FUJISAWA PHARMACEUTICAL COMPANY LIMITED FUJISAWA PHARMACEUTICAL COMPANY LIMITED ANNUAL REPORT 2004 ANNUAL REPORT 2004 ANNUAL REPORT 2004

Printed on recycled paper in Japan

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04.07/藤沢薬品 AR 04 表1-4 YMCB Fujisawa Pharmaceutical Co., Ltd., headquartered in Japan, is a research-driven pharmaceutical company with a firm commitment to innovative research in its quest to satisfy unmet medical needs and contribute to the progress of medical care. Corporate Mission “Fujisawa contributes to healthier, more prosperous lives for people around the world by exploring the frontiers of human health and disease.”

CONTENTS The F-mark, Fujisawa’s logo, encapsulates Fujisawa’s desire to share the Financial Highlights/1 Highlights of the Year/2 joy of good health with people all over the world. Message from the President/4 Red: Passionate commitment to research and development Global Network/8 Major Products/10 Blue: Pursuit of purity and quality People-our most precious resource/12 Ethical Pharmaceuticals Business/14 Yellow: Desire to improve the health and lives of people everywhere Japan/14 North America/15 Europe/16 Under the banner of the F-mark, Fujisawa will continue to help people Asia/17 live healthy, satisfying lives. R&D Network/18 Research/21 Products under Clinical Development/22 Tremendous progress has been made in the biomedical sciences in Development/23 Health Care/24 recent years. In an attempt to summarize in a few words the essence of Production Network/26 Production/27 Fujisawa’s corporate philosophy, we have coined the corporate slogan Environmental Protection/28 “New Medicines for New Times.” Board of Directors/Top Management with Global Functional Heads/30 Review of the Year/31 Management and Corporate Auditors/ Corporate Directory/55 Investor Information/57 Brief History/58 Fujisawa Pharmaceutical Company Limited and Consolidated Subsidiaries Financial Highlights Years ended March 31

Millions of yen Thousands of U.S. dollars* 2004 2003 2004 Change (%)

Net sales ...... ¥395,401 ¥382,079 $3,730,198 103.5 Income before income taxes ...... 69,138 44,690 652,245 154.7 Net income ...... 41,468 28,635 391,208 144.8 Shareholders’ equity ...... 375,944 335,337 3,546,642 112.1 Amounts per share (in yen and dollars): Net income Basic ...... ¥ 125.63 ¥ 86.62 $ 1.19 145.0 Diluted ...... 123.65 85.37 1.17 144.8 Cash dividends ...... 22.00 18.00 0.21 122.2 Total assets ...... ¥499,693 ¥511,516 $4,714,085 97.7 Research and development expenses ...... 73,643 62,426 694,745 118.0

* The U.S. dollar amounts in this report represent, for convenience only, translations of Japanese yen at the rate of ¥106=US$1.

Net Sales Operating Income Net Income (¥ bn) (¥ bn) (%) (¥ bn) (%) 400 395.4 70 20 45 15 382.1 41.5 62.1 341.4 320 56 16.3 56.7 16 36 12 289.1 297.5 13.7 14.3 10.5 28.6 240 42 12.1 11.3 46.9 12 27 26.2 9 7.9 34.8 33.6 6.9 7.5 22.9 7.7 160 28 8 18 20.5 6

80 14 4 9 3

0 0 0 0 0 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 Operating Income Net Income Ratio to Net Sales Ratio to Net Sales

Statements made in this annual report with respect to Fujisawa’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of Fujisawa. These statements are based on management’s current assumptions and beliefs in light of the information currently available to it and involve known and unknown risks and uncertainties. Consequently, undue reliance should not be placed on these statements. Fujisawa cautions the reader that a number of important factors could cause actual results to differ materially from those discussed in the forward-looking statements. Such factors include, but are not limited to: (i) changes in general economic conditions in, and the Pharmaceutical Affairs Law and other laws and regulations relating to, Fujisawa’s markets, (ii) currency exchange rate fluctuations, (iii) delays in new product launches, (iv) the inability of Fujisawa to market existing and new products effectively, (v) Fujisawa’s ability to continue to research and develop products accepted by customers in highly competitive markets and (vi) infringements of Fujisawa’s intellectual property rights. 1 Highlights of the Year (For the Year ended March 31)

Fujisawa established new highs in business performance — net sales of ¥395,401 million (US$3,730 million) and net income of ¥41,468 million (US$391 million).

Firm sales growth of Fujisawa Healthcare, Inc. and Fujisawa GmbH contributed significantly to Fujisawa’s business performance. Overseas business accounted for 48.6% of total revenue. ® Our No. 1 product Prograf achieved 16% sales growth with ¥104 billion (US$985 million) and is further strengthening its position as the cornerstone immunosuppressant for organ transplantation. ® Protopic is now commercially available in almost 30 countries. The global ® marketing of Protopic achieved a 33% sales jump over the previous term.

R&D Expenses Capital Expenses Total Assets (¥ bn) (%) (¥ bn) (¥ bn) 75 73.6 25 30 550 511.5 499.7 462.3 474.5 60 20 24.4 62.4 24 440 421.7 17.5 57.1 18.6 21.2 19.8 19.7 20.4 20.3 45 15.8 52.0 15 16.7 16.3 18 330 45.6 16.1 15.6 15.4 30 10 12 12.9 220

15 5 6 110

0 0 0 0 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 R&D Expenses Acquisition of Property, Plant Ratio to Net Sales and Equipment Depreciation and Amortization 2 Micafungin, Fujisawa’s third global product, has been well accepted since its debut as Funguard® for Infusion in Japan, and recorded ¥11 billion (US$105 million) sales.

Under the Global Headquarters, a newly established global management system in April 2003, the local operations are involved on an equal footing in decision-making and execution of the global agenda.

In the three Chinese-speaking economies of China, Hong Kong and Taiwan,we reorganized our operations effective April 1, 2004 in order to improve operational efficiency and profitability in these markets.

On June 24, 2004 the shareholders of Fujisawa and Yamanouchi Pharmaceutical Co., Ltd., respectively, approved a definitive agreement on the merger of the two companies leading the creation of Astellas Pharma Inc. effective April 1, 2005.

Return on Equity Earnings per Share Overseas Sales Ratio (%) (¥) (%) 15 150 50 46.7 48.6 44.1 125.63 12 11.7 120 40 35.3 36.3 9.5 9 8.8 90 30 7.8 8.8 86.62 71.09 80.07 6 60 63.62 20

3 30 10

0 0 0 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004

3 Message from the President

I am very pleased to present Fujisawa’s annual report for the year ended March 31, 2004. The term under review was highlighted by the announcement of our planned merger with Yamanouchi Pharmaceutical Co., Ltd., and we also made many other strategic decisions to focus our management resources more effectively on our healthcare platform, thus ensuring sustainable growth over the long term.

Progress of Our Business Net sales increased by 3.5% to ¥395,401 million (US$3,730 million) over the previous year, setting a new record.

Key drivers of this growth once again are the continuing growth of our two major subsidiaries, Fujisawa Healthcare, Inc. and Fujisawa GmbH, both led by the immunosuppressant Prograf® (tacrolimus). As for sales of individual products, consolidated sales of Prograf® surpassed ¥100 billion for the first time. With ¥104.4 billion (US$985 million), a 16% increase over the previous fiscal year, Prograf® has become the first ¥100 billion product in Fujisawa’s history. The injectable antifungal agent Funguard® for Infusion (micafungin) also achieved sales of ¥11.1 billion (US$105 million) for its first full year in Japan after its launch in December 2002. Funguard® has become the number one injectable antifungal agent in Japan. We also successfully launched the ketoride class oral antibiotic Ketek® (telithromycin) in Japan in December 2003. While operating income, at ¥56,703 million (US$535 million), recorded an 8.8% year-on-year decrease, mainly due to heavy investments in research and development, recognition of extraordinary gains caused net income to rise 44.8% to ¥41,468 million (US$391 million).

We announced our long-term management strategy “VISION 2005” in the fiscal year ended March 31, 2000. Over the subsequent four years from April 1, 2000, in pursuit of our targets

Progress under VISION 2005

Return on Equity 11.7% 10.0% Net Sales 9.5% Overseas Sales 8.8% (¥bn) Japanese Sales 7.8% 8.8% 400 400 Net Income

300

200

100

40 0 Years to March 31 2000 2001 2002 2003 2004 2006

4 under this strategy, we have achieved growth of 8.1% and 12.9% on a compounded annual growth rate basis for net sales and operating income, respectively. Total overseas sales, at ¥192.1 billion (US$1,813 million), were up even more sharply, recording compounded annual growth of 17.1% over the same four-year period. I believe this is clear evidence that we have implemented the right strategies to improve the corporate value of Fujisawa under VISION 2005.

Progress in Research and Development We are committed to sustaining a high level of spending on research and development while taking profitability constantly into account. In the reporting period, Fujisawa invested 18.6% of net sales, or ¥73.6 billion (US$695 million), into research and development. This is mainly because of progress of various projects in the late stage of global clinical development, and the introduction of promising compounds from outside partners. During the term under review, we received approval of Protopic® (tacrolimus ointment) for pediatric use in Japan and launched it in December 2003. Micafungin, expected to become the third global product for the Company, has been under review both in the U.S. and Europe. In April 2004, we filed an additional NDA of micafungin for esophageal candidiasis in the U.S. and now expect the approval of micafungin in the first half of 2005 there and in Europe in 2005. The modified release formulation of tacrolimus is now globally developed in order to improve patient compliance. We have successfully acquired the North American co-development and exclusive commercialization rights to RSD1235, a promising compound for the treatment of atrial fibrillation and flutter, from Cardiome Pharma Corp. of Canada. 5 Progress of Management Refocus Programs Continuous efforts have been made to intensify the focus of our management resources on the ethical pharmaceuticals business, our mainstay field, to improve our medium-term profitability. Following our announcement made in September 2002, Fujisawa established two new wholly owned subsidiaries, “Fujisawa Toyama Co., Ltd.” and “Fujisawa Shizuoka Co., Ltd.” on October 1, 2003. Of the four domestic pharmaceuticals plants, three plants in Osaka, Takaoka, and Toyama were spun off and incorporated as “Fujisawa Toyama Co., Ltd.” The Fuji plant was spun off and incorporated as “Fujisawa Shizuoka Co., Ltd.” These two subsidiaries are now vigorously pursuing efficiency in pharmaceutical production activities.

In the area of the OTC pharmaceuticals business, Fujisawa and Yamanouchi have agreed to integrate their OTC businesses and establish a new joint venture named “Zepharma Inc.” on October 1, 2004. Zepharma will have highly recognized brands in major therapeutic categories, such as gastrointestinal agents, cold remedies, dermatological products, and anti-allergy drugs. Zepharma will aim to further improve its profitability with its focused and flexible organization comprising 200 employees, as well as the establishment of a more efficient operational structure.

Further, Fujisawa divested some businesses outside the field of ethical pharmaceuticals during the term. Notably, the Company has now withdrawn substantially from the chemicals business, previously engaged in by the parent company and the U.S. subsidiary PMP Fermentation Products, Inc., by transferring them to Fuso Chemical Co., Ltd. of Japan in December 2003. In addition to the chemicals business, Fujisawa also divested itself of small non-core businesses such as an activated carbon business and an industrial cleaning and hygiene business during the term under the review.

President Hatsuo Aoki of Fujisawa and President Toichi Takenaka of Yamanouchi shake hands on February 24, 2004 after concluding the basic agreement. 6 In our Asian operations, we reorganized our operations in the three Chinese speaking economies, China, Hong Kong and Taiwan effective April 1, 2004, in order to improve operational efficiency and profitability in these markets. Fujisawa Greater China Group Limited (FGC), established in Hong Kong, is now positioned as the headquarters of Fujisawa’s operations in these countries. Under FGC, Fujisawa Taiwan Co., Ltd. (FTC) now focuses on the Taiwanese business, while Fujisawa Pharmaceuticals (China) Company Limited in Hong Kong pursues its business on the Chinese market.

From Fujisawa to Astellas Fujisawa and Yamanouchi announced that they have signed a basic agreement to merge on February 24, 2004. Through the merger, the two companies aim at developing into a completely new company that possesses a highly competitive edge not only in the Japanese pharmaceutical market, but also in the global pharmaceutical market, with excellent R&D capabilities and strong sales and marketing infrastructure. In particular, the merged company will be able to cover both primary care physicians and specialty markets in the U.S.

Following the execution of the Definitive Agreement, the shareholders of Fujisawa and Yamanouchi approved the merger agreement of the two companies to be effective as of April 1, 2005, at the annual general meetings of the two companies, both held on June 24, 2004. With the approval received from the shareholders of the two companies, the creation of “Astellas Pharma Inc.” has become definite, though the worldwide relevant regulatory clearances have yet to be obtained.

“Astellas” expresses the idea of “aspired stars.” The word comes from aster and stella the Greek and Latin words, respectively, for “star.” The Latin word stella, of course, is the root of the English word “stellar.” The name of the New Company signifies our aim to deliver hope for the future to all those who wish for good health through our state-of-art pharmaceuticals, and to develop into a global, mega-pharmaceutical company that originated in Japan. We take pride in this name as one that will be familiar to our customers and shareholders for many years to come.

I believe that Astellas Pharma Inc. will emerge as a new force in the global pharmaceutical industry and will contribute to the health of people around the world by providing innovative pharmaceutical products that satisfy unmet medical needs. I sincerely ask you to extend your kind support to the new company.

Hatsuo Aoki, Ph. D. President and Chief Executive Officer 7 Global Network

Fujisawa has put considerable effort into creating a global network of research and development, manufacturing, and sales operations and currently has business bases in Japan, North America, Europe, and East Asia. Being managed autonomously, the local operations are involved on an equal footing in the decision-making process of Fujisawa’s global operations. Fujisawa’s products are also supplied throughout the world via licensing agreements with other pharmaceuticals companies. Japan

Fujisawa Pharmaceutical Co., Ltd. & Subsidiaries

Fujisawa Greater China Group Limited Asia Fujisawa Pharmaceuticals (China) Company Limited Fujisawa Taiwan Co., Ltd. Fujisawa Korea Limited

8 Fujisawa GmbH Europe Fujisawa Ltd. (UK) Fujisawa SARL (France) Fujisawa SRL (Italy) Fujisawa SA (Spain) Fujisawa Scandinavia AB (Sweden) Fujisawa Deutschland GmbH Fujisawa Ges.m.b.H. (Austria) Fujisawa AG (Switzerland) Fujisawa Ireland Limited Fujisawa Holland B.V. The Fujisawa Institute of Neuroscience in Edinburgh

Fujisawa Healthcare, Inc. North America Fujisawa Canada, Inc. Fujisawa Research Institute of America, Inc.

9 Fujisawa’s core business is its line of ethical pharmaceutical Major Products products, accounting for more than 90% of net sales. The Company has introduced into the world markets a variety of novel products developed from its pipeline as well as in alliance with other pharmaceutical companies.

® Prograf (tacrolimus) Prograf® has made a significant contribution in terms of reducing rejection rates and improving transplant outcome. Prograf® continues to strengthen its position as an established cornerstone immunosuppressant for organ transplant patients with successful long-term outcome.

® Adenoscan (adenosine injection) Adenoscan®, a pharmacologic ® (zolpidem tartrate) stress imaging agent, provides Myslee the best way to assess the risks of heart disease through accurate diagnosis. Adenoscan® is a market leader in the US for use with myocardial perfusion imaging when exercise stress testing is not an option.

Myslee®, a non-benzodiazepine compound, is a selective sedative-hypnotic with a rapid onset of action due to its highly selective and strong affinity to Omega 1 receptor in CNS. It provides a sleep pattern close to natural sleep. ® Cefzon (cefdinir)

Cefdinir, an oral cephalosporin antibiotic, has a well-balanced broad spectrum for both Gram- positive and Gram-negative bacteria. Cefdinir is also available in fine granule or oral suspension form for pediatric use. Other brand name: Omnicef® (cefdinir) 10 Protopic® (tacrolimus ointment) A major breakthrough for the treatment of atopic dermatitis has appeared for the first time in 40 years. Protopic® is the first in a new class of steroid-free medications known as TIMs, offering a novel treatment option with distinct advantages over current therapies.

® Seroquel (quetiapine fumarate) Seroquel®, an atypical antipsychotic agent, is a AmBisome® dibenzothiazepine derivative and a well- (liposomal amphotericin B) balanced antagonist to various receptors with much broader efficacy in By enclosing the amphotericin B in managing both positive and a liposome, AmBisome® helps target negative symptoms of drug delivery and improves its schizophrenia as well as safety profile over other fewer side effects compared formulations of amphotericin B for with conventional the treatment of life-threatening antipsychotic agents. systemic fungal infections.

