Eyeing Further
`
`Specialization
`
`Annual Report 2013
`Year Ended March 31, 2013
`
`Micro Labs Exhibit 1053
`Micro Labs v. Santen Pharm. and Asahi Glass
`IPR2017-01434
`
`

`

`C O N T E N T S
`
`Santen’s Values
`
`Santen’s Strengths and Strategic Vision
`
`Consolidated Financial Highlights
`
`President and CEO’s Message
`Feature: Rising to the Challenge of
`Satisfying Unmet Medical Needs
`
`Research and Development
`
`Pipeline of Prescription Pharmaceuticals
`
`Review of Operations Domestic Operations
`
`Review of Operations Overseas Operations
`
`Corporate Social Responsibility
`
`Corporate Governance
`
`Board of Directors,
`Corporate Auditors and Corporate Officers
`
`Financial Section
`
`Corporate Information/Stock Information
`
`Business Bases
`
`History
`
`1 2 4 6
`
`12
`
`18
`
`20
`
`24
`
`30
`
`32
`
`36
`
`40
`
`41
`
`77
`
`78
`
`80
`
`NOTE CONCERNING GRAPHS
`Graphs in this annual report are based on fiscal years ended March 31,
`if no note is specified.
`
`NOTE CONCERNING DATA
`Some information in this annual report is based on IMS data (JPM).
`Source: ©2013 IMS Health
`Santen analysis is based on IMS-JPM data from April 2008 to March 2013.
`All rights reserved.
`
`CAUTION CONCERNING FORWARD-LOOKING
`STATEMENTS
`This annual report contains forward-looking statements regarding the
`Company’s plans, outlook, strategies and results for the future. All
`forward-looking statements are based on judgments derived from the
`information available to the Company at the time of publication. Certain
`risks and uncertainties could cause the Company’s actual results to
`differ materially from any projections presented in this report. These risks
`and uncertainties include, but are not limited to, the economic
`circumstances surrounding the Company’s businesses, competitive
`pressures, changes in related laws and regulations, status of product
`development programs and changes in exchange rates.
`
`Micro Labs Exhibit 1053-2
`
`

`

`Santen’s Values
`Core Value
`
`Tenki ni sanyo suru
`
`1
`
`We think carefully about what is essential,
`decide clearly what we should do, and act quickly.
`
`Mission Statement
`By focusing our efforts on ophthalmology and related
`areas, we develop scientific knowledge and organizational
`capabilities which are unique and original to Santen. We
`use our unique capabilities to contribute to patients and
`their loved ones, and consequently to society.
`
`1. Santen’s original interpretation of a passage from chapter 22 of Zhongyong (The Doctrine of the
`Mean) by Confucius, meaning “exploring the secrets and mechanisms of nature in order to
`contribute to people’s health.”
`
`Santen’s Values embody what the Company has continued to recognize
`
`as important since its foundation in 1890. Based on Santen’s Values—
`
`the essence of which is “tenki ni sanyo suru”—we have put in place a
`
`virtuous cycle of creation and innovation while contributing to the
`
`protection and improvement of eyesight and health as a specialty
`
`company in the ophthalmic and anti-rheumatic fields. Building on the
`
`scientific knowledge and organizational capabilities that Santen has
`
`nurtured for over 120 years, the Company will continue to contribute to
`
`society, working primarily for the benefit of patients and their loved ones.
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2013
`
`1
`
`1890
`
`Micro Labs Exhibit 1053-3
`
`

