Message from Management

Striving to Create New Value

Chief Executive OfficerAkira Uehara

Photograph of Akira Uehara, President and CEO

Introduction

The global spread of COVID-19 has led to one of the greatest crises we have faced for many years and there is still no end in sight. I would like to express my deepest condolences and sympathies to all those affected as well as my sincerest respect and appreciation to all essential personnel providing daily support, from frontline medical professionals to staff in pharmacies and drugstores.

Our Company will remain vigilant about the lingering effects of the pandemic and seek to minimize the impact on business by implementing thorough risk management.

Analysis of the Business Environment

I believe there are currently two major characteristics depicting the times we live in.

First, globalization is bringing change to society. Advances in intellect, monetary systems, goods, information, technology and medical care have helped enhance affl uence while also leading to rapid population growth, increased longevity and a society where the customer is king and consumer preferences determine the production of goods and services. At the same time, I believe the affl uence is skewed, evident in widening disparities in wealth, education and information between regions, as well as issues with resources and the environment, particularly in terms of overhunting and overfi shing, climate change and energy-related problems.

Second, we are shifting to a new kind of society. The Sustainable Development Goals (SDGs) were adopted at the United Nations Summit in September 2015 as a means to deal with the many issues the world is facing, including poverty, hunger, health and welfare, the environment and social justice. Every industry is now required to move away from traditional business models in order to resolve these issues. In Japan, "Society 5.0" is being advocated as a future society to aim for in order to drive economic development and fi nd solutions to social challenges. It is thought that digital technology will be at the forefront of connecting people and objects so that knowledge and information can be shared to create a new society that balances economic progress with the resolution of social issues. Going forward, I believe we are moving toward an era in which existing industries may not survive under conventional business models and will therefore need to either reform or evolve the way business is done.

Taisho Pharmaceutical Group's Initiatives

Looking back at fiscal 2019, I believe it was a year of transformation for us. We implemented an early retirement program in fiscal 2018 aimed at establishing a robust structure that enables us to respond effectively to changes in the market environment. Fiscal 2019 was the first year in which we pursued and embarked on highly efficient working styles under this new structure. Further, France-based UPSA and Vietnam-based Duoc Hau Giang Pharmaceutical (DHG) were made subsidiaries, and efforts to expand overseas served to cultivate new business foundations. As a result, the ratio of overseas sales stood at 24.1% in fiscal 2019, with projections for this figure to rise to at least 30% in fiscal 2020 on a fullyear consolidated basis. The addition of the new subsidiaries has increased the number of employees by around 4,500 and approximately half of the Group's personnel are now non-Japanese as we move toward a more diverse, global-oriented human resource structure.

We will also continue with our challenge to create new value. To achieve this, it is important to always have a firm grasp of trends, as I mentioned earlier, and to move forward one step at a time toward our goals while taking advantage of the opportunities the new era brings.

The business environment has changed for the Self-Medication Operation Group domain since certain retailers have grown through mergers and acquisitions, thereby strengthening the power of the buyer. There has also been a significant increase in Foods for Specified Health Uses and Foods with Function Claims, with the scale of the market closing in on ¥2 trillion. On the other hand, consumers are required to embrace a new way of thinking where "one is responsible for protecting one's own health" against a backdrop of healthcare financing and a social security system geared toward a rapidly aging society. To put this idea into action, steps are being taken to further propagate Japan's self-medication tax system, led by various industry groups. In this environment, we will develop products and cultivate sales channels that meet changing consumer needs and purchasing behavior, promote product development in the switch OTC and selfmedication fields, and create a sales system that can cater to changes in the retail sector.

In overseas business, it is first necessary to efficiently integrate UPSA and DHG as members of the Taisho Pharmaceutical Group as quickly as possible. Going forward, we will strive to merge quality control, manufacturing control and information management functions through a two-pronged structure that combines the European market with the Southeast Asian market as well as boost uptake of the self-medication concept and expand business by leveraging our model for product development, brand development and marketing know-how built in Japan to grow the market.

In the Prescription Pharmaceutical Operation Group domain, methods of research, examination and treatment have changed with new objectives for pharmaceutical development and advancements in new medical technology. In addition, generic drugs are becoming increasingly popular as a means to decrease medical expenses while reforms continue to be made in the NHI drug price system. Amid such a market environment, we are focused on maximizing our original products Lusefi and LOQOA, and introducing entities and products in the late development stage to supplement the pipeline. In the medium to long term, we will strengthen collaboration with outside research institutes and other companies, and expand R&D functions by incorporating advanced technologies with the aim of driving sustainable growth through new drug creation.

In Closing

In the increasingly challenging business environment of the pharmaceutical industry, growth is not possible without actively responding to these changes. The Taisho Pharmaceutical Group will promote new initiatives to search for novel new business ideas that transcend our existing business domains.

Taisho Pharmaceutical Holdings will work to strengthen corporate governance as we create a framework that enables agile management decision-making in response to any change in the environment, and thus enhance our ability to create value throughout the Taisho Pharmaceutical Group.

Finally, I would like to express our sincere thanks to everyone and ask for your continued understanding and support.

October, 2020