Annual Report 2012
Year Ended March 31, 2012

KAKEN PHARMACEUTICAL Annual Report 2012

Bringing

SmilesEveryoneto

Bringing

Smilesto Everyone

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

Printed in Japan

Profile

Corporate Data
As of March 31, 2012

The origins of Kaken Pharmaceutical Co., Ltd., can be traced back to the Institute ofPhysical and Chemical Research (Riken), which was established in 1917.
In 1948, the Company started its pharmaceutical business by developing a new way tomake penicillin utilizing Riken’s own technologies. It has since broadened the scope of its
business activities to include the manufacture and sales of drugs such as streptomycin,
an antituberculous drug, and various antifungal agents.
The Company is particularly strong in the field of orthopedics, dermatology, andinternal medicine. In the field of orthopedics, Kaken boasts the accomplishment of
introducing into Japan a treatment for osteoarthritis that involves the intraarticular
injection of sodium hyaluronate.
Since 2001, the Company has been marketing Fiblast Spray, a wound-healing agent that
employs a recombinant human basic Fibroblast Growth Factor (bFGF). This was the first drugin the world to employ bFGF. Kaken continues to advance research efforts in this field.
The Company is also focused on the fields of inflammation, immunologic diseases, and allergies, as well asthat of fungal infection. It is currently preparing to apply for approval to market efinaconazole, an original drug
developed by Kaken, as Japan’s first topical antifungal agent for onychomycosis.

Bringing

SmilesEveryoneto

Directory
Registered Head Office

Company Information
Founded28-8, Honkomagome 2-chome, Bunkyo-ku,
Tokyo 113-8650, Japan
Tel: 81-3-5977-5001
Fax: 81-3-5977-5131
http://www.kaken.co.jp

March 1917

Incorporated
March 1948

Paid-in Capital
Global Business Development
Director & General Manager
Masao Ishida
Tel: 81-3-5977-5046
Fax: 81-3-5977-5133
E-mail: masao-ishida@kaken.co.jp¥23,853 million

Common Stock
Authorized: 360,000,000 shares
Issued: 101,879,461 shares (As of August 31, 2012)
Number of Shareholders: 13,242 (As of March 31, 2012 )Main Branches (As of April 1, 2012)

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

Business Philosophy

Sapporo Branch
Sendai BranchTokyo BranchTokyo Branch II
Nagoya Branch
Osaka Branch
Hiroshima Branch
Fukuoka Branch

Others

14.7%+3.4

Overseas
Investors

Individuals

27.5%

–0.8

16.6%

+0.3

Domestic
Corporations

10.5%
–0.1

Financial
Institutions

30.7%

–2.8

Plant
Shizuoka Factory

KAKEN

Major Shareholders

Three Joys

Research Laboratories
Central Research Laboratory (Kyoto)
Central Research Laboratory (Shizuoka)
Production Technology Laboratory

Overseas Office

Creating joy
for patients.

Creating joy
as a company.

Creating joy
for our employees.

We strive to create and offer
effective drugs that satisfy
the needs of patients andmedical professionals.

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

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

Kaken New York Office
245 Park Avenue, 24th Floor, New York, NY 10167
Tel: 1-212-372-8910
Fax: 1-212-372-8970
E-mail: ny@kaken.co.jp

NO. OF SHARES(THOUSANDS)SHARE OFTOTAL (%)

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

4,890

4.8

Toray Industries, Inc.

4,589

4.5

Mizuho Bank, Ltd.

3,937

3.9

The Norinchukin Bank

3,686

3.6

Japan Trustee Services Bank, Ltd. (Trust Ac.)

3,283

3.2

Nippon Life Insurance Company

1,700

1.7

Kaken Pharmaceutical Employee Stock
Ownership Association

1,645

1.6

Japan Trustee Services Bank, Ltd. (Trust Ac.9)

1,446

1.4

Mellon Bank, N.A. As Agent for its Client
Mellon Omnibus US Pension

1,389

1.4

Kyoei Fire & Marine Insurance Co., Ltd.

1,248

1.2

SHAREHOLDERS

Employees (Non-Consolidated)

Forward-looking Statements
This annual report contains forward-looking statements pertaining to the Company’s business and prospects. These statements are based on the current
analysis of existing information and trends. Actual results may differ from expectations due to unforeseen risks and uncertainties.

Administration: 109
Sales & Marketing: 997
Production & Technology: 220
Research & Development: 285
Regulatory Affairs: 39

ANNUAL REPORT 201245

Consolidated Financial Highlights
THOUSANDS OF
U.S. DOLLARS (NOTE)MILLIONS OF YEN

2012

2011

2010

2012

FOR THE YEARS ENDED MARCH 31

Net sales¥ 87,997¥86,428¥85,022$1,073,134

Operating income

15,18014,17911,784

185,122

Net income

8,282

8,213

6,734

101,000

AT MARCH 31

Total net assets

62,07160,37559,575756,963

Total assets

105,108

98,49395,096

1,281,805

Net income (Basic)¥92.46¥87.87¥68.79$1.128Cash dividends (Non-Consolidated)

40.00

36.00

30.00

0.488

PER SHARE DATAYENRATIOS

U.S. DOLLARS (NOTE)

%

ROE

13.53

13.69

11.59

Capital adequacy ratio

59.05

61.30

62.65

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥82 = $1, effective on March 31, 2012.

Net Sales

Operating Income

Net Income

MILLIONS OF YENMILLIONS OF YENMILLIONS OF YEN

ROE%79,93482,93085,022

15,18086,428 87,997

14,179

8,282

13.69

13.53

2011

2012

6,734

11,784
9,842

8,213

10,629

5,579

5,106

11.59
9.78

8.66

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

2008

2009

2010

Contents
President’s Message����������������������������������������������������������������������������� 2
Special Feature: Developing New Products�������������������������������������� 4
Overview of Major Products��������������������������������������������������������������� 6
Commitment and Excellence������������������������������������������������������������10
Fulfilling Our Social Responsibilities�����������������������������������������������14

2

4
6

Board of Directors and Corporate Auditors�����������������������������������16
Financial Section���������������������������������������������������������������������������������17
Corporate Data������������������������������������������������������������������������������������45
ANNUAL REPORT 20121

President’s Message

Tetsuo Onuma
President and Representative Director

Dear Stakeholders:
In the fiscal year under review, ended March 31, 2012, we were
faced by a particularly harsh operating environment, which was
further compounded by the lingering impact of the Great East
Japan Earthquake, which occurred on March 11, 2011. Regardlessof these adversities, we managed to continue our streak of achieving higher sales and income.
We increased dividend payments for the 10th consecutive
year and repurchased 3,150,000 shares of treasury stock. In thisway, we would like to express our appreciation for your support
over the years.
The fiscal year under review proved to be a year in which
our various initiatives began to produce results. KP-103, thetopical antifungal agent for onychomycosis created by Kaken,
performed well in joint-international clinical trials. Further, weconcluded agreements regarding sales collaborations for theTDM-621 absorbable local hemostat and the SI-6603 lumbar
disc herniation treatment.
In the fiscal year ending March 31, 2013, we will reform oursales structures and work to expand our customer base. While
striving to secure increased sales and income in this manner,
we will also introduce new products to further solidify ouroperating foundations.
In regard to shareholder returns, we intend to maintain thecurrent dividend payout ratio and plan to issue total dividend
payments of ¥44.00 per share in the fiscal year ending March 31,
2013. We also intend to conduct share buybacks.
Going forward, we will strive unceasingly to ensure Kaken
Pharmaceutical continues to be a company that is appealing
to investors. In closing, I would like to ask for your continued
support as we undertake this endeavor.

Overview of Results for the Fiscal Year Ended
March 31, 2012

Addressing Future Challenges for Continued Growth

In the fiscal year under review, ended March 31, 2012, sales
were up for the Kaken Group’s mainstay pharmaceuticals andmedical devices. As a result, overall net sales rose 1.8% year on
year, to ¥87,997 million and operating income increased 7.1%, to¥15,180 million. Net income was only up 0.8% year on year, to¥8,282 million, due to the recording of loss on valuation of investment securities and a decline in deferred tax assets following arevision in tax systems.

2

KAKEN PHARMACEUTICAL CO., LTD.

The Kaken Group is addressing future challenges with the aim of
maximizing corporate value and maintaining the trust of society.

• Strategically investing in R&D
In our R&D efforts, we selectively focus our investment of
resources and constantly strive to raise efficiency in order toexpand the product pipeline. At the same, we conduct joint
research and pursue strategic alliances with companies andresearch institutions in Japan and around the world with theaim of quickly introducing new research projects.

To expedite R&D efforts, we will outsource basic research
procedures, utilize contract research organizations (CROs), andconduct overseas clinical trials while also participating in joint
international clinical trials.
Through these efforts, we will work to develop new drugs tofacilitate the health of people around the world.

• Strengthening our sales force
We conduct sales activities in which our medical representatives(MRs) work closely with local communities to supply medical
practitioners with high-value-added medical information according to their needs. We primarily provide information by
utilizing product-related websites and the mass media.
Additionally, we are expanding our market share in the field of
orthopedics to further solidify our position in that field. We arealso developing our generic drug business as a central pillar of
our operations. Further, we are expanding the size of our organization by augmenting our sales force with additional MRs.

• Enhancing internal control
We are enhancing our internal control systems primarily focusing on achieving higher operating effectiveness and efficiency,
more-reliable financial reporting, thorough compliance in ourbusiness activities, and better security of our assets.

• Optimizing operations and promoting efficiency
We are actively working to improve the cost of sales ratio
through more-efficient investment and optimizing the placement of employees, while revising products and standards.
Also, we are increasingly outsourcing the production of agrochemicals to overseas companies.
Additionally, we outsource all of our distribution center
functions.

• Promoting environmental preservation
Both Kaken’s Shizuoka Factory and Shizuoka Research Laboratories have obtained ISO 14001 certification. Also, the Kyoto
Research Laboratories have received the Kyoto Environmental
System (KES) certification, a certification awarded by the cityof Kyoto in recognition of implementing appropriate environmental management systems. Kaken recognizes that promoting
environmental preservation is a social responsibility. Therefore,
it has established an Environmental Committee and set up
Environmental Measures Task Forces at each worksite to
conduct environmental preservation activities throughout
the Company. We also act in strict compliance with the revised
Law Concerning the Rational Use of Energy.
Further information regarding Kaken’s environmental preservation activities can be found in its Social and Environmental
Report (Japanese only), which is available on Kaken’s website.

Basic Policy and Approach Concerning Returns
to Shareholders
Kaken believes that providing consistent shareholder returns is an
important task for management.
The pharmaceutical industry is relatively high risk, and therefore
companies operating in this industry must maintain a higher levelof equity capital than companies in other industries. However, we
aim to provide shareholder returns while maintaining a balancewith the need to secure sufficient equity capital. Accordingly, we
have established a flexible policy of dividend payments that are
based on operating results and also take this balance into consideration. Retained earnings are used to maximize corporate value
through strategic investments in R&D and business infrastructure.
In principle, the Company makes dividend payments twice ayear, with the interim dividend being decided at the general meeting of shareholders and the year-end dividend being decided by
the Board of Directors.
In accordance with the aforementioned policy, we have decided
to increase both the interim and year-end dividend by ¥2.00 per
share, to ¥20.00, for total dividend payments of ¥40.00 per sharein the year under review, making this our tenth straight year ofincreased dividend payments.
Further, the Company has developed a flexible system forthe acquisition of treasury stock through which acquisitions are
decided by the Board of Directors.
In the year under review, we acquired 3,153,000 shares oftreasury stock.
In the fiscal year ending March 31, 2013, we intend to pay interim and year-end dividends of ¥22.00 per share each, for total
dividend payments of ¥44.00 per share.

Target Management Indicators and Long-Term Business
Strategy
Targeting future growth, the Kaken Group has set the mediumterm numeric target of consolidated operating income of ¥20.0
billion. In the future, we will endeavor to optimize the value ofeach division and establish a base that ensures our survival as abusiness that maintains a strong presence in the 21st century.
June 2012

Tetsuo Onuma
President and Representative Director

ANNUAL REPORT 20123

Special Feature

Developing

New Products

to Satisfy Unmet Medical Needs

Kaken’s Specialty—Topical Antifungal Agent—
The drug candidate KP-103 (efinaconazole), which was discovered through the outstanding antifungal
research at Kaken, has the potential to be the world’s first triazol compound for a topical medicationfor onychomycosis. Compared to other existing antifungal agents, its activity decreased only slightly
even in the presence of keratin, thus suggesting that it would maintain its therapeutic effect in nails
thickened by fungal infection. KP-103 has also shown an antifungal activity in various animal models
of infections and, in particular, greater effectiveness than the other treatment options in a guinea pig
model for onychomycosis. While oral medications are currently taken as a standard therapy for patients suffering from persistent onychomycosis, KP-103 was thought to open a new treatment option
by its featured topical approach.
In 2006, we concluded a licensing agreement with Dow Pharmaceutical Sciences, Inc. (DPS), of theUnited States for the development and marketing of KP-103 products in Europe and the Americas.
After the acquisition of DPS in 2009 by Valeant Pharmaceuticals International, Inc., of Canada, Valeant has continued the joint development activities with Kaken. In two multinational pivotal studies(Phase III) in patients with mild to moderate onychomycosis of toenails, this topical investigational
drug (US development code: IDP-108) was found to be statistically superior (p<0.001) to a placebo
for all primary and secondary endpoints. We will continue our efforts with overseas partners to
submit new drug applications and to acquire approval of this drug as a treatment for onychomycosisin the global market.

