Research & Development

We are maintaining aggressive research & development investment in particular for late-stage development products

R&D Sites (including Alliances) Basic Strategy Hub & Spoke, Central & Satellite System

Seeking rapid development and approval for our Oncology Area Psychiatry & Neurology Area

late-stage pipeline REMIGES Ventures

Tolero Johns Hopkins University • Accelerating late-stage clinical development products U.S. Under our ONE TEAM operating structure for the Global Sharp Edge Labs Sumitomo Clinical Development linking our Japan and U.S. units, we are Dainippon Pharma JCR Pharma Afraxis Boston conducting efficient development focused on late-stage Sunovion Biomedical DCI DRD PsychoGenics U.S. U.S. clinical development products to obtain fast approval. BioElectron Exscientia Osaka RACMO RIKEN DSK Boost drug discovery research activity to create Kobe Sumitomo Keio University novel differentiated drug candidates Pharma Kyoto University Kyoto University (China Suzhou) • Allocate research resources to the focus therapeutic CiRA areas (Psychiatry & Neurology, and Oncology) and new DCI: DSP Cancer Institute DSK: Kyoto University and Sumitomo Dainippon Pharma Joint Research Project therapeutic areas DRD: Drug Research Division We are focusing our research activities in areas of significant RACMO: Regenerative & Cellular Medicine Office unmet medical needs, Psychiatry & Neurology and Oncology. We are also dedicating our research effort to new areas such Actively collaborating with external research institutions Engaged in drug discovery research to continuously create as the Regenerative Medicine and Cell Therapy field, and innovative drug candidates based on cutting-edge technologies, we disease fields where no approved drugs exist. are not limiting our research activities to internal technologies and talents but are aggressively promoting external collaborations with • Ensuring “POC* First” to quickly confirm drug concepts academic institutions and biotech companies having innovative in humans technologies. In April 2016, we started the second phase of the Kyoto We are applying translational research to bridge basic University and Sumitomo Dainippon Pharma Joint Research Project research to clinical studies. One such activity is to evaluate (DSK Project), aiming to discover innovative anti-cancer drugs. the same biomarkers in non-clinical and clinical studies, in Additionally, we signed several contracts for joint research order to predict clinically effective dose ranges and collaborations under the “PRISM” framework, our open innovation demonstrate clear POC at earlier clinical phases. Additionally, program, which we ran again in fiscal 2016. we are making efforts in repositioning/repurposing the drugs R&D organizational structure supporting active drug or drug candidates whose safety has been confirmed in discovery research humans, to other therapeutic indications. In order to strengthen our drug discovery activities, we are operating * Proof of Concept (POC): confirmation of expected safety and efficacy in humans early/late research stages with different management philosophies and processes. • Drug discovery leveraging our strengths; Accelerating Early-stage research mimics start-up biotech-style approach, to maximize individual talents and creativity. Late-stage research external collaborations emphasizes organizational and team strengths, and collaboration We are applying leading-edge technologies in drug discovery, across multiple functions such as clinical research, CMC*, and such as using in-silico methods for drug design, using iPS regulatory affairs to proceed toward early approvals. cells to confirm efficacy/safety, and using disease-specific Additionally, from April 2016 we established a PC (Professional Contributor) job title as part of our emphasis on individual specialization iPS derived cells to clarify the mechanisms of disease. We and career paths for employees aspiring to make a difference. are working further to incorporate leading-edge technologies * CMC: An abbreviation of Chemistry (characteristics analysis) of active from external collaborations and strengthen our drug ingredients/formulations, Manufacturing, and Controls (quality control). discovery activities. CMC refers to parts of the company involved with pharmaceutical manufacturing and quality during the process of applications for approval.

