IR Investor Telephone Conference: Thu. August 6, 2020 from 1:00 p.m.
〈Q&A Summary〉
・Sales of Drug-fostering program formulations and Growing formulations were down
year-on-year (with the exception of Hochuekkito, for which sales were brisk). Sales werestrong for the 119 kampo products (except the five Drug-fostering, the five Growing
formulations). Kakkonto and Hochuekkito were also covered during the Mega web lecture.
We do not know if this was a benefit of the Mega web lecture or COVID-19? (page 7 of thematerials).
⇒Sales of prescription Kampo products dropped sharply overall due to the negative impact of
COVID-19. Individual, sales performance was brisk for Hochuekkito. Sales of Bakumondoto,
which is prescribed by ENTs, was down year-on-year. This reflects impact from limited medicalconsultations at ENTs, pediatricians and orthopedics. Meanwhile, it is our recognition that theMega web lectures, which we are strategically conducting, are having a certain degree of benefit
on Kakkonto and Hochuekkito sales. Some special contributions and other articles introducing
Kampo products are also having a positive impact.
・COVID-19 is having both a positive and negative impact, but are there any figures thatare being quantitatively analyzed?
⇒In the overall market for prescription pharmaceuticals, in contrast with the analysis that says
the overall market in April–June shrunk 2.5%, Tsumura has seen a growth of 1.4%. Although
there was some negative impact from COVID-19, we are also presenting the positive factors.
・The 1st half achievement rate for your sales plan was 49.5%. How do you evaluate thisgiven the impact of COVID-19? (page 2 of the materials)⇒We attained 49.5% of our sales plan for the 1st half. We believe this is not bad. Given theimpact of COVID-19, we acknowledge that a 2%–4% decline in sales is possible. In light of this,we see this as a relatively acceptable start when comparing it to our initial estimate.
・ What was the level of sales at Tsumura Shengshi Pharmaceuticals? I believe you
estimate sales of around 5.0 billion yen. How do you evaluate your progress towards thisgoal?
⇒Sales at the Shengshi Group were around 900 million yen, with the business in China sales
totaling about 1.0 billion yen. Sales in the China business are approximately 5.0 billion yen overall.
Some view this as a low achievement rate versus our plan. China was hit by COVID-19 inFebruary. Given this, I do not think 1.0 billion yen in China-related sales is pessimistic (Note: The
Shengshi Group’s sales for January–March 2020 are incorporated into our 1Q sales).
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・Cost of sales increased 500 million yen-plus. Does this partially include unrealizedprofit? (page 4 of the materials)⇒Some of the unrealized profits are included in the portion of crude drug costs. The drug pricerevision is the main reason for the increase in sales of 254 million. The external sales of theShengshi Group have increased due to the high cost. Monetarily, this is within the scope of what
you can see.
・The cost of sales portion of China sales of around 1.0 billion yen, which includes 1Q
sales at the Shengshi Group, correlates with the 381 million yen in the cost increase due
to external sales incease? (page 4 of the materials)
・Yes, that is correct.
・I think Tsumura’s OTC sales were around 1.0 billion yen, but does the 37% sales growthreflect an increase in Hochuekkito and Kakkonto owing to the impact of COVID-19? Will
this growth be sustainable going forward? (page 3 of the materials)⇒OTC sales were also impacted by COVID-19 and there were also online purchases. I do notknow if this growth is sustainable and it is difficult to state in terms of growth rate. This is likely tocontinue as a trend going forward.
・Is the prescription that sales are increasing in OTC linked to the Kampo prescriptionthat can be expected to improve the symptoms of COVID-19 infectious disease patientswith prescription drugs?
⇒ From the viewpoint of Kampo formulations that are expected to improve COVID-19 symptoms,
as with prescription Kampo products, Hochuekkito and Kakkonto are strong sellers. OTCs arealso being sold for the indirect effects of COVID-19, such as overeating and stress.
・In the China market overall, when comparing the January–March quarter with the April–June quarter, can you explain your performance? A qualitative explanation ofperformance would be fine.