Kaken’s Innovative Product for Tissue Regeneration
Fiblast Spray
Fiblast Spray is the world’s first product that commercializes recombinant human basic Fibroblast
Growth Factor (bFGF). bFGF is a member of the fibroblast growth factor family and exists in almost all
tissue in the human body. It is released from the extracellular matrix once tissue is damaged by trauma and ischemia, etc., after which bFGF acts on various cells and tissues to stimulate tissue regeneration. While bFGF has a wide range of functions, it is best known for its powerful abilities to stimulate
both cellular proliferation and neovascularization.
In 1988, Kaken obtained exclusive licensing rights for recombinant human bFGF (trafermin) in Asia
from Scios Inc., of the United States. Following this, Kaken made continued R&D efforts, and as a result
obtained marketing approval in Japan for trafermin under the trade name “Fiblast Spray” for the treatment of pressure ulcers and other skin ulcers (burn ulcers and leg ulcers) in 2001. Further, as the
4

KAKEN PHARMACEUTICAL CO., LTD.

New Drug Development Pipeline
PRODUCT CODE

INDICATIONSTAGE

REMARKS

KP-103 (IDP-108) Onychomycosis

Preparing for NDA

In overseas markets, Valeant Pharmaceuticals
International, Inc., is preparing for an application to the FDA;
Topical formulation

KCB-1D

Periodontitis

PIII

bFGF

KCB-1B

Bone fractures

PII FinishedbFGF
Next stage of clinical trials under consideration

TRK-100STP

Lumbar spinal canal stenosis PII

Developed jointly with Toray Industries, Inc.;
Additional indication for BERASUS

SI-657

Enthesopathy

Developed jointly with Seikagaku Corporation;
Additional indication for ARTZ

PII

Action Mechanism of Fiblast Spray
Japanese regulatory authority completed
reexamination of the product in 2010, Fiblast
Epithelialization Stimulation
Fibroblasts Proliferation
Spray has reestablished its presence as a highly
Reduction of wound area
Stimulation of granulation
formation
reliable drug in the medical market in Japan,
and is now used with confidence at a number
GRANULATION
of hospitals throughout the country.
TISSUEIn addition to its effectiveness in regard toregenerating skin tissue, trafermin has also
demonstrated the abilities to promote theproliferation and regeneration of both periodonAngiogenesis
tal and bone tissues. In the field of dentistry,
1. Activation of matrix degrading enzymes
2. Migration of vascular endothelial cells
trafermin is known for its ability to promote the3. Proliferation of vascular endothelial cells
proliferation of the cells in periodontal ligaments
4. Formation of vascular vessel lumen
and the regeneration of cementum and alveolarbone. Trafermin has been confirmed to promote
the regeneration of alveolar bone that had been destroyed by periodontitis in the three different
clinical trials conducted to date. After the completion of the clinical trial that is currently in the planning phase, we intend to file the new drug application of trafermin for the treatment of periodontitis.
Further, we are currently collaborating with universities and other research institutions in Japan in awide range of fields to further explore the possibilities of trafermin as a regenerative medicine.
In March 2005, Kaken acquired the worldwide rights to develop, manufacture, and market trafermin
for all therapeutic purposes. In June 2007, Kaken entered a licensing agreement with Sunstar Inc.,
regarding the development and marketing of trafermin for dental applications in Europe andNorth America. Further, in November 2009, Kaken entered a licensing agreement with Olympus
Corporation regarding the development and marketing of trafermin for wound healing inEurope and North America. Regarding the development and marketing of Fiblast Spray, Kaken
entered licensing agreements with a Chinese pharmaceutical company in December 2005 andwith a South Korean company in December 2006, respectively.
Going forward, in collaboration with our overseas business partners, Kaken willcontinue to further establish the presence of trafermin in the global medical market
by fully utilizing the wealth of knowledge we have accumulated regarding trafermin
and its uses through our R&D efforts.

EPIDERMISDERMIS/SUBCUTANEOUS
TISSUEMUSCLEBONE

ANNUAL REPORT 20125

Overview of Major Products%
5.4% 2.3
Renting Real Estate

Distribution of Net Sales (Non-Consolidated)

Agrochemicals

Net sales for Kaken’s mainstay pharmaceuticals and medical devices increased.
As a result, in the fiscal year under review, nonconsolidated net sales increased
2.0% year on year, to ¥86,318 million.

Non-Consolidated
Net Sales¥86,318 million(+2.0% yoy)

92.3%

Pharmaceuticals andMedical Devices

Pharmaceuticals and Medical Devices
In pharmaceuticals, sales grewfor Artz, an anti-osteoarthritis
product that is one of the Company’s
67,151
mainstay products, as well as forgeneric drugs. In addition, Clexane,
an anticoagulant introduced in theprevious fiscal year, contributed tosales. Meanwhile, sales were down for Procylin, a drug to treat
chronic artery occlusive disease, and Adofeed, a pain- and inflammationrelieving plaster. In medical devices, sales were up for Seprafilm, ananti-adhesive absorbent barrier. As a result, in the fiscal year underreview, net sales for pharmaceuticals and medical devices increased
1.8% year on year, to ¥79,661 million.

Net Sales (Non-Consolidated)
MILLIONS OF YEN

70,24473,25576,407

2008

2009

2010

78,276

79,6612011

2012

YEARS ENDED MARCH 31

Agrochemicals
Agrochemical sales rose, driving an
overall increase in sales in this category, and net sales rose 7.2% year
on year, to ¥4,630 million, accordingly.

Net Sales (Non-Consolidated)
MILLIONS OF YEN

5,972

5,740
4,711

2008

2009

2010

4,319

2011

4,630

2012

YEARS ENDED MARCH 31

Renting Real Estate
In the real estate segment, themajority of revenues are generated
through the rental of the land on
which the Bunkyo Green Court commercial facility is located. Net sales
for the real estate segment decreased
0.9% year on year, to ¥2,026 million.

Net Sales (Non-Consolidated)
MILLIONS OF YEN

1,979

2,074

2,053

2008

2009

2010

2,045

2,026

2011

2012

YEARS ENDED MARCH 31

6

KAKEN PHARMACEUTICAL CO., LTD.

Pharmaceuticals and Medical Devices
Artz (anti-osteoarthritis product)

Mentax (anti-trichophyton product)

Artz is an anti-osteoarthritis drug. Its
active pharmaceutical ingredient ispurified sodium hyaluronate extracted
from rooster combs, and it has viscoelastic, water-retentive, and lubricating properties.
In 1987, Artz was introduced into the market as the world’s
first sodium hyaluronate drug indicated to treat osteoarthritis byintraarticular injection. In 1989, an indication was added for thetreatment of shoulder periarthritis.
In 1992, Artz began being marketed in disposable pre-filled
syringes under the trade name Artz Dispo. This was done withthe aim of making injection procedures simpler and faster, as
well as reducing the danger of infection.
In 2005, the drug was approved for an indication to treat knee
joint pain accompanied by chronic rheumatoid arthritis.

Mentax is a topical productused to treat superficial mycosis
containing butenafine hydrochloride, a compound developedby Kaken, as an active pharmaceutical ingredient. In addition to
being available in Japan, Mentax is offered in the United States,
sold by Mylan Pharmaceuticals, and is also marketed in a number of other countries worldwide. In December 2001, Mentax
received approval as an over-the-counter (OTC) drug in the
United States. It has subsequently been sold in the United Statesby Merck Consumer Care under the trade name Lotrimin Ultra.
In Japan, Mentax received approval to be manufactured, and it
was subsequently launched as an OTC drug in 2003. Sales ofMentax as an OTC drug in Japan are conducted by Takeda Pharmaceutical Company Limited and Sato Pharmaceutical Co., Ltd.
In 2004, a new spray formulation of Mentax was introduced into
the market.

Procylin (oral-use prostaglandin I2 analog product)
Procylin is a drug used to treat chronicartery occlusive disease containing a
prostaglandin I2 analog, beraprost
sodium, as an active pharmaceuticalingredient. The drug has the effects
of both vascular vessel dilatation and platelet aggregation
inhibition. It is the only oral-use prostaglandin I2 analog productin the world. It was developed by Toray Industries, Inc., andcommercialized by co-development with Kaken.
Procylin improves blood circulation by platelet aggregationand peripheral blood flow increase. It has an improvement effecton ulcers, pain, and chills resulting from conditions associatedwith arteriosclerosis obliterans (ASO) and thromboangitis obliterans (TAO). The drug was launched in 1992. In 1999, Procylin
was approved for an additional indication to treat primary pulmonary hypertension.

Lipidil(anti-hyperlipidemia product)
Lipidil is a fibrate-type anti­
hyperlipidemic drug with feno­
fibrate, which was developed by Groupe Fournier SA of France,
as its active pharmaceutical ingredient.
The drug lowers triglycerides and total cholesterol, while
increasing HDL cholesterol, thus improving overall lipid metabolism by activating peroxisome proliferator activated receptor(PPAR ) in the liver cells to adjust the expression of various lipid
metabolism related proteins.
Lipidil is currently marketed in over 90 countries and muchclinical experience has been accumulated to date.
In 2011, Lipidil was released in tablet form. The change from
capsule to tablet has made Lipidil even easier for patients to take.

Adofeed (pain- and inflammation-relieving plaster)Fiblast Spray (wound-healing product)

Adofeed is an antiphlogistic analgetic plaster. Its active pharmaceutical ingredient is flurbiprofen, a non-steroidal anti-inflammatory agent that functions as a powerful prostaglandinbiosynthesis inhibitor. Adofeed is absorbed directly through theskin and is effective in treating pain and inflammation caused bysuch condition as osteoarthritis, shoulder periarthritis, tennis
elbow, and muscle pain.
In 2008, we launched plasters that were double the size of the
Adofeed plasters previously offered. This allows patients tochoose the size most appropriate for their needs.

Fiblast Spray is a wound-healing drug containing trafermin, arecombinant human basic fibroblast growth factor (bFGF) thathas effects on the promotion of angiogenesis and granulation
formation, as an active pharmaceutical ingredient. The entire
DNA sequence of the human bFGF gene was mapped by Scios
Inc., thus making it possible to manufacture recombinant humanbFGF. Kaken obtained a license to develop this product, andsubsequently launched Fiblast Spray, the world’s first recombinant human bFGF product, in Japan in 2001.

ANNUAL REPORT 20127

Ebrantil ( 1 blocker to treat dysuria and hypertension)

Generic Drugs

Ebrantil is a sustained-release formulation of urapidil, which is aselective 1 blocker. This product was initially placed on themarket in Japan in 1989 for the treatment of hypertension basedon its peripheral vasodilating effect. In 1995, it was approved forthe treatment of dysuria due to it having benign prostate hypertrophy as an additional indication. In 1999, it was approved forthe treatment of dysuria caused by neurogenic bladder, making
it the first 1 blocker in the world for this indication.

In Japan, people are being
encouraged by the government to use generic drugs aspart of a movement to reduce
public healthcare costs. As aresult, there has also been an increasing trend in the medical
field toward using generic drugs.
Kaken sees the future expansion of the generic drug market asa significant business opportunity, and therefore is aggressively
increasing its presence in this market in order to take full advantage of this opportunity.
Consequently, we aim to grow our generic drug operations
into a fifth pillar of our business, alongside pharmaceuticals,
medical devices, agrochemicals and animal health products, andreal estate, and have set a medium-term goal of achieving net
sales of ¥10.0 billion in this field. Accordingly, we will continue
to expand our generic product lineup.

