Company name: Mitsubishi Tanabe Pharma Corporation Stock exchange listings (Section):
4508
URL: http://www.mt-pharma.co.jp/
3-2-10, Dosho-machi, Chuo-ku, Osaka 541-8505
Representative: Name: Natsuki Hayama
Title: President and Representative Director For further information, please contact: Name: Yoshihisa Sasou
Title: General Manager, Corporate Communications Department Telephone: (06) 6205-5211
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
Yen million % change Yen million % change Yen million % change Yen million % change
Fiscal 2007 315,636 - 54,024 - 54,408 - 21,993
-Fiscal 2006 177,531 3.5 30,456 10.5 32,346 19.3 20,174 30.4
Net incomeper share
Net income per share (diluted) Return on equity Ordinary income / Total assets Operating income / Net sales Yen Yen % % % Fiscal 2007 50.12 - 4.9 9.6 17.1 Fiscal 2006 82.36 - 9.0 11.2 17.2
(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
Yen million Yen million % Yen
Fiscal 2007 Fiscal 2006
(Note) Shareholders' equity \653,229 million (\232,267 million in fiscal 2006) (3) Consolidated results of cash flows
Yen million Yen million Yen million Yen million
Fiscal 2007 Fiscal 2006
160,096 46,121 Cash flows from
financing activities
(4,829) (6,070)
21,419 (8,525) (6,059)
297,087 233,595 78.2 948.30
Net assets per share
807,261 667,808 80.9 1,163.96
Net income Net sales Operating income Ordinary income
Total assets Net assets Equity ratio
Securities code number: Headquarters:
38,096
Summary of Financial Results for year ended March 31, 2008
(Unaudited)
May 7, 2008 Tokyo, Osaka (First Sections)
Cash flows from operating activities
Cash and cash equivalents at end of the period Cash flows from
2. Dividends Total dividends Payout ratio Dividends / Net assets (Record date) 20-Sep Interim Year-end For the year (for the year) (consolidated) (consolidated)
Yen Yen Yen Yen Yen million % %
Fiscal 2006 - 12.00 12.00 24.00 5,878 29.1 2.6
Fiscal 2007 7.68 - 13.00 20.68 10,815 41.3 2.4
Fiscal 2008 - 14.00 14.00 28.00 40.3
(projected)
3. Forecasts for Fiscal 2008 (April 1, 2008 to March 31, 2009)
Yen million % change Yen million % change Yen million % change
Interim 206,000 - 33,500 - 34,000
-Full year 425,000 34.6 75,000 38.8 76,000 39.7
Net incomeper share
Yen million % change Yen
Interim 15,000 - 26.73
Full year 39,000 77.3 69.49
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
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 2007 561,417,916 shares Fiscal 2006 267,597,847 shares 2. Number of shares of treasury stock at the end of the period
Fiscal 2007 202,957 shares Fiscal 2006 22,666,769 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 50.
Ordinary income Dividends per share
Net income
Net sales Operating income
Five newly designated subsidiaries Bipha Corporation
Benesis Corporation
MP-Technopharma Corporation Other two companies
(Reference) Overview of Non-Consolidated Business Results 1. Results for Fiscal 2007 (April 1, 2007 to March 31, 2008) (1) Non-consolidated business results
Yen million % change Yen million % change Yen million % change Yen million % change
Fiscal 2007 269,067 - 49,080 - 52,152 - 23,521
-Fiscal 2006 169,930 3.9 28,550 10.2 30,597 16.3 19,399 30.0
Net incomeper share
Net income per share (diluted) Yen Yen Fiscal 2007 58.48 -Fiscal 2006 79.19
-(Notes) a. % figures show change from previous year
b. Amounts less than 1 million yen have been truncated. (2) Non-consolidated financial position
Yen million Yen million % Yen
Fiscal 2007 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.
