CORPORATEREPORT
2023

CONTENTS

Bringing Smiles to Everyone
KAKEN helps improve the quality of life of patients by serving as many people as possible toreturn smiles of happiness to their faces, through supplying superior pharmaceuticals.

Value Creation Story

2
4
6
8

A History of Value Creation
Value Creation Process
KAKEN’s Six Types of Capital
Sources of Value Creation

Strategy

10
14
16
21

President’s Message
Priority (Material) Issues
Long-Term Business Plan 2031 Progress and Achievements
Growth Strategy

Foundation for Creating Value

24
26
28
30
34
35
37
38
42

Sustainability Strategy
Engagement with Customers
Management Team
Corporate Governance
Messages from Outside Directors
Compliance and Risk Management
Engagement with Society and Local Communities
Environmental Management
Human Resource Strategy

Financial and Corporate Data

46
48
50
51
52
53
54
86
88

FY2022 Operating Results and Financial Condition
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Net Assets
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Financial and Non-Financial Highlights​
Corporate and Share Information

In this endeavor, we always strive to be “the best,” rather than pursuing the scaleof business.
We aspire to be, and to remain, a company that can create “Joys” for patients, society andour employees.
We also hope to contribute to society by demonstrating KAKEN’s distinctive andvigorous presence.

Corporate Philosophy

KAKEN helps improve the quality of life of patients by serving
as many people as possible to return smiles of happiness totheir faces, through supplying superior pharmaceuticals.

Business Philosophy

KAKEN “Three Joys”

Joy for patients

Joy for society

Joy for employees

We strive to create andsupply efficacious drugs thatsatisfy the needs of patientsand medical professionals.

We recognize our social
responsibility as a pharmaceuticalcompany, engage in all activities
with high ethical standards,
and aspire to earnsociety’s trust.

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

Editorial Policy

Position of the Corporate Report in Information Disclosure

Our policy in issuing this report is to help KAKEN’s various stakeholders(including shareholders and investors) to understand the Company’s
management foundation and strengths, as well as the sustainable growth itaspires to achieve through creation of corporate value in the future. We havecompiled the report using the International Integrated Reporting Frameworkby the IFRS Foundation and Guidance for Collaborative Value Creation by the
Ministry of Economy, Trade and Industry as reference.

To communicate with stakeholders, we use various tools to disseminate
a wide range of information in addition to the information in this report.
Our purpose in issuing this report is to tell our value creation story byintegrating financial and non-financial information.

Reporting Period
FY2022 (April 1, 2022 to March 31, 2023)
Note: Some information from before and after the period above is included.

Financial

Non-Financial

Investor relations section of the Company website
Corporate Report
Presentation materials

Scope of This Report
Kaken Pharmaceutical Co., Ltd. (“the Company” or “KAKEN”) and its
consolidated subsidiaries (collectively, “the KAKEN Group” or “the Group”)
Cautionary Statement
This report contains forward-looking statements on the Group’s business.
They are projections based on information available at the time this report
was written, and may differ from actual results due to a variety of factors.
In addition, although this report includes information related to pharmaceuticals(including those under development), these statements are not intended tobe advertisements or medical advice.

Annual Securities Report(Japanese only) andConsolidated financial results

ESG data (Japanese only)
Sustainability section of
the Company website
Corporate Governance
Report (Japanese only)

Investor relations section
ESG dataof the Company(Japanese only)

Sustainabiliy section of
the Company website

KAKEN Corporate Report 2023

1

Value Creation Story

A History of Value Creation
With a deep dedication to meeting the needs of patients, KAKEN conducts collaborative research anddevelopment and clinical development with companies in Japan and overseas, in addition to in-house drug
discovery, to provide products that are the first of their kind in Japan or the world.

KAKEN’s History

Founding Ideas
With its origins in the Institute ofPhysical and Chemical Research(Riken), which was established in
1917, the Company started its
business in 1948 as Kagaku Kenkyusho.
Its first president, Yoshio Nishina,
who has been called the father ofmodern physics in Japan, said that
his mission was to apply basic
scientific research and its findings
to industry, and began manufacturing
and selling pharmaceuticals as away of implementing theoreticalresearch in business.

1940S

1960S

1990S

2000S and beyond

Technologies developed by
Riken form the roots ofKaken Pharmaceutical

Growth driven by establishmentof new research facilities and astrengthened sales structure

Provision of medicines of
excellent quality in a drive to
be “the best”

Advancing priority research themes through organizational
improvements and concentration of resources

With its roots in Riken, which has made many
contributions to modern science in Japan, KAKEN
has provided medicines to meet the needs of thetimes based on its technologicaldevelopment capabilities. The
Company applied Riken’s
culturing techniques tocommercialize penicillin, which
had been attracting interest
as a treatment specificallyfor pneumonia, an intractabledisease at the time. KAKEN
took the lead in penicillin
production in Japan. It went
on to introduce streptomycin,
a specific treatment for
tuberculosis, as well as related
products, forming the businessfoundation that led to the
KAKEN of today.

Based on ideas from academia, KAKEN developed
products from new viewpoints, including Japan’s
first digestive enzyme preparation in capsule form
and the world’s first oral anti-inflammatory enzyme
preparation. The Company also applied its technologies
to addressing social problems. In response to
Minamata disease (methylmercury poisoning), forexample, it successfully synthesized an antifungal
agent to replace organic mercury compounds thatwere the primary medicines for athlete’s foot at
the time. In the 1970s, the Company opened new
research facilities, and built a system capable ofadapting to increasingly stringent laws andregulations, and enhanced its sales capabilities.
The Kyoto ResearchInstitute in particular
was equipped withstate-of-the-art
equipment and tools,
demonstrating highly
reliable safety testing
Kyoto Research Institute(preclinical studies).

In the 1990s, KAKEN increased its R&D investment andfurther improved its technologies. The Company became thefirst in the world to successfully synthesize and develop
benzylamine-derived butenafine hydrochloride. Used as atreatment for athlete’s foot, it had a chemical structurecompletely different from that of existing athlete’s footmedicines, and grew into
strategic global productMentax. For Artz, which had
been sold in ampoule form,
the Company launched Artz
Dispo, a kit product with adisposable pre-filled syringe,
to reduce the risk of infection.
Underpinning the Company atthis time was its belief, set
forth in the late 1980s, in
striving to be “the bestcompany, even if not the
Mentax, which was awarded thebiggest.”The Drug Research Center and the CMC
Center cooperate and collaborate indiscovery research, focusing their financial
and human resources on R&D themes infields where their strengths can best be
utilized—the immune system, the nervous
Brand logo renewal
system and infectious diseases. In FY2022,
KAKEN launched Long-Term Business Plan 2031, and is working to enhance its
corporate value based on its vision of being 1) a company that contributes to longer
healthy life expectancy by developing and supplying innovative new drugs in a
speedy manner, and 2) a research-based pharmaceutical company with a global
presence, primarily in the areas of dermatology and orthopedics. In addition, we
renewed our brand logo to gain broader recognition from stakeholders as we develop
our business globally. The shape of the logo, which spreads out in three directions,uses the “K” in KAKEN as a motif to express the “Three Joys”—Joy for patients,
Joy for society, and Joy for employees—that comprise our business philosophy. It
reflects our dedication to always taking on new challenges while pursuing moreadvanced technology and reliable quality.

The Company’s first
office building

Okochi Memorial Grand ProductionPrize(established in 1975)

Launched Athletan (antifungal agent)

1953

Launched Clenafin (onychomycosis treatment)

Developed following initial formulation in Japan involving an animal
testing method for topical antifungal agents, this product became thefoundation for current antifungal agent development. It was the first
product from in-house drug discovery and played a significant role inbuilding the Company’s corporate image.

2014

As the first topical treatment for onychomycosis in Japan, Clenafin gave patients a
new treatment option that can be applied with a brush. It was discovered anddeveloped in-house, and global sales are expanding as the product becomes
available to patients worldwide, partly through out-licensing to local companies inNorth America, Asia and Europe.

Launched Artz (anti-osteoarthritis agent)

1987

Started Long-Term Business Plan 2031 in FY2022

Acquired Domestic Biotech Startup ARTham Therapeutics Inc.

The world’s first hyaluronic acid drug administered by intra-articular
injection, Artz has been marketed for more than 30 years. Widelyused to treat osteoarthritis of the knee and periarthritis of theshoulder, it is one of the products that greatly expanded KAKEN’spresence in the area of orthopedics.

2021

KAKEN bolstered its development pipeline by making its first acquisition since theCompany was incorporated. By applying ARTham’s technology and experience indrug repositioning, KAKEN will also enhance its own R&D capabilities.

Product History
Antifungal agent

Athletan

2

KAKEN Corporate Report 2023

Anti-inflammatory, analgesic
and antipyretic agent

BrufenAnti-osteoarthritis agent

Artz Dispo

Wound-healing agent

FiblastOnychomycosis treatment

ClenafinPrimary axillary
hyperhidrosis treatment

Ecclock

Burn eschar removal agent

NexoBrid

KAKEN Corporate Report 2023

3

Value Creation Story

Value Creation Process
With the aim of fulfilling its corporate philosophy of “help improve the quality of life of patients by serving as
many people as possible to return smiles of happiness to their faces, through supplying superior pharmaceuticals,”
the KAKEN Group provides drugs and information that contribute to the quality of life of patients from a distinctive
viewpoint. We will continue striving to create value based on our unique strengths.

BUSINESS MODEL

INPUT

We leverage our strengths
to provide new treatment
options to patients.

Financial Capital
Safe andsound financial positionfinas o nci a
un l
d fo
m u
an

Joy forpatients

nSocial Capital
Building strong
relationships withstakeholders

Innovative drugs,
including productsthat are the first of
their kind in Japanor the world

Joy for patients–KAKEN Vision forTransformation–

Clenafin

FiblastF or details, seepages 16-20

KAKEN’s heritage

Joy forsociety

Joy for
employees

Priority Issues
si
om fro
n
ee ba
pe m
For
details,
see
pages
14-15
w
tit uniR&D ande t gl oor quebsProduction
ev
anc
l
iew
a
B
poin
ts,

Growth Strategy

Orthopedics

For details, see pages 21-23

R&D and Business
Development

Artz

Hernicore

Other Areas

Eco-conscious
business activities
For details, see pages 6–7

4

KAKEN Corporate Report 2023

• Development ofsustainable supply chains• Consideration for local
communities and theenvironment based onhigh ethical standards• Stable and continuous
returns to shareholders

Contributing
to people’s
well-being
through better
quality of life

Joy for employees
Sources of Value Creation

Natural Capital• Longer healthy life
expectancy• Treatments that improve
quality of life of patientsand their family members• Meeting medical needs
for adequate treatments• Addressing global needs• Provision of proper
pharmaceutical and related
medical information

Joy for society

Ecclocknl s -hoou us
rc e ding isco
ve r
y an
d

ug
dr c
w of
ne d
of heaa

The source of newtreatment options
for patients

OUTCOMES

Sharing joy throughpharmaceuticals

ent
opm
Devel

Intellectual Capital

OUTPUT

Long-TermBusiness Plan2031

in e iA team of professionals
who help to achieve the“Three Joys”

KAKEN helps improve the quality of life of patients by serving as
many people as possible to return smiles of happiness to their faces,
through supplying superior pharmaceuticals.

Dermatologyd ic

Human Capital

o
hr
nt t
o
i
n
at e
nd gemae
fm
son e ast li areon ticeu

Operating base that
ensures stable supply

Equity Policy

Patients andMedicalProfessionals

De ep involv
emMarketings p e e nt
& Salesci f onic
th t h ee r fr
ap

h
ug

Sol
id

Manufacturing Capital

Corporate
Philosophy

For details, see pages 8-9

Seprafilm

First in theworld

Foundation for Creating Value

Human Resource
Strategy

Corporate
Governance

Environmental
Management

For details, see pages 42-45

For details, see pages 30-34

For details, see pages 38-41

Regroth• Job satisfaction as
professionals who meetpatient needs

First in JapanKAKEN Corporate Report 2023

5

Value Creation Story

KAKEN’s Six Types of Capital
We have continued to provide new treatment options to patients using the capital we have accumulated since
the Company was founded.
To continue to understand and meet needs on the frontlines of healthcare, we will further build up that
capital in pursuit of greater value creation.

Financial CapitalIntellectual
CapitalSafe and sound financial position
Operating cash flow¥

Equity-to-asset ratio

R&D investment

9,253 million 81.9%¥

Manufacturing base

Delivering stable, continuous supplies of high-quality pharmaceuticals to patients is our responsibility as a pharmaceuticalcompany, and the Shizuoka Factory is our manufacturing site for that purpose. At the Shizuoka Factory, we are proactively
investing to expand or upgrade pharmaceutical manufacturing facilities. We will improve production efficiency by making useof digital technology in production control and quality control as we work to establish and maintain a system for providing astable supply of pharmaceuticals.

A team of professionals who help to achieve the “Three Joys”

1,117

Average tenure

Male employees:

17.8

years

KAKEN Corporate Report 2023

6

(As of April 2023)

In supplying drugs to patients in Japan and overseas, it is essential to build strong relationships of trust with a wide range ofstakeholders, including medical professionals and licensees. To ensure that KAKEN’s pharmaceutical products are usedproperly, we have sales offices nationwide and have established a system for providing appropriate product information. We
are also out-licensing products overseas, primarily Clenafin (INN: efinaconazole), a drug from in-house drug discovery.

Natural Capital

Eco-conscious business activities
CO2 emissions

Female employees:

19.1

years

To achieve the “Three Joys” of our business philosophy, we endeavor to create an environment in which employees canenjoy and take pride in their work as professionals and can continue working with a sense of fulfillment. To foster a corporate
culture that encourages employees to take on challenges, we offer personal development and reskilling opportunities, anddevelop employees with distinctive capabilities who can adapt to changing times. In doing so, we are transforming ourorganization into one where diverse people collaborate as one team.

6

Number of countries/regions where
efinaconazole is available

33

1,968 million Shizuoka Factory

Number of employees(Kaken Pharmaceutical)

Building strong relationships with stakeholders
Sales offices¥

Human Capital

15,789 million 8

We deliver new treatment options for patients primarily through products in the areas of dermatology and orthopedics. In
FY2022, we in-licensed two development projects for the treatment of rare diseases in new therapeutic areas. In addition to
our efforts in therapeutic areas where we are strong, we will expand into rare diseases and other new areas, aggressively
investing in research and development to steadily create world-class, innovative drugs.

Social Capital

Operating base that ensures stable supply
Capital expenditures

Number of projects under development(As of August 2023)

Our continuous launch of new drugs is a stable source of revenue, based on which we are able to maintain a sound financial
position, which in turn enables us to make proactive growth investments to enhance our future earnings foundation. In
allocating the cash flow generated from our business activities, we give priority to research and development to create
innovative new drugs that will provide joy to patients and society. By doing so, we will achieve sustainable growth incorporate value.

Manufacturing
CapitalThe source of new treatment options for patients

21,667

t-CO2

Energy consumption

Water consumption

11,7792,808

kl

thousand m3

Consideration for the environment is one of our priority issues. We are taking steps to reduce our environmental burden in all
aspects of our business activities. We have set a long-term target for reduction of CO2 emissions and are implementing
ongoing energy-saving activities to achieve it. Under the KAKEN Basic Environmental Philosophy, we recognize our social
responsibility as a pharmaceutical company and shall take measures to address climate change and other environmental
issues, and contribute to the realization of a sustainable, prosperous society.

KAKEN Corporate Report 2023

7

Value Creation Story

Sources of Value Creation
KAKEN focuses on selected therapeutic areas and delivers new treatment options to patients.
Our ability to do so comes from our ability to perceive needs (our ability to identify issues) based on our
corporate culture of adapting to the frontlines of medicine, and our ability to meet needs (our ability to findsolutions) by applying a flexible approach.

Ability to Perceive Needs

B al anet wegl o e n ib a n- hlsoR&D andBusiness
Development

Flexible Approach
to Finding Solutions

Ability to Meet Needs

and(Ability to Find Solutions)ug
dr f cew d onof ea
ent ah
lopm
Deve

nd
ag atioem n ten hrought

R&D and
Production

Ability to Perceive Needs (Ability to Identify Issues)
Expertise andNetworks
from Focusingon Specific
Therapeutic Areas

We identify the best solution by applying a flexible approach and analyzing unmet medical needs
using the patient feedback we obtain from medical professionals at the frontlines of medicine. We
strive to speed up the R&D process to provide the innovative drugs that patients need as quickly
as possible, not only by leveraging our own technologies and experience, but also by using
advanced technologies and knowledge from outside the Company. We also apply the informationthat MRs obtain at the frontlines to devise product formulation and packaging solutions.

We are utilizing AI and othertechnologies to drive innovationin the drug discovery process.

som frope m utito niq
rs ue vi
ewpoin
ts,

ry

u
fo an
ial
nc d mina unid f soSol

Equity Policy

ce b

e
ov
sc
di
s e in go u u rc

ine in
edic
fm
s oas
e
lin rent c afro euti

Deep involv
em
spe ent ocifi nc t thhe erap(Ability to Identify Issues)Marketing &Sales

Ability to Meet Needs (Ability to Find Solutions)

We focus on dermatology and orthopedics, and have useful, innovative products in both of theseareas. By concentrating our efforts in these areas, we have raised the quantity and quality of thespecialized knowledge of our medical representatives (MRs), and when assigned to specificregions they are able to tailor the information they provide to the medical needs of those regions.
These actions have helped us build strong relationships of trust with medical professionals. As aresult, we are able to reflect the patient feedback that we obtain from medical professionals at thefrontlines of medicine in new product development and formulation improvements.

Hitoshi Kesamaru
In Silico Analysis Group, Chemistry Department,
Drug Research Center

The R&D Division aims to rapidly create innovative new
drugs. We apply computerized simulations and analysis inaddition to testing hypotheses through conventional
experiments as we work to increase the speed of drug
discovery research and improve the probability of success.
In addition to utilizing an AI drug discovery platform called
Elix Discovery™, we are constructing a new AI prediction

Flexible Cooperation

To create advanced drugs that address new needs and make those drugs available to patients asquickly as possible, we assemble cross-departmental project teams for specific objectives. Throughfree and lively discussion based on their expertise, team members carry out efficient drug discovery.
This serious and passionate approach across departmental boundaries is one of KAKEN’s
strengths.
We are striving to create further value, taking on new challenges by increasing cooperation
with domestic and overseas biopharmaceutical startups that have innovative technologies, andwith companies that have unique technologies in other areas.

I frequently go to the frontlines, and I
value the information that can only
be obtained by being there.

As a team, we are flexibly
pursuing what is best for patients
through open communicationand smooth cooperation acrossdepartments.

Shin Ito Tokyo Sales Office 1, Regional Marketing & Sales Department I

KAKEN has a history of continuously providing products thatare appreciated by many patients, mainly in dermatology andorthopedics. Behind that success are the strong relationshipsof trust we have built with medical professionals, which are
the source of the Company’s presence and product value.
Our MRs do more than just provide information to doctors andpharmacists; by meeting frequently with medical professionals
who are in close contact with patients, such as nurses andrehabilitation staff, we can explain diseases and inform them
about how to use our products, as well as obtain feedback
from more patients, which we then apply in our everyday work.

8

KAKEN Corporate Report 2023

Although we are a pharmaceutical company, we also
provide adhesion barrier materials, which are a medical
device. Because of this, our MRs have opportunities toattend surgeries in operating rooms to explain the properuse of these products. By providing support to medical
professionals in this setting, MRs can deepen trust.
Moreover, being present to see our products properly used
for the benefit of patients is a uniquely rewarding experiencethat other drug manufacturers do not offer. We remaincommitted to being a trusted medical partner throughinformation-sharing activities.

model that applies KAKEN’s expertise to raise our compounddesign to a higher level. Through collaboration and joint
research with a partnership research organization (PRO), weare also strengthening our bioinformatics platform andinnovating the drug discovery process by combining our
in-house research infrastructure with the latest technologies.

Takuya Nabeshima Medical Affairs Department
The Medical Affairs Department is responsible for drug
fostering and evolution (DFE), in other words, for increasing
the value of pharmaceuticals with the information it provides
to medical professionals and patients. For NexoBrid, a drug
for burn eschar removal launched in August 2023, we shared
information obtained from outside medical science experts,
licensee MediWound and overseas scientific papers in aninternal cross-departmental project from the early stages ofdevelopment. This information was reflected in easy-tounderstand information materials for medical professionals
and a video on drug preparation procedures, which havehelped to ensure the appropriate use of the product.
We will continue working as a unified team to maximize
the value of pharmaceuticals, cooperating with the highly
professional employees in each department to solve problems.

KAKEN Corporate Report 2023

9Strategy

President’s Message

The First Step toward 2031 VISION

We will promote the “Three Transformations” tocontribute to well-being through better quality of life.
Hiroyuki Horiuchi
President and Representative Director

The First Year of Long-Term Business Plan 2031
For FY2022, as a positive result that will contribute in
the long term, we enhanced our development pipeline

On the other hand, financial results for FY2022

by in-licensing two drugs in late-stage development

fell short of our original plan. Net sales declined due

for rare diseases—seladelpar, a primary biliary

to National Health Insurance (NHI) drug pricecholangitis treatment, and tildacerfont, a congenital

reductions in Japan and competition from rival

adrenal hyperplasia treatment. Furthermore, in

products, and profit decreased mainly because of an

December 2022 we obtained regulatory approval forincrease in R&D expenses and an impairment loss

NexoBrid, a drug for burn eschar removal, and launchedassociated with the termination of a development

it in August 2023. Currently approved in over 40

project by ARTham Therapeutics, a consolidated

countries, this topical agent removes necrotic burnsubsidiary. We regret that we were unable totissue, or eschar, through proteolysis, a process that

achieve good results in the first year of Long-Term

uses proteolytic enzymes extracted from the stem ofBusiness Plan 2031.

the pineapple plant as its active ingredient. A major

10

for more patients.

We also made organizational changes in April

which the Marketing & Sales Division directly

needs and create enduring products—we believe

supervises the 33 sales offices nationwide. This

these changes to our organization will reinforce andorganization will enable faster coordination between

deepen our unique strength of solving problems as a

the Marketing & Sales Division and frontline operations,team and will speed up decision-making to achieve

ensuring decisions reach frontline operations smoothly

results. I have a real sense that we took positive

and allowing frontline staff to move quickly and gather

steps in FY2022 toward achieving Long-Term Businessinformation and identify needs. In addition to ourPlan 2031, and were able to gauge the challenges

culture of adapting to the frontlines of medicine—

we need to overcome to achieve our vision.

the source of our ability to identify unmet medical

Promoting R&D Transformation andOverseas Expansion Transformation
Long-Term Business Plan 2031 presents “Threebegan using AI in drug discovery to shorten the R&D
period and improve the success rate of in-houseinitiative taken on by KAKEN is to in-license products

2023. In the Marketing & Sales Division, we

Transformations” as a strategy for achieving our vision.

that have been launched overseas and launch them

restructured the five branches into three new

In the first, “R&D Transformation,” we envision

as new treatment options in Japan, where they wereregional marketing & sales departments in charge ofcontinuously launching innovative, world-class drugs

In January 2023, we started collaboration forpreviously unavailable. Our hope is that these

the Greater Tokyo and Chubu, Western Japan, andin our three priority fields of drug discovery. In FY2022,

creation of innovative new drugs with Axcelead Drugproducts will contribute to improved quality of life

Eastern Japan regions and changed to a structure in

we established the In Silico Analysis Group andDiscovery Partners, Inc., which has the wide range

KAKEN Corporate Report 2023

drug discovery.

KAKEN Corporate Report 202311

of platform capabilities and extensive experience

In our current product mix, we are expanding thenecessary for drug discovery. We will rapidly

regions where we launch our existing overseas

transform our discovery research process to be

products. For example, in May 2022 our European

more data-driven so that we can produce positive

licensee Almirall S.A. filed an application for approval

results during the period of Long-Term Businessof Clenafin, an onychomycosis treatment, and inPlan 2031.

June 2023 we out-licensed Ecclock, a primary

The second of the “Three Transformations” isaxillary hyperhidrosis treatment, to a company in“Overseas Expansion Transformation.” Here, weSouth Korea. We are now preparing for our own

envision increasing our overseas sales ratio to 30%

clinical trial for KP-001, a treatment for refractoryor higher by FY2031 and consolidating our position

vascular malformations, in the United States. We

as an R&D-driven company with mainstay products

intend to cooperate with partner companies toin the areas of dermatology and orthopedics.

expand our presence in the United States, thecenter of the market for new drugs.

Becoming an Organization That Nurtures Professionals andWhere People with Diverse Abilities Cooperate as One TeamIn the third of our “Three Transformations,”

when they do become leaders. I believe this will

“Management Base Transformation,” we envision

lead to their growth.

increasing corporate value by establishing a strong

We will also take steps to boost employee

Pursuing Sustainability Based on the “Three Joys” andStriving to Achieve 2031 VISION

organizational base that can flexibly respond to

motivation. Considering the current trend ofchanges and by improving operational efficiency.

reskilling, we are enhancing online learning services

We established the Sustainability Committee in April

The core of our management base is humanfor employees. For example, we have set up an

2023. Our main businesses of manufacturing andshareholder returns aligned with profit growth bycapital, and we are focusing efforts on nurturing

environment for employees who want to work inselling pharmaceuticals and agrochemicals are, inpaying stable, continuous dividends and making

professionals and the next generation of leaders.

overseas operations to learn English. In fact, I find it

essence, sustainability initiatives, and combining

flexible share buybacks. The annual dividend per

In my view, professionals are people who takeencouraging that more employees are taking online

them with other efforts to address sustainability

share for FY2022 was ¥150, the same as in FY2021.

responsibility for their work, who do not limit

courses on their own volition, without being told toissues has created a structure for sustainability

Creating KAKEN’s distinctive value and providing

themselves to a single competency, but aim fordo so by the Company.

management unique to KAKEN. Placing our businessit to society is the key to achieving 2031 VISION:

more and reliably achieve goals. To develop such

During the past fiscal year, we actively recruited

Our policy for shareholder returns is to provide

philosophy comprising the “Three Joys”—“Joy for“A company that contributes to longer healthy life

people, it is important to create the right environment.

experienced professionals in areas such as researchpatients,” “Joy for society,” and “Joy for

expectancy by developing and supplying innovative

When I was in charge of marketing and sales, rather

and data science. Based on needs that our MRs canemployees”—at the center of our sustainability

new drugs in a speedy manner” and “A research-than giving specific instructions to each medical

only perceive by being on the frontlines of medicine,

initiatives, we strive to become a company that canbased pharmaceutical company with a global presence,

representatives (MRs), I encouraged them to act on

we want to go a step further and conduct flexible

bring even greater joy to society by pursuing the

primarily in the areas of dermatology and orthopedics.”

their own volition. Asking them “What do you

problem-solving that incorporates digital technology.

well-being of our stakeholders.

Long-Term Business Plan 2031 describes our vision

think?” helps them to think and act independently.