`

`Santen’s Strengths and Strategic Vision
`
`Prescription
`Anti-Rheumatic
`Pharmaceuticals
`
`8.3%
`
`Position in
`Japanese Market
`Disease-Modifying
`Anti-Rheumatic Drugs
`1
`
`No.2
`(Market Share 39.7%)
`
`2
`
`Business Domains
`We channel management resources into the
`specialized fields of ophthalmology and
`anti-rheumatics to create innovative drugs
`sought by the medical community and provide
`high-quality medical information based on
`market needs. In this way, we have enhanced
`Santen’s market reputation.
`
`Further Information
`P.12 Feature
`P.24 Review of Operations
`
`Prescription Ophthalmic Pharmaceuticals
`(Sales Composition)
`
`83.1%
`
`Position in
`
`Over-the-Counter
`Pharmaceuticals
`
`Position in Japanese Market
`3
`
`5.4%
`No.2
`(Market Share 19.1%)
`Medical Devices 1.9%
`Others 1.3%
`
`Fiscal 2012 Net Sales
`
`¥119.1billion
`
`1
`
`Japanese MarketNo.1 Market Share
`35.3 %
`
`The number of ophthalmologists in Japan
`is currently around 13,000.
`Santen’s approximately 400-strong medical representative (MR) workforce
`strives diligently to call on virtually every one of Japan’s ophthalmologists
`to provide detailed pharmaceutical information.
`
`2011
`
`Fiscal 2011-2013 Medium-Term Management Plan
`
`2013
`
`Notes: 1. Market share and market position in Japan for the fiscal year ended March 31, 2013.
`The share and position for anti-rheumatic pharmaceuticals represent those in the DMARDs segment.
`Source: Santen analysis based on IMS-JPM data
`2. A class of medicines that are used not only to alleviate symptoms but also to treat the causes of disease. The anti-rheumatic effect works by calming
`inflammation through the correction of immune abnormalities, which are considered a cause of RA.
`3. Market share and market position in the Japanese OTC eye drop market for the fiscal year ended March 31, 2013. Source: Santen Pharmaceutical Co., Ltd.
`
`2
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2013
`
`Micro Labs Exhibit 1053-4
`
`

`

`Santen’s Strengths and Strategic Vision
`
`Annual Production Capacity of
`
`Ophthalmic Solutions300
`
`Approx.
`
`million bottles
`
`Global Business Expansion
`Santen maintains 13 bases spread across 10 countries,
`and its products are sold in over 50 countries worldwide.
`Santen produces around 300 million bottles4 of ophthalmic
`solutions each year at four plants—in Noto, Shiga, Suzhou
`(China) and Tampere (Finland). That makes us a world
`leader in the production of ophthalmic solutions.
`4. On a 5 mL bottle conversion basis
`
`Further Information
`P.30 Overseas Operations
`
`Countries in
`Which Products Are Sold
`
`Over
`
`50
`
`countries
`
`Our Long-Term Strategic Vision for 2020
`
`2020
`
`A Specialized Pharmaceutical
`Company with a Global Presence
`
`Strategic Vision
`Santen has set forth the goal of becoming a specialized pharma-
`ceutical company with a global presence as its long-term
`strategic vision for 2020. Santen is focusing its collective power
`to execute its Fiscal 2011–2013 Medium-Term Management Plan
`as the first step of its long-term strategic vision.
`
`Further Information
`P.6 President and CEO’s Message
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2013
`
`3
`
`Micro Labs Exhibit 1053-5
`
`