Berasus (oral-use sustained-release formulationof prostaglandin I2 analog)
Berasus, which was approved for marketing in October 2007 andsubsequently launched in December of the same year, is a drug
used to treat pulmonary arterial hypertension (PAH). This product is a sustained-release formulation of beraprost sodium, theactive pharmaceutical ingredientof Procylin, which was launched
in 1992. This product can maintain more-consistent blood levels
in comparison with Procylin,which made it possible to reduce
the number of administrations and increase the daily dose.
As there are currently very few effective drugs available for thetreatment of PAH, Berasus is ranked as an important drug forthis disorder.
Currently, clinical trials are in progress to add an indication totreat lumbar spinal canal stenosis.

Clexane (anticoagulant)
Clexane is an anticoagulant containing enoxaparin sodium, a low
molecular weight heparin developed by Sanofi of France, as anactive pharmaceutical ingredient.
Clexane exhibits an anticoagulant effect by forming a complex
with antithrombin III that inhibits, Xa and IIa activation factors.
Clexane is the first product of low molecular weight heparindeveloped in Japan with an indication to suppress an onset ofvenous thromboembolism (VTE). Clexane is recommended to be
used to suppress the sideration of VTE for the treatment ofpatients who undergo podiatric or abdominal surgery underdomestic and international medical guidelines.
The product is currently used in approximately 130 countries
worldwide.

8

KAKEN PHARMACEUTICAL CO., LTD.

Seprafilm (anti-adhesive absorbent barrier)Developed by Genzyme Corporation(current Sanofi) of the United States,
Seprafilm is a sheet-type anti-adhesive
absorbent barrier. Made from sodium
hyaluronate and carboxymethyl cellulose,
Seprafilm transforms into a hydrated gel within 24 to 48 hours
after being applied to tissue that has been damaged by surgery.
It then remains in place for approximately seven days, preventing adhesion by forming a physical barrier between damaged
tissue and the healthy tissue surrounding it.
There are currently three sizes of Seprafilm available, thus
allowing practitioners to select the size that meets the need.

Agrochemicals
Polyoxins (fungicides)
Polyoxins are natural fungicides
originating from microorganisms first discovered by Dr.
Saburo Suzuki and his team at
the RIKEN Institute in 1963.
They are produced by culturing
an actinomycete, Streptomyces cacaoi var. asoensis isolated fromsoil of the Aso region in Kumamoto Prefecture, Japan. Polyoxins
are not a single compound, but are a complex consisting of aseries of compounds resembling each other in their chemical
structure. Currently, 14 different polyoxin analogues, polyoxins A
through N, have been discovered. Among them, the major active
ingredient of Polyoxin AL, a polyoxin complex used for fruit
trees and vegetables, is a polyoxin complex consisting of polyoxin B and other related compounds. Meanwhile the main active
ingredient of Polyoxin Z, used for lawns, is polyoxin D.
Polyoxins have been sold as horticultural fungicides for over
40 years and even now, they are still widely used. Polyoxin AL iseffective against a wide range of fungi-related diseases such as
mildew, gray mold, and other mold fungi diseases that affectvegetables, flowers, and other plants.

Pentoxazone (rice herbicide)
Synthesized at the Sagami Chemical Research Center anddeveloped by Kaken, Pentoxazone is an oxazolidinedionetype rice herbicide. In 1997, it was registered as an agrochemical in Japan. Since then, it has been used as a herbicide
for paddy rice in its initial formulation and in several mixed
formulations based on this initial formulation. Pentoxazone iseffective mainly on annual weeds in rice paddies, such as barnyard grass, Lindernia, and Monocholia, and is also widely effective on other weeds including Eleocharis kuroguwai, a perennial
weed that is difficult to eradicate. Pentoxazone shows high,stable and residual efficacy particularly on Lindernia and Monocholia, both of which are resistant to sulfonylurea herbicides.
The safety of Pentoxazone is high for rice paddies and therefore it can be used in a variety of ways. Its initial formulation canbe used on rice paddies before or after the rice is transplanted
and its one-shot herbicide formulation can be used at the sametime as rice planting. There are also formulations approved forflooding and direct seeding in rice paddies. As a harmful effect,
mild browning of the leaf sheathes of the rice plants is observed
five to ten days after the application of the herbicide, but it is
only a temporary effect and the plants quickly recover without
adverse effects on their subsequent growth.
Having extremely low water solubility and high soil absorbability, Pentoxazone hardly flows out to groundwater and rivers.
Furthermore, it has low toxicity to humans, animals and otherliving beings. For these reasons, it is an environmentally safe
herbicide.

Animal Health Products
Salinomycin (anti-coccidial for chickens)

Colistin sulfate (polypeptide antibiotic)

Salinomycin sodium is a polyether antibiotic originally discovered in a culture of Streptomyces albus, a strain of Actinomycetes
in 1968. Later, it was developed as a feed additive by Kaken.
Salinomycin sodium is currently the most widely used anticoccidial worldwide, having effectiveness against Clostridium
and other gram-positive bacteria. Produced in accordance with
Good Manufacturing Practices (GMP), Salinomycin sodium
is not only used in Japan but also exported, thus supporting
poultry farmers worldwide.

Colistin sulfate is a polypeptide antibiotic that was originallydiscovered in a culture of Bacillus colistinus taken from the soil in
Fukushima Prefecture, Japan. Colistin sulfate is effective against
gram-negative bacteria such as E. coli and salmonella, which areserious pathogens for livestock. Accordingly, there is a great
demand domestically and internationally for this product.
Therefore, Kaken also exports this product worldwide.

ANNUAL REPORT 20129

Commitment and Excellence

R&D Division
Kaken focuses its drug discovery efforts on areas in which itis particularly strong including inflammation, allergies andpain relief, while also maintaining its focus on the area of fungal
infection in which it specializes, devoting a great deal of financial
and human resources to these efforts. It utilizes the technologies
it has developed over the years and its superior research staff
in the pursuit of new drugs that are both effective and safe.
In this manner, Kaken is continuing to implement active drug
discovery programs.
The R&D Division is presently staffed by approximately 300
employees. We estimate that research and development expenses
will be around ¥7.4 billion during the current fiscal year. The R&D
Division works in cooperation with Global Business Development
in order to more actively evaluate products as potential candidates to be introduced into Kaken’s pipelines of clinical development. At the same time, the division forms strategic alliances withother companies and research institutions in Japan and abroad,including participation in global clinical trials. We also outsourcesome of our operations to such organizations. This serves toaccelerate our R&D initiatives.
As a pharmaceutical manufacturer, Kaken is dedicated to
conducting R&D activities while always maintaining the goal ofdeveloping proprietary medicines. To promote efficiency within
our R&D activities, we have developed a multifaceted approach
toward these activities, which entails engaging in in-housediscovery, joint research and development, in- and out-licensingof developed products, and outsourcing focused on the areasin which Kaken is particularly strong.

10

KAKEN PHARMACEUTICAL CO., LTD.

Kaken’s Central Research Laboratory consists of two different
facilities, one located in Kyoto, the old capital of Japan, andthe other located in Shizuoka. At both facilities, drug discovery
projects, which require long, arduous research as well as unique,specialized knowledge, are conducted. In order to ensure thatthese projects progress efficiently, researchers make full use ofstate-of-the-art equipment and technologies, while encouraging
effective communication and the clear division of duties. Drugdiscovery research, synthetic studies and pharmacological studies
are conducted at Kyoto Research Laboratories, whereas studies on
pharmacokinetics, drug safety and formulation are conducted at
Shizuoka Research Laboratories. The Research Laboratories are
divided into five different sections. The Chemistry Laboratory
specializes in the synthesis of chemical compounds, the seeds
from which new drugs are created. The Drug Discovery ResearchLaboratory seeks out novel drug targets, screens them and evaluates selected candidate compounds. The Pharmacology Laboratory evaluates the usefulness of candidate compounds developed
through drug discovery research and compares these compounds
to other drugs. The Pharmacokinetics and Safety Research Laboratory assesses how candidate compounds behave within the bodyand determines the safety of candidate compounds for use on
both humans and animals. The Drug Formulation Laboratory
identifies the physicochemical properties of compounds anddevelops formulations of these compounds that guarantee theirstability and maximize their effectiveness when used on the target
group of patients. These five sections advance our R&D efforts
through collaborative, coordinated efforts.

Our R&D activities have earned us a number of awards. In
2003, Kaken’s scientists received the Award for the Most Outstanding Pharmacy Thesis from the Academy of Pharmaceutical
Science and Technology, Japan (APSTJ) in the field of oral solid
formulation technology. Later, in 2009, other scientists wereawarded the APSTJ Asahi Kasei Encouraging Award for utilizing
novel technology in the development of Itraconazole products.
Additionally, in 2011, a paper written on the Formulation Designof Latanoprost Eye Drops received an award as an excellent paper
from the APSTJ. Later, in 2012, the Company was awarded theBest Presentation Award for the 27th annual meeting of APSTJ
for its research regarding “In Vitro–In Vivo Correlation of
Percutaneous Drug Absorption.”
These recognitions have further reinforced the high evaluationof this fundamental technology. By leveraging such superior
research technologies, we aim to continue to accelerate andexpand our R&D efforts.
Further, while focusing on our areas of expertise, we will continue to collaborate with both domestic and overseas research
institutions in order to accelerate the progression of our drug
discovery research efforts. Also, we will introduce and license
new drugs while seeking out the “seeds” of new technologies
and drugs around the world. Moreover, by periodically discussing
drug discovery with and receiving advice from respected experts
in Japan, we will continue to ensure that our drug discovery
programs are in-line with present day needs.
Only candidate drugs that have cleared a number of non-clinicalstudies regarding safety and pharmacokinetics, as well as effectiveness of the drugs, are allowed to proceed onto clinical trials
in which the drugs are administered to humans. After testing
the efficacy of candidate compounds that have been developed
through drug discovery research or introduced from outside
sources, the Clinical Development Department and the Overseas
Clinical Development Department plan and conduct efficient
clinical trials for these compounds both in Japan and overseas.
The R&D Quality Assurance Department ensures their quality andreliability, and the Administration Department of Clinical Development manages data from clinical trials and information related
to the safety of the drugs under investigation. These departments
cooperate with our research laboratories in order to conductclinical trials as quickly as possible.

Regulatory Affairs Division
Kaken’s Regulatory Affairs Division consists of three departments:
the Quality Assurance Department, the Pharmacovigilance
Department, and the Regulatory Affairs Department.
The Regulatory Affairs Division is an embodiment of Kaken’s
sense of responsibility as a pharmaceutical manufacturer. Thisdivision makes the final judgments regarding the quality, effectiveness, and safety of the drugs that the Company supplies to the
medical field.
The Quality Assurance Department assesses whether or noteach batch of drug is produced in the predetermined mannerand evaluates whether or not quality tests are compliant with allapplicable standards. The Pharmacovigilance Department thenreviews the safety related information pertaining to these drugs
that has been collected from medical institutions using the drugs.
Following this, the Regulatory Affairs Division makes comprehensive judgments based on the findings of these two departments.
The Quality Assurance Department conducts regular inspections and audits of both internal and external production plants,
thus gathering and assessing quality related information at theseplants in order to ensure the quality of their operations. The
Pharma­covigilance Department reports the safety related
information it has gathered and reviewed to both the regulatory
and internal organizations that require it. The department also
distributes this information to medical institutions by reflecting
the gathered information in the package inserts in the form of
information on the proper use of drugs in order to promote theireffective use.
The Regulatory Affairs Department supervises and assists all
aspects of the Company’s manufacturing and sales activities, andis also responsible for maintaining marketing licenses for its pharmaceuticals. In addition to this, the department also participatesin the R&D process. It compiles the R&D Division’s data regarding
production quality as well as data from both non-clinical andclinical trials. After compiling this data, the department is thentasked with gaining approval for use of our drugs and for listingthem in the National Health Insurance Drug Price List after
approval is obtained.

ANNUAL REPORT 2012

11

12

Production DivisionMarketing and Sales Division

Kaken’s flagship production facility is the Shizuoka Factory.
Here we manufacture the raw materials used to make pharma­
ceuticals and agrochemicals. The facility also produces a wide
variety of pharmaceuticals in various different forms. Operationscommenced after World War II, and initially it primarily manufactured antibiotics and enzymes through fermentation. Over theyears, it has continued to refine these technologies, and now
one of its main characteristics is its use of sophisticated fermentation technologies.
In manufacturing pharmaceuticals, we practice strict adherence
to Japanese GMP (“Ministerial Ordinance on Standards for Manufacturing Control and Quality Control for Drugs and Quasi-drugs,”
Ordinance of Ministry of Health, Labour and Welfare, No. 179,
2004). Further, for products marketed overseas, we take steps toensure they are in compliance with applicable standards in the
United States and other countries in which they are sold. In suchways, we have developed a stringent quality control system underwhich we strive to manufacture products of the highest quality.

