Summary of Financial Results for year ended March 31, 2008 (Unaudited)

Transcription

1 Summary of Financial Results for year ended March 31, 2008 (Unaudited) Company name: Stock exchange listings (Section): Securities code number: URL: Headquarters: Representative: For further information, please contact: May 7, 2008 Mitsubishi Tanabe Pharma Corporation Tokyo, Osaka (First Sections) , Dosho-machi, Chuo-ku, Osaka Name: Natsuki Hayama Title: President and Representative Director Name: Yoshihisa Sasou Title: General Manager, Corporate Communications Department Telephone: (06) Planned date of ordinary general meeting of shareholders: June 24, 2008 Planned date of start of dividend payments: June 25, 2008 Planned date of filing of securities report: June 24, 2008 (Notes) Fiscal 2007 : Amounts less than \ 1 million have been rounded. Fiscal 2006 : Amounts less than \ 1 million have been truncated. 1. Results for Fiscal 2007 (April 1, 2007 to March 31, 2008) (1) Consolidated business results Net sales Operating income Ordinary income Net income Yen million % change Yen million % change Yen million % change Yen million % change Fiscal ,636-54,024-54,408-21,993 - Fiscal , , , , Net income per share Net income per share (diluted) Return on equity Ordinary income / Total assets Operating income / Net sales Yen Yen % % % Fiscal Fiscal (Notes) a. Equity in earnings (losses) of non-consolidated subsidiaries \(117) million (\70 million in fiscal 2006) b. % figures show change from previous year (2) Consolidated financial position Total assets Net assets Equity ratio Net assets per share Yen million Yen million % Yen Fiscal 2007 Fiscal , , , , , (Note) Shareholders' equity \653,229 million (\232,267 million in fiscal 2006) (3) Consolidated results of cash flows Cash and Cash flows from Cash flows from Cash flows from cash equivalents operating activities investing activities financing activities at end of the period Yen million Yen million Yen million Yen million Fiscal ,096 (4,829) (6,070) 160,096 Fiscal ,419 (8,525) (6,059) 46,121-1-

2 2. Dividends Dividends per share Total Payout Dividends / dividends ratio Net assets (Record date) 20-Sep Interim Year-end For the year (for the year) (consolidated) (consolidated) Yen Yen Yen Yen Yen million % % Fiscal , Fiscal , Fiscal (projected) 3. Forecasts for Fiscal 2008 (April 1, 2008 to March 31, 2009) Net sales Operating income Ordinary income Yen million % change Yen million % change Yen million % change Interim 206,000-33,500-34,000 - Full year 425, , , Net income Net income per share Yen million % change Yen Interim 15, Full year 39, Note: % figures show change from previous year for full-year data and change from same period of previous year for interim data. 4. Other (1) Significant change involving subsidiaries during the period (changes in designated subsidiaries accompanying changes in the scope of consolidation) [Yes/No]: Yes Five newly designated subsidiaries Bipha Corporation Benesis Corporation MP-Technopharma Corporation Other two companies Note: For details, please see the Consolidation of Corporate Group section on page 16. (2) Changes in accounting principles and procedures used in the preparation of consolidated financial statements or method of presentation of consolidated financial statements. (Items noted in the Changes in the Basis of Presenting Consolidated Financial Statements section) 1. Change accompanying revision of accounting standards: Yes 2. Other changes: Yes Note: For detailed information, please see Change in Accounting Policy section on page 35. (3) Number of shares issued (common stock) 1. Number of shares issued at the end of the period (including treasury stock) Fiscal ,417,916 shares Fiscal ,597,847 shares 2. Number of shares of treasury stock at the end of the period Fiscal ,957 shares Fiscal ,666,769 shares Note: Regarding the number of shares used in the calculation of net income per share (consolidated), please see the Per-Share Data section on page

3 (Reference) Overview of Non-Consolidated Business Results 1. Results for Fiscal 2007 (April 1, 2007 to March 31, 2008) (1) Non-consolidated business results Net sales Operating income Ordinary income Net income Yen million % change Yen million % change Yen million % change Yen million % change Fiscal ,067-49,080-52,152-23,521 - Fiscal , , , , Net income per share Net income per share (diluted) Yen Yen Fiscal Fiscal (Notes) a. % figures show change from previous year b. Amounts less than 1 million yen have been truncated. (2) Non-consolidated financial position Total assets Net assets Equity ratio Net assets per share Yen million Yen million % Yen Fiscal 2007 Fiscal , , , , (Note) Shareholders' equity \476,454 million (\226,785 million in fiscal 2006) (Notes) All these estimates are forward-looking statements based on a number of assumptions and beliefs in light of the information currently available to management and are subject to risks and uncertainties. Actual financial results may differ materially depending on a number of factors, including economic conditions and currency exchange rate fluctuations. -3-

