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Y M C B04.07/藤沢薬品 AR 04 表1-4
C4 C1
FUJISAW
A PH
ARM
ACEUTICA
L COMPA
NY LIMITED
ANNU
AL REPORT 2004
Printed on recycled paper in Japan
ANNUAL REPORT 2004
FUJISAW
A PH
ARM
ACEUTICA
L COMPA
NY LIMITED
ANNUA
L REPORT 2004
Financial Highlights/1Highlights of the Year/2Message from the President/4Global Network/8Major Products/10People-our most precious resource/12Ethical Pharmaceuticals Business/14
Japan/14North America/15Europe/16Asia/17
R&D Network/18Research/21Products under Clinical Development/22Development/23
Health Care/24Production Network/26Production/27Environmental Protection/28Board of Directors/Top Management with
Global Functional Heads/30Review of the Year/31Management and Corporate Auditors/
Corporate Directory/55Investor Information/57Brief History/58
CONTENTS
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.”
The F-mark, Fujisawa’s logo, encapsulates Fujisawa’s desire to share the
joy of good health with people all over the world.
Red: Passionate commitment to research and development
Blue: Pursuit of purity and quality
Yellow: Desire to improve the health and lives of people everywhere
Under the banner of the F-mark, Fujisawa will continue to help people
live healthy, satisfying lives.
Tremendous progress has been made in the biomedical sciences in
recent years. In an attempt to summarize in a few words the essence of
Fujisawa’s corporate philosophy, we have coined the corporate slogan
“New Medicines for New Times.”
1
Millions of yen Thousands of U.S. dollars*
2004 2003 2004 Change (%)
Net sales ........................................ ¥395,401 ¥382,079 $3,730,198 103.5Income before income taxes ................. 69,138 44,690 652,245 154.7Net income ..................................... 41,468 28,635 391,208 144.8Shareholders’ equity .......................... 375,944 335,337 3,546,642 112.1
Amounts per share (in yen and dollars):Net income
Basic ..................................... ¥ 125.63 ¥ 86.62 $ 1.19 145.0Diluted .................................. 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 97.7Research 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.
Fujisawa Pharmaceutical Company Limited and Consolidated Subsidiaries
Financial HighlightsYears ended March 31
Statements made in this annual report with respect to Fujisawa’s current plans, estimates, strategies and beliefs and other statements that are nothistorical facts are forward-looking statements about the future performance of Fujisawa. These statements are based on management’s currentassumptions 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 resultsto differ materially from those discussed in the forward-looking statements. Such factors include, but are not limited to: (i) changes in generaleconomic conditions in, and the Pharmaceutical Affairs Law and other laws and regulations relating to, Fujisawa’s markets, (ii) currency exchangerate 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 ofFujisawa’s intellectual property rights.
2000 2001 2002 2003 2004
(¥ bn)Net Sales
400
320
240
160
80
0
289.1 297.5
382.1
341.4
2000 2001 2002 2003 2004 2000 2001 2002 2003 2004
(¥ bn)Operating Income 70
56
42
28
14
0
20
16
12
8
4
0
Operating IncomeRatio to Net Sales
(%)
12.1 11.3
13.7
16.3
62.1
34.8 33.6
46.9
(¥ bn)Net Income
(%)
0
7.96.9
Ratio to Net Sales
45
36
27
18
9
15
12
9
6
3
0
Net Income
10.5
41.5395.4
56.7
14.3
22.920.5
26.228.6
7.77.5
2
Highlights of the Year(For the Year ended March 31)
2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004
(¥ bn)R&D Expenses
(%)75
60
45
30
15
0
Ratio to Net Sales
25
20
15
10
5
0
R&D Expenses
15.817.5
(¥ bn)Total Assets
550
440
330
220
110
0
499.7
421.7462.3
511.5474.5
(¥ bn)Capital Expenses
30
24
18
12
6
0
12.9
19.8 19.7
24.4
21.2 20.3
15.6 16.1
20.4
15.4
Acquisition of Property, Plant and EquipmentDepreciation and Amortization
16.7 16.3
18.6
45.6
57.162.4
73.6
52.0
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 FujisawaGmbH 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.
3
Return on Equity Earnings per Share Overseas Sales Ratio(%)
3
0
15
12
9
6
9.5
7.8
11.7
8.8
8.8
2000 2001 2002 2003 20042000 2001 2002 2003 2004 2000 2001 2002 2003 2004
(¥) (%)150
120
30
60
90
0
50
40
30
20
10
0
86.62
125.6348.6
80.07
63.62
71.09
36.3
44.146.7
35.3
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 andTaiwan, 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 YamanouchiPharmaceutical 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.
4
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 withYamanouchi Pharmaceutical Co., Ltd., and we also made many other strategic decisions tofocus our management resources more effectively on our healthcare platform, thusensuring sustainable growth over the long term.
Progress of Our BusinessNet sales increased by 3.5% to ¥395,401 million (US$3,730 million) over the previousyear, setting a new record.
Key drivers of this growth once again are the continuing growth of our two majorsubsidiaries, Fujisawa Healthcare, Inc. and Fujisawa GmbH, both led by theimmunosuppressant Prograf® (tacrolimus). As for sales of individual products,consolidated sales of Prograf® surpassed ¥100 billion for the first time. With ¥104.4billion (US$985 million), a 16% increase over the previous fiscal year, Prograf® hasbecome the first ¥100 billion product in Fujisawa’s history. The injectable antifungal agentFunguard® 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 becomethe number one injectable antifungal agent in Japan. We also successfully launched theketoride class oral antibiotic Ketek® (telithromycin) in Japan in December 2003. Whileoperating income, at ¥56,703 million (US$535 million), recorded an 8.8% year-on-yeardecrease, mainly due to heavy investments in research and development, recognition ofextraordinary 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 endedMarch 31, 2000. Over the subsequent four years from April 1, 2000, in pursuit of our targets
2000 2001 2002 2003 2006
Progress under VISION 2005
Return on EquityNet SalesOverseas SalesJapanese SalesNet Income
0
100
200
300
400(¥bn)
9.5%
7.8%8.8%
8.8%
11.7% 10.0%
Years to March 31
400
40
2004
Message from the President
5
under this strategy, we have achieved growth of 8.1% and 12.9% on a compounded annualgrowth 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 compoundedannual growth of 17.1% over the same four-year period. I believe this is clear evidence thatwe have implemented the right strategies to improve the corporate value of Fujisawaunder VISION 2005.
Progress in Research and DevelopmentWe are committed to sustaining a high level of spending on research and developmentwhile taking profitability constantly into account. In the reporting period, Fujisawainvested 18.6% of net sales, or ¥73.6 billion (US$695 million), into research anddevelopment. This is mainly because of progress of various projects in the late stage ofglobal clinical development, and the introduction of promising compounds from outsidepartners. During the term under review, we received approval of Protopic® (tacrolimusointment) 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 bothin the U.S. and Europe. In April 2004, we filed an additional NDA of micafungin foresophageal candidiasis in the U.S. and now expect the approval of micafungin in the firsthalf of 2005 there and in Europe in 2005. The modified release formulation of tacrolimus isnow globally developed in order to improve patient compliance. We have successfullyacquired the North American co-development and exclusive commercialization rights toRSD1235, a promising compound for the treatment of atrial fibrillation and flutter, fromCardiome Pharma Corp. of Canada.
6
Progress of Management Refocus ProgramsContinuous efforts have been made to intensify the focus of our management resources onthe ethical pharmaceuticals business, our mainstay field, to improve our medium-termprofitability. Following our announcement made in September 2002, Fujisawa established two newwholly 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.” TheFuji plant was spun off and incorporated as “Fujisawa Shizuoka Co., Ltd.” These twosubsidiaries are now vigorously pursuing efficiency in pharmaceutical production activities.
In the area of the OTC pharmaceuticals business, Fujisawa and Yamanouchi have agreed tointegrate their OTC businesses and establish a new joint venture named “Zepharma Inc.”on October 1, 2004. Zepharma will have highly recognized brands in major therapeuticcategories, such as gastrointestinal agents, cold remedies, dermatological products, andanti-allergy drugs. Zepharma will aim to further improve its profitability with its focusedand flexible organization comprising 200 employees, as well as the establishment of amore efficient operational structure.
Further, Fujisawa divested some businesses outside the field of ethical pharmaceuticalsduring the term. Notably, the Company has now withdrawn substantially from thechemicals business, previously engaged in by the parent company and the U.S. subsidiaryPMP Fermentation Products, Inc., by transferring them to Fuso Chemical Co., Ltd. of Japanin December 2003. In addition to the chemicals business, Fujisawa also divested itself ofsmall non-core businesses such as an activated carbon business and an industrial cleaningand hygiene business during the term under the review.
President Hatsuo Aoki of Fujisawaand President Toichi Takenaka ofYamanouchi shake hands onFebruary 24, 2004 afterconcluding the basic agreement.
7
In our Asian operations, we reorganized our operations in the three Chinese speakingeconomies, China, Hong Kong and Taiwan effective April 1, 2004, in order to improveoperational efficiency and profitability in these markets. Fujisawa Greater China GroupLimited (FGC), established in Hong Kong, is now positioned as the headquarters ofFujisawa’s operations in these countries. Under FGC, Fujisawa Taiwan Co., Ltd. (FTC) nowfocuses on the Taiwanese business, while Fujisawa Pharmaceuticals (China) CompanyLimited in Hong Kong pursues its business on the Chinese market.
From Fujisawa to AstellasFujisawa and Yamanouchi announced that they have signed a basic agreement to merge onFebruary 24, 2004. Through the merger, the two companies aim at developing into acompletely new company that possesses a highly competitive edge not only in the Japanesepharmaceutical market, but also in the global pharmaceutical market, with excellent R&Dcapabilities and strong sales and marketing infrastructure. In particular, the mergedcompany 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 andYamanouchi approved the merger agreement of the two companies to be effective as ofApril 1, 2005, at the annual general meetings of the two companies, both held on June24, 2004. With the approval received from the shareholders of the two companies, thecreation of “Astellas Pharma Inc.” has become definite, though the worldwide relevantregulatory clearances have yet to be obtained.
“Astellas” expresses the idea of “aspired stars.” The word comes from aster and stella theGreek and Latin words, respectively, for “star.” The Latin word stella, of course, is the rootof the English word “stellar.” The name of the New Company signifies our aim to deliverhope for the future to all those who wish for good health through our state-of-artpharmaceuticals, and to develop into a global, mega-pharmaceutical company thatoriginated in Japan. We take pride in this name as one that will be familiar to ourcustomers and shareholders for many years to come.
I believe that Astellas Pharma Inc. will emerge as a new force in the globalpharmaceutical industry and will contribute to the health of people around the world byproviding 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
Japan
Fujisawa Pharmaceutical Co., Ltd.& Subsidiaries
Asia Fujisawa Greater China Group LimitedFujisawa Pharmaceuticals (China) Company LimitedFujisawa Taiwan Co., Ltd.Fujisawa Korea Limited
8
Global Network
Fujisawa has put considerable effort into creatinga global network of research and development,manufacturing, and sales operations andcurrently has business bases in Japan, NorthAmerica, Europe, and East Asia. Being managedautonomously, the local operations are involvedon an equal footing in the decision-makingprocess of Fujisawa’s global operations. Fujisawa’sproducts are also supplied throughout the worldvia licensing agreements with otherpharmaceuticals companies.
North America Fujisawa Healthcare, Inc.Fujisawa Canada, Inc.Fujisawa Research Institute of America, Inc.
Europe Fujisawa GmbHFujisawa Ltd. (UK)Fujisawa SARL (France)Fujisawa SRL (Italy)Fujisawa SA (Spain)Fujisawa Scandinavia AB (Sweden)Fujisawa Deutschland GmbHFujisawa Ges.m.b.H. (Austria)Fujisawa AG (Switzerland)Fujisawa Ireland LimitedFujisawa Holland B.V.The Fujisawa Institute ofNeuroscience in Edinburgh
9
10
Major Products
Adenoscan®(adenosine injection)
Cefdinir, an oral cephalosporin antibiotic, has awell-balanced broad spectrum for both Gram-positive and Gram-negative bacteria. Cefdinir isalso available in fine granule or oral suspensionform for pediatric use.Other brand name: Omnicef® (cefdinir)
Adenoscan®, a pharmacologicstress imaging agent, providesthe best way to assess the risksof heart disease throughaccurate diagnosis. Adenoscan®is a market leader in the US foruse with myocardial perfusionimaging when exercise stresstesting is not an option.
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 immunosuppressantfor organ transplant patients with successful long-term outcome.
Myslee®(zolpidem tartrate)
Myslee®, a non-benzodiazepine compound, is a selective sedative-hypnotic with a rapidonset of action due to its highly selective andstrong affinity to Omega 1 receptor in CNS. Itprovides a sleep pattern close to natural sleep.
Fujisawa’s core business is its line of ethical pharmaceuticalproducts, accounting for more than 90% of net sales. TheCompany has introduced into the world markets a variety of novelproducts developed from its pipeline as well as in alliance withother pharmaceutical companies.
