This document has been translated from the Japanese original for reference purposes only. In theevent 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 to the accuracy of thisEnglish translation and assumes no responsibility for this translation or for direct, indirect or any otherform of damages arising from the translation.

To Our Shareholders:

TSE Securities Code: 4565
(Sending date) March 7, 2024
(Starting date of the electronic provision) February 29, 2024
2-1 Kojimachi, Chiyoda-ku, Tokyo

Sosei Group Corporation

Representative Executive Officer,
President and CEO

Christopher Cargill

Notice of the 34th Ordinary General Meeting of Shareholders
We would like to extend our deepest condolences to all of those affected by Noto Peninsula Earthquake of2024.

Sosei Group Corporation (the Company) would like to inform you that the 34th Ordinary General
Meeting of Shareholders of the Company (the “Meeting”) will be held as follows.
For this Meeting, we have taken measure of ”the electronic provision system” of theshareholders meeting documents including reference documents for this Meeting. We haveposted the notice of convening the 34th Ordinary General Meeting of Shareholders on our website
on the Internet. Please access and confirm the following websites.
【Company’s website】

https://www.soseiheptares.com/?ctry=jp

Please access the above website and select 『株主・投資家情報』『株式情報』『株主総会』from the menu in order.

In addition to the above website, the electronic provision system of the shareholders meeting
documents are also available on the website of Tokyo Stock Exchange(“TSE”).
【TSE website】

https://www2.jpx.co.jp/tseHpFront/JJK010010Action.do?Show=Show

Please access the above website, enter and search for 『そーせいグループ』 in 『銘柄名（会社名）』 or our
securities code 『4565』 in 『コード』 and search for 『基本情報』 and 『縦覧書類/PR情報』 in order, and confirm
from the 『株主総会招集通知/株主総会資料』 column in 『縦覧書類』.

If you are unable to attend the Meeting, you may exercise your voting rights via the Internet orin writing (by mail). Please review the reference documents for the Meeting and exercise yourvoting rights by 5:00 p.m. on Tuesday, March 26, 2024 refering to "Exercise of Voting Rights."
Yours sincerely
Date and Time

Wednesday, March 27, 2024 at 10:00 a.m. (Reception start: 9:30 a.m.)

Venue

Fuji-No-Ma Hall, 4th Floor, Hotel Grand Arc Hanzomon
1-1, Hayabusa-cho, Chiyoda-ku, Tokyo, Japan
Please refer to “Access to Meeting of Shareholders Venue” at the end.

AgendaMatters to bereported:

Matters to beresolved:

1. Business Report, Consolidated Financial Statements, andReports of Independent Auditor and the Audit Committee on theConsolidated Financial Statements for the 34th fiscal period (fromJanuary 1, 2023 to December 31, 2023)
2. Report on the Non-Consolidated Financial Statements for the 34th
fiscal period (from January 1, 2023 to December 31, 2023)
Proposal No1. - Partial amendment of articles of incorporation
Proposal No2. - Election of Nine (9) Directors

11. If you do not indicate whether you approve or disapprove of each proposal on the
Voting Rights Exercise Form that you have sent back to us, you will be deemed tohave Approved it.
Matters to be
2. If the voting rights are execised both via the Internet and in writig, the voting rights
Determined in
execised via the Internet shall be treated as valid.
Convocation
3. If the voting rights are exercised twice or more times via the Internet, the latest“Notice on
exercise thereof shall be treated as valid.
exercising voting
4. If you intend to make a diverse exercise of your voting right, please notify our sockrights”
transfer agent in writing or by electronic method of your intention of make a diverse
exercise of your voting rights and the reasons therrof three(3) days prior to theGeneral Meeting of Shareholders.
Above◎ If you attend the Meeting, please present the Voting Rights Exercise Form sent with this notice ofconvocation to the receptionist at the venue.
◎ Regarding the shareholders meeting documents provided by the electronic provision system, the following
matters are not included in the documents delivered to shareholders who request delivery of documents
pursuant to the provisions of laws and regulations and Article 14 of the Company's Articles ofIncorporation.In addition, the Audit Committee and the Independent Auditor have audited the documents
to be audited, including the following matters.
・Of the business report “Current State of the Corporate Group”
Progress and Results of Operations
Assets and Profit/Loss in the previous three fiscal years
Issues to be addressed
Main Business Activities
Main Offices and Factories
Employee Information
Principal Lenders
Other Significant Matters on the Current Status of the Group・Of the business report “Current Status of the Company”
State of Shares
Stock acquisition rights (“stock options”), etc.
Independent Auditors
Outline of the systems for ensuring the appropriateness of operations and their operating status
Policy on determination of Dividends, etc.
Policy on the conduct of persons influencing decision on the Company's financial and business policies

・Consolidated Financial Statements（Consolidated Balance Sheet, Consolidated Statement of Profit or
Loss and Other Comprehensive Income, Consolidated Statement of Changes in Equity and Notes to
the Consolidated Financial Statements）
・ Non-Consolidated Financial Statements （ Non-Consolidated Balance Sheet, Non-Consolidated
Statement of Profit or Loss, Non-Consolidated Statement of Changes in Equity and Notes to the NonConsolidated Financial Statements）◎ In the event that matters described in the shareholders meeting documents provided by the electronic
provision system is amended, we will post the amendment on Company’s website and TSE website aboveon the Internet.
Information on meetings with shareholders
・In consideration of the health and safety of our shareholders, we will hold the meeting after
taking appropriate measures to prevent the spread of infection.
・ After the general meeting of shareholders, we will hold an informal gathering forshareholders at the same venue.We would like to hear various valuable opinions from ourshareholders, whom we rarely get to meet on a daily basis, so we are waiting for you witha light meal.

2

Exercise of Voting Rights
You may exercise your voting rights using one of the following three methods.
Exercising voting rights on the Internet
Please use a personal computer or smartphone to access the voting website designated by
the Company. Please enter the “Voting code” and “Password” printed on the Voting Rights
Exercise Form sent with this notice to the receptionist at the venue and exercise your voting
rights by following the instructions displayed on the screen.
Exercise due date: No later than 5:00 p.m. on Tuesday, March 26, 2024
Exercising voting rights in writing (by mail)Please indicate your approval or disapproval of each proposal on the Voting Rights Exercise
Form sent with this notice and post it without affixing postage stamps.
Exercise due date: To be received no later than 5:00 p.m. on Tuesday, March 26, 2024
For those attending the Meeting in person
Please submit the Voting Rights Exercise Form at the reception desk at the venue.
Date and Time:
Wednesday, March 27, 2024 at 10:00 a.m. (Reception start: 9:30 a.m.)
Venue:
Fuji-No-Ma Hall, 4th Floor, Hotel Grand Arc Hanzomon
1-1, Hayabusa-cho, Chiyoda-ku, Tokyo, JapanThe Company designated voting website
https://www.web54.net
You can connect to the voting website via smartphone.
<Smart Vote>
Smartphone users may log in to the voting website without entering the “voting code” and“password” by scanning the QR Code printed on the Voting Rights Exercise Form. For
details, please refer to the leaflet sent with this notice.
<Cautionary matters>
 Each shareholder shall bear any fees for accessing the voting website (Internet connection
fees, communications fees, etc.).
Inquiries related to exercise of voting rights via the Internet
The Sumitomo Mitsui Trust Bank, Limited, Stock Transfer Agency Web Support Helpline
Telephone: 0120-652-031 (toll-free in Japan only; hours: 9:00 a.m. to 9:00 p.m.)
To institutional investors
You may use the Electronic Voting Platform operated by ICJ Inc., as a method of exercising
your voting rights.

3

Proposal No.1 Partial amendments to the Articles of Incorporation
1. Reasons for proposal(1) In July 2023, the Company acquired all the issued shares of Idorsia Pharmaceuticals Japan
Ltd (“IPJ”) and made it a wholly owned subsidiary with the strategic goal to expand theCompany’s operations in Japan. As IPJ and Sosei Co. Ltd., also a wholly owned subsidiaryof the Company, plan to merge as of the effective date April 1, 2024, the Company has
decided to use the event to adopt a unified corporate brand and corporate name for theGroup, including all subsidiaries. As a result, the Company's corporate name as stipulated
in Article 1 of the Articles of Incorporation shall be changed from "Sosei Group Corporation"to "Nxera Pharma Co., Ltd." and the prescribed changes shall be made.
The name "Nxera" is derived from the words "Next" and "Era" to express the Company's
determination to be a leader in the next era of science and healthcare. “Nxera” will be atechnology-enabled pharma company that will challenge the status quo in its pursuit ofbetter treatments for patients that are waiting.
(2) Considering the merger between the subsidiaries as described in (1) above, the Company's
head office will be moved to the same location as the head office of IPJ (Minato-ku, Tokyo)
to accelerate business integration and enhance operating efficiencies. In accordance withthis change, the location of the head office as stipulated in Article 3 of the Articles ofIncorporation shall be changed from Chiyoda-ku, Tokyo to Minato-ku, Tokyo, and theprescribed changes shall be made.
(3) This is also to amend the number of directors specified in Article 19 of the existing Articles
of Incorporation from not more than ten (10) to not more than twelve (12) directors to allow
for future flexibility to enhance the supervisory function of the Board as the Company grows.

The above (1) (2) changes will take effect on April 1, 2024.
2. Content of the Amendment
The proposed Amendments are as follows.
(The underlined portions show the changes.)
Current Articles of Incorporation
Proposed Amendments(Corporate Name)(Corporate Name)
Article 1
Article 1
The name of the Company shall be “Sosei
The name of the Company shall be “Nxera
Group Kabushiki Kaisha,” and shall be “Sosei
Pharma Kabushiki Kaisha,” and shall be “Nxera
Group Corporation” in English.
Pharma Co., Ltd.” in English.
(Head Office)(Head Office)
Article 3
Article 3
The head office of the Company shall be located The head office of the Company shall be locatedin Chiyoda-Ku, Tokyo, Japan.
in Minato-Ku, Tokyo, Japan.

4Current Articles of Incorporation(Number of Directors)
Article 19
The Company shall have no more than ten (10)Directors.
(Newly established)

Proposed Amendments(Number of Directors)
Article 19
The Company shall have no more than twelve(12) Directors.
(Supplementary provisions)
1. The changes to Article 1 (Corporate Name)and Article 3 (Head Office) of the current Articles
of Incorporation shall take effect from 1 April
2024 (the “Effective Date”).
2. These Supplementary Provisions shall bedeleted after the Effective Date.

5Proposal No.2 Election of Nine (9) Directors
The term of office of all of current nine(9) directors will expire at the conclusion of the Meeting. In
accordance with the decision by the Nomination Committee, the election of total nine (9) directors
shall be proposed. Our Nomination Committee shall evaluate candidates for directors on therequired skills, including management experience, expertise, career and achievements, and thestatus of concurrent assignments with other companies. The level of performance of duties,
mental and physical health, and compliance awareness are also considered for election.
Candidate selection shall be made to realize a high degree of diversity in gender, nationality andso on. The candidates are as follows:
Number oftimes
CandidateCurrent positions andattended
Name
AttributeNo.
responsibilities at the Company
Board ofDirectors
Meetings
Chairman of the Board,
Chair of the Nomination
Re15/17
1
Shinichi Tamura
appointed
Committee, Member of thetimes
Compensation Committee
Director,
Representative Executive Officer,
Re17/17
2
Christopher Cargill President & CEO
appointed
times
Member of the Compensation
Committee
External Director,
Chair of the Audit Committee,
Re15/17
External Ind
3
Tomohiro Tohyama Member of the Compensation
appointed
times
Committee

4

Kuniaki Kaga

5David Roblin

6

Noriaki Nagai

7

Rolf Soderstrom

8

Miwa Seki

9

Eiko Tomita

External Director,
Member of the Audit Committee
External Director,
Chair of the Compensation
Committee,
Member of the Nomination
Committee
External Director,
Member of the Nomination
Committee,
Member of the Audit Committee
External Director,
Member of the Compensation
Committee,
Member of the Audit Committee,
External Director,
Member of the Nomination
Committee,
Member of the Audit Committee
External Director

6

ReExternal
appointed

Ind

16/17

ReExternal
appointed

Ind

16/17

ReExternal
appointed

Ind

17/17

ReExternal
appointed

Ind

17/17

ReExternal
appointed

Ind

15/17

ReExternal
appointed

Ind

11/12

times

times

times

times

times

times

Reappointed
ExternalInd※

Candidate as Reappointed Director
Candidate as External Director
Independent Director designated in accordance with the listing regulations ofstock exchanges

Ms. Eiko Tomita was elected as Directors at the 33rd Ordinary General Meeting of Shareholders heldon March 23, 2023 and was appointed as director on 1 April 2023, and accordingly, the numbers oftimes she attended the Board of Directors meetings held since assuming office are stated in.

7

Reference

The expertise of the nominated director and the committees they are scheduled to become
members of, if agenda proposals are approved, are as follows. Note that the table below does
not necessarily represents all the expertises that the nominated directors have.
Skill

Name

Term ofofficeShinichi Tamura

Corporate
management

Technology/
R&D

Businessstrategy/Marketing

34 years●●●

Christopher Cargil

2 year●TomohiroTohyama

13 years●

Kuniaki Kaga

6 years

●

●

●

Audit

David Roblin

6 years●●●

Nomination/
Compensation

Noriaki Nagai

5 years

Rolf Soderstrom

4 years

Miwa Seki

2 yearEiko Tomita

1 year●Finance/
Accounting

Legal

Scheduled totake officeNomination/
Compensation●

Compensation●

Nomination/
Audit

●

●

●

●

●

Compensation/
Audit

●

●

●

Nomination/
Audit

●

8

●

●

Compensation/
Audit

－

CandidateNo.

1
Reappointed

No. of shares owned:

Shinichi Tamura(Born 17/Sep/1949)

594,270

Term of office as Board Director:

34 years

Attendance at Board Meetings:

15/17 times[Career summary, and positions and responsibilities at the Company]
Apr. 1978
Feb. 1987
Jul. 1989
Jun. 1990
Jun. 2005
Mar. 2012
Jun. 2016
Jan. 2019
Sep. 2021
Mar. 2022

Joined Fujisawa Pharmaceutical Co., Ltd.
(current Astellas Pharma Inc.)
Joined Genentech Inc.
Representative Director & President, Genentech Limited
Representative Director & CEO of the Company
Board Director, Representative Executive Officer and President, CEO of
the Company
Managing Director, Sosei R&D Ltd.
Chairman of the Board of the Company
Representative Executive Officer and Executive Chairman of theCompany
Representative Executive Officer, Chairman, President and CEO of theCompany
Representative Executive Officer, CEO of the Company
Chairman of the Board of the Company (to the present)<Committee membership>
Chair of the Nomination Committee; Member of the Compensation Committee[Significant concurrent posts]
N/A
Reason for selection of the candidate as Director
Mr. Shinichi Tamura is the founder of the Company and has led the Company's businessexpansion by utilizing his extensive experience in corporate management in the pharmaceuticalindustry. Since March 2022, he has concentrated on his role as Chairman of the Board of Directors.
For further development of the Company's business, the Company proposes that he continue tobe elected as a Director.

8

CandidateNo.

2
Reappointed

Christopher Cargill

No. of shares owned:(Born 3/Jan/1984)

41,687

Term of office as Board Director:

2 yearAttendance at Board Meetings:

17/17 times[Career summary, and positions and responsibilities at the Company]
Feb. 2009
Apr. 2010
Sep. 2017
Jun. 2018
Jun. 2018
Nov. 2018
Jan. 2019
Apr. 2021
Sep. 2021
Mar. 2022
Aug. 2022
Apr. 2023
Jul. 2023

Joined KPMG
Joined J.P. Morgan Chase & Co
Head of IR and Corporate Communication Dept of the Company
Interim CFO of the Company
Director, Sosei R&D Ltd.
Executive Officer and Executive Vice President, CFO of the Company
Director, Heptares Therapeutics Ltd. (to the present)
Executive Officer, COO, CFO of the Company
Executive Officer, CFO of the Company
Representative Executive Officer and President, CEO of the Company(to the present)
Director, Sosei Group USA Inc. (to the present)
Representative Director and President, Sosei Co. Ltd. (to the present)
Director, Idorsia Pharmaceuticals Japan Ltd. (to the present)<Committee membership>
Member of the Compensation Committee[Significant concurrent posts]
Representative Director and President, Sosei Co. Ltd.
Director, Idorsia Pharmaceuticals Japan Ltd.
Director, Heptares Therapeutics Ltd.
Reason for selection of the candidate as Director

Mr. Christopher Cargill has extensive expertise in finance and accounting based on his businessexperience at a major overseas financial institution, etc. Since joining the Company in 2017, he
was responsible for formulating business strategies as CFO and has demonstrated a high levelof business management skills as a Director of Heptares Therapeutics Ltd., since 2019. Since
March 2022, he has been Representative Executive Officer, President & CEO of the Company.
It is expected that he demonstrates a high level of expertise with his understanding the overallmanagement of the Company. Thus, the Company proposes that he continue to be elected as a
Director.

9

CandidateNo.

3

Tomohiro Tohyama Term of office as External Director:

Reappointed[Career summary, and positions and responsibilities at the Company]

External
Independent

No. of shares owned:(Born 21/Feb/1950)

Apr. 1978
Apr. 1980
May 1984
Feb. 1985
Jun. 1985
Aug. 1985
Oct. 1990
Nov. 1999
Jun. 2010
Jun. 2011
May 2016
May 2016
Jun. 2016

Attendance at Board Meetings:

51,25813years
15/17 times

Entered Legal Training and Research Institute, Supreme Court of Japan
Registered with Dai-ichi Tokyo Bar Association
Joined Nishimura & Sanada Law Office
Mason & Sloane LLP., USA
Pollock, Bloom & Dekom, USA
Pryor, Cashman, Sherman & Flynn, USA
Returned to Nishimura & Sanada Law Office as a partner
Partner (one of founders) at TMI Associates (to the present)
External Corporate Auditor, Nippon Shikizai, Inc.
External Director, Avex Group Holdings Inc.
External Director of the Company (to the present)
External Director, Member of the Audit and Supervisory Committee,
Nippon Shikizai, Inc. (to the present)
External Director, Trust Capital Co., Ltd.
Outside Statutory Auditor , WOWOW Inc.

