Annual Report 2011
Year Ended March 31, 2011

KAKEN PHARMACEUTICAL Annual Report 2011

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

Bringing

SmilesEveryonetoProfile

Corporate Data
As of March 31, 2011

The origin of Kaken Pharmaceutical Co., Ltd. can be traced back to the Institute of Physicaland Chemical Research (Riken), established in 1917. The Company started its pharmaceuticalbusiness with full-scale development of penicillin and streptomycin based on Riken’s
own technologies in 1948, and since then broadened the scope of its business anddrug development activities through mergers and alliances. Accordingly, Kaken has
established a strong reputation in the industry.
While the Company has established strength in developing and selling pharmaceuticals
for orthopedics, it is now expanding its involvement in other medical fields, such asdermatology. The Company contributes to improving people’s health by cultivating its
own original technologies, engaging in joint development initiatives, introducing newtechnologies and acquiring marketing rights.
As a fruit of its technology and product introduction, the Company has been, since June
2001, marketing Fiblast Spray consisting of Trafermin, a recombinant form of human basic
Fibroblast Growth Factor (bFGF) for the first time in the world, licensed from a U.S. bio-­
pharmaceutical company, Scios Inc., in the area of regenerative medicine (wound healing medicine).

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, 2011)
Number of Shareholders: 13,799 (As of March 31, 2011)

Main Branches

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: Three Joys

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

Others

11.3%+3.7

Individuals

28.3%

Overseas
Investors

–5.7

16.3%
–0.5

Domestic
Corporations

10.6%
+0.8

Financial
Institutions

33.5%

+1.7

Plant
Shizuoka Factory

KAKEN

conducts business by

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

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

Overseas Office

Creating joy
as a company.

Creating joy
for our employees.

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.)

5,402

5.3

Toray Industries, Inc.

4,589

4.5

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

4,397

4.3

Mizuho Bank, Ltd.

4,086

4.0

The Norinchukin Bank

3,686

3.6

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

1,804

1.8

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

1,754

1.7

Nippon Life Insurance Company

1,700

1.7

Kaken Pharmaceutical Employee Stock
Ownership Association

1,594

1.6

SOMPO JAPAN INSURANCE INC.

1,343

1.3

Shareholders

Employees (Non-Consolidated)
Administration: 117
Sales & Marketing: 988
Production & Technology: 220
Research & Development: 295
Regulatory Affairs: 39
Annual Report 201143

Consolidated Financial Highlights
Thousands of
U.S. dollars (Note)

Millions of yen

2009

2010

2011

2011

Net sales¥82,930¥85,022¥86,428$1,041,301

Operating income

10,62911,784

14,179170,831

Net income

5,579

6,734

8,213

98,952For the years ended March 31

At March 31

Total net assets

56,67959,57560,375

727,410

Total assets

94,50495,096

98,493

1,186,663

Per share data

Yen

U.S. dollars (Note)

Net income (Basic)¥55.61¥68.79¥87.87$1.059Cash dividends (Non-Consolidated)

26.00

30.00

36.00

0.434

Ratios

%

ROE

9.78%

11.59%

13.69%—

Capital adequacy ratio

59.98

62.65

61.30

—

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥83 = $1, the rate effective on March 31, 2011.

Net Sales

Operating Income

Net Income

MILLIONS OF YENMILLIONS OF YENMILLIONS OF YEN

ROE%76,41579,93482,93085,02286,428

8,213

14,1796,734

11,784
9,842

10,629
5,106

11.59

4,602

8,113

13.69

5,579

9.78
8.66

8.00

2011

2010

2009

2008

2007

2011

2010

2009

2008

2007

2011

2010

2009

2008

2007

Contents
President’s Message����������������������������������������������������������������������������� 2
Developing New Products������������������������������������������������������������������� 4
Overview of Major Products��������������������������������������������������������������� 6
Commitment and Excellence������������������������������������������������������������10
Fulfilling Our Social Responsibilities�����������������������������������������������12

2

4
6

Board of Directors and Corporate Auditors�����������������������������������14
Financial Section���������������������������������������������������������������������������������15
Corporate Data������������������������������������������������������������������������������������43
Annual Report 20111

President’s Message
Dear Stakeholders
On June 29, 2011, I have assumed the position of President
and Representative Director of Kaken Pharmaceutical Co., Ltd.
The business environment for pharmaceutical companies
and the industry as a whole has been growing harsher witheach coming year. Kaken, however, is targeting its tenthstraight year of increased sales and income in the fiscal year
ending March 31, 2012. Taking over from the solid foundation
created by the previous President, I believe it is importantfor me to ensure that we continue to see this strong growth
going forward.
Further, I believe that reinforcing Kaken’s strengths whileworking to improve areas in which it is weak is crucial. Specifically, we will continue to strengthen our staff of MRs andincrease our sales capabilities through enhanced productivity.
At the same time, we will endeavor to introduce new drugs
and license existing ones. Through such efforts, we will continue to develop Kaken into a truly independent and valuable
company. Further, by maintaining a stable dividend payout
ratio and purchasing treasury stock should the opportunity
arrive, I aim to ensure that we can continue providing shareholder returns, as we always have, and that Kaken remains
an appealing company to investors. In closing, I would liketo ask all of our stakeholders for their continued support as
we strive to further Kaken’s continued development.
Tetsuo Onuma
President and Representative Director

Overview of Results for the Fiscal Year Ended
March 31, 2011
Achieving increased income for the ninth consecutive year aswell as record-breaking net sales and operating income
In the fiscal year under review, ended March 31, 2011, wide-ranging
drug price revisions were instituted, including the discounting of
long-term listed products, and the system offering pricing premiums to promote the discovery of new drugs and to eliminate theso-called drug lag, making for an increasingly harsh operating
environment for the pharmaceutical industry.
During the fiscal year under review, net sales for the Kaken
Group’s mainstay pharmaceuticals and medical devices grew 1.7%
year on year, to ¥86,428 million, regardless of the effects of the
drug price revisions. Additionally, the cost of sales ratio improved
and selling, general and administrative expenses declined following a decrease in research and development costs. These factors
2

Kaken Pharmaceutical Co., Ltd.

resulted in operating income increasing 20.3%, to ¥14,179 million;
ordinary income growing 21.3%, to ¥13,713 million; and net income
rising 22.0%, to ¥8,213 million.
In regard to the Great East Japan Earthquake, which occurred
March 11, 2011, while some of the Group’s sales branches in theaffected regions were damaged, the effects on operating results
were minimal.

Addressing Future Challenges for Continued Growth
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 will 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 achieving higher operating effectiveness and efficiency,
more reliable financial reporting, thorough compliance in ourbusiness activities and better security of assets.

• Optimizing operations and promoting efficiency
We are actively working to improve the cost of sales ratio
through more efficient investment, optimizing the placementof 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 ResearchLaboratories have obtained ISO 14001 certification. Also,
its Kyoto Research Laboratories have received the Kyoto
Environmental System (KES) certification, a certification
awarded by the city of Kyoto in recognition of environmental
management systems. Kaken recognizes that promoting
environmental preservation is a social responsibility. Therefore,
it has established an Environment Committee and set up
Environment 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.

Policy and Approach Concerning Returns to Shareholders
Kaken believes that providing consistent shareholders 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.
By 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 above mentioned policy, we have decided
to increase both the interim and year-end dividend by ¥3.00 per
share, to ¥18.00, for total dividend payments of ¥36.00 per sharein the year under review, making this our ninth straight year ofincreased dividend payments.
Further, the Company has developed a flexible system for theacquisition of treasury stock through which acquisitions are decided by the Board of Directors. In the year under review, we
acquired 4.5 million shares of treasury stock.
In the fiscal year ending March 31, 2012, we intend to pay interim
and year-end dividends of ¥20.00 per share each, for total dividend
payments of ¥40.00 per share.

Target Management Indicators and Long-TermBusiness 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 2011

Tetsuo Onuma
President and Representative Director
Annual Report 20113

Special Feature

Developing

New Products

to Satisfy Unmet Medical Needs

Kaken’s Innovative Product for Regeneration
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
tissues in the human body. It is released from the extracellular matrix once tissue is damaged by trauma, 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 forrecombinant human bFGF (trafermin) in Asia from Scios Inc. of the United States. Following this,Kaken made continued R&D efforts, and as a result we obtained marketing approval for trafermin for
the treatment of pressure ulcers and other skin ulcers (burn ulcers and leg ulcers) in June 2001 in
Japan. Through these efforts, bFGF was successfully introduced into the Japanese market for the firsttime in the world by Kaken under the trade name “Fiblast Spray.” This product continues to be used bya number of hospitals today, 10 years after the drug was released as a wound-healing agent. In recent
years, Fiblast Spray has earned a solid reputation asa drug that improves the “Quality of Wound Healing,” based on the evidence that bFGF has the
Action Mechanism of Fiblast Sprayability to prevent hypertrophic scars or scar conEpithelialization Stimulation
tracture and promote the formation of moisturized
Reduction of wound area
soft scar, as well as possessing a number of otherproperties. Further, having finished its reexaminaGRANULATION
tion by Japanese regulatory authorities in 2010,
TISSUE
Fiblast Spray has reestablished its presence as ahighly reliable drug in the medical market in Japan.
In addition to its effectiveness in regard to skintissue, bFGF has also demonstrated the ability topromote the proliferation and regeneration of
periodontal and bone tissues. In the field of dentistry, bFGF is known for its ability to promote theproliferation of the cells in periodontal ligaments
4

Kaken Pharmaceutical Co., Ltd.

