This document has been translated from the Japanese original for reference purposes only.
In the event of any discrepancy between this translated document and the Japanese original,
the original shall prevail. Sosei Group Corporation makes no warranty of any nature as tothe accuracy of this English translation and assumes no responsibility for this translation orfor direct, indirect or any other form of damages arising from the translation.

To Our Shareholders:Information Disclosure on the Internet
Regarding the Notice of the 31st Ordinary
General Meeting of Shareholders

31st Term (January 1, 2020 – December 31, 2020)■ “Stock acquisition rights (“stock options”), etc.” in the business report············· Page 1■ “Outline of the systems for ensuring the appropriateness of operations and theiroperating status” in the business report ···················································· Page 3■ “Policy on the conduct of persons influencing decision on the Company's
financial and business policies” in the business report ·································· Page 5■ “Consolidated statement of changes in equity” in the consolidated
financial statements ············································································· Page 6■ “Notes to the consolidated financial statements” in the consolidated
financial statements ············································································· Page 7■ “Non-consolidated statement of changes in equity” in the non-consolidated
Page 17
financial statements ·············································································■ “Notes to the non-consolidated financial statements” in the non-consolidated
Page 18
financial statements ·············································································

Sosei Group Corporation
The matters listed above are provided to shareholders through postings on the
Company’s Internet website (https://www.soseiheptares.com/) in accordancewith laws and regulations and Article 14 of the Company’s Articles ofIncorporation.



Stock acquisition rights (“stock options”), etc. (as of December 31, 2020)
1. Stock options owned by the Company’s directors and executive officers that were
issued as compensation for performance of duties as of the end of the fiscal period
under review
30th Stock Options

31st Stock Options

Date of Board resolution

November 13, 2015

May 15, 2017

Number of stock options

593

21

237,200 shares of common shares

8,400 shares of common shares

281 yen per stock option

1,234,900 yen per stock option (Note 5)

411,200 yen per stock option(1,028 yen per share)

400 yen per stock option(1 yen per share)from July 1, 2018
to June 30, 2021

from July 1, 2020
to April 30, 2027

Note 1, 2 and 4

Notes 3, 4 and 6

Number and class of sharesfor stock options
Amount of payment for stock
options
Value of assets to beprovided on exercise of stock
options
Exercise period of stock
options
Terms and conditions forexercise
Directors andexecutive
officers
Holdings by (excluding
external
directors
directors)
andexecutive
officers
External
directors

Number of stock options:
593 Number of stock options:
Number of shares for stock
Number of shares for stock
237,200
options:
options:3
Number of holders:Number of holders:(Note 7)

18
7,200
2
(Note 7)

Number of stock options:
Number of shares for stock
options:
Number of holders:

‐

3
1,200

32nd Stock Options

34th Stock Options

Date of Board resolution

May 15, 2017

November 21, 2017

Number of stock options2

2

800 shares of common shares

800 shares of common shares

7,782.11 yen per stock option (Note 5)6,214 yen per stock option (Note 8)

1,227,600 yen per stock option(3,069 yen per share)

1,069,200 yen per stock option(2,673 yen per share)from July 1, 2020
to April 30, 2027

from December 1, 2020
to October 29, 2027

Notes 3, 4 and 6

Notes 3, 4 and 6

Number and class of sharesfor stock options
Amount of payment for stock
options
Value of assets to beprovided on exercise of stock
options
Exercise period of stock
options
Terms and conditions forexercise
Directors andexecutive
Holdings by officers(excluding
directors
external
anddirectors)
executive
officers
External
directors

Number of stock options:
Number of shares for stock
options:
Number of holders:‐

2 Number of stock options:2
Number of shares for stock800
800
options:1
1
Number of holders:(Note 7)(Note 7)‐11

(Notes):
1. (1) Stock option holders may exercise stock options when the cumulative total of revenue on the Company’s audited
Consolidated Statement of Comprehensive Income reported in securities reports submitted by the Company forthe fiscal years ended March 2016 and March 2017 is ¥23.0 billion or greater.
(2) If during the period from the allotment date to the date the stock option exercise period expires, the averageclosing price for regular trading of the Company’s shares of common shares on the Tokyo Stock Exchange (“TSE”)
for any five consecutive trading days falls below a price that is obtained by multiplying 50% of the exercise price(amounts less than 1 yen rounded off) even one time, stock options may not be exercised even if the conditionsof (1) above are met.
2. Stock option holders must be directors, executive officers or employees of the Company or the Company’s affiliates
when exercising stock options; provided, however, that this does not apply in cases of retirement due to expiration ofa term of office or reaching the mandatory retirement age, or when there are other legitimate reasons.
3. Stock option holders must be directors, executive officers or employees of the Company or the Company’s
subsidiaries when exercising stock options; provided, however, that this does not apply in cases of retirement due toexpiration of a term of office or reaching the mandatory retirement age, or when there are other legitimate reasons.
4. (1) Stock options may not be exercised by heirs of stock option holders.
(2) Stock options may not be exercised if by exercising the options the Company’s total number of outstanding shares
after exercise would exceed the total number of authorized shares at that time.
(3) Stock options may not be exercised in fractions of one unit.
5. The fair value of the stock option granted to directors and executive officers of the Company was offset against thesame amount of their rights to remuneration effective on the date of allotment.
6. (1) Stock option holders may exercise the options if the closing price of common shares of the Company in the regular
trading on the TSE on July 1, 2020 (for 34th stock options, on December 1, 2020) is one hundred and fifteen
percent (115%) or more of the base price. For the purpose of these items, the “base price” means the closing
price of common shares of the Company in the regular trading on the TSE on the allotment date.
(2) Notwithstanding the conditions provided in the item (1) above, the options may be exercised in part if certain
stipulated conditions are met on the date after one, two or three years from the allotment date.
7. Holdings of the 29th, 30th, 31st, 32nd and 34th Stock Options include the options granted to an employee, a directorof a subsidiary and an employee of a subsidiary before his assumption of the office as executive officer.
8. The stock options were granted to executive officers of the Company as incentive remuneration and the grant without
payment of cash equivalent to the fair value of the stock option granted does not constitute a particularly favorable
condition of issuance.
9. The number of shares for stock options was changed from 100 shares per stock option to 400 shares per stock option
following the stock split as of July 1, 2018 and the value of assets to be provided on exercise of stock options was
adjusted accordingly.