`

`Consolidated Financial Highlights
`
`Santen Pharmaceutical Co., Ltd. and Subsidiaries
`Years ended March 31, 2013, 2012, 2011, 2010 and 2009
`
`For the year:
`
`Net sales
`
`Operating income
`
`Net income
`
`Comprehensive income
`
`R&D expenditures
`
`Capital expenditures
`
`Depreciation and amortization
`
`At year-end:
`
`Total assets
`
`Long-term debt
`
`Equity
`
`Per share data (yen and U.S. dollars):
`
`Net income – basic
`
`Net income – diluted
`
`Equity
`Cash dividends,
`applicable to the period
`
`Other financial data:
`
`Operating income margin (%)
`
`Overseas sales to net sales (%)
`
`R&D expenditures to net sales (%)
`
`Return on equity (ROE) (%)
`
`Dividend on equity (DOE) (%)
`
`Number of employees
`
`2009
`
`2010
`
`Millions of yen
`2011
`
`2012
`
`2013
`
`Thousands of U.S. dollars
`2013
`
`Change
`2013/2012
`
`¥ 101,619
`15,494
`10,123
`4,896
`18,458
`2,953
`4,210
`
`¥ 110,594
`29,640
`18,723
`18,826
`14,123
`1,315
`3,421
`
`¥ 110,812
`30,739
`21,333
`19,797
`13,221
`1,651
`2,976
`
`¥ 114,416
`26,732
`17,161
`16,966
`17,225
`3,281
`2,949
`
`¥ 119,066
`24,681
`16,521
`21,729
`16,720
`3,609
`3,291
`
`$ 1,265,987
`262,427
`175,661
`231,036
`177,777
`38,368
`34,991
`
`4.1%
`
`(7.7)
`
`(3.7)
`
` 28.1
`
`(2.9)
` 10.0
` 11.6
`
`¥ 151,012
`154
`125,181
`
`¥ 166,878
`75
`137,343
`
`¥ 184,801
`152
`156,099
`
`¥ 198,801
`179
`164,514
`
`¥ 199,641
`145
`164,808
`
`$ 2,122,707
`1,538
`1,752,346
`
`0.4%
`
` (19.0)
`
`0.2
`
`¥ 119.08
`118.97
`1,472.32
`80.00
`
`¥ 220.10
`219.85
`1,614.08
`80.00
`
`¥ 249.71
`249.42
`1,793.15
`90.00
`
`¥ 196.96
`196.76
`1,887.81
`100.00
`
`¥ 195.81
`195.51
`1,998.44
`100.00
`
`$ 2.08
`2.08
`21.25
`1.06
`
`
`
`
`
`
`(0.6)%
`(0.6)
`5.9
`0.0
`
`23.4
`16.6
`15.1
`10.7
`5.4
`3,053
`
`20.7
`15.4
`14.0
`10.0
`5.1
`3,050
`
`15.2
`12.8
`18.2
`8.0
`5.4
`2,690
`
`26.8
`19.0
`12.8
`14.3
`5.2
`2,756
`
`27.7
`16.5
`11.9
`14.5
`5.3
`2,867
`
`Notes: 1. U.S. dollar amounts have been translated from yen, solely for the convenience of the reader, at the rate of ¥94.05 to U.S.$1.00, the exchange rate prevailing on March 31, 2013.
`2. See Notes 2. 15) and 13 of Notes to Consolidated Financial Statements in respect of per share data.
`3. Figures in parentheses indicate a decrease.
`4. Equity comprises shareholders’ equity and accumulated other comprehensive income.
`
`Net Sales and Overseas Sales to Net Sales
`
`Operating Income and Operating Income Margin
`
`(¥ Billion)
`150
`
`110.6
`
`110.8
`
`101.6
`
`119.1
`
`114.4
`
`75
`
`12.8
`
`19.0
`
`16.5
`
`16.6
`
`15.4
`
`0
`
`2009
`
`2010
`
`2011
`
`2012
`
`2013
`
`Net sales
`
`Overseas sales to net sales
`
`（%）
`30
`
`15
`
`0
`
`(¥ Billion)
`40
`
`（%）
`40
`
`Despite the impact of
`drug price revisions in
`Japan every two years,
`net sales have grown
`stably, driven mainly by
`steady growth of new
`products.
`
`20
`
`0
`
`30.7
`
`27.7
`
`29.6
`
`26.8
`
`26.7
`
`23.4
`
`24.7
`
`20.7
`
`15.5
`
`15.2
`
`2009
`
`2010
`
`2011
`
`2012
`
`2013
`
`Operating income
`
`Operating income margin
`
`Operating income
`increased due to the
`recording in net sales of
`one-time payments
`included in revenues
`derived from product
`and technology licensing
`agreements with
`U.S.-based companies
`Merck & Co., Inc. and
`Bausch & Lomb Inc.
`Another factor was the
`absence of a one-time
`payment to U.S.-based
`MacuSight, Inc. in the
`previous fiscal year.
`
`20
`
`0
`
`4
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2013
`
`Micro Labs Exhibit 1053-6
`
`