® ® Funguard for Infusion Cefspan (cefixime) (micafungin)

Micafungin belongs to an entirely new Cefixime, an oral cephalosporin antibiotic, is widely class of antifungal agents, the candins, used for a variety of community-acquired bacterial which specifically inhibit fungal cell wall infections. It is also available in dispersible tablet form synthesis. Micafungin, now available as in Europe for patients with swallowing difficulties. the first candin in Japan, has started Other brand names: Suprax®, Cefixoral®, Cephoral®, contributing to the treatment of invasive Oroken®, Denvar®, Tricef®, Necopen®, etc. fungal infections. 11 People — our most precious resource Everyone who works for Fujisawa is dedicated to helping as many people as possible throughout the world lead healthier lives. Fujisawa’s mission is to continue providing its highly effective drugs to patients everywhere, and our dedicated and highly professional staff are the vital assets that enable us to sustain the Company as a truly successful pharmaceutical enterprise on the global stage. Administration

Brian Bradford Yenny Hsieh Senior Director, Associate Manager, Financial Planning Finance Department, Taipei Branch Hong-Gye Lim Fujisawa Healthcare, Inc. Fujisawa Greater China Group Limited Protopic Product Manager, Fujisawa Korea Limited The broadening of our development Having the opportunity to participate in pipeline means we are more frequently setting up a holding company in Hong It has been almost two years since called on to make critical decisions that Kong has fascinated me since the start of Protopic® was launched in Korea. Co- drive our business success. As a member the project in 2003. Our team, composed promotion with Dong-A Pharma has been of multi-discipline project teams tasked of people from different backgrounds and successful so far, and sales are increasing with developing sound business cultures, makes the whole process a very month by month. We are confident that recommendations, I see our strong efforts rewarding experience. I feel fortunate to Protopic® will open up a brighter, happier paying off in terms of supporting an ever witness Fujisawa entering a new era and future for sufferers from atopic dermatitis. strengthening pipeline and high projected playing an important role in the Greater overall business value. China region. Sales & Development Christian M. Joyce Rico, M.D. Joe Volpe Redondo-Müller, DVM, Ph. D. Senior Medical Director, Senior Regional Sales Manager, Senior Manager, Research and Development Hospital Products Group Development, Planning and Management Fujisawa Healthcare, Inc. Fujisawa Healthcare, Inc. Fujisawa GmbH Under our clinical development program, I joined the organization 19 years ago I have worked for Fujisawa GmbH for we strive to ensure a future with strong when Fujisawa was first entering the U.S. seven years, contributing to the products that deepen our presence in market. Since then, a lot of changes and development of Prograf®, Protopic®, targeted therapeutic areas. In growth have occurred. As our products micafungin and tacrolimus for asthma. dermatology, development activities gained prominence in their markets, so R&D project management at Fujisawa included completion of Phase III clinical did Fujisawa’s reputation as a company of is a daily quest for innovation and studies for in-licensed products and integrity and innovation. I am excited to creativity. We are proud of our Phase II studies for novel formulations be able to participate in continuing this achievements and work constantly of tacrolimus, as well as post-marketing tradition in a new era. towards new ones. studies to support Protopic®. 12 Production

Kiichiro Hattori Pauline Solid Formulation Process O’Connell Lissy Schapal-Brinkrolf Production, Fuji Plant Operator, International Product Manager, Fujisawa Shizuoka Co., Ltd. Ampoule Production Dermatology Fujisawa Ireland Limited Fujisawa GmbH Fujisawa Shizuoka Co., Ltd. is a company newly established in October 2003 This is a very exciting time to be working As I am based at the European Headquarters, through the spin-off of the Company’s at Fujisawa Ireland. With the near I not only represent the interface between Fuji Plant as a subsidiary. In the section completion of the extension to our Japan and Europe but also support my where I work, we are responsible for the factory, there are new and challenging colleagues across Europe in successfully entire process — from weighing to opportunities available. marketing Protopic® and Zindaclin®. This in packing — involved in the creation of Fujisawa is very important to us and our itself is quite a challenge, but another drugs in tablet form for sale in the local community. The workforce is rewarding aspect of my work is having the Japanese market. We constantly work to committed to securing a strong and opportunity to meet the eczema sufferers improve Fujisawa’s profit margins through healthy future for our company. whose lives have changed dramatically rigorous product quality assurance and thanks to Protopic®. I’m proud to work for cost-cutting measures. The Production the company that developed such an staff are strongly motivated to work effective drug that can make people laugh together to make our division the primary again. Marketing earnings generator of Fujisawa Shizuoka. Research Fan Pan, M.D. Keith Project Manager, Misato Nishibe Finlayson, Fujisawa Research Institute of America, Medical Representative, Ph. D. Inc. (FRIA) Kyoto Business Branch Research Manager, Fujisawa Pharmaceutical Co., Ltd. Fujisawa Institute of Neuroscience in Our mission at FRIA is to discover new Edinburgh (FINE) immunosuppressive drugs to overcome the As a medical representative based in problem of graft rejection through our Kyoto, I spend my working days visiting As a member of Fujisawa’s research research on new druggable targets and the smaller hospitals and doctors’ clinics to division in FINE, I am responsible for the mechanisms of rejection and explain the latest developments in identification and validation of new immunosuppression, and by evaluating Fujisawa’s research and in our product biological targets for drugs to treat candidate compounds. Last year, we lineup. I always take great care to equip disorders of the nervous system. Working discovered a novel protein that plays a myself with up-to-date information on the at the academic/industry interface key role in the process of organ rejection. particular needs of each client. provides a wonderful environment where It will be very rewarding for my colleagues I aim to devote my energies to further innovative research can lead to better and and myself when the research work we do expanding Fujisawa’s market share, safer drugs for the future. today leads to new therapeutic drugs that particularly in new products. improve patients’ lives. 13 ANNUAL RESULTS Ethical Pharmaceuticals Business Japan

The growth of the Japanese ethical pharmaceutical market for the year ended March 2004 was less than two percent according to media reports. The national budget for medical expenditure remains under strong pressure, and this is The Second Candin Symposium was suppressing growth. Moreover, the overall 4.2% price cut implemented in April held in March 2004 in Tokyo where 2004 on the National Health Insurance Drug Price List is expected to affect the hundreds of doctors attended for the Japanese market in the year ending March 2005. latest information regarding the micafungin as well as fungal infection.

In the domestic market, Fujisawa has a particularly strong presence in three major therapeutic areas — infections, psychiatric problems and disorders of the central nervous system, and immunology. We were able to expand our ethical pharmaceuticals business even in the difficult business climate of the term under review, mainly thanks to the full-year contribution of Funguard® and robust sales of Myslee®. Prograf®, the antidepressant Luvox® (fluvoxamine maleate) and Seroquel® also contributed to sales growth, as did Ketek®, a ketolide-class oral antibiotic launched in December 2003. We also brought to market a new 0.03% formulation of Protopic® for pediatric use in December 2003, the streptogramin antibiotic Synercid® Injection (quinupristin-dalfopristin) in May 2003, and a new granular formulation of Seroquel® in June 2004.

With 11 business branches and 103 sales offices throughout the country, serving as the bases for about 1,150 medical representatives, Fujisawa is able to meet customers’ precise needs. To handle inquiries regarding our ethical pharmaceutical products, we set up the Drug Information Center in May 2003. The Post Marketing Development Research Center, whose staff gather and write up evidence relating to the efficacy of Fujisawa’s pharmaceutical products, was set up in July 2003 to provide valuable and reliable product information for health professionals. Fujisawa has started airing a corporate advertisement on TV in Export Business Japan as a part of its corporate brand strategy. The advertisement features Cefdinir and cefixime are the two largest items in our export business from an athlete who underwent an organ Japan. Cefdinir showed robust sales growth thanks to increased sales in the US transplant, with the message market, where it is sold under the Omnicef® brand by Abbott Laboratories, and “Fujisawa’s drugs play a vital role in organ transplants.” its total sales reached $247 million in 2003. Cefixime is highly regarded in many countries, where it is sold under various brand names such as Suprax®, Cefixoral®, Oroken® and Denvar®.

14 ANNUAL RESULTS Ethical Pharmaceuticals Business North America

Fujisawa Healthcare, Inc., headquartered in Deerfield, Illinois, forms the hub of our ethical pharmaceuticals business in the United States. Fujisawa Healthcare is involved in the development, manufacture and sale of ethical pharmaceuticals, and markets products in the fields of transplantation, dermatology, infectious diseases and cardiovascular care. With a workforce of approximately 800, Fujisawa Healthcare now accounts for more than a quarter of consolidated net sales.

Prograf®, the leading product for Fujisawa Healthcare, achieved a sales increase of 28% this year. Prograf® is now used for almost 90% of new patients receiving a liver transplant, and nearly 70% of new kidney transplant recipients. Having achieved such results in new patients in the US, Prograf® is now recognized as the cornerstone of immunosuppressant therapy.

Protopic® is a promising therapeutic alternative to conventional therapies, such as the topical steroids launched more than 40 years ago. The new 100-gram Protopic® tube, which meets the needs of eczema sufferers receiving long-term therapy, was added to the line in June 2003. Additionally, a co-promotion with GlaxoSmithKline (GSK) Consumer Healthcare began in the US in July 2003. A newly formed sales force of GSK Consumer Healthcare representatives details pediatricians, while Fujisawa promotes Protopic® to dermatologists.

Adenoscan® is a key product in the cardiovascular franchise, leading a growing pharmacologic stress imaging agent market with over 50% of the market share. Adenocard® (adenosine injection) for the treatment of paroxysmal supraventricular tachycardia (PSVT), and the systemic antifungal agent AmBisome® experienced a decline in sales due to competitive market conditions. In celebration of the 50th anniversary of the first organ transplant and the As for Fujisawa’s third global product, micafungin, Fujisawa Healthcare submitted an 10th anniversary of the introduction of the medication Prograf® into the US, additional NDA for the indication of esophageal candidiasis to the FDA in April 2004. The Fujisawa Healthcare, Inc. observed preceding NDA for micafungin is also under review, and Fujisawa Healthcare is working April’s National Donate Life month by closely with the FDA to meet their requirements for approval. sponsoring a number of organ donation and transplantation awareness and education events across the US — from In Canada, Fujisawa Canada, Inc., a wholly owned subsidiary of Fujisawa Healthcare, a coast-to-coast ride on all-terrain markets Prograf® as its main product and has recently introduced AmBisome® and vehicles to an intimate tree-planting Protopic®. An NDS for micafungin has also been submitted in Canada and is under review ceremony in the Chicago suburbs. by the authority. With these proprietary products, Fujisawa Canada is strengthening Fujisawa’s presence in Canada.

15 ANNUAL RESULTS Ethical Pharmaceuticals Business Europe

Fujisawa GmbH, our European headquarters, is located in Munich, Germany and is responsible for the development and marketing of pharmaceuticals throughout Europe. Fujisawa GmbH has subsidiaries in Germany, the UK, France, Italy, Spain, Fujisawa supported the World Transplant Sweden, Austria and Switzerland, and carries out promotional activities in Games, the Olympics for transplant patients, held in Nancy, France in July Ireland, Portugal, Norway, Finland, Denmark, the Benelux countries and Central 2003. Eastern Europe. The total headcount for European operations now exceeds 1,200.

The European launch of Protopic® started in Switzerland in January 2002. Fujisawa has successfully completed the introduction of Protopic® in more than 20 European countries. In addition to Protopic®, Zindaclin® (clindamycin phosphate/zinc), a new dermatological anti-acne product licensed from Strakan Group Ltd. in the UK, was launched in five countries starting with Germany and Ireland in May 2003. In this way, Fujisawa’s dermatological franchise in Europe has been actively reinforced. Eczema Support was set up in response Prograf® is now positioned as a cornerstone immunosuppressant for organ to the results of market research carried out by Fujisawa which revealed transplantation in Europe and is commercially available in almost all European a high demand from eczema sufferers countries. Thanks to sales of Prograf® and Protopic®, Fujisawa GmbH has firmly and carers for information on the established its presence in the European markets since its foundation in 1991 different treatment options and how to cope with eczema. and is contributing significantly to the global growth of Fujisawa. An application for the marketing authorization for micafungin was filed in Europe in February 2003 and in Switzerland in April 2003.

Within the network of Fujisawa GmbH, Fujisawa Deutschland GmbH, also located in Munich, is the largest of our European operations and covers both hospital and general practitioner business. Its marketing and sales activities throughout Germany, Austria and Switzerland play an important role. Its product portfolio includes Prograf®, Protopic®, the oral cephalosporin antibiotic Suprax®, the lipid- lowering agent Cranoc® (fluvastatin), Zindaclin® and anti-asthmatics.

Exhibition booth at the annual meeting of Hungarian Dermatologist Association in December 2003. Protopic® is available in more than 20 European countries.

16 ANNUAL RESULTS Ethical Pharmaceuticals Business Asia

In East Asia, Fujisawa has bases in Taiwan, Hong Kong, China, and South Korea that have firmly established their presence in their respective markets and are contributing significantly to the global growth of Fujisawa. Prograf® is commercially available in about ten markets throughout Asia, and Protopic® is available in Taiwan, Hong Kong and South Korea. The Company also has local Fujisawa support “Open Lecture for partners in the region to distribute its products, mainly the cephalosporin Atopic Dermatitis Patients,” an products. educational program about details of atopic dermatitis by dermatologist for the patients and their caregivers. In April 2004, Fujisawa reorganized its operations in the three Chinese- speaking economies — China, Hong Kong and Taiwan — in order to improve operational efficiency and profitability in these markets. Under this reorganization, Fujisawa Greater China Group Limited (FGC) is positioned as the headquarters of Fujisawa’s operations in these markets. Fujisawa Taiwan Co., Ltd. (FTC), which was established in Taiwan in 1962 and has played a key role in starting up the Chinese business of Fujisawa, is now Beijing ● ● concentrating on Taiwanese business under FGC. At the same time, we decided Seoul to close the Kuanyin plant of FTC around March 2005. Fujisawa Pharmaceuticals (China) Company Limited (FCL, formerly Fujisawa Hong Kong Ltd. and a Shanghai ● subsidiary of FTC), will continue to pursue its business in the Chinese market, which has the potential to become one of the world’s largest pharmaceutical markets in the near future. Sales of Prograf® have been growing rapidly since ● Taipei the drug’s launch in Hong Kong in 1997 and in China in 1999, thanks to Guangzhou promotional activities through our offices in Hong Kong, Beijing, Shanghai and Guangzhou. Hongkong

Major business bases in East Asia We are also developing our business in South Korea, where Fujisawa Korea Limited is responsible for the Prograf® and Protopic® business. Fujisawa Korea, one of the fastest growing subsidiaries in the Fujisawa group, has succeeded in expanding sales of Prograf® and launched Protopic® in November 2002.

17 R&D Network

We firmly believe that science is the key that will eventually unlock the mysteries of the human body, which has been compared to a universe in microcosm. Springing from our keen desire to contribute to healthier, more prosperous lives for people around the world, we have from early on been committed to innovative research to satisfy unmet medical needs. Fujisawa has created a series of new antibiotics and an immunosuppressant, which help people throughout the world fight diseases and support those working on the medical frontline.

R&D Focus The Company makes maximum use of its worldwide network to research and develop innovative drugs. These R&D efforts are directed by the Global Headquarters. Over 20% of the Fujisawa Group’s total staff, or around 1,800 employees, are engaged in R&D to meet medical needs on a global scale. The Company is currently focusing its R&D efforts on five therapeutic areas — immunology/inflammation, infectious diseases, cerebral diseases, metabolic diseases and urinary diseases. In the area of research activities, under the banner of “speed, focus and persistence,” we are targeting organ transplantation, rheumatoid arthritis, osteoarthritis, asthma, fungal infections, hepatitis C, Parkinson’s disease, Alzheimer’s disease, stroke, neuropathic pain, diabetes and dysuria.

Tsukuba Research Laboratories (Tsukuba, Japan)

18 Research Network Seed-Finding Research Fujisawa operates laboratories in Osaka, Nagoya and Tsukuba in Japan, as well as in the UK and the US. The Exploratory Research Laboratories and the Fermentation Research Laboratories in Tsukuba, in addition to the Fujisawa Research Institute of America, Inc. in collaboration with Northwestern University, and the Fujisawa Institute of Neuroscience in Edinburgh in collaboration with the University of Edinburgh, search for novel biological targets and new chemical entities with novel mechanisms. We pursue all the possibilities for innovative drugs, including chemical compounds, natural substances, and proteins created by genomic technologies, through the full range of state-of-the-art technologies.

