Disclaimer: This translation is prepared and provided for readers’ convenience only. This summary does not constitute any
guarantee, and the Company will not compensate any losses and/or damage stemming from actions taken based on thesestatements. In the case that there is any discrepancy between the Japanese and English versions, the Japanese version is assumed
to be correct.

February 14, 2022

Summary of Consolidated Financial Results
for the Fiscal Year Ended December 31, 2021 (JGAAP)
Listed company’s name: RaQualia Pharma Inc.
Listed on:
Tokyo Stock Exchange (TSE)
Stock code:
4579
URL:
https://www.raqualia.com/
Representative:
Hirobumi Takeuchi, President and CEO
Contact:
Hidefumi Sugiyama, General Manager, Finance & Accounting Dept.
Scheduled date of general meeting of shareholders: March 25, 2022
Scheduled date of dividend payment:―
Scheduled date of filing of securities report:
March 28, 2022
Supplementary documents for financial results:
Yes
Financial results briefing:
Yes(TEL) +81-52-446-6100(Amounts are rounded down to the nearest million yen.)

1. Consolidated financial results for the fiscal year ended December 31, 2021 (January 1, 2021 to December 31, 2021)(1) Consolidated operating results(Percentage figures represent changes from the previous fiscal year.)Net sales
Fiscal year ended
December 31, 2021
December 31, 2020

Operating profit

Profit attributable toowners of parent

Ordinary profit

million yen%

million yen%

million yen%

million yen

%

2,776
1,107

150.7
(35.0)

707
(486)

–
–

863
(527)

–
–

755
(606)

–
–

Note: Comprehensive income

Fiscal year ended December 31, 2021:
Fiscal year ended December 31, 2020:

Earnings per share(Basic)Earnings per share(Diluted)

774 million yen(610) million yen

Ordinary profit/ total Operating profit/ net
assetssales

Profit/equity

Fiscal year endedyen
yen
December 31, 2021
36.07
36.04
December 31, 2020
(28.97)–
Reference: Share of (profit) loss of entities accounted for using equity method:
Fiscal year ended December 31, 2021:
Fiscal year ended December 31, 2020:

[–%]
[–%]

%

%

%

17.2
(14.1)

18.2(11.6)

25.5(43.9)– million yen– million yen(2) Consolidated financial position
Total assets

Net assets

As ofmillion yen
December 31, 2021
5,234
December 31, 2020
4,251
Reference: Equity As of December 31, 2021: 4,777 million yen

Equity ratio

Net assets per share

million yen

%

yen

4,788
91.3
4,011
94.1
As of December 31, 2020: 3,999 million yen

227.97190.88(3) Consolidated cash flows
Cash flows fromoperating activities
Fiscal year ended
December 31, 2021
December 31, 2020

Cash flows frominvesting activities

Cash flows fromfinancing activities

Cash and cash equivalents
at end of period

million yen

million yen

million yen

million yen

366
(289)

(279)
225

(16)
(6)

2,240
2,061

2.

Dividends
Annual dividends per share
First
SecondThird
Fiscal yearquarter-end quarter-end quarter-end
end
yen

Fiscal year ended
December 31, 2020
Fiscal year ended
December 31, 2021
Fiscal year ending
December 31, 2022
(forecast)
3.

yen

yen

Total cash
dividends(Total)

Total

yen

yen

million yen

Ratio of
Dividend
dividends topayout ratio
net assets(Consolidated)(Consolidated)
%

%

–

0.00

–

0.00

0.00

–

–

–

–

0.00

–

0.00

0.00

–

–

–

–

0.00

–

0.00

0.00

–

Forecasts of consolidated financial results for the fiscal year ending December 31, 2022 (January 1, 2022 to December 31,
2022)(Percentage figures represent changes from the previous fiscal year.)Net sales

Operating profit

million yen%

million yen

Profit attributable to Earnings perowners of parent
share (Basic)

Ordinary profit%

million yen%

million yen%

yen

Fiscal year ending
2,605
(6.2)
420 (40.6)
420 (51.3)
342 (54.7)
16.34
December 31, 2022
Note: As the Company conducts performance management on an annualized basis, forecasts of results over a six-month period are
not presented.
* Notes(1) Changes in significant subsidiaries during the fiscal year ended December 31, 2021 (changes in specified subsidiaries resulting
in the change in scope of consolidation): None
(2) Changes in accounting policies, changes in accounting estimates, and restatements of prior financial statements
a. Changes in accounting policies due to the revisions to accounting standards and other regulations: Noneb. Changes in accounting policies due to other reasons: Nonec. Changes in accounting estimates: None
d. Restatements of prior financial statements: None
(3) Number of issued shares (common shares)
a. Total number of issued shares at the end of the period (including treasury shares)
As of December 31, 2021

20,955,142 shares

As of December 31, 2020

20,951,642 sharesb. Total number of treasury shares at the end of the period
As of December 31, 2021

50 shares

As of December 31, 2020

50 sharesc. Average number of outstanding shares during the period
For the fiscal year ended December 31, 2021

20,953,020 shares

For the fiscal year ended December 31, 2020

20,950,654 shares(Reference) Overview of non-consolidated financial results
Non-consolidated financial results for the fiscal year ended December 31, 2021 (January 1, 2021 to December 31, 2021)(1) Non-consolidated operating results(Percentage figures represent changes from the previous fiscal year.)Net sales
Fiscal year ended
December 31, 2021
December 31, 2020

Operating profit

Profit%million yen%

million yen%

million yen

%

2,361
1,099

134.0
(40.2)

505
(512)

–
–

656
(550)

–
–

614
(654)

–
–

Earnings per share(Basic)Fiscal year ended
December 31, 2021
December 31, 2020

Ordinary profit

million yen

Earnings per share(Diluted)

yen

yen

29.34
(31.26)29.31–

(2) Non-consolidated financial position
Total assets
Net assets
Equity ratio
Net assets per share
As ofmillion yen
million yen%
yen
December 31, 2021
5,210
4,777
91.5
227.47
December 31, 2020
4,367
4,141
94.6
197.12
Reference: Equity As of December 31, 2021: 4,766 million yen As of December 31, 2020: 4,129 million yen* Financial results reports are exempt from audit conducted by certified public accountants or an audit corporation.
* Appropriate use of financial forecasts and other special remarks(Caution concerning forward-looking statements)
Forward-looking statements provided in this document, including financial forecasts, are based on the information currently
available to the Company and certain assumptions considered reasonable. Such statements are included without any guarantee asto their future achievement. Actual results, etc. may differ materially from the forecasts depending on various factors.
(Method of accessing supplementary documents for financial results and details of financial results briefing)
The Company plans to hold financial results briefings for institutional investors and securities analysts on Tuesday, February 15,2022 and for general investors on Wednesday, February 16, 2022.
The Company plans to post the documents used at the briefings on its website promptly after the briefings are held.

