)
(398)
—
(56)
157
(1,275)1,129(1,043)(5,634)—(2,667)731—(1,935)(0)237(9,194)

10,9299,354

117,516

4,017
177
4,194

4,221
(446)
3,774

43,194
1,903
45,097¥ 6,734¥ 5,579$ 72,409

Other income (expenses):
Interest and dividend income
Interest expenses
Amortization of net obligation at transition
Gain on sales of property, plant and equipment, net
Loss on disposal of property, plant and equipment
Gain (loss) on sales of investment securities, net
Loss on devaluation of investment securities
Amortization of long-term prepaid expenses (Note 16)
Revaluation loss of golf membership
Other, net

Income before income taxes
Income taxes (Note 17):
Current
Deferred

Net income¥68.79—¥55.61—$0.740—Cash dividends applicable to the year (Note 14)¥30.00¥26.00$0.323

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

20

U.S. dollars(Note 4)Per share data:
Net income (Note 19):
Basic
DilutedYen

Consolidated Statements of Changes in Net Assets
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.
For the years ended March 31, 2010 and 2009
Thousands of
U.S. dollars(Note 4)

Millions of yen

2010

Shareholders' equity
Common stock
Balance at beginning of the year
Changes during the year
Balance at end of the year
Capital surplus
Balance at beginning of the year
Changes during the year:
Treasury stock acquired
Retirement of treasury stock
Total changes during the year
Balance at end of the year
Retained earnings
Balance at beginning of the year
Changes during the year:
Cash dividends
Net income
Total changes during the year
Balance at end of the year
Treasury stock
Balance at beginning of the year
Changes during the year:
Treasury stock acquired
Treasury stock sold
Retirement of treasury stock
Total changes during the year
Balance at end of the year
Total shareholders' equity
Balance at beginning of the year
Changes during the year:
Cash dividends
Net income
Treasury stock acquired
Treasury stock sold
Retirement of treasury stock
Total changes during the year
Balance at end of the year

2009

2010

$256,484

23,853¥23,853—
23,853

11,58722,727

124,591(0)—(0)
11,5870(11,141)(11,140)
11,587(0)—(0)
124,591

24,69821,440265,570(2,748)
6,734
3,985
28,684(2,321)
5,579
3,258
24,698(29,548)
72,40942,849308,430(3,417)(11,618)(36,742)(1,588)
6—(1,581)(4,999)(2,966)26
11,141
8,200(3,417)(17,075)65—(17,000)(53,753)

56,72256,403609,914(2,748)6,734(1,588)5—
2,402¥59,124(2,321)
5,579(2,966)27—
319¥56,722(29,548)
72,409(17,075)54—
25,828$635,742¥23,853——

256,48421

Thousands of
U.S. dollars(Note 4)

Millions of yen

2010

Valuation and translation adjustments
Net unrealized gain (loss) on other securities
Balance at beginning of the year
Net changes in items other than shareholders' equity
Total changes during the year
Balance at end of the year
Deferred gain on hedges
Balance at beginning of the year
Net changes in items other than shareholders' equity
Total changes during the year
Balance at end of the year
Total valuation and translation adjustment
Balance at beginning of the year
Net changes in items other than shareholders' equity
Total changes during the year
Balance at end of the year
Total net assets
Balance at beginning of the year
Changes during the year:
Cash dividends
Net income
Treasury stock acquired
Treasury stock soldNet changes in items other than shareholders' equity
Total changes during the year
Balance at end of the year
The accompanying notes are an integral part of the Consolidated Financial Statements.

22

2009

2010

(43)
490
490
447

¥ 1,045(1,088)(1,088)
(43)

$

—
2
2
2

(0)
0
0
—

—
22
22
22

(43)
493
493
450

1,044
(1,087)(1,087)
(43)

(462)
5,301
5,301
4,839

56,67957,447

609,452(2,748)6,734(1,588)5
493
2,895¥59,575(2,321)
5,579(2,966)27(1,087)(768)¥56,679(29,548)
72,409(17,075)
54
5,301
31,129$640,591

¥

(462)
5,269
5,269
4,806

Consolidated Statements of Cash Flows
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.
For the years ended March 31, 2010 and 2009
Thousands of
U.S. dollars(Note 4)

Millions of yen

2010

2009

2010

¥10,929¥ 9,354$117,516

2,423
527
564
(105)
97
0
(68)
—
233
—
686
1,953
(1,997)355
15,598106(97)(4,558)
11,049

2,407
135
456
(161)
130
56
403
398
80
(0)
(304)
(1,008)(208)
451
12,192
162(126)(3,755)
8,472

26,054
5,667
6,065(1,129)
1,043
0
(731)
—
2,505
—
7,376
21,000(21,473)
3,817
167,7201,140(1,043)(49,011)
118,806

Cash flows from investing activities:
Acquisitions of property, plant and equipment
Proceeds from sales of property, plant and equipment
Acquisitions of investment securities
Proceeds from sales of investment securities
Proceeds from redemption of investment securities
Payment of long-term prepaid expenses
Other, net
Net cash used in investing activities(2,508)
—
(332)
325
500
(265)
(92)
(2,374)(2,577)
0
(457)
501
—
(47)
7
(2,571)(26,968)—(3,570)3,495
5,376(2,849)(989)(25,527)

Cash flows from financing activities:
Proceeds from short-term loans
Repayment of long-term debts
Acquisitions of treasury stock
Cash dividends paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 5)600—(1,582)(2,745)(3,727)
4,947
12,556¥17,504