4 Notes (1) Consolidated results of operations On October 1, 2007, the Company merged with Mitsubishi Pharma Corporation. Because the merger was completed as a reverse acquisition under the accounting standards for business combinations, the results for the full fiscal year were calculated as the sum of the consolidated results of the former Mitsubishi Pharma Corporation for the first half of the fiscal year and the consolidated results of Mitsubishi Tanabe Pharma Corporation for the second half of the fiscal year. As a result, year-on-year comparisons are not provided. (2) Net income per share in the fiscal year ending March 2008 In calculating net income per share, the average number of shares during the period is calculated on the basis of the number of issued shares allocated to a shareholder of the former Mitsubishi Pharma Corporation at the time of the merger on October 1 until the end of September, as well as that of shares issued of Mitsubishi Tanabe Pharma Corporation (excluding treasury stock) in or after October. (3) Return on equity and ordinary income to total assets ratio Shareholders equity and the total assets of the former Mitsubishi Pharma Corporation at the beginning of the fiscal year are used for calculating return on equity and ordinary income to total assets ratio for the fiscal year ended March For reference, the shareholders equity and the total assets at the beginning of the fiscal year are 243,865million and 323,364million, respectively. (4) Dividends per share For dividends per share in the fiscal year ended March 2008, the dividend to the shareholder on the record date of September 20, 2007 are distributed from the retained earnings of the former Mitsubishi Pharma Corporation, and the year-end dividends are the ones from the retained earnings of Mitsubishi Tanabe Pharma Corporation, respectively. The former Tanabe Seiyaku Co., Ltd. paid an interim dividend of 13 per share, for total dividends of 3,183 million. (5) Dividends to net assets ratio In calculating net assets per share for the fiscal year ended March 2008, the net assets per share of the former Mitsubishi Pharma Corporation are used for the net assets per share at the beginning of the fiscal year, which is the basis for the calculation of the dividends to net assets ratio for the year. For reference, the net assets per share at the beginning of the fiscal year are

5 1. Business Results (1) Analysis of Business Results Overview of business results In the domestic pharmaceutical industry, the operating environment continues to become more challenging. Competition among companies continues to intensify, and there is an ongoing trend toward measures to control health care spending as a means of reducing social security costs. In this operating environment, the Company merged with Mitsubishi Pharma Corporation on October 1, 2007, and began to move forward as Mitsubishi Tanabe Pharma Corporation. The merger was undertaken to further strengthen drug discovery capabilities, to accelerate the development of overseas operations, and to position the Company to respond aggressively to future changes in the medical environment and pursue new business opportunities. The Mitsubishi Tanabe Pharma Group will implement R&D targeting the creation of global new drugs and will use its business platform, which was strengthened by the merger, to accelerate the development of its overseas operations. At the same time, the Group will strive to establish a global position as a research-driven pharmaceutical company, as rapidly as possible. In these ways, the Group will work to maximize enterprise value. In addition, the Group has taken steps to realize as rapidly as possible the benefits of the merger, such as reevaluating overlapping functions and cutting costs. On April 1, 2008, the Company established Tanabe Seiyaku Hanbai Co., Ltd. which will focus on promoting and marketing generic drugs. The Company will undertake full-scale development of this business based on generic drugs that patients and health care professionals can use with peace of mind. On January 16, 2008, Japan's government promulgated and put into effect a law providing relief to people who contracted hepatitis C from specific fibrinogen product or specific coagulation factor IX products. Accordingly, the Company will continue working toward a settlement and will do its utmost to ensure that there is no recurrence of health problems caused by its pharmaceuticals. In accordance with the rules of the Tokyo Stock Exchange and Osaka Securities Exchange, on October 1, 2007, the effective date of the merger, a grace period commenced, during which the Company must undergo an examination comparable to that conducted for a new listing. The Company is moving forward with preparations for applications targeting the termination of the grace period and the maintenance of the Company's listings on both of the exchanges. Because the merger was completed as a reverse acquisition under the accounting standards for business combinations, the consolidated results for the full fiscal year were calculated as the sum of the consolidated results for the former Mitsubishi Pharma Corporation for the first half of the fiscal year and the consolidated results for Mitsubishi Tanabe Pharma Corporation for the second half of the fiscal year. The consolidated results for the previous fiscal year are the consolidated results of the former Tanabe Seiyaku Co., Ltd. -5-

6 Consequently, results in the year under review were as follows. (millions of yen) Fiscal 2006 % Fiscal 2007 % Change Net Sales 177, , ,105 Pharmaceuticals 164, , ,010 (Ethical drugs) 158, , ,830 (OTC products) 5, , ,820 Other business 13, , ,096 (Overseas sales) 17, , ,424 Operating Income 30, , ,568 Ordinary Income 32, , ,062 Net Income 20, , ,819 In the Company's first fiscal year, net sales were 315,636 million. The cost of sales was 113,471 million, and SG&A expenses were 148,225 million, including R&D expenses of 59,807 million. Operating income was 54,024 million, and ordinary income was 54,408 million. Special losses included the provision for reserve for HCV litigation of 9,108 million, merger-related expenses of 4,904 million, losses on shutdown of plants of 1,638 million, and special retirement expenses of 1,122 million. As a result, net income was 21,993 million. Segment information Segment information was as follows. Net Sales Operating Income millions of yen Fiscal Fiscal Change Fiscal Fiscal Change Pharmaceuticals 164, , ,010 30,799 52,053 21,254 Other Business 13,383 23,479 10,096 (343) 1,813 2,156 Pharmaceuticals In the pharmaceuticals segment, net sales were 292,157 million, and operating income was 52,053 million. Domestically, net sales of 268,392 million for ethical drugs were recorded. Significant sales growth was achieved by Remicade, an anti-tnf monoclonal antibody, and favorable growth was posted by such products as Talion, a treatment for allergic disorders; Mearubik, a measles and rubella combined vaccine; Anplag, an oral anti-platelet; and Urso, an agent for improving hepatic, biliary, and digestive functions. In overseas pharmaceutical operations, net sales of 21,018 million for ethical drugs were recorded, constituting 7.2% of net sales in this segment. Other business In the other business segment, net sales were 23,479 million, and operating income was 1,813 million. -6-