<Committee membership>
Chair of the Audit Committee; Member of the Compensation Committee[Significant concurrent posts]
Partner at TMI Associates
External Director and Audit and Supervisory Committee Member of Nippon Shikizai,
Inc.
Reason for selection of the candidate as External Director and summary of expectedroles
Mr. Tomohiro Tohyama has extensive experience and expertise in international corporate legal
affairs as a partner at a major law firm in Japan, and he also has experience in managing multiple
companies as an External Director and Corporate Auditor. He has been actively providing usefuladvice and suggestions on overall management by utilizing his expert perspective on corporate
management and legal affairs. It is expected that his performance of these important roles willfurther strengthen the oversight of the management and the governance system, and thus theCompany proposes that he continue to be elected as an External Director.

10Candidate
No.

4
Reappointed

No. of shares owned:

Kuniaki Kaga

Term of office as External Director:(Born 1/Sep/1951)

Attendance at Board Meetings:

35,598
6years
16/17 times[Career summary, and positions and responsibilities at the Company]

External

Apr. 1975

Independent

Jun. 2004
Oct. 2005
Jun. 2006

Jun. 2009
Jun. 2010
Apr. 2012
Apr. 2014
Feb. 2015
Jun. 2018
Jan. 2021

Joined Mitsubishi Kasei Kogyo Kabushiki Kaisha (current Mitsubishi
Chemical Corporation)
Deputy Director, Head of Healthcare Planning Department, Mitsubishi
Chemical Corporation
Deputy Director, Mitsubishi Chemical Holdings Corporation (current
Mitsubishi Chemical Group Corporation)
Head of Healthcare Strategy Office
Executive Officer and Head of Healthcare Strategy Office, Mitsubishi
Chemical Holdings Corporation
Executive Officer, Head of Healthcare Business Domain, and General
Manager of Healthcare Planning Office, Healthcare Business Domain,
Mitsubishi Chemical Corporation
Board Director, Mitsubishi Tanabe Pharma Corporation
Representative Director, Managing Executive Officer, General Manager
of International Business Department, Mitsubishi Tanabe Pharma
Corporation
Representative Director, Senior Managing Executive Officer, General
Manager of Research Division and International Business Department,
Mitsubishi Tanabe Pharma Corporation
President and Representative Director, Life Science Institute, Inc.
Board Director, Mitsubishi Tanabe Pharma Corporation
Board Director, The KAITEKI Institute, Inc.
President and Representative Director, The KAITEKI Institute, Inc.
External Director of the Company (to the present)
External Director, SUSMED, Inc (to the present)<Committee membership>
Member of the Audit Committee[Significant concurrent posts]
External Director, SUSMED, Inc
Reason for selection of the candidate as External Director and summary of expected
roles
Mr. Kuniaki Kaga has held several senior positions at leading Japanese chemical andpharmaceutical companies. He has been actively providing useful advice and suggestions on
overall management by leveraging his expertise in corporate management, technology,
research and development, business strategy and marketing. It is expected that his
performance of these important roles will further strengthen the oversight of the management
and the governance system, and thus the Company proposes that he continue to be elected as
an External Director.

11

Candidate
No.

5
Reappointed
External
Independent

No. of shares owned:

David Roblin

6,532

Term of office as External Director:(Born 25/Sep/1966)

Attendance at Board Meetings:

6 years
16/17 times[Career summary, and positions and responsibilities at the Company]
Apr. 1991
Jun. 1997
Jun. 2008
Apr. 2011
Sep. 2013
Feb 2014
Jun. 2015
Feb. 2017
Feb. 2017
Jun. 2018
Mar. 2020
Apr. 2022
Apr. 2022

Medical practice at St George’s and St Bartholomew’s Hospital, London
Head of Therapy Area for Anti-Infectives, Bayer Pharma AG
Senior Vice President, Head of Research, Site Head, Chief Medical
Officer (CMO), Europe R&D, Pfizer Inc.
CMO, Creabilis
Honorary Professor, Swansea University, School of Medicine (to thepresent)
COO, The Francis Crick Institute
Honorary Professor of Translational Medicine, St George’s Hospital
Medical School (to the present)
Chairman of Scientific Translation, The Francis Crick Institute (to thepresent)
President of R&D, Summit Therapeutics
External Director of the Company (to the present)
COO and CEO JuvRX, Juvenescence Ltd
CEO, Relation Therapeutics Limited (to the present)
Chair of Board, Centauri Therapeutics Limited (to the present)<Committee membership>
Chair of the Compensation Committee; Member of the Nomination Committee[Significant concurrent posts]
Chairman of Scientific Translation, The Francis Crick InstituteCEO, Relation Therapeutics Limited
Chair of Board, Centauri Therapeutics Limited
Reason for selection of the candidate as External Director and summary of expected
roles
Dr. David Roblin gained clinical experience as a physician, and later followed with adistinguished career in the pharmaceutical industry, most notably as SVP and Head of R&D in
Europe for a major pharmaceutical company. He has been actively providing useful advice andsuggestions on R&D in general, utilizing his expert perspective on corporate management,
technology, R&D, business strategy and marketing. It is expected that his performance of theseimportant roles will further strengthen the oversight of the management and the governancesystem, and thus the Company proposes that he continue to be elected as an External Director.

12

Candidate
No.

6
Reappointed
External
Independent

No. of shares owned:

Noriaki Nagai

Term of office as External Director:(Born 1/Dec/1957)

Attendance at Board Meetings:

34,1645 year17/17 times[Career summary, and positions and responsibilities at the Company]
Apr. 1981
Sep. 1998
Jun. 2000
Apr. 2006
Apr. 2010
Apr. 2011
Jun. 2013
Jun. 2013
Apr. 2014
Apr. 2015
Mar. 2019

Joined Nomura Securities, Co., Ltd. (NSC)
Managing Director, Head of European Administration Division of
Nomura International plc
General Manager, Legal Dept., NSC
Executive Officer in charge of Corporate, Nomura Holdings, Inc. (NHI)
Executive Officer in charge of Legal, NSC
Executive Managing Director in charge of corporate planning, legal andsecretary, NSC
Executive Officer and Chief Legal Officer, NHI
Executive Managing Director in charge of legal and secretary, NSC
External Director, Japan Securities Depository Center, Inc.
External Director, Japan Securities Clearing Corporation
Executive Officer in charge of Corporate and Chief Legal Officer, NHI
Executive Managing Director in charge of planning management, NSC
Professor of Law, Doshisha University
External Director of the Company (to the present)<Committee membership>
Member of the Nomination Committee, Member of the Audit Committee[Significant concurrent posts]
N/A
Reason for selection of the candidate as External Director and summary of expected
roles
Mr. Noriaki Nagai held key positions in the corporate division of a major securities company andwas a university professor at faculty of law. He has been actively providing useful advice andsuggestions to the Company's management in general, utilizing his expertise in businessstrategy and marketing, finance and accounting, and legal affairs. It is expected that his
performance of these important roles will further strengthen the oversight of the management
and the governance system, and thus the Company proposes that he continue to be elected as
an External Director.

13

Candidate
No.

7
Reappointed
External
Independent

Rolf Soderstrom

No. of shares owned:
Term of office as External Director:(Born 29/Jul/1965)

Attendance at Board Meetings:

14,313
4years17/17 times[Career summary, and positions and responsibilities at the Company]
Jan. 1988
Dec. 2000
Jun. 2002
Jan. 2004
Aug. 2007
Dec. 2008
Jul. 2019
Mar. 2020
Sep. 2020
Jul. 2021

Joined PricewaterhouseCoopers
Corporate Finance Director, Cable & Wireless plc
External Director, MobileOne Ltd. (current M1 Ltd.)
Divisional Finance Director, Cobham plc
Chief Financial Officer, Protherics plc (current BTG plc)
Chief Financial Officer, BTG plc
Senior Independent Director, Ergomed plc
External Director of the Company (to the present)
Non Executive Director, BioPharma Credit plc (to the present)
Chief Financial Officer, Syncona Investment Management Limited (tothe present)<Committee membership>
Member of the Compensation Committee, Member of the Audit Committee[Significant concurrent posts]
Chief Financial Officer, Syncona Investment Management Limited
Non Executive Director, BioPharma Credit plc
Reason for selection of the candidate as External Director and summary of expected
roles

Mr. Rolf Soderstrom is a qualified chartered accountant in the United Kingdom and has extensive
experience and achievements in M&A, risk management and governance as a leader in financerelated matters for companies in Europe, North America and Asia. For the past 16 years he has
worked in various companies in the Life Sciences sector. He has been actively providing usefuladvice and suggestions on overall management by utilizing his expertise in corporate
management, business strategy and marketing, finance and accounting. It is expected that his
performance of these important roles will further strengthen the oversight of the management
and the governance system, and thus the Company proposes that he continue to be elected as
an External Director.

14

Candidate
No.

8
Reappointed
External
Independent

Miwa Seki

No. of shares owned:
Term of office as External Director:(Born 25/Feb/1965)

Attendance at Board Meetings:

11,276
2 year
15/17 times[Career summary, and positions and responsibilities at the Company]
Apr. 1988
Apr. 1989
Sep. 1993
Feb. 1997
Jan. 2003
Apr. 2015
Jun. 2018
Jun. 2020
Apr. 2021
May.2021
Mar. 2022

Joined DENTSU INC.
Joined Smith Barney
Joined Morgan Stanley
Joined Clay Finlay Limited
General Manager, Tokyo Branch, Clay Finlay Limited
Associate Professor, Faculty of Foreign Studies, Kyorin University
External Director, World Co., Ltd. (to the present)
External Director, DAIWA HOUSE INDUSTRY CO., LTD. (to thepresent)
Specially Appointed Associate Professor, Faculty of Foreign Studies,
Kyorin University
General Partner MPOWER PARTNERS FUND (to the present)
External Director of the Company (to the present)<Committee membership>
Member of the Nomination Committee, Member of the Audit Committee[Significant concurrent posts]
General Partner MPOWER PARTNERS FUND
External Director, World Co., Ltd
External Director, DAIWA HOUSE INDUSTRY CO., LTD.
Director, Yanai Tadashi Foundation
Director, Fast Retailing Foundation
Reason for selection of the candidate as External Director and summary of expectedroles

Ms. Miwa Seki served as head of Japan at a foreign capital financial institution and is currently afounding partner of an ESG-oriented investment fund. She has been actively providing usefuladvice and suggestions on overall management by utilizing her expert perspective on corporate
management, business strategy and marketing, and finance/accounting. It is expected that her
performance of these important roles will further strengthen the oversight of the management
and the governance system, and thus the Company proposes that she continue to be elected as
an External Director.

15

Candidate
No.

9
Reappointed
External
Independent

Eiko Tomita

No. of shares owned:
Term of office as External Director:(Born 20/Apr/1961)

Attendance at Board Meetings:

1 year
11/12 times[Career summary, and positions and responsibilities at the Company]
Apr. 1984
Sep. 1994
Sep. 1999
Nov. 2000
Sep. 2006
Apr. 2007
Nov. 2017

Joined Eisai Co. Ltd.
Joined IBRD Japan Corporation
Joined Monsanto Japan Ltd. (current Pfizer Inc.)
Joined AstraZeneca K.K.
Joined Pfizer Japan Inc.
Joined Bristol-Myers Squibb K.K.
Bristol-Myers Squibb
Vice President, Global Regulatory Sciences Intercontinental
responsible for Japan, Korea, Taiwan and Intercontinental (Australia,
Brazil, Turkey, India, Middle East and South America, etc.)
Mar. 2020 Bristol-Myers Squibb
Vice President, Global Regulatory Sciences Intercontinental
responsible for Intercontinental (China, Korea, Taiwan, Australia, Russia,
Brazil, Turkey, India, Middle East, South America, etc.)
Apr. 2023 External Director of the Company (to the present)[Significant concurrent posts]
N/A
Reason for selection of the candidate as External Director and summary of expectedroles

Ms. Eiko Tomita is a qualified pharmacist of Japan and has a remarkable track record and has
been deeply involved in the international pharmaceutical approval process for global
pharmaceutical companies both domestically and internationally. She has been actively providing
useful advice and suggestions on overall management by utilizing her expertise in technology,
research and development, business strategy and marketing. It is expected that her performanceof these important roles will further strengthen the oversight of the management and thegovernance system, and thus the Company proposes that she continue to be elected as anExternal Director.

16Notes 1. There is no special conflict of interests between the Director candidates and the Company.
2. Mr. Tomohiro Tohyama, Mr. Kuniaki Kaga, Dr. David Roblin, Mr. Noriaki Nagai, Mr. Rolf Soderstrom, Ms. Miwa
Seki, and Ms. Eiko Tomita are candidates for External Directors.
3. Summary of liability limitation agreements with the candidates
In accordance with Article 427, Paragraph 1 of the Companies Act, the Company entered into an agreementthat limits liability for damages under Article 423, Paragraph 1 of the said Act with each of Mr. Tomohiro
Tohyama, Mr. Kuniaki Kaga, Dr. David Roblin, Mr. Noriaki Nagai, Mr. Rolf Soderstrom, Ms. Miwa Seki and Ms.
Eiko Tomita. The limit on the liability for damages under the agreements is the minimum amount of liability
stipulated in Article 425, Paragraph 1 of the Companies Act. If the appointment of each candidate is approvedat the Meeting, the Company intends to continue liability limitation agreements with the candidates.
4. We have a liability insurance (D&O insurance) policy in which all of our directors are insured. The Company ispaying the full amount of premiums for this policy. To a director who is an insured person being liable for the
execution of his/her duties or a request pertaining to the pursuance of such liability damage that may be causedby such damage is covered. If the election of each candidate is approved at the Meeting, each candidate will
be included as an insured person under the relevant insurance policy. Moreover, we plan to renew D&O
insurance with same content for the next contract renewal.
5. The Company has notified Tokyo Stock Exchange, Inc. of the appointment of Mr. Tomohiro Tohyama, Mr. Kuniaki
Kaga, Dr. David Roblin, Mr. Noriaki Nagai, Mr. Rolf Soderstrom, Ms. Miwa Seki and Ms. Eiko Tomita as
Independent Directors in accordance with the regulations of Tokyo Stock Exchange, Inc. If the election of eachcandidate is approved at the Meeting, the company plans to continue to designate each person as Independent
Directors.

Reference

the Independence Standards for External Directors
An external director will be determined to be independent if he or she does not fall under any of

the following categories:(1) A person who is or was an executive director, executive officer or other officer or employee (hereinaftercollectively referred to as "Executive") of our Group (the Company and its affiliated companies);(2) A person who is or was in any of the last three business years an Executive at our Group’s principal
business partner (a company with which the annual amount of transaction (the amount of products andservices provided or procured) exceeds 2% of consolidated net sales of the Company or the partner or afinancial institution from which the amount of borrowing outstanding at the end of fiscal year exceeds 2%of the Company’s consolidated total asset) and its parent and subsidiary companies, and subsidiaries ofsuch parent company;(3) A consultant, or accounting or legal expert who has received in any of the last three business years cash
or other property exceeding 10 million yen from our Group other than the remuneration for a director or
officer (or a person who belongs to an organization if the said property has been received by a juridical
person, partnership or any other organization);(4) A person who belongs or belonged to an auditing firm that is an accounting auditor of the Company or its
consolidated subsidiary in any of the last three business years;(5) A major shareholder of the Company (shareholder holding 10% or more on a voting rights basis of theshares in the Company in its own or other's name) at the end of the most recent business year or its
Executive;(6) A spouse or relative within the second degree of kinship of a person who falls under any of the items (1)to (5) above provided that an Executive shall be in an “Important Position.” For the purpose of this item,a person is in an “Important Position" when the person is a director (excluding external director), executive
officer, officer, employee in senior management position of general manager or higher, or other person
who is objectively and reasonably judged to be in a position of equivalent importance; or(7) A person who is reasonably judged to be unable to perform his or her duties as an independent external
director due to a potential conflict of interest with shareholders.

