Annual Report 2009
Year Ended March 31, 2009

Bringing Smiles to Everyone

Corporate Data
(As of March 31, 2009)

Corporate Philosophy

Directory

Bringing smiles to everyone

KAKEN

to their faces, through supplying superior pharmaceuticals,
Kaken helps improve the quality of life for patients.

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

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

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

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

ProfileContents

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

President’s Message

02

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

Developing New Products

04

1917. The Company started pharmaceutical business with full-scale

Overview of Major Products

06

Commitment and Excellence

10

Fulfilling Our Social Responsibilities

12

Board of Directors and Corporate Auditors

14

Financial Section

15

Corporate Data

35

technologies in 1948, and since then broadened the scope of its businessand drug development activities through merger and alliance. Kaken’s
prestige has soared accordingly.
While the Company has established strength in developing andselling pharmaceuticals for orthopedics, it is now expanding its
involvement in other medical fields, such as dermatology. The Company
contributes to improving people’s health by cultivating its own originaltechnologies, engaging in joint development initiatives, introducing newtechnologies and acquiring marketing rights.
As a fruit of its technology and product introduction, theCompany has been since June 2001 marketing Fiblast Spray consistingof Trafermin, a recombinant form of human basic Fibroblast Growth
Factor (bFGF) for the first time in the world, licensed from a U.S.
bio-pharmaceutical company, Scios, in the area of regenerative medicine(wound healing medicine).

Company Information

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

By serving as many people as possible to return smiles of happinessdevelopment of penicillin and streptomycin based on Riken’s own

Business Philosophy: Three Joys
FoundedCreating joy for
March 1917

patients.

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

Paid-in Capital¥23,853 million

CommonStockCreating
joy for
Authorized:
360,000,000 shares
our employees.
Issued: 101,879,461 shares (As of Aug. 31, 2009)
Our objective
to become a 14,281 (As of Mar. 31, 2009)
Numberof isShareholders:company with vitality andpresence whose employees enjoy
Employees(Non-Consolidated)
and take pride in their work.

Main Branches
Sapporo Branch
Administration: 118
Sales & Marketing: 991
Sendai Branch
Production & Technology: 252
Tokyo-1 Branch
Research & Development: 293
Tokyo-2 Branch
Regulatory Affairs: 35
Nagoya Branch
Osaka-1 Branch
Osaka-2 BranchConsolidated
Financial Highlights
Hiroshima BranchMillions of yen
Fukuoka Branch
2009
2008

Thousands of
U.S. dollars (Note)2009

For the years ended March 31,

Plant
Net Shizuoka
sales
Factory¥82,930¥79,934$846,224

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

10,6299,842

108,459

5,579

5,106

56,92956,67957,447578,357

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

94,50493,856964,327

Yen

U.S. dollars (Note)¥ 55.61¥ 48.35

$

0.567

26.00

20.00

0.265

Forward-Looking Statements

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

ROE

9.78

8.66

—

Capital adequacy ratio

59.98

61.21

—

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

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥98 = $1 effective on March 31, 2009.

35

Business Philosophy: Three Joys
Creating joy forpatients.

KAKEN

conducts business by

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

Creating joy as
a company.

Creating joy forour employees.

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

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

Consolidated Financial Highlights

Thousands of
U.S. dollars (Note)

Millions of yen

2009

2008

2009

Net sales¥82,930¥79,934$846,224

Operating income

10,6299,842

108,459

Net income

5,579

5,106

56,929Total net assets

56,67957,447578,357

Total assets

94,50493,856964,327

For the years ended March 31,

At March 31,

Per share data:

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

Yen

U.S. dollars (Note)¥ 55.61¥ 48.35

$

0.567

26.00

20.00

0.265

%

Ratios:

ROE

9.78

8.66

—

Capital adequacy ratio

59.98

61.21

—

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥98 = $1 effective on March 31, 2009.

1

President’s Message

As a medium-sized pharmaceutical group with management

grew 8.0%, to ¥10,629 million. Net income expanded 9.3%, tothat facilitates flexible response to changes, we continued to¥10,629 million, despite losses on sales and devaluation ofenhance our corporate quality and strove to develop andinvestment securities.

supply effective pharmaceuticals. We also actively pursued
the generic drug business as one pillar of our operations.
Upholding its corporate philosophy of “bringing smiles

Addressing Future Challenges for Continued Growth
Ongoing government initiatives to curb healthcare spending areto everyone,” the Kaken Group aims to provide superiorraising the level of competition within the pharmaceuticalpharmaceuticals that improve patients’ quality of life. To

industry. The Kaken Group considers this situation an opportu-

guide our corporate actions to meet shareholders’ objectives,

nity. We aim to maximize corporate value by steadily raising

we have formulated three basic policies for management.

awareness and implementing operational reforms, as well as

Through these policies, we seek to maximize corporate value

maintaining our status as a trusted company in the eyes of

to earn the trust and expectations of all our stakeholders.

society through a strong commitment to compliance. Our five

The three polices are as follows.

key reforms are outlined below.

1. Discover, manufacture and supply useful pharmaceuticals

Focus investments on research and developmentthat meet the needs of patients and the medical community.
2. Remaining conscious of our social responsibilities as a

We are striving to concentrate our investment in and raise theefficiency of our research and development to expand thepharmaceutical company, conduct corporate activities in a

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

highly principled manner, and aim to be a company that

pursue strategic alliances with domestic and overseas companies

is trusted by society.

and research institutions, and introduce new research programs.

3. Strive to create an energetic atmosphere in which employees can enjoy and take pride in their work.

To speed up research and development, we will outsource
basic research procedures, make use of contract research organizations (CROs) and conduct overseas and joint international
clinical trials.

Overview of Results for the Fiscal Year Ended March 31, 2009

We will also endeavor to maximize new research andAlthough the Japanese economy went into recession, its impact

development of new drugs, to raise our level of contribution to

on the pharmaceutical industry was relatively slight. On thepeople throughout the world.

other hand, Japan’s National Health Insurance system introduced medical cost restraints, including drug price revisions that

Strengthen our sales force

went into effect in April 2008, promoting the use of generic

We have developed a system to ensure that medical representa-

drugs at medical institutions and dispensaries, and the doubling

tives provide medical institutions with necessary information atof facilities applying the Diagnosis Procedure Combination

the appropriate times. We will expand our market share to(DPC). Under these circumstances, the Group endeavored toensure our strong position in the field of orthopedics. We aremeet the needs of medical professionals in the field by providing

also actively pursuing the generic drug business as one pillar of

information.

our operations. We are augmenting the information we provide

As a result of these efforts, we maintained growth in profits

by utilizing product-related websites and the mass media.

for the seventh consecutive year, with net sales and operating2

income reaching historic highs. Owing to steady increases inEstablish an internal control system and carefully manage risk

sales of mainstay products, consolidated net sales rose 3.7%

We are reinforcing our internal control system to achieve four

during the year, to ¥82,930 million. Owing to successful efforts

objectives: higher operating effectiveness and efficiency, reliable

to use selling, general and administrative expenses more ef-

financial reporting, compliance in our business activities andficiently, the operating margin improved and operating income

security of assets.

Optimize and streamline operations
On the production side, we will make further reassessments ofprocedures, products and standards as we strive to lower manufacturing costs. In the field of agrochemicals, we are expanding
consigned production to overseas companies and we remaincommitted to obtaining FDA certification. Moreover, we areoutsourcing our distribution center business and we will continue to promote cost reductions.

Promote Environmental Protection
Kaken’s Shizuoka production and R&D facilities haveobtained ISO 14001 certification, and our Kyoto researchlaboratories have been awarded the Kyoto Environmental
System certification by the city of Kyoto in recognition of
their environmental management systems. We recognize
environmental protection as a social responsibility, and to
this end we are aggressively promoting activities at all levelsof our organization. For example, we have established an
Environment Committee and set up Environment Task
Forces at each worksite, and we carefully comply with theDuring the year, Kaken cancelled ¥11,141 million in treasury

revised Law Concerning the Rational Use of Energy. These

stock and acquired an additional ¥2,821 million in the market

activities are summarized in our Social and Environmental

on this basis.

Report on the Kaken website.