7 R&D activities The Group aims to continually develop new pharmaceuticals that will be used throughout the world. In implementing its R&D activities, the Group has positioned metabolism and circulation as key areas, with a special focus on diabetes and cerebral infarction. In diabetes agents, the Company has a number of development compounds with different mechanisms of action, such as DPP inhibitors MP-513 and TA-6666 and SGLT-2 inhibitor TA The Company is moving forward with the development of these compounds, which are expected to become major products. The Company is also moving ahead with the development of NS3-4A protease inhibitor MP-424, a new treatment for chronic hepatitis C. The Company continues to develop Remicade, which plays a central role in the lifecycle management strategy, targeting the acquisition of approval in Japan for additional indications, following Crohn's disease and rheumatoid arthritis. Overseas, with a focus on the renal disease field, phase III trials of Non-absorbed phosphate binder MCI-196 and Uremic toxin adsorbent MP-146 in Europe and the U.S. are making progress. Following its merger with Mitsubishi Pharma Corporation in 2007, the Company has clarified its priorities for development products and will review its development pipeline. The status of progress in pharmaceutical clinical development activities in the year under review was as follows. Approvals acquired In October 2007, the Company acquired approval for Medway injection 5% and 25%, a human serum albumin (recombinant). In November 2007, the Company acquired approval for Remicade for an additional indication for maintenance therapy for Crohn's disease. In February 2008, the Company acquired approval for an additional indication for human anti-hbs globulins (Hebsbulin - IH for intravenous) for the prevention of reinfection of the hepatitis B virus after liver transplant. Applications filed In September 2007, the Company filed an application for Remicade for a change in usage/dosage for rheumatoid arthritis In February 2008, the Company filed an application for an additional indication for Remicade for the treatment of psoriasis. In March 2008, the Company filed an application for an additional dosage for human immunoglobulin G Venoglobulin IH for the treatment of hypo and gammaglobulinemia. Clinical trials started and advanced For TA-7284, an SGLT-2 inhibitor (expected indication: diabetes mellitus), the Company began phase I trials in September 2007, while Johnson & Johnson is conducting phase trials in Europe and the U.S. In February 2008, phase II trials began for MP-424, an NS3-4A protease inhibitor (expected indication: chronic hepatitis C). Overseas, Vertex Pharmaceuticals, of the U.S., is handling development. -7-

8 Investment in property, plant and equipment and information systems Total capital investment amounted to 5,968 million ( 4,368 million in the previous fiscal year), which was allocated to production equipment and R&D facilities, and to branch consolidation accompanying the merger. In addition, the Company invested 1,791 million in information system development ( 463 million in the previous fiscal year), centered on system consolidation accompanying the merger. Forecasts for the fiscal year (ending March 2009) Forecasts for the fiscal year ending March 2009 are as follows. Consolidated millions of yen Fiscal 2007 % Fiscal 2008 % Net Sales 315, , Operating Income 54, , Ordinary Income 54, , Net Income 21, , Results for the year under review are the sum of the results of the former Mitsubishi Pharma Corporation for the first half of the fiscal year and the results of Mitsubishi Tanabe Pharma Corporation for the second half of the year. The results forecasts for the full fiscal year are based on information available at the present point in time and reflects the effects of goodwill amortization expenses, cost synergies, and restructuring expenses. Other Court action for damages relating to HIV (human immunodeficiency virus) infection The former Green Cross Corporation, the Japanese government and four other pharmaceutical manufacturers, were named as defendants in a number of lawsuits for compensation filed by plaintiffs claiming to have been infected with HIV (human immunodeficiency virus) through use of non-heat-treated concentrated preparations. Through the merger with Green Cross Corporation, liability for the lawsuits was transferred to Mitsubishi Pharma Corporation, and as a result of the Company's merger with Mitsubishi Pharma Corporation on October 1, 2007, liability for the lawsuits was transferred to the Company. From the first settlement relating to the lawsuits, which was agreed to on March 29, 1996, to March 31, 2008, settlements have been reached with 1,379 plaintiffs. In order to reach a full resolution on the issue of HIV infection through non-heat-treated concentrated preparations, the Company is committed to continued earnest engagement. U.S. court action for damages relating to HIV (human immunodeficiency virus) infection A wholly-owned U.S. subsidiary of the Company, Alpha Therapeutic Corporation, three other U.S. manufacturers of blood products, are defendants in a U.S. class action lawsuit filed chiefly by non-u.s. residents (residents of Europe, etc.) claiming to have been infected with HIV or other viruses by non-heat-treated concentrated preparations sold in the 1980s. The number of lawsuits as of March 31, 2008, was 115, and discovery is currently in progress. -8-

