TOWA
PHARMACEUTICALINTEGRATED REPORT

2022

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

Genuine smiles

People’s healthSupporting 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.

1

TOWA PHARMACEUTICAL Integrated Report 2022

INDEX
Our History and Today
1
2
3
5
7
9

VisionContents and Editorial Policy
Our History
Social Issues Addressed by Towa Group
Towa Group’s Strength
Financial and Non-Financial Highlights

Towa Group’s Value Creation
11
17
19
20
21
23
24
25
30

Message from the President
Feature Topic 1: Production Capacity Expansion
Feature Topic 2: Overseas Markets Development
Feature Topic 3: Sunsho Pharmaceutical
Our Value Creation Process
External Environment Surrounding Towa Group
Towa Group’s Capital
Mid-term Business Plan
Towa Group’s Target Business

Foundation Supporting Business
31
35
36
37
38
39
40
46

GovernanceRisk Management
Risk Information
Compliance
Message from the Outside Directors
Board Members
Society
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 describes our efforts to realize our vision through the 5th
Mid-term Business Plan (2021–2023) PROACTIVE II. We strive to improve the content of the report 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 ] FY2021 (From April 1, 2021 to March 31, 2022)* The financial information is as of March 31, 2022. The report also covers some initiatives that were taken before April 1, 2021 or after March 31, 2022.

[ 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.

TOWA PHARMACEUTICAL Integrated Report 2022

2

Our History
Since our establishment in 1951, we have strived to research, develop, manufacture, and sell generics for morethan 70 years. While promoting stable supply, quality assurance, and information provision, we will continue tofocus on research and development of ingenious pharmaceutical products that are “easier to take” and “easier tohandle.” At the same time, we work to construct a structure that can provide Towa Group’s value-added products
to patients around the world and to create new health-related businesses in response to the new medical system.

History of Towa * The years shown are fiscal years.

1951

Established

1996

1957

Started selling OTC drugs

1965

Shifted to manufacturing andselling ethical drugs from OTC
drugs

Itsuro YOSHIDA was appointed President
and Representative Director

2000

Launched value-added products

2003

Acquired J-Dolph Co., Ltd. as a
subsidiary

2004

Established RACTABTechnology

2004

Listed on the first section of theTokyo Stock Exchange

2002

2003

1997
Constructed new corporate headquarters

1998
Constructed Osaka Research Center[ Trends in Consolidated Sales ]1951 1970

1980

1990

2000

2004

2005

2006

1st Growth Period from our establishment to FY2001

History of initiatives based on measures to promote the use of generics

Osaka
Production
OkayamasystemYamagata

Sales
system3

TOWA PHARMACEUTICAL Integrated Report 2022

1977

1983

Constructed
Osaka Plant

1981

2007

Generics volume share targets set
by the government

30% or more

Constructed Osaka
2nd Plant

2005

Completedrebuilding thesolid formulation 1995
building inOkayama Plant

Constructed
thepackaging 1996
building

1998

by FY2012

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

2008

Consolidated Sales
for FY2021

Production system

14.0 billion
tablets

JPY

165.6

Production capacity

Production system

12.0 billion
tablets

14.0 billion
tabletsbillion

Production capacity

2021

2010

Overseas
sales

Production system

Acquired Daichi Kasei Co., Ltd. as a
subsidiary2016

14.0 billion
tablets

Acquired Sunsho PharmaceuticalCo., Ltd. as a subsidiary

2022

160.0

11.0 billion
tablets

140.0

Production capacity

10.5 billion
tablets

Transitioned to the Prime Market of
the Tokyo Stock Exchange in April
2022

120.0

Production capacity

Established Greencaps PharmaceuticalCo., Ltd.

8.5 billion
tablets

Production capacity

2018

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

2019

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

7.5 billion
tablets

100.0

80.0

60.0

40.0

20.0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

0

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

2015

2013

60% or moreby the end of FY2018

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)(Production capacity:
2.5 billion tablets)

Started the plan
to construct
Yamagata Plant

Actual volume share
in FY2021

79.5%

by September 2020

Expanded the warehouse andtesting area in the Osaka Plant

2013

2012

Constructed the 2nd solid
formulation building in WestJapan Distribution Center2012

Constructed Yamagata
Plant and East Japan
Distribution Center

2016

Expanded 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

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
The 2nd solid formulation building was
sequentially equipped with facilities.
(Production capacity: 2.5 billion tablets → 4.5 billion tablets)*Production capacity will be further increased by 2.0 billion tabletsby the end of FY2022.

Sales offices (as of October 2022): 71 offices
Agents (as of October 2022): 31 agents at 62 sites
Started collaboration with two wide-area wholesalers in 2017

Shifted to
Towa Sales System

TOWA PHARMACEUTICAL Integrated Report 2022

4Social Issues Addressed by Towa Group
Japan’s National Health Insurance System boasts the highest degree of fulfillment in the world. Every
individual must save on medical costs to maintain this system. In this regard, choosing generics is an easy
way for everyone to save the costs and one of the possible social contributions in our daily lives. We willaddress the social issues by creating related businesses that contribute to people’s health with generics
business set as our core business.

Challenges

Swelling medical costs in JapanTo maintain the National Health Insurance System in the future
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.

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

1985 1990 1995 2000 2005 2010 2015 2025

(Forecast)

Ministry of Health, Labour and Welfare: “Outline of
National Medical Care Expenditure in 2015” and“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
1.9 trillion in the annual cost of drugs just by replacing as many drugs
as possible with generics.
* Page 8 in the “Outline of Revisions to the Drug Price Standard in FY2022” by the Ministry of Health,Labour and Welfare

New drugs(brand-name drugs)

Generics

Raw materials costand business
operation cost

Raw materials costand business
operation cost

R&D expenditure

R&D expenditure

Comparison of drug prices (conceptual chart)

Extension of healthy life expectancy and disease prevention
Extending the healthy life expectancy toward the era of the 100-year
life is a major issue in Japan facing a super-aging society. The healthy
life expectancy was proposed by World Health Organization (WHO) in
2000. In the past, we had emphasized the average life expectancy of achild 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 andactive are key to prolonging the healthy life expectancy. Moreover,extending the healthy life expectancy is essential from the viewpoint of
curbing medical costs.

5

TOWA PHARMACEUTICAL Integrated Report 2022

Towa Group’s Initiatives

Generics contribute to cutting medical costs
Offering more than 770 products in our lineup
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 770 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.

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
Efficacy label

Considering care of pre-symptomatic diseases and disease
prevention as well as contribution in medical care
Towa Group aims to contribute to extension of the healthy life expectancy
through the care of pre-symptomatic diseases and disease prevention. To thisend, we seek to develop new health-related businesses in addition to thegenerics business.
Specifically, we are working to build an Individual Health Information Platform
with a view to enabling proper medical examination and treatment andpromoting health, to help solve issues faced by the elderly through a businessusing ICT promoted by the Osaka Prefecture, and to promote the early
detection and prevention of cognitive decline. We are also seeking to develop
health-related businesses by developing medication support tools, health foods,
and supplements, and by entering the Disease risk testing service business.

TOWA PHARMACEUTICAL Integrated Report 2022

6

Towa Group’s Strength
Generics are marketed later than new drugs (brand-name drugs); therefore, we can produce better productswith the same efficacy, quality, and safety as the new drugs by utilizing the latest formulation technologies.
We are engaged in various initiatives to provide easy-to-take, easy-to-handle and safe drugs, let alone quality
and safety.

Relatedinformation
See page

Development of APIs

41.

Developing and selecting the best API for
manufacturing products
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 manufacturing methods for the APIs in-house and asystem to outsource the production of the APIs to Daichi Kasei Co., Ltd.,a group API manufacturer, and collaborative API manufacturers. We
regularly inquire and confirm each manufacturer whether it manufactures
APIs in accordance with standards, laws, and regulations to enable thestable procurement of the APIs.

Relatedinformation
See page

Product development

27.

Based on our technologies and experiences, developing
products that can be more easily taken and handled
We have the lineup consisting of more than 770 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 developed better dosage forms and tastes so thatdrugs can be easily taken by pediatric and elderly patients, and enhanced
visibility and stability against light, temperature, and humidity so thatdrugs can be easily handled at hospitals and pharmacies.

Relatedinformation
See page

Quality control

42.

Working diligently to ensure reliable
quality and safety
In order to be a trustworthy company, we comply with strict quality
control standards stipulated by the government, from product R&D,
manufacturing, and marketing to after-sales 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.

7

TOWA PHARMACEUTICAL Integrated Report 2022

Development of APIs

Product development

Quality control

Stable product supply

Information provision

Fostering of talented human resources

Relatedinformation
See page

Stable product supply

41.

Established production capacity with three plants toensure stable supply at any time
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 12.0 billion
tablets* annually. We are expanding our production volume to 14.0 billion tablets by theend of FY2022 to respond to a further increase in demand. Furthermore, we plan tobuild the 3rd solid formulation building in Yamagata Plant by the end of FY2023 and toachieve the production capacity of 17.5 billion tablets from FY2024 onward.
* Production capacity of tablets and capsules
Relatedinformation
See page

Information provision40.

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 (MRs), 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.

Fostering of talented human resources

Relatedinformation
See page

43.

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
one of the priority policies. While aiming for job satisfaction for each
employee motivated by individual talent improvement and career enrichment,
we seek to strengthen our system for encouraging employee growth.

TOWA PHARMACEUTICAL Integrated Report 2022

8

Financial Highlights

Net sales
JPY

165,615(JPY million)
180,000

154,900

90,00093,430

0

million

165,615

JPY

19,205(JPY million)
20,00019,923

million

19,205

105,104 110,384

2019

2020

2021

2022

8,000

0

2018

2019

2020

2022

2021

132,169

million(JPY million)
150,000

JPY

329,935

91,771230,016200,000

2019

2020

2021

2022

JPY

0

2022
(FYE March)

12.8
15.7

2018

2019

10

2020

2022

2021

0

JPY

8.4

2018

2019

2020

2021

2022
(FYE March)

Dividend payout ratio

18.6

2,685.18
2,685.18

(%)
30

24.0

2,369.21
2,126.72

323.3612.8

18.6

1,864.92
1,624.09

13.1

15

1,500

14.9

15.5

2020

2021

132.00

0

2018

2019

2020

2021

2022
(FYE March)

0

2018

2019

2020

2021

2022
(FYE March)

0

2018

2019

2022
(FYE March)

Note: The Company conducted a 3-for-1 stock split of common shares effective April 1, 2019.
We calculated earnings 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, 2018.

9

TOWA PHARMACEUTICAL Integrated Report 2022

%

14.8

(FYE March)

(JPY)
3,000

200

2021

12.6

177,181 188,803

323.36294.74 283.62
273.852020

million

Net assets per share

(JPY)
400

2019

245,668(FYE March)

Earnings per share2018329,935

116,599

75,000

0

6,495

(%)
20

132,1692018

13,958ROE(JPY million)
400,000

79,92015,914
14,503(FYE March)

Total assets

104,665(JPY million)
16,000

million

11,643

Net assets
JPY

15,914

13,475

10,0002018

JPY

15,968 16,143(FYE March)

0

Profit attributable toowners of parent

Operating profit%

Non-Financial Highlights

CO2 emissions

Water usage

39,415(t-CO 2 )40,000278,060

t-CO2

38,450 38,718 39,082 39,415

0.6Energy usage(m 3 )
300,000

268,278 265,297 271,269 278,060

34,07820,203m3

6( kl )
25,0000.4

225,079

20,000

0.375

0.375

0.360

0.339

17,448

2018

2019

2020

2021

0.3

2022

20,20318,361 19,108

14,7080.320
150,000

3

2.474

0

0

0

2018

2.619

2019

2.464

2020

2.352

12,500

0.2

2.255

2022

2021

(FYE March)

0

0.162

0

2018

0.170

2019

0.171

2020

0.164

0.166

2022

2021

(FYE March)

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

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

Waste generated

Ratio of women in
management positions

Ratio of women in
new graduate hires

2,221

13.5

t

2,221
1,887

0.04

1,937

13.5

1,250

0.015

0

2018

2019

0.018

2020

0.02

10

0

0

0.018

%

(%)
60

1,621

0.016

38.06

%

(%)
20

1,385

0

(FYE March)

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

(t)
2,500

kl

9.2

10.3

10.6

30

38.06

37.38

32.95

11.1

31.25
22.41

0.017

2021

2022

2018

2019

2020

2021

(FYE March)

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

Ratio of paid leave taken

64.4
(%)
100

0

2022

2018

2019

2020

2022

2021

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

Employee turnover rate
within the first three years

Medical expense reduced

2.55

%
(%)
20

%

JPY

261,010(JPY million)
300,000

million

261,010
228,434

63.8
51.5

53.7

61.8

64.4

50

177,123 185,580
8.62

10

206,356

150,000

6.81

1.04
0

2018

2019

2020

2021

2022
(FYE March)- Towa (non-consolidated)

0

2018

2019

2020

2.80

2021

2.55
2022

0

2018

2019

2020

(FYE March)- Towa (non-consolidated), new graduates only

2021

2022
(FYE March)- Towa (non-consolidated)

TOWA PHARMACEUTICAL Integrated Report 2022

10

TOP MESSAGE

Itsuro Yoshida
President andRepresentative Director

We are dedicated to people’s genuine
contribute to people’s health.
I would like to express my heartfelt sympathy to all those
who have contracted COVID-19 and to their related
people. I would also like to extend my deepest gratitude to
the Medical professionals and others, who are working so
hard to prevent the spread of the disease.
New lifestyles have spread and work style reforms, etc.
have been widely implemented in the wake of the
COVID-19 pandemic. Society is undergoing drasticchanges. The resolution of global challenges, as
represented by the SDGs, and digital transformation (DX)are driving changes on a global scale. In Japan, a supergraying society, establishing a social security structure thatwill address the demographic challenge and extending
healthy life expectancy have become major issues today.
Japan’s social security expenses, continuing to rise year
by year, are expected to reach about JPY 140 trillion by2025. As one of the measures to suppress medical costs
without lowering the quality of healthcare, the Japanese
government has promoted the use of generic drugs since
the early 2000s. With the business model of manufacturing
and selling generic drugs as its core business, Towa has
11

