Business Report(From January 1, 2017 to December 31, 2017)1.

Nobelpharma

1.1.

Progress and Results of Operations

The Company’s mission is to “Contribute to society by providing necessary but neglectedpharmaceuticals and medical devices.” Sales and profits are important management indicators that shouldbe pursued; however, we regard these to be the result of carrying out the mission, as well as a means toaccomplish the mission.
The management policy and action criteria are as cited below: The action criteria were slightly changed.
Policy1. General2.

1) Share Mission, Policy and Action Criteria among all stakeholders (employees, shareholders,
officers)*Unable to share without routine review
2) Pursue evolution, yet upsizing is not our goal3) Comply with regulations and ethical codes
4) Ensure transparency and disclosure5) Launch out overseas
Personnel

3.

1) Value employees and families, respecting self-development
2) Value “Selected Few” and create an environment for the “Selected Few” to enjoy working* “Selected Few” = experienced experts passionately devoted to working, irrespective ofgender, age, nationality, religion or preference
3) Value suggestions and opinions from employees
Products

4.

1) Pursue high quality in products and data
2) Ensure post-marketing safety
3) Search for seeds externally
Capital
1)
2)
3)
4)

Profits as a result/means of achieving the Mission
Focus on higher return on sales/profits per employee
Investment decision by observing damage of failure, not unreliable counts of successProfits distribution to shareholders (dividends)/employees/internal reserve* Dividends: 1/3 of profits after tax* Employees: Up to dividends5) Asset management only with principal guarantee

Action Criteria
1. Principle
2.

Give priority to patient benefits if inconclusive
Challenge

3.

1) YMWS: “Yatte Minakucha Wakaranai, shikashi Songiri wo tamerauna”= You never know
unless you try, but do not hesitate to cut losses.
2) ZY: “Zenrei ga nainara Yattemiru”= If no precedence, try first.
Speed1) Never forget patients are waiting
2) Set a deadline first (specific date) regardless of possible delay
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4.

*Off Limits = “about - ,” “early/late - ,” etc.
3) If there is a failure/trouble, prevent expansion first, then recurrence4) Fast decisions for < X mil yen by the person responsible*X = 3 for Div Mngr; 1 for Dept Mngr/Branch Mngr/PM/PL
Cost/Efficiency

5.

1) Never carry/purchase deadwood, never take/cause wasteful actions
2) No overtime work considered good3) Consider patient needs, scientific rationality and nature of laws/regulations when pursuing
higher quality in products/data
4) Pursue cost reduction with the principle of multiple sourcing, while regarding providers as
partners
Communication/Relationship
1)
2)
3)
4)
5)
6)

Never prioritize loyalty to company over morals
Rejecting inter-departmental advice and cooperation is a symptom of Big Company Disease.
Superiors to confidingly entrust tasks to subordinates, but to never leave them unmanaged
Hear anyone out and never interrupt themStart with a conclusion when explaining/responding
Mere greetings are significant

2/18

As of March 2018, the Company is marketing the 12 new ethical drugs listed below. In March 2017,
Nobelzin®, our first pharmaceutical product, obtained an approval for a new indication of hypozincemia
in addition to Wilson’s disease.

Brand Name

LaunchIndication

1

Nobelzin®

Apr 2008

Wilson’s diseaseHypozincemia (approved in
March 2017)

2

Lunabell® LD
Lunabell® ULD

Jul 2008
Sep 2013

3

Nobelbar®

4

Fostoin®

5

Gliadel®

6

Route of
Administration

Licensor2017 Sales (NHI
price basis) Yen Sales Channel
in millions

Oral
Teva (Wilson’s
Administration disease only)

2,089

Dysmenorrhea

Oral
Administration

Janssen

Nippon9,912 Shinyaku Fuji
PharmaDec 2008

Neonatal seizures, statusepilepticus

Intravenous
injection

In-house

112

DirectJan 2012

Status epilepticus, prevention of
postoperative seizures, etc.

Intravenous
injection

Pfizer

1,232

Eisai

Jan 2013

malignant glioma

Interstitialchemotherapy

Alabel®

Sep 2013

diagnosis of malignant glioma

7

Indacin®

Jan 2013

8

Cosmegen®

9

Eisai

Remarks

DirectBothproducts
distributedby twocompanies

Copromotion

CoMarketing
Approval (MA) promotion
982
transferred to (Contracted
Eisai
product)

SBI
Oral
Pharmaceuticals
Administration(medac)294

Directpatent ductus arteriosus ofprematurity

Intravenous
injection

Lundbeck71

DirectMAtransferredfrom MSD

Jan 2013

Wilms’ tumor, choriocarcinoma,
pediatric solid malignant tumor,
etc.

Intravenous
injection

Lundbeck17

DirectMAtransferredfrom MSD

Unitalc®

Dec 2013

prevention of recurrent
malignant pleural effusion

Intrapleural

Novatech69

Direct10

Respia®

Dec 2014

apnea of prematurity

Intravenous
injection/oral
liquidNipponBoehringer

211

Direct11

Rapalimus®

Dec 2014

lymphangioleiomyomatosis

Oral
Administration

Pfizer

211

Direct12

Zanosar®

Feb 2015

gastroenteropancreatic
neuroendocrine tumor

Intravenous
injection

Keocyt343

DirectTotal

15,554(Note) The total sales included sales of Foscavir®, whose sales were terminated in 2017.

