Investor Meeting on FY2016 First Quarter Results and FY2016 Forecasts

Transcription

1 Investor Meeting on FY2016 First Quarter Results and FY2016 Forecasts Kazuo Koshiji Senior Corporate Officer Chief Financial Officer (CFO) Head of Finance Division August 2, 2016 Copyright 2016 Santen Pharmaceutical Co., Ltd. All rights reserved.

2 Santen s Corporate Values By focusing on ophthalmology, Santen develops unique scientific knowledge and organizational capabilities that contribute to the well-being of patients, their loved ones and consequently to society. 1

3 Long-term Strategic Vision and Growth Targets To Become a Specialized Pharmaceutical Company with a Global Presence Deep understanding of true customer needs* Distinct advantage against competitors Global competitiveness and presence Strengthen the Japan business Prepare for business expansion in Asia/Europe Ranks #5 globally Overseas sales: 16% of total sales 2017 Medium-term Goals Grow business in Asia/Europe and improve profitability Prepare for business expansion in the U.S. and other regions Overseas sales: 30% of total sales What we aim to achieve by 2020 To become a Specialized Pharmaceutical Company with a Global Presence Become global #3 Overseas sales: 40%-50% of total sales *True customer needs: Unmet medical needs of patients, consumers, doctors and healthcare professionals 2

4 1Q FY2016 Financial Results ended June 30,

5 1Q FY2016 Consolidated Highlights Revenue and core operating profit increased year-on-year Japan business Prescription pharmaceuticals business rose 4% despite impact from NHI price revisions and exit from anti-rheumatic pharmaceutical business Strong growth of revenue from new products and higher-than-expected revenue from long-listed drugs Double digit growth in OTC revenue though some slowing in growth rate from purchases by visitors to Japan Overseas business Asia: Decreased 5% due to the yen s appreciation China: Continued strength as local currency revenue grew 18% Europe: Local currency revenue increased 37% on contribution from Ikervis and products acquired from US-based Merck 4

6 1Q FY2016 Financial Highlights Core basis (JPY billions) 1Q FY15 Actual Actual 1Q FY16 Var. (YoY) Revenue % Core operating profit* % Core net profit for the period % IFRS basis Operating profit % Net profit for the period % * Core operating profit = operating profit + amortization associated with products other revenue + other expenses (see page 24) 5

7 Changes in P&L Statement (JPY billions) 1Q FY15 Actual Actual 1Q FY16 Var. (YoY) Revenue % Major Changes Cost of sales (% of revenue) % % +2.9% -0.5pt Product mix change Japan -1.5pt Overseas +1.0pt SG&A expenses (% of revenue) % % +5.9% +0.4pt Japan -0.6 Asia -0.5 US/Europe +0.1 R&D expenses (% of revenue) % % +12.5% +0.8pt Japan -0.1 Overseas -0.4 Core operating profit (% of revenue) % % +1.2% -0.7pt Amortization on intangible assets associated with products (% of revenue) % % +10.8% +0.2pt Other revenue Other expenses % Operating profit (% of revenue) % % +0.1% -0.9pt Core net profit for the period % Net profit for the period % Currency rates 1Q FY15 Actual 1Q FY16 Actual US$ JPY JPY Euro JPY JPY CNY JPY JPY

8 1Q FY2016 Revenue Change Japan +2.0 (+5.4%) Overseas +0.1 (Currency -1.7) (+1.0%) Var. (YoY) JPY billions 1Q FY15: Q FY16: Q FY15: Q FY16: 13.2 Revenue Q FY15 Actual Prescription pharmaceuticals +1.2 Japan Prescription pharmaceuticals OTC +0.6 Japan OTC Medical devices +0.1 Revenue +2.0 (+4.2%) Japan medical devices Japan others Europe Asia Europe US Merck NPM* 1Q FY Q FY * NPM (Net Profit Margin): Profit generated from US-based Merck ophthalmic products which Santen has acquired and has consigned them to US-based Merck until the completion of transfer of the underlying marketing rights. Asia Currency -0.7 Currency -1.0 (China -0.0 (Currency -0.7)) US Currency -0.0 Currency -0.0 Merck NPM* Revenue Q FY16 Actual 7

