Building Bridges to Long-Term Growth

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1 N o 7 Building Bridges to Long-Term Growth Tanabe is working to realize its corporate philosophy of contributing to people over the world desiring to live healthy and securely through pharmaceuticals and pharmaceutical-related products and services. To that end, the resources generated by operational activities are used to support R&D for future growth and to strengthen marketing activities. In this way, we are working to develop and market safe, effective drugs that meet medical needs. In this section, we introduce our key management challenges, organized by time frame. 1 Short-Term Challenge Expanding Remicade s Market Presence 2 Short- to Medium-Term Challenge Developing and Launching Roflumilast 3 Medium- to Long-Term Challenge Rapidly Developing Original Products 4 Long-Term Challenge Bolstering Drug Discovery

2 N o 8 Building Bridges to Long-Term Growth Remicade s Growth (Billions of Yen) Rheumatoid arthritis Crohn s disease /4 2003/4 2004/4 2005/4 2006/4 May Crohn s disease (in remission) Crohn s disease (maintenance) July Rheumatoid arthritis Behcet s disease (July 2003 application) New indications, such as ulcerative colitis Expanding Remicade s Tanabe is working on a companywide basis to steadily develop Remicade, which is an innovative treatment for Crohn s disease and rheumatoid arthritis, and to build it into a major drug as rapidly as possible. OVERVIEW OF REMICADE Treatment of Crohn s disease and rheumatoid arthritis (anti-tnf chimeric monoclonal antibody) Launched: 2002 Origin: Centocor (U.S.) Development: Tanabe Remicade s Market Position Remicade (infliximab), which was licensed-in from Centocor, can contribute to improving patients quality of life, and one of Tanabe s key challenges is to steadily build Remicade s presence in the domestic market and develop it into a major new drug as rapidly as possible. In this way, Remicade will drive our growth over the short term and enable us to generate the resources needed for the R&D of products discovered in-house. Overseas, Remicade has been approved in more than 80 countries, including countries in Europe and North America, and it has been used by more than 630,000 patients. Remicade shows dramatic effects in Crohn s disease and rheumatoid arthritis, even in cases that did not respond to previous treatments. Remicade s Strengths and Innovativeness as a Treatment for Rheumatoid Arthritis Many rheumatoid arthritis patients suffer from severe joint pain and loss of activities of daily living arising from the joint damage. As a treatment for rheumatoid arthritis, Remicade, the first anti-tnf chimeric monoclonal antibody, is an innovative drug with distinctive effectiveness. It prevents the progression of joint damage and improves joint pain and swelling very promptly. Tanabe Seiyaku Co., Ltd.

3 N o 9 Over the past year, we assigned about 70 Remicade area managers throughout Japan and aggressively conducted postmarketing surveillance. In the future, we will make use of this valuable data as we implement full-fledged marketing activities and work to foster the use of Remicade throughout the country as a highly reliable treatment for rheumatoid arthritis. Remicade area manager Market Presence Current State of the Rheumatoid Arthritis Market in Japan In Japan, it is estimated that there are a total of one million patients with rheumatoid arthritis, about 300,000 of whom are receiving treatment for the disease. Conventional drugs for rheumatoid arthritis have not sufficient effectiveness in controlling inflammation, and patients had been waiting for the development of a drug with dramatic efficacy. Remicade, which has been prescribed to more than 630,000 patients around the world, has an extensive used experiences. It was first approved in 1998 in the United States for the treatment of Crohn s disease. In 1999, it received approval as a drug for rheumatoid arthritis used concomitantly with methotrexate (MTX) that improved the clinical symptoms of the disease. The drug is used for rheumatoid arthritis patients for whom MTX has not been sufficiently effective. In Japan, an estimated 110,000 patients are taking MTX preparations, and in the future the use of Remicade is expected to show significant growth. Results of Post-Marketing Surveillance Remicade is the first biological product in Japan that is a treatment for rheumatoid arthritis. To confirm its safety profile for Japanese patients, after an additional indication was approved in July 2003, we began all-patient post-marketing surveillance with a target of registering 5,000 patients taking Remicade for rheumatoid arthritis. Data has been collected and analyzed for 4,000 patients. The frequency and nature of side effects show no difference between the results of clinical studies performed in Japan and overseas. Remicade is becoming a standard treatment. Utilizing this important Japanese data, we will work to build sales of Remicade. Additional Indications and Sales Forecasts for Remicade In Japan, Tanabe began marketing Remicade in May 2002 for Crohn s disease, and an additional indication of rheumatoid arthritis was approved in July In addition, we filed an application for an indication of Behcet s disease in July In January 2005, we signed an addendum to our license agreement with Centocor for development and marketing rights in Japan for additional indications, including ulcerative colitis, psoriasis, and ankylosing spondylitis. To maximize the value of Remicade in meeting the medical needs related to these diseases, we will strive to expand its indications. In the year ending March 2006, we forecast sales of 13.0 billion for Crohn s disease and rheumatoid arthritis. We will strive to build sales to the 25.0 billion to 30.0 billion range as rapidly as possible, and build Remicade into a product that is a key source of revenues for the Company.