Sales increased significantly due to the growth of adoption and prescription of Nobelzin® for
hypozincemia. Sales of Lunabell® exceeded the budget significantly as the impact of the generic drug of
Lunabell® LD was minimized. Sales of Zanosar® increased strongly from the previous year though it fell
short of the budget. Sales of Fostoin® and Gliadel® decreased negatively affected by competitive products.
Sales for each product were shown in the above table and the total sales were 15,554 million yen on awholesale price (NHI price) basis and 6,675 million yen on a Company price basis. Sales of the Company
from the Lunabell® family were 3,014 million yen, accounting for 45.2% of total sales. Adding royalty
revenue of 561 million yen, total sales in 2017 were 7,236 million yen, up 6.6% year-on-year.
The cost of goods sold was 1,247 million yen, down 22.9% year-on-year, accounting for 17.2% of total
sales (2016: 23.8%). Sales, general and administrative expenses totaled 6,013 million yen, up 11.2% yearon-year, accounting for 83.1% (2016: 79.6%), mainly including personnel expenses of 2,046 million yen,up 6.7% year-on-year, and 28.3% (2016: 28.2% ), R&D expenses of 1,676 million yen, up 4.5% year-on3/18

year, and 23.2% (2016: 23.6%), royalty expenses of 721 million yen and outsourcing expenses of 677
million yen. Royalty expenses were running royalties of 566 million yen and 121 million yen, respectively,
to Jansen Pharma and Pfizer. The outsourcing expenses mainly included 78 million yen for call center
operation by EP-PharmaLine, 78 million yen for safety database construction and operation by CMIC, 41
million yen for outsourcing expense of drug use investigation by A2 Healthcare Corp., 37 million yen forbusiness management service by Hisanaga & Company and 35 million yen for system development by
Perspective Co., Ltd.
The resulting operating loss was 23 million yen (2016: operating loss of 233 million yen), accounting
for 0.3% of total sales (2016: 3.4%).
Ordinary income was 161 million yen (a loss of 56 million yen in 2016), accounting for 2.2% (2016:0.8%) of total sales, after recording non-operating income of 267 million yen including subsidy revenueof 198 million yen partly offset by non-operating expenses of 81 million yen including interest expensesof 33 million yen and bond interest expenses of 21 million yen.
An extraordinary loss of 60 million yen was posted as a loss related to the recall of Lunabell® ULD.
With the income taxes of 20 million yen and income taxes-deferred of 27 million yen, net income was
53 million yen, down 43.5% year-on-year, accounting for 0.7% of total sales (2016: 1.4%), and net income
per employee was 205,000 yen (2016: 399,000 yen).
Retained earnings brought forward as of December 31, 2017 were 673 million yen, with the beginningbalance of retained earnings brought forward of 651 million yen, a decrease in 27 million yen from 679
million yen as of December 31, 2016 due to adjustment of the beginning balance to reflect expenses
incurred in the previous year, and a dividend payment of 31 million yen.
To sum up our activities in 2017, increases in sales and income due to changes in product mix withlower cost rate, partially offset by application expenses of new products included in research anddevelopment expenses and initial sales expenses, contributed to improvement of ordinary income by anincrease in 217 million yen from the previous year, without slowing down research and development.
[The remainder of this page is intentionally left blank.]

4/18

mil yen% to total sales

2016

2017

Year-onyear

6,791

7,236

106.6%

100.0%

100.0%

6,004

6,675

111.2%

88.4%

92.2%

787

561

71.3%

11.6%

7.8%

Cost of goods sold

1,617

1,247

77.1%

23.8%

17.2%

Gross profit

5,174

5,989

115.8%

76.2%

82.8%

SG&A expense

5,407

6,013

111.2%

79.6%

83.1%

* Personnel cost

1,917

2,046

106.7%

28.2%

28.3%

* R&D expenses

1,603

1,676

104.5%

23.6%

23.2%

* Commission fee

714

677

94.8%

10.5%

9.4%

* Loyalty expenses

701

721

103.0%

10.3%

10.0%

△233

△23

-

△3.4%

△0.3%

Non-operating income

242

267

110.4%

3.6%

3.7%

Non-operating expenses

6581125.2%

1.0%

1.1%

Ordinary income

△56

161

-

△0.8%

2.2%

Extraordinary income

243

-

-

3.6%

-

Extraordinary loss

49

60

122.7%

0.7%

0.8%

Net income before tax

137

101

73.5%

2.0%

1.4%

Income taxes

43

48

109.9%

0.6%

0.7%

Net income

93

53

56.5%

1.4%

0.7%

△239

624

-

-

-

399

205

51.3%

-

-

637

679

-

-

-

Prior period adjustment

-

△27

-

-

-

Retirement of treasury stock

-

-

-

-

-

Dividend

52

31

-

-

-

Net income

93

53

-

-

-

Ending balance

679

673

-

-

-

Item
Sales
Product sales
Other

Operating income

Ordinary income per employee (‘000 yen)
Net income per employee (‘000 yen)

2016

2017

Retained earnings brought forward
Beginning balance* Major items included in SG&A expenses

5/18

1.2.

Sales

Sales on a wholesale price (NHI price) basis in 2017 are summarized as follows.
Brand Name

2016 [1]2017 [2]