`

`R&D Expenditures and
`R&D Expenditures to Net Sales
`
`Net Income and
`Net Income per Share-Basic
`
`Consolidated Financial Highlights
`
`(¥ Billion)
`30
`
`(¥)
`300
`
`249.71
`
`220.10
`
`21.3
`
`18.7
`
`196.96
`
`195.81
`
`17.2
`
`16.5
`
`150
`
`15
`
`119.08
`
`10.1
`
`0
`
`2009
`
`2010
`
`2011
`
`2012
`
`2013
`
`0
`
`Net income
`
`Net Income per share-basic
`
`This was mainly the
`result of recording
`US$50 million as a
`one-time payment
`following the conclusion
`of an agreement for the
`acquisition of global
`rights for development
`and marketing of
`DE-109 (sirolimus) with
`MacuSight in May 2008.
`
`Santen posted record
`net income for the
`second straight year
`mainly on the back of
`growth of tafluprost, a
`glaucoma and ocular
`hypertension treatment
`launched in Japan in
`December 2008.
`
`(¥ Billion)
`20
`
`18.5
`
`18.2
`
`（%）
`30
`
`17.2
`
`16.7
`
`15.1
`
`14.0
`
`15
`
`14.1
`
`13.2
`
`12.8
`
`11.9
`
`10
`
`0
`
`2009
`
`2010
`
`2011
`
`2012
`
`2013
`
`0
`
`R&D expenditures
`
`R&D expenditures to net sales
`
`
`
`Equity and ROEq y
`
`(¥ Billion)
`200
`
`
`
`Dividend per Share and DOEp
`
`（%）
`20
`
`(¥)
`120
`
`（%）
`10
`
`100
`
`100
`
`164.5
`
`164.8
`
`137.3
`
`156.1
`
`125.2
`
`14.3
`
`14.5
`
`8.0
`
`10.7
`
`10.0
`
`10
`
`2009
`
`2010
`
`2011
`
`2012
`
`2013
`
`0
`
`Equity
`
`ROE
`
`100
`
`0
`
`ROE dropped to
`approximately 2
`percentage points in the
`fiscal year ended March
`31, 2009 due to a lower
`profit ratio resulting from
`a payment for licensing
`in a product from
`MacuSight. However,
`ROE rose to approxi-
`mately 6 percentage
`points in the fiscal year
`ended March 31, 2010
`due to one-time
`payments included in
`revenues from licensing
`out products.
`
`60
`
`0
`
`90
`
`80
`
`5.4
`
`80
`
`5.2
`
`5.3
`
`5.4
`
`5.1
`
`2009
`
`2010
`
`2011
`
`2012
`
`2013
`
`Dividend per share
`
`DOE ratio
`
`5
`
`0
`
`DOE has remained
`above the 5% target,
`the result of implement-
`t
`ing a dividend policy
`aligned with profit
`growth.
`
`Total Return Ratio 5
`
`（%）
`140
`
`134.4
`
`70
`
`67.2
`
`50.8
`
`36.3
`
`36.0
`
`0
`
`2009
`
`2010
`
`2011
`
`2012
`
`2013
`
`Santen repurchased its
`own shares at a total
`cost of ¥13.7 billion in
`August 2012. In
`November 2012, it
`cancelled almost of
`treasury shares,
`equivalent to 5.67% of
`the total number of
`outstanding shares
`before the cancellation.
`
`5. The sum of dividends and the cost of share buybacks divided
`by net income
`
`Further Information
`P.42 Report and Analysis of Operating
` Results and Financial Condition
`P.46 Risk Related to Our Business
`P.48 Eleven-year Summary of Selected
` Financial Data
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2013
`
`5
`
`Micro Labs Exhibit 1053-7
`
`

`

`社長兼CEOインタビュー
`President and CEO’s Message
`
`Santen is determined to meet the challenge
`
`outlined in its long-term strategic vision for
`
`2020 of becoming a specialized pharmaceu-
`
`tical company with a global presence.
`
`In line with Santen’s Values, we fulfill our
`
`social responsibilities by providing innova-
`
`tive products and services that satisfy
`
`unmet medical needs. As we endeavor to
`
`accomplish our goals, we kindly ask for the
`
`continued support of all our stakeholders.
`
`September 2013
`
`Akira Kurokawa
`President and Chief Executive Officer
`
`6
`
`Micro Labs Exhibit 1053-8
`
`