19 Sumitomo Dainippon Pharma Co., Ltd. Annual Report 2017 Product Launch Plan (as of July 28, 2017)

Candidates for delivering sustainable growth —Striving for a quick recovery from the “LATUDA cliff”—

Area FY2017 FY2018 FY2019 FY2020 - FY2022

TRERIEF® LONASEN® lurasidone obeticholic acid (Parkinsonism in Dementia (Schizophrenia / (Schizophrenia / Bipolar l (NASH) with Lewy Bodies) Transdermal patch) depression / Bipolar maintenance)

napabucasin DSP-6952 (Conditioning treatment (Colorectal cancer, (IBS with constipation, prior to HPCT) Pancreatic cancer) Chronic idiopathic constipation) Japan amcasertib iPS cell-derived RPE cells (Solid tumors) (Age-related macular degeneration)

DSP-7888 (Solid tumors / Hematologic malignancies)

napabucasin glycopyrronium dasotraline dasotraline SB623 (Colorectal cancer, (COPD) (ADHD) (BED) (Chronic stroke) Pancreatic cancer)

UTIBRONTM, SEEBRITM apomorphine alvocidib DSP-2230 amcasertib (COPD) U.S. (Parkinson’s disease) () (Neuropathic pain) (Solid tumors) (In-licensed)

DSP-7888 SEP-363856 (Solid tumors / (Schizophrenia) Hematologic malignancies)

LONASEN® lurasidone China (Schizophrenia) (Schizophrenia) (Approved in Feb.2017)

Psychiatry & Neurology Oncology Liver / Digestive Respiratory New Chemical Entities New Indication, etc.

® LATUDA (lurasidone hydrochloride) cancer stemness, it may provide a new therapeutic option against the Atypical antipsychotic Developed in-house challenges in cancer treatment such as treatment resistance, LATUDA® (lurasidone hydrochloride) is an atypical antipsychotic agent recurrence and metastasis. that is believed to have an affinity for dopamine D2, serotonin 5-HT2A Amcasertib (BBI503) and serotonin 5-HT7 receptors where it has antagonist effects. In addition, Cancer Developed in-house (Boston Biomedical, Inc.) LATUDA® is a partial agonist at the serotonin 5-HT1A receptor and has no appreciable affinity for histamine H1 or muscarinic M1 receptors. BBI503 is an orally administered small molecule agent with a novel mechanism of action designed to inhibit cancer stemness pathways, Dasotraline (SEP-225289) including Nanog, by targeting stemness kinases. By inhibiting pathways Attention-deficit hyperactivity disorder (ADHD), Binge eating involved in the maintenance of cancer stemness, it may provide a new disorder (BED) Developed in-house (Sunovion Pharmaceuticals Inc.) therapeutic option against the challenges in cancer treatment such as SEP-225289 is a dopamine and norepinephrine reuptake inhibitor treatment resistance, recurrence and metastasis. (DNRI). SEP-225289 has an extended half-life (47-77 hours) that supports the potential for a continuous therapeutic effect by dosing at DSP-7888 24-hour intervals. Cancer Developed in-house DSP-7888 is a therapeutic cancer peptide vaccine derived from Wilms’ Apomorphine hydrochloride (APL-130277) tumor gene 1 (WT1) protein. DSP-7888 is a vaccine containing Parkinson’s disease Developed in-house (Sunovion Pharmaceuticals peptides that induces WT1-specific cytotoxic T lymphocytes (CTLs) and Inc., from former Cynapsus Therapeutics) helper T cells. DSP-7888 is expected to become a treatment option for APL-130277 is a sublingual film formulation of apomorphine, a patients with various types of hematologic malignancies and solid dopamine agonist, which is the only molecule approved in the U.S. for tumors that express WT1, by inducing WT1-specific CTLs that attack acute intermittent treatment of OFF episodes associated with WT1-expressing cancer cells. By adding a helper T cell-inducing Parkinson’s disease. It is designed to rapidly, safely and reliably convert peptide, improved efficacy over that observed with a killer peptide a Parkinson’s disease patient from the OFF to the ON state while alone may be achieved. avoiding many of the issues associated with subcutaneous delivery of apomorphine. Alvocidib Cancer In-licensed from Sanofi S.A. Napabucasin (BBI608) Alvocidib targets cyclin-dependent kinase (CDK) 9, a member of Cancer Developed in-house (Boston Biomedical, Inc.) cyclin-dependent kinase family, which activates transcription of BBI608 is an orally administered small molecule agent with a novel cancer-related genes. The subsequent down-regulation of MCL-1, an mechanism of action designed to inhibit cancer stemness pathways by anti-apoptotic gene, may be responsible for the potential clinical targeting STAT3. By inhibiting pathways involved in the maintenance of anti-cancer activity observed with alvocidib.