Retained earnings are appropriated to optimize corporate

Basic Policy and Approach concerning Return to Shareholders

value through targeted investment in research and development

Kaken considers long-term, comprehensive profit increases forand in improvements to business infrastructure.

its shareholders an important management goal. Operating in
the pharmaceutical industry entails large risks, requiring us toTarget Management Indicators and Long-Termhave a higher level of equity capital than companies in other

Business Strategy

industries. We employ a flexible dividend policy that sets cash

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

dividends based on performance while maintaining a balance

future growth comprise consolidated operating income of ¥15

between returns to shareholders and strengthening equity

billion and return on equity (ROE) of 12% or more. In thecapital.

future, we will endeavor to optimize the value of each division

Dividends per share of common stock applicable to thefiscal year under review consisted of a ¥13.00 interim dividendand establish a base that ensures our survival as a business thatmaintains a strong presence in the 21st century.

and a ¥13.00 year-end dividend—each ¥3.00 higher than in theprevious year, resulting in total dividends for the year of ¥26.00

June 2009

per share. This amount is ¥6.00 higher than for the preceding
fiscal year, making fiscal year 2008 our seventh consecutive yearof dividend increases and raising our payout ratio to 46.8%.
Kaken also implements a flexible system of acquisition oftreasury stock through resolutions by the Board of Directors to

Shiro Inuifacilitate response to changes in the business environment.

President

3

SPECIALFEATURE

Kaken’s Innovative Product for Regeneration
Fiblast Spray—the world’s first regenerative medicine—is the commercialized product of ahuman recombinant protein basic Fibroblast Growth Factor (bFGF). bFGF, a member of the
FGF family that exists endogenously in almost all tissues and binds to the extracellular matrix,
is released from the matrix once cells or tissues are damaged, such as by trauma or ischemia,
after which bFGF acts on a variety of cells and tissues to promote regeneration. As the drug’s
actions are broad-ranging, it is characterized by its powerful ability to stimulate not only the
proliferation of numerous cell types, but also the formation of new blood vessels.
After obtaining exclusive licensing rights in Asia in 1988 from Scios Inc. of the UnitedStates, Kaken made continued R&D efforts toward approval of the drug for the treatment ofpressure ulcer and other skin ulcers (burns and leg ulcers), releasing the product onto themarket for the first time as Fiblast Spray in June 2001. After more than eight years on themarket as a wound healing agent, the drug has a solid reputation in numerous hospitals
and clinics in Japan.
bFGF has also been found to promote the proliferation and regeneration of periodontal and bone tissues, in addition to skin tissue. In dentistry, its effectiveness has been
proven in the regeneration of alveolar bone, as well as to the regeneration of periodontal
ligament and cementum. We have completed two Phase II clinical trials in periodontitis
patients to confirm the dose-dependent effects on the regeneration of destroyed alveolar bone,4New Drug Development Pipeline
Product

IndicationStage

Launch (CY)

Remarks

1 KCB-1D

Periodontitis

PIII

2012

bFGF

2 KCB-1B

Bone fractures

PII Finished

2014

bFGF
Next stage of clinical trials under consideration

3 KP-102LN

Short stature

PII

2014

For growth hormone deficiency

4 TRK-100STP

Lumbar spinal canal stenosis

PII

2016

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

5 KP-496NS

Allergic Rhinitis

PII

2014

Nasal spray

6 KP-103

Onychomycosis

PI

2012

Topical formulation; Licensed to Dow Pharmaceutical
Sciences Inc.; PII in U.S.A.

7 KP-413

Atopic dermatitis

Topical formulation; PI/ PII in U.S.A.

and also to identify the optimal dose for Phase III. Currently, Phase III trial is proceeding asscheduled, and we expect to obtain marketing approval in 2012. We are conducting basic
research with the prospect of expansion into areas of dentistry beyond periodontitis, including
implant applications.
For bone tissue, bFGF has demonstrated the ability to promote fracture repairs by enhancing bone metabolism through both the direct proliferative effect on osteoblasts and theindirect accelerative effect on osteoclasts. We recently completed Phase II clinical trials on patientswith tibial shaft fractures, and we are in the process of setting our next objective.
In addition to the areas in which we are conducting clinical trials, we are also currently
collaborating with universities and other research organizations in Japan in broad-ranging areas
to expand the possibilities of bFGF-based regenerative medicines.
In March 2005, we obtained worldwide rights to develop, manufacture and market bFGF.
That same year in December, we concluded a license agreement with a Chinese pharmaceuticalcompany for the development and marketing of Fiblast Spray. In June 2007, we concluded alicense agreement with Sunstar Inc. involving the development and marketing in Europe andNorth America in the dental area.
Utilizing the technologies and know-how accumulated through our research and development efforts toward bFGF, we continue to collaborate with our overseas partners to expand our
global activities.

5Overview of Major Products

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

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

periarthritis in 1989.

Artz (Sodium hyaluronate)

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

Procylin(oral prostaglandin I2 analog)

ulcers, pain and chills resulting from such conditions as arteriosclerosis obliterans (ASO) andthromboangitis obliterans (TAO). In 1999 Procylin received additional approval for primary
pulmonary hypertension.
Adofeed (pain- and inflammation-relieving plaster)
Adofeed is an antiphlogistic analgetic plaster containing Flurbiprofen as its active ingredient, which
is a non-steroidal anti-inflammatory drug that acts as a powerful prostaglandin biosynthesis inhibitor. Absorbed directly through the skin, Adofeed has proven effective in reducing pain and inflammation associated with osteoarthritis, shoulder periarthritis, tennis elbow, muscle pain and otherinflammatory diseases.
In October 2008, we began selling products that are twice the size of previous offerings. Thisenhanced lineup gives patients more range in selecting products that are sized correctly for their use.
Mentax (anti-trichophyton agent)

Adofeed(pain- and inflammation-relieving plaster)

Mentax is a topical treatment for superficial mycosis with butenafin hydrochloride—created by
Kaken—as its main ingredient. Mentax is marketed worldwide, including in the United States
through Mylan Pharmaceuticals. In December 2001, Mentax was approved as an over-the-counter(OTC) drug in the United States and is now marketed under the trade name Lotrimin Ultrathrough Schering-Plough Corporation.
In 2003, Mentax was approved for manufacture and sale as an OTC drug in Japan, and iscurrently being marketed as an OTC drug by Takeda Pharmaceutical Company Limited and Sato
Pharmaceutical Co., Ltd.
In 2004, we launched a new spray formulation of Mentax.
Mentax(anti-trichophyton agent)7

Lipidil (anti-hyperlipidemia)This new micronized formulation of the active ingredient Fenofibrate in the drug Lipantil—released
in 1999—is a fibrate type of lipid-lowering agent with increased absorbability.
Fenofibrate is a fibrate compound developed by Fournier Pharma (now Solvay S.A.) in France.
The drug improves overall lipid metabolism by activating peroxisome proliferatoractivated
Lipidil (anti-hyperlipidemia)

receptor a (PPARa) in liver cells and lowering triglycerides and cholesterol while increasing HDLcholesterol by adjusting the expression of a variety of proteins involved in lipid metabolism.
Lipidil is sold in over 90 countries and has accumulated extensive clinical experience.
Seprafilm (synthetic-absorbent anti-adhesive barrier)Seprafilm is a sheet-type, synthetic-absorbent and anti-adhesive medical device developed by Gen­zyme Corp. in the United States, consisting of sodium hyaluronate and Carboxymethylcellulose.
Within 24 to 48 hours after applying Seprafilm to tissues damaged by surgery, the product becomesa hydrated gel and remains in place for approximately seven days, acting as an effective anti-adhesiveby creating a physical barrier between damaged tissue and the surrounding normal tissue.
Seprafilm is available in three types of package, for selection according to use.