`

`President and CEO’s Message
`
`Fiscal 2012 Overview
`We posted record net sales.
`I believe that we made steady progress toward realizing our long-term
`strategic vision, even though earnings declined temporarily as
`we continued to invest aggressively for future growth.
`
`During fiscal 2012, the fiscal year ended March 31, 2013,
`Santen made aggressive up-front investments for medium-
`to long-term growth, with a particular focus on investments
`in R&D and strengthening our operating platform. Net sales
`grew steadily in Japan and overseas, rising 4.1% year on
`year to ¥119.1 billion. However, operating income fell 7.7%
`to ¥24.7 billion and net income fell 3.7% to ¥16.5 billion
`mainly because of National Health Insurance (NHI) drug
`price revisions in Japan and higher costs due to the
`acquisition of European subsidiary Santen S.A.S. (formerly
`Novagali Pharma S.A.S.).
`In our prescription ophthalmics business, we saw steady
`sales growth for a number of new products, including our
`glaucoma and ocular hypertension treatment tafluprost (sold
`as Tapros in Japan), as well as our combination ophthalmic
`solution Cosopt for glaucoma and ocular hypertension, and
`our dry eye treatment Diquas (diquafosol sodium). Also, due
`to growth in other mainstay products, we were therefore
`able to absorb the impact of NHI drug price revisions and
`report a solid increase in sales. We launched EYLEA
`(aflibercept [genetical recombination]) for wet age-related
`macular degeneration (wet AMD) in Japan in November
`2012 and penetrated the market faster than forecasted. We
`view this market penetration by EYLEA as a foothold for
`contributing to treatments in the field of retinal disorders,
`where there are high unmet medical needs, as we aim to
`establish a solid market position. Tafluprost is the growth
`driver in our overseas business and is now available in over
`60 countries worldwide1, including sales by U.S.-based
`Merck & Co., Inc. in the U.S., Western Europe, and Latin
`America.
`In R&D, we created the position of Chief Scientific Officer
`(CSO) in April 2013 to strengthen our global R&D strategy
`
`function and appointed to this role Dr. Naveed Shams, the
`CEO of U.S. subsidiary Santen Inc. With this new R&D
`system, we are working to improve productivity and aim for
`an organization capable of generating competitive new
`pharmaceuticals based on the therapeutic needs of
`patients around the world.
`In order to achieve our long-term strategic vision, we are
`working across the organization to drive our business
`forward, by harnessing our proprietary knowledge and
`organizational capabilities in the ophthalmic and
`anti-rheumatic fields.
`
`1. As of August 6, 2013
`
`Enhancing Shareholder Returns
`Santen has positioned the return of profits to shareholders
`as a key management priority. In order to ensure the
`continuous and stable payment of dividends to sharehold-
`ers, the Company has adopted the dividend on equity
`(DOE) ratio, which multiplies the dividend payout ratio by
`ROE, as an indicator for total shareholder returns.
`For fiscal 2012, we paid a full-year dividend of ¥100 per
`share, the same amount as for the previous fiscal year. This
`resulted in a DOE of 5.1%, which means DOE has now
`exceeded 5% for six years in a row. In fiscal 2013, we are
`committed to the stable return of profits to shareholders
`and a DOE of 5% or more. At the same time, we will
`continue to retain funds primarily for R&D investments, while
`adopting a flexible stance that includes the acquisition of
`treasury stock. In fiscal 2012, we repurchased our own
`shares at a total cost of approximately ¥13.7 billion and
`cancelled 4,938,500 shares of treasury stock in order to
`enhance capital efficiency and improve shareholder returns.
`
`Fiscal 2011-2013 Medium-Term
`Management Plan
`
`Strategic Objectives
`
`1. Promote globally oriented research and development.
`2. Obtain high domestic market share and achieve growth through the promotion
`of new products and implementation of marketing strategies.
`3. Accelerate growth in both Asia and Europe by reinforcing marketing platforms.
`4. Establish a global product supply system with our existing four plants 2, which
`enable us to meet emerging market needs.
`5. Develop talents and organizational capabilities to promote “creation and
`innovation” on a global level.
`
`2. Four plants: Noto and Shiga Product Supply Center* (both in Japan); Suzhou (China); and Tampere (Finland)
`*Name changed from Shiga Plant on July 1, 2013
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2013
`
`7
`
`Micro Labs Exhibit 1053-9
`
`

