Financial Briefing for 3Q Results (Conference Call)
13:00-14:00, February 8, 2021 (Monday)<Q&A Summary>・ The growth rate for drug-fostering program formulations and growing
formulations was low in contrast with that for the other 119 formulations. What
are the factors behind this? Also, sales of Kakkonto rose although growth ofprescriptions for treatments for the common cold were down. What was thegrowth rate for Maoto? (Page 4 of the materials)⇒Growth for the other 119 formulations is in fact growing at a faster pace than the drugfostering program formulations and the growing formulations. Demand for Daikenchuto,
a drug-fostering program formulation, is being substantially impacted, mainly by thefewer number of people going to hospitals for medical examinations and a decline in
the number of surgeries. We believe there is no issues with our information provision
activities. Bakumondoto, a growing formulation, was sharply impacted due to a decline
in the number of patients with a cold but sales momentum was strong for Hochuekkito
and Goreisan. We believe sales trended firmly for Hochuekkito owing to a rise inprescription opportunities to treat COVID-19 related symptoms and for Goreisanreflecting its use as a new approach for treating peripheral symptoms for circulatory
disorders. Growth for the other 119 formulations, other than the drug-fostering
program formulations and the growing formulations, is being shored up by an increasein expectations in Kampo for treating COVID-19 related symptoms. Sales of Kakkonto
are growing as it is not only being prescribed for treating common cold symptoms but
also for treating sore shoulders and fever, which is a COVID-19 related symptom. Sales
decreased for Maoto, as they were largely impacted by a decline in the number of
influenza patients.
・Was the frontloaded sales plan of ¥4.0 billion for the China business previously
included in the annual plan for FY 2020?(Page 15 of the materials)⇒This is included in our annual plan for FY 2020. In 3Q, Ping An Tsumura Pharmaceuticalalready posted sales of ¥3.5 billion. Sales are progressing smoothly.
・Does the frontloaded sales plan reflect the nearly ¥4.0 billion in sales recordedby Ping An Tsumura Pharmaceutical (former Tianjin China Medico Technology)?
(Page 15 of the materials)⇒The sales of roughly ¥4.0 billion in the frontloaded plan represents our sales outlook
for the China business overall. Ping An Tsumura Pharmaceutical (former Tianjin ChinaMedico Technology) is the main driver.

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・There appears to be no progress towards the 7.0 billion yuan (about ¥119.0billion) sales target for the formulation platform but are you making progresswith M&A? (Page 15 of the materials)⇒We are currently in negotiations with several parties in the formulation platformbusiness. At the same time, we are making classical prescription Chinese medicine
complex formulations the pillar of another business. M&A negotiations will take time.
This is not negative. As we indicated in 2Q, our business lineup is coming into sight so
we ask that you understand.
・There is concern that prices will decline due to centralized purchasing by thegovernment of China. Do you forecast any impact?
⇒We cannot rule out the potential of impact in the medium/long term. However, at thisstage, we believe there is no impact.
・Is it possible to conduct a numerical analysis by dividing up COVID-19, curbed
medical exams, and influenza as factors impacting sales?
⇒It would be difficult to divide up the impact of each these factors to clarify theirrespective impact quantitatively.
・Was negative impact from a reduction in medical exams substantial?
⇒This is external data but as of December based on the number of prescriptions written,
the negative impact from a decline in medical exams is said to be around 6%. We
believe we are seeing the same level of impact. A major impact by clinical department
is the large decline in medical exams conducted at the ENT department.
・SG&A expense rose around ¥700 million in contrast with the same period a year
earlier. Is this due to an increase in online lectures?
⇒SG&A expense increased about ¥700 million was mainly attributable to a growth in
SG&A expense at the newly-consolidated Ping An Tsumura Pharmaceutical (former
Tianjin China Medico Technology) and goodwill amortization.
・To what degree has expense increased due to online lectures and other factors?
⇒As an additional measure, we are reallocating around ¥500 million mainly for online
lectures.
・What discussions are you carrying out with Ping An Insurance of China and what
degree of speed do you seek? Also, in the vision for the China Business for FY
2027, what is your forecast for margins?

