First Quarter Business Results for Fiscal 2023 Q&A (for Investors)【date】13:00-14:00, August 4, 2023

【presenter】 2 persons
Director, and CFO

Muneki Handa

Executive Officer, General Manager of Prescription Pharmaceutical Sales Division
Yukinori Sorada【questioner】 6 persons
Tokai Tokyo Research InstituteTakashi Akahane

Credit Suisse Securities

Fumiyoshi Sakai

Daiwa Securities

Anna KatoSBI Securities

Ryuta Kawamura

Credit Suisse Securities

Kasumi Haruta

Mitsubishi UFJ Trust and Banking

Shinichiro Hyogo*Names are in the order in which questions were received.

Akahane [Q]：The first point I would like to bring up is on page 7 of the materials received. I
also took a quick look at the figures and speculated on why operating profit was thislow. This reflects the unrealized gain rather than high raw material expense.
Moreover, this substantially impacted a quarter of operating profit. Although it only
appears this way on the books, Tsumura actually experienced a sharp drop in
operating profit.

Handa [A]：Yes, you are correct.

Akahane [Q]：Moreover, Tsumura built up its inventory, which had previously declined.
Furthermore, this was not due to depreciation in the yen’s value but an appreciation1

in the yuan (RMB)’s value. Naturally, profit in China expanded owing to this. I justglanced at the consolidated financial results for the first quarter, the figures formerchandise and finished goods, and work in progress are fairly high. Is myunderstanding correct that this reflects impact from a build-up of inventory and an
appreciation in the value of the yuan (RMB) owing to the foreign exchange rate?

Handa [A]：Regarding inventory, raw materials and supplies are impacted by foreign exchange
rates. In other words, performance on the China side. The impact in Japan fromforeign exchange is approximately 1.2 billion yen. I am speaking about the impact
to our balance sheet.
As you know, we touched upon the issue of unrealized gains. In 1Q of FY 2022,
we ran out of a fair amount of inventory due to the impact of the Shanghai lockdown.
Consequently, this was a period in which we realized gains. However, in the samequarter of FY2023, we have build-up inventory in preparation for the release ofrestricted shipments. This triggered an accumulation in unrealized gains. Owing tothis structure, in a comparison with the same quarter in the previous year, the levelof unrealized gains was high in contrast, and unrealized gains are a factor thatpushes up the cost in sales significantly, just as you pointed out.

Akahane [Q]：I understand. Accordingly, profit in 2Q is naturally likely to double and instead theimpact from unrealized gains is likely to become fairly mild. Once the negative
impact in 1Q is deleted, in the first half, the cost of sales ratio is likely to improveslightly.

Handa [A]：Yes, that is correct. We plan to unwind the portion of unrealize gains in 2Q.

Akahane [Q]：2

I have another question. As I believed, demand for Goreisan and Kamikihito is
growing among your mainstay products, as well as demand for Ninjin’yoeito, atreatment for poor appetite. I came away with the impression that the main factor
underpinning demand for these products, respectively, is COVID-19, or should I say
the treatment of the after-effects of COVID-19. Am I misunderstanding this?

Sorada [A]：First, from the standpoint of the after-effects of COVID-19, Kamikihito is more
frequently used for the treatment of these after-effects. Regarding Goreisan andNinjin’yoeito, the positive impact to demand, for instance in the case of Goreisan, isthat recently it is being frequently used in various fields to treat patients complainingof dizziness or headaches. Particularly in cases where symptoms are brought on bya change in climate or barometric pressure. The volume of usage has increased
significantly for headaches triggered by a change in barometric pressure. In addition,in new areas, it is being used to treat edema and swelling triggered by a
cardiovascular disease. In light of this, the volume of usage of Goreisan is rising.
Meanwhile, the use of Ninjin’yoeito is increasing for the treatment of frailty andfeebleness in senior citizens.