Research Laboratories Tsukuba, Japan Exploratory Research Lab. Fermentation Research Lab. (also in Nagoya) Osaka, Japan Medicinal Chemistry Research Lab. Medicinal Biology Research Lab. Biopharmaceutical & Pharmacokinetic Research Lab. Toxicology Research Lab. Analytical Research Lab. Fujisawa Research Chemical Development Lab. Institute of America, Inc. Pharmaceutical Science Lab. Nagoya, Japan Fermentation Research Lab. Evanston, US Fujisawa Research Institute of America, Inc. Edinburgh, UK The Fujisawa Institute of Neuroscience in Edinburgh

Lead Optimization, Pre-Clinical and CMC Research The laboratories in Osaka and Nagoya conduct lead optimization as well as pre- clinical and CMC research. Lead optimization is the process of finding a few candidate compounds with the best profile in terms of safety, effectiveness, pharmacokinetics, and physicochemical properties from among more than 20,000 compounds. In the evaluation process, cutting-edge technologies are fully utilized, including analysis of interactions between target proteins and drugs, the pharmacological evaluation of drugs in genetically engineered cells and transgenic models, function confirmation of drugs using image analysis, and the latest analytical technologies. CMC research covers the nature of the drug The Fujisawa Institute of candidates, formulation, manufacturing process, quality control and assurance, Neuroscience in and the supply of investigational drugs for clinical trials. Edinburgh

Research Alliance As methods of drug discovery are changing with the rapid progress of biomedical science, we are pursuing collaboration with external research institutes and research ventures. In addition to our in-house activities, We have constructed a global research network that makes optimal use of state-of-the- art technology, as a further tool in securing global competitiveness. The Company has also established Fujisawa Investments for Entrepreneurship, L.P. I & II (FITE I & II), investment vehicles for developing links with research venture companies, especially startups. 19 Development Network The development division verifies the safety and effectiveness of drugs through clinical studies. To provide patients all over the world with the medicines they need, Fujisawa has expanded its development operations on a global scale. Clinical studies are currently carried out at our development centers in Japan, North America and Europe subject to global coordination and control. Along with approximately 300 development personnel in Japan, approximately 150 development personnel work at Fujisawa Healthcare, Inc. in Chicago, as well as approximately 160 development personnel at Fujisawa GmbH in Munich.

Kashima R&D Complex (Osaka, Japan) 20 ANNUAL RESULTS Research

Fujisawa’s research and development activities are the key to its success in the highly competitive global market. Fujisawa has been investing heavily in research and development activities, with the figure for the year ended March 2004 reaching ¥73,643 million (US$695 million), giving a ratio to net sales of 18.6%.

Genomic Research In addition to in-house genomic research, Fujisawa collaborates with Quark Biotech, Inc. to discover promising new medicines for the treatment of strokes. The Reverse Proteomics Research Institute, set up by Japanese companies, studies co-action between small full-length cDNA clones gained through the research of Helix and other institutions. Fujisawa participates also in the “The invention of the research conducted by the Pharmaceutical Consortium for Protein Structure immunosuppressive agent Analysis as well as the Toxicogenom Project run by the National Institute of tacrolimus” received The Prime Health Sciences together with pharmaceutical and IT companies. Minister Prize in National Commendation for Invention, sponsored by Japan Institute of Microbial Product Research Invention and Innovation in Fujisawa has an excellent record in its microbial product research, such as into May 2004. cephalosporins, tacrolimus and micafungin. Since the bio-diversity of microorganisms depends on ecological and environmental factors, Fujisawa is very keen to expand its microbial product library through in-house efforts and collaboration with outside institutions. One example of such collaboration is the project between Fujisawa and SIRIM Berhad and TropBio Research Sdn. Bhd., Malaysia-based research companies, to discover microbial resources in the Malaysian rain forest.

Research Alliance In August 2003 Fujisawa started collaboration with Astex Technology Ltd., a fragment-based drug discovery company. The collaboration is aimed at solving the novel human cytochrome P450 crystal structures that will be used to optimize Fujisawa’s compounds and so improve the success rate of drug development. FITE I & II have made eleven investments in research ventures as of July 2003, out of which three have been made within the current term, including one in June 2004.

21 ANNUAL RESULTS

Products under Clinical Development (As of July 30, 2004) Japan/North America NDA Filed,Europe MAA Filed In preparation for NDA Filing Phase III Japan Phase II Generic Name Code Target Indication Product Category Formulation Remarks tacrolimus FK506 rheumatoid arthritis immunosuppressant capsule New indication

tacrolimus FK506 ulcerative colitis immunosuppressant capsule New indication

micafungin FK463 deep-seated fungal infection (for pediatric) antifungal intravenous New indication

tacrolimus FK506 lupus nephritis immunosuppressant capsule New indication

tacrolimus FK506 vernal conjunctivitis immunosuppressant eye drops New indication & formulation

FK614 non-insulin dependent diabetes mellitus (NIDDM) insulin sensitizer tablet FK352B dialysis-related hypotension adenosine A1 antagonist intravenous quetiapine Licensed from AstraZeneca fumarate FK949 behavior psychological symptoms of dementia antipsychotic tablet New indication strontium ranelate FK481 osteoporosis bone formation stimulating and antiresorptive agent powder Licensed from Servier suppression of organ rejection in organ transplant tacrolimus FK506 (new oral formulation) immunosuppressant capsule New formulation North America (U.S.A.) Generic Name Code Target Indication Product Category Formulation Remarks micafungin FK463 deep-seated fungal infection antifungal intravenous NDS Filed in Canada

dapsone acne antibiotic and antiphlogistic agent gel Licensed from Atrix

tacrolimus FK506 rheumatoid arthritis immunosuppressant capsule New indication

tacrolimus FK506 atopic dermatitis immunosuppressant cream New indication & formulation

RSD1235 atrial fibrillation and atrial flutter antiarrhythmic agent intravenous Licensed from Cardiome pharmacologic stress agent in cardiac perfusion regadenoson CVT-3146 imaging studies adenosine A 2 a agonist intravenous Licensed from CV Therapeutics tacrolimus FK506 psoriasis immunosuppressant gel New indication & formulation suppression of organ rejection in organ transplant tacrolimus FK506 (new oral formulation) immunosuppressant capsule New formulation FK614 non-insulin dependent diabetes mellitus (NIDDM) insulin sensitizer tablet

tacrolimus FK506 psoriasis immunosuppressant cream New indication & formulation Licensed to Sucampo tacrolimus FK506 dry eye immunosuppressant eye drops New indication & formulation suppression of organ rejection in liver and kidney FK778 transplants immunosuppressant tablet Licensed from Aventis Licensed from carperitide (HANP) acute heart failure Alfa-human atrial natriuretic peptide intravenous Daiichi Suntory Pharma

FK962 Alzheimer’s disease antidimentia tablet Europe Generic Name Code Target Indication Product Category Formulation Remarks micafungin FK463 deep-seated fungal infection antifungal intravenous TRK-820 dialysis-related uremic pruritus κ opioid agonist intravenous Licensed from Toray suppression of organ rejection in organ transplant tacrolimus FK506 (new oral formulation) immunosuppressant capsule New Formulation

tacrolimus FK506 rheumatoid arthritis immunosuppressant capsule New indication suppression of organ rejection in liver and kidney FK778 transplants immunosuppressant tablet Licensed from Aventis tacrolimus FK506 asthma immunosuppressant inhalation New indication & formulation

tacrolimus FK506 psoriasis immunosuppressant gel/cream New indication & formulation

22 ANNUAL RESULTS Development

Tacrolimus Phase III studies in the US and Europe and Phase II studies in Japan of the new, once-a-day oral formulation of tacrolimus for suppression of organ rejection following organ transplants are ongoing. In Japan, tacrolimus for the treatment of atopic dermatitis for pediatric use was approved in July 2003, and its status for eye drops for vernal conjunctivitis progressed to Phase III in November 2003 with an sNDA for the treatment of ulcerative colitis being filed in January 2004. Tacrolimus cream formulation for atopic dermatitis in the US has moved to Phase III in October 2003, while the gel formulation for psoriasis moved to Phase R&D Meeting is the place to III in December 2003. communicate with financial community regarding the update of Micafungin our development pipeline as well as In the US, an additional NDA for the treatment of esophageal candidiasis was outline and current status of Fujisawa’s research and development. submitted in April 2004. The preceding NDA is also under review by the FDA, The Fifth R&D Meeting was held in and Fujisawa is now working closely with the FDA to meet their requirements February 2004 in Tokyo. for approval. An MAA is under review in Europe., Phase III studies for pediatric use in Japan has been completed and the status progressed to in preparation for NDA filing in May 2004.

Other items In the US, FK962, a backup compound of FK960 and its successor for Alzheimer’s disease, came to Phase II in June 2004. Phase II studies of FK778 for suppression of organ rejection in kidney transplant started in November 2003. Further, Dapsone has been in preparation for NDA filing since January 2004; regadenoson progressed to Phase III in October 2003; and Phase II studies of carperitide started in January 2004. Phase III trials for RSD1235, an antiarrhythmic agent newly licensed from Cardiome Pharma Corp. in October 2003, are also ongoing. FK228 was out-licensed to Gloucester Pharmaceuticals, Inc. in April 2004. In Japan, Phase II studies of FK481 started in October 2003.

23 Home Care Health Care Home care allows patients to continue living with their families, thus improving their quality of life. Fujisawa entered the home care business in 1995. We provide medical devices for home oxygen therapy (HOT), home infusion therapy (HIT), sleep apnea syndrome (SAS), and so on. Fujisawa provides medical institutions with instructions on the appropriate use of home care devices, and has established a 24-hour call center to support customers for safe and effective home treatment.

Medical Supplies and Systems The spectacular advances made in medicine have been supported by biotechnological research and clinical diagnoses. In the field of biotechnology, Fujisawa handles a lineup of over 7,000 research reagents used in advanced research on immunology and genetics. The technology center conducts research into reagents to meet the needs of the market, which require production of a broad range of new reagents to keep pace with the speed of technological innovation. In the field of the clinical diagnosis, Fujisawa markets a wide range of diagnostic kits for reliable diagnoses — from urine test sticks to genomic diagnosis reagents.

The Chemicals Business Fujisawa substantially withdrew from this business category during the period under review. The Company’s entire stake in Serachem Co., Ltd., a wholly owned subsidiary engaged in the activated carbon business, was transferred to Ataka Construction & Engineering Co., Ltd. in July 2003. This was followed by the completion of the transfer of Daisan Kogyo Co., Ltd. — a subsidiary involved in the industrial cleaning and hygiene business — to TeepolDiversey Co., Ltd., in November 2003. Fujisawa had originally owned a 50.1% stake, and had agreed to the transfer in 2001. The remaining chemical businesses, including those in Japan and the entire stake in PMP Fermentation Products, Inc., a US operation, were transferred to Fuso Chemical Co., Ltd. as of the end of December 2003. Fujisawa retained its domestic production facilities, with the aim of supplying chemicals to Fuso on a contract basis for a fixed term. 24 ANNUAL RESULTS Health Care

The Medical Supplies and Systems Business of Fujisawa is an exclusive distributor in Japan of reagents of PharMingen and Immunocytometry Systems of BD Biosciences, a business unit of Becton Dickinson and Company. We also exclusively distribute DNA FISH (fluorescence in situ hybridization) probes and instruments manufactured by Vysis, Inc., a subsidiary of Abbott Laboratories. The PathVysion® HER-2 DNA Probe Kit is an in-vitro diagnostic kit to detect amplification of HER-2 gene in human breast cancer accurately by FISH.

The Home Care Business is conducted solely in Japan. Even more than HIT and SAS, HOT is the main area of service, and Fujisawa has a share of approximately 15% in the Japanese HOT market. Demand slowed down since the increase in the patient’s out-of-pocket payment percentage for treatment under the national medical insurance system in 2002. However, Fujisawa is enjoying a continued increase in the number of patients, thanks to Bestsanso-2X, the Company’s main product in the field of HOT. Bestsanso-2X is an eco-friendly product featuring low power consumption, and the first device developed in-house for the home care business jointly with Daikin Industries, Ltd.

The OTC Drugs Business On May 17, 2004, Fujisawa entered into an agreement with Yamanouchi Pharmaceutical Co., Ltd. to integrate the two companies’ OTC drugs businesses and establish a new 50:50 joint venture, Zepharma Inc., as of October 1, 2004. The two companies currently conduct OTC businesses in Japan, including quasi-drugs, cosmetics, health foods, and so on. The establishment of Zepharma is intended to reinforce competitiveness in the OTC businesses and strengthen the future growth of the business by fully utilizing the synergies expected to result from the integration. These synergies include those resulting from the integration of the marketing know-how and R&D expertise of the two companies, efficient organizational planning through specialization in core business functions by outsourcing manufacturing and logistics, and collaboration with the parent companies, focusing on the ethical pharmaceuticals businesses. Zepharma will operate autonomously, and will create a new corporate culture that is neither that of Fujisawa nor Yamanouchi. The ultimate goal of Zepharma is to provide higher consumer satisfaction in the field of self-medication by responding quickly to changes in consumer preferences on the OTC market. The new joint venture will have high-profile brands in major therapeutic categories, such as Future Zepharma management at press gastrointestinal treatments (Gaster 10®), cold remedies (Precol® and Cakonal®), conference announcing the agreement dermatological products (Makiron®, Eurax®, and PyroAce®), and anti-allergy drugs of Fujisawa and Yamanouchi (AG Eyes/AG Nose).

The establishment of Zepharma is subject to no objection from Japanese untitrust authority. 25 Production Network

Grand Island Plant, Fujisawa Healthcare, Inc. (New York) Quality Control Based on c-GMP Standard A high-level quality assurance and quality control system that conforms to global standards is always in place, enabling us to provide products on a global scale. The foundations of our system include high technology, a clean environment, and the awareness of the vital importance of quality among all our staff. Our plants worldwide observe current good manufacturing practice (c-GMP). An in-house quality control department — independent of the manufacturing department — audits the manufacturing process and conducts quality assurance checks. In this way, the quality control department confirms that the whole production process satisfies the published standards and guarantees the absolute reliability required of all pharmaceuticals.

Production Systems for Global Operations Fujisawa has six manufacturing plants in Japan, one in the US, three in Europe, and one in Taiwan. In an effort to secure stable supplies of drugs for Fujisawa Toyama which substitutes cannot easily be obtained, it is our policy to manufacture Co., Ltd. (Toyama, Japan) those products in two locations. Thus, our global production system ensures that each plant is capable of supplying products to its own market as well as to others. Fujisawa will continue clarifying the functions and roles of its plants worldwide to strengthen its competitiveness.

Know-How for Rapid Supply of New Products To expedite the new drug development process, the production division closely cooperates with the research division at an early stage to promptly and smoothly implement production know-how developed for investigational drugs in commercial production.

Fujisawa Ireland Limited (Killorglin)

26 ANNUAL RESULTS Production

The company separated its domestic manufacturing plants, making them into Four Domestic manufacturing plants two wholly owned subsidiaries in October 2003, in order to improve overall were separated and incorporated as two new companies (shown below) on competitiveness and profitability. Three plants, at Toyama, Takaoka and Osaka, October 1, 2003. were incorporated into one company, Fujisawa Toyama Co., Ltd. and one in Fuji became Fujisawa Shizuoka Co., Ltd.

Prograf® The Toyama plant, of Fujisawa Toyama Co., Ltd., now supplies Prograf ® capsules to both Japan and North America, as well as the active ingredient tacrolimus for manufacturing. Fujisawa Ireland Limited, located in Killorglin, serves as a base for the formulation and packaging of Prograf® ampoules to the whole world and Ceremony for the establishment of Prograf® capsules to the world market except for Japan and North America. Fujisawa Toyama Co., Ltd.

As the future sales potential of Prograf® is estimated to exceed the current production capacity, we have redesigned our total Prograf® production capacity. The capacity improvement for Prograf® capsule has been completed in Toyama during the term while the same in Ireland is proceeding on schedule.

Protopic® The Grand Island, New York plant of Fujisawa Healthcare, for the formulation and packaging of Protopic®, manufactures the product for the North and South Ceremony for the establishment of American, Asian and European markets (formulation only for Europe and the Fujisawa Shizuoka Co., Ltd. Middle East). The Toyama Plant plays the same role for the Japanese market, while Fujisawa Ireland Limited has been serving as our base for the packaging of Protopic® for the European and Middle Eastern markets.

Micafungin The production of micafungin is divided among the three Japanese plants of the Company — fermentation at the Nagoya Plant, chemical synthesis at the Toyama Plant, and formulation and packaging at the Takaoka Plant of Fujisawa Toyama Co., Ltd. Taking account of the brisk sales of micafungin in Japan since its launch, the Company has constructed new formulation facilities at the Takaoka Plant.

27 Environmental Protection In 1991, when the issue of environmental protection was coming to the fore, Fujisawa set up a special organization dedicated to taking measures to protect the environment and developing technologies to recycle and reduce the use of resources. With awareness that environmental conservation should be addressed both on a country-by-country basis and from a global perspective, the Company revised the “Fujisawa Environmental Principles” on which its global environmental activities are based and elaborated the “Fujisawa Environmental Guidelines,” which supplement the Principles as a practical guide for all group companies. Every year, each group company drafts and implements its own environmental action plan.

