Summary of Consolidated Financial Results for the Year Ended March 31, 2018 [IFRS]

Transcription

1 Summary of Consolidated Financial Results for the Year Ended March 31, 2018 [IFRS] May 11, 2018 Company Name: SUMITOMO DAINIPPON PHARMA CO., LTD. Stock Exchange Listings: Tokyo Security Code Number: 4506 (URL Representative: Hiroshi Nomura, Representative Director, President and Chief Executive Officer Contact: Atsuko Higuchi, Executive Communication Officer Telephone: Filing Date of Financial Report: June 19, 2018 Date of Annual Shareholder s Meeting: June 19, 2018 Starting Date of Dividend Payments: June 20, 2018 Preparation of Supplementary Financial Data for Financial Results: Yes Information Meeting for Financial Results to be held: Yes (for institutional investors and analysts) (Note: All amounts are rounded to the nearest million yen) 1. Consolidated Financial Results for the Year Ended March 31, 2018 (April 1, 2017 to March 31, 2018) (1) Results of Operations Revenue Yen million March 31, 2018 March 31, 2017 Note: Profit before taxes % Core operating profit Yen million % Operating profit Yen million % (% represents changes from the previous year) Net profit Yen million % Net profit attributable to owners of the parent Yen % million Total comprehensive income Yen million 466, , , , , , ,357 64,372 40,286 31,316 31,316 29,829 March 31, 2018: 84,866 million March 31, 2017: 42,781 million "Core operating profit" is calculated by deducting from operating profit any gains and losses resulting from nonrecurring factors that the Group designates (hereinafter referred to as "Non-recurring Items"). Basic earnings per share Earnings per share (diluted) Net profit / Equity attributable to owners of the parent Profit before taxes / Total assets Core operating profit / Revenue March 31, % 10.7% 19.4% March 31, % 5.8% 15.8% Reference: Share of profit(loss) of associates accounted for using the equity method. March 31, 2018 : ( 10 million) March 31, 2017 : 47 million (2) Financial Position As of March 31, 2018 As of March 31, 2017 Total assets Net assets Equity attributable to owners of the parent Ratio of equity attributable to owners of the parent to total assets Equity attributable to owners of the parent per share (yen) 809, , , % 1, , , , % 1, %

2 (3) Cash Flows March 31, 2018 March 31, 2017 Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Cash and cash equivalents at the end of period 93,420 (16,523) (29,610) 147,775 19,143 (56,129) 8, , Dividends March 31, 2017 March 31, 2018 Year ending March 31, 2019 (Forecasts) 1st quarter 2nd quarter Dividends per share 3rd quarter Year- End Annual Dividends paid for the year (million) Payout ratio Dividends to net assets ratio , % 2.0% , % 2.6% % 3. Consolidated Financial Forecasts for the Year Ending March 31, 2019 (April 1, 2018 to March 31, 2019) (% represents changes from the corresponding period of the previous year) Six months ending September 30, 2018 Year ending March 31, 2019 Note: Profit before taxes Notes: Net sales Yen million % Core operating profit Yen million % Operating profit Yen million % Net profit Yen million % Net profit attributable to owners of parent Yen % million Earnings per share 230,000 41,000 32,000 22,000 22, , ,000 (15.0) 53,000 (39.9) 35,000 (34.5) 35,000 (34.5) Six months ending September 30, 2018: 33,000 million Year ending March 31, 2019 : 55,000 million (1) Shift of significant subsidiaries during the period (shift of specified subsidiaries accompanied by changes in scope of consolidation): None (2) Changes in accounting policies, accounting estimates, and retrospective restatements 1 Changes in accounting standards required by IFRS: None 2 Changes due to changes in accounting standards other than (2),1: None 3 Changes in accounting estimates: None (3) Number of shares outstanding (Common stock) 1 Number of shares outstanding (Including treasury stock) at the end of period March 31, 2018: March 31, 2017: 397,900,154 shares 397,900,154 shares 2 Number of treasury stock at the end of period March 31, 2018: March 31, 2017: 601,983 shares 600,484 shares 3 Average number of shares during the period March 31, 2018: March 31, 2017: 397,299,021 shares 397,300,479 shares