To do that, it is important to approach problems

As part of our consideration for the environment,

for 10 years in the future, but it is important to know

I have come to believe that doing this consistently

collaboratively as one team, integrating people who

we adopted the recommendations of the Task Force

where we are headed in the first five years. We areleads to the growth of each individual.

have diverse abilities. I myself create opportunities

on Climate-related Disclosures (TCFD) in February

fully committed to creating drugs that will ultimately

to talk with as many employees as I can, going to2023 and began disclosure in line with the four core

increase our corporate value, and appreciate yourhave expanded and enhanced comprehensive

their workplaces to hear from them directly. If

elements of these recommendations in the first halfcontinuing support as we strive for further success.

education and training programs by employment

employees know that their work is being noticed

of FY2023.

year and position, and through internal and externaland counted on, I think it motivates them to try

training programs. I want employees who are noteven harder.

To nurture the next generation of leaders, wecurrently leaders to do their jobs with an image of

12

KAKEN Corporate Report 2023

KAKEN Corporate Report 2023

13

Strategy

Priority (Material) Issues
The KAKEN Group delivers value to society and contributes to achieving a sustainable society by practicing its
corporate philosophy: “KAKEN helps improve the quality of life of patients by serving as many people aspossible to return smiles of happiness to their faces, through supplying superior pharmaceuticals.” We believethat this will lead to the sustainable growth of the Group. In order to set out the challenges and initiatives inachieving this objective, we have identified priority issues related to the KAKEN Group’s future value creation.

Process of Identifying Priority (Material) Issues
Step 2: Compile

To determine the priority issues to be addressed through
KAKEN’s business activities, the Corporate Planning &Coordination Department and the General Affairs Department
first identified social issues, taking into account, among
other factors, the status of the Company’s business,management plans, GRI Standards, and ISO 26000.

We identified and mapped social issues on two axes:“Relevance to KAKEN’s business” and “Impact on stakeholders”
in order to narrow issues down to those with a high degreeof importance. From these, we compiled priority issues, theirassociated risks, opportunities and main initiatives, taking
into account KAKEN’s business philosophy.

Mapping of Priority (Material) Issues
Priority (Material)
Issues

Impact on
stakeholders

Extremely
high

Step 1: Identify

High

Relevance to KAKEN’s business

Extremely
high

Step 3: Designate

Step 4: Review

The items selected
were deliberated bymanagement anddesignated as priority
issues for the KAKENGroup.

These priority issues are reviewed
in light of changes in the Company’s
operating environment, progress of
initiatives, and stakeholder opinions
collected through dialogue.

Priority (Material) Issues
Business Philosophy“Three Joys”

Priority (Material) Issues

 1 Contributing to medical solutions

For details, see pages 21-23• Creation of innovative new drugs that satisfy unmet medical needs• Provision of pharmaceuticals with proven health economics“Joy for patients”
We strive to createand supply efficacious
drugs that satisfy theneeds of patients andmedical professionals.

• Partnerships with domestic and overseas companies and others

2

Fulfilling responsibilities as a pharmaceutical company
For details, see pages 26-27• Stable supply of high-quality pharmaceuticals with proven safety• Activities to provide accurate information“Joy for society”
We recognize oursocial responsibility
as a pharmaceuticalcompany, engage inall activities with highethical standards,
and aspire to earnsociety’s trust.

Our objective is tobecome a company
with vitality andpresence whose
employees enjoy andtake pride in their work.

14• Promote alliances with overseas companies and others (for in-licensing of projects under ontribution to society and heightened Company
C
presence through development of innovative drugs
 ecline in corporate value due to disruption in supply ofDpharmaceuticals
Impact of intellectual property risks on businessSuspension of sales due to inappropriate activities

For details, see pages 30-34

Disruption of supply chain• Risk management to ensure business continuityC onsideration for the environment

For details, see pages 38-41

Increased risk of violations of laws and regulations,misconduct and other inappropriate actions
Earning stakeholder trust• Proper management of waste and wastewater isruption in production due to factors includingD
depletion of water and other resources• Efficient use of water and other resources

Decline in public trust due to insufficient efforts• Reduction of CO2 emissions

Cost reductions from energy conservation initiatives• Supply of eco-friendly agrochemicals

Contribution to global food safety

5“Joy for employees”• Focus management resources on research and development

Fulfillment of unmet medical needs

Decline in stakeholder trust• Promotion of compliance

4Changes in healthcare policies and market trends

Strengthening corporate governance• Strengthening relationships with stakeholders

Creating fulfilling workplaces

Main Initiatives

Related SDGs

Insufficient development pipeline

 aximization of product value through stable supplyMand provision of useful information• Intellectual property strategies

3

Associated Risks and Opportunities(Risks: , Opportunities: )development, out-licensing of in-house products, joint research and other purposes)• Maintain domestic and international standards for good manufacturing practice (GMP)• Contribute to better medical treatment by improving product value in ways such as generating

evidence• Utilize digital tools and other means to establish efficient systems for delivering information• Global intellectual property strategies• Strengthen governance framework• Appropriate and timely information disclosure and dialogue• Training and education in compliance, risk management, and relevant laws and regulations• Contribute to local communities (participation in activities such as local beautification anddisaster relief support)• Develop/Update disaster and pandemic response plans• Roll out environmental management system• Maintain ISO 14001 certification (Shizuoka Site)• Continue CO2 emission reduction initiatives• Research and development of eco-friendly agrochemicals

For details, see pages 42-45• Generating and maintaining employment opportunities• Work-style reform and improved productivity• Employees’ health, occupational safety and welfare• Diversity• Development of the next generation of human resourcesOutflow of personnel
Labor issues
Decline in productivity
 orporate growth from increased employee fulfillment
Cand motivation
Hiring and retention of talented personnel• Work-style reform (including digitalization of work processes)• Appoint female directors• Enhance systems for employing people with disabilities and seniors• Help protect employees against disease and promote mental healthcare initiatives• Training programs, self-development support and discrimination/harassment prevention• Respect for human rights

KAKEN Corporate Report 2023

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15

StrategyLong-Term Business Plan 2031 —KAKEN Vision for Transformation—
Progress and Achievements
Due to the aging of Japanese society and tighter public finances for medical care, the prescription pharmaceuticalindustry’s business environment is expected to change dramatically. To respond to projected changes, in 2022
KAKEN created a vision for the 10 years to 2031 based on its long-term issues and set out the “3Xs” (“Three
Transformations”) as a strategy for achieving the vision.

Industry Environment

3Xs Strategy for Achieving the Vision

1st X
R&D
Transformation

 ging of society makes longer healthy lifeA
expectancy even more important

External
Environment

Increased importance of ESG/SDGs

Market Forecast

2031 VISION

[ Japan] Shrinking market due to drug pricerevisions, decreasing population and genericpenetration• A company that contributes tolonger healthy life expectancy bydeveloping and supplying innovative
new drugs in a speedy manner[Global] Growth in specialty areas andemerging economies

Shifts in
Healthcare
Paradigm

Trends in InHouse Drug
Discovery

 he focus of medical care is broadening fromT
diagnosis and treatment to include prophylaxis
and prognosis

For details, see page 18

2nd X
Overseas Expansion
Transformation
For details, see page 19

 ore customized medical care for each patientMor subpopulation by actively using genetic
information and other healthcare data

• A research-based pharmaceuticalcompany with a global presence,
primarily in the areas of dermatology
and orthopedics

F rom lifestyle diseases to unmet medical needs rom small molecules to biopharmaceuticals
F
and regenerative medicine

3rd X
Management BaseTransformation
For details, see page 20

Increased difficulty and cost in development

Strategy for Achieving the Vision

Target KPIs
FY2022

VisionContinuously launch innovative,
world-class drugs in our threepriority fields of drug discovery

VisionIncrease the overseas sales ratio
and consolidate our position as an
R&D-driven company with mainstay
products in the areas of dermatology
and orthopedics

VisionIncrease corporate value by
establishing a strong organizationalbase that can flexibly respond tochanges and by improving
operational efficiency

FY2026

FY203172.9 billion¥

80.0 billion ¥100.0 billion

7.9 billion¥

18.0 billion

Net Sales¥

Operating
Profit¥¥28.5 billion

ROE

4.0%

8 % or higher 10 % or higher

Overseas
Sales
Ratio*

9.9%

10 % or higher 30 % or higher* Total for pharmaceuticals and agrochemicals

Message from the Director in Charge of the R&D Division

We will further accelerate transformation of R&D
processes to generate innovation for quickly
creating and supplying breakthrough new drugs.

Mitsuru Watanuki
Director
Chief Officer of R&D Division

16

KAKEN Corporate Report 2023

FY2022 was the first year of Long-Term Business Plan 2031.
To improve the probability of a successful launch, we focused
mainly on innovation of drug discovery and other R&D
processes, as well as on the progress and expansion of ourdevelopment pipeline.
In new drug development, the low success rate, longdevelopment periods, and increasing development costs year
after year are major challenges. Moreover, in order to demonstrate
the value of their existences, pharmaceutical companies
must continuously launch truly superior drugs, while the listof diseases with unmet medical need is tapering.
We are focusing on in-house drug discovery as an R&Ddriven pharmaceutical company. In order to further establish
a new drug discovery process that incorporates external
research (contracting of drug discovery research), we begancollaboration with Axcelead Drug Discovery Partners Inc.
(Axcelead DDP). Additionally, the digital transformation ofresearch and development taking place across thepharmaceutical industry has the potential to dramaticallyshorten development periods. We have therefore introduced
AI drug discovery engines, including Elix Discovery™, an
all-in-one drug discovery platform, to start data-driven drug
discovery processes quickly.
In expanding our development pipeline, a cornerstone ofLong-Term Business Plan 2031, we began a Phase III clinical
trial for KP-001 (ART-001) in Japan. KP-001 is under development
for the treatment of refractory vascular malformations, andwe expect to expand its development and sales overseas in
the future. In addition, a Phase I clinical trial for NM26-2198
began in the United States in collaboration with Numab
Therapeutics AG for the treatment of atopic dermatitis, andfor KP-910 in Japan, a drug discovered in-house for thetreatment of peripheral neuropathic pain. Seladelpar andtildacerfont, which we in-licensed this year, have also been

added to our development pipeline, for a total of eight
ongoing projects.
Research and development of various new modalities istaking place in addition to traditional small-molecule compounds
and antibodies. We continue to explore ways to provide
effective treatments by using appropriate modalities foreach target molecule.
In FY2023, it is important to demonstrate that thedata-driven drug discovery process we implemented in
FY2022 and the various collaborations we have engaged incontribute to shortening the development period for eachproject, the search for original targets, and more. We will
start by promoting the transformation of the R&D process.
We will appropriately manage the development pipeline
portfolio, ensuring the steady progress of development anddrug discovery projects, including overseas development of
KP-001, and determining early proof of concept (PoC).

KAKEN Corporate Report 2023

17

StrategyLong-Term Business Plan 2031 —KAKEN Vision for Transformation—
Progress and Achievements
1st X

R&D Transformation: Progress of Priority Measures

We are promoting transformation of the drug discovery process through various initiatives, including the introduction ofan AI drug discovery platform and the partnership with Axcelead DDP. To expand our development pipeline, we havebeen widening the range of drug candidates for in-licensing opportunities and speeding up our assessment. These
initiatives led to the in-licensing of two drugs under development, seladelpar and tildacerfont. As an in-house initiative
for advancing overseas clinical trials, we began preparations for a clinical trial for KP-001 in the United States. At the sametime, we are investigating new modalities and digital therapeutics, and are considering cooperation with biopharmaceuticalstartups and other companies. We will continue to promote transformation of the R&D process to continuously launchinnovative, world-class drugs.
FY2031 Goals

2nd X

Overseas Expansion Transformation: Progress of Priority Measures

To further expand existing global products overseas, our alliance partner in Europe filed for marketing approval of
Clenafin, which is now under review by regulatory authorities. In China, we began a Phase III clinical trial for the drug incooperation with our local partner. In addition, we signed an out-licensing agreement for Ecclock in South Korea and incooperation with the licensee we are preparing for a regulatory filing for marketing approval. We also continue to explore
out-licensing to other major countries in Asia.
To promote new global products and establish our own overseas development capabilities, we have started
preparations to conduct an overseas clinical trial for KP-001 on our own, including building an in-house development system.

Progress of Overseas Expansion by Product

FY2022 Progress egan operation of drug discovery AI (Elix Discovery™) to shortenBdevelopment period• 
Established a minimal non-clinical package plan
• 
Started collaboration with drug discovery solution provider Axcelead
DDP, including exploration of original targets using bioinformatics for ahigher success rate• horten the period from drug
S
discovery to NDA by two-thirds•
Triple the frequency of productlaunches from in-house drug discovery•(1) Improve Launch
Probability

Projects under development: 7
 projects (May 2022)
8 projects (May 2023)• 
In-licensed two late-stage development projects(seladelpar and tildacerfont)• 
Searching candidate projects for in-licensing through investment in
Axil Life Science & Healthcare Fund II (from January 2023)• 
Refined procedures and systems for in-licensing evaluation• 
Started collaboration with Axcelead DDP to explore new targets

EuropeNorth America

Clenafin
KP-001

Clenafin
KP-001• ore than six projects discovered inM
house in Phase I or later stage(including in-licensed pre-PoC projects)• In-license (or enter sales alliances for)at least one late-stage development
project every year•(2) Expand Pipeline(3) Address New
Needs and Overseas
Expansion

Promote drug discovery on our
original targets• 
Promote in-house global development•

 evelop and launch regenerativeD
medicine products• 
Develop and launch digital healthproducts•(4) Take on Challenges
in New Fields

 tarted exploration of original targets using bioinformatics
S• 
Started preparation for a clinical trial for KP-001 in the United States
•

China

Launched

Clenafin
Ecclock
KP-001

 iscussing potential collaboration with several companies that haveD
new modalities, such as cell therapy and mRNA therapeutics• 
Discussing potential collaborations with several companies that develop
digital therapeutics for chronic pain

Clenafin
Ecclock

Under development
Australia

Out-licensed
Seeking out-license•

South Korea

 ormulating strategies forFoverseas expansion

Potential markets where theproducts have not yet
been launched

Highlights

18

ClenafinHong Kong
Macao
ClenafinSouth America
Clenafin

Highlights

Starting Phase III
Clinical Trial in Japanfor KP-001

Refractory vascular malformations, the target of KP-001, are anomalies of the blood andlymphatic vessels. Since they progress with the patient’s age and do not spontaneously
regress, lifetime treatment and management are required. KP-001 selectively inhibits
PI3K , which is involved in vasculogenesis, and is therefore expected to have an inhibitory
effect on vascular overgrowth with anomalies. As such, it is promising as a drug for
improving quality of life of patients with unmet medical needs.

Filing for Marketing
Approval for
Onychomycosis Treatment
Clenafin in Europe

Two Development
Projects In-licensed
for Treatment of Rare
Diseases

In January 2023, KAKEN in-licensed tildacerfont and seladelpar for treatment of rare diseases.
Tildacerfont is under development for the treatment of congenital adrenal hyperplasia.
This disease is caused by a congenital deficiency of the enzymes involved in corticosteroid
biosynthesis. In particular, adrenal insufficiency due to inadequate production of
glucocorticoids is a life-threatening illness. We expect to offer tildacerfont as a new therapy
that balances corticosteroid levels when used in combination with low-dose steroids.
Seladelpar is under development for the treatment of primary biliary cholangitis. This isa disease that activates immune cells, causing chronic inflammation that damages the bileducts in the liver. It is important to stop the progression of the disease, as it progresses tocirrhosis and liver cancer. Seladelpar inhibits this progression, and is expected to be a newtreatment option for patients.

Almirall S.A. of Spain, to which KAKEN granted exclusive rights for the development andcommercialization of Clenafin in Europe, filed an application for marketing authorization of
Clenafin with the regulatory authorities of Germany and Italy under the European
decentralized procedure in May 2022. The application is currently under review, withGermany acting as the Reference Member State. Clenafin has previously been approvedin six countries and regions other than Japan. Using this experience and knowledge,
KAKEN partnered with Almirall to deal with regulatory authorities in order to obtainapproval as quickly as possible in Germany and Italy.

Out-Licensing ofPrimary Axillary
Hyperhidrosis
Treatment Ecclock inSouth Korea

In June 2023, KAKEN executed an out-licensing agreement with Dong-Wha Pharm Co.,
Ltd., granting it exclusive rights for the development and commercialization of Ecclock inSouth Korea. Currently, we are preparing to file for marketing approval in cooperation with
Dong-Wha. We will continue our out-licensing efforts to make Ecclock available to patientsin China and other countries in Asia.

KAKEN Corporate Report 2023

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StrategyLong-Term Business Plan 2031 —KAKEN Vision for Transformation—
Progress and Achievements
3rd X

Growth Strategy

Management Base Transformation: Progress of Priority Measures

We are promoting initiatives that lead to enhancement of corporate value, such as establishing a strong organizationalbase and building efficient operations that can respond flexibly to changes in the business environment by empowering
all employees to maximize their potential as professionals.

Human Resource Strategy
We aim to make KAKEN a great place to work for all employees
by shaping a corporate culture that creates opportunities totake on new challenges and establishing an internal
environment for professional development. In terms of theworking environment, we are offering more flexible workstyle systems to enable work-life balance and support
childcare and nursing care. In human resource development,
we will actively promote individuals who demonstrateadvanced professional skills and assign personnel to jobs
according to aptitude. Moreover, in education and training,
we are introducing online learning tools to enhance training
programs and provide opportunities for personal development
and reskilling.

DX Strategy
Our basic policy for digital transformation (DX) is to optimize
research and development and the value chain, and foster a
corporate culture of continual transformation. We haveformulated a Companywide DX roadmap centering on researchand development, sales and marketing, and production, andhave executed measures while ascertaining transformative

effects and overall consistency. In research and development,
we have incorporated AI technology into new drug creation;in sales and marketing, we have established a platform for
AI analysis and data utilization as a sales support measure;and in production, we have worked on infrastructure
environment design at production sites. Going forward, we
will provide digital content and other new learning
opportunities to foster DX literacy and a transformation
mindset among employees.

Production Strategy
Our production strategy is aimed at maximizing productvalue from a patient-first perspective. Part of that entailschanging the formulations of various products. For thecontainer of primary axillary hyperhidrosis treatment
Ecclock, we developed a new twist-off top bottle that ismore compact and easier to use, and launched it in June
2023. We are also focusing efforts on building a production
line to ensure a stable, continuous supply of high-quality
pharmaceuticals. We have begun prototyping demonstration
machinery for continuous production, aimed at reducing
human error and adapting flexibly to fluctuations in demand.

Pharmaceuticals and Medical Devices
Business Overview
KAKEN’s pharmaceutical business centers on thedevelopment of innovative drugs that help to improve
patients’ quality of life, including drugs targeting
diseases that still have no adequate treatments anddrugs with novel dosage forms, primarily in the areas ofdermatology and orthopedics.
We have launched onychomycosis treatment
Clenafin, primary axillary hyperhidrosis treatment
Ecclock, and wound-healing agent Fiblast in the area ofdermatology, and anti-osteoarthritis agent Artz andlumbar disc herniation treatment Hernicore in the areaof orthopedics. These products are widely used to treat
their target diseases. In the medical devices category,
we supply Seprafilm, an adhesion barrier used primarily

Main Pharmaceuticals and Medical Devices
Product

Therapeutic Area

Clenafin

Onychomycosis treatment

Artz

Anti-osteoarthritis agent

Agrochemicals Business
Seprafilm
The agrochemicals business achieved its sales target for FY2022,
the first year of the long-term business plan, backed by a rise inglobal food demand and a move toward more eco-friendly
agrochemicals. In particular, polyoxin fungicides are natural
substances derived from fermentation, and are gaining acceptanceas extremely safe, non-chemical synthetic agrochemicals evenin new overseas markets. We are developing polyoxins to further
expand new markets, which will lead to a growth pillar of thelong-term business plan through higher sales.

in surgery and in gynecology to reduce complications
from post-operative adhesions.

Post-operative adhesion barrier

Year
Launched

Net Sales (FY2022;
Billions of yen)

Onychomycosis

2014

17.9

Knee osteoarthritis
Shoulder periarthritis, etc.

1987

17.0

Reduction of post-operative adhesion

1998

7.7

Bedsores
Skin ulcers (burns and leg ulcers)

2001

2.7

Efficacy/Indication

•

•
•

•

•

FiblastWound-healing agent

Ecclock

Primary axillary hyperhidrosis
treatment•

Primary axillary hyperhidrosis

2020

1.2

RegrothPeriodontal regenerative agent•

Alveolar bone loss due to periodontitis

2016

0.8

Hernicore

Lumbar disc herniation treatment

 umbar disc hernia
L(subligamentous extrusion)

2018

0.3

•

•

Highlights

Toward Agrochemical
Registration of
Polyoxins in Europe

20

KAKEN Corporate Report 2023

In Australia, the launch of polyoxins in 2021 was followed by certification as organic
materials in October 2022, and the increased use of polyoxins in organic agriculture should
further expand sales in Australia, as in the United States and New Zealand, where they are
already certified. In addition, various safety tests aimed at setting a maximum imported crop
residue level (import tolerance) in Europe for polyoxins are progressing as planned. Setting
this import tolerance will spur expanded use for crops in the European market, further
moving us toward our goal of plant protection product registration in Europe.

Highlights

Launched NexoBrid,a drug for burneschar removal

NexoBrid obtained approval and launched in August 2023. This product is a topical agent
that is applied to the burn wound and then removed, selectively, easily and quickly removing
necrotic tissue without harming the surrounding healthy tissue.
We will contribute to improving the quality of life of more patients with severe burns
by providing a drug for burn eschar removal as a new, non-invasive treatment option. We willconduct information provision activities to support that goal.

KAKEN Corporate Report 2023

21

Strategy

Growth Strategy
Projects under Development
To enhance our development pipeline, in parallel within-house drug discovery we actively engage incollaborative research and development with otherpharmaceutical companies and research institutions inJapan and overseas. We are also focusing on inlicensing of development projects and products, as wellas considering M&A of companies that have promisingdevelopment projects. We have begun Phase III clinical
trial for KP-001, a potential treatment for refractory
vascular malformations that has made progress, basedon the results of a Phase II clinical trial conducted bysubsidiary Artham Therapeutics Inc. in Japan. NM26-

2198, being co-developed for atopic dermatitis with
Numab Therapeutics AG of Switzerland, has started
Phase I clinical trial in the United States. In addition,
three new development projects have been added toour pipeline in the Phase I stage. KP-910, a drug
discovered in-house, will be developed for peripheral
neuropathic pain. Seladelpar and tildacerfont were bothin-licensed in FY2022. We discontinued the developmentof ART-648, which had been under development by
subsidiary ARTham Therapeutics Inc. for the treatmentof bullous pemphigoid.

Projects under Development (As of May 2023)
Development Stage

Development
Code

Planned Indication

KAR

Head lice

Phase IIIIn-licensed from Arbor Pharmaceuticals, LLC
Product name in the United States: Sklice®

KP-001(ART-001)

Refractory vascular malformations

Phase III

Development project transferred throughsuccession from ARTham Therapeutics Inc.

BBI-4000

Primary palmoplantar hyperhidrosis

Phase I

Additional indication for Ecclock

KP-483

Solid tumors (immuno-oncology)

Phase I

Product discovered in-house

NM26-2198

Atopic dermatitis

Phase I

Co-development with Numab Therapeutics AG

KP-910

Peripheral neuropathic pain

Phase I

Product discovered in-house

Seladelpar

Primary biliary cholangitis

Phase I

In-licensed from CymaBay Therapeutics, Inc.

Tildacerfont

Congenital adrenal hyperplasia

Phase I

In-licensed from Spruce Biosciences, Inc.

Phase I

Phase II

Phase III

Application

Remarks

Agrochemicals
Business Overview
We support agriculture by supplying eco-friendly
agrochemicals, feed additives and veterinary drugs tomeet the need for safe and plentiful diets. We develop
and market polyoxin fungicides and the paddy riceherbicides Pentoxazone and Metamifop. Polyoxins havebeen well accepted by farmers for more than 50 years
as natural fungicides (produced by fermentation) thathave little impact on humans, animals or the environment.
We have actively expanded sales globally, and are now
marketing these products in 19 countries. Pentoxazone
has excellent herbicidal effects on annual weeds, andhas a stable high performance, long-lasting efficacy
against weeds that are resistant to sulfonylurea
herbicides. Metamifop is highly effective against weeds

Growth Strategy of Agrochemicals & Animal Health Products Division

We will contribute to
global food production
by providing eco-friendly
agrochemicals.

Growth Strategy of Marketing & Sales Division

As a participant incommunity healthcare,we will provide highquality information witha focus on the needsof patients.

Tomoyuki Koseki
Chief Officer of Marketing &Sales Division

22

KAKEN Corporate Report 2023

To ensure that the prescription pharmaceuticals and medical devices we sell are usedproperly, we provide medical information mainly through three groups: Marketing & Sales,
Scientific Information, and Distribution. In the Marketing & Sales Group, MRs provide
medical professionals with proper usage information. While doing so, MRs also collectinformation related to product safety and suggestions for product improvement and share
this information within the Company. These efforts lead to information provision andproduct improvements that meet the needs of the frontlines of medicine. Enhancement
and support of the medical institutions that support community healthcare will play anincreasingly important role in protecting the health and well-being of residents. To play apart in that, our MRs will serve as liaisons with local medical professionals, and will utilize
digital tools and other means to provide information on continuing care, including drugs
that enhance patient quality of life, from viewpoints such as health economics, safety andadherence. The healthcare industry in Japan is changing rapidly, so we must transform ourapproach to providing marketing information. With that in mind, we have restructured ourmarketing and sales organization to respond flexibly and quickly to needs on the frontlines
of medicine.
We intend to create an organization in which our MRs have not only product knowledge,
but also in-depth knowledge of related medical information, are attuned to the needs ofthe frontlines of medicine, and are able to consider what they can do for patients. We willcontinue to provide even higher-quality information with a focus on the needs of patients
to further build our presence in dermatology and orthopedics, the areas of our coreproducts, and become an essential company in community healthcare.

of the Gramineae family, including barnyard grass ofhigh leaf age. These herbicides are widely used for more
efficient weed control in paddy fields. In feed additives
and veterinary drugs, we support livestock farmers
through sales of Salinomycin, an anticoccidial feed
additive for chickens, and Uroston, a drug for cattle.
In FY2022, this business faced even more challenging
conditions due to soaring material prices worldwide,
but sales increased due to growth in demand forpolyoxins in Australia and demand for use on organic
crops in the United States. In addition, polyoxins havereceived ACO (Australian Certified Organic) certification,
which will support further expansion of their use.

Tsukasa Fujimaki
General Manager of Agrochemicals &Animal Health Products Division

Demand for food continues to increase in tandem with global population growth,
increasing the importance of agriculture as the foundation of food supply. The role ofagrochemicals, which are indispensable to agricultural production, is likely to grow. At thesame time, strategic initiatives to realize sustainable societies and reduce environmental
impact are under way in Japan and around the world. Among them are the SDGs, theStrategy for Sustainable Food Systems (MeaDRI) in Japan, the Farm to Fork Strategy inthe EU, and the Agriculture Innovation Agenda in the United States. These initiatives callfor eco-friendly farming. In particular, specific goals have been set in the EU and Japan toreduce agrochemical use by 50% (on a risk basis) and to expand the area of land used fororganic farming to 25% of all farmland. Given such trends, we anticipate a further increasein needs and expectations for agrochemicals that are friendly to humans, animals and theenvironment. To support sustainable agriculture in harmony with the environment, wehave established a growth strategy based on two pillars: development of agrochemicals
that have little impact on humans, animals and the environment, and fermentation productsthat can reduce chemical substance waste and energy consumption. By actively researching,developing and commercializing these products, we will contribute to food safety andsecurity. Polyoxins, which are natural substances produced by fermentation, acquiredorganic certification in the United States in 2020, and we will push to expand their sales in
the U.S. organic crop market. In 2021, polyoxins were registered as agriculture chemicals
in Australia and India, and we are working to expand their sales in those markets. We alsoplan to enter the EU market by 2028 to help ensure KAKEN’s sustainable growth. To
prepare for this, we intend to submit a maximum imported crop residue level (importtolerance) to EU authorities in 2024.