Angiogenesis
1. Activation of matrix degrading enzymes
2. Migration of vascular endothelial cells
3. Proliferation of vascular endothelial cells
4. Formation of vascular vessel lumen

Fibroblasts Proliferation
Stimulation of granulation
formation
EPIDERMISDERMIS/SUBCUTANEOUS
TISSUEMUSCLEBONENew Drug Development Pipeline
Product Code

Indication

Stage

Remarks

KCB-1D

Periodontitis

Preparing for NDA

bFGF

KP-103 (IDP-108)

Onychomycosis

PIII

Global clinical development;
Topical formulation

KCB-1B

Bone fractures

PII FinishedbFGF; Next stage of clinical trials under consideration

TRK-100STP

Lumbar spinal
canal stenosis

PII

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

KP-413

Atopic dermatitis

Development abandoned

and the regeneration of alveolar bone. Kaken has conducted two Phase II clinical trials examining
the effects of trafermin on patients suffering from periodontitis. These trials confirmed trafermin
has dose-dependent effects on the regeneration of alveolar bone that had been destroyed by periodontitis. Based on these findings, we determined the optimal dose for Phase III clinical trials, andconducted Phase III clinical trials to further verify its effects, which reconfirmed the effectivenessof this drug. We are currently preparing for filing for marketing approval. Moreover, we believethat bFGF also has the potential for further treatments in the dental field, including
applications with implants, other than the treatment of periodontitis. Therefore,
we are currently conducting basic research to discover the “seeds” for suchpotential applications.
In regard to bone tissue, bFGF has demonstrated its effectiveness in treatingbone fractures by accelerating bone metabolism through both the direct effect ofpromoting the proliferation of osteoblasts and the indirect effect of accelerating the activities ofosteoclasts. Kaken has completed Phase II clinical trials on patients with tibial shaft fractures, andwe are currently in preparation for the next step.
In addition to the fields in which we have conducted clinical trials, we are currently collaboratingwith universities and other research institutions in Japan in a wide range of fields to further explore
the possibilities of bFGF as a regenerative medicine.
In March 2005, Kaken acquired the worldwide rights to develop, manufacture and market trafermin
for all therapeutic purposes. Later, in December 2005, Kaken entered a license agreement with aChinese pharmaceutical company involving the development and marketing of Fiblast Spray. In June
2007, Kaken entered a license agreement with Sunstar Inc. regarding the development and marketingof trafermin for dental applications in Europe and North America. Further, in November 2009, Kaken
entered a license agreement with Olympus Corporation regarding the development, manufacturingand marketing of trafermin for wound healing in Europe and North America.
Going forward, in collaboration with our overseas business partners, Kaken will continue to further
establish the presence of trafermin on the global medical market by fully utilizing the wealth oftechnologies and knowledge we have accumulated regarding bFGF and this product through our
R&D efforts.
Annual Report 20115

Overview of Major Products
Distribution of Net Sales (nonconsolidated)
In the fiscal year ended March 31, 2011, wide-ranging drug price revisions

5.1%

were instituted, including the discounting of long-term listed products,

2.4%

Renting Real Estate

Agrochemicals

and the system offering pricing premiums to promote the discovery of
new drugs and to eliminate the so-called drug lag was introduced. In thisNonconsolidated Net Sales¥84,641 million(+1.8% yoy)environment, net sales for the Kaken’s mainstay pharmaceuticals andmedical devices increased, despite the effects of the drug price revisions.

92.5%

As a result, in the fiscal year under review, nonconsolidated net sales

Pharmaceuticals andMedical Devices

increased 1.8% year on year, to ¥84.641 million.

Pharmaceuticals and Medical Devices

73,25576,40778,276

2011

70,244

2010

67,151

2009

In Agrochemicals, overall sales went down. As a result, in the fiscal year
under review, net sales for Agrochemicals decreased 8.3% year on year,to ¥4,319 million.

MILLIONS OF YEN

2008

Agrochemicals

Net Sales (nonconsolidated)2007

In pharmaceuticals, sales remained strong for Artz, which is one of
the Company’s mainstay products. In addition, sales of generic drugs
increased, while sales went down for
Adofeed and Procylin. In medical
devices, sales went up for Seprafilm.
As a result, in the fiscal year underreview, net sales for Pharmaceuticals
and Medical Devices increased 2.4%
year on year, to ¥78,276 million.

YEARS ENDED MARCH 31

Net Sales (nonconsolidated)
MILLIONS OF YEN

5,485

5,972

5,740
4,711

4,319

2011

2010

2009

2008

2007

YEARS ENDED MARCH 31

Renting Real Estate

MILLIONS OF YEN

2,074

2008

2009

2,053

2,045

2011

1,979

2010

1,952

2007

In the Real Estate Segment, the majority of revenues are generated
through rental income from the Bunkyo Green Court commercial
facility. Net sales for Real Estate
Segment decreased 0.4% year on
year, to ¥2,045 million.

Net Sales (nonconsolidated)

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 ishighly purified sodium hyaluronate
extracted from rooster combs, and it has
viscoelastic, water-retentive and lubricating properties.
In 1987, Artz was introduced into the market as a world’s first
drug of sodium hyaluronate indicated to treat osteoarthritis byintraarticular injection. In 1989, an indication was added for thetreatment of shoulder periarthritis.
In 1992, Artz began being marketed in pre-filled disposable
syringes under the name Artz Dispo. This was done with the aimof 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 createdby Kaken, as an active pharmaceutical ingredient. Mentax is on
the market in the United States by Mylan Pharmaceuticals, andis 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 since been sold in the
United States by Merck Consumer Care under the trade name
Lotrimin Ultra.
In Japan, Mentax received approval to be manufactured and it
was launched as an OTC drug in 2003. The sales of Mentax 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 to treat chronicartery occlusive disease by oral administration containing a prostaglandin I2
analog, beraprost sodium, as an active
pharmaceutical ingredient. It has theeffects of vascular vessel dilatation and platelet aggregation
inhibition. It is the only one oral-use prostaglandin I2 analog
product in the world. It was created by Toray Industries, Inc. andcommercialized by co-development with Kaken.
Procylin improves blood circulation by platelet aggregation andperipheral blood flow increase. It has an improvement effect on
ulcers, pain and chill resulting from conditions associated witharteriosclerosis obliterans (ASO) and thromboangitis obliterans(TAO). It was launched in 1992. In 1999, Procylin was approved foran additional indication to treat primary pulmonary hypertension.

Lipidil (anti-hyperlipidemia product)

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 October 2008, we launched plasters with double the size of
Adofeed previously offered. This allows patients to choose thesize most appropriate for their needs.

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

Lipidil is a fibrate-type antihyperlipidemic drug withabsorbability enhanced byusing micronized fenofibrate,
the active pharmaceutical ingredient of Lipantil, which waslaunched in 1999.
Fenofibrate is the fibrate class compound that was developed
by Groupe Fournier SA in France. The drug lowers triglycerides
and total cholesterol, and increases HDL cholesterol 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 on the market in 90 countries or more andmuch clinical experience has been accumulated to date.

Annual Report 20117

Ebrantil ( 1 blocker to treat dysuria due to BPH
and hypertension)
Ebrantil is a sustained-release formulation of urapidil which isa selective 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.

Berasus (oral-use sustained-release formulationof prostaglandin I2 analog)
Berasus, approved for marketing in October 2007 and launched
in December of the same year, is a drug to treat pulmonary
arterial hypertension (PAH). This product is a sustained-releaseformulation of beraprost sodium, the active pharmaceuticalingredient of 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 ofadministrations and increase the daily dose.
Since currently very few effective drugs are available for thetreatment of PAH, Berasus is ranked as an important drug forthis disorder.
At the moment, clinical trials are in progress to add an indication to treat lumbar spinal canal stenosis.

Clexane (anticoagulant)
Clexane is an anticoagulant containing enoxaparin sodium, a low
molecular weight heparin developed by sanofi-aventis of France,
as an active pharmaceutical ingredient.
Clexane exhibits an anticoagulant effect by forming a complex
with antithrombin III that inhibits activation factors, Xa and IIa.
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 by domestic and international medical guidelines.
The product is currently used in approximately 130 countries
worldwide.

8

Kaken Pharmaceutical Co., Ltd.

