TOWA
PHARMACEUTICALINTEGRATED REPORT

2021

INDEX

VisionOur History and Today

We contribute to people’s health
We are dedicated to people’s genuine smiles

1
2
3
5
7

VisionContents and Editorial Policy
Our History
Social Issues Addressed by Towa Group
Towa Group’s Strength

Towa Group’s Value Creation

Genuine smiles

People’s health

9 Feature Topic 1: Quality Control and Stable Supply
11 Feature Topic 2: Developing Overseas Market
13 Financial and Non-Financial Highlights
15 Message from the President
21 Our Value Creation Process
23 External Environment Surrounding Towa Group
24 Towa Group’s Capital
25 Looking Back on Previous Mid-term Business Plan
26 New Mid-term Business Plan
30 Businesses Pursued by Towa Group

Foundation Supporting BusinessSupporting genuine smiles througheverything that is contributing to health

Towa Group contributes to people’s health by creating superior products and services.
Through our corporate activities, we aim to be a company that is valued and needed by patients,
medical professionals, local communities, and others.

31 Governance
35 Risk Management
36 Risk Information
37 Compliance
38 Message from the Outside Directors
39 Board Members
40 Society
46 Environment

Financial and Corporate Data
47 11-Year Financial Summary
49 Management Discussion and Analysis of Financial
Position, Operating Results, and Cash Flows
51 Corporate Data

[ Editorial Policy ] We issue Towa Pharmaceutical Integrated Report to communicate to shareholders, investors, and other stakeholders
Towa Group’s efforts to enhance our corporate value. This year’s report presents our value creation story in the value
creation process and the message from the President. It also explains our efforts to realize our vision through the 5th
Mid-term Management Plan (2021–2023) PROACTIVE II formulated in May 2021. We strive to improve the content of thereport to respond to various opinions and interests of our stakeholders. We look forward to your candid feedback.
[ Scope Covered ] Towa Group’s consolidated accounts including some consolidated and non-consolidated figures in Japan.
[ Period Covered ] FY2020 (From April 1, 2020 to March 31, 2021)* The financial information is as of March 31, 2021. The report also covers some initiatives that were taken before April 1, 2020 or after March 31, 2021.

[ Guidelines for Reference ] International Integrated Reporting Framework issued by the International Integrated Reporting Council (IIRC)
Guidance for Collaborative Value Creation issued by the Ministry of Economy Trade and Industry[ Forward-looking Statements ] In this report, described statements other than historical facts are future forecasts based on forward-looking statements
and plans. These future forecasts contain factors, such as risks and uncertainties, and actual results and performances
may differ from the forward-looking statements.

1

TOWA PHARMACEUTICAL Integrated Report 2021

TOWA PHARMACEUTICAL Integrated Report 2021

2

Our History

History of Towa

1951

Production system

Since our establishment in 1951, we have strived to research, develop,
manufacture, and sell generics for 70 years. While promoting stablesupply, quality assurance, and information provision, we will continue
to focus on research and development of ingenious pharmaceuticalproducts that are “easier to take” and “easier to handle.” At the sametime, we work to construct a structure that can provide Towa Group’s
value-added products to patients around the world and to create newhealth-related businesses in response to the new medical system.

2000
Itsuro YOSHIDA was appointed President
and Representative Director

1957

Started selling OTC drugs

1965

Shifted to manufacturing andselling ethical drugs from OTC
drugs

Production system

Production capacity

14.0 billion
tablets

11.5 billion
tablets

Production capacity

2010

JPY

154.9

billion

11.0 billion
tablets

2019

Consolidated Sales
for FY2020

Production system

Acquired Daichi Kasei Co., Ltd. asa subsidiary

2018

140.0

Production capacity

10.5 billion
tablets
120.0

Production capacity

Established Greencaps
Pharmaceutical Co. Ltd.

Launched value-added products

14.0 billion
tablets

Acquired Pensa Investments, S.L.
in Spain as a subsidiary to enter
into new markets
Current trade name: Towa Pharma
International Holdings, S.L.

2016

*The years shown are fiscal years.

1996

Established14.0 billion
tablets

8.5 billion
tablets

Production capacity

7.5 billion
tablets

Established T Square Solutions Co., Ltd.
as a joint venture with TIS Co., Ltd. tocreate new businesses

100.0

2003

Acquired J-Dolph Co., Ltd. asa subsidiary

2004

Established
RACTAB Technology

60.0

2004

Listed on the first section of
the Tokyo Stock Exchange

40.0

80.0

1997
Constructed new corporate headquarters

1998
Constructed Osaka Research Center

20.0[ Trends in Consolidated Sales ]1951 1970

1980

1990

2000

2002

2003

2004

2005

2006

2007

2008

1st Growth Period from our establishment to FY2001

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

0

2nd Growth Period from FY2002 to FY2020
3rd Growth Period
from FY2021

History of initiatives based on measures to promote the use of generics
Generics volume share targets set
by the government
Osaka
Production
OkayamasystemYamagata

Sales
system3

TOWA PHARMACEUTICAL Integrated Report 2021

1977

1983

Constructed
Osaka Plant

1981

Constructed
Osaka 2nd Plant

Completedrebuilding thesolid formulation 1995
building inOkayama Plant

2007

30% or more
by FY2012

1998

60% or moreby the end of FY2018(Production capacity:
2.5 billion tablets)

Expand theformulationbuilding
Purchased Mect Co., Ltd.’s
Tohoku Plant

Boosting volume share target of generics up to 70% ormore in mid-FY2017 and 80% or more in
the earliest possible period before the end of FY2020

Constructed New Osaka Plant(current Osaka Plant)

2005
Constructed
thepackaging 1996
building

2015

2013

2012

2008

Started the plan
to construct
Yamagata Plant

2012

by September 2020

Expanded the warehouse andtesting area in the Osaka Plant

2013

Constructed the 2nd solid
formulation building in WestJapan Distribution Center
Constructed Yamagata
Plant and East Japan
Distribution Center

2016

Expand the 2nd solid
formulation building(Production capacity: 2.5 billion tablets→ 3.5 billion tablets)

2017(Production capacity:
2.5 billion tablets)

2011
Towa Direct Sales
System2017

80% or more

2017

Constructed(relocated)
2017
East Japan
Distribution Center

Sales offices (as of October 2021): 71 offices
Agents (as of October 2021): 31 agents at 59 sites
Started collaboration with two wide-area wholesalers in 2017

Rebuilt the solid
formulation building(Production capacity: 3.5 billion tablets→ 5.0 billion tablets)

Renovated the solid formulationbuilding and constructed the
2nd solid formulation building(Production capacity: 2.5 billion tablets→ 3.5 billion tablets)
The production system achieved 6.5 billion tablets, andthe Company has expanded its facilities since 2019.

Shifted to
Towa Sales System

TOWA PHARMACEUTICAL Integrated Report 2021

4Social Issues Addressedby Towa Group

Japan’s National Health Insurance System boasts thehighest degree of fulfillment in the world. Every individual
must save on medical costs to maintain this system. In thisregard, choosing generics is an easy way for everyone tosave the costs and one of the possible social contributions
in our daily lives. We will address the social issues bycreating related businesses that contribute to human healthwith generics business set as our core business.

Challenges

Towa Group’s Initiatives

Swelling medical costs in Japan

Generics contribute to cutting medical costs

To maintain the National Health Insurance System in the future

Offering more than 750 products in our lineup

In Japan, medical costs continue to increase at a rate of
approximately JPY 1 trillion per year in the context of an aging
population and sophisticated medical care. The Ministry of Health,Labour and Welfare estimates that the amount will exceed JPY 60
trillion in 2025. On the other hand, as the workforce supporting
insurance premiums and taxes decreases, the prerequisites for systemdesign are likely to collapse. If medical costs continue to swell as
estimated, some undesirable events may happen: an increase inpatients’ burden of medical costs and the taxes, and a loss of accessto medical care that we naturally have had up to now. Stemming theincrease in medical costs is essential to keep the National Health
Insurance System in the future.

Desiring to be of service to as many patients as possible, we provide
value-added generics through cumulative improvements by
responding to and satisfying requests voiced by medical
professionals. We offer more than 750 products in our lineup to covervarious therapeutic areas. We manufacture our products withparticular attention to active pharmaceutical ingredients (APIs) todeliver safe and secure generics, which is one of our unique features.
Our mission is to deliver drugs that are not merely low-cost but “moreeasily taken and handled” to a large number of people.

Medical costs continue toincrease at a rate of approx.
JPY 1 trillion per year

1985 1990 1995 2000 2005 2010 2015 2025

(Forecast)“Outline of National Medical Care Expenditure in 2015”
released by the Ministry of Health, Labour and Welfare“Materials for the Medical Insurance Subcommittee, 76th
Social Security Council”

Choosing generics cuts medical costs
Choosing generics enables us to cut the burden of medical costs(drug costs). This will reduce both the burden of medical expenses on
individuals and contributions by the Japanese government and healthinsurance associations. For instance, we can save approximately JPY
900.0 billion in the annual cost of drugs just by replacing as many
drugs as possible with generics.

New drugs

Raw materials costand business
operation cost

Generics

Raw materials costand business
operation cost(brand-name drugs)

Ingenuity for products that can be more easily and safely taken by patients
Orally disintegrating (OD) tabletsthat can be taken without water

Micro-granulation that reduces roughness
perceived when taking medicines

Smaller tablets with the same amountsof active ingredients

Masking technology used to reduce
bitterness by coating tablets

Product name printing to make medicine
identity easily discernable even after scoring

Efficacy labels and letters to make drugs
more easily discernable

R&D expenditure

R&D expenditure

Efficacy label*Our estimation as of July 2021

Comparison of drug prices (conceptual chart)

5

Extension of healthy life expectancy and disease prevention

Considering care of pre-symptomatic diseases and disease
prevention as well as contribution in medical care

Extending the healthy life expectancy toward the era of the 100-year Lifeis a major issue in Japan facing a super-aging society. The healthy life
expectancy is proposed by World Health Organization (WHO) in 2000. In
the past, we had emphasized the average life expectancy of a child aged
0, indicating how many years he or she can live. However, the healthy life
expectancy, a period of healthy living, has attracted attention in recent
years. Preventing disease and staying healthy and active is key toprolonging the healthy life expectancy. Moreover, extending the healthy
life expectancy is essential from the viewpoint of curbing medical costs.

Based on our vision: “contribute to the health of people,” we aim at
contributing to medical care through generics business as well as throughthe care of pre-symptomatic diseases and disease prevention to extend
the healthy life expectancy. In the care of pre-symptomatic diseases, weare developing a wide range of health-related initiatives, including
developing new products and services, looking at returning conditions
before the onset of illness to healthy conditions or preventing them fromdeteriorating. We have started initiatives for disease prevention, such as
disease risk testing service business to keep good health.

TOWA PHARMACEUTICAL Integrated Report 2021

TOWA PHARMACEUTICAL Integrated Report 2021

6

Towa Group’s Strength

Development of APIs

Generics are marketed later than new drugs (brand-namedrugs); therefore, we can produce better products with thesame efficacy, quality, and safety as the new drugs byutilizing the latest formulation technologies. We areengaged in various initiatives to provide easy-to-take,easy-to-handle, safe drugs, let alone quality and safety.

Development of APIs

We use APIs meeting our original strict quality standard among countryauthorized APIs. We also actively research APIs and select the best APIs
for creating products based on our accumulated know-how. Additionally,
we have established a manufacturing method for the APIs in-house and asystem to outsource the production of the APIs to Daichi Kasei Co., Ltd.,a group API manufacturer, and a collaborative APIs manufacturer. We
regularly inquire and confirm each manufacturer whether it manufactures
the drugs in accordance with standards, laws, and regulations to enable
the stable procurement of the API.

Information provision

Relatedinformation
See page

27.

Relatedinformation
See page

42.

7

TOWA PHARMACEUTICAL Integrated Report 2021

40.

Fostering of talented human resources

In order to be a trustworthy company, we comply with strict quality
control standards stipulated by the government, from product R&D,
manufacturing, marketing, and after-sale operations. We carry out
company-wide quality control initiatives to establish the quality assurance
system required for ethical medicines. Especially in manufacturing
pharmaceutical products, we strive to ensure adequate quality and safety
through our specific system, education and training, and other ways aswell as to comply with the Good Manufacturing Practice (GMP)
established by the government and other related laws and regulations.

Active provision of relevant information to enable patientsand medical professionals to feel comfortable while using
ethical medicines
We have established a system that enables the prompt and appropriate
provision of information on the proper use of our products and academic
information to medical professionals, mainly through specially trained
medical representatives (MR), to ensure that generics are used withreassurance. We also provide patients and their families with information
to ensure their safe use of pharmaceuticals. In addition to providing
information, we collect opinions from medical institutions and share
feedback internally for creating better products.

Relatedinformation
See page

Working diligently to ensure reliable quality and safety

Relatedinformation
See page41.

We have the lineup consisting of more than 750 products to cover various
therapeutic areas. With the desire to serve as many patients as possible,
we offer value-added generics by responding to voices and requests frommedical professionals and reflecting them in our manufacturing process.
Among them, we have been developed better dosage forms and tastes
so that they can be easily taken by pediatric patients and the elderly, andenhanced visibility and stability against light, temperature, and humidity
so that they can be easily handled at hospitals and pharmacies.

Quality control

Information provision

Established production capacity with three plants toensure stable supply at any time

*Production capacity of tablets and capsules

41.

Based on our technologies and experiences, developing
products that can be more easily taken and handled

Stable product supply

By adopting a back-up system supported by three sites, we ensure that any
production disruption at one plant can be compensated by efforts at the other plants.
Furthermore, by dividing the physical distribution bases in East Japan and West Japan,
we have established an efficient arrangement and a reliable back-up system even in aworst-case scenario. At present, all the three plants can produce a total of 11.5 billion
tablets* annually. We are expanding our production volume to 14.0 billion tablets by theend of FY 2022, aiming for further increasing demand. Furthermore, we plan to build
3rd solid formulation building in Yamagata Plant by the end of FY2023 and achieve theproduction capacity of 17.5 billion tablets after FY2024.

Relatedinformation
See page

Product development

Quality control

Fostering talented human resources

Stable product supply

Developing and selecting the best API for
manufacturing products

Product development

Focusing on making job satisfaction and fostering talented
human resources aiming for being a reliable company
We aim to be a more trusted and needed company as a comprehensive
generics manufacturer. Under the belief that talented human resources are thefoundation of a trusted company, we work to make job satisfaction, foster
talented human resources, and strengthen our organization. The 5th Mid-term
Business Plan 2021–2023 PROACTIVE II that will end in FY2023 sets out“Making Job Satisfaction and Fostering of Talented Human Resources” as oneof the priority policies. While aiming for job satisfaction for each employee
motivated by individual talent improvement and career enrichment, we seek tostrengthen our system for encouraging employee growth.
Relatedinformation
See page

43.

TOWA PHARMACEUTICAL Integrated Report 2021

8

Feature Topic

1

Quality control andstable supply

each production process through thoroughmanagement using MES and LIMS systems in
addition to performing human check.

Towa works diligently to ensure reliable quality andsafety of generics.
In recent years, the generics industry saw various issues arising from quality and safety matters.
Towa acknowledges these incidents as a situation that may undermine trust in all generic drugs.
This section introduces our manufacturing control and quality control initiatives for pharmaceuticals.

Compliance with the threeprinciples of GMP
Pharmaceutical production is based on GMP*, astandard laid down by the nation for manufacturingcontrol and quality control of pharmaceuticalproducts. GMP is composed of three principles: 1)
minimizing human error, 2) preventing contaminationand quality degradation of medical products, and 3)
designing a system to assure high quality.
In order to have patients take generic drugs without
feeling uneasy, Towa not only complies with relevant
regulations including GMP ordinance, a standard for
manufacturing control and quality control ofpharmaceutical products, but also establishes its
original system and education and trainings, among
others, so that the employees can acquire proper
understanding of the meaning of “minimizing humanerror,” one of the GMP three principles. In this way,
we strive to assure adequate quality and safety ofgenerics.
To be specific, the procedures set out at all thethree plants of Towa, located in Yamagata, Osaka,
and Okayama, follow the three principles of GMP.
Furthermore, employee trainings are carried out on acontinuous basis to ensure high awareness among
each and every employee as a pharmaceuticalmanufacturer and to encourage such a mindset in thedaily work. In addition, we proactively adopted

9TOWA PHARMACEUTICAL Integrated Report 2021

international guidelines such as PIC/S GMP and ICH
Guideline to manufacture appropriate goods understricter rules and to create a system that is morecapable of eliminating human errors.
Mock audit was carried out at Yamagata Plant by
an external institution (former FDA investigator) to
confirm conformity with the international standards.
The plant was found to be compliant, and we are
expanding the audit to other plants as well.
*GMP: Good manufacturing practice. A standard for strict manufacturing control
and quality control in pharmaceuticals production.

Double checked by human andthe management system adopted
Towa works to minimize human errors, one of thethree principles of GMP, by introducing a
manufacturing execution system (MES*1) that
supports the management and control of production
process and gives directions to workers using
computers, and also a laboratory information
management system (LIMS*2) that supervises andcontrols the management of quality testing ofpharmaceuticals.
In parallel to these systems, the products aredouble checked by human to increase the eliminationof human errors. As a generics manufacturer that
produces a wide range of pharmaceutical drugs, weare making the detailed check system function at*1 MES: Manufacturing execution system. A system to manage and control
production process and give directions to and support workers.
*2 LIMS: Laboratory information management system. An integrated
management system for testing where analysis results are directly enteredinto the system from analytical instrument via network.

