Year Ended March 31, 2014
`
`Annual Report 2014
`
`Micro Labs Exhibit 1060
`Micro Labs v. Santen Pharm. and Asahi Glass
`IPR2017-01434
`
`

`

`Our Values
`
`NOTE ON ACCOUNTING STANDARDS
`The Santen Group has unified the accounting
`period from the fiscal year ended March 31, 2014.
`The results given in this annual report are based
`on this unified fiscal year, if no note is specified.
`Results given for fiscal years up to the previous
`fiscal year have not been calculated on the basis
`of this unified fiscal year, but on their existing
`12-month basis.
`
`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: ©2014 IMS Health
`Santen analysis is based on IMS-JPM data from
`April 2009 to March 2014.
`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.
`
`C O N T E N T S
`
`Santen’s Values
`
`Santen’s Strategic Vision and Strengths
`
`At a Glance
`
`Consolidated Financial Highlights
`
`1 2 6 8
`
`10
`
`President and CEO’s Message
`
`18
`
`Feature: Capturing
`the No.1 Position across Asia
`by Contributing to
`Ophthalmic Treatment
`
`24
`
`Research and Development
`
`26
`
`Pipeline of Prescription Pharmaceuticals
`
`30
`
`36
`
`Review of Operations
`Domestic Operations
`
`Review of Operations
`Overseas Operations
`
`38
`
`Corporate Social Responsibility
`
`42
`
`Corporate Governance
`
`47
`
`Board of Directors and Corporate Auditors
`
`48
`
`Corporate Officers
`
`49
`
`Financial Section
`
`89
`
`Corporate Information/
`Stock Information
`
`90
`
`Business Bases
`
`92
`
`History
`
`Micro Labs Exhibit 1060-2
`
`

`

`Core Value
`
`Tenki ni sanyo suru 1
`
`We think carefully about what is essential,
`decide clearly what we should do, and act quickly.
`
`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 organiza-
`
`tional 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 2014
`
`1
`
`Micro Labs Exhibit 1060-3
`
`

`

`Santen’s Strategic Vision and Strengths
`
`Our Vision
`
`Long-Term Strategic Vision through 2020
`
`Aiming to Become a Specialized
`Pharmaceutical Company with a Global
`
`A company possessing a deep understanding of true customer needs, together
`with a distinct advantage against competitors, and a global competitiveness and presence
`
`Long-Term Growth Targets
`
`Prescription Ophthalmic Business
`
`Overseas Sales in Fiscal 2020
`
`No.1
`Top 3 position globally
`
`in Japan and Asia
`
` 40-50%
`
`Up to
`of total sales
`
`5 Policies toward the Achievement of Our Long-Term Strategic Vision
`
`1. Develop products that meet true customer needs swiftly
`2. Transform domestic business for further growth
`3. Accelerate business expansion in Asia and promote market entry in Western Europe/the U.S.
`4. Establish competitive global product supply and quality assurance systems
`5. Strengthen talents and organizational capabilities to promote “Creation and Innovation”
`
`2
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2014
`
`Micro Labs Exhibit 1060-4
`
`

`

`Santen’s Strategic Vision and Strengths
`
`Strategic Vision
`Santen is working to become a special-
`ized pharmaceutical company with a
`global presence, in order to realize its
`long-term strategic vision through 2020.
`The first step was our Fiscal 2011-2013
`Medium-Term Management Plan, which
`stipulated the plan’s period as the time
`for making investments for medium- and
`long-term growth, and during which we
`took a variety of steps such as the
`promotion of globally oriented research
`and development. The next step is our
`newly formulated Fiscal 2014-2017
`Medium-Term Management Plan, which
`calls for two strategies of ongoing
`product launches and the achievement
`of growth and profitability in Asia and
`Europe. At Santen, we are working
`across the organization to drive our
`business forward, capitalizing on our
`strengths to maintain market leadership.
`
`Further Information
`P.10 President and CEO’s Message
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2014
`
`3
`
`Presence
`
`Fiscal 2014-2017
`Medium-Term Management Plan
`
`Basic Policies
`
`Product
`Development
`
`Transform product development to realize
`enhanced productivity and achieve
`sustained growth
`
`Business
`Expansion
`
`Grow business in Asia/Europe and
`strengthen market presence
`by entering into new markets
`
`Organization
`and Talents
`
`Develop talents and organization
`to realize sustained growth
`
`Micro Labs Exhibit 1060-5
`
`