Generic Drugs
Today, in Japan, people areencouraged by the government to use generic drugs aspart of a movement to reduce
public healthcare costs. There
has also been an increasing trend in the medical fields toward
using generic drugs in the practice.
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.
We aim to grow generic drug operations into a fifth pillar ofour business, alongside pharmaceuticals, medical devices, agrochemicals and animal health products, and real estate, and haveset a medium-term goal of achieving net sales of ¥10.0 billion inthis field. Accordingly, we will continue to expand our genericproduct lineup.

Seprafilm (synthetic-absorbent anti-adhesive barrier)Developed by Genzyme Corporation of
the United States, Seprafilm is a sheettype, synthetic, anti-adhesive barrier.
Made from sodium hyaluronate andcarboxymethyl cellulose, Seprafilm transforms into a hydrated gel within 24 to 48 hours after being
applied to tissue that has been damaged by surgery. It thenremains 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, allowing
practitioners to select the size that meets the needs of thesituation.

Agrochemicals
Polyoxins (fungicides)
In 1963, polyoxins are natural
fungicides originated frommicroorganisms first discovered by Dr. Saburo Suzuki andhis team at the RIKEN Institute. They are produced byculturing an actinomycete, Streptomyces cacaoi var. asoensis
isolated from soil of the Aso region in Kumamoto Prefecture,
Japan. Polyoxins are not a single compound, but are a complex
consisting of a series of compounds resembling each other inthe chemical structures. Currently, 14 different polyoxin analogues, polyoxins A through N, have been discovered. Amongthem, 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 forlawns, 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 aherbicide for paddy rice in its initial formulation and inseveral mixed formulations based on this initial formulation.
Pentoxazone is effective mainly on annual weeds in rice paddies, such as barnyard grass, Lindernia, and Monocholia, and isalso 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 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 to countries of theworld, 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 exports this product worldwide.

Annual Report 20119

Commitment and Excellence
R&D Division
Kaken focuses its drug discovery efforts on areas in which itis particularly strong including inflammation, allergies and pain
relief, while also maintaining its focus on the area of fungal infection in which it specializes, devoting a great deal of financial andhuman 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 thismanner, 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 ¥7.3 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 to accelerate our R&D initiatives.
As a pharmaceutical manufacturer, Kaken is dedicated to conducting R&D activities while always maintaining the goal of developing proprietary medicines. To promote efficiency within our
R&D activities, we have developed a multifaceted approach toward these activities, which entails engaging in in-house discovery, joint research and development, in- and out-licensing ofdeveloped products, and outsourcing focused on the areas inwhich Kaken is particularly strong.
Kaken’s Central Research Laboratory consists of two different
facilities, one located in Kyoto, the old capital of Japan, and theother 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 that theseprojects progress efficiently, researchers make full use of state-ofthe-art equipment and technologies, while encouraging effective
communication and the clear division of duties. Drug discovery
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 body
10

Kaken Pharmaceutical Co., Ltd.

and 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 Scienceand Technology, Japan (APSTJ) in the field of oral solid formulation
technology. Later, in 2009, other scientists were awarded 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 Design of Latanoprost
Eye Drops received an award as an excellent paper from the Academy of Pharmaceutical Science and Technology, Japan (APSTJ).
These recognitions have further reinforced the high evaluation ofthis fundamental technology. By leveraging such superior researchtechnologies, we aim to continue to accelerate and expand 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 anddrugs around the world. Moreover, by periodically discussing drug
discovery with and receiving advice from respected experts inJapan, 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 inwhich the drugs are administered to humans. After testing theefficacy 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. It makes
the final judgments regarding the quality, effectiveness, and safetyof the drugs that the Company supplies to the medical field.
The Quality Assurance Department assesses whether eachbatch of each drug is produced in the predetermined manner andevaluates whether or not quality tests are compliant with applicable standards. The Pharmacovigilance Department then reviews
safety related information pertaining to these drugs that has beencollected from medical institutions. Following this, the Regulatory
Affairs Division makes comprehensive judgments based on thefindings of these two departments.
The Quality Assurance Department conducts regular inspections
and audits of internal and external plants, gathering and assessing
quality related information at these plants in order to ensure thequality 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 ofdrugs in order to promote the effective utilization of Kaken’s drugs.
The Regulatory Affairs Department supervises and assists all
aspects of the Company’s manufacturing and sales activities. In
addition to this, the department also participates in the R&D
process. It compiles the R&D division’s data regarding quality as
well as data from both non-clinical and clinical trials. After compiling this data, the department is responsible for gaining approval
for usage of our drugs and for listing them in the National Health
Insurance Drug Price List after approval is obtained from theauthorities.

Production Division
The Shizuoka Factory, located in Shizuoka Prefecture, was among
the earliest factories in this industry to introduce automatedproduction lines. The factory is in compliance with Japanese GMP,a standard that sets guidelines for the manufacturing and quality
control of drugs. Further, exported products are in compliancewith current Good Manufacturing Practice (cGMP) regulations,which were developed by the Food and Drug Administration(FDA) of the United States. In these ways, we are practicing thorough quality control. Additionally, located within the groundsof the factory is the Production Technology Laboratories, whichworks to improve products and conduct research on drug
formulations.

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.
We currently have 9 branches and 68 sub-branches throughout
Japan. Utilizing this network, our approximately 700 MRs workin close contact with local communities with particular regard to
the fields of orthopedics and dermatology, two areas in which
we specialize.
In the current fiscal year ending March 31, 2012, we will begin
implementing aggressive measures to boost sales. In order tofurther our advancement of these measures, we intend to bolster
our staff of MRs, raising their numbers from 700 to 800 within
the next couple of years.

Agrochemical & Animal Health Products Division
The Agrochemical & Animal Health Products Division is collectively responsible for conducting global research, development
and sales activities related to agrochemicals, feed additives anddrugs for animals.
Our agrochemical operations are primarily focused on two
products: Polyoxins, a group of fungicides, and Pentoxazone, arice herbicide. We are actively expanding sales of these products
in Japan and overseas. Polyoxins are fungicides produced by culturing microorganisms in a culturing medium consisting of natural
materials. For a number of years, they have earned the high regardof agriculture producers around the world due to their safety forboth humans and animals, low environmental impact and effectiveness for use against disease damage on vegetables, fruit trees,
lawns and flowers. These products were also recently proven tohave acaricidal properties, further expanding their range of uses.
Pentoxazone is effective against the vast array of annual weeds inrice paddies and has demonstrated effectiveness against herbicide-resistant weeds that have emerged recently. These factors
make Pentoxazone an indispensable tool for rice farmers.
Kaken offers anti-coccidials for chickens. These include Salinomycin and Lasalocid, both of which are feed additives, and Colistin
sulfate and Bacitracin zinc, which help prevent infectious diseases
in livestock. The Company also supplies an animal drug forbovine, thus contributing to the production of healthy livestockand safe food.
Going forward, the Agrochemical & Animal Health Products
Division will continue contributing to the safety and reliabilityof food production by developing and selling products that aresafe for both humans and animals, while also having low environmental impact.

Marketing and Sales Division
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

Distribution Division
All distribution functions are outsourced to distributors thatspecialize in the distribution of pharmaceuticals.
Annual Report 201111

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”, one of
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.

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 are thus fully awareof these principles and guidelines, and exercise them in their daily
work as they participate in this important business 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.

Initiatives to Enhance Corporate Governance
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 strive

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
REPORT

ChairmanPresident

REPORT

Managing Directors’ Meeting

REPORT

DELIBERATE
AUDIT

Risk Management andvarious other committees

12

Kaken Pharmaceutical Co., Ltd.

REPORTPROMOTEINSTRUCT, SUPERVISE

Company-wide organizations,Group companies

SUPERVISE

Accounting
AuditorKaken’s River Beautification Activities
Seto River, Shizuoka Prefecture

Kaken’s Activity Principles and Guidelines
Each executive and employee of Kaken and its subsidiaries isstrongly committed to compliance with all relevant Japanese andforeign 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 contribute to
the welfare of society by channeling all our efforts into theenhancement of people’s health and patients’ quality of life.
2. We recognize the importance of maintaining appropriate
relations with all of medical practitioners as well as our shareholders, investors, employees, business partners, and local
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 tofoster 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 a good corporate
citizen, including through environmental protection efforts.
8. We shall not tolerate terrorism and other anti-social behavior.

Environmental Protection Activities“Kaken helps improve the quality of life for patients by serving as
many people as possible to return smiles of happiness to theirfaces, through supplying superior pharmaceuticals” is Kaken’s
corporate philosophy. We will continue to act in accordance withthis philosophy in order to contribute to the betterment of people’s lives and health through our pharmaceutical operations.
In recent years, there has been a growing concern for environ-

Shinomiya River, Kyoto Prefecture

mental issues, such as preserving biodiversity. These issues force
corporations to reevaluate their interests in a number of wideranging 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 Measure 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 environment, improve people’s healthand living environments, and reduce pollution. Further, in 2004,
we developed the Kaken Basic Environmental Philosophy and the
Basic Environmental Policies. Later, the Environmental Measure
Committees were transformed into the Environmental Measures
Task Force to enhance their ability to respond to such changes as
the April 2009 revision of the Act on the Rational Use of Energy.
This task force works in cooperation with the Environmental Committee to develop environmental preservation measures with aparticular focus on those that 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 ResearchLaboratories 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 branches, while developinga more complete and aggressive approach toward environmental
issues. At the same time, we will work to reduce the environmental impact of Kaken’s operations.
Annual Report 201113

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)

14

Kaken Pharmaceutical Co., Ltd.