9 In a previous class action lawsuit within the U.S. filed against Alpha Therapeutic Corporation and three other U.S. manufacturers of blood products, a settlement was reached. Almost the entire amount of Alpha Therapeutic Corporation's financial burden under that settlement was covered by product liability insurance. Insurance arrangements are also in place for the lawsuit currently pending. (2) Financial Position Assets, liabilities and net assets Consolidated Balance Sheets millions of yen Fiscal 2006 Fiscal 2007 Change Current assets 145, , ,977 Fixed assets 152, , ,198 Total assets 297, , ,174 Liabilities 63, ,453 75,962 Net assets 233, , ,213 Total liabilities and net assets 297, , ,174 * Because the merger was completed as a reverse acquisition under the accounting standards for business combinations, the assets and liabilities of the former Tanabe Seiyaku Co., Ltd. as of the end of September 2007 were transferred at fair market value to the consolidated balance sheets of the former Mitsubishi Pharma Corporation. Total assets at the end of the fiscal year were 807,261 million, an increase of 510,174 million from the previous fiscal year-end, due to the merger with Mitsubishi Pharma Corporation. Merger-related goodwill was 150,505 million, and 5,017 million was amortized in the year under review. As a result, the balance at the end of the year under review was 145,488 million. Current assets were 382,026 million, up 236,977 million from the end of the previous fiscal year. Fixed assets were 425,235 million, up 273,198 million. Total liabilities were 139,453 million, up 75,962 million. Net assets were 667,808 million, up 434,213 million. As a result, the equity ratio was 80.9%. -9-

10 Cash flows Consolidated Statements of Cash Flows millions of yen Fiscal 2006 Fiscal 2007 Change Operating activities 21,419 38,096 16,677 Investing activities (8,525) (4,829) 3,696 Financing activities (6,059) (6,070) (11) Change in cash and cash equivalents 6,924 26,415 19,491 At beginning of year 39,249 85,182 45,933 At end of year 46, , ,975 Note : The balance at the end of the previous fiscal year includes a decrease in cash and cash equivalents of 51 million accompanying a change in the fiscal year-end of consolidated subsidiaries. The balance at the end of the fiscal year under review includes an increase in cash and cash equivalents resulting from the merger of 47,255 million, an increase in cash and cash equivalents resulting from inclusion of consolidated subsidiaries of 1,277 million, and a decrease in cash and cash equivalents resulting from exclusion of consolidated subsidiaries of 33 million. (Cash flows from operating activities) Net cash provided by operating activities was 38,096 million. Net income increased in comparison with the previous fiscal year, and notes and accounts receivable declined. As a result, net cash provided by operating activities increased 16,677 million. (Cash flows from investing activities) As a result of such items as purchases of property, plant and equipment, net cash used in investing activities was 4,829 million. (Cash flows from financing activities) Due to such items as dividends paid, net cash used in financing activities was 6,070 million. As a result, cash and cash equivalents at the end of the fiscal year were 160,096 million. Cash Flow Indicators Fiscal 2004 Fiscal 2005 Fiscal 2006 Fiscal 2007 Shareholders equity ratio % Shareholders equity ratio (market price) (%) Ratio of interest-bearing debt to cash flow (years) Interest coverage ratio , , *Shareholders equity ratio: shareholders equity / total assets *Shareholders equity ratio (market price): aggregate market value of listed stock / total assets *Ratio of interest-bearing debt to cash flow: Interest-bearing debt / cash flow *Interest coverage ratio: operating cash flow / interest paid 1. Each indicator is calculated on a consolidated basis. 2. Aggregate market value of listed stock is calculated by multiplying the closing stock price on the last day of the period by the number of shares outstanding at the end of the period, less treasury stock. -10-

11 3. Net cash provided by operating activities from the consolidated statements of cash flows is used as operating cash flow. 4. Interest-bearing debt is that portion of debt on the consolidated balance sheets for which interest is paid. (3) Basic Policy on the Distribution of Earnings / Dividends in the Fiscal Year under Review and the Current Fiscal Year The Company's basic policy on the distribution of earnings calls for providing a stable, ongoing distribution of earnings to shareholders while striving to maximize enterprise value by investing to bolster R&D and marketing activities from a medium-to-long-term perspective. Our objective for the dividend payout ratio is 35% (prior to amortization of goodwill), and over the long term we will work to provide a return to shareholders at a level that exceeds our short-term objective. In accordance with its basic policy on the distribution of earnings, the Company set year-end dividends at 13.0 per share. In conjunction with the interim dividends of 13.0 per share, this resulted in annual dividends of 26.0 per share, an increase of 2.0 per share from the previous year. (4) Operational Risks The following are major risks that have the potential to significantly influence the financial position or performance of the Group. In recognition of the possibility that these events could occur, the Group works to prevent their occurrence and to implement countermeasures in the event of their occurrence. Items in this document relating to the future are based on the judgment of the Group as of the end of the fiscal year (March 31, 2008). Risks related to new drug R&D The research and development of new drugs requires lengthy investment and the commitment of substantial resources, but there is no guarantee that this process will result in the creation of new products or new technologies. In addition, pharmaceuticals cannot be sold if approval is not obtained under the legal and regulatory system of each country, and it is difficult to accurately predict whether approval will be acquired and the timing of the acquisition. The development of compounds currently in the new drug pipeline might be halted in the event that problems with effectiveness or safety are found in clinical trials or other tests or in the event that they are not expected to be profitable. In the event that R&D investment does not lead to the sales of new drugs, there could be a significant influence on the Group's financial position or results. Risks related to adverse drug reactions Clinical trials conducted prior to the receipt of approval for a new drug are implemented with a limited number of test subjects, and from the information obtained prior to approval, it is not possible to know everything about safety in post-marketing use. At the stage of widespread post-marketing use, it is possible that there will be reports of new adverse drug reactions that had not been experienced previously. Risks related to the health insurance system In Japan, the official drug price system, which is a part of the health insurance system, has an -11-