Cefzon®(cefdinir)
Cefixime, an oral cephalosporin antibiotic, is widelyused for a variety of community-acquired bacterialinfections. It is also available in dispersible tablet formin Europe for patients with swallowing difficulties.Other brand names: Suprax®, Cefixoral®, Cephoral®,Oroken®, Denvar®, Tricef®, Necopen®, etc.
Cefspan®(cefixime)
(micafungin)
Micafungin belongs to an entirely newclass of antifungal agents, the candins,which specifically inhibit fungal cell wallsynthesis. Micafungin, now available asthe first candin in Japan, has startedcontributing to the treatment of invasivefungal infections.
By enclosing the amphotericin B ina liposome, AmBisome® helps targetdrug delivery and improves itssafety profile over otherformulations of amphotericin B forthe treatment of life-threateningsystemic fungal infections.
Seroquel®, an atypicalantipsychotic agent, is adibenzothiazepinederivative and a well-balanced antagonist tovarious receptors withmuch broader efficacy inmanaging both positive andnegative symptoms ofschizophrenia as well asfewer side effects comparedwith conventionalantipsychotic agents.
Funguard®for Infusion
Seroquel®(quetiapine fumarate)
AmBisome®
(liposomal amphotericin B)
11
Protopic®
(tacrolimus ointment)
A major breakthrough for the treatment of atopic dermatitis has appeared for thefirst 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 currenttherapies.
12
People — our most precious resource
Christian Redondo-Müller, DVM, Ph. D.Senior Manager,Development, Planning and ManagementFujisawa GmbH
I have worked for Fujisawa GmbH forseven years, contributing to thedevelopment of Prograf®, Protopic®,micafungin and tacrolimus for asthma.R&D project management at Fujisawais a daily quest for innovation andcreativity. We are proud of ourachievements and work constantlytowards new ones.
M. Joyce Rico, M.D.Senior Medical Director,Research and DevelopmentFujisawa Healthcare, Inc.
Under our clinical development program,we strive to ensure a future with strongproducts that deepen our presence intargeted therapeutic areas. Indermatology, development activitiesincluded completion of Phase III clinicalstudies for in-licensed products and Phase II studies for novel formulations of tacrolimus, as well as post-marketingstudies to support Protopic®.
Yenny HsiehAssociate Manager,Finance Department, Taipei BranchFujisawa Greater China Group Limited
Having the opportunity to participate insetting up a holding company in HongKong has fascinated me since the start ofthe project in 2003. Our team, composedof people from different backgrounds andcultures, makes the whole process a veryrewarding experience. I feel fortunate towitness Fujisawa entering a new era andplaying an important role in the GreaterChina region.
Brian BradfordSenior Director,Financial PlanningFujisawa Healthcare, Inc.
The broadening of our developmentpipeline means we are more frequentlycalled on to make critical decisions thatdrive our business success. As a memberof multi-discipline project teams taskedwith developing sound businessrecommendations, I see our strong effortspaying off in terms of supporting an everstrengthening pipeline and high projectedoverall business value.
Joe VolpeSenior Regional Sales Manager,Hospital Products GroupFujisawa Healthcare, Inc.
I joined the organization 19 years agowhen Fujisawa was first entering the U.S.market. Since then, a lot of changes andgrowth have occurred. As our productsgained prominence in their markets, sodid Fujisawa’s reputation as a company ofintegrity and innovation. I am excited tobe able to participate in continuing thistradition in a new era.
Hong-Gye LimProtopic Product Manager,Fujisawa Korea Limited
It has been almost two years sinceProtopic® was launched in Korea. Co-promotion with Dong-A Pharma has beensuccessful so far, and sales are increasingmonth by month. We are confident thatProtopic® will open up a brighter, happierfuture for sufferers from atopic dermatitis.
Sales &
Administration
Everyone who works for Fujisawa is dedicated to helping as many people as possible throughoutthe 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 theCompany as a truly successful pharmaceutical enterprise on the global stage.
Development
13
Kiichiro HattoriSolid Formulation ProcessProduction, Fuji PlantFujisawa Shizuoka Co., Ltd.
Fujisawa Shizuoka Co., Ltd. is a companynewly established in October 2003through the spin-off of the Company’sFuji Plant as a subsidiary. In the sectionwhere I work, we are responsible for theentire process — from weighing topacking — involved in the creation ofdrugs in tablet form for sale in theJapanese market. We constantly work toimprove Fujisawa’s profit margins throughrigorous product quality assurance andcost-cutting measures. The Productionstaff are strongly motivated to worktogether to make our division the primaryearnings generator of Fujisawa Shizuoka.
PaulineO’ConnellOperator,Ampoule ProductionFujisawa Ireland Limited
This is a very exciting time to be workingat Fujisawa Ireland. With the nearcompletion of the extension to ourfactory, there are new and challengingopportunities available. Fujisawa is very important to us and ourlocal community. The workforce iscommitted to securing a strong andhealthy future for our company.
Keith Finlayson,Ph. D.Research Manager,Fujisawa Institute of Neuroscience inEdinburgh (FINE)
As a member of Fujisawa’s researchdivision in FINE, I am responsible for theidentification and validation of newbiological targets for drugs to treatdisorders of the nervous system. Workingat the academic/industry interfaceprovides a wonderful environment whereinnovative research can lead to better andsafer drugs for the future.
Lissy Schapal-BrinkrolfInternational Product Manager,DermatologyFujisawa GmbH
As I am based at the European Headquarters,I not only represent the interface betweenJapan and Europe but also support mycolleagues across Europe in successfullymarketing Protopic® and Zindaclin®. This initself is quite a challenge, but anotherrewarding aspect of my work is having theopportunity to meet the eczema suffererswhose lives have changed dramaticallythanks to Protopic®. I’m proud to work forthe company that developed such aneffective drug that can make people laughagain.
Misato NishibeMedical Representative,Kyoto Business Branch Fujisawa Pharmaceutical Co., Ltd.
As a medical representative based inKyoto, I spend my working days visitingsmaller hospitals and doctors’ clinics toexplain the latest developments inFujisawa’s research and in our productlineup. I always take great care to equipmyself with up-to-date information on theparticular needs of each client.I aim to devote my energies to furtherexpanding Fujisawa’s market share,particularly in new products.
MarketingFan Pan, M.D. Project Manager, Fujisawa Research Institute of America,Inc. (FRIA)
Our mission at FRIA is to discover newimmunosuppressive drugs to overcome theproblem of graft rejection through ourresearch on new druggable targets and themechanisms of rejection andimmunosuppression, and by evaluatingcandidate compounds. Last year, wediscovered a novel protein that plays akey role in the process of organ rejection.It will be very rewarding for my colleaguesand myself when the research work we dotoday leads to new therapeutic drugs thatimprove patients’ lives.
Production
Research
14
The growth of the Japanese ethical pharmaceutical market for the year endedMarch 2004 was less than two percent according to media reports. The nationalbudget for medical expenditure remains under strong pressure, and this issuppressing growth. Moreover, the overall 4.2% price cut implemented in April2004 on the National Health Insurance Drug Price List is expected to affect theJapanese market in the year ending March 2005.
In the domestic market, Fujisawa has a particularly strong presence in threemajor therapeutic areas — infections, psychiatric problems and disorders of thecentral nervous system, and immunology. We were able to expand our ethicalpharmaceuticals business even in the difficult business climate of the termunder review, mainly thanks to the full-year contribution of Funguard® androbust sales of Myslee®. Prograf®, the antidepressant Luvox® (fluvoxaminemaleate) and Seroquel® also contributed to sales growth, as did Ketek®, aketolide-class oral antibiotic launched in December 2003. We also brought tomarket a new 0.03% formulation of Protopic® for pediatric use in December2003, 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 tomeet customers’ precise needs. To handle inquiries regarding our ethicalpharmaceutical products, we set up the Drug Information Center in May 2003.The Post Marketing Development Research Center, whose staff gather and writeup evidence relating to the efficacy of Fujisawa’s pharmaceutical products, wasset up in July 2003 to provide valuable and reliable product information forhealth professionals.
Export Business Cefdinir and cefixime are the two largest items in our export business fromJapan. Cefdinir showed robust sales growth thanks to increased sales in the USmarket, where it is sold under the Omnicef® brand by Abbott Laboratories, andits total sales reached $247 million in 2003. Cefixime is highly regarded inmany countries, where it is sold under various brand names such as Suprax®,Cefixoral®, Oroken® and Denvar®.
The Second Candin Symposium washeld in March 2004 in Tokyo wherehundreds of doctors attended for thelatest information regarding themicafungin as well as fungal infection.
Fujisawa has started airing acorporate advertisement on TV inJapan as a part of its corporate brandstrategy. The advertisement featuresan athlete who underwent an organtransplant, with the message“Fujisawa’s drugs play a vital role inorgan transplants.”
Japan
Ethical Pharmaceuticals BusinessANNUAL RESULTS
15
Fujisawa Healthcare, Inc., headquartered in Deerfield, Illinois, forms the hub of ourethical pharmaceuticals business in the United States. Fujisawa Healthcare is involved inthe development, manufacture and sale of ethical pharmaceuticals, and markets productsin the fields of transplantation, dermatology, infectious diseases and cardiovascular care.With a workforce of approximately 800, Fujisawa Healthcare now accounts for more than aquarter 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 livertransplant, and nearly 70% of new kidney transplant recipients. Having achieved suchresults in new patients in the US, Prograf® is now recognized as the cornerstone ofimmunosuppressant therapy.
Protopic® is a promising therapeutic alternative to conventional therapies, such as thetopical 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 theline in June 2003. Additionally, a co-promotion with GlaxoSmithKline (GSK) ConsumerHealthcare began in the US in July 2003. A newly formed sales force of GSK ConsumerHealthcare representatives details pediatricians, while Fujisawa promotes Protopic® todermatologists.
Adenoscan® is a key product in the cardiovascular franchise, leading a growingpharmacologic stress imaging agent market with over 50% of the market share.Adenocard® (adenosine injection) for the treatment of paroxysmal supraventriculartachycardia (PSVT), and the systemic antifungal agent AmBisome® experienced a declinein sales due to competitive market conditions.
As for Fujisawa’s third global product, micafungin, Fujisawa Healthcare submitted anadditional NDA for the indication of esophageal candidiasis to the FDA in April 2004. Thepreceding NDA for micafungin is also under review, and Fujisawa Healthcare is workingclosely with the FDA to meet their requirements for approval.
In Canada, Fujisawa Canada, Inc., a wholly owned subsidiary of Fujisawa Healthcare,markets Prograf® as its main product and has recently introduced AmBisome® andProtopic®. An NDS for micafungin has also been submitted in Canada and is under reviewby the authority. With these proprietary products, Fujisawa Canada is strengtheningFujisawa’s presence in Canada.
Ethical Pharmaceuticals Business
North America
ANNUAL RESULTS
In celebration of the 50th anniversaryof the first organ transplant and the10th anniversary of the introduction ofthe medication Prograf® into the US,Fujisawa Healthcare, Inc. observedApril’s National Donate Life month bysponsoring a number of organ donationand transplantation awareness andeducation events across the US — froma coast-to-coast ride on all-terrainvehicles to an intimate tree-plantingceremony in the Chicago suburbs.
16
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,
Sweden, Austria and Switzerland, and carries out promotional activities in
Ireland, Portugal, Norway, Finland, Denmark, the Benelux countries and Central
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.
Prograf® is now positioned as a cornerstone immunosuppressant for organ
transplantation in Europe and is commercially available in almost all European
countries. Thanks to sales of Prograf® and Protopic®, Fujisawa GmbH has firmly
established its presence in the European markets since its foundation in 1991
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.
Europe
ANNUAL RESULTS
Ethical Pharmaceuticals Business
Fujisawa supported the World TransplantGames, the Olympics for transplantpatients, held in Nancy, France in July2003.
Eczema Support was set up in responseto the results of market researchcarried out by Fujisawa which revealeda high demand from eczema sufferersand carers for information on thedifferent treatment options and howto cope with eczema.
Exhibition booth at the annualmeeting of Hungarian DermatologistAssociation in December 2003.Protopic® is available in more than 20 European countries.
17
In East Asia, Fujisawa has bases in Taiwan, Hong Kong, China, and South Koreathat have firmly established their presence in their respective markets and arecontributing significantly to the global growth of Fujisawa. Prograf® iscommercially available in about ten markets throughout Asia, and Protopic® isavailable in Taiwan, Hong Kong and South Korea. The Company also has localpartners in the region to distribute its products, mainly the cephalosporinproducts.
In April 2004, Fujisawa reorganized its operations in the three Chinese-speaking economies — China, Hong Kong and Taiwan — in order to improveoperational efficiency and profitability in these markets.Under this reorganization, Fujisawa Greater China Group Limited (FGC) ispositioned as the headquarters of Fujisawa’s operations in these markets.Fujisawa Taiwan Co., Ltd. (FTC), which was established in Taiwan in 1962 andhas played a key role in starting up the Chinese business of Fujisawa, is nowconcentrating on Taiwanese business under FGC. At the same time, we decidedto close the Kuanyin plant of FTC around March 2005. Fujisawa Pharmaceuticals(China) Company Limited (FCL, formerly Fujisawa Hong Kong Ltd. and asubsidiary of FTC), will continue to pursue its business in the Chinese market,which has the potential to become one of the world’s largest pharmaceuticalmarkets in the near future. Sales of Prograf® have been growing rapidly sincethe drug’s launch in Hong Kong in 1997 and in China in 1999, thanks topromotional activities through our offices in Hong Kong, Beijing, Shanghai andGuangzhou.