TOWA PHARMACEUTICAL Integrated Report 2022

been striving to contribute to the suppression of healthcare
costs. Of the pharmaceutical products consumed in a year,
simply switching medication to generic drugs, where it ispossible to do so, would help reduce the costs by about
JPY 1.9 trillion, thereby lightening the load on the country
and health insurance societies.
Now that the share of generic drugs has reachedapproximately 80% of the volume of pharmaceuticalproducts consumed, we believe that it is our corporatesocial responsibility to work even harder toward the stablesupply of generic products and raise their quality evenhigher. We are thoroughly carrying out product and quality
control and implementing proactive capital investment
toward the stable supply of products.
What is more, we are making company-wide efforts toaddress the following issues both at home and abroad.
1 To contribute, even in some small way, to global issues,
as represented by the SDGs.
2 To play a part as a corporate citizen in contributing toJapan’s future challenge of becoming a world leader inscience and technology with competitive edge in new

Manufacture of sophisticated productswith No. 1 total product performance as
a company contributing in part to thecompetitive edge of industries in Japansmiles andindustries.
 o contribute to strengthening and maintaining Japan’sTfuture social security system for all generations.
4 To contribute to creating new mechanisms for future
regional communities and their revitalization.
5 To complete Towa’s health information platform as asocial infrastructure for health, and contribute toextending the healthy life expectancy of all people.
We need to paint a long-term vision in anticipation ofmajor changes going forward, and steadily execute thevision by bringing together all the capabilities of Towa
Group. To this end, we must solidify the Group’s
governance toward achieving its Philosophy, “We
contribute to people’s health; We are dedicated to people’s
genuine smiles.” Specifically, we must establish goals foreach of the Group’s businesses and companies, andtransition to a structure in which we can exhibit synergy.
Each of the Group companies, as autonomous
organizations, will identify new social issues; and theGroup will aim to resolve such issues by leveraging its
combined strengths.
3

As a comprehensive generics manufacturer, we havefocused on “Manufacture of sophisticated products with
No. 1 total product performance,” one of our initiatives tocontribute in part to the competitive edge of industries inJapan. To put it another way, this is an initiative aimed atproviding society with Towa Quality products that people
can feel comfortable using. For example, this means to
manufacture products that are easy for patients to take andeasy for Medical professionals to handle. Typical examples
include orally disintegrating (OD) tablets, which disintegrate
in the mouth without water, and thus, are easy to take;techniques for masking a bitter taste; drug imprint thatmakes it easy for doctors and pharmacists to distinguishtablets; and scored tablets that can be administered in half
doses. A representative example of Towa’s value-added
formulation technology is RACTAB, our proprietary
technology combining the disintegrating feature that makes
a tablet easy to take, and the hardness that enables atablet to be handled like an ordinary tablet. We sometimes
hear words of appreciation from patients who say that they
can now take medication, which used to be hard to take,with ease. We are confident that such added values tailoredto the needs of customers, which are available only fromthe perspective of a generics manufacturer, will better
address the concerns of people and healthcare-related
issues around the world.
Presently, we are focusing particularly on efforts to further
improve the taste of drugs, as well as on formulation
research to make active ingredients less decomposable
under any environment. In regard to the improvement of
taste, we established Pharmaceutical Taste Laboratory, a
dedicated division, in 2022, and are engaged in initiatives
aimed at catering to the needs of patients who take drugs,
including research for optimizing the threshold of bitterness
to make medication easy even for children. Furthermore,
the formulation research for making active ingredients lessdecomposable in any environment is conducted primarily
with a view to enhancing the convenience of Medical
professionals who handle pharmaceutical products and toaddressing such issues as the reduction of waste drug,
which has become a social issue today. The life period of
ordinary drugs is about three years if they are intact in their
original packaging. However, the active ingredients candecompose if stored being exposed to sunlight, evenindoors, for example. If it is made possible to cover themby utilizing coating technology, we can help enhance theconvenience of Medical professionals and reduce thedisposal of drugs. What is more, with such technology, we
believe we can contribute to the storage of drugs incountries and regions with high temperatures and humidity.
Manufacture of sophisticated products with No. 1 total
product performance under thorough quality control
ensures that the products we deliver have a reliable quality.
We believe it is important that we keep upgrading andimproving our products by utilizing the latest technology tooffer up-to-date and best products as appropriate. To
implement these initiatives, we are strengthening andstreamlining our research and development functions
through upgrading and expanding our R&D facilities andequipment.
TOWA PHARMACEUTICAL Integrated Report 2022

12

TOP MESSAGE

Further expanding the production
capacity at Yamagata Plant toward
stable product supply
As mentioned earlier, along with further enhancement of
the quality and performance of our products, a stableproduct supply is our most important mission. However,people’s trust in generics, which has been nurtured formany years, has fallen apart in the wake of scandals that
occurred within the industry. Consequently, even now, theindustry as a whole is left in the situation in which generics
manufacturers are unable to fulfill its responsibility for the
stable supply of products.
Toward the goal of achieving an 80% volume share ofgeneric drugs sold in Japan, Towa has made persistentefforts, such as making capital investments and building aframework for collaboration with other companies. In 2018,
we put the 2nd solid formulation building into operation at
Yamagata Plant. With three plants together with Osaka
Plant and Okayama Plant, we secured an annual
production capacity of 11.5 billion tablets in FY2020, andof 12.0 billion tablets in FY2021 in total. Judging that weneed to further expand the production capacity, however,
we are making capital investment in the 2nd solid
formulation building at Yamagata Plant to raise its
production capacity by 2.0 billion tablets, aiming toeventually establish a production structure capable ofproducing a total of 14.0 billion tablets at the three plants
by the end of FY2022. Further, at Yamagata Plant, byOctober 2023, we also plan to construct the 3rd solid
formulation building that can accommodate facilities
capable of manufacturing 3.5 billion tablets. Through these
efforts, we expect to achieve a production capacity of 17.5
billion tablets in FY2024 and beyond. Alongside theseplans, we will also construct the 2nd sterile formulationbuilding at the Yamagata Plant to expand the production
capacity of liquid formulations and freeze-dried
formulations. In addition to such production enhancement
measures, if the entire industry succeeds in recovering its
production capacity to a certain degree, we believe we canease the shortage in production volume by around 2025.
In putting in place a structure for increased production, it
is important that we earn people’s trust in Towa’s

13

TOWA PHARMACEUTICAL Integrated Report 2022

production and quality. Our products are manufactured at
all of our plants through procedures that are in compliancewith the three GMP principles. Ongoing education andtraining for employees have ensured that each employee
works with a high awareness of quality. Furthermore, todeliver appropriate products to the world based on evenstricter rules, we also proactively incorporate international
standards such as PIC/S GMP and ICH Guidelines, andbuild a structure that thoroughly eliminates human error.
What is more, to maintain and strengthen the system forstable product supply, we will push forward with efforts
such as purchasing APIs from multiple suppliers andaudits of manufacturing sites. We are also continuallyengaging in initiatives aimed at the strengthening ofgovernance and thoroughgoing compliance across theGroup, from the manufacturing of APIs to the
manufacturing of formulations, logistics, and distribution.
As part of such initiatives, on November 24, 2021, we
announced Towa Pharmaceutical Declaration of Legal
Compliance.
While an emergency situation continues, we also plan toinstall automation and unmanned facilities and systems forenhancing production efficiency. However, the burden on
employees working at the plants is becoming greater. We
will continually share the latest market trends and future
outlooks across the Group. All Group companies will work
as one to overcome this difficult situation and fulfill theirimportant roles in society, including stable product supply
and quality control.

Strengthening collaboration with
Towa HD and enhancing theGroup’s comprehensive strengths
We are currently implementing the 5th Mid-term Business
Plan 2021-2023 PROACTIVE II started in FY2021. Its basic
policies are: (1) Enhancing generics business as a core, (2)Expanding and growing business in overseas market, (3)Entering new health-related businesses, (4) Creating
technology innovations and product values, and (5) Making
job satisfaction and fostering talented human resources.
I talked earlier about the evolution of generic drugs overTOP MESSAGE

time. The objective of expanding the business of Towa
Pharmaceutical globally was to roll out Towa’s high quality,
value-added generic drugs and formulation technologies
abroad. Towa Pharma International Holdings, S.L.
(headquartered in Spain; “Towa HD”), which we made into
a subsidiary in January 2020, has worked to deploy
business utilizing sales networks in multiple countries in
Europe as well as in the U.S. and production bases that
conform to strict pharmaceutical standards of Europe andthe U.S. They are also active in research and development.
Furthermore, it discloses extensive information on ESG.
For this reason, we would like to promote informationexchange with a view to cocreation and the division oflabor in various aspects, and lead the way to the creationof innovation.
As such, in June 2022, we added “Towa Pharmaceutical”
to the names of the three consolidated subsidiaries in
Spain, Italy, and Portugal, which are under the Towa HD
umbrella. Under the unified brand, we will spread the
Towa’ vision, foster a sense of unity as the Towa
Pharmaceutical Group, promote collaboration in
operations, and deliver value-added products. By doing
so, we will create a Towa brand image that is clear for
stakeholders, and aim to further expand our business.
In the U.S. market, where price competition is severe,
there is a need to continually launch new products.
However, we are thinking of creating a new market byemphasizing the added value of our products. In the caseof medicines that need to be taken every day, rather thanbitter medication, there should be a latent need for highquality medication that does not taste as such. We will
promote collaboration in operations, while leveraging thecharacteristics and needs of the U.S. and Europe as
reference, and pave the way through to the creation of
innovation in respective markets including Japan.

Tapping into new health-related
fields to help extend healthy life
expectancy
As one of our challenges, we aim for creating a future thatprovides full coverage, from medical care to the care andprevention of pre-symptomatic diseases, catering to asociety with a long and healthy life expectancy. In line with
our vision of contributing to people’s health, we are working
to create new health-related businesses that are suited tothe medical system for the future, while acquiring newtechniques and integrating them with completely new
knowledge and technologies.
As a new initiative, in March 2022, we made Sunsho
Pharmaceutical Co., Ltd. (“Sunsho Pharmaceutical”) a
wholly-owned subsidiary. Sunsho Pharmaceutical is aleading Japanese contract development and manufacturingorganization (CDMO) engaged in the planning,development, and manufacture of such items as healthfoods, pharmaceuticals, general foods and capsuleformulations. We believe the formulation technology for
health foods and capsule formulations, including
supplements, that Sunsho has fostered for many years, will
help realize the Towa Group’s aspiration to contribute topeople’s health by creating superior products and services,and will eventually contribute greatly to extending people’s
healthy life expectancy. What is more, Sunsho possesses
cutting-edge formulation and capsule technologies,
including UniORV® that can be used for a broad range ofapplications. UniORV® allows for producing coatedparticles without the conventional granulation or coating
technology. By combining these technologies with Towa’s
formulation technologies, we believe we can creating
technology innovations and product values.

Announcement of initiatives for compliance with laws and regulations on November 24, 2021
On November 12, 2021, President and Representative
Director Itsuro Yoshida announced a declaration tocomply with laws and regulations to all employees of theCompany, with special emphasis on the following three:• Ensuring thorough compliance• Strengthening governance• Giving utmost priority to quality
The Company is working diligently to ensure reliable
quality and safety. While pharmaceutical products are
related to people’s lives, it is hard to tell their quality fromappearance alone. That is why it is important that weearnestly pursue quality and safety.

Inspection of manufacturing and packaging facilities(Yamagata Plant)

What is more, as an initiative toward the recovery of trust,
we are implementing and continuing with the following:• Visits to manufacturing sites by officers in charge(continued since 1996)• Implementation of compliance month andquestionnaire survey (continued since 2013)• Further enhancement of the whistleblowing system• Other initiatives, including the timely dissemination of
information through the corporate website

Messages related to compliance with laws and regulations, as wellas quality control and manufacturing control (Yamagata Plant)

TOWA PHARMACEUTICAL Integrated Report 2022

14

TOP MESSAGE

A major challenge in this super graying society is to detect
abnormalities in the early “pre-symptomatic disease” rather
than in the “disease”. For this reason, we converted
Protosera, Inc., a company that possesses an original
disease risk screening service (ProtoKey test), into a
subsidiary. Presently, the service is used to identify thefollowing three risks: colorectal cancer risk, dementia risk,
and oxidant stress. We have continued to review theanalysis results of samples and upgrade/improve ourservices through a wide range of case studies. Researchand development activities are underway also for risk
screenings of other diseases. We have been striving tounderstand the pre-symptomatic stages of disease, aiming
to establish a system whereby we can provide appropriate
advices on exercises and dietary aspects, and contribute toextending healthy life expectancy.
It is important that initiatives like these are promoted intandem with the Comprehensive Community Care System,
which are being developed as a national policy andscheduled for completion in around 2025, when Japanese
baby boomers turn 75 years of age (the age eligible for thelate-stage elderly medical care insurance system). For theregional community envisioned under the Comprehensive
Community Care System, it is required to develop a platform
which enables Medical professionals to easily share
information with ordinary citizens by utilizing cutting-edge
technologies, such as IoT, in which everything is connected
via the Internet; artificial intelligence (AI); and big data. Suchplatform is also required to enable appropriate and efficient
treatment and care-giving by Medical professionals and thepromotion of the health of ordinary citizens (a platform forcoordinating and sharing data from facilities such as
hospitals, pharmacies, and those for nursing care).
To achieve this, it is essential to complete the establishmentof a platform that utilizes personal health records (PHR) andelectronic health records (EHR). This will lead to the
suppression of medical costs and enable approaches in all
stages, from the healthy to symptomatic stages. Furthermore,with the objective of maintaining the dignity of the elderly andassisting their independent life, we can realize a local
comprehensive community support/service system that helps
the elderly continue living in their own fashion, as much as
possible, in communities that are familiar to them.

