`
`Always Putting Patients First
`
`sawai
`
`
`
`.-.—..——-
`
`Page 1 of 40
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`

`

`
`
`I Corporate Philosophy
`
`Always Putting Patients First
`
`It is sawai's mission to enable people to live healthy lives through
`
`pharmaceutical products imbued with our whole-hearted dedication.
`
`It is sawai's challenge to grow in tandem with society through
`
`innovation and cooperation, while pursuing creativity.
`
`It is sawai's hope that we will become an indispensable part of
`
`society through our desire to be of service.
`
`Editorial Policy
`
`Definition of Materiality
`
`In addition to the presentation of its financial and business
`information. Sawai has added environment—related and other
`non-financial information to produce an integrated report,
`based on the international integrated reporting framework
`of the International Integrated Reporting Council (IIRC).
`This report presents information related to Sawai and its
`consolidated Subsidiaries fer FY2017 (April 1, 2017 to March
`31, 2018).
`
`' Some information Is presented that does not fal within this period.
`
`This repert contains infOrmation regarding the Company’s strategy and
`performance, its future outlook as well as its creation of cerporate value In
`the short, medium, and long terms. In addition, this report includes informa-
`tion on matters related to finance, economic, social, environmental,
`governance. and other matters.
`Such information contained in this report has been included based on
`judgments regarding materiality from the points of view of assessments of
`quantity. Quality, risk, and opportunities as well as inputs from dialogue with
`stakeholders. Information deemed to be of particularly high importance has
`been included.
`
`Approach to Integrated Reporting
`
`This repOrt was prepared with the SuppOrt of the Company’s
`CSR Committee, which Includes the director in charge of
`CSR, and its Secretariat. It presents relevant information that
`may materially affect the ability of the Company to create
`value in the short, medium, and long terms.
`
`Page 2 of 40
`
`Important Matters
`
`Hi h
`imporganoe
`.9
`
`2
`
`n
`R
`epo mg
`items Within
`
`the scope of
`this report
`
`
`
`gE ‘5
`$16.1 II)
`Low
`importance
`
`,
`(~
`~
`Level of importance to oawai
`
`.
`thimportance
`
`

`

`Sawai’s Value Creation Manifesting Sawai’s Potential ...... 2
`
`Contents
`
`Growth Path................................. A
`
`Business Model ........................... 6
`
`All of Sawai’s activities are based on
`
`its Corporate Philosophy of “Always Putting Patients First.”
`
`By providing stable supplies of conscientiously prepared,
`
`Message from the President --------- 8
`
`Special issue Building a US.
`Business FOUndation ..................16
`
`Sawai’s Businesses .................. 1 8
`
`high-quality, high-value-added generic pharmaceuticals to as many
`
`Sustalnablllty
`
`patients as possible, we are fulfilling our social responsibilities.
`
`We believe that doing this will contribute to the advancement
`
`Sawai's Sustainability --------------- 20
`
`of people, society, and medical care.
`
`A Caution Concerning Forward-Looking Statements
`
`This 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.
`Accordingly, please be aware that the impact of
`certain risks and uncertainties COuld cause the
`
`Company's actual reSults to differ materially from
`any projections presented in this report.
`
`Environment------------------------------ 22
`
`Society .................................... 24
`
`Corporate Governance --------------- 2 6
`
`Financial Section/Data
`
`Message from the Director
`of Finance 32
`
`Eleven-Year Summary ............... 3 4
`
`Consolidated Financial
`Statements’ etc_ ........................ 3 6
`
`Page 3 of 40
`
`Siwai Pharmaoemical CmLtd, Integrated Report 2018
`
`

`

`I Manifesting Sawai’s Potential
`
`
`
`Stable supply
`capability
`
`With our industry-leading production system,
`.
`.
`.
`.
`we are able to maintain a stable supply of high-quality
`pharmaceutical prOdUCtS.
`
`0
`
`.
`
`Number of
`product lines
`Approximately
`
`720
`
`individual selling
`
`items
`“Always Putting
`
`
`Corporate
`
`Production
`
`capachy
`
`Approximately
`
`155
`
`.
`
`Number of
`
`personnel handling
`product inquiries
`(368,000 inquiries per year)
`
`19
`
`Provision of
`
`information
`
`We provide information about our products
`in a timely manner thr0ugh three
`main information channels.
`
`479
`
`
`
`personnel
`
`‘All data presented here is based on the actual performance of the Sawai Pharmaceutical Group (Japan) in FY2017.
`
`Page 4 of 40
`
`