Real EstateBusiness Overview
KAKEN assumed ownership of land in Bunkyo ward,
Tokyo from RIKEN, the Institute of Physical and Chemical
Research, when the Company was established in 1948,
and set up its Head Office, factory and research laboratory.
In 1989, the Honkomagome Improvement Plan was
initiated to redevelop this property as a multi-purpose
complex consisting of offices and residential andcommercial facilities. Bunkyo Green Court was completed
in 1998, and KAKEN conducts business activities fromits Head Office located in the office building.
The Real Estate segment’s main revenue is rental
income from Bunkyo Green Court. This segmentcomplements KAKEN’s core pharmaceuticals segment
as a stable source of revenue.
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23

Foundation for Creating Value

Sustainability Strategy
In a rapidly changing business environment, KAKEN has formulated a sustainability policy to speed up initiatives forrealizing a sustainable society together with its stakeholders.
Based on this policy, we aim to enhance KAKEN’s corporate value as well as create a sustainable society.

Sustainability Policy
KAKEN will work to achieve sustainable growth and contribute to the sustainable development of society byproviding pharmaceutical products that address unmet medical needs and eco-friendly agrochemicals.
To accomplish these goals, KAKEN will pursue the “Three Joys” in its business philosophy to create many
smiles together with its stakeholders.

Pursuit of the “Three Joys”• We will pursue “Joy for patients”
by identifying needs on the frontlines
of medicine and working to provide
new treatment options from unique
viewpoints.

•W e will pursue “Joy for society” bypracticing flexible and sustainable
management that is also responsive
to the needs of society through the
supply of pharmaceutical products.

• We will pursue “Joy for employees”
by ensuring our employees take pridein their work of bringing smiles tomany people and creating new value.

Sustainability Promotion Structure
KAKEN is promoting sustainability managementwith the mission of delivering value to society andcontributing to achievement of a sustainable society
by putting its corporate philosophy into practice. The
Sustainability Committee, chaired by the Director
in charge of the Corporate Planning & Coordination
Department, has been established to advance thateffort. The general managers of the Corporate Planning& Coordination Department, Legal Affairs & Intellectual
Property Department, General Affairs Department andHuman Resources Department serve as members of
the committee. They identify and narrow down the listof priority (material) issues, deliberate and review
concrete measures for addressing these issues, andreport the results to the Board of Directors. The Boardof Directors discusses and designates the priority(material) issues from those selected by the Sustainability
Committee and supervises the progress of mattersreported by the Sustainability Committee. In addition,
Environmental, Human Rights, Governance and Human
Capital subcommittees have been set up as subordinate
organizations of the Sustainability Committee to conduct
specialized reviews of priority (material) issues.

Sustainability Promotion Structure
Roles
Discuss and designate priority (material) issues
Supervise progress of matters reported by the
Sustainability Committee• Approve policy revisions•

Board of Directors

Supervise•

Corporate Philosophy
KAKEN helps improve the quality of life of patients by serving
as many people as possible to return smiles of happiness totheir faces, through supplying superior pharmaceuticals.

Sustainability Committee
Chair: D irector in charge of Corporate Planning & Coordination Department
Secretariat: Corporate Planning & Coordination Department
Members: General Manager of Corporate Planning & Coordination Department, General
Manager of Legal Affairs & Intellectual Property Department, General Manager ofGeneral Affairs Department, General Manager of Human Resources Department,
Manager of Corporate Planning Group 1 of Corporate Planning & Coordination
Department, Manager of the Compliance Group of Legal Affairs & Intellectual
Property Department, Manager of the Facility Management Group of General
Affairs Department, Manager of the Human Resources Group of Human
Resources Department

Business Philosophy:
KAKEN “Three Joys”

Identify and narrow down priority (material) issues
Monitor progress of matters reported
by subcommittees• 
Formulate policy revision proposals••

ExecuteJoy forpatients

Joy forsociety

Environmental
Subcommittee

Human Rights
Subcommittee

Governance
Subcommittee

Human Capital
Subcommittee

Chair: General Manager
of General Affairs
Department

Chair: General Manager
of Legal Affairs &Intellectual Property
Department

Chair: General Manager
of Corporate Planning &Coordination Department

Chair: General Manager
of Human Resources
Department

Joy for
employees

Companywide organizations, Group companies

 lan concrete measures for addressing priority
P(material) issues and check their progress• 
Identify priority (material) issues that may require
new initiatives in the future••Execute and report on concrete measures

Priority Issues

Activities

Sustainability Policy
Human Resource
Strategy

24

KAKEN Corporate Report 2023

Basic Approach to
Corporate Governance

KAKEN Basic
Environmental PolicyFirst, the Sustainability Committee identified social
issues, taking into account the Company’s business,business plans, GRI standards and ISO 26000, among
other factors. These issues were then narrowed down
on two axes—”Relevance to KAKEN’s business” and“Impact on stakeholders.” Based on this, it designatedpriority (material) issues in the Company’s sustainability
management. In addressing these priority (material)
issues, the progress of the concrete measures reportedby the subcommittees is being monitored and activity
policies are being formulated. Our aim continues tobe the sustainable growth of the Company based on
the Sustainability Policy. At the same time, we willcontribute to the sustainable development of society
by carrying out specific initiatives for addressing priority
issues related to the environment (including climatechange), human rights, governance, human capital andother subjects.

KAKEN Corporate Report 2023

25

Foundation for Creating Value

Engagement with Customers
Joy for patients
Outcome Case Study

Joy for patientsBusiness Philosophy / Priority (Material) Issues / Main Initiatives
Business Philosophy

Joy for patients

Priority (Material) Issues
Fulfilling responsibilities as apharmaceutical company•Stable supply of high-quality
pharmaceuticals with proven safety•Activities to provide accurate
information

Main Initiatives

To realize “Joy for patients,” KAKEN conducts various initiatives, such as disease awareness activities. For
example, we launched a website to raise awareness of hyperhidrosis, which is still not well known, and holdlectures for the general public.

•Maintain domestic and international standards for good

manufacturing practice (GMP)•Utilize digital tools and other means to establish efficientsystems for delivering information

Hyperhidrosis is a condition characterized by excessive
sweating caused by hyperthermia of the head, face, palms,
soles of the feet and armpits, or by emotional distress, or issues
independent of those factors. As such, it interferes with daily
activities. According to the primary focal hyperhidrosis diagnosis
guidelines, symptoms of primary focal hyperhidrosis (excessive
sweating of armpits, palms or other parts of the body despite
the absence of other illnesses or disabilities that cause increased
sweating) are reported in 12.76% of Japanese people (about one
in eight). Most primary focal hyperhidrosis patients suffer fromsweating of the armpits, affecting 5.75% of Japanese people.
On the other hand, only 6.3% of primary focal hyperhidrosis
patients have sought medical treatment for the condition, andabout 48% deal with it by using
over-the-counter ointments and deodorants, indicating that manypotential patients have not yet been diagnosed or treated.
Hyperhidrosis can interfere with daily activities and reduce qualityof life, and is reported to negatively impact student performanceand work. The resulting economic loss is estimated to be ¥312.0
billion per month in Japan.

Breakdown of Primary
Focal Hyperhidrosis(Right: Proportion of total population of Japan.
Below: By part of body where the condition occurs).

Product Quality Assurance
For product quality assurance, KAKEN believes that it isabsolutely essential to create a quality management system
in which both its Head Office (a marketing authorization
holder of pharmaceuticals) and our factory (a manufacturerof pharmaceuticals) fulfill their respective responsibilities andcooperate closely.
At our factory, we implement suitable manufacturing andquality control, verifying conformance to required standards andadequacy of each manufacturing process and facility and we are
fostering a quality culture by educating workers and instillingthe corporate philosophy. In addition, we are further reinforcing
the quality assurance system through the use of computerized(%)

Hyperhidrosis
affects one ineight people
in Japan10

systems that strengthen checking of manufacturing and quality
management systems, among others.
The Quality Assurance Department of the Head Officeevaluates and confirms these activities, which we believe results
in a more robust quality assurance system. Cooperative activities
have not been limited to the departments in charge of quality,
but have been expanded to the R&D Division, the Production
Division and the Marketing & Sales Division to guarantee thehighest quality at all stages of a product’s lifecycle.
We have established a Quality Assurance Policy to achieve astable supply of high-quality pharmaceuticals. Please refer to our
website for details.

8
6

5.75%

5.33%

4

4.7%
2.79%

2.96%

2
0

Armpits

Palms

Head/Face Soles of feet

Other

Source: Fujimoto T, et al; J Dermatol. 2013;40 (11):886-890.

Quality Assurance Policy: https://www.kaken.co.jp/english/sustainability/social/#anc2

Stable Supply of Pharmaceuticals
We are taking various measures to ensure the stable supplyof pharmaceuticals. In sourcing pharmaceutical raw materials,
we are increasing supply stability by diversifying suppliers to
spread risk. In manufacturing processes, we have introduced
manufacturing management, quality management and document
management systems, and strive to maintain and enhance
product quality by strictly managing bulk drug manufacturing,

drug manufacturing and quality testing. We also optimize
production plans based on demand forecasts and market trends,
and secure appropriate stockpiles of raw materials and products
to ensure that a stable supply of medicines is maintainedeven during emergencies. In addition, we are strengthening
partnerships with suppliers in Japan and abroad, and establishinga framework for information sharing and cooperation.

Safety Assurance for Pharmaceuticals after Launch
Pharmaceuticals receive regulatory approval after undergoingevaluations based on the results of clinical trials, which have alimited scope in regard to such considerations as patient age,gender, complications and concurrent medications. After launch,
pharmaceuticals are used by a wider range of patients, which
can reveal unexpected adverse drug reactions. For this reason,
we are required to collect comprehensive safety information,accurately evaluate it and take necessary response measures.
With the establishment of the Pharmacovigilance Department,
we strive to minimize safety risks by collecting and evaluating
safety data throughout the product lifecycle from the development
phase to post-marketing, and by providing information in a timely
manner necessary for ensuring the safety of patients.

Promoting Proper Usage of Pharmaceuticals
In order to ensure proper usage of prescription pharmaceuticals
and medical devices, providing appropriate sales information
based on high ethical standards and scientific evidence is essential.
To that end, we have established internal regulations and standard
operating procedures, and organize systems that enable suchactivities. We have established the Drug Information & Marketing
Supervision Department to handle supervision and guidance,
including monitoring of information provision activities andscreening of materials used in them. This department educatesand provides guidance to MRs and other employees about
information provision activities.
We provide and collect information pertaining to the proper
usage of our pharmaceuticals and medical devices mainly

26

KAKEN Corporate Report 2023

through MR activities. We also proactively provide and collectsuch information through the Pharmaceuticals Information
Service Office, a consultation desk for pharmaceutical-related
matters, and via our website. The office promptly and accurately
answers questions from medical professionals and patients
about proper usage of pharmaceuticals and reports their valuable
opinions and suggestions on our products and other matters to
relevant departments in the Company, thereby leading to theimprovement of pharmaceutical formulations and enhancementof product information.
We receive most inquiries by phone; however, for customers’
convenience we provide a contact form on our website for inquiries.

Hyperhidrosis directly impacts quality of life
daily, yet many people with the condition
find it difficult to confide in others. Together
with Kaken Pharmaceutical, we want tochange that.
Nozomi Kurosawa,
Executive Director of NPO Hyperhidrosis Support GroupI have hyperhidrosis that causes profuse sweating from mypalms and the soles of my feet, and have had to deal withvarious inconveniences as a result. For example, I can’t wear
sandals because my feet slip, and I have trouble writing
because the sweat on my hand makes the paper wet. It
began when I was in elementary school, and as I approachedadolescence I had a hard time because I was afraid that myclassmates would notice. About 10 years ago, the sweat on
my feet caused me to slip and fall on the stairs, fracturing
my tailbone. People tend to think of this condition as “justsweat,” but every day I face various risks from sweat.
Hyperhidrosis is a condition that reduces quality of life
every day. In particular, some young people suffering fromthe condition are unable to feel positive about interactingwith others or even about life itself. Yet there was not asingle support group for these people. I wanted to dosomething to support other people with hyperhidrosis
and raise awareness of the disease, so I established theHyperhidrosis Support Group in 2022.

I think recognition of the term “hyperhidrosis” has been
gradually increasing recently because social media has madeit easy to access information. Still, I feel that many people
continue to think of it as “just sweating more than others,”
not as a serious condition. We will continue working toward
a society in which everyone can live life in their own way andrealize their true potential without limits even if they havehyperhidrosis.
I am thankful to Kaken Pharmaceutical for providing a
primary axillary hyperhidrosis medication that is covered bynational health insurance. I had been in touch with KAKEN
employees even before I founded the NPO, and found them
to be sincere and serious. We will continue to send out
accurate information about hyperhidrosis through dialogue
and look forward to working together with KAKEN to makeit easier for the many people suffering from hyperhidrosis totalk about it and get appropriate treatment.

KAKEN Corporate Report 2023

27

Foundation for Creating ValueManagement Team
Directors

Hiroyuki Horiuchi

Masahiro Matsuura

Minoru Ohta

Masashi Suzudo

Mitsuru Watanuki

President andRepresentative Director

Director

Director

Director

Director

Apr. 1984 Joined the Company
Oct. 2010	General Manager ofHiroshima Branch
Apr. 2014	General Manager of
Osaka BranchJul. 2015	Corporate Officer
Apr. 2016	General Manager ofMarketing & Sales
Department
Jun. 2016	Director
Apr. 2017	Chief Officer of Marketing& Sales DivisionJun. 2018	Managing Director
Jun. 2020	President andRepresentative Director(to present)

Apr. 1994	Joined the Company
Apr. 2016	General Manager ofCorporate Planning &Coordination Department
Jul. 2018	Corporate Officer
Jun. 2020	Director (to present)

Apr. 1982	Joined The Norinchukin Bank
Jun. 2007	General Manager of Nagoya
Branch, The Norinchukin Bank
Jul. 2009	General Manager of JA Bank
System Management Division,
The Norinchukin Bank
Jun. 2010	Representative Director andPresident of Kyodo Housing
Loan Co., Ltd.
Jun. 2012	Managing Director of The
Norinchukin Bank
Jun. 2014	Advisor of Norinchukin
Research Institute Co., Ltd.
Aug. 2014	Managing Director of Central
Union of Agricultural
Cooperatives
Aug. 2017	Representative Director andPresident of Nochu BusinessSupport, Co., Ltd.
Jun. 2020	Director of the Company(to present)

Apr. 1985	Joined The Fuji Bank,
Limited (currently Mizuho
Bank, Ltd.)
Sep. 2009	President of ZAO Mizuho
Corporate Bank (Moscow)
Apr. 2014	General Manager, Global
Career Management
Division, Mizuho Financial
Group, Inc.
Apr. 2016	Joined the Company
Apr. 2018	General Manager ofGeneral Affairs Department
Jul. 2019	Corporate Officer
Apr. 2020	General Manager ofCorporate Planning &Coordination Department
Jun. 2021	Director (to present)

Apr. 1989	Joined the Company
Apr. 2015	General Manager of ClinicalDevelopment Department
Apr. 2017	General Manager of R&D
Planning & ProjectManagement Department
Apr. 2020	Deputy Chief Officer of
R&D Division
Jul. 2021	Chief Officer of R&D
Division (to present)
Jul. 2022	Corporate Officer
Jun. 2023	Director (to present)

Audit & Supervisory Board Members

Kiyoko Kamibeppu
Ph.D., RN, FAAN
Outside Director

Apr. 2001	Associate Professor of
Nihonbashi Gakkan
University (currently Kaichi
International University)
Apr. 2002	Associate Professor of
Division of Health Sciences
and Nursing, Graduate
School of Medicine, theUniversity of Tokyo
Dec. 2012	Professor of Division of
Health Sciences and Nursing,
Graduate School of Medicine,the University of Tokyo
Jun. 2019	Outside Director of theCompany (to present)
May 2020	President of QOL ResearchCenter for Children andFamily (to present)
Apr. 2022	Professor of Graduate
School of Health and Welfare
Sciences, Master’s &Doctoral Program in Family
Nursing, International
University of Health andWelfare (to present)

Shoichiro Takagi

Yasutomo Inoue

Outside Director

Outside Director

Apr. 1983	Joined the Japan Tobaccoand Salt Public Corporation(currently Japan Tobacco Inc.)
Nov. 2002	Representative Director andPresident of Iipingshang
Foods Corporation
Mar. 2007	Representative Director andPresident of Saint-GermainCo., Ltd.
Jun. 2011	Member of the Board,
Director, Deputy Leader of
Pharmaceutical Marketing &Promotion Group of TORIIPHARMACEUTICAL CO., LTD.
Jun. 2013	Representative Director,
President and Chief
Executive Officer of TORIIPHARMACEUTICAL CO., LTD.
Mar. 2019	Part-time Advisor of
Pharmaceutical Business,
Japan Tobacco Inc.
Jun. 2020	Outside Director of theCompany (to present)

Apr. 1999	Registered as attorneyat law
Apr. 1999	Joined Takahashi Sogo
Law Office
Oct. 2011	Established Nagahama,
Mizuno & Inoue		Partner of Nagahama,
Mizuno & Inoue(to present)
Jun. 2012	Dispute Resolution
Committee Member, theGeneral Insurance
Association of Japan(to present)
Sep. 2015	Outside Auditor of Synchro
Food Co., Ltd. (to present)
Jun. 2021	Outside Director of theCompany (to present)

Corporate Officers
Masanao Shimano, Ph.D.

Tatsuhiro Harada

Masaru Ogawa

Tomoyuki Koseki

Chief Officer of Production Division,
Chief of Shizuoka Factory

Deputy Chief Officer of R&D Division,
Chief of Drug Research Center

Chief Officer of Regulatory
Affairs Division

Chief Officer of Marketing &Sales Division

Expertise of Directors and Audit & Supervisory Board Members (Skill Matrix)
Name

28

Kazumori Ishiguro

Naoyuki Ishida

Hiroaki Matsumoto

Masahiro Koyama

Audit & Supervisory Board
Member (Standing)

Audit & Supervisory Board
Member (Standing)Outside Audit & Supervisory
Board Member

Outside Audit & Supervisory
Board Member

Apr. 1986	Joined the Company
Jul. 2011	General Manager of
Sendai Branch
Apr. 2014	General Manager ofTokyo Branch
Apr. 2016	General Manager of
Osaka Branch
Apr. 2019	Deputy General Manager
of General Affairs
Department in charge of
Secretary Team
Jun. 2022	Audit & Supervisory Board
Member (Standing)(to present)

Apr. 1993	Joined the Company
Apr. 2013	Manager of Marketing
Planning & Coordination
Department
Apr. 2016	General Manager of
Human Resources
Department
Jul. 2018	Corporate Officer
Jun. 2023	Audit & Supervisory Board
Member (Standing)(to present)

Apr. 1981	Joined Tokyo Regional
Taxation Bureau
Jul. 2006	District Director of Chichibu
Tax Office
Jul. 2016	Chief Internal Inspector,
Commissioner’s Secretariat
of National Tax Agency
Jul. 2018	Regional Commissioner ofKumamoto Regional
Taxation Bureau
Sep. 2019	Registered as certified tax
accountant
		Established Hiroaki
Matsumoto Certified Tax
Accountant Office(to present)
Sep. 2020	Outside Audit & Supervisory
Board Member of Yazaki
Corporation (to present)
Jun. 2021	Outside Audit & Supervisory
Board Member of theCompany (to present)

Apr. 1984	Joined The Yasuda MutualLife Insurance Company(currently Meiji Yasuda Life
Insurance Company)
Apr. 2009	General Manager of Morioka
Regional Office of Meiji Yasuda
Life Insurance Company
Apr. 2013	General Manager of Utsunomiya
Regional Office of Meiji Yasuda
Life Insurance Company
Apr. 2015	Associate Officer and General
Manager of Utsunomiya
Regional Office of Meiji Yasuda
Life Insurance Company
Apr. 2016	Associate Officer andGeneral Manager of Agency
Department of Meiji Yasuda
Life Insurance Company
Apr. 2017	Operating Officer andGeneral Manager of Agency
Department of Meiji Yasuda
Life Insurance Company
Apr. 2019	Managing Operating Officer
and Deputy Chief Executiveof Corporate Marketing
Division of Meiji Yasuda Life
Insurance Company
Apr. 2022	Chairman of the Board of
Meiji Yasuda Business Plus
Co., Ltd. (to present)
Jun. 2023	Outside Audit & Supervisory
Board Member of theCompany (to present)

KAKEN Corporate Report 2023

Hiroyuki Horiuchi

PositionLife science
Corporate(Research andmanagement
development)

Accounting/
Finance

Legal affairs/
Compliance/Riskmanagement

Sales/
MarketingInternational
experience

Human
resources/Talentdevelopment

President andRepresentative Director

Masahiro Matsuura Director
Minoru Ohta

Director

Masashi Suzudo

Director

Mitsuru Watanuki

Director

Kiyoko Kamibeppu

Outside Director

Shoichiro Takagi

Outside Director

Yasutomo Inoue

Outside Director

Kazumori Ishiguro

Audit & Supervisory Board
Member (Standing)

Naoyuki Ishida

Audit & Supervisory Board
Member (Standing)Hiroaki Matsumoto

Outside Audit &Supervisory Board Member

Masahiro Koyama

Outside Audit &Supervisory Board Member(Healthcare)(Attorney at law)

(Certified tax
accountant)Note: The above table shows the areas in which directors and Audit & Supervisory Board members demonstrate their primary expertise or other skills
based on their experience and other factors. It does not show all the knowledge they possess.

KAKEN Corporate Report 2023

29

Foundation for Creating Value

Corporate GovernanceJoy for society

Business Philosophy / Priority (Material) Issues / Main Initiatives
Business Philosophy

Joy for society

Corporate Governance Structure

Priority (Material) Issues

Main Initiatives

Strengthening corporate governance•Strengthening relationships withstakeholders•P romotion of compliance•Risk management to ensurebusiness continuity•Strengthen governance framework•Appropriate and timely information disclosure and dialogue•T raining and education in compliance, risk management
and relevant laws and regulations•Contribute to local communities (participation in activities
such as local beautification and disaster relief support)•D evelop/Update disaster and pandemic response plans
KAKEN’s business philosophy is centered on what we call the “Three Joys”—“Joyfor patients,” “Joy for society” and “Joy for employees.” “Joy for society” is basedon the principle that KAKEN recognizes its social responsibility as a pharmaceuticalcompany, engages in all activities with high ethical standards, and aspires to earnsociety’s trust. Accordingly, the tasks of enhancing corporate governance, ensuring
the transparency of management, and providing our stakeholders with proper
explanations of the Company’s activities are among our top management priorities.

Basic Approachto Corporate
Governance

KAKEN has adopted an Audit & Supervisory Board
system, taking into consideration the scale of its
business, management monitoring functions andother circumstances. Four Audit & Supervisory Board
members, including two outside members, attend
all important meetings, including Board of Directors
meetings, and outside Audit & Supervisory Board
members provide their opinions from a neutral
standpoint. KAKEN therefore considers its managementmonitoring functions to be fully functional under its
current auditing system.
In addition, KAKEN has adopted the corporate officer
Corporate Governance Structure

General Meeting of Shareholders
Appoint/Dismiss

Audit & Supervisory Board
Audit & Supervisory
Board members

Appoint/Dismiss
Audit

Board of Directors

Coordinate

by being accountable and building good relationships
with all stakeholders. The Company will continue working
to evolve and strengthen corporate governance.

ReportTotal number ofmembers of the Boardof Directors
Outside directors incl.
in above
Total number of Audit& Supervisory Board
members
Outside members incl.
in above
Committee (Advisory
body to the Board of
Directors)

30

KAKEN Corporate Report 2023

FY2021

FY2022

8

9

9

8

2

3

3

3

3

(incl. 1 female member)(incl. 1 female member)(incl. 1 female member)(incl. 1 female member)

4

4

4

4

4

2

2

2

2

2

ConferPresident andRepresentative Report Supervise
Director

Instruct
ReportCoordinate

Various committees• Introduction of performance-linked stock compensation plan

Tetsuo Onuma

ReportFully complied

Fully complied

Fully complied

Fully complied(Code prior torevision)

Accounting
AuditorInstruct/Supervise

Audit & Supervisory Board
Members and the Audit &Supervisory Board

Nomination andCompensation Committee

2 standing Audit & Supervisory
Board members
2 outside Audit & Supervisory
Board members

1 internal director
2 outside directors(Chairperson: Internal director)

PurposeBoard of Directors meetings are regularly
held once a month, and extraordinary
meetings are held when necessary. As amanagement decision-making body, theBoard of Directors adopts resolutions
on matters to be deliberated at Boardof Directors meetings as stipulated bylaws and regulations and the Articles
of Incorporation. It also discusses
other important management issues
and receives reports on the status ofbusiness execution, as necessary. Audit& Supervisory Board members attend
meetings of the Board of Directors
and express their opinions. Corporate
officers also participate to ensure thatmanagement policies are implemented
thoroughly.

Audit & Supervisory Board members
attend important meetings, including
Board of Directors meetings, to ensure
the fairness and transparency ofmanagement decision-making andexecution by auditing the executionof duties. Audit & Supervisory Board
meetings are regularly held once amonth. The Audit & Supervisory Board
also holds scheduled meetings with
the Accounting Auditor for proactive
discussions and information exchange,
as part of a system where fair audits are
implemented.

Comprised of a majority of outside
directors, the Nomination and Compensation
Committee serves as an advisory bodyto the Board of Directors, deliberatingon the nomination of directors, Audit &Supervisory Board members and othermembers, and on the compensation of
directors and other members, as well as
providing advice and recommendations
to the Board of Directors. Nomination
and Compensation Committee meetings
are held two to four times a year,
and further meetings are held whennecessary.

Number of Meetings
in FY2022

16

13

4

Composition

5 internal directors
3 outside directors(Chairperson: President)• Increase innonmonetarycompensation ratio• Disclosure ofskill matrix
Explanation:
2 items(Revised code)

Audit

Companywide organizations,Group companies

Board of Directors

Hiroyuki Horiuchi• Appointment of female director

Promote(Risk Management Committee, etc.)• Establishment of Nomination and Compensation Committee

Diversity of the Boardof Directors
Corporate Governance
Code

FY20207

Officer compensation

Chairperson of the Boardof Directors

FY2019Appoint/
Dismiss

ReportAudit

FY2018Nomination andRecommend Compensation Committee

Appoint/Dismiss/Supervise

Report Management Meeting

Internal Audit
Department

Consult

Coordinate/Report

Strengthening GovernanceTo achieve sustainable growth and increase corporate
value over the medium to long term, KAKEN aims torealize efficient, fair and highly transparent management

system to speed up decision-making and to clarify
responsibility for the functions of supervision andexecution of business.
Board of Directors meetings are regularly held oncea month, and extraordinary meetings are held whennecessary. Three of the directors are outside directors.
Furthermore, Audit & Supervisory Board members,
including outside members, and corporate officers attend
Board of Directors meetings. In this way, the Boardof Directors ensures the thorough implementation ofmanagement policies and the fairness and transparencyof its decision-making.