Seprafilm(synthetic-absorbent anti-adhesive barrier)Fiblast Spray (wound healing agent)
Consisting of Trafermin, a recombinant form of human basic Fibroblast Growth Factor (bFGF),
Fiblast Spray is a wound healing promotor having effects of angiogenesis and granulation formation.
Scios Inc. paved the way for the development of recombinant bFGF by mapping the complete
DNA sequence of the human bFGF gene. Kaken then took over development of the drug, releasing
Fiblast Spray as the world’s first human bFGF agent in 2001.
Ebrantil (treatment for dysuria and the 1-selective hypertension)
Ebrantil is a sustained-release formulation of the 1-selective blocker, Urapidil.
In Japan, the drug was first marketed in 1989 as a treatment drug for hypertension, based on its

Fiblast Spray(wound healing agent)

peripheral vasodilating effect. In 1995 the treatment was approved for difficulty in urination causedby benign prostatic hyperplasia, and in 1999 it was approved as the world’s first 1-blocker for thetreatment of dysuria caused by neurogenic bladder.
Cytotec (NSAID-induced ulcer preventive drug)
This drug is excellent at treating gastric and duodenal ulcers brought on by the administration of
NSAIDs. The active ingredient, prostaglandin E1-analog Misoprostol, developed by G.D. Searle(now Pfizer, Inc.), both inhibits the secretion of gastric juices and exerts a mucosal protective effect(site protection).
In the Guidelines for the Examination of Gastric Ulcers and Guidelines for the Treatment ofRheumatoid Arthritis in Japan, Cytotec is recommended as a drug backed by clinical evidence forthe prevention and treatment of NSAID-induced ulcers.
Generic Drugs
In Japan, government authorities are currently urging the use of generics as part of a movement to
reduce medical costs. We are also seeing an increase in frequency of generic drug use in actual
medical practice.
As the generic drug market grows, Kaken is making aggressive forays into generics to seize thisbusiness opportunity.

8In addition to pharmaceuticals, medical devices, agrochemicals and animal health products, andreal estate, we intend to build generics into the fifth pillar of our operations with a medium-termgoal of ¥10 billion in sales. We will continue to expand our product line to achieve this objective.
Berasus (oral prostaglandin I2 analog sustained-release formulation)
In October 2007, Kaken gained manufacturing and sales authorization for Berasus, and launched
the drug on the market the same year in December
Berasus is a sustained-release formulation of beraprost sodium, a primary component ofprocylin, which was launched in 1992. Compared with procylin, it can be used as a treatment for
pulmonary arterial hypertension (PAH) but with more stable blood concentrations and with thepossibilities of reduced number of administrations and higher single doses.

(Oral Prostaglandin I2 analog
Sustained-Release Formulation)

To date, there have been few effective drugs to combat PAH and Berasus is anticipated as ahigh-potential possible alternative.
Clinical trials are currently underway that include lumbar spinal canal stenosis as a new indication.
Polyoxins (fungicides)
Two different technical grade active ingredients (TGAIs), Polyoxin AL
and Polyoxin Z, are produced by fermentation using a microorganism

Agrochemicals

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

Pentoxazone (rice herbicide)
Pentoxazone is known as a Protox inhibitor and used to control annual broad leaves, barnyard grass
and monocholia in paddy fields with a long-lasting effect. GR, SC, TB and EW formulations ofpentoxazone alone or in combination with sulfonylurea and other herbicidal compounds are available and can be applied before, during and after transplantation of rice seedlings due to their highcrop safety.
Salinomycin (ionophore anti-coccidial for chicken)
Salinomycin was discovered and developed by Kaken and registeredfirst in Japan in 1978. Through successful marketing and licensing,Agrochemicals

salinomycin is now the best-selling anti-coccidial feed additive in theworld and is instrumental in economically producing millions of tonsof healthy chicken meat. Kaken produces salinomycin under GMP
and supplies worldwide technical grade material and formulated
products directly and through distributors.

Colistin sulfate (polypeptide antibiotic)
Colistin sulfate is used as a veterinary medicine or feed additive to control diseases caused by gram­negative bacteria in poultry, swine, cattle and other animals. This antibiotic has been used worldwide for a long period of time because of its excellent safety and efficacy.

9Commitment and Excellence

R&D Divisionseeks out and evaluates pharmacological activities of candidate

Kaken’s drug discovery research focuses on such areas ofcompounds. The Pharmacology Laboratory verifies the utility ofstrength as inflammation, immunity and allergies, in addition to

candidate compounds created through discovery research andits core competence of fungal infection disease. We invest

compares them alongside other drugs. The Pharmacokinetics

substantial financial and human resources into such researchand Safety Research Laboratory verifies the safety of candidate

activities with the aim of developing new drugs that are bothcompounds on animals and humans and assesses their ADME

effective and safe. To create innovative drugs that can compete

in vivo. The Drug Formulation Laboratory investigates thein the world market, we maintain an active program of drug

physical and chemical properties of the drug compound anddiscovery research, spearheaded by outstanding researchcreates a production plan to ensure maximum safety andprofessionals and techniques refined over many years ofeffectiveness in the resulting drug’s action on the target disease.

experience in pharmaceutical development.
At present, we have a total of around 300 researchers.

scientists received the 23rd Young Investigator Award from theDuring the year under review, we estimate that our research andAmerican Society for Bone and Mineral Research (ASBMR)—

development expenses came to ¥8.3 billion. To expedite ourthe most prestigious organization in the field— in recognition of

R&D activities, we are actively pursuing strategic alliances with

our research in osteoporosis. In 2003, Kaken’s scientists received

companies and research institutes both in Japan and overseas,

the Prize for the Most Outstanding Pharmacy Thesis from theincluding for offshore clinical development, as well as

Academy of Pharmaceutical Science and Technology, Japanoutsourcing some of our operations.

(APSTJ) in the field of oral solid formulation design, and in

Kaken is fully committed to R&D activities that generate

2009, we won the APSTJ Asahi Kasei Encouraging Prize for the

innovative proprietary products, which will enable thedevelopment of Itraconazole. These awards underscore our highCompany to build a unique position as a pharmaceuticallevel of basic technology. We are leveraging such research

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

multifaceted approach that includes pinpointing specificDuring 2007, we concluded a licensing agreement withresearch programs, in-house development, joint development,

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

Hokkaido University, which grants exclusive worldwide rights

Our Drug Discovery Research Laboratories are located in

to Kaken for development, manufacturing and marketing of the

Kyoto, the ancient capital of Japan, and our Development

anti-alpha-9 integrin antibody. Through such initiatives, we are

Research Laboratories are in Shizuoka. We divide duties andpressing forward with the development of antibody drugs.

employ cutting-edge research equipment and techniques to aid

Furthermore, to expedite discovery research in genomic

drug discovery and investigation, which require long anddrug discovery and other areas, we will continue focusing on our

arduous research and unrivalled expertise. At our Kyoto

specialist areas and actively pursue alliances with researchlaboratory, we carry out discovery research, synthetic studies andinstitutions in Japan and overseas. We will also introduce andpharmacological studies, while at our Shizuoka laboratory welicense new technologies on a global basis, seeking out new

conduct studies on pharmacokinetics, drug safety andtechnologies and their seeds on a worldwide scale. As a part offormulation.

our efforts to continue carrying out top-class research, respected

We advance R&D efforts through cooperation andcoordination among five research sections. The Chemistry
Laboratory handles synthesis of the compounds that are theseeds of new drugs. The Drug Discovery Research Laboratory

10

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

researchers in Japan periodically discuss and advise on Kaken’s
drug discovery programs.
In our R&D division, clinical trials are studies in which
drug candidates that have passed the non-clinical trials areactually administered to humans. The Clinical Development
Department verifies the efficacy of candidate compounds
coming out of discovery research or from elsewhere and plansand performs clinical trials on those compounds. The
Administration Department of Clinical Development oversees
clinical trial quality and reliability and manages safety
information for investigational drugs. These departments
coordinate with the research laboratories to ensure speedy
completion of clinical trials.
R&D Division, obtaining drug approvals as well as registration

Regulatory Affairs Division
Kaken’s Regulatory Affairs Division consists of three

in the drug price standards after approval.

departments—the Quality Assurance Department, theProduction Division

Pharmacovigilance Department and the Regulatory Affairs

Our production facilities in Shizuoka Prefecture were among

Department.

the first in the industry to incorporate factory automation

The Regulatory Affairs Division shoulders Kaken’s

systems. They comply with Japanese GMP, which stipulates

responsibility as a pharmaceutical manufacturer and marketer,

requirements for drug manufacturing and quality control. In

making the final judgments on quality, effectiveness and safety

addition to satisfying these requirements, the quality of products

in providing Kaken’s drugs to medical professionals in the field.

for export clears current Good Manufacturing Practice (cGMP)The Quality Assurance Department assesses whether eachdrug is produced according to those judgments every time andwhether the quality test results comply with standards. The

regulations in the United States, which were formulated the
Food and Drug Administration (FDA).
We have also set up Production Technology Laboratories

Pharmacovigilance Department then evaluates the safety

within the facilities, aiming to enhance product quality andinformation collected so far from medical institutions pertaining

research pharmaceutically useful innovations.

to the drug in question, after which the Regulatory Affairs
Division judgments are comprehensively carried out.
The Quality Assurance Department therefore works toMarketing and Sales Division
Kaken’s medical representatives (MRs) provide professionals on

maintain quality by regularly inspecting internal and external

the medical front line with up-to-date information on theplants and collecting and examining information on quality.