`

`Research and Development
`
`By fostering closer links between bases in Japan, the U.S. and Europe,
`we will work to expedite development, placing emphasis on maximizing
`the cost-benefits of investments and addressing unmet needs.
`
`For R&D, all Santen group companies are working together
`to achieve the long-term strategic vision for 2020 based on
`a strategic objective of “promoting globally oriented
`research and development.”
`For research, we have introduced project management
`tools; started up the “KANAME” project aimed at facilitating
`rapid problem solving and promoting seamless develop-
`ment between Japan, the U.S. and Europe; and are
`maximizing the cost-benefits from our investments.
`For clinical development, we have expanded functions to
`establish POC1 at the early stages of clinical development,
`with the U.S. positioned as the core site. We are improving
`links and global collaboration, increasing development
`speeds, and training staff capable of driving forward global
`projects. We are engaged in a major global Phase 3 clinical
`study in the U.S., Japan, and Europe on DE-109 (sirolimus)
`for the treatment of uveitis. In July 2012, we started Phase
`1/2a studies in the U.S. on DE-117 (licensed in from Ube
`Industries, Ltd.) for the treatment of glaucoma and ocular
`hypertension. Our goal is to obtain global manufacturing
`and marketing approval for this prostaglandin derivative
`treatment with a novel mechanism of action.
`In order to meet the wide-ranging treatment needs found
`in the clinical setting, we are making effective use of existing
`compounds and creatively managing product life cycles2,
`for example by expanding indications and adding formula-
`tions, new methods of administration and dosages. In
`
`October 2012 in Japan and June 2013 in Europe, we filed
`for manufacturing and marketing approval of the combina-
`tion drug DE-111 (tafluprost/timolol maleate) for the
`indications of glaucoma and ocular hypertension. In January
`2013, we were granted manufacturing and marketing
`approval in Japan for DE-118 (tafluprost) in a preservative-
`free, unit-dose, single-use formulation. And in November
`2012, we also applied for manufacturing and marketing
`approval in Japan for DE-114 (epinastine HCl) for the
`indication of allergic conjunctivitis.
`We are making steady progress in Phase 3 studies on
`Cyclokat (ciclosporin) that is expected to be the first
`prescription treatment for dry eye in Europe. Santen S.A.S.,
`which we acquired in fiscal 2011, is playing a central role in
`the development of Cyclokat, which uses our proprietary
`drug formulation technology Novasorb3. We are applying
`this technology to other existing pipeline compounds,
`thereby reconfirming our strong position as a specialized
`ophthalmic pharmaceutical company.
`
`1. Proof of Concept (POC) is the realization of a certain method or ideas to
`demonstrate efficacy or safety in clinical trials.
`2. Aligning one compound to treatment needs over the long term and augmenting
`through variations in use, dosage, formulation and combination products to
`increase product value.
`3. Novasorb aids rapid absorption of ophthalmic solutions over the ocular surface
`by applying a positive electric charge to an ophthalmic emulsion. This causes the
`drug to be attracted to the negatively charged ocular tissues and helps to protect
`the eye’s surface.
`
`Pipeline of Main Prescription Pharmaceuticals
`
`Global product
`
`Japan (Asia) product
`
`Orange text
`indicates progress from fiscal 2011
`
`Therapeutic Field
`
`Glaucoma
`
`Corneal and
`Conjunctival Epithelial
`Disorders
`
`Retinal and
`Uveal Disorders
`
`Ocular Infections/
`Allergy/
`Rheumatoid Arthritis
`
`As of August 6, 2013
`
`8
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2013
`
`Phase 1
`DE-117
`EP2 agonist
`
`Phase 2
`
`Phase 3
`
`NDA Filed
`
`China
`
`Approved/Launched
`DE-085
`Tafluprost
`
`Japan, etc.4
`
`DE-111
`Tafluprost/
`timolol maleate
`DE-089
`Diquafosol sodium
`
`China
`
`DE-118
`Tafluprost
`
`Korea Japan
`
`DE-090
`Lomerizine HCl
`DE-105
`Peptide combination
`
`Japan
`
`U.S.
`
`U.S.
`
`Cyclokat
`Ciclosporin
`
`Europe
`
`DE-109
`Sirolimus
`DE-102
`Betamethasone
`
`DE-098
`Anti-APO-1 antibody
`
`DE-114
`Epinastine HCl
`
`Vekacia
`Ciclosporin
`
`4. Asia, Europe, Latin America, Australia, and the U.S.
`
`Micro Labs Exhibit 1053-10
`
`

`

`Domestic Operations
`
`We are focusing on maximizing the value
`generated by new products as we aim to achieve
`continuous future growth in domestic operations.
`
`President and CEO’s Message
`
`Santen moved into the field of retinal disorders with the
`November 2012 launch of EYLEA for wet AMD, based on a
`co-promotion agreement with Bayer Yakuhin, Ltd. We are
`drawing on our organizational capabilities, ophthalmology
`expertise and our competitive strengths in the prescription
`ophthalmic pharmaceutical market, to contribute to the
`treatment of back-of-the-eye diseases. This entry into the
`retinal space is exciting to me as I feel that it is our responsi-
`bility as a specialized ophthalmic pharmaceutical company
`to treat the full range of all ophthalmic diseases including the
`unmet needs in the retinal space.
`
`Prescription Ophthalmic Pharmaceutical Sales
`in Japan and Fiscal 2013 Forecast
`
`¥90.8 billion
`¥77.8 billion ¥81.1 billion
`
`Fiscal 2011
`(Actual)
`
`Fiscal 2012
`(Actual)
`
`Fiscal 2013
`(Forecast)
`
`In the domestic prescription ophthalmic business, we have
`been enhancing our strength as a specialty company, for
`example, by ensuring MRs have a wider range of special-
`ized ophthalmology knowledge covering both the anterior
`and posterior chambers of the eye to improve their
`responsiveness. This has allowed us to provide medical
`information targeted to the changing therapeutic needs of
`patients. At the same time, we focused on the market
`penetration of new drugs that will act as future growth
`drivers. Thanks to these efforts, we were able to absorb the
`impact of NHI drug price revisions and net sales rose 4.3%
`year on year to ¥81.1 billion. In addition, we achieved our
`target for fiscal 2013 one year earlier than planned.
`In the field of glaucoma, we grew our domestic share by
`2.0 percentage points year on year to 30.4%. This was
`driven by steady growth in sales of glaucoma and ocular
`hypertension treatments Tapros and Cosopt, securing our
`position as the market leader. We also remain in a strong
`position in the field of corneal and conjunctival epithelial
`disorders, capturing a 74.6% share of the domestic market.
`Sales of our mainstay product Hyalein (sodium hyaluronate)
`fell 7.2% year on year due to the NHI drug price revisions,
`but sales of Diquas, a treatment for dry eye with a different
`mechanism of action, surged 95.5%.
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2013
`
`9
`
`Micro Labs Exhibit 1053-11
`
`