Fujisawa has introduced an environmental management system to all its group companies, and has obtained ISO 14001 certification for its plants worldwide. We are continuously promoting systematic group-wide environmental management.

Environmental Accounting Environmental Costs Categories Details Value (¥ million) 1. Pollution prevention Water quality control, prevention of air pollution, etc. 579 1) Business area 2. Global environmental conservation Energy conservation, protection of ozone layer, etc. 466 cost 3. Resource circulation Reduction of waste, recycling of solvents and used paper, etc. 770 2) Upstream / downstream costs Container recycling 51 3) Administration cost ISO 14001 certification, environmental education & training, etc. 230 4) R&D cost Development of new environmental technology, etc. 113 5) Social activity costs Social contribution efforts, donations, etc. 81 6) Environmental remediation cost Accidents or lawsuits relating to the environment, etc. 0 Total 2,290

Economic Benefits Category Details Value (¥ million) a. Resource conservation Cost saving by in-house refining of solvents, etc. 474 b. Sale of disposables Revenue from sale of solvents, activated sludge, etc. 12 c. Sale of valuable waste n.a. 0 d. Energy conservation Reduction of energy expenses resulting from energy conservation measure, etc. 42 e. Reduction of waste handling expenses Reduction, reuse and recycling of waste 690 Total 1,218 Note: Approximately ¥260 million was invested in environmental protection.

28 ANNUAL RESULTS Environmental Protection

Fujisawa regards environmental protection as an essential element in maintaining its competitiveness and corporate worth in the global market. During the term, in-house environmental auditors of Fujisawa carried out on-site audits at 11 facilities to check that environmental management activities were being properly carried out in accordance with the Company’s Environmental Principles, and that levels of achievement in environmental protection surpassed those of the previous year.

Fujisawa Ireland Limited, and the Munich plant of Fujisawa Deutschland GmbH, Newly improved scrubber in Takaoka acquired ISO14001 certification in December 2003 and January 2004 respectively. plant dramatically reduced the discharge With these, 8 out of our 11 facilities engaged in manufacturing have obtained of dichloromethane. ISO14001 certification.

Environmental Measures Fujisawa has set numerical targets for its main environmental conservation activities. All energy consumption is calculated in the form of CO2 emissions, as reductions in energy use indirectly prevent global warming.

We have succeeded in substantially reducing the discharge of landfill waste through our initiatives for the reduction and recycling of disposals. Further, the staff responsible for our manufacturing facilities that use large volumes of organic solvents are now tackling the task of recycling solvents and re-using about 85% of organic solvents.

Large fuel oil boiler was replaced with The proper management of chemical substances is an issue of the highest 11 small city gas boilers in Nagoya plant significance for Fujisawa, and the Company is taking steps to reduce the for improved energy efficiency. volume of pollutants, find substitutes for such substances, and curtail emissions.

Discharge of CO2 of Fujisawa Group Discharge of Chemicals on Japan Overseas ● Ratio(1997=100%) Japanese PRTR* Law ● Ratio(1997=100%)

(Tons) (%) (Tons) (%) 150,000 125 750 125

120,000 100 600 100 ● ● ● ● ● ● ● ● ● 90,000 ● 75 450 75

● 60,000 50 300 ● 50 ●

30,000 25 150 ● 25 ● ● 0 0 0 0 Fiscal Year 1997 1998 1999 2000 2001 2002 2003 2004 Fiscal Year 1997 1998 1999 2000 2001 2002 2003 2004 *PRTR:Pollutant Release and Transfer Register 29 Board of Directors

Akira Fujiyama Hatsuo Aoki, Ph. D. Koichi Sejima Masafumi Nogimori Chairman of the Board President and Chief Executive Officer Corporate Executive Vice President Corporate Executive Vice President, and Chief Administrative Officer Global Strategy

Tomokichiro Fujisawa, Ph. D. Akiro Kojima Kanji Kobayashi Chairman Emeritus Member of the Board Member of the Board (Senior Counselor, Daicel (Senior Advisor, Nippon Life Chemical Industries, Ltd.) Insurance Company)

Top Management with Global Functional Heads

(Front row, from left) Takeshi Shimomura Corporate Executive Vice President, Sales & Marketing Hatsuo Aoki, Ph. D. President and Chief Executive Officer Koichi Sejima Corporate Executive Vice President and Chief Administrative Officer Masafumi Nogimori Corporate Executive Vice President, Global Strategy

(Back row, from left) Hirofumi Onosaka Corporate Senior Vice President, Global Corporate Strategic Planning Hitoshi Ohta Corporate Vice President, Global Manufacturing Osamu Nagai Corporate Vice President and Chief Financial Officer Toshio Goto, Ph. D. Corporate Vice President, Global Research Masao Shimizu Corporate Senior Vice President, Global Development 30 Fujisawa Pharmaceutical Company Limited and Consolidated Subsidiaries Selected Financial Data Year Ended March 31 EIWO H YEAR REVIEW OF THE

Millions of yen 2004 2003 2002 2001 2000

Results for the year: Net sales ...... ¥ 395,401 ¥ 382,079 ¥341,356 ¥297,517 ¥289,142 Research and development expenses ...... 73,643 62,426 57,093 52,016 45,565 Ratio to net sales (%) ...... 18.6% 16.3% 16.7% 17.5% 15.8% Operating income ...... 56,703 62,143 46,852 33,606 34,843 Income before income taxes ...... 69,138 44,690 47,007 36,190 36,554 Net income ...... 41,468 28,635 26,151 20,529 22,907

Year-end financial position: Working capital ...... 162,060 169,784 138,918 80,775 162,148 Property, plant and equipment ...... 91,367 102,757 106,525 103,614 90,899 Total assets ...... 499,693 511,516 474,546 462,325 421,689 Long-term debt ...... 1,475 16,704 18,491 16,621 41,866 Shareholders’ equity ...... 375,944 335,337 317,870 278,581 249,106 Number of shares issued (in thousands) ...... 330,190 330,183 330,183 322,763 322,499 Number of shareholders ...... 19,557 17,239 18,480 18,612 19,581 Amounts per share (in yen): Net income Basic ...... ¥ 125.63 ¥ 86.62 ¥ 80.07 ¥ 63.62 ¥ 71.09 Diluted ...... 123.65 85.37 78.14 61.76 68.85 Cash dividends ...... 22.00 18.00 16.00 12.00 12.00 Shareholders’ equity ...... 1,140.10 1,016.83 962.94 863.12 772.44 Return on equity ...... 11.7% 8.8% 8.8% 7.8% 9.5%

Note: For accounting change, see Note 1-(15) of Notes to Consolidated Financial Statements.

Contents 32 Financial Review 34 Business Review 36 Consolidated Balance Sheets 38 Consolidated Statements of Income 39 Consolidated Statements of Shareholders’ Equity 40 Consolidated Statements of Cash Flows 41 Notes to Consolidated Financial Statements 54 Report of Independent Auditors

31 Financial Review

Revenue Net sales increased by 3.5% to ¥395,401 million (US$3,730 million) over the previous fiscal year. Operating income, at ¥56,703 million (US$535 million), recorded an 8.8% decrease from the pre- vious fiscal year. Net income rose 44.8% to ¥41,468 million (US$391 million).

Geographically, net sales were divided as follows:

Years ended March 31 ¥ million US$ million Area 2004 2003 Change (%) 2004 Japan...... ¥221,740 ¥221,992 (0.1) $2,092 North America ...... 108,436 102,525 5.8 1,023 Europe...... 57,640 48,928 17.8 544 Asia...... 7,585 8,634 (12.1) 72

Sales in Japan leveled out at ¥221,740 million (US$2,092 million). Domestic ethical pharmaceuti- cals increased due to robust sales growth of the candin antifungal agent Funguard® for Infusion (micafungin) and the hypnotic Myslee® (zolpidem tartrate). Favorable sales growth of the immuno- suppressant Prograf® (tacrolimus), the antidepressant Luvox® (fluvoxamine maleate), the antipsy- chotic agent Seroquel® (quetiapine fumarate) and the newly launched ketolide class oral antibiotic Ketek® (telithromycin) also contributed to the sales growth. On the other hand, sales of such products as the anti-allergic Intal® (sodium cromoglicate), the oral cephalosporin antibiotic Cefzon® (cefdinir) and the antihypertensive Nivadil® (nilvadipine) declined. Although the sales of the chemi- cals business decreased, total sales in Japan stayed flat due to the sales growth posted by the domestic ethical pharmaceuticals business. North America recorded 5.8% growth with ¥108,436 million (US$1,023 million) in spite of the negative impact of the yen’s appreciation against the dollar. Sales of Fujisawa Healthcare, Inc. on a local currency basis showed a large increase thanks to strong sales of Prograf®, the pharmaco- logic stress imaging agent Adenoscan® (adenosine injection), and Protopic® (tacrolimus ointment) for the treatment of atopic dermatitis. Sales in Europe increased by 17.8% year-on-year to ¥57,640 million (US$544 million). Fujisawa GmbH increased its sales because of the growth of Prograf®. Protopic® also contributed to the sales increase. The favorable currency exchange rate of the yen against the euro also contributed to the sales increase on a yen basis. In Taiwan, China, and South Korea, sales decreased by 12.1% to ¥7,585 million (US$72 million). Total overseas sales, including export sales to and royalty income from third parties, showed growth of 7.7% at ¥192,148 million (US$1,813 million). The ratio to net sales was 48.6%, up 1.9 percentage points over the previous year. The breakdown of net sales by business segment and by therapeutic category in ethical pharma- ceuticals is given in “Sales by business segment” on page 34–35.

32 Operating Income Operating income declined by 8.8% to ¥56,703 million (US$535 million) due to an increase in R&D expenses and selling, general and administrative expenses, more than offsetting the increase in gross profit. Thanks to higher in net sales, gross profit rose 3.9% to ¥254,484 million (US$2,401 million), although the gross margin ratio of 64.4% was almost unchanged from the 64.1% for the previous year. Selling, general and administrative expenses were ¥123,794 million (US$1,168 million), up 3.2%. Research and development expenses jumped 18.0% to ¥73,643 million (US$695 million) reflecting heavy commitment to innovative research. The ratio to sales stood at 18.6%. Operating income in North America and Europe declined, and those in Japan and other areas remained at the levels of the previous year.

Operating income (before elimination of internal transactions) by geographic area is as follows:

Years ended March 31 ¥ million US$ million Area 2004 2003 Change (%) 2004 Japan...... ¥35,428 ¥35,485 (0.2) $334 North America ...... 20,615 26,556 (22.4) 194 Europe...... 1,487 5,290 (71.9) 14 Asia...... 1,048 1,017 3.0 10

Net Income ¥1,563 million (US$15 million) from the sale of fixed assets, ¥13,934 million (US$131 million) from the return of the substitutional portion of the welfare pension fund, and ¥511 million (US$5 million) from sales of cleaning and hygiene product business for the food and beverage industry during the period were recorded as other income. Loss on withdrawal from the chemicals business in the US, expenses related to transfer of OTC business, and expenses related to closing the Kuanyin plant in Taiwan were recorded as other expenses of ¥3,443 million (US$32 million), ¥1,625 million (US$15 million) and ¥1,277 mil- lion (US$12 million), respectively. Income taxes increased by ¥11,843 million (US$112 million). As a result of the above, net income increased by 44.8% to ¥41,468 million (US$391 million) from the previous year.

Cash Flow Net cash provided by operating activities came to ¥14,396 million (US$136 million). Major adjust- ments to reconcile net income to net cash provided by operating activities consisted of depreciation and amortization in the amount of ¥20,340 million (US$192 million). Further, ¥13,934 million (US$131 million) was recorded as other income in relation to gain on return of the substitutional portion of the welfare pension fund. Net cash used in investing activities came to ¥27,111 million (US$256 million). Acquisition of property, plant and equipment totaled ¥12,890 million (US$122 million), which was used mainly for reinforcing manufacturing facilities at the Takaoka Plant and the Toyama Plant, as well as the opening of a new human resources development facility. Cash flow from financing activities recorded a decrease of ¥9,463 million (US$89 million). Payment of dividends in the amount of ¥6,312 million (US$60 million) was the main component. As a result, cash and cash equivalent at the end of the period came to ¥39,104 million (US$369 million), a decrease of ¥30,036 million (US$283 million) from the beginning of the period. 33 Business Review

Sales by Business Segment Sales by Business Segment Other Businesses Pharmaceuticals are the core of Fujisawa’s operations. They are further divided into ethical pharmaceu- 5.5% OTC Drugs ticals operations — Fujisawa’s main business carried out worldwide — and OTC drugs, which are sold 3.0% in Japan. In addition to pharmaceuticals, Fujisawa is involved in healthcare-related businesses, i.e., medical supplies and systems, the home care business, and chemicals.

Ethical Pharmaceuticals 91.5% Pharmaceuticals Pharmaceuticals accounted for 94.5% of net sales in the year ended March 31, 2004, up 2.0 percentage

Pharmaceuticals 94.5% points over the previous year. Total sales of pharmaceuticals for the term showed 5.7% year-on-year growth, to ¥373,512 million (US$3,524 million). ■Ethical Pharmaceuticals Sales increased by 5.9% year-on-year, to ¥361,748 million (US$3,413 million). The breakdown of sales by therapeutic category is as follows: • Metabolic Drugs Metabolic drugs, which is the largest segment in the ethical pharmaceuticals category, achieved 16.4% growth at ¥104,581 million (US$987 million). Prograf®, the main product in this category, held the number one position in the Company’s ethical pharmaceuticals sales rankings for the fifth consecutive year. This product, which is now marketed in about 70 countries, recorded sales growth of 16.4% to ¥104.4 billion (US$985 million) during the term. • Antibiotics and Biological Preparations With the sales increased 4.0% to ¥93,119 million (US$878 million), this category occupied the number two position, with a share of 25.7%, although the share declined 0.5 percentage points from the previous year. Cefzon® is the biggest-selling product in this category and the top seller in the ethical pharma- ceuticals business of the Company in Japan. Cefzon® experienced reduced sales in Japan, while robust sales of Omnicef® (cefdinir) by Abbott Laboratories in the US contributed to increased export sales of this product. Ketek®, which Fujisawa began marketing in December 2003, had a good start and con- tributed to sales. Funguard®, launched in Japan in December 2002 ahead of its global debut, made a full year contribution with considerably boosted sales and contributed to the growth of this category. Meanwhile, both the parenteral cephalosporin antibiotic Cefamezin® (cefazolin) and the oral cephalosporin antibiotic Cefspan® (cefixime) posted weaker sales.

Sales by Business Segment

¥ million Years ended March 31 2004 2003 Change (%) Pharmaceuticals ...... ¥373,512 (94.5%) ¥353,442 (92.5%) 105.7 Ethical pharmaceuticals ...... 361,748 (91.5%) 341,565 (89.4%) 105.9 OTC drugs ...... 11,764 (3.0%) 11,877 (3.1%) 99.0 Other Businesses ...... 21,889 (5.5%) 28,637 (7.5%) 76.4 Medical supplies and systems ...... 3,488 (0.9%) 3,432 (0.9%) 101.6 Chemicals...... 7,949 (2.0%) 14,677 (3.8%) 54.2 Home care business ...... 7,247 (1.8%) 6,784 (1.8%) 106.8 Others ...... 3,205 (0.8%) 3,744 (1.0%) 85.6 Total ...... ¥395,401 (100.0%) ¥382,079 (100.0%) 103.5 Overseas sales (included in the above total) ...... ¥192,148 (48.6%) ¥178,407 (46.7%) 107.7 34 Sales of Ethical • Cardiovascular and Respiratory Drugs Pharmaceuticals by Although sales of Nivadil® declined, thanks to the robust sales of Adenoscan® in the US, total sales Therapeutic Category Anti-allergy stayed flat at ¥55,483 million (US$523 million) and occupied the third position in the rankings. drugs Digestive system drugs • Nervous System and Sensory Organ Drugs 2.6% 1.8% Others 6.1% Dermatological Sales grew 4.3% to ¥51,819 million (US$489 million). Increased sales of Seroquel® and Myslee® drugs Metabolic drugs 5.2% 28.9% contributed to the growth in this category. • Dermatological Drugs Protopic® is the main product in this category. Sales showed double-digit growth of 27.1% to ¥18,921 million (US$179 million) thanks to the rise of Protopic® sales in both US and Europe. Antibiotics • Anti-Allergy Drugs Nervous system and and sensory biological Sales decreased 28.7% to ¥9,249 million (US$87 million) due to a decline in sales of Intal®, the main organ drugs preparations 14.3% 25.7% Cardiovascular and drug in this category. respiratory drugs 15.3% ■OTC Drugs Sales decreased by 1.0% to ¥11,764 million (US$111 million) year-on-year mainly due to a decline in sales of the cold remedy Precol®.