Auditor

Sumio Yoshizawa
AuditorToshio Sakurai

Financial Section
Consolidated Five-Year Summary�����������������������������������������������������16
Management Discussion and Analysis��������������������������������������������16
Consolidated Balance Sheets������������������������������������������������������������18
Consolidated Statements of Income������������������������������������������������20
Consolidated Statements of Changes in Net Assets���������������������21
Consolidated Statements of Comprehensive Income�������������������22
Consolidated Statements of Cash Flows�����������������������������������������23
Notes to the Consolidated Financial Statements��������������������������24
Report of Independent Auditors������������������������������������������������������42

Annual Report 201115

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

Millions of yen

2011

2010

2009

2008

2007

2011

For the years ended March 31,

Net sales¥86,428¥85,022¥82,930¥79,934¥76,415$1,041,301

Operating income

14,17911,784

10,629

9,842

8,113

170,831

Net income

8,213

6,734

5,579

5,106

4,602

98,952

Total net assets

60,37559,57556,67957,44760,433

727,410

Total assets

98,49395,096

94,50493,856

100,900

1,186,663

At March 31,

Per share data

Net income (basic)

Yen

U.S. dollars (Note)¥ 87.87¥ 68.79¥ 55.61¥ 48.35¥ 42.42

36.00

30.00

26.00

20.00

17.00

ROE

13.69

11.59

9.78

8.66

8.00

Capital adequacy ratio

61.30

62.65

59.98

61.21

59.89

Cash dividends (non-consolidated)
Ratios

$

1.059
0.434

%

Note: U.S. dollar amounts are translated, for convenience only, at the rate of ¥83 = $1 effective on March 31, 2011.

Management Discussion and Analysis
Operating Environment
In the fiscal year under review, the fiscal year ended March 31,
2011, wide-ranging drug price revisions were instituted, including
the discounting of long-term listed products, and the system
offering pricing premiums to promote the discovery of new drugs
and to eliminate the so-called drug lag was introduced.
In this environment, net sales for the Kaken Group’s mainstay
pharmaceuticals and medical devices increased, despite the effects of the drug price revisions.

Operating Performance
In the fiscal year under review, consolidated net sales increased
1.7% year on year, to ¥86,428 million. Further, there were improvements in the cost of sales ratio and selling, general and administrative expenses were lower due to a decline in research anddevelopment costs. As a result of these factors, operating income
increased 20.3%, to ¥14,179 million and net income increased
22.0%, to ¥8,213 million.
Also, in regard to the Great East Japan Earthquake, which occurred on March 11, 2011, while some of the Group’s sales branches in the affected regions were damaged, the impact on operating
results was minimal.

Segment Information
Pharmaceuticals
Kaken’s pharmaceuticals segment consists of two core categories:
pharmaceuticals and medical devices as well as agrochemicals.
In pharmaceuticals, sales remained strong for Artz, an antiosteoarthritic, which is one of the Company’s mainstay products.
In addition, sales of generic drugs increased, while sales went
down for Adofeed, a pain- and inflammation-relieving plaster, andProcylin, a treatment for chronic artery occlusive disease.
In medical devices, sales of the anti-adhesive absorbent barrier
Seprafilm went up.
In agrochemicals, overall sales went down.
As a result of the above, net sales increased 1.7% year on year, to¥83,976 million, and segment income* increased 24.0%, to¥12,749 million. Net sales overseas were ¥2,280 million.

Real Estate
In the real estate segment, the majority of revenues are generated
through rental income from the Bunkyo Green Court commercial
facility.
Net sales in this segment decreased 0.3% year on year, to ¥2,452
million, and segment income* decreased 4.9%, ¥1,429 million.
* Segment income is based on operating income.

16

Kaken Pharmaceutical Co., Ltd.

Financial Position
Total assets were ¥98,493 million as of March 31, 2011, up ¥3,396
million from the previous fiscal year-end, primarily due to anincrease in plant, property and equipment. Total liabilities were¥38,117 million, up ¥2,596 million. This was largely attributable toan increase in accrued income taxes. Net assets totaled ¥60,375
million, an increase of ¥800 million, following higher retained
earnings.

Cash Flows
Cash and cash equivalents at the end of the fiscal year underreview stood at ¥17,035 million, down ¥469 million from the previous fiscal year-end. Principal factors related to cash flows during
the year under review are as follows.
Net cash provided by operating activities amounted to ¥13,142
million, up ¥2,093 million year on year. Principal factors included
an increase in income before income taxes.
Net cash used in investing activities was ¥6,302 million, up¥3,928 million. This was primarily due to an increase in acquisitions of property, plant and equipment.
Net cash used in financing activities was ¥7,309 million, up¥3,581 million. The main factor in this increase was a rise in theacquisition of treasury stock.

Business Risks
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.

(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, sales
by other companies of generic versions of products offered by
the Company may cause declines in sales 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. Should such actions betaken against the Company, it could affect the Company’s
performance.

(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 201117

Consolidated Balance Sheets
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.
As of March 31, 2011 and 2010
Thousands of
U.S. dollars (Note 4)

Millions of yen

2011

2010

2011

	Cash on hand and at banks (Notes 5 and 11)¥14,729¥ 9,900$ 177,458

	Marketable securities (Notes 5, 6 and 11)

2,305

7,603

27,771

27,11927,660326,735ASSETS
Current assets:

Receivables:		Notes and accounts receivable-trade (Note 11)
		 Accounts receivable-other
Allowance for doubtful receivables

994

1,197

11,976

28,11428,858

338,723

(2)

(7)

(24)

28,111

28,851

338,687

	Inventories (Note 7)

10,301

8,993

124,108

	Deferred tax assets (Note 18)

1,178

1,168

14,193	Other current assets

259

306

3,120

			Total current assets

56,88556,824685,361

Property, Plant and Equipment (Notes 9 and 10):

Buildings and structures

37,71036,957454,337

	Machinery and equipment

20,106

19,171

242,241

57,81656,129696,578(37,343)(35,617)(449,916)

20,473

20,511

246,663

	Land

5,454

3,762

65,711

	Construction in progress

2,220

969

26,747

		Total property, plant and equipment

28,14825,243

339,133

6,079

5,445

73,241

593

519

7,145

5,220

4,900

62,892

Accumulated depreciation

Investments and other assets:
	Investment securities (Notes 6 and 11)
	Intangible assets and long-term prepaid expenses
	Deferred tax assets (Note 18)
	Other assets

1,564

2,162

18,843

			Total investments and other assets

13,45813,028

162,145TOTAL ASSETS¥98,493¥95,096$1,186,663

See accompanying notes to Consolidated Financial Statements.

18

Kaken Pharmaceutical Co., Ltd.

Thousands of
U.S. dollars (Note 4)

Millions of yen

2011

2010

2011

¥ 8,390¥ 8,510$ 101,084

		Notes and accounts payable-trade (Note 11)12,293

11,174

148,108

		Notes and accounts payable-construction

177

130

2,133

4,088

3,452

49,253

16,55914,758

199,506

Accrued expenses

729

1,131

8,783

	Provision for bonuses

1,199

1,214

14,446

LIABILITIES AND NET ASSETS
Current liabilities:

	Short-term bank loans (Notes 8 and 11)
	Payables:		 Accounts payable-other	Provision for sales rebates
Accrued income taxes (Note 18)

562

451

6,771

3,625

2,061

43,675	Other current liabilities

400

731

4,819

			Total current liabilities

31,46628,858379,108

5,620

5,678

67,711

455

395

5,482

	Deferred tax liabilities (Note 18)

179

189

2,157

	Other long-term liabilities

395

398

4,759

6,651

6,662

80,133

		Issued: 101,879,461 shares as of March 31, 2011 and 101,879,461 shares
as of March 31, 2010

23,85323,853287,386

	Capital surplus

11,587

11,587

139,60233,806

28,684

407,301

Non-current liabilities:

Accrued pension and severance costs (Note 13)
Accrued retirement benefits to directors

			Total non-current liabilities
Net assets:

Shareholders’ Equity (Notes 2(l) and 15):
	Common stock - no par value
		 Authorized: 360,000,000 shares

Retained earnings	Treasury stock, at cost: 10,306,088 shares in 2011 and 5,738,399 sharesin 2010(9,100)(4,999)(109,639)

			Total shareholders’ equity

60,14559,124

724,639

229

447

2,759

—

2

—

229

450

2,759

			Total net assets

60,37559,575

727,410TOTAL LIABILITIES AND NET ASSETS¥98,493¥95,096$1,186,663

Accumulated other comprehensive income:	Net unrealized gain on other securities, net of taxes (Note 2 (c))
	Deferred gain on hedges
			Total accumulated other comprehensive income

See accompanying notes to Consolidated Financial Statements.