2. Other important matters regarding stock acquisition rights, etc.
The Company issues the following bonds with stock acquisition rights.
Name of Issue
Issue Date
Number of Stock Acquisition Right
Types of shares for which Stock
Acquisition Rights are to be madeExercise period of Stock Acquisition
Right
Conversion Price
Number of remaining Stock
Acquisition Right as of December
31 2020

Sosei Group Corporation Euro-yen
Denominated Convertible Bonds due 2025
July 16 2020
1,600
Common stockfrom July 30, 2020 to July 2, 2025
1,834 yen per share
1,600

2



Outline of the systems for ensuring the appropriateness of operations and theiroperating status
The following provides a summary of the systems for ensuring the appropriateness ofoperations as resolved by the Company’s Board of Directors, and of the operating status ofthese systems.
1. Systems for ensuring the appropriateness of operations<<Matters required for execution of duties by the Audit Committee>>(1) Matters related to directors and employees who assist in Audit Committee duties
Employees who assist in the duties of the Audit Committee conduct their duties incoordination with the Internal Audit Department in accordance with the directions of thechairman of the Committee. Evaluations related to the performance of these employees
are conducted by the Committee, and transfers of such employees are subject toapproval by the Committee.
(2) Systems regarding matters to be reported by directors (excluding directors who are Audit
Committee members), executive officers, and employees to the Audit Committee andother matters to be reported to the Audit Committee
・ Directors, executive officers and employees of the Company and subsidiaries wholearn of facts that may cause material damages to the Company or acts, etc. that arein violation of laws and regulations or Articles of Incorporation shall report them to the
Audit Committee, and those who make such reports shall not be treated unfairly forreporting such facts or actions.
・ The Internal Audit Department reports timely and properly to the Audit Committee on
the implementation status of internal audits as well as the status and content of any
whistleblowing communications.
(3) Other systems to ensure that audits are conducted effectively by the Audit Committee
・ The Internal Audit Department consults in advance with the Audit Committee regarding
internal audit policies and plans, etc. and closely coordinates with the Committee,
which includes holding discussions related to audits.
・ The Company promptly processes requests by the Audit Committee members foradvancement or reimbursement of expenses necessary for the performance of Audit
Committee duties.
<<Systems for ensuring that the execution of duties by executive officers conforms with laws
and regulations and Articles of Incorporation, and other systems required to ensure theappropriateness of the Company’s operations>>(4) System to ensure the performance of duties by executive officers and employees and bydirectors and employees of subsidiaries to conform with laws and regulations and Articles
of Incorporation
・ Compliance with laws and regulations and adherence to corporate ethics are
stipulated in the Group’s code of corporate conduct, and every effort is made to raiseawareness of this among all executive officers and employees, including at
subsidiaries. An independent whistle-blower hotline exists and is operated

3

appropriately.
・ The Internal Audit Department conducts internal audits related to performance of
duties at the Company and its subsidiaries.
(5) System related to preservation and management of information related to performanceof duties by executive officers
Information related to performance of duties by executive officers is appropriately
prepared, retained and managed in accordance with internal company rules.
(6) Rules and other systems related to management of risk of loss
・ Specific policies and measures are determined to deal with risks related to the Group’sbusiness operations, and risk management procedures are appropriately conductedat the Company and its subsidiaries.
・ Important management decisions are made after adequate deliberation by the Boardof Directors, etc. and based on the opinions of outside experts as necessary.
(7) System to ensure that performance of duties by executive officers and directors, etc. of
subsidiaries is conducted efficiently
・ Operational responsibilities of executive officers and official authority for respective
executives and employees of the Company and subsidiaries are clearly stipulated, andreporting on operational performance and deliberations on important matters are
conducted with flexibility in accordance with these rules.
・ System construction is promoted to improve operational efficiency.
(8) System to ensure the appropriateness of operations at the corporate group consisting of
the Company and its subsidiaries
・ Reports on operational matters at subsidiaries are received in accordance with internal
company rules, and instructions and support relating to the establishment of systems
designed to ensure operational appropriateness are provided to subsidiaries.
・ The Internal Audit Department provides instructions and recommendations for
improvements to subsidiaries based on the findings of internal audits of subsidiaries.
・ Efforts are made to ensure the appropriateness of the Group’s financial reporting,which is evaluated, maintained, and improved.
2. Outline of the operational status of systems for ensuring the appropriateness ofoperations(1) Compliance system
The Group has established a code of corporate conduct that applies to the entire Group,
and is proceeding with further revisions, which include exhaustive efforts to promoteawareness, in order to respond to recent changes in the business environment. In addition,
whistle-blowing incidents are handled appropriately through a whistle-blower hotline
established externally, and internal audits are conducted by the Internal Audit Department
at the Group’s companies in accordance with the internal auditing plan.
(2) Information retention and management system
The Company has appropriately created, stored, and managed minutes of meetings ofthe Board of Directors and committees, etc. and other documents related to the executionof operations in accordance with the rules on document management and other rules.

4(3) Risk management system
The Company has conducted sufficient deliberations and made business decisions at
meetings of the Board of Directors, by taking into account the opinions of outside experts,
etc., regarding the Group’s significant investment projects and technical alliances, etc. In
addition, the Internal Audit Department has provided guidance on the risk management
system of the Company and its subsidiaries based on the results of internal audits.
(4) System for efficient and appropriate execution of duties
The Group stipulates authority levels for executives and employees in accordance withformal authority rules at each company. In order to ensure that operations are carried out
efficiently and appropriately, the Group requires management of affiliated companies toprovide reports to the parent company in accordance with the relevant rules, and provides
suitable supervision and guidance by the parent to affiliated companies. In addition, thebusiness performance of subsidiaries is reported as necessary at meetings of the Boardof Directors. The Internal Audit Department provides guidance on recommended
improvements identified through internal audits.
(5) System for execution of duties by the Audit Committee
The Audit Committee and the employees who assist in the performance of duties of the
Audit Committee coordinated, as appropriate, with the Internal Audit Department in theexecution of their duties. The Audit Committee members attended important meetings,
including meetings of the Board of Directors, and requested reports from the directors,
executive officers, corporate auditors and employees of the Company and its subsidiaries
as necessary. In addition, they receive reports on the handling of any reports made throughthe whistle-blower process.