Building an Individual Health Information Platform

Support for personalized
and optimized treatment

Support for the promotionof health and the care ofpre-symptomatic diseases• Utilization of next-generation
testing and diagnostic
technologies, etc.

• Visualization of disease risks• Program for behavioral
transformation• Personalized healthpromotion programs, etc.

• Working style support for thechild-rearing generation• Job assistance, etc. for theelderly

Healthinformation
platform
Digital transformation ofhealthcare and caregiving• Construction of a foundation
for health and medical data
• Utilization of telemedicine,
etc.

15

Support for a society inwhich people can lead alife with purpose

TOWA PHARMACEUTICAL Integrated Report 2022

Healthcare andcaregiving support
through state-of-the-art
technologies• Livelihood support throughutilization of AI, robotics, etc.
• Utilization of VR, AR, etc.

Towa sells TIS Co., Ltd.’s Healthcare Passport, acoordinated system infrastructure for regional healthcare
and health information, jointly with TIS, and is building an
EHR platform. By enabling Medical professionals andordinary citizens to share medical records, the content ofprescriptions, and health information on a bi-directional
basis, the efficient and effective utilization of medical andhealthcare information, which was previously scattered
between ordinary citizens, hospitals, clinics, pharmacies,
and so on, will be possible. The platform has already been
adopted by multiple healthcare facilities, and thedevelopment of additional functions is also being promoted
to meet user needs.
Health-related businesses also aim for the improvementof medication adherence by patients and the resolution of
the issue of residual medication. We will start handling
Hana Support, a smartphone app that supports the taking
of drugs, which was developed using the advice of Bandai
Namco Research Inc.’s Game Method. Other items include,
Cognitive function Self checker, which tracks eye
movement using virtual reality to assess cognitive function.
Various cutting-edge technology envisioning Society5.0 will
be incorporated so that we may approach the extension ofhealthy life expectancy from many different fields.

Two keys to sustainable
management—talented humanresources and innovations
We see talented human resources as the source of oursustainable management. By carrying out operations under
the Towa’s vision while feeling satisfied with their jobs, each
employee will be able to sense changes in society andcreate new values. Meanwhile, as the size of the Company
became larger, the adverse impact of a vertical organizationand other effects began to take shape. For this reason, we
launched the Towa Work Style Reform Project in October
2020. From April 2021, the project shifted to an initiative
involving all employees, with the talented human resources
Division at the center. Through interviews and other means,the talented human resources Division is supporting each
employee in their career formation.
The era in which digital transformation (DX) and artificial
intelligence (AI) will get rid of many of our past operations isjust around the corner. Having each employee mull overtheir career goals, take the initiative, and act systematicallytoward achieving the goals will lead to job satisfaction andthe enrichment of their career, and will eventually help thedevelopment of the Company.
Meanwhile, to enhance the consideration for the global
environment and society, we newly established
Environment, Health and Safety Management Department
in March 2022. The department controls and manages theenvironment and safety throughout the Towa Group in a
unified manner and aims to further improve the environmentand safety for Towa employees and regional communities.
In regard to the impact of climate change on our businessactivities, profits, etc., we will strive to disclose information
based on the TCFD recommendations while carrying out
the scenario analyses of our own business activities andtaking stock of greenhouse gas emission reduction
measures.

TOP MESSAGE

We are also taking on the challenge of sustainable
innovation in manufacturing technologies. We have always
believed that APIs that are consumed in Japan should bemanufactured in Japan. However, due to legal restrictions,etc., we are dependent on imports for some APIs and theirintermediates. TOWA PHARMACEUTICAL is engaged indeveloping continuous flow precision synthesis, amanufacturing technique, which ensures that substances
are managed within sealed facilities and no substances that
could harm the environment will get out of the premises.
With this technique, we have sought to achieve local
production and local consumption by manufacturing APIs
at plants in Japan from the stage of synthesizing them.
Alongside the local production and local consumption, weare thinking of launching a green sustainable chemistryindustry, hoping to further contribute to the creation of jobs
through the launch.

With the aim of achieving genuine
smiles, rolling out the health-related
businesses from Japan to the world
On the occasion of last year’s 70th anniversary of Towa’s
founding, we announced internally Towa’s fundamental wayof thinking and what it should be like in the future so thateach of our employees can confront various social issues.
The fundamental way of thinking is based on the Towa
Group’s vision, “We are dedicated to people’s genuine
smiles.” The “genuine smile” refers to a state in whichhappiness wells up from within when the body is healthy
and the spirit is fulfilled, and brings a smile to a person’sface. People living in countries and regions suffering frompoverty, hunger, war, violence, suppression of humanrights, control of the freedom of speech, and so on, are notin an environment in which they can hope to experience“genuine smiles.” Meanwhile, Japan has maintained asociety of peace, freedom, and equality, and thus, is fully
eligible for enjoying “genuine smiles.”For Japan to remain like it is today, one of thecontributions that the Towa Group can make through its
business activities is to contribute in part to building thecompetitive edge of industries in Japan and demonstrate
its strong presence in the healthcare industry. We believe
this is achievable by rolling out all related businesses that
contribute to health from Japan to the world.
What we should be like in the future represents acompany that continues to be needed by people living in
the region and to deliver products and services that theyneed, at any age and in any region. If we will keep
upgrading and improving our products and services, using
the latest technology, into those that are the most up-todate and the best, and promote our business by placing
utmost emphasis on gaining high recognition andsatisfaction, and having them purchased at appropriate
prices, operating performance as a company (net sales andprofits) will come as a result of such activities. Of course,
we believe that it is also important to raise our performanceand achieve appropriate earnings for our sustainablegrowth, thereby leading to a virtuous economic cycle andgiving back to society.
We will continue to repeatedly communicate toemployees the Group’s fundamental way of thinking andwhat we should be like in the future so that each employee
can embody these ideas and we can become a company
that continues to be needed by society.
With a view to realizing people’s genuine smiles throughits health-related business, Towa will strive to roll out allkinds of health-related businesses that contribute to healthboth in Japan and around the world. We would like to ask
for your continued support in these endeavors.

TOWA PHARMACEUTICAL Integrated Report 2022

16

Expand warehouse (rendering)

2nd sterile formulation building (rendering)

3rd solid formulation building (rendering)

01

Feature Topic

Production capacity
expansion

Towa works steadfastly to expand its production
capacity toward a stable supply of generics.
Amid rising concerns over stable supply in the generics sector, we strive to produce products
systematically and efficiently to establish a stable product supply, and also to expand our
production capacity.

Fulfilling our mission to ensure a stable supply of pharmaceuticals
In recent years, the environment surrounding the generics
market has remained harsh, as multiple generics
manufacturers were ordered to suspend their operations
due to their violation of Good Manufacturing Practice(GMP; the standard for manufacturing control and quality
control of pharmaceutical products). This has been
affecting their supply of products and making it difficult
for medical institutions and pharmacies to secure thenecessary quantities of pharmaceuticals.
In response to this issue, with a sense of mission, we
have been making company-wide efforts to increase our
production for a stable supply of generics. For systematicand efficient production, we consider various factors,
including market demand, the procurement of raw and
17

TOWA PHARMACEUTICAL Integrated Report 2022

other materials, the utilization rate of our manufacturing
facilities. In addition, alongside the introduction of new
machines and facilities and the expansion of our plantbuildings, we have been increasing the number of
employees and improving our training system inpreparation for the expansion of the production capacity.
We also plan to expand our annual production capacity
to 14.0 billion tablets by the end of FY2022, and thenfurther expand the annual capacity to 17.5 billion tablets
over the medium term through such measures as building
additional plant buildings, to continue stepping up our
production capacity. We will pursue our social mission toensure a stable supply of generics through various
measures as mentioned above.

Expansion of production capacity at Yamagata Plant
Plant to 10.0 billion tablets and the total production
capacity of Towa’s three domestic plants to 17.5
billion tablets.
We plan to gradually commence the shipment of
products from the 3rd solid formulation building in
FY2024.
In constructing the 3rd solid formulation building,we will implement measures for preventing humanerrors and labor shortages in this aging society withlow birth rates. Such measures include installing
automated and unmanned facilities and systems to
the extent possible, aiming at the improvement of
production efficiency. Furthermore, we aim not only
to increase production volume but also to make ourplants environmentally friendly and safe to work.
In the 2nd sterile formulation building being
constructed alongside the 3rd solid formulationbuilding, we will install a production line for vials to
expand the production capacity of vial formulations(liquid/freeze-dried formulations). We will also securea space for future business development.
We are determined to make company-wide efforts
to ensure the stable delivery of safe and secure
generics to patients and medical professionals.

Since 2020, a spate of quality problems by multiple
generics manufacturers have cast a shadow over theentire industry. It remains uncertain when the industry
will restore a stable supply. Generics manufacturers
are working hard to increase production, but theirproduction capacity is limited.
Under these circumstances, Towa completed thefinal installation of facilities in the 2nd solid
formulation building at Yamagata Plant in FY2021.
This is aimed at expediting the expansion of our
production capacity to a maximum of 14.0 billion
tablets per year (total production capacity of thethree domestic plants). Through qualification of theinstalled facilities and validation of each formulation,
we will expand our production capacity to 14.0 billion
tablets per year in the second half of FY2022, up 2.0
billion tablets from 12.0 billion tablets per year in
FY2021. From FY2023 onwards, we can secure thisproduction capacity on a full-year basis.
Nonetheless, we determined that this capacity
expansion plan alone was insufficient to fulfill our
responsibility to secure a stable supply. Thus, wehave decided to newly construct 3rd solid formulationbuilding, 2nd sterile formulation building, and a raw
materials/products warehouse building to further
expand the production capacity at Yamagata Plant.
The construction started in June this year and isscheduled to complete in October 2023.
The 3rd solid formation building is expected tohave a production capacity of 3.5 billion tablets,
which boosts the production capacity at Yamagata

Kazuhiko Konno
Senior Managing Director

Production capacity expansion with the three-plant production system

Establishing a production system with an annual production capacity of 17.5 billion tablets by the end of FY2023

Osaka Plant

Okayama Plant

Yamagata Plant

Yamagata Plant(Unit: billion Tab/Cap)

20.0

17.5

15.0
11.5

12.0

10.0

4.0

4.5

5.0

5.0

5.0

0

14.0

3.5

6.5

6.5

5.0

5.0

2.5

2.5

2.5

2.5

FY2020

FY2021

FY2022

FY2023

Capacity expansion at 2nd
solid formulation building

Yamagata Plant
Construction of 3rd solid
formulation building and 2ndsterile formulation building(currently planned)(planned)(planned)*Production capacity of tablets/capsules
Production capacity: Actual number of tablets that can be produced
Production system: Number of tablets that can be produced after installing the facilities

Making steady strides
toward increasing the
production
At Yamagata Plant, we willrealize a production capacity of
14.0 billion tablets per year in
FY2022 through capital
investments, and construct
additional buildings, including
the 3rd solid formulationbuilding, by the end of FY2023
to realize a production capacityof 17.5 billion tablets gradually
starting in FY2024.

TOWA PHARMACEUTICAL Integrated Report 2022

18

02

Feature Topic

Overseas markets
development

Towa will propel efforts toward its businessexpansion and growth in overseas markets.
Aiming to deliver value-added products to overseas markets, we are pushing forward with businessdevelopment abroad by leveraging our sales network in the U.S. and multiple countries in Europe aswell as our production base in Spain that is compliant with relevant standards of the markets.

Strengthening our business bases in overseas markets to contributeto people’s health around the world
Delivering high-quality, value-added generics tocontribute to the health of people around the world,
one of our challenges set out in the 5th Mid-term
Business Plan, Towa Pharma International Holdings,
S.L. (“Towa HD”) has worked to foster its corporate
culture and strengthen its organization as a memberof the Group for the past two and a half years after its
acquisition. In fostering the corporate culture, wehave worked to raise employee awareness of being acompany that develops, manufactures, anddistributes high-quality value-added generics
catering to patients’ needs based on our existing
quality control and manufacturing control
foundations, which are essential for manufacturers.
To this end, Towa HD is strengthening its organizationand driving collaboration with Towa Pharmaceutical.
In addition, we changed the trade names of threesales subsidiaries in Spain, Portugal, and Italy to
Towa Pharmaceutical in June 2022 to forge a senseof unity among the Group companies and raise
Towa’s brand awareness overseas. While Towa
Pharmaceutical is recognized in the U.S. and Europe,
we have yet to release our products under the Towa
brand. We believe we can enhance the Group’s
presence overseas by integrating the sales
subsidiaries into the Towa brand. With regard to the
U.S., at the moment, we are deliberating on thetiming of the trade name change considering theprocedures related to pharmaceutical regulations.
We are also discussing the feasibility of transferring
the manufacture of some products that we have

manufactured in Japan to Towa Pharmaceutical
Europe, S.L. (“Towa EU”) by utilizing its superior
production facilities and technologies. While having
difficulty traveling to and from Europe due to the
COVID-19 crisis, we manage to visit the production
sites of Towa EU and actively collaborate with thecompany. As a result, we are inspired mutually today.
To sell in overseas markets our value-added generics
that are well recognized in Japan, we havecommenced the selection of products and a market
survey. Although we are not yet ready to provide
detailed information as we need some more time tocustomize our products to suit each country andregion, we are making steady strides, including
compliance with local pharmaceutical regulations.
During the 3rd growth period for the Group, we aim
to generate synergies between Japan, the U.S., andEurope in R&D and production, as we plan tocontinue promoting business development inoverseas markets that are new to the Group.

Towa Pharma
International
Holdings, S.L.

Shigehiro Kubo
Senior Operating Officer in charge ofInternational Business Division

19

TOWA PHARMACEUTICAL
ARMACEUTICAL Integrated Report 2022

03

Feature Topic

SunshoPharmaceutical

We will pave the way for new growththrough health-related businesses.
We have worked to create new health-related businesses catering to the new medical system while
combining new technologies and knowledge with our expertise as a generics manufacturer.