KAKEN Corporate Report 2023

31

Foundation for Creating Value

Outside Directors and Outside Audit & Supervisory Board Members
The Company has appointed three outside directors andtwo outside Audit & Supervisory Board members.
The role of outside directors is to provide advice andsupervision, based on their expertise. They contribute to
the Company’s sustainable growth by directly engaging
in decision-making at meetings of the Board of Directors,
and appropriately reflecting the opinions of stakeholders,
including minority shareholders, at Board of Directors
meetings from a neutral and independent standpoint.
The role of outside Audit & Supervisory Board members
is to strengthen the auditing function and ensure thetransparency and objectivity of management by auditing
the execution of duties by directors, based on theirexpertise and from a neutral and independent standpoint.
The Company has not set criteria, etc., for appointing
outside directors and outside Audit & Supervisory Board
members. However, in making appointments, the Company
pays due consideration to their independence from theCompany so that the neutrality of their role will not be
impaired. There is no special interest between the
Company and any outside director or outside Audit &Supervisory Board member.

Reasons for Selection of Outside Directors and Outside Audit & Supervisory Board Members

Name

Attendance at Board of Directors
Meetings and Audit & Supervisory
Board Meetings

Reason for Selection

Board of Directors Audit & Supervisory
Meetings (16)
Board Meetings (13)KiyokoKamibeppu

16—

Ms. Kamibeppu has extensive professional expertise and insight based on experience asa Doctor of Health Science and a professor at a graduate school. The Company believes
that based on her expertise as a professor at a graduate school, Ms. Kamibeppu will
provide advice that contributes to the medium- to long-term growth of the Company andwill supervise business execution from an independent standpoint.

Shoichiro
Takagi16—

Mr. Takagi has experience, insight and a record of achievements from corporate
management at several companies including one in the pharmaceutical industry. The
Company believes that based on his knowledge cultivated as a corporate manager, Mr.
Takagi will provide advice that contributes to the medium- to long-term growth of theCompany and will supervise business execution from an independent standpoint.

Yasutomo
Inoue

16

—

As an attorney at law, Mr. Inoue has acquired experience and professional expertise incorporate legal work. The Company believes that based on his knowledge as an attorney,
Mr. Inoue will provide advice that contributes to the medium- to long-term growth of theCompany and will supervise business execution from an independent standpoint.

13

In addition to being a certified tax accountant, Mr. Matsumoto has extensive experienceand a record of achievements at the National Tax Agency, as well as abundant knowledge
and insight in the field of finance and accounting. The Company believes that Mr.
Matsumoto will apply this expertise to the Company’s audit system.

HiroakiMatsumoto
Masahiro
Koyama16

Mr. Koyama has extensive experience in the financial industry, achievements as an(New appointment) (New appointment) executive, and the insight he has cultivated through his experience. The Company

believes that Mr. Koyama will apply this expertise to the Company’s audit system.

Training for Directors and Audit & Supervisory Board Members
KAKEN provides opportunities for directors andAudit & Supervisory Board members to participate inexternal seminars and informal gatherings to facilitate
understanding of their required roles and responsibilities
and to assist them in acquiring the knowledge theCompany deems necessary. The Company particularly
strives to provide opportunities in response to therequests of outside directors and outside Audit &Supervisory Board members, such as exchanges withsenior management and visits to business sites. As
appropriate, the Company also holds training sessions
and other events led by external lecturers on new issues
that must be addressed as a company and other topics
that should be shared.

Officer Compensation
In an effort to provide an incentive to contribute to thesustainable growth of KAKEN, the compensation for theCompany’s directors comprises basic compensation,bonuses and stock compensation, which are determined bycomprehensively taking into consideration the Company’s
medium- to long-term performance as well as past payment
amounts, in addition to the responsibilities of the directors.
Basic compensation is a fixed amount, while bonuses andstock compensation are linked to the Company’s businessperformance. However, bonuses and stock compensation
are not paid to outside directors, as they are responsible
for supervision and monitoring of management from an
independent standpoint.
Basic compensation is fixed monthly compensation, andis determined by taking into consideration the director’s
position and responsibilities, compensation levels at othercompanies, the Company’ s performance, and employee
salary levels. The total amount of basic compensation is
set within the amount approved at the General Meeting of
Shareholders.
Performance-linked compensation is cash compensationthat reflects key performance indicators (KPIs). It is intended
to increase the commitment of directors to improving
performance for each fiscal year. An amount calculated basedon year-on-year comparisons of consolidated operating profit
and consolidated net profit is paid as a bonus for each fiscal
year upon approval at the General Meeting of Shareholders.
Nonmonetary compensation is paid in the form of stockcompensation by a Board Benefit Trust, which is a stockcompensation plan linked to business performance thatprovides stock and other benefits upon retirement. Stockcompensation is calculated using coefficients obtainedby prorating the degree of achievement of businessplan KPIs for financial results, development pipeline, inlicensing and other items in accordance with the Officer
Stock Benefit Regulations. Linked to medium- and longterm performance, it is intended to contribute to increased
corporate value and sustainable growth. The total amountof stock compensation is set within the amount approvedat the General Meeting of Shareholders.
The ratio of directors’ compensation by type is examinedby the Nomination and Compensation Committee, whichuses similarly sized companies in related industries andlines of business as benchmarks and considers factors
such as past compensation levels. The Board of Directors(or the delegated President and Representative Director,
as specified below) takes into account the Nomination andCompensation Committee’s recommendations and uses
the committee’s recommended ratio of compensation
by type as a reference point when determining the ratioof compensation types for individual directors. As a ruleof thumb, KAKEN has used a ratio of 60:25:15 for basic
compensation, performance-linked compensation andnonmonetary compensation (assuming 100% achievementof KPIs).
Based on a resolution of the Board of Directors,
President and Representative Director Hiroyuki Horiuchi
has been delegated to decide the specific details ofcompensation for individual directors. He will have authority
over the amount of basic compensation of each director,
as well as the evaluation and allocation of bonuses andstock compensation based on the performance of thedivisions that each director is responsible for. To ensurethat the President and Representative Director properly
exercises this authority, the Board of Directors consultswith and receives recommendations on the draft proposal
for compensation from the Nomination and Compensation
Committee, of which outside directors comprise a majority.
The delegated President and Representative Director takesthese recommendations into account when making decisions.
In FY2022, the Nomination and Compensation Committee
meeting regarding directors’ compensation was held inMarch 2023. The committee deliberated the draft proposal forbasic compensation and performance-linked compensation
for individual directors in accordance with the above criteria.

Total Amount of Compensation, Total Amount of Compensation by Type, and Number of Eligible Officers by Category in FY2022
Total Amount ofCompensation

Total Amount of Compensation by Type (Millions of yen)

(Millions of yen)

Basic Compensation

Bonuses

Stock Compensation

Number of Eligible
Officers

253

197

23

32

6

(Excluding outside
Audit & Supervisory
Board members)

48

48

-

-

3

Outside officers

37

37

-

-

5

Officer Category
Directors (Excluding
outside directors)

Audit & Supervisory
Board members

Note: Stock compensation represents a provision for share awards in FY2022.

Evaluation of Effectiveness of the Board of Directors
In FY2022, Board of Directors meetings were held
16 times (12 regular meetings and four extraordinary
meetings). Directors and Audit & Supervisory Board
members attended the extraordinary Board of Directors
meetings, and corporate officers also attended theregular Board of Directors meetings. All participants
contributed to multifaceted deliberations based on
their expertise and experience, and made management
decisions in a timely and appropriate manner. Specifically,

32

KAKEN Corporate Report 2023

outside directors and outside Audit & Supervisory Board
members provided a wide range of opinions and questions
without being constrained by Company norms. The Boardof Directors has judged that its effectiveness is secured,taking into account this situation and referring to the selfevaluation based on questionnaire surveys conducted foreach director as well as interviews with the Chairpersonof the Board of Directors.

Policy on Cross-Shareholdings
KAKEN owns stocks as cross-shareholdings only when it hasdetermined that they will contribute to the improvement of
the corporate value of the KAKEN Group from a medium- tolong-term perspective, taking into consideration factors
such as their necessity for business strategy and maintaining
and strengthening business relationships. As appropriate,
the Company reduces holdings of stocks for which it judges
ownership to have low significance.
Each year, the Board of Directors comprehensively
examines the significance, purpose, circumstances ofacquisition, and the benefits and risks associated with eachof its cross-held stocks in both qualitative and quantitative

terms, including capital costs, trading conditions, and cost
performance in terms of changes in share value, dividends
and other factors, to determine the benefits and risks ofcontinuing to hold them. This examination was conductedat the Board of Directors meeting held in December 2022.
In FY2022, the Company sold a portion of its holdings in
one issue of such stock.
KAKEN appropriately exercises voting rights for the shares
it holds based on a comprehensive judgment of matters
including whether or not such exercise will contribute to theimprovement of the corporate value of the Company andthe investees from a medium- to long-term perspective.

KAKEN Corporate Report 2023

33

Foundation for Creating Value

Messages from Outside Directors

Compliance and Risk Management
Joy for society

Stepping Up the Enhancement of Corporate Value in a Year of Steady Forward-Looking Investments
In May 2022, KAKEN announced Long-Term Business Plan 2031 and took a new step forwardwith its “Three Transformations.” I have been conducting oversight of the Board of Directors
with an interest in entering new areas in anticipation of expanding research and development
overseas and enhancing the development pipeline. In KAKEN’s earlier acquisition of a clinical stage
biopharmaceutical company in Japan, I felt the Company gained a great deal from having different
indications in the development pipeline and a different approach to drug repositioning. As part of
KAKEN’s aggressive efforts to treat rare diseases, it entered into two collaboration and license
agreements at the beginning of 2023 for the development and commercialization in Japan of aninvestigational drug— one with Spruce Biosciences Inc. and the other with CymaBay Therapeutics,
Inc., both U.S. companies. The Company thus made management decisions on forward-looking
upfront investments during the first year of Long-Term Business Plan 2031 that will be key to theplan’s success.
Many Board of Directors meetings were held online during the COVID-19 pandemic, but since2022 they have been held face-to-face, with outside directors also attending. Face-to-face meetings
facilitate information exchange and discussion, and I feel that the change has enlivened the meetings.
I intend to continue to earn the trust of shareholders by overseeing management decision-making
and execution from an independent standpoint to further enhance corporate value.

to and System
for Promoting
ComplianceKiyoko Kamibeppu
Outside Director

34

KAKEN Corporate Report 2023

Based on our corporate philosophy and businessphilosophy, we have established the KAKEN Charter ofCorporate Behavior and Code of Conduct. The charterand code comprise guidelines to be followed by all
executives and employees, and express KAKEN’s basic
position on compliance. They serve as the basis for thedecisions and performance of duties by executives andemployees toward the achievement of the Company’s
corporate philosophy and business philosophy. The
charter and code are available on our website, along withour corporate philosophy and business philosophy (Codeof Conduct in Japanese only).

To raise awareness of compliance, we have prepareda Compliance Check Card and Compliance Guidebook,provide level-and workplace-based compliance educationand distribute messages through the Company intranet
from the compliance officer and related information fromthe Compliance Group as appropriate. The content oftraining is chosen from a variety of themes, including
the corporate philosophy, prevention of bribery andother corrupt practices, prevention of harassment, andinternal reporting (consultation), to facilitate trainees’
understanding and practice.

Ethical Considerations in Animal Testing

Shoichiro Takagi
Outside Director

A Commitment to Management That Emphasizes Multifaceted and Human Capital Perspectives
A year has passed since the announcement of Long-Term Business Plan 2031. Based on agenda
topics at Board of Directors meetings, I believe the Company is making more concrete progress
toward its vision of becoming a pharmaceutical company with a global presence that contributes tolonger healthy life expectancy through its strategy of “Three Transformations”: “R&D Transformation,”“Overseas Expansion Transformation,” and “Management Base Transformation.” KAKEN is considering
the possibility of multiple collaborations to enter new areas, but the increasingly unstable global
situation has given rise to downsides unforeseen when drafting Long-Term Business Plan 2031. On
the other hand, practical studies of issues such as overseas base establishment are moving forward.
Other examples include investing in human capital and conducting digitalization to strengthen the
management base, which is indispensable for carrying out the plan.
The Board of Directors also recognizes that human capital management is fundamental to theCompany. The board actively discusses and implements measures related to developing humanresources and improving the internal environment to increase employee engagement. At the sametime, as digitalization progresses in every aspect of society and use of AI grows, I sense the need torespond by developing digital talent in-house.
From an external standpoint, I will continue to provide advice and oversight on the issues I haveraised, as well as support on their legal-related issues as an attorney.

We believe that compliance-based business activities are fundamental to earning
the trust of society and promoting the healthy development of a company. KAKEN
promotes compliance-based management in accordance with this belief.
In order to achieve compliance-based management, the Company has appointed
a compliance officer and has designated the Compliance Group of the Legal
Affairs & Intellectual Property Department as the unit responsible for instilling acompliance-based mindset in executives and employees.

Activities to Promote Compliance

Off to a Flying Start and the Future!
In FY2022, the first year of Long-Term Business Plan 2031, KAKEN made a good start on the priority
issue of expanding its pipeline by entering into license agreements for two investigational drugs—
Seladelpar and Tildacerfont. Although it entailed considerable preparations, the nearly simultaneous
acquisition of two projects was the commendable result of the efforts of all parties involved.
Going forward, KAKEN must concurrently develop these two in-licensed drugs in addition to KP001, which the Company previously acquired, and NM26-2198, which it is co-developing, as it further
expands the pipeline through ongoing in-licensing activities and other measures. The Company mustalso have the operational capacity to steadily generate the ¥200 billion earmarked for strategic
investment during the plan, as well as to comprehensively manage the strategic investments.
I want to stress that continuous reform and evolution of the management base under Long-TermBusiness Plan 2031 will be crucial for achieving the desired results. This includes developing humanresources, acquiring organizational capabilities, and upgrading systems and environments. A goodstart raises expectations of future success, but it does not guarantee it. To respond appropriately andlearn more from the challenges KAKEN will face in the future, I would like to encourage discussionthat is unconstrained by Company norms, and contribute to the enhancement of corporate value
over the medium to long term.

Basic Approach

In developing pharmaceuticals and agrochemicals, animal
testing is indispensable for verifying the safety andeffectiveness of drugs.
The Company has formulated internal regulations
that fully reflect the intent of the Act on the Welfare andManagement of Animals, the Standards relating to theCare and Keeping and Reducing Pain of Laboratory
Animals, and the Basic Policies for the Conduct of Animal
Experiments in Research Institutions under the Jurisdictionof the Ministry of Health, Labour, and Welfare, and gives
full consideration to the 3Rs: the utilization of alternatives
to animal testing (replacement), the reduction of thenumber of animals used (reduction), and the mitigationof pain (refinement).
In conducting animal tests, the Company complies

Basic Approach to andSystem for Promoting
Risk Managementwith relevant laws and regulations and internal regulations,gives due consideration to animal welfare, while the Animal
Testing Committee established internally carries out
examinations to ensure that the tests are appropriately
carried out from a scientific point of view.
Self-inspections and self-assessments on the statusof animal testing are carried out every year to verify theappropriateness of the tests.
In addition, the Company’s animal testing initiatives havebeen assessed by an external party as being appropriately
carried out in accordance with the policies of the Ministryof Health, Labour and Welfare. In January 2022, KAKEN
received the Accreditation of Animal Experimentation
Facilities from the Japan Pharmaceutical Information
Center for the fourth time.

KAKEN engages in enterprise risk management initiatives with the aim ofappropriately managing risks that could hinder the realization of the corporate
philosophy and the achievement of the business plan, fulfilling its social
responsibility, and contributing to sustainable corporate value improvement.

Overview of the Risk Management System

Yasutomo Inoue
Outside Director• Regulations and other systems for managing the risk of losses• Regulations and other systems for managing the risk of losses at subsidiaries
1. For risks the KAKEN Group is exposed to, the Company has established a system for identifying and managing
such risks under which a director is designated to be in charge of risk management and the Corporate Planning &Coordination Department is designated as the responsible department.
2. The Company classifies risks and manages them by designating the responsible departments.
KAKEN Corporate Report 2023

35

Foundation for Creating Value

Engagement with Society and
Local Communities
3. The Board of Directors makes decisions on the handling of material risks from the perspective of the KAKEN Group’s
management, and such risks are managed by the responsible departments.
4. The Internal Audit Department audits the status of risk management at the KAKEN Group and reports the results to thepresident, the Board of Directors and the Audit & Supervisory Board.
   The Company has formulated Regulations for Risk Management and carries out risk management activities such as
identifying risks, taking countermeasures and providing education for each division and department. At the same time,
the Risk Management Committee has been set up, chaired by the director in charge of risk management designatedby the Board of Directors. In such ways, the Company has established a system to manage risks on a Companywide
basis. Important matters deliberated at Risk Management Committee meetings are submitted for approval or reported
to the Board of Directors.

Major risks recognized as having the potential to materiallyaffect KAKEN’s financial position, business performanceand cash flows, and their countermeasures, are asshown below.
Category

The forward-looking statements contained herein reflect
the judgment of the KAKEN Group as of March 31, 2023.

Details•(1) L egal regulations
and administrative
developments

Impact of various medical system reforms to curtail
public healthcare expenditures, such as revisions of
NHI drug price standards, revisions of related laws andregulations, and developments in administrative policies
related to the medical system and health insurance

CountermeasuresImplementation of sales strategies taking administrative
policies into account•Timely and appropriate understanding of and responseto related laws and regulations, the medical system, andadministrative policies•

 trengthening of the earnings structure by developing new
Sdrugs with high added value• 
Innovation and streamlining of processes to shorten the
R&D period• 
Diversification of approaches to improve the probability ofsuccess• 
Strengthening of cooperation with external parties in earlystage development, and proactive and effective utilizationof external resources•

 ubstantial R&D expenses and long development
S
periods for new drugs• 
Discontinuation of development due to failure to achieve
expected efficacy or safety••(3) Adverse drug reactions(4) Competition•

 trengthening and thorough implementation of safety
S
monitoring activities• 
Strengthening provision of safety information to promote
proper use

 ccurrence of unexpected adverse drug reactions afterO
product launch, and associated product recalls anddiscontinuation of sales•

 ompetition with rival products of similar efficacy andCeffects, and with generic products•

 athering of scientific data to increase product valueG• 
Improvement of containers to increase convenience, suchas ease of use
 ppropriately managing and monitoring intellectualA
property rights•
Taking preemptive measures to investigate, identify andavoid the risk of infringing the intellectual property rights ofthird parties• 
Establishment of a system for dealing with intellectual
property disputes when they arise•Impact of legal proceedings in the event of infringementof intellectual property rights by a third party• 
Disputes, payment of damages or discontinuation ofbusiness in the event of infringement of a third party’s
intellectual property rights•(5) Intellectual property rights

 trengthening of collaboration with lawyers and otherS
experts• 
Improvement of compliance awareness among executives
and employees• 
Executing contracts minimizing various risks••(6) Litigation(7) D elay or interruption of
product supplyImpact of legal proceedings instituted for adverse drug
reactions, product liability, labor, environment or fairtrade, or other matters elay or interruption of product supply due to problems
Dwith production equipment or delays in raw material
procurement• 
Product recalls due to quality problems•

 usiness interruptions due to system failures, cyberB
attacks or other factors• 
Payment of damages, administrative action, or loss of
public trust due to leaks of confidential information•S uspension of business activities due to natural disasters,
fires and other accidents, pandemics or other events• 
Substantial expenses for repair of facilities or otherproperty damaged by disasters or other causes••(9) Large-scale disasters

36

 ecuring of appropriate inventory and diversification of raw
Smaterial suppliers•
Thorough quality control system in compliance with goodquality practice (GQP) and good manufacturing practice (GMP)••(8) IT security and information
management

With the aim of deepening engagement with local communities as a good corporate citizen,
our employees give consideration to how they can contribute to society as individuals, andare proactively engaged in environmental issues familiar to them. In addition, to improveawareness of disaster prevention and enhance safety measures, each of our sites, including
the Head Office, undertakes initiatives such as the provision of a standard first aid courseand various drills.

Local Community-Related Activities of the Shizuoka Site
River Beautification Activities

Principal Risks(2) New drug development

Activity
PolicyJoy for society

KAKEN Corporate Report 2023

Implementation of robust multi-stage security measures
for internal systems• 
Regular security education for executives and employees• D evelopment of a security system with detection andresponse capabilities against cyber-attack, virus infection, etc.
 ormulation of a business continuity plan (BCP) andF
implementation of emergency drills• 
Development and operation of measures to prevent the
spread of infection in the event of a pandemic• 
Purchase of insurance to mitigate financial impact

The Shizuoka Site has benefited from the waters of the Oi River, a Class A river in Japan. The
site works to protect the environment of the Oi River through river beautification activities
conducted every April. While these activities are carried out as part of the site’s efforts tocontribute to society, they are also an opportunity to foster friendly relationships with newly hired
employees. In addition, the site is registered with Fujieda City’s “Adopt Program,” and in FY2022
the site’s support team conducted nine cleanup drives of sports fields along the Oi River.

Environmental Report Meetings
The Shizuoka Site had been holding environmental report meetings every year for local residents.
But for the last few years, the site could not hold any meetings and has only circulated
environmental reports to neighboring residents. In FY2022, however, the site was able to holdan in-person meeting for the first time in three years, after implementing COVID-19 control
measures. The site’s environmental performance data, status of employee education, and otheractivities for compliance with laws and regulations were reported, giving attendees a better
understanding of the Company’s environmental initiatives.

Talking about Careers with Students at a Local High School
In FY2022, employees from the Shizuoka Site visited a high school in Fujieda City to talk with the students about careers.
Employees who had graduated from the school introduced KAKEN, gave a quiz about medicine, spoke about their jobs andgave job-hunting advice. The students responded with many questions for their alumni, such as “What kind of qualifications
are useful in getting hired?” All in all, the atmosphere of the event was friendly from start to finish.

Local Community-Related Activities of the Drug Research Center in Kyoto
Environmental Beautification Activities
As a member of the Yamashina Beautification Promotion Corporate Council, the Drug ResearchCenter in Kyoto participates in the beautification campaign for the Lake Biwa-Yodo River water
system. A cleanup drive of Shinomiya River, which runs near the site, is held every spring andfall, and is one of the leading beautification activities for the Lake Biwa-Yodo River water system.
In addition, the site conducts flower-planting along Sanjo Street, and has made cleaning up
around the site an environmental improvement target. Since October 2014, one morning eachmonth, two teams of employees have cleaned the roads around the site.

Firefighting and Disaster Prevention Drills and Local Agreements for Disaster Response
As the property owner, KAKEN is responsible for fire and disaster prevention management at
Bunkyo Green Court, the site of its Head Office. The Company also actively engages in local
fire and disaster prevention activities in cooperation with fire departments and the facilities
management company. More than 30% of employees at our Head Office have completed
lifesaving training, and the Head Office received a certificate of excellence from the Tokyo Fire
Department for actively conducting lifesaving training.
In FY2021, the Head Office was also certified by the Tokyo Metropolitan Government asa “Company That Promotes the Reduction of Simultaneous Commuting” by taking proactive
measures to prevent employees from heading home all at once in the event of a disaster.
Based on the lessons learned from the Great Hanshin-Awaji Earthquake, the Drug ResearchCenter in Kyoto has entered into agreements for disaster response with two neighboring
school districts, focused on dispatching personnel in the event of a disaster.

KAKEN Corporate Report 2023

37

Foundation for Creating Value

Environmental Management
Joy for society

Proper Management of Waste and Wastewater

Business Philosophy / Priority (Material) Issues / Main Initiatives
Business Philosophy

Joy for society

KAKEN Basic
Environmental
Philosophy

Priority (Material) Issues

Main Initiatives

Consideration for the environment•P roper management of waste and wastewater•Efficient use of water and other resources•Reduction of CO2 emissions•S upply of eco-friendly agrochemicals•R oll out environmental management system•Maintain ISO 14001 certification (Shizuoka Site)•Continue CO2 emission reduction initiatives•R esearch and development of eco-friendly agrochemicals

As a pharmaceutical company that endeavors to improve the quality of life of patients
through the supply of superior pharmaceuticals, and based on the idea of “Joy for society,”
KAKEN shall recognize its social responsibility and work to protect, maintain and enhance
the global environment in all aspects of its business activities.

KAKEN Basic Environmental Policy
In line with its basic environmental philosophy, KAKEN shall take measures to address climate change andother environmental issues, and contribute to the realization of a sustainable, prosperous society.

1 stablish and maintain an environmentalEmanagement system

4

We shall establish an environmental management system andundertake initiatives to protect the environment. Led by our
Sustainability Committee and the Environmental Subcommittee,
these initiatives shall be systematic and continuous.

2

Comply with environmental laws
and regulations

5

We shall comply with environmental laws and regulations at thenational and local levels. We shall further establish independent
standards as we strive to protect the environment.

3

Reduce environmental burden
We shall set concrete targets for all aspects of our businessactivities and practice the 3Rs (reduce, reuse and recycle).
Aiming for continuous improvement, we shall periodically revise
our targets with respect to addressing climate change, waste,and chemical emissions.

6

Develop eco-friendly products and technologies
As we develop products, we shall work actively to protect theenvironment. We shall consider the environmental impact of our
products over their lifecycles, from research and development,
production, sales and distribution to end-of-use/end-of-life(EOU/EOL).

Cooperate with local communities
As a corporate citizen, we shall work with local communities toprotect the environment. We shall pursue mutual understanding
with those communities by disclosing environmental information.

Chemical Substances

Water(Substances subject to reporting
under the PRTR system)We shall provide environmental training and information to
all executives and employees to raise their awareness about
environmental protection.

2.0 tons

Normal hexane

0.3 tons

Office Paper

Chloroform

0.4 tonsZinc compounds 0.0 tons
Toluene

6.0 tons

Dichloromethane 11.1 tonsof business, ranging from research and development toproduction and office activities, and is working to reduce
environmental pollution.
Business Activities

Amount of wastewater
1,748 thousand tons

1.38 million sheets

Other Packaging
Materials
Plastics
Paper

Electric power 24,213,092 kWh

Raw Materials

LPG

GlucoseCity gas38

4,441,033 Nm

3

Emissions into the
Atmosphere

R&D activities

CO2

INPUT

OUTPUT
Production activities

Energy3.0 tons

Discharge into theWater System

2,808 thousand tons

Acetonitrile

Yeast, etc.

KAKEN Corporate Report 2023

As for wastewater, the Shizuoka Site separates
wastewater from production activities into organic andother wastewater. Organic wastewater undergoes treatmentusing activated sludge, after which it is mixed with otherwastewater until the mixture is diluted to within domestic
wastewater standards. It is subsequently discharged intorivers. In 1976, the site entered into an agreement with
Fujieda City, Shizuoka Prefecture, regarding pollution
prevention. At the Drug Research Center in Kyoto, organic
wastewater undergoes treatment using activated sludge,
after which it is mixed with wastewater from othersystems before being discharged into public sewers.
When discharging such wastewater, the Drug ResearchCenter adheres to its own internal standards, which arestricter than those of the city of Kyoto, and periodicallyreports the results of its measurements.
For information on waste generated and final disposal, see page 87.