Policy on the conduct of persons influencing decision on the Company's financial
and business policies
Not applicable.

5Consolidated Statement of Changes in Equity(Millions of yen)

CapitalStock

Balance at January 1, 2020

CapitalsurplusTreasurystock

Retainedearnings

Other
elements ofshareholders’equityEquityattributableto owners of
the parent

37,47926,548(0)(12,264)(6,688)45,075

-

-

-

1,479

-

1,479

-

-

-

-

(818)

(818)

-

-

-

1,479

(818)

661

Issuance of new shares

2,741

2,404

-

-

-

5,145

Issuance of convertible
bonds

-

841

-

-

-

841

Share-based payments

-

659

-

-

-

659

-

-

-

-

-

-

2,741

3,904

-

-

-

6,645

40,22030,452(0)(10,785)(7,506)52,381

Noncontrollinginterests

Total equity

Balance at January 1, 2020

3

45,078

Profit (loss) for the year

(0)

1,479

-

(818)

(0)

661

Issuance of new shares

-

5,145

Issuance of convertible
bonds

-

841

Share-based payments

-

659

(3)

(3)

(3)

6,642

-

52,381

Profit (loss) for the year
Other comprehensive
income (loss)
Total comprehensive income(loss)

Change on loss of controlof subsidiary
Total transactions withownersBalance at December 31,
2020

Other comprehensive
income (loss)
Total comprehensive income(loss)

Change on loss of controlof subsidiary
Total transactions withownersBalance at December 31,
2020

Note: Amounts less than 1 million yen have been rounded6

Notes to the Consolidated Financial Statements
1.
(1)

Basis of preparation of the consolidated financial statements
Standards for preparation of the consolidated financial statements
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards(hereinafter “IFRS”) based on Paragraph 1, Article 120 of the Corporate Accounting Rules. Some statements and notes
required by IFRS have been omitted pursuant to the provisions of the latter part of the Paragraph.

(2)

Scope of consolidation
1) Consolidated subsidiaries
i. Number of subsidiaries: 5
ii. Names of principal consolidated subsidiaries:
Sosei Co. Ltd.
Heptares Therapeutics Ltd.

(3)

Scope of equity accounting
1)

Associates accounted for using the equity method

i. Number of associates accounted for using the equity method: 2
ii. Names of principal companies:
JITSUBO Co., Ltd.
MiNA (Holdings) Ltd.
(4)

Accounting policies
1)

Valuation standards and methods for significant assets and liabilities

i. Valuation standards and methods for financial assets and liabilities
Financial assets
Initial recognition and measurement of financial assets
Trade receivables and other receivables are recognized initially on their settlement dates. Other financial assets arerecognized on their transaction dates. At initial recognition, the Group measures a financial asset at its fair value plus, inthe case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to theacquisition or issue of the financial asset.
At the time of initial recognition, the classification of financial assets is determined as follows:
Debt instruments
Financial assets measured at amortized cost
A financial asset is measured at amortized cost when both of the following conditions are met:(a) the financial asset is held in a business model whose objective is to hold financial assets in order to collect contractual
cash flows, and(b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments ofprincipal and interest on the principal amount outstanding.
Financial assets measured at fair value through profit or loss are financial assets other than those defined above.
Equity instruments
Financial assets measured at fair value through other comprehensive income
The Group may irrevocably elect to classify equity investments, other than those held for trading, upon initial recognition
as financial assets measured at fair value through other comprehensive income.
Equity financial assets measured at fair value through profit or loss are equity financial assets other than those defined
above.

7

Subsequent measurement of financial assets
After initial recognition, the Group measures a financial asset according to its classification as follows:(a) a financial asset measured at fair value through profit or loss is recognized as the change in the amount of the fair value.
(b) a financial asset measured at fair value through other comprehensive income is recognized as the change in the amountof the fair value. Dividends from a financial asset are recognized as part of financial income in net income (loss) for thecurrent period, except for those portions considered to be part of the cost of investment.
(c) a financial asset measured at amortized cost is recognized by the effective interest method.
Derecognition of financial assets
The Group derecognizes a financial asset when, and only when:(a) the contractual rights to cash flows from the financial asset expire, or(b) it transfers the contractual rights to receive cash flows from the financial asset and transfers substantially all the risks
and rewards of ownership of the financial asset.
Impairment of financial assets
For financial assets measured at amortized cost expected credit losses are recorded through an allowance for doubtful
accounts. At each reporting date, the Group assesses whether the credit risk on a financial instrument has increased
significantly since initial recognition. The Group measures the loss allowance for a financial instrument at an amount equal
to the expected annual credit loss where the credit risk on that financial instrument has not increased significantly sinceinitial recognition. Alternatively, the Group measures the loss allowance for a financial instrument at an amount equal to thelifetime expected credit loss if the credit risk on that financial instrument has increased significantly since initial recognition.
The Group uses the change in risk of a default occurring over the expected life of the financial instrument instead of thechange in the amount of expected credit losses. To make this assessment, the Group compares the risk of a default
occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument
as at the date of initial recognition and considers reasonable and supportable information, that is available without undue
cost or effort, that is indicative of significant increases in credit risk since initial recognition. The Group measures the loss
allowance for trade receivables at an amount equal to the lifetime expected credit losses. The Group assumes that thecredit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument isdetermined to have low credit risk at the reporting date.
Whether or not a financial asset is credit impaired is determined by the default of the borrower, or if the lender, for economic
or contractual reasons relating to the borrower’s financial difficulty, grants to the borrower a concession(s) that the lenderwould not otherwise have granted, or when other factors occur, such as the disappearance of an active market. Expectedcredit losses are measured as the difference between contractual cash flows that are due to the Group in accordance witha contract and the cash flows that the entity expects to receive, discounted at the original effective interest rate. The Group
directly reduces the value of a credit impaired-financial asset when it, or a part of it, cannot realistically be expected to berealized and its collateral is realized or transferred to the Group. Where an impairment loss is reduced after initial recognition,
the decrease in impairment loss (decrease to the allowance for doubtful accounts) is reversed in profit or loss. The
impairment loss is reversed up to the value of the amortization at the time the impairment loss was recognized.
Financial liabilities
Initial recognition and measurement of financial liabilities
Financial liabilities are recognized on the transaction date. At initial recognition, the Group measures a financial liability at
its fair value minus, in the case of a financial liability not measured at fair value through profit or loss, transaction costs thatare directly attributable to the acquisition or issue of the financial liability. The Group classifies financial liabilities upon initialrecognition as financial liabilities subsequently measured at fair value through profit or loss, or financial liabilities measured
at amortized cost.
Subsequent measurement of financial liabilities
After initial recognition, the Group measures a financial liability as follows:(a) a financial liability measured at fair value through the profit or loss is recognized as a change in fair value.
(b) a financial liability measured at amortized cost is recognized by the effective interest method.
If the discontinuation of amortization and derecognition using the effective interest method occur, a gain or loss is recognizedwithin net profit or loss for the current period as part of finance costs.