Diversifying business portfolio by utilizing cutting-edge formulationand capsule technologies
Under one of the basic policies of the 5th Mid-term
Business Plan, “entering new health-related businesses,”
we have aimed to contribute to extending healthy life
expectancy through the care of pre-symptomatic diseases
and disease prevention. As part of this effort, the Groupacquired Sunsho Pharmaceutical Co., Ltd. (“Sunsho
Pharmaceutical”) and made it one of its consolidated
subsidiaries in March 2022. Sunsho Pharmaceutical is oneof the leading CDMOs (Contract Development andManufacturing Organizations) in Japan, which mainly
plans, develops, and manufactures health foods, including
dietary supplements, general foods, and capsuleformulations of pharmaceuticals and others. The company
owns cutting-edge formulation and capsule technologies,
such as the proprietary UniORV® technology.
With the addition of Sunsho Pharmaceutical, the Grouphas established an unwavering position in the domestic
soft capsules manufacturing market and has commenced
a full-fledged development of health foods of Towa Quality.

Further, the Group has forged ahead with a postmerger integration (PMI) process to maximize theeffect of integration after M&A, considering the group
governance, centered on the integration ofmanagement, operations, and awareness. Goingforward, we expect to innovate technologies andcreate new product value by combining Sunsho
Pharmaceutical’s knowledge and superb formulation
technologies in health foods with the Group’s
knowledge and formulation technologies. Moreover,the integration will help realize our vision to contributeto people’s health by creating superior products andservices. In the future,
we will diversify ourhealth-related businessportfolio with a view todelivering health foodproducts including soft
capsules overseas.

Business expansion through collaboration withSunsho Pharmaceutical

Soft capsules

Innovation Center

Seamless capsules

Sunsho Pharmaceutical manufactures products in small to large lots at four
manufacturing sites and five packaging sites, with the Innovation Center, an
R&D base, which the company started construction in July 2021 and wascompleted in November this year, at the core. As two of thesemanufacturing sites have obtained approval to manufacture pharmaceuticalproducts, we expect the company to contribute to a stable supply ofpharmaceuticals, let alone health foods. The innovation center is designed
to serve as a hub to deliver to the world a great many innovations throughthe development of formulation and processing technologies including
UniORV®, the research of functionality, and the creation of new applicationsof formulation technologies. We strive toexpand health-related businesses byintegrating Towa Pharmaceutical’s
formulation technologies into the center.

Hideshi Nakamura
Deputy Division Manager, Corporate
Strategy Division / General Manager,
Corporate Planning Department

TOWA PHARMACEUTICAL Integrated Report 2022

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.”INPUT Business Capital

Towa
Quality

Financial capital
Total assets: JPY 329.9 billion (consolidated)
Net assets: JPY 132.1 billion (consolidated)

Social Issues

Manufactured capital
Production sites: 12

Extension of healthy
life expectancy anddisease prevention
Production ofhigh-quality
pharmaceuticalproducts(11 in Japan [including Towa’s 3 plants], 1 in Europe)

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

Intellectual capital
R&D offices: 10 (9 in Japan, 1 in Europe)

R&D expenditure: JPY 35 billion or more(accumulative) (FY2021–FY2023)

Quality assurance
and stable supplyof pharmaceuticalproducts
Better accessibility
to primary
healthcare services
Application ofadvanced technology
to healthcare services
Improvement ofworkingenvironment

Manufacture of sophisticated productswith No. 1 total product performance

API synthesis process knowhow

Human capital
Employees: 4,078 (consolidated)
Consolidated subsidiaries: 12

5th Mid-term
Business Plan
2021–2023
PROACTIVE II(4 in Japan, 8 in overseas countries)

Qualified pharmacists: 254 (consolidated in Japan)
MRs: 799 (consolidated in Japan)

Social and relationship capital
Collaborate with business partners including
raw material manufacturers, medical products
distributors, and agents
Medical institutions coverage ratio (Towa):
Hospitals 90.7%
Dispensing pharmacies 95.9%

Natural capital
Energy input: 20,203 kl

Corporate Governance(Compliance and Risk Management)

Our Commitments (T-SMILE)

Vision(crude oil equivalent, Towa’s 3 plants)

Water usage: 278,060m3 (Towa’s 3 plants)

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TOWA PHARMACEUTICAL Integrated Report 2022

Foundations supporting
value creation

OUTCOME

Towa Group’s
value proposition
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.

Enhancing generics
business as a coreSocialImpactExtending healthy
life expectancy ofmore than 7billion people
around the world

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

Expanding andgrowing business inoverseas markets
Entering newhealth-related businesses

Genuinesmiles

Maintaining
sustainable
healthcare system

People’shealthCreating technology
innovations
and product value
Making job satisfaction
and fostering talented
human resources

TOWA PHARMACEUTICAL Integrated Report 2022

22

External Environment Surrounding Towa GroupEntering the era where measures for new challenges are required
despite having achieved the government’s generics volume share target
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 it will “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 for industry-wide initiative to restore
confidence in generics which has been eroded
confidence in generics, the entire industry shall
implement measures for ensuring a stable supply
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 businesses conformto this 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 andMedical professionals only by setting new numericaltargets for generics. In order to regain public

Generics volume share

Turmoil

85%
80%
75%

79.5%

70%
65%

FY201623

TOWA PHARMACEUTICAL Integrated Report 2022

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%

Towa Group’s Capital
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.

Financial capital

329.9 billion (consolidated)
Net assets: JPY 132.1 billion (consolidated)Total assets: JPY

Manufactured capital
Production sites:

12(11 in Japan [including Towa’s 3 plants], 1 in Europe)

Production capacity (Towa’s 3 plants):

12 billion tablets(tablets and capsules)

Production facilities for various dosage forms

Total assets at the end of FY2021 increased JPY
84,266 million YoY to JPY 329,935 million. Net assets
at the end of FY2021 increased JPY 15,596 million YoY
to JPY 132,169 million. Consequently, capital-to-asset
ratio was 40.1% at the end of the consolidated fiscal
year under review.

Intellectual capital
R&D offices:10(9 in Japan, 1 in Europe)

R&D expenditure: JPY

35 billion or more(accumulative) (FY2021–FY2023)

API synthesis process knowhow
R&D is conducted in 10 offices in total, comprising 9 inJapan and 1 in Europe. Target R&D expenditure fromFY2021 to FY2023 is JPY 35.0 billion or more(accumulative). This covers the leading-edge researchon API synthesis including molecular control technology.

Social andrelationship capital ollaborate with business partners including raw
Cmaterial manufacturers, medical products
distributors, and agents
Medical institutions coverage ratio (Towa) :90.7

Hospitals%
Dispensing pharmacies

95.9 %

We engage in nationwide marketing activities through71 sales offices, 31 agents at 62 sites, and medical
products distributors, among others, in Japan. Towa
has a high coverage ratio of medical institutions: 90.7%
for hospitals and 95.9% for dispensing pharmacies.

Towa Group has 12 production sites in total, comprising of 11
in Japan and 1 in Catalonia, Spain. Production capacity
stands at 12.0 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:

4,078(consolidated)

12
Qualified pharmacists: 254
MRs: 799

C onsolidated subsidiaries:(4 in Japan, 8 in overseas countries)(consolidated in Japan)(consolidated in Japan)

Towa Group hires 799 MRs and 254 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:

20,203 kl(crude oil equivalent, Towa’s 3 plants)

Water usage:

278,060 m

3(Towa’s 3 plants)

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 202224

Mid-term Business Plan

Mid-term Business Plan
2021–2023

PROACTIVE

Under our 5th Mid-term Business Plan 2021–2023
PROACTIVE II (the “Mid-term Plan”), the Group will
be developing health-related businesses in line withfive policies as shown in the diagram below. With ourdomestic 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 thenumber of countries and territories in which we offer

Towa Group’s
Health-Related
Businesses

the Group’s products. Furthermore, in the realm of
new health-related businesses, we are embarking on
a new era, so will be steadily doing what’s necessary
as we look ahead to the future.
To implement these policies, it will be important tocontinuously deliver technological innovation andproduct value, and we will therefore be continuously
working to enhance job satisfaction and foster
talented human resources.

Policy 3Entering new health-related
businesses

FuturePolicy 2

Expanding and growing businessin overseas markets

Policy 1

Enhancing generics
business as a core

Present

25

Policy 4

Creating technology innovations and product value

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 restore 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 markets

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

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

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

TOWA PHARMACEUTICAL Integrated Report 2022

Key Theme• Stable product supply- Stable API procurement- Enhanced production capacity- Optimized Towa Sales System• Quality assurance• Broad product lineup• Manufacture of sophisticatedproducts with No. 1 total
product performance• Entry to Disease risk testing
service businessProgress with implementation of Mid-term Business Plan
Regarding our performance in the fiscal year ended
March 31, 2022, while operating profit decreased fromthe previous fiscal year, net sales and profit attributableto owners of parent both climbed.
As for the basic policies in the Mid-term Business
Plan, with respect to Policy 1 (Enhancing generics
business as a core), we are moving forward withpreparations to expand our production capacity to 17.5
billion tablets from FY2024. In addition, we worked on
boosting our logistics capacity to cope with the volume

we will need to handle once output is increased.
Regarding Policy 2 (Expanding and growing businessin overseas markets), Towa Pharma International
Holdings, S.L. (“Towa HD”), which is based in Spain,
has business offices in the United States and fiveEuropean countries, and supplies generic drugs withover 210 ingredients in more than 20 countries acrossthe globe.
And as of the other three basic policies, we aremaking steady progress toward achieving of our goals.

Net sales

Operating profit

Targets

Target (cumulative)

JPY 200.0 billion

JPY 150.0 billion(consolidated)(non-consolidated)

JPY 57.0 billion or more

Results for FY2021

JPY 165.6 billion(consolidated)

Results for FY2021

JPY 123.3 billion

JPY 19.2 billion(non-consolidated)

R&D expenditure

Capital investment

Dividend policy

Target (accumulative)

Target (accumulative)

TargetJPY 35.0 billion or more

JPY 75.0 billion or more

Stable dividends

Results for FY2021

Results for FY2021

Results for FY2021

JPY 11.5 billion

JPY 14.8 billion

Annual dividend of JPY 60

Policy1Enhancing generics
business as a core

Stable product supply
To maintain and strengthen a Stable product supply,
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 moveahead with risk-adapted initiatives. Specifically, we will

provide 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.

Quality assurance system
Throughout manufacturing and quality control processes,
we will comply with GMP, GQP, and GVP ministerial
ordinances and the GDP guidelines to maintain andstrengthen our quality assurance system. In every processfrom the acceptance of APIs to the testing of intermediate

products, the testing of finished products, productshipment decision-making by plants, and productshipment decision-making by the HQ QA Dept, we will
strengthen our management systems and schemes, andcontinue to work to ensure reliable quality and safety.

TOWA PHARMACEUTICAL Integrated Report 2022

26

Mid-term Business PlanBroad product lineup
We will put together a generic-drug productlineup with a focus on medicines deemednecessary for future medicinal treatment.
With joint sales of Infliximab BS as a
stepping stone, we have entered thebiosimilar market, and in December 2021,
we started manufacturing and sales of our
first authorized generic, Eldecalcitol
Capsules 0.5 μg/0.75 μg Towa, so we now
offer a product lineup that spans a wide
range of fields. 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-a-week medicine, etc.

FY2030 Product Composition by
Therapeutic Area (Forecast)

FY2020 Product Composition by
Therapeutic Area

Other

Bio-pharmaceuticals

Other

Cardiovascular

Oncology

Oncology

Respiratory
VitaminRespiratory
Vitamin120

Gastrointestinal

Medicaleffects andmechanisms

Anti-allergic

Antibiotics andchemotherapeutic

Bio-pharmaceuticals
New TA
Cardiovascular

130

Medicaleffects andmechanisms

Gastrointestinal
Anti-Allergic

Antibiotics andchemotherapeutic

Neurological
Metabolic etc.

Neurological
Metabolic etc.

Manufacture of 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.

Policy2Development andlaunch of
new products

Application oftechnologies
Improvement andmodification

Towa
Quality

Information provision

Feedback
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

Expanding and growing businessin overseas markets
Business scale

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 that meet patients’needs overseas. Furthermore, we will
explore market opportunities in new
countries/regions.

Sustainable business growth with Towa HD as a
hub through new product 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
markets with
Towa HD
as a hubExpansion

Market / Area

27

Ideal
products

Pursuit of
Towa Quality

TOWA PHARMACEUTICAL Integrated Report 2022

Policy

3Entering new health-related
businesses
who are hard of hearing should find ways to hear better.
Instead, it is about making the person speaking moreeasily heard. It is now being used in an increasing
number of settings, including medical institutions,
pharmacies, and nursing homes.
Besides these products, a smartphone app called
Hana Support assists users with taking their medicines.
By continuously recording the medication they havetaken in this app, users can confirm for themselves what
they have taken and provide accurate information topharmacists. It therefore helps them to avoid forgetting
to take their medicine or taking their medicine twice.
Furthermore, in March 2022 we completed ouracquisition of the shares of Sunsho Pharmaceutical Co.,
Ltd. (“Sunsho Pharmaceutical”) and made it a whollyowned subsidiary. The health food product and capsulemanufacturing technology that Sunsho Pharmaceuticalhas developed over many years will support the Towa
Group in realizing its vision to contribute to people’s
health by creating superior products and services, and we
expect it to help extend people’s healthy life expectancy.

As part of our challenges, the Group aims to contributeto the realization of healthcare and nursing care forsociety with a long and healthy life expectancy and also
to society that shifts from medical care to care of presymptomatic disease and prevention. Recognizing thisas a task to accomplish, and in line with our vision ofcontributing to people’s health, we are working to create
new health-related businesses that are suited to thenew medical system, while acquiring new techniques
and integrating them with completely new knowledge
and technologies.
An example is our wearable work support robot,
Muscle Suit, which assists with movement through theflexing of artificial muscles powered by air pressure.
This product helps to improve working conditions andtackle labor shortages by easing the burden on thelower back when lifting a person, holding up a heavy
object, or maintaining a half-sitting posture.
Another product is comuoon, an interactive support
device. This is a revolutionary system based on aconcept that is the reverse of the notion that people

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

Public health nurses
Community
Comprehensive
Support Center, etc.

