President and CEO’s Message

President and CEO’s Message

Santen is making significant strides toward

realizing its long-term strategic vision

through 2020 of becoming a specialized

pharmaceutical company with a global presence.

By focusing our efforts on ophthalmology

and related areas, we will develop

scientific knowledge and

organizational capabilities that are unique

and original to Santen. We will use these unique

capabilities to contribute to society.

We kindly ask for the continued

support of all our stakeholders.

September 2014

Akira Kurokawa President and Chief Executive Officer

10 President and CEO’s Message 11 Annual Report 2014 Santen Pharmaceutical Co., Ltd. Co., Pharmaceutical Santen Furthermore, in May 2014, we entered into an agreement into an agreement we entered in May 2014, Furthermore, For fiscal 2013, we paid a full-year dividend of ¥100 per treatment for dry eye. We also met the primary endpoint of for dry eye. We treatment for the a Global Phase 3 study of DE-109 (sirolimus) of non-infectious uveitis of the posterior segment. treatment 150 sites in This study is being carried out at approximately the U.S. and Asia. Europe, Merck’s & Co., Inc. to purchase with U.S.-based Merck and Asia Pacific. in , Europe ophthalmology products these initiatives, we intend to enhance our range of Through with products, glaucoma and ocular hypertension treatment of life (QOL). At the quality patient’s the aim of improving convinced that we can accelerate our same time, we are our long-term strategic vision. realizing toward progress Santen has positioned the stable return of profits to Santen has positioned the stable return of profits as a key management priority. shareholders This fiscal year. the same amount as for the previous share, in a dividend payout ratio of 48.2%. Going forward, resulted to committed to the stable return of profits we remain At the same time, we will continue to retain shareholders. funds primarily for R&D investments, while adopting a stock. flexible stance that includes the acquisition of treasury Enhancing Shareholder Returns Enhancing Shareholder 1. As of March 31, 2014 1. As of March

Ikervis Tapros Diquas (aflibercept [genetical EYLEA (aflibercept (dorzolamide hydrochloride/timolol (dorzolamide hydrochloride/timolol . 1 is now available in more than 60 is now available in more Taflotan in Japan), one of its sold as Tapros (tafluprost, In the domestic prescription ophthalmic business, we the domestic prescription In Turning to R&D, under a new framework aimed at Turning Fiscal 2013, the fiscal year ended March 31, 2014, was the 2013, the fiscal year ended March Fiscal Manage- final year of the Fiscal 2011-2013 Medium-Term 24.9% year on ment Plan. During fiscal 2013, net sales rose reflected billion. This result ¥148.7 year to a record in both the Japanese and overseas significant sales growth to ¥27.4 billion markets. Operating income was up 11.1% 3.6% to ¥17.1 billion. and net income rose such as our in sales of key products saw steady growth glaucoma and ocular hypertension treatments (tafluprost) and Cosopt (tafluprost) maleate), as well as our dry eye treatment November 2012, (diquafosol sodium). Launched in Japan in VEGF inhibitor the intravitreal contributing rapidly, continued to grow recombination]) immensely to sales. The anti-allergy ophthalmic solution which was launched in Alesion (epinastine hydrochloride), Japan in November 2013, is steadily penetrating the market. In the overseas business, Santen posted higher sales of the glaucoma and ocular hypertension treatment Taflotan drivers. growth countries worldwide strengthening global R&D capabilities, we are working to global R&D capabilities, we are strengthening based on the highly competitive new products create 2013, patients. In December medical needs of the world’s of for marketing approval we applied in Europe (generic name: ciclosporin, development name: Cyclokat), a Fiscal 2013 Overview We posted record net sales. posted record We the Japanese further in both our presence expanded We to our focus on sales promotion and overseas markets, thanks including new products. activities for key products, Summary of the Fiscal 2011–2013 Medium-Term Management Plan By steadily executing our growth strategy based on Santen’s Values, we accelerated our progress toward realizing our long-term strategic vision.