8

Derecognition of financial liabilities
The Group removes a financial liability (or a part of a financial liability) from its statement of financial position when, andonly when, it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expires.
iii. Presentation of financial assets and financial liabilities
The Group offsets financial assets and financial liabilities showing the net amount only when the Group has the legal rightto offset the balances, and either settles the balances on a net basis or intends to simultaneously realize the asset andsettle the liability.
iv. Valuation standards and methods for non-financial assets and liabilities
Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
The cost is directly attributable to the acquisition of the asset, the initial estimate of costs for dismantling and removing theasset and the costs of restoring property to its original state.
Goodwill and intangible assets
Goodwill
Goodwill arising from an acquisition of a subsidiary is recorded at cost less accumulated impairment losses. Upon initialrecognition goodwill is measured at the fair value of the transfer consideration, including the amount recognized for noncontrolling interests, less the net recognized value (normally, the fair value) of identifiable assets and assumed liabilities at
the time of the acquisition. Goodwill is not amortized. It is allocated to cash-generating units and an annual impairment test
is conducted at the same time in each fiscal year or whenever there is an indication that goodwill may be impaired.
Impairment losses on goodwill are recognized in the consolidated statement of profit or loss and other comprehensive
income and are not reversed subsequently.
Intangible assets
Separately acquired intangible assets with finite useful lives are measured at cost less accumulated amortization andaccumulated impairment losses. The cost is directly attributable to the acquisition of the intangible asset.
Development assets
Expenditure on research activities is recognized as a cost in the period in which it occurs. Internally generated intangible
assets that occur at the development stage are recognized only when all the following criteria can be substantiated:• Technical feasibility of completing an intangible asset that can be used or sold• Intention to complete the intangible asset and then use it or sell it• Ability to use or sell the intangible asset• Method by which the intangible asset will create future economic benefit with strong potential• Possibility of using financial or other resources that will be necessary to complete the intangible asset and use it orsell it• Ability to reliably measure expenditure required to develop the intangible asset
The amount initially recognized for internally generated intangible assets is the total of costs incurred from the date that theintangible asset initially met the above recognition standards. When an internally generated intangible asset cannot berecognized, development outlays are expensed in the period they occur. Intangible assets generated after initial recognition
are stated at acquisition cost less cumulative amortization and cumulative impairment. Intangible assets acquired throughbusiness combinations and recognized separately from goodwill are stated at acquisition cost less cumulative amortizationand cumulative impairment after initial recognition at fair value as of the acquisition date.
Lease (as a lessee)
The Group has assessed whether any new contracts include a lease at inception of a contract. If a contract conveys theright to control the use of an identified asset for a period in exchange for consideration, the contract is, or contains, a lease.

9

Initial recognition and measurement
At the commencement date of the contract, a right-of-use asset is measured at an amount equal to the initial measurementof the lease liability, adjusted by an estimate of costs to be incurred in dismantling and removing the underlying asset,
restoring the site on which it is located or restoring the underlying asset itself. The lease liability is measured at the present
value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the commencement
date.
Subsequent measurement
A right-of-use asset is depreciated using the straight-line method over the shorter of the lease term or the useful life of theright-of-use asset. Interest on the lease liability is calculated to be the amount that produces a constant periodic rate ofinterest on the remaining balance of the lease liability. The lease liability is reduced by lease payments net of the interest
expense.
Presentation
In the Interim Condensed Consolidated Balance Sheet, the Group presents right-of-use assets in “Property, plant andequipment” and lease liabilities in “Lease liabilities”. In the Consolidated Statement of Profit or Loss and Other
Comprehensive Income, the Group presents interest expense at an amount that produces a constant periodic rate ofinterest on the remaining balance of the lease liability in “Financial costs”.
Short-term leases and leases of low-value assets
For low-value asset leases and short-term leases with lease terms of 12 months or less, the Group has adopted theexemption provisions of IFRS 16 Leases, and has elected not to recognize right-of-use assets and lease liabilities. The
Group recognizes lease payments for these leases as expenses over the lease term using the straight-line method.
v.