Company’s drugs and medical devices. Our MRs also talk with

Meanwhile, the Pharmacovigilance Department reports thehealthcare professionals to gather medical information related toassessed safety information to the required entities andthe safety and effectiveness of our drugs and provide feedback to

distributes information to medical institutions on thethe relevant departments. We have established nine branches

appropriate use of pharmaceuticals to enhance theirand 68 sub-branches so that our 700 MRs can work closely witheffectiveness, such as by incorporating this information in thelocal communities, particularly in our specialist fields of

drug documentation.

orthopedics and dermatology.

The Regulatory Affairs Department supervises and assists
with general aspects of production and marketing. Separate

Distribution Divisionfrom these matters, the department is also involved in drug

We outsource all distribution center functions to distributors

R&D affairs. It compiles basic and clinical data produced in thespecialized in handling pharmaceuticals.

11

Fulfilling Our Social Responsibilities

Corporate Governanceelement of corporate governance, we believe our Board of

Kaken recognizes that corporate governance is one of the

Directors, corporate auditor system and operating officer

most important issues facing management with regard tosystem—under the current management format for now—

continually enhancing corporate value. Through the imple-

are critical to the functional operation of the Company.

mentation of appropriate systems, we have steadily raised thetransparency of management, clarifying the separation of

Our Initiatives

management’s supervisory and business execution functions.

Kaken is aware that compliance is pivotal to earning the trust

In addition, we are fulfilling our obligation to provide stake-of society. To this end, we have established activity principles

holders with appropriate information.

and guidelines and adhere to high ethical standards in all ofour business activities. The Company’s businesses are directly

We have introduced an operating officer system to
expedite decision-making and clarify supervisory and busi-

concerned with people’s health and lives. In carrying out

ness execution functions.

these important activities, each executive and employee
maintains a strong daily commitment to these activity princi­

Between the “company with corporate auditors” andples and guidelines.

“company with committees” formats for Kaken’s management, we have chosen our existing format of “company with

Moreover, we maintain and operate a basic policy on

corporate auditors.” While we fully recognize that reinforc-

internal control systems, pursuant to the Company Law, based

ing the control and auditing functions is an importanton a resolution of the Board of Directors on May 12, 2006.

Corporate Governance System
General Meeting of Stockholders

Board of Corporate Auditors
Corporate Auditors

Board of Directors

Accounting Auditor

PresidentInternal Auditing Office

Managing Directors Meeting
Executive Directors

Operating Officers, Companywide Departments, Group Companies

12Compliance

Environmental Protection Activities

Kaken recognizes compliance-based management as the mostOur corporate philosophy is that “By serving as many people

fundamental element in gaining society’s trust and achieving

as possible to return smiles of happiness to their faces,

healthy development. We further believe that this will enablethrough supplying superior pharmaceuticals, Kaken helps

the Company to raise its corporate value for the benefit of

improve the quality of life for patients.” Based on this credo,

our shareholders, investors, business partners and the local

we are contributing to the health and lives of people throughcommunity.

our pharmaceutical operations.
The importance of environmental conservation has

Kaken’s Activity Principles

grown over recent years. Recognizing that environmental

Every executive and employee of Kaken and its subsidiaries isprotection and improvement are pressing issues for corpora-strongly committed to compliance in operations with respect

tions, too, we are striving to fulfill our corporate philosophy

to observing Japanese and foreign laws and regulations,through environmental preservation—to realize a society fullrespecting different cultures and customs and adopting highof healthy, smiling faces—and to promote social contribu-

ethical standards.

tion activities as a good corporate citizen.

1. We recognize the preciousness of life and shall contribute

Kaken launched its environmental campaign in 1983,

to the welfare of society by channeling all our efforts intowith the objectives of maintaining and preserving people’s

enhancing people’s health and patients’ quality of life.

health and living conditions and responding to general

2. We recognize the importance of maintaining appropriate

pollution issues, through the establishment of Environmental

relations with all our stakeholders, including shareholders,

Measure Committees and startup of activities at each opera-

investors, employees, business partners and local com-

tional site. Further, in 2004, we formulated basic principles

munities.

and basic policies related to environmental issues. In re-

3. We shall compete in a fair and free manner, conducting
our business activities in a just and proper way.
4. We shall handle all the Company’s assets, including

sponse to the April 2009 revision of the Act on the Rational
Use of Energy, we recast our Environmental Measures
Committees into an Environmental Measures Task Force.

information, in a legitimate and proper manner to facili-This organization will work in tandem with the Environmen-

tate the smooth running of its operations.

tal Committee to develop companywide activities centered

5. We shall respect the human rights and individuality ofon environmental preservation.

employees, pay attention to health and safety issues andThereafter, we have fortified our environmental man-work hard to foster a fair and honest workplace culture.

agement activities, with our Shizuoka production and R&D

6. We shall manage Company information appropriately andfacilities obtaining ISO14001 certification in August 2001

disclose information in a timely and appropriate manner.

and our Kyoto research laboratories being awarded Kyoto

7. We shall take seriously the impact of our activities on theEnvironmental System (KES) certification in April 2005.

global environment and contribute to society as a good

In the future, all of our worksites, spanning the Com-

corporate citizen, including through environmental

pany’s headquarters and branches, will actively promote

protection efforts.

environmental management and social contribution activities

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

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

13

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

President and Representative Director

Executive Director

AuditorShiro Inui

Masao Ishida

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

Executive Director

Auditor(Administration)

Takao Endo

Fumio Hoshii(General Affairs)(Standing)Shuji Komoto

Executive Director

Auditor

(Accounting, Purchasing and

Hirokazu Konishi

Sumio Yoshizawa

Agrochemicals)(Marketing Planning & Coordination)

Executive Managing Director

Executive Managing Director

AuditorExecutive Managing Director
Tetsuo Onuma(Marketing and Sales)
Executive Managing Director
Susumu Kojima(Research and Development)

14

Keizo NemotoFinancial Section
Consolidated Five-Year Summary

16Management Discussion and Analysis

16

Consolidated Balance Sheets

18

Consolidated Statements of Income

20

Consolidated Statements of Changes in Net Assets

21

Consolidated Statements of Cash Flows23

Notes to the Consolidated Financial Statements

24

Report of Independent Auditors

34

15

Consolidated Five-Year Summary

Thousands of
U.S. dollars(Note)

Millions of yen

2009

2008

2007

2006

2005

2009

¥82,930
10,6295,579¥79,934
9,842
5,106

¥76,415
8,113
4,602

¥75,540
8,359
3,886

¥74,922
7,897
3,417

$846,224
108,459
56,92956,67994,50457,44793,85660,433
100,900

54,637
98,73945,490108,547

578,357
964,327

For the years ended March 31:

Net sales
Operating income
Net income
At March 31:

Total net assets
Total assets
Per share data:

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

55.61
26.00

48.35
20.00

Ratios:ROE
Capital adequacy ratio

U.S. dollars(Note)

Yen

42.42
17.00

¥40.2315.00¥36.54
12.00

7.76
55.33

7.71
41.91

$0.567
0.265

(%)

9.78
59.98

8.66
61.21

8.00
59.89

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥98 = $1 effective on March 31, 2009.

Management Discussion and Analysis

Business Climate
During the year, the Japanese economy went into recession,
although its impact on the pharmaceutical industry was relatively slight. At the same time, government-induced measures tolimit medical costs went into effect in April 2008, throughefforts such as encouraging medical institutions and pharmacies
to promote the use of generic drugs, and the number of medical
facilities adopting the diagnosis procedure combination (DPC)
payment system for medical treatment doubled.
Under these circumstances, the Group strove to promotesales activities closely tied to local communities by providing
high-value-added information that meets the needs of medical
professionals in the field.

Performance
Consolidated net sales for the year under review amounted to¥82,930 million, up 3.7% from the preceding fiscal year.
Operating income rose 8.0%, to ¥10,629 million, as we raised
the operating margin through more efficient use of selling,

16

general and administrative expenses. Net income climbed 9.3%,
to ¥5,579 million, even though the Company posted a loss ondevaluation of investment securities.