Certifiedsocial workers

Nursing
support

Frai
l
Care
d

Generics

Prevention

Local residents, etc.

tic

a
mptom
Pre-sdyisease

Treatment

In d•OTC drugs•Medication support tools

ase
Doctors

Caregivers•Communication
support•Nursing support

Pharmacists

Dise

Care managers

Nursing homes, etc.

City offices and community centers

Researchers

Good
HealthTrainers

Public health centers

Core businessCompanies anduniversities

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 2022

28

Mid-term Business Plan

Policy4Creating technology innovations
and product value

To contribute to society by constantly supplying Towa
Quality products and achieving sustainable growth as
a company, we will continue to work on creating
technology innovation and product value.
In particular, we will pursue technological innovationin API technologies such as molecular control
technology, chiral synthesis technology, andcontinuous-flow precision synthesis, in formulation
technologies such as ones that allow the production of
OD tablets that are easy to take, and in manufacturing
technologies for continuous production.
Sunsho Pharmaceutical, which is now a Group
company, constructed an Innovation Center to serve
as a R&D base for enabling the development of stateof-the-art pharmaceutical formulation technologies.
The company also possesses advanced drug
formulation and capsule technologies such as

UniORV® technology, and we are aiming for innovation
by integrating them with our own RACTAB® technology.
We are also stepping up efforts to create new
product value. Regarding joint research aimed at
obtaining a new indication for Bromocriptine theresults of physician-led trials suggest potential forformulation development based on iPS drug
discovery. Going forward, Towa Pharmaceutical andTime Therapeutics, Inc., in cooperation with Kyoto
University, plans to consult with the regulatory
authorities and determine a development policy with aview to obtaining approval.
As for our formulation of Rivastigmine a drug usedby Alzheimer’s disease patients, we are conducting
clinical trials (Phase III trial) with a view to obtaining
approval for manufacturing and sale of theformulation.

API Technology
Establishment of molecular control technology
Freely controlling crystal form and particle size of APIs
Contribution to the development of value-added products
Establishment of chiral synthesis technology
Enabling efficient API synthesis
Development of continuous flow precision synthesis
Pursuing green sustainable chemistry with wastes reductions
and low CO2 emissions as key initiatives

Formulation Technology

Pursuing OD tablets that are easy to take
Further improvement of RACTAB
Masking technology to reduce bitterness, miniaturization of tablets,and better oral disintegration
Realization of stable formulations
Development of formulations stable in term of heat, light, moisture, and oxygen
Assurance of expiration period of formulation for three years or more

Creation of New Product Value

Manufacturing Technology

Joint research aimed at obtaining a new indication for Bromocriptine
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 area

Policy5Development 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 started in the summer 2021

Making job satisfaction andfostering 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 for

29

Clinical trials for familial Alzheimer’s disease started

TOWA PHARMACEUTICAL Integrated Report 2022

diversity 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.

Towa Group’s Target Business
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, Medical
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 generic business in Japan andoverseas 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 ofneeded products” to meet the demands of society as

a comprehensive 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 3 (Good Health and Wellbeing),
while also working to achieve the other goals.

Restoration of healthat pre-symptomatic
stage

Maintenance of
healthy conditions

Lineup ofessential products

Extension of healthy
life expectancy

Pursuit of
Towa Quality

Generic
business

Build up basics onhealth 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 healthIn response to the international initiatives of SDGs to beachieved by 2030, we will focus on Goal 3 (Good Health andWell-being), while also working to achieve the other goals.

TOWA PHARMACEUTICAL Integrated Report 2022

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 the efficiency and transparency of the
management, we continuously raise the corporate value
for the shareholders. To achieve this, we endeavor torespect and protect shareholders’ rights as well as
establish and maintain 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 ethicalstandards of officers 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
Decision-making and supervising function

Appointment/dismissal

Appointment/dismissal

Board of Directors
Recommendation

Audit/
supervising

Directors

Nominating andCompensation
Committee
Consultation(Excluding Audit and Supervisory
Committee Members)
Basic policy for developing the internal control system

Supervising

Business operating function

Appointment/
removalSupervising

President and Representative Director

Appointment/dismissal
Audit and Supervisory
Committee

Directors
Audit and Supervisory Committee Members

Reporting

Reporting

Audit

Cooperation

Cooperation

ReportingExecuting organization/meeting

Risk
Management
Committee

Executive Strategy
Meeting

Departments
Executive Monitoring
Meeting

Accounting
AuditorOperating Officers
Audit

Affiliate companies

Investigation/correction

Internal
Audit
OfficeAccounting
audit

Cooperation

Compliance Committee (Whistle-blowing helpline)

Enhancement of the corporate governance structure
Towa 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

31

TOWA PHARMACEUTICAL Integrated Report 2022

policies and important operations. Their importantroles also include resolving the basic policy of theinternal 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 mid- tolong-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
The Board of Directors of the Company is chaired by
the Representative Director. Meetings of the Board of
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 Boardof Directors focuses on decision making andsupervision of management issues.

accepts whistle-blowing on matters involving officers
as a highly independent contact.

Nominating and Compensation
Committee
The Nominating and Compensation Committee of theCompany is chaired by the Representative Director
and more than half of whose members are
Independent Outside Directors. The purpose of theNominating 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 theeffectiveness of the Board of
Directors as a whole

Audit and Supervisory Committee
The Audit and Supervisory Committee of theCompany 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.
In addition, the Audit and Supervisory Committee has
established its own whistle-blowing helpline, which

The Company conducted a self-evaluate survey for
Directors from February to March 2022 to analyze andevaluate the effectiveness of the Board of Directors.
The survey used a questionnaire consisting of 21questions 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 18, 2022.
Although the survey showed no significant issues
on the effectiveness as a whole, it reminded us that
we need to further discuss the discovery anddevelopment of human resources from a mid- tolong-term perspective as well as mid- to long-term
management challenges. Based on those results ofthe evaluation, the Company will further endeavor toenhance the effectiveness of the Board of Directors.

Skill matrix
Corporate
management

Management
strategy
Businessstrategy

Finance/
Accounting

Legal affairs/
Riskmanagement

Personnel

Purchasing

R&D

Production

Quality control/
Sales/
Reliability
Marketinggovernance

GlobalItsuro Yoshida

Inside Directors

Kazuhiko Konno
Masao Tanaka
Toshio Shirakawa

Outside Directors

Norikazu Eiki
Kaori Oishi
Kenryo Goto

TOWA PHARMACEUTICAL Integrated Report 2022

32

Roles and independence of Outside Directors
Currently, all of the Outside Directors are Audit andSupervisory 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 tothem in advance by the General Affairs Department,
the administrative office of the Board of Directors, sothat the Members can consider 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 andexplanations on important matters by the full-time
Audit and Supervisory Committee Member.

The Company believes that fair and efficient
corporate management can be achieved throughOutside Directors’ advice and opinions on sound andefficient management. The Company has establishedthe Nominating and Compensation Committee as anadvisory body to the Board of Directors in order tofurther enhance and strengthen the corporate
governance structure. In particular, the committee
contributes to appropriately providing the Outside
Directors with opportunities for involvement andadvice so as to increase the objectivity andtransparency of the decision-making process on thematters such as appointment/ dismissal andcompensation for Directors and other officers.

Reasons for nomination of Outside Directors
Position Name

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

Reasons for nomination

Attendance

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.

Board of Directors
meetings(held 15 times)
100%

Audit and Supervisory
Committee(held 13 times)
100%

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

Board of Directors
meetings(held 15 times)
100%

Audit and Supervisory
Committee(held 13 times)
100%

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.

Board of Directors
meetings(held 12 times)
100%

Audit and Supervisory
Committee(held 10 times)
100%

History of Towa’s corporate governance
June 2015
An Outside Director
assumed the position

2015

June 2019
Towa transitioned to a company with an audit and supervisory committee system
The mid- to long-term performance-based stock compensation system was introduced

2016

2017

2018
June 2018
The number of Outside
Directors increased to two

33

TOWA PHARMACEUTICAL Integrated Report 2022

2019

October 2019
The Nominating and Compensation
Committee was established

2020
June 2020
A woman assumed the positionof Outside Director

Compensation for officers
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 performanceand shareholder value, as well as to improve corporate value overthe medium to long term by granting incentives while raising
Directors’ awareness of contribution to the improvement ofcorporate value and shareholder-centered management.
In addition, the Company has established the Nominating andCompensation Committee as an advisory body to the Board of
Directors with the aim of increasing the objectivity andtransparency of the decision-making process of compensation for
Directors or other matters as well as further enhancing andstrengthening the corporate governance structure.

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

Total amount of compensation for Directors
Amount of compensation by type (in millions of yen)

Position

Total amount ofcompensation(in millions of yen)

Basic compensation

Annual bonuses(based on individual
performance)

Monetary
compensation

Non-monetarycompensation

Directors(Excluding Audit and Supervisory
Committee Members)

173

105

16

43

7

3

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

49
(26)

49
(26)

(-)

(-)

(-)

5
(4)

Total
(of which Outside Directors)

223
(26)

155
(26)

16

43

7

(-)

(-)

(-)

8
(4)

Performance-based compensation

Number of eligible
officers

Cross-shareholdings
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 that holdingof 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 theshares, the Company does not hinder the sale or other acts.
When conducting transactions with cross-shareholders, theCompany 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 andtimely 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 to theBoard 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, Medical professionals,
business partners, local communities, and employees. For
creating corporate value, we are committed to disclosing
information in an appropriate and timely manner to all of our
stakeholders in order to maintain good and smooth
relationships with them.

TOWA PHARMACEUTICAL Integrated Report 2022

34

Risk Management

Basic approach to risk
management
To ensure company-wide risk management, theCompany has formulated the “Basic Regulations for
Risk Management,” which shall be complied with by
all the departments, officers, and employees of the
Towa Group. It is critical for the Group’s continuationand growth to respond to the risks surrounding theGroup promptly and appropriately. We aim to prevent
risks as well as to minimize the loss of stakeholders’profits and impacts on corporate management whena risk occurs. The Group’s risk management isadministered by the Risk Management Committee,
established under President and Representative
Director, who is the chief risk officer.

Risk Management Committee
The Risk Management Committee addresses the risks
surrounding the Group promptly and appropriately
with the aim to minimize the loss of stakeholders’interests and impacts on corporate management
when a risk occurs while preventing risks.
The Committee consists of 21 members including
Representative Director Itsuro Yoshida, who serves as
the chief risk officer. In addition, Director (Audit andSupervisory Committee Member) Toshio Shirakawa
attends meetings of the committee as an observer.
In terms of the impact of climate change on the
Company’s business activities and earnings, etc., asubordinate organization of the committee, beginningin FY2022, works to implement scenario analysis andconsider GHG emissions reduction measures, basedon the recommendations of Task Force on Climaterelated Financial Disclosures (TCFD). We strive todisclose the information, upon report to the Board of
Directors, as appropriate.
Related information on page 46

Information security
To increase the Company’s trustworthiness andcompetitiveness, the Company has formulated its
information security regulations. The regulations
consist of basic rules for appropriate use,maintenance, and operation of information assets that
all the officers and employees must comply with in thecourse of their duties. Based on the regulations, theCompany works to secure information security as partof daily management activities, business promotion,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.

Fire evacuation drill

Risks in the competitive environment, etc.
The competitive market for generic drugs is composed
mainly of a switch from brand-name drugs and is greatly
affected by the number of sales promotion companies.
In recent years, companies have been planning
strategies, such as introducing authorized genericproducts. Our actual sales revenue may differ fromplanned revenues, depending on their trends. In
addition, competitors’ supply status impacts demand forour products, which could risk a stable supply.
The Group responds to such risks by increasing
production capacity through capital investment,
improving the backup system for manufacturing sites,and ensuring a stable supply of products from theproduction and sales aspects by monitoring the volume

35

TOWA PHARMACEUTICAL Integrated Report 2022

of demand and inventory daily. We are also making
efforts to ensure reliability through transparent
disclosure of information.
At present (as of the date of submission of theIntegrated Report), the effects of the COVID-19
pandemic are minor within our group. However, should
the effects prolong or worsen in the future, effects ofpatients’ 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. In addition, the dire
Russia-Ukraine situation is affecting the global economy,
causing soaring prices of energy and raw materials, thus
affecting the management of the Group.

Risk Information

Towa Group mainly handles prescription products, andamong 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 andsafety have been confirmed for a certain period oftime. Thus, the Group faces specific risks as a genericbusiness in addition to risks as a holder of marketing
authorization for drugs. After recognizing these risks,
the Group makes every effort to avoid their occurrence
and set up a system for unexpected events.

Control in accordance with
the Pharmaceutical andMedical Device Act, etc.

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

Patent and re-examination
periods

The active ingredients of branded drugs are usually protected by patent rights, and the period is 20 years from the 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 toaffect the Group’s launch of new products (new generics). The Group collects information on patents and re-examination periods as well as facilitatescollaboration among related departments. We strive to resolve discrepancies in indications by obtaining approval for partial changes, such as additional
indications as soon as possible, after the patent period on a branded drug expires, or by applying for partial changes after the re-examination period.

Re-evaluation based on the
Pharmaceutical andMedical Device Act

Re-evaluation of drugs is a system in which the quality, efficacy, and safety of approved drugs are reviewed from the current academic standards. If the drug
efficacy re-evaluation shows no usefulness, the product is recalled and disposed of. If the quality re-valuation shows that the drug is not equivalent to that of abranded drug, subsequent marketing may be discontinued. These situations may affect our group’s financial position and operating results. The Group collects
information on scientific and technological progress to appropriately evaluate drugs.

Adverse drug reactions

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 position and operating results. The Group
collects information on drugs including that on the occurrence of adverse drug reactions in compliance with each country’s regulations. This allows us todetermine and conduct necessary measures based on the results obtained through assessment and consideration.