Akahane [Q]：I understand. COVID-19, itself, is winding down slightly. The after-effects seemto be continuing considerably and the change in barometric pressure is just that, achange in atmospheric pressure. In addition, we are also experiencing typhoons. Is
it okay to assume that the environment (business climate) in 2Q is likely to be
extremely positive?

Soradaa [A]：We have steadily lifted restrictions, and therefore we plan to enhance
activities.

3

our sales

Sakai [Q]：I would like to confirm the unrealized gains that was brought up just now. I spokewith someone from IR yesterday, and asked if the actual figure, in other words
powdered extract and crude drugs, was more important than the impact fromforeign exchange translations. We discussed the fact that the actual amount reflects
the build-up of raw materials in China in anticipation of the lift of shipment
restrictions, and that on a consolidated basis, this portion will naturally be offset. In
other words, offset as unrealized gains. Based on this, it appears the impact fromforeign exchange translations is minimal. Looking at this from a different standpoint,
the actual amount is increasing. This means that the shipments from China to Japan
will rise going forward. Handa-san said this is a one-off item,but will this impact thestatements of income to a certain extent going forward? Or, given the one-off factor,
in this case the lifting of shipment restrictions, will this portion of impact be leveled
off going forward or leveled off through inventory management and will not be amajor disruptive factor, though this may be somewhat of an exaggeration? Anyway,
is my understanding correct that this is not a variable factor?

Handa [A]：Although this has been pointed out, we maintain a slightly long range for our
processes

spanningfrompurchasing

to

the

build-upofinventories,

commercialization of products, and sales. In light of this, the impact actually reflects
the movement of goods, rather than foreign exchange translations. As I explained
earlier, in 1Q FY 2022 performance was impacted by the lockdown of Shanghai while
1Q FY 2023 was exemplified by the build-up of products for which shipments wererestricted. Owing to the combination of these two factors, the impact from restricted
shipments was immense. In this manner, I believe we can label this quarter a special
period.
Meanwhile, as you mentioned, we plan to implement an equalization of inventory .
Going forward, naturally there is a certain degree of time left from purchasing tosales. Consequently, it is not a matter of realizing all of the unrealized gains to4generate profit. There will still be unrealized gains on our books from ordinary
business transactions for a certain period of time. In light of this, I believe a major
feature of FY 2023 is the impact from the previous fiscal year and the build-up of
inventory impact, which substantially emerged.

Sakai [Q]：So, in other words, what you are saying is that even though you a talking about
external sales at the moment, what you mean is the shipment of inventory to Japan.
So, your assumption is “an increase in sales to Japan.” you are not talking about
external sales in China, are you?.

Handa [A]：That is correct. I am only talking about prescription Kampo sales in Japan. In thatsense, we increased our inventory in anticipation of the lifting of shipment
restrictions. So, we envisage unwinding these unrealized gains through strong salesof the inventory that has been built up here in Japan.

Sakai [Q]：I have one more question. It is regarding Unisplendour. Did Tsumura suffer theseunfortunate circumstances due to a misinterpretation that occurred inside themunicipal office? In a way, it could be said Tsumura was a victim of thesecircumstances. What exactly happened due to this misinterpretation? Did thedifferences in interpretation result in the dissolution of the acquisition? Can you
discuss this in a little more detail?
To rephrase, will this difference in interpretation impact Tsumura’s acquisitions in
China in some form moving forward? You have naturally done your due diligence.
Nonetheless, when these types of situations occur, I would like to know if there will
be a certain degree of impact, including whether there was some difference in thelevel of understanding. Can you please expound on this?

5

Handa [A]：This time around, the main reason was a difference in interpretation mainly of
regulations related to national policy by the department in charge of government
affairs at Baoji City. The regulation related to national policy I am talking about isthe Special Administrative Measures (Negative List) for Foreign Investment Access.
In Baoji City, there are several departments engaged in this area. I heard that thisis what triggered difference in interpretation.
We had heard this before. However, the specifics on which department madedifferent interpretations and at which point are handled within the departments
associated with the government, and therefore we have not been informed about
those specifics. Basically, there was a difference in interpretation of the Special
Administrative Measures (Negative List) for Foreign Investment Access in Baoji City.
In that sense, going back to your question about the impact this will have in China,
we took fact that this was the situation in Baoji seriously and we went through withthe transfer. We cannot say how this will be treated in China in general or other
cities in China as this took place in Baoji City. Consequently, we determined that thisincident was not likely to have a significant impact immediately or bring about achange in our policy.