Segment Information
Pharmaceuticals
Our pharmaceuticals segment consists of two core categories:
pharmaceuticals and medical devices, and agrochemicals.
In pharmaceuticals, sales of Artz—an anti-osteoarthritic
and one of our mainstay products—grew. In medical devices,
sales of the anti-adhesive absorbent barrier Seprafilm expanded
steadily. Sales rose for the anti-hyperlipidemia treatment Lipidil,
our wound healing agent Fiblast Spray and generic drugs.
However, sales of Procylin—a treatment for chronic artery
occlusive disease—fell, as did sales of the pain- and inflammation-relieving plaster Adofeed and related products.
In agrochemicals, sales of Polyoxin fungicides—used tocontrol fungal diseases on fruit trees, vegetables and lawns—andthe rice herbicide Pentoxazone increased. On the other hand,

Real Estate(2) Risks related to occurrence of side effects
Clinical trials undertaken in the development stage involve
the trial administration of drugs to a restricted number ofpatients. Consequently, once a drug is launched into themarket we conduct post-marketing surveillance to supplement clinical trials. In the event a new side effect is discovered at this stage, sales of the drug could be halted.

Rental income from Bunkyo Green Court represents the bulk ofrevenues from our real estate business. The completion of asports facility at Bunkyo Green Court prompted an increase inthis income during the year under review.
Consequently, sales in the real estate segment rose 4.0%, to¥2,481 million, and operating income increased 6.9%, to¥1,481 million.

(3) Risks related to policies to curtail medical expenses
As government initiatives to curtail medical expenses, such
medical system reforms as the establishment of a medicalcare system for elderly patients and changes in prescription
forms are under consideration. Such changes in the market
environment could affect the Company’s performance.

sales of feed additives Salinomycin and Colistan sulfate decreased.
As a result, net sales rose 3.7% year on year, to ¥80,448
million, and operating income grew 8.2%, to ¥9,147 million.
Net sales overseas reached ¥3,840 million.

Financial Position
Total assets at fiscal year-end stood at ¥94,504 million, up ¥647
million from a year earlier. This growth was mainly the result of
an increase in cash on hand and at banks. Total liabilities
amounted to ¥37,825 million, up ¥1,416 million, primarily as aresult of a rise in accounts payable related to capital expenditure.
Net assets totaled ¥56,679 million, a decrease of ¥768 million,
due mainly to the acquisition of treasury stock.

Cash Flows
Cash and cash equivalents at the end of fiscal year 2008 stood at¥12,556 million, up ¥170 million from a year earlier. Principal
factors related to cash flow during the year are described below.
Net cash provided by operating activities amounted to¥8,472 million, down ¥1,542 million. Contributing factors
included an increase in notes and accounts receivable–trade.
Net cash used in investing activities totaled ¥2,571 million.
The principal use of cash was for the acquisition of property,
plant and equipment.
Net cash used in financing activities was ¥5,730 million.
This was mainly the result of cash dividends paid and theacquisition of treasury stock.

(4) Risks due to competition
Sales competition with other pharmaceutical companies may
result in a drop in prices. In addition, sales of generic products by other companies causes a decline in sales of theoriginal product, which could affect the Company’s per­formance.
(5) Risks related to delay or cessation of production
Production may be delayed or halted as a result of various
factors, such as problems with manufacturing facilities ordelays in the procurement of raw materials. These factors
could affect the Company’s performance.
(6) Risks related to legal action
We are exposed to the possibility of legal action in the courseof our business activities. Such actions could affect theCompany’s performance.

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

17

Consolidated Balance Sheets
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.
As of March 31, 2009 and 2008
Thousands of
U.S. dollars(Note 4)

Millions of yen

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

2009

2008

2009

¥10,155¥ 8,288$103,622

2,401

4,097

24,50028,34728,043

289,255

996

971

10,16329,34429,014299,429

(7)

(6)

(71)

29,33629,007299,347

Inventories (Note 7)

10,946

9,938

111,694

Deferred tax assets (Note 14)

1,319

1,192

13,459

771

678

7,867

54,93153,203

560,520

Buildings and structures

36,48535,543372,296

Machinery and equipment

19,476

18,851

198,735

55,96254,395571,041(34,754)(33,150)(354,633)

21,207

21,244

216,398

3,762

3,362

38,388

925

543

9,439

25,89525,151

264,235

5,042

7,733

51,449

657

792

6,704

Deferred tax assets (Note 14)

5,276

4,221

53,837

Other assets

2,699

2,755

27,541

13,677

15,502

139,561¥94,504¥93,856$964,327

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

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

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

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

18

Thousands of
U.S. dollars(Note 4)

Millions of yen

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

2009

2008

2009

¥ 7,910—¥ 5,380
3,000$ 80,714—

Accrued expenses
Accrued bonuses
Accrued sales rebates
Accrued income taxes (Note 14)
Other current liabilities
Total current liabilities

13,172431
4,242
17,846
648
1,222
485
2,564
561
31,237

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

134,408
4,398
43,286
182,102
6,612
12,4694,949
26,163
5,724
318,745

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

5,598
357
200
431
6,588

5,100
303
210
511
6,125

57,122
3,643
2,041
4,398
67,22423,85323,853

243,398

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

22,727
21,440(11,618)
56,403

118,235
252,020(34,867)
578,796

(43)
—
(43)
56,679¥94,504

1,045
(0)
1,044
57,447¥93,856

(439)
—
(439)
578,357$964,327

Net Assets:
Shareholders’ Equity (Notes 2 (l) and 12):
Common stock - no par value
Authorized: 360,000,000 shares
Issued: 101,879,461 shares as of March 31, 2009 and 114,879,461 shares asof March 31, 2008
Capital surplus
Retained earnings
Treasury stock, at cost: 3,695,041 shares in 2009 and 13,564,112 shares in 2008
Total shareholders’ equity
Valuation and translation adjustments:
Net unrealized gain on other securities, net of taxes (Note 2 (c))
Deferred gain on hedges
Total valuation and translation adjustments
Total net assets
TOTAL LIABILITIES AND NET ASSETS
The accompanying notes are an integral part of the Consolidated Financial Statements.

19

Consolidated Statements of Income
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.
For the years ended March 31, 2009 and 2008
Thousands of
U.S. dollars(Note 4)

Millions of yen

2009

2008

2009

Net sales
Cost of sales
Gross profit¥82,930
43,14439,786¥79,934
41,236
38,697$846,224
440,245405,980

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

29,156
10,62928,855
9,842

297,510
108,459

161
(130)
(524)
0
(80)
(403)
(398)
—
(56)
157
(1,275)

158
(145)
(524)
448
(136)
48
(209)
(896)
(0)
20
(1,239)1,643(1,327)(5,347)
0(816)(4,112)(4,061)
—
(571)
1,602
(13,010)

9,354

8,603

95,449

4,221
(446)
3,774

3,496
1
3,497

43,071(4,551)
38,510¥ 5,579¥ 5,106$56,929

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

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

Net income¥55.61—¥48.35¥48.11$0.567—

Cash dividends applicable to the year (Note 12)¥26.00¥20.00$0.265The accompanying notes are an integral part of the Consolidated Financial Statements.

20

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

Consolidated Statements of Changes in Net Assets
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.
For the years ended March 31, 2009 and 2008
Thousands of
U.S. dollars(Note 4)

Millions of yen

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

2009

2008

2009

¥23,853¥23,348$243,398——
23,853504
504
23,853——
243,398

22,72722,226

231,908—0(11,141)(11,140)
11,587

501
(0)
—
500
22,727—
0(113,684)(113,673)
118,235

21,44018,305

218,776(2,321)
5,579
3,258
24,698(1,971)
5,106
3,135
21,440(23,684)
56,92933,245
252,020(11,618)(5,771)(118,551)(2,966)26
11,141
8,200(3,417)(5,857)
10—(5,847)(11,618)(30,265)265
113,684
83,673(34,867)

56,403

58,110575,541—(2,321)
5,579(2,966)27—
319¥56,722

1,006(1,971)5,106(5,857)9—(1,707)¥56,403—(23,684)
56,929(30,265)
276
—
3,255
$578,796

21

Thousands of
U.S. dollars(Note 4)

Millions of yen

2009

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

22

2009

2008

¥ 1,045(1,088)(43)

2,321(1,276)
1,045$ 10,663(11,102)
(439)

(0)
0
—

1
(2)
(0)

(0)
0
—

1,044
(1,087)(43)