Net assets Net assets per share
Net income Net sales
597,809 476,454
Operating income Ordinary income
(Note) Shareholders' equity \476,454 million (\226,785 million in fiscal 2006) Total assets
925.86
291,295 226,785 77.979.7 848.95
（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 2008.
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 ¥531.95.
1.
Business Results(1) Analysis of Business Results ① 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.
Consequently, results in the year under review were as follows.
(millions of yen)
Fiscal 2006 % Fiscal 2007 % Change
Net Sales 177,531 100.0 315,636 100.0 138,105 Pharmaceuticals 164,147 92.5 292,157 92.6 128,010 (Ethical drugs) 158,580 89.3 289,410 91.7 130,830 (OTC products) 5,567 3.1 2,747 0.9 （2,820） Other business 13,383 7.5 23,479 7.4 10,096 (Overseas sales) 17,271 9.7 27,695 8.8 10,424 Operating Income 30,456 17.2 54,024 17.1 23,568 Ordinary Income 32,346 18.2 54,408 17.2 22,062 Net Income 20,174 11.4 21,993 7.0 1,819
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.
② Segment information
Segment information was as follows.
（millions of yen）
Net Sales Operating Income
Fiscal 2006 Fiscal 2007 Change Fiscal 2006 Fiscal 2007 Change Pharmaceuticals 164,147 292,157 128,010 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-TNFαmonoclonal 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.
③ 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 DPPⅣ inhibitors MP-513 and TA-6666 and SGLT-2 inhibitor TA-7284. 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 Ⅱ 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.
④ 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.
⑤ 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 315,636 100.0 425,000 100.0
Operating Income 54,024 17.1 75,000 17.6
Ordinary Income 54,408 17.2 76,000 17.9
Net Income 21,993 7.0 39,000 9.2
・ 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.
⑥ 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.
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
① Assets, liabilities and net assets
【Consolidated Balance Sheets】 （millions of yen）
Fiscal 2006 Fiscal 2007 Change
Current assets 145,049 382,026 236,977
Fixed assets 152,037 425,235 273,198
Total assets 297,087 807,261 510,174
Liabilities 63,491 139,453 75,962
Net assets 233,595 667,808 434,213
Total liabilities and net assets 297,087 807,261 510,174
* 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.
② 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 46,121 160,096 113,975
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. ③ Cash Flow Indicators
Fiscal 2004 Fiscal 2005 Fiscal 2006 Fiscal 2007
Shareholders’ equity ratio（%） 75.8 77.7 78.2 80.9
Shareholders’ equity ratio (market price) (%)
98.4 113.8 132.2 80.7
Ratio of interest-bearing debt to cash flow (years)
0.1 0.0 0.0 0.2
Interest coverage ratio 799.7 1,462.5 2,364.0 325.6
*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.
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).
① 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.
② 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.
③ Risks related to the health insurance system
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.
④ 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.
⑤ 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.
⑥ 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.
⑦ 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
significant influence on the Group's financial position or results. ⑧ 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.
⑨ 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.
⑩ 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.
⑪ 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.
⑫ 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.
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.
⑬ 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.
⑭ 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.
⑮ 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.
⑯ 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.
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.
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）
★ Consolidated subsidiary
◎ Affiliated company accounted for by the equity method
Supply of raw materials/products [North America] Supply of products Supply of raw materials/products [Asia] [North America] [Japan] [Europe] [Japan] Parent Company
Mitsubishi Chemical Holdings Corporation
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
Supply of products Commissioning of R&D Outsourcing Service etc. Commissioning of R&D R&D ★Mitsubishi Pharma Research & Development (Beijing) Co.,Ltd. Commissioning of Medical Representatives Supply of raw materials Sales
★Tai Tien Pharmaceuticals Co.,Ltd. Supply of raw materials/products Commissioning of R&D etc. 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
Sales
★Tanabe Europe N.V. Manufacturing/Sales ★Mitsubishi Pharma
Deutschland GmbH.
◎Synthelabo-Tanabe Chimie S.A. R&D
★Mitsubishi Pharma Europe Ltd.