End

17

1

Current State of the Corporate Group(1) Progress and Results of Operations
1) Group Overview

Sosei Group is a science and technology-led biopharmaceutical business whose core activities
are drug discovery, drug development and the commercialization of pharmaceutical products.
Within the Group, Heptares Therapeutics Ltd (a wholly owned subsidiary based in UK) mainly
engages in drug discovery, translational medicine, preclinical and early clinical development;
Idorsia Pharmaceuticals Japan Ltd. (“IPJ”; a wholly owned subsidiary based in Japan), and Idorsia
Pharmaceuticals Korea Co., Ltd. (“IPK”; a wholly owned subsidiary based in South Korea), mainly
engage in clinical development and product commercialization in Japan and South Korea,
respectively, with potential to expand into other Asia-Pacific (“APAC”) regions.
In drug discovery, the Group’s core scientific focus is to discover new medicines for important
unmet medical needs, including novel small molecules, peptides and therapeutic antibodies,targeting G Protein-Coupled Receptors (“GPCRs”). Its proprietary StaR® (“stabilized receptor”)
technology and structure-based drug design (“SBDD”) platform have enabled the Group to
become a world leader in discovering new drugs to target GPCRs and to develop an extensive
pipeline of over 30 active in-house and partnered discovery and development programs acrossimportant therapeutic areas, including neurology, gastroenterology, and immunology andinflammation.
In late-stage development and commercialization, the Group owns the Japan and APAC
(excluding China) territory rights to PIVLAZ® (launched in Japan in 2022 to treat cerebral
vasospasm) and daridorexant (filed in Japan in 2023 to treat insomnia), as well as exclusive
options to license Japan and APAC (ex-China) rights from Idorsia Pharmaceuticals to its Phase 3
cenerimod (autoimmune diseases) and lucerastat (Fabry disease) programs.
In addition, the Group generates royalty revenues from the global sales of respiratory diseaseproducts Seebri® Breezhaler®, Ultibro® Breezhaler® and Enerzair® Breezhaler® from Novartis
International AG ("Novartis”). These royalties provide the Group with a significant, stable sourceof capital to support the investment required to achieve its strategic objectives.
During 2023, management has focused on implementing an evolved strategy to more
effectively leverage the Group’s proprietary platform, pipeline and capabilities to grow its businessin Japan and internationally. This strategy, designed to apply cutting-edge science to create
pipeline programs by design and deliver life-changing medicines to patients, has been based onfour key strategic pillars:
(i)

(ii)

(iii)

(iv)

Extending and enhancing the competitive advantages of the Group’s world-leading
StaR®/SBDD discovery capabilities through continued investment and internal innovation
combined with external collaborations that provide access to advanced complementary
technologies.
Transforming R&D to a program-centric operational model, entrenching target biology andenhancing translational medicine capabilities, to quickly achieve clinical proof of concept.
This, in turn, is expected to enable the advancement of higher quality internal candidates
more cost effectively, promote the signing of more profitable out-licensing deals, as well as
the generation of a deeper in-house pipeline.
Diligently driving forward existing partnerships with global biopharma companies andinitiating new high-value partnerships to ensure the continued flow of revenues throughupfront and development milestone payments, and ultimately royalties from sales of
products that reach the market. The Group aims to retain rights to develop andcommercialize candidates in Japan/APAC under these partnership agreements.
Building out an agile, scalable and effective clinical development and commercialization
business in Japan and APAC. This strategic initiative aims to capitalize on significant

18

underserved opportunities that the Group sees within this large attractive market. This
strategy includes in-licensing externally sourced and de-risked clinical assets that areeither approved or in late-stage clinical development, as well as expanding the pipeline
with internally generated programs in the future.
In 2023, the Group continued to make progress in extending and enhancing its world-leading
StaR®/SBDD discovery capabilities mentioned in (i). The Group successfully validated andnominated a first GPCR target into early drug discovery for immune-mediated diseases with an
initial indication focus of inflammatory bowel disease (“IBD”) under a collaboration with Verily. The
Group also expanded a collaboration with PharmEnable to apply their respective technologies todrive novel drug discovery for a second neurological disease target. Furthermore, the Group
successfully identified, validated and nominated the first GPCR target to enter a therapeutic
discovery program for gastrointestinal diseases under its collaboration with Kallyope.
In terms of transforming R&D and operations, as mentioned in part (ii) above, the Group
achieved its goal of advancing at least two in-house programs into Phase 1 clinical trials in 2023:
the first being a novel GPR52 agonist for schizophrenia (HTL0048149); and the second, an EP4
antagonist (HTL0039732), which is in development as a cancer immunotherapy drug candidate
with potential to treat advanced solid tumors. The latter program is in development under acollaboration with Cancer Research UK, the world’s largest independent funder of cancer
research.
Through its extensive array of partnerships with major biopharmaceutical companies, under (iii)
above, the Group is exposed to some of the most exciting and fastest growing therapeutic areasof interest to the global pharmaceutical market, particularly in metabolic and neuropsychiatricdisorders. In metabolic diseases, such as diabetes and obesity, the Group is partnered with Pfizer
on oral GLP-1 receptor (“GLP-1R”) agonists and is looking at approaches beyond GLP-1R
agonists in its collaboration with Lilly, as well as advancing internal programs to identify nextgeneration programs in these areas.
In November, Pfizer entered a new GLP-1 receptor agonist (PF-06954522), discovered under
the collaboration with the Group, into a Phase 1 clinical trial. This followed the discontinuation of
Pfizer’s Phase 2 program with lotiglipron, a once-daily GLP-1R agonist candidate, in June.
In neuropsychiatric disorders, the Group has seen significant progress in its partnership with
Neurocrine Biosciences, through which Neurocrine has developed one of the largest portfolios ofmuscarinic receptor agonist candidates in the industry. During 2023, Neurocrine confirmed its
plan to evaluate multiple new oral drug candidates in Phase 1 clinical studies, alongside its
ongoing Phase 2 trial of NBI-1117568 (a muscarinic M4 agonist) for schizophrenia. Phase 1
studies of NBI-1117569 (an M4-preferring agonist) and NBI-1117570 (an M1/M4 selective dual
agonist) have started and a Phase 1 study of NBI-1117567 (an M1-preferring agonist) is expected
to be initiated in 2024.
Finally, the Group has made significant progress during 2023 in advancing a strategy to build
out a leading sales platform in Japan and APAC regions, as mentioned in (iv). The Group
successfully acquired the pharmaceuticals business in Japan and South Korea from the
Switzerland-based biopharmaceutical company Idorsia. This transformational acquisition broughta highly experienced development and commercialization team, a growing commercially available
product in Japan, PIVLAZ®, and a late-stage development candidate, daridorexant, as well as
options to in-license several other clinical-stage candidates from Idorsia’s pipeline for thesemarkets.
This acquisition has rapidly accelerated the Group’s mission to build out an agile, scalable andeffective clinical development and commercialization business in the important Japan and APAC
markets, and accelerated its transition to becoming a fully integrated, commercial-stage
pharmaceutical company.

19

The Group is highly motivated and committed to growing and developing its business in Japanand internationally over the coming years. The Group retains a highly focused investment strategy
across its business, remaining flexible to all value-creating opportunities, while continuing torigorously manage costs.
Financial results for the year ended December 31, 2023 were revenue of 12,766 million yen (adecrease of 2,803 million yen vs. the prior year), core operating loss of 3,076 million yen (adecrease of 8,932 million yen vs. the prior year), operating loss of 9,526 million yen (a decreaseof 12,962 million yen vs. the prior year) and net loss of 7,193 million yen (a decrease of 7,575
million yen vs. the prior year).
The 33rd Term
January 1, 2022 December 31, 2022

The 34th Term
January 1, 2023 December 31, 2023

Value

Value

vs. the prior year
Value

Rate ofchangeRevenue(JPY
millions)

15,596

12,766(2,803)(18.0)%

Core operating
profit (loss)(JPY
millions)

5,856(3,076)(8,932)-%

Operating profit(loss)(JPY
millions)

3,436(9,526)(12,962)-%

Net profit (loss)(JPY
millions)

382(7,193)(7,575)-%Net earnings (loss)
per share - basic

(Yen)

4.68

(87.18)(91.86)-%20

The principal management indicators are as follows.
Revenue
Revenue in the year under review totalled JPY 12,766 million (a decrease of JPY 2,803 million
vs. the prior year).
Revenue relating to pharmaceutical product sales in the year under review totaled JPY 6,173
million (an increase of JPY 6,093 million vs. the prior year). This was primarily due to the inclusionof IPJ in the scope of consolidation from July, which resulted in the addition of PIVLAZ® sales.
Revenue relating to upfront fees and milestone income in the year under review totaled JPY
3,839 million (a decrease of JPY 8,224 million vs. the prior year). Upfront fees and milestone
income comprises upfront fee revenue, milestone revenue and deferred revenue releases.
Upfront fees and milestone income can vary considerably year on year and depend on thecommencement of new partnership agreements and the achievement of defined milestone events
within that year. In some contracts, income relating to research and development services is
included within upfront fee revenue or milestone revenue, and recorded initially as deferred
revenue. Such income is transferred from deferred revenue to revenue as a result of theperformance of research and development activity in the period under review. The decrease in
upfront fees and milestone income in the year under review was primarily due to signing no newpartnership agreements and the occurrence of four milestone events in the current year vs. two
upfront fees and five milestone events in the prior year.
Revenue relating to royalty income in the year under review totaled JPY 2,504 million (adecrease of JPY 60 million vs. the prior year). The Group’s royalty revenue relates to sales of
Ultibro® Breezhaler®, Seebri® Breezhaler® and Enerzair® Breezhaler® by Novartis.
(Note) Glycopyrronium bromide and certain use and formulation intellectual property were
exclusively licensed to Novartis in April 2005 by Sosei and Vectura. Seebri®, Ultibro®,
Enerzair® and Breezhaler® are registered trademarks of Novartis AG.
Cost of sales
Cost of sales in the year under review totaled JPY 3,102 million (an increase of JPY 2,176 million
vs. the prior year). Cost of sales excluding the effect of incorporating IPJ/IPK in the scope of
consolidation in the year under review totaled JPY 458 million (a decrease of JPY 468 million vs.
the prior year). This was due to a decrease in the internal costs of delivering research anddevelopment services to customers, as a result of lower revenues from contract research anddevelopment contracts. JPY 2,644 million has been recorded for the cost of sales of PIVLAZ®
due to the inclusion of IPJ in the scope of consolidation from July 2023.
Research and development expenses
Research and development (“R&D”) expenses in the year under review totaled JPY 10,075
million (an increase of JPY 2,621 million vs. the prior year). R&D expenses excluding thoseincurred by IPJ/IPK after July 2023 totaled JPY 9,194 million (an increase of JPY 1,740 million vs.
the prior year). This increase primarily reflects an increased investment in discovery activities, butalso reflects the impact of the weaker Yen. JPY 881 million has been included in 2023 for R&D

21

expenses relating to IPJ/IPK. In the period under review, 90% of R&D spend related to our UK
operations.
Selling, general and administrative expenses
Selling, general and administrative (“SG&A”) expenses in the year under review totaled JPY
9,965 million (an increase of JPY 5,588 million vs. the prior year). SG&A expenses excluding
those incurred by IPJ/IPK after July 2023 totaled JPY 6,210 million (an increase of JPY 1,833
million vs. the prior year). This increase was primarily due to the inclusion of non-recurring M&A
related costs totaling JPY 1,263 million. JPY 3,755 million has been included in 2023 for SG&A
expenses relating to IPJ/IPK, which includes an amortization charge on Idorsia related intangible
assets.
Net other income
Net other income in the year under review totaled JPY 850 million (an increase of JPY 226 million
vs. the prior year). This was primarily due to a higher R&D expenditure-related UK tax credit.
Operating loss
Operating loss in the year under review totaled JPY 9,526 million (vs. an operating profit of JPY
3,436 million in the prior year). This increase reflects the combined effect of all of the movements
explained above.
Net finance costs
Net finance costs in the year under review totaled JPY 1,154 million (an increase of JPY 1,061
million vs. the prior year). This was primarily due to recording an accounting charge relating to
the purchase and cancellation of existing corporate bonds, and an increase in foreign exchange
losses. This was partially offset by an increase in interest income as a result of higher UK interest
rates.
Share of profit / loss of associates accounted for using the equity method
The Group ceased to equity account for MiNA (Holdings) Limited (“MiNA”) from October 2022,
accordingly, there was no share of profit / loss of associates accounted for using the equity methodin the year under review.
Impairment loss on investments accounted for using the equity method
Impairment loss on investments accounted for using the equity method for the year ended 31
December 2022 was due to a decrease in the estimated value of MiNA, which was an associateaccounted for under the equity method.
Loss before income taxes
Loss before income taxes in the year under review totaled JPY 10,680 million (vs. a profit before
income taxes of JPY 1,078 million in the prior year). This decrease reflects the combined effectof all of the movements explained above.

22

Income tax benefit
Income tax benefit in the year under review totaled JPY 3,487 million (vs. an income tax expenseof JPY 696 million in the prior year). This was primarily due to recording the following deferred tax
assets in 2023: (i) JPY 1,289 million relating to Heptares Therapeutics Ltd. tax losses, (ii) JPY
948 million relating Sosei Co. Ltd. tax losses, and (iii) JPY 612 million relating to the IPJ acquisition.
Net loss
Net loss in the year under review totaled JPY 7,193 million (vs. a net profit of JPY 382 million in
the prior year). This reduction in profit reflects the combined effect of all of the movements
explained above.
Alternative performance measure: Core operating profit / loss
Core operating profit / loss is an alternative performance measure which adjusts for material
non-cash costs and one-off costs in order to provide insights into the recurring cash generation
capability of the core business.
Core operating loss in the year under review totaled JPY 3,076 million (vs. a core operating profitof JPY 5,856 million in the prior year). In calculating core operating loss, the following adjustments
to the IFRS operating loss have been made:
•
•

•
•

•

•

Depreciation totaled JPY 983 million (an increase of JPY 420 million vs. the prior year), JPY
357 million of which relates to the inclusion of IPJ/IPK in the scope of consolidation in 2023.
Amortization totaled JPY 1,495 million (an increase of JPY 713 million vs. the prior year),
JPY 637 million of which relates to the inclusion of IPJ/IPK in the scope of consolidation in
2023.
Share-based payments totaled JPY 844 million (an increase of JPY 302 million vs. the prioryear).
Restructuring costs totaled JPY 53 million (a decrease of JPY 480 million vs. the prior year).
These costs related to a management restructuring program at a subsidiary company(including JPY 26 million of accelerated share-based payment expenses vs. JPY 158 million
in the prior year).
M&A related costs, including professional advisory fees, totaled JPY 1,263 million (including
acquisition-related costs relating to the transaction with Idorsia totaling JPY 1,149). There
were no M&A related costs in the prior year.
Cost of sales adjustment totaled JPY 1,812 million. This relates to an accounting adjustment
for inventory acquired in a business combination which feeds through to cost of sales, andwhich will cease when all the opening inventory has been sold (there was no cost of sales
adjustment in the prior year).

(2) Capital Expenditures
The total amount of capital expenditures made by the Group in the year under review was JPY
1,222 million, which was mainly for the expansion of the R&D base in Cambridge, U.K.

23

(3) Significant Organizational Restructuring, etc.
The Company acquired the entire share capital of Idorsia Pharmaceuticals Japan Ltd. (“IPJ”) andIdorsia Pharmaceuticals Korea Co., Ltd. (“IPK”) on July 20, 2023.

(4) Assets and Profit/Loss in the previous three fiscal years
Item
RevenueCore operating
profit / loss
Operating proft(loss)Net profit (loss)
Net earnings or(loss) per share basic
Total assets
Total equity(JPY
millions)(JPY
millions)(JPY
millions)(JPY
millions)
(Yen)
(JPY
millions)(JPY
millions)

The 31st Term
As of December
31, 2020

The 32nd Term
As of December
31, 2021

The 33rd Term
As of December
31, 2022

The 34th Term(current term)
As of December
31, 2023

8,842

17,712

15,56912,766

2,904

8,904

5,856

(3,076)

928

3,775

3,436

(9,526)

1,479

1,017

382

(7,193)

18.77

12.53

4.68

(87.18)76,46596,98599,417

157,198

52,381

57,46857,936

66,810(5) Issues to be addressed
1) Business advancement and strategy

As a science and technology-led biopharmaceutical business whose core activities are drug
discovery, drug development and the commercialization of pharmaceutical products, the Grouphas outlined a strategy to grow the business in Japan and internationally.
Outside of Japan, the Group intends to take programs from drug discovery throughtranslational medicine into early clinical development internally, and license these in-houseprograms to partners, while retaining its rights to develop such programs in Japan whenpossible.
In Japan, the Group will start its development and commercialization strategy by in-licensing
foreign de-risked approved or late-stage clinical assets and will expand the pipeline withinternally generated programs in the future.
Please refer “(1) Progress and Results of Operations, 1) Group Overview” for our four key
strategic pillars.

2) Risk recognition

The Group is exposed to a range of risks consistent with the industry in which it operates.
The business, financial condition and results of the Group may be adversely impacted by anyof these risks. The Group has in place an Enterprise Risk Management Program that monitorsand mitigates business specific risks in both Japan and the United Kingdom. The Group hassummarized its most important risks into the following categories: industry; commercial;strategic; financial; legal and compliance; and takes necessary measures to deal with theserisks.

24

INDUSTRY RISKS
Risks inherent to research and development
The Group’s business strategy is to leverage its proprietary platform, pipeline and capabilities
and build a balanced and integrated business with a commercial capability in Japan/APAC andpartnering opportunities globally. The Group has established an unrivalled platform oftechnologies and tools, as well as skillful employees to seamlessly manage its discovery andearly-stage drug development capabilities. The Group works closely with its partners to ensure
success on high-value partnered programs and collaboration with long-term venture funds.
Furthermore, the Group is equipped with experienced clinical development capability andprofitable commercial operations in Japan. However, there are increasing challenges for theindustry, which generally include productivity, complexity and cost of research anddevelopment, innovative developments, changing relationships due to rapid consolidation in
the industry, patent expirations, and regulatory changes. Large pharma and biotech companies
regularly re-assess their business strategies to remain competitive in the industry.
Research and development of new drug candidates always carries inherent risk. There is no
guarantee that the Group by itself, or together with its partners will successfully develop andcommercialize new drugs. It is possible economic returns may not be achieved, or an
impairment to the carrying value of the Group’s intangible assets may be required and that may
impact the Group’s statement of financial performance and financial position. It is also possiblethat the Group could be responsible for liabilities resulting from its research and development
activities, and therefore the Group is covered by liability insurance to help mitigate these risks.
COMMERCIAL RISKSThe Group continues to be engaged in multiple active drug discovery and early-stage
development programs that it intends to license to large pharma or biotech companies forclinical development and commercialization; however, the Group may not be able to achieve
this goal. Additionally, the commercial environment for licensing might change during the
lifetime of individual projects. The actual timing and commercial values of individual projects,
or the financial proceeds from licensed partnering programs can change significantly from initial
estimates.
The Group’s reliance on partners is subject to additional risks. For example, the Group’s
partners may not devote sufficient time and resources to the Group’s future products or may
not pursue further development and commercialization of the products resulting from thepartnership.
In Japan, the Group has a pipeline of medicines that includes PIVLATZ® already commerciallyavailable. However, delays in research and development, regulatory filing, or launch of the
product, as well as failure to achieve expected efficacy and safety, or delays in progress fromthe sales plan may occur.
The Group mitigates both risks by ensuring it has a diverse and balanced partnered and inhouse pipeline.
STRATEGIC RISKS
Execution of business strategy
The Group continues to focus its in-house activities on leveraging its platform and expertiseto create and develop drug candidates, adding to its broad pipeline with the aim to achieve
important value inflection points that will enable new out-licensing and co-investment
agreements. The Group is also focused on in-licensing de-risked approved or late-stage clinicalassets to build out a business in Japan. It is possible that investments might be allocated tothe development of unsuccessful drug candidates, or failed technologies.