Contents of attachment
1.

Overview of consolidated operating results and others ................................................................................................ 2(1) Overview of consolidated operating results for the fiscal year under review ........................................................... 2(2) Overview of consolidated financial position for the fiscal year under review.......................................................... 6(3) Overview of cash flows for the fiscal year under review ......................................................................................... 6(4) Outlook for the fiscal year ending December 31, 2022 ............................................................................................ 7

2.

Basic rationale for selecting the accounting standard .................................................................................................. 73.

Consolidated financial statements and significant notes thereto .................................................................................. 8(1) Consolidated balance sheet ....................................................................................................................................... 8(2) Consolidated statement of income and consolidated statement of comprehensive income .................................... 10
Consolidated statement of income .......................................................................................................................... 10
Consolidated statement of comprehensive income ................................................................................................. 11(3) Consolidated statement of changes in equity .......................................................................................................... 12(4) Consolidated statement of cash flows ..................................................................................................................... 14(5) Notes to consolidated financial statements ............................................................................................................. 16
Notes on premise of going concern ........................................................................................................................ 16
Segment information, etc. ....................................................................................................................................... 16
Per share information.............................................................................................................................................. 17
Significant subsequent event .................................................................................................................................. 18

-1-

1.

Overview of consolidated operating results and others(1) Overview of consolidated operating results for the fiscal year under review
Overall trend
During the fiscal year ended December 31, 2021, although some positive effects of monetary easing were seen in the form of anactive financial market, the global spread of the novel coronavirus (COVID-19) continued, and the outlook for the Japanese
economy remains challenging due to the global slowdown in economic activities with renewed spread caused by the emergenceof variants.
In the pharmaceutical industry, in addition to the impact on sales activities from suppression of medical examinations for patientsand refraining from visiting customers, among others, the impact on research and development and business development
activities caused by voluntarily avoiding domestic business trips, the effective prohibition of overseas travel, and the shutdownof clinical trial facilities in line with movement restrictions, remained. While some companies are experiencing challenging
financial results, initiatives to develop new drugs and vaccines targeting COVID-19 are active, and competition over thedevelopment of new vaccines and therapeutic agents is accelerating.
Such industry trends as these had no small impact on the business development activities of drug discovery startups, like theGroup, that operate a drug discovery business.
Under such conditions, the Group pursued activities to create development candidate compounds for pharmaceuticals based oninternal, independent research or collaborative research with partner companies or academies and to expand its research anddevelopment portfolio, while also promoting licensing activities for development candidate compounds it owns and researchand development to enhance value.
Accordingly, business activities for the fiscal year under review were as follows.
Regarding human drug products, sales of K-CAB® (generic name: tegoprazan)—a drug for gastro-esophageal reflux disease
marketed by HK inno.N Corporation (South Korea, “HK inno.N (South Korea)”)—in South Korea performed well overall fromlast year through this year.
The first quarter of the fiscal year under review was impacted by inventory adjustments, but the Company saw expanded growthfrom the second quarter onward, and sales royalty income of the Company experienced a large increase.
Regarding the global development of tegoprazan, in China, HK inno.N (South Korea)’s Chinese licensee Shandong Luoxin
Pharmaceutical Group Co., Ltd. (China, “Luoxin Pharma (China)”) is in the process of approval review by the Chinese authority
based on a New Drug Application (“NDA”) filed in 2020. HK inno.N (South Korea) expects that target period to receive approvalin China for tegoprazan is the first half of 2022.
In the U.S. and Canada, HK inno.N (South Korea) began Phase I clinical trials in the U.S. and concluded a sublicense agreementwith Braintree Laboratories, Inc. (U.S., “Braintree (U.S.)”) in December 2021.
In Asian countries, in addition to receiving approval in Mongolia, preparations to file NDA in the Philippines, Thailand, Vietnam,
Singapore, and Indonesia are underway at sublicensee companies.
Furthermore, in Central and South American countries, tegoprazan has passed the screening of the Comité de Moléculas Nuevas,
one organization involved in pharmaceutical approval and screening in Mexico, and preparations aimed at receiving approvalin fiscal year 2023 are currently underway at sublicensee companies.
Additionally, based on its goal of expanding into 100 global countries by 2028, HK inno.N (South Korea) is moving forwardwith its search for sublicensee in other regions.
Meanwhile, in Japan, the Company is examining several possibilities to implement clinical development aiming for an earlymarket launch, including the way to build a cooperative relationship between the Company and HK inno.N (South Korea).
With regard to pet drugs, sales were strong overall.
Solid sales were seen in GALLIPRANT® (generic name: grapiprant), which is a drug for osteoarthritis in dogs, and capromorelin(Ghrelin receptor agonist/brand name: ENTYCE®), which has an indication for anorexia management for dogs, both of whichwere licensed to Elanco Animal Health Inc. (U.S., “Elanco (U.S.)”). Furthermore, regarding capromorelin, Elanco (U.S.)
launched sales in the U.S. under the brand name ELURA® as a drug for the management of weight loss in cats with chronic
kidney disease (CKD).
Regarding ion channel drug discovery, in which the Group aims to develop strengths, the following four programs have been
making steady progress: a P2X7 receptor antagonist (RQ-00466479/AK1780) discovered through collaborative research with
Asahi Kasei Pharma Corporation (“Asahi Kasei Pharma”), a compound discovered through collaborative research with EA
Pharma Co., Ltd. (“EA Pharma”), a selective sodium channel blocker licensed to Maruho Co., Ltd. (“Maruho”), and acollaborative research project with ASKA Pharmaceutical Co., Ltd. (“ASKA Pharmaceutical”).
-2-While there was a delay in the implementation of the trials due to the impact of COVID-19, the Company received milestone
income from Asahi Kasei Pharma and Maruho in the first quarter, as the programs achieved the predetermined results. With
regard to the P2X7 receptor antagonist, a license agreement was concluded between Asahi Kasei Pharma and Eli Lilly andCompany (U.S., “Lilly (U.S.)”), and as a result, it means the Company has licensed it to Lilly (U.S.) through Asahi Kasei Pharma.
P2X7 receptors have been implicated in neuroinflammation, a driving force in chronic pain conditions, and Lilly (U.S.) is
preparing to launch Phase II clinical trials aimed at future global development.
Collaborative research with ASKA Pharmaceutical is proceeding smoothly, and in addition to receiving an upfront payment inJuly 2021 for achieving milestones, the Company concluded a new collaborative research agreement with ASKA Pharmaceuticalin November 2021.
In addition, in the third quarter ended September 30, 2021, the Company concluded a license agreement with Xgene
Pharmaceutical Co. Ltd. (Hong Kong, China, “Xgene (Hong Kong)”) regarding a TRPM8 blocker with the aim of developing adrug for the treatment of chronic pain. The Company has granted Xgene (Hong Kong) an exclusive global license fordevelopment, manufacture and marketing excluding Japan, and going forward, Xgene (Hong Kong) will be responsible fordevelopment beyond the preclinical phase.
Additionally, in December 2021, the Company concluded a license agreement with Hisamitsu Pharmaceutical Co., Inc.
(“Hisamitsu Pharmaceutical”) for a sodium channel blocker (RQ-00350215) with the aim of developing a drug for the treatmentof chronic pain. The Company has granted Hisamitsu Pharmaceutical an exclusive global license for development, manufacture
and marketing, and going forward, Hisamitsu Pharmaceutical is moving forward with trials in the preclinical phase and beyond
with the aim of developing transdermal drugs, one of its strengths.
Regarding the retinoic acid receptor alpha agonist (tamibarotene/TM-411/SY-1425) licensed to Syros Pharmaceuticals Inc. (U.S.,“Syros (U.S.)”) by the Company’s consolidated subsidiary TMRC Co., Ltd. (“TMRC”), Phase III clinical trials (SELECT-MDS1) began in the U.S. in the first quarter for RARA-positive newly diagnosed patients with HR-MDS (higher-risk myelodysplastic
syndrome). In the third quarter, Phase II clinical trials (SELECT-AML-1) of a combination with venetoclax and azacitidine for
RARA-positive newly diagnosed unfit patients with acute myeloid leukemia (AML) also began in the U.S. With the achievementof these milestones, TMRC received milestone income.
Regarding activities for the licensing of development candidate compounds and collaborative research, opportunities for faceto-face meetings continue to be limited due to COVID-19, but business development activities and collaborative research havesteadily progressed while utilizing online conferencing.
Regarding industry-academia collaboration, based on the basic agreement on industry-academia collaboration concluded in
October 2020, on April 1, 2021, the Company established a collaborative research chair with Gifu Pharmaceutical University(chair name: Joint Research Chair of Innovative Drug Discovery). This is the first collaborative research chair established at
Gifu Pharmaceutical University.
Meanwhile, the Company’s consolidated subsidiary, RaQualia Innovations Inc., deemed that continuing business in the recent
management environment would be difficult, deciding to dissolve the company on January 22, 2021 and to liquidate it on April
1.
A new management system including a change of Representative Director was adopted as shareholder proposals were approved
and adopted at the 13th Ordinary General Meeting of Shareholders held on March 25, 2021, and the Group is moving forwardwith policies focused on expanding the Group seeds to enhance corporate value and to maximize value.
In response to the market restructuring being planned by the Tokyo Stock Exchange, Inc. for April 4, 2022, the Group has
selected “Growth Market” as its new market segment and has completed procedures for market selection.
Accordingly, financial results for the fiscal year ended December 31, 2021, the reporting period, were as follows. Businessrevenue for the year was 2,776 million yen (up 150.7% year on year), operating profit totaled 707 million yen (compared with
operating loss of 486 million yen a year earlier), ordinary profit totaled 863 million yen (compared with ordinary loss of 527
million yen a year earlier), and profit attributable to owners of parent was 755 million yen (compared with loss attributable toowners of parent of 606 million yen a year earlier).
Total business expenses were 2,068 million yen (up 29.8% year on year). In terms of the breakdown of this total, royalty
payments of 304 million yen (up 125.8% year on year) were posted to cost of business revenue of 320 million yen (up 132.4%
year on year), in addition to which research and development expenses were 1,127 million yen (up 20.9% year on year) andother selling, general and administrative expenses came to 620 million yen (up 18.6% year on year).