Supply of raw materials/products
Other Business Segment Manufacturing/Sales ★ARKEMA Yoshitomi, Ltd. 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
Manufacturing/Sales ◎Sun Chemical Co.,Ltd.
◎Tama Kagaku Kogyo
Co.,Ltd. Sales ★Tanabe U.S.A.,Inc. Supply of products 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
Mitsubishi Tanabe Pharma Corporation
Commissioning of testing, etc.
Manufacturing/Sales ★API Corporation
3. Management Policies
（1）Fundamental Corporate Policy ①Management 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.
②Basic 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 08-10 - Dynamic Synergy for 2015 -, and established the following numerical objectives.
■Fiscal 2010 Management Targets (consolidated)
(billions of yen) Fiscal 2010
Targets
（reference） Fiscal 2010 Targets announced May
2007
Net sales 460 480
Operating income 95 100
Net income 56 60 R&D expenses 82 87
The fiscal 2010 objectives announced in May 2007 were net sales of ¥480.0 billion, operating income of ¥100.0 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 ¥460.0 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 08-10 -Dynamic Synergy for 2015-, which is the three-year plan for meeting those objectives.
◆ Medium-Term Management Plan 08-10 −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. ■ 2008-2010 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.
① Improving the Company's domestic sales presence
With maximization of the value of Remicade and the Company's chief growth driver through 2010--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.
② 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.
③ 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,
Korea, Taiwan, and Indonesia to increase sales of products sold via its own sales network. ④ 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.
⑤ 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.
4. CONSOLIDATED FINANCIAL STATEMENTS (1) CONSOLIDATED BALANCE SHEETS
(millions of yen)
Amount % Amount % (B)-(A)
Assets
Current assets:
Cash and cash equivalents*3 38,197 79,655 41,458
Notes and accounts receivable *6 60,127 125,280 65,153
Marketable securities 19,372 55,634 36,262
Inventories 20,790 73,473 52,683
Short-term loans - 30,924 30,924
Deferred income taxes 4,036 12,664 8,628
Other 2,550 4,419 1,869
Allowance for doubtful receivables (23) (23) 0
Total current assets 145,049 48.8 382,026 47.3 236,977
Fixed assets:
Property, plant and equipment *1,3
Buildings and structures 22,584 51,320 28,736
Machinery and vehicles 5,724 23,698 17,974
Tools, furnitures and fixtures 2,759 5,991 3,232
Land 12,829 55,124 42,295
Construction in progress 1,535 3,377 1,842
Total property, plant and equipment 45,434 15.3 139,510 17.3 94,076
Intangible fixed assets:
Trademark 98 - (98)
Goodwill 98 145,550 145,452
Software 1,839 2,147 308
Other 174 1,359 1,185
Total intangible fixed assets 2,210 0.8 149,056 18.5 146,846
Investments and other assets:
Investment in securities *2 76,923 88,000 11,077
Long-term loans receivable 1,034 183 (851)
Long-term prepaid expenses 417 1,003 586
Deferred income taxes 430 4,037 3,607
Prepaid pension expenses 20,655 33,988 13,333
Long-term deposits 3,000 5,740 2,740
Other *3,8 1,983 3,751 1,768