We are also developing our business in South Korea, where Fujisawa KoreaLimited is responsible for the Prograf® and Protopic® business. Fujisawa Korea,one of the fastest growing subsidiaries in the Fujisawa group, has succeeded inexpanding sales of Prograf® and launched Protopic® in November 2002.
Asia
ANNUAL RESULTS
Ethical Pharmaceuticals Business
Fujisawa support “Open Lecture forAtopic Dermatitis Patients,” aneducational program about details ofatopic dermatitis by dermatologist forthe patients and their caregivers.
Major business bases in East Asia
Taipei
Beijing ●
Shanghai ●
Hongkong
Guangzhou
Seoul●
●
18
R&D Focus The Company makes maximum use of its worldwide network to research anddevelop innovative drugs. These R&D efforts are directed by the GlobalHeadquarters. Over 20% of the Fujisawa Group’s total staff, or around 1,800employees, 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, metabolicdiseases and urinary diseases. In the area of research activities, under thebanner of “speed, focus and persistence,” we are targeting organtransplantation, rheumatoid arthritis, osteoarthritis, asthma, fungalinfections, hepatitis C, Parkinson’s disease, Alzheimer’s disease, stroke,neuropathic pain, diabetes and dysuria.
We firmly believe that science is the key that will eventually unlock the mysteries of the humanbody, which has been compared to a universe in microcosm. Springing from our keen desire tocontribute to healthier, more prosperous lives for people around the world, we have from earlyon 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 worldfight diseases and support those working on the medical frontline.
R&D Network
Tsukuba Research Laboratories (Tsukuba, Japan)
19
Research NetworkSeed-Finding Research Fujisawa operates laboratories in Osaka, Nagoya and Tsukuba in Japan, as wellas in the UK and the US. The Exploratory Research Laboratories and theFermentation Research Laboratories in Tsukuba, in addition to the FujisawaResearch Institute of America, Inc. in collaboration with NorthwesternUniversity, and the Fujisawa Institute of Neuroscience in Edinburgh incollaboration with the University of Edinburgh, search for novel biologicaltargets and new chemical entities with novel mechanisms. We pursue all thepossibilities for innovative drugs, including chemical compounds, naturalsubstances, and proteins created by genomic technologies, through the fullrange of state-of-the-art technologies.
Lead Optimization, Pre-Clinical and CMC ResearchThe laboratories in Osaka and Nagoya conduct lead optimization as well as pre-clinical and CMC research. Lead optimization is the process of finding a fewcandidate compounds with the best profile in terms of safety, effectiveness,pharmacokinetics, and physicochemical properties from among more than 20,000compounds. In the evaluation process, cutting-edge technologies are fullyutilized, including analysis of interactions between target proteins and drugs,the pharmacological evaluation of drugs in genetically engineered cells andtransgenic models, function confirmation of drugs using image analysis, and thelatest analytical technologies. CMC research covers the nature of the drugcandidates, formulation, manufacturing process, quality control and assurance,and the supply of investigational drugs for clinical trials.
Research AllianceAs methods of drug discovery are changing with the rapid progress ofbiomedical science, we are pursuing collaboration with external researchinstitutes and research ventures. In addition to our in-house activities, We haveconstructed a global research network that makes optimal use of state-of-the-art technology, as a further tool in securing global competitiveness. TheCompany has also established Fujisawa Investments for Entrepreneurship, L.P. I& II (FITE I & II), investment vehicles for developing links with researchventure companies, especially startups.
Research LaboratoriesTsukuba, 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.Chemical Development Lab.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
Fujisawa Research Institute of America, Inc.
The FujisawaInstitute ofNeuroscience inEdinburgh
20
Development Network The development division verifies the safety and effectiveness of drugsthrough clinical studies. To provide patients all over the world with themedicines they need, Fujisawa has expanded its development operations on aglobal scale. Clinical studies are currently carried out at our developmentcenters in Japan, North America and Europe subject to global coordinationand 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 FujisawaGmbH in Munich.
Kashima R&D Complex (Osaka, Japan)
21
Fujisawa’s research and development activities are the key to its success in thehighly competitive global market. Fujisawa has been investing heavily inresearch and development activities, with the figure for the year ended March2004 reaching ¥73,643 million (US$695 million), giving a ratio to net sales of18.6%.
Genomic ResearchIn addition to in-house genomic research, Fujisawa collaborates with QuarkBiotech, 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 theresearch of Helix and other institutions. Fujisawa participates also in theresearch conducted by the Pharmaceutical Consortium for Protein StructureAnalysis as well as the Toxicogenom Project run by the National Institute ofHealth Sciences together with pharmaceutical and IT companies.
Microbial Product ResearchFujisawa has an excellent record in its microbial product research, such as intocephalosporins, tacrolimus and micafungin. Since the bio-diversity ofmicroorganisms depends on ecological and environmental factors, Fujisawa isvery keen to expand its microbial product library through in-house efforts andcollaboration with outside institutions. One example of such collaboration is theproject between Fujisawa and SIRIM Berhad and TropBio Research Sdn. Bhd.,Malaysia-based research companies, to discover microbial resources in theMalaysian rain forest.
Research AllianceIn August 2003 Fujisawa started collaboration with Astex Technology Ltd., afragment-based drug discovery company. The collaboration is aimed at solvingthe novel human cytochrome P450 crystal structures that will be used tooptimize Fujisawa’s compounds and so improve the success rate of drugdevelopment. FITE I & II have made eleven investments in research ventures asof July 2003, out of which three have been made within the current term,including one in June 2004.
Research ANNUAL RESULTS
“The invention of theimmunosuppressive agenttacrolimus” received The PrimeMinister Prize in NationalCommendation for Invention,sponsored by Japan Institute ofInvention and Innovation inMay 2004.
22
CodeGeneric Name Target Indication Product Category
tacrolimus FK506
FK506
FK506
FK506
FK506
FK506
FK506
RSD1235
FK463
FK506
FK506
FK506
tacrolimus
tacrolimus
tacrolimus
tacrolimus
micafungin
quetiapine fumarate
FK614
FK352B
immunosuppressant
immunosuppressant
immunosuppressant
immunosuppressant
immunosuppressant
immunosuppressant
immunosuppressant
immunosuppressant
immunosuppressant
immunosuppressant
immunosuppressant
immunosuppressant
rheumatoid arthritis
deep-seated fungal infection (for pediatric)
vernal conjunctivitis
lupus nephritis
ulcerative colitis
Alfa-human atrial natriuretic peptide
bone formation stimulating and antiresorptive agent
non-insulin dependent diabetes mellitus (NIDDM)
non-insulin dependent diabetes mellitus (NIDDM)
insulin sensitizer
Japan
North America (U.S.A.)
Europe
tacrolimus
tacrolimus
regadenoson
deep-seated fungal infection antifungalmicafungin FK463
FK463
dapsone
CVT-3146
FK506tacrolimus
micafungin
TRK-820
tacrolimus
tacrolimus
tacrolimus
FK506tacrolimus
FK778
Japan/North America NDA Filed,Europe MAA FiledProducts under Clinical Development (As of July 30, 2004)
suppression of organ rejection in organ transplant(new oral formulation)
antifungal
dialysis-related hypotension
osteoporosis
adenosine A1 antagonist
behavior psychological symptoms of dementia antipsychotic
Formulation Remarks
Code Target Indication Product Category Formulation Remarks
Code Target Indication Product Category Formulation Remarks
capsule
capsule
capsule
capsule
immunosuppressant capsule
capsule
capsule
intravenous
intravenous
intravenous
intravenous
intravenous
intravenous
intravenous
intravenous
eye drops
tablet
tablet
tablet
tablet
tablet
New indication & formulation
New formulation
New Formulation
FK506
FK614
tacrolimus immunosuppressant suppression of organ rejection in organ transplant(new oral formulation)
suppression of organ rejection in organ transplant(new oral formulation)
FK778 immunosuppressant suppression of organ rejection in liver and kidneytransplants
capsule New formulation
New indication & formulation
New indication & formulation
New indication & formulation
New indication & formulation
New indication
New indication
New indication
New indication
New indication
New indication
Licensed from Servier
Licensed from AstraZenecaNew indication
rheumatoid arthritis
acne antibiotic and antiphlogistic agent
antiarrhythmic agent
pharmacologic stress agent in cardiac perfusion imaging studies
atrial fibrillation and atrial flutter
psoriasis
atopic dermatitis
insulin sensitizer
gel
immunosuppressant FK506tacrolimus New indication & formulationpsoriasis
(HANP)carperitide acute heart failure
immunosuppressant FK506tacrolimus dry eye
gel
cream
cream
gel/cream
NDS Filed in Canada
Licensed from Atrix
Licensed from CV Therapeutics
Licensed from Cardiome
Licensed from Aventis
deep-seated fungal infection
dialysis-related uremic pruritus
antifungal
κ opioid agonist Licensed from Toray
rheumatoid arthritissuppression of organ rejection in liver and kidney transplants
asthma
psoriasis
eye drops
inhalation
Licensed to SucampoNew indication & formulation
Licensed from Daiichi Suntory Pharma
Licensed from Aventis
tabletFK962 antidimentiaAlzheimer’s disease
Phase IIIPhase II
FK949
strontiumranelate powderFK481
Generic Name
Generic Name
In preparation for NDA Filing
adenosine A a agonist 2
ANNUAL RESULTS
23
TacrolimusPhase 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 rejectionfollowing organ transplants are ongoing. In Japan, tacrolimus for the treatmentof atopic dermatitis for pediatric use was approved in July 2003, and its statusfor eye drops for vernal conjunctivitis progressed to Phase III in November 2003with an sNDA for the treatment of ulcerative colitis being filed in January 2004.Tacrolimus cream formulation for atopic dermatitis in the US has moved toPhase III in October 2003, while the gel formulation for psoriasis moved to PhaseIII in December 2003.
MicafunginIn the US, an additional NDA for the treatment of esophageal candidiasis wassubmitted in April 2004. The preceding NDA is also under review by the FDA,and Fujisawa is now working closely with the FDA to meet their requirementsfor approval. An MAA is under review in Europe., Phase III studies for pediatricuse in Japan has been completed and the status progressed to in preparation forNDA filing in May 2004.
Other itemsIn the US, FK962, a backup compound of FK960 and its successor for Alzheimer’sdisease, came to Phase II in June 2004. Phase II studies of FK778 for suppressionof organ rejection in kidney transplant started in November 2003. Further,Dapsone has been in preparation for NDA filing since January 2004; regadenosonprogressed to Phase III in October 2003; and Phase II studies of carperitidestarted in January 2004. Phase III trials for RSD1235, an antiarrhythmic agentnewly 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.
DevelopmentANNUAL RESULTS
R&D Meeting is the place tocommunicate with financialcommunity regarding the update ofour development pipeline as well asoutline and current status ofFujisawa’s research and development.The Fifth R&D Meeting was held inFebruary 2004 in Tokyo.
24
Home Care Home care allows patients to continue living with their families, thusimproving their quality of life. Fujisawa entered the home care business in1995. We provide medical devices for home oxygen therapy (HOT), homeinfusion therapy (HIT), sleep apnea syndrome (SAS), and so on. Fujisawaprovides medical institutions with instructions on the appropriate use ofhome care devices, and has established a 24-hour call center to supportcustomers for safe and effective home treatment.
Medical Supplies and SystemsThe 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.
Health Care
The Chemicals BusinessFujisawa 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.
25
The Medical Supplies and Systems Business of Fujisawa is an exclusivedistributor in Japan of reagents of PharMingen and Immunocytometry Systems ofBD Biosciences, a business unit of Becton Dickinson and Company. We alsoexclusively distribute DNA FISH (fluorescence in situ hybridization) probes andinstruments manufactured by Vysis, Inc., a subsidiary of Abbott Laboratories. ThePathVysion® HER-2 DNA Probe Kit is an in-vitro diagnostic kit to detectamplification of HER-2 gene in human breast cancer accurately by FISH.
The Home Care Business is conducted solely in Japan. Even more than HITand SAS, HOT is the main area of service, and Fujisawa has a share ofapproximately 15% in the Japanese HOT market. Demand slowed down since theincrease in the patient’s out-of-pocket payment percentage for treatment underthe national medical insurance system in 2002. However, Fujisawa is enjoying acontinued increase in the number of patients, thanks to Bestsanso-2X, theCompany’s main product in the field of HOT. Bestsanso-2X is an eco-friendlyproduct featuring low power consumption, and the first device developed in-housefor the home care business jointly with Daikin Industries, Ltd.