Efficient Use of Water Resources
The Shizuoka Site benefits from a plentiful supply ofwater from the Oi River, but the possibility of a shortageof water resources in the future due to climate change
and other factors is also a concern. The site has taken
various measures to use water resources more efficiently,
such as switching its water pump to an inverter type toenable fine adjustments in the amount of groundwater
drawn, and stopping unnecessary drawing of well water.
We will continue to promote efficient use of water
resources from the standpoint of business sustainability.
 or the Shizuoka Site’s water consumption and consumptionF
per unit of production, see page 87.

Raise environmental awarenessMaterials Balance of Business Activities
Each and every employee at the Shizuoka Site and theDrug Research Center in Kyoto recognizes input and output
that place burden on the environment during the course

The generation of waste is unavoidable in business activities.
However, the development of a circular economy requiresthat the generation of waste that ends up as final disposal
be reduced to the maximum extent possible. To this end,
the Shizuoka Site and the Drug Research Center in Kyoto
act in accordance with the Basic Act on Establishing aSound Material-Cycle Society and is actively practicing
the 4Rs (refuse, reduce, reuse and recycle).
In FY2022, the total amount of waste generated by the
Shizuoka Site was 633 tons. Of this, 57% was sludge
produced during the treatment of wastewater and residues
from fermentation processes (animal and plant residues).
The entire amount of sludge and residues generated wasused as composting and related materials. We are also
working to recycle other wastes and collected 81 tons ofvaluable materials (accounting for 13% of total wastes).
The amount of final disposal (landfill) was 18 tons. Goingforward, we will redouble our efforts to promote thereduction and recycling of waste.

18,794 t-CO2(excludes 382 t-CO2 fromcarbon-free electricity)

Waste
Amount of waste
generated 661 tons

Office activities

Amount of final
disposal
18 tons

Reduction of CO2 Emissions and Energy-Saving
We participate in the Commitment to a Low-Carbon
Society, a plan that the Federation of Pharmaceutical
Manufacturers’ Associations of Japan (FPMAJ) helped tocreate, and are working toward the FPMAJ’s long-term
vision of net zero CO2 emissions in 2050. In addition, weare curbing CO2 emissions to achieve our own goal of
reducing CO2 emissions in FY2030 by 51% comparedwith FY2016 levels. At the Shizuoka Site and the Drug
Research Center in Kyoto, which account for more than
90% of our energy consumption, we are proactively
installing high-efficiency equipment and conducting
ongoing energy-saving activities. We have also begun

introducing carbon-free electricity
at the Shizuoka Site to further
reduce our emissions.
At the Head Office andsales offices, we are replacing
fluorescent lights with LED lights
and optimizing air conditioner
temperature settings to reduce
electricity consumption.
For information on CO2 emissions, see page 87.

Supply of Eco-Friendly Agrochemicals
Polyoxins, which are natural fungicides derived throughmicrobial fermentation, are safe for humans and animals.
They are natural substances confirmed to be decomposed
easily by water, light and microorganisms, and present
no risk of being long-term residues. As such, they areeco-friendly agrochemicals. Because they use natural
materials as their principal raw materials, fermentatively
produced polyoxins help to reduce environmental burden
in manufacturing as well. Compared with conventional
chemically synthesized agrochemicals, producing polyoxins
uses a smaller amount of petrochemical raw materials

and generates a smaller
amount of waste chemical
substances. Currently,
our polyoxins are sold in
19 countries, and we areconducting development
so that these eco-friendly
products can be supplied
to more countries.

KAKEN Corporate Report 2023

39

Foundation for Creating Value

Climate-Related Disclosure Based on TCFD Recommendations
KAKEN adopted the recommendations of the Task
Force on Climate-related Financial Disclosures (TCFD)
in February 2023. We analyzed the risks and opportunities
that climate change will bring to our business, and,in accordance with the TCFD recommendations,organized them into four categories—governance,
strategy, risk management, and metrics and targets.

Governance
To promote sustainability management, KAKEN has
formed the Sustainability Committee chaired by the
director in charge of the Corporate Planning &Coordination Department. The Sustainability Committee
meets twice a year in principle to identify and organize
the Company’s priority (material) issues, including climaterelated issues, and to discuss and examine concretemeasures for solving them. The priority issues selectedby the Sustainability Committee are then discussed

and specified by the Board of Directors, and the Boardof Directors supervises their progress. In addition, theEnvironmental Subcommittee has been established asa subordinate body of the Sustainability Committee. It
conducts expert reviews of important issues related
to the environment, including climate change, andreports the progress and results of those reviews to
the Sustainability Committee.

Issue

Risks/
Opportunities

Description

•

Risks

4ºC
Intensificationof climatechange••Opportunities•

Risks
Changesin climate
patterns

Decrease inbiodiversity

 amage to the Company’s operating sitesD
due to intensification of climate change
Raw material delivery delays and priceincreases due to logistical disruptions
 rowing requests for stable pharmaceuticalGsupply capability in the event of a disaster,and an increase in customers and sales if
KAKEN is able to respond adequatelyIncrease in demand for pharmaceuticals
due to increased specific disease risks orinfectious diseases resulting from risingtemperatures
Opportunities •Increase in demand for agrochemical
products due to switching crops andincreasing damage from plant diseasecaused by climate change•

Opportunities

Expected
Expected
Financial Impact
Time Frame* (Millions of yen)*

Short tolong termIncrease in pharmaceutical quality control
costs during manufacturing, storage
and distribution as a result of risingtemperatures•E xpectations for eco-friendly materials will
increase, and demand for fermentationderived agrochemicals will increase.

KAKEN’s Strategy

Between–570 and –2801 • Formulate a business continuity plan that
includes determining flooding of sites/facilities
based on hazard maps.
• Consider decentralized procurement.
Small

Between–30 and –202
Install high-efficiency equipment in factories
and research centers.
 dopt third-party logistics to improve logisticalAefficiency, and conduct joint transportation.
• 
Conduct related research and productdevelopment.
•

Medium tolong term

•

Small

Medium tolong term

•

Small

 aximizing value based on growth strategy ofMpolyoxin fungicides derived through microbial
fermentation.

 et greenhouse gas reduction targets, withS
carbon neutrality in 2050 as a long-term vision.
• 
Switched to carbon-free electricity for 20%of the electricity used at the Shizuoka Site inJanuary 2023. Planning a gradual increase.
• 
Switching from fluorescent lights to LED
lighting and optimizing temperature settings of
air conditioning to reduce energy consumption
at the Head Office and branch offices.
•

Change in
Risks/
energy costs Opportunities

1.5ºC

Introductionof carbon tax

•

•

Risks

 hange in operating costs due to fluctuating Medium toCprices for electricity used at each site
long term

Between–30 and –203

Increase in cost of each activity at businesssites and transportation due to introductionof carbon tax

Between–600 and 04

Medium tolong term* ”Short term” is defined as 0-1 year, “medium term” as 1-5 years, and “long term” as 5-30 years. Under expected financial impact, “Large” means that the financial
impact on the Group’s businesses is expected to increase significantly, and “Small” means that the financial impact on the Group’s businesses is expected toincrease slightly.
1. T he cost of damage from disasters at each location is estimated based on the Manual for Economic Evaluation of Flood Control Investment (Ministry of Land,
Infrastructure, Transport and Tourism). Damage information (damage rate, number of days business disrupted/suspended) is specified for each location on the flood
hazard map.
2. E
 stimated from the Company’s electricity consumption, future electricity prices and the rate of increase in air conditioning usage (referring to figures in World Energy
Outlook 2019 and The Future of Cooling, both publications of the International Energy Agency)
3. E
 stimated from the Company’s electricity consumption and future electricity prices (referring to figures in World Energy Outlook 2019 of the International Energy Agency)
4. E
 stimated from the Company’s greenhouse gas emissions and future carbon tax prices (referring to figures in World Energy Outlook 2021 of the International Energy Agency)

40

KAKEN Corporate Report 2023

We participate in the Commitment to a Low-Carbon
Society, a plan created by the FPMAJ, and are working
toward the FPMAJ’s long-term vision of net zero CO2emissions in 2050 as well as our own goal of reducing
CO2 emissions by 51% compared with FY2016 levels
by FY2030.
We examined the qualitative and quantitative risks
and opportunities for FY2030, our target year for CO2
reduction, and 2050, the FPMAJ’s target year forachieving net zero CO2 emissions. In that process,we referred to the 1.5°C scenario (and partially to the
2°C scenario), which assumes more ambitious climatechange measures are taken for decarbonization, andthe 4°C scenario, which assumes climate change

intensifies as no climate change measures beyond
current measures are taken.
Scenario analyses revealed that no climate-relatedrisks with a significant financial impact on our businessactivities are expected in either scenario, and thatas an opportunity, demand for our pharmaceuticalproducts and agrochemicals may increase. As apharmaceutical company that endeavors to improve
the quality of life of patients through the supply ofsuperior pharmaceuticals, KAKEN recognizes its social
responsibility, and will work to protect, maintain andenhance the global environment in all aspects of its
business activities.

Risk Management

Main Risks and Opportunities, and KAKEN’s Strategies
Maximum Risein Average
AnnualTemperature
by Scenario

Strategy

KAKEN engages in risk management initiatives withthe aim of appropriately managing risks that could
hinder the realization of the corporate philosophy andthe achievement of the business plan, fulfilling its social
responsibility, and contributing to sustainable corporate
value improvement. We recognize that climate change
is a risk category related to the priority issues we needto address for sustainable growth, and as such wewill work to protect, maintain and enhance the global
environment in all aspects of our business activities.
Enterprise risk management is carried out by
the Risk Management Committee, while climaterelated risk management is primarily handled by the
Sustainability Committee. This committee identifies
social issues, taking into account the status of theCompany’s business, business plans, GRI standards,
ISO 26000 and other factors, narrowing them downfrom two perspectives—relevance to KAKEN’s businessand impact on stakeholders—and evaluating them both
qualitatively and quantitatively. The Sustainability
Committee narrows down and regularly monitors the risk
categories that the Company should give priority toaddressing, considering the impact of its businessactivities on society, the financial impact on the Company,
and the likelihood of occurrence. In addition, theSustainability Committee reports to the Board of Directors
regarding the status of response to risk categories thatare important in sustainability management, and theBoard of Directors supervises appropriate responses.

Metrics and Targets
We participate in the Commitment to a Low-Carbon
Society, a plan created by the FPMAJ, and are working
toward the FPMAJ’s long-term vision of net zero CO2emissions in 2050 as well as our own goal of reducing
CO2 emissions by 51% compared with FY2016 levels
by FY2030.
To reach these targets, we are proactively installinghigh-efficiency equipment and conducting ongoingenergy-saving activities at the Shizuoka Site and theDrug Research Center in Kyoto, which account for
more than 90% of our energy consumption.

To further reduce emissions, in January 2023 weswitched to carbon-free electricity for 20% of theelectricity used at the Shizuoka Site. We plan to raise
this percentage in stages.
At the Head Office and branch offices, we are
replacing fluorescent lights with LED lights andoptimizing air conditioner temperature settings to
reduce electricity consumption.

KAKEN Corporate Report 2023

41

Foundation for Creating Value

Human Resource Strategy
Joy for employees“Joy for employees” is a key component of our business philosophy. We place great
importance on employees’ human rights, health, safety and hygiene, and strive to create aworking environment in which every employee can work with peace of mind and a senseof fulfillment. We believe that this will lead to the development of professionals who findtheir jobs meaningful and satisfying. By implementing the human resource strategy inLong-Term Business Plan 2031, we will foster a corporate culture that increases
employee engagement.

Business Philosophy / Priority (Material) Issues / Main Initiatives

We believe that human resource development isfundamental to company management, and strive toenhance the abilities of all employees. Based on thepolicy of the human resource strategy in Long-TermBusiness Plan 2031, we are developing employees with
distinctive capabilities as professionals. In professional
skill development, we are using internal and external
training programs to enhance the content of training

Business Philosophy

Training by Position

Engagement
with
Employees

Joy for employees

Priority (Material) Issues

Main Initiatives

Creating fulfilling workplaces•G enerating and maintaining
employment opportunities•Work-style reform and improved
productivity•E mployees’ health, occupationalsafety and welfare•Diversity•D evelopment of the next generationof human resources•Respect for human rights•W ork-style reform (including digitalization of work
processes)•Appoint female directors•E nhance systems for employing people with disabilities andseniors•Help protect employees against disease and promotemental healthcare initiatives•Training programs, self-development support anddiscrimination/harassment prevention(1) Develop talent who challenge themselves as
professionals and pursue transformation
To develop employees with distinctive capabilities who
can adapt to changing times, as well as specialists
in each field, we will enhance various measures,such as providing education and training as well as
personal development and reskilling opportunities forall employees. We will further boost motivation by
assigning people according to aptitude and promoting
high-performing employees.

(1) Foster a corporate culture and develop talent that generates
innovative challenges
Foster a corporate culture that encourages employees to take on challenges
Develop employees with distinctive capabilities as professionals(Employees who think for themselves, take action, and get results)• Develop and recruit digital talent who are suitable for the promotion of DX• Develop and recruit global-minded talent to reinforce overseas expansion• Reinforce the education and training system•

A corporate culturethat encourages
employees to takeon challenges•

A spirit of challenge
and innovation

Transform the human resource management and work-style systems
and improve the working environment• Promote diversity management•(3) Develop MRs who can flexibly respond to the changing
times through convergence of the real and digital worlds

Enhancement of
employee well-being
and engagement

 evelop MRs with expertise equivalent to an MSL* in diseases we are focusingD
on as well as in products• 
Optimize medical information provision based on data analysis, and use multiple
communication channels• 
Develop ability to plan and execute as a community healthcare partner based on apatient-first perspective•*M edical Science Liaison: A person who is assigned to a unit independent from the Marketing & Sales Division, and whose primary role is to interact with outside experts inmedicine and science

KAKEN Corporate Report 2023

training to develop employees who will lead the next
generation, and training for new team leaders andnew managers to learn about management and themindset required of leaders and managers. We alsoplan to conduct training to further raise the skill levelsof managers.

Department TrainingIntroductory training for MRs
and medical affairs staff•Training for 2nd and 3rd year
Training for new team leaders
MRs and medical affairs staff•Training for 4th year MRs andTraining for the next generation of leaders Training for management candidates
medical affairs staff•Training for 8th year MRs
Training by employment year 3rd year training• 
Language training
Basic training for working adults General training for newly hired employees•

Management Training(2) Increase employee engagement by establishingan optimal human resource management
system and working environment
To nurture professional human resources, foster our
corporate culture and support the growth of employees,
we need to create more advanced human resource
management and work-style systems.
We will also set up workplace systems from various
perspectives to make KAKEN a fulfilling place to workfor every employee.

(2) Pursue a better work-style system and working
environment that support the growth of employees

by position and management training, and provide
personal development and reskilling opportunities forevery employee. We need employees who can think
and act on their own, global-minded talent, and coretalent—in other words, professionals with distinctive
capabilities. Given the changes in our businessenvironment, we also seek to develop people who cancreatively tackle new challenges.

Manager upskilling training (planned)

Human Resource Strategy Priority Measures

Priority Measures

In order for an organization to develop sustainably, allemployees must have an awareness of issues, think
and act on their own initiative, and grow. Accordingly,
we have a full range of training programs to equip
employees with the skills they need at each level. We
provide general training on basic business skills for
newly hired young employees, management candidate
Company Training

Basic Policy in Long-Term Business Plan 2031

42

Human Resource Development

Training for new managers

Scene for general training for newly hired employees
in April 2023

Feedback from Training Program Participants
3rd year training participant, 20s

New managers training participant, Research and Development, 40s

Through communicating with colleagues in other departments
who joined the company in the same year, I realized that wehave common competencies required for work, but also havecompetencies that vary widely depending on our environment.
As a result, I gained a better understanding of the abilities thatare uniquely required in my own job.

By working on the same tasks as employees of other departments,
I was able to absorb various opinions from perspectives different
from my own, and broadened my field of view. I will engage in
my job, closely observing, deepening understanding and building
a high level of trust with my team members even more than before.

Management candidate training participant, Research and Development, 40s

New managers training participant, Marketing and Sales, 40s

Having the opportunity to interact with the instructor and people
from other industries gave me many insights related to thefundamentals of management. I want to take the experienceI gained from this training back to my own workplace to show
leadership appropriate for the workplace and apply it in myfuture work.

It was sobering to feel again the similarity between managers
and corporate management in terms of their mental attitude
and role, and the importance of doing things with a corporate
management perspective. Also, I learned a lot about how
to communicate with my team members and how to give
instructions, which are things I was anxious about when I
became a manager. I felt the training was very helpful.

Upskilling/Reskilling
In order for all employees to grow into professionals,
personal development that maximizes the strengthsof each individual is important. We have introduced an
online study service that enables employees to learn
on their own initiative for the purpose of upskilling andreskilling that cannot be accomplished with job positionbased training alone. We will provide opportunities for
employees to develop various skills, such as promotionof digital transformation by improving IT literacy, andencourage them to use those skills in every situation.
KAKEN Corporate Report 2023

43

Foundation for Creating Value

Diversity and Inclusion
We believe that fostering a corporate culture anddeveloping talent that generates innovative challenges
means respecting diverse values and having anenvironment in which every employee can excel,
regardless of their race, nationality, creed, gender,
age, sexual orientation, or disability. In addition to

Work-Style Reforms
empowering women, we are improving the working
environment to make KAKEN a fulfilling place to workfor employees at different life stages, such as thosein childcare or nursing care, and older employees, tocreate an environment in which employees can do theirjobs with a high level of motivation.

Recruitment of New Graduates and Mid-Career Professionals
When recruiting new university graduates, we offer
internships and conduct presentations about theCompany to give students a better understanding of
KAKEN’s corporate stance and the rewarding jobs
available in each occupation. In determining who toselect from those who have attended the presentations
and completed their internships, we focus on hiring

fresh talent who are full of potential and interested inworking at KAKEN.
In hiring people with experience, we look for candidates
who have advanced skills or career backgrounds that welack within the Company to support the organizational
development of the relevant departments.

Promotion of Women’s Empowerment
We actively promote capable women and are establishingworking environments in which employees can work withpeace of mind regardless of gender. Such conditions pave
the way for the sustained success of female employees.
We have set the goal of raising the percentage of womenin all management positions to at least 7% in our action
plan for FY2022–FY2025 based on the Act on Promotionof Women’s Participation and Advancement in the
Workplace. In maintaining supportive workplaceenvironments for female employees, we have establishedreduced working hour and flextime systems and asystem that allows employees to use special paid time
off in order to flexibly accommodate needs such as
childcare and nursing care.

Support for Childcare and Nursing Care
We have established various systems such as leave andshorter working hour for childcare leave and nursing
care, so that employees with childcare or nursing care
commitments can balance those obligations with theirjobs and continue to work with peace of mind.
• 
A system that allows employees to take special paid
time off for the purpose of caring for a family member,for a child’s gradual entry into a nursery school, or toundergo fertility treatment
 system that allows employees with shorter working
Ahours to also use the flextime system•To make it easier for male employees to also takechildcare leave, we have modified the system to makechildcare leave partially paid (up to five days), andare conducting in-house training and education for
managers.
•

Employment of Seniors
We have introduced the Senior Staff Program for the
reemployment of employees who retired upon reaching
the mandatory retirement age of 60, allowing them
to work up until the month of their 65th birthday. Thissystem enables them to continue playing an active rolein their respective workplaces after reaching retirementage, effectively utilizing the experience, expertise andskills they have accumulated over many years.

Employment of Persons with Disabilities
As one of our corporate responsibilities, we take aproactive approach to hiring persons with disabilities.
At the Shizuoka Site, we have a support team thatprovides employment support for people withdisabilities, and have established an environment to44

KAKEN Corporate Report 2023

ensure that such workers can work with peace of mind
while receiving appropriate assistance in the workplace.
For the Company as a whole, we maintain employment
levels that exceed the statutory rate.

We have introduced systems that enable our employees
in different life stages to choose from an array of workstyle options to balance work with their private lives.

We also strive to be a company that increases
employee engagement and is a fulfilling place to workfor every employee.

Work-Life Balance1) To support flexible work styles for employees, wehave introduced a flextime system (except for the
Production Division and MRs) and a work-from-homesystem.
2) To promote healthy, well-balanced work styles, both
physically and mentally, for all employees, we are
creating a corporate culture that makes it easier totake annual paid vacation and anniversary time off(paid time off for special occasions).
3) For employees who are transferred to a different
location, we have company housing and a solotransfer system to accommodate their family
circumstances as much as possible.

Increasing Employee Engagement
In the intensely competitive environment of thepharmaceutical industry, it is important to boost
retention by increasing the motivation of employees.
Therefore, in FY2023 we introduced a system tomeasure the level of employee engagement as a

metric to gauge the job satisfaction of employees. We
will periodically assess employee engagement as acompany, and implement the human resource strategy
in Long-Term Business Plan 2031 with an awareness ofcurrent challenges.

Occupational Safety and Health
Employee Health Management
To manage employee health, we provide access tohealth checkups every spring and lifestyle diseaserelated examinations every fall. In cooperation withindustrial physicians and medical examination centers,
we conduct follow-ups for employees whose checkups
reveal health problems.
In addition to conducting annual stress checks
required by law, we support measures for employees’
mental health by offering simple stress checks that

employees can perform voluntarily and by providing awide range of learning materials including a variety ofe-learning programs.
The Company remains committed to the managementof employees’ physical and mental health, one aspectof which is the utilization of the external consultation
desk at the health insurance association andcounseling services.

Safety and Health Measures at Facilities and Workplaces
Based on the Regulations for Safety and HealthManagement, which are aimed at preventing
occupational accidents and illnesses and creating a
comfortable working environment, we hold Safety and
Health Committee meetings on a monthly basis at all
offices and other workplaces. This committee is madeup of the General Safety and Health Manager (Shizuoka
Site), safety officers, health officers, and an industrial

physician, as well as members selected from thecompany and the labor union. Safety inspections andremedial measures are implemented at each facility
and workplace in an effort to eliminate occupational
accidents. We also actively work to improve the working
environment by conducting regular questionnaire
surveys of employees.

Creation of a Workplace Free from Discrimination and Harassment
We strive to enhance awareness of the prevention of
discrimination and harassment among all employees
through the Rules of Employment, Regulations for
Rewards and Punishments, the Compliance Guidebook,and regular postings and education via the Company

intranet. We also keep employees informed of internal
consultation channels. Furthermore, we make efforts
to prevent workplace bullying and harassment byconducting annual training for managers that includes
training on prevention of bullying and harassment.

KAKEN Corporate Report 2023

45

Financial and Corporate Data

FY2022 Operating Results and Financial Condition
Analysis of Operating Results

FY

2019

2020

2021

2022

2023

Net sales (Millions of yen)

94,16589,232

74,97976,034

72,984

Operating profit (Millions of yen)

24,592

26,512

17,78817,064

7,998

Profit attributable to owners of the Company (Millions of yen)

17,775

19,37013,405

9,549

5,440

Net assets (Millions of yen)

121,131

128,468

136,257

138,325

136,836

Total assets (Millions of yen)

155,985

157,875

163,332

165,181

166,328

Cash flows from operating activities (Millions of yen)

21,12927,46814,38013,336

9,253

Cash flows from investing activities (Millions of yen)

(5,744)(2,528)(1,644)(7,888)(2,627)

Cash flows from financing activities (Millions of yen)

(9,524)(10,173)(8,752)(8,129)(6,990)Cash and cash equivalents at end of year (Millions of yen)

58,55573,32277,30574,62574,260

Profit per share (Yen)445.78494.89347.37251.43144.80

Dividends per share (Yen)

150.00150.00150.00150.00150.00Equity-to-asset ratio (%)

77.7

81.4

83.4

83.4

81.9

Return on equity (%)

15.1

15.5

10.1

7.0

4.0

Segment Sales and Profit

Masashi Suzudo Director (in charge of Corporate Planning & Coordination Department)

To carry out Long-Term Business Plan 2031, we haveset strategic investment at ¥200 billion over 10 years
in order to continuously launch innovative worldclass drugs, and will allocate cash flow to researchand development as a top priority. Taking financial
discipline into account, we will utilize cash as thepriority source of strategic investment in allocations
up to FY2026, investing around ¥70 billion in researchand development and around ¥30 billion in M&A, inlicensing and other expenses.

Under Long-Term Business Plan 2031, prioritize ¥200 billion in strategic investment in allocating
cash flow and provide shareholder returns aligned with profit growth.
Cash at Hand and Operating Cash FlowSales of pharmaceuticals and medical devices decreased. While sales of primary axillary hyperhidrosis treatment
Ecclock increased, sales of anti-osteoarthritis agent Artz, post-operative adhesion barrier Seprafilm and other products
decreased. Factors include the impact of National Health Insurance (NHI) drug price revisions and competing products.
Sales of agrochemicals increased.
As a result, segment sales totaled ¥70,562 million, a year-on-year decrease of 4.2%. Segment profit (operating
profit) decreased 57.3% to ¥6,707 million.
Overseas sales were ¥7,232 million, an increase of 4.0%.

Utilize cash as priority source of strategic
investment, taking financial discipline into accountCash FlowsNet cash provided by operating activities was ¥9,253 million, a decrease in cash inflow of ¥4,083 million compared withthe previous fiscal year. The main factor was a decrease in profit before income taxes. Net cash used in investing
activities was ¥2,627 million, a decrease in cash outflow of ¥5,261 million compared with the previous fiscal year. The
main factor was the purchase of shares of subsidiaries in FY2021. Net cash used in financing activities was ¥6,990
million, a decrease in cash outflow of ¥1,139 million compared with the previous fiscal year. The main factor was adecrease in purchase of treasury stock. As a result, cash and cash equivalents as of March 31, 2023 totaled ¥74,260
million, a decrease of ¥364 million from a year earlier.

KAKEN Corporate Report 2023

Cash
Approx. ¥Financial Discipline

The main source of revenue in the Real Estate segment is rental income from Bunkyo Green Court. Segment revenue
increased 0.5% year on year to ¥2,422 million and segment profit (operating profit) decreased 4.6% to ¥1,290 million.

In addition, the Company considers continuous
shareholder returns to be an important management
goal, and will strive for a dividend payout ratio of 30%
or higher and a shareholder return ratio of 50% or
higher. We aim to maintain the current level in paying
continuous and stable dividends, which are the coreof shareholder returns. We will also flexibly conduct
share buybacks after comprehensively consideringfactors such as our business performance, capitalsituation, and the market environment including ourstock price.

Cash Flow Allocation (FY2022–FY2026)

Pharmaceuticals, Medical Devices & Agrochemicals

Real Estate46

We will conduct strategic investment with amedium- to long-term perspective and provide
shareholder returns aligned with profit growth.