2,530(3,000)(2,939)(2,320)(5,730)170
12,386¥12,556

6,452—(17,011)(29,516)(40,075)
53,194135,011$188,215

Cash flows from operating activities:
Income before income taxes
Adjustments for:
Depreciation
Amortization of long-term prepaid expenses
Accrual for pension and severance costs, less payments
Interest and dividend income
Interest expenses
Revaluation loss of golf membership(Loss) gain on sales of investment securities, net
Loss on devaluation of investment securities
Loss on disposal of property, plant and equipment
Gain on sales of property, plant and equipment, net
Decrease (increase) in notes and accounts receivable–trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable–trade
Other, net
SubtotalInterest and dividend received
Interest paid
Income taxes paid, net
Net cash provided by operating activities

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

23

Notes to the Consolidated Financial Statements

1. Basis of Presenting Consolidated Financial Statements:

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

2. Summary of Significant Accounting Policies:(a) Principles of Consolidation
The Company had three subsidiaries as of March 31, 2010 and 2009. The consolidated financial statements include the accounts of the Company and all of its subsidiaries. The consolidated subsidiaries as of March 31, 2010 are as follows:
KAKEN REALTY & SERVICE CO., LTD.
KAKEN PHARMA CO., LTD.
FUJIKA CORPORATION
There was no affiliate which was accounted for by the equity method.
All significant intercompany transactions, account balances and unrealized profits or losses among the Group have been
eliminated in consolidation.
(b) Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statements of cash flows are composed of cash on hand, bank deposits which areable to be withdrawn within three months and short-term investments with original maturity of three months or less and areconsidered to have minimal risk from market fluctuations.
(c) Marketable and Investment Securities
Securities are classified into one of the following four categories; (1) Trading, (2) Held-to-maturity debt, (3) shares in subsidiaries and affiliates, and (4) Other. Trading securities are recorded at market value with unrealized gains and losses recognized in
the current year’s earnings. Debt securities that are expected to be held to maturity are carried at amortized cost. Shares insubsidiaries and affiliates are carried at cost. Other securities are expected to be sold in future and those whose fair values arereadily determinable are carried at fair value and the related unrealized gains or losses, net of taxes, are included as a componentof “Valuation and translation adjustments” under net assets. Other securities without market quotations are stated at cost,
determined by the moving average method.
(d) Inventories
Inventories are stated at the lower of cost determined by the gross average method, or net selling value, which is defined as theselling price less additional estimated manufacturing costs and estimated direct selling expenses.
(e) Property, Plant and Equipment
Depreciation is computed on the declining-balance method at rates based on the estimated useful lives of assets, except forbuildings, structures, machinery and equipment for the Komagome office that are computed on the straight-line method.
Furthermore, depreciation of buildings, except for ancillary facilities to buildings, acquired on and after April 1, 1998, iscomputed using the straight-line method. The range of useful lives is from 3 years to 60 years for buildings and structures, andfrom 2 years to 8 years for machinery and equipment.
24

(f) Accounting for Impairment of Fixed Assets
In accordance with the accounting standard for impairment of fixed assets, the Group reviews their fixed assets for impairment
by grouping the assets in income generating units whenever there is any indication of a significant decline in the fair value
against its book value based on an independent appraisal, and when the existence of any impairment for the group of the assets
is identified, an impairment loss will be recognized and such amount is directly deducted from the related assets.
(g) Pension and Retirement Benefits
The Company had a retirement benefit program in which approximately 70% of the whole fund was allocated for the paymentof lump-sum retirement benefit plan, while the rest was allocated to the tax qualified defined benefit pension plan which wastransferred to a defined benefit corporate pension plan on April 1, 2010. In the meanwhile, the Company has set up a retirement benefit trust. Extra retirement payments may be paid to employees retiring under certain circumstance. Consolidated
subsidiaries of the Company have no arrangement for corporate pension plans.
The accrued pension and severance costs represent the amount actuarially calculated projected benefit obligation less (1) the
fair value of the plan assets, (2) unrecognized actuarial loss or gain, (3) the unrecognized transition amount arising from adopting the new standard and (4) unrecognized prior service cost. If the fair value of the plan assets exceeds the projected benefit
obligations, prepaid pension and severance costs are recorded on the balance sheet. The transition amount is amortized on astraight-line basis over 15 years. Unrecognized actuarial loss or gain is amortized on a straight-line basis over 10 years from thenext year in which they arise. Unrecognized prior service cost is amortized on a straight-line basis over 10 years from the year inwhich they arise. For the Company, prepaid pension and severance costs were recognized for a portion of the plan covered by
the non-contributory pension plan assets and the accrued pension and severance costs were recognized for a portion of the plan
not covered by the plan assets.
Accrued retirement benefits to directors and statutory auditors is provided in an amount equivalent to the liability therelevant company would have been required to pay upon retirement at the balance sheet date, as prescribed by its internal rules.
(h) Income Taxes
Income taxes are determined using the asset and liability approach, where deferred tax assets and liabilities are recognized for
temporary differences between the tax basis of assets and liabilities and their reported amount in the financial statements.
(i) Consumption Taxes
Consumption taxes withheld and consumption taxes paid are excluded from revenues and expenses in the accompanying consolidated statements of income. The net balance of consumption taxes withheld and consumption taxes paid is included incurrent liabilities of the consolidated balance sheet as of the end of the fiscal year.
(j) Derivative Financial Instruments
Derivative instruments, which include forward foreign exchange contracts agreements, are used as a part of the Company’s risk
management of foreign currency risk exposures of its financial assets and liabilities.
Forward foreign exchange contracts:
The Company enters into forward foreign exchange contracts to limit exposure, affected by changes in foreign currency exchange rates, on accounts receivable and payable and cash flows generated from anticipated transactions denominated in foreign
currencies. For forward foreign exchange contracts which are designated and are effective as hedges of such currency exchange
rate risk on existing assets and liabilities, the Company adopted the accounting method whereby foreign currency denominatedassets and liabilities are measured at the contract rate of the respective forward foreign exchange contracts. With respect to suchcontracts for anticipated transactions, the contracts are marked-to-market and the unrealized gains/losses are deferred in thebalance sheet to be released to income when the exchange gains/losses on the hedged items or transactions are recognized.
(k) Appropriations of Retained Earnings
Appropriations of retained earnings at each year end are reflected in the consolidated financial statements for the following year
upon stockholders’ approval.
(l) Shareholders’ Equity
The Japanese companies are subject to the Corporate Law of Japan (“the Law”). The Law provided that an amount equal to
10% of the amount to be disbursed as distributions of capital surplus (other than the capital reserve) and retained earnings(other than the legal reserve) be transferred to the capital reserve and the legal reserve, respectively, until the sum of the capitalreserve and legal reserve equals 25% of the stated capital. Such distributions can be made at any time by resolution of the shareholders or by the Board of Directors if certain conditions are met. The above mentioned legal reserve is included in retained
earnings in the accompanying consolidated balance sheets.
25