`

`R&D expenditures
`
`Approximately
`
`8.8
`
`billion yen
`‘Calculated on an IFFIS basis
`
`Contribution
`
`toward reducing
`healthcare expenditures
`
`Formulation
`
`technology
`
`We are constantly refining our designs to make
`
`our pharmaceutical products even easier for
`
`patients to take.
`
`Number of
`
`patents held
`
`26
`
`patents
`
`Number of
`
`tablets sold
`
`Approximately
`
`I
`
`.
`
`PhHosophy
`Patients First” ' .
`
`
`billion tablets
`10.6
`
` Waste
`
`Approximately
`
`274.6
`
`billion yen
`
`Kn
`
`recycling rate
`
`46%
`
`Social
`
`contribution
`
`We make a positive contribution to
`
`society by providing high—quality generic drugs
`
`at reasonable prices.
`
`Page 5 of 40
`
`Sawai PharmaceuticalConle Integrated Report 20l8
`
`
`
`Sawai‘sValueCreation
`
`Sustainability
`
`
`
`FiiiaiiCialSectioni’Data
`
`

`

`I Growth Path
`
`Continuing to grow together with society as a leading
`
`manufacturer of generic drugs
`
`When generic drugs were virtually unknown, Sawai began
`
`persistently raising awareness. The Company also anticipated
`
`the burgeoning demand for generic pharmaceuticals, arising
`ernment, and
`uction facilities and
`
`from promotional policies on the part of gov
`
`
`
` 1961
`
`
`successfully made prior investments in prod
`
`personnel. These two factors have allowed Sawai to achieve
`
`rapid growth in generics in recent years. Moving forward, we
`will continue to help reduce the burdens pla
`ced on patients,
`
`improve convenience, and continue to contribute to healthcare
`10 come.
`
`financing by staying the course in the years
`
`2007
`
`Important Events in Society
`
`Sawai Pharmacy, the forerunner of Sawai Pharmaceu—
`tical Co., Ltd. was established as a drugstore in 1929.
`Subsequently, in the years before and after the
`Second World War when pharmaceutical products
`were in short supply, Sawai transformed itself into a
`manufacturer of over-the-counter pharmaceutical
`products in order to meet society's needs.
`Later, in response to various factors such as the
`introduction of the universal health insurance
`coverage system in Japan, Sawai transformed itself
`again to become a manufacturer of prescription
`medications.
`Sawai has since grown to become one of today’s
`leading manufacturers of generic drugs.
`
`umafl984
`
`MECOBALAIII TIIiIIII
`Pmiouuy available only In capsun
`fem me Gomany oovoiapod and
`lam an my-xnwuw«not.
`Even today. in: Sawai WHOM!
`I large an” oflno mam
`
`Net Sales0(Billions of yen)
`
`1-0
`
`
`
`Lnnciiaiih2009-_""2"
`i-ur':=
`J
`15%:
`
`TAMSULOSIN OD Tabldls
`The Company was fat to martini
`after fay utilizing its hlghly nuanced
`technologies to necure s
`sustained-release formulnon wnlo
`also evening infringing on any
`existing pawns,
`..
`i255“;
`, ‘EE; ._
`EE': i 'I
`mh2009 52;:
`,
`gar — '
`J 92‘s.: r
`UNSOPMZOLE OD Tlhlds
`This a enact Slwal‘n main pm mu.
`it in a pawn-a mutton Mammal
`stabllll’y. neon mum moan. and
`pin-ant met- rnnkhg It ouy Ii no.
`The product II no MIDI. ii hm.
`making It mm mm for
`hulmcan profowonllsin hm
`
`
`
`63.8
`
`Term Business Plans
`
`Saw ' Madiu
`
`
`
`
`M1 TRUST
`
`1929
`
`1964
`
`1971
`
`1983
`
`2003
`
`2008
`
`2009
`
`2010
`
`2011
`
`Sawai Pharmacy, the forerunner
`of Sawai Pharmaceutical 00.,
`Ltd, was f0unded in Asahi -ku
`Osaka City.
`
`Modern Kyushu Factory,
`which at that time
`surpassed those of
`original drug manufactur-
`ere, completed
`
`Listed on the First Section of
`the TSE
`
`New premises completed, Head Office
`and Research Laboratories combined
`and relocated to Current premises
`(Vodogawa—ku, Osaka)
`
`Sawai’s
`
`History
`
`Sawai transfermed itself from a
`manufacturer of over-the-counter
`medications into a manufacturer of
`prescription medications
`
`Sawai Pharmaceutical Co, Ltd.
`incarporated in Asahi-ku, Osaka
`
`
`
`Ceremony for listing on the First
`Section of the T85
`
`
`
`Head Office and Research Laboratories
`
`The company's head office and
`factory. "Yoron P," one of
`Sawai's main products at the
`time, was a natural active
`vitamin preparation patented
`for pharmaceutical fonnuiation
`technology.
`
`
`Page 6 of 40
`
`