Health CareANNUAL RESULTS
The OTC Drugs Business On May 17, 2004, Fujisawa entered into an agreement with YamanouchiPharmaceutical Co., Ltd. to integrate the two companies’ OTC drugs businesses andestablish a new 50:50 joint venture, Zepharma Inc., as of October 1, 2004. The twocompanies currently conduct OTC businesses in Japan, including quasi-drugs,cosmetics, health foods, and so on. The establishment of Zepharma is intended toreinforce competitiveness in the OTC businesses and strengthen the future growthof the business by fully utilizing the synergies expected to result from theintegration. These synergies include those resulting from the integration of themarketing know-how and R&D expertise of the two companies, efficientorganizational planning through specialization in core business functions byoutsourcing manufacturing and logistics, and collaboration with the parentcompanies, focusing on the ethical pharmaceuticals businesses.Zepharma will operate autonomously, and will create a new corporate culture thatis neither that of Fujisawa nor Yamanouchi. The ultimate goal of Zepharma is toprovide higher consumer satisfaction in the field of self-medication by respondingquickly to changes in consumer preferences on the OTC market. The new jointventure will have high-profile brands in major therapeutic categories, such asgastrointestinal treatments (Gaster 10®), cold remedies (Precol® and Cakonal®),dermatological products (Makiron®, Eurax®, and PyroAce®), and anti-allergy drugs(AG Eyes/AG Nose).
The establishment of Zepharma is subject to no objection from Japanese untitrust authority.
Future Zepharma management at pressconference announcing the agreementof Fujisawa and Yamanouchi
26
Quality Control Based on c-GMP StandardA high-level quality assurance and quality control system that conforms toglobal standards is always in place, enabling us to provide products on aglobal scale. The foundations of our system include high technology, a cleanenvironment, and the awareness of the vital importance of quality among allour staff. Our plants worldwide observe current good manufacturing practice(c-GMP). An in-house quality control department — independent of themanufacturing department — audits the manufacturing process and conductsquality assurance checks. In this way, the quality control departmentconfirms that the whole production process satisfies the published standardsand 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 inEurope, and one in Taiwan. In an effort to secure stable supplies of drugs forwhich substitutes cannot easily be obtained, it is our policy to manufacturethose products in two locations. Thus, our global production system ensuresthat each plant is capable of supplying products to its own market as well asto others. Fujisawa will continue clarifying the functions and roles of itsplants worldwide to strengthen its competitiveness.
Know-How for Rapid Supply of New ProductsTo expedite the new drug development process, the production divisionclosely cooperates with the research division at an early stage to promptlyand smoothly implement production know-how developed for investigationaldrugs in commercial production.
Production Network
Fujisawa ToyamaCo., Ltd.(Toyama, Japan)
Fujisawa IrelandLimited (Killorglin)
Grand Island Plant, Fujisawa Healthcare, Inc. (New York)
27
The company separated its domestic manufacturing plants, making them intotwo wholly owned subsidiaries in October 2003, in order to improve overallcompetitiveness and profitability. Three plants, at Toyama, Takaoka and Osaka,were incorporated into one company, Fujisawa Toyama Co., Ltd. and one in Fujibecame Fujisawa Shizuoka Co., Ltd.
Prograf®The Toyama plant, of Fujisawa Toyama Co., Ltd., now supplies Prograf ® capsulesto both Japan and North America, as well as the active ingredient tacrolimus formanufacturing. Fujisawa Ireland Limited, located in Killorglin, serves as a basefor the formulation and packaging of Prograf® ampoules to the whole world andPrograf® capsules to the world market except for Japan and North America.
As the future sales potential of Prograf® is estimated to exceed the currentproduction capacity, we have redesigned our total Prograf® production capacity.The capacity improvement for Prograf® capsule has been completed in Toyamaduring the term while the same in Ireland is proceeding on schedule.
Protopic®The Grand Island, New York plant of Fujisawa Healthcare, for the formulationand packaging of Protopic®, manufactures the product for the North and SouthAmerican, Asian and European markets (formulation only for Europe and theMiddle 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 ofProtopic® for the European and Middle Eastern markets.
MicafunginThe production of micafungin is divided among the three Japanese plants of theCompany — fermentation at the Nagoya Plant, chemical synthesis at theToyama Plant, and formulation and packaging at the Takaoka Plant of FujisawaToyama Co., Ltd. Taking account of the brisk sales of micafungin in Japan sinceits launch, the Company has constructed new formulation facilities at theTakaoka Plant.
Production
Ceremony for the establishment ofFujisawa Toyama Co., Ltd.
Ceremony for the establishment ofFujisawa Shizuoka Co., Ltd.
Four Domestic manufacturing plantswere separated and incorporated as twonew companies (shown below) onOctober 1, 2003.
ANNUAL RESULTS
28
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 Protection
Categories Details Value (¥ million)
Category Details Value (¥ million)
1) Business area cost
1. Pollution prevention 2. Global environmental conservation3. Resource circulation
Water quality control, prevention of air pollution, etc.
Energy conservation, protection of ozone layer, etc.Reduction of waste, recycling of solvents and used paper, etc.
2) Upstream / downstream costs Container recycling3) Administration cost4) R&D cost Development of new environmental technology, etc.5) Social activity costs Social contribution efforts, donations, etc.6) Environmental remediation cost Accidents or lawsuits relating to the environment, etc.
Total
579
474
466
690
770
2,290
113
42
12
810
0
51230
a. Resource conservation Cost saving by in-house refining of solvents, etc. b. Sale of disposables c. Sale of valuable wasted. Energy conservation
e. Reduction of waste handling expenses
Total
Revenue from sale of solvents, activated sludge, etc.n.a.
Reduction, reuse and recycling of waste
1,218
Environmental Accounting
Economic Benefits
Environmental Costs
ISO 14001 certification, environmental education & training, etc.
Reduction of energy expenses resulting from energy conservation measure, etc.
Note: Approximately ¥260 million was invested in environmental protection.
29
Fujisawa regards environmental protection as an essential element inmaintaining its competitiveness and corporate worth in the global market.During the term, in-house environmental auditors of Fujisawa carried out on-siteaudits at 11 facilities to check that environmental management activities werebeing properly carried out in accordance with the Company’s EnvironmentalPrinciples, and that levels of achievement in environmental protection surpassedthose of the previous year.
Fujisawa Ireland Limited, and the Munich plant of Fujisawa Deutschland GmbH,acquired ISO14001 certification in December 2003 and January 2004 respectively.With these, 8 out of our 11 facilities engaged in manufacturing have obtainedISO14001 certification.
Environmental MeasuresFujisawa 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.
The proper management of chemical substances is an issue of the highest
significance for Fujisawa, and the Company is taking steps to reduce the
volume of pollutants, find substitutes for such substances, and curtail
emissions.
Environmental ProtectionANNUAL RESULTS
Newly improved scrubber in Takaokaplant dramatically reduced the dischargeof dichloromethane.
Large fuel oil boiler was replaced with 11 small city gas boilers in Nagoya plantfor improved energy efficiency.
(Tons) (%)
Discharge of CO2 of Fujisawa GroupJapan Overseas ●
150,000
120,000
90,000
60,000
30,000
0
125
100
75
50
25
01997 1998 1999 2000 2001 2002 2003 2004Fiscal Year
Ratio(1997=100%)
● ● ● ● ●
● ●
●
Discharge of Chemicals on Japanese PRTR* Law
(Tons) (%)
●
750
600
450
300
150
0
125
100
75
50
25
01997 1998 1999 2000 2001 2002 2003 2004Fiscal Year
Ratio(1997=100%)
●
●
● ●
●
●
● ●
*PRTR:Pollutant Release and Transfer Register
30
Board of Directors
Akira FujiyamaChairman of the Board
Hatsuo Aoki, Ph. D.President and Chief Executive Officer
Koichi SejimaCorporate Executive Vice President and Chief Administrative Officer
Masafumi NogimoriCorporate Executive Vice President, Global Strategy
Tomokichiro Fujisawa, Ph. D.Chairman Emeritus
Akiro KojimaMember of the Board(Senior Counselor, DaicelChemical Industries, Ltd.)
Kanji KobayashiMember of the Board(Senior Advisor, Nippon LifeInsurance Company)
Top Management with Global Functional Heads(Front row, from left)
Takeshi ShimomuraCorporate Executive Vice President, Sales & Marketing
Hatsuo Aoki, Ph. D.President and Chief Executive Officer
Koichi SejimaCorporate Executive Vice President and Chief Administrative Officer
Masafumi NogimoriCorporate Executive Vice President, Global Strategy
(Back row, from left)
Hirofumi OnosakaCorporate Senior Vice President, Global Corporate Strategic Planning
Hitoshi OhtaCorporate Vice President,Global Manufacturing
Osamu NagaiCorporate Vice President and Chief Financial Officer
Toshio Goto, Ph. D. Corporate Vice President, Global Research
Masao ShimizuCorporate Senior Vice President, Global Development
31
REVIEW OF TH
EYEA
RFujisawa Pharmaceutical Company Limited and Consolidated Subsidiaries
Selected Financial DataYear Ended March 31
Millions of yen
2004 2003 2002 2001 2000
Results for the year:Net sales ............................................. ¥ 395,401 ¥ 382,079 ¥341,356 ¥297,517 ¥289,142Research 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 34,843Income before income taxes ...................... 69,138 44,690 47,007 36,190 36,554Net income ........................................... 41,468 28,635 26,151 20,529 22,907
Year-end financial position:Working capital ..................................... 162,060 169,784 138,918 80,775 162,148Property, plant and equipment ................... 91,367 102,757 106,525 103,614 90,899Total assets .......................................... 499,693 511,516 474,546 462,325 421,689Long-term debt ..................................... 1,475 16,704 18,491 16,621 41,866Shareholders’ equity ............................... 375,944 335,337 317,870 278,581 249,106
Number of shares issued (in thousands) ........ 330,190 330,183 330,183 322,763 322,499Number 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 ¥ 71.09Diluted ............................................ 123.65 85.37 78.14 61.76 68.85
Cash dividends ...................................... 22.00 18.00 16.00 12.00 12.00Shareholders’ 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.
Contents32 Financial Review34 Business Review36 Consolidated Balance Sheets38 Consolidated Statements of Income39 Consolidated Statements of Shareholders’ Equity40 Consolidated Statements of Cash Flows41 Notes to Consolidated Financial Statements54 Report of Independent Auditors
32
Financial Review
RevenueNet 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) $2,092North America .................................................................. 108,436 102,525 5.8 1,023Europe............................................................................. 57,640 48,928 17.8 544Asia................................................................................. 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 antibioticKetek® (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 thedomestic ethical pharmaceuticals business.
North America recorded 5.8% growth with ¥108,436 million (US$1,023 million) in spite ofthe 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) forthe 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 tothe sales increase. The favorable currency exchange rate of the yen against the euro also contributedto 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, showedgrowth of 7.7% at ¥192,148 million (US$1,813 million). The ratio to net sales was 48.6%, up 1.9percentage 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.
33
Operating IncomeOperating income declined by 8.8% to ¥56,703 million (US$535 million) due to an increase inR&D expenses and selling, general and administrative expenses, more than offsetting the increase ingross 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), up3.2%.
Research and development expenses jumped 18.0% to ¥73,643 million (US$695 million)reflecting heavy commitment to innovative research. The ratio to sales stood at 18.6%.
Operating income in North America and Europe declined, and those in Japan and other areasremained at the levels of the previous year.
Operating income (before elimination of internal transactions) by geographic area is as follows:
Years ended March 31 ¥ million US$ million
Area 2004 2003 Change (%) 2004
Japan............................................................................... ¥35,428 ¥35,485 (0.2) $334North America .................................................................. 20,615 26,556 (22.4) 194Europe............................................................................. 1,487 5,290 (71.9) 14Asia................................................................................. 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$5million) from sales of cleaning and hygiene product business for the food and beverage industryduring the period were recorded as other income.
Loss on withdrawal from the chemicals business in the US, expenses related to transfer of OTCbusiness, and expenses related to closing the Kuanyin plant in Taiwan were recorded as otherexpenses 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 FlowNet 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 depreciationand 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 substitutionalportion of the welfare pension fund.
Net cash used in investing activities came to ¥27,111 million (US$256 million). Acquisition ofproperty, plant and equipment totaled ¥12,890 million (US$122 million), which was used mainly forreinforcing manufacturing facilities at the Takaoka Plant and the Toyama Plant, as well as the opening ofa 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$369million), a decrease of ¥30,036 million (US$283 million) from the beginning of the period.
34
Business Review
Sales by Business Segment
¥ million
Years ended March 31 2004 2003 Change (%)
Pharmaceuticals ............................................................. ¥373,512 (94.5%) ¥353,442 (92.5%) 105.7Ethical pharmaceuticals ................................................. 361,748 (91.5%) 341,565 (89.4%) 105.9OTC drugs ..................................................................... 11,764 (3.0%) 11,877 (3.1%) 99.0Other Businesses ............................................................ 21,889 (5.5%) 28,637 (7.5%) 76.4Medical supplies and systems ......................................... 3,488 (0.9%) 3,432 (0.9%) 101.6Chemicals ...................................................................... 7,949 (2.0%) 14,677 (3.8%) 54.2Home care business ....................................................... 7,247 (1.8%) 6,784 (1.8%) 106.8Others .......................................................................... 3,205 (0.8%) 3,744 (1.0%) 85.6
Total .............................................................................. ¥395,401 (100.0%) ¥382,079 (100.0%) 103.5Overseas sales (included in the above total) ......................... ¥192,148 (48.6%) ¥178,407 (46.7%) 107.7
Sales by Business Segment Pharmaceuticals are the core of Fujisawa’s operations. They are further divided into ethical pharmaceu-ticals operations — Fujisawa’s main business carried out worldwide — and OTC drugs, which are soldin Japan. In addition to pharmaceuticals, Fujisawa is involved in healthcare-related businesses, i.e.,medical supplies and systems, the home care business, and chemicals.