`

`Our
`
`Share of
`Japanese Market
`
`No.1
`
`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.
`
`Prescription Ophthalmic
`Pharmaceuticals
`(Sales Composition)
`
`85.7%
`
`Others
`
`Medical Devices
`
`Over-the-Counter
`Pharmaceuticals
`Share of Japanese Market
`
`No.2
`
`Prescription
`Anti-Rheumatic
`Pharmaceuticals
`Share of 　
`Japanese Market
`Disease-Modifying
`Anti-Rheumatic Drugs
`
`No.2
`
`Fiscal 2013 Net Sales
`
`¥148.7billion
`
`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.30 Review of Operations
`
`4
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2014
`
`Micro Labs Exhibit 1060-6
`
`

`

`Advantage
`
`Santen’s Strategic Vision and Strengths
`
`Global Business Expansion
`Santen maintains 15 bases spread across 12 countries, and its
`products are sold in over 50 countries worldwide. Santen produces
`around 300 million bottles1 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.
`1. On a 5 mL bottle conversion basis
`
`Further Information
`P.18 Feature P.36 Overseas Operations
`
`Annual Production Capacity of
`Ophthalmic Solutions
`Approx.
`
`300 million bottles
`
`Countries in
`Which Products Are Sold
`
`Over
`
`50
`
`countries
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2014
`
`5
`
`Micro Labs Exhibit 1060-7
`
`

`

`At a Glance
`
`Net Sales
`
`Operating Results
`
`Share of
`Japanese Market
`39.4%
`No.11
`
`Sales
`Composition
`
`85.7%
`
`Prescription Ophthalmic Pharmaceuticals
`Domestic Operations
`¥127,396million
`・Domestic sales of prescription ophthalmic pharmaceuticals improved
`25.5% year on year. This was largely attributable to successful
`promotional campaigns in Japan to provide individual medical facilities
`with scientific information tailored to their specific and changing needs
`while focusing on the market penetration of new drugs.
`Overseas Operations
`・Overseas sales of prescription ophthalmic pharmaceutical sales increased 43.5%
`year on year (up 28.9% on a 12-month basis), reflecting progress in the market
`penetration of the Company’s mainstay products, including
`growth driver Taflotan (tafluprost, sold as Tapros in Japan),
`a treatment for glaucoma and ocular hypertension.
`Further Information
`P.30 Domestic Operations/Prescription Ophthalmic Pharmaceuticals
`P.36 Overseas Operations
`Prescription Anti-Rheumatic Pharmaceuticals
`・Disease-modifying anti-rheumatic drugs (DMARDs)2 Rimatil, Azulfidine EN and
`¥10,251million
`Metolate are highly recommended in Japan in the Rheumatoid Arthritis Treatment
`Guidelines. Partly because of this, sales of anti-rheumatics rose 3.8% year on year.
`
`Share of
`Japanese Market
`38.4%
`No.21
`
`Sales
`Composition
`
`6.9%
`
`Further Information
`P.34 Domestic Operations/
`Prescription Anti-Rheumatic
`Pharmaceuticals
`
`Over-the-Counter Pharmaceuticals
`・The Company focused on promotional campaigns, notably the Sante FX series and
`¥6,455million
`the Sante Medical series. Despite these efforts, sales of OTC pharmaceuticals
`declined 0.3% year on year, due mainly to lower demand in Japan and the impact of
`increased competition.
`
`Share of
`Japanese Market
`19.3%
`No.2 3
`
`Sales
`Composition
`
`4.3%
`
`Further Information
`P.35 Domestic Operations/
`Over-the-Counter
`Pharmaceuticals
`
`Medical Devices
`¥2,678million
`
`・As a result of focusing initiatives on promotional campaigns for the Eternity series of
`foldable intraocular lens, which is made of a glistening-free hydrophobic acrylic optical
`material, sales of medical devices rose 19.3% year on year.
`
`Sales
`Composition
`
`1.8%
`
`Further Information
`P.36 Medical Devices
`
`Other Pharmaceuticals
`¥1,883million
`
`Sales
`Composition
`
`1.3%
`
`・Other pharmaceuticals includes revenues derived from technology-sharing
`agreements as well as contract work and manufacturing. Sales of other
`pharmaceuticals increased 8.8% year on year.
`・Other sales came from the cleaning of antidust and sterilized clothing operations of
`consolidated subsidiary Claire Co., Ltd. and sales of supplements.
`
`Notes: 1. Market share and market position in Japan for the fiscal year ended March 31, 2014. 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, 2014. Source: Santen Pharmaceutical Co., Ltd.
`
`6
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2014
`
`Micro Labs Exhibit 1060-8
`
`