Education and training, andoriginal qualification system
In addition to implementing systems such as MES
and LIMS to minimize human errors in the
manufacturing process and the quality testing, we
prepared a manual that lists the details of theauthorization document and specifies thepharmaceutical requirements behind those rules, forobservation during production. We use this manual in
education and training intended to instill theimportance of adhering to the authorization
document in manufacturing products.
Furthermore, in addition to the general educationand training, we have introduced an original
qualification system to recognize those with higher
skills and knowledge in departments such as
manufacturing, packages, testing, and quality
assurance, as an “expert.” Our system ensures thatspecialists in each field perform manufacturingcontrol and quality control, in addition to promoting
the development of employees who have highawareness in quality assurance.

Furthermore, we have organized a structure
capable of providing technical advices and pointing
out technical matters by including members who
acquired qualification as a technical expert (in APIs,
formulation, packaging, etc.) in the audit team. We
will enhance the quality of GMP audit system throughthis approach, and going forward, strengthen theaudit system by increasing the frequency of fieldaudits. This will be done by implementing GMP
auditor and technical expert education across theCompany to raise the number of GMP auditors.
Headquarters and the three plants, meanwhile, aresharing information on quality issues and conducting
case studies to work towards continuous
improvement of quality control and to raiseawareness on the matter. Furthermore, regularbriefing sessions are attended by managements aswell. By building a system where information isshared across people from those working in the field
to top management without delay, we are striving toensure adequate quality and safety ofpharmaceuticals.

From personnel working in the field to top
management, information is sharedperiodically to bring about prompt cooperation

Management
Officers in charge
The Three Officers within Marketing
Authorization Holders of Medicinal Products
Headquarters Quality Assurance Division

Audit system backed by corporate
wide involvement
Currently, Towa manufactures over 750
pharmaceutical products. In order to bring to thepatients all these products after thorough quality
control, we are conducting periodic audits in ourplants as well as in outsourcing companies. The
audits are led by the Headquarters Quality Assurance
Division and are conducted by auditors certified
based on GMP auditor system established by theCompany.

Pharmaceutical Research& Technology Division

API Business Division

Okayama Plant

Yamagata Plant

Quality Assurance
Division

Quality Assurance
Division
Production Division
Osaka Plant
Quality Assurance
Division

TOWA PHARMACEUTICAL Integrated Report 2021

10

Towa Pharma International Holdings, S.L.

The EU/US Regional Headquarters
leads the business development inEurope and the United States.

Feature Topic

2

Developing
overseas market

As a comprehensive generics manufacturer in Japan, Towa makes efforts to strengthen its quality assurance system, maintain abroad range of product lineup, and manufacture sophisticated products with No. 1 total product performance, while aiming to offer
our value-added products to the overseas market. Based on our vision of “contribution to people’s health,” we are utilizing the sales
network in several European countries and the United States as well as the production bases in Europe compliant to European andthe United States standards to further expand our business not only in Japan but also globally.

EU/US Regional Headquarters located in six countries across Europe and the
U.S. and provides products to over 20 countries worldwide
Currently, the company has business bases in five European nations in addition to one in the United States. It
provides over 210* APIs of generics in over 20 countries worldwide. The company controls Pensa Pharma,
S.A., a generics sales company in Europe, Breckenridge Pharmaceutical, Inc., a pharmaceuticals sales
company in the United States, and Towa Pharmaceutical Europe, S.L, a company that owns B2B business,plants, and a R&D base. It steadily operates the existing business while providing Towa’s value-added
products to European and the U.S. markets in addition to promoting further advancement into new markets.

TOWA* The figure includes no double counting between Europe and the United States.

Headquarters location: Catalonia, Spain
Established: 2019
Business: EU/US regional headquarters
Number of employees: Approximately 30

Established a bridgehead in developing business in the European and the U.S. markets“Entry into new market” was laid out as one of our basic policyin the 4th Mid-term Business Plan 2018–2020 PROACTIVE. As
part of our efforts to deliver our value-added products tooverseas markets, we acquired Pensa Investments, S.L., agenerics business company, from a Spanish pharmaceuticalcompany, Esteve Group, in January 2020, making it aconsolidated subsidiary. In July of the same year, thecompany changed its name to Towa Pharma International
Holdings, S.L (hereinafter referred to as “Towa HD”).
This series of actions effected Towa’s advancement into
the overseas market to proceed in full swing. Having Towa
HD under our Group, we gained a market base for generics

in Europe and the United States, knowledge in the
manufacturing approval process in each country which had
been our long-standing issue in advancing overseas,knowledge in business practice in different regions, andproduction facilities that have experience of exporting
products to other countries and are in compliance with thestandards of competent authorities in Europe and theUnited States such as European Medical Agency (EMA) and
U.S. Food and Drug Administration (FDA). We expect that
Towa HD will play the role as a bridgehead in offering Towa
Quality products in a number of countries in the overseas
market in the future.

Aim to offer Towa’s value-added products in Europe and the U.S. markets
The 5th Mid-term Business Plan 2021–2023 PROACTIVE II thatbegan in FY2021 sets out “expanding and growing business inoverseas market” as the second policy. We intend to increase thenumber of countries and regions in the overseas market where our
products are sold while expanding the scale of our businessthrough initiatives such as achieving sustainable business growthwith Towa HD as a hub through new products launches in Europe
and the United States, developing Towa Quality products meetingthe needs of the overseas market, and exploration of market
opportunities in new countries/regions.
As for Towa HD’s business by region, it offers over 160 APIs
mainly for gastrointestinal drugs in Europe. We are working tomaintain and enhance our market competitiveness by launching
new products utilizing the strength in ingenious formulation suchas pellet formulation technology and implementing marketingstrategy based on the data of each market. Additionally, we are
expanding the B2B out-licensing of value-added products

developed in-house to a wide range of regions.
Meanwhile, over 70 APIs, mainly therapeutic drugs for highblood pressure and epilepsy, among other indications, are sold in
the U.S. market. Going forward, we will develop the business bycreating a strategic product portfolio based on our determinationof which product has the least competitor, can anticipate market
needs, and ensures profit, while reducing development risk byselecting business partners appropriately.
Furthermore, in order to offer our products that are acclaimed inJapan to overseas market in the future, we are exploring thepotential needs for our value-added products in overseas
countries and regions. We are also carrying out research activities
aimed at advancement into new markets in addition to Japan, theUnited States, and Europe. We intend to establish a global
business foundation centered around Towa HD to provide highquality, value-added generics to patients all around the world fromthe three poles, Japan, the United States, and Europe.

Overview of Towa Pharma International Holdings, S.L. GroupTOWA PHARMACEUTICAL CO., LTD.
TOWA

Pensa Pharma, S.A. (Spain)
toLife, Ltd(Portugal)
11

Pensa Pharma GmbH
(Germany)

TOWA PHARMACEUTICAL Integrated Report 2021

Towa Pharma International Holdings, S.L. (Spain)

Breckenridge Pharmaceutical, Inc. (United States)
Pensa Pharma, SpA(Italy)Pensa Pharma, AB(Sweden)Towa Pharmaceutical Europe, S.L. (Spain)

Pensa Pharma, S.A.
Generics sales company in Europe
Headquartered in Barcelona, Catalonia,
Spain, Pensa Pharma, S.A. engages insales of generics mainly in the European
market through its five bases in Europe.

Headquarters location: Catalonia, Spain
Established: 2006
Business: Generics business mainly in Europe
Number of employees: Approximately 180
Business bases: Five in Europe

Breckenridge Pharmaceutical, Inc.
Generics business company in the United States
Headquartered in Berlin, Connecticut, United States,
Breckenridge Pharmaceutical, Inc. engages in generics
business in the country. It analyzes the competitiveenvironment and the needs in the fast-changing U.S. market,
and builds and enhances strategic product portfolio.

Headquarters location: Connecticut, United States
Established: 1983
Business: Generics business mainly in the United States
Number of employees: Approximately 50
Business bases: One in the United States

Towa Pharmaceutical Europe, S.L.
Generics production base in Europe
Headquartered in Barcelona, Catalonia, Spain, Towa Pharmaceutical
Europe, S.L. engages in manufacturing of generics including thosemarketed as pellets, capsules, tablets, and liquid formulations. The
company also engages in the research and development of new
products. It operated under the name Dose Innova, S.L. before changing
it to the current name in June 2020. Since the company has production
facilities meeting the European and the U.S. approval standards, it takes
on an important role in realizing the policy of “developing Towa Quality
products meeting the needs of overseas market.”

Headquarters location: Catalonia, Spain
Established: 2019
Business: M anufacturing of pharmaceuticals and abase for research and development
Number of employees: Approximately 600
Building area: Approximately 35,000 m2
Products manufactured: Pellets, capsules, tablets,
liquid formulations, and others

TOWA PHARMACEUTICAL Integrated Report 2021

12

Financial Highlights

Non-Financial Highlights

Net sales

JPY

154,900

million(JPY million)
180,000

JPY

19,923(JPY million)
20,00084,94993,430

million19,923

154,900

90,000

Profit attributable toowners of parent

Operating profit

JPY(JPY million)
16,00013,475

2018

2017

2019

14,503（t-CO 2）40,00013,958

2021

2020

0

5,576

2018

2017

38,450 38,718 39,082
31,790

2019

2021

2020

(FYE March)

0

2017

2018

0.375

2019

2020

0

2021

2017

0.360

0.3

2018

2019

2020

2021

0

JPY

116,599

million116,599

JPY

245,668

104,665

230,016

91,771
74,94579,920165,247

60,000

12.6

(t)
2,000

245,668

15.7

10

7.7

1,301

2017

2018

2019

2020

2021

0

2017

2018

2019

2020

(FYE March)

8.4

2021

0

2017

2018

1,937

2019

2020

0

2021

2017

0.015

2018

0.016

2019

0.018

2020

JPY
(JPY)
300

283.62273.85294.74283.62

JPY
(JPY)
3,000

15.5
(%)
30

113.321,500

132.00

0.04

0.02

10

2021

0

0

9.2

10.3

10.6

2018

2018

61.8

%

13.1

15

0

Ratio of women in
new graduate hires

37.38

%

%

2017

2018

30

2019

2020

37.38

32.95

11.1

0

2021
(FYE March)

31.25
22.41

2017

2018

2019

15.5
50

43.6

51.5

53.7

2020

2021
(FYE March)* Towa (non-consolidated)* Towa (non-consolidated)

Employee turnover rate
within the first three years

2.80

%

Medical expense reduced%

JPY

228,434

million(JPY)
300,000

(%)
20

63.8
14.9

2021

2020

2019

0.166

(FYE March)

7.3

61.8
8.62

10

150,000

177,123 185,580
155,292

228,434
206,356

6.81

1.04
2017

2017

0.171

(%)
60

2.43
0

0

0.170

24.0

1,864.92

150

0

0.162

Energy use intensity
Energy usage* Three Towa plants* Per sales of JPY 1 million (non-consolidated)

11.1

0.017

(%)
100

27.9

2,369.21
2,126.72
1,522.99 1,624.09

2021

(%)
20

Ratio of paid leave taken

Dividend payout ratio

2,369.21

2020(FYE March)(FYE March)

Net assets per share

2019

t

Waste generation intensity
Waste generated* Three Towa plants* Per sales of JPY 1 million (non-consolidated)

Earnings per share

2018

2.464

0.2

0.167

39.89

1,000

(FYE March)

0.4

14,70810,000

2.352

1,385

0.016

0

kl

1,621
12.6

140,000

2017

2.619

Ratio of women in
management positions

1,887

14.8

188,803

177,1813

2.474

Water use intensity
Water usage* Three Towa plants* Per sales of JPY 1 million (non-consolidated)

1,937

%

(%)
20

18,361 19,108

17,448(FYE March)

Waste generated

million(JPY million)
280,000

150,0000

CO2 emissions intensity
CO2 emissions* Three Towa plants* Per sales of JPY 1 million (non-consolidated)(JPY million)
120,000

6

13,787(FYE March)

ROE

19,108(kl)
20,000

0.339

0.375

(FYE March)

Total assets

268,278 265,297 271,269

2.674(FYE March)

Net assets(m 3)
300,000m3

221,225 225,079

20,0006,495

0.6Energy usage271,269

t-CO2

34,078

0.384
8,000

Water usage

39,082

million

11,643
10,0006,869

013,95815,968 16,143

105,104 110,384

CO2 emissions

2019

2020

2021
(FYE March)

0

2017

2018

2019

2020

2021
(FYE March)

0

2017

2018

2019

2020

2021

0

2017

2018

2019

2020

2021

0

2017

2018

* Towa (non-consolidated)

2019

2020

2021

0

2017

2018

* Towa (non-consolidated)

New graduates only

2019

2020

2021
(FYE March)(FYE March)(FYE March)(FYE March)

2.80* Towa (non-consolidated)

Note: The Company conducted a 3-for-1 stock split of common shares effective April 1, 2019.
We calculated net income per share and net assets per share assuming that the said stock split had been conducted at the beginning of the fiscal year ended March 31, 2017.

13

TOWA PHARMACEUTICAL Integrated Report 2021

TOWA PHARMACEUTICAL Integrated Report 2021

14

T OP MESS AGE

With the generics business as our core,
we will increase our corporate value by
creating related businesses that
contribute to people’s health.
Itsuro YOSHIDA
President and Representative Director

Endeavoring to develop
products from patients’viewpoints
I would like to express my heartfelt sympathy to all
those who have contracted COVID-19 and to theirrelated people. I would also like to extend mydeepest gratitude to the healthcare professionals andothers, who are working so hard to prevent the
spread of the disease.
In June this year, we celebrated our 70th
anniversary. I would like to express my heartfelt
gratitude to shareholders, investors, and all otherstakeholders for their support over the years.
On June 1, 1951, Towa Pharmaceutical Company
was established in Osaka-shi and began wholesale
and brokerage of pharmaceutical raw ingredients.
Later, it was decided to transition to a manufacturer,
as the sale of pharmaceutical raw ingredients isdirectly affected by economic fluctuations, while theoperations of manufacturers are relatively stable. On
April 19, 1957, TOWA PHARMACEUTICAL CO., LTD.
was established for the purpose of wholesale andmanufacturing of pharmaceutical products. Initially,
we manufactured over-the-counter (OTC) drugs(non-ethical drugs). Although the going was tough,we managed to keep operating smoothly. With thelaunch of the National Health Insurance System inJapan in 1961, our predecessor predicted that ethical

15

TOWA PHARMACEUTICAL Integrated Report 2021

drugs covered by medical insurance would become
the mainstream, and decided to change the businessmodel even though the business at that time wasdoing well. He steered the business towards the
manufacture and sale of ethical drugs. The start of
the National Health Insurance System eliminatedfinancial concerns about undergoing treatment for
illness. I was still in elementary school at the time, butwhen I heard that a friend of mine had become ill andhad an operation with almost no medical expenses, I
realized that everyone, rich and poor alike, would be
able to receive treatment when needed. I was just achild, but to this day I still remember feeling that thiswas going to be a wonderful system.
It was in 1965 that we established a production
system for ethical drugs and started manufacturingthem. At that time, the term “generic drugs,” let alone“generics,” was not existent. Our predecessor did
everything he could to develop the business basedon his strong commitment to “making the world aplace where everyone can benefit equally frommedical care by supplying inexpensive
pharmaceuticals.” He also mentioned from time totime that “the business will grow because we pursue
what is useful to society.” His management policy ofcontributing to society by selling “more” while
maintaining the basic principle of “better products atlower prices” drove the growth of the Company until
the beginning of the 2000s.

Aiming for distinctive generics
through the pursuit of addedvalue
In the 2000s, the form of the Company’s managementchanged dramatically. As increasing social security
and medical costs became a major social issue, thegovernment accelerated its policy of promoting theuse of generics. At that time, we held the top share in
the generics market and were also the industry priceleader in the industry. However, securing profits was apain point back then due to intensifying sales
competition and NHI price revisions.
I was appointed president in 1996, and I had
decided to follow the management policy of mypredecessor for the first three years of my tenure. But
considering the situation at that time and 10 years into
the future, I felt a strong sense of crisis and decided tochange the management policy, saying, “If we
continue as we are, the survival of our business will be
at risk.” This marked our switch to the development ofdistinctive generics through the pursuit of added value
and to sales at fair prices that are commensurate withvalue, and this switch has led to our growth to date.
We made our formulation techniques moresophisticated and launched high value-added drugs,
and as a result, our generics have a great reputation in
healthcare settings as drugs that are easy to handle
and easy for patients to take.