PharmaceuticalsPharmaceuticals accounted for 94.5% of net sales in the year ended March 31, 2004, up 2.0 percentagepoints over the previous year. Total sales of pharmaceuticals for the term showed 5.7% year-on-yeargrowth, to ¥373,512 million (US$3,524 million).
■Ethical PharmaceuticalsSales increased by 5.9% year-on-year, to ¥361,748 million (US$3,413 million). The breakdown ofsales by therapeutic category is as follows:• Metabolic DrugsMetabolic 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 thenumber one position in the Company’s ethical pharmaceuticals sales rankings for the fifth consecutiveyear. 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 PreparationsWith the sales increased 4.0% to ¥93,119 million (US$878 million), this category occupied thenumber two position, with a share of 25.7%, although the share declined 0.5 percentage points fromthe 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 robustsales of Omnicef® (cefdinir) by Abbott Laboratories in the US contributed to increased export sales ofthis 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 afull year contribution with considerably boosted sales and contributed to the growth of this category.Meanwhile, both the parenteral cephalosporin antibiotic Cefamezin® (cefazolin) and the oralcephalosporin antibiotic Cefspan® (cefixime) posted weaker sales.
Pharmaceuticals 94.5%
Other Businesses 5.5%
OTC Drugs 3.0%
Sales by Business Segment
Ethical Pharmaceuticals 91.5%
35
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%) 104.3Cardiovascular and respiratory drugs .......................................... 55,483 (15.3%) 55,484 (16.2%) 100.0Digestive system drugs ........................................................... 6,482 (1.8%) 7,092 (2.1%) 91.4Metabolic drugs .................................................................. . 104,581 (28.9%) 89,864 (26.3%) 116.4Anti-allergy drugs ................................................................ 9,249 (2.6%) 12,972 (3.8%) 71.3Antibiotics and biological preparations ........................................ 93,119 (25.7%) 89,511 (26.2%) 104.0Dermatological drugs ............................................................. 18,921 (5.2%) 14,882 (4.4%) 127.1Others . ............................................................................ . 9,335 (2.6%) 9,100 (2.6%) 102.6Processing fees ................................................................... . 8,108 (2.2%) 8,737 (2.6%) 92.8Royalty income .................................................................. . 4,651 (1.3%) 4,223 (1.2%) 110.1
Total ...................................................................... . ¥361,748 (100.0%) ¥341,564 (100.0%) 105.9
• Cardiovascular and Respiratory DrugsAlthough sales of Nivadil® declined, thanks to the robust sales of Adenoscan® in the US, total salesstayed flat at ¥55,483 million (US$523 million) and occupied the third position in the rankings. • Nervous System and Sensory Organ DrugsSales grew 4.3% to ¥51,819 million (US$489 million). Increased sales of Seroquel® and Myslee® contributed to the growth in this category.• Dermatological DrugsProtopic® is the main product in this category. Sales showed double-digit growth of 27.1% to ¥18,921million (US$179 million) thanks to the rise of Protopic® sales in both US and Europe.• Anti-Allergy DrugsSales decreased 28.7% to ¥9,249 million (US$87 million) due to a decline in sales of Intal®, the maindrug in this category.
■OTC DrugsSales decreased by 1.0% to ¥11,764 million (US$111 million) year-on-year mainly due to a declinein sales of the cold remedy Precol®.
Other Healthcare-Related Businesses
■Medical Supplies and SystemsSales rose 1.6% over the previous year, to ¥3,488 million(US$33 million), due to brisk sales of BD PharMingen reagents.
■ChemicalsSales dropped 45.8% from the previous year, to ¥7,949 million(US$75 million), since the Company substantially withdrewfrom the business by transferring all of the domestic chemicalsbusiness and all of the U.S. chemical products business to FusoChemical Co., Ltd. as of December 26, 2003.
■Home Care BusinessSales increased by 6.8% to ¥7,247 million (US$68 million),mainly driven by growth in the home oxygen therapy businessbut also buoyed by steady sales in the field of artificial respira-tory treatments.
Top-Selling Ethical Pharmaceuticals
Years ended March 31 ¥ billion
Product Name 2004 2003 Change (%)
1) Prograf ................ 104.4 89.7 116.42) Adenoscan ........... 28.3 24.5 115.53) Cefzon ................. 27.8 29.4 94.64) Protopic .............. 17.3 13.0 133.15) Myslee ................. 12.2 10.0 122.06) Funguard ............. 11.1 2.5 444.07) Seroquel............... 10.4 9.8 106.18) Nivadil ................. 9.6 11.3 85.09) Intal ................... 9.2 12.9 71.3
10) AmBisome ............ 8.9 12.5 71.211) Cefamezin ............ 8.0 10.0 80.012) Luvox................... 7.8 7.0 111.413) Vaccines ............... 7.5 6.0 125.014) Dogmatyl .............. 7.4 7.8 94.915) Cefspan ................ 7.4 8.8 84.1
Digestive system drugs1.8%
Anti-allergy drugs 2.6%
Dermatological drugs 5.2%
Sales of Ethical Pharmaceuticals byTherapeutic Category
Cardiovascular and respiratory drugs
15.3%
Nervous system and sensory organ drugs
14.3%
Metabolic drugs28.9%
Others 6.1%
Antibiotics and
biological preparations
25.7%
36
Fujisawa Pharmaceutical Company Limited and Consolidated Subsidiaries
Consolidated Balance SheetsMarch 31, 2004 and 2003
Thousands ofMillions of yen U.S. dollars (Note 2)
ASSETS 2004 2003 2004
Current assets:Cash and cash equivalents .......................................................... ¥ 39,104 ¥ 69,140 $ 368,906Trade receivables (Note 7) —
Notes..................................................................................... 7,043 7,651 66,443Accounts ............................................................................... 77,987 85,831 735,726Allowance for doubtful receivables ........................................... (222) (351) (2,094)
Marketable securities and short-term investments —Marketable securities (Note 4) ................................................. 23,758 19,286 224,132Short-term investments .......................................................... 19,782 12,970 186,623
Inventories (Note 5) ................................................................... 49,771 50,277 469,538Deferred taxes (Note 10) ............................................................. 20,959 23,036 197,726Prepaid 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 11,934Goodwill and proprietary technology — net ................................. 10,895 15,590 102,783Investments in affiliated companies ............................................. 2,792 2,498 26,340Marketable securities (Note 4) ..................................................... 91,619 59,070 864,330Other investments in securities ................................................... 7,707 10,809 72,708Deferred taxes (Note 10) ............................................................. 3,874 18,151 36,547Other 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.
37
Thousands ofMillions 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 $ 10,491Current portion of long-term debt (Note 8) ................................... 14,062 1,231 132,660Trade payables (Note 7) —
Notes .................................................................................... 628 795 5,925Accounts ............................................................................... 44,560 57,549 420,377
Accrued income taxes (Note 10) .................................................. 2,980 9,410 28,113Accrued expenses ...................................................................... 17,532 20,209 165,396Accrued bonuses ........................................................................ 8,769 9,187 82,726Other 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 13,915Accrued retirement benefits for employees (Note 11) ..................... 21,488 43,540 202,717Accrued severance indemnities for the directors and corporate auditors ................................................................... 1,154 1,288 10,887
Other long-term liabilities (Note 10) ............................................. 4,382 3,097 41,339Total 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 sharesIssued 2004 — 330,190,106 shares .......................................... 38,594 364,094Issued 2003 — 330,183,578 shares .......................................... 38,588
Capital surplus .......................................................................... 57,237 57,231 539,972Retained earnings ...................................................................... 280,508 242,351 2,646,302Foreign currency translation adjustments ..................................... (12,667) (5,704) (119,500)Net unrealized gain on securities (Note 4) .................................... 13,553 4,081 127,859Less 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
38
Fujisawa Pharmaceutical Company Limited and Consolidated Subsidiaries
Consolidated Statements of IncomeFor the Years ended March 31, 2004, 2003 and 2002
Thousands ofMillions of yen U.S. dollars (Note 2)
2004 2003 2002 2004
Net sales (Notes 7 and 13) ............................................. ¥395,401 ¥382,079 ¥341,356 $3,730,198Cost 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 1,167,868Research and development expenses .............................. 73,643 62,426 57,093 694,745Amortization 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 12,472Interest expenses ..................................................... (403) (625) (1,254) (3,802)Equity in earnings of affiliated companies ....................... 899 668 244 8,481Gain on sales of investments in affiliated companies ........... — 4,717 8 —Gain on sales of fixed assets ................................................ 1,563 — — 14,745Gain on the return of the substitutional portion of the welfare pension fund .............................................. 13,934 — — 131,453
Gain on sales of cleaning and hygiene product businessfor 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 20,680 262,236Minority 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 $1.19Diluted .............................................................. 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.
39
Fujisawa Pharmaceutical Company Limited and Consolidated Subsidiaries
Consolidated Statements of Shareholders’ EquityFor the Years ended March 31, 2004, 2003 and 2002
Thousands ofMillions 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 $ 364,037Shares 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 $ 539,915Increase 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 $2,286,330Net income ........................................................... 41,468 28,635 26,151 391,208Adjustment 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.
40
Fujisawa Pharmaceutical Company Limited and Consolidated Subsidiaries
Consolidated Statements of Cash FlowsFor the Years ended March 31, 2004, 2003 and 2002
Thousands ofMillions of yen U.S. dollars (Note 2)
2004 2003 2002 2004
Cash flows from operating activities:Net income ......................................................................... ¥41,468 ¥28,635 ¥26,151 $391,208Adjustments to reconcile net income to net cash provided
by operating activities —Depreciation and amortization .............................................. 20,340 21,176 20,377 191,887Expenses 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) 6,406Dividends earned from affiliated companies .............................. 503 256 620 4,745Loss on disposal of obsolete inventories ................................... 894 1,362 1,376 8,434Loss on devaluation of investments in securities ......................... — 6,830 1,508 —Loss on withdrawal of the chemicals business in US ..................... 3,443 — — 32,481Expenses related to transfer of OTC drugs business ...................... 1,625 — — 15,330Expenses related to closing the Kuanyin plant ........................... 1,277 — — 12,047Changes in assets and liabilities — Decrease (increase) in trade receivables ................................... 3,357 (7,015) (5,237) 31,670Decrease (increase) in inventories .......................................... 3,391 (3,114) (6,915) 31,991Decrease (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 41,066Proceeds from sales of non-current marketable securities ..................... 11,979 13,065 37,902 113,009Acquisition 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 32,453Acquisition 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 32,023 652,264Cash 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.
41
(1) Preparation of consolidated financial statementsFujisawa Pharmaceutical Company Limited (the “Company”)and its domestic and foreign subsidiaries maintain theirrecords and prepare their financial statements in accordancewith accounting principles generally accepted in Japan or therespective countries in which the subsidiaries are established.
The accompanying consolidated financial statements,which are a translation of those publicly issued in Japan aftermodification to enhance foreign readers’ understanding, havebeen prepared in accordance with accounting principlesgenerally accepted in Japan, which are different in certainrespects to the application and disclosure requirements ofInternational Financial Reporting Standards or accountingprinciples generally accepted in the United States of America.
In addition, certain financial information included in thesenotes to the consolidated financial statements is not requiredunder accounting principles generally accepted in Japan, butis presented herein as additional information.(2) Basis of consolidation and investments
in affiliated companiesThe consolidated financial statements for the year endedMarch 31, 2004 consist of the accounts of the Company andthose of all of its majority-owned subsidiaries.
All significant intercompany transactions and accountshave been eliminated. Investments in affiliated companies(20% to 50% owned companies) are stated at cost plus equityin undistributed earnings; consolidated net income includesthe Company’s equity in the current net earnings of such com-panies after elimination of unrealized intercompany profits.
All of the Company’s foreign subsidiaries are consolidatedusing fiscal year-end March 31. In fiscal 2004, twenty-twosubsidiaries changed their fiscal year-end from December 31to March 31. The effect of this change was charged toretained earnings at April 1, 2003. In fiscal 2003, three sub-sidiaries changed their fiscal year-end from December 31 toMarch 31, as the adoption of the change at fiscal year-enddid not have a material impact on the consolidated financialstatements, the effect of this change was charged to income.
The difference between the cost and underlying net equityof investments in consolidated subsidiaries and companiesaccounted for under the equity method is deferred and amor-tized using the straight-line method over a period of 10 years.(3) Translation of foreign currenciesAll monetary assets and liabilities denominated in foreigncurrencies are translated into Japanese yen at the rates ofexchange prevailing at the balance sheet date. Resultingexchange gains or losses are credited or charged to incomeas incurred.
Income and expenses denominated in foreign currenciesare translated at rates of exchange prevailing at the time ofthe transactions.