At Kaken, we employ medical representatives (MRs), who areresponsible for providing medical practitioners in the field withthe latest information regarding the Company’s drugs and medical
devices. These MRs also gather information regarding the safety
and effectiveness of Kaken’s products by actively engaging incommunication with such medical practitioners. They then provide feedback to internal departments based on their findings.
Our approximately 700 MRs located throughout Japan work inclose contact with local communities, particularly in the fields oforthopedics and dermatology, two areas in which we specialize.
In the fiscal year ending March 31, 2013, we will work tostrengthen our sales structures by switching to a sales system
based on a nationwide network consisting of 8 branches and 69
sub-branches. In conjunction with this shift, we also intend to
bolster our staff of MRs by 100 people within the next few years.

KAKEN PHARMACEUTICAL CO., LTD.

Agrochemical & Animal Health Product Division
The Agrochemical & Animal Health Products Division is
responsible for conducting global research, development, andsales activities related to agrochemicals, feed additives, anddrugs for animals.
Our agrochemical operations are primarily focused on two
products—Polyoxins, which is a group of fungicides, and Pentoxazone, a rice herbicide—and we are actively expanding sales ofthese products both in Japan and overseas. Polyoxins are fungicides
produced by culturing microorganisms in a culturing medium
consisting of natural materials. For a number of years, theseproducts have been consistently evaluated highly by agriculture
producers around the world due to their safety for both humans
and animals, low environmental impact, and effectiveness foruse against disease damage on vegetables, fruit trees, lawns,
and flowers. These products were also recently proven to haveacaricidal properties, thus further expanding their range of use.
Pentoxazone is a rice herbicide effective against the vast arrayof annual weeds found in rice paddies and has demonstrated
effectiveness against herbicide-resistant varieties of weedsthat have emerged recently. These factors make Pentoxazone
indispensable for rice farmers.
Our animal health products operations offer anti-coccidials
for chickens, including Salinomycin, which is a feed additive, as
well as Colistin sulfate, which helps prevent infectious diseases
in livestock. We also supply a drug for bovine, known as Uroston,thus contributing to the production of healthy livestock andsafe food.
Going forward, the Agrochemical & Animal Health Products
Division will continue contributing to the safety and reliabilityof food production by developing and selling products thatare safe for both humans and animals, while also having a low
environmental impact.

Distribution Division
All distribution functions are outsourced to distributors thatspecialize in the distribution of pharmaceuticals.

ANNUAL REPORT 201213

Fulfilling Our Social Responsibilities
Corporate GovernanceKaken’s management philosophy is centered on the three joysof “creating joy for patients,” “creating joy as a company” and“creating joy for employees.” “Creating joy as a company,” oneof the three joys, is based on the principle that “Kaken aims to be
a company realizing its social responsibility as a pharmaceuticalcompany conducting its business with both a high ethical standard and society’s trust.” Accordingly, the tasks of “enhancing
corporate governance” and “ensuring the transparency of management,” as well as “providing our stakeholders with proper
explanations of the Company’s activities,” are placed among
our top management priorities.

Initiatives to Enhance Corporate Governancestrive to practice high ethical standards in our management.
Moreover, we realize that our business activities have a direct
impact on people’s lives and health. All of our employees arethus fully aware of these principles and guidelines, and exercise
them in their daily work as they participate in this importantbusiness pursuit.

Compliance
We believe that compliance-based management is the mostfundamental key element in earning the trust of society andpromoting the healthy development of the Company. Moreover,compliance is important in raising corporate value, which ourshareholders, investors, business partners and the local community, will in turn benefit from.

The Company recognizes the fact that compliance is essential inearning the trust of society. For this reason, we have established
Kaken’s Activity Principles and Guidelines, and consequently

Corporate Governance System
General Meeting of Shareholders
APPOINT/DISMISSAPPOINT/DISMISSAPPOINT/DISMISSAUDITREPORT

Board of Directors

Board of Corporate Auditors
Corporate Auditors
COORDINATE/REPORTAPPOINT/DISMISSSUPERVISE

COORDINATE

AUDIT
INSTRUCT

Operational Auditing Oﬃce

Chairman

REPORTREPORTREPORT

President

Managing Directors’ Meeting
DELIBERATE
AUDIT

Risk Management andvarious other committees

14

KAKEN PHARMACEUTICAL CO., LTD.

REPORTPROMOTEINSTRUCT, SUPERVISE

Company-wide organizations,Group companies

SUPERVISE

Accounting
AuditorKaken’s Activity Principles and Guidelines
Each executive and employee of Kaken and its subsidiaries
is strongly committed to compliance with all relevant Japaneseand foreign laws and regulations, respecting different
cultures and customs, and adopting high ethical standards
in business operations.
1. We recognize the preciousness of life and shall contributeto the welfare of society by channeling all our efforts into
the enhancement of people’s health and patients’ qualityof life.
2. We recognize the importance of maintaining appropriate
relations with all of medical practitioners as well as ourshareholders, investors, employees, business partners, andlocal communities.
3. We shall compete in a fair and free manner, conducting ourbusiness activities in an appropriate way.
4. We shall handle all the Company’s assets, including information, in a legitimate and proper manner to facilitate the smoothrunning of our business operations.
5. We shall respect the human rights and individuality of employees, pay attention to health and safety issues, and endeavor
to foster a fair and honest workplace culture.
6. We shall manage Company information appropriately anddisclose information in a timely and appropriate manner.
7. We shall take seriously the impact of our activities on
the global environment and contribute to society as agood corporate citizen, including through environmental
protection efforts.
8. We shall not tolerate terrorism and other anti-social behavior.

Environmental Protection Activities
Kaken’s corporate philosophy states, “Kaken helps improve thequality of life for patients by serving as many people as possible
to return smiles of happiness to their faces, through supplying
superior pharmaceuticals.” We will continue to act in accordancewith this philosophy in order to contribute to the betterment ofpeople’s lives and health through our operations.

In recent years, there has been a growing concern for various
environmental issues, such as preserving biodiversity. These issues
force corporations to reevaluate their interests in a number ofwide-ranging and complex areas, thus increasing the role that
corporations must play in addressing these issues. Of these issues,
we believe that addressing the need to preserve and restore thenatural environment is of particular importance for corporations.
Therefore, we will continue to exercise our corporate philosophy
by promoting environmental preservation and working to be agood corporate citizen with the aim of creating a society that isfull of healthy, smiling faces.
In 1983, Kaken launched its environmental campaign by
establishing Environmental Measures Committees at each of its
operational sites. These committees were assigned the task ofcomprehensively addressing various CSR-related issues, such as
the need to preserve the natural environment, improve people’s
health and living environments, and reduce pollution.
Further, in 2004, we developed the Kaken Basic Environmental
Philosophy and the Basic Environmental Policies. Later, theEnvironmental Measures Committees were transformed into
the Environmental Measures Task Forces in order to enhance theirability to respond to such changes as the April 2009 revision of
the Act on the Rational Use of Energy. These task forces work incooperation with the Environmental Committee to develop environmental preservation measures with a particular focus on thosethat relate directly to society. Additionally, we have taken several
steps to reinforce our environmental management activities,
including acquiring ISO 14001 certification for our Shizuoka
Factory in August 2001 and Kyoto Environmental System (KES)
certification for our Kyoto Research Laboratories in April 2005.
Looking ahead, we will continue to actively engage in environmental management and social contribution activities at theCompany’s headquarters and all of its factory, research laboratories, and sales and other branches, while developing a more complete and aggressive approach toward environmental issues. At
the same time, we will work to reduce the environmental impactof Kaken’s operations.

Kaken’s River Beautification Activities
Seto River, Shizuoka Prefecture

Shinomiya River, Kyoto Prefecture

ANNUAL REPORT 201215

Board of Directors and Corporate Auditors(Standing, from left)

Masao Ishida, Yoshihiro Ieda, Susumu Kojima, Hirokazu Konishi, Noboru Shibata, Takao Endo
(Seated, from left)

Shiro Inui, Tetsuo Onuma

Chairman and Representative Director

Director

AuditorShiro Inui

Masao Ishida

Fumio Hoshii(Global Business Development)(Standing)

Tetsuo Onuma

Director

AuditorManaging Director

Takao Endo

Kazuo Shiba(General Affairs)(Standing)President and Representative Director

Susumu Kojima(Research and Development)

Managing Director

Hirokazu Konishi(Marketing and Sales)

Managing Director

Yoshihiro Ieda
(Administration, Corporate Planning &Coordination)

Managing Director

Noboru Shibata(Accounting, Purchasing andAgrochemicals)

16

KAKEN PHARMACEUTICAL CO., LTD.

Auditor

Sumio Yoshizawa
AuditorToshio Sakurai

Financial Section
Consolidated Five-Year Summary�����������������������������������������������������18
Management Discussion and Analysis��������������������������������������������18
Consolidated Balance Sheets������������������������������������������������������������20
Consolidated Statements of Income������������������������������������������������22
Consolidated Statements of Comprehensive Income�������������������23
Consolidated Statements of Changes in Net Assets���������������������23
Consolidated Statements of Cash Flows�����������������������������������������25
Notes to the Consolidated Financial Statements��������������������������26
Report of Independent Auditors������������������������������������������������������44

ANNUAL REPORT 201217

Consolidated Five-Year Summary
THOUSANDS OF
U.S. DOLLARS (NOTE)MILLIONS OF YEN

2012

2011

2010

2009

2008

2012
$1,073,134

FOR THE YEARS ENDED MARCH 31¥ 87,997¥86,428¥85,022¥82,930¥79,934

Operating income

Net sales

15,18014,17911,784

10,6299,842

185,122

Net income

8,282

8,213

6,734

5,579

5,106

101,000

Total net assets

62,07160,37559,57556,67957,447756,963

Total assets

105,108

98,49395,096

94,50493,856

1,281,805

AT MARCH 31

PER SHARE DATA

YEN

U.S. DOLLARS (NOTE)

Net income (Basic)¥92.46¥87.87¥68.79¥55.61¥48.35$1.128Cash dividends (Non-Consolidated)

40.00

36.00

30.00

26.00

20.00

0.488

ROE

13.53

13.69

11.59

9.78

8.66

Capital adequacy ratio

59.05

61.30

62.65

59.98

61.21

RATIOS%

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥82 = $1, effective on March 31, 2012.

Management Discussion and Analysis
Operating Performance
In the fiscal year under review, ended March 31, 2012, consolidated
net sales were up for the Kaken Group’s mainstay pharmaceuticals
and medical devices. As a result, consolidated net sales increased
1.8% year on year, to ¥87,997 million, operating income increased
7.1%, to ¥15,180 million. Net income rose a mere 0.8% year on
year, to ¥8,282 million. This was the result of the loss on valuationof investment securities and a decline in deferred tax assets following a revision in tax systems.

Segment Information
Pharmaceuticals
Kaken’s pharmaceuticals segment consists of two core categories:
pharmaceuticals and medical devices as well as agrochemicals.
In pharmaceuticals, sales increased for Artz, an anti-osteoarthritis product that is one of the Company’s mainstay products, aswell as for generic drugs. In addition, Clexane, an anticoagulant
introduced in the previous fiscal year, contributed to sales. Meanwhile, sales decreased for Procylin, a drug to treat chronic artery
occlusive disease, and Adofeed, a pain- and inflammation-relieving plaster.
In medical devices, sales were up for the Seprafilm, an antiadhesive absorbent barrier.
In agrochemicals, overall sales were up.
As a result of the above, net sales increased 1.9% year on year, to¥85,564 million, and segment income* increased 7.4%, to ¥13,698
million.
Net sales overseas were ¥2,670 million.

Real Estate
In the real estate segment, the majority of revenues are generated
through the rental of the land on which the Bunkyo Green Court
commercial facility is located.
Net sales in this segment decreased 0.8% year on year, to¥2,432 million, and segment income* increased 3.7% year on year,to ¥1,481 million.
* Segment income is based on operating income.
18

KAKEN PHARMACEUTICAL CO., LTD.

Financial Position
Total assets were ¥105,108 million as of March 31, 2012, up ¥6,615
million from the previous fiscal year-end, primarily due to anincrease in notes and accounts receivable–trade. Total liabilities
were ¥43,036 million, up ¥4,919 million. This was largely attributable to an increase in notes and accounts payable–trade. Net
assets totaled ¥62,071 million, an increase of ¥1,695 million, following higher retained earnings.

Cash Flows
Cash and cash equivalents at the end of the fiscal year underreview stood at ¥17,851 million, up ¥816 million from the previous
fiscal year-end. Principal factors related to cash flows during theyear under review are as follows.
Net cash provided by operating activities amounted to ¥10,285
million, down ¥2,857 million year on year. Principal factors included an increase in notes and accounts receivable–trade.
Net cash used in investing activities was ¥2,563 million, down
¥3,738 million. This was primarily due to a decrease in acquisitionsof property, plant and equipment.
Net cash used in financing activities was ¥6,904 million, down
¥404 million. The main factor was a decline in the acquisition oftreasury stock.

