`
`Always Putting Patients First
`
`Sawat
`
`oe
`
`Page 1 of 40
`
`
`
`
`

`

`
`
`| Corporate Philosophy
`
`Always Putting Patients First
`
`It is S@Wai’s mission to enable peopletolive healthy lives through
`pharmaceutical products imbued with our whole-hearted dedication.
`
`It is S@Wai’s challenge to grow in tandem with society through
`innovation and cooperation, while pursuing creativity.
`
`hopethat we will becomeanindispensable part of
`It is S€WAi’s
`society through our desire to be of service.
`
`Editorial Policy
`
`Definition of Materiality
`
`In addition to the presentationofits financial and business
`information, Sawai has added environment-related and other
`non-financial information to produce anintegrated report,
`based on the international integrated reporting framework
`of the International Integrated Reporting Council(IIRC).
`This report presents information related to Sawaiandits
`consolidated subsidiaries for FY2017 (April 1, 2017 to March
`31, 2018).
`
`* Someinformation is presented that does notfall within this period.
`
`This report contains information regarding the Company's strategy and
`performance,its future Outlook as well as its creation of corporate 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.
`Suchinformation 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
`beenincluded.
`
`Important Matters
`
`Approachto Integrated Reporting
`
`This report was prepared with the support of the Company's
`CSR Committee, which includes the director in charge of
`CSR,andits 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
`
` High
`
`_porting
`om TUT a)
`the scope of
`this report
`
`Sawai
`i
`Level of importance to Sawai
`
`.
`High
`importance
`
`importance
`2
`g
`
`By= s
`
`58jAj®
`Low
`
`.
`importance
`
`

`

`Sawai’s Value Creation Manifesting Sawai’s Potential ------ 2
`
`Contents
`
`Growth Pathess::rrrrereseeeeeeeeeeeeeereeeee 4
`
`BuSiness Modolersrsrrrrerreeeeeeeeeeeeees 6
`
`All of Sawai’s activities are based on
`
`its Corporate Philosophy of “Always Putting Patients First.”
`
`Message from the President::------- 8
`
`Special issue BuildingaaU.s.
`Business Foundation --
`weveeeeee
`
`16
`
`Sawai’s BUSINESSES +++++++++++++++ 18
`
`By providing stable supplies of conscientiously prepared,
`high-quality, high-value-added generic pharmaceuticals to as many
`
`Sustainability
`
`patients as possible, we arefulfilling Our social responsibilities.
`Webelieve that doing this will contribute to the advancement
`
`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 Companyat 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.
`
`Sawai’s Sustainability -++++++++++++++ 20
`
`Environment::-+s+ss+eeseeseeeeeseesees DD
`
`Society eoatleniaeisenistieatleniseteenistieanienssteesia 24
`
`Corporate Governance +++++++s++++ 26
`
`Financial Section/Data
`
`Message from the Director
`OTEINANOO ctescccececteccescececceeeecens
`
`Eleven-Year SummaryReeccccccencete 34
`
`Consolidated Financial
`Statements, OIC. creer eee e eter eeeeeeeees 3 6
`
`Page 3 of 40
`
`Sawai Pharmaceutical Co,Ltd. Integrated Report 2018
`
`

`

`| Manifesting Sawai’s Potential
`
`
`
`Stable supply
`capability
`
`With ourindustry-leading production system,
`oe
`.
`.
`we are able to maintain a stable supply of high-quality
`pharmaceutical products.
`
`mm
`
`6
`
`capacity
`
`Approximately
`
`13.9
`
`O
`
`personnelhandling
`productinquiries
`(368,000 inquiries per year)
`
`ih,
`
`Numberof
`SSP
`Approximately
`
`720
`
`individual selling
`
`Corporate
`
`items Production
`“Always Putting Numberof
`
`
`Provision of
`information
`
`Weprovide information about our products
`in a timely manner through three
`main information channels.
`
`ech
`L479
`
`
`
`een
`
`*All data presented here is based on the actual performance of the Sawai Pharmaceutical Group (Japan) in FY2017.
`
`Page 4 of 40
`
`