-3-

Research and development activities
Research and development expenses of the Group during the fiscal year ended December 31, 2021 were 1,127 million yen. The
main components of these activities were as follows:
RaQualia’s research and development and collaborative research(A) Exploratory and discovery phasea)Project of sodium channel blocker
In the project of sodium channel blocker, as a result of the characterization of compounds, RQ-00350215 was selected
and licensed to Hisamitsu Pharmaceutical based on the license agreement concluded in December 2021. As a result,the project moved from the exploratory and discovery phase to the preclinical development preparation phase.
b)Collaborative research with companies
Collaborative research implemented with companies in the fiscal year under review is as follows.
Company
Start dateContentc)

Interprotein Corporation

February 2013

Collaborative research on a specific protein-protein
interaction (PPI) inhibitor for pain treatments

ASKA Pharmaceutical Co., Ltd.

July 2019

Collaborative research with respect to drug
discovery research targeting at a specific ion channel

Epigeneron, Inc.

September 2019

Collaborative research for the creation of drugs fortreating idiopathic pediatric nephrotic syndrome

Collaborative research with academia
In the research project into corticotropin-releasing hormone receptor 2 (CRHR2) antagonist carried out in collaboration
with the Department of Cardiology of the Faculty of Internal Medicine, Graduate School of Medicine, Nagoya
University (under the supervision of Professor Toyoaki Murohara and Associate Professor Mikito Takefuji) to create
new drugs for heart failure, the Company is conducting research activities using a series of compounds such as RQ00490721, aiming to move to the preclinical stage.
Additionally, in collaboration with the National Research Center for the Control and Prevention of Infectious Diseases
Nagasaki University/Department of Emerging Infectious Diseases, Institute of Tropical Medicine, Nagasaki
University (under the supervision of Professor Jiro Yasuda and Assistant Professor Yasuteru Sakurai) and Gifu
Pharmaceutical University, the Company conducted drug discovery research mainly for indication of COVID-19 andretinal vein occlusion, respectively.

(B) Preclinical development phasea)
TRPM8 blocker (RQ-00434739)
This compound had been under development for the target indication of neuropathic pain (chemotherapy-induced cold
allodynia) and, based on a license agreement concluded in September 2021, it was licensed to Xgene (Hong Kong),
which is moving forward with preclinical trials.
b)

Ghrelin receptor agonist (RQ-00433412)
The compound is under development for the target indication of cancer-related anorexia/cachexia syndrome andconstipation resulting from spinal cord injury. The manufacturing of APIs for preclinical study has been completed,and preclinical study began in the fourth quarter.

c)Motilin receptor agonist (RQ-00201894)
The compound is under development for the target indication of gastrointestinal dysmotility including gastroparesis,
functional dyspepsia, and post-operative ileus, and the preclinical studies required for Phase I clinical trials have been
completed. In addition to promoting licensing activities, the Company is examining conducting Phase I clinical trials,
the next development phase.

