Smiles to Everyone

Bringing KAKEN PHARMACEUTICAL Annual Report 2013 Smiles to Everyone

Annual Report 2013 Year Ended March 31, 2013 Profile

The origins of Kaken Pharmaceutical Co., Ltd., can be traced back to the Institute of Physical and Chemical Research (RIKEN), which was established in 1917. In 1948, the Company started its pharmaceutical business by developing a new way Bringing to manufacture penicillin utilizing Riken’s own technologies. It has since broadened the scope of its business activities to include the manufacturing and sales of drugs such as streptomycin, an antituberculosis drug, and various antifungal agents. The Company is particularly strong in the field of orthopedics, dermatology, and Smiles internal medicine. In the field of orthopedics, Kaken boasts the accomplishment of to introducing medical treatment for osteoarthritis that involves the intraarticular Everyone injection of sodium hyaluronate. Since 2001, the Company has been marketing Fiblast Spray, a wound-healing agent that employs a recombinant human basic Fibroblast Growth Factor (bFGF). This was the first drug in the world to employ bFGF. Kaken continues to advance research efforts in this field. The Company is also focused on the fields of inflammation, immunologic diseases, and allergies, as well as that of fungal infection. In 2012, Kaken applied for manufacturing approval for efinaconazole, an original drug developed by Kaken, as Japan’s first topical antifungal agent for onychomycosis.

Corporate Philosophy Kaken helps improve the quality of life for patients by serving as many people as possible to return smiles of happiness to their faces, through supplying superior pharmaceuticals.

Business Philosophy KAKEN Three Joys

Creating joy Creating joy Creating joy for patients as a company for our employees We strive to create and offer We recognize our social Our objective is to become effective drugs that satisfy responsibility as a pharmaceutical a company with vitality and the needs of patients and company with a high ethical presence whose employees enjoy medical professionals. standard and society’s trust. and take pride in their work.

Forward-looking Statements This annual report contains forward-looking statements pertaining to the Company’s business and prospects. These statements are based on the current analysis of existing information and trends. Actual results may differ from expectations due to unforeseen risks and uncertainties. Consolidated Financial Highlights

Net Sales Operating Income Net Income MILLIONS OF YEN MILLIONS OF YEN MILLIONS OF YEN

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ROE Net Income per Share Total Net Assets YEN MILLIONS OF YEN Cash Dividends per Share Capital Adequacy Ratio YEN

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Contents

President’s Message �� 2 2 4 Special Feature: Developing New Products �� 4

Overview of Major Products �� 6

Commitment and Excellence ��10

Fulfilling Our Social Responsibilities ��13 6

Board of Directors and Audit & Supervisory Board Members ��16

Financial Section ��17

Corporate Data ��45

ANNUAL REPORT 2013 1 President’s Message

Tetsuo Onuma President and Representative Director

Dear Stakeholders: yet to come to fruition. One such example is KP-103, Kaken’s In the fiscal year under review, ended March 31, 2013, sales vol- original topical antifungal agent for onychomycosis for which we umes for Artz, Seprafilm, and other mainstay products were up, as submitted an application to receive marketing and manufacturing were sales of generic drugs. However, drug prices were reduced approval for in October 2012. At the same time, we will accelerate by slightly less than 6%, resulting in a small year-on-year decline the licensing activities that we have traditionally conducted with in sales. Nevertheless, we were able to achieve higher net income. the aim of supplementing our development pipeline. We increased dividend payments for the 11th consecutive year Looking ahead, the operating environment is expected to re- and repurchased 2 million shares of treasury stock. In this way, main highly opaque due to such factors as drug price revisions we would like to express our appreciation for your support over impacting long-term listed products. However, we believe it is still the years. possible for Kaken to improve performance in the fiscal year end- In the fiscal year ending March 31, 2014, we are targeting higher ing March 31, 2014. This improved performance is expected to be sales and income, as announced previously. In addition, we plan to driven by contributions from the sales of existing products that issue total dividend payments of ¥48.00 per share, making for the are still experiencing sales growth and the generic drugs we sell 12th consecutive year of increased dividend payments. We will in response to the contemporary needs. also repurchase another 1.2 million shares of treasury stock, as we Going forward, we will strive unceasingly to ensure Kaken pursue higher levels of shareholder returns. Pharmaceutical continues to be a company that is appealing Further, I anticipate that the fiscal year ending March 31, 2014, to investors. In closing, I would like to ask for your continued will be a year in which we give form to several initiatives that have support as we undertake this endeavor.

Overview of Results for the Fiscal Year Ended Addressing Future Challenges for Continued Growth March 31, 2013 The Kaken Group is addressing future challenges with the aim of The impacts of drug price revisions in the fiscal year under review, maximizing corporate value and maintaining the trust of society. ended March 31, 2013, resulted in a 1.1% year-on-year decrease in net sales, to ¥87,054 million. Consequently, operating income was • Strategically investing in R&D down 3.7%, to ¥14,611 million. However, net income increased In our R&D efforts, we selectively focus our investment of 8.6%, to ¥8,991 million, due to the benefits of tax revisions. resources and constantly strive to raise efficiency in order to expand the product pipeline. At the same, we conduct joint research and pursue strategic alliances with companies and

2 KAKEN PHARMACEUTICAL CO., LTD. research institutions in Japan and around the world, with the Basic Policy and Approach Concerning Returns aim of quickly introducing new research projects. to Shareholders To