Second Quarter Business Resultsfor Fiscal 2020

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

Terukazu Kato0

Agenda１. Summary of 2Q FY 2020
Consolidated Performance
２．China Business Update
３． FY2020
Earnings Forecast・Divdend Forecast◼ Today, I will explain the three points you see.

1

１. Summary of 2Q FY 2020
Consolidated Performance◼ First, I will provide a summary of our earnings results for 2Q FY 2020.

2

Second Quarter Business Results for FY 2020
(Million yen)

1H FY
2020
plan
Net sales
Operatingprofit(Operating profit
margin)Ordinary
profitProfitattributable toowners ofparent2Q FY
2020
results

Achievement
rate

64,200 63,994

99.7％

9,100 11,124

122.2%(14.2％)(17.4％)

2Q FY
2019
results

YoY
Amount60,802 3,191
9,776(16.1％)

ChangeFY2020Plan

5.2% 132,000

1,348

13.8%

17,000(12.9％)

9,400 11,114

118.2％

9,856 1,257

12.8%

17,9006,800

118.9％

7,073 1,045

14.9%

13,000

60%

80%

0%

Sales by product

8,083
20%

40%

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◼ The results for 2Q are as shown. Although there was impact from COVID19, net sales totaled ¥63.9 billion, slightly below plan. Meanwhile,
operating and ordinary profits came to ¥11.1 billion and quarterly profit
attributable to owners of parent was ¥8.0 billion. Profits at all three levels
outperformed plans.
◼ Our operating profit margin stood at 17.4%, versus a plan of 14.2%, anda rise of 1.3pts year-on-year.

◼ On a year-on-year basis, net sales and operating profit increased.
◼ The graph for sales ratios shows that outside sales by consolidated
subsidiaries accounted for 4.6% of total sales, with outside sales by
consolidated subsidiaries in China making up 3.8% of total sales.

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.

Operatingprofit11,124

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

Planachievement
rate

118.2%

YoY+12.8%

8,083 million yen

Planachievement
rate

118.9％

YoY+14.9%
4◼ One key point in performance was that net sales grew ¥3.1 billion or 5.2%
year-on-year. This reflected contribution of ¥2.2 billion in outside sales by
Tianjin China Medico Technology Co., Ltd., which became a consolidated
subsidiary of the Tsumura Group in March.
◼ Sales of the 129 prescription Kampo products climbed 1.1% year-on-year.
This reflected impact from the NHI drug price revisions in October 2019and April 2020, a curb in medical exams, and restrictions on visitations.

◼ Sales in healthcare, which also include OTC medicines, rose 25.2% yearon-year owing to brisk store and online sales.
◼ The cost-to-sales ratio was 41.6%, undershooting our plan by 0.1pt but
up 0.7pt year-on-year. In a year-on-year comparison, although weabsorbed the impact of NHI drug price revisions with the decline in crude
drug-related costs, the cost-to-sales ratio rose due to impact from outside
sales in China.
◼ The SG&A ratio was 41.1%, which was 3.0pt below plan and down 1.9pt
year-on-year. This was mainly attributable to unused budget due torestricted activities in tandem with the COVID-19 impact. In comparison
with plans, there was also impact from a delay in the implementation of
R&D activities.
4Sales of Drug-fostering Program
Formulations/Growing Formulations
Sales
ranking

Product No./Formulation
name

2Q FY
2019

2Q FY
2020

(Million yen)
YoY

100

Daikenchuto

5,262

5,237

(25)

(0.5)%

3

54

Yokukansan

3,953

3,978

25

0.6%

4

43

Rikkunshito

3,719

3,774

55

1.5%

8

107

Goshajinkigan

1,831

1,808

(22)

(1.3)%

24

14

Hangeshashinto

717

711

(6)

(0.9)%

15,484

15,50925

0.2%

Total sales for drug-fostering program formulations

41

Hochuekkito

3,670

3,979

308

8.4%

5

68

Shakuyakukanzo
to

2,724

2,595

(129)

(4.8)%

10

29

Bakumondoto

2,210

1,648

(562)