`

`
`
`A world-leading
`generic drug
`-1 Former numerical indicator snare:
`
`Generics/an pharmaceutical pvoouctc
`
`'2 New numerical indium sham =
`manUfaCtU I’el’
`Generics/(Originator drugs for which
`
`generic drugs exist + Generics)
`
`
`
`
`—
`.
`
`-
`
`>
`
`,
`
`ummm2015
`N
`,
`.3)
`momma:
`HYDROCHLORIDE TIMI:
`By being me llm oomny to brlno no
`product to warm market u aW
`m Saw-I helped to romeo menu-now
`mmprmSaw-‘mmmnm
`the nlonut mam Inn. boom
`HALOXIFENEWIE
`
`
`
`
`
`“The Company has adopted International
`Financial Reporting Standards (IFRS)
`from FY2017. Figures for FY2018 have
`been restated based on IFRS for
`comparative purposes.
`
`[I
`
`,’
`
`’1’
`
`’I
`
`
`
`
`
`
`
`'
`Wh2011 w
`_
`A
`2::
`D >
`KI’OIWAS'IITIN Tllllm
`MumoiS-ml'cnuhpmaotm.
`
`Sawsm In mammoth. In
`ubotu
`to m tu-
`me
`.
`.
`
`
`:2... .f'mfi... mall‘mu
`A Generic drug market share (by quantity) (96)
`note: the n nut mum Inn. for
`.
`.
`-
`»
`
`
`Source. Ministry (1 Health. leouand warn (MHLW)
`1054
`Ammgm' a m m 9"”
`
`pm mmyby nuktngW
`
`mammalian-ohm.
`
`C
`.Q
`‘65
`Q)
`5
`u,
`2
`
`g_
`
`0)
`g
`N
`U)
`
`if
`
`Dam.
`()l
`
`1411(1it
`
`
`
`—
`
`
`
`15.5 Change in production capacity
`(Billions of fields)
`
`
`19
`21
`14
`9
`
`26
`
`Change in the number of patents held
`(Patents)
`
`3
`
`M1 TRUST 2015
`
`M1 TRUST 2018
`
`M1 TRUST 2021
`
` #
`
`2012
`
`2013
`
`2014
`
`2015
`
`2016
`
`2017
`
`2018
`
`2019
`
`2021(mmu)
`
`Sande Nishi Factory completed
`
`Acouired UDSher-Smith
`Laboratories, LLC and entered the
`US. market in earnest
`
`
`
`
`
`
`2015
`2013
`The Pharmaceutical
`New pharmaceutical plant at
`the Kanto Factory
`Development Center was
`completed, and the functions
`completed
`
`of the former Pharmaceutical
`Technology Center were
` Sawai's antiplatelet product
`consolidated into the new
`
`Center
`
`
`Sawai established 3
`new Corporate
`Philosophy and Code
`of Conduct.
`
`Pharmaceutical plant at
`the Kanto Factory
`
`
`
`.
`
`'
`
`-
`
`l
`,’ Ta
`Nil
`
`\
`
`"CILOSTAZOL OD Tablets
`Sawai" received the Asahi
`Chemical FOrmulation
`Development Award from the
`Pharmaceutical Society of
`Japan
`
`Sanda N'Sh' Factory
`
`From left: Mitsuo Sawai,
`President, Sawai Pharmaceutical
`Co, Ltd. and Rusty Field,
`President & CEO. Upsher—Smith
`Laboratories, LLC
`
`
`
`Page 7 of 40
`
`Suwai Pharmaceuical (mud, Integrated Report ZDIS
`
`5
`
`

`

`I Business Model
`
`
`
`Aiming to make a positive contribution toward the develop
`
`sustainable society by helping patients realize improved
`
`more satisfactory quality of life, while also reducing health
`
`Social ISSUes
`
`_i:
`
`
`
`
`0 Strong ties with wholesalers
`and retailers
`0 An impressive product lineup
`of approximatefy 750 individual
`selling items. and a strong brand
`
`
`
`
`
`g Manufactured Capital
`7 in Japm
`.Production facilities (factories) 9 (2 in USA
`
`fl Financial Capital
`
`.REiI credit rating
`
`A -
`
`'Eiilaé‘f"£§a$:$ ¥181 .4 billion
`
`0 ¢
`
`Human Capital
`.Number of employees
`(Consolidated data unchang
`upsnevSmnn Laboratories)
`.Qualified pharmacists
`does not include unmet-Smith Laboratomo)
`(Consolidated data ‘0! Japan Oniy.
`
`3 ’ 252
`
`2 7 0
`
`6 Intellectual Capital
`3 (fizz?
`.Raearch bases
`.Manufacturing know—how making possible
`multi—item product mix, low-volume production
`
`H Social and Relationship Capital
`I .
`.Japan’s first-class pharmaceutical regulatory
`system and universal health insurance coverage
`system
`.The API manufacturers that support our ability
`to maintain stable supply. and
`the pharmaceutical distribution companies that
`link us with medical institutions
`
`Natural Capital (Annual)
`(Consolidated data for Japan only. does not
`include Upeher-Smith Laboratories)
`
`.52T3a'9rlcl‘y‘lm
`
`92,602 MWh
`
`.Water usage
`
`4 2 5 thousand "‘3
`
`
`
`Improvements
`n quality
`of life (Got)
`
`a 7
`Access to
`healthcare
`
`The
`Hyper-aging
`society
`(JAPAN)
`
`Safeguarding
`the global
`_ environment
`
`Unmet
`medical -
`needs,’
`.-
`v
`
`Page 8 of 40
`
`