Impairment of non-financial assets

The book values of non-financial assets are reviewed for indications of impairment at each reporting date. If any such
indications exist, the asset’s recoverable amount is estimated. For goodwill and intangible assets with indefinite useful lives
or intangible assets not yet available for use, the recoverable amount is estimated at the same time in each fiscal year. The
recoverable amount of assets or cash-generating units is the higher of value in use or fair value less disposal costs. In thecalculation of value in use, estimated future cash flows are discounted to present value using a pre-tax discount rate thatreflects the time value of money and risks inherent to the asset. In respect of cash-generating units, assets are grouped
into the smallest units generating largely independent cash flows from other assets or units, through continued usage.
In respect of cash-generating units for goodwill, goodwill is assessed based on those business units defined for the
purposes of internal reporting. In principle, a cash-generating unit is classified as a type of business and geographicalregion. Corporate assets do not generate independent cash inflows. Therefore, when there are indications of impairment
in corporate assets the recoverable amount of the cash-generating unit to which the corporate asset belongs is calculated
for the impairment test. Assets that do not have external cash flows are included within the cash-generating units of thebusiness units that they support. Impairment loss is recognized in profit or loss when the book value of the asset or cashgenerating unit exceeds the recoverable amount. Impairment loss recognized in connection with cash-generating units isallocated first to reduce the book value of goodwill relating to that cash-generating unit. Any additional impairment requiredis allocated next to reduce the book values of other assets within the cash-generating unit proportionally.
Impairment losses related to goodwill are not reversed. In respect of impairment losses on other assets recognized in thepast, the existence of indications showing that the loss has decreased or been eliminated is assessed on each reporting
date. If there are indications of a reversal of impairment and the estimate used for determining the recoverable amount haschanged, the impairment loss is reversed. The previously recognized impairment loss is reversed to the extent that thecarrying amount of the asset does not exceed what the carrying amount would have been (net of amortization anddepreciation) had no impairment loss been recognized for the asset in prior years.

10

2)

Depreciation methods for significant depreciable assets

i. Property, plant and equipment
Property, plant and equipment are depreciated based on their depreciable amounts by the straight-line method over the
expected useful life of each asset. The normal expected useful lives of major asset categories are as follows:•

Buildings and structures: 6 to 18 years•

Machinery and equipment: 3 to 8 years•

Furniture and fixtures: 2 to 10 years

The expected useful lives, residual values and depreciation methods are reviewed at the end of each fiscal year, andchanges in these items, if any, are applied prospectively as changes in accounting estimates.
ii. Intangible assets
Intangible assets are amortized based on their amortizable amounts by the straight-line method over the expected usefullife of each asset. The amortization method, expected useful lives, and residual values are reviewed at the end of eachfiscal year, and changes in these items, if any, are applied prospectively as changes in accounting estimates. Expected
useful lives of major asset categories are as follows.
•

Product-related assets: 20 years•

Core technology: 12 to 20 years•

Customer-related assets: 20 years

Intangible assets with indefinite useful lives and intangible assets that are not yet available for use and therefore not yet
amortized, are tested for impairment at the same time in each fiscal year and whenever there is an indication of impairment.
3)

Accounting standards for significant income and expenditure

i. Revenue recognition
The Group earns revenue through sales of a developed pharmaceutical product, license agreements providing development
and marketing rights of pharmaceutical products and research and development service agreements contracted with third
parties. These agreements are classified into the following types of revenue based on their purpose and performanceobligations:
Types of revenue classified by purpose:•

Milestone income and upfront fees: Upfront fees, Development milestone income, Sales milestone income•

Royalty income: Sales royalty income•

Product supply revenue•

Income from contracted research and development services

Each research and licensing agreement is analyzed to identify the consideration receivable (the transaction price) and theunderlying performance obligations. Such obligations can include the promise to grant a license, the provision of researchand development services and the supply of product. The transaction price is then allocated to these performanceobligations and revenue is recognized at a point in time or over time as the performance obligations are satisfied.
If variable consideration arises under a contract the Group includes in the transaction price only those amounts in respectof which it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when
the uncertainty associated with the variable consideration is subsequently resolved. Revenue excludes amounts collected
on behalf of tax authorities (for example, sales taxes and value added taxes).
The promise to grant a license is regarded as a distinct performance obligation if the customer can benefit from the license
either on its own or together with other resources that are readily available to the customer, and the Group’s promise totransfer the license to the customer is separately identifiable from other promises in the contract.
The promise to grant a license under a contract is a promise to provide a right to access intellectual property if all of thefollowing criteria are met:•

the contract requires, or the customer reasonably expects, that the Group will undertake activities that significantly

11affect the intellectual property to which the customer has rights;•

the rights granted by the license directly expose the customer to any positive or negative effects of the Group’s•

those activities do not result in the transfer of a good or a service to the customer as those activities occur.

activities identified in (a); andWhere the above criteria are met, the promise to grant a license is accounted for as a performance obligation satisfied overtime and revenue is recognized over time accordingly. Where these criteria are not met the promise to grant a license isdetermined to provide a right-to-use intellectual property accounted for as a performance obligation satisfied at a point intime.
ii. Cost of sales
Cost of sales comprises (i) the fully loaded cost of those employees providing research and development services for
specific customers under contracts (including other costs directly associated with these activities such as lab consumables
and an allocated share of depreciation of lab equipment) and (ii) the costs directly associated with product supply.
4)Standards for conversion of significant foreign-denominated assets and liabilities to Japanese currency

i. Foreign-denominated transactions
Transactions denominated in foreign currencies are translated into the functional currency of each Group company at therates of exchange prevailing at the dates of the transactions. Foreign-denominated monetary assets and liabilities aretranslated into the functional currency of each Group company using the exchange rate at the end of the period. Nonmonetary assets and liabilities denominated in foreign currencies measured at fair value are retranslated into the functional
currency at the exchange rates on the date fair value is determined. Non-monetary items measured at cost are translated
at the exchange rate on the transaction date. Exchange differences resulting from retranslation or settlement are recognizedin profit or loss in the period incurred.
ii. Financial statements of foreign operations
The assets and liabilities of the Group’s foreign operations (such as overseas subsidiaries) are translated into Japanese
yen at the exchange rates prevailing at the end of the period. Income and expenses are translated into Japanese yen at
the average exchange rates for the period as long as there is no significant exchange rate fluctuation. Exchange differences
arising from the translation of the financial statements of foreign operations are recognized in “Other comprehensive income”
in the consolidated statement of profit or loss and other comprehensive income and accumulated in “Other components ofequity” in the consolidated balance sheet.

