TSUMURA & CO.
Second Quarter Business Resultsfor Fiscal 2018
(From April 1, 2018 to September 30, 2018)

November 7, 2018

President, Representative Director

Terukazu KatoFY2018 2Q

Roadmap to Realizing Long-Term Vision
JUMP

STEP
HOP

Vision
For
2021

JUMP

STEP

Creating New Value
Through Innovations in Kampo

Strengthening the
growth base to achieve
greater value creation

First Medium-Term
Management Plan
２０１２

Second Medium-Term
Management Plan

２０１５ ２０１６

Third Medium-Term
Management Plan

２０１８ ２０１９

２０２１( FY )

Medium-Term Management Plan
Strategic Challenges
1. Expansion and stable growth in the Kampo market
2. Continued reinforcement of profitability and maximization of cash flow
3. Taking on the challenge of new businesses in China

2

FY2018 2Q

Long-Term Business Vision “Vision for 2021”
Aim to be a value-creation company that contributes to people’s
health through its Kampo business
The “Kampo”

The “People”
Company

Company

Contributing to creating a healthcare
environment where all patients canreceive treatment that includes“Kampo” medicine where appropriate
in any healthcare institution or medical
specialty in Japan.

“Kampo” medicine is a pioneering fieldwith no previous examples tobuild on worldwide. Therefore, weshall evolve into a corporate group
comprised of “people” withprofessional skills that can
independently
pave the way forward for our Kampo
business and is trusted by all.

The “Global Niche”
Company
Leveraging the technology and knowhow of the Tsumura Group to their full
extent, we will take on the challenge
of developing and launching TU-100(Daikenchuto) in the U.S.
pharmaceutical market as well as
creating
new businesses in China.

Philosophy & Vision Penetration Seminar & Training, Tsumura Academy

3

FY2018 2Q

Second Quarter Business Resultsfor Fiscal 2018

FY2018 2Q

2Q Consolidated Performance for Fiscal 2018（¥ million）

FY 2018
2Q Plan

FY 2018
2Q

Achievement

FY 2017
2Q

Vs. FY 2017 2Q
AmountChangeNet sales

58,90058,26898.9%

58,282(14)(0.0)%

Operating profit

9,100

8,950

98.4%

8,985

(35)

(0.4)%

Operating profit margin

15.4%

15.4%

-

15.4％

-

-

Ordinary profit

9,100

9,566

105.1%

9,248

317

3.4%

Profit attributable toowners of parent

6,800

7,082

104.2%

6,614

468

7.1%

FY 2018
2Q PlanDividends
per share¥32

FY 2018
2Q¥32

FY 2017
2Q

Sales by product
Other prescription
pharmaceutical
Products
0.4%¥32
Prescription
Kampo
Products
95.8%

OTC medicines
2.0%
Other
1.8%

5

FY2018 2Q

Key Points in Performance Given negative impact from NHI drug price revisions, net sales were ¥14 million
lower than a year earlier and underperformed plans by ¥631 million.
 Operating profit also undershot plans but ordinary profit and profit attributable toowners of parent achieved plans.
Vs. planned
YoY
Consolidated net sales
98.9％(0.0)％¥58,268 million
 Net sales of prescription Kampo products were basically level year-on-year (¥14 million)

Operating profit
Operating profit margin¥8,950 million
15.4 ％

Vs. planned

98.4％

YoY

(0.4)％

YoY+0.0pt The cost of sales ratio stood at 40.4%, down 1.5 points versus a year earlier due in part to a decline in crudedrug costs. Meanwhile the ratio is 0.3 point higher than planned.
 The SG&A ratio was 44.2%, a rise of 1.5 points year-on-year due in part to an increase in sales-related costs.
Meanwhile, the ratio was 0.3 points lower than planned.

Ordinary profit¥9,566 million

Vs. planned

105.1％YoY

3.4％

 This reflects a forex translation gains year-on-year (¥214 million) in tandem with loans to overseas subsidiaries. In thesame period a year earlier, we posted bond issuance costs (¥143 million).