(25.4)%

724

Kamishoyosan

2,348

2,415

67

2.9%

6

17

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 products

58,141

58,779638

1.1%

Growing formulations

2

All positive growth in quantity

Drug-fostering program
formulations

1

5◼ Reflecting the impact from the NHI drug price revisions, sales of the 129
prescription Kampo products stood at ¥58.7 billion, a growth of ¥600
million or 1.1% year-on-year.
◼ Sales of the five drug-fostering program formulations totaled ¥15.5 billion,a climb of 0.2% year-on-year and sales, on a volume basis, rose 1.3%.
Although down on a monetary basis, sales for Daikenchuto andGoshajinkigan were both up 0.1% on a volume basis. All five drugfostering program formulations exhibited positive growth on a volume
basis.
◼ Sales of the five growing formulations came to ¥13.1 billion, a decline of
0.8% year-on-year. Influenza and common colds were suppressed owing
to the use of masks and hand-washing as measures to prevent the spreadof COVID-19. Consequently, in cold-related formulations, Bakumondotosales substantially dropped year-on-year.

5

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

◼ In the April-June period (1Q), there was significant impact from COVID-19
but at present the prescription pharmaceutical market is trending toward
recovery. As for figures on an NHI drug price and actual sales basis,
although the prescription pharmaceuticals market shrank 3.8% incomparison with the same period in the previous year, Tsumura posted a
growth of 1.3%, outdistancing the market by 5.1pt.
◼ Looking at each market sales channel, sales to general practitioners (GP)rose 1.1%. Meanwhile the recovery in sales to ENTs and gynecologists isbehind schedule. Sales to hospitals (HP) were down 3.0%. This reflect theongoing restrictions to MR visitations and sales activities. In addition, there
continues to be impact mainly from a decline in the number of surgeries
and the suspension of outpatient treatments.
◼ In addition, there continues to be a curb in medical exams for seniors.
Based on our analysis, this impact is triggering the negative sales growthfor Shakuyakukanzoto.

6Role of Kampo in COVID-19-related Symptoms
Rising expectation that Kampo will alleviate symptoms(Physicians and patients)
Hochuekkito: +8.4%(＋10.5%)

Fatigue 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◼ Next I will introduce examples of Kampo treatments being used for
symptoms related to COVID-19. According to our survey, there are
growing expectations among physicians and patients that Kampo will ease
their symptoms.
◼ The following Kampo medicines are being used to treat various symptom,
fever at the onset of infection, lingering fatigue after treatment, anxiety
triggered by trying to prevent infection, insomnia, loss of appetite, obesity
due to a lack of exercise, and acne caused by wearing a mask. We believethat sales are growing for these Kampo medicines.

7

Disseminate Information on Kampo
Treatments 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-19
patients(Dr. Shin Takayama, Tohoku University)
3) Preventive benefits for healthy individuals reflecting prospective
intervention for COVID-19(Dr. Takao Namiki: Chiba University)

October 9
Yakuji Nippo
websiteDr. Takao Namiki (Chiba University), Dr. Shin Takayama (Tohoku
University), etc.
Commence large-scale clinical studies to confirm benefits of
Kampo to prevent development of COVID-19, targeting 6,000
medical practitioners, mainly at Chiba University and Tohoku
University
8◼ In addition, on October 7, the Japan Society for Oriental Medicine released
information on research pertaining to the use of Kampo treatments for
COVID-19.
◼ As you can see, information on surveys of the actual administration of
Kampo treatments already being carried out and specific names of Kampo
formulations have not been disclosed. However, it did give details on the
Tohoku University’s research on the benefits of Kampo treatments and thestudy at Chiba University on preventive benefits for healthy individuals.

8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-related
cost

+768

Reduction of
manufacturing 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-related
expense(245)

R&D expense(138)

Traveling expense

+510

Other

(267)
9

◼ Operating profit totaled ¥11.1 billion, a rise of ¥1.3 billion year-on-year.
This reflects the following factors: A positive impact of ¥1.9 billion fromsales growth, a negative impact of ¥400 million due to an increase in thecost of sales, and a negative impact of ¥100 million due to an increase in
expenses.
◼ The increase in cost of sales of ¥400 million reflects the following.
Although the decline in crude drug-related and manufacturing costs offset
the increase in impact from an increase in unit sales prices due to NHIdrug price revisions and impact from sales mix, there was positive impact
from outside sales by a new consolidated subsidiary in China.
◼ The increase in expense of ¥100 million reflects a slight rise due to an
expansion in sales-related cost in tandem with sales growth mainly at the
China Business and higher R&D costs, including those related to COVID-19,
despite unused travel and transportation expenses due to restrictions onsales activities.