12 enormous influence on the sale of ethical drugs. Continued pharmaceutical expense reduction measures are being implemented in Japan, and drug price standards are revised about once every two years. Accordingly, it is possible that a situation will develop in which it is difficult to secure the expected business results. Further, from the viewpoints of improving healthcare and separating medical functions, fundamental reform of the health insurance system is under way. The details of these reforms could have an adverse influence on the Group's financial position or results. Risks related to product sales The Company's pharmaceutical products include 14 products with annual sales of more than 10.0 billion, which accounts for more than 70% of sales. In the future, in the event of the emergence of factors such as the launch of competing similar, new products or generic products, the launch of innovative new drugs or new technologies that lead to new methods of treatment, or the announcement of new evidence that lead to a relative change in the position of the Company's products, including the products mentioned above, in clinical treatment, and to a decline in sales, the Group's financial position or results could be significantly affected. Risks related to intellectual property If the Group's business activities conflict with the patents or other intellectual property rights of other parties, it is possible that activities could be suspended or that there could be a legal dispute. Also, in the event that the Group believes that its patents or other intellectual property rights have been infringed upon by another party, the Group might file lawsuits. As a result of these actions, there could be an influence on the Group's financial position or results. Risks related to tie-ups with other companies To use its management resources effectively, the Group promotes joint research, joint development, product licensing, commissioned production, commissioned sales, joint promotion, and joint marketing in each business field, such as research, development, production, and marketing. However, certain contracts include capital covenants and non-compete provisions, and in the future, if the contracts are changed or the tie-ups dissolved due to unexpected changes in circumstances that arise, there could be an adverse influence on the Group's financial position or results. Risks related to production and stable supply Pharmaceutical companies have an obligation to provide a reliable supply of their products. Accordingly, the Group strives to secure sufficient inventories of products and raw materials and is working to respond to changes in demand. If, however, due to circumstances beyond the Group s control, there are problems with the procurement of raw materials or a long-term work stoppage at a plant due to such incidents as a disaster, the supply of products could be disrupted, with an adverse influence on the Group s financial position or results. a) In the event of the emergence of technical or legal/regulatory problems in production and distribution facilities, or in the event of operational stoppages or disorder due to fires, earthquakes, or other disasters, product supply could be delayed or stopped, and there could be an influence on the Group's results. b) For certain raw materials, the Group is dependent on specific sources of supply, and in the event that the supply is interrupted, production could be delayed and there could be a -12-

13 significant influence on the Group's financial position or results. Risks related to legal issues In the research and production of pharmaceuticals, there is a trend toward stricter regulations regarding product quality and the environment. In the event that these regulations are further tightened, there is a possibility that corresponding additional expenses will arise, which could have an adverse influence on the Group's financial position or results. Risks related to product liability It is possible that the Group will be responsible for potential product liability stemming from product research, development, manufacturing, or sales activities. The Group is covered by liability insurance, but in the event that claims exceeding the limits of this insurance coverage are approved, there could be a significant influence on the Group's financial position or results. Risks related to exchange rate fluctuations The Group also conducts business overseas, and items denominated in foreign currencies, including sales, expenses, and assets in each region, are converted to yen for the purpose of producing consolidated financial statements. As a result, fluctuations in the rates of exchange between the yen and other currencies could have a significant influence on the Group's financial position or results. Risks related to environmental safety In the event that, in the course of operations at work sites, soil, air, water, livestock, agricultural products, etc., are contaminated due to the leakage or discharge of chemical substances, radioactive substances, microorganisms, or viruses, the Group could face substantial legal and regulatory liability, including penalties. In regard to the discharge of greenhouse gases, in the event that appropriate controls and countermeasures are neglected, measures might include the public release of the Company's name. Also, in the event that health problems or damage are caused by the inappropriate control or handling of chemical substances, radioactive substances, biological materials, etc., it is possible that the Group could be held liable. Risks related to lawsuits a) The Japanese government, the Company, its subsidiary Benesis Corporation, and another party are defendants in lawsuits in which the plaintiffs seek compensation for damages allegedly suffered through HCV (hepatitis C virus) infection following use of a fibrinogen product or a blood coagulant factor IX product (Christmassin). In January 2008, Japan's government promulgated and put into effect a law providing relief to all people infected as described above (hereafter, the Relief Law). Accordingly, the Company and Benesis Corporation will continue working earnestly toward a complete settlement of these lawsuits. As a result, based on estimates of the people who will get payment and the amount of payment, etc., in accordance with the Relief Law, provision has been made for the estimated amount of the Company's burden in the reserve for HCV litigation, but based on the results of future consultations with the Minister of Health, Labour and Welfare regarding the method and allocation of the burden of the expense of the relief payments, etc., it is possible that there could be a significant influence on the Group's financial position or results. b) In regard to operational activities, in addition to adverse drug reactions, it is possible that the -13-