`

`Formulation
`technology
`
`Weare constantly refining our designs to make
`our pharmaceutical products even easier for
`
`patientstotake.
`
`Numberof
`patents held
`
`expenditures
`
`8: 8:
`
`a
`
`’
`
`billion yen
`‘Calculated on an IFRS basis
`
`tot) Approximately
`patents Philosophy
`
`
`
`Sawai’sValueCreation
`
`Sustainability
`
`Patients First” ° «
`
`tablets sold
` @reyaligleleiieya)
`10.6
`
`toward reducing
`healthcare expenditures
`
`Approximately
`
`214.6
`
`of
`
`O
`
`Numberof
`
`Approximately
`
`billion tablets
`
`eI feyemorn
`
`Social
`=
`fae=contribution
`evs0
`We makea positive contribution to
`
`
`
`FinancialSection/Data
`
`Ts
`
`Page 5 of 40
`
`society by providing high-quality generic drugs
`at reasonable prices.
`
`Sawai Pharmaceutical Co,Ltd. Integrated Report 2018
`
`

`

`| Growth Path
`
`Continuing to grow together with society as a leading
`manufacturer of generic drugs
`
`When generic drugs werevirtually unknown, Sawai began
`
`persistently raising awareness. The Companyalso anticipated
`
`
`
`se
`Lancietn2009 iaemmnse
`sons
`:
`oe——
`4
`Se
`TAMSULOSIN ODTablets
`The Company wasfirst to market
`after fully utilizing its highly sdvancec
`technologies to 2ecure a
`sustainec-relesze formulation whiis
`also avoidinginfringing on any
`existing patents.
`
`_e
`
`
`
`
`a
`= tee -
`ee
`tanciein2009 fags
`.
`e— bal
`Jf Gi=-
`LANSOPRAZOLE ODTablets
`Thia is oneof Sawai's main proguct fines.
`It 2 8 patented preparation featuring high
`stability, nigh tablet strength, and
`Pleszant taste making it easy to take.
`The product ic slo available in bottles,
`makingit more convenient for
`healthcare professionalsto hancie.
`
` 2008
`2007
`Important Events in Society ey
`
`
`the burgeoning demandfor generic pharmaceuticals, arising
`
`from promotional policies on the part of government, and
`
`successfully made prior investmentsin production facilities and
`
`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 placed on patients,
`
`improve convenience, and continue to contribute to healthcare
`
`financing by staying the coursein the years to come.
`
`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
`werein short supply, Sawai transformed itself into a
`manufacturer of over-the-counter pharmaceutical
`productsin order to meet society’s needs.
`Later, in responseto various factors such as the
`MECOBALAMINTablets
`.
`-
`:
`.
`introduction of the universal health insurance ne
`coverage system in Japan, Sawai transformed itself
`form, the Company developed anc
`-
`oe
`launoned an 6azy-to-awaliowtablet.
`again to become a manufacturerof prescription
`Even today, this Sawai productnoids
`medications.
`g large snare ofthe market.
`Sawai has since grown to become oneof today’s
`leading manufacturers of generic drugs.
`
`itn984. Se
`
`NetSales (Billions of yen)
`.
`
`1.0
`
`
`
`Sawai’s Mediu aCeles
`
`63.8
`
`
`
`
`M1 TRUST
`
`1929
`
`1964
`
`1971
`
`1983
`
`2003
`
`2008
`
`2009
`
`2010
`
`2011
`
`)
`
`J
`
`Sawai Pharmacy, the forerunner
`of Sawai Pharmaceutical Co.,
`Ltd., was foundedin Asahi-ku,
`Osaka City.
`
`O) ©
`ty
`
`Modern Kyushu Factory,
`which at that time
`surpassed those of
`original drug manufactur-
`ers, completed
`
`prescription medications
`
`J
`
`J
`
`Sawai transformeditself from a
`Manufacturer of over-the-counter
`medications into a manufacturer of
`
`.
`Sawai’s
`History
`
`}
`
`e
`e
`
`Sawai Pharmaceutical Co., Ltd.
`incorporated in Asahi-ku, Osaka
`
`Page 6 of 40
`
`Listed onthe First Section of
`the TSE
`
`
`
`Ceremonyforlisting on the First
`Section of the TSE
`
`New premises completed, Head Office
`and Research Laboratories combined
`and relocated to current premises
`(Yodogawa-ku, Osaka)
`
` 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 formulation
`technology.
`
`
`