9 1Q FY2016 Core Operating Profit Change Japan +1.5 (+10.8%) Overseas -0.8 (Currency -0.5) (-32.5%) Var. (YoY) JPY billions Core OP Q FY15 Actual 1QFY15: QFY16: 15.8 Japan* 1QFY15: 2.5 1QFY16: 1.7 Asia* US* -1.2 Europe* +0.2 Currency Currency -0.1 Currency -0.5 Core operating profit +0.1 (+1.2%) Asia Europe US 1Q FY Q FY R&D expenses increase -0.6 Currency +0.3 Core OP Q FY16 Actual * Company policy on accounting for profit does not allocate certain SG&A and R&D expenses. NPM is distributed by region after operationally transferred from US-based Merck to Santen. 8

10 Overseas Revenue and Operating Profit (JPY billions) 1Q FY15 Actual 1Q FY16 Actual Revenue Revenue Var. (YoY) Operating profit*** U.S. 1.4* 0.4* -70.7% -0.3 Europe %** 0.7 Asia % 1.3 China %** Total % 1.7 Overseas revenue / Total revenue 27.2% 26.3% -0.9pt * Net profit margin (NPM) relating to the US-based Merck product acquisition is treated as revenue in the U.S. **Year-on-year change on a local currency basis: Europe +37.0%, China +17.7% ***Company policy on accounting for profit does not allocate certain SG&A and R&D expenses. NPM is distributed by region after operationally transferred from US-based Merck to Santen. 9

11 FY2016 Consolidated Forecast ending March 31, 2017 (Revised) 10

12 FY2016 Consolidated Forecast (Revised) Forecasts are revised to account for the appreciation of the Japanese yen and the acquisition of InnFocus, Inc. (U.S.) announced in July 2016 Revenue forecast change -4.0 billion yen Currency translation impact causes forecasts to be adjusted from 204b yen to 200b yen Core operating profit change -1.9 billion yen No net impact on core OP from change in foreign exchange rate assumptions Increased cost of 1.9b yen from SG&A, R&D, etc. resulting from the consolidation of InnFocus Note: Forecasts are based on current accounting treatment and assumptions about the acquisition. Santen discloses promptly when significant differences arise. 11

13 FY2016 P&L Statement Forecast (Revised) (JPY billions) FY15 Actual Forecast (Previous) Impact of fluctuations in currency FY16 Impact of Acquisition of InnFocus Forecast (Revised) Var. (YoY) Revenue % Cost of sales % (% of revenue) 37.3% 38.2% 38.3% +1.0pt SG&A expenses % (% of revenue) 30.4% 29.2% 29.5% -0.9pt R&D expenses % (% of revenue) 10.2% 10.0% 10.2% -0.0pt Core operating profit % (% of revenue) 22.1% 22.5% 22.1% -0.0pt Non-recurring SG&A expenses Amortization on intangible assets associated % with products (% of revenue) 3.2% 3.5% 3.5% +0.3pt Other revenue Other expenses % Operating profit % (% of revenue) 41.1% 19.0% 18.1% -22.9pt Core net profit for the year % Core ROE 12.4% 12.0% % -1.0pt Net profit for the year % ROE 22.6% 10.0% % -13.1pt Currency rates FY15 Actual FY16 Forecast (Previous) FY16 Forecast (Revised) US$ JPY JPY JPY Euro JPY JPY JPY CNY JPY JPY JPY

14 FY2016 Dividend Forecast 13

15 Dividend for FY2015 and FY2016 Forecast Annual dividend FY2015: JPY 25 per share FY2016 (forecast): JPY 26 per share FY2014-FY2017 Shareholder return policy Stable and sustained return to shareholders Maintain a sound and flexible financial position to enable product acquisitions and M&A for future growth Consider share buybacks in a flexible manner Aim to maintain a dividend payout ratio of about 40% Annual dividend per share (JPY)* FY e Payout-ratio (%)** ***19 43 Share buy-back (b yen) Total return (%)** * The company implemented a 5-for-1 stock split on April 1, Accordingly, the calculations of annual dividend per share have been adjusted in all periods for comparison purposes. ** J-GAAP standards used until FY13, IFRS applied from FY14. ***Removing the related impact of the succession of the company's anti-rheumatic pharmaceutical business, the payout ratio is 35.5% in FY15. 14