Allowance for doubtful receivables (51) (33) 18
Total investments and other assets 104,393 35.1 136,669 16.9 32,276
Total fixed assets 152,037 51.2 425,235 52.7 273,198
Total assets 297,087 100.0 807,261 100.0 510,174
Year Accounts
As of As of Increase
(Decrease) March 31, 2007 (A) March 31, 2008 (B)
(millions of yen)
Amount % Amount % (B)-(A)
Liabilities Current liabilities:
Notes and accounts payable 13,970 27,139 13,169
Short-term loans 11 6,741 6,730
Current maturities of long-term debt 30 1,240 1,210
Other accounts payable 7,668 18,206 10,538
Income taxes payable 9,674 15,271 5,597
Consumption taxes payable 648 990 342
Accrued bonuses 4,453 13,593 9,140
Accrued directors' bonuses 42 11 (31)
Reserve for sales returns 208 195 (13)
Reserve for sales rebates 303 4 (299)
Reserve for ｌosses on shutdown of plants - 830 830
Other 960 5,229 4,269
Total current liabilities 37,973 12.8 89,449 11.1 51,476
Long-term liabilities:
Long-term debt 90 170 80
Deferred tax liabilities 8,313 12,802 4,489
Accruedemployees' retirement benefits 11,744 16,928 5,184
Directors' retirement benefits 341 43 (298)
Reserve for health management
allowances for HIV compensation - 1,758 1,758 Reserve for health management
allowances for SMON compensation 4,891 5,093 202 Reserve for HCV litigation - 11,200 11,200
Other 136 2,010 1,874
Total long-term liabilities 25,518 8.6 50,004 6.2 24,486
Total liabilities 63,491 21.4 139,453 17.3 75,962 Net assets Shareholders' equity: Common stock 44,261 14.9 50,000 6.2 5,739 Capital surplus 48,137 16.2 451,184 55.9 403,047 Retained earnings 143,612 48.3 153,332 19.0 9,720 Treasury stock (22,270) (7.5) (209) (0.0) 22,061
Total shareholders' equity 213,741 71.9 654,307 81.1 440,566
Valuation and translation adjustments
Net unrealized gains on securities 18,811 6.3 1,511 0.1 (17,300)
Profit on deferred hedge 250 0.1 (841) (0.1) (1,091)
Foreign currency translation adjustments (536) (0.2) (1,748) (0.2) (1,212) Total valuation and translation
adjustments
18,525 6.2 (1,078) (0.2) (19,603)
Minority interests 1,327 0.5 14,579 1.8 13,252
Total net assets 233,595 78.6 667,808 82.7 434,213
Total liabilities and net assets 297,087 100.0 807,261 100.0 510,174 March 31, 2007 (A) March 31, 2008 (B)
Year Accounts
As of As of Increase
(millions of yen)
Amount % Amount % (B)-(A)
Net sales 177,531 100.0 315,636 100.0 138,105
Cost of sales *1 69,051 38.9 113,471 35.9 44,420
Reversal of reserve for sales returns 97 0.1 84 0.0 (13)
Gross profit 108,576 61.2 202,249 64.1 93,673
Selling, general and administrative expenses *2 78,120 44.0 148,225 47.0 70,105
Operating income 30,456 17.2 54,024 17.1 23,568
Non-operating income 2,633 1.4 2,844 0.9 211
Interest income 656 1,423 767
Dividend income 580 418 (162)
Rent income 34 204 170
Foreign exchange gains 926 - (926)
Equity in earnings of affiliates 70 - (70)
Other 365 799 434
Non-operating expenses 742 0.4 2,460 0.8 1,718
Interest expenses 9 110 101
Donations 168 482 314
Foreign exchange losses - 52 52
Losses on disposal of property, plant and equipment 263 552 289
Losses on disposal of inventories 159 197 38
Equity in losses of affiliates - 117 117
Other 141 950 809
Ordinary income 32,346 18.2 54,408 17.2 22,062
Special gains 1,598 0.9 1,965 0.7 367