3 (Reference) Outline of Non-consolidated Financial Results (Japanese GAAP) Non-consolidated Financial Results for the year ended March 31, 2018 (April 1, 2017 to March 31, 2018) (1) Results of Operations March 31,2018 March 31,2017 (% represents changes from the previous year) Net sales Operating income Ordinary income Net income Yen million % Yen million % Yen million % Yen million % 251,101 (2.1) 74,568 (16.9) 71,320 (22.6) 42,364 (33.7) 256,532 (3.4) 89,768 (5.6) 92,099 (2.6) 63,902 (4.1) March 31,2018 March 31,2017 Earnings per share Earnings per share (diluted) (2) Financial Position Total assets Net assets Shareholders equity ratio Shareholders equity per share (yen) As of March 31, , , % 1, As of March 31, , , % 1, Reference: Shareholders Equity As of March 31, 2018 : 561,109 million As of March 31, 2017 : 515,585 million This summary of financial results is exempt from audit procedures. Explanation for Appropriate Use of Forecasts and Other Notes: Starting from the fiscal year ended March 31, 2018 (FY2017), the Group has adopted the International Financial Reporting Standards (IFRS) for preparing its consolidated financial statements with a view toward improving the international comparability of its financial statements in the capital markets and improving business management within the Group by standardizing accounting treatment. Financial data for the previous fiscal year (FY2016) are also represented under the IFRS. Please refer to page 14, (5) Notes to Consolidated Financial Statements for the difference between the financial figures under IFRS and Japanese GAAP. This material contains forecasts, projections, goals, plans, and other forward-looking statements regarding the Group s financial results and other data. Such forward-looking statements are based on the Company s assumptions, estimates, outlook, and other judgments made in light of information available at the time of preparation of such statements and involve both known and unknown risks and uncertainties. Accordingly, forecasts, plans, and other statements may not be realized as described, and actual financial results, success/failure or progress of development, and other projections may differ materially from those presented herein. Please refer to page 6, (4) Forecasts for the Year Ending March 31, 2019 with regard to the assumptions and other related matters for forecasts. Supplementary financial data and the presentation materials for the earnings presentation are disclosed together with the summary of financial results. The Company holds an earnings presentation for institutional investors and analysts on Monday, May 14, The documents distributed at the presentation are scheduled to be posted on our website.

4 Attachment Documents 1. Operating Results and Financial Condition 2 (1) Analysis of Operating Results 2 (2) Analysis of Financial Condition 6 (3) Analysis of Cash Flows 6 (4) Forecasts for the Year Ending March 31, (5) Fundamental Profit and Dividend Distribution Policy for the Current Term and the Next Term 7 2. Basic policy for application of accounting standard 7 3. Consolidated Financial Statements 8 (1) Consolidated Statement of Profit or Loss and Consolidated Statement of Comprehensive Income 8 (2) Consolidated Statement of Financial Position 9 (3) Consolidated Statement of Changes in Equity 11 (4) Consolidated Statement of Cash Flows 13 (5) Notes to Consolidated Financial Statements Others 40 Change in the Members, Board of Directors 40 1

5 1. Operating Results and Financial Condition (1) Analysis of Operating Results Adoption of the International Financial Reporting Standards (IFRS) Starting from the fiscal year ended March 31, 2018 (FY2017), the Group has adopted the International Financial Reporting Standards (IFRS) for preparing its consolidated financial statements with a view toward improving the international comparability of its financial statements in the capital markets and improving business management within the Group by standardizing accounting treatment. Financial data for the previous fiscal year (FY2016) are also represented under the IFRS. Please refer to page 14, (5) Notes to Consolidated Financial Statements for the difference between the financial figures under IFRS and Japanese GAAP. (i) Overview of overall operating results During the fiscal year ended March 31, 2018, the Japanese economy remained on a mild recovery track as consumer spending picked up, capital expenditures and production showed a gradual increase, and corporate earnings and business sentiments improved. Overseas, the U.S. economy steadily recovered, while the Chinese economy continued to rally. As employment and income environments continuously improve, the Japanese economy is expected that these mild recovery trends should be sustained, in part due to government economic packages. Nevertheless, uncertainties in overseas business situations and fluctuations in financial and capital markets still warrant attention. In the pharmaceutical sector, the Japanese authorities are undertaking a drastic reform of the National Health Insurance (NHI) drug price scheme and authorities around the world are taking further steps to curb prices of brand-name drugs and promote use of generics in a bid to put the brakes on ever-expanding social security benefit expenditures. Amid these circumstances, the increasing difficulty of developing new drugs, rising R&D expenses, and other factors serve to lower businesses' visibility and add to business risks. Against this backdrop, in an attempt to bolster sales of TRERIEF (therapeutic agent for Parkinson's disease), LONASEN (atypical antipsychotic), Trulicity (therapeutic agent for Type 2 diabetes), and other drugs in Japan, the Group has focused its management resources to provide scientific information on these key offerings. In North America, the Company's U.S. subsidiary Sunovion Pharmaceuticals Inc. (hereinafter referred to as "Sunovion") continued to pour its resources into expanding the sales of global strategic product LATUDA (atypical antipsychotic agent) and other mainstay products. The Company possesses multiple patents for LATUDA, which is one of the primary sources of revenue of the Group. As counter-measures against application submissions for generic products, the Company and Sunovion filed patent infringement lawsuits in the U.S. against those submissions in January 2015 based on the compound patent, and further filed patent infringement lawsuits against those submissions in February 2018 based on the method of use patent issued in November In the Oncology area, Boston Biomedical Inc. (hereinafter referred to as "Boston Biomedical"), which is another U.S. subsidiary of the Company, expedited the clinical development of napabucasin (product code: BBI608) by placing top priority on an early launch of the drug. Meanwhile, Tolero Pharmaceuticals, Inc. (hereinafter referred to as "Tolero"), which the Company acquired in FY 2016, mainly focused on the clinical development of alvocidib (product code: DSP-2033). In China, Sumitomo Pharmaceuticals (Suzhou) Co., Ltd. pursued business opportunities in a bid to expand sales of MEROPEN (carbapenem antibiotic) and other products in the Chinese market. In Europe, the Company signed a partnership agreement with Angelini S.p.A. (hereinafter referred to as "Angelini") with the aim of expanding sales of LATUDA. Adoption of "core operating profit" as a new performance indicator To coincide with the adoption of the IFRS, the Group has set an original performance indicator for the Company's recurring profitability in the form of "core operating profit." "Core operating profit" is calculated by deducting from operating profit any gains and losses resulting from nonrecurring factors that the Group designates. Among the main Non-recurring Items are impairment losses, business structure 2