75 billion(As of Mar. 31, 2023)

Operating Cash Flow1

80 billion

Over ¥

Cumulative over five years(FY2022–FY2026)+ Debt Capacity

Cash Flow Allocation
Around ¥70 billion(incl. CapEx and DX
Investment)

FY2022–FY2026

Strategic Investment

KAKEN has applied the Accounting Standard
for Revenue Recognition (ASBJ Statement No. 29,
revised on March 31, 2020) from the beginning of
FY2021. FY2020 and prior fiscal years use figures
calculated using a different accounting standard.

R&D Investment

Shareholder Returns

In FY2022, the year ended March 31, 2023, net sales
decreased 4.0% year on year to ¥72,984 million,
operating profit decreased 53.1% to ¥7,998 million,
and profit attributable to owners of the Company
decreased 43.0% to ¥5,440 million.

Shareholder Returns
PolicyDividend Payout Ratio:

30% or higher
Shareholder Return Ratio:

50% or higher2

Dividends

Continuous and stable dividends
in consideration of current level

Share
Buybacks

Flexible Share Buybacks

M&A, In-licensing,etc.

(¥120 billion FY2022–FY2031)

Around ¥30 billion
FY2022–FY2026(¥80 billion FY2022–FY2031)

1. Cumulative operating cash flow is calculated excluding R&D investment and one-time fees for in-licensing.
2. Dividend payout ratio and shareholder return ratio are calculated excluding one-time fees for strategic investment from profit attributable toowners of the Company.
KAKEN Corporate Report 2023

47

Financial and Corporate Data

Consolidated Balance Sheets
Kaken Pharmaceutical Co., Ltd. and its Consolidated Subsidiaries
As of March 31, 2023 and 2022
THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

2022

2023

2023

ASSETSLIABILITIES AND NET ASSETSCURRENT ASSETS:

CURRENT LIABILITIES:Cash and deposits (Notes 3 and 10)
Marketable securities (Notes 3, 4 and 10)
Receivables:
Notes and accounts receivable—trade, and contract assets(Notes 8 and 10)
Accounts receivable–other
Inventories (Note 5)
Other
Allowance for doubtful accounts
Total current assets¥ 59,561¥ 61,025$ 447,827

14,69913,599110,519

19,26820,260144,872

230

242

1,729

19,49820,502

146,602

15,564

14,981

117,023

579

504

4,353

(0)

—

(0)

109,903110,613826,338

THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

Short-term bank loans (Notes 6 and 10)

2023

2022

¥

¥

3,850

2023

3,850

$

28,947

Payables:Notes and accounts payable–trade (Note 10)

6,130

5,861

46,090Accounts payable–other

5,824

3,543

43,789

Electronically recorded obligations–operating (Note 10)

89

78

669

12,044

9,483

90,556

Accrued expenses

596

345

4,481

Provision for bonuses

966

1,049

7,263

Income taxes payable (Note 20)

2,004

2,436

15,068Other (Note 8)

1,377

1,884

10,353

20,83819,049156,677

117

106

880

Net defined benefit liability (Note 11)

6,349

5,039

47,737

Deferred tax liabilities

1,771

2,229

13,316

414

431

3,113

8,653

7,806

65,06023,85323,853

179,346

Capital surplus

11,406

11,40685,759Retained earnings

126,135

126,347

948,383

Treasury stock, at cost: 8,466,780 shares as of March 31, 2023
and 8,121,361 shares as of March 31, 2022

(30,026)(28,714)(225,759)

131,368

132,893987,729

Total current liabilities

NON-CURRENT LIABILITIES:
Provision for share awards

PROPERTY, PLANT AND EQUIPMENT (Notes 6, 7 and 9):
Buildings and structures

43,06642,829323,805

Machinery, equipment and vehicles

16,612

15,708

124,902

Tools, furniture and fixtures

8,463

7,819

63,632

68,143

66,357512,353(47,190)(45,565)(354,812)

20,952

20,791

157,534

3,867

3,867

29,075

677

1,074

5,090

25,49825,734

191,714

Accumulated depreciation
Land
Construction in progress
Total property, plant and equipment

Other
Total non-current liabilities

NET ASSETS:
Shareholders’ equity (Note 12):
Common stock
Authorized: 193,000,000 shares as of March 31, 2023 and 2022
Issued:		

INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 4 and 10)

45,939,730 shares as of March 31, 2023 and45,939,730 shares as of March 31 2022

17,511

17,093

131,662

5,800

7,300

43,609

Accumulated other comprehensive income:

941

936

7,075

Net unrealized holding gain on securities

4,724

4,551

35,519

6,741

8,236

50,684Remeasurements of defined benefit plans

165

301

1,241

Deferred tax assets (Note 20)

3,873

1,725

29,120

4,889

4,853

36,759Long-term prepaid expenses

1,012

1,190

7,609

Non-controlling interests

Other assets

1,788

587

13,444

Total net assets

30,927

28,833

232,534¥ 166,328¥ 165,181$1,250,586

Intangible assets
In-process research and development (Note 2)
Other intangible assets

Total investments and other assets
TOTAL ASSETS

Total shareholders’ equity

Total accumulated other comprehensive income

TOTAL LIABILITIES AND NET ASSETS

578

578

4,346

136,836

138,325

1,028,842¥ 166,328¥ 165,181$1,250,586

See accompanying Notes to the Consolidated Financial Statements.

See accompanying Notes to the Consolidated Financial Statements.

48

KAKEN Corporate Report 2023

KAKEN Corporate Report 2023

49

Financial and Corporate Data

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Kaken Pharmaceutical Co., Ltd. and its Consolidated Subsidiaries
For the years ended March 31, 2023 and 2022

Kaken Pharmaceutical Co., Ltd. and its Consolidated Subsidiaries
For the years ended March 31, 2023 and 2022
THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

2023

2022

2023

¥ 72,984¥ 76,034$ 548,752

33,42834,458251,338

39,555

41,575

297,406

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 13)

31,556

24,511

237,263

OPERATING PROFIT

7,998

17,06460,135NET SALESCOST OF SALES
Gross profit

Interest and dividends income

439

397

3,293

Subsidy income

149

37

1,120

Interest expenses

(17)

(17)

(128)

Foreign exchange losses

—

(31)

—

Loss on investment in investment partnership

(27)

—

(203)

Gain on sales of non-current assets (Note 15)

2

195

15

Loss on sales of non-current assets (Note 16)

(1)

—

(8)

Loss on retirement of non-current assets (Note 17)

(48)

(97)

(361)

Gain on sales of investment securities

1

1

8

(1,863)(2,994)(14,008)

Contract loss (Note 19)

—

(762)

—

Other, net

184

91

1,383

(1,181)(3,179)(8,880)6,817

13,88551,256

Current

3,998

4,513

30,060

Deferred(2,621)(177)(19,707)

1,377

4,336

10,353

5,440

9,549

40,902¥ 5,440¥ 9,549$ 40,902

Impairment losses (Note 18)

PROFIT BEFORE INCOME TAXES

2023

2022

2023

¥ 5,440¥ 9,549$ 40,902

Net unrealized holding gain (loss) on securities

172

(187)

1,293

Remeasurements of defined benefit plans

(136)

202

(1,023)

Total other comprehensive income (loss)

35

14

263

¥ 5,475¥ 9,563$ 41,165¥ 5,475¥ 9,563$ 41,165

PROFIT

OTHER COMPREHENSIVE INCOME (LOSS) (Note 24):COMPREHENSIVE INCOME

OTHER INCOME (EXPENSES):

THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

Total comprehensive income attributable to:
Owners of the Company
See accompanying Notes to the Consolidated Financial Statements.

INCOME TAXES (Note 20):

PROFITPROFIT ATTRIBUTABLE TO OWNERS OF THE COMPANY

U.S. DOLLARS (NOTE 1)

YEN

2023

2022

¥144.80¥251.43——¥150.00¥150.00

2023

PER SHARE DATA:
Profit (Note 23):
Basic
DilutedCash dividends applicable to the year (Note 12)

$

1.09
—

$

1.13

See accompanying Notes to the Consolidated Financial Statements.

50

KAKEN Corporate Report 2023

KAKEN Corporate Report 2023

51

Financial and Corporate Data

Consolidated Statements of Changes in Net Assets

Consolidated Statements of Cash Flows

Kaken Pharmaceutical Co., Ltd. and its Consolidated Subsidiaries
For the years ended March 31, 2023 and 2022

Kaken Pharmaceutical Co., Ltd. and its Consolidated Subsidiaries
For the years ended March 31, 2023 and 2022
MILLIONS OF YEN

ACCUMULATED OTHERCOMPREHENSIVE INCOME

SHAREHOLDERS’ EQUITY
Common Capital Retained Treasurystock
surplus earnings stock
BALANCE—March 31, 2021

¥ 23,853¥11,406 ¥ 122,462 ¥ (26,304) ¥ 131,418 ¥Cumulative effect of changes
in accounting policies
Restated balance

23,853Net unrealized Remeasurements
holding gain of definedon securities benefit plans

Total

11,40651

51

122,514(26,304) 131,470

4,739 ¥

99 ¥

Total

NonTOTAL NET
controlling
ASSETSInterests

4,839 ¥

— ¥ 136,257
51

4,739

99

4,839

—

136,309

Changes during the year:
Cash dividends(5,716)(5,716)(5,716)

Profit attributable toowners of the Company

9,549

9,549

9,549

(2,414)(2,414)(2,414)55

5Purchase of treasury stock
Disposal of treasury stock0

Other, net
Total changes during the year—

BALANCE—March 31, 2022

¥ 23,853

03,833(2,409)1,423¥11,406 ¥ 126,347 ¥ (28,714) ¥ 132,893 ¥

(187)

202

14

578

593

(187)

202

14

578

2,016

4,551 ¥

301 ¥

4,853 ¥

578 ¥ 138,325

Changes during the year:
Cash dividends(5,652)(5,652)(5,652)

Profit attributable toowners of the Company

5,440

5,440

5,440

Purchase of treasury stock(1,340)(1,340)(1,340)

Disposal of treasury stock

27

27

27

Other, net
Total changes during the year
BALANCE—March 31, 2023

—

—

(211)

(1,312)(1,524)¥ 23,853 ¥ 11,406 ¥ 126,135 ¥ (30,026) ¥ 131,368 ¥

172

(136)

35

—

35

172

(136)

35

—

(1,489)4,724 ¥

165 ¥

4,889 ¥

578 ¥ 136,836

2023

2022

2023

¥ 6,817¥ 13,885$ 51,256

Depreciation

2,546

2,481

19,143

Impairment losses

1,863

2,994

14,008

CASH FLOWS FROM OPERATING ACTIVITIES:Profit before income taxes
Adjustments for:

Amortization of goodwill

22

5

165

Increase (decrease) in net defined benefit liability

(77)

(44)

(579)

Interest and dividends income

(439)

(397)

(3,301)

Interest expenses

17

17

128

Loss on investment in investment partnership

27

—

203

Loss (gain) on sale of investment securities

(1)

(1)

(8)

Loss on retirement of non-current assets

48

97

361

Loss (gain) on sale of property, plant and equipment

(0)

(195)

(0)

Decrease (increase) in notes and accounts receivable–trade

972

392

7,308

Decrease (increase) in inventories

(583)

241

(4,383)

Increase (decrease) in trade payables

280(2,630)2,105

Other, net

1,746

542

13,128Subtotal

13,24017,387

99,549Interest and dividends income received

439

397

3,301

Interest expenses paid

(17)

(17)

(128)

(4,409)(4,431)(33,150)

9,253

13,336

69,571(1,987)(2,986)(14,940)

12

704

90

Purchase of intangible assets

(219)

(271)

(1,647)Purchase of investment securities

(200)

—

(1,504)

Proceeds from sale of investment securities

5

5

38

Purchase of shares of subsidiaries resulting in change in thescope of consolidation—(4,975)

—

(237)

(365)

(1,782)(2,627)(7,888)(19,752)

Net decrease (increase) in treasury stock(1,340)(2,414)(10,075)

Cash dividends paid

(5,649)(5,714)(42,474)(6,990)(8,129)(52,556)

Income taxes (paid) refund, net
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment

THOUSANDS OF U.S. DOLLARS (NOTE 1)

ACCUMULATED OTHERCOMPREHENSIVE INCOME

SHAREHOLDERS’ EQUITY
Common Capital Retained Treasurystock
surplus earnings stock
BALANCE—March 31, 2022

Total

Net unrealized Remeasurements
holding gain of definedon securities benefit plans$ 179,346 $ 85,759 $ 949,977 $ (215,895) $ 999,195 $ 34,218 $Total

NonTOTAL
controlling
NET
Interests ASSETS

2,263 $ 36,489 $

4,346 $1,040,038

Cash dividends(42,496)(42,496)(42,496)

Profit attributable toowners of the Company

40,90240,90240,902

CASH FLOWS FROM FINANCING ACTIVITIES:

Purchase of treasury stock(10,075)(10,075)(10,075)

Disposal of treasury stock

203

203

203

Net cash provided by (used in) financing activities

263

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Total changes during the year
BALANCE—March 31, 2023

1,293
—

—

(1,586)

KAKEN Corporate Report 2023

(9,865)(11,459)

1,293$ 179,346 $ 85,759 $ 948,383 $ (225,759) $ 987,729 $ 35,519 $See accompanying Notes to the Consolidated Financial Statements.

52

Other, net
Net cash provided by (used in) investing activities

Changes during the year:

Other, net

THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN(1,023)(1,023)263
263

1,241 $ 36,759 $

—

(364)

(2,680)(2,737)(11,195)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

74,62577,305561,090

4,346 $1,028,842

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 3)¥ 74,260¥ 74,625$ 558,346—

See accompanying Notes to the Consolidated Financial Statements.

KAKEN Corporate Report 2023

53

Financial and Corporate Data

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 prepared on the basis of the accounting principles generally accepted in Japan,
which are different in certain respects as to the application and disclosure requirementsof International Financial Reporting Standards, and are compiled from the consolidated
financial statements prepared by the Company as required by the Financial Instruments
and Exchange Act of Japan.
In preparing these consolidated financial statements, certain reclassifications andrearrangements have been made to the consolidated financial statements issued
domestically in order to present them in a form which is more familiar to readers outside
Japan.
As permitted by the Financial Instruments and Exchange Act of Japan, amounts of lessthan 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 agreewith the sum of the individual amounts.
The U.S. dollar amounts in the accompanying consolidated financial statements havebeen translated from Japanese yen amounts solely for convenience of readers outside ofJapan at ¥133= U.S.$1.00, the approximate rate of exchange prevailing on March 31, 2023.
This translation should not be construed as a representation that Japanese yen amounts
have been, could have been, or could in the future be, converted into U.S. dollars at theabove or any other rate.

2. Summary of Significant Accounting Policies(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of theCompany and its subsidiaries. For the year ended March 31, 2023, the Company had two
consolidated subsidiaries as follows:
KAKEN PHARMA CO., LTD.
ARTham Therapeutics Inc.
For the years ended March 31, 2023 and 2022, there were no affiliates accounted forusing the equity method.
All significant intercompany transactions, account balances and unrealized profits orlosses 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 comprisedof cash on hand, bank deposits which are able to be withdrawn within three months, andshort- term investments with original maturity of three months or less and are considered
to have minimal risk from market fluctuations.
(c) Marketable and Investment Securities
Securities are classified into one of the following three categories: (1) Trading, (2) Held- tomaturity debt securities, and (3) Available-for-sale securities. Trading securities are recorded
at market value with unrealized gains or losses recognized in the current year’s earnings.
Held-to-maturity debt securities are carried at amortized cost. Available-for- sale securities
are expected to be sold in future and those whose fair values are readily determinable arecarried at fair value and the related unrealized gains or losses, net of taxes, are included as
a component of “Accumulated other comprehensive income” under net assets. Availablefor-sale securities without market quotations are generally stated at cost determined by

54

KAKEN Corporate Report 2023

the moving average method.
Investments in investment limited partnerships and other similar partnerships (deemed
to be marketable securities under Article 2 (2) of the Financial Instruments and ExchangeAct), are recorded at the net amount equivalent to the Company’s equity interest based on
the most recent financial statements available as of the financial reporting date stipulated
in the partnership agreement.
(d) Inventories
Inventories are stated at the lower of cost determined by the gross average method,or net selling value, which is defined as the selling price less additional estimatedmanufacturing costs and estimated direct selling expenses.
(e) Property, Plant and Equipment
Depreciation is computed mainly using the straight-line method.
The range of useful lives is 3 to 60 years for buildings and structures, and 2 to 8 years
for machinery, equipment and vehicles.
(f) Intangible Assets
Software for internal use is amortized over the estimated useful life for internal use (5years) using the straight-line method.
In-process research and development is amortized using the straight-line method overthe estimated useful life of the product being developed, once the product can be used.
(g) Long-Term Prepaid Expenses
Depreciation is computed using the straight-line method.
(h) Allowance for Doubtful Accounts
To cover losses due to bad debt in accounts receivable, etc., allowance for doubtful
accounts is provided according to individual analysis of recoverability for specific doubtfulreceivables such as debt with a possibility of default, based on the historical write-off rate
for ordinary receivables(i) Provision for Bonuses
Provision for bonuses to directors and employees is provided at the amount estimated asof the balance sheet date.
(j) Provision for Share Awards
In order to prepare for the granting of the Company’s stock to directors and corporate officers
pursuant to the rules on share distribution to officers, provision for share awards is recorded at
an estimated amount of share award obligations as of the balance sheet date.
(k) Retirement and Pension Plan
The Company applies the benefit formula basis in attributing estimated retirement benefits
to periods up to the end of the fiscal year under review.
Unrecognized prior service cost is amortized on a straight-line basis over a period within
the average remaining years of service of the employees (10 years) as of the year in which
it arises. Unrecognized actuarial gain or loss is amortized from the year following the year
in which it arises on a straight-line basis over a period within the average remaining yearsof service of the employees (10 years) as of the year in which it arises.
(l) Income Taxes
Income taxes–deferred are determined using the asset and liability approach, wheredeferred tax assets and liabilities are recognized for temporary differences between the

KAKEN Corporate Report 2023

55

Financial and Corporate Datatax basis of assets and liabilities and their reported amount in the consolidated financial
statements.
(m) Accounting Standards for Significant Revenue and Expenses
The main performance obligations in significant businesses related to revenue from contracts
with customers of the Group, and the point in time when said performance obligations arenormally satisfied (the point when revenue is normally recognized), are as follows.
(1) Sale of merchandise and finished products
For Pharmaceuticals, the Group conducts sales primarily by manufacturing or wholesale
distribution. When selling such merchandise and finished products, the Group has an
obligation to deliver based on the sales contract with the customer. This performanceobligation is deemed to be satisfied when the merchandise or finished product isdelivered to the customer and the customer acquires control of the merchandise orfinished product, and revenue is recognized at the time of delivery. For domestic sales ofmerchandise and finished products, revenue is recognized at the time of shipment if theperiod from shipment until transfer of control of the merchandise or finished product tothe customer is a normal period of time.
For transactions in which the Group is involved in the sale of merchandise as an agent,
the net amount is recognized as revenue.
(2) License agreements for sale, etc. of finished products
For Pharmaceuticals, the Group enters into contracts for the transfer of intellectual
property rights or for technology out-licensing, etc., and for royalties. For contracts forthe transfer of intellectual property rights or technology out-licensing, etc., the Group
has a performance obligation based on the contract with the customer, and revenue isrecognized when the performance obligation is satisfied by granting the rights to thecustomer. For royalty contracts, a calculation is performed based on customer sales, etc.,
and revenue is recognized after taking into consideration the timing of the sales.
(n) Derivative Financial Instruments and Hedge Accounting
Derivative instruments, which include forward foreign exchange contracts, are used as apart of the Company’s management of the foreign currency risk exposure of its financial
assets and liabilities.
Forward foreign exchange contracts:
The Company enters into forward foreign exchange contracts to limit risk exposure,affected by changes in foreign currency exchange rates, on trade receivables and trade
payables and cash flows generated from forecasted transactions denominated in foreign
currencies. For forward foreign exchange contracts which are designated and are effective
as hedges of such foreign currency risk on existing assets and liabilities, the Company
adopted the accounting method whereby foreign currency denominated assets andliabilities are measured at the contract rate of the respective forward foreign exchange
contract. With respect to such contracts for forecasted transactions, the contracts aremarked-to-market and the unrealized gains/losses are deferred in the balance sheet to bereleased to income when the exchange gains/losses on the hedged items or transactions
are recognized.
Hedge accounting:Hedging instruments and hedged items, hedging policy, method for assessment of hedge
effectiveness, and other matters related to hedge accounting are as follows:

56

KAKEN Corporate Report 2023

(1) Hedging instruments and hedged items
Hedging instrument: Forward foreign exchange contracts
Hedged items: 	Foreign currency denominated receivables and payables, andforecasted foreign currency denominated transactions(2) Hedging policy
Hedging instruments are used within the amounts of foreign currency denominatedtransactions, and the Company makes it a policy not to use derivatives for speculative
purposes.
(3) Methods of assessing hedge effectivenessSince material terms related to hedged items and hedging instruments are substantially
identical, and market fluctuations are expected to be completely offset continuously at thetime of and after the inception of the related hedge, assessment of hedge effectiveness isomitted.
Assessment of effectiveness is omitted also for forward foreign exchange contracts,
under which the hedged items are translated using the forward contract rates.
(o) Amortization Method and Amortization Period of Goodwill
Goodwill is amortized by the straight line method over 14 years.
(p) Significant Accounting Estimates
In-Process Research and Development and Valuation of Goodwill(1) Amounts recorded in the consolidated financial statements for the years ended March
31, 2023 and 2022 are as follows:
THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

In-process research and development
Goodwill

2023

2022

2023

¥5,800¥7,300$43,609

230

312

1,729

(2) Details of significant accounting estimates related to identified itemsa. Method of calculating amounts recorded in the consolidated financial statements
for the year ended March 31, 2023
Measurement of in-process research and development and goodwill is done mainly
using the excess earnings method. Decisions on recognition of impairment losses
on in-process research and development and goodwill are based on whether the
total amount of undiscounted future cash flows of each development program has
fallen below the carrying amount. In the year ended March 31, 2023, because thetotal amount of undiscounted future cash flows of the asset group targeting bullous
pemphigoid fell below the carrying amount, an impairment loss was recorded toreduce the carrying amount to the recoverable amount.
b. Key assumptions used in calculating amounts recorded in the consolidated financial
statements for the year ended March 31, 2023
Key assumptions used in estimating future cash flows and the discount rate arebased on business plans, etc. that the Group has formulated.
c. Impact on consolidated financial statements for the following fiscal year
Any changes in these estimates and assumptions necessitated by changes in thebusiness environment could have a significant impact on the valuation of in-process
research and development and goodwill.

KAKEN Corporate Report 2023

57

Financial and Corporate Data(q) Appropriations of Retained Earnings
Appropriations of retained earnings at each year-end are reflected in the consolidated
financial statements for the following year upon shareholders’ approval.

Practical Solution on the Accounting for and Disclosure of the Issuance and Holding ofElectronically Recorded Transferable Rights That Must Be Indicated on Securities, etc.
(ASBJ Practical Issue Task Force (PITF) No. 43, August 26, 2022)(r) Shareholders’ Equity
Japanese companies are subject to the Companies Act of Japan (the “Act”). The Act
provides that an amount equal to 10% of the amount to be disbursed as distributions ofcapital 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 capital reserve and legal reserve equals 25% of the stated capital. Such
distributions can be made at any time by resolution of the shareholders or by the Board of
Directors if certain conditions are met. The above-mentioned legal reserve is included inretained earnings in the accompanying consolidated balance sheets.

(1) Overview
The above practical solution prescribes the accounting treatment and handling of
disclosure when issuing or holding “electronically recorded transferable rights that must
be indicated on securities, etc.” as defined in Article 1, paragraph 4, item 17 of the Cabinet
Office Ordinance on Financial Instruments Business, etc. (Cabinet Office Ordinance No.
52 of 2007).

(s) Dividends per Share
Cash dividends per share shown for each year in the accompanying consolidated
statements of income represent dividends approved or declared as applicable to therespective years.
(t) Changes in Accounting Policies
Accounting Standard for Fair Value Measurement
The Company has applied the “Implementation Guidance on Accounting Standard for Fair
Value Measurement” (ASBJ Statement No. 31, June 17, 2021) from the beginning of theyear ended March 31, 2023. The Company will apply the new accounting policies set forthin the Guidance prospectively, in accordance with the transitional treatment stipulated
in paragraph 27-2 of the same Guidance. The effect of this change on the consolidated
financial statements is immaterial.
(u) New Accounting Standards Not Yet Adopted
Accounting Standards for Income Taxes, etc.
• Accounting Standard for Current Income Taxes (ASBJ Statement No. 27, revised
October 28, 2022)• Accounting Standard for Presentation of Comprehensive Income (ASBJ Statement
No. 25, revised October 28, 2022)• Implementation Guidance on Accounting Standard for Tax Effect Accounting (ASBJ
Guidance No. 28, October 28, 2022)(1) Overview
The above standards define the accounting classification of income taxes and other taxes
when other comprehensive income is taxable, and the handling of tax effects related tothe sale of shares of subsidiaries or affiliates when the group taxation regime is applied.
(2) Scheduled date of application
The above standards and guidance are scheduled to be applied from the beginning of theyear ending March 31, 2025.
(3) Effects of application of the standards
The effects of the application were under assessment when these consolidated financial
statements were being prepared.

58

KAKEN Corporate Report 2023

(2) Scheduled date of application
The above accounting standard is scheduled to be applied from the beginning of the year
ending March 31, 2024.
(3) Effects of application of the accounting standard
The effects of the application were under assessment when these consolidated financial
statements were being prepared.
(v) Changes in Presentation
Consolidated Statements of Income“Subsidy income,” which was included in “Other, net” in “Other income (expenses)” forthe year ended March 31, 2022, is presented as a discrete line item for the year ended
March 31, 2023 because it exceeded 10% of the total of “Other income (expenses).” The
consolidated financial statements for the year ended March 31, 2022 have been restatedto reflect this change in presentation.
As a result, ¥146 million that was presented in “Other, net” in “Other income(expenses)” in the consolidated statements of income for the year ended March 31, 2022
is restated as “Subsidy income” of ¥37 million and “Other, net” of ¥109 million.
“Loss on cancellation of leases,” which was presented as a discrete line item in “Other
income (expenses)” in the consolidated statements of income for the year ended March
31, 2022, is included in “Other, net” in “Other income (expenses)” for the year ended
March 31, 2023 because it fell below 10% of the total of “Other income (expenses).” The
consolidated financial statements for the year ended March 31, 2022 have been restatedto reflect this change in presentation.
As a result, “Loss on cancellation of leases” of ¥7 million and “Other, net” of ¥9 million
that were presented in “Other income (expenses) in the year ended March 31, 2022 arerestated as “Other, net” of ¥17 million.
(w) Additional Information
Introduction of the Board Benefit Trust (“BBT”)
Based on the resolution of the 99th ordinary general meeting of shareholders held on
June 27, 2019, the Company has newly introduced a Performance-Linked Share Awards
Plan (Board Benefit Trust (BBT)) (hereinafter “the Plan”) for the directors (excluding outside
directors) and corporate officers (hereinafter collectively “directors, etc.”) with the aimof enhancing their awareness of improving medium- to long-term performance andcontributing to an increase in corporate value.
The Company adopted the gross method to account for the Plan, in accordance with
“Practical Solution on Transactions of Delivering the Company’s Own Stock to Employees
etc. through Trusts” (ASBJ Practical Issue Task Force (PITF) No. 30, issued on March 26,2015).

