Second Quarter Business Resultsfor Fiscal 2020

November 6, 2020 (Friday)
President and Representative Director, CEO

Terukazu KatoAgenda１. Summary of 2Q FY 2020
Consolidated Performance
２．China Business Update
３． FY2020
Earnings Forecast・Divdend Forecast

１. Summary of 2Q FY 2020
Consolidated Performance

Second Quarter Business Results for FY 2020
(Million yen)

1H FY2020
plan

2Q FY2020
results

Achievement
rate

Net sales

64,200 63,994

99.7％

Operatingprofit9,100 11,124

122.2%

1,348(16.1％)

13.8%

17,0009,400 11,114

118.2％

9,856 1,257

12.8%

17,9006,800118.9％

7,073 1,045

14.9%

13,00060%80%(Operating profitmargin)

Ordinaryprofit
Profitattributable toowners ofparent(14.2％)

0%

Sales by product(17.4％)

8,083
20%

2Q FY
2019
results

YoYAmount

60,802 3,191
9,776

40%

ChangeFY2020Plan

5.2% 132,000(12.9％)

100%

Prescription Kampo Products

91.9%©2020 TSUMURA & CO.

0.4%

Other prescription Pharmaceuticals Products

3.1%

Healthcare

4.6%

Outside Sales atconsolidated subsidiaries
3Key Points in Performance
Consequently, net sales and profits were up in comparison with the same period a year earlier.
In contrast with plans, net sales underperformed but all three levels of profit outperformed.

Net sales

63,994

million yen

Planachievement
rate

99.7％

YoY

◼

Net sales rose 5.2% year-on-year owing to the consolidation of a subsidiary in China.

◼

Sales of the 129 prescription Kampo products climbed 1.1% year-on-year.

◼

Sales of healthcare products including OTC Kampo medicines increased 25.2% year-on-year.

Operatingprofit

11,124

Operating profit
margin17.4%

million yen

Planachievement
rate

122.2%+5.2％

YoY+13.8%

YoY+1.3pt◼

The cost-to-sales ratio was 41.6%, up 0.7pt year-on-year. Although crude drug-related costs were absorbed by arise owing to the NHI drug price revision, the increase reflects impact of outside sales of China.

◼

The SG&A ratio was 41.1%, a decline of 1.9pt year-on-year, mainly reflecting unused expenses due to restrictedactivities in tandem with the impact of COVID-19. The SG&A ratio was 3.0pt lower than plan primarily due to adelay in conducting research and unused expenses.

Ordinary
profitProfit attributable toowners of parent

11,114 million yen
8,083

million yen

Planachievement
rate

118.2%

YoY+12.8%

Plan
achievement
rate

118.9％

YoY+14.9%
4

Sales of Drug-fostering Program
Formulations/Growing Formulations
Salesranking

Product No./Formulation
name

2Q FY
2019

2Q FY
2020

(Million yen)
YoY

100

Daikenchuto

5,262

5,237(25)(0.5)%

354

Yokukansan

3,953

3,978

25

0.6%

443

Rikkunshito

3,719

3,774

55

1.5%

8107

Goshajinkigan

1,831

1,808(22)(1.3)%

2414

Hangeshashinto

717711(6)(0.9)%

15,484

15,509250.2%

Total sales for drug-fostering program formulations

41

Hochuekkito

3,670

3,979

308

8.4%

568

Shakuyakukanzo
to2,724

2,595(129)(4.8)%

1029

Bakumondoto

2,210

1,648(562)(25.4)%

724

Kamishoyosan

2,348

2,415

67

2.9%

617

Goreisan

2,318

2,527

208

9.0%

Total sales for growing formulations

13,273

13,165(107)(0.8)%

Total sales for 119 formulations other than drugfostering program and growing formulations

29,38430,104719

2.5%

Total sales for 129 prescription Kampo products58,141

58,779638

1.1%

Growing formulations

2All positive growth in quantity

Drug-fostering program
formulations

15COVID-19 Impact■ Net sales trended toward recovery
despite impact from COVID-19（Drug Price base)

Prescription
pharmaceutical market(3.8)%

Tsumura+1.3%（YoY）

Gap with market

5.1pt

Copyright © 2020 IQVIA.
Calculated based on IQVIA JPM April-Sep.2020 MAT
Reprinted with permission■Gradually resuming general clinic visitation activities
Continuing to restrict hospital visitations and activities（Actual sales・amount base)

Sales trends
General clinics+1.1%(Ratio to total sales: 76%)

（YoY）

Hospitals(Ratio to total sales: 24%)

Although a recovery in sales to ENTs istrailing, sales to dermatologists andpsychiatrists are positive.