`

`Major Topics
`
`October 2013
`Launch in Japan of Tapros Mini,
`a treatment for glaucoma and
`ocular hypertension
`Tapros Mini offers the same intraocular pressure-reducing
`effect of the original Tapros in a preservative-free solution in
`single-dose disposable containers.
`
`At a Glance
`
`November 2013
`Launch in Japan of anti-allergy
`ophthalmic solution Alesion
`Alesion is an ophthalmic solution licensed from Nippon
`Boehringer Ingelheim Co., Ltd. and then developed by
`Santen as a treatment for allergic conjunctivitis. It provides
`relief from allergic conjunctivitis symptoms such as itching
`and redness.
`
`May 2014
`Acquisition of ophthalmology assets
`from U.S.-based Merck & Co., Inc.
`The Company entered into an agreement with Merck & Co., Inc.
`for Santen to purchase Merck’s ophthalmology products5. The
`annual sales for 2013 associated with these ophthalmic
`products are approximately US$400 million, covering 72
`countries. Leveraging this opportunity and with the long-term
`business vision to become a specialized pharmaceutical
`company with a global presence, Santen is further accelerating
`the development of its business operations.
`5. COSOPT, COSOPT PF, TRUSOPT, TRUSOPT PF, TIMOPTIC, TIMOPTIC PF,
`TIMOPTIC-XE, SAFLUTAN, TAPTIQOM
`
`Annual net sales4 of
`targeted products
`(2013)
`
`Approx.
`US$
`
`400 million
`
`4. Includes sales of COSOPT which was jointly promoted with Santen in Japan.
`
`Europe
`
`56 countries
`
`(33 countries)
`
`Asia
`
`15 countries
`
`(4 countries)
`
`Regions
`Numbers in parenthesis indicate new markets.
`As of May 2014
`
`Japan
`
`Total
`
`72 countries
`
`(37 countries)
`
`Regions
`New markets
`Existing markets
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2014
`
`7
`
`Micro Labs Exhibit 1060-9
`
`