25

Risks from investment strategy
In the past, the Group has made equity investments in companies with highly promising yet
unproven technologies. These investments may enable the Group to accelerate its businessmodel as they provide a beneficial risk-reward profile through to a significant value inflection.
However, unproven technologies also carry the risk of failure, which may lead to impairment of
the intangible asset and impact the Group’s statement of financial performance and financial
position. To mitigate this risk, the Group. In 2020, established an Investment Committee that is
responsible for conducting diligence and making recommendations to the Group’s Board of
Directors, who are in turn responsible for approving strategic investments. The Group’s
approach to investments is to balance risk and reward appropriately, ensuring excessive capital
is not put at risk.
FINANCIAL RISKSThe Group’s financial risk management focuses on liquidity and currency risks.
Liquidity risks
Revenue timing, external events and changes in the business environment might negatively
impact the Group’s profitability and cash. The Group is currently well-financed and able to deal
with these risks. To mitigate this risk, the Group regularly reviews options for capital increases
and for the use of other refinancing tools and the Group maintains a commitment line forliquidity purposes.
Currency risks
The Group is impacted by fluctuations in foreign exchange rates mainly between theJapanese Yen, Pound Sterling and US dollar. The Group mitigates this exposure via closemonitoring to manage the Group’s current and upcoming currency requirements, which isintended to reduce the exchange rate risks in the future.
LEGAL & COMPLIANCE RISKSThe Group operates in a global industry where legal compliance, contractual agreements
and intellectual property rights are crucially important. Moreover, there is a trend towards
greater regulatory compliance in the pharma industry. The Group ensures regulatory as wellas internal compliance and employees are obliged to immediately report any incidents theysuspect of having breached regulatory or compliance rules to their manager or to the Chief
Compliance Officer.

3) Value creation

The pharmaceutical industry is undergoing rapid change due to numerous pressures facedby large companies, such as patent expiries, higher burden of approval and increasing costs.
This has led to a reduction in the number of research-based businesses taking the full financial
and commercial risk of drug development.
New strategies across the industry are focused on securing external innovation in an efficientway. Furthermore, ageing populations in many developed countries are driving the need for
differentiated and better treatments. As a result, large pharma and biotech companies are
increasingly seeking innovative solutions to their R&D challenges, and therefore increasingly
executing collaborations across research, discovery and development activities with mid-sized
science and technology-led companies. The Group is positioned to take advantage of thisgrowth trend. The Group regularly identifies and evaluates opportunities for businessexpansion and value creation and is pursuing a capital efficient business model that will26

sustainably create new commercial opportunities in an evolving industry landscape.

4) Corporate Governance

The Group has business activities in multiple jurisdictions and takes corporate governancevery seriously. The Group is continuously evaluating ways to enhance its systems andprocesses, to ensure it complies with all national regulations. Furthermore, the Group willcontinue to promote a corporate culture that is committed to the highest standards of openness,
integrity and accountability.
The Group’s Board of Directors is responsible for overseeing management and conducting
risk management and compliance activities to maintain standards and accountability and amajority of members are independent external directors. Executive Officers work closely with
the Board of Directors to achieve long-term and sustainable growth for the Group and to createshareholder value. They make decisions on and execute the Group’s strategy and business
transactions that are significant, based on the authority delegated by the Board of Directors.

(6) Main Business Activities (as of December 31, 2023)
The Group’s main business is the research, development and sale of pharmaceutical products.
The Group companies are engaged in the following business activities.
Company NameBusiness Description
Responsible for setting the strategy of Sosei Group, andperforming centralized administrative activities on behalf of groupcompanies

Sosei Group Corporation
Sosei Co. Ltd.

Research and development, sales of pharmaceutical drugs
Research & Development, importation, packaging and sale ofpharmaceutical products
Structural analysis of GPCRs, generation of initial leadcompounds, discovery of drug candidates through proprietary
StaR® technology

Idorsia Pharmaceuticals Japan Ltd.
Heptares Therapeutics Ltd.

(Note) The Company acquired the entire share capital of Idorsia Pharmaceuticals Japan Ltd. (“IPJ”) and Idorsia
Pharmaceuticals Korea Co., Ltd. (“IPK”) on July 20, 2023.

(7) Principal Parent Company and Subsidiaries(as of December 31, 2023)

1) Parent company
Not applicable.

2) Subsidiaries
Company Name

CapitalRatio of Voting

Sosei Co. Ltd.

JPY 90 million

100.0%

Idorsia Pharmaceuticals
Japan Ltd.

JPY 95 million

100.0%

Heptares Therapeutics Ltd.

GBP 416
thousand

100.0%Key BusinessResearch and development, sales ofpharmaceutical drugs
Research & Development, importation,
packaging and sale of pharmaceuticalproducts
Structural analysis of GPCRs,
generation of initial lead compounds,
discovery of drug candidates throughproprietary StaR® technology(Note) The Company acquired the entire share capital of Idorsia Pharmaceuticals Japan Ltd. (“IPJ”) and Idorsia
Pharmaceuticals Korea Co., Ltd. (“IPK”) on July 20, 2023.

27

3) Other significant information
Not applicable.

(8) Main Offices and Factories(as of December 31, 2023)

1) Main Sites of the Company
OfficeLocation

Head Office

Chiyoda-ku, Tokyo

London OfficeLondon, UK

2) Main Sites of Subsidiaries
OfficeLocation

Sosei Co. Ltd.

Chiyoda-ku, Tokyo

Idorsia Pharmaceuticals Japan Ltd.

Minato-ku, Tokyo

Heptares Therapeutics Ltd.

Cambridge, UK(Note) The Company acquired the entire share capital of Idorsia Pharmaceuticals Japan Ltd. (“IPJ”) and Idorsia
Pharmaceuticals Korea Co., Ltd. (“IPK”) on July 20, 2023.

(9) Employee Information (as of December 31, 2023)
1) Group Employees
Business Segment

Number of Employees

Change from the End of thePrevious Fiscal Year

Pharmaceutical business

309(69.0)+139

Group administration

41

(0.9)

+9

Total

350

(69.9)+148(Note) 1. The number of employees does not include the number of temporary employees, which is listed in parentheses
as the average for the year.
2. Pharmaceutical business increased by 139 compared with the end of the previous year, mainly due to theacquisition of all shares of Idorsia Pharmaceuticals Japan Ltd. and Idorsia Pharmaceuticals Korea Co., Ltd. in
July 2023.
3. Group administration increased by 9 compared with the end of the previous year, mainly due to thestrengthening of the organisation.

2) Company Employees
Number of Employees

Change from the End of
the Previous Fiscal Year

Average Age

Average Service Years

41 (0.9)+943.5 years old

3.2 years(Note) The number of employees is the number of people employed full-time and does not include the number of
temporary employees, which is listed in parentheses as the average for the year.

(10) Financing
The Company raised JPY 40,000 million by borrowing long-term loans from financial institutions
on July 21, 2023, to fund the acquisition of Idorsia Pharmaceuticals Japan Ltd. and Idorsia
Pharmaceuticals Korea Co., Ltd.

28

On December 14, 2023, the Company issued Euro-yen Convertible Bonds due 2028 raising JPY
32,000 million, raised JPY 2,053 million by issuing new shares through an international offeringand JPY 8,000 million by issuing shares through third party allotment on December 15, 2023.
In conjunction with the above funding the Company purchased and cancelled JPY 29,850 millionof its Euro- yen Convertible Bonds due 2026.

(11) Principal Lenders (as of December 31, 2023)
LenderAmount of borrowing

Mizuho Bank, Ltd.

JPY 38,550 million

The Company has entered into a (JPY 5,000 million) commitment line contract with Mizuho Bank,
Ltd. and 3 other financial institutions in order to finance working capital more efficiently. The
Company had no outstanding borrowings related to the commitment line contract at the end of
this fiscal year.

(12) Other Significant Matters on the Current Status of the GroupNot applicable29

2 Current Status of the Company(1) State of Shares(as of December 31, 2023)

1) Total number of authorized shares

149,376,000 shares2) Total number of outstanding shares

89,446,777shares(Notes)1. The number of outstanding shares increased by 413,547 shares to issue
new shares by a post-hoc granted stock-based compensation (RSU) plan.
2. The number of outstanding shares increased by 1,500,000 shares to issue
new shares by global offering.
3. The number of outstanding shares increased by 5,610,000 shares to issue
new shares by third party allotment.

3) Number of shares constituting one unit

100 shares

4) Number of shareholders

30,0165) Major shareholders (Top 10)

Shareholdings(shares)

Ownership Stake

The Master Trust Bank of Japan, Ltd. (trust account)

8,137,800

9.10%

Daisuke Gomi

6,630,000

7.41 %JICVGI Opportunity Fund No.1 Investment Limited Partnership

5,610,000

6.27%

Custody Bank of Japan, Ltd. (trust account)

2,787,500

3.12%

TAIYO FUND, L.P.

2,521,600

2.82%

SSBTC CLIENT OMNIBUS ACCOUNT

1,952,340

2.18%

TAIYO HANEI FUND, L.P.

1,902,500

2.13%

Pfizer Japan Inc.

1,885,136

2.11%

STATE STREET BANK AND TRUST COMPANY 505227

1,602,700

１.79%

JP MORGAN CHASE BANK 385781

1,009,600

1.13%

Shareholder’s Name

(Notes) 1. Ownership stakes have been rounded off to two decimal places.
2. Ownership stakes are calculated deducting 335 treasury shares which the Company owns.

6) Status of Shares Issued as Consideration for the Execution of Duties to Directors andexecutive officers during FY2023
SharesNumber of
grantees

Directors(Excluding External Directors) and Executive officers

230,755

10

External Directors

73,265

6(Notes) 1. Directors(Excluding External Directors) and Executive officers include three retired executive officer.
2. The contents of the Company's share remuneration are described「Policy concerning decisions on thecontent of individual remuneration for Executive Officers, etc. by the Compensation Committee」

30

(2) Stock acquisition rights (“stock options”), etc. (as of December 31, 2023)
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
31st Stock Options

34th Stock Options

Date of Board resolution

May 15, 2017

November 21, 2017

Number of stock options

3

2

Number and class of shares
1,200 shares of common shares
800 shares of common sharesfor stock options
Amount of payment for stock
1,234,900 yen per stock option (Note 3) 621,400 yen per stock option (Note 5)
options
Value of assets to be
400 yen per stock option
1,068,800 yen per stock option
provided on exercise of stock(1 yen per share)(2,672 yen per share)
options
Exercise period of stockfrom July 1, 2020
from December 1, 2020
options
to April 30, 2027
to October 29, 2027
Terms and conditions for
Notes 1 and 2
Notes 1 and 2
exercise
Directors andNumber of stock options:2executive
Number of shares for stock‐800
officers
options:‐
Holdings by (excluding1
Number of holders:external
directors(Note 4)
directors)
andexecutive
Number of stock options:3
officers‐
External
Number of shares for stock
1,200
options:
directors
Number of holders:1(Notes):1. 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.
2. (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.
3. 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.
4. Holdings of 34th Stock Options include the options granted to an employee before his assumption of the office as
executive officer.
5. 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.
6. 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.

31

(3) Directors and executive officers (as of December 31, 2023)
1) Directors
Title

Name

Responsibility

Chairman of
the Board

ShinichiTamuraChair of Nomination
Committee;
Member ofCompensation
Committee

Significant Concurrent Posts–

Director

Christopher
Cargill

Member ofCompensation
Committee

Representative Director President, Sosei Co.
Ltd.
Director, Idorsia Pharmaceuticals Japan Ltd.
Director, Heptares Therapeutics Ltd.
Partner at TMI Associates
External Director and Audit and Supervisory
Committee Member of Nippon Shikizai, Inc.

Director*

Tomohiro
Tohyama

Chair of Audit
Committee;
Member ofCompensation
Committee

Director*

KuniakiKaga

Member of Audit
Committee

External Director of SUSMED, Inc*David Roblin

Chair ofCompensation
Committee;
Member of
Nomination
Committee

Chairman of Scientific Translation, The Francis
Crick InstituteCEO, Relation Therapeutics Limited
Chair of Board, Centauri Therapeutics Limited

Director*

Noriaki
Nagai

Director*

Rolf
Soderstrom

Director

Member of
Nomination
Committee;
Member of Audit
Committee
Member ofCompensation
Committee;
Member of Audit
Committee

Director*

Miwa Seki

Member of
Nomination
Committee;
Member of Audit
Committee

Director*

Eiko Tomita–(Notes) 1.

–

Chief Financial Officer, Syncona Investment
Management Limited
Non Executive Director, BioPharma Credit plc
General Partner MPOWER PARTNERS FUND
External Director, World Co., Ltd
External Director, DAIWA HOUSE INDUSTRY
CO., LTD.
Director, Yanai Tadashi Foundation
Director, Fast Retailing Foundation–

The directors listed above with an asterisk (*) are external directors. The Company designates Director
Tomohiro Tohyama, Director Kuniaki Kaga, Director David Roblin, Director Noriaki Nagai, Director Rolf
Soderstrom, Director Miwa Seki and Director Eiko Tomita as independent directors in accordance withthe regulations of Tokyo Stock Exchange and has notified the Exchange accordingly.
2. Noriaki Nagai has long-term experience at a major security company, being in charge of corporate
planning as an officer, and has considerable financial and accounting knowledge.
3. Rolf Soderstrom is a qualified UK accountant, has experience as a head of company finance department,32and has considerable financial and accounting knowledge.
4. Miwa Seki served as head of Japan at a foreign capital financial institution, then founded an ESG-oriented
investment fund, and has considerable financial and accounting knowledge.
5. The Audit Committee has conducted audits in close coordination with the internal audit department andemployees who assist in the performance of duties of the Committee, and believes it is not essential thata full-time committee member be selected. Accordingly, a full-time committee member has not been
selected.
6. The Company has no special relationships with the companies at which the external directors concurrently
serve the offices.
7. Ms. Eiko Tomita was elected as Directors at the 33rd Ordinary General Meeting of Shareholders held on
March 23, 2023 and was appointed as director on 1 April 2023

2) Executive officers
Title
Representative
Executive Officer

Name

*

Christopher
CargillResponsibility

President and CEO

Executive Vice
President, CFO

Significant Concurrent Posts
Representative Director President, Sosei
Co. Ltd.
Director, Idorsia Pharmaceuticals Japan Ltd.
Director, Heptares Therapeutics Ltd.
Director, Sosei Co. Ltd.
Managing Director, Idorsia Pharmaceuticals
Japan Ltd.
Director, Idorsia Pharmaceuticals Korea Co.,
Ltd.

Executive Officer

Hironoshin
NomuraExecutive Officer

KieranJohnsonExecutive Officer

Kazuhiko
Yoshizumi

Executive Officer

Matthew
BarnesExecutive Vice
President

President of Heptares Therapeutics Ltd.

Executive Officer

Candelle
Chong

Executive Vice
President, and Chiefof Staff

Director, Heptares Therapeutics Ltd.

Executive Officer

SatoshiTanakaExecutive Vice
President

Executive Officer

Toshihiro
Maeda

Executive Vice
President, COO(Chief Operating
Officer)

Representative Director and President,
Idorsia Pharmaceuticals Japan Ltd.
Representative Director and Chairman,
Idorsia Pharmaceuticals Korea Co., Ltd.

Executive Vice
President, CAO(Chief Accounting
Officer)
Executive Vice
President, CCO(Chief Compliance
Officer)

Director, Heptares Therapeutics Ltd.
Managing Director, Idorsia Pharmaceuticals
Japan Ltd.
Director, Idorsia Pharmaceuticals Korea Co.,
Ltd.

－

(Note) 1. The executive officer listed above with an asterisk (*) serves concurrently as a director.
2. Satoshi Tanaka was appointed executive officer on July 20, 2023.
3. Toshihiro Maeda was appointed executive officer on December 18, 2023.

3) Symmary of liability limitation agreements

In accordance with Article 427, Paragraph 1 of the Companies Act (the “Act”) and theprovisions of the Articles of Incorporation, the Company and external directors have enteredinto agreements that limit liability for damages as provided in Article 423, Paragraph 1 of theAct.
The limit on liability for damages applicable to each external director under the agreements isthe minimum amount of liability stipulated in Article 425, Paragraph 1 of the Act

334) Outline of the directors and execctive officers, etc. liability insurance policy, etc.

The Company has concluded a directors and officers liability insurance (“D&O insurance”)
policy with an insurance company as provided for in Article 430-3, Paragraph 1 of theCompanies Act with all Directors, Executive Officers, and Corporate Auditors of the Company
and its subsidiaries as insured parties. The Company is paying the full amount of premiums forthis policy.
Regarding the details of this insurance policy, it covers losses arising from the liability borneby the insured party in the course of the execution of his/her duty or claims pertaining to the
pursuit of such liability.