In addition, we have established the unique Towa
Sales System for pharmaceutical products. It’s anapproach to selling that consists of two sales systems:
a direct sales system based on sales offices and sales
agents that deliver directly to medical institutions, anda sales system that delivers through wholesalers. By
adopting this system, we have established amechanism for delivering high value-added productsthat meet the needs of medical institutions, and by
explaining the added value of our products and having
doctors and pharmacists understand and accept
them, we are able to sell our products at fair prices. At
the same time, our MRs, of which we have the largest
number in the industry, provide information to the
medical frontline, and also collect information, whichenables us to quickly share requests from medical
institutions for product improvement andenhancement with each department.
In the beginning, when we started to sell our
distinctive generics, we received some puzzled
comments from sales agents such as, “Your sales
method is completely different from the conventional
one based on price competition.” Towa
Pharmaceutical’s sales offices were also perplexed at
first, but worked hard to provide medical informationand sell our products at fair prices, based on the belief
that understanding the formulation technology for the
drug and its added value will surely be useful topatients. As a result, although we experienced atemporary decline in both sales and profits, theTOWA PHARMACEUTICAL Integrated Report 2021

16

T OP MESSAG E

number of doctors and pharmacists who understood
our pharmaceuticals increased, and the volume ofpharmaceuticals we supplied grew. In recent years, wehave been able to introduce our products to a broader
range of doctors and pharmacists through increased
collaboration with wholesalers. We will continue tomake daily efforts to build relationships of trust withthe medical community.

Pursuing the improvement ofpharmaceutical quality by
valuing the bond of trust withthe medical community
In terms of building relationships of trust, we play amajor role not only in sales activities but also intranslating voices from the healthcare frontline into
the creation of products. As mentioned above, we arealso focusing on technological development toenhance the added value of our pharmaceuticals. In
addition to gathering feedback from the medical
frontline through MRs, we actively share information
with R&D and technical departments. We have set up
an in-house request review committee, whichconstantly reviews product improvement proposals
and other issues based on information received from
MRs. The committee makes more than 200
improvements per year, facilitating the creation of
distinctive generics.
RACTAB, an example of our value-added
formulation technology, is a proprietary formulation
technology that enables us to produce tablets thatdisintegrate readily, making them easy to take, butthat are hard enough to allow them to be subjectedto the same treatment as conventional pills. In

17

TOWA PHARMACEUTICAL Integrated Report 2021

addition to this, we are continuing to develop otherproducts. This involves us doing everything fromconducting research on what makes a medicine
easier to take to designing the packaging design. We
will continue to improve and refine our products withthe latest technology, constantly updating them to be
the latest and greatest at that time.
With regard to our efforts to ensure the quality ofour pharmaceutical products, we have been diligently
addressing each and every issue as laws andregulations have become stricter and demands fromhealthcare professionals have increased. For
example, under the revised Pharmaceutical Affairs
Act, which came into effect in 2005, the number ofmatters to be included in the marketing approval
document for pharmaceutical products increased
significantly. At the time, we had a lineup of morethan 400 products. We had to carefully prepare thedocuments for each of them one by one, a task that
we only completed in December 2019.
And today, not only do all of our plants perform
manufacturing based on procedures that are incompliance with the GMP three principles, but wealso provide continuous education and training to ouremployees, so that each and every one of them isengaged in manufacturing with a high awareness ofquality. Furthermore, to manufacture products thatmeet specifications based on stricter rules, we haveactively adopted international standards such as
PIC/S GMP and the ICH guidelines to build a systemthat can eliminate human errors.
As for ensuring the stable supply ofpharmaceuticals, we have been steadily making
capital expenditure in response to the government’s
target of having 80% of generics volume share by
September 2020. With the new building at the
Yamagata Plant having gone into operation in 2018,
our annual production capacity in FY2020 was 11.5
billion tablets. This figure includes output from the
Osaka and Okayama plants, so there are three plants
in total. Through these three plants, we will expand
our production capacity to 12.0 billion tablets by theend of FY2021, and again to 14.0 billion tablets by
the end of FY2022 in order to meet global demand. In
addition, we are planning to construct the 3rd solid
formulation building at the Yamagata Plant by theend of FY2023, which will take our production
capacity to 17.5 billion tablets from FY2024.
As a result of quality-related wrongdoings that haveoccurred in the industry, production at othercompanies has been halted, which has raised
concerns in some quarters about the stable supply ofpharmaceuticals. We regard this as an issue that
affects the trust placed in the entire generics sector,
and we will continue to fulfill our mission of ensuring
a stable product supply by addressing this issue on
an industry-wide basis, which includes the Company.

Considering how to ensurestable procurement of APIs andintermediates from a long-term
perspective
In FY2020, the COVID-19 pandemic had a serious
impact on society. We have been carrying out ourbusiness with the mission of not interrupting the stablesupply of pharmaceutical products at any time, nomatter what the situation may be. Although the
COVID-19 pandemic did not interfere with ouroperations to any great extent, it did temporarily raise
concerns about the securing of APIs and intermediates,
which are essential for the manufacture ofpharmaceuticals.
Currently, we procure APIs and intermediates not only
from Japan but from all over the world. In response tothese concerns, we recognize the need to review our
supply chain to guarantee stable procurement from theperspective of “local production for local consumptionof products,” which is what we consider ideal. From along-term perspective, we are conducting R&D in therealm of continuous flow precision synthesis technology,
which has less environmental impacts and is safer, andusing such new technology in manufacturing issomething that we are considering. We believe that thepractical application of new technology will not only
facilitate stable procurement that avoids country risk,
but will also lead to the launch of a green sustainablechemistry industry in Japan and the creation of jobs
stemming from that.

Health-related businesses
paving the way for new growth
The Company has been implementing the 5th Mid-term
Business Plan 2021-2023 PROACTIVE II (hereinafter, the“new mid-term plan”) since FY2021. Under the 4th
Mid-term Business Plan, we achieved our major
objectives for net sales, operating income, R&D
expenses, capital expenditure, and other items, and weare now making strong progress toward a new stage of
growth despite this being a difficult period marked by
the COVID-19 pandemic.
Our basic policy is to further evolve our core generics
business. But we also intend to expand and grow ourbusiness in overseas markets and to develop new
health-related businesses.
Toward enhancing generics business, as mentioned
above, we will be aiming to “maintain and strengthen astable product supply system,” “work on stable API
procurement,” “enhance the production capacity,”“optimize the Towa Sales System,” “maintain andstrengthen the quality assurance system,” “offer a broad
product lineup,” and “manufacture sophisticatedproducts with No.1 total product performance.” We willcontinue to work diligently to address each of theseissues.
As for expanding and growing our business inoverseas markets, we have been exploring thepossibility of establishing a system to supply our valueadded products to overseas markets. This led us toacquire Spain’s Pensa (official name, Pensa
Investments, S.L.; the current trade name, Towa Pharma
International Holdings, S.L.) in January 2020. As a resultof this acquisition, our consolidated net sales for the
fiscal year ended March 31, 2021 increased byapproximately 40%. With the aim of offering products
highly regarded in Japan to overseas markets, we willcontinue to search for latent needs for our value-added
products in other countries and territories, and conduct
surveys with an eye to expanding our business into
regions that we have not yet entered. To sell our
products overseas, we are working to establish alliancesand cooperative relationships with local companies
while taking into consideration factors such as productmarketability and risks.
Meanwhile, with regard to the development of newhealth-related businesses, growing awareness of theimportance of extending healthy life expectancy has
prompted the construction of a comprehensive
community care system to become national government
policy, and progress is now being made in this area.
Against this backdrop, we are aiming to build a personal
health information platform for pre-symptomatic careand disease prevention through digital transformation(DX) facilitated by collaboration with IT companies. In
addition to managing and utilizing health information on
the platform, we intend to provide health-related
products and services ranging from disease treatment
and prevention to nursing support.
Specifically, we will provide OTC drugs andmedication support tools, and also develop healthfoods, supplements, and health promotion tools. One
such product is “comuoon,” an interactive support
device that helps address problems in society related tohearing. It is a desktop conversation support systemthat converts the voice of the person talking into one
with a level of sound quality that is easier to hear, and is
expected to be used in medical institutions, nursing
homes, and local communities. Early detection ofhearing loss and maintenance of hearing quality is
expected to help prevent mild cognitive impairment(MCI) and dementia, and this is in line with our policy ofcontributing to health from broad perspectives. And to
reduce the burden on those engaged in nursing care,rehabilitation, and other similar services, we have takena stake in a manufacturer of care welfare equipment that
manufactures a product called Muscle Suit, a wearable
work support robot. It is our hope that we can grow our

TOWA PHARMACEUTICAL Integrated Report 2021

18

T OP MESS AGE

health-related businesses and contribute to therevitalization of local communities by providing society
with products based on innovative technologies.
And as another health-related business, we haveentered the testing business by making Protosera Inc., aprovider of testing services, a subsidiary. Since thisbusiness has great social significance in terms of
disease prevention, we will aim to get it off the groundas part of our efforts to develop new health-related
businesses, one of the basic policies contained in the
new mid-term plan.

Focusing on the development
and utilization of eachindividual human resource
Going forward, it will be important for us to further
strengthen our human resource base so as to steadily
implement the new mid-term plan and achievesustainable growth over the medium to long term. In thisregard, we have a long history, from our founding to thepresent day, of fostering a corporate culture that values
human resources.
For example, this is what I felt when we acquired MectCo., Ltd.’s Tohoku plant back in 1998. For starters, I
visited the plant in September of that year, when theacquisition was being discussed. It was around threemonths after operations at the plant had beensuspended, and at that time it was hard to see how thecompany itself could survive. The corridor leading to thefactory floor had been kept clean and tidy. On the shop
floor, the machinery and equipment were arranged in aneat and orderly fashion. It had been well preserved,
maintained, and managed.
In front of the clean manufacturing area, one of theemployees turned to me and said: “We are so grateful tohave been able to work here for so long that until the
final decision [about the acquisition] is reached, we aremaking sure the equipment can be restarted
immediately at any time.” I still remember those words.
This was one of the main reasons we decided to go
ahead with the acquisition.
After the acquisition, but before we started
manufacturing medicines at the plant, which was now
known as our Yamagata Plant (and which was later
renamed the Yamagata 1st Plant), we interviewed all
108 employees to confirm their individual intentions.
Through these interviews, we realized that everyone wasserious and sincere, and we decided that the plant
could be operated by these 107 people, who included
managers (one person had declined to be hired). So, we
didn’t send any of our officers or employees to work
there. What we did was have me visit the factory in
Yamagata every month, and gradually adjust the pay

19

TOWA PHARMACEUTICAL Integrated Report 2021

T OP MESSAG E

structure over a period of 10 years to match ours.
Factory operation went smoothly and has continued tothis day. This is an example of a situation in which werealized the importance of human resources.
To strengthen our human resource base, the new
mid-term plan calls for “making job satisfaction andfostering talented human resources,” and we are
therefore working from various angles on humanresource development, career-path enrichment, and job
satisfaction. In the area of career development, inparticular, we are endeavoring to develop each
employee according to their abilities and aptitudes froma cross-organizational perspective, namely one that is
not limited to each department, while also taking into
account the wishes of the individual with respect tobuilding their career from the time they join the
Company until their retirement.
The word “PROACTIVE,” which we have used as thename of the new mid-term plan, encompasses suchmeanings as enthusiastic, autonomous, and visionary.
The name represents our hope that as we continue toexpand our business, each and every one of ouremployees will be able to anticipate possible futurechanges and risks and take the necessary measures inadvance to expand the scope of their work
enthusiastically and autonomously.

Becoming a company that willcontinue to safeguard genuine
smiles even after 100 years

management policy in every era.
In addition, we in the Towa Group believe that it isimportant to continue to contribute to local
communities and people around the world as apublic institution in society.
As an example of our contribution to local
communities, I’d like to tell you about our futureoriented initiatives in Mongolia.
By chance, more than 10 years ago we started
trading pharmaceuticals, and when I researched thecountry’s situation, I found that Mongolia had very
few unique industries to support its economy, whichalong with the desertification of its land was a major
problem for the country.
In the vast grasslands of Mongolia, licorice grows
wild everywhere. Licorice is frequently used as anatural food additive and is also used in traditional
Chinese medicine. A pharmaceutical ingredient called
glycyrrhizic acid can also be extracted from it, so it’s
an incredibly valuable plant. In recent years, licorice
has been designated by the national government as
a protected plant because its uncontrolled picking
contributes to desertification. However, the problemof over-picking doesn’t appear to have disappeared
completely, and desertification remains a problem
along with the depletion of underground resources
through mining.
Thinking that we could do something to help, wesecured a vast plain several years ago and have been
trying to grow licorice, as an herbal medicine, there.
Licorice requires at least five years from planting toharvesting if it is to be used in Chinese medicine. It
takes a lot of time and effort to cultivate it, but wehope that this initiative will contribute to therevitalization of local communities by providing
employment opportunities for the local people andcurtailing the desertification of the country. Although
it’s only a small project, we believe that it can also
play a part in producing the “genuine smiles” that wewish to create as a Company. If all goes well, after
planting, managing, and harvesting the licorice, wewill be able to dry, cut, and sell it, and we hope tocontribute to the industrial development of Mongolia
by localizing the process of extracting and selling it
to make medicines.
Considering its profitability as a business, I doubt
this project will last more than five years. That is why
we are calling this initiative the Mongolia 100-Year
Plan.
Being a company, it is obviously important to pursue
economic value. And from the perspective ofsustainable corporate growth, I believe, after
considering the value of the existence of a company,that the Towa Group needs to develop on a scale thatmeets the needs of the people of the era and regionin which it operates.
Our priority is to be a company that can continue toprovide value to all the people connected with the
Towa Group.
By doing that, I believe that the value of theCompany will be recognized and that earnings will
follow.
In the future, we will achieve sustainable growth
while aiming to be a company that can contribute
more than ever to people’s health. We would like to
ask for your continued support in these endeavors.

In June this year, we celebrated our 70th anniversary.
Taking this as an opportunity to look back on our
history, I believe that corporate management must
look ahead 10 years, 20 years, and even 100 years
into the future and beyond. As the birthrate declines
and the population ages, how will Japanese society
have changed 100 years from now, and what will be
important then? Also, what should we be aiming tobecome as a company in the future? As a project tomark our 70th anniversary, we are going to determine
what we should do right now for the sake ofourselves a century from now.
As part of that, what we have emphasized morethan anything else are “genuine smiles” and“people’s health,” as stated in our vision. From a
global perspective, Japan today is a free, peaceful,and prosperous country where the dignity and humanrights of each and every citizen are respected. Aslong as we exist, we will continue to pursue therealization of “genuine smiles” and “people’s health,”
and we believe it is important to make the ability tocontribute to the continued preservation of thisprosperous country an unwavering part of our

TOWA PHARMACEUTICAL Integrated Report 2021

20

Our Value Creation Process
To address social issues, Towa Group has created value by allocating its business capitals to every business that
contributes to people’s health. We will contribute to the health of all people and help them achieve a genuine smile
based on the “5th Mid-term Business Plan 2021–2023 PROACTIVE II.”

Towa
Quality

INPUT Business Capital
Financial capital

Towa Group’s
value proposition

Total assets: JPY 245.6 billion (consolidated)
Net assets: JPY 116.5 billion (consolidated)

Social Issues

Manufactured capital
Production sites: 8

Extension of healthy
life expectancy anddisease prevention
Production ofhigh-quality
pharmaceuticalproducts(7 in Japan [including Towa’s 3 plants], 1 in Europe)

Production capacity (Towa’s 3 plants):
11.5 billion tablets (tablets and capsules)
Production facilities for various dosage forms

Better accessibility
to primary
healthcare services
Application ofadvanced technology
to healthcare services
Improvement ofworkingenvironment

Extending healthy
life expectancy ofmore than 7billion people
around the world

R&D offices: 7 (6 in Japan, 1 in Europe)

R&D Expenditure: JPY 35 billion and more

5th Mid-term
Business Plan
2021–2023
PROACTIVE II

API synthesis process knowhow

Human capital
Employees: 3,456 (consolidated)
Consolidated subsidiaries: 11(3 in Japan, 8 in overseas countries)

Qualified pharmacists: 234 (consolidated in Japan)

Enhancing generics
business as a coreSocial and relationship capital
Collaborate with business partners including
raw material manufacturers, medical products
distributors and agents
Medical institutions coverage ratio (Towa)
Hospitals 89.2%
Dispensing pharmacies 95.2%

Energy input(crude oil equivalent, Towa’s 3 plants)

Water consumption(Towa’s 3 plants)

TOWA PHARMACEUTICAL Integrated Report 2021

19,108 kl
271,269 m

3

Corporate Governance(Compliance and Risk Management)

Our Commitments (T-SMILE)Entering newhealth-related business

GenuinesmilesControlling
healthcare costs ofthe government,
administrative
agencies, and local
communities

Expanding andgrowing business inoverseas market

MRs: 800 (consolidated in Japan)

Natural capital

21

Manufacturing sophisticated productswith No. 1 total product performance

We will support everyone
who cares about good
health to live a healthy
lifestyle by making it easier
to be and stay healthy aspart of everyday life.

SocialImpactIntellectual capital(Accumulative) (FY2021-FY2023)

Quality assurance
and stable supplyof pharmaceuticalproducts

OUTCOME

Maintaining
sustainable
healthcare system

People’shealthCreating technology
innovations
and product values

Towa Philosophy
Foundations supporting
value creation

Making job satisfaction
and fostering talented
human resources

TOWA PHARMACEUTICAL Integrated Report 2021

22

External Environment Surrounding Towa Group

Towa Group’s CapitalEntering the era where measures for new challenges are required
despite having achieved the government’s generics volume share target

Towa focuses on creating value across its Group by working sincerely to solve social issues while leveraging various
capitals gained in the past business operations. By solving issues including the extension of healthy life expectancy,
we will contribute to the health of people around the world.

a full speed revolution at a stroke that would take 10
years under normal circumstances. Achieving ahigh-quality economic society in the “New Normal
Lifestyle” is set as a goal for the New Future in the
post-pandemic.
Meanwhile, under the “Future Social Security
Reform-Looking to 2040” issued by the Ministry of
Health, Labour and Welfare, the government aims torealize a society where everyone can work longer andmore energetically by solving issues such as “diverse
employment and social participation,” “extension ofhealthy life expectancy” and “medical and welfare
service reforms.” Generics are playing a greater role
under these government policies and we are
expected to contribute to extending healthy life
expectancy by forming an infrastructure to create
ideal local communities and providing necessary
health promotion services to people in need of them.