Sumitomo Dainippon Pharma Co., Ltd. Annual Report 2017 20 Research & Development

Oncology Area Drug Discovery In the Oncology area, we are committed to contribute to treatments for patients with cancer, and are driving research Psychiatry & Neurology Area and development forward under the four core strategies below. Taking on the challenge to discover new, fundamental Our aim is to deliver unique products that have not been treatments for neurodegenerative disorders, at the available to date. intersection of psychiatric and neurologic research The Psychiatry & Neurology area is one in which Sumitomo • Cancer Stemness Inhibitor Dainippon Pharma has had longstanding expertise, with eight • Cancer Peptide Vaccine products/compounds launched in the last quarter of century • Kinase Inhibitor since the 1990s. We are making progress in research and • aiRNA therapeutic development aiming to discover fundamental disease modifying drugs in neurodegenerative disorders which could improve We are aiming for a fiscal 2019 launch of the cyclin-dependent motor activities and cognitive functions. kinase (CDK) 9 inhibitor alvocidib. Additionally, we are making Furthermore, with regard to psychiatric disorders, we have progress with development of the cancer stemness inhibitor directed resources to diseases and symptoms insufficiently napabucasin and cancer peptide vaccine DSP-7888 as we treated by current regimens, and will expand our focus of drug steadily push forward R&D aiming for on-going approvals and discovery to “treatment-resistant depression and schizophrenia” product launches in the Oncology area. and “symptoms associated with neurodegenerative disorders”. Newly acquired Tolero Pharmaceuticals is utilizing The latter includes behavioral and psychological symptoms of evaluation systems that assess disease relevance and in-silico dementia (BPSD), and Parkinson disease with psychosis (PDP). drug discovery platforms, while striving to discover drugs This can also be described as the merging of research on targeting kinases that are highly related to diseases. psychiatric and neurodegenerative disorders. At present, we have multiple compounds at the stage of clinical development targeting BPSD and PDP.

Exercising unique research methods We are dedicating efforts to utilize our unique phenotypic drug screening systems to produce original drug candidates. Using characteristic cells grown from iPS cells derived from patients with various diseases, we are measuring phenotypic readouts possibly related to clinical symptoms.

Research Strategies in the Psychiatry & Neurology Area Research Strategies in the Oncology Area

Psychiatry Napabucasin Amcasertib Cancer Stemness Schizophrenia Depression Inhibitor Autism Anxiety

Behavioral and Psychological Symptoms of Kinase Solid tumors Cancer Peptide Hematologic Dementia (BPSD) Inhibitor Vaccine Parkinson’s Disease malignancies Psychosis (PDP) etc. Amcasertib DSP-7888 Alzheimer’s Amyotrophic Alvocidib disease (AD) Lateral Sclerosis TP-0903 Dementia with (ALS) TP-1287 (preclinical) aiRNA Lewy Bodies Parkinson’s TP-0184 (preclinical) therapeutic (DLB) disease (PD) Neurology BBI-801a (preclinical)

21 Sumitomo Dainippon Pharma Co., Ltd. Annual Report 2017 Since clinical studies are conducted during the intermediate Trends in R&D Costs (direct) & Allocation to Areas stages of confirming the efficacy (effectiveness) and safety (or side effects etc.) of drug candidates, our clinical studies follow such regulations as Japan’s ministerial ordinance on GCP (Good Clinical Practice), which was established to protect the human rights, maintain the safety and improve the welfare of subjects participating in studies.