6 improvement expenses, litigation related expenses, and changes in fair value of contingent consideration related to company acquisitions. Highlights of the Group's consolidated financial results for the fiscal year under review are as follows: (Billions of yen) FY2016 FY2017 Change Change % Revenue Core operating profit Operating profit Profit before taxes Net profit attributable to owners of the parent Revenue increased by 14.3% year-on-year to reach billion yen. This increase is attributable to sales growth of Trulicity in the Japan segment and MEROPEN and other products in the China segment, as well as a substantial sales expansion of LATUDA in the North America segment. Core operating profit increased by 40.8% year-on-year to reach 90.6 billion yen. Despite the increase in selling, general, and administrative expenses in the North America segment and R&D expense, core operating profit rose as gross profit grew in tandem with the increase in revenue. Operating profit increased by 118.9% year-on-year to reach 88.2 billion yen. This substantial increase is attributable to a reversal of expenses resulting from a decline in the fair value of contingent consideration following the Company s decision, in June 2017, of unblinding of Phase 3 global study of napabucasin, which is under development by Boston Biomedical, for gastric and gastro-esophageal junction cancer patients, in addition to a decline in business structure improvement expenses. Net profit attributable to owners of the parent increased by 70.7% year-on-year to reach 53.4 billion yen. The ratio of net profit attributable to owners of the parent to revenue was 11.4%. (ii) Status of each business segment Adoption of "core segment profit" as a performance indicator for each segment To coincide with the adoption of the IFRS, for segment performance, the Group has set an original performance indicator for each segment s recurring profitability in the form of "core segment profit." "Core segment profit" is each segment profit calculated by deducting from "core operating profit" any items such as R&D expenses and gains and losses on business transfers, which are managed globally and thus cannot be allocated to individual segments. [Japan segment] Revenue increased by 1.8% year-on-year to reach billion yen. Sales increases of AIMIX (therapeutic agent for hypertension), TRERIEF, and REPLAGAL (Anderson-Fabry disease drug), as well as the substantial growth of Trulicity sales, together advanced sales by more than offsetting the declining sales of long-listed drugs. Core segment profit increased by 6.2% year-on-year to reach 40.3 billion yen. This increase is attributable to the decrease in selling, general, and administrative expenses owing primarily to lower labor costs for a smaller headcount and reduction of selling expenses. 3

7 [North America segment] Revenue increased by 23.7% year-on-year to reach billion yen. This increase is attributable to the fact that sales of mainstay LATUDA continued to expand substantially and sales of APTIOM (antiepileptic agent) and other products advanced. Core segment profit increased by 18.3% year-on-year to reach billion yen. Despite the increase in selling, general, and administrative expenses resulting from a rise in selling expenses related to new launches, core segment profit grew as gross profit increased in tandem with the increase in revenue. [China segment] Revenue increased by 33.0% year-on-year to reach 23.4 billion yen. This increase is attributable to the strong sales performance of mainstay MEROPEN and other product lines. Core segment profit increased by 59.3% year-on-year to reach 10.7 billion yen. Core segment profit grew as gross profit increased in tandem with the increase in revenue. [Other Regions segment] Revenue increased by 42.7% year-on-year to reach 16.5 billion yen. This increase is attributable to brisk exports of MEROPEN and other products. Core segment profit increased by 81.1% year-on-year to reach 5.1 billion yen. Core segment profit grew as gross profit increased in tandem with the increase in revenue. In addition to the above reportable segments, the Group is also engaged in sales of food ingredients, food additives, materials for chemical products, veterinary drugs, diagnostics, and other product lines, which together generated revenue of 42.8 billion yen (down by 2.0% year-on-year) and core segment profit of 2.7 billion yen (up by 11.5% yearon-year). (iii) Status of research and development activities The Group remains committed to research and development by taking every available opportunity to assimilate cuttingedge technologies through combinations of a wide variety of avenues, including in-house research, technology inlicensing, and joint research with venture businesses and academia, with the aim of continually discovering excellent pharmaceutical products with Psychiatry & Neurology, Oncology, and Regenerative Medicine and Cell Therapy as its focus therapeutic areas. The progress statuses of key development projects during the fiscal year under review are as follows: Psychiatry and Neurology In order to enhance its attractive development pipeline with greater efficiency, the Company revamped its research structure and consequently renamed its Drug Research Division in October As a part of this organizational realignment, the Company applied a new "Project-based Research Management System" by appointing Project Leaders and Project Directors in the Drug Research Division. In the early stages of research, the Company is working to apply cutting-edge scientific technologies including highperformance computer-based in-silico drug discovery technology and utilization of ips cells to drug discovery. The progress statuses of key development projects during the fiscal year under review are as follows: (a) Dasotraline (product code: SEP ) A New Drug Application (NDA) for use in patients with adult and pediatric attention-deficit hyperactivity disorder (ADHD) was submitted in the U.S. in August (b) TRERIEF (generic name: zonisamide) In August 2017, an application for partial change of approved indications to add Parkinsonism in dementia with Lewy bodies (DLB) was submitted in Japan. 4