4 N o 10 Building Bridges to Long-Term Growth Number of COPD Patients in Japan 3.6% Patients Receiving Treatment 190, % Latent Patients 5,109,200 2 Total Number of Patients 5,300,000 Developing and Launching To launch Roflumilast as rapidly as possible, Tanabe is concentrating its management resources on the development of this innovative treatment for asthma and COPD. Roflumilast s Position In November 2002, we concluded an agreement to license Roflumilast and jointly develop and market it in Japan with Altana Pharma AG, of Germany, which is developing Roflumilast in the U.S. and Europe for the indications of asthma and COPD. Roflumilast is one of the products under development for which we have the highest expectations, along with Remicade. Launching Roflumilast and making it a major new drug as rapidly as possible is the key short- to medium-term challenge for the Company. Accordingly, to accelerate its development, we have given Roflumilast the top priority in the allocation of our management resources. Chronic Obstructive Pulmonary Disorder (COPD) Smoking is the cause of most cases of COPD, which is characterized by irreversible airway obstruction and an eventual decline in lung function. The main symptoms are coughing, phlegm, and shortness of breath (difficulty breathing) after exercise. In the United States, between 1965 and 1998, though the death rate from other diseases was declining, the death rate from COPD increased markedly. There is a strong need for a better treatment for COPD. Tanabe Seiyaku Co., Ltd.

5 N o 11 Roflumilast, a treatment for asthma and COPD, has the most important position in Tanabe s development pipeline. Our development staff members are accelerating development activities in preparation for the filing of an NDA so that Roflumilast, which is in the final stage of clinical development (phase II/III), can be launched and delivered to patients as soon as possible. Development supervisor Roflumilast The Strengths and Innovativeness of Roflumilast as a Treatment for COPD The symptoms of COPD include coughing, phlegm, and shortness of breath (difficulty breathing) after exercise, which basically includes diseases that until now have been diagnosed in Japan as chronic bronchitis and pulmonary emphysema. Worldwide, COPD was the fourth leading cause of death in 2004, and in the future the numbers of patients and deaths are expected to increase. Roflumilast is expected to be launched as the world s first PDE IV inhibitor with indications of both asthma and COPD, and with once-daily oral administration, its distinctive strengths include gains in patient satisfaction. The COPD Market in Japan and Roflumilast s Potential The number of deaths caused by COPD is also increasing each year in Japan, where it has a prevalence rate of 8.5% for people over 40, the same high level as many other countries. The number of patients receiving treatment was about 210,000 in 2002, and the number of latent patients, principally smokers, was estimated at 5.3 million, according to a NICE study in 2000 by Professor Yoshinosuke Fukuchi from Juntendo University. As the number of patients is expected to increase in the future, Roflumilast has the potential to contribute significantly to these patients quality of life. Roflumilast s Development Progress and Efforts Targeting a Rapid Launch Roflumilast s clinical efficacy has been confirmed by a large amount of overseas clinical data. In Europe, an NDA has been filed for indications of both asthma and COPD, and in the United States, Roflumilast is in the later stage of development (phase III). In Japan, phase II/III trials are under way for both asthma and COPD. In the development of Roflumilast in Japan, we are using a bridging strategy, where the overseas clinical trial data is used in the domestic NDA. We have given highest priority to the development of Roflumilast, with the goal of filing an NDA in 2006.