Annual Report 201119

Consolidated Statements of Income
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.
For the years ended March 31, 2011 and 2010
Thousands of
U.S. dollars (Note 4)

Millions of yen

2011

2010

2011

Net sales¥86,428¥85,022$1,041,301

Cost of sales

44,064

44,116

530,892

		 Gross profit

42,36440,905

510,410

Selling, general and administrative expenses (Note 16)

28,18529,120339,578

Operating income

14,17911,784

170,831	Interest and dividend income

105

105

1,265

	Interest expenses

(74)

(97)

(892)

(524)

(524)

(6,313)

Other income (expenses):

Amortization of net obligation at transition
	Loss on disposal of property, plant and equipment

(137)

(248)

(1,651)Gain on sales of investment securities, net

—

68

—

Amortization of long-term prepaid expenses (Note 17)

—

(180)

—

Revaluation loss of golf membership

(35)

(0)

(422)

	Other, net

33

22

398

(633)

(855)

(7,627)

13,545

10,929163,193

	Current

5,521

4,017

66,518

	Deferred

(189)

177

(2,277)

5,332

4,194

64,241

8,213—

98,952¥ 8,213¥ 6,734

Income before income taxes and minority interests
Income taxes (Note 18):

Income before minority interests
Net incomeyen

Per share data:$

98,952

U.S. dollars (Note 4)

2011

2010

2011

¥87.87¥68.79$1.059———¥36.00¥30.00$0.434

	Net income (Note 20):
		 Basic
		Diluted
	Cash dividends applicable to the year (Note 15)
See accompanying notes to Consolidated Financial Statements.

20

Kaken Pharmaceutical Co., Ltd.

Consolidated Statements of Changes in Net Assets
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.
For the years ended March 31, 2011 and 2010
Thousands of
U.S. dollars (Note 4)

Millions of yen

2011

2010

2011

$287,386

Shareholders’ equity
	Common stock		 Balance at beginning of the year

¥23,853¥23,853

		Changes during the year

—

—

—

		 Balance at end of the year

23,85323,853287,386

11,587

11,587

139,602

			Treasury stock sold

0

(0)

0

		Total changes during the year

0

(0)

0

11,587

11,587

139,602

28,684

24,698345,590

			Cash dividends(3,091)(2,748)(37,241)

			Net income

8,213

6,734

98,952

		Total changes during the year

5,122

3,985

61,711

		 Balance at end of the year

33,806

28,684

407,301(4,999)(3,417)(60,229)(4,103)(1,588)(49,434)2

624

		Total changes during the year

(4,101)(1,581)(49,410)

		 Balance at end of the year

(9,100)(4,999)(109,639)

59,12456,722

712,337

			Cash dividends(3,091)(2,748)(37,241)

			Net income

8,213

6,734

98,952

			Treasury stock acquired(4,103)(1,588)(49,434)

	Capital surplus

		 Balance at beginning of the year
		Changes during the year:

		 Balance at end of the year
Retained earnings

		 Balance at beginning of the year
		Changes during the year:

	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

2

5

24

1,021

2,402

12,301¥60,145¥59,124$724,639

Annual Report 201121

Thousands of
U.S. dollars (Note 4)

Millions of yen

2011

2010

2011

Accumulated other comprehensive income

	Net unrealized gain (loss) on other securities, net of taxes
		 Balance at beginning of the year

¥ 447¥    (43)		Net changes in items other than shareholders’ equity

(218)

490

$

(2,627)5,386

		Total changes during the year

(218)

490

(2,627)

		 Balance at end of the year

229

447

2,759

	Deferred gain on hedges

		 Balance at beginning of the year

2

—

24

		Net changes in items other than shareholders’ equity

(2)

2

(24)

		Total changes during the year

(2)

2

(24)

		 Balance at end of the year

—

2

—

	Total accumulated other comprehensive income

		 Balance at beginning of the year

450

(43)

5,422

		Net changes in items other than shareholders’ equity

(220)

493

(2,651)

		Total changes during the year

(220)

493

229

¥   450$¥59,575¥56,679$717,771

			Cash dividends(3,091)(2,748)(37,241)

			Net income

8,213

6,734

98,952

			Treasury stock acquired(4,103)(1,588)(49,434)

		 Balance at end of the year¥

(2,651)
2,759

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

2

5

24

(220)

493

(2,651)

800

2,895

9,639

¥60,375¥59,575$727,410

See accompanying notes to Consolidated Financial Statements.

Consolidated Statement of Comprehensive Income
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.
For the year ended March 31, 2011
Millions of yen

Income before minority interests

Thousands of
U.S. dollars (Note 4)

2011

2011

¥8,213$98,952(218)(2,627)

Other comprehensive income (Note 21):
		Net unrealized gain on other securities, net of taxes
		Deferred gain on hedges
			Total other comprehensive income
Comprehensive income (Note 21)

(2)

(24)

(220)

(2,651)¥7,992$96,289¥7,992$96,289

Total comprehensive income attributable to (Note 21):
		Owners of the parent
See accompanying notes to Consolidated Financial Statements.

22

Kaken Pharmaceutical Co., Ltd.

Consolidated Statements of Cash Flows
Kaken Pharmaceutical Co., Ltd. and Consolidated Subsidiaries.
For the years ended March 31, 2011 and 2010
Thousands of
U.S. dollars (Note 4)

Millions of yen

2011

2010

2011

¥13,545¥10,929$163,193

Cash flows from operating activities:

	Income before income taxes
Adjustments for:		Depreciation

2,488

2,423

29,976

		 Amortization of long-term prepaid expenses

227

527

2,735

		 Accrual for pension and severance costs, less payments

426

564

5,133

		Interest and dividend income

(105)

(105)

(1,265)

		Interest expense

74

97

892

		 Revaluation loss of golf membership

35

0

422

		 Gain on sales of investment securities, net

—

(68)

—

136

233

1,639

		Loss on disposals of property, plant and equipment
		Decrease in notes and accounts receivable-trade

541

686

6,518

		Decrease (Increase) in inventories(1,307)

1,953(15,747)

		Increase (Decrease) in notes and accounts payable-trade

1,118(1,997)

13,470		Other, net

(144)

355

(1,735)

			Subtotal

17,037

15,598205,265

		Interest and dividends received

105

106

1,265

		Interest paid

(73)

(97)

(880)

		Income taxes paid, net(3,926)(4,558)(47,301)

			Net cash provided by operating activities

13,142

11,049158,337

		 Acquisition of property, plant and equipment(4,952)(2,508)(59,663)

		 Acquisition of investment securities(1,001)(332)(12,060)

		Proceeds from sales of investment securities

—

325

—

		Proceeds from redemption of investment securities

—

500

—

(296)

(265)

(3,566)

Cash flows from investing activities:

		Payment of long-term prepaid expenses
		Other, net

(52)

(92)

(627)

(6,302)(2,374)(75,928)

		Proceeds from short-term loans

—

600

—

		 Repayment of short-term loans

(120)

—

(1,446)

		 Acquisition of treasury stock(4,101)(1,582)(49,410)

		Cash dividends paid

(3,088)(2,745)(37,205)

			Net cash used in financing activities(7,309)(3,727)(88,060)

(469)

4,947

(5,651)

Cash and cash equivalents at beginning of year

17,504

12,556

210,892

Cash and cash equivalents at end of year (Note 5)¥17,035¥17,504$205,241

			Net cash used in investing activities
Cash flows from financing activities:

Net increase (decrease) in cash and cash equivalents

See accompanying notes to Consolidated Financial Statements.

Annual Report 201123

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.
Under Japanese GAAP, a consolidated statement of comprehensive income is required from the year
ended March 31, 2011 and has been presented herein. Accordingly, accumulated other comprehensive
income is presented in the consolidated balance sheets and the consolidated statements of changes
in net assets. Information with respect to other comprehensive income for the year ended March 31,
2010 is disclosed in Note 21. “Comprehensive Income”.
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 three subsidiaries as of March 31, 2011 and 2010. The consolidated financial statements include the accounts of the Company and all of its subsidiaries. The consolidated subsidiaries
as of March 31, 2011 are as follows:
KAKEN REALTY & SERVICE CO., LTD.
KAKEN PHARMA CO., LTD.
FUJIKA CORPORATION
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.
(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 that24

Kaken Pharmaceutical Co., Ltd.

are 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 had a retirement benefit program in which approximately 70% of the whole fund was allocated for the payment of lump-sum retirement benefit plan, while the rest was allocated to a defined
benefit corporate pension plan on April 1, 2010. In the meanwhile, the Company has set up a retirement
benefit trust. Extra retirement payments may be paid to employees retiring under certain circumstance.
Consolidated subsidiaries of the Company have no arrangement for corporate pension plans.
The accrued pension and severance costs represent the amount actuarially calculated projected
benefit obligation less (1) the fair value of the plan assets, (2) unrecognized actuarial loss or gain, (3)the unrecognized transition amount arising from adopting the new standard and (4) 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 noncontributory 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.