In translating the financial statements of foreign sub-sidiaries and affiliates into Japanese yen, balance sheet itemsare translated at rates of exchange prevailing at their fiscalyear-end, except for shareholders’ equity, which is translatedat historical rates. Revenue and expense accounts are trans-lated at the average rates of exchange prevailing during theyear. Resulting differences are reflected as a separate compo-nent of shareholders’ equity as “Foreign currency translationadjustments.”(4) Cash and cash equivalents“Cash and cash equivalents” comprise cash and highly liquidinvestments, with an original maturity of three months orless, that are readily convertible to known amounts of cashand are so near maturity that they present insignificant riskof changes in value due to changes in interest rates.(5) Financial instruments(a) DerivativesAll derivatives are stated at fair value, with changes in fairvalue included in net profit or loss for the period in whichthe changes arise, except for derivatives that are designatedas “hedging instruments” (see (c) Hedge accounting below).(b) SecuritiesSecurities held by the Company and its subsidiaries are classi-fied into one of the following categories;— Securities held in trusts for trading purposes are stated atfair value, with changes in fair value included in net profit orloss in the period in which the changes arise. Securities heldin trusts for trading purposes are included in “Short-terminvestments” in the consolidated balance sheets.— Other securities for which market quotations are availableare stated at fair value. Net unrealized gains or losses onthese securities are reported as a separate item in sharehold-ers’ equity at a net-of-tax amount.— Other securities for which market quotations are unavail-able are stated at cost, except as stated in the paragraphbelow.
In cases where the fair value of other securities hasdeclined significantly and such impairment of value is notdeemed recoverable, they are written down to fair value andthe resulting losses are charged to income as incurred.
Securities held in trusts for trading purposes and debtsecurities due within one year are presented as “current” andall other securities are presented as “non-current.” (c) Hedge accounting
(i) Hedge accounting methodThe Accounting Standard for financial instruments allowstwo general accounting methods for hedging financialinstruments. One method is to recognize the changes infair value of a hedging instrument in earnings in theperiod of the change as a gain or loss, together with the
1. Significant Accounting Policies:
Fujisawa Pharmaceutical Company Limited and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
42
offsetting loss or gain on the hedged item attributable tothe risk being hedged. The other method is to defer thegain or loss over the period of the hedging contracttogether with deferral of the offsetting loss or gain on thehedged items. The Company adopts the latter accountingmethod principally, except that the former method isadopted where other securities are hedged items.(ii) Hedging instruments and hedged itemsHedging instruments: Derivative financial instrumentsHedged items: Assets and debts exposed to market fluctua-tion risks(iii) Hedging policyThe Company uses derivative financial instruments tohedge market fluctuation risks in accordance with itsinternal policies and procedures.(iv) Method of assessing hedge effectivenessFor the hedging activities to which the latter hedgeaccounting method in (i) above is adopted, the Companyevaluates the effectiveness of the hedging activities byreference to the accumulated gains or losses on the hedg-ing instruments and the related hedged items from thecommencement of the hedges. For the hedging activitiesto which the former hedge accounting method in (i) aboveis adopted, the Company evaluates the effectivenessthereof by reference to the respective fair value of thehedging instruments and the related hedged items on thebalance sheet dates.The Company and certain of its consolidated subsidiaries
have utilized interest rate swaps, foreign currency forwardcontract and foreign currency swaps to manage interest andcurrency risks.(6) InventoriesInventories are stated at cost, except for materials and mer-chandise of the Company and inventories of foreign consoli-dated subsidiaries, which are stated at the lower of cost ormarket value, cost being determined generally by the averagecost method.(7) Property, plant and equipment and depreciationProperty, plant and equipment are stated at cost. Depre-ciation of property, plant and equipment is principally com-puted by the declining-balance method at rates based on theestimated useful lives of the assets. For depreciation of build-ings acquired after April 1, 1998, Japanese income tax lawrequires use of the straight-line method. The declining-balance method is permitted for buildings acquired prior toApril 1, 1998.
Significant renovations and additions are capitalized atcost. Maintenance and repairs, including minor renovationsand betterments, are charged to income as incurred.(8) Goodwill and proprietary technologyGoodwill and proprietary technology principally represents thecost of rights for proprietary pharmaceutical products, which
Fujisawa Healthcare, Inc. acquired in the U.S., and are amor-tized by the straight-line method over a period of 20 years.(9) Accounting for leasesLease agreements which do not transfer ownership ofthe leased asset to the Company or its domestic subsidiaries atthe end of the lease term are accounted for as operating leases.(10) Accrued retirement benefits for employeesEmployees whose service with the Company or its domesticconsolidated subsidiaries is terminated are, in most circum-stances, entitled to a combination of lump-sum severanceindemnities and pension payments, determined by referenceto the current basic rate of pay, length of service and condi-tions under which the termination occurs.
Accrued retirement benefits for employees represent theestimated present value of projected benefit obligations inexcess of the fair value of plan assets except that the unrec-ognized prior service cost is amortized on a straight-line basisover the period of 10 years from the year in which it arises,and that the unrecognized actuarial gains or losses are amor-tized on a straight-line basis over the period of 10 years fromthe year following the year in which the gains or losses arise.
(Additional information)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 exemp-tion from the obligation for benefits related to futureemployee service under the substitutional portion of theWelfare 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 separa-tion of the substitutional portion of the benefit obligationfrom the corporate portion of the benefit obligation under itsWPFP as of the date of approval of its exemption, assumingthat the transfer to the Japanese government of the substitu-tional portion of the benefit obligation and related pensionplan assets had been completed as of that date. (See Note. 11)(11) Accrued severance indemnities for the directors and
corporate auditorsAccrued severance indemnities for the directors and corporateauditors of the Company are provided for based on internalregulations which are similar to those for employees. Theaccrued provision for severance indemnities of the directorsand corporate auditors is not funded. Payments of suchindemnities are subject to approval of shareholders.(12) Income taxesIncome taxes applicable to the Company and its subsidiariesin Japan include corporation tax, enterprise tax and inhabi-tants tax.
The income statements of the Company and its subsidiariesinclude many items for financial reporting purposes which, in
43
the case of expenses, are not currently deductible and, in thecase of income, are not currently taxable. With respectto such temporary differences, the Company and its sub-sidiaries follow the practice of inter-period tax allocationbased on the methods generally accepted in the respectivecountry where each entity is located.(13) Research and development expensesCosts relating to the research and development of new prod-ucts as well as product improvements are charged to incomeas incurred.(14) Use of estimatesThe preparation of financial statements in conformity withgenerally accepted accounting principles requires manage-ment to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the accompa-nying consolidated financial statements and the reportedamounts of revenues and expenses during the reportingperiod. Actual results could differ from those estimates.(15) Amounts per shareThe computation of net income per share is based on theweighted average number of common stock outstandingduring each year, exclusive of treasury stock.
The calculation of diluted net income per share includesthe dilutive effects of convertible bonds.
Effective from the year ended March 31, 2003, theCompany adopted the new Japanese Accounting Standard forEarnings Per Share.(16) ReclassificationsCertain reclassifications of previously reported amounts havebeen made to conform with current classifications.(17) New accounting standardAccounting standard for impairment of fixed assets —On August 9, 2002, the Business Accounting Council in Japanissued “Accounting Standard for Impairment of Fixed Assets.”The standard requires that fixed assets be reviewed forimpairment whenever events or changes in circumstancesindicate that the carrying amount of a group of assets maynot be recoverable. An impairment loss shall be recognized inthe income statement by reducing the carrying amount of agroup of assets to the recoverable amount to be measured asthe higher of net selling price or value in use.
The standard shall be effective for fiscal years beginningApril 1, 2005. However, an earlier adoption is permitted forfiscal years beginning April 1, 2004 and for fiscal years end-ing between March 31, 2004 and March 30, 2005. TheCompany has not yet applied this new standard nor hasdetermined the effect of applying it on the Company’s consolidated financial statements.
2. U.S. Dollar Amounts:The United States dollar amounts are included solely forconvenience and represent translations of Japanese yenamounts, as a matter of arithmetical computation only, atthe rate of ¥106=US$1, the approximate rate of exchange on
March 31, 2004. The translation should not be construed as arepresentation that Japanese yen amounts could be realizedor converted into United States dollars at the above or anyother rate.
Important non-cash transactions were as follows:
Thousands ofMillions of yen U.S. dollars
2004 2003 2002 2004
Convertible bonds:Increase of common stock by conversion of convertible bonds ............. ¥ 6 ¥1 ¥ 6,543 $ 57Increase of capital surplus by conversion of convertible bonds ............. 6 0 6,540 57
Decrease of convertible bonds by conversion .................................. ¥12 ¥1 ¥13,083 $114
3. Cash Flow Information:Cash payments for income taxes were ¥29,544 million($278,717 thousand), ¥24,063 million and ¥26,810 million forthe years ended March 31, 2004, 2003 and 2002, respectively;
in these respective periods, interest payments made in cashwere ¥457 million ($4,311 thousand), ¥641 million and¥1,304 million.
44
6. Property, Plant and Equipment:
Depreciation charges for the years ended March 31, 2004, 2003 and 2002 were ¥14,784 million ($139,472 thousand), ¥15,839million and ¥15,855 million, respectively. Property, plant and equipment at March 31, 2004 and 2003 comprised the following:
Thousands ofMillions of yen U.S. dollars
2004 2003 2004
Land ............................................................................................ ¥ 14,499 ¥ 14,780 $ 136,783Buildings ....................................................................................... 96,024 98,192 905,887Machinery and equipment ..................................................................... 133,600 148,921 1,260,378Construction in progress ....................................................................... 3,932 4,140 37,094
Total ....................................................................................... 248,055 266,033 2,340,142Less 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 buildingsand from 4 to 17 years (principally 7 years) for machinery and equipment.
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 ofMillions of yen U.S. dollars
2004 2003 2004Current Non-current Current Non-current Current Non-current
Cost ........................................................ ¥23,745 ¥68,356 ¥19,434 ¥51,940 $224,009 $644,868Gross unrealized gains (see Note 1-(5)-(b)) ............... 16 23,646 22 8,990 151 223,075Gross 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 ofMillions of yen U.S. dollars
2004 2003 2004
Finished products and merchandise ............................................................ ¥25,640 ¥24,452 $241,887Work in process ................................................................................. 11,934 12,252 112,585Materials and supplies .......................................................................... 12,197 13,573 115,066
Total ....................................................................................... ¥49,771 ¥50,277 $469,538
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7. Related Party Transactions:Significant account balances and transactions with affiliated companies were as follows:
Thousands ofMillions of yen U.S. dollars
2004 2003 2004
Account balances at March 31:Trade receivables ............................................................................... ¥1,007 ¥ 981 $ 9,500Prepaid expenses and other current assets .................................................... 3,338 3,526 31,491Trade payables ................................................................................. 3,937 3,621 37,142
Thousands ofMillions of yen U.S. dollars
2004 2003 2002 2004
Transactions for the year ended March 31:Net sales ...................................................................... ¥ 6,478 ¥ 5,892 ¥ 5,082 $ 61,113Purchases ..................................................................... 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% perannum.
Long-term debt at March 31, 2004 consisted of the following:
Thousands ofMillions of yen U.S. dollars
2004 2004
1.7% convertible bonds due 2004 .......................................................................... ¥11,440 $107,924Loans 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 9,924Loans from banks —
•payable in U.S. dollars with interest at LIBOR as adjusted in accordance with the agreements due 2004 to 2005 ............................................................... 845 7,972Total ................................................................................................... 15,537 146,575
Less: Current portion of long-term debt ................................................................. 14,062 132,660Total 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 ofYear ending March 31 Millions of yen U.S. dollars
2005 ........................................................................................................ ¥14,062 $132,6602006 ........................................................................................................ 1,475 13,9152007 ........................................................................................................ — —2008 ........................................................................................................ — —2009 ........................................................................................................ — —Thereafter .................................................................................................. — —
Total ................................................................................................... ¥15,537 $146,575
The 1.7% convertible bonds due 2004 were convertible intocommon stock at a conversion price of ¥1,837.70 ($17.3) pershare at March 31, 2004. The conversion prices are subject to
adjustments as provided in the related indentures. The convertible bonds have been redeemable at the Company’soption since October 1, 1997 as provided in the indentures.
46
10. Income Taxes:The Company and its consolidated subsidiaries are subject to a number of different income taxes which, in theaggregate, indicate a normal statutory tax rate of approxi-mately 42%. For the year beginning April 1, 2004, the statu-tory tax rate used for the calculation of deferred tax assetsand liabilities relating to temporary differences will changefrom 42% to 41% due to the revision of the Japanese localtax law, which was approved by the Japanese National Dieton March 31, 2003. The Company, therefore, adopted 41% asthe statutory tax rate to be applied to these temporarydifferences both as of March 31, 2003 and 2004 which are
expected to be dissolved on or after April 1, 2004. As aresult, net deferred tax assets decreased by ¥314 million andincome taxes increased by ¥410 million for the year endedMarch 31, 2003, respectively.