2,323(1,278)1,044

10,653(11,092)(439)

57,44760,433586,194—(2,321)
5,579(2,966)27(1,087)(768)¥56,679

1,006(1,971)5,106(5,857)
9(1,278)(2,985)¥57,447—(23,684)
56,929(30,265)276(11,092)(7,837)$578,357

Consolidated Statements of Cash Flows
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.
For the years ended March 31, 2009 and 2008
Thousands of
U.S. dollars(Note 4)

Millions of yen

2009

2008

2009

¥ 9,354¥ 8,603$ 95,449

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

2,280
327
(244)
(158)
145
0
(48)
209
136
(448)
6,586
(811)
(1,766)(865)
13,948155(145)(3,943)
10,01424,561
1,378
4,653(1,643)
1,327
571
4,112
4,061
816
(0)
(3,102)(10,286)(2,122)
4,602
124,408
1,653(1,286)(38,316)
86,449Cash flows from investing activities:
Acquisition of property, plant and equipment
Proceeds from sales of property, plant and equipment
Acquisition of investment securities
Proceeds from sales of investment securities
Payment of long-term prepaid expenses
Other, net
Net cash used in investing activities(2,577)
0
(457)
501
(47)
7
(2,571)(2,183)
528
(2)
348
(315)
(100)
(1,726)(26,296)
0(4,663)
5,112
(480)
71
(26,235)

Cash flows from financing activities:
Proceeds from short-term loans
Repayment of long-term debts
Acquisition of treasury stock
Cash dividends paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 5)

2,530(3,000)(2,939)(2,320)(5,730)170
12,386¥12,556——(5,848)(1,967)(7,815)472
11,914¥12,386

25,816(30,612)(29,990)(23,673)(58,469)
1,735
126,388$128,122

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

The accompanying notes are an integral part of the Consolidated Financial Statements.
23

Notes to the Consolidated Financial Statements

1. Basis of Presenting Consolidated Financial Statements:

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

2. Summary of Significant Accounting Policies:(a) Principles of Consolidation
The Company had three subsidiaries as of March 31, 2009 and 2008. The consolidated financial statements include the accounts of the Company and all of its subsidiaries. The consolidated subsidiaries as of March 31, 2009 are as follows:
KAKEN REALTY & SERVICE CO., LTD.
KAKEN PHARMA CO., LTD.
FUJIKA CORPORATION
There was no affiliate which was accounted for by the equity method.
All significant intercompany transactions, account balances and unrealized profits or losses among the Group have been
eliminated in consolidation.
(b) Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statements of cash flows are composed of cash on hand, bank deposits which areable to be withdrawn within three months and short-term investments with original maturity of three months or less and areconsidered to have minimal risk from market fluctuations.
(c) Marketable and Investment Securities
Securities are classified into one of the following four categories; (1) Trading, (2) Held-to-maturity debt, (3) shares in subsidiaries and affiliated, and (4) Other. Trading securities are recorded at market value with unrealized gains and losses recognized in
the current year’s earnings. Debt securities that are expected to be held to maturity are carried at amortized cost. Shares insubsidiaries and affiliates are carried at cost. Other securities are expected to be sold in future and those whose fair values arereadily determinable are carried at fair value and the related unrealized gains or losses, net of taxes, are included as a componentof “Valuation and translation adjustments” under net assets. Other securities without market quotations are stated at cost,
determined by the moving average method.
(d) Inventories
Inventories are stated at the lower of cost 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 on the declining-balance method at rates based on the estimated useful lives of assets, except forbuildings, structures, machinery and equipment for the Komagome office that are computed on the straight-line method.
Furthermore, depreciation of buildings, except for ancillary facilities to buildings, acquired on and after April 1, 1998, is com-24

puted using the straight-line method. The range of useful lives is from 3 years to 60 years for buildings and structures, and from
2 years to 8 years for machinery and equipment.
Pursuant to an amendment to the Corporate Tax Law in 2008, the Group have reviewed useful lives of machinery andequipment of the Group and consequently changed the useful lives of certain assets effective the year ended March 31, 2009.
The effect of this change on the income was immaterial.
(f) Accounting for Impairment of Fixed Assets
In accordance with the accounting standard for impairment of fixed assets, the Group review their fixed assets for impairment
by grouping the assets in income generating units whenever there is any indication of a significant decline in the fair value
against its book value based on an independent appraisal, and when the existence of any impairment for the group of the assets
is identified, an impairment loss will be recognized and such amount is directly deducted from the related assets.
(g) Pension and Retirement Benefits
Employees who terminate employment are entitled, under most circumstances, to lump-sum payments or pension payments as
described below, determined by reference to current basic rate of pay, length of service and conditions under which the termination occurs. The minimum payment is an amount based on voluntary retirement. In addition to the minimum payment basedon voluntary retirement, employees receive additional benefits for retirement due to age limit, death or other defined reasons.
The Company has a non-contributory defined benefit funded pension plan (entrusted) which covers 30% of the benefits payable
under the existing retirement plan to employees.
The accrued pension and severance costs represent the amount actuarially calculated projected benefit obligation less (1) the
fair value of the plan assets, (2) unrecognized actuarial loss or gain, (3) the unrecognized transition amount arising from adopting the new standard and (4) unrecognized prior service cost. If the fair value of the plan assets exceeds the projected benefit
obligations, prepaid pension and severance costs are recorded on the balance sheet. The transition amount is amortized on astraight-line basis over 15 years. Unrecognized actuarial loss or gain is amortized on a straight-line basis over 10 years from thenext year in which they arise. Unrecognized prior service cost is amortized on a straight-line basis over 10 years from the year inwhich they arise. For the Company, prepaid pension and severance costs were recognized for a portion of the plan covered by
the non-contributory pension plan assets and the accrued pension and severance costs were recognized for a portion of the plan
not covered by the plan assets.
Accrued retirement benefits to directors and statutory auditors is provided in an amount equivalent to the liability therelevant company would have been required to pay upon retirement at the balance sheet date, as prescribed by its internal rules.
(h) Income Taxes
Income taxes are determined using the asset and liability approach, where deferred tax assets and liabilities are recognized for
temporary differences between the tax basis of assets and liabilities and their reported amount in the financial statements.
(i) Consumption Taxes
Consumption taxes withheld and consumption taxes paid are excluded from revenues and expenses in the accompanying consolidated statements of income. The net balance of consumption taxes withheld and consumption taxes paid is included incurrent liabilities of the consolidated balance sheet as of the end of the fiscal year.
(j) Derivative Financial Instruments
Derivative instruments, which include forward foreign exchange contracts and interest rate swap agreements, are used as a partof the Company’s risk management of foreign currency and interest rate risk exposures of its financial assets and liabilities.
Foreign currency exchange forward contracts:
The Company enters into forward foreign exchange contracts to limit exposure, affected by changes in foreign currency exchange rates, on accounts receivable and payable and cash flows generated from anticipated transactions denominated in foreign
currencies. For forward foreign exchange contracts which are designated and are effective as hedges of such currency exchange
rate risk on existing assets and liabilities, the Company adopted the accounting method whereby foreign currency denominatedassets and liabilities are measured at the contract rate of the respective forward foreign exchange contracts. With respect to suchcontracts for anticipated transactions, the contracts are marked-to-market and the unrealized gains/losses are deferred in thebalance sheet to be released to income when the exchange gains/losses on the hedged items or transactions are recognized.
Interest rate swap agreements:
The Company enters into interest rate swap agreements, in order to lower funding costs and limit the Company’s exposure in
respect of the underlying financial instruments, resulting from adverse fluctuation in interest rates. The related interest differen-

25

tials paid or received under the interest rate swap agreements are recognized in interest expenses over the terms of the agreements.
Derivative financial instruments have not been implemented by consolidated subsidiaries.
(k) Appropriations of Retained Earnings
Appropriations of retained earnings at each year end are reflected in the consolidated financial statements for the following year
upon stockholders’ approval.
(l) Shareholders’ Equity
The Japanese companies are subject to the Corporate Law of Japan (“the Law”). The Law provided that an amount equal to
10% of the amount to be disbursed as distributions of capital surplus (other than the capital reserve) and retained earnings(other than the legal reserve) be transferred to the capital reserve and the legal reserve, respectively, until the sum of the capitalreserve and legal reserve equals 25% of the stated capital. Such distributions can be made at any time by resolution of the shareholders or by the Board of Directors if certain conditions are met. The above mentioned legal reserve is included in retained
earnings in the accompanying consolidated balance sheets.
(m) Net Income and Dividends per Share
Net income per share of common stock is based upon the weighted average number of shares of common stock outstanding
during each financial year appropriately adjusted for subsequent free distribution of shares (stock splits), if applicable.
Cash dividends per share shown for each year in the accompanying consolidated statements of income represent dividends
approved or declared as applicable to the respective years.
Diluted net income per share is computed, based on the assumption that the convertible bonds were fully converted into
common stock on the date of issue or at the beginning of the respective years subsequent to the issue, with appropriate adjustments of related interest expense (net of taxes).