Profit attributable toowners of parent¥7,082 million

Vs. planned

104.2％YoY

7.1％

 Extraordinary income was posted reflecting a gain on the sale of investment securities (¥324 million).

6

FY2018 2Q

Factors in Increase / Decrease of Operating Profit（¥ million）（¥ million）

Factors of Sales increase

+868

(889)

Prescription Kampo 129 products

+14

Other

(28)

Factors of Cost of sales margin

8,985

(14)

8,950

Cost of sales margin
41.9%→40.4%(1.5)pt
FY 2017
2Q
Operatingprofit

Sales
Sales costdecrease decrease

SG&A
expenses
increase

NHI price revision+0.7ptdecrease in crude drug cost

(1.4)pt

Improvement of processing cost(0.3)pt

Fluctuation of exchange rate(0.1)pt

Other(0.4)pt

Factors of SG&A expenses

FY 2018
2Q
OperatingprofitSales promotion expenses+382

R&D expenses+13

Advertising expenses+63

Personnel expenses

+242

Other

+188

7

FY2018 2Q

Financial Condition / Cash Flow Position
Balance Sheet

Total assets
Current assets
Non-current assets

Total liabilities
Current liabilities
Non-current liabilities

Total net assets
Equity Ratio（¥ million）
As of March
2018

As of
September

292,379

278,880 (13,499)

190,888
101,491
95,846
48,76647,080196,533

184,517(6,371)
94,363(7,128)77,596 (18,250)
29,922 (18,843)
47,673592
201,283
4,750

66.2%

Change

2018

71.1%

Cash Flow Position

783

Operating
Activities+44

Investing
Activities(45)

Financing
Activities(175)（ ¥ billion）

Effect ofexchangerate
Changes(7)600

Repayment of long-termloans payable of ¥15.0billion

4.9pt（¥ million）

Balance Sheet

Inventories（Merchandise andfinishedgoods）（Work in process）（Raw materials
and stores ）As of March2018

49,994
8,008
12,797
29,188As of
September
2018

50,713
9,415
11,61829,678Change718 Cash and cash
at1,406 equivalents
beginning of(1,178)
period490

Cash and cash
equivalents at endof period

8

FY2018 2Q

Initiatives for & Progress in Tackling
Strategic Issues

1. Expansion and stable growth in the Kampo market
2. Continued reinforcement of profitability and maximization of cash flow
3. Taking on the challenge of new businesses in China

FY2018 2Q

Sales performance of prescription Kampo products（¥ million）

Drug-fosteringformulations

Sales rank

Product No. / name

FY 2017 2Q

FY 2018 2Q

YoY Change

1100

Daikenchuto

5,351

5,226

(125)

(2.3)%

2

54

Yokukansan

3,864

3,848

(16)

(0.4)%

4

43

Rikkunshito

3,577

3,559

(18)

(0.5)%

9107

Goshajinkigan

1,889

1,806

(82)

(4.4)%

22

14

Hangeshashinto

692

670

(22)

(3.2)%

15,375

15,110(265)(1.7)%

Total sales of the five Drug-fostering formulations

41

Hochuekkito

3,699

3,680

(18)

(0.5)%

5

68

Shakuyakukanzoto

2,660

2,629

(30)

(1.2)%

8

29

Bakumondoto

2,002

2,004

1

0.1%

6

24

Kamishoyosan

2,342

2,263

(79)

(3.4)%

7

17

Goreisan

1,921

2,112

190

9.9%

Total sales of the five Growing formulations

12,627

12,69163

0.5%

Total of 129 prescription Kampo products

55,78455,79914

0.0%

Growing
formulations

3

Drug-fostering formulations : Looking at the recent structure of disease, the Company has selected certain diseases in fields where medical treatment needs are high that are difficult to treat with
Western drugs and that Kampo products have demonstrated special efficacy for. The Company will establish a base of scientific evidence related to treating these diseases with Kampo medicine.
Growing formulations : A growth driver that aims to be listed in medical treatment guidelines as a strategic formulation following the five “drug fostering” program formulations through theestablishment of scientific evidence (data on safety, efficacy, etc.) in fields where satisfaction toward treatment and the contribution of medicine are low.