(C) Clinical development phasea)
Potassium-competitive acid blocker (RQ-00000004, tegoprazan)
Regarding the compound for the target indication of gastro-esophageal reflux disease (GERD), the Company
completed the Phase I clinical trials in the U.S. and Japan. In Japan, the Company is examining all possibilities toimplement clinical development aiming for an early market launch, including the way to build a cooperative
relationship with HK inno.N (South Korea).
b)

5-HT4partial agonist (RQ-00000010)
Regarding the compound for the target indication of gastrointestinal dysmotility including gastroparesis, functional
dyspepsia, and chronic constipation, and in addition to moving forward with licensing activities, the Company is
examining conducting Phase II clinical trials, the next development phase.

c)5-HT2B antagonist (RQ-00310941)
Regarding the compound for the target indication of irritable bowel syndrome with diarrhea (IBS-D), and Phase I
clinical trials (for healthy adults and patients) have been completed in the U.K. For this compound also, like other-4-gastrointestinal system disease programs, the Company is moving forward with licensing activities and examining
conducting Phase II clinical trials, the next development phase.
<Status of development at licensee corporation>a)tegoprazan (K-CAB®, RQ-00000004/IN-12420/LXI-15028)
This compound, which is sold as a drug for gastro-esophageal reflux disease, etc., by HK inno.N (South Korea) inSouth Korea, became covered by health insurance in South Korea as a gastric ulcer treatment in November 2021. Thisis the third application of the drug, after erosive gastro-esophageal reflux disease and non-erosive gastro-esophageal
reflux disease. Additionally, HK inno.N (South Korea) is planning to apply to the South Korean Ministry of Food andDrug Safety (“MFDS”) for an additional indication as a maintenance treatment for patients with cured erosive gastroesophageal reflux disease.
In China, HK Inno.N (South Korea)’s Chinese sublicensee Luoxin Pharma (China) is in the process of review for
approval by the Chinese authority, based on NDA which was filed with the Chinese authority in 2020.
Furthermore, in addition to beginning Phase I clinical trials in the U.S., in December 2021, HK inno.N (South Korea)
concluded a sublicense agreement with Braintree (U.S.) for the U.S. and Canadian regions.
b)

EP4 antagonist (GALLIPRANT®, grapiprant)This compound is currently being sold as a pain management for dogs by Elanco (U.S.). Since its launch in the U.S.
in January 2017, the compound has been launched in over 20 countries around the world and is also being sold inJapan since October 2020.

c)

Ghrelin receptor agonist (ENTYCE®, ELURA®, capromorelin)This compound has been sold in the U.S. as a treatment for anorexia in dogs by Elanco (U.S.), and sales were launchedunder the brand name ELURA® in the U.S. by Elanco (U.S.) as a drug for the management of weight loss in cats withchronic kidney disease (CKD).

d)Serotonin 5-HT2A and dopamine D2 receptor blocker (ziprasidone)
Regarding this compound which was licensed out as a treatment for schizophrenia, the development plan and strategy
going forward were discussed at Meiji Seika Pharma Co., Ltd.

e)

EP4 antagonist (RQ-00000007/AAT-007, grapiprant)
AskAt Inc. (“AskAt”)’s sublicensee Ikena Oncology Inc. (U.S.) is conducting Phase I clinical trials in the U.S. as acancer immunotherapy.
In addition, AskAt’s licensee 3D Medicines Co., Ltd. (China, “3DM (China)”) completed Phase I clinical trials in
China for the indication of pain, and Ningbo NewBay Medical Technology Development Co., Ltd. (China), another
AskAt’s licensee, is conducting Phase I clinical trials in China in the area of oncology.

f)

Cyclooxygenase-2 (COX-2) inhibitor (RQ-00317076, AAT-076)
AskAt’s licensee 3DM (China) is conducting Phase I clinical trials in China for the indication of pain.

g)

CB2 agonist (RQ-00202730/AAT-730)
AskAt’s licensee Oxford Cannabinoid Technologies Ltd. (U.K.) is conducting preclinical development in the U.S.

h)Development candidate compound for a specific ion channel target (no compound code disclosed)
Development on this compound, which was created through collaborative research with EA Pharma, is proceeding at
EA Pharma.

i)

Selective sodium channel blocker (no compound code disclosed)
The compound was licensed to Maruho, which is proceeding with development of a therapeutic agent using thecompound as an active ingredient. The compound has already achieved its predetermined results in the fiscal year.

j)

P2X7 receptor antagonist (RQ-00466479/ AK1780)
Phase I clinical trials for the target indication of neuropathic pain for this compound, which was created throughcollaborative research with Asahi Kasei Pharma, have been completed by Asahi Kasei Pharma. In January 2021, a
sublicense agreement was concluded with Asahi Kasei Pharma and Lilly (U.S.), and preparations by Lilly (U.S.) are
underway to begin Phase II clinical trials for future global development.

k)Retinoic acid receptor alpha agonist (tamibarotene, TM-411/SY-1425)
Regarding the compound that the consolidated subsidiary of the Company TMRC has licensed to Syros (U.S.), Syros(U.S.) is conducting Phase III clinical trials for RARA-positive newly diagnosed patients with HR-MDS and Phase II
clinical trials of a combination with venetoclax and azacitidine for RARA-positive newly diagnosed unfit patients with
AML in the U.S.