8 (c) (d) Apomorphine hydrochloride (product code: APL ) In the U.S., an NDA was filed for management of OFF episodes associated with Parkinson's disease in March LONASEN (generic name: blonanserin) In February 2018, the Phase 3 study in Japan, which is currently under joint development with Nitto Denko Corporation evaluating a transdermal patch formulation of blonanserin, met the primary endpoint and blonanserin was well-tolerated by study participants. Oncology The Company's basic strategy in this therapeutic area is to conduct research and development with a focus on cancer stemness inhibitors, cancer peptide vaccines, and kinase inhibitors and deliver unique, previously unavailable products through alliances with Boston Biomedical and Tolero. During the fiscal year under review, the Company continued with a Phase 3 global clinical study of napabucasin for colorectal cancer and pancreatic cancer (combination therapy). Meanwhile, in June 2017, the Company decided to unblind the Phase 3 global clinical study of napabucasin in patients with gastric and gastro-esophageal junction cancer, based on a recommendation by the study's independent Data and Safety Monitoring Board (DSMB) saying that the study was unlikely to reach its primary endpoint following an interim analysis. Regenerative medicine/cell therapy The Company is engaged in multiple research and development projects aimed at early commercialization of regenerative medicine and cell therapy products. In order to resolve one of the greatest bottlenecks to the commercialization of such products, namely, development of their production system, the Company completed in March 2018 the Sumitomo Dainippon Manufacturing Plant for Regenerative Medicine & Cell Therapy (SMaRT), which is the world's first commercial manufacturing facility for regenerative medicine and cell therapy products derived from allogenetic ips cells. The Company will remain committed to promoting the regenerative medicine and cell therapy business using allogenetic ips cells for age-related macular degeneration, Parkinson's disease, retinitis pigmentosa, and spinal cord injury. Other therapeutic areas LONHALA MAGNAIR (generic name: glycopyrrolate) In December 2017, an indication for long-term maintenance treatment of airflow obstruction in chronic obstructive pulmonary disease (COPD) patients was approved in the U.S. Acquisitions and alliances The Group proactively seeks opportunities for acquisitions and alliances in an effort to enhance its development pipeline. During the fiscal year under review, the Company obtained from Poxel SA of France the development and marketing rights to imeglimin (product code: PXL008) in Japan, China, South Korea, Taiwan, and nine Southeast Asian countries in October Then, in December 2017, the Company initiated a Phase 3 study for type 2 diabetes in Japan together with this French partner. In October 2017, the Company and the Kitasato Institute signed a joint research agreement on drug discovery for infections caused by bacteria with antimicrobial resistance (AMR). This joint research has been selected by the Japan Agency for Medical Research and Development (AMED) for its first-ever Cyclic Innovation for Clinical Empowerment (CiCLE) grant program. As a result of the abovementioned activities, R&D expenses for the fiscal year under review amounted to 86.9 billion yen (up by 6.8% year-on-year). Please note that the Group manages its R&D expenses globally and, as such, does not allocate such expenses to individual segments. 5

9 (2) Analysis of Financial Condition Non-current assets decreased by 10.4 billion yen over the previous fiscal year-end. This is because deferred tax assets dropped significantly due to the U.S. tax reform and goodwill and intangible assets decreased owing primarily to the impact of foreign currency translations, while other financial assets increased with investment securities being marked to market. For current assets, income taxes receivable decreased, but cash and cash equivalents and other financial assets increased, resulting in an increase of 41.0 billion yen over the previous fiscal year-end. As a result, total assets increased by 30.6 billion yen from the previous fiscal year-end to billion yen. Total liabilities decreased by 9.8 billion yen from the previous fiscal year-end to billion yen. This was due primarily to decreases in bonds and borrowings despite increases in trade and other payables, including accounts payable-other. Equity amounted to billion yen, due primarily to an increase in retained earnings. Ratio of equity attributable to owners of the parent to total assets as of the end of the fiscal year under review was 55.9%. (3) Analysis of Cash Flows Cash flows provided by operating activities increased by 74.3 billion yen from the previous fiscal year to 93.4 billion yen, owing primarily to a major increase in profit before taxes, as well as a major decrease in income taxes paid. Despite the acquisition of intangible assets following in-licensing and investment securities, cash flows used in investing activities decreased by 39.6 billion yen from the previous fiscal year to 16.5 billion yen due to the absence of the high expenditures for acquisition control over subsidiaries that were recorded in the previous fiscal year. Cash flows used in financial activities amounted to 29.6 billion yen, due primarily to redemption of bonds and repayment of loans, while net cash was generated overall during the corresponding period of the previous fiscal year due to fundraising. After factoring in the impact of foreign currency translations applied to cash and cash equivalents, the balance of cash and cash equivalents as of March 31, 2018 amounted to billion yen, which represents an increase of 42.2 billion yen from the end of the previous fiscal year. (4) Forecasts for the Year Ending March 31, 2019 Fiscal 2017 Results Fiscal 2018 Forecasts (Billions of yen) Change Change % Revenue Core operating profit (13.6) (15.0) Operating profit (35.2) (39.9) Net profit attributable to owners of the parent (18.4) (34.5) < Revenue > In Japan, revenue is expected to decrease due to the difficulty of offsetting the impacts of AIMIX generic entries, NHI drug price revisions, and declines in sales of long-listed products, despite the continued focus on expanding sales of TRERIEF and Trulicity. In North America, meanwhile, revenue is expected to grow due to sales expansion of LATUDA and APTIOM and the launch of LONHALA MAGNAIR (therapeutic agent for COPD), despite the impact of the strong yen. Consolidated revenue is expected to reach billion yen (up by 0.2 billion yen year-on-year). 6