Business Risks(3) Risks related to policies to curtail medical expenses
As government initiatives to curtail health care expenses
continue, various medical system reforms are being implemented. These reforms may cause changes in the market
environment, which could subsequently affect the Company’s
performance.
(4) Risks due to competition
Sales competition with other pharmaceutical companies may
result in a drop in the sales price of products. In addition, salesof generic products by other companies may cause declines insales of the original product. Such factors could subsequently
affect the Company’s performance.
(5) Risks related to delay or cessation of product supply
The supply of products may be delayed or halted as a result ofvarious factors, such as problems with the Company’s manufacturing facilities or the facilities of its suppliers, or delays in
the procurement of raw materials. These factors could affect
the Company’s performance.
(6) Risks related to legal action
The Company is exposed to the possibility of legal action in
the course of its business activities. Such actions could affect
the Company’s performance.

The risk factors outlined below in relation to the Company’s business activities may materially affect the decision making of investors. The forward-looking statements that are made reflect theGroup’s judgment and forecasts based on information available tous as of the end of the year under review. Further, the risks facedby the Company are not limited to those listed below.
(1) Risks related to new drug development
Substantial investment amounts and development periods ofmore than 10 years are required before a new drug is launched.
The Company develops new drugs while taking such factors as
the efficacy and safety of a particular drug into full consideration. However, it is possible that the development process
could be halted before its completion.
(2) Risks related to the occurrence of side effects
Clinical trials undertaken in the development stage involve thetrial administration of drugs to a limited number of patients.
Consequently, once a drug is launched onto the market 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.

ANNUAL REPORT 201219

Consolidated Balance Sheets
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries
As of March 31, 2012 and 2011
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YENASSETS

2012

2011

2012

¥   9,543¥   14,729$  116,378

8,308

2,305

101,31732,032

27,119390,634

CURRENT ASSETS:

Cash on hand and at banks (Notes 4 and 10)
Marketable securities (Notes 4, 5 and 10)
Receivables:		 Notes and accounts receivable–trade (Note 10)
		Accounts receivable–other
Allowance for doubtful receivables

1,070

994

13,04933,103

28,114

403,695

(3)

(2)

(37)

33,10028,111

403,659

Inventories (Note 6)

10,926

10,301

133,244

Deferred tax assets (Note 15)

1,110

1,178

13,537

Other current assets

225

259

2,744

			Total current assets

63,21456,885

770,902

Buildings and structures

37,85537,710461,646

Machinery and equipment

20,198

20,106

246,31758,05457,816

707,976(38,884)(37,343)(474,195)

PROPERTY, PLANT AND EQUIPMENT (Notes 7, 8 and 9):

Accumulated depreciation

19,16920,473

233,768

Land

5,455

5,454

66,524

Construction in progress

3,743

2,220

45,64628,36828,148345,951

6,422

6,079

78,317966

396

11,780			 Total property, plant and equipment

INVESTMENTS AND OTHER ASSETS:

Investment securities (Notes 5 and 10)
Intangible assets
Long-term prepaid expenses

148

197

1,805

Deferred tax assets (Note 15)

4,899

5,220

59,744

Other assets
			 Total investments and other assets
TOTAL ASSETS

See accompanying notes to Consolidated Financial Statements.

20

KAKEN PHARMACEUTICAL CO., LTD.

1,087

1,564

13,256

13,525

13,458

164,939¥ 105,108¥ 98,493$1,281,805

THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YEN

2012

2011

2012

¥  8,390¥ 8,390$  102,317

		 Notes and accounts payable–trade (Note 10)

16,331

12,293

199,159

		 Notes and accounts payable–construction

154

177

1,878

5,010

4,088

61,09821,496

16,559262,146

LIABILITIES AND NET ASSETSCURRENT LIABILITIES:

Short-term bank loans (Notes 7 and 10)
Payables:		Accounts payable–otherAccrued expenses
Provision for bonuses
Provision for sales rebates
Accrued income taxes (Note 15)

726

729

8,854

1,168

1,199

14,244

537

562

6,549

3,420

3,625

41,707

Other current liabilities

614

400

7,488

			Total current liabilities

36,354

31,466443,341

NON-CURRENT LIABILITIES:

Accrued pension and severance costs (Note 11)

5,753

5,620

70,159Accrued retirement benefits to directors

390

455

4,756

Deferred tax liabilities (Note 15)

150

179

1,829

Other long-term liabilities

388

395

4,732

			Total non-current liabilities

6,682

6,651

81,48823,85323,853

290,890

Capital surplus

11,587

11,587

141,305

Retained earnings

38,67233,806471,610NET ASSETS:

Shareholders’ Equity (Notes 2(l) and 13):
Common stock–no par value
		 Authorized: 360,000,000 shares		Issued: 101,879,461 shares as of March 31, 2012 and
101,879,461 shares as of March 31, 2011	Treasury stock, at cost: 13,498,376 shares in 2012 and10,306,088 shares in 2011(12,592)(9,100)(153,561)

			Total shareholders’ equity

61,52060,145750,244

Accumulated other comprehensive income:Net unrealized gain on other securities, net of taxes (Note 2 (c))
			 Total accumulated other comprehensive income
			Total net assets
TOTAL LIABILITIES AND NET ASSETS

550

229

6,707

550

229

6,707

62,07160,375756,963¥105,108¥98,493$1,281,805

See accompanying notes to Consolidated Financial Statements.

ANNUAL REPORT 201221

Consolidated Statements of Income
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2012 and 2011
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YEN

2012

2011

2012

NET SALES¥87,997¥86,428$1,073,134

COST OF SALES

44,93244,064547,951

		Gross profit

43,06542,364525,183

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 14)27,88428,185340,049

OPERATING INCOME

15,18014,179185,122

Interest and dividend income

146

105

1,780

Interest expenses

(70)

(74)

(854)

Amortization of net obligation at transition

(524)

(524)

(6,390)Loss on disposal of property, plant and equipment

(101)

(137)

(1,232)

Loss on devaluation of investment securities

(128)

—

(1,561)

Revaluation loss of golf membership

(5)

(35)

(61)

Other, net

70

33

854

(613)

(633)

(7,476)

14,566

13,545

177,634

Current

6,071

5,521

74,037

Deferred

212

(189)

2,585

6,283

5,332

76,622

8,282

8,213

101,000¥ 8,282¥ 8,213$ 101,000

OTHER INCOME (EXPENSES):INCOME BEFORE INCOME TAXES AND MINORITY INTERESTSINCOME TAXES (Note 15):

INCOME BEFORE MINORITY INTERESTSNET INCOMEYEN

PER SHARE DATA:

U.S. DOLLARS (NOTE 3)

2012

2011

2012

¥92.46¥87.87$1.128———¥40.00¥36.00$0.488Net income (Note 17):
		Basic
		Diluted
Cash dividends applicable to the year (Note 13)
See accompanying notes to Consolidated Financial Statements.

22

KAKEN PHARMACEUTICAL CO., LTD.

Consolidated Statements of Comprehensive Income
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2012 and 2011
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YEN

Income before minority interests

2012

2011

2012

¥8,282¥8,213$101,000

321

(218)

3,915

—

(2)

—

321

(220)

3,915

8,603

7,992

104,915¥8,603¥7,992$104,915

Other comprehensive income (Note 18):
		 Net unrealized gain on other securities, net of taxes
		 Deferred gain on hedges
			 Total other comprehensive income
Comprehensive income
Total comprehensive income attributable to:		 Owners of the parent
See accompanying notes to Consolidated Financial Statements.

Consolidated Statements of Changes in Net Assets
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2012 and 2011
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YEN

2012

2011

2012

¥ 23,853¥23,853$ 290,890

23,85323,853

290,890

11,587

11,587

141,305—

0—

SHAREHOLDERS’ EQUITYCOMMON STOCK		 Balance at beginning of the year
		 Balance at end of the year
CAPITAL SURPLUS

		 Balance at beginning of the year
		 Changes during the year:			Treasury stock sold		 Total changes during the year

—

0

—

11,587

11,587

141,305

33,806

28,684412,268

			Cash dividends(3,416)(3,091)(41,659)

			Net income

8,282

8,213

101,000

		 Balance at end of the year
RETAINED EARNINGS

		 Balance at beginning of the year
		 Changes during the year:

		 Total changes during the year

4,866

5,122

59,341

		 Balance at end of the year

38,67233,806471,610(9,100)(4,999)(110,976)(3,491)(4,103)(42,573)—2—

		 Total changes during the year

(3,491)(4,101)(42,573)

		 Balance at end of the year

(12,592)(9,100)(153,561)

60,14559,124

733,476

			Cash dividends(3,416)(3,091)(41,659)

			Net income

8,282

8,213

101,000

			Treasury stock acquired(3,491)(4,103)(42,573)

—

2

—

1,374

1,021

16,756¥ 61,520¥60,145$ 750,244

TREASURY STOCK		 Balance at beginning of the year
		 Changes during the year:			Treasury stock acquired			Treasury stock sold

TOTAL SHAREHOLDERS’ EQUITY

		 Balance at beginning of the year
		 Changes during the year:			Treasury stock sold		 TOTAL CHANGES DURING THE YEAR		 BALANCE AT END OF THE YEAR

ANNUAL REPORT 201223

THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YEN

2012

2011

2012

ACCUMULATED OTHER COMPREHENSIVE INCOME

Net unrealized gain (loss) on other securities, net of taxes
		 Balance at beginning of the year¥   229¥   447$  2,793

		 Net changes in items other than shareholders’ equity

321

(218)

3,915

		 Total changes during the year

321

(218)

3,915

		 Balance at end of the year

550

229

6,707

DEFERRED GAIN ON HEDGES		 Balance at beginning of the year

—

2

—

		 Net changes in items other than shareholders’ equity

—

(2)

—

		 Total changes during the year

—

(2)

—

		 Balance at end of the year

—

—

—

TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME

		 Balance at beginning of the year

229

450

2,793

		 Net changes in items other than shareholders’ equity

321

(220)

3,915

		 Total changes during the year

321

(220)

3,915

¥   550¥   229$  6,707¥60,375¥59,575$736,280

			Cash dividends(3,416)(3,091)(41,659)

			Net income

8,282

8,213

101,000

			Treasury stock acquired(3,491)(4,103)(42,573)

—

2

—

321

(220)

3,915

		 Balance at end of the year
TOTAL NET ASSETS		 Balance at beginning of the year
		 Changes during the year:			Treasury stock sold			 Net changes in items other than shareholders’ equity
		 Total changes during the year
		 Balance at end of the year
See accompanying notes to Consolidated Financial Statements.

24

KAKEN PHARMACEUTICAL CO., LTD.

1,695

800

20,671¥62,071¥60,375$756,963

Consolidated Statements of Cash Flows
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2012 and 2011
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YEN

2012

2011

2012

¥14,566¥13,545$177,634

CASH FLOWS FROM OPERATING ACTIVITIES:

Income before income taxes
Adjustments for:		Depreciation

2,424

2,488

29,561

		 Amortization of long-term prepaid expenses

84

227

1,024

		 Accrual for pension and severance costs, less payments

615

426

7,500

		 Interest and dividend income

(146)

(105)

(1,780)854

		Interest expense

70

74

		 Revaluation loss of golf membership

5

35

61

128

—

1,561

		 Loss on devaluation of investment securities
		 Loss on disposals of property, plant and equipment

101

136

1,232

(4,913)541(59,915)

		 Increase in inventories(625)(1,307)(7,622)

		 Increase in notes and accounts payable–trade

4,038

1,118

49,244

		 Decrease (Increase) in notes and accounts receivable–trade		Other, net

134

(144)

1,634

			Subtotal

16,485

17,037201,037

		 Interest and dividends received

146

105

1,780

		Interest paid

(70)

(73)

(854)

		 Income taxes paid, net(6,275)(3,926)(76,524)

			 Net cash provided by operating activities

10,285

13,142

125,427(22,841)

CASH FLOWS FROM INVESTING ACTIVITIES:		 Acquisition of property, plant and equipment(1,873)(4,952)

		 Acquisition of investment securities(3)(1,001)(37)

		 Payment of long-term prepaid expenses

(35)

(296)

(427)

		Other, net
			 Net cash used in investing activities

(651)

(52)

(7,939)(2,563)(6,302)(31,256)

CASH FLOWS FROM FINANCING ACTIVITIES:		 Repayment of short-term loans

—

(120)

—

		 Net change of treasury stock(3,491)(4,101)(42,573)

		 Cash dividends paid

(3,413)(3,088)(41,622)

			 Net cash used in financing activities(6,904)(7,309)(84,195)

816

(469)

9,951

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

17,03517,504

207,744

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 4)¥17,851¥17,035$217,695

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

See accompanying notes to Consolidated Financial Statements.