5)

Business combinations

Business combinations are accounted for using the acquisition method. The consideration transferred in a businesscombination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets
transferred by the Group, liabilities assumed, and equity instruments issued by the Company in exchange for control of theacquiree. If the consideration transferred exceeds the fair value of identifiable assets and liabilities, the excess is recorded
as goodwill in the consolidated balance sheet. Conversely, if the fair value of such assets and liabilities exceeds theconsideration transferred, the excess is immediately recognized as a gain in the consolidated statement of profit or loss
and other comprehensive income. If the initial accounting for a business combination is incomplete by the end of the period
in which the business combination occurred, the Group reports provisional amounts for items for which the accounting is
incomplete. Those provisional amounts are adjusted retrospectively during the measurement period which lasts no morethan one year from the acquisition date. Acquisition costs are expensed as incurred.
When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from acontingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value andincluded as part of the consideration transferred in a business combination. Changes in the fair value of the contingent
consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments
against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during
the “measurement period” (which cannot exceed one year from the acquisition date) about facts and circumstances thatexisted at the acquisition date.

12

2.

Notes to consolidated statement of financial position
Cumulative depreciation on property, plant and equipment was 1,237 million yen.

3.

Notes to the consolidated statement of changes in equity(1)

Total shares outstanding

Share class

Shares at beginningof consolidated
fiscal period

Increase in shares
during consolidated
fiscal period

Decrease in shares
during consolidated
fiscal period

Shares at end of
consolidated
fiscal period

77,073,136

3,522,992-

80,596,128

Common shares

Note: The increase in common shares outstanding is due to the issuance of new shares (3,301,400), exercise of stock
options (149,200 shares) and vesting of RSUs (72,392 shares).
(2)

Subscription warrants, etc. at the end of the consolidated fiscal period under review

Type and number of shares for subscription warrants at the end of the consolidated fiscal period under review (excluding
warrants prior to the first day of their exercise period): Common shares 677,200
4.

Notes on financial instruments(1)
1)

Financial instruments
Policies for management of financial instruments

The Group limits its investments to short-term instruments with minimal risk and does not engage in speculative transactions.
Funds are primarily procured through issuing new stock and bonds, and borrowing from banks.
2)

Financial instrument content and their risks, and risk management framework

Trade and other receivables are exposed to customer credit risk. To mitigate this risk payment deadlines and balances aremonitored for each customer. Trade and other payables have payment deadlines of less than one year. The Group limits
its investments to short-term deposits to reduce risk.

13

(2)

Fair value of financial instruments

Amounts stated in the consolidated balance sheet at December 31, 2020, their corresponding fair values and the differences
between these amounts are as follows:
Amount stated inconsolidated statementof financial position¥m

Fair value

Difference

¥m

¥m

1,593

1,593

-

939

939

-

40,00840,008

-

1,107

1,107

-

Corporate bonds

14,78915,246(457)

Trade and other payables

1,508

1,508

-

Other financial assets
Trade receivables
Cash and cash equivalents
Contingent
acquisition

consideration

relatedtocorporate

Notes: Valuation methodology for financial instruments
1. Cash and cash equivalents, trade receivables and trade and other payables
These are settled over short time periods so fair values approximate book values.
2. Corporate bonds
The fair value of the corporate bond is calculated by discounting the total amount of principal and interest at an interest ratethat considers the remaining maturity of the bonds and credit risk.
3. Contingent consideration related to corporate acquisitions
Such consideration is calculated by discounting the estimated payable after considering the probability of occurrence of
future cash outflows.
4. Other financial assets
Fair value of financial instruments that are traded in an active financial market is determined based on market prices. Wherean active market does not exist, the fair value is measured using an appropriate valuation method.
(3)

Corporate bonds and Lease liabilities scheduled for repayment after the date of the consolidated financial

statements
Due within
1 year¥m

Due more than 1 year
and less than 5 years¥m

Due more than 5
years
¥m

220

16,000721

1,245

Corporate bonds
Lease liabilities
5.

Notes on revenue recognition
Performance obligations
Research andGrant of Licenses

Development services

¥m

¥m

¥m

Milestone income and upfront fees

4,889

464

5,353

Royalty income

2,544

-

2,544

-

945

945

7,433

1,409

8,842

Types of Revenue

Other

Total

Performance obligations satisfied in past periods amounting to JPY 3,952 million are included in revenue for fiscal year
ended December 31, 2020.
6.

Notes on per-share information¥

Equity attributable to owners of parent per share

649.92

Basic earnings per share

18.77

14

7.

Subsequent event
On January 5th, 2021 Sosei Heptares announced that it would be regaining the worldwide rights to its muscarinic agonist
program following a decision by AbbVie to end the collaboration. The program was licensed to Allergan in April 2016, andAllergan was acquired by AbbVie in May 2020. AbbVie’s decision to return the worldwide rights was based on businessdecisions regarding AbbVie’s pipeline strategy and not on any efficacy, safety or other data related to the collaboration
program. AbbVie will return all assets in development under the program, together with all associated intellectual property
licensed by Sosei Heptares to Allergan, and all clinical and preclinical data generated under the partnership. Reversion ofthis program has been taken account of in management’s impairment reviews and in the calculation of the contingent
consideration liability. As a result of the impairment test, management has concluded that no impairment has
occurred. Management is conducting a full internal review to determine a strategy for the further development and repartnering of the program.

8.