Ethical Approach to Human Tissue Research The Research Ethical Review Committee, part of the Corporate Regulatory Compliance & Quality Assurance Division, reviews the appropriateness of implementing research from the FY2015 FY2016 perspectives of the significance and necessity of research, the 48.2 billion yen 47.1 billion yen scientific rationality of plans, the provision of adequate prior explanations to donors of human tissues, etc. and the acquisition of consent based on free will (informed consent), rigorous protection of personal information and other points of view. We Others also disclose the Rules for the Research Ethics Investigation Regenerative Committee, the composition of the committee members, and medicine / Psychiatry & Cell therapy Neurology the content of the committee proceedings. Oncology approx. 3% approx. 50% approx. 30% Ethical Considerations in Animal Experimentation In animal experimentation, Sumitomo Dainippon Pharma follows in-house procedures that conform to Japan’s Act on Welfare and Management of Animals and the Basic Policies for FY2017 (forecast) the Conduct of Animal Experiments in Research Institutions 50.5 billion yen under the jurisdiction of the Ministry of Health, Labour and Welfare. Our Institutional Animal Care and Use Committee carries out proper ethical review of all experimental protocols, including outsourced tests, in terms of the “3Rs” (“reduction” of the number of animals used, “replacement” with alternative Intellectual Property testing methods, and “refinement” to relieve pain and suffering).

Sumitomo Dainippon Pharma recognizes that intellectual property is an essential part of the business development of a pharmaceutical company. In filing patent applications, we are building up a patent portfolio including not only substance patent applications but also patent applications that encompass uses, manufacturing processes and formulations to comprehensively protect our commercial and development products. In addition, we are working to address themes of intellectual property regarding the regenerative medicine/cell therapy field in order to promote the business.

Consideration in clinical studies

Clinical Studies Put the Human Rights of Subjects First We conduct human clinical studies required for new drug applications in accordance with the utmost consideration of the subjects’ human rights.

Sumitomo Dainippon Pharma Co., Ltd. Annual Report 2017 22 Research & Development

Development Pipeline

Psychiatry & Neurology Area

Brand name / Generic name Proposed indication Development location Phase 1Phase 2 Phase 3 Submitted Product code (New indication) Epilepsy- Monotherapy Canada eslicarbazepine APTIOM® (New usage :pediatric) Epilepsy- Monotherapy / acetate U.S. adjunctive therapy Schizophrenia China

LATUDA® lurasidone (New usage :pediatric) Bipolar I depression U.S. / Canada (SM-13496) hydrochloride Schizophrenia Japan Bipolar I depression, Bipolar maintenance Japan (New usage :pediatric) Schizophrenia Japan LONASEN® blonanserin (New formulation: Transdermal patch) Schizophrenia Japan EPI-743 vatiquinone Leigh syndrome Japan *1 Adult, Pediatric attention-deficit hyperactivity disorder U.S. SEP-225289 dasotraline (ADHD) Binge eating disorder (BED) U.S. apomorphine APL-130277 OFF episodes associated with Parkinson’s disease U.S. hydrochloride (New indication) Parkinsonism in Dementia with Lewy ® Japan TRERIEF zonisamide Bodies (DLB) Parkinson’s disease U.S. EPI-589 TBD Amyotrophic lateral sclerosis (ALS) U.S. Schizophrenia U.S. SEP-363856 TBD Parkinson’s disease psychosis U.S. Schizophrenia Japan DSP-2230 TBD Neuropathic pain U.K. / U.S. / Japan DSP-1200 TBD Treatment-resistant depression U.S. DSP-6745 TBD Parkinson’s disease psychosis U.S. SEP-378608 TBD Bipolar disorder U.S. (As of July 28, 2017) *1 A Phase 2/3 study completed, development strategy under consideration

Dasotraline (SEP-225289) TRERIEF® In the U.S., a Phase 2/3 study and Phase 3 study were In order to obtain approval for a new indication of TRERIEF® conducted evaluating the drug in pediatric attention-deficit in Japan, a Phase 3 study was conducted evaluating its effects hyperactivity disorder (ADHD). The studies met their primary in patients with Parkinsonism in dementia with Lewy bodies. endpoints. Based on the results of these studies and prior adult The study produced encouraging analytical results. studies, we intend to submit a New Drug Application in the U.S. Based on these results, we intend to submit a supplemental in fiscal 2017 for ADHD in adult and pediatric populations. New Drug Application for the new indication in Japan in Dasotraline also met the primary endpoint of a Phase 2/3 fiscal 2017. study for binge eating disorder (BED) and we have started a Phase 3 study. We will continue to develop dasotraline for BED Apomorphine hydrochloride (APL-130277) in adults in the U.S. Currently undergoing a Phase 3 study on OFF episodes associated with Parkinson’s disease in the U.S. We are aiming to submit a New Drug Application in the U.S. in fiscal 2017.