`

`
`
`ment of a
`
`health and a
`
`care expenditure
`
`The first to concurrently develop. launch, and consistently supply high-quality, high-value-
`
`added generic drugs, Sawai provides conscientiously created products to patients through
`
`medical institutions. Our business model centers on efforts to achieve a sustainable growth
`
`cycle—in realizing our Corporate Philosophy, we will increase our corporate value—by helping
`
`patients realize healthy lives and by contributing to society by reducing medical expenses.
`
`
`
`Sawai’sValueCreation
`
`Value Creation Process
`
`H
`
`
`
`
`
`
`0 First-alas abiity to undertake
`analysis of originator
`dmg patents
`O The technological capabilitm
`needed to undertake development
`without infringing patents etc.
`
`
`
`0 An industry-leading annual production
`capacity of 20 billion units
`0 Extensive know-how as a specialist
`generic chug manufacturer
`
`Value Provided by Sawai
`
`Contr but ng to a
`
`susta nab e hea th
`
`nsurance system
`
`Reduc ng the burden
`on pat ems irom
`med ca costs
`
` Improv ng
`access to hea thcare/
`
`mprov ng 00L
`
`
`
`
`
`AchievingOurPuttingSawai’sCorporatePhilosophy
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`AlwaysPuttingPatientsFirst
`
`
`
`Page 9 of 40
`
`Sawai Pharmaceutical Co,Ltd, Integrated Report 2018
`
`

`

`I Message from the President
`
`
`
`Transforming into a World-Lea In
`Generic Drug Company
`
`President, Representative Director
`
`t )Jéf/Wa/i/
`
`
`
`
`
`Page 10 of 40
`
`
`
`

`

`Summary of FY2017 Developments and Performance
`
`
`
`
`
`Sawai‘sValueCreation
`
`As Sawai closes out a challenging FY2017, I remain confident that this year also
`
`represents a pivotal point in the Company’s history. With the acquisition of
`
`Upsher—Smith Laboratories in the United States, Sawai officially began
`
`its transformation into a global enterprise — despite the challenges we faced.
`
`The environment for FY2017 pr0ved diffiCuIt. Sawai's
`financial performance fell short of its initial plan. Despite a
`strong performance by Upsher-Smith, market challenges in
`Japan resulted in operating income falling slightly below
`forecast on an overall basis.
`
`The biggest factor contributing to the shortfall was the
`slowdown in sales revenue in the Japanese market, largely
`due to loss of market share to Authorized Generics (AGs) as
`well as to a highly competitive pricing environment. The
`Company's greatest strength as a generics manufacturer is
`its ability to offer stable Supply and high duality, along with
`strong R&D capabilities. We believed that this added value
`w0uld allow us to differentiate Ourselves from AGs, generic
`drugs sold with the permission of the original manufacturer
`after patents have expired. In Japan, AGs represent more
`than 50% of the market which contains AG-versions.
`
`In FY2017, they performed very Strongly and gained major
`market share. At the same time, our commitment to fair
`pricing (even in the midst of extreme competition among
`non-AG products) reSulted in sales revenue falling beI0w
`target in Japan.
`At the same time, the Company has taken a major step
`forward in realizing its ambition in the global generics
`
`marketplace. In May 2017, as part of our effort to build an
`operating f0undation for future growth through new markets,
`we acquired Upsher—Smith Laboratories, LLC (Upsher—Smith)
`— a company with nearly a century-long history in the United
`States. By acquiring a firm with integrated R&D, manufactur-
`ing and sales, the Company has taken its first step toward
`becoming a global enterprise.
`In summary, while business in Japan struggled in FY2017,
`I believe that we also gained an imp0rtant new avenue to
`future growth in our business Outside Japan.
`This June marked exactly 10 years since I aSSumed the
`position of president. At that time, net sales am0unted to just
`ab0ut ¥37.0 billion. With strong Support from patients,
`health care professionals, shareholders, investors and other
`stakeholders, we have been able to grow significantly by
`seizing opportunities created by the government's policy of
`encouraging generic drug use. While the business environ-
`ment is expected to become even more challenging, we will
`continue to enhance corporate value by upholding our
`commitment to Our guiding philosophy of always putting
`patients first.
`
`Financial Highlights
`
`Millions of yen
`
`
`
`Year on Year
`
`Growth
`(”0)
`
`FY201 7’1
`
`FY2016
`
`By Segmenf:
`
`Net Sales
`132,392
`168,068
`134,720
`33,347
`35,676
`26.9%
`
`
`Core operating income
`23,558
`31,1 18
`24,349
`6,730
`7,560
`32.1%
`
`
`Operating income
`22,943
`22,209
`21,903
`303
`(733)
`(3.2%)
`
`
`
`Profit before tax
`22,757
`20,251
`—
`-
`(2,505)
`(1 1 .0%)
`
`
`
`
`
`
`
`
`
`
`
`Profit attributable to owners
`of the parent
`
`17,969
`
`14,017
`
`—
`
`—
`
`(3,952)
`
`(22.0%)
`
`‘1 Financial Results for FY2017 (IFRS): Finano'al Results for 12 months ofJapan operations 1» 10 months of us. operations (June 2017 to March 2018)
`’2 Because segment results are not adjusted. they are not consistent with total figures.
`
`
`
`Page 11 of 40
`
`Sawai PharmaceuticalCo.le. Integrated Report 20l8
`
`