In recent years, generics have come to play anincreasingly vital role in the society. Under the “Basic
Policy on Economic and Fiscal Management andReform 2017” approved by the Cabinet in 2017, thegovernment has set a target to increase the generics
volume share to 80% by September 2020. In
response to this, the generics industry including
Towa has focused on enhancing production capacityand ensuring stable supply. The results of analysis
issued by the Japan Generic Medicines Association
show the volume share reached 80.1% in the fourth
quarter of fiscal 2020 (January to March 2021) andindicated the target of 80% was achieved.
Furthermore, in the “Basic Policy on Economic andFiscal Management and Reform 2020,” thegovernment says to “protect people’s lives,
livelihoods, jobs, and businesses” to achieve the“New Future in the post-pandemic.” The government
also envisions achieving a “New Normal Lifestyle” by

There is a pressing need of industry-wide initiative to restore
confidence in generics which has been erodedTotal assets (consolidated)

80.1%

85%

Total assets at the end of FY2020 increased JPY
15,651 million YoY to JPY 245,668 million. Net assets
at the end of FY2020 increased JPY 11,934 million YoY
to JPY 116,599 million. As a result, capital-to-asset
ratio was 47.5% at the end of the fiscal year underreview.

Research hubs:

7(6 in Japan, 1 in Europe)

R&D Expenditure: JPY

35 billion and more

(Accumulative) (FY2021–FY2023)

API synthesis process knowhow
R&D is conducted in 7 hubs in total comprising 6 inJapan and 1 in Europe. Target R&D expenditure fromFY2021 to FY2013 is JPY 35.0 billion (accumulative).
This covers the leading-edge research on API synthesis
including molecular control technology.

 ollaborate with business partners including raw
Cmaterial manufacturers, medical products
distributors, and agents
Medical institutions coverage ratio (Towa)

Turmoil80%

89.2

Hospitals%
Dispensing pharmacies

75%
70%
65%

FY2016

TOWA PHARMACEUTICAL Integrated Report 2021

FY2017FY2018FY2019FY2020

FY2021

4Q

3Q

2Q

1Q

4Q

3Q

2Q

1Q

4Q

3Q

2Q

1Q

4Q

3Q

2Q

1Q

4Q

3Q

2Q

1Q

4Q

3Q

2Q

1Q

60%

Manufactured capital
Production sites:

8(7 in Japan [including Towa’s 3 plants], 1 in Europe)

Production capacity (Towa’s 3 plants):

11.5 billion tablets(tablets and capsules)

Production facilities for various dosage forms

Social andrelationship capital

Generics volume share

23

245.6 billion
JPY 116.5 billion
JPY

Net assets (consolidated)Intellectual capital

public confidence in generics, the entire industry
shall implement measures for ensuring a stablesupply based on thorough manufacturing and quality
management.
While still pursuing Towa Quality, we will make theutmost efforts to restore public confidence in theindustry by enhancing the product lineup needed andmaintaining and strengthening the system for stablesupply/quality assurance as well as for information
provision.
Our activities on health-related business conform tothis direction and we will strive to become a valued
company that contributes to the society.

While the generics volume share has steadily risen,
the recent quality problems in the generics industry
have affected the entire industry. Public confidence ingenerics built by the industry so far is declining. As
the drug companies involved in quality problems
suspended their operations, the industry as a wholehas failed to fulfill its responsibilities for stable supply.
As a result, the generics market is in turmoil and thefuture of generics companies is worrisome.
Under such circumstances, the Ministry of Health,Labour and Welfare mentioned that the industry
would never gain understanding from patients andhealthcare professionals only by setting new
numerical targets for generics. In order to regain

Financial capital

95.2%

We engage in nationwide marketing activities through71 sales offices, 31 agents at 60 sites, and medical
products distributors, among others, in Japan. Towa
has a high coverage ratio of medical institutions: 89.2%
for hospitals and 95.2% for dispensing pharmacies.

Towa Group has 8 production bases in total, comprising of 7
in Japan and 1 in Catalonia, Spain. Production capacity
stands at 11.5 billion tablets for tablets and capsules
produced at Towa’s 3 main plants. Our subsidiaries produce
ointment, soft capsules, etc. and the Group is distinguishedby its capacity to produce diverse dosage forms.

Human capitalEmployees:

3,456(consolidated)11Qualified pharmacists: 234
MRs: 800

C onsolidated subsidiaries:(3 in Japan, 8 in overseas countries)(consolidated in Japan)(consolidated in Japan)

Towa Group hires 800 MRs and 234 qualified
pharmacists (both consolidated in Japan). In addition,
we have introduced an internal qualification system forbusiness operations (experts, etc.) to nurture
professionals.

Natural capitalEnergy input(crude oil equivalent, Towa’s 3 plants)

Water consumption(Towa’s 3 plants)

19,108 kl
271,269 m

3

We use good quality water and energy resources to
produce high-quality pharmaceutical products. In thisregard, from an environmental perspective, we manage
chemical substances properly, enhance the plants’water discharge and air emission systems, take energysaving measures, and make other efforts.

TOWA PHARMACEUTICAL Integrated Report 2021

24

Looking Back on Previous Mid-term Business Plan

PROACTIVE

Previous Mid-term
Business Plan 2018–2020

Under the 4th Mid-term Business Plan 2018-2020
PROACTIVE, we steadily expanded our domestic
generics business to ensure its steady growth andcontinuation of stable supply. Among other things,
we increased production capacity at three plants toensure the continuation of stable supply.
In addition, we continued research on fundamental
technologies and practical applications for the further
evolution of product quality. And based on our policyof entering new markets, we began full-scale entry
into overseas markets. Furthermore, with an eye tothe creation of new businesses, we endeavored tolaunch IT-centered services.

Mid-term Business Plan
2021-2023

Basic Policy (3)Entry to new markets and creation of new businesses

Basic Policy (1)Steady growth ofdomestic generic businessContinuationof stable
supplyPROACTIVE

Under our 5th Mid-term Business Plan 2021-2023
PROACTIVE II (hereinafter, the “5th Mid-term Plan”), theGroup will be developing health-related businesses inline with five policies as shown in the diagram below.
With our domestic generics business, which is our corebusiness, we will be aiming to make an even greater
contribution as we move forward into the future. And as
for overseas markets, we will be expanding the numberof countries and territories in which we offer the

Further evolution of product quality for sustainable growth

Towa Group’s
Health-Related
Businesses

Policy 3Entering new health-related
business

Expanding and growing businessin overseas market

Policy 1

Basic Policy (2)With the aim of further improving product quality, we continued research on fundamental technologies andpractical applications for tackling various issues. In addition, we conducted research on molecular control
technology, as well as continuous flow precision synthesis and integrated continuous manufacturing, asmeans of achieving green sustainable chemistry.

Basic Policy (3)Entry to new markets andcreation of new businesses

As a means of entering new markets, we began full-scale entry into overseas markets by making Pensa
Investments, S.L. (current trade name, Towa Pharma International Holdings, S.L.; hereinafter, “Towa HD”) awholly-owned subsidiary. In the area of the creation of new businesses, we established T Square Solutions
Co., Ltd. as a joint venture with TIS Co., Ltd. in order to provide IT-centered services that contribute to therealization of a society in harmony with local communities. Furthermore, we acquired Protosera Inc. as a
subsidiary and launched a testing service business. Besides these initiatives, we also began developing newhealth-related products and services including launching interactive support devices that convert voice intosound that is easy to hear and, and medication support tools to improve drug adherence.

Major Objectives
Net sales

Operating income(accumulative)

Capital-to-asset ratio

Targets

Initial target of

JPY 100.0 billion
or moreJPY 30.0 billion
or more50% or higher

Modified target

Improvement of financial
stability

From May 2019

JPY 40.0 billion
or more(accumulative)

JPY 26.0 billion
or moreCapital investment(accumulative)

JPY 20.0 billion
or more•Product development plan
aiming for stable launches•Improvement of products in
response to requests fromhealthcare professionals andpatients

Capital investment for
maintaining and strengthening
a stable supply system

Dividend policy

Stable payout
On top of stable dividend
payouts, the Company willseek to return profits toshareholders through share
repurchases, etc., dependingon the circumstances

Achievements

Achieved

Achieved

Not achieved

Achieved

Achieved

Achieved

JPY 154.9 billion

JPY 52.0 billion

47.5%

JPY 27.1 billion

JPY 22.6 billion

Stable dividend

Net sales(consolidated) (fiscal year)
JPY 105.1 billion (2018)
JPY 110.4 billion (2019)
JPY 154.9 billion (2020) 1)

Operating income(consolidated) (fiscal year)
JPY 16.0 billion (2018)
JPY 16.1 billion (2019)
JPY 19.9 billion (2020) 1)

Capital-to-asset ratio(fiscal year)
48.6% (2018)45.5% (2019)47.5% (2020)

R&D expenditure(consolidated) (fiscal year)
JPY 7.9 billion (2018)
JPY 8.6 billion (2019)
JPY 10.6 billion (2020) 1)

Capital investment(consolidated) (fiscal year)
JPY 6.0 billion (2018)
JPY 6.2 billion (2019)
JPY 10.4 billion (2020) 1)

Dividend per share(fiscal year)
JPY 35.8 yen (2018)
JPY 44.0 yen (2019) 2)
JPY 44.0 yen (2020)(accumulative)1) Towa HD included in consolidation in FY2020
2) Stock split on April 1, 201925

R&D expenditure

TOWA PHARMACEUTICAL Integrated Report 2021

(accumulative)(accumulative)

FuturePolicy 2

We expanded generics business in Japan by newly launching 76 items of 30 APIs during the three years to
FY2020. In addition, we concluded a joint sales agreement with Celltrion Healthcare Japan Co., Ltd., and madea start in selling biosimilar products. Furthermore, we expanded manufacturing facilities to ensure thecontinuation of stable supply, and have achieved a production capacity target of 11.5 billion tablets* per year
at the three plants in Osaka, Okayama, and Yamagata. *Production capacity of tablets and capsules

Further evolution of productquality for sustainable growthGroup’s products. Furthermore, in the realm of newhealth-related businesses, we are embarking on a newera, so will be steadily doing what’s necessary as we
look ahead to the future.
To implement these policies, it will be important tocontinuously create technology innovations andproduct values, and we will therefore be continuously
working to enhance job satisfaction and foster talented
human resources.

Basic Policy (2)Basic Policy (1)Steady growth of domestic
generic business / continuationof stable supply

New Mid-term Business Plan

Enhancing generics
business as a core

Present

Policy 4

Creating technology innovations and product values

Policy 5

Making job satisfaction and fostering talented human resources

Challenges

PolicySecuring stable supply and providing appropriate
information based on thorough manufacturingcontrol and quality control to regain trust in generics
Being a more trusted and needed company as acomprehensive generics manufacturer[ Policy 1 ]Enhancing generics
business as a core

Delivering high-quality, value-added generics tocontribute to the health of people around the world[ Policy 2 ]Expanding and growing businessin overseas market

Contributing to the realization of healthcare and nursing
care for society with a long and healthy life expectancy
and also to society that shifts from medical care to careof pre-symptomatic disease and prevention[ Policy 3 ]Entering new health-related
business

Contributing to society by constantly supplying the Towa
Quality products and achieving sustainable growth[ Policy 4 ]Creating technology innovations
and product values

Continuing to be an ever growing company that provides
job satisfaction to each and every employee throughgrowth of both the company and its employees[ Policy 5 ]Making job satisfaction andfostering talented human resources

Key Theme• Stable product supply- Stable API procurement- Enhanced production capacity- Optimized Towa Sales System• Quality assurance• Broad product lineup• Manufacturing sophisticatedproducts with No. 1 total
product performance• Entry to testing service business

TOWA PHARMACEUTICAL Integrated Report 2021

26

New Mid-term Business Plan

Policy1

Policy2

Expanding and growing business in overseas market

Enhancing generics business as a coreprovide Towa products to medical institutions,
pharmacies, and patients, who need the products, byincreasing production capacity through our three-plant
production structure and by optimizing the Towa Sales
System. In particular, we will be pursuing initiatives
that take into account the risks in API procurement.

To maintain and strengthen a stable supply system,
we will emphasize the perspective of supply chain
management, and will share information andencourage cooperation across departments tooptimize the entire system. In this way, we will goahead with risk-adapted initiatives. Specifically, we will

We will strive for the sustainable growth ofour business by introducing new productsin Europe and the United States, mainly
through Towa HD, which we acquired in2020. At the same time, we will develop
Towa Quality products meeting patients’needs overseas. Furthermore, we will
explore market opportunities in new
countries/regions.

Business Scale

Stable Supply System

Sustainable business growth with Towa HD as a
hub through new products launches in Europe andthe United States

GrowthDevelopment of Towa Quality products meeting
existing and potential patients’ needs overseas

Exploration of market opportunities
in new countries/regions

Overseas
market with
Towa HD
as a hubQuality Assurance System
testing of finished products, product shipment
decision-making by plants, and product shipment
decision-making by the HQ QA Dept, we will
strengthen our management systems and schemes,
and continue to work to ensure reliable quality andsafety.

Throughout manufacturing and quality control
processes, we will comply with GMP, GQP, and GVP
ministerial ordinances and the GDP guidelines tomaintain and strengthen our quality assurance
system. In every process from the acceptance ofAPIs to the testing of intermediate products, theExpansion

Market / Area

Policy3Entering new health-related businessBroad Product Lineup
We will put together a generic-drug
product lineup with a focus on medicines
deemed necessary for future medicinal
treatment. We established lineups of
products in a broader range of therapeuticareas, and conducted joint sales ofInfliximab BS as a steppingstone of entry
into the biosimilar market. In addition, we
will be taking on challenges in diversified
areas such as drug re-positioning with iPS
drug discovery, development of
Rivastigmine transdermal system twice-aweek medicine, etc.

FY2020 Product Composition by
Therapeutic Area

FY2030 Product Composition by
Therapeutic Area (Forecast)

Bio Pharmaceuticals

Other

Other

Cardiovascular

Oncology

Oncology

Respiratory
VitaminRespiratory
Vitamin120

Gastrointestinal

Medicinal
effect andmechanism

Anti-allergic

Antibiotics andchemotherapeutic

Bio Pharmaceuticals
New TA
Cardiovascular

130

Medicinal
effect andmechanism

Gastrointestinal
Anti-allergic

Antibiotics andchemotherapeutic

Neurological
Metabolic etc.

NeurologicalKeymeasures

Metabolic etc.

Manufacturing sophisticated productswith No. 1 total product performance
Manufacture of sophisticated productswith No. 1 total product performance refers
to our initiatives in providing the market
with products characterized by “Towa
Quality” that are desired and needed bycustomers. This guarantees the quality ofthe products that we supply underthorough quality control. We are constantly
using the latest technologies to improveand modify the quality of the products, andwe are constantly upgrading the products
to the latest and best. We arestrengthening and streamlining researchand development functions throughinvestment in facilities and equipment.

27

TOWA PHARMACEUTICAL Integrated Report 2021

• Building a foundation for extending healthy life expectancy by utilizing data
• Contributing to the Comprehensive Community Care System• Further enhancing lineup of products and services to maintain and improve health• Entering disease risk testing service business• Creating synergies between and with existing businesses
Sports facilities etc.

Ideal
products

Pursuit of
Towa Quality
Development andlaunch of
new products

Application oftechnologies
Improvement andmodification

Towa
Quality

Public health nurses
Community
Comprehensive
Support Center
etc.

Certifiedsocial workers

Information collection
Ideas for improvements

Analysis and evaluation

In-house manufacturing of APIs / innovative technology development and application researchStrengthening and streamlining of research and development functions

Nursing
supportGenerics

Local residents etc.

Treatment
tic

a
mptom
Pre-sy disease

In d•OTC drugs•Medication support tools

ase
Doctors

Caregivers•Communication
support•Nursing support

Pharmacists

Dise

Care managers

Nursing homes etc.

City offices / community centers

Researchers

Prevention

Frai
l
Care
d

Core businessCompanies anduniversities

Good
HealthTrainers

Public health centers

Information provision

Feedback

and contribute to extending healthy life expectancy byproviding necessary health promotion services topeople in need of them. Among our key measures, wewill be launching testing services for determining
disease risks, expanding the KENTO Healthcare
Science Center, which opened in 2019 to conduct joint
research with the National Cerebral and CardiovascularCenter to extend healthy life expectancy, and collecting/utilizing information obtained from testing to provide
appropriate health-related services.