Sakai [Q]：I see. However, I believe you said that acquisitions in the crude drug platformbusiness in China were essential to achieving your vision. Since you passed overthis acquisition, I think your next candidate will naturally emerge. Do you have ashort list for potential acquisition candidates? Or, are you ready to start over fromsquare one? What is your opinion on this?

Handa [A]：In that respect, we narrowed down our short list and were prioritizing this project.
At present, it is not like I have another short list on hand. You may have morequestions but we previously put out a press release in the summer of 2022. We
6

have not yet completed what we set out to do in that release. Also, it is not like I
can say we have another list immediately ready. Nevertheless, we are not planningto implement a major transformation to policy in this business.

Kato [Q]：I have one question regarding your cost of sales.
This is page 8 of the materials. You gave us a rundown of trends in raw material
and energy expenses. In contrast with your plan at the start of the fiscal year, doyou believe there is a disparity between the results for 1Q and plans for 2Q onward
and full FY 2023?

Handa [A]：This has been factored into our plan to a certain extent, so there is no major
disparity. We planned raw material expenses in this manner but as I mentioned
earlier, energy expenses are trending downward, having peaked in the second halfof FY 2022. This downward trend is not completely factored into our annual plan.
We estimate there is a likelihood of a slight difference in this area.

Kato [Q]：
Incidentally, can you explain if there is a disparity between the actual and forecast
raw material crude drug procurement cost?

Handa [A]：There is not significant difference between the actual raw material procurement
cost and plans. In particular, we formulated our plan by factoring in market pricetrends and procurement trends. Consequently, although there is impact from adepreciation in the value of the yen, we formulated our plan while anticipating anappropriate degree of impact from a depreciation in the value of the yen. In light of
this, at present we do not currently expect a major disparity with plans.

7

Akahane [Q]：This overlaps with my previous question. Let’s put aside the full fiscal year for thetime being. You said that in 2Q you estimate a sales growth of 5.6% and a decline
in operating profit of 18.6% year-on-year. First, as stated in your consolidated
financial results for the first quarter of the term ending March 31, 2024, all shipment
restrictions were lifted as of July 31, 2023. The final product for which shipments
were restricted was Kakkonnto, correct?

Handa [A]：Yes, you are correct.

Akahane [Q]：This also grew. Sales of formulations to treat COVID-19 also rose but owing to thelifting of shipment restrictions, it is anticipated that performance in 2Q is likely to
be considerably better than forecast. First, what is your outlook for sales? There will
likely be benefit from the lifting of shipment restrictions in 2Q and 3Q. Moreover,
the NHI drug price is rising. How should this be interpreted?

Handa [A]：As you pointed out, sales activities have been becoming brisk since the lifting of
shipment restrictions. The gap with the market has also surfaced in June. From thisstandpoint, we aim to maintain our strength. Meanwhile, as I stated before, weplanned to lift nearly all our shipment restrictions in 1Q. Kakkonto was the only
formulation for which shipment restrictions were lifted in July, later than planned.
Based on this, there was no major disparity with the plan for the scheduled timing
for the lifting of shipment restrictions. We aim to put plans into place for sales
activities and sales accordingly. As a matter of fact, it is our intention to exert ourstrength.

Akahane [Q]：8

President & CEO Kato has talked about this in various places. Tsumura restarted
the timing of this schedule, and although there was a delay in lifting shipment
restrictions on Kakkonto, Tsumura was able to resume full-fledged shipment
activities around the end of June. Given shipment activities were resumed at thattime, President & CEO Kato stated that Tsumura would never be halting shipments
again. I would like to believe what he said.