Drug price system andmedical cost containment
policyTo sell ethical drugs, which are our mainstay products, the products have to be listed in the NHI price list specified by the Minister of Health, Labour and Welfare.
The Group’s financial position and operating results could be affected if the medical insurance system is reviewed, the drug price system is significantly changed,
or the medical cost containment policy is reinforced. The Group aims to sell products at fair prices that match the value of the products while engaging in cost
reduction activities by reducing procurement costs of raw materials and increasing production efficiency.

Patent litigation

Mark-to-market valuationof derivatives

Risks in the competitiveenvironment

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 amanufacturer of new drugs. Such cases may affect the Group’s financial position and operating results. The Group responds to such risks by collecting patent
information and strengthening collaboration among related departments, such as engineering and development departments. This enables us to develop drug
formulations that have not been covered by patents held by other companies.
The Group imports certain semi-finished products and raw materials from overseas manufacturers in foreign currencies. If the costs increase due to a weak yen,
it is extremely difficult to shift the increase onto the sales price under the drug price system in Japan. 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 derivative transactions. Such transactions are subject to mark-to-market valuation at thetime of financial closing, and valuation losses may occur if the yen is stronger, or the long-term interest rate spread between Japan and the US is larger, than at
the end of the previous fiscal year. Therefore, valuation loss may occur depending on the exchange rate and the interest rate trend in Japan and the US. In the
opposite case, valuation gains may occur. 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 competitive market for generic drugs is composed mainly of a switch from brand-name drugs and is greatly affected by the number of sales promotion
companies. In recent years, companies have been planning strategies, such as introducing authorized generic products. Our actual sales revenue may differ fromplanned revenues, depending on their trends. In addition, competitors’ supply status impacts demand for our products, which could risk a stable supply. The
Group responds to such risks by increasing production capacity through capital investment, improving the backup system for manufacturing sites, and ensuring astable supply of products from the production and sales aspects by monitoring the volume of demand and inventory daily. We are also making efforts to ensure
reliability through transparent disclosure of information.

Stagnation and delay of
production owing todisasters and other causes

The Group has production sites in Japan (Osaka, Okayama, Yamagata, Shiga, Hyogo, and Shizuoka Prefectures) and Spain (Province of Catalonia), and any ofthese production sites could be forced to cease business operations owing to the occurrence of natural disasters or technical/regulatory issues to affect thestable supply of products. Besides, if natural disasters and other causes force us to halt purchasing raw materials from some specific supplier(s) and these halted
raw materials are challenging to substitute, our business performance could be affected. The Group strives to organize a mutual backup system among ourdomestic plants and promote multiple sourcing of APIs. Moreover, the Group possesses its own API manufacturing plant to secure a stable supply of APIs.

Global risks

We completed the acquisition of Towa Pharma International Holdings, S.L. (“Towa HD”) in January 2020. We expect that the acquisition of Towa HD will contributeto building a global structure and providing our value-added products to the market in Europe and the United States. However, the Group’s financial condition andbusiness 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, possible delay in the progress of the integration process between Towa HD and us, or
events unrevealed during due diligence. The Group strives to strengthen a global management structure through the integration process between Towa HD and us.

Risks of corporate
acquisition

Protosera Inc. became our subsidiary in March 2021. We also completed the acquisition of Sunsho Pharmaceutical Co., Ltd. by acquiring all of its shares in March
2022. If we fail to achieve the expected effects of the acquisition of these companies due to changes in the management environment and business operations,
possible delay in progress of the integration process, and events unrevealed during due diligence, the financial position and operating results of the Group may beaffected. The Group is in the process of developing a business plan and creating synergies through the integration process between the Company and its
subsidiaries, as well as strengthening a management structure by, for example, dispatching directors.

OthersAt present (as of the date of submission of the Integrated Report), the effects of the COVID-19 pandemic are minor within the Group. However, should the effects
prolong or worsen in the future, closure or shutdown of a particular business facility of the Group owing to a cluster of COVID-19 cases identified therein, effectsof patients’ reluctance to visit hospitals and clinics on sales, and effects of the spread of COVID-19 outside Japan on supply chains for raw materials and APIsmight spill over into production. In addition, the dire Russia-Ukraine situation is affecting the global economy, causing soaring prices of energy and raw materials,
thus affecting the management of the Group. To address the ramifications of COVID-19, the Group has implemented various countermeasures. The Group willcontinue to implement appropriate countermeasures to ensure business continuity.

TOWA PHARMACEUTICAL Integrated Report 2022

36

Compliance

Compliance policy

Compliance activities/education

The Group is committed to ethical and law-abiding
corporate behavior in accordance with the “TowaGroup Code of Conduct.” We promote measures aswell as training and education to raise complianceawareness of the officers and employees. Furthermore,
we develop and appropriately utilize a whistle-blowing
helpline 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 anything that needs improvements, it
conducts a follow-up audit to check how the
improvements.

The Company conducts awareness-raising activities
for the officers and employees on a daily basis under
the leadership of the officer in charge of complianceand the Compliance Committee. In addition, we set
specific periods to promote compliance to take various
measures across the Group. Specifically, we conveyed
a President’s message and conducted an awarenesssurvey for all officers and employees of Towa Group,
officer training, education and training on the revised
Towa Group Code of Conduct, and workplacemeetings on the theme of harassment at eachdepartment.
In addition, we conducted e-learning programs on
the revised Pharmaceutical and Medical Device Act
and information security. We have continuously
developed compliance policy and rules. For our
subsidiaries overseas, we conducted compliancepromotion campaigns and measures including thetraining on the Code of Ethics at regional headquarters.

Compliance structure
We have established the Compliance Committee
consisting of inside and outside committee members
under the officer in charge of compliance to promotecompliance activities. Under the Group’s compliancepolicy, the officers and employees shall promptly
report to the Compliance Committee when they finda problem that may cause damage to the Group’sbusiness and financial condition. The Compliance
Committee is in charge of the whistle-blowing
helpline (group helpline). It regularly reports theinformation from the officers and employees of theGroup collected through the helpline to the Board of
Directors. The Audit and Supervisory Committee
shares information with the Internal Audit Office andthe Compliance Committee on a regular basis. It has
a right to request report submission.

Overview of the compliance structure
Board of Directors
Audit/appointment/removal
President and Representative Director
Executing organization/meeting

Reporting

Investigation/correction
Compliance Committee

Helpline

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

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TOWA PHARMACEUTICAL Integrated Report 2022

Delivered easy-to-understand compliance example cases throughgroup newsletters

Whistle-blowing helpline
The Company’s whistle-blowing system appropriately
deals with problems while protecting whistle-blowers.
Together with the monitoring by the Internal Audit
Office, the system has contributed to prompt
detection and correction of problems. The Group has
two contacts to deal with issues under the
Whistleblower Protection Act: a group helpline and awhistle-blowing helpline of the Audit and Supervisory
Committee. The group helpline is used as a helpline
shared within the Group companies in Japan. The
whistle-blowing helpline of the Audit and Supervisory
Committee addresses only cases involved with theofficers of the Group companies in Japan as a contact
point independent from execution. As for overseas, wehave established whistle-blowing helplines in Towa
HD, the EU/US Regional Headquarters, for the officers
and employees of our subsidiaries overseas. We
regularly receive their reports on the status of whistleblowing received and investigation.

Message from the Outside Directors

Implementing the Towa Philosophy and Mid-term Business Plan
precisely because we are in an age of confusion

Norikazu Eiki

The end of the COVID-19 pandemic, which began more than two years ago, still remains unclear. Harsh conditions continue for thehealthcare and pharmaceutical industries amid such circumstances. They include the issue of procuring APIs from overseas thatbegan in the wake of the pandemic, the need to return to the domestic manufacturing of essential drugs, the shortage in drug
supply resulting from the spate of scandals by generic drug manufacturers, and the annual revision of NHI listed drug prices.
Under such circumstances, Towa Pharmaceutical formulated its 5th Mid-term Business Plan 2021–2023 PROACTIVE II in May
2021 on the basis of its vision, “We contribute to people’s health; we are dedicated to people’s genuine smiles.” Among the fivebasic policies under the plan, we saw significant progress in enhancing generics business as a core, expanding and growing
business in overseas markets, and entering new health-related businesses. In particular, the Company acquired Sunsho
Pharmaceutical as a subsidiary in March this year, setting the groundwork for Towa’s future diversification.
Towa Pharmaceutical’s strength is in its Board of Directors which engages in sincere and serious discussions. It is because weare in an age of confusion that I would like to participate actively in such discussions and contribute to the development of a bright
future for the healthcare and pharmaceutical industries.

Outside Director (Audit andSupervisory Committee
Member)Kaori Oishi
Outside Director (Audit andSupervisory Committee
Member)Unwavering conviction and the desire to take on new challenges
make a company growI believe that a company needs to fearlessly take on challenges to transform while staying steadfast to its
convictions, if it is to remain a company that is needed by society even as the environment surrounding thatsociety and the industry changes at a dizzying pace. The Company’s vision is to “contribute to people’s health.”
While thoroughly ensuring the quality and stable supply of its products, the Company is also actively advancing into
overseas markets and new health-related businesses as well as engaging in ESG and human resources
development measures. Based on a full understanding of such vision and management policies of the Company, I
believe my role is to leverage my professional knowledge as a lawyer from an independent standpoint to offer mycandid opinions from diversified perspectives.

Supporting genuine smiles and people’s health through honest andsound management

Kenryo Goto
Outside Director (Audit andSupervisory Committee
Member)I understand the concept of Towa Quality is to provide the world with products that actually offer the levels of
quality and added value that are truly needed rather than just meeting the quality standards required by law, and tokeep updating the products so that they are the best and state-of-the-art at any given time. This is similar to thelesson ingrained in my mind during my days at an audit firm to which I belonged: You must have a sense of ethics
that is a step higher than the rest of the world. I therefore have a sense of affinity with this sort of honest culture.
Abiding by this concept is not an easy task in the generics industry, which has long been waiting to recover fromsupply shortage in the wake of its quality problems, but one of the things that support this is corporate governance.
In accordance with our vision of supporting “genuine smiles” by contributing to people’s health, I hope that withmy perspective as an outsider, I can help the Company ensure a stable supply of products that can be used withpeace of mind in Japan and the rest of the world as well.

TOWA PHARMACEUTICAL Integrated Report 2022

38

Board Members
Toshio Shirakawa
Itsuro Yoshida
President andRepresentative 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 of 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.

Director (Full-time Audit andSupervisory Committee Member)

October 2006 Joined the Company / General Manager of Development Strategy Department,
Research & Development Division
April 2008 General Manager of Product Strategy 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)

Kazuhiko Konno
Senior Managing Director

November 1998 Joined 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 of Osaka Plant, Production Division
June 2013
Director / Deputy Division Manager of Production Division
April 2014
Director / Division Manager of 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)

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 of Bayer Yakuhin, Ltd.
January 2007 Chairman and Representative Director of Bayer Yakuhin, Ltd.
April 2010
Chairman and Director of Bayer Yakuhin, Ltd.
May 2014
Outside Director of AnGes MG, Inc. (currently AnGes, Inc.) (to present)
April 2015 Director of the Board of 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 Outside Director of Kidswell Bio Corporation (to present)
June 2019 Outside Director (Audit and Supervisory Committee Member) of theCompany (to present)

Kaori Oishi
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 Outside Director (Audit and Supervisory Committee Member) of theCompany (to present)
June 2022 Outside Director of FUJITEC CO., LTD. (to present)

Kenryo Goto
Masao Tanaka

Outside Director (Audit andSupervisory Committee Member)

Director

April 2009 Joined the Company / Deputy-General Manager of Internal Audit Office
April 2011 General Manager of Internal Audit Office
October 2016 General Manager of Public Relations and Investor Relations Office /General Manager of Human Resources Department
June 2017 Director / Division Manager of 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)
July 2021
President and Representative Director of Protosera Inc. (to present)

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TOWA PHARMACEUTICAL Integrated Report 2022

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
July 2020
Representative of Kenryo Goto Certified Public Accountant Office (to present)
April 2021
Auditor of Hyogo Medical University (to present)
June 2021
Outside Director (Audit and Supervisory Committee Member) of theCompany (to present)
June 2022
External Director of West Japan Railway Company (to present)

Foundation Supporting Business:Society
Basic approach
To fulfill our responsibilities as a company providing
ethical drugs, the Company strives to provide
information to patients and Medical professionals inmany different ways, which include providing andcollecting pharmaceutical information through our
medical representatives. We also focus on our
responsible business activities ranging from stablesupply to quality assurance.

Responsible Business Activities

Information Provision by
Medical Representatives
Our medical representatives, whose number isproudly reported to be the largest among thedomestic manufacturers of generics, work on theprovision, 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.

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 uses 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 a
24/7 basis.
Customer Service is offered for patients and thegeneral 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, andmaterials 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 2022

40

Responsible Business Activities

Stable Supply System
Stable supply is one of our important missions to beaccomplished as an ethical drug manufacturer. We
have production sites in Osaka, Okayama, andYamagata. To ensure stable product supply,
production of oral dosage forms is dispersed to thethree plants; and the production of injections is
integrated into Yamagata Plant built with theseismically isolated structures to minimize natural
disaster risks.

Osaka Plant

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

Okayama Plant

Yamagata Plant

Our Efforts for Stable API Procurement
We regularly inquire and confirm API manufacturers
whether they manufacture APIs in accordance withvarious standards, laws, and regulations to enable
the stable procurement of the APIs. In addition, toenable stable API procurement even if some suppliesof APIs are suspended, we promote a procurement

system in which a single API can be procured frommultiple manufacturers (multiple-sourcing system).
Another attempt to enhance stable supplies is madeby establishing methods of manufacturing APIs atinternal sites and actually manufacturing them at ourgroup company.

Towa Group’s Initiatives

Risks in API
Procurement

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

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) 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
 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

Dealing with mutagenic impurities
Procurement of starting materials and intermediates(Overlapping of API upstream suppliers)

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TOWA PHARMACEUTICAL Integrated Report 2022

 Taking appropriate measures with highly accurate measurement
and identification of generation mechanisms
 Forecast of risks based on the latest knowledgeQuality Assurance System

GMP Three Principles

Strict quality control standards established by the national
government apply to all processes of ethical drug
manufacturing operations. In order to be a trustworthy
company, we carry out company-wide quality control
initiatives ranging from product R&D, manufacturing, andmarketing to after-sales 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 to be 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 to assure the quality andsafety of pharmaceutical products through introducing
international standards and establishing our original systems
and training programs from the perspective of “minimizing
human error,” one of the GMP three principles.