10

FY2018 2Q

Long-Term Business Vision “Vision for 2021”
Aim to be a value-creation company that contributes topeople’s health through its Kampo business
The “Kampo”
Company

The “People”
Company

The “Global Niche”
Company

Contributing to creating ahealthcare environment
where all patients canreceive treatment that
includes “Kampo” medicine
where appropriate in any
healthcare institution or
medical specialty in Japan.

“Kampo” medicine is a pioneering fieldwith no previous examples tobuild on worldwide. Therefore, weshall evolve into a corporate group
comprised of “people” withprofessional skills that can
independently
pave the way forward for our Kampo
business and is trusted by all.

Leveraging the technology and knowhow of the Tsumura Group to their full
extent, we will take on the challenge
of developing and launching TU-100(Daikenchuto) in the U.S.
pharmaceutical market as well as
creating
new businesses in China.

Basic Sales Strategy ：Establish Kampo medicine
11

FY2018 2Q

Supporting Education Related to Kampo Medicine
for Doctors
Supporting Kampo medicine education before, immediately after, and post-graduation
Before graduation

Immediately after graduation

Improvement, establishment, and evolution of Kampo medicine education
At university medical departments,
medical colleges• Lectures (introductions to Kampo)• Clinical training (hospital wards,
outpatient care)• Workshop on professor/lecturer training
at schools• Study groups at schools (school club,etc.)

Designated hospitals for clinicaltraining, and other medical
institutions• Kampo studies geared towardphysiciansin-training

Post-graduation
Kampo Medicine Seminars

Introductory training
Follow-up
Step-up

Aim for increasing
physicians whoprescribe over 10
formulations【Vision for future】

One-in-two doctors write 10 or more Kampo prescriptions
12

FY2018 2Q

Method of Approaching Doctors that Write 10 or More Kampo Prescriptions
Post-graduation

Immediately after graduation

Before graduation

Improvement, establishment, and evolution of Kampo medicine education

Physiciansprescribing limited
number of Kampo
products

Write Kampo
prescriptions according
to patient’s condition andcomplaint【Vision for future】
One-in-two doctors write
10 or more Kampo
prescriptions

Creating a healthcare environment where all patientscan receive treatment that includes
Kampo medicine where appropriate in any healthcare
institution or medical specialty in Japan

Physiciansprescribing limited
number of Kampo
products

10or more Kampo products

Physicians with no
Kampo prescription
experience

Want to broaden
treatment methods!

Gain interest in Kampo medicine andfurther knowledge

Physiciansprescribing limited
number of Kampo
products

Want to learn about
Kampo !

Physicians prescribing

Evidence-based
medicineapproach“Drug fostering” products and Growing products

Kampo medicine approach• Lectures(introductions to
Kampo)• Clinical training(hospital wards,
outpatient care)• Workshop on
professor/lecturer
training at schools• Study groups at
schools (schoolclub, etc.)

Western medicine approach

At university
medicaldepartments,
medicalcolleges

Physicians with no
Kampo prescription
experience

Kampo Medicine Seminars

13

FY2018 2Q

Annual Sales of Prescription Kampo Products （All markets/NHI price base）(¥ billion)

Male

Seniors

FemaleRatio of prescriptions
particularly high among
seniors and women
Ratio high among
these women(age)
Source: Compiled by Tsumura based on MHLW Third NDB Open Data, (MHLW: https://www.mhlw.go.jp/stf/seisakunitsuite/bunya/0000177221_00002.html)
Calculation based on top 100 products of prescription Kampo manufacturers

14

FY2018 2Q

1. Expansion and stable growth in the Kampo market

Three Important Domains and Key Sales Measures
Government
measuresThree Important
Domains