ANNUAL REPORT 201225

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 incertain 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 theconvenience 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 other than 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 not required 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 two subsidiaries as of March 31, 2012. The consolidated financial statements include
the accounts of the Company and all of its subsidiaries. The consolidated subsidiaries as of March 31,
2012 are as follows:
KAKEN REALTY & SERVICE CO., LTD.
KAKEN PHARMA CO., LTD.
FUJIKA CORPORATION, which was consolidated, is excluded from the scope of consolidation as aresult of dissolution through a merger with KAKEN REALTY & SERVICE CO., LTD. as of March 31, 2012.
The profit and loss from April 1, 2011 to March 30, 2012 of the company was included in the consolidated financial statements.
There was no affiliate which was accounted for using 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 are able to be withdrawn within three months and short-term investmentswith original maturity of three months or less and are considered to have minimal risk from market
fluctuations.

26

KAKEN PHARMACEUTICAL CO., LTD.

(c) Marketable and Investment Securities
Securities are classified into one of the following four categories; (1) Trading, (2) Held-to-maturity
debt, (3) shares in subsidiaries and affiliates, and (4) Other. Trading securities are recorded at market
value with unrealized gains and losses recognized in the current year’s earnings. Debt securities thatare expected to be held to maturity are carried at amortized cost. Shares in subsidiaries 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 component of “Accumulated other comprehensive income” under net assets. Other
securities without market quotations are stated at cost, determined by the moving average method.
(d) Inventories
Inventories are stated at the lower of cost determined by the gross average method, or net selling
value, which is defined as the selling price less additional estimated manufacturing costs and estimated direct selling expenses.
(e) Property, Plant and Equipment
Depreciation is computed on the declining-balance method at rates based on the estimated useful
lives of assets, except for buildings, structures, machinery and equipment for the Komagome officethat are computed on the straight-line method.
Furthermore, depreciation of buildings, except for ancillary facilities to buildings, acquired on andafter April 1, 1998, is computed 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.
(f) Accounting for Impairment of Fixed Assets
In accordance with the accounting standard for impairment of fixed assets, the Group reviews their
fixed assets for impairment by grouping the assets in income generating units whenever there is any
indication of a significant decline in the fair value against its book value based on an independent
appraisal, and when the existence of any impairment for the group of the assets is identified, an impairment loss will be recognized and such amount is directly deducted from the related assets.
(g) Pension and Retirement Benefits
The Company has a retirement benefit program in which approximately 70% of the whole fund isallocated for the payment of lump-sum retirement benefit plan, while the rest is allocated to a defined
benefit corporate pension plan. However from April 1, 2012, the Company changes the pension payments from 10-years guaranteed lifetime annuity to 15-years guaranteed 20-years terminable annuity
in the year ended March 31, 2012. In the meanwhile, the Company has set up a retirement benefit
trust. Extra retirement payments may be paid to employees retiring under certain circumstance.
Consolidated subsidiaries of the Company have no arrangement for corporate pension plans.
The accrued pension and severance costs represent the amount actuarially calculated projected
benefit obligation less (1) the fair value of the plan assets, (2) unrecognized actuarial loss or gain, (3)the unrecognized transition amount arising from adopting the new standard and (4) unrecognizedprior 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 amortizedon a straight-line basis over 15 years. Unrecognized actuarial loss or gain is amortized on a straightline basis over 10 years from the next year in which they arise. Unrecognized prior service cost isamortized on a straight-line basis over 10 years from the year in which they arise. For the Company,
prepaid pension and severance costs were recognized for a portion of the plan covered by the

ANNUAL REPORT 201227

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 the relevant 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 andliabilities are recognized for temporary differences between the tax basis of assets and liabilities andtheir 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 in current liabilities of the consolidated balance sheet asof the end of the fiscal year.
(j) Derivative Financial Instruments
Derivative instruments, which include forward foreign exchange contracts agreements, are used as apart of the Company’s risk management of foreign currency risk exposures of its financial assets andliabilities.
Forward foreign exchange contracts:
The Company enters into forward foreign exchange contracts to limit exposure, affected by changes
in foreign currency exchange rates, on accounts receivable and payable and cash flows generated
from anticipated transactions denominated in foreign currencies. For forward foreign exchange contracts which are designated and are effective as hedges of such currency exchange rate risk on existing assets and liabilities, the Company adopted the accounting method whereby foreign currency
denominated assets and liabilities are measured at the contract rate of the respective forward foreignexchange contracts. With respect to such contracts for anticipated transactions, the contracts aremarked-to-market and the unrealized gains/losses are deferred in the balance sheet to be released toincome when the exchange gains/losses on the hedged items or transactions are recognized.
(k) Appropriations of Retained Earnings
Appropriations of retained earnings at each year end are reflected in the consolidated financial statements for the following year upon stockholders’ approval.
(l) Shareholders’ Equity
The Japanese companies are subject to the Corporate Law of Japan (the “Law”). The Law provided thatan amount equal to 10% of the amount to be disbursed as distributions of capital surplus (other thanthe capital reserve) and retained earnings (other than the legal reserve) be transferred to the capitalreserve and the legal reserve, respectively, until the sum of the capital reserve and legal reserve equals
25% of the stated capital. Such distributions can be made at any time by resolution of the shareholders or by the Board of Directors if certain conditions are met. The above mentioned legal reserve is
included in retained earnings in the accompanying consolidated balance sheets.

28

KAKEN PHARMACEUTICAL CO., LTD.

(m) Net Income and Dividends per Share
Net income per share of common stock is based upon the weighted average number of shares ofcommon 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 ofincome represent dividends approved or declared as applicable to the respective years.
(n) Additional Information
Accounting Changes and Error Corrections
The Company adopted “Accounting Standard for Accounting Changes and Error Corrections” (Accounting Standards Board of Japan (“ASBJ”) Statement No. 24, issued on December 4, 2009) and“Guidance on Accounting Standard for Accounting Changes and Error Corrections” (ASBJ Guidance
No. 24, issued on December 4, 2009) for accounting changes and corrections of prior period errors on
and after the beginning of the fiscal year ended March 31, 2012.

3. United States Dollar Amounts:
The Group maintains its accounting records in yen. The dollar amounts included in the consolidated
financial statements and notes thereto represent the arithmetical results of translating yen to dollars
on the basis of ¥82=U.S.$1, the approximate rate of exchange as of March 31, 2012. The inclusion ofsuch dollar amounts is solely for convenience and is not intended to imply that yen amounts havebeen or could be converted, realized or settled in dollars at that or any other rate.

4. Cash and Cash Equivalents:
Cash on hand and at banks and marketable securities are reconciled to cash and cash equivalents ofconsolidated statements of cash flows as follows:
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YENMarch 31
Cash on hand and at banks
Marketable securities

2012

2011

2012

¥ 9,543¥14,729$116,378

8,308

2,305

101,317

17,851

17,035

217,695

Time deposits due in more than three months

—

—

—

Marketable securities due in more than three months

—

—

—

¥17,851¥17,035$217,695

Cash and cash equivalents

ANNUAL REPORT 201229

5. Marketable Securities and Investment Securities:
The carrying amounts and fair values of held-to-maturity securities are as follows:
MILLIONS OF YEN
Carrying amountMarch 31
Fair values exceeding carrying amount
Fair values not exceeding carrying
amountTotal

Fair value

Unrealized gain (loss)

Carrying amount

¥—

¥   —

2012
¥   —

Fair value

Unrealized gain (loss)

2011

¥   —

¥   —

¥—

2,999

2,999

—

1,999

1,999

—

¥2,999¥2,999¥—¥1,999¥1,999¥—Acquisition cost

Unrealized gain (loss)

THOUSANDS OF U.S. DOLLARS (NOTE 3)
Carrying amountMarch 31

Fair value

Unrealized gain (loss)

2012

Fair values exceeding carrying amount$    —$    —$—

Fair values not exceeding carrying
amount36,57336,573—$36,573$36,573$—

Total

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

Acquisition cost

March 31

Unrealized gain (loss)

Fair value

2012

2011

Carrying amounts exceedingacquisition cost
¥ 5,366¥ 4,210¥1,156¥3,726¥2,839OthersEquity securities

—

—

—

—

—

¥ 887
—

Subtotal

5,366

4,210

1,156

3,726

2,839

887

(500)

Carrying amounts not exceedingacquisition cost
993

1,295

(301)

2,290

2,791

OthersEquity securities

5,308

5,308

—

306

306

—

Subtotal

6,302

6,603

(301)

2,596

3,097

(500)

¥11,668¥10,813¥  855¥6,323¥5,937¥ 386

		Total

THOUSANDS OF U.S. DOLLARS (NOTE 3)
Fair value

Acquisition cost

March 31

Unrealized gain (loss)

2012

Carrying amounts exceedingacquisition cost
$ 65,439$ 51,341$14,098

OthersEquity securities

—

—

—

Subtotal

65,43951,341

14,098(3,671)

Carrying amounts not exceedingacquisition cost
Equity securities

12,11015,793

Others

64,73264,732—

Subtotal

76,85480,524(3,671)$142,293$131,866$10,427

		Total30

KAKEN PHARMACEUTICAL CO., LTD.

For the year ended March 31, 2012, the Company recorded an impairment loss of ¥128 million($1,561 thousand) for other securities with fair value. Securities whose market value as of March 31,
2012 declined by 50% or more become subject to impairment, whereby all the difference between themarket value and book value is recorded as a valuation loss. In case where the market value declined
30% or more to less than 50%, the difference between the market value and book value is recorded asa valuation loss based on certain rule.

6. Inventories:
Inventories as of March 31, 2012 and 2011, are comprised of the following:
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YENMarch 31

2012

2011

2012

Finished products¥ 5,953¥ 5,234$ 72,598

Work in process

1,573

1,840

19,183

Raw materials and supplies

3,398

3,225

41,439¥10,926¥10,301$133,244

Total

7. Short-term Bank Loans:
Short-term bank loans outstanding as of March 31, 2012 and 2011, represent the notes issued by
the Group to banks. Customarily, these notes are renewed at maturity subject to renegotiation ofinterest rates and other factors. The weighted-average interest rates applicable to short-term bankloans as of March 31, 2012 and 2011, are 0.78%. Outstanding balance of short-term bank loans as ofMarch 31, 2012 and 2011 is ¥8,390 million ($102,317 thousand).
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 uponrequest of the bank, and that the bank shall have the right, as the obligations become due or in theevent of their default, to offset cash deposits against such obligations due to the bank. The Group has
not received any such requests to date.
At March 31, 2012 and 2011, assets pledged as collateral for certain short-term bank loans are
as follows:
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YENMarch 31

2012

2011

2012

Buildings and structures¥2,653¥2,812$32,354

Machinery and equipment

2,061

2,487

25,134

Land

103

103

1,256

		Total¥4,819¥5,402$58,768¥1,400¥1,400$17,073¥1,400¥1,400$17,073

Assets pledged:

Liabilities secured:
Short-term bank loans
		TotalANNUAL REPORT 201231

8. Accounting for Leases:
Operating leases
Future lease gains under non-cancellable operating leases at March 31, 2012 and 2011, are as follows:
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YENMarch 31

2012

2011

2012

Due within 1 year¥   86¥   86$ 1,049

Due after 1 year

1,303

1,389

15,890¥1,389¥1,476$16,939Total

9. Investment Properties:
The Company and certain consolidated subsidiaries own rental office buildings (including land) inTokyo and other areas. Rental income from these properties for the years ended March 31, 2012 and2011, are ¥1,481 million ($18,061 thousand) and ¥1,429 million (Major revenue from rental properties
and rent expense are reported as net sales and cost of sales respectively).
Carrying amount, change during the years ended March 31, 2012 and 2011, and fair values of theseproperties are stated as follows:
MILLIONS OF YEN
Carrying amount
Fair value at March 31, 2011

Balance at March 31, 2012¥15,107

Change during the year ended March 31, 2012

Balance at March 31, 2012¥15,307¥39,944

Balance at March 31, 2011

Fair value at March 31, 2011¥15,107¥40,092

Balance at March 31, 2012

Fair value at March 31, 2012

$186,671$487,122¥199
MILLIONS OF YEN
Carrying amount

Balance at March 31, 2010

Change during the year ended March 31, 2011¥13,929¥1,177
THOUSANDS OF U.S. DOLLARS (NOTE 3)
Carrying amount

Balance at March 31, 2011

Change during the year ended March 31, 2012

$184,232$2,427

Notes: 1. The carrying amount represents the acquisition costs less accumulated depreciation.
2. The above figures include the amounts concerning the land earmarked for future development.
3. Increase in changes during the year ended March 31, 2011, is primarily due to acquisition of land for development of ¥1,691 million.
4.	Fair values at March 31, 2012 and 2011, are calculated, with adjustments using indexes, by the Company based primarily on the “Real estateappraisal standards of Japan.”