Annual Report 201125

(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.
(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.
Diluted net income per share is computed, based on the assumption that the convertible bonds
were fully converted into common stock on the date of issue or at the beginning of the respective
years subsequent to the issue, with appropriate adjustments of related interest expense (net of taxes).
26

Kaken Pharmaceutical Co., Ltd.

3. Changes in Accounting Policies and Adoption of New Accounting Standards:(a) Asset Retirement Obligations
Effective from the year ended March 31, 2011, the Company adopted the “Accounting Standard for
Asset Retirement obligations” (ASBJ Statement No. 18, issued on March 31, 2008) and the “Guidanceon Accounting Standard for Asset Retirement Obligations”(ASBJ Guidance No. 21, issued on March 31,2008). There was no effect of this change on operating income and income before income taxes andminority interests for the year ended March 31, 2011.
(b) Income before Minority Interests
Effective from the year ended March 31, 2011, the Company adopted the “Regulation for Terminology,
Forms and Preparation of Financial Statements” (Cabinet Office Ordinance No. 5, issued on March 24,2009), based on the “Accounting Standard for Consolidated Financial Statements” (ASBJ Statement
No. 22, issued on December 26, 2008). “Income before minority interests” is separately presented on
the consolidated statements of income due to the adoption.
(c) Presentation of Comprehensive Income
Effective from the year ended March 31, 2011, the Company adopted the “Accounting Standard for
Presentation of Comprehensive Income” (ASBJ Statement No. 25, issued on June 30, 2010). The
amounts of “Accumulated other comprehensive income” and “Total accumulated other comprehensive
income” as of March 31, 2010 represent the amounts of “Valuation and translation adjustments” and“Total valuation and translation adjustments” under the previous standard, respectively,

4. 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 ¥83=U.S.$1, the approximate rate of exchange as of March 31, 2011. 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.

5. 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 4)

Millions of yen

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

2011

2010

2011

¥14,729¥ 9,900$177,458

2,305

7,603

27,771

17,03517,504205,241———¥17,035¥17,504$205,241

Annual Report 201127

6. Marketable Securities and Investment Securities:
The carrying amounts and fair values of held-to-maturity securities are as follows:
Millions of yen
Carrying amountMarch 31

Fair value

Unrealized gain (loss)

Carrying amount¥—¥    —

2011

Fair values exceeding carrying amount¥—

Fair value

Unrealized gain (loss)

2010

¥

—

¥    —¥—

Fair values not exceeding carrying
amount

1,999

1,999

—

1,999

1,999

—

	Total

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

Unrealized gain (loss)

Thousands of U.S. dollars (Note 4)
Carrying amountMarch 31

Fair value

Unrealized gain (loss)

2011

Fair values exceeding carrying amount$

Fair values not exceeding carrying
amount	Total

—

$

—

$—

24,08424,084—$24,084$24,084$—

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

2011

2010

Carrying amounts exceedingacquisition cost
¥3,726¥2,839¥887¥ 4,308¥ 3,384

	Others

	Equity securities

—

—

—

—

—

¥924
—

	Subtotal

3,726

2,839

887

4,308

3,384

924

(170)

Carrying amounts not exceedingacquisition cost
2,290

2,791

(500)

1,074

1,244

	Others

	Equity securities

306

306

—

5,603

5,603

—

	Subtotal

2,596

3,097

(500)

6,678

6,848

(170)

		Total¥6,323¥5,937¥386¥10,987¥10,232¥754

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

Acquisition cost

March 31

Unrealized gain (loss)

2011

Carrying amounts exceedingacquisition cost	Equity securities$44,892$34,205$10,687

	Others———

	Subtotal

44,892

34,205

10,687(6,024)

Carrying amounts not exceedingacquisition cost28

	Equity securities

27,59033,627	Others

3,687

3,687

—

	Subtotal

31,27737,313(6,024)

		Total$76,181$71,530$ 4,651

Kaken Pharmaceutical Co., Ltd.

Information of other securities sold during the year ended March 31, 2010 is as follows:
Millions of yen

For the year ended March 31,

2010

Proceeds from sales¥325

Gross realized gains

68

Gross realized losses—

Information for the year ended March 31, 2011 is not disclosed since there were no sales ofother securities.

7. Inventories:
Inventories as of March 31, 2011 and 2010 are comprised of the following:Thousands of
U.S. dollars (Note 4)

Millions of yen

March 31

2011

2010

2011

Finished products¥ 5,234¥5,386$ 63,060

Work in process

1,840

1,854

22,169Raw materials and supplies

3,225

1,752

38,855¥10,301¥8,993$124,108

	Total

8. Short-term Bank Loans:
Short-term bank loans outstanding as of March 31, 2011 and 2010 represented 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, 2011 and 2010 are 0.78% and 0.92%, respectively. Outstanding balance of shortterm bank loans as of March 31, 2011 and 2010 are ¥8,390 million ($101,084 thousand) and ¥8,510
million, respectively.
As is customary in Japan, short-term and long-term bank loans are made under general agreements
which provide that security and guarantees for future and present indebtedness will be given 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, 2011 and 2010, assets pledged as collateral for certain short-term bank loans are
as follows:
Thousands of
U.S. dollars (Note 4)

Millions of yen

March 31

2011

2010

2011

Buildings and structures¥2,812¥2,440$33,880

	Machinery and equipment

2,487

2,140

29,964

	Land

103

103

1,241

		Total¥5,402¥4,683$65,084

	Short-term bank loans¥1,400¥1,400$16,867

		Total¥1,400¥1,400$16,867

Assets pledged:

Liabilities secured:

Annual Report 201129

9. Accounting for Leases:
Operating leases
Future lease payments under non-cancellable operating leases at March 31, 2011 and 2010 are as follows:
Thousands of
U.S. dollars (Note 4)

Millions of yen

March 31

2011

2010

2011

Due within 1 year¥

$ 1,03686¥   86

Due after 1 year

1,389

1,476

16,735

	Total

¥1,476¥1,562$17,783

10. Investment Properties:
The Company and certain consolidated subsidiaries own rental office buildings (including lands) inTokyo and other areas. Rental income from these properties for the years ended March 31, 2011 and2010, are ¥1,429 million ($17,217 thousand) and ¥1,503 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, 2011 and 2010, and fair values of theseproperties are stated as follows:
Millions of yen
Carrying amount
Balance at March 31, 2010

¥13,929

Change during the year ended March 31, 2011

Balance at March 31, 2011

Fair value at March 31, 2011¥15,107¥40,092¥1,177
Thousands of U.S. dollars (Note 4)
Carrying amount

Balance at March 31, 2010

Change during the year ended March 31, 2011

Balance at March 31, 2011

Fair value at March 31, 2011

$167,819$14,181$182,012$483,036

Notes: 1.	The carrying amount represents the acquisition costs less accumulated depreciation.
2.	The above figures include the amounts concerning the land for 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 ($20,373 thousand).
4.	Fair value at March 31, 2011 is calculated, with adjustments using indexes, by the Company based primarily on the “Real estate appraisal
standards of Japan”.
Millions of yen
Carrying amount
Balance at March 31, 2009

¥14,453

Change during the year ended March 31, 2010¥(523)

Balance at March 31, 2010

Fair value at March 31, 2010

¥13,929¥39,021

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

11. Financial Instruments:
1. Outline of financial instruments(1) Policy for financial instruments
The Group is managing its cash surplus in the form of low risk financial instruments with high liquidity, while raising 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 customer’s 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 to30

Kaken Pharmaceutical Co., Ltd.

maintain 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
by regularly monitoring their status, in an effort to achieve early identification and mitigation of default 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.
Annual Report 201131

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. For
the year ended March 31, 2010, the notional amounts and other information described in Note 12.
“Derivative Financial Instruments” do not indicate the amounts of market risk exposed to derivativetransactions.
(5) Concentration of credit risks
As of March 31, 2011 and 2010, 63% of all trade receivables are with the specific major accounts.
2. Fair values of financial instruments
Carrying amount, fair value and difference of the financial instruments as of March 31, 2011 and 2010
are as follows:
Financial instruments whose fair values are not readily determinable are excluded from thefollowing table:
Millions of yen
Carrying amountMarch 31

Fair value

Difference

2011(1)	Cash on hand and at banks¥14,729¥14,729—(2)	Notes and accounts receivable – trade27,11927,11627,116—

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—

Allowance for doubtful receivables (*1)(2)(3)	Marketable securities and investment securities(2)	Short-term bank loans
		Total liabilities

Millions of yen
Carrying amount

Fair value(1)	Cash on hand and at banks¥ 9,900¥ 9,900—(2)	Notes and accounts receivable – trade27,66027,654—

March 31

Allowance for doubtful receivables (*1)

Difference

2010

(6)
27,654(3)	Marketable securities and investment securities
a. Held-to-maturity securities

1,999

1,999

—

b. Other securities

10,987

10,987—

		Total assets¥50,541¥50,541—(1)	Notes and accounts payable – trade (*2)

¥11,305¥11,305

—

8,510

8,510

—

¥19,815¥19,815

—

¥4

¥4

—

(2)	Short-term bank loans
		Total liabilities
Derivative transactions (*3)

32

Kaken Pharmaceutical Co., Ltd.