Handa [A]：Naturally, as a manufacturer of pharmaceutical, we must fulfill our responsibility
to provide a stable supply. We apologize for the inconvenience we caused our
stakeholders for the prolonged restricted shipments. We are putting our production
system in order and have been building up our inventory so that we will not haveto restrict shipment again. As shown, this is being revealed in our 1Q financial
results. Based on this, going forward we aim to carry out operations so that wewill not have to resort to this in the future.

Akahane [Q]：In response to this, you initially presented a forecast for operating profit of 9.5
billion yen. In 1Q, there was a plethora of negative factors. Despite this, theachievement rate as of the end of 1Q was 49.3%. The performance for the top-line
was satisfactory in 1Q. I am sorry to repeat myself, but the impact from theunrealized gains which clearly emerged in 1Q. This was discussed earlier and is
mentioned on page 7. In 2Q, in comparison with the same period a year earlier,there is naturally likely to be a large impact from foreign exchange translations at
the end of the fiscal year. However, given current trends, as I said earlier, profit islikely to be generated for two quarters. In contrast with 1Q, it is my belief that the
impact is likely to be substantially reduced. This was probably not factored into theinitial forecast. In light of this, operating profit in 2Q is likely to drop at least double
digits. Is it feasible to increase profit in 2Q?

9Handa [A]：At the time we formulated our plans in 2023, we thoroughly grasped the trends
for FY 2022. Also, as I stated before, in 1Q it was our goal to lift shipment
restrictions, in other words build-up our inventory. These were all factors that werealready grasped at the time we drafted our plans. Therefore we believe ourestimates are reasonable.
Naturally, the monetary amount of the unrealized gains could potentially change
reflecting the composition of items. In light of this, we cannot refine this to improve
the precision of our forecast for unrealize gains. However, this is our forecast basedon a systematic plan devised at this stage. From this perspective, the topline andoperating profit in 1Q were nearly on target. In actuality, at present we have notforecast a major difference versus the first half plan we have currently announced.

Akahane [Q]：Lastly, in regards to the current issue in China. I know there are various issues
with respect to China. There is also an issue like the one involving Astellas. However,despite all of the issues this time around, it is safe to assume you are not changing
the direction of the China business at all?

Handa [A]：That is correct. We are not revising our strategy in China, whether it be our targets
or the areas in which we plan to carry out operations.

Kawamura [Q]：I would also like to know about your plans for 2Q. Based on the explanation you
just gave, including the unrealized gains and expenses, etc. You said you havealready factored in these items. You mentioned that the last of the shipment
restrictions was lifted just at the end of last month on Kakkonto. I personally believethat you should be seeing demand for various Kampo formulations given the
progress you have made. Despite this, on a quarter basis, sales in 1Q and 2Q were10

basically flat, which I find difficult to comprehend. Can you explain why it appears
sales are not growing despite the shipment restrictions was lifted and the energies
you are pouring into sales?

Sorada [A]：As you know, many pharmaceuticals are currently undergoing restricted
shipments and shipment adjustment in the pharmaceuticals industry, not just at
Tsumura. Amid this backdrop, although we have announced that Tsumura has liftedshipment restrictions, this has not been fully conveyed to medical practitioners,
particularly physicians. In light of this, there are medical institutions that are still
restricting the issuing of prescriptions. That is one factor. We plan to quickly solve
this issue through our information provision activities. However, it is not easy to get
out of this situation.
In addition to this, the intense heat this summer is also an issue. Regarding
formulations that are prescribed during the summer, demand is currently trendingsmoothly. We are playing catch up in these situations that are not easy to get outof while at the same time aiming to firmly boost sales in line with plans.

Kawamura [Q]：Can you supplement your explanation on the issue you just mentioned? I would
like to ask about pharmacies and other minor parameters. I have heard there are
difficulties filling Kampo prescriptions at pharmacies. Are conditions truly sufficientat the moment to properly deal with shipping? I would appreciate it if you could talkabout the forefront of your sales activities.