`

`Operations in Asia
`
`The Suzhou Plant began integrated production of some products from July 2012.
`Looking ahead, we aim to further raise our presence
`in the entire fast-growing Asian market.
`
`In Asia, sales on a yen basis grew 27.6% year on year to
`¥8.6 billion in fiscal 2012, driven by significant sales growth
`in China and increased penetration of the Korean market.
`We expect the Chinese prescription ophthalmic pharma-
`ceutical market to continue growing at around 20% per
`annum through 2020 and consider this market to be a key
`in driving our global business. We are therefore bolstering
`our business platform through in-house manufacturing and
`direct marketing in China. We believe that Santen will gain a
`competitive advantage in China by providing products and
`services imbuing value as well as quality detailing to provide
`information tailored to the needs of medical professionals.
`In July 2012, our plant in Suzhou, China, was licensed for
`integrated production covering everything from formulation
`and filling through packaging. We now have a system
`capable of supplying products in a timely manner that
`meets the needs of the Chinese market. The start of
`integrated production at the Suzhou Plant is an important
`step towards optimizing our global operations as part of the
`goal to “establish systems for global product supply and
`quality assurance” in our long-term strategic vision for 2020.
`We currently have a Chinese sales force of over 200 MRs,
`the second largest after Japan. Having operated in China
`for nearly 10 years and trained our staff during that time, our
`locally employed MRs have grown significantly such that
`they are now providing information based on local
`therapeutic needs.
`In 2009, Santen began using its own MRs in China; filed
`for marketing and manufacturing approval for tafluprost to
`treat glaucoma and ocular hypertension in January 2011;
`and now markets products across Asia in Hong Kong,
`Korea, Indonesia, and Singapore. We were granted Korean
`
`Sales in Asia and Fiscal 2013 Forecast
`
`¥11.0 billion
`
`¥8.6 billion
`
`¥6.7 billion
`
`Fiscal 2011
`(Actual)
`
`Fiscal 2012
`(Actual)
`
`Fiscal 2013
`(Forecast)
`
`10
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2013
`
`manufacturing and marketing approval in December 2011
`for diquafosol sodium (sold as Diquas in Japan) to treat dry
`eye and are in the process of filing for approval in China. As
`well as establishing a presence in the Chinese market, we
`are working to capture the No.1 position across Asia.
`
`Globalized Manufacturing System
`
`We are building a manufacturing system capable of
`competing on global terms. Our global production
`system is based on four plants: the main factory in
`Noto, Japan; the Shiga Product Supply Center1, our
`core global facility in Shiga, Japan; and overseas
`plants in Suzhou, China, and Tampere, Finland. These
`four facilities enable Santen to maintain stable supplies
`and high-level quality control while also supplying the
`needs of different regions.
`
`1. Name changed from Shiga Plant on July 1, 2013
`
`Micro Labs Exhibit 1053-12
`
`