(m) Net Income and Dividends per Share
Net income per share of common stock is based upon the weighted average number of shares of common stock outstanding
during each financial year appropriately adjusted for subsequent free distribution of shares (stock splits), if applicable.
Cash dividends per share shown for each year in the accompanying consolidated statements of income represent dividends
approved or declared as applicable to the respective years.
Diluted net income per share is computed, based on the assumption that the convertible bonds were fully converted into
common stock on the date of issue or at the beginning of the respective years subsequent to the issue, with appropriate adjustments of related interest expense (net of taxes).

3. Change in Accounting Policies:(Accounting for Pension and Retirement Benefits)
Effective the year ended March 31, 2010, the Company adopted the “Partial Amendments to Accounting Standard for Retirement Benefits (Part 3)” (ASBJ Statement No.19, issued on July 31, 2008). There was no effect of this change on operating
income and income before income taxes.

4. United States Dollar Amounts:

The Group maintains its accounting records in yen. The dollar amounts included in the consolidated financial statements andnotes thereto represent the arithmetical results of translating yen to dollars on the basis of ¥93=U.S.$1, the approximate rate ofexchange at March 31, 2010. The inclusion of such dollar amounts is solely for convenience and is not intended to imply thatyen amounts have been or could be converted, realized or settled in dollars at that or any other rate.

5. Cash and Cash Equivalents:

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

Millions of yen

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

2010

2009

2010

¥ 9,900
7,603
17,504—¥17,504¥10,155
2,401
12,556—¥12,556$106,452
81,753
188,215—$188,215

6. Marketable Securities and Investment Securities:

The carrying amounts and fair values of held-to-maturity securities are as follows:
Millions of yen
Carrying amountMarch 31
Fair values
exceeding carrying amount
Fair values
not exceeding carrying amount
Total

Unrealized gain
(loss)

Fair value

2010

Unrealized gain
(loss)

¥ —

¥ —

¥—

¥ —

¥ —

¥—

1,999
¥1,9991,999¥1,999

—
¥—

500
¥500

500
¥500

—
¥—

Carrying amount26

Fair value

2009

Thousands of U.S. dollars (Note 4)

March 31
Fair values
exceeding carrying amount
Fair values
not exceeding carrying amount
Total

Carrying amount

Unrealized gain
(loss)

Fair value

2010

$

—

21,495$21,495$

—$—21,495$21,495—$—

The aggregate fair values (carrying amounts) and acquisition costs of other securities are as follows:
Millions of yen
Fair value

March 31
Carrying amounts exceedingacquisition cost
Equity securities
OthersSubtotal
Carrying amounts not exceedingacquisition cost
Equity securities
OthersSubtotal
Total

Acquisition cost

Unrealized gain
(loss)

Fair value

2010

Acquisition cost

Unrealized gain
(loss)

2009¥ 4,308—
4,308¥ 3,384
—
3,384

¥924
—
924

¥1,871—
1,871¥1,145
—
1,145

¥725
—
725

1,074
5,603
6,678
¥10,987

1,244
5,603
6,848
¥10,232

(170)
—
(170)
¥754

2,579
—
2,579
¥4,450

3,377
—
3,377
¥4,523

(797)
—
(797)
¥(72)

Thousands of U.S. dollars (Note 4)
Fair value

March 31
Carrying amounts exceedingacquisition cost
Equity securities
OthersSubtotal
Carrying amounts not exceedingacquisition cost
Equity securities
OthersSubtotal
Total

Acquisition cost

Unrealized gain
(loss)