23 Sumitomo Dainippon Pharma Co., Ltd. Annual Report 2017 Oncology Area

Brand name / Generic name Proposed indication Development locationPhase 1Phase 2 Phase 3 Submitted Product code Colorectal cancer (Combination therapy) (Global clinical study) U.S. / Canada / Japan, etc. Pancreatic cancer (Combination therapy) (Global clinical study) U.S. / Japan Colorectal cancer (Combination therapy) U.S. / Canada Solid tumors (Ovarian cancer, Breast cancer, Melanoma, U.S. / Canada 1 BBI608 napabucasin Glioblastoma, etc.) (Combination therapy) *3 * Malignant pleural mesothelioma (Combination therapy) Japan *1 4 Solid tumors (Combination therapy) * 5 Hematologic malignancies (Monotherapy / Combination therapy) U.S. / Canada * Hepatocellular carcinoma (Combination therapy) Japan Solid tumors (Colorectal cancer, Head and Neck cancer, Ovarian cancer, etc.) (Monotherapy) U.S. / Canada *1 Solid tumors (Hepatocellular carcinoma, Cholangiocarcinoma, etc.) (Monotherapy) Canada BBI503 amcasertib Ovarian Cancer (Monotherapy) U.S. Hepatocellular carcinoma (Combination therapy) U.S. *2 Solid tumors (Combination therapy) U.S. / Canada Solid tumors (Monotherapy), Hepatocellular carcinoma (Combination therapy) Japan napabucasin BBI608+BBI503 Solid tumors (Combination therapy) U.S. amcasertib Myelodysplastic syndromes (Monotherapy) Japan *1 adegramotide/ Pediatric malignant glioma (Monotherapy) Japan 1 DSP-7888 * nelatimotide Glioblastoma (Combination therapy) U.S. / Canada / Japan, etc. Solid tumors, Hematologic malignancies (Monotherapy) U.S. / Canada Acute myeloid leukemia (AML) (Combination therapy / alvocidib alvocidib Biomarker-driven) U.S. / Canada Myelodysplastic syndromes (Monotherapy) Japan 2 WT4869 TBD * Solid tumors (Monotherapy) Japan Solid tumors, Hematologic malignancies (Monotherapy) U.S. WT2725 TBD Solid tumors (Monotherapy) Japan TP-0903 TBD Solid tumors (Monotherapy) U.S.

6 Conditioning treatment prior to hematopoietic cell transplantation DSP-1958 * thiotepa (HPCT) (Monotherapy) Japan (As of July 28, 2017) *1 Phase 2 of Phase 1/2 study *2 Phase 1 of Phase 1/2 study *3 Glioblastoma’s development is only Canada *4 Multiple studies for different tumor types (Gastrointestinal cancer, Hepatocellular carcinoma, Pancreatic cancer) *5 Clinical study for gastrointestinal cancer is conducted only in Canada *6 Development for the use of unapproved or off-labeled drugs

Napabucasin (BBI608) Alvocidib Patients are being enrolled in a Phase 3 study for colorectal cancer We are conducting an open-label, randomized Phase 2 study (combination therapy / CanStem303 study) and a Phase 3 study for MCL-1-high relapsed and refractory acute myeloid leukemia for pancreatic cancer (combination therapy / CanStem111P study). (AML) in two stages, to evaluate the efficacy of the ACM regimen Meanwhile, we unblinded a Phase 3 study for gastric and compared to CM treatment. We aim to complete Stage 1 in gastro-esophageal junction cancer (combination therapy / the first half of fiscal 2017, then initiate Stage 2 in the second half BRIGHTER study) based on a recommendation by the study’s of the year. We are aiming to submit an NDA for AML in fiscal independent Data and Safety Monitoring Board (DSMB). 2018 in the U.S. based on the results of this study. The DSMB determined that the study was unlikely to reach its primary endpoint of superior overall survival for the napabucasin Stage 2 Targeted goal for initiation arm compared to the control arm. in the second half of fiscal 2017 Stage 1 Targeted goal for completion in the first half of fiscal 2017 Alvocidib + + Application objectives (ACM) Alvocidib + Cytarabine + Colorectal cancer FY2020 RANDOMIZE (combination therapy with FLOFIRI and bevacizumab) (U.S. & Japan) Mitoxantrone (ACM) Pancreatic cancer FY2021 Cytarabine + Mitoxantrone (CM) (combination therapy with and nab-) (U.S. & Japan)