Substantial impact due to restricted visitations(3.0)% and activities
Decline in number of surgeries, termination of（YoY）
outpatient services, etc.
6

Role of Kampo in COVID-19-related Symptoms
Rising expectation that Kampo will alleviate symptoms(Physicians and patients)
Fatigue

Hochuekkito: +8.4%(＋10.5%)

Ninjin’yoeito: +2.9%(＋3.2%)

Many patients claim they cannot get rid of the fatigue after
being treated for COVID-19.

YoY（ ）Amount base

Kakkonto: +12.2%（＋13.4%）

Fever

Maoto: +15.4% （＋15.4%）

Kampo is easy to use to alleviate symptoms of fever

Rikkunshito: +1.5% （＋3.1%）

Loss of appetite Hochuekkito: +8.4%（＋10.5%）
Prescribed to patients concerned about a decline in stamina
due to fatigue and a loss of appetite due to changes in theexternal environment

Hangekobokuto: +16.7%（＋17.1%）

Anxiety Kamikihito: +2.5%（＋3.8%）
Increase in the number of patients claiming they
suffer from anxiety in tandem with changes in theexternal environment

Yokukansankachimpihange: +7.4%（＋8.8%）

Insomnia Kamikihito: +2.5%（＋3.8%）

Many patients who are seniors are suffering fromsleep disorders, mainly due to anxiety over infection.

Obesity Bofutsushosan: +9.7%（＋10.9%）
Many people are stuck at home or in self-isolation.
As a result many patient are concerned of obesity.

Jumihaidokuto: +9.8%（＋11.3%）

Acne

Seijobofuto: +26.6%（＋28.6％）

As many patients are wearing masks to prevent infection so there isa pronounced increase in acne consultations.

Survey by Tsumura
7

Disseminate Information on KampoTreatments Related to COVID-19
October 7 Press conference held by the Japan Society for
Oriental Medicine
Research related to Kampo treatments
1) Medical fact-finding investigation of COVID-19 patients registered for a
retrospective study(Dr. Shin Takayama, Tohoku University)
2) Treatment benefits reflecting prospective intervention in COVID-19patients(Dr. Shin Takayama, Tohoku University)
3) Preventive benefits for healthy individuals reflecting prospective
intervention for COVID-19(Dr. Takao Namiki: Chiba University)

October 9Yakuji Nippo
websiteDr. Takao Namiki (Chiba University), Dr. Shin Takayama (TohokuUniversity), etc.
Commence large-scale clinical studies to confirm benefits ofKampo to prevent development of COVID-19, targeting 6,000
medical practitioners, mainly at Chiba University and Tohoku
University8

Factors Triggering Changes in Operating Profit(YoY)(Million yen)

+1,936(Million yen)
Changes in cost-to-sales ratio:
Breakdown

(448)
(140)

11,124

9,776

Sales composition(448)

Crude drug-relatedcost+768

Reduction ofmanufacturing cost+255

Outside sales
increase in China(1,023)

Changes in expenses: Breakdown

2Q FY 2019 Profit impact from Profit impact from Profit impact
operating profit changes in sales changes in cost- from changes
to-sales ratio
in expenses

2Q FY 2020
operating profit

Sales-relatedexpense(245)

R&D expense(138)

Traveling expense+510

Other(267)9Financial Condition/Cash Flow Position(Million yen)

FY 2019(March 2020)

Current
assets194,288

195,073784

Non-current
assets116,753

113,341(3,411)

97,99384,490(13,502)

Current
liabilities

48,47644,495(3,981)

Non-current
liabilities

49,51639,995(9,251)

213,048

223,924

10,875

66.0％

68.0％

2.0pt

Total liabilities

Total net assets

Inventories
Merchandise andfinished goods
Work in process
Raw materials andstores

73,31010,33812,41850,5532Q
FY 2020

72,98910,874
13,91648,197

Change

(321)
536
1,497
(2,355)614

577

Operating activities

FY 2019(March 2020)

+35
(7)

Cash and cash equivalents at
beginning of period

Equity ratio(72)

Cash and cash equivalents atend of period(2,626)

New consolidation

308,415(25)Effect of exchange rate changes

311,042

Total assets+106

Financing activities

Change(Hundredmillion yen)