`

`
`
`
`
`
`
`A world-leading
`generic drug
`+1 Former numerical indicator share =
`
`Generics/all pharmaceutical products
`
`*2 New Numerical indicator snare =
`ar TaleTeelelg
`Generics/(Originator drugs for wnicn
`
`generic drugs exist + Generics)
`
`c23
`
`oO
`Oo
`o
`3
`
`go
`
`n
`$
`oO
`no
`
`*The Companyhas adoptedInternational
`Financial Reporting Standards(IFRS)
`from FY2017. Figures for FY2016 have
`been restated based on IFRS for
`comparative purposes.
`
`/
`
`“
`
`“
`
`“
`
`tanctedin 2015
`aa
`si)
`RALOXIFENE
`HYDROCHLORIDETablets
`By being the first company to bring this
`product to exclusively market a3 a generic
`drug, Sawai helpec to reduce thefinsnoial
`burden on pstients; Sawai ourrently holds
`ths highest market snare forgenerio
`RALOXIFENE HYDROCHLORIDE.
`
`
`
`
`
`
`
`
`123.4
`This is one of Sawai's main product ines.
`
` : 7
`Sawai succeeded in becomingthe first
`ufsctu
`
`
`
`
`
`rmarhotanaararieragtenciate
`7 Generic drug market share (by quantity) (%)
`
`
`
`noeneniheeteeee 105.4 * Source: Ministry of Health, Labour and Welfare (MHLW)
`product stabilityby making improvements
`tothe preparation technology.
`
`
`
`UX,
`
`15.5 Changein production capacity
`(Billions of tablets)
`
`
`19
`21
`
`26
`
`
`
`9
`
`14
`
`.
`ied/ the number of patents held
`
`M1 TRUST 2015
`
`M1 TRUST 2018
`
`M1 TRUST 2021
`
`
`2012
`2013
`2014
`2015
`2016
`2017
`2018
`2019
`
`2021 (March 31)
`
`
`
`
`
`
`
`Sawai’” received the Asahi
`
`
`
`a
`SandaNishi Factory completed
`
`Acquired Upsher-Smith
`athe
`“ae Ups eo ‘
`Wie aoa and
`entered t
`ebb WES NEALE
`
`o es
`
`al y% x
`
`SEATS
`
`From left: Mitsuo Sawai,
`President, Sawai Pharmaceutical
`Co., Ltd., and Rusty Field,
`President & CEO, Upsher-Smith
`Laboratories, LLC
`
`New pharmaceuticalplant at
`the Kanto Factory
`completed
`
`Sawai established a
`new Corporate
`Philosophy and Code
`Se
`
`Pharmaceutical
`plant at
`“heen aa
`
`The Pharmaceutical
`Development Center was
`completed, and the functions
`of the former Pharmaceutical
`Technology Center were
`consolidated into the new
`Center
`
`
`
`Sawai's antiplatelet product
`“CILOSTAZOL ODTablets
`Chemical Formulation
`Development Award from the
`Pharmaceutical Society of
`Japan
`
`
`
`Page 7 of 40
`
`Sawai Pharmaceutical Co,Ltd. Integrated Report 2018
`
`5
`
`a
`
`Q
`=
`°
`3
`D
`.
`
`nancia
`
`

`

`| Business Model
`
`
`
`Aiming to makea positive contribution toward the develop
`sustainable society by helping patients realize improved
`more satisfactory quality of life, while also reducing health
`
`Social Issues
`
`x=#
`
`===|Manufactured Capital
`7 in Japan
`@Productionfacilities (factories) 9 G in USA
`
`fi Financial Capital
`
`A -
`@Ra&l credit rating
`Eotheres ¥181.4 billion
`
`eg
`
`Human Capital
`@Number of employees
`(Consolidated data including
`Upsher-Smith Laboratories)
`@Qualified pharmacists
`(Consolidated data for Japan only,
`doesnot include Upsher-Smith Laboratories}
`
`3 3252
`2 7 0
`
`Rising
`medical
`
`>
`
`expenses 7wyvyawa-
`
`Improvements
`n quality
`oflife (QoL)
`= _—
`Access to
`healthcare
`
`© Strong ties with wholesalers
`andretailers
`© An impressive product lineup
`of approximately 750 individual
`selling items, and a strong brand
`
`
`
`|3|Intellectual Capital
`@Research bases
`a Came
`@Manufacturing know-how making possible
`multi-item product mix, low-volume production
`
`The
`Hyper-aging
`society
`GAPAN)
`
`Safeguarding
`the global
`environment
`
`Unmet
`medical _
`needs
`
`SS
`
`pol Social and Relationship Capital
`
`© oo
`
`@Japan’sfirst-class pharmaceutical regulatory
`system and universal health insurance coverage
`system
`@The API manufacturers that support ourability
`to maintain stable supply, and
`the pharmaceutical distribution companies that
`link us with medicalinstitutions
`
`Natural Capital (Annual)
`(Consolidated data for Japan only, does not
`= include Upsher-Smith Laboratories)
`Sacacs.=92,602mwh
`@Water usage
`4 2 5 thousand ms
`
`
`
`Page 8 of 40
`
`