230

2,089

908%

®

10,122

9,912

98%

®

Lunabell (LD), ULD
Nobelbar

124

112

90%

®

1,390

1,232

89%

®

Foscavir

421

10

2%

®

1,077

982

91%

®

287

294

102%

75

71

95%

18

17

94%

67

69

104%

193

211

109%

182

211

115%

276

343

124%

14,463

15,554108%

GliadelAlabelIndacin®

Cosmegen®

®

Unitalc®

Respia®

Rapalimus
Zanosar
Total

Year-on-year([2]/[1])®

Nobelzin

Fostoin

Wholesale sales (NHI price basis, mil yen)®

In 2017, we positioned Nobelzin®, which obtained an approval for a new indication of hypozincemia,
as the product to most focus on and aimed at sales targets on a wholesale price (NHI price) basis of 15.1
billion yen including 9 billion yen of Lunabell®, 2.4 billion yen of Nobelzin® and 3.7 billion yen of other.
As a result, we achieved sales of 15.5 billion yen including 9.9 billion yen of Lunabell®, 2.1 billion yen
of Nobelzin® and 3.5 billion yen of other.
For Nobelzin®, the most focused on product in 2017, the Company’s MRs promoted sales to hospitals
with 200 beds or more, with contracting co-promotion to the Medipal Holdings Group, our general agentof direct sales products, and ASKA Pharmaceutical Co., Ltd. for gynecology and obstetrics, to those with199 beds or less, and accordingly, sales significantly increased to 2.1 billion yen though it fell short of theplan of 2.4 billion yen. 880 hospitals with 200 beds or more and 10,400 medical institutions with 199 beds
or less adopted Nobelzin®, and we expect further expansion of the number of medical institutions adopting
the drug and prescription.
Lunabell®, our core product, is marketed on complete consignment basis by Nippon Shinyaku and Fuji
Pharma. As a generic competitor of Lunabell® LD was launched in December 2015, sales of Lunabell®
significantly dropped in 2016. In 2017, however, the total Lunabell® family increased by 900 million yen
compared with the budget (sales of 9.9 billion yen, 110% of the budget and down 2% year-on-year).
Sales of another core product of Fostoin® achieved the budget but fell short of the previous year’s result(sales of 1.2 billion yen, 102% of the budget and down 11% year-on-year). Sales of Zanosar®, which
launched in February 2015, grew significantly from the previous year though falling short of the budget
by appealing its position in guidelines (sales of 300 million yen, 96% of the budget and up 24% year-onyear).
As of March 1, 2018, 83 MRs cover the entire country, of which 29 MRs are sent by the Medipal
Holdings Group. We aim at MR activities with high quality by a Selected Few and are also actively
engaged in handling of inquiries through other channels than MRs by enhancing the customer center andWeb site. The sales method using the AR function of the Medipal Holdings Group successfully increased
sales of Nobelzin®, which is a new method that has never been applied in the pharmaceutical industry.
For the logistics of the direct-sales products, the Medipal Holdings Group has exclusively taken overthe distribution.
6/18

1.3.

Manufacturing and Capital Expenditure

The Company has no manufacturing facilities of its own, and outsources manufacturing of both APIs
and products to domestic and overseas manufacturers. Accordingly, we undertake initiatives by setting astable supply of products as one of the big targets. We are working on building a stable supply system forproducts outsourcing to overseas manufacturers, and aim at building a stable supply system by adding
domestic manufacturers to ensure multiple suppliers.
For Fostoin® intravenous injection supply from domestic API and formulation manufacturers wasstarted, and we started the primary packaging for Rapalimus® tablet in Japan to prevent defects arisingfrom the primary packaging by overseas manufacturers, which is running steadily.
Meanwhile, the reduction of cost of goods manufactured is also an important issue in manufacturing.
The aforementioned shift of manufacturing of Fostoin® intravenous injection and Rapalimus® tablet toJapan resulted in a decrease in cost per year of 90 million yen and 6 million yen, respectively. In 2017,
we completed mechanization of the visual inspection for Respia® intravenous injection/oral liquid andaccordingly, we expect the annual cost reduction effect of 20 million yen in 2018.
In view of the expansion of demand for Nobelzin® arising from a new indication, we are significantly
increasing our capacity of supply. In 2016 and 2017, we produced 13 million tablets for 25 mg tablet and
50 mg tablet, respectively. This can be satisfied with the majority of demand expected in 2018, not only
meeting with 2017 demand. In addition, our API manufacturer established a new production line of zincacetate for the Company and our formulation manufacturer increased production capacity. By thesemeasures, we can increase production volume and reduce cost further in 2018.
In 2017, our capital investment was for the following one equipment.
Cross rotary mixer: (Manufacturing equipment for Nobelzin® granule scheduled to be launchedin 2019, investment amount of 15 million yen, to be placed in Choseido Pharmaceutical Co.,Ltd.,an OEM supplier)
1.4.

Research and Development

In the past the Company mainly developed drugs that had already been approved in Europe and the US
but were not approved in Japan (“unapproved drugs”), and smoothly obtained approvals. Recently, thelong-lasting social issue of unapproved drugs has been largely solved and the Company is shifting its
target seeds to more difficult drugs that originated in Japan.
The table below summarizes the development stage, expected NDA and market size classification inthree categories of A. New Drugs and Medical Devices, B. Life Cycle Management (LCM) and C.
Overseas Development as of March 1, 2018. Many are drugs based on new concepts that originated inJapan. Of these, we have voluntarily developed new drugs of melatonin (NPC-15, a treatment for sleep
disorders in children with neurodevelopmental disabilities) and Jemina® combination drug (NPC-16, a
treatment for dysmenorrhea, Ultra-LEP combination drug) without public support funds.
In 2017, a new medical device, TITANBRIDGE® (NPC-17 for adductor spasmodic dysphonia) and
newly indicated Nobelzin® (NPC-02, a treatment for Hypozincemia), our LCM product, were approved.
Rapalimus® Gel (NPC-12G, a treatment for skin lesions associated with tuberous sclerosis) was approvedin March 2018, and Jemina® combination tablet is expected to be approved in June 2018. Following theseproducts, we are currently preparing for filing NDA for NPC-18, a treatment for tympanic perforation.
The Company has been proceeding with the full-scale examination on overseas development since 2017
based on a strategy of obtaining approvals for three products of TITANBRIDGE®, Rapalimus® Gel, and
NPC-18 in three regions including North America, Europe and China. Rapalimus® Gel was designated as
an orphan drug by the US FDA in 2017. We are preparing for a challenge test in Germany for malaria
vaccine (NPC-19, prevention of falciparum malaria) in parallel with the third study in Africa to becommenced in 2018.
As for the financing method for development funds including Overseas Development, we areconsidering obtaining pubic funds in addition to operating income and intend to introduce risk money
according to the degree of risk of the theme.