Other notes(1)

Interest-bearing debt

On December 30, 2019 Mizuho bank and others provided the Company witha JPY 5,000 million commitment line ("theFacility") with was extended by one year in December 8, 2020. The Facility’s covenants require consolidated net assets to
be maintained at not less than 75% of the immediately preceding period. Under the Facility the Company has the following
rights:(i) to extend the maturity of the Facility from 30 Dec 2021 by one year;(ii) to convert, at any time during the commitment period, the Facility to a four year amortizing term loan.
(2)

Contingent consideration in business combinations

The contingent consideration liability is a fair value estimate by management of the amount payable to the former
shareholders of Heptares Therapeutics Limited under the 2015 Share Purchase Agreement. It has been calculated on arisk adjusted and discounted basis. The probabilities of success used in the Group’s financial models are based on industry
standard rates which are adjusted when management judge the probability of success of the current phase of developmentof an asset to be different to the standard rate. The maximum amount of contingent consideration payable under the contract
is US$220m of which US$81m has been paid out to date. Under the agreement there are defined mechanisms fordetermining the amounts payable. In instances where the agreement is not explicit the liability includes management’s best
estimate of the probable outflows. It is therefore possible that the amounts ultimately payable will be different to those
provided for as there may be differing interpretations of the agreement.
(3)

Transaction with Tempero Bio

During the current fiscal year, Heptares Therapeutics Limited, a wholly owned subsidiary of the Group, entered into a
structured financing agreement with Aditum Bio Fund 1, L.P., a biotech investment fund specializing in the progression ofphase 1 / phase 2 clinical trial assets, to create an independent company, Tempero Bio. Inc. (“Tempero Bio”). Tempero Bio
aims to develop drugs based on negative allosteric modulators of the mGluR5 receptor for the treatment of substance use
disorders and anxiety. Under the terms of the agreement, Tempero Bio obtained certain related intellectual property fromthe Group as well as access to proprietary know-how and development capabilities, and the Group received an assignment
fee plus equity interest in Tempero Bio. Under IFRS 15, the license of proprietary know-how is treated as a ‘right-to-use’
license. The assignment fee and the fair value of the equity investment received have been included in revenue within
milestone income and upfront fees. The initial fair value of the Tempero Bio shares was calculated using a probability
adjusted discounted cashflow model that estimates the cost of drug development and the potential returns available fromthe target indications, and then applies a lack of control / marketability discount. The investment in Tempero Bio is accounted
for as an investment under IFRS 9 as management has determined that it does not exercise control or significant influence
over the company and, accordingly, the investment does not fall within the scope of IFRS 10 Consolidated Financial
Statements or IAS 28 Accounting for Associates and Joint Ventures. Management has elected to take fair value movements
relating to Tempero Bio through Other Comprehensive Income.

15

(4)

Changes in the scope of consolidation

At a board meeting held on May 20, 2020 the directors resolved to sell the Group’s shareholding in Sosei CVC Ltd., aconsolidated subsidiary, and completed the disposal on June 19, 2020. With the disposal of these shares the Group’s
ownership of Sosei CVC Ltd. decreased from 90% to 0%, and both Sosei CVC Ltd. and Sosei RMF1 Investment Limited
Partnership, controlled by Sosei CVC Ltd. as a General Partner, were excluded from the scope of consolidation from this
date.

(5)

Impact of COVID-19

During 2020 the Group deployed counter-measures to mitigate the impact of COVID-19 on its operations. Delays in someR&D programs have, however, been experienced. The Directors have considered the actual impact to date and a range ofpotential impacts of COVID-19 on the Group’s operations in the preparation of these consolidated financial statements. The
Director’s assessment assumes, for accounting purposes, that the impact is not long term.
The Directors believe the Group retains enough liquidity to continue to pursue its stated business strategy and, accordingly,
it is appropriate to use the going-concern basis of preparation. This assessment did not identify any adjustments necessary
to the underlying carrying amounts of assets and liabilities carried at cost / at amortized cost (including goodwill andintangible assets), but the indirect impact COVID-19 has had on exchange rates has impacted their carrying amounts in
the Japanese yen denominated consolidated statement of financial position. The carrying amounts of assets and liabilities
carried at fair value have also been impacted by the volatility in foreign exchange rates and interest rates. The assessment
did not identify any adjustments necessary to the underlying values of revenues and expenditures recorded in the period.
In accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates, foreign exchange gains and losses andexchange differences on translating foreign operations continue to be recorded in the consolidated statement of profit orloss and other comprehensive income in line with normal procedures.
The extent to which COVID-19 impacts our future financial results is will depend on the duration and severity of thepandemic.

16

Non-Consolidated Statement of Changes in Equity(Millions of yen)

Shareholders’ equity
CapitalsurplusRetainedearnings
Other retained
earnings

CapitalCapital reserve

Treasury stock

Total
shareholders’equityRetainedearnings brought
forward37,47925,596(6,415)(0)56,660

2,741

2,741

-

-

5,482

Net loss for the year--

(1,308)-(1,308)Net changes of items other thanshareholders’ equity

-

-

-

-

-

Total changes during the period

2,741

2,741

(1,308)-

4,174

Balance at December 31, 2020

40,22028,337(7,723)(0)60,834

Subscription
rights tosharesTotal net assets

1,429

58,089Issuance of new shares

-

5,482

Net loss for the year-

(1,308)Net changes of items other thanshareholders’ equity

(759)

(759)

Total changes during the period

(759)

3,415

Balance at December 31, 2020

670

61,504

Balance at January 1, 2020
Changes during the period
Issuance of new shares

Balance at January 1, 2020
Changes of during the period

Note: Amounts less than 1 million yen have been rounded17

Notes to the Non-Consolidated Financial Statements
1.

Significant accounting policies(1)

Asset valuation standards and methods
1) Marketable securities
Shares of subsidiaries and affiliated companies are carried at cost determined by the moving-average method.

(2)

Fixed asset depreciation methods
1) Property, plant and equipment (except lease assets):
The declining balance method is used. However, the straight-line method is used for facilities attached to buildings andacquired on or after April 1, 2016. The normal estimated useful lives are as follows:•

Buildings (facilities attached to buildings): 6-18 years•

Tools, furniture and fixtures: 5-10 years

2) Intangible fixed assets (except lease assets):
The straight-line method is used.
For internal-use software, the straight-line method is used based on an estimated useful life of 5 years.
3) Lease assets: Finance lease transactions without a transfer of ownership
The straight-line method is used over the term of the lease with a residual value of zero.
(3)

Accounting for deferred assets
Bond issuance cost: Expensed in full at the time of payment.
Share issuance cost: Expensed in full at the time of payment.