`

`New Medium-term Business Plan “M1 TRUST 2021 (FY2019 — FY2021)”
`
`
`
`Review of the previous medium-term business
`plan “M1 TRUST 2018"
`
`M1 TRUST 2018, our previous medium-term business plan
`which ran through the fiscal year ending March, 2018,
`fOCused on transforming Sawai into a company that can
`continue to grow in the midst of rapidly changing market
`conditions (see chart). Notable among Our efforts to achieve
`that goal was our acquisition of Upsher—Smith. In addition to
`enabling us to significantly exceed cur net sales target of
`¥157 billion for the final year of the medium-term plan, it
`allowed us to build an operating foundation for full-scale
`entry into the US. market and begin offering high-quality,
`high-added-value generic drugs to patients there as well as
`in Japan.
`At the same time, while we maintained a firm hold on cur
`
`Summary of M1 TRUST 2018 Results
`
`number one position in the Japanese generics market with a
`14.9% market share on a volume basis, we were unable to
`meet our planned target of 16%. This was primarily due to
`the 90vernment‘s basic poliCy of optimizing medical
`expenses reSulting in an Overall decrease in expected market
`size of approximately one billion tablets, but the grewth of
`AGs also contributed to this shortfall.
`
`In terms of income, we achieved Our target for the first year
`of the medium-term plan, but were unable to do so in the
`second and third years. due in part to a struggling Japanese
`market. We will continue with efforts to strengthen our
`cost-control capabilities, as we experienced an increase in
`losses on disposal.
`In terms of strengthening our ability to provide a stable
`Supply, we put a production capacity in place f0r 15.5 billion
`tablets in anticipation of previding a stable Supply in the era
`of an 80% generic Substitution rate.
`
`Vision
`
`
`
`To transform into a company that can continue to grow in the midst ofm
`
`rapidly changing market conditions
`
`/
`
`April 2015 through March 2018
`
`Financial Targets
`for FY2017
`
`
`
`What
`“M1 TRUST 2018"
`Will Achieve
`
`gates Targett¥1 57billion bActual:¥168billion' aggrfigng Target:¥26bi||ion ) Actual2¥22billion
`
`o Firmly maintain the number one market share in the generics industry in Japan
`Share within the generics market on volume basis
`-Volume share target within the generics market was not achieved
`dntensilying price competition due to commoditization and
`increase in AGs
`.Target share was not achieved due to a larger-than-anticipated inerease in
`the number of AG products launched.
`.Intensifying price competition due to increased price pressure from major
`dispensing pharmacies and dmg chains.
`.AlthOugh existing products grew steadily, the use of generics at DPC'
`facilities stabilized and the sales volume ofexisting products did not
`increase as much as we had expected.
`
`Target216.096 } ActualZ14.9%
`Revenue growth rate (annual average)
`
`Target: 1 4.1 96 b Actual: 1 6.8%
`
`‘Diagtcsis procedure combinahcn
`
`9 Strengthen stable supply and cost-control capabilities in response to changing market conditions
`Production capacity
`~Maintain high quality and continue stable supply
`-Cost rate worsened in contrast with initial plan
`.Sales and quantity targets were not achieved. as a result, the cost rate was
`worse than the initial plan.
`.Gross profit target was not achieved, however, optimizing selling, general,
`8t administrative (868A) expenses Curbed profit decline.
`Target 2 55mm yen D Actual Z 49.3mm yon
`
`
`Target: 1 5.
`
`2:7?er > Actual:15.5
`
`Capital Expenditure for 3 years
`
`billion
`tablet-
`
`Upsher—Smith Laboratories,LLC
`(Upsher—Smith)
`Total purchase pricei¥1 16.5billion
`(20% stake has been sold to Sumitomc Corporation of Americas)
`
`9 Build an operating foundation for future growth through new business opportunities
`-Complete establishing the foundation in the US market
`through Upsher—Smith acquisition
`-Development and application of Pitavastatjn (PM products
`are on track
`.Acquisifion of Upsher—Smith created a foundation for US market penetration.
`Efforts are mder way for synergy creation.
`.Three Paragraph IV candidate products are on track and PW product is
`expected to launch by FY2023.
`.Sawai is the sixth market entrant to the domestic biosimilar market.
`AlthOugh sales are not significant, certain knowledge was acquired.
`
`'Net sales for the fiscal year ended March 31,2018“: based on IFRS.
`
`
`
`10
`
`Page 12 of 40
`
`