Investing activities

2Q
FY 2020

10Roadmap to Realizing Long-Term Vision
2018

2019

2021

2022

Becoming a value-creation company that contributes topeople’s health through its Kampo business

Third Medium-Term
Management Plan
Consolidated net sales

Growth investment 135.0 billion yen-plus
Continued expansion of theKampo market

Domestic business●Establish Kampo medicine business

Building foundations for businessesin China
Consolidated netsales results
120.9 billion yen

Strategicchallenges

FY 2020 consolidated sales plan
132.0 billion yen

1. Sustainably expanding the Kampo marketand establishing a presence
2. Investing in growth and building businessfoundations in China
3. Improving productivity using newtechnologies (AI, robotization, RPA)

Jump

China business vision
Ratio of overseas sales inFY 2027
50%-plus

One-in-two doctors writes 10 ormore Kampo prescriptions

China business●Contribute to health of China’s citizens
Become the most trusted traditional
Chinese medicine company in China4. Fostering a corporate culture throughphilosophy-based management anddeveloping diverse human resources
5. Promoting the SDGs through the Kampo
Value Chain
11Three Important Domains in the Domestic Market◼

Positioned geriatric health; cancer (supportive care) and women’s health as the threeimportant domains and aim to concentrate our activities in these domains◼

We plan to deploy a sales approach in the drug-fostering program formulations,
growing formulations and three important domains

Geriatric health domain
Psychiatric andneurological disorders
DYokukansan+ relatedformulationsDDigestive systemdiseases

Cancer domain(supportive care)

Women’s healthdomainMitigation of side effects, etc.

Diseases specific to women
GD

Rikkunshito

DRikkunshito

DDaikenchutoD

HangeshashintoG

Hochuekkito

DGoshajinkigan

Respiratory diseases+ related
formulations

G Bakumondoto+ related
formulations

Other diseases and symptoms+ related
formulations+ related
formulations

Peripheral symptoms for circulatory disorders
G

Kamishoyosan

D

Daikenchuto

G

Goreisan+ related
formulations

Goreisan+ related formulations

DDrugfostering
programformulations

GGrowing
formulations
12Tsumura’s Ideal Information Provision
Distinguish use between visitations and online activities
depending on demands from medical practitioners

Easy

Visitation activities

Visitations

Visits and interviews by MRs(In-hospital briefings/informationprovision)

Real

Lectures and workshops held atvenues(Kampo medicine and evidence,including practical skills*1)

Real

Visitations

VisitsDigitalOnline＋＋Difficult

DigitalMR

OnlineDigital

Online activities

OnlineRemote provision of information(Briefing/digital pamphlet)

Online lectures/workshops(Kampo medicine and evidence)
Member website(Video contents, CME digital*2)

Practical skills*1
Abdominal, tongue, pulse and other exams used in Kampo diagnostics
CME digital*2
Lifetime education on Kampo medicine for medical practitioners, including physicians(Continuing Medical Education)
13Mega Web Lectures【Target】 Physicians that write nine or less Kampo prescriptions andphysicians that do not write Kampo prescriptions
Theme

Prescription

Easy-to-understand Kampo for colds, dizzinessand stressPrescription and application of Kampo for acutefebrile disease—Treatments for the common cold
today

Lecturer

No. ofviewers
23,917MaobushisaishintoRyokeijutsukanto

Dr. Sadahiro Senpuku
Senpuku CLMaoto
Saikokeishikankyoto

Dr. Shin Takayama
Tohoku University

19,639Dr. Shuji Ono
Ono Clinic

20,306

Dr. Noriaki Manabe
Kawasaki MedicalSchool

20,729Using Kampo to deal with changes in the external
Seishoekkito
environment (summer/stress)
Hochuekkito

Evidence of Kampo treatment derived fromguidelines
Rikkunshito―Mainly for functional gastrointestinal disorders― Daikenchuto（YoY）
Prescription

Prescription

Maoto+15.4%

Daikenchuto-0.5%

Hochuekkito+8.4%

Maobushisaishinto-8.6%

Ryokeijutsukanto+7.6%Seishoekkito+6.6%

Saikokeishikankyoto+1.6%

Rikkunshito

+1.5%
14

Area Plans and Area Online Lectures
Area plans
Provide detailed information taking into consideration regional traits and facility features“Introductory seminar on Kampo medicine after graduation” for physicians wanting to learn
about Kampo【Area Web lectures】 Planned/scheduled lectures: 278