32

KAKEN PHARMACEUTICAL CO., LTD.

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

ANNUAL REPORT 201233

by regularly monitoring their status, in an effort to achieve early identification and mitigation ofdefault risk of customers arising from their deteriorating financial conditions and other factors.
Held-to-maturity securities held by the Company are, under the short-term investment rules,
restricted to those with superior ratings only, involving minimal credit risk.
The Company enters into derivative transactions with high credit rating financial institutions to
mitigate the counterparty risks.
b. Market risk management (foreign exchange and interest rate fluctuation risks)
The Company uses forward foreign exchange contracts as appropriate to hedge foreign exchange
fluctuation risk associated with trade receivables and payables denominated in foreign currency.
With respect to marketable securities and investment securities, the Company is periodically monitoring fair values and financial positions of the related issuers (business connections).
Derivative transactions are conducted under the authority of general manager at each concerned
department, under the forward foreign exchange contracts management rules, and actual performance of derivative transactions is reported to the concerned departments including Accounting
Department, as each transaction takes place. Then at the end of each month, outstanding balance of
forward exchange contracts is reported to directors in charge, as well as to other concerned departments. The consolidated subsidiaries are not engaged in derivative transactions.
c. Liquidity risk management on fund raising
The Company manages its liquidity risk by preparing and updating cash flow management plan as
appropriate by accounting department based on the report from each concerned department.
(4) Supplementary explanation concerning fair values of financial instruments
Fair values of financial instruments comprise values determined based on market prices and values
determined reasonably when there is no market price. Since variable factors are incorporated in computing the relevant fair values, such fair values may vary depending on the different assumptions.
(5) Concentration of credit risks
As of March 31, 2012, 66% of all trade receivables are with the specific major accounts.

34

KAKEN PHARMACEUTICAL CO., LTD.

2. Fair values of financial instruments
Carrying amount, fair value and difference of the financial instruments as of March 31, 2012 and 2011,
are as follows:
Financial instruments whose fair values are not readily determinable are excluded from thefollowing table:
MILLIONS OF YEN
Carrying amount

Fair value(1) Cash on hand and at banks¥ 9,543¥ 9,543—(2) Notes and accounts receivable – trade32,03232,029—March 31

Allowance for doubtful receivables (*1)

Difference

2012

(3)
32,029(3) Marketable securities and investment securities
a. Held-to-maturity securities

2,999

2,999

—

b. Other securities

11,668

11,668—

		 Total assets¥56,242¥56,242—(1) Notes and accounts payable – trade¥16,331¥16,331

—

8,390

8,390

—

¥24,721¥24,721—(2) Short-term bank loans
		 Total liabilities

MILLIONS OF YEN
Carrying amountMarch 31

Fair value

Difference

2011(1) Cash on hand and at banks¥14,729(2) Notes and accounts receivable – trade27,119¥14,729—

Allowance for doubtful receivables (*1)(2)
27,11627,116—

a. Held-to-maturity securities

1,999

1,999

—

b. Other securities

6,323

6,323

—

		 Total assets¥50,169¥50,169—(1) Notes and accounts payable – trade¥12,293¥12,293

—

8,390

8,390

—

¥20,683¥20,683—(3) Marketable securities and investment securities(2) Short-term bank loans
		 Total liabilities

ANNUAL REPORT 201235

THOUSANDS OF U.S. DOLLARS (NOTE 3)
Carrying amount

Fair value

March 31
(1) Cash on hand and at banks$116,378(2) Notes and accounts receivable – trade390,634

Allowance for doubtful receivables (*1)

Difference

2012$116,378—

390,598—(37)
390,598(3) Marketable securities and investment securities
a. Held-to-maturity securities

36,57336,573—b. Other securities

142,293

142,293—

		 Total assets$685,878$685,878—(1) Notes and accounts payable – trade$199,159$199,159—(2) Short-term bank loans

102,317

102,317—

		 Total liabilities$301,476$301,476—(*1) Allowance for doubtful receivables in respect of notes and accounts receivable – trade.
Notes:
1. Calculation method of fair values of financial instruments and securities
Assets:(1) Cash on hand and at banks and (2) Notes and accounts receivable – trade
These assets are recorded using carrying amounts because fair values approximate carrying amounts because of
their short-term maturities.
(3) Marketable securities and investment securities
Fair values of equity securities are based on the prices quoted on stock exchanges while those of debt securities
are based on the prices quoted on stock exchanges, or those quoted by correspondent financial institutions. For
the notes on marketable securities by purpose of holding, please see Note 5. “Marketable Securities andInvestment Securities.”
Liabilities:(1) Notes and accounts payable – trade and (2) Short-term bank loans
These payables are recorded using carrying amounts because fair values approximate carrying amounts because of
their short-term maturities.
2. Financial instruments whose fair values are not readily determinable
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YEN
Carrying amountMarch 31
Unlisted equity securities

2012

2011

2012

¥62

¥62

$756

These items are not included in “(3) Marketable securities and investment securities” because there is no market
price and it is very difficult to identify fair values.

36

KAKEN PHARMACEUTICAL CO., LTD.

3. Redemption schedule of monetary assets and securities with contractual maturities as of March 31, 2012 and2011, are as follows:
MILLIONS OF YEN
Within one year

March 312012

Cash on hand and at banks¥ 9,543

Notes and accounts receivable - trade32,032Marketable securities and investment securities:
Held-to-maturity securities
Other securities with contractual maturities
		Total

2,999
900¥45,476MILLIONS OF YEN
Within one year

March 312011

Cash on hand and at banks¥14,729

Notes and accounts receivable - trade27,119Marketable securities and investment securities:
Held-to-maturity securities
Other securities with contractual maturities
		Total

1,999
300¥44,148
THOUSANDS OF U.S.
DOLLARS (NOTE 3)
Within one year

March 312012

Cash on hand and at banks$116,378

Notes and accounts receivable - trade390,634

Marketable securities and investment securities:
Held-to-maturity securities
Other securities with contractual maturities
		Total36,573
10,976$554,585

11. Pension and Retirement Benefits:
The pension and retirement benefit obligation and plan assets, funded status and composition ofamounts recorded in the consolidated balance sheets as of March 31, 2012 and 2011, are as follows:
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YENMarch 31
Projected benefit obligations

2012

2011

2012

¥(20,322)¥(21,083)$(247,829)

Plan assets

10,266

10,202

125,195

Funded status(10,056)(10,881)(122,634)

Unrecognized transition amount

1,574

2,099

19,195

Unrecognized actuarial loss

3,155

3,789

38,476

Unrecognized prior service cost

(326)

(44)

(3,976)(5,652)(5,036)(68,927)

Amounts recognized in the balance sheet consists ofPrepaid pension cost (other assets)
Accrued pension and severance costs

101

583

1,232

¥ (5,753)¥ (5,620)$ (70,159)

Notes: 1. Retirement benefit trust assets of ¥524 million ($6,390 thousand) and of ¥510 million are included in plan assets as of March 31, 2012 and 2011.
2. The consolidated subsidiaries use a simplified method of accounting to calculate projected benefit obligations.
3.	As a result of the change from a lifetime annuity to a terminal annuity, prior service cost decreased by ¥304 million ($3,707 thousand) in the year
ended March 31, 2012.

ANNUAL REPORT 201237

The components of net pension and severance costs for the years ended March 31, 2012 and 2011,
are as follows:
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YEN

2012

2011

2012

Service cost¥  640¥  667$ 7,805

Interest cost

484

497

5,902

Expected return on plan assets

(96)

(98)

(1,171)

Amortization of transition amount

524

524

6,390

Amortization of actuarial loss

751

758

9,159

Amortization of prior service cost

(49)

(20)

(598)

¥2,254¥2,328$27,488

Net pension expense

Assumptions used in calculation of the above information for the years ended March 31, 2012 and 2011,
are as follows:
Discount rate: 2.3%
Expected rate of return on plan assets: 1.0%
Method of attributing the projected benefits to periods of services: Straight-line method

12. Discount of Export Bills:
Amount of export bills discounted at March 31, 2012 and 2011, are as follows:
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YENMarch 31

2012

2011

2012

Export bills

¥187

¥161

$2,280Type of shares outstanding

Type of treasury stock

Common stock

Common stock

101,879,461

10,306,088—

3,192,288

101,879,461

13,498,376

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

Number of shares as of March 31, 2011
Increase in the number of shares during the accounting period ended March 31, 2012
Number of shares as of March 31, 2012

Note: Increase in treasury stock (3,192,288 shares) is due to purchase of treasury stock (2,253,000 shares), off-auction treasury stock repurchase trading(900,000 shares) and purchase of shares less than one unit (39,288 shares).

38

KAKEN PHARMACEUTICAL CO., LTD.

b) Matters related to dividendsi) Dividend payment
Approvals by the ordinary general meeting of shareholders held on June 29, 2011, were as follows:
Dividends on common stock
Total amount of dividends¥1,648 million ($20,098 thousand)
Dividends per share¥18.00 ($0.22)
Record date
March 31, 2011
Effective dateJune 30, 2011
Approvals by the Board of Directors’ meeting held on November 4, 2011, were as follows:
Dividends on common stock
Total amount of dividends¥1,767 million ($21,549 thousand)
Dividends per share¥20.00 ($0.24)
Record date
September 30, 2011
Effective date
December 2, 2011ii) Dividends whose record date is attributed to the accounting period ended March 31, 2012, but
become effective after the said accounting period.
The Company obtained the following approval at the general meeting of shareholders held on June
28, 2012:
Dividends on common stock
Total amount of dividends¥1,767 million ($21,549 thousand)
Dividends per share¥20.00 ($0.24)
Record date
March 31, 2012
Effective dateJune 29, 2012

14. Research and Development Costs:
Research and development costs included in selling, general and administrative expenses for the years
ended March 31, 2012 and 2011, amounted to ¥6,592 million ($80,390 thousand) and ¥6,853 million,
respectively.

15. 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, 2012 and 2011. A reconciliation of thedifferences between the statutory tax rate and the effective tax rate for the years ended March 31,
2012 and 2011, are as follows:
For the year ended March 31,

2012

2011

Statutory tax rate

40.69%

40.69%

Increase (decrease) in taxes resulting from:
Expenses not deductible for income tax purpose (ex. Entertainment expenses)

2.31

2.57

Income not included for income tax purpose (ex. Dividend income)(0.18)(0.13)

Inhabitant per capita taxes

0.59

0.64

Tax credit for research expenses(3.56)(4.11)

Reduction of deferred tax assets due to income tax rates change

2.64

—

Other
Effective tax rate

0.65

(0.30)

43.14%

39.36%

ANNUAL REPORT 201239

Significant components of deferred tax assets as of March 31, 2012 and 2011, are as follows:
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YENMarch 31

2012

2011

2012

Deferred tax assets:
Provision for bonuses¥  413¥  453$ 5,037

Provision for sales rebates

204

228

2,488

Loss of supplies

130

79

1,585

Devaluation of financial instruments

84

45

1,024

Amortization of R&D

185

251

2,256

Amortization of long-term prepaid expenses

133

195

1,622

2,220

2,233

27,073

145

185

1,768

2,568

2,568

31,317Pension and severance costs
Retirement benefits to directors
Unrealized gain of property, plant and equipment
Other

399

463

4,866

		Total

6,485

6,703

79,085

Valuation allowance

(112)

(78)

(1,366)

		 Deferred tax assets

6,373

6,625

77,720

Deferred gain on sales of property, plant and equipment

(208)

(247)

(2,537)

Unrealized gain on other securities

(304)

(157)

(3,707)0

0

0

Deferred tax liabilities:

Other
		 Deferred tax liabilities

(512)

(404)

(6,244)

		 Deferred tax assets, net¥5,860¥6,220$71,463

Following the promulgation of the Act for Partial Revision of the Income Tax Act, etc. for the Purpose of Creating Taxation System Responding to Changes in Economic and Social Structures and the
Act on Special Measures for Securing Financial Resources Necessary to Implement Measures for
Reconstruction following the Great East Japan Earthquake on December 2, 2011, statutory tax rates
used to calculate deferred tax assets and deferred tax liabilities (limited to those settled after April 1,
2012) will be changed from 40.69% to 38.01% for temporary differences expected to be settled orrealized for the period from April 1, 2012, to March 31, 2015, and 35.64% for those after April 1, 2015.
As a result of this change, the amount of net deferred tax assets (after offsetting against deferred
tax liabilities) decreased by ¥324 million ($3,951 thousand) and income taxes - deferred and net unrealized gain on other securities, net of taxes increased by ¥368 million ($4,488 thousand) and ¥43 million ($524 thousand), respectively.