`

`
`
`Message from the President
`
`I
`
`Understanding the Market Environment
`
`Conditions Surrounding the Company‘s business have
`changed rapidly in recent years. As Japan grows closer to its
`goal of achieving a market in which generics have an 80%
`share, a relative slowdown in growth is expected. In addition.
`fundamental reform of the drug pricing system, the increas-
`ingly borderless nature among long-term listed drugs and
`generics. and drug price revisions associated with the
`
`conSumption tax increase scheduled for October 2019 are
`expected to reSult in a challenging market environment. We
`believe these developments may trigger moves toward
`reorganization of the generic drug industry.
`Our Outlook for the size of the generic drug market on a
`volume basis, which grew by 19 billion tablets over the
`previous three years, sees growth holding at about 15 billion
`tablets over the next three years, for a total of approximately
`85 billion tablets in FY2021 reflecting the impact of moves
`toward proper drug use.
`
`Changes in the Micro/Macro Environment
`
`Macro
`
`environment
`.Optimization of health expenditures through
`
`
`.Optimization of medical expenses through the
`changes
`reexamination of prescription itself
`promotion of generic use
`
`.Borderlwsness of long-listed and generic products
`.Setting a target for generic substitution rate of 80%
`
`.Maintaining stable supply and high quality
`.Quality and reliability
`.Strengthening the business structure through
`.Stable supply system
`integration and sales
`
`
`
`.Patent expiration of major products
`.Growth opportunities for the generic industry
`as a whole
`
`.Original drug market segmentation and
`treatment personalized
`.lntensifying competition due to
`
`commoditization and industry maturation
`
`.lntegration and growth in size of dispensing
`.lncrease in purchasing power pressures
`
`pharmacies
`Micro
`due to pharmacy and distribution alliances
`
`
`.Predictability by setting roadmap
`environment
`.lncrease in uncertainty associated with the
`
`
`changes
`drastic drug pricing system reform
`
`
`
`
`Volume Forecast in the Generics Market
`
`(Bilion tablets)
`120 —
`
`4 Actual results
`
`Forecast D
`
`(96)
`_ 10°
`
`‘20 0
`
`2015
`
`2016
`
`2017
`
`2018
`
`2019
`
`2020
`
`2021 (Marchsn
`
`I Lbng»termisteddugs
`
`.Generics +Substimtionrate
`
`‘Ail figures are estimated by Sawai Pharmaceutical 00.. Ltd.
`
`
`
`Sawai’sValueCreation
`
`iiti'w.
`()i
`
`Star?
`(in
`
`
`
`Page 13 of 40
`
`Sawai PharmaceuicalCn.Ltd. Integrated Report lots
`
`11
`
`