16 Reference: 1Q FY2016 Consolidated Results 15

17 Revenue by Business Segment 1Q FY16 Actual (JPY billions) Japan Overseas Total Revenue Var. (YoY) Revenue Var. (YoY) Revenue Var. (YoY) Pharmaceuticals % % % Prescription Pharmaceuticals % % % Ophthalmic % % % Others % % % OTC Pharmaceuticals % % % Others % % % Medical devices % % % Others % % Total % % % * Anti-RA business was transferred to AYUMI Pharmaceutical Corporation in August

18 Summary of Financial Position (JPY billions) As of March 31, 2016 As of June 30, 2016 Actual % of Total Actual % of Total Var. (YoY) Non-current assets % % -5.0 Current assets % % Cash and cash equivalent % % Total assets % % Total equity % % -3.8 Non-current liabilities % % +1.3 Current liabilities % % Total liabilities % % Total equity and liabilities % % Shares issued : End of March 2016: 414,192 thousand End of June 2016: 414,227 thousand Major Changes Current assets: Cash and cash equivalent billion yen (Income tax paid) Equity: Foreign currency translation adjustment -4.6 billion yen Current liabilities: Income tax payable billion yen, Financial liabilities -4.6 billion yen 17

19 Summary of Cash Flows (JPY billions) 1Q FY15 Actual Actual 1Q FY16 Var. (YoY) Cash flows from operating activities Cash flows from investing activities Cash flows from financial activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of period Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of period

20 Capital Expenditures / Depreciation & Amortization (JPY billions) 1Q Actual FY15 Full Year Actual 1Q Actual FY16 Full Year Forecast (Revised) Capital expenditures Depreciation and amortization* Amortization on intangible assets associated with products Amortization of intangible assets related to Santen s acquisition of US-based Merck ophthalmic products Amortization of intangible assets related to Ikervis * Excludes amortization on intangible assets associated with products and long-term advance expense 19

21 Reference: FY2016 Consolidated Forecast (Revised) 20

22 FY2016 Forecast: Business Segment / Overseas Revenue (Revised) (JPY billions) FY16 Forecast (Revised) Japan Overseas Total Revenue Var. (YoY) Revenue Var. (YoY) Revenue Var. (YoY) Pharmaceuticals % % % Prescription Pharmaceuticals % % % Ophthalmic % % % Others % % % OTC Pharmaceuticals % % % Others % % % Medical devices % % % Others % % Total % % % 21

23 FY2016 Forecast: Overseas Revenue and Operating Profit (Revised) (JPY billions) FY15 Actual FY16 Forecast (Revised) Revenue Revenue* Var. (YoY) Operating profit** U.S % -3.9 Europe % 4.6 Asia % 4.0 China % Total % 4.7 Overseas revenue / Total revenue 27.4% 25.7% -1.7pt * Net profit margin (NPM) relating to the US-based Merck product acquisition is treated as revenue in the U.S. * Company policy on accounting for profit does not allocate certain SG&A and R&D expenses. NPM is distributed by region after operationally transferred from US-based Merck to Santen. 22

24 Reconciliation of IFRS to Core OP (JPY billions) FY15 Actual FY16 Forecast (Revised) IFRS operating profit Non-core deduction items Non-recurring SG&A expenses Amortization on intangible assets associated with products Other revenue Other expenses Core operating profit

25 IFRS and Core Comparisons IFRS Revenue Cost of sales Gross profit SG&A R&D Amortization on intangible assets associated with products Other income Other expenses Operating profit Finance income (interest, dividends, forex gains) Finance expenses (interest, forex losses) Profit before tax Income tax expenses Net profit Revenue Cost of sales Gross profit SG&A R&D Core Excluded from core Excluded from core Excluded from core Core operating profit Excluded from core Excluded from core Core profit before tax Income tax expenses Core net profit Use of Core Basis Indicators Core results are now used as financial indicators to better express underlying business performance by removing certain gains and expenses from IFRS results Non-recurring items excluded from IFRS to calculate core results: amortization associated with products, other income and expenses, finance income and expenses, etc. 24