10 < Profit > Core operating profit is expected to be 77.0 billion yen, which represents a decrease of 13.6 billion yen from the previous year, after taking into account the impact of the strong yen on selling, general, and administrative expenses and an increase in selling expenses in North America, where a new launch is scheduled. In fiscal 2017, the Company reported a reversal of expenses resulting from changes in fair value of contingent consideration related to an acquisition but expects to incur expenses in fiscal As a result, the Company expects operating profit of 53.0 billion yen (down by 35.2 billion yen year-on-year) and net profit attributable to owners of the parent of 35.0 billion yen (down by 18.4 billion yen year-on-year). < Prior condition > Foreign currency exchange rates used for the forecasts are: 1 USD = 105 JPY (JPY110.9 in the fiscal year under review), 1 RMB = 16.5 JPY (JPY16.7 in the fiscal year under review) (5) Fundamental Profit and Dividend Distribution Policy for the Current Term and the Next Term The customary appropriate allocation of a portion of the Company's profits to its shareholders is one of the Company's most important management policies. The Company's basic policy is to make dividend payments from retained earnings twice each year, which includes an interim dividend determined by the Company's Board of Directors and a year-end dividend determined by the general meeting of shareholders. In addition to placing high importance on distribution of surplus in a manner reflecting the Company's performance, the Company seeks to make decisions on dividends from a comprehensive perspective while actively investing in its future growth, ensuring a solid management base, and enhancing its financial status in order to further increase its corporate value. The Company believes that it is important to consistently allocate profits to its shareholders. In FY2017 (the year ended March 31, 2018), the Company achieved a record-high operating income, exceeding the FY2017 target remarkably that was laid out in the 3rd Mid-Term Business Plan (MTBP). Given the aforementioned basic policy on profit distribution to shareholders and earnings results of the fiscal year under review, the Company plans to pay a year-end dividend of 19 yen per share, which comprises an ordinary dividend of 9 yen and a special dividend of 10 yen, thus making the annual dividend for the fiscal year under review 28 yen per share. As business performance is expected to remain strong into FY2018, the Company plans to pay an ordinary dividend of 9 yen for the interim dividend and a year-end dividend of 11 yen, comprising an ordinary dividend of 9 yen and a special dividend of 2 yen, resulting in an annual dividend of 20 yen per share. 2. Basic policy for application of accounting standard Starting from the fiscal year ended March 31, 2018 (FY2017), the Group has adopted IFRS for preparing its consolidated financial statements with a view toward improving the international comparability of its financial statements in the capital markets and improving business management within the Group by standardizing accounting treatment. 7

11 3. Consolidated Financial Statements (1) Consolidated Statement of Profit or Loss and Consolidated Statement of Comprehensive Income Consolidated Statement of Profit or Loss March 31, 2017 March 31, 2018 Revenue 408, ,838 Cost of sales 94, ,345 Gross profit 313, ,493 Selling, general and administrative expenses Research and development expenses Other income Other expenses 181,668 81,373 3,554 13, ,651 86,928 Operating profit 40,286 88,173 Finance income 3,182 2,430 Finance costs 687 5,737 Profit before taxes 42,781 84,866 Income tax expenses 11,465 31,418 Net profit 31,316 53,448 Net profit attributable to: Owners of the parent 31,316 53,448 Net profit total 31,316 53,448 Earnings per share (yen) Basic earnings per share ,417 5,158 Consolidated Statement of Comprehensive Income March 31, 2017 March 31, 2018 Net profit 31,316 53,448 Other comprehensive income Items that will not be reclassified to profit or loss: Net gain (loss) on revaluation of financial assets measured at fair value through other comprehensive income (2,886) 8,527 Remeasurements of defined benefit liability (asset) Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations Cash flow hedges 3,277 (1,871) (7) (2,824) (10,748) (1) Total other comprehensive income (1,487) (5,046) Total comprehensive income 29,829 48,402 Total comprehensive income attributable to: Owners of the parent 29,829 48,402 Total comprehensive income 29,829 48,402 8