Sumitomo Dainippon Pharma Co., Ltd. Annual Report 2017 24 Research & Development

Other Areas

Brand name / Product code Generic name Proposed indication Development locationPhase 1Phase 2 Phase 3 Submitted Respiratory Area

glycopyrronium Chronic obstructive pulmonary disease SUN-101 U.S. bromide (COPD)

Other Areas

DSP-1747 obeticholic acid Nonalcoholic steatohepatitis (NASH) Japan IBS with constipation, Chronic idiopathic DSP-6952 TBD Japan constipation (As of July 28, 2017)

Glycopyrronium bromide (SUN-101) the long-term, maintenance treatment of chronic obstructive SUN-101 is a long-acting muscarinic antagonist (LAMA) pulmonary disease (COPD). In May 2017, we received bronchodilator delivered via the proprietary investigational a Complete Response Letter from the FDA, and we resubmitted eFlow® closed system nebulizer. A New Drug Application was the NDA to address the requests indicated in the letter in June. submitted to the U.S. Food and Drug Administration (FDA) for We are preparing for product launch during fiscal 2017.

Regenerative Medicine / Cell Therapy Field In the regenerative medicine and cell therapy field, we are pursuing multiple R&D projects aiming for early commercialization. Furthermore, establishing manufacturing capability for regenerative medicines is one of the highest priority issues ahead of practical use. Consequently, we started construction of a cell production and processing facility at our Central Research Laboratories (Suita, Osaka), with the objective of commencing operations during fiscal 2017.

Regenerative Medicine / Cell Therapy Business Plan

Region Schedule for practical use (Calendar year) Partnering Cell type (planned) 2017 2018 2019 2020-2022

Phase 2b Approval Target North Allo Chronic Stroke SanBio America MSC Phase 3

AMD Clinical research Approval Target Healios Allo (age-related macular Japan RIKEN iPS cell degeneration) * Investigator or corporate initiated clinical study

Parkinson’s disease Kyoto Univ Allo (Designated as a “SAKIGAKE” Global Investigator-initiated clinical study Product in Feb. 2017) CiRA iPS cell

Allo Retinitis pigmentosa RIKEN Global Clinical research iPS cell

Keio Univ Allo Spinal Cord Injury Osaka National Global Clinical research iPS cell Hospital

(As of July 28, 2017) * Start of clinical studies originally scheduled in 2017 may be delayed due to changes in non-clinical study plans.

25 Sumitomo Dainippon Pharma Co., Ltd. Annual Report 2017 Chronic Stroke (SB623) In-licensed from SanBio with Healios K.K. in February SB623 is an allogeneic cell product, derived from mesenchymal 2014. Aiming to commercialize stem cells isolated from bone marrow of healthy donors. the world’s first products using Unlike autologous cell therapy, which requires individualized iPS cells, we are pursuing joint cell preparation at a medical institution, SB623 production can development with Healios K.K. be scaled up from a single donor’s cells, enabling delivery of and promoting examinations for uniform-quality products to a large number of stroke patients. manufacturing to take place at In 2014, Sumitomo Dainippon Pharma concluded a license Sighregen K.K. agreement for joint development and exclusive commercialization RPE cells (iPS cell-derived) rights in North America. Currently, a Phase 2b study is being conducted in the U.S. with SanBio, Inc. to evaluate the effects Parkinson’s disease of SB623 on chronic stroke. Dopaminergic neural progenitor cells (iPS cell-derived) In February 2017, allogeneic iPS cell-derived dopaminergic Expected Mode of Action neural progenitor cells, which we are working to use in practice in collaboration with the Center for iPS Cell Research and Application (CiRA) at Kyoto University, were designated as SB623 administered through a “SAKIGAKE Designation System” product for regenerative brain surgery medicine & cell therapy by the Ministry of Health, Labour and Welfare. Kyoto University is planning an investigator-initiated clinical study in regenerative medicine for Parkinson’s disease using dopaminergic neural progenitor cells derived from iPS cells of healthy (allogeneic) donors. Based on Secretion of SB623 various factors the results of the investigator-initiated clinical study, we are aiming to acquire manufacturing and marketing approval for the cells as a regenerative medicine product.