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

Fair value

March 31(1)	Cash on hand and at banks$177,458(2)	Notes and accounts receivable – trade326,735

Allowance for doubtful receivables (*1)

Difference

2011$177,458—

326,699—(24)
326,699(3)	Marketable securities and investment securities
a. Held-to-maturity securities

24,08424,084—b. Other securities

76,181

76,181—

		Total assets$604,446$604,446—(1)	Notes and accounts payable – trade$148,108$148,108—(2)	Short-term bank loans

101,084

101,084—

		Total liabilities$249,193$249,193—(*1) Allowance for doubtful receivables in respect of notes and accounts receivable – trade.
(*2) Notes and accounts payable – trade include notes payable-construction.
(*3) Receivables and payables incurred by derivative transactions are presented in net.
Notes:
1. Calculation method of fair values of financial instruments and securities and derivative transactions
Assets:(1) Cash on hand and at banks and (2) Notes and accounts receivable – trade
These assets are recorded using carrying amounts because fair values approximate carrying amounts because of
their short-term maturities.
(3) Marketable securities and investment securities
Fair values of equity securities are based on the prices quoted on stock exchanges while those of debt securities
are based on the prices quoted on stock exchanges, or those quoted by correspondent financial institutions. For
the notes on marketable securities by purpose of holding, please see Note 6. “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.
Derivative financial instruments:
Please see Note 12. “Derivative Financial Instruments.”
2. Financial instruments whose fair values are not readily determinable
Thousands of
U.S. dollars (Note 4)

Millions of yen
Carrying amountMarch 31
Unlisted equity securities

2011

2010

2011

¥62

¥62

$747

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.

Annual Report 201133

3. Redemption schedule of monetary assets and securities with contractual maturities as of March 31, 2011 and2010 are as follows:
Millions 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
Millions of yen
Within one year

March 312010

Cash on hand and at banks¥ 9,900

Notes and accounts receivable - trade27,660Marketable securities and investment securities:
	Held-to-maturity securities
	Other securities with contractual maturities
		Total

1,999
1,700
¥41,261
Thousands of U.S.
dollars (Note 4)
Within one year

March 312011

Cash on hand and at banks$177,458

Notes and accounts receivable - trade326,735

Marketable securities and investment securities:
	Held-to-maturity securities
	Other securities with contractual maturities
		Total24,0843,614$531,904

12. Derivative Financial Instruments:
Year ended March 31, 2011
1. Derivative transactions to which hedge accounting is not applied:
Not applicable.
2. Derivative transactions to which hedge accounting is applied:
Not applicable.
Year ended March 31, 2010
1. Derivative transactions to which hedge accounting is not applied:
Not applicable.
2. Derivative transactions to which hedge accounting is applied:
Currencies

34

Kaken Pharmaceutical Co., Ltd.

Hedge accounting method

Primary method

Receivables or Payables aretranslated using forward
foreign exchange contract
rates.

Classification

Forward foreign exchange
contracts:
Long position
U.S. dollars
Forward foreign exchange
contracts:
Long position
U.S. dollars
Short position
U.S. dollars

Major hedged items

Millions of yen
Notional amountover one year

Notional amount

Forecasted transactions inforeign currencies

—

¥111

Accounts payable – trade

Fair value

55

—

¥4

(Note 2)

Accounts receivable – trade
9—(Note 2)
Total
¥176
—
¥4
Notes: 1.	Fair values at the end of the fiscal year are calculated using prices quoted by correspondent financial institutions.
2.	As forward foreign exchange contracts subject to deferral hedge accounting are treated as one unit combined with foreign currency denominatedreceivables and payables that are hedged, fair values of the former are included in the fair values of the latter.
			Forward foreign exchange contracts which qualify for hedge accounting and meet specific matching criteria are not remeasured at fair value,
but the foreign currency denominated receivables or payables as hedged items are translated using the forward contract rates. Accordingly, thefair values of the forward foreign exchange contracts are considered to be reflected in the fair values of the related receivables or payables.

13. 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, 2011 and 2010 are as follows:
Thousands of
U.S. dollars (Note 4)

Millions of yen

March 31
Projected benefit obligations

2011

2010

2011
$(254,012)¥(21,083)¥(21,665)

Plan assets

10,202

10,341

122,916

Funded status(10,881)(11,323)(131,096)

Unrecognized transition amount

2,099

2,624

25,289Unrecognized actuarial loss

3,789

4,153

45,651

(44)

(64)

(530)

(5,036)(4,610)(60,675)

Unrecognized prior service cost
	Net amount recognized
Amounts recognized in the balance sheet consists of	Prepaid pension cost (other assets)
Accrued pension and severance costs

583

1,068

7,024

¥ (5,620)¥ (5,678)$ (67,711)

The components of net pension and severance costs for the years ended March 31, 2011 and 2010
are as follows:
Thousands of
U.S. dollars (Note 4)

Millions of yen

2011

2010

2011

Service cost

¥ 667¥  669$ 8,036

Interest cost

497

485

5,988

Expected return on plan assets

(98)

(86)

(1,181)

Amortization of transition amount

524

524

6,313

Amortization of actuarial loss

758

792

9,133

Amortization of prior service cost

(20)

(22)

(241)

¥2,328¥2,363$28,048

Net pension expense

Assumptions used in calculation of the above information for the year ended March 31, 2011 and 2010
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
Annual Report 201135

14. Discount of Export Bills:
Amount of export bills discounted at March 31, 2011 and 2010 are as follows:
Thousands of
U.S. dollars (Note 4)

Millions of yen

March 31

2011

2010

2011

Export bills

¥161

¥—

$1,94015. Shareholders’ Equity:a) Type and number of shares outstanding and treasury stock
Type of shares outstanding
Common stock

Number of shares as of March 31, 2010

Type of treasury stock
Common stock

101,879,461

5,738,399

Increase in the number of shares during the accounting period ended March 31, 2011—

4,570,090

Decrease in the number of shares during the accounting period ended March 31, 2011

—

2,401

101,879,461

10,306,088

Number of shares as of March 31, 2011

Notes: 1.	Increase in treasury stock (4,570,090 shares) is due to the purchase of treasury stock (4,500,000 shares) and purchase of shares less than one
unit (70,090 shares).
2.	Decrease in treasury stock is due to the purchase request on shares less than one unit (2,401 shares).

b) Matters related to dividendsi) Dividend payment
Approvals by the ordinary general meeting of shareholders held on June 29, 2010 were as follows:
Dividends on common stock
Total amount of dividends¥1,442 million ($17,373 thousand)
Dividends per share¥15.00 ($0.18)
Record date	March 31, 2010
Effective dateJune 30, 2010
Approvals by the Board of Directors’ meeting held on November 4, 2010 were as follows:
Dividends on common stock
Total amount of dividends¥1,649 million ($19,867 thousand)
Dividends per share¥18.00 ($0.22)
Record date	September 30, 2010
Effective date	December 2, 2010ii) Dividends whose record date is attributed to the accounting period ended March 31, 2011, but become effective after the said accounting period.
The Company obtained the following approval at the general meeting of shareholders held on June29, 2011:
Dividends on common stock
Total amount of dividends¥1,648 million ($19,855 thousand)
Dividends per share¥18.00 ($0.22)
Record date	March 31, 2011
Effective dateJune 30, 201136

Kaken Pharmaceutical Co., Ltd.

16. Research and Development Costs:
Research and development costs included in selling, general and administrative expenses for the years
ended March 31, 2011 and 2010 amounted to ¥6,853 million ($82,566 thousand) and ¥7,873 million,
respectively.

17. Long-term Prepaid Expense:
Amortization of long-term prepaid expense refers to one-time depreciation of fees for manufacturing
technologies and information.