6 N o 12 Building Bridges to Long-Term Growth Concurrent Development in Japan, the United States, and Europe Europe United States In-house development TA-5538: NK-1 antagonist Japan In-house development In-house development TA-6666: DPP IV inhibitor 3 Cooperative venture / Licensing out TA-2005: Long-acting ß2 agonist (Chiesi Farmaceutici, of Italy) T-0047: Cell adhesion inhibitor (GlaxoSmithKline, of the U.K.) T-0128: DNA Topoisomerase I inhibitor (Menarini, of Italy) Joint venture TA-2711E: Gastrointestinal mucosa protecting agent (Tanabe AAI LLC, of the U.S.) Cooperative venture / Licensing out TA-1790: PDE V inhibitor (VIVUS, of the U.S.) Rapidly Developing Original To provide Tanabe-originated drugs to patients around the world, the Company is working to speed up development by improving the development process, bolstering overseas development bases, and pursuing joint research with European and U.S. companies. Strengthening Our Capability to Develop Original Drugs The Medium-Term Management Plan (April 2003 to March 2006) was formulated to achieve the goal of establishing our own position as an R&D-oriented, international company by Accordingly, to ensure that our products are used around the world, it is important that our development activities be accelerated. Specifically, through the development project management reforms that we began to implement in 2004, we are continually working through the PDCA (Plan, Do, Check, Act) cycle and striving to build a system that continually improves the development processes. In parallel, we are establishing our overseas bases so that early stage clinical trials can be conducted outside Japan as well. Global Clinical Development Covering Japan, the U.S., and Europe To deliver promising new drug candidates discovered in our research laboratories to the world market as rapidly as possible and to supplement the limited capabilities of our own overseas development bases, we are aggressively working with European and U.S. companies. Specifically, we have licensed products to and are conducting development with the following companies: Tanabe Seiyaku Co., Ltd.

7 N o 13 To enhance our ability to implement efficient, high-quality activities at each development stage, we are moving forward with the establishment of a triangled clinical development system, with bases in Japan, the United States, and Europe. At the same time, we are reforming our management of ethical drug development. In this way, our development staff is taking comprehensive steps to bolster new drug development capabilities, such as expanding the number of products under development, raising the success rate of development projects, and shortening development periods. Development staff member Products in the U.K., GlaxoSmithKline; in Italy, Chiesi Farmaceutici SpA and the Menarini Group; and in the United States, VIVUS. On the other hand, with the goal of conducting our own sales in Europe and the United States in the future, we are moving forward with the establishment of our own development organizations outside Japan. Currently, our development bases in Europe (London) and the United States (New Jersey) are conducting clinical trials and we continue to expand these bases and to internationalize our development operations. Products Being Developed by Tanabe Outside Japan Currently, we are conducting clinical trials with TA-6666, a DPP IV inhibitor, and TA-5538, an NK-1 receptor antagonist, in the United States and Europe. Through DPP IV enzyme inhibition, TA-6666 maintains a level of endogeneous GLP-1 and leads to the acceleration of the secretion of insulin accompanying the rise in blood glucose level after meal intake, but it does not influence insulin secretion under fasting conditions. It is looked forward to as a new treatment for diabetes that acts similarly to the physiological pattern. TA-6666 is in phase I clinical trials in the United States. Overactive bladder is one of the targeted indications for TA-5538, which selectively blocks the NK-1 receptor, the receptor for substance P. It reduces abnormal contraction of the bladder without influencing normal urination, and it is expected to be a treatment for overactive bladder. TA-5538 is currently in phase I trials in Europe. Strategy for Advancing Development Projects Tanabe s development projects include products developed in-house, products licensed-in from other companies, additional indications and new formulations/dosage forms of existing products for their life cycle management, and joint development products licensed to overseas companies. In consideration of such factors as a product s potential, its future marketability, and our strengths, we rank the priority of the projects, allocate resources to them, and move forward with efficient development. Moreover, the development strategies for in-house development projects will be flexibly determined as we select the optimal scenario for each project, such as in-house development, joint development, or licensing-out.