`

`Consolidated Financial Highlights
`
`Santen Pharmaceutical Co., Ltd. and Subsidiaries
`Years ended March 31, 2014, 2013, 2012, 2011 and 2010
`
`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
`
`2010
`
`2011
`
`2012
`
`2013
`
`Millions of yen
`2014
`
`Thousands of U.S. dollars
`2014
`
`Change
`2014/2013
`
`¥ 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
`
`¥ 148,663
`27,414
`17,109
`25,379
`19,040
`4,786
`3,927
`
`$ 1,444,456
`266,363
`166,239
`246,585
`184,998
`46,502
`38,155
`
`
` 24.9%
` 11.1
`
`3.6
` 16.8
` 13.9
` 32.6
` 19.3
`
`¥ 166,878
`75
`137,343
`
`¥ 184,801
`152
`156,099
`
`¥ 198,801
`179
`164,514
`
`¥ 199,641
`145
`164,808
`
`¥ 231,106
`102
`180,811
`
`$ 2,245,489
`991
`1,756,804
`
` 15.8%
` (29.7)
`
`9.7
`
`¥ 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
`
`¥ 207.29
`206.65
`2,189.50
`100.00
`
`　
`
`
`
`
`
`5.9%
`5.7
`9.6
`0.0
`
`$ 2.01
`2.01
`21.27
`0.97
`
`23.4
`16.6
`15.1
`10.7
`5.4
`3,053
`
`20.7
`15.4
`14.0
`10.0
`5.1
`3,050
`
`26.8
`19.0
`12.8
`14.3
`5.2
`2,756
`
`27.7
`16.5
`11.9
`14.5
`5.3
`2,867
`
`18.4
`17.9
`12.8
`9.9
`4.8
`3,072
`
`Notes: 1. The Santen Group has unified the accounting period from the fiscal year ended March 31, 2014. Results given for fiscal years up to the fiscal year ended March 31, 2013
` have not been calculated on the basis of this unified fiscal year, but on their existing 12-month basis.
`2. U.S. dollar amounts have been translated from yen, solely for the convenience of the reader, at the rate of ¥102.92 to US$1.00, the exchange rate prevailing on March 31, 2014.
`3. See Notes 2. 17) and 13 of Notes to Consolidated Financial Statements in respect of per share data.
`4. Figures in parentheses indicate a decrease.
`5. 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
`
`148.7
`
`（%）
`30
`
`(¥ Billion)
`40
`
`（%）
`40
`
`110.6
`
`110.8
`
`119.1
`
`114.4
`
`16.5
`
`16.6
`
`19.0
`
`15.4
`
`17.9
`
`2010
`
`2011
`
`2012
`
`2013
`
`2014
`
`Net sales
`
`Overseas sales to net sales
`
`75
`
`0
`
`15
`
`0
`
`A significant increase in
`net sales was posted
`due to increased
`growth in new products
`in Japan, the expansion
`of overseas sales, and
`the yen’s depreciation.
`
`20
`
`0
`
`29.6
`
`30.7
`
`26.8
`
`27.7
`
`26.7
`
`23.4
`
`24.7
`
`20.7
`
`27.4
`
`18.4
`
`2010
`
`2011
`
`2012
`
`2013
`
`2014
`
`Operating income
`increased due to the
`recording of one-time
`payments included in
`revenues derived from
`technology-sharing
`agreements with
`U.S.-based companies
`Merck & Co., Inc. and
`Bausch & Lomb Inc.
`
`20
`
`0
`
`Operating income
`
`Operating income margin
`
`8
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2014
`
`Micro Labs Exhibit 1060-10
`
`