3. Change in Accounting Policies:(Accounting for Lease Transactions)
On March 30, 2007, the Accounting Standards Board of Japan (ASBJ) issued ASBJ Statement No.13, “Accounting Standard
for Lease Transactions”, which revised the previous accounting standard for lease transactions issued in June 1993. Under theprevious accounting standard, finance leases that are deemed to transfer ownership of the leased assets to the lessee were to becapitalized. However, other finance leases which do not transfer ownership of the leased assets were permitted to be accounted
for as operating lease transactions if certain “as if capitalized” information is disclosed in the note to the lessee’s financial
statements. The revised accounting standard requires lessees that all finance lease transactions should be capitalized to recognize lease assets and lease obligations in the balance sheet. The Group adopted this accounting standard effective from April 1,
2008. There was no effect of this change on operating income and income before income taxes.

4. United States Dollar Amounts:

The Group maintains its accounting records in yen. The dollar amounts included in the consolidated financial statements andnotes thereto represent the arithmetical results of translating yen to dollars on the basis of ¥98=U.S.$1, the approximate rate ofexchange at March 31, 2009. The inclusion of such dollar amounts is solely for convenience and is not intended to imply thatyen amounts have been or could be converted, realized or settled in dollars at that or any other rate.

5. Cash and Cash Equivalents:

Cash on hand and at banks and marketable securities are reconciled to cash and cash equivalents of consolidated statements ofcash flows as follows:

Millions of yen

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

26

Thousands of
U.S. dollars(Note 4)

2009

2008

2009

¥10,155
2,401
12,556—¥12,556¥ 8,288
4,097
12,386—¥12,386$103,622
24,500128,122—$128,122

6. Marketable Securities and Investment Securities:

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

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

Market value

Unrealized loss

Cost

Market value

2009

Unrealized gain

2008

Market value not available
Total¥4,523
—
4,523
2,494
¥7,017¥4,450
—
4,450
2,494
¥6,944

¥(72)
—
(72)
—
¥(72)

¥5,398—
5,398
672¥6,070¥7,160—7,160
672¥7,832¥1,762—
1,762—¥1,762

Held-to-maturity debt securities:

¥ 500

¥ 500

—

¥3,997¥3,997—

Thousands of U.S. dollars (Note 4)
Cost

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

Market value

Unrealized loss

2009

Market value not available
Total$46,153—
46,15325,449$71,602$45,408—
45,40825,449$70,857$(735)—(735)—$(735)

Held-to-maturity debt securities:$ 5,102$ 5,102—

Other securities sold during the fiscal years ended March 31, 2009 and 2008 are as follows:
Thousands of
U.S. dollars(Note 4)

Millions of yen

2009

Proceeds from sales
Gross realized gains
Gross realized losses

2008

¥501
32
436

¥348
48
—

2009

¥5,112327
4,449

7. Inventories:

Inventories as of March 31, 2009 and 2008 are comprised of the following:Thousands of
U.S. dollars(Note 4)

Millions of yen

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

2009

2008

2009

¥ 5,670
1,676
3,599¥10,946¥4,5991,692
3,646¥9,938$ 57,857
17,102
36,724$111,69427

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

Short-term bank loans outstanding as of March 31, 2009 and 2008 represented the notes issued by the Group to banks. Customarily, these notes are renewed at maturity subject to renegotiation of interest rates and other factors. The weighted-averageinterest rates applicable to short-term bank loans as of March 31, 2009 and 2008 are 1.19% and 1.50%, respectively. Outstanding balance of short-term bank loans as of March 31, 2009 and 2008 were ¥7,910 million ($80,714 thousand) and ¥5,380
million, respectively.
Long-term debts as of March 31, 2009 and 2008 consisted of the following:Thousands of
U.S. dollars(Note 4)

Millions of yen

March 31
Loans from banks and other financial institutions due on September 30, 2008 (interest rate
1.77%)
Less: current portion
Total

2009

2008

2009

¥—

¥3,000$——¥—(3,000)¥ ——$—As is customary in Japan, short-term and long-term bank loans are made under general agreements which provide that security
and guarantees for future and present indebtedness will be given upon request of the bank, and that the bank shall have theright, as the obligations become due or in the event of their default, to offset cash deposits against such obligations due to thebank. The Group has not received any such requests to date.
At March 31, 2009 and 2008, assets pledged as collateral for certain short-term and long-term debts, including current
portion of long-term debts, are as follows:
Thousands of
U.S. dollars(Note 4)

Millions of yen

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

2009

2008

2009

¥2,2792,556
103—¥4,938¥2,227
2,539
103
1,708
¥6,578$23,255
26,082
1,051—$50,388¥1,400¥1,400¥1,400¥1,400$14,286$14,286

9. Accounting for leases:

As discussed in Note 3, the Companies adopted the revised accounting standard for lease transactions effective from April 1,
2008.
Prior to April 1, 2008, under the previous accounting standard, finance leases which do not transfer ownership to the lessee
were accounted for as operating lease transactions. Assumed data “as if capitalized” as to acquisition cost, accumulated depreciation, net book value and depreciation expense of the leased assets, which excluded the portion of interest thereon, for the year
ended March 31, 2008 were summarized as follows:
March 31, 2008
Acquisition cost
Accumulated depreciation
Net book value
Depreciation
Depreciation is computed on the straight-line method over the lease term of the leased assets with no residual value.

28

Millions of yen

¥15
15
—
¥ 0

Periodic lease expenses on finance lease contracts without ownership-transfer for the years ended March 31, 2008 was ¥1 million.
Operating leases
Future lease payments under non-cancellable operating leases at March 31, 2009 are as follows;

March 31, 2009
Due within 1 year
Due after 1 year
Total

Millions of yen

Thousands of
U.S. dollars(Note 4)

¥ 86
1,562
¥1,648$878
15,939$16,816

10. Derivative Financial Instruments:

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

11. Pension and Retirement Benefits:

The pension and retirement benefit obligation and plan assets, funded status and composition of amounts recorded in the
consolidated balance sheets as of March 31, 2009 and 2008 are as follows:
Thousands of
U.S. dollars(Note 4)

Millions of yen

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

2009

2008

¥(21,406)
9,015(12,390)
3,149
5,282
(88)
(4,046)¥(21,474)
10,738(10,735)
3,674
3,580
(110)
(3,590)$(218,429)
91,990(126,429)
32,13353,898(898)(41,286)

2009

1,552
¥ (5,598)

1,509¥ (5,100)

15,837$ (57,122)

The components of net pension and severance costs for the years ended March 31, 2009 and 2008 are as follows:
Thousands of
U.S. dollars(Note 4)

Millions of yen

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

2009

2008

2009

¥ 673
488
(306)
524
565
(22)
¥1,923¥ 683
495
(452)
524
354
(22)
¥1,584$ 6,867
4,980(3,122)
5,347
5,765
(224)
$19,622
29

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

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

Number of shares as of March 31, 2008
Increase in the number of shares during the accounting period ended March 31, 2009
Decrease in the number of shares during the accounting period ended March 31, 2009
Number of shares of March 31, 2009

114,879,461—
13,000,000
101,879,461

Type of treasury stock
Common stock

13,564,112
3,160,866
13,029,937
3,695,041

Notes:
1. Decrease in common stock (13,000,000 shares) is due to the retirement of treasury stock based on the resolution of the Board of Directors.
2. Increase in treasury stock (3,160,866 shares) is due to the purchase of treasury stock (3,000,000 shares) and purchase of shares less than one unit
(160,866 shares).
3. Decrease in treasury stock is due to the retirement of treasury stock (13,000,000 shares) based on the resolution of the Board of Directors andpurchase request on shares less than one unit (29,937 shares).

b) Matters related to dividendsi) Dividend payment
Approvals by the ordinary general meeting of shareholders held on June 27, 2008 were as follows:
Dividends on common stock
Total amount of dividends¥1,013 million ($10,337 thousand)
Dividends per share¥10.00Record date
March 31, 2008
Effective dateJune 30, 2008
Approvals by the Board of Directors’ meeting held on November 6, 2008 were as follows:
Dividends on common stock
Total amount of dividends¥1,308 million ($13,347 thousand)
Dividends per share¥13.00Record date
September 30, 2008
Effective date
December 4, 2008ii) Dividends whose record date is attributed to the accounting period ended March 31, 2009, but become effective after thesaid accounting period.
The Company obtained the following approval at the general meeting of shareholders held on June 26, 2009:
Dividends on common stock
Total amount of dividends¥1,276 million ($13,020 thousand)
Dividends per share¥13.00Record date
March 31, 2009
Effective dateJune 29, 2009

13. Research and Development Costs:

Research and development costs included in selling, general and administrative expenses for the years ended March 31, 2009
and 2008 amounted to ¥7,696 million ($78,531 thousand) and ¥6,808 million, respectively.