2⇒We are mainly pushing forward with specific investment projects for M&A with Ping An
Insurance of China. At the same time, recently we have been strengthening sales,
including sales of Yakushokudogen products by Ping An Good Doctor. Regarding themargin for achieving our vision, at present, the pillar of business operations at newlyconsolidated Ping An Tsumura Pharmaceutical (former Tianjin China MedicoTechnology) is the supply of raw material crude drugs. However, in the crude drugplatform we plan to grow a high-margin business by supply pieces and raw ginseng, inaddition to raw material crude drugs. In the formulation platform, there is no systemthat mimics the NHI drug price system in Japan. We plan to utilize a platform that willsecure high margins, such as the Ping An Good Doctor platform, while deploying
formulations, including OTC medicines. We do not envisage margins will undershootthose in Japan.
・In 3Q, profit was up as you did not fully use your budget for SG&A expense. What
are your ideas on improving marketing after COVID-19 winds down? If you plan
profit structure reforms, can you please provide details?
⇒In FY 2020, we are aggressively investing to build an e-promotion system for
information provision activities. We plan to continue this investment in FY 2021. We
aim to establish a system that facilitates promotions without spending to efficiently
increase access to medical practitioners through e-promotions. Some expenses,
including travel and transportation expenses, will rises once information provision
activities through visitation-based interviews recover, but we believe we can avoid a
simple cost increase by concurrently using e-promotions.
・The benefit of e-promotion investments should surface in the medium/long term.
Is it correct to understand that this will normalize your cost efficiency?
⇒That is what we are aiming for.
・What do you believe is necessary to etch out a sharp growth curve to achieve
your 10.0 billion yuan sales vision for FY 2027? (Page 15 of the materials)⇒Classical prescription Chinese medicine complex formulations are a major pillar of theChina business going forward, but in the short term we will not be able to deploy many
formulations. Rolling out businesses via M&A is the answer for achieving a sharp curve
upward.
・Is it correct to understand that in FY 2022 onward your dialogue with the capital
market will be about specific M&A deals?
⇒Yes, that is what we are thinking.

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・Does the fluctuation in sales due to the positive/negative impact of COVID-19
only show changes solely due to COVID-19 impact? (Page 6 of the materials)⇒Although it includes the influence of COVID-19, it shows the total increase/decrease insales of the 129 prescription Kampo products.
・Assuming COVID-19 winds down, is it correct to understand that sales will growdue to an alleviation of negative impact?
⇒Sales of Kampo formulations, including Hochuekkito and Bofutsushosan, are growing
triggered by COVID-19 related symptoms and are likely to continue to trend firmly evenafter COVID-19 winds down. Meanwhile, sales of formulations, including Bakumondoto,
which are related to treating the common cold, dropped sharply due to COVID-19.
However, we believe this group of formulations will recover owing to an increase in thenumber of patients. Overall, despite the impact from COVID-19, we believe theopportunities to prescribe Kampo are expanding.
・Given that Tsumura is not conducting new drug development, I think drug priceprotection is the ultimate protection against NHI drug price revisions. Are you
considering other measures, such as decreasing the number of distribution
agents? Also, I think applying this to fundamental prescription drugs isrealistically difficult. Can I hear your thoughts on this?
⇒We are exhausting steps to gain understanding from agents, medical institutions andgovernment regarding the value of prescription Kampo products, which are becoming
instilled in national medical care, as well as its position among basic pharmaceuticals.
We are not considering trimming down the number of distribution agents. We arecarrying a certain amount of inventory to ensure stable supply. By improving theefficiency of our supply chain, we aim to reduce cost not only in distribution. We plan
to maintain our profit structure.

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