5) Policy concerning decisions on the content of individual remuneration for Executive
Officers, etc. by the Compensation Committee
The Company’s Compensation Committee has set policy on decisions of the contents ofindividual remuneration for Executive Officers, etc. Also, regarding the individual remuneration,etc., of Executive Officers, etc. during the fiscal year under review, as the method for deciding
the content of remuneration, etc., and the content of remuneration, etc. that was decided areconsistent with this policy, it is judged by the Compensation Committee to be in line with policy.
i. Basic Policies
・ The basic policy regarding officer compensation is to provide incentives for securing
talented personnel, raising the corporate value of the Group, and implementing
management strategies aimed at sustainable growth.
・ Policy regarding Directors’ remuneration is to secure excellent personnel as Directorsof the Company from a global perspective to strengthen the oversight function ofGroup management and, in addition to fulfilling the oversight function, enableproactive contribution to the enhancement of corporate value by sharing the benefits
and risks of stock price fluctuations with shareholders. Director’s remuneration shallconsist of a fixed amount of base salary and a post-hoc granted stock-based
compensation (RSU).
・ Executive Officers’ remuneration is determined to further increase motivation to realize
the Company’s vision and strategy, promote management that focuses on themedium-to long-term enhancement of corporate value and shareholder value, andreflect individuals’ roles and achievements. Executive Officer’s remuneration shallconsist of a fixed amount of base salary, a bonus determined according to theaccomplishment of the individual’s business objectives, retirement allowances, and a
post-hoc granted stock-based compensation (RSU).
・ The Compensation Committee, of which a majority comprises external rectors,
determines compensation fairly and appropriately, ensuring transparency under thechairmanship of an external director.
ii. Policy for determining the amount or the method of calculation of individual remuneration,etc. (excluding non-monetary remuneration outlined in iii. below)
a. Directors’ remuneration
The amount of base salary (annual salary), which is a fixed remuneration, shall be
the same for all Directors except for the Chairperson, and the remuneration level ofthis base salary shall be determined by taking into consideration the situation at othercompanies, etc. using the available databases of external research organizations asa reference. Directors who also concurrently serve as Executive Officers shall not be
paid Directors’ compensation.
b. Executive Officers’ remuneration
・ Base salary (annual salary), which is a fixed remuneration, shall be determined34

based on the individual’s performance in the previous fiscal year and anevaluation of contribution to the Company, taking into consideration factors suchas the remuneration level of comparable companies in the country where theindividual is acting or resides, using the available databases of external researchorganizations as a reference.
・ For bonuses, a base amount shall be the amount obtained by multiplying theamount of base salary by a certain percentage determined for each individual
according to factors such as his/her responsibilities and performance, and the
difficulty in securing persons fit for the role. The amount of this base amount paid
shall be determined in accordance with the accomplishment of the individual’sbusiness objectives.
・ Retirement allowances shall be equivalent to the sum of the bonus and the annual
salary for the previous business year. However, retirement allowances shall not
be paid to Executive Officers who are not re-appointed or are dismissed due tomisconduct, violation of laws, regulations and the Articles of Incorporation of theCompany, breach of trust, gross negligence, incompetence or inability to execute
duties, disqualification as an Executive Officer under the Companies Act, or any
other justifiable reason. Furthermore, in cases where the law stipulates that adismissal notice allowance is payable following a contract termination, only thedifference between the amount of the annual salary of the previous year and thedismissal notice allowance shall be paid.
iii. Contents of non-monetary remuneration, etc., and policy for determining the amount or
number or the method of calculating the amount or number of non-monetary remuneration
The Company has introduced a post-hoc granted stock-based compensation (RSU) as
non-monetary remuneration, etc. An overview of this post-hoc granted stock-based
compensation (RSU) is as follows.
a. Conditions for allotment
Shares of the Company will be allotted on the condition that an individual has served
continuously in the position of Director or Executive Officer of the Company
throughout a performance period. However, in cases where a Director or Executive
Officer ceases to hold office due to the expiration of his/her term of office, othergrounds deemed by the Board of Directors to be justifiable, or death during theperformance period, a number of shares calculated by the Company under theapplicable share-based compensation regulations will be allotted.
b. Maximum number of the Company’s shares to be delivered
The number of shares of the Company to be delivered under the plan, together with
the number of shares to be issued under other share compensation plans, shall not
exceed 10% of the total number of issued and outstanding shares of the Company.
c. Performance period and number of allotted shares
・ The performance period for Directors (excluding Directors who concurrently
serve as Executive Officer) is one year, and after the expiration of said
performance period, a number of shares shall be allotted which shall becalculated by dividing an amount equivalent to 130% of the amount of base salaryby the stock price at the start of the performance period.
・ The performance period for Directors who concurrently serve as Executive Officer
and Executive Officers shall be two years and three years from the first day of theperformance period respectively. After the expiration of said performance period,
one-half of a number of shares shall be allotted respectively and said number
shall be calculated by dividing an amount equivalent to the amount of basic
compensation multiplied by certain ratio (125% to 250%) set according to positionby the stock price at the start of the performance period.
d. Method for the allotment of shares
The allotment of shares shall be a payment of a monetary compensation claim to an

35

officer to whom the shares are scheduled of an amount obtained by multiplying thenumber of allocated shares by the amount to be paid per share determined bydecision of the Board of Directors or a Representative Executive Officer authorized
thereby. Said monetary compensation claim shall be delivered as properties
contributed in kind.
iv. Policy for determining the composition of officer compensation
The composition ratio of the amount of individual remuneration, etc. shall be as follows:

Base salary

Bonus

Stock
compensation
Restricted
Stock Units(RSU).

Director

1

-

1.3

-

Representative
Executive Officer
& CEO

1

0.75

2.5

1.75

Executive Officer

1

0.4~0.6

1.25~1.75

1.4~1.6

Retirement
allowances

In the above table, the model for the amount of bonus to be paid is a payment of standard
amount determined by the Company. This ratio may change in accordance with factors
such as the Company’s business results and share price.
v. Policy on determining the timing or conditions for granting remuneration, etc. to officers
・ One twelfth of base salary will be paid monthly.
・Bonuses will be paid in February every year.

・

Post-hoc granted stock-based compensation (RSU) will be granted in April of eachyear, and shares will be allotted after the end of the performance period.

6) Total amount of remuneration paid to directors and executive officers
Item

Total
remuneration

Directors(External
directors)

Amount of remuneration

Total number of
directors/executi
ve officers

BasesalaryBonus

Non-monetary
remuneration¥304 million(¥215 million)¥128 million(¥95 million)(-)¥176 million(¥120 million)

8(7)

Executive
Officers¥656 million¥257 million¥237 million¥162 million

7

Total

¥960 million(¥215 million)¥385 million(¥95 million)¥237 million(-)¥338 million(¥120 million)

15(7)(Notes) 1.
2.

Renumeration of Christopher Cargill, Director and Executive Officer is excluded from Director’s remuneration.
Renumeration of Christopher Cargill, Director and Executive Officer is included in Executive Officer’s
remuneration.
3. The table above does not include the following:
・Retirement allowrance of ¥28 million, which were paid by the Company subsidiaries to one Executive
Officer who retired in March 2023 in accordance wih the result of the Remuneration Committee held in
April 2023.
・Salary of ¥90 million, which were paid by the Company subsidiaries to three Executive Officers including36

one Executive Officer who retired in March 2023.
・Bonus of ¥30 million, which were paid by the Company subsidiaries to two Executive Officers paid in
February 2024 in accordance with the resolution of the Remuneration Committee held in January 2024.
・ Non-monetary remuneration of ¥46 million, which were paid by the Company subsidiaries to two
Executive Officers including one Executive Officer retired in March 2023.
Remuneration of one Executive Officer who assumed in March 2023 and one Executive Officers assumpedin July 2023 are included after their assuming.
5. Non-monetary remuneration includes the Company's shares. The terms of allocation are as described in " iiiContents of non-monetary remuneration, etc., and policy for determining the amount or number or the methodof calculating the amount or number of non-monetary remuneration". In addition, details of the allocation
during the current fiscal year are described in "2 (1) 6) Status of Shares Issued as Consideration for the
Execution of Duties to Directors and executive officers during FY2023”.
6. The amount of non-monetary compensation in the table above shows the amount recorded as expenses in
the current fiscal year.

4.

7) Attendance of external directors at meetings of the Board of Directors and Committees
during the fiscal year under review and the status of their remarks and activities
Name

Tomohiro Tohyama

Kuniaki KagaDavid Roblin

Noriaki Nagai

Remarks/Activities/Summary of duties performed inrelation to the role expected of an external director

Attendance
Board ofDirectors
meetings

15 out of 17(88%)

Compensation
Committee
meetings

7 out of 7
(100%)

Audit
Committee
meetings

15 out of 16(94%)

Board ofDirectors
meetings

16 out of 17
(94%)

Audit
Committee
meetings

16 out of 16(100%)

Board ofDirectors
Meetings

16 out of 17(94%)

Nomination
Committee
meetings

0 out of 2(0%)

Compensation
Committee
meetings

6 out of 7
(86%)

Board ofDirectors
Meetings

17 out of 17(100%)

Nomination
Committee
meetings

2 out of 2
(100%)

Audit
Committee
meetings

16 out of 16(100%)

Makes statements at the Board meetings as necessary
for deliberations on agenda items from a professional
viewpoint as an attorney, leads audits as the chair of the
Audit Committee, and asks questions and gives opinions
and other statements as appropriate at each Committee
meeting.

Makes statements at the Board meetings as necessary
for deliberations on agenda items from a professional
viewpoint based on the experience of management ofleading chemical and pharmaceutical companies inJapan and asks questions and gives opinions and otherstatements as appropriate at Audit Committee meeting.

Makes statements at the Board meetings as necessary
for deliberations on agenda items from a professional
viewpoint based on the clinical experience as aphysician and R&D experience of pharmaceuticalcompanies, and asks questions and gives opinions andother statements as appropriate at each Committee
meeting.

Makes statements at the Board meetings as necessary
for deliberations on agenda items from a professional
viewpoint based on his legal knowledge and his career
experience in important positions in corporate
departments at major securities companies and as aprofessor of law, and asks questions and gives opinions
and other statements as appropriate at each Committee
meeting.

37

Rolf Soderstrom

Miwa Seki

Eiko Tomita

Board ofDirectors
Meetings

17 out of 17(100%)

Compensation
Committee
meetings

7 out of 7
(100%)

Audit
Committee
meetings

15 out of 16(94%)

Board ofDirectors
Meetings

15 out of 17(88%)

Nomination
Committee
meetings

2 out of 2
(100%)

Audit
Committee
meetings

13 out of 16(81%)

Board ofDirectors
Meetings

Makes statements at the Board meetings as necessary
for deliberations on agenda items from a professional
viewpoint based on his financial knowledge and his
career experience in the field of finance at companies in
Europe, North America, Asia, etc., and asks questions
and gives opinions and other statements as appropriate
at each Committee meeting.

Makes statements at the Board meetings as necessary
for deliberations on agenda items from a professional
viewpoint based on her career experience in head ofJapan at a foreign capital financial institution andfounding partner of an ESG-oriented investment fund,and asks questions and gives opinions and otherstatements as appropriate at each Committee meeting.

Makes statements at the Board meetings as necessary
for deliberations on agenda items from a professional
viewpoint based on a remarkable track record andexperience deeply involved in the international
pharmaceutical approval process for global
pharmaceutical companies both domestically andinternationally.

11 out of 12(92%)※ Eiko Tomita was elected as Directors at the 33rd Ordinary General Meeting of Shareholders heldon March 23, 2023, with effect from 1 April of the same year, and accordingly, the numbers oftimes shethey attended the Board of Directors meetings held since assuming office are statedin.

(4) Independent Auditors
1) NameErnst & Young ShinNihon LLC

2) Amounts of remuneration, etc.
Amount of remuneration, etc. payable to the independent auditors for services
related to this fiscal period
Total amount of cash and other property benefits payable to the independent
auditors by the Company and its subsidiaries¥ 78 Million¥ 116 Million(Notes) 1. In the audit agreement between the Company and the Independent Auditors, there is no clear distinction
between the remuneration for audits based on the Companies Act and the remuneration for audits based on
the Financial Instruments and Exchange Act, and no distinction can be made in practice, so amounts ofremuneration, etc. for the Independent Auditors for this fiscal year are the total of these remunerations.
2. The Audit Committee has confirmed the audit plan of the independent auditors, the state of execution of duties
for accounting audits, and the basis of remuneration estimates, etc. and considered whether audit
remuneration is adequate for the implementation of appropriate audits and as a result has found that
remuneration is appropriate. Therefore, it has given consent to remuneration, etc. of the Independent Auditorsin accordance with Article 399, Paragraph 1 of the Companies Act.
3. One of the Company’s significant subsidiaries, Heptares Therapeutics Ltd. has been audited by an auditing
firm that belongs to a member firm of Ernst & Young LLC., Which is a member of our accounting auditor, andthe audit fee is ¥55 million.
4. In addition to the above, the Company paid JPY3 million of remuneration to the organization within the network
same with the Company's independent auditors. This primarily consists of support on tax and related services

38

for an expatriate.

3) Contents of non-audit services

The Company paid to Ernst & Young ShinNihon LLC fees for production of comfort letter which
is a work other than the work under Article 2, Paragraph 1 of the Certified Public Accountants
Act.

4) Policy for dismissal or non-reappointment of the independent auditors

If circumstances arise that would interfere with the appropriate execution of the duties of the
independent auditors or cause the Audit Committee to deem it appropriate to dismiss or not toreappoint the independent auditors, the Audit Committee will make a proposal for dismissal or
non-reappointment of the independent auditors for submission to the Ordinary General Meetingof Shareholders. Also, when it deems that any cause stipulated in each item of Article 340,
Paragraph 1 of the Companies Act applies to the independent auditors, the Audit Committee
can dismiss the independent auditors by agreement of all committee members.

5) Summary of liability limitation agreements

The Company has not entered into an agreement with the Independent Auditors to limit their
liability for damages under Article 423, Paragraph 1 of the Companies Act(5) Outline of the systems for ensuring the appropriateness of operations and their operating
status
The following provides a summary of the systems for ensuring the appropriateness of operations as
resolved by the Company’s Board of Directors, and of the operating status of these systems.

1) Systems for ensuring the appropriateness of operations①

Matters relating to the directors and employees who assist in the duties of the Audit Committee,
and system to ensure those directors and employees act independently from executive officers
・ Management assigns employees to assist in the duties of the Audit Committee who shallperform its duties at the instruction and direction of a chair of the Audit Committee in cooperation
with Internal Audit Department. The Audit committee conducts evaluation of the performance ofthe duties of such employees and his or her reassignment requires an approval of the Audit
Committee.

② System of reporting to the Audit Committee by directors, executive officers and employees andothers matters relating to the report to the Audit Committee
・ Directors, executive officers, audit and supervisory board members (Kansa-yaku) andemployees of the Company and its subsidiaries shall report to the Audit Committee in a timely
and appropriate manner if the Audit Committee or its designated Committee member requests
a report on the execution of business. Also, when they become aware of any matter that may
have a material effect on the business or financial conditions of the Company or its subsidiaries,
they shall report immediately to the Audit Committee. The Company shall not give any
disadvantageous treatment to a person who made reports to the Audit Committee because of
the reporting.
・ Internal Audit Department shall report to audit committee timely and adequately the status of39

internal audits.
・ Office of Japan Compliance and Governance Department shall report to the Audit Committee
timely and adequately the status of whistleblowing system.
③ Other system to ensure the effective audit by the Audit Committee
・ Internal Audit Department shall consult with the Audit Committee on, among other things, thepolicy and plan of internal audits, exchange the information on audits and otherwise cooperate
closely with the Audit Committee.
・ In the event an Audit Committee member requests for advance payment or reimbursement of
the expenses necessary for the performance of the duties of the Audit Committee, the Company
shall dispose of such expenses or liabilities without delay.
④ System to ensure that executive officers and employees of the Company as well as directors andemployees of subsidiaries perform their duties in compliance with laws and regulations and the
Articles of Incorporation of the Company
・ The code of conduct of the Group companies sets forth the principles of acting in compliancewith applicable laws and regulations and in accordance with high standards of corporate ethics,
and the management shall act to improve awareness of all directors, executive officers andemployees of the Company and its subsidiaries of compliance and the corporate principle. An
independent compliance helpline system shall be established and properly operated so that
employees of Group companies and business partners may timely report on unlawful or
dishonest acts occurred at Group companies.
・ Internal Audit Department conducts internal audits on the performance of the duties by executive
officers, directors of subsidiaries and employees of the Company and subsidiaries.
⑤ System to retain and manage information relating to the performance of duties by executive officers
Minutes of the meetings at which executive officers and subsidiaries’ directors are present andother important meetings, written documents recording required approval and other information
relating to the performance of the duties by executive officers shall be prepared, retained andmanaged in accordance with the Regulations of Document Management and other internal
regulations.
⑥ Rules and systems for the risk management
・ The Company shall identify risks associated with the conduct of business of the Group
companies, select the risks of the high priority, and decide specific policies and measures todeal with those risks and ensure adequate implementation by the Company and its subsidiaries.
・ In making business judgment and decisions on business strategies and other important matters,
the discussions shall be conducted comprehensively at the Board of Directors and othermeetings and the relevant risks shall be dealt with by taking such actions as obtaining opinionsof outside experts as necessary before making decisions.
⑦ System to ensure that the executive officers and directors and employees of subsidiaries performtheir duties efficiently
・ The Board of Directors shall decide the responsibilities of each executive officer, and therespective decision-making authorities in the performance of the duties shall be specified forexecutive officers, directors and employees of the Company and subsidiaries.
・ The Company shall provide the charters and rules of the meetings of the Company andsubsidiaries and ensure that report is made on the status of the performance of the duties and40

efficient discussions are made on the important matters in accordance with the rules.
・ The Company shall improve the efficiency of the performance of the duties by designing andbuilding IT systems.
⑧ System to ensure the proper operation of the business group consisting of the Company and its
subsidiaries
・ The Company shall manage the business of the subsidiaries by appointing executive officers of
the Company as directors of subsidiaries, receiving monthly report on the status of operationand implementing other measures in accordance with the Regulation of Management of Group
Companies. Further, relevant divisions of the Company shall provide guidance and support toenable subsidiaries to establish compliance and other systems to ensure the proper operationof business of subsidiaries.
・ Internal Audit Department shall give instructions and recommendations to subsidiaries
depending on the results of internal audit.
・ The Company shall take various measures including separation of duties and responsibilities
and ongoing monitoring at the Company and subsidiaries in order to ensure the effective internal
control over financial reporting of the Group companies, and shall evaluate, maintain andimprove the system of internal control.

2) Outline of the operational status of systems for ensuring the appropriateness of operations① Compliance system

The Group has established a code of corporate conduct that applies to the entire Group, and isproceeding with further revisions, which include exhaustive efforts to promote awareness, in order to
respond to recent changes in the business environment. In addition, whistle-blowing incidents arehandled 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 of the Boardof Directors and committees, etc. and other documents related to the execution of operations inaccordance with the rules on document management and other rules.
③ Risk management system
The Company has conducted sufficient deliberations and made business decisions at meetings ofthe Board of Directors, by taking into account the opinions of outside experts, etc., regarding theGroup’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 with formal
authority rules at each company. In order to ensure that operations are carried out efficiently andappropriately, the Group requires management of affiliated companies to provide reports to theparent company in accordance with the relevant rules, and provides suitable supervision andguidance by the parent to affiliated companies. In addition, the business performance of subsidiaries
is reported as necessary at meetings of the Board of Directors. The Internal Audit Department

41

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 the execution of theirduties. The Audit Committee members attended important meetings, including meetings of the Boardof Directors, and requested reports from the directors, executive officers, corporate auditors andemployees of the Company and its subsidiaries as necessary. In addition, they receive reports on
the handling of any reports made through the whistle-blower process.
⑥ Status of New subsidiaries
Idorsia Pharmaceuticals Japan Ltd. and Idorsia Pharmaceuticals Korea Co., Ltd., which became
wholly owned subsidiaries of the Company on July 20, 2023, are in the process of integration after
the acquisition, and are working to introduce a system to ensure proper application of internal control
system to those group companies.