`

`Operations in Europe
`
`In addition to Eastern Europe, Russia and other emerging markets,
`as well as Northern Europe, we are expanding our business platform
`in Germany and other developed country markets.
`
`President and CEO’s Message
`
`In fiscal 2013, we are working to become more competi-
`tive in Europe, stepping up our marketing activities across
`all of Europe but with a particular focus in Germany. In R&D,
`we aim to maximize the synergies from the Santen S.A.S.
`merger, strengthening our development pipeline and
`increasing the value of existing products, to make further
`advances in the European market.
`
`Sales in Europe and Fiscal 2013 Forecast
`
`¥11.0 billion
`
`¥8.9 billion ¥9.2 billion
`
`Fiscal 2011
`(Actual)
`
`Fiscal 2012
`(Actual)
`
`Fiscal 2013
`(Forecast)
`
`In Europe, sales on a yen basis grew 3.6% year on year to
`¥9.2 billion in fiscal 2012. We achieved further market
`penetration, particularly in Germany, with the new product
`Taflotan (tafluprost) for glaucoma and ocular hypertension.
`The European prescription ophthalmic pharmaceutical
`market has achieved sustained growth, boosted by
`economic growth in emerging markets in Eastern Europe
`and Russia where Santen has a strong business platform.
`We aim to meet the targets in the Fiscal 2011–2013
`Medium-Term Management Plan by creating a highly
`profitable business in Europe and working to expand our
`market share with the promotion of drug usage through the
`provision of medical information, an area in which we excel.
`Since its launch in 2008, our growth driver Taflotan has
`been widely supported by European ophthalmologists,
`developing into the treatment of choice for glaucoma and
`ocular hypertension in a short period of time. In 2012,
`Taflotan was selected by 1,500 German physicians from a
`range of specialties as the Most Innovative Glaucoma
`Product 2012 in the category of ophthalmology. This award
`is organized by the German magazine PharmaBarometer
`and is one of the most famous awards in healthcare.
`
`Corporate Social Responsibility (CSR) Activities
`
`Based on Santen’s Values, we are working as one team
`to enhance CSR activities, pursuing a true customer focus.
`
`We contribute to society through sound business activities
`based on Santen’s Values. We think that it is vital to
`enhance the understanding of CSR by all our Group
`employees.
`Through the Santen Code of Practice, we have clarified
`the standard of conduct required in our operations; defined
`our own core fields for CSR promotion, which draws on the
`ISO 260002 international standard on social responsibility;
`and expanded the range of our activities that are consistent
`with international requirements.
`To become a specialized pharmaceutical company with a
`global presence, as outlined in our long-term strategic
`
`vision for 2020, we are working to expand the Company
`and grow earnings, but we also aim to achieve these goals
`through the pursuit of CSR. We will be a responsible
`corporate citizen if we successfully integrate and engage in
`both business and CSR activities, and this will enable us to
`achieve our strategic vision. We think the development of
`every single employee is vital to drive the achievement of
`our long-term strategic vision, so we are actively engaged in
`employee training.
`
`2. ISO 26000 was issued by the International Organization for Standardization (ISO)
`to provide guidance on social responsibility. It is applicable not only to
`corporations but also to all organizations, including governments, schools, and
`NGOs.
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2013
`
`11
`
`Micro Labs Exhibit 1053-13
`
`

`

`Feature
`Rising to the Challenge of Satisfying
`Unmet Medical Needs
`
`Eyeing Further Specialization
`
`Main
`Back-of-the-Eye
`Diseases
`
`Back-of-the-eye
`Diseases
`
`Age-related macular degeneration
`
`Uveitis
`
`Behcet’s disease
`
`Detached retina
`
`Diabetic retinopathy
`
`Macular edema
`
`Infectious intraocular inflammation
`
`As a specialty company in the eye and other specific fields, we provide products
`
`and services to the prescription ophthalmic pharmaceutical market to satisfy a wide range of
`
`therapeutic needs, particularly front-of-the-eye diseases such as dry eye and glaucoma.
`
`We have established ourselves as the No.1 ophthalmic pharmaceutical company in Japan.
`
`We are now providing products and services for back-of-the-eye diseases, with the launch of EYLEA
`
`(aflibercept [genetical recombination]) in Japan to treat wet age-related macular degeneration (wet AMD).
`
`12
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2013
`
`Micro Labs Exhibit 1053-14
`
`

`

`Retinal Therapeutics
`Market Potential
`
`The number of patients needing retinal disorder
`treatment is growing rapidly,
`driven by population aging and other factors.
`
`Feature: Rising to the Challenge of Satisfying Unmet Medical Needs
`
`Effective New Drugs Required
`for Underserved Back-of-the-Eye Field
`
`There are unmet medical needs for many back-of-
`the-eye diseases, including wet AMD, diabetic
`retinopathy, and macular edema. Patients around the
`world live in the hope that groundbreaking new
`treatments will be developed. Overseas, retinal
`disorder markets are growing due to high unmet
`medical needs. Santen recognizes the strong potential
`in these markets to drive its growth going forward.
`AMD involves abnormalities appearing in the
`macular area, a region located in the center of the
`retina that is vital for vision. It occurs in dry and wet
`forms. With wet AMD, abnormal blood vessels form
`below the retina in the macular area. Bleeding and
`leaking from these vessels cause retinal damage and
`functional impairment. Patients find it hard to see in
`the center of their vision, resulting in a sharp decline in
`Quality of Life (QOL).
`Research has identified vascular endothelial growth
`
`Mechanism of Wet AMD
`These illustrations are images.
`
`f