As one of our challenges, we aim for creating a futurethat provides full coverage from medical care to care ofpre-symptomatic disease and prevention for society
with a long and healthy life expectancy. In line with our
vision of contributing to people’s health, we will work tocreate new health-related businesses that are suited to
the new medical system, while acquiring newtechniques and integrating them with completely new
knowledge and technologies. Specifically, we will help
build an infrastructure to create ideal local communities,

Dispensing
pharmacies

NursesMedical institutions

m
ivid
tfor
ual HealPnalth Informatio•Health foods•Supplements•Health promoting tools

Contributing to forming of infrastructure for the creation of ideal local communities
Providing necessary health promotion services to people who need them and contributing to the extension of healthy life expectancy

TOWA PHARMACEUTICAL Integrated Report 2021

28

New Mid-term Business Plan

Businesses Pursued by Towa Group
Policy4Creating technology innovations and product values
To contribute to society by constantly supplying the
Towa Quality products and achieving sustainablegrowth as a company, we will continue to work on
creating technology innovations and product values. In
particular, we will pursue technological innovation in
API technologies such as molecular control
technology, chiral synthesis technology, andcontinuous-flow precision synthesis, in formulation
technologies, such as ones that allow the productionof OD tablets that are easy to take, and in
manufacturing technologies for continuous
production. By conducting joint research aimed at
obtaining a new indication for Bromocriptine, we will
be aiming to create new product value.

API Technology

Formulation Technology
Pursuing OD tablets that are easy to take

Establishment of molecular control technology
Freely controlling crystal form and particle size of APIs
Contribution to the development of value added products

Further improvement of RACTAB
Masking technology to reduce bitterness, miniaturization of tabletsand better oral disintegration

Establishment of chiral synthesis technology
Enabling efficient API synthesis

Realization of stable formulations
Development of formulations stable in term of heat, light, moisture and oxygen
Assurance of expiration period of formulations for three years and more

Development of continuous flow precision synthesis
Pursuing green sustainable chemistry with wastes reductions
and low CO2 emissions as key initiatives

Based on our vision: “We contribute to people’s
health; we are dedicated to people’s genuine smiles,”Towa Group contributes to people’s health bycreating superior products and services. Through our
corporate activities, we aim to be a company that isvalued and needed by patients, healthcare
professionals, local communities, and others.
Under the 5th Mid-Term Business Plan, we will
maintain our vision while expanding the scope of ourbusiness to include health-related businesses.
Nevertheless, our core generics business in Japanand overseas will maintain its central role in ouroperations.
In this core business, we will further strengthen andutilize the results of all the efforts we have made so
far. Based on the premise of “pursuit of Towa quality,”
we will strengthen our “assortment of needed
products” to meet the demands of society as acomprehensive generics manufacturer. In addition,
we will maintain and strengthen our system toprovide a stable supply of products that meet quality
standards and to deliver information on safety andquality in a timely and accurate manner.
Furthermore, the Group will pursue corporate
activities to contribute to the creation of new healthrelated businesses. Through these businesses, wewill help form an infrastructure to create ideal local
communities, and contribute to extending healthy life
expectancy by providing necessary health promotion
services to people in need of them.
And with regard to the Sustainable Development
Goals (SDGs), international objectives to be achievedby 2030, we aim to contribute mainly to theattainment of Goal No.3 “Good Health and Wellbeing” along with the other goals.

Creation of New Product Values
Manufacturing Technology
Establishment of technology to monitor products in real time
(PAT: Process Analytical Technology)
Application to integrated continuous manufacturing system
Production carried out under an integrated flow leading to labor saving
Smaller manufacturing facilities and occupation areas

Joint research aimed at obtaining a new indication for Bromocriptine
Clinical trials for familial Alzheimer’s disease started
Development of new Rivastigmine formulation
Development of transdermal system twice-a-week medicine
Hope for reducing the burdens on patients, their families, and caregivers
Phase III clinical trials planned for the summer 2021

Restoration of healthat pre-symptomatic
stage

Maintenance of
healthy conditions

Assortment ofneeded products

Policy5

Making job satisfaction and fostering
talented human resources

As the growth of employees leads to the strengtheningof corporate fundamentals and facilitates growthcorresponding to change, we are working to establish
an environment for the enhancement of corporate
fundamentals. In connection with this, we are aiming
to create workplaces where there is respect fordiversity in work styles and motivation for each andevery employee. We also view our employees as vital
investment resources and assets for the Company,
and are stepping up fostering talented humanresources who can make an impact as we pursue
growth.

Net sales

Operating income (accumulative)

JPY 200.0 billion (consolidated)
JPY 150.0 billion (non-consolidated)
Achievement of single-year sales target

JPY 35.0 billion or more
Lineup of needed products and improvementof products based on the requests frommedical institutions and patients

29

TOWA PHARMACEUTICAL Integrated Report 2021

Pursuit of
Towa Quality

Generics
business

Build up basics
on health related
infrastructure

Maintenance andstrengthening of stablesupply and quality
assurance systems
Response to local
Comprehensive
Community Care System

Grasping healthconditions

Maintenance andstrengthening of
information provision

Health-related
businesses

OthersWith generics business set as our core, expansion of
all health-related businesses contributing to people’s health

Major Objectives

R&D expenditure (accumulative)

Extension of healthy
life expectancy

JPY 57.0 billion or more

In response to the international initiatives of SDGs to
be achieved by 2030, we will focus on the Goal No. 3“Good Health and Well-being” along with other goals.

Achieving cumulative operating income for the period to invest in
sustainable growth and return profits to shareholders

Capital investment (accumulative)

JPY 75.0 billion or more

Investment in strengthening and streamlining
our production facilities and R&D functions tomaintain and strengthen our quality
assurance and stable supply systems

Dividend policy

Stable dividend
Ensuring stable dividends and returning
profits to shareholders through improved
corporate value

TOWA PHARMACEUTICAL Integrated Report 2021

30

Foundation Supporting Business:

Governance
Basic approach
As an important issue, we focus on implementing abetter corporate governance. By conducting businessstrictly in compliance with the ethical standard andimproving transparency of the management, we
continuously raise the corporate value for theshareholders. To achieve this, we endeavor to respect
and protect shareholders’ rights as well as establish andmaintain good relationships with all of our stakeholders
including shareholders.At the same time, we
continuously make efforts to achieve our social missions
as a healthcare company by focusing on maintaining
and improving corporate ethics and ethical standards ofofficers and employees.
This policy also applies to the Towa Group companies.
Each of the Group companies fulfills required roles andobligations to increase the corporate value of the Towa
Group as a whole.

Overview of the corporate governance structure
General Meeting of Shareholders
Appointment/dismissal

Decision-making andsupervising function

Appointment/dismissal

Board of Directors
Recommendation

Nominating andCompensation
Committee

Audit/
supervising

Directors(Excluding Audit and Supervisory
Committee Members)

Consultation

Appointment/dismissal

Audit and Supervisory
Committee

Appointment/
removalCooperation
Reporting

Reporting

Audit

Cooperation

Supervising

Business operating function

President and Representative Director
ReportingAccounting
AuditorExecuting organization/meeting

Risk
Management
Committee

Executive Strategy
Meeting

Operating Officers
Departments

Executive Monitoring
Meeting

Audit

Affiliate companies

Internal
Audit
OfficeTowa continuously makes efforts to enhance its
corporate governance structure. Towa is a company
with an audit and supervisory committee system.
The Company is governed mainly by the Board of
Directors consisting of seven Directors and the Audit
and Supervisory Committee consisting of four
Directors who are Audit and Supervisory Committee
Members (including three Outside Directors).
One of the main roles of the Board of Directors is tomake decisions on mid- to long-term management
policies and important operations. Their importantroles also include resolving the basic policy of
the internal control system and supervising Directors’
business execution. To ensure the effectiveness ofsuch decision making and supervision, we need toreduce the number of Directors, separate Directors
and Operating Officers and clarify their roles, andbuild an environment that encourages Outside
Directors to express their opinions.
Under these policies, Towa has made several
efforts. This includes the transition to audit andsupervisory committee system, introduction of midto long-term performance-based stock compensation
system, establishment of the Nominating andCompensation Committee, enhancement of functionsof Outside Directors, and stimulation of the Board of
Directors. Going forward, Towa will continue to focus
on enhancing the corporate governance structure.

Board of Directors

Directors
Audit and Supervisory Committee Members

Basic policy for developing the internal control system

Supervising

Enhancement of the corporate
governance structure

The Board of Directors of the Company is chairedby the Representative Director. Meetings of the Boardof Directors are held monthly in principle. The Board
discusses important management matters at themeetings and makes decisions promptly. With regard
to business execution, the Company has introduced
an operating officer system and built a governancestructure to clarify the Directors’ responsibilities.
With the structure, Operating Officers bear
the responsibility for business execution while
the Board of Directors focuses on decision making
and supervision of management issues.

Audit and Supervisory Committee
The Audit and Supervisory Committee of
the Company consists of four members including three
Outside Audit and Supervisory Committee Members.
Audit and Supervisory Committee Members conduct
effective audits according to audit plans formulatedby the Audit and Supervisory Committee. Specifically,
they attend important meetings such as the Board of
Directors meetings; receive reports from Directors,
Operating Officers, employees, and the Accounting
Auditor; and conduct on-site audits of major offices.

Nominating and Compensation
Committee
The Nominating and Compensation Committee of
the Company is chaired by the Representative
Director and more than half of whose members are
Independent Outside Directors. The purpose of
the Nominating and Compensation Committee is todeliberate matters on the appointment and dismissalof Directors and Operating Officers, nomination ofcandidates, succession planning, and compensationin consultation with the Board of Directors, and to
make recommendations to the Board of Directors.

Analysis and evaluation of
the effectiveness of the Boardof Directors as a whole
The Company conducted a self-evaluate survey for
Directors from February to March 2021 to analyze
and evaluate the effectiveness of the Board of
Directors. The survey used a questionnaire consistingof 19 questions including those on the structure,operations, and discussions of the Board of
Directors. Results of the survey were reported at
the meeting of the Board of Directors held on April
19, 2021.
Although the survey showed no significant issues
on the effectiveness as a whole, it reminded us that
we need to discuss mid- to long-term management
challenges. Based on those results of the evaluation,
the Company will further endeavor to enhancethe effectiveness of the Board of Directors.

Accounting
audit

Cooperation

Investigation/correction

Compliance Committee(Whistle-blowing helpline)

31

TOWA PHARMACEUTICAL Integrated Report 2021

TOWA PHARMACEUTICAL Integrated Report 2021

32

Roles and independence of Outside Directors

Compensation for officers

The Company believes that fair and efficient
corporate management can be achieved throughOutside Directors’ advice and opinions on soundand efficient management. The Company has
established the Nominating and Compensation
Committee as an advisory body to the Board of
Directors in order to further enhance and strengthen
the corporate governance structure. In particular,
the committee contributes to appropriately providing
the Outside Directors with opportunities for
involvement and advice so as to increase
the objectivity and transparency of the decisionmaking process on the matters such as appointment/
dismissal and compensation for Directors and other

The Company formulated the basic policy forthe determination of Directors’ compensation. Under
the policy, compensation shall:· Contribute to secure talented people to ensure “Towa Group
Philosophy,” “Our Commitments,” “Corporate Policy,”and “The Charter of Corporate Behaviors in Towa Group,”· Be linked with clear targets for corporate and individual
performance to increase Directors’ motivation and moraleas they perform their duties,· Help to raise awareness of the contribution to improving
mid- to long-term performance and corporate value, and· Be determined with a focus on raising awareness of
sharing interests with shareholders and shareholdercentered management.
With the basic policy above, the Company introduced
the mid- to long-term performance-based stock

officers. Currently, all of the Outside Directors are
Audit and Supervisory Committee Members.
The Company has built a system to help them fulfill
their duties as Audit and Supervisory Committee
Members. Specifically, agenda items of the Board of
Directors are sent to them in advance by the General
Affairs Department, the administrative office of
the Board of Directors, so that the Members canconsider matters to be discussed thoughtfully.
In addition, they are provided necessary support
by the assistant staff of the Audit and Supervisory
Committee as well as reports and explanations onimportant matters by the full-time Audit
and Supervisory Committee Member.

compensation system for Directors (excluding Outside
Directors and Directors who are Audit and Supervisory
Committee Members). This introduction was made to further
clarify the link between compensation and the Company’s
mid- to long-term performance and shareholder value, as
well as to improve corporate value over the medium to longterm by granting incentives while raising Directors’
awareness of contribution to the improvement of corporate
value and shareholder-centered management.
In addition, the Company has established the Nominating
and Compensation Committee as an advisory body to
the Board of Directors with the aim of increasing
the objectivity and transparency of the decision-making
process of compensation for Directors or other matters aswell as further enhancing and strengthening the corporate
governance structure.

Reasons for nomination of Outside Directors
Name/position

Reasons for nomination

Norikazu Eiki
Outside Director(Audit and Supervisory
Committee Member)
Assumed the officein June 2019

Kaori Oishi
Outside Director(Audit and Supervisory
Committee Member)
Assumed the officein June 2020

Kenryo Goto
Outside Director(Audit and Supervisory
Committee Member)
Assumed the officein June 2021

Norikazu Eiki has wide-ranging insights and extensive experience at a global
company, and the Company expects that his advice and opinions will promotesound, efficient and objective management, for which reason it has appointed
him as an Outside Director.

Kaori Oishi has expertise and extensive experience as an attorney-at-law.
The Company expects that her advice and opinions based on such abackground will ensure sound corporate management and promote compliancemanagement, for which reason it has appointed her as an Outside Director.

Kenryo Goto has expertise in fields including finance and accounting as acertified public accountant and extensive experience as a corporate managerof an audit firm. The Company expects that his advice and opinions based onsuch a background will improve the transparency and objectivity ofmanagement, for which reason it has appointed him as an Outside Director.

Total amount of compensation for Directors

Attendance

Board of Directors
meetings(held 13 times)
100%

Board of Directors
meetings(held 10 times)
100%

Audit and Supervisory
Committee(held 13 times)
100%

Audit and Supervisory
Committee(held 10 times)
100%

-

-

October 2019 The Nominating and Compensation
Committee was established
Towa transitioned to a company
with an audit and supervisorycommittee system
The mid- to long-term performance-based
stock compensation system
was introduced

June 2020
A woman assumed
the position of Outside
Director

June 2018 The number of Outside Directors increased to twoJune 2015 An Outside Director assumed the position

33

TOWA PHARMACEUTICAL Integrated Report 2021

Position

Basic compensation

Annual bonuses (basedon individual
performance)

Monetary
compensation

Non-monetarycompensation

Directors(Excluding Audit and Supervisory
Committee Members)

175

103

13

48

10

3

47

(-)

(-)

4
(3)

10

7
(3)

Directors(Audit and Supervisory
Committee Members)(of which Outside Directors)
Total(of which Outside Directors)

(24)

(24)

(-)

223
(24)

151
(24 )

(-)

47

Cross-shareholdings

History of Towa’s corporate governance

June 2019

Amount of compensation by type (in millions of yen)

Total amount ofcompensation(in millions of yen)

The Company may hold cross-shareholdings upon requestfrom a business partner as a means to build, maintain, andstrengthen long-term and stable transactional relationships
with the business partner. In that case, however, the Company
holds cross-shareholdings only when it is deemed thatholding of such shares will contribute to the enhancement of
its corporate value over the medium to long term.
Whether to hold cross-shareholdings is determined yearly by
the Board of Directors with consideration of mid- to long-term
economic rationality and future outlook. The Company
exercises its voting rights of cross-shareholdings appropriately
after closely examining the proposals and determining whether
the holding of such shares will contribute to the enhancementof shareholder value. The Company does not make anaffirmative determination on proposals that may damage
shareholder value. In addition, the Company will be against
proposals of appointment of Directors and other officers who
committed any antisocial act or violation of legal obligations.
If a cross-shareholder expresses an intention to sell
the shares, the Company does not hinder the sale orother acts. When conducting transactions with cross-13

Performance-based compensation

48

(-)

(-)

Number of eligible
officers

shareholders, the Company will thoughtfully examine
the economic rationality of those transactions, just as
with those with other business partners.

Dialogues with stakeholders
The Company discloses the information on its management
strategies and finance/performance status, among othermatters, to shareholders, investors, and other stakeholders
through investor relations activities in an appropriate
and timely manner. In addition, the Company emphasizes
constructive dialogues with stakeholders including
shareholders and investors so as to deliver opinions, requests,
and other similar things obtained from such dialogues tothe Board of Directors for the improvement of corporate value.
The Company recognizes the importance of appropriate
collaboration with not only shareholders and investors but
also other stakeholders including patients, healthcare
professionals, business partners, local communities,
and employees. For creating corporate value, we arecommitted to disclosing information in an appropriate
and timely manner to all of our stakeholders in order tomaintain good and smooth relationships with them.

TOWA PHARMACEUTICAL Integrated Report 2021

34

Risk Management
Basic approach to risk
management
To ensure company-wide risk management,
the Company has formulated the “Basic Regulations
for Risk Management,” which shall be complied withby all the departments, officers, and employees of
the Towa Group. It is critical for the Group’s
continuation and growth to respond to the risks
surrounding the Group promptly and appropriately.
We aim to prevent risks as well as to minimize the lossof stakeholders’ profits and impacts on corporate
managers when a risk occurs. The Group’s risk
management is administered by the Risk Management
Committee, established under President andRepresentative Director, who is the chief risk officer.

Risk Management Committee
The Risk Management Committee consists of
20 members including the President andRepresentative Director, the Senior Managing Director,
Directors, Senior Operating Officers, Operating
Officers, and Division Managers. In addition,
the full-time Audit and Supervisory Committee
Member attends meetings of the committee as anobserver. The committee addresses the risks
surrounding the Group promptly and appropriately tominimize the loss of stakeholders’ interests andimpacts on corporate management when a risk occurs
while preventing risks.