14 Group could face lawsuits regarding product liability, labor problems, fair trade, etc. As a result, there could be a significant influence on the Group's financial position or results. Risks related to information management The Group possesses large amounts of non-public information, including personal information, and in the event that information is leaked outside the Group due to system damage, accidents, etc., there could be an influence on the Group's results, such as a decline in reputation. The Group is working to ensure rigorous information control. In addition to formulating a privacy policy, in order to protect information, the Group has established countermeasures to prevent inappropriate system access and information leakage. Risks related to substantial upfront investment for the purpose of expanding overseas operations Substantial upfront investment is necessary to expand and advance overseas operations, and it is possible that, due to changes in the laws and systems of each country or to the worsening of diplomatic relations, etc., the opportunity to recover that investment might be lost and operations under development might be affected. Major assumptions regarding operational activities Ethical pharmaceutical operations are the Group's principal business operation. In accordance with the Pharmaceutical Affairs Law, the Group has obtained licenses for drug manufacturing and sales, drug manufacturing, and wholesaling, and the Group conducts manufacturing and sales of ethical drugs and OTC drugs. The products handled include narcotics, psychotropic agents, etc., and the Group is subject to the provisions of the Narcotics and Psychotropic Substances Control Law and the Stimulant Drugs Control Law. Because the Group also handles medical devices, veterinary pharmaceuticals, and poisons / toxic substances, the Group is subject to the laws and regulations covering the sales of those products. In manufacturing drugs that are exported overseas, the Group is subject to the regulations of the Pharmaceutical Affairs Law. In addition, the Group is required to register the raw materials master file, etc., with the authorities in the importing counties and acquire import permission, local manufacturing permission, etc. The Group is also subject to the pharmaceutical legal/regulatory system in the exporting country, as well as the laws and regulations related to customs clearance. In regard to these permissions, etc., they must be extended, etc., periodically, as determined by laws/regulations. Also, in the event of a violation of laws/regulations, it is possible that permissions, etc. The could be cancelled or the Group could be ordered to suspend all or a portion of operations for a specified period of time. At this point, the Group believes that there are no facts that would constitute a reason for cancellation, etc., of permissions, etc., but in the event that cancellation, etc., of permissions, etc., is ordered, there could be a significant influence on the Group's financial position or results. Transactions with parent company The Company's relationship with its parent company, Mitsubishi Chemical Holdings Corporation, and Mitsubishi Chemical Holdings Corporation's corporate group, includes the following transactions: procurement of raw materials, etc., and sales of chemical products, etc. conclusion of leases and consignment contracts for the sites of research facilities and plants and -14-

15 the buildings, etc., thereon, in Yokohama City, Kanagawa Prefecture; Kamisu City, Ibaraki Prefecture; and Kitakyushu City, Fukuoka Prefecture. payment as compensation for exclusive rights to intellectual property held by the corporate group of the parent company. conclusion of contracts for research outsourcing and information disclosure. Fundamentally, these transactions involve rational transaction terms decided upon following two-way negotiations conducted with reference to general market prices and are automatically extended unless one of the parties requests otherwise. Payment of compensation for exclusive rights will end on September 30, 2009, but those rights will extend beyond October 1, 2009, and will not be cancelled without the Company's agreement. In addition, a contract has been concluded with Mitsubishi Chemical Holdings regarding the burden of operational expenses, and for enjoyment of benefits based on the brand value and comprehensive strengths of Mitsubishi Chemical Holdings, the Company is responsible for certain expenses arising in regard to the operation of Mitsubishi Chemical Holdings. However, in all of the above cases, the expenses are an insignificant percentage of the Company's total expenses. The policy is to continue these transactions, etc., in the future, but in the event of changes in the contracts or details of the transactions with the Mitsubishi Chemical Holdings Group, there could be a significant influence on the Mitsubishi Tanabe Pharma Group's results or financial position. There are risks other than those described above, and the risks listed here do not include all of the risks faced by the Group. -15-

16 2. Consolidation of Corporate Group As of the end of March 2008, the Mitsubishi Tanabe Group comprised 41 companies: Mitsubishi Tanabe Pharma Corporation (the Company), its parent company, 34 subsidiaries (32 consolidated, 2 non-consolidated), and 5 affiliates. The Group's core operations and the roles of Group companies in regard to those operations are shown below. [Pharmaceuticals] Domestic The Company, manufacturing subsidiaries Tanabe Seiyaku Yamaguchi Co., Ltd., Benesis Corporation, MP-Technopharma Corporation, and other Group companies manufacture and purchase pharmaceuticals. Except for certain products, the products are sold by the Company. Certain products are supplied in bulk form from API Corporation. Certain sales activities for the Company's products are handled by Yoshitomi Yakuhin Corporation's medical representatives. On April 1, 2008, the Company established Tanabe Seiyaku Hanbai Co., Ltd. which will focus on promoting and marketing generic drugs. Overseas In North America, MP Healthcare Venture Management, Inc. invests in recently launched bio-venture companies. The Company outsources a portion of its R&D operations to Tanabe Research Laboratories U.S.A., Inc., and Mitsubishi Pharma America, Inc. In Asia, Tianjin Tanabe Seiyaku Co., Ltd., Mitsubishi Pharma (Guangzhou) Co., Ltd., Welfide Korea Co., Ltd., and P.T. Tanabe Indonesia manufacture and sell pharmaceuticals in their regions. Except for certain products, products manufactured by Tiawan Tanabe Seiyaku Co., Ltd. are sold locally by Tai Tien Pharmaceuticals Co., Ltd. In Europe, Tanabe Europe N.V. conducts sales and Mitsubishi Pharma Deutschland GmbH. conducts manufacturing and sales. The Company also outsources certain R&D operations to Mitsubishi Pharma Europe Ltd. [Other business] Domestic API Corporation, ARKEMA Yoshitomi, Ltd., and other companies conduct manufacturing, purchasing, and sales of fine chemical products. Products handled by ARKEMA Yoshitomi, Ltd., excluding certain products, are sold through API Corporation. Overseas In the U.S., Tanabe U.S.A., Inc. sells fine chemical products. -16-