Kenko Nippon 21
New Orange Plan
Comprehensive
Regional Care System
Promotion of general
physicians and homehealthcare
Plan to AccelerateCountermeasures forCancerPromotion of Women's
Participation andAdvancement in the
Workplace

Geriatric field

Key sales measures
Gastroenterology field・Expand Rikkunshito’s share of market for gastrointestinal
prokinetic agents・Divide use of Kampo prescriptions for constipation
Kampo BPSD Network
・Select an appropriate prescription for each stage of dementia

Gastroenterology field・Improve appetite for post-surgery weight loss （Rikkunshito）
Cancer domain ・Improve feeling of post-surgery distention （Daikenchuto）(supportive care) ・ Alleviate side-effects that accompany cancer treatments(Hangeshashinto, etc.)
Gynecology field・Mobilize people to the Gynecological Kampo Medication Seminar,etc.
・Fortify promotion of prescriptions related to female disorders
Gynecology field
Gastroenterology field・Divide use of Kampo prescriptions for constipation

15

FY2018 2Q

1. Expansion and stable growth in the Kampo market

Analysis of Sales Catalysts （Rikkunshito）（¥ million）

FY2017 2Q FY2018 2Q

Underperformance factors Net sales

3,577

3,559

YoY Change(18) (0.5)%

 Impact due to change to timing for the introduction of new DREAM
Study*1 materials
Lack of impact*2 on doctors in 1Q. Benefits from the introduction of the materials arelikely to emerge in or after 2Q.

 Inadequate promotion to private practitioners other thangastroenterology specialists
Insufficient promotion of competitive edge of drugs over rival products and effective
pathology.

Aim to further enhance presence in the gastroenterology field.
*1 DREAM Study : Multiple facility, double-blind comparison study of efficacy and safety of Rikkunshito for functional dyspepsia patients*2 Impact: Degree of recognition and impression among doctors

16

FY2018 2Q

1. Expansion and stable growth in the Kampo market

Prescription Intention among Doctors & Achievement Rate （Rikkunshito）
（％）

Apr.
Positiveprescription
intention among *1
doctors*
Rikkunshito
Plan achievement（Actual sales）

May

Jun.

Jul.

Aug.

Sept.

After material input

37.7

34.1

38.3

40.1

41.5

39.0

94.7

95.0

98.3

100.1

100.3

100.9

* Source: Anterio, “Impact Track”
Achievement rate for Rikkunshito plancalculated based on internal data

Steady increase in achievement rate after
introduction of DREAM Study materials* Doctor awareness survey by a third party selected from one of the seven items below. （① and ② represent positive prescription intent）① Likely to newly prescribe② Likely to increase prescriptions③ Maintain current prescription levels ④ Likely to reduce prescriptions⑤ Likely to stop prescriptions ⑥ Likely to not prescribe going forward ⑦ Cannot make a decision at present171. Expansion and stable growth in the Kampo market

FY2018 2Q

Measures related to Rikkunshito
Current issues
Further improve closing* precision among target doctors
Improve proposal capabilities that encompass factors such as market environment,
regional traits, and trends in patient conditions.

Activities going forward
Further shore up individual MR proposal capabilities by sharing specific approach methods
based on successful examples.

Establish position as a first-line treatment for uppergastrointestinal tract diseases*Closing: Skill to acquire consent after finishing an interview and making a proposal

18

FY2018 2Q

1. Expansion and stable growth in the Kampo market

Measures related to Daikenchuto（¥ million）

FY2017 2Q FY2018 2Q

Underperformance factors

Net sales

5,351

5,226

YoY Change(125) (2.3)%

 Not sufficiently handling change in environment at HPs with a high use ratio
Increase in cases where use was halted due to transfer from HP*1 to GP*2 due to shorter
hospitalization trends and reduction in post-hospitalization prescriptions