KAKEN Corporate Report 2023

59

Financial and Corporate Data

(1) Overview of the transaction
The Plan is a share awards plan whereby shares in the Company are acquired through atrust using funds contributed by the Company (the trust established pursuant to the Plan
hereinafter referred to as the “Trust”), and the Company’s shares and cash equivalents ofsuch shares at their market value (hereinafter “the Company’s shares, etc.”) are granted
through the Trust to the directors, etc. pursuant to the rules on share distribution to
officers established by the Company.
The directors, etc. will receive the Company’s shares, etc., in principle, upon theirretirement.

The aggregate fair values (carrying amounts) and acquisition costs of available-for-salesecurities are as follows:
MILLIONS OF YEN
Fair value

Equity securities
Other
SubtotalMarketable securities due after three months
Cash and cash equivalents

2023

2022

2023

¥59,561¥61,025$447,827¥

Fair values not exceeding carrying
amounts
Total

—

¥

11,999¥11,999¥11,999———¥74,260¥74,625$558,346(241)—

Subtotal

6,247

6,784

(536)

6,093

6,335

(241)

Total

¥19,961¥13,151¥ 6,809¥19,616¥13,055¥ 6,560

Gain

Loss

THOUSANDS OF U.S. DOLLARS (NOTE 1)
Carrying amount

Fair value

Fair value

Fair value¥

Equity securities

Fair values not exceeding carrying
amounts
Total

60

KAKEN Corporate Report 2023

$

—

$

—

$103,105$47,872$55,226———

103,105

47,87255,226

26,66930,707(4,030)

Unrealized gain
(loss)¥—

10,999

—
¥—

Other

20,301

20,301—

Subtotal

46,97051,008(4,030)Total$150,083$98,880$51,195

Available-for-sale securities sold for the years ended March 31, 2023 and 2022 aresummarized as follows:
MILLIONS OF YEN
Proceeds

Equity securities
Total

Unrealized gain
(loss)—$90,218$	90,218$—

Proceeds

2022

¥1

¥—

¥5

¥1

¥—

¥5

¥1

¥—

¥5

¥1

¥—

THOUSANDS OF U.S. DOLLARS (NOTE 1)$—

90,218Loss¥5

Proceeds

90,218

Gain

2023

2023
Fair values exceeding carrying amounts

Unrealized gain
(loss)

Carrying amounts not exceedingacquisition costs—¥10,999

Acquisition cost

2023

Subtotal

2022¥10,999

—
6,802

3,735

—

¥—

—
6,719

2,600

—

10,999—13,522

3,493

—

—

—
7,345

2,600

Equity securities

11,999

—
6,367

—

Other

—

—
13,713(536)

110,519¥¥ 6,8024,084$558,346¥—¥ 6,7192,700

13,599—¥13,522

3,547¥74,625MILLIONS OF YEN

Fair values exceeding carrying amounts¥ 7,3452,700

14,6992023¥ 6,367

Equity securities¥74,260

Unrealized gain
Carrying amount(loss)¥13,713

Carrying amounts exceedingacquisition costs

The carrying amounts and fair values of held-to-maturity debt securities are as follows:
Fair value

2022

Other

THOUSANDS OF
U.S. DOLLARS (NOTE 1)

4. Marketable and Investment Securities

Carrying amount

Unrealized gain
(loss)

THOUSANDS OF U.S. DOLLARS (NOTE 1)MILLIONS OF YENTime deposits due after three months

Acquisition cost

Carrying amounts not exceedingacquisition costs

Cash and deposits and marketable securities are reconciled to cash and cash equivalentson the consolidated statements of cash flows as follows:

Subtotal

Fair value

Carrying amounts exceedingacquisition costs

3. Cash and Cash Equivalents

Marketable securities

Unrealized gain
(loss)

2023(2) Company shares remaining in the Trust
The Company’s shares remaining in the Trust are recorded as “Treasury stock” under net
assets at the carrying amount in the Trust (except for incidental costs). As of March 31,
2023, the carrying amount and the number of shares of treasury stock were ¥182 million($1,368 thousand) and 33,400 shares, respectively. As of March 31, 2022, the carrying
amount and the number of shares of treasury stock were ¥210 million and 38,500 shares,
respectively.

Cash and deposits

Acquisition cost

Gain

Loss

2023
Equity securities
Total

$ 38

$8

$—

$ 38

$8

$—

KAKEN Corporate Report 2023

61

Financial and Corporate Data

5. Inventories

8. Contract Assets and Liabilities

Inventories as of March 31, 2023 and 2022 comprised the following:
THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

2023

2022

2023

¥ 6,734¥ 5,807$ 50,632

Work in process

2,481

2,964

18,654

Raw materials and supplies

6,348

6,209

47,729Merchandise and finished products

Total¥15,564¥14,981$117,023(a) Among “Notes receivable—trade,” “Accounts receivable—trade,” and “Contract
assets,” the amounts of credits and contract assets arising from contracts withcustomers are as follows:
MILLIONS OF YEN

THOUSANDS OF
U.S. DOLLARS (NOTE 1)

2023
Notes receivable—trade
Accounts receivable—trade
Contract assets

¥

282

$

2,120

18,607

139,902

379

2,850

6. Short-term Bank Loans and Pledged Assets(a) Short-term bank loans
Short-term bank loans outstanding as of March 31, 2023 and 2022, amounting to ¥3,850
million ($28,947 thousand) and ¥3,850 million, respectively, consisted mainly of bankoverdrafts. The weighted-average interest rate applicable to short-term bank loans as ofMarch 31, 2023 and 2022 was 0.45%.

(b) Among “Other,” the amounts of contract liabilities are as follows:(b) Pledged assets
As of March 31, 2023 and 2022, assets pledged as collateral for certain short-term bankloans are as follows:

9. Investment PropertiesMILLIONS OF YEN

2023
Contract liabilities

THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

2023

2022

2023

¥ 6,134¥ 6,433$46,120

Machinery, equipment and vehicles

2,690

2,207

20,226

Tools, furniture and fixtures

1,041

807

7,827

Assets pledged:
Buildings and structures

Land
Total

117

117

880

¥ 9,984¥ 9,565$75,068

Liabilities secured:
Short-term bank loans
Total¥ 1,400¥ 1,400$10,526¥ 1,400¥ 1,400$10,526

7. Accounting for Leases
Operating leases(As a lessor)
Future minimum lease payments receivable under non-cancellable operating leases
subsequent to March 31, 2023 and 2022 are as follows:

Due after 1 year
Total

62

KAKEN Corporate Report 2023

¥100

$752

The Company owns rental office buildings (including land) mainly in Tokyo. Operating profit
from these rental properties for the years ended March 31, 2023 and 2022 was ¥1,290
million ($9,699 thousand) and ¥1,353 million, respectively. Revenue from rental properties
and related expenses are reported as net sales and cost of sales, respectively.
Carrying amount, changes during the years ended March 31, 2023 and 2022, and fairvalue of these properties as of those dates are stated as follows:
THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

2023

2022

2023

¥10,347¥10,162$ 77,797

(299)

184

(2,248)Carrying amount:
Balance at the beginning of the year
Changes during the year
Balance at the end of the year

10,047

10,34775,541

Fair value at the end of the year

¥51,010¥50,408$383,534

Notes: 1. The carrying amount represents the acquisition costs less accumulated depreciation.
2. Fair value at the end of the year is calculated based on real estate appraisal reports issued by external real estate appraisers.
If there have been no material changes in an appraisal value and applicable indices that are considered to appropriately reflectmarket values, since the time of acquisition or the most recent valuation, the fair value at the end of the year is adjusted using
such an appraisal value and applicable indices.

10. Financial Instruments
THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

Due within 1 year

THOUSANDS OF
U.S. DOLLARS (NOTE 1)

2023

2022

2023

¥ 949

¥ 949

$ 7,135

3,276

4,094

24,632¥ 4,226¥ 5,043$31,774(a) Outline of Financial Instruments(1) Policy for using financial instruments
The Group is managing its cash surplus in the form of low-risk financial instrumentswith high liquidity, while raising short-term working capital through loans from financial
institutions including banks. Derivatives are used, not for speculative purposes, but tomanage exposure to financial risks as described below.
(2) Nature and extent of risks arising from financial instruments
Trade receivables such as “Notes and accounts receivable–trade” are exposed tocustomer credit risk. Trade receivables denominated in foreign currencies are exposed toforeign exchange fluctuation risk. Marketable and investment securities are mainly heldto- maturity debt securities and equity securities, which are exposed to the risk of market
price fluctuations.

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63

Financial and Corporate Data

Payment terms of trade payables, such as “Notes and accounts payable–trade” and“Electronically recorded obligations–operating,” are mostly one year or less. Trade payables
in foreign currencies in connection with the import transactions of raw materials are
exposed to foreign exchange fluctuation risk. Bank loans are used for short-term working
capital.
The only derivative transactions used by the Company are forward foreign exchange
contracts for the purpose of hedging the foreign exchange fluctuation risk of tradereceivables and trade payables denominated in foreign currencies. Please see Note 2.
“Summary of Significant Accounting Policies” for details regarding hedging instruments,
hedged items, hedging policy and methods of assessing hedge effectiveness.
(3) Risk management for financial instruments
a. Credit risk management (customers’ default risk) For the purpose of managing credit risk of trade receivables within the Group, eachrelevant department, according to the credit management rules, manages payment
terms and balances of each major customer by regularly monitoring their status, inan effort to achieve early identification and mitigation of customer default risk arisingfrom the deterioration of their financial condition and other factors.
   Held-to-maturity debt securities held by the Company are, under the short-term
investment rules, restricted to those with superior ratings only, involving minimal
credit risk.
   The Company enters into derivative transactions only with high credit rating banks
and other financial institutions to mitigate the counterparty risk.
   The maximum credit risk exposure of financial assets as of March 31, 2023 islimited to the carrying amounts of the financial assets on the consolidated balance
sheets.
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 with trade receivables and trade payables
denominated in foreign currencies.
   With respect to marketable and investment securities, the Company periodicallymonitors fair values and financial positions of the related issuers (businesscounterparties), etc. For securities other than held-to-maturity debt securities,
the Company continuously reviews its holdings status by taking into account therelationships with the business counterparties.
   Derivative transactions are conducted under the authority of the general manager
at each relevant department, in accordance with the forward foreign exchange
contracts management rules, and the execution result of derivative transactions isreported to the Accounting Department and other relevant departments, as eachtransaction takes place. At the end of each month, the outstanding balance of
forward foreign exchange contracts is reported to the directors in charge, as wellas to other relevant departments. The consolidated subsidiaries are not engaged inderivative transactions.
c. Liquidity risk management on fund-raising (risk of delinquency) The Company manages its liquidity risk by the Accounting Department preparing andupdating the cash management plan as appropriate based on the report from eachrelevant department.

(5) Concentration of credit risks
As of March 31, 2023, 59% of all trade receivables was with specific major accounts.
(b) Fair Values of Financial Instruments
The carrying amount, fair value and net unrealized gains/losses of financial instruments are
as follows:
MILLIONS OF YEN
Carrying amount

Asset total

Unrealized gain
(loss)

2023

March 31, 2023

Marketable and investment securities andother available-for-sale securities

Fair value¥19,961¥19,961¥—¥19,961¥19,961¥—

Notes: 1. C ash and deposits, marketable securities (held-to-maturity debt securities), notes receivable–trade, accounts receivable-–trade, notes
and accounts payable–trade, electronically recorded obligations–operating, and short-term bank loans are excluded from the table
above as their carrying amounts approximate fair value because they are cash or have short maturities.
2. Securities with no quoted market price available are not included in “Marketable and investment securities and otheravailable-for-sale securities.” The carrying amounts of such financial instruments are as follows.
MILLIONS OF YEN

2023
Unlisted equity securities¥ 77

Investment in investment limited partnership

172

THOUSANDS OF U.S. DOLLARS (NOTE 1)
Carrying amount

Asset total

Unrealized gain
(loss)

2023

March 31, 2023

Marketable and investment securities andother available-for-sale securities

Fair value$150,083$150,083$—$150,083$150,083$—

THOUSANDS OF
U.S. DOLLARS (NOTE 1)

2023
Unlisted equity securities$ 579

Investment in investment limited partnership

1,293
MILLIONS OF YEN
Carrying amount

Asset total

Unrealized gain
(loss)

2022

March 31, 2022

Marketable and investment securities and otheravailable-for-sale securities

Fair value¥ 19,616¥ 19,616¥—¥ 19,616¥ 19,616¥—

Notes: 1. C ash and deposits, marketable securities (held-to-maturity debt securities), notes and accounts receivable–trade, notes and accounts
payable–trade, electronically recorded obligations–operating, and short-term bank loans are excluded from the table above as theircarrying amounts approximate fair value because they are cash or have short maturities.
2. Carrying amounts of financial instruments whose fair values are extremely difficult to determine.

(4) Supplementary explanation concerning fair values of financial instruments
Since variable factors are incorporated in computing the fair values of financial
instruments, such fair values may vary depending on the initial premises.
64

KAKEN Corporate Report 2023

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65

Financial and Corporate Data

(1) Financial Instruments Reported on the Consolidated Balance Sheet at Fair ValueMILLIONS OF YENMILLIONS OF YEN

2022
Unlisted equity securities

2023

¥ 77

Fair value

Note: The above securities are not included in “Marketable and investment securities” because no quoted market price is available andit is extremely difficult to determine their fair value.

Level 1

Level 2

Level 3Equity securities¥17,261¥—¥—¥17,261

Other securities

—

2,700

—

2,700

¥17,261¥ 2,700¥—¥19,961

Marketable and investment securities andother available-for-sale securities

Redemption schedules of monetary assets and securities with contractual maturities
subsequent to March 31, 2023 and 2022 are as follows:
THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

Asset total

Due within one year

2023

2022

2023

¥59,561¥61,025$ 447,827

282

331

2,120

18,607

19,651

139,902

Held-to-maturity debt securities

11,99910,99990,218Available-for-sale securities with contractual maturities

2,700

2,600

20,301¥93,150¥94,608$ 700,376

Cash and deposits
Notes receivable–trade
Accounts receivable–trade

THOUSANDS OF U.S. DOLLARS (NOTE 1)

2023
Fair valueMarketable and investment securities

Total

THOUSANDS OF
U.S. DOLLARS (NOTE 1)

Due within one year

Total

Equity securities
Asset total

MILLIONS OF YEN

2023

2022

2023

¥ 3,850¥ 3,850$28,947¥ 3,850¥ 3,850$28,947(c) Fair Values of Financial Instruments by Level
The fair values of financial instruments are categorized into the following three levels
according to the observability and significance of the inputs used in the fair value
measurement.
Level 1: Fair value measured using observable inputs that reflect quoted market prices(unadjusted) for identical assets or liabilities in active markets
Level 2: Fair value measured using observable inputs other than Level 1 inputs
Level 3: Fair value measured using unobservable inputs
If multiple inputs are used that are significant to the fair value measurement, the fairvalue measurement is categorized in its entirety in the level of the lowest level input thatis significant to the entire measurement.

Level 1

Level 2

Level 3

$129,782

$

—

$—

—

20,301—

20,301$20,301$—$150,083

Note: Description of valuation methods and inputs used in the fair value measurement
Marketable and investment securities
Listed equity securities are valued using quoted market prices. As listed equity securities are traded in active
markets, their fair value is categorized in Level 1. However, the fair values of other available-for-sale securities heldby the Company (negotiable certificates of deposit) are categorized in Level 2 as they are not considered to bequoted market prices in active markets due to the low frequency of trading.

11. Retirement Benefits
The Company has defined benefit plans, namely, a lump-sum retirement plan and adefined benefit corporate pension plan. A retirement benefit trust has been established forthe lump-sum retirement plan. The Company may make additional payments at the timeof employees’ retirement in addition to the lump-sum retirement benefits. The simplified
method is used to calculate KAKEN PHARMA CO., LTD.’s retirement benefit obligation.
ARTham Therapeutics Inc. does not have a retirement benefit plan.
Defined benefit plans(a) Changes in the retirement benefit obligation for the years ended March 31, 2023 and2022 are as follows (excluding plans in which the simplified method is applied):
THOUSANDS OF
U.S. DOLLARS (NOTE 1)

2023

2022

2023

¥18,451¥19,021$138,729

Service cost

671

694

5,045

Interest cost

55

57

414

Retirement benefit obligation–Beginning balance

Actuarial gain or loss
Retirement benefit paid
Retirement benefit obligation–Ending balance

KAKEN Corporate Report 2023

$129,782$129,782

MILLIONS OF YEN

66

Total

Marketable and investment securities andother available-for-sale securities
Other securities

Redemption schedules for bonds, long-term borrowings, lease obligations and otherinterest-bearing debt are as follows:

Short-term bank loans

Total

9

(102)

68

(1,141)(1,219)(8,579)¥18,045¥18,451$135,677

KAKEN Corporate Report 2023

67

Financial and Corporate Data(b) Changes in the plan assets for the years ended March 31, 2023 and 2022 are as
follows (excluding plans in which the simplified method is applied):(f) The components of remeasurements of defined benefit plans in other comprehensive
income (before tax effect) for the years ended March 31, 2023 and 2022 are as follows:
THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

2023

2022

2023

¥13,411¥13,644$100,835

Expected return on plan assets

319

323

2,398

Actuarial gain or loss

Actuarial gain or loss

(278)

75

(2,090)

Total

Plan assets–Beginning balance

Employer’s contributions

157

162

1,180

(723)

(794)

(5,436)¥12,886¥13,411$ 96,887

Plan assets–Ending balance

Prior service cost

THOUSANDS OF
U.S. DOLLARS (NOTE 1)

2022

¥—

Retirement benefit cost
Net defined benefit liability–Ending balance

2023

¥—

0

—

0

¥—

$ 0

(d) Reconciliation between the net liability recorded in the consolidated balance sheets
and the balances of defined benefit obligation and plan assets are as follows:
THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

2023

2022

2023

Retirement benefit obligation under funded plan

¥18,045¥18,451$135,677

Plan assets(12,886)(13,411)(96,887)

5,159

5,039

38,7890—0

Net liability recorded on the consolidated balance sheets

5,159

5,039

38,789Net defined benefit liability

6,349

5,039

47,737¥ 5,159¥ 5,039$ 38,789

Net liability recorded on the consolidated balance sheets

2023
—

$	

(197)

297

(1,481)¥ (197)¥292$ (1,481)

THOUSANDS OF
U.S. DOLLARS (NOTE 1)

2023

2022

2023

Unrecognized actuarial gain or loss¥(237)¥ (435)$ (1,782)

Total¥(237)¥ (435)$ (1,782)$—¥ 0

Retirement benefit obligation under unfunded plan¥ (5)MILLIONS OF YENMILLIONS OF YEN

Net defined benefit liability–Beginning balance—¥(g) The components of remeasurements of defined benefit plans in accumulated othercomprehensive income (before tax effect) as of March 31, 2023 and 2022 are as
follows:(c) C hanges in the net defined benefit liability for the years ended March 31, 2023 and2022 in which the simplified method is applied as follows:

2023

2022

2023

Retirement benefit paid

THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

Notes: 1. Retirement benefit obligation and plan assets under the Company’s funded plan include those for the lump-sum retirement plan.
2. A plan in which simplified method is applied is included.
3. Assets related to retirement benefits of ¥1,190 million ($8,947 thousand) are recorded in “Other assets” in “Investments and otherassets” on the consolidated balance sheets for the year ended March 31, 2023.

(h) Plan assets(1) Plan assets consist of the following:
2023

2022

Debt securities

43%

44%

Equity securities

40

37

General account

12

12

Other

5

7

Total

100%

100%

Note: The plan assets include retirement benefit trust which accounted for 6% and 5% of the total plan assets as of March 31, 2023 and2022, respectively.

(2) Long-term expected rate of return on plan assets is determined based on current andexpected allocation of plan assets and long-term rate of returns expected currently andin the future from the various components of the plan assets.
(i) Major assumptions used for actuarial calculation are as follows (weighted average):
2023

2022

Discount rate

0.3%

0.3%

Long-term expected rate of return

2.5%

2.5%

(e) Net periodic pension cost and its components are as follows:
THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

2022

2023
Service cost
Interest cost

2023

¥ 694

$ 5,045

55

57

414

(319)

(323)

(2,398)

Amortization of actuarial gain or loss

90

120

677

Amortization of prior service cost

—

(5)

—

Expected return on plan assets

68

¥ 671

Net periodic pension cost under simplified method

0

—

0

Net periodic pension cost for defined benefit plans

¥ 497

¥ 542

$ 3,737

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69

Financial and Corporate Data

12. Shareholders’ Equity

13. Research and Development Costs(a) Class and number of shares outstanding and treasury stockResearch and development costs included in manufacturing costs and selling, generaland administrative expenses for the years ended March 31, 2023 and 2022 amounted to¥15,789 million ($118,714 thousand) and ¥8,420 million, respectively.

Number of shares as of April 1, 2022

Class of shares outstanding

Class of treasury stock

Common stock

Common stock

45,939,730

8,121,361

Increase—

350,519

Decrease—(5,100)45,939,730

8,466,780

Number of shares as of March 31, 2023

14. Loss on Revaluation of Inventories
The ending balance of inventories is the amount after writing down book values based on
decreased profitability, and the following loss on revaluation of inventories is included incost of sales. The amounts at March 31, 2023 and 2022 are as follows:

Notes:
1. Increase in treasury stock (350,519 shares) is due to purchase of shares through the market (350,000 shares) based on the resolution of theBoard of Directors’ meeting and purchase of shares of less than one unit (519 shares).
2. Decrease in treasury stock (5,100 shares) is due to placement of Company stock in the Board Benefit Trust (BBT) .
3. The number of shares of treasury stock includes Company shares held by Custody Bank of Japan, Ltd. (Trust Account E) as trust assets of theBBT (33,400 shares as of March 31, 2023 and 38,500 shares as of April 1, 2022).

(b) Matters related to dividends(1) Dividend payment
The following payment was approved at the general meeting of shareholders held on June29, 2022:
Dividends on common stock
Total amount of dividends	¥2,839 million ($21,346 thousand)
Dividends per share		¥75.00 ($0.56)
Record date		
March 31, 2022
Effective date		
June 30, 2022
The following payment was approved at the Board of Directors’ meeting held on
November 8, 2022:
Total amount of dividends¥2,812 million ($21,143 thousand)
Dividends per share		¥75.00 ($0.56)
Record date		
September 30, 2022
Effective date		November 30, 2022
Notes:
1. Total amount of dividends approved at the ordinary general meeting of shareholders on June 29, 2022
includes ¥2 million ($15 thousand) of dividends payable for the Company’s shares held by Custody Bank ofJapan, Ltd. (Trust Account E) as trust assets of the BBT.
2. Total amount of dividends approved at the Board of Directors’ meeting on November 8, 2022 includes ¥2million ($15 thousand) of dividends payable for the Company’s shares held by Custody Bank of Japan, Ltd.
(Trust Account E) as trust assets of the BBT.

(2) Dividends whose record date is attributed to the year ended March 31, 2023 but whichbecome effective after March 31, 2023
Approval at the ordinary general meeting of shareholders held on June 29, 2023 was asfollows:
Dividends on common stock
Total amount of dividends¥2,812 million ($21,143 thousand)Source of dividends		
Retained earnings
Dividends per share		¥75.00 ($0.56)
Record date		
March 31, 2023
Effective date		
June 30, 2023

THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

2022

2023
¥ 42

2023

¥320

$316

15. Gain on Sale of Non-Current Assets
Gain on sale of non-current assets for the years ended March 31, 2023 and 2022 consistsof the following:
THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

2022

2023
Buildings and structures

¥—

2023

¥117

$—

Tools, furniture and fixtures

2

0

15

Land

—

77

—

Total

¥ 2

¥195

$ 15

16. Loss on Sale of Non-Current Assets
Loss on sale of non-current assets for the years ended March 31, 2023 and 2022 consistsof the following:
THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

2022

2023

2023

Machinery, equipment and vehicles

¥	1

¥—

$8

Total

¥	1

¥—

$8

17. Loss on Retirement of Non-Current Assets
Loss on retirement of non-current assets for the years ended March 31, 2023 and 2022
consists of the following:
THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

2022

2023
Buildings and structures

¥	 5

2023

¥ 8

$ 38

Other

43

88

323

Total

¥	 48¥ 97$361

Note: Total amount of dividends includes ¥2 million ($15 thousand) of dividends payable for the Company’s
shares held by Custody Bank of Japan, Ltd. (Trust Account E) as trust assets of the BBT.

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71

Financial and Corporate Data

18. Impairment Losses

19. Contract Losses

The Group recognized impairment loss for the following asset groups for the year ended
March 31, 2023:

Year ended March 31, 2023
Not applicable
MILLIONS OF YEN

Location
Fujieda, Shizuoka Pref.
Bunkyo-ku, Tokyo

Use

Type

Production facilities

Buildings and structures

Business assets

In-process research anddevelopment

Impairment loss
¥

304
1,559

THOUSANDS OF U.S. DOLLARS

Location

Use

Type

Impairment loss

Fujieda, Shizuoka Pref.

Production facilities

Buildings and structures$ 2,286

Bunkyo-ku, Tokyo

Business assets

In-process research anddevelopment

11,722MILLIONS OF YEN

Use

Type

Impairment loss

Exclusive rights topharmaceutical distribution

Long-term prepaid expenses(distribution rights, etc.)¥ 2,994

The Group categorizes its business assets based principally on the segment by business
type, and rental properties, idle assets, etc. are grouped on an individual basis.
As future cash flow from the distribution rights of the above asset group is no longer
expected due to changes in business conditions, the utility value is estimated to be zero,and an impairment loss equal to the carrying amount is recorded.

The significant components of deferred tax assets and liabilities as of March 31, 2023 and2022 are as follows:

Deferred tax assets:
Tax loss carryforwards
Loss on valuation of inventories
Disallowed expensed supplies
Contract loss
Adjustment of gain on sales of land
Amortization of research & development expenses
Amortization of long-term prepaid expenses
Provision for bonuses
Net defined benefit liability
Impairment losses
Other
Total
Valuation allowance for tax loss carryforwards
Valuation allowance
Total
Deferred tax assets

The Group recognized impairment loss for the following asset group for the year ended
March 31, 2022:

Bunkyo-ku, Tokyo

20. Income Taxes

THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

The Group categorizes its business assets based principally on the segment by types ofbusiness, and rental properties, idle assets, etc. are grouped on an individual basis.
For buildings and structures, the carrying amount is reduced to the recoverable amountbased on the resolution on reconstruction approved by the Board of Directors on April 27,
2022, and the ¥48 million ($361 thousand) decrease in buildings and structures and ¥255
million ($1,917 thousand) in dismantlement costs are accounted for as impairment losses
in “Other income (expenses).”
The recoverable amount is measured using the utility value and calculated as thedepreciation expense equivalent for the period of expected production.
For in-process research and development, the carrying amount is reduced to therecoverable amount based on the resolution for termination of development of a bullous
pemphigoid treatment approved by the Board of Directors on April 12, 2023. The resulting
decrease of ¥1,500 million ($11,278 thousand) in in-process research and development
and decrease of ¥59 million ($444 thousand) in goodwill are accounted for as impairment
losses in “Other income (expenses).”
The recoverable amount is measured using the utility value. However, the utility value of
asset groups that are not expected to be valued based on future cash flows is estimatedto be zero.