12 (2) Consolidated Statement of Financial Position Assets Transition Date (As of April 1, 2016) As of March 31, 2017 As of March 31, 2018 Non-current assets Property, plant and equipment Goodwill 63,665 76,950 61, ,194 58,204 95,097 Intangible assets 78, , ,681 65,232 52,681 70, ,453 Other financial assets Income taxes receivable Other non-current assets Deferred tax assets 3,862 73,580 3,313 57,089 3,067 41,608 Total non-current assets 362, , ,103 Current assets Inventories Trade and other receivables Other financial assets Income taxes receivable Other current assets Cash and cash equivalents 44, ,656 49,377-5, ,572 60, ,732 17,494 6,234 5, ,603 60, ,982 22, , ,775 Total current assets 343, , ,581 Total assets 705, , ,684 9

13 Liabilities and equity Transition Date (As of April 1, 2016) As of March 31, 2017 As of March 31, 2018 Liabilities Non-current liabilities Bonds and borrowings Trade and other payables Other financial liabilities Retirement benefit liabilities 28, ,874 21,909 10, ,873 16,374 30,940 88,427 20,700 Other non-current liabilities 6,174 7,352 6,551 Deferred tax liabilities 4, Total non-current liabilities 130, , ,713 Current liabilities Bonds and borrowings Trade and other payables Other financial liabilities 23,010 43,528 6,648 58,000 47,394 13,917 16,460 58,708 6,278 Income taxes payable 28,456 10,001 14,368 Provisions 57,757 76,905 84,433 Other current liabilities 26,320 25,916 30,001 Total current liabilities 185, , ,248 Total liabilities 315, , ,961 Equity Share capital 22,400 22,400 22,400 Capital surplus 15,860 15,860 15,860 Treasury shares (663) (667) (669) Retained earnings 326, , ,037 Other components of equity 25,639 16,906 19,095 Equity attributable to owners of the parent 389, , ,723 Total equity 389, , ,723 Total liabilities and equity 705, , ,684 10

14 (3) Consolidated Statement of Changes in Equity Equity attributable to owners of the parent Share capital Capital surplus Treasury shares Retained earnings Other components of equity Net gain (loss) on revaluation of financial assets measured at fair value through other comprehensive income Remeasurements of defined benefit liability (asset) Balance as of April 1, ,400 15,860 (663) 326,358 25,652 Net profit 31,316 Other comprehensive income (2,886) 3,277 Total comprehensive income 31,316 (2,886) 3,277 Purchase of treasury shares (4) Disposal of treasury shares Dividends (7,151) Reclassification from other components of equity to retained earnings 7,246 (3,969) (3,277) Other increase (decrease) Total transactions with owners (4) 95 (3,969) (3,277) Balance as of March 31, ,400 15,860 (667) 357,769 18,797 Net profit 53,448 Other comprehensive income 8,527 (2,824) Total comprehensive income 53,448 8,527 (2,824) Purchase of treasury shares (2) Disposal of treasury shares Dividends (7,945) Reclassification from other components of equity to retained earnings (7,235) 4,411 2,824 Other increase (decrease) Total transactions with owners (2) (15,180) 4,411 2,824 Balance as of March 31, ,400 15,860 (669) 396,037 31,735 11

15 Equity attributable to owners of the parent Exchange differences on translation of foreign operations Other components of equity Cash flow hedges Total Total equity Balance as of April 1, 2016 (13) 25, , ,594 Net profit 31,316 31,316 Other comprehensive income (1,871) (7) (1,487) (1,487) (1,487) Total comprehensive income (1,871) (7) (1,487) 29,829 29,829 Purchase of treasury shares (4) (4) Disposal of treasury shares Dividends (7,151) (7,151) Reclassification from other components of equity to retained earnings Total (7,246) Other increase (decrease) Total transactions with owners (7,246) (7,155) (7,155) Balance as of March 31, 2017 (1,871) (20) 16, , ,268 Net profit 53,448 53,448 Other comprehensive income (10,748) (1) (5,046) (5,046) (5,046) Total comprehensive income (10,748) (1) (5,046) 48,402 48,402 Purchase of treasury shares (2) (2) Disposal of treasury shares Dividends (7,945) (7,945) Reclassification from other components of equity to retained earnings 7,235 Other increase (decrease) Total transactions with owners 7,235 (7,947) (7,947) Balance as of March 31, 2018 (12,619) (21) 19, , ,723 12

16 (4) Consolidated Statement of Cash Flows March 31, 2017 March 31, 2018 Cash flows from operating activities Net profit 31,316 53,448 Depreciation and amortization 12,713 12,887 Impairment losses 2,254 2,147 Changes in fair value of contingent consideration 8,131 (8,608) Interest and dividend income (1,945) (2,430) Interest expenses Income tax expenses 11,465 31,418 (Increase) decrease in trade and other receivables (4,065) (2,934) (Increase) decrease in inventories (15,295) (4,382) Increase (decrease) in trade and other payables Increase (decrease) in retirement benefits liabilities Increase (decrease) in provisions 7,103 (829) 18,713 10, ,067 Others, net (7,201) 442 Subtotal 63, ,218 Interest received 801 1,058 Dividends received 1,198 1,246 Interest paid (374) (338) Income taxes paid (45,504) (13,764) Net cash provided by operating activities 19,143 93,420 Cash flows from investing activities Purchase of property, plant and equipment (8,131) (5,129) Proceeds from sales of property, plant and equipment Purchase of intangible assets (5,328) (7,225) Purchase of investments (356) (6,226) Proceeds from sales and redemption of investments 8, Acquisitions of control over subsidiaries (84,348) Net decrease (increase) in short-term loan receivables Proceeds from business transfer 29,855 (5,468) 9,423 Others, net 2,613 (2,889) Net cash used in investing activities (56,129) (16,523) Cash flows from financing activities Net increase (decrease) in short-term borrowings Proceeds from long-term borrowings 39,036 (36,500) 35,300 Repayments of long-term borrowings (12,000) (9,400) Redemption of bonds (10,000) (10,000) Repayments of finance lease obligations (1,117) (1,064) Dividends paid (7,151) (7,944) Others, net (4) (2) Net cash provided by(used in) financing activities 8,764 (29,610) Net increase (decrease) in cash and cash equivalents (28,222) 47,287 Cash and cash equivalents at beginning of year 135, ,603 Effect of exchange rate changes on cash and cash equivalents (1,747) (5,115) Cash and cash equivalents at end of year 105, ,775 13