2010$ 46,323—
46,323$ 36,387—
36,387$9,935—
9,935

11,54860,24771,806$118,140

13,37660,24773,634$110,022(1,828)—(1,828)$8,108

Carrying amount of other securities whose fair value is not available as of March 31, 2009 is ¥2,494 million.
Other securities sold during the fiscal years ended March 31, 2010 and 2009 are as follows:
Thousands of
U.S. dollars(Note 4)

Millions of yen

2010

Proceeds from sales
Gross realized gains
Gross realized losses

2009

¥325
68
—

¥501
32
436

2010

$3,495731—

7. Inventories:

Inventories as of March 31, 2010 and 2009 are comprised of the following:

Millions of yen

March 31
Finished products
Work in process
Raw materials and supplies
Total

Thousands of
U.S. dollars(Note 4)

2010

2009

2010

¥5,3861,854
1,752¥8,993¥ 5,670
1,676
3,599
¥10,946$57,914
19,935
18,839$96,69927

8. Short-term Bank Loans:

Short-term bank loans outstanding as of March 31, 2010 and 2009 represented the notes issued by the Group to banks. Customarily, these notes are renewed at maturity subject to renegotiation of interest rates and other factors. The weighted-averageinterest rates applicable to short-term bank loans as of March 31, 2010 and 2009 are 0.92% and 1.19%, respectively. Outstanding balance of short-term bank loans as of March 31, 2010 and 2009 are ¥8,510 million ($91,505 thousand) and ¥7,910 million, respectively.
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 havethe right, as the obligations become due or in the event of their default, to offset cash deposits against such obligations due tothe bank. The Group has not received any such requests to date.
At March 31, 2010 and 2009, assets pledged as collateral for certain short-term bank loans are as follows:
Thousands of
U.S. dollars(Note 4)

Millions of yen

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

2010

2009

2010

¥2,4402,140
103¥4,683¥2,2792,556
103¥4,938$26,237
23,011
1,108$50,355¥1,400¥1,400¥1,400¥1,400$15,054$15,054

9. Accounting for Leases:

Operating leases
Future lease payments under non-cancellable operating leases at March 31, 2010 and 2009 are as follows;
Thousands of
U.S. dollars(Note 4)

Millions of yen

March 31
Due within 1 year
Due after 1 year
Total

2010

2009

2010

¥ 86
1,476
¥1,562¥ 86
1,562¥1,648$ 925
15,871$16,796

10. Investment Properties:

The Company and certain consolidated subsidiaries own rental office buildings (including lands) in Tokyo and other areas.
Rental income from these properties for the year ended March 31, 2010 is ¥1,503 million ($16,161 thousand) (Major revenue
from rental properties and rent expense are reported as net sales and cost of sales respectively).
Carrying amount, change during the year ended March 31, 2010 and fair values of these properties are stated as follows:

Balance at
March 31, 2009
¥14,453

28

Millions of yen
Carrying amount
Change during the year ended
Balance at
March 31, 2010
March 31, 2010¥(523)¥13,929

Fair value atMarch 31, 2010
¥39,021

Balance at
March 31, 2009
$155,409

Thousands of U.S. dollars (Note 4)
Carrying amount
Change during the year ended
Balance at
March 31, 2010
March 31, 2010$(5,624)$149,774

Fair value atMarch 31, 2010
$419,581

Notes:
1. The carrying amount represents the acquisition costs less accumulated depreciation.
2. The above figures include the amounts concerning the land earmarked for future development
3. Fair value at March 31, 2010 is based primarily on the real estate appraisal report prepared by independent real estate appraisers.

(Additional information)
Effective the year ended March 31, 2010, the Company adopted the “Accounting Standard for Disclosures about the Fair
Value of Investment and Rental Property” (ASBJ Statement No.20, issued on November 28, 2008) and “Guidance on Accounting Standard for Disclosures about Fair Value of Investment and Rental Property” (ASBJ Guidance No.23, issued on
November 28, 2008).

11. Financial Instruments:

1. Outline of financial instruments(1) Policy for financial instruments
The Group is managing its cash surplus in the form of low risk financial instruments with high liquidity, while raising shortterm working capital through loans from financial institutions including banks. Derivatives are used, not for speculative purposes, but to manage exposure to financial risks as described later.
(2) Nature and extent of risks arising from financial instruments
Receivables such as notes and accounts receivable-trade are exposed to customers’ credit risk. Trade receivables denominated inforeign currency are exposed to foreign exchange fluctuation risk. Marketable securities and investment securities are mainly
held-to-maturity securities and shares held to maintain business collaborations with clients and trade partners, which are exposed to the risk of market price fluctuations.
Payment terms of payables, such as notes and accounts payable-trade, are mostly less than one year. Payables in foreign
currency incurred from the import transactions of raw materials are exposed to foreign exchange fluctuation risk. Loans are used
for short-term working capital.
Derivative transactions mainly include forward foreign exchange contracts for the purpose of hedging foreign exchange
fluctuation risk exposed to trade receivables and payables denominated in foreign currency. Hedging instruments and hedged
items, hedging policy, assessment method for hedge effectiveness and others related to hedge accounting are as follows:a. Hedging instruments and hedged items
Hedging instruments:	Forward foreign exchange contract
Hedged items:	Foreign currency denominated receivables and payables, and forecasted foreign currency
denominated transactions
b. Hedging policy
Hedging instruments are used within the limits of anticipated foreign currency denominated transactions and the Company
makes it a policy not to use derivatives for speculative purposes.
c. Assessment method for hedge effectivenessSince material terms related to hedged items and hedging instruments are substantially identical and such hedging transactions
are deemed to be highly effective so that the market fluctuations may be completely offset continuously after the inception ofhedge relation, assessment of hedging effectiveness is omitted.
Assessment of effectiveness is omitted also for the forward foreign exchange contracts, under which the hedged items aretranslated using the forward contract rates.
(3) Risk management for financial instruments
a. Credit risk management (customers’ default risk)
For the purpose of managing trade receivables within the Group, each concerned department, according to the credit management rule, is controlling payment term and balances of each major customer by regularly monitoring their status, in an effort toachieve early identification and mitigation of default risk of customers arising from their deteriorating financial conditions andother factors.
29