Other Healthcare-Related Businesses Top-Selling Ethical Pharmaceuticals ■Medical Supplies and Systems Years ended March 31 ¥ billion Sales rose 1.6% over the previous year, to ¥3,488 million Product Name 2004 2003 Change (%) (US$33 million), due to brisk sales of BD PharMingen reagents. 1) Prograf ...... 104.4 89.7 116.4 2) Adenoscan ...... 28.3 24.5 115.5 ■Chemicals 3) Cefzon ...... 27.8 29.4 94.6 Sales dropped 45.8% from the previous year, to ¥7,949 million 4) Protopic ...... 17.3 13.0 133.1 (US$75 million), since the Company substantially withdrew 5) Myslee ...... 12.2 10.0 122.0 from the business by transferring all of the domestic chemicals 6) Funguard ...... 11.1 2.5 444.0 business and all of the U.S. chemical products business to Fuso 7) Seroquel...... 10.4 9.8 106.1 8) Nivadil ...... 9.6 11.3 85.0 Chemical Co., Ltd. as of December 26, 2003. 9) Intal ...... 9.2 12.9 71.3 ■Home Care Business 10) AmBisome ...... 8.9 12.5 71.2 Sales increased by 6.8% to ¥7,247 million (US$68 million), 11) Cefamezin ...... 8.0 10.0 80.0 12) Luvox...... 7.8 7.0 111.4 mainly driven by growth in the home oxygen therapy business 13) Vaccines ...... 7.5 6.0 125.0 but also buoyed by steady sales in the field of artificial respira- 14) Dogmatyl...... 7.4 7.8 94.9 tory treatments. 15) Cefspan ...... 7.4 8.8 84.1

Sales of Ethical Pharmaceuticals by Therapeutic Category

¥ million Years ended March 31 2004 2003 Change (%) Nervous system and sensory organ drugs ...... ¥ 51,819 (14.3%) ¥ 49,699 (14.6%) 104.3 Cardiovascular and respiratory drugs ...... 55,483 (15.3%) 55,484 (16.2%) 100.0 Digestive system drugs ...... 6,482 (1.8%) 7,092 (2.1%) 91.4 Metabolic drugs ...... 104,581 (28.9%) 89,864 (26.3%) 116.4 Anti-allergy drugs ...... 9,249 (2.6%) 12,972 (3.8%) 71.3 Antibiotics and biological preparations ...... 93,119 (25.7%) 89,511 (26.2%) 104.0 Dermatological drugs ...... 18,921 (5.2%) 14,882 (4.4%) 127.1 Others ...... 9,335 (2.6%) 9,100 (2.6%) 102.6 Processing fees ...... 8,108 (2.2%) 8,737 (2.6%) 92.8 Royalty income ...... 4,651 (1.3%) 4,223 (1.2%) 110.1 Total ...... ¥361,748 (100.0%) ¥341,564 (100.0%) 105.9 35 Fujisawa Pharmaceutical Company Limited and Consolidated Subsidiaries Consolidated Balance Sheets March 31, 2004 and 2003

Thousands of Millions of yen U.S. dollars (Note 2) ASSETS 2004 2003 2004

Current assets: Cash and cash equivalents ...... ¥ 39,104 ¥ 69,140 $ 368,906 Trade receivables (Note 7) — Notes...... 7,043 7,651 66,443 Accounts ...... 77,987 85,831 735,726 Allowance for doubtful receivables ...... (222) (351) (2,094) Marketable securities and short-term investments — Marketable securities (Note 4) ...... 23,758 19,286 224,132 Short-term investments ...... 19,782 12,970 186,623 Inventories (Note 5) ...... 49,771 50,277 469,538 Deferred taxes (Note 10) ...... 20,959 23,036 197,726 Prepaid expenses and other current assets (Note 7) ...... 18,577 11,959 175,255 Total current assets ...... 256,759 279,799 2,422,255

Property, plant and equipment — net (Note 6) ...... 91,367 102,757 861,953

Investments and other assets: Excess of cost over net assets acquired — net ...... 1,265 1,609 11,934 Goodwill and proprietary technology — net ...... 10,895 15,590 102,783 Investments in affiliated companies ...... 2,792 2,498 26,340 Marketable securities (Note 4) ...... 91,619 59,070 864,330 Other investments in securities ...... 7,707 10,809 72,708 Deferred taxes (Note 10) ...... 3,874 18,151 36,547 Other assets ...... 33,415 21,233 315,235 Total investments and other assets ...... 151,567 128,960 1,429,877

Total ...... ¥499,693 ¥511,516 $4,714,085

The accompanying notes are an integral part of these statements.

36 Thousands of Millions of yen U.S. dollars (Note 2) LIABILITIES AND SHAREHOLDERS’ EQUITY 2004 2003 2004

Current liabilities: Short-term borrowings (Note 8) ...... ¥ 1,112 ¥ 5,295 $ 10,491 Current portion of long-term debt (Note 8) ...... 14,062 1,231 132,660 Trade payables (Note 7) — Notes ...... 628 795 5,925 Accounts ...... 44,560 57,549 420,377 Accrued income taxes (Note 10) ...... 2,980 9,410 28,113 Accrued expenses ...... 17,532 20,209 165,396 Accrued bonuses ...... 8,769 9,187 82,726 Other current liabilities ...... 5,056 6,339 47,699 Total current liabilities ...... 94,699 110,015 893,387

Long-term liabilities: Long-term debt (Note 8) ...... 1,475 16,704 13,915 Accrued retirement benefits for employees (Note 11) ...... 21,488 43,540 202,717 Accrued severance indemnities for the directors and corporate auditors ...... 1,154 1,288 10,887 Other long-term liabilities (Note 10) ...... 4,382 3,097 41,339 Total long-term liabilities ...... 28,499 64,629 268,858

Minority interest in consolidated subsidiaries ...... 551 1,535 5,198

Shareholders’ equity (Note 12): Common stock — Authorized — 800,000,000 shares Issued 2004 — 330,190,106 shares ...... 38,594 364,094 Issued 2003 — 330,183,578 shares ...... 38,588 Capital surplus ...... 57,237 57,231 539,972 Retained earnings ...... 280,508 242,351 2,646,302 Foreign currency translation adjustments ...... (12,667) (5,704) (119,500) Net unrealized gain on securities (Note 4) ...... 13,553 4,081 127,859 Less treasury stock, at cost — 2004 — 483,425 shares ...... (1,281) (12,085) 2003 — 452,513 shares ...... (1,210) Shareholders’ equity, net ...... 375,944 335,337 3,546,642

Contingent liabilities and commitments (Note 14)

Total ...... ¥499,693 ¥511,516 $4,714,085

37 Fujisawa Pharmaceutical Company Limited and Consolidated Subsidiaries Consolidated Statements of Income For the Years ended March 31, 2004, 2003 and 2002

Thousands of Millions of yen U.S. dollars (Note 2) 2004 2003 2002 2004

Net sales (Notes 7 and 13) ...... ¥395,401 ¥382,079 ¥341,356 $3,730,198 Cost of sales (Note 7) ...... 140,917 137,198 121,894 1,329,406

Gross profit ...... 254,484 244,881 219,462 2,400,792

Selling, general and administrative expenses ...... 123,794 119,968 115,312 1,167,868 Research and development expenses ...... 73,643 62,426 57,093 694,745 Amortization of excess of cost over net assets acquired ...... 344 344 205 3,245

Operating income ...... 56,703 62,143 46,852 534,934

Other income (expenses) Interest and dividend income ...... 1,322 1,797 2,443 12,472 Interest expenses ...... (403) (625) (1,254) (3,802) Equity in earnings of affiliated companies ...... 899 668 244 8,481 Gain on sales of investments in affiliated companies ...... — 4,717 8 — Gain on sales of fixed assets...... 1,563 ——14,745 Gain on the return of the substitutional portion of the welfare pension fund ...... 13,934 ——131,453 Gain on sales of cleaning and hygiene product business for the food and beverage industry ...... 511 ——4,821 Loss on devaluation of investments in securities ...... — (6,830) (1,508) — Loss on disposal of obsolete inventories ...... (894) (1,362) (1,376) (8,434) Loss on withdrawal of the chemicals business in US ...... (3,443) ——(32,481) Expenses related to transfer of OTC drugs business...... (1,625) ——(15,330) Expenses related to closing the Kuanyin plant ...... (1,277) ——(12,047) Expenses related to implementation of measures reinforcing the Japanese business ...... — (14,700) — — Other, net ...... 1,848 (1,118) 1,598 17,433

Income before income taxes ...... 69,138 44,690 47,007 652,245

Income taxes (Note 10) ...... 27,797 15,954 20,680 262,236 Minority interest in consolidated subsidiaries ...... 127 (101) (176) 1,199

Net income ...... ¥ 41,468 ¥ 28,635 ¥ 26,151 $ 391,208

Yen U.S. dollars (Note 2) Amounts per share: Net income Basic ...... ¥125.63 ¥86.62 ¥80.07 $1.19 Diluted ...... 123.65 85.37 78.14 1.17 Cash dividends ...... 22.00 18.00 16.00 0.21

The accompanying notes are an integral part of these statements.

38 Fujisawa Pharmaceutical Company Limited and Consolidated Subsidiaries Consolidated Statements of Shareholders’ Equity For the Years ended March 31, 2004, 2003 and 2002

Thousands of Millions of yen U.S. dollars (Note 2) 2004 2003 2002 2004

Common stock (Note 12): Balance at beginning of year ...... ¥ 38,588 ¥ 38,588 ¥ 32,045 $ 364,037 Shares issued upon conversion of debentures ...... 6 0 6,543 57 Balance at end of year ...... ¥ 38,594 ¥ 38,588 ¥ 38,588 $ 364,094

Capital surplus (Note 12): Balance at beginning of year ...... ¥ 57,231 ¥ 57,231 ¥ 50,691 $ 539,915 Increase due to conversion of debentures ...... 6 0 6,540 57 Balance at end of year ...... ¥ 57,237 ¥ 57,231 ¥ 57,231 $ 539,972

Retained earnings (Note 12): Balance at beginning of year ...... ¥242,351 ¥219,707 ¥197,513 $2,286,330 Net income ...... 41,468 28,635 26,151 391,208 Adjustment due to change of the fiscal year-end of foreign subsidiaries ...... 3,008 ——28,377 Cash dividends ...... (6,264) (5,941) (3,907) (59,094) Bonuses to the directors and corporate auditors ...... (55) (50) (50) (519) Balance at end of year ...... ¥280,508 ¥242,351 ¥219,707 $2,646,302 Foreign currency translation adjustments ...... ¥ (12,667) ¥ (5,704) ¥ (683) $ (119,500) Net unrealized gain on securities ...... ¥ 13,553 ¥ 4,081 ¥ 3,250 $ 127,859 Treasury stock, at cost ...... ¥ (1,281) ¥ (1,210) ¥ (223) $ (12,085)

The accompanying notes are an integral part of these statements.

39 Fujisawa Pharmaceutical Company Limited and Consolidated Subsidiaries Consolidated Statements of Cash Flows For the Years ended March 31, 2004, 2003 and 2002

Thousands of Millions of yen U.S. dollars (Note 2) 2004 2003 2002 2004 Cash flows from operating activities: Net income ...... ¥41,468 ¥28,635 ¥26,151 $391,208 Adjustments to reconcile net income to net cash provided by operating activities — Depreciation and amortization ...... 20,340 21,176 20,377 191,887 Expenses related to implementation of measures reinforcing the Japanese business ...... — 14,700 — — Gain on sales of fixed assets ...... (1,563) ——(14,745) Gain on the return of the substitutional portion of the welfare pension fund ...... (13,934) ——(131,453) Gain on sales of cleaning and hygiene product business for the food and beverage industry ...... (511) ——(4,821) Gain on sales of investments in affiliated companies ...... — (4,716) (8) — Equity in earnings of affiliated companies, net ...... (899) (668) (244) (8,481) Foreign exchange loss (gain) ...... 679 329 (723) 6,406 Dividends earned from affiliated companies ...... 503 256 620 4,745 Loss on disposal of obsolete inventories ...... 894 1,362 1,376 8,434 Loss on devaluation of investments in securities ...... — 6,830 1,508 — Loss on withdrawal of the chemicals business in US ...... 3,443 ——32,481 Expenses related to transfer of OTC drugs business ...... 1,625 ——15,330 Expenses related to closing the Kuanyin plant ...... 1,277 ——12,047 Changes in assets and liabilities — Decrease (increase) in trade receivables ...... 3,357 (7,015) (5,237) 31,670 Decrease (increase) in inventories ...... 3,391 (3,114) (6,915) 31,991 Decrease (increase) in deferred tax assets ...... 10,776 (10,971) (3,958) 101,660 (Increase) decrease in other current assets ...... (7,597) 1,841 2,000 (71,670) (Decrease) increase in trade payables ...... (3,687) 306 226 (34,783) (Decrease) increase in accrued income taxes ...... (7,628) 2,544 (2,578) (71,962) (Decrease) increase in other current liabilities ...... (21,830) 7,458 4,644 (205,943) (Decrease) increase in accrued retirement benefits for employees .... (7,695) (2,314) 1,412 (72,594) Other ...... (8,013) 293 (3,437) (75,595) Total adjustments ...... (27,072) 28,297 9,063 (255,396) Net cash provided by operating activities ...... 14,396 56,932 35,214 135,812 Cash flows from investing activities: Acquisition of property, plant and equipment ...... (12,890) (15,412) (24,350) (121,604) Decrease (increase) in marketable securities and short-term investments .... 4,353 (10,682) 8,941 41,066 Proceeds from sales of non-current marketable securities ...... 11,979 13,065 37,902 113,009 Acquisition of non-current marketable securities ...... (35,659) (17,323) (21,574) (336,406) Proceeds from sales of other investments in securities ...... 3,440 5,047 409 32,453 Acquisition of other investments in securities ...... (61) (3,002) (686) (575) Increase in other investments ...... (2,232) (1,076) (2,498) (21,057) Other ...... 3,959 780 (1,482) 37,350 Net cash used in investing activities ...... (27,111) (28,603) (3,338) (255,764) Cash flows from financing activities: Net decrease in short-term borrowings ...... (3,059) (1,846) (12,287) (28,859) Borrowings of long-term debt ...... — — 2,200 — Repayments of long-term debt ...... — (100) (61) — Dividends paid ...... (6,312) (5,987) (4,006) (59,547) Other ...... (92) (987) (215) (868) Net cash used in financing activities ...... (9,463) (8,920) (14,369) (89,274) Effect of exchange rate changes on cash and cash equivalents ...... (2,037) (1,577) 2,006 (19,217) Net (decrease) increase in cash and cash equivalents ...... (24,215) 17,832 19,513 (228,443) Cash and cash equivalents at beginning of year ...... 69,140 51,308 32,023 652,264 Cash and cash equivalents of the subsidiaries excluded from consolidation .... (39) (0) (228) (368) Decrease in cash and cash equivalents upon change of fiscal year-end of foreign subsidiaries...... (5,782) ——(54,547) Cash and cash equivalents at end of year ...... ¥39,104 ¥69,140 ¥51,308 $368,906

The accompanying notes are an integral part of these statements. 40 Fujisawa Pharmaceutical Company Limited and Consolidated Subsidiaries Notes to Consolidated Financial Statements