7/18

Development items are classified into the following six classifications based on the market size:
I : Potential primary sources of revenue following Lunabell® (sales of over 3 billion yen)
II : Short term approval and marginal profit are expected; however, they are not likely to be a
primary source of revenue.
III : Short term approval expected with a theme from academia such as a university. Lower
development cost with promising public subsidies. Difficult to estimate sales due to innovative
concepts.
IV : Similar to III but relatively long time required for approval.
V : LCM of the existing commercialized products. Lower development cost and increased
marginal profit expected.
VI : Theme under research (No applicable item in the table below)
A. New Drugs and Medical Devices
Compound1

NPC-17Thyroid cartilage
fixation device(TITANBRIDGE®)

2

NPC-16Ultra-LEP
combination drug
(Jemina® combinationtablet)Indication

Licensor

Foundation of
Biomedical Researchand Innovation
Adductor spasmodic(Kobe)
dysphonia
Kumamoto
University
Wakayoshi
Seisakusho

Development
stage

Estimated
approval

Classification

Approved

Dec 2017(Approved)

III

Dysmenorrhea

In-house

Under review

Jun 2018

I

Clinical trial
in preparation

Dec 2018

III

Mar 2020

I

3

NPC-18bFGF, etc.

Tympanic
perforation

Foundation of
Biomedical Researchand Innovation(Kobe)
Kaken
Pharmaceutical4

NPC-15
Melatonin

Sleep disorders inchildren withneurodevelopmental
disabilities

In-house

PIII

5

GM-CSF
Molgramostim

Pulmonary
proteinosis

Savara Inc.

(Global clinical
trial)

Sep 2020

II

6

NPC-09
Acetylneuraminic acid

Distal myopathy

In-house

PII/III

TBD

III

7

NPC-x3Pyruvic acid

Mitochondrial
disorders

Kurume University

PII

TBD

IV

8

NPC-20(SR-16234)
SERM

Endometriosis

SRI

PI in
preparation

TBD

I

9

NPC-21
CMV antibody

CMV infection

Undisclosed

PI inpreparation

TBD

I

10

NPC-22
Skopolamin

Salivation

Kitasato University

Non-clinical

TBD

IV

11

NPC-x4
P092

Prion disease

Gifu University

Non-clinical

TBD

IV

8/18

PIII

B. Life Cycle Management (LCM)
CompoundIndication

Licensor

Development
stage

Estimated
approval

Classification

NPC-02
Nobelzin®

Hypozincemia(new indication)-

Approved

Mar 2017(Approved)I

2

NPC-12G
Rapalimus® Gel

Skin lesions
associated withtuberous sclerosis(new indication,
new formulation)

Osaka University

Approved

Mar 2018(Approved)III

3

NPC-02
Nobelzin®

Child’s preparation(new formulation)

National Center forChild Health andDevelopment

PIII

Jun 2020

III

4

NPC-05
Unitalc®

Refractorypneumothorax(new indication)

National Hospital
Organization Nagoya
Medical Center

PII

Sep 2020

III

5

NPC-06
Fostoin®

Nerve field

Pfizer Inc.

PII inpreparation

TBD

V

6

NPC-12
Rapalimus®

Refractory
lymphatic disease(new indication)

Gifu University

PIII

Sep 2020

III

7

NPC-12
Rapalimus®

Fbrodysplasia
ossificans
progressiva(new indication)

Kyoto University

PII

Sep 2020

III

8

NPC-12
Rapalimus®

Pendred syndrome(new indication)

Keio University

PII

TBD

IV

9

NPC-12
Rapalimus®

Epilepsy with focal
cortical dysplasia
type II(new indication)

Showa University

PII inpreparation

TBD

IV

10

NPC-12
Rapalimus®

Prevention of
GVHD after
hematopoietic stem Hiroshima University
cell transplantation(new indication)

PII inpreparation

TBD

IV

11

NPC-12G
Rapalimus® Gel

Neurofibromatosis
type I(new indication)

Osaka University

PII/III in
preparation

TBD

IV

CompoundIndication

Licensor

Development
stage

Estimated
approval

Classification1

NPC-19(NPC-SE36)
Malaria vaccine

Prevention of
falciparum malaria

Osaka University
GHIT

PIb

TBD

I

2

NPC-18bFGF, etc.

Myringaregeneration

MEEI

PII

TBD

III

3

NPC-17Thyroid cartilage
fixation device(TITANBRIDGE®)

Adductor spasmodic
dysphonia-

Clinical trial
inpreparation

TBD

III

4

NPC-12 G
Rapalimus® Gel

Hemangiofibroma-

Clinical trial
inpreparation

TBD

III

1

C. Overseas Development

9/18

TITANBRIDGE® (NPC-17) and Rapalimus® Gel (NPC-12G) deserve special mention, as they were
designated under the “Sakigake” fast-track review system, one of the important measures of the Japanese
Ministry of Health, Labour and Welfare (“MHLW”), and they demonstrated positive outcomes in theirclinical studies. So, the Company filed the NDA after completion of “Comprehensive evaluation under
the Sakigake system” in 2017. NPC-17 was approved in December 2017 with less than six months fromthe NDA filing in June 2017 and likewise, NPC-12G was approved in March 2018 with less than six
months from the NDA filing in October 2017. These two products were also designated as an orphan drug
and medical device, respectively.
In addition, the Company’s two proposals for prevention of falciparum malaria (NPC-19) and CMV
infection (NPC-21) were selected by Cyclic Innovation for Clinical Empowerment (CiCLE), a newprogram launched by Japan Agency for Medical Research and Development (AMED) in FY2017. We arecommitted to promoting development in both Japan and abroad in collaboration with AMED.
1.5.