Retinitis pigmentosa Photoreceptor cells (iPS cell-derived) In the eye disease field, Sumitomo Dainippon Pharma is conducting research into regenerative medicine for retinitis Neuro-protection Angiogenesis Anti-inflammation pigmentosa as well as age-related macular degeneration. As for basic research, Sumitomo Chemical Co., Ltd. in partnership with RIKEN has already become the first in the world to succeed in generating a three-dimensional retina from human embryonic stem cells. Carrying this research forward, we are applying Promotion of central nerve regeneration the results to human iPS cells and are working with RIKEN on R&D to bring about regenerative medicine addressing retinitis pigmentosa.

Spinal Cord Injury Neural precursor cells (iPS cell-derived) Improvement of disability related to Motor Function, Cognitive Function, etc. Under the Research Center Network for Realization of Regenerative Medicine, a joint initiative between government, industry and academia, Sumitomo Dainippon Pharma, together with the National Hospital Organization Osaka National Hospital, AMD (Age-related macular degeneration) is taking part as a contributing organization in the Keio University Retinal Pigment Epithelial (RPE) cells (iPS cell-derived) project on “Regenerative medicine for spinal cord injury and Sumitomo Dainippon Pharma concluded a joint development stroke using iPS cell-derived neural precursor cells.” The goal of agreement with Healios K.K. in December 2013, and established the project is to develop a treatment for the transplantation of a joint venture company Sighregen K.K. through joint investment iPS cell-derived neural precursor cells for spinal cord injury.

Sumitomo Dainippon Pharma Co., Ltd. Annual Report 2017 26 Research & Development

FocusEnhanced Pipeline from In-licensing and Acquisitions

We strive to enhance our pipeline, which sustains our future business, through new in-licensing, acquisitions, and reevaluating in-house projects. In addition to aggressive research and development, we are pursuing opportunities for new in-licensing and acquisitions in the Psychiatry & Neurology and Specialty areas up to a maximum scale of ¥150 – ¥200 billion from fiscal 2016, in order to expand our pipeline. What follows is an introduction of the Global Business Development Department’s initiatives at the heart of this focus.

What type of role does your department play? carefully examine the product. This may include working with Q1. the Research Division to see if the mechanism of action of the A1. Our department handles partnerships and compound is valid, working with the Sales & Marketing Department acquisitions in order to expand our product on market forecasts, and working with the Manufacturing pipeline, in addition to out-licensing to other Department on production issues. Proposals with concrete ideas companies. for partnerships or acquisitions are then made to management. Generally, new drug discovery has an extremely low The Global Business Development Department handles new success rate of approximately 1 in 30,000 and development in-licensed products, acquisitions in order to expand our product spans a long period of time. Though Sumitomo Dainippon pipeline, and out-licensing our products to other companies. Pharma is actively engaged in in-house development, Specifically, we start our evaluations with the voluminous expanding the pipeline through new product in-licensing and amounts of information obtained from surveys and referrals acquisitions is also important, so I feel that the role of our through our unique network, then, if a product is judged to hold department is growing with each day. value for the Company, we collaborate with internal divisions to Q2. What do you emphasize when considering acquisitions and partnerships? Shigeyuki Nishinaka We emphasize the three standpoints of Executive Officer A2. Senior Director, Global Business Development; science, business, and finance, and proceed International Business Management with considerations in a broad range of fields. After working at other companies before joining DSP in 2009, Nishinaka planned and proposed If there are late-stage development products that can be product strategies in the Strategic Planning & Business Development Division and established brought to market at an early date, other companies also show partnerships in 2010 that led to signing future strong interest and competition for the acquisition becomes license agreements (including the option agreement for SB623). fierce. So, we try to have a broad focus spanning many fields in After that, he was involved order to evaluate products in the first stages of drug discovery in numerous acquisitions and in-licensing projects. He gained research to those that have progressed into clinical studies. experience at our U.S. subsidiary, When assessing these, I put my greatest emphasis on the then became Head of Global Business Development three perspectives of science, business, and finance. This is Department in April 2016. because scientific knowledge is needed when assessing the Nishinaka was also involved mechanism of action of early-stage development products, an in the acquisition of Tolero Pharmaceuticals, Inc. and overall pharmaceutical business perspective is needed when Cynapsus Therapeutics Inc. considering commercial viability post-approval, and financial knowledge is needed when judging business value. Additionally, it is also important to have direct dialogue with partner companies during these assessments. Meeting in person allows us to discover many things that cannot be seen from data alone.