1. Significant Accounting Policies: (1) Preparation of consolidated financial statements In translating the financial statements of foreign sub- Fujisawa Pharmaceutical Company Limited (the “Company”) sidiaries and affiliates into Japanese yen, balance sheet items and its domestic and foreign subsidiaries maintain their are translated at rates of exchange prevailing at their fiscal records and prepare their financial statements in accordance year-end, except for shareholders’ equity, which is translated with accounting principles generally accepted in Japan or the at historical rates. Revenue and expense accounts are trans- respective countries in which the subsidiaries are established. lated at the average rates of exchange prevailing during the The accompanying consolidated financial statements, year. Resulting differences are reflected as a separate compo- which are a translation of those publicly issued in Japan after nent of shareholders’ equity as “Foreign currency translation modification to enhance foreign readers’ understanding, have adjustments.” been prepared in accordance with accounting principles (4) Cash and cash equivalents generally accepted in Japan, which are different in certain “Cash and cash equivalents” comprise cash and highly liquid respects to the application and disclosure requirements of investments, with an original maturity of three months or International Financial Reporting Standards or accounting less, that are readily convertible to known amounts of cash principles generally accepted in the United States of America. and are so near maturity that they present insignificant risk In addition, certain financial information included in these of changes in value due to changes in interest rates. notes to the consolidated financial statements is not required (5) Financial instruments under accounting principles generally accepted in Japan, but (a) Derivatives is presented herein as additional information. All derivatives are stated at fair value, with changes in fair (2) Basis of consolidation and investments value included in net profit or loss for the period in which in affiliated companies the changes arise, except for derivatives that are designated The consolidated financial statements for the year ended as “hedging instruments” (see (c) Hedge accounting below). March 31, 2004 consist of the accounts of the Company and (b) Securities those of all of its majority-owned subsidiaries. Securities held by the Company and its subsidiaries are classi- All significant intercompany transactions and accounts fied into one of the following categories; have been eliminated. Investments in affiliated companies — Securities held in trusts for trading purposes are stated at (20% to 50% owned companies) are stated at cost plus equity fair value, with changes in fair value included in net profit or in undistributed earnings; consolidated net income includes loss in the period in which the changes arise. Securities held the Company’s equity in the current net earnings of such com- in trusts for trading purposes are included in “Short-term panies after elimination of unrealized intercompany profits. investments” in the consolidated balance sheets. All of the Company’s foreign subsidiaries are consolidated — Other securities for which market quotations are available using fiscal year-end March 31. In fiscal 2004, twenty-two are stated at fair value. Net unrealized gains or losses on subsidiaries changed their fiscal year-end from December 31 these securities are reported as a separate item in sharehold- to March 31. The effect of this change was charged to ers’ equity at a net-of-tax amount. retained earnings at April 1, 2003. In fiscal 2003, three sub- — Other securities for which market quotations are unavail- sidiaries changed their fiscal year-end from December 31 to able are stated at cost, except as stated in the paragraph March 31, as the adoption of the change at fiscal year-end below. did not have a material impact on the consolidated financial In cases where the fair value of other securities has statements, the effect of this change was charged to income. declined significantly and such impairment of value is not The difference between the cost and underlying net equity deemed recoverable, they are written down to fair value and of investments in consolidated subsidiaries and companies the resulting losses are charged to income as incurred. accounted for under the equity method is deferred and amor- Securities held in trusts for trading purposes and debt tized using the straight-line method over a period of 10 years. securities due within one year are presented as “current” and (3) Translation of foreign currencies all other securities are presented as “non-current.” All monetary assets and liabilities denominated in foreign (c) Hedge accounting currencies are translated into Japanese yen at the rates of (i) Hedge accounting method exchange prevailing at the balance sheet date. Resulting The Accounting Standard for financial instruments allows exchange gains or losses are credited or charged to income two general accounting methods for hedging financial as incurred. instruments. One method is to recognize the changes in Income and expenses denominated in foreign currencies fair value of a hedging instrument in earnings in the are translated at rates of exchange prevailing at the time of period of the change as a gain or loss, together with the the transactions. 41 offsetting loss or gain on the hedged item attributable to Fujisawa Healthcare, Inc. acquired in the U.S., and are amor- the risk being hedged. The other method is to defer the tized by the straight-line method over a period of 20 years. gain or loss over the period of the hedging contract (9) Accounting for leases together with deferral of the offsetting loss or gain on the Lease agreements which do not transfer ownership of hedged items. The Company adopts the latter accounting the leased asset to the Company or its domestic subsidiaries at method principally, except that the former method is the end of the lease term are accounted for as operating leases. adopted where other securities are hedged items. (10) Accrued retirement benefits for employees (ii) Hedging instruments and hedged items Employees whose service with the Company or its domestic Hedging instruments: Derivative financial instruments consolidated subsidiaries is terminated are, in most circum- Hedged items: Assets and debts exposed to market fluctua- stances, entitled to a combination of lump-sum severance tion risks indemnities and pension payments, determined by reference (iii) Hedging policy to the current basic rate of pay, length of service and condi- The Company uses derivative financial instruments to tions under which the termination occurs. hedge market fluctuation risks in accordance with its Accrued retirement benefits for employees represent the internal policies and procedures. estimated present value of projected benefit obligations in (iv) Method of assessing hedge effectiveness excess of the fair value of plan assets except that the unrec- For the hedging activities to which the latter hedge ognized prior service cost is amortized on a straight-line basis accounting method in (i) above is adopted, the Company over the period of 10 years from the year in which it arises, evaluates the effectiveness of the hedging activities by and that the unrecognized actuarial gains or losses are amor- reference to the accumulated gains or losses on the hedg- tized on a straight-line basis over the period of 10 years from ing instruments and the related hedged items from the the year following the year in which the gains or losses arise. commencement of the hedges. For the hedging activities to which the former hedge accounting method in (i) above (Additional information) is adopted, the Company evaluates the effectiveness On March 1, 2004, the Company and some of the domestic thereof by reference to the respective fair value of the subsidiaries received approval from the Minister of Health, hedging instruments and the related hedged items on the Labor and Welfare with respect to its application for exemp- balance sheet dates. tion from the obligation for benefits related to future The Company and certain of its consolidated subsidiaries employee service under the substitutional portion of the have utilized interest rate swaps, foreign currency forward Welfare Pension Fund Plans (“WPFP”). contract and foreign currency swaps to manage interest and In accordance with the transitional provision stipulated in currency risks. “Practical Guideline for Accounting for Retirement benefit,” (6) Inventories the Company and those subsidiaries accounted for the separa- Inventories are stated at cost, except for materials and mer- tion of the substitutional portion of the benefit obligation chandise of the Company and inventories of foreign consoli- from the corporate portion of the benefit obligation under its dated subsidiaries, which are stated at the lower of cost or WPFP as of the date of approval of its exemption, assuming market value, cost being determined generally by the average that the transfer to the Japanese government of the substitu- cost method. tional portion of the benefit obligation and related pension (7) Property, plant and equipment and depreciation plan assets had been completed as of that date. (See Note. 11) Property, plant and equipment are stated at cost. Depre- (11) Accrued severance indemnities for the directors and ciation of property, plant and equipment is principally com- corporate auditors puted by the declining-balance method at rates based on the Accrued severance indemnities for the directors and corporate estimated useful lives of the assets. For depreciation of build- auditors of the Company are provided for based on internal ings acquired after April 1, 1998, Japanese income tax law regulations which are similar to those for employees. The requires use of the straight-line method. The declining- accrued provision for severance indemnities of the directors balance method is permitted for buildings acquired prior to and corporate auditors is not funded. Payments of such April 1, 1998. indemnities are subject to approval of shareholders. Significant renovations and additions are capitalized at (12) Income taxes cost. Maintenance and repairs, including minor renovations Income taxes applicable to the Company and its subsidiaries and betterments, are charged to income as incurred. in Japan include corporation tax, enterprise tax and inhabi- (8) Goodwill and proprietary technology tants tax. Goodwill and proprietary technology principally represents the The income statements of the Company and its subsidiaries cost of rights for proprietary pharmaceutical products, which include many items for financial reporting purposes which, in 42 the case of expenses, are not currently deductible and, in the Effective from the year ended March 31, 2003, the case of income, are not currently taxable. With respect Company adopted the new Japanese Accounting Standard for to such temporary differences, the Company and its sub- Earnings Per Share. sidiaries follow the practice of inter-period tax allocation (16) Reclassifications based on the methods generally accepted in the respective Certain reclassifications of previously reported amounts have country where each entity is located. been made to conform with current classifications. (13) Research and development expenses (17) New accounting standard Costs relating to the research and development of new prod- Accounting standard for impairment of fixed assets — ucts as well as product improvements are charged to income On August 9, 2002, the Business Accounting Council in Japan as incurred. issued “Accounting Standard for Impairment of Fixed Assets.” (14) Use of estimates The standard requires that fixed assets be reviewed for The preparation of financial statements in conformity with impairment whenever events or changes in circumstances generally accepted accounting principles requires manage- indicate that the carrying amount of a group of assets may ment to make estimates and assumptions that affect the not be recoverable. An impairment loss shall be recognized in reported amounts of assets and liabilities and disclosure of the income statement by reducing the carrying amount of a contingent assets and liabilities at the date of the accompa- group of assets to the recoverable amount to be measured as nying consolidated financial statements and the reported the higher of net selling price or value in use. amounts of revenues and expenses during the reporting The standard shall be effective for fiscal years beginning period. Actual results could differ from those estimates. April 1, 2005. However, an earlier adoption is permitted for (15) Amounts per share fiscal years beginning April 1, 2004 and for fiscal years end- The computation of net income per share is based on the ing between March 31, 2004 and March 30, 2005. The weighted average number of common stock outstanding Company has not yet applied this new standard nor has during each year, exclusive of treasury stock. determined the effect of applying it on the Company’s The calculation of diluted net income per share includes consolidated financial statements. the dilutive effects of convertible bonds.

2. U.S. Dollar Amounts: The United States dollar amounts are included solely for March 31, 2004. The translation should not be construed as a convenience and represent translations of Japanese yen representation that Japanese yen amounts could be realized amounts, as a matter of arithmetical computation only, at or converted into United States dollars at the above or any the rate of ¥106=US$1, the approximate rate of exchange on other rate.

3. Cash Flow Information: Cash payments for income taxes were ¥29,544 million in these respective periods, interest payments made in cash ($278,717 thousand), ¥24,063 million and ¥26,810 million for were ¥457 million ($4,311 thousand), ¥641 million and the years ended March 31, 2004, 2003 and 2002, respectively; ¥1,304 million.

Important non-cash transactions were as follows:

Thousands of Millions of yen U.S. dollars 2004 2003 2002 2004 Convertible bonds: Increase of common stock by conversion of convertible bonds ...... ¥6 ¥1 ¥ 6,543 $57 Increase of capital surplus by conversion of convertible bonds ...... 6 0 6,540 57 Decrease of convertible bonds by conversion ...... ¥12 ¥1 ¥13,083 $114

43 4. Marketable Securities: The cost and book value which represented the fair market value of current and non-current marketable securities at March 31, 2004 and 2003 were as follows: Thousands of Millions of yen U.S. dollars 2004 2003 2004 Current Non-current Current Non-current Current Non-current Cost ...... ¥23,745 ¥68,356 ¥19,434 ¥51,940 $224,009 $644,868 Gross unrealized gains (see Note 1-(5)-(b)) ...... 16 23,646 22 8,990 151 223,075 Gross unrealized losses ...... (3) (383) (170) (1,860) (28) (3,613) Book value ...... ¥23,758 ¥ 91,619 ¥19,286 ¥59,070 $224,132 $864,330

5. Inventories: Inventories at March 31, 2004 and 2003 comprised the following: Thousands of Millions of yen U.S. dollars 2004 2003 2004 Finished products and merchandise ...... ¥25,640 ¥24,452 $241,887 Work in process ...... 11,934 12,252 112,585 Materials and supplies ...... 12,197 13,573 115,066 Total ...... ¥49,771 ¥50,277 $469,538

6. Property, Plant and Equipment: Depreciation charges for the years ended March 31, 2004, 2003 and 2002 were ¥14,784 million ($139,472 thousand), ¥15,839 million and ¥15,855 million, respectively. Property, plant and equipment at March 31, 2004 and 2003 comprised the following:

Thousands of Millions of yen U.S. dollars 2004 2003 2004 Land ...... ¥ 14,499 ¥ 14,780 $ 136,783 Buildings ...... 96,024 98,192 905,887 Machinery and equipment ...... 133,600 148,921 1,260,378 Construction in progress ...... 3,932 4,140 37,094 Total ...... 248,055 266,033 2,340,142 Less accumulated depreciation ...... (156,688) (163,276) (1,478,189) Property, plant and equipment, net ...... ¥ 91,367 ¥102,757 $ 861,953

Estimated useful lives of the major classes of depreciable properties range from 7 to 50 years (principally 38 years) for buildings and from 4 to 17 years (principally 7 years) for machinery and equipment.

44 7. Related Party Transactions: Significant account balances and transactions with affiliated companies were as follows: Thousands of Millions of yen U.S. dollars 2004 2003 2004 Account balances at March 31: Trade receivables ...... ¥1,007 ¥ 981 $ 9,500 Prepaid expenses and other current assets ...... 3,338 3,526 31,491 Trade payables ...... 3,937 3,621 37,142

Thousands of Millions of yen U.S. dollars 2004 2003 2002 2004 Transactions for the year ended March 31: Net sales ...... ¥ 6,478 ¥ 5,892 ¥ 5,082 $ 61,113 Purchases ...... 25,667 23,890 21,175 242,142

8. Short-Term Borrowings and Long-Term Debt: Short-term borrowings at March 31, 2004 consisted of unsecured bank loans with a weighted average interest rate of 1.37% per annum. Long-term debt at March 31, 2004 consisted of the following: Thousands of Millions of yen U.S. dollars 2004 2004 1.7% convertible bonds due 2004 ...... ¥11,440 $107,924 Loans from insurance companies — • with interest at rates from 0.76% to 0.90% due 2004 ...... 2,200 20,755 • payable in U.S. dollars with interest at LIBOR as adjusted in accordance with the agreements due 2005 ...... 1,052 9,924 Loans from banks — • payable in U.S. dollars with interest at LIBOR as adjusted in accordance with the agreements due 2004 to 2005 ...... 845 7,972 Total ...... 15,537 146,575 Less: Current portion of long-term debt ...... 14,062 132,660 Total long-term debt less current portion ...... ¥ 1,475 $ 13,915

The aggregate annual maturities of long-term debt at March 31, 2004 were as follows: Thousands of Year ending March 31 Millions of yen U.S. dollars 2005 ...... ¥14,062 $132,660 2006 ...... 1,475 13,915 2007 ...... —— 2008 ...... —— 2009 ...... —— Thereafter ...... —— Total ...... ¥15,537 $146,575

The 1.7% convertible bonds due 2004 were convertible into adjustments as provided in the related indentures. The common stock at a conversion price of ¥1,837.70 ($17.3) per convertible bonds have been redeemable at the Company’s share at March 31, 2004. The conversion prices are subject to option since October 1, 1997 as provided in the indentures. 45 9. Derivative Financial Instruments: The Company (including certain of its consolidated subsidia- interest rates. Gains or losses are, however, effectively offset ries) uses derivative financial instruments (“derivatives”) to by gains and losses on the underlying assets and liabilities reduce its exposure to the adverse impact of fluctuations in which also result from fluctuations in foreign exchange rates foreign exchange rates and interest rates. The principal and interest rates. derivatives used by the Company are foreign exchange for- Credit risk means that the Company is exposed to losses ward contracts, currency swaps, currency options and inter- which could result from the default of counterparties. The est rate swaps. Company believes, however, that risk of loss due to the The derivatives are subject to market risk and credit risk. default of the counterparties is extremely small because the Market risk means that gains or losses on the derivatives Company limits its dealings to financial institutions with could result from fluctuations in foreign exchange rates and higher credit ratings.