(6) Policy on determination of Dividends, etc.
The declaration and payment of any dividends in the future will depend on the results ofoperations, financial conditions, cash requirements, future prospects, profits available for
distribution and other factors deemed by the Board to be relevant at the time.
At present, the Group is making prudent investments to build a globally competitive
biotechnology business and, therefore, does not expect to pay any dividends in the nearto medium term. The Board will continue to reassess this position based on the factors
above.

(7) Policy on the conduct of persons influencing decision on the Company's financial andbusiness policies
Not applicable42

Consolidated Balance Sheet
Item(Millions of yen)

The 34th term
At December 31, 2023

Item

The 34th term
At December 31, 2023

Non-current assets

92,086

Non-current liabilities

73,203

Property, plant andequipment

7,900

Deferred tax liabilities

1,490

Goodwill

24,623

Corporate bonds

30,551Intangible assets

52,291

Bank borrowings

32,664

Deferred tax assets

3,964

Lease liabilities

3,985

Other financial assets

3,266

Provisions

Other non-current assets

42

484

Other non-current liabilities

4,029

Current liabilities

17,185Trade and other payables

4,244

Current assets

65,112

Income taxes payable378

Trade and other receivables

5,064

Corporate bonds

143

Inventories

2,903

Current portion of long-termbank borrowings

Income taxes receivable

2,099

Lease liabilities

Other financial assets

316

Other current assets
Cash and cash equivalents

832

Other current liabilities

5,790

5,665

Total liabilities

90,38849,065EquityCapital stock

46,807

Capital surplus

34,048Treasury stock(1)

Retained earnings

Total assets

5,798

157,198

Note: Amounts less than JPY 1 million have been rounded.

43(16,104)

Other components of equity

2,060

Equity attributable toowners of the parent

66,810Total equity

66,810Total liabilities and equity

157,198

Consolidated Statement of Profit or Loss andOther Comprehensive Income(Millions of yen)

The 34th term
Financial year ended December 31, 2023

Item
Revenue

12,766

Cost of sales(3,102)Gross Profit

9,664

Other income and expenses
Research and development expenses(10,075)

Selling, general and administrative expenses(9,965)

Other income

944

Other expenses(94)

Operating loss

(19,190)(9,526)

Finance income

1,341

Finance costs(2,495)

Loss before income taxes(10,680)

Income tax benefit

3,487

Net loss(7,193)

Other comprehensive income
Items that will not be reclassified subsequently to profit orloss:
Net change in fair value of equity instruments designatedas measured at fair value through other comprehensive
incomeItems that may be reclassified subsequently to profit orloss:
Exchange differences on translating foreign operations

668

5,404

Total comprehensive income

6,072(1,121)

Net loss attributable to
Owners of the parent(7,193)(7,193)(1,121)(1,121)

Total comprehensive income attributable to:
Owners of the parent
Note: Amounts less than JPY 1 million have been rounded.

44

Consolidated Statement of Changes in Equity(Millions of yen)

CapitalStock

CapitalsurplusTreasurystock

Retainedearnings

Other
components ofequityEquityattributable toowners ofthe parent

Total
equity41,33529,525(1)(8,911)(4,012)

57,93657,936---(7,193)-(7,193)(7,193)

-

-

-

-

6,072

6,072

6,072

-

-

-

(7,193)

6,072(1,121)(1,121)

Issuance of new shares

5,472

4,511

-

-

-

9,983

9,983

Share-based payments

-

832

-

-

-

832

832

-

-

(0)

-

-

(0)

(0)

-

800

-

-

-

800

800

-

(1,620)---(1,620)(1,620)

5,472

4,523

(0)

-

-

9,995

9,995

46,80734,048(1)(16,104)

2,060

66,81066,810

Balance atJanuary 1, 2023
Net loss
Other comprehensive
incomeTotal comprehensive
incomeAcquisition of treasury
stock
Issuance of corporate
bonds
Purchase andcancellation of
corporate bonds
Total transactions withownersBalance at
December 31, 2023

Note: Amounts less than JPY 1 million have been rounded.

45

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: 7
ii. Names of principal consolidated subsidiaries:
Heptares Therapeutics Ltd.
Idorsia Pharmaceuticals Japan Ltd.
Sosei Co. Ltd.
iii. Change in scope of consolidation:
The company acquired the entire share capital of Idorsia Pharmaceuticals Japan Ltd. and Idorsia Pharmaceuticals
Korea Co., Ltd., and those companies were included in the scope of consolidation in the year under review.

(3)

Accounting policies
1) Valuation standards and methods for significant assets and liabilities
i. Financial assets (excluding derivatives)
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 tocollect contractual cash flows, and(b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal 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 initialrecognition 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 thosedefined above.

46

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 at an amount that reflects the change
in the amount of the fair value.

(b)a financial asset measured at fair value through other comprehensive income is recognized at an amount thatreflects the change in the amount of the fair value. When the financial asset is derecognized, the cumulative
gain or loss in other components of equity is transferred to retained earnings. Dividends from a financial asset
are recognized as part of financial income in net income (loss) for the current 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 therisks 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.
ii. Financial liabilities (excluding derivatives)
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.

47

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 profit or loss is recognized at an amount that reflects thechange 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.
Derecognition of financial liabilities
The Group removes a financial liability (or a part of a financial liability) from its balance sheet when, and only when, it isextinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expires.
iii. Derivatives
The Group uses forward exchange contracts to manage its foreign exchange risk. These derivatives are initially recognizedat fair value on the date the contract is entered into, and are remeasured at fair value at each balance sheet date after initialrecognition. Changes in fair value are recognized through profit or loss. These derivatives do not qualify for hedge
accounting.
iv. 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.
v. 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.
Cost comprises those costs directly attributable to the acquisition of the asset, the initial estimate of costs for dismantling
and removing the asset 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 financial 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. Cost comprises those costs directly attributable to the acquisition of the intangible asset.
Internally generated intangible 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

48

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)
Management assesses whether new contracts include a lease at inception of the contract. If the contract conveys the rightto control the use of an identified asset for a period in exchange for consideration, the contract is, or contains, a lease.
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 Consolidated Balance Sheet, the Group presents right-of-use assets in “Property, plant and equipment”. In theConsolidated Statement of Profit or Loss and Other Comprehensive Income, the Group presents interest expense at an
amount that produces a constant periodic rate of interest 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.
Inventories
Inventories are measured at the lower of cost (including purchasing and processing costs) and net realizable value. Net
realizable value is the estimated selling price in the course of business less estimated costs to complete and estimatedselling expenses. Cost is determined on a first-in, first-out basis.
vi. 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 financial year.
The recoverable amount of assets or cash-generating units is the higher of value in use or fair value less disposal costs. In
the calculation of value in use, estimated future cash flows are discounted to present value using a discount rate that reflects
the time value of money and risks inherent to the asset. In respect of cash-generating units, assets are grouped into thesmallest 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 cash-

49

generating 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.
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: 3 to 18 years•

Machinery and equipment: 4 to 8 years•

Furniture and fixtures: 2 to 18 years•

Right-of-use assets: 2 to 16 yeares

The expected useful lives, residual values and depreciation methods are reviewed at the end of each financial 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 eachfinancial 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: 18 to 28 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 financial year and whenever there is an indication of
impairment.
3)

Accounting standards for significant provisions

The Group recognizes a provision when it has a present legal or constructive obligation as a result of a past event and it isprobable that an outflow of resources with economic benefits will be required to settle such obligation; and a reliable
estimate can be made of the amount of the obligation.
Provisions are measured as the present value of the expenditure expected to be required to settle the obligation, using a
pre-tax discount rate that reflects the current market assessment of the time value of money and the risks specific to the
obligation. Increases in provisions over time are recognised as finance costs.
Asset retirement obligations are estimated based on the past restoration experience and the estimated period of use
determined by taking into account the useful life of the internal structures of the offices, etc., and taking into account the
specific conditions of each property. The Group estimates, recognises and measures the cost of restoration obligations forleased offices and buildings, taking into account the specific conditions of each property.

50

4)

Accounting standards for significant income and expenditure

The Group recognizes revenue from contracts with customers based on the following five-step approach:
Step 1: Identify the contract with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
Pharmaceutical product sales
Pharmaceutical product sales are recognized upon the customer’s acceptance.
Grant of Licenses
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 thefollowing criteria are met:•

the contract requires, or the customer reasonably expects, that the Group will undertake activities that significantly
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
activities identified in the above criterion; an

•
(a)
•

those activities do not result in the transfer of a good or a service to the customer as those activities occur.
When a license is distinct from other goods or services and evaluated as a right to use license
Upfront fees are recognized at the time of the grant of the license if the performance obligation is satisfied at a point
in time.

•Development milestone income is only recognized when it is determined that the achievement of milestones agreed
between the parties, such as regulatory filings, are assured, taking into consideration the probability of a subsequentsignificant reversal of revenue.

•

Sales royalty income and sales milestone income are measured based on the sales recorded by the counterparty
when (or as) the later of (i) a sales transaction has occurred or a contractually agreed target is achieved, and (ii) the
performance obligation is satisfied.

(b)

When a license is distinct from other goods or services and evaluated as a right to access license:
Not applicable.

Research and Development services
Revenue from Research and Development services is recognized over time because the customer simultaneously receives
and consumes the benefits provided by the Group’s performance as the Group performs.
(a)Research and Development services – compensated through upfront fees and development milestones
When a performance obligation is not satisfied at a point in time and consideration is received prior to the satisfactionof the performance obligation, the consideration is recorded as a contract liability (deferred revenue). Revenue ismeasured, and the same amount is derecognized from the contract liability (deferred revenue), based on the ratio of
actual time incurred on each R&D program at the reporting period end to the total time estimated to be incurred fromthe commencement of the R&D plan until its scheduled completion date. However, development milestone income,which includes variable consideration, is recognized only to the extent that it is highly probable that a significant
reversal in the amount of cumulative revenue will not occur when the uncertainty associated with the variableconsideration is subsequently resolved.

51

(b)

Research and Development services – compensated through FTE charges
Full Time Equivalent (“FTE”) revenue earned from providing research and development services to customers is
recognized over time by multiplying the amount of time worked by the contracted charge-out rate.

The transaction price for granting licenses is allocated to each performance obligation based on the stand-alone selling
price calculated using the residual approach. The consideration is the amount receivable within one year from satisfactionof the performance obligations or fulfillment of contractual terms and conditions.
Variable consideration is allocated to a specific performance obligation only if both of the following conditions apply:•

Variable payment terms relate specifically to the entity's effort to satisfy the performance obligation or transfer the
distinct good or service.

•

Allocating the variable amount of consideration entirely to the performance obligation or the distinct good or service,
is consistent with the following allocation objective when considering all of the performance obligations and payment
terms in the contract: an entity should allocate the transaction price to each performance obligation or distinct goodor service in an amount that depicts the amount of consideration to which the entity expects to be entitled to inexchange for transferring the promised goods or services to the customer.

There are no significant financing components included in any license contracts or any research and development contracts.
5)Standards for conversion of significant foreign-denominated assets and liabilities into 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 annual 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 accumulatedin “Other components of equity” in the consolidated balance sheet.
6)

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

52

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.
2.

Notes relating to changes in presentation
Consolidated Balance Sheet
The “Inventories" balance which was included in "Other current assets" in the previous consolidated financial year, ispresented separately in the year under review due to its increased importance in terms of amount. To reflect this change inpresentation, JPY 865 million presented as "Other current assets" in the consolidated balance sheet as at December 31,
2022 has been reclassified as "Inventories" (JPY 32 million) and "Other current assets" (JPY 833 million).
The “Provisions" balance which was included in "Other non-current liabilities" in the previous consolidated financial year, ispresented separately in the year under review due to its increased importance in terms of amount. To reflect this change inpresentation, JPY 4,909 million presented as "Other non-current liabilities" in the consolidated balance sheet as at December
31, 2022 has been reclassified as "Provisions" (JPY 118 million) and "Other non-current liabilities" (JPY 4,791 million).

3.

Notes relating to key accounting estimates
In preparing consolidated financial statements in accordance with IFRS, management is required to make judgements,
estimates, and assumptions that affect the application of accounting policies and the amounts of assets, liabilities, revenue,
and expenses. Actual results may differ from these estimates due to their nature. The estimates and underlying assumptions
are reviewed on an ongoing basis. The effects of revisions to accounting estimates are recognized in the period in which theestimate is revised and in any future periods affected. The key judgements and estimates made by management that have
had a significant effect on the amounts recognized in the consolidated financial statements are as follows:(1)

Valuation and impairment of Goodwill and Intangible Assets

The carrying amounts of Goodwill and Intangible Assets were JPY 24,623 million and JPY 52,291 million, respectively, as
at December 31, 2023.
1)

Method of calculation of the carrying amounts in the consolidated financial statements and significant
assumptions used in the calculation

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 financial year.
Goodwill is not amortized. It is allocated to cash-generating units and an annual impairment test is conducted at the sametime in each financial 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. In respect of cash-generating units for goodwill, goodwill is assessed based on those business units definedfor the purposes of internal reporting. In principle, a cash-generating unit is classified as a type of business and geographicalregion. In respect of cash-generating units for intangible assets, intangible assets are grouped based on the smallest cashgenerating unit that produces largely independent cash inflows.
1. Recoverable amount of Goodwill and Intangible Assets of Heptares Therapeutics Ltd.
The recoverable amount of the Heptares Therapeutics Ltd. cash generating unit has been assessed using fair value lesscost of disposal. Fair value less cost of disposal has been calculated by estimating future cash flows based on businessplans.

Assumptions used in business plans and fair value less costs of disposal include the timings of milestoneachievements and product launches, the probabilities of success of R&D activities and projected revenues including
expected future product sales and the weighted average cost of capital. Management uses its experience, external sources,
knowledge of the activities of competitors and industry trends in forming these assumptions.

53

2. Recoverable amount of Goodwill and Intangible Assets of Idorsia Pharmaceuticals Japan Ltd. and Idorsia
Pharmaceuticals Korea Co., Ltd.
The recoverable amount of the Idorsia Pharmaceuticals Japan Ltd. and Idorsia Pharmaceuticals Korea Co., Ltd. cash
generating unit has been assessed using a value in use approach by estimating future cash flows based on business plans.
Assumptions used in business plans and the value in use calculation include the market size of related pharmaceuticalproducts and projected market shares, projected related selling, general & administrative expense, R&D expenses, thegrowth rate in the period after the business plan and the weighted average cost of capital. Management uses its experience,external sources, knowledge of the activities of competitors and industry trends in forming these assumptions.
2)

Effects on the consolidated financial statements for the year ending December 31, 2024

If there are material adverse differences between management’s projected cash flows and the actual cash flows due to thetiming of milestone achievement and market shares of pharmaceutical products, impairment may be recognized to reducethe carrying amounts of goodwill and intangible assets down to their recoverable amounts.
(2)

Revenue recognition

The balance of contract liabilities was JPY 5,260 million as at December 31, 2023. JPY 1,731 million of former contract
liabilities was recognized as revenue during the financial year ended December 31, 2023.
1)

Method of calculation of the carrying amounts in the consolidated financial statements and significant
assumptions used in the calculation

When a performance obligation is not satisfied at a point in time and consideration is received prior to the satisfaction of
the performance obligation, the consideration is recorded as a contract liability (deferred revenue). Revenue is measured,and the same amount is derecognized from the contract liability (deferred revenue), based on the ratio of actual time
incurred on each R&D program at the reporting period end to the total time estimated to be incurred from thecommencement of the R&D plan until its scheduled completion date.
For the following reasons, the calculation of total estimated time is characterized by uncertainty:•

Research and development generally takes a long time and is highly individualized for each project.

•

By its nature, the achievement of results is not guaranteed, and the total estimated time required varies dependingon the progress of the R&D.

•

The total estimated time for R&D is subjective in that it depends on the judgment of project managers who haveexpertise and experience in R&D.

2)

Effects on the consolidated financial statements for the year ending December 31, 2024

Fluctuations in the total estimated time due to the above uncertainties may have a significant impact on the amount ofrevenue recognized in the consolidated financial statements for the year ending December 31, 2024.
4.

Notes to consolidated balance sheet(1) Property, plant and equipment
Cumulative depreciation on property, plant and equipment was JPY 3,496 million.
(2) Commitment line agreement
The contractual limit of the commitment line agreement is JPY 5,000 million and there were no loans outstanding under thisagreement at the financial year ended December 31, 2023.
On December 30, 2022, the Company entered into a commitment line agreement for one year (maximum loan amount: JPY
5,000 million) with Mizuho Bank and three other banks. Under the commitment line agreement, the Company is subject to afinancial covenant requiring it to maintain its consolidated net assets at 75% or more of the level at the second quarter of thefinancial year ending December 31, 2022 at every second quarter after the financial year end and at the financial year end.
In addition, the Company has the following rights under the commitment line agreement:
1)

Extend the maturity of the commitment line for a period of one year on the anniversary of the contract date and foranother one year on the anniversary of the second year, for a total of two extensions.

2)

Convert the commitment line at each anniversary date up to December 30, 2025 into an installment term loan of thesame value with a repayment period of four years.

54

The contract was extended in December 2023, with a contract term ending December 30, 2024.
5.

Notes to the consolidated statement of changes in equity(1) Total shares outstanding
Share class

Shares at beginningof the financial year

Increase in shares
during the financialyear

Decrease in shares
during thefinancial year

Shares at end of
the financial year

81,923,230

7,523,547-

89,446,777

Common shares

Note: The increase in common shares outstanding is due to Issuance of new shares by way of overseas subscription (1,500,000
shares), Issuance of new shares by way of third-party allotment (5,610,000 shares) and the allotment of Restricted Stock Units(“RSUs”) (413,547 shares).