Held lectures: 103

200150
147

100
50
084

13846

24
12412220425

No. of plans

7Lectures held

□Example of lecture held: In regions with a high ratio of seniors, successfully implemented a lecture on
frailty* measures for seniors
No. of viewers: Max. 180 (Kinki region)*Frailty is a condition whereby there is increased vulnerability to health disorders due to a change in various functions or a decline in reserve capacity intandem with aging (Source: The Japan Geriatrics Society)15２. China Business Update

China Business: Diagram of Capital Ties
Structure of the China business and capital ties:
Ownership ratios

as of the end of September 2020

Tsumura100％
Tsumura China Inc.

stablished in December 2016

56％
100％

Ping An Tsumura Inc.
80％

51％

100％

Pingcun (Shenzhen)
Medicine Co., Ltd.

Pingcun Zhongying(Hebei)
Pharmaceuticals Co.,Ltd.
established inJune 2019

Pingcun(Shenzhen)
Medicine Co.,Ltd.

equity acquisition inMarch 2020

97.65％

Shenzhen Tsumura
Pharmaceuticals Co., Ltd.
established in March 1991

established in June 2018

ShengshiPharmaceuticals Co., Ltd.
equity acquisitionin March 2020

Procurement, selection andprocessing, and storage of raw
materials for crude drugs and crude
drug pieces (drug pieces)

Procurement, selection andprocessing, and storage of raw
materials for crude drugs and crude
drug pieces (drug pieces)

Sales in China of crude drug pieces(drug pieces)

Sales in China of crude drug pieces(drug pieces)

established inApril 2019

Cultivation,
Sales ofprocurement, selection pharmaceuticals andand processing, andfood products
storage of raw materials
for crude drugs

100％

63％

TsumuraShengshiPharmaceuticals
Co., Ltd.
established inMarch 2018

ShanghaiTsumuraPharmaceuticals
Co., Ltd.
established in July
2001

Kampo powdered
extracts
Manufacturing oftraditional Chinese
medical products

Manufacturing of
Kampo powdered
extracts*In August 2020, changed name to Ping An Tsumura Pharmaceuticals
Co., Ltd. from Tianjin China Medico Technology Co., Ltd.

Newly added subsidiary since 2019
Crude drug PF

Manufacturing PF17

Scale of the Traditional Chinese Medicine Market inChina
Traditional Chinese medical products
Crude drug pieces (drug pieces)

193.3 billion yuan(about ¥3.0 trillion)
FY 2019652.0 billion yuan(about ¥10.2 trillion)
458.7 billion yuan(about ¥7.2 trillion)

Source: National Bureau of Statistics of China, Ministry ofIndustry and Information Technology (MIIT)*Exchange rate: ¥15.7/yuan (as of the end of December2019)©2020 TSUMURA & CO.

1818

Medium-term Management Plan and Vision for theChina Business

FY2020

FY
2021
Salestarget

240 million yuan(about ¥4.0 billion)

FY
2027
Sales image

10 billion yuan(about ¥170 billion)

FY 2020 Plan & Vision for the Crude Drug Platform
Raw material crude drugs, drug pieces, raw ginseng, Yakushokudogen products, etc.
Sales
target

240 million yuan(about ¥4.0 billion)

Sales target

Sales image

Front-loaded

Vision for the Manufacturing Platform
Classical prescription Chinese medicine complex
formulations and traditional Chinese medicine(including M&A), etc.

3 billion yuan(about ¥51.0 billion)

Sales image

7 billion yuan(about ¥119 billion)*Exchange rate: ¥17/yuan (as of the time of the release of the Vision)

19

Crude Drug Pieces (Drug Pieces) in China
Traditional Chinese medicine
Crude drugs

Crude drug pieces(drug pieces)

Traditional Chinese
medical products

China
Decoction

Market scale
About ¥3 trillion

Japan

Crude drugs

Crude drug pieces

Kampo medicine
Kampo
Extract
formulations

Domestic
production value
About ¥3.5 billion※billion*
Terminology

Definition

Decoction

Corresponding terminology for Kampo medicine(Meanings are not always the same)

Traditional
Chinese medicine

Medicines used in traditional Chinese medicine (traditional Chinese
medical products, drug pieces, etc.)