Santen positioned fiscal 2011 to fiscal 2013 as a period to S.A.S. of (formerly Novagali Pharma S.A.S.). Building invest in growth. We steadily implemented a number of on the results of the previous medium-term management measures to bring our business strategies to fruition. plan, Santen intends to execute new business strategies Notably, we actively invested in R&D to accelerate the with the aim of becoming a specialized pharmaceutical creation of new products, enhance our competitiveness in company with a global presence. Europe and Asia, and spur growth in our business in Japan. With the aim of making an even greater contribution to patients worldwide, we put a global manufacturing system in FY2011-2013 Medium-Term Management Plan place while pursuing efficiency. We also made tremendous Financial Targets and Results progress on building a stronger organization and developing FY2013 Targets FY2013 Results human resources. Both of these initiatives will enable us to Net Sales realize our long-term strategic vision. Over ¥121billion ¥148.7billion Santen made a Company-wide effort to pursue business Operating Income Over ¥31billion ¥27.4billion activities aimed at achieving sustained growth. As a result, we delivered significantly higher net sales than our target in Net Income Over ¥20billion ¥17.1billion the previous medium-term management plan. On the other R&D Expenditures Around ¥15.5 billion ¥19.0 billion hand, operating income and net income were both below

1 target, mainly due to the impact of upfront investments ROE 10％ 10.2 ％ primarily in R&D. This included the acquisition of Santen 1. Three-year average for FY2011-2013

Strategic Objectives and Results for Fiscal 2011-2013 Medium-Term Management Plan

Strategic Objectives Major Achievements

• Established a global clinical development system. Product Promote globally oriented research • Reinforced product pipeline through business Development and development. development and acquisitions.

Obtain high domestic market share and achieve Domestic • Long-listed drugs ratio declined due to new growth through the promotion of new products 3 Operations product growth. and implementation of marketing strategies.

Overseas Accelerate growth in both Asia and Europe • Accelerated sales growth in . Operations by reinforcing marketing platforms. • Asia business turned to profitability.

Establish a global product supply system • Executed measures to reduce manufacturing cost. Product 2 • Structural reforms were conducted in Europe in order Supply with our existing four plants , which enable us to meet emerging market needs. to enhance efficient global product supply system.

Organization Develop talents and organizational • Implemented an organizational management system and capabilities to promote in line with business globalization. Talents “creation and innovation” on a global level.

2. Four plants: Noto and Shiga (both in Japan); Suzhou (China); and Tampere () 3. Tapros, Cosopt, Diquas, EYLEA, etc.

12 Santen Pharmaceutical Co., Ltd. Annual Report 2014 President and CEO’s Message 13 ％ ％ Annual Report 2014 billion billion billion billion billion 13 40

31 21 45 ¥ ¥ Over ¥

205 54.5 ¥ Around Around

¥

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

・Ensure the launch of existing products in the ・Achieve business growth by contributing to the pipeline and improve productivity. treatment of patients with new products and ・Enhance the pipeline for differentiated products innovative services. based on customer needs.

In R&D, Santen is working to ensure commercialization of In the prescription pharmaceutical business, Santen will products under development and further strengthen product promote reforms to build an even stronger sales organiza- pipelines for sustainable growth in order to rapidly develop tion as it works to increase the market penetration of new differentiated products that satisfy unmet medical needs. products. Meanwhile, Santen has fully entered the field of In particular, Santen will concentrate on fields that make back-of-the-eye diseases, where there are substantial the most of the Company’s strengths, primarily in the fields unmet medical needs. of dry eye, glaucoma, and retinal disorders. Furthermore, Guided by the new medium-term management plan, Santen seeks to increase the probability of success for Santen will endeavor to enhance competitive advantages products in late-stage clinical development by promoting by maximizing values of new products such as Tapros, “Network Product Development1,” which actively utilizes Diquas and EYLEA. The Company also aims to attain compounds and technologies available outside the sustainable business growth and maintain a strong Company, and by stepping up translational research2. business presence in the domestic market by enhancing its Moreover, we plan to continue implementing life cycle ability to respond to unmet medical needs. It also seeks to management3, in order to maximize the value of our existing achieve business growth by strengthening coordination products. Looking ahead, we will continue to strengthen among the prescription pharmaceutical, OTC and medical coordination between our R&D bases in Japan, the U.S. devices business categories by taking advantage of its and Europe, as we endeavor to accelerate global clinical strength as a specialized pharmaceutical company with a development and improve productivity. strong presence in Japan.