-5-

(2) Overview of consolidated financial position for the fiscal year under review
AssetsTotal assets as of December 31, 2021 were 5,234 million yen, an increase of 982 million yen (up 23.1%) from the end of theprevious fiscal year. This is mainly attributable to an increase in cash and deposits of 951 million yen, an increase in accounts
receivable - trade of 674 million yen, a decrease in securities of 405 million yen, and a decrease in investment securities of
149 million yen.
Liabilities
Total liabilities as of December 31, 2021 were 446 million yen, an increase of 206 million yen (up 85.8%) from the end of
the previous fiscal year. This is mainly attributable to an increase in accounts payable - other of 60 million yen, an increase
in income taxes payable of 59 million yen, and an increase in accrued consumption taxes of 37 million yen.
Net assets
Total net assets as of December 31, 2021 were 4,788 million yen, an increase of 776 million yen (up 19.4%) from the endof the previous fiscal year. This is mainly attributable to the recording of profit attributable to owners of parent of 755 million
yen.
Consequently, the equity ratio was 91.3% (down 2.8 percentage points from the end of the previous fiscal year).
(3) Overview of cash flows for the fiscal year under review
The balance of cash and cash equivalents (“net cash”) as of December 31, 2021 amounted to 2,240 million yen, an
increase of 179 million yen (up 8.7%) from the end of the previous fiscal year.
The respective cash flows in the fiscal year under review and the factors thereof are as follows.
Cash flows from operating activities
Net cash provided by operating activities was 366 million yen, an increase of 655 million yen (compared with net cash of
289 million yen used a year earlier). This is mainly attributable to the recording of profit before income taxes of 880 million
yen and depreciation of 141 million yen, and a cash outflow from an increase in trade receivables of 674 million yen.
Cash flows from investing activities
Net cash used in investing activities was 279 million yen, an increase of 504 million yen (compared with net cash of 225
million yen provided a year earlier). This is mainly attributable to purchase of securities of 200 million yen, purchase ofinvestment securities of 200 million yen, and proceeds from sales of investment securities of 221 million yen.
Cash flows from financing activities
Net cash used in financing activities was 16 million yen, an increase of 9 million yen (up 136.2% year on year). This ismainly attributable to repayments of lease obligations of 18 million yen.
(Reference) Trend in cash flow-related indicators
Fiscal year

Fiscal year

Fiscal year

Fiscal year

Fiscal year

ended
December 31,

ended
December 31,

ended
December 31,

ended
December 31,

ended
December 31,

2017

2018

2019

2020

2021

Equity ratio (%)

96.2

94.9

95.3

94.1

91.3

Market value equity ratio (%)

941.8

541.9

580.9

492.8

470.0

Interest-bearing debt to cash flow
ratio (years)

–

–

–

–

0.1

Interest coverage ratio (factor)

–

–

–

–

252

Equity ratio: equity / total assets
Market value equity ratio: market capitalization / total assets
Interest-bearing debt to cash flow ratio: interest-bearing debt / cash flow
Interest coverage ratio: cash flow / paid interest
Note 1. Interest-bearing debt to cash flow ratio and interest coverage ratio from the fiscal year ended December 31, 2017
to the fiscal year ended December 31, 2020 are not provided since operating cash flow was a minus figure.

-6-(4) Outlook for the fiscal year ending December 31, 2022
For the next fiscal year (the fiscal year ending December 31, 2022), the Company expects to receive steady royalty income
from tegoprazan— a gastro-esophageal reflux disease treatment, GALLIPRANT®—a drug for osteoarthritis in dogs, and
ENTYCE®—a treatment for anorexia in dogs. The Company also expects to earn upfront payments associated with outlicensing and milestone income associated with development progress of out-licensed development candidate compounds.
For tegoprazan, the Company expects that its sublicensee company Luoxin Pharma (China) receives approval and launches
sales in China in 2022.
On the research and development front, in addition to proceeding with projects based on the Company’s own drug discovery
research and development at both the exploratory and discovery stage and the development stage, the Company will continue
to work on raising corporate value by promoting collaborative research with academia and pharmaceutical companies,
amongst others.
As for the outlook of consolidated financial results for the fiscal year ending December 31, 2022, the Group forecasts
business revenue of 2,605 million yen, operating profit of 420 million yen, ordinary profit of 420 million yen and profit
attributable to owners of parent of 342 million yen.
The forecast figures presented above are based on the information currently available to the Group and certain assumptions
considered reasonable. Such statements are included without any guarantee as to their future achievement. Actual results,
etc., may differ materially from the forecasts depending on various factors. In the case where the Group acknowledges theneed to revise the financial forecasts, it will disclose such information promptly.
2.

Basic rationale for selecting the accounting standard
The Group has adopted Japanese accounting standards to ease the cost, etc., of parallel disclosure of reporting under both
Japanese accounting standards and international financial reporting standards (IFRS).
The Group does not have plans to adopt IFRS as of the end of the fiscal year under review; however, its policy is to respond
appropriately to the situation in Japan and overseas with regard to adoption trends by other companies in the industry.

-7-

3.

Consolidated financial statements and significant notes thereto(1) Consolidated balance sheet(Thousands of yen)
As of December 31, 2020
AssetsCurrent assets
Cash and deposits
Accounts receivable - trade
Securities
Supplies
Advance payments to suppliers
Prepaid expenses
Other
Total current assets
Non-current assets
Property, plant and equipment
Buildings
Tools, furniture and fixtures
Leased assets
Accumulated depreciation
Total property, plant and equipment
Intangible assets
Trademark right
Software
Other
Total intangible assets
Investments and other assets
Investment securities
Long-term prepaid expenses
Deferred tax assets
Other
Total investments and other assets
Total non-current assets
Total assets-8-

As of December 31, 2021

1,394,128
530,818
719,418
6,540
36,41250,24396,671
2,834,232

2,345,306
1,205,401
313,807
10,547
15,93990,382
22,3904,003,775

153,242871,764
49,069(741,109)
332,967

154,158
944,383
59,772(858,924)
299,389

4,439
27,927639
33,005

3,839
29,227731
33,7991,037,601
10
2,959
10,457
1,051,029
1,417,002
4,251,235

887,932
140–
9,160
897,233
1,230,422
5,234,197

(Thousands of yen)
As of December 31, 2020
Liabilities
Current liabilities
Accounts payable - trade
Lease obligations
Accounts payable - otherAccrued expenses
Income taxes payable
Accrued consumption taxes
Deposits received
Other
Total current liabilities
Non-current liabilities
Lease obligations
Asset retirement obligations
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Capital surplus
Retained earnings
Treasury shares
Total shareholders’ equity
Accumulated other comprehensive income
Valuation difference on available-for-salesecurities
Total accumulated other comprehensive income
Share acquisition rights
Total net assets
Total liabilities and net assets-9-

As of December 31, 2021

41,83018,281
52,66649,86820,882–
3,133–
186,662

45,996
21,547112,768
63,00480,40537,47528,884
10,442400,524

27,23812,031
14,17353,443
240,106

17,52012,12916,01845,668446,1932,255,401
2,445,184(706,157)(21)
3,994,407

2,256,920
2,446,703
49,631(21)
4,753,234

4,809

23,9194,809
11,912
4,011,129
4,251,235

23,91910,8504,788,004
5,234,197

(2) Consolidated statement of income and consolidated statement of comprehensive income
Consolidated statement of income(Thousands of yen)
Fiscal year ended
December 31, 2020
Business revenue
Business expenses
Cost of business revenue
Research and development expenses
Other selling, general and administrative expenses
Total business expenses
Operating profit (loss)
Non-operating income
Interest income
Interest on securities
Foreign exchange gains
Gain on valuation of compound financial
instruments
Subsidy income
Other
Total non-operating income
Non-operating expenses
Interest expenses
Foreign exchange losses
Share issuance costs
Loss on valuation of derivatives
Settlement package
Other
Total non-operating expenses
Ordinary profit (loss)
Extraordinary income
Gain on sale of non-current assets
Gain on sale of investment securities
Gain on redemption of investment securities
Total extraordinary income
Extraordinary losses
Impairment losses
Loss on sale of investment securities
Loss on redemption of investment securities
Total extraordinary losses
Profit (loss) before income taxes
Income taxes - current
Income taxes - deferred
Total income taxes
Profit (loss)
Profit attributable to non-controlling interests
Profit (loss) attributable to owners of parent- 10 -