(2)

Subscription warrants, etc. as at December 31, 2023

Type and number of shares for subscription warrants as at December 31, 2023:
Common shares 18,105,265
6.

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, borrowing from banks, and through leasing.
2)

Financial instruments – content, 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.
(2)

Fair value of financial instruments

Amounts stated in the consolidated balance sheet as at December 31, 2023, their corresponding fair values and thedifferences between these amounts are as follows:
Amount stated in
the consolidatedbalance sheet¥m

Fair value

Difference¥m¥m

Other financial assets

3,582

3,582

-

Trade and other receivables

5,064

5,064

-

Cash and cash equivalents

49,06549,065-

Corporate bonds

30,69431,751

1,057

Bank borrowings

38,462

38,585123

Trade and other payables

4,244

4,244

-

(3)

Classification of fair value of financial instruments

The classification of financial instruments within the fair value hierarchy from Level 1 to Level 3 is as follows:
Level 1: Quoted prices (unadjusted) in an active market for identical assets or liabilities.
Level 2: Fair value determined using inputs other than quoted prices included within Level 1 that are observable for theasset or liability, either directly or indirectly.
Level 3: Fair value determined using valuation techniques including measurement based on unobservable inputs.

55

1)

Financial instruments that are measured at fair value on a recurring basis
Level 1¥m

Level 2¥m

Level 3
¥m

Total
¥m

-

21

577

598

Financial assets:
Financial assets measured at fair value through profit orloss:
Other financial assets
Financial assets measured at fair value through othercomprehensive income:
Other financial assets

1,208

-

1,110

2,318

1,208

21

1,687

2,916

Level 1¥m

Level 2¥m

Level 3
¥m

Total
¥m

-

31,751
38,585-31,751
38,585-70,336-70,3362) Financial instruments measured at amortized cost

Financial liabilities:
Corporate bonds
Bank borrowings

Notes: Explanation of valuation methods and inputs used in determining fair value
1. Financial assets
Financial assets are reported under Other financial assets in the consolidated balance sheet and comprise:a. Listed securities
The fair value of listed securities is assessed using the market price at the end of the period, and changes in fairvalue are recorded in “Net change in fair value of equity instruments designated as measured at fair value throughother comprehensive income” in the consolidated statement of profit or loss and other comprehensive income. The
fair value is categorized as Level 1, as securites are traded in an active market.
b. Unlisted securities
The fair value of unlisted securities is assessed using an appropriate valuation model based on a number of variables
including net assets, future cashflows and estimated profits, and changes in fair value are recorded in profit or loss,
or in “Net change in fair value of equity instruments designated as measured at fair value through othercomprehensive income” in the consolidated statement of profit or loss and other comprehensive income. The fairvalue is categorized as Level 3 as it is determined by a valuation method utilising unobservable inputs.
c. Contingent consideration receivable relating to a business disposal
The fair value of contingent consideration receivable relating to a business disposal is assessed using a probability
adjusted discounted cashflow model. The fair value is categorized as Level 3 as it is determined by valuation methods
utilising unobservable inputs. Changes in fair value are recorded in profit or loss.
d. Insurance reserves
The fair value of insurance reserves is based on the surrender values provided by the insurance companies withwhich the Company transacts business. The fair value is categorized as Level 3.
e. Memberships
The fair value of memberships is determined based on publicly available prices for identical assets in markets thatare not active. The fair value is categorized as Level 2.
2. Financial liabilities
Financial liabilities are reported under Corporate bonds and Bank borrowings in the consolidated balance sheet andcomprise:a. Corporate bonds
The fair value of the debt element of convertible bonds is calculated by discounting the total amount of principal andfuture interest payments at an interest rate that considers the remaining maturity of the bonds and credit risk. They
are categorized as Level 2 of the fair value hierarchy.

56

b. Bank borrowings
The fair value of bank borrowings is calculated as the present value of the total amount of principal and interest
discounted at the interest rate that would be applicable to a new similar bank borrowing. They are categorized as
Level 2 of the fair value hierarchy.
(4) Repayment schedule for Corporate bonds, Bank borrowings and Lease liabilities
Due within
1 year¥m

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

Due more than 5
years
¥m

150
5,800
832

32,00023,200
2,815

9,550
1,170

Corporate bonds
Bank borrowings
Lease liabilities
7. Notes on revenue recognition

The Group earns revenue through selling a fully developed pharmaceutical product, granting licenses that provide the rights
to develop and market pharmaceutical products and through the provision of research and development services to customers.
These activities are classified into the following types of revenue based on their purpose and performance obligations:(1) Types of revenue classified by purpose•

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

Royalty income: Sales royalty income•

Pharmaceutical product sales: Revenue from product sales•

Other: Revenue from contracted research and development services(2) Types of revenue classified by performance obligation
Types of revenue classified by performance obligation is shown in the Notes to the Consolidated Financial Statements
under “(3) Accounting policies 4) Accounting standards for significant income and expenditure”.
(3)

Breakdown of revenue
Performance obligation
Research andProduct supply

Grant ofDevelopment

revenue

Licenses

services

¥m

¥m

¥m

¥m

6,173

-

-

6,173

Upfront fees and milestone income

-

2,108

1,731

3,839

Royalty income

-

2,504

-

2,504

Other

-

-

250

250

6,173

4,612

1,981

12,766

Types of Revenue
Phamaceutical product sales

Total

Performance obligations satisfied in past periods amounting to JPY 4,612 million are included in revenue for the year ended
December 31, 2023.

57

(4)

Contract balances

Receivables from contracts with customers are included in the consolidated balance sheet as “Trade and other receivables”.
Deferred revenue is included in the consolidated balance sheet under “Other non-current liabilities” and “Other current
liabilities”.
Opening and closing balances of deferred revenue from contracts with customers¥mOpening balance – January 1, 2023

6,221

Of the opening balance, the amount recognized as revenue in the year

(1,731)

Exchange differences on translation

770

Closing Balance - December 31, 2023

5,260

Other non-current liabilities

3,882

Other current liabilities

1,378

(5)

Transaction price allocated to the remaining performance obligations

Research and development services related performance obligations arising under contracts may be unsatisfied or partiallysatisfied at the reporting date. Milestone income allocated to research and development services is not included in thetransaction price allocated to the remaining performance obligation because the uncertainty of reaching the agreed
milestone, such as a regulatory filing, will not be resolved until the actual achievement of the milestone. Since the Group
has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of theGroup’s performance of services completed to date, the transaction price allocated to the remaining performance obligations
relating to research and development services is omitted as a practical expedient in accordance with paragraphs 121(b)and B16 of IFRS15.
8. Notes on per-share information¥

9.

Equity attributable to owners of parent - per share

746.92

Basic earnings - per share(87.18)Other notes(1) Business conbinations
1) Overview of Business Combination
Acquisition of shares in Idorsia Pharmaceuticals Japan Ltd. and Idorsia Pharmaceuticals Korea Co., Ltd. and related assets
The Company announced that it had resolved at a meeting of the Board of Directors held on July 20, 2023, to acquire from
Idorsia Ltd. and Idorsia Pharmaceutical Ltd. (together “Idorsia”) the entire share capital of Idorsia Pharmaceuticals Japan
Ltd. (“IPJ”) and Idorsia Pharmaceuticals Korea Co., Ltd. (“IPK”) together with related intercompany receivable balances andintellectual property rights (the “Transaction”). The Company acquired all shares on the same day.
Name of the acquiree and Description of business
Name of the acquiree:

Idorsia Pharmaceuticals Japan Ltd.
Idorsia Pharmaceuticals Korea Co., Ltd.

Description of business:

Research & Development, importation, packaging and sale ofpharmaceutical products

Primary reason for the business combination
In 2022, the new leadership team at the Group began executing an evolved corporate strategy designed to leverage its
proprietary platform, pipeline and capabilities and build a balanced and integrated business with a commercial capability inJapan/APAC and partnering opportunities globally. A key element of this strategy is focused on building an agile, scalable
and effective clinical development and commercialization business capability that enables the Group to deliver life-changing

58

medicines to patients in Japan and capitalize on the significant underserved opportunities that it sees within this large
attractive market.
The acquisition of IPJ and IPK addresses this objective and is the conclusion of a rigorous global search by the Group team.
The cash-flow positive Transaction, which is fully funded by existing cash and a new long-term, low-rate corporate loan,
provides the Group with multiple strategic benefits by:•

Accelerating the Group’s mission by adding experienced clinical development capability and a profitable commercial
operation in Japan, with a lean model for sales and marketing, and the ability to scale and create further value.

•

Securing and expanding the Group’s future pipeline with two major products PIVLAZ® and Daridorexant; exclusive
opt-ins for Cenerimod and Lucerastat; and selected rights for up to five additional clinical-stage programs from
Idorsia’s global pipeline.

•

Bringing a highly skilled team with a proven track record of excellence and delivery, led by Dr. Satoshi Tanaka, who
has directed several New Drug Application (Japan) and Ministry of Food and Drug Safety (South Korea) approvals
and successful commercial launches over the past two decades.

•

Leveraging Japan’s quality clinical environment to target underserved, specialty disease areas; and providing theplatform to expand across broader APAC regions and extend product launches.

The Transaction also brings together complementary capabilities to develop and commercialize novel medicines acrossJapan and APAC (ex-China) from three sources of innovation: (i) the Group’s wholly owned discovery and early
development pipeline, (ii) selected clinical candidates from Idorsia’s pipeline, and (iii) in-licensing of Japan/APAC (ex-China)
rights to clinical product candidates from third parties.
In addition, the Group will continue to seek partners for novel candidates or programs discovered by the Group fordevelopment and commercialization outside of Japan/APAC territories where significant unmet needs exist, as well as therequirements for substantial expertise and resources.
Date of acquisition
July 20, 2023
Percentage of voting equity interests acquired
Idorsia Pharmaceuticals Japan Ltd.

100%

Idorsia Pharmaceuticals Korea Co., Ltd.

100%

Method of acquisition
Acquisition of shares for cash
Consideration for the Transaction
JPY 64,440 million.
Acquisition related costs of JPY 1,149 million relating to the Transaction were included in Selling, general and administrative
expenses.

592) Fair value of assets acquired and liabilities assumed as of the acquisition date, and goodwill
Amount¥m
Fair value of assets acquired and liabilities assumed:
Property, plant and equipment

3,431

Intangible assets

44,071

Deferred tax assets

2,279

Trade and other receivables

3,505

Inventories

4,779

Other assets

2,735

Lease liabilities(2,837)

Trade and other payables(880)

Other liabilities(661)

Net fair value of assets acquired and liabilities assumed

56,422

Goodwill

8,018
64,440Goodwill reflects the future excess earning power expected from future business development and synergies withexisting businesses. None of the recognized goodwill is expected to be deductible for tax purposes.
3) Cash flows relating to the acquisition of Idorsia
Amount¥m
Cash and cash equivalents paid for acquisition

64,440Cash and cash equivalents of assets acquired(1,499)Net cash payment for the acquisition of Idorsia

62,941

4) Impact on Business Performance
The consolidated statement of profit or loss and other comprehensive income includes revenue and net profit of JPY 7,609
million and JPY 623 million, respectively, arising from IPJ/IPK after the acquisition date. Assuming that the businesscombination had taken place at the beginning of the financial year, the Group’s revenue and net loss for the twelve-month
period ended December 31, 2023 would have been JPY 17,783 million and JPY 10,710 million, respectively. Such proforma
information has not been subject to Audit.

60

Non-Consolidated Balance SheetItem

The 34th term
At December 31,2023

Asset

Item

The 34th term
At December 31,2023

Liabilities

Current assets

39,899Current liabilities

Cash and deposits
Accounts receivable fromsubsidiaries and associates trade
Accounts receivable fromsubsidiaries and associates otherPrepaid expenses
Consumption taxes refund
receivable

21,989Accounts payable - trade

112

4,094

Accounts payable - other

1,302

150
4,714

Other

Non-current assets

Accounts payable tosubsidiaries and associates otherAccrued expenses

8,891

Income taxes payable
Current portion of long-termbank borrowings
Current portion of corporate
bonds
Deposit received
Provision for share-based
compensation
Other

61

102,112

11,062

3,000
183
79
5,800
152
41
380
13

Non-current liabilities

65,749Property, plant and equipment

39

Long-term bank borrowings

32,750

Buildings

29

Convertible bonds

32,793Tools, furniture and fixtures

10

Asset retirement obligations
Provision for share-based
compensation
Total liabilities

Intangible assets

43,368

Sales rights

43,35218
188
76,811

Software

16

Net Assets

Other

0

Shareholders’ equity

64,96558,705

Capital stock

46,80758,480Capital surplus

34,924

3,390

Legal capital surplus

34,92495

Retained earnings(16,765)

58

Other retained earnings
Retained earnings brought
forwardTreasury stock
Valuation/translationdifference
Unrealized holding gains orlosses on securities
Stock acquisition rights(16,765)

Investments and other assets
Shares of subsidiaries andassociates
Long-term loans receivablefrom subsidiaries andassociates
Investments in capital
Other
Allowance for doubtful
accounts

Total assets(3,318)

Total net assets
Total liabilities and net
assets142,011

Note: Amounts less than JPY 1 million have been rounded.

61(16,765)
(1)
(0)
(0)
235
65,200142,011Non-Consolidated Statement of Profit or Loss
(Millions of yen)

The 34th term
Financial year ended December 31,2023

Item
Revenue

5,015

Cost of sales(646)

Gross profit

4,369

Selling, general and administrative expenses(4,704)

Operating loss

(335)

Non-operating income
Interest income

132

Miscellaneous income

0132

Non-operating expenses
Interest expenses(74)

Commission expenses(116)

Loss on cancellation of bonds(1,056)

Bond issuance costs(1,092)

Share issuance costs(71)

Provision of allowance for doubtful accounts for
subsidiaries and associates(400)

Foreign exchange loss

(263)

Miscellaneous loss

(26)

Ordinary loss

(3,098)(3,301)

Extraordinary income
Gain on reversal of share acquisition rights

7

Loss before income taxes

7(3,294)

Corporate tax, residential tax and enterprise tax
Net loss(9)(9)(3,285)

Note: Amounts less than JPY 1 million have been rounded.

62

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

Shareholders’ equity
CapitalsurplusCapital stock

Retainedearnings

Legal capitalsurplus

Other retained
earnings
Retainedearnings brought
forwardTotal
shareholders’equityTreasuryshares41,33529,452(13,480)(1)

57,306

5,472

5,472

-

-

10,944

Net loss--(3,285)-(3,285)Purchase of treasury stock

-

-

-

(0)

(0)

Net changes of items other thanshareholders’ equity

-

-

-

-

-

Total changes during the period

5,472

5,472

(3,285)

(0)

7,659

Balance at December 31, 2023

46,80734,924(16,765)(1)

64,965

Balance at January 1, 2023
Changes during the period:
Issuance of new shares

Valuation/translationdifference
Unrealized
holding gains
or loss on
securities

StockacquisitionrightsTotal net assets

(5)

243

57,544Issuance of new shares--

10,944

Net loss--(3,285)Purchase of treasury stock

-

-

(0)

Net changes of items other thanshareholders’ equity

5

(8)

(3)

Total changes during the period

5

(8)

7,656

Balance at December 31, 2023

(0)

235

65,200

Balance at January 1, 2023
Changes during the period:

Notes: Amounts less than JPY 1 million have been rounded.

63

Notes to the Non-Consolidated Financial Statements
1.

Significant accounting policies(1) Asset valuation standards and methods
1) Securities
Shares of subsidiaries and associates are carried at cost determined by the moving-average method .
(2) Depreciation Methods for non-current Assets
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
acquired 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: 3-18 years

2) Intangible 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
Share issuance cost: Expensed in full at the time of payment.
Bond issuance cost: Expensed in full at the time of payment.
(4) Recognition standards for provisions
1) Allowance for doubtful accounts
Allowance is made for credit losses on accounts receivable and other accounts. An estimate of the irrecoverable
amount is set aside based on historical credit loss rates for ordinary receivables and based on individual collectability
for specific receivables regarded as doubtful.
2) Provision for bonuses payable to employees
Provision is made during the financial year for the estimated payment of employee bonuses.
3) Provision for bonuses payable to executive officers
Provision is made during the financial year for the estimated payment of bonuses to executive officers .
4) Provision for share-based compensation
Provision is made for an estimation of the in-kind contribution of monetary compensation claim incurred from
RSU/PSUs for directors and employees.
(5) Revenue recognition criteria
Pharmaceutical product sales
Pharmaceutical product sales are recognized upon the customer’s acceptance.
Management fees
The Company's revenue consists of management fees charged to its subsidiaries. Since the Company's performanceobligation is to provide contracted services to its subsidiaries and the Company's performance obligation is satisfied
when those services are performed, revenue is recognized at that point in time.

64(6) Standards for Conversion of Foreign-denominated Assets and Liabilities to Japanese Currency
Foreign-denominated monetary receivables and payables are converted to Japanese yen based on the closing spot
rate of each reporting period, and exchange differences are accounted for within profit or loss for the period.
2.

Notes on changes in presentation
Balance sheet
The “Consumption taxes refund receivable” balance which was included in “Others” in the previous financial year, isseparately stated in the year under review due to its increased importance in terms of amount. To reflect this change inpresentation, JPY 35 million presented as “Others “ in the non-consolidated balance sheet as at December 31, 2022
has been reclassified as “ Consumption taxes refund receivable” (JPY 31 million) and “Others” (JPY 4 million).
Statement of Profit or Loss
As a result of a review of the method of presentation following the commencement of product sales, the company has
decided to present “Operating revenue” as “Revenue” and “Operating expenses” as “Selling, general andadministrative expenses”.

3.