`

`
`
`ment of a
`
`Thefirst to concurrently develop, launch, and consistently supply high-quality, high-value-
`added generic drugs, Sawai provides conscientiously created products to patients through
`hea Ith a nd a
`medicalinstitutions. Our business model centers onefforts to achieve a sustainable growth
`.
`cycle—in realizing our Corporate Philosophy, we will increase our corporate value—by helping
`care expenditu re patients realize healthy lives and by contributing to society by reducing medical expenses.
`
`
`
`Sawai’sValueCreation
`
`Value Creation Process
`
`>
`
`analysis of originator
`drug patents
`© The technological capabilities
`needed to undertake development
`without infringing patents etc.
`
`
`
`
`
` © First-class ability to undertake
`
`Value Provided by Sawai
`
`
`Contr but ng to a
`susta nab e hea th
`nsurance system
`
`Reducng the burden
`on pat ents from
`med ca costs
`
` Improv ng
`accessto hea thcare/
`
`mprov ng QoL
`
`
`
`
`
`AchievingOurPuttingSawai’sCorporatePhilosophy
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`AlwaysPuttingPatientsFirst
`
`© An industry-leading annual production
`capacity of 20 billion units
`‘© Extensive know-how as a specialist
`generic drug manufacturer
`
`
`
`Page 9 of 40
`
`Sawai Pharmaceutical Co,Ltd. Integrated Report 2018
`
`

`

`| Message from the President
`
`
`
`ransforming into a World-Leadin
`
`shawls
`
`
`
`eneric Drug Company President, Representative Director
`
`
`
`Page 10 of 40
`
`

`

`Summary of FY2017 Developments and Performance
`
`
`
`
`
`Sawai’sValueCreation
`
`As Sawaicloses out a challenging FY2017, | 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, Sawaiofficially began
`
`its transformation into a global enterprise — despite the challenges wefaced.
`
`The environment for FY2017 proved difficult. Sawai’s
`financial performancefell shortofits initial plan. Despite a
`strong performance by Upsher-Smith, market challenges in
`Japan resulted in operating incomefalling slightly below
`forecast On an overall basis.
`
`The biggest factor contributing to the shortfall was the
`slowdownin 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 manufactureris
`its ability to offer stable supply and high quality, along with
`strong R&D capabilities. We believed that this added value
`would allow usto 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 commitmentto fair
`pricing (even in the midst of extreme competition among
`non-AG products) resulted in sales revenuefalling below
`target in Japan.
`At the sametime, 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 foundation for future growth through new markets,
`we acquired Upsher-Smith Laboratories, LLC (Upsher-Smith)
`—a companywith nearly a century-long history in the United
`States. By acquiring a firm with integrated R&D, manufactur-
`ing and sales, the Companyhastakenits first step toward
`becoming a global enterprise.
`In summary, while business in Japan struggled in FY2017,
`| believe that we also gained an important new avenue to
`future growth in our business outside Japan.
`This June marked exactly 10 years since | assumed the
`position of president. At that time, net sales amountedto just
`about ¥37.0billion. 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'spolicy of
`encouraging generic drug use. While the business environ-
`ment is expected to become even morechallenging, wewill
`continue to ennancecorporate value by upholding our
`commitment to our guiding philosophy of always putting
`patientsfirst.
`
`Financial Highlights
`
`0 al
`
`FY2016
`
`By Segment*2
`
`Millions of yen
`
`Year on Year
`
`
`
`Amount at
`
`
`
`
`
`
`
`
`
`Net Sales
`132,392
`168,068
`134,720
`33,347
`35,676
`26.9%
`
`
`Core operating income
`23,558
`31,118
`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
`a
`=
`(2,505)
`(11.0%)
`
`
`Profit attributable to owners
`of the parent
`
`17,969
`
`14,017
`
`—
`
`-
`
`(3,952)
`
`(22.0%)
`
`*1 Financial Results for FY2017 (IFRS): Financial Results for 12 months of Japan operations + 10 months of U.S. operations (June 2017 to March 2078)
`*2 Because segmentresults are not adjusted, they are not consistent with totalfigures.
`
`
`
`Page 11 of 40
`
`Sawai Pharmaceutical Co,Ltd. Integrated Report 2018
`
`
`
`