30

14. Income Taxes:

The Group is subject to several taxes based on income, which in the aggregate resulted in statutory tax rates of approximately
40.69% for the years ended March 31, 2009 and 2008. A reconciliation of the differences between the statutory tax rate and theeffective tax rate for the years ended March 31, 2009 and 2008 is as follows:2009

Statutory tax rate
Increase (decrease) in taxes resulting from:
Expenses not deductible for income tax purpose (ex. Entertainment expenses)
Income not included for income tax purpose (ex. Dividend income)Inhabitant per capita taxes
Tax credit for research expenses
Other
Effective tax rate

2008

40.69%

40.69%

4.55(0.34)
0.92(6.44)
0.97
40.35%

4.85(0.23)
1.00(5.93)
0.27
40.65%

Significant components of deferred tax assets as of March 31, 2009 and 2008 are as follows:

Millions of yen

Thousands of
U.S. dollars(Note 4)

2009

2008

2009

Deferred tax assets:
Reserve for bonuses
Reserve for sales rebates
Loss of supplies
Devaluation of financial instruments
Amortization of R&D
Amortization of long-term prepaid expenses
Pension and severance costs
Retirement benefits to directors
Unrealized gain of property, plant and equipment
Other
Total
Valuation allowance
Deferred tax assets¥ 472
197
162
204
415
173
1,827
145
2,568
550
6,717
(44)
6,672

¥ 470
189
131
103
285
282
1,638
123
2,568
434
6,227
(19)
6,207

$ 4,816
2,010
1,653
2,082
4,235
1,765
18,643
1,480
26,204
5,612
68,541(449)
68,082

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

(274)
—
(3)
(277)
¥6,395

(287)
(717)
(1)
(1,005)¥5,201(2,796)—(31)(2,827)$65,255

15. Related Party Transactions:

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

31

16. Per Share Information:

Per share information for the years ended March 31, 2009 and 2008 is as follows:
U.S. dollars(Note 4)Yen

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

2009

2008

2009

¥577.2755.61—¥567.02
48.35
48.11

$5.891
0.567—

Calculation for net income per share and diluted net income per share is as follows:
Thousands of
U.S. dollars(Note 4)

Millions of yen

For the years ended March 31, 2009 and 2008
Net income
Net income attributable to common stock
Adjustment to net income(Share data)
Average number of share (thousand)
Additional number of share (thousand)

2009

2008

2009

¥5,5795,579—¥5,106
5,106—$56,92956,929—100,340—

105,608515——

17. Segment Information:

Information about operations in industry segments of the Group for the years ended March 31, 2009 and 2008 is as follows:
Millions of yen

Year ended March 31, 2009

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

32

Pharmaceutical

Real estate

Total

EliminationorCorporate

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

¥

—
(306)
(306)
(306)
¥
—

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

Millions of yen

Year ended March 31, 2008

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

Year ended March 31, 2009

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

Pharmaceutical

Real estate

Total

EliminationorCorporate

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

¥

—
(305)
(305)
(305)
¥
—

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

Pharmaceutical

Real estate

Total

Thousands of U.S. dollars (Note 4)
EliminationorCorporate
Consolidated$820,898—
820,898
727,561$ 93,337$ 25,316
3,122
28,43913,316$ 15,112$846,224
3,122
849,347
740,888$108,459$

—(3,122)(3,122)(3,122)$—$846,224—
846,224
737,755$108,459$590,224$ 18,878$ 32,347$162,439$ 7,061$
255$752,673$ 25,939$ 32,612$211,653
$
—
$
—

$964,327$ 25,939$ 32,612

18. Subsequent Event:

There was no significant subsequent event to be noted herein as of June 26, 2009.

33

Report of Independent Auditors

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

We have audited the accompanying consolidated balance sheets of KAKEN PHARMACEUTICAL CO., LTD. and its consolidated subsidiaries (collectively, the “Group”) as of March 31, 2009 and 2008, and the related consolidated statements ofincome, changes in net assets and cash flows for the years ended , all expressed in Japanese yen.
These consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards, procedures and practices generally accepted and applied inJapan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of the Group as of March 31, 2009 and 2008, and the consolidated results of their operations and their cash
flows for the years ended in conformity with accounting principles and practices generally accepted in Japan (See Note 1).
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader have been translated on thebasis set forth in Note 4 to the accompanying consolidated financial statements.

Hijiribashi Audit Corporation
Tokyo, Japan
June 26, 200934

Corporate Data
(As of March 31, 2009)

Corporate Philosophy

Directory

Bringing smiles to everyone

KAKEN

to their faces, through supplying superior pharmaceuticals,
Kaken helps improve the quality of life for patients.

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

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

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

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

ProfileContents

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

President’s Message

02

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

Developing New Products

04

1917. The Company started pharmaceutical business with full-scale

Overview of Major Products

06

Commitment and Excellence

10

Fulfilling Our Social Responsibilities

12

Board of Directors and Corporate Auditors

14

Financial Section

15

Corporate Data

35

technologies in 1948, and since then broadened the scope of its businessand drug development activities through merger and alliance. Kaken’s
prestige has soared accordingly.
While the Company has established strength in developing andselling pharmaceuticals for orthopedics, it is now expanding its
involvement in other medical fields, such as dermatology. The Company
contributes to improving people’s health by cultivating its own originaltechnologies, engaging in joint development initiatives, introducing newtechnologies and acquiring marketing rights.
As a fruit of its technology and product introduction, theCompany has been since June 2001 marketing Fiblast Spray consistingof Trafermin, a recombinant form of human basic Fibroblast Growth
Factor (bFGF) for the first time in the world, licensed from a U.S.
bio-pharmaceutical company, Scios, in the area of regenerative medicine(wound healing medicine).

Company Information

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

By serving as many people as possible to return smiles of happinessdevelopment of penicillin and streptomycin based on Riken’s own

Business Philosophy: Three Joys
FoundedCreating joy for
March 1917

patients.

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

Paid-in Capital¥23,853 million

CommonStockCreating
joy for
Authorized:
360,000,000 shares
our employees.
Issued: 101,879,461 shares (As of Aug. 31, 2009)
Our objective
to become a 14,281 (As of Mar. 31, 2009)
Numberof isShareholders:company with vitality andpresence whose employees enjoy
Employees(Non-Consolidated)
and take pride in their work.

Main Branches
Sapporo Branch
Administration: 118
Sales & Marketing: 991
Sendai Branch
Production & Technology: 252
Tokyo-1 Branch
Research & Development: 293
Tokyo-2 Branch
Regulatory Affairs: 35
Nagoya Branch
Osaka-1 Branch
Osaka-2 BranchConsolidated
Financial Highlights
Hiroshima BranchMillions of yen
Fukuoka Branch
2009
2008

Thousands of
U.S. dollars (Note)2009

For the years ended March 31,

Plant
Net Shizuoka
sales
Factory¥82,930¥79,934$846,224

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

10,6299,842

108,459

5,579

5,106

56,92956,67957,447578,357

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

94,50493,856964,327

Yen

U.S. dollars (Note)¥ 55.61¥ 48.35

$

0.567

26.00

20.00

0.265

Forward-Looking Statements

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

ROE

9.78

8.66

—

Capital adequacy ratio

59.98

61.21

—

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

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥98 = $1 effective on March 31, 2009.

35

Annual Report 2009
Year Ended March 31, 2009

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