The ordinary relationship between income tax expenseand pretax accounting income is distorted by a number ofitems including various tax credits, permanent non-deductible expenses, operating losses incurred by certainconsolidated subsidiaries of the Company, and certainreduced tax rates.
At March 31, 2004 and 2003, the aggregate notional principal amounts and market values of the derivatives (except for those forwhich hedge accounting is adopted) held by the Company were as follows:
Millions of yen Thousands of U.S. dollarsNotional Net Notional Netprincipal 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 $1,981Purchase ¥ 524 ¥ 526 ¥ 2 $ 4,943 $ 4,962 $ 19
euroSell ¥2,510 ¥2,393 ¥117 $23,679 $22,575 $1,104
Millions of yenNotional Netprincipal Market unrealized
At March 31, 2003 Currency amounts value gains (losses)
Interest rate swaps ................. yen ¥3,000 ¥ (49) ¥(49)Foreign currency
forward contract .................. US$ ¥4,861 ¥4,913 ¥(52)euro ¥1,961 ¥1,985 ¥(24)
The Company (including certain of its consolidated subsidia-ries) uses derivative financial instruments (“derivatives”) toreduce its exposure to the adverse impact of fluctuations inforeign exchange rates and interest rates. The principalderivatives used by the Company are foreign exchange for-ward contracts, currency swaps, currency options and inter-est rate swaps.
The derivatives are subject to market risk and credit risk.Market risk means that gains or losses on the derivativescould result from fluctuations in foreign exchange rates and
interest rates. Gains or losses are, however, effectively offsetby gains and losses on the underlying assets and liabilitieswhich also result from fluctuations in foreign exchange ratesand interest rates.
Credit risk means that the Company is exposed to losseswhich could result from the default of counterparties. TheCompany believes, however, that risk of loss due to thedefault of the counterparties is extremely small because theCompany limits its dealings to financial institutions withhigher credit ratings.
9. Derivative Financial Instruments:
47
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 9 7Non-taxable income ................................................................................................ (0) (5) (0)Valuation allowance change....................................................................................... (1) (2) 2Deduction 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 1 1Equity 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) 2 1
Effective tax rate...................................................................................................... 40% 36% 44%
Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for income tax purposes. The tax effects of temporary differences that giverise to a significant portion of the deferred tax assets and liabilities at March 31, 2004 and 2003 were as follows:
Thousands ofMillions of yen U.S. dollars
2004 2003 2004
Deferred tax assets: Inventories.................................................................................. ¥ 8,725 ¥ 7,283 $ 82,311Accrued expenses .......................................................................... 7,549 10,040 71,217Deferred charges ........................................................................... 5,854 5,250 55,226Retirement benefits ........................................................................ 4,950 13,348 46,698Research and development expenses ...................................................... 3,183 2,718 30,028Loss on devaluation of investments in securities and other investments ................. 2,260 3,340 21,321Depreciation and amortization ............................................................. 1,333 976 12,576Net operating loss carryforwards .......................................................... 485 2,073 4,576Accrued enterprise tax ..................................................................... 164 956 1,547Other ....................................................................................... 2,315 2,696 21,840Total 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 recordedas 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.
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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 obligationRetirement benefit obligation................................................................ ¥(72,120) ¥(114,004) $(680,377)Fair value of pension plan assets............................................................. 41,536 44,512 391,849Unreserved retirement benefit obligation.................................................... (30,584) (69,492) (288,528)Unrecognized actuarial losses — net ........................................................ 12,029 27,495 113,481Unrecognized 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 costService cost .................................................................................. ¥ 5,072 ¥ 6,127 $ 47,849Interest cost ................................................................................. 2,636 2,687 24,868Expected return on pension plan assets ..................................................... (1,042) (1,237) (9,830)Amortization of actuarial gains and losses .................................................. 2,622 1,961 24,736Amortization of prior service cost ........................................................... 154 — 1,452Extra severance pay ......................................................................... 25 3,974 236Retirement 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 basisDiscount 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 yearsAmortization 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 andWelfare with respect to its application for exemption from the obligation for benefits related to future employee service underthe substitutional portion of the Welfare Pension Fund Plans (“WPFP”). In accordance with the transitional provision stipulatedin “Practical Guideline for Accounting for Retirement benefit,” the Company and those subsidiaries accounted for the separationof the substitutional portion of the benefit obligation from the corporate portion of the benefit obligation under its WPFP as ofthe date of approval of its exemption, assuming that the transfer to the Japanese government of the substitutional portion ofthe benefit obligation and related pension plan assets had been completed as of that date. As a result, the Company and thosesubsidiaries recognized a gain of ¥13,934 million ($131,453 thousand) in total for the year ended March 31, 2004. The pensionassets 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 ¥1,332million ($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 partof 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, 2004and 2003.
49
Thousands ofMillions of yen U.S. dollars
Cash dividends (¥13 ($0.123) per share)................................................................ ¥4,286 $40,434Bonuses to the directors and corporate auditors ....................................................... 47 443
¥4,333 $40,877
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.
13. Segment Information:
The Company and its consolidated subsidiaries are mainlyengaged in the pharmaceutical business, including ethicalpharmaceuticals and OTC drugs, which is shown as“Pharmaceuticals.” The rest of the Company’s business, whichis shown as “Others,” includes medical supplies and systems,home care business, and chemicals business. The Companyalso enhances its overseas businesses through its subsidiariesmainly in North America, Europe and Asia.
Certain segment information about the operations of theCompany and its consolidated subsidiaries in different geo-graphic areas and business segments are disclosed below.Intercompany sales between geographic areas and businesscategories are recorded at cost plus a mark-up. However,intercompany sales and profits are eliminated. Corporateassets are composed principally of cash and cash equivalents,marketable securities and short-term investments.
By business segment Millions of yen
Year ended March 31, 2004Eliminations
Pharmaceuticals Others Total or Corporate Consolidated
Net sales to unrelated entities .................................... ¥373,512 ¥21,889 ¥395,401 ¥ — ¥395,401Transfers between business segments ............................. 8 10,043 10,051 (10,051) —Total net sales ..................................................... 373,520 31,932 405,452 (10,051) 395,401Operating 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
12. Shareholders’ Equity:Pursuant to the Japanese Commercial Code (the “Code”), theissue (or conversion) price of shares is in principle requiredto be accounted for in its entirety in the common stockaccount, although a company’s board of directors mayauthorize recording no more than one-half of the issue(or conversion) price as capital surplus.
The Code provides that an amount equal to at least 10%of cash disbursements from retained earnings (dividendsand bonuses to the members of the board, etc.) be appropri-ated from retained earnings each period as a legal reserve.This reserve may be used to reduce a deficit or transferred tocommon stock by appropriate legal procedures.
Before September 30, 2001, no further appropriation wasrequired as a legal reserve when the legal reserve equaled25% of common stock. Effective October 1, 2001, the Codeprovides that no further appropriation is required as a legalreserve when the total amount of legal reserve and capitalsurplus equals 25% of common stock. However, on condition
that the total amount of legal reserve and capital surplusexceeds 25% of common stock, the excess amount can beavailable for distributions by the resolution of theshareholder’s meeting.
Legal reserve is included in retained earnings in theaccompanying consolidated financial statements. The legalreserve amounted to ¥6,465 million ($60,991 thousand) asof March 31, 2004.
In addition to the above, the Code provides that all appro-priations of retained earnings, except for interim cash divi-dends, be approved at an ordinary general meeting ofshareholders. This meeting is held within three monthsfollowing the close of the Company’s fiscal year endingMarch 31. The appropriations are not accrued in the financialstatements for the year to which they relate, but arerecorded in the subsequent fiscal year after shareholderapproval has been obtained.
50
By business segment Thousands of U.S. dollars
Year ended March 31, 2004Eliminations
Pharmaceuticals Others Total or Corporate Consolidated
Net sales to unrelated entities ......................................... $3,523,698 $206,500 $3,730,198 $ — $3,730,198Transfers 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) 3,195,264Operating 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, 2003Eliminations
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) 382,079Operating 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, 2002Eliminations
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) 341,356Operating 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, 2004North Eliminations
Japan America Europe Others Total or Corporate Consolidated
Net sales to unrelated entities ........................ ¥221,740 ¥108,436 ¥57,640 ¥7,585 ¥395,401 ¥ — ¥395,401Transfers 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) 395,401Operating expenses ..................................... 236,089 90,648 59,080 6,551 392,368 (53,670) 338,698Operating 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
51
By geographic area Thousands of U.S. dollars
Year ended March 31, 2004North 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 $ — $3,730,198Transfers 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) 3,730,198Operating expenses .................................. 2,227,255 855,170 557,358 61,802 3,701,585 (506,321) 3,195,264Operating 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, 2003North Eliminations
Japan America Europe Others Total or Corporate Consolidated
Net sales to unrelated entities ...................... ¥221,992 ¥102,525 ¥48,928 ¥8,634 ¥382,079 ¥ — ¥382,079Transfers 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) 382,079Operating 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, 2002North Eliminations
Japan America Europe Others Total or Corporate Consolidated
Net sales to unrelated entities ...................... ¥207,355 ¥89,470 ¥39,005 ¥5,526 ¥341,356 ¥ — ¥341,356Transfers 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) 341,356Operating 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 androyalty income from foreign third parties and the sales out-side Japan of foreign consolidated subsidiaries for the yearsended March 31, 2004, 2003 and 2002 amounted to ¥192,148
million ($1,812,717 thousand), ¥178,407 million and¥150,549 million, accounting for 48.6%, 46.7% and 44.1% ofconsolidated net sales, respectively.
14. Contingent Liabilities and Commitments:
Contingent liabilities of the Company and its consolidated subsidiaries at March 31, 2004 and 2003 were as follows:
Thousands ofMillions 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 10,189others ...................................................................................... 186 188 1,755
52
Lease commitments exclude finance lease contracts of the Company and its consolidated subsidiaries, under which the ownershipof 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 asfollows:
Thousands ofMillions of yen U.S. dollars
2004 2003 2004
Acquisition costMachinery and automobiles ................................................................ ¥1,604 ¥1,743 $15,132Others (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 ofMillions of yen U.S. dollars
2004 2003 2004
Within one year .............................................................................. ¥1,379 ¥1,348 $13,009Over 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 ofMillions of yen U.S. dollars
2004 2003 2002 2004
Lease expenses ............................................................................... ¥1,754 ¥1,781 ¥1,925 $16,547including:
Depreciation (assumed)..................................................................... 1,443 1,426 1,523 13,613Interest (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 forthe District of Massachusetts in December 2001, severalsubstantially identical purported class actions were filed inseveral courts in the U.S., against several companies includ-ing the Company, Fujisawa Healthcare, Inc., and FujisawaUSA, Inc., alleging that Fujisawa violated U.S. laws by inflating
the average wholesale price of its certain pharmaceuticalproducts and plaintiffs have been injured by having to payhigher premiums and co-payments under Medicare. Most ofthese cases have been consolidated into one multi-districtcase in Boston. We cannot determine the basis or possibledamages assessable against us, if, any, at this time.
53
16. Subsequent Events:At a meeting of the Board of Directors held on May 24,2004, the Company reached a definitive agreement upon theterms of the merger with Yamanouchi Pharmaceutical Co.,Ltd.
The Company and Yamanouchi Pharmaceutical Co., Ltd.(Yamanouchi) reached an agreement for merger scheduledwith effect on April 1, 2005 under the terms and conditionsof the Merger Agreement, in order to become a fully compet-itive company being able to succeed in the global market, byenhancing the core business platform of the ethical pharma-ceutical business.
Outline of the Merger Agreement1. Method of the Merger
Yamanouchi will survive and the Company will dissolve,for the purpose of legal proceedings.
2. Merger DateApril 1, 2005. However, such date may be changed uponconsultation between Yamanouchi and the Company, ifnecessity or any other event arises in light of the pro-ceeding of the merger procedures.
3. New Company NameAstellas Pharma Inc.
4. Allotment Rate of SharesShares will be issued at the rate of 0.71 shares ofYamanouchi common stock per share of the Companycommon stock held.
5. Distribution Money on MergerThe Combined Company shall pay ¥11 per share of theCompany as distribution money on merger instead ofpayment of dividend for the fiscal year ending March 31,2005 to the shareholders or registered pledgees of theCompany whose names will have been stated or recordedin the last register of shareholders of the Company on thedate immediately preceding the Merger Date. However,Yamanouchi and the Company may change such amountupon consultation with each other, in accordance withthe conditions of the assets and debts of the Company asof the date immediately preceding the Merger Date, andchanges in economic environment.
6. The summarized consolidated financial information ofYamanouchi Pharmaceutical Co., Limited for the year endedMarch 31, 2004, is as follows:
Millions ofBillions of yen U.S. dollars
Net sales ................................. ¥511.2 $4,823Net income ............................. 60.1 567Total assets ............................. 902.7 8,516Total liabilities ........................ 174.8 1,649Total shareholders’ equity......... 725.4 6,843
This merger agreement was approved at the annual generalmeeting of shareholders held on June 24, 2004.