9Financial Condition/Cash Flow Position(Million yen)

FY 2019(March 2020)

2Q
FY 2020

Change311,042

308,415(2,626)

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 assets

72,98910,874
13,91648,197

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

Effect of exchange rate changes

Work in process
Raw materials andstores73,31010,33812,41850,553Financing activities

Merchandise andfinished goods

ChangeInvesting activities

Inventories

2Q
FY 2020614

577

Operating activities

FY 2019(March 2020)

+35
(7)

Cash and cash equivalents at
beginning of period

Equity ratio(72)

Cash and cash equivalents at
end of period

Total net assets+106 (25)New consolidation

Total liabilities(Hundredmillion yen)

10

◼ This slide shows a comparison in financial condition and cash flow position withthe end of the prior fiscal year. I will explain the key points.

◼ In current assets, inventory assets decreased ¥300 million. This breaks down toa ¥2.3 billion drop in raw materials and stores, a ¥500 million rise in merchandiseand finished goods, and an increase of ¥1.5 billion in work in process. The rise inwork in process reflects impact from the Ibaraki No. 3 SD Building for whichconstruction was completed in June.
◼ Non-current assets declined ¥3.4 billion. This reflects an increase of ¥5.2 billion
in tangible non-current assets primarily in tandem with the consolidation of
Tsumura Shengshi Pharmaceutical Co., Ltd. in the current fiscal year. Meanwhile,
there was a ¥8.1 billion decrease in investments and other assets accompanying
the elimination of investment in and loans provided to the subsidiary, and a
decline of ¥500 million in intangible non-current assets coupled with goodwill
amortization owing to the acquisition of equity in the Tianjin China Medico
Technology Group.
◼ Total liabilities reflected repayment of short-term borrowings by a consolidated
subsidiary in China, movement between current and non-current accounts bytransferring the portion of long-term borrowings by Tsumura scheduled to be
paid back within a year.
◼ Equity ratio was 68.0%.

10◼ These are our cash flows in 2Q.

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 the
Kampo market

Jump

China business vision
Ratio of overseas sales in
FY 202750%-plus

Domestic business●Establish Kampo medicine business

Building foundations for businesses
in China
Consolidated net
sales results
120.9 billion yen

Strategic
challenges

China business

FY 2020 consolidated sales plan
132.0 billion yen

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

One-in-two doctors writes 10 ormore Kampo prescriptions●Contribute to health of China’s citizens
Become the most trusted traditional
Chinese medicine company in China

4. Fostering a corporate culture throughphilosophy-based management anddeveloping diverse human resources
5. Promoting the SDGs through the Kampo
Value Chain
11◼ Next, I will explain the goals of the Third Medium-Term Management Plan andthe progress we have made in our strategic challenges, based on the roadmap
for realizing our long-term vision.
◼ In the Third Medium-Term Management Plan, we aim to achieve consolidated net
sales of ¥135.0 billion-plus. In FY 2020, we plan to record consolidated net salesof ¥132.0 billion. There is a delay in activities due to COVID-19, but we aremaking a diligent effort to achieve this goal.
◼ I will explain Strategic Challenge 1 and 2 later on.
◼ In Strategic Challenge 3, we completed the introduction of automation androbotic technology into all Kampo formulation manufacturing processes. We arelikely the first company in the world to attempt automation of the manufacturing
process from raw material crude drugs to powdered extract raw material, which
is not something that other pharmaceutical manufacturers are doing.
Furthermore, we aim to automate and reduce manpower in the supply chain.
◼ In Strategic Challenge 4, at the Tsumura Academy, an internal personnel training
organization where I serve as dean, we are seeing good results from ongoingtraining, as excellent outside lecturers provide guidance via a Web environment,
as employees work from home during COVID-19.
◼ Strategic Challenge 5 is reported in detail in the Integrated Report 2020, which is
uploaded to our corporate website. We will send you a copy of the Integrated
Report 2020 later.