`

`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 thefiscal 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 our net sales target of
`¥ 157 billion for the final year of the medium-term plan, it
`allowed usto build an operating foundation for full-scale
`entry into the U.S. 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 our
`
`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
`meetour planned target of 16%. This was primarily due to
`the government's basic policy of optimizing medical
`expensesresulting in an overall decrease in expected market
`size of approximately onebillion tablets, but the growth of
`AGsalso contributed to this shortfall.
`
`In terms of income, we achieved our target forthefirst 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. Wewill continue with efforts to strengthen our
`cost-control capabilities, as we experienced an increasein
`losses on disposal.
`In terms of strengthening our ability to provide a stable
`supply, we put a production capacity in place for 15.5 billion
`tablets in anticipation of providing a stable supply in the era
`of an 80% generic substitution rate.
`
`To transform into a companythat can continueto grow in the midstof ERE
`Vision
`rapidly changing market conditions
`Period Covered
`
`ZT”
`
`April 2015 through March 2018
`
`Financial Targets
`for FY2017
`
`Net Target:¥ 15/billion » Actual:¥1 68billion* Pperating Target: ¥26billion ® Actual:¥22billion
`
`What
`“M1 TRUST 2018”
`Will Achieve
`
`2) Strengthen stable supply and cost-control capabilities in response to changing market conditions
`Production capacity
`*Maintain high quality and continue stable supply
`billion
`*Cost rate worsened in contrast withinitial plan
`tablets
`@Sales and quantity targets were not achieved, as a result, the cost rate was
`worse thantheinitial plan.
`®Grossprofit target was not achieved, however, optimizing selling, general,
`& administrative (SG&A) expenses curbedprofit decline.
`Target: O5oision yen P Actual: AQIS bation you
`
`
`> Actual: 15.5pilion,
`Target: 15.
`Capital Expenditure for 3 years
`
`Upsher-Smith Laboratories,_LLC
`(Upsher-Smith)
`Total purchase price:¥116. 5pillion
`
`© 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 Pitavastatin (PIV) products
`are on track
`®Acauisition of Upsher-Smith created a foundation for US market penetration.
`Efforts are under way for synergy creation.
`@Three Paragraph IV candidate products are on track and PIV product is
`expected to launch by FY2023.
`®Sawaiis 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 is based on IFRS.
`
`
`
`10
`
`Page 12 of 40
`
`0 Firmly maintain the number one marketshare in the generics industry in Japan
`Share within the generics market on volume basis
`«Volume share target within the generics market was not achieved
`*Intensifying price competition due to commoditization and
`increase in AGs
`@Target share was not achieved dueto a larger-than-anticipated increase in
`the number of AG products launched.
`intensifying price competition due to increased price pressure from major
`dispensing pharmacies and drug 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.
`
`Target: 16.0% > Actual: 1 4.9%
`Revenue growth rate (annual average)
`
`Target: 14.1% DP Actual: 16.8%
`
`“Diagnosis procedure combination
`
`(20% stake nas been sold to Sumitomo Corporation of Americas)
`
`