Fiscal year ended
December 31, 2021

1,107,301

2,776,233

138,012932,451
522,915
1,593,379(486,078)

320,674
1,127,397
620,301
2,068,373
707,860

3,593
28,144–

1,775
21,074
145,688

810

50

1,500
613
34,6605,785
2,967
177,340436
75,645154––
076,237(527,654)

1,454
–
120
10,0799,600–
21,254
863,946

750
8,430
–
9,180

–
14,364
2,267
16,632

2,542
348
6,575
9,466
(527,941)
84,469(5,425)79,044(606,985)–(606,985)––––
880,579
122,047
2,742
124,790755,788–755,788

Consolidated statement of comprehensive income(Thousands of yen)
Fiscal year ended
December 31, 2020
Profit (loss)
Other comprehensive income
Valuation difference on available-for-sale securities
Total other comprehensive income
Comprehensive income
Comprehensive income attributable toComprehensive income attributable to owners ofparentComprehensive income attributable to noncontrolling interests- 11 -

Fiscal year ended
December 31, 2021

(606,985)

755,788(3,096)(3,096)(610,082)

19,11019,110774,899(610,082)

774,899––

(3) Consolidated statement of changes in equity
Fiscal year ended December 31, 2020
(Thousands of yen)
Shareholders’ equity
Capital surplus

Retained earnings

Treasury shares

Total shareholders’equity2,254,943

2,444,726(99,172)(21)

4,600,476

458

458

Share capital
Balance at beginning of
periodChanges during period
Issuance of new shares

916

Loss attributable toowners of parent
Net changes in items
other thanshareholders’ equity
Total changes during
periodBalance at end of period(606,985)(606,985)
–

458

458

(606,985)–(606,068)

2,255,401

2,445,184(706,157)(21)

3,994,407

Accumulated other comprehensive income
Valuation difference on
available-for-salesecurities
Balance at beginning of
period7,906

Total accumulated
other comprehensive
incomeShare acquisition rights

7,906

12,265

Total net assets

4,620,647

Changes during period
Issuance of new shares–

916

Loss attributable toowners of parent–(606,985)

Net changes in items
other thanshareholders’ equity
Total changes during
periodBalance at end of period(3,096)(3,096)(352)(3,449)(3,096)(3,096)(352)(609,518)

4,809

4,809

11,912

4,011,129- 12 -

Fiscal year ended December 31, 2021
(Thousands of yen)
Shareholders’ equity
Capital surplus

Retained earnings

Treasury shares

Total shareholders’equity2,255,401

2,445,184(706,157)(21)

3,994,407

1,519

1,519

Share capital
Balance at beginning of
periodChanges during period
Issuance of new shares

3,038

Loss attributable toowners of parent
Net changes in items
other thanshareholders’ equity
Total changes during
periodBalance at end of period

755,788755,788
–

1,519

1,519

755,7882,256,920

2,446,703

49,631

758,827(21)

Accumulated other comprehensive income
Valuation difference on
available-for-salesecurities
Balance at beginning of
period4,809

Total accumulated
other comprehensive
incomeShare acquisition rights

4,809

11,912

Total net assets

4,011,129

Changes during period
Issuance of new shares

–

3,038

Loss attributable toowners of parent–

755,788

Net changes in items
other thanshareholders’ equity
Total changes during
periodBalance at end of period

19,11019,110(1,062)

18,048

19,11019,110(1,062)776,875

23,91923,91910,8504,788,004- 13 -

4,753,234

(4) Consolidated statement of cash flows(Thousands of yen)
Fiscal year ended
December 31, 2020
Cash flows from operating activities
Profit (loss) before income taxes
Depreciation
Impairment losses
Interest income
Interest income on securities
Interest expenses
Foreign exchange losses (gains)
Loss (gain) on valuation of compound financial
instruments
Subsidy income
Loss (gain) on valuation of derivatives
Settlement package
Share issuance costs
Loss (gain) on sale of investment securities
Loss (gain) on sale of non-current assets
Loss (gain) on redemption of investment securities
Decrease (increase) in trade receivables
Decrease (increase) in inventories
Increase (decrease) in trade payables
Decrease (increase) in advance payments to suppliers
Decrease (increase) in prepaid expenses
Decrease (increase) in accounts receivable - other
Decrease (increase) in consumption taxes refund
receivable
Increase (decrease) in accrued consumption taxes
Increase (decrease) in accounts payable - other
Increase (decrease) in accrued expenses
Increase (decrease) in income taxes payable - factor
based tax
Increase (decrease) in deposits received
Other, net
SubtotalInterest and dividends received
Interest paid
Subsidies received
Income taxes paid
Settlement package paid
Net cash provided by (used in) operating activities
Cash flows from investing activities
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of securities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of intangible assets
Purchase of investment securities
Proceeds from sale of investment securities
Proceeds from redemption of investment securities
Other, net
Net cash provided by (used in) investing activities- 14 -

Fiscal year ended
December 31, 2021

(527,941)
124,255
2,542(3,593)(28,144)436
67,613

880,579
141,555–(1,775)(21,074)
1,442(113,901)

(810)

(50)

(1,500)––154(8,081)(750)
6,575
216,449(1,040)
7,532(30,459)
18,988–(5,785)
10,0799,600
120(14,364)–(2,267)(674,582)(4,007)
4,166
20,472(40,139)
12,737(55,544)

63,146–(23,102)(554)

37,47568,223
13,135(4,205)

14,023(184)
7,064(234,298)
36,753(436)
1,500(92,726)–(289,208)

25,750972
425,532
22,460(1,442)
5,785(76,707)(9,600)366,027–––(150,151)
750(6,199)(106,933)
387,515
100,309185
225,475(317,510)
207,380(200,000)(91,494)–(13,924)(200,649)
221,383
115,065497(279,251)

Fiscal year ended
December 31, 2020
Cash flows from financing activities
Proceeds from short-term borrowings
Repayments of short-term borrowings
Proceeds from issuance of shares resulting fromexercise of share acquisition rights
Repayments of lease obligations
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period- 15 -

Fiscal year ended
December 31, 2021––

10,000(10,000)

409

1,855

(7,370)(6,961)(18,297)(16,441)(68,196)

109,010(138,890)
2,200,206
2,061,316

179,344
2,061,316
2,240,661

(5) Notes to consolidated financial statements
Notes on premise of going concern
No items to report.
Segment information, etc.
[Segment information]
This information is omitted because the Group consists of a single business segment dealing with research and developmentof pharmaceutical and related businesses.