At March 31, 2004 and 2003, the aggregate notional principal amounts and market values of the derivatives (except for those for which hedge accounting is adopted) held by the Company were as follows: Millions of yen Thousands of U.S. dollars Notional Net Notional Net principal Market unrealized principal Market unrealized At March 31, 2004 Currency amounts value gains (losses) amounts value gains (losses) Interest rate swaps ...... yen ¥3,000 ¥ (32) ¥(32) $28,302 $ (302) $ (302) Foreign currency forward contract ...... US$ Sell ¥7,293 ¥7,083 ¥210 $68,802 $66,821 $1,981 Purchase ¥ 524 ¥ 526 ¥ 2 $ 4,943 $ 4,962 $ 19 euro Sell ¥2,510 ¥2,393 ¥117 $23,679 $22,575 $1,104

Millions of yen Notional Net principal Market unrealized At March 31, 2003 Currency amounts value gains (losses) Interest rate swaps ...... yen ¥3,000 ¥ (49) ¥(49) Foreign currency forward contract ...... US$ ¥4,861 ¥4,913 ¥(52) euro ¥1,961 ¥1,985 ¥(24)

10. Income Taxes: The Company and its consolidated subsidiaries are expected to be dissolved on or after April 1, 2004. As a subject to a number of different income taxes which, in the result, net deferred tax assets decreased by ¥314 million and aggregate, indicate a normal statutory tax rate of approxi- income taxes increased by ¥410 million for the year ended mately 42%. For the year beginning April 1, 2004, the statu- March 31, 2003, respectively. tory tax rate used for the calculation of deferred tax assets The ordinary relationship between income tax expense and liabilities relating to temporary differences will change and pretax accounting income is distorted by a number of from 42% to 41% due to the revision of the Japanese local items including various tax credits, permanent non- tax law, which was approved by the Japanese National Diet deductible expenses, operating losses incurred by certain on March 31, 2003. The Company, therefore, adopted 41% as consolidated subsidiaries of the Company, and certain the statutory tax rate to be applied to these temporary reduced tax rates. differences both as of March 31, 2003 and 2004 which are

46 Reconciliation between statutory tax rate and effective tax rate for the years ended March 31, 2004, 2003 and 2002 was as follows: 2004 2003 2002 Statutory tax rate ...... 42% 42% 42% Add (Deduct): Non-deductible expenses ...... 5 97 Non-taxable income ...... (0) (5) (0) Valuation allowance change...... (1) (2) 2 Deduction of net operating loss carryforwards of subsidiaries...... 0 (1) (3) Tax credit primarily for research and development expenses ...... (3) (3) (2) Undistributed earnings of foreign subsidiaries...... 0 11 Equity in earnings of affiliated companies ...... (1) (1) (0) International rate differences...... (1) (7) (4) Reduction in deferred taxes due to statutory rate change ...... 0 1— Other...... (1) 21 Effective tax rate...... 40% 36% 44%

Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities at March 31, 2004 and 2003 were as follows: Thousands of Millions of yen U.S. dollars 2004 2003 2004 Deferred tax assets: Inventories...... ¥ 8,725 ¥ 7,283 $ 82,311 Accrued expenses ...... 7,549 10,040 71,217 Deferred charges ...... 5,854 5,250 55,226 Retirement benefits ...... 4,950 13,348 46,698 Research and development expenses ...... 3,183 2,718 30,028 Loss on devaluation of investments in securities and other investments ...... 2,260 3,340 21,321 Depreciation and amortization ...... 1,333 976 12,576 Net operating loss carryforwards ...... 485 2,073 4,576 Accrued enterprise tax ...... 164 956 1,547 Other ...... 2,315 2,696 21,840 Total deferred tax assets ...... 36,818 48,680 347,340 Valuation allowance ...... (296) (1,393) (2,793) Net deferred tax assets ...... 36,522 47,287 344,547 Deferred tax liabilities: Net unrealized gain on marketable securities ...... (9,203) (2,735) (86,821) Undistributed earnings of foreign subsidiaries ...... (1,377) (1,491) (12,991) Deferred gain on sale of plant assets ...... (729) (386) (6,877) Reserve for special depreciation ...... (685) (333) (6,462) Accelerated depreciation and amortization ...... (143) (1,132) (1,349) Other ...... (120) (43) (1,132) Total deferred tax liabilities ...... (12,257) (6,120) (115,632) Net deferred tax assets ...... ¥24,265 ¥41,167 $228,915

Deferred tax assets, among others, relating to operating losses incurred by subsidiaries are recorded because the asset and liabil- ity method of computing deferred income taxes requires that the benefit of certain loss carryforwards be estimated and recorded as an asset unless it is “more likely than not” that the benefit will not be realized. Deferred tax liabilities included in “other long-term liabilities” at March 31, 2004 and 2003 were ¥568 million ($5,358 thou- sand) and ¥20 million, respectively. 47 11. Pension Plans and Accrued Severance Indemnities: Thousands of At March 31, 2004 and 2003 Millions of yen U.S. dollars Contents of retirement benefit obligation, etc. 2004 2003 2004 Retirement benefit obligation Retirement benefit obligation...... ¥(72,120) ¥(114,004) $(680,377) Fair value of pension plan assets...... 41,536 44,512 391,849 Unreserved retirement benefit obligation...... (30,584) (69,492) (288,528) Unrecognized actuarial losses — net ...... 12,029 27,495 113,481 Unrecognized prior service cost ...... (1,389) (1,543) (13,104) Prepaid pension cost ...... (1,544) — (14,566) Accrued retirement benefits for employees ...... ¥(21,488) ¥ (43,540) $(202,717)

Retirement benefit cost Service cost ...... ¥ 5,072 ¥ 6,127 $ 47,849 Interest cost ...... 2,636 2,687 24,868 Expected return on pension plan assets ...... (1,042) (1,237) (9,830) Amortization of actuarial gains and losses ...... 2,622 1,961 24,736 Amortization of prior service cost ...... 154 — 1,452 Extra severance pay ...... 25 3,974 236 Retirement benefit cost ...... ¥ 9,467 ¥ 13,512 $ 89,311 Gain on the return of the substitutional portion of the welfare pension fund ...... ¥(13,934) ¥— $(131,453)

2004 2003 Calculation basis of retirement benefit obligation, etc. Method of attributing the projected benefits to periods of service...... Straight-line basis Straight-line basis Discount rate ...... Mainly 2.5% Mainly 2.5% Expected rate of return on pension plan assets ...... Mainly 2.5% Mainly 2.5% Amortization period of prior service cost ...... Mainly 10 years Mainly 10 years Amortization period of actuarial gains and losses ...... Mainly 10 years Mainly 10 years

On March 1, 2004, the Company and some of the domestic subsidiaries received approval from the Minister of Health, Labor and Welfare with respect to its application for exemption from the obligation for benefits related to future employee service under the substitutional portion of the Welfare Pension Fund Plans (“WPFP”). In accordance with the transitional provision stipulated in “Practical Guideline for Accounting for Retirement benefit,” the Company and those subsidiaries accounted for the separation of the substitutional portion of the benefit obligation from the corporate portion of the benefit obligation under its WPFP as of the date of approval of its exemption, assuming that the transfer to the Japanese government of the substitutional portion of the benefit obligation and related pension plan assets had been completed as of that date. As a result, the Company and those subsidiaries recognized a gain of ¥13,934 million ($131,453 thousand) in total for the year ended March 31, 2004. The pension assets which are to be transferred were calculated at the ¥18,186 million ($171,566 thousand) at March 31, 2004. Besides retirement benefit costs shown above, for the year ended March 31, 2004, an extra retirement payment of ¥1,332 million ($12,566 thousand) was recognized for employees who are transferred to a new affiliated company that will be estab- lished by transferring OTC products and those who retired under the Company’s Voluntary Retirement Program. For the year ended March 31, 2003, an extra retirement payment of ¥14,700 million was recognized for those who were trans- ferred to subsidiaries and those who retired under the Company’s Voluntary Retirement Program, which were enforced as a part of the implementation of measures to reinforce Japanese business operations. These extra retirement payments are recorded as other expenses in the financial results for the year ended March 31, 2004 and 2003. 48 12. Shareholders’ Equity: Pursuant to the Japanese Commercial Code (the “Code”), the that the total amount of legal reserve and capital surplus issue (or conversion) price of shares is in principle required exceeds 25% of common stock, the excess amount can be to be accounted for in its entirety in the common stock available for distributions by the resolution of the account, although a company’s board of directors may shareholder’s meeting. authorize recording no more than one-half of the issue Legal reserve is included in retained earnings in the (or conversion) price as capital surplus. accompanying consolidated financial statements. The legal The Code provides that an amount equal to at least 10% reserve amounted to ¥6,465 million ($60,991 thousand) as of cash disbursements from retained earnings (dividends of March 31, 2004. and bonuses to the members of the board, etc.) be appropri- In addition to the above, the Code provides that all appro- ated from retained earnings each period as a legal reserve. priations of retained earnings, except for interim cash divi- This reserve may be used to reduce a deficit or transferred to dends, be approved at an ordinary general meeting of common stock by appropriate legal procedures. shareholders. This meeting is held within three months Before September 30, 2001, no further appropriation was following the close of the Company’s fiscal year ending required as a legal reserve when the legal reserve equaled March 31. The appropriations are not accrued in the financial 25% of common stock. Effective October 1, 2001, the Code statements for the year to which they relate, but are provides that no further appropriation is required as a legal recorded in the subsequent fiscal year after shareholder reserve when the total amount of legal reserve and capital approval has been obtained. surplus equals 25% of common stock. However, on condition

The following appropriations of retained earnings of the Company were proposed and approved at the general meeting of share- holders held on June 24, 2004. Thousands of Millions of yen U.S. dollars Cash dividends (¥13 ($0.123) per share)...... ¥4,286 $40,434 Bonuses to the directors and corporate auditors ...... 47 443 ¥4,333 $40,877

13. Segment Information: The Company and its consolidated subsidiaries are mainly Certain segment information about the operations of the engaged in the pharmaceutical business, including ethical Company and its consolidated subsidiaries in different geo- pharmaceuticals and OTC drugs, which is shown as graphic areas and business segments are disclosed below. “Pharmaceuticals.” The rest of the Company’s business, which Intercompany sales between geographic areas and business is shown as “Others,” includes medical supplies and systems, categories are recorded at cost plus a mark-up. However, home care business, and chemicals business. The Company intercompany sales and profits are eliminated. Corporate also enhances its overseas businesses through its subsidiaries assets are composed principally of cash and cash equivalents, mainly in North America, Europe and Asia. marketable securities and short-term investments.

By business segment Millions of yen Year ended March 31, 2004 Eliminations Pharmaceuticals Others Total or Corporate Consolidated Net sales to unrelated entities ...... ¥373,512 ¥21,889 ¥395,401 ¥ — ¥395,401 Transfers between business segments ...... 8 10,043 10,051 (10,051) — Total net sales ...... 373,520 31,932 405,452 (10,051) 395,401 Operating expenses ...... 317,492 31,822 349,314 (10,616) 338,698 Operating income ...... ¥ 56,028 ¥ 110 ¥ 56,138 ¥ 565 ¥ 56,703 Assets ...... ¥372,462 ¥17,151 ¥389,613 ¥110,080 ¥499,693 Depreciation and amortization ...... ¥ 18,891 ¥ 1,449 ¥ 20,340 ¥ — ¥ 20,340 Capital expenditures ...... ¥ 24,603 ¥ 1,239 ¥ 25,842 ¥ — ¥ 25,842 49 By business segment Thousands of U.S. dollars Year ended March 31, 2004 Eliminations Pharmaceuticals Others Total or Corporate Consolidated Net sales to unrelated entities ...... $3,523,698 $206,500 $3,730,198 $ — $3,730,198 Transfers between business segments ...... 76 94,745 94,821 (94,821) — Total net sales ...... 3,523,774 301,245 3,825,019 (94,821) 3,730,198 Operating expenses ...... 2,995,208 300,207 3,295,415 (100,151) 3,195,264 Operating income ...... $ 528,566 $ 1,038 $ 529,604 $ 5,330 $ 534,934 Assets ...... $3,513,792 $161,802 $3,675,594 $1,038,491 $4,714,085 Depreciation and amortization ...... $ 178,217 $ 13,670 $ 191,887 $ — $ 191,887 Capital expenditures ...... $ 232,104 $ 11,688 $ 243,792 $ — $ 243,792

By business segment Millions of yen Year ended March 31, 2003 Eliminations Pharmaceuticals Others Total or Corporate Consolidated Net sales to unrelated entities ...... ¥353,442 ¥28,637 ¥382,079 ¥ — ¥382,079 Transfers between business segments ...... 8 8,311 8,319 (8,319) — Total net sales ...... 353,450 36,948 390,398 (8,319) 382,079 Operating expenses ...... 290,970 37,423 328,393 (8,457) 319,936 Operating income (loss) ...... ¥ 62,480 ¥ (475) ¥ 62,005 ¥ 138 ¥ 62,143 Assets ...... ¥371,489 ¥29,472 ¥400,961 ¥110,555 ¥511,516 Depreciation and amortization ...... ¥ 19,253 ¥ 1,923 ¥ 21,176 ¥ — ¥ 21,176 Capital expenditures ...... ¥ 14,063 ¥ 1,244 ¥ 15,307 ¥ — ¥ 15,307

By business segment Millions of yen Year ended March 31, 2002 Eliminations Pharmaceuticals Others Total or Corporate Consolidated Net sales to unrelated entities ...... ¥310,889 ¥30,467 ¥341,356 ¥ — ¥341,356 Transfers between business segments ...... 12 5,361 5,373 (5,373) — Total net sales ...... 310,901 35,828 346,729 (5,373) 341,356 Operating expenses ...... 263,127 36,861 299,988 (5,484) 294,504 Operating income (loss) ...... ¥ 47,774 ¥ (1,033) ¥ 46,741 ¥ 111 ¥ 46,852 Assets ...... ¥355,217 ¥31,943 ¥387,160 ¥87,386 ¥474,546 Depreciation and amortization ...... ¥ 17,699 ¥ 2,678 ¥ 20,377 ¥ — ¥ 20,377 Capital expenditures ...... ¥ 26,635 ¥ 1,735 ¥ 28,370 ¥ — ¥ 28,370

By geographic area Millions of yen Year ended March 31, 2004 North Eliminations Japan America Europe Others Total or Corporate Consolidated Net sales to unrelated entities ...... ¥221,740 ¥108,436 ¥57,640 ¥7,585 ¥395,401 ¥ — ¥395,401 Transfers between geographic areas ...... 49,777 2,827 2,927 14 55,545 (55,545) — Total net sales ...... 271,517 111,263 60,567 7,599 450,946 (55,545) 395,401 Operating expenses ...... 236,089 90,648 59,080 6,551 392,368 (53,670) 338,698 Operating income ...... ¥ 35,428 ¥ 20,615 ¥ 1,487 ¥1,048 ¥ 58,578 ¥ (1,875) ¥ 56,703 Assets ...... ¥287,461 ¥ 76,287 ¥52,678 ¥6,095 ¥422,521 ¥77,172 ¥499,693 50 By geographic area Thousands of U.S. dollars Year ended March 31, 2004 North Eliminations Japan America Europe Others Total or Corporate Consolidated Net sales to unrelated entities ...... $2,091,887 $1,022,981 $543,773 $71,557 $3,730,198 $ — $3,730,198 Transfers between geographic areas ...... 469,594 26,670 27,613 132 524,009 (524,009) — Total net sales ...... 2,561,481 1,049,651 571,386 71,689 4,254,207 (524,009) 3,730,198 Operating expenses ...... 2,227,255 855,170 557,358 61,802 3,701,585 (506,321) 3,195,264 Operating income ...... $ 334,226 $ 194,481 $ 14,028 $ 9,887 $ 552,622 $(17,688) $ 534,934 Assets ...... $2,711,896 $ 719,689 $496,962 $57,500 $3,986,047 $728,038 $4,714,085

By geographic area Millions of yen Year ended March 31, 2003 North Eliminations Japan America Europe Others Total or Corporate Consolidated Net sales to unrelated entities ...... ¥221,992 ¥102,525 ¥48,928 ¥8,634 ¥382,079 ¥ — ¥382,079 Transfers between geographic areas ...... 46,499 4,461 2,815 23 53,798 (53,798) — Total net sales ...... 268,491 106,986 51,743 8,657 435,877 (53,798) 382,079 Operating expenses ...... 233,006 80,430 46,453 7,640 367,529 (47,593) 319,936 Operating income ...... ¥ 35,485 ¥ 26,556 ¥ 5,290 ¥1,017 ¥ 68,348 ¥ (6,205) ¥ 62,143 Assets ...... ¥287,414 ¥ 85,039 ¥51,745 ¥5,348 ¥429,546 ¥81,970 ¥511,516

By geographic area Millions of yen Year ended March 31, 2002 North Eliminations Japan America Europe Others Total or Corporate Consolidated Net sales to unrelated entities ...... ¥207,355 ¥89,470 ¥39,005 ¥5,526 ¥341,356 ¥ — ¥341,356 Transfers between geographic areas ...... 27,995 4,125 14,101 62 46,283 (46,283) — Total net sales ...... 235,350 93,595 53,106 5,588 387,639 (46,283) 341,356 Operating expenses ...... 215,455 71,224 47,418 4,900 338,997 (44,493) 294,504 Operating income ...... ¥ 19,895 ¥22,371 ¥ 5,688 ¥ 688 ¥ 48,642 ¥ (1,790) ¥ 46,852 Assets ...... ¥281,341 ¥79,897 ¥45,228 ¥5,088 ¥411,554 ¥62,992 ¥474,546

Overseas sales consisting of the Company’s export sales to and million ($1,812,717 thousand), ¥178,407 million and royalty income from foreign third parties and the sales out- ¥150,549 million, accounting for 48.6%, 46.7% and 44.1% of side Japan of foreign consolidated subsidiaries for the years consolidated net sales, respectively. ended March 31, 2004, 2003 and 2002 amounted to ¥192,148

14. Contingent Liabilities and Commitments: Contingent liabilities of the Company and its consolidated subsidiaries at March 31, 2004 and 2003 were as follows: Thousands of Millions of yen U.S. dollars 2004 2003 2004 Contingent liabilities as guarantor of— indebtedness of employees ...... ¥ 689 ¥1,155 $ 6,500 Other contingent liabilities— relating to debt assumption contract ...... 1,080 1,320 10,189 others ...... 186 188 1,755 51 Lease commitments exclude finance lease contracts of the Company and its consolidated subsidiaries, under which the ownership of the leased assets is transferred to lessees. Assumed acquisition cost, accumulated depreciation and net book value of the leased assets at March 31, 2004 and 2003 were as follows: Thousands of Millions of yen U.S. dollars 2004 2003 2004 Acquisition cost Machinery and automobiles ...... ¥1,604 ¥1,743 $15,132 Others (computers and equipment) ...... 5,068 4,570 47,811 Accumulated depreciation...... (2,962) (2,845) (27,943) Net book value ...... ¥3,710 ¥3,468 $35,000

Outstanding future lease payments due at March 31, 2004 and 2003 were as follows: Thousands of Millions of yen U.S. dollars 2004 2003 2004 Within one year ...... ¥1,379 ¥1,348 $13,009 Over one year...... 2,532 2,339 23,887 Total...... ¥3,911 ¥3,687 $36,896

Lease expenses on finance lease contracts for the years ended March 31, 2004, 2003 and 2002 were as follows: Thousands of Millions of yen U.S. dollars 2004 2003 2002 2004 Lease expenses ...... ¥1,754 ¥1,781 ¥1,925 $16,547 including: Depreciation (assumed)...... 1,443 1,426 1,523 13,613 Interest (assumed)...... 312 350 389 2,943

Depreciation is based on the straight-line method over the lease term of the leased assets.