26 Reference: Market Overview of Prescription Ophthalmic in Japan 25

27 Japan: Trends & Competition in Ophthalmics (1) Market Size: JPY billions %: Value Share Ophthalmology Total Anti-glaucoma Cornea / Dry Eye Others 56.0% FY Santen 44.0% Others 67.4% FY Santen 32.6% Others 36.6% FY Santen 63.4% FY2015 1Q FY2016 FY2015 1Q FY2016 FY2015 1Q FY2016 YoY Market +7.3% +1.2% Santen +17.6% +6.7% +6.5% +4.0% +8.4% +2.6% +4.9% -0.8% +1.4% -2.6% Santen s Share 44.0% 44.9% 32.6% 32.3% 63.4% 62.8% -Santen: - Anti-Glaucoma : Cosopt, Tapros, Timoptol/XE, Trusopt, Rescula, Tapcom, Detantol - Cornea / Dry Eye : Hyalein, Diquas Source: 2016 IMS Health IMS-JPM Santen analysis based on IMS data Reprinted with permission 26

28 Japan: Trends & Competition in Ophthalmics (2) Market Size: JPY billions %: Value Share Anti-infection Anti-allergy Anti-VEGF Others 50.2% FY Santen 49.8% Others 63.7% FY Santen 36.3% Others 34.3% FY Santen 65.7% FY2015 1Q FY2016 FY2015 1Q FY2016 FY2015 1Q FY2016 YoY Market -2.5% -9.6% Santen -10.1% -19.4% +5.7% +14.5% +19.5% +26.6% +20.9% -1.3% +62.7% +22.4% Santen s Share 49.8% 45.5% 36.3% 41.8% 65.7% 71.2% -Santen: - Anti-infection: Cravit, Tarivid - Anti-allergy: Alesion, Livostin, Alegysal - Anti-VEGF: Eylea Source: 2016 IMS Health IMS-JPM Santen analysis based on IMS data Reprinted with permission 27

29 Status of Clinical Development 1Q FY2016 Naveed Shams, M.D., Ph.D. Senior Corporate Officer Chief Scientific Officer (CSO) Head of Global Research & Development

30 Status of Main Projects in Clinical Development (1) As of August 2, 2016 Global JP (Asia) Disease Area Project Mechanism of Action Compound /Product Region Development Stage P1 P2 P3 Filed APV/ Launch Changes from Previous Announcement DE-111 Prostaglandin F 2α derivative/ Beta-adrenergic receptor blocker Tafluprost and Timolol maleate KR Launched Asia DE-118 Prostaglandin F 2α derivative Tafluprost (single-use type) Asia Glaucoma/ Ocular hypertension DE-085 DE-117 Prostaglandin F 2α derivative EP2 receptor agonist Tafluprost Undetermined CN US JP P2b/3 DE-090 Calcium antagonist Lomerizine HCl JP DE-126 FP/EP3 receptors dual agonist Sepetaprost US 29

31 Status of Main Projects in Clinical Development (2) As of August 2, 2016 Disease Area Keratoconjunctival disease Retinal/ Uveal disease Allergy Project Cyclokat DE-089 Mechanism of Action Immuno suppression /Cationic emulsion P2Y 2 receptor agonist Compound /Product Ciclosporin/ Ikervis Diquafosol sodium DE-109 mtor inhibitor Sirolimus DE-120 DE-122 Vekacia VEGF/PDGF inhibitor Anti-endoglin antibody Immuno suppression /Cationic emulsion Undetermined Region EU US KR Asia CN Development Stage P1 P2 P3 Filed APV/ Launch Changes from Previous Announcement Asia Launched in VN and TH EU JP US Asia US Undetermined US P1/2 Ciclosporin EU Global JP (Asia) Withdrew, plan to resubmit 30

32 Forward-Looking Statements Information given in this presentation contains certain forward-looking statements concerning forecasts, projections and plans whose realization is subject to risk and uncertainty from a variety of sources. Actual results may differ significantly from forecasts. Business performance and financial condition are subject to the effects of medical regulatory changes made by the governments of Japan and other nations concerning medical insurance, drug pricing and other systems, and to fluctuations in market variables such as interest rates and foreign exchange rates. The process of drug research and development from discovery to final approval and sales is long, complex and uncertain. Individual compounds are subject to a multitude of uncertainties, including the termination of clinical development at various stages and the non-approval of products after a regulatory filing has been submitted. Forecasts and projections concerning new products take into account assumptions concerning the development pipelines of other companies and any copromotion agreements, existing or planned. The success or failure of such agreements could affect business performance and financial condition significantly. Business performance and financial conditions could be affected significantly by a substantial drop in sales of a major drug, either currently marketed or expected to be launched, due to termination of sales as a result of factors such as patent expiry and complications, product defects or unforeseen side effects. Santen Pharmaceutical also sells numerous products under sales and/or manufacturing license from other companies. Business performance could be affected significantly by changes in the terms and conditions of agreements and/or the non-renewal of agreements. Santen Pharmaceutical is reliant on specific companies for supplies of certain raw materials used in production. Business performance could be affected significantly by the suspension or termination of supplies of such raw materials if such and event were to adversely affect supply capabilities for related final products. 31

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34 Santen Acquisition of InnFocus, Developer of MicroShunt Glaucoma Implant Device Akira Kurokawa President & CEO August 2, 2016 Copyright 2016 Santen Pharmaceutical Co., Ltd. All rights reserved.