17 [Japan] [North America] R&D Tanabe Research Laboratories U.S.A., Inc. Mitsubishi Pharma America, Inc. Others MP Healthcare Venture Management, Inc. Tanabe Holding America, Inc. And other three companies [Asia] Manufacturing/Sales Tianjin Tanabe Seiyaku Co.,Ltd. Mitsubishi Pharma (Guangzhou) Co.,Ltd. Welfide Korea Co.,Ltd. Taiwan Tanabe Seiyaku Co.,Ltd. P.T. Tanabe Indonesia Pharmaceutical Segment Manufacturing/Sales Tanabe Seiyaku Yamaguchi Co.,Ltd. Tanabe Seiyaku Yoshiki Factory Co.,Ltd. Benesis Corporation MP-Technopharma Corporation BIPHA CORPORATION R&D Tanabe R&D Service Co.,Ltd. Medical Representatives Yoshitomi Yakuhin Corporation Supply of raw materials/products R&D Mitsubishi Pharma Research & Development (Beijing) Co.,Ltd. Parent Company Mitsubishi Chemical Holdings Corporation Supply of raw materials/products Commissioning of testing, etc. Commissioning of Medical Representatives Commissioning of R&D etc. Commissioning of R&D Mitsubishi Tanabe Pharma Corporation Supply of raw materials Supply of raw materials/products Outsourcing Service etc. Other Business Segment [Japan] Manufacturing/Sales API Corporation Supply of products Manufacturing/Sales ARKEMA Yoshitomi, Ltd. Manufacturing/Sales Sun Chemical Co.,Ltd. Tama Kagaku Kogyo Co.,Ltd. Real estate management and etc. Tanabe Total Service Co.,Ltd. Welfide Service Corporation Distribution and Warehouse management etc. MP-Logistics Corporation Others Fujikousan Corporation Ogura Art Printing Co.,Ltd. Koei Shoji Co.,Ltd. And another one company [Europe] Sales Tanabe Europe N.V. Manufacturing/Sales Mitsubishi Pharma Deutschland GmbH. Synthelabo-Tanabe Chimie S.A. Supply of products Sales Tai Tien Pharmaceuticals Co.,Ltd. Supply of raw materials/products Supply of products [North America] Sales Tanabe U.S.A.,Inc. R&D Commissioning of R&D Mitsubishi Pharma Europe Ltd. Consolidated subsidiary Affiliated company accounted for by the equity method -17-

18 3. Management Policies 1 Fundamental Corporate Policy Management philosophy The Group's fundamental approach is based on the universal values of protecting the health of people around the world and contributing to comfortable lifestyles through the creation of pharmaceuticals. As a global, research-driven pharmaceutical company, we aim to earn wide-ranging confidence from society. Based on the Company's philosophy, the corporate behavior charter spells out the top priority activities for all directors and employees in the Mitsubishi Tanabe Pharma Group in the implementation of business activities targeting the realization of the Company's vision. <Philosophy> We contribute to the healthier lives of people around the world through the creation of pharmaceuticals. <Vision> We strive to be a global research-driven pharmaceutical company that is trusted by communities. <Corporate Behavior Charter> We will maintain high ethical standards, place priority on fairness and integrity in all activities, and act in accordance with the following guidelines. Pride and Sense of Mission As people involved in the creation of pharmaceuticals, we will work with pride and a sense of mission as we endeavor to research and develop pharmaceuticals that are needed by society and to ensure product safety and quality. Challenge and Innovation With acute sensitivity and a broad perspective, we will focus on our future direction, decisively take on the challenge of meeting higher goals, and strive to create innovative value. Trust and Teamwork Through free and open communication, we will promote mutual understanding and respect, and we will emphasize teamwork as we strive to maximize our results based on strong relationships of trust. Harmonious Coexistence We will work to achieve harmonious coexistence with society by acting with consideration for local communities and the environment. -18-