Prefectural subsidies for companies located
in industrial parks - 1,027 1,027
Compensation received - 667 667
Gains on sales of property, plant and equipment *3 7 109 102
Gains on sales of investment in securities 1,554 99 (1,455)
Reversal of allowance for doubtful receivables 36 16 (20)
Other - 47 47
Special losses 749 0.4 17,365 5.5 16,616
Provision for reserve for HCV litigation - 9,108 9,108
Merger-related expenses *4 687 4,904 4,217
Losses on shutdown of plants *5 - 1,638 1,638
Special retirement expenses - 1,122 1,122
Provision for reserve for health management
allowances for HIV compensation - 424 424
Losses on disposal of property, plant and equipment *6 - 98 98
Write-down of investment in securities 17 30 13
Losses on sales of investment in securities 14 1 (13)
Other 30 40 10
Income before income taxes and minority interests 33,195 18.7 39,008 12.4 5,813
Income taxes:
Current 14,020 7.9 20,023 6.3 6,003
Deferred (1,082) (0.6) (2,927) (0.9) (1,845)
Minority interests in losses of consolidated subsidiaries - - 81 0.0 81
Minority interests in earnings of consolidated subsidiaries (83) (0.0) - - 83
Net income 20,174 11.4 21,993 7.0 1,819
Increase (Decrease)
March 31, 2007 (A) March 31, 2008 (B)
(2) CONSOLIDATED STATEMENTS OF INCOME
Year Accounts
-(3) CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
April 1, 2006 - March 31 , 2007 (millions of yen)
Common stock
Capital surplus
Retained
earnings Treasury stock
Total shareholders'
equity
44,261 48,134 128,844 (22,193) 199,047
Cash dividends declared* (2,449) (2,449)
Cash dividends declared (2,939) (2,939)
Bonuses to directors* (34) (34)
Net income 20,174 20,174
Repurchase of common stock (83) (83)
Retirement of treasury stock 2 6 9
Increase due to change in fiscal
year-end of consolidated subsidiaries 17 17
Changes in other than shareholders' equity during the period
- 2 14,767 (76) 14,693 44,261 48,137 143,612 (22,270) 213,741 Net unrealized gains on securities Profit on deferred hedge Foreign currency translation adjustments Total valuation and translation adjustments 19,861 - (779) 19,081 1,229 219,358
Cash dividends declared* (2,449)
Cash dividends declared (2,939)
Bonuses to directors* (34)
Net income 20,174
Repurchase of common stock (83)
Retirement of treasury stock 9
Increase due to change in fiscal
year-end of consolidated subsidiaries 17
Changes in other than shareholders'
equity during the period (1,049) 250 243 (555) 98 (457)
(1,049) 250 243 (555) 98 14,236
18,811 250 (536) 18,525 1,327 233,595
＊ Distribution of net profit as approved at the ordinary general meeting of shareholders held in June 2006.
Total Balance March 31, 2006
Balance March 31, 2007
Valuation and translation adjustments
Minority interests Shareholders' equity
Changes during the period
Total changes of the period
Balance March 31, 2006 Changes during the period
Total changes of the period Balance March 31, 2007
April 1, 2007 - March 31 , 2008
On October 1, 2007, the Company merged with Mitsubishi Pharma Corporation. Tanabe Seiyaku Co., Ltd. was the surviving company, and the merger was considered to be a reverse acquisition. The balance as of March 31, 2007, is the balance shown on the consolidated balance sheets of Mitsubishi Pharma Corporation.