Business Development & Strategy

Business Development & Strategy is responsible for core roles for the Company’s open innovation as
well as for planning and contacts for business negotiations in Japan and abroad. Specifically, its role isclassified into (1) Planning and research for new themes and feasibility study, (2) In/out-licensing
negotiations with a potential business partner for a new development theme, (3) Acquisition of public
subsidy and financing of development expenses for commercialization, (4) Alliance management with theexisting partners, (5) Intellectual property management and technology-related contracts, and (6)Procurement negotiations. The following is a summary of each initiative in 2017.
(1) The Company is cultivating a considerable number of new seeds including some projects fromdomestic universities and public research institutions as well as foreign companies, actively
researching and evaluating them, and considering suitability with the Company’s mission and forpotential commercialization. As a part of such activities, we entered into 1) joint research agreementswith two universities under the basic agreement for access to seeds entered into with Foundation for
Biomedical Research and Innovations in 2016, 2) a partner agreement with a public research
institution, and 3) agreements with two universities for an investor-initiated trial for a new indicationof the existing products.
(2) Conclusion of an in-licensing agreement with a domestic venture company for a treatment for CMV
infection in January 2018
(3) Negotiations for intellectual property issues for application and selection of our two proposals ofmalaria vaccine and CMV infection in CiCLE sponsored by AMED
(4) Completion of compensation issues of the existing agreement and termination of collaboration
under the existing agreement(5) The number of patent families with which the Company is involved is 33 (2016: 23) mainly due toan increase in collaboration with academia. We also hired a new lawyer to strengthen a backup
system of technology-related contracts, reviewing more than 110 cases in a half year.
(6) The Company engaged in more than 30 purchase negotiations to reduce costs, which may impact
on 2018 and onward.
1.6.

Pharmacovigilance & Quality Assurance

Pharmacovigilance & Quality Assurance is largely responsible for three areas: (1) quality assurance for
manufacturing, (2) safety control for the vigilance of side effects and adverse events and (3) Postmarketing Surveillance (PMS) for pharmacovigilance. The objectives of (1) is quality assurance and stablesupply of products, and (2) and (3) are to avoid causing drug-induced diseases and to pass re-examinations,and it is important to achieve these objectives efficiently within pertinent laws and regulations.
We filed re-examination of Lunabell® ULD and completed compliance inspection in February 2018.
Currently, the authorities are reviewing its re-examination application documents. For Nobelbar®, theCompany received a notice of re-examination result in December 2017, and it passed re-examination
through the result of not meeting any of the events of denial (Category 1).

10/18

In terms of safety-related matters, we adequately carried out post-marketing surveillance of Nobelzin®
associated with a new indication of hypozincemia and worked on collecting safety information. Also, we
revised package inserts of five products.
In terms of post-marketing surveillance-related matters, we commenced a specific use survey ofNobelzin®, a treatment for hypozincemia, using the collaboration/cooperation system with the Medipal
Holdings Group. For use investigation of TITANBRIDGE®, we are proceeding with planning andimplementation under a new scheme in collaboration with Foundation for Biomedical Research andInnovations.
In terms of quality-related matters, in line with the NDA filing of TITANBRIDGE®, we completedcompliance inspection of QMS (Quality Management System) in October 2017.
In 2017, the number of domestic and overseas adverse event reports was 3,583 and 1,198, respectively.
In 2016, it was 5,100 and 1,865, respectively.
The table below shows the comparison of personnel cost and general and administrative expenses inPharmacovigilance & Quality Assurance in 2016 and 2017.
2016 (‘000 yen)2017 (‘000 yen)

Personnel cost

314,981

325,694

General and administrative expenses

449,336

318,250

Total
764,317643,944
In 2017, we improved resources and work process including enhancement of data quality while we
responded to re-examination of two products, established QMS system of medical device and started a
use survey of two products. As a result, we reduced entire expenses by 15% compared with 2016.

1.7.

Regulatory Affairs

Regulatory Affairs is responsible for administrative procedures related to the Act on Securing Quality,
Efficacy and Safety of Products including Pharmaceuticals and Medical Devices (PMD Act), negotiationsof NHI price and material price, and research and proposals on NHI price system reform, and works toprevent the Company from deviating from medical-related laws and regulations. It works on obtaining afair price of the Company’s products and maximizing business value through NHI price negotiations alongwith research and proposal activities.
In terms of development, Regulatory Affairs, jointly with Research & Development, discusses all our
products with PMDA.
After the Japanese Ministry of Health, Labour and Welfare (MHLW) requested all pharmaceuticalcompanies in Japan to review certificates of approval, Regulatory Affairs held regular meetings with
Product Management and Quality Assurance to obtain and check information/data on drug manufacturing
by domestic and overseas OEM suppliers and to detect early any difference between certificates ofapproval and the actual status of manufacturing, and ensure prompt responses to the authorities.
In-house Product Material Committee reviewed 139 sales promotion materials of drugs while theindustry set self-standards and required preparing and providing reasonable sales promotion materials.
The Committee revised and advised as necessary to ensure that adequate sales promotion materials areprovided to medical institutions.
In terms of patient relations, the Company has communications with 20 patient groups and lent its
meeting rooms 27 times a year and in addition, 35 employees actively participated as volunteers.
Accordingly, the Company received a high evaluation from patient groups with keeping a good
relationship.
For NHI/material price-related matters, an increase in staff enabled improvement of precision of theestimated NHI price of development candidates and also contributed to improving the probability ofbusiness feasibility. In addition, we explained Cosmegen®, an unprofitable item, to the authorities andrealized price revision of 20% in NHI price revision in April 2018.
The Company proceeds with research and proposal activities on healthcare policy in Japan including
NHI price reform through activities as a board member of Samurai Biotech Association. Samurai Biotech
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Association submitted a request to the Minister of MHLW, gave opinions before the Special Committee
on Drug Prices in Central Social Insurance Medical Council and participated in the hearing by the Care
Working Group in Regulatory Reform Promotion Council, and produced the results.
Regulatory Affairs increased staff in both regulatory affairs and NHI price operations to strengthen andenhance development regulatory affairs and NHI price negotiations.
1.8.