Risk Information
Information security
To increase the Company’s trustworthinessand competitiveness, the Company has formulated
its information security regulations. The regulations
consist of basic rules for appropriate use, storage,
and operation of information assets that all
the officers and employees must comply with in
the course of their duties. Based on the regulations,the Company works to secure information security as
part of daily management activities, businesspromotion, and organizational operation.

Disaster countermeasures
Towa Group takes various measures to prepare for alarge-scale disaster.
Specifically, those measures include: (1) provisionof emergency supplies, (2) clarification of initial
responses and preparation of manuals, and (3)introduction of a safety verification system. In
addition, we hold twice-a-year meetings of the Risk
Management Committee to share information.

Towa Group mainly handles prescription products,
and among them, generics are our leading products.
A generic drug has the same active ingredients,
indications, dosage, and administration as a branded
drug that has been on the market after its efficacy
and safety have been confirmed for a certain periodof time. Thus, the Group faces specific risks as aControl in accordance with
the Pharmaceutical andMedical Device Act, etc.

Patent andre-examination periods

Re-evaluation based on
the Pharmaceutical andMedical Device Act

Adverse drug
reactionsFire evacuation drill

working hours and encouragement of holding online
in-house and external meetings), preventing
the spread of COVID-19 (e.g., review of meetingroom capacity, installation of acrylic resin panels,
and checking for individuals with fever using
thermography cameras), and decreasing
opportunities of exposure to COVID-19 (e.g.,
cancelation/postponement of business trips
and events in principle). The Group will continue to
implement appropriate countermeasures to ensurebusiness continuity.

TOWA PHARMACEUTICAL Integrated Report 2021

The active ingredients of branded drugs are usually protected by patent rights, and the period is 20 years fromthe date of application (the period may be extended for up to 5 years). Since generics are approved for marketing after
the expiration of the patent period, the extension of the patent period is expected to affect the Group’s launch of new
products (new generics).
To address these risks, the Group collects information on patents and re-examination periods as well as facilitatescollaboration among related departments. This helps us obtain approval for partial changes such as additional
indications as soon as possible after the patent on a branded drug expires. At the same time, the information collected
contributes to resolving discrepancies in indications by applying for partial change after the re-examination period.
Re-evaluation of drugs is a system in which the quality, efficacy, and safety of approved drugs are reviewed fromthe current academic standards. If the drug efficacy re-evaluation shows no usefulness, the product is recalled
and disposed of. To address the risk, the Group collects information on scientific and technological progress toappropriately evaluate drugs.

Generics are released after branded drugs have been used for many years. Their safety information has been
confirmed, and they have been re-examined. Therefore, the risk of serious adverse reactions is minimal.
However, if they occur, it may affect the Group’s financial condition and business performance. To address
the risk, the Group collects information on drugs including that on the occurrence of adverse drug reactions incompliance with each country’s regulations. This allows us to determine and conduct necessary measures
based on the results obtained through assessment and consideration.
Owing to the drastic reform of the drug price system, drug prices will be revised every year, beginning in 2021.
The Group’s financial condition and business performance could be affected if the medical insurance system isreviewed, the drug price system is significantly changed, or the medical cost containment policy is reinforced. To
address these risks, the Group aims to sell products at fair prices that match the value of the products whileworking to reduce cost by increasing production efficiency.

Patent litigation

Since our generic drugs sometimes use API that still has patent rights for their crystal form, formulations, use of
the drug, etc., a patent suit may be filed by a manufacturer of new drugs. To address these risks, the Group collects
information on patents and facilitates collaboration among related departments, including the development department.
This enables us to develop drug formulations that have not been covered by patents held by other companies.

Mark-to-market
valuation of derivatives

Stagnation and delay of
production owing todisasters and other causes

Global risks

35

The Group has been manufacturing and marketing prescription products in accordance with the Pharmaceuticaland Medical Device Act and related laws and regulations. Any violation of those laws and regulations may cause
administrative sanctions by the authorities concerned, which may affect the Group’s business activities. To addressrisks related to regulations, the Group collects information on the laws and regulations to conduct business inaccordance with them. In addition, we have developed a company-wide plan and system for compliance promotion.

Drug price system andmedical cost
containment policy

Response to the COVID-19 pandemic
The effects of the COVID-19 pandemic are minor
within our group. However, should the effects prolong
or worsen in the future, closure or shutdown of aparticular business facility of our group owing to acluster of COVID-19 cases identified therein, effectsof patients’ reluctance to visit hospitals and clinics onsales, and effects of the spread of COVID-19 outside
Japan on supply chains for raw materials and APIsmight spill over into production.
To address COVID-19, the group implements
countermeasures for the following: workstyle (e.g.,
encouragement of working at home and staggered

generic business in addition to risks as a holder ofmarketing authorization for drugs. After recognizingthese risks, the Group makes every effort to avoid
their occurrence and set up a system for unexpected
events. The Group has been striving to enhance
and accumulate corporate strength to endure
the impact of such risks.

The Group imports certain semi-finished and raw materials from overseas manufacturers in foreign currencies.
To avoid the risk of cost increase due to depreciation of yen and to provide a stable supply of our products, we
conduct long-term derivatives transactions. Such transactions are subject to mark-to-market valuation at
the time of financial closing, and valuation loss or gain may occur depending on the exchange rate andthe interest rate trend in Japan and the US. The Company estimates the future amount of import transactions
made in foreign currencies to conduct long-term derivatives transactions within the estimated range. This helps
us prevent derivatives transactions from being speculative.
The Group has production sites in Japan (Osaka, Okayama, Yamagata, Shiga, Hyogo, and Shizuoka Prefectures)and Spain (Province of Catalonia), and any of these production sites could be forced to cease business
operations owing to the occurrence of natural disasters or technical/regulatory issues to affect the stable supplyof products. Besides, if natural disasters and other causes force us to halt purchasing raw materials from somespecific supplier(s) and these halted raw materials are challenging to substitute, our business performance could
be affected. To mitigate these risks, the Group strives to organize a mutual backup system among our domestic
plants and promote multiple sourcing of APIs. Moreover, the Group possesses its own API manufacturing plant
to secure a stable supply of APIs.
We completed the acquisition of Pensa Investments, S.L. (current trade name, Towa Pharma International Holdings,
S.L.; hereinafter, “Towa HD”) in 2020. The Group’s financial status and business performance could be affected if
the acquisition of Towa HD fails to produce the expected effects owing to changes in business environments andbusiness operations of Towa HD, effects of local systems and regulations, likely delay in the progress of the integration
process between Towa HD and us, or events unrevealed during due diligence. To address these risks, the Group
strives to strengthen a global management structure through the integration process between Towa HD and us.

TOWA PHARMACEUTICAL Integrated Report 2021

36

Compliance

Message from the Outside Directors

Compliance policy

Compliance education

The Company is committed to ethical and law-abiding
corporate behavior in accordance with the “Towa Group
Code of Conduct.” We have established
the Compliance Committee to conduct measures toraise compliance awareness of the officers
and employees and provide them with training
and education for the correct understanding ofcompliance. Furthermore, we develop and appropriately
utilize a whistle-blowing system so as to promptly
detect and correct fraudulent acts of the Group’s
officers and employees.
The Internal Audit Office, which is under the directsupervision of the President and Representative
Director, conducts internal audits for all the departments
and reports the results directly to the top management.
In the case where the Internal Audit Office finds anythingthat needs improvements, it conducts a follow-up audit
to check how the improvements.

The Company conducts awareness-raising activities forthe officers and employees on a daily basis under
the leadership of the Compliance Committee. In addition,
we set specific periods to promote compliance to takevarious measures across the Group. Specifically, the top
management of the Company conveyed a message tothe officers and employees on the importance ofcompliance. We also conducted a survey to ask
the employees of the Group companies in Japan about
issues to be addressed regarding their duties
and compliance. This not only allowed each employee
the opportunity to consider compliance but also allowed
the Company to use their answers for measures to betaken in the future.
In addition, we conducted e-learning programs on
harassment and whistle-blowing for the officers
and employees. Furthermore, we developed aharassment prevention handbook and provided its copies
to the Group companies as a measure for the preventionof harassment to respond to the amendment of the Labor
Measures Comprehensive Promotion Act. For our
subsidiaries overseas, we formulated the code of
conduct to comply with laws and regulations, and shared
it with those subsidiaries’ officers and employees.
Other than the above, we have been delivering easy-tounderstand example cases through our groupnewsletters.

Compliance structure
Under the Group’s compliance policy, the officers
and employees shall promptly report to
the Compliance Committee when they find a problem
that may cause damage to the Group’s businessand financial condition. The Compliance Committee
is in charge of the whistle-blowing system. It regularly
reports the information from the officers andemployees of the Group collected throughthe system to the Board of Directors. The Audit
and Supervisory Committee shares information with
the Internal Audit Office and the Compliance
Committee on a regular basis. It has a right torequest report submission.

An attitude of “people are all that matters, let’s be the nailthat sticks up” as the starting point for corporate growth

Norikazu Eiki
Outside Director (Audit andSupervisory Committee
Member)Leveraging my viewpoint as a lawyer to offer opinions
concerning management issues

Kaori Oishi
Outside Director (Audit andSupervisory Committee
Member)Group newsletters: What and Why for Compliance
Board of Directors
Audit/appointment/removal

Whistle-blowing helpline

ReportingExecuting organization/meeting
Investigation/correction
Compliance Committee

Helpline

Compliance
Committee Office
Persons in charge of compliance at respective businesssites including plants, distribution centers, and laboratories

37

TOWA PHARMACEUTICAL Integrated Report 2021

The Company’s whistle-blowing system is used as ahelpline shared within the Group companies in Japan.
The Compliance Committee appropriately deals withthe problems notified through the helpline while
protecting whistle-blowers. Together withthe monitoring by the Internal Audit Office,the system has contributed to prompt detection
and correction of problems. We have also establishedand started operating whistle-blowing helplines in our
subsidiaries overseas.

I have been worked a lawyer for 20 years, dealing with corporate disputes, M&A, and businessrestructuring. This is my second year as Outside Director of the Company, and the recent
scandals in the generics industry have come unexpectedly, shaking confidence with respect toquality and stable product supply. The Company is thus facing a serious management
challenge, namely to maintain the trust of the market.
The Company shares information with Outside Directors in a timely and precise manner, with
the information covering the management issues it faces and its efforts to enhance corporate
value, such as its entry into new health-related businesses. I recognize that it is my role toprovide frank opinions from a legal and objective perspective based on the information sharedwith me.

Genuine smiles and people’s health throughhonest and sound management

Overview of the compliance structure

President and Representative Director

For a company to grow stably over the long term, it is necessary for its organizations to contain a diverse
group of people, rather than employees who are just cookie-cutter copies of one another. It has been six
years since I took up my post as Outside Director, and during that time I have put my management
experience at a pharmaceutical company to provide training for around 140 middle-managers, and during
the training sessions, I have exchanged various opinions with them.
One of the Company’s standout strengths is the high level of trust and solidarity that its employees feeltoward the Company and its management team. But on the flipside of that, I also feel that there aren’t
many people willing to be the “nail that sticks up” [from the Japanese proverb: “The nail that sticks up will
be hammered down.”]. In the face of upcoming major changes in the medical and pharmaceuticalindustries, it will be important for the Company to take on various challenges without fear of failure while
respecting the strengths it already possesses.
Through human resource development, I hope that I can continue to play a part in enabling the Company
to live up to its vision: We contribute to people’s health; We are dedicated to people’s genuine smiles.

Kenryo Goto
Outside Director (Audit andSupervisory Committee
Member)The concept of Towa Quality, namely to provide the world with products that rather than justmeeting the quality standards required by law, actually offer the levels of quality and added
value that are truly needed, and to keep updating the products so that they are the state of
the art for the era, is similar to the maxim that informed me during my days at an audit firm towhich I belonged: maintaining a sense of ethics that is a step higher than the rest of the world.
I am therefore familiar with this sort of serious culture.
Abiding by this concept is not an easy task in the generics industry, which is still waiting torecover its credibility after the quality problems, but one of the things that support this iscorporate governance. In accordance with our vision of supporting “genuine smiles” bycontributing to people’s health, I hope that with my perspective as an outsider, I can help
the Company ensure a stable supply of products that can be used with peace of mind not onlyin Japan but all over the world.

TOWA PHARMACEUTICAL Integrated Report 2021

38

Foundation Supporting Business:Society

Board Members
Basic approach

Toshio Shirakawa

To fulfill our responsibilities as a company providing
ethical drugs, the Company strives to provide
information to patients and healthcare professionals
in many different ways, which include providing
and collecting pharmaceutical information throughour medical representatives. We also focus on our
responsible business activities ranging from stablesupply to quality assurance.

Director (Full-time Audit andSupervisory Committee Member)

Itsuro Yoshida
President and Representative Director

May 1979
Joined the Company
October 1983 General Manager of Finance & Accounting Department
December 1983 Director / General Manager of Finance & Accounting Department
August 1986 Director / General Manager of General Affairs Department
April 1990
Director / General Manager of President Office
June 1990
Senior Managing Director / General Manager of President Office
June 1991
Senior Managing Director / Division Manager, Production Division /General Manager of President OfficeNovember 1991 Senior Managing Director / General Manager of President Office
June 1996
President and Representative Director (to present)
October 2003 Chairman and Representative Director of J-DOLPH Co., Ltd.
(currently J-DOLPH Pharmaceutical Co., Ltd.) (to present)
October 2010 Chairman and Representative Director of Daichi Kasei Co., Ltd.

Kazuhiko Konno
Senior Managing Director

November 1998 J oined the Company / Deputy General Manager of Quality
Assurance Department, Yamagata Plant, Production Division
April 2005
General Manager of Quality Assurance Department, Yamagata
Plant, Production Division
April 2007
General Manager of Quality Assurance Department,
Pharmacovigilance & Quality Assurance Division
October 2009 Plant Manager, Osaka Plant, Production Division
June 2013
Director / Deputy Division Manager, Production Division
April 2014
Director / Division Manager, Production Division
June 2017
Managing Director / Director in charge of Production Division,
Research & Development Division, Pharmaceutical Research &Technology Division and API Business Division
April 2019
Managing Director / Director in charge of Pharmacovigilance &Quality Assurance Division, Production Division andPharmaceutical Research & Technology Division
May 2019
Chairman and Representative Director of Greencaps
Pharmaceutical Co., Ltd. (to present)
June 2020
Senior Managing Director of the Company (to present)

Masao Tanaka

39

October 2006 Joined the Company / General Manager of Development Strategy Department,
Research & Development Division
April 2008 General Manager of Product Portfolio Management Department, Corporate
Planning Division
June 2015 Managing Director / Director in charge of Business Development Office andInternational Business Development Department / General Manager of ProductStrategy Management Department
January 2017 Chairman and Representative Director of Greencaps Pharmaceutical Co., Ltd.
April 2017 Managing Director / Director in charge of Product Strategy Division, International
Business Division and Development Planning Office of the Company
April 2019 Managing Director
June 2019 Director (Audit and Supervisory Committee Member) (to present)

Norikazu Eiki
Outside Director (Audit andSupervisory Committee Member)August 1979 Joined Ciba-Geigy Japan Limited
January 1994 Joined Bayer Yakuhin, Ltd.
March 1997 Director / Plant Manager of Shiga Plant, Bayer Yakuhin, Ltd.
July 2002
President and Representative Director, Bayer Yakuhin, Ltd.
January 2007 Chairman and Representative Director, Bayer Yakuhin, Ltd.
April 2010
Chairman and Director, Bayer Yakuhin, Ltd.
May 2014
O utside Director of AnGes MG, Inc. (currently AnGes, Inc.) (topresent)
April 2015
Director of the Board, FunPep Co., Ltd. (to present)
June 2015
Outside Director of the Company
April 2016
Outside Director of Solasia Pharma K.K. (to present)
June 2018
O utside Director of the Board, Gene Techno Science Co., Ltd.
(to present)
June 2019O utside Director (Audit and Supervisory Committee Member)of the Company (to present)

Kaori Oishi

Information Provision by
Medical Representatives
Our medical representatives, whose number isproudly reported to be the largest among
the domestic manufacturers of generics, work on
the provision, collection, and transmission ofpharmaceutical information. We are also enhancing
the network of medical representatives to be able torespond to various needs of diverse medical service
providers, including clinics, local flagship hospitals,
and health insurance pharmacies. Further, we provide
a qualification system for medical representatives torecognize and enhance their specialized capabilities
in cancer, immunology, CNS areas, etc., so that wecan provide information requiring more specialized
expertise.