18. 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, 2011 and 2010. A reconciliation of
the differences between the statutory tax rate and the effective tax rate for the years ended March 31,
2011 and 2010 is as follows:
For the year ended March 31,

2011

2010

Statutory tax rate

40.69%

40.69%

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

2.57

3.15

	Income not included for income tax purpose (ex. Dividend income)(0.13)(0.15)

	Inhabitant per capita taxes

0.64

0.79

	Tax credit for research expenses(4.11)(7.08)

	Other

(0.30)

0.98

Effective tax rate

39.36%

38.38%

Significant components of deferred tax assets as of March 31, 2011 and 2010 are as follows:
Thousands of
U.S. dollars (Note 4)

Millions of yen

March 31

2011

2010

2011

	Provision for bonuses

¥453

¥464

$5,458

	Provision for sales rebates

228

183

2,747

	Loss of supplies

79

95

952

	Devaluation of financial instruments

45

31

542

Amortization of R&D

251

292

3,024

Amortization of long-term prepaid expenses

195

250

2,349

2,233

2,058

26,904

185

161

2,229

2,568

2,568

30,940

Deferred tax assets:

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

463

480

5,578

		Total

6,703

6,585

80,759

	Valuation allowance

(78)

(136)

(940)

		Deferred tax assets

6,625

6,448

79,819	Deferred gain on sales of property, plant and equipment

(247)

(259)

(2,976)

	Unrealized gain on other securities

(157)

(306)

(1,892)0(2)0Deferred tax liabilities:

	Other
		Deferred tax liabilities

(404)

(569)

(4,867)

		Deferred tax assets, net¥6,220¥5,878$74,940

Annual Report 201137

19. Related Party Transactions:
There is nothing to be noted according to the disclosure requirements in Japan for the years ended
March 31, 2011 and 2010.

20. Per Share Information:
Per share information for the years ended March 31, 2011 and 2010 is as follows:
Millions of yen

For the year ended March 31,

U.S. dollars (Note 4)

2011

2010

2011

Net assets per share¥659.31¥619.66$7.943

Net income per share

87.87

68.79

1.059

—

—

—

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 is as follows:
Thousands of
U.S. dollars (Note 4)

Millions of yen

For the years ended March 31,

2011

2010

2011

Net income¥8,213¥6,734$98,952

Net income attributable to common stock

8,213

6,734

98,952———

93,47397,896————

Adjustment to net income(Share data)
Average number of share (thousand)
Additional number of share (thousand)

21. Comprehensive Income:
Other comprehensive income for the year ended March 31, 2010 consists of the following:
Millions of yen

For the year ended March 31,

2010

Other comprehensive income:	Net unrealized gain on other securities, net of taxes¥490

	Deferred gain on hedges
	Total other comprehensive income

2¥493

Total comprehensive income for the year ended March 31, 2010 comprises the following:
Millions of yen

For the year ended March 31,

2010

Total comprehensive income attributable to:	Owners of the parent¥7,227

	Total comprehensive income¥7,227

22. Segment Information:(Additional information)
Effective from the year ended March 31, 2011, the Company adopted the “Accounting Standard forDisclosures about Segments of an Enterprise and Related Information” (ASBJ Statement No. 17, issued
on March 27, 2009) and the “Guidance on the Accounting Standard for Disclosures about Segments ofan Enterprise and Related Information” (ASBJ Guidance No. 20, issued on March 21, 2008).

38

Kaken Pharmaceutical Co., Ltd.

For the year ended March 31, 2011(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.
(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 estateYear ended March 31,

Total

Adjustments

Consolidated

2011

Net Sales:
	Outside sales¥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

	Intersegment sales or transfers
		Total¥—¥86,428

Other items:

Thousands of U.S. dollars
Reportable segment
Pharmaceutical

Real estateYear ended March 31,

Total

2011

Net Sales:
	Outside sales$1,011,759$ 29,542$1,041,301

—

3,723

3,723

(3,723)—

		Total$1,011,759$ 33,277$1,045,036$ (3,723)$1,041,301

Segment income$ 153,602$ 17,217$ 170,831$

  —$ 170,831

Segment assets$ 697,675$198,783$ 896,470$290,181$1,186,663

	Depreciation and amortization$25,133$ 7,578$32,711$—$32,711

	Increase in property, plant andequipment and intangible assets$48,566$21,060$69,639$—$69,639

	Intersegment sales or transfers$  —$1,041,301

Other items:

Annual Report 201139

(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 property, plant andequipment in Japan constituted more than 90% of property, plant and equipment on the consolidated balance sheets.
(f) Information about major customers
Millions of yen

Thousands of U.S. dollars
Sales

For the year ended March 31,

2011

Name of the related segment

SUZUKEN CO., LTD.

¥14,025$168,976

Pharmaceutical

Alfresa Corporation

13,916167,663

Pharmaceutical

MEDICEO CORPORATION

13,063

157,386

Pharmaceutical

Toho Pharmaceutical Co., Ltd.

9,224

111,133

Pharmaceutical

For the year ended March 31, 2010
Information about operations in industry segments of the Group for the year ended March 31, 2010 is
as follows.
Millions of yen
Pharmaceutical

Real estateYear ended March 31,

Total

Elimination or Corporate

Consolidated

2010

I.	Sales and operating income
	Outside customers
	Inter-segment
		Total¥82,562¥2,460¥85,022

¥   —

—

307

307

(307)

¥85,022—¥82,562¥2,767¥85,329¥(307)¥85,022

	Operating expenses

72,2801,264

73,545(307)

73,237

	Operating income¥10,281¥1,503¥11,784¥   —¥11,784

II.	Assets, depreciation and capital
expenditure

40

Assets¥55,062¥15,332¥70,395¥24,701¥95,096	Depreciation¥ 2,310¥   640¥ 2,951¥    —¥ 2,951

	Capital expenditure¥ 2,179¥     58

¥ 2,237¥    —¥ 2,237

Kaken Pharmaceutical Co., Ltd.

23. 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 12, 2011.
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 2,300,000 shares
4. Total amount of stocks to be acquired:
Up to ¥2,500 millions of yen ($30,120 thousand)
5. Schedule of acquisition:
From May 13, 2011 to December 31, 2011
Number and total amount of stocks acquired based on the above resolution on or before May 31, 2011are 400,000 shares and ¥451 million ($5,434 thousand), respectively.

Annual Report 201141

Report of Independent Auditors
To the Board of Directors
KAKEN PHARMACEUTICAL CO., LTD.

We have audited the accompanying consolidated balance sheets of KAKEN PHARMACEUTICAL CO.,LTD. (the “Company”) and subsidiaries as of March 31, 2011 and 2010, and the related consolidated
statements of income, changes in net assets, and cash flows for the years then ended and consolidated
statement of comprehensive income for the year ended March 31, 2011, all expressed in Japanese yen.
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company and subsidiaries as of March 31, 2011 and2010, and the consolidated results of their operations and their cash flows for the years then ended inconformity with accounting principles generally accepted in Japan.
As described in Note 23, at a meeting of the Board of Directors of the Company held on May 12, 2011,
the Company approved a purchase of shares of treasury stock.
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 4 to the accompanying consolidated financial
statements.

Tokyo, Japan
June 29, 201142

Kaken Pharmaceutical Co., Ltd.

Profile

Corporate Data
As of March 31, 2011

The origin of Kaken Pharmaceutical Co., Ltd. can be traced back to the Institute of Physicaland Chemical Research (Riken), established in 1917. The Company started its pharmaceuticalbusiness with full-scale development of penicillin and streptomycin based on Riken’s
own technologies in 1948, and since then broadened the scope of its business anddrug development activities through mergers and alliances. Accordingly, Kaken has
established a strong reputation in the industry.
While the Company has established strength in developing and selling pharmaceuticals
for orthopedics, it is now expanding its involvement in other medical fields, such asdermatology. The Company contributes to improving people’s health by cultivating its
own original technologies, engaging in joint development initiatives, introducing newtechnologies and acquiring marketing rights.
As a fruit of its technology and product introduction, the Company has been, since June
2001, marketing Fiblast Spray consisting of Trafermin, a recombinant form of human basic
Fibroblast Growth Factor (bFGF) for the first time in the world, licensed from a U.S. bio-­
pharmaceutical company, Scios Inc., in the area of regenerative medicine (wound healing medicine).

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, 2011)
Number of Shareholders: 13,799 (As of March 31, 2011)

Main Branches

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: Three Joys

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

Others

11.3%+3.7

Individuals

28.3%

Overseas
Investors

–5.7

16.3%
–0.5

Domestic
Corporations

10.6%
+0.8

Financial
Institutions

33.5%

+1.7

Plant
Shizuoka Factory

KAKEN

conducts business by

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

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

Overseas Office

Creating joy
as a company.

Creating joy
for our employees.

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.)

5,402

5.3

Toray Industries, Inc.

4,589

4.5

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

4,397

4.3

Mizuho Bank, Ltd.

4,086

4.0

The Norinchukin Bank

3,686

3.6

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

1,804

1.8

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

1,754

1.7

Nippon Life Insurance Company

1,700

1.7

Kaken Pharmaceutical Employee Stock
Ownership Association

1,594

1.6

SOMPO JAPAN INSURANCE INC.

1,343

1.3

Shareholders

Employees (Non-Consolidated)
Administration: 117
Sales & Marketing: 988
Production & Technology: 220
Research & Development: 295
Regulatory Affairs: 39
Annual Report 201143

Annual Report 2011
Year Ended March 31, 2011

KAKEN PHARMACEUTICAL Annual Report 2011

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

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