Funding and Major Lenders

In 2017, the Company borrowed 2,100 million yen and repaid 906 million yen to financial institutions.
The resulting balance of loans payable and bonds as of December 31, 2017 was 5,712 million yen. As
the Company has cash and deposits of 4,282 million yen, the actual amount of borrowing is 1,430 million
yen (2016: 861 million yen).
As of December 31, 2017, the status of borrowing is as follows:
Short-term loans payable
Sumitomo Mitsui Banking Corporation, Kandaekimae Branch

500 million yen

Long-term loans payable
Mizuho Bank, Ltd., Yokoyamacho Branch
Sumitomo Mitsui Banking Corporation, Kandaekimae Branch
The Shoko Chukin Bank, Ltd., Kanda Branch
The Bank of Tokyo-Mitsubishi UFJ, Ltd., Odenmacho BranchJapan Finance Corporation
The Tokyo Shinkin Bank, Nihonbashi Branch
Resona Bank, Akihabara Branch
Total

1,080 million yen
590 million yen
392 million yen
297 million yen
121 million yen
72 million yen
60 million yen
2,612 million yen

Balance of bonds
Straight bond2nd straight bond -> Osaka Soda Co., Ltd.
3rd straight bond -> Medipal Holdings Corporation
4th straight bond -> Mizuho Bank, Ltd.
5th straight bond -> The Shoko Chukin Bank, Ltd.
6th straight bond -> Resona Bank, Ltd.
Total

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500 million yen
1,200 million yen
500 million yen
100 million yen
300 million yen
2,600 million yen

1.9.

Financial Results, Assets and 2016 Forecast

The Company’s financial results, assets and 2018 forecasts are as follows:
2014

2015

12th year

13th year

2016

mil yen except for *Sales
Ordinary income
Net income

6,628

7,435

577

△270

2017
(Actual results)
14th year
15th year
6,791
7,236
△56

2018
(Forecasts)
16th year
10,160

161

607

240

157

93

53

402

182,000 yen

54,000 yen

80,000 yen

4,000 yen

29,000 yen

Total assets

9,291

9,671

7,671

8,975

9,105

Net assets

1,238

984

691

685

2,415

* Net income per share* Equity ratio* Net asset per share

13.2%

10.2%

9.0%

7.6%

26.5%

941,000 yen

844,000 yen

593,000 yen

58,000 yen

178,000 yen(Note) In FY2017, one common share of the Company was divided into ten (10) shares of common share.

1.10. Employees
As of March 1, 2018, the number of employees is 259 (including a total of 100 including 34 seconded
employees, 19 temp staff, and 47 contract employees but excluding directors) with an average age of 52.0.
The number of employees increased by 24 compared with 235 (including seconded employees) as ofMarch 1, 2017.
Total personnel costs including expenses for seconded employees and temp staff were 2,110 million
yen, up 8.0% year-on-year, of which, expenses for temp staff were 63 million yen. The major reason ofincrease was recruitment of 15 contract MRs, mainly young staff, with an aim of reinforcing andincreasing staff in sales departments in preparation for new indication of Nobelzin® and a series oflaunching of new products in the future. The number of staff in other departments slightly increased otherthan an increase in staff associated with preparation for overseas business. Although the Company does
not recruit new graduates simultaneously, we recruit postdoctorals and those with equivalent status
regularly. We recruited two in 2016, and additionally one will join us this April. We have recruited nine
postdoctorals in total since 2012 and plan to continue to recruit a few every year.
The average age of the Company has been younger through these recruiting activities, which is intended
to compensate for bias toward seniors and to maintain and revitalize the organization.
Although certain departments kept monthly average overtime of more than 20 hours, overtime was
improved in the entire company due to a review of work process and split of work and promotion ofvarious systems in view of work-life balance. In FY2017, monthly average overtime was approximately
9 hours, which was the same as the previous year. In line with dissemination of various systems related totransformation of working style, the rate of annual paid leave taken by employees in 2017 was 76.1%,
maintaining a high level as in the previous year.
In January 2017, we renewed the personnel system drastically for the first time since the establishment,
including a review of the compensation package, introduction of the retirement lump-sum grants systemand transparent personnel evaluation system. We strive to disseminate these initiatives over the year andalso work on such themes as transformation of working style and healthy management. Specifically, we
have launched various systems including promotion of taking paid leave, teleworking, consecutive leavesystem and encouraging use of a help program to quit smoking.
1.11. Issues
In 2018, there are five company-wide issues as follows:(1) Strengthening sales of Nobelzin® and securing profit(2) Obtaining approvals of development items as planned and obtaining profitable drug prices(3) Full-scale development for overseas marketing authorization and preparation of overseas sales
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(4) Active access to seeds from academia(5) Optimization of cost of related operations such as post-marketing surveillance and effective use of
external resources
The Sales & Marketing mission is to ensure achievement of this year’s sales target of 17.7 billion yen(8.3 billion of Lunabell®, 6 billion yen of Nobelzin® and 3.4 billion yen of other direct sales and copromotion products) on an NHI price (wholesale price) basis. The most important mission is to achievesales of Nobelzin® that meet or exceed its sales target of 6 billion yen. As measures to strengthen sales ofNobelzin®, we established the Nobelzin® Mobilization Project Division in the previous year to actively
recommend zinc substitution therapy (Nobelzin®) to all hospital departments. We will make further efforts
to spread Nobelzin®. In particular, in the first half of 2018, Sales & Marketing will invest 70% of its
operating resources (manpower, goods and capital) in “hypozincemia” of Nobelzin®. Regarding thepractitioner market to which the Company does not have access, the Medipal Holdings Group to which
we outsource full operations from promotion to PMS is working on it as a top priority. The Company also
outsourced similar business to ASKA Pharmaceutical Co., Ltd. for certain facilities of obstetrics andgynecology.
In addition, we will proceed with the smooth launch of TITANBRIDGE® approved in December 2016,
Rapalimus® Gel approved in March 2017 and Jemina® combination tablet scheduled to be approved inJune.
We will strengthen collaboration with the Medipal Holdings Group and promote personnel exchange.
The tasks of Business Development & Strategy to find new themes continue to include target validation
presenting the relation with disease and clinical predictability, and collaboration with the aim of active
introduction and commercialization of academia seeds closely taking into account safety and competitionof intellectual property rights.
We continue to make an effort to acquire public subsidy and financing of development expenses forcommercialization. Also, we consider external project finance in parallel.
We will proceed with negotiations for cost reduction in negotiations of alliance management in theexisting business and procurement, and make an effort to acquire additional increase in revenue innegotiations of revision of the existing agreements.
Research & Development will push ahead the development schedule, with the aim of obtaining anapproval of Jemina® combination tablet (NPC-16) and myringa regeneration (NPC-18) early andsubmitting the NDA for melatonin (NPC-15) in April 2019.
In view of overseas expansion, based on the aforementioned big strategy of launching three products of
TITANBRIDGE®, Rapalimus® Gel, and NPC-18 in three regions including North America, Europe andChina at the same time, the Company will file the NDA for TITANBRIDGE® in Europe and the US in
2018, and start pre-IND meetings with the US FDA and Scientific Advice meeting with the EU EMA formalaria vaccine, Rapalimus® Gel and NPC-18.
Concerning the safety assurance of pharmaceutical products, we actively examine the introduction of
the EDC (Electronic Data Capture) system to improve the quality of survey data and streamlining
collection of survey slips and follow up. We have already used EDC for a specific use survey of Nobelzin®,a treatment for hypozincemia, which is currently being conducted, and plan to introduce EDC for a use
survey of TITANBRIDGE®, which is under planning.
For safety management, we are working on effective use of the database of the IT system (ARIS-J) that
we introduced in 2015 in cooperation with IT section. In addition, we will proceed with correction ofoverengineered workflows and standards within the scope of compliance and from a scientific perspective.
While realizing the two points of avoiding causing drug-induced diseases and passing re-examinations,
we will slim down our organization and structure within the scope of compliance to reduce cost.