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
D

Yokukansan+ related
formulationsD

Digestive systemdiseases

Women’s healthdomainMitigation of side effects, etc.

Diseases specific to womenG

D

Rikkunshito

D

Rikkunshito

D

DaikenchutoD

HangeshashintoG

Hochuekkito

DGoshajinkigan

Respiratory diseases
G Bakumondoto+ related
formulations

Cancer domain(supportive care)+ related
formulations+ related
formulations

Other diseases and symptoms+ related
formulations

Peripheral symptoms for circulatory disorders
G

Kamishoyosan

D

Daikenchuto

G

Goreisan+ related
formulations

Goreisan+ related formulations

D

Drugfostering
programformulations

G

Growing
formulations
12◼ In Strategic Challenge 1, sustainably expanding the Kampo market andestablishing a presence, as you can see, we established the three important
domains, the geriatric health domain, cancer domain (supportive care) andwomen’s health domain. We aim to continue to carry out activities, mainly for
drug-fostering program formulations, and growing formulations, and to establish
Kampo medicine, which is a consistent business strategy, to expand the market.
◼ In the geriatric health domain, in addition to continuing to undertake priority
measures pertaining to dementia and frailty, we are also incorporating a newtarget, the circulatory domain, which has been a weakness thus far. We plan toexpand the Kampo market in this domain.

◼ In the cancer domain (supportive care), around 7-10 types of Kampo arerecommended to ease the symptoms of side-effects from various anti-cancer
drugs, including loss of appetite, numbness/pain, diarrhea/constipation,
stomatitis, fatigue/exhaustion and other symptoms. We are contributing mainly
to help patients continue with their anti-cancer drug therapies.
◼ In the women’s health domain, we are gathering fundamental and clinicalevidence on Kamishoyosan for use in treating gynecological disorders.
Furthermore, we are conducting new clinical research. For other diseases andsymptoms, we are developing formulations to treat those diseases andsymptoms frequently suffered by women, including abdominal bloating,headaches and dizziness.

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/information
provision)

Real

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

Real

Visitations

VisitsDigitalOnline＋＋Difficult

DigitalMR

OnlineDigitalOnline 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◼ Due to the impact of COVID-19, in addition to the MR visitation activities
conducted thus far, we are looking at and undertaking major innovations
for the future regarding how we should properly provide information online.
◼ Factoring in the particulars for providing information on Kampo medicine
and Kampo formulations, in addition to implementing individual interviews
through visitations to suit the needs of physicians and cases where we
implement lectures/workshops, we are continuing to build a system thatwill provide necessary information when required that covers essential
methods, including offering video contents through online information
provision activities, online lectures/workshops, and on a website forphysicians, and to provide digital contents for ongoing Kampo medicine
education.
◼ Many physicians are participating in our online lectures. Through this, we
encounter new physicians interested in Kampo or already prescribing
Kampo. We aim to verify the efficacy of these online activities, andinvestment in our future.

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
23,917Maobushisaishinto
Ryokeijutsukanto

Dr. Sadahiro Senpuku
Senpuku CL

Maoto
Saikokeishikankyoto

Dr. Shin Takayama
Tohoku University

19,639Dr. Shuji Ono
Ono Clinic

20,306

Dr. Noriaki Manabe
Kawasaki Medical
School

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

◼ Mega Web Lectures were held four times in the first half targeting
physicians that write nine or less Kampo prescriptions and physicians that
do not write Kampo prescriptions. We get around 20,000 physiciansviewing each lecture.
◼ By combing this with follow-up activities conducted by MRs, we are
already seeing a contribution to a growth in prescriptions.
◼ By combining Mega Web Lectures with visitations and online interviews, it
is possible for us to provide information to an even wider audience than
before. We are confident this will contribute to an increase the number ofphysicians prescribing Kampo and a growth in the number of prescriptions.