- 16 -

Per share information
Fiscal year ended
December 31, 2020

Fiscal year ended
December 31, 2021

Net assets per share (Yen)

190.88227.97

Basic earnings (loss) per share(28.97)

36.07

–

36.04

Diluted earnings per share

Notes: 1. Diluted earnings per share of fiscal year ended December 31, 2020 are not described here because, although there arepotentially dilutive shares, basic loss per share was recorded.
2. The basis for calculation of net assets per share is as follows:
As of December 31, 2020
Total net assets(Thousands of yen)

As of December 31, 2021

4,011,129

4,788,004

11,912

10,850[Share acquisition rights included therein (Shares)](Thousands of yen)

[11,912][10,850]

Amount of net assets at the end of period related tocommon shares(Thousands of yen)

3,999,216

4,777,154

20,951,592

20,955,092

Amount to be deducted from total net assets(Thousands of yen)

Number of common shares at the end of period used in
calculation of net assets per share(Shares)- 17 -

3. The basis for calculation of basic earnings (loss) per share and diluted earnings per share is as follows:
Fiscal year ended
December 31, 2020

Fiscal year ended
December 31, 2021

(606,985)

755,788––(606,985)

755,788

20,950,654

20,953,020

Adjustment on profit attributable to owners ofparent(Thousands of yen)––

Increase in number of common shares–

19,084––

Basic earnings (loss) per share
Amount of profit (loss) attributable to owners ofparent(Thousands of yen)Amount not attributable to common shareholders(Thousands of yen)Amount of profit (loss) attributable to owners ofparent related to common shares(Thousands of yen)
Average number of outstanding common shares
during the period(Shares)

Diluted earnings per share(Shares)[Share acquisition rights included therein(Shares)]
Summary of potential shares that are not included in
calculation of diluted earnings per share due to a lackof dilution effect

―――

―――

Significant subsequent event(Conclusion of commitment line agreement)
The Company resolved to enter into a commitment line agreement at its meeting of the Board of Directors held on February
14, 2022.
1.

PurposeThe Company aims to strengthen its financial foundation by securing a flexible and stable means of raising funds to meetthe demand for funds for business development going forward.

2.

Overview of commitment line
Counterparty of agreement
Agreement amount
Date of conclusion of the agreement
Commitment period
Security

MUFG Bank, Ltd.
1,000,000 thousand yen
February 22, 2022 (scheduled)February 28, 2022 to February 27, 2023
Unsecured(Introduction of restricted stock-based compensation plan and post-delivery type performance-linked stock compensation
plan)
The Company hereby announces that it has resolved at the Board of Directors meeting held on February 14 to review theexecutive officer compensation plan and newly introduce a restricted stock-based compensation plan and a post-delivery type
performance-linked stock compensation plan (collectively referred to as the “Plans”). The Company will submit the proposal
related to the Plans at the 14th Ordinary General Meeting of Shareholders (the “Meeting”), which is planned to be held on
March 25, 2022.)
1.

Purposes and condition for introducing the Plans(1) Purposes for introduction- 18 -

The Plans are introduced in order to provide them for Directors of the Company (excluding Directors serving on the
Audit and Supervisory Committee and Outside Directors; the “Eligible Directors”) with an incentive to sustainably
increase the Company’s corporate value and to promote further shared value with the shareholders.
(2) Condition for introduction
The introduction of the Plans is subject to shareholder approval regarding the payment of the related compensation at
the Meeting because the Plans will pay, as compensation, monetary compensation claims and money for allotting theCompany’s common shares to Eligible Directors through the restricted stock-based compensation plan and postdelivery type performance-linked stock compensation plan.
With regard to the amount of monetary compensation for Directors of the Company, it was approved by the resolutionof the 8th Ordinary General Meeting of Shareholders held on March 30, 2016, that the total amount for Directors(excluding Directors serving on the Audit and Supervisory Committee) shall be 80,000 thousand yen or less per year(of which, 20,000 thousand yen or less per year for Outside Directors). However, at the Meeting, the Company plans
to ask shareholders to approve the establishment of the compensation limits pertaining to the Plans for Eligible
Directors, in which (i) the restricted stock-based compensation plan is within this approved limit and (ii) the postdelivery type performance-linked stock compensation plan is separate from this approved limit.
2.

Overview of the Plans
The Plans consist of restricted stock-based compensation plan (the “RS Plan”), conditional upon continuously serving asa Director of the Company for a certain period of time, and the post-delivery type performance-linked stockcompensation plan (the “PSU Plan”), conditional upon achieving performance targets set in advance by the Company’s
Board of Directors in addition to the previously mentioned condition.
(1) RS Plan
Under the RS Plan, the Company shall pay monetary compensation claims of 15,000 thousand yen or less, which iswithin the current limit for the amount of monetary compensation, to Eligible Directors as compensation in the formof restricted stocks through the RS Plan in accordance with a resolution of the Company’s Board of Directors. Each
Eligible Director shall receive an allotment of restricted stocks by making a payment in all of the monetarycompensation claims by the method of contribution in kind. Furthermore, the total number of the Company’scommon shares to be issued or disposed of through the RS Plan shall be 15,000 shares or less per year (However, if
unavoidable reasons arise that necessitate an adjustment to the number of shares, such as a share split or a shareconsolidation of the Company’s common shares, the number of shares to be issued or disposed of shall be adjustable
in a reasonable manner).
The transfer restriction period shall be from the date of delivery of restricted stocks until the day Eligible Directors
lose their position as Director of the Company or any other positions determined by the Board of Directors of theCompany in order to achieve the medium- to long-term sharing of shareholder value, which is one purpose for
introducing the Plans. The specific periods of payment to individual Eligible Directors and the specific allocation
shall be determined by the Board of Directors.
Furthermore, the amount to be paid in per share for the Company’s common shares to be issued or disposed of under
the RS Plan shall be determined by the Board of Directors within a range that is not especially advantageous to the
Eligible Directors based on the closing price of the Company’s common shares on the Tokyo Stock Exchange on thebusiness day immediately preceding the date of the resolution of the Board of Directors (if no transaction is made onsuch business day, the closing price on the closest preceding trading day).
The issuance or disposal of the Company’s common shares under the RS Plan shall be subject to the conclusion of a
restricted stock allotment agreement (the “Allotment Agreement”) between the Company and the Eligible Directors.
The Allotment Agreement shall include the following:(i) An Eligible Director shall not transfer, create a security interest in, or otherwise dispose of the Company’scommon shares allotted under the Allotment Agreement until the previously established period.
(ii) Under certain circumstances, the Company may acquire said common shares without contribution.
(2) PSU Plan(a)
Overview of the PSU Plan
The PSU Plan is a performance-linked compensation plan that grants Eligible Directors the Company’scommon shares and money to secure tax payment funds arising from the delivery of such shares at an amountcalculated in accordance with the level of achievement of the numerical targets for the Company’s
performance, etc. for three fiscal years (the “Evaluation Period”; The initial Evaluation Period shall be thethree fiscal years from the fiscal year ending December 31, 2022 to the fiscal year ending December 31, 2024,
and after the end of the initial Evaluation Period, the PSU Plan may be carried out, to the extent approved at the
Meeting, with the three fiscal years beginning immediately following the end of each Evaluation Period as the
new Evaluation Period.) established in advance by the Company’s Board of Directors as compensation, etc. for
Eligible Directors.
Accordingly, as the PSU Plan will deliver the Company’s common shares and pay money in accordance withthe level of achievement of the numerical targets above, it has not been decided whether or not these common- 19 -