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As an effective use of outside resources, we will deepen collaboration and cooperation with the Medipal
Holdings Group and Foundation for Biomedical Research and Innovations to promote and manage postmarketing surveillance-related operations under the unprecedented new scheme.
As for production, Supply Chain & Manufacturing are working on various tasks for launching three
products to be launched, Rapalimus® Gel, TITANBRIDGE® and Jemina® combination tablet, asscheduled, and ensuring stable supply.
Regulatory Affairs is now required to actively support both Research & Development andPharmacovigilance & Quality Assurance, and to help efficient and speedy response to the authority. It
also utilizes the know-how for NHI/material price negotiations to involve a development strategy andsupport active responses to the authority from the development phase, and it aims to obtain adequate prices
for new drugs and medical devices. In addition, it will scrutinize unprofitable items and apply“recalculation for unprofitable items” for certain items that it deems necessary. It also follows drasticallychanging NHI price reform and health insurance reform to involve in-house strategies from a technicalperspective. In addition, through activities of Samurai Biotech Association of which the Company is aboard member, research, lobbying and advising the authorities will be continued.
The tasks of corporate planning and accounting (Administrative Affairs & Corporate Planning) are atfirst, to increase the accuracy of budgetary variance analysis and the forecasts to implement the annual
budget for certain and to put into place a flexible management system capable of addressing additional
measures expansively in case of the slowdown of business performance. Secondly for financial affairs,
we will examine financing of around 1 billion according to conditions to maintain sufficient cash in handto ensure flexible response to unscheduled development fund needs while we have pledged cash depositsof 2,050 million yen to our two proposals adopted by CiCLE in addition to scheduled payment of theexisting borrowing. Considering risky development themes and full-scale overseas development, theCompany will consider flexible financing and the introduction of risk money.
As for the issue of human resources and general affairs (President’s Office), we will proceed withcorrection of age composition and balance of employees, which has been leaning towards seniors, andaccordingly, it is very important to perpetuate and activate the organization. As the average age of theCompany’s employees was 52 years old, keeping an aging composition, we continue to recruit
postdoctorals and further promote personnel exchange with the Medipal Holdings Group. By these
initiatives, we will secure and foster successors of important works/positions including the president inaddition to improvement of employee composition and balance.
In order to disseminate the new personnel system introduced in January 2017 to all employees, we
believe it is important to carry out necessary reviews and revisions of implementation methods flexibly toestablish it as the system truly contributing to employees. We are also strongly promoting teleworking
and support to quit smoking.
Overall, in 2017, income was unsatisfactory due to an increase in research and development expenses
though both sales and income increased backed by the new indication of Nobelzin®. In 2018, we aim atincreasing both sales and income by actively promoting investment in research and development in Japanand abroad in anticipation of an increase in sales due to full-scale sales of Nobelzin® and contribution of
new drugs including TITANBRIDGE®, Rapalimus® Gel and Jemina® combination tablet.

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The following shows the numerical targets for the mid-long term future vision of sales and profit as an
immovable high goal named North Star. We believe that these targets are in range.
North Star

2020

Sales

20 billion yen

Ordinary income

5 billion yen

Net income

3 billion yen

1.12. Other Important Matters
No matters requiring special attention
2.

Current Status of the Company

2.1.

Shares (as of December 31, 2017)(1) Number of shares authorized(2) Number of shares issued

Ordinary share
Special-class share(3) Number of shareholders(4) Status of Major Shareholders
Hisanaga & Company (ordinary share)
Medipal Holdings Corporation (ordinary share)
Inabata & Co., Ltd. (ordinary share)

50,000 shares
11,650 shares
1 share4

10,000 shares
830 shares
820 shares(85.8%)(7.1%)(7.0%)In April 2017, one common share of the Company was divided into ten (10) shares of common shareto ensure a more flexible capital policy. One share of the special-class share issued in June 2017 was
repurchased as treasury stock and cancelled in January 2018.
2.2.