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

200
150
147

100
50
0

8
4

13
8

46

24
12

41
22

20
4

25

No. of plans

7

Lectures 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◼ The results for online area lectures is shown in the graph. Thus far wehave held 103 lectures.
◼ In the Kinki area, we held a lecture based on the theme of measures todeal with frailty in seniors, which 180 physicians viewed. We are
implementing plans that match the needs of each region.
◼ There are also needs for learning to use Kampo in practice, not online. As
an area plan, we are continuing to hold beginner Kampo medicine
seminars.

15

２. China Business Update◼ Continuing on, I will give an update on our China Business, Strategic
Challenge 2: Growth Investment and Building Business Foundations in
China.

16

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 in
March 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 in
April 2019

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

100％

63％

TsumuraShengshiPharmaceuticals
Co., Ltd.
established in
March 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 PF
17◼ First, I will provide an update on the structure of our China Business and capitalalliances.
◼ Tsumura Shengshi Pharmaceuticals Co., Ltd., which is the second from the right,
was established in March 2018. We plan to complete construction of a production
plant in 2022. This company became a consolidated subsidiary in the current fiscal
year. Along with Shanghai Tsumura Pharmaceuticals, this company handles corefunctions in our manufacturing platform in China.
◼ The company to the left is Pingcun (Shenzhen) Medicine Co., Ltd., which wasestablished in April 2019. Currently, the crude drug platform handles sales functions
for food products, including Yakushokudogen products. Also to the left is Pingcun
Zhongying (Hubei) Pharmaceuticals Co., Ltd., which was established in June 2019. In
addition to cultivating, procuring, selecting and processing and storing raw material
crude drugs, the company also handles production functions for food products,
including Yakushokudogen products.
◼ Also to the left is Tianjin China Medico Technology Co., Ltd., an equity-method
affiliate that was converted into a consolidated subsidiary in March 2020. This
company changed its name to Ping An Tsumura Pharmaceuticals Co., Ltd. in August2020. The subsidiaries of this company, Shengshi Pharmaceuticals Co., Ltd. and
Shenzhen Tsumura Pharmaceuticals Co., Ltd. handle core functions in the crude drug
platform. In addition to the cultivation, procurement, selecting and processing, andstorage of raw material crude drugs, the company also conducts sales of raw
material crude drugs and drug pieces.
◼ In the traditional Chinese medical products business, we are building sales platformfunctions, including plans for M&A going forward.

17

Scale of the Traditional Chinese Medicine Market in
China
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 December
2019)©2020 TSUMURA & CO.

18
18◼ According to the most recent data from the National Bureau of Statistics of China,
the scale of the traditional Chinese medicine market in China in 2019 stood at
652.0 billion yuan (roughly ¥10.2 trillion), of which traditional Chinese medicine
accounted for 458.7 billion yuan (about ¥7.2 trillion) and crude drug pieces madeup 193.3 billion yuan (around ¥3 trillion).

18

Medium-term Management Plan and Vision for the
China Business

FY
2020

FY
2021
Sales
target

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◼ This is an update of our vision for the China Business.
◼ In the China Business, a business vision as a crude drug platform function ismainly established by Ping An Tsumura Pharmaceuticals, its subsidiary, Shengshi
Pharmaceuticals, and Li Gang, who was appointed president of Shenzhen
Tsumura Medicine. In addition to the raw material crude drug cultivation,
procurement, processing/selection, quality control and storage functions, we aim
for sales of 3.0 billion yuan (around ¥51.0 billion) as our sales image for FY 2027,
mainly by selling raw material crude drugs and drug pieces, and raw ginseng.
◼ In the Third Medium-Term Management Plan, we established a sales plan toachieve 240 million yuan (around ¥4.0 billion) in sales in 2021, through the saleof raw material crude drugs and drug pieces, raw ginseng and Yakushokudogenfood products at Shenzhen Tsumura Medicine and Pingcun (Shenzhen) Medicine.
However, owing to the acquisition of equity in Tianjin China Medico Technology inMarch 2020, we are front-loading this plan to FY 2020. There are delays inprogress due to impact from COVID-19. However, we aim to make a recovery byachieving this plan.
◼ In the manufacturing platform, going forward, we will carry out M&A withtraditional Chinese medicine companies and establish manufacturing and sales
functions for the classical prescription Chinese medicine combination formulation
business. Our sales image for FY 2027 is 7.0 billion yuan (around ¥119.0 billion).
We will also newly establish a vision for each business in response to trends inpolicies by the Chinese government’s regulatory authorities and M&A deals withtraditional Chinese medicine companies.

