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Top Message Overview of the Fiscal Year Ended March 31, 2016 Revenue and operating profit both reached all-time highs. We are accelerating growth to realize our long-term strategic vision toward 2020. Santen has grown tremendously in an effort to realize our Santen expanded its presence supported by growth in long-term strategic vision toward 2020 of becoming a products such as the glaucoma and ocular hypertension “Specialized Pharmaceutical Company with a Global treatment Taflotan/Saflutan (tafluprost). Other contributors Presence.” During the fiscal year ended March 31, 2016, included ophthalmology products in the glaucoma field taken revenue rose 20.7% year on year to an all-time high of over from U.S.-based Merck & Co., Inc. and Ikervis ¥195.3 billion. On the earnings front, core operating profit (ciclosporin), a new product that addresses the unmet was up 10.2% to ¥43.1 billion and core net profit for the year medical needs of adult patients with severe keratitis rose 12.4% to ¥29.2 billion. Earnings increased even more associated with dry eye disease, which has not improved markedly on an IFRS basis which includes the gain from the despite treatment with tear substitutes. In the fast-growing assignment of the anti-rheumatic pharmaceuticals business. Asian business, sales grew primarily in China, Korea and In the domestic prescription ophthalmic business, the Vietnam, which are positioned as key countries. In ASEAN intravitreal VEGF inhibitor Eylea (aflibercept [genetical countries, Santen focused on bolstering sales activities in recombination]) posted growth in sales. Eylea is a treatment addition to laying a strong business foundation. for retinal disorders that have high unmet medical needs. Under the basic policies of the Fiscal 2014-2017 Tapros (tafluprost), a treatment of glaucoma and ocular Medium-Term Management Plan, Santen is steadily hypertension, and Diquas (diquafosol sodium), a treatment of executing strategies focused on the themes of Product dry eye, also contributed to sales. Dry eye is becoming Development, Business Expansion, and Organization and increasingly prevalent particularly among office workers. In Talent, with a view to realizing the Company’s long-term addition, the anti-allergy ophthalmic solution Alesion strategic vision toward 2020. Looking ahead, we will (epinastine hydrochloride) also contributed to higher revenue. accelerate these activities even more. Seasonal factors, including pollen allergy, tend to increase In particular, in R&D, the cornerstone of the Product the number of patients using Alesion. Development theme, we launched the glaucoma and ocular In the EMEA1 business, one of our current areas of focus, hypertension treatment Tapros in China in March 2016. In 10 Santen Pharmaceutical Co., Ltd. Annual Report 2016 The Santen Group is making significant strides toward realizing our long-term strategic vision toward 2020 of becoming a “Specialized Pharmaceutical Company with a Global Presence” by continuing to focus our efforts on the specialized area of ophthalmology. Looking ahead, we will continue to extend our strengths further, with the aim of supporting the treatment of patients around the world and contributing to society. We kindly ask for the continued support of all of our stakeholders. August 2016 Akira Kurokawa President and Chief Executive Officer addition, we are making steady progress on Global Phase 3 year ended March 31, 2016, we paid full-year dividends of studies of DE-109 (sirolimus) for the treatment of ¥25 per share. This resulted in a dividend payout ratio of non-infectious uveitis of the posterior segment (hereinafter, 35.5% on a core basis, which excludes factors such as the “NIU-PS”), with the aim of obtaining regulatory approval earnings contribution from the assignment of the around the world. Moreover, in August 2016 Santen anti-rheumatic pharmaceuticals business. strengthened its glaucoma pipeline through the acquisition Going forward, we remain committed to providing stable of InnFocus, Inc., a glaucoma implant device developer. We shareholder returns. At the same time, we will continue to will continue to develop and bolster our pipeline of new retain funds primarily for R&D investments, while examining products that satisfy unmet medical needs. the adoption of a flexible stance that includes the acquisition Looking at the Business Expansion theme, Santen aims of treasury stock, as necessary. to drive further growth in the EMEA and Asian businesses by leveraging sales growth from ophthalmology products Fiscal 2014-2017 Medium-Term Management Plan taken over from U.S.