Outside Director (Audit andSupervisory Committee Member)
October 2001 Registered as an attorney at law
October 2001 Joined Kitahama Law Office (currently Kitahama Partners)
January 2013 Partner of Kitahama Partners (to present)
June 2017
Outside Director of PALTAC CORPORATION (to present)
June 2020
O utside Director (Audit and Supervisory Committee Member)of the Company (to present)

Kenryo Goto

Directors

Outside Director (Audit andSupervisory Committee Member)

April 2009 Joined the Company / Deputy-General Manager, Internal Audit Office
April 2011 Manager of Internal Audit Office
October 2016 G eneral Manager of Public Relations and Investor Relations Office /General Manager of Human Resources Department
June 2017 Director / Division Manager, Administration Division
April 2019 Director / Director in charge of Administration Division
June 2020 Director (to present)
April 2021 Chairman and Representative Director of Protosera Inc. (to present)

September 1981 Joined Asahi & Co. (currently KPMG AZSA LLC)
March 1984
Registered as a certified public accountant
May 2005
Partner of KPMG AZSA & Co. (currently KPMG AZSA LLC)
July 2010
Board member, Head of Division 3, Osaka Office, KPMG AZSA LLC
July 2013
Senior Executive Board member of KPMG AZSA LLC
July 2015
Osaka Office Managing Partner of KPMG AZSA LLC
Representative of Kenryo Goto Certified Public Accountant Office (to present)
July 2020
June 2021
Outside Director (Audit and Supervisory Committee Member) of
the Company (to present)

TOWA PHARMACEUTICAL Integrated Report 2021

Responsible Business Activities

Information Provision by DI Center
To ensure expeditious and accurate information
provision, the Company integrated multiple contacts
into Drug Information (DI) Center of Drug Information
Department, and use the call-center system
connected to customer information. This allows us topromote optimal information provision activities forproper uses of generics. We also offer contact offices
to receive inquiries even at night or on holidays on a24-7 basis.
Customer Service is offered for patients andthe general public. Toll-free services are available forvarious pharmaceutical inquiries about combinationsof multiple medications, side-effects, etc.

Information Provision via Websites
We provide necessary information about our ethicaldrugs through the corporate site and the site for
medical professionals. The corporate site offers
information about generics and materials that can beused by parents trying to help children takemedication, as well as other useful tips. The site for
medical professionals provides product information,
governmental actions on medical practices,and materials that can be used for medical
instructions for patients.

Information Provision to Promote
the Correct Uses of Medicines
To promote the correct uses of medicines, we
provide various explanatory materials for patients,
e.g., about how to take medicines, and conduct
studies, e.g., on combinations of medicines andother food/beverages other than water to alleviate
the bitterness for family caregivers trying to help theirchildren or those they are caring for to takemedication. The materials and results of thesestudies are provided to patients and their family
members through medical institutions.
People can access information about medicines byscanning a QR code* printed
on a product package with
their smartphone or cell phone.
For formulations for children,
QR codes provide information
to parents about the taste of
medication and how to help
patients (their children) takemedication smoothly.
* QR code is a registered trademark of
DENSO WAVE INCORPORATED.

Booklet to provide information

TOWA PHARMACEUTICAL Integrated Report 2021

40

Responsible Business Activities

Stable Supply System
Stable supply is one of our important missions to beaccomplished as an ethical drug manufacturer. We
produce products in our three plants in Osaka,
Okayama, and Yamagata under a two-shift operation
system in case any plant shuts down due to a natural
disaster, etc. A backup system of the three plants isbeing constructed in preparation for an emergency in
any one plant, so that the other two plants can adopt
a three-shift system.

Quality Assurance System
Products dispatched from the plants are stored in
the East Japan Distribution Center (in Yamagata)and West Japan Distribution Center (in Okayama).
This enables us to deliver our products nationwide
from either of the distribution centers in case one ofwhich is shut down due to a natural disaster, etc. We
realize stable supply through the two distribution
centers in East and West Japan.

Strict quality control standards established by
the national government apply to all processes of
ethical drug manufacturing operations. In order to be atrustworthy company, we carry out company-wide
quality control initiatives ranging from product R&D,
manufacturing, marketing, and after-sale operations,and establish the quality assurance system required
for ethical drugs.
In the 5th Mid-term Business Plan, Policy 1 is“Enhancing generics business as a core.” Under
the policy, one of the key themes is further

strengthening the quality assurance system in order tobe a more trusted and needed company as acomprehensive generics manufacturer. Under
the quality assurance system, we not only comply with
relevant regulations including the Good Manufacturing
Practice (GMP) Ministerial Ordinance, but also strive toassure the quality and safety of pharmaceuticalproducts through introducing international standards
and establishing our original system and training
programs from the perspective of “minimizing humanerror,” one of the GMP three principles.

Towa Group’s Initiatives

Risks in API
Procurement

Recording of store-in/-out data with
Manufacturing Execution System (MES)

In-house manufacturing of APIs Reduction of the risk of stable supply due to external factors
by developing synthesis processes and manufacturing at Daichi
Kasei or partnering companies

Manufacturing Process A

Recording in manufacturing
instructions at each process

Quality Assurance Department(plants of Osaka, Okayama and Yamagata)

Process Control A
Manufacturing Process B

Audit system for manufacturing sites
Discontinuation of API shipment and manufacturing(Risks of environment pollution, natural disasters, infectious diseases, accidents, etc.)

GMP violations by API manufacturers(Differences of quality and manufacturing controls related to pharmaceutical regulations)Occurrences of mutagenic impurities(Conforming to ICH-M7 guideline)

Process Control B

 Audits in accordance with international standards as well as domestic ordinances Audits by technical experts (synthetic and physicochemical analyses)

Promotion of multiple sourcing of starting materials and intermediates

Acceptance Maintaining a multiple sourcing rate of 60% or more for stablesupply even in case of emergency
 Selection of suppliers avoiding duplication of starting materials
and intermediate suppliers

Manufacturing

Testing ofIntermediate
products

Testing offinishedproducts

Product
shipment
decisionby plants

Product
shipment
decisionby HQ QA Dept

Dealing with mutagenic impurities
Procurement of starting materials and intermediates(Overlapping of API upstream suppliers) Taking appropriate measures with highly accurate measurement
and identification of generation mechanisms
 Forecast of risks based on the latest knowledge
Confirmation of compliance withagreements and quality standards

Management of analysis data with Laboratory
Information Management System (LIMS)

Check of records and data forerrors or mistakes

Pharmacovigilance
and Quality Assurance Division

Production System
We currently have a production system capable ofannual generics production of 11.5 billion tablets* atthe three plants. To respond to a further increase indemand, we plan to increase production volume to
14.0 billion tablets by the end of FY2022, build the
3rd solid formulation building in Yamagata Plant by
the end of FY2023, and achieve the production
capacity of 17.5 billion tablets from FY2024 onward.
To ensure stable product supply, production of oral
dosage forms is dispersed to the three plants; andthe production of injections is integrated into
Yamagata Plant built with the seismically isolated
structures to minimize natural disaster risks. The
three plants take pride in the advanced facilities toensure high quality and stable supplies, supporting
our confidence in the future.

Osaka Plant

Okayama Plant

Yamagata Plant

Yamagata Plant

20.0

Yamagata Plant

17.5

Capacity expansion at 2nd solid
formulation building

15.0

14.0
11.5

GMP Three Principles

Construction of 3rd solid formulationbuilding and 2nd sterile formulationbuilding (currently planned)(Unit: billion Tab/Cap)

3.5

12.0
6.5

6.5

5.0

5.0

5.0

2.5

2.5

2.5

2.5

FY2020

FY2021

FY2022

FY2023

10.0

4.0

4.5

5.0

5.0

0

Targeting production capacity of 17.5 billion tablets/capsules per year by the end of FY2023

Pharmaceuticals production is based on Good Manufacturing Practice(GMP), the standards for manufacturing control and quality control for
drugs laid down by the nation.
The following three principles are stipulated in the GMP:
(1) minimizing human error,(2) preventing contamination and quality degradation of medicinal
products, and(3) establishing high-degree system for quality assurance.
The Company has put in place procedures compliant with the GMP
three principles in all of our plants in Yamagata, Osaka, and Okayama,and strives to manufacture reliable-quality pharmaceuticals always
required at a higher level.

Minimizehuman error

GMP
three
principles
Prevent contamination
Establish
and quality degradation ofhigh-degree
medicinal products
system for quality
assurance*Production capacity of tablets and capsules

41

TOWA PHARMACEUTICAL Integrated Report 2021

TOWA PHARMACEUTICAL Integrated Report 2021

42

Making job satisfaction and fostering talented human resources

Job satisfaction for each employee
motivated by individual talent improvement
and career enrichment

Enrichment ofcareer paths

Enhancement ofCorporate Fundamentals
Job satisfaction for strengthening
corporate fundamentals

Growth corresponding to changes
through employee’s growth and resulting
strength of corporate fundamentals

Job satisfaction
Growth ofemployees

Respect for diversity in work
styles and motivation foreach and every employee

Continuation of
Towa Spirits
Towa Group exists
and prospers forever as it isFostering of talented
human resources

Special attachment
to making things

Encouraging employees togrow as important assets
for the company

Medical Representatives

Health and Productivity Management

The Company places priority on developing medical
representatives (MRs) and strengthening theirorganization, and strives to foster talented humanresources. In accordance with the MR Education
Training Guidelines, we develop our original
education programs and provide ongoing training,which covers expert knowledge about products, highethical standards required for MRs handling liferelated products, and skills in explaining products
and communication. In this way, we aim to develop
highly qualified medical representatives who can gain
the trust of healthcare professionals.

We promote health and productivity management and havean organization responsible for company-wide safety
and health management. We perform various activities forcreating a worker-friendly environment, promoting
employees’ mental health, and enhancing employees’ health.
In March 2021, we were recognized as one of theCertified Health and Productivity Management
Outstanding Organizations for four consecutive years. We
will continue to perform various activities for promoting
employees’ and their family members’ health.

Continuation of Towa spirits by passing
down its commitment and desire to
make products to its employees

Career Development Support
Under the belief that talented human resources are
the foundation of a trusted company, we work to makejob satisfaction, foster talented human resources,
and strengthen our organization. Accordingly, one ofthe policies in the 5th Mid-term Business Plan is“Making Job Satisfaction and Fostering Talented
Human Resources.” To this end, we started “Towawork style reforms” in October 2020.
As one of the work style reforms, we put more
effort into helping each employee develop theircareer path. Starting from April 2021, the Human

Resources Division staff have career development
meetings with employees to enhance more
personalized support. Going forward, we willencourage employees to understand the importanceand necessity of developing their career paths
and support them in developing their mid- to longterm career vision. To help employees achieve theircareer visions, we will aim to become a company thatencourages employees to grow in a proactive andplanned manner.

Our Commitments (T-SMILE)
We have established a new course of action named T-SMILE. This is ourphilosophy created when we marked the 70th anniversary of our foundation toaccommodate our growth and increasing employees and further disseminate
our vision to employees.
T-SMILE is an acronym of six words: Truthful that means sincerity, honesty
and fairness; Speed that represents swift decision-making, action
and information sharing; Mission that expresses missions and passion to beof service to help people maintain their good health in communities aroundthe world; Idea that represents creativity and imagination to challenge forunprecedented transformation; Linkage that gives the impressions ofconnections between people and information, coexistence, and co-prosperity;and Excellence that represents the mind to choose the most appropriatetechnologies that fit with the times and highest quality. These words serve asa course of action and criteria based on which employees help realize
the Group’s vision “We contribute to people’s health” and “We are dedicatedto people’s genuine smiles” through corporate activities.

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TOWA PHARMACEUTICAL Integrated Report 2021

Our new
commitmentsfor people’s
genuine smiles

Original Qualification Systems
From the perspective of ensuring reliable quality
and safety, we develop employees with highawareness through our educational training programs
and original qualification system. Specific examples
include an MR qualification specialized in cancer, a
GMP auditor certification, and an expert certification
system. The expert certification system is a system
whereby we certify our employees who have a higher
degree of technical skills and greater knowledge inmanufacturing, packaging, testing, and quality
assurance units. By promoting these certification
systems, we help employees in each area develop
into specialists in manufacturing control and quality
control. Meanwhile, we aim to develop employees
who are highly aware of ensuring quality and safety.

Our Efforts for Diverse Work Styles
We perform various activities to help employees who raise
their children or take care of their family members in need ofnursing care. In 2010, we were awarded the next-generation
certification mark called Kurumin. The logo features aswaddled baby. The Ministry of Health, Labour and Welfare
grants the certification logo if it certifies companies aschildrearing-friendly businesses.
We have various parental and nursing care systems for our
employees. For example, they can take parental leave until
their children turn three years old for the maximum length,
they can extend using the shorter working hour system forparenting until their children finish the sixth grade atelementary school, and we provide family support leave towhich employees are entitled when they need to take care of
their sick family members requiring nursing care.
TOPICS

I was able to take satisfying
parental leave thanks tocooperation by people
around me
Shuhei Yamamoto
Deputy General Manager, Purchasing
Planning Department, Purchasing Division

When my wife gave birth to our third child, I took parental
leave of four weeks to help reduce my wife’s burden
because our first and second children are twins still at age offour. I started consulting with my boss and co-workers
and made preparations four months before taking parental
leave. My boss, team members and other employees aroundme were cooperative, so I smoothly handed over my work.
During parental leave, I struggled with raising our children at
first, but when I got used to it, I was able to do it naturally.
I feel that it was worth taking parental leave because during
the four-week period, I was given an irreplaceable
opportunity of spending time with our newborn and I wasable to support my wife having a hard time after childbirth.
I hope that more employees are aware of parental leaveand that childrearing employees can have more options.

TOWA PHARMACEUTICAL Integrated Report 2021

44

Foundation Supporting Business:

Environment

Social Contribution Activities
Basic approach

Company-sponsored
Daycare Centers

We act based on the principles in “The Charter ofCorporate Behaviors in Towa Group” with high ethicalstandards and social good sense to promote proper
corporate activities enabling us to gain trustand support from society. In our action, we strive to
reduce global environmental load as part of oursocial responsibility as a good corporate citizen.
Concretely, we are dedicated not only to proper
management of chemical substances and preventionof pollution, but also to actions for alleviating
environmental concerns through plant drainage
and emission systems and taking energy-savingand decarbonization measures through effective usesof mega solar systems. Furthermore, we are
aggressively working to achieve an eco-friendly
manufacturing method of APIs.

High School Student Business
ContestWe held a “High School Student Business Contest for
the Future and People’s Health” for the second time in
FY2020. As a part of our efforts to widely disseminate
the Group’s vision “We contribute to people’s health”
and contribute to a wide variety of health-relatedindustries, the contest is aimed at seeking fresh ideas
from high school
students who willlead the future ofJapan and creatinga social contribution
opportunity forthem.

Company-sponsored daycare centers are childcare
facilities established by companies to provide theiremployees with flexible childcare services according to
the employees’ different ways of working. We
established our company-sponsored daycare centersnear Okayama and Yamagata Plants in 2018 to realize awork environment where childrearing employees canwork for the Company without any concerns and tocontribute to local communities by reducing the numberof children on waiting lists at daycare centers. We also
conclude joint use contracts for company-sponsored
daycare centers of other companies to provide
additional options. In this way, we are committed tocreating an environment where employees find it easier
to be reinstated after parental leave.

On-demand Lectures

Introduction of Music Therapy
VideosIn January 2021, we released music therapy videos
titled “Music and Mind—For Everyone’s Smiles—” on
our homepage. Music therapy is psychotherapy
using the nature of music and one of the nonpharmacological therapies for diseases including
developmental disabilities, dementia, and mental
illness. We released
the videos as partof our efforts toprovide useful
information to help
people prevent
disease andmaintain their good
health.

Reducing CO2 through warm
water generation by using waste
heat from large refrigerators
Dehumidification with cold water is essential forcontrolling air conditions in clean rooms. Yamagata
Plant has introduced a double-bundled centrifugal
refrigerator, a type of large chiller to produce cold
water. This equipment can generate warm water bycollecting and using heat that is normally discarded.
This enables us to reduce CO2 emissions by about
24% compared to the conventional method ofgenerating warm water using steam from boilers.

Photovoltaic power generation facilities in the West Japan Distribution Center

Realizing an eco-friendly
manufacturing method of APIs

Well-care Exercise Programs

We deliver on-demand lectures using our technicalskills and content for children through an event called“After-school Educational Program for Kids” held in
elementary school districts of Osaka Prefecture so thatchildren can have an enriching learning experience. We
so far delivered lectures including the one themed“Let’s do an experiment and explore the secrets ofmedicine! —Generics are full of ingenious ideas—”

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TOWA PHARMACEUTICAL Integrated Report 2021

We released a website called “Well-care Exercise
Programs” on our homepage to introduce exercise
programs, which are designed to support people’s
mental health. The website introduces several exercise
programs with different intensity levels developed
under the supervision of the Japanese Association ofSports Psychiatrywith the slogan“Anybody can easily
enjoy at anytime
and anywhere,”
allowing people to
do exercise
according to their
physical strength.

on its premises. Together, the Center is now able togenerate about 3.16 million kilowatts of electricity
annually. This is about 1,000 households worth ofelectricity demand.

Double-bundled centrifugal refrigerator

Installing photovoltaic power
generation facilities covering
about 1,000 households
West Japan Distribution Center in Okayama
Prefecture has installed photovoltaic power
generation facilities on the roofs of the facilities
and produced electricity since 2012. In 2014, theCenter added another photovoltaic installation withgenerating capacity of up to 1.5 MW using idle land

New Energy and Industrial Technology Development
Organization (NEDO) selected our initiative tomanufacture APIs eco-friendly as a publicly solicited
subcontractor for the Development of Continuous
Production and Process Technologies of Fine
Chemicals. As an eco-friendly manufacturingmethod, this is aiming to develop the flow precisionsynthesis for producing fine chemicals as part of
NEDO’s Feasibility Study Program on Energy
and New Environmental Technology. We are pursuingan eco-friendly, green and sustainable chemistry by
replacing the batch method generating large
quantities of waste and CO2 emissions withthe manufacturing process with the continuous flow
method using energy-saving catalytic reactions withlow waste emissions as the key.