Sorada [A]：We are solidly implementing shipments to wholesalers. Wholesalers are also
properly providing support. Amid this, as I mentioned earlier, there are somepharmacies who do not fully realize that shipment restrictions have been completely
lifted. The other day, we experienced this exact situation. We were told that Kampo
11

products were not being delivered. I explained the situation, and an order wasplaced and a shipment went out the following day. It is our belief that there is noquantitative issue and that distribution is functioning smoothly.

Kawamura [Q]：The Unisplendour project took an unfortunate turn this time around. At theprevious presentation, it was mentioned that you would be releasing a new MediumTerm Management Plan, or should I say a new version of the current Medium-Term
Management Plan. It appears that this have been fairly postponed or we should not
expect to see the release of a new version?

Handa [A]：At the previous briefing, I mentioned the possibility of releasing a new version, aVersion 2, of our current Medium-Term Management Plan. This was because thecurrent Medium-Term Management Plan did not include business operations owing
to acquisitions so we planned to add this. That is why I mentioned the possibility of
releasing a new version. From this standpoint, there are no acquisitions, thesituation has returned to the way it was before. In addition, we will immediately
report any progress or changes in our business operations should the need arise.
Haruta [Q]：My question includes some points of confirmation. Once again, looking at domestic
pharmaceutical product sales trends for the months of April, May and June, sales inJune rose but does this mainly reflect contribution from products for which
restrictions were lifted? What products contributed to this rebound? Do you
anticipate recovery from 2Q onward? Also, I believe there are likely several elementsthat will come into play. This includes common cold formulations, the spread of
COVID-19 during the summer months, the after-effects of COVID-19, and theintense summer heat. What impact do you believe the lifting of shipment restrictions
had? Regarding the full fiscal year plan, what was your estimate of this impact? Can
you put this in order?
12

Sorada [A]：In June, the market was largely driven by Bakumondoto, for which shipment
restrictions were lifted. This formulation was a substantial impetus for earnings.
There was a spread in COVID-19 around the time restrictions were lifted on thisformulation. There was a spread in COVID-19 so there was a fair number of people
suffering from coughing as an after-effect. It was around this time that
Bakumondoto was used to treat these after-effects.
Of course, the summer heat was also incorporated into our plan. We basicallyincorporated an annualized growth of 5% to 7% for these formulations into our plan.

Haruta [Q]：What forecasts did you incorporate for common cold formations in anticipation of
restricted shipments and for the 8th wave of COVID-19?

Sorada [A]：As for COVID-19, we did not know if it would spread or not so we did notincorporate it into our sales forecast at the start of the fiscal year. However, during
an ordinary winter season, there is demand for Kampo products used to treat
symptoms from the common cold. Based on calculations that took into accountprevious trends, we incorporated a forecast for sales for an ordinary year.

Haruta [Q]：
Incidentally, I surmise that shipment restrictions were lifted assuming inventories
for common-cold formulations were at a level to handle the COVID-19 spread during
the summer of 2023. Is my understanding correct?

Sorada [A]：That is correct.

13

Haruta [Q]：
Next, I would like to discuss sales in China. In the crude drug platform business,
you planned to secure prices while improving profit margins given the recent growthin sales. Is your performance smooth owing to contribution from sales activities inthis business?

Handa [A]：Our topline is definitely doing well. The topline is formed based mainly on raw
material crude drugs. Obviously, without a certain degree of sales volume, wewould not be able to cover our fixed expenses. From this viewpoint, one desirable
model is to absorb fixed expense with topline growth.
However, a portion of our income was impacted by expenses for promotion
activities that crossed over the cut-off period. In light of this, coupled with this factor,
we interpreted this lower-than-expected expense as income. Based on this, wedefinitely saw progress in line with our expectations, even if the positive contribution
from the portion of expenses carrying over into the next period.

I just want you torealize that our progress includes these types of factors.