1. An approach of proactively utilizing compounds and technologies available outside the Company in product development. 2. Multi-disciplinary research that links basic research, clinical research, and medical examinations and utilizes the findings from this for effective and efficient practical applications to contribute to healthcare development. 3. Aligning one compound to treatment needs over the long term and augmenting through additional indication, dosage, formulation and combination products to increase product value.

Fiscal 2014-2017 Medium-Term Management Domestic Business Sales Target Plan Sales Target

¥205billion ¥145 billion Merck projects4 ¥122.1billion Merck projects4 ¥148.7billion ¥18.5billion ¥3.4billion Existing Existing business business

¥186.4billion ¥141.6billion

Fiscal 2013 Fiscal 2017 Fiscal 2013 Fiscal 2017 (Actual) (Target) (Actual) (Target)

4. The contribution from acquisition of U.S.-based Merck’s ophthalmology assets, which Santen acquired in May 2014.

14 Santen Pharmaceutical Co., Ltd. Annual Report 2014 President and CEO’s Message 15 Annual Report 2014 Report Annual , one Taflotan 4 billion billion billion (Target) Merck Existing projects 18.1 business Fiscal 2017 12.8 31 ¥ ¥ ¥

Santen Pharmaceutical Co., Ltd. Co., Pharmaceutical Santen billion (Actual) Fiscal 2013 12.3 ¥ European Business Sales Target European Under the new medium-term management plan, Santen Under the new medium-term management Overseas Business Strategy [European Business] [European Business Strategy Overseas in specific treatment categories such as dry eye categories in specific treatment and glaucoma. Become a “Value Player” with a unique presence Player” with a unique presence Become a “Value profitability. improve and Achieve sustained growth In the European business, higher market penetration of the business, higher market penetration In the European hypertension treatment glaucoma and ocular sales drivers, has contributed to growth of the Company’s growth. sustained will make the most of that achievement to attain with the in combination profitability and improve growth we believe that the Furthermore, launch of new products. realizing for region market is the most promising European sales due to the ophthalmology the benefits of increased Santen will strive to Merck. from acquired products in the glaucoma field in enhance its lineup of products in sales of existing addition to spurring further growth and with the aim of achieving sustainable growth products, profitability. improved ・ ・ 4 billion 2.3 ¥ Merck projects Merck

billion billion (Target) Existing Fiscal 2017 business 25.2 ¥ 27.5 ¥ billion (Actual) Fiscal 2013 13.2 ¥ Asian Business Sales Target Overseas Business Strategy [Asia Business] Business Strategy Overseas Under the new medium-term management plan, Santen Under drive earnings, Santen will work to maximize sales To expand market shares in key countries. in key expand market shares market growth rate, and enhance profit contribution. profit rate, and enhance market growth Strengthen the business platform in order to in order the business platform Strengthen exceeding the growth share market sales and Achieve In the Asian business, Santen strove to expand business in to expand business In strove the Asian business, Santen significant Chinese market, and delivered the fast-growing sales. in growth and Vietnam as key countries. positioned China, Korea, sustained The Company intends to continue to drive in the Asian market. The Company aims to capture growth in major markets in Asia, especially China and the top share than the by fiscal 2020, by attaining higher growth Korea, expansion market average. It will also accelerate business in other ASEAN markets such as Vietnam. and sales while strengthening new products, through the Company will marketing capabilities. Additionally, acquired platform based on products its business reinforce in the glaucoma and ocular U.S.-based Merck from to enhance our hypertension fields. In parallel, we will strive countries development pipeline to fit local needs in Asian to enter growing and leverage competitive new products markets. ・ ・ Product Supply Strategies Organization and Talent Strategy

・Establish a product supply system with ・Establish organization and strengthen the global competitiveness. human resources pipeline towards the realization of sustainable growth.