Held-to-maturity securities held by the Company are, under the short-term investment rules, restricted to those withsuperior ratings only, involving minimal credit risk.
The Company enters into derivative transactions with high credit rating financial institutions to mitigate the counterparty
risks.
b. Market risk management (foreign exchange and interest rate fluctuation risks)
The Company uses forward foreign exchange contracts as appropriate to hedge foreign exchange fluctuation risk associated withtrade receivables and payables denominated in foreign currency.
With respect to marketable securities and investment securities, the Company is periodically monitoring fair values andfinancial positions of the related issuers (business connections).
Derivative transactions are conducted under the authority of general manager at each concerned department, under theforward foreign exchange contracts management rules, and actual performance of derivative transactions is reported to theconcerned departments including Accounting Department, as each transaction takes place. Then at the end of each month,
outstanding balance of forward exchange contracts is reported to directors in charge, as well as to other concerned departments.
The consolidated subsidiaries are not engaged in derivative transactions.
c. Liquidity risk management on fund raising
The Company manages its liquidity risk by preparing and updating cash flow management plan as appropriate by accounting
department based on the report from each concerned department.
(4) Supplementary explanation concerning fair values of financial instruments
Fair values of financial instruments comprise values determined based on market prices and values determined reasonably when
there is no market price. Since variable factors are incorporated in computing the relevant fair values, such fair values may varydepending on the different assumptions. The notional amounts and other information described in the note “Derivative Financial Instruments” do not indicate the amounts of market risk exposed to derivative transactions.
(5) Concentration of credit risks
As of March 31, 2010, 63% of all trade receivables are with the specific major accounts.
2. Fair values of financial instruments
Carrying amount, fair value and unrealized gain/loss of the financial instruments as of March 31, 2010 are as follows:
Financial instruments whose fair values are not readily determinable are excluded from the following table:
Millions of yen
March 31, 2010
(1) Cash on hand and at banks(2) Notes and accounts receivable–trade
Allowance for doubtful receivables (*1)(3) Marketable securities and investment securities
a. Held-to-maturity securities
b. Other securities
Total assets(1) Notes and accounts payable–trade (*2)(2) Short-term bank loans
Total liabilities
Derivative transactions (*3)

30

Carrying amount¥ 9,900
27,660(6)
27,654

Fair value¥ 9,900

Unrealized gain
(loss)—

27,654—

1,999
10,987¥50,541¥11,305
8,510¥19,815
¥
4

1,999
10,987¥50,541¥11,305
8,510¥19,815
¥
4

—
—
—
—
—
—
—

March 31, 2010
(1) Cash on hand and at banks(2) Notes and accounts receivable–trade
Allowance for doubtful receivables (*1)

Thousands of U.S. dollars (Note 4)
Unrealized gain
Carrying amount
Fair value(loss)$106,452$106,452—
297,419(65)
297,355
297,355—(3) Marketable securities and investment securities
a. Held-to-maturity securities
b. Other securities
Total assets(1) Notes and accounts payable–trade (*2)(2) Short-term bank loans
Total liabilities
Derivative transactions (*3)

21,495
118,140$543,452$121,559
91,505$213,065$
43

21,495
118,140$543,452$121,559
91,505$213,065
$
43

—
—
—
—
—
—
—

(*1) Allowance for doubtful receivables in respect of notes and accounts receivable–trade(*2) Notes and accounts payable–trade include notes payable–construction.
(*3) Receivables and payables incurred by derivative transactions are presented in net.
Notes:
1. Calculation method of fair values of financial instruments and securities and derivative transactions
Assets:(1) Cash on hand and at banks and (2) Notes and accounts receivable–trade
These assets are recorded using carrying amounts because fair values approximate carrying amounts because of their short-term maturities(3) Marketable securities and investment securities
Fair values of equity securities are based on the prices quoted on stock exchanges while those of debt securities are based on the prices quoted on stock
exchanges, or those quoted by correspondent financial institutions. For the notes on marketable securities by purpose of holding, please see the note“Marketable Securities and Investment Securities.”
Liabilities(1) Notes and accounts payable–trade and (2) Short-term bank loans
These payables are recorded using carrying amounts because fair values approximate carrying amounts because of their short-term maturities.
Derivative financial instruments:
Please see the note “Derivative Financial Instruments”
2. Financial instruments whose fair values are not readily determinable

Category
Unlisted equity securities

Millions of yen
Carrying amount¥62

Thousands of U.S. dollars (Note 4)
Carrying amount$667

These items are not included in “(3) Marketable securities and investment securities,” because there is no market price and it is very difficult to identify
fair values.
3. Redemption schedule of monetary assets and securities with contractual maturities

March 31, 2010
Cash on hand and at banks
Notes and accounts receivable–tradeMarketable securities and investment securities:
Held-to-maturity securities
Other securities with contractual maturities
Total

Millions of yen
Within one year¥ 9,900
27,6601,999
1,700¥41,26131

Thousands of U.S. dollars (Note 4)
Within one year
$106,452
297,419

March 31, 2010
Cash on hand and at banks
Notes and accounts receivable–tradeMarketable securities and investment securities:
Held-to-maturity securities
Other securities with contractual maturities
Total

21,49518,280$443,667(Additional information)
Effective the year ended March 31, 2010, the Company adopted the “Accounting Standard for Financial Instruments” (ASBJ Statement No. 10, issued on
March 10, 2008) and “Guidance on Disclosures about Fair value of Financial Instruments” (ASBJ Guidance No.19, issued on March 10, 2008).