`

`
`
`Message from the President
`
`|
`
`Understanding the Market Environment
`
`Conditions surrounding the Company’s business have
`changedrapidly in recent years. As Japan growscloserto its
`goal of achieving a market in which generics have an 80%
`share, a relative slowdownin 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 maytrigger moves toward
`reorganization of the generic drug industry.
`Our Outlookfor 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.
`
`
`Changesin the Micro/Macro Environment
`
`
`
`Macro
`environment
`
`
`Optimization of health expenditures through
`changes
`re-examination of prescriptionitself
`
`© )Borderlessnessof long-listed and generic products
`
`© Maintaining stable supply and high quality
`Strengthening the business structure through
`integration and sales
`
`Optimization of medical expenses through the
`promotion of generic use
`Setting a target for generic substitution rate of 80%
`©Quality andreliability
`Stable supply system
`
`
`
`Patent expiration of major products
`Growth opportunities for the generic industry
`as a whole
`
`Original drug market segmentation and
`treatment personalized
`Intensifying competition due to
`
`commoditization and industry maturation
`
`Integration and growth in size of dispensing
`Increase in purchasing powerpressures
`
`pharmacies
`Micro
`due to pharmacyanddistribution alliances
`
`
`Predictability by setting roadmap
`Increase in uncertainty associated with the
`environment
`
`
`
`drastic drug pricing system reform
`
`changes
`
`
`
`Volume Forecast in the Generics Market
`
`(Billion tablets)
`120 =
`
`4Actual results
`
`Forecast >
`
`(%)
`100
`
`
`
`
`
`Sawai’sValueCreation
`
`Data
`
`or
`Sect
`
`2015
`
`2016
`
`2017
`
`2018
`
`2019
`
`2020
`
`2021 (March 31)
`
`[Long-term listed drugs
`
`[Generics
`
`+=®~ Substitution rate
`
`“All figures are estimated by Sawai Pnarmaceutical Co., Ltd.
`
`
`
`Page 13 of 40
`
`Sawai Pharmaceutical Co,Ltd. Integrated Report 2018
`
`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 competeeffectively 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 companyby accelerating growth of Upsher-
`Smith. Over the next three years, we will focus on achieving
`efficient growth through strengthenedalliancesin the
`Japanese market, while at the sametime accelerating
`globalization through Upsher-Smith as a basein the U.S.
`Thoseefforts 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 world-leading generic drug company
`by accelerating growth of Upsher-Smith
`
`Further expand
`generic business
`aengrowth
`grow’
`
`Build foundation
`jump rward
`jump
`
`Improve growth
`.
`efficiency by
`strengthening Transformation
`withUpaher-Smith <imtese gvobal
`wri
`Ip:
`r-
`I
`company
`
`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 thefutureis difficult to predict, we will leverage
`our strengths. These include production capacity that has
`been built through 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 U.S. market through Upsher-Smith. In
`Our position as the leader in Japan's generics industry, we
`will build a structure capable of responding to changesin the
`
`industry and strengthen cost competitiveness against expected
`movestoward 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
`commongoals to drive efficiencies rather than solely relying on
`organic growth.
`In the U.S. 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 presencein 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 numberof 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
`costeffectivity
`* Obtain approvals in an effective and secured manner
`
`including Upsher-Smith
`
`* Establish manufacturing systems to improveefficiency
`andflexibility
`* Strengthen purchasing power
`
`* Strengthen cooperation in quality assurance
`* Strengthen regulatory affairs management system,
`
`Thefirst key task in the U.S. marketwill be to leverage
`synergies between Sawai and Upsher-Smith, while pursuing
`a bold effort to achieve our growth strategy with a signifi-
`cantly expandedpipeline supported by Upsher-Smith’s
`unique commercialization capabilities.
`
`Initiatives in the US Market
`
`* Achieve productdiversification by in-licensing
`
`* Create synergies between Sawai and Upsher-Smith
`* Expand pipeline by strengthening in-house development
`
`
`12
`Page 14 of 40
`
`