16. Related Party Transactions:
There is nothing to be noted according to the disclosure requirements in Japan for the years ended
March 31, 2012 and 2011.

40

KAKEN PHARMACEUTICAL CO., LTD.

17. Per Share Information:
Per share information for the years ended March 31, 2012 and 2011, are as follows:
YEN

For the years ended March 31,

U.S. DOLLARS (NOTE 3)

2012

2011

2012

Net assets per share¥702.31¥659.31$8.565

Net income per share

92.46

87.87

1.128

—

—

—

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

Calculation for net income per share and diluted net income per share are as follows:
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YEN

For the years ended March 31,

2012

2011

2012

Net income¥8,282¥8,213$101,000

Net income attributable to common stock

8,282

8,213

101,000———

89,577

93,473————Adjustment to net income(Share data)
Average number of share (thousand)
Additional number of share (thousand)

18. Comprehensive Income:
Reclassification adjustments and income tax effects for each component of other comprehensive
income for the year ended March 31, 2012, are as follows:
MILLIONS OF YEN

THOUSANDS OF
U.S. DOLLARS (NOTE 3)

2012

2012

Occurence amount¥339$4,134

Reclassification adjustments

128

1,561

For the year ended March 31,
Net unrealized gains on other securities, net of taxes

Before income tax effect

468

5,707

Income tax effect(147)(1,793)Net unrealized gains on other securities, net of taxes¥321$3,915

Total other comprehensive income¥321$3,915

19. Segment Information:(a) Overview of reportable segments
The Group’s reportable segments are those for which separately financial information is available andregular evaluation by the Board of Directors is being performed in order to decide how resources areallocated among the Group.
The Group produces and sells medical products and agrochemicals, rents real estates, and maintains
buildings, and operates business by category of industry. Each business operates on its own initiative,
and creates comprehensive business strategies to conduct business activities. The Group consists ofsegments by category of industry based on the operation of business and therefore consists of tworeportable segments: “Pharmaceutical” and “Real estate.”“Pharmaceutical” mainly produces and sells medical products, medical devices and agrochemicals.
“Real estate” mainly rents Bunkyo Greencourt.

ANNUAL REPORT 201241

(b) Method of calculating net sales, income, assets and other items by reportable segment
Accounting policies of the reportable segments are consistent to those described in Note 2. “Summary of Significant Accounting Policies.” Income by the reportable segment is based on operating
income. Intersegment transactions are based on prevailing market price.
Corporate assets are not allocated to each reportable segment. However, related expenses areallocated to each reportable segment using reasonable criteria.
(c) Information about reportable segments
MILLIONS OF YEN
Reportable segment
Pharmaceutical

Real estate

Total

For the years ended March 31,

Adjustments

Consolidated¥ 87,997

2012

Net Sales:
Outside sales¥85,564¥ 2,432¥87,997¥    —

—

312

312

(312)

—

		Total¥85,564¥ 2,744¥88,309¥  (312)¥ 87,997

Segment income¥13,698¥ 1,481¥15,180—¥ 15,180

Segment assets¥63,872¥16,753¥80,625¥24,482¥105,108

Depreciation and amortization¥ 1,883¥   625¥ 2,508—¥  2,508

	Increase in property, plant andequipment and intangible assets

2,554

759

3,314

—

3,314

Adjustments

Consolidated¥86,428

Intersegment sales or transfers

Other items:

MILLIONS OF YEN
Reportable segment
Pharmaceutical

Real estate

Total

For the years ended March 31,

2011

Net Sales:
Outside sales
Intersegment sales or transfers
		Total¥83,976¥ 2,452¥86,428¥    —

—

309

309

(309)

—

¥83,976¥ 2,762¥86,738¥  (309)¥86,428

Segment income¥12,749¥ 1,429¥14,179—¥14,179

Segment assets¥57,907¥16,499¥74,407¥24,085¥98,493

Depreciation and amortization¥ 2,086¥   629¥ 2,715—¥ 2,715

	Increase in property, plant andequipment and intangible assets

4,031

1,748

5,780

—

5,780

Adjustments

Consolidated$1,073,134

Other items:

THOUSANDS OF U.S. DOLLARS (NOTE 3)
Reportable segment
Pharmaceutical

Real estate

For the years ended March 31,

Total

2012

Net Sales:
Outside sales$1,043,463$ 29,659$1,073,134$     —

—

3,805

3,805

(3,805)—

		Total$1,043,463$ 33,463$1,076,939$  (3,805)$1,073,134

Segment income$  167,049$ 18,061$  185,122$     —$  185,122

Segment assets$  778,927$204,305$  983,232$298,561$1,281,805$   22,963$  7,622$   30,585—$   30,585

31,146

9,256

40,415—40,415Intersegment sales or transfers

Other items:
Depreciation and amortization
	Increase in property, plant andequipment and intangible assets

42

KAKEN PHARMACEUTICAL CO., LTD.

(d) Information about products and services
Information about products and services has not been disclosed since the classification by products
and services is same as the reportable segment.
(e) Information by geographical area
(1) Sales
Information about sales has not been disclosed since sales in Japan constituted more than 90% ofsales on the consolidated statements of income.
(2) Property, plant and equipment
Information about property, plant and equipment has not been disclosed since no property, plantand equipment located in other than Japan.
(f) Information about major customers
THOUSANDS OF
U.S. DOLLARS (NOTE 3)

MILLIONS OF YEN
SalesName of the related segment

For the years ended March 31,

2012

2011

2012

Alfresa Corporation¥15,042¥13,916$183,439

Pharmaceutical

SUZUKEN CO., LTD.

13,786

14,025

168,122

Pharmaceutical

MEDICEO CORPORATION

13,052

13,063

159,171

Pharmaceutical

Toho Pharmaceutical Co., Ltd.

9,097

9,224

110,939

Pharmaceutical

20. Subsequent Event:
Following acquisition of treasury stock under Article 156 of the Law, as applied pursuant to Article 165(3) of the Law has been resolved by the Board of Directors’ meeting held on May 4, 2012.
1. Reason for acquisition:
To execute flexible capital policy corresponding to changes in management environment.
2. Class of stocks to be acquired:
Common stock
3. Number of stocks to be acquired:
Up to 2,000,000 shares
4. Total amount of stocks to be acquired:
Up to ¥2,300 millions of yen ($28,049 thousand)
5. Schedule of acquisition:
From May 5, 2012, to December 28, 2012
Number and total amount of stocks acquired based on the above resolution on or before May 31, 2012,are 320,000 shares and ¥323 million ($3,939 thousand), respectively.

ANNUAL REPORT 201243

Report of Independent Auditors
To the Board of Directors
KAKEN PHARMACEUTICAL CO., LTD.
We have audited the accompanying consolidated financial statements of KAKEN PHARMACEUTICAL CO., LTD. (the“Company”) and subsidiaries, which comprise the consolidated balance sheet as of March 31, 2012, and the related consolidated statements of income, comprehensive income, changes in net assets, and cash flows for the year then ended, anda summary of significant accounting policies and other explanatory information, all expressed in Japanese yen.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements inaccordance with accounting principles generally accepted in Japan, and for designing and operating such internal control
as management determines is necessary to enable the preparation and fair presentation of the consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the consolidated financial statements are free frommaterial misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks ofmaterial misstatement of the consolidated financial statements, whether due to fraud or error. The purpose of an audit of
the consolidated financial statements is not to express an opinion on the effectiveness of the entity’s internal control, but inmaking these risk assessments the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and subsidiaries at March 31, 2012, and the consolidated results of their operations
and their cash flows for the year then ended in conformity with accounting principles generally accepted in Japan.
Emphasis of Matter
As described in Note 20, at a meeting of the Board of Directors of the Company held on May 14, 2012, the Company
approved a purchase of shares of treasury stock. Our opinion is not qualified in respect of this matter.
Convenience Translation
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader have been translated on
the basis set forth in Note 3 to the accompanying consolidated financial statements.

Tokyo, Japan
June 28, 201244

KAKEN PHARMACEUTICAL CO., LTD.

Profile

Corporate Data
As of March 31, 2012

The origins of Kaken Pharmaceutical Co., Ltd., can be traced back to the Institute ofPhysical and Chemical Research (Riken), which was established in 1917.
In 1948, the Company started its pharmaceutical business by developing a new way tomake penicillin utilizing Riken’s own technologies. It has since broadened the scope of its
business activities to include the manufacture and sales of drugs such as streptomycin,
an antituberculous drug, and various antifungal agents.
The Company is particularly strong in the field of orthopedics, dermatology, andinternal medicine. In the field of orthopedics, Kaken boasts the accomplishment of
introducing into Japan a treatment for osteoarthritis that involves the intraarticular
injection of sodium hyaluronate.
Since 2001, the Company has been marketing Fiblast Spray, a wound-healing agent that
employs a recombinant human basic Fibroblast Growth Factor (bFGF). This was the first drugin the world to employ bFGF. Kaken continues to advance research efforts in this field.
The Company is also focused on the fields of inflammation, immunologic diseases, and allergies, as well asthat of fungal infection. It is currently preparing to apply for approval to market efinaconazole, an original drug
developed by Kaken, as Japan’s first topical antifungal agent for onychomycosis.

Bringing

SmilesEveryoneto

Directory
Registered Head Office

Company Information
Founded28-8, Honkomagome 2-chome, Bunkyo-ku,
Tokyo 113-8650, Japan
Tel: 81-3-5977-5001
Fax: 81-3-5977-5131
http://www.kaken.co.jp

March 1917

Incorporated
March 1948

Paid-in Capital
Global Business Development
Director & General Manager
Masao Ishida
Tel: 81-3-5977-5046
Fax: 81-3-5977-5133
E-mail: masao-ishida@kaken.co.jp¥23,853 million

Common Stock
Authorized: 360,000,000 shares
Issued: 101,879,461 shares (As of August 31, 2012)
Number of Shareholders: 13,242 (As of March 31, 2012 )Main Branches (As of April 1, 2012)

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

Business Philosophy

Sapporo Branch
Sendai BranchTokyo BranchTokyo Branch II
Nagoya Branch
Osaka Branch
Hiroshima Branch
Fukuoka Branch

Others

14.7%+3.4

Overseas
Investors

Individuals

27.5%

–0.8

16.6%

+0.3

Domestic
Corporations

10.5%
–0.1

Financial
Institutions

30.7%

–2.8

Plant
Shizuoka Factory

KAKEN

Major Shareholders

Three Joys

Research Laboratories
Central Research Laboratory (Kyoto)
Central Research Laboratory (Shizuoka)
Production Technology Laboratory

Overseas Office

Creating joy
for patients.

Creating joy
as a company.

Creating joy
for our employees.

We strive to create and offer
effective drugs that satisfy
the needs of patients andmedical professionals.

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

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

Kaken New York Office
245 Park Avenue, 24th Floor, New York, NY 10167
Tel: 1-212-372-8910
Fax: 1-212-372-8970
E-mail: ny@kaken.co.jp

NO. OF SHARES(THOUSANDS)SHARE OFTOTAL (%)

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

4,890

4.8

Toray Industries, Inc.

4,589

4.5

Mizuho Bank, Ltd.

3,937

3.9

The Norinchukin Bank

3,686

3.6

Japan Trustee Services Bank, Ltd. (Trust Ac.)

3,283

3.2

Nippon Life Insurance Company

1,700

1.7

Kaken Pharmaceutical Employee Stock
Ownership Association

1,645

1.6

Japan Trustee Services Bank, Ltd. (Trust Ac.9)

1,446

1.4

Mellon Bank, N.A. As Agent for its Client
Mellon Omnibus US Pension

1,389

1.4

Kyoei Fire & Marine Insurance Co., Ltd.

1,248

1.2

SHAREHOLDERS

Employees (Non-Consolidated)

Forward-looking Statements
This annual report contains forward-looking statements pertaining to the Company’s business and prospects. These statements are based on the current
analysis of existing information and trends. Actual results may differ from expectations due to unforeseen risks and uncertainties.

Administration: 109
Sales & Marketing: 997
Production & Technology: 220
Research & Development: 285
Regulatory Affairs: 39

ANNUAL REPORT 201245

Annual Report 2012
Year Ended March 31, 2012

KAKEN PHARMACEUTICAL Annual Report 2012

Bringing

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

Printed in Japan