Notes relating to key accounting estimates
Valuation of Shares of subsidiaries and associates
Ending balance ¥mShares of subsidiaries and associates

58,480

Method of calculation of the carrying amounts in the non-consolidated financial statements and significant assumptions
used in the calculation
A valuation loss is recorded on non-marketable securities, such as investments in unlisted subsidiaries and associates,when their net asset value decrease significantly due to deterioration of the financial position of the security issuer, unlessthere is sufficient evidence to support their recoverability. The net asset value used in the impairment assessment iscalculated based on the net assets of the latest available financial statements prepared in accordance with the Generally
Accepted Accounting Standards and obtained from subsidiaries and associates before the period end, and includes
goodwill. Hence, significant assumptions related to significant accounting estimates described in “Valuation and impairmentof Goodwill and Intangible Assets” within “4. Significant accounting estimates and associated judgments” of theconsolidated financial statements significantly affects the calculation of the net asset value.
Effects on the non-consolidated financial statements for the year ending December 31, 2024
There is possibility when a significant decline in the real value of the asset coud result in a valuation loss due to uncertain
events in the future.
Valuation of Sales rights
Ending balance ¥mSales rights

43,352

Method of calculation of the carrying amounts in the non-consolidated financial statements and significant assumptions
used in the calculation
The Company’s marketing rights are grouped according to the smallest unit that independently generates cash flows. Whenan indication of impairment exists of an asset group, the total undiscounted future cash flows generated from the asset
group is compared to the book value to determine the necessity of impairment. Once an impairment loss is determined tobe recognized, the book value is reduced to the asset’s recoverable amount and the decreased amount is recorded as an
impairment loss. Indications of impairment include cases where operating losses or net cash outflows from operating
activities continue, or will continue in the near future, and significant changes with an adverse effect on the businessenvironment have taken place, or will take place in the near future.
Effects on the non-consolidated financial statements for the year ending December 31, 2024
Since the purchase price of marketing rights is calculated based on business plans of related pharmaceutical products,
there is a possibility that an impairment loss may be recorded when the actual result is significantly worse than the budgeted
result.

65

Notes to the Balance sheet¥m(1) Cumulative depreciation on property, plant and equipment

48(2) Guarantee liabilities

Debt guarantees totaling JPY 2,011 million have been provided in relation to land and building lease agreements signedby the Company’s subsidiary, Heptares Therapeutics Ltd.
¥m(3) Monetary liabilities to directors and executive officers

4.

234

Notes to the Statement of Profit or Loss¥m
Operating transactions with subsidiaries and affiliates

7,705

Non-operating transactions with subsidiaries and affiliates

5.

0Notes to the Statement of Changes in Equity
Share class

Shares at beginning

Increase in shares

Decrease in shares

Shares at endof financial year

during financial year

during financial yearof financial year

Ordinary Treasury shares

254

81

-

335

Note: The increase in common shares is due to the purchase of shares of less than one unit (81 shares).
6.

Notes on revenue recognition
The Company’s revenue recognition policy is shown in Notes to the Non-consolidated Financial Statements under “1.
Significant accounting policies (5) Revenue recognition criteria”.

7.

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

3,018

Shares in subsidiaries and associates

3,135

Allowance for doubtful debts

1,016

Other

455

Deferred tax assets subtotal

7,624

Valuation allowance(7,624)

Total deferred tax assets

-

66

8.

Related party transactions(1)

Subsidiaries

Type

Name of

Share ofTransaction

company

voting rights

type

Sosei Co. Ltd.

Direct holding

Provision of100%

management

Transaction

holding (held)
Subsidiary

Account

amountEndingbalance

¥m

¥m

88

-

-

400

Long-term loans

3,318

services tosubsidiary
Loan to subsidiaryto subsidiaries
and affiliates
Subsidiary

Idorsia

Direct holding

Pharmaceuticals

100%

Product sales

4,094

Accounts receivable

4,094

from subsidiaries andJapan Ltd.

associates – trade
Acquisition of sales

43,963rights

Accounts receivable

8,849

from subsidiaries andassociates – otherOutsourcing

955

expenses

Accounts payable to

3,000

subsidiaries andassociates - other

Selling expenses

1,560

Debt guarantee

38,550

-

-

892

-

-

2,011

-

-

provided
Subsidiary

HeptaresDirect holding

Provision of

Therapeutics

100%

managementLtd.

services tosubsidiary
Debt guarantee
received

Notes:
1.

Prices and other transaction terms are determined upon discussion and agreement by the counterparties on terms equivalent
to other parties unrelated to the Company.

2.

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

3.

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

4.

At the end of the current financial year, JPY 3,318 million was set aside as an allowance for doubtful debts in respect of along-term loan receivable from a subsidiary company, Sosei Co., Ltd. During the current financial year JPY 400 million wasrecorded as an allowance for doubtful accounts for subsidiary companies.

5.

The Company has received a debt guarantee from Idorsia Pharmaceuticals Japan Ltd. for loans from financial institutions.
No guarantee fee has been received.

6.

The ending balance due to Idorsia Pharmaceuticals Japan Ltd. is the amount by which part of receivables and payables areoffset.

7.

A debt guarantee has been provided by the Company in relation to land and building lease agreements and building contracts
signed by the Company’s subsidiary, Heptares Therapeutics Ltd. No fee for the provision of the guarantees has been charged
to the subsidiary.

67

(2)

Officers and major individual shareholders

Type

Name

Voting rights

RelationshipTransaction

holdingwith related

type(held)

parties

Transaction

Account

Endingamountbalance

¥m

¥m

(%)
Officer

ShinichiDirectly

Tamuraheld

0.66

ChairmanIn-kind

209

-

-

117

-

-

contributionof monetarycompensation
claim

Officer

Christpher

Directly

Cargill

held

0.05

Director

In-kind

Representative

contribution

Executiveof monetary

Officer,compensation

President and

claim

CEO
Officer

Tomohiro

Directly

Tohyama

held

0.06

Director

In-kind

15

-

-

15

-

-

15

-

-

15

-

-

28

-

-

contributionof monetarycompensation
claim

Officer

KuniakiDirectly

Kaga

held

0.04

Director

In-kindcontributionof monetarycompensation
claim

OfficerDavid

Directly

Roblinheld

0.01

Director

In-kindcontributionof monetarycompensation
claim

Officer

NoriakiDirectly

Nagai

held

0.04

Director

In-kindcontributionof monetarycompensation
claim

Officer

Rolf

Directly

Soderstorm

held

0.02

Director

In-kindcontributionof monetarycompensation
claim

Officer

Miwa

Directly

Seki

held

0.01

Director

In-kind15

contributionof monetarycompensation
claim

Officer

Hironoshin

Directly

Nomuraheld

0.00

Executive

In-kind

Officer andcontribution

CFOof monetarycompensation
claim

68

5

Type

Name

Voting rights

RelationshipTransaction

holdingwith related

type(held)

parties

Transaction

Account

Endingamountbalance

¥m

¥m

(%)
Officer

KieranDirectly

Johnson

held

0.01

Executive

In-kind

Officer andcontribution

CAO

of monetary

23

-

-

24

-

-

13

-

-

21

-

-

compensation
claim
Officer

Kazuhiko

Directly

Yoshizumi

held

0.01

Executive

In-kind

Officer andcontribution

CCO

of monetarycompensation
claim

OfficerMatthew

Directly

Barnesheld

0.00

Executive

In-kind

Officer

contributionof monetarycompensation
claim

Officer

Candelle

Directly

Chong

held

0.01

Executive

In-kind

Officer

contributionof monetarycompensation
claim

Notes:
1. Transaction prices and other conditions are determined by reference to similar third-party contracts.
2. The in-kind contribution of monetary compensation claim relates to the Restricted Stock Units (RSUs).
9.

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

726.29(2) Net loss - per share(39.81)69

Accounting Audit Report on the Consolidated Financial Statements
This document has been translated from the Japanese original for reference purposes only. In the event ofany discrepancy between this translated document and the Japanese original, the original shall prevail.

Independent Auditor’s ReportFebruary 15, 2024

The Board of Directors
Sosei Group Corporation
Ernst & Young ShinNihon LLC
Tokyo, Japan
Kiyoto Tanaka
Designated Engagement Partner
Certified Public Accountant
Hiroyuki Nakada
Designated Engagement Partner
Certified Public Accountant
OpinionPursuant to Article 444, paragraph 4 of the Companies Act, we have audited the accompanying
consolidated financial statements, which comprise the consolidated balance sheet, the consolidated
statement of profit or loss and other comprehensive income, the consolidated statement of changes inequity, and notes to the consolidated financial statements of Sosei Group Corporation and its
consolidated subsidiaries (the Group) applicable to the fiscal year from January 1, 2023 to December
31, 2023.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the consolidated financial position and results of operations of the Group applicable to the fiscal year
ended December 31, 2023, in accordance with accounting principles that omit certain disclosure items
required under International Financial Reporting Standards, pursuant to the provision of Article 120,paragraph 1, latter clause of the Regulations on Corporate Accounting.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Auditof the Consolidated Financial Statements section of our report. We are independent of the Group inaccordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with theserequirements. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.
Other Information
The other information comprises the information included in the Group’s business report and its
supplementary schedules. Management is responsible for preparation and disclosure of the otherinformation. The Audit Committee is responsible for overseeing the Group’s reporting process of theother information.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read theother information and, in doing so, consider whether the other information is materially inconsistent with70

the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to bematerially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this otherinformation, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of Management and the Audit Committee for the Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with accounting principles that omit certain disclosure items required underInternational Financial Reporting Standards, pursuant to the provision of Article 120, paragraph 1, latter
clause of the Regulations on Corporate Accounting, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free frommaterial misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s
ability to continue as a going concern and disclosing, as required by accounting principles that omits
certain disclosure items required under International Financial Reporting Standards, pursuant to theprovision of Article 120, paragraph 1, latter clause of the Regulations on Corporate Accounting, mattersrelated to going concern and using the going concern basis of accounting unless management either
intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The Audit Committee is responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’sreport that includes our opinion. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:・ Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
・ Consider internal control relevant to the audit in order to design audit procedures that are appropriate
in the circumstances for our risk assessments, while the purpose of the audit of the consolidated
financial statements is not expressing an opinion on the effectiveness of the Group’s internal control.
・ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
・ Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Group’s ability to continue as a going concern. If weconclude that a material uncertainty exists, we are required to draw attention in our auditor’s reportto the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group to cease
to continue as a going concern.
・ Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation in accordance with accounting
principles that omits certain disclosure items required under International Financial ReportingStandards, pursuant to the provision of Article 120, paragraph 1, latter clause of the Regulations on
Corporate Accounting.
・ Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remain

71solely responsible for our audit opinion.
We communicate with the Audit Committee regarding, among other matters, the planned scope andtiming of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with the ethicalrequirements regarding independence that are relevant to our audit of the consolidated financial
statements in Japan, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate
threats or safeguards applied to reduce threats to an acceptable level.
Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan
Our firm and its designated engagement partners do not have any interest in the Group which is required
to be disclosed pursuant to the provisions of the Certified Public Accountants Act ofJapan.

72

Accounting Audit Report on the Financial Statements
This document has been translated from the Japanese original for reference purposes only. In the event ofany discrepancy between this translated document and the Japanese original, the original shall prevail.

Independent Auditor’s ReportFebruary 15, 2024

The Board of Directors
Sosei Group Corporation
Ernst & Young ShinNihon LLC
Tokyo, Japan
Kiyoto Tanaka
Designated Engagement Partner
Certified Public Accountant
Hiroyuki Nakada
Designated Engagement Partner
Certified Public Accountant
OpinionPursuant to Article 436, paragraph 2, item 1 of the Companies Act, we have audited the accompanying
non-consolidated financial statements, which comprise the non-consolidated balance sheet, the nonconsolidated statement of profit or loss, the non-consolidated statement of changes in net assets, andnotes to the non-consolidated financial statements and supplementary schedules of Sosei Group
Corporation (the Company) applicable to the 34th fiscal year from January 1, 2023 to December 31,
2023.
In our opinion, the accompanying non-consolidated financial statements present fairly, in all material
respects, the non-consolidated financial position and results of operations of the Company applicable tothe fiscal year ended December 31, 2023, in accordance with accounting principles generally acceptedin Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Auditof the Non-Consolidated Financial Statements section of our report. We are independent of the Company
in accordance with the ethical requirements that are relevant to our audit of the non-consolidated financial
statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with theserequirements. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.
Other Information
The other information comprises the information included in the Company’s business report and its
supplementary schedules. Management is responsible for preparation and disclosure of the otherinformation. The Audit Committee is responsible for overseeing the Company’s reporting process of theother information.
Our opinion on the non-consolidated financial statements does not cover the other information and we
do not express any form of assurance conclusion thereon.
In connection with our audit of the non-consolidated financial statements, our responsibility is to read theother information and, in doing so, consider whether the other information is materially inconsistent with
the non-consolidated financial statements or our knowledge obtained in the audit or otherwise appears73

to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this otherinformation, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of Management and the Audit Committee for the Non-Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation of these non-consolidated financial
statements in accordance with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of non-consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the non-consolidated financial statements, management is responsible for assessing theCompany’s ability to continue as a going concern and disclosing, as required by accounting principles
generally accepted in Japan, matters related to going concern.
The Audit Committee is responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Non-Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the non-consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Misstatements can arise from fraud or error and areconsidered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these non-consolidated financial statements.
As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:・ Identify and assess the risks of material misstatement of the non-consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
・ Consider internal control relevant to the audit in order to design audit procedures that are appropriate
in the circumstances for our risk assessments, while the purpose of the audit of the non-consolidated
financial statements is not expressing an opinion on the effectiveness of the Company’s internal
control.
・ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
・ Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Company’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the non- consolidated financial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause the Company tocease to continue as a going concern.
・ Evaluate the overall presentation, structure and content of the non-consolidated financial statements,
including the disclosures, and whether the non-consolidated financial statements represent theunderlying transactions and events in a manner that achieves fair presentation in accordance withaccounting principles generally accepted in Japan.
We communicate with the Audit Committee regarding, among other matters, the planned scope andtiming of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with the ethicalrequirements regarding independence that are relevant to our audit of the non-consolidated financial
statements in Japan, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate
threats or safeguards applied to reduce threats to an acceptable level.

74Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan
Our firm and its designated engagement partners do not have any interest in the Company whichis required to be disclosed pursuant to the provisions of the Certified Public Accountants Act ofJapan.

75

Audit Report of the Audit Committee
Audit Report

The Audit Committee of Sosei Group Corporation (the “Company”) has audited the performance of duties bydirectors and executive officers for the 34th fiscal period from January 1, 2023 to December 31, 2023. The
methods and findings are reported as follows.
1. Methods and Content of the Audit
The Audit Committee received reports from directors, executive officers and employees, etc. on a regular basisof the content of resolutions of the Board of Directors related to items provided in Article 416, Paragraph 1, Item
1 (b) and (e) of the Companies Act and of the structures and operation of the systems established in accordancewith the resolutions (internal control systems), requested explanations and expressed opinions as necessary,and conducted an audit as follows.
1) In accordance with the audit policy and the division of responsibilities, etc. determined by the Audit Committee,
each member of the Committee attended meetings of the Board of Directors and other important meetings,
received reports from directors, executive officers and others on the performance of their duties, etc., andrequested additional explanations as necessary, and reviewed the documents relating to the important
decisions, and investigated the state of the business and assets of the Company in cooperation with theInternal Audit Department. Regarding subsidiaries, the Audit Committee sought to achieve a mutual
understanding of subsidiaries, exchanged information with the directors and corporate auditors, etc. of
subsidiaries and received business reports from subsidiaries as necessary.
2) The Audit Committee monitored and verified whether the Independent Auditors maintained independence andconducted appropriate audits, received reports from the Independent Auditors on the performance of theirduties, etc., and requested explanations as necessary. Also, the Audit Committee received notification fromthe Independent Auditors that they had established the “Structure for Ensuring Appropriate Operation” (mattersprovided in each item of Article 131 of the Regulation on Accounting of Companies) in accordance with the“Quality Control Standards for Audits” (Business Accounting Council, October 28, 2005).
Based on the aforementioned methods, the Audit Committee examined the business report andsupplementary schedules thereof, non-consolidated financial statements (non-consolidated balance sheet, nonconsolidated statement of profit or loss, non-consolidated statement of changes in equity and notes thereto) andsupplementary schedules thereof, and consolidated financial statements (consolidated balance sheet,consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes inequity, and notes thereto) for the fiscal period under review.
2. Results of Audit(1) Results of audit of business report, etc.
1) The Committee found that the business report and supplementary schedules accurately present the statusof the Company in accordance with laws, regulations and the Articles of Incorporation.
2) The Committee did not find any inappropriate conduct related to the execution of duties by directors or
executive officers or any material facts indicating violation of laws and regulations or the Articles ofIncorporation.
3) The Committee found that the contents of resolutions of the Board of Directors related to the system ofinternal control to be appropriate. In addition, the Committee did not find any matter requiring it to commenton the contents of the business report or execution of duties by directors or executive officers regarding thesystem of internal control.
(2) Results of audit of non-consolidated financial statements and supplementary schedules
The Committee found that the methods and results of the audit performed by the Independent Auditors, Ernst& Young ShinNihon LLC were appropriate.
(3) Results of audit of consolidated financial statements
The Committee found that the methods and results of the audit performed by the Independent Auditors, Ernst& Young ShinNihon LLC were appropriate.
February 15, 2024

Sosei Group Corporation Audit Committee
Chair of Audit
Tomohiro Tohyama*
Committee
Member of Audit
Kuniaki Kaga*
Committee
Member of Audit
Noriaki Nagai*
Committee
Member of Audit
Rolf Soderstrom*
Committee
Member of Audit
Miwa Seki*
Committee
Note: All members of the Audit Committee are external directors as stipulated in Article 2, Item 15 and Article 400,
Paragraph 3 of the Companies Act.

76

Access to Meeting of Shareholders Venue
Shareholders are asked to consider forgoing attending the General meeting of
Shareholders and at the same time, exercise voting rights in advance as much as
possible, either by returning the voting form by post or voting on the internet.

Venue

Fuji-No-Ma Hall, 4th Floor, Hotel Grand Arc Hanzomon
1-1, Hayabusa-cho, Chiyoda-ku, Tokyo, Japan
TEL: 03-3288-0111

Access2-min. walk from Hanzomon Station (Exit 1) and3-min. walk from Hanzomon Station (Exit 6) on Hanzomon Line
8-min. walk from Kojimachi Station (Exit 1) on Yurakucho Line* We kindly ask you to refrain from coming by car since parking lots are not available.