(b)(c)

shares or money will be delivered or paid to each Eligible Director nor has the number of shares to be deliveredor the monetary amount to be paid been decided as of the introduction of the Plans.
Structure of the PSU Plan
The specific structure of the PSU Plan is as follows:a) The Company’s Board of Directors shall decide the indicators and formulas required for specificallycalculating the number of the Company’s common shares to be delivered and the monetary amount to be
paid to Eligible Directors, such as each numerical target for the Company’s performance, etc. and thecalculation method for the payment rate in accordance with the achievement ratio used for the PSU Plan.
b) The Company shall decide the number of its common shares to deliver and the monetary amount to pay toeach Eligible Director after the end of the Evaluation Period based on the payment rate calculated inaccordance with the achievement ratio for each numerical target for the Company’s performance, etc.
during the Evaluation Period.
c) The Company pays, to each Eligible Director, monetary compensation claims to be used as contribution inkind corresponding to the number of the Company’s common shares to be delivered to each Eligible
Director determined in b) above, and each Eligible Director receives an allotment of the Company’scommon shares by providing the full amount of the monetary compensation claims to the Company by themethod of the contribution in kind. The amount to be paid in for the Company’s common shares shall be
determined by the Company’s Board of Directors based on the closing price of the Company’s commonshares on the Tokyo Stock Exchange on the business day immediately preceding the date of the resolutionof the Board of Directors pertaining to the issuance or disposal (if no transaction is made on such businessday, the closing price on the closest preceding trading day) within a range that is not especiallyadvantageous to the Eligible Directors subscribing to the Company’s common shares.
d) In order to secure tax payment funds arising from the delivery of the Company's common shares as
described in c) above, the Company will pay to each Eligible Director the monetary amount determined inb) above, in addition to the monetary compensation claims described above.
The method for calculating the number of the Company’s common shares to be delivered to each Eligible
Director based on the PSU Plan
The Company shall calculate the number of the Company’s common shares to be delivered (“final number ofshares delivered”) and the monetary amount to be paid (“final monetary amount paid”) to each Eligible
Director using the following formula.
[Formulas]
Final number of shares delivered =Final monetary amount paid =

(i)

(d)

Standard number of shares delivered (i) × Level of performancetarget achievement (ii) x Service period fulfilment ratio (iii) × 80%
Standard number of shares delivered (i) × Level of performancetarget achievement (ii) × Service period fulfilment ratio (iii) × 20%
× Market value at the time of delivery (iv)

The “standard number of shares delivered” shall be determined by the Company’s Board of Directors
according to the position of the Eligible Director.
(ii)“Level of performance target achievement” shall be determined by the Company’s Board of
Directors within the range of 0% to 150% according to the percentage of achievement of theevaluation indices determined by the Company’s Board of Directors for each three-fiscal-year
Evaluation Period.
(iii)
The “service period fulfillment ratio” shall be calculated by dividing the number of months in officeby the number of months of the Evaluation Period.
(iv)
The “market value at the time of delivery” shall be determined by the Board of Directors within arange that is not especially advantageous to the Eligible Directors based on the closing price of theCompany’s common shares on the Tokyo Stock Exchange on the business day immediately
preceding the date of the resolution of the Board of Directors pertaining to the issuance or disposal ofshares to be delivered under the PSU Plan (if no transaction is made on such business day, theclosing price on the closest preceding trading day).
Upper limit of compensation, etc. under the PSU Plan
The total amount of monetary compensation claims and money that the Company pays to the Eligible Directors
through the PSU Plan shall be a total of 80,000 thousand yen or less for each Evaluation Period, and treatedseparately from the current monetary compensation amount. Furthermore, the total number of the Company’scommon shares to be issued or disposed of through the PSU Plan shall be 80,000 shares or less for each
Evaluation Period (However, if unavoidable reasons arise that necessitate an adjustment to the number ofshares, such as a share split or a share consolidation of the Company’s common shares, the number of shares tobe issued or disposed of shall be adjustable in a reasonable manner).
- 20 -

(e)(f)

Reasons for forfeiture of the right to receive compensation, etc. under the PSU Plan
Eligible Directors shall forfeit the right to receive compensation, etc. under the PSU Plan in the event of certain
illegal act or resignation for certain reasons determined by the Board of Directors of the Company.
Treatment at the time of reorganizationIf, during the Evaluation Period, proposals relating to a merger agreement under which the Company is thedisappearing company, a share exchange agreement or share transfer plan under which the Company becomesa wholly owned subsidiary, or other reorganization, etc. are approved at a General Meeting of Shareholders of
the Company (provided, however, that if such reorganization, etc., does not require approval by a General
Meeting of Shareholders of the Company, the Company’s Board of Directors), the Company shall, by aresolution of the Company’s Board of Directors, provide money reasonably determined in place of theCompany’s common shares.

(Reference)
Subject to the approval of the introduction of the Plans at the Meeting, the Company plans to introduce a plan similar tothe post-delivery type performance-linked stock compensation plan in the Plans to certain employees (executives) of theCompany.

- 21 -