54
To the Board of Directors and Shareholders ofFujisawa Pharmaceutical Company Limited
We have audited the accompanying consolidated balance sheets of Fujisawa Pharmaceutical CompanyLimited and its subsidiaries as of March 31, 2004 and 2003, and the related consolidated statements ofincome, 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 ofthe Company’s management. Our responsibility is to express an opinion on these consolidated financialstatements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether theconsolidated financial statements are free of material misstatement. An audit includes examining, on atest 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 bymanagement, as well as evaluating the overall consolidated financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all materialrespects, 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 cashflows for each of the three years in the period ended March 31, 2004 in conformity with accountingprinciples 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 definitiveagreement 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
Report of Independent Auditors
55
Management and Corporate Auditors
Corporate OfficersBoard of Directors
Akira FujiyamaChairman of the Board
Hatsuo Aoki, Ph. D.President and Chief Executive Officer
Koichi SejimaCorporate Executive Vice President andChief Administrative Officer
Masafumi NogimoriCorporate Executive Vice President, Global Strategy
Tomokichiro Fujisawa, Ph. D.Chairman Emeritus
Akiro KojimaMember of the Board (Senior Counselor, DaicelChemical Industries, Ltd.)
Kanji KobayashiMember of the Board (Senior Advisor, NipponLife Insurance Company)
Corporate Auditors
Tateo HoritaYoshiharu SenoueMasaya IshiiMasahiko Kinbara
(As of June 24, 2004)
Hatsuo Aoki, Ph. D.President and Chief Executive Officer
Koichi SejimaCorporate Executive Vice President and ChiefAdministrative Officer
Takeshi ShimomuraCorporate Executive Vice President, Sales & Marketing
Masafumi NogimoriCorporate Executive Vice President, Global Strategy
Hirofumi OnosakaCorporate Senior Vice President, Global Corporate Strategic Planning
Masao ShimizuCorporate Senior Vice President, Global Development
Naoki FujimotoCorporate Senior Vice President, Tokyo I Business Branch, Sales & Marketing
Takayoshi MukaidaCorporate Senior Vice President, External Relations
Hideo FukumotoCorporate Vice President, Chairman and ChiefExecutive Officer, Fujisawa Healthcare, Inc.
Hitoshi OhtaCorporate Vice President, Global Manufacturing
Toshio Goto, Ph. D.Corporate Vice President, Global Research
Masaji OheCorporate Vice President, OTC & Consumer Products
Osamu NagaiCorporate Vice President and Chief Financial Officer
Masaru ImahoriCorporate Vice President, Associate Executive Director, Sales & Marketing
Shinichi ShimizuCorporate Vice President, Home Care
Makoto NishimuraCorporate Vice President, Executive Vice President, Fujisawa Healthcare, Inc.
■ Fujisawa Pharmaceutical Co., Ltd.URL: http://www.fujisawa.co.jpOsaka Head Office4-7, Doshomachi 3-chome, Chuo-ku, Osaka 541-8514, JapanTel: +81-6-6202-1141Fax: +81-6-6206-7926■ International Licensees BusinessTel: +81-6-6206-7880 Fax: +81-6-6206-7928■ Medical Supplies & SystemsTel: +81-6-6206-7889 Fax: +81-6-6206-7934■ Home CareTel: +81-6-6241-6371Fax: +81-6-6241-6374
Kashima Office1-6, Kashima 2-chome, Yodogawa-ku, Osaka 532-8514, JapanTel: +81-6-6390-1111Fax: +81-6-6304-1192
Tokyo Head Office2-10, Nihonbashi-Honcho 2-chome, Chuo-ku, Tokyo 103-0023, JapanTel: +81-3-3279-0871Fax: +81-3-3241-0722■ OTCTel: +81-3-3279-0881 Fax: +81-3-3241-6385
Business BranchesSapporo, Sendai, Kan-etsu, Tokyo I, Tokyo II,Nagoya, Kyoto, Osaka, Takamatsu, Hiroshima,Fukuoka
PlantNagoya
■ Major Domestic SubsidiariesFujisawa Toyama Co., Ltd.Fujisawa Shizuoka Co., Ltd.Analytical Science Laboratories Inc.Fujisawa Technical Services Co., Ltd.Fujisawa Clinical Supply Co., Ltd.FMS Co., Ltd.Fujisawa Distribution Service Co., Ltd.Hoshienu Pharmaceutical Co., Ltd.Fujisawa Home Care Co., Ltd.
Corporate Directory
Japan
(As of July 1, 2004)
56
Overseas
■ North AmericaFujisawa Healthcare, Inc.URL: http://www.fujisawa.comThree Parkway North, Deerfield, IL 60015, U.S.A.Tel: +1-847-317-8800Fax: +1-847-317-7296
Fujisawa Canada, Inc.625 Cochrane Drive, Suite 1000,Markham, Ontario L3R 9R9, CanadaTel: +1-905-470-7990Fax: +1-905-470-7799
Fujisawa Research Institute of America, Inc.Northwestern University/Evanston Research Park1801 Maple Avenue, Evanston,IL 60201-3135, U.S.A.Tel: +1-847-467-4470Fax: +1-847-467-4471
■ EuropeFujisawa Holland B.V.De Molen 243994 DB Houten, The NetherlandsTel: +31-30-634-6000Fax: +31-30-634-6001
Fujisawa GmbHURL: http://www.fujisawaeurope.comNeumarkter Strasse 61, 81673 Munich, GermanyTel: +49-89-45-44-06Fax: +49-89-45-44-21-20
Fujisawa Ireland LimitedKillorglin, Co. Kerry,Republic of IrelandTel: +353-66-9761029Fax: +353-66-9761037
Fujisawa Ltd.62 London RoadStainesMiddlesex, TW18 4HB, U.K.Tel: +44-1784-2275-00Fax: +44-1784-2275-01
Fujisawa SARL13, Avenue Gabriel78170 La Celle Saint Cloud, FranceTel: +33-1-30-08-42-00Fax: +33-1-30-08-42-30
Fujisawa SRLCorso di Porta Romana, 6820122 Milan, ItalyTel: +39-02-58-20-81Fax: +39-02-58-20-89-01
Fujisawa SAEdificio Gorbea IVAv. Bruselas, 20 - 1a planta28108 Alcobendas (Madrid), SpainTel: +34-91-490-28-10Fax: +34-91-484-15-57
Fujisawa Scandinavia ABHaraldsgatan 5413 14 Gothenburg, SwedenTel: +46-31-741-61-60Fax: +46-31-711-07-57
Fujisawa Deutschland GmbHBerg-am-Laim-Strasse 129,81673 Munich, GermanyTel: +49-89-4544-01Fax: +49-89-4544-13-29
Fujisawa Ges.m.b.H.Linzer Strasse 221-E021140 Vienna, AustriaTel: +43-1-877-26-68-0Fax: +43-1-877-16-36
Fujisawa AGGrindelstrasse 68304 Wallisellen, SwitzerlandTel: +41-43-233-60-33Fax: +41-43-233-60-30
◆ Fujisawa PharmaBranch of Fujisawa GmbHKilcarberry Business Park25 The CourtyardClondalkinDublin 22, IrelandTel: +353-1-467-15-55Fax: +353-1-467-15-50
Offices in:Belgium, Portugal, Denmark, Finland, Norway, Poland, Czech Republic, Hungary
■ AsiaFujisawa Greater China Group Limited#708-09, 7th Floor,Prudential Tower,The Gateway, Harbour City,Kowloon, Hong Kong
Fujisawa Pharmaceuticals (China) CompanyLimited#708-09, 7th Floor,Prudential Tower,The Gateway, Harbour City,Kowloon, Hong KongTel.: +852-2377-9801Fax: +852-2856-1440
Fujisawa Taiwan Co., Ltd.URL: http://www.fujisawa.com.tw3rd Floor, No. 325, Sec. 1,Tun Hwa South Road,Taipei 106, TaiwanTel: +886-22-709-1980Fax: +886-22-700-1330
Fujisawa Korea LimitedURL: http://www.fujisawa.co.kr10F. Haesung No. 1 Bldg., 942, Daechi-3 dong, Kangnam-ku, Seoul, 135-725, Republic of KoreaTel: +82-2-564-3180Fax: +82-2-564-3421
Offices in:Beijing, Shanghai, Guangzhou
57
Investor Information
Founded:January 1894
Date of Incorporation:December 20, 1930
Paid-in Capital:¥38,594 million
Number of Shareholders:21,925
Issued and Outstanding Number of Shares:330,190,106
Principal Shareholders :Japan Trustee Services Bank, Ltd. (Trust Account)The Master Trust Bank of Japan, Ltd. (Trust Account)Nippon Life Insurance Co.The Chase Manhattan Bank, NA, London (SL Omnibus Account)UFJ Bank Limited Daido Life Insurance CompanyNIPPONKOA Insurance Company, Limited The Bank of New York, Treaty JASDEC AccountThe Master Trust Bank of Japan, Ltd. (Pension Trust Account forUFJ Trust Bank Limited)State Street Bank & Trust Co.
Independent Certified Public Accountants:ChuoAoyama PricewaterhouseCoopers Nakanoshima Mitsui Bldg.,16th Floor 3-3-3, Nakanoshima,Kita-Ku, Osaka 530-8248, Japan
Stock Exchange Listing:Tokyo, Osaka, Nagoya
Transfer Agent:UFJ Trust Bank Limited 6-3, Fushimi-machi 3-chome, Chuo-ku, Osaka 541-8502, Japan
(%)
Domestic Financial institutions 0.75
Domestic Securities Companies 0.16
Other Domestic Corporations 1.37
Foreign Corporations 2.05
Individuals and Other 95.67
(%)
Domestic Financial institutions 53.94
Domestic Securities Companies 0.97
Other Domestic Corporations 3.33
Foreign Corporations 31.52
Individuals and Other 10.24
Number of Shares Held by Type of Shareholder
Share Distribution
Types of Shareholders
00 01 02 03 04
Share price(yen)
Share price(yen)
Transaction volume(thousand shares)
Fujisawa stock
Nikkei Average
0
10,000
20,000
30,000
40,000
0
1,000
2,000
3,000
4,000
5,000
0
5,000
10,000
15,000
20,000
Fujisawa’s share prices and trading volumes on the Tokyo Stock Exchange
(As of March 31, 2004)
58
Brief History Founded in 1894 in Osaka, Japan, Fujisawa is making steadyprogress with the globalization of its business. Fujisawa isactive in the world’s major pharmaceutical markets of NorthAmerica, Europe and Asia through its subsidiary companies.
1894Tomokichi Fujisawa opens a smallmedicine store in Doshomachi,Osaka, which will later grow intoFujisawa Pharmaceutical Co., Ltd.
1905T. Fujisawa constructs the TenrokuPlant, a factory to produce FujisawaCamphor and other products.
1930Construction of the Kashima Plant(the present Osaka Plant) is completed.
1943Fujisawa Pharmaceutical Co., Ltd.is incorporated.
1961The new head office building is con-structed in Osaka.
1962Fujisawa Pharmaceutical Co.,(Taiwan) Ltd. (now Fujisawa TaiwanCo., Ltd.) is established.
1964The Central Research Laboratoriesare constructed in the KashimaR&D complex.
1971Cefamezin®, the first parenteralcephalosporin antibiotic developedin Japan, is launched in Japan.
1977Fujisawa Pharmaceutical Corporation,the first business base in the US, isestablished in New York.
1983Fujisawa acquires a minority stakein Klinge Pharma GmbH ofGermany, which will become amajority-owned company in 1988.
1989Fujisawa Korea Limited is established.
1990Fujisawa’s pharmaceutical opera-tions in the US are integrated intonewly established Fujisawa USA,Inc., following the total acquisi-tion of Lyphomed, Inc., in whichFujisawa has made a series ofequity investments since 1985.
1991Fujisawa GmbH is established inGermany as the European headquar-ters for developing and marketingPrograf®.Fujisawa Canada, Inc. is established.
1993The immunosuppressant Prograf® islaunched in Japan.
59
1994Prograf® is launched in the US andthe UK.
1996Fujisawa Research Institute ofAmerica, Inc. is established.
1998The US operations are restructuredand newly-established FujisawaHealthcare, Inc. is put in charge ofpursuing the Company’s proprietarypharmaceutical business in the US.
1999Protopic®for the treatment of atopicdermatitis is launched in Japan.
2001Protopic®is launched in the US.Fujisawa GmbH is positioned as theEuropean headquarters of Fujisawa
and a parent company of marketingsubsidiaries in Europe.
2002Protopic® is launched in Europe andAsia.The candin antifungal agentFunguard® is launched in Japan.
Fujisawa GmbH acquires the remain-ing minority stake at Klinge whichis renamed as Fujisawa DeutschlandGmbH.
2003The Global Headquarters, a newglobal management system, isestablished as a virtual organiza-tion, and measures are taken toreinforce the Japanese business.
2004Operations in China, Hong Kong andTaiwan are reorganized.
Merger with Yamanouchi PharmaceuticalCo., Ltd. is announced.
Y M C B04.07/藤沢薬品 AR 04 表1-4
C4 C1
FUJISAW
A PH
ARM
ACEUTICA
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ANNU
AL REPORT 2004
Printed on recycled paper in Japan
ANNUAL REPORT 2004
FUJISAW
A PH
ARM
ACEUTICA
L COMPA
NY LIMITED
ANNUA
L REPORT 2004