8 N o 14 Building Bridges to Long-Term Growth Research Portfolio New Drug Development Candidates 3 Disease Areas: Area 1 (Cardiovascular System, Diabetes, Hyperlipidemia) Area 2 (Central Nervous System, Urinary System, Gastrointestinal) Area 3 (Inflammation, Immunology, Allergy) Improved Drugs TANABE TRL Innovative Drugs Creating Transfer Compounds to Tanabe Area 0 (Projects Related to New Molecular Targets) University, Bio venture Pharmaceutical Johnson & Johnson of the U.S. (Diabetes) GlaxoSmithKline of the U.K. (Urinary Incontinence) Shanghai Phamaceuticals of China (Drug Discovery) Jichi Medical School, Cellartis of Sweden (Regeneration Research) Strategic Alliances 4Bolstering Drug Discovery Tanabe will work to discover new drug candidates that meet market needs by concentrating its resources on specific therapeutic areas and projects and by pursuing alliances with partners from industry, government, and academia in Japan and overseas. Tanabe s Research Strategy for New Drug Development Launching competitive products is important for the future growth of the company, and accordingly we are working to discover new drug candidates continuously. Our challenge for developing drugs in-house is to reinforce our focus on disease areas and research projects in accordance with companywide policies, and at the same time to aggressively participate in industrial, government, and academic alliances in Japan and overseas, thereby increasing our research productivity. In each important disease area, we will implement multiple research projects with different mechanisms of action and raise our success rate of new drug discovery. When we find a new drug development candidate, we will not slow down our research efforts on the project, but will continue working to discover backup compounds (second candidates for follow-up) in case of unexpected situations. We will allocate 20% of our research resources to the discovery of innovative drugs. At the Discovery Research Laboratories, established in April 2004, we are implementing several original research projects focused on new target molecules. Through these strategic measures, we will continue to discover promising new drug development candidates at a pace of two to three per year and make these the driver of our future growth. Tanabe Seiyaku Co., Ltd.

9 N o 15 To realize our mission of continuously discovering new drug development candidates with the potential for global markets, our research staff is conducting discovery research focused in three areas selected for concentrated efforts. In addition to finding improved new drugs, Tanabe also aggressively directs research resources to innovative new drugs, where the Company is working with internationally competitive research projects. Research staff member Current State of Global Strategic Alliances In-house research is the core of our drug discovery, however we are also aggressively participating in research collaboration with external research institutions and leading overseas pharmaceutical companies for the research of original new drugs. Our basic policies for research collaboration are to seek out win-win partnerships and Partners combined strengths. Currently, we are involved in multiple joint research projects with GlaxoSmithKline involving a number of disease categories. We are also conducting joint research with Johnson & Johnson for the diabetes area. We are in the second year of joint research in drug discovery with Shanghai Pharmaceuticals (Group) Co., Ltd., and we are making steady progress in research in the fields of asthma and pain control. Also, to facilitate progress in innovative new drugs, we are strengthening our tie-up with Tanabe Research Laboratries U.S.A. Inc. (TRL), our research subsidiary in the United States. Currently, research projects conceived and developed by TRL are making ongoing progress in research laboratories in Japan. Furthermore, in the leading-edge field of regenerative medicine, we will continue to conduct preclinical research into Parkinson s disease with Jichi Medical School and Cellartis AB, of Sweden. Recent Research Results The areas of focus for our research are (1) cardiovascular system, diabetes, hyperlipidemia (2) central nervous system, urinary system, and gastrointestinal, and (3) inflammation. immunology and allergy. We are striving to make steady progress in each individual research project and to thoroughly implement portfolio management for research projects in each disease area, and as a result we are starting to see steady results. In addition to products that are currently in phase I, such as an NK-1 receptor antagonist (treatment for Pollakiuria) and a DPP IV inhibitor (treatment for diabetes), we plan to advance several drugs to the clinical testing phase, including treatments for diabetes, urinary incontinence, and rheumatoid arthritis.