`

`R&D Expenditures and R&D
`Expenditures to Net Sales
`
`Net Income and Net Income
`per Share-Basic
`
`(¥ Billion)
`20
`
`19.0
`
`（%）
`30
`
`(¥ Billion)
`30
`
`(¥)
`300
`
`17.2
`
`16.7
`
`15.1
`
`14.0
`
`12.8
`
`15
`
`14.1
`
`13.2
`
`12.8
`
`11.9
`
`2010
`
`2011
`
`2012
`
`2013
`
`2014
`
`0
`
`In the fiscal year ended
`March 31, 2014,
`research and
`development
`expenditures increased
`mainly due to the
`concluding of a licensing
`agreement related to the
`development and
`commercialization of
`TRC105 (development
`code: DE-122) focusing
`particularly on the field
`of retinal disorders.
`
`15
`
`0
`
`10
`
`0
`
`249.71
`
`220.10
`
`21.3
`
`18.7
`
`196.96
`
`195.81
`
`207.29
`
`17.2
`
`16.5
`
`17.1
`
`150
`
`2010
`
`2011
`
`2012
`
`2013
`
`2014
`
`0
`
`R&D expenditures
`
`R&D expenditures to net sales
`
`Net income
`
`Net income per share-basic
`
`In the fiscal years
`ended March 31, 2010
`and 2011, Santen
`posted record net
`income for two
`consecutive years due
`to one-time payments
`included in revenues
`derived from licensing
`out products such as
`tafluprost.
`
`Equity and ROE
`
`Dividend per Share and DOE
`
`(¥ Billion)
`200
`
`（%）
`20
`
`180.8
`
`164.8
`
`(¥)
`120
`
`（%）
`10
`
`100
`
`100
`
`Consolidated Financial Highlights
`
`ROE significantly
`increased in the fiscal
`years ended March 31,
`2010 and 2011 due to
`one-time payments
`included in revenues
`derived from licensing
`out products such as
`tafluprost.
`
`10
`
`0
`
`60
`
`0
`
`100
`
`90
`
`5.3
`
`5.4
`
`5.1
`
`4.8
`
`80
`
`5.2
`
`2010
`
`2011
`
`2012
`
`2013
`
`2014
`
`Dividend per share
`
`DOE ratio
`
`Santen is committed to
`the stable return of
`profits to shareholders
`and a DOE of around
`5.0%. The average
`DOE ratio for the years
`of the Fiscal 2011-2013
`Medium-Term
`Management Plan was
`5.1%.
`
`5
`
`0
`
`164.5
`
`156.1
`
`137.3
`
`14.3
`
`14.5
`
`10.7
`
`10.0
`
`9.9
`
`2010
`
`2011
`
`2012
`
`2013
`
`2014
`
`Equity
`
`ROE
`
`100
`
`0
`
`Total Return Ratio6
`
`（%）
`140
`
`134.4
`
`70
`
`0
`
`48.2
`
`50.8
`
`36.3
`
`36.0
`
`2010
`
`2011
`
`2012
`
`2013
`
`2014
`
`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.
`
`6. The sum of dividends and the cost of share buybacks divided by net income
`
`Further Information
`P.50 Report and Analysis of Operating
` Results and Financial Condition
`P.54 Risk Related to Our Business
`P.56 Eleven-year Summary of Selected
` Financial Data
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2014
`
`9
`
`Micro Labs Exhibit 1060-11
`
`

`

`President and CEO’s Message
`
`10
`
`President and CEO’s
`
`Message
`
`Santen is making significant strides toward
`
`realizing its long-term strategic vision
`
`through 2020 of becoming a specialized
`
`pharmaceutical company with a global presence.
`
`By focusing our efforts on ophthalmology
`
`and related areas, we will develop
`
`scientific knowledge and
`
`organizational capabilities that are unique
`
`and original to Santen. We will use these unique
`
`capabilities to contribute to society.
`
`We kindly ask for the continued
`
`support of all our stakeholders.
`
`September 2014
`
`Akira Kurokawa
`President and Chief Executive Officer
`
`Micro Labs Exhibit 1060-12
`
`