In regard to product supply, Santen will strive to enhance We believe that developing talent and building a solid price competitiveness and pursue high product quality, in organization that can drive “creation and innovation” are order to continue growing amid a variety of changes in the crucial to realizing our long-term strategic vision through global pharmaceutical market. Santen will continue to make 2020. With this in mind, we will develop innovative leaders efforts to reduce cost of sales significantly, for the purpose who will be responsible for medium- and long-term of ensuring a cost structure that is acceptable to emerging business growth. At the same time, we will endeavor to countries. strengthen our global management system, focusing on In more specific terms, our global production system is primary functions such as R&D, product supply, and spread over four plants: the Noto Plant, our main plant, finance, in an effort to facilitate global decision-making and which is seeking to achieve improved productivity; the execution of strategies. Shiga Product Supply Center, our core global facility With the view of making its strategic vision a reality, responsible for technological innovation and strategic Santen will remain focused on developing and enhancing planning; the Suzhou Plant (China), where we are boosting the organizational management system and its employees production capacity; and the Tampere Plant (Finland), to ensure sustained growth. which serves as a supply center mainly for markets in Europe. We will maintain and enhance quality, while also ensuring stable supplies, with the aim of optimizing the global supply chain to fulfill our customers’ needs.

Acquisition of Ophthalmology Assets from Merck & Co., Inc. To become a specialized pharmaceutical company with a global presence, we are strengthening the domestic prescription pharmaceutical business, along with accelerating growth in Asia and Europe and improving profitability.

In May 2014, Santen entered into an agreement with Merck ing the Company to accelerate business expansion & Co., Inc. for Santen to purchase Merck’s nine ophthalmol- overseas. 1 ogy products in Japan, Europe, and Asia Pacific, along 1. COSOPT, COSOPT PF, TRUSOPT, TRUSOPT PF, TIMOPTIC, TIMOPTIC PF, with product manufacturing and marketing rights. TIMOPTIC-XE, SAFLUTAN, TAPTIQOM Through this agreement, Santen has added highly regarded glaucoma and ocular hypertension treatment Fiscal 2017 Sales Outlook for Merck Projects by Region products to its lineup. In doing so, Santen will reinforce its presence in the domestic prescription ophthalmic business Merck Project Sales ¥18.5 billion as it strives to achieve growth in the Asian and European European business ¥12.8 billion business and improve profitability, thereby aiming at realizing our long-term strategic vision through 2020. Under Asian business ¥2.3billion the agreement, Santen will acquire the rights to drugs in 72 Domestic business ¥3.4billion countries worldwide, including 37 new countries, position-

16 Santen Pharmaceutical Co., Ltd. Annual Report 2014 President and CEO’s Message 17 Annual Report 2014 Report Annual Santen Pharmaceutical Co., Ltd. Co., Pharmaceutical Santen By promoting business and CSR activities in a holistic business and CSR activities in a holistic By promoting to provide guidance on social responsibility. It is applicable not only to corporations guidance on social responsibility. to provide but also to all organizations, including governments, schools, and NGOs. only expand the Company and grow earnings, and grow but also to only expand the Company the pursuit of CSR. achieve these goals through to contribute Santen intends and consistent manner, of patients and their loved ones, as primarily to the welfare well as to society at large. 2. ISO 26000 was issued by the International (ISO) Organization for Standardization , we defined 7 Core , we defined 7 Core 2 In order to promote CSR activities, on the basis of the to promote In order Based on Santen’s Values, we are working as one team to working we are Values, Based on Santen’s our management strategies, activities integrated with enhance CSR customer focus. pursuing a true Subjects of CSR, for each of which a basic policy has been Subjects of CSR, for each of which a basic become a specialized pharmaceutical established. To as outlined in our company with a global presence, 2020, we seek to not long-term strategic vision through The Santen Group considers it essential to integrate CSR considers it essential to integrate The Santen Group into on the basis of Santen’s its management strategies believe that our mission in society is to We Values. and health of patients worldwide. contribute to the eyesight perspectives of “customers,” “employees” and three as well as “society” stated in the Santen Code of Practice, subjects of ISO 26000 the core Corporate Social Responsibility (CSR) Activities (CSR) Social Responsibility Corporate