Hyogo [Q]：I have one question. Regarding the dispute over a PBR below 1x, which is seen
as an undervaluation, how do you plan to proceed in-house? Various industries are
dealing with in various ways. Unfortunately, in the pharmaceutical industry,valuations are declining overall. It is my recognition that Tsumura is in a situation
where it is not finding it easy to correct its PBR of below 1x. Is the Board of Directors
making headway with discussion on how to handle this? How do those in thefrontlines actually perceive this? Please explain how you are dealing with this.

Handa [A]：The issue of a PBR below 1x is an important theme not only for myself and isnaturally being discussed by members of the management team and the Board of14

Directors. Even for corporate governance, this is a key theme for the Board of
Directors in FY 2023. The Board of Directors previously focused discussions on fivethemes, including former themes such as progress with the Medium-Term
Management Plan, the China business and governance. However, changes were
implemented from FY 2022. In FY 2023, one of these key themes now focuses on
the issue with capital. Previously we talked about this as our capital policy but weare now focusing on how to hike our PBR to above 1x and discussing returns as partof our capital policy. We are taking up these matters and seriously discussing them.
With respect to the details, we will naturally inform everyone once decisions havebeen rendered. What I wanted you to know is that we are making this matter a key
theme and welcoming in new outside directors, and discussing how to solve thisissue. Also, at some point, when the timing is right, I will discuss the details with allof you.

Hyogo [Q]：I look forward to a release to be put out at some point outlining your ideas andopinions.
I have an additional question. Is it correct to assume that the decision-making
carried out this time around concerning the China business is the result ofgovernance functioning properly at Tsumura?

Handa [A]：Yes, you are correct. We believe governance is functioning sufficiently. We do not
see this as a flaw or issue with our governance.

Hyogo [Q]：In any case, the question was brought up by someone earlier, and you are sayingthat your point of view for the China business has not changed. However, from theeyes of someone outside the company, the question now is what is going on with
the China business. I think the business climate has changed since you initially15commenced operations. I think that it is definitely an option to properly explain yoursituation at some point. I strongly desire this.
Given the substantial changes in the external environment it is likely difficult.
However, I think there are still many questions that remain unanswered, including
current acquisitions, deals you have withdrawn from, is there truly an internal rateof return from the initially drafted plan given all that has happened, and is thebusiness operating based on a business value basis. I would appreciate it if you
would address these issues in some fashion.

Handa [A]：Thank you for pointing this out. I understand your objective. We will at some pointin the near future provide an explanation in that sense.

Akahane [Q]：Regarding page 14. You explained this to a certain extent. In your presentationmaterials, you wrote that given the number of cases of detailing impact, there waspositive impact to MR activities from the downgrading of COVID-19 to a Class 5
infection disease, and the lifting of shipment restrictions positively impacted epromotions. I believe these e-promotions consisted mainly of video streaming. Thiswas previously restricted therefore these e-promotions have recently sharply
increased. Is this simply the result of the lifting of shipment restrictions? Is there ahigh level of interest among physicians regarding inquiries on what became ofrestricted shipments? This reflects MR activities with respect to infection diseases.
However, these activities are not increasing much. Is this simply due to a decline in
MR activities? Or due to a lack of sales activities since COVID-19 was downgradedto a Class 5 infectious disease? What is the correct understanding regarding this?

Sorada [A]：First, regarding e-promotions in 4Q FY 2022, video streaming implemented on
our medical site and via platforms, including the platform provided by M3, was zero.
16

We increased video streaming to three times in April and then to five times in andafter May. The impact from e-promotions is increasing the most.
Regarding MR activities, we have basically been able to continue information
provision activities for general practitioners, but even after COVID-19 was
downgraded to a category 5 infectious disease, hospitals still have strict restrictions
on visits by MRs. These are areas that are currently being impacted.

Akahane [Q]：Is it okay to anticipate benefit from e-promotions going forward?

Sorata [A]：Yes, I think we will see benefit.

END17