(4)

Recognition standards for provision
1) Allowance for doubtful accounts
Allowance is made for credit losses on accounts receivable and other accounts. An estimate of irrecoverable amounts is
set aside based on historical credit loss rates for ordinary receivables and based on individual considerations for otherreceivables regarded as doubtful.
2) Provision for bonuses
Provision is made during the fiscal year for the payment of employee bonuses.
3) Provision for stock-based compensation
Provision is made for stock based compensation based on an estimation of the expenses incurred in the fiscal year.

(5)Standards for conversion of significant foreign-denominated assets and liabilities to Japanese currency
Foreign-denominated monetary claims and obligations are converted to Japanese yen based on spot exchange rates on
the period-end date, and translation differences are accounted for within profit or loss for the period.

(6)

Basis of preparation of the financial statements
Consumption taxes are accounted for using the tax-exclusion method.

18

2.

Notes to the Balance Sheet¥m(1) Cumulative depreciation on property, plant and equipment(2) Monetary claims and obligations to subsidiaries and affiliates(other than the ones shown separately in the balance sheet)
Monetary obligations to subsidiaries and affiliates(3) Monetary claims and obligations to directors and officers
Monetary obligations

58

64
131

(4) Guarantee liabilities
Debt guarantees totaling 2,015 million yen have been provided in relation to land and building lease agreements signed by theCompany’s subsidiary, Heptares Therapeutics Ltd.

3.

Notes to the Statement of Profit or Loss
Operating transactions with subsidiaries and affiliates totaled 446 million yen.
Non-operating transactions with subsidiaries and affiliates totaled 222 million yen.

4.

Notes to the Statement of Changes in Equity
Share class

Shares at beginning

Increase in shares

Decrease in shares

Shares at endof fiscal year
213

during fiscal year-

during fiscal year-of fiscal year
213

Ordinary Treasury shares

5.

Tax
The main factors giving rise to deferred tax assets are as follows:¥m
Tax loss carried forward

1,098

Stock in subsidiaries and affiliates

3,567

Allowance for doubtful debts

633

Other

228

Deferred tax assets subtotal

5,526

Valuation allowance(5,526)

Total deferred tax assets

-

19

6.

Related party transactions(1)

Subsidiaries

Type

Subsidiary

Name of

Share of voting

Transaction

company

rights holding (held)

type

Sosei Co. Ltd.

Direct100%

holding

Provision ofTransaction

Account

Endingamountbalance¥m¥m

45 Accounts receivable

4350 Long-term loans to

2,068

management services
to subsidiary
Loan to subsidiarysubsidiaries andaffiliates
Subsidiary

HeptaresDirectTherapeutics

holding

100%

Ltd.

Provision of

386 Accounts receivable

52

management services
to subsidiary
Reversal of advances

151

-

-

received
Loan to subsidiary- Short-term loans to

3,997

subsidiaries andaffiliates
Debt guarantees
Receipt of interest

2,015

-

71 Accounts receivable-

income-subsidiaries andaffiliates

Notes:
1.

Transaction amounts do not include consumption taxes, etc.; term-end balances include consumption taxes, etc.

2.

Prices and other transaction terms are determined upon discussion and agreement by the two parties on terms equivalent

3.

Intercompany receivables and interest are collected based on the available cash position of each company.

4.

Loans to Sosei Co., Ltd. and Heptares Therapeutics Ltd., are made at market interest rates. Collateral has not been

to other parties unrelated to the Company.

requested.
5.

At the end of the fiscal year under review, 2,068 million yen was set aside as an allowance for doubtful debts in respect ofa long-term loan receivable from a subsidiary company, Sosei Co., Ltd. During the current fiscal period 350 million yen wasrecorded as a provision of allowance for doubtful accounts for affiliated companies.

6.

Debt guarantees have been provided in relation to land and building lease agreements and building contract signed by theCompany’s subsidiary, Heptares Therapeutics Ltd. No fee for the provision of the guarantees has been charged to thesubsidiary.

20

(2)

Officers and major individual shareholders

Type

Name

Share of voting

Relationship withrights holding

related parties

Transaction type

Officer

ShinichiDirectly

Tamuraheld

Tomohiro

Directly

Tohyamaheld

Account

¥m

¥m
1.41

0.03

Representative

In-kind

Executive Officer,

contribution of

Chairman,monetary

President andcompensation

CEO

claim

Director

Legal advice

Endingbalanceamount(held)
Officer

Transaction

11

-

-

1

Account0

payableExercise of stock

12

-

-

30

-

-

30

-

-

40

-

-

40

-

-

11

-

-

46

Account

39

options
In-kindcontribution ofmonetary
compensation
claim
Officer

Julia

Directly

Gregoryheld-

In-kindDirector

contribution ofmonetary
compensation
claim

Officer

KuniakiDirectly

Kaga

held

0.02

In-kindDirector

contribution ofmonetary
compensation
claim

OfficerDavid

Directly

Roblinheld-

In-kindDirector

contribution ofmonetary
compensation
claim

Officer

NoriakiDirectly

Nagai

held

0.01

In-kindDirector

contribution ofmonetary
compensation
claim

Officer

Malcolm

Directly

Weir

held

0.01

Executive Officer

Payment ofand Executive

contingent

Vice Chairman

consideration
Exercise of stock

payable

0

-

-

11

-

-

18

-

-

options
Officer

Tim Tasker

Directly-

held

Officer

Tadayoshi

Directly

Yasui

held

0.01

Executive Officer

Payment ofand Executive

contingent

Vice President

consideration

Executive Officer

Exercise of stockand Executive

options

Vice President

21Notes:1.

Transaction prices and other conditions are determined by reference to similar third-party contracts.

2.

In-kind contribution of monetary compensation claim relates to the Restricted Stock Unit plan

3.

Transactions with Mr. Tohyama, Director, relate to transactions with TMI Associates, of which he is a partner.

4.

The exercise of stock options by Mr. Tohyama and Mr. Yasui in the current fiscal year relates to the 29th stock acquisitionrights approved by the Board of Directors on November 13, 2015.

5.

The exercise of stock options by Mr. Weir in the current fiscal year relates to the 31st stock acquisition rights approved by
the Board of Directors on May 15, 2017.

7. Notes on per-share information¥(1) Net assets per share

754.79(2) Net loss per share(16.62)22