12. Derivative Financial Instruments:

Year ended March 31, 2010
1. Derivative transactions to which hedge accounting is not applied:
Not applicable.
2. Derivative transactions to which hedge accounting is applied:
Currencies

Hedge accounting method
Classification
Forward foreign exchange
Primary method
contracts:
Long position
US dollars
Receivables or Payables are Forward foreign exchange
contracts:
translated using forward
foreign exchange contract
Long position
rates.
US dollars
Short position
US dollars
Total

Hedge accounting method
Classification
Forward foreign exchange
Primary method
contracts:
Long position
US dollars
Receivables or Payables are Forward foreign exchange
contracts:
translated using forward
foreign exchange contract
Long position
rates.
US dollars
Short position
US dollars
Total

32

Major hedged items
Forecasted transactions inforeign currency

Millions of yen
Notional
amount over
one year

Notional
amountFair value

¥111

—

¥4

Accounts payable–trade

55—(Note 2)

Accounts receivable–trade

9
¥176

—
—

(Note 2)
¥4

Major hedged items
Forecasted transactions inforeign currency

Thousands of U.S. dollars (Note 4)
Notional
Notional
amount overamountone year
Fair value$1,194—$43

Accounts payable–trade

591—(Note 2)

Accounts receivable–trade97$1,892——(Note 2)$43

Notes:1. Fair values at the end of the fiscal year are calculated using prices quoted by correspondent financial institutions.
2. As forward foreign exchange contracts subject to deferral hedge accounting are treated as one unit combined with foreign currency denominatedreceivables and payables that are hedged, fair values of the former are included in the fair values of the latter.
		
Forward foreign exchange contracts which qualify for hedge accounting and meet specific matching criteria are not remeasured at fair value,
but the foreign currency denominated receivables or payables as hedged items are translated using the forward contract rates. Accordingly, the fairvalues of the forward foreign exchange contracts are considered to be reflected in the fair values of the related receivables or payables.

Year ended March 31, 2009
1. Matters regarding the status of transactions
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 forthe approval, reporting and monitoring of transactions involving derivative financial instruments. The Company does not holdor issue derivative financial instruments for speculative purposes.
The Company is exposed to certain market risks arising from its forward foreign exchange contracts and interest rate swap
agreements. The Company is also exposed to the risk of credit loss in the event of non-performance by the counterparties to thecurrency and interest rate derivatives; however, the Company does not anticipate non-performance by any of thesecounterparties all of whom are financial institutions with high credit ratings.
2. Matters regarding the fair value of transactions
There is no relevant information as derivative transactions subject to hedge accounting are excluded.

13. Pension and Retirement Benefits:

The pension and retirement benefit obligation and plan assets, funded status and composition of amounts recorded in the
consolidated balance sheets as of March 31, 2010 and 2009 are as follows:
Thousands of
U.S. dollars(Note 4)

Millions of yen

March 31
Projected benefit obligations
Plan assets
Funded status
Unrecognized transition amount
Unrecognized actuarial loss
Unrecognized prior service cost
Amounts recognized in the balance sheet consists ofPrepaid pension cost (other assets)
Accrued pension and severance costs

2010

2009

¥(21,665)
10,341(11,323)
2,624
4,153
(64)
(4,610)¥(21,406)
9,015(12,390)
3,149
5,282
(88)
(4,046)$(232,957)
111,194(121,753)
28,21544,656(688)(49,570)

2010

1,068
¥ (5,678)

1,552¥ (5,598)

11,484$ (61,054)

The components of net pension and severance costs for the years ended March 31, 2010 and 2009 are as follows:
Thousands of
U.S. dollars(Note 4)

Millions of yen

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

2010

2009

2010

¥ 669
485
(86)
524
792
(22)
¥2,363¥ 673
488
(306)
524
565
(22)
¥1,923$ 7,194
5,215
(925)
5,634
8,516
(237)
$25,40933

Assumptions used in calculation of the above information for the year ended March 31, 2010 and 2009 are as follows:
Discount rate
2.3%
Expected rate of return on plan assets
1.0% (3.0% in 2009)
Method of attributing the projected benefits to periods of services
Straight-line method

14. Shareholders’ Equity:a) Type and number of shares outstanding and treasury stock
Type of shares
outstanding
Common stock

Number of shares as of March 31, 2009
Increase in the number of shares during the accounting period ended March 31, 2010
Decrease in the number of shares during the accounting period ended March 31, 2010
Number of shares as of March 31, 2010