35 1 External Environment for Prescription Ophthalmic Pharmaceuticals Overlap of adjacent markets (OTC, Device, Vision Care) Adjacent territory players enter into prescription ophthalmic pharmaceuticals (Gx manufacturing) Regenerative medicine, artificial vision devices, IT etc. start clinical trials Systemic pharmaceutical companies / biotech ventures are expanding into ophthalmology with new compounds Prescription ophthalmic pharmaceuticals Competition among existing players Global generic (Gx) pharmaceutical companies enter into ophthalmology Government / payer pressure to suppress medical costs Need for accountability on cost-effectiveness Aging societies

36 Santen Makes Another Strategic Step in Business and R&D Specialization in Ophthalmology Novagali Pharma acquisition Strengthened R&D, including Novasorb formulation technology IKERVIS (now launched in several European countries) Supported growth in global business platform 2014 Merck & Co., Inc. ophthalmology product acquisition Acquired product sales: 21.6b yen in FY15 Reinforced global presence Accelerated EU and Asia growth Increased profitability Expanded key glaucoma franchise 2015 Anti-rheumatic (RA) pharmaceutical business divestment 7% RA 93% Op 100% Ophthalmology 45b yen received to support future investment InnFocus acquisition Enhancing Pipeline with InnFocus MicroShunt Glaucoma Implant Device Santen to enter high growth glaucoma device area USD225m upfront plus milestones MicroShunt U.S. launch expected in 2020/2021 CE marked in Europe Developing globally including Asia 2

37 3 InnFocus Strategic Value to Santen InnFocus builds upon the execution of our strategy To Become a Specialized Pharmaceutical Company with a Global Presence To provide glaucoma patients and doctors with new and innovative treatment options Enhance customer satisfaction as a specialized company To strengthen Glaucoma business through synergy Synergy with existing and developing products, customer relationships and commercial infrastructure to strengthen our market presence in glaucoma To add to mid- and long-term growth Enhance pipeline to create mid- and long-term growth opportunity, contributing to strategic vision to 2020 and beyond Medical devices have high probability of development / approval success

38 4 InnFocus, Inc. Acquisition Overview Company name InnFocus, Inc. Founded 2004 Headquarters Lead product Acquisition price Miami, Florida, U.S. MicroShunt glaucoma implant device (U.S. studies ongoing) USD 225 million plus milestones Anticipated closing Within Santen s Q2, ending Sep 30, 2016 Revenue opportunity estimate (annual) Over USD 200 million

39 MicroShunt Designed to Offer Differentiating Features MicroShunt Micro-Invasive Surgical Design Designed to address invasiveness of Trabeculectomy Extremely small micro-tube (twice the size of an eyelash) Minimize incision size and scarring Reduce post surgical complications rates <15 minute implant time Innovative Bio-Inert Product Material Designed to avoid stimulation of immune response that leads to stent occlusions and surgical failures SIBS technology is bioinert Proven effective in TAXUS TM cardiovascular stents at minimizing occlusions & stent failures Source: J Glaucoma Feb;25(2):e

40 6 MicroShunt Will Allow Santen Broader Coverage of Disease Phases and Enhance Portfolio Therapy Initiation Disease Progression + MicroShunt Santen glaucoma portfolio Prostaglandin Prostaglandin + BB Combination Beta Blocker + CAI Combination Beta Blocker Carbonic Anhydrase inhibitor

41 Glaucoma is a Key Growth Driver for Santen 2.5x 25% 7% Products & platform Growing market Over past five years, sales grew 2.5 times to 55 billion yen in FY15 Glaucoma is highly profitable Santen is focused on glaucoma, already our largest therapeutic area at 25% of revenue Santen has 7% global share in glaucoma*, room to grow Glaucoma business is boosted by acquired MSD products and new business platforms in EMEA** and Asia The market is expected to grow substantially *Santen estimates, **Europe, Middle East and Africa 7