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

Manufacturing Process A

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 Company has put in place procedures
compliant with the GMP three principles in all ofour plants in Yamagata, Osaka, and Okayama,and strives to manufacture reliable-quality
pharmaceuticals.

Minimizehuman error

GMP
three
principles
Prevent contamination
Establish
and quality degradation ofhigh-degree
medicinal products
system for quality
assurance

Recording in manufacturing
instructions at each process

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

Process Control A
Manufacturing Process B
Process Control B

Acceptance

ManufacturingConfirmation of compliance withagreements and quality standards

Testing ofintermediate
products

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

Testing offinishedproducts

Product
shipment
decisionby plants

Check of records and data forerrors or mistakes

Product
shipment
decisionby HQ QA Dept

Pharmacovigilance
and Quality Assurance Division

Product Taste Research Office
In the April 2022 organizational restructuring, weestablished Pharmaceutical Taste Laboratory under
the Product Planning Division to specialize in producttaste research. The office develops bitterness
evaluation methods using bitter taste receptors,
evaluates bitterness using taste sensors and sensory

testing, and plans easy-to-take products from theperspective of taste. Through these efforts, weleverage our taste research for Towa Quality and
Manufacture of sophisticated products with No. 1 total
product performance, aiming to develop easy-to-takeproducts for patients.

TOWA PHARMACEUTICAL Integrated Report 2022

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

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 thefoundation of a trusted company, we work to make job
satisfaction, foster talented human resources, andstrengthen our organization. Accordingly, one of thepolicies in the 5th Mid-term Business Plan is “Making
Job Satisfaction and Fostering Talented Human
Resources.” To this end, we started “Towa work stylereforms” in October 2020.
As one of the work style reforms, we put more effort
into helping each employee develop their career path.

Starting from April 2021, the Human Resources
Division staff have career development meetings with
employees to enhance more personalized support.
Going forward, we will encourage employees tounderstand the importance and necessity ofdeveloping their career paths and support them indeveloping their medium- to long-term career vision.
To help employees achieve their career visions, we will
aim to become a company that encourages employees
to grow in a proactive and planned 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 ourvision to employees.
T-SMILE is an acronym of six words: Truthful that means sincerity, honesty andfairness; Speed that represents swift decision-making, action and information
sharing; Mission that expresses missions and passion to be of service to help
people maintain their good health in communities around the world; Idea that
represents creativity and imagination to challenge for unprecedented
transformation; Linkage that gives the impressions of connections between people
and information, coexistence, and co-prosperity; and Excellence that represents
the mind to choose the most appropriate technologies that fit with the times andhighest quality. These words serve as a course of action and criteria based on
which employees help realize the Group’s vision “We contribute to people’s health”
and “We are dedicated to people’s genuine smiles” through corporate activities.

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TOWA PHARMACEUTICAL Integrated Report 2022

Our new
commitmentsfor people’s
genuine smiles

Medical Representatives

Our Efforts for Diverse Work Styles

The Company places priority on developing medical
representatives (MRs) and strengthening their organization,and strives to foster talented human resources. In accordancewith the MR Education Training Guidelines, we develop our
original education programs and provide ongoing training,which covers expert knowledge about products, high ethicalstandards required for MRs handling life-related products, andskills in explaining products and communication. In this way,
we aim to develop highly qualified medical representatives
who can gain the trust of Medical professionals.

We perform various activities to help employees who raise theirchildren or take care of their family members in need of nursing
care. In 2010, we were awarded the next-generation certification
mark called Kurumin. The logo features a swaddled baby. The
Ministry of Health, Labour and Welfare grants the certification
logo if it certifies companies as childrearing-friendly businesses.
We have various parental and nursing care systems for our
employees. For example, they can take parental leave until theirchildren turn three years old for the maximum length, they can
extend using the shorter working hour system for parenting until
their children finish the sixth grade at elementary school, and we
provide family support leave to which employees are entitledwhen they need to take care of their sick family members
requiring nursing care.

Original Qualification Systems
From the perspective of ensuring reliable quality andsafety, we develop employees with high awarenessthrough our educational training programs and original
qualification systems. 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 technicalskills and greater knowledge in manufacturing, packaging,testing, and quality assurance units. By promoting thesecertification systems, we help employees in each area
develop into specialists in manufacturing control andquality control. Meanwhile, we aim to develop employees
who are highly aware of ensuring quality and safety.

2022 Certified Health &Productivity Management
Outstanding Organizations
Recognition Program (White 500)
We were recognized as one of White 500 enterprises (large
enterprise category) under the 2022 Certified Health &Productivity Management Outstanding Organizations
Recognition Program selected jointly by the Ministry of
Economy, Trade and Industry and the Nippon Kenko Kaigi(organization that takes practical community- and workplacebased actions, through collaboration among privateorganizations and with full administrative support, in order toextend the healthy lifespan of and provide appropriate
medical care for each individual in Japan.).
The program started in FY2017 to recognize companies thatcare about employees’ health management from a businessmanagement perspective and strategically implement relevant
initiatives. We have been recognized as one of the enterprises
for five consecutive years. This year, we were recognized as
one of White 500 enterprises, the top 500 implementing ahigher level of health and productivity management.

Towa Health Challenge 2021
In June 2021, we had a health measurement event called “Towa
Health Challenge 2021” at the headquarters, Moriguchi Annex,
Osaka Plant, Okayama Plant, Yamagata Plant, and Osaka
Research Center. This event was aimed to encourage our
employees to think about their own health. Approximately 80% of
the targets, including management members, joined the event andunderwent six types of tests: body constituent, bone density,
walking posture, blood vessel, brain age, and physical fitness. The
event venues had exhibits that were designed to help participants
improve their health and lifestyle habits, offering the employees anopportunity to rethink about their health. In a post-event survey,
approximately 90% of the respondents said they became more
conscious about their health and wanted to improve their lifestyle.
To help our employees improve their lifestyle habits, we willcontinue to hold the event as an annual company-wide event.
TOPICSMy vision became clear
after having a careerdevelopment meeting
Yuki Takaira
Sales and Marketing Planning Department,
Sales and Marketing Division

After having a career development meeting, I felt confident inmyself and excited to imagine my future. My career vision wasvague when I was new to here. From my fourth year, I becameaware of an importance of experience and started to proactively
try various things with the aspiration to seize every opportunity
for my personal and professional development. Based on theseexperiences I can now envision my fitting career path specifically.
Since this career development meeting was held right after theCompany had accepted my department transfer request, I
approached the meeting, hoping to dispel my concerns about thenext step. The Company offered me many options besides thesteps I had in mind and how each was worth doing. The meetinggave me much insight and relieved my worries. The careerdevelopment meeting was fruitful since I approached the meeting
after thinking about what kind of mindset I wanted to work withand what I wanted to address.

TOWA PHARMACEUTICAL Integrated Report 2022

44

Social Contribution Activities

Company-sponsored Daycare Centers

High School Student Business Contest
We held a “High School Student Business Contest
for the Future and People’s Health” for the third timein FY2021. As a part of our efforts to widely
disseminate the Group’s vision “We contribute topeople’s health” and contribute to a wide variety ofhealth-related industries, the contest is aimed atseeking fresh ideas
from high school
students who willlead the future ofJapan and creating asocial contribution
opportunity for them.

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

Positive Fitness
In January 2022, we launched a website, “Positive
Fitness,” to introduce exercise programs for
postoperative breast cancer patients. This website
introduces exercise programs in three levels ofintensity (introductory, intermediate, and advanced)
according to the patient’s physical strength andfitness habits. In addition to the exercise programs,
the website provides information about therelationship between
breast cancer andexercise and otheruseful information,
aiming to help eachpatient develop
positive andcontinuous fitness
habits with anadequate amount foreach of them.

Towa Mini Clinic Series

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—”

45

TOWA PHARMACEUTICAL Integrated Report 2022

In December 2021, we launched “Towa Mini Clinic
Series” on our corporate website. This web pageaims to further disseminate the information containedin Towa Mini Clinic Series, booklets that we have
distributed at medical institutions and healthcarerelated events. It
compiles informationin an easy-tounderstand way
about diseases andself-care for patients,
their family members,
and people who
support them.

Foundation Supporting Business:

Environment
Basic approach
We act based on the principles in “The Charter of Corporate
Behaviors in Towa Group” with high ethical standards andsocial good sense to promote proper corporate activities
enabling us to gain trust and support from society. In ouraction, we strive to reduce global environmental load as partof our social responsibility as a good corporate citizen.
Concretely, we are dedicated not only to proper
management of chemical substances and prevention ofpollution, but also to actions for alleviating environmental
concerns through plant drainage and emission systems andtaking energy-saving and decarbonization measures througheffective uses of mega solar systems. Furthermore, we are
aggressively working to achieve an eco-friendly manufacturingmethod of APIs. In April 2022, we established Environment,
Health and Safety Management Department to manage andcontrol environment and safety across the Towa Group in an
integrated way, aiming to improve the environment and safetyof our employees and local communities.

Climate Change-related Information Disclosure(based on the TCFD Recommendations)
As climate change significantly affects social systems and economies, the Towa Group is aware of the importance ofaddressing climate change by taking energy-saving and decarbonization measures and making other efforts. Against thisbackdrop, we set up the TCFD Subcommittee under the Risk Management Committee chaired by the Division Manager of the
Administration Division in FY2022 to help address climate change-related issues. The TCFD Subcommittee is comprised ofmembers from related departments.
The TCFD Subcommittee conducts a scenario analysis of our business activities to identify climate change-related risks andopportunities and considers measures to reduce greenhouse gas emissions.
The Company plans to declare its support for the Task Force on Climate-related Financial Disclosures (TCFD)
recommendations by the end of FY2022. We will expand and improve climate change-related information disclosure based on
the framework of TCFD recommendations. We plan to disclose such information covering only Towa Pharmaceutical Co., Ltd.
for the first fiscal year of disclosure (FY2022) and plan to include its Group companies from the following year (FY2023) onward.

Changing boiler fuel at Okayama
Plant to LNG
In January 2022, we changed boiler fuel at Okayama
Plant from Bunker A to liquefied natural gas (LNG),
which is considered as eco-friendly energy.
The amount of CO2 reduction calculated from thetotal LNG use of the five participating companies in
the Sho-o Hub Industrial Park was approximately
5,500 t-CO2, a 27% reduction compared to Bunker A.

Realizing an eco-friendly
manufacturing method of APIs
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 pursuing an
eco-friendly, green and sustainable chemistry by
replacing the batch method generating large
quantities of waste and CO2 emissions with the
manufacturing process with the continuous flow
method using energy-saving catalytic reactions withlow waste emissions as the key.

LNG fueling station set up in the Sho-o Hub Industrial Park

TOWA PHARMACEUTICAL Integrated Report 2022

46

11-Year Financial Summary
2012

2013

2014

2015

Net sales (JPY million)

48,71955,241

61,351

71,470Operating profit (JPY million)

9,107

7,723

7,706

11,105

Ordinary profit (JPY million)

9,841

9,544

8,834

15,437

Profit attributable to owners of parent (JPY million)

5,737

6,201

5,992

11,118Comprehensive income (JPY million)

5,745

6,348

5,999

11,175

Net assets (JPY million)

50,49455,61060,14770,048

Total assets (JPY million)

81,24489,705

103,318

121,187

Net assets per share (JPY)990.36

1,090.70

1,179.69

1,373.89

Earnings per share (JPY)111.49121.62117.54218.07----

Capital-to-asset ratio (%)

62.2

62.0

58.2

57.8

ROE (Return on equity) (%)

11.8

11.7

10.4

17.1

Price-earnings ratio (%)

12.26

13.68

12.63

10.50

Cash flows from operating activities (JPY million)

3,379

8,645

8,144

8,037

Cash flows from investing activities (JPY million)(8,482)(11,298)(11,300)(8,230)Cash flows from financing activities (JPY million)

879

2,793

3,529

238

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

3,798

3,985

4,675

5,208

Number of employees

1,567

1,696

1,879

2,060

R&D expenditure (JPY million)

4,076

4,478

5,296

6,144

Capital investment (JPY million)

11,251

7,855

9,727

13,816

Depreciation (JPY million)

2,637

4,909

5,407

5,724

Dividend per share (JPY)

75.0

75.0

75.0

95.0

Dividend payout ratio (%)

22.4

20.6

21.3

14.5

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, 2012.

47

TOWA PHARMACEUTICAL Integrated Report 2022

2016

2017

2018

2019

2020

2021

2022 (FYE March)

82,11584,94993,430105,104

110,384

154,900

165,615

11,134

6,869

11,643

15,96816,14319,923

19,205

10,157

7,417

11,717

18,86520,99018,67722,739

7,684

5,576

6,495

13,475

14,503

13,95815,914

7,313

5,858

6,533

13,40914,948

14,46917,96070,60574,94579,92091,771

104,665

116,599

132,169

156,851

165,247

177,181

188,803

230,016

245,668

329,935

1,434.79

1,522.99

1,624.09

1,864.92

2,126.72

2,369.21

2,685.18

154.19113.32132.00273.85294.74283.62323.36436.29314.23122.03253.32272.62271.93316.19

45.0

45.4

45.1

48.6

45.5

47.5

40.1

10.9

7.7

8.4

15.7

14.8

12.6

12.8

9.98

16.56

16.79

10.64

7.69

8.61

8.50

3,732

10,195

19,23019,002

19,16412,00822,129(19,032)(22,206)(20,093)(3,994)(39,541)(9,100)(59,729)

27,970

(92)

4,670

(809)

11,748

184

46,54018,526

7,112

11,511

26,652

18,713

22,91532,830

2,203

2,408

2,449

2,472

3,325

3,456

4,078

8,924

9,352

7,725

7,916

8,566

10,642

11,48815,79225,026

12,166

6,011

6,236

10,353

14,848

7,329

7,980

8,173

8,340

8,285

9,674

10,153

95.0

95.0

95.0

107.5

44.0

44.0

60.0

20.5

27.9

24.0

13.1

14.9

15.5

18.6

TOWA PHARMACEUTICAL Integrated Report 2022

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, 2021 to March 31, 2022).