17 (5) Notes to Consolidated Financial Statements 1. Notes on Premise of Going Concern Not applicable. 2. Reporting Entity Sumitomo Dainippon Pharma Co., Ltd (the Company ) is a company domiciled in Japan. The closing date of the Company s Consolidated Financial Statements is March 31, The Company s Consolidated Financial Statements comprise the Company and its subsidiaries (the Group ), its interests in associates and joint ventures. The Group is primarily involved in pharmaceutical business. The details of the main business and activities are presented in Note 5 Operating Segments. The registered address of the Company s Head Office and its main places of business are presented on the Company s website (URL 3. Basis of Preparation (1) Compliance with IFRS and matters concerning First-time Adoption The Group s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) issued by the international Accounting Standards Board. The provision of Article 93 of the Ordinance on Terminology, Forms, and Preparation Methods of Consolidated Financial Statements applies, as the Company meets the requirements for a Specified Company Applying Designated International Accounting Standards prescribed in Article 1 (2) of said ordinance. The consolidated financial statements for the fiscal year ended March 31, 2018 are the first IFRS consolidated financial statements the Company has prepared in accordance with IFRS. The date of transition to IFRS (the transition date ) was April 1, And the Company applies IFRS 1 First-time Adoption of International Financial Reporting Standards ( IFRS 1 ). The effects of the transition to IFRS on the Group s financial position, results of operations, and cash flows are presented in Note 8 First-time Adoption of IFRS. (2) Basis of Measurement The Group s consolidated financial statements are prepared on the historical cost basis, except for certain financial instruments presented in Note 4 Significant Accounting Policies. (3) Functional Currency and Presentation Currency The Group s consolidated financial statements are presented in Japanese yen, which is the Company s functional currency, rounded to the nearest million yen. (4) Significant Accounting Estimates, Judgments and Assumptions In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues and expenses. However, due to the uncertainty of these estimates and assumptions, there are possibilities that material adjustments to the carrying amount of assets and liabilities are required in future periods. Main estimates, judgments, and assumptions are summarized as follows: Significant assumptions used in calculating recoverable amounts when performing impairment test on goodwill and intangible assets Estimated useful lives of intangible assets Recoverability of deferred tax assets Measurement of defined benefit obligations Fair value of financial assets Accounting treatment on provisions and fair values Measurement of contingent consideration related to business combinations 14

18 (5) New Standards and Interpretations Issued but Not Yet Applied The new and amended standards and interpretations issued by the date of approval of the consolidated financial statements but not yet early applied by the Group are as follows. The effect on the Group s consolidated financial statements from applying such standards and interpretations are being evaluated. IFRS 15 IFRS Revenue from Contracts with Customers Mandatory application (Hereafter, Starting Year) January 1, 2018 Application by the Group Fiscal year ending March 31, 2019 IFRS 16 Lease January 1, 2019 Fiscal year ending March 31, 2020 Overview of introduction or Revision New revenue recognition standards, replacing IAS 18, IAS 11, and related interpretations Revised accounting standards for recognition of leases (6) Early application of the new standard The Group early applied IFRS 9 Financial Instruments (final version issued in July 2014) at the IFRS transition date (April 1, 2016). 4. Significant Accounting Policies The significant accounting policies adopted by the Group are continuously applied to all the reporting periods presented in the consolidated financial statements (including the consolidated statement of financial position as of the Transition Date). (1) Basis of consolidation 1 Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when the Group is exposed to, or has rights to variable returns from its involvement with the investee and has the ability to use its power to affect its returns. The Group consolidates the financial statements of subsidiaries from the date when the Group controls the investees, and excludes them from the scope of consolidation from the date when the Group loses control over the investees. When the closing date of subsidiary is different from that of the Group, the financial statements of subsidiary, on which a provisional financial closing has been performed as of the Group s closing date, are used for consolidation purpose. In preparing the consolidated financial statements, all intergroup balances and transactions, and unrealized gains and losses arising from intergroup transactions are eliminated. 2 Associates Associates are those entities in which the Group has significant influence over the financial and operating policies but does not have control or joint control. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but does not have control over those policies. Investment in associate is accounted for by using the equity method. The closing date of the associates accounted for using the equity method is same as that of the Group. 3 Business combinations Business combinations are accounted for by using the acquisition method. The identifiable assets and liabilities of the acquired company are measured at acquisition-date fair value. The fair value of all the assets and liabilities arising from contingent consideration contact is included in the consideration transferred. 15