`

`New Medium-term Business Plan “M1 TRUST 2021 (FY2019 — FY2021)”
`
`
`
`Medium- to Long-term Vision and the new
`
`medium-term business plan “M1 TRUST 2021”
`
`For the Company to compete effectively in this market
`environment. we have announced a medium- to long-term
`vision to establish a dominant position in the domestic
`generics market, and to transform into a world—leading
`generic drug company by accelerating growth of Upsher—
`Smith. Over the next three years, we will fOCus on achieving
`efficient growth thrOugh strengthened alliances in the
`Japanese market, while at the same time accelerating
`globalization through Upsher—Smith as a base in the U.S.
`Those efforts will focus on key tasks based on the new
`medium-term business plan “M1 TRUST 2021“ (hereinafter
`referred to as “M1 TRUST 2021").
`
`Medium-to Long-Term Vision
`
`Establish a dominant position in the
`domestic generics market,
`and transform into a wortd-leading generic drug company
`by accelerating growth of Upsher—Smith
`
`Further expand
`generic business
`Build foundation
`”dmveé‘itmm ”$195333;
`g w
`Ju 0
`
`Improve growth
`_
`efficiency by
`strengthening Transformation
`-I?‘El°‘;‘il§“§:m i"‘° a 9W"
`WI
`0
`r
`I
`00mpany
`
`Year end
`March 31, 2015
`
`Year end
`Year end
`March 31, 2018 March 31, 2021
`
`Leverage Strengths to Boldly Tackle Key Tasks
`
`In the Japanese market, where conditions are changing
`rapidly and the future is diffiCult to predict, we will leverage
`cur strengths. These include production capacity that has
`been built thr0ugh investment over the years and a solid
`financial base; an industry-leading lineup of products and
`outstanding R&D and sales capabilities; and the existence of
`a business base in the US. market through Upsher-Smith. In
`our position as the leader in Japan's generics industry, we
`will build a structure capable of responding to changes in the
`
`industry and strengthen cost competitiveness against expected
`moves toward industry consolidation. In other words. we will
`seek the most effective management approach that may include
`strategic alliances with others in the industry who share
`common goals to drive efficiencies rather than solely relying on
`organic growth.
`In the US. market, Upsher—Smith growth will be driven by
`leveraging the synergies created by our intellectual property
`strategy and pharmaceutical technology capabilities,
`Upsher—Smith's marketing and branding power, and other mutual
`strengths. By increasing our presence in the U.S., we will work
`toward accelerating our transformation into a global company.
`
`Key Measures under M1 TRUST 2021
`
`M1 TRUST 2021 establishes a number of key tasks in the
`Japanese market, with specific action items and key
`initiatives divided into four areas: sales, R&D, production and
`reliability aSSurance, as noted below.
`
`' Improve efficiency through selection and concentration
`‘ Optimize distribution
`
`° Product development focused on added value and
`cost effectivity
`° Obtain approvals in an effective and secured manner
`
`including Upsher—Smith
`
`- Establish manufacturing systems to improve efficiency
`and flexibility
`° Strengthen purchasing power
`
`' Strengthen cooperation in quality assurance
`° Strengthen regulatory affairs management system,
`
`The first key task in the US. market will be to leverage
`synergies between Sawai and Upsher—Smith, while purSuing
`a bold effort to achieve our growth strategy with a signifi-
`cantly expanded pipeline supported by Upsher-Smith's
`unique commercialization capabilities.
`
`Initiatives in the US Market
`
`° Create synergies between Sawai and Upsher—Smith
`° Expand pipeline by strengthening in-house development
`
`° Achieve product diversification by in-licensing
`
`
`
`12
`
`Page 14 of 40
`
`