Maintain and expand prescriptions at ＨＰs and fortify ongoingprescribing of Daikenchuto at partner GPs＊1 HP : Hospitals with more than 100 beds (hospital doctors and residents)＊2 GP : Hospital (hospital doctors) and clinics (private-practice doctors) with 100 or less beds

19

FY2018 2Q

1. Expansion and stable growth in the Kampo market

Kampo BPSD Network（¥ million）

FY2017 2Q

FY2018 2Q

3,864

3,848

(16)

(0.4)%

137 Kamikihito

694

709

15

2.2%

108 Ninjinyoueito

403

678

274

68.1%

83

605

637

32

5.4%

5,567

5,873

306

5.5%

Product No. / name54

Yokukansan

Yokukansankachinpihange
Total

YoY Change

Increased usage at key facilities (universities, clinical research
centers, Dementia-related Disease Medical Centers)
Expand further division of use targeting dementia support doctors
20

FY2018 2Q

1. Expansion and stable growth in the Kampo market

Gynecology field: Hold Gynecological Kampo Medication
Seminar, etc.
Participants in Gynecological Kampo Medication
SeminarHost Gynecological Kampo Medication Seminar
400

341

350

311

313

300

257

250

185

191

2013

2014

2015

2016

Tokushima Iwate Fukuoka Aomori

Tokyo

Tokyo Hokkaido Tochigi

200
150

158
106

100
50
0
2011

Seminar for female outpatient clinic doctors

2012

2017

2018

(Asahikawa) (Utsunomiya)

Seminar participants are increasing annually at meetings
held outside Tokyo[Reference] August 26, 2018 meeting at Utsunomiya: ３11 participants and ５６
lectures

Continue to implement study groups
and seminars, and further revitalize
with more extensive content
21

FY2018 2Q

1. Expansion and stable growth in the Kampo market

2H Key Measures
ＧＰ

ＨＰ

Rikkunshito

Use new evidence

Mainly hub hospitals that collaborate on
cancer treatment

Daikenchuto

Establish position in clinic-hospitalcollaborations*

Mainly surgery

ＢＰＳＤ

Increase prescriptions to dementia
support doctors

Further fortify promotions to universities,
clinical research centers, Dementiarelated Disease Medical Centers

 Collaborate with scientific society events
Other

Hochuekkito: TNT luncheon seminar
Goreisan: Japanese Society for Kampo Medicine and Neurological Surgery, etc.
 Strengthen information provision activities in line with treatment guidelines

Continue full-fledged information provision activities aimed at
establishing Kampo medicine*Clinic-hospital collaborations: Division of roles and functions between hospitals and clinics. Both cooperate to provide efficient and effective healthcare.

22

FY2018 2Q

2. Continued reinforcement of profitability and maximization of cash flow

Expansion of Cultivated Land under Own management*1 area
Goal: Procurement system for crude drugs that offers stable quality,
quantity, and price
4%

6%

2013

2014

36%

36%

2015

2016

50%

2017

(FY)

Consistent with standards in the TSUMURA GACP for crude drugs*2

Supply crude drugs for Japan and crude drugs for new business in China*1 Cultivated Land under Own management : Cultivated Land under Own management is “Farm with certain scale of cultivation area for which Tsumura directly
provides cultivation guidance and has an understanding of cultivation costs and can set procurement prices.”*2 TSUMURA GACP (Good Agricultural and Collection Practice) for crude drugs： Meets the WHO’s GACP guidelines. Employing the TSUMURA GACP for crude
drugs, Tsumura’s own proprietary guidelines, the Tsumura Crude Drug Production Management Standards references the GAP certifications system, which is used to
manage processes for general agricultural crops, and adds a training and audits, and bestowing certifications.