27 Sumitomo Dainippon Pharma Co., Ltd. Annual Report 2017 What are you currently putting effort into? where we followed a policy of allowing the companies to continue Q3. to exist as partners that we stand shoulder to shoulder with. A3. Primarily inside Japan, we are focusing on This stance is arguably also an attractive feature for venture partnerships and acquisitions, in addition to companies that get acquired. re-evaluating previous development products. We would like to leverage this characteristic strength of Sumitomo Dainippon Pharma as we direct our next initiatives at Development products added with the fiscal 2016 acquisitions the extremely competitive domestic market. To that end, we of Tolero Pharmaceuticals, Inc. and Cynapsus Therapeutics Inc. are simultaneously evaluating other companies’ compounds will have a substantial contribution to expanding our pipeline while reevaluating in-house projects. Even development ahead of the expiry of the exclusivity period for LATUDA® in projects that were previously discontinued could yield new 2019. One of the factors allowing us to carry out these valuable value at a different point in time. Furthermore, awareness of acquisitions is our stance toward respecting the corporate culture symptomology not previously recognized as a disease means it of acquired companies. This is evident in our previous acquisitions is possible that the need for new pharmaceutical products will of Sunovion Pharmaceutical Inc. and Boston Biomedical, Inc., emerge. It is important to quickly notice such developments.

Major recent acquisitions Major development products Company acquired Date acquired Product code Development stage Development location Category alvocidib (Generic name) Phase 2 U.S., Canada Anticancer drug Tolero Pharmaceuticals, Inc. TP-0903 Phase 1 U.S. Anticancer drug January 2017 (U.S.) TP-1287 Preclinical U.S. — TP-0184 Preclinical U.S. — Cynapsus Therapeutics Inc. (Canada) October 2016 APL-130277 Phase 3 U.S. Therapeutic agent for (currently Sunovion CNS Parkinson’s disease Development Canada ULC)

Major recent in-licensed products

Brand name / Generic name / Indication / Licensed from Date of licensing Development stage Territory Product code Proposed indication UTIBRONTM NEOHALER® TM ® Chronic obstructive pulmonary SEEBRI NEOHALER disease (COPD) Novartis (Switzerland) December 2016 Approved U.S. ARCAPTA® NEOHALER® SB623 Chronic stroke (cellular medicine) SanBio, Inc. (U.S.) September 2014 Phase 2 U.S., Canada vatiquinone (EPI-743) Mitochondrial disease BioElectron Technology completed Phase 2/3 Japan Corporation March 2013 Japan, U.S., Canada EPI-589 Neurodegenerative diseases (formerly Edison Phase 2 Pharmaceuticals, Inc.) (U.S.) (U.S., Canada: adults only) Nonalcoholic steatohepatitis obeticholic acid (DSP-1747) Intercept Pharmaceuticals, March 2011 Japan, China, Korea (NASH) Inc. (U.S.) Phase 2

Sumitomo Dainippon Pharma Co., Ltd. Annual Report 2017 28