19 Basic strategies The Mitsubishi Tanabe Pharma Group will implement R&D targeting the creation of global new drugs and will use its business platform, which was strengthened by the merger, to accelerate the development of its overseas operations. The Group will strive to establish as rapidly as possible a position as a global, research-driven pharmaceutical company that is focused on the future. In addition, in response to changes in the medical environment, the Company will aggressively take on the challenges presented by new business opportunities, such as generic drugs and personalized medicine. In these ways, Mitsubishi Tanabe Pharma Corporation will aggressively strive to contribute to the health of people around the world and to maximize its enterprise value. 2 Business Objectives The Group has formulated the Medium-Term Management Plan Dynamic Synergy for , and established the following numerical objectives. Fiscal 2010 Management Targets (consolidated) Fiscal 2010 Targets (billions of yen) reference Fiscal 2010 Targets announced May 2007 Net sales Operating income Net income R&D expenses The fiscal 2010 objectives announced in May 2007 were net sales of billion, operating income of billion, and net income of 60.0 billion. In formulating the plan, the Group reexamined numerical objectives in light of changes in the market environment and reevaluated the profit/cost structure to achieve the optimal allocation of resources to R&D. As a result, objectives were revised to net sales of billion, operating income of 95.0 billion, and net income of 56.0 billion. (3 Medium-to-Long-Term Strategies and Challenges In the pharmaceutical industry, with the launch rate of products under development declining worldwide, R&D expenses are increasing. Both the development of new drugs in limited fields and the marketing of drugs global markets are characterized by intensifying competition. Also, accompanying progress in medicine and drug discovery technology, the risk of sudden obsolescence of conventional drug discovery technologies is increasing. The Group, in response to these issues, has established fiscal 2015 objectives and formulated the Medium-Term Management Plan Dynamic Synergy for 2015-, which is the three-year plan for meeting those objectives. -19-

20 Medium-Term Management Plan Dynamic Synergy for 2015 Key Concept: Dynamic Synergy Mitsubishi Tanabe Pharma Corporation takes on the challenge of making Dynamic Synergy a reality. To the Company, Dynamic Synergy means making full use of abundant management resources, bringing together the expertise and energy of all employees throughout the Company, and creating new business domains and business models. Fiscal 2015 Objectives To realize our vision, we formulated the following fiscal 2015 objectives: Establish a R&D pipeline capable of launching one product every two years, with a focus on the metabolic and circulatory disease areas Establish a top level position in the domestic ethical drug market by launching and cultivating major products Establish in-house sales structure in the U.S. and achieve overseas drug sales of more than 100 billion Establish competitive superiority through the creation of differentiated business models Medium-Term Issues and Action Plan Targeting the achievement of its fiscal 2015 objectives, the Group has identified the key management issues for the period to fiscal 2010, and will strive to make steady progress. Improving the Company's domestic sales presence With maximization of the value of Remicade and the Company's chief growth driver through playing a key role, the Group will work to increase specialized knowledge of cerebrovascular drugs, particularly for Radicut (brain protecting agent), GRTPA (tissue plasminogen activator), and Novastan (selective thrombin inhibitor), and, following the completely integration of MR systems, work to expand sales of key products through tie-ups with institution-based MRs and field-specific MRs and through separate acute/chronic promotion systems. Steady progress in key development projects Targeting the launch of a new growth driver from fiscal 2011, the Company has positioned MC-196 (hyperphosphatemia) and MP-146 (chronic kidney disease) in the U.S. and Europe, and MP-424 (chronic kidney disease), MP-513 (diabetes) and TA-7284(diabetes) in Japan, as key development projects. The Company will strive to make steady progress in their development. Progress in developing overseas pharmaceutical operations Targeting the launch of MCI-196 and MP-146, which the Company plans to sell through its own sales system, the Company will start to build a U.S. sales system and to conduct pre-marketing activities targeting nephrologists and dialysis specialists. In Europe, the Company will reinforce the market position of Argatra (generic name: argatroban), which has already been launched in 6 countries, and will proceed with preparations for the launch of MCI-196 and MP-146. In Asia, the Company will utilize its operational foundation in China, -20-

21 Korea, Taiwan, and Indonesia to increase sales of products sold via its own sales network. Progress in generic drugs operations In April 2008, the Company established Tanabe Seiyaku Hanbai Co., Ltd., a generic drug marketing subsidiary. The Company will work to further strengthen its back-up systems to provide health care professionals and patients with reliable generics that they can trust. Through alliances, Mitsubishi Tanabe Pharma Corporation will work to enhance its lineup, including injectable formulations, as rapidly as possible. Creating an efficient organization and cost structure The first post-merger issue the Company addressed was the achievement of a lean, efficient organization and cost structure through the pursuit of cost synergies. The Company has defined the directions it will take in the consolidation of bases, centered on head offices (Osaka, Tokyo) and research facilities, the consolidation of production related companies and domestic service companies, and the establishment of an optimally sized workforce, and the Company will move forward accordingly. (4 Response to the HCV Issue Since 2002, the Company and its subsidiary Benesis Corporation, together with the Japanese government and other parties, have been defendants in lawsuits in which the plaintiffs seek compensation for damages allegedly suffered through HCV (hepatitis C virus) infection following use of a fibrinogen product or a blood coagulant factor IX product (Christmassin) sold by the former Green Cross Corporation, one of the predecessors of the Company. In regard to these lawsuits, the Company has disputed its legal responsibility, but on January 16, 2008, Japan's government promulgated and put into effect a law providing relief to people who contracted hepatitis C from specific fibrinogen product or specific coagulation factor IX products. Accordingly, to reach a resolution of the lawsuits, the Company is committed to continued earnest engagement with plaintiffs. -21-