(millions of yen) Common stock Capital surplus Retained earnings Treasury stock Total shareholders' equity 30,560 70,974 137,859 - 239,393
Cash dividends declared (6,520) (6,520)
Transfer from common stock to
capital surplus (24,822) 24,822
-Increase amount by merger 44,262 355,396 (196) 399,462
Decrease amount by exclusion of
consolidated subsidiaries (10) (10)
Net income 21,993 21,993
Repurchase of common stock (32) (32)
Retirement of treasury stock 2 19 21
Changes in other than shareholders' equity during the period
19,440 380,210 15,473 (209) 414,914 50,000 451,184 153,332 (209) 654,307 Net unrealized gains on securities Profit on deferred hedge Foreign currency translation adjustments Total valuation and translation adjustments 5,210 (0) (738) 4,472 9,377 253,242
Cash dividends declared (6,520)
Transfer from common stock to
capital surplus
-Increase amount by merger 1,464 400,926
Decrease amount by exclusion of
consolidated subsidiaries (10)
Net income 21,993
Repurchase of common stock (32)
Retirement of treasury stock 21
Changes in other than shareholders'
equity during the period (3,699) (841) (1,010) (5,550) 3,738 (1,812)
(3,699) (841) (1,010) (5,550) 5,202 414,566
1,511 (841) (1,748) (1,078) 14,579 667,808
Shareholders' equity
Balance March 31, 2007 Changes during the period
Total changes of the period Balance March 31, 2008
Valuation and translation adjustments
Total changes of the period Balance March 31, 2008
Minority
interests Total
Balance March 31, 2007 Changes during the period
(4) CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of yen) Apr.1, 2006 - Apr.1, 2007 - Increase Mar.31, 2007
(A) Mar.31, 2008(B) (Decrease)(B)-(A)
Cash flows from operating activities:
Net income before income taxes and minority interests 33,195 39,008 5,813
Depreciation and amortization 6,774 12,555 5,781
Amortization of goodwill 5,105 5,105
-Increase (decrease) in accrued employees' retirement benefits 40 411 371
(Increase) decrease in prepaid pension expenses (734) (7,166) (6,432)
Increase (decrease) in allowance for doubtful receivables (44) (117) (73)
Increase (decrease) in reserve for HCV litigation 9,108 9,108
-Interest and dividend income (1,236) (1,841) (605)
Interest expenses 9 110 101
Losses (gains) on sales and disposal of fixed assets 167 292 125
Losses (gains) on sales of investment in securities (1,540) (98) 1,442
Write-down of investment in securities 17 30 13
Equity in (earnings) losses of affiliates (70) 117 187
Prefectural subsidies for companies located in industrial parks (1,027)- (1,027)
Merger-related expenses 4,904 4,904
-Losses on shutdown of plants 1,638 1,638
-Special retirement expenses 1,122 1,122
-(Increase) decrease in notes and accounts receivable (6,008) 11,946 17,954
(Increase) decrease in inventories 49 (5,966) (6,015)
Increase (decrease) in notes and accounts payable (1,032) (7,711) (6,679)
Increase (decrease) in accrued payable (154) (2,540) (2,386)
Other, net 902 138 (764)
Subtotal 30,335 60,018 29,683
Interest and dividend received 1,222 1,674 452
Interest paid (9) (117) (108)
Merger-related expenses paid (5,940)- (5,940)
Special retirement expenses paid (1,834)- (1,834)
Income taxes paid (10,129) (15,705) (5,576)
Net cash provided by (used in) operating activities 21,419 38,096 16,677
Cash flows from investing activities:
Purchases of marketable securities (12,763) (706) 12,057
Proceeds from sales and redemption of marketable securities 12,109 6,411 (5,698)
Increase in time deposits (221) (10,042) (9,821)
Decrease in time deposits 116 10,184 10,068
Increase in long-term deposits (2,825)- (2,825)
Decrease in long-term deposits 1,006 1,006
-Purchases of property, plant and equipment (3,879) (8,583) (4,704)
Proceeds from sales of property, plant and equipment 86 232 146
Purchases of intangible fixed assets (903) (1,820) (917)
Purchases of investment in securities (7,000) (3,685) 3,315
Proceeds from sales and redemption of investment in securities 3,972 4,764 792
Other, net (42) 235 277
Net cash provided by (used in) investing activities (8,525) (4,829) 3,696
Year Accounts
Apr.1, 2006 - Apr.1, 2007 - Increase Mar.31, 2007
(A) Mar.31, 2008(B) (Decrease)(B)-(A)
Year Accounts
Cash flows from financing activities:
Net increase (decrease) of short-term loans (529) 887 1,416
Repayments of long-term debt (30) (1,327) (1,297)
Contribution from minority interest 4,163 4,163
-Payments for purchases of treasury stock (83) (32) 51
Proceeds from sales of treasury stock 21 21
-Dividends paid (5,385) (9,708) (4,323)
Other, net (30) (74) (44)
Net cash provided by (used in) financing activities (6,059) (6,070) (11)
Effect of exchange rate changes on cash and cash equivalents 89 (782) (871)
Increase (decrease) in cash and cash equivalents 6,924 26,415 19,491
Cash and cash equivalents at beginning of the period 39,249 85,182 45,933
Increase in cash and cash equivalents resulting from merger 47,255 47,255
Increase in cash and cash equivalents resulting from inclusion
of consolidated subsidiaries 1,277 1,277
Decrease in cash and cash equivalents resulting from
exclusion of consolidated subsidiaries (33)- (33)
Decrease in cash and cash equivalents accompanying
change in fiscal year-end of consolidated subsidiaries (51) 51-
BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS 1. Scope of consolidation
At the end of the consolidated fiscal year under review, there were 32 consolidated subsidiaries. The names of the principal consolidated subsidiaries are not presented here because they are included in the Consolidation of Corporate Group section on page 16.