101,879,461——
101,879,461

Type of treasury stock
Common stock

3,695,041
2,050,437
7,079
5,738,399

Notes:
1. Increase in treasury stock (2,050,437 shares) is due to the purchase of treasury stock (2,000,000 shares) and purchase of shares less than one unit
(50,437 shares).
2. Decrease in treasury stock is due to the purchase request on shares less than one unit (7,079 shares).

b) Matters related to dividendsi) Dividend payment
Approvals by the ordinary general meeting of shareholders held on June 26, 2009 were as follows:
Dividends on common stock
Total amount of dividends¥1,276 million ($13,720 thousand)
Dividends per share¥13.00 ($0.14)
Record date
March 31, 2009
Effective dateJune 29, 2009
Approvals by the Board of Directors’ meeting held on November 5, 2009 were as follows:
Dividends on common stock
Total amount of dividends¥1,472 million ($15,828 thousand)
Dividends per share¥15.00 ($0.16)
Record date
September 30, 2009
Effective date
December 3, 2009ii) Dividends whose record date is attributed to the accounting period ended March 31, 2010, but become effective after thesaid accounting period.
The Company obtained the following approval at the general meeting of shareholders held on June 29, 2010:
Dividends on common stock
Total amount of dividends¥1,442 million ($15,505 thousand)
Dividends per share¥15.00 ($0.16)
Record date
March 31, 2010
Effective dateJune 30, 2010

15. Research and Development Costs:

Research and development costs included in selling, general and administrative expenses for the years ended March 31, 2010
and 2009 amounted to ¥7,873 million ($84,656 thousand) and ¥7,696 million, respectively.

16. Long-term Prepaid expense:

Amortization of long-term prepaid expense refers to one-time depreciation of fees for manufacturing technologies and information.

34

17. Income Taxes:

The Group is subject to several taxes based on income, which in the aggregate resulted in statutory tax rates of approximately
40.69% for the years ended March 31, 2010 and 2009. A reconciliation of the differences between the statutory tax rate and theeffective tax rate for the years ended March 31, 2010 and 2009 is as follows:
2010

2009

40.69%

40.69%

3.15(0.15)
0.79(7.08)
0.98
38.38%

4.55(0.34)
0.92(6.44)
0.97
40.35%

Millions of yen

Thousands of
U.S. dollars(Note 4)

Statutory tax rate
Increase (decrease) in taxes resulting from:
Expenses not deductible for income tax purpose (ex. Entertainment expenses)
Income not included for income tax purpose (ex. Dividend income)Inhabitant per capita taxes
Tax credit for research expenses
Other
Effective tax rateSignificant components of deferred tax assets as of March 31, 2010 and 2009 are as follows:

2010

2009

2010

Deferred tax assets:
Reserve for bonuses
Reserve for sales rebates
Loss of supplies
Devaluation of financial instruments
Amortization of R&D
Amortization of long-term prepaid expenses
Pension and severance costs
Retirement benefits to directors
Unrealized gain of property, plant and equipment
Other
Total
Valuation allowance
Deferred tax assets¥ 464
183
95
31
292
250
2,058
161
2,568
480
6,585
(136)
6,448

¥ 472
197
162
204
415
173
1,827
145
2,568
550
6,717
(44)
6,672

$ 4,989
1,968
1,022
333
3,140
2,688
22,1291,731
27,613
5,161
70,806(1,462)
69,333

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

(259)
(306)
(2)
(569)
¥5,878

(274)
—
(3)
(277)
¥6,395(2,785)(3,290)(22)(6,118)$63,204

18. Related Party Transactions:

There is nothing to be noted according to the disclosure requirements in Japan for the year ended March 31, 2010 and 2009.

35

19. Per Share Information:

Per share information for the years ended March 31, 2010 and 2009 is as follows:
U.S. dollars(Note 4)Yen

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

2010

2009

2010

¥619.6668.79—¥577.27
55.61—$6.6630.740—

Note: Diluted net income per share is not presented due to the absence of residual shares.

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

Millions of yen

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

2010

2009

2010

¥ 6,734
6,734—¥ 5,579
5,579—$72,40972,409—97,896—

100,340———

20. Segment Information:

Information about operations in industry segments of the Group for the years ended March 31, 2010 and 2009 is as follows:
Millions of yen

Year ended March 31, 2010

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

36

Pharmaceutical

Real estate

Total

EliminationorCorporate

Consolidated¥82,562—
82,562
72,280¥10,281¥ 2,460
307
2,767
1,264
¥ 1,503¥85,022307
85,32973,545¥11,784

¥

—
(307)
(307)
(307)
¥ —

¥85,022—85,022
73,237¥11,784¥55,062¥ 2,310¥ 2,179¥15,332¥ 640¥ 58¥70,395¥ 2,951¥ 2,237¥24,701¥ —¥ —¥95,096¥ 2,951¥ 2,237

Millions of yen

Year ended March 31, 2009

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

Pharmaceutical

Real estate

Total

EliminationorCorporate

Consolidated¥80,448—
80,44871,301¥ 9,147¥ 2,481
306
2,787
1,305
¥ 1,481¥82,930
306
83,236
72,607¥10,629

¥

—
(306)
(306)
(306)
¥
—

¥82,930—
82,93072,300¥10,629¥57,842¥ 1,850¥ 3,170¥15,919¥ 692¥ 25¥73,762¥ 2,542¥ 3,196¥20,742¥—¥—¥94,504¥ 2,542¥ 3,196

Thousands of U.S. dollars (Note 4)

Year ended March 31, 2010

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

Pharmaceutical

Real estate

Total

EliminationorCorporate

Consolidated$887,763—
887,763
777,204$110,548$ 26,452
3,301
29,753
13,591$ 16,161$914,215
3,301
917,516
790,806$126,710$

—(3,301)(3,301)(3,301)$—$ 914,215—
914,215
787,495$ 126,710$592,065$ 24,839$ 23,430$164,860$ 6,882$ 624$756,935$ 31,731$ 24,054$265,602$—$—$1,022,538$ 31,731$ 24,054

21. Subsequent Event:

There was no significant subsequent event to be noted herein as of June 29, 2010.