`

`Fiscal 2013 Overview
`
`We posted record net sales.
`We expanded our presence further in both the Japanese
`and overseas markets, thanks to our focus on sales promotion
`activities for key products, including new products.
`
`President and CEO’s Message
`
`treatment for dry eye. We also met the primary endpoint of
`a Global Phase 3 study of DE-109 (sirolimus) for the
`treatment of non-infectious uveitis of the posterior segment.
`This study is being carried out at approximately 150 sites in
`Europe, the U.S. and Asia.
`Furthermore, in May 2014, we entered into an agreement
`with U.S.-based Merck & Co., Inc. to purchase Merck’s
`ophthalmology products in Japan, Europe and Asia Pacific.
`Through these initiatives, we intend to enhance our range of
`glaucoma and ocular hypertension treatment products, with
`the aim of improving patient’s quality of life (QOL). At the
`same time, we are convinced that we can accelerate our
`progress toward realizing our long-term strategic vision.
`
`1. As of March 31, 2014
`
`Enhancing Shareholder Returns
`Santen has positioned the stable return of profits to
`shareholders as a key management priority.
`For fiscal 2013, we paid a full-year dividend of ¥100 per
`share, the same amount as for the previous fiscal year. This
`resulted in a dividend payout ratio of 48.2%. Going forward,
`we remain committed to the stable return of profits to
`shareholders. 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.
`
`Fiscal 2013, the fiscal year ended March 31, 2014, was the
`final year of the Fiscal 2011-2013 Medium-Term Manage-
`ment Plan. During fiscal 2013, net sales rose 24.9% year on
`year to a record ¥148.7 billion. This result reflected
`significant sales growth in both the Japanese and overseas
`markets. Operating income was up 11.1% to ¥27.4 billion
`and net income rose 3.6% to ¥17.1 billion.
`In the domestic prescription ophthalmic business, we
`saw steady growth in sales of key products such as our
`glaucoma and ocular hypertension treatments Tapros
`(tafluprost) and Cosopt (dorzolamide hydrochloride/timolol
`maleate), as well as our dry eye treatment Diquas
`(diquafosol sodium). Launched in Japan in November 2012,
`the intravitreal VEGF inhibitor EYLEA (aflibercept [genetical
`recombination]) continued to grow rapidly, contributing
`immensely to sales. The anti-allergy ophthalmic solution
`Alesion (epinastine hydrochloride), which was launched in
`Japan in November 2013, is steadily penetrating the
`market. In the overseas business, Santen posted higher
`sales of the glaucoma and ocular hypertension treatment
`Taflotan (tafluprost, sold as Tapros in Japan), one of its
`growth drivers. Taflotan is now available in more than 60
`countries worldwide1.
`Turning to R&D, under a new framework aimed at
`strengthening global R&D capabilities, we are working to
`create highly competitive new products based on the
`medical needs of the world’s patients. In December 2013,
`we applied in Europe for marketing approval of Ikervis
`(generic name: ciclosporin, development name: Cyclokat), a
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2014
`
`11
`
`Micro Labs Exhibit 1060-13
`
`

`

`Summary of the Fiscal 2011–2013 Medium-Term Management Plan
`By steadily executing our growth strategy based on Santen’s Values,
`we accelerated our progress toward realizing our long-term strategic vision.
`
`Santen positioned fiscal 2011 to fiscal 2013 as a period to
`invest in growth. We steadily implemented a number of
`measures to bring our business strategies to fruition.
`Notably, we actively invested in R&D to accelerate the
`creation of new products, enhance our competitiveness in
`Europe and Asia, and spur growth in our business in Japan.
`With the aim of making an even greater contribution to
`patients worldwide, we put a global manufacturing system in
`place while pursuing efficiency. We also made tremendous
`progress on building a stronger organization and developing
`human resources. Both of these initiatives will enable us to
`realize our long-term strategic vision.
`Santen made a Company-wide effort to pursue business
`activities aimed at achieving sustained growth. As a result,
`we delivered significantly higher net sales than our target in
`the previous medium-term management plan. On the other
`hand, operating income and net income were both below
`target, mainly due to the impact of upfront investments
`primarily in R&D. This included the acquisition of Santen
`
`S.A.S. of France (formerly Novagali Pharma S.A.S.). Building
`on the results of the previous medium-term management
`plan, Santen intends to execute new business strategies
`with the aim of becoming a specialized pharmaceutical
`company with a global presence.
`
`FY2011-2013 Medium-Term Management Plan
`Financial Targets and Results
`
`FY2013 Targets
`
`FY2013 Results
`
`Net Sales
`
`Over ¥121billion
`
`¥148.7billion
`
`Operating Income
`
`Over ¥31billion
`
` ¥27.4billion
`
`Net Income
`
`Over ¥20billion
`
` ¥17.1billion
`
`R&D Expenditures
`
`Around ¥15.5billion
`
` ¥19.0billion
`
`ROE
`
`10％
`
`10.2％
`
`1
`
`1. Three-year average for FY2011-2013
`
`Strategic Objectives and Results for Fiscal 2011-2013 Medium-Term Management Plan
`
`Strategic Objectives
`
`Major Achievements
`
`Product
`Development
`
`Promote globally oriented research
`and development.
`
`(cid:129) Established a global clinical development system.
`(cid:129) Reinforced product pipeline through business
`development and acquisitions.
`
`Domestic
`Operations
`
`Obtain high domestic market share and achieve
`growth through the promotion of new products
`and implementation of marketing strategies.
`
`(cid:129) Long-listed drugs ratio declined due to new
`product3 growth.
`
`Overseas
`Operations
`
`Accelerate growth in both Asia and Europe
`by reinforcing marketing platforms.
`
`(cid:129) Accelerated sales growth in China.
`(cid:129) Asia business turned to profitability.
`
`Product
`Supply
`
`Establish a global product supply system
`with our existing four plants2, which
`enable us to meet emerging market needs.
`
`(cid:129) Executed measures to reduce manufacturing cost.
`(cid:129) Structural reforms were conducted in Europe in order
`to enhance efficient global product supply system.
`
`Organization
`and
`Talents
`
`Develop talents and organizational
`capabilities to promote
`“creation and innovation” on a global level.
`
`(cid:129) Implemented an organizational management system
`in line with business globalization.
`
`2. Four plants: Noto and Shiga (both in Japan); Suzhou (China); and Tampere (Finland) 3. Tapros, Cosopt, Diquas, EYLEA, etc.
`
`12
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2014
`
`Micro Labs Exhibit 1060-14
`
`