19 Goodwill is measured at the excess of the aggregate of the consideration transferred and the amount of any noncontrolling interests in the acquired company over the net of acquisition-date amounts of the identifiable assets acquired and liabilities assumed. If it is a deficit, the deficit is recognized immediately in profit or loss. Acquisition-related costs are recognized in the profit or loss when incurred. The Group elects to adopt the exemption prescribed in IFRS 1 and does not apply retrospectively IFRS 3 Business Combinations ( IFRS3 ) to the business combinations that occurred before the date of transition. (2) Foreign currency translations 1 Foreign currency transactions Foreign currency transactions are translated into the functional currency at the spot exchange rate at the date of transactions or at the foreign exchange rate that approximates the spot exchange rate at the date of the translation. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency using the exchange rate at the reporting date. Non-monetary assets and liabilities measured at fair value that are denominated in foreign currency are translated into the functional currency at the exchange rates prevailing at the date when the fair value was measured. Exchange differences arising from foreign currency translations and settlements are recognized in the profit or loss. However, exchange differences arising from financial assets measured at fair value through other comprehensive income and the effective portion of cash flow hedges are recognized in other comprehensive income. 2 Foreign operations The assets and liabilities (including any goodwill arising on the acquisition and fair value adjustments) of the Group s foreign operations are translated into Japanese yen at the spot exchange rate at the reporting date. Income and expenses are translated into Japanese yen at the average exchange rate for the period except for the case that the exchange rate fluctuates significantly. Exchange differences arising from translation of financial statements of the foreign operations are recognized in other comprehensive income. The cumulative amount of such exchange differences is recognized as other components of equity in the consolidated statements of financial position. On the disposal of a foreign operation, the cumulative amount of the exchange differences relating to the foreign operation is reclassified to profit or loss during the period in which the foreign operation is disposed. The Group elects to apply the exemption prescribed in IFRS 1 and deems the cumulative translation differences for all foreign operations as zero and reclassifies the total amount to retained earnings at the date of transition. (3) Revenue 1 Sale of goods Revenue is measured at the fair value of a consideration received or receivable after deducting the amount of trade discounts and volume rebates. Revenue from sales of goods is recognized when Group has transferred the significant risks and rewards of the goods to the customer, the Group retains neither continuing managerial involvement nor effective control over the goods sold, it is probable that the economic benefits associated with the transaction will flow to the Group, and the amount of revenue and associated cost can be measured reliably. 2 Revenue arising from intellectual property rights Revenue arising from Intellectual property is recognized on an accrual basis in accordance with the substance of the relevant agreement. Revenue associated with milestone agreements is recognized upon achievement of the milestone defined in the respective agreements. 16

20 (4) Income taxes Income taxes are presented as the aggregate amount of current taxes and deferred taxes, and recognized in the profit or loss, except for those related to business combinations and items that are recognized directly in equity or in other comprehensive income. Current taxes are measured by the statutory tax rate and tax laws that has been enacted or substantially enacted by the reporting date and the amount expected to be paid to or recovered from the taxation authorities. Deferred tax assets and liabilities are recognized for temporary differences arising from the difference between the carrying amount of assets or liabilities in the consolidated statement of financial position at the reporting date and its tax base, tax loss carryforwards and tax credit carryforwards. However, the deferred tax assets and liabilities are not recognized for the following temporary differences: Temporary difference arising from initial recognition of goodwill; Temporary differences arising from the initial recognition of assets and liabilities in a transaction which is not a business combination, and at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss); Deductible temporary differences associated with investments in subsidiaries and associates when it is not probable that the temporary difference will reverse in the foreseeable future; or there will not be taxable profits will be available against which the deductible temporary differences can be utilized; and Taxable temporary differences associated with investments in subsidiaries and associates, when the Group is able to control the timing of reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognized for deductible temporary differences, the carryforwards of unused tax losses and the carryforward of unused tax credits to the extent that it is probable that they will be utilized against future taxable income. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on statutory tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if the Group has a legally enforceable right to set off current tax assets against current tax liabilities and income taxes are levied by the same taxation authority and the same taxable entity. (5) Earnings per share Basic earnings per share are calculated by dividing net profit attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the period, excluding treasury shares held. Diluted earnings per share are not calculated because no dilutive shares are outstanding. (6) Property, plant and equipment Cost model is applied for measurement of property, plant and equipment after initial recognition. Property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment losses. The acquisition cost includes direct costs of acquisition, estimated costs of dismantlement, removal and restoration, and borrowing costs eligible for capitalization requirements. Property, plant and equipment other than land and construction in progress is depreciated by using straight-line method over each asset s useful life. Depreciation of such asset begins when it is available for use. The estimated useful lives of major categories of property, plant and equipment are as follows: Buildings and structures 3~60 years Machinery, equipment and vehicle 2~17 years Tools, furniture and fixtures 2~20 years The depreciation method, the residual value and the estimated useful life are reviewed at each fiscal year-end and are subject to revise when necessary. 17