Kampo, crude drug pieces, crude drugs

Drug pieces

Same meaning as crude drug pieces Use as a decoction

Crude drug pieces

Traditional
Chinese medicalproducts

Drugs in the form of granules, pills or other shapes based on thetheories of traditional Chinese medicine

Kampo extract formulations*Source: Production statistics, including for Kampo formulations, Japan Kampo Medicine Manufacturers Association20

Roadmap for the Chinese Business Vision (image)
2019
ShenzhenTsumuraPingcunZhongyingPingcunMedicine

ShanghaiTsumuraTraditional
ChinesemedicalproductsCompany

Manufacturing and sales of raw material crude drugs and drug pieces
Manufacturing of food products, including raw material crude drugs andYakushokudogen products
Sales of food products, including Yakushokudogen products

Manufacturing of Kampo powdered extract(for Tsumura)Start up operations at Tianjin Plant in 2022

Manufacturing platform

TsumuraShengshi

2027

Manufacturing and sales of raw material crude drugs and drug pieces (FY 2018 onward)

Crude drug
platform

China Medico
Technology

2020 2021 2022 ～Ping An Tsumura
Traditional ChineseMedicine ResearchCenter (working name)

Manufacturing of classical prescription
Chinese medicine complex formulations

Manufacturing of Kampo powdered extract (for Tsumura)
Manufacturing of classical prescription
Chinese medicine complex formulations

M&A

M&A

Existing products at M&A partners (traditional Chinesemedicines) and acquisition of sales channels
Manufacturing of classical prescription Chinese medicine
complex formulations
Establish Traditional Chinese Medicine
Research Center (working name)*

Operation*Change name to Traditional Chinese Medicine Research Center (working name) 21３．FY2020
Earnings Forecast・Divdend Forecast

FY 2020 Earnings Forecast: No Revisions(Million yen)YoY

FY 2019 results

FY 2020 forecast

Net sales

123,248

132,000

8,751

7.1％

Operating profit(Operating profitmargin)

18,876(15.3%)

17,000(12.9%)(1,876)(9.9)%

Ordinary profit

19,64917,900(1,749)(8.9)%

Profit attributable toowners of parent

13,76513,000(765)(5.6)％FY 2019 results

FY 2020 forecast¥64¥64EPS¥179.96¥169.92

ROE6.8%

6.2%

Dividend (per share)

AmountChange

At present, we have not reflected the impact of COVID-19 into our earnings forecast as it is difficult to accurately estimate
when COVID-19 will wind down and the total level of impact. The impact of COVID-19 is primarily in cost going unused, mainly
the activities budget, due in part to restrictions on activities to provide information through to the end of the second quarter.
Meanwhile, there is an increase in Kampo prescriptions being prescribed by various physicians. In addition, we areimplementing activities that use e-promotions. Accordingly we estimate the impact of this to our plans is limited. Goingforward, we anticipate the outlook will remain cloudy. We will disclose conditions in a timely and proper manner should there beany changes.

23

Shareholder Returns
Policy◼ We aim to improve our corporate value by continually expanding ourKampo business and through growth investments in the China
business, and by building foundations. Accordingly, we plan toimplement stable dividends, taking into account factors such as
medium/long-term profit levels and cash flow conditions.
35.6% 37.7%
45.0%

10080

28.4%

32.1%

35.9% 35.7%31.9% 33.5%

40.0%

35.0%

25.0%

30.0%

60
40

32

32

32

32

32

32

32

32

32

20.0%

15.0%

20Year-end

25.0%

10.0%

30

32

32

32

32

32

32

32

032

dividend (yen)Interimdividend (yen)

5.0%

0.0%

2012

2013

2014

2015

2016

2017

2018

2019

2020
forecast
2020

Note: The FY 2020 year-end dividend and payout ratio (forecast) is an estimate based on the assumption that thedividend resolution is approved at the 85th Ordinary General Meeting of Shareholders.
24Inquires about these materials

Corporate Communications Dept.
Investor Relations Groupinvestor_madoguchi@mail.tsumura.co.jp

Cautionary items regarding forecasts⚫ The materials and information provided in this presentation contain so-called forward-looking
statements. Readers should be aware that the realization of these statements can be affected by avariety of risks and uncertainties and that actual results could differ significantly.
⚫ Changes in Japan or other foreign countries related to healthcare insurance systems or regulations
set by medical treatment authorities on drug prices or other aspects of healthcare or in interestand foreign exchange rates could negatively impact the Company’s performance or financialposition.

⚫ In the unlikely event that sales of the Company’s core products currently on the market be haltedor should sales substantially decline due to a defect, unforeseen side effect or some other factor,
there could be a major impact on the Company’s performance or financial position.

25