23

FY2018 2Q

3. Taking on the challenge of new businesses in China

Progress in China Business - Ping An Tsumura Launch test marketing of “raw” ginseng and 16 herbal products that use crude drugs
as a raw material
Yakushoku Dogen“Ginseng”“Lilium Bulb”“Licium Fruit”

Yakushoku Dogen means that medicine used to cure illnesses and food which we eat daily areboth indispensable for nurturing life and maintaining health. They both stem from the same
origins.
24

3. Taking on the challenge of new businesses in China

FY2018 2Q

Progress in China Business -Ping An Tsumura-Ping An Tsumura’s smartphone website

25

3. Taking on the challenge of new businesses in China

FY2018 2Q

Progress in China Business - Ping An Tsumura Analytical Research Center -Image Photograph26

FY2018 2Q

Topics for ESG Activities

FY2018 2Q

Domestic crude drug cultivation measures
Contribute to primary industry revitalization, including training of successors, stabilization offarming revenue, and conversion of crops, including leaf tobacco, and use of abandoned farmland,through the expansion of domestic crude drug cultivation as a stable procurement system for
crude drugs.

Capital and Business Alliance with MYFARM

 Cooperate in revitalizing abandoned farmland and generating revenues from agriculturalbusinesses.
 Jointly develop cultivation technologies using large-scale automation.
 Implement crude drug production training, mainly at the Agri-innovation School run by MYFARM.

Lecture at Agri-innovation School

Field training28

FY2018 2Q

Integrated Report 2018
We will issue an Integrated Report that clarifies our measures for improving corporate
value from the point of sustainability and from a medium/long-term outlook (startingfrom FY2018).

2017

Annual Report

Corporate Report

2018

Integrated Report29

FY2018 2Q

FY2018 Performance Forecasts

FY2018 2Q

FY2018 Performance Forecasts
 No changes have been made from the results forecast
announced on May 10, 2018.
（¥ million）

FY2017
Net sales
Operating profit
Operating profit margin
Ordinary profit
Profit attributable toowners of parent

117,879
17,05014.5%
17,914

120,500
17,50014.5%
18,00014,504

12,800FY2017
Dividends
Per share
ＥＰＳ
ＲＯＥ

FY2018YoY Change
AmountChange
2,620
2.2%
449
2.6%
85
0.5%
(1,704)(11.8)%FY2018

¥64

¥64

¥200

¥167

8.3％

6.4％
31

FY2018 2Q

Return of Profits to Shareholders

FY2018 2Q

Return of Profits to Shareholders
Policy- To improve corporate value through capital investments in order to realize the continuous
development and growth of “Kampo”- To consider medium-to long-term profit levels and cash flows as well as carry out a stable dividend- Aim to return profit to shareholders based on a consideration and review to ensure an optimal
capital structure while flexibly implementing a share buyback program by comprehensively taking
into account market trends and other factors.

Dividend history

45.0%

100

30.3% 31.6% 31.5%

80
60
40
20
0

28.4%

22.3%

17

23

30

30

38.2%40.0%

32

32.1%

35.9% 35.7%

31.9%

35.0%
30.0%

25.0%
32

25.0%From Oct. to Mar.

32

32

32

32

32
32

20.0%
15.0%From Apr. to Sept.
10.0%

Dividends payout
ratio

17

23

28

30

30

32

32

32

32

32

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 2018 Forecasts（FY）

5.0%
0.0%

The year-end dividend and dividend payout ratio for FY2018 are based on the assumption that the dividend item will
be approved at the 83rd annual shareholders’ meeting33

TSUMURA & CO.
Investor Relations Group
Corporate Communications Dept.

Cautionary items regarding forecasts• The materials and information provided in this presentation contain so-called forward-looking
statements. Readers should be aware that realization of these statements can be affected by a variety
of risks and uncertainties and that actual results could differ significantly.
• Changes in the healthcare insurance systems or regulations set by medical treatment authorities on
drug prices or other aspects of healthcare or in interest and foreign exchange rates could impact
negatively on the Company’s performance or financial position.
• In the unlikely event that sales of the Company’s core products were halted or declined substantially
due to a defect, unforeseen side effect or some other factor, it would have a major impact on the
Company’s performance or financial position.