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 medical
products

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 Association

20◼ In the crude drug platform, the focus of sales is drug pieces, which has a market
size of around ¥3 trillion in China. In Japan, the size of this market is around
1/1,000th the size of the Chinese market.
◼ In Japan, along with the Meiji Restoration, the proclamation of health policy andadministration led to the requirement of physician licenses, at which time Kampo
began to die out. In China, there is a system in place requiring licenses for both
doctors of Chinese medicine and western medicine. In light of this, treatments
using traditional Chinese medicine are becoming widely popular.
◼ Basically, traditional Chinese medicine is prescribed in accordance with eachpatient’s individual symptoms, dosages are adjusted for the individual patient,and prescribed in the form of drug pieces.

◼ The sales of drug pieces through the crude drug platform aims to differentiate
based on the quality and efficacy of the crude drugs. We aim to provide drug
pieces based on new and trusted standards. We plan to have hospitals and othermedical institutions only use commercialized drug pieces that pass high-quality
standards and which meet the criteria of Tsumura’s GACP guidelines for crude
drugs produced in line with a high-quality management level for cultivation,
processing/selection and trial analysis.
◼ Even in the crude drug platform, our goal is to become a trusted traditional
Chinese medicine company by expanding business scale and territory throughM&A and business alliances, depending on necessity.

20

Roadmap for the Chinese Business Vision (image)
2019
ShenzhenTsumuraPingcunZhongyingPingcunMedicine

ShanghaiTsumuraTraditional
Chinesemedicalproducts
Company

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 Chinese
Medicine 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 Chinese
medicines) 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◼ Lastly, I will present a roadmap for the Chinese Business Vision for each
crude drug and manufacturing platform.
◼ In the manufacturing platform, we aim to enhance the powdered Kampo
extract manufacturing system for Tsumura. Furthermore, we look to invest
in the building of foundations to further the traditional Chinese medicine
business through M&A deals, and to advance the classical prescription
Chinese medicine combination formulation business without delay and inline with trends in Chinese government policies.

21

３．FY2020
Earnings Forecast・Divdend Forecast◼ Next, I will explain our earnings and dividend forecast for FY 2020.

22

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 profit
margin)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

¥64

EPS

¥179.96¥169.92

ROE

6.8%

6.2%

Dividend (per share)

AmountChangeAt 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 are
implementing 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 be
any changes.

23◼ We have not factored the impact from COVID-19 into our FY 2020
earnings forecast. Given performance in 2Q, we are reiterating ourforecast for the time being.
◼ We are sticking with our initial forecast of net sales of ¥132.0 billion,
operating profit of ¥17.0 billion, ordinary profit of ¥17.9 billion and profit
attributable to owners of parent of ¥13.0 billion.
◼ It is difficult to accurately forecast earnings mainly given factors such as
when the COVID-19 pandemic will wind down and the possibility of further
spread of the virus during the winter months. We will provide a timely andadequate disclosure when conditions change.

23

Shareholder Returns
Policy◼ We aim to improve our corporate value by continually expanding our
Kampo 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 %

100
80

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 %

20

Year-end

25 .0 %

10 .0 %

30

32

32

32

32

32

32

32

32

2012

2013

2014

2015

2016

2017

2018

2019

2020
forecast
2020

0

dividend (yen)Interimdividend (yen)

5.0%

0.0%

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◼ Lastly, I would like to talk about shareholder returns.
◼ We still aim to improve our corporate value by continually expanding our
Kampo business and through growth investments in the China business,and by building foundations. Accordingly, we plan to implement stabledividends, taking into account factors such as medium/long-term profit
levels and cash flow conditions.
◼ We plan to payout an annual per-share dividend of ¥64, which is aninterim dividend of ¥32 and a fiscal year-end dividend of ¥32. We aretargeting a payout ratio of 37.7%, reflecting the previously discussed
earnings forecast.

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 financial
position.
⚫ 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

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