`

`Formulation of the Fiscal 2014-2017 Medium-Term Management Plan
`
`We will further sharpen our competitiveness as a specialty company
`by achieving ongoing product launches, along with growth and
`improved profitability in Asia and Europe.
`
`President and CEO’s Message
`
`Santen has formulated the Fiscal 2014-2017 Medium-Term
`Management Plan, with a view toward realizing its long-term
`strategic vision through 2020 of becoming a specialized
`pharmaceutical company with a global presence. A set of
`strategic goals have been formulated in the new plan. Among
`such goals are the drastic reform of Santen’s research and
`development system to enable sustainable development of
`new products, accelerated business operations in the Asian
`market that is expected to grow rapidly, business expansion
`and early improvement of earnings in Europe where Santen
`has been solidifying its business foundation. In doing so,
`
`Santen aims to achieve a compound annual growth rate
`(CAGR) of 8%. In addition, the Company will focus on human
`resources development and establishment of a solid organi-
`zational structure aimed at achieving sustainable growth.
`By making a Company-wide effort to implement this
`medium-term strategy, Santen will ensure steady progress on
`the five policies toward achieving its long-term strategic
`vision. Santen has set the goal of becoming one of the top
`three ophthalmic pharmaceutical companies in the world by
`2020, a goal the Company has prescribed under its long-term
`strategic vision.
`
`Long-Term Strategic Vision through 2020
`To Become a Specialized Pharmaceutical Company with a Global Presence
`
`5 Policies toward the Achievement of Our Long-Term Strategic Vision
`
`1. Develop products that meet true customer needs swiftly
`
`2. Transform domestic business for further growth
`
`3. Accelerate business expansion in Asia and promote market entry in Western Europe/the U.S.
`
`4. Establish competitive global product supply and quality assurance systems
`
`5. Strengthen talents and organizational capabilities to promote “Creation and Innovation”
`
`Basic Policies of the Fiscal 2014-2017
`Medium-Term Management Plan
`
`Product
`Development
`
`Transform product development to realize enhanced
`productivity and achieve sustained growth
`
`Business
`Expansion
`
`Grow business in Asia/Europe and strengthen
`market presence by entering into new markets
`
`Organization
`and Talents
`
`Develop talents and organization
`to realize sustained growth
`
`Fiscal 2017 Financial Targets
`
`Net Sales
`
`Operating Income
`
`Net Income
`
`ROE
`
`R&D Expenditures
`
`Operating Income
`before Amortization
`
`Dividend Payout Ratio
`
`Over ¥205billion
`Over ¥45billion
`Over ¥31billion
`Over 13％
`Around ¥21billion
`Over ¥54.5billion
`Around 40％
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2014
`
`13
`
`Micro Labs Exhibit 1060-15
`
`