15. Litigation and Legal Matters: Starting from the case in the United States District Court for the average wholesale price of its certain pharmaceutical the District of Massachusetts in December 2001, several products and plaintiffs have been injured by having to pay substantially identical purported class actions were filed in higher premiums and co-payments under Medicare. Most of several courts in the U.S., against several companies includ- these cases have been consolidated into one multi-district ing the Company, Fujisawa Healthcare, Inc., and Fujisawa case in Boston. We cannot determine the basis or possible USA, Inc., alleging that Fujisawa violated U.S. laws by inflating damages assessable against us, if, any, at this time.

52 16. Subsequent Events: At a meeting of the Board of Directors held on May 24, 5. Distribution Money on Merger 2004, the Company reached a definitive agreement upon the The Combined Company shall pay ¥11 per share of the terms of the merger with Yamanouchi Pharmaceutical Co., Company as distribution money on merger instead of Ltd. payment of dividend for the fiscal year ending March 31, 2005 to the shareholders or registered pledgees of the The Company and Yamanouchi Pharmaceutical Co., Ltd. Company whose names will have been stated or recorded (Yamanouchi) reached an agreement for merger scheduled in the last register of shareholders of the Company on the with effect on April 1, 2005 under the terms and conditions date immediately preceding the Merger Date. However, of the Merger Agreement, in order to become a fully compet- Yamanouchi and the Company may change such amount itive company being able to succeed in the global market, by upon consultation with each other, in accordance with enhancing the core business platform of the ethical pharma- the conditions of the assets and debts of the Company as ceutical business. of the date immediately preceding the Merger Date, and changes in economic environment. Outline of the Merger Agreement 1. Method of the Merger 6. The summarized consolidated financial information of Yamanouchi will survive and the Company will dissolve, Yamanouchi Pharmaceutical Co., Limited for the year ended for the purpose of legal proceedings. March 31, 2004, is as follows: Millions of 2. Merger Date Billions of yen U.S. dollars April 1, 2005. However, such date may be changed upon Net sales...... ¥511.2 $4,823 consultation between Yamanouchi and the Company, if Net income ...... 60.1 567 necessity or any other event arises in light of the pro- Total assets...... 902.7 8,516 ceeding of the merger procedures. Total liabilities ...... 174.8 1,649 Total shareholders’ equity...... 725.4 6,843 3. New Company Name Astellas Pharma Inc. This merger agreement was approved at the annual general meeting of shareholders held on June 24, 2004. 4. Allotment Rate of Shares Shares will be issued at the rate of 0.71 shares of Yamanouchi common stock per share of the Company common stock held.

53 Report of Independent Auditors

To the Board of Directors and Shareholders of Fujisawa Pharmaceutical Company Limited

We have audited the accompanying consolidated balance sheets of Fujisawa Pharmaceutical Company Limited and its subsidiaries as of March 31, 2004 and 2003, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2004, all expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fujisawa Pharmaceutical Company Limited and its sub- sidiaries as of March 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2004 in conformity with accounting principles practices generally accepted in Japan (see Note 1).

The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader, have been translated on the basis set forth in Note 2 to the accompanying consolidated financial statements.

As described in Note 16, to the consolidated financial statements, the Company reached a definitive agreement upon the terms of the merger with Yamanouchi Pharmaceutical Co., Ltd. This merger agree- ment was approved at the annual general meeting of shareholders held on June 24, 2004.

June 24, 2004

54 Management and Corporate Auditors Corporate Directory (As of June 24, 2004) (As of July 1, 2004)

Board of Directors Corporate Officers Japan

Akira Fujiyama Hatsuo Aoki, Ph. D. ■ Fujisawa Pharmaceutical Co., Ltd. Chairman of the Board President and Chief Executive Officer URL: http://www.fujisawa.co.jp Osaka Head Office Hatsuo Aoki, Ph. D. Koichi Sejima 4-7, Doshomachi 3-chome, Chuo-ku, President and Chief Executive Officer Corporate Executive Vice President and Chief Osaka 541-8514, Japan Administrative Officer Tel: +81-6-6202-1141 Koichi Sejima Fax: +81-6-6206-7926 Corporate Executive Vice President and Takeshi Shimomura ■ International Licensees Business Chief Administrative Officer Corporate Executive Vice President, Sales & Marketing Tel: +81-6-6206-7880 Fax: +81-6-6206-7928 Masafumi Nogimori Masafumi Nogimori ■ Medical Supplies & Systems Corporate Executive Vice President, Corporate Executive Vice President, Global Strategy Tel: +81-6-6206-7889 Global Strategy Fax: +81-6-6206-7934 Hirofumi Onosaka ■ Home Care Tomokichiro Fujisawa, Ph. D. Tel: +81-6-6241-6371 Corporate Senior Vice President, Fax: +81-6-6241-6374 Chairman Emeritus Global Corporate Strategic Planning Kashima Office Masao Shimizu Akiro Kojima 1-6, Kashima 2-chome, Yodogawa-ku, Member of the Board (Senior Counselor, Daicel Corporate Senior Vice President, Global Development Osaka 532-8514, Japan Chemical Industries, Ltd.) Tel: +81-6-6390-1111 Naoki Fujimoto Fax: +81-6-6304-1192 Kanji Kobayashi Corporate Senior Vice President, Member of the Board (Senior Advisor, Nippon Tokyo I Business Branch, Sales & Marketing Tokyo Head Office Life Insurance Company) 2-10, Nihonbashi-Honcho 2-chome, Chuo-ku, Takayoshi Mukaida Tokyo 103-0023, Japan Corporate Senior Vice President, External Relations Tel: +81-3-3279-0871 Corporate Auditors Fax: +81-3-3241-0722 ■ OTC Hideo Fukumoto Tel: +81-3-3279-0881 Tateo Horita Corporate Vice President, Chairman and Chief Fax: +81-3-3241-6385 Executive Officer, Fujisawa Healthcare, Inc. Yoshiharu Senoue Business Branches Masaya Ishii Hitoshi Ohta Sapporo, Sendai, Kan-etsu, Tokyo I, Tokyo II, Masahiko Kinbara Corporate Vice President, Global Manufacturing Nagoya, Kyoto, Osaka, Takamatsu, Hiroshima, Fukuoka Toshio Goto, Ph. D. Corporate Vice President, Global Research Plant Nagoya Masaji Ohe Corporate Vice President, OTC & Consumer Products ■ Major Domestic Subsidiaries Fujisawa Toyama Co., Ltd. Osamu Nagai Corporate Vice President and Chief Financial Officer Fujisawa Shizuoka Co., Ltd. Analytical Science Laboratories Inc. Masaru Imahori Fujisawa Technical Services Co., Ltd. Corporate Vice President, Fujisawa Clinical Supply Co., Ltd. Associate Executive Director, Sales & Marketing FMS Co., Ltd. Shinichi Shimizu Fujisawa Distribution Service Co., Ltd. Corporate Vice President, Home Care Hoshienu Pharmaceutical Co., Ltd. Fujisawa Home Care Co., Ltd. Makoto Nishimura Corporate Vice President, Executive Vice President, Fujisawa Healthcare, Inc.

55 Overseas

■ North America Fujisawa SARL ■ Asia Fujisawa Healthcare, Inc. 13, Avenue Gabriel Fujisawa Greater China Group Limited URL: http://www.fujisawa.com 78170 La Celle Saint Cloud, France Tel: +33-1-30-08-42-00 #708-09, 7th Floor, Three Parkway North, Deerfield, Fax: +33-1-30-08-42-30 Prudential Tower, IL 60015, U.S.A. The Gateway, Harbour City, Tel: +1-847-317-8800 Fujisawa SRL Kowloon, Hong Kong Fax: +1-847-317-7296 Corso di Porta Romana, 68 Fujisawa Pharmaceuticals (China) Company Fujisawa Canada, Inc. 20122 Milan, Italy Limited Tel: +39-02-58-20-81 625 Cochrane Drive, Suite 1000, Fax: +39-02-58-20-89-01 #708-09, 7th Floor, Markham, Ontario L3R 9R9, Canada Prudential Tower, Tel: +1-905-470-7990 Fujisawa SA The Gateway, Harbour City, Fax: +1-905-470-7799 Kowloon, Hong Kong Edificio Gorbea IV a Tel.: +852-2377-9801 Fujisawa Research Institute of America, Inc. Av. Bruselas, 20 - 1 planta Fax: +852-2856-1440 28108 Alcobendas (Madrid), Spain Northwestern University/ Tel: +34-91-490-28-10 Fujisawa Taiwan Co., Ltd. Evanston Research Park Fax: +34-91-484-15-57 1801 Maple Avenue, Evanston, URL: http://www.fujisawa.com.tw IL 60201-3135, U.S.A. Fujisawa Scandinavia AB 3rd Floor, No. 325, Sec. 1, Tel: +1-847-467-4470 Tun Hwa South Road, Fax: +1-847-467-4471 Haraldsgatan 5 413 14 Gothenburg, Sweden Taipei 106, Taiwan Tel: +46-31-741-61-60 Tel: +886-22-709-1980 ■ Europe Fax: +46-31-711-07-57 Fax: +886-22-700-1330 Fujisawa Holland B.V. Fujisawa Deutschland GmbH Fujisawa Korea Limited De Molen 24 Berg-am-Laim-Strasse 129, URL: http://www.fujisawa.co.kr 3994 DB Houten, The Netherlands 81673 Munich, Germany Tel: +31-30-634-6000 10F. Haesung No. 1 Bldg., 942, Daechi-3 dong, Tel: +49-89-4544-01 Fax: +31-30-634-6001 Kangnam-ku, Seoul, 135-725, Fax: +49-89-4544-13-29 Republic of Korea Fujisawa GmbH Tel: +82-2-564-3180 Fujisawa Ges.m.b.H. Fax: +82-2-564-3421 URL: http://www.fujisawaeurope.com Linzer Strasse 221-E02 Neumarkter Strasse 61, 1140 Vienna, Austria Offices in: 81673 Munich, Germany Tel: +43-1-877-26-68-0 Beijing, Shanghai, Guangzhou Tel: +49-89-45-44-06 Fax: +43-1-877-16-36 Fax: +49-89-45-44-21-20 Fujisawa AG Fujisawa Ireland Limited Grindelstrasse 6 Killorglin, Co. Kerry, 8304 Wallisellen, Switzerland Republic of Ireland Tel: +41-43-233-60-33 Tel: +353-66-9761029 Fax: +41-43-233-60-30 Fax: +353-66-9761037 ◆Fujisawa Pharma Fujisawa Ltd. Branch of Fujisawa GmbH 62 London Road Kilcarberry Business Park Staines 25 The Courtyard Middlesex, TW18 4HB, U.K. Clondalkin Tel: +44-1784-2275-00 Dublin 22, Ireland Fax: +44-1784-2275-01 Tel: +353-1-467-15-55 Fax: +353-1-467-15-50

Offices in: Belgium, Portugal, Denmark, Finland, Norway, Poland, Czech Republic, Hungary

56 Investor Information (As of March 31, 2004)

Founded: Principal Shareholders : January 1894 Japan Trustee Services Bank, Ltd. (Trust Account) The Master Trust Bank of Japan, Ltd. (Trust Account) Date of Incorporation: Nippon Life Insurance Co. December 20, 1930 The Chase Manhattan Bank, NA, London (SL Omnibus Account) UFJ Bank Limited Paid-in Capital: Daido Life Insurance Company ¥38,594 million NIPPONKOA Insurance Company, Limited Number of Shareholders: The Bank of New York, Treaty JASDEC Account 21,925 The Master Trust Bank of Japan, Ltd. (Pension Trust Account for UFJ Trust Bank Limited) Issued and Outstanding Number of Shares: State Street Bank & Trust Co. 330,190,106

Share Distribution Independent Certified Public Accountants: Types of Shareholders ChuoAoyama PricewaterhouseCoopers (%) Nakanoshima Mitsui Bldg., 16th Floor 3-3-3, Nakanoshima, Domestic Financial institutions 0.75 Kita-Ku, Osaka 530-8248, Japan Domestic Securities Companies 0.16 Other Domestic Corporations 1.37 Stock Exchange Listing: Foreign Corporations 2.05 Individuals and Other 95.67 Tokyo, Osaka, Nagoya

Number of Shares Held by Type of Shareholder Transfer Agent: (%) UFJ Trust Bank Limited Domestic Financial institutions 53.94 6-3, Fushimi-machi 3-chome, Domestic Securities Companies 0.97 Chuo-ku, Osaka 541-8502, Japan Other Domestic Corporations 3.33 Foreign Corporations 31.52 Individuals and Other 10.24

Fujisawa’s share prices and trading volumes on the Tokyo Stock Exchange

Fujisawa stock Nikkei Average Share price Share price (yen) (yen) 5,000 20,000

4,000 15,000

3,000 10,000 2,000 5,000 1,000

0 0

40,000 Transaction volume 30,000 (thousand shares) 20,000 10,000 0 00 01 02 03 04 57 Founded in 1894 in Osaka, Japan, Fujisawa is making steady Brief History progress with the globalization of its business. Fujisawa is active in the world’s major pharmaceutical markets of North America, Europe and Asia through its subsidiary companies.

1961 1977 The new head office building is con- Fujisawa Pharmaceutical Corporation, structed in Osaka. the first business base in the US, is established in New York.

1983 Fujisawa acquires a minority stake in Klinge Pharma GmbH of 1894 Germany, which will become a Tomokichi Fujisawa opens a small majority-owned company in 1988. medicine store in Doshomachi, Osaka, which will later grow into 1962 Fujisawa Pharmaceutical Co., Ltd. Fujisawa Pharmaceutical Co., (Taiwan) Ltd. (now Fujisawa Taiwan 1905 Co., Ltd.) is established. T. Fujisawa constructs the Tenroku Plant, a factory to produce Fujisawa Camphor and other products. 1989 Fujisawa Korea Limited is established.

1990 1964 Fujisawa’s pharmaceutical opera- The Central Research Laboratories tions in the US are integrated into are constructed in the Kashima newly established Fujisawa USA, R&D complex. Inc., following the total acquisi- tion of Lyphomed, Inc., in which 1930 Fujisawa has made a series of Construction of the Kashima Plant equity investments since 1985. (the present Osaka Plant) is completed. 1991 Fujisawa GmbH is established in Germany as the European headquar- ters for developing and marketing 1971 Prograf®. Cefamezin®, the first parenteral Fujisawa Canada, Inc. is established. cephalosporin antibiotic developed in Japan, is launched in Japan. 1993 1943 The immunosuppressant Prograf® is Fujisawa Pharmaceutical Co., Ltd. launched in Japan. is incorporated.

58 1994 and a parent company of marketing Prograf® is launched in the US and subsidiaries in Europe. the UK.

1996 Fujisawa Research Institute of 2002 America, Inc. is established. Protopic® is launched in Europe and Asia. 1998 The candin antifungal agent The US operations are restructured Funguard® is launched in Japan. and newly-established Fujisawa Healthcare, Inc. is put in charge of pursuing the Company’s proprietary pharmaceutical business in the US.

Fujisawa GmbH acquires the remain- ing minority stake at Klinge which is renamed as Fujisawa Deutschland GmbH.

2003 The Global Headquarters, a new global management system, is 1999 established as a virtual organiza- Protopic®for the treatment of atopic tion, and measures are taken to dermatitis is launched in Japan. reinforce the Japanese business.

2004 Operations in China, Hong Kong and Taiwan are reorganized.

Merger with Yamanouchi Pharmaceutical Co., Ltd. is announced. 2001 Protopic®is launched in the US. Fujisawa GmbH is positioned as the European headquarters of Fujisawa 59 FUJISAWA PHARMACEUTICAL COMPANY LIMITED FUJISAWA PHARMACEUTICAL COMPANY LIMITED ANNUAL REPORT 2004 ANNUAL REPORT 2004 ANNUAL REPORT 2004

Printed on recycled paper in Japan

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