`

`
`
`Message from the President
`
`I
`
`Financial Targets
`
`Currently, we have only disclosed financial targets under
`M1 TRUST 2021 for the fiscal year ending March 31, 2019.
`In the Japanese market in particular. we expect condi-
`tions to remain uncertain due to the direction of drug
`price revisions associated with the increase in the
`
`Financial Targets for the Year Ending March 31, 2019
`Fiscal year ended March 31, 2018
`
`Total
`
`consumption tax, other fundamental drug pricing System
`reforms, and the impact of guidelines for good distribution
`practices. Given these uncertainties, we have determined
`that ann0uncing year two and three financial targets
`based on a variety of assumptions would not represent an
`appropriate disclosure of information to the market, and
`thus the plan lists consolidated performance for the
`Japanese market only for the single year.
`
`Unit: ¥mi|lion
`
`Fiscal year ending March 31, 2019 (Targets)
`By segment
`
`Total
`
`Year on Year Change
`Amount
`Growth
`
`
`
`Sawai‘sValueCreation
`
`By segment
`
`
`
`
`4,432
`Net sales
`168,068
`
`
`
`
`69,600
`0.2%
`Gross profit
`69,440
`
`
`24,000
`Operating noome
`22,209
`8.1 %
`
`
`Profit before tax
`20,251
`23,700
`1 7.0%
`
`Profit attributable to owners
`14,017
`of the parent
`" IFRS basis Because segment results are not adjusted, they are not consistent with total figues.
`
`2.6%
`
`24.1%
`
`172,500
`
`We plan to launch approximately 25 products in the US.
`market during the next three years. In addition, we expect
`.
`five to 10 products to come to market each year for the next
`five years, and we have thus disclosed a five-year numerical
`plan that inCOrpOrates the effect of those new products. Fer
`fiscal year ending March 31, 2019. compOund annual gr0wth
`rate (CAGR) on net sales is expected to reach 12.3%, with a
`CAGR on EBITDA of 22.4%. The plan calls for raising EBITDA
`from the Current level of approximately ¥10 billion to
`approximately ¥15 billion in three years and approximately
`¥20 billion in five years.
`Upsher—Smith and Sawai enjoy a similar management
`philosophy that has allowed us to leverage synergies
`following our merger. Upsher—Smith has expertise developed
`,
`,
`_
`_
`,
`,
`,_
`through Its long history In the US. market, Including Its ability
`to identify niche opportunities and a culture focused on
`high-duality generics. Going f0rward, we will work to raise
`Upsher—Smith's profitability to levels that are comparable to
`Our own, in an effort to make Upsher—Smith a second pillar
`within the Sawai Group.
`
`Upsher—Smith P/L plan
`
`Upsher—Smith: EBITDA
`
`(x100 milion)
`250 _
`200 -
`
`150 —
`
`100 —
`
`CAGR:22.4°/
`(Year EndingM
`
`
`
`
`5° - I I I
`
`0
`
`2018
`
`2019
`
`2020
`
`2021
`
`2022
`
`2023 (March at)
`
`I Pipeline .Existing products
`
`Upsher—Smith: Net Sales
`(x100 trillion)
`600 _
`500 _
`400 _
`300 _
`200 _
`100 _
`0
`
`
`CAGR:12.3%
`(Yea'tgnag‘rg Ma":
`
`
`
`2018
`
`2019
`
`2020
`
`2021
`
`2022
`
`2023th31)
`
`Unit: ¥million
`
`
`
`11:33.,31318
`(10 month)
`
`Year Ending Nzlarch 31, 2019
`Y8” Ending MW" 31
`2021
`Year Ending March 31, 2023
`
`35,900
`37,600
`44,700
`47,300
`56,900
`12.3%
`
`Net sales
`
`Existing products
`
`Pipeline
`
`33,347
`
`33,347
`
`—
`
`
`
`
`
`31,800
`28,900
`29,700
`25,500
`25,400
`—
`
`4,100
`8,700
`15,000
`21,700
`31 I500
`—
`
`
`
`
`
`
`
`
`Operating income(before PPA)
`‘
`7,486
`‘
`7,600
`8,500
`13,000
`13,000
`18,500
`27.5%
`
`2,700
`3,000
`7,500
`7,500
`13,000
`45.5%
`Operating income
`‘
`1 .874
`‘
`EBITDA
`l
`9,463
`l
`8,700
`9,500
`14,500
`14,000
`19,500
`22.4%
`‘ $1:¥105 (2019/3 or later)
`
`
`
`Page 15 of 40
`
`Sawai PharmaceuticalColtd. Integrated Report 20l8
`
`13
`
`

`

`Sawai's Contribution to Society
`
`
`
`The Company believes that its greatest contribution to society is through improving
`
`patient access to healthcare and the health of medical care funding through
`
`its primary business of providing generic drugs.
`
`Corporate Social Responsibility (CSR)
`
`I believe that our greatest contribution to society at large,
`and the Company's raison d'étre, is improving access to
`medical care for patients and to the health of medical care
`funding"1 thr0ugh pr0viding generic drugs (the realization of
`cur CorpOrate Philosophy).
`
`'1 The amount contributed in reduced healthcare costs In FY2017 was epproxlmetety
`¥274.6 billlon on a domestic basis.
`
`Overall CSR
`
`hiring and training of production personnel and other human
`resources; the deployment of energy-saving and low-carbon
`emission manufacturing equipment; and the maintenance of
`a healthy working environment—is related to CSR and
`cannot be considered separately from the business.
`The 2030 Agenda for Sustainable Development Goals (SDGs)
`has been much talked ab0ut recently, and as a pharmaceuti-
`cal company, we fully SuppOrt these goals, with a partiCuIar
`fOCus on Goal Three, good health and well—being. I w0uld like
`to further strengthen Our efforts in this area going forward.
`
`Initiatives to SDGS
`
`See page 21
`
`In FY2018, we received sole approval among generics
`companies for oseltamivir, an anti-influenza drug. While we
`had to overcome a number of challenges to achieve this.
`including post-marketing surveillance of drug resistance in
`and outside Japan, and profitability issues, a strong sense of
`mission to contribute to society dr0ve uS to continue these
`efforts.
`
`We are also working to develop value-added preparations
`that pu