`

`
`
`Message from the President
`
`|
`
`aKe}el) Total
`
`
`
`Sawai’sValueCreation
`
`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 increasein the
`
`consumption tax, other fundamental drug pricing system
`reforms, and the impact of guidelines for good distribution
`practices. Given these uncertainties, we have determined
`that announcing 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: ¥million
`
`Financial Targets for the Year Ending March 31, 2019
`Fiscal year ended March 31, 2018
`
`seealt
`
`
`
`172,500
`
`69,600
`24,000
`
`
`
`2.6%
`
`0.2%
`8.1%
`17.0%
`
`24.1%
`
`Fiscal year ending March 31, 2019 (Targets)
`Year on Year Change
`saea
`
`Amount
`eTcolts)
`
`
`
`4,432
`Net sales
`168,068
`
`
`
`Gross profit
`69,440
`
`
`
`Operating ncome
`22,209
`
`
`Profit before tax
`20,251
`
`Profit attributable to owners
`
`17,400
`
`of the parent 14,017
`* IFRS basis Because segment results are not adjusted, they are not consistent with total figures.
`
`Weplan to launch approximately 25 productsin the U.S.
`market during the next three years. In addition, we expect
`five to 10 products to cometo market each yearfor the next
`five years, and we have thus disclosed a five-year numerical
`plan that incorporates the effect of those new products. For
`fiscal year ending March 31, 2019, compound annual growth
`rate (CAGR) on net sales is expected to reach 12.3%, with a
`CAGR on EBITDAof 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
`¥20billion in five years.
`Upsher-Smith and Sawai enjoy a similar management
`philosophythat has allowed usto leverage synergies
`following our merger. Upsher-Smith has expertise developed
`through its long history in the U.S. market, includingits ability
`to identify niche opportunities and a Culture focused on
`high-quality generics. Going forward, 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 secondpillar
`within the Sawai Group.
`
`Upsher-Smith P/L plan
`
`Upsher-Smith: EBITDA
`(¥100 million)
`250 —
`
`200 —
`150 —
`
`50 —
`
`CAGR:22.4%
`(Year Ending M.
`toM
`
`
`
`2018
`
`2019
`
`2020
`
`2021
`
`2022
`
`2023 March 31)
`
`© Pipeline [lj Existing products
`
`CAGR?12.3%
`
`Upsher-Smith: Net Sales
`(¥100 million)
`600 —_
`500 —
`400 —
`800 —_
`200 —
`100 —
`Oo
`
`(Year Ending Marc’
`
`2018
`
`2019
`
`2020
`
`2021
`
`2022
`
`2023(March 31)
`
`
`
`Unit: ¥million
`ena Endingee ETRE
`celiaDadeabiiel
`Pi
`Seseed eee key Re)
`
`35,900
`37,600
`44,700
`47,300
`56,900
`12.3%
`
`Monnee
`(10 month)
`
`Net sales
`
`33,347
`
`Existing products
`
`33,347
`
`
`
`
`
`
`
`
`
`
`
`31,800
`28,900
`29,700
`25,500
`25,400
`_
`
`4,100
`8,700
`15,000
`21,700
`31,500
`_—
`ad
`Pipeline
`Operating income(before PPA)
`|
`7,486
`|
`7,600
`8,500
`13,000
`13,000
`18,500
`27.5%
`
`Operating income
`|
`1,874
`|
`2,700
`3,000
`7,500
`7,500
`13,000
`45.5%
`
`
`
`
`
`
`EBITDA 9,500|14,500|14,000| 9,463 8,700 19,500 22.4%
`
`* $1=¥105 (2019/3 orlater)
`
`
`
`Page 15 of 40
`
`Sawai Pharmaceutical Co,Ltd. Integrated Report 2018
`
`13
`
`

`

`Sawai's Contribution to Society
`
`
`
`The Companybelievesthat its greatest contribution to society is through improving
`
`patient accessto healthcare and the health of medical care funding through
`
`its primary business of providing generic drugs.
`
`Corporate Social Responsibility (CSR)
`
`| 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*’ through providing generic drugs(the realization of
`our Corporate Philosophy).
`
`*1 The amountcontributed in reduced healthcare costs in FY2017 was approximately
`¥ 274.6 billion on a domestic basis.
`
`hiring and training of production personnel and other human
`resources; the deploymentof energy-saving and low-carbon
`emission manufacturing equipment; and the maintenanceof
`a healthy working environment—is related to CSR and
`cannot be considered separately from the business.
`The 2080 Agendafor Sustainable Development Goals (SDGs)
`nas been muchtalked about recently, and as a pharmaceuti-
`cal company, wefully support these goals, with a particular
`focus on GoalThree, good health and well-being. | would like
`to further strengthen our efforts in this area going forward.
`
`Initiatives to SDGs)See page 21
`
`Overall CSR
`
`Realization of
`Corporate Philosophy
`WV
`
`Fulfillment of CSR
`through Business
`Activities
`
`into Action
`
`Putting Code of Conduct
`
`Vy
`
`CSR within Business Processes
`
`Amid the ever-increasing demand for generic drug products
`that is expected in the years ahead, | am constantly focused
`on how we can secure stable supply. Every issue involved in
`that quest —including the securing of high-quality APIs; the
`
`In FY2018, we received sole approval among generics
`companiesfor oseltamivir, an anti-influenza drug. Whil