37

Report of Independent Auditors

To the Board of Directors
KAKEN PHARMACEUTICAL CO., LTD.

We have audited the accompanying consolidated balance sheets of KAKEN PHARMACEUTICAL CO., LTD. (the “Company”) and subsidiaries as of March 31, 2010 and 2009, and the related consolidated statements of income, changes in net
assets and cash flows for the years then ended , all expressed in Japanese yen. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of the Company and subsidiaries as of March 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Japan.
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader have been translated on thebasis set forth in Note 4 to the accompanying consolidated financial statements.

Hijiribashi Audit Corporation
Tokyo, Japan
June 29, 201038

Bringing smiles
to everyone

Corporate Philosophy
By serving as many people as possible to return smiles of happinessto their faces, through supplying superior pharmaceuticals,

Corporate Data
ProfileContents(As of March 31, 2010)
The originof Kaken Pharmaceutical Co., Ltd. can be traced back to the

President’s Message

02

Institute of Physical and Chemical Research (Riken), established in 1917.

Developing New Products

04

The Company started pharmaceutical business with full-scale development of

Overview of Major Products

06

Directory

Company Information

REGISTERED HEAD OFFICE
FoundedCommitment and Excellence
10
28-8, Honkomagome 2-chome, Bunkyo-ku,
March 1917
since Tokyo
then broadened
the scope
Fulfilling Our Social Responsibilities
12
113-8650,
Japanof its business and drug development activities
throughand alliance. Kaken’s prestige has soared accordingly.
Tel:merger
81-3-5977-5001
Incorporated
Board of Directors and Corporate Auditors
14
Fax:
81-3-5977-5131
While
the Company has established strength in developing and selling March 1948
Financial Section
15
http://www.kaken.co.jp
pharmaceuticals for orthopedics, it is now expanding its involvement in other
Data
39
Paid-in Corporate
Capitalmedical fields, such as dermatology. The Company contributes to improving
Global Business Development¥23,853 million
people’shealthbycultivatingitsown
originaltechnologies,
engaging
injoint
Executive Director & General Manager
development
initiatives, introducing new technologies and acquiring
Masao Ishida
Common Stock
Tel: 81-3-5977-5046
Authorized: 360,000,000 sharesmarketingrights.
Fax: 81-3-5977-5133
Issued: 101,879,461 shares (As of July 31, 2010)
As a fruit of its technology and product introduction, the Company has
E-mail: masao-ishida@kaken.co.jp
Number of Shareholders: 16,159 (As of Mar. 31, 2010)
penicillin and streptomycin based on Riken’s own technologies in 1948, andbeen since June 2001 marketing Fiblast Spray consisting of Trafermin, a

Forward-Looking Statements

annual report contains forward-looking statements pertaining to the Company’s
recombinant
form of human basic Fibroblast Growth Factor (bFGF) for the EmployeesThis(Non-Consolidated)
Main Branchesbusiness and prospects. These statements are based on current analysis of existing

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.

Sapporoinformation119
and trends. Actual results may differ from expectations due to unforeseen
first timein theBranchworld, licensed from a U.S. bio-pharmaceutical company, Administration:
BranchScios,Sendai
in the areaof regenerative medicine (wound healing medicine).

risks and uncertainties.
Sales & Marketing:980
Production & Technology: 232
Research & Development: 295
Regulatory Affairs: 39

Tokyo-1 BranchTokyo-2 Branch
Nagoya Branch
Osaka-1 Branch
Osaka-2 BranchConsolidated
Financial Highlights
Hiroshima Branch
Fukuoka Branch
2010

Thousands of
U.S. dollars (note)Millions of yen

2009

2010

For the years ended March 31,

Plant
Net sales
Shizuoka Factory¥85,022¥82,930$914,215

Operating income

11,784

10,629126,710

Research Laboratories
Net income
Shizuoka Research Laboratories
Kyoto
At March
31, Research Laboratories
Production Technology Laboratories
Total net assets

6,734

5,579

72,40959,57556,679640,591

95,096

94,504

1,022,538

Total assets
Overseas Office:Kaken New York Office
Per share
245 data:
Park Avenue, 24th Floor, New York, NY10167
Tel: 1-212-372-8910
Net income(basic)Fax:
1-212-372-8970
Cash dividends (non-consolidated)
E-mail: ny@kaken.co.jp

Yen

U.S. dollars (note)¥ 68.79¥ 55.61

$

0.740

30.00

26.00

0.323

%

Ratios:

ROE

11.59

9.78

—

Capital adequacy ratio

62.65

59.98

—

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥93 = $1 effective on March 31, 2010.

39

Bringing Smiles to Everyone

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

Annual Report 2010
Year
Year Ended
Ended March
March 31,
31, 2010
2010
PrintedPrinted inin Japan
Japan