Location

Year ended March 31, 2022
To avoid risks associated with changes in the business environment, the Company
recognized a ¥762 million contract loss due to accelerated amortization of manufacturing
equipment costs at a contract manufacturer as a special loss in the year ended March 31,
2022.

2023

2022

2023

¥

¥

2,638
2,577
594
290
1,823
1,010
300
10,158(296)(3,720)(4,017)
6,140

226
98
305
176
2,638
307
774
303
1,843
916
358
7,950
(226)
(3,798)(4,024)
3,925$ 2,226
421
3,015
1,256
19,835
19,3764,466
2,180
13,7077,594
2,256
76,376(2,226)(27,970)(30,203)46,165(182)(2,084)(1,771)(4,038)¥ 2,102(191)(2,008)(2,229)(4,429)¥ (503)(1,368)(15,669)(13,316)(30,361)$ 15,805

296
56
401
167

Deferred tax liabilities:
Reserve for advanced depreciation of non-current assets
Net unrealized holding gain on securities
In-process research and development
Deferred tax liabilities
Deferred tax assets, net

Note:
Tax loss carryforwards, valuation allowance and deferred tax assets by expiration of carryforwards as of March 31, 2023 and 2022 are as follows:

Within 1 year

Between 1
and 2 years

Between 2
and 3 years

MILLIONS OF YEN
Between 3
Between 4
and 4 years
and 5 years

Beyond 5 years

Total

¥ 296
(296)
—

¥ 296
(296)
—

2023
Tax loss carryforwards
Valuation allowance
Deferred tax assets

¥—
—
—

¥—
—
—

¥—
—
—

¥—
—
—

¥—
—
—

Note: Tax loss carryforwards are measured using the effective statutory tax rates.

72

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Financial and Corporate Data

Within 1 year

Between 1
and 2 years

Between 2
and 3 years

¥—
—
—

¥—
—
—

MILLIONS OF YEN
Between 3
Between 4
and 4 years
and 5 years

Beyond 5 years

Total

¥ 226
(226)
—

¥ 226
(226)
—

Beyond 5 years

Total$ 2,226(2,226)—$ 2,226(2,226)—2022
Tax loss carryforwards
Valuation allowance
Deferred tax assets

¥—
—
—

¥—
—
—

¥—
—
—

Note: Tax loss carryforwards are measured using the effective statutory tax rates.

Within 1 year

Between 1
and 2 years

THOUSANDS OF U.S. DOLLARS (NOTE 1)
Between 2
Between 3
Between 4
and 3 years
and 4 years
and 5 years

2023
Tax loss carryforwards
Valuation allowance
Deferred tax assets

$—
—
—

$—
—
—

$—
—
—

$—
—
—

$—
—
—

The Group is subject to several taxes based on income, which in the aggregate resulted
in a statutory tax rate of approximately 30.62% for the years ended March 31, 2023 and2022. Reconciliation of the differences between the statutory tax rate and the effective
tax rate for the years ended March 31, 2023 and 2022 is as follows:
Statutory tax rate

2023

2022

30.62%

30.62%

the customer, whereupon the revenue is recognized. When goods are sold in Japan,
revenue is recognized upon shipment if the time from shipment to the transfer ofcontrol of the goods to the customer is a normal period of time.
   For transactions in which the Group is involved in the sale of goods as an agent,
revenue is recognized on a net basis.
   The transaction price is calculated by subtracting any discounts or rebates from theconsideration promised in the contract with the customer.
   Consideration for the sale of goods is generally received within one year after the
performance obligation is satisfied, in accordance with payment terms that havebeen separately determined, and does not include a significant financing component.
(b) Revenue from license agreements related to the sale of goods Revenue from license agreements related to the sale of goods consists ofintellectual property transfers or technology licensing agreements and royalties.
Intellectual property transfers or technology licensing agreements have performanceobligations based on contracts with customers, and these performance obligations
are recognized as revenue when the rights are granted to the customer. Royalties
are calculated based on customer sales and other factors, and are recognized asrevenue with reference to when the sales occur.
   Consideration for licenses related to the sale of goods is generally received
within one year after the performance obligation is satisfied, in accordance withthe payment terms that have been separately determined, and does not include asignificant financing component.

Increase (decrease) in taxes resulting from:
Expenses not deductible for income tax purpose (e.g. entertainment expenses)

0.24

0.07

Income not included for income tax purpose (e.g. dividend income)(0.40)(0.18)

Inhabitant per capita taxes

0.97

0.51

Tax credit for research expenses(9.98)(5.94)

Change in valuation allowance(0.27)

7.21

Other

(0.98)(1.06)

20.20%

31.23%

Effective tax rate

21. Revenue Recognition
1. Revenue from Contracts with Customers
	The breakdown of revenue from contracts with customers is presented in “25.
Segment Information”.
2. Basis for Understanding Revenue from Contracts with Customers
	The Group recognizes revenue based on the following five-step approach.
Step 1: Step 1: Identify the contract with a customer.
Step 2: Identify the separate performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate portions of the transaction price to the separate performanceobligations in the contract.
Step 5: Recognize revenue when (or as) each performance obligation is satisfied.

3. Relationship between Satisfaction of Performance Obligations Based on the Contract
with the Customer and Cash Flows Arising from That Contract, and the Amount andTiming of Revenue Expected to be Recognized in the Following Fiscal Year or Later fromContracts Existing at the End of the Fiscal Year under Review(a) Balance of contract assets and contract liabilities The Group’s contract assets and contract liabilities are not disclosed as their balances
are immaterial and there are no significant changes. In addition, the amount ofrevenue (mainly changes in transaction price) recognized in the fiscal year underreview from performance obligations that were satisfied (or partially satisfied) in
previous fiscal years is immaterial.
(b) Transaction price allocated to remaining performance obligations In the Group, the transaction price allocated to remaining performance obligations
is not disclosed as there are no significant contracts that were initially expected tolast more than one year. In addition, there are no significant variable considerationsin the amount of consideration received from contracts with customers that are notincluded in the transaction price.

(a) Sale of merchandise and finished goods Revenue from sale of merchandise and finished goods is primarily a result of sales
from manufacturing or wholesaling, and where performance obligations to deliver
such goods are based on the sales contract with the customer. These performanceobligations are deemed to be satisfied when control of the goods is transferred to74

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Financial and Corporate Data

22. Related Party Transactions

24. Comprehensive Income

There are no related party transactions to be disclosed for the years ended March 31,
2023 and 2022.

Reclassification adjustments and income tax effects for each component of othercomprehensive income for the years ended March 31, 2023 and 2022 are as follows:

23. Per Share Information

U.S. DOLLARS (NOTE 1)

2023

2022

¥ 3,636.17¥ 3,642.34$ 27.34144.80251.43

1.09

2023

Notes:
1. Diluted profit per share is not presented due to the absence of dilutive shares.
2.The Company has introduced the Board Benefit Trust (BBT). The Company’s shares held by the BBT, which are recorded as treasury stock inshareholders’ equity, are included in the treasury stock to be deducted from the total number of shares outstanding at the end of the year forcomputation of net assets per share, and are also included in the treasury stock to be deducted when calculating the weighted average
number of shares of common stock for computation of profit per share.
	  The number of shares of treasury stock deducted for computation of net assets per share is 33,400 as of March 31, 2023 and 38,500 as ofMarch 31, 2022. The weighted average number of shares of treasury stock deducted for computation of profit per share is 35,021 for the year
ended March 31, 2023 and 38,776 for the year ended March 31, 2022.
3. The basis of calculation for profit per share for the years ended March 31, 2023 and 2022 is as follows:
THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YENProfitProfit attributable to common stock owners of the Company

2023

2022

2023

¥ 5,440¥ 9,549$ 40,902

5,440

9,549

40,902———

37,57137,978$282,489

Profit not attributable to common stock owners(Number of shares)

Weighted average number of shares of common stock(thousands of shares)

THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

Total net assets

76

2023

2022

2023

¥136,836¥138,325$1,028,842

578

578

4,346

(578)

(578)

(4,346)

Net assets attributable to common stock at end of period

136,258

137,747

1,024,496

Number of shares of common stock used in calculation of net
assets per share at end of period (thousands of shares)

37,47237,818281,744(Non-controlling interests included in above)

KAKEN Corporate Report 2023

Increase (decrease) during the year
Reclassification adjustments
Before income tax effect
Income tax effect¥ 249¥ (269)$ 1,872

(1)

(1)

(8)

248

(270)

1,865

(76)

82

(571)

¥ 172

¥ (187)$ 1,293¥(287)¥ 177$ (2,158)

90

114

677

(197)

292

(1,481)

60

(89)

451

Remeasurements of defined benefit plans¥ (136)¥ 202$ (1,023)

Total other comprehensive income

¥ 35

¥ 14

$

Net unrealized holding gain (loss) on securities
Remeasurements of defined benefit plans:
Increase (decrease) during the year
Reclassification adjustments
Before income tax effect
Income tax effect263

25. Segment Information

4. The basis of calculation for net assets per share for the years ended March 31, 2023 and 2022 is as follows:

Amount subtracted from total net assets

2023

Net unrealized holding gain (loss) on securities:

YEN

Profit per share

2022

2023

Per share information as of March 31, 2023 and 2022 and for the years then ended is asfollows:

Net assets per share

THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN(a) Overview of reportable segments
The Group’s reportable segments are constituent units of the Group for which separate
financial information is available, and which the Board of Directors regularly evaluates
in order to decide how to allocate resources within the Group and evaluate businessperformance.
The Group produces and sells medical products, medical devices and agrochemicals
and rents real estate, operating each business with a different management style
appropriate for the industry category. Each business operates on its own initiative andcreates comprehensive business strategies in conducting its business activities. The
Group consists of segments by category of industry based on the operation of business;therefore, it consists of two reportable segments: “Pharmaceuticals” and “Real estate.”“Pharmaceuticals” mainly encompasses the production and sale of medical products,
medical devices, and agrochemicals.
“Real estate” mainly encompasses the renting out of Bunkyo Green Court.
(b) Method of calculating net sales, profit, assets, and other items by reportable segment
Accounting policies for the reportable segments are consistent with those described in
Note 2. “Summary of Significant Accounting Policies.” Profit by reportable segment isbased on operating profit.
Corporate assets are not allocated to each reportable segment. However, related
expenses are allocated to each reportable segment using reasonable criteria.

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77

Financial and Corporate Data(c) Information about reportable segments

THOUSANDS OF U.S. DOLLARS (NOTE 1)MILLIONS OF YEN

Reportable Segment

Reportable Segment
Pharmaceuticals

Real estate

Pharmaceuticals
Total

Adjustments

2023
Net sales:
Sales of merchandise and finished goods¥68,785

License agreements for sale, etc. offinished products—¥68,785—¥ 68,785

1,776

—

1,776

—

1,776

Revenue from contracts with customers
Other revenue

70,562——
2,422

70,562
2,422——

70,562
2,422

Net sales to external customers
Intersegment sales or transfers

70,562
	
—

2,422
—

72,984———

72,984—

Total
Segment profit
Segment assets¥70,562¥ 6,707¥74,223¥ 2,422¥ 1,290¥10,090¥72,984¥ 7,998¥84,314¥—¥—¥82,013¥ 72,984¥ 7,998¥166,328

Other items:
Depreciation and amortization
Amortization of goodwill
Increase in property, plant andequipment and intangible assets¥ 2,74722¥322—¥ 3,070
22

¥

2,770

19

2,789

¥

¥

—
—

¥

3,070
22

—

2,789

Adjustments

Consolidated

MILLIONS OF YEN
Reportable Segment
Pharmaceuticals

Real estate

Total

2022
Net sales:
Sales of merchandise and finished goods¥71,641

License agreements for sale, etc. offinished products
Revenue from contracts with customers
Other revenue¥71,641

1,982—

73,623—$ 517,180

License agreements for sale, etc. offinished products—

13,353—

13,353

Revenue from contracts with customers
Other revenue

530,541——
18,211

530,541
18,211——

530,541
18,211

Net sales to external customers
Intersegment sales or transfers

530,541—

18,211—

548,752———

548,752—

Total
Segment profit
Segment assets$ 530,541$ 50,429$ 558,068$18,211$ 9,699$75,865$ 548,752$ 60,135$ 633,940$—$—$ 616,639$ 548,752$ 60,135$1,250,586

Other items:
Depreciation and amortization
Amortization of goodwill
Increase in property, plant andequipment and intangible assets$ 20,654
165$ 2,421—$ 23,083
165$

20,827

143

20,970———$23,083
165
20,970Notes:
1. The adjustments to segment assets of ¥82,013 million ($616,639 thousand) and ¥79,206 million as of March 31, 2023 and 2022, respectively,
represent corporate assets which are not allocated to each reportable segment. The amounts mainly consist of surplus funds which do notbelong to reportable segments.
2. Depreciation and increase in property, plant and equipment and intangible assets include long-term prepaid expenses.

(d) Information by product and service
Information by product and service has not been disclosed since the classification by
product and service is the same as the reportable segments.

73,6232,410——

73,6232,410(e) Information by geographical area

73,623—2,410—

76,034———76,034—

Total
Segment profit
Segment assets¥73,623¥15,710¥75,581¥ 2,410¥ 1,353¥10,393¥76,034¥17,064¥85,974¥—¥—¥ 79,206¥ 76,034¥ 17,064¥165,181(1) Sales
Information on sales by geographical area has not been disclosed since sales in Japanaccounted for more than 90% of sales on the consolidated statements of income.

Other items:
Depreciation and amortization
Amortization of goodwill
Increase in property, plant andequipment and intangible assets¥ 2,699
5

¥

322
—

¥ 3,022
5

¥

¥

508

11,856

11,856$ 517,180

13,353

—
2,410

—

—

$

1,982

3,022
5

Consolidated$ 517,180———

Adjustments

—

$

1,982

11,347¥

Net sales:
Sales of merchandise and finished goods¥ 71,641

	

—

Total

2023

—

Net sales to external customers
Intersegment sales or transfers¥

Real estate

Consolidated(2) Property, plant and equipment
Information on property, plant and equipment by geographical area has not been disclosed
since all property, plant and equipment are located in Japan.
(f) Information about major customers
THOUSANDS OF
U.S. DOLLARS (NOTE 1)MILLIONS OF YEN
Net sales

Name of the related
segment

2023

2022

2023

Alfresa Corporation¥13,132¥13,486$98,737

Pharmaceuticals

MEDICEO CORPORATION

10,420

11,23778,346

Pharmaceuticals

SUZUKEN CO., LTD.

10,349

11,19277,812

Pharmaceuticals(g) Information about impairment loss on non-current assets by reportable segment

78

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Financial and Corporate Data

The Group recognized impairment loss for the following asset group for the years ended
March 31, 2023 and 2022:

26. Subsequent EventMILLIONS OF YEN
Reportable Segment
Pharmaceuticals

Real estate

Other

Total

Adjustments

Consolidated

2023
Impairment loss

¥ 1,863¥—¥—¥ 1,863¥—¥ 1,863MILLIONS OF YEN
Reportable Segment
Pharmaceuticals

Real estate

Other

Total

Adjustments

Consolidated

2022
Impairment loss

¥ 2,994¥—¥ 2,994¥—¥—¥ 2,994

THOUSANDS OF U.S. DOLLARS
Reportable Segment
Pharmaceuticals

Real estate

Other

Total

Adjustments

Consolidated

2023
Impairment loss

$14,008$—$—$ 14,008$—$14,008(h) Amortization of goodwill and unamortized balance by reportable segment for the years
ended March 31, 2023 and 2022 are as follows:Year ended March 31, 2023
Reportable Segment
Real estate

Other

Total

(a) Overview of disposal of treasury stock:(1) Date of disposal: July 7, 2023
(2) Class of shares to be disposed of: Common stock(3) Number of shares to be disposed of: 392,289 shares(4) Value of shares to be disposed of: ¥3,679 ($27.66) per share(5) Total amount of disposal: ¥1,443,231,231 ($10,851,363)(6) Method of disposal: Third-party allotment(7) Planned recipients of shares: Shareholders and holders of share subscription rights ofARTham Therapeutics Inc. as defined in the Share Purchase Agreement(b) Accounting treatment:
For the contingent consideration, the acquisition cost deemed to have been paid on theacquisition date will be revised, and the amounts of goodwill and amortization of goodwill
shall be revised.
(c) Other:
The disposal of treasury stock shall be contingent upon notification under the Financial
Instruments Act taking effect.

MILLIONS OF YEN

Pharmaceuticals

Disposal of treasury stock through third-party allotment
Under the Share Purchase Agreement signed upon the acquisition of ARTham
Therapeutics Inc., which was announced on November 30, 2021, the Company resolved
at the Board of Directors’ meeting held on June 21, 2023 to dispose of treasury stock
through a third-party allotment as contingent consideration for the acquisition following
confirmation of the achievement of milestones relating to the refractory intravascularmalformation treatment KP-001 (former development code: ART-001).

Corporate andeliminations

Total

2023
Amount amortized
during the year

¥ 22

¥—

¥ 22

¥—

¥—

¥ 22

Unamortized balanceat end of the year

¥230

¥—

¥230

¥—

¥—

¥230

Note: Goodwill impairment of ¥59 million ($444 thousand) is recorded in the Pharmaceuticals segment.

At the above meeting of the Board of Directors, the Company resolved to enter into ashare subscription agreement with the planned recipients of shares mentioned above,taking into account the fact that the non-achievement of the milestones associatedwith the bullous pemphigoid treatment ART-648 had become certain. Consequently, no
contingent consideration will arise from the transfer of shares with respect to the ART-648
milestones.

MILLIONS OF YEN
Reportable Segment
Pharmaceuticals

Real estate

Other

Total

Corporate andeliminations

Total

2022
Amount amortized
during the year

¥

5

¥—

¥

5

¥—

¥—

¥

Unamortized balanceat end of the year

¥312

¥—

¥312

¥—

¥—

¥312

5

THOUSANDS OF U.S. DOLLARS (NOTE 1)
Reportable Segment
Pharmaceuticals

Real estate

Other

Total

Corporate andeliminations

Total

2023

80

Amount amortized
during the year

$ 165

$—

$ 165

$—

$—

$ 165

Unamortized balanceat end of the year

$ 1,729$—$ 1,729$—$—$ 1,729

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Financial and Corporate Data

82

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83

Financial and Corporate Data

84

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Financial and Corporate Data

Financial and Non-Financial Highlights
Net Sales

Operating Profit

72,984 million¥(Millions of yen)

(Millions of yen)

120,000

35,00090,00089,23228,00074,97976,034

72,98421,000017,064

2019

2020

2021

2022

0
(FY)

35,000

4,500

7,998

7,000
2018

2019

2020

2021

2022

25,594
12,477¥5,440 million / ¥144.80

210,9130(FY)

22,67033,600

21,87021,667

10,483

9,823

9,699

12,921

12,187

12,047

11,968

2018

2019

2020

2021

2022

0
(FY)

(Tons)

(%)

25

100

500

160,000 155,985

20

80

15

60

10

40

5

20

0

0

9,549

8,000
0

251.43

2018

2019

2020

2021

120,000

163,332 165,181 166,328
138,325 136,836
128,468 136,257

157,875

121,131

200

5,440

100

2022

1,200
1,000

21

618

600

80,000

20

923

800

300

144.80

0.05

2018

2020

2021

2022

(FY)

40,000
0

0
(FY)

18

571

18

516

18
661

200
2018

Total assets

2019

2020

2021

2022

0
(FY)

Net assets

2018

2019

0

Water consumption per unit of production (Right scale)

67.3

400

Profit attributable to owners of the Company (Left scale)Profit per share (Basic) (Right scale)2020

Amount of waste generated (Left scale)

2021

2022

(FY)

Amount of final disposal (Right scale)

0.0

1.8

2018

2019

15.7

8.8
2020

2021

2022

(FY)

Note: Figures are only for regular full-time employees of Kaken PharmaceuticalScope of data aggregation: Shizuoka Site and Drug Research Center in Kyoto

ROE and ROA

Dividends per Share and Payout Ratio

Percentage of Paid Holidays Taken

Frequency Rate (No Leave of Absence), Frequency Rate
(Lost Time) and Severity Rate of Occupational Accidents

4.0% / 3.3%¥

150 / 103.6 %55.0 %

1.91 / 0.38 / 0.00

(%)

(Yen)

25

150

20

15.1

11.4

12.3

0

2018
ROE

2019

ROA

60

7.0
8.2

5

150

150

2020

5.8
2021

4.0

59.7
33.6

43.2
30.3

30

3.3
2022

150

150

103.6

90

10.1
10

150

120

15.5

15

0
(FY)

2018

2019

Dividends per share (Left scale)

2020

2021

Payout ratio (Right scale)

2022

(FY)

(%)

(%)

110
100
90
80
70
60
50
40
30
20
10
0

60
50

(Frequency rate)

51.1
41.2

47.4

50.6

55.0

4.00

0.05

3.23

3.00

30
2.00

20

1.00

10
2018

2019

2020

2021

2022

Note: Figures are only for regular full-time employees of Kaken Pharmaceutical

(FY)

0.02
0.97

0.04

2018

0.03

1.91
1.32

0.02

0.33
0.00

0

2019

1.06
0.00
0.00

1.09

0.01
0.38
0.00 0

2021

2022

2020

Frequency rate of occupational accidents (Left scale)
Accidents not requiring leave of absence
Lost-time accidents

2. Severity rate =KAKEN Corporate Report 2023

2.90
0.03

40

0

(Severity rate)

5.00

1. Frequency rate =

86

2019

67.3 %(Tons)

13,4050.10

661 tons / 18 tons
1,400

16,0000.07

166,328 million / ¥136,836 million(Millions of yen)

17,7750.06

0.15

Percentage of Eligible Male Employees Taking
Childcare Leave

200,000

400

0.07

2,795

Amounts of Waste Generated and Final Disposal

600

347.37

0.08

2,674

Consumption per unit of production = Water consumption (Thousand m3) ÷ Plant production amount(Millions of yen)
Scope of data aggregation: Shizuoka Site

(Yen)

19,3700.08

Water consumption (Left scale)

Scope 232,00024,0002,888

Total Assets and Net Assets¥

494.893,295

900(Millions of yen)445.78

0.20

3,537

2,700
1,800

13,117

Scope 1

Profit Attributable to Owners of the Company andProfit per Share (Basic)

23,83414,000

7,000

2018

(Thousand m3)

21,00014,00030,000(t-CO2)28,00017,78860,0002,795 thousand m / 0.07

2

226,512

24,592

Water Consumption and Consumption per
Unit of Production

11,968 t-CO Scope 2 9,699 t-CO
Scope 3 126,563 t-CO (FY2021)
Scope 1

7,998 million¥

94,165

CO2 Emissions

Severity rate (Right scale)

Number of deaths and injuries from occupational accidents
Total number of working hours
Number of workdays lost
Total number of working hours(FY)

×1,000,000

×1,000KAKEN Corporate Report 2023

87

Financial and Corporate Data

Corporate and Share Information (As of March 31, 2023)
Company Overview

Share Information

Major Shareholders (Top 10)

Company Name

KAKEN PHARMACEUTICAL CO., LTD.

Authorized

193,000,000 shares

Shareholder

Number of
Shareholding
shares held
ratio (%)
(Thousands)

Incorporated

March 1, 1948

Issued45,939,730 shares

The Master Trust Bank of Japan, Ltd.
(Trust Account)

4,702

12.54

Paid-in Capital¥23,853 million

Toray Industries, Inc.

2,294

6.12

NORTHERN TRUST CO. (AVFC) RE
SILCHESTER INTERNATIONAL INVESTORSINTERNATIONAL VALUE EQUITY TRUST

1,909

5.09

The Norinchukin Bank

1,843

4.91

Custody Bank of Japan, Ltd. (Trust Account)

1,672

4.46

Mizuho Bank, Ltd.

1,474

3.93

NORTHERN TRUST CO. (AVFC) RE U.S.
TAX EXEMPTED PENSION FUNDS

867

2.31

KYORIN Pharmaceutical Co., Ltd.

852

2.27

NORTHERN TRUST CO. (AVFC) RE USL
NON-TREATY CLIENTS ACCOUNT

727

1.94

NORTHERN TRUST CO. (AVFC) RE NON
TREATY CLIENTS ACCOUNT

658

1.76

Number of Shareholders

Number of Employees

1,130 (consolidated)Tokyo Stock Exchange,
Prime Market

Listing

Representative

Hiroyuki Horiuchi, President and Representative Director

Head Office Location

12,890

Securities Code28-8, Honkomagome 2-chome, Bunkyo-ku, Tokyo

Shareholder
Register Administrator

Business	Manufacturing and marketing of pharmaceuticals, medical

4521
Sumitomo Mitsui Trust
Bank, Limited

devices, agrochemicals, feed additives and drugs for animals,
as well as real estate leasing

Sapporo Office

Shareholdings by Shareholder Type

Main Offices (As of April 1, 2023)
Bunkyo-ku, Tokyo• Head Office• Branch Offices Sapporo (Sapporo City, Hokkaido)
Sendai (Sendai City, Miyagi)
Tokyo (Toshima-ku, Tokyo)

Sendai Office

Nagoya (Nagoya City, Aichi)
Nagoya OfficeOsaka (Osaka City, Osaka)
Hiroshima (Hiroshima City, Hiroshima)
Fukuoka (Fukuoka City, Fukuoka)
Sales Offices

Osaka Office

33 across Japan

Head Office

Fukuoka Office• Drug Research CenterTokyo Office

Kyoto City, Kyoto
Fujieda City, Shizuoka• CMC Center• Factory

Individuals andothers15.40%
12,363

Treasury stock
18.36%
1

Shizuoka Factory
Drug Research Center (Shizuoka)
CMC Center

Fujieda City, Shizuoka
Fujieda City, Shizuoka

Hiroshima Office

Securities
companies
0.81%
48
Foreign investors
24.02%
272
Other domestic
corporations
13.15%
171

1. The number of shares held is rounded down to the nearest thousand.
2. T he shareholding ratios are calculated after subtracting the number of shares of treasury
stock (8,433,380) from the total number of shares issued.
3. The shareholding ratios are rounded to the nearest second decimal place.

Total Shareholder Return

Financial institutions
28.26%
35

Drug Research Center (Kyoto)

FY

2018

2019

2020

2021

2022

(%)

82.5

84.9

76.2

71.5

70.8

(Comparison index:
TOPIX Total Return
Index)

95.0

85.9

122.1

124.6

131.8

Stock Price and Trading Volume
Trading volume (Shares)

Stock price (Yen)

7,000

5,000,000

6,000
4,000,000
5,000
3,000,000

4,000
3,000

2,000,000

2,000
1,000,000

Head Office (Tokyo)

Drug Research Center (Kyoto)

Osaka Office (Osaka)

Shizuoka Factory (Shizuoka)

0

1,000
4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3
2020
2021
2022
2019
Trading volume (Left scale)88

KAKEN Corporate Report 2023

4 5 6 7 8 9 10 11 12 1 2 32023

0Stock price (Right scale)

KAKEN Corporate Report 2023

89

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