`

`R&D Strategy
`
`Domestic Business Strategy
`
`・Ensure the launch of existing products in the
`pipeline and improve productivity.
`・Enhance the pipeline for differentiated products
`based on customer needs.
`
`・Achieve business growth by contributing to the
`treatment of patients with new products and
`innovative services.
`
`In R&D, Santen is working to ensure commercialization of
`products under development and further strengthen product
`pipelines for sustainable growth in order to rapidly develop
`differentiated products that satisfy unmet medical needs.
`In particular, Santen will concentrate on fields that make
`the most of the Company’s strengths, primarily in the fields
`of dry eye, glaucoma, and retinal disorders. Furthermore,
`Santen seeks to increase the probability of success for
`products in late-stage clinical development by promoting
`“Network Product Development1,” which actively utilizes
`compounds and technologies available outside the
`Company, and by stepping up translational research2.
`Moreover, we plan to continue implementing life cycle
`management3, in order to maximize the value of our existing
`products. Looking ahead, we will continue to strengthen
`coordination between our R&D bases in Japan, the U.S.
`and Europe, as we endeavor to accelerate global clinical
`development and improve productivity.
`
`1. An approach of proactively utilizing compounds and technologies available outside
`the Company in product development.
`2. Multi-disciplinary research that links basic research, clinical research, and medical
`examinations and utilizes the findings from this for effective and efficient practical
`applications to contribute to healthcare development.
`3. Aligning one compound to treatment needs over the long term and augmenting
`through additional indication, dosage, formulation and combination products to
`increase product value.
`
`Fiscal 2014-2017 Medium-Term Management
`Plan Sales Target
`
`¥205billion
`
`In the prescription pharmaceutical business, Santen will
`promote reforms to build an even stronger sales organiza-
`tion as it works to increase the market penetration of new
`products. Meanwhile, Santen has fully entered the field of
`back-of-the-eye diseases, where there are substantial
`unmet medical needs.
`Guided by the new medium-term management plan,
`Santen will endeavor to enhance competitive advantages
`by maximizing values of new products such as Tapros,
`Diquas and EYLEA. The Company also aims to attain
`sustainable business growth and maintain a strong
`business presence in the domestic market by enhancing its
`ability to respond to unmet medical needs. It also seeks to
`achieve business growth by strengthening coordination
`among the prescription pharmaceutical, OTC and medical
`devices business categories by taking advantage of its
`strength as a specialized pharmaceutical company with a
`strong presence in Japan.
`
`Domestic Business Sales Target
`
`¥148.7billion
`
`Merck projects4
` ¥18.5billion
`
`¥122.1billion
`
`Existing
`business
`¥186.4billion
`
`¥145billion
`
`Existing
`business
`¥141.6billion
`
`Merck projects4
` ¥3.4billion
`
`Fiscal 2013
`(Actual)
`
`Fiscal 2017
`(Target)
`
`Fiscal 2013
`(Actual)
`
`Fiscal 2017
`(Target)
`
`4. The contribution from acquisition of U.S.-based Merck’s ophthalmology assets, which Santen acquired in May 2014.
`
`14
`
`Santen Pharmaceutical Co., Ltd. Annual Report 2014
`
`Micro Labs Exhibit 1060-16
`
`

`

`Overseas Business Strategy [Asia Business]
`
`Overseas Business Strategy [European Business]
`
`・Strengthen the business platform in order to
`expand market shares in key countries.
`・Achieve sales and market share growth exceeding the
`market growth rate, and enhance profit contribution.
`
`・Become a “Value Player” with a unique presence
`in specific treatment categories such as dry eye
`and glaucoma.
`・Achieve sustained growth and improve profitability.
`
`President and CEO’s Message
`
`In the European business, higher market penetration of the
`gl