Share Warrant

2.2.1.

Share warrant that is issued to and held by the Company’s executive officers as
consideration for execution of their duties
Not applicable
2.2.2. Share warrant that is issued to and held by the Company’s employees as consideration for
execution of their duties
Not applicable
2.2.3. Share warrant in issue
Not applicable
2.3.

Corporate Executives

2.3.1. Management Reshuffle(1) Scheduled directors (scheduled on March 26, 2018)
Jin Shiomura(CEO and President)
Isamu Sojyo(former Executive Managing Director of Japan Intellectual Property
Association, former General Manager of Intellectual Property Department at
Mitsubishi Chemical Corporation)
Nobukuni Taneya (Part-time director, Arara Inc.)
Takahisa Iizuka(Deputy General Manager, Business Development Division, Medipal
Holdings Corporation)
Nobukazu Kuboi (General Manager, Financial Management Office and General Manager,
Accounting Dept., Inabata & Co., Ltd.)
Toshio Miyata(Director of Mih Clinic Yoyogi)
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(2) Director to resign (scheduled on March 26, 2018)
Eiji Suzuki(Corporate advisor)(3) Directors and Company Auditors
As of March 26, 2018, the status of full-time and part-time directors is as follows:
CEO and President:

Jin Shiomura

Directors (part-time):

Isamu Sojyo(former Executive Managing Director ofJapan Intellectual Property Association,
former General Manager of Intellectual
Property Department at Mitsubishi
Chemical Corporation)

Directors (part-time):

Nobukuni Taneya(Part-time company auditor of Arara Inc.)

Directors (part-time):

Takahisa Iizuka(Deputy General Manager, Business
Development Division, Medipal Holdings
Corporation)

Directors (part-time):

Nobukazu Kuboi(General Manager, Financial Management
Office and General Manager, Accounting
Dept., Inabata & Co., Ltd.)

Directors (part-time):

Toshio Miyata(Director of Mih Clinic Yoyogi)

Company Auditor (parttime):

Yoshitaka Kishi(Former full-time company auditor, Dia Rix
Co., Ltd.)(4) Executive Officers
As of March 26, 2018, the status of executive officers and directors is as follows:
Vice President & Chief
Operating Officer:

Shigeki Shimasaki(Head of Research & Development)

Chief Operating Officer:

Tsutomu Sugaya(Head of President’s Office)Senior Executive Officer:

Tetsuo Hayase(Head of Supply Chain & Manufacturing)

Senior Executive Officer:

Soichi Ikegaya(General Marketing Compliance Officer,
Head of Pharmacovigilance & Quality
Assurance)

Senior Executive Officer:

Arata Tabata(Head of Business Development &Strategy)

Executive Officer:

Kenji Shimizu(General Manager of R&D Department 2)

Executive Officer:

Akira Ikeda(Head of Human Resources and General
Affairs, President’s Office)Executive Officer:

Masato Iwamoto(General Manager of Supply Chain
Management, Supply Chain &Manufacturing)

Executive Officer:

Hitoshi Hasegawa(Head of Pharmacovigilance & Quality
Assurance)

Executive Officer:

Yoshinobu Takahashi (Head of Marketing & Sales)

Executive Director:

Yoshihide Yamamoto (Deputy Head of Marketing & Sales)

Executive Director:

Masanori Osakabe(Deputy Head of Research & Development)

Executive Director:

Yoshiki Yagi

(Deputy Head of Business Development &Strategy)

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2.3.2.

Executive Director:

Akira Yumoto(Branch Manager of Tokyo Branch,Marketing & Sales)

Executive Director:

Toshiaki Okamura(Head of Regulatory Affairs)

Executive Director:

Kozo Hayase(Head of Administrative Affairs &Corporate Planning)

Executive Director:

Atsunori Iwao

(Quality Assurance Officer, Head of
Pharmacovigilance and Quality Assurance)

Executive Director:

Takako Aburada(General Manager of CMC Development,
Supply Chain & Manufacturing)

Remuneration paid to directors and company auditors
Classification

2.4.

Head-countAmount paid

Directors

6

12,027,000 yen

Company auditor

1

2,738,000 yen

Total

7

14,765,000 yen

Matters related to accounting auditor

2.4.1
Name of accounting auditor
Deloitte Touche Tohmatsu LLC
2.4.2
Amount of remuneration, etc. for accounting auditor
Amount of remuneration, etc. for accounting auditor in the current business year 13 million yen(Note 1) This is remuneration, etc. for business stipulated by Article 2, Paragraph 1 of the Certified
Public Accountants Act (Law No. 103 of 1948) and compensation to audit certification under
the Companies Act.
2.4.3
Reasons that company auditor approves remuneration, etc. for the accounting auditor
The company auditor obtained necessary documents and received reports from the relevant departmentof the Company and the accounting auditor, and confirmed and verified the details of the accounting
auditor’s audit plan, the status of the execution of duties by the accounting auditor and calculation basisof estimated remuneration. As a result, the company auditor determined that the amount of remuneration,etc. for the accounting auditor was appropriate and approved it in accordance with Article 399,
Paragraph 1 of the Companies Act.
2.4.4
Policy on decision to dismiss or not to reappoint accounting auditor
When the accounting auditor meets any of the items of Article 340, Paragraph 1 of the Companies Act,and when it is deemed to be difficult to carry our adequate audit due to events that damage theaccounting auditor’s quality and independence, the company auditor may determine the details of a
proposal on dismissal or refusal of reappointment of an accounting auditor to be submitted to a general
meeting of shareholders.

End of document

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