INDEX

VisionOur History and Today

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

12357Vision
Contents and Editorial Policy
Our History
Social Issues Addressed by Towa GroupTowa 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 Summary49 Management Discussion and Analysis of FinancialPosition, 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 5thMid-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 Towa1951

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’svalue-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 Presidentand Representative Director

1957

Started selling OTC drugs

1965Shifted to manufacturing andselling ethical drugs from OTC
drugs

Production system

Production capacity

14.0 billion
tablets

11.5 billion
tablets

Production capacity

2010

JPY

154.9billion

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 PharmaInternational 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 ofthe 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

20092010

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
OsakaProduction
OkayamasystemYamagata

Salessystem
3

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 SalesSystem

2017

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 the2nd 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 toTowa 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 ofapproximately 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 byresponding 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. Inthe 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 recentyears. 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 APIsfor 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 page27.

Relatedinformation
See page

42.

7

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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 informationto 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 build3rd 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, fostertalented 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 page43.

TOWA PHARMACEUTICAL Integrated Report 20218