42 Glaucoma Market is Growing Global Glaucoma Patient Population U.S. Demand for Micro-Invasive Glaucoma Surgery (MIGS) Number of Patients, millions Number of Patients ,000 Other glaucoma Primary open-angle glaucoma ,000 CAGR >40% U.S. primary open-angle glaucoma Sources: Market Scope, Santen estimates 8

43 9 Strategic Acquisition Strengthens Santen s Position in Ophthalmology MicroShunt is expected to provide an important new option for physicians and patients in the elusive goal of IOP management Significant opportunity for Santen to enter the high growth glaucoma device segment Strong synergy with existing portfolio, organization, capabilities and customer base Key step in the realization of our vision to become a specialty pharmaceutical in ophthalmology

44 Appendix 10

45 MicroShunt Technology Can Deliver Consistent and Sustained Gold Standard IOP Lowering MicroShunt has the ability to fundamentally transform patient outcomes by delivering gold standard efficacy and addressing the issues limiting widespread surgical use in moderate-severe patients Capable of optimizing vision preservation and limiting the progression to blindness* Change in IOP with time for MicroShunt implanted with and without phacoemulsification with IOL implantation** Sources: * Am J Ophthalmol Oct;130(4): , **J Glaucoma Feb;25(2):e

46 12 Late Stage Clinical Study Underway Trial No. Study Title Study Design INN-005 (NCT ) A Randomized Study Comparing the Safety and Efficacy of the InnFocus MicroShunt Glaucoma Drainage System to Standard Trabeculectomy In Subjects With Primary Open Angle Glaucoma Prospective, randomized, single blind (subject), multicenter Enrollment 857 Country US Phase Phase 2/3 Indication Primary Endpoint Secondary Endpoint Estimated Completion Primary Open Angle Glaucoma 20% decrease in diurnal intraocular pressure from baseline to 12 months follow-up Reduction in diurnal intraocular pressure from baseline to 12 months follow-up July 2019 (final data collection date for primary outcome measure in July 2018)

47 Challenges Associated with Trabeculectomy Invasiveness of Surgical Procedures Post Operate Complication Rates Trabeculectomy is a non-microinvasive surgical technique that requires a larger ocular incision and produces increased levels of scarring 50% of patients undergoing trabeculectomy suffer from serious short and long-term post surgical complications* Surgical Failure Rates Post Operative Care 30% of trabeculectomies fail within 24 months of surgery* Glaucoma surgeons spend hours on post operative patient care due to serious post surgical complications and current failure rates** Gold standard glaucoma surgical interventions have seen limited use historically despite their unparalleled ability to deliver sustained target IOP in moderatesevere glaucoma patients and potential to transform visual outcomes Sources: * Am J Ophthalmol Nov;148(5): , ** Market Scope 13

48 Forward-Looking Statements Information given in this presentation contains certain forward-looking statements concerning forecasts, projections and plans whose realization is subject to risk and uncertainty from a variety of sources. Actual results may differ significantly from forecasts. Business performance and financial condition are subject to the effects of medical regulatory changes made by the governments of Japan and other nations concerning medical insurance, drug pricing and other systems, and to fluctuations in market variables such as interest rates and foreign exchange rates. The process of drug research and development from discovery to final approval and sales is long, complex and uncertain. Individual compounds are subject to a multitude of uncertainties, including the termination of clinical development at various stages and the non-approval of products after a regulatory filing has been submitted. Forecasts and projections concerning new products take into account assumptions concerning the development pipelines of other companies and any copromotion agreements, existing or planned. The success or failure of such agreements could affect business performance and financial condition significantly. Business performance and financial conditions could be affected significantly by a substantial drop in sales of a major drug, either currently marketed or expected to be launched, due to termination of sales as a result of factors such as patent expiry and complications, product defects or unforeseen side effects. Santen Pharmaceutical also sells numerous products under sales and/or manufacturing license from other companies. Business performance could be affected significantly by changes in the terms and conditions of agreements and/or the non-renewal of agreements. Santen Pharmaceutical is reliant on specific companies for supplies of certain raw materials used in production. Business performance could be affected significantly by the suspension or termination of supplies of such raw materials if such and event were to adversely affect supply capabilities for related final products. 14

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