Accompanying the merger of the Company with Mitsubishi Pharma Corporation in October 2007, 18 companies were added to the scope of consolidation.
Also, on April 1, 2007, consolidated subsidiary Tanabe Total Service Co., Ltd., acquired consolidated subsidiaries Ace Art Co., Ltd., and Tanabe Seiyaku Engineering Co., Ltd.
Tanabe Seiyaku Malaysia, which was previously a consolidated subsidiary, and one other company were removed from the scope of consolidation for the fiscal year under review because they have limited significance in regard to influencing rational judgments about the Group’s financial position and results.
On April 1, 2008, the Company established Tanabe Seiyaku Hanbai Co., Ltd., which will focus on promoting and marketing generic drugs.
2. Application of the equity method
Five companies, including Tama Kagaku Kogyo Co., Ltd., and Synthelabo-Tanabe Chimie S.A., are accounted for by the equity method.
Tanabe AAI LLC was liquidated in June 2007 and removed from the group of equity method affiliates during the consolidated fiscal period under review.
There are two subsidiaries that are not consolidated, Tanabe Seiyaku Malaysia and another company, which were removed from the scope of consolidation for the fiscal year under review. Because the net income and retained earnings of these companies are insignificant, they are not accounted for by the equity method.
3. Year-end of consolidated subsidiaries
Eighteen overseas consolidated subsidiaries have fiscal years ending December 31. Since the difference between that date and the end of the Company's fiscal year is not greater than three months, the accounts of these subsidiaries as of December 31 have been used in preparing the Company's consolidated financial statements, with adjustments made as necessary to account for significant transactions occurring between December 31 and the end of March.
year ending September 30. In consolidating the accounts, the Company uses a provisional settlement of the accounts of ARKEMA Yoshitomi, Ltd., as of the consolidated settlement date.
4. Significant accounting policies
(1) Basis and method of valuation of major assets a. Marketable securities:
-- Held-to-maturity debt securities are carried at amortized cost.
-- Available-for-sale securities with available fair market values are stated at fair market value as of the closing date for this fiscal year. Unrealized gains and losses on these securities are reported, net of applicable income taxes, as a separate component of net assets. The cost of securities sold is determined by the moving average method.
-- Other securities with no available fair market value are stated at moving average cost.
-- Investment limited partnerships are stated at moving average cost. Operational profit and loss of the partnership or unrealized gains and losses on available-for-sale securities held by the partnership is recorded in the consolidated financial statements pro rata to the Company’s ownership percentage.
b. Derivatives:
-- Derivatives are stated at fair market value. c. Inventories:
Merchandise: Primarily valued by the lower of weighted average cost or market value.
Finished products: Primarily valued by the lower of weighted average cost or market value.
Raw materials and supplies: Primarily valued by the weighted average cost. (2) Depreciation and amortization of major fixed assets
a. Property, plant and equipment:
Depreciation of property, plant and equipment is calculated primarily by the declining-balance method using rates based on the estimated useful lives of the assets. Buildings (excluding equipment attached to the buildings) acquired after April 1, 1998 are depreciated using the straight-line method.