Overview of Performance[1] Business environment
During the consolidated fiscal year ended March 31, 2022, theJapanese economy showed some signs of returning to normal,
backed by the rollout of COVID-19 vaccination. However, theemergence of more infectious variants made it difficult topredict when the pandemic will end. In Europe and the U.S.,
while restrictions on economic activities are gradually lifted andthe economies continued a recovery trend, the economic
outlook remain uncertain as cases of the new variants are on
the rise. There is also global concern over the impact on
economic activities due to rising energy and raw material
prices as the tension in Ukraine continues to intensify.
In the domestic generics industry, the Japanese Cabinet
decided the “Basic Policy on Economic and Fiscal
Management and Reform 2017” in June 2017. It stated that the
government would consider further measures for promoting theuse of generic drugs, aiming at an 80% usage rate of genericdrugs by September 2020 or its earlier achievement. As a resultof this decision, the Japanese government has implemented
various measures since the revision of medical fees in April
2018. Furthermore, in revising medical fees in April 2020, thegovernment decided “Further Promotion of Generic Medicine
and Biosimilars Use” policy, and generics have become more
popular. Consequently, the volume share in December 2021
reached 79.3% (according to the survey by Japan Generic
Medicines Association in October–December 2021). In
addition, the “Basic Policy on Economic and Fiscal
Management and Reform 2021,” which was approved by the
Cabinet in June 2021, stated, “With regard to generic drugs,
the Government will promptly secure the quality and the stablesupply thereof, conduct verification of new targets, andvisualize the implementation status, including the use ratio at
medical institutions, thereby contributing to the efforts of
insurers to optimize medical service costs, and will promotesetting of targets based on the effect of medical cost
optimization of biosimilars, consider reviewing the addition of ageneric drug prescription system based on the relationshipwith the new targets, and utilization of a formulary in order topromote further use of these kinds of drugs.”
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 thedrug prices every year, beginning in FY2021. The government
decided a policy to revise the drug prices in intermediate years
in addition to the regular revisions once every two years.
Therefore, we expect that extremely tough conditions for thepharmaceutical industry will continue.
The recent problems with the quality and stable supply ofgeneric drugs have undermined public confidence in generics.
As a result, the environment surrounding the generics industry
is becoming increasingly severe.
Amid such drastic changes in the industry, we announced the
5th Mid-term Business Plan 2021–2023 PROACTIVE II with thevision of “We contribute to people’s health, and we arededicated to people’s genuine smiles” in May 2021. Based on
the Mid-term Business Plan, we implemented various initiatives
with the aim of developing health-related businesses that

49

TOWA PHARMACEUTICAL Integrated Report 2022

contribute to the realization of healthcare and nursing care forsociety with a long and healthy life expectancy and also tosociety that shifts from medical care to care of presymptomatic disease and prevention, while positioning thegenerics business at home and abroad as our core.
[2] Initiatives for sales growth
In 2021, we launched new products, including 18 items of six
APIs in June and 11 items of six APIs in December. As a result,the number of our generics has reached 778 items of 339 APIs.
In December 2021, we launched our first authorized generic,Eldecalcitol Capsules 0.5 μg/0.75 μg Towa.
[3] Initiatives for entering overseas markets
To expand and grow our business in overseas markets, wedevelop our generics business in the European and U.S.
markets through Towa Pharma International Holdings, S.L.
(“Towa HD”). During the consolidated fiscal year under review,
we launched Everolimus tablets, Asenapine sublingual tablets,and other new products in the U.S. However, sales in the U.S.
market were slightly below the plan due to negative impacts bychannel inventory adjustments caused by the change ofthird-party logistic companies and by API shortages of several
products, etc. Meanwhile, sales in the European market
exceeded the sales plan mainly due to better performance ofcontract manufacturing outsourcing (CMO) business andstrong sales of new products in B2C business. Going forward,
we aim to further expand our business by utilizing Towa HD’ssales network in several European countries and the UnitedStates as well as the production bases in Europe compliant toEuropean and the United States standards.
[4] Creation of new businesses
As one of our challenges, we aim for contributing to therealization of healthcare and nursing care for a society with along and healthy life expectancy and also to society that shifts
from conventional medical care to care of pre-symptomatic
disease and prevention. With such recognition, we are working
to develop new health-related businesses adapted to the latest
medical system while acquiring new techniques and promoting
integration with completely new knowledge and technologies.
As part of these efforts, during the consolidated fiscal year
under review, we worked on various projects to provide
healthcare services utilizing medical and health data. To
proceed with these projects, we concluded an allianceagreement with TIS Co., Ltd. for the joint sale of a cloud-based
information-sharing service for coordinated regional medicalcare, “Healthcare Passport.” We also conducted joint researchon lifestyle-related diseases with TIS Co., Ltd. and Healthtech
Laboratory, Inc. as part of the integrated medical/nursing caredata analysis project launched by Kyoto City. Furthermore,
together with Kyoto University and Healthtech Laboratory, Inc.,
we started a demonstration experiment of a medication
support tool, which is currently being jointly developed with
Bandai Namco Research Inc. In our Disease risk testing service
business, we are engaged in the selling of three types ofProtoKey® test kits, including colorectal cancer risk test kit, andthe research and development of new risk tests at Protosera
Inc. Additionally, we made Sunsho Pharmaceutical Co., Ltd.

(“Sunsho Pharmaceutical”) a subsidiary in March 2022. It is acompany engaged in the planning, development, and contract
manufacturing of health foods, pharmaceutical products, etc.
We believe that the acquisition of Sunsho will enable the Groupto leverage the company’s strong technological capabilities,
extensive customer base and knowhow on health foods that it
has cultivated to date. And it will help us achieve our aim ofdeveloping diversified health-related businesses, thereby
further increasing our corporate value.
[5] Operating results
As for operating results for the consolidated fiscal year underreview, the Group recorded net sales of JPY 165,615 million (up6.9% YoY), gross profit of JPY 70,185 million (up 7.2% YoY),
SGA expenses of JPY 50,980 million (up 12.0% YoY), operating
profit of JPY 19,205 million (down 3.6% YoY), ordinary profit of
JPY 22,739 million (up 21.7% YoY), and profit attributable toowners of parent of JPY 15,914 million (up 14.0% YoY).
Operating results by segment are as follows. Net sales fromthe domestic segment amounted to JPY 126,676 million (up6.7% YoY) with segment profit of JPY 18,878 million (down
6.8% YoY). Net sales from the overseas segment amounted to
JPY 38,938 million (up 7.5% YoY) with segment profit of JPY
1,127 million (up 164.9% YoY). The figures for each reporting
segment profit are based on profit before amortization of
goodwill.

Financial position
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 329,935 million, up JPY 84,266
million YoY. This was mainly due to an increase in goodwillof JPY 37,597 million, an increase in inventories of JPY
11,749 million, an increase in cash and deposits of JPY
9,915 million, and an increase in trade notes and accounts
receivable of JPY 4,774 million.
[2] Liabilities
Liabilities amounted to JPY 197,766 million, up JPY 68,697

million YoY. This was mainly due to an increase in shortterm borrowings of JPY 48,224 million and an increase inlong-term borrowings of JPY 9,248 million.
[3] Net assets
Net assets amounted to JPY 132,169 million, up JPY
15,569 million YoY. This was mainly due to an increase inretained earnings of JPY 13,502 million. Consequently,
capital-to-asset ratio was 40.1% at the end of theconsolidated fiscal year under review.

Cash flows
Cash and cash equivalents at the end of the consolidated fiscal year under review amounted to JPY 32,830 million, up JPY 9,915
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
22,129 million (up JPY 10,120 million in the inflow YoY). Thiswas mainly due to profit before income taxes of JPY 22,246
million (up JPY 3,517 million YoY) and depreciation of JPY
10,153 million (up JPY 479 million YoY), partially offset by anincrease in inventories of JPY 7,950 million (down JPY 1,756
million YoY).
[2] Net cash provided by (used in) investing activities
Net cash used in investing activities was JPY 59,729 million(up JPY 50,629 million in the outflow YoY). This was mainly
attributable to purchase of shares of subsidiaries resulting inchange in scope of consolidation of JPY 45,405 million andpurchase of property, plant and equipment of JPY 11,140
million (up JPY 2,003 million YoY).
[3] Net cash provided by (used in) financing activities
Net cash provided by financing activities amounted to JPY
46,540 million (up JPY 46,355 million in the inflow YoY). Thiswas mainly due to a net increase in short-term borrowings of
JPY 47,135 million (net decrease of JPY 20,251 million in theprevious consolidated fiscal year) and proceeds from longterm borrowings of JPY 9,160 million (down JPY 31,339
million YoY), partially offset by repayments of long-termborrowings of JPY 7,181 million (up JPY 286 million YoY).

Dividend policy
We have a basic policy of paying dividends continuously
and steadily in accordance with our performance, while
enhancing internal reserves to prepare for future businessdevelopment, such as strengthening research anddevelopment capabilities and securing capital
expenditure funds.
Based on this policy, we paid a dividend of JPY 60 per
share for the current fiscal year (including an interim
dividend of JPY 27 per share, of which JPY 3 per share waspaid as a commemorative dividend, and a year-end

dividend of JPY 33 per share). Our basic policy is to pay
dividends of surplus twice a year for the interim dividend
and the year-end dividend. The decision-making bodies forthese 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 theCompany, 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 2022

50

Corporate Data

Business Locations

Yamagata Plant

Kyoto Analytical Science Center

East Japan Distribution Center

KENTO Healthcare Science Center
KENTO Life Innovation Center
Amagasaki Research CenterTokyo Office

Headquarters

Osaka Research Center

Moriguchi Annex
Himeji ResearchCenterOkayama Plant

Osaka Plant

West Japan Distribution Center
KadomaLaboratory

Major Group Companies

J-DOLPH
PharmaceuticalCo., Ltd.

Daichi Kasei Co.,
Ltd.

Greencaps
Pharmaceutical
Co. Ltd.

SunshoPharmaceuticalCo., Ltd.

Towa Pharma
International
Holdings, S.L.

Manufacturing and selling of
ethical drugs

R&D and manufacturing of APIs
and intermediates

Producing soft capsules forpharmaceutical products

Manufacturing and selling of
ethical and OTC drugs

Headquarters: Koka, Shiga

Headquarters: Fukusaki,
Kanzaki, Hyogo

Headquarters: Fujinomiya,
Shizuoka

Planning, development, andcontract manufacturing ofhealth foods, pharmaceuticalproducts, etc.

Headquarters: Barcelona, Spain

Headquarters: Fuji, Shizuoka

Non-consolidated subsidiaries

51

T Square Solutions Co., Ltd.

Protosera Inc.

Provision of healthcare related IT services

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

Headquarters: Moriguchi, Osaka

Headquarters: Settsu, Osaka

TOWA PHARMACEUTICAL Integrated Report 2022

Corporate Data

Company Outline

Stock Data
As of March 31, 2022

Overview of Company
Company name TOWA PHARMACEUTICAL CO., LTD.
Headquarters

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

Representative

President and Representative Director Itsuro Yoshida

Established

June 1951

Incorporated

April 1957

Listing

The Prime Market of the Tokyo Stock Exchange (TSE)(Securities code: 4553)

Capital stock

JPY 4,717.70 million

Business operations Manufacturing and selling of ethical drugs

Business locations and sales outlets
Headquarters

Headquarters Moriguchi Annex Tokyo Office

Research &Development
Laboratories

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

PlantsOsaka Plant Okayama Plant Yamagata Plant

Distribution
centers

West Japan Distribution Center
Kansai Distribution Center
East Japan Distribution Center

Sales offices
and sales sites

71 sales offices
62 sites of agents

As of March 31, 2022

Shares authorized .............................................. 147,000,000 shares
Shares issued ....................................................... 51,516,000 shares
Number of shares constituting one unit ......................... 100 shares
Number of shareholders ..................................... 5,198 shareholders

Major shareholders (Top 10)
Number of Ownershipshares(%)(Thousand)Shareholder nameYoshida Office Co., Ltd.

20,10040.83

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

4,116

8.36

BNYM AS AGT⁄CLTS NON TREATY JASDEC

2,304

4.68

TOWA PHARMACEUTICAL Kyoeikai

1,472

2.99

Itsuro Yoshida

1,455

2.95

Custody Bank of Japan, Ltd. (Trust Account)

1,196

2.43

TOWA PHARMACEUTICAL Employee Stock Ownership
Group

907

1.84

State Street Bank and Trust Company

726

1.47

Yoshida Estate Ltd.

648

1.31

BBH FOR FIDELITY PURITAN TR: FIDELITY SR INTRINSICOPPORTUNITIES FUND

584

1.18

Note: The Company holds 2,294,101 shares of treasury stock but is excluded from the above major
shareholders. The Company calculated the ownership by deducting the number of treasury shares.

Share breakdown by shareholder type
Consolidated subsidiaries
J-DOLPH Pharmaceutical Co., Ltd.

Financial institutions
0.52%
Securities
companies
0.58%

Daichi Kasei Co., Ltd.

Towa Pharma International Holdings, S. L. and seven companies

Non-Japanese
corporations
3.98%

Individuals
and others
20.04%

Number ofshareholders ratio

Greencaps Pharmaceutical Co. Ltd.
Sunsho Pharmaceutical Co., Ltd.

Japanese corporations
1.54%

Individuals
and others
93.38%

Financial institutions
14.78%
Securities
companies
0.53%

Number ofshares ratio
Non-Japanese
corporations
21.91%

Japanese
corporations
42.74%

Stock Price(JPY) 3,500

3,000
2,500
2,000
1,500
1,000

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 22.3 22.9

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