-based Merck & Co., Inc. and business Progress of Financial Figures expansion in new regions. To make this happen, we will Results for the Fiscal Year Fiscal 2017 Medium-Term Ended March 31, 2016 Management Plan2 work to strengthen our global product supply and sales organizations. Revenue ¥195.3 billion Over ¥205 billion In terms of the Organization and Talent theme, we will Core operating profit ¥43.1 billion Over ¥51.5 billion develop innovative leaders who will be responsible for medium- and long-term business growth, as we steadily Core net profit for the year ¥29.2 billion Over ¥35 billion strengthen our global management systems. Core ROE 12.4% Over 14% 1. Europe, the Middle East and Africa R&D expenses ¥20.0 billion Around ¥21 billion Enhancing Shareholder Returns 2. Financial figures have been restated on an IFRS basis from the Japanese GAAP Santen has positioned the stable return of profits to figures issued when the Medium-Term Management Plan was announced. Under Japanese GAAP, operating income is over ¥45.0 billion, net income is over shareholders as a key management priority. For the fiscal ¥31.0 billion, and ROE is over 13.0%. Santen Pharmaceutical Co., Ltd. Annual Report 2016 11 Attaining the Objectives of the Fiscal 2014-2017 Medium-Term Management Plan Medium-Term Management Plan Product Leveraging our global R&D network, Development we are pursuing product development in ophthalmology fields R&D that make the most of our strengths. Santen is concentrating on product development in fields Thailand in March 2016. Moreover, in December 2015, Phase that make the most of the Company’s strengths, primarily in 2b/3 trials of DE-117 for the treatment of glaucoma and ocular the fields of corneal and conjunctival epithelial disorders, hypertension were initiated in Japan. glaucoma and ocular hypertension, and retinal and uveal In April 2015, Santen filed for marketing approval in Asia of disorders. This is to satisfy the unmet medical needs of DE-109, for which it is conducting Global Phase 3 studies for patients around the world, thereby contributing to further the treatment of NIU-PS. As regards filing with the European advances in ophthalmic treatment. The Product Develop- Medicines Agency for Marketing Authorization Application of ment theme is set forth as a basic policy of the Fiscal DE-109, we plan to file again based on the results of the 2014-2017 Medium-Term Management Plan. Under this second Global Phase 3 study that is currently underway. theme, Santen has three basic strategies: (1) reduce time to In addition, Santen is concentrating on business develop- launch, (2) improve the probability of technical success, and ment activities such as “Network Product Development3” to (3) target and address unmet medical needs. Guided by strengthen its pipeline. As part of these efforts, in March 2016, those strategies, Santen is undertaking a range of activities Santen licensed and obtained the global development rights on a global basis. to DE-126 (sepetaprost) from ONO PHARMACEUTICAL CO., Santen developed Ikervis using its proprietary Novasorb LTD. DE-126 is an FP/EP3 dual agonist for the treatment of technology1. Ikervis is approved for treatment of severe glaucoma and ocular hypertension that has completed Phase keratitis in adult patients with dry eye disease, which has 2 clinical trials in the U.S. Moreover, in August 2016, Santen not improved despite treatment with tear substitutes. Since acquired InnFocus, Inc., a developer of glaucoma devices for July 2015, Santen has sequentially started sales of Ikervis in implant surgery to lower and sustain intraocular pressure. European countries and is working to achieve market By strengthening coordination between its R&D bases in penetration. In Asia, Santen has also successively filed for Japan, the U.S. and Europe, Santen will continue working to marketing approval of Ikervis to meet the unmet medical rapidly develop differentiated products that address unmet needs of patients with dry eye. In Korea, Santen filed for medical needs. marketing approval in December 2015. 1. Novasorb aids widespread absorption of ophthalmic solutions over the ocular Santen is also advancing life cycle management2 to surface by applying a positive electric charge to an ophthalmic emulsion. This causes the drug to be attracted to the negatively charged ocular tissues maximize the value of its existing products. DE-111 2. Aligning one compound to treatment needs over the long term and augmenting (tafluprost/timolol maleate), a combination ophthalmic through additional indication, dosage, formulation and combination products to increase product value solution for the treatment of glaucoma and ocular hyperten- 3. An approach of proactive use of compounds and technologies from outside the sion that is marketed in Japan and EMEA, was launched in company in product development Korea in April 2016, and obtained marketing approval in New Growth Drivers to Fulfill the Unmet Medical Needs of Patients around the World Ikervis, a treatment for severe keratitis in adult patients with dry eye disease, DE-109, a treatment for NIU-PS which has not improved despite treatment with tear substitutes In Europe, only over-the-counter drug treatments Currently, only limited treatment options are for dry eye were previously available, making it available for NIU-PS, which is a leading difficult for patients to receive appropriate cause of blindness. Therefore, a novel treatment for severe keratitis with dry eye.