TOWA PHARMACEUTICAL Integrated Report 2021

46

11-Year Financial Summary
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021 (FYE March)

Net sales (JPY million)

46,14548,71955,241

61,351

71,47082,11584,94993,430105,104

110,384

154,900

Operating profit (JPY million)

9,654

9,107

7,723

7,706

11,105

11,134

6,869

11,643

15,96816,14319,923

Ordinary profit (JPY million)

9,396

9,841

9,544

8,834

15,437

10,157

7,417

11,717

18,86520,99018,677

Profit attributable to owners of parent (JPY million)

5,846

5,737

6,201

5,992

11,118

7,684

5,576

6,495

13,475

14,503

13,958Comprehensive income (JPY million)

5,791

5,745

6,348

5,999

11,175

7,313

5,858

6,533

13,40914,948

14,469Net assets (JPY million)

46,66450,49455,61060,14770,04870,60574,94579,92091,771

104,665

116,599

Total assets (JPY million)

72,964

81,24489,705

103,318

121,187

156,851

165,247

177,181

188,803

230,016

245,668

Net assets per share (JPY)

906.08990.36

1,090.70

1,179.69

1,373.89

1,434.79

1,522.99

1,624.09

1,864.92

2,126.72

2,369.21

Earnings per share (JPY)113.53111.49121.62117.54218.07154.19113.32132.00273.85294.74283.62

-

-

-

-

-

436.29314.23122.03253.32272.62271.93Equity ratio (%)

64.0

62.2

62.0

58.2

57.8

45.0

45.4

45.1

48.6

45.5

47.5

ROE (Return on equity) (%)

13.2

11.8

11.7

10.4

17.1

10.9

7.7

8.4

15.7

14.8

12.6

Price-earnings ratio (%)

12.35

12.26

13.68

12.63

10.50

9.98

16.56

16.79

10.64

7.69

8.61

Cash flows from operating activities (JPY million)

5,739

3,379

8,645

8,144

8,037

3,732

10,195

19,23019,002

19,16412,008Cash flows from investing activities (JPY million)(7,854)(8,482)(11,298)(11,300)(8,230)(19,032)(22,206)(20,093)(3,994)(39,541)(9,100)Cash flows from financing activities (JPY million)

4,220

879

2,793

3,529

238

27,970

(92)

4,670

(809)

11,748184

Cash and cash equivalents at end of year (JPY million)

8,031

3,798

3,985

4,675

5,208

18,526

7,112

11,511

26,652

18,713

22,915

Number of employees

1,454

1,567

1,696

1,879

2,060

2,203

2,408

2,449

2,472

3,325

3,456

R&D expenditure (JPY million)

3,260

4,076

4,478

5,296

6,144

8,924

9,352

7,725

7,916

8,566

10,642

Capital investment (JPY million)

9,234

11,251

7,855

9,727

13,816

15,79225,026

12,166

6,011

6,236

10,353

Depreciation (JPY million)

1,873

2,637

4,909

5,407

5,724

7,329

7,980

8,173

8,340

8,285

9,674

Dividend per share (JPY)

65.0

75.0

75.0

75.0

95.0

95.0

95.0

95.0

107.5

44.0

44.0

Dividend payout ratio (%)

19.1

22.4

20.6

21.3

14.5

20.5

27.9

24.0

13.1

14.9

15.5

Diluted earnings per share (JPY)

Note: The Company conducted a 3-for-1 stock split of common shares effective April 1, 2019.
We calculated net assets per share and earnings per share assuming that the said stock split was conducted at the beginning of the fiscal year ended March 31, 2011.

47

TOWA PHARMACEUTICAL Integrated Report 2021

TOWA PHARMACEUTICAL Integrated Report 2021

48

Management Discussion and Analysis of Financial
Position, Operating Results, and Cash Flows
The details of the financial reports are excerpts from Annual Securities Report (from April 1, 2020 to March 31, 2021).

Overview of Performance[1] Business environment
In the consolidated fiscal year ended March 31, 2021,
the Japanese economy remained in a severe situation due
to the COVID-19 pandemic. After lifting the state of
emergency in May last year, the level of social andeconomic activities was gradually raised. Under suchcircumstances, we saw signs of a recovery from theextremely difficult situation. However, the outlook forthe situation remains uncertain, as the number of cases of
the COVID-19 has been increasing again, and some areas
have reinstated the state of emergency. During the period,
starting vaccination brought recovery from the economic
slowdown caused by the spread of the COVID-19 aroundthe world and the blockade of cities. However, risks such as
the future resurgence of infection remain.
In the generics industry, the Cabinet decided the “Basic
Policy on Economic and Fiscal Management and Reform
2017” in June 2017. It stated that the volume share ofgenerics would reach 80% by September 2020, and that
the Cabinet would consider further measures to promote
the use of generics to achieve this target as soon as
possible. As a result of this decision, the Japanese
government has implemented various measures since
the revision of medical fees in April 2018. Furthermore, inrevising medical fees in April 2020, the government decided“Further Promotion of Generic Medicine and Biosimilars
Use” policy, and generics have become more popular.
Consequently, the volume share in December 2020 reached79.4%, which almost achieved the target (according to
the survey by Japan Generic Medicines Association in
October-December 2020).
On the other hand, the government revised drug prices in
October 2019 and April 2020. Also, it revised them in April
2021 based on the “Basic Policy on Economic and Fiscal
Management and Reform 2020” approved by the Cabinet in
July 2020. As described above, the government will revise
the drug prices every year, beginning in 2021.
The government decided a policy to revise the drug prices inintermediate years in addition to the regular revisions once
every two years. Therefore, we expect that extremely toughconditions for the pharmaceutical industry will continue.
We announced the 4th Mid-term Business Plan 20182020 PROACTIVE in May 2018 against this backdrop ofsuch dramatic changes in the environment surrounding
the industry. Based on the plan, we took on challenges suchas entering new markets and creating new businesses aswell as maintaining the foundation of the domestic generics
business to become a company needed by society andlocal communities at any time.
[2] Initiatives for sales growth
Last June, we launched new products including 22 items of
10 APIs with a sales plan of JPY 3,200 million for the firstyear. In December, we began selling another 10 items of two

49

TOWA PHARMACEUTICAL Integrated Report 2021

derivatives, and profit attributable to owners of parent was
JPY 13,958 million (down 3.8% YoY).
Domestic net sales were JPY 118,685 million (up 7.5%
YoY), reflecting steady sales of recently launched products,
despite the effects of NHI price revisions in October 2019and April 2020 and some impacts of the spread of
COVID-19. The COGS ratio improved 0.5 percent points
YoY to 53.6%, and gross profit was JPY 55,109 million (up8.8% YoY). SGA expenses was JPY 35,612 million (up 3.2%
YoY) due to increases in personnel and R&D costs.
Consequently, operating income came in at JPY 19,497
million (up 20.8% YoY).
Overseas net sales were JPY 36,214 million, COGS ratio
was 71.4%, and gross profit was JPY 10,341 million. SGA
expenses amounted to JPY 9,915 million. Consequently,
operating income was JPY 425 million.

Financial position
APIs with the plan of JPY 770 million for the first year. In
addition, the number of our generics has reached 770 itemsof 343 APIs as a result of selling new drugs to improve
the quality of life.
[3] Initiatives for entering overseas markets
As part of entering new markets, we acquired Pensa
Investments, S.L. (Headquarters location, Catalonia, Spain;
current trade name, Towa Pharma International Holdings,
S.L.; hereinafter, “Towa HD”) in the preceding period, andachieved business expansion in the European and U.S.
markets. Going forward, we aim to further expand ourbusiness by utilizing Towa HD’s sales network in several
European countries and the United States as well as
the production bases in Europe compliant to European
and the United States standards.
[4] Creation of new businesses
With the hope of becoming a company needed by society
and local communities at all times, we are researching
and commercializing new health related businesses,
centering on extension of healthy life expectancy;
maintenance of healthy conditions; restoration of health at
pre-symptomatic stage; and response to the local
comprehensive community care system. As part of these
efforts, we began a joint research project in April 2020 with
National Cerebral and Cardiovascular Center to establish
medical evidence for the efficacy of taxifolin, a plant-derived
ingredient, in preventing dementia. We also signed a joint
research contract with Osaka Psychiatric Medical Center onbiomarkers for Alzheimer’s dementia. Besides, we acquired
shares of Protosera Inc. through third-party allotment inMarch 2021 to launch a testing service business. Protosera
has been certified as a sanitation testing laboratory and isengaged in disease risk testing services using its proprietary
basic technology for protein analysis.
Additionally, we established an organization to planand implement marketing strategies for new businesses,
support frontline sales staff and promote activities,
and work to strengthen our sales capabilities.
In the previous year, we started selling “comuoon,” aninteractive assistive device to convert the voice of speakers
into sound that is easy to hear, offered by Universal Sound
Design Inc. Sales of “comuoon” also developed well.
[5] Operating results
For the consolidated fiscal year under review, the Group
recorded net sales of JPY 154,900 million (up 40.3% YoY).
While the COGS ratio was 57.7%, up 3.6 percent points
YoY, gross profit was JPY 65,451 million (up 29.2% YoY).
SGA expenses was JPY 45,527 million (up 32.0% YoY).
Consequently, operating income was JPY 19,923 million (up23.4% YoY), but ordinary income was JPY 18,677 million(down 11.0%) due to the recording of loss on valuation of

The financial condition for the consolidated fiscal year under review is as follows.
[1] Assets
Total assets at the end of the consolidated fiscal year underreview amounted to JPY 245,668 million, up JPY 15,651
million YoY. This was mainly due to an increase ininventories of JPY 9,902 million, an increase in cash
and deposits of JPY 4,201 million, and an increase in tradenotes and accounts receivable of JPY 2,930 million, despitea decrease of JPY 3,811 million in investments and otherassets.
[2] Liabilities
Liabilities amounted to JPY 129,069 million, up JPY 3,717
million YoY. This was mainly due to an increase in long-term
debt of JPY 33,305 million, despite decreases in short-term
debt of JPY 20,257 million and convertible bond of JPY
10,870 million.

[3] Net assets
Net assets amounted to JPY 116,599 million, up JPY
11,934 million YoY. This was mainly due to an increase inretained earnings of JPY 11,458 million. Consequently,
capital-to-asset ratio was 47.5% at the end of
the consolidated fiscal year under review.
*We had applied a provisional accounting treatment forthe business combination with Towa HD in the previous
consolidated fiscal year. However, since it was finalized in
the consolidated fiscal year under review, the amounts
reflecting the provisional accounting treatment are used in
the comparison and analysis with the previous
consolidated fiscal year.

Cash flows
Cash and cash equivalents at the end of the consolidated fiscal year under review amounted to JPY 22,915 million, up JPY
4,201 million YoY. Each cash flow for the consolidated fiscal year under review and factors behind it are as follows:[1] Net cash provided by (used in) operating activities
Net cash provided by operating activities amounted to JPY
12,008 million (down JPY 7,155 million in the inflow YoY).
This was mainly due to profit before income taxes of JPY
18,728 million (down JPY 1,981 million YoY), partially offset
by an increase in inventories of JPY 9,707 million (up JPY
5,406 million YoY).
[2] Net cash provided by (used in) investing activities
Net cash used in investing activities was JPY 9,100 million(down JPY 30,441 million in the outflow YoY). This was
mainly attributable to purchase of property, plant andequipment of JPY 9,137 million (up JPY 4,588 million YoY).

[3] Net cash provided by (used in) financing activities
Net cash provided by financing activities amounted to JPY
184 million (down JPY 11,564 million in the inflow YoY). Thiswas mainly due to a net decrease in short-term debt of JPY
20,251 million (net increase of JPY 20,200 million in
the previous consolidated fiscal year), repayments of longterm borrowings of JPY 6,895 million (up JPY 499 million
YoY), and payments for redemption of bonds with shareacquisition rights of JPY 10,850 million yen (up JPY 10,850
million YoY), partially offset by proceeds from long-termborrowings of JPY 40,500 million (up JPY 40,500 million YoY).

Dividend policy
We have a basic policy of paying dividends continuously andsteadily in accordance with our performance, while enhancing
internal reserves to prepare for future business development,such as strengthening research and development capabilities
and securing capital expenditure funds.
Based on this policy, we paid a dividend of JPY 44 pershare for the current fiscal year (including an interim
dividend of JPY 22 per share and a year-end dividend of
JPY 22 per share). Our basic policy is to pay dividends ofsurplus twice a year for the interim dividend and the yearend dividend. The decision-making bodies for these
dividends of surplus are the General Meeting of
Shareholders for the year-end dividend and the Board of
Directors for the interim dividend.
We have stipulated in the Articles of Incorporation that
the Company, by resolution of the Board of Directors, may
pay an interim dividend as of September 30 of each year,
which is set to be the record date for the interim dividend.

TOWA PHARMACEUTICAL Integrated Report 2021

50

Corporate Data

Corporate Data

Business Locations

Company Outline

Kyoto Analytical Science Center
KENTO Healthcare Science Center
East Japan Distribution Center

Shares authorized ................................................ 147,000,000 sharesCompany name TOWA PHARMACEUTICAL CO., LTD.

Shares issued ......................................................... 51,516,000 shares

Headquarters

Number of shares constituting one unit ................................. 100 shares

2-11, Shinbashi-cho, Kadoma-shi, Osaka 571-8580
Main phone: +81(0)6-6900-9100

Established

June 1951

Incorporated

April 1957

Listing

The first section of the Tokyo Stock Exchange (TSE)(Securities code :4553)

Capital stock

JPY 4,717.70 million

Business operations Manufacturing and selling of ethical drugs

Amagasaki Research CenterTokyo Office
Headquarters

Osaka Research Center

Okayama Plant

Osaka Plant

West Japan Distribution Center

Number of shareholders ....................................... 5,819 shareholders

Major shareholders (Top 10)(Thousand)Yoshida Office Co., Ltd.

20,100The Master Trust Bank of Japan, Ltd. (Trust Account)

2,201

4.47

Itsuro YOSHIDA

1,455

2.95
2.93

1,445

TOWA PHARMACEUTICAL Kyoeikai

1,440

2.92

Headquarters

Headquarters Moriguchi Annex Tokyo Office

Custody Bank of Japan, Ltd. (Trust Account)

1,213

2.46

Research &Development
Laboratories

Osaka Research Center
Kadoma Laboratory
Kyoto Analytical Science Center
KENTO Healthcare Science Center
Amagasaki Research Center
Himeji Research Center

TOWA PHARMACEUTICAL Employee Stock Ownership Group

890

1.80

State Street Bank and Trust Company

726

1.47

Yoshida Estate Ltd.

648

1.31

The Bank of New York Mellon Corporation

516

1.05

PlantsOsaka Plant Okayama Plant Yamagata Plant

Distribution
centers

West Japan Distribution Center
East Japan Distribution Center

Sales offices
and sales sites

71 sales offices
60 sites of agents

Note: The Company holds 2,301,475 shares of treasury stock but is excluded
from the above major shareholders. The Company calculated theownership by deducting the number of treasury shares.

Share breakdown by shareholder type
Financial institutions
0.57%

Consolidated subsidiaries

Securities
companies
0.48%

Daichi Kasei Co., Ltd.
Greencaps Pharmaceutical Co. Ltd.
Towa Pharma International Holdings, S.L. and seven companies

J-DOLPH PharmaceuticalCo., Ltd.

Greencaps Pharmaceutical
Co. Ltd.

Manufacturing and selling of ethicaldrugs

Producing soft capsules forpharmaceutical products.

Headquarters: Koka, Shiga

Headquarters: Fujinomiya, Shizuoka

Daichi Kasei Co., Ltd.

Towa Pharma International
Holdings, S.L.

(JPY) 3,500

Manufacturing and selling of ethicaland OTC drugs

3,000

Headquarters: Barcelona, Spain

2,500

Headquarters: Fukusaki, Kanzaki,
Hyogo

T Square Solutions Co., Ltd.

Protosera Inc.

Providing healthcare related IT services

Disease risk testing service business and research and development of diagnostic drugs

Headquarters: Moriguchi, Osaka

Headquarters: Osaka, Osaka

TOWA PHARMACEUTICAL Integrated Report 2021

Individuals
and others
93.78%

Individuals
and others
21.02%

Non-Japanese
corporations
20.99%

Financial institutions 14.53%
Securities companies
0.66%

Number ofshares ratio
Japanese
corporations
42.80%

Stock price2,000

Non-consolidated subsidiaries

51

Japanese corporations 1.48%
Non-Japanese
corporations
3.69%

Number ofshareholders ratio

J-DOLPH Pharmaceutical Co., Ltd.

R&D and manufacturing of APIs andintermediates

40.84

BNYM AS AGT⁄CLTS 10 PERCENT

KadomaLaboratory

Major Group Companies

Number Ownershipof shares(%)

Shareholder nameBusiness locations and sales outlets

Moriguchi Annex
Himeji ResearchCenterAs of March 31, 2021

Overview of Company

Representative President and Representative Director Itsuro YOSHIDA

Yamagata Plant

Stock Data

As of March 31, 2021

1,500
1,000

11.9 12.3 12.9 13.3 13.9 14.3 14.9 15.3 15.9 16.3 16.9 17.3 17.9 18.3 18.9 19.3 19.9 20.3 20.9 21.3 21.9

TOWA PHARMACEUTICAL Integrated Report 2021

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