⇒ In China, the recovery from COVID-19 came about earlier. I think it is okay to recognize thatsales returned to normal in April–June as progress was made suppressing the impact of COVID19.
・When you said the China market is making a comeback, does this mean sales are up
year-on-year or flat?
⇒We envisage nearly flat performance as a market. A factor was that Seihaihaidokuto wasfrequently used due to the impact of COVID-19. As a market, it is gaining more attention.
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・When separating sales between HPs and GPs, demand from GPs have recovered but
demand from HPs is negative. At of June, the recovery in HP sales was sluggish? Can
you tell us the ratio of HP sales at Tsumura?
⇒HP sales in the Tokyo metropolitan area have not yet recovered. On a macroeconomic basis,note that the ratio of GP sales is over 70% while the ratio of HP sales is under 30%. Sales ofDaikenchuto is 50% for GPs and 50% for HPs. The sales ratio of HP is higher compared to otherproducts, but among our 129 prescription Kampo products, there is no trend in prescriptions thatmimic this.
・Demand from GPs is returning, so do you expect the rebound in 2Q to be more troublefree than in 1Q?
⇒This is believed to also reflect impact from a rise in the number of infected persons withCOVID-19 in the recent week for Summer vacation. I believe the trend you have pointed out
does exist.
・Drug-fostering program formulation and Growing formulation sales were down year-onyear but sales of other products were up. Are sales of Kampo products, including
Kakkonto, rising owing to expectations they will improve symptoms for COVID-19
patients or are sales of other Kampo products also growing?
⇒ The answer changes depending on what extent we consider as Kampo products that areexpected to improve symptoms for COVID-19 patients. In addition to the growth in Kakkontosales, there was also a growth in sales of formulations for those looking to care for their obesityfrom being isolated at home and for those who aim to stabilize their mental or emotional state.
In light of this, it can be said that the sales growth reflects indirect impact from COVID-19. This
result not only reflects direct but also indirect growth.
・Talking about trends in and after 1Q, are Kakkonto and Hochuekkito growing in 2Q also?
⇒Although I cannot say for certain, given the scenes in which formulations were being used, weanticipate this trend will likely continue.
・Tsumura Shengshi Pharmaceuticals contributed to consolidated sales at Tsumura byaround 900 million yen. What was the level of profit contribution?
⇒ As for profits, sales of Tsumura Shengshi Pharmaceuticals to the outside of the Group areabout 900 million yen, Most of the sales of Tsumura Shengshi Pharmaceuticals are internaltransactions, and some of them are unrealized profits, so they will not be factored into
consolidated profit in 1Q results.

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・Operating income is being impacted by the negative sales?
⇒Given that the portion of unrealized profit will be eliminated, in addition to goodwill amortization,
there is no contribution to profit.
・In 1Q, Operating income were up 500 million yen year-on-year, but gross profit increasedaround 200 million yen, indicating a savings in SG&A. Your cost consumption is behindschedule. A part of it may be carried forward and the rest may be totally suppressed due
to a restriction of activities from the impact of COVID-19. What portion of this cost is being
carried forward?
⇒It is still 1Q so a complete carry forward is only around several tens of millions of yen in R&D
costs. (less than 50 million yen.) The costs that were not used for transportation and otheractivities were not carried forward. Meanwhile, we explained that Tsumura is conducting Kampo
Mega Web lectures. Costs that previously earmarked for transportation and outsourcing but were
not used due to a restriction of activities, are being allocated to costs for activities to newly
provide information.
・Peers are also likely to implement digitalized sales activities. Have you started any typeof discussion on the number of MRs or the sales structure?
⇒We do not expect a substantial change for some time. The Kampo Mega Web lecture has
benefit on those doctors for which sales activities were carried out after the lecture wasconducted. It is difficult to gain benefit from just one of these activities. For the time being, weplan to implement hybrid activities. At the very least, we aim to allocate resources to areas thathave recently shown to be most effective.
・Was there impact to the business model with the Ping An Group?
⇒There was no impact to the business model with the Ping An Group. In China, domestically,
there is growing expectations in traditional Chinese medicine so we see expectations being
placed in our business model rather than a need to change it.

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